Financials, What Is Your Gameplan?

Financials have been the frontrunner in the rally we have seen since March. What was the hardest hit in the collapse of the markets during the financial crisis is also what has led the market back to the black for the year. Should we continue to look at financials to lead the market?

Banks have already begun paying back TARP money as they try to loosen the government's stranglehold on how to run their businesses. Most just want to protect their bonuses. After Bank of America pledged to repay its TARP, Citigroup and Wells Fargo both decided to have an offering so they too could pay back TARP (all have paid back successfully). I struggle to see why paying back TARP for these two banks is a good thing for the stock. Sure, they do not have a huge debt to the government anymore, but look how they paid it back. They were not able to make enough in revenue to pay back the money, instead they had to offer more shares. This dilutes current shareholders ownings as well as earnings, not to mention the fact that they still are not making enough money to be fully solvent.

Even with the banks ability to raise capital, they are not helping the rest of us out as they should. Instead of lending to consumers to spur spending, they are just investing in securities. Sure, this has the potential to raise revenue as they need to, but their priorities are all wrong. We helped them out, now they have to help us out.

From an investing perspective, it will do your portfolio well to keep a financial or two in there. The best financials to own would be a large bank like GS or JPM and either V or MA. Smaller banks are still paying back TARP unlike GS and JPM. V and MA both have limited risk with credit defaults as they make their revenue every time someone uses a credit card. They do no actually do all the lending. There is still cash money to be made in financials. You just want to limit risk as the economy turns back around.

Focus is on Jobs, Not Inflation

Interest rates remain unchanged as expected by the markets. Initially, with a surge of 1.8% in producer prices last month, inflation was a thing of concern. However, consumer prices rose a modest 0.4% with core prices remaining flat. Since the rise in prices has not transitioned to the consumer level yet, inflation appears to still be in check.

The Fed says they are keeping rates low to help the unemployment factor. With inflation currently in check for the consumer, the primary responsibility is to bring consumers back into play. Jobs and consumer spending are both still down. Jobs are a crucial element for an economic recovery. Until consumers can bring back steady income and until banks begin to loan again, we can expect a slow recovery and an extension of low rates.

Economists expect rates to remain depressed until August 2010 at the earliest. Most expect rates to remain low until around October. Until then, the economy will be experiencing a slow recovery. The economy cannot grow until the overwhelming majority of GDP switches back to consumer spending. The government has no more money to spend. We just have to wait on jobs and lending to come back around. With slow recoveries, it is important to have a diversified portfolio. You want to position yourself with small and mid cap stocks to make cash money on the rebound. It is also important to diversify with some large cap value stocks to hedge against any correction in the markets that many, including myself, think is inevitable during the short term.

Help Small Businesses, Help Ourselves

Obama is finally about to help the economy the best way he possibly can. Trying to stimulate the economy through individual tax cuts and increased federal spending is one way to tackle the problem. The game changer that is about to be introduced deals with small businesses.

Small businesses are traditionally the leaders coming out of a troublesome economy. The best way to undermine unemployment is to start your own business. It seems like a recession would be the worst time to try and start a business but think about the following ideas. Recessions come with smaller costs for the consumer. Large businesses want to lower inventory and sell everything they can even with lower profits. You will find the best prices to fulfill your business needs. Recessions are also met with lower interest rates. Should you qualify to get a decent loan, the rates are low enough to kill for.

Since the long term cost of the TARP program is going to be cut by around $200 billion, Obama is proposing aid to small businesses. Although not all this money will go toward small businesses, they should see a small chunk as extensions of the stimulus plan roll out in 2010. By giving tax cuts and credits to small businesses, the economy will have a better chance of roaring back up faster than initially hoped for. Small cap stocks also perform better than large cap as the economy improves. With a little patience and help from Congress, there is cash money to be made in small companies over the next few years as the economy roars back to life.

Why Are We Constantly Trading?

There are too many questions and concerns about where the market will be in the next week or the next month. Should we buy into December where we normally expect a rally? Should we sell until Dubai fixes their debt problems? These are not the questions we should be asking ourselves. We should be investors, not traders.

Traders are the smart guys on Wall Street with years of experience and millions of dollars invested in the market at any given time. They buy and sell on knee-jerk reactions as news comes out to the investing community. Investors are ordinary, longer term oriented guys who want to keep stock for longer periods of time like Warren Buffett.

We should be buying and selling right now to either reallocate our portfolios for the new year or to get our taxes straight for this year. We should not be buying and selling based on how well holiday shopping is going or what is going to rally the market over the next month. We should be looking at what we think is going to happen in 2010 and 2011 and make investing moves preparing for it. How long before the economy stabilizes? How long before the consumer starts spending and stops saving? What will become of healthcare? Preparing for these longer term questions will allow us to allocate our portfolio in a way that will benefit us. We won't have to worry about what the market is doing each day. We can sit back and make sure the future is lining up the way we think it will. As Warren has taught us, that is the best way to make cash money.

Homebuilders Starting to Stabilize

Homebuilders saw a surge in sales over the summer as consumers took advantage of low mortgage rates, discounted home prices, and the first time home-buying credit. Lately, there has been talk of further depressed homebuilding returns for another several months. I do not think that homebuilders will see the returns they saw over the summer anytime soon; however, I do think that homebuilders will stabilize.

Construction has been cut back to get supply closer to demand. As a result, homebuilders can be a little more flexible with pricing. Instead of upping the price, they have been smart and kept the average price the same as a year ago. This has helped sales reach their highest level in over a year.

In addition, we cannot forget about mortgage rates. These have fallen to around 4.7%. This is probably the lowest they will be for a long, long time. With the extension of the housing credit, we can expect sales to remain stable as first time homeowners continue to combine this tax credit with abnormally low rates. I think this will be sufficient to keep homebuilders stable until the economy gets closer to strengthening. For the long term, there is cash money to be made in homebuilders. This will take a lot of patience as volatility is higher in this industry. The returns could be worth the wait.

Dimon Gets It Right

Jamie Dimon of JP Morgan knows what is going on. We have known this since JP Morgan said they would not pay more than $2 for Bear Sterns. So what does he understand now that no one else seems to? Simple answer: the too big to fail concept.

In an editorial in the Washington Post, Dimon seems to understand exactly what the government needs to be doing. He says there is no such thing as too big to fail. We need only to save banks that perform, not just banks that are bigger than others. The government should be focused on banks that are not managing risk well, not the ones who are doing good business.

I agree 100% with Jamie. The government is too focused on trying to regulate the biggest banks that they are overlooking the ones with the problems. Just because a bank is big does not mean that it should not fail. They should be allowed to fail in a more regulated way that does not put the economy at risk. This is supposed to be a capitalist market. Almost everybody has paid back the TARP money. They do not owe the government anything anymore. Why is the government still trying to get a voice in on how these banks compensate their employees. If the government focused more on troubled banks, the smaller community banks would not still be failing everyday. The government needs to get their priorities straight. Cash money is made away from the government. They do not understand the innermost of these institutions. The harder they try, the worse it is going to get.

Listen to the Fed

Futures were up today on the news that rates would stay low for well into 2010 if not longer. This is great for consumers as low rates spur more borrowing and essentially spending. Do not be quick to rush into the market thinking it's going to continue to rally on low rate news.

Why are rates going to remain low? Simply because the economy is going to slowly come around. I would like to emphasize the word slowly. We need low rates because the economy is still in the gutter. Consumers continue to borrow less and less. Retailers and shipping companies are optimistic about the holidays. Why? If unemployment is rising and consumers are borrowing less and less, why do we think the holidays will turn the economy around?

Listen to the Fed. The economic recovery is going to be weak and erratic according to Fed officials. Why are we getting optimistic about the holidays and low interest rates? Sure low interest rates should spur a quicker than normal recovery, but look at the deeper meaning behind this. The economy remains in terrible condition. Be hesitant to rush into what the media is telling you. Cash money is not always made by outperforming the market but by limiting losses in tough times. Get a few staples or high yielding companies that will give you some type of hedge. The economy is not going to be booming for awhile. Economists expect unemployment to subside halfway through 2010. This is not a normal recession. Plan accordingly.

Is a Jobless Recovery on Hand?

Unemployment soared to 10.2%, the highest since 1983. Many people have mentioned a 'jobless recovery' reminiscent of the 1970s. Why a jobless recovery? GDP and manufacturing output have been improving as unemployment has been rising thus giving rise to a jobless recovery.

This is the first time in over a quarter of a century since unemployment has hit double digits. 10.2% is higher than the previously expected 9.9%. This puts the government at a job-first priority. This also further puts pressure on the stimulus plan and the fact that debt is too high to throw more money into the economy. The Fed is going to keep rates at an all time low for seemingly another couple of months as the economic rebound is supposed to be suppressed for another few quarters.

Companies have been laying off people left and right during the recession as restructuring has become a major priority. In all honesty, how many of these jobs will actually come back? If companies want to grow again, they will have to rehire some of these former employees. Will we see the rehiring happen overseas? Lower cost of labor, materials, and overall production costs make outsourcing a strong reality.

Even if we hire employees back in the US, we have a long time to wait. Companies have yet to improve year over year numbers. Until we see companies get back to where they were, we will not see hiring pick back up. We could be very well due for a jobless recovery. In the meantime, look for the quick respondents to an economic rebound for cash money.

It's Been 3 Weeks and the Market Hasn't Moved

It's been three weeks since I last blogged. My last post stated that the Dow was at 10,000. Coincidentally, the market has just crossed the 10,000 mark again. So what happened to make the market stand still? We have had a mix of news with earnings, outlooks, and economic conditions that have all moved the market in one way or another.

Earnings have been doing well so far this quarter. Most companies are seeing sequential improvements, although, year over year numbers are still down. A lot of optimism for improvements is being expressed for 2010. The only questionable area of optimism is with consumer discretionary. Consumer sentiment did fall as did expected holiday sales.

Economic conditions remain cloudy. The Fed is keeping rates low suggesting a slow rebound in the economy. Manufacturing output has increased suggesting a little bit of improvement from the recession. Unemployment is set to rise again.

The market can move on anything. Going forward, the thing we will have to look at the closest is economic conditions. It will get easier for companies to beat last year's earnings. It is the Fed and economic signals that will give away where we are headed. Cash money lies in the midst of these things. Separate the news from the noise and you will find where to invest next.

Market's Rally Keeping Gains, Steadily Rising

The market has continued on the road to 10,000 without any huge speed bumps. It not unusual to see such a huge rally after a bear market. What we haven't seen yet is part 2: the decent back into the pit. Earnings and outlooks have been the main driver of this rally so far. Economic news has been both positive and negative giving the market a little indecision at times. The start of earnings season has straightened the course out yet again.

It is important to stress that our economy is not back to what it was. Unemployment is still rising, foreclosures are heavily apparent, and consumers are hesitant to spend. The ability for companies to say the economy is getting better has propelled the market further. The only problem lies with the fact that once expectations get too high, any missed target can put an abrupt halt to the rally. Sure, it should be easier to beat year over year earnings since Q4 and Q1 were nothing short of disastrous. If expectations get too high too fast, it just remind investors that economic conditions are not all that great yet. A single mistake by the Fed could put us right back into the recession that we supposedly climbed out of.

My question then becomes, "What should we invest in?" Growth stocks have been essential to get back where we were a year and a half ago. When do we go back to being a little conservative and put some staples back into the portfolio? I think now is a good time to slowly put a couple back into the portfolio to smooth out the beta a little bit until we see, not just positive economic news but, sustainable economic news. Using conservatism to make cash money has never hurt anybody. Just look at Warren Buffett.

Financials A Year Later

Have financials really learned anything since last year? Sure, they have all fired executives, cut bonuses, and promised to be more careful. The government has promised new accounting rules and improved regulation. Has any of this actually done anything to protect investors or even consumers?

Obama has said that the need for stabilization is waning. This shows optimism that banks are getting most toxic assets off their balance sheets, and bad debt has been written off. Now the government wants more regulation. Many are afraid that they will interfere too much. I think regulation is needed, but I do not think it should be about bonuses and running the company. I think it should be more accounting based in that we regulate what they are doing with taxpayers money. Making sure that they are investing in conservative things rather than loans and debt wrapped up in a few different things to disguise the trail.

It seems to me after all this that banks are starting to show their risky side again. After the stress tests, banks found out how much capital they needed to survive another downturn. With the optimism that we are out of the recession, banks are starting to invest their reserves. Investing is not a bad thing, but they have taken it too far. The top 5 banks stood to lose an average of $1 billion a day in the second quarter, according to the WSJ. This is a 75% increase from 2007 and an 18% increase from a year ago. This is a lot of risk to take on given how much they have gone through in the past year. Even CDOs are starting to make a comeback.

What gives them the right to just jump back into the thick of things like this. Should they not be a little more cautious? After all the money we have been made to give them, is this what they are going to do with it? I prefer to invest my own money thank you. You showed us what happens when you get too greedy the first time. It is about to start all over again. Greed never goes away. The government should step up regulation in a way that does not interfere with normal operations. We need to make sure our money is not going to be lost again. Cash money can be made in conservative investments. I'm just trying to make sure mine is going to be used right.

A Declining Dollar Gives Opportunity Elsewhere

Many are worried that the US will be a laggard in the world recovery. As a result, investors are heading for foreign opportunities in riskier assets, namely currencies. The dollar is at the lowest it has been in about a year. The decline of the dollar is a result of several things happening in the economy right now.

When economic conditions look harsh, investors turn toward safer assets. We saw the dollar rise earlier in the year against most currencies as the US is considered a safe place to keep money. As economic conditions improve around the world, investors want to invest in advancing markets and gold. Since the US is supposed to lag most economies around the world, investors do not want to keep investing here.

A second reason the dollar is falling is complements of our monetary policy. The Fed has injected billions into the economy by buying up bonds. As investors sell the bonds they had rushed into as we fell into recession, they are putting their money into foreign currency. As the Fed keeps injecting money into the economy, the dollar will be pushed farther down. The G-20 summit made comments about stimulus money still coming out. As long as money keeps being injected into the economy to stimulate spending, it will be hard for the dollar to make a recovery.

Some bright things can be taken away from this. We now know that foreign currencies and commodities, namely the Euro and gold, are good places to invest. As long as the Fed keeps injecting money and keeping interest rates low, the dollar will remain low. On the other side, keeping rates low means that more countries will buy our goods which will hopefully lower our debt. So a declining dollar is not all that bad. As the dollar continues to decline, cash money can be made in foreign currencies and commodities. Make the most of what the economy and financial markets are giving us.

Cautious Investing for the Long Term

From 14000 to 6500, the Dow experienced a very volatile bear market. With the rally we have seen and sustained, a scent of aggressiveness is in the air. How aggressive should we be to beat the market and pull up all the losses while at the same time being cautious toward a correction? There are different ways to go about this but I want to stress the fact that we can be aggressive while staying cautious.

The first thing we need to understand is that we can be aggressive without speculation. Buying stocks with a higher beta is way to be aggressive. The higher the beta, the higher the volatility. The stock will go up and down with the market. If we think the market is going up, why not buy a higher beta stock that will go up with it? Another way to be aggressive is buying stocks that got beat up in the recession but lead coming out of it. Examples of this are: financials, industrials, and consumer discretionaries. These stocks got hit in the recession but have been the leaders coming out of it.

Cautiousness is something we need to keep in mind. It makes sense to buy stocks for the long term right now. Over the next 2 years it will be financials, industrials, and consumer discretionaries that will reign. People will borrow money (financials) and spend that money (consumer discretionary). Industrials just move with the economy which will recover. Timeliness is something we need to be cautious about. We are seeing positive news one week and negative the next. For example, new home sales went up followed by a rise in foreclosures. Another example, discretionaries raised the outlook one week and the following week we found out they had a sales decline the previous month. What happens if we bought after the outlook? We would have been hit with the sales decline.

The thing to remember is that long term investing can combine the two. We can buy higher beta stocks for the long term. If we have a 2 year target, it does not necessarily matter what will happen in the next quarter. Sure, we need some positive outlook to reaffirm our long term commitment, but long term takes away the timeliness factor. We need to be cautious about what we want to get into long term, but at the heels of a bottom we do not necessarily have to buy all conservative stocks. You can be aggressive with higher betas and beaten up sectors while still being cautious with a long term approach. It is when everything is unfavorable that you become aggressive for the long term. Now looks like a perfect time to make cash money via the long term-higher betas-aggressive-cautious play.

September: The Bear's Month

September is usually a down month for stocks. If the past week is a preview, I see no change for 2009. We are starting to see a pattern emerge surrounding earnings. Once earnings season begins, the market rallies. As more companies report an improvement from the previous quarter and outlooks begin to improve, the market reacts favorably for almost 2 months. Then earnings optimism wears off and economic data is the only measurable news for the market. This data is flip-flopping between positive and negative. We see home sales rise but foreclosures also rise. China's GDP is ridiculously high for a recession, but the White House lowers our expectations for a quick recovery.

I do not think the market is going to see a significant correction. We will see some pullbacks and some stalling leading up to the next earnings season, but no complete pessimism like we saw at the beginning of the year. Of course unemployment will rise a little further and GDP will take time to recover, but earnings will be increasingly easier to beat compared to year over year numbers. There is lots of reasons to be bullish. Once we see consumers start to spend again and pay off their debts, the market will soar. The market will not spike anytime soon, which is a good thing, but we will see a moderate climb. Now is a good time to cash in on profits and wait for earnings season to roll around again before its time to make serious cash money.

Home Numbers Can Be Misleading

Over the last couple months, we have seen some significant housing numbers point toward stabilization in the housing market. Some housing industries, such as building products and real estate management, have outperformed almost everything over the past 3 months. Sure, this does look like positive signs of a turnaround. However, I would err on the side of cation.

Home prices rose in a few places, mortgage applications came in higher, and investors thought this was the bottom. If you look closer at the numbers, the overwhelming majority of metropolitan areas around the country had decreasing home prices. Foreclosures jumped in July showing that people are still having trouble paying for their home. Unemployment is still high and is expected to rise even further. It is hard to see how prices will rise and foreclosures fall when unemployment is a major problem. I haven't even mentioned the rise in mortgage rates that might also discourage new home sales.

There is no doubt that housing saw positive signs this summer and investors were happy. This may very well be the bottom. But the fact is that people are still unemployed and having trouble paying bills. New home sales are still depressed. The only ones really buying are bargain hunters who are scooping up the foreclosures. I think housing remains nothing but speculation until unemployment decreases and people are able to pay their bills without a problem. What will be first to rise? Building products. It is what we need for renovation and new homes. This is why it has been the best performer for the housing industry the past quarter. Building products is where the cash money will be. Just wait for a pullback and positive economic news. Then start buying.

Consumer Discretionary: An Optimistic Sector

Consumer discretionaries, mainly the retail industry, reported same store sales last week. Many same store sales were down as July turned out to be a disappointing month for retailers. You would think that these stocks would have been down on the disappointing news, but most shot up for the day. Remember when I said stock prices depend on the outlook during earnings season? Well, stock prices shot up when these retailers raised outlooks for the year. This also shows improved optimism for the overall economy.

Consumer discretionary stocks will be one of the top sectors coming out of the recession. We have seen lots of gains already and still some of these stocks are undervalued. One of the main reasons that this sector was down in sales was the fact that the consumer has not starting spending yet. We have to wait for the consumer to come around before we see these sales increase. But that doesn't mean we have to wait to buy these stocks. It will get easier to beat YOY numbers as we reach last year's worst quarters. Stocks will soar as they are able to handily beat these numbers and even some estimates. It's never too early to be making cash money. Wait for pullback and then load up on consumer discretionary.

China Rising

Markets around the world have seen some type of rally over the past few months. There is money to be made in these rallies but the question is: Where should I invest to make the most? Many people enjoy investing here in the US largely because they are familiar with our companies and their business models. But is this really the best place to invest to recoup piles of losses we incurred over the past year?

The answer is no. Emerging markets have rallied more than the US. Specifically, China is leading the way. Don't get me wrong. The US has seen a tremendous rally that is likely to continue for a while as the economy improves and companies revert back to their profit making ways. If you want to outperform anyone and everyone, you have to incorporate China into your portfolio. Many mutual funds that are solely focused on China have returned 40% YTD returns. Emerging market mutual funds and ETFs have returned a double digit monthly averages for the past few months (percentages are compliments of the mutual fund section in Money Magazine). This shows emerging markets are not only outperforming but are the highest in timeliness.

So, why China? Consider the stimulus plans that are considered the driver to a economic rebound. The US has spent trillions to stimulate the economy. The amount of money spent is only equal to about 5% of our GDP. China has not spent near as much to stimulate their economy; however, the spending they did do is equal to about 13% of their GDP. Because the US GDP is so much larger than everyone else in the world, we have to spend a whole lot more to get the same stimulation impact as China. Since China has spent more than double the amount we have, as a percentage of GDP, we can expect a faster and more timely recovery in China, not to mention the other emerging markets. This is why smaller economies will rebound faster than the US. Their is money to be made in the US, but cash money to be made in emerging markets, specifically China. Do your research and take advantage of all the world has to offer.

Is Cash for Clunkers Saving Ford?

Cash for clunkers is a stimulus program that offers government vouchers toward a new car for consumers. The program is designed to allow consumers to trade in older vehicles with 18 mpg or less and receive a voucher for a new vehicle with better gas mileage. A 4 mpg increase is good for a $3500 voucher. An increase of 10 mpg is good for a $4500 voucher.

The program is supposed to help stimulate the economy and bring business back to the automakers by encouraging new car sales. Automakers would then be able to increase output and see more revenue come in which could slow the job loss efforts in Detroit. So far the program has helped. Ford has seen business spike as July gave Ford its first year over year increase since November 2007. Sales have risen in all of its brands.

The program could be halted should the Senate fail to approve a $2 billion funding effort. Failing to keep this program funded could cause a return to the previous pessimism we felt toward automakers for the first half of the year. This is one of the fast acting stimulus programs we have been able to see. It also seems to be one of the only programs that is actually having a direct impact on consumers. Should we really stop this program now after we have seen it grow and inject money into the economy?

Failing to refund this program could be more devastating than we think for the automakers. Some are barely hanging on. Taking away incentives will only prolong the inevitable for the smaller companies out there. If Congress comes through and is able to make a smart decision, an investment in the automakers could make you some quick cash money; however, that would be pure speculation. Be patient and do not act prematurely on a trade like that. Wait for Congress to give full support.

Naked Short Selling Now Being Clothed

Short selling is when an investor borrows shares from a company, sells these shares, buys them back later, and then returns them to the company. The investor makes the difference on the spread between selling at a higher price and buying back at a lower price. Naked short selling is when the investor sells shares without even borrowing them.

The height of the bear market, when many financial institutions saw their stock plummet without taking a breath, can thank naked short selling. Investors were relentlessly selling shares short without ever borrowing them causing prices to tank. The ban on naked short selling now requires an investor to borrow shares before shorting.

I would like to see the reinstatement of the uptick rule. This makes investors wait for the stock to go up a penny from the previous trading price before they can short. This would also help stocks to fall incrementally instead of crashing. Short selling is not a problem, in fact, many investors make cash money on short selling. When their is no order involved with shorting stocks, things can get dangerously bad.

What Shape Will the Market Take?

A lot of analysts and economists are expecting the recovery in the market to take a W form. They think this rally is unsustainable. They think that we will see another type of meltdown within the next 6 to 12 months. I completely disagree. They only terrible news that we could have had is disappointing Q3 reports. We have not seen that at all.

An article I read on CNBC stated that 70% of Q3 earnings reports have been positive. Many of these companies lowered estimates in Q4 and Q1 that helped the market to reach its bottom in March. Now we are seeing companies raise estimates and give much better outlooks this quarter. Many companies think the recession has bottomed and may be over at this point. YOY growth declines will continue to decrease as we go into Q3 and Q4. Since this is when growth started declining last year, it will not be so hard to match those numbers this year. I think on the earnings front, as we move into the last half of the year and even into the first half of next year, it will be easier to beat YOY numbers and estimates will be raised.

On the economic level, I think we have hit bottom. We are seeing more and more positive housing numbers. We have seen bank losses dwindle. I think unemployment will start decreasing this quarter. In short, we are ready for the rebound. TARP money is being repaid, companies have neared the end of their layoffs and plant closures, and the declining dollar should raise sales and profits.

Historically, the market sees a rebound before the economy. We are seeing that rebound now. The economy will soon follow. I think the shape of the market will be a elongated V shape. It wont just rise back up quickly, but it will not go back down either. We are done seeing consistently negative news. Everything is on the mend. The only thing against us is time. It will take longer than most people will want; however, as long as we are patient we can find deals everywhere. Cash money is all over the place. Don't be afraid to go looking for it again. It will be a long time before the Dow hits 14,000 again. While we are waiting, we might as well look for the once in a lifetime deals and make cash money.

Rally is Due to Outlooks

We have seen the market jump over 700 points in the past week. Earnings have been doing as well as we could have hoped for. Many companies are still posting a drop in profit but have managed to beat earnings. This isn't why the market has rallied. Outlooks have been the substantial basis behind this cash money increase.

A decrease in profits is expected as we are still struggling out of this recession. Most companies have been able to beat earnings. The cash money has been made in the outlooks. Wall Street is more concerned with the future right now. They are buying on any sign that the recession is losing its hold.

I would never encourage anyone to buy before an earnings release. That is nothing but a gamble. If you must buy and sell before a release, think about this. Companies that are expecting earnings at the low end of the target will be able to beat earnings and raise outlooks more easily than a company that is highly anticipating to do well. These companies will not fall as far either if they miss. The trick is to determine which companies are being extremely conservative and which companies have low end estimates for a reason. Being able to differentiate these two can pay out some real cash money in the end.

CIT: Another Victim of the Financial Crisis?

The federal bailout has been a lifeline for many financial institutions. Many banks have received TARP money and some lenders have been swallowed up by commercial banks. CIT Group is one lender that is still struggling. Should it not receive any more help, CIT will have to file for bankruptcy.

CIT is one of the biggest lenders lending to 950,000 small and mid-size businesses. It is one of the largest credit and cash advance suppliers in the country. The government has established tax credits for small businesses to encourage entrepreneurship. If the government lets CIT file for bankruptcy, all these small businesses will get hurt. Saving CIT will help 950,000 businesses trying to stay afloat.

I wasn't in favor of the government helping businesses with our tax money. I thought that they should all pay the price for being greedy. Now I see that letting these businesses fail doesn't just hurt the business, it hurts us too. Letting CIT fail could lead to these small businesses failing. This would just lengthen the recession and jack unemployment up even further. CIT is in talks with Goldman Sach's and JP Morgan for short term financing. Hopefully, CIT will make it through. If not, many businesses could go under. At that point, cash money will be even scarcer than it is now. We should just do what we have been doing by giving some money to CIT and start regulating.

The Return of Inflation?

Inflation has been MIA for the year so far. The Consumer Price Index (CPI) for June came in at 0.7%, slightly higher than anticipated. This was the largest rise since July 2008. Most of the rise was due to gas prices. Core CPI stayed tame at 0.2%.

The Producer Price Index (PPI), considered to be a better measure of inflation by Alan Greenspan, soared 1.8%. This is double the 0.9% that was expected. The is the steepest gain since November 2007. Taking out food and energy, core PPI came in at 0.5%. This is significantly higher than the expected 0.1%.

While these numbers are not as large as we have been accustomed to seeing, these are nevertheless rising. A sluggish economy coupled with inflationary pressure is an issue for any government. Given the slack that we have in our economy with inflation lower than the historical average means that we do not have to be worried...yet. Energy has been the main cause for the rise in inflationary measures. With energy prices subsiding the past two weeks, I see little reason to worry. However, if these numbers keep rising month after month, we will have to see action by the Fed which could be disastrous. If you are looking to keep money out of stocks but still beat inflation, fixed income is the way to make cash money. I recommend CDs.

Congrats Government! You May Have Gotten GM Right This Time

GM filed for bankruptcy a while back after it was determined the former #1 automaker could not run from its problems. After giving GM bailout money a couple times, the government finally did what it had to do. Now GM is in the midst of a bankruptcy plan in hopes of contending for the top spot in car sales in the future.

GM will retain its most profitable assets: Chevrolet, Cadillac, Buick, and GMC. These assets will be moved to a new company owned by the US Treasury. The US government will own 61% of the new company, the Canadian government 12%, the union will receive a 17.5% stake, and creditors will get a 10% stake. Should this plan work, GM will exit bankruptcy in the next 2 months. The company could even go public within the next 2 years.

The old GM will keep any bad assets that other companies will not buy. It will be liquidated over time. This is a great move by the government. Had GM been given even more bailout money and readjusted timelines every quarter, this would have drawn the process out a lot longer than it should have been. Liquidating the whole company would also have been terrible for the economy. Spinning off a new company with given timelines is a move that just could work. GM is still a terrible investing spot for individual investors. However, a spinoff in a couple years could be appealing. Be prepared for this terrible process to right itself and give you the chance to make cash money.

Unemployment May Be Stabilizing

Unemployment rose to 9.5% in the US, the highest percentage since 1983. Although the market reacted unfavorably, the rate seems to be stabilizing. Each month's job loss numbers are dwindling, suggesting a stabilization in unemployment rates. The EU has also seen its unemployment rate hit 9.5% showing a global impact.

We should know that unemployment will not decrease until we are well out of the recession. Until companies start making money and expanding their business lines again, they will not hire any more people. Investors should like the decline in monthly job loss numbers and should look at this as an improvement in the economy. However, investors refuse to see this and keep reacting adversely and will continue to do so until the rate itself declines. Rates should see a decline soon as outlooks look to improve in the near term. Cash money can be made whether you have a job or not. Just keep playing off of others' mistakes.

The Dark Side to the Rally

The close of the second quarter left the Dow up over 800 points for the past 3 months. The 11% increase for the quarter was the best quarter for the Dow since 2003. Earnings are expected to soar compared to the past couple quarters as we look toward moving past the recession. Optimism has soared as sales are up and home prices are stabilizing. So where is the dark side?

Despite the rally, the Dow is still down on the year by almost 4% and is still 40% off its 2007 high. The S&P has fared slightly better as it is up on the year by almost 2%. As we move forward with renewed optimism, we must not forget where we have been or how we got here. We cannot let good times constrict our memory from remembering the irresponsibility and greed that initially knocked us down. We must continue to rebuild and establish responsibility in our regulatory bodies. While there is cash money to be made, we cannot forget how we came to these once in a lifetime buying opportunities.

The Super Fed?

Obama has called for an overhaul of the financial system. What does this mean? Basically, power is being moved around because of the financial crisis. Will it work? Depends on if the plan goes through.

The SEC is, or was, the Wall Street regulator. They apparently did not do their only job and let financial enterprises run amok. As a result, we are in the economical and financial situation that has given the US a disheartening, recession filled year.

Obama wants to give more power to the Federal Reserve. Here is where the problem lies. Many people feel that the Fed will be too powerful. The Fed did a good job with what they had to work with to try and combat the recession. If you burden the Fed with more responsibility, will they be able to continue doing their job efficiently while taking on more jobs? I don't think so.

The Fed should continue being the Fed that is has been for decades. There is no need to give it the jobs the SEC should have been doing. While we need a better regulator, we cannot depend on the Fed to keep us out of these situations. You cannot make cash money when everything you have is in one thing. We should not put everything we have into the Fed just because they did their job. We need to call the SEC out and make them earn their paycheck.

Stuck in a Funk

We have seen the market rally tremendously from the March lows. All kinds of positive information from banks, housing, retail, and consumer confidence have brought the market back around favorably. However, we are seeing a pause now. Why? This is simply a sigh of relief from investors built upon anticipation for what is to come.

The market responded nicely toward positive numbers the past few months, yet, the market seems to have stopped moving. This is because we have not seen any updated numbers. The next part of the rally depends on second quarter earnings. CEO's have suggested the recession is over after this quarter. We will see whether they stick to this view when they give their outlooks with their conference calls.

Now is the time to start taking profits and being cautious. If we see positive numbers, the market will jump even further. If negative news comes out, the market will fall again. Cash money is only made taking profits. Share prices move fast. If you don't act soon enough, the money you seemingly made during the rally will be gone again. I am not saying that I'm expecting bad numbers. Actually, I am. However, I would urge you to be cautious and make good on what you have while you still can regardless of what happens. There is no V shape in recovery. It is a long, drawn out process. Take your cash money before it's too late.

Commodities: The Play of the Summer

Commodities were a household name last year as we saw a rise in prices all across the board. Usually we can see a rise in oil and gas in the summer as people take vacations. We have seen a rise in commodities for the past month. The question is: how long will it stay?

Agricultural commodities probably will cease to have any high, sustaining rallies. The season to buy fertilizer and crop necessities are over. The only way we see a rally here is if oil soars and everything else follows. Look at commodities into winter for any price declines. Next year looks promising as the economy and market get back on track.

Oil is where you want to focus for the summer as far as commodities go. Last year, oil and the market trading adversely. This year, however, we see oil as a reference point for the economic rebound. The price of oil and inventory levels show signs of economic detail. So, as we see prices rise and inventories fall, the recession appears to be reaching an end if we are not already there yet.

You want to invest in oil service companies. These will rise with oil and will still be great companies with great prospects when oil falls again. There are even mutual funds and ETFs that track nothing but energy that are great plays now. Commodities are down 56% compared to a 32% drop in the S&P since prices topped in July. Whether prices should have been so high is an irrelevant question. The fact is that prices will return. There was a lot of money made in that spike. OPEC and investors everywhere are waiting for that return. To make cash money, you have to know where cash money will be at ahead of time. It does you no good to get there after everyone else.

Charts Making the Difference

I saw an interesting segment on television the other day about technical analysis. Technical analysis primarily used charts to make buy and sell suggestions and predict future price targets. This particular segment showed chartists using past stock price data to determine when investors get in and get out for certain stocks. Lately, I haven't exactly used this idea to pick stocks, but I have used an another version. I have been focusing on sectors that will be the first to recover from recessions such as consumer discretionaries, industrials, financials, etc. We have seen jumps in a few of these sectors to confirm these allegations. I flip through Valueline and look at charts of companies from each of these sectors. I usually like to see a chart that has been on a steady incline for the past 10 years. However, due to the huge drop in the market, I have been focusing on companies that been hit hard and have begun to rebound nicely.

What I really want to point out is that you do not always have to worry about fundamentals when trying to pick stocks. In a rally like this, the investors out front are the ones who are focusing on short term movements. As a result, my portfolio is up nearly 50% on the year. I'm not trying to say anything against fundamentals. In a normal market, it is long term fundamentals that will beat out the market. This hasn't been quite the normal market for the last several months though has it? The best investor has to be willing to change when the market does. That is the investor that will be the first to make cash money.

New Credit Card Law

There has been some talk about the new credit card law saving consumers from higher interest rates, hidden fees, and overall unclear terms. Yes, this law does do that. However, this law may also adversely affect consumers as credit card companies hurry to hike rates and move fees around.

Rates will be hiked soon to make up for the fact that companies cannot raise these rates to new holders. Since the law does not cap interest rates, how high will these rates get? It is important to pay off your debt fast as any late payments will be met with a higher rate.

Annual fees are going to be likely for most card companies now. This will make up for the fact that they cannot raise rates on new holders for a year. The annual fee makes up for the percentage difference. Fees will also rise for cash advancements, transfers, and late payments. Some companies are even considering getting rid of their grace period.

At any rate, you should be fine as long as you pay off your card regularly. After the crisis we had (and are still in), it is not surprising the companies will be stricter on lending out credit. Be mature with your credit cards and you will be saving cash money.

Housing Helps the Market

Housing showed some signs of life again today. New home sales were up as were refinancing numbers. Lowe's beat earnings today. They also upped their estimates for the year. The market is up nearly 2% as a result. But why are home sales so important?

The complete recovery of the economy rests with the housing market. Housing was the first to go and has to be the first to come back. Until people can afford their homes, how can they afford anything else? Financials also rest along these same lines. Until they offer affordable loans, no one can pay off mortgages. To see the backbone in the recovery, we will have to watch financials and housing. However, this is no reason to buy housing stocks. They have to get out of debt before they make money. Soon enough their will be money to be made with this. First, lets look elsewhere for cash money. Look at the bounce back - its not too hard to find.

Commodities Market

Commodities led the market through the first half of 2008 and then, along with financials, led a tremendous decline as the economy went into a recession. As the market has been rising, so have the commodities. More and more signs are pointing toward the economy reaching a bottom, one of which is the price of oil.

Oil has been an indicator of the economy as price movements have reflected consumer demand. Oil has been on a tear as it reached a 2009 high at just under $55. I like a natural gas play better than oil as Obama make try a green strategy. Apache has been on a tear as demand has strengthened. It just crossed $80 after being at $60 a few weeks ago. If you have to play oil, I would go for an oil services company as they will have most of the growth. I look for oil to continue its way back to high prices. The world is dependent on oil so once people have money again, look for them to travel more and for OPEC to decrease supply to raise prices.

I also like agriculture plays. Ag follows oil as, it too, reflects demand. IPI and AGU are the best plays as both are smaller companies with lots of room to grow. If you want a more stable company try MON. These companies will gradually increase as food prices increase. Once food increases and ag increase, then look at machinery.

These prices should really start to move into the summer. After summer, look for these prices to somewhat stabilize. Demand will increase but after summer no one will be traveling. If you are looking for a six month play, look at commodities to make you some cash money.

It's All About the Growth

If there is one thing to take away from earnings season, it is the fact the earnings day depends solely on outlooks. We see stocks rise and fall ahead of earnings expectations. When earnings actually come out, most stocks do not fluctuate as much as they used to. Earnings announcements are usually priced in at that point. The fluctuations come during the conference calls.

Conference calls are when you can truly gauge what a company has done and is planning to do. The best part of conference calls is when they give the outlook for the next quarter and the year. This is when a stock really starts to fluctuate and reflects what Wall Street thinks. At no point should you ever try and trade stocks ahead of earnings unless you are 100% sure of what is going to happen. A stock may trade up to earnings day and even trade up once they beat earnings by a penny. If that outlook is cloudy or poor, the stock will drop. If earnings are bad and the outlook is good, the stock will rise.

The game has changed at this point. We are looking for different factors to trade on now. To stay ahead of the game, we have to change with everyone else. The only way to make cash money is to stay ahead of the curve and trade intelligently. Use only the news you know and the news that will move the stock. Don't listen to the noise.

Stress Test or Stress Reliever

We have all seen things about stress tests in the news this week. Let's first define these so called stress tests before we figure out how they impact the market and financials. Stress tests are a way for the government to find out which banks need to bolster capital in case the economy dives down again. There has been talk from some banks (GS and MS) that the bailout money is no longer needed for them. Before they are allowed to pay back money, the government has decided to run 'tests' to determine if they have enough capital to pay back bailout funds and still whether another downturn.

These stress tests, besides evaluating capital, are supposed to show any weaknesses in banks. These banks will then have to show a plan and commitment to regain their financial health. Overall, this is supposed to restore confidence in the financial sector by showing investors how well off banks really are.

Today, the government announced a two tier model. Stress test criteria were released today and results will be shown in another week and a half. Most banks are thought to have enough capital to withstand any adverse economic conditions given the criteria. These tests will certainly show it. Favorable capital by these banks could show another rally in the market. Poor results could create another buying opportunity. Either way, it will be a time to make cash money.

Credit Crisis Only Thing Hindering Rally

Earnings season hasn't been all the bad. Earnings have declined, but most companies have met or exceeded expectations. The real story has been with growth. A lot of companies are becoming clearer with outlooks for 2009 and 2010. 2010 looks to be the year companies make their way back to black. I want to talk a little bit about BAC earnings and how the credit crisis is the only thing keeping the market from soaring.

BAC beat earnings but dropped 25% on the day earlier this week. Why? They reported a higher jump in default loans. This means that people still cannot seem to pay back loans. Until we get this fixed, the economy will be shaky and the market flat. The government is trying to establish a Credit Cardholder's Bill of Rights calling for more transparency to cut down on sudden changes in interest rates and time periods.

The government also said it is converting its preferred shares in bailout companies into common shares. Why is this so bad? This gives the government ownership stakes. Now the government will technically be able to vote on certain things and have more rights. This hints to some as nationalization.

Until this confusion gets settled in the financial industry and the government gets the credit freeze thawed out, I see no huge rally in the market. We had a good run (over 20%)and now we will hover around 8000 in the Dow until we see significant improvements. Hold tight as the rest of the earnings season plays out. If the Dow drops back down under 7500, we see a huge buying opportunity. But for now, keep patient and realize that cash money doesn't always come quickly. When it comes, it will not stop.

Volatility: Indicator of Market Movements

The past several months have been dominated by news that rocketed the market up and down. Volatility had reached an all time high. Nothing was for certain. The market was run by fear alone. All greed and optimism was lost. Now, volatility is down. The market is moving in short increments. Most importantly, quantitative data has been moving the market lately instead of just news. As a result, confidence has risen and optimism is slowly coming out of the shadows.

Although volatility has dropped, it is still high compared to historical standards. We have a long way to go to get rid of the fear and instill greed again. As volatility slows further, we can bet that the market is moving up as greed regains its hold over money and all that comes with it. I am not saying that greed is bad. It is now that we need to be greedy. We need to be mindful that greed will only take us so far before it takes over us.

The market is moving on earnings data and economic data. These are the things we need to move the market in a quantitative and intelligent manner. A lot of people are worried, including myself, that they have missed the movements in some companies. The S&P has risen over 20% so yes, there are companies that have risen too fast too quick. However, we need to remember that the Dow is still down 6000 points from its high. I would want to miss a little movement in the market and then buy rather than buy and see the market fall again. If you think the stock is still too high, wait for a pullback and then get in. Timing the market will give below average returns and stress that we do not need in our lives. We have to look toward the long term because that is how we will make cash money.

Uncertainty in the Market

The Dow has been hovering around the 8000 mark for several sessions now. Soaring above that mark would suggest a lasting bull market rally. Stopping right there gives this rally the look of another bear market rally. Earnings have raised to market above and lowered it back down around the 8000 mark. Wells Fargo and Goldman Sachs have each given a great earnings report. Some retailers have had decent reports. Intel gave a great report. So why has the market not moved above 8000?

The similarities in earnings reports this season have shown a slow first quarter with better than expected numbers. The casualty resides in the outlooks for these companies. No one knows what the economy holds or how their companies will react. This is why the market has held the 8000 level.

Obama spoke again today for no reason. Why? I do not know. He seems to keep saying the same thing every time. "We are in a rough time right now. My steps are working. We will get out of this soon." Do we really need this? He is insulting our intelligence. We should be hearing Geithner and Bernanke speak. People who actually work with financial markets. Obama doesn't know anything about money. Get him off the podium.

If you want to judge where the market is headed, keep watching earnings roll in. JPM and C report later this week along with GOOG. These companies should provide some insight. Look for the 8000 mark to hold until we see very significant information regarding the economy, whether good or bad. It has turned into a waiting game. Remember, any game is a game you can win cash money. Stick with it.

Which Sectors Will Come Through the Recession Ahead of Class?

Each sector has a different way of responding to recessions and financial crises. Usually the stock market tends to start recovery about 6 months before the economy. Financials tend to lead the charge. Will financials lead yet again with the bailout? The reaction is to say no. Financials are what has dragged the market down. Other sectors have a better chance of a quick recovery. I like to think that since the financials dragged us down, they will pull us back up. Look at the rallies. Have the not all been led by charging advances by banks? Have not all stumbles been led by bad news in the finance industry? Say what you want but the financials are what has been determining the market.

The market as a whole looks completely undervalued. It is hard to separate the good yet undervalued companies with those who deserve to be trading low. We have seen some good signs from the consumer sectors lately. I like to look at the consumer discretionary sector as one that will help lead any rallies with an increased consumer confidence. Energy is another sector that will no doubt rebound with the economy. If there is money to be made, corporations will exploit what they have to. As far down as energy is right now, I have to think that energy has become a long term strategy despite any 'green' attempts by Obama. The world is dependent on oil and will not change overnight. Technology is a sector that everyone has been weary about since 2000. Nevertheless, technology is the future. Technology is the face of cash money. Healthcare is a hard sector as I do not fully understand everything Obama wants with healthcare. However, with so many people reaching retirement, I cannot help to think that healthcare is quickly becoming a staple of its own kind.

The market has a long way to go. Pick only the great companies in the near term until we get back on our feet. Then, feel free to speculate and buy fast growing companies. At this point, it is good to be long anything. We have answered the question regarding when a bottom is here. Now the question changes to how long will we sit here before we make the steady climb back up. Patience is the key in this market. Any sector over time will make you money. Only the few select sectors will make you cash money. Choose wisely.

Should I Stay or Should I Go

The question asked by everyone this past week is, "Is the rally for real?" I have addressed this question a couple of posts ago. However, conditions change constantly and questions have to be reposed and answered again. It is clear we are in a rally. The S&P has risen 25% in exactly one month. So, yes we are playing with a substantial gain right now. The new question becomes, "How long can we sustain this rally?"

Wells Fargo suggested it has a record gain in earnings this past quarter which did wonders for confidence and the market. Will other banks provide the same assurance? A couple of consumer discretionary companies have surprised with their earnings. While earnings have still been down, they have been better than expected suggesting a turning economy. Technology companies will start reporting next week. What we really have to pay attention to is earnings. These numbers will dictate where the market will be for the next month. Even more importantly is expectations of where this earnings will go next quarter. Any improvement will certainly be taken in full strides along with the market. Earnings will be the sole driver in the market for the next couple weeks. Pay attention to major banks and discretionary companies. They will show where consumer confidence is headed. Any good news is essentially cash money.

Earnings Season: Nothing But a Confirmation

The market was down considerably yet again today. Why? Should investors start getting worried again? Short story, the rally is not over. Do not look at this as a sign to sell, but consider it an opportunity to buy more at a lower price. Remember dollar cost averaging? Now is the perfect time to implement that method.

The day kicked off with a survey of CEO's and how much growth they were expecting. Almost 70% expected a decrease in sales and earnings during the last quarter. This does not bode well for this earnings season. Upfront, you have nothing to look forward to. Alcoa affirmed what everyone thought as their earnings dropped yet again as the price of aluminum is down over 50%.

I want to give a shout out to all the morons who do not pay attention. Earnings are supposed to be BAD for the first quarter! These earnings are not forecasts for the next 3 months. These numbers come straight from sales during the recession. Yes, numbers from a recession are supposed to be bad. Another thank you to all the morons who sell upon the confirmation of all we have expected for the past 3 months. I am glad you all sold stocks when bad news was forecasted and then sold again once the forecast became reality. You need only to sell once.

Once again, this is not another rally. The market is not about to fall off another cliff. We are going to pause and bounce around a little bit until we get all the earnings out of the way and restore optimism so we can enjoy the sliver of what used to be again. Use this earnings season as a way to get back into the game again. Do not let anyone scare you into thinking otherwise. We all knew earnings were going to be bad. It is just being confirmed with the down days in the market. This is the perfect time to start making cash money again.

The Glass is Now a Quarter Full

A global recession, record low consumer confidence, financial and housing crises, along with very poor earnings have thrown the stock market for a loop. We went from seeing a record high of 14000 in the Dow to a bottom (hopefully) of 6500. We went from a full glass of 1% milk (don't want to push the 2%) to a quarter empty glass of chunky, spoiled milk. The past few weeks, however, have changed the view to a quarter full glass of skim milk, showing an improvement with a long way still to go.

Many people think this rally is for real. So do I. The worst is behind us. However, we all need to pay attention to earnings season that kicks off Tuesday. We should see some poor results concerning the first quarter with optimism in conference calls toward the near future. These poor results will confirm what the economy has been going through. While we should not throw these numbers away, the numbers we want to see is estimates for the coming quarter.

If you were slow to get in this rally or haven't made that jump just yet, sit tight. Earnings will no doubt push these prices down a little bit further. Then you should jump. Never get into a stock based on earnings estimates and speculation. Experience tells me that is the stupidest thing to do. Estimates are estimates for a reason. Plus, Wall Street does not make sense when numbers come out. No one knows for sure what numbers are going to come out or how Wall Street will react. Stick to the fundamentals and you will be alright. Any market is a market to make cash money. Don't play the odds, just play the game.

Accounting Changes: For Better or For Worse?

The Dow soared across the 8000 mark today as new accounting standards were set in place by FASB. These changes, led by mark-to-market, are supposed to help banks value their assets to a closer true value. Altogether, these changes were made to give investors a better perspective of how these banks look on a balance sheet.

Mark-to-market is the most talked about of these accounting changes. Mark-to-market require that assets must be put on balance sheets to the current market valuation. For instance, if Bank of America had to foreclose on a house that was bought for $400,000, that $400k was the amount put on the balance sheet. However, the housing collapse caused that house to now be worth $250,000. Mark-to-market makes the balance sheet look like it lost $150,000 in assets. These sort of valuations caused balance sheets to look completely out of whack. This has caused banks to have a lot of write downs as they struggle through the housing and financial crisis. Changes call for the balance sheet to reflect the original $400k instead of writing down to reflect the current value.

Changes this rule is supposed to be a good thing as balance sheets look stronger and investors would be willing to put more money in as these companies look less risky. This would free up capital and stimulate lending. On the other side, these banks would not look as undervalued and investors might not want to put money back in financials. Balance sheets would lose appeal as they do not reflect true values.

I think balance sheets should reflect current values. If they don't, we are investing on a lie. These companies are in worse shape than we can now see. However, we cannot prevent this rule from changing so as long as the market jumps in reflection of said changes, I will not complain. You might not agree with everything happening on Wall Street, but there are plenty of ways to capitalize on these decisions and make cash money.

GM: Live to Die Another Day

General Motors (GM) has been in the news a lot for the past week as financial troubles grew for the automotive giant. Back in December, Congress gave GM a 3 month lifeline, pumping billions into the automotive industry. However, as the deadline approached, GM failed to reach negotiations with the union. Their CEO was ousted and the whole stock market suffered terribly.

If we had just refused to give GM money, they could have filed bankruptcy a long time ago and all this would have been over. GM claims bankruptcy would have been a lot more than what they were asking for to get back on track. GM does not deserve to get back on track! Had they been run by innovative minds and really meant that, the CEO would have still been there and they would not have had to file for bankruptcy now.

Obama had a press conference and said the government had no interest in running GM. This was a major positive. This took a turn from turmoil of the financial industry as the government has struggled to get banks on the right path.

The current bankruptcy plan calls for GM to split apart to retain the most profitable parts. Had this happened 3 months ago, we would not have wasted all that money for no apparent reason. Splitting the company now is a giant step forward. There is no sense to kept the company together as it is quickly losing marketshare.

Bankruptcy is the best thing for GM now. They are not innovative, they cannot keep up with the latest Japanese automobiles, and they do not deserve taxpayer money. Keeping the profitable jobs will be best as we try to keep unemployment from soaring. Final point, GM is not making itself cash money, you cash money, and will not make cash money in the future. Another lifeline allows them to die another day.

Intelligently Playing the Market

Losing some money today was expected. After a 500 point day in the Dow, it is expected that people will cash in on some profits. We really aren't too far away from our 6500 low 2 weeks ago. It is smart to take some off the top after a rally like we have had. One of the primary rules in investing is that you never profit until you sell. Taking profits out of a rally can be a good thing. We start to instill the emotional aspect of winning again and it feels good. However, this does not mean to cash in on everything. If a stock goes too high too fast, it is sure to correct itself. Remember to set that limit and then buy again after a 5-8% drop. This ensures you take that profit and then get in again at a lower price, essentially saving and making more money.

Losing hurts a lot more than winning. We think about what could have been and do not move on. Another great rule to stay emotionally balanced is to sell and not look back. After that sell goes through, don't torture yourself by seeing where the stock later ended up. No one knows what is going to happen after they sell. Losing money on a stock is not something to cry and then forget about. It is a learning opportunity. The best investors turn their previous failure into a future success. Learning opportunities are everywhere. You have to think smart and improve upon past mistakes to make cash money.

Toxic-Asset Plan: Bull in the Making

We have been waiting for significant news that reveals the conditions of the economy and the bailout to signal a legitimate rally. Other than a few things about home sales and oil, the economy has not had any terrible news lately. As a result we saw a stable rally over the past week and a half. The excellent news is that we now have some more details on the bailout and the toxic assets that are ruining balance sheets. This is why the market was up around 7% on the day and will continue to rise as the plan further unfolds and [hopefully] works.

Toxic assets, or legacy assets, are assets that have lost value and are on the verge of becoming liabilities. The legacy asset problem started initially with the housing bubble as standards became too lax and risks skyrocketed. As capital left these markets, these assets quickly lost liquidity. The proposed plan has both investors and the government injecting fresh capital into the system to get things running again. The mortgage sector is the primary problem that has to be corrected. Mortgages not paid led to foreclosures which led to assets that have lost value. The plan calls for private investors to team up with the government to inject liquidity into this market without the help of taxpayers through two different programs: legacy loans program and legacy securities program.

The legacy loan program calls for private investors to bid for assets. These assets will most likely be some kind of mortgage package from a bank. The private investor would split the equity portion with the Treasury 50/50 with the FDIC guaranteeing financing of the debt portion. The private investor would make all the calls with the FDIC closely supervising. This helps to rid banks of troubled assets and provide a more liquid balance sheet.

The legacy securities program combines financing from the Federal Reserve and the Treasury to allow private investors the chance to free up capital in order to stimulate fresh lending. The Treasury would provide a one-for-one match in equity plus additional leverage for the private investor to invest in these securities. This would free up capital and allow banks to lend to consumers again to help stimulate the economy.

These plans would not only help banks to rid itself of troubled assets, but it would allow balance sheets to become more liquidity and lending to flow again. This also allows private investors the chance to profit off these assets and taxpayers to dodge a bullet. As long as this plan works out the way its supposed to, the market should respond accordingly and give the rally a chance to continue making us cash money.

Optimism in the Market

The market has remained steady over the past week. This can only be contributed to new optimism in the market. A kind of optimism that has not been short lived as in previous rallies. We are starting to see the glass as half full instead of half empty. While we still have a ways to go to see an ongoing bull market, we may have the optimism we needed to go along with continuous good news to sustain this rally.

New details were released on how the Treasury is going to spend some of the bailout money. Details on the toxic assets plan are expected to come out tomorrow. Oracle also was one of the first companies releasing earnings news which also came out well. These are the types of news we need to continue a rally. The government also said that the economy is set crawl out of a recession by the end of the year. The more we see improvements in the bailout and the economy, the faster we can start making cash money again. Incidentally, the stock market tends to start recovering about 6 months before the economy so invest appropriately. Any functioning market is one to make cash money in. Let's take advantage.

Buying Tips in an Unstable Market

The market is wild and crazy more than ever these days. Not only have we had a rise above 7200 in the Dow, it has actually stayed there for more than a couple of hours. So many have been asking the question (including myself), is it time to buy? I addressed this question in a previous post so I will not waste your time with attempting to answer it again. I also realized that I had written a post about how to maximize your return when selling, yet had never talked about buying. So I want to talk about how to minimize risk in this market when buying a stock.

Trying to find a time to buy may be a lot harder than trying to find a company to buy. When I talked about selling, I mentioned limit orders. Limit orders can also be used to buy. Say you want to buy GE. GE has topped $9, but you think it will fall back to $7.50. You can set a limit order for GE at $7.50 and if GE does decline to said number, the order will then process and you will be a proud owner of GE shares at $7.50. Now you not only hedged against a decline in GE, you have also capitalized on it.

The way I want to stress buying in this market, however, is via dollar cost averaging. No one has a clue where this market will be a day from now or a month from now. Some say this is a bear market rally, others say its going to stay. Should it stay and GE not fall back to $7.50, you are now looking at buying GE at say $10. If you like a company for the long run and you simply try to wait for a pullback that never happens, you could be left behind. Dollar cost averaging allows you to get in when you want and still maximize return. Say you wanted to spend $5000 on GE. You go ahead and put in $2500 when GE is at $9. If GE then goes down, you put in the other $2500 and lower the total cost so you hedge yourself from being too far in the hole before you start. If GE goes up, you can just keep you original amount in and put the rest in something else, or you can hope it pulls back later on. Either way you do not miss the boat and you get exposure to the company you want. Should it be for the long run, do no be afraid to buy at a slight premium.

Trying to figure out the right time to buy is an art. These two simple ways allow you to hedge against some loss and maximize return by buying at the lowest point possible. If you think the stock is justified by trading at a premium, do not hesitate to buy. Any simple way of lowering costs will make you cash money. Trade accordingly.

Is This the Turning Point or Another Bear Market Rally?

Yesterday, the Dow crossed back over 7000 for the first time in a couple of weeks. Today, it crossed 7200. The question still hovers around us. Is this rally for real, or is it just another bear market rally? Stocks logged the highest gaining week since November. But what does this all mean? Will this rally continue? Is this the bottom? Is it time to make lots of cash money?

The turning point for stocks lies with the news of the economy and the financial markets. Look at the news that have given us four straight days of gains: Citi making money so far in the year, consumer confidence up, retail sales stabilizing. It takes lots of time for a bottom to settle. You don't just get several good days in the market and declare a bull. Yet, news like this will keep the markets in check for a while.

I don't want to be too quick to declare this a turning point or another short squeeze. Positive signs from banks, consumers, and reinstalling the uptick rule will defninitely help the market. However, there are still questions about credit, mortgages, and toxic assets. Until these questions get answered, I don't think we will see a true rally. Remember all those rallies and 'turning points' back in 2008? At the time they had some good news, but the good news only lasted a week at a time. Before putting your money back in, see what the news brings next week. We still have earnings season from the first quarter in several weeks. Don't just declare a turning point and put your money in. Wait for the biggest questions to be answered. See if the good news of yesterday prevails tomorrow. Until then, be cautious and question everything. The stock market tends to recover before the economy. Don't be a bear for too long, but don't turn bullish prematurely. There is always cash money to be made. You just have to be patient and choose what you think is right, not what everyone else thinks is right.

The Uptick Rule: Helping Stop the Downfall

The SEC chairman announced the plan to restore the uptick rule. Restoring this rule should return a little bit of confidence back to the market while helping keep the market from any sudden plunges. Let's take a quick look at the uptick rule and how the markets reacted when the rule was eliminated.

The uptick rule was formed back in 1934. The rule allows short sales only when the last price was higher than the previous price. If you wanted to sell GE and the bid was at 8.25, you would have to wait until the bid went up to short GE. You would probably want to put a limit at 8.27 so when the bid went up, the short immediately went through. This relieves stocks of sudden downward pressures to cause the stock price to plunge by requiring the stock to go up before you short it. Notice that the rule was initially formed in 1934 right after the 1929 crash. This rule was eliminated in July of 2007. We have not seen a fall like we have experienced over the last 6 months since the Great Depression when we formed it initially. When we saw firms like Bear Sterns and Lehman Brothers fall uncontrollably, the uptick would have slowed the decline and maybe saved some investors from steep losses.

The uptick rule should not be confused with naked short selling. Naked short selling allows the seller to put pressure on stocks without even buying the stock first. The ban, which was temporary and ended last fall, made the seller actually acquire the stock before shorting. This also relieved many financials from sinking too quickly. The uptick rule only applies to stocks, not ETFs or futures. Short selling is a very risky strategy. If you buy a stock and have it go to zero, you only lose what you invested. Should you short a stock and have it go up, you could lose much more than you have. I do not short and will not short, even in a bear market. Their are always bulls to be found. Should you find them, you do not only limit risks buy limiting your losses (unlike short selling), but you have a great opportunity to make cash money.

Rational or Emotional Take 2

After having some time to cool off and 'rationalize' how I had responded to the day's events, and to my previous post, I stand by my decisions but question the rationality, or rather the raw emotion, behind it. While I stand behind my final rational reasons for what I did, I would have to say that emotions affected the decision more than I thought they did originally.

When convincing myself I was rationalizing, I looked at a few select sentences in the news that told me what I wanted to hear. My emotions blinded me from seeing everything and as a result I limited the rationality we all need behind our decisions. For instance, the news said all shareholders on record as of March 11, 2009, by 7PM would receive the special dividend on March 12. As I went back and looked at the TWC website (the true soure of info pertaining to TWC), I found what the news should have said. To take part in the special dividend, one has to buy shares before March 9, 2009. They would then be recorded on March 11 to receive the dividend on March 12. While I was correct in my rational thinking that I would receive said dividends and that I should have set a stop limit beforehand, I was wrong by just accepting the first thing I read. If you really want to back up your decisions, you have to go to the source. I thought my decision was rational as most of it was, but my emotions clouded my judgement as I didn't check behind myself. I should add on to the previous questionaire (end of previous post) to always doublecheck the facts to make sure everything is how its supposed to be, not how you want it to be.

Some call investing a game, some call it gambling. I think it is a little bit of both. You can do as much homework as you want and be as rational as you want but the outcome isn't always what you may think it should be. The house can be compared to Wall Street. Things always seem to work out for the guys running the show. But in no way should you ever quit playing. That one good call you made will keep you coming back for more. Just remember that because something worked once doesn't mean it will work again. The more I keep playing, the more I learn and the more rational I become. Reading books and taking classes for this stuff will only teach you so much, and even some of that doesn't even apply to playing the game in real life. Experience is the only way to win. Don't get me wrong. You still need to do homework and evaluate the company. In the end, everyone will play. Only those who picked apart their failures and turned off their emotions will come out ahead. Only those will make cash money.

Rational or Emotional? You Make the Call

Today has been one of those glorious days when nothing seems to go right and looking back you learn a few things. I, like everyone else, lost a lot of money last year. After I lose money, I immediately start thinking of a way to make that money back plus some. When Time Warner first announced it was spinning off Time Warner Cable last year, I began brainstorming about when to buy, how much to buy, and what I could sell to buy. I learned that TWC was giving out a special $10.27 dividend when the split was complete. It was supposed to happen at the end of 2008 or beginning of 2009. I sold UNH and URBN right before Thanksgiving last year anticipating bad sales reports. I was right, there were bad sales reports, and these two stocks made the most sense to sell at that time. I actually sold UNH because I wasn't sure what Obama had in mind for healthcare reform, not because of Christmas sales. I immediately put that money into TWC. TWC has stayed pretty even for the last 3 months. The Wall Street Journal reported that shareholders as of March 11, 2009, at 7PM would receive the dividend from TWC on the following day. So when I got up this morning to see the open, I was really surprised and really pissed all at the same time that TWC was down $11. What was close to $20 a share was now trading at $7. It made no sense to me that 2 days before you had to be a buyer to get the special dividend, the stock would be down over 60%.

When I first saw that TWC was trading at $7, I just froze. I had no idea what was going on or why I had just lost $2,000. I then started scheming about which stock to sell to plunge right back into it to try and salvage what I could. What was originally supposed to be a trade to salvage most of UNH and URBN was now a trade to salvage TWC. I ended up selling RIMM. I really like RIMM and their products. So why sell? First, it was be easier to make up this loss than maybe MS or BAC. I wasn't in as deep here as I was in some of my other investments. Second, RIMM doesn't believe in themselves. Their predictions are always too low, they seem to be too conservative with numbers and products. If they can't believe in themselves, how can I then believe in them? That got me to thinking. Sometimes we don't believe in ourselves. If there is some goal we are trying to achieve, and we don't think we can do it, how is anyone else going to think we can do it? Third, rationality told me to do so. I needed to buy more. Why? When a company gives you free money to the tune of $10+ for every share you have, it is just plain stupid to not take advantage of. I decided I needed to double back in and halve my loss that I had taken so far. They are not canceling the dividend so why not invest more after a day like today?

When making decisions like this, you have to remember a few key things. First, does this make sense? Did buying a stock for a special dividend make sense? I think so. Second, is there a way out if the market, or I, decides to change its mind? How am I going to hedge myself against further loss? I wait until the end of the trading day on Wednesday and set a stop loss. If everyone decides to back out as soon as they get their money, I also am out along with all my money so I don't get pummeled again. Third, is my choice rational or emotional? I think what started out as emotional ended as a rational decision to lower my average cost and take advantage of free money. Who knows, that decision could earn me lots of cash money. At any rate, I learned a lot today. Although, none of it will matter if I refuse to admit this defeat or don't use this failure to ensure future success.

Biotech: The Possibilities Are Endless

The best growth spots occur when the economy is at its lowest. Why? If you can see growth when the economy is at its worst, the future only gets better once the economy gets back on track. Biotechnology has the potential to be one of the best performing sectors over the next 4 to 8 years. Why just 4 to 8 years? Obama is expected to lift the ban on stem cell research this coming week. A potential second term for Obama could give biotech companies another 4 years to patent their drugs. With all the R&D expenses biotech companies inhibit, a continuation of the ban could put some of the smaller companies out of business as capital dries up. Renewed energy to research and develop drugs, along with a renewed economy in the next year, could bring unlimited profits over the next several years for this industry.

Cancer is set to replace heart disease as the number one killer of Americans in the next few years. Additional research in stem cells could put scientists closer to a cure. Research has already showed that stem cells can replace damaged or missing cells anywhere in the body. If stem cells could be manipulated to replace and rid the body of cancerous cells, the possibilities are endless. Putting moral convictions and emotion aside, the drugs made by stem cell companies would bring in huge profits. With the elderly being the single largest age group in America, these profits could last for the next decade should R&D continue without problem. Even in a bear market it is possible to make cash money. You just have to keep an open mind.

Let Your Investments Resemble You

Every financial advisor has their own stock/bond allocation chart given a person's age. So if you were 20 years old, they might have you investing 80% of your portfolio in stocks with a large percentage in small cap. If you were 50 years old, that stock allocation might be reduced to 40-50% with an emphasis in large cap companies. While these might seem all well and good, there is a problem with the idea as a whole. Did you know that for those who are retired or who are getting ready to retire lost about 30% of their portfolio in the past year? Although that may have beaten the market, that doesn't quite seem like the optimal return to me when you are about to stop working.

Portfolio allocations have to resemble yourself. Are you a risktaker? Do you prefer dividends for yourself or R&D to grow the company? Are you investing in things you know or in things your advisor knows? One portfolio model does not work for everyone. Many people have gone to see an advisor and have had their portfolio dramatically changed. But did that advisor really know them or what they like? Obviously you do not want a portfolio full of risk when you are older and reaching retirement. However, some people do want to spend a little money on those small cap 'make or break' stocks. If you are set for retirement, you might not want any stocks at all. You have to do what is right for yourself. With the market as far down as it is, now might be the time to relieve yourself of bonds and swallow more stocks. If your portfolio is as far down as everone else's, then you might want to invest mainly in stocks to get that optimal return. Then again, are you a risk taker? You have to invest in yourself and the way you do things if you want to make cash money. Don't let anyone tell you otherwise. No one knows you better than yourself.

Have Stocks Given Us the Green Light?

A little over a week ago I wrote about why we hadn't hit the bottom yet. The market has fallen an additional 500 points in that one week span. The Dow and S&P have both hit 12 year lows. So now I ask again, is this the bottom? Is it finally safe to get in? While the market looks like an even better buy, the answer is still no. Why? For one, all the questions we asked before have not been answered. We have no more specifics on government involvement. Banks are getting more capital, but we still haven't seen a change in them. Consumer sentiment is down along with housing and manufacturing. The news has gotten worse so why buy now?

If you feel necessary to buy or adjust your portfolio, I would stick will large, blue chip companies. GE still has some problems but for that company to be at $8 right now is a steal. Microsoft under $20 is also a good buy. These companies are huge and will not go out of business. If you put these in your IRA, you have plenty of time for these to go up and give you great dividends. If you are just trading and want some growth, watch the dollar. With the dollar strengthening, commodity prices have been suppressed. If we see the dollar lose ground, commodities could be a big buy.

As for now, keep watching the news. With another quarter about to close in several weeks, earnings will be good to look at with any outlook given being the key. The market will not go up until we see positive economic indicators or see companies starting to see positive growth opportunities and give a positive outlook. A bear market is the perfect time to get yourself set to make some cash money. You just have to be patient and don't jump in too soon.

The American People Are Keeping This Economy Down

Economies run on consumers and everything they put into it. Sure, we can blame this crisis on banks and the government and all kinds of things. In the end, it is the American people who are keeping this economy down. Pessimism is what is ailing this economy. The government has started laying down the pathway to recovery. However, we have refused to walk down this pathway and have remained in hiding. We are constantly complaining and always pick out something we don't like about government spending and regulation. At this point it isn't us who have a say. We elected leaders to have that say for us. We need to get off this sense of pessimism that this financial crisis and recession will not end soon. The more we complain and refuse to do our duty, the longer we will have to be frugal wondering how much longer we have until our job is taken away.

The consumer confidence index is at historic low. People are not spending money and not wanting to do their part. Take these low rates and refinance your home. Take the stimulus and actually spend it. The sooner we get out of this recession, the sooner our investments go up. The financial markets will not recover if we keep moving money around in it. It all starts with the economy and the American people. At this point we can only help ourselves. Don't be afraid to spend that cash money and do your part.

Bonds: Making the Grade

Fixed income securities are one of the best places to be right now. Why? Because this is one of the safer places to make money, even if it barely outpaces inflation. Every corporate bond has a grade given out by Standard & Poor's and Moody's among others. So when investing in a corporate bond, you should probably consider looking at the grade along with the yield and the debt this company has run into. These grades are separated into two groups: investment grade and non-investment grade. Investment grade bonds are given to companies who have a strong balance sheet and income statement who have the capacity to pay back bondholders. They are the most reliable, stable companies with the highest quality bonds. They are given a grade from AAA to BBB. Non-investment grade bonds, also called junk bonds, are those companies who may be smaller companies with a short track record and are heavily invested in debt or it may be companies who are losing money. These companies are also usually sensitive to economic changes. They are given a grade from BB down to D. C means the company is close to bankruptcy. D means it has defaulted on its obligations. The lower the grade, the higher the yield. Companies who need the money the most will ultimately pay a higher yield. Investors also demand a risk premium for the level of risk they are taking on investing in a weak company.

While in a decent economic environment, it is perfectly acceptable to chase higher yielding bonds with a lower rating. As long as the economy is doing well and people are buying their product, the company should be able to pay back bondholders, even if it is a declining company. So why not go for the higher risk, higher reward. When times are good you can afford to be speculative. However, in times like this it is only the highest graded companies that you should invest in. These are companies that are large, stable, and have dominated their industry for years. These won't yield as much as junk bonds, but at least you will be making some money. We all have seen how reliable the stock market has been lately.

I want to warn you about investing in Treasuries. A lot of international investors and even countries are pouring money into the US government in exchange for bonds. While it is good that these countries are investing in the US, a word of caution. With all the money the government is spending, will they really have enough to pay back these bondholders? It will take years to get back money from the financial institutions we are supporting right now. Let's say things get worse in other countries and they want their money back. Where will we go to give them their money? Taxpayers? We can only print so much money. Right? Could we consider this to be the next bubble? There are only so many places to look to invest in and feel safe about. You should always examine even the most reliable of places to make sure you will be making cash money.

What Makes and Breaks Healthcare

Healthcare is by far the best performing sector and has been for quite a while now. It is important to understand the growth spots in the sector and the risks involved. The best industries to invest in for growth are the pharmaceuticals and biotech industries. These contain the companies that produce new drugs for different ailments. With the elderly as the single largest age group in America right now, healthcare will be strong for years to come. The companies that can come out with the best drugs to help these retirees, will be the companies with huge growth potential.

With these drugs and growth prospects come risks. Coming out with a new drug is a long and tedious process. It all begins with research. Once the company researches current drugs, diseases, and the effects, it will begin testing on animals. If all goes well, the company will submit an application to the FDA to begin human testing. If accepted, the company enters Phase I testing. Phase I involves testing on a handful of healthy individuals. It observes side effects and the overall life of the drug in the body. If Phase I subjects don't suffer any adverse reactions, Phase II research will be approved. Phase II involves only a couple hundred subjects who have a certain ailment or condition. This further researches the side effects and any changes. If these individuals do not suffer any adverse reactions, Phase III will be approved for testing. Phase III involves a few thousand subjects. This is where testing for proper dosage and testing with other drugs takes place. If the drug is effective and safe, the FDA will then put up the drug for marketing approval. If accepted, the drug will then be put on the market.

So where are the risks at? With any highly anticipated drug, there is a risk of approval. If the drug does not pass one of the clinical trials and is rejected by the FDA, the stock price will drop considerably. Another risk is competition. One has to look at any competing drugs or drugs that may arise to compete against said drug. A third risk would be patent expiration. Once a patent expires and that drug is sold OTC, growth and revenue will slow for that drug. So when looking at a pharmaceutical or biotech firm, you have to look at patent expirations, where a drug is at in the clinical trials, and any competition already on the market. If it passes the risk checks, you should probably invest in that company. It just might make you some cash money.