Wednesday, October 15, 2008
1) Consumer confidence stood at a 2 1/2 year high;
2) Regular gasoline sold for $2.19 a gallon;
3) the unemployment rate was 4.5%.
4) the DOW JONES hit a record high--14,000 +
5) American's were buying new cars, taking cruises, vacations,, et. al
But American's wanted 'CHANGE!' So, in 2006 they voted in a Democratic
Congress and yes--we got 'CHANGE' all right. In the PAST YEAR:
1) Consumer confidence has plummeted;
2) Gasoline is now over $3-4 a gallon
3) Unemployment is up to 6%
4) Americans have seen their home equity drop by an average of 25% THAT’S $12 TRILLION DOLLARS…
5) 7% of American homes are in foreclosure.
6) THE DOW is probing another low
7)$2.5 TRILLION DOLLARS HAS EVAPORATED FROM THEIR STOCKS, BONDS & MUTUAL FUNDS INVESTMENT PORTIFOLIOS!
Yeah – I’d say we got change alright…
Tuesday, October 14, 2008
IF YOU FEEL LIKE THE VILLAGE IDIOT, YOU'RE NOT ALONE. THE U.S. IS NOT THE ONLY GOVERNMENT COMMITTED TO BAILING OUT IT’S FINANCIAL INSTITUTIONS.
LET’S DO A GLOBAL FINANCIAL BAILOUT ROLL CALL…RUSSIA, HOW MUCH CAN YOU THROW AT THE PROBLEM IN YOUR COUNTRY? $36 BILLION!! THAT’S A LOT OF VODKA…SPAIN? $40 BILLION… HOLD THE TAPAS AND SANGRIA.!! UNITED KINGDOM? $88 BILLION…THERE GOES THE NATIONAL DENTAL PLAN!! AND THE GOOD OLD USA? $700 BILLION…HOLY MOTHER OF DEBT!!
$$700 BILLION? I CAN’T EVEN WRITE THAT NUMBER. A BILLION IS 10HUNDRED MILLION, A MILLION IS 10 HUNDRED THOUSAND A THOUSAND IS 10 HUNDRED HUNDREDS A HUNDRED IS 10 TENS. A 10 IS NOT WORTH TOO MUCH. THIS MIGHT BE A BETTER WAY TO THINK OF IT. I’M MORE OF A VISUAL PERSON SO PICTURE THIS. WHAT IS 700 BILLION DOLLARS I MEAN PHYSICALLY AS IN 700 BILLION DOLLAR BILLS?
700 BILLION DOLLAR BILLS. This pile is 250 feet wide, 400 feet deep and 900 feet tall.
900 feet is the height of a 76-story building. It's twice the height of the Luxor Hotel.
If you were to stack the money in a single stack, your stack would be 40,000 miles tall, enough to wrap the Moon at its equator almost 6 times. THAT’S IN TODAY'S DOLLARS.
Putting a man on the moon IN March (1966): NASA told Congress the Apollo program (to put men on the moon) would be an estimated $22.718 billion for the 13 year program, the final cost was between $20 and $25 billion. How much would that be today?
By using the GDP per capita, we are measuring the cost in terms of average product and would get a number of $259 billion. THAT’S ABOUT A THIRD OF TODAY'S BAIL OUT MONEY.
IF WE WOULD HAVE DONE THIS IN 1966 WE WOULD NOT HAVE SPENT 700 BILLION BUT ONLY ABOUT 66 BILLION. INSTEAD OF SPENDING 700 BILLION ON TO BAIL OUT THE ECONOMY IT MIGHT BE CHEAPER TO DEVELOP A TIME MACHINE FOR ALL OF US TO TRANSPORT BACK TO THE MID 60’S. FAR OUT MAN…
Wednesday, October 8, 2008
Stocks are down, real estate is down, and things look pretty miserable – economically speaking, but let’s look at the facts…
HERE’S THE BAD NEWS
· The root of the problem is Real Estate – we bet that home prices would go up forever…it doesn’t and as such our portfolios have been SCARED-STRAIGHT. We borrowed too much, we spent when we didn’t have money to spend, we acquired houses that we could not afford AND WE STOPPED SAVING.
· Only 40% of us actually invest
· 52% of us say that they currently cannot afford to save or are saving inadequately, according to the Consumer Federation of America (CFA) –
· 30% is the TRUE number of Americans who actually save money
· 90% of us have some kind of debt including our homes
· 60% of us have debt NOT including our homes – this compares to 28% in 1950.
· 6% of us are unemployed
· 9% of us are currently in foreclosure
· 3% of those folks have actually lost their homes
· The average retirement account has lost 12% during this crisis
· The average U.S. home has lost 25% of its value
BUT HERE’S THE GOOD NEWS…
· According to the International Monetary Fund [IMF], there have been 120 financial CRISIS’ since 1970. EVERYONE OF THEM HAS ENDED!
· As the oldest stock benchmark in the world, the 118-year-old Dow Jones Industrial Average offers a decent look on performance over the past 100 years. It shows that the U.S. stock market has endured 19 periods in which the index has dropped at least 20%.
It may be too soon to know whether a true bottom was reached this past week, but in any case, history suggests that the resiliency of the market should not be underestimated. This is shown in the chart below, supported by these observations:
The average decline in the DJIA during the 19 previous "bear markets" was 37%.
In the years following the bottom of these 19 bear markets, the DJIA had an average annual return of 40%.
The S&P 500 Index has been published since the 1920s as a broader measure of U.S. stocks than the DJIA. This index corroborates results during the past 13 bear markets (not counting the current one). The S&P 500's average annual return in the years following bottoms was 44%.
Most importantly, in every year since 1900 after a decline of at least 20% in the DJIA, stock market returns have been positive. The graph below shows each period since 1900 in which the Dow has declined more than 20% and the average's annual return in the year following the decline.
· Most of you should NOT be trading individual stocks right now.
· Most of you have “time-lines” before retirement of at least 10 years – so RELAX – historical data is on our side.
· Most of you should NOT be liquidating your retirement accounts to cash – if you sell now – at the bottom – YOU ARE JUST LOCKING IN YOUR LOSSES
· You don’t look at the value of your house everyday – don’t look at your retirement value everyday
And even if you are string down the barrel of retirement and your nest egg has suffered from recent events, remember, the day you retire – you DON’T pull all of your money out of your account and set it on the kitchen table and sit and stare at it! The money stays where it is and generates income for you…Remember, the only way you can get hurt on a rollercoaster is if you jump off!
Tuesday, October 7, 2008
Monday, October 6, 2008
Sorry for the intrusion. It’s been a nutty week – I have been on more radio stations and networks than I care to remember talking about the economy this week. I have been getting a ton of emails and calls asking for an explanation of what is going on with this "bailout" or "rescue plan" and I wanted to provide some insight into the situation. Here is the best explanation.
What the government wants to do with the new bill in congress is to provide liquidity to the market. The politicians have done a pretty bad job of explaining what is going on, and the vast majority of Americans believe that this bills sole purpose is to "bail out" the big business that screwed up in the first place. Since there is so much overwhelming opposition to the bill from constituents, and since we are SO close to many of the same representatives voting on this bill facing re-election, it gets really politicized.
What the Government wants to do is provide a market for the questionable assets and clear up the banks balance sheets so that they can continue to operate and lend money to consumers, small businesses, etc. The government is the ONLY investor at this point that can step in at this point. The main point is that the government can purchase these assets NOW at a very discounted price, and once the market returns, the plan is to sell the assets back and make a profit for the American people on their investment.
The banks are currently in a bad position like - they are in duress, and need to sell their assets.
The misconception is that this bill is aimed at "bailing out" the financial powerhouses on Wall St. The real issue has to do heavily with normal Americans. The now frozen credit market is the same market that companies, big and small go to for their business lines of credit. It's the same market that we need for our Auto loans, mortgages, credit cards, etc.
If the credit markets remains frozen, it will affect us in many ways. Many business owners use credit lines to pay payroll, order materials, etc. If credit freezes up, jobs will be lost because of the lack of ability to make payroll. If materials cannot be ordered to produce products, businesses will shut down. If the majority of Americans can't get auto loans, they can't buy cars. If they can't buy cars, the already struggling auto makers will shut down plants, and cause more job loss... No one really knows what the outcome of this will be, but it seems to me that the consequences of inaction are far further reaching than those of the action deemed necessary at this time.
First of all, the credit markets are frozen. Who is to blame for this situation? Toxic Mortgages? Corporate Greed? Well, partially. But one thing that you might not have heard about that is key is an ACCOUNTING rule called "Market to Market", or the technical term FASB 157 (Pronounced "fasbie 157"). Formed in an effort to provide more transparency, FASB 157 states that every day, lenders are required to evaluate and disclose what they are worth in the marketplace, based on where prices are.
Let’s say a bank is worth 1 million dollars (keep the math simple). They have 15 million dollars in loans outstanding to borrowers. The ratio of loans to assets is 15:1. Now what if a neighboring bank, for whatever reason had to write down some of the same types of assets our bank holds because they got into some trouble. Nothing has changed with our bank, however when we go to disclose the value of our assets, they have fallen because of the other banks actions. For our bank, it is just a paper loss, however, lets say that because of the other bank, our assets are valued at 500K, instead of a million dollars.
The truth is that this crisis has far less to do with quality of loans, than these accounting rules that were passed to increase transparency for investors. 95%of the loans are performing well, however since all loans were packaged together, there is no way to decipher which investments are good, and which are bad.
Lastly, what does this mean for mortgage and rates in the short term? If you ever listen to or watch my show, you know that stocks and bonds compete for the same investment dollar. When the stock market tanked 777 points, money flowed into the bond market, and rates improved. The next day when we rebounded 500 points, that was at the expense of the bond market, and rates went up. My feeling is that the bill will be passed in the House tomorrow, and the stock market should rally pretty substantially. If this happens, it will be at the expense of the bond market, and interest rates should rise...
So, credit is still tough to get because of this freeze, (i.e.: Mortgages are really tough to get unless you are a strong borrower) but we will see what happens if the bill goes through, and rates are still really good. Only 30 months out of the last 360 months have 30 year fixed rates been lower than 6%, so rates are still pretty good if you are lookin'.
Love your show,
Bob "Sully" Sullivan
Thanks for listening to "THE BIG BIZ SHOW WITH SULLY AND RUSS T. NAILZ" nationwide/coast to coast on the BusinessTalk Radio Network weekdays 4-6PM EST! ALSO - CATCH US ON THE FOX BUSINESS NETWORK AND THE WEALTH TELEVISION NETWORK ON A CABLE CHANNEL NEAR YOU!!