Yes You Should Refinance. But How?

With mortgage rates dropping like a brick, it’s becoming a no-brainer for us to refinance our home loan. Even though we just got a 30-year loan 2 years ago at 5.875%, we can get 30-year loans now for around 4.5% or lower. You might be in a similar situation.

Rule of Thumb

The rule of thumb I hear thrown around a lot is that if you can drop 1% off your mortgage rate, you should refinance. To get a more precise idea if refinancing is good for you, you should really take into account how long you expect to stay in your home and see if you break even on your refinance costs before then. A good tool for this is the Mortgage Refinance Breakeven calculator found here (thanks MyMoneyBlog).

Breakeven Point on Our Mortgage

I plugged our numbers into the tool:

  • $180k original loan
  • $235k appraisal
  • 5.875%
  • 28 of 30 years
  • income tax rate of 25%
  • $175k loan balance
  • 4.5% new rate
  • 30 years
  • 0 origination and points
  • $3000 in closing costs

The tool tells me that I’d break even on this refinance in 18-22 months. We’d save $177* per month on our payments, and so as long as we’ll be here for 2 years we’ll make up the refinance cost and then some. Since we are planning on staying here for at least 2 years, we should refinance.

* The spreadsheet says $147… must have used slightly different numbers.

Yes But

The only real questions now are (1) should we wait for rates to go lower and (2) what kind of loan should we get.

I’ll avoid (1) for now. I think there is a real chance rates go lower, but I don’t want to be too greedy. I want to take advantage of a good thing while we have the chance. So I’ll assume we can refinance at the current rates.

RE (2): if your home loan situation is anything like mine, you have a lot of options to consider when refinancing. In our case, we have a second mortgage for $30k which is interest only at a rate of prime plus 1% (I think about 4.25% right now). We also have more cash flow than we did 2 years ago and can afford a bigger payment if it means we’ll be paying off the mortgage sooner and saving money on interest rates.

So we have questions like:

  • Should we roll the second mortgage (M2) into the new mortgage to lock in this low rate?
  • Should we get a 20 year loan (at 4.25%) instead of a 30 year loan (at 4.5%)?
  • Should we keep the M2 loan as is and make principle payments toward it?
  • Should we refinance the M2 separately?

A Spreadsheet!

Calculating all of this can make your head explode. I created a spreadsheet that calculates just some of the factors, while leaving others out, and focuses on the most promising options for us. You can see it here: Coleman Family Refinance Options.

The main scenarios I focused on are:

  1. The status quo, i.e. keeping our current loans.
  2. Refinancing just our first mortgage (M1)
  3. Rolling our second mortgage (M2) into M1 (we’d pay PMI for 3.5 years since we’d have less than 80% equity)
  4. Refinance M1 for 20 years
  5. Roll M2 into M1 for 20 years (PMI for 3.5 years again)
  6. Refinance M1 and pay difference into M2
  7. Refinance M1 for 20 years and pay extra $2k/year into M2

The columns of the spreadsheet show:

  1. The scenario #
  2. A description
  3. Rate on M1
  4. M1 monthly payments
  5. M2 monthly payments
  6. PMI payment if applicable
  7. Total monthly payments
  8. Term of M1
  9. Annual Payment
  10. Total M1+M2 debt in 2 years
  11. Total M1+M2 debt in 4 years
  12. Total M1+M2 debt in 10 years
  13. Lifetime cost of loan (rough rough estimate)
  14. Notes

Note on the columns. Some of them are updated when you tweak the numbers, but the 2, 4, 10, lifetime columns were entered by me after running numbers in that break even calculator linked above.

The second table has the same columns as the first, but shows the difference in payments/debt/etc compared to the status quo. So it can tell us how much we’d save (or spend extra) on payments and how much more (or less) debt we’d have after 2, 4, and 10 years.


There is also a table at the bottom of the spreadsheet showing expected returns if we made monthly investments at a 6% return. This is to help us calculate what we could be making with that extra $147/etc per month if we didn’t use it to pay off M2 or get a 20-year loan.

Some Pre-existing Notions I Had

Before I pull some numbers out and explain how we’re leaning, let me relay a few biases I had going into this.

1. I’m okay with our interest-only second mortgage. At 4.25%, that is a cheap price to borrow money right now. We’re making more than that on our money that we invest in our business and in our retirement accounts. Paying toward the principle on that loan would be like buying a 4.25% bond. Decent return, but not as good as we’re getting elsewhere. So I’m happy to loan at that amount indefinitely basically. However, I do think that rates will go up in the mid-long term. I don’t want to get caught with higher rates that are a strain to pay. Our idea has always been that we would use some kind of windfall (e.g. if we sell one of our website properties) to pay off that loan in one foul swoop. However, we should at least consider somehow locking in a rate for this.

2. I’m against paying PMI in theory. (That’s why we got a second mortgage before instead of one loan with PMI.) If you have the credit, other options are probably better for you. Some good info on PMI here.

Findings From the Spreadsheet

The key columns to focus on to compare options is the Annual Payments and the difference in debt in years 2, 4, and 10. The second table shows the difference in these numbers compared to the status quo. And so I can see that if I go with option #2 (refinance just the 1st mortgage), we’d save $1,764 per year and have $5,966 less debt/more equity after 10 years. If we held the loan the whole 30 years, we’d pay $21,985 less.

Now if I rolled M2 into M1 and payed PMI, we would still save $435 per year ($1,500 per year after 3.5 years) and have $12,538 more equity after 10 years since we’d in effect be paying principle on that M2 now. However, we would spend an extra $3725 or so on PMI those first 3 years, and sometimes it can be difficult to get PMI removed once you do have enough equity in the house. Overall though, it seems like using our savings from the refinancing to pay down M2 is a good use of our capital. It lowers our debt risk in the future.

You should be reminded here that not only do we have $5-12k more equity after 10 years, we could have invested the saved payments to have an extra $18-24k in our retirement accounts. Refinancing really is a good deal.

One option I really wanted to calculate was keeping our interest-only M2 and making principle payments to it instead of rolling it into the new mortgage or refinancing on its own. This would avoid PMI or additional refinance options. If we are disciplined, we can pay off M2 just as fast… but we’d also have some flexibility if we needed some monthly cash flow. Scenario #6 lays this out. We would end up paying as much per month/year as we do now. So no savings there, but we’re really okay with our current payments. We would however have an $31,336 less debt across both mortgages.

Scenarios #4, #5, and #7 basically come down to paying a little bit (or quite a bit) extra per month in exchange for less debt in the future and less interest payments over all. One nice thing about these plans is that 10 years out, we could have nearly $50k in equity built up in the loan. Combined with an appreciation in home value (I know, but we’re talking 10 years from now… let’s hope) we could have a nice size chunk to use as a down payment on a larger home.


I’ll let you know what we decide when we go through with things. I think I’m leaning toward refinancing just the first loan and making principle payments on our second mortgage/line of credit. Some things we need to think about:

  • Can we really get 6% on investments on money saved? 4.25-4.5% might be a good return for our extra cash in this market.
  • What is the risk that interest rates go much higher in the future, raising our minimum payment on M2?
  • What do we want our debt situation to be 2, 4, 10 years from now?
  • Can we really get the rates/fees I’m assuming here? 😮
  • Are deductions for interest payments, reductions in PMI or M2 payments, or other things I’m leaving out important?

I hope this helps people in a similar situation as me. And as always, I appreciate any feedback or advice you might have based on this. Cheers!

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Free “Avoiding Forclosure” DVD via NFCC

We received an email from Melissa Minkalis of the National Foundation for Credit Counseling (NFCC). They are offering a Free DVD about avoiding foreclosure.

I did not order the DVD or know much more about it. I did quickly verify that the NFCC is a legit organization and doesn’t seem to be simply harvesting contact info, etc.

From the email:

Did you know foreclosure rates rose 81% in 2008, making the housing crisis the #1 issue facing our economy today?

The main problem concerning this crisis is that most homeowners don’t seek help until it’s too late. The key is to get reliable advice as early as possible. Sadly, many people don’t realize that trustworthy help is available and what may seem like a dire financial situation can actually be organized, itemized, and prioritized by a NFCC certified credit counselor.

Today, I would like to offer you and your readers a chance to order a new DVD from the NFCC, Avoiding Foreclosure, which can be ordered, FREE of charge by visiting [our Avoiding Foreclosure order form]

Showing inspiring stories from folks who decided to really take charge of their unfortunate situations, this free, informative DVD will provide viewers with motivation for change. Even the toughest of circumstances can result in positive solutions with the help of NFCC certified professionals. It is the hope that seeing these stories first hand will give others the courage to take action.

What are the Best Online Resources for Beginning Real Estate Investors?

My father-in-law is nearing retirement and looking to get into some real estate plays to diversify his investments. I’ve already referred him to The Millionaire Maker: Act, Think, and Make Money the Way the Wealthy Do and Start Late, Finish Rich: A No-Fail Plan for Achieving Financial Freedom at Any Age (Finish Rich Book Series), both great books on general wealth-building.

I was hoping someone out there might point us towards some good online resources though, especially ones dealing with real estate investing in particular. Thanks for the help. If we get some good info, I’ll do a round up later.

Hedging – good for the soul.

I shorted down a burning ring of fire
I went down down down
And the flames went higher

Black Thursday? Or will The Fed return and carpet bomb the market with money?

I still maintain this has a few more months to run – watch the Shanghai Composite. We may have a head and shoulders pattern that is going to break down from an overall peak of 4910. If that rolls over and the market hasn’t had a big down day already, I am predicting more carnage.

My hedging is working somewhat well. I am still losing money, as I am net long overall, but it is acting as an anchor and letting me enjoy the show that is unfolding.

The real question? How is it that I managed to go short, while the hedge funds, qants and other foolish managers couldn’t see the forest for the trees? (Which raises the next question – Why am I not being paid millions of dollars per year?)

Jim Cramer and James Altucher ( seem to have woken up to the problem now, but couldn’t see it 3 months ago?!? I enjoy listening to their discussions, but it seems surreal that they weren’t sounding the horn before the crash.

The Bernanke Put

Fingers crossed.

He should moderate his language, open the possibility of a rate cut, and send the markets higher.

I hope he keeps his mouth closed, talks about inflation and the US dollar, and keeps rates right where they are.

Wishful thinking? Perhaps. However, I just have a vibe that he isn’t the soft touch that people think he is. My impression is that he just might suprise a few people.

Time’s up Bernanke! – are you made of steel or of butter?

Good luck,


PS In what is becoming a theme, here is another idiot piece by Ben Stein, and here is another piece about bankruptcy and an instant 7000 people out of a job. Of course, you need to make up your own minds.

This post is for entertainment purposes only. No part of this post should be construed to constitute investment advice. The author is not an investment professional and assumes no responsibility for any investment activities you undertake. Prior to undertaking any financial decisions, you should contact an investment professional.

Managing Multiple Strategies

So the other day, the big sell off started. And it’s arguable that it’s just beginning. Spurred on by Phil’s post, I considered selling out of everything.

It made sense: I thought everything was going down, so I should sell.

But it also didn’t make sense. One thing I’ve pointed out before is my struggles with trading/investing using so many different strategies. It’s easy to mix them up. That’s why when I make an entry, I need to know what my exit is… and stick to it.

The clearest no-no, which I avoided, is selling a position that is meant to be a long term investment based on short term fluxuations and technical indicators. In the short term, this is costing me hundreds of dollars. But in the long term, it’s easing my mind, easier to execute, and I think a profitable play (since I don’t expect to be a great market timer – at this scale).

My IRA positions in a few mutual and index funds is meant to be held until I retire. I only sell them when I’m taking profits. I can switch funds, but this should be based on some material change in the funds or a change in my asset allocation plans. I do not sell these funds, I merely add to them on technical dips. These were the rules I setup when I entered those positions.

So instead of selling those holdings, I’m holding. And things aren’t even bad enough for me to add to them yet (according to my preset plans on when to add to the positions). Though I wish I had some more cash on hand to do that when the time comes.

So I just wanted to throw this out there. If you are, like me, trading several different strategies, be sure to keep from mixing things up. Know what your plan is when you go into a trade and how you plan to get out.

It worked pretty well for GRMN, even though I sold at $81 earlier and am missing out some nice action today. $81 is above my sticker price for that stock and so it’s out of my MOS zone. And the indicators I’m following triggered a sell (a whipsaw, but a sell nonetheless) and so I sold for a nice 40% gain.

I didn’t follow these rules with BBBY, which I’m down 5.64% now. The stock didn’t actually fit any of my strategies when I bought it. I bought it kind of fast, on impulse, and way too soon. I didn’t know when I was going to sell (especially towards the downside) and so I have to figure it out as I go. Not a good position to be in. Not because I’ll necessarily trade worse (some people trade really well this way), but I am much more emotionally involved in this than I would have been if I had a plan going in. And so it’s taxing that way.

Good luck everyone. Some crazy times behind and ahead. Should be a lot of good opportunities for making money and learning.


Hey everyone,

We are seeing a nice bounce in the markets this morning. The S&P500 is at 1485 as I write this(!!!). If you look at the 5 day chart, you will see this could take us back to part way through the crash we saw last week. The market is saved!

To me, this feels like a dead cat bounce – one formed by a pump in liquidity and a jump in premarket futures.

Last week I managed to scalp $1 out of my short position in SDS (entry at $54, exit at $55). I am now preparing to go short again with a buy order in at $53.75. I am not sure if it will reach that high in today’s trading, but I would not be surprised. I am also considering a short position in SKF – double short the financial stocks.

Both of these positions are risky and should not be held for the long term.

Fundamentals Unchanged

However, my underlying belief is unchanged. The US economy is slowing and the housing market is going to get worse, a lot worse, before it gets better.

In my opinion, the consumer is going to get crunched by the following:
– rising borrowing rates as risk is repriced and lending institutions either dry up, or are prevented from selling risky CDOs at riskless values;
– falling home values that prevent refinancing of debt (and hence equity extraction);
– a rise in loan repayments as ARM loans reset and investors are unable to refinance to more favourable terms; and,
– increased fear and feelings of insecurity.

Reduced Consumption and Risk Appetite

All of these will depress consumption and the appetite for risk. As I pointed out previously, the highest level of ARM resets are still on the horizon. The good news is we are into “fear” on the business cycle, so are about half way through the housing correction. I have mentioned previously that some financial pundits have suggested the housing market will be fine by 2008. I am still leaning towards 2010 as the bottom in inflation adjusted terms, with nominal pricing reaching the bottom around 12 months earlier.

Plunge Protection Going Forward

Ultimately, I believe the Fed will step in and flood the market with money over the next six months. This will lift the market to an artificial high. However, if you want a real measure of the S&P500’s performance, price it in Canadian dollars.

As you can guess, I would be surprised if last week was the extent of the correction over the next 2-3 months. If you haven’t already taken up a defensive position, this is a golden opportunity to do so.

For those of you who want a contrary viewpoint, here is an article by Dr Jeremy Siegel about why the market is fairly priced. I have less and less respect for him recently (it was he who suggested Alt-A mortgages would be fine – Countrywide Financial has popped that fantasy), but I still love his ETFs.

Happy investing,


This post is for entertainment purposes only. No part of this post should be construed to constitute investment advice. The author is not an investment professional and assumes no responsibility for any investment activities you undertake. Prior to undertaking any financial decisions, you should contact an investment professional.


Well, I was right (see Wednesday’s post). That at least feels good. However, I thought the market would make a decent recovery. I had raised my limit price to $51.20 (from $50.20) yesterday, realising the recovery was probably not going to be as strong as I wished.

However, when I logged on tonight (it’s after midnight in Australia), SDS had already moved up to $53, and as I watched it shot towards $54. I got out the calculator, changed the volume and bought in just as it crossed $54. As I hit refresh now, it is in the mid $54s, heading back down.

Was this wise? Perhaps not. I did it on a high of emotion (I was at least aware of it) and there is a good chance the plunge protection committee will step in tomorrow and push the market higher. In fact, they may do so today (watch for a 2pm spike in the price). However, if that happens I urge you to consider unwinding any positions you are overexposed in or that you do not want to hold on to for the long run.

I have been selling down my largest holding for the past few months, moved my meagre retirement account to cash about a month ago, and convinced my parents to do the same with their not so meagre retirement account.

That said, I am not a “trader” – I am a longer term investor. So, I have held my positions in companies in the oil and gas sector as well as my ETFs.

I still think this is just the tip of a serious correction that is going to knock another 10% off the market. If that happens, I am expecting SDS to hit the mid 60s (maybe even into the 70s – but that is less likely). Remember – 10% corrections are not that uncommon!!! At the least, I think we will knock off the last 6 months of gains.

For me, this is the last serious move I hope to make until August. If the market corrects over the next month or two, I am hedged and my portfolio should stay roughly where it is right now in terms of value. I’ve taken a hit, but not enough to make me cry… or to need to explain to the little lady why our account says “minus” followed by “thousand”. If the market trends higher, I will miss out – my gains on my stocks are going to be countered by my losses on SDS.

Sure, I’ll miss out on some gains, but, to me, the peace of mind right now is worth it.

Good luck!

Philip John

This post is for entertainment purposes only. No part of this post should be construed to constitute investment advice. The author is not an investment professional and assumes no responsibility for any investment activities you undertake. Prior to undertaking any financial decisions, you should contact an investment professional.

Are You Financially Smarter Than A 5th Grader?

Yes, I’m still an InvestorGeek! It might seem like only Jason and Christian are blogging lately, but I don’t mind being the guest that drops in once in a while. I’m sure many of you have watched or heard of the new Mark Burnett-produced game show called “Are You Smarter Than A 5th Grader“. If not, you can read a quick description here.

I was inspired after reading Canadian blogger, Tony Hung’s short diatribe on who’s really smarter – the kids or the adults? Tony, if you don’t know, is an editor at the prominent new media site, BlogHerald. I’ve had the privilege to meet him, and trust me, he’s one smart dude! But I digressed since the question remains, who ARE the smart ones? What does it mean to be smart? Is it just about random trivia or knowledge? After all, adults were able to create a show like that to make money! Aha…. now that money comes into play, that’s my lame segway to discussing financial smarts!

So, What Makes You Smart?
Sure, trivial knowledge can sometimes make you a millionaire… rarely. Ken Jennings was $2.52 million richer after inspiring the millions of the easy money / instant gratification generation with 74 consecutive wins on the ‘Jeopardy!’ game show. But is that what being smart is all about? Is the proficiency at regurgitating facts and information enough to call someone smart? I’ve previously written on Investorial that being successful in financial matters is not predicated on whether or not you have the knowledge. But it absolutely matters to be financially smart! What do I mean?

I humbly define “Smarts” to be a keen sense of awareness; and not just an awareness of facts. Alongside knowledge must come awareness of self, and a highly developed thought processes influenced by many factors – your life experience, your parents (a gimmick that Robert Kiyosaki exploited very well), your cultural influences and even your moral belief system.

Perhaps because of my Chinese ethnicity and the stereotypes attributed to me, I often rebel at the thought that you go to school for knowledge. It’s not that I don’t like those compliments of being a genius or math wiz, but going to school is not about learning 1 + 1 = 2! True awareness is achieved when you have a process in place that tells you how to find the answer should you not know what 1 + 1 equals. Whether it’s leveraging someone else’s know-how, or knowing how to look up the answer. Knowing the answer qualifies as knowledgeable, knowing how to achieve the same result without knowing the answer is displaying smarts and ingenuity! Truthfully, there are some “slackers” I admire more than geniuses. They are not working hard, but they are working smart!

Nobody is going to learn everything they need from textbooks. In fact, most people have not been thought how to manage their finances through any form of formal training. But even if you obtain knowledge, will it truly help? Knowledge that smoking causes cancer doesn’t deter smokers from taking a puff, so why would knowledge help a spendrift become frugal? How is it that someone is labeled “cheap”? Why do people have gambling problems? Why are some people so afraid of the stock market when people keeping telling them how to manage risk? These are personality traits deep rooted in your financial biography. There are certainly ways to overcome tendencies, but its usually through an epiphany, an awareness, a self-realization, rather than the consequence of gaining knowledge.

How Financially Smart Is A 5th Grader?
Does a 5th grader need to bother with finances? Even if they are taught the knowledge, they will lose it during their growth into adulthood. They might remember for one or two years, but it will be a vague memory when they truly need those information. The cramming /memorizing of knowledge is not learning! There is nothing at stake for the kids. They won’t be able to apply those strategies in their life. Those strategies are not being self-actualized into their being because there’s no application or relevancy to do so. Most kids cannot relate when you scold them about wasting money. Again, knowledge does not equate to smarts because the awareness was never achieved.

If that’s the excuse of a 5th grader, what’s the excuse for an adult who keeps falling into debt and having to declare bankruptcies throughout their life? If you’ve got a friend that falls into that category, I’m sure he/she has been told many times the different ways to get out of debt. Maybe he/she even called Suze Orman and got a tongue lashing from her about the subject too. So much knowledge is imparted but it doesn’t mean a thing if it doesn’t integrate with your thought processes. Contrast that to someone who is not knowledgeable, never got advice from any sources but simply has the will to stop splurging on meaningless items. Does being financially smart resonate with being critical to your financial life yet?

The next time you watch the game show. Give the contestants a break! Kids and adults can both be knowledgeable and/or smart in their own way. The truly smart thing to do is not to compare and work on yourself!

Next Time: Business / Career Smarts
If we are discussing your financial smarts, invariably we will need to touch on business / career smarts. Your finance is derivative of your income, which is sourced from your business / career, right? At least if you weren’t born with a silver spoon, there will be a phase in your life where this is relevant. I will actually leave this topic for a future blog post, so watch for it!

Tech: It’s Not About Vista, or OSX…

I wrote an earlier comment about Microsoft and the Daily Show and how Bill Gates seems to have changed. David commented and I read his story about what he believes will happen regarding Vista.

Many people think it is about Google and Apple. I completely disagree! Google will be Google, but this is as good as it is going to get for Google, likewise for Apple, and for many other software companies. Though I do think Microsoft will surge in this market, which of course may seem counter-intuitive.

People are always interested in the next 10 bagger. I think the next 10 bagger will not be a You-Tube, MySpace or Google type company. The next 10 bagger is going to be a company that has a hardware and software play. For example, look at the Wii. It is taking the market by storm because it is new, refreshing and a hardware / software play. When I saw the Wii for the first time I thought, yupe this thing is going sky high!

When I saw the Apple iPhone I did not see a Wii. When I see Google I see rehashed ideas. For example I love, but that idea is getting old. When I see Microsoft I see a utility company, but a company that will be here for decades to come.

I just received my latest Conrad catalog. Conrad is a store for electronic gadget makers. If you can think of an electronic toy they have the parts. My brother who is a gadget person loves Conrad. His latest creation was the integration of a computer into his car. The obvious reasons are MP3’s and music, but he has other automation things he wants to do. I asked him what operating system runs on the computer. He told me Windows. I asked why Windows and why not Linux? His answer is that he had better things to do with his time than fart around with drivers. He likes Linux, but his hacking time is precious and he would rather fork over the money for embedded Windows and focus on his real goal of automating his car.

Take a look at the hardware to software tools in the Conrad catalog as they are about 99% Windows only. Or how about iRobot, or lego mindstorms. Another example that is becoming very popular is to become your own weather forcaster. One weather website is integrating their weather service with the services of the little people to create a matrix of weather forcasting. Imagine if the weather website uses the data to make their own predictions? Neat, no? Lets see what the software runs on. This software runs mainly on WINDOWS! Yes there is an OSX version, but it has limitations:

Unlike the Windows versions, the Mac version does not log data from leaf wetness, soil moisture, or UV sensors. Also does not include Citizen Weather Observer or GLOBE Program capabilities, and may not be used with E-Mail/Phone Alert or Agricultural/Turf Management Modules.

In other words the Mac version is a version for those “10” users that were crying madly for a Mac version. If your goal is to be your own weather forcaster then you will use Windows as means to an end.

My point is that to use all of these toys to the fullest extent you need Microsoft Windows. Many of you will say that this is the core problem of our computing landscape in that we rely too much on Windows. Sure no disagreement about that from me, but I also see the writing on the wall. The mainstream people don’t care anymore! They have other goals. The blogs that talk about how old Vista is and how Microsoft is a has been company going downhill are assuming that the battle is about the operating system and software. These people remind of friends from high school that to this day still listen mostly to 80’s music. It is as if they graduated from high school and then stopped listening to new forms of music. The blog and column authors are doing the exact same thing, they are getting stuck in a time warp of “hmm does it have office, mail, etc.” That battle is over, get over it people! I even find it funny that people will buy an OSX or Linux box and have VMWare or parallels running so that they can run that “one” task they have on Windows.

As I see it in the future there is going to be a CPU core race, and that means we need to write software that will make use of these cores. We need to waste the CPU cycles with software doing something. And that something will not be a word processor, nor will it be a database or some game (well maybe it might be a game). That CPU is going to be running algorithms that in the past were too prohibitive due to CPU cost.

Here are some things I could see happening:

  • Wii like games where developers make use of web cams and other hardware to detect the presence and actions of a human.
  • Artitifical intelligence algorithms that are used to solve common automation problems.
  • Games that combine AI, networking, and lifestyle (yes there are some games like that already, but this market will progress and progress and progress.)
  • Home automation where your computer will act as a central server, with an example being the weather forcasting.
  • Car automation where your computer will do neat and buzzy things.
  • Robotic automation.

What do all of these things have in common? The operating system is a means to an end, and thus Microsoft will be used in most cases because the operating system has become a utility.