As we can see, it’s all business as usual at the Federal Reserve. But before I go off to polish my collection of Elvis Head Silver Dollars, I leave the Fed with three bits of advice:

1. These are tough, confusing times, and I do in fact sympathize with anyone tasked with sorting this out, but your methods have proven to be the financial equivalent of bloodletting for the ailing economy. Try something new for once, PLEEEEEEEASE!
2. We know the banks own you (literally), but at least pretend that you have the interest of the American people in mind. You know, we love a good circus act. And if you piss us off, then...
3. Don’t stiff the pizza boy: He knows where you live.

Labels: Bernanke, Fed, finance, inflation, recession, stagflation

The fact that the Ron Paul Revolution is still kicking, despite the fact that the Republican nominee has already been decided, could potentially help Barack Obama and hurt John McCain’s chances at the presidency. I read an interesting blog post from Tommy Christopher at the Political Machine that brought up a key point. According to Christopher, one of the strongest ties of the Ron Paul revolutionaries is that they strongly oppose the war in Iraq. Since McCain plans to keep the Iraq war going indefinitely, this will likely lead to many Ron Paul supporters crossing party lines to vote for the Democratic candidate, which will likely be Obama.

McCain’s party hasn’t worried too much about the Ron Paul fallout, probably assuming that it would taper off once he clearly won the nomination, but that doesn’t appear to be happening. In the recent Pennsylvania primary, Ron Paul won 16% of the vote, which in itself is not a huge number, but if a majority of these Ron Paul supporters turn to Obama come election time, they could easily swing the race.

Ron Paul seems intent on continuing to use his platform as a presidential candidate to spread his revolutionary ideas for as long as he can. The more people who hear Paul’s message, about the Iraq war in particular, the more people who could demand the end to this war, which would likely only come if Obama is elected president.

By staying in the race Ron Paul is in effect helping Obama. I don’t think that Ron Paul supporters are truly excited about the prospects of McCain or Obama, or they would be supporting one of these candidates by now. Which way they go in the end though could possibly decide the presidential race, and it is hard to ignore that the biggest issue in many of the Ron Paul Revolutionaries minds is the Iraq war. I can’t imagine many things more upsetting to Republican leaders than the idea of the Ron Paul Revolution helping Obama win the presidency, but it just might happen.

Labels: Barack Obama, John McCain, politics, Ron Paul

Labels: economy

It appears that the first set of tax rebate checks are in the mail and should be received by people shortly. So if you are wondering when to expect your tax rebate check--and how much it will be for--check out the resources below.

To find out how much you will be receiving, the IRS has put together a handy tax rebate check calculator that can help make this determination: http://www.irs.gov/app/espc/

To figure out when you will be receiving your tax rebate check, see the payment schedule on the IRS website: http://www.irs.gov/irs/article/0,,id=180250,00.html

Now that you’ve figured out how much you’ll be getting and when it will be arriving, the next step is to figure out what to do with it. There are many ideas floating around out there for how to spend your new-found wealth, some of them better than others. It is for this reason that NuWire has decided to put together their own list of the top ways to spend--or better yet, invest--your tax rebate checks. Look for the article later this week.

Labels: economic stimulus, investments, taxes

Labels: investments

Property taxes are on the rise across the country as local governments are feeling the effects of the economic downturn. According to an article in the Wall Street Journal, property taxes account for around 40 percent of municipal governments' funding. Falling property values coupled with higher material costs have caused local governments to feel the pinch; they are now preparing to pass that on to homeowners.

The article it pointed out a few cities which are working to raise property taxes. One of the largest cities was Memphis, Tennessee. The mayor of Memphis is proposing a 17 percent increase in property taxes, according to the article. This was one of the larger proposed increases, but if this measure actually gets passed, it will surely have a huge impact on homeowners and investors in Memphis.

Property taxes are one of the harder expenses for real estate investors to swallow because they typically own several properties and can feel as if they are paying more than their fair share. The taxes go towards things such as roads and schools, which can help bring in quality tenants, but the immediate benefit to investors is less than it is for the typical homeowner. Investors usually can pass on property taxes to their tenants through the rent, but when property taxes are raised, investors are many times forced to eat the difference, especially if they are locked into a fixed-term lease. One of the benefits of typical commercial property leases are that landlords are able to pass on any increases in expenses directly to the tenants.

Residential landlords might want to think about taking a page out of the commercial investor’s book and put a clause in their contracts which allow for a bump in the rent if property taxes are raised. After all it is only fair for the tenants to pay for the added expense since they are the ones directly benefiting from the services provided by property tax revenues.

Labels: investments, real estate

Labels: finance, investments

Typically I would shy away from calling things such as Costco and Sam’s Club memberships “investments,” but in light of recent events they might just be entering into that category. I read an article from the Wall Street Journal yesterday that opened my eyes to the concept. In the article, it is explained that food prices are increasing by so much that it makes sense for people to stock pile non-perishable food rather than put that money into savings or money market accounts.

According to the article, food inflation for the average American household is running around 4.5 percent right now. Many foods are seeing price increases much higher than that. Cereal prices are rising by more than 8 percent a year, and flour and rice are up more than 13 percent. Milk, cheese, bananas and peanut butter are all up by more than 10 percent. Eggs have increased 30 percent in the past year and ground beef and chicken prices are up 4.8 percent and 5.4 percent respectively.

It is obviously not possible to stock up on perishable items such as milk and eggs, but you can buy extra cereal, rice and flour. You certainly aren’t going to make 13 percent on any bank account, so in actuality using some of your savings to purchase extra food might not be such a bad idea, or investment, for that matter.

That is where the Costco and Sam’s Club memberships come in. These warehouse stores offer much better prices than typical grocery stores; the catch is that you have to buy large quantities of the items. If you are planning to stock up on certain staple goods, you can save money by buying at these stores. So let's say you can save 5 percent off of the items you purchase at Costco or Sam’s Club over your neighborhood grocery store (though, in my experience, buying in bulk at these stores should save you much more than that)--now your “investment” looks that much better. Instead of making a 13 percent return on your money, purchasing your rice now actually could earn you 18 percent. Obviously those numbers don’t take into account the cost of your membership, or any subsequent storage or other costs which may be associated with holding the extra food, but I think you get the picture.

Also, as an added bonus, you will be in good shape in the event of a complete economic collapse, as many Ron Paul supporters are predicting.

Labels: business, inflation, investments

Labels: real estate

Homebuyers who thought mortgage rates were heading down because of all the Fed interest rate cuts need to think again. According to Freddie Mac, 30-year mortgages rates increased 0.15 percent this week, despite all the rate cuts from the Fed. If you think that is strange, remember that 30-year mortgage rates are not tied to the Fed interest rates, but instead are controlled by the mortgage-backed securities market. Read our previous post: How Do Fed Interest Rate Cuts Really Affect Mortgage Rates? for more background on that. The bottom line is that when 30-year mortgage rates go up, despite the lowering of key Fed interest rates, it is typically because of inflationary fears.

It seems that mortgage rates won't be going down until the Fed can get inflation under control. The Fed is likely to only cut rates by 0.25 percent at their next meeting because they are concerned about inflation, according to the Associated Press. My thought is that if they were truly concerned about inflation they wouldn’t be dropping interest rates, even by the quarter point. Considering past actions from the Fed, I would say that inflation concerns are not at the top of their list.

I’m not sure who in their right mind is buying these mortgage backed securities anyway. I wouldn’t touch these, or even U.S. treasuries, at this point in time. Considering that the returns they offer are barely above inflation--that is, if you believe the government’s CPI numbers are accurate (I think they are much higher than that)--they just aren’t worth it…but that is a post for another day.

The moral of the story is that if you are in the market to buy a home, don’t wait in anticipation of mortgage rates going down. You can wait because of the market and you can wait for better opportunities, but don’t wait because you think mortgage rates are going down, because they just might not.

Labels: inflation, mortgages, real estate

• 3% to 8% sales commission: The statistics continue to support that homes marketing on the multiple listing services receive offers significantly better than FSBOs (for sale by owner) to justify the added cost. Discount brokers can get you on the MLS, but you will likely still need to pay a buyer’s agent to find a buyer for your property.
• Real estate transfer tax: Most states charge some type of transfer or excise tax on the sale of real estate, up to 4% of the total sale value of the home. On a $500,000 home, that could amount to as much as $20,000.
• Escrow costs: Escrow costs vary from region to region and are usually tied to the value of the home being sold. In typical transactions these costs are usually split between the buyer and the seller.
• Carrying costs: This is one of the big killers for house flippers. If you use bank money, your carrying costs include the mortgage interest, the mortgage origination fees and interest you have to carry while the property is being remodeled and waiting to sell. Hard money loans can cost even more. Even if you use your own funds, there is still an opportunity cost associated with your funds sitting idle in the property.

Labels: real estate

Those of you who recently completed the painstaking process of filing your income taxes might want to rethink that strategy next year and instead hire a CPA. According to an article by MSNBC, the average person spends more than $200 and 26.5 hours of their time because of tasks ranging from record keeping and studying the tax law to preparing and sending their tax forms. Obviously those numbers are just averages, and are likely influenced by extremes on both ends of the spectrum, but I think they make an interesting point.

Investors in particular are probably better off hiring a CPA than doing their own taxes because their tax returns can get complicated. Keeping up with the latest deductions and changes to tax law is probably better left to professionals anyway. Turbo Tax is great, but I would rather trust my taxes, finances and sanity to a CPA. For me, doing taxes is about up there with going to the dentist, and not having to deal with it is alone worth the $800 bucks a year I pay my CPA. Even if I liked doing my taxes (a twisted concept), it would probably take me the 26.5 hours, at least, to do them considering all the crazy things I’ve got going on. I can assure you that my CPA charges more than the $30 an hour equivalent here, but what takes me 26 hours to accomplish he can finish in just a few.

Instead of sitting at my desk, pulling my hair out and complaining to my wife that I can’t concentrate because the baby is crying, I can go to the park or on some other outing with my family which is worth way more than $30 an hour. Life is too short to spend it doing taxes, so next year spend a few bucks, hire a CPA and then go enjoy your life. If you aren’t a family person, then just think of it as an investment: If you can make more than $30 an hour (or whatever the equivalent hourly rate for a CPA would be in your case) doing something else, then do that instead of your taxes. You will make more money, and assuming that you enjoyed working on the other activity more than you did your taxes (shouldn’t be too hard), you also are adding to your overall happiness.

Labels: finance, taxes

If you are planning on buying a short sale, you might want to re-think that plan. According to an article in Reuters, real estate agents across the country are calling the short sale system broken. Lenders have unreal expectations of property values, and even if their values are in line with the market, they are often so overloaded with properties that dealing with them becomes impossible. From personal experience I’m going to have to agree with their assessment.

On the surface short sales appear to be a win-win-win strategy for the seller, buyer and the bank, yet trying to complete one tends to be a losing proposition. Until lenders change how they manage their short sale process investors are probably better off spending their time and efforts elsewhere. Don’t get me wrong, money can be made in short sales, but the time and energy taken to complete these deals can be better used on other investment opportunities which are just as good, if not better.

I have personally gone through the short sale process in order to buy one of my investment homes, and I can say it was the most stressful deal I’ve ever been a part of. Dealing with the lender was a complete nightmare, and the deal nearly fell through at the last minute. I would say that the time and effort I put into this one investment deal was at least double the time and effort required for a typical deal, and the profit was basically the same. I tried it once, and I’m not going back--I recommend you do the same. Unless you have some relationship with a lender that gives you an advantage over the average Joe, buying a short sale just isn’t worth the effort.

Labels: investments, real estate

In case you are looking for ways to give back, but don’t have any cash to give away, I put together some ideas for philanthropy which don’t require you to give up your precious savings. We all know how important it is to give back to those in need; besides making a difference in the lives of other people, giving back benefits the giver as well (for more on this, read Want Happiness: Give Away Some Money).

Philanthropy doesn’t have to be monetary, but, there are ways to give monetary donations without using your cash. One great idea is to use philanthropic credit cards. Many charitable organizations have established relationships with major credit card companies which will donate to them a portion of all purchases made by the consumer. So you can give back simply by using your credit card as you normally do. One such credit card is the KIVA business card through Advanta. Business owners know that Advanta offers some of the best rates around on their credit cards, and now offers this philanthropic opportunity alongside the low rates. For every dollar spent on the card Advanta will move a dollar into your KIVA account (up to $200 a month), which allows you to sponsor aspiring business owners in developing countries. A few more examples of charity credit cards can be found here.

BizCovering did a write up on this subject awhile back as well, and in their article they point out websites that donate a portion of their advertising revenue simply for you using them. Instead of using Google for your searches, you can use a search engine such as Search Kindly, which donates a portion of their advertising revenue to charities determined by the users. There are also sites that you can use for e-mail, shopping and so on, which all donate their proceeds to charity.

Another way to give back without giving up your cash is the donation of your time. There are more volunteer opportunities out there then I could ever hope to list, but volunteermatch.org is a great place to start your search if you need some ideas.

Giving back doesn’t have to cost money or even time, so no matter whether you are busy or cash poor, you should still make sure that you are practicing some sort of philanthropy. Hopefully my ideas for philanthropy were helpful, and if anyone else has some good ideas feel free to share them.

Labels: philanthropy, social investment

Labels: investments, real estate

Housing Market Meltdown! Mortgage Crisis! Recession! Recession! Recession! The media sure is being an awful killjoy these days, aren’t they? Since when did the fourth estate care so much about real estate? Can’t they bring us some good news? Can’t they compare the market meltdown to rich, gooey fudge, or the collapse of our economy to a light-hearted game of Jenga?

As the news of the market grows increasingly dour and consumer confidence sinks further into the toilet, a few voices have arisen hither and thither, proclaiming that the market may not be as bad as it seems and that now may still be a good time to buy. Some of these voices go so far as to claim that our negativity may be our own worst enemy. One such voice belongs to Mr. Bob Mathe, a Realtor for Coldwell Banker quoted in the Oshkosh Northwestern. Mr. Mathe had the following wisdom to share:

"The market really hasn't been bad here. We're still selling stuff.”

Great news, Bob! “Stuff” is good, and “selling stuff” is even better. Really! Kudos!

Cultural and commercial meccas such as Oshkosh, which are ostensibly more recession-resistant, are seeing growth in housing prices. Mr. Mathe seems to think that it can only continue to go up, right? Because that’s not at all what people were saying before the market burst everywhere else. Could a guy named “Mathe” have his numbers so wrong? Heaven forefend! So why aren’t people buying?

When in doubt, blame the media:

"If the media would stop talking about it, people would not be so hesitant."

You’re right, Bob. I’m sick and tired of these party-poopers telling me to prepare for a storm. Sign me up for a dozen pre-construction condos. I just can’t go wrong!

But it isn’t just biased peons like Mathe that are preaching good vibrations. Seasoned guru Suze Orman also just released an article in which she states that buying a house now may not be such a bad idea, but she’s careful enough to specify areas of particular caution.

“All those stressed-out developers are motivated to make deals. That can mean sharp price discounts or great offers to help with your mortgage financing,” she advises, but is quick to remind readers that being surrounded by half-finished homes is hardly conducive to your home’s value appreciating. For a real horror story on this subject, see this recent article from the AP about residential projects abandoned or delayed in the wake of the housing crisis. Empty homes, new or not, can have serious ramifications for those living or investing nearby. This definitely applies to home buyers considering foreclosure properties as well.

With recent polls declaring that 60 percent of Americans will not purchase a home in the next two years, it’s no wonder that people like Mathe are rallying the consumer. These are lean years ahead, and even Orman’s position, at heart, is a carefully frosted bitter pill that ultimately admits that only a select few are in any position to be buying a home at this time, and even those who can find the funding and commit to “stay put for at least five years” are taking a risk.

So bring on the doom and gloom. Wishful thinking and betting on imaginary wealth are what caused the housing crash and the mortgage crisis, and erring on the side of caution may take a toll on the economy as a whole, but it’s the only way one can ride out this recession. “Buy now”? Don’t buy it...

This was a guest post by Trenton Flock, Web Editor at NuWire.

Labels: foreclosures, housing bubble, real estate, recession

I read an article this morning in CNNMoney that discussed the potential for a Fannie Mae and Freddie Mac bailout that I thought I’d share. For those who aren’t familiar with the companies, Fannie Mae and Freddie Mac are government-sponsored entities which help stabilize the mortgage market by purchasing mass quantities of loans and packaging them into securities. With the credit markets in disrepair, the importance of these two companies has increased dramatically. According to the article, 82 percent of U.S. mortgages are being backed by one of the companies, up from 46 percent in the second quarter of 2007. With the value of real estate continuing to decline, the mounting losses and increased exposure of the two companies could lead to disaster. The government can’t and won’t let these companies fail--and will come to their rescue if necessary. The price tag of a potential bailout could be more than $1 trillion dollars, along with additional ramifications to the U.S. economy. Let’s look at some of the warning signs and potential outcomes as described in the CNNMoney article:

Risks and warning signs

“...other experts expect that declining home values will force more borrowers who have a Fannie- or Freddie-backed loan to stop making payments in the coming months, rather than continuing to make payments on a home now worth less than their loan balance.”

“Rising job losses may also make it difficult for other borrowers who formerly had good credit to stay current on their mortgage payments.”

“Some economists suggest that if investors start to see problems in the performance of loans backed by Fannie and Freddie, they'll dump them. And that would force the federal government to step in.”

“’I would say there's at least a 50-50 chance of some sort of bailout. I'm not saying it will necessarily cost $1 trillion, but they'll need some kind of help, and it very well could happen this year,’ said Dean Baker, co-director of the Center for Economic and Policy Research”

“The yield premium for securities backed by Freddie and Fannie compared to the yield on Treasury bills has grown to about 2.25 percentage points from 1.7 percentage points at the beginning of the year. That's a sign that the investors see a greater risk of Fannie and Freddie running into bigger problems.”

“OFHEO, in its annual report this week, said that while Fannie and Freddie have made progress clearing up accounting problems that had dogged both firms, they remain ‘a significant supervisory risk.’”

“...since current home price declines are without precedent, the firms will have a difficult time correctly pricing the risk of the mortgages they're backing.”

“...Fannie and Freddie's role in the mortgage and real estate markets is likely to grow, as Congress recently allowed them to back larger mortgages, up to $729,750, up from the previous limit of $417,000.”

“The Office of Federal Housing Enterprise Oversight (OFHEO), which regulates both firms, also recently lowered the capital requirements for Fannie and Freddie in an effort to pump $200 billion more into the credit markets.”

“The new loan limits will increase the risks and losses for Fannie and Freddie, said Wagner and other experts.”

“The high priced markets where homeowners and buyers need larger loans are now the ones seeing steep home price declines. And the default rates on larger loans are greater than the smaller loans that had previously been the core of their business.”

Potential costs for a bailout

According to the article, Standard and Poor’s predicted a bailout out of the companies could cost between $420 billion and $1.1 trillion dollars of taxpayer money—a cost so high that it puts the U.S. government’s AAA credit rating at risk. This has potentially enormous ramifications, because the lowering of the government’s credit rating would mean the cost of borrowing money would go up and the number of potential investors interested in buying U.S. treasuries would go down. Since the U.S. is financing its extravagant lifestyle with debt, if our ability to borrow decreases significantly we are going to have to make serious changes as a nation.

Labels: economy, housing bubble, mortgages, real estate

• CIMLS

• Commrex

• CoStar

• Property Line

As a last note, some areas of the country have local commercial MLS systems. The Pacific Northwest for example, has CBA (Commercial Brokers Association) otherwise known as the Commercial MLS. They offer a wide variety of listings in Washington, Oregon and Idaho. To see if your market has a local commercial MLS, search online using “your state” and “commercial real estate” as the search term, or simply ask a local commercial real estate agent.

Good luck finding your next commercial property investment, and if you notice any other good sites that I missed, let me know and I’ll add them.

Labels: investments, real estate

I read an interesting article yesterday from MarketWatch that said all the talk about the failing Social Security System, and how it is going to soon run out of money is completely overblown. According to the author, Dr. Irwin Keller, the social security system may never run out of money, let alone run out of it in the near future. He claims that people are reading only the summary page from the annual report issued by Social Security’s board of trustees, which offers a warning of the possibility of a shortage in funds, and that if people read further they would see that the projections used in predicting the fund shortage scenario are drastically conservative. Using growth projections that are more historically consistent, the fund would actually never run out of money.

This is an interesting view, but I’d like to point out one thing that he neglects to mention: there is no money in the Social Security system right now. All that’s there is a bunch of IOUs from the U.S. government that they plan to pay back to the supposed trust fund. Let’s look at some quotes from President Bush himself in an MSNBC article a few years back:

“’A lot of people in America think there is a trust—that we take your money in payroll taxes and then we hold it for you and then when you retire, we give it back to you,’ Bush said in a speech at the University of West Virginia at Parkersburg.

‘But that’s not the way it works,’ Bush said. ‘There is no trust ‘fund’—just IOUs that I saw firsthand,’ Bush said.”

The article goes on to explain that the so called “trust fund” is actually a white notebook filled with physical evidence of a couple trillion dollars worth of Treasury Bonds.

We have loaned our retirement funds to the U.S. government—the most indebted country the world has ever seen—and the government doesn’t have the money to pay us back. Of course they can print more money to pay us back, but the actual buying power of currency will likely be far less than what we put into the account in the first place. Even if we get our full Social Security benefits, as Keller argues we will, in reality the value of those benefits will have been drastically reduced.

Personally, I’m a big fan of moving at least a portion of our Social Security benefit payments into an investment account that is controlled (at least somewhat) by the taxpayer. I wouldn’t hire a financial planner with the spending habits of the government, and I certainly don’t want them in charge of my retirement money. The more control I have over my Social Security benefits, the better I will feel. I hope that Keller’s assessment is correct, but I’m certainly not counting on it. I suggest you not plan for your retirement with the assumption that you will get your full Social Security benefits either. It is far better to be pleasantly surprised and have extra than to count on your full Social Security benefits and not have enough money for retirement.

Labels: economy, inflation, retirement

John Makin, a scholar at the American Enterprise Institute, is proposing that we solve the housing crisis by letting Inflation run high according to an opinion piece he published in The Wall Street Journal. Makin suggests that the alternative methods of correction are worse than high inflation, and he even goes so far as to say that the mortgage market could be nationalized if we don’t do something soon.

I don’t agree with many of Makin’s views, and particularly I don’t foresee a nationalized mortgage market. First of all, his argument assumes that the government should be responsible for solving the housing crisis. If you agree that it is the government’s responsibility then Makin’s plan might not be such a bad idea (at least considering the alternatives), but I personally believe the government should stay out of it and let the market take its course. Housing prices should have never gone as high as they did relative to what people's incomes are, and the real estate market is now simply adjusting to where it should be in the first place. You could even make the case that the government exacerbated the problem through low fund funds rates and their willingness to bail out banks that made stupid decisions.

Makin’s warning of a nationalized market seems implausible to me. History has proven that private industries are more efficient than nationalized ones, and I would be shocked if lawmakers actually legitimately considered a nationalized mortgage market as a potential solution to the housing and credit problems.

The government is feeling the strain as more and more homeowners experience declining property values and request governmental support, but high inflation is not the answer. In the end, it will still cost us. Instead of having homes with negative equity we will just have worthless savings and retirement accounts. In addition this plan would really hurt those individuals who don’t own their own homes. They would feel the full impact of inflation, but without the benefit given to ailing homeowners. The only real answer is the easiest one of all: Let the markets take their course.

Labels: economy, housing bubble, real estate

The Iraq war is being debated on many different levels. One is the idea that it could be the cause of the U.S. economic recession. Politicians and economists are divided on the subject. Most Democrats, including presidential candidate Barack Obama, claim that the Iraq war has had a substantial effect on the U.S. economy and should be examined as one of the primary reasons for the U.S. recession. Most Republicans quickly dismiss the claim as being without merit, but a growing number of Republican s, including Republican Presidential candidate Ron Paul, strongly oppose the war based on its economic fallout. But is the Iraq war to blame for our economy’s problems? Let’s look at arguments from both sides of the debate:

The Iraq War caused the U.S. economic recession

In a Washington Post article, Nobel Prize-winning economist Joseph Stiglitz argues that the Iraq war is to blame for the economic recession for the following reasons:

• The oil-producing countries have so much money that they don’t need to produce much oil. Because they don’t have the immediate need for cash, they are able to plan better for the future by pumping less oil and charging more for what they do produce. By doing this they are able to keep more oil for future use.
• The government has spent so much on the Iraq war and gone so far into debt that it has been unable to keep the domestic economy in check through tax cuts and other internal investments.

Senator Barack Obama had the following to say at a recent forum, according to the same Washington Post article: "If we can spend $10 billion a month rebuilding Iraq...we can spend $15 billion a year in our own country to put Americans back to work and strengthen the long-term competitiveness of our economy."

Senator Obama has a valid point to his argument. This war was entirely financed with debt, which in itself is bad, but ultimately what has our country received in return for that investment? At least if we are going to go deeper in debt, we should probably be using those funds for something that might actually help our economy, and our country.

According to a CNN poll, 71 percent of Americans believe that the Iraq war is at least partially responsible for the economic downturn.

The Iraq War Is NOT responsible for the U.S. economic recession

While it is easy for politicians to say the Iraq war has caused many of the world's problems, there is little evidence that the war is directly responsible for the economic recession. In response to the arguments made by Stiglitz, according to the Washington Post most economists believe that the price of oil is rising because of increased demand rather than a shortage of supply. Furthermore, Martin Baily, former chairman of Bill Clinton’s council of economic advisors, had this to say: “The credit crisis we got into is because of the housing boom, the relaxation of lending standards and certainly a lack of adequate supervision," Baily said. "I don't see a connection with government borrowing."

Conclusion

I can see validity in the arguments from both sides. Considering all the other problems that the U.S. is facing—in particular, the housing bubble—while I think it is a little farfetched to say that the Iraq war was the sole cause of the economic recession, it is equally foolish to say that the costs of the Iraq war have had little if any impact on the U.S. economy. Wars are not free, and the U.S. has spent billions of dollars on this war, financing it entirely with debt, which will have to be repaid one way or another.

Labels: Barack Obama, economy, recession, Ron Paul

Many people have set up a home equity line of credit (HELOC) to use in case of emergency or as a cash flow buffer for their businesses. Many investors even use their HELOC to buy foreclosures or international properties. All of these individuals may need to rethink their strategies. Several lenders have recently begun freezing borrowers' HELOC accounts without warning and without disclosing the reason for the freeze to the homeowners, according to an article in the New York Times. Washington Mutual, Indy Mac and the GreenPoint Mortgage unit of Capital One are specifically mentioned in the article.

According to the banks, the measures are being taken to protect themselves from declining property values, but even homeowners in markets which have not seen declines in value have been affected. These markets include: Yakima, Wash.; Appleton, Wisc.; Raleigh-Cary, N.C.; and Champaign-Urbana, Ill. So if you think you are protected because you are in a market thus far unaffected by the housing bubble, think again.

This news will be hard on those who were banking on using their HELOC for their business, investments or tax payment, who are now simply out of luck. The banks are within their rights to do this, and considering the housing market it is surprising they didn’t do it sooner, but the negative impact on the economy will surely be felt.

Let this also be a warning to those who were counting on the equity in their home to save them in the event something bad was to happen: Home equity is not a substitute for savings.

Labels: investments, mortgages, real estate

Health savings accounts (HSAs) are becoming more common as businesses across the U.S. place more of the onus of health care costs on their employees. As a result employees are now faced with a problem of not only learning the health insurance side of these new accounts, but also the investment side of Health Savings Accounts. Read our article, Health Savings Account (HSA) Basics, if you aren’t already familiar with HSAs.

My company recently switched to an HSA plan, so I thought I would share some of what I have learned.

Some investors may welcome the switch to an HSA plan because it offers the potential to generate returns inside the account. Money going into the HSA account is pre-tax, and as long as the money is spent on medical expenses, the money (and any gains generated inside the account) is also tax-free when you spend it. Sounds pretty amazing, right?

HSA providers typically offer several investment options to account holders, ranging from a basic money market fund to several different types of index funds. The HSA account my company offers gives us the option to keep the funds in a money market to which we can charge medical expenses directly via a debit card, or to invest in one of 13 Vanguard index funds. Most investors would probably think this is a no-brainer, and the Vanguard funds are the way to go. That was certainly my first reaction, but then I started to think of some potential drawbacks.

The first potential pitfall of investing in the funds is the time and convenience factor. With the Vanguard option, you are not able to get a debit card, and to get reimbursed for any expenses you must prove the legitimacy of the claims with receipts and other paperwork. In addition, it will take time to sell out your positions and issue a reimbursement check.

The second issue is the volatility of index funds, which are not guaranteed and may lose value. In the long term, most investors accept this risk, because historically the market has trended up over time. However, what if you get in a major accident next month and the market just lost 15 percent of its value? Some health expenses are just unpredictable. If you have a healthy savings account on the side you may be able to overcome this potential hurdle, but if you are relying on your HSA funds, you must make sure they are there when you need them.

If you are like most Americans and don’t have much in the way of extra savings, then you are probably better off keeping your HSA investments in a money market fund or low-risk bond fund--at least until you get the balance of your account high enough to cover your deductible. If you have a cushion to fall back on, then it is probably safe to invest in those higher-risk funds.

Labels: insurance, investments

Cuba’s economy was long held down by dictator Fidel Castro but his younger brother, Raul Castro, the new acting President of Cuba, has enacted some small reforms that are stepping stones toward economic improvement. He has legalized the sale of computers, DVD players and cell phones, allowed Cubans to stay at hotels previously reserved for tourists and, most recently, lifted the wage ceiling for employees in Cuba.

The wage restriction was a major damper on production in Cuba and one of the strongest sources of complaints from Cuban workers because they were paid the same regardless of how hard they worked. Naturally if employees can’t make more money the harder they work, there is little motivation for them to exceed the absolute minimum for productivity. The fact the Raul Castro has heard these complaints and is taking action is a great sign.

Cuba has been off limits for a long time for American investors, and there is much untapped potential in the country. For more insight about Cuba’s future investment potential, read my post: Fidel Castro Resigns: What’s Next For Cuba?

I look forward to more changes in Cuba’s economy and hope that it won’t be much longer until Cuba and the U.S. can reconcile their past differences.

Labels: Cuba, international

Pawn shops are ringing up big profits in the midst of a faltering U.S. economy. As people struggle to make ends meet, they have increasingly turned to pawn shops for fast cash. Pawn shops historically do not offer the best terms on loans, or the best prices for sold items, so it is ominous that people are turning to pawn shops en masse. This is a trend that is very typical in times of financial hardship though.

Investors who wish to profit from this trend could invest in stock of a large pawn shop company, such as Cash America (CSH) which is traded on the New York Stock Exchange, buy an existing pawn shop, or open a new pawn shop.

Online pawn shops are an emerging trend, as even brick and mortar pawn shops are now selling inventory for a higher amount on EBay. Low overhead can mean higher profits for online pawn shops, and also allows them to offer customers more money for their valuables or better terms on loans. In addition online pawn shops are able to offer their services to a wider geographic area. It appears clear to me that the future of pawn shops is on the Web.

If you ever were thinking of getting into the pawn shop business, then now is the time. If you prefer a brick and mortar business, and don’t want the added hassles of a startup company, there are also pawn shop franchises available. Two of these franchise opportunities are Cash America and PeoplePawn.

Labels: business, economy, franchise, investments

If you are so confident that your candidate—be it Barack Obama, Hillary Clinton, Ron Paul or John McCain—will become the next President of the United States, then why don’t you put your money where your mouth is? To show just how far the free market has come, there is now a website that allows you to make money by betting on the outcome of world events from the U.S. presidential race to whether or not Venezuela or Ecuador will declare war on Colombia. The company, which operates out of Ireland, is called Intrade. The website offers a trading platform similar to the U.S. stock exchange, but traders on Intrade buy and sell options on things most people might consider a bit out of the ordinary.

Investors who consider placing bets on Intrade should keep in mind that Intrade is still a small marketplace. This means that positions can be volatile and may be difficult to close out of. Therefore, Intrade should not make up a large portion of an investment portfolio, and should probably be viewed more in terms of entertainment than an actual investment.

Smart investors may be able to profit from some of the holes in the Intrade system and capitalize on the small marketplace. According to an article by The New York Times, a professional poker player named Serge Ravitch made a 35 percent return on his money in just 6 weeks by identifying these weaknesses. One trad