Housing Boom, Housing Bust, and the Boomers

Dated September 2008, a paper published by the Center for Retirement Research at Boston College examines "The Housing Bubble and Retirement Security." The general conclusion for "older households" is that about a third of them will suffer from the housing bubble through less secure retirements.

The authors tracked the decisions by homeowners (across all age groups) during the housing boom years (2001-2006), and found that close to 40% had some kind of "mortgage activity," meaning refinancing or extracting home equity. Among those with activity, about a third spent the money on home improvements, about a third repaid other debts or made new purchases, and about a third made an investment in the stock market or real estate or a business.

Based on age in 2004, the age group 50 - 62 saw the greatest housing gains between 2001 and 2006. This age group also led in extracting home equity and then led in consuming (paying other debts or making new purchases). At least according to the formula in this paper, the near-retirement group who extracted home equity have lower net worth after the housing bubble.

The paper (which opens as a PDF file) includes easy-to-understand charts that illustrate the impact of the housing bust on age groups. It also explains the predictable human response to a housing boom: housing gains promote spending.

© 2008 Mary Bold, PhD, CFLE. The content of this blog or related web sites created by Mary Bold (www.marybold.com, www.boldproductions.com, College Intern Blog) is not under any circumstances to be regarded as professional, legal, financial, or medical advice. Or education advice. Or marital advice. Or even a tip.

Hunker Down (with or without shelter)

Headline: Hunkering Down
Excerpt from article: "Suddenly, it is fashionable to pinch pennies. Washington socialites [Mr. and Mrs. X] are not taking their annual grand tour of Italy this year. Instead they plan to drop in on friends in Montana....Sobered by the sight of beleaguered billionaires and the collapse of corporate empires strung out on debt, U.S. consumers are hunkering down. They are borrowing less, shopping carefully and saving more."

23 July 1990, Time Magazine

Yes, the year was 1990. Today's headlines are remarkably similar and "hunker down" also appears on t-shirts and coffee mugs. Some recent uses:

Washington Post headline:
U.S. firms hunker down to survive credit freeze

Virginia Gazette Editorial entitled:
Hunker down

BNET web site asked:
Are CEOs Hunkering Down?

Column at ReportonBusiness.com advised:
Hunker down, happy hour is over

AP story headline:
Employers 'hunkering down' and cutting jobs

KCBS in San Francisco report:
Retailers Hunker Down for Slow Christmas

Just prior to the news of the financial crisis, "hunker down" became the most uttered advice to anyone in the path of Hurricane Ike. In September, Texas Judge Ed Emmett advised residents to "Please shelter in place, or to use the Texas expression, hunker down."

LBJ used that expression on more than a few occasions, applying it to politics, c. 1960s. I found these quotes attributed to him:

"Sometimes, you just have to hunker down and take it like a jackass in a hailstorm."

"Sometimes, all you can do is just hunker down and take it, like a jackass caught out in a hailstorm."

"Well, boys I tell you what we're going to do. We're going to hunker down like a jackass in a hail storm and wait till the winds stop blowing."

"I'm doing the best I can. It's like the old man in my county that said he felt like a jackass in a hailstorm: he just had to hunker down and take it."

© 2008 Mary Bold, PhD, CFLE. The content of this blog or related web sites created by Mary Bold (www.marybold.com, www.boldproductions.com, College Intern Blog) is not under any circumstances to be regarded as professional, legal, financial, or medical advice. Or education advice. Or marital advice. Or even a tip.

A 6 theme in financial news

Of course, there was more in the financial crisis news this week than the number 6 but that's the number that kept popping up in stories I read today. Here are the 6s....

Today's unemployment rate is 6.1% and Bill Gates says that might climb to 9%.

Intel woke up this morning with some recovery to its 6% loss the day before.

Fannie Mae mortgage securities' yields increased to 6.09%.

In a week's time, 30-year fixed-rate mortgages' average rate rose from 6.06% to 6.75%.

Municipal bond yields rose to 6.74%.

Worldwide, bank losses top $600 billion. An IMF analysis predicts more ahead, in the $800 billion range.

In the past year, U.S. household net worth dropped $6 trillion. About 1/6 of that drop occurred in the past month.

© 2008 Mary Bold, PhD, CFLE. The content of this blog or related web sites created by Mary Bold (www.marybold.com, www.boldproductions.com, College Intern Blog) is not under any circumstances to be regarded as professional, legal, financial, or medical advice. Or education advice. Or marital advice. Or even a tip.

Financial Crisis: Looking for the Bullet List

Boomers don't have a memory of a world without the World Bank (WB) or the International Monetary Fund (IMF). Those institutions grew out of post-WW2 United Nations planning. Currently, they are meeting about the global economic crisis, along with the G7, hoping to bring stability primarily through coordinating individual nations' strategies and by encouraging inter-bank lending.

Here's a short-hand profile of each:

WB is known for long-term development projects, often with humanitarian reputation. WB really is a bank, funded by its member nations, and guided by "directors" based on "shares." While the bulk of directors are selected by several countries to serve as their representatives, 5 nations have their own directors: US, UK, France, Germany, and Japan. See the blue graphic at bottom of this entry; these 5 are in the inner circle of the WB, the G7, and the IMF.

IMF is also a bank serving member nations. See graphic at top; all that green reflects nearly every country in the world having joined the IMF. The reputation of the organization is not as warm and fuzzy as the WB. Think of the IMF as the uncles you don't want to have to ask for money when your farm suffers a drought. These are the relatives who will help you out but with strings attached—they'll dictate conditions for the use of the money. Sometimes called a Lender of Last Resort and associated with countries in crisis, the IMF influences the global economy. Votes are cast according to percentage of shares held. My list of 9 countries (see graphic at bottom) just lops off the top percentages, starting at close to 3%. What's pertinent is the US percentage at more than 16%. Next are Japan and Germany at about 6% each.

G7 (AKA Group of 7) is not the G8. We hear more about G8 because it brings together heads of state for an annual summit. The G7 meets more frequently and is formed by the finance ministers of the US, UK, France, Germany, Japan, Canada, and Italy.

The G7 is the least official of the groups but it is emerging as the leader in calling for strong and fast action by all nations. It has released a five-point action plan that brings focus to priorities, such as recapitalizing banks. The action plan may not be followed completely by all nations but it appears to be the bullet list for discussion.

© 2008 Mary Bold, PhD, CFLE. The content of this blog or related web sites created by Mary Bold (www.marybold.com, www.boldproductions.com, College Intern Blog) is not under any circumstances to be regarded as professional, legal, financial, or medical advice. Or education advice. Or marital advice. Or even a tip.

Financial Crisis: Time to Generate Income from Existing Customers

I'm not competing with the Conference Board's Consumer Confidence Index (CCI) but I am interested in these signals that I've received in the last two weeks:

1 - Call from a medical specialist's office - Last summer, a specialist advised me about how many units of vitamin D he recommends for women my age. He said that he could request a test to establish my current levels but it would not be a good use of tests or money. Good conversation. I made notes. Last week, a receptionist from that office called to ask if I had followed up on that "D" test with my family physician or if I would like to return to the specialist's office for it.

2 - Letter from a diagnostic test clinic - Last summer, a radiologist advised me that my scans were great and that my family physician's concern was unfounded. She pointed out that I should re-adjust my schedule of annual exam and wait a full 12 months for the next one. Last week, a letter from the clinic arrived suggesting that I make an appointment.

3 - Call from an airline company - A rep offered to change an upcoming flight from one-stop to non-stop for a charge of $49. The schedule change works in my favor and I accepted the offer. (Had I selected the non-stop flight back when I made the reservation, the cost would have been more than $49.)

Today I went to my local Wal-Mart to see if, indeed, Christmas is popping up in retail. Yep, the shelves are being stocked. My interpretation is that as we wonder about consumer confidence, business managers are already acting on something they are confident of: that consumers will soon stop spending. The time to generate income is now, hence the personal contacts to existing customers.

© 2008 Mary Bold, PhD, CFLE. The content of this blog or related web sites created by Mary Bold (www.marybold.com, www.boldproductions.com, College Intern Blog) is not under any circumstances to be regarded as professional, legal, financial, or medical advice. Or education advice. Or marital advice. Or even a tip.

Financial Crisis: Retailers Will Help Us

In their best interest. Retailers will help us in the hard times, knowing full well that special promotions and discounts will help us feel safer in spending in their establishments. Even as most Americans slow their spending, they won't forego shopping altogether and retailers will garner the sales they can.

Recurring specials. A weekly special (such as a grocery chain's $5 family-sized dinner item every Friday) appeals to our desire for a predictable event, especially when other prices are unpredictable. "Affordable" counts, too, of course.

Dollar menus. Watch for more low-cost single items at fast food restaurants. Keeping us accustomed to the drive-though is important for business.

Comfort food. Soup has always been a low-cost staple in the pantry and in rough economic times, it serves as a comfort food, besides.

Stocking for the holidays. Christmas retail displays are already launching. Consumers will act earlier than usual to "protect the holidays" because of fear of not having money a few months from now. If the current financial crisis were not so obviously associated with banks, we might even see a resurgence of Christmas Clubs (savings accounts timed for holiday withdrawals). More likely, consumers will deal directly with retailers either in making early purchases or starting lay-away plans.

On a personal note. I have my own Christmas lay-away memory. Following a lay-off 20 years ago, our family moved from Florida to Texas one very hot summer. While Tom was coming to a job (and we knew enough about the semiconductor industry to be grateful for that), we were definitely wary about spending money. In house-hunting, we looked only at foreclosed properties (and bought one). In selecting a local bank, we intentionally chose the one that had just been taken over by a larger bank six months before. And I went to the new Hypermart (some boomers will recognize that name) and placed all Christmas gifts on lay-away. I made a modest weekly payment from August to December and felt comfort in having provided for the holidays. I probably spent less than usual simply because of my early and deliberate shopping. But the real purpose (and result) was the systematic payment toward a goal—just in case there was another lay-off. An ironic twist: a month into the job, Tom's new employer announced that all managers would take a 25% pay cut for four months (September through December) in order to avoid lay-offs among the workforce. We were already in cautious mode, so we weathered the pay cut but the budgeting was strict that year. The memory makes us appreciate the difficulty young families may face in the coming recession.

© 2008 Mary Bold, PhD, CFLE. The content of this blog or related web sites created by Mary Bold (www.marybold.com, www.boldproductions.com, College Intern Blog) is not under any circumstances to be regarded as professional, legal, financial, or medical advice. Or education advice. Or marital advice. Or even a tip.

Financial Crisis: Seeking More Views

When I seek extra views beyond the most convenient NYTimes arriving in my email daily, I usually surf The Guardian (UK newspaper) online. Old tradition there: in the earliest years of our marriage, Tom Bold and I actually subscribed to the print version, along with the Christian Science Monitor. (No, neither of us exhibits that religion, and neither does the newspaper.)

For the current news story—the U.S. financial crisis—I surfed to another source: The Telegraph (UK). If The Guardian is liberal-centre (as the Brits would spell it), then The Telegraph is the mirror, conservative-centre. The centrist position is the modern trend but the paper's roots are in conservatism.

To share here, I settled on a commentary by Edmund Conway, the economics editor. The title is compelling, Financial Crisis: The next decade could be our very own Great Depression. Sometimes, it's easier to take in our own news with the perspective of global partners who face the same challenges. Conway self-identifies as a free-market guy, so that makes his commentary all the more interesting.

I am following two aspects of our U.S. crisis:

1) The American public predicts that a bail-out will continue (polls say 2/3 of Americans) but there's a backlash to the bail-out by a vocal minority complaining to members of Congress. The majority who expect and support a bail-out are also complaining, of course, and anyone up for re-election must deal with that.

2) Americans have a hard time imagining the future economic landscape, with or without a bail-out. We lack experience (limited to some 1980s pain), we recall the Great Depression as a remote family story, and we tend to imagine only our own immediate situation.

© 2008 Mary Bold, PhD, CFLE. The content of this blog or related web sites created by Mary Bold (www.marybold.com, www.boldproductions.com, College Intern Blog) is not under any circumstances to be regarded as professional, legal, financial, or medical advice. Or education advice. Or marital advice. Or even a tip.

Finding Humor in Current Events

Every news organization knows the pull of a good story line but the goal must be to make audiences invest time in the story. Once introduced to the details, an audience returns for more not necessarily because there's any more news but because of the initial investment of time. If we go to the bother of learning names and factoids, we will then follow the story line to its bitter end. (That's probably what drove much of the coverage of the first O.J. Simpson trial.) The initial investment of time and attention cannot be predicted; some stories "take off" and others don't.

Current news stories (finance and politics, chiefly) dominating all channels have a strong story line called Our Future. We also find plenty of names and factoids to cement our investment in daily news updates. There are special challenges, though: try constructing a good story when you have to stop to define terms like derivatives. The greater challenge, on both sides of the news story, is to maintain calm and confidence.

My personal strategy is Humor ROI by Remote Control. That means:

Humor = I am placing a premium on humorous accounts of both finances and politics.

ROI = I seek a return (sanity) on my investment (time spent watching television).

Remote Control = I use the remote to flip across channels. Stewart, Colbert, and Letterman are my anchors. Their commentaries are augmented by the cable news shows, with care taken not to watch a news show in its entirety. Channel switching permits an entertaining sweep across the political spectrum.

This weekend will be a test in the power of our current lead story of the financial crisis. Almost always, the weekend provides respite from breaking news. Maybe not in this season.

© 2008 Mary Bold, PhD, CFLE. The content of this blog or related web sites created by Mary Bold (www.marybold.com, www.boldproductions.com, College Intern Blog) is not under any circumstances to be regarded as professional, legal, financial, or medical advice. Or education advice. Or marital advice. Or even a tip.