Actively Managed Funds Struggle Amid Crisis

Here's a good article from the Wall Street Journal. I've copied the article in case the link stops working. The link is at the bottom.


By Paulette Miniter | SmartMoney

If you ever wondered whether it pays to buy an actively managed mutual fund, this year's dismal results don't help the industry's cause.

Fidelity's 2008 is a case in point. Among the largest U.S. mutual fund companies and 401(k) providers, Fidelity is primarily an actively managed fund shop. But its year-to-date performance for U.S. stock funds is slightly below that of Vanguard's, which is known for its inexpensive indexed-based funds.

The average Fidelity U.S. stock fund was down 34% through Monday, compared to -32% for Vanguard, according to Lipper. That's about where the overall stock market is, as well.

Fund companies always like to remind us not to overemphasize short-term results. But the numbers are a stark example of where active stock-picking can lead a portfolio. This is especially relevant if you're paying extra for the active management. Although Fidelity sells many good low-cost funds, on average its diversified U.S. stock funds have an expense ratio of 1.24% compared with 0.20% for Vanguard, according to Morningstar. For all their equity funds, the averages are 1.32% for Fidelity and 0.20% for Vanguard.

The question now is, should you stick with an active fund manager who made clear missteps this year but has done well in the past?

"It's not that these managers who have done well for a number of years just turned stupid all of the sudden," says Tim Courtney, chief investment officer at Burns Advisory, an independent registered advisor firm in Oklahoma City, who is advising clients to try and stick it out for when the market rebounds.

He points to Bill Miller, of Legg Mason Value, who had beat the S&P 500 for 15 years straight until a couple of years ago. Miller's fund, which has an expense ratio of 1.68% for primary class shares, is down a whopping 48% this year. "We'd expect it to lag badly at times, due to Miller's bold approach," Morningstar analyst Greg Carlson has said.

"There is something strange about the market we're in. It's leading a lot of actively managed funds to make wrong decisions, and it's making their funds look bad in the short run," Courtney says.

Another example is Fidelity Magellan, which although actively managed is cheap with a 0.72% expense ratio. It's down more than 40% this year, worse than its peers and the S&P 500. Last year, though, it rose 19% under the same manager, Harry Lange. What happened? One of its top recent holdings was American International Group, which is down to about $2 a share after starting the year at $55. The feds had to bail out AIG amid the heat of the credit crisis. However, the fund has also taken big hits on companies outside the finance sector, including from its biggest holdings, Nokia and Corning.

Despite the bad showing year to date, Morningstar analyst Chris Davis still thinks Lange will "eventually reproduce his past success."

"If the fund's dramatic underperformance shows anything, it's that Lange is no index hugger," Davis says. "That willingness to be different has backfired in a dramatic way this year, but it's been Lange's ticket to success over the long haul."

OCTOBER 22, 2008, 3:53 P.M. ET
Source: Wall Street Journal, http://online.wsj.com/article/SB122470413376959381.html

I'm Losing Control!!

Todays post gets at the heart of the issue in times like this. I'm reprinting article from Jason Zweig. Zweig writes a column for the WSJ and is a writer we quote often in our coaching sessions with clients as well as our regular day to day interection with you. Todays column is appropriate and very timely. Please take the time to read it in its entirety. You'll be glad you did.

THE INTELLIGENT INVESTOR
OCTOBER 7, 2008
By Jason Zweig

So do you feel like quitting yet?

If Monday's 800-point intraday plunge in the Dow Jones Industrial Average made you want to give up and get out of stocks, you're not alone.

I've written column after column advising investors to buy stocks on the way down, and readers are in pain. "You say not to bail," one reader emailed me over the weekend, "but all funds are down. ... This whole stock market has me so upset, [I feel] like a deer in the headlights." Another wrote: "We are, you see, about to enter another Great Depression, just like the last one only much worse. ... It's way too early to be buying stocks. ... Or I could be really nasty and ask you which brokerage house paid you to run this stupid column now."

Right or wrong, I work only for The Wall Street Journal. But what all of us are feeling is the loss of control we sense when we are faced with anything that is frightening, inexplicable and important.

That lack of control not only makes us feel powerless; it also changes the way we view the world. Very small amounts of fragmentary information can suddenly seem to be fraught with meaning: Did something move on "the grassy knoll" the day John F. Kennedy was assassinated? Will one down day in the stock market lead to another and another?

Even the greatest investors have felt the same kind of fear and pain you are probably feeling. For proof, look no further than "Security Analysis," the classic textbook by Benjamin Graham and David Dodd, which has just been reissued in a commemorative edition. Graham was one of the best money managers of the 20th century, a brilliant analyst and market historian, and Warren Buffett's most influential teacher and mentor.

The new book reprints the text of the 1940 printing, in which Graham addressed the market devastation of the previous decade. Just as the roughly 90% fall between 1929 and 1932 had seemed to be fading, the stock market dropped sharply again in the late 1930s. As market historian James Grant puts it, by the time Graham was ready to finish the 1940 edition, "He had had it."

That helps explain one of the great ironies of market commentary. Graham himself stuck largely with stocks in his investment fund. But at the conclusion of his book, he advised the institutional investors among his readers to shun the stock market entirely and invest in bonds. Graham doubted they could stomach "the heavy responsibilities and the recurring uncertainties" stirred up by stocks.

How does the feeling of being overwhelmed affect investors? Research conducted by psychologists Jennifer Whitson of the University of Texas and Adam Galinsky of Northwestern University shows how it changes our perceptions. In one of their experiments, people were first rattled by a computer that gave them unpredictable feedback on their performance at a trivial task, stripping them of their sense of control. These people became much more likely to perceive shapes in a swarm of random dots.

"When you sense that you have a lack of control," says Prof. Whitson, "you're much more likely to try twisting and pretzeling explanations and seeing patterns that aren't even there."

In a related experiment, investors who had been stripped of their sense of control by market volatility were convinced that they had read more negative evidence about a company than they had actually seen -- and were less willing to buy the company's stock.

In other words, when our sense of control is threatened, we feel the natural urge to pretend that whatever information we do have is more complete and reliable than it is. Imagining that we know what's coming next (even if we think it will be bad) gives us a slight feeling of comfort.

As an investor, however, it's absolutely vital to separate what you can truly control from what is beyond your control. The only thing you can know for sure is that stocks are steadily getting cheaper. You cannot control whether or not the market will continue to trash stocks, but you can control how you respond.

If we are not headed into a depression, panic hardly seems justifiable.

What if we are?

Even during the Great Depression, the best investment results were earned not by the people who fled stocks for the safety of bonds and cash, but by those who stepped up and bought stocks and kept buying on the way down. A man named Floyd Odlum made millions of dollars putting his cash into battered stocks. His motto throughout the market nightmare of 1929 to 1932 never changed:

"There's a better chance to make money now than ever before."

Is Cash Really a Better Option?

Here's a really good article from the New York Times that addresses one of the most common responses to a market downturn - moving your money to cash. Before you do, read the rest of this article and call us with any questions.


Switching to Cash May Feel Safe, but Risks Remain
By RON LIEBER
Published: October 9, 2008

It’s a question we’ve all asked in our darker moments of late: Why not just put all of our investments in cash, 100 percent, just for a little while, until things calm down?

Some people already seem to be acting on that instinct. In the first six days of October (through Monday), investors pulled $19 billion out of mutual funds that invest in United States stocks, matching the outflows for the entire month of September, according to TrimTabs Investment Research.

“What clients are looking for is safety,” said John Bunch, president of retail distribution at TD Ameritrade. “They are seeking solutions that are backed by the federal government. Specifically, F.D.I.C-insured money funds and certificates of deposit. All of it is under the umbrella of, ‘Am I safe and insured?’ ”

By fleeing for the comfort of safe and insured, however, investors with a time horizon beyond a few years may be doing real damage to their long-term finances. If you’re tempted to make a big move to cash right now, you’re doing something called market timing. It’s an implied statement that you’ve figured out the right moment to get out of stocks — and will also know the right time to get back in.

So let’s dispense with the first part straightaway. The right time to move out of stocks was a year or so ago, before various stock indexes the world over fell by one-third or more.

If you missed that opportunity, you’re hardly alone.
But if you sell now, you’ll be locking in your losses. And once you’re in cash, there isn’t much upside. In fact, with interest rates low, you’re likely to lose money in cash, because inflation will probably eat up the after-tax returns you earn from a savings or money-market account.

A guarantee of a small loss may sound good right now. But if you’re not bailing out of stocks once and for all, how will you know when it’s time to get back in? The fact is, any peace of mind you gain by being on the sidelines now will turn into a migraine once you see how much you can harm your portfolio over time by missing just a bit of any rebound.

H. Nejat Seyhun, a professor of finance at the Ross School of Business at the University of Michigan, put together a study in 2005 for Towneley Capital Management, where he tested the long-term damage that investors could do to their portfolios if they missed out on the small percentage of days when the stock market experienced big gains.

From 1963 to 2004, the index of American stocks he tested gained 10.84 percent annually in a geometric average, which avoided overstating the true performance. For people who missed the 90 biggest-gaining days in that period, however, the annual return fell to just 3.2 percent. Less than 1 percent of the trading days accounted for 96 percent of the market gains.

This fall, Javier Estrada, a professor of finance at IESE Business School in Barcelona, published a similar study in The Journal of Investing that looked at equity markets in 15 nations, including the United States. A portfolio belonging to an investor who missed the 10 best days over several decades across all of those markets would end up, on average, with about half the balance of someone who sat tight throughout.

So moving to cash right now is just fine as long as you know precisely when to get back into stocks (even though you didn’t know when to get out of them).

At some point, stocks will indeed fall enough that investors will remove the money from their mattresses and put it to work, causing prices to rise significantly. But, as Bonnie A. Hughes, a certified financial planner with the Enrichment Group in Miami, put it to me, there won’t be an e-mail message or news release that goes out when this is about to happen. It will be evident only afterward, on the few days when the market surges.

And it gets worse for those who think they won’t have any trouble investing in stocks again later. Medium- or long-term investors who are considering a big move into cash right now are probably making an emotional decision, at least in part. For those who follow through, the same instincts will probably hurt when trying to figure out when to reinvest in stocks.

“The emotional forces that drove them out of the market aren’t likely to let them back in ‘until things are better,’ ” Dan Danford of the Family Investment Center in St. Joseph, Mo., said in an e-mail message. “And for most people, things won’t feel better again until the market has already moved back up.” In fact, he added, plenty of people may not allow themselves to get back in until the market has already risen significantly.

That situation is worth considering if you think your mood, or returns, can’t get any worse. “People feel worse missing out on the bounce-back that will inevitably come than they do hanging in there through the down period,” said Elaine D. Scoggins, a certified financial planner with Merriman Berkman Next in Seattle.

The truly downbeat do not see the bounce as inevitable. This outlook is essentially a bet that our current predicament is so different that the equity markets won’t bounce back at all, even though they survived 1929, the Great Depression, 1987 and a major terrorist attack. I do not believe that the markets are in some kind of permanent decline, and I haven’t found an expert who does.

That said, some retirees, or those close to leaving the work force, may be well-off enough to leave stocks behind for now. If the tumult in the economy and the decline in the markets have altered your risk tolerance, then it may make sense to move to a portfolio of Treasury bills, certificates of deposit and money market funds.

Michael G. Coli, 56, of Crystal Lake, Ill., decided to take his 401(k) money out of the market in February. As an investor in his sons’ pizza restaurants, he noticed that an increasing number of customers were relying on credit cards. And as the owner of a winter home in Naples, Fla., he witnessed the housing market dive. Taken together, he decided to pull his retirement money, which he would need in five years, from the Vanguard Balanced Index Fund and move it all into certificates of deposit.

“I had the feeling the economy was not on real firm ground,” Mr. Coli said. “I decided to get out and put it all in C.D.’s, and that is where I’ve been ever since.”

If you can’t afford to live off the proceeds of cash investments (or dividends from your investment in your kids’ pizza joints), you may have no choice but to hold on to whatever stocks you have left. Then, you can hope for a rebound that will allow you to live out your later years more comfortably. Selling now and moving to cash could mean guaranteeing a lower standard of living for the rest of your life, because you’d be locking in your losses.

But if you’re a bit younger, try to think of your investment portfolio in the same way you consider the value of your home, if you own one. After all, if you’re not moving anytime soon, your home is a long-term investment, too.

“Today’s price is not your price. Your price is 10 or 20 years from now,” said Thomas A. Orecchio, of Greenbaum & Orecchio, a wealth management firm in Old Tappan, N.J. “Unfortunately, stock market investors don’t always see things that way.”

Tara Siegel-Bernard contributed reporting.

Copyright © 2008 The New York Times

Here is the permalink.

History of Home Prices

Here is an entertaining perspective of the housing bubble. For those of you who get sick at the IMAX theater, better have some dramamine ready.



This production was created by the folks at www.speculativebubble.com

Here's the chart that the roller coaster was based on (click on the image for a larger view):





















The source for the chart is from Robert J. Schiller's "Irrational Exuberance," 2nd Edition. 2006

The Common Sense Fix

A friend forwarded a common sense plan aggregated by Dave Ramsey, a Tennessee based nationally syndicated radio talk show host. Ramsey is also the author of a best selling book called Financial Peace, a book I have read more than twice personally and have handed out on more than one occasion.

To be transparent, he and I don't see perfectly eye to eye on everything from a personal finance perspective which many of you have heard me say, but 90% of the time we are in step with each other. On the issue of this $700 Billion bail out plan, I agree with him.

Many of you have asked me what I think should happen. This is along the lines of my thinking.

The Common Sense Fix:

Years of bad decisions and stupid mistakes have created an economic nightmare in this country, but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following threestep Common Sense Plan.

I. INSURANCE

a. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.

b. In order for a company to accept the government-backed insurance, they must do two things:

1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.

a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.

b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that
encourages mortgage companies to go the extra mile while working with the borrower—again limiting foreclosures and ruined lives.

2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs.

c. This backstop will cost less than $50 billion—a small fraction of the current
proposal.

II. MARK TO MARKET

a. Remove mark to market accounting rules for two years on only subprime Tier III
bonds/mortgages. This keeps companies from being forced to artificially mark down
bonds/mortgages below the value of the underlying mortgages and real estate.

b. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing.

III. CAPITAL GAINS TAX

a. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing.

b. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and
retirement investments that go up instead of down.

This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as
Americans, to stand up, speak out, and fix this mess.

Are You Diversified

Sign up for a workshop

Book recommendation:

How to measure Bear Market benefit to YOUR savings

Is the Bear Market good for me?

We've been talking about the advantages of the Bear market in our web seminars. You may have read the quotes by Warren Buffet about how he looks forward to declining stock prices. The 24/7 financial news channels are working hard to spin the Bear Market as, “not so bad” for investors. Why then, are folks still not comfortable seeing their 401k and other savings dropping 5%, 15% and 25%? Why are large investors pulling billions of dollars out of the stock markets? How come you don’t feel love for the Bear??

The reason is uncertainty! How much real risk is there? “What does the worst case look like?” “What if everyone else bounces back but I don’t?!” “How can I be sure I am not being played for a fool?”

There is a way to measure risk in your investment strategy. Harry Markowitz developed a theory in the 1950’s that he won a Nobel Prize for in 1990. We can apply his formula to your current investment strategy. We can calculate an expected return for different levels of volatility that you accept for your investments.

Learn how to build Peace of Mind into your investments. Depending on your tolerance for risk, you will still see ups and downs in your invested savings. Learn what acceptable volatility looks like for your investments. What potential is there for volatility next year?

Sign up for one of our informational web seminars and attend our next educational event in October. Register on line at www.vanderwey.com or simply choose the 'workshops' tab to the right and select the seminar tab at the bottom of the page.

Love The Bear

Sign up for a workshop

The Market Has Always Recovered, Mutual Funds Have Not!

How many times have you heard “The market will recover, don’t panic, keep your money invested!” I confidently say it myself, BUT this statement may not be true for you!

While history shows that the broad index of companies that you can invest in have always recovered their value and provided a healthy return over time, individual mutual funds have not always recovered. In 2002 after the tech bubble burst and the market recovered there were thousands of mutual funds that were no longer around.

What happened to them?!? For many, the mutual fund companies quietly rolled these funds into other more successful funds and erased their awful track record! This is called Survivorship Bias. The dismal performance of the disappearing fund that you owned will not be included in the historical performance record of the fund that acquired it.

"Survivorship Bias. Fund companies statistics refer only to funds that currently exist. So when a fund has been performing poorly for several years, the mutual fund company simply terminates the fund or merges it with another. Either way, the offending fund's statistics are wiped away, as though the fund never existed. This misleads investors into believing that the company's overall performance is better than it really is.

Worse: When a fund terminates, it triggers tax liabilities you didn't want and forces you to find another investment. And when a fund is merged into another, you find yourself owning shares in a fund you might not want. In all of this, you have no advance warning and no say; the termination or merger will occur whether you like it or not."

--Ric Edelman: "The Continuing Evolution of Investment Management" 2007

This is legal but wrong. Track record investing not only does not work, the track record itself may be unreliable.

Stop letting active money managers play games with your hard earned savings! Learn how you can eliminate survivorship bias in your funds. Register for one of our Web Seminars this week or sign up and attend the next “Separating Myths” seminar at the Cornerstone Conference Center in Okemos on October 9 or at the Prince Conference Center in Grand Rapids on October 14. Register by clicking the "Workshops" Tab to the right.

Federal Housing Tax Credit

What is the first time homebuyers tax credit, who is it for and what are the benefits?

www.federalhousingtaxcredit.com

A History of Freddie Mac and Fannie Mae

1938 Fannie Mae created during the Great Depression as a government agency to ensure supply of mortgage funds. The aim was to boost banks’ capacity to offer home loans by buying up existing loans in exchange for cash

1968 Fannie Mae re-chartered by Congress as a shareholder-owned company, funded solely with private capital

1970 Freddie Mac created to provide competition in the secondary mortgage market and end Fannie Mae’s monopoly

1971 Freddie Mac introduces the first mortgage-related security

2003 US policy interest rates hit a low of 1%, further stoking the booming US housing market

2004 Following an accounting scandal, Fannie and Freddie’s regulator Ofheo requires the companies to raise their level of core capital 30 per cent above previous levels, in effect capping their ability to purchase mortgages

2006 A steep rise in the rate of subprime mortgage defaults and foreclosures lead a number of subprime mortgage lenders to fail. The failure of these companies causes prices in the mortgage-backed securities market to slip

August 2007 Rising defaults on subprime mortgages trigger a global credit crunch

March 2008 Ofheo gives both companies permission to add as much as $200bn financing into the mortgage markets by reducing their capital requirements

April 2008 Ofheo report reveals that Fannie and Freddie accounted for 75 per cent of new mortgages at the end of 2007 as other sources of financing pull back on lending

July 2008 Shares in Freddie Mac and Fannie Mae plummeted amid speculation that a bailout of the government-sponsored mortgage financiers may be required, and that such a bail-out would leave little if any value for current shareholders. Frantic trading on Thursday in New York dragged shares in both companies down to their lowest levels since 1991

September 2008 The US government seizes control of the troubled mortgage groups in what could become the world’s biggest financial bail-out. The government’s move, its most dramatic since the start of the credit crisis, is aimed at ensuring the two groups’ woes do not cripple the country’s housing market or worsen to the point that they fail and send shockwaves through global markets

Source: The Financial Times Limited 2008, A history of Freddie Mac and Fannie Mae

US Government Bails out Fannie and Freddie

$100 Billion, yes, with a "B". Over the weekend, the US government takes over the two huge mortgage guarantors. Until now, they were sanctioned by the government, but this morning, the language is much stronger. We own them now - you and me - and we'll vote for their new president on November 4th. And by the way, the $100 Billion is likely to be invested in each of the companies, not the two combined.

Notable Quotes from the Article:

"These necessary steps will help strengthen the U.S. housing market and promote stability in our financial markets. Bernanke said"

"James Lockhart, the head of Federal Housing Finance Agency which will now oversee Freddie and Fannie, said that the recession in the housing market ultimately ate away at the two firms' capital."

The Federal Reserve Cuts Rates .75%

Tries to stave off a larger decline in the stock market The Federal Open Market Committee (FOMC) held an emergency meeting last night to determine how to address the sharp sell off of stocks from around the world yesterday and the impending sell off US stocks today. It was the first special meeting since 9/17/01 and the largest one day cut since 1984. They decided to cut the Fed Funds Rate (FFR) to 3.5%. Here's an updated chart showing the Fed Funds Rate, the Prime Rate and the National 30 yr. Fixed Rate average. For more information about this story click here... To learn more about how Fed Rate cuts affect mortgage rates, check out our blog entry from Jan. 15, 2008... Cashflow Coach

600 Jobs, 600 Families, 600 Homes

Free Markets work to create opportunity, jobs, growth and value in our region!
 
Many of you have already heard that Liquid Web has purchased a building and will begin renovating it to house their expanding web hosting and data center operations along with employee growth.  Read more on this story by clicking here.  More people than ever before believe that Lansing, MI is where they want to be to work, live and raise their family. 
  
WE HAVE:
 
Better paying Jobs coming here than in the recent past.
 
Better paying jobs bring families, not only singles.  Families have children; children go to our schools and do a wealth of other activities in Michigan together.
 
More Jobs being created than in the recent past!
 
More residents will stay and not leave; more companies will want to expand here as our work force grows, more home buyers and renters will remove homes from the market - fewer homes on the market will increase home prices.
 
We have a Greater diversity in Job creation than ever before.
 
This will hold many positives for us.  For example, both spouses will find employment in their field here in mid-Michigan now more often than before. 
 
Diversity in job sector opportunity is the number one priority for economic development in any region.
 
In and around Texas during the 1980’s after the drop in oil prices devastated that 5 state region, job diversity is credited as the reason why they made such a long lasting recovery.  It is no surprise to many that even in the last three years, many of the hard hit regions in Texas in the 1980’s are not experiencing real estate value decline right now.  Their growing economy, based on a very diverse job market, is almost unstoppable.
 
In addition to our staple manufacturing, university, and state government we are expanding rapidly in health care, technology and the insurance industry.  As we become known for having a presence in certain industries, we get “on the map”. For corporations considering new regions to expand into, qualified employees that insure their stable growth is high on their list or qualifying determinants.
  
All positive growth begins with the truth! 
 
Here’s the truth:
 
The best is yet to come in Lansing!

Warren Makes a Bet

By John Mauldin
FrontLineThoughts.com

The Sage of Omaha made a bet that was written up in a recent Fortune magazine article. Basically, Warren Buffett bet that the S&P 500 would outperform a group of funds of hedge funds over the next ten years. A million dollars to someone’s favorite charity is on the line. This week we will analyze the bet, using it as a springboard to learn about valuation and value investing. As we will see, there are times that making a bet on the S&P 500 to outperform hedge funds (or bonds or real estate or whatever asset class) makes sense and times when it doesn’t.

Warren Makes a Bet

Carol Loomis (one of my favorite financial writers) writes in this week’s Fortune about a bet that Warren Buffett made with a hedge fund management company. You can read the fascinating story

Quoting:
“And to that there is a certain history, which began at Berkshire’s May 2006 annual meeting. Expounding that weekend on the transaction and management costs borne by investors, Buffett offered to bet any taker $1 million that over 10 years and after fees, the performance of an S&P index fund would beat 10 hedge funds that any opponent might choose. Some time later he repeated the offer, adding that since he hadn’t been taken up on the bet, he must be right in his thinking.”

A New York firm, Protégé Partners, which manages $3.5 billion in a fund of hedge funds, decided to accept that bet. Basically, Buffet and Protégé each put $320,000 into 10-year zero-coupon Treasury bonds that will be worth $1 million in 10 years. The bet is straightforward. Protégé has chosen five funds of hedge funds, and these funds must return more than the S&P 500 over the 10 years beginning January of 2008. (The list of funds is a secret.) The winner gets the $1 million donated to their favorite charity.

Which way would you bet? If the online response at Fortune is any indication, 90% of you would bet with Warren. As one enthusiastic responder wrote, “How can you bet against Buffett? I’d bet my life savings on it …” Well, Tom, you might want to hedge your bet. Even Warren said he thinks his odds are only 60%.

The basic premise to Buffett’s position is that the high fees simply eat up any potential for extra profits, over those of a simple index fund. As Buffett writes:

“A number of smart people are involved in running hedge funds. But to a great extent their efforts are self-neutralizing, and their IQ will not overcome the costs they impose on investors. Investors, on average and over time, will do better with a low-cost index fund than with a group of funds of funds.”

And he is right about the fees. Hedge funds, and especially funds of funds, must do much better than average to overcome their high fees. Loomis sums it up as follows:

“As for the fees that investors pay in the hedge fund world – and that, of course, is the crux of Buffett's argument – they are both complicated and costly. A fund of funds normally charges a 1% annual management fee. The hedge funds it puts that money into charge an annual management fee of their own, which for funds of funds is typically 1.5%. (The fees are paid quarterly by an investor and are figured on the value of his account at the time.)

“So that's 2.5% of an investor's capital that continually goes for these fees, regardless of the returns earned during a year. In contrast, Vanguard's S&P 500 index fund had an expense ratio last year of 15 basis points (0.15%) for ordinary shares and only seven basis points for Admiral shares, which are available to large investors. Admiral shares are the ones ‘bought’ by Buffett in the bet.

“On top of the management fee, the hedge funds typically collect 20% of any gains they make. That leaves 80% for the investors. The fund of funds takes 5% (or more) of that 80% as its share of the gains. The upshot is that only 76% (at most) of the annual return made on an investor's money accrues to him, with the rest going to the ‘helpers’ that Buffett has written about. Meanwhile, the investor is paying his inexorable management fee of 2.5% on capital.

“The summation is pretty obvious. For Protégé to win this bet, the five funds of funds it has picked must do much, much better than the S&P.”

Oil, Dollars, inflation and Fed rates - great expanation here!

Fed leaves the rate alone today as expected – if you are curious about how some of these things relate to one another, read below. This is clear and easily grasped. Be the expert at the dinner table tonight!

Barry Habib is an analyst for CNBC and writes for his Mortgage Market Guide website. Many of you have seen this sight in my office, we watch it closely every day in order to advise our clients about locking rates.

Enjoy!

Oil,Dollars, Inflation and Fed Rates

By Barry Habib, CNBC Analyst

We actually agree with a more hawkish view - and although the Fed will not hike, we hope they decide to do so sooner than later. There is a possibility of a hike in August but it is not likely. The Fed is in a tough spot - the economy stinks, housing is struggling, confidence is low and costs are rising. You need only look at your last receipt from the grocery store or gas station to see how quickly things have changed. And a walk through your local shopping Mall tells another story of individuals who are less able to spend. That is the Fed's problem...the smart move is clearly to hike. Inflation is rapidly eating away the value of money. And while food price increases hurt, oil is the real story. So why has oil risen so wildly? The answer...The Fed. The evidence is too clear to ignore.

Let's take a look at where we were before the first Fed cut on September 18th. The Fed Funds Rate was at 5.25%, Oil was at $73 per barrel and the Euro was $1.35. Not great, but not bad. Fearing a recession, the Fed did the right thing to stimulate the economy - they cut. But cutting rates in the US makes higher rates in Europe appear much more attractive. So the Dollar began to tank against the Euro and just got worse as the Fed continued to cut. Now it takes $1.56 to equal one Euro. That is a huge swing. And here is where it gets interesting...Oil is priced in Dollars, so as Dollars decline, Oil price per barrel must rise.

Oil has gone from $73 a barrel before the Fed cuts began in September '07 to yesterday's close of $137 a barrel. And the European Central Bank President, Jean - Claude Trichet, has been talking about a rate hike in Europe even though they are headed for a recession. Remember there is a big difference between the US Fed and the ECB - the US has a dual mandate, fight inflation and promote growth. The ECB just fights inflation. And just the talk of a hike from the ECB has sent oil even higher.


Again, oil prices are surging mainly because of the Dollar weakness and the Fed cuts. Think about it - has demand for oil suddenly skyrocketed in the past 8 or 9 months? Sure it has gone up, but oil had already doubled in price when it was at $70. And higher prices for oil hurts everything. Sure at the pump and for heating, which allows less to spend, but travel, manufacturing, shipping...the list goes on and on.


Back to this morning's news - New Home sales for May were reported at 512,000, inline with expectations. The inventory of New Homes rose to a 10.9 monthly supply. This report suggests the new home sale market is still struggling.

The more "hawkish" the Fed statement, the better it will be for Bonds. But if the Fed does not at least talk tough, Bonds will be pressured and Oil will move higher.

March Madness - The Fed Cuts Again

The madness isn't just on the hardcourt.

You may have heard that the FED cut rates again last week; another .75%, bringing the fed funds rate to 2.25%. Contrary to popular opinion this does not translate to a lower 30 yr. fixed rate, in fact rates have started to rise again.

When you look at the last 5 rate cuts dating back to 9/18/07, the fixed rates have increased each time within days of each cut. The simplified explanation for this phenomenon is that fixed rates (bonds) dislike inflation and the rate cuts tend to be inflationary long term.

There's a lot of debate about how involved the FED should be in bailing out banks like Bear Stearns and other banks that took a "gamble" on these high risk loan portfolios. The free market people are calling for passivity and less involvement so the market can self correct.

A large segment of the investors that are or will have a lot to lose are asking for help to mitigate their losses. They argue that to let a bank like Bear Stearns collapse would be detrimental to ALL investors and the entire banking system.

We tend to side with the free market side of the argument. A lot of the self correction has already occurred and the people who took extra risks to get a better return need to be held accountable to their choices.

We also agree to a smaller extent that some intervention needed to happen in the Bear Stearns case because of the long ranging effects of it's collapse. We ALL would've been negatively impacted by a loss like that.

Why is the FED being so aggressive with their rate cuts? We believe that part of it is because banks are no longer loaning money to each other like they were prior to Aug. '07, so the banks need another source of money to meet their deposit requirements.

But, even more than that, we believe the FED has been agressively cutting rates to mitigate the impact of $400 billion to $600 billion in Adjustable Rate Mortgage (ARM) resets in this year alone. By agressively dropping the Fed Funds, the other short term rates like the LIBOR, CMT, MTA and the T Bills also drop.

For instance the 1 MTH LIBOR has dropped over 3% since August '07. Now when these ARM's start to adjust this year, the new rate will be closer to the starting the rate and the payment shock will be less which means more people should be able to keep making payments which means less defaults and foreclosures. This in turn helps to stimulate the housing market again.

Stay tuned for more madness, both the good (Spartans win the Championship) and the not so good.

Roth IRA: When's the Best Time to Start?

The best time to start or fund your Roth IRA is - NOW!

If you haven't started your Roth IRA, you should seriously consider opening an account ASAP! If you have a Roth IRA and haven't funded it yet for 2007, you still have time. Here's a good article on why you should have a Roth IRA.

The timing couldn't be better. For one, you can still fund your Roth for 2007 up until April 17th, your tax return deadline and then turn around and fund your 2008 contribution right afterwards in one lump sum or incrementally throughout the year.

For 2007, your max. contribution is $4,000 ($5,000 over age 50) and for 2008 the max. is $5,000 ($6,000 over age 50). If you're married, your spouse can also fund a Roth at the same amounts, even if that spouse doesn't have earned income, as long as you file a joint return.

If you're wondering where the money to fund your Roth will come from, consider investing your Tax rebate. If you're married and have 2 children, you could receive up to $1,800 depending on your Adjusted Gross Income. What's the value of that $1,800 over 20, 30, 40 years or more? Use this calculator to see (use 0% for the Federal & State taxes).

Not all Roth IRA's are created equal. The primary feature of a Roth IRA is that you can invest after tax dollars to grow tax free and to make withdrawals tax free. Before you set up an account, make sure you understand the internal fees for that Roth IRA. Some mutual funds inside your Roth have a lot of internal costs that will eat away at your rate of return. Warren Buffet recommends index funds for the non professional investor. Check with a qualified fee only advisor for the best account options.

If you have a son or daughter helping you in your business, help them understand the value of starting a Roth IRA as early as possible and the power of compounding. Their contribution can be equal to their annual earned income amount up to the maximum allowed. Try this on for size:

A 17 year old contributes $1,000 of earned income into their Roth IRA each year for 10 years and stops with a total contribution of $10,000. Assume a 10% rate of return. Here are some estimated results:

• When they are 27, the value of the Roth would be $17,531
• When they are 37, the value of the Roth would be $45,471
• When they are 47, the value of the Roth would be $117,941
• When they are 57, the value of the Roth would be $305,908
• When they are 67, the value of the Roth would be $793,448
• When they are 77, the value of the Roth would be $2,057,999

Remember, this is tax free income (as the law now stands) after 59 1/2. Start young and let the power of compounding work for you.

Self Directed IRA's

On another note, did you know you can buy and sell real estate through a Self Directed IRA? Why would you want to do this, you ask? What if you could pick up an REO property at discount, fix it and flip it or lease it and sell it later at a profit. That profit is not taxable.

This is a very simplified example, so you should definitely talk to someone in the know. A good company to get more information from is The Entrust Group.

If you don't have enough money in your Self Directed IRA to purchase a property alone, consider partnering with one or more trusted associates and buy a property. You know there's a lot of good deals out there.

As always, consult with a qualified CPA and Financial Advisor to determine how to set this all up to best meet your short and long term goals, but start now!

The Cashflow Coach

• Mortgage Lender & Coach
• Providing a full range of mortgage services.
• Subscribe to my blog to stay updated on new articles.
• Now offering a full range of Investment Planning services

RSS Dashboard

I'm hoping that I'm not the last one to know this and that this post will be valuable to a lot of my readers.

Most of you know what an RSS feed is and how important it is in getting people to subscribe to your blog. Have you ever wished there was an easy way to aggregate all of the different feeds that you subscribe to versus checking your email inbox throughout the day?

I know I did and the answer I found was................NETVIBES.

If you're not familiar with Netvibes, it is one of the coolest web aggregators I have ever found (which is not saying much) without the ads. That's quite a combination - Free and without ads, who would've thought?

It is a free site, you just need to register with a login and password. Once you do that, you can start customizing the page to display any and all of your RSS feeds along with a number of other widgets, including a Bookmark section where you can store all of your favorite websites. The advantage of storing your favorite websites in this bookmark widget versus your PC's web browser is that your bookmarks will be available from any computer with Internet access by logging into your Netvibes account.

Here's a quick blurb on the benefits of Netvibes:

• Helps you manage your digital life and share it with your friends
• Brings all your favorite MySpace, Digg, YouTube, Gmail, Flickr, eBay, del.icio.us accounts - you name it (no, really, you can rename our entire site) - together on your own personal Netvibes page
• Share with your friends or colleague your favorite modules
• 100% customizable - no ads, no logos, no corporate control

After you have your Netvibes account set up, you can make it your default home page and voila!, whenever you open up your web browser, you'll get a "dashboard" look of all of your favorite feeds on one page. This has been a great time saver because I can look at all of the titles and decide which one I want to read and which ones I'll wait to read until later.

Hope this website is as useful to you as it has been for me, hopefully, I'm not the last one to learn about it.

The Cashflow Coach

Copyright © 2008 the Cashflow Coach | All Rights Reserved

What's a Penny Worth?

One Penny = $632,500 or 1 + 1 = $1,265,000

How do you like that math? That's how much a collector won at an auction last Friday in Texas. The total amount gained from the auction? $10.7 million dollars. I think most investors would consider that an infinite rate of return.

Makes you want to look through your loose change to see if there's a penny that's worth more than face value, or maybe not.

To learn more about this story, click here.

The Cashflow Coach

Median Home Prices Decline - The Positive Perspective

"WORST IN NATION: AREA HOME SALE PRICES PLUMMET IN 4^TH QUARTER" (from the Lansing State Journal, 2/15/08)

This was on the front page of our local paper. Why do the news makers report the most outrageous stats? It's probably because "Shock and Awe" sells papers.

A more accurate line would be:

"Lansing, like almost every other city in the nation, sees declines in real estate values and reduction in numbers of sales in the 4th quarter. On the whole, Lansing is not down all that much when you really analyze what's really happening."

My headline is more accurate, I doubt if anyone at the Journal would print it though. Here's the actual report sorted by largest decline from the National Association of REALTORS®. Note the "p" next to the "2007 IV" column heading and you'll see that these are preliminary numbers not the final numbers.

So what is really happening:

1. Median just means the middle. So if 5 homes sold today, one for $300,000, another for $350,000 another for $109,000 another for $105,000 and the last one for $108,000, then the median would be 109,000. Because it's the one in the middle of the others.

2. Don't confuse median with average. The average sale price in the above set of numbers would be $194,400 (add the sale prices together and divide by 5).

a. The average home price in the Lansing area in December of 2007 (from Michigan Association of REALTORS®) was $141,022. Only a -5.79% drop for the year and a -2.18% drop from the 3rd quarter, 2007 average.

b. Lansing is as we have been saying for 15 years a very stable, boring market (think of the tortoise not the hare); just like you want real estate markets to be. We did not see home sale prices double in the last 5 years and we wont see them cut in half either.

3. Don't confuse appraised value with market value. Over the last 5 years or so, home owners were going to their mortgage lenders every two years or so and reducing their interest rates. Every time, their home value seemed to go up. Remember, the value has not increased until you sell it.

4. Year to date, I am still finding that the appraised value of my client's homes are at or around their 2002 - 2004 appraised values and more often than not, still at or around the SEV x 2.

So,

1. If you don't need to sell your home, don't. Rent it or keep it for a while, but if you don't need to sell it - Don't. One less house on the MLS will keep values higher.

2. There are some great deals out there as banks own more and more homes. Consider buying one, fixing it up and renting it to a family in need for a very fair rent. It will get a house off the market, improve a neighborhood, help a family and you will almost certainly do well financially.

3. Join the Cornerstone Home Loans Supply and Demand team. We have set a goal to help our clients and Realtors to sell 300 homes in the Lansing area. These are both REO and non-REO homes. We will track the sales and keep you updated. Read our previous post on why this is important for the Lansing area.

4. Subscribe to our Blog to stay current on the real estate market - take advantage of this. Get the facts before you start getting down or making misinformed decisions. If you want a more fair perspective - keep reading our blog.

The Cashflow Coach

• Mortgage Lender & Coach
• Providing a full range of mortgage services.
• Subscribe to my blog to stay updated on new articles.
• Now offering a full range of Investment Planning services

Copyright © 2008 the Cashflow Coach | All Rights Reserved

FHA vs. Conventional Loans

The FHA has been in the news a lot lately. More recently because of the pending conforming loan limit changes. Just a word on that, especially those of you in Michigan - don't expect much if any change in our conforming loan limits.

The calculation is based on 1.25% of the median home values. Which means for Michigan homeowners our calculation will be based on a average value of $141,000 x 1.25% = $176,250. This is well under the current conforming limit of $417,000 and on top of that, we are not considered a high cost living area. So if you have a jumbo loan (loan amount greater than $417,000) I would not plan on refinancing for the sake of refinancing.

Why will FHA loans be the most used in 2008 by lenders who are working in the interest of their home buyer clients?

1. Interest rates are consistently lower than conventional loans by 1/8% to 1/4%
2. FHA Mortgage Insurance Premium rates are lower than conventional PMI rates with similar down payments and are tax deductible like interest.
3. PMI is now deductible, if you itemize on your tax return (please consult a tax professional). This makes the effective cost of this loan in a lot of cases less than a comparable conventional loan.
4. The minimum down payment is 3%. In some cases, subject to appraisal and seller approval) the seller can even gift this amount. Seller are still able to pay all of buyers' closing costs usually around 3 or 4% (can pay up to 6%).
5. Even though conventional loans can approve borrowers for $0 down based on underwriting, Fannie Mae is tagging many neighborhoods as declining value areas and requiring 5 to 10% down payment minimums for many borrowers. Some lenders are no longer doing $0 down loans at all in Michigan. Within the last week a few of our lenders no longer offering conventional 0% down loans the minimum down payment on purchases will be 10%.
6. Credit scores are allowed to be less than conventional loans (often a 600 score is all that is needed to be approved).
7. Loan limits are around $200,000 with no maximum income requirements.
8. It is a great option for someone who has and ARM loan adjusting and has a stagnant appraised value. FHA is more easily able to combine first and second mortgages with fixed rates and reduce the total mortgage payment.
9. FHA underwriting still allows for deferred student loans to be ignored in debt to income ratios for approvals.
10. FHA loans are automated and documentation requirements are streamlined. Many agents who have in the past worked with higher sale priced homes, and have not dealt with FHA for a few years, you will be surprised at how much easier they are now.
11. Can finance doublewide manufactured homes with little money down.

I have been in the lending business for almost 15 years. In the last 7 years, because conventional loans made lending possible for many more home buyers without the upfront PMI, my clients closed very few FHA loans. Since January 1, 2008, however, I have originated more than 15 FHA loans and will close most of those this quarter. I am excited about how easy, inexpensive to the borrower and flexible they are.

If like me, you have not used them, reconsider them for your home sales. If you have been using them consistently over the last few years, keep using them. They are becoming a first option for competitive lenders in serving their clients.

A couple of additional considerations:

1. The home still needs to pass inspection - FHA will be more lenient on this in 2008 than before but it should still be considered. You will begin to see more FHA 203k (home improvement) loans offered. These loans do add expense and time to processing. Combining a construction loan program to a government loan program will be more cumbersome.
2. FHA still charges an UFMIP (up front mortgage insurance premium). This is 1.5% of the loan amount ($2,250 on a $150,000 loan) and is added to the loan amount at closing. Remember, this can be refunded in part within seven years if the loan is paid off during that time. First time homebuyers will usually get some of this money back when they sell their home.

The Cashflow Coach

• Mortgage Lender & Coach
• Providing a full range of mortgage services.
• Subscribe to my blog to stay updated on new articles.
• Now offering a full range of Investment Planning services

Copyright © 2008 the Cashflow Coach | All Rights Reserved

Tax Time Help

2007 Taxes

For those of you who like to get their taxes done right away, make sure you're aware of some delays the IRS is having due to some late changes in the tax code. For the rest of us that wait til the last minute to file or choose to file an extension, we won't have to worry about some of the delays. For a really good article on the changes, read this Marketwatch article by Andrea Coombes...

Here is a summary of some of the main changes to the Tax Laws in 2007:

Alternative Minimum Tax (AMT):

Congress passed a "patch" to keep income limits in line with the non-AMT income thresholds. This should help some of you who may have fallen into the AMT last year. Because the changes to the AMT didn't happen until 12/19/07, the IRS is still updating the necessary forms and therefore must wait until after 2/10/08 to file.

Homeowner Benefits:

• Deductibility of private mortgage insurance (PMI)
• Mortgage Forgiveness Debt Relief

Form 1040 Changes:

• addition of deductions for higher education tuition and teacher's expenses (you'll need the New Form 8917)

Stricter Giving Rules:

• you now need a receipt (for your records) for all contributions made by with cash, even if it's under $250.
• Clothing & household items need to be in "good" or better condition to qualify as a deduction. Consider taking a picture of the item to have in your file in case the IRS wants verification during an audit.
• If you donated a car or anything over $5,000, you need a qualified appraisal.

More Perks for Higher Income Earners:

• Allowable itemized deductions were reduced for AGI's above $145,950 by 3%. That 3% has been lowered to 2% for 2006 & 2007. This will be reduced again to 1% in 2008 and zero in 2010.
• So if your AGI is above $145,950, you'll be able to claim more of your deductions.

Some good habits to develop to maximize your tax deductions:

• Keep a notebook or journal in your car and Track your actual mileage (date, beginning miles, ending miles, who met with)
• Keep an envelope handy to store your receipts for office supplies, meals with clients, and other business related expenses.
• work with a qualified CPA to maximize your deductions and better yet, so you can plan ahead and are prepared for changes in the tax code.

This post is meant to provide a quick snapshop of some of the tax changes. Please consult with a qualified tax professional and/or CPA to gain a better understanding of how these changes effect you.

the Cashflow Coach

Foreclosure: What To Do If You are Facing It

There is a lot of misinformation and frustration in the foreclosure process. I hope the following information and links will help you better understand what is happening to you and how you can better communicate to your lender.

"Foreclosure is a legal process by which a bank, mortgage company or other creditor takes a homeowner's property in order to satisfy a debt. The foreclosure is the result of non-payment of the mortgage (including second mortgages and home equity loans); however, people also lose their homes due to unpaid property taxes. As a result of the foreclosure (at the end of the redemption period), the homeowner loses the rights he or she had to the property."

Communication with your Lender as early as possible will be helpful. The following information can be found at the Federal Trade Commission...

Contacting Your Loan Servicer

Before you have any conversation with your loan servicer, prepare. Record your income and expenses, and calculate the equity in your home. To calculate the equity, estimate the market value less the balance of your first and any second mortgage or home equity loan. Then, write down the answers to the following questions:

• What happened to make you miss your mortgage payment(s)? Do you have any documents to back up your explanation for falling behind? How have you tried to resolve the problem?
• Is your problem temporary, long-term, or permanent? What changes in your situation do you see in the short term, and in the long term? What other financial issues may be stopping you from getting back on track with your mortgage?
• What would you like to see happen? Do you want to keep the home? What type of payment arrangement would be feasible for you?

Throughout the foreclosure prevention process:

• Keep notes of all your communications with the servicer, including date and time of contact, the nature of the contact (face-to-face, by phone, email, fax or postal mail), the name of the representative, and the outcome.
• Follow up any oral requests you make with a letter to the servicer. Send your letter by certified mail, "return receipt requested," so you can document what the servicer received. Keep copies of your letter and any enclosures.
• Meet all deadlines the servicer gives you.
• Stay in your home during the process, since you may not qualify for certain types of assistance if you move out. Renting your home will change it from a primary residence to an investment property. Most likely, it will disqualify you for any additional "workout" assistance from the servicer. If you choose this route, be sure the rental income is enough to help you get and keep your loan current.

If you reside in Michigan, then here is a simple outline of what to expect. Thanks to Ethan Dozeman for this information from his post.

The 6 Stages of Foreclosure:

Stage 1: 30 to 90 Days delinquent on mortgage payments.

The Lender reports late payments to the Credit Bureaus (TransUnion, Equifax, & Experian.) The Lender notifies the borrower by mail and by phone to encourage them to catch up on past due payments.

Stage 2: 90 to 150 days delinquent on mortgage payments.

The Lender sends the file to foreclosure attorney. Foreclosure proceedings begin. Must bring mortgage completely current to stop foreclosure, no partial payments accepted.

Stage 3: 5 weeks of advertising a Sherriff's sale.

Lender must advertise property sale to pay off the mortgage balance for 5 weeks. The sale must be advertised in prominent newspapers.

Stage 4: Sheriff's Sale

Property sale is held at the county courthouse. The winning bidder is usually the lender who bids the amount of their debt. Lender becomes owner subject to the rights of the borrower to redeem the property.

Stage 5: 6 month to 12 month redemption period

The borrower has 6 or 12 months to redeem the property by paying the lender in full. 6 month redemption period if the property is less than 3 acres. 12 month redemption if the property is more than 3 acres. 1 month redemption for an abandoned property.

Stage 6: Redemption period expires and the Lender controls property

Lender (or highest bidder from Sherriff's sale) now owns the property free and clear of any junior lien. Lender can now consider offers on the property. Borrower is evicted from the dwelling.

Understanding the Short Sale

An alternative to foreclosure is the short sale. This is the process of negotiating with the Lender to accept a lower price on the property than what you owe.

Why would the Lender accept less than what you owe on the property? In some instances, they would accept less than what you owe if they believe that they will take a bigger loss by foreclosing (legal fees and lower bids at auction).

For more information about the Short Sale, go to E Z Home Ownership Realty, LLC

Be Wary Of Scams:

Scam artists follow the headlines, and know there are homeowners falling behind in their mortgage payments or at risk for foreclosure. Their pitches may sound like a way for you to get out from under, but their intentions are as far away from honorable as they can be. They mean to take your money. Among the predatory scams that have been reported are:

• The foreclosure prevention specialist: The "specialist" really is a phony counselor who charges outrageous fees in exchange for making a few phone calls or completing some paperwork that a homeowner could easily do for himself. None of the actions results in saving the home. This scam gives homeowners a false sense of hope, delays them from seeking qualified help, and exposes their personal financial information to a fraudster.
• The lease/buy back: Homeowners are deceived into signing over the deed to their home to a scam artist who tells them they will be able to remain in the house as a renter and eventually buy it back. Usually, the terms of this scheme are so demanding that the buy-back becomes impossible, the homeowner gets evicted, and the "rescuer" walks off with most or all of the equity.
• The bait-and-switch: Homeowners think they are signing documents to bring the mortgage current. Instead, they are signing over the deed to their home. Homeowners usually don't know they've been scammed until they get an eviction notice.

the Cashflow Coach

Lansing (Re) Development - Positive Changes

Have you been to downtown Lansing recently?

In the midst of growing foreclosures & higher unemployment around the state, Lansing is in the middle of major changes to it's skyline. Last night, Mayor Virg Benero outlined some new tax incentives to homeowners and investors for home improvements. (read the text of his State of the City here)

This proposal will offer a 50% break on the increased taxes resulting from qualified improvements to your primary residence or improvements to an old, abandoned house to an owner-occupied home. More details will follow when the plan is worked out by the mayor.

But, even more exciting is the number of new housing & retail developments that are going on downtown. Here is a brief list of the projects:

Stadium Lofts:

• In the heart of the new Stadium District, across the street from Oldsmobile Park
• Mixed commercial (1st floor) and residential
• Opening Spring of 2008
• Designated as a Neighborhood Enterprise Zone (NEZ)
• Received designation as one of 23 "Cool Cities" by the State of Michigan

Capitol Club Tower:

• Start Construction in Spring 2008
• 20 story high rise condominiums
• Will become the 2nd tallest building in downtown Lansing
• Downtown river frontage
• Private balconies
• Tax-Free Living (no property tax, no city income tax, not state income tax plus 1.5% interest rate reduction)
• Fine dining & health facilities

Kalamazoo Street Gateway Center:

• LEED Certified
• Energy Efficient
• Green Roof
• Retail & Residential
• 32 one and two bedroom apartments
• 10 Condos
• Near the River Trail
• Near the Stadium District

Ballpark North:

• Overlooks left field at the Lugnuts stadium
• 138,000 sq. ft. of commercial and residential space
• Covered and surface parking
• 6 stories of Condos and apartments

City Market Renovations:

• 3 acre site along the Grand River facing the new Accident Fund Building World headquarters
• 140,000 Sq. Ft. of buildings
• 2 four story residential buildings with a total of 90 to 120 mixed condos and apartments
• 10,000 sq. ft. riverfront restaurant

Motor Wheel Lofts:

• LEED Certified
• Still some available units
• 119 loft style condos
• 15 different floor plans ranging from 590 to 3,000 sq. ft.
• Underground parking
• Exercise Room
• More info

The Arbaugh:

• Corner of Washington & Kalamazoo
• Near Cooley Law School
• 48 residential apartment units
• 20,000 sq. ft. of commercial space
• High ceilings
• Underground parking
• Washer & Dryer in unit
• More Info

View Larger Map

Photos and sources of information from the City Pulse, the Gillespie group.

All of this development and new construction will bring some short term construction jobs but more importantly will attract more companies to look at downtown Lansing for growth and partnership. The Lansing Business Monthly has some really good articles on the developments, click here for more...

the Cashflow Coach

Copyright © 2008 the Cashflow Coach | All Rights Reserved