The end of the Housing Boom

The following story describes a bigger issue that people should realize. The increase in the cost of mortgage lending as to do with the increase in interest rates by the federal reserve. The Federal Reserve has decided to raise the target rate in order to stop the increase inflation caused by rising prices. One of these reasons for the increase inflation expectation is the high cost of gasoline. I write about this issue because a lot people believe that the home prices will continue to rise regardless of the situation. They believe in this because of their ignorance in the market forces that control our financial system. However, people refuse to see that there are signs of at least a leveling effect on prices for home. The increase in vacancy rates therefore more housing supply. Secondly, there are high oil prices and increase inflation expectation therefore the high interest rates and therefore higher borrowing costs. Next will come greater supply and lowering of home prices.

This trend should concern people who have leverage their home for their investments such as second mortgages equity lines of credit, considering if the housing boom ends and their home values decrease they will be paying a payment on declines assist.

If I was a person with a high of leverage in the home I would continue to reduce my debt level in order to put at a higher equity level and lower my risk when home prices dramatically drop.

An opporunity to buy

However, if history following the same patterns when interest rates rise prices usually decline which could give an opportunity for people who thought homes were expensive now purchase homes at a more affordable price. When interests then decrease because of market forces home owners can then refinance to make their borrowing costs lower.

http://news.yahoo.com/s/ap/20051025/ap_on_bi_ge/mortgage_lending;_ylt=AgR1GwHutgBN1WKpePwD0QMO57EF;_ylu=X3oDMTBjMHVqMTQ4BHNlYwN5bnN1YmNhdA--

America's dilemma with the Yuan

The Bush Administration and the Treasury Secretary, John Snow is trying to influence the Chinese government to allow markets forces determine the exchange rate between the Yuan against the dollar. However, the Chinese government have continued to peg the Yuan with the dollar or in other words keep the exchange rate between the dollar and Yuan at constant rate regardless of the market forces. At the current moment the Chinese government inflates the value of the dollar against the Yuan by buying United States Treasure bills. By doing this it keeps costs to buy Chinese goods by United States citizen cheaper.

Downside for pegging the Yuan to the dollar for the United States

It makes it expensive for Chinese citizens to buy United States and cheaper for United States citizen to buy from Chinese. This is one of the reasons for the large trade deficit between the Chinese and United States.

Downside of unpeggin the Yuan

If the Yuan was to be unpeg from the dollar there would be cause an rise in liquidity the United States economy. Since by pegging the Yuan to the dollar the Chinese are basically buying United States Treasurary bonds they are basically bringing liquidiity into the market. If Screatary Snow is successful in getting the Chinese to allow the Yuan/Dollar exchange rate to be determine by market forces then the Chinese would stop buying Treasury Bonds which would reduce liquidity in the market which would then make the available funds to borrow to fall which would cause an increase in interest rates which would make more expensive for people in the United States to borrow for things as such cars and homes.

Upside for unpegging the Yuan

Market forces would most likely cause the Yuan to rise in value against the dollar. It would therefore cause American's to buy less Chinese products and more Chinese to buy more United States products. This would therefore reduce the trading deficit between the Chinese and America. The Bush Administration would think this would beneficial to the United States people and economy.

Sun Microsystems Reasons for current state of affairs

As a shareholder of Sun Microsystems I am disappointed by it current state of affairs. I feel as if was the misteps of years ago that cause the company to be in its present condition. In the past from my point of view the strategy at Sun Microsystems was to further the sales of their Solaris based servers because they were the bread and butter of the company. Their huge investments in developing Solaris operating, Java and their Sparc processor was the attracted buyer to buy their expensive, reliable and efficient server. However, it today's current economy no one buy their servers anymore because they expensive price tag. Therefore everyone questions why Sun continues to invest billions of dollars in research and development on Solaris, Java and the Sparc microprocessor.

If those products are so valuable they sell them as stand alone products that can bring in revenue similar to the way the sell their Star Office now. Secondly another problem with the company is it late ability to change with the times. For instance its insistence to use only its Sparc chips in their servers. It did change that strategy to sell thier servers with AMD chips was years too late. Also, it inability to realize that services would be a great income for the company. The to to sell its software suites for money. It was the failure to change the income producing segments. when the economy was changing several years ago.

On the bright side Sun Microsystems does sell software suites like Star Office for money and sell servers that carry AMDs chips that bring down the cost of servers which make they more competitive with the IBM, HP and Dell servers. Also, the new COO has decided to make the company a software but selling subscriptions to the software such as the Java Desktop System. My point is that the leadership of the company should have realized the changes in the demand of their customers from their expensive servers to more lost cost alternatives that ran Linux or Windows operating systems that ran Intel processor. When they realize this they should have started to use the commodity processor with cost nothing for them to develop and decided to charge for the great intellectual properties such as Java, Star Office and Solaris a lot sooner. The strategy of giving these great software packages away in the past to further their sales in the servers years ago lead to the current affairs.

General Motors Problems

http://www.moneysense.ca/news/headline_news/shownews.jsp?content=b101793A

GM's Problem

From a business standpoint GM's deal with the UAW union seems to be great new for its stockholder because it cuts their health care cost and give the company more cash. However, in the long term this could hurt the company because it upset the workers and makes the company a less attractive place to work. Anytime a company cuts their benefits or compensation their employees, their workers are not focused on doing their jobs therefore lower efficiency, therefore a lower quality product which leads to less profits. GM has been known to have the best benefits of most companies in America and if its decides to slash those benefits how do they attract the best and the brightest of America's work force.

Suggested Alternatives

The reason why GM has been downgraded to junk bond status because the the proceeds from the bonds sales used to finance the car operations has been losing money because the capital structure to build those products are inefficient. I would invest money on increasing the efficiency of the car making process. If that was not possible I would retrain their workforce to produce better selling products instead laying off workers and slashing the workers that stay their benefits. Despite their woes the company has been making a lot of money on their financing arm of the General Motors Acceptance Corp.,which earned $675 million in the third quarter, up from $620 million. At this time GM wants some to buy a piece of GMAC in order to improve the bond rating for the company. If I was CEO, I would use the profitability of the financing arm to reduce the level of debt buying back bonds therefore lowering debt, interest payments and therefore lower the risk and therefore increase the possibility of upgrade on the bond rating.