“A boy with one eye sees the world differently from everyone else.”
~ Michael Lewis, The Big Short: Inside the Doomsday Machine
Ironically, Dr. Michael Burry, the neurologist in residency turned hedge fund manager with a glass eye (played by Christian Bale in The Big Short) was the first money manager with the vision to see the subprime mortgage meltdown coming.
Following up to last week’s review of The Big Short, we look back and examine what exactly caused the subprime crisis to see what lessons can be learned. This week, we include Michael Burry’s analysis of the past crisis given in a fascinating lecture to Vanderbilt University. In Part 2 next week, we’ll reflect on what has changed – for the better and worse – since the subprime mortgage debacle crashed the economy, and what Burry’s predictions for the next financial crisis.
“If the love of money is truly the root of all evil, then The Big Short is the ultimate romance.”
~ James Kendrick, Q Network
“The thought-provoking film is a timely reminder of the lessons from a financial crisis which are too quickly forgotten.”
~ Patrick Durkin, Sydney Morning Herald
“The Big Short teaser poster” by Source (WP:NFCC#4)
The Big Short opens with narration by Ryan Gosling’s character (named Jared Venet in the movie, based somewhat loosely on Deustche Bank salesman Greg Lippmann) introducing The Big Short as a story about “the giant lie at the heart of the economy.”
What was the giant lie? The fact that the post-9/11, post-tech-crash recovery was a doomed-to-fail boom cycle fueled by consumer spending based on an economic illusion… a huge housing bubble that only a few contrarians could see. As one character in the film asserts matter-of-factly, “No one can see a bubble; that’s what makes it a bubble.”
“Home is where the heart is. And for those who own their homes, home is also where the equity grows.”
– Kate Phillips
Last month, we printed part one of the Home Buyer’s Guide, an excerpt from Kim Butler’s upcoming Busting the Interest Rate Lies book, in our post, “Buying Vs. Renting (A Home Buyer’s Guide, Part 1).” Today, we continue with the second and final part, which examines the ins and outs of financing and finding a house that can be an excellent investment as well as “home sweet home.”
Purchasing a Home
There are many things to consider when purchasing a home. You’re not just purchasing a house or a condo, you are also (typically) obtaining a mortgage and signing a long-term financial contract.
Assessing the Down Payment
With real estate, you can control a $200k real estate asset with $40k, $10k, or even less in some cases! That’s because a mortgage allows you to use “OPM,” or “other people’s money” when you purchase a house. Whether you put nothing down or 20% down, the value of the home does not change, only the rate of return.
“The best way to predict the future is to create it yourself.”
– Peter Diamandis
This post is a guest post from Kate Phillips, our marketing writer and coach.
It’s my favorite time of the year. While people around the country scramble for reservations for dinner, dancing, fireworks and parties, I am happily squirreled away in a waterfront condo with a computer, a notebook, Wayne Dyer’s “The Power of Intention” video, an excellent book about leadership (Influencer, The New Science of Leading Change), and the luxury of several days of solitude.
It’s time to say goodbye to the old year and welcome in the new. It’s a ritual I’ve done for more than 10 years now, and wild horses couldn’t keep me from it. It’s a time to reflect, refresh, renew, and push a big reset button.
“I have often said that if people truly understood this product, that they would line up around the block to purchase it. That product is participating (dividend-paying) mutual whole-life insurance.”
– Todd Langford, Truth Concepts financial software
“Is Whole Life Insurance a Good Investment?”
Perhaps no question has generated as much controversy on financial blogs and forums as this one.
Indeed, The White Coat Investor website’s most popular post on whole life insurance (written by a self-appointed, unlicensed financial “expert” who is a full-time physician) has generated over 800 comments from both fans and foes of whole life. The posts begins with a warning that the comments may take “over 4 hours to read,” and links to further articles that reveal the author’s limited understanding of the product.
“Typical” advisors, media-hyped financial gurus and bloggers say, “Stay away from whole life insurance!” Meanwhile, many passionate agents and advisors try in vain to correct the misconceptions, irritating others who believe their enthusiasm is motivated only by commissions.
And regardless of which side of the fence the opinions fall, both sides often get their facts wrong, and few seem to understand the role of saving and liquidity in an investor’s personal economy. The long-term, generational benefits of both cash value and death benefit are often overlooked. Diversification is also poorly understood, and the fact that you can’t have all of your dollars in equities (or even in stocks and bonds) and be properly “diversified.”
We have noted in a related article about whole life insurance that it is not properly classified as an investment, however, it IS an EXCELLENT place to store cash for many investors.
But what is the TRUTH about whole life insurance RETURNS?
We are in the final stages of getting our newest book, Busting the Interest Rates Lies ready for release on Amazon.com. This week, we have an excerpt from the book. It comes from “Savvy Home Buyer’s Guide,” which is part of the book.
Should you rent or should you buy your home? In the excerpt below, we demonstrate with an example and Truth Concepts calculators that the math that is usually used to determine if buying is better than renting is not correct. Typically, opportunity cost is not considered, nor inflation, nor the end result of renting vs. buying.
What’s the real truth when it comes to “rent and invest the difference”? Soon you will have accurate information (that may surprise you) with which to make your decision!
A Home Buyer’s Guide
There’s a lot of advice out there about buying homes and getting mortgages. Some of it is good and some of it is deeply flawed. In this guide, our focus is on how to buy a house that helps you build long-term wealth, not to provide detailed real estate advice.
“There are two predominant mindsets in the world competing for your attention: scarcity and abundance.
…Entrepreneurs use ingenuity to increase opportunities and create new solutions.”
– Dan Sullivan, Strategic Coach
This week’s post is a reprint of an email from Peter Diamandis. This same topic is covered in greater detail in his book, Abundance: The Future is Better Than You Think. I am grateful to count Peter as a mentor and to be able to share Peter’s wisdom on the possibilities for an abundant world.