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Will we see negative interest rates in the US?

Interest rates in Europe on a variety of debt instruments actually reached negative levels this year, a bizarre economic environment with a lasting impact on the Eurozone’s economy. Essentially this means that investors in debt instruments are receiving less than their original investment over time.

The reason is simple: to encourage spending and ward off deflationary concerns. It’s a case of basic supply and demand – investors seeking a safe haven for their money invest in bonds. As demand grows, interest rates drop. Ideally, the rate would bottom out at zero, but with a heavy demand for safety, debt rates turned negative instead. Adding to the demand is the potential for currency appreciation. Even if the debt instrument returns a negative yield, the inherent currency could appreciate relative to the euro creating a gain overall for the investor.

The state of the US economy and bond yields

One of the biggest concerns for US investors is whether the atmosphere of negative yields will spill over into the domestic economy. The results for the first quarter in 2015 were disappointing, but inclement winter weather was partially blamed for the lackluster data. Economists believe the rest of the year should show a robust and growth oriented economy.

Yields on US debt instruments are still near all time lows, but the Federal Reserve has made several statements this year that indicate a rate hike is very likely to happen. While the European Central Bank (ECB) is prepared to begin a quantitative easing program intended to stimulate growth, the Fed officially ended its program late in 2014. It’s very unlikely that the US will actually see negative interest rates. Evidence suggests that US interest rates may currently be as low as they’re going to be before heading back up again later this year.

One major impact that negative rates would have in the US that makes it even more unlikely is the fact that consumers would essentially be paying banks just to hold their money. It’s a situation that the Fed wouldn’t let happen as consumers would simply hoard cash at home rather than make deposits. If that were to occur, it could create a liquidity crisis and halt lending activity.

As the US economy continues to gain strength, interest rates will rise as the demand for investment increases. For the US, negative yields won’t be a concern.

The gold rush over big data

Often in the online world, a new set of buzzwords like ‘big data’ goes from being something known only in the technology world to something that is mentioned frequently in mainstream media. Like many other technology buzzwords, the reality of big data was happening long before the media hype, and long before the technology world even gave it a name.

A short definition of big data is the analysis of sets of data that are so large or so complex that it is difficult for conventional data analysis tools and techniques to make sense of it all. Because tools and technologies change, what may have been a difficult big data challenge during the era of Apollo missions to the moon in the 1960s and 1970s becomes a middle school science fair project in 2012.

Modern big data problems included weather forecasting and designing search engines. Much of the media hype revolves around big data issues that could result in big profits for private companies. Some, like Michael Fertik of the company Reputation.com, are quite keen on the idea that individuals and companies can benefit from using big data related technology to manage their online reputations.

While the concept of using a third party to manage online reputations may be validated by the marketplace, it doesn’t necessarily mean that a person or a company must pay a third party in order to benefit from big data related technology.

Many of the basic tools of big data are widely available to the public at no charge. The key to making the technology useful and valuable is the skills that are applied when using those tools.

Perhaps the most common example is the search engine. The largest search engines such as Google and Bing cost billions to develop and many millions per month to operate, yet they can be used without charge by anyone 24 hours a day for whatever purposes they have in mind.

Over time, most people who use search engines regularly come up with ways to use search engines to improve their lives or their businesses, and in most cases without paying for an expert or a company to do so on their behalf.

The rush by companies to capitalize on big data related business opportunities has many of the elements that existed in previous booms and busts related to gold, oil, and in the 1990s version of the Internet. Like the gold rushes of the past, some companies will likely become fabulously rich from the gold, many more may become as rich or even richer from activities that support the gold rush, but the vast majority won’t find a fortune and will likely not survive until the next gold rush.

$100 Homes

Last night 20/20 featured an interesting segment on homes in foreclosure. They interviewed some urban pioneers in Michigan who are rebuilding an entire neighborhood one house at a time. The homes sold for $100-$500. They were in terrible shape. Most of them were either burned and partially destroyed. While it will probably take 10’s of thousands to repair them and the area is awful the pioneers were doing something very interesting. They were building a community. Instead of trying to go it alone they found other people that wanted to renovate this area. One by one they began attracting friends and family to come join them in their quest to rebuild this area.

I have no doubt that in ten years this will be some cool, hip part of Detroit that everyone wants to visit. An interesting example of creativity during a tough patch in our economy.

Housing Price Declines 18.5% – Time to Buy?

If you are currently looking for a new home or have been on the fence about trying real estate as an investment option now could be a great time.

It is truly a buyer’s market. Home prices are low, there is a large selection to choose from and even new home prices are being driven down by builders eager to scrape up any business they can.

Even though everyone keeps talking about the credit crunch mortgage rates are extremely low. The graph below shows the interest rate of a 30 year mortgage over the last 30 years.

30yearfixed

But wait there’s more. With the passage of HR 1 up to $8,000 can be used as a tax credit for first-time home buyers purchasing between 1/1/2009 and 12/1/2009. The credit does not require repayment and will be used to reduce the purchasers income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser.

From an investment standpoint the picture is a bit mixed. There are certain areas where home prices have been falling, but rents have been stable. This is an ideal situation for an investor to swoop in and make large profits.

However, large metro areas have also seen drops in occupancy rates. If you take the case of Salt Lake City the
apartment vacancy rate went from 3.1% to 6.8% year over year at the end of the fourth quarter for 2008.

As long as you can get renters in you are good, but with vacancy rates rising in some areas it definitely pays to do your homework before you invest.

Revisiting Lows

After enjoying a nice twenty percent rebound from November 20th through the first week of this year, the markets are pulling back aggressively once again and threaten to test their prior lows. The reasons are always difficult to pinpoint, but the fact that we are headed into earnings season probably has as much to do with it as anything else. Many would be buyers are likely on strike, preferring to wait for the news than guess on what has already been discounted. With a scarcity of buyers, prices get marked down to ensure some semblance of liquidity for those who need it.

This back and forth, trading range based action will likely become commonplace for most of 2009. We will likely see one or more nice bear market rallies and then aggressive sell-offs as potential catalysts for uncertainty approach. Our best advice for dealing in this environment is to be realistic with regards to personal, short term needs, tactical and incremental with regards to near term portfolio change, and long term with regards to investment trends and horizons.

So what does this mean?

As we stated in late summer when the bear market rally started to become ugly, every investor’s first responsibility is to themselves and their family. To this end, in an uncertain employment environment, make sure you have access to a year’s worth of liquid savings. If you do not have it now, do not make radical changes all at once, but incrementally over a period of months to build your cash cushion, from whatever sources exist. The ruth of the matter is that if you do not survive the short run, the long run will be hard to reach.

Tactically speaking, we repeat our view that the market will likely remain range bound between its prior lows of 740 on the downside and 1100 on the upside, until the economic fundamentals visibly improve. We seem to be in a down phase towards 740 as we write today’s entry. Of course, we have no idea if this low will actually hold – still about ten percent lower from current levels – but we take some comfort that it marked the low for 2008, a year that had a ton of very bad fundamental news, including several high profile bankruptcies, high stakes corruption, and severe liquidity squeezes.

Our plan of action calls for positioning the portfolio for an eventual long term recovery in the economy, within the constraints of a likely trading range. This means we will likely trim positions more aggressively as we approach the higher end of the range while hopefully maintaining the courage and fortitude to add back to or increase our positions at the lower end of the range. Of course, all of this is much easier said than done, but it remains our intent.

Over the long term, however, we remain primarily interested in investing in companies that are leveraged to longer term, defensible trends. While almost all companies are showing some signs of cyclicality in their business given the dual nature of the credit driven recession, the fact remains that over the long term, innovation will absolutely thrive in this environment as pain makes clearer our most pressing needs as a society.
Times are tough. But as we said in our year end commentary, do not allow the headlines to get you down. Many perfectly happy people around the globe do not even know that the stock market exists.

This is an article from our friends at Broadleaf Partners

Below is a description of their firm.

Broadleaf Partners is a Hudson, Ohio-based asset management firm focused on achieving superior investment returns and providing outstanding client service. We employ a concentrated growth style of investing, holding approximately thirty equity positions from a cross section of industries.

Our sector exposures typically reflect the outcome of our bottoms-up stock selection process, which is influenced by our assessment of the economy and other long-term trends. Innovative new ideas and themes are of particular interest and our all-cap approach provides our clients with the flexibility to invest where those opportunities abound.

At Broadleaf, our clients’ interests always come first. We are passionate about helping our clients achieve their investment goals and welcome the opportunity to help you achieve yours.

How to Improve Your Sense of Security in Uncertain Economy

Sense of Financial SecurityPeople are often being overly reactive when it goes to bad situations.

The recession itself is happening largely due to global public reaction toward financial crisis, that is more often than not, doesn’t actually affect them directly whatsoever.

Negative outlook on financial issues cost the community lost productivity, thus worsening the effect of the financial crisis.

As a major part of your community, you, in whatever way possible, need to feel secure about your financial stature.

Why? Because if you feel secure about your financials and your life in general, you will be able to affect the community surrounding you.

Sense of security

Improving personal sense of security has never been this important in the past decades.

Sense of security is driven by facts and assumptions. The more you assume, the more insecure you will be. The more you identify facts, the more secure you will be.

Sense of security = know more facts and less assumptions.

Assumptions can be ‘altered’ into and identified as facts – no matter they are right or wrong – if you increase your knowledge through learning from reliable sources.

Facts also related to control. If you want to feel secure, you need to gain (and regain) more control on your life based on a set or series of facts.

Financial sense of security

In term of finance, assumptions leave you unguarded.

For example, consider these statements: “Stock A will go up in 10 minutes.” “Real estate B will increase in value.” etc.

The problem in the above example, is due to the fact that nobody can guarantee the above statement. Any guarantees on such would be classified as misleading, even illegal.

On the other hands, facts can secure your personal finance and help you see things from the right perspective.

For example, consider these statements: “I’m getting a 10% rate of return on my investment.” “The foreclosure houses I bought make me $150 positive cashflow per month.”

Warren Buffet, the maestro of investment, do all of his investment based on intrinsic value – the facts – not based on the floating stock value on stock exchanges – the assumptions.

Again, it is all about control. “Sure things” improve control, hence reducing investment risks.

How to improve your financial sense of security these days

You need to get more facts about personal finance. You will eventually find out that there is a certain consensus between personal finance experts about some of the best practices in managing your finances.

Such knowledge you acquire should be enhanced with tools that can help you with a more exact (and measurable) facts. For example, the use of Savings Calculator to learn how much you would receive within a period of time can provide you with a measurable fact that allow you to decide what’s best for your personal finance – finding savings account that yield you more, finding new investment that can increase the speed of your money, and so on.

Nevertheless, your diligence in increasing your financial knowledge will determine how secure you feel about your personal finance, and how well you cope (and thrive) in today’s economic crisis.

Image by bragadocchio.

Faxless Payday Loan: Helping Hand or Quick Sand?

Helping HandWhen we talk about loans in any forms, they are always related to debts.

Taking loans can offer you two things: good debts and bad debts – good debts put money in your pocket, bad debts lose money from your pocket.

Your financial needs, situation and knowledge play important roles in making the loan bad debt or good debt.

Loans come in many flavours – One of the most talk about, in my opinion, is payday loans. Why is that?

Faxless payday loan – offering you financial solution, fast – a bit too fast to handle

Payday loan is a small amount, short-term loan that is intended to cover borrower’s financial need until his/her next paycheck received.

With the advent of the Internet, payday loans are becoming more and more accessible. The term “faxless payday loan” refers to payday loan which application is processed online, thanks to the Internet.

While in essence payday loan aims to help people regardless of their credit score, many accuse payday loan as the culprit that drown many people deeper in debt.

Not quite.

In my opinion, people inherit a common weakness. They want more for less, and they want it fast.

People are always looking for fast and instant remedies for their problems, including financial problems. Just like everything in life, such as fast food, instant means immediate gratification first and quality second.

Payday loan offers fast solution. Faxless payday loan even does things faster, due to online application processing and instant approval. The drawback, as always, is the sky-high interest rate.

Those bring interesting relationship: No matter how negative the reputation of payday loan is, it seems that more and more people need payday loan these days, and payday loan providers are thriving these days. Some sort of love-hate relationship between lenders and borrowers.

Reality check: Stop blaming payday loans – have you ever look things from the eye of payday loan providers?

I am appalled to know people are blaming payday loan. Although I’m not offering any payday loans or similar things and not involving in one either, I think there are too much bad apples thrown at lenders, accusing them as scammers.

Have you ever thought that it is borrower’s responsibility to keep him/her-self well-informed regarding what type of loans he/she is about to take? It is borrower’s responsibility to know what question to ask and when to take payday loans.

Many payday loan providers I know are trying hard to offer a solution. They bear huge risks – they lend to borrowers with no regard of their credit scores. That is why payday loans charge huge interest rate: to supplement the high risks of lending to borrowers with bad credit ratings.

The right borrowers do regard payday loans as the life-savers. do help people – the right one and the well-informed one, that is – getting out of debt.

How to use payday loan to your benefit

First thing first – learn everything you can about payday loan. It is your responsibility to learn about payday loan, about the providers, and about what to expect and when.

Always plan everything – You need to know how much will you get from the lenders, the amount of the interest you owe to the lenders, and most importantly, how the short-term loans can help you getting out of debt, and for how long. You can actually ask the payday loan providers to provide you with a calculation on how much would you pay in the end of the loan period.

If the plan looks positive, go for it. If not, run away from it.

One, last advice: Never, ever take any form of loans without the right knowledge about the loans. That only makes payday loan quick sand, not helping hands.

Image by toolfan.hess.

Stock Market Crash in 2008 – Will It Recover by 2010?

Economic RecoveryNobody can really predict when the stock market turmoil will peak, including the recession, but a chart and article from the Daily Kos gives us a quite legitimate starting point to guesstimate on when the economy is prospering (again.)

The S&P Market Index Chart

sp_from_1825From this chart, the block represents a year and the columns represent a range of return on the S&P index.

We can learn that in the middle column, those are the typical years where the market has risen from 0 to 10%. This bell-shaped chart looks ‘normal’ in economic situation, but have a look at the left-side of the bell chart – yes, there goes the year 2008, at -50% S&P market index change.

A certainly lackluster year, 2008 is as bad as the worst stock market crash in the history of S&P, back in 1931.

What does it mean? Welcome to one of the worst years in stock market history! Hopefully, the 2009 will not be the worst year of the stock market history. But, even if the record breaking happened, I still believe somehow that economic recovery is right on the corner.

How well do the government react to the fact?

The US government, through the Fed, are trying to do what they think will save the US economy – record breaking funding to save banking and financial institutions, such as AIG, from collapsing.

Although not the best possible solution, as I think doing so will eventually bury US economy deeper into recession – perhaps not today, but most probably in the near future, what the Fed did is arguably give much needed friction to slow down not only the US recession, but also global recession.

Are there still hope?

Well, the 1931 crash did followed by a big rebound in 1933, where the stock market achieved a 60% return. Will this also be the case, that the crash in 2008 will be followed by similar improvement in 2010?

Although highly inaccurate, hopefully such assumption will become a reality – the sooner, the better.

As I already stated in my previous posts, I think that the negative sentiments make global economic recovery slow, as financially and psychologically distressed people will likely to react in skepticism toward any efforts to recover the global economy.

So, I conclude that all is coming back to the media – what the media preach will affect the recovery process, as people will ‘blindly’ count on the media (including on the experts), rather than their own common sense and financial knowledge, to seek ways to quit recession.

Hopefully the media (including this blog) can affect the recovery in a positive way.

Image by Alan_D.

Eventually, How You Survive the Recession Depends on Your Financial Intelligence

MoneyI once asked by my reader in my other blog – When do you think the recession will end, and how?

I really am having a hard time to answer the question. So may opinions from experts and public, as well.

To tell you the truth, I can’t imagine how the recession will end, and when will it eventually ends.

Some experts say that the recession will peak within 2 or 3 years, and things will improve gradually from there – so, rough road ahead.

Regarding how the recession will end, here’s an interesting estimate – According to this article, the average recession lasted for 10.8 months. Therefore, according to the data, on average, the recession should end last November 2008, and the longest would probably ended on April 2009.

Not exactly the case, in my opinion. Why?

Negative sentiment drive today’s recession more than before

I think that today’s recession might not be your typical recession. The emotional turmoil is as bad as the economic turmoil, in such a way that people left with unsecurity, uncertainty and negative thinking.

Even though the economy is supposedly rebounded on November 2008, the economic downturn inertia will lengthen the recession, even beyond what’s estimated as the long recession mentioned in the article above, April 2009.

As a non financial expert, but a self-made student of human behaviour, I view the recession will go well over April 2009, and will reach the peak on mid or late 2010.

I’m not sure, but neither the expert.

The best survival tool: financial education

Regarding how the recession will end, my answer would be this:

As everything in life – such as the ripple in a lake decreases when the wind speed decreases – after the panic, buzz and negative sentiment sustain themselves in people, the recession will gradually peaked and the economy will rebound – all with viral effects, as sentiment is contagious; The positive outlook of the economy will gradually, in itself, improve economy situation.

The question: How to accelerate economy sustainability?

The answer: As people start to gather themselves and start to learn from the situation, their financial intelligence increases gradually, and the new understanding will accelerate economy recovery – eventually.

The availability of money guides and money information, especially online, will help people to learn better, faster.

Nowadays, the phrase “Time is money” has never been this true before – the faster people learn, the sooner recession will end – the knowledge will set you free.

Image by emdot.

Real Estate Market Slowdown: It is Time to Self Direct Your IRA to It?

ForeclosureThe real estate market is in a decline, with some experts say that it will reach the bottom-low valley in two or three years. Worsen by the credit crunch, the real estate market is now in a defensive position.

Right? Well, not entirely.

Some investors and businesses are thriving in the real estate market – foreclosure ‘hunters’, buy and rent back, and other opportunities.

Another way to take benefit in today’s real estate market slowdown is investing in real estate through self-directed IRA.

What is self-directed IRA?

The IRA (Individual Retirement Account), along with your 401k is often invested on the stock market, which is the reason why many people lose their retirement fund due to the stock market crash.

It is about time to be independent in managing your personal finances. Knowing and understanding the whereabouts of your money is key in protecting yourself from economic downturn, as well as allowing yourself to find better investment vehicles for your hard-earned cash.

One of the ways to enjoy the pretax savings, as well as deciding how you want to invest your retirement fund (and how much profit you want out of it) is through self-directed IRA.

According to Wikipedia.org:

A Self-Directed Individual Retirement Account is an IRA that requires the account owner to make investment decisions and investments on behalf of the retirement plan.

In essence, through a self-directed IRA, you can invest your retirement fund not only on the stock market, but also on many investment opportunities, such as real estates, franchises, partnerships, and many more.

Not all investments are allowed within a self-directed IRA account, though – for example, investments in the form of life insurance or collectibles.

Nevertheless, the self-directed IRA offers you a way to grow your fund with the most yielding investment methods.

Self-directed IRA to secure your money and give you peace of minds

Choices liberate people – Freedom (with responsibility) allow people to choose what’s right for them. Therefore, this will give them the confidence and peace of minds in living their life.

With so many scare stories about people filing for personal bankruptcy or losing their life saving these days, people need ways to control their own destiny.

A self-directed IRA can offer you just that.

One caveat, though – freedom without knowledge is fragile.

In personal finance, such freedom can liberate people to invest in the most yielding or the safest investment vehicles of their choices. The choices are highly dependent on the people’s financial knowledge and personal traits about money.

Why I recommend directing your IRA to real estate

I am not a real estate expert, but I learn from experience and from the mentors I have that to achieve great riches, or at least higher yield of your investment, you need to invest when the time is bad, such as today’s recession.

I mentioned above about foreclosures ‘hunters’ and buy and rent back opportunities – those people, often negatively reputed as vultures – because they are said to benefit from other people’s misery, are actually taking the opportunities to help people getting out of debt, as well as creating wealth out of it.

This niche market in the real estate industry is flourishing today, and I, again, recommend you to direct your IRA to real estates or real estate business.

How to open a self-directed IRA

You can set up a self-directed IRA account through companies that offer you such service, such as IRA123.com.

There are set up fee involved, but choosing the right partner can allow you set up the account fast and properly.

I recommend you to seek information on such companies, to see whether the one you want to help you set a self-directed IRA account offer more benefits than the other.

One of the benefits to look for is a company that is not only helping you set up a self-directed IRA account, but also holding real estate licenses or offering business financing to help you invest in real estates or businesses.

Do you want to secure your money and have a peace of mind? Control your retirement fund uses through a self-directed IRA account, as the real freedom is achieved if you can control your life and personal finance.

Image by respres.

US Highest Unemployment Rate Since 1994 – What Can We Do About It?

UnemploymentWith all the euphoria and optimism due to the newly appointed US President, Barack Obama, the US economy is still haunted by nightmares.

This time – the unemployment rate.

President Barack Obama made busy early in his work at White House with the raving news about the US unemployment rate that is now 14-year high at 6.5 per cent in October 2008, surpassing the forecast of 6.3 per cent.

According to the article from Financial Times, the total of US job losses this year has now reached 1.2 million, which lead to Goldman Sachs saying that the US labour market today is in “full recession mode.”

What worsen the nightmare is the outlook – Goldman Sachs further predicted that the unemployment rate would hit 8.5 per cent next year.

What you and I can do about this news

Perhaps you are already aware that what happens to the US will affect globally – a sign that the global economic barometer is still lead by the US, not the much hyped China.

I have written about how to make a difference in today’s recession, and I will stress the importance again and again: Did you aware that the recession today is caused by you and I?

Yes – you and I, despite any personal finance issues we face, affect the people around us.

We affect our family, our family affects the community, the community affect the region, and so on, ultimately you and I affect the global economy.

Change is needed, and it better start from you and I.

I expect Money and Minds readers to be the agent of change in today’s negative sentiment about the global economy.

I am an unemployment myself – what can I do to change things?

Any situations you are in, you can make a difference.

People were talking about doing this and doing that to change the economy direction, but only a few really do change things.

I recommend that we start from our personal finance. The main idea is – if you can’t save your personal finance, you can’t contribute positive changes to the economy.

Don’t expect the government or authorities to do things for you – they have their tasks, you have yours to.

Your tasks:

  1. Stop whining – if you are made redundant, get yourself a job again – never linger in depression. Or better yet, start a business. Don’t give me “I don’t have money to start a business” – you can actually start one without any amount of money required, only if you want to look for it.
  2. Stop preaching bad economy to others – you are not only destroying yourself, you are destroying others, too.
  3. Turn off your TV, start digging business or job opportunities – the bad news are always on TV, but good news are hidden – ready to be found.
  4. Learn how to get out of debt and run your personal finance efficiently – there are resources on the Net for free – look for them!
  5. Never fall to get rich quick scheme – there are none of it. Work diligently, and riches will come to you eventually.

The question – Are you resilient? Do you have all the guts to bring out all you have?

Your answer will affect the global economy. Save your personal finance, save the world.

Image by woodleywonderworks.

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