Month: June 2009

Economy and Your Finances Carnival June 7 2009

Image by XaV

Welcome to this edition of the carnival, as usual, there are some great entries here and should make for some great Sunday reads.

Debt

Super Saver presents Saying Bye Bye to our Mortgage posted at My Wealth Builder.

Jeff Rose presents Should Father Open Line of Credit To Help Son? posted at Jeff Rose.

NetBiz presents How To Negotiate Credit Card Debt posted at Your Finish Rich Plan, saying, “These days credit card companies are much more open to negotiation”

nickel presents Beware the “No-Cost” Mortgage Refinance posted at fivecentnickel.com.

Four Pillars presents Is Dave Ramsey A “Financial Expert” posted at Quest For Four Pillars, saying, “A discussion of Dave Ramsey and his methods.”

Darwin presents 40 Year Mortgages – And 50 & 60 Year Mortgages While We’re at it posted at Darwin’s Finance, saying, “This article highlights little-known 40 year mortgage loans, pros, cons and covers how even 50 and 60 year loans exist now.”

Nancy Miller presents 25 Simple Tricks to painlessly cut $100 /mo from Your Spending posted at Online University Lowdown.

Economics

Scott H presents 10 Economic and Business Pro Tips from World of Warcraft posted at College and Finance, saying, “The economic recession, investor panic, and the numerous bailouts might have been avoided if only CEO’s and Wall Street traders weren’t n00bs, and had played World of Warcraft to learned these Pro Economic and Business lessons.”

TIE presents Pre-Theater Dinner Auctions posted at The Finance Buff, saying, “The Incidental Economist contemplates how to motivate diners in a crowded restaurant to give up their tables.”

Investments

Patrick @ Cash Money Life presents How to compare online brokers posted at Cash Money Life, saying, “Tips on how to find the best online brokerage for your needs.”

Patrick @ Military Money presents Roth Option for TSP Close to Reality posted at Military Finance Network, saying, “A new retirement investing option for military members and government employees is about to become a reality.”

ABC presents Investment Time Horizons for Retirees posted at ABCs of Investing, saying, “Discussing investment asset allocations and time horizons for retirees.”

Silicon Valley Blogger presents Online Discount Brokers: SmartMoney Broker Survey posted at The Digerati Life

The Smarter Wallet presents Technical Trading Indicators Predict That The Stock Market Rally Won’t Last posted at The Smarter Wallet, saying, “Will this stock market rally last? Are the good times back?”

Zach Scheidt presents Genco Shipping – Coming Out of Hibernation posted at ZachStocks, saying, “Genco Shipping & Trading Limited (GNK) is breaking out of a long base as investors expect an economic recovery. The stock may have room to run with an attractive valuation”

Investing School presents TradeKing vs Scottrade – Online Stock Trading Comparison posted at Investing School, saying, “Many people ask me whether Scottrade or TradeKing is better. Here’s a comparison for you.”

Personal Finance

Flea presents Be A Survivor: 15 More Simple Ways To Save Money posted at Be A Survivor.

Wealth-Ed presents Can American Banks Bounce Back posted at Wealth Education – Investment Ideas Personal Financial Advice.

jared presents General Growth Continues Restructuring Efforts posted at Wealth Education – Investment Ideas Personal Financial Advice.

Praveen presents Easy Ways to Generate Cash posted at My Simple Trading System.

Ben presents 5 Money Rules from Liz Weston posted at Money Smart Life.

Matthew Paulson presents 4 Reasons to Question Buying a Vehicle from GM or Chrysler posted at American Consumer News.

PT presents High-Yield Savings Account Mini-Reviews posted at Prime Time Money, saying, “What you need to know about the online, high-yield savings account options.”

Patrick @ Money Saving Deals presents $50 ING Checking Account Bonus posted at Cash Money Life Deals, saying, “Get $50 for opening a new ING Electric Orange Checking Account.”

Lucy presents Basic Kinds Of Honeymoon Resorts posted at Wedding Tips, saying, “Intro to different honeymoon ideas.”

SpendingIt presents The Three Biggest Opportunities to Save Money posted at Spending It.

David presents Fidelity Rewards American Express® Cards | 2% Cash Back posted at Credit Card Offers IQ, saying, “The Fidelity Rewards American Express card pays 2% cash back on all purchases. Rewards are deposited into a linked Fidelity IRA, 529 or brokerage account.”

The Dough Roller presents List of Low Interest Credit Cards posted at The Dough Roller, saying, “Even in a difficult credit market, low interest credit cards can still be found. Here’s a review of some of the top low interest rate credit cards.”

The Budgeter presents Let the Bad Press on the Economy Work in Your Favor posted at Keep Your Cash, saying, “The recession, while painful, can help you find bargains when you are out shopping.”

John R. presents What the Credit Card Bill of Rights Means for You posted at Live Money Smart, saying, “The Credit CARD Act of 2009: What it is, and how it will affect you and your finances.”

MoneyNing presents How to Save Money on Your Wedding posted at Money Ning, saying, “We go through the big day at least once but many people think it’s one of the most expensive days of our lives. Here are some tips that will help reduce the expenses of this important day.”

Mike presents The Collapsing Treasuries Market Is Signaling Change posted at Bear Market Profits, saying, “The yields on government bonds are rising and this will alter the markets.”

David presents Discover Card Doubles Rewards for Military Families posted at Credit Card Offers IQ, saying, “Discover Card is doubling cash back and points rewards this summer for families in the military.”

Raag Vamdatt presents Birth of a child – how should your financial planning change? :: RaagVamdatt.com :: Financial Planning demystified posted at RaagVamdatt.com.

Chris presents Expenses that come with owning your first home posted at Home I Own.

MoneyNing presents Coupon Tip – Making Sure It’s Always Available posted at Money Ning, saying, “Sometimes, a simple tip can really save you tons of money.”

Woman Tribune presents How Newlyweds Can Minimize Financial Stress posted at Woman Tribune.

Debt Wizard presents The Best Credit Card Is A Check Card posted at Money Help, saying, “It is better to get used to using check cards than credit cards for your everyday spending.”

ChristianPF presents What is the best way to save money? posted at Money in the Bible | Christian Personal Finance Blog, saying, “What is your favorite money saving tip? Share it to enter to win a $40 Amazon.com gift card…”

That concludes this edition. Submit your blog article to the next edition of OneMint – Economy and Your Finances using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

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Interesting Reads 6th June 2009

Liquid Link by Dezz

I am a little more active on Twitter these days, than I was  before. That’s because I have finally found some use for it. That is sharing links and going through links that others share. I could never understand why someone would want to know what I was doing in less than 140 characters, so I had stayed away from this medium till now. But link sharing is just fine, you can follow me by clicking here. My username is ‘manshu’.

Here are some interesting articles that I read this past week.

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Marginal Propensity to Consume

If you get a 100 dollar raise and spend 80 dollars out of it, then your Marginal Propensity to Consume is 80/100 or 0.80.

If you break up the term – Marginal Propensity to Consume – you will find that the Marginal stands for the fact that this number deals with an increase in a base, Propensity stands for a “tendency”, and Consume stands for money that you will go out and spend.

So, in effect, it is a fraction that describes how likely you are to spend any extra money that you get, as opposed to saving it. The higher the number – the more likely you are to spend the extra money.

This number should always be between 0 and 1 because theoretically, you can’t spend more than you earn.

I don’t think that is always true.

In the past few years, I have seen several people who are buoyed by salary raises and spend more than the raise itself. It is not very apparent that they are spending more than the raise because sometimes the difference between capital and credit gets blurred and they get easy financing to boost their spending capacity.

There are several factors that impact a person’s Marginal Propensity to Consume and these are external as well as internal.

External factors that impact Marginal Propensity to Consume

  1. Recession: In recessionary times people are more likely to save their extra income than spend it. The US Savings Rate is at a 14 year high and this has a lot to do with the current great recession. Similarly, in times of boom, there is a general euphoria, which loosens the purse strings and people are more willing to spend than to save. So, the economic cycle has a lot to do with the Marginal Propensity to Consume.
  2. Social Security Net: In developed economies, there is a social security net that offers protection to people and they have something to fall back on. Most developing economies lack such a safety net and therefore people generally tend to save more. They know that in a rainy day, they will just have their own savings to fall back upon.
  3. Volatility: Countries which face more volatility than others will not have citizens willing to save or invest for the long term. The high inflation and volatility breeds uncertainty in people’s minds and they are more happy to spend today rather than save for tomorrow. They figure that the value of their money is going to down anyway because of the inflation or the next wave of depression so might as well have a good time now.

Internal factors that impact Marginal Propensity to Consume

  1. Nature of Raise: Last year the US Government issued stimulus checks to people in order to boost incomes, spending and stimulate the economy. This year, instead of stimulus checks, the government reduced the withholding tax and allowed everyone to get a little extra in their pay checks every fortnight. The rationale was that when you give a lump – sum to people, not all of them end up spending it and some save it. But, if you increase the amount they get every month, then that creates a semblance of permanency and people boost their spending to match their new improved income.
  2. Age: Younger people tend towards spending more than saving. Primarily because they don’t worry as much about retirement as older people do. Younger people generally have lesser responsibilities like children’s education and so there is lesser incentive for them to save than their older counterparts.
  3. Job Security: People working in sectors such as defense, government or medicine whose prospect of unemployment is low will have a higher marginal propensity to consume than freelancers and others who don’t have a fixed income and see fluctuating incomes from one month to the other.

Keynes wrote about the Marginal Propensity to Consume and here is what he had to say about the factors affecting the Marginal Propensity to Consume:

These eight motives might be called the motives of Precaution, Foresight, Calculation, Improvement, Independence, Enterprise, Pride and Avarice; and we could also draw up a corresponding list of motives to consumption such as Enjoyment, Shortsightedness, Generosity, Miscalculation, Ostentation and Extravagance.

You can click here to go through a description of the motives, but I thought the names were self explanatory and so didn’t list them out in detail.

Marginal Propensity to Consume is an interesting concept to think about in times where the economy needs spending but the environment is more conducive to saving.

What other factors do you think impact a person’s propensity to spend or save?

Photo Credit:  Knabbel Goes Shopping by Jpockele

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Where does all my money go?

Disappearing Act by Coffee Monster

Almost everyone has asked this question at one point, or the other. It seems, that you make a lot of money and then, at the end of the month – you find that you don’t have anything left in your bank account. You can’t think of any ‘big ticket’ items you bought in the month, but at the end of the month – there is nothing left.

I struggle with this all the time and so far the most effective way to tackle this has been checking my online bank account at least once every day.

I have made a conscious effort to pay for most of my purchases through my debit card, so that, it reflects in my online bank account almost immediately.

At the end of the day, when I go through my account, I can see all the debits that took place during the day. Instead of looking at the amounts – I look at the names and if there is something that I can’t recognize, it’s usually something that I could have avoided buying. So, the name of an unknown gas station helps remind me that the next time I fill up the car – I need to go straight in and out, no need to go inside the store.

I think the time I invest to recognize the name of the store helps register the purchase better in my mind. If I don’t even remember the name of the place that I spent money, how can I possibly remember the purchase itself?

So, the number of times I take the store address, as it appears on the bank statement and put that on Google Maps to take a street view, helps me immensely in registering that purchase and the act of spending.

This is probably the most important factor in why it helps me be a little thriftier – because the purchase registers, not when I actually made it, but when I look it up later.

The other major reason, why this helps me is that it shows me how my balance is dwindling and then the next time I am about to spend money – I sense that the number is going to go down a little and so there is a slight hesitation in my mind.

I know this is not very scientific and I think it won’t work well for most people, but somehow it works reasonably well for me. It’s beyond me to make budgets and use online tools and in the absence of that, looking at the bank statement every day proves quite useful.


Choose personal banking services for checking account and solution.

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FT: US Personal income shows surprise rise

From FT:

US consumers curbed their spending for the second month running in April, in spite of the first rise in income this year, as they continue to cope with the recession and fears of more job cuts.

Personal consumption expenditure fell by 0.1 per cent or $5.4bn last month, less than economists expected and a smaller fall than the previous month’s 0.3 per cent.

Incomes rose for the first time in four months in April, increasing by 0.5 per cent, or $58.2bn, and dashing predictions of another drop. Much of the increase, which was the largest in 11 months, was due to lower taxes and benefits from government stimulus payments.

Spending declines seem to be a new reality and will probably be a long term trend going forward. At least there has been a rise in income and that is always welcome.

Meanwhile the savings rate, which is measured as the proportion of income left after spending and taxes, rose from a revised 4.5 per cent in March to 5.7 per cent in April, a 14-year high. Economists predict that the savings rate could reach 8 per cent as household wealth has collapsed.

Savings rate is at 14 year highs and this may be another new reality, which is here to stay. Two bits of good news to start the month.

Disclaimer: Author is sneakily silent on the unemployment numbers.

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The Snowball: Warren Buffet and the Business of Life – Review

I had pre-ordered this book and was looking forward to the release quite eagerly. I love reading biographies and especially those of businesspersons. I have read each and every letter that Mr. Buffet has written to his shareholders and so I thought I would love this book.

I had anticipated a lot from this book and I am deeply disappointed. I will not recommend this book to anyone and after struggling with it for quite some time now I have given up hope of completing it.

The book is excruciatingly long and at times I felt it was written like an encyclopedia on Mr. Buffet. The book has got so many details on so many relatives that there lacks a theme or even a certain sense of drama in the story of the world’s greatest investor.

When you think of great biographies like “Dare to Dream” – Mr. Oberoi, “Every Street is Paved with Gold” Mr. Kim, “Made in America” Mr. Sam Walton, “Made in Japan”, Mr. Akio Morita ,”It’s Not About the Bike” — Mr. Lance Armstrong, and numerous others, you feel the drama that these great people have lived through, and as you turn the pages, your mind draws vivid pictures, which make you feel that you are close to the characters in a way that you can empathize with them and feel their sorrow and joy.

The Snowball painfully lacks such a voice and at best is a narrative, which attempts to record the events that happened to Mr. Buffet.

The best parts of the book are quotes from Mr. Buffet and things that he says himself, and quite honestly apart from that there is really nothing that can be described as “riveting”.

I think Mr. Buffet should really write an autobiography.

I wouldn’t recommend this book to anyone but if your expectations are not high then I think the 20 bucks or so that you spend on this book will not be wasted. I read a lot of reviews on Amazon and quite a few people seemed to enjoy it too and from the looks of it, people who were looking for details and wanted to “study Buffet” formed this majority.

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Interview With Weakonomics

Weakonomics is a great personal finance blog and I am really happy to present this interview with its creator — Philip. Since, he is a banking guy, I thought it would be great to ask some questions related to banking. He gave some great replies and I learned quite a bit reading his interview.

Please consider subscribing his feed. And here is the interview.

1. How do the bank insider’s view the current crisis, especially people who were working in departments that had nothing to do with the crisis, but saw the media go after banks as if they were all bad?

I can barely speak for myself, much less my bank or the industry as a whole, but I can share what I’ve learned from conversations I’ve had over the past couple of years.  Those of us not involved with the process were at first dumbfounded at the notion that another section of the bank could fail so badly that it drags down the rest of the company.  I’m unrelated to the credit problems, but my group has had layoffs and will likely have more as a result of these problems.  I could be gone next week, next month, or sometime during the next year.  Generally speaking, we’re tired of every conversation with friends and family revolving around the company we work for.

For those that were directly involved there is a lot of frustration. Everyone is responsible for this mess, but at the same time everyone can point to someone else to blame.  The mortgage guy can point to the risk guy who can point to the investment banker who can point to the CFO who can point to the CEO who can point to Congress who can point to their constituency.  I can make a compelling argument showing why each party played a role in bringing this down, but ultimately the entire system failed, so it needs to be revamped.

2. Did you see any signs that made you think that something is definitely wrong here?

It’s hard for even insiders to notice anything wrong.  There would have been a small minority that really had a chance to look at a loan portfolio and see the large amounts of bad debt, but even if that person had spoken up who would listen?  To a manager, all he sees is an ever increasing revenue stream that as of yet hasn’t let anyone down.  Just about everything I knew about the crisis and the impending worries in late 2006 and into 2007 I learned from media reports about increasing defaults and a looming bubble.

3. Do you see any shift in the attitudes of those working in the banking sector?

For us employees, we’re concerned about our job prospects.  I majored in finance and planned to spend my career in banking and investments, however for the next half-decade we’re going to see a greater supply of skilled banking employees and reduced demand for those skills.  Personally, I can’t say I trust the leadership in banks because there isn’t much initiative to establish leaders.  We have managers, presidents, and executives, but no one is taking an active interest in the welfare of the employee.  Not that we’re asking for any, but it would do a world of good in an industry where loyalty is already a least common attribute.

4. Do you think that the banks are still making or repeating some mistakes that they were before?

Without a doubt.  Someone close to me at work is getting divorced and buying a house, yet this person was still able to obtain an ARM with a 2 year fixed rate.  This person is just as likely to get laid off next week as I am, and this person got this loan because it was the only one they could afford.  I sure wouldn’t give that person a loan.  However this is simply a small example in a big pond of traditional banking.  Lending is down, banks are cutting customers that only have a loan with the bank (sometimes called single-service clients), campaigns to increase deposits are commonplace, and many of the bad products are no longer offered. These are measures needed to reduce a bank’s exposure to bad loans.  Banks will still fail, people will still get bad loans, but the banks have learned that the methods of the past are not a way to long-term profitability, and so for the most part they have learned their lesson (for at least a generation).

5. As a banking insider, do you have any advice for banking customers?

That’s a hefty question.  I’ll answer it in two parts.

A) The best advice you can get on your banking is to make friends with a teller or anyone that works in a glass office at a local branch.  I’ve never worked in a branch or directly with a customer, so I can’t offer too much.  Make no mistake though, when you walk into that branch, it is like walking into a car dealership.  Everyone there can make a dime off of you, and may not always have your best interest at heart.  Most are good, honest members of the community, but everyone from the tellers to the branch manager stands to gain from winning your business.
B) On a global scale with banks, it’s best to look at them as someone you do business with.  That person provides a service to you and intends to make a profit in the process.  If you so desire, there are things you can do to minimize the amount of profit they can make from you.  Ultimately though, if you eliminate their profit margin you eliminate their service, you both lose.  Grocery stores don’t sell you food at cost, Disney World marks up all their merchandise, and banks are here to make money.

I really enjoyed doing this interview and would like to interview other bloggers as well. If you are interested please get in touch with me using the contact form.  I hope readers found this good too, please leave comments to let us know.

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Upcoming Interview: Weakonomics

This site will feature its first ever interview tomorrow. It will be with Philip, the guy behind Weakonomics. I am a regular reader of Weakonomics and like it because it has got refreshing ideas and useful tips.

A little bit about him from his About page.

I am a twenty-something and work for one of the largest banks in the United States.  Yes you’ve heard of it.  I don’t say where I work, partially to hide any bias but mostly to keep from feeling the need to explain my company’s actions every time we’re in the news; which is often.  I’m not interested in promoting my bank over others, as I really don’t believe we’re the best. My time here is put to better use bashing my industry, as we really screwed some stuff up. 

Here is a list of some special features on the Weakonomist. 

My favorite post has got to be the one about the weakonomics currency.

I have been reading it regularly for the past few months now, please give it a try and subscribe to his feed.

The interview will be published tomorrow, so please come back for that.

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List of Gold ETFs

There is a lot of interest in Gold ETFs these days and since I have already created an exhaustive list of gold mutual funds with their expense ratios, I thought I’d create a list of gold ETFs too. This list has ETNs also, which sound similar to ETFs but are a different product. To know more about ETNs click here.

Gold ETFs that Own Physical Gold

  1. SPDR Gold ETF (GLD): This fund actually holds physical gold.
  2. iShares Comex Gold Trust (IAU): This is a gold ETF about which I have written in the past, click here to read that post. This ETF also holds physical gold.

Gold ETFs that Own Gold Mining Stocks

  1. Market Vectors Gold Mining ETF (GDX): This fund holds stocks of gold mining companies from around the world.

Gold ETFs that own Future Contracts

  1. Powershares DB Gold Fund (DGL): This fund holds future contracts which reflect the upwards price movements of gold.
  2. E-Tracs CMCI Gold Total Return ETN (UBG): This is an ETN and tracks the upwards price movement of gold.

ETF Double Gold

  1. Proshares Ultra Gold (UGL): This fund will give you daily returns and will move double the price of gold in a day.
  2. Powershares DB Gold Double Long ETN (DGP): This is an ETN that moves double the gold prices.

Gold Short ETFs

  1. PowerShares DB Gold Short ETN (DGZ): This is an ETN that moves up when gold prices go down. So, this works like a gold short ETF where, if the price of gold moves down by 2%, this ETN will go up by 2%
  2. PowerShares DB Gold Double Short ETN (DZZ): This is also an ETN that moves up double the amount that gold prices go down. So, if gold prices go down by 2% this fund will move up by 4%.

ETF Gold India

  1. Kotak Gold ETF (KOTAKGOLD): This is Kotak’s Gold ETF that tracks the price of Gold in India. The ticker is for NSE.
  2. UTI Gold ETF (GOLDSHARE): This is UTIs ETF that tracks the price of gold in India. The symbol is GOLDSHARE and is for NSE
  3. Reliance Gold ETF (RELGOLD): This is the Reliance Gold ETF that tracks the price of gold in India and the symbol RELGOLD is for NSE.

If you are interested in gold ETFs in India in particular then this page has a list of all the Gold ETFs traded in India, and this one shows you the two year performance of gold ETFs in India.  I did a small piece on the expense ratios of two new gold ETFs – HDFC Gold ETF, and ICICI Prudential Gold ETF, which may also be of use to you.

Other investors find the page about gold mutual funds quite useful.

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