More Money Blog

Today the Dow Jones Idustrial Average closed below the 8,000 mark at 7,997. This is the lowest close since 2003, the bottom of the last recession/bear market. Here is a 3 month chart of the DJIA:

As you can see, on the very right side of the chart, it closed just a hair below 8,000. We have seen lower levels in the DOW in October, but the market rallied and closed much higher on that day (when that happened, many called it the bottom). We have retested that low a few times since then and every time the market rallied near the 8,000 mark. Today we closed below 8,000, marking the lowest close this year and dangerously close to the intra-day lows. If you look at these same levels in the S&P, we have already closed below the October intra-day lows, which isn’t good.

I don’t really like to make predictions, but it seems like this market could go much much lower if these lows are broken through and we close a good amount below the 2003 lows. Whatever happens, the next few days will probably be very volitile (whether we bounce up, or break through the lows).

There are hundreds, if not thousands of different credit cards out there that are available to consumers and businesses. There are reward cards, cash back cards, student credit cards, business credit cards, cards for good credit, cards for bad credit, cards that are good for transferring your balance to, and many more. It can get kind of overwhelming if you are in need of a good credit to use.

Luckily there are a few websites online that bring all the best credit cards together on one site and allow you to compare and search through them to find which one suits you best. One site that does this well is www.credit-land.com.

This site organizes all the major credit cards into a number of main categories. This makes it easy if you are searching for a specific type of card. You can simply click on the category you want and compare the available cards. They also have sections for best overall cards, instant approval cards, lowest APR cards, and no annual fee cards. If you are unsure of what type of card you need, they also offer a search feature that allows you to search for specific features out of 348 different cards.

So if you are in need of a new credit card, don’t just sign up for the first one you come across. It’s important that you understand what you need and the terms of the card. With a site like credit-land.com, this is extremely easy to do.

I always hear that “timing the market” or taking all your investment or retirement money out of the market in anticipation of stocks losing value is a horrible thing. These people say that it is impossible to know if your timing is correct and that you have to take your money out at the right time and put it back in at the right time. They also quote some crazy stats like “if you missed the biggest 10 days in the market over the last few years, your return would be cut in half!”

I think that is bogus. And I think that timing the market is very possible for the ordianry person. I’m not talking about taking all your money out because you think the DOW is going to lose 100 points today. I’m talking about taking your money out when you see dark storm clouds on the horizon.  In my opinion, investing is like fishing. When you see storm clouds coming when you are in the middle of a lake fishing, it’s time to wrap things up and get out of there. In relation, when the economic outlook isn’t good and you hear worse and worse things about the economy and stocks in the news, it’s time to think about pulling your money out.

Let’s take a look at some of the obvious warning signs that came before the recent 40%+ decline on Wall Street. In September and October of 2007 it was obvious that there were significant problems in the housing market and forclosures were starting to soar. It was obvious to many that real estate was overvalued and had to come dramatically down. This is a huge fundemental problem with the economy…big storm clouds…time to get out and play it safe. Although these problems were obvious, important people such as the FED chairman were saying that the problem would be contained and wouldn’t spread to the rest of the economy. So maybe you bought it and held on to your investments hoping everything would be ok. Then Bear Stearns, a giant investment bank completely failed and had to be bailed out by the government. On top of this, a number of regional banks have been taken over by the FDIC. At this point, when a major investment bank goes under and the housing market continueing it’s spiral downward, it is extremely obvious to most people that the economy is in trouble. So, it’s time to pack up and head home (sell your investments in the stock market). It’s always easy to look at these things in retrospect and point out the signs, but it is always harder when it happens in real time. But let me tell you, to me this was clear as day and to anyone that pays attention to economic news should have seen it coming too. ( I sold off all my investments a week or two after the Bear Stearns collapse).

Lets take a look at the market to see how much could have been avoided by the average Joe if they took the time to pay attentiont to economic news and took out their money after the Bear Stearns collapse. 

Look at that, wow. If you can simply pay attention to the everyday economic news and take the time to understand it, you can easily step out of the market before things get brutal. Now I’ll be honest, I never expected it to get this bad. I had a hunch that it could get nasty since their was a large and fundemental problem with housing (a huge part of the economy), but I was still shocked to see how bad it got.

So now that your out and happy as all get out that you aren’t losing your shirt like everyone else, how do you know it’s time to get back in? In my opinion, it is harder to predict the bottom of a downturn than to predict a downturn is coming up. Here is how I do it though:

• Pay careful attention to the news and how the stock market is acting on a daily bases.
   
• Check out the volitilty index (VIX).
   
• Ignore anyone that claims “the bottom is in!” In a recession or depression, the market makes several short term bottoms and they are often broken when the market continues to move lower. (Lookat the middle of July and October).
   
• When volitilty decreases over a period of time (month or two), giant companies aren’t going bankrupt, and the market has made significant lows, it’s time to start thinking about DOLLAR COST AVERAGING back into the market.

I was recently watching a first time home buying show on HDTV. It was pretty interesting, but one part of the process in this case really got to me.

The first time home buyer was offered some insane incentives to sign the loan agreement for the house. She was offered an instant $10,000 and a 42 inch plasma TV! I have heard of individual people doing some crazy stuff to sell their house, but this was a brand new townhome and the incentives were being offered by some sort of professional (loan officer or something, I’m not really sure).

So here is my point: Whenever someone offers you an incentive to do something, it should raise giant red flags instantly and always. NEVER make a decision or sign anything just because you are offered an incentive. It is CRUCIAL to explore and research everything when you are offered an incentive. People don’t just throw money and gifts into deals to make it fun, they do it to compensate for something else. If you don’t know why you’re being offered an incentive, you need to do a lot of research.

On the first time home buying show on HGTV, the home buyer was offered $10,000 and a TV to agree to the following loan:

• Amount: $197,000
• Interest: 7%
• Term: 40 years
• Monthly payment: $1,525

Now I don’t know this persons credit scores and how much they put down, but in my opinion those loan terms are HORRIBLE. 40 years at 7%?! Oh my.

The show seems like it was tapped recently, so let’s just do some crunching to see what we can do with today’s rates. I went over to BankRate.com and put in some numbers. I assumed the buyer on the show paid only 5% down (I think I remember the house pricing being around 200k). Here are the terms I was able to get: 

• Amount: $197,000
• Interest: 6.06%
• Term: 30 years
• Monthly payment: $1,181

Now let’s loosely compare the two loans (obviously ignoring small fees and other expenses). Here is the savings if the loan from BankRate was used: $306,840. Now, do you want $10,000 and a TV right now, or $306,840 in savings over 30 years? I think you get the point.

If you watched the news at all this weekend you surely would have seen the big story about Fannie Mae and Freddie Mac. The U.S. government has seized the two mortgage companies and will use taxpayer money to keep them afloat.

This is a very controversial move, but it should bring stability to the housing market and overall economy over time. 

Here are a few news artciles on this news:

http://www.marketwatch.com/news/story/us-government-takes-control-fannie/story.aspx?guid={C99D796B-CB3C-47A8-8A56-284A9A4D5C85}

http://money.cnn.com/2008/09/07/news/companies/fannie_freddie/index.htm?postversion=2008090711

I just read an article on Consumerist that is really interesting. Apparently there have been an increase of people purchasing items from stores like Best Buy, getting home, and opening the box only to find some form of crap (floor tiles, news paper, phone books) instead of their new Xbox 360 or hard drive.

It is then impossible to return the item because the store has no reason to believe your story and they think you are just trying to rip them off. 

The two main tips that the article offered were:

• Open the box before leaving the store to ensure you aren’t being sold crap.
• Always use a credit card, specifically one with “Purchase Assurance,” “Purchase Protection” and “Extended Warranty Protection. 

Almost all credit cards or debt cards offer these features or at least a way to dispute charges on your credit card. It is important to take advantage of these features when you need it and not just sit down and take it and assume something stupid like “well…that’s just a part of life”. If you have that attitude, it will cost you.

I recently had a problem where I canceled a subscription, but the company continued to charge my credit card anyway. A simple 5-10 minute call to my bank, and they credited my account for the exact amount, no problems.

So what do we learn here? Use credit cards as often as possible (not cash or cash equivilents) and when you get ripped, don’t hesitate to call your credit card company!

Hurricane Gustav is currently projected to go into the Gulf of Mexico Monday and Tuesday of next week. The hurricane is currently a category 3 storm and it could get even stronger, but is currently projected to stay at category 3.

The problem: hundreds of oil rigs are located in the Gulf of Mexico and it could disrupt oil supply to the U.S. If the storm does do significant damage to the oil rigs, the price of gas could soar again until the problems are fixed.

It will be interesting to see what happens and how oil and gas prices react.

UPDATE: Looks like the hurricane did less damage and weakened more than expected. Oil prices are currently trading much lower on this news. Looks like there won’t be much of a bump, if at all, in gasoline prices.

Ok, I promise not to make a new post every time a bank you have never heard of fails. I just want to show everyone that putting your money into a small local bank is not a good idea.

On August 29th Integrity Bank of Alpharetta, GA was taken over by the FDIC. More info here:
http://www.fdic.gov/bank/individual/failed/integrity.html

Check out my related posts on the topic of these recent bank failures:
Is Your Bank “Too Big to Fail”?
Is Your Money Safe? (About FDIC Insurance)

The FDIC just took over The Columbian Bank and Trust Company in Topeka, KS.

For more information, check out the FDIC page for this failed bank:
http://www.fdic.gov/bank/individual/failed/columbian.html