Posted by Eric Solis on December 15, 2009 under Public Policy | 
Debt Elimination Credit Vouchers (“DECV) Under DECV the government would issue vouchers to every man woman and child for purposes of eliminating debt. These credit vouchers would be in the form of a government loan and would be used as cash for the exclusive purpose of paying off debt. DECV vouchers are an actual dollar amount equal to the average amount of consumer debt owed per US household. Under this plan the DECV voucher can only be used to pay off consumer debt, college loans or a mortgage etc. If one does not have consumer debt, then the DECV can be used to fund an IRA, HSA or other long term savings need. DECV is structured as a government loan paid back over 10, 20, 30 or 40 years.DECV infuses cash into banks through the repayment of all consumer debt. But it will go through the hands of the tax payers who under any rescue plan will be footing the bill. DECV kills two birds with one stone as DECV vouchers will use tax payer money for their direct benefit by way of substantially reducing or eliminating Americans consumer debt. Banks will become a scaled down version of their former self, because the usury rates charged on consumer loans by banks will be paid off and no longer produce outsized revenue to the banking industry. The problem with infusing banks on the back end is that it keeps this massive consumer debt overhang in tact, which is at the core of the financial crisis.
By refinancing consumer debt, which can be as high as 36%, with long term government debt of 2%, we would free up as much as $150 billion net (est.) per year for every trillion of DECV issued. Under DECV the vacuum of wealth created by consumer debt would be eliminated and the aggregate interest charge to our country would be reduced in proportion to the net spread between consumer debt and government debt. Under the current plan all this money goes into the banking industry’s coffers.
This plan will relieve (not eliminate) pressure on the housing market and unclog the credit markets and derivatives tied to it (i.e. CDS, CDO, CMO etc.) because consumers will be more credit worthy at large. More consumers will be able to make their house payment since they will not be burden with consumer debt. Banks will get the much needed cash infusion and people who carried no debt will have a lump sum to sock away for retirement rewarding good financial management. DECV democratizes the bailout to inure to the benefit of all Americans as apposed to consolidating the benefit to a few.The Treasury and the Government will know exactly how much DECV will cost upfront in contrast to the open ended liability of the planned RTC2. According to the Federal Reserve Statistics Release on Consumer Credit dated July, 2008 revolving consumer debt is 3.5 trillion dollars. The demand for government securities is at an all time high while the securities backed by consumer debt are toxic.
DECV takes the toxic assets off the balance sheet of the banks, as prescribed by Treasury, the Fed and the Administration, but it does so through the hands of those footing the bill…the American tax payer.
Posted by Eric Solis on October 20, 2009 under Stock Market |
Long standing monetary and fiscal policy are the catalyst for the current commodity inflation and the bubble cycle that has been hop scotching from one market to the next since the mid 1990’s. And the “recovery” that market pundits will be promulgating will be the result of a financial bubble that will serve as a vacuum of wealth from Middle America into the pockets of the rich. This will not be a capitalistic bull market, but rather a hyper-inflationary re-pricing of financial assets. It will look and smell like a Bull, for a short time and then the devastating impact will be felt by working families all across the country. In fact we are in the early stages of it now.
This is why we MUST get every American into the market and out of fixed stored savings. ING has opened 6.6 million accounts on the promise of high interest rates. Bank of America 5.5 million accounts into Keep the Change on the same promise. People want to save; they are feeling the need and these institutions have figured that out. But, the supposed “high interest” they pay on these stored savings vehicles and the principal itself is becoming worth less and less with each passing day.
The media, MUST let go of the distraction about “costs” and the inefficiency of mutual funds and other means that make equity investing possible to the mass consumer. This is harming people not helping them. The cost is nothing compared to the harm of economic segregation. The message we should be telling Americans is that they CAN NOT afford to be out of the market. They MUST be in at all costs!!! The equity markets are by nature the only beast blood thirsty and wicked enough to combat the glutton minded fiscal and monetary policies of the past decades.
“Smart money” wants to keep the dumb money in stored savings vehicles, because this is non dilutive to the pyramid scheme that is being funded by our own Federal Reserve and government. Trillions of dollars are being pumped into the system in order to feed the beast. The beast begs to be fed in order to live (Fed and fed…interesting). So, Middle America MUST feed the beast too in order to fend off purchasing power poverty.
It is not a perfect solution and it is a “high cost” system using rich mans math. But when we compare what is happening to the purchasing power of stored savings, it is a MUST.
Posted by Eric Solis on under Saving & Investing |
I will buy your book and your RoR analysis. But, may I suggest that your rebuttal misses the point. I agree with you from a quantifiable and static approach of looking at rate of return. Clearly 10%-.15% is better than 10%-1.5% all things being equal. It does not take a lot of brain power to agree with that. But making RoR the central issue relating to costs and fees ignores the qualitative and dynamic issues that pertain to wealth accumulation and economic inclusion. Wealth accumulation is about core=commitments, vision=financial security, strategy=financial instrument and report=RoR.
In my view, the “percentage of assets under management” debate is absurd. It is a calculation for the rich, not main street. What is relevant is helping folks understand the concept of “marginal utility value” like electricity to stay warm versus the marginal value of operating an electric razor.
There is a real dollar cost of technology, legal, accounting, transfer, clearing and settlement and these systems are the gateway to economic prosperity and freedom for the middle and lower classes. Just as if they were starting a business, consumers must invest in the start up costs associated with building wealth.
The communistic view that one need not invest, but rather they are entitled to receive the best price is delusional and destructive (in my
opinion) to the long term financial health of our middle class. The issue is democratization through creating supply at market rates, which as a percentage of assets under management may look different than the traditional ratios. But if a person sticks with it long enough they too will be able to dictate the terms that they are willing to pay for the marginal value delivered over and above the fixed cost to maintain their account.
In closing here is an example:
$1 invested everyday for 67 years at 10% grows to $1,000,000 (est.). If the fee is $52 a year they will pay a total of $3,484 dollars over the
67 years. Yet, each and every year they paid 14% of the amount invested in fees. Is this smart?
The $52 is the utility value of saving and aught to be viewed as consumption in the early stages. But over time the ROI on the fees makes really good sense.
Posted by Eric Solis on under Stock Market |
Written June 2007
A Bear in Hibernation
First let me explain the general concept of a “bull market” versus a “bear market”. A bull market describes an overall market condition that is increasing in value and a bear market describes one that is decreasing in value.
Over the past several years, the U.S. stock markets have experienced a bull market that has driven prices to unprecedented levels. The Dow Jones Industrial Average has broken above 13,000 for the first time in history. This has created a lot of excitement amongst speculators who are buying stock in hopes of raking in oversized short term gains.
The purpose of this letter is to prepare you for what will inevitably come to pass. I am not a market timer, fortune teller or doom and gloomer. But I am a realist and a professional with 20 years experience in the financial markets and my goal is to impart to you what I have learned.
Here is what I want you to “bare” in mind (pun intended). The Bear will awaken and when he does he will devour those who have wandered off of the trail of good investment planning. The timing of when the bear will awaken is anybodies guess, but rest assured he will awaken. This means that the stock market could drop 20% or more and if you are not prepared you may be tempted to bail out and potentially lose money unnecessarily.
Be true to your vision and plans for the future and be committed to your goals. This will produce peace and abundance and less stress and fear as the markets fluctuate. For example, let’s say that your goal is to invest $10 a day. If the share value of your investment is $10, you will buy one share with your $10. If the share value drops to $8 you will buy 1.25 shares with the same $10. Your average cost in this example is now $8.88 instead of $9. If you keep buying as prices decline, you continually lower your average cost. This is called Dollar Cost Averaging and it is a highly effective antidote to “Bear Markets”.
The good news for those using the DailyIRA dollar cost averaging system is that it allows you to put money away every day that the stock market is open, . You can start with as little as $1 and you can adjust your contributions up or down with the click of a button.
Think of it this way, seeing a bear on a hike in the woods can add to the excitement IF you have the right equipment to defend yourself. But if you are not prepared and have no plan to protect yourself, you are asking for trouble. The same principle applies to investing. So have a plan and stick to it.
Posted by Eric Solis on under Housing & Mortgage |
The Sub prime Scapegoat
Written October 2006
Keep in mind that it was not long ago that we read about Fannie Mae and Freddie Mac. These are the harbingers for bad policy and the hand writing on the wall for what is coming. The $500,000 tax exemption was the jet fuel that hurled our housing market into debt bubble serfdom.
When the “dotcom” bubble burst, prices of anything that even looked or smelled like a dotcom company dropped in value 30% almost over night. Worse, pure play “dot-coms” dropped 70%+ or went out of business. The driver of this sort of “sell off” is that if a company is connected in anyway shape or form to projections that created the inflated values, then it needed to be “market to the market” through a re-valuation of current business expectations. This process is to be applauded, because it immediately allowed the market to re-set valuations and investors that took risks in pursuit of above market returns paid the price through a loss of capital. It is through this process that capitalism works.
Now, let’s look at the real estate market and what has transpired and how it is NOT playing by those rules. If you have been reading the newspapers you see headlines like “Real Estate Market Drops first time in 15 Years.” These stories go on to report that the market has dropped 1 to 3%. This my friends is a joke. A 3% decline is not even a correction, let alone a bear market. The stock market moves that much in an hour when major news hits the wire. The fact is that the housing market has experience far more damage than listings or closing prices reflect, but because it is such a slow market, prices take a long time to reflect value adjustments.
But, rest assure if your house was listed on the NYSE and it could be re-valued in real time on a day to day basis, it would be down substantially more than what the media is quoting. If we were to take into consideration your mortgage and your ability to pay your mortgage, this may even hurt value further, based on the risk of default that you represent.
The interesting thing here is that ignorance is not bliss. Markets are “markets” regardless of how efficient they are and they will have their way. Look at Eastern European countries, Japan, South America or other economies where markets have not been allowed to fail via control, manipulation or excess financial engineering. The result has always been the same…economic collapse. Just because one wishes it were not so, or that one becomes unwilling to accept the reality of a loss, does not change reality. As the old saying goes “wishing it so does not make it so.”
It is possible that people who are buying houses today thinking that they are getting a good deal, may be in fact paying a huge premium over what the house would be worth if it were market to the market.. When you are buying into a market that is rising prices adjust quickly upward because of the greed factor. But, when prices are falling they move very slowly because of denial. This dynamic creates a window for smart money to unload in what can be disguised as a “buyers market”. In the stock market there is an old adage “you don’t want to try and catch a falling knife”.
If you look at the behavior of the real estate market over the past several years, it makes the dotcom bubble look like child’s play. This debacle to my thinking will become the single most catastrophic economic event in the history of the financial world. Bigger then the stock market crash of 1929, bigger than World War II (in economic terms), bigger then the oil embargo of the 1970’s, bigger than the 1987 stock market crash and bigger then Enron, Worldcom and all of the other scandals combined.
And it is not just Sub-Prime that is the issue. This is going to touch every aspect of the housing market. Valuations have gotten so far out of line with income that it is frightening. In the same period where the housing market doubled, personal incomes rose single digits. The mantra that people buy a “mortgage payment” not a house is going to come back to haunt millions of people all across the nation. The message that the American public was sold was that the price you paid did not matter, so long as you could afford the payment (a strategy borrowed from the auto industry. “What payment can you afford on this lease?”) This propaganda is poison to sound decision making and will come with a steep price to pay for society.
Here is something to think about. When the stock market crashed in 1929, the primary cause was people buying on what is called “margin”. Buying on margin is the act of buying stock with borrowed money. For example, let’s assume you could buy $1000 dollars worth of stock and all you would needed to “put down” was $100 dollars. In this case, if the stock went up 10%, you would make $100 and thereby double your money. Conversely, if the market dropped 10%, then you would lose 100% of your money.
When the market crashed 1929, it fell 30% within a week. This wiped out all of the equity for those who were buying on 10% margin. So, after the crash, all of the bankers and regulators got together and raised the margin requirement to 50%. This meant that a an investor would have to put up $50 for every $100 dollar of stock they wanted to buy and the stock would have to drop 50% before all of their equity would be lost.
But they DID NOT apply the same rules to the housing market. Many folks to day have been able t buy a house with zero down. And a large percentage of home buyers have put 10% or 20% down. That means that a 20% decline in the housing market could wipe out all of the equity of millions of home owners.
Posted by Eric Solis on August 24, 2009 under Healthcare |
PUBLIC HEALTHCARE
I am compelled to write this with regard to the healthcare debate that our country is in. First, let me be clear that I am a fiscal, monetary and social conservative with moderate economic views. I consider myself an independent and am registered accordingly. I do not agree with Obama on 99% of the issues and like many am skeptical of his capacity to serve as President of our nation. With that said, I am just as skeptical of the insurance and pharmaceutical companies that control the choking points of the health care industry. Consider the following:
- What would it cost to get a piece of mail from LA to NY if it were left up to Federal Express?
- What would it cost to air condition your home if the Public Utilities Commission did not exist?
- What would private industry charge you to pump water into your home if not for the PUC?
- What would Elementary school cost if it were priced like private Universities?
- What would law enforcement cost if a public option did not exist?
- What would fire services cost if a public option did not exist?
I am a strong advocate of capitalism, but when it comes to “utility” type needs of society; it is not uncommon and indeed makes sense to have the “government” provide a foundational service to support availability and fair pricing. Remember government is supposed to be “we the people”. And while I get the mistrust of our government, at the core, the idea of eliminating the profit motive from healthcare makes sense and this point I would assert is long over due.
The healthcare industry is a monopoly. For example you do not have to have a computer, or Microsoft windows or the internet or a car. But we all have to have healthcare. We do not have to have coverage, but to live we have to have healthcare. So price fixing and corruption are part and parcel with this monopolistic industry. It is analogous to giving a group of for profit companies the right to price and sell us the oxygen we breathe. How many of us would want that? How many of us believe that business today would sell us oxygen at a fair price? Just look at the cell phone industry as an example; what they sell us the right to use the air waves and we all know they are gouging consumers. Remember that corporate America is every bit as corrupt as the Government.
Have you ever wondered why we get water so cheap? It is life sustaining and we can’t live without it. In my view healthcare falls in the same camp. To have only companies that want to profit off delivering healthcare is a PROBLEM and a BIG one at that. I am of the belief that the insurance industry is causing fear and confusion with regard to what a public option would look like. Think about this for a minute. The insurance industry earns upwards of 50 billion in net profits year in and year out. If you were to add back all of the executive pay, marketing, commissions and fees adding up to hundreds of billions of dollars that is paid out year after year, you would discover enough money to insure millions of people. Double goes for the Pharmaceutical industry (have you asked yourself why there is a drug store on every corner these days even out in the middle of nowhere? BIG MONEY!). The fact is that the number is as large as the stimulus package that was paid out in 2008, but in this case it would be every year and it would go directly towards creating a solution for our nation’s dire healthcare problem. Put another way, if this money were absorbed for the benefit of society as a dividend to keep healthcare costs down, it would equate to a huge savings for society over time and each American would be a benefactor of this freed up capital that is currently going into the coffers of the healthcare monopoly, year after year after year, equating to trillions of dollars over time.
Personally I think a public utilities sort of arrangement makes the most sense. Pharmaceutical and health insurance companies should be treated like utility companies whereby they are given rate increase approvals to reach target ROI. This would create private industry solution to a public “utility” need (i.e. healthcare) with a rate of return that mirrors that of a public utility company (i.e. 10%) that is given an implied guarantee and could even be subsidized by the government. This is a model that Americans are familiar with and use every day when we flip the light switch on in their homes or when we run the bath.
Oh, and BTW…you are not forced to use and pay your utility company. It is your right to sit in the dark. So, do not confuse my comments with agreeing with Obamacare or Romneycare. This sort of plan would still protect the freedoms afforded us under the constitution of the United Staes of America.
Posted by Eric Solis on August 10, 2009 under Financial Crisis, Investment Strategies, Public Policy, Saving & Investing, Stock Market |
With all of the chaos in the world of finance, I was recently asked to appear on Fox News kttv_s2521, to discuss financial principals that would work for the average American in today’s uncertain world.
I spoke on issues regarding the impact that the global financial crisis and economic meltdown can have on you, your family and your wallet. I postulate a strong belief that now is the time to reclaim our country; together we can “buy America back one dollar at a time, one day at a time, and one person at a time” through an increased National savings rate and personal stewardship.
I am an unwavering champion of the “little guy”. My goal is to create sustainable financial solutions for all of man kind by thinking differently and being willing to do the hard work of breaking down barriers (and believe me it is not easy).
This interview demonstrates how a highly complex financial breakdown can be utilized as an opportunity to improve on your personal vision and financial goals.
Now watch the interview kttv_s2521 and pass it along to family and friends. Also, remember to post a comment when you are done as your feedback is important to me.
God bless,
Eric
Posted by Eric Solis on under Public Policy, Stewardship/Spiritual/Finance |
“For they that are after the flesh do mind the things of the flesh; but they that are after the Spirit of things of the Spirit.” Romans 8:5
There was a time when the things of God were important to America and its people. The American Dream was not synonymous with consumerism and having more stuff. The balance of life style and concern for our fellow man was imbedded in our culture. But today, even (or especially) our churches are filled with people that are distracted with the things of this world and immediate self gratification and not the will or work of God.
Most people do not connect their finances to the existence of God, even though our currency reminds us that “In God We Trust”. Especially in the media, few are courageous enough to connect the word of God to the world of good, by speaking out with regard to how these realities co-exist. But unless we as a people (not the government) begin to acknowledge this connection and thus leave enough resources to care for our pressing social needs, then our personal and national finances will continue to suffer and our liberty will continue to erode from the inside out.
The American Dream is part and parcel to being a self governing people under God, with liberty and justice for all. This means that we must give of ourselves by way of time and resources to His will and be willing to sacrifice along these lines.
Starting with our families and churches, extending to our communities, expanding to our nation and reaching across the globe with the love of God is the cure for the consumer driven malady gripping the finances of our world today.
As we eliminate the distractions of life, driven by our own passions and desires, we will become able to look outside of ourselves to see the lost and hurting people all around us and become willing to help. And as we shift towards seeing people as the purpose rather than the problem, we will see the glorious fruit of our Nation blessed once again by God.
”For if ye live after the flesh, ye shall die. But if ye through the Spirit do mortify the deeds of the body, ye shall live.” Romans 8:13
Posted by Eric Solis on November 17, 2008 under Banking, Financial Crisis, General, Housing & Mortgage, Housing & Real Estate, Investment Strategies, Saving & Investing, Stewardship/Spiritual/Finance, Stock Market, U.S. Treasury Markets |
I recently appeared as the featured guest in a 10-minute segment on KTLA’s Morning News. We discussed some solutions for braving these rough economic times. Have a look at the video below …
KTLA Morning News appearance
Posted by Eric Solis on August 26, 2008 under Investment Strategies |
Thinking about setting up an investment portfolio, but are not sure where to start? Beginner investing is not as difficult as you might think. With the internet, researching strategies to save money is easy and you can learn a lot about ways to save money.
Investing is critical to your lifelong health and happiness. You will need to have investments for retirement, especially in today’s economy where purchasing power of the US dollar is decreasing and inflation rising. That and investing is very interesting if you know what you are doing.
The first thing you must decide is how much risk you are willing to take. Low risk investments are certificates of deposits, savings bonds and similar guaranteed type investments. High risk investments might include trading options or buying low priced stocks.
If you are just starting out, you will want to follow some easy steps. Investing can be quite complicated depending on what you are investing in:
- Make a budget plan and do not exceed it.
- Start out with a single kind of investment, (ie. drip investing) until you become familiar with how that investment medium works and then widen your horizons and begin to expand your portfolio.
- Don’t put all of your eggs in one basket! With a diversified portfolio you reduce your risk.
- Follow the experts. Find out what the experts are doing. Read everything you can about investing and strategies to save money.
- Get started. Many people put off starting something that is new. You will be a beginner until you get some experience and skill and you cannot do that until you get started.
Today, learning to invest is critical. Start building for tomorrow, today. You are never too young to start investing and a person never gets too old to make changes to their investment portfolio.
Try out this savings interest calculator to see just how fast your money can grow.
