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Showing posts from September, 2010

Five Hidden Costs of Gold

by Jeff Reeves

Commentary: Investing in gold isn't as easy as it looks

There's a lot of talk right now about how gold is booming, and how gold bugs who have been stashing bullion under their mattresses over the last decade or so have made a killing.

That may be true if you look at the price of the yellow stuff per ounce. The price of an ounce of gold is up about 30% in the last year, or over 400% in the last 10 years. How does that relate to actual returns for investors?

The truth is that gold has steep hidden costs, and that looking at the numbers on paper doesn't tell the whole story. Here are big costs many investors overlook.

Higher taxes

The affinity for gold investing and a dislike of the government seem to go hand in hand, from predictions that massive government debt will render the dollar worthless to conspiracy theories that there will be another Executive Order 6102 in which Uncle Sam loots your safe deposit box and seizes your gold.

But the biggest reason for gold inv…

Business Lessons of "The Social Network"

The Social Network, which opens on Friday, is a clever drama about the early days of Facebook. This fast-paced quasi-courtroom romp, deftly directed by Se7en and Fight Club helmer David Fincher, will probably become the de facto legend of Facebook, because it's just so darn enjoyable.

But you'd also do well to watch it with an investor's eye, ready to absorb valuable lessons about how to ruin an e-business startup.

Like what?
The movie is packed with business-related detail, starting with Facebook founder Mark Zuckerberg's complete lack of entrepreneurial instinct. Without a more revenue-oriented cofounder in early-days CFO Eduardo Severin, the whole project would have faltered long before it became the global icon of online interaction that we see today. That phase was followed by angel investors, and then seed funding -- and then came the lawsuits that frame the entire film.

By watching The Social Network, you can learn at least a little about:

* Venture capital finan…

The Other Side of Irrational Exuberance

by Stan Blacker

Those of us who make their living in the mortgage and real estate business are used to business cycles. Although the last few years have been worse than any other period since the Great Depression, we're only experiencing the other side of the curve created by the appropriately titled "irrational exuberance" era.

In retrospect, exuberance is not a strong enough word for the culpable actions of the parties that fueled the bubble until it burst. However, this is not another rant about who to point the finger at or which direction the next knock-out blow is coming from. While the real culprits in every Ponzi scheme (or, "bubble") are the sales people who generate the new suckers ("investors"), it's always a handful of loud Armageddon types who make a name for themselves by getting their clients out in time.

But when it comes to housing -- once referred to not long ago as the engine of the economy -- those making the right call this time …

5 Things Your Broker Won't Tell You

Adam Bold

You might have an investment advisor or broker who has established a plan that will put you on the right track to meet your goals. Still, you should be aware of some important factors that could affect your financial plan. For those of you searching for an advisor or broker now, these points are key to understanding how their business works and how they can affect your money.

1. Each time your broker or financial advisor sells you investments from XYZ Co., it may pay him or her a commission for using its products.

Many financial advisors accept extra compensation from companies in exchange for selling their investment products. Sometimes, advisors use products exclusively from one company. The extra compensation can include everything from golf balls to trips to exotic locations. It may also include expense-paid client events and due-diligence meetings. Is this in the best interest of investors? No--and it doesn't matter if the compensation is disclosed.

Some investment comp…

No Irrational Exuberance

by Mark Hulbert

Most advisers continue to doubt rally, which is a good sign

There continues to be a strong wall of worry for the market to climb.

Consider the average recommended domestic equity exposure among a subset of the shortest-term stock market timers monitored by the Hulbert Financial Digest (as measured by the Hulbert Stock Newsletter Sentiment Index, or HSNSI). This average currently stands at 22.1%, which means that the average short-term market timer is recommending that his clients allocate more than three-quarters of their equity portfolios to cash.

This 22.1% equity allocation is surprisingly low, given the stock market's strength in recent weeks, and suggests that there is widespread skepticism towards the rally. And that's good news, on the contrarian grounds that the majority is usually wrong about the market's direction.

Early last May, for example, was the last time before now that the Dow Jones Industrial Average was trading above the 10,800 level. And ye…

You Should Have Timed the Market

by Brett Arends

Everybody knows the last decade on Wall Street was a poor one for investors.

Turns out it was even worse than we thought.

A remarkable new study from TrimTabs Investment Research shows that regular investors needlessly lost billions more than they should have on the stock market. Why? It's the old story: They invested more money in their equity mutual funds during the booms ... and then sold them during the panics.

So even though Wall Street overall ended the decade pretty much level (when you include dividends), average investors lost a bundle. TrimTabs puts the losses at $39 billion. It calculates that mutual fund investors bought into the Standard & Poor's 500-stock index at an average of 1,434. That's close to its record high of 1,565. If investors had invested at random times instead, their average purchase price would have been 1,171.

"It cost them about 20% to buy high and sell low," says TrimTabs' Vincent Deluard.

So even though the stoc…

GIC economists upbeat

ECONOMISTS at the Government of Singapore Investment Corp (GIC) are upbeat about global economic growth this year - especially for Asia. They believe global growth will average 3.8 per cent, as advanced economies advance a more modest 2.4 per cent. However, emerging Asia will lead the world, charging ahead by a much faster 8 per cent, economists at the sovereign wealth fund expect.

The forecasts were outlined by GIC group chief investment officer Ng Kok Song, speaking at a conference on private wealth management on Wednesday. GIC sees more rewarding emerging market opportunities in private asset classes including real estate and private equities, he said.

Publicly listed equities, however, are 'likely to remain GIC's main implementation vehicle for our emerging markets' strategy', he said at the conference organised by the CFA Institute and held at the Raffles City Convention Centre.

According to Bloomberg, Mr Ng said on the sidelines of the event that GIC aims to lift th…

No, Buy-And-Hold Is Not Dead, Says Tongue--It's Just Sleeping

After more than a decade in which stocks have gone nowhere but down, investors can be forgiven for asking whether the money-making mantra of the 1990s, "buy and hold," is dead.

No, it isn't, says Glenn Tongue, a general partner at Tilson Mutual Funds. It's just that, if you're buying on price, you have to have a different time frame than traders who are gauging "momentum" or "sentiment" and other factors that drive the market's movements over the short term. Specifically, you have to be willing to wait years for stocks to gravitate toward their fair value.

This fair value, by the way, can be above or below the current market price. "Buy and hold," in other words, works the same way when you're betting overpriced stocks will drop: You may be right, but you may also be waiting a while.

In the late 1990s, stocks were extremely expensive on a number of measures, including the price-earnings ratio. These high prices suggested that th…

Gold ETFs: Deciding What Makes Sense

by Tom Lydon
Gold, gold, gold.Everyone covets it for one reason or another, millions are out buying it and even more people are talking about it.Surging interest in the yellow metal is pushing it to new record prices. When prices reach these levels, the result is a bit of navel-gazing in the markets. Why is gold rising like it has been? And, perhaps more importantly, can it continue, or are we gearing up for a spectacular selloff?A few of the fundamental reasons gold prices are going up and away include:• International buying. Central banks around the world have been loading up on gold. The International Monetary Fund (IMF) recently sold $403 million to Bangladesh, while China, France and other nations have stocked up.• Sheer momentum. Gold is expected to gain for the 10th consecutive year as loose monetary policies have flooded the markets with cash.• Safety. Discussion of quantitative easing from the Fed coupled with lingering concerns about the eurozone still have inves…

'Money Never Sleeps' Is No Snooze

by David Weidner
Commentary: Gordon Gekko's return is worth the wait"I'll make you a deal," Michael Douglas's Gordon Gekko says to a rival who is equal parts Lloyd Blankfein and Jamie Dimon. "You quit telling lies about me and I'll quit telling the truth about you."And with that, "Wall Street: Money Never Sleeps," which opens Friday, rolls into full gear. The follow up to "Wall Street," the 1987 movie that cemented Gekko as Hollywood's symbol of Wall Street excess and greed, is a fun romp. It's also director Oliver Stone's best movie in years.
I'll spare you the cinematic critique and stick to the issues. Suffice it to say this isn't "Citizen Kane."Wall Street the sequel is preposterous in that it tries to stick closely to the events that shaped the financial crisis. Truth is stranger than fiction and the movie both suffers and gets its poignancy from the facts.(Note: The movie is produced b…

Recovery Evident Mainly to Statisticians

by Randall W. Forsyth
Balance-sheet drags remain deterrent to economic rebound.THE GREAT RECESSION IS OVER, and it's news because, except for the stock market, it's far from obvious.The National Bureau of Economic Research Monday declared the recession that began in December 2007 ended in June 2009, making it the longest since the Great Depression. It also was the deepest, slashing gross domestic product by over 4%, nearly twice as much as the 1981-82 contraction, which had held the distinction of being the worst since the 1930s.As the seasons change with the arrival of the autumnal equinox in the Northern Hemisphere, it's useful to think of economic cycles in the same way. The end of a recession may be likened to the winter solstice, the shortest day of the year; after that, the days get longer, but that's not apparent during the short, cold days of January.As with the seasons, the springtime of recovery is nowhere in sight at recessions' end. But in pas…

Why There's No Joy Over the Recession's End

Rick Newman

Maybe we need a new definition of "recession."It will come as no relief to the 15 million Americans who are unemployed, but a committee of august economists has finally declared that the recession is officially over. In fact, it ended more than a year ago. No, you didn't miss the celebration. There was none.For all the drama of the last few years, the final act of the Great Recession was remarkably anticlimactic. A group of economists from the National Bureau of Economic Research, a private, nonprofit group, has finally decided that the recession ended in June 2009. That's the point at which economic activity stopped falling and began rising. Economists call this a "trough," since it's the low point at which the economy bottomed out. It took 15 months to know this for sure because the number-crunchers like to have a year's worth of data to analyze--and there's no hurry to make a determination that has little effect on the…

13 Reasons We Are Not in a Depression

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by James Altucher

This past week David Rosenberg posted an article, Here Are 13 Signs We're Actually In a Depression Right Now. I disagree. He is analyzing from a "glass half empty" perspective, without noticing that there is decent growth in much of the data he examines. Let's take a look at his items one by one.

1) Wages and Salaries are still down 3.7% from the prior peak.Hours worked per week, after hitting a low in October '09, is now actually at its highest since January 09. Here's the chart. Number of temp workers has also been moving up steadily over the past year.When employers start pushing their employees to work overtime and start using more temp workers, it's almost always a precursor to higher full-time employment, which is a precursor to higher wages. We are already starting to see the results of this: The jobs opening index surged last month. Here is the data at the BLS. Job openings went up by three million. Meanwhile, initial job…

Bulls Go to Extremes: Don't Buy the "Breakout", Sell It, Prechter Says

Stocks jumped Monday with the Dow rising 1.4% to 10,753 and the S&P gaining 1.5% to 1143, its highest close in four months.The S&P eclipsing 1130 for the first time since late June would seem to confirm the long-awaited technical breakout for the index, and could pull many reluctant investors off the sidelines. "Many automatic buy and sell orders are set around market milestones such as these, and investors watch those levels closely for clues about which way the market may go next," the AP reports. But the wise move now is to sell this recent rally, says Robert Prechter, president of Elliott Wave International. "I think we're getting ready for another leg on the downside," Prechter says, citing evidence of what he says are extreme levels of optimism, including:-- The most-recent AAII poll shows bearish sentiment at 24%, less than at the Dow's peak in October 2007.Mutual fund cash positions being at record lows, which Prechter says should …

France and Spain push for tax on global capitalism

Steven Edwards
UNITED NATIONS — France and Spain called for a tax on global capitalism on Monday, telling the opening day of a UN summit on development the recession has made “innovative financing” essential to help the world’s poor.Nicolas Sarkozy, the French President, and Jose Luis Rodriguez Zapatero, the Spanish Prime Minister, spoke after Ban Ki-moon, the UN Secretary General, called on rich countries to “not balance budgets on the backs of the poor.”Canadian activists said Mr. Ban’s request applies directly to the Canadian government’s intention to freeze foreign aid next fiscal year as a deficit-reducing measure.While the leaders of several developed countries have pressed the idea of launching a global finance tax before, speaking about it anew at such a widely attended summit gives it added weight. “We can decide right here — why wait?” said Mr. Sarkozy. “Finance has globalized, so why should we not ask finance to participate in stabilizing the world by taking a …

Is Google a Monopolist? A Debate

by Amit Singhal and Charles Rule

Amit Singhal of Google argues the competition is one click away. Charles Rule, an attorney whose firm represents corporations suing Google, counters that the company commands a share of search advertising in excess of 70%—the threshold for monopoly under the Sherman Act.

By Amit SinghalLast week, "Googling something" took on a whole new meaning. Instead of typing your question into the search box and hitting Enter, our newest invention—Google Instant—shows constantly evolving results based on the individual letters you type.Instant is just the latest in a long line of search improvements. Five years ago, search results were just "ten blue links"—simple web pages with some text. Today search engines provide answers in the form of images, books, news, music, maps and even "real time" results from sites such as Twitter.The reason for all these improvements is simple: It's what you want. When you type in "we…

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The Chances of a Double Dip

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By Gary ShillingInvestor attitudes have reversed abruptly in recent months. As late as last March, most translated the year-long robust rise in stocks, foreign currencies, commodities and the weakness in Treasury bonds that had commenced a year earlier into robust economic growth - the "V" recovery.As a result, investors early this year believed that rapid job creation and the restoration of consumer confidence would spur retail spending. They also saw the housing sector's evidence of stabilization giving way to revival, and strong export growth also propelling the economy. Capital spending, led by high tech, was another area of strength, many believed.Not So FastBut a funny, or not so funny, thing happened on the way to super-charged, capacity-straining growth. In April, investors began to realize that the eurozone financial crisis, which had been heralded at the beginning of the year by the decline in the euro, was a serious threat to global growth. Stocks retreated (C…