Investing Curiouscatblog

Category: Investing

  • Treasury Bought $125B in Bank Stocks

    On Tuesday the United States Treasury department purchased $125 billion of bank stocks becoming one of the largest stockholders in the world instantly.

    $25 billion was invested in Citigroup, JPMorgan Chase and Wells Fargo.

    $15 billion was invested in Bank of America and $10 billion in Merrill Lynch (which is being acquired by Bank of America).

    $10 billion was invested in Goldman Sachs and Morgan Stanley. And the treasury department invested $3 billion in Bank of New York Mellon $2 billion in State Street.

    Related: Goldman Sachs Rakes In Profit in Credit Crisis (Nov 2007) – Warren Buffett Webcast on the Credit Crisis – Rodgers on the US and Chinese Economies (Feb 2008) – Credit Crisis

  • Personal Finance Basics: Long-term Care Insurance

    Long term care insurance is an important part of a personal financial portfolio. It provides insurance for for expenses beyond medical and nursing care for chronic illnesses (assisted living expenses). So while looking at your personal finance insurance needs (health insurance, disability insurance, automobile insurance, homeowners [or rental] insurance [with personal liability insurance – or separate personal liability insurance] and life insurance don’t forget to consider long term care insurance.

    Can You Afford Long-Term-Care Insurance?

    Long-term care is likely to be most Americans’ greatest expense of all in retirement. A private room in a nursing home costs $76,460 annually on average, or $209 a day, and Medicare typically won’t cover it.
    …
    AARP estimates that a 65-year-old in good health can expect to pay between $2,000 and $3,000 a year for a policy that covers nursing-home and home care.

    “About 70 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime. Over 40 percent will need care in a nursing home for some period of time.” – National Clearinghouse for Long-Term Care Information

    Advice on buying long term care insurance from AARP, the Department of Health and Human Services and Consumer Reports.
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  • Will Americans Actually Save and Worsen the Recession?

    Americans need to save much more money. This is true for people’s personal financial health. And it is true for the long term health of the economy. Of course the credit card immediate gratification culture doesn’t put much weight on those factors. And if Americans actually do reduce their consumption to save more that will harm the economy in the short term. But since those reading this are people (the economy can’t read) the smart thing for most readers is to save more to create a stronger financial future for themselves.

    Turmoil May Make Americans Savers, Worsening ‘Nasty’ Recession

    U.S. retail sales fell in September for the third straight month, the longest slump since the government began keeping records in 1992.
    …
    From 1960 until 1990, households socked away an average of about 9 percent of their after-tax income, Commerce Department figures show. But Americans got out of the saving habit starting in the 1990s
    …
    “Consumers are starting to realize that they’ve been living in a fantasy world,” says Lyle Gramley, a former Fed governor who is now senior economic adviser at Stanford Group Co. in Washington. “They will have to begin salting away money for retirement, their children’s education and other reasons.”

    Americans have a way to go to catch up with their counterparts in other countries. The 0.4 percent of disposable income that U.S. households saved last year compares with 10.9 percent for Germany and 3.1 percent for Japan

    Related: Americans are Drowning in Debt – Too Much Stuff – Financial Illiteracy Credit Trap

  • Discounted Corporate Bonds Failing to Find Buying Support

    ‘Armageddon’ Prices Fail to Lure Buyers Amid Selling

    Yields on corporate bonds show investors expect 5.6 percent of the market to go bust, the highest default rate since the Great Depression, according to Christopher Garman, chief executive officer of debt research firm Garman Research LLC in Orinda, California.
    …
    The selling is being compounded by hedge funds and mutual funds dumping holdings to meet redemptions, which may push prices even lower, according to analysts at UBS AG.
    …
    Corporate debt has been pressured by “incessant selling by hedge funds and leveraged institutions as they unwind,” Bill Gross, manager of the world’s biggest bond fund at Newport Beach, California-based Pacific Investment Management Co.
    …
    Corporate bond prices plunged to 79.9 cents on the dollar on average from 94 cents at the end of August and 99 cents at the end of 2007, according to index data compiled by New York-based Merrill Lynch & Co.
    …
    “The de-leveraging that we’re witnessing will probably continue,” said Paul Scanlon, team leader for U.S. high yield and bank loans at Boston-based Putnam Investments LLC, which manages $55 billion in fixed income. “My sense is that’s not turning around in the very near term.”

    I am not very familiar with the bond market but it does seem like the panic is in full swing but calling the bottom is always hard. I would guess the de-leveraging (and investors pulling money out of bond funds) could well lead things lower over the short term.

    Related: Corporate and Government Bond Rates Graph – Municipal Bonds After Tax Return

  • Buy American Stocks. Buffett Is.

    Buy American. I Am. by Warren Buffett:

    The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
    …
    A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense.
    …
    Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up.
    …
    Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

    Equities will almost certainly outperform cash over the next decade, probably by a substantial degree.

    Yet more great advice from Warren Buffett. I must admit I think buying stocks from the USA and elsewhere is wise, but there isn’t any reason to listen to me instead of him.

    Related: Financial Markets Continue Panicky Behavior – Great Advice from Warren Buffett – Stock Market Decline – Warren Buffett’s 2004 Annual Report – Does a Declining Stock Market Worry You?

  • FDIC Doubling Bank Fees to Pay for Increased Takeovers

    FDIC to double bank fees in face of $40bn loss

    The Federal Deposit Insurance Corporation yesterday proposed doubling the fees it charges US banks, as it warned that it faced about $40bn in losses from bank failures in the coming years.

    About 90 per cent of US banks will see their basic deposit insurance fees double in the first quarter of 2009, from between 5 cents and 7 cents for each $100 of deposits to between 12 cents and 14 cents, according to a plan laid out yesterday by the FDIC, a government-backed agency that insures consumer deposits up to $250,000. From the second quarter that range would widen to from 10 to 14 cents per $100.
    …
    Banks with the riskiest profiles could end up paying fees as high as 77.5 cents for every $100 of insured deposits under the plan, compared with a maximum of 43 cents under the current structure.

    The FDIC insures bank deposits with fees charged to banks. The recent increase of the FDIC Limit to $250,000 seems to indicate that taxpayers will now pay for any costs for covering above $100,000 per account-holder (which I think is a mistake – the fund should be self supporting). But this increase in fees is to restore the fund to the minimum capital requirements of the insurance fund.

    Related: posts on banking – Avoid Getting Squeezed by Credit Card Companies – Where to Keep Your Emergency Funds?

  • Jim Rogers on the Financial Market Mess

    Jim Rogers webcast: Fannie Mac and Freddie Mac should not have been bailed out. Jim Rogers is one of the most successful investors in the last 50 years. He and George Soros (together with the Quantum Fund) and then separately along with Warren Buffett have made the most as investors (that I know of – I could easily be wrong).

    How you want to accept their opinions on the current crisis is up to you. I believe they are worth listening to – more than anyone else. That does not mean I believe they are totally right. To me the long term track record of each is very impressive. Especially Jim Rodgers and George Soros have been making big investment gains largely on macro economic predictions in the last 20 years.

    In The Dollar is Doomed (July 2008) Jim Rogers predicts the United States Federal Reserve is so badly run it will be gone in a decade or two. I disagree with that sentiment. He certainly has much more expertise than I do but in evaluating such a comment you need to look at what really matters to him. He doesn’t need the Federal Reserve to actually cease to exist to make profitable trades based on his prediction that the Federal Reserves policies are dooming the dollar.

    Another thing to note with Rogers and Soros is they will make strong statements and take huge positions but will change their mind when conditions change (often quickly). So you can’t assume what they said awhile back is still their belief today.

    Related: Jim Rogers: Why would anybody listen to Bernanke? – investment books – Rodgers on the US and Chinese Economies – A Bull on China

  • 401(k)s are a Great Way to Save for Retirement

    401(k)s are a great way to save. Yes, today those that have been saving money have the disappointment of bad recent results. But that is a minor factor compared to the major problem: Americans not saving what they need to for retirement in 401(k)s, IRAs, even just emergency funds… Do not use the scary financial market performance recently as an excuse to avoid retirement savings (if you have actually been doing well).

    The importance of saving enough for retirement is actually increased by the recent results. You might have to re-evaluate your expectations and see whether you have been saving enough. I am actually considering increasing my contributions, mainly to take advantage of lower prices. But another benefit of doing so would be to add more to retirement savings, given me more safety in case long term results are not what I was hoping for.

    Now there can be some 401(k) plans that are less ideal. Limited investing options can make them less valuable. Those limited options could include the lack of good diverse choices, index funds, international, money market, real estate, short term bond funds… My real estate fund is down about 2% in the last year (unlike what some might think based on the media coverage of declining housing prices). And poor investing options could include diverse but not good options (options with high expenses… [ the article, see blow, mentions some with a 2% expense rate – that is horrible]).

    But those poor implementations of 401(K)s are not equivalent to making 401(k)s un-viable for saving. It might reduce the value of 401(k)s to some people (those will less good 401(k) plans). Or it might even make it so for people with bad 401(k) options that they should not save using it (or that they limit the amount in their 401k). I don’t know of such poor options, but it is theoretically possible.

    The tax deferral is a huge benefit. That benefit will only increase as tax rates rise (given the huge debt we have built up it is logical to believe taxes will go up to pay off spending today with the tax increases passed to the future to pay for our current spending).

    And if you get matching of 410(k) contributions that can often more than make up for other less than ideal aspects of a particular 401(k) option.

    Also once you leave a job you can roll the 401(k) assets into an IRA and invest in a huge variety of assets. So even if the 401k options are not great, it is normally wise to add to them and then just roll them into an IRA when you leave. If the plan is bad, also you can use an IRA for your first $5,000 in annual retirement savings and then add additional amounts in the 401k (if they are matching funds normally adding enough to get the matching is best).

    401(k)s, 403(b), IRAs… are still great tools for saving. The performance of financial markets recently have been poor. Accepting periods of poor performance is hard psychologically. But retirement accounts are still a excellent tool for saving for retirement. Using them correctly is important: allocating resources correctly, moving into safer asset allocations as one approaches and reaches retirement…
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  • Financial Markets Continue Panicky Behavior

    The panic driven declines in worldwide stock markets have been remarkable. Deciding whether to join the panic and sell, or hold firm, or buy in now is very difficult. In general trying to time the stock market is difficult and not something many have succeeded trying to do. When I look at the long term values of individual stocks I see plenty that seem like bargains to me. Of course I have no idea if they will be greater bargains in a week, a month or a year. And I could easily be wrong that they are bargains at all.

    Still I have bought some Google (GOOG), Templeton Dragon Fund (TDF), Toyota (TM) and ATP Oil (ATPG). The first three I am happy to buy and hold for 10 years (and actually there is a greater than 90% chance I will hold the shares I have now own 10 years from now). The fourth one is fairly speculative, we will see how it goes. I did sell one stock, not because I think it is overvalued but because I liked what I could buy if I sold it (the price had held up well so relatively I could trade it for more shares of what I wanted today than I could have a month or 6 months… ago) – Comtech Telecommunications (CMTL). Often those stocks that hold up well in declines are very strong and do very well once the market corrects, so this could well turn out to be a mistake.

    Trying to time when things have hit bottom is very difficult. So I am not trying to do that. I did not invest all my cash now, and will be adding to my positions over the next year (most likely). I have been fortunately that I have been saving up cash and not buying into the market much (I wasn’t smart enough to sell though, and my retirement accounts were still going into stock funds primarily). I am guessing the declining prospects (due to the worsening economy) on the stocks I am buying have been more than offset by the declining stock prices. Only time will tell whether that was a profitable move or not.

    Related: Does a Declining Stock Market Worry You? – 12 Stocks for 10 Years June 2008 Update – Beating the Market – Another Great Quarter for Amazon

  • FDIC Limit Raised to $250,000

    The FDIC limit has been raised to $250,000 which is a good thing. The increased limit is only a temporary measure (through Dec 31, 2009) but hopefully it will be extended before it expires. I don’t see anything magical about $250,000 but something like $200,000 (or more) seems reasonable to me. The coverage level was increased to $100,000 in 1980.

    What does federal deposit insurance cover?
    FDIC insurance covers funds in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit (CDs). FDIC insurance does not, however, cover other financial products and services that insured banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities or municipal securities.

    Joint accounts are covered for $250,000 per co-owner. The limit is per person, per institution, so all your accounts at one institution are added together. If you have $200,000 in CDs and $100,000 in savings you would have $50,000 that is not covered.

    FDIC is an excellent example of good government in action. The Federal Deposit Insurance Corporation (FDIC) was created in 1933 and serves to stabilize banking by eliminating the need to get ahead of any panic about whether the bank you have funds in is in trouble (which then leads to people creating a run on the bank…)

    From an FDIC September 25 2008 news release: the current FDIC balance is $45 billion (that is after a decrease of $7.6 billion in the second quarter). The FDIC is 100% paid for by fees on banks. The FDIC can raise the fees charged banks if the insurance fund needs to get increased funds.
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