Another article on our inability to save

[cute fuzzy bunny]

In the absence of quality broad data, I can only go with what I see in my own circle. Not many people saving for the future. Lots of toys on credit. Taking out home equity lines to buy cars, quads, boats and motor homes.

While I clearly know at least a little something about investing, much of which is clearly wrong and silly, hardly anyone ever asks me anything like "how did you do that?" or "how can I do that" or "what should I do with my investments?". One neighbor said "I give all my money to a guy who invests it for me, is that good?" I spent about 5 minutes explaining how he could self invest into a life cycle fund at 1/10th the cost and do just as well. "Uhm...ok...". He's not doing anything different. He asked me about college plans and I ended up looking at what he wanted and recommending the TIAA-CREF 529 plan. Asked him the other day how he was doing with it. Hadnt even read the brochure.

Bought a new motor home though and built a $20,000 metal structure to park it in out back though.

 

[Texas Proud]

Texas, what crawled up your skirt man? Mellow out.

Anyways, to answer your questions, of course I would go by what the present value of my stocks are, not what I bought them for. To do otherwise would be just plain dumb. Why you keep claiming that in "my way of thinking" I would only count them as being worth $10k is beyond me. When I calculate my worth, it's all of my assets - liabilities. I also calculate gains/losses just as anyone else would do... I don't have some magical "marshac formula" to do so.

If I ever did own a $50k car, and I totaled it, I would deposit my insurance check, less the deductible... seriously though, I would write off the asset. It's not a mystery, and I don't have some secret formula. For my income, and my business income, I generally operate under accrual-based accounting- not cash.
Obviously it does.

Sorry for any hurt feeling or whatever else you might want to call it... I am blunt most of the time... I even get it told to me in my review at work... just who I am... So, nothing crawled up my skirt even if I wanted it to

I was responding to you post about a 'real' gain. I have heard from many people who ask me for financial advice that they do not have a 'real' loss if their stock goes down until they sell... and they also say they do not have a 'real' gain unless they sell. This is what you had said, so I was putting your statement in this context.... My question would be, what is it, a 'fake' gain.

Yes, in my example with a car you would put the insurance check in the bank.... but then you have 'sold' it. Between the time you had the wreck and the check, did you have a loss?

But, it does not bother me.... I just like to argue debate at time

 

[work4beer]

Household debt service
http://www.federalreserve.gov/releases/housedebt/default.htm

As you can see, consumers have been taking on more debt, and spending more to service that debt. In 2005, the debt service ratio hit an all time high in that dataset which goes back to 1980-

Big deal. Homeowners were paying 13.7% of DI, now paying 16.6%? Doesn't seem like drowning in debt to me. The mortgage number appears to be mortgage payments (P + I), property taxes, and homeowners insurance.

For me, that number is 20%. Yet I save ~35% of my disposable income (not including equity payoff), and since I'm paying my mortgage off early, this actually increases my "debt service" ratio, even though it results in less debt payments for me. I'm nowhere near drowning in debt.

Taking on more debt, as interest rates went from 18% to 4%, if anything, seems very rational, especially if you think inflation is going to increase in the near future. Especially rational for things like home improvement, at 4-5% rates instead of 18%.

 

[Rustic23]

OK, I have forgot about the effect on interest rates. When the mortgage rate was 9%, $800 a month would buy you a $100,000 house. Mortage rates of 6% will buy you a $135,000 house. So we get the woe is me that consumers are deaper in dept. Yes they are, but their payment on the dept is the same. I know not for adjustables, not for credit cards. Remember I am only questioning the statistics and how they are used.

 

[HFWR]

Too lazy to do any research... 8)

But anecdotally, most folks I know are spending it faster than they make it...

 

[Marshac]

Consider the fact that the majority of mortgages in the past several years have been using ARMs (or worse- 'Option'/NegAm ARMs), a larger percentage of borrowers have floating rate debt instruments that are just waiting to adjust. In 2006 it's estimated that $330B in ARMs will readjust, and $1T in 2007. Who knows what rates will be in 2007- people could be either in for a world of hurt, or in the same situation as today- time will tell.

 

[Rustic23]

Consider the fact that the majority of mortgages in the past several years have been using ARMs

Not sure where your number comes from. This is from an article in the Chicago Tribune. ARMs are up 8% from last year. It appears the fixed rate mortgage is still the 'majority of mortgages'. I suspect that as interest rates are rising many of those with ARMs will refinance into a Fixed Rate. On a $100,000 loan the difference from the current rate for an arm to the current Fixed rate (i.e. refinance fixed at today’s rate) is $65

"Fixed-rate loans accounted for 58 percent of loan production, down from 70 percent in the year-earlier report. Thirty-year fixedrate loans picked up market share, rising to 40 percent, from 36 percent. Fifteen-year fixed loans slipped to 13 percent, from 23 percent. Fixed-rate loans with other terms tumbled to 5 percent of production, down from 11 percent during 2004.

Adjustable-rate mortgages accounted for 38 percent of loan production, up from 30 percent a year earlier. Leading the pack once again was the 5/1 hybrid ARM, with an 18 percent share of production, up from 10 percent during 2004. Interest-only ARMs accounted for 8 percent of production, up dramatically from 1 percent during 2004."

Copyright America's Community Bankers Feb 2006
Community Banker; Washington - 2006-02-01

 

[laurence]

In my region (San Diego) ARMs, Interest only, and negative amortization loans made up more than half the new mortgages last year. You guys are right about statistics, I'm sure the majority of all the mortgages out there are still fixed, but every year more and more people go the stupid creative route.

 

[Rustic23]

Bankrate.com shows a 30yr fixed at 5.91 and a 5/1 arm at 5.63. That is about $17 a month in payment. If people are getting an arm because the $17 makes a difference they are in trouble. The figures I used in my last post ($65 difference) were older data. I would suspect with this narrow spread the arm is becoming less popular. Could it be the banks also realize the risk and have let the two rates grow closer together to discourage arms?

 

[cute fuzzy bunny]

Arms popped from ~10% to roughly a third of all new mortgages starting about 2 years ago. They're slowly starting to decline but as rates continue to rise, I'll bet that more people take advantage of them.

 

[Marshac]

There is a new development going in near where we live- nice houses. Anyways, I went inside the model house, and grabbed one of the fliers- there were three "payments" for the house, and all three involved some combination of an option-ARM + regular (3/1, 5/1, and 7/1) ARM. I was really surprised to see houses being sold like cars where they "sell the payment, not the car"

Not sure where your number comes from

Don't you know? 92% of all statistics are made up on the spot! Seriously though, I have only been keeping close track of CA, Las Vegas, Boston Florida, and my area- Seattle. On the whole of the US, based on the dollar value, 46% of mortgages were ARMs in 2004, although for the last 6mo of 2004, they comprised 63%. I tried to find newer numbers for that. According to the FDIC, 50% of mortgages issued by thrifts were ARMs. One thing is clear- depending on the time period, specific sector, or geographic location, the numbers tell a different story.

In the story you cited, it did say that "It must be noted that the banks participating in the survey constitute just a fraction of the community bank industry and of ACBs membership" So who knows what kind of variables there are at play- did they survey banks of similar size, type, and of a wide geographic area? Who knows- it doesn't say.

 

[Rustic23]

Don't you know? 92% of all statistics are made up on the spot!

Watch out Marshac, we seem to debate the same way! Remember when you are loosing TALK LOUDER!!!

 

[cute fuzzy bunny]

92% of all statistics are made up on the spot

Its 91.6%, with a standard deviation of 3%.

 

[justin]

Its 91.6%, with a standard deviation of 3%.

That's hogwash! In reality, there's a 68% chance it is between 88.6% and 94.6%. Gosh!

 

[Tadpole]

Rustic23, I see your point and agree. Spenders are just that, spenders. But savers, the ones that made the pre-80s numbers look better have probably taken that "savings" and invested it. There were spenders prior to the 80s too. A graph of investment savings over the same period would help shed light on the question. With the exception of a small amount of company stock, my parents saved but never invested.

 

[cute fuzzy bunny]

That's hogwash! In reality, there's a 68% chance it is between 88.6% and 94.6%. Gosh!

You're right. I agree with you.

 

[Marshac]

I agree with you.

I agree with you, but only because your avatar is hot.

You know, the flow of funds report came out today and showed...

the heck with it. Too much time has been spent debating a such a silly thing. Someone needs to call someone else a nazi so we can end it

 

[laurence]

Hitler lovin' Nazi.

...Kayak?

 

[Rustic23]

Too much time has been spent debating a such a silly thing. Someone needs to call someone else a nazi so we can end it

I'll second that!

 

[cute fuzzy bunny]

Hitler with a pancake on his head in a kayak?

 

[bpp]

Hitler with a pancake on his head in a kayak?

With a pirate patch on his nutsack.

Just trying to be helpful,
Bpp

 

[bpp]

[Duplicate deleted -- didn't mean to be that helpful.]

 

[HFWR]

Heil myself... Mel Brooks

 

[cute fuzzy bunny]

With a pirate patch on his nutsack.

Okay give me a minute to get some coffee in me. Plus my wife keeps distracting me unnecessarily. I was just sitting down at the breakfast table when from the living room she exclaimed "Look at that bikini! She might as well be naked! Hon, come look at this!". Groan. Shuffle in there. "Look at that" (pretty dang good looking well endowed woman in some jewel bikini that many strippers wouldnt feel comfortable in) "Its all airbrush!". "Can I look at the airbrush a little bit longer?" "Mmmm hmmm...<grimace>"

So now I need a shot of hitler in a kayak with a pancake on his head, and a pirate patched nutsack. Looking at a babe in a jeweled bikini.

This is going to be a bit ugly.

 

[cute fuzzy bunny]

The stuff you find when you do an internet search.

A guy with a site who thinks a lot of pancakes look like hitler.

A guy with a running dialog on the relative merits of telling hitler he was like hitler on an online forum and whether or not that invokes godwins law.

And this book appears to lend some credence to the idea, although pancakes arent specifically mentioned, there could very well be a kayak in the pirate fleet. In fact, I'd consider it a 91.6% likelihood...