The Ideal Business

Russel Richard of the Dow Letter has a great article on The Ideal Business.

I once asked a friend, a prominent New York corporate lawyer, "Dave, in all your years of experience, what was the single best business you've ever come across?" Without hesitation, Dave answered, "I have a client whose sole business is manufacturing a chemical that is critical in making synthetic rubber. This chemical is used in very small quantities in rubber manufacturing, but it is absolutely essential and can be used in only super-refined form.

"My client is the only one who manufactures this chemical. He therefore owns a virtual monopoly since this chemical is extremely difficult to manufacture and not enough of it is used to warrant another company competing with him. Furthermore, since the rubber companies need only small quantities of this chemical, they don't particularly care what they pay for it -- as long as it meets their very demanding specifications. My client is a millionaire many times over, and his business is the best I've ever come across." I was fascinated by the lawyer's story, and I never forgot it.

When I was a young man and just out of college my father gave me a few words of advice. Dad had loads of experience; he had been in the paper manufacturing business; he had been assistant to Mr. Sam Bloomingdale (of Bloomingdale's Department store); he had been in construction (he was a civil engineer); and he was also an expert in real estate management.

Here's what my dad told me: "Richard, stay out of the retail business. The hours are too long, and you're dealing with every darn variable under the sun. Stay out of real estate; when hard times arrive real estate comes to a dead stop and then it collapses. Furthermore, real estate is illiquid. When the collapse comes, you can't unload. Get into manufacturing; make something people can use. And make something that you can sell to the world. But Richard, my boy, if you're really serious about making money, get into the money business. It's clean, you can use your brains, you can get rid of your inventory and your mistakes in 30 seconds, and your product, money, never goes out of fashion."

So much for my father's wisdom (which was obviously tainted by the Great Depression). But Dad was a very wise man. For my own part, I've been in a number of businesses -- from textile designing to advertising to book publishing to owning a night club to the investment advisory business.

It's said that every business needs (1) a dreamer, (2) a businessman, and (3) a S.O.B. Well, I don't know about number 3, but most successful businesses do have a number 3 or all too often they seem to have a combined number 2 and number 3.

Bill Gates is known as "America's richest man." Bully for Billy. But do you know what Gates' biggest coup was? When Gates was dealing with IBM, Big Blue needed an operating system for their computer. Gates didn't have one, but he knew where to find one. A little outfit in Seattle had one. Gates bought the system for a mere $50,000 and presented it to IBM. That was the beginning of Microsoft's rise to power. Lesson: It's not enough to have the product, you have to know and understand your market. Gates didn't have the product, but he knew the market -- and he knew where to acquire the product.

Apple had by far the best product in the Mac. But Apple made a monumental mistake. They refused to license ALL PC manufacturers to use the Mac operating system. If they had, Apple today could be Microsoft, and Gates would still be trying to come out with something useful (the fact is Microsoft has been a follower and a great marketer, not an innovator). "Find a need and fill it," runs the old adage. Maybe today they should change that to, "Dream up a need and fill it." That's what has happened in the world of computers. And it will happen again and again.

All right, let's return to that wonderful world of perfection. I spent a lot of time and thought in working up the criteria for what I've termed the IDEAL BUSINESS. Now obviously, the ideal business doesn't exist and probably never will. But if you're about to start a business or join someone else's business or if you want to buy a business, the following list may help you. The more of these criteria that you can apply to your new business or new job, the better off you'll be.

(1) The ideal business sells the world, rather than a single neighborhood or even a single city or state. In other words, it has an unlimited global market (and today this is more important than ever, since world markets have now opened up to an extent unparalleled in my lifetime). By the way, how many times have you seen a retail store that has been doing well for years -- then another bigger and better retail store moves nearby, and it's kaput for the first store.

(2) The ideal business offers a product which enjoys an "inelastic" demand. Inelastic refers to a product that people need or desire -- almost regardless of price.

(3) The ideal business sells a product which cannot be easily substituted or copied. This means that the product is an original or at least it's something that can be copyrighted or patented.

(4) The ideal business has minimal labor requirements (the fewer personnel, the better). Today's example of this is the much-talked about "virtual corporation." The virtual corporation may consist of an office with three executives, where literally all manufacturing and services are farmed out to other companies.

(5) The ideal business enjoys low overhead. It does not need an expensive location; it does not need large amounts of electricity, advertising, legal advice, high-priced employees, large inventory, etc.

(6) The ideal business does not require big cash outlays or major investments in equipment. In other words, it does not tie up your capital (incidentally, one of the major reasons for new-business failure is under-capitalization).

(7) The ideal business enjoys cash billings. In other words, it does not tie up your capital with lengthy or complex credit terms.

(8) The ideal business is relatively free of all kinds of government and industry regulations and strictures (and if you're now in your own business, you most definitely know what I mean with this one).

(9) The ideal business is portable or easily moveable. This means that you can take your business (and yourself) anywhere you want -- Nevada, Florida, Texas, Washington, S. Dakota (none have state income taxes) or hey, maybe even Monte Carlo or Switzerland or the south of France.

(10) Here's a crucial one that's often overlooked; the ideal business satisfies your intellectual (and often emotional) needs. There's nothing like being fascinated with what you're doing. When that happens, you're not working, you're having fun.

(11) The ideal business leaves you with free time. In other words, it doesn't require your labor and attention 12, 16 or 18 hours a day (my lawyer wife, who leaves the house at 6:30 AM and comes home at 6:30 PM and often later, has been well aware of this one).

(12) Super-important: the ideal business is one in which your income is not limited by your personal output (lawyers and doctors have this problem). No, in the ideal business you can sell 10,000 customers as easily as you sell one (publishing is an example).

That's it. If you use this list it may help you cut through a lot of nonsense and hypocrisy and wishes and dreams regarding what you are looking for in life and in your work. None of us own or work at the ideal business. But it's helpful knowing what we're looking for and dealing with. As a buddy of mine once put it, "I can't lay an egg and I can't cook, but I know what a great omelet looks like and tastes like."

Is It Still A Good Time To Invest In Real Estate?

Well, it depends on a lot of factors. Like where you're investing.

There's a really good site called Housing Tracker that tracks the inventory and median home price for major cities. It has a pretty simple interface and its a great resource.

Looking at Los Angeles I saw the inventory is up 50% from 9 months ago, Orange County, CA is up 100% from 9 months ago, Boise, Miami and Tampa are up a whopping 115-120% up in the same time period. Even places like Oklahoma city are up 25%!!! Dallas and Houston are up roughly 15%.

This basically means there's a build-up of homes for sale. The number of buyers is decreasing or the number of sellers is increasing. Usually means either the market is stalling the the builders are overbuilding. Having the "Days On Market" data would definitely be a plus here.

Of course cities like Raliegh, NC have had a drop in inventory over the past 9 months by 0.8%. Austin is -10% but what really pleases me is that Salt Lake City is down -21%. It built up over winter [which is quite common] but come summer when the housing sales are the highest, its dropped 20%! This is despite all the building activity thats going on in SLC. Definitely a good sign.

So I'd feel comfortable investing in places like Salt Lake City, where I know that people are moving in from other western states and the housing supply is dropping. Although going by what happened in Phoenix, it might become more difficult to rent out the homes. But you stand a better chance of making money than if you buy in a place where the inventory has already built up a lot.

Of course there are other factors in buying real estate. Check out this post on Understanding Real Estate Cycles.

Exxon Is The Government's New Whipping Boy!

I've been trying to find out whether we're going to see an increase in interest rates over the next few years. It'll depend on whether we have inflation and go into a recession or not. While reading on this topic, I've read a lot of interesting stuff.
Here's something interesting from http://www.financialsense.com/stormwatch/2005/1028.html

Is Fair Share Fair?
On the day this was written ExxonMobil, ConocoPhillips and Microsoft all reported third quarter profits. Exxon Mobil reported sales of $100 billion and profits of $9.9 billion. ConocoPhillips reported sales of $49.7 billion and profits of $3.8 billion. Microsoft reported that sales rose to $9.7 billion and profits rose to $3.14 billion. ExxonMobil earned a 9.9% return on sales; ConocoPhillips earned a net return on sales of 7.65%. Microsoft’s profits reflect a return of 32.2% on sales.
Company Sales (B) Profits (B) Return on Sales
ExxonMobil $100 $9.00 9.90%
ConocoPhillips $49.7 $3.80 7.65%
Microsoft $9.7 $3.14 32.2%

The rise in ExxonMobil’s and ConocoPhillips' profits promptly called for a windfall profits tax to be imposed on the oil companies. Microsoft’s profits of 32.2% on sales called for no similar action nor were there calls for windfall profits taxes on homebuilders, banks, and other technology companies who all reported higher profits on sales. The oil companies have become the government’s new whipping boy for government-created inflation. The object of course is distraction and shifting the blame.

Money Saving Tool - Book Finder

I read a ton of books[atleast 2 every month, sometimes 4 and occasionally as many as 7]. So whenever I can I try to make good use of the public library. Quite often, it doesn't have a specific book that I'm looking for inwhich case I end up buying the book from Amazon.com.

I just found a really good website. http://www.worldcatlibraries.org/ will let you enter a zip code and will tell you which library has a book.

I was looking for "Dying of Money" by Jen O Parsson. Neither the local public library nor Amazon had this book but I according to the website its available at USCD's library!

Mortgage Delinquencies

I got a fedex today from my mortgage company. They sent me a letter stating that my mortgage was delinquent[no address, just an account number] and that they had tried calling me several times[yeah right!] and this was a final attempt to collect debt.

I called them up wondering which property this could possibly be on and after spending several minutes going through automated prompts I got a recorded message saying that my mortgage has been paid off in full.

Hmm...so yesterday I was delinquent when they overnighted it to me and today it was paid off in full? How moronic are these companies? With them selling a mortgage every 12 months its surprising they can even keep track of the payments!

Interesting Quotes

Sometimes your best investments are the ones you don't make.
Donald Trump

I buy expensive suits. They just look cheap on me.
Warren Buffett

There's nothing wrong with getting fired.
Ted Turner

The consumer isn't a moron; she is your wife.
David Ogilvy

My son is now an "entrepreneur." That's what you're called when you don't have a job.
Ted Turner

How To Ask For A Raise

David Bach, author of Automatic Millionaire has a great article on How To Ask For A Raise.

He suggests branding yourself to get ahead in life. I agree with him.

Nothing determines your value in the marketplace more than how you position yourself and how you come across to your boss. Ask yourself these questions and answer them honestly:

* As an employee, do I stand out or blend in?

* Do I come to work early, on time, or late?

* Do I have a written plan for my career that describes how I add value at work, or do I wing it?

* Do I have a relationship with the person who determines whether I should get a raise, or am I distant -- or worse, actively avoidant?

* Do I really care about the company I work for and the job I do, or is it just a paycheck?

* Do I take the initiative to spend my own time, money, or effort learning new job skills so I can add greater value to my company?

* Do I have a vision of where I want to be with my employer in three to five years?

* Does my employer know I have such a vision?

In order for your employer to recognize your value, they have to perceive your value. And they can't perceive you as a high-value brand if you don't perceive it -- and project it -- yourself.

Why Kiyosaki Is Buying Gold.

Robert Kiyosaki has a column on why he's buying in gold. I don't know why it has tomorrow's date on it, but its pretty interesting nonetheless.

Bet on Gold, Not on Funny Money
by Robert Kiyosaki

Tuesday, July 25, 2006

Gold recently dropped more than $100, or 14 percent, after hitting a 26-year high of $730 in mid-May. With that drop in price, I became a buyer of gold once again.

Can the price of gold go lower? Absolutely. If it drops to $500 an ounce, I'll buy more. Let me tell you why.

But first, to give you some background, I've been in the gold market since 1971, when then-President Nixon took the U.S. dollar off the gold standard. Back then, gold was pegged at $35 an ounce, and ran to a high of $850 an ounce by January 1980. In the same period, silver hit approximately $40 an ounce.

Today, as I write, silver is around $13 an ounce. So I've seen the price of precious metals go up and down.

Mining a Hunch

In 1996, I founded a gold mining company in China and a silver mining company in South America. Both companies eventually became publicly traded on the Canadian Exchanges.

I formed gold and silver mining companies then because I believed that gold and silver were at "lows" and were set to come back up. At the time, gold was around $275 an ounce and silver was around $5 an ounce. If I'd been wrong, I would have lost the mines.

I was confident about gold and silver because I wasn't betting on them. Rather, I was betting against the dollar and oil. In 1996, oil was about $10 a barrel, and that seemed low. My suspicions were that the dollar was strong, and I believed it would drop when oil went higher. I felt the conditions were right for a massive change in the markets. So far, I've been pretty accurate.

I'm confident that those conditions haven't changed. With the current national debt, balance of trade, and ongoing war in Iraq, the dollar is growing weaker and oil is going higher. That's why I recently bought more gold as well as more silver -- to bet against the dollar and oil yet again.

Inflation or Recession?

In many ways, the conditions are far worse now than they were in 1996. Today, we have a slowing demand for the dollar. At the same time, it appears that the Federal Reserve is increasing the supply of dollars.

As you know, low demand and high supply means a drop in value of anything, including the dollar. And in order to save the dollar's purchasing power, Ben Bernanke, the new Federal Reserve chairman, may be forced to raise real interest rates. By "real," I mean an interest rate that's higher than the rate of inflation.

(For example, if inflation is at 5 percent and interest rates are at 5 percent, the real interest rate is 0 percent. So, in this example, to increase demand for the dollar, the Federal Reserve would have to raise interest rates above 5 percent, to, say, 8 percent. That would means investors would receive a net 3 percent return on their money.)

So Bernanke has a tough choice to make: If he prints more money to bolster the dollar, inflation increases and the dollar may collapse. If he raises interest rates to slow inflation, the economy may go into recession.

The Oil Problem

Granted, if Bernanke moves to save the dollar by raising interest rates the price of gold and silver will probably decline -- but so will our economy. If the economy begins to slow, the stock market often slows or turns into a bear market.

Personally, I suspect he's more afraid of deflation than inflation. So for now, I'm betting that he'll continue to increase the supply of dollars, which may be why the U.S. stopped reporting M3 in March of this year. (M3 measures how many dollars are in the system, and not reporting it is akin to not opening your credit card statement and pretending you're not in debt.)

But oil adds another wrinkle. Oil producers are seemingly less and less willing to accept dollars because the purchasing power of the dollar keeps falling, precisely because we continue to print more money.

To compound the problem, we're running out of easy-to-produce light, sweet crude. While there's still a lot of oil to be extracted, it'll be more expensive to produce, which makes $100-a-barrel oil very possible in the future. This, in turn, makes inflation more possible.

Historically, one barrel of oil has been worth about 2.2 grams of gold. Even when the dollar dropped in value, the ratio between gold and a barrel of oil remained pretty fixed. But recently, it has taken 3.4 grams of gold to buy a barrel of oil, which means either oil is expensive or gold is cheap.

I'm betting that gold is cheap, and that it'll correct as oil goes higher and countries such as Russia, Venezuela, the Arab states, and Africa become more reluctant to accept the U.S. dollar. For a while now, we've been allowed to pay for the goods and services from other countries with funny money, but the world appears to be less and less willing to take it as payment.

Good Money Before Bad

Which way will the new Fed chairman take us? Will he be inflationary, which means printing more money, or deflationary, which means raising interest rates and tightening the flow of money? Does he save the dollar, or save the economy? Does he increase the money supply, or increase demand for the dollar?

My strategy remains the same as it's been for years: I bet on real money, which is gold and silver. I also continue to borrow funny money to buy real estate. Since oil and gas are in high demand globally and appear to be going up in price, I also invest in oil and gas production.

Again, I'm not really betting on these assets -- I'm primarily betting against the dollar, and the leaders who manage the U.S. economy.

Now you know why I buy more gold and silver every time they drop in value in the current economic environment. What smart investor wouldn't gladly spend funny money to buy real money?

Another Gold Update


Regular readers will know that I've been investing in gold since gold was in the very low 500s. I advised some readers not to jump in at $720 but wait for a pull-back. Well it pulled back from $720 to around $570 and then jumped up a bit. Today it settled around $620 and I bought a little bit more. As I previously mentioned, I like the perth mint Lunar series for the 1 Oz Gold as well as the 1 Oz Silver coins.

This time however, I bought the US mint $50 1 Oz Buffalo Coins. Its the first time the US Mint has made 99.99% pure 24K 1 Oz gold coins. I bought them already certified by PCGS as "First Strike MS-69".

PCGS is perhaps the most popular independent third party coin grading & certification service today. The grading scale goes from 0 to a maximum of 70. For example a grade of 10 would be a very poor condition. A grade of PF-60 (or MS-60) or above would be an uncirculated coin. PF-70 would be absolute "perfection". Some experts say there is no such thing as a "perfect" coin. In fact, some grading services will not place a grade on any coin above MS-69 or PF-69.[PF or PR means its a Proof coin, where by the background has a mirror like finish and the fine details of the coin are more pronounced.]

A coin that was made within the first 30 days of issue are called First Strikes. These are the initial production coins and sometimes these become more valuable. Today was the last day that PCGS was grading coins as "First Strike" so I decided to get them.

GoldLine was selling these same coins today for a whopping $1044, but I got them from American Precious Metals Exchange for only $667. These same coins are already selling on Ebay for atleast $735 so at $667, it doesn't seem like there's much downside.

Gold is in a long term bull market so I really don't think I'll lose any money on these coins. However Silver might be a better play with more upside potential, but then who knows what will happen. I'd buy both but my wife inherited about 5 kilos of Silver a few years ago so I guess were done hedging with silver.[But I still bought a few Silver 1 Oz coins off Ebay. I'll post the pictures once I get them]


Oh, and 5 kg of Silver is less than $2,000 worth!

Monetizing Blog Using LinkWorth

A lot of people don't like monetize their blogs. I don't have any qualms about doing so as long as its text-based. Most people become blind to text based ads anyway. Its only the flash and images that are a nuisance. [I use Mozilla ad-block plugin to shut them out anyway].

I'm already monetizing this blog to a certain extent. In the left hand corner under "Sponsors" are websites that pay to be linked on my site. If you click on "Get your own Blog Sponsors" you'll see I'm using LinkWorth. They're pretty good. Easier to set up than Adsense. Its not click-based so there's no issue of click-fraud and Google trying to weasel out of paying you.

The only downside is that you do have to wait for someone to sponsor your site. But if you have good content, that shouldn't be an issue. I've also being trying Adbrite, but that doesn't seem to attracted any advertisers. So far LinkWorth's been the best. I tried Adsense for several months, but finally when I was at the point of making $30/month they shut me down without any reason. But it seems to be working well for some people.

I'm not making a lot of money of the blog yet, just enough to fill a tank of gas each month. Luckily I have other income streams!

Tax Time Again

Its that time of year where I really need to file my tax return and get my $2,000 out of the IRS. I really hate doing my taxes and I usually file an extension and postpone it until the very last moment. This year my wife suggested a novel idea. Have my CPA do them! I normally do them myself, but last year I found a competent CPA and had him look over them after I had already done them. He said they were fine and didn't need any changes, so I had him sign and send them in. According to Perfectly Legal, this reduces your chance of an audit.

I really hadn't thought of just giving him all the stuff and having him do the taxes. Its probably my deep-rooted belief that no one cares for your money like you do. My CPA's very competant and probably does several hundred tax returns a year, so his knowledge is better than mine and he'll probably do them quicker as well.

Incidentally, he set me up with a 401k pension plan combo for my corporation, of which I'm the trustee! So technically I can invest in any damn investment I please and its all tax deferred!

Of course, theres a lot of discussion about investing in 401ks and avoiding the capital gains tax but being stuck with income tax when you withdraw [income tax is higher than capital gains, hence the discussion]. While that true, everytime you realise a gain on an investment, you need to pay tax[unless you defer it using a 1031 or some other method]. This could be as often as every year! This way atleast I don't have to worry about taxes for 30+ years!

Of course a better way would be to use a self-directed ROTH IRA. I'm currently researching how to set one up and I'll post my findings soon.

A really good book on tax deductions is 422 Tax Deductions for Businesse. Its a very easy read.

Another good book I read over the weekend is Missed Fortune: Dispel the Money Myth-Conceptions--Isn't It Time You Became Wealthy?. I only read the half the book on not paying off your home and leveraging it into better investments. I didn't read the part on insurance but its a pretty interesting book nonetheless.

Oil Hits $78 Per Barrel!

Woohoo!

I'm not actually jumping with joy, but I'm still quite pleased. Every dollar that oil goes up, my returns from the oil well I've invested in go up along with it.

My calculations on the returns was based on my crude oil selling $55 dollars per barrel. With oil trading at $78 I can expect to sell my lite sweet crude for roughly $68/barrel. Thats a 23% increase in profits with no change in expenses or production!

Sure my gas expenditure goes up, and eventually it will push up the price of almost everything else, but so long as I keep my profits higher than the amount of increase, I'm ahead.

Its always good to hedge one bets and diversify a little bit.

New Revenue Stream.

The only good book every written by Robert Allen is Multiple Streams of Internet Income. The rest are all bogus.

I've been trying to set up my own different revenue streams. My job, my real estate, my oil investments[potential], my private investment fund in oil and gas[again potential] and my minority stake in an internet telephony company[miniscule so far] have all been attempts to diversify my income and make it recession proof. I was laid off for 4 months after 9/11 and it sucked! If I had some money coming in from other sources life would've been so much better.

I just started another revenue source. Blog content creation. I'm creating content for a marketing company's real estate blog and I'm outsourcing the content to some terrific writers in India. Now if I could only find some decent way to monetize this blog!!!!

I'm also trying my hand at outsourcing web-application projects too. I already have a few leads lined up. Lets see how this works out.

Who Do You Hang Out With?

I contacted a fellow investor today after several months of silence. Found out he quit his stable engineering job in San Diego and moved to Florida. He's writing investment reports and sending them to mutal fund companies and trying to get a job as an Investment Analyst. He could have done this while still working, but he realized that he had to make this "do or die" situation to get out of his routine job and pursue something he enjoys. It really does show his commitment!

Somehow, most of the people I've been meeting or talking to lately fit this mindset. They're all trying to get out of the 9 to 5 rut and do something that is profitable, enjoyable and definitely not mainstream.

One of my friends quit his engineering job to become a trader quite recently. Another investor I know has an auto body shop and he's started flipping foreclosures. Practically all the people I talk to are trying to improve themselves through investing or starting some sort of business.

They're already well set in life with stable and well-paying jobs, but they all feel that something is lacking. Maybe its the desire to achieve fame and fortune. Maybe its the goal of wanting to be their own boss or maybe its the goal of being financial free.

Whatever is the driving force, they all work hard long hours to make their dreams a reality. They all hang out with strong minded and strong willed people who have positive attitudes and lofty goals. They spend a lot of time researching their particular market to give them an edge over everyone edge. And they don't whine and complain about their place in life.

Housing Update

Interesting update on some markets from the Real Estate Journal.


Utah homes worth their salt

Utah apparently has missed the news about the end of the housing boom, with median selling prices on the way up. For example, Utah County's Alpine area saw median selling prices rise 57.2% to $529,000 between the first quarter of 2005 and the same period this year. In Hooper, located in Weber County, prices appreciated 40% in the first quarter to $230,000 from the previous year, the The Salt Lake Tribune says. "Most people in Utah should not pay much attention to all the talk of a housing bubble," the paper quotes Richard DeKaser, chief economist for National City Corp., as saying. National City produces a quarterly "House Prices in America" report. There is little chance of housing prices declining in Utah, with the exception of the St. George area -- which the report deems as "extremely overvalued," the article says. Driving the rise in demand are an increase in jobs, higher wages and an influx of people from other states, The Salt Lake Tribune says.

Commuting costs brake California's Central Valley sales

More far-flung than other Bay Area suburbs, California's Central Valley is experiencing a housing market downturn more pronounced than in the Bay Area, the Mercury News says. During the residential real-estate boom, home buyers were buying properties farther from San Francisco in exchange for cheaper price tags, and Central Valley communities proliferated, the paper says. But now, with higher gasoline costs, rising mortgage rates and significantly appreciated real-estate prices, homes in the region are harder to sell and prices are falling. The article reports that in California's San Joaquin, Stanislaus and Merced counties, sales of new and resale homes dropped 29% in the first five months of this year from the same period last year, according to DataQuick Information Services. At the end of May, almost 4,000 houses were up for sale in San Joaquin County, a year-over-year rise of almost 250%, the Mercury News says. To get an idea of the commute between these communities and San Francisco, a calculation on Indo.com shows that the driving distance between the San Joaquin town of Tracy and San Francisco is 62 miles.

North Carolina's coastal market changes tide

Along North Carolina's coast, home sales appear to have crested, making sellers wonder if the market is in a correction -- or even worse -- a collapse, says The News & Observer. In the Outer Banks, located at the northern end of the state, year-over-year sales of existing homes fell by more than 50% in April and May, the article says. In May, the average home price in the Outer Banks dropped about $100,000, or 16%, from the year before, the paper says. With a glut of oceanfront homes, buyers are asking for discounts of 10% to 15% from sellers' asking prices, the paper says. (Though sellers are resisting price cuts, The News & Observer reports.) The not-so-sunny portrait is about the same throughout the coastal area, with sales of existing homes in Brunswick County (on the south of the coast) down by approximately 50%, and sales of existing homes in Carteret County showing a drop of 15% in May and a 34% dip in April.

Buyers scarce in Michigan

Michigan is experiencing one its slowest housing markets in history, says The Detroit News. To attract buyers, home builders and individual home sellers are offering incentives, the paper says. For instance, one Commerce Township homeowner is offering a two-year lease for a BMW X3 SUV for any real-estate agent who sells her $699,999 home. Some sellers are turning to Web sites that allow real-estate agents to bid for the chance to sell a homeowner's property, the article says. Agents are offering lower real-estate commissions in exchange for sellers' business, The Detroit News says. Responsible for the housing market slowdown are "the state's sagging economy and low consumer confidence," the paper quotes one local real-estate agent as saying. "People have kind of lost faith in the real estate market," the article quotes another realtor as saying.

Foreclosure frenzy in South Florida

A slowing housing market and increasing interest and home-insurance rates have combined to create a swell in the number of home foreclosures in South Florida, says South Florida Sun-Sentinel. In the first quarter of this year, there were 3,000 additional foreclosures (a rise of 40%) than at the end of 2005, the paper says. Those most at risk for foreclosure are homeowners who stretched their real-estate dollars during the housing boom through creative financing, the article says. In the first quarter, foreclosures rose 69% in Palm Beach, Fla., from the end of the previous quarter, the paper says. "We're seeing people who have overbought and their rates are going up now and they can't afford their houses," the president of Foreclosure.com says.

What Causes Mortgage Rates To Change?

I'm on a lot of mailing lists, which usually get sold and result in my getting a ton of spam. Most of it is effectively filtered out, but sometimes "relevant spam" filters through. Here's an interesting example from a mortgage company.



Did you know that one or more rate changes per day is normal? Most people do not know that. Rate quotes can easily change when you call back later that same day. In the lending business, a rate change can also include a change in the point cost for the same rate. In other words, a rate can be no points in the morning, then later that day cost ¼ point. That is a rate change to lenders. Did you also know that regular fixed mortgage rates are not directly affected by what the Fed chairman Ben Bernanke does?

Mortgage rates change primarily based on:
1) the perception of inflation,
2) times of uncertainty and
3) the movement of money in and out of the stock market--that's it.

When a piece of news shows weakness or uncertainty in the economy, that helps rates fall. The opposite is also true. A drop in the unemployment rate, a rise in durable goods orders, a rise in the consumer confidence index--rates go up.

These influencing factors can present themselves all the time, many without warning, affecting mortgage rates instantly. There is no "delay". It doesn't take time to "filter down" like some people think. Reading the paper for quotes doesn't really work because the information is old by the time you read it. Radio, TV and billboards are not the answer because the details are always missing. They just want to get you on the phone. Competitive lenders can deliver nearly identical rates to each other. Most borrowers don't ask the right questions and focus only on the interest rate. A professional will always be competitive and deliver what is promised.


To really know about your mortgage I strongly recommend How to Save Thousands of Dollars on Your Home Mortgage. My dog-eared copy is currently vacationing in Egypt with a friend. Its not difficult to understand and is a great resource.

17 Well Project Fully Funded

Finally having finished rounding up nearly $200,000 for the 17 oil well project yesterday we sent off the check to the operator. Together with 28 other investors, we managed to snag a 12.5% ownership in the entire project. Now I can get some rest!!! [Although now I have to sign all the paperwork and mail it back to the individual investors]

One of the advantages of owning a large chunk of a project is that you get to bug the operator a lot more than if you owned say 1%. [The same is true for real estate. Do you think your property manager is more likely to take your calls if he manges 12 of your homes instead of just 1??] People will tolerate a lot more crap if you provide them with a substantial amount of business.

So rather than me owning 0.72% of the project and having absolutely no leverage, I control 12.5% of the project thus making myself cozy with the operator. I'm also the manager of the LLC and will be getting a performance fee if we make more than a 20% return in any given year.

Ahh...leverage! It works in all aspects of life, especially the financial arena!

Invest In Russian IPOs?

The Washington Post has a great story today about investing in the Russian Energy IPO.
For comic relief, you can't get much better than yesterday's prospectus from Rosneft, Russia's energy giant, seeking $10 billion from Western stock investors gullible enough to believe that Russia can now be trusted as a reliable business partner.

Never mind that the company is a financial house of cards, or that its assets have largely been stolen, or that its chairman's day job is as President Vladimir Putin's deputy chief of staff. In fact, it says right there in black and white that, because of its ultimate control by the government, the company may, from time to time, "engage in business practices that do not maximize shareholder value" and cause it to "take actions that may not coincide with the interests of minority shareholders."
The new Rosneft investors will join William Browder, arguably the country's largest Western investor, whose reward for years of evangelizing on Russia as an investment opportunity has been an order barring him from entering the country again -- presumably until he calls off his campaign against insiders who strip their companies of valuable assets or unilaterally dilute the stake of minority shareholders.


But a lot people will not read the prospectus and will blindly throw their money away.

Politians Ruin Local Economy


Casinos were indefinitely closed in Atlantic City today, until politicians can decide how to fill a $4.5 billion budget deficit. Basically thousands of people are going to be out of work and many small businesses will suffer. Of course, the casinos are estimating a daily loss of around $20 million and the state loses around $1.3 million in lost taxes per day!!!

What better way to solve a budget deficit? Just close down the town and drive the tourists out!