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LD’s Dollars and Sense “Central Station”

By Larry Doyle on December 27, 2008 at 2:50 AM in American Consumers, Auto Industry, Banking Institutions, Barack Obama, Current Affairs, Economic Stimulus, Economy, Hedge Funds, Home Loan, Housing & Housing Crisis, Obama Administration, Obama's Cabinet

(bumped up from Friday afternoon by Susan – GO, LD!)

monte-carlo_train_station-f In the spirit of traveling to be with loved ones for the holidays, I thought it may be appropriate to launch our second trip from LD’s Dollars and Sense “Central Station.”

Our maiden voyage on December 19th was, from all reports, a resounding success.

We took in a variety of sights along the way in terms of views of Wall St., portfolio management, fiscal discipline, and the like.

If you care to come along for the ride, and if you have financial issues or questions from a macro- or micro-level pertaining to Wall Street or Main Street, then please do not be bashful to ask me anything.

I will not be bashful in providing honest opinions. I welcome others’ insights as well.

Aaaaaaaall Aboard!!

andrew191

With respect to the current economic nightmare, and the stagnant market, do you think that privatising a portion of our social security at this point would increase the eventual return, say ten years from now?

LD

Andrew191….I know that Bush and team have been skewered for promoting the concept of allowing individuals to manage their Social Security accounts. I actually like that idea based upon the premise that individuals become more educated as to the economy and investing.

Perhaps allowing individuals the option of privately managing the account is an idea worth pursuing.

That said, I do not think that is your question. I am guessing that you are inquiring about “privatizing the system as a whole” with separate management. I am all for this so that private enterprise can be employed to manage the business. In so doing, I would believe that a private manager could develop a

1. dynamic asset-liability match
2. employ a wide array of intelligent managers who could develop robust models
3. develop a more efficient process…

Social security is a massive ongoing problem for the government. There may likely have to be changes implemented in age of distribution, cutoff for eligibility (based on net worth), et al.

I think privatizing this entire effort is an idea well worth exploring.

andrew191

Exellent answer LD! Thankyou. I also think there may be benifits on the other side of the equation. Moving funds from the social security “Lock box” and letting them go to work in the free market would likely stimulate the ecconomy more than government bailouts. Isn’t that possible?

LD

I like that idea as well but again I think we run the risk of “privatizing profit” and “socialing loss”.

Who determines how the funds are utilized? Is the process robust and transparent? If the government manages the process the confidence level about a judicious allocation of capital is low.

Money is “fungible” (meaning a dollar from one source is equally as valuable as from another source) so it should not matter whether it is allocated from a bailout package vs a social security fund.

Ultimately all of the borrowed money needs to be accounted for and financed.

andrew191

That makes cents.

Linda C.

The social security taxes we are are not for us. They are paying for the people who have already retired. Thus to create social security system like your 401K’s (that have been doing so well lately) would require money to bridge to benefit paid to current beneficiaries.

The federal pensions system is in the market already. I think the using your social security tax to stimulate the economy is a bad idea. The market sharks will ensure they make a profit, telling you everything is rosy while the market tanks. No different that what has been happening now with the talking head yahoos only on a grander scale.

LD

Linda C.

In regard to the pensions, our pensions are guaranteed through an entity called the PBGC (Pension Benefit Guaranty Corporation). This organization has a growing mismatch in its assets vs liabilities. At its fiscal year end that mismatch was in the vicinity of $12bln but with the selloff in the markets it is now likely in the vicinity of $20bln. Not unlike the social security system, the pension fund has a very good idea as to its liabilities, but trying to fund those liabilities is the real challenge. Merely using fixed rate bonds will likely never get that gap covered thus the PBGC has to mix in some equity exposure as well. While equities over time have outperformed bonds there are periods like now where that is not the case. Additionally the equity exposure brings an increased degree of volatility into the equation.

What bears watching in the auto situation is how the guarantees made to the employees and retirees especially as those could swamp the PBGC.

Thanks for your insights.

getfitnow

Where is the money coming from for Obama’s stimulus package?

LD

Ultimately it is coming from future generations given the ballooning deficit.

In the short term, our government debt is funded by an increasing percentage of foreign investors (app 35%).

Given the expected stimulus package of $800bln +/- on top of the massive outlays for all of the bailouts, our debt vs GDP is exploding. If we knew that we could finance that debt at current rates (0 to 3% across the maturity curve of 1mo to 30yrs) then we may be OK.

The Fed and Treasury are trying to walk a very narrow balance beam in providing massive liquidity to reflate our economy while thinking that they can be nimble enough to turn the spigot off if and when inflation starts to develop.

More and more market professionals believe that the U.S. dollar will weaken vs the Japanese yen and Chinese yuan, and that we run the risk that they slow their purchases of our debt. In the process of that happening our government rates are very likely to ratchet higher.

In summary, the price for these bailouts and stimulus package may actually be greater than initially proposed.

How do we avoid that escalating cost? Get our personal balance sheets, our corporate balance sheets, and our nation’s balance sheets into better shape. Retire debt, increase savings, limit spending, et al. These moves do not happen overnight but as a nation it is the only way to finance ourselves and promote healthy long term growth for future generations.

Thanks for a question that we should all address.

Lizzy

Neither the Federal Government nor the financial managers have much credibility to manage things at the moment.The ignorance and corruption are staggering.

LD

Lizzy,

I do not disagree about the governments ability to manage finances. There are also a number of private managers who are equally bad. However, there are also a number of private managers who are truly outstanding. I know some personally and others by reputation.

Two maangers who come to mind are Bob Rodriguez of First Pacific Advisors and Jeff Gundlach of Trust Company of the West. Their track records over a long period are tremendous and their visions on the market are equally strong. In fact, they were two of a group of four finalists for best manager of the year.

I understand and share your feelings about the general feelings toward Wall St. in this fiasco. In the midst of that, though, there are some gems that we will try to highlight for you and others here at NQ.

NoTrollZone

LD,
If you had 70k in cash, what would you do with it?
With the economy looking so dire, I’m assuming it’s only a matter of time before they inject a boost into the money flow and inflation hits. Therefore, if you had a substantial piece of cash like 70k, what would you do with it? Would you keep it as cash, put it in a money market account, find a real estate investment (deals to be had due to miserable market)? Is it time to spend those dollars before the dollar itself is worth a lot less due to inflation?

LD

NTZ,

Great question.

First adn foremost, I would make a sheet detailing my entire financial picture/portfolio.

I think the proper heading would include:

Assets: Equities, (what types)
Bonds (what types)
Real Estate (what types, owner occupied, investor properties)
Cash (in what form, e.g cash value in insurance, savings deposits, checking, money mkt funds)

Liabilities: short term (credit card charges)
longer term (education bills, mortgage)

Review your portfolio by percentages.

Review your risk tolerance and incorporate your age and employment situation into this equation.

Having doen all this if you feel that you have things in proper order and with proper weightings and now you feel like you have 70k in “excess cash” that you would liek to allocate to an investment, my personal feeling is as follows:

1. real estate is going to get cheaper…
2. bonds are too cheap vs stocks so bonds will either increase in value or stocks will decrease or a combination of the two. Thus, I would allocate it across a few different bond funds including a 1. municipal fund and a high grade fund. The individual named above, Jeff Gundlach has an outstanding long term track record at Trust Company of the West.

Utilize dollar cost averaging over a short term period. Are you familiar with that concept? Basically put in fixed dollar amounts over a number of months vs just buying in one shot. You are ner fully right or wromg.

Do your homework on a fund prior to investing!!

Hope this helps.

NoTrollZone

Thanks for the info, LD. Appreciate (ha) it.

eurogirl70

With all due respect, exactly where has “privatization” gotten us with the financial debacle we currently find ourselves in?

Privatization without oversight, regulation and quick decisive punitive damages in cases of corporate malfeasance is a recipe for disaster.

Imagine if George W. Bush had gotten his way and American’s had been able to take all of their retirement benefits out of Social Security and invest it on their own? How many well-heeled investors gotten taken for billions by the likes of Bernie Madoff? How many so-called private industries have come before the Federal Government, hats-in-hand, looking for what amounts to corporate welfare all the while giving themselves bonus monies for services “not rendered” to their investors, share-holders, or their employees?

I’m sorry but I am a Kenysian when it comes to the economy and I do believe that government has a part to play in the direction of industry. The rules that protected individuals from robber baron greed were dismantled during the Reagan era.

Want to know how we got to where we are today? By turning our back on the New Deal policies and turning instead to the Gordon Gecko ethos of “greed is good”.

How is that old Alan Greenspan “Ayn Rand” philosophy working out for everyone?

Winston

Imagine if George W. Bush had gotten his way and American’s had been able to take all of their retirement benefits out of Social Security and invest it on their own?

Are you kidding me? You are disingenuously cherry picking your data. There is no question that most Americans would be better off investing on their own with their SS benefits. Stop spinning and get real. You have an agenda.

NoTrollZone

Jeez, how in the world was eurogirl spinning or having an agenda? What a strange response to her
opinion.
I agree with her, and I don’t have an agenda other than wishing that social security be a program that is there for people as they need it.
fiscalliberal

Wow – right out of the right wing playbook from rich people.

Talk to all the people who were invested recently in the stock market and saw their savings evaporate. I got out two years ago and had a little left in and lost 30% of that. So this whole idea of investing in the stock is frought with traps.

Sorry – wait a couple of years when the financial syatem is repaired and stabilized. We are still not out of the woods with this George Bush and Alan Greenspan mess.

LD

Fiscal…I always appreciate your insights. I do think that it may be beneficial if people viewed their SS holdings in the context of an overall financial situation. Obviously as people approach retirementthen those holdings should be increasingly more conservatively managed.

Getting to that point requires a people to have general understanding of financial management. Some people are fully capable and some clearly are not.

fiscalliberal

“Getting to that point requires a people to have general understanding of financial management. Some people are fully capable and some clearly are not”.

Bingo – tht is the real problem. I would guess that at best 20% of the people have good insight in the gotal picture.

A large part of the population has troublewith Math and literacy. So Social Security is the base.

LD

Once again, we are in agreement. Perhaps I am guilty of trying to create a better mousetrap.

That said, I do hope that our dialogue ehre at NQ brings a greater sense of financial understanding and comfort for all.

Debates like this are very healthy!!

eurogirl70

and as for your namesake there dear Winston….

you forget that in times of war, all countries have nationalized industry.
They did it here in the United States as well as the United Kingdom.

During the Roosevelt years, there was very little corporate corruption because there were so many stringent regulations put into place.

You also seem to forget that during the Eisenhower years the top 1% were paying taxes at a 90% rate. Yet, while we did not have the robber baron wealth of the “Gilded Age” we also had a period that produced the least amount of discrepancy between rich and poor. The 50′s saw a true middle class base that could buy homes, and cars, and put money aside for education and still have a nest egg to retire on. It was from that period, people had pensions and were not left to the whim of the markets.

We were told by corporations after the book cooking over a Enron and MCI Worldcom that corporations would be providing more oversight; that they (corporations) were in the best possible position to regulate themselves. That is why brokerage houses were pimping stock in companies they knew were crap while at the same time seeking lucrative work with said companies.

Spare me the childish 2-dimensional perspective that you are hell bent on passing off as wisdom!

Winston

I forgot to mention, your name “eurogirl” gives you away.

Also government melding created this crisis. The government intervened and altered the free market. CRA was not a free market privatization effort. Neither was fanny and Freddy.

LD

Winston,

Privatizing profit and socializing loss obviously is an equation that does not work. We have certainly learned that lesson.

We have also learned that we need more aggressive oversight along with a regulatory process that functions in order to protect the capitalist system from those who would abuse it.
eurogirl70

Winston

I happen to have been born and raised right here in the good old United States of America

My Dad’s father was an immigrant coal miner in Homer City, PA.
My mother comes from a long line of cowboys and ranchers in Colorado.

Spare me your indignation….

And by the way, although I have traveled, I am a proud American citizen who wants us to realize our potential!!

I have been a life-long Democrat and voted for John McCain this past election cycle.

Take your nastiness and stick it!!

andrew191

“How is that old Alan Greenspan “Ayn Rand” philosophy working out for everyone?”

The philosophy of Ayn Rand has yet to be tried. She advocated capitalism, that’s not what we have. We currently have a “mixed” economy, it’s a mixture of free market capitalism and stateism (government involvement). It’s a detailed argument that supports and describes the benifits of true capitalism, Ayn Rand is infinitly better than I am to present it. For pure academic enrichment try reading “Capitalism, The Unknown Ideal” by her. It opened my eyes in many respects. Happy New Year!
LD

Euro…I guess I am a Keynsian too because there is little doubt that government has to have a role.

A robust regulatory process needs to be part of the equation.

This situaiton can not and shoudl not be an all or none, black and white sort of scenario.

As I alluded to in my answer I think that it may be beneficial to allow people the option of managing their social security. If all of the proper measures are executed so that those who are unfamiliar with investing do not improperly speculate then I think the benefits can exceed the expenses.

The lessosn learned from this era will not be properly learned if the reaction is excessive regulation is enacted which inhibits growth.

We need balance and diversity in the process.

Thanks for adding to the discussion and debate.

NoTrollZone

Social security was created by the government and has always been administered by the government.
It has been a success so far. People are always saying that it will collapse. But so far it hasn’t.
The problem is that the government keeps raiding
its pool for other purposes.

http://firefox AnnieCollier

Agreed. I don’t trust anyone on Wall Street with my SS benefits…not even 1%. What SS needs is a real “lock box” that is actually locked away from the meddlesome politicians. Insofar as the fund managers and their ethics, credibility, high standing? Didn’t Mr. Madoff have that rating not so long ago? Sorry guys and gals…SS would be just too tempting to them. They were really salivating and licking their chops when Bush tried to convince everyone about privatizing SS before. The American people knew it was wrong.

LD

Anne,

Very good point. For an individual such as you you should be entitled to have your account managed by and through the government. I personally would welcome the oppotunity to manage my SS holdings myself. I would take responsibility for my management with the risks and rewards.

http://firefox AnnieCollier

LD, yes I am conservative and SS has been fine for me. I do continue to work and get a boost in benes from my further contributions every year or so. So far as my own investments, I stayed away from the disaster Merrill Lynch organized for me 10 years ago and now put my money in staggered CD’s. Merrill Lynch 0; Annie +++++. Slow and steady works well and I’m not gearing toward assessing a fortune but living well with dignity.

Not saying that this applies to the “yute” today, but greed doesn’t work for me. One family member finally recovered his losses from the Dot Bomb after 2 or 3 years. Waiting to hear how he dealt with this one as he always invests in the market; however I believe he felt he had to put a % into CD’s too. 5% looked good mid-year…considering.

LD

Annie,

Thanks for sharing this color. I do think there is a real lesson in your piece for all of us. That lesson centers on regular fiscal discipline being the core for long term success. That approach runs counter to a lot of what is promoted in our society and on Wall Street.

You are to be commended.

I hope that others pick up on that. I personally am trying to get people to understand risk, of all types, and then how to properly manage it.

Your sharing your perspective truly helps this entire dialogue and process.

You seem to be winning the game and that is a good thing. Congrats…and Happy New Year!!

http://firefox AnnieCollier

LD, There has never been a plan put forth that would allow you to invest 100% of SS in another fund. Only a small percentage. Someone may know for sure but I thought the suggestion from the Bushies was that you could volunteer to have 3% of your SS deduction (not gross income) invested in a separate government managed fund. I don’t think it was to be doled out to play the market.

LD

Annie,

I was extrapolating the privatization concept to the extreme. My answer was ultimately more theoretical than practical.

http://firefox AnnieCollier

understood.

fiscalliberal

eurogirl70 – good perspective

We need to remember that the Social Security Trustee’s report says that social security is solvent untill 2042 which is a long way off. The stock market and George Bush hasve been misrepresenting that situation. Medicare is a real problem. The only fix there is to start incrementally charging the recipients more to give them more visability to te rising costs of health care.

I veiw retirment as three legged financial stool. Social Security provides a subsistance level, but one needs a lot more to live comfortabley. I am 66 and our experience is that our additional savings and investment in the stock market along with my company pensions are all needed to sustain my level of living. We had liquidated all but about 20% of the stock two years ago and have lost substantial sums of the 20%, thanks to George Bush and Alan Greenspan and their unchecked free market system

Medical would be a serious problem with out Medicare. Some how we have got to get on top of it as it only has three years of solvency. Barack says help is on the way. He put Tom Daschold in charge of that. Not really confident in his capabilities. He is just another Washington insider.

LD has a possible point if there were not greed and business cycles. However, history does not speak well in terms of eliminating greed and crooks like Madow.

LD

Fiscal…This color brings so much to our discussion and I sincerely appreciate your sharing it.

The quesiton before the court is how do we generate he benefits of the free market capitalistic system while making sure we have the proper regulatory structure in place to eliminate abuses.

NoTrollZone

I’m no expert on social security. I know a little and just conjecture the rest.. but: as it stands now people can rely on a stated return in social security. The government guarantees it. If the program were to be privatized, what would have happened to those people who invested their money in the stock market in this atmosphere? They would have most likely been cleaned out. This is the money that is to guarantee a base level of existence for our senior citizens and those who are disabled.
If they lose their money due to poor investments–
or say a bad money market manager– then they become further dependent on the state. We still have to find a way to take care of these people in that event. So it seems that social security is an extremely important system and one that is upholding its mandate so far. Why mess with it?

wodiej

I agree. While some of us may be able to manage our own just fine or even better, many wouldn’t. We would still need to take care of them regardless if they lost their investments. Leave it alone. Wall St. would love to get ahold of it though I’m sure.

http://firefox AnnieCollier

And, Wall Street wants the fees that would be attached to “managing” these funds. I do remember there were estimates given when this was up for discussion previously and they were enormous. No, no, no.

NoTrollZone

Good point Annie,
and then of course they’d pull that old gem of an argument that they have to pay the big bucks to get the best people. And then we’d have to make sure they got bonuses and golden parachuettes…..and…and… ah, hell no!

http://firefox AnnieCollier

Yes. There’s nothing that says you can’t have the entire SS put aside and for those who wish, they can invest another 1% or 5% in a fund of their own choosing. For anyone who doesn’t have the ability to know what to do, we need the safety net of SS to cover them.

I just don’t believe Wall Street is geared toward the small investor. I kick myself when I think that I sold Apple stock I had bought at $15/share for only slightly more…I knew better, having had experience with many aspects of the Apple brand but let the broker influence me…you think you are nuts and they know something you don’t. Mostly WRONG!

LD

Annie,

Your comment here about distrust resonates and is the primary reason for my wanting to elevate the discourse and dialogue here at NQ. Nobody is trying to sell anything.

Your insights are appreciated. Please keep sharing.

LD

Also a very valid point in the process.

fiscalliberal

These are the numbers from the 2007 Trustee’s Report

First Year outgo exceeds income excluding interest – 2017

First Year outgo exceeds income including interest – 2027

Year Trust Fund assets are exhausted – 2041

Recall the Federal Goverernment has been borrowing from the Trustee Fund. They have to start paying back after 2027. That is when the cheese gets binding.

So the claim that the Social Security Fund is in trouble is without merit.
wodiej

I have a question. I have a sizeable amount of money in my 401k but have lost $4k already in the last few months. Should I move what I have into something safer or leave it where it is? I have it spread out in things such as the Dodge and Cox fund, Europacific funds and the Nasdaq.

LD

Wodiej,

I do nto want to create more work for but I always think of retirement holdings in the context of an overall financial portfolio/situation.

I would encourage you to utilize the same process that I laid out for our friend NoTrollZone earlier in this thread.

I am not a market timer or so smart as to tell you where the market is going to be in 1 month, 6 months, or 12 months.

I do ahve views on those but eevrybody’s situation is different. Assess your situation from the top down as I highlighted previously then determine what is right for you from a risk/reward perspective.

Not trying to be evasive but I believe it is important to focus on the big picture and then work towards the finer points.

Having done that you are apt to maek a more thoughtful decision in regard to these funds bugt also make more thoughtful decisions on a going forward basis.

Hope this helps.

p.s. You can also take advantage of my thoughts on the relative merits of bonds vs stocks over the next year.

wodiej

ok, well I am not that savvy on the technological terms used in investing. I will say that I based my investing on the returns of the last 5 years. They have all done excellent. Based on what you have said, I will stay put. I am at least 20 years from retirement and have time for that money to grow. I have not lost any more since losing the $4k. thank you!

fiscalliberal

LD – Could I suggest the minimum position anybody can have is a liquid savings for 6 months of living in case they loose thier jobs.

That way they do not have to go into debt or withdraw from their 401′s which is really a bad idea.

Also – they can wait for a couple of job offers to pick the one best for themselves.

LD

Great ideas….we have to get you to Washington!!

LD

To all who participated in this Social Security debate, I thank you. I found it to be enlightening and informative. I certainly will never pretend to have all the answers but I will try to promote cosntructive dialogue as we just had.

For me, I gathered perhaps not too surprisingly a healthy level of distrust in the overall financial process throughout our system.

Given all that has transpired both on Wall St. and off these feelings are to be expected.

I do hope and believe that the dialogue here at NQ can enlighten all of us.
Always Learning

LD,

Can you highlight what you think about the different sectors of the market (i.e. stocks, bonds, real estate) for 2009?

Thanks very much.

LD

Always Learning,

Without going into too much depth and taking too much time let me offer the following points:

1. residential real estate: at the current pace of new houisng starts we still have app 11 months worth of new homes currently on the market. That point along with the likelihood that more homes will very likely enter foreclosure due to rising unemployment indicates to me that housing in general will still decline in value. What will support housing prices? 30yr mortgage rates are currently right at 5% and will likely trend lower as the Federal Reserve enters the secondary market and buys up agency mortgage securities. As the mortgage rate moves lower, housing obviously will benefit. Tally it up, I think housing still gets cheaper.

Commercial vacancies will likely continue to increase as well. The commercial real estate business will be going hat in hand to Washington for a piece of the TARP in January. They want $200bln to refinance debt that the banks currently are indicating that they will be reluctant to refinance. Whether they get those funds or not, commercial space will likely cheapen as well.

2. Stocks: in general I think that overall equity markets will trend slightly lower in 2009. We may very well see a rally during the inaugural process but I still see hurdles on the horizon including:
–deleveraging in the hedge fund world with an increasing number of funds ultimately going out of business..( I also think that we wil see some insurance companies which have excessive exposure to derivatives markets, a la AIG, be taken over.)
–earnings declining as unemployment increases…
In summary, I think you can be patient before adding to equity exposures. I do think that we will test the 7000 level on the Dow which would be a retest of that level last seen in 2003. We got to 7500 or thereabouts on Novemerb 20th ( I believe that was the date).

Bonds: for the first half of the year government rates and mortgage rates will stay low as the Fed and Treasury will be buying these sectors in SIZE.
Ultimately, though, I think that dollar weakness will lead to higher rates in these sectors. At that point, corporate rates and municipal rates may actually outperform as they have already priced in DEEP recession scenario. I am not saying that those rates will necessaary come down but they will likely not trend higher.

Great question. Hope this color helps. If my answer is too technical please do not hesitate to let me know where and how I can clarify.

MBC

Hi LD,

Please clarify,particularly the last sentence (I will not be offended if you reply as if you were talking to a teenager….)

“Bonds: for the first half of the year government rates and mortgage rates will stay low as the Fed and Treasury will be buying these sectors in SIZE.
Ultimately, though, I think that dollar weakness will lead to higher rates in these sectors. At that point, corporate rates and municipal rates may actually outperform as they have already priced in DEEP recession scenario. I am not saying that those rates will necessaary come down but they will likely not trend higher.”

LD

MBC,

My pleasure. Let’s look at it from the standpoint of the actual rates offerred in these respective sectors.

U.S. Government Bonds: 10yr maturity is now app 2.15%

Mortgage rates: 30yr mortgage is app 5.1%, 15yr mortgage is app 4.85%. These mortgage rates are reflected in the prices of mortgage-backed securities (MBS bonds)

High grade corporate bonds: depending on the corporation and rating these rates will range from between 7% to 9%.

High Yield Bonds (also known as junk bonds): depending on the corporation and rating these rates will range from between 15% to 20%. These are highly speculative and risky investments as the market is pricing in a high chance of many companies in this space being unable to refinance outstanding debt.

Municipal Bonds: depending on the state, city, or municipality and the respective credit rating these rates will range from 5-7% for longer maturity bonds. They have a tax advantage.

The U.S. dollar is currently valued vs the Japanese Yen at $1 to 90 yen.

Against this current backdrop, my assessment of the bond market is that the government bond rates and mortgage rates will stay low for the first half of 2009 but then start moving higher. While that occurs the rates for corporate bonds, high yield, and municipal bonds will either inch down, more likely stay near current levels, or not go up as much as the government rates. In any of those scenarios, they will “outperform”. They have dramatically “underperformed” in 2008 as the exact opposite has occurred.

I do think that the dollar will weaken vs the yen (perhaps moving to 1 dollar purchasing 75 yen) which will play into our government rates moving higher later in 2009.

Does this all make some degree of sense?

Remember, there are NO bad questions!!Thanks for asking and hope this helps.

I’m a Linda too

Great Poster, LD.

LD

To give the credit where it is due, our friends here at NQ did all the work in putting that together. I am merely going along for the ride. No pun intended.

I’m a Linda too

lol Excellent.

I’m a Linda too

I have a question Larry, do all states have the same kind of closing fees? If they all chage the same kind of RIDICULOUS fees, 1 pt, underwriting, Title insurance, da da da da da da da, are there large differences in each category they charge.

I noticed when I closed, my Broker charged 900.00 for his underwriting fee and the man I have been speaking with for a refi is charging $515.00 THAT’s within the same state.

Title Insurance, which we HAVE to do…even though it’s refi…is $1795.00

Why can’t we deal with a broker in any state?

OK, I’m done.

LD

Linda….Is your question whether you can utilize the lowest cost broker regardless of state?

I am not totally familiar with the closing costs throughout the mortgage brokerage business and as such do not want to offer an uninformed opinion.

I will throw this out to our audience at large. Can somebody familiar with costs within the mortgage brokerage biz and costs in different states offer an informed opinion??

Thanks in advance.

I’m a Linda too

Hey LD, thanks. That was part of my question, yes.

I said I had a question…I should have said, I have a FEW questions.:)

It was ALL related to Refinancing. I was asking if every state charges the same closing costs and why can’t we use a state other than where we live? Because my state sure seems to have a lot and high fees.

LD

Linda,

Pls put your broker effectively in comp by inquiring about costs at a local credit union, if there are any in your area.

If there are community banks in your area that would also be wise to check there as well.

I’m a Linda too

Great idea, thank you.

I didn’t bother inquiring at local banks because their rates were so much more, but at least they can help me determine fees. And, didn’t think about the Credit Union. Muchas gracias.

LD

Please let us know what you discover.
LD

Linda Too,

In reading an article today about refinancing, I have learned that it is prudent to ask lenders whether they will perform a “consolidation and assignment” of the existing loan which will have the bank absorb your current loan and thus eliminate an origination tax on the new loan. Most lenders will probably not offer this service unless asked.

Hope you see this and hope it helps.

socalannie

Great thread NQers! So many interesting points, I feel like I’ve learned a lot more than just by reading an econ article somewhere. LD, this was a great idea & I’m really enjoying your posts.

LD

Socalannie…and as always, thanks for your plug and support!!

http://edgeoforever.wordpress.com/ Not Your sweetie

NYT has the audacity to wax editorial on…women’s rights?
http://edgeoforever.wordpress.com/2008/12/27/a-parting-shot-atwomans-rights/

LD

NYS….not sure that this exactly pertains to our economy/markets/finance….thus I will reserve comment…but thanks for sharing..

Anonymouse

Larry Johnson, what more can you (or anyone here) learn about Larry Sinclair’s assertion that Barack Obama and Maya Soetoro had Grandmother Madelyn Dunham’s death record falsified? At Sinclair’s site, scroll down until you get to “UPDATE ON OBAMA. HALF-SISTER & HAWAII FALSIFYING DEATH RECORDS”. Citizen Wells has a copy on his main page.

LD

Anaonymouse…not sure what this topic has to do with our economy/markets either. Probably better for an open thread or one of the political posts.

But thanks for sharing…

Anonymouse

I looked for a place for an open comment but couldn’t find it, so chose the most recent thread, figuring it would not be outdated before Larry could read my entry. Sorry about trespassing into your thread. After having seen a mix of comments in other theads here, I took it to be the norm.

Because this site is INORDINATELY slow, I don’t read here often, so don’t know my way around — like how to identify privatized threads vs open threads — and don’t want to take a year to find out.

If Larry Johnson doesn’t find my comment, so be it.

LD

I will write to him and make sure he sees your comment.

While many threads/stories do run off topic, I am trying to keep this focused on the economy/markets.

candymarl

LD I invested 40,000 in CD’s about 4 years ago. Should I leave the money there?

I also bought (cash) property so I covered the real estate part.

I’m trying to decide where to go from here.

LD

Candymarl,

Was it one CD that you purchased or did you “ladder” your purchases, meaning you bought a number of CDs of different maturities?

Your purchase of the CDs was obviously a VERY good move as it was safe and secure while virtually every other asset class has been repriced.

Your allocation from here needs to focus initially on your risk profile. Your age,employment, cash needs, and the like should dictate how much risk you may want to take.

CDs are obviously very low risk and now fairly low return, which is OK given the current environment.

If you want to take on a little more risk to generate more income, I do think that there are some compelling values within the bond market. A high grade bond fund ( I mentioned the fund managed by Jeff Gundlach at Trust Company of the West as being a good choice) or a high grade municipal bond fund that invests in securities within your state are both good ideas.

Do your homework on these funds so that you fully understand the risks involved. If you have any questions as you study these funds, write back and I will try to help.

I also like the idea of “dollar cost averaging” into any investment given the uncertainty in the market. This technique means you would make a series of investments over a period of months vs one largew investment. By using this approach, you will never be fully right or wrong from a timing standpoint but it will allow you to assess how your investment is doing and actually purchase less of the funds shares as the market goes up and more as it goes down assuming you make fixed dollar investments. Does that make sense?

First and foremost, make an assessment of your risk profile and then go from there.

Hope this helps.

candymarl

Thanks for the answers LD. I’ll look into it and contact my investor company!.
candymarl

Ooops forgot to say the money was used to purchase multiple CD’s.

Anonymouse

Thanks very much, LD. I appreciate your position. And when I came on tonight, I noticed a thread titled “open thread”; guess I’m catching on. I hope you also passed along to him my comment about the site’s s l o w n e s s. I could complete a jigsaw puzzle while waiting for the letters I’m typing to appear here. I don’t have the patience to stay and plod through any more threads. Do you wonder how many readers you’re losing?

MBC

Anonymouse,

I am sure you can write directly to Susan as well. Please try to stay on topic. Most of patiently wait to hear from our favorite posters (like LD) and it really slows things down when OT comments are entered.

http://edgeoforever.wordpress.com/ Not Your sweetie

Oh, noes! We can have Caroline by appointment only
http://edgeoforever.wordpress.com/2008/12/27/caroline-by-appointment-onlyno-elections-for-the-princess/

LD

Sweetie….There are many threads/posts that are fairly current on these topics.

There is no doubt that both the Kennedy/Schlossberg and Blagojevich stories have a lot to do with money, but not in the sense that we are trying to discuss.

….but thanks for sharing

candymarl

Uh LD could you see my comment above?

TKS Candymarl

http://edgeoforever.wordpress.com/ Not Your sweetie

Blago’s side of the story: he senate seat mess was started by Obama – by objecting to Blago’s pick
http://edgeoforever.wordpress.com/2008/12/27/blago-obama-pushed-for-his-replacement/
justsomeone

Hi LD, my assignment was to “focus on income” as it relates to a company’s finances & ability to borrow money. Remember? Apparently it’s NOT it’s credit rating (however that’s important) & it’s NOT TTM. You use WSJ & I use an on line trader’s, however you mentioned MSN.com. So if we may let’s use MSN & get a quote for IBM (I don’t own it but everyone knows what it is)also I’m trying to understand info at the SEC’s webpage, “Beginner’s guide to financial statements”.”balance sheet” “income statement” “cash flow” “shareholder’s equity” Am I looking in the right place? I NEED ANOTHER CLUE. There’s too much info, it’s overwhelming. Maybe if we work backwards I can get it..So according to MSN.com what is IBM’s income?

LD

I commend you for your diligence in pursuing this topic. Slow and steady nad you will learn more than you could imagine.

The income (revenues minus expenses) for IBM is $11.9 billion, which is a 14.3% growth rate over the last 5 years.

On the MSN site, I went to the company page which I am attaching here. Let’s talk more over the next days, weeks, as you become more familiar with these concepts. GREAT JOB!!

http://moneycentral.msn.com/companyreport?Symbol=IBM

justsomeone

LD, looks like IBM had “an earnings surprise”, huh?

LD

Just…

IBM had a very solid 3rd quarter. This global enterprise is clearly demonstrating that they can manage their operations in challenging times. They are not overburdened with excessive debt. The stock and company is obviously subject to the overall economy but I think IBM will be a long term winner.

I will offer you one other piece of insight. Companies are measured on a relative value basis in terms of their Price/Earnings ratio. The Price is the price of their stock while their earnings is “earnings per share”. The overall market as measured by the S&P 500 index has a P/E ratio of app 12 to 13. That appears to be cheap by historical measures but the reason for that is that the market is seriously questioning future earnings of companies. If earnings are lower then that P/E ratio would obviously go up.

IBM’s P/E ratio is 9.6. I would view this as attractive. Like any company, though, the question keeps coming back to the comapny’s ability to perform and generate future earnings.

Hope this proves helpful.

Thanks for coming back for another “ride”.

Lizzy

Hi LD. I did a fast survey of the two management companies you recommended yesterday: fpafunds and tcw. They seemed to have good information. I was a litle surprised that tcw has a speciality in mortagage securities. I will check with you when I have had a chance to pursue it in greater depth. Thanks for the information.

LD

Lizzy,

Jeff Gundlach at TCW is one of the best in the business. Bob Rodriguez at FPA is also very sharp.

Again, make sure you do you homework thoroughly and fully understand the risks. If you have any questions, please do not hesitate to ask.

justsomeone

LD, hope I’m not too late with my question, these threads can disappear rather quickly. If I recall correctly when globalism was first pitched to us one of it’s main selling points was a more stable worldwide economy i.e. if one country’s economy hit the skids, other country’s economies would probably be booming & investment could move around the globe & kinda be protected. Instead what we’re looking at appears to be more like a domino effect where as one economy stumbles others follow suit. Any form of protectionism is shunned (Herbert Hooverism, etc) what is the current sales pitch for globalism now that “contagion” is rampant & a global slowdown is evident? A mobile labor force, job gypsys, moving like chess pieces en masse around the planet, disrupting the indigenous workforce, never struck me as beneficial to creating/maintaining stable communities. Are any of these concepts being retooled or seriously questioned by the power elites? What if any major changes do you anticipate coming out of the global economic summit this spring? Nickolas Sarkozy created quite a stir when he lectured about the need to curtail quick profits & then there was that buzz about secured (3% max) retirement accounts. Do you see BIG changes coming?

LD

Just…

I love your enthusiasm and fully appreciate the depth of your question. To be perfectly frank, volumes have been written and will be written on the topic of globalization.

I think that we need to look at gloablization from a very long term perspective. We are truly only in the infancy of this dynamic. I benchmark the development of globalization from when the Berlin Wall came down. That was just 20 years ago which in the grand scheme of things is like yesterday.

The free flow of capital, goods, adn labor have benefitted many and cost others, but overall increase in global GDP has been significant.

That said, we saw excesses in the late ’90s in emerging markets which impacted developed markets and now we are obviously seeing excesses in developed markets primarily the U.S. that are impacting the eemrging markets.

The challenge for world leaders is how do we accrue the benefits of global trade across asset classes (goods, services, capital, labor) while minimizing the costs let alone the abuses.

In my opinion, the emphasis needs to continually put on rewarding risk prudently taken and managed while punishing those who abuse the system.

How does one advance in a global market? There is no doubt that one needs to be more skilled and educated in order to be able to pursue opportunities. Unskilled labor continually moves to the lowest cost provider.

This process is both difficult and challenging but it is so far along and deeply established that I do not see it reversing.

Regrettably from an educational standpoint the U.S. is only ranked between 15th and 20th in the industrialized world in academic performance adn this has long term implications for our country’s ability to compete.

I believe that there will clearly be increased regulation that comes out of the summit this Spring to monitor markets such as credit derivatives.

This is an abbreviated response to a very broad issue.

Our economies are so deeply entrenched that there will be little turning back from this juncture.

justsomeone

LD, Thank you. Besides being very knowledgeable you are also very polite & I appreciate you not calling me a “moron” or a “pinhead” as I have been called on other threads. It will be interesting to see if you’ll have the discipline to maintain your gentlemanly qualities in the passive/aggressive world of blogging. Hope so. It ain’t easy. I’m looking forward to your radio show tonight.

LD

Just….

Very simple rule that I try to live by, “treat others the way you’d like to be treated”. It has been working pretty well for me to this point so don’t worry about that changing.

Hope you enjoy the show. Spread the word.

MPC

LD-

This thought occurred to me since you always encourage people to learn, learn, learn, and particularly in your responses to justsomeone’s inquiries above. I’d like to know some of your favorite or recommended literature for acquiring knowledge about finance, investments, economics, etc. I’ve spent an absurd amount of time reading places like wsj.com and money.cnn.com, as well as investment and personal finance books. I guess I’m interested in hearing what a seasoned professional such as yourself might recommend since the books I’ve covered so far have gotten to the point of too simple and boring, and I’d like to get some more depth and detail without having to delve into my dry, bland college econ textbooks.

Thanks always for these informative postings and discussions. Keep it up.
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