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Cheat Sheet Q & A:

Topic:  Interest Rates

I just turned on the radio and heard part of your commentary that discussed interest rates.  You seem to feel that, at some time, that interest rates must go up.  There is a very realistic possibility that they won't go up (or not by much as we are accustomed to) -- just consider Japan.  Seems like their "lost decade" is morphing into a "lost century".  Their rates have been at or near zero since 1996.  That's something you need to consider I think, because its realistically possible. 

Maybe not never but what if we follow Japanand have zero rates for another 20, 30, 50 years?  

They (Bernanke et al) have really painted us into the corner.  How do they start moving back to a normal economy (with non-zero interest rates) while avoiding mass economic destruction? 

Bottom Line:  This is a well constructed and informed question.  I have stated that it’s a matter of when interest rates go higher – not if.  The potential for rising interest rates is predicated on one very necessary ingredient – sustained real economic growth.  If the economy were to never sustain economic growth above the rate of population growth (about 2%) interest rates wouldn’t necessarily have to head higher. 

The core function of interest rate policy is to keep inflation under control creating a sustainable economic environment.  If an economy were to stagnate or actually deflate then we could see an extended period of interest rates similar to where we are and have been for the past few years.  So if you do feel that the US won’t pull out of this than yes – my premise that it’s not a matter of if rates head higher, it’s when could be incorrect.  Despite my frustrations with economic policy… I do believe that we will, at some point in the not so distant future, we will experience meaningful economic growth once again.

As to the second question (How can we break away from the Fed policy without economic destruction?)…  There are two facets to the Federal reserve policy:

• QE (Quantitative Easing or money printing as some call it)
• Interest Rate policy (currently at 0%)

QE will have to end regardless of what the US economy ends up doing over the longer run.  The water down of the money supply, at some level, will lead to hyper inflation and devaluation of the currency.  This is one of the reasons that the cost of everyday commodities from oil to food have been rising at a much faster rate than the GDP of the US.  It simply takes more US dollars to have the same buying power for commodities.  The bet right along by the Fed has been that if they turn around the two areas of the economy that led us into the Great Recession (housing and employment), it’s worth the negative side effects. 

Without question this action has aided housing and along with the housing recovery there is associated job growth.  The stock market which has grown used to the easy money and the “where else are you going to invest your money” factor is stands to experience a jolt when this stops as stocks are currently 21% higher than their relative historic values.  Aside from the stock market there isn’t likely to be a noticeable day to day difference with the overall economy when QE stops.  Onto rising interest rates…

Increasing interest rates isn’t likely to be a major issue when the Federal Reserve does decide to raise them.  The reason is that they’ll likely go about it very slowly.  Historically when raising interest rates the Federal Reserve has acted by 50 basis points (or .5%).  When the Federal Reserve does raise interest rates it’ll likely be by .25% at a time.  In other words the difference at the consumer level will likely be slight and slow. 

Over the longer run there can be benefits to higher interest rates.  Higher margins by loan companies, higher yield for fixed income investments.  Higher levels of spending by retirees that can once again used fixed income investments and feel more secure, etc. 

So I’d be concerned about the stock market’s short term performance with an end to QE and slowly rising interest rates but otherwise don’t anticipate any dramatic economic issues otherwise.  As for how high interest rates could go?  Well we’ve seen them as low as they are now and as high as 18%.  It all depends on inflation risk. 

Important takeaways from Friday’s employment report:

Bottom Line:  Friday’s jobs report wasn’t great.  In sheer numbers it wasn’t really good either.  What the report indicated though is terrific.  I’ll explain.

After a disappointing 2.5% growth rate to the economy in the 1^st quarter (though right in-line with my expectations), economists grew very pessimistic about the 2^nd quarter.  The average expected growth rate for the 2^nd quarter by an economist stood at 1%.  After Friday’s jobs report we know it must have been significantly higher than that in April.

A 1% growth rate indicates potential imminent risk of recession and it isn’t enough to create more than about 100,000 jobs in a month at the high end.  Friday’s report showed more than 160,000 jobs added in April and actually revised March’s number much higher from 88,000 to 138,000.  Both of those numbers indicate growth that’s around 2% and any monthly number above 125,000 is large enough to make some progress on the unemployment front.  So it’s not off to the races for the economy but it’s clear that the economy is pacing a growth rate that’s much higher than the 1% most economists were projecting and that we aren’t at near-term risk of recession.

1^st known fully functional 3D printed gun is here:

Bottom Line:  We knew the time would come when we’d have this debate.  It didn’t take long.  The first known 3D printed gun is here.  It was created by a 25 year old law student at the University of Texas. 

The aspiring lawyer has turned entrepreneur and is set to turn the national debate on gun control over the 3D printing.  The gun he’s created is fully functional and is capable of firing standard ammunition and varied rounds.  I mentioned he is an entrepreneur…

Cody Wilson has filed for a business lience allowing him to become a manufacture and seller of these firearms.  Should this occur (or really even if he doesn’t obtain a licence), we don’t have existing laws regulating these types of weapons.  They would be undetectable and sold without the existing regulation (back ground checks, registration, waiting period, etc.).  The gun control debate just became much more complicated.  If you’d like to see the gun click the link below (it looks a bit like a rudimentary toy gun).

http://www.forbes.com/sites/andygreenberg/2013/05/03/this-is-the-worlds-first-entirely-3d-printed-gun-photos/

Your 1 on 1 connection with Warren Buffet:

Bottom Line:  Many have paid big money to gain any access to Warren Buffet.  Whether it’s been $100,000 for a share of stock to enable access to the annual shareholder’s meeting or buying the annual charity auction lunch with the Oracle of Omaha.  Access hasn’t been cheap let alone free.  Until now.

Warren Buffet joined Twitter last week and you now have the ability to follow him.  His first Tweet wasn’t earth shattering, he said he was in the house.  His second tweet had a bit more to it as you pointed his followers to an article he wrote pertaining to the importance of women in the business world.

While you may never get Warren to address a question of yours, following him on Twitter does provide that possibility and it’s likely to be the closest you’ll ever be to him.  To follow Warren or just check out his feed click below:

https://twitter.com/WarrenBuffett/status/329993701524918272

You’ll know be able to buy Viagra direct from the manufacture online:

Bottom Line:  We could be on the verge of a prescription drug game changer.  As of today Viagra is available online direct from Pfizer.  Yes you still need a prescription but no you don’t need a pharmacy. 

To date, even if you’ve been able to order prescriptions drugs online, you’ve still had to buy through some sort of pharmacy.  Not today with Viagra.  Cutting out the middle-man (pharmacy) theoretically could reduce cost, saving you the cut the pharmacy gets with non-compounded drugs.  It’s unlikely that in the near future direct to consumer online sales will be the norm from manufactures but it’s now possible and it’s likely to be super popular for those discreetly looking for Viagra.

http://www.usatoday.com/story/money/business/2013/05/06/pfizer-viagra-online/2138155/

Young adults who do invest are more conservative than their parents:

Bottom Line:  Younger Adults are still less likely to invest in stock than their parents but for those who do there is a noticeable difference. 

Younger stock market investors are actually more conservative than their parents.  Only 31% of Baby Boomers identify themselves as conservative investors as compared to 43% of their kids.  Additionally younger stock market investors are more likely to be traditional “buy and hold” type investors rather than those who frequently trade the market. 

What’s interesting is that the philosophy of the kids could eventually lead to a market that’s more stable and with their returns being higher than what Boomers have become accustomed to over the past ten to fifteen years.

http://www.cnbc.com/id/100709396

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Cheat Sheet Q & A:

Topic:  What's the best password storage app for iPhone?

Bottom Line:  Today’s question is straight forward enough and so my answer will be short and sweet as well.  Hands down its 1password.

1password is so in sync with Apple devices you’d almost think it had been created by Apple.  1password sports the following features:

• Will generate strong passwords for you on demand
• Works on all Apple devices
• Uses iCloud to sync across all iOS devices
• Will generate secure passwords on demand
• Sync’s with Dropbox so you can store passwords to use on non-Apple devices and computers

While we’re on the topic of password security…  If you want to store passwords for a computer I recommend storing them on an external hard drive.  If you only plug in the external when you are accessing passwords, you’ll be super secure as your passwords won’t even be available online to be compromised.

If you have a question or topic you’d like me to address email me:  brianmudd@clearchannel.com

Here is the direct link to 1password:

https://itunes.apple.com/app/1password-password-manager/id568903335?ls=1&mt=8

EFF report on who keeps your info secure:

Bottom Line:  So what companies are serious about keeping your online info secure – even from the Government?  You might be a bit surprised.  EFF (Electronic Frontier Foundation) produces an annual “Who’s Got Your Back?” report.  The research rates companies in six areas of user info protection.  Let’s go through some highlights (or lowlights as the case may be with some).

Worst overall:  Verizon going 0 for 6

Tied for second worst:  Apple, AT&T & Yahoo with 1 out of 6

Best overall:  Twitter & Sonic.net – both 6 for 6

For the complete report click the link below:

https://www.eff.org/who-has-your-back-2013#executive-summary

Conscientious Capitalism:

Bottom Line:  I’ve enjoyed sharing the progress of the Panera Bread non-profit restaurants with you over the past two years.  To bring you up to speed.  Panera Bread has opened a series of restaurants that operate as non-profits.  They have the same menu options and same look.  Just an altruistic approach.

The non-profit versions of Panera Bread ask for a donation at the cash register.  No money is actually required to obtain a meal.  Anyone is entitled to 1 free meal per week.  Now if you’d like to make a donation you certainly can.  What’s been happening has been heartening. 

Those that can pay do and often pay even more than what full menu price would be.  Those in need of food obtain a meal.  Those who need additional food during the week can trade an hour of work at the restaurant into another meal.  It’s worked so well that one location has turned into many.  It’s also increasingly brand loyalty and driving sales as people feel good about going to Panera.  Meanwhile it’s a huge win for shareholders as well.

Over the last 3 years Panera Bread shares have increase from about $40 per share up to $178 currently.  This new model of conscientious capitalism is highly popular with younger demos and could be part of a corporate culture adopted by others in years to come. 

Mobile theft continues to rise despite new national database:

Bottom Line:  So a few months ago a national database was created so that when you report a smart phone as being stolen, carriers will know and not allow that phone to be activated.  At the time it seemed like a good idea to help prevent the growing trend of thieves racing down the road grapping smart phones from our hands.  It’s not working though.  Why?

Well smart phones that make their way across the border aren’t subjected to the US database and thus can be sold and activated to people in other countries.  That’s exactly what’s happening.  As a result the theft of smart phones continues to grow.  So the newest idea…  Back to the manufactures of the phones.

It’s believed that manufactures could implement technology into phones that could permanently disable them if they were reported stolen.  No word for any cell phones on that idea yet…

http://www.cnbc.com/id/100700503

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Cheat Sheet Q & A:

Topic:  Underwater with a variable rate mortgage

Help! We’re another couple who is way underwater with our house, but with a twist that I don’t think I’ve heard you address yet on your show. We moved to Florida right at the height of the bubble and bought a house here before our old place in Texas was sold. The only way we were able to swing that was with an ARM and a bridge loan.  Once we unloaded our (other) house, we paid off the bridge loan. Our intent from the beginning had been to refinance the ARM to a traditional mortgage once the bridge was paid off, but then the bottom fell out of the market before we took that step.

So, fast forward to now. We have no problem meeting out monthly mortgage payment since its interest only (we do pay extra toward the principal each month, too). Our interest rate is already at 2.75%.  Since we’re so far underwater our bank will not refinance to a traditional mortgage unless we make up that $100K+ difference. Our concern is that, at some point, interest rates are going to skyrocket again, and if they go too high we might not be able to afford to stay in the place. And, more distressing at the moment for me, there’s some remodeling I’d really like to have done to make the house more “livable”, but we don’t want to sink another $35K or so into it under these circumstances.  Is there ANY place we can go to refinance?  Any advice is appreciated!

Bottom Line:  You’re thinking is right on target.  You’re doing all of the right things:

• Paying extra towards principal
• Looking to refi to a fixed product at record low rates
• Not plowing good money after bad into an uncertain situation

In the meantime you may find some slightly better news on the value of your home than you may realize.  I’m commonly finding that Zillow’s values are commonly trailing the current market value for our local real-estate market by 10%+  So while you’re still likely underwater by a significant number, it’s likely to be less than what Zillow says. 

So to your question… You are a perfect HARP 2.0 candidate.   It was designed specifically for people in your type of situation (bought at the wrong time but have maintained current payments and want a better long term loan option without having to make up the underwater difference). 

HARP loans have been extended until 2015 so you do have time to take advantage of the program.  I know of multiple people that have been able to refi underwater mortgages in excess of 100k.  I’ll email you contact info for two companies I recommend for mortgages who should be able to help you find a HARP 2.0 30 year fixed option. 

If you have a topic or question you’d like me to address email me:  brianmudd@clearchannel.com

What's the downside of the stock market?:

Bottom Line:  So many did sell in May yesterday.  Will they stay away?  That clearly remains to be seen but I have been asked by several of my investment buddies what the downside of the stock market is after the rude May awaking yesterday.  So… Here we go. 

The best market barometer to use is the S&P 500.  The best comparative metric to use to judge value is the ole’ PE (price – earnings) ratio.  So…

The historic avg. PE ratio:

• 14.5

The current avg. PE ratio (as of yesterday’s close):

• 18.2

So…  Let’s say that the market deflates back to its historic norms the downside in that scenario currently would be 21%.  So should you expect that to happen?  Most likely not as long as the Federal Reserve decides to keep the pedal to metal with QE and 0% interest rates.  It is always good though to quantify risk before putting new money to work to ensure you’re comfortable with what the downside risk may be, so with that in mind, if you do put new money to work be prepared for a 21% loss if the worst case scenario.

Every member of Congress just got their own digital video platform:

Bottom Line:  So I know just what you wanted more of.  Members of Congress talking and available on demand right?  Ok so maybe not but YouTube has started a service that’s pretty cool and could be pretty informative. 

YouTube which has taken an active role in providing debates, key speeches and even candidate interaction with its users through it’s site over the previous two election cycles.  They are now making that type of service a permanent fixture. 

YouTube just enabled a channel for every member of Congress.  So anytime a member of Congress has something to say…  Well put it to video and post it on YouTube.  No FCC restrictions, no filter, so you could see how this could get candid and potentially very interesting…

http://www.engadget.com/2013/05/01/youtube-brings-live-streaming-to-congress/

A big part of the value in the markets - international interest that's exploded:

Bottom Line:  One of the biggest factors that keeps our stock market, housing market and even Washington spending rolling merrily along…  International investors.  International investors, governments and companies have brought a staggering amount of money to the US.  Ready… $13.2 trillion dollars.  By comparison the entire US economy currently produces $15 trillion per year.  Pretty impressive amount of foreign money.  And what’s the appetite for? 

• $8.2 trillion in debt

Stocks and real-estate make up a great deal of the balance.  Interest in stocks has increased 11% since 11% by foreign investors.  In essence foreigners think that despite our issues – we’ll get it right.

http://www.cnbc.com/id/100695176

Real unemployment rate:

Bottom Line:  So what’s the real unemployment rate currently?  The problem with the Government number is that it leaves out unemployed people looking for work once they exhaust unemployment benefits.  CNBC crunched the numbers yesterday and came up with a 13.8% current unemployment rate. 

We’ll receive the official Government number tomorrow.

http://www.cnbc.com/id/100691168

Decoding the Fed - what it means to you:

Bottom Line:  The Fed’s latest policy announcement indicates the following:

• They won’t raise interest rates for the foreseeable (at least 6 months in my view)
• They will continue QE (money printing at the current level,$85 billion per month, and could do more if they see the economy is weakening further)
• The Fed is unhappy with Congress

In other words status quo on interest rates for at least the next six months.

http://www.cnbc.com/id/100695681

Amazon takes a big digital leap forward for the blind:

Bottom Line:  One more before we go today.  Amazon is finally stepping up to the plate for the visually impaired.  If you’re interested – click the link below:

http://techcrunch.com/2013/05/01/amazon-adds-new-features-for-blind-and-visually-impaired-users-to-kindle-for-ios-app-coming-to-other-platforms-soon/