Articles from 05/04/08 to 05/10/08

Everywhere I look I see people struggling, working two or three jobs, trying to buy a home or maybe even losing their home, barely able to afford filling up at the pump, cutting back on groceries, and even staying home more often to save money.

I can relate to this group of people, especially when I’m sitting quietly at my second job (which happens to be a university library). It’s in those quiet moments when it hits me how bad the economy really is.

Usually I tune out, but lately I’ve picked up on peoples’ conversations around me. I listen to their frustrations about how hard it is to make it these days. These people range in age from millenials to baby boomers and from entry level to well established professionals.

Every time I do a story about the economy lately, analysts talk about the government stimulus checks that consumers have received or soon will be getting. That was again true today…although today there was greater focus on what that money would mean to retailers in the coming months. Will stores like Wal-mart or Target be the biggest beneficiaries of that extra cash from Mr. Bush…or will Americans pack that money away for a really rainy day?

No one knows for sure what the fickle U.S. consumer will do. But, I felt they would be more likely to spend it rather than save it. Sure, there are the rising costs for basic necessities like milk and cereal. But, I thought it would be more likely that our shop-till-you-drop American culture would result in spending on discretionary items…mainly flat screen TVs and ipods.

But, recently, I have changed my mind.

Gas prices make people crazy.

On the one hand, you get the "serves us right crowd." You know the argument: We deserve to pay $4 a gallon, because we drive big cars and haven't been serious about energy conservation for, oh, the last 20 years. Cutting the gas tax or slapping a windfall profits tax on oil companies would be silly since everything in this market is driven by supply and demand.

On the other hand, you find the "birthright crowd." These folks basically argue that gas was a dollar a gallon when they were kids and it should be $1 a gallon now. We deserve cheap gas, because it is so important. If only we drilled enough, cut taxes enough or pressured OPEC enough things would return to "normal."

To understand Fannie Mae and its “sister company” Freddie Mac takes a lesson in politics. There is a fierce political battle going on about how to regulate government sponsored entities like Fannie and Freddie. In general, Democrats support the companies taking on a larger role in the mortgage market. They support the companies' affordable housing missions and want them to help low income borrowers. Republican generally want a smaller role for the firms and worry about the risk to taxpayers that could come with letting the firms grow their portfolios. Obviously, it’s in Fannie Mae’s best financial interest for the housing market to stabilize. But the current volatility can work to the company's political advantage, as there seems to be more need than ever for it to “work.”

Gardeners and baseball fans may love May. But investors often dread its arrival.

That’s because May through October is typically the weakest six months of the year for stocks.

According to the Stock Traders Almanac, since 1950, the Dow Jones Industrial Average has gained an average of 0.5% in the May 1 - October 31 period. That’s a lot less than the average of 7.9% the index has gained in the November 1 - April 30th period. The Almanac takes it a step further, with a six month investment switching strategy:

Unlike most cities in the country, the Manhattan real estate market was not initially touched by the subprime mortgage mess. In fact, as I report in our "A Tale of 5 Cities" series, up until recently there was little evidence of problems with subprime mortgages or foreclosures in Manhattan…and the real estate market here charged ahead much like it had in recent years.

The simple reason is that Manhattan is not a subprime mortgage market. In other words, people who can only obtain subprime loans don’t and can’t buy in NYC (at least not in Manhattan). That’s because the majority or homes sold in Manhattan are co-op apartments. And, co-op boards, which must approve all buyers, did a far better job vetting the finances of prospective co-op shareholders than banks typically did. On average, people buying Manhattan apartments put down 35 percent of the purchase price….and finance the remaining 65 percent. Simply put, if you need a subprime loan, you most likely won’t be buying a home in Manhattan.

The big event of the year for shareholders of Berkshire Hathaway is Warren Buffett’s annual meeting in Omaha, Nebraska. They look forward to learning from the richest man in the world. This year 31,000 shareholders -- some from as far away as India and Australia -- made the pilgrimage.

The other big event: The Movie. The meeting opens every year with this humorous hour-long satire featuring Buffett and his sidekick, Charlie Munger, Berkshire’s 84-year-old Vice Chairman. It’s produced by Buffett’s daughter, Susie. You won’t ever see clips from it on TV or You Tube. Buffett doesn’t allow anyone to film it. But it’s a perennial favorite with shareholders. And this year’s movie was a huge hit.