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Showing posts from May, 2010

A little advice for market worriers

If you live in fear of the wild swings on Wall Street, here are the words of wisdom I give my own family.

What should you do with your investments if you hear that the Dow has suddenly dropped 1,000 points in 20 minutes? Or that euro-panic has sent stocks swooning? The right answer should be "nothing." Because if you have to worry about a 1,000-point Dow drop ruining your life, your problem isn't the Dow. It's that you're not running your financial life properly.

Watching markets move is a great spectator sport, but it's not a great participant sport unless you're a market pro, in which case you shouldn't need any help from me. But here's a little secret for the amateurs among us. The more violent that market swings get and the louder the shrieking you hear from TV, blogs, and various journalistic advice givers, the more reluctant you should be to engage in any transactions until the madness passes.

The worst thing amateurs can do is to obsess over …

For Patient Investors, Another Window to Buy

by James B. Stewart

The correction that made such a brief appearance two weeks ago has returned, this time apparently to stay. For me and anyone following the Common Sense system, that means opportunity.

Last week, the Nasdaq dropped convincingly below the Common Sense buying threshold, which is a 10% decline from the most recent high reached on April 23. The S&P 500 also dropped more than 10% from its peak, putting both major averages into an official correction, the first since the bull market began its rise on March 10, 2009. The Dow Jones Industrial Average dropped below the 10% correction threshold Thursday, returned above the line Friday and fell back below it again Monday. The Common Sense approach calls for buying on corrections of 10%, and selling after rallies of 25%.

Just two weeks ago I fretted that a buying opportunity had come and gone so fast I was unable to take advantage of it. The $1 trillion rescue plan unveiled by the European Union and the International Monetary …

Altucher: "Relax," We've Been Through Much Worse Than This

Europe’s sovereign debt crisis has wrecked havoc on the markets in the last few months. We’ve had a spike in the VIX, aka the fear index, the flash crash and many global markets are now back in bear market territory. In the U.S. were on track for the worst May in half a century.

The wild market action has many investors wondering: How will we get out of this mess?

"Everybody needs to just relax a little bit," says James Altucher, president of Formula Capital. "This is not Argentina, this is not Zimbabwe."

The market has been through much worse than this in the past 30 years and Altucher believes the economy and stocks will remain resilient.

When has it been worse?

* --In 1982-83 Brazil, Mexico, Venezuela and most of Latin America all defaulted or, came close to defaulting. "The whole world was going bankrupt and we were coming out of the Volcker led recession from the early '80s where he was fighting inflation," he notes. Guess what? After a bailout –…

Forget Greece, China's "Red Flags" Are a Bigger ProblemForget Greece, China's "Red Flags" Are a Bigger Problem

The world is intensely focused on Europe these days but don't forget about China, say Wall St. Cheat Sheet co-founders Damien and Derek Hoffman.

A number of "red flags" have emerged in China recently, the Brothers Hoffman tell Henry in the accompanying clip, including:

* -- Rising inflation and a brewing real estate bubble: Chinese real estate rose 12.8% in the past year, the highest since 2005.
* -- Government efforts to quell said bubble: Money supply has been shrinking in China, which Damien Hoffman says is a sign the government "concerned growth is overheated."
* -- Falling exports and rising imports: Amid a slowdown in industrial manufacturing, China reported a trade deficit in March for the first time since 2004. "It looks like the Chinese might be learning some of our bad habits," Damien says.

Because the global market are "so fragile," right now, the Hoffman Brothers worry what will happen if more investors get a sense the wor…

Fraud Alert

by Kelly Greene

Scam artists increasingly are targeting people trying to repair their nest eggs. Here's what to watch for.

Many investors in their 50s and 60s are desperate to bulk up their nest eggs. But they remain skittish about the stock market -- and are frustrated with low interest rates.

It's a combination that makes them especially susceptible to fraud. "Anybody who's even thinking about retiring is panicking because they're going to outlive their savings," says Joseph Borg, Alabama's top securities regulator. "Along comes a scam artist with a guaranteed, super-safe deal. It's a perfect storm."

State securities agencies have seen their caseloads explode in the past year. And nearly half of investor complaints involve investment fraud targeting people age 60 and older, according to the North American Securities Administrators Association, based in Washington, D.C.

What are the latest schemes? What should people be on the lookout for? Here …

Don't bother teaching kids financial literacy

By Genevieve Cua

THOSE who advocate teaching personal finance to children in primary schools envision adults in the future who are able to budget, understand the implications of rollover credit card debt and can sidestep complex and risky investment products.

Professor Emeritus Lewis Mandell, who has researched financial literacy issues in the last 15 years, is quick to bring these notions down to earth. Teaching financial literacy to kids doesn't work, he says bluntly. Financial literacy is defined as the ability to make important financial decisions for one's own benefit.

'I'm very pessimistic. I have been doing research continuously, tracking levels of financial literacy which have not gotten any better, and also attempting to measure the impact of educational programmes. The research gives no reason for optimism. It basically shows that students in high school who have had a course in financial education are no more financially literate than those who never had such a…

Beware this fake-landlord scam

BE CAREFUL if you are looking to rent a home here, or you could fall prey to a rental scam.

This is how it works: A conman, using a fake name, poses as a landlord with rooms for rent at low prices.

He gives fake addresses of apartments in areas like Orchard and Chinatown.

He refuses to arrange for a viewing of the apartments, claiming that he is in Britain on internship and will be back here only by the end of next month.

He asks potential tenants to e-mail him a scan of their passport, and sign a contract e-mailed to them.

He asks them to wire a month’s rent and a security deposit to a Western Union account, and says he will post the keys to them. To reassure them, he sends images of the apartments and a scan of what he claims to be his passport.

A check with a thread on rental scams in Singapore on online forum scamwarners.com showed that at least 14 people have received such messages.

The scammer uses different pseudonyms, like Richard Willem Tibor, Jane Louise Millar and Tan Nee, and ask…

How to Buy Record-High Gold

By Alix Steel

NEW YORK (TheStreet ) -- Gold prices are setting new record highs after conquering the $1,227 level, which has many investors wondering if it's too late to invest in gold.

Gold prices -- which closed at $1,233 Tuesday -- have popped over 9% year to date, with many analysts predicting prices have a lot more room to run. Many predict gold prices can rise to their inflation-adjusted price of $2,300. Others like author Mike Maloney argue that gold will cover all the money in circulation, including credit, and climb to $15,000 an ounce. Some are more conservative. Scott Redler, chief strategic officer of T3Live.com, is looking for $1,400 gold.

"Every day we stay above $1,000 the stronger that floor becomes," says David Morgan, founder of Silver-Investor.com. "I just don't see gold with all this going on in the markets right now, worldwide, globally getting below the $1,000 level. I think it's there to stay."

Not all analysts are gold bugs. If you …

Hold Cash To Exploit Market Turmoil

Did you have enough cash when the stock market plunged to its lowest points between late 2008 and early 2009? If you did, and you were confident enough to buy stocks, you would have made good money using the market cycle investing strategy.

Someone told me he had very much wanted to buy some cheap shares at around that time (blue chips were selling at below 50% off their peaks), but he did not have the money. He never believed in holding too much cash and had always spent the bulk of his income paying for insurance premiums, regular saving plans and loans. He thought it was “wasteful” to hold cash. The meagre interest that banks pay was too low in his opinion. But he’s having second thoughts now.

Another person I know saved up conscientiously, keeping the cash in low-interest savings accounts while waiting for the right time to enter the market. He didn’t mind the low interests as he knew he would make 10%, 20% or even 30% return averaged out over the years spent waiting for the right o…

Roubini: Happy Days Are Over, Economy to Slow in Second Half of Year

Nouriel "Dr. Doom" Roubini sounds less cataclysmic than he did two years ago, when he was one of the only folks warning of impending disaster, but he still doesn't come bearing good news.

A professor of at NYU and economist at Roubini Global Economics, Roubini says that the U.S. economic recovery will slow in the second half of the year, as consumers nurse their wounds and the peak spending from the stimulus wears off.

The culprit?

Final sales, which grew at less than a 2% rate in the last couple of quarters. What drove strong GDP growth in the last few quarters was inventory adjustments (companies replenishing inventory they had sold down during the recession). For the economy to sustain this rate of growth, consumer spending now needs to take over, and Roubini doesn't think it will.

Further, the impact of the government's stimulus on GDP growth will peak this quarter, and its contribution to growth will decline from here on in. With the public fed up with bailouts…

3 things to tell a new graduate

By Tyler Cowen, Money Magazine contributing writer

(Money Magazine) -- One reason behavioral economics has become such a hot field is that it has scads of practical applications. It can help you fire someone, choose a great restaurant, or get other people to do the dishes.

But at your child's graduation from college or grad school, more important life lessons are in order. Three of them are based on the same insight: One of the hardest and most important things to do in life is to behave rationally -- or, put another way, to know your limits.

Your career: Heed your enemies.

In your business dealings, the people with whom you butt heads are often those who have the most insight into you.

If someone thoroughly annoys you, chances are he has a good sense of your faults (maybe that's why you're annoyed!) or holds a point of view you don't often hear. Listen closely. Understanding the value of what your adversaries have to say will help you improve, giving you a big leg up.

Your…

Money can't buy you happiness

WASHINGTON - YOUR parents were right. Money can't buy you happiness.

That was the message from the Federal Reserve chairman on Saturday to graduates of the University of South Carolina.

'We all know that getting a better-paying job is one of the main reasons to go to college. ... But if you are ever tempted to go into a field or take a job only because the pay is high and for no other reason, be careful!' Ben Bernanke said in his commencement address.

'Having a larger income is exciting at first, but as you get used to your new standard of living and as you associate with other people in your new income bracket, the thrill quickly wears off,' he said.

The Fed released his prepared remarks before he gave the speech. Studies found that just six months after winning a large lottery prize - even in the million of dollars - people reported being not much happier than they were before winning, Mr Bernanke said.

His advice blended what economics and social science have to…

The Bull Market is Coming to an End

by John Prestbo

Commentary: History suggests the Dow's move is halfway done

The bull market for U.S. stocks will continue until the autumn of 2011. That's the good news. The bad news is that in 18 months or so the Dow Jones Industrial Average will be at roughly 11,100, or slightly below the level it reached in April.

You might think I'm sticking my neck out to make a prediction like this. In fact, I am not predicting anything. Rather, I am simply projecting historical averages from the Dow's (DJI: ^DJI - News) 114-year track record onto current trends.

The purpose of this exercise may be considered whimsical by some people, but to me it is a way of establishing a kind of baseline expectation. The market may — and probably will — deviate to one degree or another. Meanwhile, we have a sense of what history suggests is reasonably possible.

Critics, who are always in good supply, might argue that profits and economic growth drive the stock market, not history. Indeed, that is s…

From Buffett, Thought-Out Support for Goldman

Omaha

Why is Warren Buffett sticking his neck out so far in defense of Goldman Sachs?

That was the question so many Berkshire Hathaway shareholders, some in disbelief, kept asking here over the weekend, after Mr. Buffett offered his full-throated support of Goldman and its chief executive, Lloyd C. Blankfein, as they fight a civil fraud suit brought by regulators.

Yet by the end of Berkshire’s annual meeting, at least some of the 40,000 shareholders in attendance who had been skeptical of Goldman had come to the same conclusion: Mr. Buffett may actually be right.

“I don’t have a problem with the Abacus transaction at all, and I think I understand it better than most,” Mr. Buffett declared with nonchalance late Sunday afternoon, referring to the mortgage derivatives deal at the center of the lawsuit. He had just finished playing Ping-Pong with Ariel Hsing, a top-ranked 14-year-old junior table tennis player. (He lost 2 to 1.)

His comments echoed the strong view he had offered just the day b…

How the Sandwich Generation Can Ease the Money Squeeze

by Robert Powell

I spend my nights worrying about my nearly 80-year-old father and stepmother. My wife and I spend our days worrying about funding college bills for four children (expected cost $1 million at Harvard with no scholarships, loans, grants and the like). And in between those worries, I think about saving $3 million (give or take a million) for retirement.

Yes, I am member of the sandwich generation. The good news is that I am not alone. There are millions upon millions of us caught in the middle. And the even better news is that there seem to be experts aplenty ruminating on solutions for this generation.

Consider: In recent weeks and months, AARP, MetLife, Merrill Lynch, Charles Schwab & Co. and likely many others have all released something having to do with the sandwich generation. The surveys don't necessarily reach the same conclusions. But there are nuggets and tips worth sharing.

The Findings

If you're in the sandwich generation, and especially if you're …

Sell in May? Here's a Better Way to Invest This Summer

Investors conditioned to backing out of the market as the summer looms might want to rethink their positions after what happened in 2009.

Those adhering to the strategy of "sell in May and go away" until after the summer got crushed last year, missing a 17 percent gain in the Standard & Poor's 500 (INDEX: .SPX) en route to a relentless rally that continues into the beginning of the new month.

While calls persist that the market has gotten overvalued, many advisors see themselves hanging in-if with a bit more conservative strategy.

"We're going to stick around for a while even though technically we see the market as overextended," says Emily Sanders, president of Sanders Financial Management in Atlanta. "The equity market is still involved in a melt-up situation and as such we're not going to take our clients' exposure away."

Sell-in-May is a strategy that has had mixed results over the years.

It is true that the market as a whole underperfo…

Why the 'rich' aren't feeling so rich

Even as the economy recovers, the HENRYs - high earners, not rich yet - are struggling.

Shawn Tully, senior editor-at-large

On Tax Day, April 15th, I picked up the Wall Street Journal and was amazed to see an editorial titled "A Message from HENRY" by a California financial advisor. The author, Mike Donahue, condemned the big and growing tax burden shouldered by high-earners like himself, a group he identified as "the HENRYs," in words so scorching that steam practically rose from the page. "We may be only a small percentage of the population, but we pay a large portion of the taxes and employ many," Donahue concluded. "If you take the incentives away, you will lose the HENRYs."

For this writer, it was a proud moment. I invented the name "HENRYs." I wasn't steamed that Mike Donahue didn't credit Fortune for creating the term. On the contrary, just seeing a headline about the HENRYs showed that my brainchild may be entering the cu…

Stocks: Why Investors Can Still Expect 8% Long Term

by Richard DeKaser, Contributing Economist, The Kiplinger Letter

You shun stocks at your peril. Attractive returns are in the cards.

Soured on stocks? It's understandable that many investors have, after watching their assets founder for so long. If you invested $100 in the Standard & Poor's 500 in April of 2000, you have only about $97 today. That figure, which includes reinvested dividends, amounts to an annualized return of -0.3%. Ouch! Since 1926, annual returns have averaged nearly 10%.

Many investors now question whether expecting those kinds of gains is realistic anymore. But avoiding equities would be a mistake. Stocks still present an attractive investment, despite the past decade's historically dismal showing, and even after the past year's spectacular 70% gain. You might think that the time to buy has passed. After all, it stings to pay $100 for something that traded at $59 just 12 months ago. But investing based on the recent past is like driving a car whil…