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Archive for April, 2010

Federal Reserves Stands Pat on Interest Rates

Wednesday, April 28th, 2010

Today the Federal Reserve announced that it would keep interest rates at the current 0-0.25% level. The all important monetary policy statement included some very slight changes in wording, but it was mostly the same as before. The small changes included a bit of an upgrade in their comments on the current state of the economy. The FOMC now says that economic activity is indeed improving and the labor markets are picking up. They included a note about household spending improving, albeit at a slow pace because of constraints on the consumer.

One of the big questions before today was whether or not the FOMC would keep the line about expecting interest rates to stay low for an extending period of time. In fact, they did keep that particularly wording just the same as it has been. Clearly, the Federal Reserve believes things are getting better, but they are being very cautious making any kind of move toward higher interest rates. The situation in Greece has also served to keep the world on notice that the credit crisis isn’t completely over in the global economy.

The next move for the Federal Reserve has to be up since interest rates can’t go any lower. The million dollar question is, when will that move to higher interest rates take place? While Wall Street often trembles at the talk of any raise in interest rates, at some point rates will need to move slowly higher. At first it may cause investors to grow concerned, but in the long run interest rates need to move to a more normalized level. For the many consumers who use money markets and certificates of deposit to increase their savings, a move to slightly higher rates would be a very welcome site.

Interest rates are staying the same for now and they probably will for a while, but next time you hear rates may be moving higher don’t immediately think that will ruin the economy.

Goldman Sachs Fraud Bombshell Could Help Trust in Market

Wednesday, April 21st, 2010

Last Friday’s news of the SEC charging Goldman Sachs with fraud wasn’t received well by the market, and that shouldn’t come as a surprise. The SEC has a problem with how Goldman Sachs continued to market their commercial debt obligations to the public while profiting from selling those products short. Goldman Sachs has indicated it won’t be giving up without a fight, because it believes the firm did nothing wrong. The first thought of all the traders on Wall Street was, who could be next? There were plenty of other players in the subprime market and the SEC could well crack down on other institutions.

Uncertainty is never a good thing for the stock market in the short and intermediate terms. I think it is very likely that as more news comes out about this case, the market will worry and stocks could suffer short-term downturns. The short-term aside, I do think the SEC taking this strong stance against a corporation like Goldman could be great for the stock market in the long run.

Why would this help the market? There has been a disconnect between Main Street and Wall Street for quite some time now, and many average citizens perceive the stock market as a shady place. This obviously isn’t good for the market, or the overall economy. Goldman Sachs is the biggest name in the investment banking industry that put our economy into a lot of trouble with the subprime market. I could certainly see this working out as investors gaining confidence in the system as whole since it seems much more likely now that no one company would be above getting punished by the government. Trust in the market is a huge key, and I think a tougher stance being taken by the SEC could lead to a much improved environment over the long haul.

Strong Recovery is Coming?

Wednesday, April 14th, 2010

Wall Street Journal reported that evidence mounts for strong recovery. The following is quoted from Wall Street Journal.

“There’s a growing risk that we’re underestimating the strength of the recovery,” said Stephen Stanley, chief economist at Pierpont Securities, noting that deep recessions tend to be followed by steeper recoveries. “If the economy pops, it’s going to be faster than anyone is forecasting.”

That’s pretty encouraging! The job market is still dull, but many companies can’t find qualified people to fill positions. If the recovery is really on the way, all prospective home buyers, especially in San Francisco bay area, will need to wait for long time before their dream of owning homes. Home prices are already creeping up and out of reach for many buyers. If the low interest rates are here to stay despite of strong recovery, we may witness another real estate bubble.

Last Minute Tax Tips

Monday, April 12th, 2010

It’s just about that time of year, yes indeed April 15th (Tax Day) is almost here. Not many people look forward to Tax Day, and I can’t blame them, but there are many tips and opportunities available right now that make filing your taxes and the amount you may owe (or receive), much more satisfactory.

The positive of the slumping economy over the last couple of years is that it will actually help you during tax time. The government has added all kinds of deductions and tax credits that will go a long ways toward making your amount owed much smaller, or hopefully the amount received bigger. Tax credits for 2009 are much more abundant than most years. What are the most popular tax credits in 2009? The Making Work Pay tax credit, which most who receive a normal pay check are eligible to receive, helps most families receive a $400-$800 tax credit. The first-time home buyer tax credit is sitting at a hefty level of $8,000, so if you qualify, that will help a whole lot! Also, both tax credits and tax deductions have become the norm for products that serve to use less energy. Many things apply, such as most heating/AC units, as well as automobiles, windows, doors, etc.

Remember to continue to take advantage of an IRA to defer taxes or build up a nice retirement nest egg, which can be taken out without taxes. If you have been receiving unemployment compensation, remember that you will qualify for a one-time benefit in 2009 of tax free compensation up to $2,400.

This may sound silly, but please remember to sign your tax forms before you mail them in. You’d be shocked at how many people forget to do this. Also, don’t forget to mail your taxes out by the tax deadline of April 15th. Take advantage of the write-offs and credits available to make this tax season a little less painful.

More Stock Market Gains Are Expected

Sunday, April 11th, 2010

Stocks posted the sixth consecutive weekly gain, with the Dow Jones Industrial flirting with 11,000. We had good jobs report and better than expected same store sales that signaled that the U.S. economy is recovering. Treasuries had a strong week on interest rate outlook and auction demand.

March jobs report released on Friday showed the biggest increase in job creation in 3 years, as employers added 162,000 jobs!

Energy and commodity related shares led the way as the Dollar weakened versus the euro, as Greece’s debt worries eased and European confidence in the economic outlook improved to the highest in almost two years in March, beating economists’ forecasts and signaling the recovery is gathering strength.

Commodity traders are smiling happily because of the rally in gold, copper and aluminum prices. Gold rose to the highest price in four weeks and copper climbed to a 20-month high.

Stock market’s outlook looks brighter for the coming week. Earnings season starts on Monday. Dow is flirting with 11,000 psychological level for the first time since September 2008. Earnings from the following companies will decide the direction for the market. All these companies are scheduled to announce earnings in the next two weeks.

    Higher Travel Expenses Coming As Oil Hits 17 Month High

    Tuesday, April 6th, 2010

    Today crude oil futures hit a new 17 month high, closing at $86.75. It has been a whirlwind for crude oil futures over the last couple of years. In the summer of 2008, oil prices traded as high as $147 a barrel and gasoline prices at the pump topped $4 per gallon. As the economy went into the tank in late 2008 and early 2009 the price of crude oil and gasoline dropped quickly. Crude oil futures plunged below $45 a barrel and gasoline went slightly below $2 per gallon. Fast forward to today, and crude oil prices have doubled from their low and gasoline prices are on the rise.

    The writing is on the wall, gasoline prices are certainly going to cross $3 per gallon soon. The extra money you had in your budget because of the drop in gasoline prices is going to go away, and once again travel expenses are going to start causing many consumers headaches in the next few weeks and months. The biggest negative about this news is that summer driving season is coming soon, and prices are almost assured to be higher then, which will hurt vacation spending as well. It is all a vicious cycle that has the potential to slow down the economic rebound that appears to be underway.

    As a wise consumer, I strongly suggest you start finding places to cut your expenses little by little to account for the higher costs of travel that are coming soon. Find areas of your budget that you can cut back ever so slightly to make a small differences. Those small differences will quickly add up to a significant amount over time. The sooner you start making changes in your spending habits, the better prepared you will be when these prices continue to rise in the months ahead. Preparation is a huge key to financial success, so start getting ready today!

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