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Sunday, 30 December 2007

'Tis the Season for Scams

By Catherine Holahan

Ah, the holidays -- that most wonderful time of year when the Web is aflutter with e-mailed season's greetings, online shopping offers and cyber criminals. The scams run the gamut, from fraudulent e-mails purporting to be alerts about online transactions to scam gift offers. "There is always an effort by the criminal underground to separate victims from their money this time of year," says Paul Ferguson, an advanced threat researcher with Trend Micro, a security software provider.

Cybercriminals know it's easier to get people to fall for scams related to online shopping when they have shopping on the brain. It also doesn't hurt that the legitimate act of online shopping often involves visits to comparison-shopping sites and strange discount sites. So it's little surprise that some of those destinations turn out to be fake. "People are particularly vulnerable this time of year because they are looking for bargains," says Bill Loesch, chief technical officer and co-founder of GuardID, the maker of a device, similar to a USB memory stick, that stores account information and verifies the identity of financial sites.

The rising popularity of online shopping makes for a target-rich environment. Consumers have spent about $25 billion online since Nov. 1, according to a Dec. 20 comScore (NasdaqGM:SCOR - News) study. That's a 19% increase from last year. Security firms expect a similar increase in the amount of online fraud, bringing the total amount lost online to $3.6 billion this year, according to a November survey by CyberSource (NasdaqGM:CYBS - News), an electronic payment and risk management firm.

So what can consumers do to protect themselves from unwittingly buying someone else's holiday gifts this season? For starters, they can keep an eye out for the following common holiday scams:


You've probably heard the one about the Nigerian bank manager who needs your "confidential" help opening a U.S. account to transfer millions in oil-related profits. But those "dear friend" e-mails are fairly primitive compared with some of the devious phishing techniques criminals have come up with to trick consumers into handing over account information.

In fact, phishing attacks have become more successful in recent years. According to a survey by research firm Gartner, released Dec. 17, more than 3.6 million adults lost money as a result of phishing in the 12 months ending in August, 2007. That's up from 2.3 million people in 2006.

One reason for the increase is the ingenuity of the scams themselves, which can look identical to legitimate notices from financial institutions such as Citibank (NYSE:C - News) and PayPal, the leading online payment service from eBay (NasdaqGS:EBAY - News). Many of these e-mails open with warnings of imminent account cancellations or detection of fraudulent activity, which can make consumers more likely to click a link in hopes of rectifying the problem.

But the link typically directs to a fraudulent copycat site or downloads malware -- software that scoops up account and other information -- onto the computer, says Shane Keats, a research analyst with McAfee (NYSE:MFE - News), a security software provider. "At some point this season you will get an e-mail saying that your auction account has been hacked and you must respond now," says Keats. "Don't panic. It is not real. The auction sites and the banks don't send that information by e-mail."

For instance, phishing e-mails purporting to be from PayPal often begin with "Dear PayPal user" or "Dear PayPal member." On its Web site, PayPal says it uses first and last names of customers when sending them e-mails; anything without the full name is a scam. PayPal also has an e-mail address,, where users can report notices they suspect are fraudulent.

The key to avoiding these scams is to avoid clicking on such e-mail links altogether. For consumers who do open such links, Keats says that if the URL is unusually long or consists of all numbers, it likely isn't legitimate. Misspellings on the site and grammatical errors are also giveaways.

Even sites without such obvious mistakes can be fraudulent. "Honestly, it is very hard to tell," says Keats. Not surprisingly, he and other experts from security outfits say the best way to avoid such sites is to download their security software. Many security companies, including McAfee, offer basic security software, or at least limited-time trials, for free online.

Gift-Card Scams

Gift cards are a wildly popular way for many retailers to take advantage of the desire to purchase a present rather than buy an item someone will only want to return. In recent years, they have also become a favorite means for criminals to launder money, says David Gilles, director of the anti-money laundering group of Deloitte Financial Advisory Services.

Here's how it works: A criminal uses cash earned by illicit means to buys a number of stored-value cards, such as phone cards or gift cards, to condense the funds and make it easier to hide the source of income. He can then use the cards for transactions under the guise of redeeming a gift from some legally employed friend. More often than not, however, the criminal sells the cards to other people, often at a slight loss. This allows criminals to obtain a more legitimate source of funds, such as a personal check or online bank transfer, which can be used to open a bank account. Consumers who buy the cards, often through online auction sites, believe they are getting a deal.

Online gift-card buyers also risk purchasing cards that someone else has access to. Thieves can rip off the gift-card number while it sits in a store display and when the proper owner uses the compromised card, the funds have often already been spent. One way around this is to avoid buying gift cards off the rack where other people clearly may have had access to them. Gift cards for major retailers are typically not on display.

Fraudulent Charities

It seems particularly heartless for criminals to take advantage of the increased generosity many exhibit during the holidays. But if criminals had big hearts, they wouldn't be trying to steal your money, right? "What you will see is stuff (such as e-mails) from your favorite charity, or a charity that you may not have even heard of but it sounds very compelling," says McAfee's Keats. The e-mails typically link to a fraudulent charity site where visitors can submit their account information or credit-card numbers in order to give funds.

"Win a Free Gift" Sites

Keats calls these sites "breakage" sites. There actually may be a prize at the end, such as a free iPod, but 99% of consumers will close their Web browser before they ever get close to the prize. Owners of such sites make sure that they have included enough hurdles to jump through, such as signing up to receive weekly astrology e-mails or a free trial magazine subscription, to frustrate most consumers.

While not technically a scam -- there is, after all, a prize at the end -- such sites are designed to ensure that users provide their personal information to spammers and other unknown sources for little chance of a payoff.

Keylogging Programs

Programs that monitor the letters and numbers that people type into Web sites are a particular threat during the holidays. Typically, such programs are unwittingly downloaded by PC users who visit virus-ridden Web sites, open an infected e-mail attachment, or even click on a compromised ad with an embedded virus. Web surfers are not necessarily any more likely to download such programs during the holidays, but they are more likely to be entering financial information into myriad shopping sites. "It's not what you catch today, it's what you caught in September that can hurt you now," says David Perry, Trend Micro's global director of security education.

The best advice to avoid many of these scams, of course, is to exercise common sense. "The Web is the same as real life," says Keats. "If it sounds too good to be true, it is."

Six Moves for a Prosperous New Year

by Kimberly Lankford
Thursday, December 27, 2007
provided byWhat should I be doing now to get my finances on track for 2008?

Now is the perfect time to get your financial house in order. You may be flush with cash from holiday gifts and a raise or bonus at work. Or you may be dreading the credit-card bill that arrives in a few weeks, reminding you how much you spent for the holidays. Either way, a few key steps can help you pocket more cash in 2008. Here's what you can do now so you can spend a lot less time worrying about your finances throughout the year:

1. Take advantage of higher IRA limits
You'll be able to save an extra $1,000 in your IRA in 2008, when the contribution limits rise to $5,000 (you can contribute $6,000 for the year if you're 50 or older in 2008). Make it easy by signing up to have your contributions deducted from your bank account every month -- $416 per month will get you to the $5,000 maximum by the end of the year.

Have some extra cash now? You still have until April 15, 2008, to make your $4,000 IRA contribution for 2007 -- where a holiday gift or year-end bonus can grow substantially through the years.

2. Stretch your raise even further.
If you'll be making more money in 2008, use some of it to boost your 401(k) contribution. You won't notice the difference if you make the change before you get used to having the extra money.

You can contribute up to $15,500 to a 401(k) for the year (or $20,500 if you're 50 or older). And since the contributions are pre-tax, making the maximum contribution will lower your paycheck by only $11,625, if you're in the 25% tax bracket.

Even adding just a few hundred dollars can make a big difference over time. Contributing an extra $200 per month for 25 years can boost your account by $190,000, if your investments return 8% per year. You'll only see $150 less in each paycheck if you're in the 25% bracket. Plus, you could get free money if your employer matches your contributions. For example, a 50-cent-per-dollar match is like getting an extra 50% return on your money.

3. Focus on high-interest debt
Paying off a credit card with an 18% interest rate can save you hundreds of dollars in interest. Make it your first debt priority in the New Year.

Consider this: If you have a $5,000 credit-card balance with an 18% interest rate and make only the minimum payment each month (4% of your debt, which starts at $200 the first month), it would take 12.5 years to pay off the balance and cost $2,916 in interest. Increasing your monthly payments to $500 would pay off the debt in less than a year and save you more than $2,000 in interest costs. Better yet, use a big chunk of any holiday money or year-end bonus to pay off the bill in full -- so you won't owe any more interest on the balance at all.

4. Start gathering your tax records now
You wouldn't want to miss out on valuable deductions because you're scrambling around at the last minute. See Track Down Your Tax Records for an idea of what documents and receipts you'll need, and start sorting them into folders.

5. Put your bills and savings on autopilot
Want to make sure your finances stay on track all year long? Set 'em and forget 'em. Sign up for online bill paying and automate as many payments as possible, so you don't have to think about it during the year. You'll be less likely to miss payments that could result in late fees, higher interest rates and cause your credit score to take a hit.

Treating your saving and investing as a fixed expense each month -- and arranging to pay that "bill" automatically -- is another great way to stay on track.

6. Protect your assets
Just in case disaster strikes in 2008, make sure you're covered. Check to ensure you have enough homeowners insurance, add extra coverage if you receive valuable gifts for the holidays, and run around your house with a camera to update your home inventory.

Meanwhile, see if you can lower your premiums by boosting your auto and homeowners insurance deductibles to at least $1,000, which can cut your costs by up to 15% on each policy and make you less likely to file a small claim that could get you dropped by your insurer.

A crucial part to preparing for an emergency is a stash of cash. Keep at least three- to six-months' worth of expenses in a liquid account so you don't end up in debt if you have unexpected bills.

Copyrighted, Kiplinger Washington Editors, Inc.

Thirty-Five Minutes to Riches

Find out your credit score

Time it takes: 7 minutes

Know how lenders see you. Take seven minutes to download a

Raise your credit score

Time it takes: 8 minutes

It takes time to recover from major credit lapses, but you can do two things fast that will improve your credit score. Both will lower the size of your outstanding debt as a percentage of your total borrowing power.

1. Pay down a balance. 2. Call your issuer and ask for a higher credit limit. And don't spend it.

Triple the return on savings

Time it takes: 10 minutes

Do you have cash going nowhere in a checking or savings account? Bank money-market accounts typically pay less than 1%. You can open a savings account with HSBC Direct that recently paid 5.05%. No minimum balance is required.

With your driver's license and Social Security number handy, visit and click on Sign Me Up. You'll be walked through screens to enter personal information. Want to fund your account immediately? Have a check with your bank account number and routing code handy to authorize an electronic transfer.

Stop junk mail

Time it takes: 5 minutes

Call 888-5OPTOUT to remove your name from credit issuers' mailing lists. The result of that five-minute talk with a computer? Fewer temptations and a mailbox filled with letters, not offers for pre-approved cards.

Most important, you'll cut the risk of an identity thief raiding your mailbox or garbage can and applying for credit in your name. Stolen paper mail accounts for 9% of identity fraud cases, according to Javelin Strategy & Research.

Note: Because we're talking credit bureaus, you'll have to provide your Social Security number. It's okay.

Freeze your credit

Time it takes: 25 minutes

Doing this prevents anyone from issuing credit in your name. (You, of course, can temporarily lift the freeze when you need a loan.) Nearly 30 states allow freezes even if you haven't been an ID theft victim. In some states you'll pay about $30 to place or remove-temporarily or permanently- the freeze. Go to for instructions.

Haggle down your credit rate

Time it takes: 8 minutes

Dial your issuer and ask for a lower rate. If your credit score tops 720, do not be satisfied until your rate is less than 10%, says Curtis Arnold of Your biggest weapon: Make it clear that you'll stop using the card if the issuer refuses. Our reporter, helped by the fact that she's been a good customer for seven years, got the rate on her Discover card cut by four percentage points.

Upgrade to a better card

Time it takes: 30 minutes

Rewards, rates and fees change often. So search to make sure you have the best deal. Among the lowest-rate cards on the site recently: Simmons First National Bank in Arkansas (800-636-5151) offers a fixed rate as low as 7.25% with no annual fee to consumers who have excellent credit.

Add to your 401(k)

Time it takes: 3 minutes

You signed up for your plan right after you found the office vending machines. Now do more: Raise your contribution by a point. Save 10% of a $50,000 salary in your 401(k) and you'll have $1.4 million in 35 years, assuming 8% returns and 4% annual raises. Ramp that up to 11% and you'll earn around $140,000 more.

Call your plan or visit your 401(k)'s website. At 401(k)s administered by Fidelity, for example, raising your contribution takes all of three minutes.

Manage like a pro

Time it takes: 4 minutes

If you have a diversified portfolio, a run-up in one asset class can throw your mix out of line, increasing risk and eroding returns. An unrebalanced $10,000 portfolio of 80% stocks and 20% bonds would have grown to $21,620 over the past 10 years.

If you'd rebalanced annually, you'd have $22,213, or $593 more - and taken less risk to get there. Retooling a 401(k) is easy: With a big plan administrator like Fidelity or Hewitt, rebalancing online takes minutes. In a taxable account, simply direct new money into the lagging fund categories.

Buy a forever portfolio

Time it takes: 25 minutes

Putting together a complete fund portfolio was once a time consuming chore. Nowadays target-date funds, which adjust the stock and bond allocation to smooth returns as you near a "target" retirement year, do it for you in minutes. Many 401(k)s offer them.

For direct investments, use the low-cost options from Vanguard (800-851-4999) or T. Rowe Price (800-638-5660). At, click on the tab labeled Research Funds and Stocks. Find the fund that corresponds to your planned retirement year, then download and look over the prospectus. Next click on the Buy This Fund link and follow the instructions. Have your checkbook ready to deposit funds electronically.

free credit report at (For year-round monitoring, get a report from one of the three major credit bureaus every four months.) If you spot an error, notify the bureau (online, by phone or by mail) and the creditor (call and also send a letter). You won't find your credit score here, so when you request a report from Equifax, pay $7.95 for your FICO score, the most commonly used score. The range is 300 to 850 - 700 and above is good.

Find promising funds

Time it takes: 5 minutes

You can cut through the 8,000 or so mutual funds out there by sticking to the MONEY 70. Or run a screen for similar funds at (click on the Funds tab and go to the Mutual Fund Screener link). Pick a category, and then limit expenses to less than the category average. Next screen for funds whose managers have five years of tenure or more - greater experience is linked to better performance. Cut funds that failed to beat their five- or 10-year category averages.

Track your returns

Time it takes: 35 minutes

It's a pain to figure out how your investments are doing, especially if your money is scattered among several accounts. Spend 35 minutes setting up the portfolio tracker at (you must first register at the site) so that you can start calculating your own rate of return. For a Web tool that can be clunky, Morningstar's tracker is particularly well designed and easy to use. You will, however, have to update it when you reinvest dividends or buy more shares.

Find out if you're paid enough

Time it takes: 15 minutes

Before you can make your case for a raise, you need something to measure yourself against. offers Salary Wizard for free. Plug in your title and zip code and you'll get the median pay in your area for comparable positions. Or spend 10 minutes filling out a questionnaire with more variables, such as the size of your employer, and get 12 pages of data by buying a Personal Salary Report for $29.95 to $79.95 (the price varies by title).

Run a retirement plan

Time it takes: 5 minutes

On the road to riches, the key question is whether you're on track for financial independence. So pull out your retirement and investment account statements, plus projections for any pensions. Running that simple math can be surprisingly valuable: Researchers have found that people who plan for retirement have a higher net worth than those who do nothing.

Estimate your life insurance

Time it takes: 35 minutes

How much coverage is enough? For a fast ballpark estimate, multiply your annual income by five. With 35 minutes you can use the detailed calculator from the Life and Health Insurance Foundation for Education (life You'll be asked for your assets and debts, plus answers to tough questions like how long your family would need income after your death. If you find you need more coverage, get a quote on a term policy in five minutes at

Learn your tax bracket

Time it takes: 20 minutes

Knowing what rate you pay on the last dollar you earn can help you to, among other things, pick a taxable vs. a municipal bond fund. Pull out your most recent 1040 and look for taxable income (line 43 in 2006). Adjust for any big changes in your income or the deductions you expect to take this year, then find where you fit in at (search for "2007 federal tax rate schedule").

To choose between a muni and a taxable fund, divide the muni's yield by 100% minus your tax rate. If that number is higher than the taxable yield, go tax-free.

Escape late fees

Time it takes: 6 minutes

Why mess with checks and trips to the post office? Why risk a late payment when, according to Consumer Action, 85% of credit-card issuers impose penalty rates that average 24.5% if you're late on one or two bills? Pay bills online at your bank. First register at the site. Then gather your bills. Many bank sites have a pull-down menu of merchants; select yours and enter your account number. Or plug in the name, address and account number manually.

Write bounce-proof checks

Time it takes: 9 minutes

The median fee for bouncing a check recently hit $27.50, according to Call your bank or visit its website to sign up for overdraft protection. With that service, the bank will cover your check with money from a linked savings account. It may cost you $10, but that's less than half the charge for insufficient funds - not to mention what the payee demands.

Get bank alerts

Time it takes: 4 minutes.

Avoid bounced checks and spot ID theft early by having your bank notify you when your balance falls below a certain level or when there's unusual activity in your account. Citibank, for example, offers alerts via e-mail or text message. To activate them, log into your online account and select Account Info and then E-mail and Wireless Alerts. You can add up to two e-mail addresses and a mobile-phone number for alerts. Use the menu of options to designate what updates you want.

Pay less in auto insurance

Time it takes: 7 minutes

Simply raising your deductible can save you up to 30%. With an old car, drop your collision and comprehensive coverage when the car is worth less than 10 times what you pay for the insurance. Or shop for a lower premium at, an easy-to-navigate comparison site. You'll be guided through five screens of information such as driving history, car make and model. A few minutes later the site will give you the lowest quote from its database (which doesn't include all the biggest insurers). Agents will also e-mail or call you with quotes from other insurers.

Double-check your taxes

Time it takes: 35 minutes

Next April remember this: Before you seal the envelope or tap the key that whisks your return to the IRS, spend 35 minutes looking for easy-to-spot errors. Overlook a dependent (the one at college may count) and you could owe an extra $1,000 in taxes. Transpose your Social Security number and your refund may never arrive. Did you sign your return?

Keep more of your paycheck

Time it takes: 30 minutes

A generous tax refund means you are overpaying the government. To have fewer dollars plucked from your paycheck, claim more exemptions on your W-4 form (to see if you can, use the withholding calculator at Print out a W-4 at the IRS site or from your company's intranet. With last year's tax return, a pay stub and a calculator handy, filling out the worksheet on page 2 takes about half an hour.

Get a tax break for day care

Time it takes: 35 minutes

Make this the fall that you finally sign up for a flexible spending account for healthcare and dependent-care expenses. Your boss takes pretax dollars from your paycheck; you tap the account for contact lenses, day care and the like.

Pay less for your cell

Time it takes: 1 minute

Know what your employer hates? Raises. What he likes? Perks that cost him nothing. At some firms, employees qualify for cell-phone discounts of up to 20%. To see if you get a Verizon discount, go to and plug in your e-mail address; for AT&T, go to

Cut drug costs

Time it takes: 16 minutes

Many employers use a pharmacy benefit manager (PBM) such as Medco or Caremark to administer prescription drug coverage. Call your PBM or go to its website (have your prescription drug coverage card handy) to check mailorder prices and sign up.

No more waiting rooms

Time it takes: 15 minutes

Can't get in and out of the doctor's office in 35 minutes? You can see a physician's assistant or a nurse practitioner in about 15 minutes, or so, says MinuteClinic, one of the largest of the chains of walk-in medical centers cropping up in pharmacies or stores such as Target or Wal-Mart. That's fine for basic ailments like earaches, strep throat and pinkeye. Your insurance may not be accepted, which could leave you footing the entire $59 ear-infection fee. But you can stop by at lunch and not miss hours, or even a day, of work.

Burn more calories

Time it takes: 30 minutes

Nibbling an extra 100 calories a day will pack on 10 pounds in a year. Doing moderate exercise for 30 minutes a day will prevent that gain - and save you money. Obese Americans spend 26% more out of pocket on health care than normal-weight workers, according to a study in Health Affairs. They also take nearly twice as many prescriptions and earn $1.42 less per hour.

Be like Buffett

Time it takes: 35 minutes

It takes seven seconds on a high-speed Internet connection to download Berkshire Hathaway's annual report (available at Reading Buffett's letter to shareholders might take a full 35 minutes. The wisdom therein could put your investing head on straight for 35 years.

Save for college

Time it takes: 35 minutes

A state 529 college savings plan is the best way to invest for your kid's higher education. With one check, you can buy a diversified portfolio that becomes more conservative as your child nears school. See Money Magazine's guide to 529s in every state (link below).

Stick with your local 529 if it's a Money pick. But if your homegrown options are fee-laden and offer no local tax breaks, go with the Utah Educational Savings Plan (800-418-2551; Click on the Forms tab and download the program description and "form 100." Figure on 15 minutes to read, 19 minutes to fill out the agreement, one minute to fax.

Automate your savings

Time it takes: 10 minutes

If a $10,000 minimum investment is keeping you out of mutual funds, you have a quick work-around. Lots of funds let you in for much less if you agree to have your investment automatically taken out of your bank account. With T. Rowe Price's automatic asset builder (, you can invest in T. Rowe Price Blue Chip Growth (TRBCX), T. Rowe Price New Era (PRNEX) and many other exemplary funds with just $50 a month.

Get credit, even in a crunch

Time it takes: 15 minutes

Apply for a home equity line of credit. Don't tap it now unless you must (average rates are 8.75%). But in an emergency - say, when you've lost your job - you may find it tougher to qualify. Start by calling your bank, but go to to compare its offer with those from other nearby lenders.

Read your mortgage

Time it takes: 30 minutes

Only now are many borrowers with risky loans finding that they misunderstood the terms. First pull out the one-page Truth in Lending Disclosure your lender gave you: The APR on it is the best estimate of what you are paying. Lower rates mentioned in other loan documents are likely come-on offers. If your rate is variable, scan the adjustable-rate disclosures section of your mortgage for the date it changes and the highest it can go. Examine every page for the words "prepayment penalty."

Stop overpaying on your mortgage

Time it takes: 9 minutes

If you carry private mortgage insurance but now have 20% equity in your home, see whether you can cancel. Your mortgage servicer (the phone number is listed on your bill) usually must oblige if your down payment and principal payments exceed 20% of your home's original value. Many will do so if rising prices have pushed your equity to 20%.

In this case, canceling will take longer: Most mortgage companies require an appraisal, which costs around $300. But at, or you can get an idea of whether your home value has risen enough to justify a call.

Create an insurance record

Time it takes: 29 minutes for a 2,200 sq ft home

Walk around your house with a camera. Shoot closeups of your jewelry, artwork and other valuables. If disaster strikes, this proof of what you owned will speed your claim and help you get a better settlement. Keep copies of the video or photos in your safedeposit box or elsewhere outside your home.

Curb impulse buys

Time it takes: 10 minutes

By one estimate, two-thirds of all purchases are unplanned. To keep impulse shopping in check, ask the clerk to hold your wished for item, then take a 10-minute stroll. Next ask yourself whether you truly need this sweater/video game/golf club and how you'll pay for it.

Spend consciously

Time it takes: 35 minutes

At the grocery store, you're up against tempting displays and smells in every aisle. To avoid being ambushed, you need to follow a strict plan. Take 35 minutes to make a shopping list that follows the layout of the store (no straying) and calls for stocking up on sales items. To see the specials at stores nearby, enter your zip code

Slash recurring charges

Time it takes: 10 minutes

It seemed like a good idea - for just $16.99 a month, you could rent three DVDs at a time as often as you wanted. But how often is that really? Scan your credit-card statement for those automatic monthly charges you normally just pay. Ask yourself whether you're getting your money's worth. How often do you go to the $75-a month gym? How about that cheese-of-the-month club? Cancel what you're not using.

Boost your mileage

Time it takes: 7 minutes

About half of car owners don't test the air pressure on their car tires often enough, according to the Rubber Manufacturers Association. The recommendation: Do it once a month or before any long trip. The payoff: Properly inflated tires improve your fuel economy by 3.3%. You can buy a pencil tire gauge for less than $10. Check the pressure when your tires are cold. If they need air, head to a gas station within a mile of home.

Find it cheaper online

Time it takes: 30 minutes

Before you buy anything on the Web (or at a mall), spend a few minutes at a comparison shopping site. and both scour the Net for bargains at a large number of online stores, but their results can vary. Looking to buy a Garmin GPS for your car? found one from a top retailer for $357.95; Shopzilla's find was $212.54.

Demand a lower cable bill

Time it takes: 15 minutes

Okay, it's not as simple as that - but almost. Call and complain that your bill is too high; repeat your message calmly ("This just isn't worth it to me anymore"). Make sure to casually use the words "satellite dish" (as in "I wonder how that compares with a satellite dish") or maybe "phone company." This strategy translated into a $20 monthly discount (for a year) in our test.

Save on drinking water

Time it takes: 4 minutes

At $1.50 a pop for a gallon of bottled water at the supermarket, the desire for healthy hydration adds up. By purchasing a water filter, you can cut your family's water costs to 19¢ a gallon. Order a Brita Riviera pitcher at for $27. Replacement filters good for two months are $9 each.

Six 35-second solutions:

Time it takes: 35 seconds

1. Say no to a new store credit card.

With rates typically above 20%, interest can wipe out that initial 10% discount. The new credit application will hurt your credit score, and you'll have yet another temptation to spend.

2. Check yes to reinvesting your dividends.

If you'd put $10,000 in an S&P 500 index fund in 1997 and reinvested dividends all along, you'd have $22,446 at the end of 2006. If you didn't, you'd end with just $19,147.

3. Say no to an extended warranty.

It'll cost you $30 to $200, and with electronics so reliable nowadays, you're unlikely to need it. Besides, if your computer breaks in two years, you'll want the new model, not a replacement.

4. Fill your tank with regular.

Premium gas is about 8% more expensive, and no matter what the manufacturer says, cars don't need pricier gas to run smoothly and resist wear.

5. Swipe your debit rather than credit card.

If your purchase will further fatten your balance on a high-rate credit card, you're better off paying with the money that's in your bank account. If asked, say "credit" rather than "debit" and your debit card will be processed over the credit-card network. You'll have more liability protection and less chance of paying a fee.

6. Delete any e-mail asking for account information or your social security number.

It may be a scam. No reputable financial services firm will ask.

Thursday, 27 December 2007

Recession-Proof Your Portfolio

by Annie Sorich

There's lots of talk of a recession these days, making many investors nervous. What exactly is a recession? The technical definition is two quarters (six months) of negative gross domestic product growth. (GDP is the total market value of the new goods and services produced during a specified time span.) More simply, a recession describes a shrinking economy rather than a growing one.

Although a downturn in market performance isn't necessarily a recession, the two can go hand in hand, as the last two recessions in 1990 and 2001 suggest. Currently there's not a consensus on whether the U.S. is in a recession, heading for a recession, or simply slowing down a bit, but it never hurts to be ready. Below are a few important steps to take when the economy turns sour.

Buy, Don't Sell

We all know the old adage "Buy low, sell high." Yet that's the opposite of what some people do when the economic climate looks gloomy. The start of a recession is not the time to liquidate your investments. Depending on your time horizon, you most likely have enough time to ride out short-term stock price drops that might happen during a recession. If you're in your 30s and saving for retirement, a few market bumps will be ironed out in the long run. Still, it's important to construct your portfolio with your time horizon and risk tolerance in mind, which can help you sleep easy if the market does start to tumble.

A recessionary environment could even be a time to increase your contributions to your portfolio. Some mutual fund managers, particularly those who are attentive to valuation, have told us they've found bargains amid the market's recent volatility. For example, the team at Longleaf Partners, which is closed, recently urged investors to consider adding more to their holdings because they're finding a lot to buy right now. By continuously contributing to your portfolio, you'll participate in purchasing those deals.

Stay the Course with Dollar-Cost Averaging

With uncertainty in the air, it can be tough to stay disciplined about investing. Therefore it's a good idea to set accounts on autopilot in order to avoid the temptation of hoarding cash under your mattress. Most investors in 401(k) plans make contributions on a regular basis; you might also consider doing so with your other accounts. Dollar-cost averaging, or investing a set amount of money at regular intervals, can also help bolster your savings when the economy starts growing again. For example, say you invest $500 a month in a mutual fund. The fund's shares are worth $10 apiece initially, meaning you can purchase 50 shares a month. If the underlying assets appreciate a total of 20%, and now the fund's NAV is at $12, you purchase fewer than 42 shares that month. But if the fund's NAV drops 20% to $8 a share, your $500 will purchase almost 63 shares. Therefore, consistent dollar-cost averaging can result in a lower overall price you pay for shares; it will also ensure that you don't lose your resolve to invest amid market turbulence.

Saving Matters

Unemployment can skyrocket when economic growth slows. Losing your job is a huge financial blow. Regardless of what the economy is doing, you should prepare for the worst by saving three- to six-months' worth of living expenses in an emergency fund. It's best to store the money in a very liquid account like a money market fund, which isn't usually subject to price drops and generally pays more interest than a regular checking or savings account. Click here to learn more about emergency funds.

Check Your Diversification

Still worried? Take some time to make sure your portfolio is well-diversified. A good place to start is Morningstar's Instant X-Ray tool. There you can see your portfolio's exposure to different asset classes, sectors, and world regions. In a recessionary environment, it's a good rule of thumb to make sure your portfolio includes exposure to companies that should thrive in a depressed environment, such as health care and consumer staples. People need to buy food and take their medicine regardless of what the economy is doing. Exposure to foreign stocks could also be a good defense if the U.S. is the primary economy hit by a slowdown. On the flip side, you'll want to make sure your portfolio doesn't have too much allocated to cyclical sectors such as industrial materials, media, and consumer services. For more information on solid core funds, read this article.

Likewise, make sure your fixed-income allocation is skewed more toward high-quality bonds rather than their junkier counterparts. When the economy hits the skids, prices on bonds of lower credit quality can precipitously drop, and make a serious dent in your savings. Yet those funds holding bonds with the highest credit quality can benefit from investors looking for a safer haven. You can investigate the overall credit quality of your bond holdings using Instant X-Ray by clicking on the Bond Style tab in the drop-down menu.

Tuesday, 25 December 2007

Bursting the Economic-Fear Bubble

by Ben Stein

"It's all relative." You've probably heard this before, and it's true of everything except right and wrong.

But it's especially true of economics, and it's doubly true of all the recent scare-talk about the economy.

Simply put, the media and the short-sellers on Wall Street are trying to scare us into having a recession. Since the nice people who read this have some interest in facts and figures, here are a few reasons why things aren't so bad.

Heavy Labor

First, the housing correction.

Now, it's true that we're having a very large housing correction. It may be the sharpest fall-off in housing starts as a percentage of the prior peak that there's ever been in the postwar era.

But housing is only about 5 percent of the economy at most. If it falls by half or a third, that's a big drop. In an economy like ours, though, where there was a severe labor shortage before the housing correction, the labor shortfall can be readily absorbed by other sectors, and it is.

Real unemployment has barely budged since the housing correction began more than a year ago. It will probably rise, but exports are shooting up so fast because of the weak dollar that overall unemployment may not rise by much at all. (It's currently at 4.7 percent of all workers, but barely 2 percent of full-time breadwinners.)

House of Cards

Second, there's the subprime "meltdown," as the papers like to call it.

This is a genuine problem. Unwary buyers were sold mortgages they couldn't pay for, and are now in trouble despite the president's new mortgage-rate-increase moratorium. And extremely unscrupulous people sold immense bundles of precarious mortgages to institutional buyers who didn't know what they were buying. In some sad cases, the investment banks that sold the mortgage bundles were selling similar instruments short even as they sold the bundles to the innocent.

That's a major moral problem, and the magnitude of loss because of defaults on the mortgages seems immense. There may have been roughly $80 billion in losses so far (before liquidation of the collateral, which will greatly reduce the losses). There may be another $150 billion of losses out there, and maybe even another $200 billion.

Those numbers seem immense, and to you and me they are. But in the context of the U.S. economy, they're not large enough to do major damage unless the Federal Reserve Board makes serious mistakes. The total bank credit in this country as of October 2007 was about $9 trillion. That doesn't count credit from other sources such as bond issuance or foreign investment, which could easily bring the total to $30 trillion or more.

A loss of $50 billion, while immense to you or me or even Bill Gates, is barely one-half of 1 percent of bank credit in the United States. It's hardly more than one-tenth of 1 percent of total available credit. Even if the loss rose to $250 billion, it wouldn't even be 1 percent of available credit. And, again, this number will be greatly reduced upon sale of the collateral and recovery by the lenders.

Crude Speculation

Next, there's the price of oil, and how it'll drive us all into an early grave.

It's true that the price of oil has risen stupendously in the last six years, and especially in the last two. But the cost of oil is less than 3 percent of the average family's budget. Even if it rises by 30 percent from its already lofty levels, the cost to the average family would be painful -- but not lethal. (And, of course, in Texas, Oklahoma, and Alaska, it's a bonanza.)

Plus, the surge in wealth of the oil-exporting sheikdoms is largely recycled into investments here. This offsets the effects of the losses from subprime and other risky investments.

Currency Events

Finally, there's the fear of the falling dollar and what it will do to us.

Frankly, aside from the rising cost of oil (the other side of the equation of the falling dollar), the typical family buys little from abroad. Most of what we buy are services, such as government, medical, utilities, and amusements, and then food, and these are almost all produced domestically (unless you're a champagne or other wine snob).

The stock market isn't affected because American corporations' earnings are denominated in dollars, so it really doesn't matter how many dollars it takes to buy a Euro. Moreover, perhaps 40 percent of U.S. large-cap earnings come from overseas operations. These come in as Euros, pounds, or yen, and add up to far more dollars for U.S. corporations as the dollar falls.

A Sadder, Wiser Future

I don't want to be Pollyanna here. There are real problems with our economy, primarily inequality and a looming retirement crisis for baby boomers. But facts are facts, and life is about "how many" as well as "how."

The truth is that we passed through a far worse crisis in the tech collapse of 2000-2002, when roughly one-sixth of the nation's wealth was erased. Now, with the mortgage crisis and other problems, we're not even talking about a loss of one-tenth of 1 percent.

There's a lot to ruin in a nation. We'll get through this just fine. The road may be bumpy for a year or two, but we'll come up roses in a short time and will be ready to smile -- sadder but wiser.

Monday, 24 December 2007

Understanding Bear Markets

What is a bear market and what causes it?

By definition, a bear market is when the stock market falls for a prolonged period of time, usually by twenty percent or more. It is the opposite of a bull market. This sharp decline in stock prices is normally due to a decrease in corporate profits, or a correction of overvaluation (i.e., stocks were too expensive and fell to more reasonable levels). Investors who are scared by these lower earnings or lofty valuations sell their stock, causing the price to drop. This causes other investors to worry about losing the money they've invested, so they sell as well; the vicious cycle begins. One of the best examples of a prolonged bear market is that of 1980's when stocks went sideways for well over a decade. Experiences such as these are generally what scare would-be investors away from investing. Ironically, this keeps the bear market alive; because no few buyers are purchasing investments, the selling continues.

How does a bear market affect my investments?

Generally, a bear market will cause the securities you already own to drop in price. The decline in their value may be sudden, or it may be prolonged over the course of time, but the end result is the same: the quoted value of your holdings is lower. This leads to two fundamental principles: 1.) A bear market is only bad if you plan on selling your stock or need your money immediately. 2.) Falling stock prices and depressed markets are the friend of the long-term, value investor. In other words, if you invest with the intent to hold your investments for decades, a bear market is a great opportunity to buy. It always amazes me that the "experts" advocate selling after the market has fallen. The time to sell was before your stocks lost value. If they know everything about your money, why they didn't warn you the crash was coming in the first place?

What do I do with my money in a bear market?

The first thing you need to do is to look for companies and funds that are going to be fine ten or twenty years down the road. If the market crashed tomorrow and caused capitaland's stock price to fall 30%, people are still going to buy razors. The basics of the business haven't changed. This brings us to our third principle: 3.) You must learn to separate the stock price from the underlying business. They have very little to do with each other over the short-term. When you understand this, you will see falling stock markets like a clearance sale at your favorite furniture store; load up on it while you can, because history has borne out that prices will eventually return to more reasonable levels.

Sunday, 23 December 2007

My Passive Income Generation Links (See above)

Hello all,

Hope everyone have enjoyed the finance articles on my blog so far. And hope they have provided you some guidance in this volatile market.

Just hope to bring everyone's attention away from the financial market for a while, back to the internet.

I am currently 70% cash and 30% vested in equities. The 70% cash is my opportunity fund to scoop up cheap and good investments in the near future....guess everyone should know that it is not a question of "if" the downturn will come, but when. I believe it should begin within 2 to 3 years from now.

I am grateful that currently, with my 70% cash not earning returns and my 30% equities (holding for long term) sitting with some paper losses, my internet means of generating passive income is still working hard. Oh yes, for these, the returns are almost infinite! Because they generate returns for me at very low or no cost at all!

Even when the financial markets are not doing well, millions of people all over the world are still accessing the internet. Meaning, the market for internet money making is everywhere, 24 hours 7 days a week. Financial markets close after office hours or during public holidays but not the internet world.

Hope you guys know what I am getting at: Internet wealth creation is a good diversification from the financial markets altogether.

Do feel free to check out the 3 links I have for passive income creation above. There are thousands of such internet income generation websites nowadays, but currently the above 3 I have tried and proven scam-free and earns me a decent passive income monthly. :)

Merry Christmas and Happy New Year to all! May everyone be happy and wealthy in 2008 :)

Friday, 21 December 2007

Feeling the Crunch

by Ben Stein

If I were to choose a cartoon to represent the financial events of 2007, it would be the familiar one of Lucy promising Charlie Brown that this time, definitely this time, despite all the lies in the past, she would hold the football firmly in place while he practiced placekicking. Then, of course, she snatches it away and he goes flying onto his backside.

In the case of 2007 and investors, Lucy is, as always, Wall Street. The football is collateralized mortgage obligations, and the placekicking dupe is you and me. But the smart observer is the guy or gal or who knows this crisis won't go on forever, and the time to buy stocks, mutual funds, and ETFs is when everyone is worried -- not when they're chirrupy and happy.

What Went Wrong

Let's start at the beginning.

It's not even six years after the catastrophe of the high-tech fraud and stock collapse, and, after endless professions that Wall Street would stick to the highest levels of probity and honesty, it's back to the same old tricks. The trick is -- as always -- to sell "securities" that are not at all secure and are worth far less than the con men on Wall Street say they are.

This time around, the "securities" were immense pools of mortgages issued often with minimal or no credit checks on the borrowers, often on the collateral of homes that were worth less than the loans. Very often, the borrowers had little or no equity in the house, so that as soon as the real estate market went into a cyclical correction of extra-large size (to correspond with the real estate boom that was also of uniquely large size), the borrowers simply left the keys in the mailbox and went back to renting.

In many cases, the borrowers were themselves deceived about the terms of the loans and the likelihood that they could refinance their way out of any problems that occurred.

Crunching the Numbers

No one, and I mean no one, knows how large the losses have been as the buyers of the mortgage pools have seen their investment dry up and blow away. By my rough calculation, with help from the president's Council of Economic Advisers, about 6 trillion dollars of new mortgages were issued between 2005 and mid-2007. Of this, about 20 percent might have been subprime. That makes $1.2 trillion.

Of that, about a third might default (many more from the last period of the lending binge, when standards simply vanished), which would indicate losses of about $380 billion. Of that, about 60 percent will be recovered when the houses are seized in foreclosure and, after the legal fees are paid, sold to shrewd buyers. That leads to a net loss to pension funds, municipalities, labor unions, hedge funds, and wealthy foreigners of about $150 billion, as a very rough number.

That number may be even greater when upwards of $40 billion in losses on mortgages call Alt-A's -- where the borrowers didn't have poor credit, but the interest rates reset too high for them to afford -- are added. If we also assume that defaults might be even greater on mortgage pools sold since the middle of 2007, the total unrecoverable losses will be about $200 billion to $250 billion. Ouch!

On top of that, there are losses on structured investment vehicles, in which speculators basically borrowed short-term money to buy long-term debt -- always risky -- and possibly some losses on car loans as well, but that's not yet clear. There are also losses to hedge funds, which are loosely regulated pools of investments, but their accounting is generally murky.

Still with me? Because there's light at the end of the tunnel.

The Usual Suspects

But first, here are some amazing facts about this debacle: As far as I know, not one person on Wall Street has been even indicted for, let alone convicted of, fraud. Not one. In fact, the leaders of the major investment banks, banks, and brokerages that sold this worthless stuff -- and kept some of it in-house, leading to immense losses for their firms -- have been retired with immense severance bonuses.

The former head of Merrill Lynch -- who led his firm to near ruin by selling this garbage, and led his clients (whom he had a fiduciary duty to always put first) to disastrous losses -- was given a retirement package of about $160 million. The people at the banks who supervised this meltdown were routinely paid multimillion dollar wages per year.

A Peek Ahead

Here are two even more amazing facts: Despite this massacre -- which went far beyond where I originally thought it would go -- the stock market is still up for the year by a few percentage points, even though financial stocks are by far the largest sector of the S&P. Even more amazing, the economy is so large and so resilient that the losses will not be enough to cause lasting damage to the nation as a whole. (Some individuals, however, will be ruined.)

The losses of $200 billion or so amount to only about 2 percent of bank credit, and far less than the percentage of total credit available domestically and from foreign investors. The Federal Reserve is available at the flip of a switch to replenish the lost liquidity of banks, and new, wealthy foreigners are still lining up to invest in our financial entities.

There will obviously be an economic slowdown, and possibly even a shallow recession. But we're extremely blessed to have good fiscal stewardship from our government and top-flight guidance at the monetary-policy pentagon (the Fed). Unless they make major mistakes, we'll get through this in halfway decent shape.

Get Over It

Still, the lessons for us are keen and cut like a knife. But be brave -- these periods of crisis are inevitably the time to buy, even if you have to wait years for the crisis to sort itself out. It takes guts and counterintuitive thinking, and if you don't have the stomach to do it, no one will blame you.

If you do jump into the pool, be sure to diversify, give yourself guaranteed income from variable annuities and annuities, and stick with proven entities like very largely varied index funds at home and abroad. As you all know, I particularly love the emerging market funds and ETFs for the long haul.

Oh, and the next time Lucy offers to hold that football, kick her instead.

New Year's Career Resolutions You Should Make

by Tara Weiss

It's resolution time again. Instead of making the same old difficult-to-stick-to promises, like losing weight or quitting smoking, use the New Year to take stock of your career.

Addressing career concerns might make you more fulfilled on a daily basis. If you make the resolutions wisely by setting small, achievable goals, you're likely to feel particularly rewarded.

The first step: Consider what your career goals are and examine whether you're on track to meet them. "Are you happy with your job and your career," asks Wendy Enelow, a career consultant in Virginia who has written several books on résumés. "I'm not saying 'Are you making money?' But are you happy? Do you enjoy going to work on Monday mornings?" The time to ask this question is the last week in December or the third week of January -- because nobody wants to go back to work after the holiday break.

If the answer is yes, that's great. But you should still be at least a passive job-seeker. Update your résumé and pay attention to your industry, so you're not totally blind-sided if there's an economic downturn or some other major change in the job market. Also, this makes it easier to fully hop into job-seeking mode if you suddenly need to look for a new position. Have a general sense of who is hiring and what jobs are open.

Career Resolutions to Make for 2008
Rank Reslution Description
1 Resurrect Your Résumé Even if you don't have plans to job hunt, make sure your résumé is up to date. Include recent accomplishments, like the completion of special projects or initiatives you've been a part of. You never know when an opportunity is going to come along.
2 Skill set What's holding you back? Figure out what the necessary skills are to advance within your industry. Do you need certain computer skills that you don't know? Would learning a foreign language help advance your career? Get the education you need at your local college or university. Sometimes your company will pay the bill. Plus, everything you add to your résumé makes you more marketable inside and outside of your current company.
3 Know your options Have a sense of which companies in your field are hiring and for what positions they're interviewing for. It's smart to have informal, ongoing conversations with other companies.
4 Network Join professional associations related to your industry. It's still a "who you know" world out there. Plus, it's a good way to keep an eye out for new opportunities or developments in your field.
5 Keep a written record Write your short- and long-term professional goals down. Set deadlines and keep them. It's easier to manage your own growth and development when your targets are charted out. Would you like to move into management? Set a timeline and a plan to get into that corner office.

Also, everyone should have a long-term career plan. This will help you figure out where you want to be in the next few years, so you can start thinking about how to get there. What do you have to learn, and who should you meet to fulfill the goal? Also, recognize that things change, and so should your career plan -- it shouldn't be stagnant.

If you're not happy at work, ask yourself: What is it that my job lacks? What is it I actually want to do?

Your dissatisfaction might stem from the fact that your job doesn't allow you to do anything else. Enelow encourages clients to consider where on their priority list work fits in. For some people, work is the top priority; for others, it's third or fourth. If you want to spend more time with family and friends, but your job is all-encompassing, it might be time to rethink your job choice.

Whatever the reason, get in touch with your professional network. Use the New Year as an excuse to touch base via e-mail or by sending a card. Send a less formal note asking how your contacts' holidays were. Then say, "I had time over the holidays to think about my career, and as such, I've confidentially decided to explore new opportunities. I wanted to know if you know of anyone in the industry who I might want to know."

Enelow recommends sending a cover letter and resume to headhunters specifically in your field. "If a recruiter has an immediate opportunity, they will get in touch," she says. "For passive job seekers, it's a way of getting into the system, because recruiters will scan them into their database. They're in the system if an opportunity arises."

Those that are content at work should still consider their next step. Ask for honest feedback from your supervisor, peers and subordinates. This is an ideal way to hear what you're good at and what you need to improve on. "It's called '360 feedback,' and that's where the true results really come," says Stephen Harap, a management and leadership coach at Deloitte and Touche.

Know where you need to improve, because working on your weak points will actually help you get to the next level. "The time to get good at something is before you get that next role," says Harap.

Perhaps you don't know what that next level is. That's when it's time to chat with your supervisor for input. It's as simple as saying, "I'd love to have a conversation about what my career goals are. Am I on the right track?"

This is also a good tactic because you can ask your manager to become a partner in getting a promotion. He or she can suggest the necessarily skill sets and ways to master them, such as the books to read, online training or even classes.

Like any resolution, the key is moderation. After you've assessed your career, select one or two goals to achieve. As you check them off, add new ones.

Thursday, 20 December 2007

7 reasons to be bullish now

Last week's rally was only the start of a move up. Here's how leading money managers suggest you can take advantage of the market's bounce back.
By Michael Brush

Last week's impressive rebound in stocks was more than just a head fake. I see seven reasons why the reversal was the start of a bullish move in stocks.

A safe way to play this turnaround is to get broad market exposure, using mutual funds and exchange-traded funds. For more oomph, build positions in companies that have the right characteristics for the slower economic growth ahead. To find those stocks, I picked the brains of several managers who have excellent records at diversified domestic-stock mutual funds.

Before we go there, here's why I see better times ahead for stocks:

Reason No. 1: The smart money is positioned for gains.

There are many ways to read the minds of the smart money on Wall Street. Jason Goepfert, who runs a great Web site called that offers a cornucopia of investor-sentiment gauges, likes to look at what commercial traders are up to.

These are the savvy investors who hold huge positions in S&P 500 Index ($INX) futures contracts -- more than 1,000 contracts -- as part of a strategy to hedge risk. (Owners of futures contracts on a stock index have the right to take delivery of the underlying stocks in the future, at a predetermined price.)

People who own index futures as part of a hedging strategy are about as sophisticated as they come on Wall Street, Goepfert believes. Over the past seven years, this elite crowd has normally held sizable short positions in index futures. But these folks recently moved to a net long position in a way not seen in years. Several other smart-money measures indicate they are now about as bullish as they get, by Goepfert's calculations. This tells me the recent lows may have been a bottom for stocks.

Reason No. 2: Joe Six-Pack is in a panic.

Sadly, individual investors typically panic and sell their stocks at the bottom. (And I'm embarrassed to confess that I've done the same thing more than once.)

Now, the average investor is in a state of panic again -- suggesting stocks will go into a sustained uptrend from here. A recent American Association of Individual Investors survey of its members indicated they were in a state of depression about stocks. About 56% of them were bearish at the end of November, the highest level since 2000. The number of bulls was at near-record lows, too.

We also know average investors are extremely gloomy because they are shorting stocks in record amounts. Investors go short by borrowing stocks and selling them, hoping to replace them later at a lower price to pocket the difference. In mid-November, the percentage of New York Stock Exchange short positions held by the public was at 70%. That's the highest since 1943, according to Goepfert.

Reason No. 3: Overall sentiment is extremely negative, too.

To be fair to those average Joes, they aren't the only ones who are bummed out about stocks. To measure the extent to which investors of all stripes hate stocks and favor bonds, Goepfert tracks the relative value of the two asset classes. On Nov. 26, investor preference for bonds over stocks came close to the highest level seen in 40 years. During the past four decades, there were 51 times investors hated stocks so much relative to bonds -- and 42 of those times, the S&P 500 Index was higher a month later, with an average gain of 3.1%.

Reason No. 4: Insiders are downright bullish.

Last week, for the sixth straight week, insider sentiment "remained firmly in bullish territory as buyers outnumbered sellers," according to Buying by insiders, typically executives at the company in question, is a proven bullish indicator.

Reason No. 5: 'Tis the season to buy.

December is historically the best month to be in stocks. Since 1929, it's been an up month for the S&P 500 75% of the time. Each of the five times the S&P 500 lost more than 4% in November -- as it just did -- December was up, by an average of 5.6%.

Reason No. 6: The Fed is not done.

Mary Miller, the director of fixed-income investing at T. Rowe Price, expects the Fed to cut short-term rates by another percentage point over the next several months. Historically, stocks do well in a rate-cutting environment.

Reason No. 7: The economy will be fine.

Sure, the housing and auto sectors are a mess. But they represent only 9% of the economy, though you might not know it because they seem to garner 95% of the attention of the financial media, says James Paulsen, an economist who is the chief investment strategist at Wells Capital Management. The rest of the economy has been growing nicely. Paulsen thinks most economists are too negative, and he doesn't expect a prolonged period of sub-2% economic growth.

Reasons for being more positive: continued healthy wage gains and record household net worth; strong corporate balance sheets that support business-investment spending; lower interest rates; deficit spending by governments that stimulates growth; and a weak dollar that has spurred enough growth in exports to offset housing-sector weakness.

Here are some ways to play the rebound:

Go with tech-stock growth Robert Turner of Turner Investment Partners favors growth stocks in a slower growth environment. This seems counterintuitive, but it makes sense.

As the economy slows, fewer companies can generate superior growth, and that pumps up demand for some stocks because of their scarcity value. Turner is worth listening to because his Turner Concentrated Growth Fund (TTOPX) is up about 29% this year, compared with 4.4% gains for the S&P 500.

To find growth, Turner likes the "three V's" in technology: the rise of Internet video, which benefits Cisco Systems (CSCO, news, msgs); the "virtualization" of servers to increase capacity for companies, a job done by VMware (VMW, news, msgs); and the new Vista operating system, which Turner thinks will continue to help both Intel (INTC, news, msgs) and Microsoft (MSFT, news, msgs). (Microsoft is the publisher of MSN Money.)

Follow the leaders Robert Bacarella manages the Monetta Fund (MONTX) by following the smart money into companies for which investor expectations are improving. He does this by monitoring stocks' price and volume changes, checking company reports for signs of improvement and peeking at the portfolios of his most successful peers. His large-cap growth fund is up 25% this year with this strategy.

One group that stands out now is industrial companies that sell equipment, especially agricultural equipment, and machinery abroad.

Two companies in this group that look attractive are Manitowoc (MTW, news, msgs), which sells cranes, food-service equipment and marine products, and Chicago Bridge & Iron (CBI, news, msgs), a global construction and engineering company with exposure to the energy sector, where growth has been strong.

Broken but fixable One portfolio that Bacarella checks regularly is the Hodges Fund (HDPMX), run by Don Hodges. It's easy to see why: The fund is up 24% annualized over the past five years, or 10.4 percentage points a year better than its peers. Plus his fund's top holdings are updated more frequently than most mutual funds. You can check them at his company's Web site.

Hodges says he likes several well-known companies that have been beaten down in part by tax-loss selling, even though they have powerful long-term franchises. His list: Wal-Mart Stores (WMT, news, msgs), Home Depot (HD, news, msgs), Hershey (HSY, news, msgs) and Citigroup (C, news, msgs).

"At the moment they look uninteresting, but they are great companies that will adjust and do well in time," Hodges says. "Investors have knocked them down to prices where they represent good value and limited downside risk."

Big, international and safe Like Turner, T. Rowe Price fund manager Bob Smith likes large-cap growth companies, in part because they have more room to cut costs but still have enough to invest for growth. He also looks for those that have big exposure to emerging-market economies, where Smith thinks growth will remain strong even if the U.S. economy slows.
Smith ran the T. Rowe Price Growth Stock Fund (PRGFX) for 12 years, and he just took the helm of the T. Rowe Price International Stock Fund (PRITX). His former fund returned 12.9% a year over the past five years.

He points out that emerging-market governments are in better financial health than they have been in for a while. This means they will continue to spend on infrastructure improvements even if the U.S. economy slows. "Companies that are exposed to these markets are going to grow faster than those that aren't," he says.

One play on these themes is General Electric (GE, news, msgs), which gets a lift from the infrastructure build-out in places such as India and China because it sells equipment for power plants, rail systems and alternative-energy systems. There's also strong demand from the Far East for planes using General Electric's aerospace products.

Smith likes Danaher (DHR, news, msgs), an industrial conglomerate that sells water-filtration systems and manufacturing-process-control systems. The company has solid financial strength, which means that "during tough times they can buy other companies at great prices," Smith says. Schlumberger (SLB, news, msgs), down 18% since mid-October, looks like a bargain because its oil-services business should grow by 15% to 25% a year for the next three years, he says.

At the time of publication, Michael Brush owned T. Rowe Price mutual funds.

Tuesday, 18 December 2007

2008: World Economic Growth Slowing

By Viorel Urma, AP Business Writer

2008: Global Economy to Grow at a Slower Pace, Beset by Credit Crisis and High Oil Prices NEW YORK (AP) -- The world economy, buffeted by the credit crisis gripping financial markets, is expected to keep expanding in 2008 -- albeit at a slower pace -- with little fear of recession. But unlike past economic upswings driven by the U.S., Japan and Western Europe, the main engines of growth this time are predicted to be China, India and other emerging economies.

In its latest World Economic Outlook, the International Monetary Fund projected that global economy would grow by 5.2 percent this year and moderate to 4.8 percent in 2008, compared with last year's 5.4 percent growth. The 2008 forecast was downgraded by nearly one-half percentage point from the summer outlook, reflecting the turbulent conditions in financial markets.

"Risks to the outlook, however, are firmly on the downside, centered around the concern that financial market strains could deepen and trigger a more pronounced global slowdown," the IMF warned. Inflation pressures, volatile oil markets and the strong flows of foreign currency into emerging markets are also threats, it said.

The IMF said the ongoing turbulence in financial markets and a new rise in oil prices have dampened the outlook since its October update. In particular, the U.S. growth outlook has become riskier, IMF First Deputy Managing Director John Lipsky said in an interview posted on the Fund's Web site Dec. 11.

The global oil markets remain very tight, and with spare capacity still limited, supply shocks or heightened geopolitical concerns could lead to oil price spikes that could trigger higher inflation, economists said.

There is room for some cheering, though.

"The good news is that emerging and developing countries weathered the recent financial storm and are providing the basis for strong global growth in 2008," said IMF Chief Economist Simon Johnson.

"For the first time, China and India are making the largest country-level contributions to world growth," he said.

Emerging Asia is forecast to expand 9.2 this year and 8.3 percent in 2008; Africa is to grow 5.7 percent and 6.5 percent, respectively; and the Middle East, supported by high oil prices and robust domestic demand, is projected to expand 5.9 percent in both 2007 and 2008.

The IMF raised its growth forecast for China's sizzling economy this year to 11.5 percent from 11.2 percent, and said Beijing's efforts to cool the boom would be more effective if currency controls were eased. However, it said that easing may not materialize unless the authorities act more decisively and let the yuan's exchange rate rise faster.

Economic growth in the 30 industrialized economies of the Organization for Economic Cooperation and Development -- which include the U.S., Britain, Germany and France -- will slow to 2.3 percent in 2008 from 2.7 percent in 2007, the Paris-based think tank predicted in early December.

"Although near-term growth has been revised down virtually everywhere in the OECD area, the baseline scenario ... is actually not that bad in view of the recent shocks," said Joergen Elmeskov, the acting economic chief of the think tank.

Corporate profits, high employment that boosts income and consumption, and increased global trade have supported the world economy, while it has been hit by financial turmoil, cooling housing markets and rising energy and commodity prices, the OECD said.

The gradual slowing currently envisioned comes as the world economy's biggest player -- the United States -- is facing a considerable loss of speed.

The IMF lowered its forecast for U.S. growth, predicting the economy would expand by just 1.9 percent this year and next, reflecting the impact of the worst housing slump in more than two decades and the effects of the credit crisis.

If the IMF's forecast for 2007 proves correct, it would be the weakest growth the U.S. has logged in six years.

The housing slump would cost the U.S. economy a full percentage point of growth this year or one-third of the typical 3 percent annual rate of increase, economists said.

Although risks of a recession have risen in the United States, the IMF said the more likely outcome would seem to be a more prolonged period of sub par growth.

A November survey by 50 professional forecasters of the Washington-based National Association for Business Economics (NABE) trimmed the estimates for all the major U.S. economic sectors next year, with the exception of net exports and government spending, without predicting a recession.

The panelists didn't see recession as likely, although the economy faces risks from the credit markets, housing and energy prices, said Ellen Hughes-Cromwick, NABE president and chief economist at Ford Motor Company.

Other U.S. economists are less upbeat.

"Slow jobs growth, along with the shortage of business credit, declining home prices, and falling industrial production, indicate the risk of a recession is clearly above 50 percent. Either the economy has already entered a recession or the risk that a recession will begin soon exceeds 50 percent," said Peter Morici, a business professor and former chief economist at the U.S. International Trade Commission.

While overall U.S. economic growth as measured by the gross domestic product roared ahead at a 4.9 percent rate in the third quarter, the fastest pace in four years, GDP is expected to slow to a barely discernible 1.5 percent or even less in the current October-to-December quarter.

Growth at such a slow pace would increase the risks that the world's largest economy could dip into a recession.

To cushion the blow, the Federal Reserve has slashed a key interest rate three times to 4.25 percent -- a nearly two-year low -- most recently on Dec. 11. Fed officials signaled that further cuts were possible if housing and mortgage lending get worse.

On the positive side, the Labor Department reported the unemployment rate stayed at a relatively low 4.7 percent for the third straight month in November -- better than economists were expecting -- and wages grew briskly, encouraging signs that America's employment climate is still holding up in the face of credit and housing problems.

Job and wage growth have been shock absorbers, helping Americans to cope with all the negative forces in the economy.

"This should provide reassurance to those who worry that a recession is imminent," said Carl Tannenbaum, chief economist at LaSalle Bank.

Still, a lingering fear among economists is that consumers will cut back on their spending throwing the economy into a tailspin. Consumer spending accounts for two-thirds of U.S. economic activity.

In other economic predictions:

--The Middle East economies, supported by high oil prices that hit a trading record of $99.29 a barrel on Nov. 21, are projected to expand by 5.9 percent in both 2007 and 2008, with growth accelerating in Iran and Egypt.

--After years of stop-and-start results, many African economies appear to be growing at the fast and steady rates needed to put a dent in the region's poverty and attract global investment, the World Bank said. Overall growth in Sub-Saharan Africa is projected to rise from 5.7 percent in 2006 to 6.1 percent in 2007 and further to 6.8 percent in 2008. The growth acceleration reflects largely the coming onstream of new production facilities in oil-exporting countries such as Angola and Nigeria, according to the IMF.

--In Russia, GDP growth is set to accelerate in 2007 to 7.3 percent before moderating to 6.5 percent in 2008 as oil and metals prices stabilize at their current levels, OECD economists said.

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