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“My Mama Told Me . . .

Posted by Larry Doyle on February 28th, 2009 2:20 PM |

. . . You Better Shop Around.”  

What does that wonderful song from Smokey Robinson and the Miracles have to do with our economy? I’ll tie that in a bit later.

More and more people are inquiring of me how and why banks are making credit tighter both in terms of availability and in terms of rates charged.

This tightening of credit is due to the “crowding out effect” from dramatically increased government borrowing along with the actuality and likelihood of increased defaults across all consumer and corporate loans. In the face of those defaults, banks will set aside more capital in reserve to cushion those losses.

What is a consumer to do? There are two tactics:

1. Everything’s Negotiable which I highlighted in a post dated December 23, 2008. Talk to your bankers and/or credit providers. Put your banks and other credit providers in competition. Where does one start and how does one easily comparison shop? I’m glad you asked because that leads me to point #2.

2. Shop around (thank you, Smokey)!  Sense on Cents provides links via our Primers (in the right sidebar) for a look across the market to virtually every consumer credit need. Remember I have NO professional relationship with any of these entities. From borrowing needs to investing, with many stops in between, I hope these primers help you navigate the economic landscape going forward!!

And now, a trip down memory lane . . .

 

Caveat Emptor

Posted by Larry Doyle on February 25th, 2009 8:49 AM |

buyer-beware2The equity markets across all sectors have gotten off to a very rocky start for 2009 (down 15% on average). In the midst of that, a lot of institutions and individuals have fled to the safety of short term government funds, money market funds that now benefit from a government backstop, and other cash alternatives. On average, these investments pay Wall Street and fund managers perhaps anywhere from .1% to .3% of the assets being managed. Those fees will not make the managers rich anytime soon. How do they respond? Welcome to the world of “principal protected notes.” 

These structured notes are marketed to track an underlying index (say the S&P 500) while guaranteeing no loss of principal. Wow. Sounds like a great product. Where do I sign? Well, hold on just a second. I am not stating that structured notes do not have some degree of merit, but one needs to be very cautious in fully understanding how these notes work before purchasing. (more…)






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