Showing posts from July, 2008

Recession-Proof Your Portfolio--By Wading Into Stocks

By Bill Bergman

History informs decisions with future consequences. Looking backward to anticipate the future can seem like a contradiction, but we're all human, and history is one the tools we have.

OK, if we are in a recession today, what does history tell us about the wisdom of buying stocks during a recession?

History says it's time to load up.

If you had put a dollar into the S&P 500 every month since 1950, those 703 dollars would be worth about $9,300 today. But if you had been lucky, smart, and disciplined enough to only invest in each of the nine months that the NBER Business Cycle Dating Committee has deemed as the onset of the nine recessions we've had since 1950--in other words, investing equal chunks of the 703 dollars ($78.11) in each of those nine months--you would have $11,600 today, or 24% more than the amount you would have had by buying into the S&P 500 every month.

Correlation is not causation, but there's some common sense behind this. The S&…

When Pessimism Prevails, It's Time to Get Rich

by Robert Kiyosaki

If you're serious about getting rich, now is the time. We've entered a period of mass-produced pessimism, when bad news is everywhere, and the best time to invest is when optimists become pessimists.

The Weird Turn Pro

Journalist Hunter S. Thompson used to say, "When the going gets weird, the weird turn pro." That's true in investing, too: At the height of every market boom, the weird turn into professional investors. In 2000, millions of people became professional day traders or investors in dotcom companies. Mutual funds had a record net inflow of $309 billion that year, too.

In an earlier column, I stated that it was time to sell all nonperforming real estate. My market indicator? A checkout girl at the local supermarket, who handed me her real estate agent card. She was quitting her job to become a real estate professional.

As a bull market turns into a bear market, the new pros turn into optimists, hoping and praying the bear market will become…

Downturn gains steam as inflation roars ahead

By Martin Crutsinger and Jeannine Aversa, AP Economics Writers

Inflation rises at fastest pace since early 1980s as Fed chair warns of more trouble

WASHINGTON (AP) -- The U.S. economic downturn gained steam Tuesday, with a report of the highest inflation since the early 1980s, more bad news for banks and automakers and a suggestion by the Federal Reserve chief that worse days are ahead.

President Bush sought to bolster confidence by declaring that the financial system was "basically sound," but he conceded: "It's been a difficult time for many American families."

The Labor Department said wholesale inflation, driven by skyrocketing gas and food costs, rose by 9.2 percent for the 12 months ending in June -- the fastest pace since the summer of 1981, during another energy crunch.

At the same time, consumers hit the brakes hard despite a massive infusion of government stimulus checks. Retail sales turned in their poorest showing in four months.

Federal Reserve Chairm…

In a Tough Economy, Timing Is Everything

by Suze Orman

Sharply falling stock market and home values have created an extremely treacherous period. It's in just this sort of tough economic environment that your future financial security is won or lost.

How you handle your money in these tough times is going to play a huge role in whether you reach your long-term financial goals. Unfortunately, I'm seeing far too many people focused on making moves that might bring some short-term relief without fully recognizing the long-term damage they're doing to their bottom line.

It's Too Early to Hibernate

The stock market has officially fallen into bear market territory, with the Dow Jones Industrial Average sinking 20 percent below its October 2007 high. Watching your portfolio take a big hit probably has you seriously considering making a beeline for the nearest exit, but please slow down and think this through.

Emotionally, it makes perfect sense to want to bail on the stock market. But emotions are what keep individuals f…

Analysts Say More Banks Will Fail


As home prices continue to decline and loan defaults mount, federal regulators are bracing for dozens of American banks to fail over the next year.

But after a large mortgage lender in California collapsed late Friday, Wall Street analysts began posing two crucial questions: Just how many banks might falter? And, more urgently, which one could be next?

The nation’s banks are in far less danger than they were in the late 1980s and early 1990s, when more than 1,000 federally insured institutions went under during the savings-and-loan crisis. The debacle, the greatest collapse of American financial institutions since the Depression, prompted a government bailout that cost taxpayers about $125 billion.

But the troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, analysts say. Other lenders are likely to shut branches or seek mergers.

“Everybody is drawing up lists, trying …

Bernanke warily lifts US growth outlook, warns on inflation

WASHINGTON - THE US economy is growing a bit faster than expected and could avert recession, Federal Reserve chairman Ben Bernanke indicated on Tuesday, while citing a 'critical' need to keep inflation expectations in check.

Mr Bernanke also said a 'top priority' of the central bank would be to keep financial markets functioning, and that the Fed was paying close attention to the troubles of mortgage giants Fannie Mae and Freddie Mac.

The Fed chairman, delivering his semiannual forecast to Congress, indicated that his outlook for better growth and cooling inflation remained subject to a 'high degree of uncertainty'.

The central bank called for 2008 growth in a range of 1.0 to 1.6 per cent, up from an April projection of 0.3 to 1.2 per cent.

The inflation outlook was hotter at 3.8 to 4.2 per cent for overall prices but the outlook for 'core' inflation excluding food and energy was unchanged at 2.2 to 2.4 per cent. -- AFP

Analysts Say More Banks Will Fail

by Louise Story

As home prices continue to decline and loan defaults mount, federal regulators are bracing for dozens of American banks to fail over the next year.

But after a large mortgage lender in California collapsed late Friday, Wall Street analysts began posing two crucial questions: Just how many banks might falter? And, more urgently, which one could be next?

The nation’s banks are in far less danger than they were in the late 1980s and early 1990s, when more than 1,000 federally insured institutions went under during the savings-and-loan crisis. The debacle, the greatest collapse of American financial institutions since the Depression, prompted a government bailout that cost taxpayers about $125 billion.

But the troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, analysts say. Other lenders are likely to shut branches or seek mergers.

“Everybody is drawing up lists, trying …

IMF gloomy on growth, warns on inflation

By Alan Wheatley, China Economics Editor

TOYAKO, Japan (Reuters) - It is hard to know how far the global financial crisis still has to run, with the extent of further credit losses hinging on what happens to the U.S. housing sector, IMF chief Dominique Strauss-Kahn said on Wednesday.

"What is sure is that the consequences for the real (economy) sector of the financial crisis are still in front of us," Strauss-Kahn, the International Monetary Fund's managing director, said in an interview.

With sky-high food and oil prices adding to the economic pain caused by financial strains, Strauss-Kahn said the IMF was fairly pessimistic about global growth prospects this year and, especially, in 2009.

But he told a news conference later that softening growth was less of a threat than inflation, which he said was rampant in some countries.

"In developed countries, central banks have taken it into account and have the correct monetary policy stance. In emerging countries and some low…

Hedge funds stumble in first half of '08

By David Ellis, staff writer

Hedge funds delivered their worst performance on record during the first half of 2008, revealing that the industry has not been immune to the broader market turmoil.

As a group, hedge funds declined 0.68% through the end of June, and are down 0.75% so far this year, according to numbers published this week by industry tracker Hedge Fund Research.

The figures represent the worst first-half of the year performance for the industry since the research group began tracking returns in 1990.

While hedge funds' sluggish performance is troubling for an industry known for delivering sky-high returns year in, year out, the decline is far better than the broader market has fared.

During the first half of the year, the 30-stock Dow Jones industrial average tumbled 14.4%, while the broader S&P 500 declined 12.8%, as stocks have fallen ill on a dangerous brew of mortgage woes, soaring commodity prices, a declining dollar and weakness in the broader U.S. e…

Why This Housing Bust Is Worst Ever: The American Dream Ends

The current housing downturn isn't over and is "much much worse" than past downturns, says Barbara Corcoran, who built The Corcoran Group into a multi-billion firm during the real estate busts of the mid-1970s, 1980s and early 1990s.

This downturn is "grossly different" than those past cycles because homeowners are much more willing to "walk away" from homes, says Corcoran, who sold her namesake firm in 2001 for a reported $66 million and is now an author and widely cited real estate guru.

Just a few foreclosures - which Treasury Secretary Paulson says are unavoidable - can "put a pall on an entire neighborhood" by putting downward pressure on all local prices, she says.

The good news is that there's a "Macy's Day sale" in housing right now and buyers are starting to step in. But there aren't enough "brave souls" to stem the decline which Corcoran says will take prices down another 5%-to-10% nationally and end ne…

Would-be bankers set for bruising ride

FRANKFURT/LONDON - BEFORE they even start working 80-hour weeks, graduates sense tougher times in investment banking, and either by choice or necessity, some are already planning careers elsewhere.

Financial companies have slashed at least 70,000 jobs in the United States and Europe as a result of the credit crisis, making students uneasy as they face the reality of a sector which looks more bruising and less lucrative than a year ago.

Banking has been a popular choice among graduates in recent years. Five of the top 30 most desirable recruiters in Europe are banks, with Deutsche Bank leading the pack, according to a 2007 survey of some 40,000 students by Berlin-based research firm Trendence.

Although there is no evidence to suggest graduates are turning away en masse, universities are concerned for next year's intake and, with banks such as Citigroup and Bear Stearns cutting jobs, some students are less keen.

'The more I met people from the investment banking sector, the less I l…

Entrepreneurial spirit drives Taiwan

TAIPEI - COMPUTER salesman Ke Teh An quit his job with a major Taiwan computer manufacturer to open an American-style diner that he hopes will make him rich.

Such stories are not unusual in Taiwan, which has one of the largest pools of entrepreneurs in the region.

Becoming an entrepreneur is a way of life in Taiwan where go-it-alone businessmen are driven by a desire to become their own boss as well as to make their fortune.

'It's tough, that's for sure, but it's a dream,' Mr Ke said as he worked in his Taipei diner which employs four people and serves an average of 250 customers per day.

'It's a mess out there. Everyone wants to be his own boss,' remarked Mr Ke, who has added a second diner to his burgeoning chain and is already saving up for his third outlet.

Running a business is so popular in Taiwan that more people are employed in small businesses than in Thailand, which has almost three times the population.

'It's a cultural thing,' said Mr …

Bad credit mars Wall St bankers' summer break

WASHINGTON - JULY is usually a quieter month for busy Wall Street bankers, spent lounging poolside at the Hamptons or on a Caribbean beach, but a nagging credit crunch has cast a dark cloud over such vacations.

Major US banks, including Citigroup, Bank of America, JPMorgan Chase and Merrill Lynch, are due to unveil their second quarter earnings in coming weeks, and analysts say some results will not be pretty.

America's finance houses are weathering one of the worst market downturns in decades as a two-year long housing market slump and a credit squeeze, which erupted last summer, continue to roil balance sheets.

Some bankers believed at the start of the year that Wall Street would ride out the credit storm by the summer, but such predictions have proved premature.

Lehman Brothers announced a net loss of US$2.8 billion (S$3.81 billion) for its fiscal second quarter on June 16, and America's seventh largest savings and loan bank, IndyMac Bancorp, said on Monday it was struggling to…

JPMorgan's Dimon says credit crisis could worJPMorgan's Dimon says credit crisis could worsensen

ARLINGTON (Virginia) - JPMORGAN Chase Chief Executive Jamie Dimon said some problems in the credit markets have been resolved, but that does not mean market conditions will not deteriorate further.

'I do think we have some very serious issues to face,' Mr Dimon said on Tuesday at a mortgage lending forum sponsored by the Federal Deposit Insurance. 'Things could actually get worse.'

Wall Street investment banks should not be considered too big to fail, he said, adding the United States regulatory response to the credit crisis has been appropriate.

Mr Dimon, whose bank is widely expected to acquire a regional bank, said an accounting rule requiring banks to mark assets to their current market value is a deterrent to mergers.

FAS 157, as the rule is known, would force an acquirer to write down the value of assets from a target bank - even if the loans and securities were sound - to reflect current depressed market values. In some cases, Mr Dimon said, a target bank could emer…

Guard against a second round of inflation: Tharman

By Goh Chin Lian

SINGAPORE must guard against a second round of inflation. The latter could come about if wages are pushed up just to keep pace with price increases.

Finance Minister Tharman Shanmugaratnam issued the warning on Wednesday, noting that Singapore prefers to fight inflation by having a strong Singapore dollar to ward off imported inflation.

The Government will also give help directly to those who most need it, instead of trying to bring inflation down for every one as a whole, he said to a gathering of 500 unionists.

Mr Tharman's call for restraint comes at a time when workers - especially those in manufacturing, transport and administrative jobs - see inflation eroding their wages, and could press for more pay.

Despite wages rising by close to 11 per cent in the first three months of this year, real wages in some sectors fell after accounting for inflation that has reached beyond 6 per cent, according to a recent Manpower Ministry report.

Inflation is forecast to slide lat…

Credit, housing concerns wipe $1.3 trillion from S&P 500's companies in 2008

NEW YORK - UNITED States financial companies have lost more than US$1 trillion (S$1.4 trillion) in value this year, and yet another decline on Monday shows concerns aren't going away soon.

Banks and brokerages began the week lower on the same fears that have been proven toxic since last summer in the ongoing credit crisis. The financial sector was hit with a confluence of troubles on Monday: cautious remarks from a Federal Reserve official and new capital concerns at Freddie Mac and Fannie Mae.

The drop in names like Lehman Brothers, Morgan Stanley and Merrill Lynch caused the financial section of the Standard & Poor's 500 index to lose almost US$150 billion in value on Monday, according to the rating agency. That means S&P 500's 85 financial components have lost some US$1.3 trillion since the sector reached a high last October.

Even more startling is that shares of 35 of the companies, which include insurers, have lost more than half their value so far this year. The…

Subprime fallout could last two years: Singapore bank head

SINGAPORE, July 8, 2008 (AFP) - The global fallout from the US subprime mortgage crisis could last another two years, the chairman of Singapore-based United Overseas Bank said in a newspaper report Tuesday.

"I hope I am wrong, but my view is that this crisis will take one to two years to stabilise," Wee Cho Yaw, a banker for almost 50 years, told a university commencement ceremony, The Straits Times reported.

A bank spokeswoman confirmed the quotes when contacted by AFP.

The default crisis in the US subprime -- or higher risk -- mortgage sector ballooned into a world credit squeeze as banks tightened lending criteria. The crisis has also battered financial markets.

"What worries me is that no one seems to know the full amount of off-balance sheet securities circulating in the financial markets," Wee was quoted as saying.

The subprime homeloans were repackaged into securities and sold to investors around the world. The wave of defaults led to billions of dollars in losse…

Stocks: More Doldrums Ahead

Rising unemployment and inflation have market watchers taking back predictions of a second-half rally

News July 2, 2008, 9:59PM EST
by Matthew Goldstein, Ben Steverman and Ben Levisohn

The first six months of 2008 ended with U.S. stock markets in the dumps. Now, with the major indexes in or near bear market territory after touching highs in October, hopes for a happier second half are fading fast.

A toxic brew of sluggish economic growth, rising unemployment, and spiking inflation—otherwise known as stagflation—is prompting market watchers to backpedal furiously on earlier predictions of a rally later this year. Noticeably absent from the discussion are the traditional stock market drivers of strong earnings and interest-rate cuts, neither of which seem to be on the horizon. Economists, meanwhile, are beginning to tamp down expectations for global growth not only for the rest of this year but for 2009 as well—especially with oil surging to new heights.

All of which is leaving traders tossi…

'This financial crisis is far from over'

Business Times - 05 Jul 2008

THERE would be few people who have seen banking and financial turmoil as close up, and from as many angles, as Shaukat Aziz. In his 30-year-long career at Citibank alone, he had first hand experience of several banking crises. In particular, during the early 1990s, he was in the thick of the action when Citibank got into deep trouble after vast amounts of its loans to Latin America, as well as domestic real estate loans, went sour. At that time, he played a key role in convincing Saudi Prince Alwaleed bin Talal - his one-time client - to invest some US$600 million equity into Citi - an equity injection which many observers believe helped save the bank.

Then, as Pakistani finance minister from 1999 to 2007, Mr Aziz was the architect of the economy's dramatic turnaround from near-bankruptcy.

Given his experience, it seems irresistible to ask him for his take on the global financial crisis now unfolding and the lessons he would draw.

It is clearly something h…

Asia's exporters suffering as global demand weakens

Sat Jul 5, 2008 10:07pm EDT
By Alison Leung - Analysis

HONG KONG (Reuters) - Cliff Sun is hurting.

The 54-year-old chief executive of Kin Hip Metal Plastics had spent much of the past year grappling with rising labor and material costs in China and a strengthening yuan.

Now that the U.S. consumer juggernaut is slowing, he's throwing in the towel and relocating inland from coastal southern China.

"If we don't cut margins or even take small losses these days, we're just not able to get the same level of orders," said the former chairman of the Hong Kong Exporters' Association.

"We're facing a bitter, cold winter ahead."

Sun and others that collectively make up Asia's mighty export engine face a difficult second half with Asia's central banks now ready to sacrifice growth to combat food- and oil-based inflation and with Europe no longer taking up the slack amid downward-spiraling U.S. consumption.

The worst is yet to come. Exports make up 10 percen…

India's Economy Hits the Wall

Growth is slipping, stocks are down 40%, and foreign stock market investors are fleeing. Business blames the ruling coalition for failing to make reforms

July 1, 2008, 7:28AM EST
by Manjeet Kripalani

Just six months ago, India was looking good. Annual growth was 9%, corporate profits were surging 20%, the stock market had risen 50% in 2007, consumer demand was huge, local companies were making ambitious international acquisitions, and foreign investment was growing. Nothing, it seemed, could stop the forward march of this Asian nation.

But stop it has. In the past month, India has joined the list of the wounded. The country is reeling from 11.4% inflation, large government deficits, and rising interest rates. Foreign investment in India's stock market is fleeing, the rupee is falling, and the stock market is down over 40% from the year's highs. Most economic forecasts expect growth to slow to 7%—a big drop for a country that needs to accelerate growth, not reduce it. &quo…

Why Are Oil Prices Rising?

By: James Kingsdalec
Saturday, July 05, 2008 4:11 PM

June was a good month for energy stocks and for the EIS portfolio but the broad market tanked. The impact of high energy prices on both inflation and consumer discretionary spending is being reflected in stock prices. Energy pressures present a special risk to economic stability by coming on top of the twin collapses in the credit and real estate markets.

So far Mr. Market seems able to distinguish between the very healthy energy sector and the tenuous economy. I fear that at some point we’ll get a sustained - 1930’s style - bear market in all stocks which will take down the energy stocks along with everything else. In fact we’ve seen a few days like that already, generally followed by big pops in energy stocks later.

That fear is why I have a commodity strategy included in the EIS portfolio. It is insurance against the collapse of energy stocks as part of a general market collapse. I implement it with options on long dated crude and na…