The Money Fella

Seasonal Patterns Are Favorable for the Market

2011-01-22T13:03:00.003-06:00

Last time I promised to say more about seasonal patterns, as pointed out by further articles from Alpha Investment Management.

I've written about seasonal tendencies before, for instance here. At that time we were headed into the historically worst part of the 4-year election cycle for stocks, on average. Well, now the situation is reversed.

As explained in the Experts and Human Nature article, we're in the best six months of the year (November through May). Combine that with political considerations, and it turns out we're in the early stages of the best 15 months of the 4-year election cycle. That favorable period consists of the 4th quarter of last year, and all this year, as discussed in The Next 10 Years.

Again, all seasonal patterns are "on average," and any year can vary. (In particular, indications are likely that over the last 3 days, we have already started a correction, of unknown duration.) Seasonality is not a guarantee the market will go up for the entire year, but it makes it more likely. Any given cycle can vary, but over time, this is the pattern.

Current Market Outlook from Mike Burk

2010-12-05T18:15:00.003-06:00

There's a free weekly newsletter I like from Mike Burk at Alpha Investment Management. Here's a short excerpt from the latest edition, which basically agrees with my own opinion:

The good news is: The small and mid cap indices as well as the NASDAQ composite (OTC) closed at multi year highs Friday.

The small caps hitting multi year highs is an intermediate term positive implying higher highs for all of the major indices in the next few months. [However,] most of the breadth indicators did not confirm Friday's highs and that, along with the seasonal pattern, suggests short term weakness.

The newsletter also has charts showing you the technical indicators he's talking about.

Next time, more about those seasonal patterns. Meanwhile, you can subscribe to the newsletter free.

Ben Franklin the Entrepreneur

2010-11-16T23:47:00.003-06:00

Money Magazine ran an article entitled "6 Best money memoirs". As they put it, "How would you rather learn about finance: from a dusty textbook, or a tale of towering egos and high-stakes gambling? Money Magazine picked out six of the best real-life stories."

All the books are interesting, but I took particular notice of their pick for "Best book about entrepreneurialism" which was The Autobiography of Benjamin Franklin. That's not a title I would have expected in that category!

Some time afterward, I encountered a web site called LearnOutLoud.com, which distributes audio books (nonfiction only). I'm really busy, and don't have much time to actually read books. But I do have a commute to work, so I can download audio books and podcasts onto my MP3 player, and play it in the car. LearnOutLoud is a great source for material to expand your mind.

Furthermore, every month they feature a different free download. At least some of these are available for free elsewhere, but perhaps not all of them. Anyway, when I discovered the site, that month they were offering Franklin's very same Autobiography. I downloaded it and found it fascinating. Just the tale of his delay-prone and at times rather hazardous journey from New York to Philadelphia at the age of 17 is so memorable you'll be glad you got the book just for that. We think nothing of this trip today, but back then it turned into quite an adventure for him.

That trip even started in an unorthodox manner, because he was running away from his home in Boston. There was some question whether the ship captain would suspect this, and return him to his family, so to gain the captain's sympathy he concocted a story that he was leaving because he had gotten a girl pregnant!

The entrepreneurial aspects of the book occur in Philadelphia when Franklin was developing his career in the printing business. He was a pretty sharp businessman and employed some fairly aggressive tactics to advance his enterprise.

Later, as a member of the Colonial legislature, you'll laugh at the ingenious contingency plan he developed to get approval for the purchase of cannon to defend the city, over the objections of the pacifist Quakers.

All in all, a very entertaining book and one I highly recommend, no matter if you prefer the print version or the audio version.

How Canada Balanced Their Budget

2010-11-10T22:19:00.004-06:00

The big economic (also political) news item today was the release of the draft proposal of the federal deficit commission, which immediately drew sharp reactions from nearly all quarters.

It reminded me of a recent article by Bill Ragsdale, who runs the excellent investment newsletter Good Fortune. He passes along an edited review by David Hay of "The Canadian Century, Moving Out of America's Shadow."

Before reading it, remember that economic situations are seldom if ever 100% analogous; in particular, the recent global economic crisis qualifies as an order of magnitide worse than simply the "extended recession" of which he speaks, and we know now that 1995 was in the early stages of an economic boom which of course greatly helped the Canadian cause. Right now the U.S. economy is still pretty much on life support, and despite recent campaign rhetoric, we can't switch from stimulus to austerity too fast or the shock would be extemely detrimental (we tried something like that in 1937 which caused a new recession while we were still trying to climb out of the Great Depression). Still, the new Congress would do well to study this plan and move toward something like it.

Here is the article:

A Fresh Re-Start For The US?

Fifteen years ago Canada had many of the US's current problems: an extended recession, unfunded pension costs, spending way out of proportion to their economy and an increasing question on the ability to pay future debts. Their leadership used vastly different solutions than the US.

One-third of Canadian government revenues were being devoured by interest costs on rapidly escalating debt then 130% of GDP. Canada had become one of the developed world's most socialized economies, with the government accounting for 53% of the country's GDP. Growth was stagnating, while debt levels were dangerously mounting. Canada's AAA credit rating was lost, and it was treated as an unreliable borrower.

Then Canada achieved stunning progress in a mere three years at both federal and provincial levels.

Finance Minister Paul Martin unveiled a shocking budget in early 1995 reducing spending by 8.8% over two years.

Federal government employment was reduced by 14%.

Federal grants to the provinces were reduced by 14%, but they were given greater local control.

Some taxes were raised, but spending cuts were four times tax hikes.

Canada's welfare system was dramatically modified, with incentives to better use the funds.

Corporate tax rates were cut by nearly a third, taxes on corporate capital were abolished, and personal income and capital gains taxes were reduced.

A consumption tax was instituted to pay for the tax cuts. Initially very unpopular, it was a key part of the rehab plan.

The Canada Pension Plan moved scheduled payroll taxes increases forward but reduced the limit from 14% to 10%. This produced immediate surpluses that were invested in higher-returning corporate securities. The plan is well-funded today and actuarially sound.

The federal budget was balanced within three years. Despite accusations the poor would suffer, the percentage of welfare recipients fell in just a few short years from 10.7% of the population to 6.8% by 2000; the percentage of Canadians classified as low-income plunged by over 30%. Canada went on to produce eleven straight budget surpluses while reducing their federal debt from 80% of GDP to 45%. Further demonstrating how quickly good policy can turn things around, the provinces enacted similar measures. Canada's economy grew at 3.3% per year versus the developed-world average of 2.7%.

Canada's experience demonstrates replacing bad policies with good ones leads to dramatic and rapid improvement, with the shift to financial soundness restoring confidence and actually boosting long-term growth.

$500 Reward for New Brokerage Accounts at OptionsXpress

2008-11-26T20:02:00.005-06:00

This is a really great incentive, but time is very short.

If you open a brokerage account at OptionsXpress and fund it by the end of November, keep an average $500 balance for six months, and make one trade, they will deposit another $500 in the account. Now that's worth doing!

Here are the details.

The wording on that page is ambiguous about when funding is needed, so I called them. They did say it needs to be funded immediately to qualify, but they said the funding deadline had been extended to December 1 because November 30 is Sunday. This means you have to do a wire transfer. Might as well go to your bank Friday, just in case.

Welcome to 1987!

2008-10-09T21:57:00.004-05:00

This is pretty amazing.

Since October 1, we have essentially seen a slow-motion version of the 1987 stock market crash, declining about the same amount (in the range of 20% on the Dow).

And since a year ago, we have seen a slow-motion version of the entire 3-month top-to-bottom move of 1987, in the neighborhood of a 40% decline on the Dow.

Welcome, ladies and gentlemen, to history. Sit down, take a deep breath, and reflect on what we are seeing. Decades from now, people will be referring back to the "crash of 2008" or something to that effect.

That doesn't mean it's over. My sources are generally looking for even more pain before it's all done. We are seeing forced selling by hedge funds and other overleveraged traders. Each wave of declines triggers more margin calls, which result in more selling until traders are sufficiently deleveraged (i.e., they sell enough to bring their level of borrowed money down to earth).

The Way Of The Moose

2008-08-06T22:19:00.002-05:00

It's been way too long since my last post, but I've been really, super busy. However I saw something the other day that I just had to pass along.

If you know where to look, you can get some valuable free investment and trading advice. One of my favorite sites is Decision Moose. Every weekend, he updates his advice on which one of several ETFs to own. He posts his complete track on the site, and it calculates to about 30% gains per year, compounded, using only a few trades a year. That's an impressive record, especially for free.

But even if you don't follow the signals, his weekly commentary on the markets and economy is hugely entertaining, and sometimes laugh-out-loud funny. For instance, from this past weekend here are a few choice gems:

The Moose is not into finding bottoms except during rutting season, and the older I get, the further apart those seasons seem to be. Moreover, in my experience, the more talk there is about finding bottoms, the less likely a fellah is to be presented with one. And you can’t miss it-- everyone is talking bottoms up these days; not just the drinkers.

My thinking is, if an asset appears to be hitting bottom, there are usually several more attractive places to risk your money.

If we are now to assume July 15 is the real-and-final bottom, we're essentially speculating that an economic revival will commence around Inauguration Day, 2009.

Maybe it's just me, but that seems like a stretch, given one Presidential candidate who admits to knowing nothing about the economy, and another whose economic proposals, if implemented, will make Herbert Hoover look like a friggin' genius.

Fact is, the best bottoms are made of bulging red eyeballs, pulsing neck veins, and sweat-drenched dress shirts. Like unicorns, they do not come when you call them, but only appear when all hope of seeing one has vanished. Since the required abject hopelessness and maniacal despair is not yet in evidence, I need more convincing.

So it's not particularly surprising that his signal is currently in cash, and has been since March.

Check out the site every weekend and you'll gain both in money and insights.

File Income Tax Quickly To Get Your Rebate Sooner

2008-03-29T21:49:00.006-05:00

You've probably heard about the tax rebate the U.S. government is sending, to stimulate the economy. But I'm still hearing from people who have been misinformed about various aspects of it.

Some people think you can't get the rebate if you don't file by April 15. That's not the case -- you get the rebate after you file, so if you wait till later in the year you're not missing the rebate, just delaying it. So file as early as you can! And file electronically if possible to speed things up more. Furthermore, if you specify direct deposit for your refund, then you'll get the rebate that way too -- and quicker.

Some people think the rebate will end up being "paid back" on their next year's taxes. No, that was because of some misleading terminology in some of the early descriptions of the rebate. The rebate is really, truly, extra money -- not just an advance on next year's refund. In fact, if you don't qualify on your 2007 tax return, you may qualify on your 2008 return if you meet the requirements at that time.

For more details, you can go to the IRS web site. Here are a few things you will find there:

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The vast majority of people who file a 2007 income tax return qualify, and many who don't regularly file a tax return may qualify as well. You're eligible if you have a valid Social Security Number (SSN), can't be claimed as a dependent on a tax return and have either an income tax liability or "qualifying income" of at least $3,000.

How do you get it? Just file a a federal tax return for 2007, even if you normally don't have to because your income usually doesn't meet the filing threshhold. You can't get it if you don't file.

How much will you get? The actual amount depends on the information contained on your tax return. Eligible individuals will receive between $300 and $600. Those who are eligible and file a joint return will receive a total of between $600 and $1,200. Those with children will get an additional $300 for each qualifying child.

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The web page for all the information, straight from the IRS, is http://www.irs.gov/newsroom/article/0,,id=177937,00.html. It even has a calculator so you can get a better idea of how much you will get.

Is It Time to Refinance Right Now?

2008-02-10T22:08:00.000-06:00

Various factors go into a decision to refinance, but I'm just looking at the interest rate factor. We know rates are going down, but where is the bottom?

The Federal Reserve controls short-term interest rates, but mortgage rates are longer term and are set by the market (certainly influenced by the short-term rate, but the market also looks ahead to anticipate where the short-term rate is likely to move). The 30-year mortgage rate is more or less correlated with the rate of the 10-year Treasury note. There are a couple of ways to track and chart this.

One place the price movement of the Treasuries can be seen is on a chart of the iShares 7-10 Year Treasury Bond Fund. This is an ETF (Exchange-Traded Fund) that trades just like a stock, and the symbol is IEF.

The thing to remember is that when this ETF goes up, interest rates go down, and vice versa. So when it starts to go down below its uptrend, then mortgage rates have turned up.

Alternatively, the interest rate of the 10-year Treasuries can be charted directly. Most software and sites that I have seen use the symbol $TNX for this. Of course mortage rates are always higher than Treasuries, but again they move more or less together.

How do you know when the rate is is bottoming (or equivalently, the price is topping)? This is always the $64,000 question, and there are almost as many techniques for projecting this as there are analysts. Nobody can really tell for sure, but here are a couple of things to look for:

If you see IEF suddenly spike higher (or $TNX spike lower), which quickly reverses the same day, you are quite possibly at an extreme point that will not be exceeded for a while. Instead of waiting to see if it is exceeded, you might want to lock in that rate immediately (that same day if possible). The bird-in-the-hand benefit of getting the lower rate sooner, may very possibly outweigh the two-in-the-bush chance of getting a better rate later on.

I watched for a spike and did this in 2001. As it turned out, I could have gotten a somewhat better rate if I'd waited 6 to 24 months, but I didn't know that -- and then I wouldn't have had the benefit of lower payments during those months.

You can look at a chart with trend indicators, and wait till IEF drops below its uptrend (or $TNX breaks above its downtrend). For instance, at the date of this writing, if you chart it with 21-day and 50-day exponential moving averages (EMAs), you'll see that since July of 2007, IEF has briefly dropped below the 21 on several occasions, only to rise again -- but has not really dropped below the 50. So the 50-day EMA seems to be a decent trend indicator, for now at least.

You can also look at the MACD indicator, which I've talked about before.

Here's an example chart of IEF, and an example chart of $TNX with these indicators. Note the IEF price is well above (and $TNX is well below) both moving averages, but the MACD's black line has crossed over the red line. That's a clue that mortgage rates might not get any better, for a little while at least. The chart shows that the last time this happened, it took several weeks to see better rates. So maybe it's time to consider that bird in the hand.

(Note: The above was originally written before the rate spiked sharply on Feb. 7. The values in both cases temporarily crossed the 21-day EMA, but not the 50.)

On the other hand, this period might be like December, where the rate hovered around the same area much of the month, only to fall further in January. Looking at the $TNX chart, when the MACD rises without the rate itself rising very much, it's a sign that this might be about to happen. Compare the MACD since about January 23 with its behavior in December, and you'll see the similarity.

So it's up to you. As Clint Eastwood says in Dirty Harry, "You've got to ask yourself one question: 'Do I feel lucky?'" If so you might wait a little longer, and keep an eye on those EMAs. In the meantime, shop around, decide where you want to get this loan, and find out what they need in order to lock in a rate.

Falling Interest Rates and Your Mortgage

2008-02-03T16:45:00.000-06:00

Well, I've been so busy recently that I haven't posted. December often seems to be the busiest time of year -- and now it's time to do taxes.

I hope readers were able to take steps in advance, to profit from the lower interest rates as outlined in the last post. The economy and markets are weaker than most people expected, and the Fed has decided they'd better come to the rescue with aggressive rate cuts. Even with the two recent cuts totalling 125 basis points (1.25 percentage points), it's quite possible they will cut again at their next meeting in late March.

Although the economy won't really feel the effects of rate cuts for a few months, it's already helping some people as they rush to refinance their mortgages. It's helping others who have adjustable-rate mortgages because their rates won't adjust as high as they otherwise would.

By the way, I hope everyone has learned the lesson: When interest rates are low, it's not time to get an adjustable-rate mortgage. (In which direction do you think those low rates are gonna adjust?!) Even if rates are fairly high, it's a risk, and not to be taken lightly. Don't stretch to buy more house than you can afford, don't finance 90% or 100% of the house value, and make sure your mortagage doesn't have a prepayment penalty. Don't even buy a house unless you have a good emergency cash fund. These rules are basic, yet an enormous number of homeowners ignored them -- and are now paying the price. We all are paying with them, as neighborhoods become saturated with foreclosures, lenders become reluctant to make new loans, and the economy slows.

In other words, there's a lot to be said for the traditional fixed-rate mortgage. As interest rates fall, get ready to refinance if you can get a better rate, or if you currently have an adjustable rate.

Next time: Is it time to refinance right now?

The Mortgage Crisis, Part 3 - Can you take advantage?

2007-12-07T22:55:00.000-06:00

Because of all the bad loans, which have created ripple effects through the real estate, banking, and homebuilding/home improvement industries, the economy is undeniably slowing, and it could result in a recession in 2008. However, most of my sources say we will probably escape without one.

The reasons? I can think of a couple offhand: Vigorous exports, helped by the falling value of the U.S. dollar; and lower interest rates.

A lot of people ary saying "No bailouts" and "let the chips fall where they may -- let the stupid borrowers be foreclosed on, let the stupid lenders go out of business, and let the stupid investors lose their shirts." The problem with that is, it's affecting the entire economy, in a snowballing effect. The Federal Reserve took basically that approach in 1929-1930, refusing to lower interest rates or engineer massive bailouts, until the it was too late and the Great Depression was irreversible. Federal Reserve chairman Ben Bernanke has made a career-long study of this sad episode in American economic history, and is determined not to repeat it.

My sources indicate that this is affecting the economy enough that the Federal Reserve isn't finished cutting interest rates. By now, just about everyone expects they will cut at least .25% next week. And in fact, many are saying they could cut by .50% (although that's somewhat less likely after today's fairly decent employment report).

Next year it's likely we'll see additional rate cuts. For instance, see this article.

Lower interest rates will not only stimulate the general economy, but it will also help these adjustable-rate mortgages not to adjust quite so much, and help borrowers refinance at better rates. You've heard on the news that there are agreements for lenders to freeze some of these existing interest rates for a while. It appears more agreements are also coming. This will give the Federal Reserve some more breathing room and time to lower rates enough to make more of a difference.

How do you take advantage of this?

Consider moving some of your "safe money" out of money market accounts and into CDs that lock in your interest rate for a year or two, maybe more.

Consider postponing refinancing your mortgage for several months, anticipating lower rates.

As always, wait till June to decide whether or not to consolidate student loans (because you can only do it once, unless you have a new loan to include in the consolidation). Then you'll know what the new (lower) interest rate is, and you'll have a better idea whether or not they might continue even lower -- and then you can still wait till the following June to repeat the process.

Consider buying long-term Treasury bonds, whose price will rise as interest rates fall. Actually this would have been a lot better to do in June, because they've been rising ever since then. But if rates keep falling, you should still get some benefit.

Lower interest rates will also help the U.S. dollar continue its downward move. To take advantage of the declining dollar, invest in companies doing a lot of business overseas -- or invest in the overseas companies themselves.

Combining the prior two ideas, consider investing in foreign bonds (denominated in strong currencies such as the Euro).

The Mortgage Crisis, Part 2

2007-11-24T19:26:00.000-06:00

Because all the mortgage lenders could easily sell the loans to other investors, often packaged up with many other loans, they had plenty of incentives to drum up more and more business. Any time you have this situation, people tend to abuse it. How do you offset that?

A savvy consumer should partly offset it; if it's too expensive he theoretically doesn't buy. That didn't happen, partly because the borrowers also had a strong desire to buy property they could not in reality afford. Home ownership is, after all, the American Dream.

The credit rating agencies should partly offset it. They're supposed to be the ones that protect the buyers, valuing the loans properly (i.e., more risky therefore less valuable). Lower value on the loans means less incentive for the lenders to cheat. They could have stopped this thing cold if they rated the loans properly.

Of course since at least some lenders were fabricating income numbers, the rating agencies may not have had the ability to catch all those problems.

All in all, a bunch of lawyers are probably salivating over the prospects. Some of the lenders are bankrupt, others are on thin ice, so the ratings services with deep pockets ought to be getting uncomfortable about now.

It's also interesting to note that surely the top executives of lenders knew interest rates were going up and would continue to do so for a long time -- but the borrowers didn't. As far as they knew, rates could go either up or down. Oops.

The solution? Complex and in dispute. Some say the borrowers were stupid and should pay the price, emphasizing personal responsibility. Others say the lenders misled the borrowers and they have responsibility. Still others say the ones buying the loans are rich and can pay the price, and so on. As usual in a situation with so many moving parts, the answer is probably a mix of the above.

As a part of the solution, I favor allowing the borrowers to renegotiate at a lower (fixed) rate. (The Federal Reserve has already made this course of action more reasonable by cutting overall rates.) Of course this means the value of those loans would drop, but surely it would be less than the loss due to nonpayment and foreclosure. And the amount of the loss would be predictable -- not like the panic we've see this year. There's a saying that Wall Street can price in anything but uncertainty.

The Mortgage Crisis, Part 1

2007-11-18T23:39:00.000-06:00

I happened to see that last Friday's episode of the "Now" program on PBS had a segment on the mortgage crisis. Normally this program is far too liberal for me, but I decided to see what they had to say. Here are a few notes:

Potential loan losses of $400 billion, twice the S&L crisis, before this is done. (Although I presume this is not adjusted for inflation. A wild guess would be prices have doubled since then, so in that case these losses would be equal to the S&L crisis.)

Housing prices projected to drop an aggregate $2 trillion across the nation.

It was reported Countrywide sales reps made up income numbers to help close loans. They often didn't even ask the borrower what his income was.

An ex-Ameriquest sales rep said they routinely forged documents to inflate income. They were told "say anything, do anything, to get the sale."

Borrowers were told they could refinance before the rates went up, but when that time came, something prevented them -- such as high prepayment penalties, falling property value, a blotch on the borrower's credit record, etc.

Lenders would not negotiate payments -- not accepting, for instance, a series of payments throughout the month which would equal the payment that had been due at the first of the month. (Of course they don't have to, but hey, it would be better than foreclosure. I'm reminded of Biff knocking on George McFly's head in "Back to the Future," saying "Hello, anybody home in there?")

My take on this is there's blame to go around. Some or many lenders played fast and loose, the investors bought the repackaged loans without sufficient due diligence, the credit rating agencies assured the buyers the loan packages were safe, and the consumers didn't pay enough attention and didn't do budgeting. Many violated the precept of not signing anything you don't read and understand, and many violated the precepts of having a good-size emergency fund, and not putting yourself out on a high-risk limb.

Many borrowers also had inferior credit (the very definition of "sub-prime"), without which they wouldn't have been going to these lenders and paying elevated interest rates in the first place. And that doesn't speak well of their native financial management skills, does it?

This shows the necessity of being financially well-informed, and conservative (even reluctant) when taking on debt. It's been commented that many people spend more time analyzing the purchase of a wide-screen TV than their mortgage, when the latter is far more important. If you don't do your homework the result is all too predictable.

Procrastinators: Get Those Taxes In -- Beware Backup Withholding

2007-10-01T15:57:00.000-05:00

It's almost October 15, which means that the six-month automatic extension of time to file your taxes is running out. If you have a refund coming, you didn't even have to request an extension by April 15. The only penalty is a percentage of tax you owe, and since you didn't owe anything, you will receive no penalty.

However, the IRS takes the October 15 deadline more seriously. If you miss it, they will probably notice and start sending you letters -- prodding at first, then demanding. If you receive interest and/or dividends, they will stick you with backup withholding.

Backup withholding is generally for those who have improperly reported interest and dividends -- in other words, tax cheats. However, they will also use it for taxpayers who have done nothing wrong except to miss the October 15 deadline.

Backup withholding means they will notify your bank, stockbroker, etc. -- anyone they know that pays you interest or dividends -- that they must withhold a percentage. The exact portion has varied over the years; at this writing it's 28%. The withholding will be in effect till the end of the year they notify you; and if you're late again, they will extend it another year and so on.

You get the money back on your tax return for the year in question, but it's embarrassing, and a bookkeeping hassle to boot. Besides, if there's one thing you don't want to do, it's to attract the IRS's attention! If you open any new financial accounts, you also have to tell them you are subject to backup withholding.

So get that return filed by October 15. If you don't have all the figures in line by then, you can always file an amended return later. Just make sure to tweak the numbers so you pay a little extra on the earlier return (i.e., so that the amended return results in a refund), or else they'll hit you with penalties because even though you filed on time, you didn't pay on time.

Surprise Rate Cut?

2007-09-10T18:28:00.000-05:00

Sorry, it's been a while since my last post becaue I've been very busy. Today I just want to briefly talk about the markets. Of course they have been quite unsettled recently. Many indicators are saying buy, but others are still on sell signals.

The Federal Reserve could be the wildcard here. More and more people are expecting an interest rate cut after the September 18 meeting of the Federal Open Market Committee (FOMC). If they cut rates, the market will likely jump sharply. If they don't, the market will likely drop sharply.

My sources are generally expecting a cut. Possibly multiple cuts in the next few months.

But watch out for a potential surprise rate cut before the meeting. Last Friday's employment report makes this more likely, although of course not certain.

If you are playing the market on the short side, this could lose you a lot of money real fast. I'd be very careful of going short at this juncture.

Dow Drops, But Small-Caps Fall Off A Cliff

2007-07-29T17:05:00.000-05:00

I've been telling you that my sources say to concentrate on the big multinational corporations such as those in the Dow Jones Industrial Average, and high tech stocks. Well, just about everyone knows the Dow fell sharply last week (about 4.6%), but consider this: the Russell 2000 small-cap (i.e., small company) stock index fell about 8.7%. Meanwhile the Nasdaq 100 was similar to the Dow, at about 5.2%.

Looking at it another way, the Dow has now lost all it gained in the last month. But the Russell 2000 lost all it gained in over four months.

I'm not here to tell you whether to buy or sell right now, but the small-caps still look a lot worse than the big ones. One longer term indicator (the monthly MACD) has actually signaled a sell on the Russell, but is still positive on the other major indexes.

Generally after the market drops like this, it finds its footing for a bounce, and then revisists the lows. At that point if the lows hold, things will look more positive. But if they don't, then we could be in for something worse.

Also remember we're not in the most positive time of year either. Often the period from mid-July through mid-October is weak.

The Housing Bubble Helps Your Vacation

2007-07-22T21:40:00.000-05:00

According to Money Magazine (which as you may recall is my favorite general-purpose financial publication), the bursting of the housing bubble has had at least one pleasant side effect for vacationers: There are a lot more places to rent at the beach, and prices are down.

They suggest checking VRBO.com (listings from everywhere), WeNeedAVacation.com (Cape Cod), GulfCoastRentals.com (Florida), and seeamerica.org (to find regional touist offices). Google is your friend to find other local sites.

For more information see the full article. It was published in the May 2007 print issue of Money.

The Market Fools the Bears

2007-07-15T23:12:00.000-05:00

Yes, in early June the market was "teetering on the brink of a larger correction" as I posted then. I noted that it's been to the brink and pulled back from that brink before, and sure enough, that's just what it did. Then the last week of June it went to the brink again, only to pull away again.

When a market advance gets to the "overbought" stage (having risen relatively far and fast), generally it has to take a rest. It can do this either by declining or consolidating. In June the Dow went into a 400-pt consolidation, bouncing up and down within that range. It was unclear which way the stalemate would be resolved. In some cases, sell signals turned into buy signals and then went back to sell again.

The big 283-point advance last Thursday was certainly a positive. The Nasdaq continues to do even better than the Dow. The big multinationals, and high tech stocks, continue to lead the market as I have emphasized in the past. For example, a popular ETF for semiconductor stocks (SMH) has outperformed the S&P 500 by 2-to-1 this year.

Traders aren't quite sure what to make of this market, but most of the indicators I watch turned positive within the last 10 days or so. Longer term indicators never did say to sell.

Here is a sampling of information I'm getting right now:

Many newsletter writers are bearish, which actually is bullish for the market. In fact, at the start of trading last Monday we were facing the heaviest S&P 500 shorting in 5 years. So of course the market fooled all those bears. It's quite good at fooling the majority.

The breakout from the trading range could move the Dow about 1000 points in whichever direction the breakout occurs. [And it occurred to the upside.]

Big traders and hedge funds are borrowing Yen at near-zero interest rates and buying stocks, and until the Yen starts increasing, that will continue. But when the Yen moves up substantially, watch out.

Fewer stocks are rising. [This is typical behavior before the general market goes into a correction.] But those stocks with good earnings will attract more and more investors, pushing them up even more. Those are the stocks you want to own right now. Strong earnings can still buck the overall trend. We are entering the period of quarterly earnings reports now; expect a number of pleasant surprises in those earnings.

Late June into the first half of July is typically a strong period for the market. But the 2nd half of July is typically weak.

One short-term target (days to weeks) shows the Dow climbing another 250 points from here. A longer-term target (weeks to months) puts the Dow at 15,000 (up 1,100 points from here).

The market is quite over-complacent and vulnerable for a move lower.

So it looks like it's not time to sell, but it is time to maintain some caution.

Free Meals at Burger King

2007-07-04T21:39:00.000-05:00

I discovered that VISA and Burger King are running a promotion during June, July, and August. If you buy 10 meals at Burger King using a VISA card, the 10th one is free. You can repeat this as often as you like during the promotional period.

It can be either a credit or debit card, as long as you don't use the PIN purchase method on a debit card. There are other minor restrictions; see the web site for details.

You have to register your card at www.visa-bkdeal.com, and they automatically keep track of your purchases. You get credit for purchases made up to seven days before you register. In my case, that really helped me -- we've been busily helping a relative move, and haven't had much time to cook, so I've been going to the nearby Burger King often lately.

OK, it's not going to make you rich, but if you like to eat at Burger King, you can save a few bucks.

On The Brink Of A Correction

2007-06-06T22:49:00.000-05:00

After some sizeable down days in the market, it is teetering on the brink of a larger correction. Nothing is for certain (it's been to the brink and pulled back from that brink before), but the there have been numerous signs accumulating that the market's steep uptrend was due for a breather. (In fact a couple of sources I follow sold their holdings 2 to 4 weeks ago.) It just needed a trigger.

One immediate trigger last week was that New Zealand raised its interest rates. Of course they are a huge factor in the world economy (not!) but it was so unexpected that there was a knee-jerk reaction by traders apparently worried that it was a advance sign of interest rate hikes in more significant currencies, such as maybe the Euro and perhaps even the U.S. Dollar.

There has definitely been some damage done, and a number of sources are telling me their market analysis methods are giving sell signals in the intermediate time frame (an outlook of weeks rather than days). It's not unanimous, but enough to provoke more caution. Often in these cases the market will bounce around for a week or two before the trend either continues or reverses.

Here are a few representative things my sources are saying:

We could get another bounce. We are likely to see several days of consolidation and then another drop of about 5%.

Last week the Dow closed below the low of the high week of the uptrend. (In other words, two weeks ago the Dow reached its highest level of the trend. The low of that week was about 13,456. Last week we closed below that level). When this happens, it fires off a sell signal on a lot of "black box" institutional trading systems.

We have a majority of timing systems short. The preponderance of systems remain unmoved by the rally on Friday. You should at least consider standing on the side lines here even if you don't play the short side. That being said, we will have to watch some more to see what kind of correction we have going here.

By the way, one system I watch gave a sell signal on the S&P 500 and the Russell 2000 Thursday, but not on the Dow nor the Nasdaq 100. Even though those signals were so borderline that they were negated Friday, this is another indication that the large multinational companies seem to be doing better than their smaller brethren.

Market Advance Looking Tired

2007-05-13T22:01:00.000-05:00

What I'm hearing now is that the market is extended and getting tired. Risk is increasing. Even though it's still going up, a correction is getting more and more likely to happen soon.

But the other part of the message I hear is is that afterward, things still look pretty good for the rest of the year.

And the consensus continues to be that the best opportunities are in big multinational companies, foreign companies, and high tech.

Donate Stock to Save Taxes

2007-04-22T19:51:00.000-05:00

So you've finished your taxes (or gotten an extension), and you're wondering how to save tax money next year. Here's one easy way.

I've alluded to this in previous posts, but haven't given the details. If you donate money or goods to charity, you get a tax deduction (if your total itemized deductions are high enough to exceed the standard deduction). But if you donate appreciated stock, it's even better.

Say you have stock you bought for $1,000, and now it's worth $2,000. If you sell it and donate the proceeds, you have to pay tax on the $1,000 gain, but you get a deduction of $2,000. However, if you just donate the stock outright, you pay no tax on the gain but you still get the $2,000 deduction. It's like getting a double benefit.

Of course there are certain rules. The most important one is that you must have held the stock for over a year.

To do this, just contact the charity and find out their broker and account number. Then contact your broker and have them transfer the stock directly to the charity. Most brokers will do this, and they have a special form to fill out.

A few specialized brokers, such as my favorite, Interactive Brokers, won't do this. But you can first transfer the stock to a "general purpose" broker that does allow it, and then transfer from there to the charity.

Get Your Money

2007-04-15T18:54:00.000-05:00

Just a short note today. The market comments of last week pretty much still apply. If you've been watching the weekly MACD indicator, you know it hasn't signaled a buy yet for the major indexes, although it's extremely close for the Russell 2000 small-cap stocks, and pretty close for the Nasdaq 100. It's got further to go on the large-cap indexes.

Meanwhile I normally talk about income taxes this time of year, but due to the market scare I've been concentrating more on that. But I do have two short tax tips:

1. Don't ignore the phone tax refund! This is free money (basically $30 to $60) for almost everyone, but many thousands of taxpayers have not claimed it. There's even a special line near the end of the tax form: "Credit for telephone excise tax paid." So fill it in and get your money.

2. You have till the tax-filing deadling (Tuesday, April 17) to make your IRA contribution for 2006, and then it goes away forever. If you mail it in, it just has to be postmarked by April 17. Don't ignore this tax break. The limit for 2006 is $4,000 (which is reduced for higher-income taxpayers), but if you turned 50 or more during 2006 you can contribute $1,000 extra.

Signs of a Positive Market

2007-04-08T21:48:00.000-05:00

The Labor Dept. employment report Friday showed big job gains and a drop in unemployment. Traders are already celebrating; stock index futures are solidly higher in Sunday evening trading.

What I'm hearing now is that although it would be unlikely for the market indexes to just keep on higher without one more downside scare, that doesn't mean it's impossible. The market always likes to fool the maximum number of people, so we may not get that final decline (or at least, not till later).

More than one of my sources are saying it's time to buy, at least partial positions, and at least for the next couple of weeks. They are generally also looking for gains between now and year-end, no matter what happens in between.

The Market Can't Make Up Its Mind

2007-03-31T22:16:00.000-05:00

OK, this week was down, and the weekly MACD indicator is still saying the trend is downward. I'm still hearing the market should be choppy for a while longer, and is likely to revisit the recent lows if not break them.

However, now we are entering a seasonally strong week and month, if historical norms are believed. After the recent selling, a short-term bounce seems likely.

Stocks with strong earnings should come out of this OK. In fact, Louis Navellier, who runs top-rated advisories such as the Blue Chip Growth newsletter, says that as far as his stocks are concerned, if you sold some, you should be fully invested by April 6, before the latest quarterly earnings reports start coming out in earnest.

For those who want to be more active, the market signals are pretty mixed, as they were last week. One possible approach is to buy strong stocks and simultaneously short weak stocks. There are many possible criteria (screens) for selecting each group. Lately I've been trying out the VectorVest service, and it looks pretty good. They have a number of different preselected screens.

Eventually the market will break out one way or the other, and establish a new definite trend. But that time is not yet, so position accordingly.

The Fed Juices the Market -- Which Way Now?

2007-03-25T22:07:00.000-05:00

The stock market was juiced by optimistic interpretations of the Federal Reserve's statement last Wednesday. Many traders, having expecting further weakness, were forced to cover shorts as the buying accelerated.

The market is in a somewhat confused state. On the one hand, most of my sources are still expecting the indexes to retreat further before resuming their uptrend. On the other hand, one can't deny the upward momentum shown by the major indexes. In fact, normally you don't see more than about 68% retracement of a move if that move is going to continue, but the S&P 500 has now recovered about 76% of its decline from the 2/22 intraday high to the 3/14 intraday low. The weekly MACD is still saying sell, but its daily version (shorter term) is saying to buy.

So what to do with these mixed signals? My sources are similarly mixed, so I don't have too much concrete informatino to pass on. It's probably not a time to buy or sell strongly, unless you are following a system that has a history of giving good results. For now, a middle-of-the-road approach would probably be logical to match the market's middle-of-the-road action.

For some, middle-of-the-road could mean going to cash (or staying there). Longer-term the market still looks OK, so some buying of conservative stocks could fit. But you probably want to keep some cash because those same stocks could be cheaper soon.

Or try looking for stocks that have rebounded strongly from the recent weakness. Even though the market averages are still below their late-February levels, some stocks have surpassed those values and gone to new highs.

Generally the market needs to experience a little more "panic" than we've seen so far, before making a good bottom and resuming the uptrend. But as the old trader's saying goes, price is the final arbiter, and if you argue too much with it you'll go broke. One of my sources is saying they will buy if the market continues up significantly (but not while it just meanders up slightly like the last two days).

The MACD is a good indicator, but not perfect (nothing is). For one thing, it lags behind the price action, giving somewhat delayed signals. But it does catch up. If the market continues on an upward path, the weekly MACD will give a buy signal before too long. And I suspect you won't miss too much if you wait till that point before becoming fully invested.

Is It Safe To Buy Stocks Again?

2007-03-18T12:11:00.000-05:00

Many market analysts study corporate profits, interest rates, the general economy -- these are called fundamental factors. Other analysts study stock price charts, their patterns, and various indicators calculated from market action -- these are called technical factors. For various reasons, technical factors can often tell you more about market conditions than fundamental factors, especially in the short term.

One good way to help you figure out what's going on in the market is a commonly used technical market indicator called the MACD (that stands for Moving Average Convergence-Divergence). It's not perfect (no indicator is), but if you plot it on a weekly chart, the overall state of the market becomes much more apparent.

You can do this on many free charting web sites; my favorite is JavaCharts from prophet.net. Here are the steps to follow:

1. On the JavaCharts web page, first enter the symbol to chart. For instance, on this site the S&P 500 index is $SPX.

2. The next pulldown list determines the kind of chart. The simplest option is to leave it as a line chart, which shows the closing price every period. You can experiment with the other styles to see the difference; for example, bar charts and candle charts show the opening price, high, low, and close for each period.

3. In the next pulldown list, choose the desired time duration for the entire chart; for instance, one year.

4. In the next pulldown list, choose the period for each data point. For this example we are using "W" which produces a Weekly chart; i.e., there is one point on the chart per week.

5. Right-click inside the chart and choose Studies -- Apply Studies. Click the pulldown list entitled "Select Studies" and choose "MACD (2 lines)". Then click Close.

6. You now see an area below the main chart, whose main feature is two lines. On mine, there's a solid blue line and a dotted red line. Now look at where the lines cross -- those are the signals. There are variations in how to use this indicator, but the simplest way is, when the main line crosses below the dotted line, sell. When the main line crosses above the dotted line, buy.

Notice this signal gave a sell signal in May 2006, soon after the market started on its steep drop into the summer. Then it gave a buy signal in early August, soon after the market launched a powerful rally that ultimately gained nearly 18% in 7 1/2 months.

Please note that even though this indicator is pretty good, these are not standalone buy/sell signals and should be considered in combination with other indicators and market conditions. Still, you could do a lot worse than making the MACD a major guideline. The longer chart periods, especially weekly and monthly, are more reliable than shorter ones like daily and intraday.

Note that the nature of the signal is reactive rather than predictive, so it would not have gotten you out before the recent drop. But it can help you recognize when the trend has changed and thereby help prevent further losses.

So what's it saying now? It went to a sell signal in late February (due to the recent plunge) and is still on its sell. So even though the market could rebound right away, the odds are against it. Bottom line, it's not yet safe to get back in the market.

This also agrees with other information I'm seeing that it's not yet time to buy. In fact, if you haven't sold already, you still have the opportunity to do so. Even though I don't think this will be a severe correction, you never know how far down it might go.

So now you have a tool which should make you a lot more comfortable about being in or out of the market. In general, signals using the weekly chart occur every few months. If you don't want to trade even that often, use a monthly chart (expanding the view to about 5 years or more, so you can see past signals better) instead of a weekly one. On the monthly chart, the MACD gave a buy signal for the S&P 500 back in May of 2003 and that buy is still in effect.

Markets Rebound, But Not Yet Out Of The Woods

2007-03-11T22:09:00.000-05:00

The U.S. stock market was up this week, which indicates why I told you last week not to sell everything on Monday. Still, the information I'm getting says the odds favor another push down, to test and revisit the recent lows (and possibly lower) before we get a full recovery. The bounce might start failing this week, or a couple of weeks from now, but it likely will fail.

Last week I advised against short-term trading in general, but if you are uncomfortable with your level of investment then now you could sell some of your holdings (especially stocks that have not rebounded much). If you are building longer term investments, then the stocks you want are now on sale -- so start getting some of them. Some companies have already bounced back strongly, and those also should be on your shopping list.

When my sources indicate it's appropriate to be a more aggressive buyer, I'll pass the word along. In the meantime, keep some power dry.

The Market "Meltdown"

2007-03-03T17:55:00.000-06:00

The stock market really got hit this week, losing essentially all its gains since Thanksgiving in a single day (Tuesday, February 27). In a way it seemed to come out of nowhere from a steady advance that started last summer, but actually we were long overdue for a decline of several percent.

All it needed was a trigger, and the trigger seemed to be some comments by former Federal Reserve chairman Alan Greenspan to the effect that the U.S. might enter a recession in 9 to 12 months. Hong Kong and China stocks plummeted, and the same effect traveled around the world throughout the trading day. This was promptly contradicted by the current chairman, Ben Bernanke, who said we were not headed for a recession, but the damage had already been done.

Who's right? The experts who seem most credible to me say no, we won't have a recession, but yes, we will have to go through a market correction -- not a crash. Companies are making good profits, and that after all is where rising stock prices ultimately come from.

This is scary, but if you are following good investing principles (including diversification, and that includes some bonds, which are going up) you should be OK. There is talk of a possible worldwide panic caused by forced selling of assets bought with borrowed money (especially borrowed Japanese Yen, due to their extremely low interest rates), but there's always some "doomsday scenario" to worry about and it's just the latest.

So is it time to buy, or to sell? Well, it's very unlikely that we're at the bottom. Estimates for this correction range from 2 weeks to 6 months, and from 5% to 17% down from the recent peak. Nobody really knows of course, but there definitely is damage in the market that will take some time to repair.

But dumping your investments first thing Monday morning is probably not the best thing to do either. First, if you sell, you have to know when to buy it back. Almost nobody can get this right! It's psychologically almost impossible to pull off. Second, we will probably have a bounce in the next few days, which will present a better selling opportunity. Third, there are tax implications in selling.

But you could trim some of your investments, particularly the ones that aren't acting well, and buy better ones later. (What kind? Everything I hear says buy large blue-chip growth stocks.) Selling little by little, and buying back little by little, is psychologically easier.

Instead of selling things, you could hedge by buying some of the inverse mutual funds or ETFs (exchange-traded funds) such as the ones sponsored by Rydex and ProShares. The inverse funds go up when the market goes down.

But again, don't go all out. Whenever you make a big buy or sell, that's when the market will reverse on you. Humans are psychologically programmed to do precisely the wrong thing; that's why profitable short-term trading is so extremely hard.

Deduct "Hidden" Student Loan Interest

2007-02-25T19:57:00.000-06:00

If you have student loans, or parent loans, you probably know the interest is generally tax-deductible, up to a maximum of $2,500 a year depending on income. The lender (or their servicing agent) sends you a Form 1098-E telling you how much interest you paid; and as long as you meet the requirements, you can deduct this amount.

Except you might not get this form, and even if you do, it may not show the complete deductible amount! There are three areas you need to check to find "hidden" interest.

1. According to the form itself, the lender is only required to send it if you paid at least $600 in interest for the year in question. So if you're under that threshold, you may have to calculate the interest yourself, based on the various statements the lender send you throughout the year, and/or your account and payment information on the lender's website.

It gets better. Form 1098-E shows only the interest you physically paid the lender during the year. But according to the IRS rules in Publication 970, Tax Benefits for Education, you may be able to deduct more than this.

2. Loan origination fees count as interest also. Publication 970 says if it's not on Form 1098-D, "you can use any reasonable method to allocate the loan origination fees over the term of the loan." So you can't deduct it all at once, but you have to spread it out.

3. Capitalized interest is deductible as well. This is interest that adds up while you aren't making payments, and which is added to the loan balance. Once you start making payments, you can take the deduction by essentially treating the entire payment amounts as interest until all the capitalized interest is paid off. See Publication 970 for all the details of the calculation you have to use. A spreadsheet will be very helpful in tracking the numbers.

So make sure you get all the student loan interest deduction to which you're entitled.

Sector Investing Advisories, Continued

2007-02-18T19:49:00.001-06:00

I just realized my previous post was incomplete regarding the Pitbull Sector Timing. I forgot there are actually two different offerings related to that system, requiring two different links.

First there is a trading instruction manual for a one-time price, detailing how the system works. You can then derive your own signals nightly.

Second, you can get the actual signals provided by the Pitbull people. This service also includes their nightly market commentary, along with the Pitbull Crash Index which is intended to warn if the market is headed for a serious downturn soon.

If you get the manual, it also includes six weeks of the signals and commentary, so you can see what it's like.

In the past, they stated that the continuing service, which provides the signals for you, utilized an "extra" proprietary trading decision that was not disclosed in the manual, which gave better results overall. I don't know whether that's still the case, but presumably it is. Personally, I use the service.

I also should have mentioned that even though signals could occur on any night, the system actually trades very infrequently. Generally it stays in one sector fund for several months. Once they didn't have any switches for nearly two years. So this is a very "relaxed" system and not for the person whose trading finger itches all the time.

Lastly, they have a six-month satisfaction guarantee.

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Edited 6/23/2009: The Pitbull Sector Timing has been replaced by their ETF Timing. I have changed the links above to display the ETF information.

Sector Investing Advisories

2007-02-09T22:00:00.002-06:00

Sorry for the long delay between posts -- the holidays are such a busy time, and I've also had some travel to deal with.

Last time I promised to talk about sector investing advisories, and here they are.

Two such services I've used with success (and continue to use) are Good Fortune, which sports an average 20.45% per year gain since 1990 (you can see yearly statistics on their site), and Pitbull Sector Timing. The latter's web site is a little unusual, but try not to be put off by it. Here is the recent track record they report:

2001 .... +76.5%
2002 .... +3.1%
2003 .... +11.7%
2004-05 .... +12.5%
2006-07 .... +13.9%

Do you know anyone else who made 76% profit in mutual funds during the terrible year of 2001? Neither do I.

Pitbull offers several different systems and advisory services, and the Sector Timing is just one of them. It's definitely worth a look, and the service also includes a nightly market commentary.

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Edited 6/23/2009: The Pitbull Sector Timing has been replaced by their ETF Timing. I have changed the link above to display the ETF information.

Market Timing vs. Sector Timing

2006-12-10T16:47:00.000-06:00

In his book Investment Policy: How to Win the Loser's Game Charles Ellis compares two kinds of investment methods. One was perfect market timing while the other was perfect sector timing.

From 1940 to 1973, if you caught all the major market advances (he counted 11), and went to cash during the declines, you'd end up with 85 times your original money. Pretty good, you say, and you'd be right. That's about 14% a year, compounded.

But during the same period, if you were invested in the one best industry group (again, only counting major moves), and switched whenever another one became the best (about once a year), you would have an astounding 4.35 million times your original money! Your compounded return would be about 57% a year.

So right there, it seems that sector timing has quite an edge. It seems that for market timing to outperform it, the market timing needs some other extra advantage--like maybe using leverage (thus increasing risk), or making shorter-term trades (thus needing more attention, giving more chances for mistakes, and likely costing more in brokerage commissions).

This may explain why the sector timing advisory newsletters I see often perform better, in general, than the market timing services. Some use mutual funds (such as Fidelity sector funds) and others use exchange-traded funds (ETFs), but either way, it would seem from this study they have a leg up on services that just trade the broad market indexes.

Generally there is at least one industry sector going up, no matter what the general market is doing. For instance, from early 2000 to mid-2002, while the S&P 500 was losing nearly 30%, the Fidelity Select Home Finance Portfolio doubled in value.

The trick of course is to figure out which industry is going to do well. Obviously no one can do this perfectly, but maybe some can come "close enough" to make the effort worthwhile. If you know you're going to have mistakes whatever you do, you might as well start with basic parameters that put the odds more in your favor. So this line of reasoning tends to favor trading industry sectors instead of the broad market indexes.

Next time: Some sector advisories to check out.

What's That In The Night Sky?

2006-11-26T15:02:00.000-06:00

The night sky is a lovely thing. So many points of light, each with its own story. And many other objects, less conspicuous but interesting in their own right. But if you don't know your way around, it's just a jumble.

If you ever saw wished you had someone to show you around or tell you what you're looking at, your wishes are now granted. The Celestron company, well-known maker of telescopes, had a brilliant idea. They took all the GPS and software technology they use to automatically point a telescope at a desired object, and put it into a little handheld unit. It's called the SkyScout.

Here's the magic: When you point it at something in the sky, it tells you what you're looking at! This is, in the words of one of the Amazon.com reviewers, "Way Cool." All of a sudden you know your way around. You can become acquainted with stars, planets, nebulae, clusters, and galaxies.

Remember a couple of years ago when Mars made a well-publicized close approach to Earth? But if you looked at the sky, how would you know which object was Mars? Well, this unit operates in a reverse mode also. You can tell it what you want to see, look through the eyepiece, and it points the way with illuminated arrows to find what you're looking for.

Even that's not all -- It has a mode that will take you through a guided tour of any constellation. It can describe entertaining sidelights and history. It can give you a list of the 20 best objects to see, right here, right now. You can plug in optional audio presentations. It can be updated with new objects.

I personally own a Celestron telescope and I can tell you the pointing software works great. All it needs is a couple of minutes to check its internal compass, and talk to GPS satellites, and it knows exactly where everything is.

This is such a great invention it almost boggles the mind. Your virtual guide through the universe. This little unit is #1 on the list of "Hot New Products For 2007" from Sky & Telescope Magazine.

For anyone who has ever wondered about the night sky, wonder no more. The SkyScoutis a sure winner for anyone on your Christmas gift list who is interested in the stars, or spends any significant amount of time outside at night. It's a natural for Boy Scouts or any similar groups on camping trips.

Why Not To Get 2.4GHz Phones

2006-11-19T16:30:00.000-06:00

This doesn't seem to be well publicized, but if you're in the market for a cordless phone, you might notice that 2.4GHz models are low priced. One reason is that these phone broadcast in the same band as ordinary wireless networking signals. So they can interfere with your network.

There are several channels defined in the 2.4GHz band, and some phones may have a setting to change the channel. You may be able to minimize the interference by moving your phone to the highest or lowest channel, or by moving the phone away from the wireless network, but any time you are using the phone you have a chance of interference. The result of the interference is errors in the wireless network transmission, requiring retries, resulting in a network slowdown or possibly disconnection.

So if you are positive you never, ever, will use a wireless network in your home, you can get the 2.4GHz phones. But really, that's not a safe assumption. So it's much wiser to get phones that operate in another band, such as 5.8GHz.

"Black Wednesday" for Canadian Trusts

2006-11-09T21:33:00.000-06:00

If have any Canadian trusts and you're wondering what happened to them on Wednesday, November 1, just remember that the best oxymoron is "I'm from the government and I'm here to help you."

Canadian trusts have been a very popular high-income investment for the last few years. The government of Canada allowed companies under certain conditions to be exempt from separate taxation if they paid out most of their income to investors. So a wide variety of trusts have been created, notably in the oil and gas production sector.

Investing in these trusts has been a relatively safe, conservative way to earn 10%, 15%, and even higher rates of return. This kind of yield is unheard of almost anywhere else. And it gets better: there is still Canadian income tax owed by the investor, but U.S. investors get most or all of it back by simply claiming a credit on their tax return.

Well, it seems politicians can't leave well enough alone. They thought too many companies wanted to get in on the deal. Even though they had previously promised not to change things, the Canadian government torpedoed the market on November 1 by announcing a proposal to start taxing these trusts, starting in four years. This provoked the predictable "Sell first, ask questions later" response, and prices plunged.

The best commentary I've seen on this situation is from the always entertaining and never-at-a-loss-for-words Tobin Smith of ChangeWave. I highly recommend it -- it's entitled O Canada, Are You Out Of Your Mind? (Scroll down the page a little to find it.)

Today a Canadian was telling me about some of the fallout. For example, a guy was in the news who was just about to retire, had saved all his life, and had all his retirement funds invested in these trusts. He lost about $100,000 and his savings are devastated. Now he will have to work five more years before he can retire! Thanks a lot, Mr. Government Man.

(Yes, he should have been more diversified, but either way it still would have hurt him a lot. You generally can't go all to cash upon retirement, or else it won't last.)

Only time will tell how this ends up. I've sold part of my trusts when they dropped to predetermined levels, but have kept others -- so far.

Maybe these guys will eventually come to their senses. Maybe when a lot of jobs start getting lost -- jobs that were created because of the trusts? This is the kind of shenanigans you'd normally expect from liberals (generally speaking, the Democratic party in the U.S.), but from what I understand the proposal was made by a "so-called" conservative.

At least one lesson is clear: higher taxes do not lead to greater overall prosperity; rather, it has the opposite effect (this is merely a particularly dramatic example). For instance, in the U.S., the lower taxes of the last several years have not only helped the economy recover, but also (as was just announced the other day) increased government revenues even more than expected. The result has been a dramatic reduction in the federal deficit, helping every citizen and confounding the opponents of the tax cuts.

A Miniature Flashlight for Everyone

2006-10-29T21:20:00.000-06:00

A couple years ago, my dad gave me one of these lights. It's less than 4" long, and thinner than a pencil. It quickly turned into the most useful small light I've ever had. I was struck by how bright it was for its size. I used it often, at home and work, to find my way around the house at night, to examine the insides of computers, see how to plug in cables on the back (they always seem to be in dark places), etc.

Then one day I lost it. I was very bummed out. So I searched the Web, for hours on end, for wording like "LED flashlight" or "LED mini flashlight," but never could find it.

Finally I had the bright idea of asking Dad where he got it. (Sometimes the best solutions are low tech!) He told me a particular sporting goods chain, whose name I've forgotten already. But I found it on their site (their own branded version). They called it a "torch" instead of a flashlight. No wonder I couldn't find it. I've never before heard a flashlight called a torch. (Is that a British usage or something?)

Anyway, I then realized Amazon might have the original manufacturer's version at a better price. Sure enough, after searching for something like "LED mini torch" I found it! Anyway, it's made by Coast Cutlery, and at last I have gotten my replacement. It will live in my shirt pocket forever.

It has replaceable batteries, but the LED uses so little power you won't be worrying about that for a good long time. If it appears to be on the dim side, use a voltmeter to check the battery voltages.

And of course this light is really "light" -- a must for backpackers.

October is Tax Time

2006-10-22T21:09:00.000-05:00

I knew a guy who sold his business at a big profit. A few months later (the following year) he was pretty upset. He had so much capital gains from the sale, that it threw him into owing the Alternative Minimum Tax (AMT). Normally long-term capital gains are taxed at a lower rate than ordinary income, but he lost much of that tax benefit.

To make matters worse, he said he had some stock that had gone down. If he had sold that stock before the end of the prior year, and taken the loss, it would have offset a lot of the profits from his business, and avoided the AMT! As I said, he was pretty upset that he had missed that opportunity. Selling the stock later would still get him a deduction, but it wouldn't be worth nearly as much. He had paid a lot more taxes than he should have, and there was no chance of getting it back.

Another guy in the same conversation, who was an accountant, then said words I'll never forget:

"A lot of people think April is tax time. They're wrong. October is tax time."

"That's when you need to take stock of what your tax situation is going to look like, and take steps to solve any problems before year-end, while you still have a chance."

There you have it. October is right now, so get to it.

Saving Money On Tires: What's the catch?

2006-10-08T21:38:00.000-05:00

This is the continuation of my earlier post on tires. They were intended to be consecutive, but there were a couple of entries in between, that I posted in response to events.

If you use a different size tire than the vehicle's original equipment, there is a catch. However the effect is small.

A smaller tire means the wheel it has to turn faster to go the same speed, which means slightly more wear & tear on all the moving parts, up to and including the engine. And since the RPMs are higher, your gas mileage will be a bit less. The speedometer will read a little too high, and your odometer turns a bit faster. It's like driving in a slightly lower gear, so you also get a bit more power going up hills.

Of course if you get bigger tires, everything is reversed. In particular, note that the speedometer will read a little too low, and you'll need to back off on the pedal a bit to keep from getting a ticket. (This happened to someone I know.)

Again, the effect is small -- but all in all, if I had it to do again, I probably would have tried to get the next larger size tire, rather than the next smaller size.

The tire sales rep told me the speedometer should be off by less than 1 MPH. In my tests it looks more like 2 MPH. And you definitely need to test it. (You should test your speedometer anyway, but especially after getting any new tires.) Just get out on the highway and watch the mile markers. Time how many seconds it takes to go one mile, and divide that into 3,600 to get MPH.

For example, if it takes you 52 seconds to go the mile, then your speed is 3,600 / 52 = 69.2 MPH.

If you don't have a companion to wield a calculator while you're driving, the alternative is to keep adjusting your speed until it takes one minute for the mile. Then you're going 60 MPH, and just compare your speedometer to see how far off it is.

Covering All Shorts in Oil Stocks -- But Not Buying

2006-10-05T09:14:00.000-05:00

The carnage in crude oil, and energy stocks, looks to be finished -- at least for the time being. Both the daily and hourly charts seem to point to a recovery bounce, so I have closed out all short positions and put options in oil stocks.

However, the bounce could be fleeting, and prices could easily revisit their recent lows, so this is not the time to jump in buying with both feet. In fact, that time may not come again for an extended period. The newsletters I follow have either already sold, or will sell on this October bounce, somewhere between about 50% and 80% of their energy stocks. The "oil boom" of the past three to four years appears to be over.

Yes, oil prices will rise again, but oil & energy stocks should no longer be a big part of your portfolio. (If they were, you have been feeling a lot of pain since May.) Diversify into other areas.

The smaller company stocks have been leading the market for years, but it looks like that's changing. The big companies are now dominating and probably will for a good while. These things go in cycles.

In an earlier post I said high tech was going to be good. That still might be true, but it doesn't necessarily mean small companies. There are plenty of large tech companies also.

You will want to concentrate on investments that do well in a slowing economy. That's another reason to cut way down on energy stocks -- as the economy slows, we use less energy, thereby putting downward pressure on prices. And if China's economy slows also, the effect is multiplied.

One-Day Sale on Carnival Cruises -- Effective Now

2006-09-27T00:46:00.000-05:00

I've been shopping for a cruise and I just stumbled onto this -- Carnival Cruise Lines is having a one-day sale on "virtually any cruise sailing between now and December 15, 2007." Not only are prices reduced (by $100 per person for the 7-day cruise I looked at), but in addition you can get free stateroom upgrades in some cases.

The "one day" of the sale is supposedly Thursday, September 28, but their site started advertising the sale after midnight (Eastern Time) Wednesday morning. You might want to act fast, because upgrades are limited. The cruise I checked only had a choice of 3 available rooms to upgrade to, for the price range I was looking at.

One problem is, their site doesn't have updated prices yet (at least not when I was there). However, I did see the reduced prices on the Southwest Airlines site (look for "Book Cruises" at the bottom center of the page), and you can book through that site just as easily. Of course the telephone or the travel agent are also options.

Saving Money On Tires

2006-09-21T23:07:00.000-05:00

Recently I needed new tires. My minivan's size is P215/65R-16, but the tires I found in that size seemed more expensive than I thought they should be. I called up my favorite dealer, Discount Tire, and talked to a rep. He told me what I couldn't discern by looking at the web site, which is: That's not a particularly popular size. Not too many auto manufacturers and models use it. It turns out that less popular sizes cost more, which I guess is logical, but I never thought about that before.

He told me I could save some good money by getting a slightly smaller size, which is much more popular -- P215/60R-16. After checking the selection, I saw what he meant. They categorize their tires into three general tiers, and I was hoping to avoid the lower tiers if I could fit it into my budget. General rule: Tires are not something you want to skimp on, especially if you'll be out on the highway. I have personally witnessed a horrific rollover wreck in which a young girl was killed, and it was caused by a blowout. Also an acquaintence of mine was critically injured when his tire failed.

In the 65-size, I had been looking at a mid-tier 50,000-mile warranty Cooper Dean Quasar Plus (quality rating 560AB), for $70 each. Due to his advice, I was able to substitute a 60-size, top-tier 85,000-mile warranty Pirelli P3000 (quality rating 620AA), for $74 each -- less a $25 rebate on a set of four.

Of course this also works if you get a slightly larger tire.

Next time: What's the catch?

Oil Prices Still Under Pressure; Covering More Shorts

2006-09-10T23:05:00.000-05:00

By now, you know that oil and gasoline prices have declined rather steeply. But what about the future?

In my August 14 post, I said to be prepared for crude oil futures to get down to about $65 a barrel, but eventually up to $100 a barrel. At this writing it's $65.82, so the biggest part of the decline may be over, for a while at least. I'm covering more shorts. This is why it's not such a good idea to do an all-or-nothing trade; if I had covered all shorts on August 21, instead of most shorts, I would have left money on the table.

I've also seen two articles recently (here and here) saying oil industry insiders are selling. This is obviously a bad sign. Because they've gone up so much in the last few years, oil company stocks could continue to languish even if oil prices stabilize and rise. I'm continuing to reduce my holdings, although eliminating them completely is not a good idea.

In the months ahead, what industry will do the best in the stock market? My sources say that high tech will take over the leadership from oil & energy -- and in fact that transition has already started.

Dog Heroes of 9/11

2006-08-27T23:27:00.000-05:00

As we approach the fifth anniversary of 9/11, special observances and media presentations abound. When I saw this book I knew it was something unique.

We often forget about the highly trained canine workers that help save lives every day. Here are collected stories of their tireless contributions in the wake of those barbaric terrorist attacks. They arrived from all over the country to search for survivors (which were few) and body parts (which were many). A number of the same dogs also helped in the aftermath of Hurricane Katrina.

At this writing, every single review on Amazon.com gives this book 5 stars -- the highest rating. It includes more than 250 color photographs and 77 interviews with handlers and rescuers.

Sales of the book will benefit the National Disaster Search Dog Foundation and help to train more four-legged heroes. So here's your chance to entertain and educate yourself while helping our nation to prepare for future disasters.

Oil Prices Up; Covering Most Shorts

2006-08-21T10:18:00.000-05:00

Oil prices (and oil stock prices) are up over the weekend, partially reflecting geopolitical factors. It may not get down to the $65 per barrel area -- at least not before bouncing up to $80 or so. The uncertainty means it's probably not a good idea to be selling, or remaining short, on oil or oil stocks. You don't want to be in a trade like this unless you have an "edge," and it appears the edge has dissipated.

It turned out that during this period, shorting oil itself (such as the oil exchange-traded fund, USO) was much better than shorting the oil stocks (such as XLE).

Easily Invest in Clean Energy

2006-08-20T22:32:00.000-05:00

We all know we need more oil and natural gas supplies, and more reliable supplies at that. But the other side of that coin is that we also need more alternative energy supplies and conservation. I've discussed how to make money in the former; now I'll tell you about the latter.

There are numerous companies engaged in what is often termed the "clean energy" business. But there are so many different variations. Which technologies will be the ultimate winners? And which companies will be the ones that actually are able to cash in?

Enter the PowerShares WilderHill Clean Energy Portfolio. It's a member of the growing collection of ETFs (exchange-traded funds) in existence today. These are "baskets" of stocks that are conveniently combined into one unit -- and the unit trades just like a stock. It has price quotes that vary throughout the day, and you buy and sell it at your favorite broker (hopefully one with low commissions).

This fund, according to its site, invests in about 40 companies "that focus on greener and generally renewable sources of energy and technologies facilitating cleaner energy." Its trading symbol is PBW.

My sources are saying that PBX seems to be ending a major 4 month correction, and is starting a new advance. So this is your chance to save the environment, enhance our national security, and make money all at the same time.

Oil Stocks Down; Covering Some Shorts

2006-08-14T10:02:00.000-05:00

About 3 weeks ago I mentioned it might be time to sell some oil stocks, and/or short them. But not all at once, which was a good thing, since prices rose after that.

Oil prices, and oil stocks, are down sharply today because of the peace efforts in the Middle East. I'm hearing that XLE (the commonly traded energy ETF) is close to its short-term target and has a good chance of rising again before continuing further down.

Moreover, the next 2-3 weeks tend to be a seasonally positive period for the stock markets, on average.

So if you shorted some during the higher prices, today looks like an opportune time to cover some of those shorts and take some profits, if you're a short-term trader. Or for long-term investors, you might want to buy some more oil stocks now. But remember we still could go lower, especially after summer driving (and hurricane season) is over.

Of course nothing is certain, but basically in the upcoming weeks to months, you should be prepared for about a 10% decline in oil prices (maybe to $65 a barrel in the futures market, give or take), and a similar decline in oil company stocks also. But in the upcoming years, you should also be prepared for oil at $100 a barrel. Goldman Sachs predicted $105, and they have a reputation for being right more than wrong.

Free Online Backup - Completely Private (Encrypted)

2006-08-13T21:29:00.000-05:00

Why backup online? Can you say "Hurricane Katrina?" (Or fill in your own natural disaster. And don't forget fire, theft, terrorism, etc.) One rule of computer backup is to keep your backups somewhere else.

There are a number of online backup services springing up, but Mozy Backup is the only one I've seen that (1) gives you a really substantial free allocation, and (2) lets you encyrpt your backup data.

Point #1 is very nice -- you can back up 2 GB worth of data 100% free. And if you join by clicking any link in this blog entry (like here), you'll get 2.25 GB instead of just 2 GB. Don't backup your entire system disk -- just your important data. It's pretty easy to pick and choose which folders to back up. After the first "big bang" backup, it just transmits the changes, which goes pretty quickly.

Point #2 can be important for privacy. If you choose the option of supplying your own encryption key (i.e., password), then no one can get it -- not even with a government subpoena. And they use a really, really strong encryption code that realistically, no one is going to crack in your lifetime.

And yes, they have a paid service, which lets you back up 30 GB for $4.95 a month. Some people need it, some don't.

Oh, and every time you refer someone else who starts using the service, you and they both get 256 MB more space. So maybe you can get all the space you need, free.

Here's the link again : mozy.com

NEW Student Financial Aid Breaks for Business Owners, Welfare Recipients, Military

2006-08-06T15:36:00.000-05:00

Several aspects of the regulations for student financial aid calculations changed on July 1, 2006. If you own a business, if you receive some kinds of government assistance payments, if you are active military, then you need to look at these changes. Then you might want to change your financial aid application -- or, if you hadn't bothered before, you might want to apply now.

OK, first a little background. If you are a student this fall, any time after January 1 of this year you should have filled out a FAFSA (Free Application for Federal Student Aid). The goal of this application is to for the Feds to calculate your Expected Family Contribution (EFC). Your job is, as far as legally permissible, to minimize your EFC. The smaller the EFC, the more aid you can get. If you get loans, this could even be the difference between a subsidized vs. an unsubsidized loan. The subsidized loan is better because the interest is completely paid for you till you graduate.

Part of the FAFSA involves listing the assets of student and parents. In the past, if you had a business, you had to list the business as part of your assets. Business assets aren't counted as much as household assets are -- but still, higher assets of any kind results in higher EFC, which is bad.

Well, now I see this on the page of the 2006 changes on the FAFSA web site:

"Small Business - The net worth of a small business should not be reported if the family owns and controls the business and employs fewer than 100 full-time or full-time equivalent employees (FTE)."

This is really big news. If the student and/or parents own and control a small business, it might have tens of thousands (even hundreds of thousands) of dollars in assets. All of a sudden, these assets can now be completely left off the FAFSA. This could make an enormous difference in your financial aid.

So if you didn't know about the change, and if you listed any business assets when you filled out your FAFSA, you can change it to remove those assets, and thereby reduce your EFC. It is not too late to apply, or change your application, for this fall!

Other 2006 changes listed on that page give ways to reduce your EFC if you are active military, or receive government assistance. There are changes in the way you report things like 529 plans and Educational Savings Accounts, and there is also information about a new grant program for freshmen and sophomores.

Tax-Deductible Sports and Fitness?

2006-07-30T20:41:00.000-05:00

As most everyone knows by now, the increase in obesity is threatening the health of millions of Americans. This has a real cost -- estimated at about $100 billion a year. Every extra dollar spent on health care hits you right in the pocketbook, in the form of higher health insurance premiums (which of course also filters into every product you buy -- for instance, $1,500 for every GM car).

Now there is a proposal in Congress to expand Health Savings Accounts, Flexible Spending Accounts, and Medical Savings Accounts to allow reimbursement for exercise, fitness, and organized sports. It's designated H.R. 5479 and called The Personal Health Investment Today Act of 2006 ("PHIT" -- get it? Who makes up these acronyms anyway?). It makes everything from health club dues and exercise equipment, to sports gear, effectively tax-deductible -- if you have a qualifying medical expense reimbursement plan in place (which of course is a good idea already).

This sounds like an idea worth considering, although of course the potential for abuse is there. If you support this idea -- or if you oppose it -- now is the time to inform your elected representatives. You can get your congressional representative's contact information at http://www.house.gov/.

Information about the bill, including its full text, sponsors, and current status, can be seen here. At this writing, it's in the Ways and Means Committee.

Beware of Oil Company Stocks Now

2006-07-23T22:04:00.000-05:00

My 2nd post in this blog was entitled "Invest in oil & energy." OK, I need to modify that.

Here's what I mean: Long term, oil and energy companies should continue to do well, especially the ones that are intended to provide income (like Canadian royalty trusts in general). But what I'm hearing now, from the people whose job it is to know these things, is to look for a pause and/or decline in these stock prices over the next few weeks and months.

But "What?" you say ... "We're just now approaching the height of hurricane season." Yes, and when did the highest oil prices, and oil stock prices, occur last year? Look at a chart of XLE, the oil company ETF (exchange-traded fund). Most of the increase came before Katrina. After Katrina hit on August 29, prices rose (relatively) slowly for the next month, finally reaching about 8% higher at the end of September. Then they suddenly plunged nearly 20% in three weeks. It was not until January 2007 that the Katrina peak was exceeded.

In fact, at this writing, XLE's latest close was at 54.48 on July 21, below the Katrina peak of 54.65.

So higher oil company stock prices are not a given. In fact, there are several signs that the XLE is heading into a multi-month decline. If the stock market as a whole declines over the next few weeks, as the odds seem to say, then oil stocks could easily go along for the ride. Oil stocks are, after all, stocks.

Another way of looking at this: In the short term, stock prices are influenced primarily by trader psychology, not fundamental factors such as profits and news events. Everyone has been buying oil stocks in anticipation they will go up. When everyone that wants to buy has done so, then prices have no place to go but down.

Hedge funds especially have been a big influence on the markets over the last few years. They all buy things that go up. When those things start going down, all the hedge funds have to sell at once, and the door is too small for everyone to get out in time.

So right now is probably not the time to jump into oil stocks. In fact, you might want to:

1. Sell some.
2. Donate stock instead of selling it. This is one of the best tax breaks you will find.
3. If you are a trader, you can sell short the XLE, and/or the OIH (oil services ETF) and hold that position for a few weeks or months.
4. If you are an options trader, you can buy put options on XLE and/or OIH.

Numbers 2 through 4 are good if taxes are a concern (and for most of us they are, unless your holdings are in an IRA).

If you don't want to be a trader, just be prepared for oil stock pain. Make sure your portfolio is tilted toward income. If you want to get started buying for the longer term, don't jump in all at once -- either feed money in on a regular monthly basis, or buy some more every time there are a few days of decline.

When I start hearing the message that oil stocks are making a bottom, I'll post it here. I pay a lot of attention to energy investing, as you may have guessed. I own a lot of these stocks, but recently for protection I've been doing all four things listed above. (Again, the best way is not all at once, but gradually.)

Caution Warranted in Stock Market till Autumn

2006-07-16T21:22:00.001-05:00

I'm not an investment advisor, but I keep my ear to the ground and subscribe to some good market advice. The advisories I pay lots of attention to are all talking about considerable market danger between now and the September-October time frame. They are talking about reducing risk.

Not, it's not necessarily about the outbreak of fighting in the Middle East (although that could make things worse, at least temporarily). The market often doesn't respond to news the way you think it will. Right now I'm talking about seasonal and cyclical factors.

First, the period from summer through October is often weak in the markets. You may have heard the saying "Sell in May and go away," which is not an old wives' tales -- it has a lot of truth to it. For instance, a lot of money has been lost since the market started tumbling on May 11 of this year.

Second, a lot of market action can be understood by fitting it into a 4-year cycle. Why four years, I don't know, except I suspect it's related to the Presidential election schedule and the efforts of each administration to stimulate the economy to get re-elected. For whatever reason, the market has a strong tendency to reach a notable low point around October of a midterm election year. And of course 2006 is one of those.

In other words, not only are we coming up on the worst part of the year, but we are also coming up on the worst part of the four-year cycle.

Therefore caution is advisable.

The advisors I respect are taking precautionary measures such as selling some growth stocks and concentrating more on safety and income for the next several weeks. It's looking like even oil stocks may not be immune to the weakness, even if the price of oil remain high (and it might also back off, at least for a while).

Stocks could still have a nice bounce in late July or August, but the experts I listen to are saying to take that opportunity to lighten up even more.

But be alert; the period from about November through January is the best part of the year for stocks.

Of course, any given year can vary, but these seasonal tendencies hold true over time.

Free Directory Assistance

2006-07-06T19:29:00.000-05:00

Remember when directory assistance was free? Then Ma Bell started charging for it -- first a little, then more, and now a lot. I saw one figure quoted at $1.49.

Of course nowadays you can look on the Internet, but what if your computer is turned off or you're traveling? Anyway, someone has decided to fight back. If you call 1-800-FREE-411 (800-373-3411), you can get directory assistance free.

And it works, at least for the number I tried. It's an automated voice-recognition system so you should speak clearly.

Save $100 on School or College Tuition -- or Shopping

2006-06-28T21:34:00.000-05:00

The new special offer from Discover Card has been announced, and once again they are giving 5% cash back on tuition. The offer is from July 1 through September 30. (If you don't have tuition to pay, the offer is also good on an assortment of retailers, including Gap, T.J.Maxx, Dell, Office Depot, Pier 1 Imports, and a few others.)

Too bad you only get the 5% rebate on the first $2,000 you spend (the last time they offered this on college tuition, the limit was $3,000), but that's still $100 cash in your pocket. This time around, it can be anything from preschool to college.

Just make sure your student loans (or any other financial aid that's paid directly to the college) is not paid until after you pay $2,000 of the bill yourself. Don't apply till you are ready.

You can pay more than $2,000, but the amount over that will only get you the smaller, "normal" cash rebate, which varies but is 1% at most.

Later, when the financial aid proceeds arrive, the college will reimburse you directly for the excess. Then take that money and pay off the Discover Card bill completely! Do not spend it on anything else, and don't you dare let the balance carry over into another month. You lose a big part (or all) of the benefit if you have to pay interest on the credit card bill.

Consolidate Student Loans Even If You've Consolidated Already

2006-06-17T12:50:00.000-05:00

The rules for federal student loans can be complex. There are a couple of rules you may have run into:

1. You can't consolidate any given loan more than once (this hits you if you've ever consolidated in the past).

2. The minimum amount for loan consolidation is $7,500 (this hits you because the new loan you got last fall is surely less than that).

Well, yes and no. If you consolidated last year, and you're still in school, and you got a new loan last fall, then guess what? You can consolidate again. This gets around both rules, in the following way:

1. You can't consolidate last year's consolidation loan more than once by itself, but if you have other loans, you can combine them to produce a new loan. Yes, this is considered a new loan, so it gets around Rule 1.

2. The combined amount of both loans will certainly be more than $7,500. So this gets around Rule 2.

The interest rate on the new loan is the "blended" rate of both loans. Essentially, you keep paying the same "very low" interest rate on last year's consolidation, and the "still pretty low" interest rate on the latest loan.

So get going. You have only till June 30, or else your interest rate will jump right away, and will be adjusted every year from now on. That's a risk. If you consolidate, you lock in the low rates forever.

Where else can you borrow long-term money for 4.7% (student loan) or 6.1% (parent loan)? Even though those numbers are about 2% higher than last year, they're still very good.

The downside is that you have to start repayment right away, but these low interest rates are worth it. You can set up a graduated repayment schedule, where the payments are lower for the first few years and then increase. (But be sure to put aside money to pay them off!)

See my previous post for a few places to consolidate.

And don't forget the incentives. For instance, just about everyone offers a .25% discount on the interest rate if you set up repayment

MOHELA had a great incentive last year -- a rebate of up to $1,000 after only 15 on-time payments. They don't offer it this year, but this is a place you should check back on. They always have good incentives for the regular student loans, and they might bring back some better incentives for the consolidation loans next year.

But they do have a new 100% online application process. No mailing papers back and forth as you had to do last year. Others might have a similar system. In order to sign your promissory note, they look up your credit report in real time, and ask questions based on the information they find. If you answer correctly, they know it's you. Seems like a neat idea for identify verification.

Consolidate student loans right now, before July 1

2006-06-10T23:06:00.000-05:00

For college students and parents everywhere, student loans are often a part of the picture. There is a legitimate concern about the desirability of these loans (Americans have too much debt in general nowadays), but I'll not get into that now. If you already have a loan, I'm talking to you.

Every year the federal student loan interest rate is re-set on July 1. Last year (the first half of 2005) was really the year to consolidate because the interest rate was the lowest in the history of the program. Rates went up in July 2005, and they're going to jump again on July 1, 2006.

There are numerous lenders where you can consolidate, such as Sallie Mae, College Loan Corporation, MOHELA, and nelnet. Different lenders have various incentives and rebates. College Loan Corporation seems to be one of the better ones, offering a 1% to 2% rebate (depending on the loan balance), after nine on-time payments. And practically everybody gives you a .25% reduction in interest rate for setting up a direct-debit automatic payment plan. So do it.

It's easier and quicker to consolidate where you already have your loans, so weigh that against the possible rebates and the time remaining. If you consolidate somewhere besides your current lender, there will be delays while the loan is transferred from one lender to another.

Just do it -- get your application in as soon as possible, but definitely by June 30. Missing this deadline can cost you hundreds or thousands of dollars.

Next time: Why the rule against consolidating more than once isn't quite as bad as it seems.

Save 5% on Gasoline

2006-05-21T21:05:00.000-05:00

Everybody's talking about the high cost of gasoline, but what can you do about it? I'll have a lot more to say on this topic in later posts, but here is today's tip.

If you have a Discover Card, or you ever thought of getting one, listen up. You probably already know that the card gives you a rebate (called a Cashback Bonus) on all purchases. The rebate varies according to how much you've bought since your last card anniversary date, and (ordinarily) maxes out at 1%.

But for the last year or two, they've been running special promotions. Every three months they have a different category of purchases on which you can get a 5% rebate. That's pretty good. Right now, through June 30, 2006, the 5% rebate is on purchases of gasoline. (Also some other automotive expenses are included in the offer.)

Think of it this way: With gasoline at $3.00 a gallon, this rebate gives you a discount of 15 cents a gallon! And you don't even have to drive farther.

It requires a signup, but it's free, quick, and easy -- either log in to your account area on their site, or call them at 1-800-DISCOVER (800-347-2683).

Some other credit cards offer good rebates also, notably the Citibank Dividend Platinum Select cards with 5% rebates on anything bought in supermarkets, drugstores, and gas stations. (The rebate on everything else is 1%.) There is a $300 yearly overall limit on rebates. Go to their site, then click "Rewards Credit Cards" to see all the options.

Medicare Prescription Coverage - Beat The Deadline

2006-05-14T17:16:00.000-05:00

The Medicare deadline for prescription drug coverage is May 15. If you are eligible for Medicare, and you don't already have a plan that's at least as good as good as the Medicare prescription plan then you need to sign up.

If you don't know which variation to get, go sign up for something. You can always change or upgrade coverage later, but if you don't get in by the deadline, there is a surcharge you'll pay for every month you delay -- and you'll have to keep paying that surcharge for as long as you live!

For more details and step-by-step instructions on how to get started, see this article.

Note they are selling a guidebook also -- you can get it if you like; I have no recommendation on it. But the article will explain more of what you need to know right now. So get going fast, if either you or a family member doesn't yet have the right kind of Medicare prescription coverage. Call your mom, call your dad, call your grandparents, and make sure they are signed up.

E*Trade Brokerage Buying BrownCo -- Stay Or Go?

2006-04-23T15:55:00.000-05:00

I've been a customer of BrownCo (originally Brown & Company) since 1993. They had the cheapest commissions then, and every few years they'd go down even further, till they finally were charging only $5 for online market orders ($10 for limit and stop orders). They were the deepest of the "deep discount" brokers.

I remember when I first applied for authorization for options trading. A week or so after mailing in the form, I was anxious to know if I'd been approved, and so called them up. A phone representative told me "Not yet, but we've given it to Mr. Brown and he should get to it pretty soon." Wow, was I impressed that the head of the company himself was taking such a personal involvement in the process. It was also a nice clue about the small size and corresponding lack of bureaucracy in the firm.

Later they were bought by J.P. Morgan, but mostly kept the "Brown" identity.

Then last year they announced they were being acquired by E*Trade. You can stay with them and become an E*Trade customer, or transfer your account to another brokerage. But if you want to avoid account termination fees, you need to let them know by April 28, 2006.

Well, for me, it's bye-bye Brown. They have guaranteed to keep the same commission schedule until the end of 2006, but after that you know they're going to raise them to the standard E*Trade commissions (currently $12.99 unless you have more than $50,000 in assets or make more than 29 trades in a quarter). The lowest rate is $6.99 if you trade 1,500 times in a quarter.

And Brown had no inactivity fees, nor any fees to make partial transfers out of the account. This is a function I've used several times, not only for simple moving things around, but also for charitable donations (in case you didn't know, there's a big tax advantage if you do your donations that way). But for a smaller account, E*Trade charges $40 per quarter inactivity fee, and $25 for a partial transfer out.

No, thanks. I'll transfer one account to Scottrade. I already have an account with them anyway, and their commissions are only $7, no inactivity fees, and no fee for partial transfers. They seem to be the current cheapest "deep discount" broker.

There there are the more specialized "super discount" brokers that cater to active traders, such as Interactive Brokers, which only charges $1 minimum commission. I actually use IB more than anyone else these days, and I'm transferring another BrownCo account to them. I still keep a Scottrade account for mutual funds, and also every now and then there's a stock I want to short that IB can't do for some reason (I guess they don't have enough shares). But Scottrade virtually always either has shares to short, or can get them from another broker if I call my rep.

Free help with IRS problems - Taxpayer Advocate

2006-04-18T21:07:00.000-05:00

If the IRS is on your back, and you don't know how to cope with them, there's help. It's called the Taxpayer Advocate Service. Here's what their web site says:

"If you have an ongoing issue with the IRS that has not been resolved through normal processes, or you have suffered, or are about to suffer a significant hardship/economic burden as a result of the administration of the tax laws, contact the Taxpayer Advocate Service."

"Your assigned Case Advocate will listen to your point of view and will work with you to address your concerns."

"The Taxpayer Advocate Service not only helps individual and business taxpayers settle disputes with the IRS, but also tries to repair the larger, systemic flaws that cause trouble for taxpayers and IRS employees alike."

So who sponsors this wonderful organization? Surprise -- the IRS! Yes, the Taxpayer Advocate Service is "an independent organization within the IRS" to "help taxpayers resolve problems with the IRS and recommend changes that will prevent the problems."

Emphasis on the word "independent." No, they aren't going to screw you; they're going to try to figure out the best way to solve your problem. And it's free.

For more information see their site at http://www.irs.gov/advocate/.

Get a tax credit for your IRA -- even a Roth!

2006-04-08T18:11:00.000-05:00

Many people don't know that lower-to-middle income taxpayers can get a tax credit of 10% to as much as HALF of the money you put into an IRA.

Traditional IRAs are tax-deductible when you contribute (except for higher-income folks), but the Roth is not (instead, all withdrawals are tax-free, which generally makes it a better deal). But this is a completely separate tax credit, and it applies to either one! Let Uncle Sam pay you to save -- such a deal!

You have till April 17, 2006 to contribute for 2005 (and then of course till April 2007 to contribut for 2006, and so on). For 2005, you can contribute $4,000 (or $4,500 if you turned 50 or more in 2005), but only up to your total employment income for the year (note I said income from employment, not self-employment, and not investments, etc.). If you worked, your spouse can contribute too, even if he or she didn't work.

However, only $2,000 for each person is eligible for calculating the tax credit.

Just to make this clear: If you deposit $2,000 into an IRA, and meet the income qualifications, Uncle Sam will put between $200 and $1,000 straight into your pocket (depending on income) in the form of that tax credit. And your spouse can turn around and do the same.

So don't delay -- put that money to work for you. Don't depend on "Social Insecurity" to bail your out. Its financial problems are notorious, and there's basically nothing Congress can or will do that will rescue it enough to prevent benefits from being reduced and/or delayed in the future.

And don't forget that tax credit on Line 51 of that Form 1040. You get the full benefit if your your Adjusted Gross Income is less than $15,000 ($25,000 if married and filing jointly), and it phases out as income rises past $25,000 ($50,000 if married and filing jointly).

Don’t miss old income tax refunds

2006-04-01T11:10:00.000-06:00

It's income tax time again. If you didn’t file a tax return for prior years, and you’re worried about being in trouble, consider this: Most people don’t have to pay extra; instead they get refunds (because they had more than enough tax withheld by their employer). The penalty for late filing is merely a percentage of the tax not already paid. If you don’t owe anything more, guess what? No penalty.

In fact, you’d better hurry up and file, to get your money. If you wait more than 3 years, it’s gone forever. So you just have from now till April 15 to file your back returns for 2002, or else you can kiss that refund goodbye.

More information is on the IRS site at http://www.irs.gov/businesses/small/article/0,,id=108327,00.html

While you're at it, get those old returns filed for 2003, and 2004 -- and of course the current return for 2005.

Better Bargains on eBay

2006-03-17T22:42:00.000-06:00

Everybody, it seems, is buying and selling on eBay. Here's a little-known technique to get some big bargains.

Sometimes sellers misspell the name of an item. When buyers search, of course this item doesn't show up in the list. So practically nobody knows about it, and it can be grabbed for a cheap price by those who do see it. Some people make a business of buying these items, and immediately reselling them for a profit.

So how do you find these boo-boos? Here's a free service where you can type in a search term, and it generates all sorts of misspellings -- and searches eBay for those terms. The rest is up to you. After the initial search, if you get too many hits, you can edit the list of misspellings to fine-tune the results and search again.

Oh, it also has lots of helpful eBay articles -- be a better buyer, or a better seller. Get it all here:

eBay misspellings

Invest in oil & energy

2006-03-05T18:42:00.000-06:00

Economics 101 teaches that whenever there's a shortage of something, the sellers of it make more money. I saw that firsthand in the 70s with oil -- and have been investing in oil and energy companies more or less ever since.

This is a volatile sector, but despite the enormous gains of the last few years, the long-term prospects appear bright. Unless we solve terrorism, prevent more Gulf of Mexico hurricanes, and find a lot more cheap oilfields, energy stocks should be nice gainers for the next decade or two, anyway. And not just oil and natural gas stocks, but nuclear, solar, fuel cells, and other alternative energy technologies should do well.

There are lots of ways to invest. Simplest is a mutual fund, and a number of fund families have them. For instance, Fidelity has their Select Energy (trading symbol FSENX) and Select Energy Services (symbol FSESX) funds. There are several of exchange-traded funds (ETFs), traded through brokers like stocks, such as the popular Energy SPDR (trading symbol XLE) and Oil Service HOLDRs (symbol OIH).

Unfortunately, as far as I know, there is no "Energy Income" mutual fund as yet. This is by far the most conservative way to invest, especially considering most energy income stocks pay 8% - 15% in annual dividends. (Try that at your local bank!) Canadian royalty trusts in particular are exploding in popularity, and they have great tax advantages too.

If you'd rather trade individual stocks, you should consider an advisory service. One I've used for several years, and like a lot, is Czeschin's Oil & Energy Report. He has an income portfolio that gained about 100% during the 2000-2002 market "crash" years. Amazingly, he doesn't have a web site, but the U.S. toll free phone number is 1-888-847-5739. Their Email is oil_and_energy@pbgroup.com.ph (but despite the Philippines address, Bob Czeschin is from the U.S.).

Another one worth a look is the Real Wealth Report which covers not only energy, but other natural resource investments as well (including gold).

Finally, check out ChangeWave Investing. They are a generalized investment newsletter, but have a heavy dose of energy stocks including Canadian royalty trusts. Not only will you learn a lot from Tobin Smith, you'll be entertained as well. With the help of his unique network of informants working in various industries, he has the pulse of the economy. He called the market bottom in 2003, and for too long I didn't believe him -- to my regret.

The best money periodical

2006-02-25T22:22:00.000-06:00

This blog is generally about money-related resources -- earning, saving, investing, markets, and things worth spending money on, including good books, etc. When I see something I like, I'll recommend it and give a link.

The honor of the first post goes to the best all-around periodical I know related to money and investing. On radio talk shows, I keep hearing people ask how to learn about these topics. There are many contenders, including the Wall Street Journal, Fortune, etc. But nothing I know beats Money Magazine.

I have subscribed for years. They cover the subject from all angles. Yes, there are stock picks and mutual fund rankings, but what sets them apart is their other coverage. For instance, a recent issue carried the most lucid and informative article about the Social Security mess that I've seen. They were also able to explain the new Medicare drug benefit understandably.

I particularly appreciate the articles about investing psychology, where they explain how the human brain is wired to do precisely the wrong thing in investments, and how to combat that destructive tendency.

How much can you withdraw from your retirement nest egg each year to make sure your money lasts? Most people, and even financial counselors, guess too high. Money has pointed to studies that show if you withdraw more than 4% a year, your risk of running out is sharply increased. All you need is a market decline like the 70s occurring shortly after you retire, and you are toast.

Anyway, you should definitely subscribe to Money magazine.