Monday, June 30, 2008

Check Out the New Video Library

Last Friday we sent out the latest Under the Radar Newsletter and introduced the first videos of the new video library. To see the Under the Radar, click here.

This first video series is strictly on investing in uncertain times. I feel that this series is a must watch to learn how to interpret the events of today. It is critical to understand risk and why is must be managed.

I also have a special favor. If you are an iTunes subscriber and you listen to the show either real time, on the Prudent Money website or through iTunes, I would greatly appreciate it if you would go to the iTunes site and post a review. Reviews help us in the rankings.

If you could find the time (just takes a few minutes), it would really be great and I would deeply appreciate it. The web address is below. Once the podcast page comes up, there is a scroll bar on the right-hand side.

http://phobos.apple.com/WebObjects/MZStore.woa/wa/viewPodcast?id=79520372

Just scroll down and you will see where you can place the review. Thanks in advance!!

Bob

Thursday, June 26, 2008

How to Know if Your Money Manager has a Vested Interest in Your Money?

When you invest into a mutual fund, you are placing your hard-earned money with a money manager, entrusting this person to manage in your best interest. Of course, all money managers have a vested professional interest in the management of your money.

However, does that interest stop there? Is there a “win some and lose some” mentality when it comes to the management of your money?

There is a great litmus test. How much money does your money manager have invested in the mutual fund alongside your money? How much do they have invested? I would think that any money manager that has the utmost confidence in their ability to manage money would have a significant part of their money invested in the mutual fund.

Unfortunately, this is only the case a small percentage of the time. Morningstar, the authority on mutual fund analysis, conducts stewardship ratings on their mutual funds. They rank the funds with an A, B, C, D, or F. One of the components of that grade is based on the amount of personal money that the money manager has invested in his or her own fund.

Out of a little over 1,000 funds that they sampled, less than 30% of those funds actually received an A or a B, indicating that they had a good percentage of money invested. The remaining 70% had minimal to none.

So how do you find out? Back in 2005, the Securities Exchange Committee started requiring mutual fund managers to disclose the amount of money that they have personally invested into their own fund.

Thus you can call the fund company to find out. Now what if your money manager has no money invested? Do you sell it? No, you don’t sell it. You just simply take note. I would think that most investors are covered simply because of the money manager’s professional interest to want to succeed. At the same time, I see the investment of one’s personal money as an added benefit.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Wednesday, June 25, 2008

Halfway Through the Year – How is 2008 Shaping Up?

Back in January of this year, I wrote a special report entitled “The Themes That Could Shape 2008.” Well we are just about midway through 2008. How are those themes shaping up and what could the second half of the year look like?

We will get the crystal ball out and see what we can find.

Main Theme for 2008: Expect the Unexpected

“I didn’t even see _______ coming.” I felt that this would be what most people would say as we head into the end of the year. If you look over the last two or three years, we just haven’t really had any shocking financial news. I came up with several scenarios as to what could be the unexpected. However, I did expect $130 plus oil and $4 gasoline.

So how does the rest of the year look for high oil prices? Personally I am of the opinion that we will see oil prices come down within a few months. A slowing global economy should put a damper on oil prices. This is all predicated on a mild hurricane season. I would hate to think what would happen to oil and natural gas prices in the event of a serious hurricane.

Of course, no one also expected that the 3rd largest investment banking firm in the world would almost be insolvent and its 85 year history as an independent investment bank come to an end. Well, we saw the end of Bear Sterns as an independent leading investment banking company as JP Morgan was forced to rescue them.

Theme for 2008: The Continuation of the Real Estate Bust

Adjustable rate mortgages are the main problem. The interest rates and payments increase on these mortgages, causing many homeowners to go into default. As a result, foreclosures continue to rise. As foreclosures rise, more homes go on the market, which causes prices to continue to fall. We still have a lot of pressure from foreclosures. Unfortunately, that doesn’t seem to be something that is going to ease up anytime soon.

In addition, credit is very tight, making mortgages tough to get. Going forward, I think that we see more of the same this year.

Theme for 2008: Consumer Spending Diminishes

This is one of those themes that falls in the category of the obvious. I was just surprised to see consumer spending holding up as well as it has. I think that the real reason for this is the continual use of credit. However, I think that is changing. Credit card companies are starting to tighten up.

Once the availability of credit diminishes, we should see consumer spending start to really weaken. I watch the total overall consumer held debt for signs that this is happening. It looks like total debt might have topped out on April 1st of this year at $5.3 trillion. As of yesterday, it stands at $5.2 trillion.

Theme for 2008: The Government is Running Out of Ammo

The Fed was doing everything humanly possible to prop of the economy through lowering interest rates and pumping money into the system. What has been the result? Now we have high inflation and a weak economy. Their methods have ceased to work.
Now they face the ultimate tough spot. If they raise rates to control inflation, they could send the economy over the edge. If they hold off, inflation remains a problem.

Theme for 2008: The Elections Might Cause a Problem for the Stock Market

In January I felt like the markets would like either Rudy or Clinton in the White House. They were both market friendly candidates. McCain might be somewhat market friendly. I didn’t mention him in January because I would have never believed he would have had a shot.

I also mentioned that there was a good possibility that Obama would get elected. You could see his popularity growing. I think that the markets will have a huge problem with Obama. He wants lots of change and has an extremely liberal mindset. You always have to be concerned when a politician wants to change everything. Politicians don’t change things. They make things worse.

I am of the opinion that he will get the presidency, which would not be market friendly.

He is very appealing to the voters of this country right now. Unfortunately, electing a president is more about charisma than anything else when it comes to the votes of the masses. It appears that he is reaching the masses as no other candidate has done in a long time.

Theme for 2008: There is a High Probability that We Might See a Bear Market

I gave a lot of statistics in my special report as to why I thought that this would be the case. Today, we have been in this decline for almost 8 months without a 20% or more decline in the stock market. That is the accepted definition of a bear market.

So, is the worst behind us? Well in my stock market outlook, I highlighted the last three big bear markets. During the first 255 days of this market decline, we are down more on a percentage basis than the other bear markets that I highlighted during their first 255 days. In other words, those turned into full fledged bear markets by definition without experiencing a large decline in the first 8 months.

Going forward, I still feel like we are going to see a full fledge bear market. I think that there are too many issues facing this market that will be tough to ignore.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Tuesday, June 24, 2008

Could Your Lifestyle Affect Your Credit Rating?

We all know that things like payment history and outstanding balances can end up hurting you in regards to interest rates and credit limits. What about your lifestyle? Well according to one lawsuit filed by the Federal Trade Commission in Atlanta, your lifestyle can have a big impact on your credit rating.

The Federal Trade Commission has filed suit against CompuCredit for not disclosing to the consumer who uses the sub-prime credit card, the Aspire Visa, that both payment history AND purchasing behavior are important. The FTC also goes into a full investigation that reveals all of the smoke and mirror marketing this company has practiced through the years and how it has misled the public.

According to the suit, “the company touted that cardholders could use their credit cards anywhere – what they didn’t say was that you could be punished for specific kinds of purchases.” Most of the behavior that was used to evaluate credit scoring was determined by morality based decisions and purchases. So you can imagine what comprises most of that list. However, the list also included types of business that you might not expect such as:

• Direct marketing merchants
• Marriage counselors
• Personal counselors
• Automobile tire retreading and repair shops
• Pawn shops

Now, most credit card companies will perform a risk assessment by taking a look at your overall credit history with all lenders. Based on that information, they can reduce your credit limit and increase your interest rates. If you are late or behind with other cards, then the credit card company where you are current considers you a risk and raises interest rates accordingly. This practice of changing the terms of your account is referred to as the universal default clause.

In addition to the normal practices of utilizing the universal default clause, CompuCredit was also looking at where the charges were created to see if the buying patterns of the individual were creating additional risk. If so, they would reduce the subscriber’s credit limits to levels below their existing balances and then charge over-limit fees.

This particular credit card (the Aspire Visa) is a sub-prime credit card. These are important for consumers that have low credit ratings and need to improve their credit score.

Sub-prime cards are important in the fact that they do help people build credit. However, you also need to be careful because there are a lot of companies waiting to take advantage of consumers who are in dire situations with their credit.

If you are using a sub-prime card or thinking about using one, make sure you do extensive research on that card and the corresponding company. It could end up saving you a lot of trouble down the road.

This is the great thing about the internet - if there is any negative news about a company, you can almost always find it on the internet.

This lawsuit does raise an important question. Are other credit card companies doing the same thing? Is CompuCredit just one of many credit card companies evaluating their cardholders on the basis of behavior?

For a lot of people, this wouldn’t be an issue because they don’t put themselves in situations that would put their character at risk. However, what about the person who is in counseling? What about the couple that is trying to save their marriage? Should that be used against them? This is another example of a credit industry out of control.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Monday, June 16, 2008

Vacation

I am going to be on a much needed vacation the week of June 16th. So, there will not be any blogs this week. Make sure that you are watching for the new video education library that will be rolling out this week. Hopefully, it will get completed and go out.

I hope that everyone has a good week!! I will see you on the 23rd of June!

Keep the Faith

Bob

Thursday, June 12, 2008

Don't Fall for the Latest Mortgage Scam

Hello Mr. Smith, this is your friendly banker. I wanted to let you know that we really appreciate your business through the years. We want to make you an offer that should really help your financial situation. We want to give you the opportunity to re-finance your mortgage and roll in your current high interest rate debt.

I am getting story after story about the aggressiveness of banks attempting to refinance loans. The pitch is simple and makes sense. They want to consolidate your debt into one big loan and then save you money each month by doing so.

The deal focuses completely on the monthly expense savings. The actual interest rate might be the same as your current mortgage. It might even increase. Of course if it does increase, it is still lower than the credit card debt – they say. What they don’t tell you is that due to the higher mortgage rate your overall interest cost will be greater down the road as well as lengthen the time that you remain in debt.

To add insult to injury, they also, in many cases, are charging excessive fees.

I saw one just the other day where they were offering the individual the same rate 6.25% as her current mortgage (which was .25% higher than the going rate). They were going to roll into the mortgage note her excess credit card debt which had an average interest rate of 5.99%. Best of all, they were going to stretch it back out to 30 years.

What was her benefit? She saved $100 a month.

What was the banks benefit? An increase in the overall interest they would receive. They also benefited from the additional fees that were charged up front.

What was the focus of the marketing pitch? It was all about the low payment. Unless you are in dire straights financially, you never want to make a decision based upon payment.

Banks have access to your credit files. They can see if you are a good risk, the amount of debt you have, and what you are paying. Then they can put together a deal and then cold call you with a sales pitch.

Banks shouldn’t be cold calling customers and pitching deals in the first place. They are and in many cases they are practicing predatory lending.

Predatory lending is defined as a proposed loan that does not benefit the customer long-term. I want to stress that not all banks are being this irresponsible. However, some of the major banks are on the phones pitching bad deals.

If you get the marketing pitch, just run the numbers side by side and you will see that it is probably the bank getting the better deal.

Wednesday, June 11, 2008

Be Careful Where You Get Advice

I had a client call me today with concern about her mother. Her 87 year old mom had gone to the bank to take care of a CD that had come due. She was greeted by one of the bank’s licensed bankers or financial advisors.

Now let me say this up-front. Either the financial advisor completely did not understand the products that she was representing or she was real hungry for a product sale and would do anything for it. As you read this story, I think that you will agree that either way it is disturbing.

So the financial advisor says to the elderly lady, “You don’t want to get back into another CD. The CD is paying very little in interest. Plus it is not FDIC insured. (Which is actually incorrect – it was at a FDIC bank and under $ 100.000) Let me show you something else.” She then proceeds to pull out information on a bond mutual fund.

The advisor says, “This fund pays a dividend of 5.84% which is much higher than what a CD is paying and IT IS INSURED.”

Now I cannot imagine how she came to that conclusion. Maybe she thought that some of the bonds inside of the bond fund were insured and that made it insured in her eyes. Certainly, she did not mean to imply that it was FDIC insured. On top of that, she didn’t explain that there would be up-front fees.

Even though much of what I had heard was troublesome, the worst of this recommendation had not even been told to me yet.

This advisor wanted to put this 87 year old lady into a High Yield Municipal Bond Fund. First, regardless of age, you want to avoid high yield anything. High yield is another word for high risk. Guess what category of bonds is having problems with all of these credit and mortgage issues? You got it – High Yield.

In fact, this particular bond fund has 15 to 20% invested into housing related bonds. In other words, this fund has approximately 15% of potentially worthless bonds.

Second, municipalities are having a tough time right now and I sure wouldn’t want to be holding a bunch of municipal bonds (Read: municipal debt.)

I tell you this story to highlight two points. First, there are sales people disguised as financial advisors giving very bad advice. There are potentially ones that are telling outright lies. It happens and be careful who you trust. Of course, there are also some outstanding financial advisors giving good advice. The problem is that sometimes it is difficult to tell the two apart. The ability to sale, lack of morals, and a high likeability factor is a dangerous combination.

Second, it is important to understand how bond funds work. Typically you buy a single issue of a bond for a specific time period. During that time period, the bond issuer pays a quarterly dividend. At the end of that term, you are intended to get your money back. There is a safety net in most situations.

In a bond fund, there is no safety net and you can lose a good amount of money. It does happen. Although they can pay good dividend rates and can be attractive considering the miserable rates paid on CD’s and money markets, they can lose value making the dividend not such a great benefit.

Be careful when taking advice and make sure that you know you are talking to a qualified and ethical advisor before making any changes with your money.

Credit Scoring of the Future

The credit reporting agencies are working to change the way credit is scored. However, it might be a daunting task. First, they have to overtake the standard in credit scoring – FICO.

In 1956, Bill Fair and Earl Isaac founded a company called Fair Isaac. In 1958, they developed and introduced the credit scoring system. In 1989, the first FICO (F-Fair, I-Isaac, and CO – company) score was created called the Beacon score. This was developed through Equifax. The FICO score, as it is commonly referred to, was adopted as the standard for scoring credit.

Each credit reporting agency has their version of the FICO score.

Trans Union - Empirica Score (FICO score using information from Trans Union)
Experian - Experian/Fair Isaac Score (FICO score using information from Experian)
Equifax - Beacon Score (FICO score using information from Equifax)

Fair Isaac has kept the mathematical formula for the credit score a secret; however, we do have an idea concerning the make-up of the score.

Credit Scoring of the Future

The credit reporting agencies have had to rely on Fair Isaac for credit reporting. As a result, Fair Isaac shares in the revenues from each of the credit reporting agencies. As you might imagine, the credit reporting agencies would like for that to change.

In 2006, the three credit reporting agencies announced a new credit scoring called the Vantage Score. They developed this system to make credit scoring more accurate and consistent.

Credit scoring is based on the FICO model of 300 to 850. The Vantage Score is based on a range of 501 to 990. The Vantage Score would be utilized by all three credit reporting agencies and bring some uniformity. This scoring system apparently takes more factors into account than FICO. Where you fall on that scale would determine your grade of A to F.

A: 901–990
B: 801–900
C: 701–800
D: 601–700
F: 501–600

The scoring breakdown for the Vantage Score is as follows:

Payment history……………. 32%
Credit Utilization…………... 23%
Credit Balances…………….. 15%
Depth of Credit…………….. 13%
Recent Credit………………. 10%
Available Credit……………. 7%
(SOURCE: Wikipedia)

FICO is very entrenched in the business community as the preferred method of calculating credit scoring. At the same time, there are some flows in the system that I feel prevents an accurate representation of a consumers ability to be responsible with credit. The 3 credit reporting agencies feel the same way.

The bad news is that this new scoring system puts much more emphasis on total debt and the credit utilization ratio. That could be bad news for a lot of consumers.

There probably is not much to worry about at least for now. Although the 3 credit reporting agencies are working very hard to replace FICO with the new Vantage Scoring system, it is going to be an uphill fight. With FICO having a long-term hold on the credit reporting market, this should be quite a long drawn out battle within the industry to change from the FICO score to the Vantage Score.

Monday, June 09, 2008

How Manipulated are the Unemployment Numbers?

Last Friday’s unemployment report sent the stock market into a tail spin with the markets losing over 3%. Are those unemployment numbers accurate? Can the Government manipulate those numbers making them look a certain way? Well we will take a look at some funny accounting and what this might mean for your investments.

Friday was a tough day for Wall Street. The big economic news that rocked Wall Street was the unemployment report. There is always two parts to the report. First Wall Street looks at total jobs gained or lost. Then Wall Street looks at the unemployment rate.

The economy lost 49,000 jobs this past month continuing a string of job losses that started in January of this year. That was a mild number. In this type of environment, the numbers should be much higher.

It was the second number that really rocked Wall Street. The rate of unemployed Americans jumped ½% to 5.5%. That was the largest jump since 1986. That got the attention of investors because that was the first economic report that clearly demonstrated that this economy is looking recessionary. .

Ironically, economic weakness and job lay-offs have been embedded in this economy now for at least the past 8 to 9 months. In my opinion, the monthly job losses seem low.

Well you can thank your Federal Government for a little funny accounting. The Government figures in their own estimates as to how many jobs are gained or lost. They have a formula where they figure out how many jobs are created by new businesses that aren’t yet being counted. It is called the birth/death ratio.

Last year, it was reported that 1,096,000 jobs were created in the US. What was the Government’s contribution to that million plus job gain? The Government estimated that 1,130,000 jobs were created. If you take out the Government’s estimates, you then have a total job loss of -34,000 for 2007. Thus far this year, the Government has created 383,000 jobs and added them to the employment numbers.

According to the department of labor, 50,000 new construction jobs were created. I didn’t realize that construction was all of the sudden booming.

I often wonder, “What would it be like without Government intervention or manipulation or whatever you want to call it?” That will just have to remain a dream.

Sunday, June 08, 2008

In the Dark about what is Really Happening

I typically don't mention these types of statistics. However, this really caught my eye. So, I wanted to add it to my blog. Conclusion - we are so in the dark about what is really going on in this country. This is a copy and paste from an e-mail that I came across.

You think the war in Iraq is costing us too much? Read this:

Boy, am I confused. I have been hammered with the propaganda that it is the Iraq war and the war on terror that is bankrupting us. I now find that to be RIDICULOUS. Read the following - I have included the URL's for verification of all the following facts.

1. $11 Billion to $22 billion is spent on welfare to illegal aliens each year by state governments. Verify at: http://tinyurl.com/zob77

2. $2.2 Billion dollars a year is spent on food assistance programs such as food stamps, WIC, and free school lunches for illegal aliens.
Verify : http://www.cis..org/articles/2004/fiscalexec.html

3. $2.5 Billion dollars a year is spent on Medicaid for illegal aliens. Verify at: http://www.cis..org/articles/2004/fiscalexec.html

4. $12 Billion dollars a year is spent on primary and secondary school education for children here illegally and they cannot speak a word of English!
Verify at: http://console.mxlogic.com/redir/?1p7e8CzBUQsCzASOC-_uX2pI07eeMFqcBFQWQ8sLw91ow31wi1oq5wicptOX6nhMZ2vnU76XYyZtwQsLzDQmjtPq7Aa8EEK0EJFeJundzC4TTPqatTDxObwVcSO-r5P2hEw5P22hEw1cmVAPh1axEwQQgkCSg8dNwq89AVg8Cy4TfM-ub7Xa1JYSOOrpjvod79EV7cC-Kp_8cDv

5. $17 Billion dollars a year is spent for education for the American-born children of illegal aliens, known as anchor babies.
Verify at http://console.mxlogic.com/redir/?1p7e8CzBUQsCzASOC-_uX2pI07eeMFqcBFQWQ8sLw91ow31wi1oq5wicptOX6nhMZ2vnhU76XYyZtwQsLzDQmjtPq7Aa8EEK0EJFeJundzC4TTPqatTDxObwVcSO-r5P2hEw5P22hEw1cmVAPh1axEwQQgkCSg8dNwq89AVg8Cy4TfM-ub7Xa1JMSOOrpjvod79EV7cC-Kp_8cDv

6. $3 Million Dollars a DAY is spent to incarcerate illegal aliens.
Verify at:http://console.mxlogic.com/redir/?2Oeshd7bNEVd79JBdZ-ZS4Po0estxiQpbjFREgVv0i2N0630A2MQb0AoOXBScKzxW4-KzMedTV5WX1EVv7fEICXCQf8khhhs1hritqYKr7c9LLCQkXLf3An1OpJBYSbC4zh0bC44zh02oJP9Cy2l3h1FEwFdIwgrz0Qgj9Owhd49KvxYYmfSk3oUSOOrpjvod79EV7cC-Kp_8cDv

7. 30% percent of all Federal Prison inmates are illegal aliens.
Verify at:http://console.mxlogic.com/redir/?1p7e8CzBUQsCzASOC-_uX2pI07eeMFqcBFQWQ8sLw91ow31wi1oq5wicptOX6nhMZ2vnhU76XYyZtwQsLzDQmjtPq7Aa8EEK0EJFeJundzC4TTPqatTDxObwVcSO-r5P2hEw5P22hEw1cmVAPh1axEwQQgkCSg8dNwq89AVg8Cy4TfM-ub7Xa1JUSOOrpjvod79EV7cC-Kp_8cDv

8. $90 Billion Dollars a year is spent on illegal aliens for Welfare & social services by the American taxpayers.
Verify at:http://console.mxlogic.com/redir/?IzD4jhOYqejhOrpjvvLtxcS03mzWICRuJ27bU2gm80Mo4wQb0AoOXydYjd7e7EjWWf0UTvAnHI6zBYs-yOrKrgYxh555M55J9RHOVIsMC--rhjKYYehs79CSnPoKoid40Kogid409yTcCq89kd46Cy2ASO11Kc3h1cDa14QgCV-7PNo_pgdCzASOOrpjvod79EV7cC-Kp_8cDv

9. $200 Billion Dollars a year in suppressed American wages are caused by illegal aliens.
Verify at: http://console.mxlogic.com/redir/?IzD4jhOYqejhOrpjvvLtxcS03D7okJ6iQWtq4enM4wIg1wM90Id2M96cKVtzbEUuxfHEY3zt-huKMqenNPWb9KVJ3O54kkn0kmQDmLbCNP2rXVJ5eXPMV5MsCrpvdyVx8Qg2Vx18Qg0CbsOpEwBgQgqq8ajr846UMd44OsE4jh2rDUvf5zZB0SzsSOOrpjvod79EV7cC-Kp_8cDv

10. The illegal aliens in the United States have a crime rate that's two and a half times that of white non-illegal aliens. In particular, their children, are going to make a huge additional crime problem in the US.
Verify at: http://console.mxlogic.com/redir/?2Oeshd7bNEVd79JBdZ-ZS4Po0estxiQpbjFREgVv0i2N0630A2MQb0AoOXBTchjMZ2vnhU76XYyZtwQsLzDQmjtPq7Aa8EEK0EJFeJundzC4TTPqatTDxObwVcSO-r5P2hEw5P22hEw1cmVAPh1axEwQQgkCSg8dNwq89AVg8Cy4TfM-ub7Xa1J54SOOrpjvod79EV7cC-Kp_8cDv

11. During the year of 2005 there were 4 to 10 MILLION illegal aliens that crossed our Southern Border also, as many as 19,500 illegal aliens from Terrorist Countries. Millions of pounds of drugs, cocaine, meth, heroin and marijuana, crossed into the U. S from the Southern border.
Verify at: Homeland Security Report: http://console.mxlogic.com/redir/?mhPy9EVud79EVdIFLLTKMCr01PB0IT4_BYCqeq4VCXYyZtwQsLzDQmjtPq7Aa8EEK0EJFeJundzC4TTPqatTDxObwVcSO-r5P2hEw5P22hEw1cmVAPh1axEwQQgkCSg8dNwq89AVg8Cy4TfM-ub7Xa1J5cSOOrpjvod79EV7cC-Kp_8cDv

12. The National Policy Institute, 'estimated that the total cost of mass deportation would be between $206 and $230 billion or an average cost of between $41 and $46 billion annually over a five year period.'
Verify at: http://console.mxlogic.com/redir/?5AsUyqenzhOqejrarXZXI9CM0kdDaIdfmGvaNqkajBdKvY01Np1T4fmH6uPBm7b8eCXYyZtwQsLzDQmjtPq7Aa8EEK0EJFeJundzC4TTPqatTDxObwVcSO-r5P2hEw5P22hEw1cmVAPh1axEwQQgkCSg8dNwq89AVg8Cy4TfM-ub7Xa1J5ASOOrpjvod79EV7cC-Kp_8cDv

13. In 2006 illegal aliens sent home $45 BILLION in remittances back to their countries of origin.
Verify at: http://console.mxlogic.com/redir/?mhPy9EVud79EVdIFLLTKMCr01h-5fVv2fM-eDzDYx8Dfw26XYyZtwQsLzDQmjtPq7Aa8EEK0EJFeJundzC4TTPqatTDxObwVcSO-r5P2hEw5P22hEw1cmVAPh1axEwQQgkCSg8dNwq89AVg8Cy4TfM-ub7Xa1J5wSOOrpjvod79EV7cC-Kp_8cDv

14. The Dark Side of Illegal Immigration: Nearly One Million Sex Crimes Committed by Illegal Immigrants In The United States.
Verify at: http://console.mxlogic.com/redir/?IzD4jhOYqejhOrpjvvLtxcS02gyxgHO-r6sH7_g76XYyZtwQsLzDQmjtPq7Aa8EEK0EJFeJundzC4TTPqatTDxObwVcSO-r5P2hEw5P22hEw1cmVAPh1axEwQQgkCSg8dNwq89AVg8Cy4TfM-ub7Xa1J5YSOOrpjvod79EV7cC-Kp_8cDv

The total cost is a whopping $ 338.3 BILLION DOLLARS A YEAR.

Friday, June 06, 2008

Thinking of Investing into the Next Microsoft? Consider these Red Flags

There is a good chance that once in your life you will be confronted with the next great business opportunity or investment. It is the slam dunk that will turn 1000’s into $100,000’s just like that. There are many more stories of losing money in these great deals than actually making money. Well, when confronted with such an opportunity there is a short list of things to keep in mind.

(1) What risk are the promoters taking?

How much money do the promoters of this next great idea have invested? If they have a ton of money at stake, then it makes it worthwhile taking a further look. It is a red flag if only time and expertise are the investment.

(2) Be comfortable knowing that these deals are boom or bust

There is a reason why the promoters are going to the public for investment money. Big money speculators won’t fund them and a bank certainly wouldn’t consider it. Ideas that are very high in risk are mostly either boom or bust.

(3) Most of these deals are over-promoted and sensationalized

Every new idea is next great thing. Discount all of the over-promotion and look way beyond the sensational claims.

(4) Are they only promoting the upside and ignoring the downside?

There is downside risk to everything. It is a huge red flag if they are only promoting the pros and not giving any time to talking about the cons.

(5) Are you listening to an expert or a top notch salesperson?

Most of these ideas are pitched by great salespeople that have very little working knowledge of the idea, product, or service. Make sure that the person who is getting you information is the one most qualified to educate you.

(6) Conduct internet searches on everyone that is involved in the deal

The internet is a powerful tool. A Google search should produce a track of record success. Any negative information should tell you to walk the other way or at least ask more questions. No information at all should be a concern. You want to read about a track record of success.

(7) Check the background of those involved

Make sure that everyone is emotionally and professionally 100% involved in the success of the execution of the idea. Make sure that those involved are qualified with years of experience and proof of past success. You don’t want to be the person who invests into the next future failed experiment.

(8) Remember the motto – if it is to good to be true it is!!

Just remember the motto……. Although cliché this has always been wise advice.

(9) Is there an extensive business plan and analysis of future gains/losses?

If you are going to risk your money, there should be proof that this has been a well thought out and thoroughly analyzed business idea. Any idea worth considering is backed by a thorough business plan.

(10) If a high pressure sales presentation is involved, run the other way.

Strong potential ideas don’t need to be high pressure sold. However, ideas without much merit require high pressure sales.

Finally, don’t underestimate your ability to rationalize away 1 through 10 in the hopes of big money.

Thursday, June 05, 2008

Secured Card Rip-Offs

Secured credit cards are the last resort for individuals with no or bad credit to start building a credit score. It is also an area that is extremely abusive. Credit card companies prey on those who are desperate. First what is a secured credit card? It is a credit card for those who don’t yet have a credit card or for consumers who want to rebuild their credit scores.

The credit card company is willing to take the risk because the consumer has to put down a deposit that covers the entire credit limit. For instance, for a $ 1,000 credit limit card, the consumer has to put down a $ 1,000 deposit.

Unfortunately, credit card companies have really preyed on those who need these cards. Not all major banks issue them. Much of the time, you will find smaller banks and companies that issue these cards. Let’s take a look at an example of an abusive situation.

I had a listener contact me about a concern she had with a credit card that her soon just received. After applying for this credit card over the phone, her son received the card and his first bill.

The statement for the card that he has never even had in his possession had a bill on it for $ 213.19. The credit limit was $ 500.00 and had a 23.99% interest rate. The charges were as follows:

Annual fee $ 50.00
Account Origination Fee $ 100.00
Rewards Program $ 39.95
Interest $ 3.19
Overnight Delivery Fee $ 20.00

Plus there is always a .50% minimum fee if there is any balance. So you are looking at least another $ 6.00 a month in minimum interest charges if you use the card.

Now, how could this individual figured out that this bank was a rip-off ahead of time? The answer is real simple. With the help of the internet, you can use any search engine and find out just about anything that you want to know about a company when unethical behavior is involved. Most of the time, that type of thing gets written about on web-sites.

So, if you Googled Cross Country Bank, you would have found the following:

“Cross Country Bank, one of the nation’s largest sub-prime credit card issuers, was ordered to pay approximately $9 million in restitution and penalties for engaging in fraudulent, deceptive and illegal practices. “

You would also have discovered that Cross Country Bank is still in business and has changed their name to Applied Bank. After researching Applied Bank, I found these comments:

“They keep putting fraudulent charges on my account. They keep putting me over the limit and have been charged hundreds of dollars.”

“This bank seems to want to ruin my credit, but I will not let them.”

“When this bank accessed me an over the limit fee and could not properly explain why, I got very suspicious. I found out that this is an ongoing practice for this bank.”

“My credit card company charged me an over limit fee of $32 which put me over my limit by $15. Hmm... without the charge I would not be over my limit.”

“…..this credit card company charges an extra 29.99% on cash advance even though no cash advances were never made.”

If you are going to get a secured card, makes sure you research it over the internet first. Then look check the fees and read the fine print. After you receive the card, watch the statement like a hawk and make sure that they are not trying to pull something over on you.

Wednesday, June 04, 2008

Is It Smart to Borrow From a 401(k) Plan?

Investors are looking to a new source of cash and it isn’t the credit card. 401(k) borrowing is on the rise as consumers struggle to keep their finances together and their credit card payments current.

The bottom line is that borrowing from your 401(k) plan is a real bad idea. It should only be considered as a last resort. First, let’s take a look at how these loans work. Most plans allow for participants to borrow up to 50% or $50,000, whichever is the highest. Then the loan is typically paid back over a period of 5 years. The benefit that most consumers are drawn to is that you pay yourself back with interest.

Why pay someone else interest when you can pay yourself?

Well, here are the drawbacks for borrowing from your 401(k) plan.

1) You pay taxes twice on the interest that you pay back on the loan

What most people don’t realize about paying interest back to yourself is that when you pay the loan back, you are using money that has already being taxed. A 401(k) plan has pre-tax money in it. Withdrawals from a 401(k) plan are taxed. Along with those taxable dollars is the loan interest that you paid taxes on already. Thus, you will pay taxes on that interest a second time.

2) You borrow once, you might borrow twice

If the 401(k) plan worked out to be a good thing the first time you borrowed from it, well it might become a convenient place to borrow a second time. Your 401(k) should remain sacred and untouched, reserved for your long-term security and not viewed as an ATM machine.

3) If you are laid off, that loan has to be immediately paid back

If you are laid off, the loan comes due. If the loan comes due and you are under the age of 59½, you then pay a 10% penalty in addition to ordinary taxes on the entire amount. That can be very expensive.

I can only think of a few scenarios when borrowing from a 401(k) would be a good idea:

- You are already paying excessive interest rates on current debt outside of the 401(k). A loan from the 401(k) could be a way to drop your interest rate from 30% down to 6 to 7%.
- Prevents you from defaulting on another loan. Remember, you always want to stay current at all costs.
- Borrowing from your 401(k) plan could result in an increased credit score. Moving debt off the books could increase your credit score. By increasing your credit score, you create the opportunity to lower interest rates and refinance that debt and then pay off your 401(k) plan loan.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Tuesday, June 03, 2008

Company Claims to Report your Rent Payments and Improve your Credit Score

Rent reporters market their service as a way to make your rental payment count. Credit scoring does not give consumers any positive credit scoring points for paying rent on time. This company says that they can change that. All you have to do is sign up for their service, and they will make sure that your timely rent payments are reported to the credit reporting agencies.

Let’s start off with the marketing –

1) Good or bad credit – this company will enhance your credit profile
2) Your rent will be reported directly to the major credit bureaus
3) Prove to banks and creditors that you deserve all types of loans
4) Your credit profile improves with every rent payment

Now when you go to the fine print, you start to see the “disconnect” between the marketing and the fine print or reality.

- The marketing says that it should take no longer than 60 days to show up. The fine print says that it could take as much as 160 days.
- The marketing says it will be reported to the credit reporting agencies and that it can benefit your credit score. The fine print says that the information might show up on one or many of the major bureau reports. There is a big difference between reporting and whether or not they can guarantee it will show up.
- In their marketing, they intermix the terms “improve your credit file” and “improve your credit score.” They lean more to the use of the phrase “improve your credit files.” Although anyone can add information to a credit file that is deemed positive, if it does not improve your credit score, it is for the most part worthless. Even deeper in their fine print appears “profile improvement does not guarantee a higher credit score.”
- You cancel at any time. Of course, if it is not within 5 days you will lose the $89.95 fee. In other words, you are paying this service a fee that is basically non-refundable to add information to your credit file that may or may not make it to your credit file.

So, what do the credit reporting agencies have to say?

Fair Isaac, who developed the credit scoring model, said this about rental payments in general. They “stated that it couldn't find a reliable enough database of rental payments and, more importantly, there are questions about how ‘predictive’ rent payments are. In other words, your ability to handle a checking account and pay off a TV at a rent-to-own outfit might say more about your creditworthiness than whether you've managed to get the landlord a check each month.”

I also ran this by a senior executive at one of the credit reporting agencies – his reply:

“Bob,

I would agree with it in theory, but I'm not aware of many rental companies reporting payment histories to credit bureaus. Perhaps this company does, but not to us. The issue of "alternative payment types" is one which has been discussed in financial circles. There are a couple of companies I've heard of who are trying to build databases of alternative credit data, but I haven't seen them in action yet. I believe it will take time to develop this type of alternative data, which will serve those consumers who are left out of the traditional credit marketplace. I don't expect it to happen quickly, and if it does, the big issue will be if the "big three" reporting companies willhave this data, or will it only be available on a stand alone database. There's a long way to go on this subject before anything effective hits the marketplace.”

Finally, their marketing slogan -

We have helped thousands feel like paying rent is finally paying off!!

The marketing certainly does make you feel like it is a good thing. The reality is another story.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Monday, June 02, 2008

The Stock Market’s Head Fake

"The worst is behind us,” declared the talking heads on CNBC back in March of this year. Wall Street is quick to declare the end of market declines and the resumption of the bull market. Is it really that easy? Could we go through 6 months of market decline and erase the irresponsibility of the past 5 years? Could the debt bubble come and go and everything be OK?

Unfortunately, I don’t think that it works that way. History would suggest that bear markets are a long and complicated process. I still stick with my analysis that the March 2008 low in the stock market was temporary and the rise in the stock market from March until May was nothing more than a bear market rally or a stock market head fake.

The stock market is cruel that way. It has a way of convincing everyone that it is OK to get back in stocks. Once people are suckered back into the market, the selling starts again.

Let’s look at past bear markets and see if there is a pattern:

A decline started in November 1968 and lasted until March 1969 (4 months). The stock market rallied from March 1969 until May 1969 (2 months). Then stocks proceeded to lose -31%.
A decline started in January 1973 that lasted until August 1973 (8 months). Then the stock market rallied for 2 months. Then from October 1973 to September 1974, the stock market lost -39%.
A sharp decline started in March 2000 and lasted for a few months. Then the stock market rallied for 4 months until September 2000. Then the stock market proceeded to lose 26% until March 2001. The stock market rallied from March until May (2 months) and then lost another -26%.

The stock market started a decline in October that lasted until March 2008 (5 months). It then proceeded to rally from March to May 2008. What happens next?

I think that we are starting to see what happens next. The problems are showing up way beyond the credit and real estate crisis. We are seeing the development of the worst of two worlds – economic weakness and inflation. It is going to be tough to turn this ship and declare the decline that started in October 2007 is over.

As I have said many times before, I stink at predicting events. It is not my intention to do so. My intention is to show you what I am seeing and the many parallels to historic stock patterns during the beginnings of bear markets. This current decline has that feel to it. If that is correct, there is a whole lot of selling left before this is all over with.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.