Personal Finance QuickTake: To Hell with Homeowner's

Treasury Secretary Paulson said today the housing prices should be allowed to continue to fall in order to allow markets to stabilize and allow buyers to come back into the market.

In other words...That $1.2 Trillion worth of Home Owner equity at stake in the crisis should evaporate. That $1.2T is from a seperate report looking at the write-offs that may happen in regards to loans. It doesn't take into account the lower values of homes that people will hold onto. Regardless $1.2 Trillion equals $4800 for every man women and child in the US, or $24,0000 for my family alone.

The problem with that statement is that it does forget families, which is whose skin this is peeled from. Imagine...they believe the sending my family $2100 is going to be a big stimulus to the economy...what do you think asking me to pay back that $24,000 is gonna do to the economy?

Unless a stabilization plan is put into place, people en masse are going to walk away from their homes. It is already happening. Then the next ripple is to those like me that hold our home and make our payments is that the value further erodes.

Hey...it is my debt, I signed for it. But if you are the government, make sure to see who your are flipping off before you raise the bird!

Personal Finance QuickTake: RIP Bear Sterns

According to a report from AP, Four Days after saying the company was OK, Bear Stearns will sell out to JPMorgan-Chase for the bargain price of $2 per share, or $236 Million.

This is a stunning reversal for Bear Stearns, that will at least save them from bankruptcy, as the Mortgage Liquidity crisis gets its first well-known victim.

The Fed jumped in already and not only approved the buyout, but also guaranteed $30 Billion of Bear's assets, essentially making the buyout risk free for JPMorgan. JPMorgan Chase & Co. said it will guarantee all business — such as trading and investment banking — until Bear Stearns' shareholders approve the deal, which is expected to be completed during the second quarter. The acquisition includes Bear Stearns' midtown Manhattan headquarters.

JPMorgan's acquisition of Bear Stearns represents roughly 1 percent of what the investment bank was worth just 16 days ago. It marked a 93.3 percent discount to Bear Stearns' market capitalization as of Friday, and roughly a 98.8 percent discount to its book value as of Feb. 29

No word on Bear Stearns 14,000 employees or if the brand that survived the Great Depression and World War II would continue. They were considered to be the most leveraged major bank out there and based on the last weeks news, basically went into a death spiral.

At almost the same time as the deal for control of Bear Stearns was announced, the Federal Reserve said it approved a cut in its lending rate to banks to 3.25 percent from 3.50 percent and created another lending facility for big investment banks. The central bank's official meeting is on Tuesday. Before the emergency move to lower the discount rate, which is the rate at which banks lend each other money, the Fed was widely expected to again cut its headline rate by as much as a full point to 2 percent.

This doesn't feel like the end of this. Maybe the beginning of the end, but not beginning.

Personal Finance QuickTake: Carl Icahn

Carl Icahn is a pretty interesting guy. Along with Henry Kravis of KKR, he was one of the most feared names in Industry. The shear mention that Carl Icahn was "on the phone to talk to you", would scare most CEOs into writing him a check to go away!

60 Minutes had a great piece on him and how he makes his money, and as one of the Top 20 richest people on the planet, he does know a thing or two about how to make money. He might not make companies cower with just a call anymore, but he does know how to rattle his sabre.

Icahn was one of a handful of Corporate Raiders that bought up companies with little or no cash, loaded the company with debt and would then spin then off or tear them apart. Think Gordon Gekko from the movie "Wall Street". Icahn's famous takeover of TWA in 1985 is the stuff of legends. But the Airline was stabilized and saved, at least for a time, but a lot of people were put out of work.

He is now known more as a Board of Directors worst nightmare. In an era of huge CEO pay packages Carl has the audacity to ask if they are worth it! And if doesn't get the answer he wants he isn't afraid to try and replace the Board themselves.

His recent fight with TimeWarner about their disastrous merger with AOL is a great example. He disagreed with the direction of the company, tried to force CEO Dick Parson to sell or spin off large portions of the company, and even though he lost got the stock moving enough to still make $300 Million in the process.

Like him, hate him or don't understand him, he is still fascinating and offers a great glimpse into what happens backstage at some of the largest companies in the world. And bigger isn't necessarily smarter!

Personal Finance QuickTake: The World According to Ram

Ram Charan is one of the leading experts in the world today in advising businesses. Frankly, he is in the rarified Air with Buffett and Drucker IMHO. He isn't boisterous, he isn't a Hacksaw sort of guy, he isn't a guru. He IS someone that lets you see past where your focus usually is.

As you can see I am a big fan. Yahoo ran a series with Ram called "What Every Company Should Know." Given that most reading this run a blog, which IS a business if you have ads up!

I really how Ram breaks down topics that feel huge to great bite-sized morsels that you can really learn from. My favorite in the series was, "The Basics of Money Making" where Ram takes you through all what is takes to make money. And really whether you are a business or an individual, there are great lessons here.

Read and Enjoy!

Life, Liberty and the Pursuit of Money Featured on msn's Smart Spending

Last night Karen Datko over at msn's moneyBlog picked up our story, "College the Poor Kids Way." She wrote a great story about the piece and today traffic is amazing! (At least for me!)

Thanks so much Karen!

Sphere picked up our story about the impending Fed Rate cuts from yesterday's Personal Finance QuickTake: Another Rate Cut Coming!

Thank you Sphere!

Last, But definitely not least; Reuters picked up "Tax Carnival #30" that we were involved in

And one P.S to Add...Life, Liberty and the Pursuit of Money just got PageRank as well! It is just PR2 to start, but hey, gotta start somewhere and it looks like today is going to be a record day!

When Even the Rich Runaway...

Even the working rich are worried according to Forbes. "Housing has imploded, the market's a yo-yo, recession's in the air. And the 'working rich' are learning to do without." This according to Russ Alan Prince, president of a private wealth-research firm and author of the book The Middle-Class Millionaire.

Princes research points out that 78% of the Working Rich, identified as those with $1MM-$10MM in Net Worth and still working for a living, consider themselves "very or extremely concerned about their ability to maintain their current financial position." Furthermore he believes 21% of them are already reducing spending.

Compared to the first half of 2007, the last six months saw a 20% drop in Luxury spending. According to a source in the report, "Luxury consumers have never expressed such a dismal view of their financial status." This is a compounding issue for the economy as the Working Rich are known networkers. In other words they talk to one another before purchasing, which if sentiment is down can lead to a vicious circle of reduced spending. The spending is transitioning into higher perceived value items, felt to be less frivolous.

This is a big indicator the economy is in trouble as this group has been a leading indicator of things to come. Great time to make sure that your debt, budgeting and money management is firmly in place!

BTW - Broke Grad Student is running the current Carnival of Personal Finance with a great spin on the topic! Take a look!

The spending is a mixed bag of information though. Hi tech gagets continue to sell well, but Jewelry is down. Luxury car are stable, but sports cars are slowing.

Personal Finance QuickTake: Visa IPO

Visa is set to launch an IPO (Initial Public Offering) before the end of March according to the AP. Based on the initial numbers this may be the largest IPO ever. The offering is expected to raise $19 Billion , if it does it would signal to Wall Street that the market is back up and running.

Visa's IPO will have little initial affect on its customers, but the banks that issue the cards are expected to share a $10 Billion windfall. This influx of cash could keep banks from raising rates or cutting back on consumer credit lines.

Both MasterCard and Visa are not banks nor lenders, they are transaction processors that get paid fees by the issuing banks. This is different from American Express or Discover that offer and back the banks themselves.

Visa is the largest US processor of these transactions with over 50% market share. Last year Visa processed 44 Billion transactions, or $3.2 Trillion Dollars, nearly double MasterCard. Visa will be the last major credit card provider to go public as MasterCard and Discover went public last year.

What this Means:

Visa gets paid for the transaction we place whether or not we pay them off the next day or not. But 44 Billion transactions? That is 7 transactions for every man, women and child on the planet! $3.2 Trillion equals $533 for every man, women and child on the planet! And these numbers are only Visa. Add in MasterCard, Discover, American Express...

This is really amazing! This is an industry that is really younger than 50 years old! Sadly this is a very scary amount of transactions and debt that we as a people are ringing up. At some point it becomes overwhelming and could lead to massive amounts of bankruptcies and people not saving for their futures.

Are we moving to a non-currency world? Are you breaking your debt chains or adding to them?

Personal Finance QuickTake: 10% of Homes Underwater

According to a new report from Reuters, 10% of homes are underwater. No, this is not a global warming post we are talking about the loans being underwater, or the Homes being worth less (often much less) then the loan is currently valued.

According to Mark Zandi, Chief Economist at Moody's Economy.com, 8.8 Million Homeowners, or 10.3% of the total, are in over their heads. as a result millions of home owners have incentive to abandon their homes.

This ties to an earlier post as well as an article on msnMoneyBlog that quotes me in it (plug!). The issue is not just those people and the bad bank loans. It is also that underpriced homes are hitting the market at the worst possible time, when sales are abnormally low. The homes are underpriced because the banks want to get the houses off of their books, they have no reasons to hold them it is only tying up cash flow.

According to Mark Zandi, each foreclosure on a neighborhood block reduces the value of all homes on that block by almost 1.5 percent. That is a hefty hit! on a $500,000 house that $7500 gone. In many neighborhoods, especially in California's Bay Area and Detroit, you can have 20% being for sale! I don't believe that this is a cumulative affect, but more like a logarithmic one. In other words, one house in default would cost you $7500, two would cost $20-25K!

So when do they see it turning around? Zandi expects home sales to hit bottom this spring, housing starts to reach a nadir this summer and house prices to trough in the spring of 2009! Nice...

Personal Finance QuickTake: Fed Gloomy Forecast

The Federal Reserve put out a rather gloomy forecast on Wednesday. They have lowered growth, employment and other economic indicators due to damage to the housing and credit markets.

According to the minutes of the Fed meeting on Wednesday they are very nervous that cuts up to this point aren't enough and won't be enough to keep the economy from continuing to weaken. "With no signs of stabilization in the housing sector and with financial conditions not yet stabilized, the committee agreed that downside risks to growth would remain even after this action," the minutes of the meeting showed.

The Fed said that it now believes the gross domestic product will grow between 1.3 percent and 2 percent this year. That's lower than a previous Fed forecast for growth, which at that time was estimated to be between 1.8 percent and 2.5 percent. Based on those numbers Unemployment is expected to rise to 5.3%.

Clearly the economic slow-down is heavier and faster then the Government thought it could have been. I would expect the Fed to continue to cut interest rate in our to try to jumpstart the economy. However, the deeper the cuts the more likely and higher we can expect inflation to rear its ugly head!

On a side note it looks like not just on this site, but most others Google's Feedfetcher is broken and unsubsribribed everyone that was using that service. At first I though it was just me, but aI saw som sites like www.johnchow.com lose 6000 subscibers! I would suggest thatif you were using that service, to resub through email HERE. Not only will GET the articles (for Free of course) but it will enter you into my current RSS signup contest!

Personal Finance QuickTake: Bankrupt Brands

Sharper Image and Lilian Vernon announced that they were declaring bankruptcy today according to USA Today. Hit by slower than anticipated Christmas Sales as well as a lackluster year both brands announced separately that they have filed.

The real question is, Is this a one-off issue with poor performing brands, or the start of something big? According to the report some are predicting that this is the beginning of an avalanche of bankruptcies by companies.

From the report:

"You'll see a record number of bankruptcies over the next 50, 100, and 1,000 days," said Burt Flickinger III, managing director of the New York-based retail consulting firm Strategic Resource Group. "Consumers are cash and credit constrained. They're out of purchasing power."

The International Council of Shopping Centers projects 2008 store closings could reach 5,770 stores in 2008, the largest number of closings since 2004. Retailers as a whole reported their worst January same-store sales in almost four decades.

Flickinger said the problem is partly food and fuel inflation. While consumers used to pay 10 cents of every dollar for food and fuel, they now pay up to 20 cents per dollar.

What this means

As the Consumers go, goes the economy. The weaker die off first, but it is really the symptom of the larger issue that the economic boom of the last few years has been fueled by debt. Debt often obtained via Real Estate. That has dried up. Credit Cards are full. Where is the next wave of buying going to come from? And what happens if it doesn't.

What happens is, that we go into a recession. If we aren't prepared for it it will be twice as hard.

Personal Finance QuickTake: Uneasy Feeling

Yahoo had a really good article today talking about consumer sentiment. Basically even through the housing boom and access to way too easy credit, consumer sentiment has been a bit wary. It was almost like everyone knew this was too good to be true.

Easy credit has led directly to a disconnect with consumer's paycheck and their ability to spend. Gas prices rise, which raises price inflation food and travel, heap on medical expenses running at high double digit growth and a melt down is inevitable.

This is called...inflation.

The problem is you don't fix inflation by lowering interest rates! You do by raising them. This puts our Fed in a bit of a bind. If the raise rates the economy tanks, if the lower them inflation goes nuts.

How bad can inflation get? Picture Europe before WWII. Literally wheelbarrows full of money to buy bread! Not worth the paper it is printed on...Not saying go dig a trench and hide, it it foretells of tougher times ahead. It also says that this doesn't get fixed with a $1200 check from the Government.

How do we cope? Get out of debt. Save and spend less than you make. Not sexy but it works!

Don't forget to sign up for my RSS feed Contest. You could win a $50 value piece of software to help you organize! Just click HERE to enter!

Personal Finance QuickTake: RIP HD DVD

Wal-Mart announced today that they will only carry Blu-Ray next Generation DVDs moving forward. Frankly, this is the death knell for the format. This is just the latest defection from major retailers. Best Buy and NetFlicks have also discontinued stocking the product.

From the report:

The so-called format war between HD DVD and Blu-ray has been a thorn in the side of retailers, which have had to commit shelf space to devices from both camps even as they field complaints from frustrated and confused customers.

Next-generation DVDs and players, boasting better picture quality and more capacity, were expected to help revive the $24 billion global home DVD market. But Hollywood studios had initially split their alliances between the two camps, meaning only certain films would play on a consumer's DVD machine.

So Why Different Formats?

To be fair to Toshiba and the HD-DVD format, the split between formats comes from one thing, IP, or Intellectual Property. Sony/Philips invented the CD, and the DVD. This means that every blank CD or DVD generates partial pennies for Sony/Philips. If you are Toshiba or any of the other electronics manufacturers, or studios, do you want to pay Sony? No. But CDs caught on, then DVDs did as well.

When it came time for the next-gen DVDs Sony said, "Here you go!" And...to make sure it does well every PS3 will have a player built in. So the studios couldn't just ignore the format. But at the end of the day all this dual format stuff did was to scare off the consumers from buying...and no one wants that.

RIP HD-DVD...We hardly knew ya!

Personal Finance QuickTake: Fed Ready to Act

Today Fed Chairman Ben Bernanke told Congress that the Fed was ready to continue to act as needed to support the economy. He also stated though that signs point to growth later in the year. The Fed has lowered interest rate 2.25% since September, lowering the rate to 3%.

From Reuters:

He acknowledged that the growth outlook has worsened over the past few months. His comments reinforced investors' expectations the central bank would lower interest rates by a half-percentage point at its next meeting on March 18.

However, the central bank chairman also said he expects sluggish growth to give way to a somewhat stronger expansion in the second half of the year as the impact of fiscal and monetary stimulus now put in place is felt. Bernanke painted a somber picture of risks facing the economy, and U.S. stock prices and the dollar fell on his gloomy assessment. In early afternoon, the Dow Jones industrial average was down more than 140 points, or 1 percent.

So it looks like more cuts are coming and they are doing whatever they can to avoid a recession, perhaps even at the cost of future growth as inflation becomes a bigger concern.

Personal Finance QuickTake: Yahoo talks to NewsCorp

According to a Yahoo news report (and they would hopefully know...), Yahoo is in talks with NewsCorp in attempts to stave off Microsoft's Hostile Bid.

Yahoo rebuffed Microsoft's advances on Monday, but given how the "No thanks" was worded it seemed as if Yahoo wasn't saying no, period, Just No at this price.

Microsoft seemed to initially have the field to itself with this high of an offer, but Yahoo being smart is trying to find the best deal possible. NewsCorp has been emphasizing its web portion of the business more and more culminating in a buyout of mySpace last year.

This is either a strong attempt out of Yahoo to raise the bid to the mid-40s or above, or they are so desperate not to be assimilated that they are running to whoever will off shelter.

Microsoft will see what comes out of this, but they don't have all the time in the world. To launch a proxy fight and dump Yahoo's board they would need to be prepared to fight by mid March.

It is gonna get interesting!

Personal Finance QuickTake: Ten Filthy Rich Traits

The Street.com via Yahoo Finance ran a piece this morning about the "Ten Traits that Make You Filthy Rich." Just like in the book, "The Millionaire Next Door" they make the case that personal finance and living within your means is none of the best determining factors on whether or not you will be financially successful.

Their Top Ten list:

1. Patience - Being able to wait to make purchases, ride out stock dips and save for the long term
2. Satisfaction - Being happy with what you have. In Dave Ramsey's speak...avoiding Stuffitis!
3. Organization - Being as productive as possible. Avoiding Stupid Taxes such as late fees!
4. Discipline - "Personal finance isn't a way to get rich quick, but is a disciplined execution of your lifetime plans." Perfect!
5. Reflectiveness - Learning from you mistakes
6. Creativity - Doing whatever it takes to get out of debt, avoid picking up new ones and being agile in all things!
7. Curiosity - Learn, Study and Improve yourself. I like to always look at Constant and Never-Ending Improvement to quote the tall one!
8. Risk Taker - Doesn't mean betting it all on black, but understanding that there is a risk=reward balance and not being over-conservative.
9. Goal Oriented - A favorite of mine. If you are working a Success Plan you are just working!
10. Working Hard and Smart - Are you willing to put in the time? If not you are going to have a tough time getting truly ahead.

More then any other time in our history we have the ability to reach some pretty lofty financial heights in we plan for success, budget, live within our means, manage our money and invest wisely!

Personal Finance QuickTake: Yahoo say "No Thanks!"

"Thanks, but No thanks!"

Basically that is the message that Yahoo is sending back to Microsoft. They are couching this as "You are way under-estimating the value of the company." But really this comes down to fit. Yahoo sees Microsoft as, if I can steal from Star Trek, The Borg and they don't want to be assimilated!

The only issue is they might not have a choice. Microsoft has put out an offer to the level that Yahoo can't just say no to and walk away. Shareholders are going to want to understand how they are going to deliver that value to them then.



Here are their options:

• Sell to someone else - Unfortunately the other potential suitors don't want to pay this sort of premium, and Google can't buy them. The FTC would never allow it due to competition issues. No White Knights around.
• Go Private - A LBO, or Leveraged BuyOut. Fine a year ago, not the credit markets are dried up, especially at the leverage this deal would take!
• Piece off the Company - They could try to sell of chunks of the company to pay off the shareholders. Unfortunately it just weakens them further!
• Get the Government to kill the deal - My guess on how they will go. They will get Google's help here as well. This is the "Evil Empire" Defense. Given Microsoft's background as a strong armer it is probably their best chance to keep an independent Yahoo!

This is like a very large version of when Oracle was going to buy PeopleSoft. They were hated competitors and tried to fight it off. But eventually the economics made too much sense. Same deal here, they can fight it, but it is the shareholders that they have to convince. And if you have a chance to sell at 60% over the recent low what are you gonna do...

I am not a professional advisor at all, but unless something whacky happens...this is gonna happen.

Personal Finance QuickTake: PayPal Rule Changes

PayPal rankled many of its customers by hiking fees and various recent policy changes. One was particularly irritating: eBay's plan hold payments sent through its PayPal payment service for up to 21 days in certain circumstances. Basically the freeze will apply to accounts that eBay believes are high risk. Holding on to the funds makes refunds faster to return if there are issues. The question is; "What is high risk?"

According to the report, you Feedback can be one way to hold up the payment process, to the point where 2 negative comment in a 30-day period, could hold up your payments. As the article asked: Can PayPal legally freeze funds at will for up to three weeks? The answer is yes. While PayPal offers interest-bearing accounts, debit cards, and other trappings traditionally associated with banks, it legally isn't one.

A lot of Bloggers are eBay sellers and traders as well and while I would like to see buyers protected, I hope those who are honest don't get punished!

How about you? Will this affect you and if so how?

Personal Finance QuickTake: Rebate Compromise

It looks like we will get a tax rebate this summer after all! Today the Senate worked out a deal that adds a benefit for disabled Veterans an the elderly.

The rebate would still be $600 for individuals and $1200 for couples. The Senate plan would also cut business taxes in hopes of reviving the economy. Individuals making up to $75,000 a year and couples earning up to $150,000 would get rebates.

They are going to try to get the Bill to President Bush to sign as soon as possible in order to start mailing checks as soon as May. Thirty-three Republicans joined 46 Democrats and the Senate's two independents to pass the measure. Sixteen Republicans voted against the plan.

Here is a link to a calculator for a potential rebate.

I habve to say that I am surprised that they worked this out so quickly, but it seems that someone (Pelosi) brought the Senate to their senses that derailing this would be really bad politically.

Personal Finance QuickTake: AOL

While the Microsoft Battle rages on it seems like thinks are a bit quite on the AOL front. Give no doubt that Microsoft and Google will go tit for tat if needed.

My guess is that if it looks like Microsoft will get Yahoo, my gut is that someone makes a play on AOL. AOL has been a drain on TimeWarner's stock since the merger. They keep trying new business plan but don't have the traction.

However, they do have traffic. AOL is still the #45 web site in terms of reach according to alexa.com. But more importantly it has two thing Google wants; a great content brand name and a very popular email source. Imaging the Gmail/AOL market share...Nice!

If Google does go for it, perhaps NewsCorp will. They have done a wonderful job monetizing mySpace (regardless of what you feel about the looks). AOL would be a great content pick up and Murdoch doesn't want to be left out either.

So my guess is if TimeWarner was ever gonna sell this off, now is the time. Microsoft put a very high valuation out there for Yahoo, and if AOL can get 2/3 of that multiple they would be in great shape!

For all of our personal finance we might just get another shake up that often lead to more innovation and lower prices, which is great for all of us!

Personal Finance QuickTake: Microsoft to Buy Yahoo

Microsoft made an unsolicited $44.6 Billion bid for Yahoo today. Yahoo's stock has been weak lately as they continue to lose market share to Google and have failed to take advantage of internet advertising.

Microsoft's surprise offer of $31 per share is a 61% premium on where Yahoo's stock ended the day before.

For a while now it has felt like to me that Yahoo lost it's way. A few years ago they had the chance to buy Google for $2 Billion and passed it up, deciding to be a media company that had search as opposed to a search company that was expanding.

Google really had out maneuvered Yahoo, snapping up YouTube, creating and mastering AdSense, buying Blogger and Feedburner. Microsoft, with MSN has never been a serious competitor, but they do have deep pockets and are good at identifying niches that they want to grab market share with. This would be the largest acquisition in Microsoft history!

I think this is a great marriage if it happens, and the stockholders are going to demand it does! This really gives the web community a Pepsi to Googles Coke.

I am NOT anti-Google as I noticed I was sounding a bit, but without competition companies get complacent and innovations slow. I look forward to see what can happen with a strong competitor!

(photo by Reuters)