Financial

We're on the cusp of finishing up a 20% drop in the stock market indexes from the highs set last October. That point marks an official bear market, not seen in 6 years. Historically, a bear market happened about every 3 years on average and lasted for 6-8 months. Whether we're at the bottom or not, is anyone's guess. Mine is that we're not. Credit will continue to tighten, interest rates will remain steady, and inflation will not moderate.

Throw in an Israeli air strike against Iran and say goodbye to any shot at getting oil prices to steady...

The price of a barrel of oil closed at $123.53 today, once again, a new record An analyst at financial firm Goldman Sachs said oil prices could continue to rise to $200 per barrel within the next 2 years. At $200 per barrel, expect gas in the U.S. to average around $7 per gallon. Is it any wonder American automobile manufacturers are suffering after pushing SUV's for the last several years?

If you are an online merchant and offer an affiliate program, beware. New York State has drawn a line in the sand. You have until June 1st to register with the state and begin paying sales tax for sales made to residents of New York, or you risk a comprehensive audit and assessment for back taxes.

Historically, online retailers were only responsible for sales tax payments for sales made to people in states where the retailer had a brick and mortar operation or employees. New York is arguing that in this case (they're going after Amazon, big time) affiliates are employees and thus Amazon has a situs in New York. I would argue, and I'm sure Amazon's lawyers will, that affiliates are 1099 workers. 1099's are essentially contract workers paid for a task, but are responsible for their own payroll taxes and benefits. As such, they are not employees.

Note that this currently only applies to merchants with an affiliate program, but if the current court case is decided in New York's favor, look for a multitude of other states to follow suit.

For more information, and angry reader comments, check out Mike Sachoff's article on WebProNews.com.

Ok, I'm not advocating the hoarding of food and materials, but it is scary when American retailers begin to ration items. Gas in the 70's, a whole mess of goods during WWII, and today - rice. Reports vary, but it appears that the U.S. isn't exporting near as much rice as it has in the past, and other countries that used to be heavy exporters of rice are now exporting less.

The result? Well, for Americans it means higher prices for rice and other grains. For developing countries, it could mean famine. We're talking about a staple for more than a billion people in the Far East.

The reasons for the shortage are hard to pin down. We are converting more of our crops into renewable energy. Many places that regularly grow rice are either experiencing flooding or drought. Investors, in the search for profitable investments are pouring money into commodities (everything from gold, lumber, corn, and yes, even rice). The elimination of protective tariffs have caused a shift away from the growing of certain crops that could be purchased cheaply elsewhere (and when the foreign source dries up, it is difficult to switch back to growing it themselves).

All in all, this is a serious world development and could have a big impact on world events over the next few years.

I took some time away from blogging and the Internet recently. So what's new? Oil prices are way up, lending is way down, the Democratic nomination fight is still going on. In short, not much!

Actually, a number of articles have caught my attention recently and warrant further analysis. Stay tuned...

It's no secret in today's economy, when you need a loan or financial assistance, it's the wrong time to be looking. For those with marginal credit, the task of renegotiating terms with your current lender is daunting. Have a high interest rate? Your situation needs to have changed substantially for the better before you even consider asking your current lender or creditor for a lower rate. The reason? You have few options available to you, and your lender knows it.

It's all about profit. Why should a creditor or lender make terms more favorable for you as long as you are making your payments, and can't qualify for a better product elsewhere? You're paying a higher interest rate than they might offer to a better qualified customer, and you're stuck. Fall behind in your payments and your lender might work with you...but at that point you are truly at their mercy, as your credit is wrecked and you are really trapped. The workouts arranged in this manner serve to keep you in your home, and to keep you paying.

What can you do? If you are able, simply working towards paying down your debt can do wonders for your credit score. Consider changing products. Have a home equity loan, consider a mortgage. Offer up additional collateral. The best course of action is to clean up your credit and be a better risk, then the world will open up.

I mentioned in a previous blog entry that I own a home. The loan payments are okay, but the loan was taken out back in 2000 and the terms aren't great. Lately, I have been looking at refinancing my mortgage at a lower rate. I've found that the Internet is a great resource for finding loans and getting in touch with lenders for Home loans. By using the Internet, you can use lending sites to search for a home lender with ease, and without leaving your home.

One such site that I have used when looking for home equity loans is EHomeMortgages.com. On this site, you can find today's rates, as well as look up specific rates for your state and find lenders or Mortgage brokers to work with. One of my favorite areas of the site is their Mortgage Calculators section which can help you determine how much house you can qualify on a loan for, and then what your payments could be. Their Mortgage News section, as well as other loan type news, is also very valuable as it clues you in to the latest developments that can affect your home purchase or refinance. All-in-all, it's a great site. Check them out the next time you are looking to purchase or refinance a home.

It's true. I've got an empty house, and I'm making mortgage payments on it. I choose to live in an apartment close to where I work. Call me a victim of the housing bubble, I suppose. My house is in the middle of nowhere; it's in a place where you used to be able to commute 30-60 minutes to a big city to work. With costs rising faster than wages, and home prices dropping substantially, the house has become an albatross around my neck. It's been vacant for nearly a year now, and some of the deferred maintenance is starting to show.

Now, my apartment is very nice. If something breaks, the maintenance people are quick to fix it free of charge. It's nearly as big as my house, and has a better layout. It's also close to just about everything I want to do. I've even got an awesome view.

Luckily, the payments on both are manageable...I just shudder to think about what would happen if I were laid off or injured. I guess I should have a plan for getting rid of the house. I don't want to damage my credit by letting it go, or by giving it back to the bank. I don't think I want to be a long distance residential landlord. The house is now worth less than I owe, so selling it in a short sale is about my only option...and then working out payments or some other arrangement with the bank. That, or keep on aggressively paying down the mortgage.

I just keep looking for the bottom of the housing downturn, and it's nowhere in sight...

So oil hit $100 a barrel recently, for the first time ever. In less than two weeks, we've surged past to $110. The fuel on this fire is speculation. With inflation kicking in, investors are looking to anything but stocks, bonds, and fixed assets to throw money at. Tangible property like oil and gold are the 'in' thing. Having broken the psychological $100 threshold, there is little stopping investors from bidding up the price.

On a farmhouse near my house, there is a handpainted sign that says, "Gas is too damn high." After it had been up for over a year, it must have lost some of its impact, because I noticed that they had a new sign out. The new sign read, "Gas is STILL too damn high!"

The price of a barrel of oil, a major factor in gas prices, is up over $105 per barrel. OPEC has refused to increase supply, citing the problem as being one of speculation and inefficiency in the area of refining. President Bush argues that when OPEC's policies hurt the economy of one of their largest purchasers of oil, they should do whatever they can to help, or risk a slowdown in demand of their product.

I'm not one to agree with the President often at all, but his argument has some merit. High gas prices have been synonymous with a flailing U.S. economy in recent years. In the gas crunch of the 70's, the economy hit the skids. In 1992, gas prices were high, and we had a recession. The last recession was a little different in that respect, but the logic holds. The problem is that the more money consumers spend on as to fill up their as tanks to work, the less they have to spend on other goods and services...which drives our economy.

Ok, well not yet anyway. The majority of taxpayers will begin receiving their checks in late May, after the IRS has had a chance to go over your tax return. Most taxpayers will receive $600 for individual filers, $1200 for taxpayers filing a joint return. You'll potentially receive an additional $300 per dependant child on your tax return. The checks are naturally geared toward the lower and middle classes...yeah, Congress is sure that you'll blow your check on consumer goods (read - crap). A cap will guarantee that the money won't go towards people who are more likely to save or invest that money (the wealthy).

Uncle Sam is hoping that you'll be patriotic and will spend it on home improvement, a new Ipod, or a trip (within the U.S. of course). Put a down payment on a new car and help out Detroit. This will provide an artificial boost in demand, creating jobs, pulling the economy up, and eventually replenishing the country's declining tax base.

The "unpatriotic" are telling you to not be so foolish. Put it in the bank, or use it to pay off debt they say. Rumors are flying around that the rebate check will have to be paid back out of next year's tax return. The way this guy on MSN makes it sound, you're borrowing from yourself and will get a smaller tax refund next year. That's bullshit. It's figured in when computing your refund for next year, sure, but it's free money now and you wouldn't get it next year if not for the bill passing a few days ago. People who paid no income tax this year will be able to get the benefit next year when they file their 2008 tax return.

Now, as for whether I think the rebate checks are going to work...it's unlikely to make that big of a difference. Consumer spending is slowing, and even a quick, easy dollar to spend may not change the underlying sentiment that hard times are here for the time being. Furthermore, and worse yet: this spending may trigger a nasty bout of inflation. Retailers and producers may decide that, in order to pay for the 70 cent increase in minimum wage that will go into effect July 24th, they can cash in on a hundred million taxpayers with money to blow by pushing prices sky high.

For the first time in nearly than five years, a leading indicator known as the ISM's service sector index, fell...and it fell hard. Investors had been expecting a reading of close to 50, with anything below 50 indicating a decline in the services industry. Instead, they were presented with more evidence to support that sinking feeling that a recession is here. The index came in at 44.6%...lower than the depths of the last recession, back in 2001.

So what does this mean? In the United States, two thirds of our economy is in the service industry. The service industry, be it information technology, the transportation and sale of goods, food services, etc, is the mainstay of American business. If this sector hit a brick wall, as it seems to have done, we're in trouble. The preliminary numbers for the last quarter of 2007 are that the economy only grew by 0.6%. When you combine the last quarter's growth with the ISM's numbers today, unless this is a brief blip, we are going to see a decline in production during the first quarter of 2008. Two quarters of shrinking production and you have an official recession.

I think the scales tipped a bit from the 50-50 chance of recession to something more like 65-35, and the odds are against continuing this streak of prosperity.

If our economy is stagnating because of bad debts, why not increase the supply of money to everyone? The thought behind this is that as inflation kicks up, consumers will see their incomes rise, and will be able to pay off their existing loans with devalued currency. The problem with this line of thought is that as we saw in the 70's, income and prices tend to rise unevenly. Fuel and food prices typically rise much faster than other prices and income. Devaluing our currency will only cause more pain.

Don't count this as a dislike of any particular presidential candidate, but I'm not a big fan of 'tax rebate' checks. In 2003, Congress approved the Jobs and Growth Tax Reconciliation Act which authorized the increase in the child tax credit from $600 to $1000, and a $300 check to taxpayers in the form of a rebate. This time around, as the economy falters, ideas are being recirculated that tax rebate checks are the ticket to ending the working poor's economic suffering.

Government spending helped us get through the Depression, so why can't it help to pull us through this little downturn? The idea is that by handing consumers some free cash, they will go out and buy products (like a new Zune) or put it towards the purchase of a larger item. This creates demand for products, which gets producers producing, and gets the economy moving again.

The 800 pound gorilla in the room is this sense that stagflation is rearing its ugly head once again. When prices are rising, and growth is faltering, handing consumers free money may have the undesired effect of stoking inflation and further eroding the purchasing power of the working poor and middle class. There is also the high probability that instead of using the checks to buy goods and services, many consumers will use them instead to make a payment toward their delinquent loans and credit cards. For many are in over their heads and, barring a miracle, this will only prolong the current housing downturn.

I'm not saying that I will turn down a $250 check from Uncle Sam. I just think the money could be better spent in the form of increased funding of higher education or encouraging the growth of small businesses.

A series of interest rate cuts, usually a good method of lowering the cost of borrowing, is probably not going to be as effective in the impending (or current, depending on who you ask) recession. Lenders are scared to death to loan money in the current economic climate. Subprime loans have proved to be a fiasco, and even loans once thought to be the securest of the secure are being called in to question. Lenders are requiring down payments once again. And even when loans with favorable terms are available, interest rate cuts aren't going to provide a lot of relief to consumers who can't refinance their homes in the first place because they have no equity.

Credit card companies like Capital One and Washington Mutual are also suffering, as they are well known for catering to the financially challenged. But even bedrock companies like American Express are showing signs of consumer fatigue. As such, lenders aren't lending...or when they are, they aren't passing on interest rate cuts to consumers. Many credit card companies, particularly the ones that still serve the subprime market,are jacking up the interest rates on those who are still current, but carry a balance, claiming that the increased likelihood of these debts going bad justifies the higher interest rate. This seems to be a self-fulfilling prophesy, as the end of result of non-penalty 29.99% interest rates is often charge-offs and bankruptcy.

About the only people who are going to see any near-term benefits of rate cuts are people with adjustable rate mortgages whose loans are going to reset in the first part of this year. This is at the expense, however, of people who are largely invested in liquid assets like cd's and savings, who will see their returns fall as interest rate cuts are made.