This week has seen a new news issue on the top of the headlines: the "foreclosure fiasco".
Reportedly, some lending company managers and executives have been just basically robo-signing or rubber-stamping foreclosure documents. The concern, in case it's not readily apparent, is that such automated approvals could result in some folks being mistakenly or undeservedly kicked out of their homes.
So, there is a moratorium being imposed until the nature and depth of this issue is understood.
According to John Malloy, Executive Producer of the show "Fast Money" on CNBC, here are some recent data and observations:
"One in every 139 mortgages are currently in some state of foreclosure, an increase of 4% from last quarter. However, recently discovered issues within the foreclosure process at a number of large banks have politicians crying out for at least a brief moratorium on further foreclosures. Several of the bigger banks have already voluntarily slowed or stopped the process until procedures can be examined and improved."
And, "Without the moratoria, the percentage of foreclosures as a percentage of total loans outstanding is already at the extended rate of 4.6% - 288,000 homes were seized in third quarter alone."
An investing and financial strategies blog offered by Gary Partoyan, veteran financial advisor and owner of Potomac Wealth Strategies, LLC.
Friday, October 15, 2010
Re-Fi Updates
Progress. The lending industry is still a shambles, but it is at least opening up a bit.
One client owns an investment condo and wants to re-finance into a shorter-term and a fixed interest rate, even though it would cost him more money each month (giving up some cash flow to obtain more stability). The condo is worth twice what he owes on it, and it's more than paying for itself for many years now as an investment property. Still, earlier this year, he was just-plain rejected... "We don't do investment condo re-fi right now. Sorry."
Last week, though, the same person got some traction. "We can do that. The rate for investment properties is a lot higher than if you lived in the condo, and we can't let you take any cash out. But we can definitely re-finance it for you if you like the numbers we offer."
Not great, but progress, and I am trying to monitor the key economic signs for us.
One client owns an investment condo and wants to re-finance into a shorter-term and a fixed interest rate, even though it would cost him more money each month (giving up some cash flow to obtain more stability). The condo is worth twice what he owes on it, and it's more than paying for itself for many years now as an investment property. Still, earlier this year, he was just-plain rejected... "We don't do investment condo re-fi right now. Sorry."
Last week, though, the same person got some traction. "We can do that. The rate for investment properties is a lot higher than if you lived in the condo, and we can't let you take any cash out. But we can definitely re-finance it for you if you like the numbers we offer."
Not great, but progress, and I am trying to monitor the key economic signs for us.
Sunday, October 10, 2010
New Normal, No Normal, or Old Cyclical?
What sort of economy is the USA and the rest of the developed-economy world facing now and for the next number of years?
Bill Gross and Jeffrey Gundlach, two of the best bond fund managers on the planet, are the proponents of "new normal" and "no normal" theories, respectively, of the near- and intermediate-term economic outlook for the USA.
New Normal, by Gross and his team, is about persistent low-growth economics coupled with high unemployment over the next half-decade or so. Not another collapse, but hardly much of a recovery situation. Here in the developed world, that is. Opportunities abound eleswhere.
No Normal, espoused by Gundlach, is more about there being so much uncertainty that we can't be sure what will happen. Inflation or deflation? Recovery or double-dip, and with old jobs returning or there being a need for brand-new jobs?
Former economic advisor to president Obama, Christina Romer, thinks we are in the "old cyclical", not a new/no normal environment. She seems to think this is similar to what's happened in the past. Maybe so, but I think Gundlach and Gross have a better feel for what is actually going on in the real economy.
Politicians and ivory tower-dwellers are not to be ignored, but when there is a difference of opinion this significant, the investment experts with awesome track records, like Gross and Gundlach, probably are more worthy of our attention.
Bill Gross and Jeffrey Gundlach, two of the best bond fund managers on the planet, are the proponents of "new normal" and "no normal" theories, respectively, of the near- and intermediate-term economic outlook for the USA.
New Normal, by Gross and his team, is about persistent low-growth economics coupled with high unemployment over the next half-decade or so. Not another collapse, but hardly much of a recovery situation. Here in the developed world, that is. Opportunities abound eleswhere.
No Normal, espoused by Gundlach, is more about there being so much uncertainty that we can't be sure what will happen. Inflation or deflation? Recovery or double-dip, and with old jobs returning or there being a need for brand-new jobs?
Former economic advisor to president Obama, Christina Romer, thinks we are in the "old cyclical", not a new/no normal environment. She seems to think this is similar to what's happened in the past. Maybe so, but I think Gundlach and Gross have a better feel for what is actually going on in the real economy.
Politicians and ivory tower-dwellers are not to be ignored, but when there is a difference of opinion this significant, the investment experts with awesome track records, like Gross and Gundlach, probably are more worthy of our attention.
Friday, October 8, 2010
Ten Reasons to Be Optimistic
Jim Cramer is the enigmatic on-air and online investment "guru" whose specific advice I generally avoid but whose ability to see from a distance trends in the economy is often quite impressive.
He recently he spoke of 10 reasons why we can afford to be optimistic. Here they are:
1. The euro is higher against the dollar. European debt is now off the table and fears of a high dollar are not abating.
2. Back-to-school sales beat estimates.
3. Unemployment is "on a gentle slope downward."
4. The commercial property market is showing an "unexpected firmness."
5. Copper, oil and the Baltic Dry Index are at high levels.
6. Auto sales have been strong.
7. Mortgage applications have been up 9% this week.
8. Obama has a better relationship with the business world.
9. Big-Cap tech, like Cisco (CSCO), Intel (INTC), Oracle (ORCL), IBM (IBM) are showing unexpected strength.
10. The S&P 500 chart is in a reverse head and shoulders pattern, signaling a bottom.
#5 is the most interesting and appealing to me. Copper and the Baltic Dry Index, especially.
I am pessimistic about the U.S. economy, but I am bottom-up bullish on the stock markets. There is always a chance to get in early and make long-term money, even in bad markets. If Jim Cramer thinks the U.S. market is looking like a good bet, so much the better.
He recently he spoke of 10 reasons why we can afford to be optimistic. Here they are:
1. The euro is higher against the dollar. European debt is now off the table and fears of a high dollar are not abating.
2. Back-to-school sales beat estimates.
3. Unemployment is "on a gentle slope downward."
4. The commercial property market is showing an "unexpected firmness."
5. Copper, oil and the Baltic Dry Index are at high levels.
6. Auto sales have been strong.
7. Mortgage applications have been up 9% this week.
8. Obama has a better relationship with the business world.
9. Big-Cap tech, like Cisco (CSCO), Intel (INTC), Oracle (ORCL), IBM (IBM) are showing unexpected strength.
10. The S&P 500 chart is in a reverse head and shoulders pattern, signaling a bottom.
#5 is the most interesting and appealing to me. Copper and the Baltic Dry Index, especially.
I am pessimistic about the U.S. economy, but I am bottom-up bullish on the stock markets. There is always a chance to get in early and make long-term money, even in bad markets. If Jim Cramer thinks the U.S. market is looking like a good bet, so much the better.
Tuesday, October 5, 2010
The "529 Plan" Isn't Dead... But It Needs Help
The 529 higher-education savings/investment type of account is losing popularity despite its tremendous tax advantages. Folks are worried because of what happened to their balances during the recent market collapse.
Contributions are down. Fewer 529 accounts are being opened. Folks are looking for more conservative places to invest money for college, like CDs and bank savings (nevermind that most 529s offer a "stable value" investment option).
Understandable reaction, but the wrong strategy. Most people will need to earn a lot more than bank interest, so they need to be investing for real, and ideally they will do so in tax-advantaged investment accounts. The 529 is one of the few places to do that...
But the 529 is far, far from ideal, and that is completely separate from the market value declines the investments therein suffered in 2008 along with most of the rest of the investment marketplace. 529s have other, perhaps bigger, problems that must be fixed.
Limited investment selection, and limited portfolio adjustments, are the biggies. Specifically, here is what needs to be fixed:
1) Scrap the state-sponsorship of 529 plans. We should not be stuck with investment choices limited to those offered by investment firms that get sweetheart deals from the sponsoring states. For example, if you are in the Alabama 529 plan, you're stuck with Van Kampen mutual funds. Nice deal for Van Kampen, and that's a decent fund company, but why should folks from Alabama have to suffer investment choice limitations in the first place just to get the in-state tax deductions? Not having free access to your money before college is a fair trade-off for the tax breaks, but there's no such logical relationship with social policy and a mutual fund dealer.
2) Lift the transaction restrictions. Most (all?) 529 plans restrict how often the owner of the account can rearrange the portfolio. In Virginia's 529 from American Funds, for example, ya get one annual re-jiggering of your portfolio. What if the markets are volatile that year and you want to move in or duck for cover? Folks, in this day and age, we need to be nimble and flexible. I'm not advocating frequent trading of mutual funds, as you probably already know, but I do not want my hands tied. Most 529s tie your hands.
Instead of this arbitrary and dubious 529 structure, let's open-up Education Savings Accounts (formerly known as Coverdell IRAs, after the late-Paul Coverdell, a Senator from GA who championed the idea of higher contribution limits on tax-deferred contributions for college savings). They are better than 529s, except you may contribute only a small fraction as much as to a 529.
"ESAs" can be established at almost any financial services institution, on your own or with the help of a financial advisor. You can invest in just about any stock, bond, mutual fund or exchange-traded fund. The contribution may or may not be tax-deductible, but any growth is tax-deferred, and withdrawals for approved higher-ed expenses are tax-free.
Don't let this deter you. Save for college. But voice your opinions. We should be allowed to save more, more freely and dynamically, in tax-advantaged accounts for college. Open-up the 529s, or shut 'em down and open-up the ESAs instead.
Bug your U.S. Representative about it by calling (202) 225-3121 and asking to be connected to your congressman/woman's office. Find your U.S. Rep at www.house.gov
Contributions are down. Fewer 529 accounts are being opened. Folks are looking for more conservative places to invest money for college, like CDs and bank savings (nevermind that most 529s offer a "stable value" investment option).
Understandable reaction, but the wrong strategy. Most people will need to earn a lot more than bank interest, so they need to be investing for real, and ideally they will do so in tax-advantaged investment accounts. The 529 is one of the few places to do that...
But the 529 is far, far from ideal, and that is completely separate from the market value declines the investments therein suffered in 2008 along with most of the rest of the investment marketplace. 529s have other, perhaps bigger, problems that must be fixed.
Limited investment selection, and limited portfolio adjustments, are the biggies. Specifically, here is what needs to be fixed:
1) Scrap the state-sponsorship of 529 plans. We should not be stuck with investment choices limited to those offered by investment firms that get sweetheart deals from the sponsoring states. For example, if you are in the Alabama 529 plan, you're stuck with Van Kampen mutual funds. Nice deal for Van Kampen, and that's a decent fund company, but why should folks from Alabama have to suffer investment choice limitations in the first place just to get the in-state tax deductions? Not having free access to your money before college is a fair trade-off for the tax breaks, but there's no such logical relationship with social policy and a mutual fund dealer.
2) Lift the transaction restrictions. Most (all?) 529 plans restrict how often the owner of the account can rearrange the portfolio. In Virginia's 529 from American Funds, for example, ya get one annual re-jiggering of your portfolio. What if the markets are volatile that year and you want to move in or duck for cover? Folks, in this day and age, we need to be nimble and flexible. I'm not advocating frequent trading of mutual funds, as you probably already know, but I do not want my hands tied. Most 529s tie your hands.
Instead of this arbitrary and dubious 529 structure, let's open-up Education Savings Accounts (formerly known as Coverdell IRAs, after the late-Paul Coverdell, a Senator from GA who championed the idea of higher contribution limits on tax-deferred contributions for college savings). They are better than 529s, except you may contribute only a small fraction as much as to a 529.
"ESAs" can be established at almost any financial services institution, on your own or with the help of a financial advisor. You can invest in just about any stock, bond, mutual fund or exchange-traded fund. The contribution may or may not be tax-deductible, but any growth is tax-deferred, and withdrawals for approved higher-ed expenses are tax-free.
Don't let this deter you. Save for college. But voice your opinions. We should be allowed to save more, more freely and dynamically, in tax-advantaged accounts for college. Open-up the 529s, or shut 'em down and open-up the ESAs instead.
Bug your U.S. Representative about it by calling (202) 225-3121 and asking to be connected to your congressman/woman's office. Find your U.S. Rep at www.house.gov
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