Welcome to Financial Spiderplant!

While many of us face 401K values as much as 40% lower than they were 12 months ago, one fund (Lahde Capital Management) managed to produce a return of 866%. Primary strategy : Bet against the subprime industry. While 350 hedge funds have imploded this year, Andrew Lahde referred to their management as : “The low-hanging fruit, ie idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking,” he wrote. “These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government,” His final words upon leaving his fund to enjoy life? “Throw the Blackberry away and enjoy life.”

How can a fund produce an 866% return? The leverage that was used to create large amounts of wealth during the bull market was used by a short seller during a bear market.
The interesting thing about leverage is that it allows for the market to reach equilibrium at a hyper accelerated state; that is why the markets were able to fall in price so quickly and why they will be able to rebound at the same rate. The increased rate at which information can be acquired, shared, and analyzed has allowed for a faster reaction in all mediums of exchange.

The ability to adjust quickly is an essential force in the free market. From the fisherman in Bangladesh making a couple quick phone calls to determine a fair market value for his catch (vs accepting whatever was offered) to the ability to calculate a ‘fair market value’ for a house by viewing recent home sale prices, knowledge IS power and when all information is readily available to all, are we not all empowered to the same degree?

I’ve lost count of the times I given up on you
But you make such a beautiful wreck, you do

We are a country with a negative savings rate, low 401K values across the board, and according to a recent panel discussion I attended hosted by The Committee For a Responsible Budget, we’re headed to a projected unemployment rate of a conservative 7% and a realistic 8%. (We’re projected to lost 80,000 jobs/mth with 750,000 jobs lost year to date.) In march of 2007, our unemployment was 4.4% and today it as at 6.1%. It can and will get worse. We are setting up a course for a weakened dollar in order to increase our net exports but will it be enough? We use twice the energy per capita vs developing nations and are energy efficient, and 50% of current households had at least 82% of their assets (car, home, etc) leveraged. The savings rate is rising and Americans are paying down their debt for their debt for the first time in years. We’re buckling in for the long haul and according to Donny Deutsch (host of CNBC’s The Big Idea) and Jim Cramer, frugal is the new black.

Well all the plans that you made from seven years ago
Like all the promises you made I watched them come and go
You put your keys in the car but it wouldn’t drive
With your hands on the wheel, lookin’ barely alive

The characteristics of the ‘new elite’ will be those who can spend less than they earn and invest more than those who continue to live with an entitlement mentality and beyond their means. We’ve required long term transparency in personal and company finances and the requirement is now more clear than ever.

Is housing the problem or the symptom of the problem? As one of the experts said in allusion to the famous quote from When Harry Met Sally : Economies don’t break up on account of just housing, it is just a symptom of the problem, but that symptom is destroying our economy. So, our banks made some tremendous mistakes by lending money to individuals with little/no money, a lack of financial literacy, and the inability to repay these loans. These sub prime loans were then ’sliced up with the good meat’ and put into a ‘mortgage backed security sausage’ and given ratings that they didn’t deserve. Foreigners no longer desire our ‘bad sausage’ and are not buying private assets in the United States at the same rate they were less than a year ago. They are buying our government debt though, creating a dependence on foreign investment through our need of monetary injection into just about every community in our nation.

We are reaching a critical point in our economy where government revenue must cover the increasing costs of interest on our debt, Medicare, social security, and tax expenditures. All of these are increasing and as with any public or private institution, circumstances with negative cash flow cannot exist indefinitely…yet we are talking about decreasing taxes and increasing our expenditures. Global prices of goods and commodities are decreasing…and will continue to decrease. In an attempt to keep their unemployment from decreasing, emerging economies continue to produce their wares to a market that isn’t buying them. As supply increases, these prices fall…but will prices fall faster than the value of our currency?

In order to account for our current situation, will we see Sarbanes Oxley on steroids as the end result? Are we sowing the seeds of the next asset bubble? Will Americans retreat to connect with what is real in live of will they continue to live beyond their means? Medicine of flat screen? More stimulus AND lower taxes or allowing the markets to regulate themselves?

I guess the real question will become whether America continues to be the one that nations turn to when they have problems, even if we are the source of the problem, or if we will se a fractionalization of our global system and a greater retreat to isolationism and protectionist measures….

I’m still sitting here waiting on the passenger side
For you to make up your mind
I’ve lost count of the times I given up on you
But you make such a beautiful wreck, you do

The national debt clock was created by Seymour Durst (which happens to anagram into Mussed Our Try…coincidence?)
in 1989 to publicly track our debt (then $2.7 Trillion)

It was bad enough when we had to remove the $ sign in our debt clock in September for room, now we need to add a few more spaces to make room for our expanding debt.

The new clock will be able to track our national debt up to a quadrillion dollars, which should be enough to last at least…a couple years?

The scramble for solid footing. We’re going through a tough time with our economy and the solution isn’t to go at it alone…we’ve got to go at it together.

The Community Reinvestment Act was created in 1977 as ‘icing on the cake’ after the 1964 Civil Rights Act, Fair Housing Act of 1968, and the Equal Credit Opportunity Act of 1974. The basic goal of the act was to increase the ability of African-Americans to achieve the dream of home ownership that was consistent with “save and sound lending practices” which included income, debt load, and the overall ability to repay loans.

Banks started lending money, people started buying houses, and the new CRA ratings were representative of a bank’s lending practices regarding minorities. Yes, the banks were making money in closing costs but they were also fronting the money for a home with the expectation of repayment. More money was lent to high risk candidates that was needed, people started defaulting, and the most reasonable expectation should have been to tighten loaning practices….instead, Fannie and Freddie came in to spread the risk via mortgage backed securities which were often viewed as a form of fixed income with low risk.

Home ownership since the 1970s has increased in every demographic but this statistic has only increased from 42% to 47.2% among African-Americans. Over $1 trillion loaned through the CRA has made an impact but has it made the impact that was intended?

Loaning money based on inputs that help determine an individual’s ability to repay is the most effective way to assure a growing economy, increasing bank assets, and wealth creation of American citizens. But what about the financial literacy of the candidates in question? If you walk out and start loaning money to people who don’t have a down payment but have a job, can they ‘afford’ a house?

Lack of a down payment suggest one of two things, the individual is too young to have saved a down payment or they do not have the financial literacy to balance their budget and save. How can someone be expected to step into the role of a financially responsible person just by moving them into a house and slapping their name on a deed?

We got ourselves into this mess together..and now we’ve got to get out of it together. Hopefully we’ll be a little smarter the next go round.

What Constitutes an Emergency?
-a sudden unforeseen crisis (usually involving danger) that requires immediate action
-An emergency is a situation which poses an immediate risk to health, life, property or environment. Most emergencies require urgent intervention to prevent a worsening of the situation

If an emergency happens, you had best be prepared…if it is a financial emergency, you better have some spare cash that is readily accessible. An emergency isn’t getting invited to a friend’s wedding and not having the travel money, it is when you won’t be able to make basis ’survival standards’ including rent payment, food, and travel to work. It can also be something that will dramatically change the course that you have been plotting in life.

What starts as a feeling
And grows into a hope
Which turns into a quiet thought
Which turns into a quiet word
And then that word grows so loud
That is becomes battle cry

Anything that compromises the integrity of your battle cry might be considered an emergency. Most of us aren’t ready for a real financial emergency, much less a financial crisis. As a nation, Americans have largely chosen the lifestyle of carrying a large debt load with small retirement contributions and less than 1 months of a cash cushion in their checking account. Many don’t even hold a savings account, much less fund it on a regular basis. Why save now when you can spend today and save tomorrow?

Major banks are falling, small business can’t get loans, and the fed has ‘wisely’ chosen to keep interest rates at 2.0% despite encouragement to lower the rates to help raise the availability of cash. When interest rates fall, people save less while spending and (hopefully) investing their cash in lieu of interest rates that cannot even match inflation. Interest rates will likely fall within the next 3 months…bringing lower rates to banks borrowing money…but the only true effect on the general customer will be a lower credit card APR and less interest on their savings accounts.

Just because everything’s changing
Doesn’t mean it’s never been this way before
All you can do is try to know who your friends are
As you head off to the war
Pick a star on the dark horizon
And follow the light

The markets have been falling at a steady clip, many aren’t sure whether to invest, buy CDs, buy/sell their home, or just stick their head in the sand and hope that it will somehow work out. The cumulative effect on investment accounts is felt by anyone logging into an account and the effect on the increasing unemployment rates during a time of economic uncertainty has led to more people cashing out their 401Ks as they switch jobs or find ‘a better use for their cash.’ Whether they took the money out to pay down consumer debt or make a mortgage payment is irrelevant. Those people are taking money out of a tax exempt/tax deferred accounts, taking early withdrawal penalties and the tax hit that comes with such an action.

Personal Rate of Return from 01/01/2008 to 09/15/2008 is -26.7%

COME ON!!! A 26.7% loss in the value of my 401K. Most would be pretty pissed and the thought makes my stomach drop until the introduction of a moral premise.

If you know that something will be at the value of $100 in the future (maybe more)…what price will you be willing to buy that object at? Without taking into account opportunity costs, inflation, and all that other stuff that economists use to support or skew their figures…most would argue that a reasonable choice would be to purchase at a price level below $100. But what if you could choose the price you bought at…would you choose a price that was much lower? I know I would! I’d hope for a price as low as possible and buy up all I could and wait til the price hit $100.

Now we’re back to the beginning
It’s just a feeling and no one knows yet
But just because they can’t feel it too
Doesn’t mean that you have to forget
Let your memories grow stronger and stronger
‘Til they’re before your eyes

The economy of the United States has been hit hard before and it always comes back stronger than before. It will come back again and it will come back stronger than before. Right now, the markets are tapping out the weak hands and as we rush for the exits with the cash we can raise selling at bargain bin prices that are continuing to fall.

Get out? Go Deeper? Stay your chosen course? Hopefully, when you were doing those nifty 401K contribution calculations, you didn’t actually think that the markets would return 7-12% annual each year without a year at least moderate loss. Individuals that are currently retired or aiming to retire in 3-5 years aren’t in the ideal situation, but for young adults getting started, this is the best time to be buying.

Regular contributions or even accelerated ones are just as important when the markets are falling, not just when they are rising. Every unit you buy at a lower price reduced your overall cost basis…every dividend buys more shares. The biggest question becomes whether or not your time horizon can take the turbulence that we are currently facing and if your dealing with a 10+ yr time horizon, keep socking away the same percentage of your salary that you would if nothing happened.

Long term, we need to stay the course we’ve chosen, be aware of the circumstances that may challenge us, and seek to overcome them with strategy. Sometimes, the best strategy is to do nothing. Do now let when you cannot do interfere with what you can do.

“Requiem For A Soldier”

We are all one great band of brothers
And one day you’ll see - we can live together
When all the world is free

From this day to the ending of the world,
But we in it shall be remember’d;
We few, we happy few, we band of brothers;
For he to-day that sheds his blood with me
Shall be my brother; - Henry V, Eve of Saint Crispin’s Day speech

What does freedom mean to America
When those from our country rise
To the occasion of a fight
What is the present mentality

When individuals sacrifice
Beyond that which can be expected
By common man
When you choose to give to those who take

A sacrifice must be recognized by that which is gained
And by that which was its cause for defense
To realize that weakness gives another advantage
To realize that strength does lie in weakness

But without protection
Without that to sacrificefor that
Which we hold dear as a society
We will be unable to sustain ourselves

Our society has been built on a specific set of ideals
There is but one certainty
The cause for which some sacrifice their lifes
Is valiant despite circumstance

But what about justice
What is deserved
And what is fair
How can justice and valiance strengthen a society

How can certain moral premises strength our future?
How can assumptions with a false base weaken us?
What are we willing to endure for a world without freedom?
Does the man who is unwilling to sacrifice for freedom deserve it?

I received more Kiva loan repayments this week!

These loan repayments will be relent out primarily to groups of entrepreneurs who back each other’s credibility and assure a 100% loan repayment rate.

Since the creation of Kiva on October 12th, 2005, over $42 million has been loaned to individuals seeking to grow their existing businesses. 77.63% of these loans are made to women, the average loan is funded in 1.55 days, and takes 10 months to repay. The downside? The average interest rate of the loans is 22.65%.

While 22.65% is considered excessive for a business loan in developed societies, it is a godsend in areas where the only alternative is to turn towards loans that have even higher rates.

In the past week at Kiva :
-10,368 lenders made a loan
-1,859 entrepreneurs were funded
-1 loan was made every 26 seconds
-2,810 new lenders joined
-$773,675 was loaned!!!

A large percentage of the amount loaned in the past week was through the power of compounding. As loans were repaid, lenders received the money that they initially lent and were able to lend out to new entrepreneurs seeking capital.

The Dickinson College Lending Team has now been created. To get into the Top 10 of lending teams, more than $6,450 would need to be lent. A new long term goal?