Adventures in Money Making

I had lent out some money to a developer at 24% [2% per month] over the year and a half. Every month around the 7th I'd get my 2% like clockwork. Easiest money I never had to work for! The money was secured by a trust deed on the property.

Sadly those days are coming to an end. I was notified that he was either going to refi and pay us off or put us on some other scheme where we get 12% plus 20% when the project is completed.

Since I'm sending my mom some money to buy an apartment, I opted to get my money back. But it was good while it lasted. But in a few months I'll be selling one of my houses and freeing up some capital and will have to look for more ways to get a good return.

I've also given some money to a developer in Arizona. He doesn't pay any interest but after 18 months starts paying us off at the rate of 80% total ROI. Its been a year already. Hope he doesn't go BK on me!!!!

Anyone else doing private money lending?

Remember how Pulte Homes was giving $99k discounts in California? Well it looks like its becoming a common occurance along the coasts. Check out this ad in the Daytona Beach News Journal.



Lennar builders just announced their profits were down 40% and guess what, the stock was actually up on that news! Jim Cramer must have real balls recommending buying home builders right now!

Regular readers know I have a short position in WCI, a home builder based out of Florida. Well the analyst thats following the stock at JMP securities definitely doesn't know what the hell is going on.

According to Yahoo Finance's Analyst Opinion page, the JMP analyst downgraded the stock on April 10th, followed by an upgrade on August 15th followed by another downgrade on September 25th.

What is this guy getting paid to do????





I wish I had a job like that!

Merck has been sued by the IRS for $2.3 Billion for back taxes and penalties. It set up a company in Bermuda which owns its patents and then its pays that company royalties.

It took advantage of what is often called "tax arbitrage." The usual strategy: lower a company's tax bills by structuring transactions so certain types of income or expenses are classified as one thing by the IRS, but something very different by another country's tax regulators.

Apparently Al Capone wasn't kidding when he said "A good lawyer with a briefcase can steal more than ten men with machine guns."

CNN's money site has an interesting article on insider trading.

David Pajcin had set up an intricate network of spies to provide him with insider information including Businessweek and Merrill Lynch employees, a grand juror and of course strippers. [Whats a wall street story without exotic dancers?]

To read more about the scam Fortune magazine has a little more coverage.

There's a good article in the local paper on how San Diego is saturated with Condo Conversions that aren't selling. There are nearly 7,000 units in 111 complexes sitting on the market. In fact, in some places the developer has decided not to continue to sell them and just keep them as rentals.

As a comparison, Los Angeles which is 3 times the population of San Diego has only 1,325 units!!!
Thats how bad the market has stalled here.

You can read about it here.

I actually know 1 guy who's been burned by this. He's stuck with tons of inventory that he overpaid for and can't even breakeven if he rents the units out. I guess he didn't have a backup plan.

Interestingly enough there's a company that will take your $10,000 and put it in their "robot forex trader" program. You don't need to know anything about forex trading, the software algorithm takes care of it for you!

According to their data, its been back tested and it should get 81% profit per month. Well, I guess I can retire now and sail away into the sunset!!!!!

http://www.forex-day-trading.com/forex-trading-robot.htm

Sounds a bit like those high-yield investment scams. There were companies based out of the bahamas that were offering a 100% return per week. [They were nothing but a ponzi schemes.]

DHL is offering a special discounted rate for Costco customers. It seems to be around a 25-30% discount depending on the service. Use this link.

Labels: personal finance

They say those that forget history are doomed to repeat it. [They also say history never repeats, it only rhymes].

A hedge fund called Amaranth reportedly lost about 4.5 billion in 2 weeks when a 32 year old trader apparently bet the farm on natural gas futures. When you have a huge position in a shallow market, the rest of the market is bound to know. And just like the billionaire Hunt brothers who tried to corner the silver market and went BK, the market rallied against him and he lost big time. Also like Long Term Capital Management[Read the extremely interesting story here], Amaranth will likely go under because of this. And also like the Bearings bank, this astounding loss can be attributed to one person.

What are the lessons we can take away?
- never bet against the market.
- never bet the farm.
- don't put all your eggs in one basket.
- don't forget history.
- use leverage with extreme caution
- don't become arrogant just because you got lucky a few times.

A city boy, Kenny, moved to the country and bought a donkey from an old farmer for $100. The farmer agreed to deliver the donkey the next day.

The next day the farmer drove up and said, "Sorry son, but I have some bad news, the donkey died."

Kenny replied, "Well then, just give me my money back."

The farmer said, "Can't do that. I went and spent it already."

Kenny said, "OK then, just unload the donkey."

The farmer asked, "What ya gonna do with him?"

Kenny: "I'm going to raffle him off."

Farmer: "You can't raffle off a dead donkey!"

Kenny: "Sure I can. Watch me. I just won't tell anybody he is dead."

A month later the farmer met up with Kenny and asked, "What happened with that dead donkey?"

Kenny: "I raffled him off. I sold 500 tickets at two dollars a piece and made a profit of $898.00."

Farmer: "Didn't anyone complain?"

Kenny: "Just the guy who won. So I gave him his two dollars back."

Kenny grew up and eventually became the chairman of Enron.

A billion is a difficult number to comprehend, but someone did a good job of putting that figure into perspective:

A billion seconds ago it was 1959.
A billion minutes ago Jesus was alive.
A billion hours ago our ancestors were living in the Stone Age.
A billion dollars ago was only 8 hours and 20 minutes, at the rate Washington spends it.

Labels: personal finance

According to the WSJ, parts of the Midwest might experience a drop in house prices even though they didn't have any appreciation. Its mainly due to job losses.

Midwest May See a Sharper Housing Slowdown
By LINGLING WEI
September 21, 2006; Page D3

Homeowners in the Midwest -- the nation's industrial heartland -- are starting to see a housing bust without ever experiencing a housing boom as more job losses trigger mortgage delinquencies and foreclosures.

For months, the biggest worries over the slowing housing market in the U.S. have mainly focused on parts of the country that have seen exceptional price increases from 2000 to 2005, places with growing populations and strong economies such as California, Florida and Nevada. But recent data from the federal government and private-sector researchers point to areas in the Midwest that are witnessing a more dramatic slowdown in home prices and, in some cases, higher borrower defaults than the rest of the country.

Home prices in the region have hardly budged over the past few years because of its weaker economy as compared with other regions. Michigan, for example, has lost nearly 300,000 jobs since 2000, and its jobless rate has been consistently higher than the national average.

A recent report by the Office of Federal Housing Enterprise Oversight looked at housing prices in 275 metropolitan areas across the country. Six of the seven metropolitan areas that showed housing-price declines for the 12 months ended June 30 were in Indiana and Michigan. The study also stated that housing prices in states like Indiana, Ohio and Michigan were fairly flat over the past year but actually declined in the second quarter.

An analysis conducted by First American LoanPerformance, a research firm in San Francisco, based on the latest information available, found that the percentage of loans in foreclosure in the Midwest states of Michigan, Ohio, Illinois and Wisconsin reached 0.93% in June, while foreclosures across the country averaged 0.5% -- still historically low. Michigan, hurt by job losses in the automobile industry, booked a 26.8% jump in foreclosure rates -- to 0.69% in June from a year earlier, the largest year-on-year increase within the Midwest. Meanwhile, the percentage of loans delinquent for more than 90 days in the hard-hit area was 15% higher than the national average.

Rising foreclosures as a result of job losses are likely to depress local markets even more. According to a residential real-estate risk-scoring system maintained by analysts at Credit Suisse, which ranks the likelihood of home-price declines within a year, the most troubled metropolitan areas are mainly in Michigan -- cities including Detroit, Saginaw, Holland, Ann Arbor, Monroe and Jackson -- and New England areas such as Boston. The least troubled metropolitan areas are in the Northwest.

Remember to do you due diligence before investing anywhere! Always look for job growth and inward migration.

Home Depot, Kolh's and RadioShack have announced plans to start selling High-Def flat screen TVs soon. Since they're not doing well in their regular businesses, it makes sense to start selling TVs. Of course, this will cut into the profits of Best Buy and Circuit City, both of whom are relying on flat-screens as a large part of their profit growth.

Should be interesting to see how this affects their stock prices in the short & long term.

But when I finally decide to upgrade my 8 year old 19" TV, I think I'll stick to Costco!

I'm a big fan of Ben Stein's books.

I also read his column, How Not To Ruin Your Life. This weeks issue is about letting the non-financially savy spouse in on what to do after you pass away. But best of all, he professes his love for real estate!

We're currently somewhat overweighted in real estate -- not because I bought it with a view toward investing in real estate, but because I love houses. So my wife should know how much we owe, if anything, on various properties; which ones I would advise her to keep and which ones to sell; and whether she should refinance if rates fall.

You can read the whole thing here.

Ben Stein explains how to enjoy retirement, by making sure you have one!

A Day in the Sun

by Ben Stein

It was a perfect sunny summer day in Malibu. I spent a large part of it gardening (which I'm very bad at but enjoy), some of it filing financial statements, and about two hours of it lying in the sun with my dog while listening to Mozart on my headphones.

If I had to, I could, at 61, retire and live quietly for the rest of my life at my little home in Malibu doing what I did today. I don't want to, because I travel around preaching retirement readiness, and I love doing that. But I could if I wanted to.

Why can I? Because my parents were thrifty, and good planners. And because they bought low-cost variable annuities that paid off like winning the lottery, and bequeathed them to my sister and me.

Also because I've been a saver (although not as good of one as I should've been) all my life; because I took the trouble to learn at least the basics of investing and then some; because I have two great financial advisers named Phil DeMuth and Kevin Hanley; and because I'm lucky enough to have had a career that paid the bills.

All of that -- and, most of all, the greatest of gifts: being an American -- allowed me to enjoy this glorious summer's day.

Plan, Invest, and Save

Here's how you can get to a similar place in your life (if you're not already there):

* See a financial planner that you've chosen with a microscope. Tell him or her everything.

* Make a plan, and make sure you understand every word of it.

* Have widely diversified investments.

I recommend devoting one-third to a very diversified international fund; one-third to a total stock market index for the U.S.; and one-third to a highly diversified bond fund that tracks the Lehman bond index.
* Put at least 15 percent of your wages into these investments every month, before you buy a plasma-screen TV or a cruise or even your child's education.

Keep doing it even when the commentators are telling you that the markets are collapsing and the sky is falling.
* Make and keep habits of thrift. Unless you have an income of $1 million or more a year, don't spend any money you don't have to.

* Keep in mind that you're your future, older self's only dependable and indispensable friend. You're your own indispensable counselor, too. So you're the pillar on which your old self will rest -- behave respectfully to that older self.

* Carefully consider variable annuities in addition to your investment portfolio, but only when you understand them and know what each fee is for. In your really advanced years, when you no longer have the strength to keep track of things, that automatic check will be a lifesaver.

Gillette Edmunds quit his job as a tax attorney at the age of 29 and lived the "retired" life, living off his investments. His book,How to Retire Early and Live Well With Less Than a Million Dollars is one of the better ones of I've read on the subject.

He makes a good argument for investing in the entire market, or an index fund. Although he doesn't recomend the usual asset allocation divided between US small cap, US large cap and US bonds because he says they all follow the same basic economy cycle.

Instead he suggest having no more than 30% of your retirement portfolio in the US market. He suggests dividing the rest between

* Foreign stocks
* Emerging market stocks
* Foreign bonds
* US real estate
* US oil and gas

and having atleast 3 non-correlated asset classes and preferrably 5.

Since most people aren't too savy regarding real estate, he suggests holding REITs. He also thinks that oil and gas investments are a good class thats not correlated to the US stock market and will go up in the future. [the book was written in 1999 and he asually mentions that the stock market may be overvalued!]

Really good advice from someone who's retired and been living off a $500,000 nest egg for 20 years.

This is a good summary of the book. It isn't mine, but its pretty darn good, so I thought I'd share. If this is your summary, let me know so I can credit you.

Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money--That the Poor and Middle Class Do Not!
By Robert T. Kiyosaki, Sharon L. Lechter

1. The poor and the middle class work for money. The rich have money work for them.

2. Rich people acquire assets. The poor and the middle class acquire liabilities, but they think they are assets. An asset is something that puts money in your pocket, a liability is something that takes money out of your pocket. The rich buy assets and the poor only have expenses.

3. Poor people buy liabilities to look rich. Rich people buy assets to get richer.

4. The rich get richer because they continue to do things that make them richer. The poor get poorer because they continue to do things that make them poorer.

5. Rich people learn how to manage risk. Poor people are afraid of risk.

6. An intelligent person surrounds himself with people who are more intelligent than he is.

7. Wealth is accurately measured by a person's ability to survive so many number of days forward without working. Or stated another way: If you stopped working today, how long could you survive? Wealth is determined by Net Worth, NOT by income. You can have a huge income, but still be poor.

8. You can never be too rich.

9. Rich people buy luxuries last, while the poor and middle class buy them first. Assets buy luxuries.

10. Once a dollar goes into your asset column, never let it out. It becomes your employee. The best thing about money is that it works 24 hours a day.

11. A house is not an asset - it is a liability. It produces no income, only expenses. (Mortgage, Interest, Taxes, Insurance, Maintenance, Utilities, Furnishings). Don't be "House Rich and Cash Poor".

12. Building wealth is like planting a tree. You water it for years and then its roots grow deep enough that it takes care of itself. Then it provides you a nice shade to rest under and it takes care of you.

13. A true luxury is a reward for investing in and developing a real asset. Buy yourself nice luxuries but make sure you have earned them and can pay for them first.

14. Rich people invent money.

15. Great opportunities are not seen with your eyes but with your mind.

16. Many people are one skill away from great wealth.

17. Rich people talk about money and learn from other rich people. The poor do not.

18. Don't let life or people push you around. Don't quit. Fight!

19. Don't blindy follow the "conventional wisdom". Have the courage to "go against the flow".

20. It's not what you make that counts, but what you save and invest.

21. Don't listen to poor or frightened people.

22. Master a formula and learn a new one.

23. Rich people take advantage of economic downturns. Rich people take advantage of opportunities.

24. Rich people don't make excuses for their financial success or failure.

25. Mind your own business. Think of your household as your own business. Profit vs. Loss and Assets vs. Liabilities. It's "You, Inc.".

26. Advice for those of you in debt: If you find that you have dug yourself into a hole, STOP DIGGING!

27. He who has the gold makes the rules. The rich make the rules.

28. Money comes and goes, but if you have the education about how money works, you gain power over it and can begin building wealth. The reason positive thinking alone does not work is because most people went to school but never learned how money works, so they spend their lives working for money instead of having money work for them.

29. Don't turn yourself into a slave to money and liabilities. Choose power and freedom.

30. You always want to make sure you'll be cash-flow positive in any prospective real estate investment. Your rents collected should always, at minimum, cover your mortgage and expenses even while you're building equity.

I also strongly recommend Rich Dad's Retire Young, Retire Rich by Robert Kyosaki.