Saturday, August 13, 2011

Six Simple Tips for Building your Emergency Fund

Five days before Christmas last year, the downstairs area of my house flooded with groundwater. While the experience wasn’t fun, we were fortunate in that it wasn’t a budget disaster.

Many of our neighbors asked us how we were we able to handle the $2,300 in costs that came with damages associated with the flood.

The answer: our emergency fund.

What Is an Emergency Fund?

One of the central tenets to good financial planning is preparing for the future, whatever it may bring. Therefore, an essential component of a solid financial plan is an emergency fund.

An emergency fund is designed to cover a financial shortfall when an unexpected expense crops up. Your emergency fund can serve as a place to get the money you need when you find yourself short. Because it must be reliable, it needs to hold guaranteed investments. In other words, savings accounts are good for emergency funds, while stocks are bad.

An emergency fund, by nature, also needs to hold liquid or otherwise short-term, accessible investments. Ideally, you won’t need to use the money in your emergency fund, and you will maintain it for the long-term. However, this creates an interesting conundrum: a long-term account holding short-term, low-interest bearing investments.

To get around this issue and enhance my return on investment, I like to divide emergency funds into two main categories:

  1. Your short-term emergency fund is your go-to place when you have an immediate emergency. It should be in an accessible account, which will probably bear little interest. The most important consideration is accessibility. You’ll want a debit card attached to this account and check-writing privileges as well. The purpose of your short-term emergency fund is for smaller emergencies, such as car repairs or replacing a major appliance that has broken. It can also be used as a bridge to get you through the few days until you can access your long-term emergency funds in case of a more extreme situation.
  2. A long-term emergency fund allows you to save for large-scale emergencies, such as job loss or a major natural disaster like an earthquake or fire, and earn a slightly higher level of interest. Accessibility is still important here, but it’s okay to choose investments that take a few days to liquidate – as long as you have a short-term emergency fund to cover you in the interim.

When you have an emergency fund, you have peace of mind. Your money is on guard, so to speak, just waiting to be called into action. You don’t have to scramble to come up with money you need and you don’t have to turn to credit cards. Even if your emergency fund isn’t big enough to handle everything, it can still help reduce the amount of money you must look for from friends and family, or credit cards.

What Makes for an Emergency?

It is important to realize that an emergency fund isn’t a slush fund for large entertainment and leisure purposes. A new big screen TV doesn’t qualify as an emergency, even if your old TV breaks down. (more)

Analysis of Financial Terrorism in America: Over 1 Million Deaths Annually, 62 Million People With Zero Net Worth, As the Economic Elite Make Off With

Abstract :: Welcome to World War III

Despite increasing personal financial hardship, most Americans remain unaware of the economic world war currently unfolding. An all-pervasive corporate and government propaganda campaign has effectively obscured this blatant reality. After extensive analysis, it is evident that World War III is a war between the richest one-tenth of one percent of the global population and 99.9 percent of humanity. Or, as I have called it, The Economic Elite Vs. The People. This war has been a one-sided attack thus far. However, as we have seen throughout the world in recent months, the people are beginning to fight back. The following report is a statistical analysis of the systemic economic attacks against the American people. (more)

Unbelievable: Higher Gas Prices Coming (TSO, VLO, CVX, XOM)

Come on now, after we just finally starting catching a break at the pump. Thus its time to take notice of big oil and the refiners. The Masters would recommend the best in the space with Valero Energy Corp. (NYSE:VLO), Tesoro Corp. (NYSE:TSO), Chevron Corp. (NYSE:CVX), and Exxon Mobil (NYSE:XOM) leading the pack.

Big oil always wins, why fight it? Just buy it and enjoy the ride., a website that tracks prices at the pump nationwide, issued a warning that motorists filling up their tanks may see an unpleasant surprise. GasBuddy is a very useful site, they help users find cheap gas prices in almost every U.S. city. In total click to visit) has 243 websites to help you find low gasoline prices. This isn't a plug for them, just passing along useful information for our readers.

Now is a good time to take a look at TSO, CVX, XOM, and VLO shares as they all have come down in the past two weeks thanks to the massive selloff. Since July 27th Valero is down 20% and Tesoro is down 18%. TSO is trading today around $20.45 and VLO is at $21.20.



Stock Funds to Post Biggest Withdrawals Ever

(TheStreet) -- U.S. stock mutual funds are forecast to set a new record for investor withdrawals in August as Americans recoil from the biggest equity-market slump in three years and the first-ever downgrade of Treasuries.

The prediction, from analyst Kevin McDevitt at mutual-fund tracker Morningstar, comes after July's $22.9 billion in outflows, the most since the peak of the credit crisis in October 2008, when investors pulled $28 billion from U.S. stock funds. "With August off to a very rocky start, this trend is sure to continue with deeper outflows to come."

Investors have withdrawn a net $200 billion from U.S. stock mutual funds over the past five years. Total fund industry assets peaked at $4 trillion in late 2007, but the subsequent stock-market crash a year later, the prolonged recession and last year's so-called flash crash have contributed to skittish investor behavior that has resulted in outflows of about $500 billion since the peak, according to Morningstar.

That's roughly equivalent to the assets of the seven largest U.S. mutual funds, a list that includes Pimco Total Return, SPDR S&P 500 ETF and Fidelity Contrafund.

Outflows in June and July came despite the fact that most diversified U.S. stock funds declined an average of only 6% in the three months through July, so it wasn't the market performance that drove them away.

"It's taken less and less to spook investors over the years," McDevitt said, and the prospect of the threat of the U.S. defaulting on its debts which began to gain credence at the end of July because Congress couldn't agree on a debt ceiling was enough for many of them to throw in the towel.

"Investors' tolerance for uncertainty and risk has really changed," he said, and most of the money that has been coming out of U.S. stock funds won't be coming back, he said.

In previous stampedes out of U.S. stock funds, investors slowly returned, but McDevitt said it could be different this time because there have been a series of "structural shocks" to the financial industry that are not cyclical in nature, as in previous downturns that came with a bear market or a technology-stock bubble as seen early this decade.

"The implications are serious" for the mutual fund industry, he said.

And those same investors don't put much trust in U.S. money market funds either -- usually the safe place to park cash -- which are down $223 billion this year. They are opting instead for bank savings accounts or certificates of deposit, despite the paltry rate of interest they pay, because of the safety and liquidity.

Still others are investing in U.S. Treasury and foreign bonds, while some with a higher tolerance for risk are investing in international equity funds.

Those investors eschewing money market funds, once considered one of the safest havens in a period of volatility, likely remember the liquidity crisis in the fall of 2008. At the time, some money market funds struggled to maintain their $1 net asset value.

The big winner this year has been taxable bond funds, which saw $102 billion in inflows through July, putting the sector on pace with last year's increase of $217 billion.

Is Canada immune to another US downturn?

“It is true that we are in excellent financial and fiscal shape if you compare us with any of our trading partners, but that doesn’t mean we are going to be exempt from any negative implications arising in the global economy,” says Queen’s University economics professor Tom Courchene.

Canadians are rightfully asking themselves whether the Canadian economy is headed for a cliff if the United States falls to recession so soon after the last one. Do we hit the rocks together, or is our safety net still holding?

While Prime Minister Stephen Harper and Finance Minister Jim Flaherty warn of tough times ahead, they also point to the last recession a few years ago and how Canada walked away with a few bruises but no broken bones, like the Americans. Don’t panic now, they say.

But the pain train is revving if the hobbled U.S. economy is heading to what is called a double-dip recession, Europe continues its nose-dive and other global markets struggle.

Fear also drives down the economy as consumers tighten their belts, hold off on purchases and, in some cases, unload their stocks to seek a safe haven – which many are doing by buying American greenbacks, and that is driving down the value of the high-flying loonie.

The surge in the popularity of U.S. currency is a sign of international confidence in the U.S. in the face of one rating agency’s decision to lower Washington’s triple-A credit rating last week. Source: (1) Toronto Sun

It should read “Why is Canadas recession on the way?”

Here is why: When the US recession began, BOC dropped interest rate to 0% to encourage spending, which is what we did, racking up a record 1.5 trillion dollars. As a side note, Canada’s GDP is 65% consumer sending.

BOC also instructed the CHMC to approve as many high risk mortgages as possible, so that along with record low interest rates drove up home prices to record highs. Everything in the housing industry was booming, an industry that is 20% of Canada’s GDP.

Rising home prices created the “wealth effect”, where people think they are richer than they are. This stat is staggering, 46,000$ is the average Home equity loan to buy more stuff we cant afford.

The remaining boom was a result of the stimulus spending.

So now here is the million dollar question; the one no one has the balls to ask, is scared to face and BOC sees coming and is sounding the dept bell. If we have record dept and people cant buy more stuff they cant afford (65% GDP), including housing new housing (20% GDP), record low rate go up making dept service harder/impossible, and the stimulus runs out this year (all stimulus has to be spent by October 2011), than what will happen?

What miracle will fill the void that almost 85% of GDP relies on? It wont be exports thats for sure, our trading partners are down for the count and our expensive dollar is not helping.

Canadians are getting superficial and (intentionally?) misleading analysis from their chief economic analyst. He says “Canadian households had strong balance sheets going into the downturn” but neglects to remark on the level of individual and government indebtedness and the fact that ‘Housing values” on the balance sheet are subject to likely downward revisions, and more importantly, that the balance sheet of the nation as a whole is very badly affected by the deficit spending at federal and provincial level.

Nearly anyone can avoid a reduction in lifestyle (ie spending) when their income is cut if they sell off assets or borrow, but obviously that state of affairs is temporary. If you believe the income cut is temporary you may justify the borrowing, but if the income cut is protracted, you are going to hit the wall unless you cut your spending to match your income. Your balance sheet has been impaired by the borrowing. The “milder downturn” did not take us down to sustainable levels of expenditure.

Canadians are still spending beyond teir means. They have some relief from the fact that commodity exports, to Asia in particular, are currently strong, yet this cannot be relied on to persist indefinitely, and, in any case, are not sufficient to keep us from having a negative balance of trade, another indication that we are living beyond our means.

On a related note, GDP is a poor measure of ability to create wealth and to repay debt. GDP rises when government spending (borrowing) increases, but this places the nation in a worse situation since this government borrowing does not create capital goods or otherwise facilitate wealth creation.

They are not through this yet. Their biggest trading partner has an irretrievably bad balance sheet and this is already recognized by those who formerly purchased Treasury securities. Now, through the smokescreen of Quantitative Easing, the vast majority of the US Govt borrowing needs are being met by money ‘printing’.

This is going to end badly.

How to Invest for the Long Run

With investing, bright beginnings inevitably turn to tougher times that test our mettle, but success is measured in the long run.

The principled investor buys stocks based on policy-driven portfolio management, not inspiration. With cold-hearted accuracy, these investors know that as soon as they make their purchase, their investment is as likely to go down as up. They don't care. They are thinking about a five, 10-, 20-, even 30-year time horizon.

The inspired investor, however, looks for a touch of magic in their purchase. It may be the investment's price-to-earnings (P/E) ratio, technical characteristics, or even an insightful analysis from a trusted expert that makes a certain investment irresistible. There are countless reasons the inspired investor falls in love, but in every case, the same expectation is shared: This new object of affection will break free of the market's gravitational pull and float skyward towards unfettered wealth.

When such an investor finds his special equity, he can't help but feel infatuated with his new purchase. In this early phase of the investment cycle, the investor is dancing with Cinderella under the stars in all her glory. But even for Cinderella, midnight must eventually come.

When that inevitable moment strikes and sends his darling plummeting, the inspired investor is gripped with horror as he watches his Cinderella-like vision of beauty and grace turn into a soot-covered house cleaner tumbling down the boulevard towards what appears to be an ignominious demise.

Infatuated investors are also those that suffer the greatest whipsaw effect. As the fret mongers and deep-dive analyzers abounded this week decrying the demise of American ingenuity and business, their dour chorus crushed many an investor's inspiration, turning it to disillusionment. As quickly as these inspired souls rushed in, they now in turn rush out with similar enthusiasm.

This whipsaw effect was sadly illustrated once again in this week's market crash. And strangely, this crash was accompanied by the pundit's singular focus on the bad news, leaving the story about corporate earnings mostly unnoticed.

Although it is early in the second quarter earning season, with just 143 of the S&P 500 firms reporting, the reports are promising. 75 percent of firms have reported earning above expectations, 13 percent have met expectations, and a mere 13 percent have missed targets. Historically, only 62 percent beat expectations.

Furthermore, the details are quite encouraging. Average earnings for those reporting are 9.2 percent over last year--good but not shockingly good. Take into consideration, however, that Bank of America had to settle a lawsuit that represents a one-time, non-recurring expense. Remove that singular expense from the calculations, and earnings skyrocket to a very encouraging 15.2 percent over last year.

More firms must still report and surely it will not all be good news. But apart from the dour media makers, reality tells us that U.S. companies are essentially earning 15 percent more while the markets just decided that they are worth 15 percent less.

What should the average investor do? Buy low and sell high. It is a simple principle to understand, but much more difficult to follow, especially in times like these. We can all look back at '08 and recall the many testimonies of those that ran for the door when the Dow Jones Industrial Average was at 7,000, just to stand on the sidelines, paralyzed, as the markets moved back up to 12,000.

Don't be that investor. It is easy to get out, but very difficult to know when to get back in. If you miss a few critical days of market movement, you miss most of your portfolio growth. As others run for the door in fear, follow Warren Buffett's famous adage and be bold to buy. For the flint-jawed long-term investors, now may be the perfect time to trim winners and buy losers.

As an investor, do you know that your investments are worth holding onto? If in fact you own a globally diversified portfolio of low-cost index funds or ETFs, you can rest assured that today's pumpkin will in fact transform into tomorrow's carriage, yet once again.

The Economist Canada - 13th August-19th August 2011

The Economist Canada - 13th August-19th August 2011
English | 92 pages | HQ PDF | 78.50 Mb

read it here

Both Consumer Confidence And The Labor Participation Rate Are At A 30 Year Low ... That's Not A Coincidence

By Washington’s Blog

A new poll from Thomson Reuters and University of Michigan shows that consumer confidence is the lowest its been for 30 years.

A new report from Wells Fargo Securities shows that the labor participation rate is also "at a 30-year low".

That's not a coincidence.

If people can't find work, they'll have no confidence in their ability to pay for the things they want or need, or in the economy as a whole.

The administration - despite its rhetoric - is doing nothing to decrease unemployment (and see this), and is solely helping the super-rich at the expense of everyone else.

Given this situation, it shouldn't be a huge surprise that:

Bob Chapman - Stockmarket, Gold and Silver Predictions 2011/2012

Insiders Buying Stock at Highest Rate Since March ’09 as S&P 500 Drops 18%

More executives at Standard & Poor’s 500 Index companies are buying their stock than any time since the depths of the credit crisis after valuations plunged 25 percent below their five-decade average.

Sixty-six insiders at 50 companies bought shares between Aug. 3 and Aug. 9, the most since the five days ended March 9, 2009, when the benchmark index for U.S. equities reached a 12- year low, according to data compiled by Bloomberg. Morgan Stanley (MS) Chief Executive Officer James Gorman and two other managers purchased 175,000 shares of the New York-based bank as the shares fell to the lowest level since March 2009, according to filings with the U.S. Securities and Exchange Commission.

Almost $3 trillion has been erased from U.S. equity values in the last three weeks as signs the economy is slowing and S&P’s downgrade of the government’s AAA credit rating left the benchmark gauge for U.S. shares within 30 points of a bear market. Some analysts say insider buying is bullish because executives have the best information about their prospects.

“Nobody knows a company better than the people running it,” Shawn Price, who manages $2.4 billion at Navellier & Associates Inc. in Reno, Nevada, said in a telephone interview. “It’s a positive sign that they are committing their personal capital.” (more)