Investors in mutual funds, which are among the most common ways for individuals to participate in the stock market, pulled more than $205 billion out of stock funds between September 2008, when equities plunged, to the end of March, when they began their rally, according to data from the Investment Company Institute. During the same period, small investors sought the safety of cash, pouring $357 billion into money-market funds.
In contrast, only $56 billion returned to stock funds between April and the end of August, the most recent date for which data are available. Money-market-fund levels remained high.
Many Small Investors Have Sat Out Rally
Rebound Driven by Institutional Clients
The Dow closed above 10,000 on Wednesday. (By Travis Fox -- The Washington Post)
By Tomoeh Murakami Tse
Washington Post Staff Writer
Thursday, October 15, 2009
NEW YORK, Oct. 14 -- Wall Street may be cheering the rally in the U.S. stock market, but many individual investors watched the Dow Jones industrial average soar past the 10,000 mark Wednesday on the sidelines.
Still shell-shocked from the ravaging of their retirement accounts during the financial crisis, mom-and-pop investors remained cautious as the Dow soared 53 percent from its March 9 low to Wednesday's closing price of 10,015.86.
The likely drivers of the rally are instead institutional investors such as large pension funds and hedge funds, market analysts said. And in interviews over the past two weeks, fund managers and financial advisers said most small investors have only recently begun to talk about getting more aggressive with their beaten-down portfolios.
"For the first six months of the year, people just had their heads down. I don't know how many people told me they haven't looked at their statements," said Dan Lash, a financial planner in Vienna.
It was only last month, when the Dow had already recovered more than 40 percent of its losses, that Charlotte and Larry Vass of La Plata, Md., decided they were ready to consider taking a less conservative stance. The Vasses had been mostly invested in stocks two years ago but began pulling out last fall as markets were pummeled after the collapse of the Wall Street investment bank Lehman Brothers. Over the past year, the Vasses also moved deeper into bonds, said Charlotte, who is in her late 50s.
"Back then, we were in shock," she added.
While the couple plan to keep their portfolio more balanced, Charlotte and her husband, a dentist, have asked their financial planner to be a little more aggressive. They have begun adding money -- slowly -- to stock index funds, she said.
"If your 401(k) turns into a 201(k), you can't get it back in a couple of years," said Charlotte, adding that retirement, which the couple thought might come in a few years, has been pushed further down the road.
Investors in mutual funds, which are among the most common ways for individuals to participate in the stock market, pulled more than $205 billion out of stock funds between September 2008, when equities plunged, to the end of March, when they began their rally, according to data from the Investment Company Institute. During the same period, small investors sought the safety of cash, pouring $357 billion into money-market funds.
In contrast, only $56 billion returned to stock funds between April and the end of August, the most recent date for which data are available. Money-market-fund levels remained high.
"This market rise certainly is not being driven by mutual fund investors," said Brian Reid, the ICI's chief economist. "Mutual fund flows are not causing this run-up, and I would think that probably carries over for retail investors in general."
In fact, there's evidence that small investors in the past few months have once again been moving money out of U.S. stocks. On a weekly basis, small investors took out $2 billion to $4 billion more than they put into funds focusing primarily on domestic stocks from July to September, Reid said.
ICI data show that small investors have been pushing into bonds this year, taking advantage of falling interest rates and rising prices. During the first eight months of the year, $220 billion flowed into bond funds.
This Story
The Dow Passes Mile 10,000 on Road to Recovery
Many Small Investors Have Sat Out Rally
A Look Back: The Dow's First Time Crossing the 10,000 Mark
Market Milestones
"Last year is going to change people's risk tolerance for a long time to come," Lash said. "They're not going to have a diversified stock-only portfolio. They realize that everything went down the same last year. There was nowhere to hide except Treasurys and cash."
According to Christine Parker, president of Parker Financial in La Plata, many small investors have adopted a less-than-go-go outlook.
"There's the pessimism of 'Is this just short-lived? Will this last?' " said Parker, many of whose clients are female executives in their 40s and 50s and retirees. "People are worried about consumer spending and the ending of the stimulus." In particular, she said, investors are wondering what will happen to the economy after the government's $8,000 tax credit for first-time home buyers expires at the end of November.
As stocks go higher, warnings from investment strategists that the market has increased too far, too fast have grown louder.
"We've had this wonderful run-up. What you have to be concerned about is that valuations have become stretched," said Brett Hammond, chief investment strategist at TIAA-CREF. "Markets tend to anticipate economic news, but they don't necessarily predict it. The economic news is better than it was, but it's certainly not rosy."
On Wednesday, as the closing bell approached on the New York Stock Exchange, Charlotte Vass said she had no regrets about not returning to the market sooner.
"We're cautiously optimistic, so it makes sense to move back in more slowly," she said. "The market is a fickle lady."
http://www.washingtonpost.com/wp-dyn/content/article/2009/10/14/AR2009101403657_2.html?nav=emailpage&sid=ST2009101404142
Friday, 16 October 2009
Thursday, 15 October 2009
TRADING PARTICIPATION BY CATEGORY OF KLSE INVESTORS
The graph is updated mid-month, e.g. January's data is updated in mid February
Oct 08 - Dec 08
Domestic Individual 4% 31% 23%
Domestic Institution 36% 34% 34%
Foreign 40% 35% 43%
Jan 09 - Mar 09
Domestic Individual 26% 22% 22%
Domestic Institution 42% 40% 40%
Foreign 32% 38% 38%
Apr 09 - Jun 09
Domestic Individual 36% 42% 43%
Domestic Institution 41% 37% 36%
Foreign 23% 21% 21%
Jul 09 - Sept 09
Domestic Individual 30% 30% 26%
Domestic Institution 47% 46% 45%
Foreign 23% 24% 29%
Graphical format:
http://www.klse.com.my/website/bm/market_information/market_statistics/equities/downloads/trading_participation_investor2009.pdf
Warren Buffett's Priceless Investment Advice
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
So buying great companies at reasonable prices can deliver solid returns for long-term investors. The challenge, of course, is identifying great companies and determining what constitutes a reasonable price.
If investing in wonderful companies at fair prices is good enough for Warren Buffett -- arguably the finest investor on the planet -- it should be good enough for the rest of us.
The devil is in the details.
http://myinvestingnotes.blogspot.com/2009/07/warren-buffetts-priceless-investment.html
So buying great companies at reasonable prices can deliver solid returns for long-term investors. The challenge, of course, is identifying great companies and determining what constitutes a reasonable price.
If investing in wonderful companies at fair prices is good enough for Warren Buffett -- arguably the finest investor on the planet -- it should be good enough for the rest of us.
The devil is in the details.
http://myinvestingnotes.blogspot.com/2009/07/warren-buffetts-priceless-investment.html
Is the market over-valued?
9.10.2009
KLCI index 1230.09
Market PE 23.53
EY = 1/PE = 4.25%
Risk free FD interest rate = 2.5%
Equity risk premium = 4.25 - 2.5 = 1.75%
Equity risk premium = earnings yield (1/market PE) - the risk free rate.
> 3.5%, market is undervalued
< 0.6%, market is overvalued
0.6% to 3.5%, market is fairly valued.
So, presently, the market is neither undervalued nor overvalued, but trading at fair value.
http://myinvestingnotes.blogspot.com/2009/07/when-is-market-over-valued.html
KLCI index 1230.09
Market PE 23.53
EY = 1/PE = 4.25%
Risk free FD interest rate = 2.5%
Equity risk premium = 4.25 - 2.5 = 1.75%
Equity risk premium = earnings yield (1/market PE) - the risk free rate.
> 3.5%, market is undervalued
< 0.6%, market is overvalued
0.6% to 3.5%, market is fairly valued.
So, presently, the market is neither undervalued nor overvalued, but trading at fair value.
http://myinvestingnotes.blogspot.com/2009/07/when-is-market-over-valued.html
"SALE! 50% OFF!"
Stocks are crashing, so you turn on the television to catch the latest market news.
"Falling stock prices would be fabulous news for any investor with a very long horizon."
"You Ain't Seen Nothin' Yet."
It is to be expected that the price of a stock can goes down by a third and can goes up by a half, even in normal market situations.
In fact, when the market is being sold down, the long term value investor gets excited and enthused.
The risk is not in the price volatility.
•The risk is in oneself, reacting "stupidly" to price fluctuations.
•The other risk of course is making a wrong assessment of the future earnings and future earnings growth of the business of the company you bought.
http://myinvestingnotes.blogspot.com/2009/07/news-you-could-use.html
Investment Owner's Contract
http://myinvestingnotes.blogspot.com/2009/07/investment-owners.html
Market Price Fluctuations
http://myinvestingnotes.blogspot.com/2009/07/52w-hg-1.html
"Falling stock prices would be fabulous news for any investor with a very long horizon."
"You Ain't Seen Nothin' Yet."
It is to be expected that the price of a stock can goes down by a third and can goes up by a half, even in normal market situations.
In fact, when the market is being sold down, the long term value investor gets excited and enthused.
The risk is not in the price volatility.
•The risk is in oneself, reacting "stupidly" to price fluctuations.
•The other risk of course is making a wrong assessment of the future earnings and future earnings growth of the business of the company you bought.
http://myinvestingnotes.blogspot.com/2009/07/news-you-could-use.html
Investment Owner's Contract
http://myinvestingnotes.blogspot.com/2009/07/investment-owners.html
Market Price Fluctuations
http://myinvestingnotes.blogspot.com/2009/07/52w-hg-1.html
Glove companies
Valuation
Supermax, Topglove and Kossan
http://spreadsheets.google.com/pub?key=tIzNTWdhdVSJ803HE80Xn8Q&output=html
PBB 15.10.2009
Valuation:
http://spreadsheets.google.com/pub?key=tE7ISnWkuQCAPx-5JJTDp6g&output=html
Published: Thursday October 15, 2009 MYT 1:59:00 PM
Public Bank net profit higher by 3.7%
KUALA LUMPUR: Public Bank Bhd posted a 3.7% rise in net profit for its third quarter ended Sept 30, at RM639.04mil compared with RM616.34mil recorded a year ago on higher loans growth and deposits.
Revenue for the period was RM2.438 billion, compared with the RM2.79 billion a year ago. Earnings per share were 18.52 sen compared with 18.37 sen.
For the nine-months ended Sept 30, 2009, net profit declined to RM1.839 billion compared with RM1.927 billion. Revenue slipped to RM7.22 billion from RM7.94 billion.
Public Bank said excluding the one-off goodwill income from ING in 2008, the group’s underlying operating net profit for the nine-months increased by 3% from a year ago.
http://biz.thestar.com.my/news/story.asp?file=/2009/10/15/business/20091015135755&sec=business
Seven Forehead-Slapping Stock Blunders
Seven Forehead-Slapping Stock Blunders
by Glenn Curtis
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Ignorance may be bliss, but not knowing why your stocks are failing and money is disappearing from your pockets is a long way from paradise. In this article, we'll uncover some of the more common investing faux pas, as well as provide you with suggestions on how to avoid them.
1. Ignoring Catalysts
The financial pundits, trade journals and business schools teach that proper valuation is the key to stock selection. This is only half of the picture because calculating P/E ratios and running cash flow spreadsheets can only show where a company is at a given point in time - it cannot tell us where it is heading.
Therefore, in addition to a quantitative evaluation of a company, you must also do a qualitative study so that you can determine which catalysts will drive earnings going forward.
Some good questions to ask yourself include:
•Is the company about to acquire a very profitable enterprise?
•Is a potential blockbuster product about to be launched?
•Are economies of scale being realized at the company's new plant and are margins about to rise dramatically?
•What will drive earnings and the stock price going forward?
2. Catching the Falling Knife
Investors love to buy companies on the cheap, but far too often, investors buy in before all of the bad news is out in the public domain, and/or before the stock stops its free fall. Remember, new lows in a company's share price often beget further new lows as investors see the shares dropping, become disheartened and then sell their shares. Waiting until the selling pressure has subsided is almost always your best bet to avoid getting cut on a falling knife stock. (To learn more, read How Investors Often Cause The Market's Problems.)
3. Failing to Consider Macroeconomic Variables
You have found a company you want to invest in. Its valuation is superior to that of its peers. It has several new products that are about to be launched, and sales could skyrocket. Even the insiders are buying the stock, which bolsters your confidence all the more.
But if you haven't considered the current macroeconomic conditions, such as unemployment and inflation, and how they might impact the sector you are invested in, you've made a fatal mistake!
Keep in mind that a retailer or electronics manufacturer is subject to a number of factors beyond its control that could adversely impact the share price. Things to consider are oil prices, labor costs, scarcity of raw materials, strikes, interest rate fluctuations and consumer spending. (For more on these factors, see Macroeconomic Analysis and Where Top Down Meets Bottom Up.)
4. Forgetting About Dilution
Be on the lookout for companies that are continuously issuing millions of shares and causing dilution, or those that have issued convertible debt. Convertible debt may be converted by the holder into common shares at a set price. Conversion will result in a lower value of holdings for existing shareholders
A better idea is to seek companies that are repurchasing stock and therefore reducing the number of shares outstanding. This process increases earnings per share (EPS) and it tells investors that the company feels that there is no better investment than their own company at the moment. (You can read more about buybacks in A Breakdown Of Stock Buybacks.)
5. Not Recognizing Seasonal Fluctuations
You can't fight the Fed. By that same token, you can't expect that your shares will appreciate even if the company's shares are widely traded in high volumes. The fact is that many companies (such as retailers) go through boom and bust cycles year in and year out. Luckily, these cycles are fairly predictable, so do yourself a favor and look at a five-year chart before buying shares in a company. Does the stock typically wane during a particular part of the year and then pick up during others? If so, consider timing your purchase or sale accordingly. (To learn more, see Capitalizing On Seasonal Effects.)
6. Missing Sector Trends
Some stocks do buck the larger trend; however, this behavior usually occurs because there is some huge catalyst that propels the stock either higher or lower. For the most part, companies trade in relative parity to their peers. This keeps their stock price movements within a trading band or range. Keep this in mind as you consider your entry/exit points in a stock.
Also, if you own stock in a semiconductor company (for example), understand that if other semiconductor companies are experiencing certain problems, your company will too. The same is true if the situation was reversed, and positive news hit the industry.
7. Avoiding Technical Trends
Many people shy away from technical analysis, but you don't have to be a chartist to be able to identify certain technical trends. A simple graph depicting 50-day and 200-day moving averages as well as daily closing prices can give investors a good picture of where a stock is headed. (To learn about this method, read the Basics Of Technical Analysis.)
Be wary of companies that trade and/or close below those averages. It usually means the shares will go lower. The same can be said to the upside. Also remember that as volume trails off, the stock price typically follows suit.
Lastly, look for general trends. Has the stock been under accumulation or distribution over the past year? In other words, is the price gradually moving up, or down? This is simple information that can be gleaned from a chart. It is truly surprising that most investors don't take advantage of these simple and accessible tools.
The Bottom line
There are a myriad of mistakes that investors can and do make. These are simply some of the more common ones. In any case, it pays to think about factors beyond what will propel the stock you own higher. A stock's past and expected performance in comparison to its peers, as well as its performance when subjected to economic conditions that may impact the company, are some other factors to consider.
To read about more investor follies, check out Seven Common Investor Mistakes, Learning From Others' Mistakes and Seven Common Financial Mistakes.
by Glenn Curtis, (Contact Author | Biography)
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses.
http://www.investopedia.com/articles/basics/08/blunders.asp
by Glenn Curtis
Ignorance may be bliss, but not knowing why your stocks are failing and money is disappearing from your pockets is a long way from paradise. In this article, we'll uncover some of the more common investing faux pas, as well as provide you with suggestions on how to avoid them.
1. Ignoring Catalysts
The financial pundits, trade journals and business schools teach that proper valuation is the key to stock selection. This is only half of the picture because calculating P/E ratios and running cash flow spreadsheets can only show where a company is at a given point in time - it cannot tell us where it is heading.
Therefore, in addition to a quantitative evaluation of a company, you must also do a qualitative study so that you can determine which catalysts will drive earnings going forward.
Some good questions to ask yourself include:
•Is the company about to acquire a very profitable enterprise?
•Is a potential blockbuster product about to be launched?
•Are economies of scale being realized at the company's new plant and are margins about to rise dramatically?
•What will drive earnings and the stock price going forward?
2. Catching the Falling Knife
Investors love to buy companies on the cheap, but far too often, investors buy in before all of the bad news is out in the public domain, and/or before the stock stops its free fall. Remember, new lows in a company's share price often beget further new lows as investors see the shares dropping, become disheartened and then sell their shares. Waiting until the selling pressure has subsided is almost always your best bet to avoid getting cut on a falling knife stock. (To learn more, read How Investors Often Cause The Market's Problems.)
3. Failing to Consider Macroeconomic Variables
You have found a company you want to invest in. Its valuation is superior to that of its peers. It has several new products that are about to be launched, and sales could skyrocket. Even the insiders are buying the stock, which bolsters your confidence all the more.
But if you haven't considered the current macroeconomic conditions, such as unemployment and inflation, and how they might impact the sector you are invested in, you've made a fatal mistake!
Keep in mind that a retailer or electronics manufacturer is subject to a number of factors beyond its control that could adversely impact the share price. Things to consider are oil prices, labor costs, scarcity of raw materials, strikes, interest rate fluctuations and consumer spending. (For more on these factors, see Macroeconomic Analysis and Where Top Down Meets Bottom Up.)
4. Forgetting About Dilution
Be on the lookout for companies that are continuously issuing millions of shares and causing dilution, or those that have issued convertible debt. Convertible debt may be converted by the holder into common shares at a set price. Conversion will result in a lower value of holdings for existing shareholders
A better idea is to seek companies that are repurchasing stock and therefore reducing the number of shares outstanding. This process increases earnings per share (EPS) and it tells investors that the company feels that there is no better investment than their own company at the moment. (You can read more about buybacks in A Breakdown Of Stock Buybacks.)
5. Not Recognizing Seasonal Fluctuations
You can't fight the Fed. By that same token, you can't expect that your shares will appreciate even if the company's shares are widely traded in high volumes. The fact is that many companies (such as retailers) go through boom and bust cycles year in and year out. Luckily, these cycles are fairly predictable, so do yourself a favor and look at a five-year chart before buying shares in a company. Does the stock typically wane during a particular part of the year and then pick up during others? If so, consider timing your purchase or sale accordingly. (To learn more, see Capitalizing On Seasonal Effects.)
6. Missing Sector Trends
Some stocks do buck the larger trend; however, this behavior usually occurs because there is some huge catalyst that propels the stock either higher or lower. For the most part, companies trade in relative parity to their peers. This keeps their stock price movements within a trading band or range. Keep this in mind as you consider your entry/exit points in a stock.
Also, if you own stock in a semiconductor company (for example), understand that if other semiconductor companies are experiencing certain problems, your company will too. The same is true if the situation was reversed, and positive news hit the industry.
7. Avoiding Technical Trends
Many people shy away from technical analysis, but you don't have to be a chartist to be able to identify certain technical trends. A simple graph depicting 50-day and 200-day moving averages as well as daily closing prices can give investors a good picture of where a stock is headed. (To learn about this method, read the Basics Of Technical Analysis.)
Be wary of companies that trade and/or close below those averages. It usually means the shares will go lower. The same can be said to the upside. Also remember that as volume trails off, the stock price typically follows suit.
Lastly, look for general trends. Has the stock been under accumulation or distribution over the past year? In other words, is the price gradually moving up, or down? This is simple information that can be gleaned from a chart. It is truly surprising that most investors don't take advantage of these simple and accessible tools.
The Bottom line
There are a myriad of mistakes that investors can and do make. These are simply some of the more common ones. In any case, it pays to think about factors beyond what will propel the stock you own higher. A stock's past and expected performance in comparison to its peers, as well as its performance when subjected to economic conditions that may impact the company, are some other factors to consider.
To read about more investor follies, check out Seven Common Investor Mistakes, Learning From Others' Mistakes and Seven Common Financial Mistakes.
by Glenn Curtis, (Contact Author | Biography)
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses.
http://www.investopedia.com/articles/basics/08/blunders.asp
Investing In A Weakening Dollar Environment
Investing In A Weakening Dollar Environment
Posted: October 13, 2009 12:17PM by Ryan Barnes
You've likely heard of this scenario mentioned in an ominous financial forecast: The U.S. dollar continues to lose value compared to other major world currencies, and any number of very bad things occur, spelling doom for our fragile economic recovery.
But even though a low dollar world has a few deleterious side effects, it also brings benefits, and the latter can be profited on by investors who think ahead about where to place their assets. Today we'll discuss what makes the USD rise and fall, and where to position your investments to take advantage of a low dollar world.
Background
The U.S. Dollar Index is an exchange-traded instrument that measures the value of the USD against a basket of 6 major world currencies, including the Euro, Yen, British Pound and Canadian Dollar.
In the past six months, the U.S. Dollar Index has fallen by roughly 13%. This is a continuation of a longer term trend that has seen USD Index fall by 46% since 2001.
What Causes a Falling Dollar?
There is no single bullet theory as to why the USD has fallen, but most professionals point to several ongoing events. First, the strength of the USD is largely determined by how willing global investors are to hold investments denominated in dollars versus other currencies. The USD is often noted as the "world's reserve currency," meaning that foreign governments around the world often choose to park a good chunk of their reserves in dollar assets like Treasury Bonds rather than holding them in their home currency.
But if investors become skittish about the strength of the U.S. economy and our ability to pay our future bills (via Treasury interest), they will begin to shift assets away from the dollar. The rising budget deficit of the U.S. is one of many caution flags that is beginning to be noticed by global investors.
Another reason why the dollar has weakened this decade is because interest rates have been historically very low. The 10-year Treasury Bond, a benchmark for global fixed income investors, has seen its lowest yields this decade since the 1960's. These low yields aren't much of an incentive for global investors to buy U.S. bonds.
The Federal Reserve has had good reason to keep interest rates low; it was crucial in freeing up money flows in the face of a global recession. But as the economy stabilizes, look for the Fed to slowly begin to ratcheting up interest rates. As this happens, the U.S. dollar should begin to strengthen.
What Investments to Hold in a Low-Dollar World?
Commodities and other "hard" assets tend to do very well in a low dollar environment. The reason is twofold; hard assets are a safe haven when fiat currencies weaken, and most global commodities are priced in dollars. So foreign investors (whose currency has risen in value vs. the USD), can buy more with the same amount of money. This increases overall demand, leading to rising prices for things like gold, silver and oil. (For further reading, check out How to Invest in Commodities.)
Companies that are based in the U.S. but conduct a lot of business overseas make great investments in a falling dollar world. The reasoning is simple; costs to pay workers and produce goods are paid in dollars (which are weak), but goods are sold in foreign currencies abroad. When those higher-valued foreign currencies are translated back to dollars for the purposes of accounting, the favorable exchange rate adds to profit margins.
Investors can easily find out how much business a U.S. firm does overseas by reading the most recent annual report. Look for firms with greater than 40% of sales abroad, and having the bulk of factories and offices located in the U.S.
USD Outlook
The future strength of the dollar will largely depend on how well the U.S. government can control its budget deficit. The better the U.S. looks as a debt payer, the better the dollar will do. Use this as a guide to determine when it might be time to begin investing in dollar strength versus dollar weakness. (To learn more, check out What Fuels the National Debt?)
And when it comes to the dollar, a little inflation can be a good thing. As our economy strengthens, some inflation should begin creeping back into the system. This will trigger the Fed to start raising interest rates, boosting the dollar along with Treasury yields. When this trend begins to occur, look to shift away from the investments outlined above.
Parting Thoughts
A low dollar world will have some bad side effects, like more expensive overseas travel and higher prices of imports like gas and electronics. But savvy investors can make up the pennies being squeezed elsewhere by profiting from the many companies and assets that are taking a low dollar environment all the way to the bank.
http://financialedge.investopedia.com/financial-edge/1009/Where-To-Invest-In-A-Weakening-Dollar-Environment.aspx
Posted: October 13, 2009 12:17PM by Ryan Barnes
You've likely heard of this scenario mentioned in an ominous financial forecast: The U.S. dollar continues to lose value compared to other major world currencies, and any number of very bad things occur, spelling doom for our fragile economic recovery.
But even though a low dollar world has a few deleterious side effects, it also brings benefits, and the latter can be profited on by investors who think ahead about where to place their assets. Today we'll discuss what makes the USD rise and fall, and where to position your investments to take advantage of a low dollar world.
Background
The U.S. Dollar Index is an exchange-traded instrument that measures the value of the USD against a basket of 6 major world currencies, including the Euro, Yen, British Pound and Canadian Dollar.
In the past six months, the U.S. Dollar Index has fallen by roughly 13%. This is a continuation of a longer term trend that has seen USD Index fall by 46% since 2001.
What Causes a Falling Dollar?
There is no single bullet theory as to why the USD has fallen, but most professionals point to several ongoing events. First, the strength of the USD is largely determined by how willing global investors are to hold investments denominated in dollars versus other currencies. The USD is often noted as the "world's reserve currency," meaning that foreign governments around the world often choose to park a good chunk of their reserves in dollar assets like Treasury Bonds rather than holding them in their home currency.
But if investors become skittish about the strength of the U.S. economy and our ability to pay our future bills (via Treasury interest), they will begin to shift assets away from the dollar. The rising budget deficit of the U.S. is one of many caution flags that is beginning to be noticed by global investors.
Another reason why the dollar has weakened this decade is because interest rates have been historically very low. The 10-year Treasury Bond, a benchmark for global fixed income investors, has seen its lowest yields this decade since the 1960's. These low yields aren't much of an incentive for global investors to buy U.S. bonds.
The Federal Reserve has had good reason to keep interest rates low; it was crucial in freeing up money flows in the face of a global recession. But as the economy stabilizes, look for the Fed to slowly begin to ratcheting up interest rates. As this happens, the U.S. dollar should begin to strengthen.
What Investments to Hold in a Low-Dollar World?
Commodities and other "hard" assets tend to do very well in a low dollar environment. The reason is twofold; hard assets are a safe haven when fiat currencies weaken, and most global commodities are priced in dollars. So foreign investors (whose currency has risen in value vs. the USD), can buy more with the same amount of money. This increases overall demand, leading to rising prices for things like gold, silver and oil. (For further reading, check out How to Invest in Commodities.)
Companies that are based in the U.S. but conduct a lot of business overseas make great investments in a falling dollar world. The reasoning is simple; costs to pay workers and produce goods are paid in dollars (which are weak), but goods are sold in foreign currencies abroad. When those higher-valued foreign currencies are translated back to dollars for the purposes of accounting, the favorable exchange rate adds to profit margins.
Investors can easily find out how much business a U.S. firm does overseas by reading the most recent annual report. Look for firms with greater than 40% of sales abroad, and having the bulk of factories and offices located in the U.S.
USD Outlook
The future strength of the dollar will largely depend on how well the U.S. government can control its budget deficit. The better the U.S. looks as a debt payer, the better the dollar will do. Use this as a guide to determine when it might be time to begin investing in dollar strength versus dollar weakness. (To learn more, check out What Fuels the National Debt?)
And when it comes to the dollar, a little inflation can be a good thing. As our economy strengthens, some inflation should begin creeping back into the system. This will trigger the Fed to start raising interest rates, boosting the dollar along with Treasury yields. When this trend begins to occur, look to shift away from the investments outlined above.
Parting Thoughts
A low dollar world will have some bad side effects, like more expensive overseas travel and higher prices of imports like gas and electronics. But savvy investors can make up the pennies being squeezed elsewhere by profiting from the many companies and assets that are taking a low dollar environment all the way to the bank.
http://financialedge.investopedia.com/financial-edge/1009/Where-To-Invest-In-A-Weakening-Dollar-Environment.aspx
A Little Knowledge Is a Dangerous Thing
Financial Fraud: Don't Let It Happen To You
Posted: October 9, 2009 1:20PM
by Andrew Beattie
If viewed as an industry, fraud is pretty resilient. It does well when the economy is up and people have speculative cash combined with big, optimistic dreams. It also does well when the economy is low and people are trying desperately to recoup losses, regain retirement nest eggs and generally stay afloat. Fraud cuts investors deep at the best of times, but with the current economy pushing baby boomers to the edge of desperate measures to assure retirement, the damage is potentially on a larger scale. The key to avoiding the growing legion of scams out there is to temper your desperate hopes with a healthy dose of sober second thought and careful research.
A Little Knowledge Is a Dangerous Thing
It's unfair to see victims of fraud as thoughtless people caught up by modern snake oil salesman. Many people who get caught by investment frauds are financially capable. At the very least, they have the habits that have allowed them to accumulate the wealth that makes them a target for people selling genuine investments as well as fraudulent ones.
In many cases, the people caught in frauds are sophisticated investors – Bernie Madoff among others have beguiled professionals right along with regular folks – and the failure is not a lack of knowledge but a lapse in due diligence. Afterwards, almost everyone hurt in a fraud realizes they should have known better, but they get caught up in the same way as investors in a bubble. (Identity thieves are using home equity lines of credit to commit their crimes. Find out more in Protect Yourself From HELOC Fraud.)
Count to Three
Hindsight is pretty useless when it comes to your portfolio, so there are three basic steps that can help you avoid getting caught up in an investment scam. They take time and, much like counting to ten when you're angry, can help dampen some of the emotion that can cloud an investors head when phrases like "iron-clad, double-digit returns" are being thrown about.
1) Research the Company and the People Involved.
You can find out a lot now by simply running an internet search, although an internet search isn't enough in itself. People often build up to big frauds and have a paper trail of their previous attempts. You might want to know if the guy selling you condos in Barbados has been the subject of any investigations or angry complaints. Asking for credentials, checking them, and looking up names in regulatory filings can uncover a host of interesting facts, including whether or not the person wanting to sell you investments is in anyway certified. Being certified isn't a badge of virtue, but a lack of any formal training can be a red flag.
2) Dig Into the Numbers
Revolutionary forms of investing that are so complex, yet so sure in yielding results should be viewed skeptically. Ask for a prospectus or explanation of any such investment in writing and work through it until you understand how the profits are made. If you don't, and no one around you does, then you have another red flag. Most highly complex investments aren't sold door-to-door, so don't underestimate your own smarts. When you don't understand where the money comes from, the chances are good that the person selling the investment doesn't either.
3) Delay
One of the easiest ways to avoid fraud is to delay. High-pressure sales tactics are at the heart of most frauds, as if this superb investment opportunity that is so solid that you'll be drinking daiquiris in a New York high-rise by years end will paradoxically vanish in moments. When someone is insistent that you don't have time to think about things, it's usually because they're afraid of what you'll figure out. People who are confident that they're selling a great investment should be happy to explain it in detail rather than imposing time deadlines and talking about you "missing the chance of a lifetime."
Scammers generally go for the easy and quick money to maximize their profits, consequently giving up fast in the face of delaying. If someone tells you they'll be sold out in a week, then wish him the best and let him go on to people who are less cautious with their money. (These fraudsters were the first to commit fraud, participate in insider trading and manipulate stock. Read more in The Pioneers Of Financial Fraud.)
A Truly Great Investment
The best investments are the ones you feel completely comfortable holding, whether land, stock, precious gems or anything else. Part of being comfortable is knowing the facts behind an investment and understanding the economic machinery that makes it tick. Taking your time and discovering all you can is the surest way to protect against fraud and build an investment portfolio you can truly believe in.
http://financialedge.investopedia.com/financial-edge/1009/Dont-Be-A-Victim-Of-Fraud.aspx?partner=ntu10
'Financial shares to rally 20pc'
'Financial shares to rally 20pc'
Jupiter's well-respected financials fund manager Philip Gibbs says the sector should enjoy a further 20pc gain before the current rally peters out.
By Matt Goodburn
Published: 3:24PM BST 01 Oct 2009
Mr Gibbs, the only manager to have been AAA-rated by Citywire for the entire ratings coverage, was also optimistic about the prospects for equities as a whole over the next few months. Mr Gibbs says he believes corporate earnings for the financials sector will be ''very much beating expectations'' after the current round of trading updates are released.
"The run could go a very long way. We are down over 50pc in global financials and the numbers are compelling. I think if the sector returns to more normal valuations it will stage a more significant rally of more than 20pc and individual stocks could do very well.''
Mr Gibbs' top fund holding is Barclays, which comprises 7pc of his £1.3bn Jupiter Financial Opportunities fund. He picked the bank as ''a winner from the credit crunch'' compared to rivals Lloyds and Royal Bank of Scotland: ''Lloyds is a microcosm of the sector. It is a very leveraged play on the UK consumer, but still has some very horrible problems, especially in commercial property. It is still undercapitalised and wrestling with the issue of paying a huge premium to the Government.
I prefer HSBC and Barclays.''
According to fund statisticians Lipper, Jupiter Financial Opportunities has posted a total return of 857pc since launch in June 1997 to the end of August, making it by far the most successful UK unit trust over the period, with an annualised return of 19.8pc.
http://www.telegraph.co.uk/finance/personalfinance/investing/6251200/Financial-shares-to-rally-20pc.html
Jupiter's well-respected financials fund manager Philip Gibbs says the sector should enjoy a further 20pc gain before the current rally peters out.
By Matt Goodburn
Published: 3:24PM BST 01 Oct 2009
Mr Gibbs, the only manager to have been AAA-rated by Citywire for the entire ratings coverage, was also optimistic about the prospects for equities as a whole over the next few months. Mr Gibbs says he believes corporate earnings for the financials sector will be ''very much beating expectations'' after the current round of trading updates are released.
"The run could go a very long way. We are down over 50pc in global financials and the numbers are compelling. I think if the sector returns to more normal valuations it will stage a more significant rally of more than 20pc and individual stocks could do very well.''
Mr Gibbs' top fund holding is Barclays, which comprises 7pc of his £1.3bn Jupiter Financial Opportunities fund. He picked the bank as ''a winner from the credit crunch'' compared to rivals Lloyds and Royal Bank of Scotland: ''Lloyds is a microcosm of the sector. It is a very leveraged play on the UK consumer, but still has some very horrible problems, especially in commercial property. It is still undercapitalised and wrestling with the issue of paying a huge premium to the Government.
I prefer HSBC and Barclays.''
According to fund statisticians Lipper, Jupiter Financial Opportunities has posted a total return of 857pc since launch in June 1997 to the end of August, making it by far the most successful UK unit trust over the period, with an annualised return of 19.8pc.
http://www.telegraph.co.uk/finance/personalfinance/investing/6251200/Financial-shares-to-rally-20pc.html
Selling could be as big a gamble as holding out for bigger gains.
Gold and shares are booming, so is it time to sell?
The Coppock Indicator, which has signalled past rallies, points to the bull run continuing. Selling could be as big a gamble as holding out for bigger gains.
By Paul Farrow
Published: 10:52AM BST 12 Oct 2009
Asked if he was selling gold, a leading fund manager said: 'Absolutely not. I think everybody should have a bit of gold' I'd imagine it was a dilemma for Sir Alex Ferguson, the Manchester United manager, last summer: wondering whether it was time to cash in on his biggest asset, Cristiano Ronaldo, or to hang on to to him for another season.
He cashed in to the tune of £80m and so far it looks like a shrewd decision. Knowing when to sell is arguably more crucial than knowing when to buy.
Related Articles
Diary of a private investor: Three reasons why it is bigger risk to be out of the market
Comment: investors doubt that this bull market has legs
Coppock's score will encourage investors to strike up the recovery band
FTSE100 rally: fund and share tips from the experts, part II
Is the first-quarter rally sustainable?
It's a conundrum that may be on many people's mind right now. The economy is on the up, shares are up, gold is up and even house prices have returned to late 2008 levels. Yet you get the feeling that everyone is expecting a reality check sooner rather than later and that the rises will turn out to have been froth.
The fear is that underlying problems that manifested themselves during the recession will linger long after the growth figures have turned positive and that these problems will drag us back down.
As one property consultant proclaimed last week: "For anyone considering selling their home, now is the time to do so. It is a window of opportunity that may soon shut." Well, he would say that, wouldn't he, but the pessimistic property commentators outnumber the optimistic ones by some margin.
The steep rise in share prices will also get investors asking themselves whether now is the time to take some profits. However, a couple of reports suggest that the market may yet prove resilient.
The Coppock Indicator, which is less about selling and more about buying, might dissuade investors from taking profits now. The story goes that in the early 1960s the Episcopalian Church in America asked Coppock, an economist, to come up with something that might spot long-term buying opportunities.
Coppock thought the stress caused by a bear market was comparable to bereavement. He asked the church how long, on average, a period of mourning might last; the answer, apparently, was between 11 and 14 months.
The indicator (a 10-month weighted moving average of the sum of the 14-month rate of change and the 11-month rate of change in the relevant index, if you really want to know) produces a buy signal when it is both below zero and turning upwards from a trough.
It does not have a 100pc success rate but in recent times the indicator signalled rallies in 1988 and 1994. The indicator started to turn a couple of months ago and is now rising.
Meanwhile, Ned Davis, a well-known investment research firm based in the US, reckons the bull market, although slowing, still has legs. Its latest bulletin concludes that "with the global economic recovery in its early stages, and absent threatening levels of interest rates and valuations, the six-month horizon does not include another bear market".
Its calculations suggest the climb over the next six months will be more gradual than the humdinger of a run the markets have experienced since the March lows.
Gold investors are another bunch who have enjoyed rising values. When it comes to gold, it would appear the bears are in hiding, but the endless queue of bulls insist the case for holding gold remains intact. Ian Henderson, one of Britain's leading fund managers, is not one of the pundits with a vested interest, but he is a firm believer in the asset's diversification qualities.
He does not think the gold price is going to storm ahead but ask him whether he is looking to liquidate his exposure to gold and the response is firm: "Absolutely not. I think everybody should have a bit of gold."
The upshot is that Man United couldn't afford to turn the record £80m offer for Ronaldo down but I doubt the recent gains will be enough to tempt home owners and investors to cash in. For most it will be as big as gamble to sell as it would be to stay put.
Tory baby bond plan misguided
Labour promised to turn us into a nation of savers; now the Tories have promised to do the same. They want to reverse the effects of Gordon Brown's pensions tax raid and get the country saving again.
All very commendable, although George Osborne's speech was thin on the detail of how he hopes to persuade the masses to salt more of their money away. One measure he did mention will mean we actually save less for our future. Mr Osborne wants to ditch child trust funds (CTFs) for all but the poorest children because "handing out new baby bonds to the rest of the country is a luxury we can no longer afford".
He's right, of course; we can't afford them. Besides, CTFs benefit only those families that have enough spare cash at the end of the month to put some aside for their children. But if the Tories go so far as to scrap CTFs for the majority, they might just as well get rid of them altogether.
The party says it "will fight for the poorest" but, if it wants to help in any meaningful way, child trust funds are not the answer. These funds will end up being an almost worthless pot if the only contribution has been the Government's free handout of £500. If the full £500 was invested and grew at 5pc year a CTF would be worth around £1,000 after 18 years.
That would barely cover the fees for a term at university, let alone be enough for a deposit on a first home. It might be enough for a second-hand banger and a year's insurance – but it won't make an iota of lasting difference to an 18-year-old when they venture out into the adult world.
http://www.telegraph.co.uk/finance/personalfinance/comment/paulfarrow/6305438/Gold-and-shares-are-booming-so-is-it-time-to-sell.html
The Coppock Indicator, which has signalled past rallies, points to the bull run continuing. Selling could be as big a gamble as holding out for bigger gains.
By Paul Farrow
Published: 10:52AM BST 12 Oct 2009
Asked if he was selling gold, a leading fund manager said: 'Absolutely not. I think everybody should have a bit of gold' I'd imagine it was a dilemma for Sir Alex Ferguson, the Manchester United manager, last summer: wondering whether it was time to cash in on his biggest asset, Cristiano Ronaldo, or to hang on to to him for another season.
He cashed in to the tune of £80m and so far it looks like a shrewd decision. Knowing when to sell is arguably more crucial than knowing when to buy.
Related Articles
Diary of a private investor: Three reasons why it is bigger risk to be out of the market
Comment: investors doubt that this bull market has legs
Coppock's score will encourage investors to strike up the recovery band
FTSE100 rally: fund and share tips from the experts, part II
Is the first-quarter rally sustainable?
It's a conundrum that may be on many people's mind right now. The economy is on the up, shares are up, gold is up and even house prices have returned to late 2008 levels. Yet you get the feeling that everyone is expecting a reality check sooner rather than later and that the rises will turn out to have been froth.
The fear is that underlying problems that manifested themselves during the recession will linger long after the growth figures have turned positive and that these problems will drag us back down.
As one property consultant proclaimed last week: "For anyone considering selling their home, now is the time to do so. It is a window of opportunity that may soon shut." Well, he would say that, wouldn't he, but the pessimistic property commentators outnumber the optimistic ones by some margin.
The steep rise in share prices will also get investors asking themselves whether now is the time to take some profits. However, a couple of reports suggest that the market may yet prove resilient.
The Coppock Indicator, which is less about selling and more about buying, might dissuade investors from taking profits now. The story goes that in the early 1960s the Episcopalian Church in America asked Coppock, an economist, to come up with something that might spot long-term buying opportunities.
Coppock thought the stress caused by a bear market was comparable to bereavement. He asked the church how long, on average, a period of mourning might last; the answer, apparently, was between 11 and 14 months.
The indicator (a 10-month weighted moving average of the sum of the 14-month rate of change and the 11-month rate of change in the relevant index, if you really want to know) produces a buy signal when it is both below zero and turning upwards from a trough.
It does not have a 100pc success rate but in recent times the indicator signalled rallies in 1988 and 1994. The indicator started to turn a couple of months ago and is now rising.
Meanwhile, Ned Davis, a well-known investment research firm based in the US, reckons the bull market, although slowing, still has legs. Its latest bulletin concludes that "with the global economic recovery in its early stages, and absent threatening levels of interest rates and valuations, the six-month horizon does not include another bear market".
Its calculations suggest the climb over the next six months will be more gradual than the humdinger of a run the markets have experienced since the March lows.
Gold investors are another bunch who have enjoyed rising values. When it comes to gold, it would appear the bears are in hiding, but the endless queue of bulls insist the case for holding gold remains intact. Ian Henderson, one of Britain's leading fund managers, is not one of the pundits with a vested interest, but he is a firm believer in the asset's diversification qualities.
He does not think the gold price is going to storm ahead but ask him whether he is looking to liquidate his exposure to gold and the response is firm: "Absolutely not. I think everybody should have a bit of gold."
The upshot is that Man United couldn't afford to turn the record £80m offer for Ronaldo down but I doubt the recent gains will be enough to tempt home owners and investors to cash in. For most it will be as big as gamble to sell as it would be to stay put.
Tory baby bond plan misguided
Labour promised to turn us into a nation of savers; now the Tories have promised to do the same. They want to reverse the effects of Gordon Brown's pensions tax raid and get the country saving again.
All very commendable, although George Osborne's speech was thin on the detail of how he hopes to persuade the masses to salt more of their money away. One measure he did mention will mean we actually save less for our future. Mr Osborne wants to ditch child trust funds (CTFs) for all but the poorest children because "handing out new baby bonds to the rest of the country is a luxury we can no longer afford".
He's right, of course; we can't afford them. Besides, CTFs benefit only those families that have enough spare cash at the end of the month to put some aside for their children. But if the Tories go so far as to scrap CTFs for the majority, they might just as well get rid of them altogether.
The party says it "will fight for the poorest" but, if it wants to help in any meaningful way, child trust funds are not the answer. These funds will end up being an almost worthless pot if the only contribution has been the Government's free handout of £500. If the full £500 was invested and grew at 5pc year a CTF would be worth around £1,000 after 18 years.
That would barely cover the fees for a term at university, let alone be enough for a deposit on a first home. It might be enough for a second-hand banger and a year's insurance – but it won't make an iota of lasting difference to an 18-year-old when they venture out into the adult world.
http://www.telegraph.co.uk/finance/personalfinance/comment/paulfarrow/6305438/Gold-and-shares-are-booming-so-is-it-time-to-sell.html
Dow breaks through the 10,000 barrier
The Dow Jones broke through the critical 10,000 mark for the first time in a year last night – raising hopes that a fully-fledged bull market is now in train
By Edmund Conway, Economics Editor
Published: 8:03PM BST 14 Oct 2009
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Things are looking up on Wall Street. Shrugging off warnings from economists that Britain and the US could fall victim to a W-shaped recession, markets hit their highest levels since the height of the crisis just over a year ago. London's benchmark FTSE 100 index rose by almost 2pc, while in Wall Street the Dow Jones Industrial Average pushed briefly above the psychologically important 10,000-point barrier.
The FTSE was 101.95 points higher at 5,256.10, more than reversing Tuesday's 1.1pc slide. The index has now rallied by 52pc since hitting a low in March, and is almost a fifth higher than at the start of the year. The Dow Jones was up by 1.1pc in late trading at 9979.74 points.
It came after the Office for National Statistics reported that although UK unemployment is still on the rise, recent months have seen the smallest increases for a year. It said the jobless total in the three months to August rose by 88,000 – smaller than any quarter since last summer, before the Lehman Brothers' collapse. The news helped the pound to a rare increase against other leading currencies, rising more than a cent against the dollar to $1.5953. However, the market's strength owed less to domestic news than an overarching sense that the global economy, having emerged from recession in the summer, is now powering ahead to a full-blooded recovery.
One theory, that growth will be delivered by emerging market powerhouses such as India and China, was underlined by new official data on Chinese exports. It showed that with Chinese investment continuing to increase, its appetite for commodities soared in recent months, while data on exports to neigh-bouring countries suggested that the broader Asian economy is gaining traction.
The news pushed shares in commodity producers sharply higher, among them Rio Tinto, Vedanta, BHP Billiton and oil groups BP and Shell.
International corporate news generated a further boost. JP Morgan's announcement that its profits rose by a phenomenal 581pc in the third quarter to $3.6bn (£2.3bn) lifted financial shares both in the US and the UK. Barclays, Royal Bank of Scotland and Lloyds Banking Group rose amid hopes that they too will report improved activity in recent months, when they update investors.
Analysts said that although the economic forecasts for the coming years, including those issued by the International Monetary Fund earlier this month, remain downbeat, earnings figures from leading companies tell a different story. Philip Gillett, trader at IG Index, said investors had been better-than-predicted third-quarter earnings news.
http://www.telegraph.co.uk/finance/markets/6329242/Dow-breaks-through-the-10000-barrier.html
Comment: Beware the bull market. Embrace the bear.
By Edmund Conway, Economics Editor
Published: 8:03PM BST 14 Oct 2009
Things are looking up on Wall Street. Shrugging off warnings from economists that Britain and the US could fall victim to a W-shaped recession, markets hit their highest levels since the height of the crisis just over a year ago. London's benchmark FTSE 100 index rose by almost 2pc, while in Wall Street the Dow Jones Industrial Average pushed briefly above the psychologically important 10,000-point barrier.
The FTSE was 101.95 points higher at 5,256.10, more than reversing Tuesday's 1.1pc slide. The index has now rallied by 52pc since hitting a low in March, and is almost a fifth higher than at the start of the year. The Dow Jones was up by 1.1pc in late trading at 9979.74 points.
It came after the Office for National Statistics reported that although UK unemployment is still on the rise, recent months have seen the smallest increases for a year. It said the jobless total in the three months to August rose by 88,000 – smaller than any quarter since last summer, before the Lehman Brothers' collapse. The news helped the pound to a rare increase against other leading currencies, rising more than a cent against the dollar to $1.5953. However, the market's strength owed less to domestic news than an overarching sense that the global economy, having emerged from recession in the summer, is now powering ahead to a full-blooded recovery.
One theory, that growth will be delivered by emerging market powerhouses such as India and China, was underlined by new official data on Chinese exports. It showed that with Chinese investment continuing to increase, its appetite for commodities soared in recent months, while data on exports to neigh-bouring countries suggested that the broader Asian economy is gaining traction.
The news pushed shares in commodity producers sharply higher, among them Rio Tinto, Vedanta, BHP Billiton and oil groups BP and Shell.
International corporate news generated a further boost. JP Morgan's announcement that its profits rose by a phenomenal 581pc in the third quarter to $3.6bn (£2.3bn) lifted financial shares both in the US and the UK. Barclays, Royal Bank of Scotland and Lloyds Banking Group rose amid hopes that they too will report improved activity in recent months, when they update investors.
Analysts said that although the economic forecasts for the coming years, including those issued by the International Monetary Fund earlier this month, remain downbeat, earnings figures from leading companies tell a different story. Philip Gillett, trader at IG Index, said investors had been better-than-predicted third-quarter earnings news.
http://www.telegraph.co.uk/finance/markets/6329242/Dow-breaks-through-the-10000-barrier.html
Comment: Beware the bull market. Embrace the bear.
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