Adam Jewell – Search & Affiliate Marketing

The US is apparently going to have a deficit of over 1 TRILLION dollars this year. That is a deficit, not the debt which is much, much greater than the deficit for a single year. This will bring the national debt to something like 11.5 TRILLION dollars. Eleven and half TRILLION dollars is $11,500,000,000,000. The population of the US is about 303,824,640 (that’s about 304 MILLION people). If every person in the US had to chip in an equal amount of money today to pay off the US national debt tomorrow, that would be $37,850.78 for each and every person in the United States. You’ve got an extra $38,000 laying around right?

By any measure, that is a staggering amount of money and the amount is growing daily. At an annual interest rate of 5%, we are racking up $575,000,000,000 in interest alone. That is 575 BILLION dollars per year in interest. For each person in the US that is about $2,000 per year in interest we will eventually have to pay back.

You’ve probably heard about all the bailouts given to the banks, the automakers and everyone else who was irresponsible and gambled like someone smashed out of their minds at the roulette wheel in Vegas. The banks are broke, the government is broke, some of the states, most notably California is broke and a big chunk of US citizens are broke. Many gambled and got caught up in the housing frenzy and frankly deserve to lose while many other who behaved responsibly have been snared by job loss, personal bankruptcy due to health care costs or other unfortunate situations in life.

The stock market peaked on Monday, October 1, 2007 at 14,087.55. By March 6th, 2009, the DOW bottomed at 6,443.27, a drop of about 54.3%. Since then it has bounced back to 8,816 on July 15, 2009 after a nice pop following record earnings anounce by Goldman Sachs (GS). Not long ago, Goldman was going hat in hand to the US government for a bailout to stave off financial collapse. It seems rather ironic that all of a sudden, Goldman was able to
turn a profit of 3.22 BILLION in the previous quarter. Where did that proft come from?

The markets didn’t really seem to care. “Good news” from Intel added a little fuel to the rally and the DOW ended up 257 points or 3.07%. While the markets are still way down from the October 1, 2007 highs, they are up significantly from the March 6th, 2009 lows.

There doesn’t seem to be any logic to the recent jump in stock prices. The US economy continues to fall apart and lose jobs at an alarming rate. The housing crisis is still not finished by a long shot as liar loans (Option ARMs) and pick your payment (Alt-A) loans continue to reset en masse through early 2012. We’ve go 2 more years of home mortgage resets to go. So we’ll have at least 3 more years of steady or increasing foreclosures. The commercial real estate market will be another troublesome area as well. Maybe sometime in 2013 or 2014 this mess will have worked its way through the economy.

While the media continues to put a positive spin on the economy and various government people claim all is good and the stimulus is starting to take hold, the bottom line is that this country, the financial institutions, the states and many of the peopel are simply broke. If anything was still made in this country, the stimulus package might have a positive effect. Unfortunately not much is made in this country and borring money at the federal level to give people to spend may delay housing losses and bankruptcies, it is only a temporary and (probably empty) fix. We’re simply getting money to spend on products that come from overseas.

So what is a person to do?

Stop wasting money. This could be on toys, clothes, eating out, cable television, iPhone cell plans and other luxuries.

Don’t put any money in the stock market you will need in the next 3-4 years. There is nothing supporting the stock market and the economy is going to get worse, possibly much. Now that the markets are off their lows, the temptation is to chase them up. Bad move! We’ll retest the 2007 lows at some point in the next couple years. If you have a 401K and you may have to draw on that if you lose your job, you may want to watch the markets. If we get back to a 10,000 DOW, you might want to move your 401K funds into a money market or very conservative bond fund to preserve capital in case you will need to make a withdrawl.

Cut your fixed expenses. Cars and houses/apartments are generally the two biggest expenses you have. Can you refinance them or sell them now if you need to before the value drops further?

Start shopping smart! Look for bargains online. Ditch the department stores and find discounters. Go to the warehouse shopping clubs to save money and stock up on necessities. Try grocery stores like ALDI.

Know what government benefits are available to you in different situations.

If you get laid off and have employer health insurance, apply for COBRA. You’ll get it for 65% off for up to 9 months and can maintain the same health insurance plan for 18 months.

If you decide to buy a house and you are a first time homebuyer, take advantage of the 2009 $8,000 homebuyer credit. You’ll need to make less than $75,000 (single) to qualify for it and may get a partial tax credit if you make more than that but it phases out rather quickly.

Keep a positive attitude but anticipate that the economy is going to get worse and develop a plan if you lose your job. Can you get your expenses down to the point where you could live on unemployment? It’s generally around $2,000 per month give or take a little bit. That’s not much to live on but if you cut back to basics and have low car and housing payments, it can be done especially if you are single.

If you think you might get laid off and you’ve been at the job for a while, you might want to stick it out till you do get laid off unless you get a really good offer from another company you think will offer stable long term employment. A severance package from an employer you’ve been at for a long time will be better than somewhere you only spend a few months.

If you are considering a new job, do the math on the real costs (or cost savings) of the new job. Will you have to move? Will your housing costs go up? Will you have to sell a house? Will your commuting costs and time go up or down? Will you have to pay more in local taxes?

Be content with the low rates of return on savings for now. If you want to take a little risk then consider municipal bond funds in with any taxable accounts. You may be able to pull in a 4% tax free yield. It’s not much but its better than most savings of money market accounts.

Stockpile some cash. Six months would be great, but anything you can save will help!

The economy is going to get worse (maybe much) before it gets better so get smart now and get prepared to make it through the current turbulent times. Don’t forget to go out and get some exercise too. It’s a great way to burn off stress and hopefully sleep better at night!

Why does it take John Stewart on The Daily Show to educate the public on the financial markets? Kudos to Jim Cramer for having the guts to come on The Daily Show and face the music. Stewart does a great job of demonstrating the flaws in the financial news. Cramer seems like he may have some ethics but is definitely more focused on drumming up ratings than educating anyone looking for financial education. Watch this clip, shut off CNBC, Cramer and the “Money Honeys” permanently. As John points out, remember that our wealth is work!

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.