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.
Tuesday, September 15, 2009
Friday, September 11, 2009
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.
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.
Thursday, September 10, 2009
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.
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.
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