Shocking Compilation of the Day: Foreclosure Sales

A compilation of some shocking numbers I've come across in the last few days:

Over a third of all home sales currently are foreclosed properties! Translation: Any increase in home sales ("we have a bottom") is because of the glut of cheap homes.

23% of all homeowners with a mortgage owe more on their mortgage than their house is worth. Translation: Holy Shit!!

A foreclosure near your home depresses the value of your home from somewhere between $5,000 to over $20,000, depending on who did the study! Translation: This foreclosure thing does affect you, at least in the short-term.

Story of the Day: Fart Research!!

So evidentally the foul odor in farts has an important physiological role in controlling blood pressure. Oh dear! Please don't take this as an invitation to share. If you must regulate your BP, please find the restroom nearest you!!

There are No Tax Benefits to Owning a House for Most People!!

I was having tea with this elderly British couple from Canada today, and in between a spirited political discussion, the topic of home ownership came up. I was fascinated to learn that home ownership in Canada was a very different beast! Buyers are typically required to put 25% down (compared with actually getting cash here in the US), and most families pay their loans off in 10-15 years. This couple in fact paid their Canadian house in 6 years!! That's a stunning difference from the US.

The big difference is that there is no tax deduction for mortgage interest in Canada. That of course, is much touted for being a reason to buy a house. Save on the taxes. But that is a totally bogus reason for many homeowners.

Let's run the numbers. Using this calculator, I estimate my tax savings on a mortgage of $200,000 is just a bit over $5,000. Wow! Except that the standard deduction for 2008 is $5,450 for singles, $10,900 for couples filing jointly. Which means, you'd still elect to use the standard deduction, unless you have substantial other deductions.

And mind you, those tax savings were only for the first year - they diminish every year as more of your mortgage goes towards principal. Oh, and don't forget property taxes which can take a bit out of your wallet.

There might be many reasons to buy a house, but saving on taxes isn't one of them ...

Quote of the Day: Joe the Plumber

Joe "the Plumber" Wurzelbacher, the man in the spotlight during the third presidential debate had this to say to ABC News:

You know, me or -- you know, Bill Gates, I don't care who you are. If you worked for it, if it was your idea, and you implemented it, it's not right for someone to decide you made too much."

Here is the whole story.

Hold On!

Right when I started to get optimistic on stock market prospects, we have a fast and furious rally. The Dow ended up 11%, the S&P 11.5%, the DAX over 11%. And at the time of this writing, the Nikkei is up over 12%, and much of Asia is up over 5%. Oh well! The market might be getting ahead of itself. After all, much of the pain is yet to hit Main Street, and it's likely that when this fact sinks in, markets will fall again. It's likely we will see some weakness during which to enter the market.

Breathe Breathe ...

With the market turmoil, you may have no doubt lost a few months (years?) of your life fretting about your returns. I consider myself a value investor, who is supposed to live for times like this when assets can be purchased at a bargain, but for all that, I've had some heartburn as I've lost as much as 60% on some aggressive mutual funds, and close to 40% on an actively managed (by me) portfolio. But it is a good time to step back and take a look at the bigger picture.

I ran some computer models yesterday, and the risk/return profile has improved considerably due to the recent decline. I hesitate to provide too much information here, because much of it requires qualifiers. I have considered writing a newsletter of sorts, and even wondered if there might be a market for me to sell it at some nominal cost, not as a get-rich scheme, but to incentivize me to develop these ideas further. (Would you buy such a newsletter that focuses on the true investors, and doesn't spit out the same cliches that every mutual fund company does?)

But without getting into specifics, the expected returns from stock investing have moved from "not too much better than savings" a year ago, to offering decent (although not get rich quick) returns. We have no idea what stocks will do from here on - they could fall 5%, 10%, 50%. But that's the wrong question to ask for most investors.

It is also the first time in a while that one of my models suggests a 100% stock stake in my 401k. What? I was not 100% stocks before, even though I have over 30 years to retire? Ah, that's where the conventional advice doled out fails small investors. But that's a story for another day (or a newsletter?)

Now is a time to be a net buyer. I personally will be looking to deploy my (unfortunately very limited) funds in the next 2-3 months. In my own 401k, I have eliminated my future bond allocations and readjusted my allocation to be more aggressive.

Zogby Poll Mechanics

If you are a politics buff like me, or get your news from the Drudge Report, you probably closely follow the Zogby tracking poll, along with other such polls (the Gallup is the one featured most often). But today I saw a sentence in your release that made me say Whoa!!

The telephone tracking poll shows neither candidate with a clear advantage in the national horserace

What are the magic words? Telephone tracking poll. News flash! Telephone tracking polls don't work! One, you only select voters with phones, bias the samples for people who stay at home during the day or answer the phone ... it's very poor science! And polling is a science!


In this season of statistics, I'd like to recommend one of the best books you can read. The 1954 classic, How to Lie with Statistics is a fantastic guide for the layperson on ways companies and politicians distort statistics to make their case. And no, you don't have to be math-savvy to understand the book! In fact, the telephone poll analysis was something I read in that book years ago.

Liquidity ok, but What About Capital?

The folks at First Pacific Advisors (FPA Funds) have a brilliant new commentary (actually a week and a half old) that's a must read. They point out, much as John Hussman and others have, that the bailout does nothing to address the capital needs of banks. Unless the government overpays for distressed assets, the bailout plan will have them traded, but in some cases, may even cause banks to fail to meet capital requirements after the asset sale, causing more bank failures.

An interesting factoid: corporate America has more than $600 billion cash on its books. Allowing companies like Wal-Mart into the banking business would allow that cash to come to the rescue of our financial system.

Read the whole article!

PS: One of my favorite mutual funds, one that I own personally is the FPA Crescent Fund (ticker: FPACX). If you have some money to put away, even as little as $100 a month, I encourage you to consider this fine conservative fund which has only lost money one year since 1995!!

BW Asia Stories Galore

Wow, I've never found so many stories on BusinessWeek's Asia Insider to be quite so interesting! At a time when the US and Europe are experiencing a serious cash crunch, it seems Asia is swimming in cash. That means we could see Asian companies invest more in the US, and that includes major investments by the Indians, including, fascinatingly, in old-world industries like steel (whoever said the US steel industry was dead?)

And now the big topic of discussion is if China can save the world. The Chinese economy is slowing, property prices are falling, stocks are down 60% and more bad news. But GDP is still expected to grow at over 7%, so that holds hope of a robust Chinese economy preventing a global slowdown?

An Obvious Conflict of Interest

I like Gwen Ifill. I think she's a sharp, smart journo, and I have felt that if CBS truly wanted to get a solid woman anchor, they should have picked her rather than Katie Couric. Having said that, I was shocked to learn of her latest conflict of interest when it comes to moderating the VP debates - she's writing a book on Obama to be released on inaugration day. That means an Obama victory could make a difference of a half million dollars or more!!

I don't think Ifill will be biased, but the appearance of conflict has potentially polluted what should be an interesting debate.