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Strategist: We've Hit the Worst of the Recession
Tweet Share on Facebook March 9, 2009 Comment (1)Pessimism is pretty rampant in the market today, as this recession is on track to be the longest in the post-war era.
For glass-half-empty folks, Charles Schwab just reported these survey results from a poll of 1,200 investment advisers (via The Wallet):
When asked to predict how long they thought the current recession would last, 41% said it would wrap up in December of this year and 41% said December 2010. When it came to their clients’ portfolio’s recuperating, 35% said that their clients until December 2014 to fully recover. 32% thought client recovery would come in December 2011, 18% by December 2010.
Now, here's some market commentary from a glass-half-full strategist--BlackRock's Bob Doll, global CIO of equities:
In our opinion, we are in the midst of the worst of the recession. We expect a sharp contraction in first-quarter gross domestic product (GDP) as demand remains weak and businesses work through built-up inventories. Looking ahead, we would expect the rate of economic decline to lessen in the second quarter, GDP to flatten out in the second half of 2009 and growth to return to positive (although subpar) levels in 2010.
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Are You Ready for This? A Nationwide Tax Day Tea Party
Tweet Share on Facebook March 5, 2009 Comment (82)On the heels of the Chicago tea-party protests that grew out of Rick Santelli's recent rant on CNBC, anti-stimulus folks are planning to kick it up a few hundred notches with a Nationwide Tax Day Tea Party.
The Tea Party HQ already has a list up of organizers in 24 cities, and is trying to recruit more with a how-to list with details on coordinating, obtaining permits, etc.
On a related note, Santelli denied his affiliation with the tea party movement in a blog post on CNBC's web site this week, claiming the outburst was spontaneous. He wrote:
As a financial reporter I have never shied away from trying to promote discourse and dialogue of the important issues that affect markets and therefore our lives. The one spot in particular that occurred on February 19th at roughly 8:15 est time and maybe lasted for a minute probably wasn't even in my top 5 in terms of intensity, energy, or controversy. It was unique in that it obviously struck a chord with the public thus inciting what can only be described as a groundswell of feedback from the public, the White House, the Internet, and the media at large.
Santelli also missed an opportunity to make light of the situation on The Daily Show by bailing out of a planned appearance. Check out Jon Stewart's reaction here.
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Berkshire Hathaway: A Screaming Buy?
Tweet Share on Facebook March 4, 2009 CommentBerkshire Hathaway just reported its worst year ever. Meanwhile, the company's A Shares, trading around $74,000 today, are flirting with six-year lows.
Daily Markets' rekindles the often heated discussion of whether Berkshire's stock is actually "cheap," by writing that the stock at this level is an "incredible buying opportunity" for anyone with tens of thousands of dollars on the sidelines. Why? Because Buffett's annual report--released last weekend--doesn't discuss private companies Berkshire bought or loans negotiated.
A few months ago on this blog, I posed the question of how to value Berkshire Hathaway (it was trading around $77,000 at the time.) The post includes hedge fund manager Whitney Tilson's lengthy case for why the stock was a bargain at $84,000.
Also worth checking out is the Berkshire Hathaway Intrisivaluator.
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Why Index Funds Still Make Sense
Tweet Share on Facebook March 4, 2009 Comment (2)It's an age-old investing debate: Are index funds better than actively managed funds? There are pros and cons for each: Indexing--a form of passive investing--means low turnover among holdings. That leads to lower taxes. Index funds are also dirt cheap compared with active funds. And in a market like this, every penny you give up in fees counts.
On the active front, managers have the ability to weed out stocks they think are more attractive than others. They can also shift their portfolio to take advantage of market conditions. For example, managers might keep a portion of the portfolio in cash when the market's jumpy.
Many financial advisers I talk with use both active and index funds in clients' portfolios. For example, Jeff Layman, CIO of BKD Wealth Advisors in Springfield, Mo., uses index funds for wide diversification and tax management, then mixes in active funds as "satellite" investments, which can contribute to diversification and add value if the manager is skilled.
In a recent interview with Steve Forbes, Morningstar's managing director of research, Don Phillips, weighed in:
...I'm a big fan of index funds. I put a lot of my own money into index funds, and interestingly the index funds in our star-rating system consistently show up as four-star and occasionally even five-star investments. So they score very well in our system because it looks again at long-term performance and at cost.
So indexes are great building blocks for investors. But there is the possibility that you can do better than the market. And there are certain funds that are more specialized and may fit a certain niche in an investor's portfolio. But I think for most investors, starting with a broad-based index fund as the core of their portfolio makes all the sense in the world.For those interested, here are some pointers from Morningstar on picking the best index fund.
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Bartering is the New Black
Tweet Share on Facebook March 4, 2009 Comment (1)In these dire economic times, it's not totally surprising that old-fashioned bartering is making a comeback. These days, it applies to everything from remodeling to hair cuts and pedicures to dental cleanings(!)
According to this story, bartering on Craigslist has increased 100 percent versus this time last year. A recent search of the barter listings in my area included tattoos for plumbing; a camcorder and paintball gun for Xbox 360 parts; and face painting for an Ikea table. Other services offered for exchange included drywalling, tennis lessons, and carpet installation.
All this bartering talk reminds me of a bartering opportunity missed in college, when I turned down body piercing from a girl in my dorm (she was in training) in exchange for unspecified goods. But on the other hand, a good friend of mine used barter in exchange for yoga lessons, which sounds like a good idea, especially since yoga lessons can run $15 or more per class.
Unfortunately for barterers, such exchanges are considered taxable by the IRS (see Form 1099-B.)
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Why Obama's Bullish on Stocks
Tweet Share on Facebook March 3, 2009 Comment (9)It seems pretty unusual for a president to weigh in on Americans' investing decisions. But today--a day when the S&P touched down below 700 for the first time since 1996--Obama said we should all consider investing in the stock market. Via ABC News:
"What you're now seeing is...profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it."
Obama's smart investor move: Not focusing on the "day-to-day gyrations" of the market. He compared the Dow's wild swings to daily tracking polls in the political world.
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TALF: The Long and Short of It
Tweet Share on Facebook March 3, 2009 Comment (4)TARP, TALF: how do you make sense of this alphabet soup?
Here's the scoop on TALF (the Term Asset-Backed Securities Loan Facility), which the Fed released more details on today:
The goal is to get lenders lending again by loosening up money for consumer, auto, student, and small-business loans (TARP, in contrast, was created to bail out banks.) TALF aims to do this by encouraging big investors to buy up AAA-rated securities that are backed by assets like auto loans and student loans. In return, those investors will get up to $200 billion in low-interest loans. The intended result is to stir up enough investor confidence--and therefore lending--to eventually generate up $1 trillion in lending.
Interested in more specific details? Here's the official statement.
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The 100% Stock Portfolio: Still a Good Idea?
Tweet Share on Facebook March 3, 2009 CommentFor a while, many financial advisers have been telling young investors to allocate most of their money--usually 401(k) money--to stocks. The idea: With decades of tax-free growth ahead, compound interest can work its magic and market dips won't matter over such a long period of time. Some even go as far as to recommend a 100 percent stock portfolio [read more about mine here.]
But lately, a growing chorus of financial gurus--including Andrew Lo, director of MIT's Laboratory for Financial Engineering--are saying the all-stock plan isn't the best idea going forward (Lo believes that portfolios need more asset classes than just stocks and bonds.)
Recently, I asked two financial advisers for their thoughts on the 100 percent stock portfolio.
- Jeff Layman CIO of BKD Wealth Advisors, a wealth management firm headquartered in Springfield, Mo., says it all depends on the person. "100 percent equity will get you a pretty big bang for the buck. Obviously with stocks trading at half the levels of 14 months ago, there's a much stronger argument for equity now. But there's benefits in adding other asset classes in small doses. It's important to remember that the last 10 years show that you can have some tough periods over an extended amount of time." Layman recommends using bonds not just to dampen risk, but also as a diversifier. REITs and commodities don't appear on the menus of most retirement plans, so bonds are probably the best diversifier in 401(k)'s, he says: "It would be practical to put 20 percent in bonds as a diversifier."
- Dean Barber, president of Barber Financial Group in Lenexa, Kan., says because the economic landscape today doesn't resemble anything we've seen in the past, the stay-the-course route doesn't necessarily apply anymore: "The long term doesn't look OK. A year ago, we started getting much more conservative, and now most of our client portfolios don't have more than 15 percent exposure to the overall market. My advice is that people need to understand the true risks of investing. Unfortunately, people who cut their teeth between 1982 and 2000--they had 18 years with one negative year--people think that's the way it goes, but that's an anomaly." Today is the reality: protect first, grow second. Barber cautions against hoping for a quick recovery. (Keep in mind that the client portfolios Barber alludes to are generally those of older, high-net-worth individuals.)
