Not since October of 2010 has the S&P 500 been this low. The stock market valuator has been showing “Overvalued” until this past week.
Right now, it is indicating that the S&P 500 is undervalued by 1.56%. If the growth rate is adjusted downward to 7%, then the S&P 500 is getting close to the 1123 level indicated by the valuator tool.
The current valuation tool is hard coded to 7.25% but there will be a future javascript based one that users will be free to adjust.
... Read MoreThe premise for socially responsible investing sounds great in theory but in real life it may prove to be difficult to achieve.
Gambling, alcohol, tobacco and military investments all come to mind when thinking about types of investments to avoid for the socially responsible investor. These are generally considered bad investments for the socially responsible investor.
Good socially responsible investments are one that improve society. Investments in energy efficient technologies such as solar, wind and turbine technologies. Healthy food companies such as organic food manufacturers are yet another option.
These are the most obvious types of social responsible investments but there are also many others. There are numerous mutual funds available now that only invest in areas that have positive reports for the following areas: environment, human rights, labor relations, employment equality as well as community investment. For a list of such funds, please see:http://en.wikipedia.org/wiki/Socially_responsible_investing
The extent of when such funds invest or divest in certain areas may vary to a great degree. Most large companies would most likely have violations in many areas on a few occasions. Wal-Mart has had employee lawsuits and environmental ... Read More
The low interest rates of today may be no more long lasting than the 0% interest credit card intro offers. For many, the stock market is an attractive alternative to paying off low interest mortgage debt. After all, if someone can invest and get 6-12% in the stock market, why would someone want to pay down debt when the interest rates on such debt may only be 3-4%.
Unfortunately, such a trend may not last. US trade deficits continue to grow every year. Eventually, US treasury bonds may become less desirable and interest rates will start moving upwards. Double digit interest rates does not seem far fetched in the next 5-10 yrs.
For many, especially those in the hard hit real estate areas such as the California, Nevada, Arizona and Florida, adjustable rate mortgages are common as many owe more than their homes are worth. Paying off adjustable rate debt at 2-4% may not seem like a wise thing to do, but doing this in addition to investing may be a good defensive strategy to put in place.
The reason for this, is when interest rates do start going up, stocks may go down as people start selling stock positions to pay off mortgage debt. For example, a borrower that is has been paying 2-4% may be shocked if interest rates go up to 10%. The natural human tendency is to predict upwards when this happens as was the case when oil reached highs in 2008 and people ... Read More
Finding the perfect business or industry is far from simple. Many of yesterdays so called winners are todays dogs. Here is a list of some of the technology ones.
AOL, Yahoo, and Myspace. All of these companies were once profitable companies. Broadband killed AOL which they were not prepared for. Google beat out Yahoo as the number one search engine and Myspace has been replaced by Facebook.
There is also Friendster. Does anyone remember Friendster? Friendster was one of the first social networks that was growing rapidly. Now it is the butt of jokes on theonion.com, Internet Archaeologists Find Ruins Of ‘Friendster’ Civilization.
It doesn’t seem unlikely that another company may replace Facebook and Google. This is one reason why technology companies can be so risky.
Also, the decline in these businesses is significant. For example, how many people use Yahoo for their search and email vs Google? Most people have moved to Google.
With non-technical businesses, changes are not typically as significant. For example, if a new cigarette company comes to the market, some people may switch, but the shift will probably not be as great as with the tech companies where the majority of people will eventually switch ... Read More
As the uncertainty in the US economy continues, many people are looking to gold as an investment and hedge against inflation. Is gold a reasonable investment opportunity?
Right now gold is a special opportunity that is very similar to the tulip craze, real estate boom and dot-com bubble. Gold has went from a price of $400 an ounce in 2004 to over $1200 per ounce currently. Like the tulip craze, real estate boom and dot-com bubble, most of the price of gold now is based on speculation and not fundamentals.
The recent price increase in gold would indicate that jewelery sales are booming. There should be new jewelry stores opening on every corner, but this is not the case. The price of gold is currently based on based on the expectations of others buying gold as an investment and based on fear of a collapse of the dollar.
Buying something based on the buying expectations of others is not something that an intelligent investor does. It is possible that gold may go higher, but to be involved in a fools game may lead to poor returns and possibly future speculative behavior down the road.
It is interesting how there are so many books and so-called investment advisors are pushing gold as an investment without looking at any sort of fundamentals regarding the actual physical utility of gold as a productive asset. The message is generally the same: the US economy may or will get worse and therefore gold is a good investment.
The gold pusher may go on to then state that gold has went up in the past during the depression or some other historic behavior. My argument against this is that historic evidence of speculation does not make for a good investment decision. Following fools will not lead to good returns over the long-term.
I believe the only value of gold today is the fundamental productive value of gold which is used in electronics, jewelry and other things. In the past, gold was important as the US dollar was backed by gold. The use of gold was important not so much for its value but was important in keeping the treasury from inflating the money supply by printing too much money because every dollar was backed by one dollar worth of gold.
For those who believe that inflation will be worse in the future and faith in the dollar will falter, gold will never be a currency or means for payment for the mainstream.
Gold has a fluctuating value and people do not know what it is worth. During times of inflation, it will simply take more of the currency to purchase the same thing. The idea of a gold standard or gold backed payment method will not be one that has widespread usage.
When inflation takes off or if savings start going down again, people will actually most likely sell gold for dollars so they can pay for things. In a sort of doomsday scenario, the dollar will be used and gold will not.
Warren Buffett stated the following about gold at Harvard in 1998:
It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.
References:
http://en.wikipedia.org/wiki/Warren_Buffett
Much money has been moving back into the stock market which is troubling. It was to be expected that many investors would jump into the market near the March lows to pick up stocks at low prices. However, now many stocks are priced very high considering the poor fundamental outlook for the future.
Many of the real estate related bubble jobs will not come back and it will take several years before many of these displaced and downsized workers find alternative jobs. This may be three years or more before the unemployment starts to turn around.
A result of this is uncertainty and uneasiness in the American market for consumer and business spending that has led to a record high savings rate in an economy that is dependent on consumer spending and not exporting.
The result of this is going to be weak corporate profits and most likely depressed stock prices. Right now, the stock market does not appear to be reflecting this but it will most likely within a few years or less from now.
The US deficit will continue to grow over the next few years as the government continues try to spend money stimulating the economy and by providing states and individuals with stimulus and unemployment related loans.
Much of this money going to pay for unemployment benefits is not going into public works projects that will help the economy ... Read More
Using a hypothetical example and assuming that the internet business model could have as great of an impact on other areas of the US economy in the same way as how it has devestated newspapers, what would happen to the economy and public policy?
Job loss is the first thing that comes to mind. If the internet makes businesses more efficent by reduing the number of people required for a job, then a large number of jobs would be lost.
The large number of displaced workers would have a major impact on goverments, costing tax payers money for everything from health care cost to unemployment.
This would put so much pressure on the goverment that raising taxes, would help to solve the budget problems.
We may be entering a period in the future where such an issue becomes a reality. This will become apparent when large numbers of jobs disappear as a result of outsourcing and by efficiencies such as the internet. Such a period will generally put downward pressure on prices due to the cost savings from not needing to use as much labor to get different tasks done.
If something like this happens too quickly, the goverment will most likely have to raise money to take care of these people. Higher taxes for those earning money or high incomes would most likely be the most likely scenerio.
This raises an important issue in the future that ... Read More
The booming housing market helped to employ a large portion of the economy. Housing money went to building materials, construction labor, real estate companies, builders, and banks. Around all of these companies were smaller companies providing products and services.
These jobs were there because of the original lending for homes. Home equity loans provided a number of other jobs. Home equity loans from rising home prices led to all sorts of purchases from cars, clothes, jewelry to expensive Swiss watches.
All of these businesses have been effected by declining housing prices. The question is will many of these jobs come back?
Over the years, many bubbles have passed. Starting with the dot-com bubble, this period lasted from about 1998-2000 when the stock market peaked and then tanked shortly after. The growth in share prices in dot-com companies seemed to have brought many new “speculators” into the market which in turn effected the price of most other stocks.
The same thing happened in many places with real estate from about 2002-2008. During this period a rapid appreciation in prices brought more people to the market and brought up the price of other homes. As a result, others were affected by the speculators similarly as ... Read More
The US continues to run budget deficits and will most likely continue this for years. Those who own US bonds are not going to be happy about this. In exchange for purchasing the bonds, the goverment will be paying back in dollars that are worth less due to the huge increase in the money supply created to fund bailouts and other spending.
In the video below, author Peter Schiff talks about these problems.
As a result of these things, the dollar will fall in value and investors will stop purchasing goverment bonds or will only purchase goverment bonds that offer a higher yield. The result will be inflation working its way into the marketplace.
Looking at the CPI published by the Bureau of Labor Statistics it measures the price of many different types of items. It isn’t specific about exactly how they are gathered, whether the prices are sale prices or regular prices.
I’ve decided to make my own little index on food related items to ... Read More
Obama’s plan is to reduce oil consumption by making buildings more efficient through insulation, energy efficient CF light bulbs and by other means. The other part of the plan is to produce energy domestically through solar and wind.
This second part of the plan may lead to speculation as seen during the internet bubble and during the housing bubble.
Recently the U.S. recently took the lead in wind power generation surpassing Germany. http://www.bloomberg.com/apps/news?pid=20601100&sid=a5qyeN9A6LlY&refer=germany
Solar is also on the increase with massive solar energy farms being added to the desert. Without government tax incentives, these projects would probably never have happened.
In its current state, solar is expensive and has a long break even period. If the U.S. were to implement this on a large scale such as that in Germany, it would increase the cost per kwh during a recession when every dollar is important.
Everyone likes the idea of clean, renewable energy but when it comes to paying for it, we may be in for some sticker shock.
The cost to outfit just one small home with solar costs about $12K-$20,000. On a $20K system, even at a low interest rate of 5%, the interest would be about $1K a year and pricipal payments of about $1000 a year. For most, this is more than the cost of purchasing electric directly from ... Read More