Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Dave Gore's Trades That Make Sense -- Ignore unavailable to you. Want to Upgrade?

To: Dave Gore who wrote (10682)	8/6/2002 12:38:03 PM
From: Dave Gore	Read Replies (1) \| Respond to of 16631

Art Cashin doing a wonderful sentiment analysis of "Shorts" just now and why the rally has stayed strong, if not increased a bit. I try to do the same, put myself in the shoes of the average trader and the masses, because I think that's what the really smart traders do. Psychology and sentiment (fear and greed) are so important in this Market.

To: Dave Gore who wrote (10682)	8/6/2002 1:08:44 PM
From: Augustus Gloop	Read Replies (1) \| Respond to of 16631

Ok....Fed Rate cuts Some problems have already been pointed out. People will borrow more money, spend more money they don't have and banks will allow it because the lower rate lowers consumer payments and makes them more able to pay. But it doesn't make them more credit worthy! Thats the key. When rates go back up some of the payments on purchases made at low rates will go up too. There is also the issue of comparing apples to apples which I will show below. Now these are just consumer issues - we'll forget about the negative implications for the strength of our dollar. Lets say a person bought a 300k home 10 years ago, on a 30 year note @ 7.5%. Right now the would still owe 260k on the home and their payments would be about 2100 (not including taxes on any of these numbers) Now....they see a 5.75% rate for a 30 years and refinance 260k @ 5.75% = 1517 per month or a savings of almost 600 per month! Its perfect right? Wrong! What they forgot is they only had 20 years to go on their old mortgage. So to compare Apples to Apples and find out the REAL INTEREST savings one must calculate the payment over 20 years. Then all things are the same 260k @ 5.75 over 20 years = 1825. So....the interest savings of 600 was exaggerated by 50% over the TRUE savings of 275.00 because of the additional 10 years they added to the new mortgage. Now....there is also this belief - If you could afford 2100 ten years ago and you can't now then the house you own is too expensive. What you don't do is lower your payment so you can continue to live above your means. And that is what way too many people are doing. The smart person would do this: 260k @ 5.75 and make the same 2100 payment they were making which would reduce the number of years until payoff to 15.6 years. So instead of refinancing to reduce payments and have more money to spend you should view it as a way to keep your payment the same and reduce the number of years in the loan.