Payoff Mortgage. Oh no. Never.

I alway get to explain what I think, I don't want to, but here is why one should not pay off the mortgage.

First let's ask question to yourself:

1. Are you paying of so that you can sleep well? If yes, No argument go ahead. But look for #2.
2. Are you going to invest the interest you save every month? If yes, great you might be ok.
3. Are you able to get (Mortgage Rate + (Mortgate Rate * Tax Rate / 100) return of investment? If yes you better not pay your mortgage. For example, 6% mortgage rate, 25% tax rate, you will need 7.5% return.

Now lets look into more detail.

Lets say you earn 50k a year. And your mortgage is $1000/month. Let's assume you get a raise 3% a year. That means your salary will be 100k in 24 years. So after 24 year, you pay $1000/month even though your salary is double. So basically you pay $500 of todays money.

Now let look in a different way i.e. inflation. If inflation is 3% that mean the cost of the goods you purchase will increase at the rate of 3%. That mean the thing you buy for $1 will cost you $2 after 24 years. For example, today Burrito cost $1 at Taco Bell. Lets say if we want to pay the mortgage with burrito. For simplicity lets say 1 burrito = $1000. So based on the above situation you have to give one burrito to bank today every month. After 24 years, $1 can buy half burrito. So you have to give bank half burrito and other half you eat rather than bank eat your whole burrito.

So if you keep mortgage you are paying the debt with cheaper dollar, because $1000 is not $1000 tomorrow. It will always (well most of the time unless we hit deflation) less tomorrow.

Few other reasons are some basic financial freedom rules, such as always keep money on your side, you will need if something go out of whack, e.g your health, financial debacle etc. You need money in this case and owning house wont' give you money. You can sell it, but hey you will get price at that time whether its up or down and you wont get immediately. House is not considered as a liquid asset.

Furthermore, you certainly don't want to payoff at the second half period, as you are paying interest less to the bank.

I hope it make sense.

Is Countrywide Rescued?

Fed Surprised decision to reduce the discount rate to 5.75 will help a bank like Countrywide to borrow the money that they have to borrow through Line of Credit which is 10-11%.

With the help of discount window they can put the mortgaged based collateral, MBS, CDO etc to get the money from the Fed for 5.75%. And, Fed encouraged Bank to use this rate to solve the liquidity problem.

It could be temporary solve the problem, as the CDO which nobody worth how much it is, Fed will give money on those collateral. Within 30 days, the Fed will have meeting and will reduce the target rate to 5% which further solve the problem. BTW, the CDO is the biggest joke of the century, created by Wallstreet some of the hedge fund and Retirement fund has bought this securities. They have no clue what this worth; and none of the others. Funny thing is European Countries, China, Korea etc are fooled baught this thinking AAA rating, they will loose money that they invested with their surplus. They will learn the lesson.

This is Bush like step, where they try to rescue corporate, and some wall street nitwiz who make a mistake and want to bail them out. Lot of rich people has money in the hedge fund they will be bailed out at the cost of "inflation", which average Joe is suffering.

Another thing I suspect is the "news" that fed will redue the rate was come out on Thrusday during the late market hour, which keep market goes up on that day.

Why we need to own the house?

Here is what I think after owning the house for 10 years.

1. The home make us proud. If you own the car you take care and drive better than rent one. Just like that, house is you will keep more clean and organized than you live in apartment. You like to go to home. When you are in the house you fill pride and ownership.

2. Children has more space to explore and do the other thing which is hard in apartment. They love hiding in the closet, playing in the backyard. You raise better children in house than in apartment. The mentality of the children changed in unnoticed way. After all, its all about thinking.

3. You spend more time with family than you were in apartment, in apartment you do nothing, watch tv and that it, in your own house you fix something, spend time on it, learn lot of thing, have party, stuff like that. You always been busy thinking what to do? Where to put the stuff? How would we organize? How to decorate?

4. You have a little status in the society of owning the house. People look you with a different angle. It does not really matter but this think help sometimes. Your lifestyle is better.

5. Home ownership enforces financial discipline, something people may not have. So if you are not good at investing buying house absolutely make sense. The whole idea is you pay more earlier and pay way below later. It take very long view, as it is life long investment.

Even though, some of the bill is higher than in apartment, this is one way to become wealthy. Every millionaire bought their first house earlier in the life.

VMWare IPO : Analysis

VMWare is coming out public on Aug 13, 2007. It is a spin out from EMC, but EMC still have control over the company through equity.

Symbol: VMW
Price expected: $29/share
Amount to raise: $957M
Share Outstanding: 365M (detail below)
326.5 M (EMC Owned, 26.5M Class A, 300M Class B) i.e. 87%
4.x M : Sale to broker for option
4.xM : Owner by INTC (2.5%), CSCO (1.6%)
33 M : Going to Public for $29/Share

1. Raising almost 1B, they will use to payoff the debt of 350M, rest for general operation.
2. They are growing at the rate of 100%, as per last qtr
3. The market cap of the company will be 10.xB at the price of $29
4. They are buying building from EMC which is located in Palo Alto, for around 150M
5. They do not own any other building, all are leased or subleased.
6. They were baught out by EMC in 2004 for $650M (now worth 10B, wow)
7. FY2006, they earn 87M or 26c/share, with the revenue of approx 705M
8. Last qtr they earned 34M (last qtr: 15M), with the revenue of 297M, 98% more than last year same qtr

My Estimate: The expected earning for FY2007 is $0.50-0.70 on the revenue of 1.2-1.3B. With the lower end expectation and offering price ($29), the stock is IPO at 60PE. IMO, VMW worth $50 based FY08 earning expectation.

Disclaimer: This is just my analysis. It do not represent the opinions on whether to buy, sell or hold shares of a particular stock. Please buy/sell/hold on your own risk. I am not responsible for any loss you may have, please contact your financial advisor for investment risk of IPO stock. All investors are advised to conduct their own independent research into individual stocks before making a purchase decision. I do not have any relation with the company or employee of the compnay. This finding is based on the news I read and S-1 filing registration statement.

What will be the Fed next move?

There are lot out credit problem out there and buble in credit market pop out. The financial market and brokerage are feeling pressure from the sub prime market. First, Amarnath, then Blackstone, Bearsterns, Countrywide and list goes on. While most of the anlayst think the fed will keep rate unchage or some think higher, I think they will reduce rate. There is no inflation at overall level. I mean they have to reduce the rate to slowly brust this bubble than big noise. I hope Mr. Ben and company get it.

I keep my finguer cross.

Update 7/8/07, 4:00pm PST
Ok, I was wrong.

Fed did not listen the song of sirens. May be Fed are right about not to reduce the rate. They do not want to bail out some Company who made a wrong call. After all its there business wrong call loose money, poor Bear Stern.

What should the average investor pay attention to?

"If the Dow and the overall market fall 5 to 10%, and you feel compelled to sell, don't invest in the stock market. These drops are normal. They happen every 12 to 15 months and you need to have the stomach to ride them out.

If you worry about what the market will do in the next 6 to 12 months, you are not investing. You are gambling. Some of my best stocks paid off handsomely in three years, some in five. In every case, earnings made the difference.

So focus on earnings more than fluctuations. Corporate earnings drive the stock market. Yes, other influences impact stock prices, especially over a short period: the influx of money, even tragic or shocking events, can have an effect, but ultimately earnings decide.

As for predicting the future, I've always said that I don't know which way the next 1,000 or 2,000 points in the Dow may go, but I know something about corporate profits.

If they match the historic pattern of the last 50 years, corporate profits double every 10, quadruple every 20, and go up 8-fold in 30 years (based on 7% per year growth). This has been the history of the per-share earnings of the S&P 500.^®

That's why I believe that the Dow's next 10,000 or 20,000 or 30,000 will be up." said Peter Lynch, Fidelity.

The market appears to adjust (bad and good news) so quickly to information about individual stocks and the economy as a whole that no technique of selecting a portfolio — neither technical nor fundamental analysis — can consistently outperform a strategy of simply buying and holding a diversified group of securities.

Good Books for Reading

A Random Walk Down Wall Street, by Burton G. Malkiel
If you haven't read this investment classic yet, now's the time. Princeton professor and former Vanguard board member Burton Malkiel has revised and updated his investment primer for the eighth time, showing why investors historically can't beat the stock market and including a new section on the dot-com boom and bust. Read an interview with the author.

Winning the Loser's Game, by Charles D. Ellis
Written by Charles D. Ellis, senior advisor to Greenwich Associates, member of Applecore Partners, and Vanguard board member, this insightful, accessible guide to how the financial markets work—and how to put them to work for you—was described by legendary management expert Peter Drucker as "by far the best book on investment policy and management."

Straight Talk on Investing: What You Need to Know, by Jack Brennan
Vanguard's chairman and CEO shares insights on building wealth that he's learned from clients and crew members in his 25 years at Vanguard. He provides sensible advice on how to build and manage a portfolio and reveals some common things that push investors off track.

Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor, by John C. Bogle
In his second book, Vanguard's founder provides timeless investment wisdom in his characteristic hard-hitting style. Through a series of essays, he spells out commonsense principles for novice and sophisticated investors alike.

The Bogleheads' Guide to Investing, by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf
Written by three longtime Vanguard investors, this witty, commonsense guide to investing grew out of the authors' participation in the Vanguard Diehards message board on Morningstar.com. It includes a foreword by Vanguard founder John C. Bogle, from whom the self-described "Bogleheads" take their name.

The Four Pillars of Investing: Lessons for Building a Winning Portfolio, by William Bernstein
Whether you're an experienced investor or just getting started, you'll appreciate William Bernstein's sage, straightforward guidance on creating a portfolio that can weather the market's long-term ups and downs. His key thesis—that it's usually impossible to beat the market by chasing performance or market timing—dovetails nicely with Vanguard's philosophy.

The Intelligent Investor: The Definitive Book on Value Investing, by Benjamin Graham, updated by Jason Zweig
First published in 1949, this classic has sold more than a million copies. Senior Money magazine editor Jason Zweig bolsters the wisdom of Benjamin Graham, the father of value investing, with additional commentary in footnotes and updates relating to newer investment vehicles and trends.

Wealth of Experience: Real Investors on What Works and What Doesn't, by Andrew S. Clarke, with a foreword by Jack Brennan
Based on interviews and survey responses from more than 600 Vanguard shareholders, this book distills the experience and wisdom of ordinary investors into a simple plan that can help you enhance your prospects for long-term success and avoid major financial mistakes.

Books on retirement and financial planning

Mind Over Money: Your Path to Wealth and Happiness, by Eric Tyson
The author of Mutual Funds for Dummies, Personal Finance for Dummies, and several other titles offers indispensable guidance on how to avoid the most common mistakes Americans make with money—such as spending too much of it—and how to change the way you think about wealth. Listen to an interview with the author.

Smart and Simple Financial Strategies for Busy People, by Jane Bryant Quinn
One of America's preeminent writers on investing and personal finance, Jane Bryant Quinn has helped make the markets a less mysterious place for millions of investors. In her new book—described by former Vanguard board member Burton G. Malkiel as "encyclopedic in scope and written with clarity and style"—Ms. Quinn outlines her "No Worry" strategy for money management. It's a simple, easy-to-follow approach designed to help Americans save more, reduce debt, and invest wisely.

The Power Years: A User's Guide to the Rest of Your Life, by Ken Dychtwald, Ph.D., and Daniel J. Kadlec
In the future, "retirement" will be more than just a life of golf, travel, and leisure. Dr. Ken Dychtwald, a leading expert on aging and the baby boomer generation, and Daniel Kadlec, a Time magazine columnist, will help you get ready for perhaps the best years of your life—where "old age" is instead a vibrant new age full of activity and personal reinvention. Read an interview with the author.

The Savage Number: How Much Money Do You Need to Retire? by Terry Savage
Chicago Sun-Times personal finance columnist Terry Savage's latest book answers one of pre-retirees' most common questions. Her plainspoken style helps make sense of the increasingly popular financial forecasting technique of Monte Carlo modeling and explains how to grow and draw down your assets to help make sure they last throughout your retirement.

How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire, by Stan Hinden
Retired Washington Post financial columnist Stan Hinden covers 12 crucial decisions for those getting ready to retire, such as when to take Social Security and what to do about health insurance. Read an interview with the author.

Retirement Bible, by Lynn O'Shaughnessy
Whether you're in your 20s or 60s, single or married, work in a big corporation or own a small business, you'll find most answers to your retirement-planning questions in this comprehensive, 500-plus-page resource.

Enough is enough.

Ok. I copied the title from the blog from Mr. Bill Gross. I am a fan of him and was reading his post.

It is very interesting what he said : Rich did not get rich through plack and smart, they get rich by taking risk with other people money and low taxes. Warren Buffet only pay 18% tax and keep no tax planner. He further said most of them achived through the capitalism, encouraged innovation and globalization. Today's rich is going too far. I think they went way more in terms of wrong doing such as accounting fraud, insider information, false statements, manipulate the system, etc.

He pointed out that when the rich became richer and miidle/lower class are struggling then the system ultimately break down. It is enough and it is time to raise the tax for the Rich. Especially when the Rich are draining the money by having multiple vacation home, private plane, million dollar birthday party, inhertiance for the grand kids, ego centric donation to concert hall and art museum. On the other hand, US goverment is in deficit affecting millions of innocent household.

Isn't it enough.?