Yesterday's post-euphoria Fed minutes bounce did not carry over
to today's action. We were starting to move off of earlier lows, as
rumors Spain may be in talks with Eurozone officials about
sovereign aid (whatever that means), but investors remained
cautious through the close.
Poor earnings results added to investor angst, as we saw selling
in shares of Hewlett-Packard (
) and Guess Inc. (
). Meanwhile, cautious Wall Street analyst commentary pushed stocks
like Safeway (
), U.S. Steel (
) and Nucor (
) into the red. We saw gold prices (
) sustaining yesterday's rally, however, as money moves back into
the yellow metal.
No doubt gold's recent pop is due to some recent Federal Reserve
commentary concerning QE3. More on that topic below.
Banks Come First, As Usual
How sweet it is for the banks that made it through the 2008
financial crisis (sorry Lehman and Bear Stearns!). With their
consistent "end of the financial world as we know it" dialogue, the
banks have been able to stave off much-needed investigation and
oversight into how things got so messed up and how to actually fix
it. Instead, it's essentially been business as usual for the banks
- if you count hundreds of billions in bailouts "usual."
Just yesterday, the Federal Reserve came out and put another
dagger into the hearts of savers hoping to invest in fixed income
at decent rates. The minutes from the latest Fed meeting were
released yesterday, indicating that several board members supported
a third round of quantitative easing (printing money). This
development puts a damper on any talk of interest rates rising any
Banks are telling us on one hand business is better, but yet
they have scores of non-performing loans and a backlog of
foreclosed-upon (and should-be-foreclosed-upon) homes they are not
sure what to do with. We're seeing many cases of individuals being
allowed to stay in homes, despite not having paid their mortgages
in months or even years. The government has stepped up to buy time
- first for the banks, and then for those who may have fallen on
tough times. I certainly can't blame those who are struggling
financially, but in any normal economic market environment, soured
mortgages would not overhang entire industries.
Meanwhile, the media expects us to be thrilled at any little
uptick in housing sales data. Still, the shadow of mystery about
what is really happening in the marketplace with residential and
commercial real estate remains. We are inundated with messages of
owning our own homes and investing in the one thing they are not
making any more of: land. Or they'll claim that interest rates
won't stay low like this for much longer. Where's the evidence,
then, that rates will rise in the near future? I certainly don't
see any. The nonsense just rolls on and on.
Some investors looking at real estate will certainly find
opportunity. However, those who fail to do their homework regarding
specific locales should be very careful about throwing that
"investment" word around. Everyone should also examine his or her
current job situation and the likelihood they will see their
salaries grow over time to support the rising fixed costs that come
with owning a home. Owning a home is not a bad thing, but you have
to do your own homework to see if it even is something to should
consider. Home ownership entails a lot more than families
frolicking around in their livings rooms - unlike what most real
estate commercials would have you believe.
In data just being released by online real estate giant Zillow,
nearly half, or 48%, of all mortgage borrowers under age 40 are
underwater. My dad was 37 years old when he bought his first home,
and that was after owning his own business for the previous 13
years. He'd saved up a large amount of money at the time, and could
easily shoulder the increase in monthly expenses. I don't think
it's far-fetched to say that the vast majority of today's under-40
homeowners didn't take that same route.
You may ask why I discuss real estate as much as I do. Well,
it's because real estate is a topic many individuals think about
more than anything else. Deciding where someone wants to live and
whether they should be renting or owning also has a big impact on
how they can proceed on the idea of building wealth. You see, if
every dime you make goes into paying your everyday bills,
mortgage/rent, etc., and there is little left to build a nest egg
filled with assets that produce income, you're going to struggle as
the years go on. Hence, many find themselves in a position with
little savings as the years go by.
When you hear about a continued push to raise capital gains
taxes and punish those who are choosing the right way to build
wealth (and not have to worry about living primarily off of social
security), it makes our temperatures boil. At some point, the low
interest rates will garner pockets of speculation that will
undoubtedly set the stage for yet another crisis. And you know who
will be caught lending into whatever the frenzy is or even trading
in it? That's right, the banks! Ask J.P. Morgan (
) how well their recent bet worked out. I'm referring to the trade
that cost the bank between $4 billion and $7 billion, as no one
really knows the final tally of the damage. So much for careful
in-house corporate oversight from what many consider to be one of
the best financial managements in the business today, huh?
As investors that want to make our own way,
we can not take our eyes off the ball when it comes to how
different political, economic, and market actions can affect our
I will be sure to keep everyone apprised of what the current
picture looks like and how best to navigate through the noise.
25 Years of Dividend-Increasing Stocks
We recently updated our list of dividend stocks that have been
paying out dividends for 25 years or more. Be sure to check out
the latest list of names here
Dividends Really Matter
Financial blog DailyReckoning.com recently took a look at the
difference dividend payouts made in the overall return investors
saw throughout the prior decades. Here are some of the
- The Nasdaq is down 28% since the end of 1999. Even the "blue
chip" S&P 500 stocks are down 15% during that time frame…until
you add back those "boring" dividends. With dividends included, the
S&P 500′s 15% loss flips to a 6% gain.
- Without dividends, the S&P 500 index would have produced a
loss for the 25 long years from August 1929 to August 1954. Then
again, without dividends, the S&P 500 produced a 5% loss during
the 13 years from September 1961 to September 1974. But with
dividends included, the S&P's loss became a 46% gain.
- Over the course of the last half-century, dividends have
contributed more than half of the stock market's total return -
56%, to be exact.
Of course, you can't discuss the potency of dividend investing
without making mention of how awesome compound returns are. I can't
stress enough the power of compound interest: you take a small
amount of money and turn it into a large amount over time. Finding
the right companies at the right price points which not only grow
earnings, but also grow their dividend payouts as well!
New Watchlist Article Out Today
Be sure to check out our weekly Top 50 High-Yield Watchlist
Names post that is out today, exclusively for
members. This list gives readers a good idea of what stocks we're
watching behind the scenes here for potential upgrades.
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