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Justice Litle is a good friend and colleage of mine at Taipan Publishing Group. After spending some time with him in beautiful Lake Tahoe this week I am traveling today and decided to offer you his unique perspective on Bernanke. I will post the podcast tomorrow so be on the lookout. Bernanke Puts Congress on Double Sectret Probation
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| When Congress spends money like a bunch of drunken frat boys, it makes the Fed’s job all the harder – and all but guarantees the long-run rise of inflation. Too bad there’s nothing Ben Bernanke can do…
Greg Marmalard: But Delta’s already on probation. Thank you, once again, for the outpouring of response to the “Government Motors” piece. As usual, your replies have provided a great deal of food for thought. We’ll continue to discuss these vital issues and keep an eye on the Washington-Wall Street nexus. We won’t wade too deep into the feedback today, but I do want to share this note: Your article on Government Motors is pretty close. I was a GM dealer for 36+ years, 1949 to 1985. I watched their demise closely and it started even before the 1980’s as you mentioned. I attended a 6 week GM dealer’s school in Detroit in 1969 and already the “governmental” signs were showing. Our class instructors were mostly mid-level department heads from Chevrolet. They openly expressed their frustration with the decision making of the top level executives, and how it took forever to make a change in car design or innovation. Their motto even then was “don’t make waves, our dealers must sell whatever we make, and we don’t make mistakes.” Yep. Classic government mentality, through and through. And by the way, have you ever noticed how these pompous bureaucrat types tend to lack a sense of humor? Rigid regimes and sourpuss faces go together like eggs and bacon… and heaven forbid you challenge their righteous authority. That’s probably why humor can prove so powerful in the right context. Suppressing truth and oppressing the human spirit is a distinctly unfunny business. The ability to crack wise, then, is a sort of extended middle finger in the frowning face of tyranny. Open amusement can also serve as political statement, as Turbo Timmy found out to his detriment this past Monday. The U.K.’s Daily Telegraph reports: In his first official visit to China since becoming Treasury Secretary, Mr Geithner told politicians and academics in Beijing that he still supports a strong US dollar, and insisted that the trillions of dollars of Chinese investments would not be unduly damaged by the economic crisis. Speaking at Peking University, Mr Geithner said: “Chinese assets are very safe.” The comment provoked loud laughter from the audience of students. Ah well. Practice makes perfect, eh? America should probably get used to seeing its monetary policy as the punch line of a joke. And the big spenders in Washington might want to heed a word from Dean Wormer of 1978 Animal House fame: “Fat, drunk and stupid is no way to go through life, son.” Why the Dean Is Pissed The Animal House analogy feels timely, given the tough rhetoric coming from the Fed this week. Ben Bernanke (the Chairman of the Fed) did his best Dean Wormer impression, in an effort to impose order on an increasingly rowdy marketplace. “We cannot allow ourselves to be in a situation where the debt continues to rise,” Bernanke said. “That means more and more interest payments, which swell the deficit, which leads to an unsustainable situation.” Would that someone could send Mr. Bernanke a postcard with John “Bluto” Belushi’s face on it, fists jammed into cheeks, as a giant mouthful of cottage cheese spews at the camera. On the back, a simple note: Dear Ben: Look! I’m inflation! Get it? Love, Delta House (a.k.a. Congress) See, here’s the thing. Lots of folks think the Federal Reserve is in control of the money supply. That simply ain’t true – not by a long shot. The main thing the Fed controls is the mix of assets, i.e., the mix of treasuries versus dollars. If there are too many dollars floating around, the Fed can absorb those dollars by selling treasuries (and thus soaking up the dollars). If there is too much government debt weighing down bond prices (and pushing up interest rates), the Fed can buy those bonds with paper dollars. The thing that really pisses off Dean Wormer, I mean, er, Fed Chairman Bernanke, is this. The more debt that Congress issues, the harder the Fed’s job gets. If you think of the total accumulation of government debt and paper dollars in circulation as a pie, the Fed does not control the size of that pie. And when Congress spends money it doesn’t have, the pie gets bigger. When Congress decides to drop a cool $100 billion worth of debt on the markets in the space of a week, for example – something that happened recently – that extra $100 billion becomes the Fed’s headache. It becomes part of the “mix,” out there in the marketplace as new supply. As long as there are willing purchasers for all the new debt Congress issues, everything is hunky-dory. But if the buyers don’t show up at the auction, all hell can break loose, as Latvia recently discovered. (The Latvian treasury tried to sell $100 million worth of sovereign debt this week, and nobody felt like buying. Fiscal hilarity ensued.) So, the risk is that the drunken party animals in Congress issue so much new debt on their free-spending bar tab that China, Japan, and the other various central bank bag holders of the world finally say “You know what? Enough is enough… we’re on a buyer’s strike. We ain’t buying your dopey debt no more.” If that happens – or rather I should say when it happens – it will largely be the fault of Congress and the Obama administration, as they are the ones ushering forth a tsunami of debt too big for the world to swallow… but it will be the Fed Chairman who sees his job become a nightmare, as it is the Fed’s job to manage America’s collective finances. That’s why Bernanke put Congress on Double Secret Probation this week with his “cool it on the damn deficit” talk. He knows he’s got the buffoon treatment coming, thanks to Congress’ antics… and he is none too happy about it. Greenspan as Otter It’s only a matter of time, really, given the trillions upon trillions in new debt that Washington plans to issue, before the Fed is forced to “monetize” the debt. The process of debt monetization is fairly straightforward. If the government holds a debt auction and nobody shows up, the government simply writes itself a check to buy whatever didn’t get sold. In America’s case, the check writer is the Federal Reserve – thus making the Fed a “buyer of last resort,” paying for whatever debt is issued with paper dollars created from thin air. And thus said debt is literally “monetized”… turned into paper money. Dean Wor – dangit, I mean Fed Chairman Bernanke – says this will never happen. The Fed “will not monetize” the debt, Bernanke told Congress on Wednesday. Yeah, right. If the members of Congress were half as bright as Tim Geithner’s audience of Beijing University students, they would have laughed in Bernanke’s face too. The Fed’s promise not to monetize will go down in history with other such wonderfully emphatic statements as “GM will never go bankrupt,” “mission accomplished,” “the state of the economy is strong,” and so on. Why? Because the Fed/frat house connection has deep and storied roots… William McChesney Martin was one of the true grand old men of the Fed. He was the ninth and longest-serving Chairman, holding court under five separate Presidents between April 1951 and January 1970. It was McChesney Martin who famously quipped that the Fed’s job is “to take away the punch bowl just as the party gets going.” McChesney Martin understood that Congress and Wall Street were populated by a bunch of frat boys… and that when blitzed freshmen start climbing onto the roof with bras on their heads, someone responsible has to play the “Dean” role and tell the kids to shut it down. But Alan Greenspan, Ben Bernanke’s predecessor, never wanted to be the sober dean. He desperately wanted to be one of the cool kids instead. In his heart of hearts, Greenspan never saw himself as Dean Wormer… instead he dreamed of being Eric “Otter” Stratton, a lovable cut-up at the center of the action. And so, instead of “taking away the punch bowl” as the party ramped up earlier this decade, Greenspan poured straight-up vodka into it. Then he stood by with a big cheese-eating grin, high-fiving every inebriated i-banker and mortgage originator in sight as they stumbled back for more. That pretty much sums up the legacy that Fed Chairman Bernanke inherited, and even quietly endorsed until this week… and that’s why the Fed’s hand-wringing calls for sobriety are seen as such a joke. The entire financial superstructure has been propped up by drunken revelry for so long, a genuine attempt at sobriety now would simply lead to full-on systemic collapse. Locked In Bottom line: What Washington refuses to admit, and cunningly pretends not to see, is that we are now locked in on a super-inflationary trajectory. Temporary flights of fancy aside, there will be no swerving from the debt monetization path. The tough talk is designed to hide or otherwise mask this reality for as long as possible. In stating flat out that the Fed will not monetize the debt, and in voicing sharp concerns about deficit spending and long-run fiscal discipline, Mr. Bernanke has taken public relations lessons from the savvy denizens of the White House. There is something very seductive in a politician’s ability to candidly address a concern with words, while in actions ignoring that concern completely. “We are out of money now,” President Obama admitted most refreshingly and disarmingly, in a May 23rd C-SPAN interview. “We are operating in deep deficits…” And yet, for a country out of money, we are preparing to spend with greater abandon than ever. For instance, America’s president has declared healthcare reform, of the mind-blowingly expensive variety, to be a “make or break” priority this year. With all due respect, sir, how can this new boondoggle be “make or break” if we are already broke? And then, too, there’s the little matter of the banks, which are still far from out of the woods… and still deeply exposed to the as-yet-unexploded time bombs of commercial real estate, consumer credit card debt, and prime mortgage resets. As Niels Jensen of Absolute Return Partners observes, “The poorest two thirds of US households are effectively bankrupt and the wealthiest one third are facing substantial tax hikes. This combination is lethal for US consumer spending.” (Would now be a bad time to mention that consumer spending counts for 70% of U.S. economic output?) Have no doubt – Washington will spend and the debt will roll down. (And down, and down…) The Fed, in turn, may protest this profligacy loudly, and even hotly deny the unavoidable reality of debt monetization (while Turbo Timmy goes around making university students laugh). But in the end, before all is said and done, Ben Bernanke’s reputation is likely to be even more thoroughly discredited and destroyed than that of Arthur Burns – the Nixon-tainted Fed Chairman who presided over the grand inflationary epoch of 1970-1978. After all… don’t all these wacky frat house movies end in pretty much the same way? |
Welcome to the June 06, 2009 Edition #92 of the Carnival of Financial Planning.
The Carnival of Financial Planning takes a long-term view of personal financial planning for individuals and families. We focus on efficient and sustainable personal financial planning practices that can lead to lifetime financial security.
This edition is arranged by subject heading, so that you can browse efficiently.
Enjoy!
The Skilled Investor, Editor
Big Cajun Man presents 50% Off Meat? posted at Canadian Personal Finance Blog, saying, “Is 1/2 off meat a good thing?”
Pasadena Financial Advisor presents Financial Planning Reading List posted at Pasadena Financial Advisor, saying “When I work with clients to develop their customized lifetime financial and investment plans, they often ask what they should read to improve their financial literacy. This article provides a list of recommended reading from among the many hundreds of articles that I have authored in the past several years.”
Britannica Blog presents How an Inflation Threat Could Make the 1970s Look Like Happy Days posted at Britannica Blog, saying, “When the U.S. financial system seemed on the brink of collapse last fall, Washington undertook the largest monetary rescue in history. The $750 billion allocated to shore up failing banks and AIG was only the beginning. The Federal Reserve has made available hundreds of billions more in assorted “lending facilities.” Many details, including the exact cost, have been kept secret. Some educated guesses put the number at $2 trillion.”
Dorian Wales presents On Causality and Correlation in Economics posted at The Personal Financier, saying, “Causality is perhaps the most fundamental element of empirical evidence available to economists. However, it is also the source of many misconceptions due to its elusive nature.”
Money Saving Advice presents Credit crunch means talking about money and the lack of it posted at Money Saving Tips, Consumer Finance, Expert, Advice and Help | Talk Money Blog, saying, “It’s not difficult to get involved with the debate about the credit crunch and the current national and global recession. Gordon Brown the Prime Minister is the ex-Chancellor of the Exchequer and he is well remembered for his continuous chanting of the word ‘prudent’ whenever he was delivering his budget speech. In fact some sad person would actually count how many times he said it while delivering his budget each year. He also regularly informed us he would steer Britain on a prudent course and would not allow ‘Boom and Bust’ on his watch. Well guess what we got a BIG BUST now!”
Finance Tips 101 presents He Said She Said Finances posted at Finance Tips 101.
Dorian Wales presents Stress Tests and Capital Adequacy Explained posted at The Personal Financier, saying, “The highly anticipated FED stress test results may very well serve as fuel for further gains or, more likely in my opinion, as a sought after excuse for turning the tide (in the short run).”
Silicon Valley Blogger presents How To Avoid Foreclosure: Keep Your House In Troubled Times posted at The Digerati Life, saying, “Thanks!”
Roshawn Watson presents ls Recession-Induced Frugality Sustainable? posted at Watson Inc, saying, “Well, the reset button has been pushed on our economy, and the America about to emerge may be decidedly more frugal”
Tushar Mathur presents Getting finances in order posted at Everything Finance, saying, “Keeping organized records is a gift to your family and to yourself. It helps ensure that your wishes are followed, that your assets are accounted for, and that your money is available to meet your family’s needs in a timely fashion.”
Brian McKay presents Annuities 101: Some Basics about a Misunderstood Product posted at MonitorBankRates.com, saying, “If you are tired of the rock and roll of the stock market, your IRA is maxed out, and safety and security have become your investment watchwords, then annuities may be the right financial product for you.”
MoneyNing presents Coupon Tip – Making Sure It’s Always Available posted at Money Ning, saying, “Sometimes, a simple tip can really save you tons of money.”
Silicon Valley Blogger presents Best High Interest Savings Accounts In Online Banking posted at The Digerati Life, saying, “Thanks!”
Woman Tribune presents How Newlyweds Can Minimize Financial Stress posted at Woman Tribune.
Tushar Mathur presents How to choose a financial planner posted at Everything Finance, saying, “There’s retirement to plan for and college tuition for the kids. Insurance. Estate planning. And, oh, don’t forget a wedding for your daughter. If all this sounds familiar, it may be time for you to start shopping around for a financial planner.”
KCLau presents Why Robert T. Kiyosaki is a best-selling author? posted at KCLau’s Money Tips, saying, “Robert T. Kiyosaki is the best personal finance author I follow. I started reading his books back in 1999. Although some reviews you found written by readers on Amazon say that he keeps repeating most of the points, I still find them interesting every time. It works as a revision whenever he repeats.”
Matt presents Emergency Fund Challenge 2009 posted at myfinancialrecovery.net.
Silicon Valley Blogger presents Prevent Identity Theft: Some Credit Report Monitoring Services and Options posted at The Digerati Life
nickel presents Beware the “No-Cost” Mortgage Refinance posted at fivecentnickel.com, saying, “Taking a closer look at no-cost mortgages. They can be great in some cases, but you need to know what you’re getting yourself into.”
Dan Green presents Mortgage Rates Added 1/2 Percent In A Day For The Second Time In A Week posted at The Mortgage Reports, saying, “Mortgage market volatility is as high as it’s ever been — a stroke of bad luck for rate shoppers.”
Darwin presents 40 Year Mortgages – And 50 & 60 Year Mortgages While We’re at it posted at Darwin’s Finance, saying, “This article highlights little-known 40 year mortgage loans, pros, cons and covers how even 50 and 60 year loans exist now.”
jim presents How to Compare Mortgage Refinance Offers posted at Blueprint for Financial Prosperity.
Alex Fotopoulos presents When is it Smart to Refinance a Mortgage? posted at My Trader’s Journal, saying, “Some key points to consider when refinancing your home.”
Jeff Rose presents 529 College Savings Plan Options For Illinois posted at Jeff Rose.
FMF presents Growing Your Career by Inside Networking posted at Free Money Finance, saying, “Many professionals think of networking only in terms of developing outside connections. But expanding your reach within your own firm is just as critical. Strive to establish strong relationships with colleagues throughout your workplace.”
Praveen presents Easy Ways to Generate Cash posted at My Simple Trading System, saying, “Easy ways to generate extra cash”
KCLau presents The Most Common Habit of Rich People posted at KCLau’s Money Tips, saying, “About the common habits of the rich”
Sam presents NEW !! Start a New Small Business. Best New Business Start Up Ideas, Planning, Opportunities. posted at Surfer Sam and Friends, saying, “Thanks for including my article. Here’s an excerpt. What will be the next million-dollar idea for a new small business start up? Where will the next big thing come from? Here we take a look at fresh, sizzling ideas for new business start ups.The search for new business ideas is intense, but when a stellar concept takes off, it makes for a great ride. Yes, there are good new business ideas everywhere you look. The secret of a successful business start-up is to solve a consumer problem, to solve it with finesse and skill, and to develop the tools and knowledge that makes you an authority for the consumer. It helps if the product or service cannot be copied easily, so that there are barriers to future competition. So here we brainstorm new business ideas, planning and opportunities for you.”
Nesher presents TradeRadar Freeware Stock Trading Advisor posted at Internet Stock Trading for Beginners.
Dividend Tree presents When to Initiate a New Position ? posted at Dividend Tree, saying, “The message is, ignore the market chatter, identify a process for yourself, and stick to it. There is no investing process which is based on zero risk methodology. Accept the fact that we will incur short term losses. In a well defined investing process, these short term differentials (loss or profit) will not have any noticeable impact in your longer term objectives.”
Zach Scheidt presents Risk and Reward – What the Last 18 Months Have Taught Us posted at ZachStocks, saying, “Balancing returns with proper risk controls will allow investors to realize superior gains over time and cut back on volatility and risk of loss”
Praveen presents Three Stock Picking Ideas From Forbes Magazine posted at My Simple Trading System, saying, “Three Stock Picking Ideas”
Frank Vertin presents Just Buy Index Funds Directly posted at No Load Index Funds, saying, “Buying an S&P 500 index fund through an investment counselor can substantially increase your initial purchasing costs and and drive up your annual management expense fees. Unfortunately, the vast majority of individual investors buy mutual funds and ETFs through brokers and investment advisers. Rarely do financial advisors recommend that you buy index funds with low fees. This is because low cost, no load mutual funds do not pay them as well as loaded, high fee mutual funds.”.
ABC presents Investment Time Horizons for Retirees posted at ABCs of Investing, saying, “Discussing investment asset allocations and time horizons for retirees.”
Alex Fotopoulos presents Foster Wheeler (FWLT) Chart – May 29, 2009 posted at Chart Analysis, saying, “New chart of Foster Wheeler that shows a trading channel worth watching as FWLT tips above the top trend line of higher highs..”
Patrick @ Military Money presents CD Ladders Are a Good Choice for Short Term Investments posted at Military Finance Network, saying, “If you need the money within the next few years, you don’t want to take much investment risk. CD ladders and savings accounts are a great choice.”
Larry Russell presents 7 Ways to Pick the Best Noload Mutual Funds and ETFs posted at NoLoad Mutual Funds, saying, “Taken as a whole, the vast body of investment research studies show that there really are better approaches to buying and owning mutual funds and ETFs. You do not need to frantically chase fund performance. Performance chasing simply does not work.”
Four Pillars presents Asset Allocation – Include Future Contributions? posted at Quest For Four Pillars, saying, “Can a small investor ignore asset allocation?”
Alex Fotopoulos presents SPY Chart - Premarket posted at Chart Analysis, saying, “Chart of the large S&P 500 ETF, SPY. Alex analyzes the SPY chart using trend lines, moving averages and the Williams %R indicator.”
Praveen presents Successful Trading is About More than Generating A Buy Signal.. posted at Stock Trading Riches, saying, “When buying stocks, your initial purchase is the least important part of successful investing. Your return is determined by how well you manage the trade – i.e. knowing when to add to your position and when to take profits.”
The Smarter Wallet presents Fibonacci Retracement: A Technical Stock Tool To Predict Market Direction posted at The Smarter Wallet, saying, “Let’s go over some investing concepts…. I discuss some aspects of technical analysis as applied by stock investors.”
Manshu presents List of Gold ETFs posted at OneMint, saying, “There is a lot of interest in Gold ETFs these days and since I have already created an exhaustive list of gold mutual funds with their expense ratios, I thought I’d create a list of gold ETFs too.”
Golbguru presents Stock Market Technical Analysis – Loads Of Bull Crap And Bear Crap posted at Money, Matter, and More Musings, saying, “My growing disbelief in stock market technical analysis. Decision based on a flip of coin may have better odds of making money than some of recommendations of some of the “chartists”.”
Wally Fouse presents 7 Ways to Pick the Best Noload Mutual Funds and ETFs posted at Best Index Funds, saying, “The vast body of investment research studies show that there really are better approaches to buying and owning mutual funds and ETFs. You do not need to frantically chase fund performance. Performance chasing simply does not work.”
Four Pillars presents Transfer In Kind posted at ABCs of Investing, saying, “An explanation of transfering your investments “in kind”.”
Richard M. Rothschild presents Low Cost Taxable Bond Mutual Funds posted at Best Bond Index Funds, saying, “The top 14 low cost taxable US fixed income funds with a $10,000 or lower initial deposit. Low investment management fees are very important with fixed income funds. Simply put, if you pay higher bond mutual fund fees, then these bond management expenses tend just to be a deadweight loss to you. When you pay more in bond mutual fund fees, you are just wasting your money.”
ABC presents Warning – Not All Index Funds and ETFs Are Low Cost posted at ABCs of Investing, saying, “Some index funds and etfs are too expensive.”
Barry presents Is This Stock Market Rally For Real? | Jeflin’s Investment Blog posted at Jeflin’s Investment Blog.
James Fowlkes presents Saving Is a Prerequisite to Investing posted at JamesFowlkes.com, saying, “Thou shalt have an emergency fund before investing!”
Zach Scheidt presents Bankruptcies, M&A, and Playing Defense posted at ZachStocks, saying, “A discussion on current economic reports and their effect on the markets, Bank stress tests as a catalyst for selling, and defensive strategies to protect your portfolio from losses.”
ABC presents Stock Prices Do Not Represent Stock Value (or Company Value) posted at ABCs of Investing, saying, “A lower priced stock isn’t “cheap”.”
Big Cajun Man presents Drip, drip, drip… posted at Canadian Personal Finance Blog, saying, “Dividend ReInvesting Plans are a good tool for investors.”
Praveen presents Options Basics posted at Stock Trading Riches, saying, “A blog reader asked me this question: Can any one explain about options trading in a simple manner?”
ABC presents Investment Time Horizons for Retirees posted at ABCs of Investing, saying, “A short and concise analysis of retirement asset allocation possibilities.”
Dividends4Life presents All Investing Involves Risk posted at Dividends Value, saying, “If your goal is to accumulate wealth for a comfortable retirement, then there is no risk-free path. Throughout time every angle has been tried and failed. However, some approaches carry less risk than others. Let’s consider some of the popular paths.”
Zach Scheidt presents Three Essential Issues for IPO Investing posted at ZachStocks, saying, “The IPO market has been dormant for nearly a year, but activity is finally picking up. Here are three issues you need to understand in order to profit from these dynamic opportunities.”
Praveen presents Sometimes You Bend Your Trading Rules… posted at My Simple Trading System, saying, “Taking an early profit to ease your comfort during a volatile market.”
Raj Patel presents UNBROKE: What You Need to Know about Money posted at DebtGoal, saying, “Reviewing the television special “UNBROKE” from the standpoint of someone with personal debt.”
KCLau presents Do You Have a Wedding Debt? posted at KCLau’s Money Tips, saying, “Most couples want to begin their married life auspiciously and free from the problems. However, it is not uncommon to hear about married couples who go into debt just to get married. Article explores the reasons.”
Nash Dadameah presents Credit card payment: Why you should never pay the minimum amount posted at nil2million.com, saying, “A post that discusses about why we shouldn’t pay the minimum amount for credit card. Also includes simulation and table for analysis.”
Four Pillars presents Is Dave Ramsey A “Financial Expert” posted at Quest For Four Pillars, saying, “A discussion of Dave Ramsey and his methods.”
Zach Scheidt presents Regulatory Capital Arbitrage for Beginners posted at ZachStocks, saying, “Banks must hold minimum capital levels in order to ensure safety of assets and guarantee that they will be able to meet their liabilities. Regulating these institutions can certainly prove difficult.”
Jeff Rose presents How To Be Listed on Dow Jones Industrial Average posted at Jeff Rose.
Raag Vamdatt presents Defined contribution and defined benefit pension schemes / plans :: RaagVamdatt.com :: Financial Planning demystifiedposted at RaagVamdatt.com.
Jeff Rose presents 7 Things To Know About a Solo 401(k) posted at Jeff Rose.
Lynn Mills presents How to Find and Use Retirement Planning Tools posted at How to Plan Finances and Retirement – for Beginners, saying, “This is a retirement and financial planning information blog discussing today’s economic market, how you can survive it and still plan for your retirement.”
TIP Guy presents How to do a Realistic Valuation for New IPO | The Income Portfolio posted at The Income Portfolio, saying, “Investors need to see if there is justification for high premiums during a IPO. Compare its investment preposition with industry practice or peers to see if it makes sense.”
Silicon Valley Blogger presents Lower Your Car Insurance Rates! How To Cut Insurance Premiums In Half posted at The Digerati Life, saying, “I offer some suggestions and tips for lowering your car insurance and keeping your car related costs (and budget) to a minimum.”
KCLau presents Bad Experience of Car Insurance Claim posted at KCLau’s Money Tips, saying, “a story of bad experience with vehicle insurance claim”
Mike Pastore presents Prepare Your Umbrella Insurance Policy for the Rainy Days posted at Mikes Millions.com.
MoneyNing presents 20 Different Areas to Think About for a Cheaper Auto Insurance Policy posted at Money Ning, saying, “Insurance is something we usually forget, yet we pay quite a bit for it regularly. If you can spend a few minutes and save big, why not?”
BankMan presents $250k FDIC Deposit Insurance Extended to 2013 posted at High Yield Savings Accounts, saying, “The FDIC has extended the additional insurance until the end of 2013, which will add stability to the banking industry and instill more consumer confidence in our economy.”
MoneyNing presents How to Save Money on Your Wedding posted at Money Ning, saying, “We go through the big day at least once but many people think it’s one of the most expensive days of our lives. Here are some tips that will help reduce the expenses of this important day.”
Super Saver presents Our Principles for Saving posted at My Wealth Builder, saying, “To me, saving is the primary skill that enabled us to build wealth. As they say, it’s not what you make, it’s what you keep that makes a person wealthy.”
Barry presents Successful Investing In Certificates of Deposit posted at Associate Money.
KCLau presents Easy Pawn Shops – Do you need to Pawn? posted at KCLau’s Money Tips, saying, “Pros and cons of pawning”
Nancy Miller presents 25 Simple Tricks to painlessly cut $100 /mo from Your Spending posted at Online University Lowdown.
Four Pillars presents 397 Ways To Save Money – Squawkfox Book Review posted at Quest For Four Pillars, saying, “397 Ways To Save Money – Book review on Squawkfox.com’s new release!”
The Skilled Investor presents Most Individual Investors Are Poor Personal Portfolio Managers | Personal Investment Management posted at Personal Investment Manager, saying, “Investors more easily understand investment costs that are directly measurable, such as fees deducted on investment statements. However, many investors ignore or are unaware of the opportunity costs of their sub-optimal investment behaviors. Opportunity costs are usually much more difficult to measure directly, but these investment costs can be even higher than more visible investment fees.”
Barb A. Ryan presents Asset Allocation, Investment Asset Tax Location, and Emergency Cash Management posted at Independent Financial Planner, saying As you move your cash, bond, and stock financial assets into lower cost, more broadly diversified investment mutual funds and/or ETFs, you should also consider how to locate your investment asset allocation with respect to more optimal taxation. This article will discusses some ideas about where and how to hold your cash assets and how to make emergency cash available.”
MoneyNing presents Let Businesses Deal with Sales Tax – Government Improvement Series posted at Money Ning, saying, “Government really needs to improve on somethings and I say to let businesses deal with sales taxes!”
That concludes this edition. Submit your blog article to the next edition of Carnival of Financial Planning using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.
Technorati tags: carnival of financial planning, blog carnival.
Renesola Ltd. (SOL) is trading sharply higher today with little new company specific information has been released. At ZachStocks we have been watching the solar sector carefully over the past months and found plenty of great opportunities in the area now that investors are once again warming to the alternative energy area. For Renesola to rally without specific news is certainly a positive thing and it may represent one or two large institutions building a new position.
Some have speculated that since SOL has crossed over $5 per share, it is now eligible to be held in many mutual funds who prohibit their managers from buying stocks with prices lower than $5. While this makes little fundamental sense, sometimes technical levels like this can provide the catalyst needed to get stocks running to a point where they are more closely trading with their fundamental values. At this point it appears the fear of a major collapse in solar energy is being brushed aside and liquidity concerns are no longer the driving issue for investors.
According to Thomson estimates, SOL is expected to earn 53 cents per share in 2010. If these expectations are correct, the stock has just recently moved to the point where its forward PE is over 10. This is a major milestone since the market had been pricing these companies at low single digit multiples for some time. But I see this trend of multiple expansion continuing higher as confidence builds. While we may not see multiples of 30 or 40 as was the trend in early 2008, a multiple of 20 on strong solar growth companies is not out of the question.
Multiple expansion may be only one part of future gains as I expect analysts to ratchet up their numbers in coming months. During times of economic expansion, analysts can get ahead of themselves and present estimates that are very optimistic. But during times of contraction like we saw in the last 18 months, analysts often shoot too low and fail to realize the ability of companies to adjust models and build profitability. The estimate of 53 cents for 2010 could prove conservative and be significantly higher in the quarters to come.
If you add the forces of increasing estimates with expanding multiples, you can see that the stock price could rise exponentially. A multiple of 10 on 53 cents estimate leads to a stock price of $5.23. However if both the estimate and the multiple rise by 30%, the stock price would rise not by 30% but closer to 71%.
And if increases turn out to be higher than 30%, the ultimate rise in the stock price could be much higher. So while many solar stocks have rallied by large percentage points off their lows this year, the best could still be yet to come as government stimulus programs kick in, traditional energy prices rise, and the promise of economic recovery drives optimism for investors.
FD: Author does not have a position in SOL
Initial Public Offerings, or IPOs, can offer some of the most explosive investment opportunities available to individual investors. Returns can quickly skyrocket as companies who have previously been private, are now available for the general public to invest in. A successful IPO can see gains of 50%, 100% or even more within the course of just a few days (or even hours in a few special cases).
The last few months have been very dry for IPO investors. As investors have shunned risk and the economy has faltered, it has been very difficult for new companies to find willing buyers regardless of the quality of operations or profits.
But with the rebound in the market has come renewed interest in new issues. A few recent successful offerings may prime investors’ appetites. At the same time, a number of companies have been waiting for a window in the market where they can go public and raise the necessary capital to grow their business.
So as the potential for new deals to price grows, investors need to be aware of the three most important dynamics surrounding every IPO. These dynamics shape how the shares are distributed to investors and can give you a clue as to how the stock will trade following the offering. Proper use of these clues could help you land a stock with the ability to post triple digit returns in a short period of time. So let’s take a look at these dynamics and how you can claim your profits: (Please request your full copy of this special report)
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Below is an article I wrote for the Taipan Publishing Group – reprinted with their permission…
Silver Flirts with $16 Mark – What it Means and Where Silver Trades From Here
By Zachary Scheidt, Editor, Taipan Publishing Group
We said it would happen quickly, but the recent move in the price of silver has caught many investors off guard. Just recently we sounded the alarm that silver was set to trade substantially higher. And now the shiny metal has broken through the key $15 level, and is flirting with the $16 mark. We haven’t seen this price since last August – before the current recession really got underway.
So what’s driving this price? Is silver rising on economic fears? Do investors consider it a “safe haven?” Well the answer might surprise you. Ironically, silver is rising because of good news on our weak but possibly recovering economy. Let me explain…
Silver fits into two primary investment categories. It’s considered a “precious metal,” which means that it holds its value much better than paper currencies. So as dollars are printed and begin to flood the system, silver – as a stable storage of value – will hold its value compared to the lower value of each dollar. Put in reverse, you can see it now costs more dollars to buy an ounce of silver.
The second investment category is “industrial metals.” Silver fits into this category because it is used for all kinds of real world industries including electronics (Silver is an excellent conductor of electricity.), dentistry, photography and medicine. (Did you know silver has anti-bacterial qualities?) Silver is also used to make polyester and in specialized mirrors for technologies such as solar power.
So as we begin to see positive news regarding economic recovery, silver quickly becomes attractive to investors. Thursday, a government report was released showing that the number of layoffs was declining while orders for durable goods were increasing. An economic recovery would certainly be welcome, but would likely touch off a tinderbox full of inflation.
Inflation is a serious concern with this recovery. That’s because of the trillions of dollars pumped into the system in the form of stimulus packages and bailouts. Silver is an excellent way to protect savings against inflation because precious metals allow investors a stable way to store real value.
At the same time, an increase in economic activity also drives up silver because more business activity means more consumption of silver. It’s a basic economic principal that when demand is higher, the price of a commodity will rise. Investors are expecting improvement in economic activity, which means that the demand for silver will ratchet higher as projects are underway.
Another important fact to remember is that silver supplies are growing thin – to the point where the U.S. Mint has actually had to halt production of specific coins until it can build up its reserves. If the U.S. Mint is having trouble with availability, you can imagine how standard producers are scrambling to get their hands on supplies.
Looking ahead, I think we are just seeing the beginning of the price move. Silver has the potential to double or even triple the percentage move in gold because of its dual role. (Remember, it’s a precious metal and an industrial metal.) There’s no reason we couldn’t be talking about the $20 level in the next month, and by the end of the year that move could be exponentially higher. Some experts believe we could see the price reach triple-digits – or even break $1,000 over the course of several months.
While I’m not sure that we’ll see $1,000, I have confidence that silver will be an important investment theme in the coming weeks and months. And that makes silver a hot sector for your portfolio. Don’t let silver’s move occur without claiming your profits and protecting your investments.
In fact, I have the perfect way for you to potentially profit from today’s boom in silver. With the supply/demand gap at epic proportions and the economy in turmoil, we’re going to see silver prices continue to increase. Like I said, I believe we’ll see silver at $20 soon, and even higher by the end of the year. So, there’s still time for you to make some money.
But while most investors scramble for silver coins and bullion, you could get in on a new silver investment that could return a 130-fold gain by December 2009. If you like to get in on the ground floor of the investment, I’d like to tell you more about this strategy. Download my Special Report for all the details.
It has been a slow year for IPOs so far, but recently a few offerings have caught Wall Street’s attention. Open Table, Inc. (OPEN) was an extremely successful offering with the stock issued to investors at $20, only to trade as high as $35.50 during its first day of trading. OPEN has settled back down to a more modest 40% gain currently but the outlook may be difficult for this consumer driven stock.
Open Table is built on a business model that essentially brokers between diners and local restaurants. The restaurant business has relied primarily on word-of-mouth referrals and print advertising. Open Table, however, attempts to provide an online medium for diners to select where they want to eat, to review options within their community, and to book reservations even restaurants which are typically hard to get into.
The company collects revenue from three primary fee categories:
Something about this setup reminds me of the old “dot com” days when companies could come public with very little (or no) earnings and still collect a large premium for their stock. While Open Table was posting a profit in 2007, the company actually lost money last year as the economic weakness caused weakness in the dine out business. To its credit, OPEN has been able to grow revenues quarter after quarter, but profitability eventually is the key metric which determines the stock price.
Currently the company operates in Chicago, New York City, San Francisco, and Washington DC. Adding new markets will be key to the company’s growth, and yet that will be difficult as consumer trends certainly aren’t favorable to the dine out business. At ZachStocks, we have mentioned the growing trend in the US towards becoming a nation of savers. That trend could make it very difficult for luxury businesses such as high-end restaurants, and companies like OPEN who support the industry.
Looking at the terms of the deal, the IPO priced at $20 while the underwriters were able to keep $1.40 of that price. Merrill Lynch was the lead on the deal and while Merrill still has the largest base of retail clients, its status as a quality underwriter is less prominent than it was 18 months ago. The shares were actually sold both by the company as well as private shareholders. The 1.57 million shares sold by Open Table will raise roughly $26.3 million which will be used for “general corporate purposes.” OPEN currently has no debt outstanding, which leaves it with plenty of options for financing growth.
Despite my respect for the innovation of this new business model, and the success OPEN has had in building a strong presence, I think the stock is very vulnerable to a decline. There are still more than 19 million shares held by insiders and private investors, many of which will eventually find their way to the market creating selling pressure. Macro economic issues create a strong headwind for the business, and earnings have yet to come anywhere close to fundamentally supporting the stock price.
It may be difficult to borrow shares today, but in the near future I expect OPEN to offer a great short opportunity. If the stock fell to a price of $12, short sellers would make more than 50% on their trade. And at a price of $12, the stock would still carry a 20 multiple compared to 2007 – its most successful year. Please treat this position with caution as volatility will be high.
FD: Author has no position in OPEN
Another good article by Don Miller…
By Don Miller
Associate Editor
Money Morning
General Motors Corp. (NYSE: GM), humbled by competition and battered by a withering recession, filed for Chapter 11 bankruptcy protection yesterday (Monday), where it will tap $50 billion in U.S. government financing to launch itself as a new company.
Once seen as the face of American economic might and industrial technology, 100-year old GM will try to reconfigure itself into a leaner, more profitable business. The company will be forced to lay off 20,000 workers, and close down 11 manufacturing plants.
GM was the world’s biggest automaker for 77 years, but the company has lost an aggregate $82 billion over the past four years even as it slashed production capacity, nameplate brands, and more than 100,000 U.S. jobs. The company that once had over 500,000 workers will likely bring its domestic employment down to 72,500 jobs by 2012.
GM plans to rebuild itself around its Chevrolet, GMC, Buick and Cadillac brands, which are seen as successful assets, and are expected to exit bankruptcy in sound financial health within months. It will close or sell its Pontiac, Hummer, Saturn and Saab holdings, and divest other liabilities in a lengthier court-supervised reorganization.
“Today marks a defining moment in the reinvention of GM,” President and Chief Executive Officer Fritz Henderson said in a statement. “The economic crisis has caused enormous disruption in the auto industry.”
“It’s been a long time coming, but the reality of a GM bankruptcy is still a bitter pill to swallow — it’s a bit like the Titanic sinking,” Stephen Pope, chief global strategist at Cantor Fitzgerald in London told Bloomberg News. “This is a step they should have taken more than a year ago, which could have put them in much better shape before the economy went down.”
GM’s bankruptcy will be the fourth largest in U.S. history and the largest ever by an industrial company, according to Bloomberg. The company has a reported $82.3 billion in assets and $172.8 billion in debt.
The U.S. government plans to bankroll the “new” GM with an additional $30 billion in financing. That brings the government’s total investment to roughly $50 billion, which it will convert to a 60% stake in the new company.
In a last minute change to the bankruptcy plan, Canada agreed to provide $9.5 billion in funding and would get a 12% stake. The United Auto Workers (UAW) union would have 17.5% share of the GM, and bondholders would get a 10% stake.
GM’s stock was removed from the Dow Jones industrial average before U.S. financial markets opened on Monday. Current shareholders are likely to be wiped out, according to a report in Forbes.
The company filed for bankruptcy on the same day it faced a government deadline to prove it could reorganize out of court by wringing concessions from its bondholders and the United Auto Workers union.
GM was able to reach new agreements with both but fell short of the $44 billion in cuts the government said was needed to survive in its previous form.
The goal of the restructuring is to ensure GM can be profitable if annual U.S. auto sales recover to a level of 10 million units. GM had previously based its recovery plans on industry-wide sales closer to the 16 million mark, a level last seen in 2007.
The administration’s carefully orchestrated plan for GM is for a “quick rinse” sale process where a much smaller company will emerge from court protection in as little as 60 to 90 days.
The groundwork for GM’s quick path through bankruptcy was paved by Chrysler LLC, which filed for Chapter 11 protection in April. That process was given a boost Monday when a judge approved Chrysler’s plan to sell the majority of its assets to Italy’s Fiat SpA (ADR OTC:FIATY). Chrysler may exit the Chapter 11 process as soon as this week.
Still, even if the streamlined companies emerge from bankruptcy quickly, there are no guarantees for their long-term survival. Overseas competitors are circling the still lucrative U.S auto market with line-ups of fuel-efficient cars that GM and Chrysler may not be able to match.
“Now the hard part begins, which is making GM and Chrysler competitive. If they don’t do that, then we’ll be doing this all over again in a few years,” Christopher Richter, an auto analyst at CLSA Asia-Pacific Markets in Tokyo told Reuters. ”The immediate implication is that the companies are going to get smaller and so market share is up for grabs, which means that rivals like Toyota, Honda, Nissan and Hyundai are going to gain share.”
It’s been some time since we have taken a look at the shipping industry. After all, the global economic slump has made the shipping business very difficult and stock prices in the sector have reflected the weakness. As international trade has slumped, the demand for shipping has declined with day rates reflecting the oversupply in the industry.
Genco Shipping & Trading Limited (GNK) has recently seen its stock begin to move higher, breaking out of a base that has been setting up for the last six months. The move appears to be more a function of expectations for a recovering economy rather than stock specific news. But at the same time, there are some encouraging data points coming from Genco which gives me a bit of confidence in the long-term viability of the company and the growth of profits.
Looking back to the first quarter release, the most important news was an amendment to the company’s line of credit. At this point, the lender has agreed to wave a collateral maintenance requirement which had certainly caused the company (and investors) some serious concern. The new terms allow the line to remain open (including access to the undrawn portion) with the only requirement being that Genco suspend its dividend and share buyback programs until the covenant is back in compliance.
This is important because Genco is taking delivery of three additional ships in the second quarter which will require the company to pull a significant portion of the $191 million undrawn LOC. With delivery of these three new ships the company will have a fleet of 35 ships well diversified between Capesize, Panamax, Supramax, Handymax and Handysize vessels. The diversification is important because it allows the company to compete on different contracts where customers may need large ships for bulk transport, or smaller vessels to navigate particular straits.
Genco has survived the last year largely due to its strong customer base which management characterizes as “diverse reputable and high quality counter parties.” Most of the vessels are leased out on long-term charters which has allowed the company to continue recognizing a strong revenue stream despite industry weakness. As of the end of the first quarter, Genco claimed to have 60% of its available days for 2009 under contract.
This morning (June 2) Genco actually announced an agreement with Morgan Stanley Capital Group for a new time charter spanning 23 to 25 months at a rate of $36,000 per day. While this rate is far below some of the attractive rates shippers were negotiating at the end of 2007 and into 2008, $36k still allows Genco to realize an attractive profit on the new vessel and certainly helps the cash flow picture. During the first quarter the company had an average daily Time Charter Equivalent (TCE) of $33,203. This was a bit below the level realized the prior year but still relatively stable with only a 7.5% decline. It is unclear exactly how this new vessel stacks up on the TCE scale, but at first blush, it looks as if this agreement will be complementary to the established rates.
GNK has rallied more than 200% off its low posted in February – and posted an even larger gain when considering the $6.43 low from November 2008. Still, the stock is trading at less than 10 times expectations for 2010. There are still some concerns regarding the company’s leveraged balance sheet (with a total of $1.173 billion in debt) but strong cash flow levels should allow GNK to maintain its debt service and quickly get its covenants back in line. The 2010 estimates could turn out to be low as analysts habitually shoot too low during times of economic crisis (and conversely they are too optimistic during expansion periods).
If GNK is able to reinstate its dividend, there is a good chance that the stock will rally sharply. The dividend could be half of its former level and the stock would still have nearly an 8% yield. Investors will likely be looking for income in future quarters so this could be an attractive selling point. For GNK, the risk is still out there but aggressive traders may be able to make a nice return as the company participates in a potential recovery in shipping rates.
FD: Author does not have a position in GNK
The Baseline Scenario is an excellent site which explains global economic issues and digs deep into policy decisions and the long-term reprocussions of those decisions on economies and markets. The authors; Peter Boone, Simon Johnson, and James Kwak are all accomplished professionals, and I truly enjoy reading their work. Below is a sample of one of their recent articles on Regulatory Capital for Banks:
Regulatory capital refers to the amount of capital a financial institution must hold because of regulatory requirements. Capital is the amount of value in a bank that is attributable to the shareholders – that is, the bank’s assets minus its liabilities. There are different kinds of capital, but we can ignore that here.
One function of capital – the function that regulators care about – is to insulate banks from losses. Assets can fluctuate in value; a borrower can owe you $100, but if he goes bankrupt and flees the country, that loan is worth zero. The amount of your liabilities does not fluctuate, however. If you have $100 in assets, $90 in liabilities, and $10 in capital, then you can withstand a 10% fall in the value of your assets and still pay off your debts; if you have $98 in liabilities and $2 in capital, then a 3% fall will make you insolvent (unable to pay off your debts).
Regulators impose capital requirements in order to help ensure the safety and soundness of banks. There are various reasons why safe and sound banks are good, but the most direct – from the regulator’s perspective – is that the government is insuring the bank’s liabilities; for example, the FDIC now insures deposits up to $250,000 per person. Since the government is on the hook if the bank becomes insolvent, it wants to reduce the chances of that happening – hence capital requirements.
The question is how much capital should be required, and the key concept is risk-based capital. The idea is that some assets are riskier than others. If you hold very safe assets, like cash or short-term U.S. Treasury bills, then the chances of even a 3% fall in value are miniscule, so you shouldn’t need to hold much capital. However, if you hold risky assets, like loans to build offshore drilling platforms in the Arctic Ocean, then you should have to hold more capital.
The theory is simple. Every asset has a certain amount of risk; a firm that holds that asset should also hold, for that asset, an amount of capital proportional to its risk. Both on the firm level and on the system level, then, capital levels will adequately insure against the risk of losses. The tricky thing is putting this into practice, for two reasons: first, it’s impossible a priori to know how risky a given asset is (you can only estimate it); second, the potential complexity of financial transactions far exceeds the ability of regulators to specify rules for every one.
Follow the title link to read the full article. If you enjoy this academic discussion, you may want to subscribe to their RSS feed and read their work on a daily basis.
