Adam Jewell – Search & Affiliate Marketing

The wheels are falling off the economic train in the US. We’re bailing out worthless organizations like Bank of America and Citi Bank when we should just guarantee the deposits, let the banks fail and start over (because in time they will fail anyway). These institutions have become so large and are so full of worthless assets that they may be to big to fail, yet by piling on shit (for lack of a better word) like Merril and Countrywide into the empty shell known as Bank of America, we now have institutions that are simply to big to save.

There simply isn’t enough money available to make these institutions solvent. These banks are still giving out billions in bonuses while taking tens of billions in tax payer dollars. As written earlier, the US housing collapse is going to accelerate through 2012 until things begin to settle at a bottom. If you are trying to sell a house now, you better take an offer while you can or you’ll be begging for half that price in 12-18 months in many areas.

The US auto industry is a joke. Chrystler, led by Bob Nardelli, who did his best to kill Home Depot and walked away with 200 million wants another 5 billion dollars to keep going while GM is looking for around 30 billion. The US tax payers have no business bailing out a company like Chrystler that is owned by a private equity company and run by a character like Nardelli who padded his own pockets at Home Depot while screwing the company. GM may be a better investment but 30 billion is quite a large sum.

Failure of the US auto industry would seem to have the potential to send this country into an all out tailspin financially. It could result in millions of lost jobs directly and indirectly as well as a huge loss of tax revenue in the billions of dollars for the US government. It might actually make financial sense to bailout these companies, though we all know they simply don’t deserve to receive this kind of aid given the lack of smaller fuel efficient and alternative fuel vehicles in their lineups.

As more and more people lose thier jobs, the amount of money available to spend to keep economic activity going shrinks. Retail is in the tank. Onine retailers are faring a little better than physical stores but sales are still declining and consumers are putting off purchases in many cases.

What will the next few years hold? Right now it doesn’t look to good. Retail sales always fall seasonally in many industries and this summer will be no different. We may see hundreds, even thousands go out of business this summer as they struggle to secure credit and see retail sales decline significantly more than they already have.

The next round of housing collapse will be the result of “investors” losing their shirts on investment properties financed with Alt-A and Option ARM mortgages they have no hope of paying back.

It appears the US government has taken or will take the only sensible steps it can take in light of everything going on at the present time. While there is probably a lot of crap in the stimulus bill pushed through by the Obama administration, it at least appears to be somewhat sensible. People need to go back to work so that the economy produces something instead of simply providing tax cuts to the righ in the hope that tax cuts will stimulate spending and trackle down thorugh the economy. Spending on education, infrastructure, and health care need to be the bedrock of any stimulus and it appears they are. For far to long we’ve been spending lavishly on war and the military. Those bailout funds that will prove to be completely wasted money need to go to building this country back up.

There is a good chance you will get laid off this year, you might lose your health insurance, the job market and housing markets will get much worse before they get better and the stock market will continue to fall with a bottom somewhere between DOW 3,000 and 5,000 and you’ll continue to watch your 401K balances in any form of equity mutual fund fall dramatically.

Over the next 3-5 years this country and many others will continue to struggle. Companies will need to change. It doesn’t take a genius to realize this. When you look around at your own company and any clients you may have you probably see the same incompetence exhibited by the financial companies in the US. Policies, proceedures and initiatives that may be well intentioned but will lead nowhere and have no purpose, things being done in the same way they have always been done because they have always been done that way and top level executives completely clueless towing the line to protect their own jobs while the company and its business tanks.

Once we work through the credit, housing, job and overall financial crisis things will start to rebound. That may take a few years but we’ll get there. Prepare for an intense recession of full scale depression. Keep your fixed costs low, work smart, learn all you can and be prepared for whatever adversities then next few years will bring.

Great song & video about the US govt bailouts.

Is the stock market just one big pyramid scheme (for the most part anyway)? Is it really any different than the beanie baby craze or even tulip bulbs for that matter? In many ways it seems like the exact same thing.

When you make an investment you expect to generate a return on your investment. Most people start a business when they have an idea they think will satisfy a market demand and turn a profit. The goal of a business is to generate an ongoing positive cash flow from the initial and on-going investment or maybe just a one time gain if the initial exit strategy is to sell out. Whenever business is sold, it is being sold to someone who is buying a future cash flow. The business is valued based on current assets and at least in part on the future cash flow the buyer of the business will receive.

When you buy a stock you are buying a [small] stake in ownership in a company. If the stock is one that pays dividends then you may be making a smart investment and buying a future cash flow. It’s very similar to buying a bond or CD to receive the future cash flow of yields or interest.

Now let’s say you buy a share of Google stock. When you buy Google stock, you are buying a piece of a company that makes a lot of money but does not return the money to shareholders in the form of dividends. You may have some claim to assets if the company goes out of business but any value of those underlying assets will normally be a small fraction of what you actually paid for the stock. In addition, you’ll be at the back of the line to trying to collect your tiny piece of those assets if Google should go out of business.

If you are not buying a future cash flow when you buy Google stock, then just what is it you are buying? Why would you buy it? What would cause the price of the stock to go up? It is an interesting question if you really think about it. If the price of Google stock is $400 per share and you buy 100 shares, then you’ve “invested” $40,000 in Google stock.

What do you get for your $40,000 Google stock investment?

You get a piece of paper (if you are lucky) that says you own 100 shares of Google stock.
You can go around and tell everyone that you own 100 shares of Google stock.

What don’t you get when you buy Google stock?

You don’t get any cash flow from your $40,000 investment.
You don’t get any utility from your $40,000 investment.
You can’t drive it, you can’t eat it, you can’t have fun with it.
You can’t derive any utility from it other than being able to tell people that you own 100 shares of Google stock.

What makes the value of your Google stock go up or down?

Your Google stock value fluctuates based on what people think it is worth. That worth or perceived value is based on how much profit other investors in the marketplace think Google will make and how much they want to be able to say they own one or more shares of Google stock. Other than the satisfaction of owning a share of Google stock, other investors don’t derive any value or utility from owning Google stock either.

Given that most stocks do not pay dividends, how is investing in the stock market different from any other pyramid scheme, bubble, house of cards or ponzi scheme? You get no utility out of owning a stock that does not pay dividends, you can’t use it for anything and any increase in value is based solely on another fool betting that there will be another fool in the future willing to pay even more for the same stock. Hmmmm, sounds like the housing market that turned everyone into “investors”. It is a great way to create imaginary wealth up to a point but at some point the house of cards comes crashing down. Want to get rich or even just have a chance at a secure retirement? Buy or start and run your own profitable business. There is not likely to be another way to do it in the foreseeable future.

As if the “sub-prime” meltdown hasn’t already caused enough damage in the housing market and the economy, there is another wave that is going to hit. This wave will be larger than the sub-prime meltdown. It should have been reported by the mainstream media years ago but just now seems to be percolating up to the surface. The chart below from Credit Suisse shows the tidal wave of junk loans set to reset in the next few years.

Tsunami of Upcoming Mortgage Resets Through 2012

The first round of mortgage troubles consisted of loans made to people who has less than perfect credit. Thee people often had incomes, took out adjustable rate loans that made payments affordable with teaser rates. The next batch of loans was often given to people with good to excellent credit. These were known as Alt-A and option ARM loans. These were the “investors” who “bought” multiple homes, often had no experience in real estate and no business investing in it.

Alt-A loans are loans that were given to people who never had to show or prove their income or ability to pay for the loan. These were also known as liar loans.

Option ARMs are home loans where the consumer gets a rate on the loan that starts out low and can also choose how much they want to pay on the loan each month. Over time, the balance of the loan goes up even though a person is making payments on the loan. This is known as negative amortization.

CBS News 60 minutes program finally did a story on this situation. The video is below:

There are so many people at fault for this whole mess. The banks and mortgage brokers should have verified that people would have a good chance of paying back the loans they made by verifying income. Just because someone has great credit doesn’t mean they have the means to pay back a loan. The people interviewed for this story obviously took no responsibility for anything they bought or signed. These home owners don’t even seem to care or seem to feel that they should take responsibility for their actions. They deserve to lose their homes and the US Treasury, the American tax payer should let the majority of these people who “invested” lose their homes and go into foreclosure. The banking regulators never should have let this situation get out of control in the first place. If people can’t read contracts, can’t take responsibility for contracts they sign and somehow think they deserve to live in a home that costs half a million dollars when they make $50,000 a year, then they deserve to lose.

On the version that aired on TV, there was an acupuncturist interviewed for the story. She bought at least 5 properties, didn’t read any of the docs when buying or financing her “investment” properties and doesn’t really seem to be too concerned about it. Poor woman has or will have to sell them all at a loss. Whatever the US govt decides to do about this to prevent a total meltdown, they need to let irresponsible behavior like this get punished and these “investors” pay for their mistakes, negligence and the fraud in which many participated.

If you’ve ever shopped for shoes online, you’ve been to Zappos. If you’ve ordered, you’ve gotten great shoes and great service. If you’ve shoped there recently you may have gotten not only shoes but possibly a tent, apparel, outdoor gear and any of a number of other things from their ever growing variety of new shops.

I was fortunate enough to have a tour of their offices, see the playful atmosphere in the offices, get a photo taken in the VIP chair and met some great people there. It’s really a great company that thinks of people as people, not as assets. It shows.

Unfortunately, the financial turmoil took a toll on Zappos today. Tony from Zappos was very open about the situation and posted on the Zappos Twitter Account with a link to the email sent out. Zappos was generous with their employees, paying them through the end of the year and extending health benefits for a period of time. It just goes to show that even the most well run companies are not immune to downturns in the econonomy, though if any company can make it through the current economic climate, Zappos is one to bet on!