by Nilus Mattive on June 30, 2009
in General
I found myself in a lot of airports this past week (which also explains the lack of posts) … and I have to say that people have certainly not stopped flying in the midst of this recession. The Philadelphia airport was particularly crowded, even at 6AM. Columbus and West Palm Beach, less so … but still showing signs of activity.
However, I also continue to hear stories of economic hardship from people close to me. The latest example comes from one relative who was just forced to take a leave of absence from his position as an architect. It seems as though the projects have been drying up, even though the firm is heavily skewed toward government contracts.
As I have been saying all along, it’s hard to believe that all of our monetary excesses will be washed away in a few short months and that things will bounce right back where they were.
by Nilus Mattive on June 25, 2009
in General
I have written a lot about Warren Buffett’s Berkshire Hathaway, including details on the company’s own options positions.
And in Dividend Superstars, I have also been writing a lot about using options to generate additional income.
Now, the two subjects are colliding with a recent development in the Windy City.
The Chicago Board of Options Exchange recently began trading options Berkshire Hathaway’s ’B’ shares. The new options were intially listed with strike prices of $2,800, $2,900, $3,000 and $3,100, and expirations in July, August, September and December.
If you own shares of BRK, you can now consider writing covered calls against your positions. And if you always wanted to play the stock, but didn’t want to shell out $3,000 a share … you now have a cheaper “option.”
by Nilus Mattive on June 18, 2009
in General
I just got done reading this story from U.S. News … it’s an interview with a financial planner. Her advice on how much to save for retirement?
“If you have children in college or in private school you might aim to save 10 percent of your income. But in the time when the kids are out of the house and before you retire you may want to bump that up to between 20 and 25 percent. It really depends on your situation. You should always save in your 401(k) at least up to the company match. You certainly need to be saving enough money to have a cash reserve for emergencies.”
Now, I’m not singling her out here, and I actually agree with everything she said. But based on our little budegting breakdown we should also realize that it is virtually IMPOSSIBLE for most people to save 10% of their gross, let alone 20% or 25%!
It’s certainly a goal to aspire to. And with enough discipline, it can be accomplished. But let’s not pretend most people even have a chance in hell of doing it in this environment.
In addition to everything I just said in my latest Money and Markets column, I want to point out one more news item that just hit the wires …
U.S. credit card defaults rose to record highs in May. According to Bank of America, the company’s default rate — which measures loans that aren’t expected to be repaid — hit 12.5% in May vs. 10.47% in April. Amex also reported an increase from 9.9% to 10.4%. Capital One’s rate hit 9.41% from 8.56%. And on and on.
Look, none of this is surprising. Unemployment is high. Housing is in the toilet. And the massive credit bubble is bursting. A LOT of people are finally realizing that the trend of “aspirational” living can’t go on forever. This is the great unwinding of excessive lifestyles.
In the short-term, it could cause a vicious cycle of economic setbacks. But in the longer-term, I’m confident it’s going to make this country a saner, more stable place to live and work.
What do you think?
A few days ago, I noted that 30-year mortgage rates had risen sharply.
Today, we got the first hard-nosed proof that the surge has indeed hurt loan applications. According to the Mortgage Bankers Association, total home loan applications shrank to the lowest level since November last week.
Right now, Washinton seems to be taking a wait-and-see approach on the recent rate rise, but I don’t see how they can let this trend continue for much longer. Nor do I see how they can really stop it forever, of course.
In fact, what has been created is a vicious cycle of market manipulation … a negative “real” market reaction … ad infinitum. Place your bets on who will win in such a scenario!
by Nilus Mattive on June 9, 2009
in General
Seems as though a panel of Federal investigators is now suggesting that we may need a second opinion on those stress tests!
According to a new report from the Congressional Oversight Panel, Washington’s initial assumptions might have been just a wee bit too optimistic.
Gee, really? You mean assumptions like an unemployment rate of 8.9% … when May’s rate just hit 9.4%. … might not be accurately conveying the potential for damage to our system?
And let’s not forget that even under the original stress test, half of the banks needed more money!
From the looks of it, Mr. Market is a bit upset with the news, as well as the TARP repayment plan.
Nilus
P.S. I also wanted to note that I recently revived my other slightly less formal blog, in case you’re interested in getting even MORE market commentary from me!
Just wanted to post a quick note following up on some of the housing comments I’ve made both here and in Dividend Superstars.
Along with all the other reasons I’ve been citing to remain skeptical of a housing recovery, you can add to the list higher mortgage rates. The 30-year fixed rate is now firmly above 5%, and actually getting closer to 5.5% nationally.
Low by historical standards, to be sure. And the Fed may certainly intervene again to get it back down. But in my mind, a 50bp jump doesn’t bode well for sales going forward. Not with credit conditions still tight and confidence still so shaken.
I won’t be surprised to see an initial gain in sales as people hastily try to close deals before additional rate increases. However, long-term, higher rates will damage the market. Period.
by Nilus Mattive on June 5, 2009
in General
I received an interesting stat the other day …
Based on Wednesday’s close, the S&P 500 was up 39.64% from its low and down the exact same percentage.
Initially, many investors might take that to mean that the market is exactly halfway between its bull and bear extremes. But that’s not the case at all.
Sure, if you’re mathematecially inclined you know that. But I can’t tell you how many people I talk to fail to understand the simple idea that on a real basis, the same percentage loss is far worse than the same percentage gained.
In the case of the S&P 500, the 39.64% off the low represents a $2.36 billion gain.
But based on the high price, the index is still down $5.55 billion!
I’m not pointing this out to make anyone feel bad about the market’s rally. It’s certainly better to see you portfolio recover a good portion of money rather than none at all!
However, I think it’s important that everyone understand exactly how percentages work so they can properly analyze what’s happening in the markets and their own portfolios.
(And as a sidenote, I absolutely do believe percentages are the only way to measure performance. I can’t stand when someone tells me their stock is “up five points” since they bought it! But that’s a rant for another day …)
by Nilus Mattive on May 27, 2009
in Taxes
An article in the Washington Post says the idea of a national U.S. sales tax is gaining a bit of traction. If you’ve ever travelled abroad, especially to Europe, you’re probably familiar with the idea of a VAT, or value-added tax.
I’ve always found the name a bit ironic. And my favorite part of the VAT has always been that I get back what I paid as soon as I hit the darn airport.
What can I say? I hate taxes of any stripe.
However, I recognize they aren’t going anywhere anytime soon. For that reason, I think the idea of a national sales tax (ONLY if it replaces the current “system”) is worth considering. In fact, I mentioned it as one possible way to simplify our tax code in a Money and Markets a while back … along with the idea of a flat tax.
The problem with a U.S. VAT is not that it’s a slightly more elegant — and simpler – way for the government to collect revenue. After all, it is much harder to avoid (no, I don’t buy the notion that wealthy people will somehow circumvent the system by bringing their Ferraris over on secret night ships out of Italy) … it rewards saving and investing … and more.
The real problem is that for people who don’t understand basic math, it will sound completely unpalatable. All the average U.S. citizen is going to hear is this: “Prices are going up for everything you buy.”
Like solar panels, you have to convince people that the upfront investment will pay big dividends down the line. Or in this case, that massive upfront price increaes for nearly every consumable will greatly level the tax playing field and provide longer term benefits for the vast majority.
In other words, if I were a betting man, I’d say there’s no way a VAT will ever get instituted in the U.S.
The latest numbers from S&P/Case-Shiller’s housing index prove that things haven’t gotten any better for housing in 2009. In fact, the data shows that prices declined 19.1% in the first quarter of the year (following an 18.2% drop in Q4 2008)! Remember, this index is an extremely good indicator of what’s actually happening in the market because it tracks prices for the *same* houses.
If you’re a Dividend Superstars subscriber, you probably just read my latest issue, which has an in-depth piece on what I make of the market right now. And this news fits perfectly with what I said there.
So does this story in the New York Post (not usually my go-to source for news, but still …). According to the piece, more than 40K houses purchased in the NY Metro region over the last five years are now under water. Big surprise, right?
Locally, I continue to see price reductions, too. Many are clearly holdovers from the bubble (i.e. owned by realtors and purchased two years ago at ridiculous prices).
Bottom line: I don’t see a housing bottom anytime soon.
