Everyday Finance

Is Goldman Sachs Responsible for Every Bubble?

noreply@blogger.com (Everyday Finance) — Tue, 07 Jul 2009 23:39:00 +0000

Goldman Sachs has been at the center of several global conspiracy theories, especially since the financial meltdown. I had previously highlighted a heavily anti-Goldman website and their legal maneuvers meant to quell dissent. Today, I came across this article and set of videos published in Rolling Stone basically blaming Goldman Sachs for the creation, manipulation, profiteering and crash of every bubble we've seen recently. The article is interesting to say the least. Contrary to the claim that Goldman has the power structure in their pocket is this massive fine they were hit with for their role in the housing crisis, but in general, Goldman did emerge from this recent collapse relatively intact.

While I had admonished those citing speculators as being responsible for the increase in oil prices and have since hedged my gas prices personally, if there is anything to this notion that Goldman rules the world, if you can't beat 'em, join 'em, right? I was thinking about who survived the crisis and who didn't...who can repay TARP and who can't...who benefited from the bailout via counterparty passthroughs from AIG that otherwise would have decimated them...and then I took a look at their chart vs. the general markets.

Goldman has outperformed the S&P500 in stellar fashion since launch to the tune of a 100% Gain over the past 10 years vs. a loss of 37% for the S&P500. That's hard to believe, but yes, we're down that much over the prior 10 year period. As naive and elementary as the question is, it begs asking:

If Goldman Rules the World and will continue to do so for the foreseeable future, why not hold common shares?

Disclosure: I have no position in GS at the moment.

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Who Here Steals Food from the Company Caf?

noreply@blogger.com (Everyday Finance) — Mon, 06 Jul 2009 23:13:00 +0000

So, I work in your typical corporate office. It's a pretty large building with enough people to host a pretty bustling company cafeteria. For years, I've frequented the caf (shame on me for not saving money by brown-bagging it...I know) and since I generally take it with me and work at my desk while I eat, the food is served in a little container with a lid. Generally, you just walk up to the cashier and tell them what you ordered. Of late, they started writing anything special on the lid, like if you ordered an extra side or whatever. But in general, it's always been based on the honor system.

More recently, on a few occasions, the cashier has asked me to open my container AFTER I told her what I ordered. I figured maybe there's been some "leakage" of food that wasn't accounted for or something. After this exercise was repeated a few times, I asked, "so are people stealing food or something?" starting to wonder if I "looked guilty or something" or if this was just a new phenom. She replied that there has been theft of food requiring sporadic checks of the contents of the containers. Presumably, there are some employees adding some cookies, french fries or something in their containers and not reporting it during checkout.

I realize we're in a recession, but isn't stealing food from the company cafeteria over the top?

If you were caught red-handed doing this in front of your colleagues, wouldn't you be completely mortified?

Cheating on taxes or not reporting to a store clerk when they forget to ring something up and you found it in your bag in the car seems to feel more "anonymous" and many people reading this probably have at least one such experience of that nature (not that I condone, but pragmatically speaking...) but risking getting nailed in front of your coworkers is really brazen.

I've heard of people getting fired from great jobs for really stupid stuff like stealing office supplies and such. I don't know how this would be (or has been) handled since it might be tough to prove what the employee's intention was (like perhaps it was an "oversight") and the cafeteria is run by a third party...but it seems pretty lousy nonetheless. We're just paying for it in our costs and service cuts so the food company maintains the same profit margins.

Do you know anyone that steals from their company or have stories outlining what the consequences were?

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Carnival of Personal Finance - Global Independence Edition is up

noreply@blogger.com (Everyday Finance) — Mon, 06 Jul 2009 12:05:00 +0000

I had hosted this week's Carnival of Personal Finance at my other blog Darwin's Finance, which is a culmination of the best articles in money and investing from the prior week. Make sure to visit and check it out - there are some great articles this week!

BusinessWeek - What's Wrong with this picture?

noreply@blogger.com (Everyday Finance) — Sat, 04 Jul 2009 03:05:00 +0000

Alas, my favorite read each week has let me down once again! I look forward to the weekly delivery in the mailbox, not just because it's not a bill or caterpillars for my kid's science experiment (well, OK, he gets some pretty cool stuff in the mail too), but because it's the best balance for me in terms of not overly "dumbing down" the personal finance and investing content (like the press touting the New Normal, which is totally not what PIMCO's El-Erian envisioned when he made the phrase popular this year) like some of the other publications on the news stand, balanced with an occasional new investment vehicle or idea that I end up investigating further and in some cases, blogging about after taking it a step further. Well, occasionally, I come across typos, mathematical modeling errors and other gaffes that disappoint for such a widely disseminated and venerable magazine. Where are the editors on this?

Can you spot what's wrong with this graph from this week's edition?

Hey, and since this is a totally random post, make sure to stop by my new blog Darwin's Finance on Monday, as I'm hosting the Carnival of Personal Finance where you'll find the best in money and finance from top bloggers around the world all consolidated into one edition.

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Home Price ETF has Begun Trading

noreply@blogger.com (Everyday Finance) — Wed, 01 Jul 2009 11:17:00 +0000

I had posted recently on an upcoming set of ETFs that would allow you to trade on the Case-Shiller home price index, which is meant to mimic the largest metropolitan areas in the US and be "generally representative" of the US housing market. Even though you hear the proverbial expression that "real estate is local", if these ETFs were available in 2006 and you bought the down option, you'd have made a killing. I like the idea that you can hedge your own real estate, especially if you live in one of the metro areas tracked. In effect, if you have a $300,000 home and feel good about an annual 3% increase in your home price, you could employ a small hedge with the down ETF. If your home price declines, while you're losing a lot of value on paper, you're making it up in the ETF. If you home price rallies (and if you're ever going to sell or do a cash-out refi [as hard as they are to get nowadays]), the money you lost in the ETF will be more than compensated for in your actual home price appreciation.

Finally, these ETFs started trading yesterday. If you think the economy's in for more turbulence, you can just buy the downside ETF now or buy the upward one on recovery hopes. For more details on just how these ETFs work, ticker symbols and more, check out my initial article on the Case-Shiller ETF for US Home Prices.

4 Momentum ETFs To Start Your Week

noreply@blogger.com (Everyday Finance) — Mon, 29 Jun 2009 00:08:00 +0000

Each week, I like to publish the past week's hottest ETFs to share some new trends and niche ETFs out there and give investors some new ideas. For this week, real estate and the reign of the months-long Short Treasury play reversed for big gains in leveraged long Treasury Bond ETFs. China and sugar (there's an ETN for that!) performed well also. Here are 4 top performing ETFs from last week:

PSR - Up 11% Powershares Active US Real Estate - This is an "actively managed ETF" which may sound like a bit of a misnomer. The fund will invest at least 80% of assets in securities of companies that are principally engaged in the U.S. real estate industry and included within the FTSE NAREIT Equity REITs Index. It is free to utilize the balance of the assets for additional exposure to other real estate or alter the weighting of its holdings. With a higher expense ratio of .8% than its passively managed brother VNQ at .1%, it will be interesting to see if the ability to add some actively managed positions to the ETF outweigh the .7% difference in expense ratios. What is somewhat deceiving as well though, is that the instrument doesn't seem to have much trading volume at all and last week may have actually been an anomaly, since it didn't track VNQ closely at all. I'd watch PSR with suspicion near term if you see it showing up on ETF hot lists and perhaps think about VNQ if you're itching to get into real estate until there's more volume and the spreads are smaller.

TMF - Up 11% -Direxion 3X Long 30 year Treasury - A few months back, shorting Treasuries seemed like surefire way to capture the optimal risk-adjusted return - since Treasuries really couldn't run much higher with yields approaching zero - and some short dated maturities actually fetching negative yields! Well, that strategy has sputtered out and is reversing near term. From here, it's like volatility both ways and the easy money appears to have been made. Recall that leveraged ETFs pose risks that aren't immediately intuitive due to daily rebalancing - see this article on Leveraged ETF Risks to understand why these are only suitable for a near term trade (sometimes!) and never suitable for a long term hold.

TAO - Up 9% - Claymore/AlphaShares China Real Estate - Virtually anything China has been hot during the recovery and for the prior week, this niche China Real Estate ETF has turned in stellar performance, with a 3 month return of 60% vs. 10% for the S&P500. While many US Real Estate ETFs and Real Estate Investment Trusts offer higher yields, TAO comes in with a once per year dividend, averaging around 2% based on December's payment, so don't plan on buying this one for income.

SGG - Up 9% - Barclays iPath Sugar ETN - Trading in a sugar ETN (exchange traded note which has some different properties than ETFs that you'd want to research further) is probably best suited to those with industry knowledge, but there is such a niche ETN available to retail investors nonetheless. Sugar moves at the whims of India's production output, the indirect relationship with Brazil's sugarcane and weather all over the globe. Year to date, SGG has returned 30% vs. a roughly flat S&P500. For broader commodity representation, consider the the Greenhaven Continuous Commodity index ETF GCC, which holds sugar along with several other commodities. Note however, that SGG has routinely outperformed in recent history.

Miss the Boat on Corporate Bonds and Bond ETF?

Investors may well want to keep an eye on high yield corporate bonds as well, since returns are trending virtually in lock-step with equities, yet the yields on the bonds are often significantly higher than the dividend payouts (which are cut well ahead of a bankruptcy declaration that would chop the bond return by more than 75%). For simplicity, a lower barrier to entry and diversification of risk, this High Yield Bond ETF HYG is still sporting a double digit yield - just note that there will likely be some defaults in the underlying holdings as the economy stagnates in the next year or so, which may adversely impact share price and yield.

Disclosure - The only active position at this time is HYG. The author closed a 2X Short Treasuries position last week.

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I Hedged my Gas Prices Today

noreply@blogger.com (Everyday Finance) — Fri, 26 Jun 2009 03:59:00 +0000

As I had posted in my more detailed article on how to hedge energy prices for everyday consumers, today I finally got around to personally hedging my gas price expenditures. While I had listed 8 different ways you could do this, I took the simple income approach, which was to sell puts against the gas ETF UGA. I sold two puts with an October expiry for .95 each = $190, or ~$180 after commission. With UGA trading over $32 per share, gas prices will need to drop 15% in order for the UGA shares to even approach breakeven. If they drop below, I would have to pay the difference to close out the position or take custody of the shares at expiry if still in the money. This is fine, because with our family's expenditures on gas, and summer vacations on the way, I'm taking $180 now, spending more if prices rise with $180 to offset it or spending less on gas if prices drop. And sweetspot - if prices stay about where they are or drop less than 15%, I get to keep the full $180 and pay less for gas as well! It's a natural hedge that I outlined further in my gas hedging article. I plan on rolling over this hedge or one of the other ones I outlined for the foreseeable future. Why now?

Just thought I'd pass on my personal plan on lessening the pain of rising gas prices this summer; I would love to hear about yours.

Latest Bandwagon Outrage: CITI Increasing Salaries to Circumvent Bonus Restrictions

noreply@blogger.com (Everyday Finance) — Thu, 25 Jun 2009 03:03:00 +0000

It was divulged today that Citigroup, a zombie bank that required massive government bailouts to stay afloat, will be increasing the salaries of select employees by as much as 50% to circumvent the bonus restrictions placed on it when TARP funds were disbursed. What Citi is looking to do is essentially keep their employees at the same pay level as prior years while still adhering to the government's restrictions.

I'm more annoyed at the pols than Citi to be honest. If you're Citi and you're trying to stay afloat and retain employees that are jetting for the "good" houses like Goldman, who can repay TARP funds or hedge funds - both of which pay their employees the going market rate (much higher), wouldn't you do everything within your power to retain them? Since what they're doing is legal, can you blame them?

What I find to be especially outrageous and annoying, is our politicians. First, there were the AIG bonuses and the feigned outrage (like nobody saw that coming). Now, there's Citi. No doubt, by the time you read this, there will be editorials gallore and the blogosphere aflame over bigger salaries to the guys at Citi that "wrecked the country". To that, I say, you're right to be annoyed - in my company, if we have a lousy year and don't meet our company objectives - no bonus. However,

What the heck was the government thinking when they imposed these restrictions?!?

Couldn't they have predicted this would happen? If yes, they're disingenuous liars. If no, they're inept. Neither is particular appealing. Neither would surprise me. Are these the same geniuses approving trade deals with other countries and legislation that impacts everyday Americans? These are our best and brightest officials overseeing what kind of obligations the Fed and Treasury are placing on various entities involved in the bailouts? I recall that the day I heard about the bonus restrictions, I joked to myself, "they'll just increase the salaries to maintain par with the market". Any novice saw this coming and yet, today, we have politicians already taking to the pulpit with "outrage".

As time goes on, people will continue to look back with dismay at our inept politicians with their focus on sound bites and questioning over whether executives fly a jet or drove a plane to a big auto hearing (with continued bailouts down a rathole for GM that I called months ago) instead of taking an introspective look at THEIR role in the loosening of lending standards, lack of oversight, market collapse and then, the generational debt they've burdened our children with. This Citi issue shouldn't even get much press - but I know it will so I figured I'd get a contrarian view out there before the pundits and pols jump all over those greedy capitalist pigs.

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Weekly Links - The Future of Iran Edition

noreply@blogger.com (Everyday Finance) — Wed, 24 Jun 2009 01:02:00 +0000

The following is a republication of my favorite weekly reads and updates that I publish on weekends at my other blog Darwin's Finance.

These are entries from blogs I frequent, and I hope you will too (just come back!). This week, Iran’s historic election and subsequent outrage from a population seeking change is the prominent news item. Not only does the outcome of the current movement have implications for the balance of the entire region, but there are financial implications as well; namely energy prices. Here’s a culmination of several shocking videos from Iran demonstrating the bravery and determination of a generation that has said no to propaganda, censorship and brutal military force at demonstrations.

My Favorite Investing Reads

Nice Dividend Investing Roundup

Buying Commercial Real Estate (UK, but relevant everywhere)

Four Divvy Stocks Raising Dividends

Gold Buying Insurance Company

The Best Indicator of the Economy

Dividend Portfolio Strategies

My Favorite Personal Finance Reads

Hyperinflation and Deflation described

Do It Yourself Funeral

Maintaining an Empty House if Your Neighborhood

Home Buyer Tax Credit Extending to 15K?

Mortgage Accelerator UFirst Financial apparently not honoring refunds - (my initial background and negative review of UFirst MMA here)

The Economics of Saving by not having a car

Within my network at Darwin’s Finance and Everyday Finance:

15 High Yield Corporate Bonds Raising Eyebrows

Structured Notes Review: How they deliver guaranteed returns in any market

How FSA Plan Account Contributions Can Save You Thousands

Hedge Your Own Gas Prices this summer!

Vanguard Founder Bogle Says Buying Stocks individually is like Gambling

Natural Gas ETF Anomaly - Ripe for Exploitation?

Oil’s on a Roll - Let’s Blame the Oil Speculators!

Comcast - Surprise Massive Bill, Then Saving Money Again

401K Cuts to Matching Contributions Coming - Time to Exit?

noreply@blogger.com (Everyday Finance) — Tue, 23 Jun 2009 02:23:00 +0000

I read with interest this article from CNBC citing a study indicating that 1 in 4 U.S. companies either plan to cut or flat-out eliminate 401K matching contributions due to the current economic conditions. This is an unprecedented move, especially in such large numbers, for U.S. companies. Cutting out the bottled water and jaunts to Hawaii for the sales force is one thing (as a manufacturing/supply chain guy constantly seeing the shenanigans on the other side of the fence, always have to throw a jab in there :>), but cutting out the thousands of dollars per year in matching 401K contributions to employees is essentially an across the board salary reduction for people who took a role partially predicated on this benefit.

Apparently, most of the companies cited see this as a temporary step, but what is temporary? 1 Year, 5 Years, or more? Companies think strategically, and if preservation of cash over a brief period of time is this critical, perhaps there's more going on beneath the surface.

If Your Company Cut your 401K Matching Contributions, is it Time to Leave?

At face value, a 3-6% (typical range of value of the matching contributions) pay cut isn't cause to switch companies given the transition costs, risks incurred by moving to a new employer, hassle, loss of reputation from old employer, possible relocation from a comfortable life, etc. However, if your employer is resorting to such drastic measures as cutting one of the most important employee perks, is this just the surface? Have your company's shares declined more than the peer group in which you compete? Has the credit rating been lowered recently? Have other cost-reductions like job cuts and outsourcing already been enacted and are viewed as insufficient to remain solvent? Are analysts citing the need to generate cash?

These are some questions I'd be asking myself and when combined with the typical bump you could get by going to another firm, + 3-6% since they likely ARE retaining their 401K matching contributions (or else it's unlikely they'd be recruiting right now, right?), plus they may have a better financial outlook. Perhaps the 401K cut to matching contributions was just the tip of the iceberg and there's more pain ahead if you stick around. A move like this within your company should at least warrant further consideration.

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Hottest ETFs of the Week ended June-21-2009

noreply@blogger.com (Everyday Finance) — Sun, 21 Jun 2009 20:39:00 +0000

Each week, I like to publish the past week's hottest ETFs to share some new trends and niche ETFs out there and give investors some new ideas. For this week, short leveraged ETFs were extremely hot in the energy and emerging markets sectors especially. I always caution that the leveraged ETFs carry substantial risks that aren't intuitive to prospective investors that haven't researched them fully due to daily rebalancing among other things. With the market volatility continuing to ensue and geopolitics heating up, cautious investors may also want to consider more stable, predictable returns in Structured Notes Products or other alternative investments to account for at least part of their portfolios. But, rounding out the top of the list are:

ERY - Up 23% - Energy Bear 3X Shares Russell 1000 Energy - While the 3X long ERX had been a stalwart performer in the prior several weeks, energy stocks took a breather this week. It's worth noting that even though oil is up 15% YTD, both the long and the short ETFs are down over 20%, hence, why I refer to the 3X leveraged ETFs as the riskiest ETFs on earth for their long term depreciation behavior. Remember, these are for day-week trades, not for holds. If you want to capture a secular move in an index or commodity, I recommend just going with the 1 underlying instrument.

EDZ - Up 20% - Emerging Markets Bear 3X - While up 20% for the week, betting against emerging markets has not been a sound strategy during the prior 3 months, with EDZ losing 70% of its value.

SMN - Up 16% -Proshares Ultra Short 2X Base Metals - With the dollar showing some strength during the prior week, metals and commodities in general showed a loss. I don't view this as a long-term trend, but perhaps commodities were getting ahead of themselves on fears of a more precipitous fall in the dollar and inflationary expectations.

DUG - Up 15% -Proshares Ultra Short 2X Oil and Gas - This is a bet against future rising oil and gas prices. While it worked out last week, I wouldn't bet against the recent trend, especially in light of the recent events in Iran. As a long term hedge against rising energy prices, this isn't an ideal ETF given its leveraged nature and short term utilization. Check out this article if interested learning how to hedge gas prices or whatever your primary energy expenditures are this summer.

Newly Launched ETFs

Since the leveraged ETFs were the only ones that made the list this week, it's worth mentioning that some new leveraged ETFs were launched by Proshares earlier in the month:

Ultra Long 2X

Ultra MSCI EAFE	EFO	MSCI EAFE Index	200%
Ultra MSCI Emerging Markets	EET	MSCI Emerging Markets Index	200%
Ultra FTSE/Xinhua China 25	XPP	FTSE/Xinhua China 25 Index	200%
Ultra MSCI Japan	EZJ	MSCI Japan Index	200%

Ultra Short 2X

UltraShort MSCI Europe	EPV	MSCI Europe Index	-200%
UltraShort MSCI Pacific ex-Japan	JPX	MSCI Pacific ex-Japan Index	-200%
UltraShort MSCI Brazil	BZQ	MSCI Brazil Index	-200%
UltraShort MSCI Mexico Market	SMK	MSCI Mexico Investable Market	-200%

Disclosure: No position in the aforementioned ETFs.

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Comcast - Surprise Massive Bill, Then Saving Money Again

noreply@blogger.com (Everyday Finance) — Sat, 20 Jun 2009 15:15:00 +0000

A few months back, I had posted on how I save money on my Comcast bill to the tune of $250/year by pitting a competing service against theirs and threatening to leave. I laid out the steps of how to approach the situation from what to say to who to talk to - and for that brief period of time required, I was pleased with the return on investment of $250/year for life...until I got a bill today for close to $100 more than my usual month bill. I called to inquire and was told that the change to my bill which I had been benefiting from was because it was actually just a 6 month promotion. I utilized some of the same tactics I as last time, in getting to the right person, treating them in a calm, professional manner and laying out my case in a rational, objective manner.

Fortunately, my patience and approach paid off and they agreed to discount my Comcast bill again. The rep said that she could only do it for 6 months at a time like last time, so every 6 months, I'll have to spend 10 minutes or so (the wait actually wasn't that bad this time) and revisit the same scenario with the rep again. The price she quoted me for this month's bill was actually LOWER than I had been paying! Presumably, there are different promotions they can pick from each time and she hooked me up this month with a better one than I had previously.

For anyone out there that isn't stuck with a pure monopoly phone, cable or internet service, I highly recommend pitting your existing company against the competition in order to enjoy substantial savings annually. It might be satellite vs. cable, cell service vs. landline -

you can employ the same approach no matter what and given the high acquisition cost of a customer and low variable costs, most of the time, these companies will relent and grant you a discount rather than letting you walk.

What are your success stories in this regard?

Read about More Money-Savings Tips:

Savings Tips Consumer Reports Style

How to Save Money with a Contractor - Patio Example

Net Present Value: Why you should use it in Everyday Life

Buying a New Car - Strategies and Findings

Stepping Outside Your Comfort Zone to Save Money Daily

Save Hundreds per Year with Cash Back Credit Cards

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Natural Gas ETF Anomaly - Time to Exploit?

noreply@blogger.com (Everyday Finance) — Thu, 18 Jun 2009 02:33:00 +0000

After briefly catching Cramer's rant tonight against the Natural Gas ETF UNG and its potential to manipulate the true price of natural gas upwards given unplanned investor inflows, I figured I'd investigate a bit further to see if he was on to something. While he was railing against the existence of the ETF and was calling for the SEC to shut it down, I figured, "hey, sounds like a possible investment opportunity to me". If anything, I'm seeking to hedge energy prices on a personal basis, and there are some other factors at play here above and beyond pure speculation. Not only does this other article from the Wall Street Journal make the case for a potential divergence from the underlying value of the natural gas assets, but this situation opened my eyes to the massive divergence between the trend in natural gas (plummeting) concurrent with oil's ascension. I realize there's never a perfect correlation here given different markets, supply/demand dynamics, etc., but historically, there isn't normally a virtual zero correlation like this.

Check out what the natural gas ETF UNG has down over the 3 month period ended Jun12 compared to oil - Oil up 50% vs. a LOSS for natural gas:

Now, look at UNG shares compared to USO in just the past week. Natural Gas is up 13% vs. a flat oil return. Looks like investors have caught on to the potential gravy train here.

Here are some excerpts from the Wall Street Journal article:

"With investors betting on rising gas prices, assets in U.S. Natural Gas Fund recently swelled to almost $3.7 billion from about $670 million in February, even sparking fears it could be disrupting the futures market."... "Securities and Exchange Commission filings show managers want to increase the number of shares available nearly tenfold. But such requests can take weeks and there isn't any telling when the SEC will act.
If the fund can't issue enough shares to meet investor demand, its shares could begin trading at prices higher than the underlying value of their holdings, breaking a key promise ETFs make to investors and possibly influencing prices in the natural-gas futures markets."...

In anticipation of an expansion of shares, there may actually be near term shareholder dilution; but that may be offset by the increased price in the underlying natural gas futures, as well as the fundamentals and reversion to the mean -with the economy starting to recover, the US Dollar unlikely to rebound, future inflation expectations and this regulatory anomaly, UNG and your personal expenditures for natural gas alike could soar.

Related:

Dow 3700 - $3,500 Gold - $300 Oil...Oh My!

Gold ETN up 421% in 1 Month - What Gives?

New Hedge Fund ETF - Hype or Sound Investment?

How to Hedge your Energy Costs

Disclosure: No position in UNG at this time; long position in USO options.

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Oil's Trending Up - Let's Blame the Speculators!

noreply@blogger.com (Everyday Finance) — Tue, 16 Jun 2009 02:46:00 +0000

I read with skepticism an editorial in a prominent paper today entitled Stop the Speculators about how we should blame "Big Wall Street Banks" (a direct quote, as juvenile as it sounds) for the price of rising oil. This is essentially a reprint of every populist gripe about the high price of oil (and hence, gasoline) that Americans experienced last year. Here are some quotes from the editor that essentially sounds like a politician looking to curry favor with ill-informed constituents prior to an election to rile them up and put an evil face on traders, energy companies and well, anyone but 1) the US population, 2) a complete lack of a comprehensive energy policy and 3) a Fed that's printing money like it's goin' outta style. Rather than giving a page to consumers on say, how to hedge fuel prices as an individual consumer, instead they printed this dribble. I could nitpick this thing apart line by line, but I'm just going to try to stick to a few key paragraphs:

"One of the most basic concepts of economics is the law of supply and demand, which helps determine the price of goods, services, and commodities. Unless, of course, that commodity is crude oil.

Just ask the motorists getting gouged at the pump by soaring gas prices what happened to basic economics."

OK, so first of all, this editorial starts off like my 8th grade term paper...um, so, word X is defined in Webster's as... but I digress. Oil is arguably the most efficiently traded commodity on the planet. To claim that the law of supply and demand breaks down for oil more than any other traded instrument (like swine flu stocks jumping 100% in a day was based on rationale supply OR demand of anything other than hype?) is misguided. Oil trades on perceptions of everything from future supply and demand, interruptions to supply, growing demand in emerging markets that previously did not consume oil to the degree they will in the future and so many other factors that the actual price movement of oil simply cannot be predicted with any degree of certainty. Current supply and demand is an afterthought. I mean, look at the macro view of the market now. Is it logical that with unemployment hitting 10% soon, the market has rallied 40% since March? Does this make sense in the author's model of "supply and demand" for beginners?

Consumers getting gouged at the pumps? Is that what you call it when the country hasn't built a new refinery in how many years? NewsFlash! Oil and Gasoline don't have a perfect 1.0 correlation. Take a look at this chart comparing the price of oil with gasoline via their respective ETFs. Gasoline has its own capacity constraints, crack spreads, and oh yeah - those evil speculators as well! They are each their own beast and let's see, now perhaps we can blame two evil sets of speculators. And really, is gouging such a bad thing? As controversial as it may sound, if it did occur, it actually might help temporarily restrain demand, hence lowering prices for those who really need it. I mean, how did those gas lines work out for everyone in the 70s with price caps on gas and the subsequent rationing that occurred? It's as simple as letting the free market dictate the prices - if one gas station tried to gouge, there's one up the road looking to take away those customers with lower prices.

"Then, there are the Wall Street speculators.

Big Wall Street banks, like Goldman Sachs and Morgan Stanley, as well as pension funds and hedge funds, are helping to drive up prices. These firms are buying up oil futures contracts as a hedge against inflation.
Aren't these some of the same investment firms that drove the economy over the cliff, and then needed a taxpayer bailout?
Now they are back in action."

Those evil speculators. They're "helping to drive up prices". Are they? I started posting in 2008 about the oil contango which ended up resolving itself with higher prices, but this was seen from a mile away from a part time blogger. Was this me "driving up the prices"? The last time I checked, there were no pension funds or hedge funds participating in a taxpayer bailout, just the big Wall Street Firms with the real lobbying dollars and ex-CEOs in cabinet positions. But really, what does a bailout have to do with their ability to trade oil? Shouldn't they be TRYING to turn a profit so they can actually PAY BACK the bailout money to begin with? I'm not sure what the author's getting at. If their energy analysts predict a rally in oil, shouldn't they trade on that advice? Oh, let's see, if you took bailout money, you shouldn't try and execute a profitable trading policy to fulfill your fiduciary responsibility to shareholders (including the government). I just don't see the connection and it's just more juvenile fodder for the gullible reader. Oh, and why do we have inflation on the horizon? Hmmm. no mention of our government's monopoly money game or perhaps the prospect that our currency won't buy what it used to in the future.

The article then goes on to cite some government-sponsored reports blaming speculators for part of the oil runup last year, which I'm sure won some praise from angry consumers. This article, and others like it fail to recognize the reality of complex, volatile markets such as this:

Speculators have always been able to speculate on the price of oil - they've been doing it for over a hundred years and they'll continue to do so into the future. Investors can speculate now on 3X Leveraged ETFs with no collateral!

Why is it that 2008, and again in 2009 - these are the only times that the evil speculators chose to wreak havoc on oil prices? Why weren't they doing this in 2006 or earlier this year as oil prices sank? Oh, and how were those speculators doing when oil dropped from $140 to $30 a barrel? They got slaughtered. There IS risk to speculating and the speculators aren't getting a free ride since prices can decline precipitously as was evidenced recently. In short, if it were this easy and the "evil speculators" could manipulate prices upward at will, wouldn't oil be on a continuous upward slope to infinity? Well, perhaps they all conspire together in the "evil speculators' fraternity" as they conjure up a cartel-like manipulation of the oil markets.

Congress, with their dog and pony hearings and the naive gas boycott movement each summer - it's all pretty silly when you consider the facts.

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The Week's Hottest ETFs

noreply@blogger.com (Everyday Finance) — Mon, 15 Jun 2009 01:24:00 +0000

Each week, I like to publish the past week's hottest ETFs to share some new trends and niche ETFs out there and give investors some new ideas. For this week, B2B Internet continued to be hot, energy ETFs continued their streak, and various metals ETFs were strong. But, rounding out the top of the list are:

BHH - Up 15% B2B Internet Holders - This internet ETF is actually up over 60% vs. a marginal gain for the S&P500 YTD. In prior downturns, we saw tech get hammered, but surprisingly, this time around, tech had no direct role in the market euphoria and these companies seemed to have learned a thing or two about living without excessive costs and holding cash. Tech may very well continue to outperform if we're looking at a slow recovery in financials and housing.

JJT - Up 11% - Barclays iPath Tin - This one's actually an ETN which carries ETN-specific risks to consider that ETFs don't - like counterparty risk, and usually a much lower trading volume which leads to higher spreads, but as far as I've seen, it's the only pure play on Tin, which rallied significantly last week - again. JJT is now up 50% YTD.

UCO - Up 11% - ProShares Ultra DJ-UBS Crude Oil - Oil continued its rally last week and this ETF seeks to return twice the daily performance of the Dow Jones AIG Crude Oil Sub-Index. A nice theme when considering a possible return to triple digit oil again this summer is to learn how to hedge fuel prices as a retail consumer/investor: airlines, transports and other businesses do it, why shouldn't we?

ERX - Up 8% - Direxion Daily Energy Bull 3X - This ETF seeks to return 300% of the daily performance of the Russell 1000 Energy Index. This ETF is a routine placement on the weekly list. As long as the trend continues upward, outsized returns will outpace the spot price of oil. However, note that with these daily resetting ETFs as noted above, volatility eats into returns if the trend breaks as outlined here in this explanation of the degradation of value on both sides of the 3X ETF Long/Short play. In other words, if you hang on to these too long, you can lose money on either side of the fence, regardless of what happens to the underlying index.

Disclosure: No positions in the specific ETFs covered. However, Long Jan 40 USO Call, which is a bullish play on oil (1X no leverage).

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Weekly Reads: Hot Emerging Markets Edition

noreply@blogger.com (Everyday Finance) — Thu, 11 Jun 2009 00:37:00 +0000

Here's a reprint of the initial favorite links and weekly reads from Darwin's Finance for those of you that don't already subscribe to RSS there:

Another week of great reads during week. These are entries from blogs I frequent, and I hope you will too (just come back!). I’ve also included various finance/investing carnivals that published my material this week as well as my posts within my network since the last weekly links. This week, I was stuck by the incredibly rebound of several emerging market ETFs exceeding 50% returns YTD.

My Favorite Investing Reads

Think Diversification. Think Simplicity. Think.

FDIC limits, facts and changes

Cash and Bonds are not the same thing.

Nucor stock analysis (I like this company, especially with the recent Buy America provisions wrt steel imports)

Some potentially alarming info about Interoil claims from one of my favorite Fraud Fighters

See how FIFO vs LIFO can change a company’s prospects

Dividends and buybacks in the news

Which index to choose

Questioning current valuations following recent runup

My Favorite Personal Finance Reads

Setting a teen straight with “A Credit Card is NOT your ticket to financial freedom“

How to Avoid Foreclosure

Obama’s uncertainty is killing us and the economy

Opinion on how politicians vilify the rich in order to rally support for tax increases

Multiple Loans? Which order to pay them in

Universal Health Care Pros and Cons

Sunk Cost Fallacy

A First Budget from an anti-budgeter

Kids and Money: Lemonade Stand

Stop enying millionaires

Worth trying to reduce your rent?

10 Ways your Lifestyle can save you money

Within my network at Darwin’s Finance and Everyday Finance

40 Year Mortgages and 50&60. What’s next, 99 year leases?

The next massive blockbuster mimicking the fountain of youth?

All World Market ETF Returns 2009 YTD

Beware those “going out of business” signs and sales

Google stock price manipulation

FREE Sick Days! Says Government - on the back of business dollars

Too late to refinance?

Haverhill Home Staging Complaints - the infomercial may not be all it’s cracked up to be

The week’s hottest double digit ETFs

Last Week' Double Digit ETFs

noreply@blogger.com (Everyday Finance) — Mon, 08 Jun 2009 02:14:00 +0000

Each week, I like to publish the past week's hottest ETFs to share some new trends and niche ETFs out there and give investors some new ideas. For this week, the triple leveraged ETFs for Tech and Shorting Treasuries continued to be hot. Additionally, some Emerging Market ETFs showed up (see full list of 2009 market returns YTD by country and emerging market region via various ETFs and ETNs).

TNA - Direxion 3X Small Cap - Up 18% - This best-performing ETF of the week is a triple leveraged play on the Russell 2000 Small Cap index. Since this is the first 3X leveraged ETF that appears in the list, I always caveat by sharing that while the near term return can be 3X long or short, over time, daily rebalancing and fees eat away dramatically at the returns - to the point that you can actually lose money on both the long and short ETF regardless of what the underlying sector does - check out 3X ETF risks for more details.

IDX - Market Vectors Indonesia Index - Up 15% - This ETF is up over 120% in the prior 3 month period as Indonesia racks up the gains on a non-leveraged basis. As virtually every emerging market ETF was battered more badly than US shares during the economic downturn, on the rebound, emerging markets have catapulted back. Indonesia in particular has been hot. In May, JPMorgan advised clients to increase their exposure to Indonesia. A key development to watch would be the country's elections on July 8 where a pro-business government win could spell another big jump like we saw a few week's back when the India ETF took off 22% in a week following a pro-business election outcome.

TMV - Direxion 3X Short 30 year Treasury - Up 15% - A few months back, shorting Treasuries seemed like surefire way to capture the optimal risk-adjusted return - since Treasuries really couldn't run much higher with yields approaching zero - and some short dated maturities actually fetching negative yields! Well, the strategy has paid off with another up 15% week and up 50% over the prior 3 months. (See full rationale and other ways to Short Treasuries).

TYH - Direxion Daily Technology Bull 3X Shares - Up 13% - This 3X Tech ETF was on last week's Hottest ETF list as well with a 14% gain for the week. The top 3 underlying holdings are Apple, Cisco and Google. TYH is now up over 150% over the prior 3 month period vs. a 37% return for the S&P500 (not too shabby either, but with higher Beta Tech shares leverage at 3X, well, this is what you get).

Disclosure: While the author does not hold any of the aforementioned ETFs specifically, there is a position in TBT, which is the 2X Short Treasury ETF.

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Haverhill Home Staging Company Promising Great Employment - Scam or Legit?

noreply@blogger.com (Everyday Finance) — Thu, 04 Jun 2009 03:19:00 +0000

I was forwarded these stories on Haverhill Home Staging and thought some of you may find it to be interesting. Honestly, I didn't even know such an industry existed, but apparently there's a market for it. This blogger at the prominent blog WalletPop did some impressive detective work and wrote this negative review of the company and its management, which apparently has frequent spots on HGTV making claims of jobs promising $24-$31/hr after taking its $997 course. Here's a followup post from Tracy at Fraud Files (she frequently covers scams, fraud and writes some pretty good articles on such topics) with her opinion and some excerpts of common complaints posted by anonymous posters, which allegedly, are now under attack by Haverhill for their "libelous claims".

Why do bloggers do articles like this?

Generally, negative posts don't really result in anything positive for the blogger. I usually end up with tons of comments attacking my critique of say, a $3000 mortgage payment system that accomplishes nothing you can't do yourself or a cease and desist notice here and there. But I think there are some people out there that do appreciate the effort and subsequent pain that bloggers endure by sharing warnings, critiques or just points to ponder on companies in the effort of saving a few readers from making a regrettable investment or mistake.

Is Haverhill a Scam?

I don't know, I haven't investigated the company individually and I don't intend to; I'll leave it to the folks already on the case. In this case, I am told that the originator was issued a cease and desist notice. If that is correct (which I have not independently verified), that is unfortunate. I don't get why companies can't just communicate any errors or omissions in and article and demand a correction, or just take the criticism if it's true. Cease and desist letters are in my opinion, a form of bullying and also...a red flag. If someone posts something that is clearly untrue and damaging, then by all means, they should retract it immediately. If someone posts something that is factually correct, yet simply espouses a negative opinion, is that grounds for a cease and desist notice?

My request - Please show your support for bloggers' freedom of speech and continued articles of this nature by visiting their blogs, reviewing the stories, forming your own opinion after performing your own analysis, and of course, sharing the article!

Nothing in the aforementioned article is stated as fact, but rather references existing articles from other bloggers and espouses my opinion.

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RECORD LOWS on Mortgage/Refi Rates - Compare your Savings and get Free Quotes: Mortgage Calculator

Too Late to Refinance? Maybe, Maybe Not...

noreply@blogger.com (Everyday Finance) — Wed, 03 Jun 2009 00:18:00 +0000

An amazing runup in mortgage rates in recent weeks from an average of 4.75% to over 5.25% has many prospective refinancers scratching their heads asking themselves what happened? It also has many refinancers-in-progress wielding pitchforks and hurling stones at the mortgage companies who are allegedly letting their locks expire since the rates have jumped substantially and they no longer want to honor the initial commitments. There are two sides to this coin though; consider the notion of breaking your mortgage lock when rates drop post-lock, right? As aggravating as it must be when a customer breaks a lock, can you imagine how angry you'd be if you locked in a 4.x rate only to have it expire while the mortgage company dilly-dallied with your appraisal and underwriting and said, "Oh well, you'll have to go with today's rate at 5.5% now"?

This rise in rates shouldn't be a complete surprise, given the substantial rise in Treasury yields (the easiest money I've made this year was a 2x Short Treasury ETF) as investors depart the safe haven of Treasuries at the expense of negative to very low yields for stocks and bonds.

Is it Too Late?

I'm no better at predicting mortgage rate trends than the next guy, but why wait any longer? People that held out for rates going to 4% (see the only way I've heard of to get a 3.99% rate) are now faced with "mortgage envy". At this point, the best you can do is comparison shop using the methods I've outlined here and make sure to construct a Net Present Value model to compare your various mortgage options. You can get several quotes in your area and get free quotes: Mortgage Calculator.

How Did I Do?

In my Mortgage NPV article, I outlined how I got the following deal recently.

- 4.625%

-30 year conventional

-no points

-reasonable fees (actually, the lowest fees of all the options I considered as well).

I realize that was at an optimal trough in the rate trend, but if you're looking to refi now and realize by waiting any longer, your opportunity to lock in an attractive spread in current vs. new rates is slipping away, you can easily apply the same principles for an optimal outcome.

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Free 7 Paid Sick Days Mandatory Says Gov't

noreply@blogger.com (Everyday Finance) — Mon, 01 Jun 2009 23:40:00 +0000

There's a move afoot by US lawmakers to make it mandatory that employers provide employees with at least 7 paid sick days per year. The legislation called the Healthy Families Act, which would enable certain workers to earn one hour of paid sick time for every 30 hours worked, for up to seven days a year. Workers could use this time to care for themselves or family members. With a catchy and fuzzy name like that, who could debate it, right? I understand the rationale for the push and I realize there are lousy employers out there who don't take care of employees who are in a time of need, but I thought that was what FMLA was for. The examples of justification for the proposal I've seen in the media reports reflect the hardships that employees have been enduring when their budgets don't allow for the time off unpaid. Not that they're being fired for being sick, but that they don't have it in their budget. If what equates to say, a 3% pay cut (7 days unpaid) in a given year pushes your family over the edge, perhaps Congress should be focusing more on a family budgeting and personal responsibility act over this "Healthy Families" Act which actually does nothing for keep families healthier, yet saps business further in the middle of an economic downturn.

I don't understand why an employer now has to be responsible for an employee's lack of ability to budget. Look, if someone has a serious illness and they need some time off, I get that. I'd hope my employer would give me some support if I or one of my family members had a debilitating disease that required some time off to recover. I just wouldn't anticipate that on an annual basis, I now essentially get an extra 7 vacation days each year. Let's face it, that's what this is going to turn into.

I've seen the FMLA abuses first hand by people who take advantage of the system (i.e. the same people tend to require extended FMLA absences once per year, [often around summer time!]) and the doctors that write some of the bogus justifications are no better. What's in it for them? Just the continued visits and reputation for other would-be FMLA abusers to visit for some easy documentation. If Dr. X doesn't write up that note for my "asthma condition" that allows me to take off whenever I want, I'll go to a doctor who will. Now, this sick day allowance - it's essentially a government-mandated additional 7 vacation days.

Sick Days = Free Vacation Days. Yaaah!

The reality from the people I know that get "sick days" that accrue each year, is they don't actually use them when they're sick. They use them for vacation, for running errands or they are compensated for not using them at the end of the year. I don't begrudge them per se, because everyone else in their company (or government job) is doing the same thing and it's the norm rather than the exception. I don't know, maybe if I were a government worker now, I'd do the same thing and I'm just cranky. In my company, we have unlimited sick days, but I've never used a sick day in my career. Nor have I ever missed a day since I was working as a teenager. I guess I've been lucky, or I stay healthy or whatever and I realize it's not the same for everyone. However, what will really end up happening here is that people will take these 7 days, use them for different purposes as I stated above and when they actually ARE sick - they come to work anyway!!! Why? Because they feel like they're wasting a vacation day or money they could bundle up later. This ill concieved law will not actually help people, but rather, just continue the abuses by a sizeable portion of employees that continually look to get one over on their employers any chance they get.

This is another one of the laws of unintended consequences in my opinion - not to mention government meddling. You're going to increase employer costs, which in turn doesn't help profitability or job creation, while you reward the abusers and punish the people who play by the rules - all while not even addressing the underlying issue - which is the fact that some people can't keep a 7 day emergency fund on hand for unintended expenses.

Your Thoughts?

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RECORD LOWS on Mortgage/Refi Rates - Compare your Savings and get Free Quotes: Mortgage Calculator

Hottest Double-Digit ETFs of the Week

noreply@blogger.com (Everyday Finance) — Sun, 31 May 2009 12:51:00 +0000

Each week, I like to publish the past week's hottest ETFs to share some new trends and niche ETFs out there and give investors some new ideas. For this week, energy and tech were hot. Additionally, real estate stocks had a strong showing; who knows, between low interest rates and the resurgence of the 40 year mortgage loan (and longer-50&60!) to fill the vacuum of poor lending standards that led to the last housing crisis, perhaps we'll finally see a rebound in housing soon and our next bubble before we know it!

ERX -Direxion Daily Energy Bull 3X - Up 18% - This ETF seeks to return 300% of the daily performance of the Russell 1000 Energy Index. This ETF is a routine placement on the weekly list. As long as the trend continues upward, outsized returns will outpace the spot price of oil. However, note that with these daily resetting ETFs as noted above, volatility eats into returns if the trend breaks as outlined here in this explanation of the degredation of value on both sides of the 3X ETF Long/Short play. In other words, if you hang on to these too long, you can lose money on either side of the fence, regardless of what happens to the underlying index.

SEA - Claymore/Delta Global Shipping ETF - Up 14% - With a 9% jump on Friday, this shipping ETF is now up 81% over the prior 3 month period as the cost of shipping materials globally starts to pick up as the credit freeze thaws and global conditions improve. While this ETF has little yield to speak of, the underlying shipping stocks are notorious for delivering high yields due to the cash-rich business they operate in during boom times. Check out Seaspan (SSW), Ship Finance Ltd (SFL) and Frontline (FRO).

TYH - Direxion Daily Technology Bull 3X Shares - Up 14% - Tech has been hot during this rebound as well and contrary to prior bear markets, Tech has held up quite well. For 2009 YTD, this ETF is up 14% vs. a 1% gain for the S&P500. The top 3 underlying holdings are Apple, Cisco and Google. While people may have stopped buying cars and new homes, evidently, they can't do without that new iPhone and companies haven't stopped relying on tech to deliver productivity gains and advertising benefits while they slash spending in virtually all other areas, including payrolls.

AGQ - ProShares Ultra Silver - Up 15% - With a 7% move on Friday, this 2X leveraged ETF tracking the return of silver was up an amazing 58% for the month, as silver had its biggest run in 22 years. AGQ was highlighted in this column earlier in May as well.

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Best of May 2009 and Random Information

noreply@blogger.com (Everyday Finance) — Thu, 28 May 2009 05:00:00 +0000

One of the best ways of keeping track of content at Everyday Finance is through RSS subscription. By subscribing to the EverydayFinance RSS with feed-reading software such as Google Reader or aggregators such as My Yahoo/iGoogle, you’ll get immediate feeds you can view in a large window just like this:

You can also follow my new blog for sophisticated investors and market commentary at via RSS at Darwin's Finance.

Best of May

Here are my Top 10 Most Popular Articles from the month to help you save money, make better investments or just vent!

40 Year Mortgages - No Wait, 50 and 60 year as well!

The Riskiest ETFs on Earth - 3X Sector ETF Short/Long

10 Ways to be Annoying at Work and Ruin your Career

Start Investing Today: An Amazing Comparison of 25 vs 35 Year Old Starters

Start an Investment Club: How To, Rules and Reality Checks

4 Triple Digit Return Small Caps to Watch

Savings Tips Consumer Reports Style

New Discover Current Card - Like Spying on Your Kids?

Sucker's Rally: For 34% since March, Call Me a Sucker!

How to Save Money with a Contractor - Patio Example

What Else is New?

Make sure to stop by and visit the latest sponsor Short-Stocks.com. In this market, having some short positions is certainly a great way to soften the blow. While I'm net long, I always employ some similar approaches myself to the real time trades Short-Stocks is offering.

Performance at both blogs continues to be great. Traffic is steadily increasing at Darwin's Finance especially and the opportunities for collaboration and new ideas are endless. Unfortunately, I'm limited by time primarily, so the growth rate in new content and ideas is a bit more restrained than I'd desire.

Any feedback on either site, ideas for future posts or anything else on your mind is much appreciated; leave a comment!

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How to Save Money with a Contractor - Patio Example

noreply@blogger.com (Everyday Finance) — Tue, 26 May 2009 23:43:00 +0000

I routinely post about how to save money on everyday expenses by either following simple steps or the more challenging methods requiring you to step outside your comfort zone a bit (see how I saved $250/yr for life with Comcast and how I save money routinely in stores by asking for a discount). Now, dealing with contractors can be a bit more touchy. You're not dealing with a commodity, right? You're not dealing with an abundance of inventory that a store's looking to unload. You're dealing with a skilled tradesman that probably isn't used to hearing price haggling attempts and may have an ego to boot. So, even if you win out, was it worth saving a hundred bucks on a job if the contractor's annoyed over your tactics when they do the job?

The Job

We're having a patio done. I've done a fair amount of jobs myself (like saving thousands on a new kitchen install), but I feel like I've gone to the well on favors from friends and family for helping with big jobs and I'm short on time, so I decided to outsource this one. In order to save on materials, I already moved a fair amount of blue stone/flagstone (whatever it is) from a family member's yard that didn't need it. The patio's a sizable job, at over 600 square feet, plus a wall on the side; not to mention, busting out an existing cement outcropping from a sliding door.

Dealing with the Contractor(s)

We got a few quotes ranging from the low $3000's up to $10,000. Of course, I realized we're not dealing with apples to apples. Each contractor was going to employ a different approach. One guy was laying like 5 different layers of stuff down. Another guy was bringing in heavy equipment; third guy was essentially a kid working by himself who was going to do everything manually, etc. After a few recommendations and some previous work done here, I already knew I wanted Contractor X. He had a crew here earlier in the year to do some landscaping work (I've saved thousands over the years by mowing my own lawn, but this was weeding/mulching job for an incredible price, so the ROI was well worth it to me). Anyway, his price was at the low end of the range, he had a portfolio of completed patios and references to share, I already knew his work and trusted his ethics/business dealings, so at this point, I figured I should just try and get his price a bit lower so I felt I did my job as a price-conscious consumer.

Am I Cheap?

I don't think so. Any entrepreneurial business man is going to quote out his job for the highest possible price he thinks a consumer will pay without walking away. Likewise, a prudent homeowner should have the onus get the lowest price paid while still ensuring the job gets done by the desired contractor in a quality manner. Of course, in this case, the two ranges intersected.

I could tell from his reaction that he didn't usually get counteroffers and that customers usually just went with his quoted amount, but I framed my offer in a respectful, fact-based manner that both allowed him to drop his price a bit, while also allowing him to save face in lowering his price (i.e. one might think that if he were able to lower his price by a single dollar, then he over-quoted me and was taking advantage of me. I don't see it that way, but a contractor is usually reluctant to lower a price once quoted so they can show that they're giving you their best price and not making a lot of money on you, etc.).

The Counteroffer

He mailed me a written quote. In it, he broke out the patio separately from the wall, since I initially wasn't sure I was going to do both. Upon further consideration, I had determined that I wanted to do both, but I withheld that for the negotiation. Now, probably 95% of homeowners either accept the offer as is or don't go with that contractor, so there's rarely a negotiation involved in this type of job. What I did was relay the following information to him:

He did not offer the most competitive bid (this is PC for you weren't the cheapest, and I used this in my last job with multimillion dollar deals - seems to work), but I was familiar with his work and wanted to see if we could work together anyway...provisionally.
I wasn't sure if I wanted to do the wall as well, but if we could get the price down a bit, I could probably do both.
I also offered to pay a higher down payment up front, thinking that perhaps the additional cash flow would be helpful, especially given the current credit crunch. I already had the cash sitting around for the job, so it was no difference to me.

As it turned out, he didn't actually care about the cash piece and said don't worry about it (he's actually doing it this weekend and never asked for the quoted down payment). I had sold the "bundled deal" as a way for him to see if he could find some efficiencies and drop his price a bit. I also stroked his ego in communicating that I was still going with him even though he wasn't the cheapest - but in return, I needed him to drop the price a bit to show that he was meeting me half way.

The Result

In the end, he ended up dropping his price $160. It's not a ton of money, and I didn't pursue a multi-round negotiation since this wasn't a "competitive negotiation", but rather a "win-win" negotiation (if you view your opposing negotiating party as an adversary that you don't intend on doing business with in the future, like say, a new car negotiation, you go for every dime; in this case, we're going to work together again in the future, plus he still has to do the job and I'd like for him to be in a good mood when he does it). To me though, the $160 for what amounted to a single 5 minute phone call, was more than worth it. That's $160 into the kids' college fund or it pays for our first barbecue on the new patio!

Do you have similar contractor/other negotiations stories where you had to step outside your comfort zone a bit to generate some savings?

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The Week's Hottest ETFs - India and Short Treasury in Play

noreply@blogger.com (Everyday Finance) — Mon, 25 May 2009 16:27:00 +0000

Each week, I like to publish the past week's hottest ETFs to share some new trends and niche ETFs out there and give investors some new ideas. For this week, emerging markets were hot and an especially strong performer has been the Treasury 3X ETF Short play, of which the 2X I started a few months back and has been the easiest (at least most expected/predicted) double digit gain I've had this year.

PIN - Powershares India - Up 22% - With Indian exchanges rallying close to 20% in a single day following the election of a pro-business party, investors have been buying shares in jubilant fashion. While I don't recommend flat out shorting a trend like this, it's entirely plausible that with this mass one-day move, the sentiment has gotten ahead of the fundamentals and perhaps a more diversified approach is appropriate via a straight emerging markets ETF such as EEM.

EDC - Direxion 3X Emerging Markets - Up 18% - With the aforementioned India rally, other emerging markets have been hot all year as well. With the trend continuing, as emerging markets took it on the chin on the way down, conversely, during the recovery, they are rocketing back up at a much faster pace than US equities. ECD is up 10 times the S&P500 over the prior 3 month period at 146% vs. 14.7% for the S&P500. While leveraged upward moves sound great historically, beware the long term degradation of value that occurs with these daily resetting instruments, especially if the trend is not rapid and sustained as outlined in this 3X ETF Short/Long warning.

TMV - Direxion 3X Short 30 year Treasury - Up 16% - A few months back, this seemed like a sure thing; and it was - with investors actually taking a negative yield in shorter maturity notes and a below-inflation yield in longer duration Treasury instruments just to have a place to stash cash during the storm, it was evident that there had to be a selloff in Treasuries in the coming months. It wasn't a question of if, but rather, when and to what degree. The play is now unwinding and while investors may have missed the easy money, as long as the financial crisis continues to abate, I'd expect to see yields continue to increase, driving the Short Treasury play further into the green. (See full rationale and other ways to Short Treasuries).

RSX - Market Vectors Russia - Up 11% - Russia has also continued its ascent, up double digits for the week and 92% over the prior 3 month period. Viewed as on the verge of default several months back, with oil rebounding and the global economy recovering, markets have viewed Russia's near-collapse in equities as overdone and investors have been buying back in in force. The ruble has appreciated around 15% against the US dollar since January indicating the worst may be over from a devaluation standpoint. The peak trading value for RSX was close to 60 in 2008 so a double from here is at least plausible if the global economy gets back on its feet.

Disclosure: While the author does not hold any of the aforementioned ETFs specifically, there is a position in TBT, which is the 2X Short Treasury ETF. Additionally, Long Jan 40 USO Call, which is a bullish play on oil.

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Advanta High Yield Investment Notes: More Danger Ahead

noreply@blogger.com (Everyday Finance) — Sat, 23 May 2009 14:04:00 +0000

A few weeks back, I had done an article on Advanta's high yield investment notes yielding 8.5%-11%. While double digit yields sound appealing, I had warned of their potential insolvency and since these investment notes are not FDIC insured, it turns into a very high risk proposition. If Advanta goes down, there's a high likelihood that retail investors holding these notes would lose their entire principal or a vast majority of them, depending on how bankruptcy proceedings play out.

Well, more recently I posted this article showing how Advanta took the unprecedented move of cutting off credit to their existing small business customers. I've never heard of a credit card company taking such drastic action to preserve capital.

Why am I revisiting this? Because today, I saw an article highlighting that they have now moved up the effective date of the freeze, which portends serious problems. This, coupled with the fact that I'm still seeing plenty of search traffic coming in on Advanta's high yield notes and the fact that they're still advertising these notes heavily makes for potential problems for prospective investors. Shares are under $1, not exactly a resounding endorsement for a recovery. Buyer beware!

What do I like for yield?

I still like Muni Bonds, here's a small stock that's raised dividends 24 times in a row!, and there are still some non-Financials on the high yield mega cap list that are worth checking out.

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