We saw a huge pullback in gold prices today (persistent rumors of a margin hike for trading gold futures and perhaps Federal Reserve Chairman Ben Bernanke shooting down talk of QE 3 on Friday could be part of the catalyst for the drop). Update - It is being reported after-hours that CME is raising margin requirements for gold futures contracts.
There will be investors/traders who are quick to buy the first recent mild dip we've seen in gold, but like the high-beta/momentum stocks, there could be some danger in buying in too soon. Many traders are trapped in high-beta stocks that have pulled back 30%-50% in the last 4-6 weeks. Buy and hold investors tend to forget about positions that pull back that quickly if they fail to put in sell-stops. At that point, hope becomes their mantra. But for traders, the pain usually becomes too much and shares are sold for decent losses, only with hopes they can recover taking positions elsewhere in the market.
Looking at today's market movers, Bank of America ( BAC ) was able to climb back to the $7 level as the stock appears to be the short-term focus of every financial media anywhere you turn. The snapback also carried over to J.P. Morgan ( JPM ) and PNC Financial ( PNC ) shares. Both are hoping to stabilize after touching new 52-week lows just a couple of days ago. The same thing was happening in the transports sector with FedEx ( FDX ) and United Parcel Service ( UPS ) trying to rebound off new 52-week lows hit earlier in the week. Going back to gold for a second, prices closed down the most in one day since a 5.8% fall back on March 19, 2008. This certainly helped boost equities in the last hour of trading as many pundits have been screaming about falling gold prices are a prerequisite to higher stock prices.
As I mentioned yesterday, the media does an amazing job at balancing the drama on both sides when it comes to business news and the economy. If they focus too much on the negative, advertisers in the financial space will give them an earful. Friends of mine who were in the real estate business would often bark at newspapers that would carry stories about real estate bubbles. The threat, of course, was that realtors would spend less on advertising in those particular publication, should the newspaper continue to publish negatively-theme real estate articles. At some point, media companies decide to avoid biting the hand that feeds (even at the expense of reporting the real facts).
I was reading about a new survey from Bankrate.com that indicated many Americans have curtailed or decreased contributions to their retirement savings accounts this year compared to a year ago. Nearly 3 in 10 employed Americans (28 percent) are saving less for retirement than they did the year before, while 15 percent are saving more and 48 percent are saving about the same amount. We know there is a tough squeeze going on from unemployment, reduced benefits, lack of salary raises, and inflation in areas that pinch the consumer (food, gas, utilities). Throw in the fear of further downside in the markets and you have higher net worth individuals willing to accept money market and CD rates of less than 1% and barely 2% for longer duration products (5 year CDs, etc.). The need for yield and income should remain paramount for anyone looking to stay ahead and build long-term wealth.
We remain super-selective as to our dividend recommendations in this current environment when it comes to putting new capital to work.
Finding the right strategy for investing is essential, and we feel dividend investing works for the vast majority of people out there. Putting what you've learned into practice is the second step. We advocate investors develop a monthly system of putting money to work in your brokerage accounts. Automate this process as best you can, so you remove any barrier of thinking whether you want to skip a month or two if the market is pulling back. Embrace the learning process of what you decide your investing strategy is. This basically means you are willing to keep an eye on what your money and investments are doing. Staying in the loop is a great thing and you will get the biggest benefit out of it. Just dabbling in the markets will not get you to where you need to be. Putting money to work every month should be a regular routine. If you have a habit of jumping in and out of the markets, dividend investing is the best remedy for that affliction. You will get a new perspective on what long-term investing and the power of compound interest can deliver.
Thanks for reading everybody. I'll see you tomorrow!
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