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The future of 2012 may be ominous based on the Mayan calendar, but it doesn’t look like the world is going to end on the stock market. In fact, it looks like 2012 could be a pretty good year for investors. It’s easy to be optimistic when thinking about a brand new year. But, I have my reasons for being confident.
First Five Trading Days
 Image by Fisherman's Daughter One of my favorite stock market indicators is the First Five Trading Days. Historically, if the stock market goes up for the first five trading days, there is a 69% chance the stock market will be up for the entire year. The more positive the first five days are, the more likely it will be a good year. For 2012, the first five trading days were definitely positive.
- Dow +1.43%
- NASDAQ +2.65%
- S&P 500 +1.82%
Stock market indicators shouldn’t always be relied upon, because they seem to fail investors at the worst possible time. Many feel the First Five indicator is hyped more by brokers than is justified by the returns. But, a solid start to a new year is always welcome, especially after the lackluster performance from last year.
The Economy is Improving
I wouldn’t say the economy is great, especially for the working class, but it is definitely getting better. The stubborn unemployment rate is slowly dropping and consumer optimism is starting to return. Retail sales are up slightly, especially for automobiles. There is a lot of pent up demand from consumers who have tightened their belts for the past couple of years. Their cars, computers and appliances are starting to wear out and need replacement.
 The bad news for the markets is that profits are shrinking as companies are forced to hire and inflation is taking a bite out of their bottom lines. They had a field day during the recession with drastic layoffs and squeezing the remaining employees for maximum productivity. But, the tide is starting to turn and opportunities are opening up for skilled employees. Wages will start to rise.
Continue reading 2012 looks like a Good Year for the Stock Market
Since 1992, I have had a goal of becoming a millionaire. I am on track to reach my goal before retirement age, but the stock market certainly hasn’t been cooperating lately. Even if I do save up a million dollars, I don’t think the return from those investments are going to yield the lifestyle I envisioned back in the ’90s. So, I am reaching out to bloggers and readers to ask, where would you invest a million dollars? Here is what I see happening with investments.
The Stock Market is Rigged
 Image by Unlisted Sightings The stock market is definitely rigged. I have said it here before on this blog and I will say it again. Between the super-fast trading networks, dark pools, rampant insider trading and the massive amount of leverage from derivatives, the markets are being manipulated and small investors are getting taken. It doesn’t matter whether you have a 401K, mutual funds or a brokerage account, you don’t get a fair shot.
The big boys are getting away with murder and regulators can’t seem to reel them in. Even worse, there is so much corruption and influence peddling between Wall Street and Washington, people are literally buying outcomes in the market. Congress is along for the ride, trading on privileged information that isn’t available to the public. They are creating laws and making policy decisions on the companies they own stock in.
Check out what’s happening in the financial news right now.
- Members of Congress are accused of insider trading, yet they seem to be immune to action from the SEC. Meanwhile, others go to jail for this.
- MF Global collapsed in October with former U.S. Senator Jon Corzine at the helm. Investors may have lost between $600 million and $1.2 billion.
- Citigroup’s proposed $285 million settlement with the SEC was rejected by a judge for being too lenient. Investors lost over $700 million on the deal.
- J.P. Morgan was recently fined 33 million pounds for not properly separating an average of $8.6 billion of their client’s funds from their own.
Sources: Business Week, USA Today, Huffington Post
Housing is Still Overvalued
Real estate is traditionally a good hedge against inflation and a great place to generate income. But, it’s still overvalued where I live and likely to drop some more. I base my guesstimate on the fact that real wages have stagnated and it’s way cheaper to rent in many areas. It’s virtually impossible to buy a property here and rent it out for even close to break-even. I could buy somewhere with lower housing costs, but I don’t want the hassle and expense of being a long-distance landlord. I would give my left eye to have a nice little triplex at the beach, but it’s an expensive proposition.
 Other problems with real estate are that it is highly leveraged and illiquid. It requires a big down-payment, a lot of debt and massive liability. If the tenants stop paying or they trash the place, you are out a lot of money. If someone gets hurt on your property, you are getting sued. The laws in my state are very lenient on deadbeat tenants. Besides, my goal is to work less and enjoy life more. Investment properties are a lot of work.
Continue reading Where Would You Invest a Million Dollars?
One problem with reading financial blogs is that you seem to get a lot of the same advice, over and over again. Most of this advice is time tested and well meaning. It comes from smart people and is based on sound principles. But, it may not work for you. What if all of this financial advice is wrong? What if the conditions are changing and the old rules no longer apply?
Can you afford to bet your financial future on advice that is outdated?
Investors are Overconfident
 Image by Alex E. Proimos I have been investing for a long time and I have seen and made plenty of mistakes. The biggest mistake is thinking what worked well in the past will work in the future. It’s called the Normalcy Bias and it has fooled a lot of experienced investors.
For years, financial planners have used projections of 2-3% inflation and a 7-8% investment return. There was a time when those numbers were realistic. In the future, they may not be. I believe inflation is closer to 7% right now and it may rise. Index funds have returned very little in the past 10 years and that may continue in the future. We may face another decade like the 70s where the stock market is flat and inflation is high.
Investors aren’t expecting a decade of high inflation or low returns.
Economists are Deceptive
Another problem is that we are constantly being reassured that everything is OK with the economy, when it’s obvious that it isn’t. Our elected officials care more about their political parties and reelection then the strength of our nation. The banks care more about fleecing their customers and gambling with derivatives than protecting the global economy. Not only are they distracted from their mission, they are grossly negligent in their duties. Ordinary citizens like you and I will have to pay the price for their failure.
 The reality is that inflation is close to 7%, when calculated using the 1990 CPI standard. The unemployment rate is around 23%, when using the 1994 standard, which included short and long-term discouraged workers. The U3 rate reported by the BLS only includes the 9% of people receiving benefits. This makes it difficult to judge the economy and plan for the future. The only thing you can count on is the bias will continue, because the government can’t afford to publish the accurate rates of inflation and unemployment.
Source: shadowstats.com
Never trust anything the government or their economists tell you.
Continue reading What if Everything you Know about Money is Wrong?
Whenever I think of Lenders of Last Resort, I think of Gary Coleman and Montell Williams. They are always on TV, offering cash-strapped consumers an easy way to “Get up to $10,000 in your bank account by tomorrow.” I also think of the Payday Loan stores, conveniently located downtown and next to military bases. They are waiting for a weak moment in someone’s life to entice a new customer.
This is the last post in a series of Money Fails.
Money Fail: Broke on Thursday
Money Fail: Dead End Job
Money Fail: The Payment Mentality
Money Fail: Ignoring Unpaid Bills
Money Fail: Spending to Impress
Money Fail: Never Track Finances
Money Fail: Lenders of Last Resort
Borrowers Wanted
 - Image by Taber Andrew Bain
I recently read debt is now the most aggressively marketed product on earth. And, it makes a lot of sense, since it is also one of the most profitable. The old days of hocking your belongings at a pawn shop have been replaced by the Payday Advance button on your bank’s ATM. It’s has never been so easy or convenient to get into debt.
To a financial institution, a profitable customer is one who frequently overdraws their account and takes advantage of the lending services the bank offers. In their eyes, the more struggling and disorganized a person is the more money they can make off of them.
Debt is Servitude
Even though debt is marketed as a status and convenience product, the truth is it’s financial slavery. But, instead of owning a person, the lender owns part of that person’s future income. Who do you suppose came up with the concept of “good debt”? Was it the college student who owes $100,000 in student loans and can’t find a job? Was it the family who lost their home to foreclosure after their interest rate ballooned? No, it was probably someone in the financial services industry.
 The moral of the story is, never take financial advice from the people who benefit from your spending. This includes bankers, insurance agents, car dealers, real estate agents and mortgage brokers. Their advice will always be influenced by their commission. And, their recommendation will often be to spend the largest amount possible. Debt is a liability to you, an asset to the lender and income to the agent. Remember that before you sign on the dotted line. Continue reading Money Fail: Lenders of Last Resort
One common thread between most people who are floundering financially, is that they don’t keep track of their finances. This happens for a number of reasons. Some people don’t like budgeting and reconciling. Others want to ignore their balances in order to keep spending. Some just don’t want to be held accountable for their finances. In any case, people can’t improve their financial lives, unless they know where their money is going.
This is the sixth post in a series of Money Fails.
Money Fail: Broke on Thursday
Money Fail: Dead End Job
Money Fail: The Payment Mentality
Money Fail: Ignoring Unpaid Bills
Money Fail: Spending to Impress
Money Fail: Never Track Finances
Money Fail: Lenders of Last Resort
Keeping a Budget
 - Image by 05com
Anyone who has read my blog for any length of time knows I don’t keep a budget. But, I know how much I spend each month and where my money is going. I know the approximate balances on my investments and bank accounts. I know how much my bills are and when they are due. I have an income that leaves some wiggle-room and money put away for surprises. So, I don’t have to count my pennies at this stage in my life and I am thankful.
For people who don’t know where their money is going, can’t pay all of their bills or are sinking deeper into debt each month, a budget is a pretty good idea. In fact, it’s critical for financial survival. I have been there as well, but I was too stubborn to create a budget. So, I accumulated a lot of credit card debt. I don’t recommend the debt treadmill for anyone. It costs a lot of money in interest and creates a lot of stress. You are way better off with a budget.
It’s not fun to sit down and go over your expenses each month. But, it’s an eye opener to see where all of your money goes. And, it becomes obvious what needs to be cut to balance the budget. The credit card statements alone can give you enough buyer’s remorse to change your spending habits permanently.
If you were lost in the forest, you would need a compass. If you were lost in your car, you would need a GPS. If you are lost financially, you need a budget.
Bank Overdrafts
 Before they reformed the overdraft laws for banks, I know a person who used to overdraw their checking account regularly. Two years ago, he spent nearly $1,700 on overdrafts. Some of them happened because the banks reordered the transactions, but most just happened because he wasn’t paying attention. One time, I looked at his statement and he had bought seven different small items in one day. So, for a total of about $40 in purchases, he wound up with $245 in overdraft charges. That was a pretty expensive energy drink and burrito.
It’s easy to avoid overdrafts, if you are keeping track of your balance. If you don’t want to your balance your checkbook, you can check the balance quickly on your cell phone, before you pay an extra $35 with your debit card. Better yet, just say No to overdraft and let the purchase get declined. Your bank should have automatically turned off overdraft on your debit card after the reform act went into effect. But, the banks are going around trying to convince everyone to turn it back on. They were making billions on overdrafts and they aren’t happy about losing all of that easy money.
Continue reading Money Fail: Never Track Finances
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