- Is the shorting of stocks keeping our market down? I first got wind of this theory in a recent article in the Financial Times, and this column suggests it as well.
- The newest Jim Jubak column
- This article details what to do in anticipation of a layoff
- There is a hidden war on the rich by the rich
- Is the housing bust over?
Tuesday, March 10, 2009
Link'O'Rama: Tuesday Edition
Monday, March 9, 2009
Dried Supply
In an excellent article, Forbes.com probes the financial woes of the other half of the Detroit auto disaster--the suppliers.
To engineers living in Metro Detroit, names like TRW, Lear, Federal-Mogul are common. We all know people who work at these places and in some cases have worked or interned for them ourselves. These automotive parts suppliers are huge employers and even bigger supporters of local engineering colleges within universities such as Lawrence Tech, University of Michigan Dearborn, and Kettering.
It's good to see that the Obama administration understands the importance of keeping an eye on these suppliers--so that all of the efforts going towards keeping GM and Chrysler afloat don't have the rug pulled out from under them.
All local Detroit pride and empathy aside, Forbes illuminates an ugly group of shares that have been de-listed (Visteon), may be de-listed (American Axle), and have lost more than 98% of their stock price from their 52 week high (Arvin Meritor, Dana Holding, Hayes Lemmerz).
Johnson Controls piqued my interest with its 27% long term debt/total capital ratio (low for this group). A further look at their financials show that they actually posted a $1.63 earning per share in 2008--another rarity for this group--and they are a company with a long history of posting profits.
Can anyone see a diamond in the rough here that will survive all of the turmoil and emerge on the other side? If you can you might have a winner.
To engineers living in Metro Detroit, names like TRW, Lear, Federal-Mogul are common. We all know people who work at these places and in some cases have worked or interned for them ourselves. These automotive parts suppliers are huge employers and even bigger supporters of local engineering colleges within universities such as Lawrence Tech, University of Michigan Dearborn, and Kettering.
It's good to see that the Obama administration understands the importance of keeping an eye on these suppliers--so that all of the efforts going towards keeping GM and Chrysler afloat don't have the rug pulled out from under them.
All local Detroit pride and empathy aside, Forbes illuminates an ugly group of shares that have been de-listed (Visteon), may be de-listed (American Axle), and have lost more than 98% of their stock price from their 52 week high (Arvin Meritor, Dana Holding, Hayes Lemmerz).
Johnson Controls piqued my interest with its 27% long term debt/total capital ratio (low for this group). A further look at their financials show that they actually posted a $1.63 earning per share in 2008--another rarity for this group--and they are a company with a long history of posting profits.
Can anyone see a diamond in the rough here that will survive all of the turmoil and emerge on the other side? If you can you might have a winner.
Link'O'Rama: The Singleling
Only one Link'O'Rama link today, but it's a good one. Jim Jubak's new column asks investors to use this time to determine which stocks are truly great, and which one's were full of smoke and mirrors. Some key points:
- We are due for a short rally in the near future due to stocks being massively undersold.
- Look at the fundamentals of the stock, and not just the price.
- We can't look at the 52 week high as an indicator of where the stock should go back to in the near future. That price was probably highly inflated.
- Former CEO golden boy Jack Welch is highly responsible for GE's current woes, since he restructured the company from an industrial one into a financial one.
Sunday, March 8, 2009
Rethinking health care
With costs of health care skyrocketing nationwide, Schlitz suggested I talk about health savings accounts, also known as HSAs. This post assumes you have a minimal knowledge of health insurance. An HSA is similar to a Flexible Spending Account (FSA) offered by most employers, where pre-tax dollars go into an account to spend tax-free on medical services and items. The difference is all FSA dollars must be spent in a year, whereas HSA dollars rollover from year to year, meaning over time, quite a bit of money can accumulate in the account to be spent on health care later on in life. Additionally, the HSA can earn interest each year, and can possibly be invested in the stock market (I know, risk right now). To get this tax benefit, an HSA must be coupled with a high deductible health plan (typically a PPO or HMO).
While all that mumbo-jumbo sounds nice, how does an HSA benefit you the consumer? First off, HSAs give the biggest benefit to healthy people who rarely use health care, but the principles can apply to anyone. Say you have a traditional PPO at work, where the premium is $300 a month and you pay $100 out of pocket, meaning your company pays $200 a month. A high deductible (say $5000) PPO might cost $100 a month, leaving $200 to go into the HSA. After 1 year, you have $2400 in the HSA. If you go to the doctor once per year, you will use a minimal amount from the HSA, allowing the HSA to accumulate year after year, possibly letting you acquire a large amount of money in your older years, when health expenses are higher. If you do get very sick and need expensive procedures, you have coverage once the deductible is met.
Of course, there are downsides to HSAs. The first being that you take upon more risk in the beginning as there is no money in your HSA and the the initial deductible must be met out of pocket. HSAs are difficult to explain to people used to a traditional health plan. And it assumes that people will act rationally with funding their HSA and choose conservative investment options, which if recent history is any indictation, cannot make responsible decisions for themselves. However, once you get past those issues, the upsides are enormous.
What did you think? Do you wish your work offered an HSA? Are you against the idea? Share your thoughts below.
While all that mumbo-jumbo sounds nice, how does an HSA benefit you the consumer? First off, HSAs give the biggest benefit to healthy people who rarely use health care, but the principles can apply to anyone. Say you have a traditional PPO at work, where the premium is $300 a month and you pay $100 out of pocket, meaning your company pays $200 a month. A high deductible (say $5000) PPO might cost $100 a month, leaving $200 to go into the HSA. After 1 year, you have $2400 in the HSA. If you go to the doctor once per year, you will use a minimal amount from the HSA, allowing the HSA to accumulate year after year, possibly letting you acquire a large amount of money in your older years, when health expenses are higher. If you do get very sick and need expensive procedures, you have coverage once the deductible is met.
Of course, there are downsides to HSAs. The first being that you take upon more risk in the beginning as there is no money in your HSA and the the initial deductible must be met out of pocket. HSAs are difficult to explain to people used to a traditional health plan. And it assumes that people will act rationally with funding their HSA and choose conservative investment options, which if recent history is any indictation, cannot make responsible decisions for themselves. However, once you get past those issues, the upsides are enormous.
What did you think? Do you wish your work offered an HSA? Are you against the idea? Share your thoughts below.
Recession, depression or correction?
With all the talk of the current economic situation now being officially classified as a recession and quickly heading toward the official classification of a depression, I got to thinking that maybe it isn't a recession or a depression, rather a correction. When I explained this theory to Schlitz over lunch last week, he raised an eyebrow, but heard me out on my reasons for making that assertion.
If you've made it this far into this post, hang in there, I'll explain my line of thinking on this to you too.
First, I became a bit skeptical of calling this a recession when I noticed that the dollar has actually increased in value against competing currencies over the past few months. The 'experts' say, "well, this is a global recession and the U.S. is still an economic powerhouse." Okay, so if we're all in a global race to the bottom and the U.S. economy is actually falling slower than most of the rest of the world, wouldn't that support my idea that this is simply a correction?
Second, I started looking at the DJIA's historical graph from '70-present and noticed that the period from 1995-2007 just didn't fit with the rest of the graph. That period was a giant bubble in comparison. To put it simply, the DJIA was about 750 in 1970 and only climbed to 3,750 at the end of 1994. That's a change of 3,000 points in the span of 25yrs. Now, looking at the span of time from 1995-2007, the DJIA went from 3,750 to about 14,100 at its peak in October 2007. That's a change of over 10,000 points in 13yrs. What's that all mean? Well, from 1995-2007, the DJIA climbed at a rate that was over 6.4x as drastic as the preceding 25yrs!
So what happened from 1995-2007? The short answer is the dot com boom from '95-'01, followed by a housing boom that started with sub-prime mortgages in the early 2000s and finally spiked in 2005 and began to burst in 2006. Basically, it was a bubble that formed on top of another bubble, and when it finally burst, the market went down like few imagined was possible.
Getting back to my assertion that this is a correction rather than a recession or depression, I looked at history again and used it as the basis to form projections about where the market should really have been if the dot com boom and sub-prime mortgage that spanned from '95-'07. I chose the span of time from '86-'94 as my data group from which to project forward. Why '86-'94? Well, in 1986, the Tax Reform Act of 1986 was passed and it removed many tax shelters, especially in real estate, and put an end to the real estate boom that occurred in the early '80s. Basically, the span of time from '86-'94 fell between the early '80s real estate boom and the dot com boom of '95-'01.
Using a single arbitrary data point from each year (I chose a date in mid-January for each year), I formed a pool of data representative of the span of time from '86-'94 and projected it forward to eliminate the double bubble of '95-'01. What did I find? Well, using those projections, I found that the DJIA should probably be at 7,687 for January 2009. That's a pretty accurate projection considering the DJIA actually fell to 7,949 in January 2009. Since that point, the DJIA has found a new low of 6,594 last week. Well, doesn't that mean that my projections are off then? No, it doesn't... I'm not projecting the bottom, I'm projecting the normal level. Negative market sentiment could easily drive the DJIA even lower than 6,500. Until consumer confidence returns to normal, the market will continue to be a bear market and will be driven to levels below its norm.
While I won't get into it in this post, I've also created a theory on individual stock price projections using the same data points that also appears to be pretty accurate so far. Stay tuned for that as it may change your thinking on perceived values.
If you've made it this far into this post, hang in there, I'll explain my line of thinking on this to you too.
First, I became a bit skeptical of calling this a recession when I noticed that the dollar has actually increased in value against competing currencies over the past few months. The 'experts' say, "well, this is a global recession and the U.S. is still an economic powerhouse." Okay, so if we're all in a global race to the bottom and the U.S. economy is actually falling slower than most of the rest of the world, wouldn't that support my idea that this is simply a correction?
Second, I started looking at the DJIA's historical graph from '70-present and noticed that the period from 1995-2007 just didn't fit with the rest of the graph. That period was a giant bubble in comparison. To put it simply, the DJIA was about 750 in 1970 and only climbed to 3,750 at the end of 1994. That's a change of 3,000 points in the span of 25yrs. Now, looking at the span of time from 1995-2007, the DJIA went from 3,750 to about 14,100 at its peak in October 2007. That's a change of over 10,000 points in 13yrs. What's that all mean? Well, from 1995-2007, the DJIA climbed at a rate that was over 6.4x as drastic as the preceding 25yrs!
So what happened from 1995-2007? The short answer is the dot com boom from '95-'01, followed by a housing boom that started with sub-prime mortgages in the early 2000s and finally spiked in 2005 and began to burst in 2006. Basically, it was a bubble that formed on top of another bubble, and when it finally burst, the market went down like few imagined was possible.
Getting back to my assertion that this is a correction rather than a recession or depression, I looked at history again and used it as the basis to form projections about where the market should really have been if the dot com boom and sub-prime mortgage that spanned from '95-'07. I chose the span of time from '86-'94 as my data group from which to project forward. Why '86-'94? Well, in 1986, the Tax Reform Act of 1986 was passed and it removed many tax shelters, especially in real estate, and put an end to the real estate boom that occurred in the early '80s. Basically, the span of time from '86-'94 fell between the early '80s real estate boom and the dot com boom of '95-'01.
Using a single arbitrary data point from each year (I chose a date in mid-January for each year), I formed a pool of data representative of the span of time from '86-'94 and projected it forward to eliminate the double bubble of '95-'01. What did I find? Well, using those projections, I found that the DJIA should probably be at 7,687 for January 2009. That's a pretty accurate projection considering the DJIA actually fell to 7,949 in January 2009. Since that point, the DJIA has found a new low of 6,594 last week. Well, doesn't that mean that my projections are off then? No, it doesn't... I'm not projecting the bottom, I'm projecting the normal level. Negative market sentiment could easily drive the DJIA even lower than 6,500. Until consumer confidence returns to normal, the market will continue to be a bear market and will be driven to levels below its norm.
While I won't get into it in this post, I've also created a theory on individual stock price projections using the same data points that also appears to be pretty accurate so far. Stay tuned for that as it may change your thinking on perceived values.
Thursday, March 5, 2009
Times are tough....We want to help
Times are pretty terrible right now. The market is down to unimaginable lows, unemployment is high, and household incomes are shrinking. Here in Detroit, we see it more than anywhere, with a 'for sale' signs in so many yards to go along one of the worst housing markets in the country. I could go on and on, but you get the idea.
As a new investment club, we have and are going to continue to make tough decisions regarding the direction of the club. We plan to put more energy into this blog, to fill it with timely and useful information. We plan on focusing on areas outside of investing, such as personal finance, finding employment and so forth. We think this is important because only after one's financial house is in order, can one truly devote time to learning about investing. Please feel free to provide us with any comments you might have, or any areas you wish to learn more about.
As a new investment club, we have and are going to continue to make tough decisions regarding the direction of the club. We plan to put more energy into this blog, to fill it with timely and useful information. We plan on focusing on areas outside of investing, such as personal finance, finding employment and so forth. We think this is important because only after one's financial house is in order, can one truly devote time to learning about investing. Please feel free to provide us with any comments you might have, or any areas you wish to learn more about.
Tuesday, March 3, 2009
Club Update
We haven't been posting too much about the club lately so here's a quick update:
-We bought GE a few weeks ago when it was at $12.50 (little did we know it would lose 44% of its value in such record times). The club is still confident that this will rebound and make a profit in the long term, but the recent plunge may have delayed that time frame from being a 1 year turnaround to a 2 year turnaround. The financial track record with GE is too long and too strong to get weak in the knees now and give up, the club feels.
-We've been working slowly on bylaws regarding club accounting practices, and look to start writing bylaws on voting and stock evaluation in the next month. After that we need to write additional bylaws about meetings, attendance, adding new members, and more. After all the bylaws are written, we will consider opening the club up to new members.
-We have another salvo of investing cash and are considering where to invest next. Several options are out there, but we're still researching new stocks and opportunities as well. MTW is the leader in the clubhouse, but we're not in a rush to put money into the market right now. This isn't to say that we're afraid or are trying to time the bottom, we just don't feel urgently.
I'll try and make these posts a weekly edition on Tuesdays to give you readers an insight into the car-azy world of our investment club.
Are there any interesting stocks out there that you would like to recommend? Any interesting stories about developing your own club's bylaws?
-We bought GE a few weeks ago when it was at $12.50 (little did we know it would lose 44% of its value in such record times). The club is still confident that this will rebound and make a profit in the long term, but the recent plunge may have delayed that time frame from being a 1 year turnaround to a 2 year turnaround. The financial track record with GE is too long and too strong to get weak in the knees now and give up, the club feels.
-We've been working slowly on bylaws regarding club accounting practices, and look to start writing bylaws on voting and stock evaluation in the next month. After that we need to write additional bylaws about meetings, attendance, adding new members, and more. After all the bylaws are written, we will consider opening the club up to new members.
-We have another salvo of investing cash and are considering where to invest next. Several options are out there, but we're still researching new stocks and opportunities as well. MTW is the leader in the clubhouse, but we're not in a rush to put money into the market right now. This isn't to say that we're afraid or are trying to time the bottom, we just don't feel urgently.
I'll try and make these posts a weekly edition on Tuesdays to give you readers an insight into the car-azy world of our investment club.
Are there any interesting stocks out there that you would like to recommend? Any interesting stories about developing your own club's bylaws?
Monday, March 2, 2009
Dow Below 7000, head to the bomb shelter
Today the Dow closed below 7000 for the first time since 1997, less than half its peak in 2007.
The Street is wary, says Forbes.
MSN Money asks its users if they will ever invest in stocks again. Many say no.
Look up, the sky is falling.
Is it hard to have faith in the market right now? It sure is. There are fear mongers and Chicken Littles everywhere out there. In the media. On the message boards. Through the blogs.
This is the downside to risk, the downside to getting fat off of greedy capitalist schemes. This is the downside to too little regulation, to not enough regulation. We knew it could all go wrong and now it has.
Or has it?
If you're not a little afraid right now, you're not human. If you're not strong enough to have faith right now, you won't see the promise land.
Get together with your fellow investors, be you in an investment club or not. Assure each other. We'll make it through, come sub-7000, 6000, or 5000.
Turn off your TV.
The Street is wary, says Forbes.
MSN Money asks its users if they will ever invest in stocks again. Many say no.
Look up, the sky is falling.
Is it hard to have faith in the market right now? It sure is. There are fear mongers and Chicken Littles everywhere out there. In the media. On the message boards. Through the blogs.
This is the downside to risk, the downside to getting fat off of greedy capitalist schemes. This is the downside to too little regulation, to not enough regulation. We knew it could all go wrong and now it has.
Or has it?
If you're not a little afraid right now, you're not human. If you're not strong enough to have faith right now, you won't see the promise land.
Get together with your fellow investors, be you in an investment club or not. Assure each other. We'll make it through, come sub-7000, 6000, or 5000.
Turn off your TV.
Thursday, February 26, 2009
Credit bureau drops access to credit score
One of the three credit bureaus, Experian, is dropping access to their FICO score. This means only 2 of the 3 scores used to judge consumers on their loan-worthiness will be available to the public. MSN's Liz Pulliam Weston describes what this means in this article.
I personally am going to be contacting my congressmen about this. Congress finally got its act together in the past few years and gave everyone access to their credit report via annualcreditreport.com (no, freecreditreport.com is not the correct site, and is somewhat of a scam, regardless of what the catchy jingle says). However they need to go further and give everyone access to their FICO score for free. I recently noticed a mistake on my credit report, and got it fixed, but only after I payed $13 just to see my score. In this economy, I have a hard time believing people will be able to fork over almost $40 just to see their most recent credit score.
The link to your House Representatives and Senators can be found here and here.
You can copy and paste this text into the box:
I personally am going to be contacting my congressmen about this. Congress finally got its act together in the past few years and gave everyone access to their credit report via annualcreditreport.com (no, freecreditreport.com is not the correct site, and is somewhat of a scam, regardless of what the catchy jingle says). However they need to go further and give everyone access to their FICO score for free. I recently noticed a mistake on my credit report, and got it fixed, but only after I payed $13 just to see my score. In this economy, I have a hard time believing people will be able to fork over almost $40 just to see their most recent credit score.
The link to your House Representatives and Senators can be found here and here.
You can copy and paste this text into the box:
Dear Congressperson or Senator, please lobby for reform in regards to FICO scoring. Consumers
should have access to BOTH their credit reports AND credit scores, from all
three credit bureaus (Experian, TransUnion, and Equifax) for FREE. Consumers
should also have access to the secret scores keep by insurance and other
financial service companies. This article details why this is best for
consumers, i.e. your constituents.
http://articles.moneycentral.msn.com/SavingandDebt/ConsumerActionGuide/tell-congress-no-more-secret-scores.aspx?page=1
UPDATE: Some of you may be wondering how this affects your investing? Well, higher credit scores translates to lower interest rates on debt, meaning more money left over to invest. As Martha Stewart would say (in the ultimate sense of irony), "It's a good thing!"
Outraged? Disagree or don't care? Share your thoughts in the Comments section.
Tuesday, February 24, 2009
Bylaws-Setting the Table
Our club has recently begun drafting bylaws to go along with the general partnership that we drafted, ratified, signed, and got notarized earlier this month.
The process of drafting bylaws will be long and nuanced, but we really want to make sure that we have our bases covered. As we grow beyond our current four members we want to assure the ideals and goals that we formed the club upon will be passed on to new members--as well as making sure all the legal loose ends are tied up in case of any uncomfortable situations.
No one wants to have to kick a club member out or have someone quit over a disagreement, but if our club stays around as long as we hope, these things might come to pass. It is better to put in the hard work up front in drafting the partnership and bylaws than to rush to expand and then find out we have no adequate recourse to police the club.
Sly has been invaluable in writing the first draft of the partnership and the bylaws thus far, but the rest of the club members will also be writing sections of the bylaws--to make sure that we are all accountable in the legal and logistical foundation of our club.
The process of drafting bylaws will be long and nuanced, but we really want to make sure that we have our bases covered. As we grow beyond our current four members we want to assure the ideals and goals that we formed the club upon will be passed on to new members--as well as making sure all the legal loose ends are tied up in case of any uncomfortable situations.
No one wants to have to kick a club member out or have someone quit over a disagreement, but if our club stays around as long as we hope, these things might come to pass. It is better to put in the hard work up front in drafting the partnership and bylaws than to rush to expand and then find out we have no adequate recourse to police the club.
Sly has been invaluable in writing the first draft of the partnership and the bylaws thus far, but the rest of the club members will also be writing sections of the bylaws--to make sure that we are all accountable in the legal and logistical foundation of our club.
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