Posted 1 year, 1 month ago at 4:30 pm. 0 comments
By definition, Bridging Finance or Bridging Loan is a short-term loan used to purchase commercial property. This is something that can come in very handy, depending on your particular situation. There are two main points that you need to consider before you opt for a Bridging Finance package, your needs and the state of the property market.
One of the major benefits of Bridging Finance is that it will allow you to close on a property and purchase a new property before you sell your existing one. You will need to evaluate your current situation to determine if your needs justify taking on this type of finance. Will you lose the new property if you can’t offer a deposit? Would you be eligible for a discount on the purchase price if you can come up with the cash fast?
What are the existing market conditions in regard to the sale of your existing property? Is it going to be possible to sell your existing property in the time frame set out in your finance package? Most Bridging Finance typically runs for one year and will need to be paid in full at the end of the term unless it is possible to convert it into a Commercial Loan. You will also need to be aware that the interest rates will be higher on a Bridging Finance package.
If the market is slow and you do not have an urgent need for the new property, it may not be in the best interest of your business to take on this type of loan. On the other hand if the property market conditions are good, you can be out from under a Bridging Loan fast. However, it is still something that will need to make sense for your business.
If you feel taking on this type of loan is the right thing to do, you will be far better off going through a specialist Commercial Lender.
They will shorten the entire process as a specialist will know the market and they can quickly make a judgment on the best loan for you, based on your particular circumstances. Be sure to check that the loan can be converted into a conventional Commercial Finance package. You will also want to check on the type of interest rate and the costs you will entail if you do have to convert.
Most Commercial Lenders will be willing to extend the terms of your Bridging Finance package. Let’s say, for example, you have a buyer and you are waiting for the sale to close. Bridging Finance in general is much more flexible and accommodating than you might expect in this respect.
Paying back your Bridging Loan at the end of the loan term more often than not depends on your ability to sell your existing property. If it does not sell in the required time, you will be paying the existing loan on your current property, your new property and the newly converted Bridge Finance as well. If you believe this may be a possibility be sure to take a package that can be converted to a Commercial Loan if the need arises. Otherwise you may have to come up with the full Loan sum at the end of the finance term.
Need Bridging Finance in the UK? Commercial Lifeline are Bridging Finance and Commercial Mortgage specialists.
This article comes with reprint rights. Feel free to reprint and distribute as you like. All that we ask is that you do not make any changes, that this resource text is include, and that the links above are intact.
Posted 1 year, 3 months ago at 3:09 pm. 0 comments
By definition, Bridging Finance or Bridging Loan is a short-term loan used to purchase commercial property. This is something that can come in very handy, depending on your particular situation. There are two main points that you need to consider before you opt for a Bridging Finance package, your needs and the state of the property market.
One of the major benefits of Bridging Finance is that it will allow you to close on a property and purchase a new property before you sell your existing one. You will need to evaluate your current situation to determine if your needs justify taking on this type of finance. Will you lose the new property if you can’t offer a deposit? Would you be eligible for a discount on the purchase price if you can come up with the cash fast?
What are the existing market conditions in regard to the sale of your existing property? Is it going to be possible to sell your existing property in the time frame set out in your finance package? Most Bridging Finance typically runs for one year and will need to be paid in full at the end of the term unless it is possible to convert it into a Commercial Loan. You will also need to be aware that the interest rates will be higher on a Bridging Finance package.
If the market is slow and you do not have an urgent need for the new property, it may not be in the best interest of your business to take on this type of loan. On the other hand if the property market conditions are good, you can be out from under a Bridging Loan fast. However, it is still something that will need to make sense for your business.
If you feel taking on this type of loan is the right thing to do, you will be far better off going through a specialist Commercial Lender.
They will shorten the entire process as a specialist will know the market and they can quickly make a judgment on the best loan for you, based on your particular circumstances. Be sure to check that the loan can be converted into a conventional Commercial Finance package. You will also want to check on the type of interest rate and the costs you will entail if you do have to convert.
Most Commercial Lenders will be willing to extend the terms of your Bridging Finance package. Let’s say, for example, you have a buyer and you are waiting for the sale to close. Bridging Finance in general is much more flexible and accommodating than you might expect in this respect.
Paying back your Bridging Loan at the end of the loan term more often than not depends on your ability to sell your existing property. If it does not sell in the required time, you will be paying the existing loan on your current property, your new property and the newly converted Bridge Finance as well. If you believe this may be a possibility be sure to take a package that can be converted to a Commercial Loan if the need arises. Otherwise you may have to come up with the full Loan sum at the end of the finance term.
Need Bridging Finance in the UK? Commercial Lifeline are Bridging Finance and Commercial Mortgage specialists.
This article comes with reprint rights. Feel free to reprint and distribute as you like. All that we ask is that you do not make any changes, that this resource text is include, and that the links above are intact.
Posted 1 year, 3 months ago at 11:21 pm. 0 comments
Remortgages have been around as long as mortgages and go through cycles of popularity in the UK. Before the property downturn in the 1990s the practice of remortgaging was fairly uncommon; in that sluggish market many lenders realized that the only way to increase their business was to tap into their competitors’ existing client base and this is how remortgage popularity increased. It was common then for lenders to include punitive redemption penalties but this practice has decreased and high costs only really apply to premature extraction in the duration of the introductory deal rather than the entire length of the mortgage. This increased flexibility has resulted in a huge increase in remortgages in the UK so that they account for roughly 40% of current mortgages, but the credit crunch is impacting on this market.
Up until the recent credit crunch UK remortgages had been seen as a relatively inexpensive way of releasing limited amounts of the property’s equity for relatively large capital projects such as an extensive redecoration or extension to the property, car purchase or a one-off high cost holiday. As mortgage rates have risen, though, this type of remortgage route has diminished in popularity and really should only pursued if essential.
By far the most common remortgage is when the homeowner seeks to lower the cost of their mortgage when the introductory term has come to an end or when the homeowner seeks to move house. In these circumstances it is likely that the homeowner will remain with their current lender and often the mortgage lender will contact the borrower regarding the remortgage. However, the borrower has no obligation to remain with their current lender and can shop around for better deals.
The UK remortgage market is being impacted by the credit crisis; the days of cheap cash are over and the costs are being passed onto the end consumer. Some borrowers who had mortgages over 100% of the value of their property will now not be able to remortgage to a similar level - very few lenders will now exceed a 95% remortgage level. A corollary to this is that the more you borrow, the greater the costs to do so. For example, lenders can take out Mortgage Indemnity Guarantees (MIG) if they borrow more than a certain amount to insure themselves against possible default.
As a general guide for the borrower, now that the financial situation has downturned remortgage UK should only be an option undertaken out of need rather than luxury as ultimately your home is at risk if you do not keep up with the repayments.
Aaron Hill has a decade of experience in the financial services industry. His main area of expertise is mortgage advice and writes many articles on mortgages for finance industry, mortgage brokers and the general public alike.
Posted 1 year, 3 months ago at 6:38 pm. 0 comments
We all make mistakes, but there are some fundamental ones that will cause long term damage. We commit those mistakes for any number of reasons including fear, ignorance, ego or a desire for immediate gratification. This disinclination to give up a certain immediate benefit for an uncertain substantially greater future benefit is well recognized by psychologists.
And there is the danger; the fact that we invariably make decisions based on our emotions. Don’t despair if you’ve committed these mistakes, we all have. Just try and adjust your thinking to adopt these as a philosophy that you seek to follow at every opportunity.
1. HAVE A GOAL AND A STRATEGY FOR ACHIEVING IT
If you don’t win it, inherit it or marry it, wealth will not happen. You need to know what you want to achieve and how you will get there. If you don’t have a road map to your pot of gold you are likely to get lost; no goal, means no strategy, no focus, no savings and no financial security. The person responsible for your financial future is in your mirror. You can choose to control your financial circumstances or let your lack of financial circumstances control you. Certainly, addressing questions about retirement when your retirement is on the horizon has no chance of working.
2. A CHANGE OF FORTUNE REQUIRES A CHANGE IN BEHAVIOUR
Step 1 is to admit that you are living beyond your means.
Do a short-term exercise; keep track of your expenditures for a couple of months - you will find it a sobering exercise. While the money wasted on coffee, cigarettes and other non essential might not seem like much, the real loss is how much it could grow to if committed to a saving program. Very few people save cash from their salary, no matter what their level of income; they grow into their pay cheques.
3. CLEAR THE CREDIT CARD SLATE EACH MONTH
Credit cards are a necessary evil. They can be a great convenience and relatively inexpensive if you are smart enough to navigate around the little “traps” designed to cost you money. If you are not they can seriously jeopardize your finances. Minimum payments are meant to extend the term of your financial arrangement. Pay the minimum and it will take you forever to pay off your bill. For example, a $3,000 debt, at 18 percent interest, will take more than 22 years to repay at the minimum level.
4. HAVE AN EMERGENCY FUND
Could you last 3 months without an income? You need an emergency fund for unexpected expenses and to remove the need to access high-interest credit card debt. Call it your “good sleep” fund, because having some money in the bank to cover unplanned expenses will certainly help you sleep better at night.
5. CREATE A LONG TERM PLAN TODAY
The problem with wanting to get started with a plan, and not doing so, is that with every passing day your problem is growing and growing. Why? Because the time left to provide for your 20 years in retirement, without an income, is getting shorter and shorter. Time is your friend if you start early but your enemy if you start late.
6. TAKE OUT LIFE ASSURANCE
Life assurance is designed to protect you, and your family, from the risk of unexpected death. It is called “assurance”, not “insurance”, because death is 100 per cent assured. Who will provide for your family; you today, or your family when you are gone? If your partner is a full-time “director of domestic duties”, don’t disregard the value of what they are providing when you calculate how much life insurance you need; and don’t overlook the cost of child-care.
Graduated from Sydney University as B.Ec and Accountant. Employed in Research of large Sydney stock-broking firm, then to advising private clients and administering arbitrage operations and Sydney Greasy Wool Futures Exchange membership. Then to dealing with institutions and listed companies assessing underwriting propositions and raising capital. Expert knowledge of investing and speculating in shares, options, derivatives and involved charting. Also involved raising many millions of dollars for a number of mining and property groups and promoting three substantial market takeovers. Acquired controlling interest in a publicly listed property development company and undertook residential subdivisions in Hornsby Heights, Warrawee, Blacktown, Beecroft, Castle Hill industrial subdivisions in Baulkham Hills, Lurnea home unit developments in Hornsby, Wahroonga, Tugun, Runaway Bay, shopping centre developments in Wentworthville and office building developments in Castle Hill and Parramatta ($25ml). For more information go to http://specialstrategies.com
Posted 1 year, 4 months ago at 6:10 am. 0 comments
“Admit it, mes amis, the rugged individualism and cutthroat capitalism that made America the land of unlimited opportunity has been shrink-wrapped by half a dozen short sellers in Greenwich, Conn., and FedExed to Washington, D.C., to be spoon-fed back to life by Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson. We’re now no different from any of those Western European semi-socialist welfare states that we love to deride.”
-Bill Saporito, “How We Became the United States of France,” Time (September 21, 2008)
Last night, the Presidential candidates had their last debate before the election. They talked of the baleful state of the economy and the stock market; but omitted from the discussion was what actually caused the credit freeze, and whether the banks should be nationalized as Treasury Secretary Hank Paulson is now proceeding to do. The omission was probably excusable, since the financial landscape has been changing so fast that it is hard to keep up. A year ago, the Dow Jones Industrial Average broke through 14,000 to make a new all-time high. Anyone predicting then that a year later the Dow would drop nearly by half and the Treasury would move to nationalize the banks would have been regarded with amused disbelief. But that is where we are today.1
Congress hastily voted to approve Treasury Secretary Hank Paulson’s $700 billion bank bailout plan on October 3, 2008, after a tumultuous week in which the Dow fell dangerously near the critical 10,000 level. The market, however, was not assuaged. The Dow proceeded to break through not only 10,000 but then 9,000 and 8,000, closing at 8,451 on Friday, October 10. The week was called the worst in U.S. stock market history.
On Monday, October 13, the market staged a comeback the likes of which had not been seen since 1933, rising a full 11% in one day. This happened after the government announced a plan to buy equity interests in key banks, partially nationalizing them; and the Federal Reserve led a push to flood the global financial system with dollars.
The reversal was dramatic but short-lived. On October 15, the day of the Presidential debate, the Dow dropped 733 points, crash landing at 8,578. The reversal is looking more like a massive pump and dump scheme - artificially inflating the market so insiders can get out - than a true economic rescue. The real problem is not in the much-discussed subprime market but is in the credit market, which has dried up. The banking scheme itself has failed. As was learned by painful experience during the Great Depression, the economy cannot be rescued by simply propping up failed banks. The banking system itself needs to be overhauled.
A LITANY OF FAILED RESCUE PLANS
Credit has dried up because many banks cannot meet the 8% capital requirement that limits their ability to lend. A bank’s capital - the money it gets from the sale of stock or from profits - can be fanned into more than 10 times its value in loans; but this leverage also works the other way. While $80 in capital can produce $1,000 in loans, an $80 loss from default wipes out $80 in capital, reducing the sum that can be lent by $1,000. Since the banks have been experiencing widespread loan defaults, their capital base has shrunk proportionately.
The bank bailout plan announced on October 3 involved using taxpayer money to buy up mortgage-related securities from troubled banks. This was supposed to reduce the need for new capital by reducing the amount of risky assets on the banks’ books. But the banks’ risky assets include derivatives - speculative bets on market changes - and derivative exposure for U.S. banks is now estimated at a breathtaking $180 trillion. The sum represents an impossible-to-fill black hole that is three times the gross domestic product of all the countries in the world combined. As one critic said of Paulson’s roundabout bailout plan, “this seems designed to help Hank’s friends offload trash, more than to clear a market blockage.”2
By Thursday, October 9, Paulson himself evidently had doubts about his ability to sell the plan. He wasn’t abandoning his old cronies, but he soft-pedaled that plan in favor of another option buried in the voluminous rescue package - using a portion of the $700 billion to buy stock in the banks directly. Plan B represented a controversial move toward nationalization, but it was an improvement over Plan A, which would have reduced capital requirements only by the value of the bad debts shifted onto the government’s books. In Plan B, the money would be spent on bank stock, increasing the banks’ capital base, which could then be leveraged into ten times that sum in loans. The plan was an improvement but the market was evidently not convinced, since the Dow proceeded to drop another thousand points from Thursday’s opening to Friday’s close.
One problem with Plan B was that it did not really mean nationalization (public ownership and control of the participating banks). Rather, it came closer to what has been called “crony capitalism” or “corporate welfare.” The bank stock being bought would be non-voting preferred stock, meaning the government would have no say in how the bank was run. The Treasury would just be feeding the bank money to do with as it would. Management could continue to collect enormous salaries while investing in wildly speculative ventures with the taxpayers’ money. The banks could not be forced to use the money to make much-needed loans but could just use it to clean up their derivative-infested balance sheets. In the end, the banks were still liable to go bankrupt, wiping out the taxpayers’ investment altogether. Even if $700 billion were fanned into $7 trillion, the sum would not come close to removing the $180 trillion in derivative liabilities from the banks’ books. Shifting those liabilities onto the public purse would just empty the purse without filling the derivative black hole.
Plan C, the plan du jour, does impose some limits on management compensation. But the more significant feature of this week’s plan is the Fed’s new “Commercial Paper Funding Facility,” which is slated to be operational on October 27, 2008. The facility would open the Fed’s lending window for short-term commercial paper, the money corporations need to fund their day-to-day business operations. On October 14, the Federal Reserve Bank of New York justified this extraordinary expansion of its lending powers by stating:
“The CPFF is authorized under Section 13(3) of the Federal Reserve Act, which permits the Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations that are unable to obtain adequate credit accommodations. . . .
“The U.S. Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the New York Fed in support of this facility.”3
That means the government and the Fed are now committing even more public money and taking on even more public risk. The taxpayers are already tapped out, so the Treasury’s “special deposit” will no doubt come from U.S. bonds, meaning more debt on which the taxpayers have to pay interest. The federal debt could wind up running so high that the government loses its own triple-A rating. The U.S. could be reduced to Third World status, with “austerity measures” being imposed as a condition for further loans, and hyperinflation running the dollar into oblivion. Rather than solving the problem, these “rescue” plans seem destined to make it worse.
THE COLLAPSE OF A 300 YEAR PONZI SCHEME
All the king’s men cannot put the private banking system together again, for the simple reason that it is a Ponzi scheme that has reached its mathematical limits. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top. The Wall Street Ponzi scheme is built on “fractional reserve” lending, which allows banks to create “credit” (or “debt”) with accounting entries. Banks are now allowed to lend from 10 to 30 times their “reserves,” essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way. The problem is that banks create only the principal and not the interest necessary to pay back their loans. Since bank lending is essentially the only source of new money in the system, someone somewhere must continually be taking out new loans just to create enough “money” (or “credit”) to service the old loans composing the money supply. This spiraling interest problem and the need to find new debtors has gone on for over 300 years — ever since the founding of the Bank of England in 1694 - until the whole world has now become mired in debt to the bankers’ private money monopoly. As British financial analyst Chris Cook observes:
“Exponential economic growth required by the mathematics of compound interest on a money supply based on money as debt must always run up eventually against the finite nature of Earth’s resources.”4
The parasite has finally run out of its food source. But the crisis is not in the economy itself, which is fundamentally sound - or would be with a proper credit system to oil the wheels of production. The crisis is in the banking system, which can no longer cover up the shell game it has played for three centuries with other people’s money. Fortunately, we don’t need the credit of private banks. A sovereign government can create its own.
THE NEW DEAL REVISITED
Today’s credit crisis is very similar to that facing Franklin Roosevelt in the 1930s. In 1932, President Hoover set up the Reconstruction Finance Corporation (RFC) as a federally-owned bank that would bail out commercial banks by extending loans to them, much as the privately-owned Federal Reserve is doing today. But like today, Hoover’s plan failed. The banks did not need more loans; they were already drowning in debt. They needed customers with money to spend and to invest. President Roosevelt used Hoover’s new government-owned lending facility to extend loans where they were needed most - for housing, agriculture and industry. Many new federal agencies were set up and funded by the RFC, including the HOLC (Home Owners Loan Corporation) and Fannie Mae (the Federal National Mortgage Association, which was then a government-owned agency). In the 1940s, the RFC went into overdrive funding the infrastructure necessary for the U.S. to participate in World War II, setting the country up with the infrastructure it needed to become the world’s industrial leader after the war.
The RFC was a government-owned bank that sidestepped the privately-owned Federal Reserve; but unlike the private banks with which it was competing, the RFC had to have the money in hand before lending it. The RFC was funded by issuing government bonds (I.O.U.s or debt) and relending the proceeds. The result was to put the taxpayers further into debt. This problem could be avoided, however, by updating the RFC model. A system of public banks might be set up that had the power to create credit themselves, just as private banks do now. A public bank operating on the private bank model could fan $700 billion in capital reserves into $7 trillion in public credit that was derivative-free, liability-free, and readily available to fund all those things we think we don’t have the money for now, including the loans necessary to meet payrolls, fund mortgages, and underwrite public infrastructure.
CREDIT AS A PUBLIC UTILITY
“Credit” can and should be a national utility, a public service provided by the government to the people it serves. Many people are opposed to getting the government involved in the banking system, but the fact is that the government is already involved. A modern-day RFC would actually mean less government involvement and a more efficient use of the already-earmarked $700 billion than policymakers are talking about now. The government would not need to interfere with the private banking system, which could carry on as before. The Treasury would not need to bail out the banks, which could be left to those same free market forces that have served them so well up to now. If banks went bankrupt, they could be put into FDIC receivership and nationalized. The government would then own a string of banks, which could be used to service the depository and credit needs of the community. There would be no need to change the personnel or procedures of these newly-nationalized banks. They could engage in “fractional reserve” lending just as they do now. The only difference would be that the interest on loans would return to the government, helping to defray the tax burden on the populace; and the banks would start out with a clean set of books, so their $700 billion in startup capital could be fanned into $7 trillion in new loans. This was the sort of banking scheme used in Benjamin Franklin’s colony of Pennsylvania, where it worked brilliantly well. The spiraling-interest problem was avoided by printing some extra money and spending it into the economy for public purposes. During the decades the provincial bank operated, the Pennsylvania colonists paid no taxes, there was no government debt, and inflation did not result.
Like the Pennsylvania bank, a modern-day federal banking system would not actually need “reserves” at all. It is the sovereign right of a government to issue the currency of the realm. What backs our money today is simply “the full faith and credit of the United States,” something the United States should be able to issue directly without having to draw on “reserves” of its own credit. But if Congress is not prepared to go that far, a more efficient use of the earmarked $700 billion than bailing out failing banks would be to designate the funds as the “reserves” for a newly-reconstituted RFC.
Rather than creating a separate public banking corporation called the RFC, the nation’s financial apparatus could be streamlined by simply nationalizing the privately-owned Federal Reserve; but again, Congress may not be prepared to go that far. Since there is already successful precedent for establishing an RFC in times like these, that model could serve as a non-controversial starting point for a new public credit facility. The G-7 nations’ financial planners, who met in Washington D.C. this past weekend, appear intent on supporting the banking system with enough government-debt-backed “liquidity” to produce what Jim Rogers calls “an inflationary holocaust.” As the U.S. private banking system self-destructs, we need to ensure that a public credit system is in place and ready to serve the people’s needs in its stead.
——————————————————————————–
1 Michael Hiltzik, Ken Bensinger, “Bank Rescue Plan to Test Capitalism,” Los Angeles Times(October 12, 2008).
2 Ian Welsh, “Paulson to Use Fannie and Freddie as Conduit to Bail Out His Friends,” firedoglake.com (October 11, 2008).
3 “Commercial Paper Funding Facility: Frequently Asked Questions,” newyorkfed.org (October 14,2007).
4 Chris Cook, “A New Dawn for Iran,” Asia Times (October 9, 2008).
Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In “Web of Debt,” her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://www.webofdebt.com/ and http://www.ellenbrown.com/
Posted 1 year, 4 months ago at 4:15 pm. 0 comments
Excel offers a few simple formulas for determining the value of projects over time. In this article, I will cover PV and FV. For most financial applications, some subset of the formulas listed above will be more than enough to determine the value or rate of return of a particular project.
The PV and FV formulas are very similar in construct, but give the opposite answers. PV, which is present value, will tell you what the value of a string of future payments is today. Conversely, FV, which is future value, tells you what the value of your current holdings will be in the future.
As a brief primer, the time value of money is an important concept in finance. The simplest way to explain this concept is to understand that if you had $1 dollar today, it is worth more then $1 in a year for any interest rate greater than 0%. Let us assume that the current annual interest rate is 3%. If you invested the $1 you have today, it would be worth $1.03 at the end of the year (annual payment, no continuous compounding). Clearly, that is more than merely $1.00. Now, if you were to take this example to the next level and assume that the interest rate of 3% holds for five periods, the future value is now $1.16. Notice in this simple example, the future value is $1.16 and not $1.15, indicating the power of compounding. For an example that has a much larger difference, consider $10,000 today with an annual interest rate over 10 years of 8%. The future value is $22,589.25 versus the non-compounded total of $18,000.00, or a difference of $3,589.25. This is a bit of a digression and will be explained in further articles, but the summary of all of this is that the time value of money is a fundamental concept in financial theory and practice, and Excel makes it easy to calculate.
The formula for PV is =PV(rate,nper,pmt,[fv],[type]), where rate is the interest rate per period, nper is the total number of period in the calculation, pmt is the periodic payment, if any, future value of the project (optional) and type of payment stream (optional). For type of payment stream, use 1 for beginning of period payments and 0 or blank for end of period payments. In virtually all financial applications I have done, I have dealt with end of period payments, so the “type” is left blank. The reason the “fv” is optional is that for a project producing periodic payments, the fv may be zero and the calculation is just for determining the present value of periodic payments over some time period. For example, if there is an annual interest rate of 6%, periodic payments of $10.00 over 30 periods, the present value is $137.65. When there is no specific future value identified, fv = 0.
Similar to PV, the formula for FV is =FV(rate,nper,pmt,[pv],[type]). The same explanations hold for FV as in PV, and PV in this formula is optional. For example, in the case where there is no identifiable present value, pv is equal to zero. Assume that the pv equals zero, the annual interest rate is 6%, there are 30 periods and the payment is $10.00 per period. If you plug this into an Excel formula, you will get a future value equal to ($790.58). Why would you have a negative future value? To understand the answer to this question, it is important to consider what you are trying to determine. Present value calculations return negative values (under normal circumstances) because that is the “cost” of achieving a stated future value. The cost, in this case, is really the investment needed to generate the future value calculated using the formulas. If you think back to the first example, investing $1.00 is what it takes to get to $1.03 one year later. You do not have access to that dollar once it is invested, so from your perspective, it is a cash outflow, or a negative cash event to you. Coming back to future value, when you have positive payments, the formula interprets that as you paying out that amount, not receiving, over the defined period of years (this should be reasonably intuitive, since you must enter a present value, if known, as a negative number for purposes of calculating future value). When you input ($10.00) for the payment, the future value is correctly calculated as $790.58.
In summary, the PV and FV formulas save time and effort when using spreadsheets that require many calculations for present and future values. In the next article, I will discuss NPV and IRR, two formulas critical in evaluating projects. For now, just remember that cash in your hands today trumps the same amount of cash in the future because you can take the money now and invest.
Russ Steward has more than fifteen years of experience in investment banking and private equity, and has developed hundreds of financial models and analyses in Excel. For more information, please visit http://www.rjsholdingsllc.com or http://www.makefinancialmodels.blogspot.com
Posted 1 year, 4 months ago at 9:58 am. 0 comments
In an article in The San Francisco Chronicle in December 2007, attorney Sean Olender suggested that the real reason for the subprime bailout schemes being proposed by the U.S. Treasury Department was not to keep strapped borrowers in their homes so much as to stave off a spate of lawsuits against the banks. The plan then on the table was an interest rate freeze on a limited number of subprime loans. Olender wrote:
“The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
“. . . The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC . . . .
“What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back.”1
The thought could send a chill through even the most powerful of investment bankers, including Treasury Secretary Henry Paulson himself, who was head of Goldman Sachs during the heyday of toxic subprime paper-writing from 2004 to 2006. Mortgage fraud has not been limited to the representations made to borrowers or on loan documents but is in the design of the banks’ “financial products” themselves. Among other design flaws is that securitized mortgage debt has become so complex that ownership of the underlying security has often been lost in the shuffle; and without a legal owner, there is no one with standing to foreclose. That was the procedural problem prompting Federal District Judge Christopher Boyko to rule in October 2007 that Deutsche Bank did not have standing to foreclose on 14 mortgage loans held in trust for a pool of mortgage-backed securities holders.2 If large numbers of defaulting homeowners were to contest their foreclosures on the ground that the plaintiffs lacked standing to sue, trillions of dollars in mortgage-backed securities (MBS) could be at risk. Irate securities holders might then respond with litigation that could indeed threaten the existence of the banking Goliaths.
STATES LEADING THE CHARGE
MBS investors with the power to bring major lawsuits include state and local governments, which hold substantial portions of their assets in MBS and similar investments. A harbinger of things to come was a complaint filed on February 1, 2008, by the State of Massachusetts against investment bank Merrill Lynch, for fraud and misrepresentation concerning about $14 million worth of subprime securities sold to the city of Springfield. The complaint focused on the sale of “certain esoteric financial instruments known as collateralized debt obligations (CDOs) . . . which were unsuitable for the city and which, within months after the sale, became illiquid and lost almost all of their market value.”3
The previous month, the city of Baltimore sued Wells Fargo Bank for damages from the subprime debacle, alleging that Wells Fargo had intentionally discriminated in selling high-interest mortgages more frequently to blacks than to whites, in violation of federal law.4
Another innovative suit filed in January 2008 was brought by Cleveland Mayor Frank Jackson against 21 major investment banks, for enabling the subprime lending and foreclosure crisis in his city. The suit targeted the investment banks that fed off the mortgage market by buying subprime mortgages from lenders and then “securitizing” them and selling them to investors. City officials said they hoped to recover hundreds of millions of dollars in damages from the banks, including lost taxes from devalued property and money spent demolishing and boarding up thousands of abandoned houses. The defendants included banking giants Deutsche Bank, Goldman Sachs, Merrill Lynch, Wells Fargo, Bank of America and Citigroup. They were charged with creating a “public nuisance” by irresponsibly buying and selling high-interest home loans, causing widespread defaults that depleted the city’s tax base and left neighborhoods in ruins.
“To me, this is no different than organized crime or drugs,” Jackson told the Cleveland newspaper The Plain Dealer. “It has the same effect as drug activity in neighborhoods. It’s a form of organized crime that happens to be legal in many respects.” He added in a videotaped interview, “This lawsuit said, ‘You’re not going to do this to us anymore.’”5
The Plain Dealer also interviewed Ohio Attorney General Marc Dann, who was considering a state lawsuit against some of the same investment banks. “There’s clearly been a wrong done,” he said, “and the source is Wall Street. I’m glad to have some company on my hunt.”
However, a funny thing happened on the way to the courthouse. Like New York Governor Eliot Spitzer, Attorney General Dann wound up resigning from his post in May 2008 after a sexual harassment investigation in his office.6 Before they were forced to resign, both prosecutors were hot on the tail of the banks, attempting to impose liability for the destructive wave of home foreclosures in their jurisdictions.
But the hits keep on coming. In June 2008, California Attorney General Jerry Brown sued Countrywide Financial Corporation, the nation’s largest mortgage lender, for causing thousands of foreclosures by deceptively marketing risky loans to borrowers. Among other things, the 46-page complaint alleged that:
“‘Defendants viewed borrowers as nothing more than the means for producing more loans, originating loans with little or no regard to borrowers’ long-term ability to afford them and to sustain homeownership’ . . .
“The company routinely . . . ‘turned a blind eye’ to deceptive practices by brokers and its own loan agents despite ‘numerous complaints from borrowers claiming that they did not understand their loan terms.’
“. . . Underwriters who confirmed information on mortgage applications were ‘under intense pressure . . . to process 60 to 70 loans per day, making careful consideration of borrowers’ financial circumstances and the suitability of the loan product for them nearly impossible.’
“‘Countrywide’s high-pressure sales environment and compensation system encouraged serial refinancing of Countrywide loans.’”7
Similar suits against Countrywide and its CEO have been filed by the states of Illinois and Florida. These suits seek not only damages but rescission of the loans, creating a potential nightmare for the banks.
AN AVALANCHE OF CLASS ACTIONS?
Massive class action lawsuits by defrauded borrowers may also be in the works. In a 2007 ruling in Wisconsin that is now on appeal, U.S. District Judge Lynn Adelman held that Chevy Chase Bank had violated the Truth in Lending Act by hiding the terms of an adjustable rate loan, and that thousands of other Chevy Chase borrowers could join the plaintiffs in a class action on that ground. According to a June 30, 2008 report in Reuters:
“The judge transformed the case from a run-of-the-mill class action to a potential nightmare for the U.S. banking industry by also finding that the borrowers could force the bank to cancel, or rescind, their loans. That decision was stayed pending an appeal to the 7th U.S. Circuit Court of Appeals, which is expected to rule any day.
“The idea of canceling tainted loans to stem a tide of foreclosures has caught hold in other quarters; a lawsuit filed last week by the Illinois attorney general asks a court to rescind or reform Countrywide Financial mortgages originated under ‘unfair or deceptive practices.’
“. . . The mortgage banking industry already faces pressure from state and federal regulators, who have accused banks of lowering underwriting standards and forcing some borrowers, through fraud, into costly adjustable loans that the banks later bundled and sold as high-interest investment vehicles.”
The Truth in Lending Act (TILA) is a 1968 federal law designed to protect consumers against lending fraud by requiring clear disclosure of loan terms and costs. It lets consumers seek rescission or termination of a loan and the return of all interest and fees when a lender is found to be in violation. The beauty of the statute, says California bankruptcy attorney Cathy Moran, is that it provides for strict liability: the aggrieved borrowers don’t have to prove they were personally defrauded or misled, or that they had actual damages. Just the fact that the disclosures were defective gives them the right to rescind and deprives the lenders of interest. In Moran’s small sample, at least half of the loans reviewed contained TILA violations.8 If class actions are found to be available for rescission of loans based on fraud in the disclosure process, the result could be a flood of class suits against banks all over the country.9
SHIFTING THE LOSS BACK TO THE BANKS
Rescission may be a remedy available not only for borrowers but for MBS investors. Many loan sale contracts provide by their terms that lenders must take back loans that default unusually quickly or that contain mistakes or fraud. An avalanche of rescissions could be catastrophic for the banks. Banks were moving loans off their books and selling them to investors in order to allow many more loans to be made than would otherwise have been allowed under banking regulations. The banking rules are complex, but for every dollar of shareholder capital a bank has on its balance sheet, it is supposed to be limited to about $10 in loans. The problem for the banks is that when the process is reversed, the 10 to 1 rule can work the other way: taking a dollar of bad debt back on a bank’s books can reduce its lending ability by a factor of 10. As explained in a BBC News story citing Prof. Nouriel Roubini for authority:
“[S]ecuritisation was key to helping banks avoid the regulators’ 10:1 rule. To make their risky loans appear attractive to buyers, banks used complex financial engineering to repackage them so they looked super-safe and paid returns well above what equivalent super-safe investments offered. Banks even found ways to get loans off their balance sheets without selling them at all. They devised bizarre new financial entities - called Special Investment Vehicles or SIVs - in which loans could be held technically and legally off balance sheet, out of sight, and beyond the scope of regulators’ rules. So, once again, SIVs made room on balance sheets for banks to go on lending.
“Banks had got round regulators’ rules by selling off their risky loans, but because so many of the securitised loans were bought by other banks, the losses were still inside the banking system. Loans held in SIVs were technically off banks’ balance sheets, but when the value of the loans inside SIVs started to collapse, the banks which set them up found that they were still responsible for them. So losses from investments which might have appeared outside the scope of the regulators’ 10:1 rule, suddenly started turning up on bank balance sheets. . . . The problem now facing many of the biggest lenders is that when losses appear on banks’ balance sheets, the regulator’s 10:1 rule comes back into play because losses reduce a banks’ shareholder capital. ‘If you have a $200bn loss, that reduced your capital by $200bn, you have to reduce your lending by 10 times as much,’ [Prof. Roubini] explains. ‘So you could have a reduction of total credit to the economy of two trillion dollars.’”10
You could also have some very bankrupt banks. The total equity of the top 100 U.S. banks stood at $800 billion at the end of the third quarter of 2007. Banking losses are currently expected to rise by as much as $450 billion, enough to wipe out more than half of the banks’ capital bases and leave many of them insolvent.11 If debtors were to deluge the courts with viable defenses to their debts and mortgage-backed securities holders were to challenge their securities, the result could be even worse.
PUTTING THE GENIE BACK IN THE BOTTLE
So what would happen if the mega-banks engaging in these irresponsible practices actually went bankrupt? These banks are widely acknowledged to be at fault, but they expect to be bailed out by the Federal Reserve or the taxpayers because they are “too big to fail.” The argument is that if they were allowed to collapse, they would take the economy down with them. That is the fear, but it is not actually true. We do need a ready source of credit, so we need banks; but we don’t need private banks. It is a little-known, well-concealed fact that banks do not lend their own money or even their depositors’ money. They actually create the money they lend; and creating money is properly a public, not a private, function. The Constitution delegates the power to create money to Congress and only to Congress.12 In making loans, banks are merely extending credit; and the proper agency for extending “the full faith and credit of the United States” is the United States itself.
There is more at stake here than just the equitable treatment of injured homeowners and investors in mortgage-backed securities. Banks and investment houses are now squeezing the last drops of blood from the U.S. government’s credit rating, “borrowing” money and unloading worthless paper on the government and the taxpayers. When the dust settles, it will be the banks, investment brokerages and hedge funds for wealthy investors that will be saved. The repossessed will become the dispossessed; and unless your pension fund has invested in politically well-connected hedge funds, you can probably kiss it goodbye, as teachers in Florida already have.
But the banking genie is a creature of the law, and the law can put it back in the bottle. The imminent failure of some very big banks could provide the government with an opportunity to regain control of its finances. More than that, it could provide the funds for tackling otherwise unsolvable problems now threatening to destroy our standard of living and our standing in the world. The only solution that will be more than a temporary fix is to take the power to create money away from private bankers and return it to the people collectively. That is how it should have been all along, and how it was in our early history; but we are so used to banks being private corporations that we have forgotten the public banks of our forebears. The best of the colonial American banking models was developed in Benjamin Franklin’s province of Pennsylvania, where a government-owned bank issued money and lent it to farmers at 5 percent interest. The interest was returned to the government, replacing taxes. During the decades that that system was in operation, the province of Pennsylvania operated without taxes, inflation or debt.
Rather than bailing out bankrupt banks and sending them on their merry way, the Federal Deposit Insurance Corporation (FDIC) needs to take a close look at the banks’ books and put any banks found to be insolvent into receivership. The FDIC (unlike the Federal Reserve) is actually a federal agency, and it has the option of taking a bank’s stock in return for bailing it out, effectively nationalizing it. This is done in Europe with bankrupt banks, and it was done in the United States with Continental Illinois, the country’s fourth largest bank, when it went bankrupt in the 1990s.
A system of truly “national” banks could issue “the full faith and credit of the United States” for public purposes, including funding infrastructure, sustainable energy development and health care.13 Publicly-issued credit could also be used to relieve the subprime crisis. Local governments could use it to buy up mortgages in default, compensating the MBS investors and freeing the real estate for public disposal. The properties could then be rented back to their occupants at reasonable rates, leaving people in their homes without the windfall of acquiring a house without paying for it. A program of lease-purchase might also be instituted. The proceeds would be applied toward repaying the credit advanced to buy the mortgages, balancing the money supply and preventing inflation.
LOCAL AND PRIVATE SOLUTIONS
While we are waiting for the federal government to act, there are also private and local possibilities for relieving the subprime crisis. Chris Cook is a British strategic market consultant and the former Compliance Director for the International Petroleum Exchange. He recommends getting all the parties to settle by forming a pool constituted as an LLC (limited liability company), in a partnership framework that brings together occupiers and financiers as co-owners under a neutral custodian. The original owners would pay an affordable rental, and the resulting pool of rentals would be “unitized” (divided into unit interests, similar to a REIT or real estate investment trust). Among other advantages over the usual mortgage-backed security, there would be no loans at interest, since the property would be owned outright by the LLC. Eliminating interest substantially reduces costs. The former owners would be able to occupy the property at an affordable rental, with the option to buy an equity stake in it. For the banks, the advantage would be that they would be able to find investors again, since the risk would have been taken out of the investment by insuring full occupancy at affordable rates; and for the investors, the advantage would be a secure investment with a dependable return.14
Carolyn Betts is an Ohio attorney who served in Washington as issuer’s counsel for MBS trusts formed by various federal governmental entities, and represented Resolution Trust Corporation in its auction of defaulted commercial mortgage loans during the last real estate crisis. She proposes a squeeze play by the states, in the style of that brought against the tobacco companies by a consortium of state attorneys general in the 1990s. She notes that at the end of 2007, at least 20% of the funds held by the Ohio Public Employees’ Retirement System (PERS) were in mortgage backed securities and similar investments. That makes Ohio public money a major investor in these mortgage-related securities. Ohio governments have an interest in not having homes foreclosed upon, since foreclosures destroy local real estate markets, contribute to lower tax revenues and losses on PERS investments, and cause a strain on state and local affordable housing systems. A coordinated series of actions brought by state attorneys general could eliminate the culpable banker middlemen and return the properties to local ownership and control.
Andrew Jackson reportedly told Congress in 1829, “If the American people only understood the rank injustice of our money and banking system, there would be a revolution before morning.” A wave of private actions, class actions and government lawsuits aimed at redressing injurious banking practices could spark a revolution in banking, returning the power to advance “the full faith and credit of the United States” to the United States, and returning community assets to local ownership and control.
1 Sean Olender, “Mortgage Meltdown,” San Francisco Chronicle (December 9, 2007).
2 See Ellen Brown, “The Subprime Trump Card,” webofdebt.com/articles, June 26, 2008.
3 Greg Morcroft, “Massachusetts Charges Merrill with Fraud,” MarketWatch (February 1, 2008).
4 Henry Gomez, Tom Ott, “Cleveland Sues 21 Banks Over Subprime Mess,” The Plain Dealer (Cleveland, January 11, 2008).
5 Ibid.
6 Marc Dann Resigns as Attorney General,” NBC24 (May 14, 2008).
7 E. Scott Reckard, “California Atty. Gen. Jerry Brown Sues Countrywide,” Los Angeles Times (June 26, 2008).
8 Cathy Moran, “And the Truth (in Lending) Shall Set You Free,” mortgagelawnetwork.com (June 11, 2008).
9 Gina Keating, “Mortgage Ruling Could Shock U.S. Banking Industry,” Reuters (June 30, 2008).
10 Michael Robinson, “City of Debt Shows US Housing Woe,” BBC News (December 30, 2007).
11 “Is the Latest Liquidity Crunch in Remission?”, NakedCapitalism(March 26, 2008).
12 See E. Brown, “Dollar Deception: How Banks Secretly Create Money,” webofdebt.com/articles (July 3, 2007).
13 For more on this funding solution and why it would not inflate prices, see E. Brown, “Waking Up on a Minnesota Bridge: How to Solve the Infrastructure Crisis Without Selling Off Our National Assets,” ibid. (August 4, 2007).
14 Chris Cook, “Peak Credit and a Flight to Simplicity,” Asia Times (April 3, 2008).
Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In “Web of Debt,” her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://www.webofdebt.com and http://www.ellenbrown.com Her eleven books include the bestselling “Nature’s Pharmacy,” co-authored with Dr. Lynne Walker, and “Forbidden Medicine.”
Posted 1 year, 4 months ago at 5:26 pm. 0 comments
When you are faced with a possible bankruptcy, you are faced with a terribly hard decision. Which can you handle better, the overwhelming stress of dealing with such debts or the fact of knowing you did not make it. How else can you possibly get out of this financial mess you find yourself in without ruining your good name or credit? Well, if your credit was that good, would you really be considering bankruptcy?
How ever you personally answer that complex question, a bit of advice is to seek out a non profit credit counseling service for help. They are professionals trained to help make these decisions with you. You are not in it alone but must seek out the help. They will not come find you.
It is true if you are looking to put your financial burdens behind you and receive a fresh start,then bankruptcy may be the right decision for you. However, the credit counselors that deal with creditors may be able to negotiate on your behalf and avoid the bankruptcy all together at least for the meantime.
Depending on your age, you may still have ample time to start over and re-establish the valuable credit you presently lack. If you do proceed with the bankruptcy, collection, foreclosure and repossession actions currently against you will cease once you file the petition. If the bankruptcy is approved, your assets that were in foreclosure will now be included in the bankruptcy and you will be allowed to make monthly payments. Bankruptcy is a good option for you if you don’t have many assets which will have to be surrendered. Most states allow you to keep your primary residence, your car and other essential assets to earn a living.
If you are like many people, you may do all you can to avoid filing because it’s difficult to deal with bankruptcy as it may make you feel like a failure. Your name will be in the court record and could may published in the newspaper.
You can only file for bankruptcy once every six years, so you will not have bankruptcy as a potential “escape hatch.” Your credit history will be ruined for up to the next 10 years which will make it difficult to get credit. This is to protect your potential creditors from being taken by having the excuse of filing bankruptcy to get out of your debts.
The debts that you owe will be dealt with for the most part by the trustee. However there are some debts that no matter what you do will not be wiped away. The non-exempt assets you have will be sold to pay for as much as your debts as possible. Some of your home furnishings will be exempt but you could be forced to sell sentimental items. You credit cards will be deactivated and it will be increasingly difficult to be approved again for at least the next three years. Depending on your individual circumstances, bankruptcy could be a good way to get out from your debt, but there will be future consequences.
Clearly no one wants to declare Bankruptcy Guide. I do not believe that an individual would set out and receive credit with the notion that they are going to do all they can to ruin that credit and make it even more difficult to obtain credit in the future. If it does happen that you need to file bankruptcy take the advice of the counselors and try at all cost to avoid future situations that would once again lead you back to bankruptcy court.
You can also find more info on Types Of Bankruptcy. Bankruptcybliss.com is a comprehensive resource which provide information about Bankruptcy.
Posted 1 year, 4 months ago at 5:01 am. 0 comments
Sixteen years ago, I considered myself a rookie trader on the floor of the Chicago Mercantile Exchange. Bright eyed and eager to learn, I followed every market I could. I actively traded the S&P 500 but, I always went in early for the currency and interest rate openings, as well. I actively and, knowingly took advantage of any of the major market players willing to have a cup of coffee with me. The economic times were significantly different than those of today. Trading volume was ushering in a major stock market bull- run, even as memories of the ‘87 crash still lingered. The trading floors were flush with people who made more in one day than most make in a year or some, in a lifetime. The technology wave was just beginning to trickle in and financial modeling was at the forefront of quantitative investment strategies.
I still come in early and I still actively trade the stock indices. I still actively and knowingly pick the brains of the market players I am fortunate enough to gain an audience with. Sixteen years later, I find myself at the beginning of the cycle…..again.
I know many of you are thinking that I must be nuts. However, if you give me a chance to explain, I think I can tease this out in terms simple enough for myself to understand. I’ve read so much over the last month that I feel like I’ve learned an entirely new language. Separating the wheat from the chaff and allowing myself an opportunity to collect my thoughts, thank goodness for rainy weekends, I’ve come to the conclusion that we’re near equilibrium and will extend beyond the mean before finally reverting and building a base very similarly to the process of the early 1990’s.
Economically, the circumstances couldn’t be more different. In the 90’s, many of the excesses of the eighties had already been purged. The savings and loan crisis had been effectively dealt with (net cost- 85 billion) and the stock market crash provided everyone with a whole new perspective on what risk really was. Interest rates had been coming down for more than a year, falling from 7.25% to under 3% in less than a year. The U.S. Dollar was still king having been defended effectively from the Pound by George Soros. This helped check global inflation and kept commodity prices low while commodity demand remained, primarily, domestic. Finally, on a quantitative note, the S&P 500 was at 415 and had a price/earnings ratio of 19.6.
Trading volumes are soaring as technology has removed so many of the barriers between the pits, the customers and finally, the world. Money has never moved at a more rapid pace (good or bad). This same technology brought with it a generation of misguided applications. Historically, it will be my generation that brought computer modeling to the financial and commodity markets. We are the poster generation for “GIGO” garbage in - garbage out. Computer modeling and optimization provided us with “statistically valid” risk models that would allow us to take on more leverage and increase the bottom line. Apparently, the one market excess able to survive the savings and loan crisis as well as the ‘87 crash was greed.
History has proven time and time again that there is no economic free lunch. The tech boom of the ’90’s made millionaires out of John Doe’s the same way that the crash made overnight millionaires out of pit traders. Intelligence and ability should never be confused with being in the right place at the right time. The separation of those with ability from those with geographical good fortune can only be told over the course of time. The trading pits took away the free lunch of pit traders (The Epitome of Free Trade) just as the dot com bust erased other, unearned fortunes. Currently, it is the financial industry being forced to endure their comeuppance. Their computer modeled diversification of bundled risk and carefully designed tranches sold to global institutions allowed them to over leverage low interest rates and put people into homes and businesses that should never have been put into existence. The models that were designed were put into action based on their ability to compress risk while adding to the bottom line. Does anyone remember Long Term Capital Management or Enron?
Finally, it is the long term global nature of hubris and contrition that drives the long term cycles of the stock market. Contrition is clearly the leading factor since October. Fortunately, just like the oil market, we have tools to tell us when the fat part of the move may be over. Fundamental analysis has allowed us to determine under and overvalued markets fairly successfully while our humility has allowed us let the markets tell us just what over and undervalued means in real terms. I’ve been writing for more than six months that the stock market will revert to its mean… and then some. Markets always overshoot. If this is a normal bear market, we can assume the following set of parameters.
1) P/E ratios decline by approximately 60%. The peak for this run was around 43.
2) Average decline is approximately 30% form peak.
3) Average length is around 14 months.
If we look at these figures, it appears as though it’s going to be a gloomy holiday season. I believe we entered an, “official” bear market at a 20% decline from market peaks. Depending on the index, this started in July. The P/E ratio, even with today’s declines, remains near fair value, at 17 and change. Just as markets tend to overshoot on the upside, so too do they overshoot on the downside. We will grind our way through and there will be rallies and failures, just as there always are. The question investors should be asking themselves is, “How do I best manage my way through this period without affecting my long term goals or, giving into short term emotions?”
I believe that this is where the futures industry, through stock index futures like the S&P 500, Dow, Nasdaq 100 and Russell 2000 should be employed. They are offered in a wide range of sizes and can be tailored to cover most any equity portfolio. The margins and account sizes are exceptionally favorable, as well. Currently, an individual can still protect $30,000 worth of tech holdings with a $5,000 account.
Individuals who don’t utilize the futures markets to limit their losses on the way down or, to maximize their return on the way up are simply hiding their heads in the sand and pretending that they don’t know better. Any investor who feels they are responsible for the lifestyle of their retirement should act in their own best interest and take advantage of these opportunities. I thank goodness that I can see the beginning of the next sixteen years far more clearly than I was able to see the beginning of the first sixteen.
Andy Waldock
http://www.commodityandderivativeadv.com
866-990-0777
Posted 1 year, 4 months ago at 1:21 am. 0 comments
Why do some people come out of crises transformed and benefit from the experience while others are crushed by them?
Have you ever wondered why some people come out of life crises transformed and benefit from the experience while others are crushed by them?
Everyone has a crisis occasionally and a major life crisis at least once in a lifetime. A crisis, which leads to a fundamental questioning of one’s identity, role in an organisation or society, one’s means of livelihood and relationship with others as well as big changes in one’s health, social standing or reputation and living habitat or ownership of property and things is a major life crisis. If we go back over our own past and also look around, we notice that some people are crushed by these major crises while some others emerge transformed.
Now, case studies and literature show that there are no direct genetic traits that could be identified as conclusive determinants of the ability to manage one’s own life successfully. Strict or permissive upbringing, loving parental care or growing up as orphans with no support figures, affluent childhood or extreme poverty, recognition of exceptional talent at young age, sexual abuse or exposure to crime and misery in the formative years; all these do not provide a direct and conclusive correlation to crises survival and management skills.
We tend to take for granted many things like security, daily food, freedom to move around or express one’s opinions freely or even nurture, care, friendship and even love from another person. Their importance is realized only when we loose any one of them.
A thought transfixed me: for the first time in my life I saw the truth as it is set into song by so many poets, proclaimed as the final wisdom by so many thinkers. The truth-that love is the ultimate and the highest goal to which man can aspire. Then I grasped the meaning of the greatest secret that human poetry and human thought and belief have to impart: The salvation of man is through love and in love. I understood how a man who has nothing left in this world may still know bliss, be it only for a brief moment, in the contemplation of his beloved. In a position of utter desolation, when a man cannot express himself in positive action, when his only achievement may consist in enduring his sufferings in the right way-an honorable way-in such a position man can, through loving contemplation of the image he carries of his beloved, achieve fulfillment. For the first time in my life, I was able to understand the words, “The angels are lost in perpetual contemplation of an infinite glory.”
From Man’s Search for Meaning by Viktor E. Frankl.
The experience of separateness causes anxiety in humans as it means being cut off without any capacity to use our human powers. Using reason a human being becomes aware that s/he is born and dies against her/his will and this feeling of separateness against the forces of nature and of society in general creates a prison of helplessness. When we have lost something dear and valuable we realize that we have very little control over most of the things in life. Actually the only area where we can exercise some degree of control is our response to situations and our own attitude to the changing flux of things.
So, what does a life crisis actually do to our relationship with our self? A major crisis invariably takes us by the neck and forces us to question many of our basic assumptions about ourselves, about our relationship with other human beings and most importantly our relationship with the larger flow of events. There are so many quirky little coincidences, circumstances beyond our control, the sum of events which constitute a whole beyond the individual sum of its components (for which we always tend to blame our parents, the government or the system); that what theologians call the “will of God” or “Providence” etc which makes all our efforts to control reality seem futile in the end. A life crisis creates a need to review our relationship to all these.
From Zoroastrianism to Christianity, from Buddhism to Judaism, from Hinduism to the Mormon faith, from Shintoism to the Voodoo practices, from the Eleusian mysteries to Islam, in fact, in every religious and spiritual tradition there is a common thread - sacrifice! What are the traditions asking us to sacrifice? Chicken, goats, virgins or our ‘enemies’?
As modern human beings we tend to look down upon our ancestors who would draw pictures of the ritual sacrifice of a virgin to some deity or who ’sacrificed’ a goat or chicken in the hope of winning a war where they would slaughter thousands without any moral compunction. Yet we never question when the BBC or CNN reports “135 Taleban killed in fighting in Afghanistan” or “37 insurgents killed by government troops in…“.
Why would we question this type of news? Doesn’t it justify our worldview that we are the good guys and there are some bad guys out there being ’sacrificed’ to make this a better planet?
Back to the question again - What are the spiritual and religious traditions asking us to sacrifice? As you can guess, the answer is not - Taleban, insurgents or terrorists or chicken or goats for that matter. Taking things literally is always the laziest way out. The traditions are asking us to sacrifice the tiny little prisons our egos live in - nothing more and nothing less. Now, what does that mean? Are we supposed to jump off bridges and slash our stomachs and end our days for the sins of our ancestors or the shortsightedness of our governments’ foreign policies? Are we to suffer collective guilt and poison our lives with self-loathing?
Spiritual and religious traditions are filled with examples of heroes who successfully grapple with this question. Jonah or Yunus (in Islam) spending three days in the belly of the whale, Osiris dismembered going to the underworld and rising up whole again, Jesus rising up after spending three days in the belly of the Earth. Like Christ, Osiris became the god that the Egyptians needed to become in order to be saved. What this means is that unless a human being is prepared to sacrifice his/her ego and allow for the complete transformation of his/her self under the direct guidance of the Higher ideal, no true and lasting life can be obtained.
The origin of the word religion has many interpretations with the following two being central: -
- Re-reading - originates from Latin re (again) + legio (read), meaning rereading the message until it opens up
- Re-connection - to the divine–from Latin re (again) + ligare (to connect)
Only when a human being realizes his/her relationship to the flow of life and can flow in unison, can he reach his full potential. Then this person has become life aware of itself. He is no more the skin bound ego banging its head on the walls of mortality, He is no longer the individual consciousness mortified by the immanent certainty of its dissolution in time. He accepts full responsibility of all her actions, reactions, comings and goings. He is the co-creator fascinated by the infinite manifestations of creations. Like Jonah from the belly of the whale, the words that come from the mouth of such a person are not a dirge of lamentations but a hymn of praise. His participation is direct yet with little concern for himself. The Chandogya Upanishad describes it as “tat vam asi“, meaning “Thou art It”. It is this very quality of having one’s centre of being rooted in the higher ideal that is crucial to emerging whole and renewed from a crisis and also the key to happiness. This is the love that Viktor Frankl talks about when he mentions, “The angels are lost in perpetual contemplation of an infinite glory.“
Sinking into a victim mode is a dark and dangerous trap from which it is very difficult to get out of. People who do that are invariably crushed by crises. The ability to determine our own attitude to the vicissitudes of life requires four vital skills. People who are not very strong in these four skills are more likely to be crushed by life crises.
1. Ability to find meaning
How does an individual find meaning for the suffering or misery when everything else is fragmented and seemingly incomprehensible? This necessitates going beyond obvious and visible paradigms and findings ways to frame the present situation in a wider context. Some individuals can reflect on the events of their lives, gaining the ability to identify their strengths and exploiting them. If a person can, in the course of his life and inevitable misfortunes, look less at his own individual lot than at the lot of humanity as a whole he has better chances of finding a rationale for the misfortune. Rather than being a sufferer, he becomes a knower and his tears become pearls of wisdom.
Many mystics have said that the deeper that sorrow gnaws into your heart, the more joy it can contain, but only if the heart is ready for joy.
“It is by my sorrows I can soar” Gandhi used to quote.
Even in a Nazi concentration camp, Viktor Frankl was able to exercise the most important freedom of all - the freedom to determine one’s own attitude and spiritual well being.
“He who has a why for life can put with any how.”
Frederick Nietzsche
2. Resilience
Resilience is also the ability to see the bigger picture and anchor oneself to a higher plateau of possibilities. Misfortune and difficulties are perceived as signals that there is something wrong in our trajectory of going to the high plateau we aspire to. As we decide to work with ourselves in getting there, we use three steps of sublimation, spiritualization and raising to fruitfulness the lessons that the signals from the difficulties teach us. Skills for situation appraisal and damage control are vital skills. Learning to control sensory gratification for future gain even in the face of no immediate promise of future gain makes a person resilient in the trials of life. People who can manage leverage with their unique qualities and characteristics achieve success because of this ability to sublimate without repression.
“Wovon man nicht sprechen kann, darüber muß man schweigen.”
“What we cannot speak about we must pass over in silence.”
Ludwig Wittgenstein, Tractatus Logico-Philosophicus,
This quality means learning to suffer what we cannot avoid. Those people who can make a correction to their expectation that everything must be optimal learn to live with things they cannot change. For many others lamentation becomes a way of life. Resilience requires a spirit of innovation to get ahead and develop. People who commit themselves to working with their perceived shortcomings in spite of failures have better chances of achieving success, even genius.
The marshmallow experiment is a famous test of this concept conducted by Walter Mischel at Stanford University in the 1960s. A group of four-year olds were tested by being given a marshmallow and promised another, only if they could wait 20 minutes before eating the first one. Some children could wait and others could not. The researchers then followed the progress of each child into adolescence, and showed that those children with the ability to wait were better adjusted and more successful (determined via surveys of their parents and teachers), and scored an average of 210 points higher on the Scholastic Aptitude Test or SAT.
3. Networking skills
Networking skills involve forming and maintaining diverse types of networks and keeping their natures intact. Further, the skills to determine the beneficial quality of a relationship and how to dissociate from a relationship, which is abusive, and get on with life, are crucial skills. A central element of networking skills is “Recruiting”.
How to “recruit” new people into your life and form new relationships, which provide growth and stimulus is a skill very difficult to learn by reading books or attending courses but some people are innately better at this than others. Facing new people and situations requires us to collect ourselves and try to present a more pleasing face to the outside world. For many people this gives a wonderful opportunity to get out of the rut of misery for a while. Of course there are people who dump their miseries on everyone they meet. Don’t we feel much better even on a dreary morning with a terrible hangover, if we have a shower and groom ourselves to go out and meet the world?
4. Mechanism for finding and sustaining hope
If the usual avenues of pleasure seeking such as sensory perception, sensual gratification, possession of things, praise from fellow men, pride in achievement etc. are absent or non-functional then where does the person derive hope from? Belief system or faith, memory of a loved person or memory of serenity experienced before crisis are great mechanisms for sustaining hope. Survivors of crises usually believe that there is a master plan for life and those who pursue what they believe to be right tend to be successful. All lives have difficulties but the manner in which difficulties are met is the deciding factor as to which lives are fulfilled. Some people learn not be ashamed of their difficulties and strive towards creating something new. They learn that life is composed of different tones, some sweet and sharp, soft and loud, as well as discords, but to hear the song of life one has to blend all of them together. If one hears the song of life, then one wonders that there must be a singer. What does that mean? That we are not abandoned garbage floating meaninglessly in the endless expanse of space and time.
But surviving a crisis and emerging transformed and happy is not that simple as happiness is indeed very paradoxical. Happiness eludes us when we pursue it. In fact it seems that we have better chances of being happy if we live content, rich and fulfilling lives and forget about achieving happiness.
Oh yes, one more thing - thinking of others and not always about ourselves does miracles. We should take matters seriously, but not ourselves.
Rana Sinha is a cross-cultural trainer and author. He was born in India, studied and lived in many places and traveled in over 80 countries, acquiring cross-cultural knowledge and building an extensive network of professionals. He has spent many years developing and delivering Cross-cultural Training, Professional Communications skills, Personal Development and Management solutions to all types of organizations and businesses in many countries. He now lives in Helsinki, Finland and runs http://www.dot-connect.com, which specializes in human resource development as well as communication and management skills training with cross-cultural emphasis. Read his cross-cultural blog http://originalwavelength.blogspot.com