I need money for September and October expenses

I had hoped that I would be able to line up some work to pay my bills by this time, but the current economic climate is still not quite cooperative enough, so I have little choice but to continue to raid my savings for awhile longer. At a minimum, I need to pay my rent (and other smaller expenses) for September and possibly even October. I had been thinking that September might be a better time to line up some contract work, with the summer out of the way and the economy starting to pick up a little, but it is starting to feel as if September is not such a sure thing and that the October to November timeframe might be a better target.

I have my "rainy day" contingency cash spread over a bunch of accounts, so the question is which account to take it from. Rates vary from month to month, so it depends on when I need the cash.

I actually have plenty of cash in my Fidelity account (which I use for checking and bill payments) to last through the end of  August.

I'd like to get the cash for my September rent and credit card bill in place ASAP so that I don't have to worry about the exact timing, but then I will earn a much lower interest rate on the cash in my Fidelity account.

In truth, even switching from a 1.75% APY bank account to Fidelity for a month will cost me only a maximum lost interest of a couple of bucks. Nothing to lose sleep over, but it is the principle of the matter.

Back in the spring, my model was to keep cash for two-months of expenses in my Fidelity account. I have August right now, so I just need to get one more month of cash. And then worry about cash for October a month from now, unless I have a good prospect for week in early September.

Maybe sometime this coming week I'll go ahead and transfer the cash from one of my bank accounts to my Fidelity account. Or at least decide exactly what I am going to do and maybe wait yet another week before doing it just to pick another buck of interest.

I'll try to enjoy the month of August the best I can (without spending any money), especially since it is always the worst time of the year to line up work, even in the best of economic conditions.

-- Jack Krupansky

ECRI Weekly Leading Index rises sharply and indicates an imminent economic recovery

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose sharply by +1.11% vs. +0.19% last week, and its annualized growth rate rose sharply from +7.7 to +8.8, hitting "a fresh five-year high" and well above its record low for its 60-year history of data of -29.7 for the week ended December 5, 2008, and its distinct upturn strongly suggests that recovery is on the way.

This was the sixth consecutive positive reading for the WLI growth rate since August 10, 2007, over 22 months ago.

The WLI growth rate has risen for 18 of the past 20 weeks.

According to ECRI, "Not only is the U.S. recession set to end this summer, but the recovery is apt to be stronger than many expect."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery may be firmly underway within the next few months.

Although a double-dip recession or "W" recovery cannot be discounted, it is becoming quite clear that the overall U.S. economy is on the verge of positive growth of spending and output, even if unemployment is still problematic.

Although the current economic reports continue to show significant weakness, there is also a vast amount of potential stimulus (especially from the Federal Reserve) in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that we could continue to see further employment losses or gains in unemployment even as recovery is underway.

-- Jack Krupansky

Three more of my Lending Club investment loan payments completed posting

Over the past 48 hours three more of my Lending Club investment loan payments from last week have completely posted with all fields updated. I did not pay too close attention to exactly when, but late last night I noticed that processing and updating was complete. My Net Annualized Return is now reported as 12.28%. Everything is fine.

The first payment for my 7th investment loan was in "Processing" on Wednesday, as expected.

That leaves only my 8th investment loan, which will be due in the second week of August.

And then I have a second payment for my first investment loan due on August 12th.

So far, I have gotten $3.46 of my initial $200 principal back and available for reinvestment. And I have received $1.49 in interest with then there is another $1.49 in accrued interest.

And so it goes.

All is fine, so far. The experiment has been successful so far, but I have more observations and experiments to complete.

I am actually itching to do another round of investment, probably using the LendingMatch feature. I will try to be disciplined and wait until September.

-- Jack Krupansky

New shoes from New Balance Express online

My shoes are really getting quite worn out due to all of the walking I do. I've been on the lookout for new shoes for over a month now, waiting for the right deal. Today is the day! I got an email alert from New Balance, NB Web Express, telling me that today is the last day for a sale offering 15% off and free shipping (and no sales tax).

I like a comfortable shoe for walking, something I can even do a little hiking in, but something marginally "dressy" so that I can walk into most decent restaurants or events down in Washington, DC without needing to have a second pair of shoes. One pair of shoes for everything. That's me. Actually, I do have an old pair of New Balance running shoes that I may wear on occasion, but as comfortable as they are I prefer wearing one shoe for all occasions. Besides, I would prefer to wear a waterproof shoe so I do not get drenched in a light rain. Although in truth even waterproof shoes don't keep their protection for the kind of hard use I give them -- over four hours a day, five to eight hours on weekends.

I chose the New Balance Dunham 8000 Windsor Waterproof Milled Leather Oxford for $94.99. Minus 15% or $14.25. FREE shipping (ground) and handling. NO sales tax. Grand total of $80.74. That fits my budget.

They will arrive next week sometime, but I'm going to try to get another couple of weeks out of my current shoes.

These are the same shoes I bought here in NYC when I moved here back in May 2008. They held up fairly well.

Back in January I bought a pair of the "Oakdale" Dunham model that was on clearance for 50% off the $135 price. They have been fine, but my budget requires the cheaper shoes. I budget $90.

Walking shoes last me about 5 to 9 months. After 5 months they really are ready to be replaced, but I try to squeeze all of the use out of them that I can. By the time I get a new pair, the old ones are looking very sad indeed.

The good news is that I am now set for another six months.

Check out the New Balance NB Web Express web site.

-- Jack Krupansky

How does Goldman Sachs make so much money so reliably?

Everybody wants to know how Goldman does it. How Goldman Sachs make so much money and do it year after year with such great success. Actually, the answer is really simple: They understand greed and focus obsessively on exploiting it, all the while refraining from succumbing to it themselves. Oh, and they do some trading on the side. That's it, the whole secret of their mind-boggling success.

Everybody and his brother thinks they have a geat idea for how to make money, but they just need help funding their efforts.

And, every organization is looking to reach for yield on their investments and save a nickel on their debt.

They are all looking or a gimmick, some form of free lunch.

That is called: greed.

Goldman is right their by their phones ever-ready with a collection of exquisite financial gimmicks designed to exploit your own very personalized form of greed. Goldman makes it their mission to completely satisfy your insatiable greed... well, at least up front when they collect the fees.

Most importantly, clients are willing to pay very rich fees for Goldman's willingness to share their elaborate and exquisite financial gimmicks. All of those fees really add up quite quickly.

In-house proprietary trading at Goldman also make a lot of money, but it is not the trading itself, but trading off the gimmicks utilized by clients that really juices up their revenues. Sell the client on an investment "strategy" and then trade off the weaknesses of the "strategy." Convertible bonds come to mind as an example.

Others on Wall Stre6et know how to play this game as well, but sometimes they drink their own KoolAid and their own greed takes them down. Don't they watch the movies? Drug lords are not supposed to "use" their own "products."

Meanwhile, Goldman plays this greed game to the hilt, obsessively focused on exploiting the customers' greed and very studiously avoiding the temptation to fall into the greed trap themselves.

So, Goldman's formula is quite simple:

1. Identify greedy "clients".
2. Satisfy their greed with exquisite financial gimmicks tagged with exorbitant fees.
3. Trade against their client's gimmicked-up "investments".
4. Avoid getting greedy themselves and refrain from using their own financial gimmicks.

-- Jack Krupansky

Unemployment insurance claims still a mixed bag, a wilted green shoot

Unemployment insurance claims do appear to be roughly on a downtrend, but it will continue to be a bumpy ride. Seasonally adjusted initial claims did rise moderately last week, but the seasonal adjustments are not exactly reliable in such an unusual economic environment. Unadjusted initial claims actually declined last week and the 4-week moving average of initial claims also declined. Continuing claims did decline last week, both adjusted and unadjusted, as well as the 4-week moving average.

Initial claims of 559,000 (4-week moving average of seasonally adjusted claims) are still way above normal (300K or so), so we shouldn't take too much solace in this data, but at least the trend is not as bad as earlier in the year.

I would call this a wilted green shoot. The green shoot is still growing (good news), but not as full of life as we would like to see (disappointing for those of us who are impatient.)

-- Jack Krupansky

Tracking the ongoing media mania over alleged parallels to The Great Depression

I am endeavoring to track the current media mania of attempting to draw parallels between the current economic situation and The Great Depression. I am doing this by using Google News to count the total number of "news" references to the phrase "The Great Depression" in the previous 24 hours.

• 1/10/2009: 411 hits
• 1/30/2009: 319 hits
• 2/6/2009: 308 hits
• 2/25/2009: 389 hits
• 3/10/2009: 306 hits
• 3/24/2009: 285 hits
• 4/9/2009: 93 hits
• 4/28/2009: 184 hits
• 4/30/2009: 195 hits
• 5/7/2009: 184 hits
• 5/21/2009: 167 hits
• 6/5/2009: 99 hits
• 7/8/2009: 170 hits
• 7/22/2009: 177 hits
• 7/29/2009: 189 hits

Although there has been a recent increase in the apparent mania, I would still say that it does appear that the media mania has peaked, although we are still quite a ways from being able to say that the mania is "over." The good news is that the media mania has not dramatically worsened.

The recent increase is likely due to disappointment that we did not see a significant uptick in economic activity in June. People were hoping that the second-half recovery would be showing more "green shoots" in June.

Another possibility is that the term "resonates" and that the media is more than happy to cling to a term that almost assures that readers will pay attention. How long will it continue to "resonate"? Maybe until the overall economy and employment are reliably rising month after month for at least six months.

Actually a fair amount of the usage at this stage is not comparison directly to The Great Depression, but simply using The Great Depression as a sort of bookend an in "since the Great Depression." Still, the media is clearly getting a lot of mileage out of the term even if they are not adding much in the way of useful information.

-- Jack Krupansky

Microsoft search deal with Yahoo finally out of the way

After many months of tortured talks and negotiations and rumors and false starts, the long-awaited "search deal" between Microsoft and Yahoo has finally seen the light of day. I am sure that there will be potholes along the way and an ongoing adjustment between the two companies and their partially-aligned objectives, but I am also sure this deal will work for the long run. It may in fact evolve into a radically different form five to ten years from now, but that is a natural process and not a problem. I am also sure that there will be plenty of critics and plenty of naysayers along the way, but I can also confidently state as a shareholder of Microsoft that I am in favor of the deal and I do believe that it will add real value to Microsoft and its shareholders over the long term. What short-term traders and so-called Wall Street "profesisonals" think of the deal is irrelevant to serious investors.

The best news is that the deal is done and we won't have to listen to the continuous stream of rumor that has plagued both companies for more than a year now.

For the record, this is a much better deal for Microsoft shareholders than an outright purchase of Yahoo or even a partial acquisition of Yahoo.

Give plenty of credit to Carol Bartz. As a "newcomer" to Yahoo she did a great job of cutting through the fog and crap and engineered a solid deal for Yahoo as well as enabling a solid deal for Microsoft.

Personally, I think Steve Ballmer is a truly great CEO. Running Microsoft is no easy task. He is quite up to the task.

The only really satisfying answer to the critics of Microsoft and this deal is to simply stand back and watch and let the test of time prove out the judgment of Bartz and Ballmer over the next five years.

The agreement is for 10 years. Nobody knows that the online landscape will look like out past 10 years. This deal gives both parties flexibility for the long term.

The companies expect the deal to close in early 2010, including regulatory review.

It will take about two years (after regulatory approval) to get to "full implementation" of the deal.

Read the joint press release.

(My apologies to Yahoo for not writing the exclamation point after their company name.)

-- Jack Krupansky

ECRI Weekly Leading Index rises modestly and indicates an imminent economic recovery

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose modestly by +0.24% vs. -0.80% last week, and its annualized growth rate rose moderately from +7.0 to +7.7, well above its record low for its 60-year history of data of -29.7 for the week ended December 5, 2008, and its distinct upturn strongly suggests that recovery is on the way.

This was the fifth consecutive positive reading for the WLI growth rate since August 10, 2007, over 22 months ago.

The WLI growth rate has risen for 17 of the past 19 weeks.

According to ECRI, "With WLI growth climbing to a new five-year high, it is reaffirming that the end of recession is at hand and that the U.S. economy is poised for recovery in short order."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery may be firmly underway within the next few months.

Although a double-dip recession or "W" recovery cannot be discounted, it is becoming quite clear that the overall U.S. economy is on the verge of positive growth of spending and output, even if unemployment is still problematic.

Although the current economic reports continue to show significant weakness, there is also a vast amount of potential stimulus (especially from the Federal Reserve) in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that we could continue to see further employment losses or gains in unemployment even as recovery is underway.

-- Jack Krupansky

Two Lending Club investment loan payments completed posting today

My two Lending Club investment loan payments that partially posted yesterday afternoon are now both completely posted with all fields updated. One completed overnight and the other one this afternoon. Oddly, the one due on Saturday completed before the one due last Friday. That doesn't make any sense to me, but the good news is that they are both fully posted. The bottom line is that three of my first payments have now fully posted. My Net Annualized Return is now reported as 12.10%.

My two payments that were due Wednesday are still in "Processing", as expected. These payments should complete by next Tuesday or Wednesday or Thursday morning.

Another payment was due yesterday and is also still in "Processing", as expected. That should complete by next Wednesday or Thursday or Friday morning.

That will leave only two of my eight investment loans still with their first payments out in the future. One is due next Tuesday and the other in the second week of August.

All is fine, so far.

-- Jack Krupansky

Microsoft doing reasonably well even if Wall Street continues to struggle to understand them

Although Wall Street may be disappointed, I think Microsoft (MSFT) actually did reasonably well this past quarter given the challenging economy. The fact that Wall Street traders and analysts are disappointed with the results just goes to show how poorly Wall Street understands the dynamics of the company's business. It is not a terribly difficult business to understand, but Wall Street screws up anyway.

One issue is that now that Apple (AAPL) uses "Intel Inside", you can no longer easily extrapolate from Intel's (INTC) results to Microsoft's results, especially when Apple just had a great quarter. Why is that so hard to understand.

Another issue is that channel inventories are very dynamic, so trying to extrapolate directly and linearly from monthly PC sales is not a great way to estimate quarterly revenue for Microsoft.

Third, Microsoft is now "multi-core", with business applications (even besides Office) and server and tools (and now search) as separate business lines which do not track PC shipments.

Finally, Microsoft sells a lot of products to average consumers, so a challenging economy means a challenging business environment for Microsoft. Apple does have it easier since they are selling premium products into a demographic space that is not as economically sensitive for even pricey Apple products.

Overall, Microsoft could have done a lot worse in this economy.

The good news is that analysts are right that business is beginning to stabilize and should pick up incrementally over the next six months and into 2010, especially as Windows 7 and new PCs pre-installed with Windows 7 hit the streets in the fall and winter.

How Wall Street will respond to the current quarter report and fiscal year 2010 outlook is unclear, but I'm happy to continue holding my current stake and continue collecting and reinvesting the nice dividends.

The market may dip strongly at the open, but the deeper it dips, the more likely it will bounce back from the dip.

I am curious to hear what Goldman Sachs will have to say about Microsoft stock as an investment at this stage. Revenue for the quarter was only modestly below Goldman's forecast: $3.11 billion vs. $3.22 billion. Earnings were also only modestly below analyst consensus forecast: 36 cents vs. 37 cents. I don't see any of these numbers as such a big deal -- unless you are a Wall Street trader or analyst who is clueless about Microsoft's business. 

-- Jack Krupansky

Two Lending Club investment loan payments partially posted this afternoon

I was disappointed that I did not see my Lending Club investment loan payment that was due last Friday hit my account this morning, but I did see it partially post this afternoon. The good news is that another loan payment that was due last Saturday also partially posted today as well. I expect that both payments will complete posting by tomorrow morning.

Two other payments were due yesterday and are now in "Processing". These payments should complete by next Tuesday or Wednesday morning.

Another payment was due today and is also now in "Processing". That should complete by next Wednesday or Thursday morning. I see on the Loan Performance screen that the borrower's credit score has risen. Nice.

That will leave only two of my eight investment loans still with their first payments out in the future. One is due next Tuesday and the other in the second week of August.

All is fine, so far.

-- Jack Krupansky

Two more Lending Club payments due today

This is an active week for my Lending Club account. Out of my eight investment loans, five of them have activity this week. Everything is proceeding smoothly.

I had one payment due last Friday. That should complete by tomorrow morning.

I had one payment due last Saturday. That should complete by Friday morning.

I have two payments due today. That looks to be in process, although the only hint of that is that their accrued interest temporarily goes to zero. These payments should complete by next Tuesday morning.

I have one payment due tomorrow. That should complete by next Wednesday.

That will leave only two of my eight investment loans still with their first payments out in the future.

Looking ahead, I am thinking about doing a modest bulk investment of four to six loans using the Lending Match feature once everything has settled next week. Or, I may wait until September when have seen at least half of my second payments post to my account.

My biggest unknown is that I do not know if I will have billable work in September or October, so I do not know how much free cash I can commit to investment through Lending Club. I do in fact have more than enough cash, for now, but with this crazy economy you never know. I am not a vegetarian, so "green shoots" are not enough to keep me going. I need some red meat.

-- Jack Krupansky

Monthly GDP for May rose by +0.3% (+4.3% annualized), Q2 tracking for a -0.6% annualized decline

Monthly real GDP, one of the five primary economic indicators that the NBER Business Cycle Dating Committee (NBER BCDC) uses to judge recession start and end dates, rose moderately in May by +0.3% or +4.3% annualized, after falling modestly by -0.2% in April (revised down from +0.3%), and real Q2 GDP is forecast to decline by -0.6% annualized, according to Macroeconomic Advisers (MA). The government does not publish GDP data at a monthly level, but the NBER Business Cycle Dating Committee says that they refer to sources such as Macroeconomic Advisers (MA) and their MGDP data series. As Macroeconomic Advisers summarized GDP for May:

Monthly GDP rose 0.3% in May, and what was initially reported as a 0.3% increase in April was revised down to a 0.2% decline.  After falling sharply over most of the second half of last year, monthly GDP has trended only modestly lower since December.  The increase in monthly GDP in May was fully accounted for by a large increase in net exports.  The level of monthly GDP averaged over April and May was 0.3% below the first-quarter average at an annual rate.  Our latest tracking estimate of a 0.6% decline of GDP in the second quarter assumes a 0.4% decline of monthly GDP in June.

This report does not necessarily herald the return of happy days, but at least it is not indicating a worsening of the trend.

If the NBER BCDC is the definitive expert on marking of recessions, MA is the definitive expert on calculating real GDP at the monthly level with their MGDP data series.

-- Jack Krupansky

ECRI Weekly Leading Index falls moderately, but still indicates an imminent economic recovery

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) fell moderately by -0.78% vs. +0.90% last week, but its annualized growth rate rose moderately from +6.2 to +7.0, well above its record low for its 60-year history of data of -29.7 for the week ended December 5, 2008, and its distinct upturn strongly suggests that recovery is on the way.

This was the fourth consecutive positive reading for the WLI growth rate since August 10, 2007, over 22 months ago.

The WLI growth rate has risen for 16 of the past 18 weeks.

According to ECRI, "The recession is already ending. With WLI growth surging to a five-year high, the recession's days are numbered, and the coming recovery is looking more resilient."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery may be firmly underway within the next few months.

Although a double-dip recession or "W" recovery cannot be discounted, it is becoming quite clear that the overall U.S. economy is on the verge of positive growth of spending and output, even if unemployment is still problematic.

Although the current economic reports continue to show significant weakness, there is also a vast amount of potential stimulus (especially from the Federal Reserve) in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that we could continue to see further employment losses or gains in unemployment even as recovery is underway.

-- Jack Krupansky

First Lending Club payment fully posted to my account

Since I posted yesterday about the first payment on my first Lending Club investment loan which was due five days ago, the updating process has completed and the first payment has been fully credited to my account. Done! Technically, I probably should say that it took four business days for the payment to post after the payment due date since the payment was due on Sunday.

The payment amount for my $25 share of a $7,700 motorcycle loan was $0.83, consisting of $0.26 accrued interest and $0.57 principal repayment. Lending club charges a 1% service fee, which was $0.0083 or rounded up to $0.01, so my net payment was $0.82, which was simply added to the cash sitting in my Lending Club account (which earns no interest unless I reinvest it.)

My rough calculation suggests that the 1% service fee reduced my nominal 12.53% interest rate by about 0.48% to roughly 12.05%. Still very decent. Over the term of the loan that discount to my rate will rise since although the monthly payment stays the same and the service charge is based on the total payment, the interest portion of the payment trends down to zero.

The Account Activity screen is now updated and shows both the loan payment and the Lender Service Fee.

The first payment for my second investment loan is due today. Just as wth the first loan, I see that the accrued interest is reset to $0.00. I do also see a line on the Loan Performance screen for the loan that shows the payment status as Scheduled, but I see that line for all of my loans. Based on my experience with the first loan payment, I believe that I will see this payment fully posted next Thursday morning.

I just noticed that the Loan Performance screen has a Credit Score Change field that alerts you if the borrowers credit score has changed. For one of my loans I see that their score is Up. Neat feature.

All in all, everything is proceeding smoothly.

Move over Bank of America, Wells Fargo, and Chase... us Lending Club investors are out to eat your lunch! Really.

-- Jack Krupansky

First Lending Club payment partially completed after 4.5 days

Since I posted this morning about the first payment on my first Lending Club investment loan which was due four days ago, there finally have been some changes in status that show that the payment has been partially completed, although there are still some fields that need to be updated to complete the payment.

The good news is that the Loan Performance screen for this first loan has been fully updated to reflect the payment. Done. Good Job. It shows the full payment of $0.83 cents, with interest of $0.26 and principal repayment of $0.57. It shows the completion date for this payment as today. It shows the principal balance as $24.43. It shows the loan interest rate as 12.53%, the rate given for the original loan description. The interest and principal amounts agree with my own spreadsheet calculation. Everything is what I would have expected, except that the service charge does not appear on this screen.

Bad news is that the Account Activity screen still does not show any activity.

Mixed news is that the My Notes screen does not yet show an updated amount for Payments Received, but does reset the Accrued Interest to be only the interest since the payment due date. I expect that this screen will be updated tomorrow morning.

Other bad news is that the Account Summary screen has not been properly updated, yet. It shows my Available Cash as $0.01 less than before, and my hunch is that this is the deduction of the service charge for processing this first payment. But it does not credit the payment amount to the cash balance. The Outstanding Principal has not been updated either. Nor have any of the Payments to Date fields been updated. I expect that this screen will be updated tomorrow morning.

The other good news is that now that I have received a payment, Lending Club is able to calculate my Net Annualized Return which is shown on the Account Summary screen. My NAR is now 12.82%. It will take a month or two for that field to settle down to my true overall rate of return.

Overall this is reasonably good news. I look forward to seeing 100% clean screens tomorrow morning.

The first payment for my second investment loan is due tomorrow, Friday. In theory, I will see that payment a week from today, plus or minus a day or two.

-- Jack Krupansky

First Lending Club payment still "Processing" after 4 days

Since I posted yesterday about the first payment on my first Lending Club investment loan which was due four days ago, there has been no change in status, other than that accrued interest is another day higher.

It is supposed to take 2-4 business days for the payment to post to my account, but maybe it will post sometime today, or maybe the actual posting will happen overnight. No big deal per se, but I would like to understand the process. Tomorrow I should have my answer.

The first payment for my second investment loan is due tomorrow, Friday. In theory, I will see that payment a week from today, plus or minus a day or two.

-- Jack Krupansky

First Lending Club payment still "Processing" after 3 days

Since I posted yesterday about the first payment on my first Lending Club investment loan which was due three days ago, there has been no change in status, other than that accrued interest is another day higher.

It could take up to four business days for the proceeds from the ACH debit of the borrowers bank account to be finally posted to my Lending Club account.

In fact, Rob Garcia of Lending Club sent me a "tweet" on Twitter confirming that it does take 2-4 business days for an ACH transfer to get credited to a Lending Club account.

But, even if the payment hits my account tomorrow, it is not clear whether I will see it online tomorrow or whether I will have to wait for the account to get updated overnight. No big deal per se, but I would like to understand the process.

The first payment for my second investment loan is due on Friday. In theory, I will see that payment a week from tomorrow.

-- Jack Krupansky

First Lending Club payment still "Processing" after 2 days

Since I posted yesterday about the first payment on my first Lending Club investment loan which was due two days ago, there has been no change in status, other than that accrued interest is another day higher.

It could take up to four business days for the proceeds from the ACH debit of the borrowers bank account to be finally posted to my Lending Club account.

In short, everything is fine so far.

So, the wait for final posting of the payment continues.

I was doing some more reading on the Lending Club web site and found the section on Service Charge:

Lending Club charges a service charge to lenders. The service charge is one percent (1%) of each payment from the borrowers.

On the Rates and Fees page it also says:

Lending Club charges a service charge to lenders for servicing loans, making Note payments and maintaining the accounts. The service charge paid by lenders is one percent (1%) of all amounts paid by the borrowers to Lending Club. The 1% service charge impacts the lenders' annual returns by less than 1% because it is not an annual charge.

So, if my monthly payment is $0.83, presumably that 1% charge is $0.0083 or rounded up to $0.01, so my net payment would be $0.82. Or something like that. My calculation shows that to be about $0.36 over three years or $0.12 per year, or about 0.48% per year of the original balance. But, the balance decline every month, so the service "charge" as a fraction of the interest rate varies (increases.) This is the theory. Have to wait and see how it actually plays out (and pays out!).

-- Jack Krupansky

Oops, Macroeconomic Advisers now forecasting NEGATIVE GDP growth for Q2, but positive for Q3

Oops, Macroeconomic Advisers (MA) updated their Q2 GDP forecast sometime today, so please ignore my earlier blog post. Last week they were forecasting +0.2% annual real GDP growth in Q2, but sometime today they revised that to a decline of -0.1%. On their Web site:

Q2-2009 Current Quarter GDP Tracking -0.1 percent

That is still relatively good news in that recent forecasts were for a decline in excess of -1.0%.

And, they have updated their forecast for the coming quarter (Q3):

Q3-2009 Next-Quarter GDP Tracking 2.5 percent

That is slightly better than last week's forecast of +2.4%.

All of these forecasts are also subject to revision and the initial government report for Q2 may not align closely with that meager -0.1% negative growth, but nonetheless this data is it least trending in the right direction.

-- Jack Krupansky

Macroeconomic Advisers now forecasting POSITIVE GDP growth for Q2 (and Q3)

Macroeconomic Advisers (MA) is one of the best economic forecasting outfits around [Okay, maybe that is not saying a lot!] and they have revised their forecast for annualized Q2 real GDP growth from -1.6% to +0.2%. On their Web site:

Q2-2009 Current Quarter GDP Tracking 0.2 percent

That is good news.

And, they have a forecast for the coming quarter (Q3):

Q3-2009 Next-Quarter GDP Tracking 2.4 percent

That is even better news.

I am not a subscriber, so I do not have access to their full report, but Brad DeLong has a blog post that quotes MA as saying:

Please find "Q2-2009... GDP Tracking 0.2 percent", which has been updated. Exports were stronger than expected, and imports were much weaker than expected, suggesting a large upward revision to our estimate of second quarter net exports. Therefore, we raised our tracking estimate of [the annual] GDP growth [rate] in the second quarter by 1.8 percentage points to +0.2% [growth in GDP per year].

All of these forecasts are also subject to revision and the initial government report for Q2 may not align closely enough to necessarily slow that meager +0.2% growth, but nonetheless this data is it least pointing in the right direction.

-- Jack Krupansky

First Lending Club payment still "Processing"

Since I posted last night about the first payment on my first Lending Club investment loan which was due yesterday, there has been no change in status, other than that accrued interest is a day higher.

In all honesty, I did not expect much to happen yesterday or even overnight since yesterday was not a business day.

I also expect that it could take several days for the proceeds from the ACH debit of the borrowers bank account to be finally posted to my Lending Club account.

In short, everything is fine so far.

So, the wait for final posting of the payment continues.

I was hoping that I could calculate the effective interest rate of this loan (net of any fees to Lending Club), but I am not sure that the initial payment period was a full month. I may need to wait until the second payment to be sure. Also, until the payment posts and displays the actual interest for the payment period, I am not sure whether to use the accrued interest reported today or yesterday.

-- Jack Krupansky

First Lending Club payment now "Processing"

Since I posted this morning about the first payment on my first Lending Club investment loan which is due today, I now notice some changes.

First, the Accured Interest is now back to what it should be rather than $0.00.

Second, the note Status column now says "Current" rather than "Issued." I presume that this means that Lending Club was able to perform the ACH debit from the borrowers bank account.

Third, if I click on that status and go to the Loan Performance screen, the Payment History section shows a Status of "Processing..."

The payment history does not yet have a date in the Completion Date column. My hunch is that this column will update as soon as the payment is credited to my account. The help bubble for that column says that it could take up to 4 business does to process the ACH transaction.

So, that's an improvement from what I was seeing this morning.

Still no report on the Account Activity screen.

Now to see how many days it takes before the payment is in fact actually credited to my account.

-- Jack Krupansky

First Lending Club payment due today

The first payment on my first Lending Club investment loan is due today. Yes, today in Sunday, so I honestly did not expect any activity until the next business day, but I signed in to check anyway.

As I expected, I did not see any payment credited, yet.

Worse, I see that the accrued interest for that note has been reset to zero. That certainly looks scary, but I have a high degree of confidence that it is just that payment is a milti-step process and I am watching the process before it has completed.

The Account Activity screen says "There was no activity during this period." It would be better if it explicitly said that a payment is pending and that accrued interest was reset to zero pending payment.

My hunch before today was that it might take a day or two or three between the actual due date and the appearance of the payment in my account.

The accrued interest column probably simply means the amount of accrued interest since the most recent payment date. Personally, I think it should be the accrued interest since the last credited payment.

After all, if everything is going smoothly, why chould the value of my account decline on a payment due date? That makes no sense. Maybe they should have a pending payment column so that the account value is correct.

Or, they could have the Status column say "Payment Pending" and leave the accrued interest column showing the total accrued interest since the last credited payment.

Flip a coin whether the payment will actually be credited by tomorrow morning. Or maybe it hits tomorrow evening and gets credited Tuesday morning.

Mostly I am watching this first payment like a hawk just to understand the detailed process and to set my expectations for the future. I do not mind if it takes another day or two to credit payments, but I do want to know when it will happen.

I'll watch the second payment equally carefully since it is due during a weekday, Friday.

I do not know when Lending Club actually submits the ACH debit request to the borrower's bank. Nor do I know how long it takes for the ACH debit to credit Lending Club's bank for that debit amount.

-- Jack Krupansky

ECRI Weekly Leading Index rises sharply, strongly suggesting that an end to the U.S. recession is now in clear sight

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose sharply by +0.98% vs. -0.10% last week, and its annualized growth rate rose very sharply from +3.9 to +5.4, well above its record low for its 60-year history of data of -29.7 for the week ended December 5, 2008, and its distinct upturn strongly suggests that recovery is on the way.

This was the third consecutive positive reading for the WLI growth rate since August 10, 2007, over 22 months ago.

The WLI growth rate has risen for 15 of the past 17 weeks.

According to ECRI, "It is increasingly evident that, despite widespread misgivings based on backward-looking economic data, the end of recession is at hand." The Reuters article noted that "ECRI Managing Director Lakshman Achuthan holds that recovery is imminent before the year's end, as long as economic data continues to weaken at a slower pace." In other words, ECRI seems to be backing off its forecast of an end to the recession this summer and is now forecasting an end "before the year's end."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery may be underway within the next few months.

Although a double-dip recession or "W" recovery cannot be discounted, it is becoming quite clear that the overall U.S. economy is on the verge of positive growth of spending and output, even if unemployment is still problematic.

Although the current economic reports continue to show significant weakness, there is also a vast amount of potential stimulus (especially from the Federal Reserve) in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that employment is not a leading indicator, so we could continue to see further employment losses or gains in unemployment even as recovery is underway.

-- Jack Krupansky

New normal growth rate of 2% compared to 3.5%

Investment company PIMCO talks about "The New Normal", the period of lowered expectations that they feel we are entering. In his latest Investment Outlook letter for July 2009, Bill Gross of PIMCO suggests that we should look forward to an annual real GDP growth rate of around 2% as the new normal, in contrast with the heady 3.5% rate we have become accustomed to. I agree that it is in the right ballpark, but I think there will be a lot of volatility and variance over time. Bill says:

... the only model one can use to forecast the future is a commonsensical one that predicts higher savings, lower consumption, and an economic growth rate that staggers forward at a new normal closer to 2 as opposed to 3.5%. There's no magic in that number, and no model to back it up, just a lot of commonsense that says this is how people and economic societies behave when stressed and stretched to a near breaking point.

Because of the uneven nature of fiscal stimulus spending, uneven rates for ongoing monetary stimulus and its eventual removal, and uneven rates of growth for growing new businesses and dwindling older businesses, my hunch is that the annual growth rates will vary in the 0.5% to 3.5% range in the coming years. That averages out to 2% a year, but we won't be able to depend on a solid 2% every year even as some years actually do come in above the 3% to even 4% range.

For how long? Bill says:

Greed will come again. But for now, the trend is the other way and it promises to persist for a generation at a minimum.

-- Jack Krupansky

How do you detect and prevent asset bubbles?

The Greenspan Doctrine was that it is essentially impossible to detect or prevent or address asset bubbles in advance or in real-time and that the correct policy is simply to be prepared to clean up after them after they clearly have burst. That was the approach taken with the dot-com stock market bubble and that seemed to work out okay. But, it was also the approach taken with the recent housing, credit, debt securitization, executive compensation (not an asset per se, but still a bubble that caused problems), and commodities bubbles and people are not at all happy with the mess and "clean-up" process that has resulted in the current financial and economic crisis. Even Greenspan admits that maybe he made a mistake. There is a semi-widespread belief that we should and can identify and deal with asset bubbles before they create they create the kind of mess we are currently in.

In fact, in a recent speech, the president of the Federal Reserve Bank of New York, WIlliam Dudley, said that:

In my opinion, this crisis should lead to a critical reevaluation of the view that central banks cannot identify or prevent asset bubbles, they can only clean up after asset bubbles burst.

As I wrote in 2006, this orthodoxy can be summarized by three propositions:

1. Asset bubbles are hard to identify.
2. Monetary policy is not well-suited to respond to bubbles.
3. Thus, the cost/benefit tradeoff of "leaning against the wind" against asset bubbles is unfavorable.

From these propositions, the two important policy implications directly follow:

1. The central bank should only take asset bubbles into consideration in the conduct of monetary policy to the extent that these asset bubbles affect the growth/inflation outlook.
2. The monetary authorities should be there to "clean-up" after bubbles burst, both to prevent systemic problems and undesired downward pressure on economic activity and/or inflation.

Relative to this, I would argue that:

1. Asset bubbles may not be that hard to identify--especially large ones. For example, the housing bubble in the United States had been identified by many by 2005, and the compressed nature of risk spreads and the increased leverage in the financial system was very well known going into 2007.
2. If one means by monetary policy the instrument of short-term interest rates, then I agree that monetary policy is not well-suited to deal with asset bubbles. But this suggests that it might be better for central bankers to examine the efficacy of other instruments in their toolbox, rather than simply ignoring the development of asset bubbles.
3. If existing tools are judged inadequate, then central banks should work on developing additional policy instruments. 

Let's take the housing bubble as an example. Housing prices rose far faster than income. As a result, underwriting standards deteriorated. If regulators had forced mortgage originators to tighten up their standards or had forced the originators and securities issuers to keep "skin in the game", I think the housing bubble might not have been so big.

I think that this crisis has demonstrated that the cost of waiting to clean up asset bubbles after they burst can be very high. That suggests we should explore how to respond earlier.

Harkening back to my earlier themes, I think we can respond in a number of ways:

• First, we can do a better job understanding interconnectedness. This means changing how we oversee and supervise financial intermediaries.
• Second, we can change the system so that it is more self-dampening.
• Third, we can improve incentives.
• Fourth, we can increase transparency.
• Fifth, we can develop additional policy instruments. For example, we might give a systemic risk regulator the authority to establish overall leverage limits or collateral and collateral haircut requirements across the system. This would give the financial authorities the ability to limit leverage and more directly influence risk premia and this might prove useful in limiting the size of future asset bubbles.

I can't argue against any of that per se, but it still doesn't quite sound as if he is really hitting the sweet spot.

I do in fact believe that we can probably develop an approach to prevent many, but not necessarily all asset bubbles.

Whether we can successfully implement and execute an asset bubble detection and prevention scheme is unclear to me.

I would not note two key issues:

1. We might well end up focusing far too much attention, energy, and resources on preventing the kinds of asset bubbles that can be reasonably dealt with with the Greenspan-ish "clean-up" doctrine. Too many false positives. We could end up severely stifling our economy and innovation, with no great benefit.
2. We still will not be able to detect or prevent a significant number of the kind of systemic asset bubbles that ultimately lead to the kind of crisis we are currently in. Potential for false negatives.

Rather than misguideedly directing so much energy at "asset bubbles" per se, we should study and understand the impact of asset bubbles and seek to put in place circuit breakers that would effectively prevent asset bubbles and other forms of systemic risk factors from building up the kinds of systemic pressures that lead to systemic risks. This would tend to limit the formation of asset bubbles.

I think if we can focus on these kinds of issues, the net result will be to circumvent a lot of risky asset bubbles without needing to focus on the asset bubbles themselves.

One of the circuit breakers needs to be the identification and regulation of unregulated financial risk. Hedge funds, off-balance sheet operations, and the so-called shadow banking system were key factors in recent asset bubbles. They were clearly and widely known, so there was not a detection problem per se. Rather, there was no regulator in place who was authorized (or thought they were authorized) to stand up, step in, and institute control over activities which had the potential to cause systemic risk.

That is just one example of what I am talking about.

Whether this kind of thinking can be extended into a full-scale, robust, and reliable mechanism for circumventing asset bubbles remains to be seen.

In any case, my personal conclusion is that we do not yet as of today have even a draft proposal for the kind of asset bubble detection and prevention mechanism which would have prevented the current crisis. Sure, there are lots of good ideas being tossed around, but no detailed blueprint for a robust mechanism.

I suppose I should note that the gold bugs probably do feel that the gold standard or some other commodity-based money system would do the trick. Maybe no asset bubbles, but maybe because most people would not have any assets.

-- Jack Krupansky

Waiting for initial payments on my Lending Club P2P loan investments

I have successfully completed my initial batch of person-to-person (P2P) loans ("notes") through Lending Club. I have invested 20% of the modest amount ($1,000) than I have earmarked for experimenting with this new investment vehicle. I have $25 investments in eight (8) different consumer loans, with a range of risk profiles. All loans are for a 3-year term.

I actually put in a total of 15 orders, but seven of them either did not get to 100% funding by the end of the 14-day funding period or failed to get verification of employment or income. These "failures" might seem alarming, but they really just show how picky and conservative Lending Club really is.

Unfortunately, the other 80% of my money is sitting at Lending Club idle and does not earn any interest. I could withdraw the money, but I intend to invest it by the end of the summer and it would not earn very much in a money market account anyway.

What's next?

The next step is to wait for the initial monthly payments to come in and see how that process works in practice, as opposed to theory.

My first monthly payment is for $0.83 on July 12, 2009, just 5 days from now. That 83 cents is my share of a $7,700 motorcycle loan that is rated C1 (somewhat risky) and has a rate of 12.53%. Lending Club takes about 0.7% of that, which should net me 11.83%. So far, Lending Club says I have 22 cents of accrued interest (updates every day). The 83 cents includes both accrued interest and repayment of principle. So, of that initial 83 cents, about 25 cents will be accrued interest and 58 cents repiad principle. As each month goes by I will get the same total payment (although it may vary by a penny due to fractional cents), but less interest and more repayment of principle. I am not positive that the 83 cents is actually my net or the gross before Lending Club takes their 0.7%. That is one of the details I will need to verify when the first payment comes in.

Payments are deducted automatically from the borrowers bank account via ACH debit. My share of the payment will accumulate in my Lending Club account, but will not accumulate interest. Lending Club has a reinvestment feature, but that requires that at least $25 be available in the account. I do have my remaining 80% of my initial capital, but I intend to wait until the end of the summer before deciding whether and how to invest deeper into Lending Club. The reinvestment feature searches for loans that meet parameters that you set and sends you an email alert.

My second note will make its first payment 5 days later, on July 17, 2009. The third is a day later, on July 18, 2009. I have two payments due on July 22, 2009, another due on July 23, 2009, another due on July 28, 2009, and the last due on August 9, 2009.

So, for now, all I have planned for the next two months is to sit, wait, and watch. And to blog about my experiences.

Oh, and I still need to research various questions, such as how the interest income gets reported for taxes.

I also want to spend some time sifting their a Google search of "Lending Club" and "sucks" to see if there are any legitimate gripes about Lending Club before I get in too deep.

-- Jack Krupansky

Made my Kiva micro-loan for the month of July

I made a new micro-loan through Kiva for the month of July. My intention is to make a new micro-loan every month, in large part from repayments for past micro-loans.

This one was for a married woman, with married children, in Managua, Nicaragua who farms. It is a 14-month micro-loan for a total of $625, of which I lent $25. The money is to be used to buy fertilizer and supplies. I did not realize at the time I made the loan, but replayment is at the end of the term (14 months, August 2010) rather than monthly. I'm not sure I want to put much money into this form of loan, although this one time is fine. Need to read all the details more closely next time.  The micro-loan was already disbursed to the micro-entrepreneur on June 18, 2009 by the local partner. Kiva is raising funds to essentially buy that loan from the local partner.

Here is my Kiva public lender page: http://www.kiva.org/lender/JackKrupansky

Note: This is all real and good, but these micro-loans do not net any interest to us micro-lenders. Kiva's fine print:

Lending to the working poor through Kiva involves risk of principal loss.
Kiva does not guarantee repayment nor do we offer a financial return on your loan.

Still, at least we know our money is really helping somebody better their lives in a visible way rather than put the money in a bank account or money market fund where who knows what it helps to pay for or what good it does and for only a few pennies of profit in our pockets.

-- Jack Krupansky

GDP has declined only 3% from its peak

For all the talk about how "bad" the economy is, it is worth noting that annualized real GDP, the best available measure of the health of the overall U.S. economy, has only declined by 3.13% ($366.9 billion) from a peak of $11.7274 trillion in Q2 of 2008 to $11.3605 trillion in the most recent quarter, Q1 of 2009. The annualized decline in Q2 is expected to be about -1.1%, which would subtract another 0.3% from that, still only -3.4% off the peak.

Given all that has happened, that certainly does seem to be a rather modest hit to the overall economy.

Somehow, I think we'll survive.

No thanks to the media though.

-- Jack Krupansky

ECRI Weekly Leading Index rises slightly, strongly suggesting that an end to the U.S. recession is now in clear sight

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose very slightly by +0.001% vs. +0.44% last week, and its annualized growth rate rose very sharply from +2.1 to +4.0, well above its record low for its 60-year history of data of -29.7 for the week ended December 5, 2008, and its distinct upturn strongly suggests that recovery is on the way.

This was the second consecutive positive reading for the WLI growth rate since August 10, 2007, over 22 months ago.

The WLI growth rate has risen for 15 of the past 16 weeks.

There was no Reuters article this week but last week, According to ECRI, "Following a 28-week upturn, WLI growth has broken into positive territory for the first time in over 22 months -- an affirmation that an end to the recession is at hand."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery may be underway within the next few months.

Although a double-dip recession or "W" recovery cannot be discounted, it is becoming quite clear that the overall U.S. economy is on the verge of positive growth of spending and output, even if unemployment is still problematic.

Although the current economic reports continue to show significant weakness, there is also a vast amount of potential stimulus (especially from the Federal Reserve) in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that employment is not a leading indicator, so we could continue to see further employment losses or gains in unemployment even as recovery is underway.

-- Jack Krupansky