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Should We Have Been Investing in the Country, Instead?
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In September, the Wall Street Journal published an article about nervous investors who were buying low yield, short term U.S. Treasury Bills as safe securities. ("Demand for Short-Term Treasury Debt Puts a Crimp in World-Wide Supply")
I remembered that because I just read another article about nervous investors buying government securities at low yields, under 1 percent. This time it is the Washington Post writing about the low yield U.S. Treasury bonds and declaring that "it's terrible news for the economy, which relies on people's willingness to invest and lend money." ("Flight to U.S. Treasury Bonds Bad News for Economy")
Others in the financial world are quoted. One said "The simplest way to think about this is that nobody wants to hold any risky assets." Another said, "You can cut rates all you want, but if nobody wants to take risk, no matter how attractive an investment seems to be, no one will put up the capital for it."
But wait a minute. Buying government bonds is investing and lending money. Consider the wreckage of the last few months after a decade of mortgage lenders making billions of sub prime mortgage loans.
Investment houses like Bear-Stearns and Lehman Brothers risked billions of America's loanable funds and our savings speculating with sub prime mortgages, and it did nothing except give them a chance to resell financial assets at a higher price.
Our savings could have helped fund our massive Federal deficit. Instead we owe foreign nationals who bought U.S. Treasury Bills and Bonds while Americans were on a speculative spree buying up risky assets that have failed by the billion.
We want our savings to fund the production of long lived assets and valuable services. The private sector has failed to do that lately.
Government bonds earned 4 to 5 percent interest for the last 10 years. If we had invested more in the government and government had used our savings and rebuilt New Orleans we would have something to show for it and thousands of jobs in the process.
The past decade has proved in the most decisive fashion that Americans are ready to take risks and to lend and invest money, but there is nothing that makes private lending and private debt better than public lending and public debt. It all depends on the assets we buy.
Remember one rule: it is not who invests, but in what.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Circuit City Failed in its Saving Efforts
Circuit City is back in the news with plans to close 155 stores and layoff thousands in bankruptcy reorganization.
I say back in the news because there was an article about Circuit City in the Washington Post back on March 29, 2007 titled Circuit City Cuts 3,400 'Overpaid' Workers.
The cuts came out of 40,000 in-store jobs; 9 percent of the company's in-store workforce. The firings were not related to job performance, but came as part of an effort to cut costs and improve the bottom line.
They were going to save on labor costs by firing their "overpaid" staff and rehiring new sales people at lower wages. That may sound like a way to save money, but now, 18 months later, there is good reason to doubt they saved any money.
Circuit City is part of retail trade in a sector called Electronics and Appliance Stores where salesmanship is important. Circuit City buyers may need to learn about complicated electronics products and how they work before they make up their mind.
Retail Salespersons do selling, which means explaining and demonstrating products, answering questions, knowing warranty terms or other product information.
In other retail sectors like gasoline stations and grocery stores, selling and salesmanship are not as important. People know if their gas tank is empty and they buy their pasta and potatoes from a cashier, not a salesperson.
Explaining and selling takes time, skill and experience and so more and better paid retail sales jobs are needed at electronic and appliance stores than gasoline stations or grocery stores.
The need for salesmanship is partly reflected in staffing where retail salespersons and their supervisors make up more than 40 percent of retail jobs. Staffing at gasoline stations contrasts with electronics and appliance stores where more than 60 percent of jobs are cashier, but virtually none are retail salespersons.
The Washington Post article informed readers that Circuit City dismissed their sales staff earning wages over of $15.50 an hour, or their most experienced and longest tenured sales staff.
We can be sure Circuit City management saved on wages, but wage savings are not cost savings unless they lower costs per dollar of sales. Ignoring productivity tells us that Circuit City management did not know the meaning of overpaid, or even how to save.
True, the economy is doing poorly now, which is probably part of Circuit City problems, but as the saying goes, "They were penny wise and pound foolish."
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Why I Closed My E-Loan Online Savings Account
Yesterday, I closed my E-Loan online savings account.
I'd been thinking about doing it for awhile now, but finally made the request and have moved all of my money to ING Direct.
I've been fed up with E-Loan's need for control, lack of customer service, and crappy introductory rates.
Despite being one of the most promising online savings accounts when it first came out, E-Loan couldn't compete on a customer-friendly level with other online banks.
Not telling your customers when the rate changes is cheap.
Not allowing your customers to move their money to more than one bank every 4 months is controlling.
Not letting new savers get the same rates as those with biggers coffers is discouraging.
Even though they offer a lower rate, ING Direct lets you do whatever you want with your money.
Remember: it's your money. Don't let someone else control it.
That's why I closed my E-Loan account.
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How Many Funds Do You Have?
An open question to everyone to start off the week: how many funds do you have?
In funds, we're talking about savings, not mutual funds. Examples:
- car
- emergency
- college
- retirement
- house
- vacation
- PlayStation
I'll start off. In our savings onion, we currently have 5 funds:
- Emergency
- Housing
- Roth IRA (2)
- 401(k)
We used to have a car fund, but we got rid of that when we bought a car! (More on that soon.)
How many funds do you have? Tell us in a comment below.
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The Declaration of Financial Independence: ING Direct
ING Direct, one of the pioneering online banks, has announced its new "We, The Savers" push, encouraging Americans to focus on finance fundamentals and put saving first.
In a letter on their Web site, CEO Arkadi Kuhlmann writes that we've made some mistakes, but can emerge stronger:
There's no denying it: America is in a tough financial spot, and some of the people in our financial industries have a lot to answer for. Eventually, they will. In the meantime, there is no way to turn back the clock on this crisis and not much the average person can do to alter its course. It has to play itself out, and we have to believe – and insist – that those responsible will play their parts in fixing it.
But what we can do is make sure, as the song says, we don't get fooled again.
Below is a 10-point plan for exactly that. If you live by it, you'll be in control of your financial life. If everybody lives by it, we'll live in a stronger nation. We urge every American family to read it, talk about it together, commit to it. Then print it out and tape it to your refrigerator door. It's a declaration of financial independence that will put your future into your own hands, where it was always meant to be.
ING's 10-point plan is as follows.
- We will spend less than we earn.
- We will use our home as a savings account.
- We will take care of our money.
- We will defend our credit worthiness.
- We will ignore unsolicited credit card marketing.
- We will know the cost of borrowing.
- We will invest for the long term.
- We will take care of the things we have.
- We will remember what matters.
- We will be heard.
We can't argue with any of the points — the level of finanical knowledge in the U.S. is way too low, and anything that can be done to improve it is a step in the right direction.
What We Would Add
Here's what we would add to the decleration:
- We will remember that cash is king.
- We will attack debt to reduce it whenever possible.
- We will not be swayed by the hysteria and panic in the media.
What would you add to ING's Decleration of Financail Independence?
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WaMu Drops Online Savings Account to 3.00% APY
Washington Mutual has dropped the interest rate on its online savings account to 3.00% APY (via Bank Deals).
WaMu had upped their OSA all the way to 4.00% APY in the past few months, so this is a pretty big drop.
It's not a huge surprise, especially with the recent news of their acquisition by JP Morgan Chase.
The drop takes them pretty far out of contention for the highest online savings accounts currently available.
If you're looking for a good place to stash your money, consider an online savings account from DollarSavingsDirect (3.75% APY), FNBO Direct (3.50% APY), WT Direct (3.26% APY) or HSBC Direct (3.25% APY).
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Keep the Change, Way2Save Not Worth It, Says Consumer Reports
Didn't believe me that Bank of America's Keep the Change program isn't worth it? I'm not the only one saying it.
Consumer Reports, probably the best consumer-advocate publication available today, agrees. In their upcoming November issue, they basically make the same argument I made in late August.
In its latest report, the Consumer Reports Money Lab took a look at three of the more well-known spend and save programs: Bank of America's Keep the Change, Wachovia's Way2Save and American Express One. CR found all three were limited and perhaps more rewarding options exist.
"Saving money can be tough. These programs offer the hope that something good can come from spending more, but when we crunched the numbers, we found the overall savings to be limited," said Noreen Perrotta, Consumer Reports money editor.
According to Consumer Reports's number crunching, it would take 1,728 transactions (averaging $.50 each) to get the $250 total Keep the Change match the first year. In the second year, it will take 10,000.
Wachovia's Way2Save isn't much better. The program, which moves $1 from your checking to savings account with every transaction, limits additional deposits to $100/month. And while it offers a 5 percent interest rate the first year, it drops to 2 percent for the second.
If you're looking for a good place to stash your money, consider an online savings account from DollarSavingsDirect (3.75% APY), FNBO Direct (3.50% APY), WT Direct (3.26% APY) or HSBC Direct (3.25% APY).
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3 Reasons the Economy Isn't Worrying Me
Every time you turn on the news, you hear it:
CRISIS! RECESSION! DEPRESSION!
You can't seem to go anywhere without someone talking about the flailing economy, high gas prices, and their retirement savings causing them worry.
It's the reality of the situation today — but it doesn't need to be.
While Wall Street's problems have turned into Main Street's (who do you think is funding that $700 billion bailout?), the current economy doesn't need to worry you. It isn't worrying me.
Here are three reasons the economy isn't worrying me.
I'm Investing For the Long Run
My retirement accounts have dropped significantly over the past year, especially from their recent highs. But I'm not worried. That money isn't going to be touched for another 40 years or so.
But what if you're nearing retirement? You don't have as much time for the market to rebound — that's for sure. But if you're close to cashing out, you should have a very conservative asset allocation. If you're 58 and you're 100% in stocks, you're in trouble.
Make it a priority to evaluate and adjust your asset allocation once a year. Don't try and time the market — pick a day (April 15 is an easy one to remember) and do it no matter what's happening.
I Have Money Saved Up
One of the most important things to have in an unsteady economy is a strong cash position. No, that doesn't mean you should sell your stock and buy gold (in fact, don't do that). It means you need to have the leverage to avoid depending on financial institutions and credit cards when everyone is tightening their belts.
Look at a guy like Warren Buffet — when everyone is panicking, he goes and invests $5 billion into Goldman Sachs. Having the cash when no one else does gets you the best deals.
If you've got cash, you don't have to worry about everyone else's financials.
I've Got a Few Income Streams
In a market where the unemployment rate is at 6.1%, it's more important than ever to have a few different sources of income.
While an emergency fund prepares you for the uncertainties of the future, having more than one way to make money softens any potential job hazards. In addition to my day job, I do some consulting work and own a number of Web sites.
You don't put all of your eggs into one basket when you're investing in the stock market, right? It makes as much sense to only depend on one source of income.
(For the entrepreneurial types, this is the perfect time to start a business. You're required to depend on what you have — no small business loans, etc — and are forced to focus on the fundamentals.)
Why isn't the economy worrying you? Let us know in a comment below.
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The Secret Catch to Bank of America's "Keep the Change" Program
Bank of America's Keep the Change (background) program has a big, big catch to it.
The savings account where your money is likely going has a pitiful .2% APY.
Yup, for real. From the fine print:
Savings accounts eligible to receive matching funds include, but are not limited to, Regular Savings, which requires a minimum opening balance of $25 and pays a variable Annual Percentage Yield that was 0.20% as of 08/28/08.
0.2% APY means your money is not working for you. When you could open an online savings account that offers upwards of 3.75% APY (Dollar Savings Direct, WaMu), there's no reason you should be using BofA.
Still not convinced? Look at the other requirements:
- $300 minimum balance, or
- Automatic monthly transfer of $25
- $3 withdrawal fees if balance is under $2,500 and more than 3 monthly
Considering that the best online savings accounts have no minimums, no fees, and no requirements, you should not be keeping your money with Bank of America.
It's great that BofA is helping people automate their savings — it's the easiest way to start pocketing more of your own money — but customers still aren't getting a good deal.
(Yes, you do get matching funds from BofA of up to $250 in one year, but you could get the same by smartly opening certain savings accounts. And you could move the money into a money market account, but the requirements for that are even worse.)
Saving your money smartly means making it work hard for you. If you want your money to make you money, open an online savings account now.
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How Savers and Consumers Differ On Gas Prices
The price of gasoline divides America into savers and consumers like no other issue.
The biggest differences between savers and consumers come in their attitudes toward energy policy. In his book the Age of Turbulence, Alan Greenspan wrote at the end of the energy chapter: "I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil."
If it is true, it is a policy: war for oil. I have never had anyone say that to me, nor have I heard any politician or major news service advocate, or try to justify, war as an oil policy.
It does illustrate the contrasts of savers and consumers on policy because it is the ultimate consumer policy: plentiful oil must be available no matter what.
Expanding Energy Supply is a Priority
American policy has been mostly consumption policy because it emphasizes production. Drilling for oil is a production policy, but so are wind energy and solar energy.
Those who advocate off shore oil drilling want to expand supply, but those who want to expand wind energy or solar power also want to expand energy supply.
The oil drillers often argue with the advocates of wind and solar energy, but the argument is over environmental policy and relative cost.
Both sides are saying technology will allow us to have the energy we need or want at reasonable prices.
Savers Limit Gas Usage No Matter the Price
Alan Greenspan suggests a policy of "… significantly higher gasoline prices to wean us off gasoline-powered motor vehicles."
That pressures people to save fuel, but unless savers have some way to cut their consumption by as much as the percentage increase in price, it will cost them much more. That is why savers want to limit the gallons they use no matter the price.
Savers know gas mileage for cars can be much higher and they want to mandate automobile mileage standards so that everyone has the choice to use less energy and save money. They want to expand rail service and have less air travel because rail uses less energy per passenger mile.
Savers look for ways to reorganize physical space so that people can live closer to work and shopping. They look for ways to make it cheaper to move closer to work: a tax deduction for all moving costs, for example.
Notice that Congress has many ways to compromise on policy. A little more off shore drilling can be traded for higher automobile mileage standards.
America needs policies that save energy and money.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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