A few weeks ago, Robert Kiyosaki wrote an extraordinarily stupid article entitled "Playing the Mutual Fund Lottery". Kiyosaki tried to argue that buying mutual funds was akin to playing the lottery. Recently, the hapless son of rich dad disowned the article; now he claims that it was a joke written by a friend. Regrettably, the rest of the world lacked his subtle sense of humour, and couldn't pick up on his joke.
However, his most recent article shows an almost equal lack of understanding about the world of finance. This week, he tells us about another financial piece of wisdom, passed on to him by his mythical rich dad - the investor food chain. At the top of this chain we find the capitalists, followed by the bankers, then the bondholders, stockholders and mutual funds, with the workers sitting at the bottom. It is a perspective that Lenin and Marx would have endorsed; happy rich guy at the top, miserable worker at the bottom. The key question Kiyosaki poses is "where on the food chain are you?".
Kiyosaki uses this dubious line of thinking to argue against mutual funds. He points out that "mutual fund investors are just above the bottom" and therefore inferior to banks and bondholders. In his uniquely clueless and incoherent way, Kiyosaki seems to be telling his readers that if they can't be capitalists, they shouldn't invest in equity but should choose fixed-income instead. He talks of the "power of debt in contrast to equity" and that "debt holds a higher position than equity, and bankers and bondholders are in debt positions. Preferred stocks, stocks, and mutual funds are in equity positions". Hopefully, most investors, even the amateur ones that Kiyosaki so contemptuously derides, know the difference between equity and debt.
If only it were as easy as Kiyosaki suggests. The problem, however, is that the returns of fixed-income assets haven't been that impressive in the last five or so years. Certainly, the risks associated with fixed-income assets have been low, but returns have barely kept up with inflation. Until comparatively recently, equity hasn't done much better. Meanwhile some mutual funds have done well, while others have done badly.
I love reading Kiyosaki's articles. His advice is so painful and so self-evident that it is hilarious Obviously, he understands real estate investing when housing prices are in the midst of a bubble. He runs into serious problems when the bubble bursts, and it's obvious to the whole world that real estate investing is a certain money loser. The housing crash has forced him to write about the more complex and wider world of investing. However, his lack of understanding is cruelly exposed. What he knows, everybody knows, and it is hardly worth saying. Keep reading his column, you will learn nothing useful about investing, but it will give you a unique insight into how the amateur property developer reconciles himself to a world of crashing real estate prices.
What were US financial regulators doing when the subprime market was spinning out of control? Answer: sweet FA, nothing; they were sitting in their offices drinking coffee and waiting for the monthly paycheck.
Once the subprime market began to crash, what does the Fed do? Why, it does what bureaucrats do when confronted with a crisis; it writes a report. Nevertheless, the report does contain some useful information. For example, no one has been censured for violating fair lending laws; half of all foreclosures are subprime borrowers; and minorities are invariably the victims.
(Bloomberg) -- The U.S. agencies that supervise more than 8,000 banks haven't censured any of them for violating fair-lending laws, three years after Federal Reserve researchers began assembling data showing blacks and Hispanics are more likely than whites to be saddled with high-priced home loans.
Minorities stand to be hardest hit by rising delinquencies and foreclosures in subprime loans. While Census Bureau data show that homeownership rates rose to records among blacks in 2004 and among Hispanics in 2005, they still trail whites by 25 percentage points, and the gap may widen in the current bust.
"Black people and Hispanics have been targeted,'' said Alphonso Jackson, secretary of Housing and Urban Development, whose department is hiring to expand its own probe of discriminatory lending.
Subprime loans -- those made at higher interest rates to people whom banks consider risky or who have sketchy credit histories -- accounted for more than half of the home foreclosures in the fourth quarter of last year. The Fed's review, conducted by economists from its research and statistics division, covered lending data from 2004 and 2005, the first two years of expanded disclosure requirements for banks and the final two years of Alan Greenspan's tenure as chairman.
Fed researchers singled out 470 lenders for closer scrutiny over two years, with some lenders showing up in both 2004 and 2005. The Fed has turned the names over to the relevant regulators and other authorities, including in some cases state officials.
The supervision of America's 8,650 banks is split among five agencies: the Fed, the Office of Comptroller of the Currency, the Office of Thrift Supervision, the Federal Deposit Insurance Corp. and the National Credit Union Administration. Each has the power to uphold fair-lending laws and to punish offenders.
None of the five national regulators has published an enforcement action based on the data, according to agency spokespeople. Some lenders have been referred to the Justice Department for possible action, and investigations are continuing.
Consumer groups say minority neighborhoods may be intentionally marketed for high-cost loans by non-bank lenders, while poor financial literacy among low-income borrowers may lead to wrong choices. A legacy of discrimination that has kept minorities from owning assets, building wealth and improving credit history may also put them at a disadvantage when loans are priced.
FDIC Chairman Sheila Bair said she is troubled by the data and may act on two cases. "I don't believe, and I don't know that I have ever heard my colleagues say, that these disparities -- and they are significant -- can all be explained away through risk-based pricing,'' Bair said in an interview in Washington.
Consumer advocates using the Fed figures in their own research assert they do find evidence of discrimination. The Center for Responsible Lending in Durham, North Carolina, last year took the same mortgages analyzed by the Fed and matched them with its own proprietary information. The new data subset, of 177,487 subprime loans made in 2004, included credit scores, loan-to-value ratios and property locations.
The model concluded that African-American and Latino borrowers were more likely to receive higher-rate loans than white borrowers with similar risk. The mortgage industry disputes the center's conclusions. ``We have some real questions about the accuracy of that study,'' said Douglas Duncan, chief economist at the Mortgage Bankers Association in Washington. He called the loan match-ups a ``crude approximation.''
Kevin Petrasic, a spokesman for the Office of Thrift Supervision, said no violations were found in the 20 lenders under his agency's jurisdiction that showed disparities along ethnic lines in 2004. The National Credit Union Administration fined some institutions for filing their loan reports late, according to spokesman Justin Grove.
The Fed itself conducted a fair-lending review of several of the 35 lenders it supervises that it had flagged for 2004, according to spokeswoman Susan Stawick. Of the 45 institutions that surfaced in 2005, examiners did ``a full risk assessment for pricing discrimination on each,'' she added. The central bank is now studying figures for 2006.
The Justice Department's 2006 fair-lending report shows that one Fed referral on red-lining -- where a lender refuses to write mortgages in certain neighborhoods -- remained under investigation. Stawick said the central bank referred a discrimination case this year.
How the mighty have fallen; Goldman Sachs is hurting over the subprime crash. Its fixed income division took a beating over stupid investments in the US housing market. The bank should have stuck to doing business with its wealthier clients, who in constrast to subprime borrowers, tend to pay back their loans.
(UK Telegraph) Goldman Sachs and Bear Stearns highlighted the problems in the US sub-prime mortgage market as both brokerages suffered large declines in their fixed-income trading businesses.
Goldman Sachs reported a 24pc drop in its fixed income division, limiting overall second-quarter profits to a 1pc rise to $2.33bn (£1.18bn). Although the figure beat Wall Street expectations, Goldman Sachs has become used to blowing forecasts out of the water and failed to beat the record numbers of the first quarter.
The dip reflected "continued weakness in the sub-prime sector", the company said, as well as tough comparisons from last year when it sold some of its electricity assets.
This is a sad story, so to speak. Americans are more miserable than Europeans. We might have larger wage checks, but Europeans have more vacations and more friends. So it is better to be a socially successful lazy bum, than a lonely workaholic. I could believe that.
What America needs is a comprehensive social security safety net like the ones they have in Europe. We need large unemployment benefits, a free public health care system and generous pensions. Then on Monday, I could pack in my job, and hang out with my buddies all day long.
(Reuters Life!) - Americans are less happy today than they were 30 years ago thanks to longer working hours and a deterioration in the quality of their relationships with friends and neighbors, according to an Italian study.
Researchers presenting their work at a conference on "policies for happiness" at Italy's Siena University honed in on two major forces that boost happiness-- higher income and better social relationships -- and put a dollar value on them.
Based on that, they concluded a person with no friends or social relations with neighbors would have to earn $320,000 more each year than someone who did to enjoy the same level of happiness.
And while the average American paycheck had risen over the past 30 years, its happiness-boosting benefits were more than offset by a drop in the quality of relationships over the period.
"The main cause is a decline in the so-called social capital -- increased loneliness, increased perception of others as untrustworthy and unfair," said Stefano Bartolini, one of the authors of the study.
"Social contacts have worsened, people have less and less relationships among neighbors, relatives and friends." He and two other Italian researchers looked at data from 1975 to 2004 collected by the annual General Social Surveys that monitors change in U.S. society through interviews with thousands of Americans.
By contrast, it appeared that based on the limited data available the happiness trend had remained largely stable in Europe, which had apparently avoided some of the changes in the American workplace like longer hours and more pressure.
"The increase in hours worked by Americans over the last 30 years has heavily affected their happiness because people who are more absorbed by work have less time and energy for relationships," said Bartolini.
"Another important cause is that American society in the last 30 years has experienced a huge increase in competitive pressure compared to Europe. It's easier in the United States, if you belong to the middle class, to become poor than you would in Europe. This creates a state of insecurity."
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It isn't often that the Washington Post produces an alarmist article on the Housing Market. Over the last couple of years, the newspaper has earned the reputation for being the trade journal for the regions realtors. However, this story on the foreclosure rate certainly won't please many of their real estate advertisers.
According to the post, the foreclosure rate is running at historically high levels "The percentage of US mortgages entering foreclosure in the first three months of the year was the highest in more than 50 years." This is shocking stuff
The post also provided a nice graphic illustrating the key foreclosure numbers. And indeed, those foreclosure rates do little rather high.
If you find yourself squinting at the graphic, click on it and it will expand in another internet explorer window.
Consumer prices climbed 0.7 percent, the biggest increase since September 2005, led by a jump in gasoline costs. They were up 2.7 percent from the same time last year. These are bad numbers.
However, the Fed aren't looking at the CPI. Those bozos are looking at "core inflation", which excludes food and energy. These numbers show only a 0.1 percent rise in prices.
Lets get our concepts clear here; what is core inflation? It is a useless irrelevant measure that excludes all the prices that matter to ordinary Americans. It is con, a scam, a nonsense and a joke. Pay no attention to it. It tells us nothing about inflation. Do you know anyone who doesn't eat or doesn't need fuel?
Core inflation is a distraction. Rather than focus on the real issue, i.e. rising prices, the Fed tracks this meaningless index. The Fed would like us to believe that gasoline and food price increases are something that simply happen by accident and that it has nothing to do with them. Let us remind ourselves how the Fed's monetary policy directly causes the prices of these key items to increase.
So, the lesson is simple; the Fed must raise rates and keep on raising them until they regain control of inflation.
However, that is unlikely to happen because Bernanke is soft on inflation. He is weak.
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How soon before we have 7 percent mortgage rates. Currently, the 30 year fixed is at 6.74 percent. Not long.....
CHICAGO (MarketWatch) -- U.S. mortgage rates jumped this week as a sell-off in the Treasury market pushed benchmark interest rates up sharply. Freddie Mac in its weekly survey Thursday said the national average on the 30-year fixed-rate mortgage hit 6.74%, up from 6.53% a week ago and the highest level since July 2006.
"Mortgage rates moved sharply upward this week, with rates on 30-year fixed-rate mortgages jumping more than 20 basis points, the largest upward movement in over three years," said Frank Nothaft, "These moves parallel rising yields on Treasury securities, as concerns about inflation pressures and continuing strength of consumer and business spending have dimmed hopes for an interest rate cut," he said.
Three other loans tracked in the Freddie Mac survey also hit 11-month highs. The 15-year fixed-rate loan, a popular refinancing choice, hit 6.43%, up from 6.22%, its highest level in 11 months. A year ago the 15-year averaged 6.25%.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 6.37% versus 6.24% a week ago. A year ago the loan averaged 6.23%. One-year Treasury-indexed ARMs averaged 5.75%, up from 5.65% and above its year-ago level of 5.66%.
The two fixed-rate loans required the payment of an average 0.4 point to achieve the interest rate; the hybrid needed 0.5 point and the ARM 0.7 point. A point is 1% of the loan amount, charged as prepaid interest.
The spike in mortgage rates comes at a bad time for the housing industry, as home builders struggle with excess inventory and sales of existing homes slump. Home prices are also falling in many markets. And the Mortgage Bankers Association Thursday said new foreclosures hit a record in the first quarter.
How soon before we have 7 percent mortgage rates. Currently, the 30 year fixed is at
CHICAGO (MarketWatch) -- U.S. mortgage rates jumped this week as a sell-off in the Treasury market pushed benchmark interest rates up sharply. Freddie Mac in its weekly survey Thursday said the national average on the 30-year fixed-rate mortgage hit 6.74%, up from 6.53% a week ago and the highest level since July 2006.
"Mortgage rates moved sharply upward this week, with rates on 30-year fixed-rate mortgages jumping more than 20 basis points, the largest upward movement in over three years," said Frank Nothaft, "These moves parallel rising yields on Treasury securities, as concerns about inflation pressures and continuing strength of consumer and business spending have dimmed hopes for an interest rate cut," he said.
Three other loans tracked in the Freddie Mac survey also hit 11-month highs. The 15-year fixed-rate loan, a popular refinancing choice, hit 6.43%, up from 6.22%, its highest level in 11 months. A year ago the 15-year averaged 6.25%.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 6.37% versus 6.24% a week ago. A year ago the loan averaged 6.23%. One-year Treasury-indexed ARMs averaged 5.75%, up from 5.65% and above its year-ago level of 5.66%.
The two fixed-rate loans required the payment of an average 0.4 point to achieve the interest rate; the hybrid needed 0.5 point and the ARM 0.7 point. A point is 1% of the loan amount, charged as prepaid interest.
The spike in mortgage rates comes at a bad time for the housing industry, as home builders struggle with excess inventory and sales of existing homes slump. Home prices are also falling in many markets. And the Mortgage Bankers Association Thursday said new foreclosures hit a record in the first quarter.
Does anyone out there still think that interest rates are coming down anytime soon. Forget it, inflation is still running around out there. The latest bad news came from wholesale prices, which screamed ahead in May. The monthly increase was 0.9 percent. That is almost a full percentage point increase in just one month. A few more months like May, and the US will have something like double digit inflation.
Bernanke and the gang must have needed a toilet break when they heard about these numbers. To put it mildly, the Fed must have a few concerns about continuing inflation risks. The question is whether they have the backbone to put in anothe rate rate. The economy certainly needs one.
The bond market knows what to do, even if the Fed has lost the plot. The data sent US government bond yields back up to near five-year highs. The benchmark US Treasury 10-year bond yield rose to 5.23% after the US report was released, continuing their recent upward trend.
Hey! You've won a ride back to the top
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