Adventures in Money Making

I know a couple who are completely debt-free. They're in their early to mid-thirties and have no mortgage, no car loans and no credit card debt. Pretty impressive.

While they don't live unnecessarily frugally (no, they didn't eat noodles and boiled rice for a year) they have made some major decisions that helped them achieve debt-free status.


1. They're not having kids

Not having kids means major savings! In San Diego, day care runs about $800-$1,200 per month depending on where you live. Thats a $10,000/year per kid saving! Not having to worry about college expenses means you don't have to save for it either. Thats another $2,000-$5,000/year.

Plus, you don't have to buy diapers, baby clothes, baby books, those darn expensive Baby Einstein DVDs which probably amounts to another $2,000/year. All added, thats roughly a $15,000-$20,000 savings for the first few years.

Of course, once the kid is old enough to place in school your expenses drop. Until they're about 7, at which point you'll be paying through your nose for activities, classes, trips and gadgets. I read an article in the Wall Street Journal about how it costs about $180,000 to have a kid and I didn't believe it, until my friends started having kids and I started seeing all these crazy expenses.

2. None of their friends are having kids.

They dumped most of their friends who started having kids and started hanging around with like-minded people. This helps saving money since you don't have to spend money on other people's kids. I didn't think this would be a major expense but if you have 6 friends and each of them have 2-3 kids, this can easily add up. Between birthdays and christmas you're looking at spending several hundred dollars.(One of my friends had 72 people at his wife's baby shower!) Plus there's the trips to disney land. Heck, even a trip to the movies costs $25/person with soda and popcorn.

3. They put off saving for retirement.

They decided not to start saving for retirement until they debt-free. While this isn't a good decision, atleast now they have more money to sock away for retirement.



On the flip side, should you really be debt-free?

Your home mortgage is the cheapest money you'll ever borrow (provided you don't get ripped off on your home loan). It also provides you with a tax-break. Of course, paying a dollar in interest to save 35 cents in taxes is pretty stupid, but if you invest the money instead of paying off your mortgage and get more than the 6% your paying, you can arbitrage your way into early retirement!

Plus, starting your retirement later is never a good idea. You've lost the compounding effect on your savings and its very difficult to make up for that just by contributing extra.

But thats the way it is and its hard to find fault with their choices. They were willing to sacrifice for their goals and they reached them.

What would you do to be debt-free?

Labels: personal finance

Shares of American Home Mortgage Investment Corp. (AHM) gapped down today nearly 90%!!! Thats after they already dropped from $30 to $10 last week! Despite the rebound in the market today, most home-lending companies were down. And later in the day, the market was down on AHM's news.

I think this might be an indicator of the growing liquidity crunch. The excess liquidity that was sloshing around seems to have dried up rather suddenly. After Bear Stearns reveavled that its subprime hedge funds were worthless, it seems that everyone's suddenly concerned that the AAA ratings issued might not really be true and the subprime debacle might spread to Alt-A and prime paper too!

John Devaney, CEO of United Capital Markets, a hedge fund that focuses on buying subprime ARM-backed securities, has been forced to sell his $23.5 million 145-foot yacht and his $16 million Aspen vacation home. Things must be really bad when you have to sell your boat and home!

It also seems that leveraged-buyout party is close to an end. The highly anticipated Chrysler/Cerberus has stalled. Even Blackstone is nearly 36% off its highs. And now it seems that Bernanke won't bail out investors by cutting interest rates.

Looks like a real good time to be a buyer of gold coins and gold stocks!

Labels: Economy, Foreign Stocks, Gold/Silver

Most people subscribe to several magazines. They're either discarded or put in a box in the attic or basement, only to be thrown away decades later (unless they're comics or playboy magazines, in which case they're hold their value).

But today I found a novel way to get rid of them. You sell them on Ebay! Here's a link I saw today when looking for a book on horse racing. The seller sold last years Economist magazines for around $16 including shipping. Not a lot of profit, but atleast you're not filling up a landfill and someone else is enjoying them.

I like to read several magazines, but some of them like National Geographic are not time sensitive. Might be cheaper to buy them off ebay!

Labels: personal finance

According to the Australian news website, news.com.au, Paris Hilton has lost her inheritance!

PARTY princess Paris Hilton is $60 million out of pocket after her billionaire grandfather - appalled by her jail term for drink-driving offences - axed her inheritance.

Family patriarch Barron Hilton was already embarrassed by his granddaughter's wild behaviour - notably when her home sex video was leaked on the internet.

But the 79-year-old considered her 23-day sentence last month the last straw.

"He was, and is, extremely embarrassed by how the Hilton name has been sullied by Paris," says Jerry Oppenheimer, who wrote a biography of the clan called House Of Hilton.

"He now doesn't want to leave unearned wealth to his family."

Hilton senior, the only member of the family left with a sizeable stake in the huge hotel chain, has let it be known that he intends to donate to charity the $2.4bn he will gain from this month's sale of the company to private equity firm Blackstone.

The money will go to the Conrad N. Hilton Foundation, the charity set up in the name of the founder of the family business.

Seeing as she has income from several other sources, I'm not sure if this is enough to change her behavior.

Labels: Paris Hilton

Like I mentioned in March, CFC finally has began to crack. I tried unsuccessfully to short it a few times and then I missed the big decline!

Insiders have been dumping for quite a while now, so they pretty much now what was coming. Even if they claim that the housing slump was unexpected. Kind of strange considering that I've been expecting a housing decline for 2 years now, especially in Southern California.

The housing slump in SoCal is far from over. Prices have dropped 10-30% and I expect another 20-30% drop over the next few years. If we see a large contraction in liquidity, it might be more severe. There's talk that the cheap money for the private-equity buyouts is drying up. Mortgages have become more difficult to get. The 100% financing for broke, jobless borrowers with lousy credit has completely disappeared. Countrywide stated that the delinquencies in Alt-A and Prime mortgages has been much higher than expected. Could the availability of these loans also dry up?

I sold naked calls on August iShares Dow Jones US Real Estate (IYR) on Monday. I would've made more money if I had bought puts instead, but I still did okay. The calls are almost worthless and I can buy them back to close out the position for 70% less than I paid. I'll be keeping a close eye on CFC and other home-builder stocks to see if there are any other shorting opportunities in future.

Labels: Economy, housing bubble, Stocks

I bought some Harvest Energy Trust (HTE) today. Not a lot only 50 shares worth. The market is pretty volatile and historically the month of August is bearish for stocks 72% of the time (or something like that), but the recent 226 point drop in the market created a really good buying opportunity that I found hard to resist.

HTE is a canadian income fund that is taxed like a REIT is in the US. If it distributes a certain amount of its earnings, it doesn't pay taxes at the corporate level. After trading as low as $27, it bounced back up. I was able to pick up the stock at $29.48. With a monthly distribution of CAN $0.38, that works out to an annual yield of 14.85%! (considering an exchange rate of $0.96 = CAN $1).

Even after you consider a 15% tax, thats a post-tax yield of 12.62%! Pretty hard to match that return. HTE produces heavy oil and also has a refinery. I doubt oil prices will drop substantially or demand will taper off, so I feel the long term prospects are pretty good. In the short term there are always fluctuations in the stock price, but there are good buying opportunities.

Labels: Canroys

While this is not something I recommend you try out at home, its definitely interesting.

A Shreveport attorney who has challenged the government for years on the legality of filing federal income taxes has been acquitted on charges he failed to file returns.

A federal jury unanimously found Tommy Cryer not guilty this week on two misdemeanor counts of failure to file.

And according to Cryer, the prosecution dismissed two felony charges of tax evasion prior to trial.

"The court could not find a law that makes me liable or makes my revenues taxable," Cryer said. "The Supreme Court has ruled that the government cannot impose an income tax on anything but the profits and gains. When you work for someone you give your service and labor in exchange for money, so everything you make is not profit or gain. You put something into it."

You can read the whole story here.

I had read a book about this and also saw a website where some attorneys would set you up with a "pure virtual trust" so that you can somehow avoid paying taxes. I really didn't understand how it worked, my wife said it was a fraud and my tax bracket is incredibly low anyway so I didn't pursue it.

And we end with a riddle:

Whats the difference between tax evasion and tax avoidance?
About 5-7 years!

Labels: Taxes

I spent Sunday evening browsing books at Barnes and Nobles. I picked up The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New because of the rave reviews I'd read, but while I was there I glanced at a book on display called Survival of the Sickest: A Medical Maverick Discovers Why We Need Disease.

Intrigued by the title I started reading the book. It was so interesting that I spent the next two hours standing there and I finished the entire book! The author has a PhD in neurogentics (which I had never heard of) and using non-scientific terminology provides explanations for the probable reasons behind common genetic diseases.

He explains how diseases like diabetes and high-blood pressure may have had evolutionary advantages. Based on research on a wood frog that gets frozen solid every winter but thaws out in the spring with no side effects he draws a highly plausible conclusion that diabetes may have developed during the glacial age to prevent the extreme cold from damaging our internal organs. He also talks about skin color, downward pointing nostrils and our lack of hair compared to other primates!

Very interesting and definitely worth reading!

Labels: Book Review

Check out this hilarious video! After that, check out this very disturbing link.

According to the Financial Times,

The Baltic Dry index, the best gauge of dry bulk shipping conditions, last week rose to a record of 6,706 points, up 52 per cent on the year. Although the index has moved lower since, analysts believe freight costs will stay high. The index, which hit its previous all-time high last May, has risen almost fivefold since 2000. This increase threatens to add to already rising prices for agriculture, base metals and ore commodities.

John Kemp, of Sempra Metals in London, says: "The world economy is growing faster than the availability of transport capacity."

The world economy will expand this year at a rate of 4.9 per cent, according to the International Monetary Fund. If correct, it would be the first time since the 1970s that the world economy had grown by more than 4 per cent annually for five consecutive years.

The steel industry, which accounts for roughly half of dry bulk ship cargo, is especially strong, analysts say. The International Iron and Steel Institute forecasts final steel demand will grow by almost 6 per cent in 2007.

Sounds like time to load up onto the Steel and Shipping companies. Mittal Steel (MT) and Frontline (FRO) have been on a tear in the past 6 months. Check out this chart comparing them against the S&P500. They're both up 60% in the past 6 months! FRO also has a 12% yield!

Labels: Economy, Stocks

The broke the 14,000 level today. Despite Bear Stearns warning that their subprime mortgage hedge fund was worthless and Ben Bernanke stating that the subprime related losses would be in the range of $100 Billion the market was up! It just shrugged off the bad news and went on its merry way.

Interestingly, regarding Bear Stearns, Bloomberg reports "It was Bear Stearns, the biggest broker to hedge funds, that nine years ago declined to join 14 other investment banks in the bailout of Long-Term Capital Management LP. Then last week, as New York-based Bear Stearns pleaded for help to rescue two of its hedge funds teetering on the brink of collapse, many of the same firms refused to come to its aid". If you've never heard of Long Term Capital Management, I suggest you read the very interesting book,
When Genius Failed: The rise and fall of LTCM. It was basically a hedge fund started by some Nobel prize winners that ended up in smoke.

Going back to the stock market, when the market ignores terrible news and goes up, its usually a sign that the market is very bullish and will continue for a while. Consider that many companies are reporting bad earnings, and the stocks are not being punished.

Motorola (MOT) posted a $28 Million loss and the stock is up. Citizens Republic Bank (CRBC) announced its non-performing loans had quadrupled and it took a $20 Million write-off and its stock jumped up too!

Simply amazing.

At least the Dow Transports ($TRAN) is also hitting new highs along with the Dow Industrials ($INDU). If the TRANs had been lagging, the rally would be suspect.

We have a global credit bubble, a housing disaster in slow motion, a subprime mortgage fiasco, hopelessly underfunded government liabilities, an unsustainable trade deficit, negative U.S. savings rates, a collapsing dollar, oil depletion and creeping inflation, and yet the market is going higher!

Oh well, if you can't beat them, join them!

Labels: Economy, Rants, Stocks

If you're one of those unlucky guys who doesn't have much luck with the ladies, your luck has now changed. You can now become a total babe magnet for less than $1000. All you need to do is buy an Iphone!

According to Cliff Mason of TheStreet.com, its the best $600 he's ever wasted.

As soon as she gets her hands on the thing, the cashier next to her catches sight of it and flashes me a look of what I can only describe as sheer ecstasy before asking if she, too, can take a look. When the two women on either side of me and the one in line behind me realized there was an iPhone owner in their midst, they reacted like I was one of the Beatles, circa 1964.

Maybe I'm embellishing a bit, but not much. It is true that within that five-minute period, more women tried to make more small talk with me than at any time in the last four or five years.

Further, he justifies its high price tag too.

People compare the price of the iPhone to the much lower price of a BlackBerry or a Treo and conclude that the $600 price tag is way too expensive. They're using the wrong comparison. We should be comparing the iPhone with plastic surgery. What's $600 compared to the $6,000 you might pay for a tummy tuck, or the $8,000 many will pay for a face-lift?

So if any of you are looking for a good excuse to buy an Iphone, this is probably the best one. You can read about it in his own words here.

Labels: Humor, Rants

More and more countries are growing weary of the US Dollar. Latest in the list is Iran.

Iran asked Japanese refiners to switch to the yen to pay for all crude oil purchases, after Iran's central bank said it is reducing holdings of the U.S. dollar.

Iran wants yen-based transactions "for any/all of your forthcoming Iranian crude oil liftings," according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co. The request is for all shipments "effective immediately," according to the letter, dated July 10 and obtained by Bloomberg News.

I guess they'd rather get paid in the world's most undervalued currency which has a good chance of strengthening over the next few years, rather than the USD which looks like its just going to keep on depreciating against all other currencies.

Warren Buffett has hinted that he's made a significant currency play but of course, he won't say which one. Speculation is that its either Japanese Yen, Indian Rupee, Chinese Remnimbi or Australian Dollar. But Buffett, like many foreign countries isn't too keen on keeping his US Dollars either.

The Yen is severely undervalued but until the BOJ increases rates, it'll likely stay weak. The good news is that the economy is strengthening, so this finally seems like a possibility.

With the Indian 10 yr Reserve Bank Bond yielding 7.5%, and it having appreciated 20% against the USD in the past 2 years, it doesn't surprise me that it made the list.

With a huge stake in Petro-china (PTR), investing the chinese currency sounds redundant, so I doubt Buffett would buy it.

The AUD has appreciated rather nicely against the USD over the past 2 years. That looks like a likely candidate too.

Labels: Currency, Economy

"The vast majority of our imports come from outside the country."
- George W. Bush

"If we don't succeed, we run the risk of failure."
- George W. Bush

"One word sums up probably the responsibility of any Governor, and that one word is 'to be prepared'."
George W. Bush

"I have made good judgments in the past. I have made good judgments in the future."
- George W.Bush

"The future will be better tomorrow ."
- George W. Bush

"We're going to have the best educated American people in the world."
- George W. Bush

"I stand by all the misstatements that I've made."
- George W. Bush

"We have a firm commitment to NATO, we are a part of NATO. We have a firm commitment to Europe. We are a part of Europe."
- George W. Bush

"Public speaking is very easy."
- George W. Bush

"A low voter turnout is an indication of fewer people going to the polls."
- George W. Bush

"We are ready for any unforeseen event that may or may not occur."
- George W. Bush

" For NASA, space is still a high priority."
- George W. Bush

"Quite frankly, teachers are the only profession that teach our children."
- George W. Bush

"It isn't pollution that's harming the environment. It's the impurities in our air and water that are doing it ."
- George W. Bush

"It's time for the human race to enter the solar system."
- George W. Bush


Check out this site on Ron Paul.

Labels: Humor

I went on a "buying tour" yesterday to Baja Mexico. We first stopped at the new Trump towers in Tijuana where they hadn't yet broken ground. They were selling condos for around $700-$800 per sq ft. But they were on the coast with pretty ok views. The only problem was they were too close to TJ, which if you've been there you know, sucks.

The tour was operated by Beach Front Baja and I was impressed with the knowledge of the tour-guide, who was actually VP for the company. They make sure that they only recommended properties with clear title and developments that passed USA construction guidelines, not the weaker Mexican standards. (One of them being the installation of sprinklers and fire-retardant materials in high-rises).

Formerly foreigners couldn't buy land within 100km of the border and 50km of the coast but the law does allow them to hold property on lease from a Mexican bank trust, which is similar to a land trust. So foreigners are buying up land and houses using this loophole, which costs under about $600/year to maintain.

Then went down to Porto Nuevo (or New Port Beach). We stopped by another new condo pre-construction development called "The Falls". Substantially better views, only $200 sq ft. Even though the builder was local, he was pretty well-known, having been a prolific builder in Mazatlan and Cabo San Lucas. Unlike most builders who have a reputation for only building 80% of the work, he guarantees that the work won't be delayed more than 3 months else you chose to get your deposit back with interest.

Since you're paying 30% deposits on properties in Mexico, thats a pretty substantial investment. Unlike the USA, you can only get 70% financing so you'll need somewhat deep pockets to buy down here.

Then we went down to "Las Ventanas", a project of 38 single family residences right on the beach. Very high end custom homes, with lovely mosaic designs, top-of-the line fixtures and fancy ornamental fittings with patios that open right onto the beach. Really nice houses that you'd expect to see in New Port Beach, Orange County, not in Mexico! They were pretty pricey at $1.1 million but with a similar house costing $15 million in Del Mar, it might even be considered a steal at those prices.




In Mexico, you pay 2% transfer tax on the sale of a property, but the annual property tax is so low its a joke. Unlike the USA, its only a few hundred dollars. I'm guessing its probably based off the sq footage of the lot or constructed house and independent of the value of the house.

We also had lunch in the patio of one of the those homes and a lot of margaritas too!



After that we went to Ensenada and just east of there is Mexican Wine Country. 90% of Mexican's wine is grown in that area. However, Mexico's national wine consumption is less than San Diego's so thats not saying much! Anyway we saw a vinyard, tasted some wine and then we called it a day.



An interesting fact I found out is that in Mexico, you pay your electricity bill at the local grocery store!

On the whole it was an enjoyable trip. I was pretty amazed by the amount of construction going on along the coast and impressed by the quality of some projects too.

I may not be buying anything in Mexico but it was definitely an interesting experience.

Related Readings:
1. Choose Mexico for Retirement, 9th: Information for Travel, Retirement, Investment, and Affordable Living

2. The Plain Truth about Living in Mexico: The Expatriate's Guide to Moving, Retiring, or just hanging out

3. Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border

Labels: Real Estate