The IMF World Economic Outlook 2008

IMF has published its economic outlook for the next year in its IMF World Economic Outlook 2008. First things first, there are three assumptions on the basis of which the forecasts are made:

  1. Commodities and oil prices are likely to stabilize, relieving inflationary pressures.
  2. U.S. housing prices will hit bottom by end of next year.
  3. Credit is going to remain tight, but with the measures put in place, further worsening of the financial markets will be stopped.

These seem to be realistic scenarios and it is quite likely that all the three situations will play out by the end of next year.

IMF predicts that if these assumptions come true, then world growth will begin to recover by the end of 2009, albeit, very slowly.


  1. The global growth levels are expected to go down from 5% in 2007 to 3.9% in 2008 to 3% in 2009.
  2. Commodity prices are expected to stabilize in 2009, but they will still be at a twenty year high.
  3. US Housing sector will reach rock bottom in the year 2009.
  4. Emerging economies are expected to be a source of resilience. Their growth rate will cool off but they will continue to grow at a higher pace.
  5. The advanced economies will be in or close to recession in the second half of 2008 and early 2009. The recovery is expected to start later in 2009. This recovery will be slower than past standards.
  6. Inflation will come below 2% in the advanced economies in 2009 and in the emerging economies inflation will slow down more gradually.

The IMF warns that the there are two threats that will make the above predictions worse. First one is that the financial crisis does not get contained as expected. Traditionally, crises that have started in the banking sector have spread more rapidly to the other sectors of the economy and therefore this threat is more potent.

The second risk is that the housing sector may not hit bottom as expected. If the housing sector doesn’t hit bottom as expected, that will make the recession prolonged and recovery will be delayed.


These are just some of the highlights of the IMF report. The report itself is quite in depth in analyzing every aspect of the current situation and readers who are interested to dig deep in this should definitely check out the link and go through the report.

Does having a co-signer guarantee a loan?

A co-signer is a person who accepts responsibility for paying off the debt in case the primary borrower defaults.  If you do not have sufficient credit history, then you should get a co-signer who has got a better credit history to get the loan you want at better rates and terms.

However it is a misconception that getting a co-signer with a good credit score is a guarantee to getting the loan you want.

When issuing a loan, the creditor has got considerable leeway for judging who can repay the loan and who cannot. Therefore in some cases, even if you manage to get a co-signer who has got a good credit history, you may be refused a loan.

Apart from your credit score, some other factors that the creditors will look for:

  • Your current income and income history
  • The other debts that you have
  • The collateral that you can come up with

Although most of the times, getting a co-signer with a good credit history solves the problem of getting credit, in some circumstances, the creditor may still refuse to issue you the loan.

Also, remember that it does not matter who is the primary borrower on the loan. As far as the creditor is concerned, they can enforce the loan against the primary borrower and if they fail, then the co-signer.

The other question that is often asked is whether co-signing with someone will hurt their chances of getting a loan?

The answer to that is no. Normally, when you go to get a car loan or such, the creditor will tell you whether you are eligible for the loan or not. They will themselves advice you to get a co-signer. That pretty much means that without a co-signer you will not get a loan anyway. So, by getting a co-signer, you are only improving your chances of getting a loan and not hurting them.

Is your bank safe?

There are a large number of banks and credit unions in the United States, and while it is easy to track the bigger banks, it becomes really difficult to keep tab of the health and soundness of the smaller banks.

A few weeks ago, some friends queued up outside National City bank, as there were rumors that the bank will go bust. And last week the bank was taken over by a bigger financial institution. Had it not been for the bailout plan, the bank would have most probably been left stranded.

In such times,’s Bank and Credit Union rater can be quite a handy tool. This tool lets you look at the health and financial soundness of your bank and credit union.

You can search for your bank from the dropdowns and then look at how many stars it has. This is how it works:

  • 5 stars: Superior
  • 4 stars: Sound
  • 3 stars: Performing
  • 2 stars: Below peer group
  • 1 star: Lowest rated

In addition there is a “G” rating also. If there is a “G” in front of your bank, then that means that the bank has grown its assets more than 25% in the last year and some of this growth may be through risky financial assets. This should be a cause of concern.

This is a good tool for people who have their money in smaller banks and wish to track their health. It will help you not to panic if the bank is in good condition. Or conversely take swift action if you find something wrong with it.

Does the price of gas at your pump follow the price of oil?

For the first time in 2008, the price of gas at pumps throughout the United States is lower than than what it was about an year ago.

This is obviously in line with the global oil prices, which have fallen more than 25% in the last month. While OPEC decided to cut production by 5%, starting Nov 1st, the oil prices still kept falling.

The more popular reason given for this is that global demand is likely to fall even more, but, the real reason, probably is that the price rise was more speculative in nature to start with, in any case.

As anyone who fills gas at a pump knows that prices of oil and gas do not have an exactly linear relationship and while oil prices obviously do impact gas prices at pump, there are some interesting factors at play here.

Price of Oil

A large part of the fall in the oil prices is being attributed to the global slowdown, and the anticipated slowdown in demand for oil in the coming months. The speculation in oil futures is not talked about at all. It may be because deleveraging is taking such a toll on the stock markets of the world that it is hiding its impact on oil derivatives.

Like last time when the oil prices rose, the real demand for oil in the world had not risen, but rather the position in the global derivatives had risen. Similarly this time deleveraging has taken its toll on oil prices.  Like I said in my post on July 20th, the oil price bubble will burst and so it did.

I mistook the time it took to thought it will take to burst though. I was expecting the bubble to last much longer than just a few months, but it did prove to be a speculative bubble after all.

What that means is that the price fall in oil was sharp and rapid. But the price fall is not so sharp and rapid for gas pump prices.

Price of Gas

The gas pump market is more competitive in United States than in any other country in the world (where the government doesn’t keep the prices artificially low).

This means that when the oil prices were rising, gas pump owners were watching their competitors and keeping an eye on competition, so that they don’t end up raising prices too soon and losing out to competition. This meant that gas pump owners raised prices at a slightly later time than they should have actually done it.

While this is a real phenomenon, people who are used to filling up their tanks under 40 bucks will probably be too angry to notice this, when gas prices move upwards, slowly but steadily.

And also because, as the chart on this great page shows, gas prices move upwards much faster when oil prices move upwards, but they don’t quite come down as fast, when the price of oil falls.

The same phenomenon plays out when oil prices go down. Gas pump owners see who blinks first. Basically they see how long can they keep their own prices higher. As long as both of them keep prices high, they will not eat into each other’s customers.

Due to the competitive pressures, the prices at both pumps do eventually come down. But due to natural human tendencies, the upward journey takes place much faster than the downward journey.


The world is much more connected now than it has ever been and complex financial instruments like derivatives impact real gas prices all across the world. Even the price of oil and gas which are fundamentally thought to be the same are impacted by various other factors that makes their price behavior seem erratic.

How is deleveraging causing the current crash?

Since fundamental factors impacting the economy do not change overnight, more often than not, the major crashes (excess of 10% in one day) occur due to technical factors.

One such technical factor that is causing the current crash is deleveraging. A lot of the current stress in the stock markets has been attributed to deleveraging.

A lot of financial investors use borrowed money to invest in stock markets and other asset classes. When the going is good, the investors make a lot of money and the cost of borrowed money is always less than the profits that they make due to rising prices.

However when stocks and other assets start to decline, then the investors either need to pump in more money to keep their portfolios stable or wind up their positions.

Such winding up of positions, where the investors sell of their stocks and repay their debt is called deleveraging. They are getting rid of their debt or leverage and to do that, they are selling stocks and other assets.

By selling stocks in such large quantities, they are depressing the stock prices, due to which other investors are forced to deleverage and a vicious cycle is set into motion.

About a few months back, another phrase had become quite popular – Yen Carry Trade. This was a situation where Japanese investors could borrow cheap money in Japan and invest it around the world.

The current strengthening of Yen shows that the Yen positions are getting wound up and Yen is finding its way back home and strengthening its currency. The Yen stands at about 90 to a dollar, which is the highest it saw since 1995.

The good news in all of this is that since deleveraging is more of a technical factor and not fundamental one, the markets are likely to recover sooner than in the case of a deep or prolonged recession.

What does leveraging mean?

A lot of the current crisis is attributed to the fact that firms were heavily leveraged. So what does it really mean to be leveraged?

Leveraging means taking debt to increase the profit on the equity of a company.

Take this example, you own a business and you need to invest $1000 in order to make a profit of $250. So that means the return on your money (equity) is 25%. Now, in this example suppose that for every $1000 dollars you invest in your business, you make an additional $250.

So, that means that if you can get a loan at lower than 25%, then your percentage return on your own money will be more.

For example, if you take an additional loan of a $1000 on 15%. Then at the end of the year your interest payment will be $150.

And your profit will be:

25% of $2000: $500 minus the additional interest of $150 which comes out at $350.

So that means instead of making $250 on your initial investment of $1000, you are making $350 on your initial investment of $1000. This is because you could find loans that were cheaper than the return on your capital.

Almost every company is leveraged, which means that all businesses have some amount of debt in their capital structure. The current problem arose because businesses took more debt than they could profitably manage.

Total Visa from Plains Commerce Bank for bad credit

The Total Visa credit card is issued by Plains Commerce Bank and is meant for people with bad or average credit.

Credit Limit

The initial credit limit for the Total Visa Card will be $250. However, when you first get the credit card, a fee of $200 will be charged to it and so your initial available credit will be just $50. Your credit limit can be increased by $25 in six months without any charge if you fulfill certain conditions. These conditions ask you not to

Initial Fee

Initial fee is fee that is charged by the banks when they issue the credit card. So, as soon as the credit card is issued to you, this fee appears on your monthly outstanding balance.

  • Program Fee: $96
  • Account Setup fee: $56
  • Annual fee: $48
  • Account Maintenance Fee: $96 ($8 will be charged on your account every month)

The above fee will reduce your available balance when you first receive the credit card (with the exception of account maintenance fee). This is fee that you must pay in order to get this credit card. There are some other optional fee that we discuss now.

Other Fee

  • Closed Account Maintenance Fee: $3.50
  • Transaction fee for cash advance: $5
  • Late Payment Fee: $29
  • Over limit Fee: $25
  • Return Payment Fee: $25
  • Easy Pay Fee: $7.95


The starting APR for this credit card is 19.92%.


Now that you know the fees and APR of this card, you are in a much better position to compare it to your other options and see what’s best for you. We hope that this summary helped you in making your decision and takes you one step closer to your search for the right credit card for you.

We have made every effort to ensure that the information here is accurate and up to date, however since these things keep changing, we encourage you to check the source of the full terms and disclosures. The fine print is not really all that hard to read!

Price Earning Multiples and Dividend Yields of Dow Jones stocks

A lot of stocks are hovering around their yearly lows. An interesting way of analyzing the price of stocks is to look at their P/E multiples.

We have compiled a list of the stocks that are part of the Dow Jones and looked at their five year P/E highs and lows, along with their current dividend yield.

The list makes quite an interesting read and you can see quite clearly that most stocks are quite close to their five year P/E lows.

S. No. Company Symbol Price Current P/E P/E 5 Year High P/E 5 Year Low Div Yield
1 3M CO MMM 60.04 11.03 29.39 13.15 3.49
2 ALCOA INC AA 12.15 5.83 5.57
3 AMERICAN INTL GROUP AIG 2.21 32.35 9.62
4 AMERICAN EXPRESS AXP 26.39 7.83 3.05
5 AT&T Inc. T 25.73 11.46 22.47 12.56 6.28
6 BANK OF AMERICA BAC 23.97 21.01 5.28
7 BOEING CO BA 46.4 8.06 234.11 10.32 3.57
8 CATERPILLAR INC CAT 38.83 6.46 0.2747 6.46 4.27
9 CHEVRON CORP CVX 66.8 6.6 4.17
10 CITIGROUP INC C 14.18 38.35 7.64 8.6
11 COCA-COLA CO KO 46.03 17.17 28.79 18.58 3.44
12 DISNEY (WALT) CO DIS 25.31 10.71 42.32 13.28 1.41
13 DU PONT (EI) DD 33.28 9.24 30.28 11.02 4.86
14 EXXON MOBIL CORP XOM 71.5 8.41 16.29 9.6 2.35
15 GENERAL ELECTRIC GE 20.35 9.35 6.32
17 HEWLETT-PACKARD HPQ 38.05 12.34 39.96 14.36 0.81
18 HOME DEPOT INC HD 20.52 10.56 22.37 10.44 4.45
19 IBM IBM 88.86 10.71 25.52 14.42 2.2
20 INTEL CORP INTC 15.22 12.35 61.7 13.87 3.61
21 JOHNSON&JOHNSON JNJ 63.66 14.37 24.21 16.05 2.9
22 JP MORGAN CHASE JPM 39.74 20.1 29.99 9.26 3.75
23 MCDONALDS CORP MCD 55.13 14.55 3.67
24 MERCK & CO MRK 29.97 12.37 5.39
25 MICROSOFT CORP MSFT 23.35 12.94 44.62 14.28 2.15
26 PFIZER PFE 17.34 12.71 200.79 13.81 7.54
27 PROCTER & GAMBLE PG 62.96 17.03 26.61 20.65 2.59
28 UNITED TECH CORP UTX 50.95 11.11 20.95 12.96 2.91
30 WAL-MART STORES WMT 53.67 16.33 31.17 14.53

The data has been taken from Reuters. An example is Walmart’s information on this link.

Random Walk Hypothesis

“A Random Walk Down Wall Street” was one of the most delightful books that I have ever read. I disagree with most of what the book says, but it still makes a very interesting read.

This book popularized the “Random Walk Hypothesis”.  The Random Walk Hypothesis states that stock prices move in a random manner and no one can predict stock prices.

Burton Malkiel, the author of the book says that it is a waste of time to conduct technical or fundamental research. It is impossible to come to any reasonable conclusion of the direction that a stock is going to take by doing any sort of analysis.

After reading the book, I always felt that Burton Malkiel was saying that the analysis of stock prices will not help you decide the direction in which the stock price is headed in the future. His experiments mainly included studying past prices and then trying to extrapolate them to future stock prices. The conclusion was that it is not possible to study past prices and decide future trends.

I agree with this part of the theory. You can’t study past prices and predict future prices. Doing this completely ignores the future of the company that the stock belongs to. Afterall, a stock is nothing but ownership in a company. If you ignore the future prospects of the company itself, there is no way to determine whether it will do well or not. If you do not know whether the company will do well or not, how can you ever tell if the stock price will do well or not?

The theory also promotes buying and holding for the long term. This is also something that I agree with. The secret to great riches in the stock market is holding a stock for a fairly long term. It is very rare to find people who have made their money by buying and selling stocks every day or every few months. Real money is made when you take ownership in a company which is growing and then let the stock price grow ten, twenty times over a period of a few years.

The part that I disagree with is that stock prices can’t be predicted. You may not be able to predict how the market is going to behave tomorrow or even a year from now. But if you buy the stock of a fundamentally strong company at a decent price, you can be rest assured that the price will go up in years to come.

This is a big difference in opinion. Proponents of the Random Walk Hypothesis state that you should be satisfied with buying Index Funds and earning the same returns as the Index. People who oppose it, think more money can be made by selecting the right stocks and staying with them for a few years. It is natural to find more people oppose the Random Walk Hypothesis, because accepting it means that they can’t beat the markets. And of course, investors like Peter Lynch, George Soros, Warren Buffet and several others have shown that it is in fact possible to beat the market consistently and instill hope in many others.

On the other hand, most mutual funds have returned lesser profits to investors, when compared with index funds. This shows that, it really is better to buy index funds and hold them for a longer period for most investors.

Both sides have strong evidence, which side are you on?

Pledge Mastercard or Visa credit card for bad credit

Pledge Mastercard or Visa credit card from First Premier Bank is meant for people with bad credit. We look at some costs and fee associated with the Pledge credit card.

Initial Fees

First PREMIER Pledge credit card charges an initial $179.00 fee for individuals with poor credit. The breakdown of this charge is as follows:

•Account Set-up Fee: $29.00 (one-time fee)
•Program Fee: $95.00 (one-time fee)
•Annual Fee: $48.00
•Monthly Servicing Fee: $84.00 (billed at $7 per month)

An important factor to consider is that these fees are deducted from your available credit and are due immediately upon your first billing statement. This means that if you qualify for a $250.00 limit, your initial available credit will only be $71.00 and your statement balance will be $179.00 plus any additional credit you use during that billing cycle.

Additional Fees

In addition to the initial First PREMIER Pledge credit card fees that are required for establishing your new account, there are extra fees to be considered.  These include:

•Fee for late payment: $29.00
•Over limit fee: $29.00
•Additional card fee: $20.00

  • Credit limit increase fee: $25.00
  • Internet access fee: $3.95 (one-time)
  • Copying fee: $3.00 (per item)
  • Wire transfer fee: $5.00 (per transaction)
  • Return item charge: $25.00
  • Autodraft fee: $11.00 (per payment)
  • Express delivery fee: $25.00
  • Monthly Account Maintenance Fee: $3 per month on closed accounts with a balance of more than $20

As seen from the list above, most of these additional fees are conditional. In other words, these charges may or may not apply to you and your account, depending upon your circumstances and how you use the credit card. Also, fees may be added or removed at the leisure of the credit card company, and based on your specific card and credit history.


First PREMIER Pledge Card’s starting APR is 9.9% but can be increased up to 19.9%. Immediate increases in APR will incur if any default is made two times in six months. A default is a missed or late payment or exceeding the credit limit, which results in an APR penalty. The APR penalty may be removed and the initial APR may be restored if your account remains default-free for three consecutive months.


This concludes the summary of First PREMIER Pledge Credit Card. These facts are meant to provide you with valuable information that you can use to obtain a new card that works for you. By understanding these basic details, you are unlikely to be caught off guard or surprised with any miscellaneous charges or high APR rates.

We have made every effort to ensure that the information here is accurate and up to date, however since these things keep changing, we encourage you to check the source of the full terms and disclosures. The fine print is not really all that hard to read!