If your remember the image a while back showing why we’re not going to have a long lasting bull market moving forward, there were a number of indicators that were headwinds for a prolonged bull market.  Two of the headwinds were consumer credit levels and savings rate.  The image in the above post says that consumer credit levels are way too high and will be falling moving forward; likewise, the savings rate will be rising moving forward.

We now have the 11th straight month of falling consumer credit.  This definitely coincides with the headwinds discussed above – consumer debt levels and savings rate .  Please someone look at the image in the post linked-to in the first paragraph and tell me why I should be going long equities?

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1686Comments (0)http://20smoney.com/2010/02/08/consumer-credit-falling/Consumer+Credit+Falling2010-02-08+17%3A48%3A19Kevin

The real estate game has changed.  A few years ago, the equation was simple: put as much money into your house as possible because each dollar was multiplied when selling your property.  Nowadays, you need to be smart and frugal with putting money into your home.  The new equation, post-housing-bust, is as follows:

Put As Little Money As Possible Into Your House Towards Differentiating, Value-Added Projects

If you look at that equation, there are two goals: differentiation and adding value.  With regards to differentiation, you want to be able to differentiate your house from other homes when you’re trying to sell your house.  Differentiation might be achieved through a unique lushly landscaped backyard, or a excellent garage, or unique storage capabilities or a custom, beautiful interior paint job.

All differentiation is not equal.  Remember, each project must add value.  You can differentiate your house by painting your interior walls all black, but that won’t add value.

Lastly, we want to allocate as little capital as possible towards these projects.

Projects That Are Not Good Investments

The typical projects of renovating a kitchen and bathroom (both very expensive) are not the best approach in my opinion as long as your kitchen and bathroom is at least up-to-date to some extent.  If you have a decent, nice kitchen, you won’t get your money back by adding granite counter tops.

If you have a semi-new home, I recommend sticking with your bathroom and kitchen, and instead allocating money towards more creative, less inexpensive projects.

Projects That Can Add Value And Not Break Your Bank

I believe that you should find creative ways to improve your home value and residence.  You should try and find projects that you can do yourself rather than paying someone else.  Paying somebody else for a project can often prevent you from getting a return on the project.

Backyard

With the housing boom, countless new developments were created with “cookie cutter” homes – homes that are very similar.  As such, you can do some very basic things to provide a major differentiation factor from the other clones in your neighborhood.  The backyard is an easy target.  The key is to transform a plot of grass in your backyard to a very beautiful, enjoyable living space.  This might require putting in some pavers, adding landscaping, adding a fire pit, adding a fence, adding a bench and other furniture.  The goal is to transform the backyard to where somebody looking at your house steps outside as says, “Wow.”  You can learn how to do everything mentioned here yourself including installing brick pavers.

Interior Painting

Painting the inside of your house can change the complete feel of your home.  I recommend more neutral tones that make the house feel warm and “homey.”  Take a look at some of the new, expensive homes that are having open houses for some more advanced painting ideas.  For example, you might consider painting the ceilings a different color which seems to be a popular idea these days.

For under $1,000, you can completely change the entire interior of your house with a nice paint job.  And, you can do the entire project yourself with basic equipment and a weekend of your time.

Garage / Attic / Basement

Typically, people avoid showing their garages to guests and potential buyers because many people use garages as storage for junk.  By having a very nice garage, you will give a potential buyer the idea that they will be organized right away if they buy your home.  Clean out the garage completely, install heavy duty shelving, paint the walls (and maybe the floor).  Be proud of your garage and show it off as a very usable space in the home.  I live in Florida and don’t have a basement, but you can extend this same concept to a basement if you have one.

Similarly, you can create a usable attic space.  Clean it up, organize it, add necessary shelving or storage equipment so that using the attic is easy and comfortable.  Be sure to show off such things if you’re selling your house and you’ve spent the time in improving your attic or other areas of your home.

Do It Yourself

Learning new skills so that you can do projects yourself is a great way to spend some of your free time.  You’re not only saving money by doing it yourself, you will feel better and feel a sense of accomplishment, and you will increase the standard of living within your residence and improve the value of the home at the same time!

Rather than sit around and watch TV one weekend, decide on a new project for your home.  Map out a game plan, acquire the necessary supplies and go after it!

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1582Comments (0)http://20smoney.com/2010/02/08/home-improvement-adding-value-with-inexpensive-projects/Home+Improvement%3A+Adding+Value+With+Inexpensive+Projects2010-02-08+09%3A25%3A03Kevin

Will the real economy please stand up? (iTulip)

Consumer credit drops for 11th straight month (Zero Hedge)

A good explanation of the unemployment situation (Zero Hedge)

Average length of unemployment hits new record (Business Insider)

Government to pay for 50% of all health care costs by 2012 (BusinessWeek)

Social security next in line for a bail out? (Yahoo)

The bonus outrage (Boortz)

Is US bullying Toyota because of the government stake in GM? (Google)

Winners and losers under Obama’s new tax plan (Darwin)

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1675Comments (0)http://20smoney.com/2010/02/06/important-reads-for-your-weekend-feb-6-7-2010/Important+Reads+For+Your+Weekend+-+Feb+6-7%2C+20102010-02-06+09%3A37%3A20Kevin

As the market continues its move lower (as of writing, the Dow is down about 45 today, below 10,000), I’m starting to become more focused on some positions that I want to accumulate.  One of these has been Philip Morris Int’l (PM).

For a potential play, you can now sell a January 2011 put with a $40 strike price for $3.20 premium.  Note that you can collect $320 on essentially $4000 in cash (for every put contract) which is an 8% return.  It’s actually slightly higher since the time to hold the option is less than a year.

Compare the $3.20 you can collect versus holding shares of the stock.  The annual dividend payout on PM is $2.32.  So by selling the put versus holding the stock, you can earn an additional $.88 per share between now and January of next year.  Even more, you’re essentially obligated to PM shares at $40 per share versus today’s price of around $46 per share, so if you end up owning the shares, your cost basis is based on $40 per share versus today’s price.

I think it’s a great way to collect an 8% return with very low risk.  Your only risk is if PM goes well below $40 and you’re required to purchase the shares at $40; obviously, this is still better than buying shares at $46.  PM is a great long term holding, consider selling puts to pick up shares at lower prices and earn a higher return in the near term.

Remember, if you do this strategy, be sure you have the cash in your account to purchase the shares if the strike price hits.

If you want to be more aggressive, and you wait for the market to move even lower, you will potentially be able to sell the Jan 2011 $40 Puts for even more income, or target a strike price even lower than $40.  Then again, you might not get that opportunity.

Disclosure: I hold shares of Philip Morris Int’l (PM) and am looking to buy more as the market move lower.

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1655Comments (0)http://20smoney.com/2010/02/05/potential-philip-morris-intl-pm-play/Potential+Philip+Morris+Int%27l+%28PM%29+Play2010-02-05+15%3A11%3A29Kevin

A down 3% day in the S&P 500 Index serves as a painful reminder that we still have huge, huge challenges as an economy.  We’ve had several large moves lower in the past couple weeks which have had the impact of reminding people that this so-called recovery might be anything but.

If you haven’t heard, the government underreported job losses by close to a million units over the past year.  Basically, something like an additional 800,000 jobs were lost that we not reported.  For anyone who has been skeptical over government economic figures, this doesn’t surprise us.  For the others, it typically goes unnoticed.  Similarly, we report a great GDP number then revise it lower a month later when nobody cares anymore.  My point here is that you need to remain skeptical about the economy, the markets, everything.

As I’ve been saying for a long time, you should be taking defensive positions with regards to your finances.  Do not trust the recovery.  Do not trust the unemployment number that will come out tomorrow morning (Friday) – the number doesn’t factor in the people who are so demoralized that they don’t even look for work anymore!  The real unemployment is much higher.

I’m not here to make you sad, but I’d be doing you a disservice if I told you everything was great and you put your money into speculative recovery stocks and then got cleaned out.  I don’t know what the market is going to do tomorrow, next week or next month, but I do know that I won’t be surprised if it goes lower, much lower.

Gold

Gold got hammered today.  If you read my blog, you know I like gold.  I’ve also repeatedly said that any correction will impact commodities and gold.  It’s going to be very volatile and a bumpy ride, but I think its worth buying on dips (perhaps now).  I wouldn’t mind personally if it went back down to the $1000 level.

If you’re investing in gold, it needs to be for long term security, which means you should probably own physical gold.  The paper trading assets make me nervous.  Gold shouldn’t be traded.  It should be viewed more as insurance.

Tomorrow

Tomorrow morning we get the unemployment report which usually moves the market.  Most traders view the market in a down trend now, so I wouldn’t be surprised if the market opened higher than moved lower.  There have been many examples of “sell the news” in recent days.

Disclosure: I covered part of my short position in BC into the close today but am still holding significant short positions.

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1650Comments (0)http://20smoney.com/2010/02/04/back-to-reality/Back+To+Reality...2010-02-04+21%3A30%3A27Kevin

Today, I present an entry in the Financial Plan Writing Contest. Just a reminder that you can win $250 by participating.  Here are the brief guidelines, to read the full description of the contest, click the link above.

• Answer the question: What is your financial plan for the next 10 years?
• Be sure to to hit on things such as income, job security, budgeting, expense management, real estate, investing, retirement planning, etc. – the more detailed within specific areas the better!
• Be sure to discuss how the economy might affect your plan – what if we fall into a double dip recession?  Or worse, a depression?  Or inflation?  What if you lose your job? What are you doing to prepare for any economic scenario?
• Be specific about certain financial goals you might have
• Include your age and your age-specific concerns & goals
• A minimum of 500 words is required – again, more detail improves your chances of winning the contest!
• Send your contest submission to kevin (at) 20smoney (dot) com with “Writing Contest” in the subject line

My financial plan for the next 10 years is a question I’m always asking myself. Being 25 years old I look at the last 5 years and see how much better off I am financially. I am a single mom of a 4 year old child and before I got my RN degree we were struggling. When I had a steady income I created a budget for myself. After all the apartment living, I was able to purchase my first home. Again, I rethought the budget. Now, I have a boyfriend. He is paying off his debt while I still maintain our budget. We do well. I am a big coupon clipper and use them wisely. I work night shift to accommodate my son and get a couple extra incentives.

In the future we have decided to pay for our own wedding. I would like to start a wedding fund within the next year for us to fund the wedding. I also contribute $422/mo to my ROTH IRA. My jobs, yes jobs, provide a good retirement, but I like to fund my own retirement. I have an age aggressive option. I also fund my sons college. I don’t give him as much to his account because as selfish as it sounds, I want to make sure i’m taken care of. He will be fine when he goes to college because there are loan options. And like me, he will have to pay for his education.

My big expenses with having a child is of course daycare. I pay $400/mo in that alone. I can see why couples choose to be stay at home moms or dads.

My financial goals for myself in 2010 are to fund my Roth to its max again, keep my 2 jobs and thrive at them by obtaining certificates and continuing to teach. I also will be funding my son’s kindergarten in full of $2000. For fun, I would like to take a vacation. Not sure where yet, but it’s on the list. We also have cut back on our grocery bill. Attempting to pay only $100/month for the 3 of us. I always cook meals which helps that a lot.

The next 10 years, I hope to be married (funding my own wedding), have another child or two (which means finish the basement which is a financial cost), and just enjoy my family without having to worry about money because we will have our budget to follow.

The recession hasn’t really affected me because I have started my financial life/journey when I was in my own recession. Struggling to give my son what he needed without child support, working 2 minimum wage jobs, and going to school. I am financially flourishing considering where I came from. Sometimes when I do wonder how were going to afford something, I think back to where I was. If I lost my job, I have another to fall back on. If I lost that, I have about $18,000 in an emergency fund. Luckily, with my career I wouldn’t have to worry too long because nursing has a shortage. If inflation became a bigger issue, budgeting would have to change. If a depression happened, we would definitely get rid of luxuries (cell phone, TV etc).

Advice I would give those in their 20s is budget budget budget!! Don’t spend more than you make. Be creative with things to do that doesn’t cost money. Think about your future, not just the moment in time. Get RID of credit cards. SAVE SAVE SAVE. Become computer savvy. Use websites and blogs to give you new goals and ideas for financial success. Oh and PLAN PLAN PLAN for the future and for now. If you need to finish your degree, go back to school, NOW, not in 10 more years.

Submitted By Janine

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1609Comments (0)http://20smoney.com/2010/02/04/janine-10-year-financial-plan/Janine%27s+10+Year+Financial+Plan2010-02-04+10%3A21%3A56Kevin

The following video is an excellent explanation of why the biggest issues and problems that we face as a country are NOT a partisan issue.  Dylan Ratigan (formerly of CNBC) does a great job of explaining how the corrupt partnership between Wall St. and Washington D.C. will continue to bring down America.  Ratigan, who can be characterized as a Glenn Beck like populist but for the liberal left, is a supporter of many of Obama’s policies; yet, he accurately recognizes the bigger issues and is not afraid to criticize Obama for failing to address them.

Every American, Democrat or Republican should watch this video and seek to understand the issues that Ratigan is discussing.

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1645Comments (0)http://20smoney.com/2010/02/03/must-watch-video/Must+Watch+Video2010-02-04+02%3A06%3A10Kevin

Following up on my look at unemployed Americans, I read a great piece over at Market Oracle on the future of unemployment benefits that I want to comment on.  This article gives a great look at the reality of unemployment and the large scale economic ramifications of the ugly situation we find ourselves in.  I will provide some of the highlights of the piece here.

The author poses the question, will unemployed receive benefits indefinitely while major employers continue to ship jobs overseas?  Then he goes on to observe the following:

There is nothing to stop these events because the public doesn’t understand what is going on and Congress answers only to campaign contributions and the call of re-election. The biggest insult is to expect Americans to believe unemployment is 10% under U3, never bothering to mention U6, which is 17.3% and climbing. Of course there will be more stimulus and Fed monetization of Treasury debt. They know if it is not forthcoming the economic and financial system will collapse. Can you imagine what would happen to the mortgage securities market if the Fed stops buying that toxic waste, or if Fannie Mae, Freddie Mac, Ginny Mae and the FHA stop buying subprime and ALT-A type mortgages? The stock market has slowly moved higher as the insiders in the market, who know what is going on, perceive what is in store for 2010. As far as the Fed is concerned they have to continue doing what they have been doing. The purchase of Treasuries, Agencies and toxic waste has to continue as we long ago pointed out. There isn’t enough dollars floating around the world to absorb this debt. That is why the Fed has to continue to create money out of thin air.

Pretty straightforward and simple… and scary.

With regards to gold, the author points out the following:

• All major currencies have lost big over the past decade with regards to gold
• Central banks are now buying gold when they used to sell gold

The author concludes with:

The longer government and the central bank interfere in the economy the worse the situation will be and the longer the recovery will be. In the meantime our government deficit increases as it fights a two-front war with no end in sight. Even with stimulus 2010 is going to be a very difficult year.

This statement is basically the core of what I believe about economic policy in this country.  Each stimulus enacted creates less and less impact while continuing to expand our deficit and/or debase the currency.  As I always say, there is no easy way out of our economic reality.  There is no pain-free strategy here.  The longer we refuse to acknowledge our irresponsible ways, the worse it will be.

What I Take From This Article

1. This economic recession is going to last a long time
2. There are major issues ahead: state budgets, lack of job growth, continued losses
3. Quantitative easing is not going to end in March
4. We should be buying gold on dips and managing our money as tightly as possible
5. Stocks are risky

Whether you buy every point made in this article or not, it’s important for you to hear this side of the economy.  You should be preparing for the worst and hoping for the best.  The American economy isn’t doomed but it is definitely structurally broken right now.  A readjustment is possible with a new era of growth and prosperity, but quantitative easing isn’t the path to this growth and prosperity.

I recommend proceeding with extreme caution in the areas of finance.  Put as much money away as possible by being strict with your spending, get your costs down as much as possible, diversify into assets such as gold, consider exploring other options to protect yourself in the event of a major economic collapse or a massive inflationary environment.  Hey, if things turn out to be good, you’ll be fine.  You can sell your gold and start spending like a wild man again.  But, what if things do get bad and you’re not prepared?  That is the question that should keep you up at night.

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1577Comments (0)http://20smoney.com/2010/02/03/future-unemployment-and-the-economic-consequences/Future+Unemployment+%26+The+Economic+Consequences2010-02-03+10%3A52%3A52Kevin