There are certain things you must understand about bonds before you start investing in them. Not understanding these things may cause you to purchase the wrong bonds, at the wrong maturity date.
The three most important things that must be considered when purchasing a bond include the par value, the maturity date, and the coupon rate.
The par value of a bond refers to the amount of money you will receive when the bond reaches its maturity date. In other words, you will receive your initial investment back when the bond reaches maturity.
The maturity date is of course the date that the bond will reach its full value. On this date, you will receive your initial investment, plus the interest that your money has earned.
Corporate and State and Local Government bonds can be ‘called’ before they reach their maturity, at which time the corporation or issuing Government will return your initial investment, along with the interest that it has earned thus far. Federal bonds cannot be ‘called.’
The coupon rate is the interest that you will receive when the bond reaches maturity. This number is written as a percentage, and you must use other information to find out what the interest will be. A bond that has a par value of $2000, with a coupon rate of 5% would earn $100 per year until it reaches maturity.
Because bonds are not issued by banks, many people don’t understand how to go about buying one. There are two ways this can be done.
You can use a broker or brokerage firm to make the purchase for you or you can go directly to the Government. If you use a brokerage, you will more than likely be charged a commission fee. If you want to use a broker, shop around for the lowest commissions!
Purchasing directly through the Government isn’t nearly as hard as it once was. There is a program called Treasury Direct which will allow you to purchase bonds and all of your bonds will be held in one account, that you will have easy access to. This will allow you to avoid using a broker or brokerage firm.
Monday, June 7, 2010
Wednesday, May 12, 2010
Wild Markets, Looking for A Safe Haven? Better Think Twice About That Haven
Normally, when markets get really wild, as they have been lately, investors pour into to safe haven assets. These assets are generally highly liquid, and relatively provide extremely low returns. When market uncertainty increases, and investors become risk averse, the crowd will flood into investments like bonds, money market funds, treasuries, and the dollar.
Many investors get to the point of taking their money out of the markets when volatility and uncertainty picks up. When this happens it creates a huge demand for the US Dollar, and consequentially the US Dollar benefits and begins to strengthen.
Although there is nothing wrong with getting out of the equity markets and into safe haven assets, such as the dollar, there is a key factor at the moment that may make that play a bit more risky.
This factor is the recent market sentiment for the US Dollar. I spoke of sentiment on the dollar last December, and recommend a GBP/USD short and EUR/CHF short, which performed very well with each pair dropping substantially. However, that same sentiment may be changing to be a negative thing for the US Dollar in the medium term.
If you are in need of a safe haven in these turbulent times (volatility surged several days ago) then you may want to consider rushing into a different currency than the US Dollar. Why? because sentiment is changing....
Current dollar *sentiment against the British Pound and Swiss Franc:
GBPUSD - The ratio of long to short positions in the GBPUSD stands at -1.17 as nearly 54% of traders are short. Yesterday, the ratio was at 1.27 as 56% of open positions were long. In detail, long positions are 6.6% lower than yesterday and 32.1% weaker since last week. Short positions are 38.8% higher than yesterday and 1.9% stronger since last week. Open interest is 13.3% stronger than yesterday and 12.8% below its monthly average. The SSI is a contrarian indicator and signals more GBPUSD gains.
USDCHF - The ratio of long to short positions in the USDCHF stands at -1.06 as nearly 51% of traders are short. Yesterday, the ratio was at -1.24 as 55% of open positions were short. In detail, long positions are 7.0% higher than yesterday and 7.9% stronger since last week. Short positions are 9.0% lower than yesterday and 53.1% weaker since last week. Open interest is 1.9% weaker than yesterday and 26.8% below its monthly average. The SSI is a contrarian indicator and signals more USDCHF gains.
What does this suggest?
It suggests that the dollar strength sentiment I spoke of several months ago in December is now running out of steam, and sentiment is now turning in favor of dollar weakness against these pairs for the short to medium term. Therefore, as a safe haven investment US Dollar cash investments are not looking so good based on currency market sentiment. If anything, you may want to consider rushing into the GBP or Swiss Franc to ride out these rough and indecisive times.
*FXCM sentiment data
Many investors get to the point of taking their money out of the markets when volatility and uncertainty picks up. When this happens it creates a huge demand for the US Dollar, and consequentially the US Dollar benefits and begins to strengthen.
Although there is nothing wrong with getting out of the equity markets and into safe haven assets, such as the dollar, there is a key factor at the moment that may make that play a bit more risky.
This factor is the recent market sentiment for the US Dollar. I spoke of sentiment on the dollar last December, and recommend a GBP/USD short and EUR/CHF short, which performed very well with each pair dropping substantially. However, that same sentiment may be changing to be a negative thing for the US Dollar in the medium term.
If you are in need of a safe haven in these turbulent times (volatility surged several days ago) then you may want to consider rushing into a different currency than the US Dollar. Why? because sentiment is changing....
Current dollar *sentiment against the British Pound and Swiss Franc:
GBPUSD - The ratio of long to short positions in the GBPUSD stands at -1.17 as nearly 54% of traders are short. Yesterday, the ratio was at 1.27 as 56% of open positions were long. In detail, long positions are 6.6% lower than yesterday and 32.1% weaker since last week. Short positions are 38.8% higher than yesterday and 1.9% stronger since last week. Open interest is 13.3% stronger than yesterday and 12.8% below its monthly average. The SSI is a contrarian indicator and signals more GBPUSD gains.
USDCHF - The ratio of long to short positions in the USDCHF stands at -1.06 as nearly 51% of traders are short. Yesterday, the ratio was at -1.24 as 55% of open positions were short. In detail, long positions are 7.0% higher than yesterday and 7.9% stronger since last week. Short positions are 9.0% lower than yesterday and 53.1% weaker since last week. Open interest is 1.9% weaker than yesterday and 26.8% below its monthly average. The SSI is a contrarian indicator and signals more USDCHF gains.
What does this suggest?
It suggests that the dollar strength sentiment I spoke of several months ago in December is now running out of steam, and sentiment is now turning in favor of dollar weakness against these pairs for the short to medium term. Therefore, as a safe haven investment US Dollar cash investments are not looking so good based on currency market sentiment. If anything, you may want to consider rushing into the GBP or Swiss Franc to ride out these rough and indecisive times.
*FXCM sentiment data
Saturday, May 1, 2010
Sound Investing for Retirement
Retirement may be a long way off for you – or it might be right around the corner. No matter how near or far it is, you’ve absolutely got to start saving for it now. However, saving for retirement isn’t what it used to be with the increase in cost of living and the instability of social security. You have to invest for your retirement, as opposed to saving for it!
Let’s start by taking a look at the retirement plan offered by your company. Once upon a time, these plans were quite sound. However, after the Enron upset and all that followed, people aren’t as secure in their company retirement plans anymore. If you choose not to invest in your company’s retirement plan, you do have other options.
First, you can invest in stocks, bonds, mutual funds, certificates of deposit, and money market accounts. You do not have to state to anybody that the returns on these investments are to be used for retirement. Just simply let your money grow overtime, and when certain investments reach their maturity, reinvest them and continue to let your money grow.
You can also open an Individual Retirement Account (IRA). IRA’s are quite popular because the money is not taxed until you withdraw the funds. You may also be able to deduct your IRA contributions from the taxes that you owe. An IRA can be opened at most banks. A ROTH IRA is a newer type of retirement account. With a Roth, you pay taxes on the money that you are investing in your account, but when you cash out, no federal taxes are owed. Roth IRA’s can also be opened at a financial institution.
Another popular type of retirement account is the 401(k). 401(k’s) are typically offered through employers, but you may be able to open a 401(k) on your own. You should speak with a financial planner or accountant to help you with this. The Keogh plan is another type of IRA that is suitable for self employed people. Self-employed small business owners may also be interested in Simplified Employee Pension Plans (SEP). This is another type of Keogh plan that people typically find easier to administer than a regular Keogh plan.
Whichever retirement investment you choose, just make sure you choose one! Again, do not depend on social security, company retirement plans, or even an inheritance that may or may not come through! Take care of your financial future by investing in it today.
Let’s start by taking a look at the retirement plan offered by your company. Once upon a time, these plans were quite sound. However, after the Enron upset and all that followed, people aren’t as secure in their company retirement plans anymore. If you choose not to invest in your company’s retirement plan, you do have other options.
First, you can invest in stocks, bonds, mutual funds, certificates of deposit, and money market accounts. You do not have to state to anybody that the returns on these investments are to be used for retirement. Just simply let your money grow overtime, and when certain investments reach their maturity, reinvest them and continue to let your money grow.
You can also open an Individual Retirement Account (IRA). IRA’s are quite popular because the money is not taxed until you withdraw the funds. You may also be able to deduct your IRA contributions from the taxes that you owe. An IRA can be opened at most banks. A ROTH IRA is a newer type of retirement account. With a Roth, you pay taxes on the money that you are investing in your account, but when you cash out, no federal taxes are owed. Roth IRA’s can also be opened at a financial institution.
Another popular type of retirement account is the 401(k). 401(k’s) are typically offered through employers, but you may be able to open a 401(k) on your own. You should speak with a financial planner or accountant to help you with this. The Keogh plan is another type of IRA that is suitable for self employed people. Self-employed small business owners may also be interested in Simplified Employee Pension Plans (SEP). This is another type of Keogh plan that people typically find easier to administer than a regular Keogh plan.
Whichever retirement investment you choose, just make sure you choose one! Again, do not depend on social security, company retirement plans, or even an inheritance that may or may not come through! Take care of your financial future by investing in it today.
Friday, March 19, 2010
Choosing A Broker
Depending on the type of investing that you plan to do, you may need to hire a broker to handle your investments for you. Brokers work for brokerage houses and have the ability to buy and sell stock on the stock exchange. You may wonder if you really need a broker. The answer is yes. If you intend to buy or sell stocks on the stock exchange, you must have a broker.
Stockbrokers are required to pass two different tests in order to obtain their license. These tests are very difficult, and most brokers have a background in business or finance, with a Bachelors or Masters Degree.
It is very important to understand the difference between a broker and a stock market analyst. An analyst literally analyzes the stock market, and predicts what it will or will not do, or how specific stocks will perform. A stock broker is only there to follow your instructions to either buy or sell stock… not to analyze stocks.
However, some brokers may try to push stocks to you and give you there analysis and try to get you to buy or sell. Do not listen to any broker, because there is conflicts of interest and will not offer the best advice to you due to their desire to get a commission. Stick to listening to the professional investment advisors, traders, investors, and analysts whom actually invest, not just take orders. There is a common fallacy of thinking that brokers are traders or investors, that is wrong, they are the order takers for the investors and traders.
Brokers earn their money from commissions on sales in most cases. When you instruct your broker to buy or sell a stock, they earn a set percentage of the transaction. Many brokers charge a flat ‘per transaction’ fee.
There are two types of brokers: Full service brokers and discount brokers. Full service brokers can usually offer more types of investments, may provide you with investment advice, and is usually paid in commissions.
Discount brokers typically do not offer any advice and do no research – they just do as you ask them to do, without all of the bells and whistles.
So, the biggest decision you must make when it come to brokers is whether you want a full service broker or a discount broker.
If you are new to investing, you may need to go with a full service broker to ensure that you are making wise investments. They can offer you the skill that you lack at this point. However, if you are already knowledgeable about the stock market, all you really need is a discount broker to make your trades for you.
Stockbrokers are required to pass two different tests in order to obtain their license. These tests are very difficult, and most brokers have a background in business or finance, with a Bachelors or Masters Degree.
It is very important to understand the difference between a broker and a stock market analyst. An analyst literally analyzes the stock market, and predicts what it will or will not do, or how specific stocks will perform. A stock broker is only there to follow your instructions to either buy or sell stock… not to analyze stocks.
However, some brokers may try to push stocks to you and give you there analysis and try to get you to buy or sell. Do not listen to any broker, because there is conflicts of interest and will not offer the best advice to you due to their desire to get a commission. Stick to listening to the professional investment advisors, traders, investors, and analysts whom actually invest, not just take orders. There is a common fallacy of thinking that brokers are traders or investors, that is wrong, they are the order takers for the investors and traders.
Brokers earn their money from commissions on sales in most cases. When you instruct your broker to buy or sell a stock, they earn a set percentage of the transaction. Many brokers charge a flat ‘per transaction’ fee.
There are two types of brokers: Full service brokers and discount brokers. Full service brokers can usually offer more types of investments, may provide you with investment advice, and is usually paid in commissions.
Discount brokers typically do not offer any advice and do no research – they just do as you ask them to do, without all of the bells and whistles.
So, the biggest decision you must make when it come to brokers is whether you want a full service broker or a discount broker.
If you are new to investing, you may need to go with a full service broker to ensure that you are making wise investments. They can offer you the skill that you lack at this point. However, if you are already knowledgeable about the stock market, all you really need is a discount broker to make your trades for you.
Wednesday, March 3, 2010
A Brief Overview Of Common 401k Mistakes
Believe it or not there are many mistakes that can be made along the way when it comes to financial retirement savings and investing. Unfortunately a good many of these mistakes center around the 401(k), which can be a tremendous boost to your retirement plans when used properly in order to build your portfolio. The problem is that the mistakes are often the only things we hear when it comes to retirement plans and investing. I suggest begin with the mistakes so that we can move along to better information and advice in the near future.
The first and perhaps largest mistakes that people make when it comes to 401 (k) plans is not signing up. Yes you heard that right. What people do not understand is that this is something your employer offers so that you can have some security for your future. It is a manner of saving money for your future that shouldn't be overlooked or taken for granted. Even a bad 401 (k) plan is better than no 401 (k) and with strict regulations those are few and far between. More importantly, if your company offers to match the funds in your 401 (k) plan not taking them up on that offer is literally tossing money in the garbage can.
The next big mistake when it comes to your 401 (k) is risking too little. Rewards come with risk. If you aren't taking any risks with your investment then you are by and large throwing money down the drain. In addition to that, it is nearly impossible to meet your retirement goals without taking some risks, and some hits along the way. This doesn't mean you should be reckless but along the way you are going to need to take some calculated risks in order to receive the bigger payouts that most of us hope for when investing in their retirement funds.
Risking too much. There are many risks involved when investing in the stock market. There are a few that deserve a little more mention than others. First of all, stocks present a fairly large risk, particularly to the uninitiated. While it is true that great rewards are most often the product of great risks you do not want to risk the bulk of your retirement by investing it all in stocks. Another thing you want to avoid doing if at all possible is investing in your company stock. We've seen too many lives destroyed when companies go under taking the financial stability of their employees along with them. Many companies offer incentives to employees for investing in their stock, which may be tempting but I recommend investing as little as possible in your company stock whenever possible as this could lead to problems down the road.
Finally, the worst thing you can do for the health of your 401 (k) is borrow against it. There are so many ways in which this could go wrong and the penalties for this are more than a little prohibitive. They are designed to be that way so that you will use the funds for their intended purpose. If you absolutely have no other option is the only way I would recommend borrowing against your 401 (k) and I would seriously consider selling a kidney before doing that.
When it comes to your financial retirement, 401 (k) mistakes can be far more costly than you may realize. Work to avoid these common mistakes and you should be well on your way to a successful retirement.
The first and perhaps largest mistakes that people make when it comes to 401 (k) plans is not signing up. Yes you heard that right. What people do not understand is that this is something your employer offers so that you can have some security for your future. It is a manner of saving money for your future that shouldn't be overlooked or taken for granted. Even a bad 401 (k) plan is better than no 401 (k) and with strict regulations those are few and far between. More importantly, if your company offers to match the funds in your 401 (k) plan not taking them up on that offer is literally tossing money in the garbage can.
The next big mistake when it comes to your 401 (k) is risking too little. Rewards come with risk. If you aren't taking any risks with your investment then you are by and large throwing money down the drain. In addition to that, it is nearly impossible to meet your retirement goals without taking some risks, and some hits along the way. This doesn't mean you should be reckless but along the way you are going to need to take some calculated risks in order to receive the bigger payouts that most of us hope for when investing in their retirement funds.
Risking too much. There are many risks involved when investing in the stock market. There are a few that deserve a little more mention than others. First of all, stocks present a fairly large risk, particularly to the uninitiated. While it is true that great rewards are most often the product of great risks you do not want to risk the bulk of your retirement by investing it all in stocks. Another thing you want to avoid doing if at all possible is investing in your company stock. We've seen too many lives destroyed when companies go under taking the financial stability of their employees along with them. Many companies offer incentives to employees for investing in their stock, which may be tempting but I recommend investing as little as possible in your company stock whenever possible as this could lead to problems down the road.
Finally, the worst thing you can do for the health of your 401 (k) is borrow against it. There are so many ways in which this could go wrong and the penalties for this are more than a little prohibitive. They are designed to be that way so that you will use the funds for their intended purpose. If you absolutely have no other option is the only way I would recommend borrowing against your 401 (k) and I would seriously consider selling a kidney before doing that.
When it comes to your financial retirement, 401 (k) mistakes can be far more costly than you may realize. Work to avoid these common mistakes and you should be well on your way to a successful retirement.
Wednesday, February 24, 2010
Your Risk Tolerance
This is where most financial advisors or investors go wrong, not properly accounting for risk tolerance. During the recent poor and volatile performance of stocks in 2008 and early 2009 there was not an investor whom did not have their risk tolerance tested. However, some investors were still happy and comfortable during those dismal times for the markets. Why? Because their risk tolerance was properly accounted for. Simple truth is, any individual whom was frustrated, angry, or complaining about the market conditions of 2008 and 2009 has improperly assessed, or was not properly advised on, their risk tolerance.
Assessing your risk tolerance will determine how comfortable you can be with your investments. If your risk tolerance is properly accounted for, no matter how much the markets fall you should still be comfortable and relatively happy with your investments.
Each individual has a risk tolerance that should not be ignored and rigorously understood before any of their capital is invested. Any good stock broker or financial planner knows this, and they should make the effort to help you determine what your risk tolerance is. Do not settle for any financial advisor to just give you a short survey or quiz of 10 questions and small talk for only 15 minutes to determine your risk tolerance. It goes deeper than this; after all, this is among the most important steps in your investing why should it not deserve as much time as anything else?
Determining one’s risk tolerance involves several different things. Mainly for your risk tolerance you need to be aware of your time frame, what you plan to achieve in that time-frame (goals), the amount of cash you have available to invest, and your age.
For instance, if you plan to retire in ten years, and you’ve not saved a single penny towards that end, you will be placed towards higher risk tolerance – because you will need to do some more aggressive – risky – investing in order to reach your financial goal.
On the other side of the coin, if you are in your early twenties and you want to start investing for your retirement at the age of 55, your risk tolerance will be low. You can afford to watch your money grow slowly over decades. In contrary, if you are in your early twenties you may be willing to take more risk because you have many years to recoup a loss or you may have the idea of retiring earlier at age 40 for example and live off of your investments
Realize of course, that your need for a high risk tolerance or your need for a low risk tolerance really has no bearing on how you feel about risk. Again, there are multiple factors in determining your tolerance.
For instance, if you invested in the stock market and you watched the movement of that stock daily and saw that it was dropping slightly, how would you feel? How about asking the question, "If I buy $X worth of this stock what percentage would it have to drop in one month that would cause me to be uncomfortable?" If a drop of over 5% is the threshold that would cause you to be uncomfortable then you would be conservative to moderate on risk tolerance. If you would not be comfortable with anything more than a couple percent drop in one month then you would be highly conservative. In contrary, if it would take a drop of 20% or more within one in order for you to become uncomfortable then you would be aggressive.
Remember, risk and returns go hand in hand. In general, you can expect higher return investments to have higher risk. This is because risk is not only about losing money. Risk involves the amount of deviation or fluctuation from the mean both up and down. As an example if you have the goal of 100% returns in one year, you may place yourself as high risk tolerant, but at the same time if would only be comfortable with a 2% drop in one month then you would have to choose which is more important and meet in the middle, accept lower returns for more comfort. In this example, you would have to have moderate risk tolerance.
Would you sell out or would you let your money ride? If you have a low tolerance for risk, you would want to sell out… if you have a high tolerance, you would let your money ride and see what happens. This is not based on what your financial goals are. This tolerance is based on how you feel about your money!
In the end it is goals, goals, goals and a complete understanding of what it takes to achieve those goals that will determine your risk tolerance.
Again, a good financial planner or stock broker should help you determine the level of risk that you are comfortable with, and help you choose your investments accordingly.
Assessing your risk tolerance will determine how comfortable you can be with your investments. If your risk tolerance is properly accounted for, no matter how much the markets fall you should still be comfortable and relatively happy with your investments.
Each individual has a risk tolerance that should not be ignored and rigorously understood before any of their capital is invested. Any good stock broker or financial planner knows this, and they should make the effort to help you determine what your risk tolerance is. Do not settle for any financial advisor to just give you a short survey or quiz of 10 questions and small talk for only 15 minutes to determine your risk tolerance. It goes deeper than this; after all, this is among the most important steps in your investing why should it not deserve as much time as anything else?
Determining one’s risk tolerance involves several different things. Mainly for your risk tolerance you need to be aware of your time frame, what you plan to achieve in that time-frame (goals), the amount of cash you have available to invest, and your age.
For instance, if you plan to retire in ten years, and you’ve not saved a single penny towards that end, you will be placed towards higher risk tolerance – because you will need to do some more aggressive – risky – investing in order to reach your financial goal.
On the other side of the coin, if you are in your early twenties and you want to start investing for your retirement at the age of 55, your risk tolerance will be low. You can afford to watch your money grow slowly over decades. In contrary, if you are in your early twenties you may be willing to take more risk because you have many years to recoup a loss or you may have the idea of retiring earlier at age 40 for example and live off of your investments
Realize of course, that your need for a high risk tolerance or your need for a low risk tolerance really has no bearing on how you feel about risk. Again, there are multiple factors in determining your tolerance.
For instance, if you invested in the stock market and you watched the movement of that stock daily and saw that it was dropping slightly, how would you feel? How about asking the question, "If I buy $X worth of this stock what percentage would it have to drop in one month that would cause me to be uncomfortable?" If a drop of over 5% is the threshold that would cause you to be uncomfortable then you would be conservative to moderate on risk tolerance. If you would not be comfortable with anything more than a couple percent drop in one month then you would be highly conservative. In contrary, if it would take a drop of 20% or more within one in order for you to become uncomfortable then you would be aggressive.
Remember, risk and returns go hand in hand. In general, you can expect higher return investments to have higher risk. This is because risk is not only about losing money. Risk involves the amount of deviation or fluctuation from the mean both up and down. As an example if you have the goal of 100% returns in one year, you may place yourself as high risk tolerant, but at the same time if would only be comfortable with a 2% drop in one month then you would have to choose which is more important and meet in the middle, accept lower returns for more comfort. In this example, you would have to have moderate risk tolerance.
Would you sell out or would you let your money ride? If you have a low tolerance for risk, you would want to sell out… if you have a high tolerance, you would let your money ride and see what happens. This is not based on what your financial goals are. This tolerance is based on how you feel about your money!
In the end it is goals, goals, goals and a complete understanding of what it takes to achieve those goals that will determine your risk tolerance.
Again, a good financial planner or stock broker should help you determine the level of risk that you are comfortable with, and help you choose your investments accordingly.
Monday, February 15, 2010
A Pharmaceutical Stock Poised to Rise
This is a stock that we had recommended in early September, actually it was mentioned as a superb buy on our investment DVD that was made in early September. We recommended this stock last September for a variety of reasons, both technical and fundamental.
Teva Pharmaceutical (TEVA) - This worldwide pharmaceutical company known for its bio-generics and active pharmaceutical ingredients, has been in an uptrend since the late '90's.
Since our September recommendation, TEVA is up close to 16% in only 4 months. However, TEVA is still showing some positive signs and potential for another burst higher.
What is the potential for TEVA?
Another 10-15% higher within several months. Why? Technically TEVA has recently been in a very bullish pattern on the daily chart, this pattern is called a bullish flag. Also, TEVA has just broke upwards out of the bullish flag pattern which is a confirmation. With the nature of bullish flag patterns, TEVA should head another 10% higher minimum within a relatively short period of time, 3-6 months.
(Click to Enlarge)
Recently, TEVA's strong upward trend has made it an institutional favorite. The 50-day moving average has been where buyers have been trampling this stock and supporting it on the way up, so you may want to consider buying at the 50-day simple moving-average. This moving average is a simple indicator available on many free chart packages including Yahoo Finance and MoneyCentral.
The recent pullback to the 50-day moving average resulted in the normal buying, but shoved it from a small flag that tells us that the advance will more than likely continue with a minimum short to medium term target in the high $60 area.
Recently, S&P just rated TEVA a "five-star strong buy" with a price objective of $70. Lastly, fundamentals are still very healthy for this "drug" stock as well. Therefore, TEVA is a great buy and would be a great addition to the large-cap portion of your portfolio. Also, one thing to remember is that historically the health care sector has been among the top performers when coming out of recession.
Thursday, February 4, 2010
Markets Still In Correction Mode, Stay On Defense
Major indices have been in a large correction this past week. This should not be new to our readers, because we have warned of this correction a few times in the past couple of months. As an update though, we are still moderately bearish on the markets and our analysis shows further fall can be expected from here in there short-medium term.
Due to the fact we are still bearish on the markets we still recommend that you remain overexposed to defensive investments, such as long-term government bonds, corporate bonds, TIPS, and others.
One common adage that you should be aware if and avoid is buying commodities when stocks drop. There is a lag between the two markets, and lately gold has been a leading indicator, advancing before the markets, and falling before the markets. We expect this trend to continue throughout the most part of this year. Therefore, you should not buy commodities as a safe haven investment for the short-medium term. If you want to take your cue from gold to get into stocks due to its leading nature, then a good move would be to wait for gold to confirm a new medium term uptrend. This new uptrend in gold would be confirmed if it broke above $1,135/ounce. Also, we recommend that you avoid short term t-bills, they are in a bubble and there are much safer, higher returning alternatives.
As a more moderate to agressive investment for you to make some descent returns during this correction you may want to consider buying the dollar. Sounds funny huh, buy a dollar? you already have dollars why buy some? Well, buying the dollar actually means going long on, or expecting it to appreciate in value. When the market corrects the dollar in general strengthens against the Euro, British Pound, and other major currencies. You can buy the dollar in a variety of ways.
Some conservative methods of buying the dollar are the PowerShares DB US Dollar Bullish Fund (Symbol:UUP), and the Morgan Stanley Double-Short Euro ETN (Symbol:DRR); just look at how well these two long dollar funds perform when the major indices drop. Both of these two funds are up today, while the DOW is down about 200 points.
More agressive ways to go long the dollar are to short other currencies through a forex otc broker. You must be very careful when doing this. Even though all you would essentialy be doing is one investment for the short-medium term, which would require only one click of the mouse, you still need to understand terms like leverage, margin, and how the trading platform works. If you want to buy the dollar against other currencies as we suggested above, which is the same as shorting other currencies against the dollar, then on your trading platform you will want to place a bid (means sell) position on the pair where the dollar is the quote/counter currency, and in contrast if the dollar is thebase currency you will then want to place an ask (means buy) position. Both of these mean you would be making an investment in future dollar strength.
All of the above investment recommendations are for the short-medium term only, except for the the long-term government bonds, which should outperform well in both the short and long term. With this post we just wanted to inform you of our current stance on the markets and some defensive investment opportunities that will do well if our view continues to unfold. That is why this blog is called "Seedlings To Your Healthiest Money Tree", take these seedlings above and use them wisely.
Due to the fact we are still bearish on the markets we still recommend that you remain overexposed to defensive investments, such as long-term government bonds, corporate bonds, TIPS, and others.
One common adage that you should be aware if and avoid is buying commodities when stocks drop. There is a lag between the two markets, and lately gold has been a leading indicator, advancing before the markets, and falling before the markets. We expect this trend to continue throughout the most part of this year. Therefore, you should not buy commodities as a safe haven investment for the short-medium term. If you want to take your cue from gold to get into stocks due to its leading nature, then a good move would be to wait for gold to confirm a new medium term uptrend. This new uptrend in gold would be confirmed if it broke above $1,135/ounce. Also, we recommend that you avoid short term t-bills, they are in a bubble and there are much safer, higher returning alternatives.
As a more moderate to agressive investment for you to make some descent returns during this correction you may want to consider buying the dollar. Sounds funny huh, buy a dollar? you already have dollars why buy some? Well, buying the dollar actually means going long on, or expecting it to appreciate in value. When the market corrects the dollar in general strengthens against the Euro, British Pound, and other major currencies. You can buy the dollar in a variety of ways.
Some conservative methods of buying the dollar are the PowerShares DB US Dollar Bullish Fund (Symbol:UUP), and the Morgan Stanley Double-Short Euro ETN (Symbol:DRR); just look at how well these two long dollar funds perform when the major indices drop. Both of these two funds are up today, while the DOW is down about 200 points.
More agressive ways to go long the dollar are to short other currencies through a forex otc broker. You must be very careful when doing this. Even though all you would essentialy be doing is one investment for the short-medium term, which would require only one click of the mouse, you still need to understand terms like leverage, margin, and how the trading platform works. If you want to buy the dollar against other currencies as we suggested above, which is the same as shorting other currencies against the dollar, then on your trading platform you will want to place a bid (means sell) position on the pair where the dollar is the quote/counter currency, and in contrast if the dollar is thebase currency you will then want to place an ask (means buy) position. Both of these mean you would be making an investment in future dollar strength.
All of the above investment recommendations are for the short-medium term only, except for the the long-term government bonds, which should outperform well in both the short and long term. With this post we just wanted to inform you of our current stance on the markets and some defensive investment opportunities that will do well if our view continues to unfold. That is why this blog is called "Seedlings To Your Healthiest Money Tree", take these seedlings above and use them wisely.
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