I have written in the past that Jim Cramer is scum and yesterday was no deviation.  He said on the air yesterday for people to sell their investments and stash any cash you need for the next five years. There is no question the financial market is essentially in ruins right now but there are a bunch of reasons not to pull out.

1) Its dangerous - for you, for me, for the entire country.  A run on the stock market is just like a run on anything else: it disrupts the economy and is bad for everyone.  If I take all of my money out, it will drop and further push Joe to take all his money out which creates a bigger drop and so the cycle continues.  There are some things in place to make sure there is not the kind of massive crash that happened on black Tuesday but essentially our biggest enemy right now is fear.

2) Regardless of what happens right now, the market will go back up.  This is not the case for each individual company, but assuming you have diversified investments and are invested in index funds, you will see brighter days in the future, I promise.

3) As of this writing, the dow is under 10k and you and I have both already lost a massive amount.  Unless there is a total and complete collapse of the markets I think the probable bottom of the market is not too far off.

Let me reiterate: Despite what you might hear, we are NOT on the brink of financial apocalypse.  History will not repeat itself.

When the risky lending of the 1920s happened, there was a striking difference between what they were borrowing against and what the risky lenders of today have borrowed against.  I was fairly shocked to learn that in the 20s the risky loans were borrowed against STOCK.  Thats right, something that has the ability to go to absolutely zero worth.

Now lets contrast that with the ridiculous lending thats happening today.  The risky loans were put up with REAL ESTATE as collateral.

Lets put two and two together: we cannot replicate conditions leading to the great crash of 1930 unless real estate value goes to absolute zero.  This has never in history happened….quite the contrary land is the one thing throughout history that has held some sort of value.  Though the real estate is overvalued and correcting, it will not go to absolute zero.

Another huge difference is that back then there were absolutely no insured deposits.  There was no FDIC.  People that had any money in banks and were unable to withdraw it lost everything.  Thats simply not possible today.

There have been tough times before (Tech crash anyone?) but do not panic.  Stay the course and stick to personal finance fundamentals: reduce debts, save, invest, and keep your head above water.

When I say fix I don’t mean immediate gratification.  There is no magical mortgage fairy to come down with her magic mortgage wand and make all the bad debt go away.  Barney Frank and Henry Paulson seem to think they are magical mortgage fairies, but if I ever saw either one of them flying around in spandex with a wand, I would probably run the other way as fast as I could. This is more like Neosporin and a band aid on the wound sort of fix.

Before I do anything, I want you to see the sub prime primer which describes what sub prime mortgages are and the trouble they caused.  One word of caution, it is PG-13 rated for swearing.

Now back to our present situation: what exactly is going on with the bailout bill?

The banks do not have enough liquidity (essentially cash on hand or cash easily obtainable) to cover their expenses.  The government claims that the market will grind to a halt unless we, the taxpayers take over the bad mortgage debts of these banks so that they can keep doing “good” loans.  There is a major problem with this, as pointed out by one of my friends.  This is something worse than socialism, this is blatant corporatism.

What is corporatism?  It is merger of state and private enterprise.  Thats exactly what Fannie Mae and Freddy Mac are, and they are what put us in this situation.  We as a country hold freedom as our #1 assett.  The problem is that people from time to time forget that freedom not only means freedom to succeed, it also means freedom to fail.  Our government has, apparently, forgotten this.  If a company can make terrible and risky investments, but is then bailed out by the government, where is the freedom to fail there?

Here is the Penny Saved’s plan instead of forcing the taxpayers to pay for irresponsible “bailouts”:  

1) No taxpayer funded bailout in the sense of letting lenders off the hook. A chunk of money to buy only what is necessary to restore liquidity but it must be at market rates: not full price or anywhere near full price.  I was stunned to hear of some banks supposedly on the brink of collapse saying (allegedly) that they wouldn’t settle for “less than 70 cents on the dollar from the government” for this debt.  You’ve got to be kidding me! Lenders too seriously in trouble do the old thing: file bankruptcy and sell off their bad debt for whatever the market will pay for it.

2) Increase FDIC insurance to encourage people to deposit their money in banks and not “cut and run.”  The currently proposed 250k cap is a good start but it should be closer to 500k.  This would also increase liquidity for banks that are strong earners but are currently struggling with liquidity.

3) Restore pre-Acorn lending practices.  No government backed private enterprises.  Total market accountability.

4) Provide limited financial assistance to middle class mortgage holders in the form of additional tax breaks for home ownership and temporary stay of payment until they can acquire a new mortgage and refinance.  If they cannot, they will have to face foreclosure for borrowing that which they could not pay back.

5) Penalties for those executives at the top that mismanaged.  This should be covered as an extension under fraud laws particularly with Fannie and Freddy being taxpayer backed.  Absolutely no golden parachutes.

It seems the number one thing we have forgotten in all of this is personal responsibility.  Everyone blames everyone else.  I was appalled to see Barney Frank pointing fingers when he was in charge of overseeing Fannie and Freddy! It sickens me to see the country paying a price for the greed of very small minority.  As Lauren said to me about Fannie and Freddy: “Hmm how come insider trading gets Martha Stewart in jail, but it is legal for politicians and their appointees to get away with what they do?”  Good question indeed…

I know that sounds sort of like a DirecTV commercial but I have to admit, I am completely and totally addicted to NFL Sunday ticket.  I hate the NFL for making me have satellite just to watch every NFL game, but we take the cards that have been dealt to us, so it is that I have directv instead of cable.  As most of you know by now, we are moving soon (this week actually) into the new house so I have had the oh-so-fun task of transferring services from Lauren’s house to our new house.

Here are the changes we are making:

-Upgrading our second receiver from regular to HD-DVR for the bedroom
-Adding a HD-Receiver to the loft
-Adding a HD-Receiver to the office

All of this was going to cost a total of $130.

Seeing as I always preach to try and ask for deals, I figured I’d better try and strike a deal. The conversation went like this:

Jesse: “$130 huh?  Hmm, thats a little expensive”
Directv lady: “Well sir, you are getting quite a few upgrades and changes to your service.  I’ll go ahead and get that going…”
Jesse: “(interrupting), well I need to check and see what all our options are before I commit to anything.  I can call back later on.”
Directv lady: “We might be able to get you an upgrade in here for free.  How about a free move and free upgrade to HD DVR for the second receiver?”
Jesse: “Can you add and upgrade the other two for free as well.”
Directv lady: “let me see what I can do….<away for a few mins>….ok sir, we can do all that as well.”

Followed by her setting up the move.  We’re about to get off the phone then I say:

Jesse: “So when we first started our package was cheaper, why was that?”
DTVL: “That was an introductory package.”
Jesse: “I want to get back on that”
DTVL: (silence)
Jesse: (silence)
DTVL: “Well sir, that was an introductory package”
Jesse: “Im moving, thats sort of like starting over”
DTVL: “Let me check what we have…”

Boom $20 off every month for the next six months, at which point I will call again and ask for another discount.  $120 right there.  But we’re not done.

DTVL: “Thank you for choosing directv, is there anything else I can help you with.”
Jesse: “Yeah I will be missing a week of NFL Sunday ticket, I would like to get a discount on it.”
DTVL: (sigh)

$60 off Sunday Ticket. 

Total savings: $310 

Go forth and get deals.

Ah what is this magical thing I must learn!?  Is it how to sell things on eBay? (No)  Is it how to  write a blog? (No, trust me on that one).  Today I will teach you enough to where you can save yourself at least part of that money.  The rest will be up to you.

In fact it is nothing you will see on any of those “How to make money/save money/be frugal/whatever” websites.   Its something much simpler.

Ok, I will stop dragging this out, for those of you that get annoyed when I don’t get to the punchline in the first few sentences of my paragraphs (And you would be surprised, some readers get very annoyed with me for that.  C’est la vie, eh?).  Its a little thing called:

Learn to be handy.

I know that there is at least a certain percentage of people that immediately dismissed this as soon as I said it, but its downright true.  A couple weekends ago Lauren’s car stopped driving in the middle of an intersection.  It didn’t die, it simply stopped going.  Instead of immediately calling a tow truck and having the car towed to the nearest garage and having them diagnose and fix the problem (Ill get to shop estimates later.  The Stealership wanted over $800 just to fix it)  I nursed it into the nearest parking lot.

I began to take some mental notes about how the car was behaving.  Since the engine would not rev my first thought was a fuel problem.  This is your first step to saving money.  In order to pinpoint common problems you need to figure out where the problem is originating from.  I did not smell gas and the car was remaining on despite the lack of response from the throttle.  This made me less suspicious of a fuel related problem because generally if there is a fuel problem the car will not run, or will be very sporadic.

I also pushed transmission problems to the back of my mind because of the lack of engine revving, and the gears would still shift flawlessly between drive where it would creep forward and reverse where it would creep backward.  Next (several times) I shut the car off and restarted it.  It labored to start, and the lights dimmed a lot.  Aha! We’re on to something.

If funny things are happening with your electrical there are 2 major culprits: battery and alternator.  Your alternator is the piece of your car that recharges the battery while the car is running.  It has a drive belt hooked to it which turns a wheel, which generates the electricity to charge the battery.  In our case, I had just replaced the battery recently so I had a strong suspicion that it was the alternator.  Which brings me to my next points:

DO NOT PAY TO HAVE YOUR ALTERNATOR TESTED IF YOU THINK IT IS BAD. Places like Autozone will test it for you for free.  I had my dad come and give Lauren a ride home and then use his battery to charge our battery for a while. (Heres another tip: you can recharge a battery just by doing what you would do to jump start a dead battery, hook positive to positive and negative to negative.  This is something that confuses a lot of people, but you want to create a parallel circuit).  Lo and behold, the car would drive after some charging so I drove over to autozone and sure enough, alternator dead as a doornail.

Now we know what is broken, oh Lord, what next?

I will just tell you, I wanted to be lazy about it because we have so much else going on and have a shop do it, so I called around and there was nothing less than $500.  The Stealership as I mentioned earlier wanted $800+ to fix it.  So guess what, time to do some car work.  I know it can sound like an overwhelming task but the truth is working on cars is more method than anything else.  They are very complex machines, but for a lot of common car problems, the fixes are fairly easy.  So if you don’t know where to start, heres some steps for you:

1) Find the shop manual for your car - Most of these can be found online and they are very different from the owners manual, or even the owners repair manuals.  These things are huge, usually thousand pages or so.  I found the PDF for Lauren’s altima online for $10.

2) Determine if it is something you believe you can do - There are some things you just wont be able to do.  For example, anything involving the engine block.  There are plenty of common ones that are very fixable though: alternators, fuel pumps, fuel filters, radiators, brakes, batteries, water pumps etc.

3) Consider the age of your car - As a general rule older cars are easier to work on.  This isn’t to say you cant work on new cars, Laurens car is a newer Altima and I have even done work on my 2007 350Z.

4) If you are nervous, document every step -  A car is just a huge assembly of parts.  Thats all it is.  Note how and where you took everything off, and you will have an easy time putting it back together.

5) Dont get frustrated - There is always 1 bolt that does NOT want to come off.  Make sure to use the right size wrench so as not to strip it.  If you need more leverage, here is a little trick, get a piece of pipe (PVC, copper, whatever) and put it over the wrench handle to essentially extend the size of the lever.  Force over distance my friends.

 6) Ask for help - If you are stuck or frustrated, you must have at least one handy friend that you can convince to come over and help….after all, a dinner and some beer in payment is still better than an $800 repair bill.

It took me a good solid 8 hours to fix everything on her car, but I managed to do it for parts only.  The total cost?  $150.  If you figure time invested 8 hours for $800, thats $100/hr after tax that my labor was worth.

I had a reader write in with a  story that happens all too often…I myself have been guilty of it at one point.  Its a little thing I like to call “good intentions gone bad.”  So what exactly am I talking about?  Consolidation loans.  Particularly consolidation loans as they relate to budgeting and money habits.  Ive had a few emails along these lines but never someone with so much debt….and so much income.  Here is the reader’s letter:

“Hi Jesse,
I admit I feel kind of weird writing to a guy on the internet that I dont know (but I know a lot about your life at least, does that count?) but I feel like I need to.  I have been reading financial websites for a while and I find you to be the most down to earth and real of most sites.  Some of “huge” financial sites seem sort of idealistic.  Anyway whatever.  I am writing because my wife and I are in a very difficult situation that we take full responsibility for but we do not know what to do from here.   We are both in our early 30s and we both make about 90k per year, so you would think that we are living large, but quite the opposite, we can’t even afford groceries.  See, a few years ago when we both were promoted.  We bought a house here in California for 600k.  Its by no means a mansion, housing is just very expensive here.  Then we went on a vacation that cost about 8k, which we put on credit cards.  It just spiraled out of control from there and we found ourselves with 40k in debt + 30k in student loans.  We did a consolidation loan and got one fixed payment on the 40k at a good rate.  The problem is, we have charged our credit cards back up to about 10k.  Should we get another consolidation loan?  You have everything, houses, a nice car, and now a baby.  We make a lot of money but our minimum payments take up most of our income!  I called some hot line and ended up hanging up because first I felt stupid then after sitting through a fairly humiliating interview they told me they could help at a cost of $20 an hour!  How is that helping, I need $20 for food and gas right now.  We would like to sell our house to get rid of that but housing prices have dropped it I don’t even think we can get out of it what we bought it for.  I have to tell you, Im hopeless right now.  My wife and I fight about money every day.

Thank you for your website, I am depressed when I see your stock picks because I know I will probably never be out of this debt to even try investing in any of them.  But I appreciate it anyway.

Thanks,
Grant

PS you can publish this if you want, I know sometimes you tell reader stories.  I guess I can be what not to do.

Before I respond I am going to give a little bit of a primer for anyone who needs it:

Consolidation loans are loans that are supposed to work like this: Take one of these loans out. Pay all of your different credit card debt and other debt down with the loan. Pay one monthly payment with a lower interest than what you were paying before. Its all good then, right?

It’s only a good deal if you create a budget and stop spending. Grant has fallen into the most common trap in with consolidation loans: consolidating and then spending like its business as usual and running the credit cards back up. So now they have their new credit card debt AND their consolidation loan debt.

Getting back on track, here was my response to Grant:

Grant,

Thanks for writing, I appreciate you taking the time to write in.  There is no shame in talking about money issues, money is still a huge worry for me, especially with all of the things I have going on that you mentioned.  I appreciate the compliments, but Im sure my fiance would tell you I do not always have everything together :)  That being said, there are people that subsist on 1/10 of your income so I am glad you realize that this is your responsibility to take care of.

You have one major problem:

You HAVE to alter your spending habits.  That is the only way that anything will change.  Trust me, I know how hard it is.  I still have problems locking down to a budget.  It’s a tough thing to do but it is necessary, especially in your case.  Thats #1.  Cut up every one of those credit cards, right now.  Every consolidation loan in the world can’t stop you from spending more than you earn.  That is your job, and your job alone.

Next step: time for some drastic measures.  The absolute first thing to do is to pay down that credit card balance.  Do you have anything you can sell?  Time to start.  You mentioned gas money, well, when you are in that big of a hole, its time to stop driving if its possible.  You are in “bike 10 miles to work” territory…or public transportation if possible.  Since you do not have kids to worry about yet, you need to go to some extreme measures to get that debt down, especially if you can barely afford groceries.  If you have to get a second job on the weekend doing manual labor even, do it.  I assure you, being burned out from working all the time will be a much better fate than defaulting or filing for bankruptcy.

I want to stress something else too: you sound pretty hopeless, and let me tell you, there is hope.  If there is one thing I have learned in life its that things always get better and there is always hope.  The key is taking charge of your situation and doing whatever is necessary to get the problem fixed.  You can do it.  In fact, send me your paypal address and I will buy you 1 share of stock in one of my picks.

As far as the credit counseling goes, remember, credit counseling is code for “fraud” and is just another thing to siphon money.  Good luck man, if there is anything I can do to help, let me know and keep me updated.  Im sure readers will appreciate your story so I am going to post it, not as an example of what not to do, but to show what can be done.

Jesse

As most of you know, I am very selective about doing stock reviews. Whenever I am not sure what stock to investigate I always go back to one thing: what is something or somewhere that I shop at, buy, or find useful. I also will only write a review on something that I have watched for sometime. Lately however, even everyday stocks have are getting slaughtered. Especially bad are the numbers for fashion retailers. On a whim I decided to check out where I got my last pair of jeans, a little store I like to call The Buckle. Ok so they call it themselves The Buckle as well (BKE). They are a retailer of medium priced but higher quality clothes. They have been managing to eke out profits while everyone else is tanking or hurting, and guess what? Its the end of summer, pretty soon people are going to be buying fall/winter clothes.

Some things I like about The Buckle:

-A look at executive transactions reveals that in the past 8 months, excluding the CEO Dennis Nelson who is fairly steadily income-selling, shows that the Buckle execs have actually acquired more than they have sold. In fact there is a whole sheet of people exercising their stock options…including Dennis Nelson.

-Royce Funds own 100 million in stock. This fund family has one of the better rates of return over the past few years.

-Insiders own 47% of outstanding shares in the company including massive portions by Daniel Hirschfeld, the son of the founder of The Buckle.

-Company has zero debt. Imagine that.

-The average sales per square foot grew 2% annually over the past 5 years.

-They promote store managers from within. The average district manager has been with the company 20 years.

-The company has bought back company stock (always a good sign).

-They pay one of the highest dividends in apparel retailing with the current yield around 1.8 percent.

Buckle is a company that makes money year in, year out no matter the economic conditions. They aren’t the store you necessarily when you think of fashion but they are solid. Senior management, all experienced retailers, is committed to growing the business. They have redesigned their website, and have a great marketing curve.

This all adds up to a very solid business and as I said before, we are just coming into a new clothes buying season which means the short term looks great….and considering all of the above, the long term looks even better.

So for fun, here are the opposites of yesterdays post…things you absolutely don’t want to buy from a thrift shop:

1) Underwear. Buying used underwear from a thrift store is like….right here is where you insert a gross metaphor. Seeing as I try to keep this blog PG I am going to let you use your imagination. Whats sick is my brother swears that he has seen a lot of older ladies buying used undergarments from the salvation army. If you are so down on your luck that you are feeling the need to go out and buy underwear second hand send me an email and I will give you a $1.06 gift card to target to buy a pack of bargain bin undies. Dear Lord.

2) Mattresses. This one might be more tempting than the underwear just because matresses are more expensive but it is even more gross than underwear. Good luck throwing a mattress into the washer with a bunch of bleach. Ill leave it to your imagination to think about all the fun screts a second hand mattress can hide. Oh and then theres bed bugs. Which feed at night. On people.

3) Swimsuits. See underwear, except worse. Plus you can’t bleach them.

4) Cosmetics. This one might be unusual but there wouldn’t be a cosmetic section if no one bought the cosmetics. Just think of all the bacteria and viruses that might be festering in there. Blehck.

5) Stuffed Animals. What says “I love you son” like buying him a used stuffed animal infected with disease, coated with other kids snot, and full of lice? In all honesty, its just not a good idea even if you wash and bleach them.

As a general rule I have always avoided so called “thrift stores” like the plague.  Lets be honest, there is a certain stigma surrounding thrift stores…some of them for good reason.  On the other hand I didn’t realize just what a great resource they can be for some things.  I was talking to my brother the other day and he had just gotten done going to what he called a “red tag” sale.  He was super excited about it, and he is a 21 year old wildman, so I was fairly skeptical.  I figured it had something to do with discount liquor, or possibly another one of he and his friends bizzare outings (like the time they picked up 20 free gallons of iced tea from someones back yard….or the time they left a 70s hot tub in my front yard…or the time they tried to get bronze scrap metal out of an old broken piano…).  He was actually referring to a thrift store sale.

Turns out he was actually on to something.  He came back with some pretty cool stuff.  There are some tshirts for things from the 90s that I was pretty enamored with.  He managed to get a jersey from one of the CSU players from the late 90s.  Seeing as old jerseys are hard to come by, its a great find.  He also managed to grab some workout shirts that are nothing less than awesome… some to be worn as tshirts and some to be cut up into workout shirts.  His tshirt of choice to make into a workout shirt is old American flag tshirts.  I found that I long ago went through my old tshirts for ones I wanted to cut off into lifting shirts so the idea of a huge selection of $2 shirts out there all begging to be worn sounds great.  For the nostalgic among us there are great old cartoon tshirts (mighty mouse anyone?  How about teenage mutant ninja turtles?  )  Not bad for a fun tshirt.  Good luck finding anything new that has quite the fun nostalgic value.

This got me thinking, what things are BETTER from a thrift store than they are brand new?

1) Workout shirts - see above.  Teenage mutant ninja turtles tshirt for lifting in? Priceless.

2) Nostalgic tshirts - see above as well.

3) rags/towels - I need some new shop towels.  I certainly am not going to steal Lauren’s towels and I am sure there are some big ones that would be perfect.

4) Resellable antiques or cool antiques - sometimes gems slip through the cracks.  You never know what you might find.  Can’t buy antiques new now, can ya?

5) Halloween costumes - What better place to find things for crazy Halloween costumes.  Want to be a little old lady? sold.  Crazy costumes? sold. Karate kid? sold.

Heres what I came up with as far as “free” ways to keep cool:

1) Make sure your house is well insulated - Insulation is not free per say, but its not very expensive, and you can get do it yourself home kits to blow in cellulose insulation. Insulating your calls will make a world of difference in the heat (and the cold when you get to winter)

2) Keep the ceiling fans on - not entirely free but certainly not that expensive

3) Open the fridge or freezer for a few seconds and stand in front of it - this one may sound kind of funny but when I was helping Lauren’s family do some interior decorating (she and her mom do it on the side) there was a house that the air conditioning wasn’t working. I was doing a lot of moving stuff around and really getting hot so every once in a while Id go over to the freezer, open it up and stand there. It actually helped a lot.

4) Use evaporation - When I was younger my family didn’t have AC so I used to take a spray bottle and spray my self with water…especially my feet which for some reason are always hot. I know some people like to put on wet bandannas.

5) Go to the basement - If you have one, even if its unfinished, use it. Its always going to be cooler in the basement so when it gets super hot, head on down.

Bonus: Come to my (or to a friend’s) house that has AC. As long as you bring beer, of course…

So good news: they accepted our counter offer on Lauren’s house.  This has been one of the biggest stress points for us over the past few months.  We were afraid that with the market as it is we wouldn’t be able to sell, or at least that we wouldn’t be able to sell in time for the baby.   One thing down!

Unfortunately, it’s been a bittersweet week though because we found out that Lauren does not get partially paid maternity leave as we had thought.  In fact, its slightly ridiculous because the company does have paid maternity leave but we are missing out because of a small technicality on insurance enrollment dates.

I understand and love our capitalist system but using small loop holes and technicalities to cut people off unexpectedly strikes me as unnecessarily harsh.