Inflation: The Good, The Bad and The Ugly

In the world of economics, inflation is one tricky term. Everyone knows that prices go up over time. 60 years back you could buy a loaf of bread for $0.15, which now costs around $2 - $3. However not everyone understands the forces behind inflation. So let us find out.

What is Inflation
Inflation refers to a general rise in prices for goods and services measured against a standard level of purchasing power. As inflation rises, every dollar you own buys a smaller percentage of a good or service. For example, if the inflation rate is 5% annually, a good or service costing $100 will cost $105 in a year. (Note: The goal for most developed countries has been to sustain an inflation rate of 2-3%)

There are few variations of inflation you need to know.

• Deflation: When there is a general fall in prices for goods and services. This is opposite of inflation.
• Hyperinflation: When there is sharp rise of inflation. This could lead to a breakdown of the monetary system.
• Stagflation: When economy becomes stagnant. This could lead to high unemployment rate.
  

What causes Inflation ?
There is no one cause that's universally agreed upon, but at least two theories are generally accepted.

• Demand Pull Inflation: If demand for goods/services is growing faster than supply, the prices will increase. This usually occurs in emerging markets/growing economies.
• Cost-Push Inflation: If there is a sudden decrease in supply, the prices go up. This in turn increases the cost of doing business for most companies. To maintain their profit levels they in turn increase the price of their goods/services which would ultimately be passed on to the consumers in the form of increased prices.
  

How is inflation measured ?
Inflation is measured with a price index which can be thought of as a large survey. One way of measuring inflation is by comparing two sets of goods at two different times, and calculating the increase in cost. There are many measures of inflation depending on the specific circumstances. I have listed few of the widely used ones.

• Consumer Price Index (CPI): Measures consumer prices from the perspective of the buyer. (For eg. prices of gas, car, food)
• Producer Price Index (PPI): Measures prices received by a producer/seller. PPI will give a clear indication of the pressure being put on producers/sellers. Normally this is passed on to the consumers, or producers/sellers reduce profits or they increase productivity. A subset of PPI is the Wholesale Price Index (WPI) which measures prices of goods at wholesale prior to retail prices.
• GDP Deflators: Measures an entire economy as the basket of goods and services, rather than some particular subset.
  

Other note worthy measures are commodity price index & purchasing power parity.

So who actually measures Inflation ?
Each month, the U.S. Bureau of Labor Statistics contacts thousands of retail stores, service establishments, rental units and doctors to obtain price information on thousands of items used to track and measure price changes in the CPI.

How about interest rates ?
In US, interest rates are decided by the Federal Reserve. They meet 8 times/year to set short-term interest rates. CPI and PPI plays a big role in the decision making process. Generally when the interest rate drops, consumer spending increases which in turn is good for the economy.

How does Inflation affect investments ?
Inflation can affect/not affect certain type of investments. Let us find out which ones.

• Affects people living on a fixed income, such as students & retirees. (Reason: Purchasing power drops)
  
• Does not affect people investing in stocks, provided the company's profits increase at the same pace as inflation. (Caution: In times of high inflation, a company may look like it's prospering, when really inflation is the reason behind the growth)

To protect yourself from inflation, you can buy inflation indexed securities. However these securities are so safe, they offer an extremely low rate of return which disinterests most investors.

So Is Inflation Evil ?
Yes and No. People like to complain about prices going up, but they often ignore the fact that wages are also rising. The question shouldn't be whether inflation is rising, but whether it's rising at a quicker pace than your wages.

It is evil or not depends on whether inflation is predictable or unpredictable.

1. If inflation is predictable, the affect can be compensated. (For example, banks can increase their interest rates, workers can negotiate wage hikes to combat inflation.)
2. If inflation is unpredictable, there will be imbalance. (For example, lenders tend to lose if they do not anticipate inflation correctly, companies spend less when there is uncertainty and indirectly hurt the economy, fixed income investors see a decline in their purchasing power, domestic products become less competitive hurting exports.)

So to sum up if inflation is evil or not actually depends on the overall economy as well as your personal situation.

Conclusion: Inflation is a sign that an economy is growing. Little inflation can be just as bad as high inflation. High inflation can break the monetary system where as lack of inflation may be an indication that the economy is weakening. I believe moderate rise of inflation is good for the economy and that is what every country tries to achieve.

The goal of this post was to educate the readers about inflation in general. I hope it has achieved that goal. I also wanted to cover the relation between inflation and interest rates. I will leave it for a future date....

Related Posts:

1. When US economy goes down
2. Can Weak Dollar Make Money
3. Economic Indicators: Few interesting numbers

(Source: Investopedia, Wikipedia, Maps of World)

A Day To Remember: The Great Wall Falls

Everyone knows that the market goes through a correction every once a while. The problem is not everyone knows when. Stocks slumped Tuesday 27th Feb on worries about economic growth at home and abroad especially China.

What Happened
The Dow dropped 416.02 points equivalent to 3.29%, its biggest one-day point loss in nearly 5 & 1/2 years. The S&P 500 tumbled about 3.5 % and the Nasdaq skidded 3.9 %.

What Caused It

• Chinese market dropped 9 % on concerns that the government was looking to crack down on market speculation that has driven chinese stocks to record highs. There are were also rumors that China is going to impose a high capital gain tax on stock investments. Other Asian markets slumped in tandem. European shares also tumbled.
• Former Federal Reserve Chairman Alan Greenspan said that U.S. economy might slip into a recession by the end of the year.
• Economic indicators showed the biggest monthly drop in new orders for nondefense durable goods, items meant to last 3 years or more.
• Reports indicated that the median price of an existing home fell 3.1 % in January from a year earlier, giving investors more reasons to worry about the housing slowdown hurting the economy.
• Increased violence in Iraq and Afghanistan also alarmed Wall Street.
• The Dow and S&P 500 have each risen 12 % in the past 6 months while the Nasdaq is up 17 %.

Few of the big guns in the tech sector like Google (GOOG) lost 3.5 %, Yahoo (YHOO) lost 3.64 %, Microsoft (MSFT) lost 4.13 % and eBay (EBAY) lost 4.25 %. Chinese stocks got burned badly with CDC Corp (CHINA) losing 11.4 %, Telestone (TSTC) losing 13.97 % and Fuwei Films (FFHL) losing 11.53%.

Those who shorted the Dow (DXD) and Nasdaq (QID) had a smile on their face. Both were up 4.21 % and 4.81 % respectively.

Conclusion: Analysts believe that nothing has changed fundamentally and investors do not need to worry about a bear market. Consumer spending has held up relatively well. The company profits/earnings has been positive. Analysts also believe that this sell-off could give the Feds a reason to lower interest rates which would evidently boost earnings.

Recommendation: Commodities also took a hit and are now trading at a bargain. Alot of stocks are trading at a cheaper prices. For those investors that stayed away from the market, have a question in their mind for sure. Is this a good time to buy? Maybe, maybe not. The point is nobody knows. History shows that after a huge correction, the market trades lightly the next day indicating cautious investors. Any substancial upswing would not occur until day after tomorrow.

(Source: CNN Money)

Forex: Do You Understand Currency Movement ?

There used to be a time when trading on the currency exchange (foreign exchange market or forex) was not for everyone. It used to be a domain for government central banks, commercial banks, investment banks, hedge funds and huge international corporation. However with the advent of the electronic trading networks, trading in forex is now more accessible than ever. The forex offers trading 24-hours a day, 5 days a week, and the daily dollar volume of currencies traded in the currency market exceeds $1.4 trillion, making it the largest and most liquid market in the world.

Forex is generally a low volatile market. Currency fluctuations are usually very small. Most high risk investors & speculators use leverage (which is possible due to high liquidity) to increase the profit margins. For example, it is possible for an investor to control a position of $100,000 by putting down as little as $1,000 up front and borrowing the remainder from his or her broker.

The movement of currency prices are based upon the demand and supply model. This cannot be manipulated easily because the size of the market does not allow even the largest players, such as central banks, to move prices at will.

What is Forex all about ?
Currencies are important to most people around the world, whether they realize it or not, because currencies need to be exchanged in order to conduct foreign trade and business. If you are living in the U.S. and want to buy cheese from France, either you or the company that you buy the cheese from has to pay the French for the cheese in euros. This means that the U.S. importer would have to exchange the equivalent value of U.S. dollars into euros. The same goes for traveling. A French tourist in Egypt can't pay in euros to see the pyramids because it's not the locally accepted currency. As such, the tourist has to exchange the euros for the local currency, in this case the Egyptian pound, at the current exchange rate.

The need to exchange currencies is the primary reason why the forex market is the largest, most liquid financial market in the world. One unique aspect of this international market is that there is no central marketplace. All transactions occur via computer networks between traders around the world, rather than on one centralized exchange. The forex market can be extremely active any time of the day, with price quotes changing constantly.

Spot Market and the Forwards and Futures Markets
The 3 ways to trade forex are the spot market, the forwards market and the futures market. The spot market is the largest market because it is the underlying real asset that the forwards and futures markets are based on. When people refer to the forex market, they usually are referring to the spot market. The forwards and futures markets tend to be more popular with companies that need to hedge their foreign exchange risks out to a specific date in the future.

Spot Market
The spot market is where currencies are bought and sold according to the current price. Few factors that determine the price is demand & supply, interest rates, economic indicators, political stability and future performance of one currency against another.

Forwards Market
The forward market does not trade in actual currency. Instead they deal in contracts of a certain currency type at a specific price/unit and a future date. Forward contracts are traded over the counter.

Futures Market
The futures market also does not trade in actual currency. Like forwards market they deal in contracts of a certain currency type at a specific price/unit and a future date. Futures contracts are traded upon a standard size and settled over public commodities markets such as the Chicago Mercantile Exchange.

Trading Instruments
The majority of forex traders focus their efforts on seven different currency pairs: the four majors, which include (EUR/USD, USD/JPY, GBP/USD, USD/CHF); and the three commodity pairs (USD/CAD, AUD/USD, NZD/USD). All other pairs are just different combinations of the same currencies, otherwise known as cross currencies. This makes currency trading easier to follow.

Conclusion: The forex market provides plenty of opportunity for investors. The currency market is also the only market that is truly open 24 hours a day. The amount of leverage available in the forex market also makes it attractive for many speculators. However, in order to be successful, a currency trader has to understand the basics behind currency movements otherwise the benefits of leverage can work against the trader.

Forex trading is a vast topic and will be covered in depth..
To be continued....

(Source: Investopedia)

Can Weak Dollar Make Money

Can Weak Dollar Make Money

Yes it can. Deutsche Bank and PowerShares announced the listing of PowerShare DB U.S. Dollar Bullish UUP and the PowerShare U.S. Dollar Bearish UDN exchange traded funds (ETFs) on the American Stock Exchange. These ETFs offer investors access to the performance of the United States Dollar against global currencies.

This is simply wow. Investors can make money not only in the strong dollar, but also in the weak one. However investing in foreign exchange related product is not for everyone. One needs to understand and monitor the national debt levels, trade deficits, changes in domestic and foreign interest rates, regional and foreign politics, economics and financial events.

Wal-Mart soon to enter India
A potential joint-venture between Wal-Mart WMT and India's Bharti Retail is likely on the way. Multi-brand foreign retailers are only allowed to operate in India with a local joint-venture partner. Bharti plans to invest $2 to $2.5 billion by 2015 across 30 Indian cities each with a population greater than 1 million. Wal-Mart has not said how much it plans to invest. At this stage Wal-Mart's role seems focused on providing supply-chain and technology management to the venture.

Once Wal-Mart breaks into the Indian market, they have the capability to capture a huge market. However it would be a big mistake from their part if they step into the market without thoroughly understanding the mind-set of Indian consumers.

Sirius and XM Satellite to Merge
Satellite radio companies Sirius SIRI and XM XMSR have signed a merger agreement. The tax-free, all-stock deal values the combined company at $13 billion, including $1.6 billion in debt. The companies have lost $7 billion over the past eight years as they have battled for subscribers and high-profile talent, and their share prices have fallen 47% over the past year. Together, they can offer subscribers greater variety, including sports, news, and celebrity hosts. Sirius and XM claim their marriage would not create a monopoly, since they compete with media offerings like iPods, cellphones, and HD Radio.

The Department of Justice will need to decide whether the combination would violate antitrust regulations. This is going to be an really interesting merger. What you and me as an investor needs to find out is will a combined company be better equipped to stem the slowdown in satellite subscriber growth ?

JetBlue CEO Promises Big Changes
Recently a breakdown in communications at JetBlue JBLU led to passengers stranded for almost a week. JetBlue assumed that the ice storm would pass quickly and refrained from cancelling flights right away, as other airlines did. The storm intensified, and JetBlue ended up cancelling 1,000 flights within five days and shutting down service in 11 cities. At one point, nine full JetBlue planes sat on the runway at JFK for up to 10 hours. The company's communication system failed to cope, pilots and flight attendants were not where they were needed, and there was no method in place to contact them. JetBlue said they will enact a customer bill of rights that will pay stranded passengers and vowed to make changes.

Consumer confidence will be low after this mishap which would possibily affect their quarterly earnings. The stock is already seeing negative numbers.

(Source: SeekingAlpha)

Options: The Power Lies In Their Versatility

Most investors invest in stocks, ETFs, mutual funds and bonds. How about adding another type of security called Options to your portfolio ? If you are new to the world of options trading, read on...

The power of options lies in their versatility. They give you the power the adjust your position according to the present situation. However just like any other security, options have their own set of problems. Options are complex securities and can be sometimes extremely risky. Option trading is therefore not for everyone.

However before you decide not to trade in options, you should atleast understand them. Not learning how options function is as dangerous as jumping right in it.

What is an Option
Option is nothing but a contract that gives the buyer the right to buy/sell an asset at a specific price on/before a certain date. So what is the big deal about that ? The big deal is that the buyer is not obliged to buy/sell. Now that sounds interesting....isnt it ?

Investopedia gives an excellent example.

Say, that you discover a house that you'd love to purchase. Unfortunately, you won't have the cash to buy it for another three months. You talk to the owner and negotiate a deal that gives you an option to buy the house in three months for a price of $200,000. The owner agrees, but for this option, you pay a price of $3,000.

Now, consider two theoretical situations that might arise:

1. It's discovered that the house is actually the true birthplace of Elvis! As a result, the market value of the house skyrockets to $1 million. Because the owner sold you the option, he is obligated to sell you the house for $200,000. In the end, you stand to make a profit of $797,000 ($1 million - $200,000 - $3,000).
2. While touring the house, you discover not only that the walls are chock-full of asbestos, furthermore, a family of super-intelligent rats have built a fortress in the basement. Though you originally thought you had found the house of your dreams, you now consider it worthless. On the upside, because you bought an option, you are under no obligation to go through with the sale. Of course, you still lose the $3,000 price of the option.
   

Sweet...options isn't that intricate as i previously thought. But wait...there is more...

Calls and Puts
The two types of options are calls and puts:

A call gives the holder the right to buy an asset at a certain price within a specific period of time. Buyers of calls hope that the stock will increase substantially before the option expires.

A put gives the holder the right to sell an asset at a certain price within a specific period of time. Buyers of puts hope that the price of the stock will fall before the option expires.

People who buy options are called holders and those who sell options are called writers. Holders have the right to buy/sell but are not obligated. Writers are however obligated to buy/sell. This makes selling options more complicated and even riskier.

Why Investors use Options ?
Investors use options to both speculate and to hedge risk. Speculation in nothing but betting on the movement of a security. The advantage of options is that due to their versatility you can make money even when the market is crashing. Think of hedging as an insurance policy. Just as you insure your house or car, options can be used to insure your investments against a downturn.

Types of Options
There are two main types of options.

1. American options can be exercised at any time between the date of purchase and the expiration date.
2. European options can only be exercised at the end of their lives.

Conclusion: Options adds another item in your investing toolbox which also gives you insight into the workings of some of the world's largest corporations. With online brokerages providing direct access to the options markets, the average investor now has the ability to use the most powerful tool in the investment industry just like the pros do. However options aren't for everyone. Options can be alot more dangerous if you don't educate yourself before using them.

Related Posts:

1. ETF: Something for those lazy investors !!
2. Stocks: Learn the A-Z about it

(Source: Investopedia)

Is Emerging Market Craze Over ?

For years, investors shunned emerging markets stock funds, which have historically been regarded as some of the riskiest investments around. Over the past decade, emerging markets stock funds have attracted just $4 billion a year on average, while domestic stock funds have pulled in more than $108 billion annually

But all that has changed in the past two years. Emerging markets stock funds have posted eye-popping gains of around 32% a year since 2005 and attracted investor interest, drawing in around $14 billion of new money annually. Last year, they took in more new money than domestic stock portfolios did.

Investing Outside the U.S.
Why you should put a portion of your portfolio in international stocks ? View this video...

More on what analyst have to say about Global Emerging Markets


And finally check out the 3 International Stock Picks


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Google Powers Podcasting Ads Growth

Google powers podcasting ads growth
Podcasting advertising revenues are expected to rise five folds in the next five years. That would mean marketers will spend $400 million dollars on podcasts in 2011, which would be only 2% of spending expected this year in the interactive ad market. Analysts expect Google GOOG to develop an audio version of AdSense which would allow any podcast producer to include ads in their shows.

Rant: Audio ads can be sometimes really annoying for the podcast listeners. Google and podcast producers need to be cautious not to overwhelm the listeners with too much ads or it could turn against them.

Bernanke's message to investors
Fed Chairman Ben Bernanke recently relieved the investors by stating that he was upbeat about the economic growth and sees signs of slowing inflation and stabilizing housing sector.

The labor market is a key area of concern: a low unemployment rate and difficulty finding qualified workers have resulted in higher wages, but he said increasing productivity and narrowing profit margins could help offset labor costs. He called recent pressures in the subprime mortgage market a significant concern but said they wouldn't harm the overall economy. The Fed cut its forecast for GDP growth from 3% to 2.5%, forecast 2% core inflation and 4.5% unemployment.

Rant: Inflation is the key concern for the Feds. If the inflation doesnt slow down, Feds might have to increase the interest rates furthur.

Starbucks to buy more coffee
East Africa is the birthplace of coffee and the origin of some of the finest coffees in the world. East African growers account for about half of the world's specialty coffee. Most coffee growers in Africa live in poverty.
Starbucks SBUX has stated that they are planning on doubling their purchases of coffee from East Africa. Six percent of the coffee purchased by Starbucks comes from Africa. They have also agreed to establish a farmer support center to help farmers improve coffee quality and improve yields and prices. Starbucks also said it would help small-scale coffee producers by providing $1 million in micro finance loans.

The announcement comes amid a dispute between Starbucks Corp. and the Ethiopian government, which wants to trademark the names of three coffees produced in the country.

Rant: Is Starbucks exploiting African coffee growers ? Or are they supporting their right to fair trade ? This is an open question i would like someone to answer...

Global EFT
Most EFTs are currently overbought, with Mexico EWW and Malaysia EWM trading at theoretical highs. India IFN, on the other hand, is currently slightly oversold.

Rant: EFTs is the latest thing to hit the world. Naturally with their obvious advantages they have become everyones favorite. But is the recent buying spree justified ?

Related Posts:

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3. Does Google really love MySpace ?
   

(Source: SeekingAlpha)

One Dollar Gold Coins: Best Investment Ever ?

One dollar gold coins
U.S. government has decided to honor all the Presidents by issuing $1 gold coins. The United States Mint will mint and issue four presidential $1 coins per year. Every three months, a different president will be featured on the coin, starting with George Washington. After three months are up, the coins for that particular president will no longer be minted and the minting of the new presidential coin will be released.

Rant: My only concern is that, this could lead to more scams. How about melting these gold coins to sell it for more than its worth ?

Iran exports to suffer
Iran holds 11% of the world's oil reserves. Considering this fact, everyone would expect Iran's output to grow. However as of now, Iran's output is only 3.9 million barrels/day versus over 6 million barrels/day in the '70s. Iran is facing a natural output decline of 8-10% per year due to lack of investment. Oil sales of $47 billion in 2006 generated half its government's revenue, but lack of refining capacity means that Iran imports 40% of its gasoline. It spends $20 billion/year on gasoline subsidies to appease its population which has led to domestic demand growth. If demand continues to grow at current rates, some analysts predict Iran's oil exports will dry up within 10 years. Royal Dutch Shell RDS.A and Repsol REP recently agreed to develop South Pars, the world's largest natural gas field. France's Total TOT is also in talks.

Rant: Is Iran's problem a global problem ?

S&P 500 4th quarter
66.4% of S&P 500 companies have beaten their fourth quarter EPS estimates while 19.2% have missed it. Breaking it down by sector, a higher percentage of the energy, technology and telecom stocks have beaten the estimates while a higher percentage of utilities, financials and industrials have missed the estimates. (Source: TickerSense)

Rant: Technology and telecom sector is going through a golden phase. Two third of the S&P 500 exceeded analyst estimates is a clear indication of strong economy. The question is, can it keep up in 2007 ?

Wells Fargo offers 100 free trades
Wells Fargo WFC is offering their customers 100 free stock trades per year, which includes trading ETFs and no-load mutual funds. Rivals, Bank of America BAC offers 30 free trades per month, equivalent to 360 free trades per year for clients having $25,000 in deposits. However Wells Fargo offer includes loan balances and money in brokerage accounts in addition to cash deposits when totaling its $25,000. This will add more pressure on other brokerages like Charles Schwab Corp., E*Trade Financial Corp. and TD Ameritrade Holding Corp to cut trading costs.

Rant: This is good news for passive investors who trades just about 100 times in a year.

Related Posts:

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(Source: SeekingAlpha)

The Best Time to Buy

Find out when is the best time to buy....

ETF: Something for those Lazy Investors

Lets face it. Stocks is not for everyone. Alot of research has to be done before you indulge yourself into buying a stock. You need to go over the fundamental and the technical analysis. What is the EPS, P/E, PEG, Market Cap, Dividend, ROC, MACD...the list is end. Obviously you dont have to be a rocket scientist to buy stocks, but without the research it would be pure gambling.

What if i told you, there is another option for those investors who would love to make some money in the stock market but at the same time do not want to spend time analyzing stocks ? If you are that person, Exchange-traded funds (ETFs) may be right for you. ETFs also hold an advantage over mutual funds. Interesting isnt it. Read on...

What Is an ETF?
Think of an ETF as a mutual fund that trades like a stock thus experiencing price changes throughout the day as it is bought and sold. You can short sell them or buy them on margin as well. ETF tracks an index, a commodity or an index fund.

ETFs offer diversification, high trading flexibility, low expense ratio and tax efficiency in a flexible investment. An ETF does not have its net asset value (NAV) calculated every day like a mutual fund does. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order.

Varieties of ETFs
The first exchange-traded fund was the S&P 500 index fund. There are hundreds of ETFs trading on the open market ranging from sector-specific, country-specific and broad-market indexes. You can pretty much find an ETF for just about any kind of sector of the market.

1. If you are interested in the healthcare sector, Vanguard’s Health Care Viper VHT would be worth looking into.
2. If you would like exposure to the emerging market, then take a look at iShare MSCI Emerging Market Index EEM. Similarly if you are interested in any country's index, like say Brazil, you can follow the iShare MSCI Brazil Index EWZ
3. If you’d like exposure to the internet infrastructure sector, then maybe Internet Infrastructure HOLDRS IIH might be for you.

Below you will find a closer look at some of the more popular ETFs:

Nasdaq-100 Index Tracking Stock (QQQQ)
As the name suggests, this EFT consists of the 100 largest and most actively traded non-financial stocks on the Nasdaq. QQQQ offers broad exposure to the tech sector. Because it curbs the risk that comes with investing in individual stocks, the QQQQ is a great way to invest in the long-term prospects of the technology industry.

SPDRs - Spiders
Imagine trying to buy all 500 stocks in the S&P 500. How crazy that would be ? SPDRs allow individual investors to own the index's stocks in a cost-effective manner. You can trade the S&P Index 500 (SPY) on the AMEX. Another nice feature of SPDRs is that they divide various sectors of the S&P 500 stocks and sell them as separate ETFs. Here is the list of ETFs for various sectors.

The energy sector SPDR index XLE invests in industries, such as energy equipment and services, and oil and gas services, among others. The technology sector SPDR index XLK invests in industries, such as communications equipment, computers and peripherals, electronic equipment and instruments, telecommunication services, semiconductor equipment and products, information services, Internet software and services and software, office electronics.

iShares
iShares is Barclay's brand of ETFs. Barclay has put out a number of technology-oriented iShares that follow Goldman Sachs's technology indexes trading on the AMEX.

Vipers
VIPERs are Vanguard’s brand of EFTs. Vanguard also offers ETFs for many different areas of the market including the financial, healthcare and utilities sectors.

Diamonds
Diamonds Trust DIA tracks the Dow Jones Industrial Average. The fund is structured as a unit investment trust.

Conclusion:
A great reason to consider ETFs is that they simplify index and sector investing in a way that is easy to understand. If you feel a sector is going to do well in the near future, go buy it. If however, you think that a sector is going to slump, go short it.

The combination of diversification, low cost, tax efficient and the flexibility that ETFs offer, makes them attractive trading options. They are easy to understand and easy to use, and they are gaining in popularity at such a rapid pace that some experts anticipate that they will one day surpass the popularity of mutual funds. If ETFs haven't found a place in your portfolio yet, there is a pretty good chance that they will in the future.

You can also view a small video explaining ETFs.

To be continued...

Related Posts:

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(Source: Investopedia)

Newspapers Beat Local TV

Newspapers Beat Local TV

According to a media research firm, the newspapers are making more money from online video advertising than local TV stations, $81 million to $32 million. TV stations have a mass audience compared to targeted audience on the internet. Newspapers have been selling customized solutions, with particular success in converting help wanted and automotive classified advertisers. Time Warner Cable TWX in North Carolina is producing original video advertisements for local merchants.

This is pretty intuitive. If you know your target audience it is much more easier to sell. It is estimated that local online video advertising will surpass $5 billion, representing more than one-third of all local online advertising.

U.S Trade deficit
The U.S. trade deficit stands at $763.6 billion compared with $716.7 billion in 2005. In the month of Decemeber the trade deficit widened to $61.2 billion exceeding analyst estimates of $59.5 billion. Trade deficit was reduced in the month of September, October and November due to lower oil prices. However with increase in oil prices that scenerio has changed. December imports rose 2.1% to $186.7 billion, while exports were up 0.6% to $125.5 billion. With the increasing trade deficit, the US dollar will become weaker and weaker. This would eventually mean that investors would have more faith in basic materials (Gold and Silver) over the currency.

Pfizer over the counter

Three of the Boots pharmacies in London, will allow men to buy the impotence drug Viagra, manufactured by Pfizer Inc. PFE, without a doctor's prescription.The cost of the drug will be $97 for four pills. I believe this is a good marketing move. This will definitely boost sales.

IBM soon to challenge Intel
IBM IBM plans to announce breakthrough in the production of DRAM (dynamic random access memory) chip technology used in PCs. This will be a challenge to Intel INTC. The new technology will act as a temporary storage unit, holding data inside a microprocessor while it is being processed. IBM claims the new technology will speed up the performance 10 times the current speed. This will definitely be something to look out for and will directly affect the stock prices in the longer run.

Southwest gets greedy
Southwest Airlines LUV is famous for air-tickets at discounted rate. Southwest is the only carrier to report profits in every quarter since the Sept. 11 attacks. You can state that in the competitive world of airline industry, Southwest has been the clear winner. However in 2006, SouthWest has raised its fares 6 times. Again recently they raised it by another $10. Other airlines are expected to follow. So why is Southwest raising fares ? This one is a no-brainer. Increasing oil prices, high maintenance cost and pressure to raise revenue says it all.

Indian stocks take a dive

Country's central bank decided to increase the amount cash lenders must set aside to cover deposits. Inflation is the culprit that has accelerated to the fastest pace in more than two years. Wholesale price inflation increased to an annual rate of 6.58%. Indian index mutual funds and ETFs are off sharply this week and the financial sector has been particularly hard hit. The India Fund ETF IFN has been shaky all week.

For more information, here is an article from Brad Hessel

Are Photoblogs potential threat to photography stock market
Dan Heller quotes

The internet has brought down the barriers that have kept consumers out of the photo business in the first place. Now that they're here, they have fundamentally altered the photo industry, whether intentional or not, and whether other photographers like it or not.

Alot of people look at Flickr as a medium to share/view brillaint photographs. Bloggers look at it as a photo repository where they can tag their photos and make it available to the world. However there is a potential that photoblogs can grow into a market of its own and give traditional stocks a run. Watch out Getty Images GYI and Jupitermedia JUPM.

(Source: SeekingAlpha)

Buzz Around The Town

For a change i wanted to get hold of some interesting buzz going around the town. Here is what i found and by the way Happy Commercialized Valentine Day !!

Low Oil Prices = Production Cut
Saudi Arabian Oil Minister said that if oil prices hold there will be no need for further production cuts when OPEC meets next. But neither would he be surprised to see a different situation than what he sees now. Saudi Arabia's current production stands at 8.5-8.6 million barrels/day. OPEC members supply about 40% of the world's oil. Saudi Arabia still plans to increase its capacity by end-2009, saying the world will need all the energy it can generate over the next 30 years, including alternative sources.

Yahoo Mobile Apps
Yahoo YHOO is rolling out its mobile ad services in 18 international markets and has signed on major advertisers in doing so. The company also plans to offer several new features for its mobile applications including searches directly from Yahoo Maps and the ability to share specified content with friends. It has already been downloaded by 400,000 mobile users.

NYSE/EuroNext Merger
Derivatives are the reason for the successful performance of Intercontinental Exchange, Inc. ICE, Chicago Mercantile Exchange Holdings CME and others. Now with the merger of EuroNext and NYSE NYX, NYSE will be a place to trade such derivatives, on top of being the largest equity trading platform in the world. (Source: Seeking Alpha)

China Trade Surplus
China's trade surplus grew 65% to $15.9 billion, the fifth highest growth rate on record, as exports increased 33% to $86.6b, the fastest growth rate in 17 months. Imports grew by 27.5% to $70.7 billion, while GDP grew 10.7%, the fastest rate in 11 years, as foreign reserves exceeded $1 trillion.

Gold ETFs in India
Several new gold ETF's will be launched in India this month. With the popularity and appreciation for gold in India, the ETFs will be a super hot deal. Considering the population of India, their improving economic conditions and love for gold could lead to upward movement on the price of gold.

Argentina: A Worrisome Market
Similar problems can arise in Argentina as it occured in 2001, that is the inflation rate is going out of control and actually beating the growth which is standing around 7%. The trend is not being contained and there are no policies in place. This could be a scary place to invest. Here you can find an interesting related article.

Vista Sales Sky High
Sales of PCs at U.S. retailers in the week ended Feb 3rd were 67% higher year-over-year and increased 173% week-over-week. Two key findings are consumers prefer Windows Vista Home Premium to Vista Home Basic and Hewlett-Packard is dominating sales. Watch out for Microsoft MSFT, Dell DELL, Hewlett-Packard HPQ, Gateway GTW (Source: Current Analysis)

Related Posts:

• Oil goes down...
• China: Pollution Emission Targets
• Yahoo and the Panama buzz !!
  

Will Facebook Bite The Dust

Facebook is a social networking website popular with teenagers. It is ranked 7th most visited site in U.S. with 2.3 million photos uploaded daily by the members. That sure is an amazing figure. Like MySpace, Facebook is a potential buyout target for the big guns. But surprizingly Facebook has rejected any offer thrown at them which also includes the offer from Yahoo YHOO for $900 million. Makes one wonder why are they being so silly ? Or maybe not. Let us dig deep.

Facebook & Comcast Deal

Facebook announced a deal with Comcast CMCSA last week. As part of the deal, registered Facebook members can upload, share and rate the videos on Comcast's video-sharing web site called Ziddio. These videos will also be available on Comcast's ON DEMAND service. Few of the best videos will make it to the television series. This deal will increase the sign ups at Facebook and generate more traffic. For Comcast, the revenue will come from selling advertisements for videos and pay per view charges.

Facebook & Jobster Deal
There is also a possibility that Facebook will hook up with Jobster. As part of the deal Facebook members can post jobs, create their own profile and tag their skillsets. Additionally members can have referrals from current employees. This definitely is a cool way to show off your profile, which can help hiring managers cross-check the accountability of the person they are hiring. Again with this deal, there will be a spike in the sign-ups at Facebook and Jobster which is obviously beneficial to both companies.

Positives

1. When Yahoo made an offer to Facebook, within hours Facebook users created hundreds of groups, protesting against the possible acquisition. This is an indication of its loyal community. According to Facebook spokesman members spend an average of 18 minutes a day on the site.
2. Their approach to product planning and feature enhancements has made Facebook users certain of one thing that it’s all about communications. Too many competing social networks are moving away from that core. (Source: GigaOm)
3. Facebook has been actively signing up deals with other affliated sites to generate traffic and keep their members hooked up for more to come.
   

Negatives

1. Generating revenue is always a challenge. Their expected sales is not generating as much revenue as planned before.
2. There is too much competition.
   
3. Facebook advertisers have gone home disappointed of lately.
4. Teenagers are always on the look for cool products and features. If Facebook cannot keep up with those demands, they might not be a dominant force in the world of social networking.
   

Conclusion: This year will be an interesting year for Facebook. If they can generate revenue from their online traffic, they can turn into a house-hold or should i say a dorm brand. Each and every teenager would be hooked up on it. However if they cannot capitalize on this traffic we are looking at a potential buyout. Unfortunately for Facebook I doubt if Yahoo will make the same juicy offer again and they might have to settle for much less.

Recommendation: Buying out Facebook would be the best thing that can happen to Yahoo. This would mean that with Flickr and Facebook, Yahoo would be ranked #1 in terms of the number of photos uploaded daily and eventually it means more traffic and more revenue from advertisements.

Related Posts:

• Does Google really love MySpace
• MySpace rules the web
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Meet the Greatest Money Manager

I am talking about Bill Miller, Legg Mason Fund Manager. He has topped the market 15 years running. Wow. That is some achievement.



Also check out what Fortune had to say about him.

Uranium Is Knocking At The Door

Countries that rely only on oil as a source for their energy, will be in big trouble in few years time. The sooner these countries realise this and take action the better it is. The answer is alternative energy, be it Ethanol, Solar, Wind, Liquid Coal, Hydroelectricity, Geothermal or Ocean thermal energy.

More about Alternative Energy
Alternative energy is still a big question mark in U.S. President Bush supports increase in ethanol usage. Unfortunately corn-based ethanol has its own problems. Corn-based ethanol could lead to shortage of corn food and high corn prices due to high demand. Hydroelectricity contributes a large percentage to the world energy. However environment concerns block new dam construction. Solar cells can presently convert 20% of the sunlight to electrical energy. If built out as solar collectors, 1 % of the land today used for crops and pasture could supply the world's total energy consumption. However solar energy has not gained widespread support for reasons like it cannot be used at night-time or cloud cover. Additionally converting incoming radiations to high grade electricity has not been well defined. Wind power is one of the most cost-competitive alternative today. Wild power can generate 5 times the current global energy consumption. However global climate impacts and global warming could worsen if large scale energy is extracted from wind power. Wind is also not always available when needed. Geothermal power has a very large potential if considering all the heat existing inside Earth, although the heat flow from the interior to the surface is only 1/20,000 as great as the energy received from the Sun or about 2-3 times that from tidal power. (Source: Wikipedia)

Uranium as Alternative Energy
How about Uranium ? Can Uranium be the answer we are looking for ?
Uranium can be used as a substitute for clean energy initiatives. Uranium is also abundant and the best deposits are unevenly distributed. World mine production is about 50,000 tonnes of uranium oxide concentrate/year. Practically all of it is used for electricity. Uranium does not produce smoke or carbon dioxide. It is reliable and produces only small amount of waste. The main use of uranium is in the civilian sector to fuel nuclear power plant. 1 kg of uranium can produce as much electricity as 1500 tonnes of coal and the cost of both is the same. This is in the form of enriched uranium which has been processed to have higher-than-natural levels of uranium-235 and can be used for a variety of purposes relating to nuclear fission. U.S., Canada, Australia, Russia and China trade alot in uranium due to its obvious advantage.

Why look down under
Australian uranium companies are the most lucrative of all. Listed are few important facts. (Source: UIC Nuclear Issue)

• Uranium is part of Australia’s mining heritage.
• Australia’s uranium reserves are the world’s largest, with 24% of the total.
  
• Production and exports exceed 11,000 tonnes of uranium oxide/year.
• Australia’s uranium is used solely for electricity.
  
• Australia exported 46,600 tonnes of uranium oxide concentrate with a value of over A$2.1 billion.

Conclusion: Uranium can be answer we are looking for. As discussed, benefits of uranium out-weighs some of its alternatives which could make uranium companies highly profitable.

Recommendation: Uranium stocks won’t take off for a couple of years until the reality of depleting oil resources kicks in. Once uranium gains more support from the world as source of alternative energy, Uranium stocks will see amazing growth. The Australian stocks will benefit the most.

Two Aussie companies to keep an eye on are

1. BHP Billiton BHP - Owner of world largest uranium owner with a market capital of $128 billion.
2. Rio Tinto plc RTP - Mining company with market capital of $68 billion.

Also few other interesting companies i recommend with market capital in billions.

1. Cameco Corp CCJ
2. UrAsia Energy Ltd UUU
3. SXR Uranium Onc Inc SXR
   

Also check out the list of all Uranium companies trading in U.S.

Related Post

• Ethanol after Bush's speech
• Is Ethanol a good buy

Does Google really love MySpace ?

MySpace.com was founded in 2003 and bought in July 2005 by Rupert Murdoch's News Corp. NWS.

For those of you who do not know about MySpace, here is a quick introduction from Wikipedia.org

MySpace.com is a social networking website offering an interactive, user-submitted network of friends, personal profiles, blogs, groups, photos, music and videos. MySpace also features an internal search engine and an internal email system. It is currently the third most popular website in the U.S. They crossed 100 million accounts in August 2006, with a news story claiming the site attracts new registrations at 230,000/day.

Google-MySpace Deal 2006

This kind of website is definitely going to attract attention from the big boys like Google GOOG, Yahoo YHOO Microsoft MSFT and eBay EBAY. Google struck a $900 million advertising deal with MySpace 6 months back. Google wants to provide Google search tools on MySpace and run Google ads. This will benefit Google by allowing them to promote themselves and their advertisers to a huge community. In return Google will pay News Corp, $900 million in ad revenue over the next 3 years. Win-win for both !! But there is more...

Roadblock
Before the Google deal goes through, MySpace wants to strike some more deals, especially with eBay. Now this would be a cool feature for MySpace users. This deal would allow MySpace users to buy and sell products. Additionally eBay's payment system PayPal would become the means for payments. This will benefit eBay generate more revenue from the merchandize sale and payment processing fee. In return MySpace can expect a big chunk of revenue.

Google-MySpace Deal 2007
Obviously Google is not happy with the eBay-MySpace deal. Google's listing service Google Base and their recently introduced payment service GCheckout will take a hit. Add to that Google has realized that people looking up different profiles dont really care about clicking the ads and therefore is not turning out to be a good source of revenue. So what does Google do now ? They will be renegotiating terms of their deal with News Corp. Meanwhile, MySpace has grown in audience and will be looking for more cash. This one is going to be tricky from both ends. That said, I am sure Google will not completely blow off the deal since it will keep competitors like Yahoo and Microsoft at bay.

Recommendation: Keep close eye on how the deal folds. This would affect the way these big boys do busines in the next year or two.

Related Posts

• MySpace rules the web...
• Yahoo v/s Google
• 7 companies offer buyback...
  

Bad News: Recent Tech stock slump....

Barron's Associate Editor Michael Santoli discusses the continued tech stock slump and the impact of the cold weather in the East on the market.

Sector Movement: If Only You Knew When

Previously i had written a post about Which sector are you in ? Before beginning your journey with stocks it is always good to know which sectors to invest in and why ? As we all know a sector which was hot in 2000, might not be hot anymore in 2007 and vice-versa.

Lets have a look at some charts from different time frames to see how the timing of buying certain sectors would have affected your portfolio.

Year 2000 (Boom Time) - Present
If you had bought stocks of companies in the Telecom or Tech sector in 2000 and not sold it, you would still be in deep waters. As you can see from the chart, the returns are -49% and -63% respectively. However if you had kept yourself away from those sectors and invested in Energy, Materials, Consumer Staples or even Utilities for that matter you would have done very well. No one needs reasoning why the Tech sector was down in 2000.

Year 2003 (before Iraq war) - Present
If you had bought stocks of companies in the Telecom or Tech sector in 2003 and not sold it, you would have done much better with returns of +74% and +63% respectively. However they were still not the best sectors. Energy, Utilities and Materials all had more than 100% returns.

July 2006 (near market lows) - Present
If you had bought stocks of companies in the Telecom or Tech sector in mid 2006 and not sold it, you are still smiling !! As a turnaround finally the Telecom and Tech sector outperformed Energy, Utilities and Materials. Strong earnings, sound business ideas, job growth has all lead to the success of the Telecom and Tech sector where as oil prices and swing of the dollar value had lead to lesser gains for Energy and Materials sector.

Conclusion: Always stick to couple of good sectors. Know which sector is good and which one is not. Try to understand the fundamental reason behind it. This will be the key to your success in the stock market.

Israel: An Investment Opportunity

According to Wikipedia.org

Israel is the most industrially and economically developed country in the Middle East. It has a technologically advanced market economy. Despite limited natural resources, Israel has intensively developed its agricultural and industrial sectors over the past twenty years. Israel is largely self-sufficient in food production. Diamonds, high technology, military equipment, software, pharmaceuticals, fine chemicals, and agricultural products are leading exports. According to World Bank, Israel has the best regulations for businesses and strongest protections of property rights in the Middle East.

The more I read about Israel, the more I am interested in investing there. For those who share the same interest i recommend to keep an eye on few Israeli companies that have market capital in billions of dollar and excellent growth.

1. Teva Pharmaceutical Industries TEVA
2. Elbit Medical Imaging EMITF
   
3. Check Point Software Technologies CHKP
4. Partner Communications Company PTNR
5. Nice Systems NICE

You can find the complete list of Israeli companies listed on Nasdaq...here

I would love to hear from my readers about their thoughts on investing in Israel and the growth of Israel and also which companies if any do they follow and invest in.

Beware: Outrageously high numbers...

I had previously written about high dividend stocks. I would like to extend this post to include few more stocks that give outrageous yields. (As high as 45.80%). But wait....there is a catch.....!!!

1. Royce Focus Trust, Inc. FUND operates as a diversified, closed-end investment company. The trust invests in the stocks and bonds in various sectors. They claim to pay dividend of $4.80/share and yield of outrageously high 45.80%. Is this kind of yield justified ? As per my research the last payment was made for $1.20/share, which multipled by 4 will give you 4.80$ which is right on track. Caution: Last four payments added up to only $1.57 which yields to only 14.5%. Do your own research to ensure that they will continue to pay $1.20/share every quarter and this is not a sham.

2. Cal-Bay International, Inc. CBAY.OB invests in real-estate market. The company had interests in Utah, Nevada, Florida and California. They claim to pay dividend of $0.01/share and yield of outrageously high 41.70%. Caution: The company has made one dividend payment in the month of April 2006. The stock trades at 0.028$/share causing the yield to be so high.Since the company has only paid one dividend, you can't rely on it in the future.

3. Polyair Inter Pack, Inc. PPK engages in the manufacture and distribution of protective packaging products and swimming pool products. They claim to pay dividend of $0.81/share and yield of outrageously high 37.00%. Caution: They are only one-time dividend payer.

4. Latin American Discovery Fund, Inc. LDF operates as a closed-end management investment company. The fund invests primarily in Latin American equity securities. They claim to pay dividend of $9.00/share and yield of outrageously high 33.80%. They pay dividend every six months. The mid-year dividend is small and the year-end is large. Caution: The year-end dividend relies on capital gains as opposed to dividend distributions from the stocks in the portfolio. Can you rely on such a stock for high dividend.

5. Nicholas-Applegate Intl & Premium Strategy Fund NAI operates as a diversified, closed-end management investment company. The fund intends to invest in international markets. They claim to pay dividend of $9.28/share and yield of outrageously high 31.00%. Caution: The fund pays only at year end which includes capital gains which makes it unreliable.

6. Templeton Emerging Markets Fund EMF operates as a closed-end investment company. It primarily invests in equity securities. They claim to pay dividend of $5.25/share and yield of outrageously high 30.50%. Caution: The fund pays only at year end which includes capital gains which makes it unreliable.

Conclusion: Some stocks look to be yielding outrageous numbers. They are attention grabbers. But are they genuine ? Maybe, maybe not. Not all high yielding stocks are bad. Again i urge my readers to read read and read...do you own research before jumping into any such high yield stock.

Recommendation: As a rule of thumb, always always check the number of payments made out by these high yield stocks. Ensure the dividend payment is consistent. Also make sure that the payment doesnt rely on capital gains. And finally make sure that the yield is calculated correctly from whichever source you use to monitor such stocks.

Investing Made Easy - Monthly Indicator

Stock market can be a confusing place most of the times. Wouldn't it be nice if we had some rock solid indicator to show us the way ? How about a S&P 500 monthly market indicator showing past 6 decades ?

The chart indicates green for 10 of the 12 months, the month of December being the best. The month of September has been disasterous and i would definitely keep away during that period. Interestingly the month of October has a pretty good upward jump.

Conclusion: Seasonal tendencies in the market are always good to be aware of. The month of February has started positive. However if the chart holds true, we might see some drop towards the end of the month.

Recommendation: Historical data over such a large period of time can be a helpful indicator for future trends. This being the month of February, as per the chart trade cautiously.

Source: Ticker Sense

Should We Trust These Analysts ?

According to Investopedia

Analysts are typically employed by brokerage firms, investment advisors, or mutual funds. Analysts do the grunt work for brokers, preparing the research that brokers use. Analysts usually specialize in specific industries or sectors.

I personally rely on analyst recommendations as one of the factors deciding buying or selling of stocks. Analysts are in a much better position to make a judgement about the stock than you and me. They go through alot of financial reports and indicators which passive investors dont even want to know. However one important question everyone should always always try to find out is Why ? Why are analysts giving buy or sell signals. Good analysts will always give you a satisfactory explanation and back their recommendation by giving you their sources.

That said, what are analysts overall recommending in 2007 ?
A research shows that the analysts are not too bullish in 2007. The overall buy recommendation as a percent of all recommendations is at its all time low over 10 years. This is scary isnt it ? Does that mean it is time to sell off ? Probably not. Infact as a rule of thumb, when the herd is in agreement on the market's direction, the opposite usually occurs.

Recommendations: Dont let some indicators scare you. Again the key is research. Try and understand why the analysts are bullish or bearish about the stock. If you find their reasoning satisfactory, only then bet accordingly.

Watch and Learn

Buying a house can be a painful process sometimes. Prices always go up is a myth. Do a thorough research before taking the big decision.

Watch this clip to understand what interest-only loan is....

Economic Indicators: Few interesting numbers...

Stock market investors are always closely looking at the economics indicators to decide between buying or selling a stock. Yesterday the Feds decided to keep the interest rate at 5.25%. Had there been any change in the numbers, the stock market would have crashed, the obvious reason being that most of the company's earnings would go down if the interest rate increased. However that was not the case and Feds came out saying they wont increase the interest rate and the inflation is under control. This news resulted in a bull market. Lets look into some numbers which might give us some clue as to where the stock market is going.

1. The U.S. economy surged forward with a surprising 3.5% growth rate in Q4 2006. GDP growth was 2% in Q3, and analyst had estimated 3% Q4 growth. That means the growth rate was more than anticipated. Good for stock market !!
2. Consumer prices fell 0.8% in Q4 which makes it their first drop in 45 years.
   
3. Disposable income was up 5.4%, and personal savings were up to -1% from -1.2%. That means Americans had more money to spend !! Again good for stock market !!
4. Consumer spending was up from 2.8% to 4.4%. Again good for stock market.
5. Residential investments were down 19.2%. This is bad for the housing market and housing stocks.
6. Exports were up 10%, and imports were down 3.2%. This is excellent news. That means we are producing more and catering to world markets.
7. Government spending was up 3.7% including a 11.9% rise in defense spending, the biggest jump since the war began. This is not good for the economy as a whole, though its good for defense stocks.

Conclusion: Some numbers were positive and some were negative. However overall the economic indicators look good and we are looking at a good year ahead. Keep a close watch at the interest rates and inflation to understand where the U.S. economy and stock markets is heading.