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Protecting Your Savings

By someone else following x   2008 Jan 27, 5:53am 40,814 views   390 comments   watch   nsfw   quote     share    


safe

With the government now mounting a full-scale assault against savers by cutting interest rates, attempting to keep housing prices unreasonably high, and even handing out raw cash (do I hear helicopters?) what can responsible people do to protect what they've earned?

Some options and problems with those options:

  • CD's: fully taxable, low rates (under 4% now), some risk FDIC won't cover bank failures
  • Treasury Bills: no state tax, less risk, but even lower rates (2.5%)
  • Gold: pays no interest, price very hard to predict. Lost value for 20 years after last peak.
  • Stock: falling prices in falling economy as earnings decline
  • Housing: massively overvalued, likely to keep falling for years
  • Commercial property: also seems to be on downside of a bubble
  • Commodities: falling prices as economy slows

One bright point: if you're saving to buy a house, your cash gets more valuable as house prices fall. And you get interest on top of that.

Patrick

#housing

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351   OO   ignore (0)   2008 Jan 30, 10:29am   ↑ like (0)   ↓ dislike (0)   quote   flag        

cb,

there's really no reason to hasten payment if you are already on a 15-yr loan, unless you want to lower rates.

Let's face it, even before we pay off our debt in 10 years, we will start to lose the tax shield advantage very soon in the 6th or 7th year because the interest amount starts to wind down rapidly in the amortization table. Essentially what you are opting to do, is to put more of your financial cash flow into your house - a depreciating asset, while losing tax shield at the same time.

If you pay it off over a longer period of time, you have to flexibility of putting your money elsewhere, which doesn't necessarily mean higher return, but it helps diversification away from a USD-denominated, depreciating asset.

If one is choosing between 30 years and 15 years, then there is substantial interest savings for the 15-yr loan. If it is only 5 years, you'd probably be better off sticking with a longer time schedule.

I am sure you can run a spreadsheet in determining what % of USD depreciation will justify paying extra USD interest expense (adjusted for tax) for the additional 5 years, or perhaps estimate what the breakeven % of depreciation is.

352   justme   ignore (0)   2008 Jan 30, 10:38am   ↑ like (0)   ↓ dislike (0)   quote   flag        

FAB,

>I’ll consider someone a “Californian” as soon as they stop saying “out here” and are not talking >about somewhere besides California when they say “back home”…

How about the ones that say "back east", but did not even come from there. That always baffled me.

353   Peter P   ignore (0)   2008 Jan 30, 10:42am   ↑ like (0)   ↓ dislike (0)   quote   flag        

There is no housing bubble in SF. Look, even this 4/4 is asking for close to $100M!

http://www.movoto.com/real-estate/homes-for-sale/CA/San-Francisco/955-Excelsior-Ave-110_336367.htm

Only multi-billionaires can afford to live here. :(

354   anonymous   ignore (null)   2008 Jan 30, 10:57am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Well, as a Calfornian, let me put it this way: I was out in St. Louis and those people didn't seem to know they're Back East, even after I told them so!

355   anonymous   ignore (null)   2008 Jan 30, 10:57am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Back East, to a Californian, is anything east of the Mississippi. Which St. Louis, is, just.

356   StuckInBA   ignore (0)   2008 Jan 30, 11:17am   ↑ like (0)   ↓ dislike (0)   quote   flag        

His priority must be to save the system…..inflation, dollar, and everything else takes a back seat.

That's what his priority SHOULD be. But he is idiotically trying to judge the health of the system from stock market fluctuations. Last week he became a joke for reducing the interest rates due to market actions that could have been triggered by a rogue trader.

So how many stock market crashes he is going to react to by cutting interest rates by 75bp ? At that rate he can "save" say 4 crashes. And after that ?

The guy is a PR disaster. He may have a Ph.D. in economics, but he hasn't even attended pre-K for communications. As I have said before, Greenspan was at least evil, this guy is plain stupid.

357   justme   ignore (0)   2008 Jan 30, 11:19am   ↑ like (0)   ↓ dislike (0)   quote   flag        

DinOR,

I looked up ETY EXG QQQX AGC on yahoo finance and there is no mention of yield, plus the value is dropping. What;s the deal? DO I need to go look at investopedia again?
:-)

358   Paul189   ignore (0)   2008 Jan 30, 11:23am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I bought my safe yesterday!

Two observatioons:

1) A safe is very heavy and requires two people and/or a dolly to lift it.

2) Home Depot is very empty - I believe there were more employees than customers at the store where I bought the safe.

Cheers!

359   Paul189   ignore (0)   2008 Jan 30, 11:24am   ↑ like (0)   ↓ dislike (0)   quote   flag        

observatioons = observations

360   Randy H   ignore (0)   2008 Jan 30, 12:07pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I watched one of those reality shows where ex-con professional home burgles hit a house that the home owners believed was very well protected a while back. The owners had 3 safes. 2 installed, one of those custom built into a cinder-block wall. And one portable safe that weighed something like 600lbs.

Needless to say, the pros emptied the 2 permanent safes in about 15 minutes and the loaded the other one up on a cart and rolled it out the door.

They said the best bet would have been to stuff all those safes full of "not that valuable" valuable stuff, because if they find a safe they always open/take it. They said you're best to put stuff you care about in a hole under the doghouse, or better yet, in a bank's safety deposit box.

361   OO   ignore (0)   2008 Jan 30, 12:09pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Bap33,

not sure about your local market, but $130K for a house with 1.2 acres sure sounds good to me.

Except one thing, how will a semi-rural area fare in a $100+ oil environment? As long as you are comfortable commuting with $5 or more gas, then go for it.

362   Malcolm   ignore (1)   2008 Jan 30, 1:20pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

BAP "I told him I would be suprized if they allowed contingencies. Do REO’s come with offers like that??"

Yes, they will evaluate all the offers and take the one that nets them the most.

363   northernvirginiarenter   ignore (0)   2008 Jan 30, 1:37pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

@StuckInBa

Personally, I agree that Greenspan ultimately was incompetent insofaras economic philosophy, but he was a master at communications even if through intimidation and both false authority and false intellectual superiority. That's my impression of him anyway.

Bernanke has a steep learning curve on the communications stuff, I'd give him maybe a "C" there myself. I did catch one of Bernanke's appearances before some congressional committee, and the man did look like a completely nervewracked. Not what one looks for in a Fed chairman.

This said, we don't know for sure if the 75pt was directly result of unwinding of frog fraud, but if it was and he did not know of the root cause one might say he made a reasonable decision. I disagree that he is managing decisions based upon stock market alone, but recognize the market as a very important element of our macro-economy. A big market drop is itself an economic event, erasing spending power, credit availablity, wealth, confidence, and income. Not paying attention to major market moves risks real damage outside of the market alone. Keep in mind a large downward move in the stock market can directly lead to massive job losses and massive contraction in GDP.

I don't really appreciate all he is dealing with at the moment, but I suspect we are completely on the verge of total market breakdown, as in all the big and small banks failing, derivatives unwinding....an overall nasty mess. If he holds rates, or raises rates, housing goes down fast takes the entire financial infrastructure with it. That's not really ideal for anyone. Personally, I'd prefer much less government and central bank interference in the markets but we are where we are.

What scares me personally is I don't think there is anything he or anyone else can do about it now, housing will inevitably decline 30% or more and I surmise this takes the banks down, which then cascades into the great unwind to an unholy bottom.

Don't blame Bernanke for this collosal mess, it's not his doing. I'd actually give him an "A" so far, but we are still in the earliest stages of the matter. I'm not fan of the banksters, but if the banks fail, well the system fails, and we are all screwed. Most of us anyway.

364   Malcolm   ignore (1)   2008 Jan 30, 1:51pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Just because you can ask for anything doesn't mean that you will get anything. I'd be surprised if they would pay for an inspection. That is a conflict of interest and would hang future liability over their heads. It is a pure business decision for all the other stuff. My philosophy is, it never hurts to ask. In any case the reason I know how it works (a little) is because I used to buy VA repos, and they used to operate under the highest net principle. I also use a servicer/broker for my investments.

365   StuckInBA   ignore (0)   2008 Jan 30, 3:11pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

northernvirginiarenter :

For most part, we are in violent agreement :-) I do not blame BB at all for the mess we are in. No Sir, that honor belongs to one and only, The Great Greenspan.

Stock market drops have happened, and will happen. What happened last week was nothing compared to many previous crashes. It did not warrant a rate cut of 75bp just a week ahead of the meeting. And this is not the only time. In summer he tried to save the market and cut the discount window rate on a triple witching day ! Another rate cut of 50bp happened after a market crash in fall.

BR put it very eloquently. Fed has become the Wall Street's bitch.

There are only so many rate cuts that you can do. Hence using then to counter market crashes is stupid at best.

366   cb   ignore (0)   2008 Jan 30, 3:22pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

@OO

Let’s face it, even before we pay off our debt in 10 years, we will start to lose the tax shield advantage very soon in the 6th or 7th year because the interest amount starts to wind down rapidly in the amortization table. Essentially what you are opting to do, is to put more of your financial cash flow into your house - a depreciating asset, while losing tax shield at the same time.

I have and will pay AMT again (we don't really make that much) so the tax shield might work the other way, if it relieves me of AMT then it might be worth it assuming congress don't repeal AMT completely.

367   DinOR   ignore (0)   2008 Jan 30, 10:50pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

justme,

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=EXG

shows the yield at 11.20%. Additionally over the last few weeks it's gone from 15.25 to 16.96. So like I say, you're not getting as deep a discount as you would have in Nov/Dec (and I didn't mean to imply any of these should be considered mmkt substitutes)

NIA

368   DinOR   ignore (0)   2008 Jan 30, 10:57pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

OO/cb,

I'm there... I'm there. I would love to see one of the techies assemble a calc. to "estimate what the breakeven % is". Is that so much to ask! :)

369   DinOR   ignore (0)   2008 Jan 30, 11:03pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Randy H,

We use a "Sentry" safe but primarily for passports, kid's birth certificates and a Dan Wesson .38. The feature that I felt was of the most value is that the plastic shell is filled w/ a compund that melts and seals in the event of a fire and is small enough to "fit under the doghouse".

I'd like to get a safe for my office in which I can place valued items like Jack, Johnny and Jim (if ya' get my meaning)

370   SP   ignore (0)   2008 Jan 30, 11:16pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

DinOR said:
I’d like to get a safe for my office in which I can place valued items like Jack, Johnny and Jim

Hmm... you must be looking forward to liquidating _those_ assets. :-)

BTW, thanks for the ETF pointers.

371   SP   ignore (0)   2008 Jan 30, 11:21pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

So, what came out of Bernanke's 125bp rate cut?

Dollar tanking, stock market still going down, recession still 'in the bag'. The only nice thing I can say is "well, it would have crashed even harder without the cut"...

Nice going, Poindexter.

372   DinOR   ignore (0)   2008 Jan 30, 11:32pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

"recession still 'in the bag'." LOL!

"Son of Gary Watts"

Yeah, I'm not trying to "talk up" some of those ETF's it's just that I see them as an incredible value especially for anyone that's looking to steer clear of any kind of debt paper/int. rate risk.

373   SP   ignore (0)   2008 Jan 30, 11:38pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

StuckInBA Says:
I do not blame BB at all for the mess we are in. No Sir, that honor belongs to [...] Greenspan.

The fact is that Bendover Ben is in the leadership position now, and has a responsibility to do the right thing - regardless of who fucked it up so far.

So the quality of his leadership should be judged _only_ by whether you think _he_ is doing the right thing.

The problem is that he has to choose between protecting the banksters and protecting the purchasing power of the dollar. His loyalties appear to be with the former, it is just that current circumstances make it impossible to for him to keep hiding the fact.

374   northernvirginiarenter   ignore (0)   2008 Jan 31, 12:54am   ↑ like (0)   ↓ dislike (0)   quote   flag        

It's an oversimplification to reduce his decision-making to banksters vs dollar. I disagree that he is a purely dancing to the stock markets tune, even recently he held tight against a wave of criticism and screams of fury to loosen.

I have zero doubt that if it were not for frozen interbank lending and complete loss of confidence which is now inherent in all transactions he would be more than happy to be an inflation fighter, hold interest rates high, and let the housing market fester.

The reality is it's the too big to fail problem. The key question to ask is what happens if the banksters do fail? Though I'd be the first in line to deliver their comeuppance the unfortunate fact is if the banksters (who include all involved in high finance, right? Hedgers, M&A folks, Private Equity folks, and of course debt folks) go down that would end the current construct completely, at least that’s my guess.

So one might make the argument that we need to move to a new construct anyway, too which I might agree, but there is no way that happens as the incumbent power structures are set up to maintain the current status quo. Those that are busy dispossessing the masses of wealth are not about to let that happen. Are we to burn it all down and start over?

I happen to be of the opinion that the crisis is getting much worse than we are being led to believe, and it all may just crash down in a great credit contraction unwind in any event. But Ben's employer demands he does his job, which primarily now means saving the system.

As we all know however, they all seemed to have missed red flags flying in housing that we all noted so clearly here, Ben included.

I don't know, maybe I've got the whole thing wrong. Fueling the contraction with more credit, the very credit that stoked the flames to begin with? Probably there was a window early where that approach (a solution in 2002-2004) would not have shocked the system but the thing just went too far. Now, in 2008 tight fed policy makes in tough to digest the losses without serious secondary effects, even fatal ones.

375   justme   ignore (0)   2008 Jan 31, 1:14am   ↑ like (0)   ↓ dislike (0)   quote   flag        

DinOR,

Thanks, I think I need to read up on closed-end mutual funds and oil&gas trusts to understand these stocks. My experience is more in the area if technology stock.

376   SP   ignore (0)   2008 Jan 31, 2:02am   ↑ like (0)   ↓ dislike (0)   quote   flag        

NoVaRenter says:
I have zero doubt that if it were not for frozen interbank lending and complete loss of confidence which is now inherent in all transactions he would be more than happy to be an inflation fighter, hold interest rates high, and let the housing market fester.

I sure would love to believe that too, but it requires a degree of faith in his intentions, while ignoring observable actions that are consistently contrary to that intent.

The reality is it’s the too big to fail problem. The key question to ask is what happens if the banksters do fail?

It isn't quite such a black-and-white case. If the goal is only to prevent catastrophic failure of the banking system, why are all the actions aimed at maintaining inflated asset prices and socialize risk by pawning off crap to the government?

377   SP   ignore (0)   2008 Jan 31, 2:14am   ↑ like (0)   ↓ dislike (0)   quote   flag        

@NoVaRenter, agree with the rest of what you said, re the incumbent power structures ... dispossessing the masses of wealth ... great credit contraction unwind in any event, etc.

378   DennisN   ignore (1)   2008 Jan 31, 3:20am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Speaking of banksters....

I still have quite a few 1099-INT and -DIV which haven't arrived. Generally by the end of Jan most years have seen the whole stack already in hand. I wonder whether this reflects the turmoil in the bankster world.

I repeat my former comment from UBS....
[P]lease be advised that our Firm will request an extension from the IRS to delay the mailing of 2007 Forms 1099 for targetted accounts until late fegruary or early March. Clients who will experience a delay in the mailing are those with accounts that held the following products during tax-year 2007:
* Mutual funds
* Real estate investment trusts (REITs)
* Unit investment trusts (UITs)
* Certain structured products

I wonder what the heck is up at UBS?

379   DennisN   ignore (1)   2008 Jan 31, 3:25am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I forgot to mention that quote came from a mailing from UBS (enclosed with my statement) last December.

Anyone else notice any 1099 hanky-panky?

380   Randy H   ignore (0)   2008 Jan 31, 3:41am   ↑ like (0)   ↓ dislike (0)   quote   flag        

DinOR

I’d like to get a safe for my office in which I can place valued items like Jack, Johnny and Jim (if ya’ get my meaning)

I have such a safe. I call it my drawer.

381   DennisN   ignore (1)   2008 Jan 31, 3:42am   ↑ like (0)   ↓ dislike (0)   quote   flag        

DinOR,
By the way, is that Dan Wesson one of those kits with swappable barrel lengths?

382   northernvirginiarenter   ignore (0)   2008 Jan 31, 6:18am   ↑ like (0)   ↓ dislike (0)   quote   flag        

If the goal is only to prevent catastrophic failure of the banking system, why are all the actions aimed at maintaining inflated asset prices and socialize risk by pawning off crap to the government?

It's an interesting question, as to inflated asset prices I'd say that his interest is maintaining them to avoid a mass walkaway and subsequent collaspse. I'm not sure how much of the socialization of risk might be attributed to Fed action or BB, and I think we are on the same page in level of disgust at this. His actions to stablize and create velocity in bond markets by government guarantee (thumbs up to GSE limit increase) are aimed 1st @ stemming catastrophic system failure and an unfortunate downside is the socialization of risk. A choice made with a downside, no? The banking system and currency are organized with the government as backstop, not sure BB can take blame. It's a shit sandwich for the masses, no doubt. For an elite few, well it's simply good to be the king isn't it. :-)

I sure would love to believe that too, but it requires a degree of faith in his intentions, while ignoring observable actions that are consistently contrary to that intent.

Not to be argumentative as I'll concede you this point with the caveat that we don't know what information exactly his actions have been based upon...it simply might just look bad. But I don't know for sure, maybe I have too much faith in someone trying to do the right thing. With so much power riding on this institution, I'd hate to think it was controlled by a special interest. I understand that nearly all our government is controlled by these specials, but the fed has to be independent. Maybe I'm naive.

Where you are absolutely correct is PR disaster. If I had a wish it would be for the Fed to reveal the truth of their understanding and analysis, and let the chips fall where they may. Maybe nobody is handle the truth, however. Classic US government (and quasi gov), not trusting it's own citizens with knowledge.

383   northernvirginiarenter   ignore (0)   2008 Jan 31, 6:29am   ↑ like (0)   ↓ dislike (0)   quote   flag        

On topic

Jack Johnny and Jim makes for an interesting store of wealth, similiar to gold, no? Inflation hedge, easy to trade, maybe improves with a little age, and with the added benefit of actually being able to drink it. Is one better off buying and laying down cases of the three B's expensive quality (Blantons, Basil Hayden, & Bookers) or a larger quantity of the rotgut like Evan Williams stuff?

384   PermaRenter   ignore (20)   2008 Jan 31, 8:48am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Countrywide Financial Corp. sent letters to 122,000 customers last week telling them they could no longer borrow against their credit lines because the total debt on the home exceeded the market value of the property. ... The move by Countrywide ... is part of a pullback by lenders nationwide on home equity loans ... with new evidence of sinking home values, many lenders are requiring that homeowners maintain a much larger percentage of equity in their homes as a cushion against financial problems.

385   Randy H   ignore (0)   2008 Jan 31, 10:59pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I'm admittedly not a connoisseur of quality rotgut. I just rely upon others to point me towards fine bourbons.

I have heard a reasonable set of arguments that wine, if properly cellared, is a far better store of value than gold. It has global appeal, definitely improves with age (assuming you are storing the appropriate sorts), and is of course consumable at any point. Wine also has timeless appeal -- it is a fixture throughout western cultures down through history.

Hmmm, maybe I'll start the US Wine Depository Corp. and get myself a CNBC infomercial slot.

386   Peter P   ignore (0)   2008 Feb 1, 5:43am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Hmmm, maybe I’ll start the US Wine Depository Corp. and get myself a CNBC infomercial slot.

Perhaps something like shares of fine wine stored in a Zurich vaultcellar? Just in case the government decides to confiscate alcoholic beverages. :)

387   Claire   ignore (0)   2008 Feb 2, 1:01am   ↑ like (0)   ↓ dislike (0)   quote   flag        

FYI - if you want to do some troll bashing it seems there is one on Patrick's forum.

388   DJM   ignore (0)   2008 Feb 10, 2:08am   ↑ like (0)   ↓ dislike (0)   quote   flag        

"Which brokerages are seen as the safest? I also wonder if SPIC has ever been stress-tested like FDIC."

The SIPC is a private insurer. It's woefully undercapitalised. I don't think we've ever tested the system with a large failure. All that said, unless your broker has committed outright fraud, in theory you will still get your assets returned to you (and your account moved to another broker). However, given that there may be short sales and clearing failures "in flight" when a failure occurs, it's possibly there won't be enough of whatever you think you own if held in street name, and that is where the SIPC is supposed to step in. As for which brokers are the safest, that is hard to say. Schwab appears to have avoided the sub-prime mess, whereas Merrill, Citi, and UBS are neck deep in it. When in doubt, you can just check the stock price chart for a financial institution - it tells you what the market knows about its solvency.

389   DJM   ignore (0)   2008 Feb 10, 2:30am   ↑ like (0)   ↓ dislike (0)   quote   flag        

"It should go without saying but paying off debt at this point makes the most sense to me."

Call me crazy but I am doing the opposite. I'm refi-ing my house at 4.75% fixed rate.

How many people here are talking about the fed printing money, runaway commodity prices, massive inflation, yada yada yada? Well, what effect do you think all that will have on long-dated fixed-rate debt instruments? If it comes to pass, it will not be good news for the "lender" side of those instruments.

Of course there is the opposite argument, we are in for massive deflation, the price of everything is going down led by house prices, interest rates are going to zero, US = Japan circa 1990, 1930s all over again, cash is king, yada yada yada. Well if that happens, long-dated fixed-rate debt instruments will rise, at least to a point. (The situation is asymmetric - there is a limit to how low interest rates can go, whereas there's no limit to how high they can go.) And there's the kicker: a US-style mortgage gives you a call option to pay off the debt any time you like, so if we head down the deflation path you can pay off the debt rather than accept zero return on your cash.

390   DJM   ignore (0)   2008 Feb 10, 3:06am   ↑ like (0)   ↓ dislike (0)   quote   flag        

"Reuven is the only real victim here. Reuven did what he thought responsible Americans should do: save money. Reuven’s losing money left and right. He can’t barely keep ahead with inflation with CDs, and has to worry about banks going bust."

If you are doing better than just living paycheck to paycheck while hopelessly in debt for useless bling, you are one of the "rich" who is not paying his fair share. Don't expect any sympathy from the proles or their media shills.

"CD rates are shitty low once again. 3.5% average per bankrate ZIRP is killing me, bring back Volcker is he still alive?"

Volcker is very much alive and a strong critic of what's been going on. (Note to self - smoke more cigars.) I am still stinging from the last time rates were driven below inflation, and I'll be damned if I let myself be screwed again. I guess this is the point - money will be driven out of investments that yield a negative real return and into something else. Last time it was houses, and to a lesser extent stocks. This time it could be commodities, or (just a guess) real assets that can produce exportable commodities (farmland, timberland, coal mines).

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