Investing in Silver
While collecting jewelry with a high silver content or silver coins is the method preferred by some, there are downsides to consider. For example, there is the issue of finding a safe place to store such merchandise. Finding a buyer for a particular piece may also be difficult. Plus, there is sometimes a very big markup on certain pieces.
But there is an alternative for investors who want to gain exposure to silver: the stock market. Check out these five simple silver stock plays.
| Company/ETF | Market Capitalization | Year to Date % |
| Silver Wheaton Corp (NYSE:SLW) | 14.5B | +4.87% |
| Silvercorp Metals Inc. (NYSE:SVM) | 1.23B | -45.28% |
| Endeavour Silver Corp. (NYSE:EXK) | 1.06B | +40.89% |
| iShares Silver Trust(NYSE:SLV) | 12.21B | +28.66% |
| Pan American Silver Corp. (Nasdaq:PAAS) | 3.51B | -21.16% |
The Risks
The price of silver can fluctuate widely. In 2008, the price of silver had risen to about $21.44 an ounce, a huge increase given that just a couple of years prior it was trading around $11. But not too long after that spike, silver lost its luster, and the price floundered to $8.40. However, today, silver has popped up to around $40.
Bottom Line
Investors tend to flock to precious metals (like silver) in times of market crisis. Widespread international acceptance and recognition of this circumstance makes it likely that this trend will continue in the future. Adding a little silver to your portfolio might help you mitigate risk; the five stocks presented here are a great starting point for your silver stock search. (For further reading, check out A Beginner's Guide To Precious Metals.)
This column doesn't usually give investing advice unless it's some kind of smart-alecky rant against gold.But sometimes an investment is such an obvious winner that not even a dummy can pass. That's why you should short the euro. It's easy money.
For more than two years, the European Union has been wrangling with Greece's sovereign-debt problems. And if you thought the U.S. government's response to our financial crisis was bad, the EU is making Timothy Geithner look downright competent.
There have been lukewarm agreements, deals with the International Monetary Fund and its ladies'-man former chief. There have been global summits, international pressure and rescue packages. But none of this has done much to alleviate the crisis. They've bought time, sure, but there's just been time to fight.
Of course, we know that the Greece debt problem isn't about Greece at all. It's about the German and French banks that hold the bonds. And it's not even about the Grecian bonds but Spanish, Portuguese and Italian bonds, too.
For the moment, however, let's limit this to Greece.
French and German banks have $90.7 billion in exposure to that country's sovereign debt. To make matters worse, Italian and Portuguese banks have a combined $11.4 billion in exposure, according to the Bank of International Settlements.
Now, let's consider Portugal. Weakling Spain has nearly $85 billion in bank and nonbank exposure to its Iberian neighbor. Germany has close to $40 billion in exposure and France nearly $30 billion, according to the BIS.
Finally, Spain's debt is as manageable as a running of the bulls in an elevator. Here, Germany holds $180 billion; France, $140 billion; and even the United States, close to $50 billion &mdash with $19.5 billion of that on bank balance sheets.
This should not only make you feel better about the U.S. bank bailouts &mdash the majority of which have been repaid — but about your own credit-card debt.
What's striking is that even though Europe's dismal state of affairs has been apparent for a long time now, the euro continues to hold steady. There have been a couple of reasons for this. For one, some economies, mostly Germany's, have been strong. Secondly, the European Central Bank has been buying all of this sovereign debt to keep spreads as low as possible. It's spent more than $22 billion so far.
Yet the spreads still look terrible. Five-year Italian bonds are trading at around 5.5%. The problem, of course, is that at-risk countries like Italy and Greece can't afford to pay that kind of rate.
You'd never know it by looking at the euro, which even at $1.36 is still trading above its levels of January and February. The euro is 14% higher than it was in June of last year.
That level would be fine if European finance officials had taken steps to make people feel, I don't know, maybe 14% better. But do any investors feel better about Europe?
Again, consider the two main supports for the euro. The economy was doing well, but now there's ample evidence it isn't. Germany's gross domestic product rose just 0.1% in the latest period. That was even slower than the U.S.'s growth rate.
And what about the ECB? Well, it will keep buying, for now. Down the road, central banks come under pressure for intervention in "free" financial markets. Just ask Rick Perry, the front-running candidate for the Republican presidential nomination. He said that if Federal Reserve Chairman Ben Bernanke used the Fed to pump up the U.S. economy it would border on "treason."
Ultimately, for investors, the good news is that Europe has been telegraphing its moves for two years. That's practically unheard of in the markets, where outlooks can change in seconds. And what moves is the EU telegraphing? That it's either going to embark on an expensive bailout to save the debt of at-risk nations or let Greece and its bigger-but-just-as-weak neighbors default.
The former would hurt the euro. The latter would absolutely kill it.
Considering all of this, is Europe's currency really worth 36% more than the U.S. currency? Really? Unemployment is just as high in Europe, at 9.5%, as in the U.S. Economic growth is slowing, just as in the U.S. Europe's banks are at greater risk. And it costs more for every country in the EU, including Germany, to borrow than it costs the U.S.
Look at Market Vectors Double Short Euro ETN (DRR - News) and Ultrashort Euro ProShares (EUO - News), and, if you're not interested in gambling, just hold on to your dollars and wait before planning your next trip to Europe.
Although it's vital that politicians have a healthy debate about how to best solve America's money woes, the current debate may be giving the false impression that the U.S. is one of the most taxed nations on earth. That sure may seem like the case, but nothing could be further from the truth.
If you consider how much federal income tax Americans pay as a percentage of gross domestic product (GDP), their taxes are among the lowest in the developed world. GDP is the monetary value of all finished goods and services produced within a country over a specific time period, and it helps give a sense of the health of a country's economy.
For the past couple years, federal tax revenues in the U.S. have only been about 15% of GDP, which is less than the post-World-War-II annual average of 18.5%. Our tax revenues are even lower than the 17.3% level achieved in 1984 under Ronald Reagan and he's one of the U.S. Presidents most often associated with low taxes. Federal tax revenues averaged 18.2% of GDP throughout Reagan's presidency.
Among 28 of the world's most advanced countries, the U.S. ranks 26th in tax revenues as a percentage of GDP, which sits at 24% according to the latest available data from the Organisation for Economic Co-operation and Development OECD (2010). Here are the top five, along with some details on why the taxes in these countries are the highest in the developed world.
Denmark
Tax revenues as a percentage of GDP: 48.2%
Why taxes there are so high: A big reason is the public sector is one of the world's largest, employing 30% of Denmark's full-time workers. By contrast, only about 8% of U.S. workers are in the public sector. A large public sector requires much higher tax revenues to maintain it.
Sweden
Tax revenues as a percentage of GDP: 46.4%
Why taxes there are so high: Like most European countries, Sweden is very big on social services like heavily subsidized healthcare for all citizens, a fully financed education starting at age 6 and a guaranteed basic pension for all elderly citizens. Sweden's tax collection system is known for being extremely simple, with annual filing often consisting of nothing more than a text message to the Swedish Tax Agency.
Italy
Tax revenues as a percentage of GDP: 43.5%
Why taxes there are so high: Italy spends a lot on social services. Pension payments are 14% of GDP, which is the highest percentage in the OECD. Look for tax revenues as a percentage of GDP to climb even further in Italy as the government raises taxes to help balance the country's budget and reduce its crushing debt burden.
Belgium
Tax revenues as a percentage of GDP: 43.2%
Why taxes are so high there: As a country with a constitution that guarantees "the right to health," Belgium has an especially costly health care system to maintain. The government bears the bulk of the cost, with Belgian citizens paying only a small fee for care. Belgium also needs high tax revenues to keep up with its expenditures on infrastructure and industry subsidies.
Finland
Tax revenues as a percentage of GDP: 43.1%
Why taxes are so high there: Finland has high-quality, but expensive, healthcare and social security systems. The Finnish government also spends a lot on the country's education system, which is considered the best in Europe.
The Bottom Line
As a percentage of GDP, tax revenues in the U.S. are at historic lows and are far lower than those of most other developed countries. In addition to the ones mentioned here, those countries include Austria, France, Norway, The Netherlands, Hungary, Germany, Spain, Japan and more than a dozen others.
-Volatility is going up across the board. If you have the stomach for the swings that are coming across all markets there is a ton of money to be made; balls and timing are all that are necessary. The markets will create dozens of opportunities to make and lose..
-Copper will continue to rise. This metal will benefit as the poor man’s gold. Why buy an ounce of something for $1,600 when you can have a whole pound of something else for only $5? The logic is compelling only because there is no logic..
The United States has more oil and natural gas resources than previous estimates, according to a recent study by National Petroleum Council. The study also concluded that development of these resources will reduce but not eliminate dependence on imported energy and production, and delivery of these resources should be done in an environmentally responsible manner. The National Petroleum Council is a federally-charted but privately-funded organization set up after World War II to advise the government on issues pertaining to oil and gas matters.
The industry is well represented on the National Petroleum Council, with James Hackett, the CEO of Anadarko Petroleum (NYSE:APC), Aubrey McClendon, the CEO of Chesapeake Energy (NYSE:CHK) and Marvin Odum, the director for Upstream operations in the United States for Royal Dutch Shell (NYSE:RDS.A, RDS.B) as members. (For related reading, see Peak Oil: What To Do When The Wells Run Dry.)
Natural Gas
The study's first conclusion is rather obvious given the recent media spotlight on domestic onshore natural gas development. The United States is the world's largest producer of natural gas and has an enormous natural gas resource base that can meet demand for generations if new basins are allowed to be developed.
Although this conclusion seems obvious to us now, just a few short years ago, many observers were climbing over themselves to come up with the direst predictions of falling natural gas supply in the United States. The conventional wisdom at that time was that the United States needed massive investment in liquefied natural gas (LNG) facilities to provide for soaring future domestic demand for natural gas.
Oil
One finding that may surprise some investors and also strike some fear into peak oil advocates is the conclusion that crude oil is much more abundant in the United States than previously thought. This new supply is coming from a number of different areas, including tight oil areas where new technology has been applied to develop resources that were previously not economic to produce. In the long term, supply will come from offshore areas, the Arctic region and even shale oil deposits in Colorado. (For related reading, see Unearth Profits In Oil Exploration And Production.)
A recent report from an analyst at Goldman Sachs (NYSE:GS) predicts that the United States will surpass Saudi Arabia and Russia and becomes the world's largest oil producer by 2017. The firm expects United States production to reach 10.9 million barrels per day by 2017. This production figure includes natural gas liquids in the total.
This level of production is certainly doable given the current level of industry activity in the United States. The U.S. Energy Administration reported that the United States produced 8.95 million barrels per day of crude oil, natural gas liquids and other liquids in May 2011. The 10.9 million barrel projection implies total production growth of 21.8% over the next six years.
Despite the optimism on oil production, the United States will still be a net importer of this commodity even under an unconstrained development scenario under which production rises to approximately 22 million barrels per day by 2035.
Environmentally Responsible Development
The final conclusion was that the oil and gas resources need to be developed in a responsible manner to gain the trust of the public. The study also recommended educating the public on the risks of drilling and quoted a study from MIT that found only 43 gas well accidents out of nearly 20,000 wells drilled over the last decade.
The Bottom Line
The conventional wisdom on the amount of natural gas and oil resources in the United States appears to be incorrect, with the only question being whether we will allow these resources to be developed.
The good news is that there are some markers, checkpoints on the racecourse so to speak, that folks can use to figure out whether they are close to the finish line. It's not exhaustive, but here are five of the more important markers.
1. The financial capital-to-living expenses ratio
How much money do you have set aside? You'll need, all in, at least 15.7 times your pay in your nest egg to fund your living expenses in retirement, according Hewitt Associates' Retirement Income Adequacy at Large Companies: The Real Deal 2010 study.
Happily, part of that 15.7 will come from the net present value of your stream of Social Security benefits, which Hewitt estimated to be 4.7. Thus, you'll need only at least 11 times your pay set aside in your defined contribution plan or other accounts earmarked for retirement. And, the "number" goes down a bit more if you have a defined benefit plan. That counts for 2.1 times pay on average. So, if you have a defined benefit plan, you'll need just nine times your pay to fund your retirement.
One bright spot about Hewitt's number of 15.7 is this: It reflects an explicit assumption that employees will bear the cost of post-retirement medical care, and that medical costs will increase at a rate greater than general inflation. Speaking of expenses, most experts say getting a handle on all your expenses, not just health-care costs, is a must-do for your checklist. Read Hewitt's study here.
Other firms, meanwhile, put the number at 10 times your salary. According to a Lincoln Financial Group study, would-be retirees should aim to have at least 10 times their income at a typical retirement age. There is, however, a caveat. "While the 10X score can help people gain perspective on the need for retirement planning, it's important to note that this is a baseline number and should only be used as a conversation starter," said Chuck Cornelio, president of the defined contribution business for Lincoln Financial Group.
Cornelio said savers should discuss their 10 times pay number with a financial adviser to determine whether this number fits their savings needs, or should be adjusted based on their individual circumstances.
Read the Lincoln Financial Life Stages Study here.
By the way, don't feel embarrassed if you haven't hit the 10X or 15.7X number. Hewitt said most employees, at least at large firms, were on track to replace just 85% of their predicted retirement income needs. So, if you have designs on hitting the number, read the Lincoln study, which also contains some tips from those who have set aside 10X pay on saving.
If you're behind the eight-ball and don't have time to read those tips, consider this quick rule of thumb. Russell Investments recommends that each year a defined contribution plan participant should be saving a percentage of salary equal to 30% of his or her final income replacement rate, net of Social Security income. Read Russell Investments' What's the Right Savings Rate report.
2. Could you withdraw just 2% per year and maintain your lifestyle?
Many financial advisers say you can safely withdraw 4% on an inflation-adjusted basis from your retirement accounts over the course of your lifetime (or least 30 or so years of retirement) without fear of running out of money. Well, a study published in the Journal of Financial Planning disputes that rule of thumb and is creating lots of debate and discussion among financial professionals.
According to Wade Pfau, Ph.D., an associate professor of economics at the National Graduate Institute for Policy Studies in Japan, the percent that you can safely withdraw and not outlive your financial capital is probably much closer to 2% than 4%.
The reason being this: There's a new normal. The current dividend-price ratio or dividend yield and the ratio of current stock price to average real earnings over the previous 10 years, what is often referred to as the PE10 or CAPE, don't bode well for future stock market returns. And that means retirees will likely need a new "maximum safe withdrawal rate" that's lower than the 4% that was used when market valuations were lower and dividend yields were higher. "Although the 4% rule could possibly work out for recent retirees, it certainly cannot be considered safe in light of the unprecedented market conditions of recent years," Pfau wrote.
Read Pfau's paper, "Can We Predict The Sustainable Withdrawal Rate for New Retirees?" here.
By the way, one reason why you might want to dial down the withdrawal rate has to do with longevity risk, or the risk of outliving your assets. "While many people base their longevity on the average life expectancy, there is a possibility that they will live well into their 90s," said Sandra Timmermann, the director of the MetLife Mature Market Institute. "The 85-plus population is the fastest growing age segment in terms of percentage." See MetLife's Retirement Readiness Workbook here.
By having a too-aggressive withdrawal rate, one runs the risk of perhaps not running out of money, but certainly having to reduce their standard of living should they live past average life expectancy. "Flexibility in taking the income stream — say in black swan-type markets — is also an important conversation," said Thomas L. Howard, a certified financial planner with Harris Bank.
3. Can you still work?
It might seem like a contradiction, but do you have the skills, knowledge, experience and health to keep working past age 65? If not, you might explore how to get re-employed or stay employed. For some, that might mean going back to school. For others, especially those who don't have a clue about what to do in their retirement years, it might mean reading "What Color Is Your Parachute? For Retirement!" and going to such websites as RetirementJobs.com and RetiredBrains.com.
And don't think that you'll be the only person working during your retirement years. The data suggest that many folks ages 65 to 70 are still working, generating about 40% of their total income from 1099 and W-2 employment.
John F. Hochschwender, a certified financial planner with RTD Financial Advisers, had these thoughts and questions: "Is there a second career that you have always wanted to do? The question is: Can you make that happen now and would they get enough income from a career that may pay less money but be more rewarding? We have had many clients that have continued to work in new professions or in their current profession with fewer hours well into their 70s and were very happy doing it. By continuing to work part-time they also have more 'fun' money."
4. What will you do?
Hochschwender also said it's wise to start with the end in mind — your goals. "Do you have clear vision of your life in your 60s, 70s and 80s?" he asked. "Where do you want to live and what do you want to do? Many times we have discussions over multiple years until a potential retiree has enough of a vision to make it happen."
Yes, many folks retire without having given much thought to what they might do with all their free time. According to some studies, many retirees spend their time gardening, travelling and spending time with family and friends. If you don't have a good sense of how you will spend your free time, now would be a good to add this to your scorecard and check it off.
For his part, Will Prest of Transamerica Retirement Management said, it's important that you are being emotionally ready to leave work and all your social and time management ties there. "Think through how this transition will affect you," said Prest.
Others agree. "Have a retirement plan for your lifestyle," said Timmermann. "What will inspire you to look forward to every day?"
Part of this exercise means getting a sense of who you are, what you are about and what you want to leave as your legacy — and not just the financial one. "Values dictate working, hobbies," said Howard. "Meaning and vitality in life are important considerations for me in planning my and other's retirement."
5. Social Security, Medicare and employee benefits
Far too many people retire without a thorough understanding of Social Security, Medicare and their employee benefit package. For her part, Timmermann suggests that you calculate Social Security payments and the worthiness of deferring them until age 70 to get the maximum amount. "People should be aware that their payout will be reduced based on their income," she said. And, look at what Medicare covers, calculating the costs of Medicare supplement insurance and consider other costs that Medicare won't cover, such as dental care, eye care and long-term care.
Speaking of health care, check what if anything your employer provides, especially if you retire before becoming eligible for Medicare. "Will you need to replace health-care coverage now covered by an employer until Medicare kicks in?" Timmermann asked.
Consider also the value of working longer so that you can delay Social Security. That does three things: it helps you build more assets in your retirement accounts, it increases the amount you'll get from Social Security, and it shortens the length of time that you'll need to draw down your assets.
Lastly, plan for the unexpected. "Plan for the contingency that if one spouse or partner dies, the Social Security payout for the deceased spouse will be discontinued," said Timmermann. And don't forget to factor in long-term care needs.
The Commerce Department said Tuesday that builders began work on a seasonally adjusted 571,000 homes last month, a 5 percent decline from July and a three-month low. That's less than half the 1.2 million that economists say is consistent with healthy housing markets.
Single-family homes, which represent roughly two-thirds of home construction, fell 1.4 percent. Apartment building plunged 12.4 percent.
Hurricane Irene slowed construction in the Northeast, analysts said.
Building permits, a gauge of future construction, rose 3.2 percent. Jennifer Lee, senior economist at BMO Capital Markets, said the increase was an "encouraging morsel" in an otherwise disappointing report.
Home construction is down nearly 6 percent over the past year. But permits are up nearly 8 percent. That suggests builders aren't working on new homes, but may be preparing to start dormant projects when the economy improves.
Builders typically begin construction on single-family homes six months after getting a permit. With apartment projects, the lag time can be up to a year.
Construction fell to its lowest levels in 50 years in 2009, when builders began work on just 554,000 homes. Last year was not much better and this year is shaping up to be just bad.
While home construction represents a small portion of the housing market, it has an outsize impact on the economy. Each home built creates an average of three jobs for a year and about $90,000 in taxes, according to the National Association of Home Builders.
After previous recessions, housing accounted for at least 15 percent of economic growth in the United States. Since the recession officially ended in June 2009, it has contributed just 4 percent.
Pierre Ellis, an economist at Decision Economics, said a "major revival" in home construction would be needed before there is any "discernible impact" on the economy.
Cash-strapped builders are struggling to compete with deeply discounted foreclosures and short sales, when lenders allow borrowers to sell homes for less than what is owed on their mortgages. And few homes are selling.
New-home sales fell in July to a seasonally adjusted annual rate of 298,000, the weakest pace in five months. This year is shaping up to be the worst for sales on records dating back a half-century.
Renting has become a preferred option for many Americans who lost their jobs during the recession and were forced to leave their homes. Still, the surge in apartments has not been enough to offset the loss of single-family homebuilding.
Another reason sales have fallen is that previously occupied homes are a better deal than new homes. The median price of a new home is nearly 28 percent higher than the median price for a re-sale. That's almost twice the markup in a healthy housing market.
The trade group said Monday that its survey of industry sentiment fell slightly to 14 in September. The index has been below 20 for all but one month during the past two years. Any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached 50 since April 2006, the peak of the housing boom.
