Filed under: Columns, Money and Finance Today, Recession, Financial Crisis

Welcome to Way Off Wall Street, a column dedicated to providing Main Street opinions on topics of interest to investors. Each installment highlights the views of Americans who are far removed from the canyons of Wall Street — and who often see things more clearly as a result.

I’ve spent a good deal of time researching and soliciting opinions about how people are looking at their own retirement in relation to the American economic downturn. Many people are looking at retirement with the same mind-set that they’ve always had. In many cases, I found people believe that our economy will recover rather quickly. In others, I suspected they are intentionally blinding themselves from the truth that this could be a very long economic downturn.

Since today’s retirement realities is such a big topic, I’m going to discuss it over two posts. This first one concerns the group of people who either have already retired, or expect to retire within the next five years. My next column will cover people who have more than five years until retirement, as well as those people who believe that the word “retirement” will never truly apply to them (I myself fall into the latter part of the second group).

Continue reading Way Off Wall Street: Those near retirement are growing increasingly agitated

Way Off Wall Street: Those near retirement are growing increasingly agitated originally appeared on BloggingStocks on Sat, 15 Nov 2008 09:40:00 EST. Please see our terms for use of feeds.

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Filed under: Good news, Employees, Boeing Co (BA)

After a 52-day strike, Boeing Co. (NYSE: BA) has reached a tentative deal with its 27,000 member machinists union. Tentative details suggest that workers will get a 15% wage increase over three years, an $8,000 bonus over four years, and a freeze of medical costs at 2005 levels. Furthermore, the new contract limits the amount of work that can be outsourced and will last a year longer than the previous pact. But even though the contract has not been ratified, this is good news for Boeing and its workers.

Limiting outsourcing could be good for Boeing and the workers depending on how it’s accomplished. One of the reasons for the delay in delivering its very popular 787 aircraft was that Boeing outsourced the majority of the design and manufacture of the components and later discovered that it was not doing enough to manage those subcontractors. As a result, Boeing suffered unpleasant surprises in its delivery schedule.

If Boeing and its machinists agreed to give the union a chance to bid on work under consideration to be outsourced, then both parties might be better off. That’s because if the union offered a competitive price and excellent quality, Boeing would likely find it easier to manage its union workers than those of a subcontractor located half way around the world.

Continue reading Boeing reaches deal with machinists. Is its engineering union next?

Boeing reaches deal with machinists. Is its engineering union next? originally appeared on BloggingStocks on Tue, 28 Oct 2008 10:10:00 EST. Please see our terms for use of feeds.

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Filed under: General Motors (GM)

Imagine going to buy a Chevy in Akron and not being able to find one. The dealer closed due to low sales and lack of financing.

According to The Wall Street Journal, “The National Automobile Dealers Association estimates 700 new-car dealerships will close this year, up from 430 last year, and taking with them an estimated 37,100 jobs.”

So, the government may put as much as $10 billion into a GM (NYSE: GM) buyout of Chrysler which could mean a loss of 60,000 jobs in a consolidation only to find that the new company is having trouble selling cars because it has lost retail outlets.

The car company rescue looks like the mortgage system rescue. The federal government puts a lot of money into large banks in the hopes that it will be loaned out to homeowners. People with houses get almost none of the money and their default rates go up, further damaging bank balance sheets.

If the government is going to save the car industry, it had better save the car dealers. Without them, there is no industry.

Douglas A. McIntyre is an editor at 24/7 Wall St.

The real car bailout candidates: Dealerships originally appeared on BloggingStocks on Tue, 28 Oct 2008 12:12:00 EST. Please see our terms for use of feeds.

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The selling pressure on Fannie Mae and Freddie Mac has been heavy this week after a Barron’s article published on the weekend made the case that both government sponsored entities would require a full fledged bailout.  This was made clear even prior to the Housing and Economic Recovery Act of 2008 being signed into law.  […]
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■Real Homes of Genius: Today we Salute you Paramount. 768 Square Feet for $324,900. Buy, Withdraw, Sell, Foreclose. The Cycle of Life.
■World Premier! Real Homes of Genius Video.
■Real Homes of Genius: Today we Salute you Compton. $90,000 in Los Angeles County?
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The selling pressure on Fannie Mae and Freddie Mac has been heavy this week after a Barron’s article published on the weekend made the case that both government sponsored entities would require a full fledged bailout.  This was made clear even prior to the Housing and Economic Recovery Act of 2008 being signed into law.  The challenge now becomes if they do go out and sell more stock that current shares will be diluted to a point where the shares become worthless.  Both Fannie Mae and Freddie Mac are testing multi-decade lows.

Sometimes people forget what these two companies stand for.  Part of their mission is of creating liquidity on the secondary mortgage market.  Yet with a struggling housing market these large institutions have to contend with a faltering portfolio that is seeing more and more losses.  Now it is very likely that current shareholders would be wiped out in the event of a bailout.  The question becomes why would foreign investors purchase bonds or preferred shares in the company if the likelihood of failure is around the corner.  Certainly they will be made whole but not at premium rates.  The well is drying up quickly.

There are a few emerging trends in the housing market.  It is rather clear that housing still remains in a precarious situation.  We are nearing the end of the summer selling season and the boost that was expected unfortunately did not materialize.  Record inventory is still on the market and questionable mortgages such as pay option ARMs still loom on the balance sheets of many lenders.  One of the trends that is emerging is people engaging in housing swaps.  That is, people exchanging homes normally without a broker or agent.  In many cases, it is a barter trade.  Another trend is towards frugality.  Now some would argue that this isn’t a trend more than the economic situation forcing the hand of many to face the grim reality.  Yet there should be little doubt that prudence is making a comeback.  Also, we will examine the hidden housing numbers embedded in the Southern California housing market.  Are we really approaching some sort of market bottom?

Housing Swaps

I happened to stumble upon housing swaps on Craigslist.  For those two of you who haven’t heard of Craigslist, this is one of the most visited sites on the internet with some 20,000,000 visits per month in the United States alone.  You can consider this a dynamic classified section where you can find pets, look for employment, trade cars, get rid of unwanted furniture, and now swap your home with someone else.  Now I’ve used housing swaps when traveling for a temporary living arrangement.  For example, you need a place to stay and you find someone in your desired location who is looking to travel as well, and you come to an agreed upon trade.  Now this I used during college and was amazed at how many people are out there and the ability of technology to shrink the world.

That isn’t the new trend.  But what I am noticing is postings from people looking to permanently swap their place with others.  That is something that is new.  There were the unique postings in the past but now everyday you can find a person looking to trade their home with your home.  Here is an example:

The person above is looking to exchange their Chicago home with a home out here in Burbank either temporarily or permanently.  Now why would someone do a housing swap as opposed to selling their home?  There are actually many good reasons.  First, you may be an area with depressed sales and can’t sell your home.  For many corporate careers, if you are in a junior position you may need to go where the company sends you.  This may translate into you relocating but if you own your home and cannot sell, then you are stuck.  What if you absolutely love your career?  Then most would do anything they can to find a way to move to their new location.

Another reason people would do a housing swap instead of selling is they may be in a negative equity position.  Say you bought a home for $350,000 and the home is now “worth” $250,000.  A large number of people do not (or don’t want to) come to the table with $100,000 simply to sell their home.  There is a large portion of the population that can manage the housing payment but is simply stuck in this position of limbo.  They would like to sell their home but cannot.  There only other option is to ruthlessly default and some are going down this path as well.

Finally, this may workout for people who are on the margins.  If you have say a 4 or 5 percent equity position in your home, it may cost you $10,000 or $30,000 simply to sell your place.  Why not contact someone and save yourself that amount?  You can hire a real estate attorney for a few hours, get the paperwork drawn up and finish the deal.  This may work for cases like the person that needs to relocate and doesn’t really care if they get a profit on their home.  They are simply looking to sell the home.

It’ll be interesting to see if more and more of these cases pop up on Craigslist.

Frugality

There is a definitive emerging trend in frugality.  There is a fountain of wealth with Google.  You can use Google Maps and have access to technology that only a few years ago was accessible by the highest level government officials.  You also have the luxury of searching for information from a variety of sources.  One of the features I enjoy from Google is their Google Trends search feature.  In this, you can see the amount of search queries for any phrase or word.  Since Google dominates the search world, this is an excellent view of what people are searching for at any given time.  Take a look at this search phrase:

As you can see from the above chart, not many people are searching for “real estate investing” anymore which shouldn’t come as a surprise.  Ironically, in times where people should be more financially educated they tend to steer away from this.  They ramp up their investments at the worst time, near a peak, and face rapid problems.  Is it any wonder that California has now seen a drop of 38 percent in one-year for a median priced home?

This trend can also be seen perfectly by comparing two stocks for the year.  That of Family Dollar Stores and Best Buy:

For the year Family Dollar Stores are up 24 percent while Best Buy is down 15 percent.  So what does this mean?  What it means is that people are focusing on things they “need” and avoiding things they “want.”  It is interesting to note that consumer and producer inflation is running at decade highs.  Now why is this?  Clearly housing prices collapsing and credit tightening is wealth destruction so you would think that we would be seeing possibly deflation.  The problem however is items that people need such as food, fuel, and healthcare are not growing exponentially.  These remain fixed while the U.S. Dollar declines and purchases less and less of these items.  In addition, many Wal-Mart goods are produced in China which is facing its own inflation.  The workforce is slowly getting more educated and is demanding slightly higher wages which find their way into the price of the goods that people consume.

With budgets getting tight “want” stores like Best Buy are facing the brunt of the economic contraction.  We saw this with Mervyn’s filing for Chapter 11 bankruptcy in July.  Another clear example is looking at a low cost food source such as McDonald’s and comparing it to P.F. Chang’s China Bistro:

Over the past year McDonald’s is up 29 percent while P.F. Chang’s is down 27 percent.  Frugality is becoming a way of life because money is tight and this is being reflected in the spending behavior of Americans.

Census Selling

Much to the chagrin of many the housing market won’t see a bottom at least in California until 2011.  There is some positive aspects to this including more affordable housing for many.  It will also lighten the debt load for households in the future.  It may also give people the incentive to purchase homes in areas they plan on staying in and investing their time in creating a better community.

Foreclosures are still at historical highs.  Given the recent housing report for Southern California and the modest jump in sales, I think it is important to look at the actual sales and how they played out in various regions.  Let us first get a population count for the 6 major counties:

Population Count For County:

Los Angeles:               9,948,081

Orange:                       3,002,048

Riverside:                    2,026,803

San Bernardino:          1,999,332

Ventura:                      799,720

San Diego:                  2,941,454

Total Southern California:   20,717,438

So that gives us the entire population count for Southern California.  The total population of California is 36,457,549 so Southern California makes up 56 percent of this amount.  Now let us look at last months sales data:

Now I made the case in a previous article that the minor bump in sales was in large part by the fire sale of homes in the Inland Empire.  Let us now break down the numbers to get an actual proportion:

Riverside + San Bernardino Total July Sales =  6,637 / (20,329 total SoCal Sold)

So these two counties made up 32.6 percent of all sales for Southern California.  Now we should look at what percent these counties make up for the Southern California population:

Riverside + San Bernardino Population = 4,026,135 / (SoCal total 20,717,438)

Total population percentage for these two counties is 19.4 percent.  So essentially these two counties are selling at twice the percent of their population representation.  I was listening on the radio to someone explain the median price drop and cautioning that sales are getting skewed because “expensive” homes aren’t selling and only foreclosures and lower priced homes are selling.  This in fact is true.  The only thing I would caution these folks about is that distress sales are now the bulk of the market even though miraculously in some of the data, foreclosures don’t pop up in multiple listing services.

These new trends are simply a way people are coping with the economic conditions.  It is very unlikely we will be seeing a second half recovery especially for housing.

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Emerging Economic Trends: Housing Swaps, Frugality, and Selling Homes in Lower Priced Areas.

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Related Posts:
■Real Homes of Genius: Two For One in Compton. Southern California Housing Bubble Hangover.
■Real Homes of Genius: Today we Salute you Paramount. 768 Square Feet for $324,900. Buy, Withdraw, Sell, Foreclose. The Cycle of Life.
■World Premier! Real Homes of Genius Video.
■Real Homes of Genius: Today we Salute you Compton. $90,000 in Los Angeles County?
■How Many People Overpaid for Their Home in Los Angeles County? Trying to get a Raw Number of Households Underwater.

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Another guest post from MG Dungan who went from Wharton to Wall St. to real estate to Blown Mortgage.

There is considerable discussion as to whether we are in, or entering into, a period of inflation or deflation. It’s important to know which one it is and why, to be able to plan effectively.

It’s deflation, and we’re already in it.

The simplest working definition of inflation and deflation is an expansion of the supply of money and credit in the case of inflation. Deflation is the opposite, a contraction of money and credit. Despite recent price surges in food and oil, prices are declining across the board, and even those two headline-inflation items are down from recent highs. An interesting explanation of how this happens is on Mises.org: If the price of a good goes up (in the absence of an increase in the money supply), consumption must be reduced on some other good. This sounds more like common sense than economic theory, especially after the recent run up in gasoline prices.

The rule of thumb in deflationary environments is cash is king. This is no time for major purchases or unnecessary expenditures. Why buy today when the price will be lower tomorrow?

Stock Markets

Here’s what’s been happening in the Dow for the trailing 12 months.

This performance has had dire consequences throughout the economy. As one example, at the beginning of October, retirement plans had lost as much as $2 trillion — or about 20% — over a15 month period, according to Congress’s top budget analyst .“The upheaval that has engulfed the financial industry and sent the stock market plummeting is devastating workers’ savings, forcing people to hold off on major purchases and consider delaying their retirement,” said Peter Orszag, the head of the Congressional Budget Office. Savings across the board, even Harvard’s endowment, have taken a hit.

The US markets haven’t been the worst performers. “World equity markets lost an estimated $5.79 trillion during October, the biggest monthly loss ever,” according to Standard & Poor’s Index Services. “The October loss eclipsed the previous record, which was set just one month earlier, when 52 global equity markets lost a combined $4 trillion. Through the first 10 months of 2008, world markets have lost about $16.22 trillion.”

Commercial Real Estate

Due to store closings and company bankruptcies, losses in commercial real estate are mounting. On Tuesday, General Growth Properties, one of the largest mall operators in the country, announced that it is near bankruptcy. Its stock closed at 35¢ today. Its only hope now is to become a bank holding company.

Residential Real Estate

Residential real estate losses are unrelenting and the magnitude of losses is staggering.
Here’s the latest from Case-Shiller.

And faithful readers of BlownMortgage know the worst is to come.

The Deficit

OK, here’s something that’s up, the national debt, which reached $10.6 trillion the other day. The increase year over year since 2005 isn’t all that much.

However, if you look at the increase over a several-decade period, it looks like this.

Unemployment

CNNMoney.com reports that “The government reported more grim news about the economy, saying employers cut 240,000 jobs in October, bringing the year’s total job losses to nearly 1.2 million. According to the Labor Department’s monthly jobs report, the unemployment rate rose to 6.5% from 6.1% in September and higher than economists’ forecast of 6.3%. It was the highest unemployment rate since March 1994.

These figures notoriously underreport unemployment, but the trend is clear.

I hope everyone has a few bucks in the house, at the very least enough for groceries and gas.

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Filed under: Analyst reports, MasterCard Inc’A’ (MA), Morgan Stanley (MS)

Credit-card concerns Visa, Inc. (NYSE: V) and MasterCard, Inc. (NYSE: MA) will be shelling out up to $2.75 billion to settle an antitrust suit with Discover Financial Services (NYSE: DFS). Specifically, MasterCard will pay Discover $862.5 million in the fourth quarter, while Visa will fork over $1.89 billion over the course of 2009. Following the release of the settlement’s details, an analyst at Keefe, Bruyette & Woods is weighing in favorably on all three firms.

Sanjay Sakhrani called the news “a big win for Discover, as it provides an additional cushion to contend with the implications of a weaker U.S. economy.” He expects the payments will add about $1.75 to Discover’s earnings per share. However, he also cited the report as an upside catalyst for MasterCard and Visa, as it eliminates an overhang on shares of both companies — an assertion supported by analyst Julio C. Quinteros, Jr., of Goldman Sachs.

Unfortunately, though, it’s not all sunshine and rainbows in the credit-card group today. Morgan Stanley (NYSE: MS) has filed its own suit against Discover in New York State Supreme Court, alleging that it’s entitled to a chunk of the $2.75-billion settlement. DFS was spun off from Morgan Stanley last year, and the latter company claims that it should receive a portion of the award under the terms of a special dividend agreement.

Not so fast, says Discover, which alleges that its parent company is in violation of their spinoff agreement, and “the amount of Morgan Stanley’s special dividend is a matter of dispute.” Morgan fired back that “there is absolutely no basis for Discover’s claim that the agreement was breached.” Stay tuned to see how this credit-card drama plays out — in early trading, shares of all three credit card companies were higher.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer’s Investment Research. She is featured in the video series Schaeffer’s Daily Q&A on SchaeffersResearch.com.

Visa, MasterCard settle with Discover, but what about Morgan Stanley? originally appeared on BloggingStocks on Tue, 28 Oct 2008 11:11:00 EST. Please see our terms for use of feeds.

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Another guest post from MG Dungan who went from Wharton to Wall St. to real estate to Blown Mortgage.

This meme—government confiscation of retirement accounts— is rapidly gaining credence. On November 4, Carolina Journal Online reported that Democrats have been meeting to discuss transferring currently-voluntary private retirement accounts to eventually-mandatory government administered retirement accounts that would produce a guaranteed rate of return. Further, the now tax-advantaged plans would lose tax incentives and deductibility.

On the surface, this doesn’t look very appealing. However, there are two ways to look at this plan: 1) protection of retirement accounts to the tune of a guaranteed 3% per annum; or 2) confiscation of retirement accounts to the tune of loss of control and, effectively, loss of ownership.

As currently being discussed, the plan would entail transferring private retirement plans, such as IRAs and 401ks that are invested in stocks and bonds, into government retirement accounts (GRAs). These new accounts would be invested in newly-created government bonds yielding 3%, adjusted for inflation.

(more…)

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Filed under: Apple Inc (AAPL), Ford Motor (F), General Motors (GM), Nokia Corp. (NOK), Sun Microsystems (JAVA), Electronic Arts (ERTS), Activision Inc (ATVI)

In terms of volatile trading, it would be hard to match the last week. The markets opened today facing huge lay-offs at tech firm Sun Microsystems, Inc. (NASDAQ: JAVA) and with Nokia Corporation (NYSE: NOK) saying consumer buying was so broken that cellphone sales, which have grown worldwide for years, will drop in 2009.

When the opening bell rang at 9.30, it looked like the world had gone to hell. For reasons that no one can explain, trading settled down and the markets closed down modestly (by current standards):

Dow: 8,497.31 -337.94 (-3.82%)
S&P: 500 873.29 -38.00 (-4.17%)
Nasdaq: 1,516.85 -79.85 (-5.00%)

Apple, Inc. (NASDAQ: AAPL) moved down nearly 4%, probably based on the Nokia news. Since both PC and handset sales are weak, Apple has some real exposure.

On a tiny bit of hope that Congress still might send them a check this year, Ford Motor Company (NYSE: F) and General Motors Corporation (NYSE: GM) were flat to slightly up.

Research from the music video game industry showed slow sales and Electronic Arts, Inc. (NASDAQ: ERTS) and Activision Blizzard, Inc. (NASDAQ: ATVI) took big tumbles.

Douglas A. McIntyre is an editor at 24/7 Wall St.

After wild week, stocks sell down, Dow, S&P, Nasdaq all down originally appeared on BloggingStocks on Fri, 14 Nov 2008 16:10:00 EST. Please see our terms for use of feeds.

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