Sushi Money

This has been a wonderful week to catch up at home, and spend some time with family and friends. The year 2007 is all but behind us now, and the new year beckons. Was it a good year looking back? Did you accomplish your goals? Personally I would say yes in most areas, but I can also look back at opportunities that were missed, and lessons learned. Hopefully we will continue learning and growing… and find ways to make the years ahead even better. There’s certainly a wealth of information out there- today for example, the writers from the WSJ Online share their Strategies for Saving Time and Money. For the year ahead I hope to continue learning and sharing insights along the way. There’s an old expression that says those who ignore history are destined to repeat it. In many ways I think that applies to the world of personal finance and investing. If we continue learning and apply our knowledge productively, I think we can look back with greater awareness, and look ahead with renewed vigor and confidence. We can indeed create a financial future to achieve our goals and dreams. I wish you a joyous, peaceful and prosperous New Year for 2008!

“Aaaaahhhhhhhhhhhhhhhhhhhhhhhh!!!”  There, just had to get that off my chest with all the stuff going on before Christmas.   Every year it seems we have too much to do before Christmas, and spend far too much time worrying about getting things done “just right.”    But somehow if we make time to stop and catch our breath, and give a few hugs where they’re needed most, I think we start to remember what Christmas is really all about.    It also helps to remember how fortunate we are, and that we are blessed with family/friends, a warm home, and food on the table.  Things we take for granted so often.    Have a Merry Christmas, and a wonderful week.

You know that line… “Opinions are like a$$holes, everybody has one!” That’s about the sentiment for a U.S. recession next year. The “will we or won’t we” debate is reaching a peak… except of course for those who have already decided (Bill Gross of Pimco) that the U.S. is in a recession right now. That’s not too far out for a call on the economy, because recessions can be very hard to figure out until the economy is already coming out the other side of the business cycle. Often, the real beginning of a recession is only determined years after the fact. So maybe Mr. Gross is right. A lot of other folks have entered the debate on both sides:

• NO: Abby Joseph Cohen from Goldman Sachs says a recession in 2008 is not likely.
• YES and NO: A December Reuters/Zogby poll says 43% of likely U.S. voters expect a recession in 2008.
• MAYBE: Alan Greenspan recently modified his view of a recession from less than 50% to right at 50%.
• NO: Diana Furchtgott-Roth, former Chief Economist at the U.S. Department of Labor thinks a recession not likely.
• YES:ABN AMRO Bank believes the U.S. is entering a “viscious spiral” with a 75% chance of “plunging into a recession.”
• MAYBE: State Street Bank is not on the record, but believes it “remarkable” if the U.S. avoids a recession in 2008.
• HELL YES!: Jim Rogers isn’t satisfied just to say the U.S. is in a recession… he even thinks the Administration is lying!

Who knows… will we enter a recession? If we do, I think it has a lot to do with psychology and the media. All this talk and blather… of which I too am contributing, ultimately influences the perceptions of a lot people. Personally, I’m not convinced… I think the economy will manage to trudge along while contining to slow, but that a combination of productivity, consumer spending and global trade influences will keep us going. If something extrinsic to the U.S. economy happens- such as an economic crash in Asia, then all bets are off. But with the Presidential election taking shape in full force in 2008, the economic noise will get a lot louder for a while. Heck, I’ll bet all the political wrangling may even contribute something to overall GDP!

     As the “credit crunch” continues, and lenders re-evaluate just how they will lend money, and to whom… I’ve realized that my mailbox has received a temporary reprieve.  In what way?  Well those dozens of credit card offers I normally receive have miraculously stopped!  We normally get so much junk mail that I haven’t really looked at what was coming in until recently.   The end of the year fills the mailbox with requests for charitable donations and other needs, but as I was looking at my desktop pile of junk, I realized I haven’t seen a new credit card offer in at least 2-3 weeks!  Wow!

    I certainly don’t miss the credit card offers… and maybe the lenders are even going to save quite a bit of money from slowing the incessant flow of offers to consumers.  I’m sure they’ll resume at some point, but for now it’s nice to have a few less envelopes in the mailbox.   Why have the offers slowed?  Can’t be sure, but I suspect it has to do with the lenders re-evaluating business practices, and how they target and evaluate credit risk.   It’s not only the lenders re-evaluating credit risk these days.  Fair Isaac Corporation is introducing a new FICO scoring model to more accurately evaluate consumers’ risk profiles.  The Wall Street Journal Online published a review of this process in Default Lines: The New Math of Credit Scores.

  “The rollout of the new credit-scoring system comes at a time when lenders say they are eager for more-accurate measures of credit risk, in part because of rising loan defaults as subprime mortgages go bad and housing prices fall. And there are signs that delinquencies are creeping into other types of consumer debt, including auto loans, further prompting lenders to tighten up on credit.”

   I was reading a comment (somewhere?) about financial companies such as Washington Mutual who are struggling with consumer defaults and bad loans, and it was described how their business practices may have attracted greater risk by targeting a greater share of the market through consumers that were not “served” by other institutions… implying that these consumers were a poor credit risk in the first place, and now are defaulting on loans.  Lots of parallels throughout society there, and I suspect credit card offers via mail may generate the same risk if not carefully screened and evaluated.
   

It will be interesting to see how the new FICO process really works out for consumers.  Of course as the article cites, a new FICO scoring process is not going to change our overall credit history… the “record” of our use of credit. It’s just going to evaluate that history in a new way.  And it’s not going to make sure our credit history is accurate either… I don’t like surprises when I decide to apply for a loan, or to find out I’m the victim of identity theft because some schmuck has been using my credit history illegally!   So for peace of mind and financial well-being, I think it’s important that we take responsibility for our own credit history by conducting an annual review.

      No matter what we read about the real estate market, there are still people who want to buy homes to live in.   There are always buyers and sellers, even in down markets.  Naturally this is a challenging time to be selling a home, but it’s a wonderful opportunity for a potential buyer.  I think it’s worth remembering that… there are buyers out there! The Street.com talks about opportunity for buyers in How to Get an Even Better Deal on a Home.   Their main idea?  Buying a FSBO, or For Sale By Owner house.  It’s an idea that works, both for the seller and buyer.  But it’s not always easy… especially for the seller!  I’ve bought and sold by owner, and would consider it again.  But as a buyer, I would definitely use a real estate agent as a “buyer’s agent” during the process.  And you really need to make sure “why” you’re buying the house.  Hopefully by now, most potential homebuyers are under no illusions about their home as a potential investment.  It may very well be a good investment many years from now…  but don’t be surprised if it’s value doesn’t go anywhere for a long, long time.  I’ve written about my experience with that process before!  But what a great opportunity buyers have if they do know what they’re looking for right now.

      If you’re selling your home, know that going the FSBO route takes enormous patience and dedication, but can also be very satisfying if you’re a “do-it-yourself” type… and you succeed.  While your waiting, showing and being patient, it isn’t very satisfying at all!  Unless of course you have plenty of time and don’t mind keeping your home “show-ready” for months on end. But it can save a lot of money if all goes as planned. In the current market climate however, I’m not sure I would go the FSBO route unless very confident about the process and the home I was trying to sell, especially as compared to the “competition” around the local area.   

      If you do decide on the FSBO approach, the article above alludes to several strategies and helpful interent companies such as ForSaleByOwner.com.  I’ve used them successfully, but I think the single most important factor was being able to get the house listed in the MLS (Multiple Listing Service).  So even though I managed and sold the home as a FSBO, it was listed on the MLS for agents to see. 

  Three Northwestern University professors who wrote an August study about the FSBO market say that MLS-listed homes do not necessarily deliver a higher price, but do offer a higher probability of a quick sale, within 60 or 90 days. In addition, roughly 20% of FSBO listings end up relisting in the MLS, which translates into a longer time on the market. Thus, one of the advantages of MLS is a shorter time to sale, which translates into savings (on mortgage, taxes and insurance).

      Of course some people would do almost anything to sell their home right now.   That’s where buyers have the real advantage today, and the single greatest factor, as always, is price.  I’ve talked before about the things you can do as a seller to present your home.  It’s absolutely essential right now.

** Oops… CNN or You Tube pulled the video so it doesn’t seem to play. I’ll leave the embedded player up, but it stopped working after a lot of public interest yesterday…??? If anyone can find a video of that press conference I’d love to re-post it! **

This is a great interview with former Gov. Mike Huckabee on CNN. His answer to a reporter’s question about Christmas at the 2:10 minute mark is excellent. I don’t know who I’m voting for next year, but I really appreciate his sincerity and direct approach.

     Last week of shopping before Christmas!  Have you finished your shopping tet?  Not me… But I have taken advantage of eBay to find some stuff I couldn’t find at the store.  To read some of the financial news, you would think we’re headed into a deep recession or depression soon.  But you sure can’t tell that from the brisk business taking place at the stores and malls.  Reminds me of when I lived in Japan in the ’90’s… the media portrayed the Japanese economy as the worst in decades, with all kinds of problems and little hope.  But when you went out shopping or touring the cities, all you saw was hustle and bustle, consumer spending and tons of production and consumption.   Yet small statistical changes in economic analysis can have great meaning down the road- so there are always lots of analysts trying to put a face to what they’re seeing.

    It’s that time of year for mutual fund distributions- normally a very good thing.  Of course, if you’ve got large holdings in taxable mutual funds, the distributions may not be so great.  Inside that Roth IRA it’s pretty nice however.   Even with all the market’s gyrations these past few months Michael Sivy writes about how it’s a great opportunity to “construct a safe, diversified retirement portfolio of blue-chip stocks” paying a healthy dividend.  No argument here, and there are lots of ways to get there using low-cost mutual funds… like going to the mall, it pays to shop around and compare prices- namely in terms of expense ratios.  That’s not all of course, but it’s a biggie over time.

     Now the only shopping problems we’re having this week is a car in the garage that won’t start.  Go figure… have to get a tow truck to the house, and take it to the shop.  I tried everything I knew, but cars these days are not quite as simple to tinker with.  Time to catch up on a few other things… have a great week!

Have you ever filed an insurance claim on your home, auto or for personal property loss? Do you know what to do if you need to file a claim? Most of us don’t think about it until something happens. But the time to understand what is involved with an accident or casualty insurance claim is not when you’re in the middle of it! I think an annual review of some basic procedures is a good idea. It’s also helpful to go over how you would handle an accident or claim procedure with your spouse or partner. A common response to the question “What would you do after being involved in a fender bender?” is the answer: “I would call you!” Okay, that’s fine, but we can’t count on someone else being there to know what to do… it’s a better idea to understand what is really involved.

Keep in mind that many locations and insurance companies differ with their procedures. For example, in many cities- if you have an auto accident it’s important that the police come as soon as possible to document the circumstances and create a police report. Yet in some communities, the police may only come to “fender benders” if requested by the drivers of one or both vehicles (they normally will always come to injury accidents). Do you know how it works in your community? If not, contact the police administrative office and ask about their procedures. Why is it a good idea to have a police report? Because it provides an official documentation of the circumstances soon after an accident has happened, and possibly includes witnesses. Without the police report the insurance company may only have their own investigators to make conclusions. In my view, it’s nice to have some additional information from a legitimate source. Now I’m sure someone can come up with some reasons not to have the police there, namely receiving a citation, fine and/or other documentation that isn’t desired. Each situation is unique of course, and you’ll have to make your own decision.

With that in mind, here are ten steps to be prepared with in case you need to file an insurance claim:

1. Before filing a claim, review insurance documents (if you can get to them) to ensure you understand your coverage and limitations to coverage.
   
2. Notify the insurance company as soon as possible for accidents and damage that you believe indicates you will file a claim. However, if you are going to handle the issue yourself, then it may not be necessary or desirable to notify your insurance company as discussed above. If you have a personal insurance agent, they can help you clarify questions up front when considering filing a claim.
3. If filing a claim, make only temporary repairs or changes to the damaged property if possible. Don™t allow repair personnel to make changes or repairs unless authorized in writing by your insurance company. Otherwise, the insurance company may deny that portion of the claim if not approved prior.
4. Consider contacting your attorney, and document conversations you may have with insurance personnel and any contractors or other people associated with your claim. You may be required to give a statement under oath… do you need legal advice before hand?
5. Meet personally with any insurance adjuster personnel to discuss damage to your property or concerns. Provide documentation (such as a police report) to help verify your understanding of what happened.
6. Burglary or theft: Report any incident involving crime immediately to the police. In some cases insurance companies may deny some or all of a claim unless it was reported properly to the police. Get a copy of the police report if possible.
7. Keep good records of all belongings and valuables. You may want to take photos of all personal property. If filing a claim, make sure to take photos of property before it is repaired as a record of damage.
8. Keep a list of damaged or stolen property, and maintain receipts and other records of ownership.
9. Comply with all guidance and instructions of the insurance company, however make sure you take charge and clarify any concerns or questions. In many cases you may need to act as your own general contractor to coordinate repairs to your property.
10. Complete all paperwork in a timely fashion, and make copies of all paperwork before sending originals to the insurance company. Consider mailing as registered receipt.

It’s also good to remember that insurance companies maintain file records of claims and inquiries by policy holders, similar in many ways to our credit records. All past history of inquiries and claims are considered when evaluating a given individual™s risk profile, and the ultimate cost that individual will pay in insurance premiums. Why? Well, if you and your neighbor use the same insurance company, and your neighbor is filing a lot of claims for accidents and damages… it cost the insurer too much, and guess who’s really paying for all those claims? You and the other policy holders with higher insurance rates! Just an example, and realistically an insurance company is probably going to drop a policy holder if they file too many claims over time. Personally that’s why I maintain high deductibles on auto and homeowner’s policies- even as high as a $1000 or $2000 deductible. Not only does it lower my insurance premiums (a lot!), but it also makes me think twice about filing a claim if I have a small problem with the home or car. If I really need insurance to cover damages however, I know it’s available. Of course it’s important to decide if you want to handle payment of a large deductible too.

What other issues can you think of? If you have any experience with claims, or feedback, we’d love to here about it. Finally, what about consumer rights, complaints or other issues? Great question… insurance in the U.S. is regulated primarily by State law, and you can check the laws and your consumer rights by going to your State agency. Here’s a helpful map via the National Association of Insurance Commissioners website- just click your state and it should take you to the right agency.

     I was flipping through channels last night half-absent mindedly while doing some writing, and saw the “Deal or No Deal” show…   did you see it?  Some guy ended up with three of those “suitcases” left:  A $1,000,000 suitcase, a $750,000 suitcase and a $10 suitcase.   He was then offered $493,000 as a “deal” to stop playing!    Holy schmoly…  a half a million dollars, and what did he do?  He had a 1 in three chance of getting $10 but a guaranteed $493,000… he said “No Deal!” and played again.

Fortunately for him, or unfortunately depending upon how you view it, he eliminated the $1,000,000 suitcase and then was only offered $296,000.  This time he said “Deal!” and went home with almost three hundred grand in the bank, before taxes, seemingly pretty please with himself.  Well why not I suppose.

But if someone gave me a guaranteed chance at half a million, or a 1 in three chance at $10 (or a million, or $750,000) I would take the guaranteed money every single time.  Of course maybe the same reason I wouldn’t have risked the $493,000 means I may not have got that far, and would have taken less earlier in the game?  

I haven’t watched the show much, but a few months ago I watched someone else wind their way down from over a hundred thousand dollars, to basically nothing.    Why do people do that?  Why must people go for the huge chance of a gain, rather than a decent, or heck- a great return?  Probably some parallels in the market… what would you do?

You never see those market drops coming… especially on a day the Fed lowers rates.  At least I don’t, so that’s where diversification saves the day.    And why was the rate reduction just not low enough today?  Not enough of a rate cut?  I think that’s just journalistic license in the absence of any better explanation.  Okay, maybe because the “market” thinks the Fed doesn’t get it, and the credit situation is just getting worse.   But the quarter point reduction was expected, and the Fed left the door open to more rate cuts- if and when necessary.  The market reacts to the short-term however, and wanted more “relief” say the experts.  Like anyone really knows?  For millions of ARM (and other) borrowers at least today should spell relief.  Interest rates have now been cut three times since September and many of the ARM resets over the next 6-12 months will not be quite as severe.   The Fed will probably cut again, and I’ll bet the market grudgingly responds.   But first lenders need to figure out how to lend money again or we’re not going to get anywhere.  And I suspect that’s what’s got Mr. Market really troubled.