My apologies for the length of this post. It is something that I wanted to write about.

Bottom Line – There is a huge difference between marketing brochures and educational pieces. Marketing pieces only show one side of the story. They are designed to sell the idea that they are promoting. Educational pieces give you a balanced look so that you know both sides. They compare and contrast an idea. Don’t confuse marketing brochures with educational pieces. You are only getting one side of the story.

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In my capacity, I receive a lot of e-mails from mutual fund companies on what to say to clients when they get scared of the stock market. You have to know that advisors are trained to tell you what to say when you have complaints about the market. All of this marketing is designed to prove a thesis:

“Stocks are always the best investment and especially for the long-term.”

Said another way, you will be just fine as long as you stay invested for the long-term, you buy and hold, and you never time the market. Let me invite you to look at it another way.

A Prudent Money Look at Buy and Hold Investing

When market risk has increased, it doesn’t make sense to just buy and hold and “ride it out.” It is like living in Florida, suspecting a Category 5 hurricane is coming, and taking no precautions.

It is important to have an exit strategy when you are in a tough market. The years that you lose large sums of money are more damaging to your long-term success than the positive effect you get from the good years. So, have a plan B to remove yourself from the big bear markets.

If your only investment strategy is buy and hold investing, that is the only strategy you will ever utilize even in retirement. When a person retires, chances are they will continue to invest as they have always invested. At retirement, buy and hold can be detrimental because you cannot afford a large loss when you are taking money out on a monthly basis. Imagine the investor who continued to practice buy and hold investing and retired in 2008.

If you are going to buy and hold, practice extreme diversification and divide your investments over many different ASSET TYPES and rebalance those investments each year based on the risk levels of the stock market. We will talk more about that later in the series.

Mutual fund marketing provides example after example of data that supports this notion that buy and hold is the only way to go. The challenge I have with some of these examples is the cherry picking of data. It is easy to pick the right set of data to support your argument. The problem is that the examples used don’t always tell the investor the whole story. If they did, then you would realize that it doesn’t ALWAYS make sense to be invested in stocks and that stocks aren’t always a great long-term investment.

Mutual Fund Claim (1) – Historically, the best opportunities to make money in stocks have been when investors are holding a lot of cash and not invested in the market. (They are pointing out that it is a great time to be invested because of the amount of money that is in money market funds and not in the stock market.)

Counter-Argument – Here is another way to look at levels of cash in the stock market. When mutual fund managers hold low levels of cash, it has always been a sign that the market is headed for trouble. As of December 2009, we are at the second lowest level. One of the two indicators is going to be right. If I were going to place my bets, I would place odds on the counter-argument.

Mutual Fund Claim (2) – Chasing performance may lower your return. This is from a study that compares an investor who tries to time the market to the investor who bought and hold. The client who tried to time the market had an average return of 1.9%. The investor who just bought and held had a 7.9% return.

Counter-Argument – It would be virtually impossible to substantiate that data without having a group of investors that were monitored individually over a long-term period. Further you would have to make a lot of assumptions to use that statistic such as trading skill of the investor, did they just pull money out on an emotional basis, did they have a strategy, etc.

Mutual Fund Claim (3) – Don’t try and time the market! They show that if you stayed invested over a certain time period, you would have made an average return of 10.4%. However if you missed the 25 best days, you would only have a return of 4.3%.

Counter-Argument – They never show the reverse of that point. What if you missed the worst days? Since no one in the mutual fund world would run the study, I ran it as proof that this is a bogus notion.

If you invested $1,000 in January 1950, it would have grown to $613,013 by December 2007.

If you missed the 30 best months, that $1,000 would have turned into $35,404.

What if you would have missed the 30 worst months between January 1950 and December 2007?

If you missed the 30 worst months, your $1,000 would have turned into $9,509,094.

Which do you think is more important? Being in there for the gains or protecting yourself in the bad markets?

Mutual Fund Claim (4) – Longer time horizons may lower your chances of loss. They show a study that says there has never been a single year of losses if you were invested for at least 25 years.

Counter-Argument – Is that really relevant? It is not about whether or not you lost money during a certain time period. It is about whether or not you reached your retirement goals over that long-period of time. If you were invested in 1929 right before the stock market crash, it would have taken you 25 years just to get back to where you were in 1929. That is 25 years of no growth. Buy and holders say that could never happen again. That was 1929 and today is a different time. When it comes to the stock market, you never want to say never.

Prudent Point – There are always two sides to a story. Keep in mind that any of this proof comes from an industry that is completely dependent on you paying commissions and staying invested forever.

Tags: Bob Brooks, Buy and Hold, Investing, investment strategy, marketing, mutual funds, risk

Consumer confidence recorded a sharp decline this morning falling from 54 to 46. Most of the decline was due to that pesky little problem called unemployment. It is the problem that Wall Street just thinks is going to go away and the Government wants you to believe is getting fixed. Jobs are available as long as you want a stimulus job or go to work for the Government.

Now I have always thought the consumer confidence index was a non-event. The Conference Board asks 5,000 people how they feel about life and draw a conclusion that the rest of America feels the same way. For whatever reason, Wall Street pays attention. No disrespect to the Confidence Board and all of their hard work with calling 5,000 individuals. I could have told you that the probability is high that the unemployment issues might be contributing to a drop in confidence.

So, what is the Obama administration to do? I mean the stimulus program (all of our money that is being spent to save the world) was supposed to produce jobs. Of course, the jobs numbers aren’t showing it. Well, in a convenient move yesterday following the release of the consumer confidence index, the Congressional Budget Office had good news to tell the world. Due to the efforts of the stimulus program, the Obama administration has produced 1 to 2.1 million jobs. That is incredible news.

I also found out some great news today. I figured out that my bank account at any given time could (given the right set of assumptions) have $100 to $1,000,000 dollars in it. I had no clue.

I really hope that no one is drinking enough of the Kool-Aid to believe that to be true. This is our government and they have to substantiate the spending of our money, our children’s money, our grandchildren’s money, and great grandchildren’s money. Thus they create these “estimates.”

If I were the President, I wouldn’t be working from estimates, especially ones that could be within 1,000,000 or so units. I would have an accounting of every job and every project. Come on – this is the Federal Government and it should not be that easy to track the numbers. It is all about credibility. Until then we shall live in the world of fantasy numbers. Unfortunately for the politicians, the real numbers just get in the way. By the way, try the cherry flavored Kool-Aid. It has always been my favorite.

Tags: Bob Brooks, consumer confidence index, Government, Obama Administration, stimulus, Unemployment

Do you really think that Congress is going to put into law restrictive laws that will actually harm large political contributors such as the credit card industry?

They will say the right thing and play the part of financial regulators. At the end of the day, it is business as usual in Washington. There are plenty of loopholes in this law that opens the doors for the credit industry to raise your rates.

(1) The 60 day grace period – One would think that a grace period would be a good thing. After all, if you cannot make the payment in 30 days, you have an extra 30 days to come up with it. In some case, this could be a real blessing. I think that in most cases this is a trap. You give a consumer 30 days and they will take it. You give a consumer 60 days and they will take it. There is one thing being 30 days out. Being 60 days out will be troublesome for most. They are now behind the 8 ball for two payments. It is easy to be late being 60 days removed from the due date. It would be easy to miss a payment or forget a date. Consumers who push it to the brink of 30 days run a risk. At 60 that risk doubles. If you are late, the credit card company gets to raise your rates. They will do what they have always done. They will rely on the human nature to make mistakes and take full advantage of it.

(2) Hardship – If you are in a hardship arrangement, you are of the limited protection that this act gives you. Consumer Credit Counseling or any type of arrangement that changes the terms of the debt is considered a hardship. Well, if you call in to the credit card company and tell them that you are in trouble, they offer you some help. In many cases they will tell you to go to www.helpwithmycredit.org. Guess what that site is all about? It is sponsored by some of the major credit card companies. It is a site that directs you towards a hardship program. The irony is that the very help that they are giving you is the same thing that removes you from the limited protection of the law.

(3) Credit Card Transfers – I am still trying to interpret this part of the law. In section 171 it says:

“In General- No card issuer may increase any annual percentage rate, fee, or finance charge applicable to a credit card account under an open end consumer credit plan, or terminate early a lower introductory rate, fee, or charge, except as permitted under this section.” It then spells out 4 exceptions that allow them to raise rates.

In section 172 it says:

“Except in the case of an increase described in paragraph (1), (2), (3), or (4) of section 171(b) (see above), no increase in any annual percentage rate, fee, or finance charge on any credit card account under an open end consumer credit plan shall be effective before the end of the 1-year period beginning on the date on which the account is opened.”

So they cannot raise rates except for the 4 exceptions as written in Section 171. However, section 172 allows them to raise rates but only after 1 year following the opening of the account.

I can only interpret that in one way. There is all of the credit debt prior to February 22 for which the credit card act is written. Then there are the new accounts opened after February 22 that could face interest rate increases after the first year. If that is true, it explains all of the new balance transfer offers that are hitting mailboxes. Can you imagine transferring pre-credit card act debt to a post-credit card act account for a 0% rate for 6 months? You would take the debt that was protected against interest rate increases and transfer it to an account that now will be subject to interest rate increases. That is ingenious!

So what do you do? You do what I write about in Deceptive Money. You get informed and understand the terms and conditions that go along with old and new accounts. If not, you could pay a steep price.

Tags: Bob Brooks, Congress, consumer credit counseling, Credit CARD act, Deceptive Money, grace period, hardship, interest rates, terms and conditions

There is an intense debate on Wall Street about whether or not we are heading towards a massive inflationary problem or if we are stuck in a deflationary problem. Inflation is when prices go up and deflation is when prices go down.

If you are investing money, it is going to be important to get this one right. So many of the talking heads on CNBC are declaring that we are heading towards extreme inflation. They cite that the printing of money by the government is causing it. They also point to this “incredible” rebound we are seeing in the economy.

If you will bear with me, I need to put the KOOL-AID down so that I am not tempted to drink it. On the surface, it is inflationary when the Government prints enormous amounts of money. However, the story goes well beyond the printing of money. I regard these financial hosts as pretty smart people. I often wonder if these hosts are all told to always be positive no matter what? After all, they do work for CNBC, which is owned by GE, a publically traded company.

Here is the evidence of deflation:

The velocity of money – Dig out your economics book. The velocity of money measures the circulation of money throughout the economy. The velocity of money would need to be running pretty high to potentially create inflation. Currently it is very low primarily because banks aren’t lending money and consumers aren’t spending money.

A world overloaded with debt – Debt in itself is deflationary. Deflation is brought on by a debt crisis.

The money supply – The money supply has been decreasing and not increasing. You would need to see the money supply expanding at a great pace to see inflation.

The CPI and the PPI – The PPI or Producers Price Index shows whether or not the prices or increasing or decreasing at the producers level. In other words, are the widgets getting more or less expensive to make? The CPI or consumer price index shows what is happening to consumer prices. Are they going up (inflationary) or down (deflationary)?

The latest PPI numbers showed an increase in prices at the consumer level. When that happens, typically those higher costs get passed onto the consumer and are reflected in the CPI number. However, the CPI numbers released on Friday showed the first drop in 27 years. That tells me that companies are getting hit with higher costs but are not able to pass them on because the consumer is so strapped. That keeps a lid on prices. In fact, companies are dropping prices to get consumers to buy items. That in itself is deflationary.

To be fair, the CPI minus energy and food costs decreased. Yes we depend on energy and food which have been going up. I think that net effect is clearly deflationary.

In short, the reason that the printing of money is not causing inflation is simply because the printed money is not circulating. It is absorbing losses of all kinds due to the effects of the debt crisis. Until you get massive circulation which would show up in the above indicators, I think that we are stuck with deflation. Plus you better hope that it doesn’t turn into inflation. That would force the Federal Reserve Board to start aggressively raising rates which would easily throw us into a double dip recession if we aren’t already heading that way.

Tags: Bob Brooks, CPI, debt crisis, deflation, double dip recession, inflation, PPI, velocity of money

The New Credit Card Accountability Act goes into effect February 22, 2010. As with most attempts of the politicians to protect consumers from those big bad companies, there are always loopholes. So, here is what you need to know:

(1) Expect fees to either increase or be added – Credit card companies are looking at these new laws as a great opportunity to add new or increase fees. These fees could be everything from new annual account fees to an increase in late charges to new monthly fees if you want your statements mailed to you.
(2) 60 Day Grace Period – On the surface, this could appear to be a good thing. However, I think that this provision of the new card act could prove to be a disaster for consumers. I would suggest that defaults and late payments will increase by lengthening the time for several reasons. First, the longer you go from the due date the more likely you are to forget about the payment or get the due date wrong. Second, allowing yourself to get 60 days behind could really put you in a bind to the point where you might not be able to get completely current again.
(3) Business Credit Cards – This act does not cover credit cards that are personally guaranteed by the cardholder and in the business’s name. Credit card companies can continue to abuse the small business owner and get away with it.
(4) Hardships – If you work out a hardship such as credit consumer counseling or they allow any type of change to the contract to help you out, you have just entered into a hardship arrangement. Hardship arrangements remove the consumer from the protection of the credit card act. Of course as you might expect, credit card companies are encouraging troubled card holders to seek help with consumer credit counseling services.
(5) No more Universal Default Clause – They can no longer raise your interest rates for no reason. Now through the credit act, they define when they can raise rates.

• Variable rates – Interest rates can increase if they are a variable rate. This is why credit card companies changed from fixed rate cards to variable rates. This should end up being a big profit maker for them considering that the benchmark that is responsible for decreasing or increasing rates has nowhere to go but up.
• 60 days late – If they are more than 60 days late, interest rates can increase.
• The end of a promotional period – Obviously when a promotional period ends, rates are allowed to be increased.

(6) You are at their mercy for credit card companies to lower your interest rates – The act leaves it up to the credit card companies to determine whether or not they should lower your high interest rates. Any interest rate increases that have occurred since January 9, 2009, are to be reviewed every 6 months. If payments are made in a timely manner during that time and the credit card company determines that the consumer or market conditions or other factors are no longer a risk, then they can elect to lower the penalty rates. In other words, they have many reasons in their back pocket that allow them to justify keeping your interest rates high.
(7) You can opt out of an increased interest rate by closing the account – This is actually a pretty good feature. You can close the account and keep the old interest rate rather than getting charged the higher interest rate. Of course, you run the risk of hurting your credit score as well as removing a potential line of credit.
(8) If you are under age 21, you are out of luck – Individuals under the age of 21 cannot get a credit card unless 1 of 2 conditions is met. First, you have a parent co-signed. Two, you prove through the use of an income that the under 21 aged individual has the means to pay the debt back.
(9) Other misc. rules – I won’t insult your intelligence and tell you how they are now required by law to be clearer in their contracts and communications to you. That should be a no brainer.
(10) Finally, my favorite provision of the credit card act that has nothing to do with credit card companies unless a credit card company official attacks you in a National Park…

An individual now has the right to bear arms in Units of the National Park System and the National Wildlife Refuge System. As if this act was not a big enough joke in the first place, the right to bear arms within an act that is intended to regulate the credit act definitely lowers what little credibility that this act has. I guess someone had to be bribed with some gun legislation to go along with this new credit card act.

The bottom line: Read the fine print and understand the changes that each credit card company sends you. Most importantly, don’t be fooled into thinking that the politicians have done something to protect you from the abuse of the credit card industry. They have just given credit card companies different and innovative ways to make money.

Tags: Bob Brooks, business credit cards, Credit Card Accountability Act, Fees, grace period, hardship, interest rates, Universal Default Clause

I know what you are thinking. He has totally lost it by suggesting that Toyota could go out of business due to all of these recalls. If you take a hard look at the facts, assumptions, and a little speculation, a question mark might exist for the world’s biggest car company. The problem stems from the 9 million plus cars worldwide that they have had to recall for mechanical problems.

Thus far here is a list of the recalls:

2005-2010 Avalon
2010 Prius
2007-2010 Camry
2009-2010 RAV4
2009-2010 Corolla
2008-2010 Sequoia
2008-2010 Highlander
2005-2010 Tacoma
2009-2010 Matrix
2007-2010 Tundra
2004-2009 Prius
2009-2010 VENZA

So just a bad spell for Toyota or the revelation of a bigger problem? Tony Joe, who co-hosts the special car corner edition of Prudent Money, shed some light on the problems Toyota is having with a sticking accelerator. Tony Joe told the Prudent Money listening audience last Friday that Toyota’s biggest problem is that they don’t know why this problem is happening and he suspects that it is a software issue and that the “solution” is not going to ultimately fix the problem. He went on further to suggest that this problem has been going on for a very long time with Toyota not really addressing it. Car companies don’t want to go through the recall problem if it can be avoided.

Meanwhile, guess who would love to see Toyota go out of business or at the least lose significant market share? The American car companies of course. That would be a big boost for sales if the largest competitor went down. Who has the most influence over the American car companies? As long as the politicians are bankrolling things with our money, they have a lot of power and influence in this fight for market share and they are starting to take this issue and blow it out of proportion. They have started all types of investigations into Toyota and the problems that have occurred with their brand. As White House Chief of Staff Ron Emanuel once said, “You never want a serious crisis to go to waste.” Well they certainly are not going to let Toyota’s crisis go to waste. I suspect they will use as much as fire power as possible to make it very rough on Toyota. Could they have enough or create enough ammo to run them out of business? Some real bad evidence would have to come to light probably to shut them down. However, I think that at the very least Toyota loses a very large percentage of market share. As you have seen over the past 2 years, anything with this group of politicians is possible.

Then you have all of the lawsuits, both individual and class action, that Toyota will be facing. These could be worth billions of dollars and drag out in the court system for a long time, keeping this story in the news.

If the problem doesn’t get fixed following the recall and the US government plays hardball bringing all types of evidence to light, consumer confidence for the Toyota brand will be shot. It does not matter whether you are the biggest or middle of the pack, a crisis of confidence will destroy the company. If there is no confidence, no one will buy the brand. It is tough when you build your company on reliability. Watch this story closely because it is something that could easily spiral out of control.

Tags: Bob Brooks, consumer confidence, lawsuits, Prudent Money, recall, Tony Joe, Toyota

The latest Javelin Research identity theft survey just came out and shows that the identity theft cases jumped 12% over the preceding year affecting 11.1 million adults. They will refer to it as the biggest on record (a record that only dates back to 2003). The Federal Trade Commission will declare it the fastest growing crime in America.

Then you have all of the identity theft “solutions” companies running ads to scare the pants off of you in hopes that you will take their bait and sign up for their programs. Let’s take a step back and look at the stats.

This enormous problem affected only 4.8% of the population of America in 2009. This is hardly an epidemic. Plus in 2008, there was a 22% jump in identity thefts reported with only a 12% jump last year. There are two dynamics to consider. I think that you are seeing more cases because more people are reporting them compared to years prior. There is a greater awareness and people have a better understanding of the steps to take. Second, I think that the one positive byproduct of the credit/financial crisis is that it is much tougher to open up new lines of credit…especially in another’s name.

In fact, it wouldn’t shock me to see the jumps in numbers of cases filed start to drop.

Now, I am not saying that it is not a problem. I just think that companies like Life Lock scare people into signing up for a service that is intended to solve the problem. Here is all you need to know about protecting yourself against identity theft.

1) Never give personal information to anyone who approaches you – If you receive an e-mail, phone call, personal visit which you did not initiate, don’t give out information. This alone will save you a great deal of problems.

2) Be discreet when giving out a social security number.

3) Don’t carry personal information in your wallets or purses – I am always surprised by how many people carry their social security cards with them.

4) Sign up for credit monitoring – The most common and most costly types of identity theft starts with a check on your credit reports. If you know that is occurring, you can stop it dead in its tracks.

5) Be mindful of where your personal information is in your home and make sure it is well hidden – throughout a years time, you can have many different people going through house for various reasons. We want to assume they are all honest. It is a prime target for stealing personal information.

6) Don’t leave computers or wallets or purses in your car – Your car is not a locker.

Tags: Bob Brooks, credit monitoring, Identity Theft, LifeLock, social security number

All eyes are on the small countries in the EU that could cause big problems in the credit markets. First of all, what is sovereign debt? Sovereign debt is created by the issuance of bonds by a country’s government. During the meltdown, countries all over the world issue debt in order to fund their stimulus programs. Now the reality is facing the globe. You cannot fix a credit and debt crisis by issuing more debt.

This potential debt crisis round 2 could play out much like round 1 did as corporation after corporation had to be bailed out. The difference between now and then has to do with the lender of last resort. This is the government that steps in and bails out the country or the corporation that is on the verge of collapse. We are all bailed out. This is evidenced in the fact that the EU is slow to respond to Greece’s credit crisis.

Think of it like this – In financial crisis round 1, it started with Bear Sterns needing to be bailed out. Corporation after corporation had to be bailed out and then Lehman was allowed to fail, causing a huge meltdown in the credit markets. There are more countries than Greece that are in trouble in the EU. Thus if Greece gets into trouble and then Portugal and then Spain which would create a contagion, then we have a real problem on our hands. The probability of that happening is unfortunately higher than most on Wall Street want to admit to.

There is just that much debt hanging over the world. This is a world that will not face the reality of the situation. Not only as a country but as a global economy we are going to have to face the piper and face some hard times to allow the detox process to begin. Credit, the drug of choice, can no longer be the remedy.

Tags: Bear Sterns, Bob Brooks, Debt, EU, financial crisis, Greece, Lehman Brothers, sovereign debt

So is it the “real deal or too good to be true”?

From a Prudent Money listener:

I have received a phone call from a financial company – their website is www.silerfg.com They are claiming to reduce my interest rate on our credit cards debts to about 4% fixed rate for the life of the balance and also our mortgage interest rate from 6.5% to about 4% or 5% fixed rate by negotiating with the credit company and with the mortgage company. They will charge me about $1,400. I have asked them to send me a written statement showing what they are promising but they don’t want to send such a letter. They are also claiming that they got our name form the credit bureau because we have about $65,000 debt and we pay our bills on time and we have a good credit therefore this program is for people like us. They are also claiming that this won’t affect our credit in any way as we will keep paying our debt on time. The only thing they will do is lowering the interest rates on all of our credit cards and also on the mortgage. Please advise if there is such thing. Is this is too good to be true?

Verdict – way too good to be true

I am not privy to the terms and conditions that give the disclaimers to the claims being made by this firm. The sad part is that neither is the listener that they are pitching. I can tell you a few probabilities and a fact. There is a high probability that they cannot lower credit card rates as promised. In this environment, it isn’t happening. There is a high probability that they cannot get a mortgage rate negotiated down. Mortgage companies are struggling to keep up with the home owners who are not making payments. Once again, it just isn’t a market where something like that is happening.

Fact – A credit card company is not going to lower your interest rates for life as a set contract without something negative happening to your credit.

Fact – A credit card company is not going to negotiate a rate for someone who has good credit and is always current. There is no incentive.

Fact – A credit card company is not going to give a guaranteed fixed rate when it is better business to stick with variable rates. The new credit card act is designed mainly for fixed type credit cards. This is why card companies are switching to variable. Plus it is a given that nothing is guaranteed when it comes to using credit cards.

Fact – A credit card company only lowers rates when there is a hardship. Creating a hardship would mean that the listener would all of the sudden have to become behind on their payments. That in itself would damage the credit score.

Fact – A mortgage company is not going to give you a break unless you go through a refinance or the program designed to save you from foreclosure. If you qualify for that program, your credit would be greatly damaged.

The first red flag was that it was a solicitation from a marketing list. The second red flag was that they were promising something that by precedent only scammers could promise.

Finally, the last red flag was that they wouldn’t send their terms and conditions backing up their claim.

Marketers are getting even more aggressive and irresponsible with their marketing because of one big problem. Marketing is not as effective today because of the problem of an attention deficit. We are bombarded by information and solicitations like never before. It is tough for companies to get the right message to the right audience. Thus, they become sensational. It is important to take a stand against the too good to be true, investigate the claims, and resist doing business with anyone who markets this way.

Tags: Bob Brooks, credit card company, Credit Score, Debt, interest rates, marketing, terms and conditions

Financial Guru Dave Ramsey has been on a most deserved rampage against debt for years. His programs have changed the lives of people all of the country. However, I do think that he is giving out some bad advice.

In a recent USA Today Article, he had this to say:

“There’s quietly been a debit card revolution,” says best-selling personal finance author Dave Ramsey, who urges fans of his radio and Fox Business TV show to cut up their credit cards. Now that debit cards are broadly accepted, he says, using a credit card “with all its fees and interest rates and traps with customer service is really stupid.”

In his blog he claimed that “there is no positive side to credit card use.” Besides the fact that my 8 and 5 year old boys would politely tell Mr. Ramsey that he shouldn’t say stupid and that it is a bad word, I think the advice is plain wrong. I understand his intent. He is making the broad base assumption that people are “stupid” and cannot handle personal responsibility when it comes to credit cards. Now, I wouldn’t go as far as insulting the people in debt who are buying his programs by calling them stupid and I sure wouldn’t make the broad based assumption that everyone cannot handle credit.

You see, Mr. Ramsey, there is a positive side to credit cards. Yes, there is a dark side. Of course, there is a dark side to using your preferred way of cash which is the debit card. The dark side is that we live in a finance/credit based society where it is important to have a strong credit score (which he disagrees with as well). Positive credit activity is essential to building and maintaining a good credit score. You use credit and pay it off. I don’t know about you but I don’t have the luxury to be on a cash basis for everything including a home mortgage.

Let’s go back to the “stupid” remark. Using a credit card “with all its fees and interest rates and traps with customer service is really stupid.” He prefers you to use a debit card. Banks make billions of dollars a year off of late fees with debit cards. I would argue that there are just as many and maybe even more traps that are produced by banks to lure people into using debt cards and incur late fees. That is somewhat one in the same.

I would agree with Mr. Ramsey that it comes down to personal responsibility. We have to get out of debt as a nation. If you cannot handle a credit card, then you need to cut them up and never go there again. For the rest of us “stupid” people, using a credit card in a positive manner makes sense.

Tags: Bob Brooks, cash, credit cards, Dave Ramsey, debit cards, financial responsibility

To listen to the politicians in Washington, the unemployment problem is well on its way to getting solved. Just like that, the unemployment rate fell to 9.7% from 10% and we only lost 20,000 jobs. As a rule of thumb you never want to fully trust the sound bite that leaves the mouth of a politician. As another rule of thumb, you don’t want to fully believe the headline number that the government is reporting either.

Politicians don’t care how you get to the more positive numbers; they are just going to run with it and call it reality. January’s unemployment numbers are far from reality.

The Drop in the Unemployment Rate

How can you get to a lower unemployment rate with so many people unemployed? It is pretty easy. You just don’t count them. Hundreds of thousands of people have fallen out of the system since they have been unemployed for so long. Then there are the ones who have given up. They are just not being counted. As a result, you get a lower rate.

Seasonality also plays a part. There are a lot of part-time employed workers that are hired depending on the time of the year. For this report, seasonality gave the report a positive bias.

The lower drop in jobs

As we have discussed throughout the year, the government estimates how many jobs were created through the “birth/death” formula. Typically, this adds hundreds of thousands of jobs throughout the year. These aren’t verifiable jobs. These are jobs that the government “assumes” are created from small business. In January they typically revise that number and subtract jobs from the system. These are pretty large revisions. This revision was a job loss of 427,000 jobs for the month. Yet, we only lost 20,000 jobs? Really??

That is the magic of revision. They wait until time has passed and then subtract jobs from past months and even years well after the fact. They will get that figure in there some way. Getting it into the system can happen well after the fact when it will not affect the market. Can you imagine the carnage on Wall Street had they really reported the truth? They will report it when it matters the least.

I am currently reading a very detailed account of all of the financial crises that this country and other countries have faced through the decades. The premise of the book is that it is not different this time and this is not unprecedented. As I get through the book, I will write about it. The authors write that a common thread exists amongst all financial crises. It is the crisis of confidence. Confidence can quickly escalate to crisis levels.

My greatest concern is that this Government continues to sell the American people on a story that does not jive with reality. Confidence could be severely damaged when reality come into full view.

For a good example of this in real time, just watch the implosion of Toyota. You are looking at a car company that has been hiding problems for years. Now that the truth is coming out, there might not be enough confidence left for consumers to want to buy a car that has had a bad sudden acceleration problem. It looks like they really don’t have an answer for it and they are buying time. Well, more on that story at a later date!

Tags: Bob Brooks, financial crisis, Unemployment, unemployment numbers, Wall Street

Is Greece showing us our future? Euro-zone countries Portugal, Italy, Ireland, Spain, and mainly Greece, all appear to be in over their heads with exploding deficits. They basically have more debt than they can service and are in a serious threat of defaulting on that debt. A default of this magnitude definitely affects the United States markets. The good and the bad of the global market place is that we are all tied together. A large default would have ripple effects.

The problem is three fold – First, these governments cannot find buyers for their government bonds. In other words, no one, for obvious reasons, wants to lend them money. Second, even if they were to borrow money it would only be used to make the debt service payments that they are having trouble making today. Finally, and this is the biggest of all concerns, there is no one at the bail-out window to help these countries out. As a global economy, we are all bailed-out. This could very well be the kick-off of round two of the debt crisis.

Are we watching the future of America? After all, we are the biggest debtor country in the world and credit rating agency Moody’s is concerned about our credit rating as a country.

Moody’s said this week that the United States, along with 16 other countries, could lose their Triple-A credit rating if fiscal deficits and heavy debts are not effectively managed.

Which that just raises a few questions for me. First, why do we still have a Triple-A credit rating in the first place? Second, it is only a matter of time as the politicians are showing every day that they are not effectively managing our debt.

This is the problem with a debt crisis. As history will confirm, the only way to solve a debt problem is to pay back the debt or someone loses through default. Printing more money doesn’t fix it. It just adds to it. We should be taking a look at what is happening in Greece and recognize that this is our future unless we drastically make some changes.

Tags: Bob Brooks, debt crisis, Greece, Moody's

I received this PR announcement and wanted to pass it on. This isn’t getting much publicity.

The millions of Americans who have donated money to the earthquake relief efforts underway in Haiti will be able to claim an itemized tax deduction on their 2009 tax returns, when a bill passed by the U.S. House of Representatives and the Senate becomes law.

H.R. 4462 gives taxpayers the option of claiming charitable contributions for relief in Haiti on either their 2009 or 2010 tax returns, so long as the contribution is made before March 1, 2010. In addition, the bill allows taxpayers to use a telephone bill as proof of donations made via a text message.

In the PR announcement, they also warn of scams. As you might expect, there are many that are trying to take advantage of such a tragic situation.

Reputable non-profit organizations such as the International Red Cross, Doctors Without Borders, UNICEF, and The Salvation Army are staging and providing relief to Haiti. All of these organizations have experience in dealing with these types of disasters and are well established with a solid reputation of monetary and volunteer relief that will go directly to Haiti.

Research the Other Organizations Before You Donate:

There are many credible and worthwhile charities that were operating in Haiti before the quake hit that are now in desperate need of financial assistance.

Check the Better Business Bureau site at http://www.bbb.org/us/charity/ for information about the charity’s mission, compensation, expenses, and rating.

Check to see if the charity is a 501(c)(3) organization by visiting this link: http://www.irs.gov/charities/article/0,,id=96136,00.html.

Use an Internet search engine on the charity name to see what news articles may have been published and what the public is saying about it. Has there been an investigation recently on how that particular charity misused funds? Is one charity giving more of their proceeds than another, which could sway your final donation decision? Also, read message boards to find out what others are saying about their experiences with the charity.

Be An Educated Donor:

Do not give out your personal or financial information freely. If you give a credit card number, address, or birth date, you can easily be a victim of identity theft. Do not respond to unsolicited e-mails, since it could be a scam or the e-mail could contain a virus. The safest way to donate is to call an organization and ask what the best way is to donate to it.

The PR announcement said that it would take an estimated $41.5 billion dollars to recover. Take a moment and go to this web-site for some great information www.360financialliteracy.org.

Tags: Bob Brooks, donations, earthquake, Haiti, tax deduction

It was announced that FHA and Fannie Mae are lifting restrictions for individuals who want to flip houses. Flipping houses is the process of taking foreclosures, fixing them up and then selling them to make a quick profit. The biggest downside to flipping houses is getting the financing. Until yesterday, it was tough. Now, house flippers can get financing pretty easy.

In addition, Fannie Mae is giving a 3.5% incentive to those who buy properties from their HomePath properties, that is, foreclosures Fannie now owns.

So think about it for a minute – Let’s say that you have never bought a house before, making you a first time home buyer. First time home buyers get an $8,000 tax credit, 3.5% up-front to deal with closing costs (if they purchase a Fannie Mae foreclosure), the ability to buy a home with a low credit score, and the ability to purchase a home with little down.

Isn’t that what created the foreclosure mess to begin with? Apparently, they haven’t learned from the first and ongoing crisis.

Basically, it is the government encouraging people to be real estate speculators. How about encouraging home ownership instead? How about putting affordable mortgage programs together on these foreclosed homes instead of luring people into real estate investing? What about encouraging home ownership for those who never thought it possible and solving this enormous supply of foreclosures?

Looking into the future, it is my guess that Fannie Mae or FHA will do whatever it takes to unload these properties –that could include financing them for people who really can’t afford them in the first place.

Sounds like another government induced mess.

Tags: Bob Brooks, Fannie Mae, FHA, first time home buyer, Foreclosure, HomePath, real estate

The Dallas Morning News ran an investigative story Sunday that is simply disturbing. It is a story about Dr. Franklin Frisby and the Ambassador for Christ Convention Churches. Dr. Franklin Frisby claims that God has entrusted him with hundreds of billions of dollars. God also instructs him to give out this money to the people who are “dues-paying” members. For $100 to $200 a month, you belong to the lotto of God and receive big bucks because Dr. Frisby has been “anointed.”

According to Dallas Morning News he has pledge to give members $50 million each to fund community projects. He has described how he would pay each project leader $100,000 and cover personal debts with $60,000 thrown in for a car allowance.

The Dallas Morning News describes the program as follows – “Pay your annual membership dues of $100 a year ($200 a year for pastors), submit a project proposal, attend a set number of meetings (where they hit you up for additional tithes and offerings) around the country, then wait to get funded.”

He also warns members that they will need security training to protect themselves once they receive all of the money. He recommends that they get security training from TASC Security and Investigations Inc. of Orlando. Of course, he fails to mention that he is the director of that company.

Other money-making ventures offered by the church include everything from business classes at the church, which he urges people to take, as well as a business that sells honorary degrees.

He has been promising that the money is coming. Of course, darn the luck, the money is tied up and he doesn’t have access to it right now.

This is wrong on so many levels. If God did tell this guy that he is to distribute millions of dollars and he does, then I will be the first to apologize for calling him a scam artist and join his church and become a dues paying member so that I can get my cash (just kidding).

It is absolutely disgusting that people use God as a way to collect money that goes to fund their personal lifestyles versus building the Kingdom of God. Late night TV is littered with individuals preaching the prosperity gospel. I recently received a letter from a televangelist that claimed that he had a formula for prosperity. I should wear this bracelet that he prayed over, do a few other things (I cannot remember), and then send him some money.

Giving is not about what we get in return. God will bless you if you faithfully give. There is no doubt. Keep in mind that blessings come in many forms and sizes and are not always financial. However, it is not the intent of giving to determine that blessing ahead of time nor is it the intent of giving to do so just for the blessing. Giving is about an experience of worship, of relationship, of surrender, and of obedience. Unfortunately, scam artists see the golden opportunity to take advantage of those gullible enough to buy into the lie.

Tags: Ambassador for Christ Convention Churches, blessing, Bob Brooks, Dallas Morning NEws, Dr. Franklin Frisby, Giving, scam artists