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Has The Dollar Reached Bottom?

It’s been rumored that the Fed has reached a point were they won’t be lower rates again. “Talk” is that the quick response of the Federal Reserve to lower rates has already done it’s job to stimulate the economy. Now “talk” is focusing on the concern not to lower rates so far as to create runaway inflation. Let’s see how that goes.

One of the advantages of this rumor though, is that it has caused the weakened dollar to appreciate in value. According to a Bloomberg.com article posted today:

The dollar increased 0.9 percent to $1.5393 against the euro at 1:48 p.m. in New York, from $1.5532 yesterday. It has risen 3.9 percent versus the 15-nation currency since April 22, when the dollar sank to a record low of $1.6019. The dollar was up 0.3 percent to 105.13 yen, from 104.77. The euro fell 0.5 percent to 161.86 yen, from 162.71.

So, would this be a good time to speculate on the dollar?

I went to the experts to find an answer on whether or not the dollar would “stand or fall”? Specifically, I wanted to know if it’s time to speculate on the dollar or is it still a “euro theatre”? They played around with it for a while, presented it to their people, and came back with the following answer:

http://www.youtube.com/watch?v=RtWKwoS5gUw

So, then I asked them, “How can you be so sure, after all the Fed’s not going to lower rates again, right?” After looking into things a little closer, they came back with the following response:

http://www.youtube.com/watch?v=lzymBKGV8rw

Okay, so that sounds reasonable enough.

So then I asked them: “Would I be better off moving back into the stock market now or leaving my money in cash, where I’m basically getting a ZERO percent return?”A wrong decision could leave me in a real Fixx.

So, I took their advice.. a good decision after today’s market action.

http://www.youtube.com/watch?v=_EXTpJEvJv8

Posted 07 May 2008 † Mike § Financial § Market Commentary § Miscellaneous ‡ Comments (1) ° Tagged: , ,

Wal-Mart 401(k) Lawsuit

I just came across a very interesting tidbit at IndexUniverse.com via Pensions&Investments Online concerning a class-action lawsuit against Wal-Mart for failing to offer low cost mutual funds in their 401k plan.

According to a post on LawyersandSettlements.com,

A class action lawsuit filed in late March alleges that Wal-Mart, the giant discount retailer, violated mutual fund ERISA statutes and cost its 401(k) employee plan holders and investors $60 million in unnecessary expenditures by purchasing expensive mutual funds, when cheaper alternatives were available.

It’s not like it’s big news that Wal-Mart’s getting sued, since they’re sued on almost a daily basis. It’s also not like it newsworthy because most people like to see Wal-Mart get what they deserve for treating their employees so poorly. It’s newsworthy because, if the lawsuit’s successful, a precedent will be set that could revolutionize the whole 401(k) plan industry.

No longer would employers be able to just throw together some high-fee 401(k) plan to save on costs or allow kickbacks. They would have to put the interests of their employees first. A win would give teeth to enforcement of ERISA and to make sure employers uphold their fiduciary responsibilities to their employees.

Believe it or not, I’m all against class-action lawsuits since it seems that their whole purpose is to enrich the lawyers at the expense of both the plaintiffs and the defendants. Just ask anyone who’s participated in one. However, this one could be different in that it could actually affect a positive change, and do a lot of people good. It’ll be a very interesting event to follow and I wish them success.

You can find a copy of the complaint at ERISAfraud.com (pdf).

Posted 06 May 2008 † Mike § Financial § Miscellaneous ‡ Comments (0) ° Tagged: ,

Warren Buffett on Relationships

Since I’m on the topic of Warren Buffett, I thought I’d showcase a older video that I found, that may be of him responding to reporter’s persistent questions about his relationship with Astrid Menks.

But, before viewing this video though, it’s a good idea to gain a greater understanding of WB’s feelings about intrusion into his personal life. According to TopSyngery.com:

Warren Buffett tends to be touchy, defensive and rather territorial, and if he perceives a threat to his family or home or personal safety, he can be quite aggressive. Sometimes Warren feels out of sorts and hostile for no apparent reason, and this is usually due to unexpressed, unresolved anger from the past.

With that kept in mind, let’s see what he has to say:

http://www.youtube.com/watch?v=2oox4h4-iKE

Posted 04 May 2008 † Mike § Miscellaneous ‡ Comments (0) ° Tagged:

Fed Bailout Consequences

Speaking of Warren Buffett..

According to the Reuter’s article “Buffett says Fed avoided chaos in Bear bailout”, WB is to have said:

“I think the Fed did the right thing in stepping in on Bear Stearns,” Buffett said at the annual meeting of his Berkshire Hathaway, Inc. insurance and investment company. “Just imagine the thousands of counterparties around the world having to undo contracts.”

Of course WB is going to say that because the fallout from such a crisis would have severely and immediately affected Berkshire’s businesses and investments. But, was this bailout really good for everyone?

Remember, for every action there’s a reaction.

Who do you think is eventually going to pay for the Fed’s economic stimulus and bailout of the fat cats on Wall Street? Right, it’s ALWAYS going to be the average American taxpayer. Those especially hit the hardest will be in or near retirement age, whose savings are allocated to income investments (e.g. bonds, money-market funds) or are used to generate income for daily living expenses.

How’s that?

  1. In order to “stimulate the economy”, in just a few months the Fed has quickly lowered the federal funds rate from over 5% to a recent low of 2%, which is now much lower than the 4% rate of inflation. After accounting for the rate of inflation, it will now “cost you money” to keep your savings in a savings account, CDs, money-market funds and bonds, all which many retirees depend on for “safe” monthly income. I believe Wall Street refers to this as “negative growth”.
  2. On May 1st, the treasury announced their semi-annual earnings rates on the I-bond savings bond (government-issued inflation-protected savings devices). The fixed earnings rate, which continues for the life of that bond, is 0%. Yes, that’s ZERO PERCENT. Are you encouraged to save yet?
  3. The government can’t issue money without incurring some sort of consequence. The main consequence of lending (or giving away) money it doesn’t have is called “inflation”. Just as income from our “safe” investments is being lost, the cost of living for the average American is starting to skyrocket. As inflation kicks in, it’s going to cost you more for food, gas, and other goods just when your income to buy them is reduced.

So, how does the government expect to get out of this mess it’s created?

Well, lo and behold, the Bush administration has recently announced that it will be re-instituting one-year treasury bills, something they did away with after the Clinton administration responsibly balanced the budget and created a surplus when they were running the country. According to a Yahoo! Finance article:

The government is looking for various ways to borrow the billions of dollars in extra cash it will need to cover a budget deficit that is expected to jump to an all-time high this year, surpassing the old mark of $413 billion set in 2004. Private economists are projecting that the deficit for this year could surge as high as $500 billion.

It seems as though the government is outrageously expecting the average American to bail them out. They’ve even targeted us middle-class huckleberries by lowering the minimums to only $100.00. But this plan may have also have unexpected consequences.

Where’s the incentive to buy these treasuries?

The fixed rate on I-bonds is now at zero percent, 3-month T-bills are yielding 1.5%, 6-month T-bills at 1.68% and 2-year notes at 2.45% - all well-below the inflation rate. Only the very long-term bonds are offering any type of half-way decent yields, but they’re all still yielding far under 5%. If inflation continues to rise, even the long-term rates won’t have any appeal.

Unless the Treasury offers some kind of unprecedented yields on 1-yr T-bills, this plan will backfire too.

So, after you recognize that you’re experiencing difficulties in your activities of daily living, remember to ask yourself: Was government bailout of Bear Stearns the right thing to do? I don’t think so.

Posted 04 May 2008 † Mike § Bond Market § Federal Reserve § The Economy ‡ Comments (1) ° Tagged: , ,

The Other Warren Buffett

Warren BuffettOmaha hosts Warren Buffett’s Berkshire Hathaway annual shareholder meeting this weekend, an event that grows in popularity every year. The news surrounding this meeting got me to thinking..

We individual investors truly admire Warren Buffett. I’m sure it’s not only because of his enduring investment successes, but partly because we all see him as someone with whom we can identify. We admire that he’s not caught up with the excesses many other of the extremely rich are caught up in, such as multiple mansions, cars, yachts, or the ever infamous $6,000.00 shower curtain. He’s about as honest, forthcoming, unassuming and unpretentious as they come.

Like every other investor out there, I too admire Warren Buffett. But, there happens to be another, less well-known, successful long-term investor with whom I can identify even more. Someone whose qualities I admire even more than Warren Buffett’s.

Nope, it’s not Peter Lynch, George Soros, Rupert Murdoch, Benjamin Graham, or even Donald Trump. It’s someone who’s overcome tremendous odds to become successful, someone who lives frugally, but someone who finds happiness with the simple things in life… someone like me.Earl Crawley

It’s time to visit the “other” Warren Buffett, the investor that every average individual American can identify with. Someone who can truly make you believe that you can succeed.

It’s time we re-visit my hero, Mr. Earl Crawley.

Posted 03 May 2008 † Mike § Investing § Stock Market ‡ Comments (1) ° Tagged: , ,

Debt and Credit

Avoid Debt!The concept of easy credit and Americans carrying too much debt was what first got me into financial blogging a couple of years ago.

Now, you can read news about Americans being overburdened by debt everywhere since the uncovering of sub-prime loans debacle and economic slowdown.

But, even after all of these debt problems surfaced, attempting to become debt free, or non-dependent upon credit, is still not an important issue to many individuals and businesses.

For example, I recently finished reading Jon Markman’s MSN Money post, “As loans dry up, so will economy“, and would have commented on it there, but direct comments weren’t available. So, I thought I’d comment on it here. My opinions don’t differ much from Jon, but let me present his case in a little different perspective.

When I read what Jon wrote about tightening credit,

Credit is the fuel of industry, and it is a vanishing resource despite a campaign of unprecedented swiftness by the Federal Reserve to slash short-term interest rates. As it disappears from the landscape, so, too, will hopes of a broad, lasting recovery.

it caught my attention that we Americans still don’t get it. We’re still seeking to continue on the same path of dependence upon credit that got us in the mess that we’re in today. Instead, we should be seeking ways to become debt-free. Becoming debt-free, and having a large cash emergency fund (or reserve), is what every individual (and business) should consider a priority.

Jon also wrote:

The family-owned maker of Alpenlite-brand motor coaches and campers had survived every bad economy and spike in oil prices since 1971, but it had to shut down when banks yanked its credit. Without the ability to borrow to buy parts and maintain payrolls during a period of seasonally soft sales, as it has always done, a wonderful small business went poof.

This is where Jon’s and my perspectives differ. It’s seems as though blame for this family-owned business failure is being attributed to the ongoing credit-crunch, and the inability of the company to borrow money. He blames the banks’ decisions not to lend for the company’s failure.

Of course, I have to disagree. I would think that the company managers’ inability to budget is responsible for it’s failure, not their inability to borrow. Why do I think that?

As Jon wrote, this company has been in business since the 1960’s and has seen it’s share of hardship over those years. In all of those years of business experience, shouldn’t it have occurred to management to save money for the lean times, and not become dependent upon someone else to keep their company afloat?

You can’t tell me that in over forty-years in business this company couldn’t have put away a little cash reserve each year, eventually creating a buffer big enough to cover their bills or any unforeseen circumstances. Just like the old “ant and grasshopper fable“, we would expect this of individuals, why shouldn’t we expect this of businesses too?

Like I said, many we Americans just don’t get it. Credit was so easy to get in the past that it just became easier to depend on easy credit, and not be concerned with saving for the future. Now that credit isn’t so easy to get, we’re mistakenly blaming others for our own shortcomings.

Have we learned nothing from the sub-prime fiasco?

So, while I agree with Jon’s assessment that credit is the fuel of the industry, it shouldn’t be. Credit may be essential for start-up companies, but established businesses should know better than to depend on credit, or to be overburdened by debt.

Posted 02 May 2008 † Mike § The Economy ‡ Comments (0) ° Tagged: