The Stock Market Dropped Today, Here is Why
Today the Down Jones Closed down a significant 370 points (almost 3%). The question is why? The answer, The Institute for Supply Management’s January report on the service sector, which accounts for about two-thirds of the economy, said the service side of the U.S. economy dropped sharply . The index dropped to 44.6 last month from a revised reading of 54.4 in December. This the lowest number since 2001.
So what the heck is the real meaning of this? The simple way of putting this is the U.S. economy is in a definite decline on the “service” side of the economy. This is bad because so much of our economy (66%) is service based.
So what’s next? It’s possible the services side of the economy could rebound some in February, like the manufacturing side did in January after its’ own slide in December. The benefit of the Federal Reserve’s two big interest rate cuts in the latter part of January could also help spur the service sector back into growth mode later this year.
The key to understand here is this is another shot across the bow of the coming war that is a imminent recession that sooner of late will happen. My advice yet again is to make sure you are not fully exposed in stocks right now. We had a few good years but a slide is coming have a heart to heart with your advisers and put some of your investments into something safer for the next few years.
Filed under Wealth & Investing | Comment (0)Beat your traffic ticket with TicketBust
Look I am not for driving like a maniac or speeding in school zones but I also really feel that most traffic tickets are nothing but another revenue source for our bloated government. As my blog is about keeping money in your pockets rather then putting it into bad investments (is their a worse investment right now then our Government?) when I was asked to look at a new website called, Ticket Bust , that shows you how to fight a speeding ticket I was happy to do it.
Unfortunately these guys seem to only be available in California but if you live there I would have a look at their website. They are so confident that they can help you they offer a money back guarantee and that is one of the reasons they make my list of recommend sites. The reality is traffic tickets are one of the legal issues most of us have to deal with sooner or later (I have had to), so I am glad their are companies out there like this to help consumers.
So please comment below, have you ever used a service like this to handle a ticket? How did it work? Have you ever beaten or gotten a ticket reduced on your own? If so how?
Filed under Personal & Home | Comment (1)Protected: Why US Real Estate is a Good Investment Right Now
Trust Deed Investing a Creative Investment Strategy
Right now the mortgage industry seems to be in melt down but real estate investing has a proven track record of making great returns even during recessions, that is when properly leveraged. In short trust deed investing is basically when private investors loan money that has real estate offered as collateral against the loan. Trust Deed Investing is nothing new; banks and private individuals have been loaning money against hard assets like land and other real estate for centuries.
In essence trust deed investing is like taking the position of being the bank in a mortgage vs being the slep paying interest for 30 years.
I recently asked to review a website for Diamond Bay Investments who specialize in trust deed investing. They are currently advertising returns of 12%. Investments like these are not with out risks and you should of course consult with your financial advisers before investing with any company or investment.
That said trust deed investing has a high potential rate of return and it is protected by a hard asset (land, property, buildings) so it is worth considering. It is not a place I would advise anyone to put all their money but it is one underutilized investment option that is a great part of a long term balanced investment portfolio.
Filed under Wealth & Investing | Comment (0)The reason I invest in silver coins
I have already written a bit about my affinity in my post, What I Blow Money On, but today as a follow up to my article on investing in gold it seems like a good time to talk a bit more about precious metals before we move on. In addition I am going to provide you some of my own rules on buying silver coins.
First let me lay out my case for why silver is a good investment. Simply put all metal commodities are doing very well right now and will continue to do so. Heck even copper is getting rather expensive. Back in the 80s I remember copper going for about 70 cents a pound. Today it is hovering in the range of 2.80-3.00!
Many people see silver as a “poor man’s gold” and I think that is rather short sighted. First I don’t care if silver is ounce for ounce far cheaper then gold if you have 1000 dollars worth of gold or 1000 dollars worth of silver you are holding the same value. Now silver and gold are true brothers in my opinion and the price of one is indeed tied to the price of the other. While they are not completely pinned to one another and the Hunt Brothers debacle will skew numbers from the 80s and early 90s there is a strong correlation (precentage wise) to movements between the two. To get an idea of the correlation look at the two graphs below which cover 1997-2007…
As you can see again while not lock step with each other the two metals perform very closely to each other on the open market.
So why not just buy gold? Understand I am not saying to not buy gold it is just that I truly “invest in gold” I buy through my broker and I buy both actual gold, gold funds and stock in gold companies. I have nothing against doing the same with silver but I prefer to actually buy, hold, touch and own my silver mostly in the form of coins.
Why? Two answers….
First, because I love silver coins, they are history, they are beautiful and they are something material to me that I can look at and appreciate. In this way Silver Coins offer me something that 95% of my other investments can’t. Sure I can look at my stock certificates but there isn’t much fun in that. Most of my other investments are just numbers on paper then don’t have the feel, look and glitter of my coins.
Second, because investing in many different things and in many different methods creates diversity. The beauty of silver coins (at least of the type I purchase) have most of their value in the silver basis price. I can “cash in” anytime I want and do so with no paper work or government red tape. I can literally walk into a shop, sell my coins and walk out. Holding silver coins is like holding cash money with out the cancer of inflation upon it.
So what rules to I have for investing in silver? Here they are but understand these are no ones rules but my own. A few you really should follow but others are more about your risk tolerance and your personal view about numismatic values.
1. I do not belong to nor do I buy my silver in any kind of “club” or any highly advertised coin supplier. In particular Littleton Coins is among the worse places of all to buy coins. Their prices are generally 40-90% higher then local coin shops in my area. I buy from local merchants or only via mail order if the price is as good or better then local pricing.
2. Directly related to the above, I am not on any type of auto shipping or monthly arranged purchases. I buy what I want as I find it and as I want it. My silver investments are truely incremental investments outside of my conventional portfolio.
3. I never buy “junk silver coins” which are large unknown lots of mostly 1960s and older dimes and quarters. Most are worn so badly you can scarcely read the dates.
4. While I don’t buy junk coins I also don’t buy highly numismatic valued coins. In other words I never buy a coin where the bulk of the coins value is based on how “collectible” or “rare” it is. Such values are highly subjective and only represent a “real value” if you can find a buyer. Try buying a 200 dollar silver dollar this week and see what the same shop will pay you for it (with out a big jump in price) the following week. This is the one rule that I understand when others break, this is my personal preference but I have my reasons.
5. What I do buy are Silver American eagles as they are priced right about bullion prices. I also buy high quality but common Franklin, Kennedy and Walking Liberty Half dollars which are still quite affordable and made of 90% pure silver. My other big favorites are the more common Morgan and Peace dollars. These coins to me represent a nice mix and all are very affordable and most importantly highly tied in value to the silver basis.
So what is my advice? Well I think it makes a lot of sense to buy some silver over the years and just have it as a hedge against inflation not to mention an investment that remain liquid in both the best and worst of times. The beauty is you can buy say a 10-20 dollar coin just once or twice a month if you don’t have a lot of extra money to invest. Even that over the years can build a nice collection and a lot of real value. I personally buy between 20-150 dollars a month of silver and have been doing so since 1995. As you can see by the graphs in this article that has been a very good move.
Filed under Business & Marketing | Comment (0)The case for investing in gold
Many financial advisers are not very keen on investing in gold because they claim it has a fairly poor record compared to let’s say the S&P Average or the Dow Jones. Indeed a case can be made for this but there is another lesser know case for gold that make you really want to look at putting at least some money in gold. The reality is that the Dow and just about any metric or fund or stock has at some point a 10 year period where it lost money or at least lost to inflation and against gold.
Gold has never gone down over any 10 year period in history except for the early 80s when gold along with silver and other metals were artificially manipulated by the Hunt Brothers and other groups. Smart investors did not buy during that period though, if they were really smart they sold off gold and bought in back in the mid 80s. Those investors did very well.
Now look I am certainly not advising you to put all of your money in gold or to take it all out of solid investments. I am also against any real heavy numismatic investments in gold coins. Yet to put 10-20% of a portfolio into gold or gold stocks or funds makes a lot of sense as a solid investment hedge. Gold has gone up quite a bit in the past five years so many investors are a bit skiddish about buying it at a precieved high. However there are a lot of factors in play right now that will most likely have a positive impact on Gold prices for a long time to come.
- The US Dollar continues to decline and the government seems to want it that way. To understand this factor you need to grasp that gold could stay level in the global market and still go up in dollars, simply because the dollar declines.
- The economies of China and India and other nations are putting more demand on gold as a consumer level commodity. As the middle class of these nations grow more demand for gold jewelry results in more demand for gold in the global market.
- Right now the demand for Gold is about 10% higher then the supply that is being produced.
All of these factors make gold an attractive alternative to conventional investments. Of course you should consult with your financial advisors before you buy, I am just saying have a look at gold as one way to protect yourself against what looks like a coming recession and an ever falling dollar.
Filed under Wealth & Investing | Comment (0)Why Ron Paul and low taxes are good for the economy
You hear liberals all the time discuss how the tax cuts by Bush were reckless. Now look I am not exactly pleased with Bush myself right now and I think his spending (and that of our both the Democrats and Republicans in Congress) is absolutely reckless and disgraceful. Yet cutting taxes makes a lot of sense, further I think we should keep cutting lower and lower.
In fact if I had my way Ron Paul would become our next President and completely cut the income tax to zero. Think that is unreasonable? Well if we cut spending to where it was just 7 years ago we could eliminate the income tax. Yea your read that right, just cut spending to 2000 levels and we do not need an income tax. That should make you really understand just how many other taxes we already pay.
I digress though, lets just talk about an easy way to understand why lower taxes are good for our economy. Now I could go into Economic theory and formulas and such but that is not necessary. I can instead explain this in a very simple and easy to understand way, think of it simply like having a “sales”. If you ran a store and wanted to sell more products would you do it by raising prices or by having a sale?
Now that is about a stupid question isn’t it? Anybody knows when stores have sales they sell more and when they jack up pricing they sell less.
The important thing to understand is that employment, investing and spending is what drives our economy. So to understand why lower taxes drive better economies from here is really easy. Let’s look at how taxes going up or down effect each of these three factors.
Employment - When taxes are lower businesses keep more of their profits rather then giving them over to the government. When a company has more money in profit they grow. As they grow they have more needs for personal and of course they hire more people. In short a lower tax is like a sale on hiring talented people. When you tax a business higher of course we have the exact opposite effect. Companies keep less profit, there is less funding available and they grow slower and hire new people at a slower rate.
Investing - This is simple to understand. If you invest money that inherently comes with risk. So if I put 50,000 dollars into an investment I could loose much of it. On the other hand if the investment does well I end up with a profit but I only keep the part I don’t pay as taxes. For me to take a risk the upside has to be attractive so of course the lower the tax on investment profits the more attractive investments are. Now if you want me to do something incredibility risky like fund a new business I better get to keep the lion’s share of my profit or there is no good reason to take the risk.
You see when taxes are low on capital gains it is like a sale on investments. Effectively I am paying less money to make more money. Did you know that at one time tax rates were as high as 90% for some income brackets. 90%! Don’t believe me look at some historical tax rates here. Now let me ask you why would anyone risk say 100,000 dollars to fund a start up business as a part owner. End up making 200,000 dollars for the investment and then have to pay all but 10,000 of it as taxes? Why in the hell would anyone take such a risk for so small of a true return? Again when this tax goes up it is like when a store raises its’ pricing and when taxes go down money flows in a “sale like” environment. Simply put when investments go on sale more investors buy more investments.
Spending - Now I am all for saving money but if no one spends any money the economy grinds to a halt. This one is the easiest of the three to understand. Tax Joe and Jane America at a lower tax rate and they keep more of their money, when people have more they spend more. In short for the average consumer lower taxes are a “sale” on everything. You just have to do a bit of inverse thinking to understand this. Joe works 10 hours a day and makes 250 dollars for his day of work. Each day he pays 100 back in tax so he profits an actual 150 dollars.
So Joe values money according to that formula. Hence he “pays” 10 hours of his effort for a 150 dollar item. Now tax Joe only 50 dollars and he now profits at 200 dollars for the day. Now a 150 dollar item only “costs” him 7.5 hours! In short by taking less taxes Joe is now buying everything at a 25% discount.
The combined effect
The reality is the economy is like an ecosystem composed of these three factors of spending, investing and employment. None can sustain themselves with out the other two. There is far more complexity then this but a basic understanding is simple.
- When more money is available to business from profit and from investors they hire more people.
- When more people are employed they have more money to spend, hence they spend it.
- When people spend more money it drives business and results in more profits
- When people can find jobs and get paid well and are taxed lower they also invest more
- Investments then feed business
It is really a circle of economic life. In this circle low taxes are like good fertilizer that makes everything healthy and grow faster. Higher taxes are like salting the earth, they lay waste to the ecosystem and stall growth. Now democrat or republican should not matter this is mathematical science and math does not lie.
Debate the role of government if you like, support a guy with an R or a D after his name or if you are smart perhaps an I. Yet don’t ever be fooled by how there is any good to come from higher taxes. Don’t let the government pitch class warfare on you saying only the “rich” are going to see higher taxes. Right now most American’s work till April 30th to pay all taxes, that is enough, more is not the answer.
Oh and yea I really meant it that we could totally eliminate the income tax, watch this video on Ron Paul for more about that.
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Filed under Wealth & Investing | Comment (1)Advice from the broke is useless
I know this seems so obvious, never take advice on money, investing and business from the broke. The problem is it is not always easy to recognize the “broke”, when I refer to people that are broke I am not saying they live in a “poor house”, make very little money and eat mealy porridge. I simply mean they are broke as in more money goes out that comes in.
Broke people live next door to you, they live in neighborhoods that are both two steps down and two steps up from yours. Broke people are everywhere, most of the people in America are broke by my definition. They are the people in huge 50K dollar SUVs that they justify as being needed “to cart the kids around in”. Jeez, how big are these kids? They have beautiful homes, nice furniture and perhaps even lawn care service. Many have vacation homes or time shares or other true luxuries. How can I call these people broke?
Easy they are broke, they have very little to no surplus cash flow, they save next to nothing other then what perhaps goes automatically into a 401K (Thank God for that at least). They have TVs on credit, cars on credit, pools on credit, some have charged the very paint on their walls and the sofa they sit on. Cut off their income for 30 days and most would loose every thing they have. They are broke because they have no “wealth” only things, stuff and the appearance of wealth.
Such people are always big talkers. They tell you “now is the time to buy” or that “that business deal seems risky” and other wonderful nuggets of advice. They tell you how great that new SUV is, how wonderful owning a plasma TV is and they always have investment advice for you.
My advice is, don’t take their advice. If you follow the advice given by most people it will lead you down the same path they are on. In other words take advice from your uncle who has that beautiful house, nice cars and kids in top schools and you may just get their yourself. Yet you will probably do it “his way” (the normal way) and be in debt up to your eyeballs and working into extended retirement years just to pay the interest on all of it.
So where do you go for advice? To the successful, to the millionaires next door. Look for the guy that pays cash for everything, the woman that has a 6 figure job and a 150,000 dollar house and a sensible car along with a nice savings account, a good team of advisers and a very fat and growing Roth IRA. These people are not “broke” they could go with out work 6 months to a year with just a bit of sacrifice if they had to.
How do you find them? There are many of us, just talk to people and you will know right away.
- The broke talk about how expensive gas is and the wealthy talk about how efficient their cars are.
- The broke think rich people are “over paid” and “thieves” and the wealthy think the rich are “generous” and “admirable”
- The broke shop for “deals” on consumer goods, the wealthy look for “deals” on real estate and investments
- The broke think cars are status symbols and the wealthy think cars are a “necessary expense”
- The broke talk about “saving money” by spending it, the wealth talk about budgeting and investing the savings
Just realize it is not income that separates the broke from the wealthy. In my town I can show you people with a household income of 100K or more that are “broke” and I can show you some with a household income of say 70K that are very “wealthy”.
Just remember this and consider it when anyone advises you how to spend your money, what to buy, how to invest and on what is important or what is safe vs risky. Now I am not saying that no broke person ever gives any decent advice. Sure many times they do, just don’t let the broke counter your instincts or justify what you know to be a mistake for short term gratification.
Filed under Wealth & Investing | Comment (1)