In the wake of the Dubai news the FT mentioned some of the trouble happening in Greece. For ages I have been talking about being underweight big Western Europe for having a lot of the same types of trouble that the US has but I have not mentioned the PIGS countries before.
I'm not sure when that acronym first popped up but it stands for Portugal, Ireland, Greece and Spain. These countries have a lot of problems, potentially worse than France, Germany and the UK (the UK of course not in the EMU but still it has problems). In addition to everything else they struggle with the various requirements to be part of the euro.
I used to own Ireland and Spain and got lucky selling when I did. The story in these places changed and so selling became prudent. This is part of the process for selecting individual countries, occasionally something changes in such a way as to warrant getting out. This is a tie in to the need for more work when going narrower than some mix of SPY, EFA and IWM.
Yesterday I put up a quick note that DP World, the ports company that is part of Dubai World, appears to be traded on the pinksheets with ticker DPWRF (Schwab said they could not trade it due to custody issues).Part of the issue with selecting countries is trying to figure the best way in. The other day in the video from the basketball tourney I said that the ETF coming for Kuwait would likely be heavy in financials which might make the fund less attractive to hold.
At different points during the 2003-2007 bull market market it would have made sense to have exposure to this part of the world (note that for purposes of this conversation I'm not trying to pick one country over the others). In picking countries you can't buy the big bank for each country you like, you'd be hideously overweight financials in that case.
A few countries have publicly traded ports and certainly they are a way to capture what is happening on the ground in these places so a port as a proxy is, at a minimum, interesting. Looking a little closer at DPWRF there is a fair bit of debt that appears not to be problematic but the company owns ports all over the world including Djibouti (BTW "the capital of Djibouti is Djibouti") and without having made a day of it I am not sure what portion of their revenue and earnings actually comes from the emirates. The company might be an useful hold but perhaps not a proxy for the emirates.
A reader left a link to a post on his blog about withdrawing money from a portfolio in retirement using a "bucket" approach. As one reader pointed out in the comments yesterday the general concept is not new. I wouldn't quibble with it but it has more moving parts than I prefer for my wife and I. I used to word my idea as "whatever you got, 4%" meaning take 4% annually of the balance to live on, period. I changed that to "whatever you got; 1%" meaning take 1% every quarter. Paying yourself quarterly is more realistic than annually (don't think people would disagree with that) but the way I have been writing about it (and believe in) is not to adjust the withdrawal up for inflation. Hopefully the portfolio is "inflating."
If you have $500,000 today then maybe you have $540,000 a year from now even after you took out your $20,000. If you have less a year from now then you'd have to take less out which I realize is problematic but a lean year is better than running out of money when your 85 and healthy. Along these same lines I am a proponent of working as along as you can but not in a job you hate wishing away every week to get to the weekend.
I recently heard from an acquaintance of ours who is going to run into trouble with the mortgage on his investment property. His reset is going to be bad and he is not in a position now where he is viewed as being in trouble so he cannot refinance to prevent getting hurt when the reset occurs. I do not know the particulars and it would not be appropriate for me to say anything (not that I could add anything anyway) about this to him but it is a good reminder about risk taking. Reasonable risk is buying a rental property that goes unrented but being able to pay the full mortgage. Unreasonable risk is what our acquaintance has taken. The place is rented but the reset is not affordable. Using leverage incorrectly can be ruinous, that cannot be stated enough.
8 comments:
" he is not in a position now where he is viewed as being in trouble so he cannot refinance"
This doesn't make sense. The main reason a buyer would fool around with a time-bomb loan was the expectation they could refinance before the reset and if they are not viewed as being in trouble then they can refinance.
Or do you mean your acquaintance is in trouble but isn't in default or in contact with loss mitt yet?
there is no 'problem' until the reset. the house is underwater so no refi.
Banks will play hardball at first and usually not make a move to adjust the mortgage terms unless the owner is persistent and firm on the matter. Remember that the person representing the bank at the initial point of contact ia
trained to say "no" in many different ways.
After the first few rejections, insist upon talking to a supervisor about the matter. Do not pay the mortgage for a month or two and see what happens while continuing the dialoge.
Generally terms, especially on rental property, will be modified. The bank does not want another foreclosed property on the books.
Since almost 70% of modified loans are going belly up again (October stats), the bank will likely be pleased that your friend has sufficient income to pay a modified mortgage. And, the smarts to walk away if the bank does not cooperate.
Three other ideas: The bank should be offered a Deed in lieu of foreclosure (good bargaining tactic). Or, sell the home on a Lease/Option plus taxes to a qualified and gainfully employed buyer who has a good credit score and income that cannot get financed by a bank due to enhanced stips in place at this time. The payments should cover the costs plus taxes.
Or, negotiate with the Bank to approve a short sale.
I used to be ethically against these type of tactics. However, so many are using them - or just walking away from the property - that the stigma is not what it once was.
Even worse, for more than a few of my acquaintences, stiffing debt has become a talking point and badge of honor.
1. A deed in lieu doesn't protect the bank.
2. A "qualified" buyer isn't going to fall for the lease-option scam. That would favor a unqualified buyer who can't get FHA financing.
3. A short-sale is very ethical. However, the bank will probably demand that the seller sign a promissory note for the deficiency.
8:58 AM. Your comments are disgraceful, but the sentiment is way to common. Welcome to the Obama Era; the country is doomed.
Hey, let me try...
Dog threw up in the house..damn that Obama
Neighbors leaves blew in my yard...Obama's fault
Grocery store is out of spinach..Obama caused it
Guitar is out of tune...must be Obama
Giants lost to Denver...Obama, Obama, Obama
If I get another kidney stone - I know who who fault it was...
Larry has three good points.
My three cents worth:
Using a Deed in lieu of foreclosure tactic lets the bank know you aren't just another iilterate deadbeat. Larry is correct with his statement that the bank is not protected. My real estate friends tell me that the more crap you throw at the bank, the more apt they are to eventually take your "deed" seriously.
There are more lease/options going to folks with credit scores in the 600s with verifiable income because they either don't have the 20% down or the increased stips have locked them out of home purchase.Or both. I have done a few straight deals with 10% down to credit worthy/income rich individuals. Usually, the sale with me or my company being the bank will serve to season them up for a conventional loan in 12-24 months time. Having a bank loan officer working hand in hand with the buyers to give them hope (and to gain future business) in this transaction is very helpful.I agree with Larry that the lease/option has been a borderline criminal transaction. It still is if honesty and ethics take a back seat to greed.
Short sales work best, imo. Depending upon the state,sellers are obligated to make up the difference unless released by the bank. In others, they do not. Banks I am working with are generally forgiving to the seller on a short sale after several months of give and take. Bankers are not by nature residential real estate investors, and they are often feeling ripped off by brokers handling their foreclosed properties (selling to friends, high fees, inattention to maintaining the property, poor personal sales presence,etc.).
Larry has a pretty darn nice blog and is well versed on real estate matters.
T
One way to contribute to this dicussion, though, is to add a little social trend analysis. (I tend to look at the bigger picture anyway.) If the market continues to act like Oprah's ratings, then we are in trouble. There seems to be a connection between the TV "star" and the market "star." in regards to social trends. I posted some of the article below and the rest you can find here: http://www.graspthemarket.com/articles/20091125a.php
An interesting part of the Tribune article was a graph that showed the average daily viewership slipping from approximately 9 million in 2005 to 6.2 million in the beginning of 2009 (the graph only showed 2009 as a single point, not month to month). That is a drop of about 31%. The Dow Jones Industrial Average was trading at about 10,500 at the beginning of 2005, and hit a low of 6,469 in March of 2009. This is a drop of about 38% during that time period. Both percentages are very close to each other. Is there a connection? I think there might be.
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