Money Beagle

Another day on the stock market, another 5% drop, and another time the first paragraph of just about every story contains something along the lines of “market sees steep declines in the final hour of trading.”

I’m honestly getting sick of people driving the market down in the last hour of trading.  Maybe it would go down anyways, but I somehow think that the end of the market causes some sort of panic that might not be there otherwise.

Currently the major indexes have ‘circuit breakers’ where the markets would actually shut down for a certain amount of time upon major declines.  The NYSE, for example, will close down for 1 hour upon a 10% decline, and 2 hours for a 20% decline.  This is to give people a chance to cool down, and would also interrupt many computer programs that trigger sells upon certain percentage losses.  This is one of the leading causes for why the October 1987 market decline was so steep, and the circuit breakers would curb some of those.

What’s interesting is that the 10% circuit breaker will not kick in after 2:00 pm.  It only kicks in earlier in the day.  That’s opposite of what we see with most of the declines these days and wouldn’t even be helpful.

We haven’t had a decline of 10% in a day in the current market.  But, we’ve certainly had weeks where it’s gone down that much or come darn close.  Why are consecutive 4 and 5 percent declines any different than one steep 10 percent decline, I wonder?

I almost feel like there should be rules to shut the markets down early when it looks like last hour panic selling is about to ensue.  I have a feeling that a lot of those sell hours wouldn’t seem so urgent in the morning.

I know many people will say that the markets are self-correcting, and that we shouldn’t interfere.  But, I can’t think that such declines are healthy and I really do think that they’re fueled by forces that are not natural.  I can’t bear to watch the final hour of trading be catastrophic and think that is natural behavior for the markets.

I really think that new circuit breakers should be considered.  Crazy?  Maybe.  But a couple of years ago, would a $700 billion bailout to Wall Street been considered crazy?  Probably.  Would the Big Three automakers running out of cash been considered crazy?  I think so.

It’s a crazy time and we need to consider everything we can to avoid this from turning into a complete panic.

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It looks like I will have to be making an unexpected purchase.  I turned on my home computer and noticed that it wouldn’t connect to the Internet.  That was odd so I tried my normal troubleshooting steps, but still nothing.

I did some looking and found that my router was behaving strangely.  I have a cable modem that feeds a Linksys Wireless Router and switch.  The computer here in my office is plugged directly into it, but the other computers in the house connect through secure wireless.

Anyways, the router was blinking in a way that I could tell wasn’t good.  I was able to bypass the router by plugging the PC network cable directly into the cable modem.  This works now but it means that

1. I don’t have wireless access
2. The firewall and security features, though probably rudimentary, that the router was providing are no longer available.

I did some research on what the blinking means and if there is a solution.  Apparently, the firmware got fried and since it won’t receive a connection through the network cable, the ’secondary’ solution is to reset the card by using a screwdriver to temporarily short out one of the circuits on one of the chips.   Though someone posted pictures on how to do it, I am not sure it’s worth it.  The router has been doing some odd things over the past few months, so even if I were to successfully pull off the short circuit (the odds of which I put at about 40% anyways) I fear that it would just flake out sooner rather than later.

The router itself is probably five years or even older, so I have no qualms about putting it to rest knowing that it served well.

I’ll have to break the news to Mrs. Beagle that she’s without wireless access on her laptop until I research the best replacement, and at the right price of course!

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Clever Dude is one of my favorite Personal Finance blogs. I think that he tells very good stories, is very smart about personal finance, and writes very well. If there were a handful of personal finance blogs that I would use as a model for Money Beagle, then Clever Dude is one of them.

I was honored when Clever Dude included my post titled Being Frugal Isn’t A Fad on his blog as a guest post while he and his family are overseas. Please head over there for a read.

For those Clever Dude readers who are stopping by, thanks for coming.  Please feel free to browse the several months of posts that I have written, and also consider subscribing to my RSS feed or have Money Beagle delivered daily via e-mail.

I have some big deadlines at work that are keeping a lot more of my attention than usual, so posts might be a little light for the next couple of days.

In the mean time, please head over today to Money Ning who hosted this week’s Carnival of Personal Finance, and included my article on deflation being a threat to our economy.  Money Ning used the time to create the simple theme of: Smile.

That’s something we all could probably do more of, especially when thinking of personal finance, where the smiles probably have been fewer and far between for most of us, so head on over and enjoy the reads!

We have a lot of trees on our property, and so the fall brings lots and lots of leaves.

I’ve been raking them and bagging them, but my pack of 25 bags that I bought at Costco ran out last week, and I forgot to buy more.  I started wondering if I could just mulch them instead with my mulching lawn mower.  I did a little research and found that mulching leaves can be very beneficial to the lawn as it will provide nutrients.

This article gave me some useful information, and I’ve since read additional information that helps me believe that using the mulching mower is not a bad thing.  Unknown to us, there are still earthworms in the ground that will use the mulched leaves to create valuable nutrients that will help the lawn next spring.

So, this past week I actually used the mower and it looks great.  The mower shreds the leaves a lot smaller than I would have guessed, and it saved me from having to buy more yard waste bags.

Some highlights from the article, others that I’ve read, and from my own personal experience:

• It’s better to mulch leaves when they’re dry.  Mine were still damp from a rainfall the previous night.  If they’re damp, you just have to go slower to let the mower have more time to mulch
• If there are too many leaves, you should probably stick to raking.  When you cut your grass and it leaves clumps, that means it’s probably too high and you should bag it.  The same principle applies to mulching leaves.  If they’re more than an inch thick, the mower probably won’t be effective at mulching them and it’d be better to rake and bag.
• You can collect the mulch and spread it around other areas.  Apparently a layer of mulch a couple of inches thick around bushes and flower beds will also help provide nutrients to those areas.
• I probably wouldn’t mulch every time since we have so many trees.  I figure if I never collected the leaves, I might be placing too much mulch down would not be doing any benefit after a while.  I’d recommend mulching no more often than every other time.

Happy raking and mulching!

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The snow shoveling season is upon us within the next couple of weeks, and I’m dreading the driveway shoveling that will begin.  Last season was our first winter in our house, and I realized quite quickly that having a side entrance garage means more driveway to have to shovel.  The three-car garage aspect just adds an extra 12 feet or so of fun!

Anyways, last year was definitely a learning experience.  My parents were kind enough to loan me their snowblower for the season.  My dad has had problems with his feet, and my mom was going through some health issues, so they felt it best to hire a snow plowing service for the first time.  I’m guessing that they will continue to do this, but I guess I should check to make sure that they don’t need the snowblower back!  Since my dad still hasn’t had the surgery he needs to fix his foot, I’m guessing that doing snow wouldn’t be the best idea.

But, I digress.

Last year, I purchased a snow shovel from Home Depot.  I went with the widest snow shovel that they had that wasn’t high priced.  It actually had a metal core but was coated in plastic to ‘protect’ the driveway from the metal.  I was sold.

Unfortunately, as the winter went on, I wasn’t impressed.  The plastic wore itself out to the point where my piles of snow was highlighted with blue plastic shavings.  I think by the end of the season, the shovel was about an inch smaller due to the amount of material that wore itself out.  In other words, it was a ‘one and done’ shovel.

I’ve done some research and have found that metal shovels are not damaging to driveways since the blade isn’t that sharp and they’re not powerful enough to really start pulling up chunks of concrete.  I think that if you have concrete that is already damaged, the blade can catch and pull up more concrete, causing damage.  So, this year I decided to try out a metal blade shovel.

I purchased one that was $30.  This is 50% more than I paid for last years.  But, it looks strong and sturdy and the reviews I’ve read online seem to indicate that it will hold up.  At this point, I just need it to last me two years and it’s already more economical than the plastic coated shovel.

My only concern is with the driveway.  I’m not convinced that this wouldn’t weaken the driveway.  Our driveway is just over 10 years old.  There are a couple of spots where it’s starting to crumble, so I’ll probably use the remnants of the plastic coated shovel for those spots, just so I don’t pull up more concrete with the metal blade.  I guess if I see any problems at all with the new shovel, I will stop and switch back, but hopefully this doesn’t create any problems.

Yikes, and to think that I had a chance to move to Florida a few years back.  Although I love Michigan, it’s certain times like this that I wonder what I was thinking by turning down the opportunity!

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It’s random thought day!  Sort of like the Potpurri category on Jeopardy! (is that real or just the SNL Celebrity Jeopardy version?) here are some non-related thoughts I have which tie to personal finance, the economy, and the like.

• The house across the street has a Sold sign on it.  The house has been empty for over a year, as the people moved out almost immediately after we moved in.  Thankfully their moving had nothing to do with us, but instead because the husband had been transferred overseas.  It’s too bad because they were nice people, with a set of little twins.   I hope the new people are nice.
• The $700 billion bailout was changed in scope already, with Paulson announcing yesterday that the money will not be used to purchase troubled securities, as was the plan for some of the money.  I guess that’s what happens when you come up with a plan to spend $700 billion in just a couple of days.
• Of course as part of that announcement, Paulson had to once again rag on the auto industry and how not a penny of the $700 billion is supposed to go towards that.  We get it, the current head honchos really want nothing to do with helping out the auto industry and the 10% of the population whose employment is tied to it.  Good speech.  The current administration can not get out of office fast enough.
• After the Dow dipped below 8,000, I was all ready to write about how the stock market can’t seem to find a bottom, but then it staged a huge rally and ended the day close to 9,000.  A 10% swing in one day.  Wow.
• We moved more of our money out of the GMAC Demand Notes account into our ING DIrect account.  The Demand Notes account isn’t FDIC insured and with all the cash flow problems, we are just not willing to risk that much money.  The lower interest rate will certainly not be welcome, but I guess that should be extra motivation to set up some CDs through ING, as they’re offering some pretty good rates.
• Ugh, tomorrow is garbage day which means I still have to go collect all the garbage and scoop the kitty litter.  But, at least that means it’s Friday.  Hope everybody has a happy weekend!

I was part of three carnivals this week, which is a record for me.  Thanks to all for hosting the carnivals and for including my post.

• The Digerati Life hosted the Carnival of Personal Finance and included my post about my city government helping residents save money
• Greener Pastures hosted the Carnival of Debt Reduction and included my post on what we’re doing with a $2,700 windfall
• Taking Charge hosted the Money Hacks Carnival and included my post about how the current economic situation is a catch-22

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As if we didn’t have enough to worry about with the economy, now I read that it’s not inflation that is the worry, but instead the threat of deflation is a serious risk that economists are watching.

Inflation, of course, is when prices rise.  We normally see an element of this over time.  What we’re used to seeing is a small amount of inflation per year.  The inflation rates of 3-5% over the last decade or so is considered healthy.  I am too young to recall the inflation rates of 10-15% in the late 1970’s and early 1980’s, but that’s an example of inflation that runs rampant.

As recently as the summer, the threat of a similar inflationary rate was on the minds of many.  With energy and oil prices rising rapidly, this was forcing up the prices of just about everything, presenting a big threat of rampant inflation.

Now, just a few months later the threat of inflation has subsided and we’re now threatened with deflation.  This is where prices actually fall.

Most people love the idea of falling prices, so this is generally seen as a good thing.  This would be true for you and I making our weekly grocery shopping trip, but for the economy as a whole it’s actually a serious threat.

The major reason for deflation being bad ties back to debt.  When prices fall, the debt that companies (or individuals) carry is suddenly even more of a burden in a time of falling prices.  Equate inflation/deflation to earning a salary: If you earn $50,000 in a year, and inflation is 4%, then your salary the next year is $52,000.  However, in a deflationary time, your salary might decrease to $48,000. If prices fell across the board, then the cost of your goods would go down an equal amount, and you would be no better or no worse off.

However, the problem comes in for people that carry debt.  If you bought a house when your salary was $50,000 with loan payments of $1,000 per month, those will remain constant.  If your salary increased but the loan payments remained the same, chances are you’ll be able to keep up on the loan with everything else remaining in check.  But, if your salary goes down, then you suddenly have less money coming in, but still have to make those loan payments.

For anybody that’s carrying debt, deflation is similarly troublesome.  Since most companies finance their operations through carrying debt, whether it be short term or long term, this is a big threat.   Deflation can put big squeezes on companies.

Deflation can also slow down consumer spending, which drives over 75% of our economic activity here in the USA.  The reason for that is that once prices start to fall, people often hold off on buying something because they don’t want the value to fall further, or they just figure they can hold off and get it for cheaper later.  Does this sound familiar?  It ought to, because this is the prevailing thought process in the current real estate market.  How many people are afraid to buy a house because they’re afraid it will be worth less after they purchase it?  There are a lot.

Deflation is also a key indicator of slowed economic activity.  Normally, a key factor to prices is supply and demand.  When economic demand is healthy, this will keep prices from falling.  Deflation is a key indicator that economic activity as a whole is slowing.

The last time we saw prolonged deflation?  The 1930’s, also known as The Great Depression.

Keep an eye out on the news for this, as I wouldn’t be surprised to see this come to light in a much bigger fashion if the threat continues.

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I am doing my first Money Beagle series on the state of the American auto industry. This was in response to big news over the past couple of weeks involving a rumored sale of Chrysler to General Motors. Currently, that deal appears to be on hold or have gone kaput, but since my last entry, the cash situation for all of the automakers is extremely precarious.

Feel free to catch up.  Part 1 of the series was an introduction and a little background.   Part 2 was my thoughts on the importance of the auto industry to America.

With ‘bailout’ being the buzzword of the economy as of late, it’s been wondered by many why the focus of the original $700 billion in bailouts was squarely on Wall Street and the banking industry.

Recently, the bailout of the financial / insurance firm AIG grew to over $150 billion dollars.  That’s a lot of money.  Yet, the auto companies have only recently begun to get traction on their request for a bailout.  The auto companies want $25 billion to $40 billion in loans to shore up their cash.  Otherwise, the threat is that at least one, if not all three, of the domestic automakers could run out of cash.  The current best case scenario is that they would have enough cash to get them through the end of 2009.  The worst case: they might be in trouble before a new administration takes office in January.

Ouch.

I have had a hard time understanding why there is the reluctance to help out the automakers.  The numbers I saw on TV the other day were this:

• AIG employs 100,000 people worldwide.
• The domestic automakers are tied to 10% of the jobs in the United States of America alone.

I’d like to break down the 10%, because this seemed high.  But, what it really touches is what would happen if the automakers were to shut down.  You would have a lot of people lose their jobs at the automakers.  Then, you would have all of the people that work for the suppliers shut down.  At the same time, all of the service industries that provide services (e.g. IT, telecommunications, consulting, accounting) would either shut down or see massive layoffs.

At this point, you’ve got a lot of people that are out work.  Hundreds of thousands.  These are people that immediately will stop spending in the economy.  No more trips.  Cutting down on spending.  More people going into foreclosures.  At this point is when the ‘trickle down effect’ really starts hitting the rest of the economy.  Stores would shut down and retail workers would be out work.  When people slowed down eating out, thousands of restaurants would shut down leaving people jobless.  The effect would be felt all throughout the country, and probably throughout the world.  When it’s all said and done, the guess is that 10% of people currently working would no longer have a job.

Think about that.  The unemployment rate for the country is currently 6.5%.  Imagine if it were 16.5%.  That’s one out of every six people without a job.  I don’t know about you, but there’s only one thing I can call that: a depression.

People in areas where the auto industry isn’t prevalent might not think that this affects them.  They might say that because the area that they live in doesn’t have a lot of ties that it wouldn’t matter.  I think that’s a flawed argument because of the fact that the economy as a whole will slow, and that the people in those areas will end up having to shoulder the requirements that those no longer working are able to provide.  Someone has to fund the unemployment lines and the welfare lines that will form.  Someone has to pay for infrastructure that needs money to keep it up.

Bottom line, even if you don’t lose your job as a result of the auto industry failure, every single person in the United States of America will be affected, and not in a good way.

I’ve heard a couple of other arguments used against providing a bailout to the auto industry.  Let me outline those and give my responses:

• The auto industry did this to themselves with poor quality - I’ll address this in another post, but the general summary is that quality has improved and is now in the same classification as foreign manufacturers
• The automakers did this by paying too high of wages - While labor costs for the automakers are a lot higher than foreign automakers, I think people should be careful with this argument.  Chances are that the wages paid over the years added wealth throughout the country that we wouldn’t have had otherwise.  Without the wages paid over the years, we might never have built ourselves into the greatest nation in the world.  Since we reaped the benefits for decades and decades, I don’t think it’s right to just turn our back now that things are tough.
• The automakers made mistakes over the years and deserve this - I agree with the first part of this. Mismanagement definitely occurred over the course of many years.  Few will argue with this.  People made mistakes and things were done that were wrong.  But, as they say, two wrongs don’t make a right.  Letting the automakers fail will not undo or correct those mistakes.  If anything, we need to look forward and realize that letting the automakers fail would be a bigger mistake that would impact everybody.

I’m not going to argue about whether or not AIG deserves a bailout or what their importance is to the American economy.  But, I have a hard time believing that AIG provides more to the United States economy than does the American auto industry.  So, I firmly believe that providing a fraction of the relief to the automakers that the government is to AIG is a no-brainer and should be done immediately.

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I was cleaning out my office over the weekend and came across several unread magazines from subscriptions that I had in the past which I’ve let go.  I just realized that I don’t miss them…..much.  At various times I had subscriptions to:

• Maxim - This was a fun magazine that I had for a stretch in my late 20’s and early 30’s.  I actually let this one run out a couple of years ago when I realized that I had outgrown it, that my future wife might not appreciate me getting it, and most importantly, from having the feeling that I’d read just about everything.  I didn’t miss this one bit.
• Alfred Hitchcock Mystery Magazine - I love to read and this was one of my favorite magazines as a teenager, as it contains a lot of short stories in the mystery genre.  I had subscribed to it for two years, but let it go about three years ago.  I enjoyed it but it was hit or miss.   Since I still have a couple of unread copies, I guess this was no big loss.
• Entertainment Weekly - This was probably the hardest to let go.  I had subscribed to this magazine since I was a freshman in college, when I got hooked into one of the ‘deals’ that they throw at newbie college kids.  I really enjoyed this magazine for the 15 years or so that I subscribed, but it got to where I wasn’t reading it fully anymore.  When I found out that my local library carries back copies, I decided to let it go.  I do miss this one a little bit, but I plan on keeping up with their ‘preview’ issues through the library, which are the ones I enjoyed the most.  These were regular previews of things such as the Fall TV season, Summer Movie season, etc.
• Us Magazine - This one wasn’t for me but was my wife.  She signed up for a really good deal a little over a year ago, and decided not to renew it as she felt that it was very repetitive.

So, we are currently not paying for any subscriptions.  We have three monthly magazines that come to us, but they’re free.  One is for Better Homes & Gardens which was free inside a cookbook my wife got for a gift.  A second is a pregnancy magazine that my wife found somewhere.  The third is a professional publication for my profession (project management) that is included in the annual membership dues for the national insitute.  My employer pays those dues, so there is nothing out of pocket for me.

In all, although I miss the magazines occasionally, I realized that the money I’m saving by not having the subscriptions is worth more to me, especially since I have an outlet to read the magazine that I do miss the most.  Just a little bit more that we can apply towards our debt!

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