Who can you trust for investment advice?

The embedded video demonstrates how successful you would been if you followed Jim Cramer's investment advice to the letter, starting before the current declining economy.

The Effects may be felt Countrywide: Part 2

This article is a followup to the post The Effects may be felt Countrywide, which discussed the potential effect that the melt-down of Countrywide Home Loans could have on the local economy of Simi Valley.  In the previous article I made mention of Bank of America's (BofA) intentions to buy the failing lender, Countrywide; however, change may be in the air...  Below is a quote from the New York Times about what could be changing: 

At least two analysts said Bank of America Corp will likely lower its purchase price for Countrywide Financial Corp , with Friedman, Billings Ramsey analyst saying the bank may bring down its deal price to the $0 to $2 level or completely walk away from the deal.

Shares of Countrywide, the largest U.S. mortgage lender, fell nearly 12 percent to $5.29 in morning trade on the New York Stock Exchange, after Friedman downgraded Countrywide to "underperform" from "market perform."

Analysts at S&P Equity Research expect Bank of America to complete the buyout of Countrywide, but at a lower price due to the rapid deterioration of Countrywide's credit portfolio.

Friedman analyst Paul Miller, in a note to clients, said Countrywide's loan portfolio has deteriorated so rapidly that it currently has negative equity and the proposed takeover of the company will be a drag on Bank of America's earnings due to the elevated credit expenses at Countrywide,

Miller cut his target on Countrywide's stock to $2 from $7.

My Thoughts

Even if BofA does renegotiate the deal with Countrywide and pays almost nothing for the company, it will still likely have to make deep cuts, eliminating most of Countrywide's current staff, in order to achieve profitability.  Thus, my prediction may be right on track...  But for the sake of the residents of Simi Valley, let's hope I'm wrong.

How Safe Is Your Money?

There are 76 banks on the troubled bank list. No big deal, after all we are FDIC insured right?

Well, I just discovered something about FDIC insured bank accounts that literally scared me! For years I have heard and read that bank deposits are FDIC insured up to $100,000.

Many people thought (including myself) that if they had multiple accounts at the same bank, such as the following:

• $100,000 in a Checking account
  
• $100,000 in a Savings account
  
• $100,000 in a Certificate of Deposit (CD)
  

They would have $300,000 worth of FDIC protection.

WRONG!

WRONG!

WRONG!

You are only protected up to $100,000 per bank per person!

What could you do? Well, you could move the money in excess of $100,000 to another bank since the limit is per bank.

Another option would be to add another person to the account, if you have someone you could trust.

A better solution is to find a bank that uses the Certificate of Deposit Account Registry Service. Members of the registry distribute large accounts across multiple institutions in a way that is seamless to you, but spreads out the insurance risks.

You could have up to $30 million on deposit, with a single statement and interest rate, but be spread wide enough to be fully covered by the FDIC; in a fashion that is legal and approved by the FDIC.

Remember, it is not the policy of the Federal Reserve or the Federal Government to warn you ahead of time that a bank is about to fail. So please take measures to protect yourself.

The Roubini interview

I've been saying for sometime that the current administration has been downplaying the severity of the economic issues we're facing.  Embedded within this post is an interview conducted by Steve Paikin of The Agenda, a Canadian public affairs television show, featuring Nouriel Roubini, a professor at NYU.   In the interview, Roubini discusses the U.S. economic recession and is very candid about the economic outlook.   

Roubini argues that the current recession will not be short and shallow, as some economists have claimed, but it will be the worst recession we've seen since the Great Depression.  He goes on to talk about the financial sector and that we'll see the collapse of more financial institutions (e.g. Bear Stearns), and further price declines in the housing market.  Unfortunately, Roubini's proclamations of the impending financial crisis to come have earned him the name of Dr. Doom among some of his peers.

The full interview is about 30 minutes long (broken into 3 separate videos), but I encourage you to have a look.

Part 1 of 3


Part 2 of 3


Part 3 of 3

WaMu: When Prayer is Not Enough...

This post is a follow-up to two other recently posted articles about Washington Mutual Bank.  Please read WaMu: Hoping and Praying and WaMu'd, if you haven't read those already.

The rarest of investment ratings was issued recently by Goldman Sachs on the shares of Washington Mutual Bank...  Sell.  That's right, sell...  Goldman expects that WaMu will lose between $17 billion and $23 billion on its mortgage portfolio.

My Take

Washington Mutual Bank is likely to be swallowed by another larger, more stable bank.  I guess we can count WaMu as yet another casualty among the financial institutions that will go bust as a result of the Mortgage Crisis.  

WaMu, join your fallen brethren, R.I.P. baby, R.I.P...

WaMu: Hoping and Praying

CNBC is reporting today that Washington Mutual Bank (WaMu) is nearing finalization of a deal where $5 Billion USD will be infused into the financially troubled bank by investors. Last week I talked about my own turbulent experiences with WaMu, and hinted at it's financial distress here.

I think that we will continue to see large financial institutions either acquired or bailed out, like we've seen with Bear Stearns, Countrywide, and others to come (*cough* UBS and Lehman Brothers *cough*).

Keep praying to the Fed WaMu, and perhaps they will save you...

Read the full CNBC article here.

WaMu'd

After over six months of being "accidentally" charged service fees ($20 per statement, every statement, and on multiple accounts!!!), I have moved my accounts (checking and savings) away from Washington Mutual Bank (WaMu) to Wells Fargo Bank.

WaMu seems to have recently adopted a very convoluted system for preventing being charged service fees. Furthermore, there are no warnings on their web site (for online banking) when you're about to make a change that will result in an additional fees.

It is absolutely exhausting having to police my accounts to make sure service fees were not being assessed. After the latest set of fees were charged (without any warnings) for transferring money between my checking and savings too often (more than 6 times per statement period; $10 per transfer!!!), I decided it was time to move on.

Here's where it got really interesting... When I went to WaMu, and inquired about closing my accounts, the teller was trying to give me a hard time about it, stating he had to get his manager's approval. Are you kidding? Do I need permission to withdraw my own money too?

After this surprising experience closing my accounts, I did some research on the Internet, and found a couple of interesting articles... Please take a look at the following links, and draw your own conclusions.

Washington Mutual - One of the Nations Largest Banks Having Trouble
Navigating a Path Through a Turbulent Housing Market

Disclaimer

The statements above are based on my personal experiences with WaMu and are completely my opinion. I am not making any professional judgements about the soundness of WaMu as a financial institution, and I encourage you to do your own research to determine whether a relationship with WaMu (either current or future) is in line with your financial goals.

Bitten by the Bear (Part 2)

Following up on the "Bitten by the Bear" entry that I posted last week, I decided to post the video below which describes what happened to Bear Stearns.

Please watch the video below before reading "My Take".

My Take

I think Jim Cramer is a great investor, and he has a great sense of the financial markets. So what I'm attempting to illustrate here is this: if Jim Cramer can't see these things coming, then how can any of us mere mortals feel confident about the markets or the economy?

Bitten by the Bear...

It's official. Bear Stearns is being bought by JP Morgan for roughly $2/share (0.05473 shares of its stock for one share of Bear Stearns' stock). This is a huge win for JP Morgan; however, the big losers in this deal are Bear Stearns employees as most of their compensation is in the form of stock, which has fallen over 97% in the last few days as panicked investors fled the stock.  Literally, some of the employees were millionaires just days ago...

For more detailed information, look here

03/17 UPDATE #1: An estimated 7,000 jobs will be cut (approximately 50% of the current workforce at Bear Stearns)

03/17 UPDATE #2: Joe Lewis the second largest share holder (9.4%) in Bear Stearns has lost $1 billion!!!!

03/20 UPDATE #3: JP Morgan is offering (some) Bear Stearns employees bonuses to stay on and support the acquisition.

03/24 UPDATE #4: Bear Stearns stock climbs to $10/share; JP Morgan increases it's offer to $10/share for the acquisition for Bear.

The Effects may be felt Countrywide...

Many of you are already aware that Bank of America is acquiring Countrywide for a fraction of it's value.  I took some time to think about the ramifications of this, and here's my take:

The obvious

Bank of America is trying to salvage the recent $2 billion equity investment they made in Countrywide, whose stock has recently suffered as a result of the sub-prime fallout. For more detailed specifics, look here.

The tragedy

Many of the residents of the city of Simi Valley (where Countrywide's presence is dominant) are employed by Countrywide.  Thus, if Bank of America closes down those facilities (and they likely will), we could be looking at a devastating blow to that local economy.  First, home prices are likely to drop, as residents preemptively try to get out before the effects are fully felt.  Next, current residents (those who are Countrywide employees) will experience difficulty finding new employment, as job growth has been negative, and they will be competing against colleagues who share their plight.  Finally, foreclosures may follow as the unemployed residents are unable to make their mortgage payments.

The disclaimer

It is total speculation [on my part] that the city of Simi Valley may suffer a financial hardship as a result of the acquisition of Countrywide by Bank of America.  Please take the time to investigate and determine for yourselves if your investments there are in jeopardy.