70% Chance of Recession

I've previously written about the "Wisdom of Crowds" and yesterday while reading about the upcoming Florida Presidential Primaries, I found a very interesting website: In-Trade, the "prediction market".

This site allows you to buy or sell the outcome of a particular event-- anything from the amount of snowfall in Central Park to the date someone wins the Google Lunar Prize X.

The bidding prices range from 1-100, or ($.01 to $10). The "last price" also indicated the % likelihood that the event will happen. For example, one of the most traded financial predictions is "The U.S. Economy in Recession 2008". It is currently trading at 68.0, or almost 70% chance that there will be a recession this year.

Has anyone tried this service before? Or has anyone found it useful in correctly predicting the outcome of an event a year in advance? I certainly doubt it's a crystal ball, but it is an interesting view into the minds of the "crowd".

For me, a recession means that I will get to buy some funds at bargain prices-- nothing to change in my investment strategy. How about you?

Housing Slump: 12-year Low!

12-year low. That's what WSJ.com is reporting is the rate of new-home sales in the U.S. in December.

The U.S. Census Bureau and Deptartment of Housing and Urband Development (HUD) just released this press report, reporting:

An estimated 774,000 new homes were sold in 2007. This is 26.4 percent (±2.5%)
below the 2006 figure of 1,051,000.

That's 41% below the estimate that they put forth one year ago at this time.

No wonder the market has been reacting as it has.

Frugal Hawaii?

The New York times has an article today on vacationing in Hawaii "on a dime." At first, this seemed to me a paradox-- frugality in one of the most luxurious spots in the U.S.?

But, as I read, it sparked a real thought-- frugal people can reward themselves, travel can be a rewarding goal to save for-- and yet it so easy to "let go" of your purse strings and vacation from frugality while on a trip. Perhaps being frugal on vacation is even more important (and difficult) than in your day-to-day life. You can blow a lot of cash in Hawaii.

The writer actually had some experiences that sounded fantastic. I am a big hiker/nature lover; hiking is always free (even in Hawaii)-- and his experience sounds breathtaking:

I put down my backpack, put on my trunks and eased myself into the water. Then I swam over to where the falls hit the surface and stared up at the little droplets that showered from the rocks above. Somewhere beyond them was a sky bluer than the ocean, and in that sky hovered a dot of a helicopter, ferrying visitors around the island on tours that cost hundreds of dollars.

It made no sense to me: Why come all this way for Hawaii’s natural beauty, only to spend extra to distance yourself from it?

Next time I'm in Hawaii, I'm going hiking.

What about Subprime Insurance?

It seems like for the last year, all I've heard about on the national public radio news has been developments around the 'subprime mortgage crisis' in the U.S. For example, JP Morgan has been"bruised but not battered", Merrill Lynch writes down $23.4 billion, Citigroup does the same, and they anticipate laying off 24,000 employees. There are other problems, and the repercussions have been seen in the last few months in the stock market.

Then, yesterday, I got our annual mortgage statement. I was happy to see the amount of prinicpal I've "paid myself in equity", and assuaged at the fact that the interest payments will offset some taxes this year. Also listed were escrow payments and hazard insurance [maybe I'll write about them later]. But, the thing that struck me the most yesterday was my PMI payments. I pay about $50/month for "primary mortgage insurance. (This is something you pay until your equity reaches 20% of the total mortgage amount). It is used to protect the bank in the event that you can't (or don't) make your monthly payments.

The question that entered my mind is, "If everyone is required to pay PMI, how could there be such a huge mortgage crisis?" If a bunch of people are defaulting on their payments, aren't the lenders collecting insurance payments instead? Were the PMI requirements being waived by lenders as well as credit checks and proof of employment, etc?

If so, that's just plain crazy.

3 Reasons Employer Benefits Are More Important Than Your Salary

I got lucky. The job I got right out of college has great benefits. Truthfully, I was clueless and didn't even consider benefits as a factor in deciding to take the job. But, like I said, I got lucky. I had no idea the intangible and monetary value of employee benefits.

Below are three employer benefits and the reasons they should weigh more heavily that salary in your decision to take employment:

1. Healthcare costs are sickening

Feel sick? Just wait until you see the bill! According to U.S. News and World Report, healthcare costs are still on the rise:

Health insurance premiums rose more slowly in 2007 than at any other time since 1999, but the 6.1 percent increase still outstripped the rises in workers' wages (3.7 percent) and inflation (2.6 percent).

In 2004, workers on average contribute $2,661 of the $9,950 cost of premiums for family coverage. This year, a Kaiser survey found that the average family health insurance policy cost $12,106, a 78 percent increase since 2001! The fact of the matter is, you just can't afford insurance without an employer sharing these costs. If your policy costs $12,000, it's likely your employer is footing the bill (or leveraging down) $8,000 of that!

2. Timeout or Timeoff?

You can't overstate the emotional value of taking time off, getting away, and relaxing! BizJournal reports that people aren't taking the vacation they need and deserve:

More than 574 million well-earned vacation days will be more likely spent in the office, instead of the beach . More than one-third of employed U.S. adults (36 percent) report that they felt better about their job and were more productive upon returning from vacation.

Not only that, but based on a $75,000 salary, 3 weeks of vacation, plus 2 personal days and 3 paid holidays is worth $5,760. Add into that 2 weeks of maternity/paternity leave, and it can be worth up to $8,500! Some employers will also allow you to "buy" additional weeks of vacation, or go on unpaid sabbaticals or leaves of absence.

3. Fitness for Free

Ask to see the gym. Even if they don't have a fitness center, many employers will reimburse you for your memership to the local sports center. My employer even has a couple of trainers that will assist you in your workout, and are there full-time to hold yoga classes, pilates sessions, and instructions for weigt-lifting. If your employer is smart, they will know that you are more productive when you are fit and get the exercise you need.

Google apparently gives massages to their employees Talk about fitness benefits! (And don't forget their stock options-- see Bonnie Brown). I would say I have never received a massage at work, but then I remembered: they brought one of these massage capsules in for our "fitness fair" one year. Very nice.

Monetarily, $40/mo. for gym membership equals another $500 per year that is not included in your salary.

I will be writing Parts II and III in a later post, but in the meantime, this link gives a good listing of some other considerations you should research when accepting the next job. Remember: Never underestimate the benefit of benefits!

AMT exemptions raised - hooray!

Congress did two major things yesterday: they passed a $555 billion spending plan that keeps the government running and the funds flowing, and they also increased the amount of income that is exempt from the alternative minimum tax (AMT). They changed this as a fix-- previously the law did not account for inflation and so more and more people were being sucked into it's grasp. The change does several things:

• Spares 25 million more people from paying AMT (good).
• Increases the national debt by $50 billion dollars (bad).
  
• May cause delays in 38 million refunds due to IRS programming changes (bad).

The exemptions for individuals goes from $42,500 in 2006 to $44,350 in 2007. For married couples, the exemption amount climbs from $62,550 to $66,250.

This article gives more details on the change. This site provides great information on the AMT.

I think this is great-- although my income is nowhere near where I would have to start paying the AMT yet, it definitely felt like something I would have to face in the future, especially as it was creeping toward the middle class. The downside is, of course, that they did not offset this tax by increasing taxes elsewhere or reducing spending. Anyone have other thoughts?

ING Direct Joins Forces with Sharebuilder!

I am an ING Direct customer with several accounts, mostly just CDs and high-interest rate savings deposits. Today I got an email from them saying they had acquired Sharebuilder
and would be including stock trading as part of their newly joined services. I logged onto the site and this is the format: Home, Accounts, Trading, Research, Education, and Banking.

For purchasing stocks, you have two options: "Automatic Trading" and "Real-Time Trades". For Automatic Traiding, you can pick stocks, set up a schedule, and set up an account to transfer funds from each period. The Real-Time trading option lets you made stock purchases or sells whenever you want for $9.95. To get the reduced price of $4, you need to participate in one of their "programs". Below is a chart of your options: Basic, Standard, or Advantage.

Basic: "Our entry-level program is designed for new and less frequent investors. Pay only $4 for each scheduled investment and no monthly subscription fee."

Standard: "For more consistent investors, you can make 6 scheduled investments for $12 per month. Plus, get unlimited access to valuable investing tools." ($2 per trade).

Advantage: "Offers our best pricing and complete access to all our investment tools. Make up to 20 scheduled investments per month for $20 – that’s just $1 per automatic investment!"

So, just after my post on Zecco, this comes up and I wonder if it's a better option. For me, the advantage would really be not setting up another brokerage account, but it looks like I would still have to setup the Sharebuilder portion of the account. The automatic investments would be nice for some people, but our family "automatic saving" is done through my 401k at work. The whole reason I want access to stock trading is to do "experimental" buying and selling. Buy low, sell high and all that jazz...the exciting stuff.

I think for now I will keep looking...anyone have thoughts about whether they plan on using this?