Archives For January 2008

I saw this ($) in today’s Wall Street Journal:

Foreclosure filings soared 75% in 2007 from a year earlier as credit trouble and falling home values fell on homeowners, a foreclosure-listing service said.

There were 2.2 million foreclosure filings last year. More than 1% of all U.S. households were in some stage of foreclosure during the year, up from 0.58% in 2006, RealtyTrac said.

In December, foreclosure filings zoomed 97% from a year earlier, giving the fourth quarter the highest quarterly total since RealtyTrac, Irvine, Calif., began issuing its report in January 2005.

According to the article, California had the highest number of foreclosures (279,325 filings) while Nevada had the highest percentage of foreclosures (3.4% of its households are in some stage of foreclosure). Here’s a state-by-state look if you’re interested.

It could get even worse in 2008.

I read in the Wall Street Journal today that Angelo Mozillo, the CEO of Countrywide, will forfeit his $37.5 million severance package ($) when he leaves Countrywide after its sale to Bank of America is complete.

Have no fear, Angelo won’t be destitute. He’ll be able to live on his pension and retirement plan that’s valued at $24 million. He also sold over $400 million of his Countrywide shares during 2004 – 2007. In other words, he ain’t hurtin’ for money.

I think the handwriting is on the wall for citizens of areas facing lots of foreclosures. If municipalities are left with lots of vacant properties due to foreclosures, they will have to cut expenses, raise property taxes, or a combination of both in order to meet their budgets.

Remember, there are two parts to the property tax equation:

1. Property values

2. The tax rate

Property Tax = Property Value × Tax Rate

When property values are increasing, the city gets a nice raise every year. However, if one of the two parts (property values in this case) of the equation declines, the property tax amount declines. One way around this is for the municipality to raise the tax rate. Fortunately, cities can’t just raise property tax rates on a whim. I know in my city, large tax rate increases are put up for a vote. Fortunately, my town hasn’t been impacted by all this silliness.


Last night I watche a 60 Minutes segment on the mortgage crisis. Surprisingly, they did a fairly balanced report on the mess. One of the couples they interviewed was asked if when they took out their big mortgage, if they thought of the consequences of their actions. The husband responded with something like, “No, I didn’t think about that. I thought about my family and getting them off the block we lived on.” In other words, he made a purely emotional decision and now his family is going to suffer the consequences. I wonder how they will feel moving from a less desirable location, to a better location, and back again?

If anything, the 60 Minutes story only reinforced my beliefs that a bailout is the wrong way to go.

Will Qtrax Be a Success?

January 28, 2008

From the TimesOnline:

With CD sales in free fall and legal downloads yet to fill the gap, the music industry has reluctantly embraced the file-sharing technology that threatened to destroy it. Qtrax, a digital service announced today, promises a catalogue of more than 25 million songs that users can download to keep, free and with no limit on the number of tracks.

The plan is for Qtrax to be supported by advertising, which will then be doled out to the artists based on how popular their music is. Interesting idea.

Of course, there’s just two problems with this service:

1. The files will contain Digital Rights Management software, which will allow QTRAX to track how many times the song gets downloaded and played.

2. The files won’t be compatible with your iPod.

I suppose I could live with number one, but number 2 seems like it will be a deal-breaker for most people. I wonder how something like this will impact Apple’s iTunes? It seems like it would put pressure on Apple to lower their prices.


It’s amazing how one year can impact the annualized rate of return of a longer period of time. To see what I mean, take a look at the two graphics below. The first one shows the annual returns from 1987-2006 of the indexes represented in Callan Periodic Table of Investment Returns that I reference fairly often on this blog.

The Callan Periodic Table of Investment Returns
Click on table for larger image

This graphic shows those same indexes from 1987 – 2007:

The Callan Periodic Table of Investment Returns
Click on table for larger image

Now, this graphic shows you how 2007’s returns impacted the annualized rate of return (also called the geometric average) for the indexes:

As you can tell, last year’s mediocre performance dragged down the long-term annual average rates of returns for most of the indexes. The Russell 2000 Value Index was impacted the most as its annualized rate of return dropped from 13.64% to 12.40% due to the fact that index lost 9.78% in 2007. However, it’s important to remember that just as bad years will drag down average returns, good years will pull them up. In other words, it’s the long-term average that we’re after and not the short-term ups and downs.

It’s Friday and after a week of blogging about the market and subprime crisis, I thought it would be fun to do something different and way off-topic.

About a year ago, my boys started playing Guitar Hero. If you’re not familiar with the game, it’s a video game that simulates guitar playing to classic rock tunes. One day my oldest son was playing “Message in a Bottle” by the Police and he asked me if I had ever heard that song before. LOL! I told him yes, that it was very popular when I was a kid. I think he was shocked! It turned out that my son loved “Message in a Bottle.”

What’s amazing about this is that had I been the one to introduce my son to “Message in a Bottle,” it wouldn’t have had the same effect. He probably would have discounted it since it was his Dad showing it to him. I know how kids are since I was once a kid.

Anyway, I took my boys’ love for old music to heart and started picking up old CDs to replace some of the cassettes I had purchased when I was a kid. In the last year or so, I have bought:

The Police – The Police (2 disc greatest hits)
Yes – 90215
Asia – The Definitive Collection
Foreigner – All of their CDs
Journey – Greatest Hits
Styx – Gold
Deep Purple – Machine Head
Rush – A BUNCH of their stuff
REO Speedwagon – Hits
Supertramp – Breakfast in America
Peter Frampton – Frampton Comes Alive
Robert Plant – Principle of Moments, Shaken ‘n’ Stirred
Don Henley – Building the Perfect Beast, and The End of the Innocence
Simple Minds – Once Upon a Time

Not all of these discs have been hits with my boys. For some reason they don’t care for Rush or Supertramp. The rest, however, were well-received and it has been fun to find out what their favorites are. I have had a blast rebuilding my music collection.

Their interest in Guitar Hero also led them to want to learn to play guitar. Luckily, we have a friend who plays guitar and he was happy to take them on as students. I wasn’t sure if they would stick it out, but they have and I’m very proud of them. They have even “written” a song with the help of their teacher. Now they are after me to get them an electric guitar. Maybe someday…

How does this kind of stuff happen?

Société Générale, one of the largest banks in Europe, was thrown into turmoil Thursday after it revealed that a rogue employee had executed a series of “elaborate, fictitious transactions” that cost the company more than $7 billion, the biggest loss ever recorded in the financial industry by a single trader.

They call them “rogue traders” when they lose money but where the heck was the oversight? Is it possible for a trader to lose $7 billion while his superiors are none the wiser?