Friday, October 31, 2008

Tracking November's Grocery Spending

I just finished renovating our monthly budget, and under Groceries I have $400 per month (covers both M and I). I am going to hazard a guess and say that this is a nice blend of wishful thinking and total denial.

Since New Year's resolutions are right around the corner, I figured I might as well find out. So for the month of November I'm going to save all grocery/bodega/food co-op receipts and see what the final tally is. I figure that we should be able to eat in on $100 a week, so one of the interesting things about going through the receipts will be finding out what the budget breakers are. If I was a betting budgeter I'd place money on it being my obsessive purchase of blocks of cheese...

Thursday, October 30, 2008

New York State's Budget Gap

New York Governor David Patterson was in Washington this week testifying before Congress regarding New York State's projected 3.5 year budget deficit of $47 billion dollars. Egads.

New York State has long paid more in federal taxes than it gets back in aid from the Feds. While I agree in principle that the wealthier states should shoulder more of the financial burden than, say, Alabama, it is also ironic that it's the blue states who pick up the tab and are then held hostage by the red states' conservative politics. If pro-American is pro-rata, then Palin is on the wrong side of the fence. But I digress, which is understandable given that Tuesday is right around the corner. Thank god.

Back to my home state's woes. In 2007 New York state sent the Federal government a nice big fat check for $86.9 billion. What we got back from the federal government in return was a lowly rank of 40th in the nation in federal funding per taxes received. Of course, New York State would do well to take note that New York City paid $11 billion more in state taxes than it got back in state aid, essentially making all of upstate New York our welfare ward. Again, in principle I support the idea of the big guy supporting the little guy, but New Yorkers (the five borough kind) are constantly held hostage by New Yorker's (the rest of the state kind), so my enthusiasm for fairness is tempered every time things like congestion pricing get shot down. Like Western New York even has a rush hour (don't mind me, I can say things like that since I grew up in Buffalo).

All of which is to say, we have good reason to be freaked the frack out. Twenty percent of New York State's revenues come from Wall Street. Ditto for the city. And even the Wall Street Journal doubts Bloomberg is right for the self coronation job.

So when Patterson says he doesn't want to raise taxes, it's because New Yorkers already pay more in state taxes than all other states except one (that would be New Jersey, believe it or not). It's not the taxes, it's the inane New York State Legislature's spending spree that goes unchecked year in year out. If they manage to come back after the election and actually suck it up and cut spending, it would be a miracle of near biblical proportions.

Is there a way out? New York Magazine recently did a cover article on David Patterson that looks for some answers. None of which come easy.

Fiscal irresponsibility from all levels of government and capitalism have put us at risk. So I would like to take a moment to point out the most obvious, something that someone with piggybank blues knows all too well. Your budget-making abilities suck donkey derrier.

Tuesday, October 28, 2008

Credit Card Crunch

The NY Times article, As Economy Slows, Lenders Begin to Curb Credit Cards brings the credit crisis from Wall Street to, you know, your street. If you want a pretty decent primer on how to protect yourself, check out the San Diego Union-Tribune piece here.

Either I have sucker written in halogen across my forehead, or my credit must be pretty good because the past few weeks I've seen an uptick in credit card offers stuffing my mailbox. That isn't exactly the norm right now, and the Times article lays out some basic ways that we'll start to feel the squeeze.

First, the why:

Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001.

After years of profiting off of us losing our shirts, lenders are now taking enormous losses. And make no mistake about it, even creditworthy consumers are going to feel the pinch, just like creditworthy mortgage seekers are having a hard time right now. If the financial and banking industry is broke enough to get bailout after bailout, then rest assured they're broke enough to extend any kind of credit to the likes of you and me. And that includes the plastic kind.

The how:

Big lenders — like American Express, Bank of America, Citigroup and even the retailer Target — have begun tightening standards for applicants and are culling their portfolios of the riskiest customers. Capital One, another big issuer, for example, has aggressively shut down inactive accounts and reduced customer credit lines by 4.5 percent in the second quarter from the previous period, according to regulatory filings.

Lenders are shunning consumers already in debt and cutting credit limits for existing cardholders, especially those who live in areas ravaged by the housing crisis or who work in troubled industries. In some cases, lenders are even reining in credit lines after monitoring cardholders who shop at the same stores as other risky borrowers or who have mortgages from certain companies.

While such changes protect lenders, some can come back to haunt consumers. The result can be a lower credit score, which forces a borrower to pay higher interest rates and makes it harder to obtain loans. A reduced line of credit can also make it harder for consumers to manage their budgets, because lenders have 30 days to notify their customers, and they often wait to do so after taking action.

Some other notes from the article:

* Even Amex is pushing some creditor's interest rates up 2 to 3 percentage points.

* Rewards shmwards. That "free" flat screen went from a Sony to an Insignia.

* Anticipating the regulation that's headed their way, credit card companies are pulling back on zero percent credit card offers to everyone under the sun, eliminating teaser rates, and chopping up the length of time a zero percent rate is good for.

* Our mailbox will get 13 fewer pieces of junk mail a year. See above.

All of which may inspire a how-dare-they-! kind of response. Aside from the fact they scrod the pooch when they were making bank off of crazy credit limits, high fees, and trap doors for the average Joe and Jane, they now have some pretty legitimate reasons why they're doing this. The credit crisis is trickling down.

To summarize from the article:

* The credit card market is shrinking. It's not like people are exactly banging on the door to get even more credit cards and the debt that goes along with it.

* Credit card companies' profit margins are shrinking. Credit card companies have their own financing-- credit card bonds. Companies live and die on borrowing money, and the credit card companies are no exception. I touched upon this in an earlier post Why We Need the Bailout. So when investors stop investing in the tools that companies use to make money flow, like credit card bonds, companies lose flexibility to take risk (on the likes of you and me, for example, and our comfy interest rate).

* I don't know about you, but I curbed my spending like there's a bread line in my near future. That means less money for the credit card companies.

* Before, credit card companies could make up for a loss in profits by jacking up the fees. This isn't exactly the political climate to be attempting such shenanigans.

And that, folks, is why shite trickling down just never feels good when you're at the bottom.

Wednesday, October 22, 2008

Lewis Cho Sample Sale

Despite the fact that the economy has the moody blues, the season of holiday parties and other frivolity requiring a high alcohol tolerance and fashionable studs is fast approaching.

For the fashionistas on a strict budget, Lewis Cho is having a wharehouse sale with everything $50 or less. A wardrobe update with up to 80% off sounds pretty good right about now!

Sale is Tuesday, Oct 28th, Wednesday, Oct 29th and Thursday, Oct 30th from 11am - 8pm at:

Lewis Cho
225 W. 36th Street, Suite 701, between 7th & 8th Aves.

Support your favorite indie fashion designers!

Friday, October 17, 2008

Buy American

Warren Buffet's NY Times Op-Ed, Buy American. I Am. has a short two word per two sentence title. His advice, on his authority.

I couldn't possibly say it better, so I encourage you to click and read.

A preview:

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.

Friday, October 10, 2008

Finding Bottom

While the markets continue to walk the plank, I've been trying hard to think of ways not to completely lose my mind. I like to repeat the mantra, It's all about the number of shares, not the dollar amount, the number of shares... Does it work? Uh, not really.

After the Dow cracked 8000 yesterday, I decided to buy in. Because after all, you buy low, right? Honestly, the best thing to do with your money right now is to buy stock. But that is much easier said than done.

The problem with buying low these days is that you never know how low it can go. To make matters worse, to find the bottom of the market is much easier after the fact. Frankly, anyone who tells you they know when this market is hitting bottom has his/her pants on fire they're such a liar, liar. Nobody predicted this. While Buffet warned of the dangers ahead, I don't think that even he thought it would unravel quite like this.

About a month ago I bought some stock that was near its 52 week low. The market at the time, as you may recall, was going apoplectic and I thought I was buying a good company at a bargain. Boy was I wrong. Because oil fell on its ass, the S&P fell on its ass, and today when I logged in to my Scottrade account I found out I too had fallen on my ass-- I lost 60% of my money on that stock in less than four weeks. So what did I do? I bought more. But not of that company. I was so spooked by that loss, even though I know it'll be okay in the end, that I bought an ETF of the S&P 500. If that's alphabet soup, I did a post a while back on index funds and ETFs here.

To be honest, I was torn. I've been casting sidelong glances at blue chip companies like GE. This afternoon it was at $18 and change, smashing its 52 week low. It's now up to $21 and change as I type this. I could lose my lunch trying to pick the moment to strike. And then you have sparkly American companies like Apple and Google offering steep discounts. The risk is that you could find out later that this nice big blue chip is on the brink of bankruptcy, or that the floor of the Dow Jones Industrial Average just collapsed and took everybody with it.

I work for a man who made his money as a successful investor. Today he shook his head and said, "The problem is, all the rumors so far have turned out to be true." So I steered clear of GE, even though I was tempted, and conservatively bought SPY. If you have some spare change lying around and you don't mind looking at it for at least five years, I'd suggest you buy an ETF with a wide net of diversity tracking an index you understand (in other words, the S&P 500 versus Brazilian small caps). Because it's not about finding the absolute bottom, it's about buying into the market at a much lower price than it will be five to ten years from now. Stocks haven't been this cheap since 1985! And because companies are dropping oops-we-lost-billions-of-dollars kind of surprises on us left and right, I'd really really encourage the average investor to stick with index funds/ETFs through a ROTH IRA. Also, don't go all in. For example, if you have $4,000 to invest, you could invest $1,000 a week for a month to spread your price risk.

In the meantime, prepare for a rough ride. And remember, as long as a company doesn't go belly up, they can't take away how many shares you have. While that's been of little emotional comfort to me, it does keep my panic in check.

Wednesday, October 1, 2008

Why We Need the Bailout

The past month has been dramatic, and certainly the past few days are no exception. With a whirlwind of controversy over the failed bailout plan, there seems to me to be some misplaced rage. Thomas Friedman's Op-Ed, Rescue the Rescue, hits the nail on the head.

Count me in to tar and feather the brokers, who James Cramer lays blame to in a recent New York Magazine article:

The unraveling started with brokers searching for new income streams after the post-dot-com collapse of equities. With the Federal Reserve taking interest rates down to 1 percent to jump-start the economy after 9/11, these firms’ clients were desperate for bonds that could give them a higher return than risk-free Treasury bonds. With low short-term rates available to tease borrowers, as well as what seemed to be endless home-price appreciation and a glut of global cash seeking a home, the brokers decided to package all sorts of arcane mortgages into bonds and sell them to institutions and hedge funds around the world. The whole scheme rested on the underlying value of those homes, which would never decline again—right?

Count me also as first in line to spit on the shiny shoes of every top one percenter tax bracketeer whose greed got us in this mess to begin with, and surely aren't worried about how they're going to pay for their Metrocard this month--bailout or no bailout.

And yes, as I've railed about before, it's we the little people who got snookered and we the little people who are now footing the bill. So the rage is real, but to be against the bailout is directing the anger to a place more akin to shooting yourself in the foot, when you were aiming for Richard Fuld.

Look, when people are talking about a credit freeze that involves a $700 billion bailout, rest assured they're not talking about someone taking away one of your credit cards. While that is a real trickle down outcome of this mess, nobody is trying to spend $700 billion to help out your sorry ass. No, this is a business credit freeze. And while many people are like I give a flying duck, the fact of the matter is you should. Because our economy runs on credit- it literally fuels the engine that we all benefit from.

For example, a few friends of mine are designers. As small business owners, they do things like make clothes from scratch and other things beyond my meager talents. So they design something and send it off to a factory, the factory bills them (ie credit) and they have X amount of days to pay. Then they sell their clothes to stores, and in turn bill the stores who have X amount of days to pay (ie credit). If somewhere along the line someone can no longer afford to extend X amount of days to pay, it is a chain reaction, and as we all know, you can't pay unless you got paid. It would simply not be possible to be a fashion designer, small potatoes or big kahuna, and pay everything up front.

Another example-- take restaurants, a dime a dozen in NYC and our motherlode of small businesses. When a restaurant or bar buys liquor from a distributer they have an approved credit line. Liquor is expensive, especially in large volumes, so they get, say, 30 days to make money off it and then they're able to pay their bill. For a restaurant to pay up front for liquor, for restaurant supplies, for all food deliveries, etc., it would cripple the business and they would go under. Not because they were poorly run, necessarily, but because you need credit to take risk, to make a profit, to get paid. If the liquor distributer suddenly loses its own ability to buy on credit, whether because credit is frozen or the interest rates are raised too high, the subsequent effect on restaurants in the city would be none too pretty.

And on a larger scale- you think H&M or Old Navy pay everything up front before they've had somewhat of a chance to sell to us, make a little money and pay back what they've borrowed? You think Sony delivers a flat screen TV to Best Buy already having paid in full what it cost to make and ship those thousands of flat screens? Obviously not, and now we get into commercial paper. Commercial paper is basically a money market security issued by the big boys to cover short term debt, such as inventory. It's only really available to highly rated businesses, and presumably safe so the yield is low for people who buy it. You have to buy a lot of it to be able to buy it, so usually money market funds buy it, not people like you and me. With a low interest rate, it allows big business to do what it does on a daily basis, just like a factory billing my friends for their order on 100 dresses allows them to do what they do.

And that's why we need the bailout. Because some very bad decisions by some very wealthy people are clogging the entire capitalist system, of which we're all a part of no matter how left you lean. Unless you lean so left you're Thoreau, and you paid for your pond in full, in which case you're good to go. For the rest of us, we can only hope for a plan that addresses the needs of taxpayers with transparency, accountability, and the ability to recoup the loan. Perhaps most importantly, the bailout is only the first step in repairing what broke in the first place (and yes, that's a loooong list). Because prevention is a whole other issue, and if there is any kind of silver lining it's that our government just might have the motivation now to finally hold Wall Street accountable with honest regulation.