Why stock dilution is relevant to investors

Image attribution: FreeDigitalPhotos.net; standard royalty free license

Corporate stock dilution is a result that occurs when new shares of company stock are issued. More specifically, when new corporate shares are issued the price of total shares decline to equal the total value of shares before new shares were issued. For example, suppose ABC Company has 100,000 common shares valued at $10.00 per share. If ABC Company issues 100,000 more shares, the value of total shares will remain the same, but the price will drop to $5.00 per share in order for this to happen.

Stock dilution in terms of shareholder wealth can be measured by calculating the earnings per share and diluted earnings per share. Earnings per share is calculated by dividing total earnings after dividends are paid by the total number of shares outstanding. Diluted earnings per share is essentially calculated in the same way, but when convertible securities are added, the EPS goes down. Furthermore, earnings per share measures the amount of a company's earnings that are available for each share, whereas diluted earnings per share measures the value of shares if outstanding stock options and convertible securities are converted into shares. In the case of convertible securities such as debentures, a company may be trying to raise new capital to finance business projects according to the Securities and Exchange Commission.

Forward stock splits are an additional cause of stock dilution. In the case of forward stock splits, the existing amount of shares are split into more shares. For example, in a 2:1 stock split, two shares replace an existing old share. According to a study performed by economics faculty at the University of Indonesia, a noted affect of forward stock splits is an increase in share trading volume prior to the stock split. Even though the mathematical affect of stock splits on actual worth at the time of the split is naught, the announcement of the stock split itself may affect market psychology. For example, the stock split and stock dilution may be seen as a good thing thereby increasing share activity. 

Market psychology surrounding corporate finance is dynamic, but a reason stock splits may be seen as a positive indicator is strong financial growth according to StreetInsider. Moreover, a company's stock price and price per share relative to earnings may rise too high in the wake of strong revenue and earnings growth making it difficult to maximize capital investment. In such case, stock dilution can be financially positive because it reflects growth and allows the business to obtain capital investment that may have otherwise been left out due to high share prices. Thus, in the case of a successful corporation, even if the price of shares go down after new shares are issued, they can rise again in successive stock trading after being diluted; this is quite possibly a "bifurcated" aim of lowering the price per share.  

Another reason market psychology can be affected by stock dilution is the affect on corporate financial statistics. To illustrate, suppose a company has an overly inflated stock price and P/E ratio; if the company issues new stock, the price to earnings ratio is affected. Furthermore, since the PE ratio is used as a gauge of corporate performance, an increase in shares outstanding leads to an increase in P/E  if it is followed by a share price rise. In such case, the company may subsequently appear to have improved investor confidence because the P/E ratio becomes inflated by a rise in stock price following the dilution. 

Financial news 06/29/2012

• Business Insider: U.S. among least favorable equity markets per Citi
• CNNMoney: Investors sold $1.8 bln of mutual funds in week ending 06/13
• InvestorPlace: Obamacare ruling bullish for health care stocks in long-run
• CNBC: FDIC proposes gold be considered a tier-1 banking capital asset
• NYT: Business profits declined .3% in Q1; first decline since 2008
• RT: J.P. Morgan income subsidized up to 77% via bailout funds
• AOL: Diagnostic tests to be free under Affordable Health Care Act
• IBD: Slow housing recover despite lower household credit card debt
• Bloomberg: Euro forgoes seniority in event of bailout loan default
• Reuters: Fee income for global investment banks falls 25 percent in Q2

Debit card review: Maestro debit card

Image attribution: FreeDigitalPhotos.net; standard royalty free license

Maestro debit card services is a division of MasterCard that is licensed to financial institutions that issue debit cards. These debit services allow clients to make payments from their checking accounts or using pre-paid debit cards. Maestro cards use the MasterCard Maestro transaction network which is a payment system that communicates between merchants and financial institutions to authorize debit transactions. Cards that use Maestro debit card services can be used to make payments at merchant locations that subscribe to the Maestro network. The cards can also access a vast number of ATMs findable using the MasterCard ATM locator.

Interchange fees

The costs charged for allowing Maestro card consumer debit transactions across European Economic Area country borders were limited by a December 2007 ruling by the European Commission per MasterCard’s 2011 Q1 Form 10-Q. However, in 2009 this ruling was bypassed with MasterCard’s compliance with the EU's condition that MasterCard “create efficiencies that outweigh the restriction of competition.” For Maestro debit card transactions this fee is limited to .003 percent of the transaction cost.

Wireless transactions

A unique feature of the Maestro debit card service network is that it includes the Maestro Paypass. This is allows Maestro Debit Card holders to simply tap their Maestro card instead of swiping and entering in a personal identification number. Only merchants with tap technology equipment are able to process debit card transactions in this way. As easy as the wireless tap payment method is for the Maestro card holders, it is limited to 10 pounds sterling and is only functional at merchants with tap technology equipment. This may protect against the wireless theft of account information or funds, but also limits the functionality of the technology.

International use

The Maestro debit card service can be used in numerous countries and primarily serves the United Kingdom and European Economic Union countries including France, Germany and Italy. According to MasterCard, The Maestro debit card is accepted at over 960,000 locations within the U.K. Additionally, MasterCard claims there over 100 countries with Maestro card access in its 2011 Q1 Form 10-Q. This network integration assists with making payments while overseas and limits the need for cash. MasterCard’s quarterly report also claims these types of transactions are also more profitable for them as a corporation.

Prepaid debit cards

In addition to account based debit cards, Maestro cards can also be acquired using a prepaid method. Prepaid Maestro cards do not require a credit check, but do require identification to be purchased; these cards are also re-loadable. According to Maestro card services, Maestro prepaid cards can be used at millions of retail locations worldwide and allow both internet transactions and internet access to card information via the Masestro debit card online services.

Security features

Maestro debit cards issued by HSBC, NatWest and The Royal Bank of Scotland can be registered for a security protection feature called SecureCode. SecureCode protects transactions with an additional secret code. A transaction history is also recorded when transactions are made using these cards. Since debit card transactions are recorded on account statements, the identification of possible fraudulent transactions in real time and via historical records also facilitates the security of using the Maestro card.

Financial news 06/28/2012

• Reuters: Orders for manufactured goods unsustainable per Commerce Dept.
• Business Insider: USDA has spent $3 million marketing food stamps
• Daily Finance: Ethical misconduct costs economy more than Madoff Ponzi
• HGTV: Texas woman wins HGTV green home grand prize worth near $800,000
• InvestorPlace: Surge in Q2 home buying difficult to sustain in joblessness
• DOL:  Jobless claims for week ending 06/23, 386,000, mvng avrg 386,750
• IBD: Low Q2 revenue & earnings guidance, and stock-split lower retail stocks
• NYT: JP Morgan Chase loss mount up to as high as $9 billion
• Bloomberg: Monetary and fiscal tightening in Europe match events from 1931 
• MarketWatch: May Japanese retail sales decline .9% year over year
• CNNMoney: Euro summit believed to be a cul de sac for economic resolution
• AP: Barclay's bank to pay $453 million to settle interest manipulation charges
• BBC: Joblessness and post-marriage issues "causing" many suicides in India

Why Apple's iPhone has dominated the smartphone market

Cell phone market costs vs benefits

Image attribution: Richard A. Daveni; Harvard Business School Review; fair use

Apple's iPhone has dominated the mobile phone market via a combination of research and development, product development, brand equity based customer conversions and through its advertising and marketing strategy. Reaching $150 billion in iPhone sales, the smart phone faces competition from both hardware and software designers including Google, Microsoft and Samsung.

Complete article link: http://www.helium.com/items/2341954-how-apple-inc-has-sold-so-many-iphones

Financial news 06/27/2012

• AP: Stockton, California close to bankruptcy as settlement deal falls through
• Bloomberg: IRS crackdown on foreign account assets yields $5 billion
• AOL: Schools face federal aid cut off under "gainful employment" rule
• InvestorPlace: Gold demand in Q3 par with Q2 due to dollar & low inflation
• CNNMoney: Healthcare reform saved 5.2 mln+ people, $3.7 bln on drugs
• Reuters: Dallas Fed Chief says "Operation Twist" cost outweighs benefit
• CNBC: Oil prices indicate global economy in financial straits 
• NAR: Pending home sales for May up 5.9 percent over April
• BI: Island of Jersey reassess ties with UK after tax-haven clampdown
• Forbes: Capital flight from Euro-assets marks no-confidence in EU summit
• BBC: Japanese legislators approve doubling of sales tax

Financial news 06/26/2012

• Investor Place: Medicare payroll withholding tax to increase .9% in 2013
• NYT: Amount of Americans working past 65 exceeds 7.2 million
• Business Insider: Man living in Utah Canyon without money redefines life
• Conference Board: Consumer confidence index declines to 62 in June
• Daily Finance: New disclosure laws will uncover hidden 401(k) fees
• CNN Money: Only 25% of Americans have 6-months of emergency savings
• Reuters: ND shale oil output to reach 1.23 mln brls/day by 2035 per EIA
• Bloomberg: Higher taxed state economies on par or above non-taxed states
• CNBC: France pushing for Euro-wide fiscal union to avoid higher debt costs
• Moody's: Long-term debt and deposit ratings of 28 banks downgraded
• AP: Resignation of Greek finance minister delays EU financial decisions
• BBC: Cyprus joins Greece, Spain, Portugal and Ireland; asks for bailout

Reasons to be wary of some businesses

Before the one-sided bias of this post takes hold, be aware the fact of the matter is businesses can be good and bad. Businesses provide goods and services to the public, generate jobs and play a major role in economic stability. In turn, the people of the world, consume, innovate and develop in ways that materially speaking are unmatched by any other form of civilization in known human history. In this sense, businesses can be trusted to benefit society by providing for its material needs via commercial economics. There is also no doubt businesses do good via charitable contributions, but what if those donations were not tax deductible?

As long as businesses are primarily profit driven engines, then technically, and many times in actuality, anything under the law is allowable. For example, the food supply contains semi-addictive sugar, mono-sodium glutamate and according to The Great Plains Laboratory, Inc., opiate like gluten products.  All these ingredients stimulate appetite.  Apparently however, this laboratory business does not make its money from the food supply. Such being the case, it may be more at risk of providing doctors with lots and lots of things to diagnose making a perfect circle of profitability where consumers eat more, and get sick, then have to pay for it.

There is also the issue of public perception. Moreover, according to the widely referred to economic and social research firm Gallup, public sentiment is quite unimpressed by business practices. Specifically 66 percent of people worldwide think businesses are corrupt according to a public opinion poll. Gallup is a business though, perhaps they are corrupt in how they disclose statistics then. In other words, maybe the research is aimed at informing businesses about how customers can be better lied to using statistical polling data rather than what business practices should be changed for the sake of mankind.

Businesses also exploit the labor force by hiring temps and part-time workers below 35 hour per week shifts; this helps lower benefit costs while providing the same quality of service. On a more high-brow level, misplaced confidence in financial models is exploited to serve the ends of business and not clients per James Montier in a GMO White Paper called "The Flaws of Finance." Moreover, financial practitioners need a Hippocratic Oath because their intentions are so skewed per Montier.

The theme of Montier is expressed differently by the late comedian George Carlin who provided an artistic take on businesses. Specifically, in his stand up work he referred to them as untrustworthy because they lie and pretend to be servicing when instead they are really doing something more sinister. Carlin is referring to the shadow side of business that often gets swept under the rug. This shadow side is not too far away from what Montier is talking about when he refers to the misuse of financial models, some of which led the world into a financial crisis.

George Carlin on the American Dream

Warning: Rated R; contains profanity.

It's important to reiterate, not all businesses are as bad or as dysfunctional as either Carlin or Montier portray them, but all businesses are capable of quite a lot. Many businesses prefer the honest dealings of ethical business and earn their clients' and customers' patronage that way. Furthermore, it is quite possibly the case the majority of small-businesses are quite reasonable with their views of the limitations of financial modeling. Just look at corporate social responsibility. That fact the concept exists is a good thing, but according to The Economist, how it is used is a completely different story. Referring to the well known economist Robert Reich, The Economist discusses CSR as a tool of manipulation more than a genuine attempt at responsibility. Hmmm.

Financial news 06/25/2012

• Daily Finance: Over 12 states have increased sales tax since 2007
• Option Queen: Dollar expected to rise based on technical indicators
• NYT: Central banks cannot handle Euro-crisis alone per BIS
• Bloomberg: Commodities entered bear market on 06/21/12
• CNBC: U.S. banks face higher financing costs after credit downgrades
• BI: Mitt Romney's tax plan for America vague according to supporters
• CNN Money: Nevada unemployment tops states at 11.6%
• BBC: Europe has cut aid to developing countries amidst debt crisis
• AP: German ratification for EU fiscal discipline treaty supported
• Reuters: German finance & EC ministers oppose Greek budget extension

Why the cost of education should be marked to market

Image attribution: Lumaxart; CC BY SA-2.0

At the undergraduate level, a degree in accounting costs the same as a degree in journalism. Yet, according to the Daily Beast, a degree in Journalism is the most useless degree to have (wiping my forehead, good thing I have two degrees in philosophy!) Having said that, there is a real societal and economic issue underlying education costs. Basically, undergraduates are not getting an education marked to market, which basically means the value is not measured in terms of actual worth.

Skeptics would argue, if degree costs were measured in terms of worth, professors in low-valued fields would not work because the pay is so low. Really. Has that been proven or is that just speculation? From one perspective, life is more than just money, actually, much more than just money and some might just be passionate to share some things in life regardless of compensation. How do I know this? Quite simple, I've been writing for over five years and have a very low income.

What if education were marked to market, what then? For starters, the debt to income ratio of creative types who choose to learn about their fields would be more manageable. That isn't so bad is it? Oh, actually it is for those who only care about money. For those people, who I relate to at a substantial level, follow the smart money. Makes sense, following the arts is not typically being in the path of smart money, unless it's coming from George Lucas, Jean-Louis Gauthier, or William Shakespeare. So if you want to teach art and make a living, have a lot of faith in life. Otherwise, focus on the money ball.

There is another real economic problem to marking education to market however. Specifically, if all education costs were marked to market, only a handful of degrees would really be worth a great deal. In such case, and assuming many degrees would be valued at far less than their actual present costs, the economy would be affected significantly. For example, professors could be on food stamps, perceptions of education could lower enrollment causing the revenue of educational institutions, and the quality of educational programs to decline. If economics is the focal point, then yes, that is a big deal; but what if it isn't?

Economic models are not fool proof, and the field of economics is one of many that applies mathematical formulas to sociological constructs.  This is why economics is not considered a science, and what is not scientific is not absolute, therefore economics is not accurate. Also, measuring worth is not quite that simple as a survey of the career paths of thousands of former students would need to be tracked to create any sort of statistical significance to the valuations. It would also be challenging to isolate the exact influence education has on wealth apart from other variables such as luck, personality, motivation etc.

Even if economics were a science, which at basic levels it is, the scenario does not bode well materially. For example, Jeremy Grantham, a well known fund manager, thinks "grandchildren have no value" because of the unsustainable course of current economic practices according to John Elkington of the U.K. Guardian. Indeed, Grantham has clearly illustrated that constant growth is impossible with finite resources and demonstrates this using simple mathematics. This is reiterated by Henry Blodget of Business Insider who summarizes Grantham's reasoning as essentially this: "One cubic meter of possessions at a growth rate of 4.5 percent per year for 3000 years is equal to 10 to the 57th power."

The economy is a fragile mechanism that millions of people depend on to live and thrive. That's no small potato in an existential world where 'actual living' is a legitimate concern. In such case, humanity and common sense draw lines where economics might not. Specifically, minimum values of educational worth similar to minimum wage of labor. Makes sense doesn't it? No degree is worth nothing, and everybody is on Earth for a reason, so why stand in the way of life when it such a good thing? In other words, undervaluing education is just as bad as overvaluing it because it slows progress, and decreases the quality of education. 

Financial News 06/22/2012

• CNBC: Large U.S. corporations earnings decline; worst results in 10 yrs
• IBD: After mortgage modification 59% of homeowners re-entered default 
• AOL: Insurers that failed to reinvest profits to issue $1 billion in rebates
• BBC: Physicist/Doctor proves U.S. healthcare is up to 50% inefficient
• CNN Money: Goldman Sachs issues sell recommendation on S&P 500 
• Business Insider: Majority of wealthy did little to gain wealth themselves  
• Moody's: Debt ratings of 15 banks with global capital exposure downgraded
• Philly Fed: Manufacturing businesses index of -16.6  indicates slowdown
• AP: EU unsure how to pay for bank bailouts & debate transaction tax
• Bloomberg: Executive confidence of 7,000 German businesses lower
• Reuters: Italian and Spanish 10-yr bonds up to 5.83% & 6.66% after respite

How floating charges are assessed

Image attribution: FreeDigitalPhotos.net; standard royalty free license

Floating charge loans are secured by assets that have no fixed worth. An example of a floating charge is a corporate debenture which is an asset secured loan. Moreover, the assets that can be used to secure a debenture can include stocks, depreciable equipment and goodwill. No specific asset must be used to secure a floating charge, however the value of business assets should be high enough to pay for the loan if liquidated. 

In order for floating charge business loans to be redeemed by the lender either the loan is paid back by the borrower or in the case of default, the lender can appropriate assets owned by the borrowing company. This right of acquisition allows the secured assets to become what is referred to as 'crystalized' to exchange the debt from the loan according to the North Carolina Banking Institute. In other words, the crystallization of secured assets in a floating charge means the loan becomes a fixed charge loan due to non-payment under the conditions of the floating charge.

The reasons why floating charge loans have a transformative structure is due to the terms of agreement. Moreover, also per the North Carolina Banking Institute, although these types of loans are secured, the asset securities remain in the borrower's possession. The lender only has limited rights to the assets allowing the debtor company the freedom to do as it pleases with the assets so long as the loan is paid in accordance with the floating rate charge. Moreover, upon liquidation of assets, floating charge loans are subordinate to fixed charge and loans where control of assets rests with the lender.

Legal definitions of floating charge loans are shaped in part by judicial rulings; consequently they can have similarities and differences across national jurisdictions. Right to assets is an example of a similarity between legal definition of floating charge loans in both the United States and the United Kingdom. Moreover, under normal business conditions floating charge business loans do not require the borrower to obtain consent of the lender before selling secured assets. 

An area of meaning where a difference between the definition of floating charge loans is in how clearly the underlying assets are defined. For example, according to Freshfields Bruckhaus Deringer LLP, in the United Kingdom floating charge assets have legal precedence requiring them to be tangible via control and possession under Financial Collateral Arrangements Regulations. However, In the United States intangible assets are more likely to be considered as acceptable within a floating charge loan depending on how clearly the definition of an asset with changing value is defined.

Even though floating charge loans are secured and give lenders the right to assets and cash from sale of those assets, they are higher risk than secured loans where assets change hands. Moreover, since the floating charge loan is structured differently, it gives the lender lower priority over assets in the event of a company liquidation per the North Carolina Banking Institute. For this reason, when making floating charge loans, the ability of a borrower to remain solvent is significantly associated with the risk of that loan.

Financial News 06/21/2012

• Fox Business: Inflation of 4-6% needed for economy per Ex-Dallas Fed Chief
• Bloomberg: Poll shows 45% of Americans are better off since Obama elected
• BI: Jargon & bravado used in banking industry signals erroneous impatience 
• FRB: Fed to sell more short-term securities in attempt to stimulate economy
• Fortune: Uncertainty over tax cut extension to trigger recession per economist
• DOL: Jobless claims filed for 06/06/12, 387K; average claims up to 386,250 
• CBS: Oracle CEO to buy 98% of Hawaii's 6th largest Island for $500-600 mln
• MW: Oil prices near 3 yr low; approx. $81/brl L.C., 3yr low near $78/brl
• AP: R.I.M. expected to cut around 6,000 jobs as cell phone sales nose dive
• Reuters: Global economic growth slowing & threatened by Euro-crisis per IMF
• Bloomberg: June output in Euro-area indicates continued economic contraction
• BBC: Greek coalition government to renegotiate bailout after 5yrs of recession
• CNBC: Chinese factories trimmed growth for 8th month per HSBC PMI

How to triple stack coupons

Saving money with coupons can really be worthwhile if it is done right. Among the better extreme couponing techniques is triple stacking. For example, the receipt in the following photograph demonstrates three types of savings in a single purchase. 

The amounts circled in green and numbered one are in store specials. The values circled in blue and numbered two are bonus bucks used and the numbers circled in brown and numbered three are manufacturer coupons. 

Using all three of these specials together ended up saving $18.20 making what would cost $22.95 after tax, only $4.14 for 82 percent savings. Naturally, to make the purchase even more optimal, only purchase products that are actually needed such as toothpaste, which is also one of the items on the receipt.

Retail receipt showing triple stacked coupon saving 82%

  © Moneycation 2012

Financial news 06/20/2012

• Reuters: CFPB to release credit card complaint database for public viewing
• Business Insider: Beauty cream in 50 gram jar selling for $13,000  
• Zero Hedge: Nobel economist says U.S. in a depression via Colbert Report
• CNN Money: Peer to peer car sharing allows individuals to rent their cars
• AP: Obamacare leaves 26 million uninsured if approved by Supreme Court
• CNBC: Fed decision will not satisfy markets
• MarketWatch: Know these 5 timing rules to avoid costly IRA penalties
• Bloomberg: U.S. will "emerge relatively unharmed" from Euro debt crisis
• NASDAQ: Euro-leaders unresolved, but unified in intent to fiscally integrate
• Fox Business: Bailout of Spanish banks requires costly government transfers

Guest Post: The Pros and Cons of Credit Insurance

US-PDGov

By: Susan Wells

For those of us who are less informed on financial matters, the phrase "credit insurance" sounds like a mash of financial buzzwords with questionable meaning. But, as consumers today are striving to become more and more informed on matters of money and finances, it is important to understand what credit insurance is and what its uses are. The next time you apply for a mortgage or a personal loan, the lender may ask you if you want to buy credit insurance (in some cases even, credit insurance is included in the loan proposal). Credit insurance protects the loan on the chance that you are unable to make your payments. This insurance is optional, but can be beneficial in certain situations.

The Types
There are four different varieties of credit insurance. These include credit life insurance, credit disability insurance (or accident and health insurance), involuntary unemployment insurance (or involuntary loss of income), and credit property insurance. Credit life insurance pays off all or some of your loan in the circumstance that you die before it is paid off. Credit disability insurance makes payments on the loan if you become severely ill or insured and cannot work. Involuntary unemployment insurance makes loan payments if you lose your job due to something that is no fault of your own. Credit property insurance protect personal propertied used to secure the loan if it is destroyed by events outside of your control (theft, accident, natural disaster).

The Pros of Credit Insurance
There are several pros to having credit insurance like the types mentioned above. In the case of an emergency these lines of insurance can be extremely helpful. The purpose of credit insurance is to help protect both you and lenders in unfortunate circumstances. With credit insurance, you will not be expected to pay loan amounts that you are unable to pay due to specified situations that may occur in life. Likewise, these lines of insurance help protect lenders from not receiving loan payments. A good credit insurance policy can help you avoid issues of bad debt and credit score damage.

The Cons of Credit Insurance
As with any insurance, with credit insurance consumers have to pay a premium. Insurance bodies are giving you there services in case of unprecedented complications and expect some payment for that. Premiums can cost a lot and should be something you look into carefully when examining whether credit insurance is right for you. Is paying a premium for insurance on credit better for your situation than just using that money to pay the loan back? This is something you'll have to decide after exploring your options and understanding your own financial situation.

Susan is a freelance blogger who enjoys writing about automotive and health news, technology, lifestyle and personal finance. She often researches and writes about automobile, property and health insurance, helping consumers find free insurance quotes and the best protection available. Susan welcomes comments.

Financial news 06/19/2012

• Bloomberg: Commercial-mortgage bonds hampered by lackluster malls
• CNBC: Of 750 small-businesses, 23% of owners forfeited pay for 1yr+
• CNN Money: Fed most likely to extend "Operation Twist"
• BI: German woman lives well without money for 16 yrs
• AP: Economy too weak for political partisanship per economist
• MW: Survey of 1.7 mln employees shows 35% uneasy about their jobs
• Census:  Construction began on 708,000 new homes in May
• NAHB: Home builders more confident than May 2007 per survey
• Zero Hedge: German credit risk up 50% in the last 3 months
• Reuters: France planning 3% dividend tax to encourage reinvestment
• InvestorPlace: JP Morgan Chase values Spanish bailout at $450 billion
• BBC: India's central bank keeps interest rate at 8% against expectations

Financial news 06/18/2012

• Minyanville: Financial events 06/18-06/22/2012
• Option Queen: Inflation rampant in health-care, transport and education
• Reuters: Global economy edging toward recession
• AOL: AT&T considered top dividend stock with 5% yield & high earnings
• Bloomberg: G20 meeting adds pressure to create Eurozone solutions
• CNBC: Costs for housing demolitions keep real estate inventory high
• CNN Money: Santa Fe, New Mexico among best retirement locales
• MarketWatch: Consumer sentiment at 6-month low per UofM survey
• Irish Times:  Spanish 10-yr bonds reach new yield high of 7.12%
• BBC: Greek pro-Euro ND party wins most election seats
• AP: Market optimism from Greek election to be short-lived

Financial News 06/15/2012

• Reuters: Former FDIC chair says JP Morgan too big to regulate
• Bloomberg: California bonds yield 4.9% as deficit grows to $15.7 bln
• NYDN: Homeless man gets to keep bag of gold found while washing feet
• Daily Finance: Dollar store extension cords potentially faulty
• MW: Businesses uncertain amid Congressional gridlock & Euro-crisis
• BEA: U.S. deficit 3.6% of GDP in Q1, 2012, up from 3.1%
• Zero Hedge: Probability of pro-Euro Greek election high per BAML
• NYT: Central banks prepared to act if Greek election shocks market
• BI: EFSF leading to massive public debt, bank deposit insurance needed
• BBC: Business charges tax to view website in old version of IE
• CNBC: Global recession signs growing as fiscal problems mount

System D Is the World's Second Largest Economy

System D, a termed coined by Robert Capps of 'Wired' is estimated to be worth $10 trillion, and that does not include the shadiest of enterprises per Capps. According to research from BusinessDegree.com, the U.S. black market is valued at $600 billion, and Nigeria's black market receives as much oil each day as is produced by the combined daily output of Germany, Italy and Japan. Professions within System D are wide ranging and comprise a number of businesses that would otherwise be legal.

Created by: BusinessDegree.net

Financial News 06/14/2012

• Forbes: 66% of global economy underground by 2020 per OECD
• CNBC: U.S. Treasury Secretary says 2% GDP growth bad for jobs
• RealtyTrac: May foreclosures up 9% with 205,990 filings
• DOL: 386,000 jobless claims were filed the week ending 06/09/2012
• Bloomberg: Roth 401(k)s contributions matched via 401(k)s
• Metro Times: Green black-market growing via unemployment
• ABC: 10.000 jobs to be cut by Nokia by end of 2013 
• Reuters: Germany steadfast in refusal to bailout Eurozone 
• Telegraph: Germany considers contribution to stabilization fund
• Moody's: Spanish bond rating downgraded to Baa3 from A3
• BBC: Spanish bond yields reach unsustainable rate of 7%
• Business Insider: 21.8% of China's exports go to Europe

U.S. Debt Collection Abuse On The Rise

Despite regulations including the Fair Debt Collection Practices Act, the Fair Credit Reporting Act and the Wall Street Reform and Consumer Protection Act, enforcement has its obstacles as evident in the following infographic syndicated courtesy of Frugal Dad. According to the infographic, complaints against debtors have increased 66 percent and a Harvard Law Professor is quoted as saying mobsters would be envious of student-loan debt collectors' power.

Source: http://FrugalDad.com

Why Tokyo is so expensive to live in

Image attribution: Kostisl; public domain

Tokyo, Japan is the most expensive city in the world to live in per the Mercer Cost of Living Survey and The Economist. A major reason for this high cost of living is the strength of the Japanese currency, but inflation on products and services such as clothing and transportation also contribute to the high expenses.

Complete article link: http://www.helium.com/items/2336639-why-living-in-tokyo-is-so-expensive

Financial News 06/13/2012

• Reuters: Balance sheets of Fed, BoE, ECB and BoJ is $9 trillion 
• BI: 47.3 mln or 7.3% officially unemployed in the developed world
• AP: OPEC meeting expected to result in unchanged oil supply
• Commerce Dept: Retail sales sank .2% in May, core PPI up .2%
• NASDAQ: Federal 2012 budget deficit reached $844.49 in May
• BI: Private colleges rate candidates on endowment financing capacity
• NYT: Data broker fined $800,000 for violating Fair Credit Reporting Act
• AOL: Perkins loans written off up to 70% for Peace Corps volunteers
• CNN: JP Morgan CEO says billions lost due to bad risk management 
• ClickDocs: UK Enterprise Regulatory Reform bill restricts whistle-blowing
• CNBC: Greeks withdraw 500-800 mln Euros from banks before election
• Bloomberg: Italian Value-added tax revenue declines to 2006 levels
• BBC: World Bank lowers GDP growth forecast for developing nations

How Hard-Money Loans Work

Image attribution: FreeDigitalPhotos.net; standard royalty free license

Hard money loans are formally non-credit based collateralized loans. According to the Federal Deposit Insurance Corporation (FDIC), hard money loans are subprime loans, a term that many identify with high interest real estate financing for borrowers with bad credit. In addition to being non-credit based loans, hard money loans are an alternative form of financing that do not necessarily require real estate as collateral for bridge loans, distressed property funding and cash-flow financing. Moreover, in the case of mezzanine capital loans, hard money lenders offer financing with the option to convert debt from business loans into an equity stake in a company instead of collateral. 

The reason hard money lenders are not only subprime lenders is because they also specialize in facilitating financing with unique financial services that may not be available through traditional financial institutions. For example, Vital Funds Inc. is a hard money lender that offers a range of financial services such as proof of funds, bank guarantees and standby letters of credit. In a sense these are financial documentation services that allow investors or businesses to gain another source of financing elsewhere.  

As with all financial transactions, hard money loans are regulated. Federal statutory law and individual state laws still determine the underlying legality of if and how hard money loans takes place. However, this does not mean hard money loans have to use the same lending policy and procedures as banks. Generally, hard money loans are easier to qualify for because of a simplified application process. A draw back of hard money loans is that they typically have double digit interest rates that are higher than some credit based loans.  

Just as a car title loan assists with providing quick short-term financing, hard money lenders help facilitate short-term financing solutions; a difference between the two loan types being considerably higher amounts of capital. The specific amount of hard money loans can be quite high and range from hundreds of thousands to billions of dollars. Hard money lenders specify lending range, term, collateral requirements and interest rates prior to the loan. For example, the hard money lender Western Capital Partners, LLC offers loans between $1-7 million up to 75 percent of the value of real estate collateral for a term of no more then two years and no less than six months.   

The use of hard money loans can be substantiated in a number of ways. First, hard money loans can bypass lengthy application procedures for larger amounts of money. For example, hard money loans assist borrowers with time sensitive financial circumstances such as pending foreclosure or short-term financing for a real estate development. A second reason to use hard money loans is based on the notion hard money lenders are not obligated to operate based on credit. In other words, hard money lenders can help individuals and businesses that would otherwise experience difficulty obtaining loans using more conventional resources such as federally insured mortgages.

Financial News 06/12/2012

• Bloomberg: Warren Buffett sells lunch for $3.46 million at auction bid
• CNN Money: State of Wyoming shrunk 1.2% in 2011
• CNBC: Capital requirements could doom savings & loan institutions
• NYT: Local government employment serves austerity to Americans
• Daily Finance: False tax return & $200k spending spree ends up with arrest
• BLS: May U.S. import prices decreased 1% in May, export prices down .4%
• BI: 17% of Singaporeans are millionaires, 27% of bankers prefer Singapore
• AP:  Median family net worth in 2010 was no higher than in 1992
• Reuters: Energy prices directly linked to recession per fund manager
• MW: Chinese financial institutions lent $17.84 bln more in May than April
• Zero Hedge: Investors doubting Eurozone bailouts at faster rate
• BBC: Fitch downgrades two Spanish banks, 10-yr bond yields 6.5%

Financial News 06/11/2012

• CNBC: Consumers largely unable to take advantage of low interest
• CNN Money: Overdraft fees as high as $35 despite new disclosure law
• Reuters: Banks in violation of building codes via foreclosed property
• Option Queen: Market movers are Greece, Obama-care and tax law
• Bloomberg: Private wealth in Asia-Pacific up 10.7%, N.A. down .9%
• Daily Finance: 50% of surveyed can't come up with $2,000 in 30 days
• ZH: Pavlovian conditioning trumps reasoning when economies flounder
• Fistfull of Euros: Economic growth scarce in developed economies
• Reuters: Water development critical for developing economies
• BBC: Spain offered up to $125 billion bank bailout by Eurozone
• AP: Chinese trade surplus increased to $18.7 billion in May

How Repurchase Agreements Work

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Repurchase agreements are short-term financial transactions between traders of government securities; often financial institutions and government agents, but also private parties. These transactions typically involve large amounts of money and require the seller of financial instruments to repurchase them in the future. The cost of 'repos' varies with the financial security, and the market conditions surrounding the transaction; it is referred to as either the general collateral rate or in the case of discounted repurchase agreements, special collateral rates.

The Government Finance Officers Association (GFOA) states repurchase agreements are primarily used to assist with the financing of organizational cash-flow needs. In a broader sense, and in the case of repurchase agreements involving the Federal Reserve Bank, the agreements are also intended to assist with the implementation of monetary policy according to the New York Federal Reserve Bank. An example of how repurchase agreements can help implement monetary policy is given by the Inter-American Development Bank that claims a strong 'repo market' is key in facilitating bond market and secondary market liquidity.

The types of government securities traded in repurchase agreements include Treasuries such as Treasury Bills, but also include other securities such as home loan bank bonds per the GFOA. The term of a repurchase agreements generally does not exceed two months in the case of Federal Reserve Bank "repos". The transactions may also involve three parties where the third party or bank acts as the financial intermediary between the two parties engaged in the repurchase agreement. In some cases a second sale of repurchased assets can also occur when multiple transactions by a dealer have been pre-arranged. 

The repurchase agreement market can be influenced by demand for short-term financing via repurchase agreements and Treasury auctions according to an article by Bradford and Susan Jordan in the Journal of Finance. Specifically, in the case of Treasury auctions, when demand is high, the demand for repurchase agreements can also rise leading to a reduction of financing cost for sellers of securities in repurchase agreements. Moreover, if a significant amount of buyers at the auction fail to acquire enough treasuries that have already been pre-sold, resulting higher competition for repurchase agreements can lead to special rates for the sellers of Treasuries.

The risk associated with repurchase agreements is more dependent on the credibility of the transaction than the quality of the financial instrument, especially in the case of high grade treasury securities. In other words, it is more likely an investor will be left holding a security beyond the extent of the repurchase agreement than it is the Treasury Bill or other government security will lose a great deal of value. However, the Inter-American Development Bank points out that repurchase agreements involving assets that do not sell easily do present a liquidity risk.

Financial News 06/08/2012

Near half of average U.S. income is spent on housing and transportation

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• CNBC: Central banks look to politicians to repair world economies

• BofA: 63% of CFOs surveyed say government an economic concern 
• CNN Money: Index annuities are capped & provide low ROI
• Daily Finance: Private schools misdirect subsidies to wealthy parents
• BEA: April exports down $1.5 billion,  trade deficit down to $50.1 bln
• FRB: Consumer credit rose $6.5 billion to $2.55 trillion in April 2012
• Bloomberg: CPA prefers Roth 401(k) for tax free retirement income
• Examiner: Temp agencies lie to get people in the door per HR manager
• BI: Privatization of infrastructure leads to faster fixes that cost less tax

• AP: Ex-Olympus exec. wins £10 bln whistle-blowing settlement

• MW: Spanish banks facing financing difficulties due to economy

Financial News 06/07/2012

• DOL: 377,000 jobless claims were filed the week ending 06/02/12
• CNN Money: North Dakota led states with '11 7.6% GDP growth

• Daily Finance: Too many investors don't diversify per financial adviser

• FRB: Beige book data indicates moderate U.S. economic growth

• WSJ: Fed Chairman Bernanke testifies before Congress today
• Reuters: OWS a bleep of discontent in American political coma
• CNBC: Less Wall Street elite at GS has implications for NYC

• BLS: Q1 labor output up 2.4% & costs rose 1.3% --more for less
• BI: Slowing Chinese economy evident in interest rate cut

• AP: Global food prices reached an 8-month low per U.N.

• BBC: German Chancellor redefines European integration

• NYT: Spanish economic trump card is the effect of its default

How Proposed Legislation Has Sought To Reduce Income Inequality In America

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Recently the newest version of the Paycheck Fairness Act was voted down in the U.S. Senate with 52 of 60 required votes. This bill is one of several legislative efforts to combat income inequality between men and women in particular, but also among Americans of different races and origins. Although the legislation is a political tool, it does represent a longstanding effort to reduce income inequality in America.

Complete article link: http://www.helium.com/items/2334121-how-congress-has-attempted-to-reduce-income-inequality-in-america

Financial News 06/06/2012: Exclusive Fed Spotlight

The Federal Reserve Has Created Over $2 Trillion In Less Than Four Years

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• Fed: Fed owns $853.6 billion in mortgage backed securities

• The Hill: The Fed's hands are gripped by election year politics
• BW: More central bank bond purchases ineffective per Fed official
• Huff Post: 3 Senators are attempting to restrict Fed independence
• BI: If unemployment does not decline, Fed stimulus a possibility

• NASDAQ: St. Louis Fed official says May jobs data insufficient

• FRB: Fed on board with CFPB, NCUA, FDIC & OCC per Dodd-Frank

• FRB: 06/07 release will add new credit-flow reporting per regulations

• Reuters: Chicago Fed official in favor of more debt monetization

• Bloomberg: Fed investigating JP Morgan for more moral hazard
  

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Financial News 06/05/2012

• NYT: U.S. businesses warning investors of sales slowdown
• CNN Money: $163k buys 530 sq ft in L.A., and 3032 sq ft in Dallas

• Reuters: Tax code reform proposal to be released by tax-writing committee

• Daily Finance: Obama would save up to $90k/yr if Romney tax plan enacted
• USDA: $6.18 billion spent on food stamps in March, $74.16 bln annualized

• Bloomberg TV: Corporate earnings, GDP, LEI demonstrate slowing economy

• Census: Drop in defense spending contributed .6% decrease in factory orders

• Fox Business: British credit rating downgraded to AA- by Egan Jones

• BI: Lack of liquidity in financial markets higher in 2012, than 2008 

• BBC: Eurozone private sector contracts 4 months, "fastest contraction in 3 yrs"

• AP: German finance minister reiterates support for austerity

Guest Post: Paper or Plastic? The Pros and Cons of Business Credit Cards

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With constant talk of mounting government debt, student loan debt soaring to higher rates than ever before, and fear of an overall failing economy, credit cards are not necessarily the most desirable thing to boost financial security right now. However, there are a number of advantages business credit cards can offer small business owners in today's economy. Of course, there are several facets to of credit building that business owners and professionals need to consider before switching to plastic. As with all business decisions, professionals should examine all aspects of using credit to facilitate their business needs before opening a business credit card.

Business credit cards can be a useful tool for small business at any stage of their development. As any business owner knows, financial flexibility can be one of the most important things when it comes to running a business successfully. There are times that spending exceeds earning and your budget as a business can vary greatly from one month to another. Business credit cards are a convenient way to quickly access financing for short-term needs, while also increasing your company's spending ability. But, of course, credit use as a small company must be very carefully managed. To decide if a small business credit card might be the right option for you and your business explore these pros and cons.

The Pros

There are many reasons business credit cards may be a great option for small business owners:

1. Convenience: Credit cards offer the business owner immediate access to funds and financing for purchases or cash withdrawal. With the business world being particularly unpredictable, this immediacy and ease can be extremely important. While making hasty decisions concerning spending is not advised, sometimes business owners need to act on their feet and be prepared.

2. Online access: As our world becomes more and more mobile, online accessibility has become ever more essential. Many businesses use online vendors and suppliers to meet their business needs. These online purchases can be made more easily using a business credit card.

3. Bookkeeping assistance: One advantage to using credit that many small business owners rarely consider is the bookkeeping guidance cards can provide. Cardholders not only receive monthly statements detailing their purchases, but many cards provide online tools to help manage accounts and keep track of spending. These tools can be extremely useful with maneuvering taxes, audits, and employee spending.

4. Incentives and rewards: One of the biggest perks that business credit cards can offer are incentives and rewards to their users. Business owners choose cards that provide cash back rewards, airline discounts, accommodation discounts, no fee offers, and much more. These incentives can make a huge different for small businesses that do a lot of spending in order to properly operate and thrive. When choosing a business credit card, consider what type of reward program might be most useful for you and your business. If you do a lot of business travel, consider an airline reward business credit card. These programs can help you save a lot of money in the long run, if you choose them wisely.

The Cons

As with anything, there are two sides to opening a business credit card. Before rushing out and opening the first line of business credit you find, consider these potential downsides:

1. Security issues:

Owning a business credit card (or any credit card) boils down to use it carefully. Business owners should carefully monitor their accounts and regularly check on the security of their finances. Credit cards open individuals and businesses up to some security threats that are worrisome. If cards or card information is compromised, malicious individuals can wreak havoc on your business and finances. With careful monitoring and diligent security measures in place, credit card safety can be found.

2. Finicky interest rates: Interest rates are likely the biggest worry involved with credit card use. Unlike a loan or fixed line of credit, a credit card company can change the interest rate on your card. This fluctuation may be in your favor or not.

3. Sometimes pricey: Because business credit cards offer so much ease and convenience to their users, they can be more expensive than other credit cards. While this is not always the case, many business credit card issuers will charge a higher interest rate than a bank or fixed line of credit. That higher interest rate can become a problem if business owners do not pay back their credit on time or in full each statement.

Eliza Morgan is a full time freelance writer and blogger. She specializes in writing about business credit cardsand other business related topics. If you have any questions email her at elizamorgan856@gmail.com.