Monday, April 14, 2008

Savings, Debt, and Stupidity; a Nasty Combination

Solid 50 degrees here for the next 7 days. This kind of Sun and warmer air will start to wake the fish up! I am going to Jamaica the last week in April, and when I return the spawning season should be over. I do not bass fish during the spawning season as I feel it hurts the fishery to mess with fish while they are making and tending to the baby fish.

Wachovia Has Big Losses, Cash Infusion, and the Stock Went DOWN?
Today was one of those days where you are left scratching your head. Wachovia bank (WB) came out and stated their loss for this quarter (about $400 million), will be cutting their dividend (about 40%) and will be selling/diluting their stock to the tune of $7 Billion more dollars. Not too shabby!

Now if I was able to day trade, I would have been LONG this stock this morning in anticipation of the "Losses over, still has access to capital" mantra that has been the norm. As soon as the market opened up, WB broke out! To the DOWNSIDE? Almost a 10% drop, and the stock would close today down 8%.

Just what the heck happened here? I am not sure. Maybe the stories of more losses for the banks on the way has finally dented the bulls foreheads out there. Maybe something else. I thought today's event was both interesting and important.

Goldman Sachs On Fire
I am not sure there is a better firm out there than Goldman Sachs. These guys take no prisoners and even call for outright short selling! Today GS makes headlines with this deep, well researched, and timely call on the markets:
U.S. "awful" Q1 results could hit stocks: Goldman
By Caroline Valetkevitch
NEW YORK (Reuters) - Early first-quarter earnings are signaling an "awful" reporting period that is expected to send U.S. stocks lower in the weeks ahead, Goldman Sachs said in a research note on Monday.
General Electric Co's surprisingly weak results on Friday sparked a triple-digit sell-off in the Dow Jones industrial average raising fears that the credit turmoil has spread beyond the banking and financial sectors.
The news followed disappointing results from aluminum company Alcoa Inc which kicked off the reporting period a week ago, and from package delivery service United Parcel Service.
"Although only a few firms have reported (first-quarter) results, early signs are awful," said the note, which was released by Goldman U.S. investment strategist David Kostin.
"We expected generally disappointing results and a swath of lowered profit guidance that will drive the S&P 500 lower in coming weeks."

What is going on? GS is calling for stocks to actually fall when they do not even come close to matching wildly high earnings estimates? This is serious stuff here! GS is really upping the ante lately. There will be no place for reality based bloggers like myself if the mainstream thinkers start to use common sense! I feel I am at risk. I guess I could just do a fishing blog.

Savings, Debt, and Stupidity; a Nasty Combination
I was sitting at lunch today and the television in the cafeteria was on CNN. Around noon CNN has a show called "Issue #1" which usually centers on financial news and personal economic issues. They have a panel of "experts" and they do a Q&A session using viewer emails. I just so happened to look up at one point and was graced with what is easily the best example of why this country is in so much trouble I have ever seen. I dug up the show transcript today to make sure I did not imagine it. Here it is, viewer Mark's question in all of it's glory:

'Mark has a question. He asks, "I recently saved up about $20,000." That's good news. "Unfortunately, I have a little over $14,000 in credit card and medical debt. Eight of the accounts are in collections. Three are supposed to fall off my credit report by January 2009. Should I take my savings and pay off the collection accounts or continue to keep it in a savings account?"'

Oh Man! That has had me laughing hard for about an hour now. Mark has "saved" $20k by basically charging his expenses and not paying his medical bills. Mark would like to know if he should pay off the 15% plus interest rate credit card bills, or continue to earn a whopping .8% interest in a savings account. I swear this was on! Really it was! You can see the full transcript here if you do not believe me:
It is almost at the end of the show.

So what was the advice that Mark did get? Lets find out:
OK, I'm thinking this is a little bit of a no-brainer. Allan, go.
CHERNOFF: I'm begging Mark, why are you saving money when you've got all this credit card debt? Pay it off. Get it away from you. I mean, that's just such a common mistake. So many people feel, oh, it's OK to have this revolving debt. You're never going to earn that level of interest rate in a bank.
WILLIS: Right.
CHERNOFF: The level that the credit card charges.
GANDEL: I totally agree. But -- I'm sorry to cut you off. I totally agree. But I think -- and as you got this money, you can make a deal. You should go to the different creditors and say, listen, you see that I've got a bunch of debts, eight different accounts, but I got the money to pay you off. Let's make a deal. And I think if the person -- if Mark goes around and negotiates with each person, they might be -- he might be able to pay off that debt for $10,000 instead of $14,000.
WILLIS: All right. Well, that's a great idea.

Wonderful in every way. This is a gem of a find am I am glad to share it with you all. This poor guy Mark has savings confused with, well, not paying for things. Mark also has no idea how his debt is compounding at the card company crazy high rates. At least Mark called CNN for advice!

After that, I cannot top it tonight. Please pass this one along to others, it is a rare find! Please vote in the new poll as well.

Have a good night.

1 comment:

Anonymous said...

About the only good thing I can say about Mark is at least he had 20k. I wonder how many phone calls he's getting a week.

CROX blew up after hours -27%, love to watch MoMo's blow up.