I remember a thread quite a while back where Mike Smith mentioned that a lot of people hadn’t seen slow times yet and the things you have to do to get through them. And while it hasn’t gotten to that point here it has become interesting for a new business owner like myself.
This is my fifth year and last year was by far my best. But in the fall when we always get a little slow we dropped dead. No calls, no interest, nothing. In our case we have rentals too so we worked on them.
We picked back up for a couple of months and then again before Christmas we went dead again. I noticed too not many guys were hanging around the supply houses. Then I started getting cold calls from subs looking for work. (big shock as I am not that big)
The next thing I here is that one of the bigger remodeling contractors had nothing booked for the end of December and nothing in January. Next I drive by and they Closed!
I called 2 weeks ago and asked about a fellow small timer and found he was working on a local assembly line. Now this guy is not the best business man I have met but he is talented and a number of guys would like to hire him if they had work.
Anyway we are still working but just not real busy. We are paying the bills and all but aren’t so busy that we can’t use more. It sure has been interesting to watch though. And I am learning a lot. We have increased our advertising, gotten involved in a lead sharing group which is really helping us network some. And man are we good at cost control at the moment! No buy the tool cause its cool at this point! DanT
Replies
Welcome to the club DanT!. In Michigan, we have the highest unemployment rate in the state. We rank 50th in term of economic conditions.
I've been talking about a recession since Bush won his first term. We've never climbed out of it, but don't blame Bush. In michigan, The problems are much deeper than one or two terms of a presidency.
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
just a little something that crossed my email.. apropos of .. real estate....
<<<<<Not yet. But not never.We say that after giving the matter another two minutes' reflection. We're onvacation, after all.Stocks took a hit early last week. We thought it might mark the beginning of anew phase. Sooner or later, we keep saying, stocks are going to be a lotcheaper than they are now. More importantly, sooner or later the worldwide property bubble will burst.Americans do not depend on stock market gains to maintain their standards ofliving, but they've come to depend on rising house prices. Last week, wecalculated that a 10% nationwide increase in residential property prices addedas much as $2 trillion in POTENTIAL spending power to American consumers. Allthey have to do it "take it out" - by adding to their mortgage debt. This iswhat they've been doing - mortgage debt has doubled since 1996. Coast to coast, people are speculating on housing as they once speculated on dot.com stocks.The difference is that the dot.com bubble was a financial bubble. When it blewup, most people could say, "Well, easy come, easy go," without reducing theirstandards of living or having to declare bankruptcy.But the bubble in property prices has turned into an economic bubble. OnFriday, the price of oil rose. It could well be headed for $60 a barrel. Thedriver has only two choices... he drives less (changing his standard ofliving)... or he pays more. But where does the extra money come from? Remember, last year, real incomes went down, not up. So, all he can do is to 1) give up something else (again, lowering his standard of living)... or he canget the extra money from savings or borrowing. He has little in savings so heturns to the Bank of Everlasting House Price Increases. He doesn't care thathis mortgage increases, for he is sure Alan Greenspan and his friendly Asiancollaborators will find a way to keep his rates low and his paymentsmanageable. And he doesn't worry about his own balance sheet either, because as long as property goes up, it gets better every year.Even sophisticated, experienced investors have come to believe that real estate never goes down for long."Yes, I know this is a bubble," said an old friend yesterday. "But if you buyyour property carefully, and you don't leverage it, you will do okay. Thepeople who get hurt are those who leverage themselves up. They can't take evena small decline in prices. Sure, prices will go down. But they'll only go down15% or 20%. That will be enough to shake out the speculators. Then, prices will begin going back up. If you are careful and sensible, you will be fine."We have no evidence to prove him wrong. In certain places... at certaintimes... property prices have gone down 70%... 80%... and stayed down fordecades. But it hasn't happened very often. And it has never happenednationwide since the Great Depression. Then again, the U.S. economy has been in a huge credit expansion for the last half century. Who knows what will happenwhen the credit expansion turns into a credit destruction?One of the perversities of economics that especially delights us is that thelonger a trend continues... the more eternal it seems. And the more it seems as though it will never end, the closer the end actually is. Since we are on vacation, we are reading whatever comes to hand. Here is apassage from an ancient Chinese philosopher, Lie Zi, on why trends change:"Some things are born and others are not born. There are things that change,and things that do not change... that which lives, can give life; that whichchanges can change... that which never changes comes and goes. "The trend of constantly rising property prices was born after WWII. Since then, it has come to be viewed as never-ending. These things come and go, says LieZi.>>>>>>>Mike Smith Rhode Island : Design / Build / Repair / Restore
Then again, the U.S. economy has been in a huge credit expansion for the last half century. Who knows what will happenwhen the credit expansion turns into a credit destruction?
I see the parallels with the dotcom frenzy and the above quote shows us that maybe the housing market is about to experience a different path...one that we havn't traveled before...
Personally, I'm not running around like chicken little, but I'm also not that interested in putting my name on a jumbo mortgage, especially if I'm speculating. I already know how to get control without my name on the note...I'd be a fool to ignore my instincts.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Mike,
Prices have been going up ever since we landed on Plymouth rock. More people wanted the same amount of land.
When I was born there were a 150 million people here in America Now there are 280+ million. by the end of this decade at currant rates it'll be 300 million. All things being the same property should cost twice as much today as when I was born.
However there is this thing called inflation, I remember paying a nickle a bottle for pop. Now it's over a buck? Doesn't it stand to reason that land with twice as many people seeking it and a near 100 per cent increase due to inflation should be rather expensive?
Are there speculators out there who will be hurt if the market should soften? Well some, Not too many in the commercial sector since malls etc. are doing well. Those who own the house they live in will weather any storm as long as they haven't overbought, Yeh! some will have to tighten their belts. Divorces and bankruptcies will increase, but most will be unaffected by the market changes.
A home that cost $250,000 to build isn't going to sell for 79 cents. The builder may take longer to sell it and may even lose his profit but the banks won't suddenly start to sell off their mortgage portfolio's.
A slowdown possibly! A crash? Never happen!
liked it ?.. here's some more..on Greenspan debasing the currency..
<<<<GREENSPAN GOES BANANASby The Mogambo GuruA lot of people were watching Alan Greenspan testify at the House FinanceCommittee, and like a lot of us, most thought it was a laugh-riot. Peter Schiff of EuroPacific Capital is one of them, and in an essay, "Greenspan Tells MoreWhoppers," he writes, "Like a kid in a candy shop I don't know where to startin refuting these claims. Perhaps the most memorable moment of the entirespectacle was Congressman Ron Paul quoting Greenspan to Greenspan, requiringthe chairman to admit that his younger self was wrong. Unfortunately, Greenspan the younger was not wrong, just early. It seems only fitting that in atestimony fraught with contradictions, Greenspan's greatest critic was in facthimself."Personally, I missed most of it, as I was caught up in the clutches of theAmerican healthcare system, and while I missed almost all of the testimony, Iam able to lend credence to the reports that there are a lot of people onMedicaid and Medicare, because let me tell you that it is the damn truth, asthe only other patients I ever saw, the whole damn time, were old and/or poor,although all of them were better looking than me, and better dressed than me,and smelled better than me, which none of them seemed to tire of pointing out.But I get a few minutes to quickly catch some of the testimony. As soon as Iwalked in and turned on the TV and turn off the VCR which is still in "pause"mode from where I was screening a how-to video on making a machinegun out ofold washing machine parts, my stomach convulses into a knot, as there is AlanGreenspan listening to a question and he licking his lips, with his beady,rat-like eyes darting from side to side in panic, and I know that he knows,although I don't know HOW he knows, but he knows that I am suddenly watchinghim, and he senses that I am using my Secret Mogambo Vision (SMV) to stare into the foul darkness of his soul, a soul so corrupt that is going straight to Hell when he dies for sinning against the Eleventh Commandment, "Thou shalt notdebase thy money," which is one of the little-known and long-suppressed Missing Commandments, recently discovered by me, The Mogambo, while using a variationof the Da Vinci Code search algorithm to find hidden messages in the Bible. The theory is that God gave Moses more than Ten Commandments, but the othersweren't very popular, and so the tablets were put into the basement of one thegovernment buildings and forgotten.But the mystery of the Missing Commandments is now revealed, thanks to the DaVinci code, which involves going through every page looking for "hidden" wordsthat are written backwards, or diagonally across the page, or something.Unfortunately, as it is being used now, it is a very labor-intensive process,and so therefore very unpopular with lazy guys like me, who want instant fameand fortune for doing as little as possible and who are upset and angry when we don't get them, and people call us childish, and make fun of us, and prettysoon my own family won't sit with me in restaurants because the restaurantalways has this convenient "policy" where they can refuse service to anyone,and that apparently includes older men screaming and crying and kicking andwhining because he didn't get as much love and money as he wanted.But in a moment of "Eureka!" I was inspired to hurry things up, and forthwith I invented the Mogambo Method Of Enhancing The Da Vinci Code Search Engine(MMOETDVCSE). It's all very complicated, of course, but in essence I go through the Bible and circle those words and letters that spell out what I want tofind, going page by page, and searching for letters only in that area of thepage that corresponds to using a roughly sine wave function that goes on pageafter page, because when you print out my results on a computer, man! It looksimpressive as hell! This beautiful regular pattern is going up and down thepage, like some undulating wave out on a gently rolling ocean. It screams,"Proof!" which in itself screams, "Nobel Prize for The Mogambo, because hecould sure use the money!" The essence of this Missing Commandment is "Money shall be only gold andsilver" which is eerily echoed in the Constitution of the United States itself, a point that I will bring up in my next book, "The Mogambo Explains How theFounding Fathers Knew of the Missing Commandments." But you can see thatgovernments, being the dirt bags that they naturally are, would not like theidea of not being able to print up as much money as it wanted, anytime itwanted, to spend on anything it wanted. But I'm looking at the TV screen and you can see by the expression on his facethat his heart has turned to some mutant, stone-like material like the stuffthat must be clogging up the arteries in his brain when he realizes that TheMogambo is out there, watching his every move, and it is not going to bepretty, because I am going to criticize his every word, deed and action,tearing his #### up every chance I can. And if I don't get any chances, then Iwill make up some lies about him that I hope will get him in trouble, and thatbrings up my brilliant Mogambo insight (BMI) that all our economic problemscould have been prevented if we had appointed someone younger to be thechairman of the Federal Reserve, instead of Alan Greenspan, who is a zillionyears old, and if we had instead appointed a YOUNGER Fed chairman, then I could call up his mother and tell HER what her idiot son is doing, and SHE could dothe rest for us! But one line that keeps ringing in my head is when Alan Greenspan said thatmaybe one reason why foreigners keep buying American debt is that our debt isso safe. Well, as far as getting money back and paid, then, yes, I guess it IS"safe." After all, as long as we have paper and ink, we can always print you up as many dollars as you like! And with electronic blip money, the creation ofmore and more money is even easier.But this is not the Mogambo definition of "safe," as my definition of safe isthat I am saving buying power, and I expect to get all my buying power back,with interest. For example, suppose that I am on my way to the army surplus toget that spiffy self-propelled cannon that I have had my eye on, when I amaccosted on the street by a guy who convinces me to take that money, "invest"that money in some American debt, and in a few years I get all my money back,and a little something extra to pay me back for the pain of having postponedthe gratification of consumption for those few years, and then I will haveenough money to buy the cannon AND a few rounds of that special ammunition that they keep in the back storeroom that they don't tell anyone about.THAT is how it is supposed to work, as interest rates typically are higher than both inflation and tax reduction added together. Nowadays, interest rates are,as hard as it is to believe, less that the sum of these two! People who areidiotically "investing" in U.S. debt are voluntarily losing purchasing power,because the dollars they get back after all those years won't buy squat!Hahahaha! Suckers! They are voluntarily making themselves less wealthy! That IS a conundrum! But as it is REALLY working, the chump who buys American debt will only get back enough money to buy half of a cannon! Hahahaha! So you havesuffered the pangs and regrets of postponing glorious, delicious, wonderfullysatisfying consumption, but you also lose half a cannon!In fact, Greenspan said as much! He said: "We can guarantee cash benefits asfar out and at whatever size you like, but we cannot guarantee their purchasing power." But he can! The Fed Chairman is guaranteeing less purchasing power byhis every word and deed since 1998! Ron Paul asked him whether a gold standard would prevent the government fromamassing such huge debts. Greenspan replied, " I think we have been remarkablysuccessful, in my judgment ... mimicking much of what the gold standarddoes... I think in that context so far we have maintained a stable monetarysystem." Hahahaha! What an idiot! His monetary system has ZERO is common with a gold standard! What does he think we are? A bunch of chumps that we don't knowwhat a gold standard is? Hahahaha! Then he REALLY goes bananas when he says, "I do not think that you could claimthat the central bank is facilitating the expansion of expenditures in thiscountry" Hahahaha! I am laughing so hard in contempt and rage I am spitting upblood! What a lying moron!Regards,The Mogambo Gurufor The Daily ReckoningEditor's Note: Richard Daughty is general partner and COO for Smith ConsultantGroup, serving the financial and medical communities, and the editor of TheMogambo Guru economic newsletter, an avocational exercise to heap disrespect on those who desperately deserve it.The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning andother fine publications. If you're inclined to read more, you'll find the whole Mogambo here:>>>>>
Mike Smith Rhode Island : Design / Build / Repair / Restore
I guess I'm just lucky as to where I was born. The great state of Maryland is host to many of the Fat Cats that spend your hard earned tax dollars like a Mall Queen. We also have alot of Military bases that bring in special people from around the world.... again being paid by your hard earned tax dollars. Well... Let me tell you this.... These guys spend some money weather it is on government projects or their own houses... doesn't mater. And it gets better.... These people have no taste. Do you have any idea what needs to be ripped out when the Peruvian themed basement homeowners gets shipped off to some other government project on the other side of the world.
This is also a great double tap market, those people that retire from the military then go to work for government contractors. Husband and wife retired teams are the greatest.
Sorry things are not so good elsewhere.... and don't even think about moving here.
Mike, I wasn't able to continue reading this guy. I can't follow because of all the mumbojumbo. If there's something worth paraphrasing, please do.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
no.. either you like greenspan bashing ... or you don't..Mike Smith Rhode Island : Design / Build / Repair / Restore
Mike, I don't mind intelligent bashing that makes valid points. All I was reading was some guy that didn't make sense that though he was funny. It was unreadable. I simply couldn't follow. It didn't make sense....kinda like listening to middle schoolers.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
blue.. of course it made sense.. as much sense as Gulliver's Travels
or Alice in Wonderland .. or "1984"
what you mean to say....is it didn't make any sense to you..
on the other hand ... i enjoyed the he*l out of it...
bet you didn't like "Fear and Loathing in Las Vegas " either....
( well, neither did i... except for a couple parts )
Mike Smith Rhode Island : Design / Build / Repair / Restore
The Mogambo Guru is an acquired taste. His writing style may irritate you, but his observations are usually dead on the money. For over a year now, Alan Greenspan has been warning anyone who cared to listen that the #### is going to hit the fan. He gave a speech in Europe last Fall where he stated that the Federal Reserve and Treasury would do "whatever was necessary" to ensure liquidity in the markets. In other words he's ready and willing to print mountains of money to bail out the banks and his buddies on Wall Street. In December he warned holders of variable rate debt and derivatives that their positions could be "wiped out" by sudden market moves. After watching and living through the dotcom bust only five years ago, I can't believe people don't see the similarities with what is happening now in China's overheated economy, and with real estate "investments" here in the U.S. Perhaps it's just easier to pretend everything is OK than to look at reality.
His writing style may irritate you
It doesn't irritate me because I didn't understand the first sentence, so I didn't continue at all. It was kinda like reading a foreign language...it's pointless.
So, the point of the guru is to warn us that Greenspan has been warning us?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"It was kinda like reading a foreign language...it's pointless"Listen to Alan Greenspan, or read a transcript of his testimony in Congress -- now _there's_ a foreign language! He has the uncanny ability to turn a simple, declarative statement into a Russian novel.But like it or not, he's "da man" at the levers of the U.S. economy until '06. He created the investment bubble that led to the dotcom bust in 2000, and he has set up the housing and bond markets for a similar fall with the dates still TBD. IMO, Daughty provides a valuable service by translating Greenspan for the benefit of regular people who don't speak centralbankereaze. Here are a few of MG's more memorable rants:http://www.investmentrarities.com/bestofmg05-26-04.htm
http://www.investmentrarities.com/bestofmg06-30-04.htm
http://www.investmentrarities.com/bestofmg10-26-04.htm
Blue,
I agree that the problems are far deeper than just Bush, In reality the problems started back in the 70's. Then the unions wanted to earn a wage that kept them solidly in the middle class. They saw the profits large corporations were earning and wanted their share. At that time Companies kinda had to bite the bullet and grant the wage increases that were requested and then came Japan.. With the low Yen to dollar exchange rate It seemed to many that the foreigners were not only cheaper but better than we were.. Companies began to go overseas.
A lot of Michigan companies packed up and went where the unions weren't and found to their regret that all of the cost concessions and right to work they got from southern states didn't offset the cost of new start-up, and the slower work pace of southern states..
They now looked to Mexico and Asia to supply manufactured goods. If you spend a lot of time and study the tax code politicians were happy to give them tax breaks to move overseas. (in exchange for campaign contributions) As Michigan lost industry after industry, it's economy worsened.
In addition to losing the income from local industry and the income from the jobs people had, They were forced to offer fantastic deals to company after company in an attempt to keep some people hired.. Thus the tax burden shifted from the corporations to the individual and since they were already paying a heavy share of the burden few were willing to relocate from a lower tax state to a higher taxed state.
Please note I didn't say it was a republican or democratic fault, just the fault of politicians. It's tempting to use the word greedy here but in reality it's our own fault. It costs Millions to run for a statewide office and thus politicians are forced to "eat their young" that is, grant concessions that hurt the state they represent , to corporations in return for contributions. It is now a situation where We have legalized bribery!
The real tax burden on corporations is so tiny and they get so much corporate welfare that it is criminal (especially when you realize that you are the one who's paying for all of this).
Oh sure, politicians run gun control and abortion and Homophobia around and talk a great fight but they won't do anything about it because they are the golden Eggs. Mention choice to a democrat and you'll get a campaign contribution and a vote, mention abortion to a republican and you get a campaign contribution and a vote. As long as the country is more or less equally divided nothing has to happen and each side can blame the other!
Frenchy...we agree!
Your take on corporate giveaways is particularly pertinent to Michigan. Each city fights to lower the tax burden in hopes of landing the company's new plant. The companies continue moving, seeking lower and lower tax burdens. Now our govenor faces serious shortages and is looking to restructure the tax burden AWAY from manufacturing.
I think, she thinks that us rough framers can absorb the difference. She musta saw a dollar hanging outta some framers jeans...
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Blue,
Don't blame your govenor, he/she/s probably trying to do the best they can with the hand they're dealt.
The problem is really ours. Few really care. You and I don't bother to read about what finacial tricks a politicain is going through to help a company and if we did since we aren't major contributors (or own a newspaper) the politican can simply ignore us. If we are persistant enough he deligates a staffer to give us some pabulum answer. (or bring our concerns to the senators attention....)
The senator/ congressman is busy trying raising money for his next election and since the real money comes from The wealthy, guess who gets the congressmans ear?
The real problem is those in power. while that's currantly the republicans (and they've held power since the 1992 election) it's been democrats in the past and it will be democrats again at some point in the future.
If you and I are going to have any real chance ]inm
Edited 2/28/2005 6:58 pm ET by frenchy
The real tax burden on corporations is so tiny and they get so much corporate welfare that it is criminal (especially when you realize that you are the one who's paying for all of this).
I've never understood this school of thought... ie: more taxes from corporations would equal less taxes for everyone else...
if you subscribe to this idea... then:
A. you have to thinks corporations will just have less profits.. and pay out/return less to their shareholders...
or
B. you have to to think... they'll pay more taxes so they'll raise prices to cove this added expense and everyone will pay more for goods & services...
either way... things cost a certain amount and people expect a certain return on their investment...
6 one way... half dozen the other
I'm in a state where there is no state income tax, but we pay over 9% sales tax... it doesn't matter where the money comes from... it takes a certain amount of money to run a state... I do think the sales tax is a bit more fair because no one ever addresses the huge population that works on nothing but cash... if it wasn't for sales tax they'd pay nothing...
just me on my soap box
pony
You have a valid point right up to the point where things get silly. You and I have to buy our stuff locally. The very wealthy can buy stuff where it is cheap (in the form of taxes) want a Rolex watch? Stop in a tax free country like Monaco. Want a Jet or a yacht? register it in Maryland. That Rolls or Mercedes they drive is leased to a corporation in Maryland and thus they paid no sales tax to drive it.. even the gas tax they pay is a deductuion for the corporation..
Blue if you leave Michigan before I do remember to turn out the lights
Thanks
Hey Dan sorry for your grief.
Doing battle with an environment is a pretty serious conflict. Two choices, stand your ground-or go to a more amenable environment. There's a huge shortage of skill in Florida-but of course you will need a reinforced concrete house.
I can relate, have been through 3 serious downturns here, one a couple of years back was the whole Saars, War-Coldest year on record in which I spent 80,000 on marketing for not. Never easy adjusting a business to suit a shrinking economy.
In every economic climate there are opportunities. I know a family locally that amassed all their wealth in the depression with tangible assets. Great chance to buy low in down times.
It is also the time to get creative and earn some all important good will-obtain the most skilled labor available-a la your friend working on the line. If there's a weak link in your work force, now's the time to replace them.
First rule in marketing-shoot while the birds are flying. Often when things are in a downturn, your marketing money loses you money.
Look at alternate activities which may be lower margin than you are used to but keeps the guys paid with a little in your pocket towards overhead.
These are the times that bigger companies have more to bleed-if they can adjust quickly they can really turn the corner and thrive when the good times come back.
Be careful, analyse your outlook and make positive steps towards sheltering yourself from pain in this critical time.
Good Luck Dan,
Lawrence
GardenStructure.com~Build for the Art of it!
This is an interesting post. I wonder what affects credit cards are having on our economy. I think people have become reliant upon them to float between paychecks and essentially raise their standard of living. When the card maxes out you just refinance your home to pay it off. But this has to stop somewhere and what happens when it does?
My understanding of the unemployment rolls is that once a person has exhausted their unemployment they are no longer considered unemployed by the statisticians. So it makes you wonder how many people dont have jobs now. How many people have accepted jobs they consider temporary due to low wages to make ends meet? How many people have jobs but their wages have been cut?
My wife has been hunting for a job for 3 years now. She makes $37K +benefits, has a bachelors, and is seeking a management roll. She has repeatedly lost job opportunities to people with far more experience who have accepted the positions for less than my wife is currently making. My mother is looking to work part time until my dad retires. It took her 6 months to find a part time job. Corporate retailers put up help wanted signs as corporate policy even though the job they have available may be in Alaska. She accepted a position as a stock room helper for $6.25. The furniture chain she worked for previously, @$16.00, closed all of their stores in bankruptcy.
If this isnt hard times I dont know what hard times look like. Its not the great depression, but would it be if we didnt have the social programs in place that we do? Is consumer credit keeping us from falling over the edge?
When the card maxes out you just refinance your home to pay it off. But this has to stop somewhere and what happens when it does?
That's the interesting question. The basis of the housing bubble book/thread was asking similar questions. There are a lot of market forces at work, continuing to drive the prices of real estate upward, when the economic conditions would suggest otherwise. The correction that should be occurring is being postponed.
I survived a very bleak mini depression in the early 80's and I don't look forward to the inevitable upcoming correction. I say, be prepared with cash, and keep your name off of big loans.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"I say, be prepared with cash, and keep your name off of big loans"Subsistence farming and a 12 ga. shotgun or two might be safe bets to add to your list.
I've been interested by this thread. Especially since my husband and I (we are in our late 20's by the way) are currently in the middle of remodeling (actually upsizing) our home. We are not doing this as an investment. We are doing this so we can live there, hopefully for a long long time (20-30 years) with kids and all.
That being said, by the time we are done building we will have a sizeable loan to our name. This will put us fairly close to our comfort level of mortgage payments (30 year fixed). But we never carry any credit card debt so I am hoping we will never have to borrow from our home to pay something like that off. (but never say never, right!)
So should I be worried? If we are not looking at this as an investment and do not plan on selling for a long time, then even though we will have a big loan, and as long as we keep paying it down over time, we should be ok.
I guess the problem would come if something happened like if we lost our jobs and were forced to sell. If home values had dropped then we could end up selling for less than we owe? Is that why you made the statement about keeping your name off of bigs loans?
-Kacy!
"That being said, by the time we are done building we will have a sizeable loan to our name. [...] But we never carry any credit card debt so I am hoping we will never have to borrow from our home to pay something like that off."A big problem in the U.S. is the lack of savings. People have been lulled into thinking that their house is a bank, and they can borrow magic mortgage money whenever they need some cash. Don't do it. Build up your savings to the point where you have at least 6-12 months of living expenses in cash or even better, CDs denominated in the currency of a sane country like Singapore or Switzerland. Buy some gold and silver coins (not bars). If the U.S. financial system goes the way of Germany, Brazil, and Argentina, and our paper money becomes worthless, you will be able to get by until the mess is sorted out.
I guess the problem would come if something happened like if we lost our jobs and were forced to sell. If home values had dropped then we could end up selling for less than we owe? Is that why you made the statement about keeping your name off of bigs loans?
Kacy, it was I that made that statement.
I think you've correctly identified the "problem"....losing your jobs. When you combine that fact with your other statment "This will put us fairly close to our comfort level of mortgage payments (30 year fixed)." then you begin to see a possible calamity. Only you know how stable your income is, so only you can determine what your "comfor level is".
It is my belief that we have been lulled into a false sense of security once again. My false sense of security was rocked to the core back in the early 80s following a cycle of high inflation and high mortgage interest rates (18%). In those days, I could drive from Sterling Heights to West Bloomfield, right through Troy and not see a single new house being built. Since I was a new house framer, I didn't have much work. If I had my name on a big mortgage, I would have lost everything.
So, my advice in the face of a looming down cycle is to have some cash.....enough to meet living expenses for a long time....6 months or a year....and be wary of putting your name to a big jumbo mortgage. You obviulsly have already started down the path of creating your big mortgage, so you have to do the other thing...build your emergency fund. Start eating hotdogs.
What business are you and hubby in?
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Hey Blue,
Good points and very similar to what our financial planner told us about a year ago. Set aside some money that you just don't dip into that will cover you for several months in case of a lost job / major health problems. So we do have some money set aside already so that's good (our back-up account). I don't know if it will cover us for 6 months though with the new house payment we'll have soon. At least not if we both lose our jobs at once! (We are both automotive engineers for GM by the way)
So here's another question for ya...We also have money set aside that we thought we'd dump into our house once construction was complete. Our thought was that we would pay down our mortgage so we'd have a smaller house payment and would be paying less interest on it as well.
But according to what you're saying, maybe we'd be better off keeping that money in the bank. We'd be paying more interest every month but if something happened (like GM goes under) we'd be ok for a good while.
Hmmm...we'll talk to our planner about it. We only talk to him like once a year. Maybe now would be a good time.
Thanks for your help though! It's a good thing to think about to make sure you're thinking everything through before you go do something you might regret later.
-Kacy
Yes it's possible to lose, however, do you really lock your kids up all day to ensure their safety? There are risks and if you understand them you can be prepared. No promise except that it won't be any safer or cheaper to do it in the future. Every year, every moment has it's risks. That's just the price of life!
Blue,
your approach is safe but foolish, here's why (IMHO) the real danger that is coming is inflation..
America always pays for it's wars with inflation and we will do so for Iraq.. During the Vietnam era we aquired about this level of debt and as a result had as high as 22%inflation..
At that level a two year old debt is being paid back with 50 cent dollars! If you were to buy a fixed asset that appreciates with inflation (like homes always do) then the mortage you'd pay it back with is costing you less and less every year in terms of spending power..
America's population is a growing. The amount of land is fixed, thus pressure to buy that land increase as the real value of dollars decrease..
You can stuff your money under the matteress (in a bank) but those dollars become worthless and less each year. if on the other hand you purchase an appreciating asset you stand to reap whatever level of inflation does to money..
"I say, be prepared with cash, and keep your name off of big loans."Blue, I know you're not a financial planner expert, but I'm curious: If our savings IS our 401K and investments, then I'm assuming by your comment we should be cashing out. But, if everyone did cash out now, then won't it cause the crash that you're (we're) so afraid of?Molten
If our savings IS our 401K and investments, then I'm assuming by your comment we should be cashing out.
Bad assumption Molten.
I'm suggesting that enough cash to pay all expenses for a semi-extended period be available. I'd also be leery about putting yourself on a large jumbo mortgage, especially if there is going to be an extended correction period.
Your 401k investments represent cash, rather than a liability, so you're in a good position. You might lose your nest egg due to market crashes and instability, but you won't owe anything.
If you want to capitalize on a crash, having cold hard cash will give you some awesome leverage. Of course, nothing supercedes knowledg of what to do with the cash....if you use your cash to buy consumer products, instead of assets, it really won't matter.
Incidently, I hate to sound so gloomy, but if you have a substantial amount of investments in 401k's then I think you owe it to yourself to read this book by Kyosaki:
Rich Dad's Prophecy: Why The Biggest Stock Market Crash in History is Still Coming...and How You Can Prepare Yourself and Profit From It! by Robert T. Kiyosaki, Sharon L. Lechter
Robert outlines a theory regarding the market's response to the baby boomer's entry into the age at which they are forced to liquidate their holdings. His premise is simply this: If we are forced to start selling stocks becasue of tax laws, who's going to be buying them? If there are more sellers of stocks, what happens to their values?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
I knew a couple who took early retirement in '99 with over $650K in each of their 401Ks, mostly in company shares. The telco industry was booming, how could they go wrong by staying with the stock that made them all that "money"? So they built a dream house in north Georgia, traveled, and looked forward to some happy times.By October of '00 the stock of that company had tanked, and they lost 1/2 of their paper wealth in less than two months. Now both of them are working full time again to try and salvage their retirement as best they can.I'm not suggesting people sell everything and buy gold coins to bury in the back yard, but a little diversification from stocks and real estate might be wise, because IMO it looks like economic history is about to repeat itself, 1930s style.
"By October of '00 the stock of that company had tanked, and they lost 1/2 of their paper wealth in less than two months."
I've had about 4 different replies types out ...
then realized each one could be picked apart by a skeptic.
the facts are ... the stock market keeps growing. Individual stocks go up and down .. but investing in the market" is a proven winner time and time again ... against any other option ... in any time line that's not immediate.
Your friends put all their eggs in one very short term/high risk basket,
their portfolio manager should have talked them out of that so close to retirement.
For the rest of the world ... that'd probably be a great investment.
but ... I don't hjave the energy to argue such matters ...
U wanna hate the stock market ... go right on ahead.
me ... I'm biased ... and base my uninformed opinion on biased information .... as my wife works inside the industry ... but all I can say for sure ... there's a ton of misinformation floating thru out this thread. I'll give th same info I give for the rest of this site .... I consider myself a building expert. Consult a building expert. I'm not a financial planning expert ... so .. here's a thot ... consult one of them instead of a building expert when it comes to finances?
Idgits ... the whole lot of ya!
Jeff
Buck Construction
Artistry in Carpentry
Pgh, PA
"their portfolio manager should have talked them out of that so close to retirement"What "portfolio manager"? That's the issue with most self-directed investment accounts and 401Ks -- there is no management. They honestly though they were being very conservative considering all of the wild dotcom investments available at that time. Most of their careers were spent working at AT&T -- what was more solid than T in the late '90s? Lucent Technologies supposedly inherited all of the goodies from AT&T when it was spun off in '96. As the Aussies say, no worries mate. Yes, they should have diversified their 401K -- hindsight is always 20/20. But what about people who own houses much larger than they need, or who've purchased a second home as an "investment" purely for speculation? Aren't they essentially putting all their eggs in one basket? Same mistake, different asset.I'm not sure what your comment "U wanna hate the stock market" is all about. The stock markets used to be places where companies raised capital and people made investments, and they're grand facilitators for both of those worthwhile purposes. It seems that lately far too many Americans see the markets as a way to gamble without going to a casino. They live paycheck to paycheck while pretending they're wealthy because of some numbers on a piece of paper from a real estate appraisal, or their 401K statement.
It seems that lately far too many Americans see the markets as a way to gamble without going to a casino.
That's just it ... the stock market is not a gamble. Over the long term ... it's been proven that investing in stocks gives the best returns ... the stock market hasn't gone down in my lifetime .. again .. over the long term.
The stock market is a long term investment.
Given the proper time and planning .... it's not a gamble at all.
I look at this subject much the same as when I sold cars ... "too many think-they-are experts" .... I'm not going to argue the point. Maybe I'm wrong .... maybe I been sold a bill of goods .... but I get my stock market info from one very highly held financial planner. According to him ... the market is never a gamble ... and is always the top earner.
I'm out.
Jeff Buck Construction
Artistry in Carpentry
Pgh, PA
And while it hasn't gotten to that point here it has become interesting for a new business owner like myself.
Where is here?
Today on my way to work I was talking to a friend of mine (Ex business partner). He was on his way to his one job for this week. When I left to get deployed I handed him one big account and two small ones. I warned him to keep the small ones. Even if he only did one or two day jobs a month for them. He didn't and now he wishes he had.
This guy isn't doing bad but he isn't setting the world on fire either. He's taken equity out of his house three times in three years. Twice to make payments to the ex and once for windows and a new (used) truck. The well is almost dry and the only real "savings" he had was the equity in his house. SO what's gonna happen to him?
I read the other day that Jan (or was it Feb) new home sales were down 9.9%. Having been there, and knowing how many small contractors are two paychecks away from selling blood to buy macaroni and cheese for the kids, that scares me.
I've decided to stay in my house for a few more years and build up my savings. Taking an equity loan (my first ever and the first after nine years in this house) to do some upgrades. Then I plan to stay here for four more. Wife is a nurse and I'm a government employee so were safe.
I know a bunch of people in the neighborhood we were just looking in that have no savings to speak of. When you ask them about it the just laugh and say they can always take money out of the house. What happens when they are unemployed and rates are a little higher. Kinnda hard to get a loan and pay a bigger mortgage with no income.
And that my friends is when I'll strike. One of those houses going for $350K when the owner paid $275K 3 years ago is gonna drop to $275K and I'll be all over it. Sound cruel? Yup. But it's not wrong to take advantage of stupid people who knew better and did something stupid anyway.