Making Money Alert
Back To 2007 Highs
04/18/2007
We told you last week that earnings were going to be the key to the future direction of this market. So far, corporate earnings have come in better than expected. That news, along with some encouraging inflation data, has pushed the major averages to new highs for the year.
The Dow now is in record territory. It jumped higher on Monday and Tuesday, after a rise in home construction and news that consumer inflation remained tame. Wall Street seemed relieved by the Commerce Department's report that housing starts for March actually rose 0.8%. The consensus opinion had been for housing starts to drop sharply.
The broader S&P 500 Index, shown in the chart below, has broken above its February highs. The index has recovered fully from its early March drubbing and it now is up about 3% year-to-date.
In the midst of these new highs, it is tempting to become excited about stocks and the market overall. But keep in mind that we still have a lot of concerns. First, there are potential financial troubles in the subprime lending sector that could spill over and further weaken an already languishing housing market.
We also have a slowing economy and the threat of inflation due to a spike in oil and gasoline costs. If we see a continuation of high energy prices throughout the summer months, we may start to see a major spillover in the cost of everything we buy. That increase in costs could further fuel the undercurrent of economic slowing, and that would mean a pullback in stocks.
I want all of my Alert readers to be cautiously optimistic going forward. The market has recovered nicely from the March sell-off, but we still have a lot of threats out there that could potentially knock us back down to those March lows.
If you are thinking about putting new money to work right now, make sure you put a stop loss on every position you enter. This market hopefully will keep rising and you won't need to pull the trigger on that stop loss. If, however, the current rally loses its momentum, you'll be prepared to protect yourself from any downside damage.
FIVE THINGS YOU SHOULD KNOW ABOUT ANNUITIES
In today's broadcast of the Making Money radio show, I've devoted a special hour to annuity investing. It is my opinion that variable annuities, also known as VAs, are great tools for investors who want to grow their retirement savings.
The problem with VAs, as with most other investment tools, is that many people really don't understand what they have and/or how this type of account best fits into their overall investment picture. The bigger problem, however, is the amount of ongoing fees that you have to pay to most providers once you purchase a VA from one of them. Those providers usually are the ones who charge you large commissions for the privilege of buying one of their VAs.
Fortunately for Alert readers, there are no-load, low-commission VA providers that have all of the investment options you need to make the most out of your retirement dollars.
One of my goals is to help Alert readers understand the dynamics involved when investing in VAs. I admit this can be a somewhat complicated investment tool, but I assure that after years of explaining and recommending these accounts in my advisory services, I can help demystify VAs for you.
If you would like me to personally help you unravel your VA mystery, please let me know by writing to me. I will be happy to schedule a free VA coaching session just for you.
To get you started thinking about this issue, here are five things you must know about your VA.
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What's your cost basis? How much money did you originally put into your VA, and at what price point did you purchase the various subaccounts?
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What are your annual fees? Just how much money is that VA costing you? You'd be surprised at how many people don't realize just how much money their VA is costing them.
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What are your investment options? What accounts and/or sectors of the market are available to you in your VA? Are your choices limited to only a few?
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What are your current allocations? Which subaccounts are you choosing to allocate your money? Are you invested in domestic equities, international equities, both or neither?
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What is your distribution strategy? How are you going to get your money out of your VA when the time comes? Are there right and wrong ways to take distributions?
I know all of this may seem like a lot to get your arms around, but it really doesn't have to be a struggle, as long as you have a little help.
Once again, if you are grappling with VA issues and want my help, please e-mail me to schedule your free annuity coaching session.
THE DOLLAR KEEPS DROPPING
The U.S. dollar keeps dropping vs. rival foreign currencies. In fact, the greenback now is trading near a record low against the euro after the 13-nation currency climbed to within 1 cent of its all-time high on Monday.
There are many reasons why the U.S. dollar has lost value against the world's other major currencies. Massive U.S. budget and trade deficits are chief among the causes of the dollar's woes. The dollar's weakness can be seen graphically in the chart below.
With respect to budget deficits, I read a study recently indicating that more than half of all Americans (52.6%) now receive significant income from government programs. Gary Shilling, an economist in Springfield, N.J., said the percentage is up from 49.4% in 2000 and far above 28.3% in 1950. If this trend continues, the percentage of Americans receiving significant income from government programs could rise within 10 years to pass 55% -- the level it reached in 1980 on the eve of President Reagan's move to scale back the size of the U.S. government.
My friends, it certainly seems as though the era of big government is back with a vengeance. Of course, we can't forget about the aging baby-boom generation, which is poised to receive big payments from Social Security and government healthcare programs during the next few decades.
What this means is that the worst may not be over for the dollar. The question for savvy investors now becomes how do we capitalize on this trend?
Right now in my High Monthly Income advisory service, income-oriented investors are profiting from a 60% allocation to exchange-traded funds and mutual funds that are not tethered to the performance of the U.S. dollar or in funds that rise when the dollar falls.
Let me ask you this, do you have a falling dollar strategy? If you can't answer "yes," and if the primary goal of your portfolio is to generate income while growing principal, then my High Monthly Income service is for you.
Click here for more on how you can get your own falling dollar strategy.
WISDOM FROM A RACING LEGEND
"Because in a split second, it's gone."
—Ayrton Senna, auto racing great
The great Formula 1 driver's words are extremely appropriate in light of the tragedy this week in Virginia. Remember that in a split second, everything can indeed disappear. Knowing this, shouldn't we all choose to live our lives to the fullest? I can think of no better reason to make the most of every minute.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you'd like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars, or anything else.