Financial Cents

The Next Financial Crisis Will Be Bigger And Devastating To The Economy (2012)

2012-10-17T15:04:00.001-07:00

I've seen enough for the past 4 years and FED UP and I hope you are too! Obama has done nothing to fix the economy, but in fact made things WORSE by forcing everyone to buy into all the absurd bailouts (banks, mortgage, insurance, GM, etc) costing taxpayers TRILLIONS of dollars! That money only benefited the Rich, not us. The bailouts were gigantic band-aids that bought us some time as the underlying problems are still there! The system is literally rotting underneath. Don't be fooled by the media... The economy has been manipulated for the past 3+ years (via QE Infinity) making things seem much better than it really is, and of course, this propped up economy makes it easier for an Obama re-election. No matter who gets elected, the next economic disaster will be bigger and devastating to the economy compared to the 2008 Financial Crisis, except this time around, there won't be any band-aids left.

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Joe Granville: Stock Market To Drop to 8,000 in 2012

2012-01-23T20:05:00.000-08:00

Joe Granville, a well-known market timer, predicts that the DOW will drop by 4,000 to around 8,000 by the end of 2012.

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Take Action: Move Your Money Out Of Citigroup, Bank of America, Wells Fargo (2011)

2011-12-04T19:35:00.001-08:00

It is widely known that the big banks, the Federal Reserve, and top U.S. government officials are involved in fraud and conspiracy. Even the supervising entities are paid-off as not one criminal is in jail. Now I discover that the average salary at the bailed-out banks is $126,342. The workers should be making minimum wage as far as I'm concerned. If you are tired of this and want to make a difference, hit the banks where it hurts by closing the account or move 90% of your cash out of the following banks: Citigroup, Bank of America, Wells Fargo.

Find a community bank or credit union near you at http://moveyourmoneyproject.org.

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Global Economic Collapse. It's Coming... Be Prepared. (2011)

2011-08-11T13:25:00.001-07:00

We had the opportunity to fix the structural problems that led to the financial collapse of 2008, but instead, Ben Bernanke and our Administration failed to provide any meaningful fixes and policies and continued to lie, scam, and defraud the American taxpayers by printing massive amount of money to bail out the big banks and other "too big to fail" institutions. When it's all said and done, these same banks will fail anyway. Well, it's too late to fix anything now and it's time to pay the piper. We are past the point of no return. Expect a global financial meltdown... it's coming. Be prepared.

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The Federal Reserve Deliberately Caused Inflation in the Price of Food and Gas While Devaluing the Dollar (2011)

2011-06-11T14:55:00.000-07:00

The Federal Reserve and our government have failed us. It's time to stand up for ourselves and fight back. Ctrl+Alt+Bernanke.

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Documentary: College Tuition Bubble (2011)

2011-05-17T20:07:00.000-07:00

Here it is good documentary about the rampant rising cost of college tuition that most students cannot afford. The high cost of college tuition is an outright scam and should not be acceptable. There is absolutely no reason to pay $27,000/yr (private school) especially when there is no guarantee of a job. The unfortunate reality is that students believe the high price of college is the norm and is accepted as part of the American culture. I beg to defer. The inflated cost of tuition is caused by easy money similar to the housing bubble debacle. Student loans are readily available at artificially low interest rates provided by none other than the government itself. As more and more students easily borrow and overpay for college, this is an endless cycle that fuels the ever-growing college tuition bubble. However, the bubble will eventually burst, just like all bubbles do (i.e., home prices, stock prices, etc). But until then, students will be forced to acquire a huge loan only to find themselves saddled with debt that will take many years to repay. Watch the video and enjoy.

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Full Movie Documentary: Inside Job (featuring Matt Damon, 2011)

2011-04-07T22:40:00.000-07:00

Because of the reckless bailouts during the financial crisis, now we are all paying for it through higher gas and food prices, higher taxes, and reduced entitlements (Social Security, etc). The government foolishly bailed out insolvent financial institutions that should have failed, and now we are paying the bill.

Be sure to take some time and watch this documentary before it gets taken down. This movie will surely open your eyes about corporate corruption as well as how government deregulation played a major role that led to the financial collapse.

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Foreclosure Fraud on 60 Minutes: Forged Housing Documents (2011)

2011-04-05T20:11:00.000-07:00

Excellent investigation regarding foreclosure fraud and forged legal documents. The banks apparently hired hundreds of workers signing someone else's name on legal documents, all for $10/hr. None of the major banks commented on this segment.

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Harry Dent: “Major Crash” Coming for Stocks, Gold, Silver by Late Summer 2011

2011-03-31T09:10:00.000-07:00

I also believe a major crash is coming for stocks, gold, and silver especially with the absence of QE3. It has been an unprecedented bull run of the major indices and commodities since the market lows of March 2009, and all for no reason. Without a solid housing market rebound and full employment, the probability of a healthy, sustained economic recovery (and stock market) is zero.

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Short Film: Why Gas And Food Prices Going Up (2011)

2011-03-12T20:36:00.000-08:00

Brilliant animated short film explaining the causes of rising gas prices and inflation due to the corruption of our government.

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Homeless Kids in America: Parents Are to Blame, Not the Recession (2011)

2011-03-12T17:41:00.000-08:00

Don't blame homeless kids on the Great Recession, the Obama Administration, nor economic policies set forth by Congress. Homeless kids are clearly a result of poor financial planning, greed, and self-indulgence of the parents. It's a shame.

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BOB PRECHTER: Stock Market Will Crash To New Lows (2011)

2011-03-09T22:26:00.000-08:00

Nothing has been fixed for the past 2 years. We are still living in a fake economy. Everyone from Wall Street to Main Street believes that the economic recovery is under way. Unfortunately, this is not the case. Stocks will eventually catch up with fundamentals. And before you know it, we'll be looking at the DOW below 6800. Be warned...

401k Outlook: How To Invest in 2010

2009-12-27T21:38:00.000-08:00

Despite all the media coverage pumping up the economy, the fundamentals have not improved. In fact, it's worse! But because 401k accounts have recovered somewhat in the last 9 months, the perception is that the recession is over. Or is it? The stock market has recovered by more than 50% since the March 2009 lows but that doesn't mean we are out of the woods. Quite the contrary. Chances are that the next leg down will be dramatic and painful as the stock market resumes its long-term downtrend. I expect to see new lows.

To give you some perspective, the stock market rallied (since March 2009) for only two reasons and had nothing to do with fundamentals. First, stocks don't go down in a straight line. Short sellers always take profits on the way down which drives up the markets temporarily. Second, the effects of the dollar carry trade created demand for higher yielding assets. Money is still very cheap and easy to borrow. Investors from all over the world are borrowing dollars at near zero rates and investing elsewhere (i.e., stocks) at higher returns. Once the shorts return and the dollar carry trade unwinds, we could be in for some turbulent times ahead.

For most of 2009, we have been living in a fake economy. Demand for houses and automobiles have been driven by ridiculous government bailout programs such as the Cash for Clunkers and the Federal Housing Tax Credit program. The Cash for Clunker program actually hurts more people in the long run as car buyers took on even more debt trading in a vehicle that had a smaller loan balance or none at all. How does taking on more debt help anyone during these unstable times? Similarly, the $8,000 Federal Housing Tax Credit is nothing more but an indirect scheme to help the crippled banks. The banks are desperate and they are doing everything possible to get people to sign up for new mortgages. Again, how does this program help solve the credit crisis? It doesn't. When all this fake demand goes away, you will see that the economy will continue its downward spiral.

I believe the catalyst for the next downturn will be the bursting of the commercial real estate bubble. Just like the residential housing where homeowners were overly leveraged and could not service their debt. Commercial real estate is starting to fall apart as more retailers, banks, and other companies go out of business leaving behind a huge number of empty office buildings with no renters. These commercial properties were overly leveraged as well and could not be refinanced due to falling values. Sound familiar? This next leg down is going to take out even more banks and put hundreds of thousands more people out of work. And where are these people going to find jobs? Nowhere.

Speaking of jobs, the unemployment effective rate (U-6), currently at 17.5%, will continue to rise in 2010. Companies have no reason to hire when sales are deteriorating in most industries while the outlook remains bleak. I expect to see many more big corporations to fold and file for bankruptcy accelerating the pace for unemployment filings. Without jobs and people spending, a truly sustainable economic recovery is impossible especially when 70% of the U.S. economy is based on consumer spending.

The outlook for 2010 is grim and gloomy. With more bank failures coming, retail stores folding, accelerating home foreclosures and job losses, an economic recovery is unlikely. It doesn't look good for the year ahead. Think twice before committing more money into the stock market for 2010.

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Rebuttal: Blogging Stock's "Ten high-priced bargain stocks worth the price tag"

2009-10-04T12:41:00.000-07:00

This is in response to Blogging Stock's "Ten high-priced bargain stocks worth the price tag" article. I'd have to disagree with Jim Wood's assessment on these stock recommendations especially most of these securities have already appreciated 50%+ or more during the past 6 months! Bargain? I think not. In fact, I think the performance of these stocks going forward will deteriorate once reality sets in. In other words, stocks cannot continue to go up when there is little or no earnings growth. Current stock prices for the most part are unsustainable given the economic backdrop.

Here is my rebuttal:

Stock #1: AutoZone (NYSE: AZO)
Without the Cash for Clunker program, I believe car sales will nose-dive and remain depressed for years to come. Suppliers like AutoZone will obviously be affected by slumping sales.

Stock #3: Priceline.com (NASDAQ: PCLN)
Companies are cutting back on business travel and will continue to do so to improve their bottom line. Consumers are worried about their jobs and traveling significantly less.

Stock #4: Goldman Sachs (NYSE: GS)
One word: FRAUD.

Stock #5: Apple (NASDAQ: AAPL)
In this economy, consumers will soon realize that they no longer need 5 iPods and upgrade their iMacs. The stock has already doubled in 6 months and I don't see the shares going any higher. In fact, I think AAPL will fall substantially from here. At $185, I believe this could be a good entry point for a short position.

Stock #7: MasterCard (NYSE: MA)
Rather than making more charges, consumers are overloaded with debt and are trying to pay down their balance on multiple cards. Less credit card transactions mean less profits for Mastercard. Same with Visa.

Stock #9: Google (NASDAQ: GOOG)
Companies are cutting back on advertising and I see Google's earnings getting hurt if this trend continues.

Stock #10: Berkshire Hathaway A Shares (NYSE: BRK.A)
Most of us can't afford even one share, so I wouldn't worry about it.

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David Tice: S&P 500 to 400. No Economic Recovery Seen. (Video)

2009-09-19T21:21:00.000-07:00

I firmly agree with David Tice's assessment of the economy and stock valuations. Stocks are at extreme levels and are destined to crack sooner rather than later. Make no mistake. There is no economic recovery despite the sharp stock market rally for the past 6 months. Contrary to the financial analysts on CNBC, the belief of a V-shape recovery is nonsense and has no fundamental basis. As this credit crisis unwinds, consumers are severely tapped out, unemployment continues to skyrocket, and housing prices continue to plummet. There is no end to this until the government accepts the fact that we cannot buy our way out of this mess (i.e., corporate bailouts, cash for clunkers, housing rebates, etc). With that said, there is no doubt in my mind that we will see all-time lows in the stock market breaking the 660 level on the S&P and perhaps go all the way down to 400. That is a 40-60% drop from here, folks. Still want to contribute to your 401K? Well, good luck.

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The Great Recession Ain't Over Yet And Will Deepen...

2009-08-01T23:20:00.000-07:00

If you've been following the stock market, watch CNBC, read Yahoo Finance, and other media outlets, you would think that the recession is already over. But the fact of the matter is that we are nowhere near an economic recovery. Why? First, we have to understand what caused this recession in the first place. And second, we need to know what type of recession that we are in right now so we can address the issues accordingly.

There are two types of recessions. The most common recession is driven by overcapacity of "stuff" like cars, TVs, houses, etc. The supply is simply higher than the demand. Once this inventory has been depleted and cleared out, then the economy can resume its normal growth cycle. These are the types of recessions that most of us have experienced in the past and typically lasts anywhere from 9-15 months. No big deal.

However, there is another kind of recession that no one talks about and that is a credit-driven recession which is what we are experiencing right now. For the past 10+ years, economic growth has been driven by consumers buying massive amount of goods, but with BORROWED money. That is the difference. People have borrowed money at unprecedented levels by maxing out their ten credit cards and cashing in on their fictitious home values. So now what happens when those people lose their jobs and can't pay down their debt? File for bankruptcy, which of course affects the banks. The problem is not only with consumer loans, but also with auto loans, mortgages, commercial loans, etc. It's a huge mess and there is TRILLIONS of debt on the books! Until all debt has been paid down or defaulted, there is no way that this credit driven recession can be resolved in just 9 months. In fact, it could take many years for the debt to be cleared out of the system.

So what is the solution for an economic recovery?

This recession would end quicker if all troubled banks failed and restructured. But here is the problem. The government is preventing the larger banks (and insurance companies) from failing because it fears that a global financial meltdown could be catastrophic. Yes, that is quite possible. But either we take the pain now and recover quicker, or delay the inevitable resulting in a longer recovery. Well, it seems like the government has already decided for us.

What do I expect in the coming months and years?

-Double digit unemployment in 2010.
-Housing prices to continue to plummet.
-Stock market to retest March 2009 lows at 6600.

When was the last credit-driven recession in the United States?

The Great Depression.

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Financial Pictures: Soup Lines For 2009 and Beyond

2008-12-15T00:01:00.000-08:00

Can we avoid the Great Depression 2.0.? Click on the Time magazine cover for the article titled: "The End of Prosperity?"

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Peter Schiff: Let GM and Other Automakers Fail! (Video)

2008-12-03T22:00:00.000-08:00

Anyone thinking of buying a new vehicle within the next 3-6 months? I highly doubt it especially when the employment situation will only get worse. Even if the Big 3 automakers get a bailout today, they will come back in 6 months begging for more taxpayer money! The only way they can get out of this mess is to file for bankruptcy, eliminate the union, and restructure. Or, the automakers will fail outright (even with the bailout). In either case, I expect thousands of auto workers to line up at the unemployment office sooner rather than later. I don't see any other way around this.

Here's Peter Schiff's take on the Automakers.

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When Will The U.S. Economy and Stock Market Bottom and Recover? (2008)

2008-11-25T00:01:00.000-08:00

With all the bad economic news lately, people have been asking me, "when will the U.S. economy recover?" But the real question should be "when will the housing market recover?" Without the stabilization of the housing market, the probability of a sustained economic recovery within the next 6-12 months is almost zero. Why? First we need to understand how we got to this point in the first place. Then we can examine how the economy can fully recover and what we can do to prepare for this deep consumer-driven recession.

You've heard it all in the media - easy credit, reckless lending, and greed have created the biggest housing bubble ever in the U.S. Basically people have bought homes that they couldn't afford. Certainly there is plenty of blame to go around for this mess - whether it's lender fraud, the greedy buyer, or lack of government oversight, it really doesn't matter at this point because the damage has been done. But one thing is for certain - many ARMs have already reset and millions of people can't afford their bloated mortgages anymore that have led to an unprecedented amount of foreclosures. Because of these foreclosures, banks are stuck with so much bad debt that they are still trying to write it off today. At this juncture, financial institutions are having a difficult time raising sufficient capital to operate their businesses and servicing their debt. Eventually, the banks have no choice but to file for bankruptcy and restructure. This of course leads to huge job losses that could only mean one thing - dramatic decrease of consumer activity. This, in a nutshell, is causing havoc in our fragile economy today.

Because of the massive amount of homes being built all around the country especially in California and Florida, millions of jobs have been created that shouldn't have been created in the first place like mortgage lenders, appraisers, real estate agents, investment bankers, construction workers, home improvement retailers, financial-related jobs, etc. And because home values were doubling within 2-3 years, people were borrowing money against their erroneous home values and bought even more stuff that contributed to our "economic growth." But in reality, a healthy economy cannot grow when people buy goods with mostly debt. So in other words, we have lived in a fake economy for the past 8-10 years and it's going to take many years to unwind.

Sadly, all the jobs that have been created by the housing bubble will be wiped out and then some. There is nowhere to hide as far as job security because almost every industry will be affected. These are unprecedented times and even "safe" government workers at the state and county level are on shaky grounds due to a huge decrease of tax revenue. At the state level, consumers are spending less and may lose their jobs. This translates to less sales and income tax collected by the state. On the county level, property tax revenue will be dramatically lower due to massive amount of foreclosures. Jobs will be scarce at least for 2009.

Without the housing market recovering, financial institutions like consumer banks and investment banks cannot recover. These banks like Wells Fargo, Bank of America, and Morgan Stanley are still writing off huge amount of bad debt and it ain't over yet. Why? Because there are millions of ARMs that are scheduled to reset for the next several years which will trigger the next wave of foreclosures. Yes, it's this bad! Banks cannot survive like this and will fail perhaps in the thousand range when it's all said and done. At the time of this writing, there has been 22 failed banks in 2008, including 3 more banks seized by FDIC just this past weekend. Oh, have I mentioned the $300B Citigroup bailout?? I see bank failures accelerating in the near future.

So what happens now? The way I see it, I think we will see even more job losses in 2009 especially if the automakers and its suppliers fail, which I think is very likely with or without the $25B bailout. Unemployment rate will be close to 10%. We will experience a period of deflation where prices for all goods including gas, food, housing, cars, TVs, and even school tuition come down. Demand simply will not be there. Consumers have no more confidence since they are constantly worrying about their jobs. Easy access to the housing ATM and multiple high-limit credit cards are a thing of the past. And quite frankly, the American people will begin to learn how to save again and be frugal. Of course this can't be good for the economy if consumers are not spending, but this behavioral change will be the first step towards an economic recovery for the long term.

When will the economy recover? Well, as I mentioned, the economy will see bottom when the housing crisis recovers. How? Housing recovers once the median home prices fall to 3-4x median income or pre-2000 levels. Are we there yet? Not quite. Some Bay Area home prices are still at nosebleed levels even with 20-40% drop from the peak. Keep in mind that in a deflationary environment, wages will fall too. That means home prices will need to fall even more to adjust to lower incomes. I don't see home prices bottoming for another year or two.

Once the economy has bottomed, we'll see a L-shape recovery and experience a Japan-like recession that could last up to 10 years. Japan has already experienced a painfully long recession called the "Lost Decade" in the 90's caused by a housing and stock market bust. Sound familiar? Sadly, it's our turn now.

Will the stock market recover in 2009? The stock market typically recovers 6-9 months before the actual economy recovering. The market is always forward-looking. So if you believe that the economy will rebound in the second half of 2009, then buy now. But I think the stock market will fall substantially lower from here (DOW 8,443, S&P 851, Nasdaq 1472) and throughout 2009. With GM and other banks on the brink of collapse, many more non-financial businesses closing, severe housing market correction, frozen credit market, high unemployment rate, I don't see any catalyst for an economic turnaround anytime soon. This means the stock market has nowhere to go but down.

What should we do to prepare for this deep economic downturn? Since the mortgage is the biggest operating expense for most families, revisit your housing situation and decide if it still makes sense for you to own your home especially if you are upside-down. Figure out if you can truly afford your mortgage (33% debt-to-income ratio). If you find that you cannot afford your mortgage and is causing too much stress on the family finances, then consider selling the property (even at a loss) and then rent for a period of time. This is no time to be a hero, as things will get a lot worse before it gets better. House prices will be even lower next year and will continue to go lower until prices are inline with income in your area. Again, this price correction could take a few more years. Just to give you an idea, if home prices fall 50% from the peak, it will take at least 15-25 years to recover those losses (assuming normal 3-5% growth rate).

Other tips to consider during recessionary times: raise cash by saving even more money, buy things you can truly afford, and stay out of the stock market. As I mentioned at the beginning of the year on "How to invest in 2008?": protect your investments and retirement accounts by staying in cash or short-term U.S. Treasuries. There is still absolutely no reason to buy stocks and mutual funds in the U.S. and abroad at least for the next 6-9 months. Yes, things look really bad now, but the economy will turnaround. Just not next year.

What do you think about the economy/stock market and where it's headed? Let me know your thoughts!

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Political Funnies: WASSUP. Vote For Obama! (Video)

2008-11-03T19:31:00.000-08:00

For all the Obama fans...

Thanks to Jing for emailing me this video!

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Financial Funnies: Halloween Haunted Houses

2008-10-23T00:02:00.000-07:00

Well folks, good luck searching for homes that are participating in this year's Halloween! And even if you do, don't be surprised if you find the treats a bit smaller...

Thanks to Tony for emailing me this pic!

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Mortgage FAQ: Can I Refinance If My Loan is Upside Down?

2008-10-19T00:03:00.000-07:00

A friend of mine that works in the mortgage business gave me his thoughts on today's credit crisis and frequently asked questions. Special thanks to Tony for his time and expertise on the subject matter.

1. How is the mortgage business doing lately, Tony?

"Well the recent rate drop the last couple of weeks after the Fannie Mae/Freddie Mac government bailout announcement really didn't do much to improve our pipeline. We've remained slow. Inquiries have been from people wanting to purchase lender owned properties. Unfortunately, even at below market values, many do not qualify due to our conservative lending practices. "

2. Are all lenders requiring 20% down payment, 36% DTI now?

"No, however, you'll be hard press to find a lender that will do it. Stellar credit, good income and a portfolio lender is your best bet. These lenders tend to take a little bit more risks because they keep their loans and do not have to adhere to secondary market (Fannie/Freddie) guidelines. Can people still put down 5%? Yes, however, trying to find that lender that'll do it is the hard part and again excellent credit and high income is mandatory."

3. Let's say that I don't have 20% cash down payment, can I take out a HELOC on my primary house as a down payment for the second house?

"Yes, but you're now talking about a second/vacation home or investment property purchase transaction which usually requires more than 20% down payment. 30% is more like it. Also, you now have an additional liability, the HELOC, which will increase your DTI ratio. Remember you CANNOT have "2" primary residences. I'm with you on this one... if you've to borrow to come up with the down payment, then you're already over extended. But you know, we've a lot of borrowers doing just that. And who am I to complain as long as they qualify, I'm happy they are keeping me employed."

4. Where do you think conforming rates will go from here?

"I'm willing to bet, whether the democrats or republicans win this November, the new administration will extend the temporary increase in conforming limits through next year. However, whether that limit will be adjusted with more or less restrictions, we'll have to wait and see. As you may know, the industry is calling this new limit "Jumbo Conforming" and most lenders will have different rates between a "Conforming Loan" and a "Jumbo Conforming Loan" with the latter having slightly higher rates. Currently the difference is usually between 0.125% to 0.250%. I believe if the "Jumbo Conforming" program is still in place, the truly "conforming" loan rates will remain relatively low. However, if the "Jumbo Conforming" limit is removed, meaning the government feels the housing market has stabilized, you may see conforming loan rates going back up."

5. Has the jumbo market dried up?

"Yes and No. There are still people purchasing homes requiring jumbo loan transactions, however, in the refinance market, most borrowers are deterred from doing so because jumbo loan rates are way too high(in some instance 4-6% above the conforming rates). This is because investors in the secondary market buying jumbo loans are basically pricing their rates in a way as to not want them. Let me give you an example of OUR investor pricing for their jumbo rates and this is typical of current pricing from investors. If I were to sell a loan to our investor today and still make a 1% premium from the sale (typical broker commission), I'd have to price my rate above 11%. And this is assuming excellent credit, high income, low LTV. This forces borrowers to look for lenders who portfolio their loans and willing to take on the risk of a jumbo loan. At the credit union, we currently price our jumbo rates only 0.50% above our already competitive conforming rates. But due to our conservative nature in underwriting, we've not seen too many jumbo loans come through here, even though our market area tends to be mostly jumbo transactions."

6. What is the maximum on conforming loan amounts for the Bay Area like SF and Santa Clara counties?

"Here's a link from HUD that will give you the Jumbo Conforming Loan limit by county. Make sure you select Fannie/Freddie for LIMIT TYPE on the drop down. The truly conforming loan limit is still at $417,000."

7. What happens if a loan is upside down?

"Technically nothing, unless you want to refinance. If you've been paying the agreed upon payment on time, there's no reason for the lender to do anything. Now if you've a HELOC, the lender may decide to delete the limit. This scenario you are putting forth is all too common today."

8. Can I refinance my loan if it's upside down?

"I'm going to assume the reason for refinancing is because of an ARM loan with the interest rates resetting after the fixed period, meaning changes(most likely an increase) in the interest rates and payments. Well, that's going to be impossible. No lender in their right mind, in this economy, will take on this loan. Unfortunately, the borrower will have to "suck it up" and make the payments until someday the value goes above the loan balance. This is really sad because we ARE NOT talking about sub-prime loans, liar loans, or 100% financing. What we ARE talking about are the truly qualified borrowers who had 20% down payment, excellent credit, good income, but selected a fix/adjustable rate program back when the prices of homes were at their highest levels. With the recent uptick in the LIBOR (London Inter-Bank Offer Rate), which is what many ARM loan rates are tide to, you maybe looking at a 2% jump in rates. This translates to financial stress on borrowers due to a huge jump in payment from when the loan was in its fixed period. To be honest, I believe this whole mess we are in was caused solely by the lack of regulatory oversight by the Bush administration and greed of industry leaders that worked with our government."

9. Should I walk away?

"If you've money stashed away and don't want to loose your home, you can buy the balance down to a level that allows for refinancing. And finally, if you really can't afford the payment, the only solution is to walk away, because you can't sell the property. But know what the consequences of this action may bring as it relates to your future borrowing abilities. However, prior to doing this, I suggest you try negotiating with the lender to see if you can be placed into a different program or maybe even extend the current one to relieve some of the pain due to increased payments. Do point out the fact that your payments have always been made on time and the only reason you want to negotiate is because of the financial stress this may cause. And also emphasize what the outcome maybe should the lender fail to come up with a solution. If I was management, I may consider working with the borrower to negotiate a new mortgage because most lenders are not in the business of foreclosure, especially when it comes to good standing customers."

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Courtesy of http://localism.com/

Bank Run Coming to a City Near You. Prepare for Credit Freeze (Video)

2008-10-15T00:01:00.000-07:00

Don't let this happen to you. With today's global credit freeze, no one really knows what will happen tomorrow. What if the grocery stores and gas stations no longer accept credit cards? Not likely? Think again. According to CNBC, there have been scattered reports that some stores in Europe are not accepting U.K.-based credit cards anymore. That means cash is king and you'll need to get access to some money quickly. Remember that the bank only stores enough cash at the branch for day-to-day operations. Most of your money has been lent out (to people to buy things they probably can't afford and most likely will not be paid back. Oh wait, isn't this how it all got started??).

Be prepared and avoid long lines at the bank. Go to the ATM today and withdraw some cash for emergency purposes.

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Financial Funnies: Nortel Layoff Initiative

2008-10-10T00:02:00.000-07:00

Not exactly funny when so many people are losing their jobs these days, but we need to keep a humorous perspective on things...

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Courtesy of http://justinblanton.com

Why Nortel (NT) Stock Continues to Plummet? Bankruptcy Looming? (October 2008)

2008-10-08T00:01:00.000-07:00

Is bankruptcy looming for Nortel? It's possible, but not probable in the immediate future. The company has $3B in cash according to the 10-Q filing reported in August 2008. The good news is that the next big debt payment ($1B) won't be due until 2011. So I don't see any cause for panic yet. The company still has some time to cut costs and make the necessary adjustments to weather this downturn.

However, I'm sure you have noticed that the stock dropped a considerable amount since the earnings warning back in Sept 2008. Why? I think there are three reasons for the stock's relentless free fall. The reasons are due to fundamentals, chart technicals, and mutual fund selling because of Nortel's smaller market cap.

Nortel's market capitalization has fallen dramatically to $800M and is officially a small cap company now. That means that many large and mid-cap mutual funds are forced to sell Nortel stock to stay within their fund's objectives. This liquidation by the mutual funds has probably contributed to some of the recent stock slide. Whether or not the small cap funds will purchase shares of Nortel for their clients remain to be seen.

On a fundamental basis, the company has been losing money almost every quarter for the past several years. That means the cash burn rate has been under pressure as Nortel struggles to survive. This is the reason why the company is scrambling to raise money quickly by selling off assets that may still have some value like the Metro Ethernet Network business. I won't be a bit surprised if the company continues to spin-off more business units to raise cash.

On a technical basis, there is absolutely no support on the stock once it broke the all-time low of $4.30 which is also another reason why the stock has dropped so rapidly to $1.67. The stock is searching for a bottom and could easily go to $1 or below from here. If the stock does go below $1 for a sustained period of time, Nortel could get delisted from the NYSE and also get hit with credit rating downgrades which would make it even more difficult to borrow money for its payroll and day-to-day operations.

Nortel may not be filing for bankruptcy anytime soon, but the company needs to continue to raise cash, cut costs, and transform into a smaller, leaner company to survive. These will be the most challenging times for Nortel to say the least. Perhaps the Canadian government could follow the footsteps of its neighboring country and provide some liquidity assistance to corporations. Bailout, anyone?

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