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Archive for April, 2009

Is the economy trying to form a bottom?

Thursday, April 30th, 2009

The debate on Wall Street as well as Main Street is quite strong about whether the economy may be trying to form a bottom.  Recently some of the economic reports have begun to show a trend to results that are poor, but not as bad as they were expected to be. The April consumer confidence number was the highest of the year, and the Case Shiller Home Price Index even showed that the price decline in housing has slowed slightly. Other data, such as the jobless claims and the GDP number have yet to begin to show an upward bounce, but have begun to level off rather than continuing their quick pace of decline.

The signs are pointing to the fact that the consumer wants to think the economy is forming a bottom, and that the pace at which the economy is slowing down has definitely begun to moderate. It will take a whole lot more hard data to be able to get a solid look at exactly where the economy stands.

In the coming months there will be a huge emphasis on watching economic data, and you can bet that the stock market as well as common investors around the world will be tuned in. What numbers should be watched most closely? There will be a lot of scrutiny on the employment report, as well as weekly jobless claims. Also, retail sales will need to begin to perk up a little bit before we can really see that the consumer is beginning to feel more confident in actually putting their money to work. Reports that let us know about the current condition of the manufacturing sector will also be important to keep a close eye on. In general it will be key to hone in on the areas that have been hit the hardest and see if they are beginning to climb out of the deep recession.

The economy does seem to be showing a little bit of perk, but its far too early to call a bottom. Over time we will see whether this is a temporary blip or the start of something real.

Mutual fund fees and expenses on the increase

Wednesday, April 29th, 2009

This is certainly not news that the average investor likes to hear, but several major mutual fund families are beginning to raise fees and expenses in some of their mutual fund names. Notably, Vanguard announced that its US Value Fund will now charge 0.46% versus its previous level of 0.37%. Vanguard has always been the leader in keeping mutual fund fees as low as possible, and though this level is still very reasonable it points out the fact that rising fees and expenses are a major concern right now.

What’s causing the need for mutual fund families to raise mutual fund fees during this economic recession? Quite frankly as mutual funds have more and more money taken out of them by investors during the current economic recession and market volatility the mutual funds have their margins squeezed. The mutual funds are forced to do something to cut their costs and increase their revenues, which usually means either quite a few jobs will be lost or the expense ratios at their funds will go up. In some cases there may be jobs lost as well as ratios rising. Two years ago the fund was probably managing enough money that they could efficiently produce a nice profit, but now they have far less money to handle and things are much tougher.

The fact that mutual fund expenses are likely to go up in the coming months is a bitter pill to swallow for investors who have seen their mutual funds lose a significant amount of their value in the last year or two. In the end it simply is a business decision that some mutual fund families will have to make, because they are trying to run a profitable business. As an investor finding mutual funds with solid low cost ratios will be more important than ever in the coming months.

Is less bad good enough for the market?

Tuesday, April 28th, 2009

The debate going around Wall Street has now shifted to exactly what the stock market will need to hold its recent gains and move forward in the future. The month of March was a good one for the stock market, and thus far April has also proved to be a positive month as well.

What is behind the recent improvement in the stock market? Many analysts and strategists point to the economic news that has been “less bad” than it was before. In other words, the economic news has been bad, but it hasn’t been downright terrible like it was in the previous months. Another thing which has helped quite a bid is corporate earnings, and quite honestly they paint just about the same picture as do the economic reports. Many companies have been able to beat expectations, especially the financials, but in reality, the earnings are still quite poor. You could look at it one of two ways; one could say that the financials continue to struggle or you could say that there has been substantial improvement which bodes well for the future.

Economic numbers such as consumer confidence and even housing data have been on the rebound in the last month. If you put it into a historical perspective the numbers are still very poor, but given the desperately low levels they have come back from, the most recent data is certainly an improvement.

Now the question becomes, is less bad good enough for the stock market to keep it up? It is likely that for a while reports that are less bad than had been expected will be enough to help the market, but over time as expectations begin to rise again the economy will have to show that it can once again expand for the market to find its long-term footing. Less bad may be good enough for now, but in the long run we’ll need a little better.

Proper retirement planning is pivotal

Monday, April 27th, 2009

By now you have certainly heard about how important it is to plan ahead for your retirement. Some of you may have listened, while others may have scoffed at the notion of doing much in the way of retirement planning because it is simply too far away or you can deal with it later. Those individuals who begin their retirement planning early are certainly getting a big head start on an absolutely crucial part of their finances.

Why is retirement planning so important? When you retire you will need to be able to take care of yourself and your family while not bringing in as much income as before. This is why it is so important that you build up a retirement nest egg. The nest egg will be funds that you do not tap into until you reach retirement age and you and your family need the money to live your everyday lives. The truth is as you get older it can be much more difficult to earn much from your investments for two basic reasons; you don’t have as much time, and you are unclear exactly when you will need the money.

Some are able to do a great job of planning out their retirement finances by themselves, but others need the help of a professional retirement planner. Even if you need to shell out some money for the best retirement planner, it will be well worth it in the long run. Investing for your retirement is a full-time job and saving money for retirement can be quite difficult, which means that sometimes you need that extra help from a professional.

Whether you decide to go it yourself or find a retirement planning professional, make sure you make planning out your retirement priority number one. In the long run you’ll never make a better investment!

Stress test anxiety?

Friday, April 24th, 2009

One has to wonder what on earth the market will make of the next few trading sessions before the unveiling of the stress test results on May 4th. There are several pretty significant issues right now with the stress test. The first and most important of which Michelle pointed out the other day in her piece “What the hell is stress test?” The truth is there are a lot of people who don’t understand what the stress test is doing. The stress test is being based on computer generated predictions of where the economy may be in the coming months and years and then our government is left to test how well the banks could stand up in a normal scenario and in the worst case scenario. The overall idea of the stress test is a good one, but there certainly are questions about exactly how everything will be released.

At this point we don’t know what kind of details will be released as far as the government’s findings on each financial company. We do know that the stress test results  are due out on May 4th for the 19 biggest banks, and May 4th will certainly provide a great amount of drama in the markets. The stress test will raise some very important questions about the financial system and whether it can continue to run without a major overhaul in certain areas.

As the bank stress test information is released a whole lot of volatility should be expected as investors really have no idea what to expect. Investors are anxious to receive the results, but then again they are worried that they may not like what they are about to see. All in all my hope is the stress test will prove to be a step forward, but don’t be surprised if there is a lot of uncertainty before it all becomes more clear.

US Treasury preparing chapter 11 bankruptcy for Chrysler?

Thursday, April 23rd, 2009

Chrysler LLC may be the first of the major automakers to be forced into chapter 11 bankruptcy if today’s rumors are correct. The New York Times is reporting that the Treasury Department is in the final stages of preparing the chapter 11 bankruptcy plan for Chrysler. The company has an April 30th deadline put in place by the Treasury to draft a restructuring plan that would show the company has viability for the future. Chrysler has had no comment regarding any possible plan, and the company declined to comment today on the rumors that the government may be setting up a bankruptcy plan for it.

The New York Times says that Treasury has reached an agreement with the UAW union, whose members’ pensions would be protected in the bankruptcy plan. The final issue to figure out seems to be what to do with Chrysler’s lenders. There is currently $6.9 million worth of Chrysler debt being held, so that is definitely an important issue to a lot of people.

Some believe that Treasury taking the final steps to set up a bankruptcy program may be its way of forcing the lenders hand in an attempt to lower Chrysler’s overall debt. Clearly the lenders now have a big decision to make, and I’m guessing they won’t take it lightly at this point.

Years ago a bankruptcy of a company like Chrysler seemed like an absolutely ridiculous proposition, but now it truly is reality. The other harsh reality is that General Motors may not be far behind at all, and if General Motors is forced into chapter 11 bankruptcy many more people will be affected. I believe the government realizes that drastic measures must be taken and that taxpayers cannot be counted on to continually foot the bill of companies that are losing money so quickly. Would this be the right move for the American economy and the global economy? That’s the million dollar question that so many people have right now!

Cheap Airline Tickets for Students

Thursday, April 23rd, 2009

It is a fact that air travel is expensive. It may be alright for business people or those who are employed but when it comes to students, it is a different matter altogether.  With hefty college fees and several miscellaneous expenses to bear, college students hesitate to spend huge amounts on air travel. However, it is impossible to avoid commuting by plane altogether. Several students study in colleges that are thousand of miles away from home. Then there are those who choose to study abroad and those who go on exchange programs. There are also students whose vacation plans involve lots of travel. Whichever category you may fall into, the question is, how can you get cheap airline fares?

Remember, airline fares are highest during peak seasons like Christmas. Just about everyone seems to be traveling at the same time and getting a good bargain looks impossible. But a few adjustments in your plans can work wonders for your budget. Try to fly during the week instead of waiting for weekends. You may be able to get low rates since there is less rush on week days. The problem is that you may have to fly on dates which are not convenient for you. For example, you may have to fly on Easter Sunday or New Years Eve.

You can save a couple of dollars by choosing flights which depart at odd hours. Most people avoid flights that leave at 6am or late at night. By choosing to fly at such odd times, you may be able to avail lower air fares. You can also check out the rates for flights to and from nearby destinations. Sometimes, airlines flying in and out of smaller cities can give you lower fares and better flight hours. For instance, if you are flying to Miami, check out the flight rates to Fort Lauderdale. It is bound to be cheaper and Fort Lauderdale is less than an hour from Miami.

Sometimes, you can get cheap tickets directly from the airlines websites. Airlines prefer to have their flights full. However, they may not always be able to do so. Leftover seats are sold at a fraction of their original price. Make it a point to check the websites of several different airlines and see which one offers the best bargain. Airlines come up with promotional fares from time to time. You can find advertisements on such offers in newspapers. You can set alerts in travel sites like Orbitz to inform you when the fares between two destinations have fallen below a certain amount.

Another option is to approach discount student travel sellers like STA Travel and StudentUniverse that offer great student discounts. They have agreements with different airlines and offer discounted fares on their websites.  STA requires students and teachers to pay $22 for a one-year membership. Students will be issued an International Student Identity Card (ISIC). You will need to submit a valid student ID, a current class schedule or a tuition receipt so that the company can verify your student status. You can then use this card to avail discounts on airfares. This card is also useful for study abroad programs.  Student Universe does not require you to purchase an ISIC card. You can use their website to book tickets airline tickets, hostel rooms and even travel insurance. StudentUniverse has agreements with several airlines , including some of the biggest in the world, like American, Air France-KLM SA, United, Deutsche Lufthansa AG, British Airways PLC etc.

The price of tickets and the availability of low fares and good discounts depend to a great extent on the economic climate. When business is at a peak, there is sure to be an increased demand for flight tickets since businessmen and executives and marketing agents travel a lot at this time. However, when there is an economic slowdown, like at present, there is less demand for tickets and it is easier to get cheap air fares.

In conclusion, getting cheap airfares for students is certainly not easy. It takes plenty of adjustment and lots of research to find the best bargain. Nevertheless, it is not an impossible task either.

Plan a summer vacation for less

Wednesday, April 22nd, 2009

It’s only the latter stages of April, but I know that deep down you are already wondering where you are going to go for your summer vacation this year. Others of you may be wondering if you will even be able to plan a summer vacation at all this year because of the difficult economy. A nice little vacation is great for everyone, so I highly encourage anyone who can possibly get away to do so. Here are a few ways to save money on your vacation this summer.

  1. Keep your fuel costs to a minimum– Gas prices are much cheaper than they were last year at this time, but they are still plenty high enough to drive up the cost of a vacation quickly. If you are driving make sure you take the most fuel-efficient vehicle possible. If a fuel efficient vehicle isn’t an option you should consider renting one for the trip.
  2. Use travel websites to save on hotel costs- Sites such as hotwire, expedia, and travelocity can do a whole lot of good when you are looking to get a great rate on a hotel. Often you will find that the rate you receive on the website is better than the rate you can get by calling the hotel directly.
  3. Plan ahead- The longer you wait the more you are likely to have to pay, whether it be for a hotel or plane tickets. Planning ahead can make a big difference.
  4. Try to avoid peak travel times- If you are able to avoid the peak travel times you will save a huge amount of money. This is especially true of vacations around the beaches and the mountains. Weekdays typically are a little cheaper than weekends, so keep that in mind as well.
  5. Lower your food costs- Try to take as many snacks as you can with you, or heat up some lunch some of the days while you are gone in a microwave at the hotel or place you are staying. Eating out every day can lead to some very expensive dining costs.

If all else fails, try to plan a short little vacation that is very close to home. It will allow you to save a lot of money while still having a small vacation. Everyone deserves a little rest and relaxation!

What the hell is stress test?

Wednesday, April 22nd, 2009

Everyone is talking about Fed’s stress test on banks. Fed is planning to release basic details of stress test tomorrow. What is this stress test? What is being tested?

The stress tests rely on a series of computer-generated “what-if” projections in the event the economy deteriorates further. Those include unemployment rising to 10.3 percent by next year, home prices falling an additional 22 percent this year, and the economy contracting by 3.3 percent this year and staying flat in 2010. Federal Reserve tests the large U.S. banks’ performance under two conditions: baseline scenario and more adverse scenario. The tests are conducted to find out whether large U.S. banks have sufficient capital buffers to withstand the impact if the economy worsens.

Stress Test GDP Projections


In other words, Federal Reserve is trying to find out who will be the next Lehman Brothers. Even if there is one more Lehman out there, Federal Reserve will not let that bank fail. FDIC published detailed FAQ on stress test; it’s useful to understand what is happening.

According to New York Times, the banks were asked to project their earnings over the next two years to give the regulators a better sense of how much capital they would have to absorb the coming losses.

Tomorrow, Federal Reserve and other banking regulators are expected to release a “white paper” that outlines how regulators went about conducting stress tests. It will include assumptions about the losses firms could face for loans and securities under different economic scenarios. Fed plans to release the results of stress tests on May 4th.

Nouriel Roubini  already pointed out that Fed’s baseline scenario figures are wrong. For example, unemployment rate for Q1 2009 is 8.5% that is even higher than 7.8% projected by Fed for adverse scenario. You can read more about Nouriel Roubini’s views on stress test here. Federal Reserve may adjust their baseline scenario when they release the basic details of the stress tests tomorrow.

Overall, stress test is a good thing. It’s better to find out about severely crippled banks before they become another gigantic failure. I believe that Federal Reserve should conduct these stress tests every three months until we get out of this nasty recession.

Soaring medical insurance costs hurting Americans badly

Tuesday, April 21st, 2009

Health and medical insurance costs have skyrocketed in the last few years, growing much more quickly than the overall rate of inflation. A study conducted earlier this year highlights just how bad things could get if there isn’t some kind of health care reform. The study, published January 28th of this year by the Public Interest Research Group, estimates that employer-paid family health policy programs will more than double in their costs between now and 2016 if there aren’t major reforms to stop the current trends.

The current path of soaring health insurance costs is a vicious cycle that does a whole lot of harm to the economy of the United States and the world as a whole. Employers are being forced to pay a whole lot more to offer health insurance programs to their employees, and in turn employees are being forced to pay much higher premiums for similar or lesser health care coverage.

This has led to many Americans beginning to opt out of certain parts of their medical insurance plans, and even some Americans being forced to drop insurance coverage altogether. Some Americans are placing the blame squarely on their employer, which isn’t that fair since the employer in many cases is being squeezed by the rise in their costs to offer those medical insurance programs to the employee.

Some companies are trumpeting plans such as high-deductible health savings plans as cheaper options for health insurance. That sounds great until someone in your family gets quite sick and you realize the coverage you have really is the bare minimum and you are paying extremely high percentages of the medical costs.

Simply put there is no easy way to avoid the soaring cost of medical insurance. As an individual you must pay up for health insurance if you can at all, because the costs of not doing so are even more harmful. Let’s hope that healthcare reform becomes a real goal of congress and government as a whole, and soon. It may take some compromising on both sides of the aisle, but Americans need action and they need it taken quickly.

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