Merry Christmas

Yesterday's blog was the last blog of the year. We will be out for the Christmas break. Hope everyone has a Merry Christmas!

The One Action That Will Change Your Financial Life

When I counsel with people who are in financial difficulty, I find one consistent theme. People who are in financial trouble and have no idea as to where their money is going each month or if it is a debt problem usually understand very little about the details of that debt.

I want that to change for everyone. Financial organization is the one step anyone can take that will start the process of getting finances back on the road towards prudent stewardship.

So what does financial organization mean? It simply means knowing the current state of your finances as well as where the money goes each month. Most people don’t know how much they’re spending. What’s worst, there is a lot of spending that goes on behind the other spouse’s back.

There are two keys to successful financial organization. First, you have to be willing to put everything on the table about money and communicate. When you have two people working under the same finances, both individuals need to be on the same page. Tracking your spending is the second key. Your finances would drastically change if you were to take thirty minutes each week to write down your expenses and put them into an expense category and then an additional thirty minutes each month to analyze and discuss.

Now, here is where the problem occurs. First, money is probably one of the hardest things to talk about in a marriage. Second, it is all about finding the time.

Well, I would agree with you about the first challenge. Communication about money is a tough one. However, there are ways to work through these issues. We are going to spend a great deal of time next year talking about this very issue. Second, I can’t buy into the time challenge. When you commit to something, you find the time.

When the clock strikes 12 on December 31st, you will have 525,600 minutes to get things done in 2008. I am talking about committing to 1,920 minutes next year to make a huge difference in your life. That amounts to 0.36% of your time. Now, it almost seems sort of ridiculous that one could not take 0.36% of his or her time to take the steps to make huge differences with their financial life.

This is a process of baby steps. What I am talking about today is the first step, which is to just commit to taking that time. The rest we will talk about next year.

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

Are Extended Warranties Worth It?

Do extended warranties make sense? You probably have been in that situation before. You have researched and researched a certain item that you want to buy. You finally figure out the make and the model number and you are ready for purchase. You talk to the salesperson, check availability, and get ready to pay.

The whole time you know the dreaded question is coming. “Are you interested in an extended warranty today?” Let me show you how it works. If you have a real aggressive salesperson, then the benefits might be a little exaggerated. Maybe there is a claim of replacement no matter what. In any situation, no questions will be asked and your product will be replaced. Of course, if you read the fine print, you would get a different story.

The problem is one of emotion. Emotions get in the way. You start picturing your brand new item having a problem or getting damaged. You think about the cost. Then you rationalize that it is probably better to not risk it. You see it is human nature to do anything to avoid loss and the salespeople know that to be true.

Retailers bank on that emotional response. The last numbers that I saw suggested that extended warranties are a 15 billion dollar industry where maybe 20% is paid out in claims.

What do the experts say? In the majority of cases, the consumer advocates advise to say “no” to extended warranties. It is just not worth the money. Here are a few points to consider before you say “YES” to an extended warranty.

- How good is the original warranty on the product? How is the extended warranty in conjunction with the original warranty?
- How does the fine print compare to what the salesperson is telling you? Some retailers still pay out commissions for an extended warranty sale. Have them back up their claims with a look at the fine print.
- What is the hassle factor associated with getting something fixed? How long will you be without that product?
- What do reliability ratings say about the product that you are purchasing? If the reliability ratings are high, why even insure a low probability event?

If you really feel strongly about having that added protection, make sure that you do the following:

- Take some time to really study the fine print and understand the terms and conditions
- Create a file to store the receipt and a copy of the extended warranty
- Really evaluate if it is worth the cost and if this is an emotional decision being influenced by an aggressive salesperson
- In most cases, you can always go home and think about it then add it on the next day

I have to admit that I have wasted more money on these warranties in my life and rarely have had to use them. Most of the time, failures in electronics will show up early on during the original warranty. I have also found that the hassle factor is just not worth it.

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

Are the Proposed Government Solutions Helping the Credit Markets?

Are the solutions presented by the Government and the Federal Reserve Board actually working? Well, if the market were voting, the answer would be no. None of these solutions presented by the Government have given the markets any confidence.

Yesterday was just another example of that as credit fears and potential inflation fears continue to grip the market with the S&P 500 dropping another 1.5%, leaving the stock market up by around 2% for the year.

The Federal Reserve Board has cut rates three times now. Treasury Secretary Hank Paulson unveiled some Super Fund coordinated by banks to stabilize the credit markets. Then the President unveiled a plan that is intended to save homeowners from rising interest rates on adjustable rate mortgages and in turn reduce the number of homeowners who are losing their homes.

There has been a consistency with all three actions. First, they arrive with a big fan fair. Second, the stock market reacts positively to the announcement. Third, the market quickly gets over the fanfare and continues to drop. Fourth, we hear very little about these programs going forward and have very few details to go on.

Unfortunately, there is not much that the Government can do to fix the mess that they sat by and allowed to develop.

For instance, the President’s new plan makes for a great political sound bite. However, in reality, there are too many moving parts and too many parties involved to just announce that all homeowners who fit a certain criteria will have their interest rates frozen. It is just not that easy.

So are there really any good answers? Yes, the best action is to allow the market to work through this on its own. That is the only viable solution so that we can get past this and go forward.

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

The Federal Reserve Board Losing Control

There is the behind scenes manipulation, deciphering what the Federal Reserve Board Chairman says and trying to read between the lines. Wall Street has been trying to figure out the Federal Reserve Board for decades. The actions and words of the Federal Reserve Board yield a great deal of power over the markets.

Last week’s Federal Reserve Board meeting was highly anticipated. Wall Street felt strongly that the Federal Reserve Board would come to the rescue and greatly reduce both the discount rate and the federal funds rate. It would be a signal to the Street that the Federal Reserve Board acknowledges the risk in the credit markets and will do whatever necessary to help stabilize the markets.

Unfortunately, it didn’t quite turn out that way. The Fed lowered interest rates minimally and the stock market sold off. There was nothing stated that gave the markets any confidence that the Federal Reserve Board was on the job.

Then the next day, the Federal Reserve Board made a surprise move. Of course, they do so before the opening bell. They take a step back and put together this enormous coordinated global effort to provide liquidity for the banking system. The markets soared on that news.

Why didn’t the Fed just mention it following the Fed meeting? It was almost like they were back-pedaling after witnessing the markets’ reaction to their interest rate decision. It looks like they are losing control of the markets. It also looks like the markets are losing confidence in the Fed. If you look at all of these Federal Reserve Actions of pumping money into the markets and lowering discount and federal funds rates, the market has done nothing but go down.

Confidence is the last hope for this market. Confidence will prevent recession and a bear market. Unfortunately, it appears that confidence is slowly diminishing.

As you evaluate your investments for the new year, consider some of these risks. These are looking like very big risks.

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

Be Careful Who You Use to Refinance Your Mortgage

The mortgage markets are a mess. Getting a mortgage is a different ballgame today. We are beyond the days when you could just fog a mirror and get the keys to a house.

Credit is tight. Lending standards? Well, there are actual lending standards now. I have always said it is important to make sure that you go to someone who is more of a consultant than a salesperson.

Today, this is even more important. Through their marketing efforts, mortgage companies invite you to just pick up a phone and qualify for a loan. It is important to sit down with someone who is going to look at your situation and consult you. A consultant will look at your credit score, analyze your current mortgage, and help you get into the right type of financing.

I have known Alice White Hinckley for over 25 years and think that she is the best out there. If you are in need of mortgage help, I recommend her with confidence. If you didn’t get a chance to hear the show from yesterday, make sure you listen to the podcast.

Her email address is alwhite@firsthorizon.com.

Copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

Be Careful Believing the Overly Bullish Stock Market Commentators

Earlier in the day, a stock market commentator had this to say about the Dow. He said if the Fed did nothing, the Dow would finish up around 16000. If they cut just 0.25%, it would finish at 18000. If the Fed cut 0.50%, it would finish up at 20,000.

With everything that is happening, how can these guys be so bullish? I think that Tuesday’s stock market told us a lot about this environment and what might be in front of us.

In just a matter of moments, the Dow Jones Industrial Average dropped 240 points as the Federal Reserve Board decided to decrease the federal funds rate 0.25%. A disappointed stock market reacted extremely negatively to that news. The stock market felt like the
Federal Reserve Board should do much more in its effort to fight what looks like an inevitable recession.

Should the stock market be so surprised? The answer is both yes and no. Yes, because the Federal Reserve Board has been very market friendly. It has made many decisions and taken actions to continue to prop up this stock market. This is why we have witnessed all of the bad news in the credit markets and yet it hasn’t dramatically affected the stock market.

At the same time, the stock market shouldn’t be surprised because the regulators need to allow these markets to work themselves out without a lot of government intervention. It is the healthiest way for us to get through this credit crunch.

So, after a rough November, what does this say about December? December is typically a strong month for the stock market. This type of weak market activity is a little unusual. However, it also goes along with my outlook for the stock market. I still feel that there is a good chance that we have started into a bear market.

It is important to make sure that you are not taking a tremendous amount of risk. My indicators are still showing that a bear market definitely cannot be ruled out.

If that is the case, go back to the three things that you can do in this type of situation and make a choice. First, do nothing. That is not a good choice. Second, reduce your exposure to stock by investing defensively. Third, invest offensively. There are ways to make money in a declining market.

Now some may think that I am completely off base and overreacting to one day of a sell-off. I am just putting the pieces together and the picture doesn’t look promising.

· Weakening economy
· Consumers facing massive amounts of debt
· One of the most severe credit problems we have seen in decades
· A severe real estate bust
· A market that is losing confidence in the Federal Reserve Board

Bear markets and recession are never announced ahead of time. You just have to look at the clues.

Copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

Too Little Return versus Too Much Risk – Choosing the Right Money Market Account

So where is the best place for your money to stay safe? The whole idea with managing money that you might need is to keep it liquid. You always want the ability to get to the money. There is a going rate for that type of risk-free account, which is why it is good to know your options.

Let’s start with the lowest risk and lowest-paying account – the savings account.

We have always been taught to just open a savings account. Unfortunately, savings accounts pay virtually nothing in interest. I checked the going rate at one of the major U.S. banks. They are currently paying 0.20%. They are also using this low-paying account as the main savings account for one of their heavily marketed savings programs.

The second type of account would be a money market account.

Theoretically with a money market account, you position yourself to get a little higher return. Most money market accounts are FDIC-insured. They are considered deposit accounts in banks.

What is the big difference between a money market account and a savings account? The main difference is that a money market account will typically limit the number of withdrawals you can make, while a savings account has unlimited withdrawals.

The rate goes up a little in a money market account. At Bank of America, they will pay 1.75% up to $25,000 and then increases to 2.8% up to $50,000.

The third type of account would be a money market fund.

This is actually a mutual fund that invests in money market type instruments. It is considered a safe investment although you could lose money. Every dollar you place in the money market mutual fund represents one share that is worth $1. The accounts are arranged so that the $1 per share value never goes down.

So, what is a good rate for a money market mutual fund? At this time, Fidelity is paying 4.75%.

Could you lose money in a money market mutual fund? Well in a traditional money market mutual fund, the probability is much lower. It would have to be some type of dramatic situation. I have never heard of a traditional money market mutual fund losing money. However, I am not implying that it cannot happen.

If you are in the fourth category, you could lose money. The fourth category consists of enhanced or strategic money market mutual funds.

These take a little more risk to get a higher return. Unfortunately, it has been discovered that these funds have invested in these mortgage-backed securities and many are in trouble.

Just this morning, Bank of America announced they were closing their 12 billion dollar enhanced money market fund because of problems.

Where is the best place to look? This is not intended as advice. I think that the risk taken with a money market mutual fund makes the most sense. There is a big enough difference in return. However, there is one word of caution.

Make sure you are only using a traditional money market mutual fund and not one of the enhanced funds that are in that fourth category. It just isn’t worth the risk.

Copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

The Mortgage Industry Doesn't Even Understand the Problems

I overheard an interesting conversation one morning as I was sitting at Starbucks. It was between a mortgage broker and a guy who represents a company that sells leads to people in the mortgage industry. The list he gave consisted of people who have adjustable rate mortgages coming due and need to refinance.

It is amazing to me how people in the industry actually understand very little about what is happening in their own industry. We will call the guy from the lead company “lead guy”. We will call the guy from the mortgage company “mortgage guy”.

Lead guy is explaining to the mortgage guy that he can give him all types of leads based on any type of criteria. Mortgage guy states that he read that the Dallas Fort Worth area might be in the top five areas in the country for foreclosures when it is all said and done.

He said that he didn’t want any mortgages below $100,000 or any sub-prime debt. He is going to be paying up to $1 a lead. Unfortunately, he doesn’t realize that this is not just a sub-prime problem. People with good credit as well as bad credit are going into foreclosure. People with all types of balances (both big and small) are going into foreclosures.

The lead guy is selling him a list of the problem. The problem is adjustable rate mortgages. Unfortunately, the mortgage guy has no idea that this goes way beyond sub-prime issues. Even more unfortunate is the $1 he is going to pay per lead.

Speaking of mailers, I received a mailer from Countrywide today showing me how I could refinance my mortgage to a 40 YEAR MORTGAGE and save money each month.

The irresponsibility just never stops.

Copyright© 2007 Prudent Money and Bob Brooks. All rights reserved.

A Sobering View from a Mortgage Insider

“Even before this mortgage mess started, one person kept emailing me over and over saying that this is going to get real bad. He kept saying this was beyond sub-prime, beyond low FICO scores, beyond Alt-A and beyond the imagination of most pundits, politicians and the press. When I asked him why somebody from inside the industry would be so emphatically sounding the siren, he said, “Somebody’s got to warn people.”

This was the beginning of Herb Greenberg’s blog and is one of the more sobering looks at the industry. Although a little long, it is a must read. It has a detailed description from twenty year mortgage veteran Mark Hanson. He ends the blog with this:

What I am telling you is not speculation. I sold BILLIONS of these very loans over the past five years.

Read More……

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

Don’t Fall For This Scam

This is a new scam floating around. The other day, I received this email found below. I did a google search and found that they have actually scammed people out of their money.

First of all, let’s say that I did have an outstanding payday loan. These debt collectors use the telephone as a means of collections and not email. Secondly, they cannot just arbitrarily find an account and lawfully take money out of your banking account.

This is a scam designed to scare the recipient. They are hopeful that the person will call. My guess is that they have a pretty good success rate if the consumer actually calls. If you don’t know better, these collection inquiries can be very scary. Many times people will pay something that was never owed.

My reply back to them was:
“You and your company should be prosecuted for running this scam.”
I didn’t get a reply.

Email received reads as follows:

Subject: Check Recovery Notice for Case #2207-26wwd

I am contacting you because you have one or more payday loans that have
been referred to our collection department as a result of return payments by
your bank.

We have made numerous attempts to get in touch with you regarding repayment
of your account. Since you have demonstrated an unwillingness to voluntarily
settle the debt, you have been referred to Check Recovery. This automated system
is actively looking to locate any valid bank account associated with your name
and social security number. If such an account is found, Check Recovery will
move to recover the entire balance due at once.

If you would like to have control over how and when your obligation is
repaid, you need to contact me to put a firm payment plan in place. If I do not
hear from you by close of business November 28, 2007, I will assume you would
rather have my company take back what you owe, rather than paying it back on
your own terms. You may contact me by phone or
email.


Westbury Ventures
Phone: 1-800-859-6439 ext. 3487
Fax: 1-800-859-6450
adaugherty@ltsmanagement.com
adaugherty@dmsmktg.com

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

Q and A on Market Timing versus Buy and Hold Investing

I've listened to some of your author interviews via podcast, and have really appreciated the great info, and picked up some of the books. Two questions:

QUESTION: I'm reading John Bogle’s book, "Common Sense Investing,” based on your interview, which really advocates a buy-and-hold index philosophy. His approach makes sense, but I can see from the graphs that if you sold at peaks (before the ten year lows), you would end up even better (some periods take ten years before they return to their previous peak value!). How do you reconcile this "market timing" vs. "buy and hold"? How do you feel about indexing vs. managed mutual funds?

ANSWER: Most financial writers will make blanket statements such as using index funds is a better strategy than using managed mutual funds. The truth of the matter is there are times when indexing works and there are times when managed funds are best. I would suggest that over the past three years, managed mutual funds were the better choice. However, in the late 90's, index funds were tough to beat. In fact, indexing with the S&P could be very tough as we go through this credit crisis (which still has a long way to play out). The S&P 500 is greatly influenced by financial stocks. One other thing you have to be careful of is the financial writer or talk show host who has the answer and claims that it is the only way to go about doing something. Remember, there is no holy grail when it comes to investing. Those are good questions - I wish everyone would think through what they hear and challenge it.

For more information on market timing versus buy and hold investing, listen here.

For more information on an investment program that is more than just buy and hold investments, go here.

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

The Band-Aid Approach Continues

Who am I to criticize? I have no idea as to how I would handle this mortgage/credit/real estate mess. Being in a leadership position is a tough one today.

Let’s look at who is really responsible for this mess. Well, you could blame Greenspan. You could even start to fault Bernanke and Paulson to a degree with their extremely risky solutions to handling the current problem. You could blame the mortgage industry.

Ironically, the one person who should be taking responsibility is never mentioned in the blame game. Let me say that I respect President Bush and think that he not only inherited a tough situation, but has also had one of the toughest situations to preside over in decades. At the same time, he is the leader of this country and he sat back just like Congress and ignored it. He also allowed Greenspan to irresponsibly ignite the process through his policy decisions.

Now the Bush administration is practicing moral hazard by setting up a program that will freeze adjustable rate mortgages. Apparently, neither he nor his advisors have a clue as to the domino effect that this type of program will create.

I realize that they have to do something. However, this is not the answer. The answer is to let the irresponsibility work its way through the system. The answer to every problem that the Bush administration has faced has been to put a band-aid on the problem. Band-aid solutions just allow the problem to fester and become an even larger problem later.

I wish that President Bush would look at the reality of the situation. We need to stop tampering with the markets and let them adjust accordingly. We need to set up strict regulation so that the credit industry cannot continue to rip-off the consumer base. Most importantly, someone needs to put politics aside and lead this country.

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

Be Careful Believing the Numbers from Credit Counselors

Before I get started, there might credit counselors out there that are legitimate. I have seen many of these proposals and pored over the numbers.

I have found 100% of the time that the numbers on these proposals are completely wrong. Thus, they are misleading.

I looked at one this morning and they promised this listener that he would be out of debt in 41 months. He has roughly 10 debts. There are so many errors and misrepresentations on this page that I don’t have enough space to detail it all.

Let’s just start out with one. He has a Bank of America debt of $4,742 that he is paying $208 a month and the interest rate is 32%. The company said that they would lower that interest rate to 18% and he would pay $111 a month. Now they say he would be debt free in 41 months.

It would take him 69 months to pay $111 a month at 18%. That is 28 months more than the proposal states. In addition, he would be out of that debt in 35 months if he just kept on the regular schedule.

It is amazing that the Federal Trade Commission allows these companies to operate. The problem is that anyone can get into this business. People often ask me if this is a good solution. As you can see, it is not!

In addition, you run the risk of getting put in collections while in one of these programs. You also run the risk of penalties. You basically face all types of risks by participating.

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

Politicians and the Credit Industry

Yesterday, I wrote about how the credit industry is desperately trying to clean up their image because of pressure from Congress. Congress has really been putting the pressure on the credit industry to change their anti-consumer practices of charging outrageous fees and higher interest rates.

Since this makes perfect sense, why does it take an act of Congress (no pun intended) to get this accomplished? Why wouldn’t any self-proclaimed Congressional leader see the unethical nature of these credit practices and just pass legislation to fix them?

Well, it is because they are politicians. Through the years, the big hitters in the credit industry have lined the coffers of many a politician’s re-election campaign. Thus, you scratch my back and I will scratch yours.

They have heavily contributed to the Republican side of the aisle while not really showing much love to the Democrats. As a result, the Republicans allowed this to get completely out of control. Now, the credit industry probably wishes they would have shown a little more love to the Democrats now that they are in power.

So, the Democrats really don’t have a back to scratch so they are going after the credit industry…..or are they? The current legislation by Democratic Senators Levin and McCaskill is excellent legislation that would prohibit these anti-consumer practices.

It is so good that it brings up a red flag for me and begs the question, “Is this piece of legislation a campaign contribution negotiation technique?” In other words, if the credit industry will start scratching my back, we will make sure that this legislation is a little more credit industry friendly.

Sorry to be so critical of our leaders in Congress. However, they are politicians and politics is politics. This will be interesting to track.

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

The New Friendly Face of Credit – The Wolf behind Sheep’s Clothing

Congress has been coming down hard on the credit card industry for their use of the universal default clause. This is a clause in your credit card terms and conditions that you sign off on that gives credit card companies to ability to raise the default credit card rates as high as 32% if they determine that you have become a risk.

Chase has just recently announced their clear and simple plan. They are eliminating this practice as of March 2008. In a Dallas Morning News article, Capital One states that they raise a consumer’s rate only "if they pay us more than three days late twice in a 12-month period."

A spokeswoman for Bank of America said, "We do not engage, and never have engaged, in the practice of universal default for our consumer credit cards based on the customer's failure to repay obligations to other creditors."

So are credit companies really becoming more consumer-friendly? Not really.

Bank of America says that they never have engaged in the practice of universal default. However, if you look at their terms and conditions, it says:

We reserve the right to change the APRs in our discretion.

Another company that claims that they don’t engage in the practice has this on their terms and conditions:

In the future, we may increase your non-introductory APRs if market conditions
change.

I would define universal default agreement as the ability to change credit card rates for any reason. If you read the terms and conditions, they still reserve that right. They just don’t call it the universal default clause.

Remember, credit card companies just want the money that they make off of high interest rates, as well as the money that they make off of your mistakes. Be careful when a credit card company wants to be your friend.

My favorite is “a change in market conditions” – what about current credit conditions?

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

Are We Already in a Recession and Just Don’t Know It?

Another brutal day on Wall Street. After Friday’s rebound, stocks returned to the intense selling that has been the norm for November. Further fears in the credit markets sent the S&P 500 down 32 points, or 2.32%, and the Dow Jones Industrial Average down 237 points, or 1.83%. It was yet another tough day on Wall Street. This bad period for stocks started just twenty-five days ago on November 1st and it is already down 9% since that time period.

A look at stock prices can give us a real good perspective at how things are in economy. Stock prices are typically a good predictor of things to come.

Financial stocks are reflective of the big problems that we are facing in the credit markets. Citigroup, Merrill Lynch, and Bear Sterns are all close to a 50% decline from their 2007 stock market highs.

If you take a look at retail, it doesn’t get much better. Wal-Mart, a good overall barometer for consumer spending, is down levels not seen since October of 1999. If you were invested in that stock, you would be at the same stock price now that you were eight years ago.

I wrote about retail sales yesterday in my blog and on my stock market outlook because this will give us a very good indication of the health of the consumer. For the most part, retail sales were stronger this year than last year on Black Friday. However, much of this was due to the aggressive marketing of midnight sales and the fact that retailers were practically giving merchandize away.

Retailers have figured out that to get the consumer in the door you have to slash prices. The problem is that retailers cannot afford to continue to sell merchandise at these levels for the next thirty days. Wall Street is dependent upon consumer spending to keep this economy going.

So, taking a look at the housing market, consumer debt, high energy prices, lay-offs, and slowing wage growth, it begs one to ask the question: “Are we already in a recession?” If not, I think that we are getting ever so close to one. If we are, market investors need to take a look at their portfolios and consider battening down the hatches. The stock market does not do well in recessions. The average loss in a recession is over 30%.

So how do you respond? Make sure you review my article on the 3 ways of investing. The bottom line is to have a game plan and know your risk.

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

Happy Cyber Monday

I cannot stress the importance of this Christmas retail season. This is a big test for the consumer. Wall Street is bracing for the worst, expecting retail sales to be the lowest in five years.

Why is there such an importance placed on this year? I would argue that one of the main factors to keeping us out of a recession is consumer spending. The consumer has not slowed down in a very long time. Through the use of debt, consumer spending has remained vigilant even through the tough years at the beginning of this decade.

Last Friday (Black Friday) was the start of the Christmas retail season. This year, Black Friday was stronger than last year. So, are we in the clear? You have to look behind the headline numbers. I would argue that these numbers don’t even remotely tell the whole story.

1) In order to get customers in the stores, retailers had to give the items away. The discounts were extremely deep. For the debt trapped consumer, these deals were necessary. Thus, they are going to show up in droves.
2) The average amount of money spent per consumer was lower than last year. You could look at that stat in one of two ways. The average could be down because of the low prices or it could be down because consumers are spending less. I would suggest it is a little of both.
3) The marketing of the 3 a.m. and 4 a.m. sales was a huge hit. That, in combination with the low prices, packed the consumers into the stores.

The big question is what happens in the next few weeks before Christmas? What happens after the deep discounts end? This will tell volumes about the state of the consumer. As long as retailers are willing to lend money and defer payments, the sales should be propped up to a certain degree. However, I doubt we are going to see strong retail sales for this Christmas season.

Today is cyber Monday and is the online shopping version of Black Friday.

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

More and More Scams

These are two examples that came in today of scams that listeners have received:

Example 1
I seem to be getting a lot of emails stating that I have won various lotteries from different countries from the U.K. to South Africa to Nigeria. These emails do not have my name in them, and I believe they are scams. Also, I keep getting emails about jobs in which I would cash checks and keep a percentage of the money and send the money back (usually to someone in another country) by wire transfer. I know these have to be scams, but I am afraid some people may be fooled by them. I almost got fooled by a check-cashing scheme by someone buying some Avon products from me (from my Avon website). Some of the emails sound very legitimate with official-looking information, but I always remember the saying "if it sounds too good to be true, it probably is." I just wanted to let you know about these check-cashing and lottery scams. I seem to be getting these emails everyday.

Example 2
Bob,
Caught part of your program on Monday and heard about the check scam. We have heard from a company in London called Long-well Textiles, LTD, and he is describing the same set up. Checks mailed to you, you cash, keep 10% and wire the rest to his account in London. The first envelope arrived today and we declined accepting it and he is most upset and saying it is not a scam. We had found some info on this on the internet, however, we have not located it again.

Please be careful – these scammers are working hard to steal your money!!

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.

The Government Grant Scam

A few weeks ago, I wrote about financial scams (read blog here) where people would give you a check to cash and tell you that you could keep some of that money just for cashing the check. You then cash the check, send them a part of the proceeds, and then the check bounces and you are out the money that you sent.

Well, there is another scam going right now and these scammers are bold in using advertisements and websites. It is the free grant money scam.

One listener writes in:

I know that this is too good to be true, but I wanted to run this by you....
Have you heard of www.Contactgrantpeople.com?
I just received a letter in the mail from this company stating that they
are a broker at Grant Organization and that I have been selected to receive a
$9960.00 cash grant. This money comes from large corporations and wealthy
individuals that give away money in a form of financial assistance. The
check is for $4980 and if I cash or deposit the check, I must send him his 10%
commission ($498.00) and then they will send the remaining $4980 airmail
express.

Now I cannot speak to whether or not these people are scammers. This is a real website. Everything that they advertise does fit. This is what the Federal Trade Commission had to say about this scam:

"The defendants advertised guaranteed 'free grants.' But the only grant was to
them. They took consumers' money, they did not honor their guarantees, and they
gave consumers nothing more than empty promises of free money," said Howard
Beales, Director of the FTC's Bureau of Consumer Protection. "Consumers should
keep in mind that most sources of grant money have strict criteria; they do not
give individuals money for nothing." (to read article, click here)

Here is a simple rule of thumb when it comes to this sort of thing:
Never take any offer where someone is just going to give you something for doing virtually nothing. There is no free lunch.

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.