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.
Tuesday, December 22, 2009
Wednesday, December 16, 2009
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.
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.
Tuesday, December 8, 2009
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.
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.
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