Getting Denied For Mortgage Preapproval

The quickest way for a business to lose me as a customer is to tell me something that just isn't so. For some reason, the loan officer at a local savings bank decided to assure me that the bank doesn't check with any of the three credit agencies during the pre-approval process for a mortgage. It matters to me because I did a credit freeze as soon as they became available nationwide last year, thanks to an earlier problem with identity theft. I was in the bank checking out CD terms and only decided to look into the mortgage terms on a lark.

So, I took her word for it and spent the better part of a half hour filling out their online pre-approval application. A few hours later, I got an e-mail stating that it would be denied because they couldn't confirm my credit. A couple days later, I got a letter in the mail that I'd been denied. I suppose that won't show up on my credit rating since they can't seem to access it, but who knows. Wouldn't surprise me a bit if when I go to get a mortgage at another local bank, they'll pull the denial out of some cooperative system to try to hook me on a higher rate.

What makes it so hilarious is I'm primarily interested in buying a house as a hedge against inflation. I suppose I should be grateful that the banks who were tripping all over each other last year to loan money to people without confirmed incomes are now clamping down, but they should get their story straight. In the future, I'll stick with getting pre-approval from an institution I already do business with, since they can supposedly still access my credit records as long as they are grandfathered in. And whether or not that's true, and whether or not I have to get online and do a temporary unfreeze for them at some point, the main thing is if they get it wrong, at least I'll have recourse. I can take my deposits elsewhere, something you can't do if you aren't a customer.

Cutting Losses With Stop Loss Orders

I just lost another couple thousand dollars betting against oil. The bet itself wasn't my error, nobody is right 100% of the time and I'm still aspiring to 50%. The error was not putting in a stop loss order at 95% or 90% of my purchase price. I watched the "investment" fall 25% before I sold out at a loss.

Quickly taking losses and moving on to other trades is one of the things that separates the professionals from the amateurs. Years ago, I never made a trade without immediately putting in a stop loss order, but my current online brokerage does a clunky job with them, so I got out of the habit. Bad mistake.

What makes stop loss orders so useful is they take the emotion out of the sell decision (think Art of War). Otherwise, your mind is in a continual argument with itself that the shares you thought were a good investment at $100 must surely be a good investment at $90, and how much better at $80? Before you know it, the shares really may present a buying opportunity, but it will be an opportunity for somebody else because you'll have lost all the money you can stand.

I always use stop loss orders rather than stop limit orders. If you're going to get out of a position because you're losing money, it doesn't make any sense to me to hold out for an exact price that may never materialize. In any case, I'm off to my brokerage account to make sure I have stop loss orders in place and I advise you to do the same.

Even Inlfation Adjusted Savings Are Losing Value

Bernanke fiddled while the dollar burned. In many countries, holding some savings in foreign currency accounts at the local bank is the norm. Savers learned these habits thanks to the volatility of their native currency, and the banks learned to offer these foreign currency accounts through the competitive nature of attracting bank deposits. Only in the United States, where banks make their money as brokers rather than as savings and loan institutions, is the notion of savings denominated in foreign currencies looked upon aghast. That's sad, because American savers need this option more than the third worlders who are cutting and running from their dollar pegs.

Last week, the selling price of TIPs (Treasury Inflation Protected securities) fell to the point that buyers were locking in a loss, even ignoring the fictional inflation rate with which the notes adjusted. Could you imagine buying a financial instrument that literally guaranteed that you would lose money? But that's exactly what's happening today as investors rush to buy TIPs with a real negative rate of return, in hopes that over the life of the bill, their savings won't lose as much value as if they are gambled on anything else.

It's hard to come up with a scenario that could be worse for an economy than investors who are so frightened by the speculative excesses of the financial system that they are willing to accept a real negative rate of return on savings. Unfortunately, they are probably correct to do so. The Fed has demonstrated over and over again that their sole focus is to prop up Wall Street speculators, out of the very real fear that the banking system is at risk. Well, the banking system is at risk when depositors come to see saving money as an impossibility, and banking directly with the US Treasury as the only way to preserve some portion of their savings. How we got to this point is the old story of greed and more greed, and how we'll get out of it is looking more and more like the Japanese formula, but with a hitch.

The Japanese recession of the late 80's and 90's, which dragged on for more than a decade, was characterized by deflation. The Japanese consumer, facing an uncertain future and having watched their last minute entry into equities investment vanish in smoke and mirrors, sat on their savings and refused to spend money. Despite BoJ interest rates that were basically zero, the Japanese saw deflation rather than inflation, because consumers and businesses were too smart to borrow and spend this cheap money. The end result is that the savings of the Japanese housewife actually gained value, as prices fell, despite the lack of interest paid on savings. The paper Yen acted more like a gold standard, with the exception of the carry trade.

The American recession, which we've clearly been in since 2007 even if the formal definition doesn't match, can't follow the trajectory of the Japanese recession. The point of divergence isn't the relative size of the stock market bubbles, the NASDAQ in 2000 was just as bad as the Nekkei in the late 80's, and the DOW today is as bubbly as the Nekkei in it's multiple peak attempts to recover over the past 20 years. Unlike the Japanese, America enters this recession so far in debt, that riding it out on savings isn't an option for the average American.

The real question the American saver faces is whether it makes more sense to put dollars into Federal "savings" where they will slowly lose value, and to pay taxes on the insulting return, or to hoard currency in mattresses, preferably with foreign bills mixed in. The advantage of the latter approach will come into play if future government bail-outs of American consumers are means tested. In other words, I expect Americans will not only be punished for saving money through its losing value, but also through the funding of relief for their fellow Americans who may have earned more, but have spent more as well.