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Fears Over The Economy Hit Wall Street

I’ve been saying for some time that the strength on Wall Street is only temporary. With the political game that Washington has been playing, our economy has not yet started to recover or in some cases, hold on to their current levels. The debt ceiling has been an issue for months and in the eleventh hour Congress finally gets their act together to pass an extension. What’s good about an extension for the long term? Nothing.

Standard & Poors along with Fitch and Moody’s are concerned about the true condition of America’s deficit and the ability to function within a budget. It’s been over 800 days since Congress has passed a budget and that’s because they’ve been spending money and if they had a budget in place, they wouldn’t be able to do as they’re doing for the last few years.

As you can see on Wall Street, investors are moving their money out of equities and moving them to saver havens like bonds, precious metals and in some cases, overseas. The DOW lost 266 points earlier this week and claimed back only 30 point the next day. As of this morning at 10:45am, the DOW is down another 208 points and who knows where it’s going to close at the bell. Since Monday morning the DOW has lost nearly 5%.

As for the NASDAQ, it too has taken a hit during this week thanks to the uncertainty of the actions going on in the Beltway. NASDAQ is down (so far) this week over 5% along with the S&P 500 dropping 6% during the same period. A sign of things to come in the near (and possibly long term) future.

Do what they smart money has been doing for quite some time and that is buying gold, silver and other precious metals. Gold has gained 10% since June and 4% in just the last few days. How can you sit by and watch as others, who have a better idea of the markets, as they move assets to other sectors to hedge against the inevitable pullback on Wall Street? I suggest you really look at your portfolio to see how diversified you are and make the appropriate moves to balance it. Remember to not put more than 20% into any one sector or individual stock. Doing so may cause you to lose more than you would have if you diversified.

As for me, I’ve moved out of most of my positions in equities. I’ve been building up positions in the commodity sector, mainly gold and silver, to get ahead of the currency issue plaguing our country as well as the world. You might want to do the same.

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What’s Happening On Wall Street.

US Stock Market Report for the Period July 25 – August 1, 2011
Over the last week, the continuing debt discussions have had a major impact not only on US stocks, but also at the international level as well. Stock markets activities were cautious at best as the world waited on a debt deal to be finalized. The month ended with news that a deal had been reached which resulted in stocks rising in the US and international markets. The immediate increases following the deal were tempered by cautious selling as the full impact of the deal is not yet known.

At the start of business on August 1, traders were cautiously optimistic. Figures for the main markets started higher than Friday, but began showing slight decreases later in the day. The Dow Jones Industrial average was down to 12,063.77, a fall of 79.47 points, while Standard & Poor dropped 10.70 points to 1,281.58. The Nasdaq also fell a bit by 16.75 points to 2,739.63.
The week of August 1 to 6 will no doubt be an important one as it relates to the global as well as US stock market. This period will see the real reaction to the debt deal as markets adjust to the perceived impact for the immediate future. By the end of the week hopefully the Senate and the House of Representatives would have signed off on the package.

Impact of GDP on Stock Market Performance
As if the threat of the US losing its triple A rating was not enough, the stock market also took a hit due to poor GDP (gross domestic product) data. The projected increase for the 2nd quarter was a modest 1.6 percent, but in actuality there was only a 1.3 percent increase according to figures from the Commerce Department. This modest figure has dampened projections since GDP is used to track economic growth.

Moody’s Reports Cash Hoarding
There have been reports of cash hoarding among some companies in response to the instability in the market. Moody’s has revealed that between 2009 to the end of 2010, there was an 11 percent increase in cash held by companies. The report indicates that as much as $1.24 trillion dollars is being held. Over a half of this money is invested or banked in foreign countries to be used for various purposes.
Senior vice president of Moody’s, Steve Oman stated that among the reasons for these holdings are investments in operations the companies have overseas, acquiring overseas interest and to benefit from overseas tax breaks, which they then repatriate to the US. Overall, the combination of the poor GDP figures and the debt ceiling crisis has placed the US stock market in the worst position it has been in for over a year.

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U.S. Credit Rating Is In Danger

Unless you’ve been living under a rock for the last year or so, you are aware of the United States federal government has been trying to raise the debt ceiling to cover their cost of running the country. During that time, credit rating companies, Moody’s, Standard & Poors and Fitch have been debating whether or not to lower the credit rating of the U.S. from it’s current (and long time) rating of “AAA” to something else.

Congress and the Obama Administration have been wasting time of the last three months that has now left little chance of the country’s rating to stay the same. Last October, S&P wrote that they were keeping a stable outlook on the U.S. “AAA” rating on the ground of the current entitlement spending pressures wouldn’t really affect the country in any big way within the next three to five years. Then in April, S&P shocked Washington as well as Wall Street by changing their views and putting a negative outlook on the U.S. rating, saying that there was a one-in-three chance of a downgrade withing two years. It didn’t end there, last week Standard & Poors announced that there is a 50% chance that the credit rating could be downgraded within three months.

All three agencies agree that the U.S. must undertake a major deficit-reduction effort for the near term to stabilize debt levels and to preserve it’s credit rating. The reason for the quick deterioration of the agencies outlook is mainly because of the concern they have of Congress and the Administration not being able to work together. The federal government has forgotten how to work together. The political divide has grown too much to the point where the credit agencies wonder if they’ll be able to work together on other fiscal issues in the future. It doesn’t help that Congress hasn’t put forth a budget for over 800 days.

Even though Moody’s give the U.S. a little more room before they would lower the country’s rating, that’s because of the United States’s reserve currency status. S&P said that if the U.S. rating is downgraded, the country may see interest rates climb 25-50 basis points and reduce GDP by a similar amount.

For those of you who feel like I do about the stability of the country’s economic position, I’ve been increasing my position in the precious metal/commodities sector. I’m not sure if the federal government will ever do the right thing.

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So Where’s The Recovery?

Wall Street took a beating this week and from what I can see, it will only continue when the stock market opens on Monday. So where’s the recovery?

Let’s look how well the employment numbers looked for the month of May. According to the report, only 54,000 jobs were added to the private sector during the same period. The bad part about that is that for the employment rate to hold steady, it must add 150,000 jobs each month just to keep up with the population growth in the U.S. So obviously, there’s no recovery in the job market.

How about the housing market? Well from what I’ve seen coming out over this past week, it also doesn’t look good at all. In some areas of the United States, home prices have fallen to the levels of 2002. In other areas like Las Vagas, the home prices have fallen to the levels of 1999. Many feel that the average home price will continue to drop for the remainder of this year. So I guess we can rule out that industry for showing signs of recovery.

So why is it that the stock market has been climbing since it’s bottom back in March of 2009. We’ll I feel that there was some companies that had solid fundementals and balanced sheet to continue to grow in the trouble economy. Remember that the indicies really only show the strength of the markets, not necessarily the strength of the economy. Of course many investors and traders were not completely wiped out financially and were willing to keep buying and selling.

How long can this keep up? In my opinion, not for long. Congress isn’t doing what they need to do and the present Administration is spending like a drunken sailor (I know that’s not fair to say about drunken sailors since drunken sailors spend their own money). It was reported this week that if a decision isn’t made to raise the debt ceiling, Moody’s has stated that they will decide on how they are going to re-evaluate America’s credit rating. Figuring that both the democrats and the republicans can not agree on anything, we’re going to lose our current rating and that will send this country into an inflation tailspin.

So if you’re thinking of trading in the stock market, tread carefully and be aware of the day by day issues going on in Washington as well as on Wall Street.

Happy trading.

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Dividend Stocks

The stock market has been a very bumpy ride for most investors, so much so that many of them are sitting on the sidelines. it’s a shame that they are doing it since there are other ways to making money than buying low and selling high. Dividend stocks are just another way to make money even when the stock market isn’t doing anything.

There are hundreds of companies that are traded on Wall Street that offer high dividend paying stocks for investors to take advantage of. What are dividends? Dividends are a way for a company to share the profit of the company with it’s shareholders. Many times a company has grown so much that they don’t need to put so much into research and development, so they will pass a portion of it to it’s shareholders on a quarterly basis (four times a year).

in doing so, an investor can make money even if the company’s stock price doesn’t change. Let’s say you buy shares in company XYZ for $100 per share and the company offers a 10% dividend. Which means that the company will give it shareholders $10 a year for each share you own. So four times a year you will receive $2.50 every three months for each share. After one year of owning the shares, your actual price per share is $90. If the price hasn’t moved over the same period, you are still up 10% on your investment. How could you go wrong with that? So where can you find stocks that pay dividends? When you do your research on a particular company, you will find the information in their chart overview.

There are also many different ETF’s that are built around this concept, but why pay a fee for something you can do yourself. Typically you can also do better than the ETF’s since you are able to get in and out easier than the big boys.

Be aware though that Washington and the present Administration is looking to raise capitol gains taxes which will include dividend payouts. Of course if it’s your IRA retirement account, it won’t affect you. Look into it for yourself to see if dividend stocks are right for you. it’s just another way to increase your profits. Espaecially when the stability of the markets are highly in question.

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Joel Greenblatt Knows How to Invest In the Future

Joel Greenblatt’s most recent book, “Magic Formula Investing” deals with the basic philosophy of buying stocks from high earning companies cheaply that will then yield high returns on your investment. There exist only one Magic Formula Fund which is reporting recording stocks as of this day .


This idea follows  the launch of his online money management company, Formula Investing, last  October, in which he offers clients “a unique stock screening system, and a disciplined approach to managing portfolios of high value stock” for them. He is also the author of “The Little Book That Beats The Market”, which was on the NY Times bestseller list, as well as “You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits”, published back in 1997.


Born in Great Neck on the north shore of Long Island on December 13, 1957, Greenblatt, served as the former chairman of Alliant Techsystems, and is the founder of  the New York Securities Auction Corp. He also began Gotham Captial, a hedge fund backed by Michael Milken (the infamous “junk bond king”) in 1985.
In addition to his devotion to investing on Wall Street, Joel Greenblatt firmly believes in investing his own money in New York City’s educational system, particularly those schools catering to minority students.


Not only did he gift $2.5 million to the Ozone Park, NY elementary school PS 65Q, whose student body is primarily made up of kids from South Asian and South American immigrant families, but he also held found a charter school in Manhattan known as the “Harlem Success Academy” in 2006. Both schools continue to receive his support and have merited high marks for their growing academic achievements. In addition, Greenblatt serves on the board for the Institute for Student Achievement, which works to develop small senior high schools out of  larger ones in order to raise the standard of education in communities across the country.

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High Yields: How to Invest in a High-Yield ETF

If you are like most people, then you like the idea of having your money work for you. One way in which it does this is when it is invested. When your money is invested, it grows as the companies you are invested in grow. Thus, you make money off of the work of others.


However, all too often people are afraid to put their money to work in the stock market because it seems like a confusing place. Many worry that their money might evaporate away if a stock goes under. For example, if you invest in a gold ETF fund, and the price of gold collapses, then you’re busted — you lose your investment. The same goes for Oil ETFs, the natural gas ETF and others. While this fear is legitimate if you are invested in only one stock, there are ways to diversify your money and to grow it without having to learn the complexities of the market. This way is by investing in a high yield ETF.


A high yield ETF (Exchange Traded Fund) is an investment vehicle in which your money is given to a professional who manages the money for you by placing it into a number of high yielding stocks. A high yield stock means a stock that pays a high dividend relative to it’s share price. By investing in this kind of ETF you are allowing compound interest to work in your favor in order to significantly grow your money over time.


Conservative style investors might be particularly drawn to high yield ETF’s because of the glamor of the high dividend. Investors have the option of receiving their dividend (share of the company’s earnings) in the form of a check every three months, or in the form of reinvestment in the stock. Reinvestment in the stock gives you a bigger share each time and is generally thought of as the smarter move financially, unless you are using the money as income.


While ETF’s are a relatively new product of Wall Street, they are in many ways similar to mutual funds. They allow you to not have to worry about studying the stock market before investing. You may simply place your money into these funds on a set schedule (i.e. monthly, weekly, etc.) and allow it to grow over time for you. This makes your investing automatic, rather than focusing on random ETF news and sound bites. Naturally you should never jump into an investment halfheartedly. If you want your money to work for you and compound over time, then you are going to need to stick to your investment plan.

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Investing In The Financial Sector

There’s no doubt about it, the stock market can be a fantastic way to make money. Historical analysis shows that the rate of return on money invested in the stock market is, on average, better than that of money invested in government bonds, certificates of deposit, and most other investment options. However, it can also be a fantastic way to lose money if you are not careful, so that’s why it is absolutely vital that you know what you are doing before you go out and drop down some money for what is, in fact, nothing more than a few bits of information stored in a computer somewhere on Wall Street.


The stock market can be broken down into sectors based on the types of stocks for sale, such as blue chip stocks, industrial stocks, technology stocks, or financial stocks. The financial sector is a popular area for investment, but as with all stock market investments, and indeed all of life, it is important to know what your are buying before you buy it. What that means for you is that you need to research the companies that you are interested in.


All companies in the United States are required to send financial information to the Securities and Exchange Commission (SEC), which posts this information on its web site. By looking through the financial filings of companies, you find out a lot about them. Some things to look at are: how much the company owes, how much it makes per year, and how much it has paid out to investors in the past in the form of dividends. You can find out more about what to look for in these financial filings by going to your local library and checking out any book on the stock market.


There’s more to the stock market than just this, however. One thing that is hammered into the heads of all business school graduates is this: diversify, diversify, diversify. Think about it: if all of your money is tied up in one company, and that company goes belly-up, you have no hope. But if you have spread out your investments over many different companies, then you will take only a small loss. Something else to watch out for is becoming too attached to your stocks. We all have our favorite companies, but if your pet stock is showing losses quarter after quarter, it may be time to bail. It’s better to take a small loss now than to wait until that favorite company is selling for pennies per share.


There is much more to playing the stock market than just this, of course, but if you follow these few simple tricks, you’ll be well on your way to success.

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