Terry Savage

Do "Personal Bankers" Help -- or Hurt?

Wed, 14 May 2008 09:41:33 -0600

My column this week http://www.suntimes.com/business/savage/943998,CST-FIN-terry12.savagearticle
talks about the products offered inside banks that are not FDIC insured.
The term "money in the bank" now seems to refer to a wide range of products being sold to people looking for higher yields -- ranging from annuities, to unit investment trusts, to other securities -- none of which are FDIC insured against loss.
Yet because they are sold INSIDE a BANK and by "personal bankers" -- many people don't recognize the risks in these products.

I've heard from both sides! Check out these comments and add yours!

Mortgage Mess Questions

Mon, 05 May 2008 10:59:21 -0600

Is the media getting "bored" with stories of people being foreclosed, evicted from their homes, because of sub-prime mortgages? Have we stopped asking questions about blame -- and just given the banks, Congress, the mortgage brokers, a pass on this one? I posted questions in today's column: http://www.suntimes.com/business/savage/931350,CST-FIN-terry05.savagearticle
What do you think?

Is College Worth the Debt

Tue, 29 Apr 2008 07:18:54 -0600

My column this week asks IS COLLEGE WORTH IT?
http://www.suntimes.com/business/savage/918870,CST-FIN-terry28.savagearticle

When you think of the huge debt that many students -- or their parents face -- upon graduation, you really have to ask whether it's worth it? Not that education isn't worth all the money in the world -- but that you have to pay it back over 20 or 30 years, at a relatively high interest rate and a huge monthly burden compared to what you can earn because of that education! What do you think? Can you think of alternatives?

Do We Need Regulatory Change?

Mon, 31 Mar 2008 11:30:12 -0600

Financial services regulation is a mess! And a lot of businesses would like to keep it that way! Banking institutions have from 3 to 5 regulators, insurance companies are regulated by individual states, the SEC has been ineffective in monitoring "over-the-counter" transactions that are not defined as securities. And all those "cracks" offer profit-making opportunity. But they also create unmonitored and unmeasured risks!

I've often said: "The only thing worse than a financial problem is the government deciding it has the solution!" But . . .

Have a Personal Finance Question?

Mon, 31 Mar 2008 09:03:24 -0600

If you'd like me to answer your personal finance question, please send it along. I'll delete your email address, and use only your first name. Only questions of general interest, please. I cannot give individual stock recommendations!

Kids vs Cars -- Which costs more?

Tue, 25 Mar 2008 15:15:37 -0600

I received the best press release of the year from Edmunds.com -- a comparison between the cost of kids, and the cost of keeping a car!
Their press release comes as the government releases a report showing it costs an average of $11,337 per year to raise a child for 18 years. What do popular cars cost per year? You might be surprised at . . .

What's Ahead: Deflation or Inflation?

Sun, 23 Mar 2008 18:00:53 -0600

As you can read in my column of Monday, March 24th, there is a strong conviction on the part of many experts that, in spite of all the liquidity the Fed is creating, there is still a great possibility of DEflation. What IS deflation? Something that few Americans have lived through -- a decline in the value of assets. That kind of decline makes the burden of debt even greater. And it creates an economic slowdown that challenges our ability to grow our way out of our troubles.

The best example is Japan. Their real estate bubble burst in 1990, and has not yet come anywhere near its previous levels. Their stock market is measured by the Nikkei 225, currently trading at 12,500. That's far below its peak at 40,000 in 1990. So the question is a very real one: Can the Fed do a balancing act between creating liquidity to prevent deflation -- or sparking inflation down the road? What do you think?

Bear Stears WAS a bailout -- not for Shareholders, for the System!

Mon, 17 Mar 2008 16:30:10 -0600

The Fed has put their money where their mouth is! They've been saying they wouldn't let the financial system fail, even if they had to reduce interest rates and flood the system with liquidity.
That's what they did over the weekend, and will continue to do tomorrow.

Media commentators are calling it a "bailout." It was, sort of. But not a bailout for Bear Stearns. Their employees and shareholders took a huge bath, equity wiped out. Most were required to take some compensation and all bonuses in stock. They used their "wealth" to buy expensive houses in Manhattan and Westchester. Now the mortgage mess will come home to them! What's the monthly payment on a $6 million mortgage?!

But make no mistake. This wasn't a bailout for Bear -- those it definitely WAS a bailout for the system!

Bailout or Not?

Sun, 16 Mar 2008 13:01:00 -0600

Interesting discussion setting up on this blog --
a) Forget a bailout -- these people, and financial institutions, got themselves in trouble because of their own greed, so don't bail them out, let the free markets work it out, and
b) This mortgage mess threatens our entire financial system and economy, so the government MUST do something!

I must say . . .

FED Bailout helps Banks, not Homeowners!

Wed, 12 Mar 2008 08:39:52 -0600

The stock market was overjoyed -- the Fed is making an extra $200B available to banks and financial institutiosn, hoping that liquidity will make them more likely to invest in mortgage backed securities. The idea is that with more investors for the paper, the institutions will be more likely to make mortgages in the first place, and at lower rates.

BUT . . . what about homeowners who are facing foreclosure? It will take months for this new liquidity package to float through the economy. And during those months, the foreclosures will continue to mount! And the headlines will continue to remind other consumers that the economy is in precarious shape. That worry destroys confidence, and consumer spending!

The stock market liked the move, for sure! But stocks don't question why the liquidity is there to buy stocks; stocks just move higher because buyers are willing to be aggressive, pushing prices higher. In fact, for a time stocks should definitely benefit from the liquidity that creates inflation -- because while the value of the dollar declines in inflationary times, stock prices can rise -- thus becoming a hedge against inflation.

But just look at interest rates, gold, and oil!

Mortgage rates on 30 year fixed rate mortgages have risen from 5.5% in January to 6.03% last week -- because the banks weren't lending. Now banks will start lending again. But mortgage rates are set by long term Treasury rates, which are set at auction. And there will be a lot of worry about committing to buying long-term treasuries in the face of potential inflation.

The old mantra of the successful investor has always been: "Don't Fight the Fed!"

Now the Fed is doing everything possible to drive interest rates down and flood the market with liquidity. They'll likely cut short term rates at least 50 basis points, or more, next week.

But the U.S. is deeply in debt -- $9 TRILLION -- which we need to borrow to keep our government afloat. Who in the world will lend us that kind of money, at lower interest rates, in the face of massive Fed intervention to create "liquidity" (inflation)?

The gold market, and oil -- which is priced in dollars -- are telling you the world isn't so happy about the Fed's actions, even though the U.S. Stock market rallied.

And worried homeowners, who find themselves without equity to refinance as home prices drop, might not own those homes long enough to benefit from the inflation that will ultimately push prices of assets higher. That's the Savage Truth!

Welcome to my blog

Thu, 06 Mar 2008 16:17:47 -0600

Hi, and welcome to the very first entry in my new blog! My goal is to stimulate some discussion about what's going on in the markets, and about government policies that will impact all of us.

Let me start by posting the last few paragraphs of my column today. It has already brought some emails, and I've asked those people for permission to post some of their comments.

In the future, please go directly to my blog and I'll be interested in hearing your thoughts. With travel schedules permitting, I promise to be there at least a couple of times a day! Many thanks -- Terry