Cashflow Blog

By Weamein Yee

In times of economic distress, investors flock to safety.  The bond market usually acts as a safe harbor for many investors but the precarious financial position of many bond insurers has many shying away from corporate and municipal debt.

Since last summer, demand for treasury securities as well as the Fed’s rate cutting campaign, has steadily driven down yields.  Demand for 1 month T-bills has been especially brisk, with a number of money market funds reluctant to invest in short term commercial paper.

Back in March, in the wake of the near collapse of Bear Sterns, the yields on 1 month T-Bills fell to 0.27%, it’s lowest in over half a century.  Yields recovered slightly in the beginning of this month but are once again below 1 percent.

With many institutional investors feeling that the stock market hasn’t hit it’s bottom yet, the short maturing T-Bill gives them a safe haven to tide their money away until they feel the time is right to jump back into stocks while sacrificing very little liquidity.  The Treasury Department has also decreased the minimum face value of it’s securities to $100, down from $1,000 as of April 7, which makes it viable purchase for a larger number of investors.

Keep in mind that this is all taking place while inflation is on the rise and that the “real” yield is actually negative.  What we have now is an upward sloping yield curve, which is a favorable situation for banks.  Banks are able to borrow short at lower rates and lend long at higher rates.  Depending on how inflation plays out, long term interest rates may even rise further in the near future.

Demand For Treasury Bills Driving Down Yields

Right now, the stock market news is all about soaring energy prices. And this may part of what could undo corn ethanol.

Earlier this year, corn ethanol looked to be in a sweet position. The government offers huge subsidies to the Big Ag companies (like Archers-Daniels-Midland Co.) who produce corn for ethanol. Additionally, rising oil prices were making alternatives (like corn ethanol) more desirable. Politicians were out there stumping on increased support for ethanol so that we could break ties to foreign oil.

Now, however, as things are liable to do on the stock market, things have changed. Corn ethanol is no longer looking profitable. Indeed, ethanol producers are seeing their profit margins shrink as two, rather large, new factors are introduced:

• Price of natural gas.
• Flooding in the Midwest.

Back in January, it was unforeseen that all energy prices would be surging to the levels that they are at now. And natural gas plays a big role in the production of corn ethanol. With natural gas prices following oil prices ever higher, it is costing more to produce corn ethanol.

The flooding in the Midwest isn’t helping, either. Corn that was meant to be turned into ethanol is being washed away, and in some cases the land it was growing on is being ruined by the things that floodwaters bring (toxins from chemicals and pesticides, excessive animal waste, debris, etc.).

What once looked like a promising investment is now starting look rather bleak. Indeed, this might herald the end of corn ethanol as an alternative to gas for cars. Which means that other fuel sources will have to be found. On the other hand, though, some might see it as an opportunity to get in while the prices are low and hope that Congress steps in save the budding ethanol industry. It’s been known to happen with increasing frequency.

Read the original post:
Corn Ethanol May Not Be The Best Investing Choice

Originally posted here:
Self Defence Class with Kim and Robert Kiyosaki

In all my financial interactions -  be it planning for clients, training, teaching or writing, people have come to me with some problem which they think is unique.

In all the financial problems, I am able to find a pattern. Believe it or not, people more often than not choose the problem by their behavior. It is easy for me to find a pattern and say, “Well you choose your problem, did you not?“

Your financial problems would have been caused by some (or all) of the following financial behavior:

1. Not planning: The single biggest problem for most people is that they just do not plan their finances. Even if they are not happy about the results of what they have done so far, they do not change the way things are done.
2. Overspending: Many people with not very high incomes have very high ambitions. Most of this problem is because the salesmen in most shops do not tell you the price of a product, they only tell you the EMI - so anything from a plasma TV to a luxury home on the outskirts of the city are made to look cheap!
3. Not talking finance at home: Children are kept away from the finance topics at the dining table. Finance is perhaps the second most taboo topic at home! So many children grow up without knowing how much of sacrifice their parents have gone through to educate them.
4. Parents spending on education and marriage: There are just too many kids out there who believe that they need to worry about savings, investment and life insurance only at the age of 32 plus. This means your father, father-in-law or a bank loan has funded your education and marriage. Kids should take on financial responsibility at a much younger age than what is happening currently.
5. Marriage between financially incompatible people: Most marriages under stress are actually under financial stress. Either the husband or the wife is from a rich background and the other partner cannot understand or cope with the spending pattern. It is necessary to match people financially before marriage.
6. Delaying saving for retirement: “I am only 27 years old why should I think of retirement“ seems to be a very valid refrain for many 32-year olds! Every year that you delay in investing the greater the amount that you will have to save later in your life. Till the age of 32 it might be feasible for you to catch up, but after some time the amount that you need to save for retirement just flies away.
7. Very little life insurance: With all the risks of life styles, travel, etc. illness and premature death are common. We all have classmates who had heart attack at the age of 32 but still pretend that we do not need life or medical insurance.
8. Not prepared for medical emergencies: Normally big emergencies - financially speaking - are medical emergencies. Being unprepared for them - by not having an emergency fund is quite common.
9. Falling prey to financial pitches: The quality of pitches has improved! Aggressive young kids are recruited by brokerage houses, banks, mutual funds, life insurance companies, etc. and all these kids are selling mutual funds, life insurance, portfolio management schemes, structured products, et al.
10. Buying financial products from `obligated persons`: This is perhaps one of the worst things you can do in your financial life. A friend, relative, neighbor, colleague who has been doing something else suddenly becomes a financial guru because they have become an agent! You are saddled with a dud product for life!
11. Financial illiteracy: Most people do not wish to know or learn about financial products. They simply ask, Where do I have to sign? So buying a mutual fund is easier than buying life insurance!
12. Ignoring small numbers for too long: What difference will it make if I save $100 a month? Well over a long period it could make you a millionaire! So start early and invest wisely. It will make you rich. That is the power of compounding.
13. Urgent vs important: Most expenses, which look urgent, are perhaps not so important - the shirt or shoe at a sale. That luxury item which was being offered at 30% discount is such an example. These small leakages are all reducing the amount of money you will have for the bigger things like education or retirement.
14. Focusing too much on money: Money is no longer a commodity to buy things. It is a scorecard of one`s life. That will cause stress, and yoga might help. However if you will seek a branded yoga teacher - so that your friends think you have arrived, yoga it self could cause financial stress!

PV Subramanyam is a financial domain trainer and can be contacted at pv.subramanyam@irisindia.net

Here is the original:
14 Common Financial Problems!

Whitney UK and Rich Dad Education, a provider of educational programmes in property investment and financial well-being, have drawn up their own POSITIVE advice relating to the current mortgage market.

The advice is:

P lan ahead for the longer term. Try not to sell your home or investment properties unless you absolutely have to. Even if house price dips are making you fearful, historically in the UK, house prices will and do double every 10 years. So the only time you will potentially lose money is when you sell a property prematurely.

O ptions – speak to recommended brokers or lenders to look at your options. The mortgage product market is unlikely to dry up altogether – what you will find though is that only the major lenders will still be offering buy to let products for a short period, but perhaps with lower LTV built in, together with higher short-term interest rates and front end fees.

S supply and demand - understand that economic activity is cyclic and will change over time. The UK Government has said that we will need at least 200,000 new housing units until 2016 and we aren’t keeping up with this target. As demand continues to outstrip supply prices should remain strong. (Source: Whitney Development’s Wealth Club Newsletter: April 2008 Edition).

I nterest rates – economists are predicting that there will be at least two more rate cuts by the end of this year and that even fixed rates may also come down over time.

T ightening of credit? What this refers to is largely the availability of credit and mortgages in the domestic residential sector. For investors, different criteria applies so step on the investor ladder with a credible source of education from Whitney UK and Rich Dad Education.

I nformed. Keep yourself informed of how market changes affect you in real, not perceived terms.

V ictim mentality. Avoid this by finding solutions for your problems. With every perceived problem comes a viable solution. Don’t forget that as consumers we keep the banks and credit card companies in business! If one lender can’t help you, there is one out there who can and will.

E mployment levels are at record highs and stand at fractionally under 30 million people. Unemployment stands at approximately 1.6 million.

Originally posted here:
A POSITIVE approach to the mortgage market