By Joan Goldwasser, Senior Reporter, Kiplinger's Personal Finance
March 6, 2009
Reprinted with permission from www.kiplinger.com.
Does the avalance of news about layoffs, business losses and a declining stock market have you looking for ways to cut your spending so you can beef up your savings? We're here to help, with suggestions for less-expensive alternatives to ten everyday purchases (for more ideas, go to www.BillShrink.com, which tracks cell-phone plans and credit cards).
Afternoon snacks. Do you munch protein bars as a healthier alternative to a chocolate pick-me-up? You could easily be paying more than $2 per bar and consuming just as much sugar as you would with your favorite candy bar. Stock up on fruit for a fraction of the cost when you do your grocery shopping. You'll be fitter and save a bundle.
Bottled water. Yes, it's important to drink water every day. But picking up the bottled variety with your lucnh is an expensive way to stay hydrated. Rather than spend $2 a day for water, buy a pitcher and a filter for about $20 and drink as much as you want for pennies a day.
A caffeine fix. Can't get through the day without at least one cuppa Joe? Stopping at Starbucks or Dunkin' Donuts can set you back as much as $1.65 per cup. Splurge on a pound of gourmet coffee for $8 to $13 and you can make 40 cups for about 20 cents to 33 cents each.
Favorite tunes. Do you rush out to buy the latest CD by your favorite group even though there are only one or two songs you really like? Instead of paying up to $18 for the CD, download those cuts you want from iTunes for 99 cents each, or from Amazon for as little as 79 cents.
A night at the movies. An evening for two at your local theater costs an average of about $20, including the popcorn - and closer to $30 in major cities. And that doesn't even count the babysitter. For just $5 a month, you can watch two movies from Netflix or pay $9 for unlimited viewing. If you're willing to wait a little longer for new releases, borrow them free from your local library. (See Cut the Cable Cord for other inexpensive entertainment options.)
Fresh flowers. A bouquet of spring blooms brightens up a room and your mood. But purchasing it from a florist at $25 and up can quickly put a dent in your budget. Check out your local grocery store, which offers a selection of seasonal bouquets for $5 to $10.
Fruits and veggies. Sure, precut vegetables and salad mixes that are washed and bagged save a little time. But you'll pay for the convenience. Broccoli florets and sliced peppers cost $6 per pound, compared with one-third to one-half the price for the uncut version. Lettuce varieties that are pre-washed and bagged sell for $5.98 a pound. But it takes just minutes to wash and spin dry enough arugula for your evening salad, and you'll pay one-third as much. Buying whole strawberries rather than sliced ones that are prepackaged cuts the price by 75%.
Credit-card fees. Every month, millions of credit-card customers pay their bills late, and they're assessed as much as $39 each time. Set up an automatic debit and you'll never incur another late fee.
Fax and mail services. Instead of paying FedEx $.149 to fax one page, sign up to send free faxes from a provider such a faxZero or K7.net. Save on shipping with the U.S. Postal Service's priority mail service. You'll pay just $4.95 to mail an envelope or small box anywhere in the US, and your parcel is likely to arrive within two days. Larger packages cost $10.35. That saves at least 50% compared with UPS's two-day service, the cost of which varies by weight and distance.
Monday, April 27, 2009
AN OPTIMIST WILL TELL YOU THE GLASS IS HALF FULL; THE PESSIMIST, HALF EMPTY; AND THE ANALYST WILL TELL YOU THE GLASS IS TWICE THE SIZE IT NEEDS TO BE
And indeed - last week certainly contained news that could cause you to view the economy in an optimistic or pessimistic light - let's take a closer look.
Good earnings reports from financial companies continued as Bank of America reported earnings that were ten times greater than expectations - that's right, TEN times better. The company also said it earned more in the first quarter of 2009 than through all of 2008, largely a result of enormous refinancing activity. In addition, Treasury Secretary Tim Geithner said that most banks are well capitalized, and there are signs that credit market conditions are improving, which is definitely something to be optimistic about. However, as earnings season marched on, there were also some weak reports, including clinkers from The Bank of New York, Caterpillar, Dupont, Coca-Cola, Merck and United Technologies.
On the housing front, New Home Sales came out slightly better than expected, and it was especially good to see that the inventory number continues to fall - now at a 10.7 month supply, compared with February 11.2 months. Existing Home Sales came in slightly below market estimates - and while the report showed that Existing Home inventory in March fell by a modest 1.6% at the current sales pace it would take an estimated 9.8 months to sell that inventory of properties, slightly longer than February's 9.7 month reading. The path back to economic recovery will go through housing, and these reports will be important to watch in the months ahead.
In other news, Initial Jobless Claims were reported in-line with expectations. Initial Jobless Claims area leading indicator and last week's number does not yet suggest that the employment market is starting to improve. And March's Durable Goods Orders marked the 7th negative reading in the last 8 months, as tighter credit and lack of business investment is continuing to fuel these negative numbers. However, it will be interesting to see how these numbers change with lending abilities now freed up following the recent relaxation of mark-to-market accounting rules, which will in turn make it easier for businesses and consumers to buy and spend.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. And last week's mix of news saw money flowing back and forth from Stocks to Bonds, with Bonds and home loan rates ultimately ending the week very close to where they began.
WHETHER YOU'RE EXPECTING TO GET A JUICY TAX REFUND OR NOT, MAKING WISE CHOICES WITH YOUR MONEY IS MORE IMPORTANT THAN EVER! CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW FOR SOME GREAT DOLLAR SMART TIPS.
Forecast for the Week:
There are several important reports and events to look for this week, and whether they will lean towards optimism or pessimism remains to be seen. On Tuesday the Consumer Confidence Report will show us if consumers are feeling their own glass is half full or half empty, while on Wednesday we will get a read on the economy with the Gross Domestic Product (GDP) Report, which is the broadest measure of economic activity.
Also this week, we have the Fed's next regularly scheduled Federal Open Market Committee meeting, followed by their Policy Statement and Interest Rate Decision coming on Wednesday afternoon. It will be important to see if the Fed has a positive or negative read on the economy, and if they comment on any of the recent whispers of inflation. And speaking of the Fed and inflation, the Fed's favorite gauge of inflation, the Core Personal Consumption Expenditure (PCE) index found within the Personal Income Report, will be released on Thursday.
As you can in the chart below, Bonds were unable to break through a strong overhead ceiling of technical resistance, which is preventing any improvements in home loan rates. Remember: home loan rates are still near historic lows, but the market is volatile. If we have not yet discussed your own situation, give me a call or quick email so that we can ensure you are positioned properly. And if you have any friends, family members, neighbors or coworkers who might need a word of advice, please remember I'd be honored to hear from them as well.
Chart: Fannie Mae 4.0% Mortgage Bond (Friday, Apr 24, 2009)
Monday, April 20, 2009
THE FACT THAT AN OPINION HAS BEEN WIDELY HELD DOESN'T MEAN THAT IT'S NOT UTTERLY ABSURD
True words - and last week was one that was full of opinions that moved the financial markets - here are some highlights.
The week began with bank analyst Mike Mayo spewing out a negative forecast, which included his thoughts that loan losses by financial institutions would ultimately exceed levels from the Great Depression. This was followed by word from hedge fund giant George Soros that the US banking system is insolvent and that the economy won't recover in 2009.
However, as mentioned in many previous newsletters, the recent changes in the mark-to-market should prove to have a positive impact on the economics and overall operations of financial institutions. Why? Because the recent ruling to look at mark-to-market accounting in a more relaxed light will free up the banks' capital ratios and allow them to do more lending, which will help their profitability, as well as ultimately help the economy unlock as businesses and consumers are once again able to borrow and use credit in a more normal fashion.
Lo and behold . . . as earnings season began last week, there was already evidence of this playing out as true, when Wells Fargo said Thursday that it expects record 1st quarter earnings and that their Wachovia acquisition was exceeding their expectations. In addition, the New York Times said Thursday that the US banking system overall may be in better shape than most people think.
The week began with bank analyst Mike Mayo spewing out a negative forecast, which included his thoughts that loan losses by financial institutions would ultimately exceed levels from the Great Depression. This was followed by word from hedge fund giant George Soros that the US banking system is insolvent and that the economy won't recover in 2009.
However, as mentioned in many previous newsletters, the recent changes in the mark-to-market should prove to have a positive impact on the economics and overall operations of financial institutions. Why? Because the recent ruling to look at mark-to-market accounting in a more relaxed light will free up the banks' capital ratios and allow them to do more lending, which will help their profitability, as well as ultimately help the economy unlock as businesses and consumers are once again able to borrow and use credit in a more normal fashion.
Lo and behold . . . as earnings season began last week, there was already evidence of this playing out as true, when Wells Fargo said Thursday that it expects record 1st quarter earnings and that their Wachovia acquisition was exceeding their expectations. In addition, the New York Times said Thursday that the US banking system overall may be in better shape than most people think.
Tuesday, April 7, 2009
"LET'S GIVE THEM SOMETHING TO TALK ABOUT..."
Better believe that last week's news gave us plenty to talk about, and even a few things to smile about.
What's Coming at the End of the Month:
By the end of the month Countrywide Home Loans and Bank of America Mortgage will be Bank of America Home Loans. The pending combination of these two leading lenders has been a catalyst for researching ways to improve the way we do business. During our research, we heard consumers say that they would be extremely likely to consider Bank of America for their mortgage if they were offered "clear, simple terms using a one-page summary of what my payment will be and I'll never be surprised." From that response, the Clarity Commitment was born. This one page document will provide consumers a summary of their loan written in plain language. When shown a sample document, here's what two respondents had to say:
"People are intimidated by mortgages - this plain language Clarity Commitment is what everyone wants"
"The Clarity Commitment is good, easy - I love it"
This is just one of the many positive changes your client's will experience beginning the end of the month when you refer them to me. I look forward to serving your clients as we strive to find ways to improve our industry.
Information provided by:
Michael McCollum
770-904-7251 office
770-309-4923 cell
What's Coming at the End of the Month:
By the end of the month Countrywide Home Loans and Bank of America Mortgage will be Bank of America Home Loans. The pending combination of these two leading lenders has been a catalyst for researching ways to improve the way we do business. During our research, we heard consumers say that they would be extremely likely to consider Bank of America for their mortgage if they were offered "clear, simple terms using a one-page summary of what my payment will be and I'll never be surprised." From that response, the Clarity Commitment was born. This one page document will provide consumers a summary of their loan written in plain language. When shown a sample document, here's what two respondents had to say:
"People are intimidated by mortgages - this plain language Clarity Commitment is what everyone wants"
"The Clarity Commitment is good, easy - I love it"
This is just one of the many positive changes your client's will experience beginning the end of the month when you refer them to me. I look forward to serving your clients as we strive to find ways to improve our industry.
Information provided by:
Michael McCollum
770-904-7251 office
770-309-4923 cell
Thursday, April 2, 2009
Important Market Update
MMG Update - Thursday, April 2, 2009
Current Trend Direction: Sideways
Risks favor: Cautiously Floating
Current Price of FNMA 4.0% Bond: $100.31, -19bp
Congratulations to all of us for getting the word out... changes to Mark to Market are coming. The Financial Accounting Standards Board (FASB) voted favorably to relax mark-to-market and help financial institutions. The big change is to allow financial companies to use alternate models, like cash flow analysis, in marking assets. This enormous change will significantly reduce the writedowns banks have been taking on investments like mortgage-backed securities. You can revisit the article and videos we have put together on mark to market to better understand how destructive it has been to our financial system. This change to mark to market is effective for the second quarter, but can be applied to first quarter earnings. Rumors are swirling that this change will boost earnings of banks by 20% or more in the first quarter. It is too bad that it has taken so long for this enormous issue to be fixed, but finally Congress stepped in and common sense prevailed.
Once again, it's crazy to watch TV and see people talk adversely about removing mark to market. We and many smart people, like former FDIC Chair Bill Issac, former Treasury Secretary Robert Rubin, Steve Forbes and others just wanted to see a relaxing of mark to market like we got today - not a complete removal of mark to market, which would bring us back to the accounting standards of the Enron days.
Back on March 11th, you can see in our Daily Update, we called the bottom of the Stock market when the Dow was at 6552. A few things made us feel a bottom was in place - one, the front page of the Wall Street Journal said "Dow 5,000?" - but the other big factor was the upcoming Congressional hearing on mark to market on March 12th - the very next day. Since this time back on March 11th, Stocks, as evidenced by the Dow, have risen 23%! Be sure to share with your clients what today's FASB ruling means for our financial system and how it has affected the markets.
Also helping Stocks is optimism that the G20 meeting underway in London will agree on ways to pull global economies out of the current recession. And Bank of America's CEO Ken Lewis also said this morning that the company has a huge capital cushion even if the economic woes linger.
First-time claims for unemployment benefits were 669,000, higher than the 650,000 estimated and up 72% from the same period in the prior year. The number of people collecting state unemployment benefits reached yet another new record, jumping 161,000 to 5.73 million - a level that is 96% greater than in the prior year.
The European Central Bank cut its benchmark interest rate by .25% to a record low of 1.25%, but less than the .50% that was expected.
Jobs Report Strategy
This morning's Initial Jobless Claims were worse than expected, but the recent round of numbers suggest some stabilization in the labor market. Tomorrow's Jobs Report may not garner much of a reaction in Mortgage Bonds, so we are going to advise carefully floating into the report and here's why - If the number is a stinky one, and it is very likely to be, the pricing gains may be somewhat muted because lenders only have so much pricing to give due to capacity issues. On the other hand, should the Jobs Report come in better than expected, the reaction in Mortgage Bonds may be somewhat muted as well on the downside because of the Fed buying program. We think floating carefully with prices trading in this sideways range is prudent - but we will lean to a locking stance once this ceiling of resistance is retested.
Current Trend Direction: Sideways
Risks favor: Cautiously Floating
Current Price of FNMA 4.0% Bond: $100.31, -19bp
Congratulations to all of us for getting the word out... changes to Mark to Market are coming. The Financial Accounting Standards Board (FASB) voted favorably to relax mark-to-market and help financial institutions. The big change is to allow financial companies to use alternate models, like cash flow analysis, in marking assets. This enormous change will significantly reduce the writedowns banks have been taking on investments like mortgage-backed securities. You can revisit the article and videos we have put together on mark to market to better understand how destructive it has been to our financial system. This change to mark to market is effective for the second quarter, but can be applied to first quarter earnings. Rumors are swirling that this change will boost earnings of banks by 20% or more in the first quarter. It is too bad that it has taken so long for this enormous issue to be fixed, but finally Congress stepped in and common sense prevailed.
Once again, it's crazy to watch TV and see people talk adversely about removing mark to market. We and many smart people, like former FDIC Chair Bill Issac, former Treasury Secretary Robert Rubin, Steve Forbes and others just wanted to see a relaxing of mark to market like we got today - not a complete removal of mark to market, which would bring us back to the accounting standards of the Enron days.
Back on March 11th, you can see in our Daily Update, we called the bottom of the Stock market when the Dow was at 6552. A few things made us feel a bottom was in place - one, the front page of the Wall Street Journal said "Dow 5,000?" - but the other big factor was the upcoming Congressional hearing on mark to market on March 12th - the very next day. Since this time back on March 11th, Stocks, as evidenced by the Dow, have risen 23%! Be sure to share with your clients what today's FASB ruling means for our financial system and how it has affected the markets.
Also helping Stocks is optimism that the G20 meeting underway in London will agree on ways to pull global economies out of the current recession. And Bank of America's CEO Ken Lewis also said this morning that the company has a huge capital cushion even if the economic woes linger.
First-time claims for unemployment benefits were 669,000, higher than the 650,000 estimated and up 72% from the same period in the prior year. The number of people collecting state unemployment benefits reached yet another new record, jumping 161,000 to 5.73 million - a level that is 96% greater than in the prior year.
The European Central Bank cut its benchmark interest rate by .25% to a record low of 1.25%, but less than the .50% that was expected.
Jobs Report Strategy
This morning's Initial Jobless Claims were worse than expected, but the recent round of numbers suggest some stabilization in the labor market. Tomorrow's Jobs Report may not garner much of a reaction in Mortgage Bonds, so we are going to advise carefully floating into the report and here's why - If the number is a stinky one, and it is very likely to be, the pricing gains may be somewhat muted because lenders only have so much pricing to give due to capacity issues. On the other hand, should the Jobs Report come in better than expected, the reaction in Mortgage Bonds may be somewhat muted as well on the downside because of the Fed buying program. We think floating carefully with prices trading in this sideways range is prudent - but we will lean to a locking stance once this ceiling of resistance is retested.
Wednesday, April 1, 2009
Caution: Bold Decisions Just Ahead
"IT REQUIRES A GREAT DEAL OF BOLDNESS AND A GREAT DEAL OF CAUTION TO MAKE A GREAT FOTUNE." Ralph Waldo Emerson. And last week's headlines contained a mix of items to inspire both boldness and caution. Here are the highlights.
Friday's news showed that consumers are being understandably cautious with their finances, as the Personal Savings rate remained above 4% once again in February and among the highest savings levels seen in a decade. The last five years can be seen in the chart. And notice it wasn't that long ago that the US had a negative savings rate - that's right, as a nation, we regularly spent more than we made.
Friday's news showed that consumers are being understandably cautious with their finances, as the Personal Savings rate remained above 4% once again in February and among the highest savings levels seen in a decade. The last five years can be seen in the chart. And notice it wasn't that long ago that the US had a negative savings rate - that's right, as a nation, we regularly spent more than we made.Meanwhile, the government continues to make bold moves to help our economy. On Monday, Treasury Secretary Geithner unveiled a plan to remove toxic assets from financial institutions by using money from the $700 Billion TARP fund. The government will help mitigate the risk by offering private investors Billions of dollars in low-interest to help finance the purchases. Indeed, it's a bold strategy - let's see if it pays off!
And... there's room for cautious optimism on the economy, as good news was noted on several fronts last week. The housing market received good news when both Existing Home Sales and New Home Sales came in stronger than expected. Additionally, Durable Goods Orders for February came in better than expected, showing the first increase in six months, and the Core Personal Consumption Expenditure Index (Core PCE) showed inflation is presently at tolerable levels. Plus, the US Dollar received a boost when China said it will continue to purchase US Treasuries.
Bonds were jostled around mid-week, but home loan rates ultimately ended the week very close to where they begin... near historic lows. Give me a call or email me if you want to discuss whether now may be the perfect time for you to add a bit to your own fortune through a smart purchase or refi.
FORECAST FOR THE WEEK:
A very important week is in store, with two important announcements due at the end of the week. As you know, the "mark-to-market" accounting issue has been discussed in this newsletter many times, and this Thursday should be a big day on that front. The Financial Accounting Standards Board (FASB) is set to announce their ruling on whether to modify mark-to-market, and perhaps allow cash flow analysis to determine valuation of financial assets. Not a coincidence, the strength we have seen in Stocks over the past couple of weeks has been fueled by speculation that mark-t0-market will be modified, thereby helping reinvigorate the financial system of our country. I will be watching very closely to see what happens and how the markets respond.
On Friday, the Labor Department will release their Jobs Report for March. Last month's report showed that 651,000 US jobs were lost in February, while revisions for the prior two months showed that an additional 161,000 jobs were lost between December and January. Given that last week's Initial Jobless Claims report showed that the number of people collecting state unemployment benefits has reached a record high - jumping to a seasonally adjusted 5.56 million - it will be important to see what Friday's report reveals.
As you can see in the chart below, Bonds are currently trading between key technical levels, with a ceiling of resistance overhead, and a floor of support underfoot. But remember: Strong economic news - such as a positive change in the "mark-to-market" situation - will likely cause Stocks to rally, and Bonds and home loan rates may worsen in response. Please call me to discuss how the current rate situation may benefit or impact you.
Chart: Fannie Mae 4.5% Mortgage Bond (Friday Mar 27, 2009)
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