Peter Pays Paul

Paul Kedrosky has an interesting graph from John Mauldin up in the link below that highlights the difference in the GDP if you were to subtract mortgage equity withdrawals.

Paul Kedrosky: Funny Money: U.S. GDP Growth Net of Mortgage Withdrawals.

What does this mean?

Much of the growth in the US economy from 2001 t0 2006 was fueled by money borrowed from our houses.

Now that home equity has disappeared for many homeowners, discretionary spending will decrease.

Companies that depend discretionary spending (retailers) will feel the pinch by the loss of this discretionary spending money.

(HT:Tom Vanderwell

The Wall Street Journal has another article on an East Bay town this week.

Antioch, California is the focus of an article by the Journal regarding IndyMac Federal Bank’s (formerly IndyMac Bancorp) efforts to stem the tide of foreclosures.

FDIC Plan Tests Limits of Leniency – WSJ.com.

The FDIC is taking steps to modify as many delinquent loans as possible. There are some complications with the process, including loans that IndyMac Federal Bank only provides the servicing for.

IndyMac sold many of the loans it made to various investors. IndyMac still services the loan by collecting payments, keeping track of interest owed, and filing the necessary tax forms. IndyMac is limited in its ability to negotiate with the borrower because it is no longer the lender, the investor that bought the loan is now owed.

I also liked the WSJ’s efforts to give an accurate description of those that had borrowed money from IndyMac. Some used loan proceeds to buy other houses. Others have stopped paying and have “socked away money he saved by not paying IndyMac” and stored it in a safe.

Not all delinquent borrowers are “down on their luck”.

The Golden State is going to be in for a rough year. The Associated Press is reporting that the state may deliver just 15 percent of the requested amount to California cities and farms.

Calif. to cut water deliveries to cities, farms – Yahoo! News.

Fewer crops may be planted if there is no water for the crops. In economic terms this could mean higher prices for some of the every day food stuffs that Californians enjoy.

Californians had better pray for rain.

The ULI Blog offers some insights on how to survive your first down market. If you are like me, this is your first downturn in real estate since I began my professional career.

The Ground Floor: How to Survive Your First Down Cycle.

I tend to check Yahoo! Finance frequently. It was very useful when I was working in wealth management. Laura Rowley a commentator on Yahoo! Finance lays out an interview with a Wall Street broker.

The broker’s outlook is not very bright. It gives a big of insight into why the market fell the way that it did.

But stepping back, the critical error was that everyone [thought] there would not be a substantial, nationwide decrease in real estate prices. The whole subprime debacle was predicated on the fact that people said, “Well, this borrower is not really credit worthy and can’t afford the house, but in four years it will be up 20 percent or more.”

It was widely believed that if you had bad mortgages from different geographic areas that all those [real estate markets] weren’t going to go down together….

Check it out here.

Through the use of a clever experiment with a skating rink, John Stossel argues the faults of central planning.

Warren Buffett thinks that investing in U.S. equities for the long run is a great investment. He has written an op-ed piece for the NY Times.

Buffett says:

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Read it hear: Op-Ed Contributor – Buy American. I Am. – NYTimes.com (HT:Real Clear Politics)

We are living in rare days. The financial turmoil is on the headline news every night. The U.S. government has decided that it is the savior of the markets. Congress fought over “The Bailout”. The market can’t decide which way it wants to go.

The news is very gloomy.

Weathering the Storm

Much if not the majority of the news it outside of our individual control. The “winds of destruction” are swirling around our heads.

We can’t stop the winds from blowing. But we can keep our heads down.

You can do nothing anything about macroeconomic problems. You can’t buy enough plasma televisions to save the economy. You don’t control the price of the stock market. You can’t force banks to begin lending.

If you focus on the global economy, the number of unemployed, or the weather forecast for January, you are distracted from the items that you can do today to improve your bottom line.

Focus on Things You Can Control

Focus your energy and emotions on daily items within your sphere of control to ensure that you survive these times. Wasting time and emotions on things outside of your control is ultimately unprofitable.

Focus on Your Attitude

Stay positive. Do not be preoccupied with all that you don’t have. Thinking about toys/gadgets/money we don’t have leads to grumpiness. No one likes a grumpy person.

Rather than focus on what you are lacking, focus on what you do have. Be thankful for things like family, friends, a job, a home, and food. Remember there are always people less fortunate than us.

Focus on Being Productive

What activities can you do daily that will impact sales? Is it phone calls, emails, or personal visits? Focus on completing these tasks. Focus on meeting people, generating referrals, and results.

When will you do these activities on a daily basis? Plan the activities that are profitable into your calendar. Block time in order to attain the results necessary. Turn off the phone. Don’t check your email. Stay on point and accomplish your goals. (Even as I write this I am being distracted by something.)

How many [blank] do you have to do to generate the income that you want? If you reach 5 people a day will it generate the income you want? Do you need to phone 10 people a day? If you email 200 people a month will it generate the results you need?

Focus on Adding Value

If you constantly seek to add value as an employee, as a salesman, or as a consultant you will be rewarded for the value you add.

Too often we are myopic and only think that the item we sell adds value. However, we can add value by relaying good information, referring a new customer, or by offering insight. All of these can be done at no cost to our clients, yet it endears them to us. Caution: Don’t expect to get something in return immediately.

What value are bringing to your boss/client? You are only worth the value you add!

Get Back to Work!

It is easy to see that in these coming times, work will win the day. Those that work harder and perform at a higher level will be rewarded.

The “Times of Plenty” are over. Now by the sweat of our brow we will have to generate income.

Don’t let the negativity distract you from production, staying positive, and adding value.

This parody of the current economic times is quite entertaining!

The “bailout” or “rescue” is the hot topic on most lips these days. In fact it is hard to escape on any of the media outlets.

Below are a few articles for you to ponder on this issue.

Is Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System?

Nouriel Roubini argues against the proposed plan. He summarizes, “Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer.”

You Can’t Rescue the Financial System If You Can’t Read a Balance Sheet

John Hussman details the reasons that the current plan only provides a benefit if the Treasury pays above market value for the value of the securities, a very reassuring thought (sic). (HT:Naked Capitalism)

Bankruptcy, not bailout, is the right answer

Jeffrey Miron from Harvard argues that the government should do nothing and let the companies that invested in the bad investments go bankrupt. He states, “Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.” He argues that bad government policy should not be fixed with more government. He also reasons that credit markets are frozen is likely caused by the current owners of bad securities being unwilling to sell them at the offered price, because they are waiting for Uncle Sam to come in and pay a higher price.