Cashflow Blog

~ By Anne Kates Smith
~ Kiplinger’s Personal Finance

What are we supposed to make of this whiplash market? I’m certain that the only sane way to play the crazy ups and downs is to hold fast to the investing tenets we at Kiplinger have preached for years (that’s why they’re tenets).

Among them:

?  Most investors are lousy market-timers. So don’t attempt it, period. Take a look at a couple of the worst months for mutual fund net redemptions on record: In October 1987, investors withdrew 3.6 percent of stock-fund assets, and in July 2002, the net outflow was 2.05 percent, according to the Leuthold Group, a research firm in Minneapolis. A year after investors bailed, the Standard & Poor’s 500-stock index was up 10.8 and 8.6 percent, respectively. The two-year gains were 35 and 21 percent, respectively.

?  Calling market bottoms is a futile exercise. The stock market typically bottoms just past the midpoint of an economic downturn. One year past the trough, the average gain — dating back to 1892 — is nearly 44 percent, says Leuthold.

?  It’s all about buying low and selling high. No need to fixate on market legends such as Joe Kennedy or Warren E. Buffett. Regular folk can ensure they are buying low and selling high by dollar-cost averaging and rebalancing their portfolios.

By Definition, dollar-cost averaging (investing the same dollar amount in the market at regular intervals) gets you more shares when prices are low and fewer when prices are high. Just as important, and maybe more so, averaging forces you to keep putting money into stocks (or stock funds) when you might otherwise not do so — that is, when share prices are falling. If you are contributing to a 401(k) or other similar plan, you are dollar-cost averaging.

?  No market is a monolith, so you have to diversify. The stock market’s dismal performance this year has challenged the conventional wisdom about the desirability of diversification. Just about every sector and every foreign stock market has sunk. Most segments of the bond market have lost money, too, although it has been possible to eke out a positive return by investing in Treasury bonds.

My guess is that this year will turn out to be an anomaly. So I stand by the tried-and-true formula of maintaining a diverse portfolio, which you can achieve by investing in a mutual fund that is pegged to a broad index, or by holding a mix of funds, including those that focus on small-company stocks, large-company stocks, stocks of fast-growing companies, bargain-priced shares, international stocks and so on.

For a graphic illustration of how important diversification is, visit http://www.callan.com/research/institute/periodic, which has a color-coded periodic table of investments. You’ll see, for instance, how dangerous it would have been to load up on small-cap stocks in 2007, even though they beat blue chips in seven of the previous eight years.

It’s probably not — I repeat, not — different this time. Just as I question the way people rationalize prices that reflect a bubble at the top of a market, I’m suspicious of claims that this bear market is “different.” It might be worse, but it’s not the first deflated bubble, or the first downturn exacerbated by leverage and derivative securities, or the first time the government has come to the rescue.

More here:
In This Chaotic Market, Stay Steady With These Solid Investing Tenets

By: Lou Wallace

There has been much to do recently in the media about the “credit crunch”.  Article after article has appeared telling the general public Banks have quit lending and it will be hard for people to get credit.  While we don’t need to go into the minute details of how’s and why the banks are not lending, the reality is they have shut off the credit spigot.

The money is still there it just isn’t in a form that can be lent out.  A very simplistic explanation is that Banks are allowed to lend out a calculated amount of the capital and deposits they have in their institution. The main reason for this “credit crunch” is that banks do not have the cash in hand that allows them to continue lending.  Because the banks have made a lot of “Bad Loans” they have to subtract those bad loans from their capital reducing the availability to make loans.  Until the Banks can get additional capital or collect these loans which are past due they will not be able to make loans.
 
But small businesses still have a source for funding, and that alternative source for funding would be Asset Based lenders.  Asset based lenders are lenders who do not fall under the same regulatory agencies as Banks.  They are usually privately held and restrict their lending to businesses only.  They are more flexible in their underwriting and offer a larger array of programs to help small business owners. 

The money hasn’t gone away.  It is just currently unavailable from most banks.  If a small business does need money, it is still available but small businesses need to know where to look and what products work best for them.  Asset based lenders are an excellent source of funding for start up companies as they do not generally put time limits on how long a company must be in business before they will consider lending them money.  While asset based lenders are excellent sources of money, small businesses need to realize they will pay higher rates for these services.

Performance Funding Group, LLC is a locally owned and privately funded asset based lender who has been providing several different loan products since 1997.  Lou Wallace has been working in commercial loans since 1971.  Lou Wallace can be reached at 602-912-0200. www.performancefunding.com

View original post here:
Where has the money gone?

South Asian Journalists Association (SAJA) presents a talk radio show on 24 Sep, discussing the various aspects of the turmoil in the current U.S. economy.

Speakers includes:

• Vikas Bajaj, business reporter, The New York Times;
• Anirvan Banerji, co-director of research at the Economic Cycle Research Institute;
• John Laxmi, co-founder of a New York-based private equity firm with $4 billion under management (and SAJA treasurer);
• Sudeep Reddy, economics reporter and “Real Time Economics” blogger, The Wall Street Journal.

More here:
BlogTalkRadio: US Economy Turmoil

- Wall Street Journal | Oct 6, 2008  -
- Posted by Heidi N. Moore  -

A Goldman Sachs Group alumnus in charge of the nation’s economic rescue? How unusual.

Except, of course, it isn’t. As The Wall Street Journal’s Deborah Solomon reported today, Treasury Secretary Hank Paulson is promoting Neel Kashkari, the Treasury’s assistant secretary for international affairs, to be the point man overseeing the $700 billion financial bailout as the interim head of Paulson’s Office of Financial Stability. The full appointment would need Senate confirmation, which is unlikely to come given the short remaining tenure in this Administration.

The move essentially puts a new title on what Kashkari he has been doing since he joined Treasury in 2006–examining the consequences of an economic housing fallout. Kashkari was one of three Treasury staffers–including general counsel Robert Hoyt and head of legislative affairs Kevin Fromer–who stayed up until 4 a.m. last Sunday putting together the $700 billion bailout bill that was shot down by House Republicans the next day.

Kashkari is an Indian-American who has a few things in common with Paulson . Both are former Goldman Sachs bankers, though Kashkari, at 35 years old, is much younger and was just a vice president-level banker in Goldman’s San Francisco technology banking effort when Paulson tapped him to join Treasury. Both also are Midwesterners. Kashkari grew up in Stow, Ohio, and earned a bachelor’s and master’s degree in engineering from the University of Illinois at Urbana-Champaign. Paulson was raised in Barrington Hills, Ill. And both sport similar hairstyles– or lack thereof.

Kashkari didn’t take a conventional route into banking. He started out as an aerospace engineer at TRW, developing technology for NASA projects like the James Webb Space Telescope, the replacement to Hubble, which is scheduled to launch in 2013.

He earned an M.B.A. at the University of Pennsylvania’s Wharton School of Business. While there, one of his professors was Michael Useem, who liked to put students through grueling, Outward Bound-type strengths of endurance and strategy. Kashkari participated in one Army simulation in 2002 at Fort Dix, where he was quoted in this 2002 Philadelphia Inquirer article in a comment just as applicable to today’s financial crisis as the project he was working on: “We were all taught to play nice,” Kashkari said. “So who’s going to fight in the sandbox?”

After Wharton, Kashkari joined Goldman and worked in San Francisco, where he advised companies that create computer security programs like antivirus software. He and his wife, Minal, still keep a house in California.

Paulson likes to surround himself with people he’s comfortable with: people, mostly, from Goldman Sachs. Paulson’s inner circle already includes former Goldmanites Dan Jester, a financial institutions banker, and retired banker Steve Shafran, who focused on corporate restructuring at Goldman. It also included Robert Steel, who has since left Treasury to become CEO of Wachovia.

Kashkari’s appointment is another example of how deep those Goldman Sachs ties go. In fact, Paulson himself was recruited by a former Goldman Sachs banker: former White House Chief of Staff Josh Bolten. Bolten overcame Paulson’s reluctance to persuade him to take the job as Treasury Secretary at a time when Paulson was so wary of the job that he declined to meet with President Bush because he knew he couldn’t say no to the President himself. According to an article in The International Economy by Fred Barnes in 2006, Paulson also believed that the Bush administration would not be able to accomplish many financial changes in 2007 and 2008. Kashkari’s new job show just how wrong Paulson was back then.

Here is the original:
Meet Neel Kashkari: The Man With the $700 Billion Wallet

Originally posted here:
4 Kinds of Money