The Case For Refinancing (For The Banks Too)

It would be great if the housing market could find a spark. What is out there that can move the market?

Time To Release The Refinancing Hounds

Could refinancing be the spark needed to get the housing market and the general economy moving again? The case for this has to be made. Here are some reasons why in the medium to long term, it should help everyone involved in the cycle:

-          Homeowners – There are many homeowners that have proven their worth by still paying on mortgages.

-          Businesses – Everything connected to housing would benefit from this type of move. Builders would see more activity. Local governments could start seeing higher tax revenue. Families could start living in their own homes.   

-          Banks – Most homeowners have shown that even though they will not be able to refinance their loans, they have not walked out on them.  The ones that couldn’t are already out of the system. The banks should take advantage of this loyalty. The amount of money received right away from the fees will at this point outweigh the loss of revenue over the next 25 years. Some banks that are not as tied to trading for profits as others could use this to boost current period revenue.

The How To Plan

-          First, target all homeowners that are consistent with their payments and are within a certain percentage (maybe 2-5) of the current requirements for refinancing.

-          Offer them a standard refi program with a penalty fee worth the thirty year Net Present Value of the reduced value of the home. 

-          Another option is to attach an annual fee to the mortgage if the Net Present Value of the reduced value is too high.   

Income Gap Hindering Trading Volumes

Recently, there has been a decent amount of coverage on the lack of volume within the trading markets. The consensus theory is that there is a lot of money sitting on the sidelines waiting for the right moment to invest. The conversation also suggests that the money is not yet invested because there is a lack of regulation direction. That probably is correct. But does the income gap have a part in this equation?

The fact that the rich have more to invest in the stock market and don't even while balance sheets and profits have never been better should be an indication that something is amiss. The extra money being made by the rich is going into safer instruments (i.e. bonds) than stocks because the money doesn't need to be invested at a level of risk normally associated with equities. Combine this with a growing number of families that lack the income to invest, and you might have lower volumes.

Having a lower volume right now is not good. But when the rich don't need to and the rest can't, what else is supposed to happen?

Investor vs. Labor Part II - Who are the investors?

This is part II of a series being done on the topic of Investor vs. Labor. Part 1 of the series introduced the topic and can be found here. This post will focus primarily on how labor is a large part of the investing community. You may have heard your company's CEO make a statement such as "We are trying to maximize shareholder value." That is one of the most popular statements made by CEO's today. But that begs the question "Who are your shareholders?". The answer might surprise you.

The largest shareholders of Fortune 500 companies outside of company executives tend to be retirement funds representing the country's labor force. If you are to look at the largest retirement funds that regularly invest their money, you will find most are workers pension funds or mutual funds that are packed with retirement dollars. If you research most Hedge Funds, you will find the bulk of their capital comes from workers retirement packages also. Union pension fund investments into the stock market are in the billions each year. If you go to MSN Money, you can type in a stock and see that clearly worker retirement funds are the major investor in the stock.  

Workers with blue collar salaries depend on the stock market for their retirement more than white collar executives because they have to. White collar salaried workers are able to take risk off the table and invest in safer instruments due to their higher salary. Blue collar workers do not have that luxury.

When a CEO makes that statement " We are trying to maximize shareholder value.", make sure it isn't preceded or followed by the statement "That is why we keep worker costs down.". If it is, he or she needs to find out who the company's shareholders actually are.

Silicon Valley The New VC Capital?

How powerful is Silicon Valley becoming in the financial industry? By the looks of VC firms Google Ventures and Andreesen Horowitz, Kleiner Perkins, Sequoia Capital, and others, the verdict is at the very least becoming stronger. There is a Fast Company article posted here that discusses Google Ventures and how models of finance are changing.  New York finally has some competition when it comes to financing deals.

Investor vs. Labor

There is a big elephant in the economic room right now. It is the topic of finding a good return for investors while demanding a livable wage for workers. Finding a general middle ground on this issue is going to be paramount if the global economy is going to run smoothly. One optimistic view is that there are many in the global economy that are on both sides of the issue. It is this group that are both workers and are also investors that can lead the economy into both a prosperous and livable wage earning future.

Future posts will focus on how different entities are affecting this process. They include corporations, labor groups, lobbyists for both corporations and labor groups, the financial industry, government, and retirement plans. If there are any other groups not mentioned in this post or future posts, please feel free to comment.

This thread hopefully will get the conversation moving in a direction that allows for a decent return on investments as well as a livable wage for all who participate in this economy.  

New Deals (Micosoft/AOL, Facebook/Instagram)

The deal market might be sparked to move with Facebook buying Instagram. See the New York Times story here. Instagram is barely three years old. But its competitive advantages in the photo sharing area was just too much for Facebook.

Also, Microsoft paid over one billion dollars for some of AOL's patents. Read the New York Times story here. This deal is a reminder of how important intellectual property can be when running a business.

As there haven't been many deals lately, this might get the money moving a little bit. Balance sheets are full of cash and there needs to be something done with the cash.

Pension fund Blacklists Walmart

The following Huffingtonpost article reports that there is a Dutch pension fund that is blacklisting Walmart from its investments. The power of the pension is now starting to be seen and felt.