When it comes to cars, leases are ever more popular. The reason why? Well thats no mystery. Thats the only way many people can afford the monthly payments. But which method is the best way to keep more of your money in your pocket?

Lets find out with a simple example. A new car with a sticker price of $27,000. First, lets look at buying. Financing the entire $27,000 at 6.9% interest and you’re payments will be about $821 a month. Times that by 36 months and you’ll pay a total of about $29,556. But after 3 years, you still have a car worth $14,556, so your actual cost is $15,500.

Now look at a typical lease. You put a $1000 down and your total might be $485 a month on a 3 year lease. Times that by 36 months and you’ve paid out $18,460. This is about $3000 more than buying. Now even if you earn interest on the money you’re saving on those lower monthly lease payments, buying is still going to win. The longer you keep you car, the more sense buying usually makes. Using 5 years instead of 3 for example, you still come out ahead even more.

Bottom line, while there are factors that could make a lease a better deal, generally you’ll keep a little more money in your pocket buy buying rather than leasing.

Now since there are differences in both cars and deals, you really need to do the math yourself. But don’t worry if the numbers make your eyes glaze over. There are tons of free calculators online that will help you decide.

Depending on what part of the country you live in, foreclosures are a sign of the times. Homeowners aren’t the only ones going down the tubes. Big projects, especially condos are also circling the drain in many markets. People are trying to sell these homes for half a million dollars for a 40 year old building and its just not going to happen. Many hedge funds and other major investors are trying to capitalize on the crisis. It’s called vulture investing.

The hedge funds and the investment asset crews that have hundreds of millions of dollars are ready to pounce on these distressed property opportunities. They sense the blood in the water and its coming. So the big money, the real estate vultures, are ready to profit. But what about small investors. Could they make money by buying low now and selling high later?

Theres going to be some tremendous opportunities, not just as an investor, but also as a home owner to pick up a property that maybe you wouldn’t have been able to touch a couple of years ago. You may still want to wait however, the bottom of the real estate market hasn’t hit yet and maybe still a year or two away. Vulture investing doesn’t have to pad the pockets of just the big money as long as you can watch and time the market right.

Small movements in interest rates can have dramatic effects on the economy. just a small change in interest rates can dramatically increase the costs for individuals to own a home or borrow money to purchase goods. They can also have a dramatic affect on the costs of doing business. For this reason, that when interest rates rise making borrowed money more costly, that people will also be less likely to start or expand a business.

This not only has an effect on the business person themselves, but filters through out the entire economy as less businesses being started and expanding. As a result, there are less jobs, which means there are less people getting pay checks and people are spending less money.

The reverse of this is also true. When interest rates fall, business take advantage of access to cheaper and borrowed money, the stock market reacts accordingly.

In addition to interest rates affecting the stock market, interest rates also have a direct affect on the bond, foreign exchange and futures markets. For example, when interest rates rise when looking at the bond market, the value of existing bonds fall as investors can now purchase the same bond with a higher interest rate. In the foreign exchange market, when interest rates rise, it becomes more attractive from a yields standpoint to own the dollar against other currencies or to invest in interest bearing dollar-based assets. This normally creates a demand for dollars which many times cause the dollar to strengthen. The reverse is also true when interest rates fall.

In the commodities market, when economies grow at a greater rate as a result of lower interest rates, this normally means greater demand for commodities, so their value will tend to go up.

Now that we understand the importance of interest rates to economic growth and therefore the markets in our own trading, the next thing to understand is how this relates to the government role in the economy. The government has two options when trying to influence the business cycle to keep prices stable and work towards full employment. The first is fiscal policy or exerting control over government spending and taxation to try and influence the business cycle. The second and perhaps the most important to us as traders is monetary policy which is exerting control over the money supply which has a direct relationship with interest rates also with the goal of influencing the business cycle.

With this in mind, the federal reserve is the institution responsible for administering monetary policy and therefore can increase or decrease the money supply with the goal of trying to affect the level of interest rates.

As the level of the interest rates has such a large effect on everything in the economy from unemployment to inflation, this makes the fed one of or the most power institution in the U.S. Why is this important to know as traders?

Because the Federal Reserve can enact monetary policy without government approval. This gives the fed much more control over the economy, at least in the short term and is the reason some people consider the chairman over the federal reserve to be more powerful than the president. The primary components which move markets are the board of governors and the Federal Open Market Committee. Theres no greater mover in markets than changes in peoples anticipation of interest rates.

Credit card delinquencies the highest its been in two decades. Congress is right now considering a credit card holders bill of rights to try to limit the predatory credit card company practices. A leading opponent of this proposal is Congressman Jeb Hensarling (R-TX).

Jeb was asked why he thinks this bill would be a “Bill of Wrongs” and his reason was that this could lead to increased fees, annual fees and take away some of the credit card benefits. Jeb argues also that by limiting the interest rate terms a credit card company can give is prohibiting the ability of people with good credit records from paying less from those who don’t.

Ten years ago, a third fewer Americans had access to credit cards, they all had to pay annual fees and paid a high interest rate. What’s changed now is these credit card companies are in a competitive marketplace and can now offer some people with good credit records with lower rates. What Congress is essentially doing, according to congressman Jeb is take away the credit card company’s ability to price for risk.

There is however a problem with credit card companies engaging in unscrupulous practices using a bait and switch technique on introductory interest rates and high penalty fees. Often the disclosure with credit card companies is difficult to understand. At some point, it seems to some that this essentially becomes loan sharking and predatory lending.

We had usery laws at one point which prohibited companies from charging interest on top of interest. That has been done away with at the request of the 3 billion a year from lobbyists. These same lobbyists helped write the new bankruptcy laws of 2005 that makes it harder for Americans to file for bankruptcy. The top ten Credit card companies currently compose a 135 billion dollar industry.

Many proponents to this bill ask for better disclosure. No one fully understands their credit card terms and there should be more regulation here. But it doesn’t stop there. They still need to limit fees.

RealtyTrac Foreclosure Service issued a statement saying that 430,000 foreclosure filings, default notices, auction sale notices and bank repossessions were reported nationally during the first quarter of 2007. Thats 1 in every 260 homes. According to Moodys Analysts, Mark Zandy, 2.87% of the total US housing market is in some sort of foreclosure. Zandy feels the problem will continue through out the year as subprime loans reset to new higher interest rates. This figure represents a dramatic increase in foreclosures. Up 35% from the same quarter in 2006 according to RealtyTrac. Keep in mind the largest part of the 430,000 foreclosure filings include the default notice which is a letter mailed to owners who are more than 30 days late on their mortgage payment. You should also understand that a property may have up to 3 foreclosures taking place at the same time. If the owner has a first mortgage, a second mortgage and a home equity loan.

less than 6 percent of these default notices will become actual foreclosures as most homeowners will make up their payments and late fees. On April 24th, Countrywide Financial CEO Angelo Mozillo says he expects the mortgage market to improve in 2008 and be “very healthy” in 2009. He said that 5% of the nations riskiest sub prime loans may face foreclosure and that the rest will no go into foreclosure.

Currently, there are more homeowners than at any other time in the united states. Much of this is due to sub prime or exotic loan markets. Although foreclosures are at an all-time high, so is home ownership.

It is almost impossible for someone to rent in todays real estate market and save tens of thousands for a down payment and closing costs. It is an unrealistic reality for most people trying to live the American dream.

Many homeowners today got their opportunity today through the sub prime loan programs and more than 90% will make good on their dream of long term home ownership.

Looking at sub prime mortgage companies that have gone bankrupt or are severely damaged by the market change, we need to keep in mind that we live in a free market society and that these companies chose to lend at higher rates to these people.

The investors in these assets chose the risk to receive the higher return. It just didn’t work out for them.