Archives For April 2008

Of all the “gurus” in the world, Larry Winget has become one of my favorites. Why? Because he tells it like it is. He doesn’t sugar coat anything and he’s always cosistent. I like that.

Larry’s been a busy guy lately making appearances on various TV shows and doing all the things that gurus do. He took some time out to answer some questions I sent to him regarding the housing crisis. Below is our email exchange. If you would like to hear or read more from Larry, check out the video vault on his website, or check out his latest book, You’re Broke Because You Want to Be (Affiliate Link). I spent some time watching quite a few of the videos recently. Good stuff.

If after reading the Q&A below you have questions for Larry, leave a comment and I’ll see if I can talk Larry into stopping by to reply.

1. What’s your take on the housing crisis? What caused it?

Well, the subprime lenders are taking the blame for the crisis but I think there is much more to it than that. The lenders are the scapegoat for the most part. There were a FEW bad guys but not enough to cause a problem of this size. I think the primary cause of the crisis is that people were irresponsible and bought more house than they could afford. Money was easy to get and they took it and didn’t give much thought to the FACTS. And the facts were that their mortgage was going to go up at some point. “But no one told me that!” Bull. It was in the paperwork. If you didn’t read it or understand it, that is your own fault.

Besides, what made people think that they could at some point afford both the principal and the interest when they could barely afford the interest only loan they took out on their house? But instead of blaming themselves, they blame the mortgage company for loaning them the money to begin with. That is wrong. Some people took interest only loans or ARMs and took that entry time to save and earn so when their mortgage adjusted they would be ready. Those were responsible people and are to be admired. Not everyone got screwed by the mortgage companies – most people were greedy, irresponsible and caught up in “keeping up with the Joneses.”

2. You live in Arizona. How has the housing crisis affected your area?

I just read today that Arizona has experienced a 21% drop in housing values in the past twelve months. Arizona is one of the hardest hit locations in the country. It hit us hard. It hit ME hard as I have lots of property.

Interesting fact though: High priced houses (2 million and up) are still being built and still being sold. Why is that? Some will say it is because the people who buy those houses are rich. Right. But look deeper than that simple answer. Why are they rich? What do rich people do with their money? What do rich people do with their time? What do rich people that allows them to be able to afford to build and buy and invest that other people don’t do? A rich person buying a 5 million dollar house is no different than a regular guy who earns $40K a year buying a $150,000 house. It isn’t about how many zeroes represent your income – it’s about how you use your money, your time, your energy.

3. Is now a good time to buy a house?

Now is an EXCELLENT time to buy a house. In fact, if you can afford it, it is an excellent time to buy a dozen houses and rent them out. Face it, housing prices have been inflated for the past 5 years. (We rarely mention that fact!) Now prices are re-adjusting. Prices are down now and still dropping. It is an excellent time for first time buyers. It’s a great time for people who have been responsible with their money and have some savings to upgrade their house and get a bigger one. It is a great time to invest in real estate because there are going to be a lot of people needing to rent houses. You can invest while the market is low, rent to people who need a house and someday the market will go up again and you will have made some money. And the new legislation proposed that will allow people a $7K tax credit when they buy a foreclosed house is a real opportunity for some buyers.

4. You work with lots of people who are having problems with debt. Are any of them having problems due to the housing crisis?

People are blaming the housing crisis because housing effects lots of different areas of life: construction, furniture sales, bedding, carpet, and lots of areas of manufacturing and retail. So everyone is affected at some level by housing issues. But housing is not to blame for most people’s problems. Overspending is the culprit. Four dollar a gallon gasoline isn’t as much of a problem for middle America as a four dollar a cup coffee. People are not willing to modify their lifestyle in order to live on what they earn – that is the real problem.

5. What’s your opinion of the various bailout programs being thrown around? Is a bailout necessary?

I am anti-bailout on any level and every level. Consequences are a good thing. They teach us lessons. Any lesson, not learned will be repeated. I know that foreclosure is hard – I’m not a total jerk and my heart goes out to some people who are in real trouble. But if you have been irresponsible and get bailed out you haven’t learned any lesson. Therefore you will probably repeat the mistake again at some point. Bankruptcy is a prime example. More than half of people who file bankruptcy end up doing it again within ten years. The bail out they got didn’t teach them a dern thing.

A good parent lets their kid experience the pain of their mistakes knowing it will make their child stronger and better. The government should let its’ children learn their lesson this time too. IF we force people to tough it out and learn for their mistakes on this one, we will make a better society down the road. Bail people out and they will do the same thing over again.

And don’t forget this: only 2% of homes are in foreclosure. That means 98% of homeowners are paying their mortgages.. Even though it might be tough, they still figure out a way to do it. Why should those people pay for the mistakes of the two percent? I am not willing to have my tax dollars bail out people who made an error in judgement.

6. Finally, where does personal responsibility fall into the equation?

I like this question. It always , always, always comes down to personal responsibility. You entered into an agreement. You signed a contract. You gave your word. Keep it. Period. It is a matter of self-respect and integrity. The fact that you don’t like the deal you made, the contract you signed, or you didn’t understand it……. none of that matters. You still did it. Live with it. Knuckle down, face the music, get tough and fight your way through it and out of it. Like your parents and grandparents would have done. Go to the mirror, take responsibility, feel remorse and fix your problem.

If I Were A Marketer…

April 30, 2008

I’d be taking advantage of inflation.

Think about it…

Yesterday I posted about how some ice cream companies are reducing the size of their products while leaving the price the same. If I owned an ice cream company that still made 1/2 gallon containers, I would film a commercial that went something like this (sorry I don’t know how to write a script):

I would show different people opening their smaller ice cream containers, looking in, and frowning. Then a voiceover would say something like, “Is something missing from your ice cream container?” Then one of the people would look at the camera and say, “Yeah, Ice Cream!”

Then the voiceover would come back on and say, “Lots of ice cream companies have reduced the size of their products but have left the price the same. Blue Bell still offers 1/2 gallons of ice cream and we don’t plan on changing. We just think you should get what you pay for.”

Of course companies may be resisting these kinds of commercials because they want to leave their options open.

Here’s today’s Question of the Day. This one was submitted by reader, AJ Spring. The question portion of the email is in bold but read the entire email for the context.


I was blessed to have parents that wanted me to do whatever I wanted to, and as a result, I am well on my way to an excellent degree and a well-paying job. However, many of the parents at my high school encouraged their kids (some more forcefully than others) to either go to a public school or a school where they could get a lot of scholarship money. While some of these parents had legitimate financial restrictions, there were families living in 4,000 square foot houses insisting that their children go to State U. Other than the obvious money advantages, can you talk about the pros and cons of sending a child to a public vs. private university?

A.J. Spring


Consider yourself blessed. Not everyone can attend a private college. I see nothing wrong with a kid going to a public university as long as it has a good reputation. Your parents have obviously stressed to you the importance of an education and have made choices accordingly. Hopefully you’ll remember the choices your parents have made and will be able to help them financially if they ever need help.

Your point about people living in 4,000 square foot houses is well taken. Unfortunately, some of these parents are foregoing retirement planning in order to fund today’s lifestyle. I consider this a greater tragedy than not sending their kids to private college.

Now, to answer your questions regarding the pros and cons of public vs. private universities:

Public naturally cheaper unless you can get scholarships or grants. Many private schools are making efforts to help with tuition. However, this can only mean that more people will apply to go those colleges, which will increase the competition making it more difficult to get into those colleges.

A degree from a private college can open the doors to a high-paying job right out of school. It’s debatable the long-term benefits of a degree from a private college as work ethic and dependability also play a significant role in career advancement.

Finally, parents themselves can help pave the way for their kids’ success by teaching them how to become responsible adults—a skill that NO college can teach.

Now it’s time for AFM readers to weigh in. What are your thoughts on parents’ responsibilities in providing their kids with a college education?

Let’s do a little stock market temperment quiz. I found this in an a series of articles about Warren Buffett that was published in U. S. News & World Report last summer:

…what if one stock, in particular, had seemed like a sure bet when you bought it last month. The company sells something everyone needs, is well managed, and has a consistent track record of growth—that is, until it missed Wall Street earnings expectations by a penny and got pounded down by 15 percent in a single day.

Would you:

a) Sell it and curse yourself for buying it in the first place?

b) Sit tight and do nothing until you recover your loss, then sell?

c) Smile and buy more, sure that everyone else is dead wrong?

d) Study and reconfirm your assessment of the company, then smile and buy more?

I do very little individual stock picking. That said, I would probably go with “c” or “d” because I don’t usually let the stock market get to me. The author of the article went on to say that if you answered “d” you could possibly work for Warren Buffett’s Berkshire Hathaway.

Whether you buy individual stocks or invest in mutual funds through your company’s 401(k), you have to keep your emotions in check. If you don’t, you’ll find yourself making lots of mistakes.

I know these U. S. News articles are old, but I urge you to give it a read. There’s lots of good stuff there.

50 Prosperity Classics

I received two copies of Tom Butler-Bowdon’s 50 Prosperity Classics (Affiliate Link) to give away.

This book is a pretty cool idea in that it summarizes 50 of the classic books on prosperity. I have not yet had a chance to read it yet as I just got it in the mail today.

If you are interested in receiving a free copy, leave a comment below. Please remember my TWO RULES:

1. You must be a resident of the U.S. or Canada, and…

2. You can only enter ONE TIME!

I’ll announce the randomly-selected winner on Friday, May 2, 2008.

Good luck!

Well, it now looks like 1.5 quarts is the new “1/2 gallon.”

Based on the information provided in the Consumerist post, that represents a 16.7% price increase! How so? Check this out:

Previous Price Per Quart:

$5.99 ÷ 1.75 quarts = $3.42 per quart

New Price Per Quart:

$5.99 ÷ 1.50 quarts = $3.99 per quart

Percentage Price Increase:

($3.99 – $3.43) ÷ $3.42 = 16.7%

To put that in perspective, these same ice cream companies would now have to charge $8 for a 1/2 gallon of ice cream if the size stayed the same and they just raised prices. Right now Blue Bell sells for around $6.30 for a 1/2 gallon.

Size reductions are very sneaky because most people don’t do the math.

Over the next 11 business days, I’ll be posting reader-submitted questions of the day. This is my attempt to try to open up AFM to the readers and make it a little more interactive. Plus, it’s a great way for me to avoid having to come up with questions!

Today’s question comes to us from AFM reader and financial planner, Dylan Ross:

What do you think is an appropriate number to use for inflation for planning purposes? Professionally, I think 3% is a little to sunny to plan a future on.

That’s a good question. To my knowledge, the most widely-used inflation gauge is the Consumer Price Index (CPI). So, if we don’t use a 3% inflation rate for planning purposes, what number should we use? That’s a good question. I suppose we could use a range of 3% to 5% and plan accordingly. I think the important thing to focus on is long-term inflation, not the short-term spasms that occur from time to time.

What are your thoughts?