The Personal Finance Blog

Futures Trading Suggest Possible $200/barrel Oil

2008-01-10T19:35:00.000-08:00

While many financial experts are predicting a plunge in oil prices as the American economy takes a dive, a few are still expecting oil prices to skyrocket over the next year. Over 5,000 futures contracts have been bought for $200/barrel oil. These contracts allow the owners to "lock in" to that $200 price should the price of oil go over that mark. The difference between the actual price and $200 is the profit per barrel for that trader. If the price fails to reach that level, the trader is out the price of the contract, which fluctuates on the open market.
Futures Market Traders Bet On $200/Barrel Oil In 2008 : TreeHugger

The Worst Credit Card Ever

2007-09-10T15:46:00.000-07:00

Money, Matter, and More Musings has found what is almost certainly the worst credit car offer ever. Check out some of these great fees:
- $99 account setup fee
- $89 program participation fee
- $49 annual fee
- $120 account maintenance fee
- 19.92% APR
- $30 authorized user fee
- $25 credit increase limit fee
- $4 internet payment fee

After the fees are collected from the $300 limit, the actual credit limit of this card is $53. This card is not just targeted at subprime borrowers, it's aimed at subprime people who are too stupid to realize they are getting screwed. There is no reason why anyone would be better off in any way with this card. There are so many alternatives, it's shocking that any company would so brazenly screw over people like this.
Danger Will Robinson: The World's Worst Credit Card - Consumerist

China Discusses Nuclear Option For US Dollar Holdings

2007-08-07T18:14:00.000-07:00

Chinese government officials have hinted that they have discussed selling off the country's US dollar holdings in retaliation for possible trade sanctions threatened by the United States. The US wanted to impose those sanctions to force a revaluation of the yuan, which is being manipulated to peg it to the dollar.

The so-called "nuclear option" could cause a historic collapse in the value of the dollar. Such a collapse could send the US into a recession, and would almost certainly have devastating effects on the housing market.

The problem starts with China's pegging of the yuan to the dollar. The yuan has barely appreciated in the past couple of years, despite the fact that the Chinese economy is booming. China has done this on purpose, as keeping the value of its currency low will keep the price of their exports low, which ensures high demand for those goods and steady employment for its people. It also means competing foreign companies can't compete with low-price Chinese goods.

China has nearly $1 trillion in US currency and bonds. If they were to liquidate these, it would have disastrous effects on not just the US market, but also other world markets through the contagion effect, which means that all world markets are tied together in a way that causes them to collapse like dominoes when one strong economy goes sour.

US officials are seeking diplomacy in the matter, as the Chinese nuclear option is clearly not good for anyone, including China.
China threatens 'nuclear option' of dollar sales - Telegraph

Berkshire Hathaway Annual Meeting Recap

2007-07-19T21:00:00.000-07:00

Warren Buffett knows how to put on a show. For decades now, he has gathered shareholders of Berkshire Hathaway together in Omaha for the annual meeting. While this year's meeting featured a game of horse between Buffett and Lebron James and a special performance by Jimmy Buffett (no relation to Warren), the stars of the show -- as always -- were Warren Buffett and Charles Munger, who together manage the vast assets of Berkshire Hathaway.

Buffett and Munger participated in a 6-hour question and answer session, with shareholders asking questions about investing in general, along with questions about such issues as global warming.

Buffett encourages all investors to do their reading. Knowing all the opposing views to investing allows an investor to determine the pros and cons of buying into a particular company. As Buffett said, if you can't write an essay why it would be a good idea to buy the company at the current market price, then you shouldn't buy stock in it.

One surprise answer involved shorting stocks. Buffett said that he was fine with shorting, and even ok if people decided to short Berkshire Hathaway stock. That, of course, would historically be a very poor decision.

For inexperienced investors who don't want to put the effort into investing, Buffett and Munger recommend index funds. Low-cost index funds beat hedge funds in the long run, they claim (and everything I've seen indicates that they are right about that 100% of the time). Of course, I would recommend Berkshire Hathaway stock as an excellent investment that is a lot like an index fund without any annual costs. Although the A shares are now price in six figures (that's right, over $100,000 for a single share), B shares are basically a small piece of an A share and sell for a few thousand dollars. I won't quote exact prices, because it's better for you to look it up and get a little investing homework done for the day.
Warren Buffett: Try index funds: Financial News - Yahoo! Finance

Google Disappoints, Drops 7%

2007-07-19T16:13:00.000-07:00

Shares of Google (GOOG) dropped 7% after their quarterly revenue report fell short of expectations. Profits were $3.56 per share, $.03 lower than analysts had expected. It's the first time in 11 quarters that Google has fallen short of expectations.
FT.com / In depth - Google falls short of expectations

Dow Jones Passes 14,000 For First Time

2007-07-17T15:16:00.000-07:00

The Dow Jones made it past 14,000 points for the first time ever today before closing at 13,971.55. The Dow passed 14,000 at two different points during the day, showing resilience from a possible drawback at the end of an earnings season surge.
^DJI: Basic Chart for DOW JONES INDUSTRIAL AVERAGE IN - Yahoo! Finance

Stocks Remain Stable; Dow Threatens 14,000

2007-07-16T18:38:00.000-07:00

The Dow Jones Industrial Average is now within 50 points of reaching 14,000 after a gain today of over 43 points. The most recent stock surge is the result of a fantastic earnings season from many American companies. Many are predicting continued good numbers going into the 3rd and 4th quarters.
^DJI: Summary for DOW JONES INDUSTRIAL AVERAGE IN - Yahoo! Finance

Dow Jones Sees Biggest Gains Since 2002

2007-07-12T15:11:00.000-07:00

The stock market brushed off fears of a looming recession and the weakening dollar today, as the Dow Jones Industrial average gained 283.86 points over its previous close, the biggest single day gain in 5 years.

It's reporting season, and today's report were clearly better than expected. Wal-Mart eased fears with a 2.4% increase in same store sales compared to last year.
Stocks soar to new highs on retail sales - Yahoo! News

Stocks Plunge 8% in China, Benchmarks Down 16% Since Wednesday

2007-06-04T18:53:00.000-07:00

Some warning signs in a state-owned financial newspaper, along with rumors of a capital gains tax increase, have sent Chinese benchmark stocks plunging 15% in the past week. While that's a steep decline in such a short time, it's hardly a crash. The Chinese stock market is still way up in the past five years.

I was looking over the options for my TIAA-CREF retirement plan today, and it got me thinking about Chinese investments. China has tried hard in the past decade to keep their currency undervalued. They want as many countries as possible investing in China and its cheap goods, despite the fact that they are still technically a Communist country. In today's connected world, avoiding capitalism is impossible. Countries will always be able to produce goods that foreigners will want to buy for a higher price than domestic buyers.

Which gets us back to China and its goods. China has over a billion people. They cannot survive without working hard, and working hard often involves manufacturing goods. As China has begun to emerge on the world economic scene, finally ignoring the hypocrisy of mixing "a little capitalism" with their Communist government, they have grown richer. The government still insists that the Chinese people own the companies within its borders. That might be a bad general business practice, but it does ensure that many Chinese are accumulating enough to buy things on a scale similar to the western world.

When China starts buying lots of frivolous goods, as much of the capitalist world does, they will not be buying cheap stuff from the United States. American goods are too expensive. They will be buying the same cheap Chinese goods that the rest of us buy. That means an increased demand. That means higher prices, higher revenue, and expanding companies.

The point I'm getting at here is that China is not sitting on an economic bubble right now. This past week has been a minor correction. I don't even think I should call it that, because the correction might not be correct. I think it's an overreaction to some carelessly worded news releases and unsubstantiated rumors. Not only will this market recover quickly, but it will continue to grow at a rapid pace for many years to come. I think I'll weigh my TIAA-CREF a little more heavily towards the foreign growth stocks.
Stocks Plunge 8% in China, Benchmarks Down 16% Since Wednesday - Seeking Alpha

Some Great Tips For Retirement Savings

2007-05-28T08:23:00.000-07:00

Do you want to retire when you're 50? You need to start saving now, and you need to do it in a way that most American's don't have the willpower to do.

Some people have a goal of retiring early. The best way to achieve this is to save a huge percentage of your take-home pay and put it in an investment fund. Actually, that's the second best way. The best way is to inherit a huge sum from your Great Aunt Patty.

Saving and investing as much as 20% of take-home pay is not possible for most Americans. They have too many financial commitments, such as a mortgage, car payment, alimony, etc. That's too bad, because it's very hard for them to change paths now and switch over to the "high-saving, less spending" path. They should have planned ahead.

If you are not bogged down with these financial commitments, you should see yourself at a fork in the road of your financial life. Do you want to live it up, drive cool cars and a boat and retire when you're 65 or 70, or do you want to live a more subdued lifestyle and retire 15 years earlier. If given that choice, most people will say they would choose the latter, even though most people actually go with the former in real life.

I've linked to an article below that will explain more of the details about saving and investing to help you retire early. Just remember my advice: don't buy a house in a hot market and don't buy a new car. Those luxuries will flush your early retirement right down the crapper. Like Nancy Reagan said, "Just Say No."
The Simple Dollar » I’m Twenty Years Old And Have No Debt - When Can I Retire And Live Off My Investments?

How To Beat The Stock Market: Buy Companies With High Customer Satisfaction Scores

2007-05-18T04:09:00.000-07:00

Companies with high customer satisfaction scores outperform the rest of the stock market by a wide margin, according to a new study by Journal of Marketing. It seems like a no-brainer that companies whose products and services are appreciated by consumers would do better in the stock market, but very few people have been making trades exclusively on this criteria. People still buy companies like Dell and Gateway (sorry, I've been thinking a lot about crappy computers lately), even though studies often show that their own customers are fed up with them, particularly that study I did of people who live in my bedroom and own both computer brands.
How To Beat The Stock Market: Buy Companies With High Customer Satisfaction Scores - Consumerist

Dow Closes At Record High... Everybody Panic!

2007-04-18T20:26:00.000-07:00

The Dow Jones Industrial average closed above 12,800 for the first time today. It also reached an intraday high of 12,838.46, breaking a record set nearly two months ago. That last high was followed by significant sell-offs. Will this one follow suit?

While I think there will probably be a small pullback tomorrow and possibly again on Friday, the numbers seem aligned to hold in this position or go higher in the coming months. Economic data has been better than anticipated recently, and the markets are still in the process of rewarding that news. There is some bad news. The housing market is in free-fall in some areas, and the dollar is being destroyed on the foreign exchange markets.

The threat of an interest rate hike is every-present, which could keep the markets from soaring too far past this current psychological barrier.
CNNMoney.com Market Report - Apr. 18, 2007

Tracking Billionaires: Nelson Peltz

2007-04-09T19:15:00.000-07:00

A good investor often learns from successful investors who came before them. Following Warren Buffett has become a hobby for a large group of investors. The problem is too many people are following one man who has probably has much different investment goals.

Nelson Peltz is a very successful investor who has many of the same investing ideals as Buffett. His main difference is that he likes to take more control over companies that he invests in. His focus has often been on companies that have little competition but aren't utilizing their positions to make a lot of money. Buffett would refer to this situation as "having a moat", and he has also preferred these companies. Peltz buys huge chunks of these companies, gets his men on the board, and then makes changes to turn the company around. For an example of what he's done, look at Heinz from the summer of '06 to the spring of '07. That's the Peltz impact.

I suggest you look into what Peltz is doing and figure out what investments of his are worth following for your own investment goals.
Nelson Peltz - Wikipedia, the free encyclopedia

Ten Books Every Investor Should Read

2007-04-02T21:43:00.000-07:00

I've probably hit on this topic before, but I just want to dish out another great list of the top investing books. If you go to any book store, chances are they have a small section loaded with books about investing. Most of them are horrible, and are just short of scams printed on 500 sheets of paper.

There are some great investing books out there. They are written by the likes of Benjamin Graham, Peter Lynch, Warren Buffett (in essay form) and Phillip Fisher. Check out the link below for the complete list. Oh, and ignore the advice on "Rich Dad, Poor Dad", I consider that book to be garbage. You are free to read it and form your own opinion, if you don't want to trust me.
Ten Books Every Investor Should Read

A Critic Takes On Debt Consolidation

2007-03-27T15:38:00.000-07:00

One popular voice of the personal finance world is Dave Ramsey. He's heard all those debt consolidation offers on TV, and it seems that he's grown tired of them. He even goes as far as to call them scams.

Here's basically what Ramsey claims: debt consolidation provides a false sense of security that causes people to accumulate more debt. This is probably true, but unlike Ramsey, I don't blame debt consolidation. The problem is people can be very stupid.

Debt consolidation makes rational sense. It puts your debts in one basket, and allows you to pay a lower amount to pay off the debt. That's a good thing. Unfortunately, people will think it's the solution to all of their debt problems, and continue their poor spending habits.

The important thing to realize about debt consolidation is that not all companies are the same. Some ARE bad. They offer a low interest rate, and then hide the fact that they are extending the term. Heck, anyone could do that. I'll let you pay 10% less than you're paying per month now, but I'm going to extend your term for 40 years.

Find a reputable company, and make sure you figure out how much money you will be paying in total. Compare that to the total you are paying without consolidation. If you can consolidate for the same term it makes the equation a lot easier. $500 monthly for 72 months is obviously better than $800 for 72 months, etc.

Do not write off debt consolidation as a scam. It can work, but only if it's part of the solution. The other part is spending less money than you earn for an extended period of time.
The Truth About Debt Consolidation

10 Reasons You Aren't Rich

2007-03-25T20:28:00.000-07:00

I found another great post explaining why you aren't rich. Of course, I don't know you, you might be rich. If that's the case, please read. This is for the 98% of Americans who are nowhere near rich.

One of the most important reasons is patience. People used to have to save money before buying something. Now they buy it first with a credit card, then pay off the credit card later. Things are not relatively more expensive due to inflation, they are relatively more expensive because people are paying the retail price plus credit card interest.

Read the article for the rest:
10 Reasons You Aren't Rich

A HUGE List of Forex Resources

2007-03-25T09:16:00.000-07:00

The site linked to at the bottom of this post has an essential collection of resources for the foreign exchange trader. Whether you need to learn the fundamentals of trading currency, or you'd like to become an expert on Fibonacci numbers and candlesticking, there is something here for everyone. This is not an ad.
Forex Blog: Get Started Investing in Forex: 37 Tutorials, Tools & Resources

Did Jim Cramer Say Too Much?

2007-03-22T18:42:00.000-07:00

Jim Cramer was once a very successful hedge fund manager. Now he has admitted to some buying and selling strategies that were not exactly legal.

On a recent webcast hosted by TheStreet.com, Cramer boasted that he manipulated prices to make a profit. With the vast resources of a hedge fund, he would have been able to move prices on just about any stock he wanted. Basically, he just wanted to create enough activity to move the stock's momentum in one direction, which would cause the price change he was looking for on the futures contracts.

So the question is, will Jim Cramer face prosecution for this admission? The answer is likely "no", since those alleged actions took place 20 years ago and we all know the SEC isn't very good at keeping the books. If they don't have records of actual trades that were attempts to manipulate prices, they don't have a case.
CRAMER REVEALS A BIT TOO MUCH By RODDY BOYD - Business - New York Post Online Edition

Stock Market Tanks, Is Drudge Report To Blame?

2007-02-27T17:22:00.000-08:00

The stock market saw it's worst one day drop in several years today, spurred on by big loses in the Chinese market. There were other factors in play, however.

Yesterday, the Drudge Report ran a headline that read "Greenspan warns of likely U.S. recession". Like most headlines on the Drudge Report, it was taken out of context, from an Associated Press article, which also acted irresponsibly by highlighting the quote from the former Fed chairman.
Here's the full quote:

"When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign. For example in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle. While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown."

That's typical Greenspan. Warn the public during good times (like the 8-month run-up in the US markets), and encourage them in bad times. Some took that out of context and thought the Maestro knew something we didn't, and got in on the selling today.

Now is still a great time to invest. It's certainly a better time than 9:00 this morning.
USNews.com: Opinion: Capital Commerce: : Did the Drudge Report Help Tank the Stock Market?

10 Stocks to Last the Decade, Revisited

2007-02-14T16:17:00.000-08:00

Investing publications like Forbes and Smart Money are constantly making lists of "smart investments" over a certain time period within a certain sector. They should always be held accountable for these lists, whether they want to revisit them or not.

In 2000, Forbes made a list of 10 stocks that would last a decade. These were supposed to be the smart "safe" bets. Here's a sampling, with performance to date: Broadcom (78%), Nokia (45%), Univision (42%), and Oracle (53%). If you do the math, you'll find that the return on these stocks over 7 years is pretty terrible. Those are not the worst. Morgan Stanley has returned 0% in those 7 years. Adjust for inflation, and you've got a big loser. The worst is the one pick that did not last a decade as Forbes claimed. It didn't even last a full 2 years. That company was Enron. Overall, this list shows how dangerous it can be to blindly trust investing publications.
10 Stocks to Last the Decade, Revisited [Fool.com] February 02, 2007

Charles Munger and the Psychology of Mispricing

2007-02-09T23:09:00.000-08:00

Charles Munger, perhaps best known as Warren Buffett's partner at Berkshire Hathaway, has some investing methods that go beyond our dear friend Warren's idea of valuation. Munger is a firm believer in psychology playing a major role in stock pricing.

I'm not trying to say that Buffett ignores psychology completely. It certainly is a part of his mentor Benjamin Graham's "Mr. Market" metaphor. Munger's idea goes a little further than just a market that is over-exuberant or overly pessimistic about a stock. He looks at different emotions that could cause mispricing.

An example: people who own large cap stocks might be jealous of smaller caps that have performed over the last 10 years. They will invest in those smaller caps, which leads to them having a higher P/E multiple than larger cap competitors in the same industry. That seems to be the opposite of what we would predict without an psychological factors. Since the larger caps are less volatile and therefore less risky, shouldn't they trade at a premium?

The answer is yes, and you should consider this before investing. A large cap that has underperformed over the past 5 years is still likely a better company to own than a small cap that has had exponential growth but could face very rough waters ahead from emerging competitors with enough money to "outspend" them in the market.
Applying Munger’s Latticework -- GuruFocus.com

Another Rant Against Jim Cramer

2007-02-07T17:11:00.000-08:00

Jim Cramer is probably the most well-known stock picker in the world right now. His flamboyant style has made his show the cornerstone of the CNBC network. People just love to see a man yell and throw things while talking about stocks.

The problem with Jim Cramer is simple: his stock picks aren't very good. He gives some great advice about doing lots of homework and spending a lot of time studying investments, but then he flips it around and gives out picks to anyone who can manage to get their phone call heard over the air. A portfolio of his recommendations would perform dismally, according to several groups who follow his picks. Some have shown performance of less than 1%, with others finding his picks have actually lost money in the past year, even though the Dow and S&P have surged to double digit gains.

Henry Blodget's Slate column is a bit of a joke, because Blodget happens to have a very checkered past with the securities world, but he happens to be spot on about Cramer. It may be a case of the pot calling the kettle black, but that doesn't change the fact that he's right. I wouldn't repeat his claim that Cramer is the worst thing to happen to the financial security of average Americans since the crumbling of the Social Security system, because some will actually take his advice to do their own homework. Unfortunately, others just write down his stock picks and buy them in the morning.

Technorati Tags: cramer, mad, money, investing

Do Benjamin Graham's Methods Still Work?

2007-01-27T11:09:00.000-08:00

I read this interesting article on Slate.com that claims the stock picking methods of Benjamin Graham will no longer work. The basis for this argument is that computers have made stock screening so easy that any undervalued stock will be recognized almost immediately by a screener and people will buy it, driving up the price until it is no longer undervalued.

I disagree with most of this argument for one main reason: stocks still become undervalued all the time, and over the course of weeks and months their prices recover to their more natural level, bringing in big gains to whoever investing in them at the lower point. If computer screeners are so effective, why do stocks take sudden dives or surges, even when no big news from a company is announced. We should expect stocks to see very little real movement at all, a plateau if you will, if the premise that screeners create constant fair market value is correct.

I have used plenty of screeners, and the key feature of them all is that they are customizable. There is no screener that has a "look for stocks that are undervalued and are going to go up very quickly" mode. You have to enter in the type of stock you're looking for, such as over $5 billion in assets, P/E ratio under 20, blah blah blah, and then it finds those companies for you. There are no guarantees that those companies will gain or lose value any time soon.

One very interesting thing I've found is that screeners often have default settings for things like "Graham stocks" or "Buffett stocks", which are screens that supposedly use the criteria of those investors to find the stocks they would invest in, as if each legendary investor had a formula they used to pick all stocks. Once, I tried using three different screeners to find what they considered "Graham stocks". Although there were a couple common stock picks, no two came up with the same list. That's because they each used different criteria to determine what Graham would have picked. I guess he must have been schizophrenic.

Technorati Tags: benjamin, graham, stocks, investing

TheStreet Ratings Of 10 Great Value Stocks

2007-01-25T17:03:00.000-08:00

I was taking a look at the weekly stock ratings at TheStreet.com, and they really found some winners in their value stock category. Hewlett-Packard is not so high on my list, but Raytheon (RTN) is a great stock pick and great company. Would you prefer a product sales pitch to back that statement up? Well then, today Raytheon was showing off a new ray gun that will go into use by the U.S. military in a couple years. The gun does not hurt its victims, but rather gives them the sensation that their clothes are about catch fire. I'm told it's very annoying, and could be great for crowd dispersal when used by riot police.

Paccar (PCAR) is a company that makes trucks for commercial use. You might recognize their Peterbilt, Kenworth, and DAF brand names. They are already a great company from a financial perspective, but look for them to see increase profits from higher freight volumes and stronger profitability from its customers. I wouldn't worry about the possibility of lower automobile freight, which at this time is just speculative, and I think could just as easily go the other way with foreign manufacturers shipping more cheap cars to the American market.

Technorati Tags: finance, value, stocks, investing

Real-Time Quotes Coming To Google Finance

2007-01-12T14:58:00.000-08:00

Google Finance is going to be getting a big upgrade, thanks to a ruling from the SEC and an agreement with the New York Stock Exchange which will allow Google to display real-time stock quotes.

Google Finance currently shows stock prices delayed by 15 to 20 minutes. That's too long for many traders, especially pseudo-day traders who may not trade back and forth multiple times a minute but attempt to make several trades each hour. The price may have already changed drastically by the time they've seen the price and reacted with a trade offer.

Please note that this is basically level 1 quotes that Google Finance will be getting. To get level 2 quotes, which includes volume and individual buy/sell orders on the board, you'll still have to open a decent-sized account with a major electronic brokerage.
Official Google Blog: Real-time quotes for free