Incredible.

Well, I arrived back from DC only to be turned around and issued a ticket to New York yesterday. Now I'll be in NYC all week monitoring fallout from financial crisis. It's an eerie mood here in lower Manhattan; you can definitely tell most people had a horrendous weekend/start to the week. The market absolutely plunged today and folks around here don't think its hit the floor. I ran into a guy that buys investments that payout based on failed bonds. I think he was the only happy person I've seen all day.

Anyways, given this financial massacre, it's important to explore the underlying cause. I'll keep it on a macro level: The government sponsored two companies (fannie and freddie) to give out mortgage loans to people that normally wouldn't qualify in order to boost home ownership. The private industry, unable to compete with fannie and freddie (offering mortgages at unprofitable rates) distorted market risk and pushed financial institutions into making bets on more lucrative, albeit riskier mortgage investments. When the housing market declined, mortgages backed by freddie and fannie (to people that never should have had them) failed and subprime mortgages (to people that never should have had them) failed. This is causing the enormous devastation that's seen in the housing and financial markets. If you get the flu, you don't just want to mask the symptoms, you want to get rid of the flu. In similar fashion, while it might be easy to blame people now (such as the leaders of Lehman) its important to drill down to the cause.

Well, I've got to get back to scouring the floor for buying opportunities. If you're an individual with some free cash, I might advise you to do the same...
We'll see how tomorrow shakes out. Definitely empty tables and full bars in and around NYC tonight. Until then!

Bailed out

In DC this week. Typing this whilst looking out my hotel window with a beautiful view of the Washington monument gleaming in the distance. Absolutely spectacular. Talk around here is all about the bailouts of Fannie Mae and Freddie Mac. I can't even begin to sum up how horrible this all is. I still need some time to cool off. The big question on my mind (as well as everyone else I had dinner with this evening) is who's next? The political modus operandi right now seems to be "socialize profits and privatize losses." If you can't comprehend how horrible that is, it might be time for you to quit reading this blog...

In other news, I spoke with a couple of Wall street folks and it seems as though a major bank and major investment bank are on their last breaths. And that's excluding Lehman Brothers. I'll post about anything else I hear whilst in DC this week. Until then!

Rescuing something that never should have happened

What a shame: http://www.marketwatch.com/news/story/us-government-takes-control-fannie/story.aspx?guid={C99D796B-CB3C-47A8-8A56-284A9A4D5C85}

On deck: GM, Ford and Chrysler

In the hole: The New York Times

Nothing quite like blowing a few trillion dollars of someone else's money...

Countdown to November 4th

I just noticed on the countdown on the top of the blog that there's now less than 60 days until the election. Crazy!

What a dive...

For the light of heart, now would not be the time to check the stock market. I'll leave it at that for now and reiterate that you probably shouldn't check in on the market until next year.

As I said previously, I'd like to dissect the differences between the tradition and Roth IRA. With the Roth IRA contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free. With the Traditional IRA contributions are often tax-deductible, contributions are made with pre-tax assets, all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income (except for those portions of the withdrawal corresponding to contributions that were not deducted). There are also various other types of IRA's, but the traditional and Roth are by far the most widely used, so we'll stick to those for now. The maximum contributions to an IRA changes from time to time and varies depending on your age. Obviously the IRA was founded and exists to encourage savings and investment by offering a reduced tax consequence.

Contributions to a Roth IRA are not tax deductible, but at withdrawal, all contributions and earnings can be withdrawn tax-free. With a traditional IRA, contributions are tax deductible, but all withdrawals are subject to being taxed. Currently, since dividends and capital gains tax rates are generally lower than an individual's marginal tax rate, using a traditional IRA for long term investing doesn't make sense in a majority of cases. Furthermore, the Roth IRA has the advantage of certainty. By paying taxes now on contributions, you are assured of having a certain tax liability, whereas it is impossible to tell where tax rates will be in the future. For some persons, this provides an additional peace of mind. Of note, all contributions to an IRA are, for all intents and purposes, locked in until you reach the age of 59 1/2. Consider this carefully if you foresee needing a certain amount of liquidity in the future. Of course, the best piece of advice is to always treat your personal situation as unique. No one strategy is best for everyone. The introduction of the IRA and its related investment mechanisms has been one of the better things Congress has given us. Companies are beginning to offer a Roth 401(k), a blended version of the 401(k) and IRA. Look for more variants of these exceptional investment strategies in the future.

I ended up making a mid-week trip to Phoenix and was tied down for a couple of days. Speaking with several banks and investment houses there, it became all the more clear that banks are in serious entrenching mode to ensure they have very little exposure to insolvency. That being said, it was beautiful in Phoenix and I was far removed from any of the hurricanes or conventions, though I did tune in along with 40 million others to watch Palin deliver her speech. As a former hockey player, it's nice to see the sport get some recognition. Hehehe.

Hope everyone has a great weekend. I'll talk more about bank liquidity and whatever else happens over the weekend. This looks to be a pretty boring one in college football. Until then!

Alaska is a big state

Well, I hope everyone had a fabulous holiday weekend. Sandwiched in between the two party conventions was a 3 day weekend and a hurricane aimed at New Orleans. All's well that ends well though and the markets are certainly responding. Oil plunged below $110 as Gustav caused minimal damage to Gulf oil rigs. For all the beating the oil companies take, it is simply amazing to consider the oil rigs floating in the Gulf. Hurricanes Katrina, Rita, Gustav et al., have plowed through the Gulf in recent years and the damage to offshore rigs has been trite. Simply amazing.

The plunge in oil prices, a recent strengthening of the dollar, 3.3% growth in Q2, the impending end to this election cycle and what I think is the bottom of the housing market have me thinking the second half of 2009 and 2010 are going to be stellar for the market, if and only if the next president's administration doesn't do too much to get in the way. The worst thing for the housing market right now would be for the government to interfere with the housing market by bailing out failed entities. This would only cause the housing markets doldrums to continue.

As I review my own savings and investments, this year has been turbulent but fun (at least for me). For those of you who's portfolio's have taken a beating, take heart, the market is poised well for a recovery; this again has the caveat that the next administration's policies don't send everything off track.

I had a few people ask me about IRA's over the weekend, so I think I'll dedicate my next post to talking about their differences and how best to play them in an overall tax strategy. Until then!

College Football

Also, college football starts tonight and in earnest on Saturday. I recommend watching the Illinois v. Missouri game, with Missouri winning. Either way, college football is here and all is well.

What a horrible economy...

Well, despite the best efforts of the mainstream media and pessimists everywhere, the economy blistered ahead at a 3.3% growth rate in GDP. Thank goodness the best of worst intentions aren't directly impacting the economy. For those of you unconvinced things are really that good, consider that in the 2nd quarter, the United States added the equivalent of Sweden, the 18th largest economy, and on an annual pace is adding an Italy to the economy every year. Italy is the seventh largest economy in the world. It's amazing. But don't expect to hear anything about this in the media. Instead the focus will be on rising unemployment (which is still below the historical low point for economic cycles) and how hard it is to make ends meet with record gas prices. While the latter may be very true, it remains as important to stop and note how very impressive a 3.3% growth rate is.

The number on the FDIC's bank watch list has risen to 117. Historically, 13% of banks on the watch list fail. For those of you with bank stocks, I would continue to keep a keen eye on the news for any information about your holdings. Bank stocks are certainly attractive right now, trading at very low multiples. Even banks with relatively low exposure have been pummeled along with the rest of the industry. That being the case, I still wouldn't advise the faint of heart to consider investing in individual bank equities. Unless you're willing to take a big gamble, a safer option would be an ETF or mutual fund that invests in the financial industry. Right now, the industry is in a rut and trading cheap, but it will eventually rebound.

The democrat convention rolled along this week. Up to today, it had been more about the Clinton's than Obama, but that changes tonight when he speaks from the Parthenon, er Invesco Field. There has been relatively little talk about fiscal policy thus far; maybe tonight's speech will provide some insight on how an Obama administration would affect your portfolio. Of note, the Annenberg papers at the University of Illinois at Chicago were released for public viewing. In them, it showed Obama was President of the organization and pushed to reform Chicago's public school into socialist activism "re-education" camps. All the while, Bill Ayer's remained intimately involved as a senior advisor to the organization. The same Bill Ayer's who's an unrepentent terrorist. Just thought I'd drop that in...

I'm headed to the coast for the holiday weekend. There I'll be enjoying margaritas and sitting on a beach all the while attached to the internet thanks to my handy satellite internet card. Ahh, the wonders of technology. The following weekend I'm headed to the Dallas Trader's Convention. Should be a good time.

Hope everyone has a FANTASTIC Labor Day weekend. Watch out for Gustav; he arrives next week! Until then...

Gustav!

Well, the democract party convention is in full swing and last night saw the typical typicals come out and speak. I was actually surprised. There were no "victims", no real people with "stories of hardship". Maybe they're saving it for later in the convention, but I expect to see at least: one person, probably a single parent with nine kids, talk about how hard it is to get by in today's economy and how the economic policies of the last eight years have left he/she unable to afford to leave any tooth fairy money on her kids pillow; another will talk about how high oil prices have forced them to sell their home and how they don't understand how "ordinary Americans" are supposed to get by on $3 pesos an hour while Exxon takes home $11B in profits. Stay tuned, they'll show up.

I was about to sit down and type up how McCain and Obama would affect your investments, then I found someone already has, so we'll start there: http://www.marketwatch.com/news/story/how-obama-mccain-affect-your/story.aspx?guid={93C57CD0-8A08-4632-AAD1-EFEAFEF80563}

Hurrican Gustav is bearing down on Haiti and meteorologists are giddy with glee at the possibility that a Category 5 hurricane will follow its most likely path and arrive full steam in New Orleans sometime early next week. Of note, if you day-trade and play the market you might want to consider shorting airline stocks and going long with some non-Gulf refining companies. If the refiners in the Gulf have to shut down, other refiners will stand to reap the rewards.

I should get back to work. More on the conventions and why drinking wine and cheese doesn't always taste good awaits the next post. Until then!

The sage speaks.

Wouldn't you know it, I ended up having so much fun this weekend I never got around to posting on the blog. What a tragedy. I went to an interesting place on Saturday night, the Ghost bar: http://www.n9negroup.com/#/ghostbardallas/main/ Probably the most pretentious place I've ever been in, but if that's what helps certain people get through the week, I wish them the very best...

So, Warren Buffett had all sorts of things to say over the weekend. It's funny, he used to pride himself on being a real recluse, but over the last couple of years he hasn't shunned public attention like he used to. He turns 78 on Saturday (I'm sure you all already knew that and have sent cards) and I'm wondering if he doesn't see the candle beginning to flicker; maybe he'll spend his last years with a larger role publicly. To summarize his comments, he still believes the mortgage meltdown and subsequent financial crisis will wreak havoc on the stock market, but also thinks the US stock market is very attractive right now as some stocks that have trended with the overall market have become undervalued. For any Budweiser fans, or shareholders, it's interesting to note Buffett sold nearly two-thirds of Berkshire's 35.6 million shares of Anheuser-Busch Cos. stock because he hadn't been sure Belgian brewer InBev SA's takeover bid of $65 a share would succeed. Anheuser agreed to the $52 billion bid in July. He closed by noting that he is the greatest investor there ever was and everyone should love him like a teddy bear...

A new Ipod nano will be coming out in the next two months. I know everyone is super excited. I'm going to go out on a limb and say that it will be: white, thin, of simplistic design and have no more than one main button.

Look for the drive-by media to basically be in a constant state of exuberance that will border on psychosis this week as the democrat convention rolls forward.

Criminals have begun to use Euros instead of Dollars in some black market transactions. What a horrible side effect of a weak Dollar. I was so proud of the Dollars place as the #1 currency of choice for black market operations.

I'll post about the how each candidate's tax policies would affect retirement savings next. Until then!

Let's get this rolling...

I am finally at a point where I believe I will be able to update this daily or at the very least every other day. I certainly hope so.

There was a flurry of activity this morning in the investing world. First, Ben Bernanke had a meeting of the nerd-minds in Jackson Hole, Wyoming to discuss the state of the financial markets. Bernanke still appears to be more of an inflation dove as he said the following (presumably using a chart with two lines):
"If not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next year."
Bernanke's expectations that the economy will continue to moderate and thus bring down commodity prices continue to worry me. His apparent unconcern for inflation and a weak dollar are troubling at best. A stronger dollar would fight inflation, bring down commodity prices and nominally decrease the value of the government's deficit. A few individuals on the Federal Reserve Board have dissented with him on the past couple of rate decisions. I wonder how long he'll be able to hold them off...

GM, Ford and Chrysler have asked the government for a $25B bailout. Not surprising given the bailouts extended to Fannie and Freddie as well as Bear Sterns and IndyMac, but logically these are completely different situations. In the Bear Sterns fiasco, the government underwrote loans so that the company was able to be acquired; the shareholders and management walked away with nothing respectively. In Fannie and Freddie, they were government insured entities whose sole purpose was to extend mortgages to those unable to ascertain them through conventional means and in IndyMac, the bank was allowed to go solvent, with the FDIC insuring deposits, but once again shareholders and management left with nothing. Here, the "Big Three" are asking for money without any change to structure or management. What a joke. It's of course one of the smartest moves they've probably ever had, given that they announce this during an election, each candidate will have to walk with glass slippers as they explain why they support/don't support and why you should vote for them. If the "Big Three" spent as much time on product development as they have on the hatching of this plan maybe they wouldn't be bleeding money like a dying drunken sailor. Also, when will the moniker "Big Three" be dropped? Unless of course we're allowed to follow-up "Big Three" with whatever we'd like. "Big Three" disaster; "Big Three" failure; etc. etc.

I just read that Warren Buffett thinks now is the most attractive the US stock market has been in a long time. I'll post a full review of his comments over the weekend along with anything else of relevance that comes out of the economic symposium in Wyoming.

What a world...

Just got back from a trip overseas. I was in Moscow, Rome and unexpectedly, in Copenhagen. It was a very interesting trip. Moscow is definitely a city of two distinct areas. There's the extremely luxurious areas that probably cater the the 100 or so billionaires in Russia; then there's the drab, gray, run-down areas that cater to everyone else. The place is pretty bleak. Unless you're hanging out where the rich Russians are, its very depressing. Go communism! On the upside, a trick I had heard about from a former CIA guy worked quite well: before drinking with Russians, eat a cube of butter to coat the stomach. I did and I think it helped me survive. The Russians are feisty drinkers...
Rome was wonderful. The Italians are thoroughly enjoying a weaker dollar and are buying up as much stuff as they can with the money they get from selling Italian wares around the world. Good visit, definitely a city I enjoy seeing.
Copenhagen was by far the most fun, but also probably because it involved very little business. I walked around the local pubs each night and had a generally good time. Now I'm back in the good ole' USA.
It's been a very good couple of weeks for airline stocks. AMR is up 116% since July 16! 116% in just 8 days! Someone's making a very good amount of money. It appears as though airline stocks are moving solely based on what happens in crude oil, but by a factor of 10. If this continues and oil were to drop to $80, AMR would go from $9/share to about $1200/share. Obviously, this won't continue, but it has been fun to watch.
Speaking of oil... Was able to see the most thorough analysis of the oil market to date and it seems as though in the short run, with supply and demand almost vertical, the price of oil could fluctuate between 75 and 300. These fluctuations could happen because of any number of reasons, from 10 hurricanes forming at once in the Atlantic to Saudi Arabia deciding to no longer produce oil. In the long term, however, it seems that the fair value of oil should be between $50 and $80. Wouldn't that be nice?...
I'm off to the coast of North Carolina for vacation tomorrow. Next week, I'll talk about 401(k), Roth 401(k) and Roth IRA. Until then!

A good time to be alive...

A couple of interesting charts, not for the pessimistic of heart...

http://bp1.blogger.com/_otfwl2zc6Qc/SG9tYI_UXmI/AAAAAAAAFEM/
18zc58Q82sw/s1600-h/tax.gif

http://bp3.blogger.com/_otfwl2zc6Qc/SHDPmNqd0bI/AAAAAAAAFE8/
bcJXrWqopQI/s1600-h/fed1.jpg

You might have to copy and paste the entire URL into your web browser.

Thanks to CD for the pointer.

The Fed is alive!

Yesterday the Fed held interest rates steady and indicated that inflation has begun to rise to worrisome levels (what, really?), a sign that the Fed may begin raising interest rates in the near future. I think this is a good move for the economy over the long term, but may not be good for the stock market over the next year or so. If interest rates are hiked while the economy is not growing steadily, this could swamp the market as the price of acquiring and deploying capital rises. However, this is good for your retirement accounts over the long term, as there are few things more dangerous to a retirement account than high inflation, which eats away at the value of your assets like a termite.

Also, note that I have added a very crude "crude oil monitor" to the blog. If this is too depressing to see, let me know and I'll consider removing it.

Until then!

Paying down that mortgage...

Recently, a question was asked: "With rates for loans so low, would it be good to take out a loan to pay down my mortage?"

Rates are incredibly low right now. The Federal Reserve has chosen to walk the fine line of keeping interest rates low in order to spur economic growth, while allowing inflation to creep up. Most economists will argue that the job of a Federal Reserve is to keep inflation in check and only use stimulative interest rates to boost the economy if inflation is simultaneously contained. One need only look at the late 70's to see what happens when inflation runs rampant.

Given all of this, rates may be the lowest they'll be for a few years. Eventually the Fed will begin to raise rates, either because the economy will begin to steadily grow again or because inflation will begin to rise at an uncomfortable rate. Either way, this may be a good time to refinance, if and only if the cost to refinance doesn't outweigh the savings you'll gain from refinancing. Always remember to do long term calculations. Finance isn't a short term game.

Lastly, I might suggest other ways to quickly pay off a mortgage. First, pay twice a month instead of once a month. If you pay your monthly mortgage payment at about two week intervals you can shed up to eight years off of your mortgage. Also, if you make one extra payment a year against the principal, you can take years off of your mortgage as well. See: http://www.bankrate.com/brm/news/mtg/20010920a.asp

Keep in mind that this is a two-edged sword. Pouring more money into your mortgage denies you the ability to invest that money elsewhere, although paying off your mortgage early will ultimately allow you excess free cash flow in later years. This money of course will not have the time to grow and compound as money invested in earlier years. The only way to know for sure what you should do is to sit down and do a personal financial plan and calculate what is best for your individual situation.

I'll address some other topics brought up in later posts, such as: interest rates, inflation and Federal Reserve Policy. Until then!

It begins!

"Proventus opulentia" is Latin for increasing wealth and is the name I've chosen for this blog. I hope that by helping each other we can ultimately help ourselves.

I've wanted to do something like this for some time now and I'm looking forward to it. This should be fun!