The Market Chat

Top Market News

2007-12-06T10:41:00.000-08:00

Wednesday, June 11, 2008
Fed May Have To Raise Interest Rates

*New Article*

The value of the dollar? Who care?! Let’s keep lowering the interest rate! Keep lowering! Not low enough! More! Inflation? Oh, don’t worry; we’ll talk care of that later. For the past 9 months, it seemed as if that was what the Federal Reserve was thinking and nothing more. Inflation wasn’t much of a problem last November – but now, it’s a whole different ball game. Read More . . .

Monday, June 9, 2008
Investors Take A Bite Out Of Apple

*New Article*

Apple Inc. finally revealed one of their most prized toys – the 3G iPhone, due to be released on July 11, 2008. Most would think that this type of announcement would drive up Apple stock to an all time high – above $200 per share, but it did exactly the opposite. Apple stock dropped nearly 5% to $175 before bouncing to close down 2.2%. Why such selling? Read More . . .

Other Market News
• Bloodbaths in Global Markets
• Federal Reserve Comes Too Late
• An Important Week On Wall Street
• Black Gold Hits a Record High
• Investment Banks To Announce 4th Quarter Earnings
• Federal Reserve Cuts Interest Rates By 0.25%; Market Tumbles 300 Points
• UBS Forced To Write Down $10 Billion
• Positive Economic News Fuels U.S. Markets
• Rollercoaster Ride Continues
• Citigroup Gets A Life Saver
• How Far Can The Housing Market Take Us?
• Robust Start To The Holidays
• U.S. Market Takes Another Major Hit
• Another 360 Point Plunge

>> More Market News

Investment Research

2007-12-06T10:00:00.000-08:00

Thursday, December 7, 2007
Huge Setback For Genentech Inc.

Yesterday, the Food and Drug Administration (FDA) rejected the biotech giant’s new breast cancer treatment product called Avastin. The vote came 5-4, with the majority of the committee agreeing that Avastin carried more risks than benefits for women with advanced breast cancer. Read More . . .

More Investment Research Articles
• Gold Analysis
• Forecasting Blackstone's Future
• Fidelity China Region (FHKCX)
• Fidelity Growth Discovery (FDSVX)
• Fidelity Emerging Markets (FEMKX)
• To Buy Or Not To Buy: The Genentech Inc. Case
• To Buy Or Not To Buy: The Blackstone Group Case
• Stocks to Watch (I)
• Stocks to Watch (II)

>> More Investment Research Articles

Focusing On Education

2007-12-06T09:00:00.000-08:00

Tuesday, December 4, 2007
401K - What's That?

Believe it or not, many people do not know what a 401K plan is or what it does. I am here to explain it to you: Read More . . .

Other Education Articles
• The Beginner's Guide to Investing: Mutual Funds (Part I)
• The Beginner's Guide to Investing: Mutual Funds (Part II)
• Introduction to Fidelity Investments
• Index Funds: Your Guards Against A Volatile Market
• The Safest Way To Invest
• Common Financial Terms

>> More Education Articles

Currency Exchange

2007-12-06T08:59:00.000-08:00

Wednesday, December 12th, 2007
$1 U.S. Dollar is worth . . .

USD to JPY = ¥ 112.18
USD to CNY = ¥ 7.3780
USD to HKD = $ 7.7997
USD to EUR = € 0.6799
USD to GBP = £ 0.4885

Fed May Have To Raise Interest Rates

2007-12-06T08:11:00.000-08:00

The value of the dollar? Who care?! Let’s keep lowering the interest rate! Keep lowering! Not low enough! More! Inflation? Oh, don’t worry; we’ll talk care of that later. For the past 9 months, it seemed as if that was what the Federal Reserve was thinking and nothing more. Inflation wasn’t much of a problem last November – but now, it’s a whole different ball game.

I understand that it was crucial to lower the key interest rate after the subprime mortgage was not improving. In fact, I supported most of the interest rate cuts. I also understand that Federal Reserve chairman, Ben Bernanke, wanted to stabilize the financial market so that major banks won’t all topple (notice how I said “won’t all” – Oh, poor Bear Stearns). However, I also dissented from continuous cuts throughout the first quarter in 2008 (see article, Federal Reserve Cuts Interest Rates By 0.25%; Market Tumbles 300 Points) and my main reason for objecting from such continuous cuts is a little bug called Inflation.

With light sweet crude oil at record high, currently $135 and some change, consumers are feeling the pain at gas stations around the nation. Here in California, we are one penny away from the average Regular gas costing $4.50 a gallon. Meanwhile, food is also beginning to rise in cost – especially corn and rice. For those who live in Los Angeles, have you noticed how easy it is to get seating at many restaurants during lunch and dinner where one year ago, they would have been packed? Wonder why? People are beginning to really shut their wallets in all directions – and that spells catastrophe for the economy for months to come. Consumer spending contributes to roughly two-thirds of the overall economy! Two-thirds!

The Federal Reserve now understands the significance in 1) stabilizing the US Dollar, 2) combating inflation and at the same time 3) keep the markets from tanking. And here is exactly the hard part: How to combat inflation while keeping markets afloat? The question seems almost impossible to answer. One key way to stabilize the Dollar and combat inflation is to raise key interest rates; but that would almost certainly cause a rollercoaster ride throughout the markets around the world. Raising interest rates now would almost wipe out the significance of lowering the rate down to 2% in the first place.

And here is another funny thing: Wall Street almost behaves like an erratic, mischievous child. One day they want lowering of interest rates and disregarded the damaging consequences on the currency and the very next, they are fearful of increasing inflation. This almost sounds ludicrous that we even have to go down that road – but we have and we must find a way out.

Conclusion: I support a no change or a slight increase (0.25%, depending on how bad inflation has increased) at the next Fed meeting. I strongly believe that in order for consumers to start spending, a simple rebate check isn’t going to do. I don’t know about you, but my rebate check won’t even cover a month’s worth of gasoline (Regular grade at that!) The stimulus will evaporate within the high energy and commodity costs, not in luxury goods such as brand name bags, shoes or shirts. I believe it is time to forget about making Wall Street happy and time to focus on reviving the US economy. The market will take care of itself. The Federal Reserve needs to be very careful of its actions during the next meeting for its decision and action will either steer us down a world of hurt or perhaps, just perhaps, allow us to breathe a sigh of relief and see a glimmer of hope.

Investors Take A Bite Out Of Apple

2007-12-06T08:10:00.000-08:00

Here is my reasoning:

For once, Apple’s CEO Steve Jobs usually likes to pull rabbits out of his top hat, surprising investors and consumers alike with a spectacular “closer” at his conferences. Problem this time, there was no spectacular closer! Jobs announced what was expected – the release of the Apple 3G iPhone. Many investors saw this and thought that the stock may be overvalued.

Secondly, Apple slashed prices dramatically, selling the 8G iPhone for only $199 and 16G for $299 – much cheaper than the original iPhone that sold for $399 and $599 respectively. This may spark a slew of hate mails from loyal Apple consumers for they probably feel right now as some of my friends do, that they got ripped off. This is true; however, as Jobs puts it, “this is how the technology world works.” I personally believe that this price slash is a good thing for Apple; mainly because it will drive up sales, thus net revenue. Jobs said that the company did a survey to those who have not purchased the iPhone and was asked why, and their reply was that it cost too much. This way, with the price starting at just $199, competing against the likes of the Blackberry Curve, expect lines wrapping around a few blocks on opening release day, July 11^th. I strongly believe that Apple’s stock will reflect this increase in net revenue in the quarters to come.

Thirdly, many investors and consumers were hoping that Jobs has the usual trick up his sleeves, such as the rumored video conference function. This was not introduced on this particular phone. However, on the plus side, GPS will be included on the phone.

The fact that so many uncertainties, including the fact that Apple may not even have the 3G ready today was a huge factor as to why the stock fell so much in mid day trading. Once the news was out that the 3G had, indeed, been introduced and was set to be released on July 11 across the globe, the stock gained some ground again.

Do I recommend buying Apple? I believe that the company is set to be successful for years to come – however, I’m not focusing on the iPhone as its main generation of cash. Remember, Apple is a computer company, meaning that we should focus on its computers – most notably the Mac Pro, iMac and Mac Books. The company’s main source of revenue comes from how successful they can sell computers. Next comes the infamous iPod – ranging from the iPod Touch to the Nano – these music gadgets are the next cash generating products. Finally, the iPhone comes into view. So, being a long term investor, I would focus on Apple’s main product – computers, and decide if they will continue to expand and beat expectations over time.

**Writer has long position in Apple Inc.

Bloodbaths in Global Markets

2007-12-06T08:09:00.000-08:00

While the US market was closed throughout the weekend and Martin Luther King’s Holiday, the Asian and European markets were trading at full pace – a full selling pace. Widespread panic spread throughout the markets as investors sold continuously – fearing the U.S. economy, the largest and most robust in the world, may be slipping into a recession.

The Japanese market, Nikkei 225 Index plunged 3.9% on Sunday (US EST) followed by a more dramatic 5.7% decline on Monday. This 2 day fall, with a combined 9.8% drop, is the worst two day fall in 17 years, according to Mood’s Economy.com. The market in India got so bad that it had to temporary halt trading. India’s market had opened 10% lower that the previous close. Hong Kong’s Hang Seng took to the worst hit out of all Asian markets, falling more than 5% on Sunday and 8.7% on Monday for a combined 14% over two days. Even in Shanghai, where the stock market has been almost on auto-rise, fell 7% Monday, putting the Shanghai Index down 13% Year-to-Date. The Chinese markets are closed to foreigners, therefore, investors in Mainland China selling at accelerating paces mean that the US subprime mess has clearly influenced and infiltrated global markets.

European markets faired slightly better, although they too, took a massive hit. The German market was coming off a 7.2% decline on Sunday and was down 0.9% on Monday. The French Index had fallen 6.8% on Sunday before climbing slightly in positive territory on Monday.

Conclusion: What does this all mean? With the world becoming more and more dependant on each other on terms of globalization, the world’s markets will also reflect each other’s losses and gains. The past two day is a perfect example of just how ‘connected’ the global economy has gotten and perhaps, even more so, a perfect example of how volatile a market may become in just a few hours. For the most part, President Bush’s $150 billion dollar tax relief did not sit well with foreign investors – and on top of that, the massive write downs from US banks and foreign banks gave investors the indication that things are not going in the right direction. Will the recent interest rate cut help? I certainly hope so, but there is go guarantees. With the market, there is never a guarantee. I do see Asian and European markets calming down a little and digest everything that has happened in the past two days along with today’s interest rate cut in the United States. I do see the foreign markets fairing in positive territory for tomorrow, but how long that may last is the ultimate question.

Federal Reserve Comes Too Late

2007-12-06T08:08:00.000-08:00

It came, in my opinion, a little too late. The Federal Reserve called an emergency video conference last night and confirmed this morning of a 0.75% interest rate cut in hopes to boost the US economy and recent market turmoil.

However, despite the Federal Reserve’s desperate move, the Dow Jones plunged 465 points on the open while finishing down 120 points in the afternoon. This was, by no means, what the Federal Reserve or Washington expected after President Bush’s $150 billion dollar tax relief and the recent emergency interest rate cut.

Currently the Federal funds rate stands at 3.5% - a 0.75% cut from 4.25%. This should allow consumers to be more confident in making loans or in other borrowing situations. The recent interest rate reduction was the first of its kind (emergency and between Fed meetings) since September 11th, 2001. The Federal Reserve also announced that further cuts are likely to occur – signaling a possible 0.25% cut next week.

I was originally opposed to any further interest rate cuts; however, with the recent market conditions (i.e. Inflation rates, recession possibilities, and energy prices) it seems that the only way to temporarily boost the market and consumer confidence is to lower interest rate. However, I am concerned as to when this artificial lower interest rate will end? Having these very low interest rates will not be helpful in the long run. The Federal Reserve must end up raising the rate sometime in the future – and when that does happen, will that trigger a massive sell off similar to today? I agree that an interest rate cut will help the market, but that is in the short run – what about the long run?

Conclusion: Keep cash! I cannot stress how important it is to hold onto cash right now. The market is a rollercoaster ride without tracks and brakes – sounds bad huh? Well, it can get much worse. As you can see, the market was down only 120 points with a Fed Interest rate cut. Can you imagine if the Fed did nothing? Today would have been a bloodbath on Wall Street – perhaps down even 600-700 points! My advice is to keep what you have invested, do not sell or buy. Keep whatever leftover cash in money markets or fixed income. That way, a recession or stock market crash will not harm your cash and savings.

An Important Week on Wall Street

2007-12-06T08:05:00.000-08:00

This week will be the first important week of 2008 for investors as large companies are revealing their fourth quarter earnings. The list is quite long, but notables are Citigroup (C), JP Morgan Chase (JPM), Merrill Lynch & Co (MER) and General Electric (GE). What does the 3 out of the 4 companies have in common? Wait? Could they be? All large U.S. investment banks? That is right; the time has come for the world to see, once again, just how bad the financial industry has been hit from the subprime mortgage crisis nearly 8 months ago.

Last week, one of the worries that investors’ have had over several months has been soothed. Bank of America announced last week that it will purchase Countrywide Financial for $4.1 billion. This allowed investors to finally close the books on the troubled home lender. Bank of America came to the rescue after dumping close to $2 billion several months ago to help the company.

Wall Street analysts are predicting a huge write down from both Citigroup and Merrill Lynch. Both large US banks have been exposed to the troubled subprime market last year and the consequences are showing, quite dramatically. Citigroup may end up writing down as much as $24 billion and Merrill Lynch is expected to write down anywhere form $12-$15 billion. Although these numbers seem devastating, both firms have already been negotiating with foreign investment corporations for capital fusion. Citigroup may look, once again, to the Saudi Prince, Prince Alwaleed bin Talal. Prince Alwaleed had helped Citigroup in the early 1990s and may do so again. Rumors of the Development Bank of China getting a piece of Citigroup also circulated. Citigroup is looking for roughly $15 billion from various investment groups. Merrill Lynch is seeking roughly $5 billion and may get that from Kuwait Investment Authority.

So what does this all mean? Not to jump ahead, but everyone knows that the financials will produce fairly poor earnings – it’s not a surprise anymore! I find that this may be the opportune time for investors – especially long term investors – to look into investing in one of these large companies. Why? Because they are a solid company that will no doubt regain strength as time goes on. The price of Citigroup’s stock has dropped over 50% since August of 2007. Merrill Lynch’s stock has dropped 45%. Both of these firms will rebound in the future and I believe it’s a perfect time to invest in them.

Will this automatically mean that the financials are safe and everything will be good to go? No, absolutely not. The market is still very volatile – it may jump several hundred points on 1 good news or drop several hundred points on 1 bad news. I still believe investing in a solid company in which you know you will continue to hold for years to come. If you are satisfied with your portfolio now, don’t feel that you must invest now to take the opportunities of cheap stock prices. If anything, having loaded cash is always a great weapon against volatile markets.

Conclusion: Look for this week to but a rollercoaster ride. I hope that it will be a rollercoaster ride upwards – but it may very well turn ugly. If you have cash and are hesitant in putting it into the market – that’s fine. Like I said above, having cash is never a bad thing – as long as you’re willing to invest in the near future. I believe the financials will get healthier by end of 2nd quarter. Look for Citigroup’s stock to rise by June 2008.

What To Look For And Expect In 2008

2007-12-06T08:04:00.000-08:00

It seems that everywhere I read (with regards to financial news), the word “recession” always pops up. Is the United States truly entering a recession? Or is the United States already in a recession? The latter is debatable; however the answer to the first question is looming closer and closer to becoming true.

For 2008, I still expect stocks to do better than bonds and other securities. I still firmly stand on my belief that we are not going to be entering a recession. The Federal Reserve is trying its best to keep inflation in check while juggling the interest rate. I believe that they will eventually find a balance and that investors will agree with the Fed’s actions.

Will U.S. banks and investment firms continue to write down billions upon billions of dollars? Yes, most likely – however, don’t fret as the numbers shouldn’t be as large as the last two quarters of 2007. Furthermore, we are beginning to see just how hungry Asian investment companies are becoming as they have already taken large chunks of US banks while providing capital support. Middle Eastern investment companies are also eyeing a cheap catch of US firms. This trend will continue as US firms continue to beg for more capital at least throughout the first 2 quarters of 2008. I see this as a positive sign in the long run, for foreign investment companies will not so easily see their investment evaporate within the US firms; therefore, providing pressure on top executives from all major US firms to perform respectably well into the future.

What to look for in 2008?
Well, I would look at the financial sector first. The financial sector has taken several large hits throughout the latter half of 2007. Most investment firms other than Goldman Sachs (GS) have suffered at least a 35%-40% loss. I believe that financial companies such as Citigroup (C), Merrill Lynch & Co. (MER) and Bear Sterns Companies (BSC) are good buys for long term investments.

Other financial firms that have direct relationships to the housing markets such as Countrywide financial Corporation (CFC) may seem very tempting to invest in because of the incredibly cheap price; however, I say to still keep a careful watch on it and not jump into purchasing the stock just because it’s cheap.

Look for the energy sector and technology to get a boost in 2008. The world is becoming more and more energy efficient, thus solar companies and other “green” manufacturing companies may fair quite well in the long run. This leads to technology; technology will bring energy efficient products into the market, therefore the technology sector should see growth for years to come. While in the topic of technology, Apple Inc. (APPL) and Google (GOOG) should continue to climb. Apple’s never-ending success with their iPods, iPhones and Macs will surely send the stock above $250 by 3rd quarter 2008.

For those who are looking to purchasing a new home, the end of 2nd quarter in 2008 may be the perfect time to buy a home. The real estate market is at record lows, thus if you have good credit and are looking to purchasing a home, 2008 would be a great opportunity. Remember: Buying a home is like making an investment; you must do all your research before committing to your purchase!

What to expect in 2008?
Expect continual market volatility – at least through the first two quarters of 2008. I believe that stocks will continue to fluctuate before and after the Federal Reserve’s meetings in the end of January and mid-February. Will they cut rates? I believe yes, but by how much is the bigger question. Last month, December 2007 – we saw that the market was, overall, displeased at a small cut of 0.25%; many were hoping for a bolder 0.50% cut. Similar reactions are to follow in the upcoming months if the cut is only what Wall Street had anticipated.

Also, expect financials to make a rebound towards the middle of the 2nd quarter. I believe that since the financial sector has been bled to death, many investors will find value investments within the sector. Like I have said before, Merrill Lynch, Citigroup and Bear Stearns have all suffered a combined 45%-50% loss since their record highs of last year; expect the financial sector to fair much better in 2008.

And finally, expect many analysts and newspapers to scream the words: “inflation,” “recession,” and “market crash.” Are those words important? Yes. However, the main point is that you keep a balanced portfolio and stay within your asset allocation. Maintain focused on your investment goals and disregard all the “noise” that’s behind the scenes. Don’t get me wrong, it is important to read what analysts and saying and how the market is faring, but do not get so caught up with anxiety that you either 1) sell too quickly or 2) buy too quickly. Remember: You are investing for the long run – not gambling for tomorrow.

Happy New Year and I wish everyone the very best for 2008!

Black Gold Hits A Record High

2007-12-06T08:03:00.000-08:00

As if rising risks of inflation and the U.S. economy sinking into a recession wasn’t enough to make investors worry, oil prices surely made some noise early in the New Year. Crude oil hit a record high early today at a $100 a barrel on supply concerns throughout the world.

Many developing nations such as China and India have drained much of the oil supply and do not look like they would slow down. Last year, the surging demand from developing nations to acquire oil for production caused oil prices to skyrocket – now it is getting worse. Additionally, the constant tensions in the Middle East and parts of Africa where much of the world’s oil is tapped have caused further increases in oil prices.

Some analysts say, however, that today’s price at $100 per barrel of oil was driven by market speculation. This is to say that many investors who are betting that oil will climb higher and higher in 2008 have made their trades today, thus sending the price of oil to a record high. Expect oil prices to drop throughout the week and hover around the $92 range.

Conclusion: Should you invest in oil now? Probably not. If you were smart, you would have invested in oil 2 years ago and kept it for a long term gain. The market has already overbought oil in my opinion and prices will only go down from this $100 record. Will oil climb past $100 throughout 2008? Most likely yes, but it will fall below that mark as well, depending on the economy. I believe that oil does not seem like a profitable investment in the long run for now.

Investment Banks To Announce 4th Quarter Earnings

2007-12-06T08:02:00.000-08:00

With all the market uncertainty and volatility, many investors turn to three things to determine whether or not the US economy is truly spinning downwards: Economic data, consumer spending reports and the financial sector.

The financial sector is once again under scrutiny for all the major US investment banks are announcing their 4th quarter earnings this week. Goldman Sachs Group Inc. (GS) reported a $3.17 billion profit this morning – beating estimates. Wall Street projections were quite low for the bank which momentarily calmed investor fears of a troubled financial sector. However, many more banks are set to announce their gains and losses – and it looks like more gains than losses are to come. Lehman Brothers Holding (LEH) is set to report today and has already announced a fourth quarter profit decline of 12 percent. Morgan Stanley (MS) will post their results tomorrow following by Bear Stearns Co. (BSC) on Thursday. Most of these banks are expecting to post losses; however, how much in losses is the big question.

I strongly believe that the financial sector will slowly become healthier in the first two quarters of 2008. It is true that many banks will have to underwrite much more money, but the fact is that banks are cleaning up their balance sheet, restructuring their risk management and looking towards building a better financial sector in the market.

With that in mind, I believe banks such as Citigroup (C) is becoming quite attractive as a buy. Down almost 45% for the year, the bank is becoming more and more undervalued. The likelihood of Citigroup breaking apart or declaring bankruptcy is probably not going to happen, therefore, now may be a good time to pick up a piece of Citigroup.

Conclusion: The financial sector must become healthier before the market turns around for good. So, with that said, it will probably be the latter of the second quarter in 2008 for that to happen. Meanwhile, if you have not purchased a financial stock and are looking to fill up your portfolio with some financials, than look to Citigroup, Morgan Stanley, Merrill Lynch (MS) or Bear Stearns. All these firms have suffered a 35%-40% loss for the year. However, take caution when investing financials now, for there may be setbacks for the next year. Remember: investing is a slow process in which the investor must learn to be content with adequate returns.

Federal Reserve Cuts Interest Rates By 0.25%; Market Tumbles 300 Points

2007-12-06T08:01:00.000-08:00

The Federal Reserve announced today that it has cut interest rates for the third time in a row – lowering it a quarter percentage point from 4.50% to 4.25%. Many investors were already expecting the Federal Reserve to cut the interest rate by that amount, however, some were hoping for a bolder, half percentage-point move. Fed Chairman Bernanke announced that the government is trying its best to keep the US economy out of a recession, therefore, not cutting the interest rate by a half percentage point. The decision for a quarter point reduction was 9-1 with president of the Federal Reserve Bank of Boston, Eric Rosengren, being the only person who favored a half percentage point cut.

Along with the key interest rate cut, the Federal Reserve reduced its discount rate – which is the interest it charges to banks for direct transactions. The discount rate is now at 4.75% from 5.00%. This will encourage banks to borrow more money to help counterbalance the bad loans banks are getting hit by.

The Dow Jones Industrial Average took a beating today as investors sold frantically, sending the index down nearly 300 points. This reaction can be explained by investors unhappy about the quarter percentage cut. Because Wall Street already expected such a cut, anything less or at the same level would be a disappointment. Today’s market fall erased all of the gain since the previous week where investors began pricing the market.

Conclusion: I am in support of this minor interest rate cut over a bolder cut. In actuality, I would rather see no interest rate cut at all versus a cut. I still believe that the US economy has risks slipping into a recession, but more importantly, the consumers would see a weakening dollar and the significant risk of inflation. I do agree that the interest rate cut and the discount rate cut would help boost borrowing amongst companies and banks, however, the deflating dollar can lower consumer spending, therefore dragging down the US economy. We can only safely lower interest rates when economic reports show that the risks of inflation and a recession are well below 25%. In the recent months, it has been hovering around 50%.

UBS Forced To Write Down $10 Billion

2007-12-06T01:01:00.000-08:00

During mid-October when large investment banks such as Merrill Lynch (MER), Goldman Sachs (GS), Lehman Brothers (LEH), Bear Stearns (BSC) and Citigroup (C) all reported there poor third quarter earnings and at the same time, announced the billions of dollars they were writing down from subprime losses, I couldn’t help but wonder, where did the Union Bank of Switzerland (UBS) stand? UBS is one of the world’s largest banks and surely, I thought, they must have made some bad bets on subprime mortgages – but how come I haven’t read any news regarding their write down? Were the bank’s top executives that good that they steered the bank away from subprime mortgages? They must be amazing, I thought – amidst all this financial turmoil and UBS hadn’t written down a penny?

Turns out they did. But not much. UBS managed to only write down a little less than $1 billion dollars. But at the same time the Swiss Bank downgrade the value of some of its assets by more than $3.4 billion.

Now, with fourth quarter close looming, analysts and investors are already expecting large global banks to report further write downs. Most analysts expect anywhere from a $5-$10 billion write down from each bank – which may indeed, lead to another significant hit in the already hurting financial sector.

The subprime mortgage and credit crisis claimed its first official victim today, in terms of 4th quarter earnings, as the Union Bank of Switzerland announced that the Swiss Bank will be forced to write down $10 billion from subprime losses in the upcoming months. Last month, UBS executives had predicted a profit for the 4th quarter despite many analysts citing that its subprime holdings may prevent from such optimism. This, of course, puts UBS Chief Financial Officer, Marco Suter, in the hot seat. Recently, UBS Chief Executive Officer, Peter Wuffli had already stepped down.

Help is on the way, however; UBS also announced that it would sell $11.5 billion in shares to Government of Singapore Investment Corporation as well as another significant amount to an unidentified Middle-Eastern investor. I believe that we will continue to see the trend where foreign investors and investment companies will take chances in buying a large stake in large banks during this opportune time. Just last month, Citigroup Inc. took a $7.5 billion investment from Abu Dhabi Investment Authority in exchange for a 4.9% stake in Citigroup's equity. (See here for more.)

Conclusion: With UBS coming out first, announcing its official write down, investors should take this as a warning that 1st quarter 2008 may still very well be a volatile market environment. I strongly believe that we will receive news of US banks, such as Merrill Lynch, Citigroup and others with regards to there write down predictions. This will probably send the market downwards for a little while because investors and governments tend to use the financial sector as a guideline to how the economy is performing. Don’t be surprised to see a few hundred point drops and rises throughout the 1st quarter. I still believe that the financials may not be a wise place to be invested in; however, if you’re a long term investor, now through the 1st quarter may a good time to pick up a few financial firms at an attractive price.

Huge Setback For Genentech Inc.

2007-12-06T01:00:00.000-08:00

Yesterday, December 6th, the Food and Drug Administration (FDA) rejected the biotech giant’s new breast cancer treatment product called Avastin. The vote came 5-4, with the majority of the committee agreeing that Avastin carried more risks than benefits for women with advanced breast cancer.

As a result, share plunged $6.71 (-8.4%) Wednesday before the stock closed trading. Today, Genentech stock faired a little better, up $1.92 (+2.88%) to close at $68.49. If you are already an investor, the rejection of Avastin by the FDA is bad – but not that bad. Genentech has 13 medicines on the market including Herceptin, a breast cancer treatment drug. Also keep in mind that Avastin has already been approved by the FDA for treating lung and colon cancer. In 2006, the drug accounted for roughly one-fifth of the company’s total sales – reaping in about $1.7 billion. Furthermore, don’t expect Genentech’s scientists and researchers to just stop pushing for Avastin’s treatment in breast cancer. The biotech company will continue to fight on until it wins over; and with just a 5-4 vote, it seems that the next time Genentech presents Avastin for breast cancer, it might just be enough for an approval from the FDA.

Some analysts say that this setback will keep Genentech’s stock relatively flat for most of 2008. I believe that if you already have positions in Genentech, then hold for now. This setback does not warrant a “sell” just yet. If the FDA rejects the drug again after its next trial – then I would seriously look to other biotech companies for investments. If you are just watching the stock, now if probably not a great time to buy Genentech. Although the company has a great product line, the FDA is becoming stricter with its drug guidelines. Look for other biotech companies to also run into similar issues as Genentech has.

Conclusion: The biotech industry has been squeezed by the FDA’s tightened regulations. This does not mean that the biotech industry can not be profitable – but be cautious that companies who produce products that need the government’s approval tend to be more unpredictable than other firms or sectors. Government regulations are always tough to pass, but when it does, stock may skyrocket.

Market Chat's Rating: 3

Positive Economic Data Fuels U.S. Markets

2007-12-05T17:01:00.000-08:00

Seeing green “plus” symbols next to the DJIA, S&P 500 and NASDAQ always brings a smile to my face – no matter how high the numbers are – a plus in a plus. Today’s major gain on US markets were mainly fueled my positive economic data – signaling that the chances of the US economy slipping into a recession has lessened, but not completely out of the picture. More importantly, the economic data showed that the overall economy is holding its own but isn’t so strong that warrants the Federal Reserve to keep the interest rates unchanged. **Funny how Wall Street wishes for positive economic data, but not too positive. The Dow Jones rose 196.23 points (+1.48%), following last week’s large advances.

Employment Services also reported that 189,000 jobs were added during the past month – perhaps the only good news stemming from last month’s dismal market performance.

Now, investors are greatly anticipating a Federal Reserve interest rate cut. Some are pushing for a half a percentage cut that would take us from 4.50% down to 4.00%. If this does happen, look for the market to shoot vertically for some 400 points. Others are looking at a more realistic quarter percentage cut that would take us from 4.50% to 4.25%. However, some analyst say that if the Fed only cuts a quarter percent, the market may not be content with the decision and in result, cause the market to perform more negative than positive.

Currently, I do see that today’s market drive-up was due to positive economic data, however, more importantly, I believe today’s drive-up was the result of investors “pricing the market.” Pricing the market means that because investors are expecting an interest rate cut from the Federal Reserve early next week, they are buying in as much as possible to take their chances on gaining huge on that day. Therefore, all the purchasing of securities drive up the prices. They are essentially pricing the market at a value which they believe is right and will wait until the decision from the Fed before acting to purchasing more or selling. Sometimes it does pay off while other times, it can lead to a financial doomsday.

Conclusion: I do expect that the Federal Reserve will cut interest rates again. How much? I say 0.25% - not the 0.50% that some are hoping for. However, I believe that the interest rate should not be lowered because lowering of interest rates will only devalue the dollar and cause the risk of inflation and a recession to rise up again. As for joining the investors for pricing the market, I am against that for no one can properly time the market. Can you imagine if the Fed somehow decided to keep the interest rates unchanged? The market would probably see a 300 point drop! And as a result, the money you were hoping to capture in the few hours just tanked! Never time the market and always stick to your investment strategy.

401K – What’s That?

2007-12-04T11:00:00.000-08:00

Believe it or not, many people do not know what a 401K plan is or what it does. I am here to explain it to you:

The Concept:
A 401K plan is a type of retirement plan offered in the United States that is between you (employee) and the company you work for (employer). The 401K allows you to put a certain amount of money away that stems from your salary into a retirement account and defer your income taxes on the saved amount until withdrawal.

Scenario:
Your annual salary is $50,000. Normally, you would be taxed on the total amount of your salary which is $50,000. This includes federal and state taxes. If you, say, put $10,000 annually, into your 401K plan – then your recognized annual income would be $40,000 instead of $50,000. Moreover, you would only be taxed for the $40,000 rather than the $50,000. This way, you will save money from taxes.

Another benefit to most employees about a 401K plan is that the employer will match a “X” amount of dollars up to a “Y” percentage.

Scenario:
Your annual salary is still $50,000. If your employer policy states that they will “match $0.50 to every dollar up to 10%” – then it means this:

Say, for example, you still put aside $10,000 out of $50,000 annually, for your 401K. Take 10% of $10,000 – which is $1,000. Your employer will pay “$0.50 to every dollar up to 10%,” which means that your employer will contribute $500 to your 401K if you put in $10,000 (because 10% of $10,000 is $1,000 and half of $1,000 is $500) into your 401K. So, automatically, instead of saving $10,000 annually for retirement, you will now save $10,500 annually, for your retirement because your employer contributed $500.

Rules on Tax:
401K plans are pre-tax; meaning that it is taken out of your salary before any taxes are calculated – both federal and state. Does that mean that 401Ks allow us to be tax-exempt? Not so fast. Once you reach the age of 59.5, then you will be eligible to take out your 401K retirement account. And when you do this, then taxes will apply to your total 401K amount.

“Wait?” You ask, “Wouldn’t this be the same if I hadn’t put any money in my 401K plan to begin with? You said it was pre-tax? I’m getting taxed now!”

Hold your horses. Yes, it is true that you are getting taxed, but because you will have retired, you would be in a completely different tax bracket. Allow me to explain. Originally, with a $50,000 salary, you would be taxed in the 25% tax bracket for federal taxes (assuming that you’re filing as a single household) plus state taxes – which can total roughly 28% - 28% of $50,000 is a lot of money! But when you take out your 401K at age 59.5, you will only be subject to a 20% federal tax and no state tax. Not only that, but the 28% tax on your salary is from every paycheck – therefore, over the years, it truly adds up; whereas the 20% 401K tax is just a one time tax on a total lump sum amount.

Where Does The Money Go?
Employers will generally give you a list of investment opportunities – mostly a combination of bond funds, mutual funds and company stock. The employees can then select from the different funds and decide how to allocate their 401K.

I urge everyone to first understand how mutual funds work and how they are beneficial to one's portfolio in my article, “The Beginner’s Guide To Investing: Mutual Funds” before randomly selecting funds into their 401K retirement account.

Gold Analysis

2007-11-29T14:34:00.001-08:00

I have found recently, that many people believe that gold is where you should be invested in and that everyone should therefore, “jump” into buying gold. I highly do not recommend this. Gold and other precious metals are great sectors to be invested in as an addition to your portfolio for precious metals, (which includes gold), tend to be less volatile and at the very least, keep its value through the years. However, jumping into the market now to buy gold as a safe haven for your investments is just plain stupidity. Below is a detailed gold analysis with the year and their respective prices:

Year/(US Dollar per ounce)
2000: $280.10
2001: $272.22
2002: $311.33
2003: $364.80
2004: $410.52
2005: $446.00
2006: $610.00
Average (2000-2006): $384.99

Month/(US Dollar per ounce)
July-2007: $665.00
August-2007: $645.00
September-2007: $730.00
October-2007: $750.00
November-2007: $841.75 *highest price thus far
Average (Aug-Nov): $726.35

Current Day/(US Dollar per ounce)
November 29, 2007: $794.50

As you can see, the price of gold shot up almost 4 times its price since the year 2000. Even last year (2006), gold was slightly above $600 per ounce. Recently, gold has been at its highest price ever – one should note that since the first wave of the subprime mortgage crisis (August 2007), gold has been driving up significantly, topping out at almost $850 per ounce early November 2007! Ridiculous indeed! As of today, November 29, 2007, gold is barely below $800, which is still considerably high.

Now, looking at the average is even more stunning. I calculated an average for the years 2000 to 2006 and came out with roughly $385 per ounce of gold. I then went ahead and completed an average beginning in the month of July-2007 (when the subprime mortgage crisis started) to the current month, November-2007. The average of those 5 months came out to be an almost whopping $800 per ounce of gold – more than twice the average price of gold in the past 7 years!

Conclusion: From this analysis, we can conclude that gold is currently overpriced right now and will probably stay overpriced until the market returns to a more stable state. As an intelligent investor, you must not “jump” into any sector just because it is publicized as the “safe” place to be. Quite honestly, there is no 100% “safe” place to be when you are invested; even bonds drop at times. As for gold and other precious metals, they can be strong sectors in your overall portfolio (as is has recently) but never overweight any sector just because it seems like the right thing to do in the short-term. Remember: Always think of your asset allocation and investment strategy before doing any adjustment to your portfolio.

Response To: Rollercoaster Ride Continues

2007-11-29T14:10:00.000-08:00

Yesterday, someone by the name of Paperwdangel commented on my article, “Rollercoaster Ride Continues” written on November 28, 2007. This is what Paperwdangel wrote:

Personally, I feel that a decrease in rates can really ruin the value of the dollar. He [Bernanke] should stop making those decisions. Either way, I would invest in gold now or put my money in European savings.

Also, I don't think putting your money in any funds would be a good idea for now, especially when new investors still have money at hand. Maybe you don't agree with me, but put money in a savings [account] now and later put it into funds. If your predictions are right, our economy is going to plunge into a possible recession. ::gasp!:: did I say the "r" word??!?!?

Paperwdangel, I completely agree with you. As I wrote in my article, “Another 360 Point Plunge” dated November 2, 2007, I am against another interest rate cut for I believe that investors are looking for another bail out by the Federal Reserve. Some may argue that the United States is not in great risk of inflation and a recession but the fact is, any risk at all provides the probability of both inflation and a recession from happening. The US market and economy is simply too volatile and fragile right now to make any bold adjustments – anything may set off a bear economy. As you mentioned, the value of the dollar is decreasing (although yesterday, the US Dollar traded mixed against other currencies). If another interest rate cut occurs, the value of the dollar will decrease yet again.

Paperwdangel, you also mentioned investing in gold or put money in European savings. I would like to address the recent notion that seems to have everyone rambling about that gold is a safe haven. This is an error (at least for a true long-term investor). If you are a short-term investor and wishes to seek short-term capital gain, then yes, gold is for you. Buying gold now is like jumping on a train whose final stop is only a few miles away. Point is, if you bought gold a year ago, then consider yourself to be very lucky and fortunate. Now that it is general knowledge that gold has faired well during the recent Dollar slump, everyone has gone to buy gold – and in turn, driving the price to ridiculous heights! To put this into perspective, I have dedicated another article on just gold entitled “Gold Analysis.” Please see that article for more information. Bottom line is: do not buy gold now, it is overpriced and will not give you adequate returns. What you can do if you still wish to purchase gold, however, is to buy mutual funds or ETFs that specialize in precious metals. That way, you will be buying silver, platinum, bronze, gold and many more. As for putting money in European savings, I think what you meant may be buying international bonds, such as European bonds. Buying European bonds may be a good way to shift your short-term capital into a strong currency that may continue to rise against the US Dollar.

When it comes to just saving and holding onto your money (cash), I cannot say I agree with you one hundred percent. Paperwdangel, you mentioned that you would recommend holding onto your cash and not investing it – however, it is during this time where savvy investors can make wise decisions and pick up volumes of undervalued stocks. It is always a risk to invest, no doubt, however, in the long-term, you are bound to generate adequate or even strong returns. Whether to keep cash or to be 100% invested will also depend on your personal asset allocation and investment strategy.

And lastly - just for clarification - I did not predict that the US economy will slip into a recession. I only predicted that the fore coming months will present volatile market conditions and uncertainty amongst investors. A recession is definitely a possibility – especially with further interest rate cutes, but I have confidence that the Federal Reserve, the overall US economy and investors will be able to ride our these tough times.

Rollercoaster Ride Continues

2007-11-28T15:55:00.000-08:00

Volatile? Yes, indeed. Can we say extreme? Quite so.

But “good” volatile for today, nevertheless. Today, the Dow Jones Industrial Average soared 331.01 points (+2.55%) and Wall Street spirits were high. The reason? Rumors that the Federal Reserve may lower interest rates again in their December 11th meeting prompted the market shoot up. Does this sound familiar?

Hmmmm . . . flashback oh . . . say . . . last month?

Spirits were always high for investors and Wall Street when rumors that the Federal Reserve will lower interest rates – same thing happened prior to September and similarly, October.

My take on this two day surge is still to be cautious – in fact, be very cautious. Surges in the markets such as these will fluctuate from day to day, simply because the surges are led on by rumors – not facts. Will the Federal Reserve truly lower rates? We don’t know; not one does. If, say, tomorrow, someone cautioned that Wall Street should not expect a rate change, then expect an immediate 300 point plunge! My point is this: Do not get hyped up on a single day’s activity. Many active investors see this as a sign that things are turning around – but surely they are not! Just today, Wells Fargo & Company announced that the bank will recognize a $1.4 billion loss in the 4th quarter. Even conservative banks, such as Wells Fargo, who usually keeps a good record of strong balance sheets, are feeling the effects of the credit crisis. Investors chose not to pay attention to the bad news and instead, focused on the hope of an interest rate cut.

Conclusion: If you have just rebalanced your portfolio in the past 3 months, no need to touch anything; just ride through this volatile time. If you have not rebalanced in the past 6 month, then this may be a chance for you to move some of your securities tied with stocks to perhaps something less risky, such as bonds. Is it necessary to hold onto to cash at this moment? Not necessarily. You may choose to put new investments in market indexes (such as ETFs) or bond mutual funds. But remember: Whatever your investment may be at this time, be sure that it fits your investment strategy and corresponds to your asset allocation.

Citigroup Gets A Life Saver

2007-11-27T15:16:00.000-08:00

After billions upon billions of write-downs, even the largest of banks need help.

And quick . . .

That is exactly what Citigroup (C) received from Abu Dhabi Investment Authority, a government investment company of United Arab Emirates. Abu Dhabi invested $7.5 billion US dollars in Citigroup which automatically gives them a 4.9% stake in the largest bank of the United States. This stake surpasses the 3.6% stake held by Saudi Prince Al Waleed bin Talal – then currently Citigroup’s largest shareholder.

This transaction drove Wall Street up 215 points (+1.69%) to finish at 12,958.44. Investors took this investment by the Abu Dhabi as a sign that other companies may help ease the pain and burden of Wall Street banks from the recent credit crisis. With Citigroup securing capital injection raises hope that other banks may be able to obtain similar type of investments.

But is all this good for the market? The United States economy? It certainly entertained the idea to investors that the market may be on its way back, but looking closely and you will see that this period of market turmoil is turning out to be a bargaining-fest. With so many large US financial companies taking hits, foreign investment companies are seeing a very tempting buy time. Abu Dhabi has an estimated $875 billion in assets according to Morgan Stanley – and may be looking at acquiring several stakes in other US companies. And don’t forget Asia; with Singapore, Hong Kong and China loaded on cash, they also may want a piece of the American Pie. If more and more foreign powers control pieces of US powerhouse firms, we may see direct foreign influence become more popular and carry more weight.

But the big question is: Will they inject capital into our market? I believe that they won’t – at least from Asia. Why? My reasoning is simple: the depleting value of the US Dollar. The dollar has been slipping slowly be surely throughout the past few months, with even the Canadian Dollar surpassing it. It is true however, that a lower dollar makes it more attractive to buy or invest in the United States; but for developing nations such as China, they need to make certain that their investments will eventually grow instead of decline. China recently announced that it will invest heavily in Japan and European countries – both which have strong currencies.

Conclusion: It is nice to know that foreign investment companies are looking into injecting capital into our large firms. For the time being, it is as good news as we’ll get for some time. I would be cautious, though, to see how foreign firms, such as Abu Dhabi, influence the decision making of Citigroup or any other company they choose to invest in. In the end, I don’t see too many foreign investment companies eagerly wanting a stake in US firms because the US Dollar is falling. Until the US economy stabilizes, many nations would want to keep their money in stronger investments.

How Far Down Can The Housing Market Take Us?

2007-11-26T15:30:00.000-08:00

Seeing as how the recent market disturbance has been caused primarily by the housing market, one would figure that it can’t get much worse. How can it? The Dow Jones Industrial Average has already fell 10% in the past month from mid-October, the S&P 500 is in the negative for the first time this year and credit worries continue to linger over Wall Street. But in reality - it could get much worse.

Earlier today, Citigroup downgraded their short-term forecasts on homebuilders, sending the home construction sector plummeting 6.6%. Along with them, financial firms such as Citigroup (C) and HSBC (HBC) sank as well. Citigroup announced that they were cutting costs to prevent an even larger than expected 4th quarter loss. Investors and Wall Street interpreted this as a sign of possible job cuts. Earlier in the year, Citigroup has already eliminated 5% of its workforce (roughly 17,000 jobs) right before the credit crisis. The nation’s largest bank, still without a CEO, is looking very unstable as more and more head executives have resigned in the recent months. Citigroup stock fell $1.00 (-3.2%) to close at $30.70 after dropping as low as $29.75 – its lowest since 2002.

HSBC, Europe’s largest bank, announced today that it will inject $35 billion into two of its funds – preventing liquidation and assuming full responsibility of the poor performing funds. The two funds have been invested into mortgage-backed securities. HSBC stock slid $2.20 (-2.60%) to close at $82.54.

Conclusion: So just how far down can the housing market take us? Pretty far! With the housing market unlikely to get back on its feet until late 2nd quarter of 2008, I expect that we will see a continuance of credit worries amongst the market. This translates into a weak financial sector – especially large banks such as Citigroup, Merrill Lynch and HSBC. Other home lenders such as Countrywide Financial (CFC) may also see additional hits. The truth is that we are not even half way through the recent subprime mortgage mess. I believe that as 2008 swings by, we will see more and more defaults from people who have just bought homes earlier this year (2007). The people who borrowed on adjustable interest rates will not see their rates be adjusted until next year. And we already know where that rate is going – straight up! As scary as it seems, the housing market will continue to slump and take the financial sector with it. Am I in fear of the economy heading towards a recession? No. Not until I see strong economic indications that proves to be so. However, I am cautious in investing in the financial sector. Many financial firms such as Merrill Lynch, Citigroup and Countrywide Financial are at their lowest in a decade – which is very tempting to buy. Beware, however, for the market is very volatile; any investment in the financial and housing sector right now seems very risky!

Robust Start To The Holidays

2007-11-25T12:20:00.000-08:00

With all the recent worries on Wall Street with regards to poor earning reports, a troubled financial sector and a foggy real estate market – there is finally something to be smiling about – temporarily, at least. The recent market turmoil seemed to have no impact on the shopping behaviors as nation’s largest retailers announced a robust start to the holiday season beginning with Black Friday (a shopping frenzy the day after Thanksgiving.) Total sales of just Friday, November 23, 2007, turned out to be about $10.3 billion compared to $9.5 billion from 2006; a rise of 8.3%. Analysts were only expecting no more than a rise of 4%-5% for Black Friday. Stores such as Wal Mart (WM), JC Penny (JCP) and Macy’s Inc (M) all expect to announce some sort of consumer spending report around December 6^th. Other stores may follow.

However, be cautious; just because the holiday season starts strong does not mean that the holiday season will end strong. Last season, Black Friday had generated great earnings, but many retailers struggled in December and New Years.

Will this have a positive impact on the market? So far, yes. I would not be surprised to see the US market be in the positive numbers for Monday. I believe that investors are trying to get a good indication as to whether consumers are still spending as much as they were last year when the economy was in good health. With Black Friday’s results, the indicator is a strong yes. However, what could be the most important consumer spending reports won’t be until after Christmas or New Years. I would also be interested in seeing first quarter reports from major retail stores for strong numbers from them may indicate that a recession will not occur.

Conclusion: Better than expected numbers are always a good sign. But let’s not get too caught up on just one day – we still have another month or so to go before we get a clearer picture to consumer spending. My forecast is that the market will still be quite volatile through December; but if stores are reporting positive growth in sales, we may still see a strong 4^th quarter push to end positive for the year.

Forecasting Blackstone's Future

2007-11-19T23:01:00.000-08:00

On November 12, 2007, The Blackstone Group (BX) announced a loss of 113.2 million for their 3rd quarter earnings. Along with the announcement, firm President and Chief Operating Officer Hamilton James said that the slumping private-equity market may not fully recover until major banks stabilize – that may turn out to be around mid May of 2008. Right after the announcement, Blackstone stock tumbled from $24.28 to $22.26 (-8.3%).

Even amid the recent bad news, I remain bullish on Blackstone. Most of the losses came from IPO related costs. Some analysts are forecasting earnings between $1-$2 billion per year for the private equity firm; however, CEO Stephen Schwarzman announced at a Merrill Lynch & Co (MER) banking conference that those estimates are “dramatically wrong” and low. Blackstone has already invested $6.9 billion last quarter alone through its private equity and real estate divisions. Schwarzman believes that theoretically, the firm can expect profits up to $8 billion.

Blackstone is also becoming very active in global investments, particularly in China and India. Many companies in China are looking for ways to expand abroad and have turned to the private equity giant for help. China has close ties to Blackstone after the Chinese government invested $3 billion in the firm. On Friday, Blackstone just announced that the firm is looking to invest more than $1 billion in India over the next two years. The firm is already ahead of its initial target of $1 billion over five years. Blackstone recently paid $65 million for a 26% stake in an Indian engineering firm, MTAR Technologies. The firm has completed several large investments this year in India, including $150 million in Nagarjuna Construction Co Ltd and $275 million in regional media firm Ushodaya Enterprises Ltd.

Conclusion: I strongly believe that Blackstone will recover from its recent slump since their IPO ($31 per share). The company stock is only performing poorly because of the recent subprime mortgage crisis and the underwriting announcements of all large Wall Street investment banks. Furthermore, I believe not only does the US market have an effect on Blackstone, but the global market as well. Asian and European markets have not faired well during the past few months – mostly due to the volatility of the US market; and these regions are of concern for the firm. Blackstone is aggressively expanding its investment horizon (as can be seen by the recent investments to India and China) and is looking for more areas where it believes can become profitable. Once the global markets become stable, Blackstone is sure to thrive. The company is run by intelligent individuals and continues to be quite active in its business.

Market Chat's Rating: 5

**Note: Author has positions in The Blackstone Group.

Better Safe Than Sorry

2007-11-14T10:39:00.000-08:00

One day down 360 points, another day up 319 points. Sounds familiar? The recent market rollercoaster may stick around for a while so get used to it! Many people ask me, “Is there a way to get around it? To actually not lose money in the market at this volatile time?” My answer is: Yes. Allow me to explain:

First, it is crucial that you understand that investing is supposed to be a financial discipline that allows you to generate adequate returns over time. Time and time again, I have urged investors to put away their excitement over day trading. Honestly, it’s highly over-rated and it’ll only set you up for financial failure. So, if you keep your investments as you have now, over time, it will eventually come out on top. Whether it be 3 months or 3 years, I don’t know, but in the end, you will end up making money rather than losing money. If you are trying to adjust to the market’s daily movement by buying and selling at a pace faster than a bee out of hell, then no, you will not come out on top and the likely hood of you losing most of your investments is greater than 90%.

So how exactly do you make money during this volatile time? I suggest everyone to at least use a portion of their portfolio, (say 20%-30%) to buy the market index. By market index, I mean the U.S. market – which consists of the Dow Jones, the S&P 500 and the NASDAQ. For each of those indexes, there is a specific Exchange Traded Fund (ETF) that parallels the index.

- DIA follows the Dow Jones
- SPY follows the S&P 500
- QQQQ follows the NASDAQ

During this time of uncertainty and heavy volatility, there is nothing better than simply buying the market. Can you lose? On a dollar to dollar aspect, yes – if the market drops; but when compared to any individual stock, the chances of that particular stock rising if the market is down is slim to none! So can you really lose? No. By buying the market, you will have already invested in possibly the safest niche in the stock market.

So should I move my money out of the indexes after the volatility ends? My answer again: No. One should always keep at least 2 indexes, if not more, in your portfolio, because in the end, the indexes will at least assure you of performing at market level. Yes, I know, not over-performing as everyone would like, but sure better than under-performing. Wouldn’t you say? There are many ETFs out there – some internationally, some by sector, others by strategy and size. At this time of market turmoil, I would strongly advise everyone to invest in the market indexes.

Like the old saying: Better safe than sorry.