Investing Curiouscatblog

Blog

  • Ignorance of Many Mortgage Holders

    Mortgage ignorance rampant

    In the survey of 1,004 adults conducted by Gfk Roper, homeowners with mortgages were asked what type of mortgage they had. A stunning 34 percent of the homeowners had no idea. “That’s a symptom of the complexity of the mortgage market today,” says Ken Wade, chief executive officer of NeighborWorks America, a nonprofit organization that provides financing and training to neighborhood-based housing organizations.

    Sorry but that is a symptom of massive ignorance. Not knowing an incredible important aspect of your largest financial decision is like not know what days you are suppose to show up for work. There is a minimum amount of knowledge people should have that sign a mortgage. I think at least 34% of mortgage holders need to read this blog. Ok, I probably alienated all of them, so if that is the case then they should read some of the blogs we list in our blogroll.

    Nationwide, 36 percent of homeowners who now have an ARM said they planned to refinance to a fixed-rate loan when their ARM changes. Only 2 percent planned to refinance into another ARM.

    There is a big problem in that logic – it could maybe make sense if you had good reason to believe rates will be lower in the future than when you took out the loan (but that is a very questionable). I don’t know why someone would think that in the last couple of years – the risks have been much better than rates would go up a few hundred basis points than down that much. Basically I can see someone that is very financially savvy using an adjustable mortgage to qualify and if they know they will move in a fairly short period…

    Related: Learning About Mortgages – Mortgage Defaults: Latest Woe for Housing – How Not to Convert Equity – 30 year fixed Mortgage Rates

  • Not Every Day is Profitable

    Some days turn out to be quite unprofitable. One of my larger holdings is Depomed – it was down 58% today (a phase 3 drug trial failed to significantly reduce pain when compared with placebo with Depomed’s formulation, not the kind of news you want for your company). Oh well, you have to take the bad days as an investor (at least I do) if you expect to see the good days (if you invest in individual stocks you have to accept that you will have some bad days). It was the largest holding in my Darvamore marketocracy fund. I imagine the fund, which beat the S&P 500 by 3.5 percentage points annually since it was started, is going to see that result take a huge hit. This day will be noticeable on the chart for a long time.

    At least I have the sense to know it was a risky stock – I didn’t have any in my sleepwell fund, for example (the sleepwell fund is beating the S&P 500 by 1.5 percentage points annually since inception – 17.4% to 15.9%, and remember marketocracy reduces returns to account for a 2% annual management fee and trading commissions). Of course that is a bit misleading as most any individual stock can have huge losses on a given day or week. Google is my biggest holding there and while I think a sharp decline is unlikely right now, I would not be amazed to see it drop 30% in some week during the next few years. Given that Google is up 149% even a 50% decline would still make it quite profitable for the the fund. Taken as a whole for a long period of time I think the sleepwell portfolio is pretty solid.

    Well, even though I am sure I will have more days like this I hope I can avoid them for awhile and build up some profits first.

  • USA Living Beyond Means

    Comptroller Says Medicare Program Endangers Financial Stability:

    What would happen in 2040 if nothing changes? “If nothing changes, the federal government’s not gonna be able to do much more than pay interest on the mounting debt and some entitlement benefits. It won’t have money left for anything else – national defense, homeland security, education, you name it,” Walker warns.
    …
    Asked if he knows any politicians willing to raise taxes or cut back benefits, Walker says, “I don’t know politicians that like to raise taxes. I don’t know politicians that like to cut spending, but I think what we have to recognize is this is not just about numbers. We are mortgaging the future of our children and grandchildren at record rates, and that is not only an issue of fiscal irresponsibility, it’s an issue of immorality.”

    Strong words and I agree, as stated in: Washington Paying Out Money it Doesn’t Have and USA Federal Debt Now $516,348 Per Household.

  • Old and Wealthy

    I am not exactly sure why but for some reason people seem very ignorant of the wealth distribution by age. The richest group by far are those over 65. There are several reasons for this including self preservation. Once you stop working you better have a large pool of capital or you will most likely have little income (you could have a great pension and no other savings but…). Another is that the “miracle” of compound interest. Those that actually saved enough for retirement often find their investments out-earning their spending thus wealth increasing yearly. This effect over time results in wealth increasing dramatically. Many of those that failed to save enough will have their savings dissolve very quickly thus leaving the inverse of a bell curve (a high number of wealthy and of poor and a lessor number in the middle). Social Security helps those that failed to save enough for retirement to slow the decline (and those that saved enough to become even wealthier even faster). The presence of large numbers of poor elderly I think is one reason so many are surprised that they are the richest age group.

    I used to be surprised how few people know this – now I know, for those I talk to anyway, they are always surprised. This has several public policy impacts such as why do we have a huge “social security transfer system” (social security including medicare) to move money from the young to the old when the old are wealthier than the young? People see the 7.65% deducted from their check but the employer has to pay an equal amount to this transfer of wealth between the generations bringing the total to 15.3%.

    It doesn’t make much sense to me to have those working at Wal-mart and McDonalds transfer 15.3% of the income from their labor to much wealthier people. Yes, paying something in I think is fair. But the system should be adjusted. One method I would use is to reduce (or eliminate) payments to the wealthy elderly (continuing the existing payments to the poor elderly is affordable so I see continuing those payments as good public policy) and reduce taxes on the working poor. Obviously others disagree so we transfer a large amount of money from those working at Wal-mart to those with hundreds of thousands in investments. I think this is wrong. I wish at least the facts would be known so that the decision is made with awareness of the facts.

    The median net worth of people 55 to 64 has climbed to nearly $250,000, while it has dropped to about $50,000 for those in their late 30s
    …
    The growing divide between the rich and poor in America is more generation gap than class conflict, according to a USA TODAY analysis of federal government data. The rich are getting richer, but what’s received little attention is who these rich people are. Overwhelmingly, they’re older folks. Nearly all additional wealth created in the USA since 1989 has gone to people 55 and older, according to Federal Reserve data. Wealth has doubled since 1989 in households headed by older Americans.
    …
    The implications are far-reaching and can turn conventional wisdom on its head. Social Security and Medicare increasingly are functioning as a transfer of money from less affluent young people to much wealthier older people.

    Wow, I don’t recall seeing publications actually point out this fact very often. Good for the USA Today.
    (more…)

  • Customer Hostility from Discover Card

    I am not even expecting good customer service but how about just the absence of customer hostility. The latest from Discover Card. I still have not received the money they said they would send (waiting more than a month now) – this is the amount they overcharged my bank (after they had already been told the charges were invalid. I guess it is acceptable to charge me for charges they knew were invalid?). But heck even accepting that, how about paying that money back as they said they would.

    Amazingly they did send me a “bill” [with a balance they owe me instead of me owing them so it is not really a bill in the sense of money I owe them] for the account they said didn’t exist which was the reason they claimed that they could not pay the cash back bonus they promised. If people didn’t expect credit card companies to provide outrageously bad customer service wouldn’t this be seen as shockingly bad – so much so that certainly no company would tolerate it if it was brought to their attention. Well, we have evidence that such a thought is not true when dealing with Discover Card.

    So according to Discover they don’t owe the money on the cash back bonus they promised because the account is closed. Yet they send me a bill (with a balance owed to me but it is exactly like the bill I would get from them each month including the cashback bonus section where instead of listing the amount they promised to pay me they list $0) that has an new account number on it. Paying what they promised in cash back bonus doesn’t seem like it would be hard (and frankly I can’t imagine not paying it in this circumstance can be acceptable according to the rules but who has the time to try and fight with them). And they don’t send the money that even they agree they owe, but instead just send a bill? What are they thinking?

    As I said in a previous post if Discover Card pays the money they owe I will add an equal amount of my own money and lend that amount through Kiva (a charity that arranges loans from individuals to those in need worldwide on the micro-lending model). And I will either continue to roll those loans over for at least 10 years or I will donate the entire amount to a micro-lending charity (if for example Kiva shuts down or I decide that they are not doing a good job or whatever).
    (more…)

  • Bottled Water Waste

    Message in a Bottle

    Americans spent more money last year on bottled water than on ipods or movie tickets: $15 Billion. A journey into the economics–and psychology–of an unlikely business boom. And what it says about our culture of indulgence.
    …
    We’ve come to pay good money–two or three or four times the cost of gasoline–for a product we have always gotten, and can still get, for free, from taps in our homes.
    …
    In San Francisco, the municipal water comes from inside Yosemite National Park. It’s so good the EPA doesn’t require San Francisco to filter it. If you bought and drank a bottle of Evian, you could refill that bottle once a day for 10 years, 5 months, and 21 days with San Francisco tap water before that water would cost $1.35. Put another way, if the water we use at home cost what even cheap bottled water costs, our monthly water bills would run $9,000.

    Taste, of course, is highly personal. New Yorkers excepted, Americans love to belittle the quality of their tap water. But in blind taste tests, with waters at equal temperatures, presented in identical glasses, ordinary people can rarely distinguish between tap water, springwater, and luxury waters.

    In addition to throwing your money away the damage done to the environment to package and transport water all over the globe instead of just using your tap to get local water is immense. Stop be so naive and buying products like Evian (not what that is spelled backwards?).

  • Buffett on Taxes

    Buffett blasts system that lets him pay less tax than secretary:

    Speaking at a $4,600-a-seat fundraiser in New York for Senator Hillary Clinton, Mr Buffett, who is worth an estimated $52 billion (£26 billion), said: “The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”

    Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent. Mr Buffett told his audience, which included John Mack, the chairman of Morgan Stanley, and Alan Patricof, the founder of the US branch of Apax Partners, that US government policy had accentuated a disparity of wealth that hurt the economy by stifling opportunity and motivation.

    The comments are among the most [significant] yet in a debate raging on both sides of the Atlantic about growing income inequality and how the super-wealthy are taxed. They echo those made this month by Nicholas Ferguson, one of the leading figures in Britain’s private equity industry, when he criticised tax rates that left its multimillionaire venture capitalists “paying less tax than a cleaning lady”.

    Last week senior members of the US Senate proposed to increase the rate of tax that private equity and hedge fund staff pay on their share of the profits, known as carried interest, from the 15 per cent capital gains rate to about 35 per cent.

    Related: Estate Tax Repeal – USA Federal Debt Now $516,348 Per Household – Income Inequality in the USA – General Air Travel Taxes Subsidizing Private Plane Airports – Warren Buffett bio

  • Microfinancing Entrepreneurs

    Business Week has an article on Microfinance Draws Mega Players on how investment banks are getting into microfinance. I must admit that while I certainly am happy if the market can get involved in making microfinance aid development I think it might be better suited to non-profit, foundations and charities. I am happy to continue to fund organizations like Trickle Up to help people help themselves.

    Kiva is another interesting organization that lets you loan directly to an entrepreneur of your choice. If fact, I have just placed $350 in loans to 5 business entrepreneurs (in Kenya, Mexico, Cameroon and Azerbaijan) – and a $50 donation to Kiva. Kiva provides loans through partners (operating in the countries) to the entrepreneurs. Those partners do charge the entrepreneurs interest (to fund the operations of the lending partner). Kiva pays the principle back to you but does not pay interest. And if the entrepreneur defaults then you do not get your interest paid back (in other words you lose the money you loaned). I plan to just recycle repaid loans to other entrepreneurs.

    Add a comment with a link to your Kiva page and I will add a page to this site with links to all Curious Cat blog readers with a link to Kiva pages.

    Related: Microfinance article from the New Yorker – Kiva: Microfinance Loans (posted on Christmas day 2006) – helping people succeed economically
    (more…)

  • Who Will Benefit From Fixed Pricing Ruling?

    The USA supreme court has ruled, 5-4, that manufacturer price fixing is ok (technically setting a minimum price would be ok). An interesting question is who will benefit from this. The right answer might also provide valuable investment ideas. My first thought is this will help those that provide customers added value. Without price to be a factor in the decision that leaves convenience and service. I would think Amazon.com could benefit (though they would likely rather provide discount prices to gain more market share I think they will retain and even grow market share due to convenience). Also retailers like Crutchfield that provide excellent after market support should benefit. Places that people go to only due to cheap prices will probably suffer. And of course the consumer that have to pay the higher prices will suffer. Basically retailers will win due to higher prices then there is just the matter of whether they lose enough business to offset that gain (customers moving from poor service but cheap retailers to good service retailers since there is no price difference).

    I also think the idea of using fixed prices as a business strategy will not be as easy as it may seem. Competitors don’t have to institute such a policy and therefore discounters could offer lower prices on their products which might then mean they don’t sell many of yours (and the retailer may just choose not to carry yours). The biggest winners might even turn out to be manufacturers that take advantage of competitors that set minimum prices (by not setting minimum prices themselves) and gaining market share.

    Related: High court eases ban on minimum prices – Supreme Court OKs retail price fixing by manufacturers

  • $10 DSL

    AT&T $10 DSL Today

    We’ve confirmed with AT&T HQ that the company is offering $10 768kbps DSL starting today across their 22-state footprint (new customers only, one-year contract and bundled landline required). The $10 DSL was something they agreed to offer as a BellSouth merger condition, but unless they plan on issuing a Saturday press release later today, they apparently don’t intend to tell anyone (via website, press release, or via any other form) that they’re actually offering it.

    The merger condition required they offer the price point for 2.5 years. Unfortunately it appears it didn’t require that AT&T actually tell anyone about it.

    So you can get discount DSL, if you live in the service area, and can figure out how to get the company to allow you to get the price they proposed to the court to bolster their case for merger approval. It sure would be nice if you could deal with companies that didn’t seem to have teams of lawyers kept busy trying to figure out how to say one thing while tricking customers out of as much money as possible. It seems to me we are getting less and less ethical. We just accept that companies are going to try and trick customers into paying as much as possible. My belief that you should just provide an honest service or product at a fair price seems to be some quaint old idea 🙁 But since that seems to be the case you have to treat companies as though they are going to trick you in any way they can. Be careful out there.

    Related: Incredibly Bad Customer Service from Discover Card – Fake Checks That Make You Pay – Companies Claim to Value Customers