Christian Finance

Sell in May and go away?

There's an old adage on Wall Street: "Sell in May and go away".  It correlates to a general theory that markets tend to have downward trends throughout the summer months going through October and start moving upward in November.  History has shown some success with this methodology, hence the saying.  I had this on my mind for the past couple of weeks, and have been considering reducing my equities exposure somewhat - just in case it held true yet again this year.

Then I became aware of something very interesting: according to the Chief Investment Strategist of Standard & Poors, subsequent to each of the 14 bear market bottoms since 1932, the S&P 500 index has been positive during every May - October period.  Interesting technical indicator, isn't it! In addition, the month of April - with the S&P 500 advancing about 10% - made it the best market month since December 1991.  And since momentum begets momentum, it gives us some interesting food for thought.

Of course, all of this depends on your feeling of the market - did we hit a bottom in March, or is this just a 'dead cat bounce'?  As usual, only time will tell.  In a year or two from now, we will either look at this time period as one of the all time best periods ever to have purchased stocks - or alas, we just may feel foolish for being caught up in yet another sucker rally.  While you are pondering this, enjoy spring and all of the newness that it brings.  God has blessed us all in amazing ways - never cease to thank-him for that!

Our refinance story - Part 3

I received an email from our loan processor asking for certain documents that had previously been requested - I noted that in this entry.  It seemed a little odd, since I had mailed those documents to her last week, and here it is a week later and presumably they had not yet been received.  Anyway, she asked me to fax copies of them so she could go ahead and start processing the loan.

I did go ahead and fax them to her today, notwithstanding the fact that the originals should have been received by now.  Admittedly I am scratching my head a little bit - I mean, are they that busy that they just cannot devote adequate time to each of the loan files, the result being multiple requests for the same information?  

If that is indeed the case, I do hope that things start moving quickly.  The last refinance I did took about 3 weeks from start to finish, so it is beyond me why this one would be taking so long.  I hope that I do not lose the benefit of my locked in rate because of delays in processing.  I will keep you updated.

After Warren Buffett

Readers of my blog will know that I admire the investment abilities of Warren Buffett.  For those not aware, he is the CEO of Berkshire Hathaway, which is a multi-faceted company with interests in everything from Wells Fargo Bank, to Coca-Cola, and Dairy Queen to Geico Insurance.

Investors in Berkshire Hathaway have done very well over the years.  An obvious situation however, is the fact that Mr. Buffett is currently 78 years old and shareholders wonder what will happen when he is no longer with the company.

In an interesting tidbit of news today, Bill Gates - the retired CEO and founder of Microsoft - indicated that he made a commitment to Mr. Buffett that the culture and values of Berkshire Hathaway will continue after Mr. Buffett is no longer running the company.  I am aware that the two of them are close friends, so I am wondering just what the involvement of Mr. Gates may be.

Planning for the future is important, and I have absolutely no doubt in my mind that Mr. Buffett has done a thorough job of just that.  The idea that Mr. Gates may have some involvement in the future of the company is enticing and has made me wonder just what the future may hold for shareholders. Time will tell and we will just have to wait and see.

Note: For purposes of disclosure, I own shares in both Microsoft and Berkshire Hathaway.

 

The Worst Financial Decision You Can Make

My wife and I watched the movie Fireproof this weekend, and after watching, I was thinking about the theme of the movie and something suddenly struck me.  Before I get into that however, let me share with you my thoughts on the movie itself.  In case you’re not aware - this show has been out for a while now, so it’s possible that you may have seen it already - this is the story about a firefighter in a troubled relationship with his wife.  Through a forty-day challenge called The Love Dare (life imitates art and this is now a real book), he restores his love for his wife, and also commits himself to God.  It was all very touching and well written - I even enjoyed some of the firehouse scenes since I happen to know several firefighters.

Like I said, the movie got me thinking about divorce - not of course actually pursuing one, but considering its effects on a couple’s finances.  Let me be very clear: divorce is the worst financial decision that any couple can make.  Think about this in very simple terms: income stays the same, but it will now have to support two households rather than one - your standard of living is guaranteed to drop.  Enough said.

Of course, this doesn’t even start to consider the emotional and physical effects on you, your children, and your career.  Now I am by no means condoning that people should try to work through relationships that may not be salvageable - and this may be for very serious reasons such as abusive relationships, adultery, or one spouse losing their way with God and completely walking out on the other.

I have been married for 15 years now, and would be lying to you if I said it has all been easy.  Last year - I am obviously a little slow - I finally came to the realization that I have to be ‘all in’ if this was going to last for the rest of my life.  While that seems like such a small conclusion, it has taught me some very serious things about life - like how I need to be connected to my family rather than just my career, and how I need to make an effort to work through things even when I don’t want to.  Watching the movie this weekend reinforced what I had to learn all by myself through the years.

In conclusion, I sincerely ask you: if you are having problems with your marriage, please watch this movie, and encourage your spouse to do so too - preferably watch it together.  Pray for your marriage and be serious and honest with God about it.  Ask your friends to intercede for you so you will be able to be ‘all in’ and live up to the committment you made when you said your vows before God.  And don’t give up believing.  It is not God’s will for us to be separate from our spouses.  “...and the two will become one flesh.  So they are no longer two, but one.  Therefore what God has joined together, let man not separate” (Mark 10 : 8-9 NIV).

Is it safe to buy Ford?

On the same topic as my earlier posts on GM (see here and here), I wanted to discuss the Ford Motor Company today.

Earlier today, Alan Mulally - the CEO of Ford - announced that "we are turning the tide in North America". Not only is that wonderful news for both shareholders and employees, he also stated that Ford's production would be increasing by 25% in the second quarter this year!  That is a very positive comment on the state of our economy and of the automotive industry in Detroit.

Investors have been handsomely rewarded at Ford, with the stock going from about $1 at its low to close at $5 today.

So is it safe to buy Ford?  I would have no qualms whatsoever about purchasing a Ford vehicle today.  Not only is the company doing better, but they have had excellent gains in quality and now rank with Toyota and Honda in several quality surveys.  It might be time to go car shopping!

Job Interviews

Currently, we have an open position at my organization, so I spent most of my day interviewing candidates.  A standard question I utilize basically asks a candidate to tell me about a work related mistake, and how they would handle it differently if they had the chance for a 'do over'.  I am not particularly interested in what their mistakes are, but rather am looking for reactions to making errors and how they are ultimately dealt with.

Responses to this question vary widely - you would be amazed at the number of 'perfect' people who never make mistakes! - but today a young lady really impressed me with her answer. She was a relatively new employee at a bank and had certain responsibilities regarding the vault cash. As it turns out, one day the cash sheet balanced properly so she closed out the vault without first verifying the cash inside it.  Of course it turned out that some cash was missing.  She obviously made a mistake by not performing a manual count, but fessed up to her manager about her error. The bank inquiry showed that she did not have anything to do with the missing funds and she was absolved of responsibility.

I was impressed by her answer for several reasons.  First off, that is one doozy of an error - so I have to commend her for being honest with me about making such a large mistake.  Secondly, she handled it professionally, and learned from it, ensuring that this type of situation would not occur again.  Finally, since she was not held responsible for the loss, it reinforced my opinion about her integrity.

I am a very strong believer in admitting a mistake if one is made and at the same time, ensuring that I resolve it. Never stand back and expect someone else to deal with it. 

Two of the most powerful words in the English language are "I'm sorry".  Think about that next time you mess something up - and you will (we all do).  Taking responsibility for your actions is the right thing to do - and for that matter, I believe God wants us to do just that.  In turn, it will build your character and enhance your reputation as someone who is willing to grow and learn. On the flipside, I assure you that hiding errors will eventually catch up to you, and the results of that will not be as nice.

Why good stewardship is so important

The Federal Housing Financing Agency - which is a government agency that I had not heard of prior to today - has a mission of overseeing the the secondary mortgage markets within the United States.  This means they have certain oversight authority of major organizations such as Fannie Mae and Freddie Mac, as well as federal home loan banks.  All of these organizations are heavy into the residential mortgage market.

Today they released a report that had some interesting information in it with regards to why individuals default on their mortgages.  The top five reasons are:

• A reduction of income (e.g. a pay cut or the loss of a client for the self-employed)
• Having too much personal debt 
• Unemployment 
• Illness 
• Marital difficulties  

What is startling - especially in light of today's economic conditions - is that unemployment only affected 8.1% of the defaulting individuals.  Too much personal debt accounted for almost 20% of defaults - about 2 1/2 times greater than unemployment!

Regular readers will know that I stress good personal financial stewardship.  We have a temporary life on this earth and it is important that we oversee the resources that God has entrusted to us with integrity and responsibility.  And obviously, having too much personal debt (i.e. credit cards) is not being responsible.

The next time you are shopping and think that you just can't live without that new pair or shoes fancy electronic gizmo, step back for back for a second and consider how you are going to pay for it.  If it requires you pulling out a piece of plastic and increasing an already existing debt load, step back and think again.  After all, you don't want to be one of the 20% of mortgage defaults and lose your home over it, do you?  Of course you don't.  And God doesn't want that for you either.

 

Our refinance story - Part 2

Today we received the first packet of documentation from Wells Fargo regarding the re-fi on our home mortgage.  It is pretty standard stuff overall - disclosures, good faith estimate of closing costs, application, etc.

A couple of things caught my eye:

1.  There seems to be a lot more disclosures than I recall when we have done this in the past.  They even went so far as to include two glossy booklets on Adjustable Rate Mortgages and Buying Your Home. Unfortunately neither of these is applicable for us.

2.  In the "loan features" document, they outline several times of mortgages offered, including low doc and interest only.  Quite frankly I was a little surprised as I was under the impression that banks stopped writing these types of loans.  Again, neither one is applicable to us.

3.  The Good Faith Estimate is a very important document - if you are applying for a mortgage, take a thorough look at this page, since it breaks down an estimate of all closing costs.  Some things to take note of:

• Are there any loan discount fees (i.e. points) - the purpose of these is to lower the stated rate on your loan.  If you are going to stay in your home for greater than 5 years, it may be worthwhile to take advantage of this.
• Watch out for 'processing fees' and the like.  Often, these are just additional profit items that your lender will pocket.  See if these are negotiable.
• Make sure that there is an accurate calculation of your tax and insurance reserves if the lender will be holding these amounts in escrow.  Too low of reserves will lead to complications down the road when there is not enough money in escrow and all of a sudden you have to cough up hundreds of dollars to get it up to a minimum balance come property tax time.
  

4.  They included IRS Form 4506-T, which authorizes them to obtain a transcript of our tax return. This is the first time I recall completing one of these before closing - perhaps this is something unique to Wells.

5.  Likely the most important document in the packet is the Uniform Residential Loan Application.  Go through this form thoroughly to ensure it is both complete, and accurate.  In reviewing mine, I noted a couple of minor errors (e.g. they counted my American Express credit card twice for some reason).

6.  They also included a copy of our credit scores from Equifax.  There is nothing out of the ordinary here - although my score was 3 points higher than my wife!  Actually that just evens things out, since hers was a little higher than mine when we purchased our home a couple of years ago.

This massive amount of paperwork means my wife and I will be signing several documents tonight - I want to turn this around quickly and get it in the mail tomorrow to try to keep this process moving as quickly as possible.

If you are considering - or are in the middle of - refinancing, I strongly encourage you to look through everything thoroughly - you might be amazed what has been included (or omitted).  And turn your paperwork around as fast as possible!  I assure you that there are countless homeowners undergoing this process right now - you do not want to be stuck at the back of the line since you may be there for a long time.

 

Is it safe to buy GM - Part 2

I've been getting a lot of hits on my the entry Is is safe to buy GM?  While that post reflected primarily on the purchase of a GM or Ford vehicle, this one will focus on GM's actual common stock and whether it is a good investment.

Last month I indicated that it was my opinion that GM stock was a speculative play and that you shouldn't invest in it unless you were willing to risk your investment.  Since that time, the price of GM shares are down about 30%, and unfortunately not else much has changed.  The company is attempting to negotiate with its creditors and one proposal that is being floated would have GM bondholders exchange their bonds for shares in the company.  While this would take a large load off the company in terms of debt servicing, it would also severely dilute current shareholders.  Its net effect on share price would likely be negative to current shareholders, although there would be potential for gains if the company is successful in restructuring.

Today, the CEO of GM indicated that the possibility of a bankruptcy is increasing - especially if creditors are not willing to agree to concessions necessary to make the company viable going forward (e.g. a debt for equity exchange).  If this were to occur, then shareholders risk taking a large (if not complete) haircut on their investment.

So has my opinion changed?  To be honest, no.  I still believe that GM common stock is speculative and if you are willing to buy shares, be aware of the potential risks that you are taking - after all, great potential rewards do not come without risk.  Would I still purchase a GM vehicle?  My opinion on that has not changed.  With the United States guaranteeing the warranty coverage on GM purchases and any future restructuring likely resulting in a stronger company, I would have no hesitation in purchasing a new GM vehicle if I were shopping for one.

NOTE: If you are considering taking a position in GM, consult with your professional financial advisor first - this posting is my opinion only. 

Our Refinance Story - Part 1

Over the past couple of months, I have made several entries regarding refinancing at today's historically low interest rates.  One benefit of President Obama's initiatives on mortgages is allowing individuals who originally purchased their home with at least 20% down - but now find themselves unable to refinance due to lower property values - to refinance without the need for mortgage insurance. 

As I've detailed in these postings, in order to take advantage of this program, your mortgage must be currently owned by either Fannie Mae or Freddie Mac, and your new loan to value ratio cannot exceed 105%. Keeping that in mind, here's part 1 of our story:

We purchased our home a couple of years ago with a 20% down payment.  We were fortunate to get a 'good deal' on the home, but have still found that its value has declined about 12% since purchasing.  In the meantime, I have watched interest rates drop about 1% from our existing mortgage rate.  

After the President's plan was announced, I immediately starting researching the details.  I discovered that my mortgage was owned by Freddie Mac, which of course made me eligible. One problem for us however, is that Freddie Mac mortgages must be refinanced through the current loan servicer to take advantage of this program.

Anyway, Wells Fargo services our mortgage, and they have only recently started accepting re-fi applications under this plan.  I was fortunate to initiate the application earlier this week, and was informed it may take 60 - 90 days to close the loan.  They must be awfully busy!  It now becomes a waiting game for the next - and unknown - step.

I believe that the President's plan is a good one, since it benefits responsible borrowers who were innocently caught up in the financial crisis of the past year.  I am grateful for that, and looking forward to a successful progress and conclusion to this story.  I hope that your refinance story will progress well and that you too will enjoy the fruits of what a lower interest rate on your mortgage brings.