October 2008 – Page 3

Bailout plan details

Yesterday the US Treasury declared how it planned to spend the first few billions of the bail-out plan and it seems that they have turned away from their original plan of buying toxic assets from the banks and other financial institutions.

The original plan, or at least the most talked about solution by the Treasury, was that of buying toxic assets directly from the financial institutions at a price, which is higher than the market rate. But at least to start with, the treasury has not bought any toxic assets.

The Treasury still has about two-thirds of the $700 billion left, so they may still do it. But for now let’s take a look at what has been done so far.

Treasury to buy stock in more than a 1000 US banks

Yesterday the treasury declared that they are going to buy stock in more than a 1000 US banks and recapitalize them. This is more in line with what Europe is doing as well, which is going ahead with their own recapitalization plan of about $1.8 trillion.

Not surprisingly, none of the bigger banks were too keen on taking this money, because the first bank that would have taken the money would have taken a strong hit on its reputation.

The first bank that takes the bail-out money, implicitly accepts that it is in such a dire situation, that it is willing to sell a stake to the government. That will kill its reputation and it would not have been surprising to see people queuing up outside the bank to withdraw their deposits.

Secretary Paulson averted this situation with a clever move.Â He got the heads of the major banks together, and asked them to take the money, at once. That way, no single bank gets a major hit. the disbursements are proportionate to size, so no one can point any fingers on liquidity of any single bank.

This is how the money will be used:

Citi and JP Morgan: $25 b
Bank of America and Wells Fargo: $20 b
Wells Fargo: Additional $5 b for Wachovia
Bank of America: Additional $5 b for its purchase of Merril Lynch
Goldman Sachs and Morgan Stanley: $10 b
New York and State Street: $2 to 3 b

This is roughly $115 billion and then there will be some more to recapitalize the smaller banks as well.

In addition to this, the Federal Deposit Insurance Corporation (FDIC) will offer an unlimited guarantee on the bank deposits that do not get any interest. Typically such bank accounts are used to run businesses and this move aligns the FDIC policy with its European counterparts.

These are the first few steps of the American bailout plan and look at unclogging the financial arteries of the world.Â In the next few days the Treasury will announce the plan to spend the next few billions.

Peter Schiff predicting the current crisis

Recently I saw Peter Schiff’s video on Youtube and he was talking about the crisis we are in now. The video is about two years old and it is very interesting.

What makes it interesting is how accurately he predicts what is going to unfold and the clarity with which he explains everything.

Even more interesting is his take on wealth creation. He says that a lot of people talk about the wealth that has been created and say look at all the wealth that we have created. We really haven’t created any wealth, the value of our assets are appraising at a higher price.

This is a great way to explain the diffferent between value and price. Everyone understands this concept intuitively when it comes to every day purchases like cars and cookies. That is why you see people licking their lips when a dealer offers a rebate on a Honda Civic. It’s the same car at a lower price. When something has been offerred at a certain price for a long time, we associate a certain value with it. If there is a discount or rebate on it, the price comes down, but the value remains the same.

It is not so easy to value stocks, because there are just so many parameters that you must evaluate and most of them change every month. That’s why it becomes easier to get swayed by panic and greed also. When the price of a Honda goes down, you are still sure, the engine will start and the car will run 200,000 miles. But when the price of Apple stocks go down, you are not sure whether the stock price will ever recover. Sure, your Ipod will work, but will the price of Apple stock recover?

That’s why a good way to look at stock market crashes is to look at the companies in your portfolio and analyze their value. The topic of valuing stocks is a very vast subject in itself and the first step on the is to clearly see the difference between value and price.

Buffet gets richer by 8 billion despite the meltdown

Warren Buffet adds $8 billion to his net worth

Forbes has released its list of the richest Americans and Warren Buffet has toppled Bill Gates to the top. But that’s not what is really interesting about this list.

It appears that he is the only oneÂ in the list, in the top 18 billionaires, who has not lost money. The biggest loser is casino Mogul Sheldon Adelson whose casino stocks lost him more than $4 billion.

Berkshire Hathaway – Warren Buffet’s company, in fact gained 17% in the last month! The month in which the survey was conducted by Forbes.

If you look at a two month period between Aug 11 2008 and Oct 10 2008, then Berkshire Hathaway has lost 2.29% of its value.

This is about the same as most investors have lost in two and a half minutes on any trading day in the last couple of months! The Dow has been down by 28% in the same period.

Berkshire as a safe haven

Since the stock prices do not reflect anything but buyer demand and supply for a period of time as short as a month or two, this behavior shows a couple of things beautifully.

Supply: I do not know of another stock which quotes at over a $100,000 and because of such a high price, this stock is not really as liquid as some of the other stocks. That prevents people from dumping it on the market as freely as other stocks. Although I have never heard Buffet speak about not splitting the stock as a means to protect it against a massive hammering, it seems that because of the high price not many are willing to sell the stock and it is not faring as badly as the rest of the market.

Demand: On the demand side, it appears that people who still wish to be invested in the stock market may be moving towards Berkshire as a safe haven. I would certainly think that most people view Warren Buffet as the safest bet in this market and are therefore buying his stock.

In Conclusion

If you think about it, investing lessons can be found in the darkest news and the best favor that you can do yourself is to have an open mind, even if all you have is an empty wallet.

Manshu Verma

Catching falling knives

When others are greedy, be scared and when others are scared, be greedy

The most important lesson that I learned about the stock market was that when others are greedy, you should be scared and when others are scared, you should be greedy.

Although the current crisis is a big one, it is not really an unprecedented one and is certainly not one that can’t be solved.

The biggest emerging threat was that the credit system was getting choked and led to the drying up of funds for businesses of all sizes. Such a scenario has been avoided now, with the central banks all across the world taking concerted action and pumping funds in the banks and financial system.

The market always rebounds

I strongly believe that the market will rebound, like it always does and these times are great buying opportunities. As anyone who has been greedy when others were fearful, will tell you, the biggest challenge is determining, how scared others will get.

As you can see from the graph, the market has went up and down several times during the last four decades, however in the long run, it continues to move upwards.

Buying in small lots

I bought some stock last week that is already 20% down and I am planning to buy some more this week that may still go down 20% in a week or two.

This is the problem with catching falling knives. You never know how badly they will fall and you may end up cutting yourself while trying to catch them. That is a problem that can’t quite be solved by timing the market. No one really knows where the bottom of the market is and if you wait too long, you will always find yourself sitting on the sidelines.

The best bet is to spread out your investible surplus and then keep buying lots of your favorite stocks. The one caution that I do maintain is to look at the cash balance of the company and compare it with the last few years. This is really easy to do, all you have to do is to go to Google Finance or Yahoo Finance and pull up the financial numbers of the company for the last few years. You can easily find out whether the company is cash rich or not.

This is the additional check that I perform to make sure that my companies are not only fundamentally strong in the long run, but cash rich in the short term as well.

So sit back, hold your nerve and enjoy the ride.

CAGR Calculator

Scroll down if you are looking for the CAGR Calculator

How To Calculate CAGR?

CAGR Calculation

CAGR is compound annual growth rate and it is used to calculate what your principal would grow to – if your interest earned is invested back at the same rate.

So if you invest 100 bucks at 10% – at the end of first year, you would get 10 bucks as interest, but at the end of the second year you would earn interest on 100 (original investment) + 10 (interest earned at the end of first year) = 110 and your interest would be 11 instead of 10.

CAGR is widely used in business to calculate the growth rate of revenues and profits, as the assumption in business is that the money that is made is – reinvested for future growth (the part which is not given as dividends to shareholders)

CAGR is a helpful tool when you are looking at a particular stock to buy, and have its historic revenues and profits available. You can input the revenues at a year 2003 and then at the year 2008, enter the number of years as 5 and see what the CAGR comes out to be.

This will give you an idea of the rate at which the company has grown.

CAGR Calculator is also helpful to calculate the amount of money that you would have after a certain period of time, if you were to invest a certain sum now at a given rate of interest. So in the above example 100 bucks will become 121 in two years time at a CAGR of 10%.

In this CAGR calculator you could calculate both, if you know what is the principal you are going to invest, number of years and rate of interest you could calculate the amount it would result in after the period.

Or if you knew the number of years, initial principal and then the resultant amount you could key in that to see at what CAGR the growth took place.

CAGR Calculator

List of credit cards for people with bad credit

The following table shows the APR and Initial Fee that are charged by credit cards popular with people with bad credit. These have not been listed in any particular order because different companies have different definitions of bad credit. So that means while one company may be willing to give you a credit card, other may not. So this list is just meant to be a reference. Also be sure to check out the website of the issuing bank for latest information. Since we are not affiliated to any of these banks, we might miss an update that they made.

S. No.	Credit Card	Initial Fee	APR
1	Orchard Bank Low APR Master Card	$60 – $96	7.9% – 8.9%
2	Centennial MasterCard or Visa from First PREMIER Bank	$179.00	9.99%
3	Orchard Bank Low APR MasterCard with Interest Rebate	$145.00	7.9%
4	Centennial Gold MasterCard	$179.00	9.99%
5	First Premier Classic	$179.00	9.9%
6	Orchard Bank Classic Mastercard	$98.00	14.9%
7	First Premier Bank Gold	$256.00	9.9%
8	Capital One Standard Platinum	$0	19.8%
9	Capital One Platinum Max	$19	16.9%
10	Capital One Classic Platinum	$19	14.9%
11	Capital One Platinum	$39	8.9%

We try to get this list updated as frequently as possible, but because these things keep changing so very often, it sometimes becomes difficult to keep up. So please make sure to read the fine print from the company’s website itself before making your decision.

How can I get my APR lowered?

There are many different ways of lowering your credit card APR. I have seen some of those working in some cases and not working in other cases.

I think that is because lowering your credit card APR is a very situational thing and based on your current situation, you may or may not be able to lower your APR.

Here are some good ideas on getting your APR lowered:

1. Have a good credit history: This probably goes without saying, and yet a lot of people do not realize that you really do need a great credit history to get a lower APR. If you have a great credit history then you are likely to pay back your credit card bills and all the usual stories that you have already heard 4700 times.

More importantly, if you have a good credit history, your credit card company’s competitor’s will be willing to offer their credit card to you and there is a very real chance that you may take your business to them. That is what rings the bell for most credit card companies.

2. Do your research: So how do you know you have a high APR? You need to do your research and hunt for credit cards that will give you a lower APR, when compared with your current credit card. There are plenty of online resources that tell you which credit cards you will be eligible for, based on your credit score. Do a little bit of research and find a few options that promise a substantially lower credit card APR.

3. Call up your credit card company and ask them to close your card: This may sound extreme to you and I myself certainly know of many instances that this has failed in. But there are quite a few instances that it has worked as well.

So here it goes. Call your credit card company and ask them to close your credit card. When they ask, why do you want to close your credit card, tell them all the good things that you have been doing (making payments on time etc.). Then tell them that you recently pulled up your credit report and saw your credit history to be good and based on your calls to other credit card companies, you can transfer your balance at a lower APR to one of those companies.

If they want your business, then they will ask you to hold on and will transfer you to someone who can help you. If they do not want your business, then there is really nothing much that you can do.

Now, remember that sometimes even people with good credit scores are also not able to get their APR lowered.

This may happen if you are not a profitable customer.

If you pay in full, never buy an up-sell or insurance, then you are really not profitable for the credit card company and they may not be interested in retaining your business. That explains how some people with good credit are not able to lower their APR.

4. Be polite: You need to be polite to the customer service representatives that you are talking to. They handle hundreds of calls every day and if you make it harder for them, they will make it harder for you too!

These are some ideas that you can try out, to lower your APR. Since this is such a situational thing, there is no magic formula that works every time, so all the best and try your luck!

Warren Buffet on the stock market as voting and weighing machines

“In the short run, the market is a voting machine. In the long run, it’s a weighing machine.” – Warren Buffet.

Warren Buffet had made this statement while we were at the peak of the dot com bubble to explain the hubris in the market. This statement, along with the fact that he did not buy any “booming” stocks also showed his outlook on how the market is going pan out.
If a stock is going 5% up or down daily, and this happens for a few days, this behavior is like people voting the stock up or down. In the short run, the fundamentals of a company do not matter that much and the stock market behaves like a voting machine. Stocks are pushed up or down based on collective euphoria or frenzy. That’s the reason why you see many stocks making unbelievable peaks and equally unbelievable lows. In the short run the market behaves like a voting machine.

In the long run, however, the market behaves like a weighing machine. The stocks with the great fundamentals continue to rise over a 10 to 30 year period and keep growing. Great dividends are paid and great returns are made by the companies who themselves make a very handsome steady profit that grows over a number of years.

In the longer run, you do not find many fly by night companies doing well and you do not find many companies who have done well to have bad fundamentals.

The fundamentals of a company weigh in over the voting machine tendency and only businesses that carry weight generate handsome returns for their investors.

The carnage that is hitting the markets today is shying investors away from the market altogether, investors are voting down the entire market.

But looks like Warren Buffet is sticking to his philosophy. Recently Warren Buffet has picked up stake in GE, calling it the backbone of the US Industry. He is going for the well established weighty stocks and the market voting such stocks down does not seem to bother him much.

Orchard Bank Low APR MasterCard Credit Card

Introduction

Sometimes we encounter situations in life that lead us to undesirable credit. Regardless of the circumstances, it is important to rebuild credit by carefully and responsibly maintaining a new credit card. Unfortunately, individuals whose credit must be reestablished are not often eligible for the most delectable cards. Thankfully there are a variety of cards with various terms and fees to choose from. One such credit card is the Orchard Bank Low APR MasterCard.

The Orchard Bank Low APR MasterCard is a great card for individuals with bad credit. It offers impressive features including choosing your own payment due date and low APR, all with the buying power of a MasterCard. Even so, it is important to carefully review the fees and APR information below. This useful information can then be compared to other credit card choices you may be considering, since not all companies offer the same structure and rates.

Initial Fees

Orchard Bank Low APR MasterCard charges a potential initial $49.00 fee for the first year for individuals with poor credit. Exact fees are not disclosed until the application process is completed and the card you qualify for is determined. The breakdown of the possible charge is as follows:

â€¢Account Set-up Fee: $0-$49.00 (one-time fee)
â€¢Annual Fee: $60.00-$96.00 (waived the first year!)

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 $300.00 limit, your initial available credit will only be $251.00 and your statement balance will be $49.00 plus any additional credit you use during that billing cycle.

Additional Fees

In addition to the initial Orchard Bank Low APR MasterCard credit card fees that are required for establishing your new account, there are extra fees to be considered.Â While these fees are not disclosed until the application process is completed and the card you qualify for is determined, it is likely that they will include:

â€¢Fee for late payment: typically $29.00
â€¢Over limit fee: typically $29.00

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.

The APR

Orchard Bank Low APR MasterCardâ€™s starting APR is 7.9% or 8.9% but can be increased up to 29.49%. Immediate increases in APR will incur if any default is made on the account.Â 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.

Conclusion

This concludes the summary of Orchard Bank Low APR MasterCard. 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!

Centennial MasterCard or Visa from First PREMIER Bank Credit Card

Introduction

The Centennial MasterCard or Visa is a great card for individuals with bad credit. The card is issued through First Premier Bank – a prominent credit lender who assists people in obtaining credit cards when they have difficulty being approved for credit. Even so, it is important to carefully review the fees and APR information below. This useful information can then be compared to other credit card choices you may be considering, since not all companies offer the same structure and rates.

Initial Fees

Centennial MasterCard or Visa charges an initial $179.00 fee for individuals with poor credit. The breakdown of this charge is as follows:

â€¢Account Set-up Fee: $29.00 (one-time fee)
â€¢Program Fee: $95.00 (one-time fee)
â€¢Annual Fee: $48.00
â€¢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 $300.00 limit, your initial available credit will only be $121.00 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 Centennial MasterCard or Visa credit card fees that are required for establishing your new account, there are extra fees to be considered.Â These include:

â€¢Fee for late payment: $29.00
â€¢Over limit fee: $29.00
â€¢Additional card fee: $20.00
â€¢Credit limit increase fee: $25.00
â€¢Internet access fee: $3.95 (one-time)
â€¢Copying fee: $3.00 (per item)
â€¢Wire transfer fee: $5.00 (per transaction)
â€¢Return item charge: $25.00
â€¢Autodraft fee: $11.00 (per payment)
â€¢Express delivery fee: $25.00

The APR

Centennial MasterCard or Visaâ€™s starting APR is 9.99% but can be increased up to 19.99%. Immediate increases in APR will incur if any default is made on the account.Â 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.

Conclusion

This concludes the summary of Centennial MasterCard or Visa. 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.