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  • Greenspan Warns of China Stock Drop

    Greenspan Says China Stocks May Post `Dramatic’ Drop:

    Former Federal Reserve Chairman Alan Greenspan said he was concerned Chinese stocks might undergo a “dramatic contraction” after its main stock index jumped more than 90 percent this year.
    …
    “It is clearly unsustainable,” Greenspan told a conference in Madrid today by satellite. “There is going to be a dramatic contraction at some point.”

    Sure seems like a fair point. Over the long term China has great potential but a dramatic decline in stock prices seems a reasonable thing to fear.

  • Financial Illiteracy Credit Trap

    The article is definitely worth reading, read the “related items” also – The Poverty Business from Business Week:

    “Having access to credit should be helping low-income individuals,” says Nouriel Roubini, an economics professor at New York University’s Stern School of Business. “But instead of becoming an opportunity for upward social and economic mobility, it becomes a debt trap for many trying to move up.”

    Why? Mainly due to financial illiteracy. Except in the most extreme circumstance (and then for a short time only) it does not make sense to borrow (given the current interest rates) at an interest rate above 15% (and other than large purchases – car, house… borrowing is normally unhealthy for your financial well being). If you want a new computer, new TV… “rent to own” effective interest rates are horrendous. Just save the money needed and then buy what you want. Borrowing worsens your financial position and since most making such bad financial choices already have a very weak financial position the impact is even more negative. One goal of this blog is to help people become financially literate, so they can improve their economic position by making intelligent financial choices.

    One very simple but powerful personal finance tip: save money to buy what you want, don’t borrow to buy what you want. And a related tip, save money to act as an emergency fund. If you don’t create an emergency fund it is far too easy to find yourself in need of emergency funds and then being forced to borrow and getting yourself trapped in a downward spiral.

  • Example of Mortgage Payments Depending on Credit Score

    Example 30 year mortgage rates (from myfico.com – see site for current rate estimates):

    FICO score APR Monthly payment*
    760-850 5.860% $2,362
    700-759 6.082% $2,419
    660-699 6.366% $2,493
    620-659 7.176% $2,709
    580-619 8.820% $3,167
    500-579 9.679% $3,416

    Amounts shown for borrowing $400,000 and rates as of May 7th. For scores above 620, the APRs above assume a mortgage with 1.0 points and 80% Loan-to-Value Ratio. For scores below 620, these APRs assume a mortgage with 0 points and 60 to 80% Loan-to-Value Ratio.

    FICO scores are determined by your:

    • Payment history – 35%
    • Amounts owed – 30%
    • Length of credit history – 15%
    • New credit – 10%
    • Types of credit used – 10%

    Related: 30 Year Fixed Rate Mortgage Rates – Learning About Mortgages

  • Broken Health Care System: Self-Employed Insurance

    Many of the Self-Employed Are Simply on Their Own:

    In 11 states, self-employed people have some of the same legal rights as small companies when it comes to dealing with insurers: Colorado, Connecticut, Delaware, Florida, Maine, Massachusetts, Mississippi, New Hampshire, North Carolina, Rhode Island and Vermont.

    But elsewhere, in dealing with insurance companies, the nation’s estimated 20 million self-employed are on their own. In Virginia, a state with relatively few controls on insurance rates, Clay Williams, a 59-year-old self-employed real estate agent in Falls Church, said the cost of health insurance for himself, his wife and two sons, had tripled in six years. After it ballooned last year to $1,956 a month, he angrily refused to renew.

    Fixing the health care system is not easy. But it is broken and doing serious harm to the economy and individuals and needs to be fixed. Post on our management improvement blog on fixing the health care system. In addition to the obvious harms the broken system discourages many people from taking on the challenge of self employment. It also greatly increases the friction in the economy for moving between jobs.

  • Live From Omaha

    Live From Omaha: The Berkshire Hathaway Meeting a nice series of posts at fool.com, including:

    Buffett cautioned, though, that the difference between investing on paper and investing with real money is like the difference between reading a romance novel and, as he delicately put it, “doing something else.” “There’s nothing like having a little experience in investing,” he said. Once you’ve done that, you can decide whether, as Buffett said, “it turns you on.”

    On a final note, he gave a not-too-surprising suggestion to always look a stock in terms of the whole company. So, for example, if you’re thinking about buying GM (NYSE: GM) at $30, he said, you should consider whether you think the entire company is really worth $18 billion.

    I wish someone would post a transcript or at least more details. If you know of a good source, please let me know.

    Related: Great investors, Warren Buffett – Buffett’s Newest Letter to Shareholders – Warren Buffett’s Annual Report 2004

  • How Much Retirement Income?

    Current vs. retirement income: How much do I need?:

    some people say you need 70 percent of pre-retirement income after retiring, while others claim it’s 80 percent, 85 percent or 90 percent. But whatever version of this rule you hear, I think you need to take it with a very large block of salt. Of course, that’s true of all rules of thumb, whether it’s the percentage of pre-retirement income you need, “the 4 percent rule” on withdrawing funds from your portfolio in retirement, the “save 10 percent for retirement rule” or any other benchmark.

    After all, rules of thumb are shortcuts; they’re solutions that are supposed to work for the “average” person.

    Good advice. The rules of thumb can help you get an idea of the ballpark for a fictional “average” person in general. But your particular situation is different.

  • Dragged Down by Debt

    Dragged Down by Debt by Jane Bryant Quinn (Newsweek broke the link so I removed it):

    Payday and car-title lenders tend to cluster in low-income neighborhoods—especially around military bases, where families are young and borrowers aren’t very savvy about interest rates. Congress recently slapped a 36 percent interest-rate cap on loans made to members of the armed services. But it left out everyone else, who pay rates that sometimes exceed 700 percent, says CFA’s Fox.

    Of all the predatory loans, “exploding mortgages,” with interest rates that wing up after two or three years, are probably the most toxic and have made the most headlines. They’re typically granted to borrowers classed as “subprime”— those with credit scores under 620 (a 900 score is tops). But these are the very people least able to handle monthly payments that suddenly double or triple.

    Related: Personal Loan information – Learning About Personal Loans – articles on loans

  • Very Good Amazon Earnings

    Wow. I have been a believer in Amazon’s long term strategy. Earnings have not been as positive as many expected (over the last few years) but I continued to believe Jeff Bezos’ long term strategy and execution were very positive. I was a bit concerned that present earnings were not better. This quarter the earnings were quite impressive. One quarters numbers are not significant to the long term success. And if earnings were to be less impressive in the coming quarters that would not sour me on the stock. But the good earning are a nice surprise and something that has been made possible through many years of smart moves by Amazon (that reduced short term profits over those years).

    Net sales increased 32% to $3.02 billion in the first quarter, compared with $2.28 billion in first quarter 2006. Excluding the $84 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 29% compared with first quarter 2006. Operating income increased 38% to $145 million in the first quarter, compared with $106 million in first quarter 2006.

    Net income increased 115% to $111 million in the first quarter, or $0.26 per diluted share, compared with net income of $51 million, or $0.12 per diluted share in first quarter 2006. First quarter 2007 effective tax rate was 23% compared with an effective tax rate of 47% in first quarter 2006.

    Related: Amazon Innovation

  • Great Google Earnings

    Google quarterly earnings are amazing again. Google reported revenues of $3.66 billion for the quarter ended March 31, 2007, an increase of 63% compared to the first quarter of 2006 and an increase of 14% compared to the fourth quarter of 2006. 63% jump to $3.66 billion, very impressive and a 64% increase in earnings.

    GAAP operating income for the first quarter of 2007 was $1.22 billion, or 33% of revenues. This compares to GAAP operating income of $1.06 billion, or 33% of revenues, in the fourth quarter of 2006. Non-GAAP operating income in the first quarter of 2007 was $1.41 billion, or 38% of revenues. For 2006, GAAP operating income for the first quarter of 2006 was $743 million, or 33% of revenues.

    This type of performance is next to impossible to achieve, which makes it amazing they have achieved it but also unlikely it will continue. Still I am happy to own some Google (and glad I have owned it for awhile).

    Related: 10 Stocks for 10 Years Update – Sleepwell portfolio results (largest holdings: Google, Templeton Dragon Fund and Toyota) – Investment Books

  • General Air Travel Taxes Subsidizing Private Plane Airports

    This is the kind of stuff that makes so many people so cynical about how those with the gold make the rules. Somehow unless enough people pay enough attention to stop every single boondogel the politicians seem to keep throwing money at their rich friends. Then those rich friends give a reward the politician’s re-election campaigns for the taxpayer money they received. Traveler taxes awarded to small airports:

    The federal government has taken billions of dollars from the taxes and fees paid by airline passengers every time they fly and awarded it to small airports used mainly by private pilots and globe-trotting corporate executives.
    …
    Passengers pay as many as six separate taxes and fees on a single airline ticket, adding up to more than $104 billion since 1997, the AP found. Yet these assessments often are overlooked by the millions who click the “buy” button to purchase tickets online, even though they can exceed 25 percent of the total airfare.
    …
    Congress will decide later this year whether to curtail the huge public subsidy for small airports, while pilots’ associations, airport managers and other interested groups are fighting to keep it.

    Any guess on what they will do? I would guess fund their friends and themselves. It is true if the public actually pays attention then I believe they would stop until they think the public won’t notice and then slip the millionaire subsidies back in.

    J.T. Wilson Field in Somerset, Ky. got more than $12 million since 2001, much of it through the influence of local Rep. Hal Rogers, a longtime Republican member of the House Appropriations Committee who uses the airfield for trips home. Wilson Field is home base to 26 small planes and one jet. Despite millions in improvements, including a passenger terminal, the airport has yet to see scheduled commercial service.

    The article includes many more examples.