Sushi Money

It’s been a busy month with the holidays, and equally busy keeping up with the economic news, most of which isn’t very good.  But at the pump we’re all smiles these days with gas prices hitting five year lows.  Believe it or not I saw gas selling for $1.29 yesterday.  That is amazing, and to think of how much money Americans have wasted over the past couple of years in terms of fuel is even more amazing. 

Maybe wasted is a poor choice of words, but at least we’re not giving billions to third-world crazies anymore while the global recession has reduced demand (and speculation) incredibly.  The good news is how much we’re now saving here at home, and ”Tom Kloza of the Oil Price Information Service says Americans are paying about a billion dollars per day less than in July.”

At least that’s money people can use for other needs during one of the greatest recessions in decades.  But oil prices won’t stay this low forever, and some analysts see prices recovering later in 2009 or 2010 based on greatly reduced oil refinining capacity.  I hope that’s not the case- seems to me we got into the mess partly due to the fact that we didn’t have enough refineries or production capacity.  The big oil companies have little incentive at this point to expand their capacity however, so eventually demand and speculation will increase again.

Maybe we’ll be helped by better mileage cars and alternative energy?  Maybe.  I wouldn’t count on it, but every little bit helps.  That’s especially true in today’s economy, where many people are finding it difficult to juggle income against debt.  I hope you’re doing well at the end of such a tumultuous year, and that 2009 will be a whole lot better for all of us.

So much going on lately it’s hard to keep up with.   Staying too busy and not looking at the market gyrations each day.  It’s almost like a financial soap opera at times with the spin on the financial crisis.  Yesterday some of the headlines read that consumer prices fell by over 1.7%, which is nearly the greatest amount since 1932.  Yet core inflation was unchanged.  There’s always a story to be found somewhere in the financial news.

So now we’ll be reading about deflation as a grave concern by the Fed and others.  Maybe it is.  But energy prices have fallen so far, so fast that it influences the greater part of the drop in consumer price data.  Based on the past years CPI data, Social Security recipients are getting one of the largest Cola (cost-of-living-allowance) increases since the early 1980’s- 5.8%.  But don’t spend it all at once! Over the last couple of months the drop in consumer prices might indicate a meager Cola in 2010.  So it’s like getting next year’s increase now. 

The bigger news yesterday was the Fed’s lowering of the Fed Funds Rate to nearly zero percent.  That should ultimately influence some interest rate direction, but it’s not all good news.  It might ultimately influence mortgage rates, but it also means lower rates on savings accounts and CD’s. The Fed is really trying to do all it can to stimulate the economy and the business cycle.   Business growth produces jobs, and we know the employment news hasn’t been good lately.

Yet even with interest rates falling, this financial crisis is unlike others in the past.  Instead of falling credit card rates for example, many consumers are receiving notices of increases to their credit card rates, as well as reductions of their credit limits available.  Financial institutions such as Citigroup are citing a “difficult market environment” as their justification for raising rates.  This is a huge problem, especially on the eve of Congress’ new laws regarding consumer protections with credit cards.   

My opinion?  That’s why these companies are raising rates… because they’re not going to be able to after Congress tackles the issue.  Federal regulators are poised to make huge, sweeping changes to the credit card industry- and much strong consumer protections.  So the credit card companies are changing the game to their own benefit now while they can, and it’s not helping consumers.  

Even one of the most customer-friendly financial institutions in the country- USAA Federal Savings Bank- has notified customers that it’s raising rates 2% or more above current rates as a minimum!  You don’t have any choice with this other than to “opt out” after which the card/account will be closed.  Personally I think it’s a disgrace- but these companies are in business to make money, and if they can’t make profit at a certain level, they will raise rates to do so.  As it stands now, they’re concerned about losing money in light of low Prime and variable card interest rates. 

One would think these same companies shouldn’t be able to do this, especially if they’re receiving federal bailout money.  Maybe that’s an indicator of just how bad things have been.

So paying down (or staying out of) debt is more important than ever.  And don’t look for those zero-percent balance transfers to help out either.  They’ve disappeared like a lot of other things, and we just won’t be able to play the ‘ole credit card shell game as much anymore. 

Otherwise everyone’s busy!   It seems like we’re making progress from a macro perspective with the financial challenges we face.  The Fed’s doing all it can to move money around the economy, and maybe the banks will start to lend more in the months ahead.  I’m not a market prognositicator, but I still believe valuations are incredible and offer some of the best investment opportunities we’ll see in our lifetimes.   I’m not chasing stocks or the next big thing, but just trying to stay patient, and focus on long term goals.    Have a great holiday week.

Bail-out this, and bail-out that.  I know it’s serious and the country is facing so many challenges.  But I’ve got to admit I’m tired of hearing about it all.  You would think Congress holds hearings and press conferences simply to amuse themselves.  Either that or they don’t have a clue about what to do at this point and are hoping for some magical consensus as a way out of the mess. 

But when I look into my heart of hearts, beyond my concerns about the wise use of taxpayer dollars and the exponential increase in the national debt, I also have to admit that I really hope we can put together some kind of a bailout package for the big-three U.S. auto makers- Ford, GM and Chrysler. 

It was hard to put those feelings into words exactly, but after watching banks fail and huge bailouts for the big Wall Street institutions, I was shaking my head wondering why we couldn’t put something together for the auto makers- the icons of American industrial greatness through generations.  After all- if these guys go bankrupt, then what about every supplier and finance company that are so deeply tied to them?  What about the untold thousands of employees whose jobs are linked to the auto industry?  What about all the mom and pop businesses that support and rely on those workers and companies?  And who (else?) is going to want to buy American cars, especially if they are worried about warranty’s, maintenance and a car company still being around in a few years?   

I could go on and on, but today I came across Ben Stein’s article, Bail Out Detroit – Now and I just couldn’t say it any better. 

“I get sick when I hear about how this or that professor says we cannot have bailouts in a free market. Really? How about the bailouts the professors get because gifts to colleges are tax free? How about the bailout they get because if they have to teach six hours a week they feel overwhelmed, while the guy on the line in Dearborn works a grueling forty and doesn’t whine about it?”

“Somehow, we can give bailouts to investment banks where the top dogs make hundreds of millions a year for running the company into the ditch and wrecking the whole credit picture in America. Somehow we can have bailouts for Fannie Mae and Freddie Mac, whose bosses were trading on the credit of the taxpayers to make themselves rich while pumping up a serious housing bubble.”

“Amazingly, we can have whole fleets of C-130’s fly to remote areas of Iraq and Afghanistan with pallets of hundred dollar bills piled from floor to ceiling. Then we can pass them out to warlords who make tea for our soldiers one hour and blow their guts out the next. We can send CIA operatives into Somalia and give millions, maybe hundreds of millions, to warlords to fight other killers.”

“But we cannot find it in our hearts to save our fellow Americans in Ohio and Michigan and Indiana who make the cars and trucks that about half of us buy? We can send billions to Germany and Japan to bail them out after they bombed us and killed our POWs and killed six million Jews. But we cannot help the children and grandchildren of the men and women who fought our war and made us the arsenal of democracy?”

“Something is very wrong here.”

“…And why are we so angry at the car companies’ executives? They get miserable pay by Wall Street standards and have much harder jobs. Why are we so angry at the unions? They negotiated their deals in good faith. It’s not their fault that roller coaster gasoline prices messed up their world. They are our brothers and sisters. They fight our wars. They maintain our middle class lives. Maybe they get paid a lot, but they have been giving back for years. When will it ever be enough? And what about the retirees? They get the benefits they were promised. If those can be taken away, then whose benefits are safe? And do you think it will be cheaper if the government takes on those costs directly?”

“Let’s stop the Depression before it starts. Let’s show some fairness and good faith to our own. Let’s bail out the Big Three, help them slim down, shape up, and keep making great cars and trucks. The Big Three are us and if we cannot help ourselves, who can we help?”

 Bailing out Ford, GM and Chrysler is the right answer, and I hope our legislators get it right- or at least get it started right.  It’s not going to be an easy road, or the final answer.  It will take time and the taxpayers are going to pony up for a lot of it.  But it’s who we are, and in the end- if we let these guys fail altogether, it’s going to cost us a heck of lot more.

*** Update ***  Apparently the Treasury Secretary’s plan does NOT include plans for current homeowners to refinance their loans.  So while many of us may sit on mortgage loans at greater than 6% or 7%, this plan would allow neighbors to move in to their house with a new mortgage loan with much lower payments.   This seems wrong… it may be a temporary fix, but how will it help millions of current homeowners who are having trouble making payments on their current mortgage loans? 

This week we found out we’re officially in a recession, and have been since around December, 2007.  The market has been wallowing at multi-year lows and layoffs have been increasing.  In light of so many economic challenges, it’s hard to see any bright spots that can move us forward.  But what about a lower mortgage payment?  Would a couple hundred extra bucks each month really make a difference, or help people purchase a house?

For many of us, it just might.  That’s the focus area of the government recently- mortgage loans and the possibility that a U.S. sponsored wave of mortgage activity and refinancing could bolster both the housing market and the economy as a whole. 

“The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full point lower than prevailing rates for standard 30-year fixed-rate mortgages.”

“The plan is very similar to an idea floated in October by R. Glenn Hubbard and Christopher Mayer, academics at Columbia University’s Business School. “I think a program to substantially bring down rates for homebuyers would be an incredibly valuable program, and I think it captures a real part of solving what has been an incredibly challenging dislocation in the credit markets,” Mr. Mayer said in an interview. He estimated the idea under consideration could quickly help 1.5 million to 2.5 million people buy homes, giving a major boost to the housing market and broader economy.”

Certainly people would still need to qualify for the mortgage and have decent credit ratings to do so.  But a 30-year loan at 4.5% ?  Sign me up… not only would the monthly payment for many of us decrease, we would be able to focus more on reducing debt levels and increasing consumer spending.  *** Not for current homeowners! ***

“…Treasury Secretary Henry Paulson views lowering mortgage rates as key to fixing the housing crisis; hence the mortgage-security-buying program announced last week.  The most important thing we can do to mitigate foreclosures and progress through the housing correction,” Mr. Paulson said in a speech Monday, “is to reduce the cost of mortgage finance, so more families can afford to buy a home and so homeowners can refinance into more affordable mortgages.”

I have to agree (for once) with Secretary Paulson- making homeownership more affordable for credit-worthy families sounds like a great idea.  As long as we aren’t handing out loans to people that can’t repay them… hopefully we’ve learned that lesson already. 

Just for kicks I ran the numbers on the difference between the monthly payment for a 6.5% 30 year fixed-rate loan, and the same loan at 4.5%.  These numbers are for principal and interest only and don’t include taxes or insurance payments:

• 6.5% 30-year fixed-rate loan:   Monthly payment of $1,137.72
• 4.5% 30-year fixed-rate loan:   Monthly payment of $ 912.03

Okay, so we save about $225 bucks a month with the new mortgage. That’s not chump-change, and lots of folks can qualify for a 4.5% loan that would not otherwise qualify for a 6.5% loan.  Even refinancing is a great idea as long as we’re planning to stay in that house for a few years or more.   *** Not for current homeowners! ***

A Rush Into Refinancing may be just what the country needs right now however. But the new plan may not even include this option!  

I thought that’s what the Treasury Secretary was aiming for, and how they believe it can help dig out the country from the current housing mess.  Get more people into homes sitting empty out there, and make those monthly payments more affordable for all of us.  Good idea, but if they exclude current homeowners, then I don’t see how it helps the economy en masse.

By the way, what’s even more important over the long term on that interest rate scenario?  Think about how much interest you would be saving. 

• 6.5% 30-year fixed-rate loan:  Total interest paid $229,587
• 4.5% 30-year fixed-rate loan:  Total interest paid $148,336

That lower rate loan would save us over $81,000 dollars!!!

Sounds pretty good to me- that would pay for a kitchen and bath remodel, or even a few new cars over the lifetime of that mortgage loan. 

So is it time to buy that house you’ve been looking for?  Time to wade into real estate again?  Well, the real estate debate continues, and there are many opinions.   Even if a lot of us can think of several really good real estate deals out there, the money’s just not there right now.  And that’s part of the problem- with the stock market down, real income down, and folks losing their jobs, we’re running out of people that can qualify to purchase real estate.  

Maybe, just maybe, lower long term mortgage rates will help us climb out of this whirlpool?  Hard to say- that whirlpool is also a downward spiral… and deflation can take a long time to work out of.  Just ask the Japanese.

It’s been a busy couple of weeks and a nice break over the weekend.  Amazingly it’s already December… I’m all for supporting the economy, but I didn’t join the shopping melee last Friday.  I find myself holding back and shopping a little more carefully these days.  In fact I’ll shop more on the internet than in retail stores, looking for bargains here and there.   Today is supposed to be Cyber Monday for shopping online, but it looks more like Red Monday with the stock market after a key manufacturing index fell to a 26 year low.

Beyond the economic news there’s incredible unrest around the world these days, and now travelers have much to be concerned about.  If the events in India tell us anything, it’s that we must keep up the fight for freedom and against terrorism.  How can we live and grow as free nations around the world if we allow other countries such as Pakistan and Somalia to harbor or export such people?  This is not a simple fix, but will require generational change to overcome.  Hopefully we’ll see it happen in our lifetime.

In Thailand there are hundreds of thousands of travelers stranded at airports around the country trying to get home because of protesting within the nation.  And this at nearly the peak of the tourist season.   Civil unrest in Thailand and other countries is going to impact tourism in a huge way, and deepen the economic crisis for many people.  But the Thai government recognizes the impact and is trying to support tourists through lodging and food allowances while the protests continue.

“Tourism Minister Weerasak said the government will set aside as much as 400 million baht ($11 million) from its budget to pay for hotels and food for stranded tourists. Tourism generates about 1 trillion baht in revenue each year, he said.”

œThe government will pay 2,000 baht per person per day for hotels and food, Weerasak said. œWe think we need to spend this to take good care of the tourists. We will try our best to make them feel taken care of.

When I read such news I must say I am thankful in so many ways.  Doesn’t quite give one the travel bug does it?!  And it puts the economic challenges we face in a better perspective.  We’ve got work to do certainly, but we’ve got a strong foundation to build upon and people willing to work.  Soon we’ll have a new President and administration, as well as a host of minions running around Washington D.C. trying to get things going in a new direction.  Between all the new economic experts and a January stimulus bill, the news is bound to get better eventually.  What happens between now and then is a good question!

With the holidays upon us it’s time to decorate and focus more on home and family.  We won’t be doing much traveling, except perhaps closer to home.  Gas prices are helping the budget immensely, and that’s one more reason to be thankful.  Have a great week.