Stock Market
Five Ways to Make 2012 Your Best Year Ever
I hear it everywhere I go. I'll start investing again…
…when the debt problem is fixed.
…when the markets pull back a little.
…when the EU crisis is over.
…when the elections are over.
Chances are you've said some of these same things to yourself.
Yet, waiting is exactly the wrong thing to do. Time is something you never get back.
And when it comes to consistent investment returns, time is the one thing you always have to capitalize on – without fail.
Besides, waiting makes it harder to get back in the game. Ask anybody who missed the S&P 500's 99.53% run up off March 2009 lows that carried things until April 2011.
Or the 87.26% run up through July 2007 following the low set in 2003. Or the 569.25% move from November 1987 (shortly after Black Monday) through January 2000.
No. The way I see it, the thing to do is to begin investing the moment you decide you want to. That way you pique your imagination, your motivation and your returns.
Five Ways to Get Better Results in 2012
Here are five tips to help you get started:
To continue reading, please click here…
High-Frequency Trading Could Cause Another Flash Crash
The threat of another flash crash caused by high-frequency trading is as great as ever.
And the next flash crash could be much worse than the one that shocked investors in May 2010.
Although the Securities and Exchange Commission (SEC) has taken some steps to prevent another flash crash caused by high-frequency trading (HFT), some experts question whether the additional disclosure and "circuit-breakers" designed to prevent big, sudden price moves will make a difference.
"Those things won't prevent another flash crash – they can't," said Money Morning Capital Waves Strategist Shah Gilani. "All they will do is soften the move."
The real issue, Gilani said, lies with the computers that execute the trades – thousands of them in milliseconds.
HFT has changed the nature of the stock market since these trades now account for between 60% and 70% of the transactions on the U.S. stock exchanges.
"You can't stop a flash crash unless you stop the computers from doing what they're programmed to do. And that's not being addressed," Gilani said. "The SEC is looking at keeping the ship from sinking, not stopping it from hitting icebergs."
HFT's heavy volume and high speed made it the prime suspect in the flash crash of 2010, when the Dow Jones Industrial Average plunged more than 600 points in five minutes, before recovering almost as quickly.
Mini Flash Crashes
Since then, the frequent occurrence of mini flash crashes – when a single stock or exchange-traded fund experiences a steep and rapid drop in price that quickly reverses – have served as nagging reminders of the vulnerability of the system to such events.
"It's like seeing cracks in a dam," James J. Angel, professor at the McDonough School of Business atGeorgetown University told The New York Times. "One day, I don't know when, there will be another earthquake."
Better Than Brazil: How to Invest in a Colombian Safe Haven
What's an investor to do?…
The Eurozone is about to collapse. The United States is struggling out of the deepest recession since World War II. And the IMF forecasts global growth will drop from 5% in 2011 to 2.6% in 2012.
How about investing in a safe haven far away from all of these troubles – one where you can actually watch your money grow?
I have found one in Colombia. Let me tell you why.
It is because Colombia is no longer a place controlled by drug kingpins or ripped apart by civil war. Colombia is a country on the comeback.
This revival began in 2002 when former president Alvaro Uribe decided to take on both the leftist guerillas and the drug barons. Since then, his successor Jose Santos has followed up on those policies, and they have worked.
In 2011, Colombia's homicides dropped by 5% to 14,746 and its murder rate dropped to 33 per 100,000 of population.
Admittedly, that's still five times the U.S. level, but these things are relative – it's half the level it was just four years ago.
Foreign investors have noticed, and last year, foreign investment in Colombia was up 56% to $14.8 billion.
Colombia Beats Brazil
In fact, according to the World Bank's "Doing Business" survey, Colombia ranked 42 out of 183 countries.
That was near the top spot in Latin America and far above Brazil's appalling rank of 126. Only Chile was higher with a rank of 39.
Stock market investors have noticed this, too – in the second half of 2011 Colombia had $4.9 billion of initial public offerings, the most in Latin America – and yes, again ahead of Brazil!
On the macroeconomic side, Colombia is sound, with public debt at just 45% of gross domestic product (GDP), a modest budget deficit, inflation just over 3% and the central bank base rate at 4.75% — no Ben Bernanke nonsense of zero interest rates!
Colombia has also gotten a boost by a surge in oil production, with exploration now possible in areas that had been "no go" for foreign investors for decades.
In November 2011, oil production was 920,000 barrels/day, up 17.5% from the previous year. Oil and minerals were responsible for 82% of Colombia's 2011 foreign investment, so the potential for investors is immense.
However, the real reason why Colombia is so attractive [To continue reading, please click here...]
Premium
Don’t Be A Wall Street Patsy
You want to know the truth? The truth is that Wall Street has stacked the deck against you.
That's why you need to understand how the game is played. Otherwise you'll end up a Wall Street patsy.
So, here's the truth along with some lessons that will help you play the game like a pro.
First, though, we'll need to debunk a few myths…
Let's start with the myth that the Street lowered brokerage charges for the benefit of retail investors. At one time, these fees used to be obscenely high and fixed.
But, on May 1, 1975, fixed commissions were abolished after brash upstarts like Charles Schwab and disgruntled investors decided to attack The Street's price-fixing schemes.
The negotiated commissions regime that followed lowered the cost of access to the stock market, essentially ushering in the era of the "individual investor."
The influx of these individual investors, many of whom didn't have enough money to create diversified portfolios, soon became a boon for mutual funds – which have since grown like weeds in an untended sod farm.
Wall Street Changed the Game
Since the commission business was no longer profitable, Wall Street moved its retail business to an "assets under management" model.
So instead of making money on commissions the game changed to gathering as many assets as you could into a retail investor's account and charging a fee to "manage" them; in other words, just watch them.
That's one of the reasons why Wall Street advocates a "buy and hold" strategy for retail investors. They don't want you to take those assets away from them.
It's the same thing with mutual funds.
And conveniently, if your broker puts you into mutual funds that are losers, it's not your broker's fault.
Now, it's the mutual fund manager's fault. That way the broker can't be blamed if your account loses money.
Instead, your broker can tell you, "Don't fire me, let's fire the mutual fund manager and let's find you a better fund to invest in. But, no matter what happens, we need to buy and hold and not try and time the market."
That's what retail investors are told to do over and over and over again.
But guess what? That's definitely not what Wall Street firms do.
In fact, while you're being told to buy and hold, exchange specialists, market-makers, hedge funds and every trading desk at every Wall Street bank and firm are busy trading.
Some individual investors began to see how Wall Street was really making its money and started trading themselves.
Of course, that only increased the competition for easy trades as more retail investors traded in and out of stocks.
To continue their advantage over the public, Wall Street fought to do away with the uptick rule. The rule was wiped out so traders could short sell any stock at any time.
But it's the big Wall Street players who benefit from the rule change because they can use their huge capital positions and work with each other to drive down stocks they have shorted.
Who gets hurt? The buy-and-hold retail investors who are told to buy more at lower prices are the ones who get fleeced.
And, who is selling to them?…
Premium
The Markets or the Mattress: I Know Where My Money is Going
The next 1,000 points on the Dow Jones Industrial Average in either direction are going to be determined by what happens in two cities thousands of miles from our own shores…
Athens and Berlin.
What's more, the risks associated with Europe's redemption, or its failure, are more concentrated now than they were before the crisis began.
There are two reasons: a) Europe won't help itself and b) Wall Street may still have $1 trillion or more in exposure to European problems.
What makes me crazy right now is that European chatter is what's driving the markets.
Every sound bite from Europe is critical these days. Not because there is anything relevant in the political babbling from financial ministers tasked with fixing this mess, but rather that there is a cascade of events that could take us in either direction.
Fix this mess and the markets will take off for a 1,000 point gain that will leave anybody who is on the sidelines hopelessly behind.
Fail and the markets could tank.
It certainly fits the pattern established in recent months. News leaks suggesting solutions have brought on rallies, while negative leaks have caused a ripple effect that has quickly dumped stocks into the hopper.
Yet, it's not really the numbers that matter at the moment – even with the Fed rumored to be considering another $1 trillion stimulus and reports that the European Central Bank (ECB) and International Monetary Fund (IMF) may be seeking as much as $600 billion each.
No. The market swings we are seeing are all about confidence or, more specifically, the near complete lack thereof.
The Mattress vs. The Markets
A recent report from TrimTabs shows that checking and savings accounts attracted eight-times the money that stock, bond and mutual funds did from January to November 2011.
That is a whopping $889 billion that went under "the mattresses" versus only $109 billion that went into the markets.
In fact, CNBC is reporting that the pace of money headed for plain-Jane savings and checking accounts from September to November accelerated to nearly 13-times the average monthly flow rate of the preceding nine months from September to November.
What's significant about this is that the money has headed for the sidelines when the markets have rallied. Usually it's the other way around. Normally money floods into the markets when they move higher.
The other notable thing here is that, generally speaking, up days this year have had thinner volume than down days. This means that most investors just can't handle the swings. In other words, every time the markets dip, they're packing it in.
Pessimism is the Breeding Ground of Opportunity
Bottom line: Investors are making a gigantic mistake – especially those with a longer-term perspective.
Profit From a Market Misstep with Valero Energy Corp. (NYSE: VLO)
The latest stock market pullback has given value investors a chance to go shopping again – and Valero Energy Corp. (NYSE: VLO) is a great example of the kind of steals that are available.
That is, Valero's assets are worth significantly more than what the market is currently pricing them at.
At its core, the company is a vertically integrated, independent crude refiner with ethanol production that can be blended into the feedstocks of its own network of gas stations.
Right now is the perfect time to be grabbing assets on the cheap, and Valero is giving us an opportunity that's too good to pass up.
So it's time to buy Valero Energy Corp. (**).
Stock Market 2011: Fed Policies, Inflation Concerns Make For Bearish Investors
[Editor's Note: Last week we asked readers if they were bullish or bearish on U.S. stocks in 2011. A collection of comments is listed below, along with next week's question, "Are You Worried About Your Job?"]
U.S. stocks have been on the march. Last year's market rally drove stocks up to levels not seen for two years – and many prognosticators believe that higher highs are still to come.
The U.S. Standard & Poor's 500 Index posted its best December performance in 19 years, and that bullish sentiment carried into the start of 2011.
The S&P 500 rose more than 1.1% on the New Year's first trading day to close at 1,271.89. It traded as high as 1,276.17, a 52-week high and its high-water mark for the last two years.
"More people have joined the bullish bandwagon for 2011 because individual investors are ready to purchase stocks for the first time in a long time," said Ned Riley, chief investment strategist for Riley Asset Management.
The latest economic reports have further buoyed investor bullishness. U.S. factory goods orders in November unexpectedly rose 0.7%, and U.S. construction spending rose for the third consecutive month in November.
Your 2011 Stock Market Leaders
Stocks drifted quietly in the past week, seemingly satisfied with the status quo and in no hurry to get to their next destination. The Dow Jones Industrial Average, Standard & Poor's 500 Index and Nasdaq Composite Index all clocked in tandem for a loss or gain of +0.1% to -0.1%.
Overseas stocks were the only major winners, with developed markets outside the United States up 1.4% and emerging markets up 2.2%.
Looking back at all of 2010, here are a few stats that stick out:
To find out which stocks will lead the market higher in 2011, read on…
Stock Market Analysts and Insiders Wave Caution Flags After $20 Billion GM IPO
[Editor's Note: If you'd like information on potential GM stock investing strategies, check out a special report that ran in Money Morning earlier today by clicking here.]
General Motors Co. (NYSE: GM) yesterday (Thursday) raised $20.1 billion in an initial public offering (IPO) that moves the company closer to paying back the taxpayer funds it received in a bailout last year.
However, GM's journey doesn't end there. Even after all of the IPO money changes hands, the company will still owe the federal government more than $26 billion. And the challenges that drove the company into bankruptcy to begin with – union payouts, tougher competition, and higher gas prices – are still relevant.
Ford Motor Co. (NYSE: F), Honda Motor Co. (NYSE ADR: HMC), and Toyota Motor Co. (NYSE ADR: TM) remain as well, having avoided bankruptcy all together.
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