InvestorGeeks

Review of FinanceMarkets.co.uk

by Jason

The following is a paid review…

Finance Markets is a blog written by some folks across the pond. Despite an understandable bias towards European news and posting prices in British pounds, the blog is applicable to investors everywhere.

The Finance Markets blog is updated a lot. There are about 3-6 posts every day, most of which come from one Elaine Frei. The posts cover a familiar range of finance topics from “Economy” to “Investments” to “Property“. There are also some “personal finance topics” like “Insurance“, “Loans“, and “Banking“.

The writing is generally good and much more professional than your typical blog. In fact, I might say that the posts are a bit too professional. There is a bit of a lack of character to the entries. The lack of a way for users to comment on a post don’t help this.

Still I’d say the site is worth a look. Browse around for topics that interest you and you might learn a thing or too. This blog would be especially useful if you are interested in getting a European view of the market. There are daily recaps of the action in the US markets, with citations from some sources that might not be on your reading list.

What a Day!

by Jason

On days like these, it’s good to be 100% cash. I am holding some mutual funds in my IRA, but that was only down a little under 1% today (The only real loser was an S&P ETF I have 25% of my holdings in). However, my personal trading account was sidelined through this mess today.

Was there some kind of technical glitch?

I wish I could say that I’m a prophet or something, but really I’m in cash for more mundane reasons. I need to stay liquid to handle some wedding costs and we’re thinking of moving about $4k from the trading account to the IRA before tax time. I’ve also been very busy with work and other things and didn’t have time to stay on top of the market.

So far this year, I’ve had about an equal number of winning and losing trades, staying flat until I pulled everything out a couple weeks ago.

I haven’t looked into things too much, but this looks like a buying opportunity to me. I feel like a kid in a candy store. My trading account is still kind of off limits, but I might be able to handle some tightly controlled short-term trades. I also have about 25% left to spend in my IRA. What should I buy?

What Gives With Interest Only Being Better Version 2?

by Christian

My original version of this blog entry has been deleted because I did find some errors in my spreadsheet. I saw them when I was explaining what I thought I had found while doing my calculations. The new calculations are not as I thought they were, but still some interesting things can be extracted from it.

I was reading a blog entry where one couple in Seattle had a hard time trying to find a place where they could take out a mortgage for 15 years. One woman in another blog commented that 15 years is a bad idea, and better would be a 30 year mortgage because it lets you buy more house.

Comments like, “ooh better get a 30 year mortgage than 15 year mortgage” raise my hackles! I don’t believe such comments and decided once and for all to figure out what the numbers are.

There are two variations to this scheme:

1) Get the same mortgage, but invest the monies

2) Get a bigger monies for the same amount that you would pay monthly.

Ok, so I created an Excel spreadsheet that anybody can download to verify if I am right or wrong. Folks, please verify my spreadsheet because I want to know if I accounted for everything, because I found out something very very interesting.

I made the following assumptions for variation 1:

• 300,000 mortgage
• 30 year mortgage at current rates (5.75%)
• 15 year mortgage at current rates (5.52%)
• Interest only mortgage at current rates (5.53%)
• Renting at 2,000 per month
• Income of 90,000 with tax rate of 25% with interest paid deducted from yearly income.
• 1.5% of 300,000 charge per year for maintenance, etc
• 9% return on alternative investments 
• 5% return on the price of housing
• The difference in monthly payments are invested into alternative funds

For variation 2 I made the following assumptions:

• 300,000 mortgage for the 15 years
• 530,000 mortgage for the interest only
• 420,000 mortgage for the 30 years
• 30 year mortgage at current rates (5.75%)
• 15 year mortgage at current rates (5.52%)
• Interest only mortgage at current rates (5.53%)
• Renting at 2,000 per month
• Income of 90,000 with tax rate of 25% with interest paid deducted from yearly income.
• 1.5% for yearly fees of the original price of the property.
• 9% return on alternative investments
• 5% return on the price of housing
• The difference in monthly payments are invested into alternative funds

Running the numbers I decided to sell after 10 years. At that time I decided that I would buy another house using the same prices.

Here is what I found for variation 1:

It does pay to get an interest only mortgage and invest the monies. At year 10 you pocket with the interest only 374,000, and the 15 year mortgage 323,000. This means you get 50,000 more by investing. However, this implies that you will invest the monies and get 9%. Granted both returns I searched and found on the Internet so they are averages over a time span of about 35 years.

If you only invested half the monies that the interest only gives you then you will be at a disadvantage. If you invest none of the monies then you will be at a massive disadvantage. In other words you will see the same amount less per month whether you use interest only or 15 year mortgage.

The tax advantage of the interest only vs the 15 year mortgage in year 10 is barely 200 USD, which in my opinion is nothing to write home about.

Here is what I found for variation 2:

Variation 1 was not what the original blogger was talking about. Variation 2 where you buy more house for your money was what the original blogger talked about. This means you would be investing nothing, and doing the numbers for this variation the results are not good.

Yes you can afford more house eg 530,000 vs 300,000, but after ten years it means you pocket less money 292,000 vs the 15 year mortgage 322,000. What I found particularly interesting about this variation is the associated risk. Your tax advantage in year 10 is greater (400 USD), but you have more costs since a more expensive house has higher taxes, etc. Additionally if you purchase a higher priced house there is a greater liklihood that you will not be able to sell your house.

Conclusion:

In my original blog entry, which I deleted, I said that the money you pocket is greater by paying off the mortgage. When I fixed my calculations for Variation 1 it was not the case, but it was the case for Variation 2. Though, what is extremely important to realize is that interest only or long term mortgages only apply if in the long term the markets and housing prices go up. If during the 10 year period you don’t get the required returns you are buggered. For example I did the calculations when both the investments and housing prices only increased by a mere 2% per year over a 10 year period. At that point the money that you pocket goes way up for the 15 year mortgage, and for the others you are left straddling quite a bit of debt.

So in the end it might cost more per month, but it is better to get a 15 year mortgage…

GM Buying Chrysler?

by Christian

There is a rumour going around that GM might be buying (2) Chrysler. The rumour was based on something things that Zetsche (CEO DaimlerChrysler) said:

Speculation about the future of Chrysler started earlier this week when DaimlerChrysler CEO Dieter Zetsche revealed the future of the money-losing Chrysler division was being studied, and that the company was open to all options. That could include a spin off, analysts say.

Analysts are saying that GM buying Chrysler is unlikely and more likely the hoopla is about a large SUV that both companies are looking into developing.

Here are the reasons why analysts are saying GM would not buy Chrysler.

The reasons GM would not buy Chrysler far outweigh reasons it would even entertain the notion. GM produces models in every major segment Chrysler does, so Chrysler’s lineup would be redundant. One exception: GM will soon stop making mini-vans, one of Chrysler’s strengths.
GM also has its hands full carving distinct identities for eight brands and keeping them stocked with fresh product. Buying Chrysler would add three more–Chrysler, Dodge and Jeep–plus thousands of dealerships at a time GM is trying to trim its sales network.

I disagree and Business Week has some more insight into this. Business Week is saying that GM does not want to loose the No 1 crown and will do whatever it takes. As per the article GM knows that Proton is a money loosing venture, but many want to remain No 1.

So here is the question; should GM buy another car company or not?

I think the answer lies in a move Carly Fiorina made at HP. When Carly bought Compaq many thought it was the absolute worst move that HP could make. Compaq had very few things that HP did not already do. Yet Carly went ahead anyways. This is very much a similar situation to GM and Chrysler.

Why did she merge Compaq with HP? Her answer at the time was necessity. She was of the opinion that one day the battle of Compaq and HP would be a distraction from the real battle that would face both Compaq and HP. I personally feel she understood globalization that sometimes I feel analysts dont. Sometimes analysts focus too much on a individual country.

I think GM understands that the global car industry is in a pickle. There is quite a bit of upheaval going on. Though you might think it is about Toyota, I say it is not about Toyota.

Do me a favor and think about the word Toyota for a moment. Keep those thoughts and think about Porsche. Were the thoughts identical? I doubt it. If somebody today gave you the choice of one car or the other without any strings attached, which would you choose? I am willing to bet it is the Porsche. BTW one little piece of trivia did you know that something in the order of 70% of all Porsches ever produced are still on the road (don’t know the exact number because I heard this stat a couple of years ago, but it was very high)? Tells you something of the love and loyality of a Porsche owner.

Everybody thinks Toyota is the big gorilla on the block and the car company to worry about. Toyota is the big gorrilla, but they are not the car company to worry about. Toyota is missing one element and that is loyality. Many of you are going to disagree that there are plenty of loyal Toyota buyers. No, what I am talking about is downright love-to-own loyality where even though you might drive X you wish you had Y. When I was a youngster (pre-teen days) love-to-own loyality was a Lamborghini, because at the time Lamborghini was featured in many TV shows, and movies. Of course it did not hurt that Farah Fawcette was stretched across the hood of one. (Male Chauvism emails directed at oops@tryingtomakeapoint.com)

Toyota does not have the love-to-own loyality that other brands have. Though they are trying with their new hybrid vehicles. Toyota is taking advantage of the current global warming trend and people across the world are saying, “oooh look how clean Toyota is.” EVEN though Toyota just introduced a monster pickup that pollutes with the best of them. The point is that Toyota is buying loyality, because I think Toyota knows as well there is a new threat on the block.

The new threat that both Toyota and GM see is China! Right now China is a non-issue. But wait in ten years. China will be able to deliver the quality at a fraction of the price. NOBODY on this planet will be able to compete against the Chinese automakers. The Chinese car makers do not have down to the love-to-own loyality, and thus if you buy a Chinese vehicle it will be for cost and quality. The Chinese car makers will eat Toyota’s lunch, and dinner, and breakfast!

All of the car companies will not be able to compete against the Chinese car companies using quality or price, and that is a major threat. Look at what the Chinese textile industry did to the local textile industry in any of the countries of this planet? Or how about electronic parts? The Chinese manufacturers take no prisoners.

So how do you compete against this threat? You can capitulate, but that is not an option for most managers. In the case of GM in two ways. Remove domestic competition like HP did, and buy something that people have love-to-own loyality to.

Chrysler is the perfect match to GM because of the following brands:

• Jeep has an extremely loyal base. There are people (like me) who will explicitly buy a Jeep because it is a Jeep. As GM already owns Hummer, buying Chrysler would give them a virtual lock-in to the real 4×4’s on the market.
• Viper which is one of the two ultimate American sports vehicles. Since GM owns the Corvette, owning the Viper would give them the two internationally accepted sports vehicles that are from America. NOTE: I once drove beside a Viper on the autobahn, WOW! I was doing about 140 MPH and it was well way faster than I. It seemed like I was standing still. The Viper and Corvette are accepted by German car enthusiasts as REAL sports cars.
• Mini-van which is a mainstay product for Chrysler. The Minivan is an accepted vehicle type by everybody throughout the world. And Chrysler is the champion of this vehicle type.

These three brands are known throughout the planet and accepted. Using these three brands GM could boost their own position. This is why I think GM does find Chrysler very interesting and I would not be surprised if GM were to take the plunge and buys Chrysler.

NOTE: So if Chrysler is so interesting why is DaimlerChrysler interested in dropping them? Using my arguments of the Chinese car maker threat Daimler wants to go back to what they do best; Mercedes and Mercedes Trucks.

AMD - It’s in Your Phone

by Jason

Well not yet, but that is the plan. And I wonder if investors realize the potential. My guess is that Advanced Micro Devices (really their recently bought ATI division) is poised to make a bunch of money putting graphics processors into mobile phones, and this fact is not fully priced into the stock.

I wonder if investors are able to see past the PC market, when they think about AMD. It seems that all of the focus is on their competition with Intel. Meanwhile, the graphics card market is still ripe for growth. People, I think, finally realize that ATI and Nvidia supply chips for gaming consoles, and that part of the business is priced in. But what about the cell phone market? And the cell phone market is much bigger than the gaming console market. It may even be much bigger than the PC market, and with faster turnarounds.

Book Reviews: Profit From Uranium and Profit from China

by Christian

I am going to review the two books; Profit From Uranium and Profit from China. I want to structure my review in three parts, initial, reading it, and digested the information.

Initial: When I first received the books I looked at them and thought, huh that’s it! Fifty pages and about a third are “don’t do this or that.” Let me say that I was a bit disappointed and had some very low expectations. But I guess one should never judge a book by its cover, or page count.

My Past Predictions On The State of Wireless

by Christian

I saw an article at MarketWatch that talked about 3G and how it has not lived up to expectations. Well, I could have told you that in 2002. I know that I said that in 2002 because in 2002 I gave a presentation at the Ann Arbor Computing Society entitled “The State of Wireless.”   

In my presentation I stated the following conclusions:

• 3G is dead and we will talk more about 4G before 3G ever gains any traction.
• Wireless networks will become incompatible with each other.
• Hot Spot is a cheap single world wide standard

The wireless networks incompatibility did not happen, but oodles of Wireless networks did spring up (eg WiMax, BlueTooth, GPRS, Edge, 802.11 a, b, g, etc). The hardware vendors did their job and ensured most devices could talk multiple wireless network standards. I did not expect the hardware vendors to play ball. At the time I thought Qualcomm would mess things up, but the reality has been that Qualcomm has been turned into a fringe player (which I knew would happen).

Though, I did say 3G is dead before it even started. As my presentation said the problem was that 3G cost too darn much. The consumer would not be willing to support such expensive infrastructure if there are cheaper alternatives.

Hotspot technology I knew would become popular, and knew that in 1999 because of a German university study.

A German study in 1997-1999 found that people do not want information everywhere, but in specific places

–Study involved student information management habits at a University

–Café, Airport, Airplane, Train station, etc

–At other places information is a bonus, but not something that you would pay large amounts of money for

Now hotspot technologies are a given and people expect to find “hotspots.”

Ok enough of the past, what about the future?

The article says that 4G is not an issue because content providers, consumers and network operators don’t want to hear about. Network providers want the 3G infrastructure to pay off.

But here are the facts, 3G is dead, was exploited by the governments to attract huge license fees to fatten their spending tendencies. This in turn means that 3G will be too darn expensive! 3G is a white elephant.

4G technologies like HSPA, Wi-Max or LTE are going to revolutionize the meaning of connection and you can blame it on one device. The iPhone! I am critical of the iPhone, and I still think it is a dud! I still don’t think the economices and market analysis of the iPhone works. But what the iPhone will do is give the phone device makers a kick in the butt to provide content and accessibility better than the iPhone. This is already happening in Europe with many music labels, telcos, and phone makers providing a cross-Europe iTunes competitor.

The iPhone is scaring the pants off the big companies and that is a good thing! To keep Apple and the iPhone at bay the big telcos and telephone makers will adopt 4G because they will preceive that they have no choice. Those telcos that do not adopt 4G will be at a serious disadvantage.

Hmmm, I wonder if this is why the iPhone has no 3G. Maybe they are going to skip 3G and jump directly to 4G. Makes you wonder does it not?

Tech: It’s Not About Vista, or OSX…

by Christian

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 news.google.com, 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.

Pay Attention: We are on the Edge

by Christian

Last week (1,2) I talked about how the DJI should be breaking through the 12,700 barrier. We did not break through it, and I starting to become concerned. Some technical analysts will draw pretty pictures with lines in multiple directions, but we are hitting a resistance point. I like technical analysis, but use it in conjunction with mathematics and probability.

Here is what I would do, take some money off the table, not all. How much you want to take off the table depends on how nervous you might be. Last week I was so-so about locking into profits this week I am motivated to lock into profits. Then sit back and wait.

I see the market playing out in one of the following two scenarios:

• The bulls have the upper hand and you should only put money back on the table when DJI breaks through 12,800 and not a point earlier. I am thinking if 12,700 is broken it might be a fake out before the bears take control. Right now the market is not convinced it wants to reach 12,800.
• The bears have the upper hand, and you know the rule never catch a falling knife. I am thinking if the market falls wait until we reach 11,750 and then slowly think about putting money back on the table. My “beyond this is a major problem” support level for a bear run is about 11,250 to 11,500. I am doubtful it will break beyond this level, but you never know.

Let’s see what next week gives us…