Pick of the Week - iShares S&P Global 100 (IOO)

February 6, 2010 9:50 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Expense Ratio: 0.40%
Average Bid Ask Ratio: 0.12%
Tracking Error: 0.49%
Concentration Risk: 9.30%
Capital Gains Dist. %: 0.00%

Rationale and Overview:
The S&P Global 100 index is a basket of the world’s largest 100 companies. Given the sharp pullback in global markets this week, the time may be right to begin or increase a position for a number of reasons.

While the broader market may be trading in the high teen price to earning ratios,
many megacaps are trading at 11.0x-13.0x EPS. In addition, a number of megacaps
offer very healthy dividends. A good example is Kraft Foods (KFT) that in addition to
its strong brands and balance sheet is acquiring Cadbury plc (CBY), a strategic move
that will expand KFT’s product offerings and global reach. More importantly, KFT
offers a yield of 4.2% and an earnings yield over 7%. Another example is
GlaxoSmithKline plc (GSK), whose stock is valued at 13.0x earnings and yields 5%.
Investors in the IOO basket of companies have the chance for significant capital
appreciation with limited downside risks, particularly in an environment that may
favor consumer staples. These multinational companies also are growing fast in
emerging markets. About 32% of P&G’s top line revenue is coming from emerging
markets and this is doubling every four years. Unilever has 49% of revenue from
emerging markets

Another option is the Chartwell Global 30 that I have managed since 2005 as an
alternative to the Dow Jones Industrial benchmark. It is a basket of 30 multinationals
equally weighted with about 50% headquartered in the U.S and the rest spread out all
over the world. Since inception on May 5, 2005 it is up 46.35% (excluding fees) versus
just 1.97% for the Dow and 14.7% for the S&P Global 100. For more information,
please call me direct at 719.264.1503.

Catalyst:
The catalysts are that mega multinationals are trading at relatively low
valuations with nice dividends, strong balance sheets, great management teams and
are also growing top line revenue in emerging markets at a brisk pace.

Tip:
Think about looking into the S&P 100 basket of companies and picking your
favorite names to layer on top of IOO. I call this strategy ETF plus.

Risk Factor:
The risk factor for IOO is medium and IOO makes a great core holding.

Delfeld is head of the financial publisher Chartwell Partners, writes the “Global Gambits” column for Forbes Asia and is the author of four books on global investing. He was a vice president with Robert W. Baird & Company opening markets in Tokyo, Sydney and Hong Kong. Carl served as an international economist with the Joint Economic Committee and as a consultant on emerging markets with the U.S. Treasury before representing the United States on the Executive Board of Directors of the Asian Development Bank in Manila during the administration of George H. W. Bush. He earned a Masters Degree from The Fletcher School of Law & Diplomacy followed by study at Keio University as a Japanese Government scholar.

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Chartwell ETF Pick Brazil Small Cap (BRF)

January 31, 2010 6:51 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Rationale and Overview: It is a little like catching a falling knife in the wake of the
sharp pull back in emerging markets, but you might want to take a small position in
BRF based on the following facts. Brazil’s currency, the Real, remains one of the most
attractive in the world up 27% in the past year and foreign exchange reserves are at
$240 billion. The strength of an economy’s currency is generally a good reflection of
the strength and health of the economy.

Brazil is also exhibiting strong growth coupled with relatively low debt. It is just about
the only investment grade country where inflation is slowing with an inflation rate of
4%, at the low end of the range of the past decade. Brazil’s exports are diversified
and its current account is in very small deficit, at just over 1% of GDP. On the debt
side, the country has a 12% gross external debt and 43% government debt as a share
to GDP (the US numbers are 95% and 62% respectively).

An argument against Brazil would be that commodity prices (as the US dollar rises) are pulling back and that
Brazil is seen as basically a commodity play. The reality is that Brazil’s major exports
are manufactured goods and that BRF offers investors 40% exposure to consumer
product and services companies - a great play on the rising middle class in Brazil. This is why I would go with BRF over large cap EWZ
which is much more oriented to the materials, mining and financial sectors.

Catalyst: The catalysts are that emerging markets are perhaps oversold and that
Brazil is the most attractive of all the BRICs, with the exception of high political risk, energy heavy Russia, on a price
to earnings basis.

Tip: Think about coupling/hedging BRF with the inverse emerging market ETF (EUM)
in case the emerging market pullback continues.

Risk Factor: The risk factor is high and I suggest using BRF only in moderation and
using a 6-8% trailing stop loss.

To see a chart on BRF
click here

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iShares Malaysia (EWM)

January 4, 2010 10:07 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Risk Factor: medium to high, suggest 8% trailing stop loss

Catalyst: China-ASEAN Free Trade Agreement begins January 1st 2010

Tip: pair with Singapore (EWS)

MalaysiaOverview & Rationale:
On January 1st, 2010, China and ASEAN’s 10 Southeast Asian nations (combined GDP of over $1 trillion) will launch the world’s third-largest free trade area. Trade between China and the 10 states that make up the Association of Southeast Asian Nations has soared in recent years, to $192.5 billion in 2008, from $59.6 billion in 2003. The new free trade zone, which will remove tariffs on 90 percent of traded goods, is expected to increase that number but there will be losers and winners as China applies even more economic pressure on ASEAN manufacturers.

The zone will rank behind only the European Economic Area and the North American Free Trade Area in trade volume. It will affect 1.9 billion people. The free trade area is expected to help Asian countries increase exports, particularly those with commodities that resource-hungry China badly needs.

This brings us to Malaysia which is likely one of the countries that will benefit most from this agreement. The Malaysia ETF (EWM) has long been a favorite of mine, though like most emerging markets, appears to be a bit on the expensive side. It is a solid middle-income country with a good demographic profile and a nicely balanced economy. Its 28 million citizens are a diverse lot: 54% Malay, 25% Chinese, 8% Indian and 11% Bumiputra.

Malaysian banks were for the most part not affected by the global credit crisis last year since May Bank, Public Bank, CIMB and Malayan Banking were not very involved in derivatives. Due to progress in manufacturing and services, Malaysia in incrementally garnering a Singapore like reputation as a high quality and investor-friendly place to do business. I referred to this trend as Malaysiapore in a recent Forbes Asia column.

Importantly, Malaysia is the world’s largest producer of palm oil - a cheaper substitute for vegetable or sunflower oil which are used in cooking. In addition to palm oil and rubber, Malaysia is blessed with an abundance of forestry, fertile agricultural land and minerals like copper and iron-ore. Crude oil and Natural gas were discovered offshore in the 1970s and today Malaysia subsidizes gasoline for domestic consumers and is a net exporter of crude oil.

Malaysia is Asia’s third most trade-dependent economy, after Singapore and Hong Kong. Prime Minister Najib Razak, has said that the downturn has exposed Malaysia’s over-dependence on exports. He wants services to account for 70% of GDP in the future, up from 54% now.

In 2008, Foreign Direct Investment (FDI) into Malaysia increased by 38% from the previous year. Australia was the largest investor followed by US, Japan and Germany. However this year, FDI plunged to just $13 B from January thru May before rebounding nicely.

Since Islam is the largest and official religion in Malaysia, the financial sector follows the principles of Islamic finance and takes a conservative approach compared to banks in other countries. Since Independence from the British, the country has been a Parliamentary democracy with a stable government in most years. Corruption is lower in Malaysia relative to other ASEAN countries such as Indonesia or Thailand.

Malaysia has had limited success in innovation based industries like IT, biotechnology, semiconductors. It has been able to excel in the agricultural and commodity sector and more recently is heavily encouraging the growth of tourism, healthcare and education sectors.

Going forward, a recently released World Bank report opined that Malaysia will remain in a “middle-income trap” and fail in its longstanding goal of joining the developed world by 2020 unless it can add value to its economy.

In a comprehensive overview of Malaysia’s economic prospects and policies, the bank said the country had recovered well from the global financial crisis and would grow 4.1% in 2010, after a contraction of 2.3% in 2009.

The report said the medium-term outlook was also promising, forecasting growth of 5.6% in 2011 and 5.9% in 2012, assuming a sustained global recovery from the crisis.

But the report warned that Malaysia’s growth performance was lagging behind its neighbors because of its continuing inability to decisively generate added value to its economy.

The report said, “The economy seems to be caught in a middle income trap — unable to remain competitive as a high-volume, low-cost producer, yet unable to move up the value chain and achieve rapid growth by breaking into fast-growing markets for knowledge and innovation-based products and services.”

Perhaps the competition spurred by this trade zone will take Malaysia to the next level.

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10 Rules for ETF Success in 2010

December 28, 2009 11:09 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Follow these 10 ETF investment rules and build a global portfolio that will beat the benchmarks.
1. Liquidity First:
Before you even think of building an investment portfolio, you should set aside about six month of income in a “rainy day” account. This could be put into a money market fund or U.S. Treasury securities. Having this money set aside will ease your mind and allow you to be more open and creative with your global portfolios.
2. Separate Portfolios:
You should separate your core conservative portfolio from your growth portfolios. With the core conservative portfolio, your top priority is capital preservation and growth is a secondary consideration. Your growth portfolios are more speculative with capital growth as the primary goal. This is how the Chartwell ETF Focus List is organized and why my asset management and premium Global (core) and Emerging Markets (growth) Hedge portfolios are organized with the core/growth portfolio strategy in mind.
If you have a long-term perspective, you might consider annuities specially structured for ETF portfolios as your core portfolio.
3. Think Global & Really Diversify your Portfolios:
You need positions in your portfolios that are likely to offset each other as unexpected events and market movements become a reality. This is not accomplished with different sectors ETFs or a mix of small cap, mid cap and large cap ETFs. Rather the goal is to have some investments that are on both sides of risks.
For example, if the US dollar declines, have some investments in precious metals or denominated in other currencies such as Switzerland or Australia or Singapore ETFs. If inflation heats up have some investments that hedge this risk such as timber, gold or Treasury inflation protected bonds (TIPs). If the dollar strengthens in 2010, EUM might me a good hedge as more speculative markets will likely take a hit. If political events or policies in one country take a turn for the worst, it is helpful to have investments in other well developed countries to offset any loss of value.
You get the idea, spread your risk and avoid having one ETF account for more than 5-10% of your core portfolio. While a rising tide does tend to lift all boats – some soar and others lag. In 2009 for example, While Russia (RSX), Brazil (EWZ) and Peru (EPU) were up over 100% in dollar terms through early December, Japan (EWJ) and Switzerland (EWL) were up less than 15%.
4. Be Careful what Countries You Pick:
You need some guidelines to help keep you from getting carried away and having too concentrated a position in a particular country or region.
In particular, take a good look at the following: 1) the stability and overall political and corporate governance, 2) the legal environment, respect for contracts, low levels of corruption, due process and rule of law, 3) the macroeconomic environment including fiscal discipline and currency strength.
Know what drives specific markets. Chile (ECH) is dependent on copper prices, Austria (EWO) is a banking play on Eastern Europe, Russia (RSX) is highly focused on oil and natural gas and South Korea (EWY) is increasingly integrated into China’s economy.
5. Look Forward, Act Now
Keep in mind that the quality of the countries you choose to invest is critical but overreaching when valuations are high is hazardous. The price or valuation of a country’s stock market is also extremely important. Oftentimes the best time to buy into a country’s stock market is when it is beaten down but there are signs that its economic and political problems will sharply improve. Timing and trends are key.
“The job of an investment company is to decide to invest in the right thing
in the right place at the right time. But the right thing is the least important. If you picked the very best share in St. Petersburg in 1917 you could be the greatest genius in the world and still go bust…..You have to be able to see the swings in the market.”
— Sir James Goldsmith
6. It’s the Politics
Many otherwise astute investors fail to recognize the importance of politics in global investing. Political change cuts both ways and can present great investment opportunities. Most great bull markets begin with significant economic reform. In emerging markets, regulatory and political risk can swamp traditional portfolio analysis.
Who can dispute that India’s election this spring ignited a tremendous rally or the that the clear and commanding re-election of President Yudhoyono better known as SBY in Indonesia contributed mightily to the 100% plus surge of its market in 2009.

7. Minimize Company Risk:
By using our “Buy Countries, Not Stocks” strategy, you minimize company risk. Instead of trying to pick the best three stocks on the Tokyo Stock Exchange, why not just minimize company risk by buying the Japan iShare ETF (EWJ) that tracks the Nikkei 225 and spread this risk amongst 225 Japanese companies. Or you could hedge your bets and do both. Japan has lagged in 2009 but if the Japanese yen weakens in 2010 (as I suspect) EWJ and the inverse Japanese yen ETF (YCS) will soar.
If you, like me, enjoy picking stocks and blending them with ETFs - consider putting them in a basket as part of your growth portfolio. Chartwell’s Asia & Emerging Markets 20 is a collection of 20 companies focused on Asia equally weighted in one portfolio. It is up 46% since inception in April 2009 before fees and expenses.
8. Monitor ETF Country and Company Exposure:
Be careful to look under the hood of ETFs to see where your money is going. For example, let‘s look at the iShares MSCI Emerging Markets ETF. It invests in 23 different countries so it is natural to think that you will get broad exposure to all countries. You would be wrong: 50% of your investment in this fund is going to four countries: South Korea, Brazil, Taiwan and China while only about 1% to Indonesia and Turkey. In addition, incredibly, 4.9% is going to one company, Samsung Electronics of South Korea.
The same is true for the MSCI Europe, Asia and Far East (EAFE) index. It contains 21 developed countries but 38% of the money you invest would go to just two: Japan and the United Kingdom. Meanwhile less than 1% would go to Singapore and Ireland! Country specific ETFs such as the new China iShare (FXI) can also have a fair amount of concentrated risk. Although the China iShare tracks a basket of 25 companies, the largest 5 companies account for nearly 50% of your exposure.
9. Manage Risk and Cut Losses with Trading Signals, Trailing Stop Loss Policy or ETF Put Options:
We have all been there. You buy a stock or fund and it appreciates in value rapidly. Then it stumbles and begins to decline. What do you do? Should you buy more, let it ride, or sell?
Save yourself a lot of pain and agony by following a simple rule. If a position ever falls more than 8%-12% from its high, sell it immediately and reassess the situation. And if you invest in an ETF with a sizable downside risk, why not spend a few hundred dollars to purchase a put option as an insurance policy?
Choose and follow a trading signal that indicates that markets may be reversing. When broad ETFs such as SPY and EFA fell through their 200-day and 50-day moving averages in July of 2008, moving to cash, bonds or inverse ETFs would have saved your portfolio a bundle.
10. Consider Re-balancing and an Annual Portfolio Check-Up:
At least annually, you need to make some changes so that you are not overly exposed to countries that have higher risk factors and volatility. One way is by selling some shares of your winners and increasing exposure to under performers.
This accomplishes another goal, locking in gains and taking some money off the table. Remember, only a fool holds out for top dollar especially in the more volatile emerging market countries.
And just like your annual physical, it is wise to get an annual portfolio review to make sure you are on track to meet your financial goals. Sure, there will be false signals – better safe than sorry.
Building your portfolios with low-cost, tax-efficient ETFs is a smart strategy but don’t set it on auto pilot.

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Is there any hope for Japan?

November 16, 2009 10:39 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

So many investors and analysts are down on Japan that there must be some silver lining and the chance for a very unexpected turnaround. Japan ETFs such as large cap EWZ and small cap JCS have very low expectations going forward. Is this an opportunity?

Part of Japan’s problem is the rise of China and other emerging markets in the region. While China’s GDP has increased tenfold during the past decade, Japan’s has been flat. Still, keep in mind that Japan’s per capita GDP is ten times that of China. That is still a huge gap.

Also, Japan’s traditional strengths such as its educational system, management style, and homogeneous population have all been turned on their head and seen as weaknesses. In addition, no one seems to recognize that its “lost decade” could have been much worse given the magnitudes of the bubbles preceding it. Commercial property prices fell 87% from their peak, golf course memberships fell 95%, and the country’s lost wealth during this decade equaled 3 years of its annual GDP. These are enormous hits for any country to take. For comparison, during the great depression, the US lost 50% of its GDP from 1929-1933.

China’s rise could accelerate Japan’s economic decline as it captures Japanese export markets, and as Japan’s crushing national debt increases and its aging population grows less and less productive — producing a downward spiral.

Some are asking whether Japan is destined to be the next Switzerland: rich and comfortable, but of little global import, largely ignored by the rest of the world.

Consider these facts.

ü The per-capita gross domestic product of Japan, which surged past that of the United States in the late 1980s, topped out at $34,300 in 2007; it is now a quarter below American levels and 19th in the world.

ü Unemployment stands at a record high of 5.7 percent, while prices and wages are falling fast. Japan’s economy shrank at an annualized rate of 11.7 percent in the first three months of the year before recovering to a modest 2.3 percent annual rate of growth in the second quarter.

ü The Chinese economy grew about 10 percent a year for most of the last two decades. Over that period, Japan stagnated as huge public works projects aimed at reviving the economy went toward protecting moribund industries instead of fostering new ones, failing to lift Japan out of its doldrums while creating a huge debt burden.

ü As a result of the global financial impact on Japan’s key export markets, production and exports slumped as much as 40 percent this year.

ü In 1988, Nomura Securities issued a ranking of companies by market capitalization, and 8 of the top 10 were in Japan, topped by Nippon Telegraph & Telephone. Now, not a single Japanese company made the global top 10. Toyota ranks No. 22, at $144.5 billion, and only five other Japanese companies made the top 100.

ü The richest man in Japan, the retailing entrepreneur Tadashi Yanai, was 76th in the most recent global Forbes list, behind moguls from countries like Mexico, India and the Czech Republic.

ü China has also passed Japan in having the biggest trade surplus and foreign currency reserves, as well as the highest steel production. And next year, China could overtake Japan as the largest automobile producer.

ü Annual growth in Japanese gross domestic product averaged 10.4 percent in the 1960s and 5 percent in the 1970s, but only 4 percent in the 1980s and 1.8 percent in the 1990s, according to Goldman Sachs. In the first decade of this century, growth has been even slower.

ü A series of ten stimulus packages and slow growth have led to a gross public debt to twice the size of its $5 trillion economy — by far the highest debt-to-G.D.P. ratio in recent memory. In October 2000 Japan announced another stimulus package of Y11 trillion. Overall during the 1990s Japan tried 10 fiscal stimulus packages totaling more than Y100 trillion and each failed to cure the recession.

ü Just paying the interest on its debt consumed a fifth of Japan’s budget for 2008, compared with debt payments that compose about a tenth of the United States budget.

ü One important difference is that Japan is rich in personal savings and assets, and owes less than 10 percent of its debt to foreigners. By comparison, roughly 46 percent of America’s debt is held by other countries like China and Japan.

ü The IMF expects Japan’s gross public debt to reach 218 percent of gross domestic product (GDP) this year, 227 percent next year, and 246 percent by 2014.
ü Meanwhile, Japan’s savings rate has fallen from 15 percent in 1990 to near 2 percent today, half America’s rate. Japan’s $1.5 trillion state pension fund (the world’s biggest) has become a net seller of government bonds this year, as it must to meet growing obligations. Japan’s labor force has been contracting since 2005.

These trends are not pretty but don’t count out Japan just yet. There are pockets of opportunities and it may find a way back to growth and prosperity. The probabilities of this happening soon are, unfortunately, remote.

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Asia & Emerging Markets Commentary

November 10, 2009 4:25 pm

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

The biggest threat for U.S. multinationals is not existing competitors,” says Vijay Govindarajan, professor at Dartmouth’s Tuck School of Business and chief innovation consultant to GE. “It is going to be emerging-market competitors.”

Nouriel Roubini is one arguing that we are building a massive rally in all sorts of risky assets – equities, oil, energy and commodity prices – and an even bigger rally in emerging market asset classes. At the same time, the dollar has weakened sharply, while government bond yields have gently increased but stayed low and stable.

This recovery in risky assets is in part driven by better economic fundamentals. We avoided a near depression and financial sector meltdown with a massive monetary, fiscal stimulus and bank bail-outs.

But while it appears that the US and global economy have begun a modest recovery, asset prices have gone through the roof since March in a major rally. While asset prices were falling sharply in 2008, when the dollar was rallying, they have recovered sharply since March while the dollar is losing ground. I agree with Roubini that risky asset prices have risen too much, too soon and too fast compared with macroeconomic fundamentals.

Singapore’s (EWS) trend rate of economic growth is likely to slow because of labor constraints and its success in achieving high levels of income per head, according to Tharman Shanmugaratnam, the island state’s finance minister.

“I think it is reasonable to assume that growth going forward over the next five to 10 years will be somewhat lower than growth in the past,” Mr. Tharman told the Financial Times in an interview. Singapore’s gross domestic product per head at current prices is $34,346 according to the IMF – just behind the UK on $35,727 and ahead of some advanced countries, such as New Zealand on $26,932.

Andy Xie makes a good point about China’s (TAO) developing real estate bubble. Xie points out that Chinese cities may need an additional 8.4 billion square meters of space. China’s works-in-progress covers more than 2 billion square meters…The construction industry has production capacity of about 1.5 billion square meters per annum. Absolute oversupply - not enough people for all the buildings - could happen quite soon.

Japan’s (EWJ) central bank is taking a step towards phasing out emergency measures aimed at tackling the impact of the financial crisis, saying it would stop buying ­corporate bonds and commercial paper at the end of the year. However, in a sign that it remains cautious, it extended a program to provide limitless lending to help corporate financing until the end of the fiscal year, next March.

Rising Chinese demand helped drive South Korea’s (EWY) economy to its fastest growth in seven years in the third quarter, highlighting how Asia might be able to lead the global economy and trade out of the global downturn.

The Asia-Pacific region’s fifth-largest economy grew 2.9 per cent from the previous quarter as South Korean exporters benefited from rising Chinese demand. Last week, China said its economy reportedly grew 8.9 per cent in the third quarter from a year ago. Can we believe the numbers out of Beijing though?

On trailing earnings, while the S&P is at a multiple of 23 times, Shanghai is at 32 times and South Korea at 35 times.

We have a focus article on Chile CH, ECH) later in this issue but as head of Chile’s right-wing coalition, Mr. Piñera is enjoying a comfortable lead in the run-up to national elections in December. Chileans are showing some appetite for change and Mr. Piñera appears to be offering just the right amount.

“Our objective is to maintain the network of social protection that has been constructed by the last governments … but to make it more efficient,” he tells the Financial Times in the back of his official car. “Efficiency” is the watchword for this entrepreneur turned politician. There will be no messing with the policies that investors have come to love about Chile: balanced budgets, open markets, stable institutions and respect for the rule of law.

Higher taxes in Mexico (EWW) as it passed a 2010 budget on Wednesday that increases value-added tax for the first time in more than a decade as the government attempts to reduce its dependence on oil revenues. The VAT will go from 15 to 16 per cent and income tax for top earners will go from 28 to 30 percent.
India’s market has cooled a bit amidst its tightening of raids and high valuations. There are three India-focused exchange-traded products on the market. The PowerShares India (PIN) ETF and the iPath MSCI India Index ETN (INP) both focus on large-cap companies. They have tallied returns year-to-date of 71.6% and 90.6%, respectively, according to Morningstar. The WisdomTree India Earnings Fund (EPI) dedicates nearly 20% of its portfolio to mid-caps, with the remainder being primarily large- and giant-cap offerings. The fund had posted year-to-date returns of some 88.2% before the recent pullback.

Chile (CH, ECH) has been a top performer and the “Star of Latin America” has weathered the global financial crisis much better than most countries. Why, market reform and smart management. President Michelle Bachelet, a pediatrician, will step down early next year after serving only one term - the limit in this wary political system.

But with only five months until she leaves office, Ms. Bachelet is increasingly likely to be remembered as one of her country’s most popular leaders. Polls show her public approval to be more than 70%, and in recent weeks she has recorded the highest levels since Chile went from dictatorship to democracy in 1990.

Investors have rewarded her conservative policies especially her wise move to salt away 35 billion dollars in revenues from copper sales during the last commodity boom. That aggressive saving and $20 billion of investments gave the country money to spend on pension reform and Ms. Bachelet’s ambitious program of social protections for women and children. For example, it tripled the number of free early child-care centers for low-income families. It added a minimum pension guarantee for the very poor and for low-income homemakers.

Chile’s economy may grow by 5 percent next year.

Ms. Bachelet personal story is powerful. Her father, an air force general, was tortured for months under the dictatorship of General Augusto Pinochet and died in prison. Military officials also detained and tortured her and her mother before they were allowed to go into exile in Australia return to Chile only in 1979.

Turning to Turkey, (TUR) is up 78% this year as investors are attracted to a country looking to join the European Union. But is this large, secular Muslim country with a GDP ranked 16th in the world turning East instead of West?

Many is Washington and Brussels are questioning Turkey’s dependability as an ally, and many Turks are asking whether they should reject the European Union before the bloc rejects them.

What has changed the perception that Turkey, the 16th largest economy in the world and the heavyweight in the Middle East, has changed its stripes? It canceled air force exercises with Israel, made overtures to Iran and publicly supported its nuclear ambitions, and seemingly has given up on EU membership.

Last week, during a visit to Tehran, Mr. Erdogan said the West was applying a double standard in pressuring Iran over its nuclear program. “Those who are chanting for global nuclear disarmament should first start in their own countries,” he said.

Mr. Ersin Kalaycioglu, a political science professor at Sabanci University, notes that leaders of the governing Justice and Development Party, or A.K.P. may well be more at home in Riyadh, Damascus and Baghdad than in Paris, London or Rome.

Turkey is a very important country and ally for multiple reasons. Bordered by Iran, Iraq and Syria, Turkey is a powerful symbol of the compatibility of democracy, capitalism and Islam. As a link between the Middle East and the former Soviet Union, it has vital strategic importance as a transit country for gas. It also has deep influence in Afghanistan and is a regional leader in the Caucasus.

As Turkey seems to incrementally resign itself that EU membership is unlikely, it will also move closer to Russia, at the very least as a point of leverage in dealing with the West.

Fed by low rates, ample liquidity and stronger economic growth, property prices have soared this year in Hong Kong (EWH) and across the Asian region.

Earlier this month, a Hong Kong luxury apartment sold by the developer Henderson Land grabbed headlines when it sold for $55.6 million, at a price per square foot that had never before been seen in a city renowned for some of the world’s most expensive housing.

But over the past few weeks, regulators across the region have begun to announce small steps to try to prevent a bubble from growing unmanageable. Last Friday, for instance, regulators in Hong Kong raised the down payment required for homes costing more than 20 million Hong Kong dollars, or $2.6 million. In South Korea, the financial regulator plans to tighten regulations on nonbanking finance companies’ lending to households.

So far this year, residential prices in Singapore are up 15.9 percent, according to analysts at Macquarie. In Hong Kong, they are up 23 percent, and back at their March 2008 peak. Residential prices in most Chinese cities are at least 15 to 25 percent above the lows of a year ago, Macquarie estimates.

The exception is Japan, whose economy is still mired in a no growth mode for much of the past two decades. Urban land prices in Tokyo, for example, fell 8 percent in the second quarter of this year from the previous quarter, according to data compiled by Global Property Guide.

Another driver of prices is that Western capital is flowing to Asia in search of better returns not only in real estate but share prices as well.

Macquarie’s view is that much of the property market growth one would have normally expected to see in 2010 has simply been brought forward into 2009 — leaving less room for prices to rally as much next year.

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It’s Not Who You Know – It’s Who Knows YOU!

November 9, 2009 8:01 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 10 of his book, Your Keys to Financial Success and the 10th of 20 entries on this subject. For more on Braun click here.

I almost feel like making the title of this subchapter serve as the body of it as well and leaving it at that. It’s a profound statement, and one worth pondering. We’ve all heard the term, “It’s who you know.” I don’t completely disagree with that. Social networking helps; it really does. I would rather do business with people I know than with total strangers.

It’s a trust issue, no doubt about it. If I don’t know you, you can take my money and drop off the face of the earth. That makes me nervous. At least if I know you, or if I know someone who knows you, I have a greater confidence in our working together. If I’ve been put on to you by a friend or acquaintance and you burn me, among other things, I’m also going to put in a call to the person who recommended you.

Some people stumble with social networking. They go to a big event or function, but they don’t talk to anybody. What’s the point in that? That’s where the title of this subchapter really comes from. If the local bank president speaks at some dinner I’m attending, I now know him, but he doesn’t know me. He’s done a great job for himself and his business because he got to speak, and if I was impressed by him and his presentation, I might now give him some of my business.

But what about me? Will he be doing business with me? No.

Why? Because I failed to go up to him and introduce myself.

He doesn’t know me!

Let’s talk about that introduction stuff. First off, take advantage of business networking possibilities. Join the local and state Chambers of Commerce. Join other similar organizations. Join organizations within your chosen field.

These are particularly good for continuing your education within your field as well as checking out new products. You also get a chance to develop a gut feeling for the types of people who run certain companies or vendors. Join other organizations that provide you with the opportunity to meet people who could either be potential customers or clients for your business.

Now, here’s a pitfall I want you to avoid. Making pals is great. But if that’s all you are doing once you join these sorts of organizations, don’t con yourself into believing it is “for your business.” It’s not; it’s no different than if you joined a bowling league or took a macramé class. Be honest with yourself. I join these organizations in order to make business contacts and make money. Anything else that comes along with it is gravy.

So let’s get back to the introductions part. You’ve heard the bank president speak. Afterwards, go on up to him and shake his hand. Look him in the eye and tell him your name. And since this is a business networking event, your name is no longer “John Doe.” Your name is “John Doe, Plumbing Contractor.” In business, that is your “full name.” You must define yourself when you are in business. Even if you are not the owner of a business, this is still important. Perhaps you’re “John Doe, Business Management Software Consultant.” You may work for a large national software company, but you’re still not just “John Doe.” You want this bank president to hear your “full name” and you want the people standing around within earshot to hear it, too.

Start a conversation. Sure, I know it’s hard sometimes. It’s practically like cruising a single’s bar. But make that introduction, have a “full name,” and have a little something to say, such as, “I really liked your talk. What kind of business management software does your bank use?” I’m not telling you to make a hard pitch. I’m telling you to make some sort of impression and, perhaps, open up the door to some future face time as well.

What comes next is a personal pet peeve of mine. I am astonished at how many people, even business owners, go around without business cards. Business cards are the single most inexpensive form of marketing there is. For a few dollars, you can have a simple card made up that says your name, your business, the business address, and the requisite phone, fax, and e-mail data. And yet time after time, I meet people, people I might have an interest in doing business with, and they have no cards with them. How will I remember them? Remembering them is their problem, not mine. They have my card (because I’m always packing), so they can do business with me. But the circle ends there.

A business card doesn’t need to be fancy. I know, some people spend a lot on them. They’re glossy with four color print. Some people even put their pictures on them. What’s up with that? I know almost all real estate agents do that; why, I do not know. But you don’t have to go that far overboard or that expensive to make them effective.

Frankly, you don’t have to provide even that much information on the card. Some people are in multiple businesses. You can choose to print up multiple cards, or you can simply have a white card with your name and contact data, like I do. The bottom line is, make sure you always carry a few. And if you’re going to a networking event, bring a TON of them. Pass them out like candy on Halloween.

Make sure everyone you know knows what you do and what you are up to. So along with giving your full name when you first meet someone, realize that you may see that person again sometime. Have some more to tell about your recent business activities. Everyone always says, “What’s new?”

Have a good answer that can help your business. Don’t start pulling out the pictures from your last vacation. How is that going to make you money? Instead say, “Yeah, we just got a big new contract installing some custom software into the candy factory at the edge of town.” That’s newsworthy.

Maybe you’ve just introduced a new product. Think, think, think. This is not hard-selling or even pitching. You’ve been asked the classic banal question; now answer it in a way that could help you and your career. Let the people you meet come to know you as the Management Software Guy, rather than the Guy Who Just Went to Jamaica.

Now, I’m no social butterfly. I admit, I spend a lot of time at parties looking at my watch, thinking of things I’d rather be doing. So make it your priority to maximize these contact opportunities. And do a lot of them, if possible. Furthermore, follow-up is key. This brings me back to those breakfast and lunch meetings I talked about in a previous subchapter.

Invite that bank president out for breakfast, particularly if you have a proposal or a need you wish to discuss. Those sorts of one-on-one meetings need not be just about business or your pitch. You’re fleshing out the gray areas where he doesn’t really know you. You’re becoming a flesh and blood person to the person across from you eating toast and drinking coffee. This is good.

Where a lot of people drop the ball is in continued follow-up.
They take me out to lunch when they want something, and then I never hear from them again until they want something again. If that’s frequent, and what they want from me opens up a two-way street where I get something good out of the deal as well, then fine. But often, someone wants something from me, we do a deal, then I never hear from them again for another six years, when they feel they need me again. After that much time, I can barely recall who they are. They’re not really someone I know that well. It’s been six years, for crying out loud. I may have been wined and dined over twelve times in the past six years by someone else in their same field. I no longer need them, even though they feel that they need me. Game over; they blew it.

It’s fine to take someone out to lunch just to keep the business contact alive. You’d be surprised at how much intelligence you can pick up from such an adventure. Again, this is why I tell people not to eat alone. You have to eat anyway; why not maximize the time spent chewing? It may stretch it out a few minutes longer, but you’ll be doing something other than just feeding your face.

Eating is not your only networking option. Shoot an e-mail to a client or a business contact from time to time just to say hi. Drop by their office if you’re in the neighborhood anyway. Keep it casual so that they know that’s simply the kind of friendly guy you are. There’s nothing worse than the guy who gets a reputation of, “Oh, here comes Larry again.

What’s he want this time?” while they roll their eyes and look for a place to hide. A few totally purposeless (on the surface) follow-ups with people help in establishing you as the person to be remembered and, frankly, liked.

This is also where activities such as golf and tennis come in. People do tons of business on the golf course or down at the marina, depending upon where you live. Try not to stay cooped up in your house when you’re not working. Mix with people. Mix with people who are your clients, could be your clients, or could turn you on to the sorts of other people who could be your clients or customers. Playing tennis with your cousin Eddy who is in a field with no connection at all to yours is not clever networking.

Listen to Braun speak on Financial Literacy.

Braun Mincher with Neil Cavuto on Fox Business News

Braun Mincher talking about Financial Literacy on Fox Business

—

Brazil & the Politics of Global Investing

October 27, 2009 7:56 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Brazil’s currency and stocks fell sharply on Tuesday after the government announced a 2% tax on foreign portfolio investments in an effort to stem the rapid rise of its exchange

The move, announced shortly before local markets closed on Monday, followed steady gains in Brazil’s currency, the real, which has advanced 36 percent against the US dollar already this year, reducing the competitiveness of Brazilian exports against many competitors such as China which has re-established a peg to the US dollar.

What was behind this sudden move and how should investors weigh these and other political and regulatory risks that go along with international, and especially, emerging market investing.

Malaysia (EWM), blaming foreign speculation for destabilizing its economy, imposed capital controls to prevent a run on its currency in 1998 during the Asian financial crisis. Chile (ECH), one of the most successful Latin American economies though still referred to by some as a frontier market, maintained controls on capital inflows for many years but has now suspended them. Chinese mandarins seeking to boost the Shanghai market, sometimes lower the tax on stock transactions to give its market a shot in the arm.

To understand Brazil’s move, you need to take a look at the politics behind it.

On September 29th Henrique Meirelles, the governor of the Central Bank, announced that he was joining the Party of the Brazilian Democratic Movement, a coalition of regional barons that is the country’s largest political outfit. In a general election next October he is expected to run for governor of his home state of Goiás, although he may reach as high as the vice-presidency.

Mr Meirelles, a former chief of BankBoston, had been elected to congress for an opposition party before being selected to head the Central Bank in 2002 by President Luiz Inácio Lula da Silva who believed his banking credentials would help sooth the anxiety of international investors worried about his left-wing reputation. Mr. Meirelles turned into a Mr. Volcker and promptly raised interest rates to painful levels to tame inflation. These measures in part led to the extraordinary economic boom bring Brazil’s GDP to almost $2 trillion, 10th in the world.

In the wake of the global financial crisis, the Central Bank brought interest rates down and the economy is likely to have returned to an annualized growth rate of 5% or so in the third quarter. This resilient growth is creating other political and economic issues.

The real has strengthened against the dollar 36% this year alone. Brazil’s current-account deficit is widening again and many analysts expect the Central Bank to have to raise interest rates again.

Meanwhile, exporters and manufacturers complain vociferously about the impact of a strong real. With an election coming next year and recognizing that a strong real provides benefits such as keeping inflation low and lowering the price of imports of capital goods, the government believed it had to do something: hence, the 2% tax seen as reasonable and not revolutionary.

Likewise, my guess is that smaller measures like the 2% levy are hoped to replace the stronger step of raising the central bank’s benchmark rate of 8.75% which is currently at a record low.

It is usually not good politics to raise interest rates in the midst of an election cycle. On a relative valuation basis, Brazil still seems cheap relative to its BRIC partners India and China. I prefer coupling the top-heavy iShares Brazil ETF (EWZ) with its small cap brother (BRF) which has a significantly higher allocation to Brazil’s fast-growing consumer goods and service sector.

Investor’s should expect some surprises and watch the politics closely.

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Invest Like a King

October 20, 2009 9:19 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

The legendary kingpin of Louisiana, Huey Long is perhaps best known for his slogan “Every man a king”. A king has control over his resources and dominion. With over 750 ETFs covering just about every asset class imaginable now at your fingertips, your investment options and global reach have been dramatically expanded. In short, you can now invest like a king, rather than being a pawn.

ETFs now cover just about every area imaginable including currencies, commodities, precious metals and hedge ETFs that move opposite markets. One aspect of investing like a king is to pick your own countries and sectors using ETFs. I use country-specific ETFs as the core of my strategy complemented by global sector ETFs - perhaps the real wave of future global investing. Developed country ETFs are a hybrid being to a degree sector plays or broader plays on global growth rather than following the domestic economy and stock market. The German iShares ETF (EWG) is a good example; is global giant Siemen’s stock price tied more to the German economy or to the American or Chinese economy?

Nevertheless, country ETFs are a great way to organize a global portfolio and for challenging broad conventional indexes like EEM and EFA which weight countries based on their market capitalization rather than future growth potential. As e.e. cummings aptly put it: “my only permanent address is tomorrow.”

Let’s take a brief look at look at Singapore, Australia and then emerging markets to illustrate this strategy.

Singapore (EWS) is a high quality, geographically well placed market at the center of the Asian growth story. It is a smart way to play what for now is a sharp recovery in share prices and economic activity. Singapore’s economy surged for a second straight quarter, and the government boosted its 2009 growth forecast, as manufacturing cemented the city-state’s emergence from recession.

Gross domestic product grew an annualized, seasonally adjusted 14.9 percent in the third quarter, following a jump of 22 percent the previous quarter according to the Trade and Industry Ministry.

The economy also expanded from a year earlier for the first time since the third quarter of 2008, the ministry said. GDP was up 0.8 percent from the July-September quarter of 2008.

“A clear but modest recovery is under way globally, at least for the next three or four quarters,” the ministry said. “However, economic activity will probably remain below pre-crisis levels because of the drag on demand in the developed economies.”

The government boosted its 2009 GDP forecast to a contraction of between 2 percent and 2.5 percent from a previous expectation of a fall between 4 percent and 6 percent.

Another attraction of Singapore is its balanced economy with trade, finance and tourism fueling one of Asia’s highest living standards. Manufacturing soared an annualized, seasonally adjusted 35 percent in the third quarter while services grew 9.5 percent. The growth in the second and third quarters is the most of any six-month period since the government began releasing quarterly GDP figures in 1975, said Robert Prior-Wandesforde, senior Asia economist at HSBC in Singapore.

Australia (EWA) is another country that has weathered the global financial crisis much better than most. Until late last year, Australia had not seen a quarter of negative GDP growth since 1990. The lucky country was achieving GDP growth of 2.5% to 4% before the crisis, and the recent quarterly annualized GDP growth rates of –0.7%, 0.4%, and 0.6% growth (Q408, Q109, and Q209) and an unemployment rate at 5.8% were still a creditable performance for a developed economy.

Australia is at the sweet spot of China growth and the mood down under is extraordinarily upbeat.

And don’t neglect the opportunity to move up the risk/reward spectrum to take a good look at emerging markets. The companies in emerging market country ETFs such as Thailand (THD) are more closely tied to its domestic economy and offer more of a pure play on local markets. The MSCI Emerging Markets Index reached 946.3 last Friday, the highest level since August 29, 2008. On a year-to-date basis, the emerging market index is up by 67%, and from the early March low almost 100%.

Emerging market investing is not a fringe area where you can just put 5% of your portfolio in an index fund and go asleep. It is not just about trying to capture economic growth rates three times larger than in America and Europe or seeking stronger currencies, more fiscal discipline and investing in a rising middle class.

It is bigger than that.

The world is filling in right before our eyes. Sharp improvements in technology and communications coupled with economic market reforms are allowing emerging market countries to close the income gap with the West and this will continue for some time. Emerging markets now account for half of global economic growth and 33% of world GDP.

Emerging markets need to be at the core of your global strategy because they can make you wealthy if you properly manage the risk and volatility.

Consider these facts. In 1990, mainland China’s GDP was roughly equal to that of Taiwan (EWT) - now it is ten times bigger. Despite all the progress India (INP) has made to date, its per capita GDP is still only about $1,000 with plenty of room to grow.

Brazil is now has a GDP approaching $2 trillion dollars, ranking tenth in the world, and just this month was upgraded to investment grade status. Turkey’s (EWT) economy is now the 16th largest in the world - just behind South Korea (EWY). Indonesia (IF), the third largest democracy in the world, is up 109% so far in 2009.

Another sign that emerging markets (EEM) may have a way to run is that the average pension fund only allocates an estimated 5 per cent of its portfolio to emerging markets, yet they make up 30 per cent of the world’s GDP, according to the International Monetary Fund.

Mike Gomez, co-head of emerging markets portfolio management at Pimco, says: ”Without question this is an asset class that continues to expand and is structurally under invested by the majority of longer term investors. This is an asset class that has gone from exotic to more mainstream over the past 10 years.”

Emerging market funds under management globally have increased to a current $563bn from $64bn at the start of 1999, according to EPFR Global, the data provider. Yet, they are still small part of the investable universe compared with the $4,400bn under management in the developed world.

Take control of your global portfolio by picking countries like a king.

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Be Passionate About Whatever You Do

October 8, 2009 2:47 pm

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 10 of his book, Your Keys to Financial Success and the 9th of 20 entries on this subject. For more on Braun click here.

Life is a blank slate. Within reason, you can choose to do literally anything at all that you want. Sure, perhaps you’d love to be an NFL quarterback and that’s probably not going to happen, but maybe you’ve got the skills to be a sportswriter or an athletic trainer. The point is, we’ve come a long way as a civilization from where people used to be born into an occupation that they could not avoid or rise above. So why the heck are there still so many people in this country who hate their jobs?

One reason, I believe, is that some people are told, “There’s a lot of money to be made in this field.” Now, I don’t deny, that’s a great business tip. But maybe some of those suggestions make for a better investment tip. Plumbers make a nice living, but not many people really want to fix toilets all day long. Doctors have always earned a nice living, but not everyone is cut out for blood and guts and death and disease on top of twelve years for school.

I’ve said throughout this book that wealth can be created by people in fields where they may not necessarily make a huge wage. Teachers, policemen, firemen, travel agents—these are not the fields people go into for the money. But people in those fields, and others who manage their money well, can still live a comfortable life.

But what about happiness? I’m not going to try to tackle the age old question, “Does money buy happiness?” I say that the answer is that financial security helps buy happiness. But your career should be your career—something of your own choosing that makes you want to get up in the morning.

If you are doing it solely for the money, then no, you will probably not be a happy camper in the long run. The world is full of miserable doctors, lawyers, and engineers. Sure, they might make a great wage, but some of them feel no passion for or take joy in what they do.

Mercenaries—they’re never to be trusted. A customer who only buys from you because you are a few pennies cheaper than the guy down the street will leave you the moment a guy farther down the street under-prices you. You can’t build a business on that kind of customer. The same goes for workers. If you hire bus drivers and you get an applicant who says, “Yeah, I heard you pay $14 an hour. The place I’m at now only pays $13,” that guy will leave you the moment a competitor offers him $15. And, frankly, he’s said nothing to lead you to believe he even likes driving a bus.

On the other hand, there are people who truly enjoy driving for a living—bus drivers, truck drivers, what have you. There are actually lots of occupations out there where you get behind the wheel and just drive. Some people love it. If I’m hiring drivers, that’s the applicant I want. And yes, they do exist, in most every field. Think about it. Think of the nastiest, crappiest job that you would never want to do. I’ll bet you’ve dealt with people who do that job with a big, sincere smile on their face, as well as some who look as miserable as can be. It’s all a matter of perspective. It’s a big ol’ world out there, and we’re all a little different.

Your job will consume about half of your life. These days we spend on earth are precious. “Quality of life” is not just something to talk about when facing nursing home or hospice care. It’s every day we’re alive.

Sometimes it’s the field we are in. Maybe you were forced into it somehow; maybe you took that tip about it being lucrative. But if you find it just isn’t the right fit, take your head out of the sand, look around, and see what else would make you happier. I’ll guarantee you, the happy dentist makes more money than the unhappy dentist. So how good a situation have you put yourself in, then, anyhow?

Some people take longer than others to mature. They goof off through high school, drop out of college, end up working in fast food, and are incredibly unhappy. But this is not where your story has to end. Maybe at age twenty-five you wake up and you realize that you have enough brain power and ambition to do better. So do it! You’re not getting any younger. Think about what you really want to do in life, and then figure out a path to get yourself there. Okay, so maybe at twenty-five you don’t have mom and dad anymore to pay your bills, but still, there are ways. Maybe you want to be that sports writer we talked about. Keep working at the burger joint while you take some writing and journalism classes at the local community college. It’s not that expensive, and it’s a great investment in yourself. Get on the school newspaper there. See if the Career Services office can hook you up with an internship with a local paper or radio station. Pretty soon, you might be able to ask your manager at work to reduce you to part-time because this writing thing is beginning to take off for you. Keep at it, keep your passion flowing, and within a few years you might be working for Sports Illustrated. Stranger things have happened.

Then there’s the person who hates his boss. Honestly, I can’t fathom this one. If a work environment is toxic, then go elsewhere. You’re not an indentured slave. People change jobs all the time these days. But if you like your job, you like your firm, then show some loyalty. A lot of twenty and thirty-somethings today just jump from job to job every year or so, for wages alone. Again, this is mercenary. If you truly feel you are stuck in a situation where you cannot move ahead and another company values you more, then you have to do what you have to do. But I think some young people today are overdoing it.

Life is short. Time is precious. Don’t waste it being miserable. If you have to work anyway, do something that makes you happy at a place that makes you happy. And if you want to be successful at it, be more than happy—be passionate. Passion is what makes you not only want to go to work, but to be the best at what it is that you do.

Listen to Braun speak on Financial Literacy.

Braun Mincher with Neil Cavuto on Fox Business News

Braun Mincher talking about Financial Literacy on Fox Business

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ETF Pick of the Week - Australian Dollar (FXA) 1/24/2009

January 26, 2009 11:35 am

Carl Delfeld

Overview and Rationale:
A contrarian play, FXA should benefit from any rebound in commodity and energy prices, intervention to weaken the Japanese yen, perception that the currency is oversold and the attraction of a 7% yield.
In 2007 Australia had about 13% of world reserves of iron ore and was ranked fourth after Ukraine (19%), Russia (16%) and China (14%). In terms of contained iron, Australia has about 15% of the world’s EDR and is ranked second behind Russia (19%). Australia produces around 16% of the world’s iron ore and is ranked third behind China (32%) and Brazil (19%).
While South Africa still has the world’s largest reserve of gold at 6000 tons (14.3%), Australia has the second largest reserve with approximately 12% of the world’s holdings.
Japanese investors seeking higher yields in foreign bond markets, such as in Australia and New Zealand, have been brutalized in recent months, with the Aussie dollar and NZ kiwi losing roughly 45% of their value against the yen to their lowest levels this decade.
FXA also offers a nice yield of 7.3% and also provides a nice hedge on the U.S. Dollar. Though recently weak, the Aussie dollar, it may reverse course as global markets concern over the Fed printing press and inflationary pressures returns.

Catalyst:
From a technical perspective, the timing to begin building a position in FXA looks attractive. The AUDUSD chart shows that the AUD has fallen from near parity with the USD at .95 to .67. During the past decade the AUD has traded above .65 for nearly 7 out of the last 10 years. The fall of the AUD has been brutal and is an outlier compared with the performance of other major currencies.

Risk Factor: Moderate given the depressed state of energy & commodity prices.

Risk Management: Suggest an 8% trailing stop loss.

Tip: You may wish to scale into a position at a price of $65 or lower.

ETF Pick of the Week - ProShares UltraShort Lehman 20+ Years (TBT) 2/1/2009

January 30, 2009 1:29 pm

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Overview and Rationale:
The ProShares UltraShort Lehman ETF (TBT) goes up on a daily basis 200% inversely to the movement of Treasury bonds with maturities longer than 20 years. It goes up in price when bond prices go down and yields go up.

While the Fed can control the discount rate, global market supply and demand sets the market rate for Treasuries.

My rationale for adding a small amount of TBT to your global portfolio is that major buyers of US Treasuries are likely to be unable to maintain past demand. And the US governments huge spending plans and deficits will force it to sharply increase the amount it will attempt to borrow on global markets. The central banks of Japan and China have been big investors in US Treasuries but Japan has plans to float an increasingly larger amount of its own bonds and China has indicated an interest in diversifying its dollar holdings as well.

Countries around the world will this year be trying to borrow massive amounts of capital to fund bail out and stimulus packages. Higher supply and lower demand will, at some point, lead to the US having to increase the interest rate on its long-term Treasuries in order to attract interested buyers.

Catalyst:
Markets are already beginning to judge that interest rates will be increasing as the US increases the size of its borrowings. As other countries increase the scale of their respective bond offerings, this trend will likely accelerate. Any weakness in the recently strong US dollar will exacerbate the situation.

Risk Factor: High
Risk Management: Use sparingly since this is a double inverse ETF and may be volatile. Suggest an 8% trailing stop loss.

Tip: Consider a small allocation of (TBT) as a hedge on your bond portfolio.

Life Saver Emergency Funds

February 11, 2009 12:13 pm

Posted by Vijai

Vijai is the founder of “Money Really Matters”, a site who’s sole purpose is to share the knowledge and experience about basic money and money related matters in a way to help and guide the simple ordinary people on their path to financial goals. Vijia will be a periodic contributor to Fund.com. For more on Vijia click here.

Last week, I got hit by sudden financial storm which put me a on state not allowing to concentrate on posting the blog. Now, I am back safely without any credit injuries, I really like to share my story about the Life saver incident. I am sure many of you experienced or experience this sudden financial crisis which hit us without any notice. I know it is not an easy task either to escape or get out safe and sound if you aren’t plan and prepared for it.

Delay in my Contractor job payment delay, my truck is about to breakdown and needed immediate fix and a must to do medical procedure for my son all of them hit me hard at the same time. I got in the midst of the storm and there is no escape other than take the hit but protect myself. I wouldn’t have taken that chance, if I didn’t have my saved store emergency funds.

It was like wearing a life jacket in a flood water which is rushing fast and won’t last long. Life jackets are safe and it will help to float and be on top of water without getting drowned. Emergency funds are life jacket/lifesavers to our financial life. I know I am using bit too much analogies today but I like it put this in a way so it makes real sense and shows the importance of the topic.

Alright, What is an Emergency Fund?
As I was saying, I like to call it as a lifesaver fund. Life obviously will have unexpected happenings. There are plenty of situations like I mentioned which will hit us without any prior notice. You don’t have any choice to take on the expenses. You can try your best to postpone those expenses but some medical and emergency situations can’t be postponed. In those tough times, you really need to have some funds available to depend on to take care of it. These funds are emergency funds.

Why do you need it?
Life hits us hard at times and nobody knows when and how. It is better to take the precaution and be prepared. Instead of waiting for it happen and figure out at the time. So it is always good to save up some money for those emergency situations. I know lot of people are struggling to even meet their ends at the tough economy crisis and it might be tough to save for any funds. If you are one of them, I would recommend to consider at least put away your tax refunds or any bonus payments as emergency funds. It will surely help you. Instead of depending on the plastic money(credit cards) and racking up the balance in that account which will hunt you down later. It is good thing to have a store of money to help you.

What are types of emergency fund?
It depends on each individual. I have 2 types of emergency fund setup right now. Medical and Emergency funds in a savings account. I also have 3 more savings account just for the purpose to handle any Short term, Home and other unexpected expenses. I put away $100 a month on the 2 accounts and at least $50 on these 3 accounts. It eventually adds up and at year end I just put them in a CD which I can take out anytime with or without penalty. Also if my credit card gets hit by these sudden expenses, I just draw the amount according to the expense from these accounts and pay it off.

How much do I need as Emergency fund?
That’s a tough questions since it also depends on each individual. Many experts recommend at least 3-6 months of your monthly expenses. That might be a bigger amount to target for starters. So I would recommend at least start putting something away like $25, $50 or $100 every month and set a goal to reach around $1000 in a year or so and move up the limit if you haven’t used up your savings.

Just put your money in a savings account that way at least you have some interest for the amount every month and helps your money grow. It also helps to access the fund easy and faster.

Emergency fund is such an important aspect for a financial life avoiding stress and frustration which don’t really need at the time of emergency situations. So start thinking about it and save up for the hard times. You will surely appreciate my post when it happens.

Thoughts on Today’s Market

February 13, 2009 8:34 am

Sam Stovall
Chief Investment Strategist of Standard & Poor’s Equity Research

Chances are that if you follow the financial markets, you follow Sam Stovall. As chief investment strategist of Standard & Poor’s Equity Research, Stovall lives and breathes the historical trends and data of the S&P 500. Investors have likely seen him putting his statistical prowess on display with appearances on CNBC and FOX Business, or through his weekly “Stovall’s Sector Watch” column. In addition to serving as an analyst, publisher, and communicator of S&P’s outlooks, Stovall found time to write The Seven Rules of Wall Street, due out in February.

Fund.com had the opportunity to introduce Sam to our friends at Equities Magazine where they had a chance to pick Stovall’s brain and found some very interesting nuggets of information, not the least of which is how the economy going forward may resemble the shirt of one Charlie Brown.

EM: When the market took a dive in mid-October, many speculated that we had hit bottom, but we fell through those lows a month later. How much lower do you think we’re headed, and how can you tell whether we hit a short-term bottom versus a permanent bottom?

Stovall: I guess that’s the $64,000 question. We saw a decline of 52%, making it the third worst since the Great Crash of ’29. It’s the worst bear market since World War II. It’s also retraced more than 100% of the bull market gain from 2002 through 2007 compared with the average of a little less than 70%.

This could indicate that we’re getting relatively close to the bottom. I forecast that we probably would see a worst-case scenario of about 700 on the S&P 500 based on a trend line off of the 1932 low, based on retracements of prior mega-meltdowns, as well as using a more pessimistic top-down or economist-driven earnings estimate for 2009. So my feeling is that the 752 level that we saw on Nov. 20—well, what’s 50 points among friends? If that wasn’t the bottom, I think it’s pretty close.

EM: The market’s volatility has been characterized as highly irrational with major swings in either direction sparked by little or no news, or sometimes even moving against the news. Are these normal characteristics of a bear market? What are you looking for to gauge when the markets are stabilizing?

Stovall: Volatility is certainly the hallmark of a bear market, usually toward the end of a bear market rather than the beginning. Going back to 1960, we usually see the biggest flurry of volatility just before the end of a major bear market. Unfortunately, this bear market set new records and exceeded what we saw back in 1987.

Until the volatility comes to an end, it’s pretty challenging to say when exactly the bottom is likely. Just as the group Chicago sang, “Does Anybody Really Know What Time It Is,” my twist on that would be: Does anybody really know why the market does what it does?

The market is going to take its directions based on underlying investors who want to take profits in strength or who just want to make some money whatever way they can. But obviously in the short term, it’s being driven predominantly by a combination of fear and greed.

EM: Do bull markets usually begin toward the tail end of a recession? What are some indicators that investors should be looking for?

Stovall: Prices typically lead fundamentals. What I have found is that the market tends to bottom out about three-fifths of the way through the average recession since World War II. That’s about six months into a recession, and it’s because investors anticipate that the worst is in sight and that a recovery is attainable within that time frame.

We think this recession will probably bottom out in the summer of 2009. Also, employment data and earnings are typically not going to be giving you an early warning signal that this market is likely to turn around. Many times, it’s something such as the Fed starting to cut interest rates in 1982, or [Operation] Desert Shield becoming [Operation] Desert Storm back in early 1991.

This time, maybe people will point back to the Obama infrastructure plan as a catalyst that will get this market going again. I think it’s not going to be a V-shaped recovery but more of an elongated W-shape, something akin to the design on Charlie Brown’s shirt.

EM: You’ve talked about focusing on defensive sectors. Which sectors do you see strength in currently and going forward?

Stovall: The strength is in the areas of the economy where the demand remains fairly static. So whether times are good or bad, you tend to find that consumer staples, health care, and utilities tend to hold up fairly well. They’re not safe havens because traditionally they decline in price, as well; they just decline less than the overall market.

It’s like the old saying that if the going gets tough, the tough go eating, smoking, and drinking; and if they overdo it, they go to the doctor. We’re still embracing that defensive approach until we get the sense that the bottom was put in place in November, and our feeling is that the market typically does give you at least a second chance to get back in.

We’re not going to be too quick to jump in and get head-faked the way the market did at least twice earlier last year. One economically sensitive area that we do like, however, is energy. Our belief is that this group was oversold and we’re now looking at mid-single-digit price-to-earnings ratios, which make this group fairly attractive.

Right now, we’re saying tread cautiously with the cyclicals. Start to identify those companies that you would like to buy into when we get a better read on whether the stock market has turned around. But don’t jump in with both feet just yet.

EM: You’ve stressed the impact of reinvesting dividends. How does this protect your portfolio?

Stovall: Dividends are boring, but sometimes boring can be exactly what the doctor ordered. Over the past 70 or so years, we have found that 40% of the total return of the S&P 500 has come from reinvested dividends. Interestingly enough, we’ve seen that the dividends yield on the S&P 500—which is above 3.5%—has exceeded the yield on the 10-year Treasury note.

You could easily say it’s been a lost decade. From Nov. 30 of 1998 to November of 2008, the S&P 500, from a price standpoint, declined a cumulative 23%. If you add dividends, it declined 9%. So it does show that dividends can help, but what makes it even better is if you focus on companies with high qualities. A lot of times with a high dividend-paying company, if it looks too good to be true, it probably is because that company’s likely to cut its dividend due to the earnings just not being there.

EM: You have a book coming out in early February. Can you tell us more about it?

Stovall: It’s called The Seven Rules of Wall Street, and these are rules of thumb or old sayings that actually have turned out to be wise portfolio-construction devices. They’re investment disciplines that can help an investor put together a portfolio to outperform the market. This book has seven chapters of these kinds of old sayings that an investor can employ to develop a portfolio that, either since 1970 or since 1990, has outperformed the market.

EM: Do you think investors have forgotten these rules?

Stovall: It’s a good thing to remind people of them because they’re not that sophisticated. There’s an old saying called KISS—keep it simple stupid. The simpler it is, the more likely you’re willing to stick with it, and sometimes the better off it is. You don’t end up becoming your own worst enemy by complicating the matter.

If you would like to view Sam’s video on The 7 Rules of Wall Street please click here.

To View Sam’s Powerpoint Presentation from the Orlando Money, please click here.

Don’t Forget ETF Annuity Bucket as Safe Haven

February 18, 2009 6:57 am

Carl Delfeld

With our core and explore strategy, one point I stress is that your core portfolio needs to be strong and your explore portfolio needs to be flexible and trading oriented.

And members of Chartwell ETF know of my frequent advice that investing is playing the probabilities. If you think that there is a 50/50 chance that markets will be lower in a year or two, why is your ETF portfolio 80% long in markets? It makes no sense at all and puts your financial future at risk.

Investors need to divide their nest egg into buckets and the bucket that has to weather this market and financial storm may find its best home in an indexed annuity.

There are much better indexed annuities on the market than even just a few years ago. Nice guaranteed returns, flexibility in index choices, ample liquidity and lower fees. This may be a great way to position your core portfolio and still participate in the upside when markets recover. Just because we are going into a recession, doesn’t mean your money has to be in one.

But the most important step is to select a strong insurance company. The insurance company backing the annuity that I think is the best on the market is the oldest insurance (and 5th largest) company in the world (it insured Winston Churchill) and is the #1 provider of indexed annuities in the US.

Briefly, here is an illustration demonstrating how the ETF annuity works.

If an investor puts $800,000 in this annuity, they would receive a 10% bonus right up front or an additional $80,000 for a total initial balance of $880,000.

On this $880,000, you would get a guaranteed annual growth rate in your account of 8% out as far as 20 years and over a bit more than nine years, the account balance would double to $1,760,000 if you did not take any money out.

But there is another perhaps better possibility. Your initial balance will also track an ETF like the S&P 500 or Nasdaq and your account balance will grow by capturing some, but not all, of the index’s gains. Another neat option is pick a blend of ETFs to track such as the Dow (DIA), the S&P 500 (SPY) and Nasdaq (QQQQ).

Here is a another nice feature. Each year, your indexed gains are locked in so you can’t go backwards if markets decline the following year. Your worst-case scenario for this indexed side of the annuity account is zero growth. I am sure many investors would jump at that in hindsight.

In short, you get a nice guaranteed rate plus the chance to capture some of the upside if markets recover.

I think of this ETF annuity as investing in the markets but with a safety net underneath - just in case. An indexed annuity is not for everyone and you should not put all of your nest egg in one but I see a strong case for one as part of your investment strategy. Its not perfect but for the right situation, pretty darn close.

ETF-Trend Changes 02-19-09

February 21, 2009 9:03 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Trend 2-19-2009

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

The Secrets of Money:A Guide for Everyone on Practical Financial Literacy- College Savings Plans (Part 7)

February 24, 2009 7:14 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 8 of his book and the seventh in a series of ten entries on this subject. For more on Braun click here.

This is the third in our list of most important long-range savings plans. And yes, like the first two, it does not provide you with immediate gratification. No new Porsche in your garage, no new garage to even put one in. But these savings vehicles are the difference between wealth and earnings.

I keep preaching this, but making lots of money means nothing if you don’t get to keep any. In none of these chapters do we discuss how to earn a living or how to get a job. That’s for someone else in some other book. I am assuming you work for a living. Maybe you work for someone else or maybe you work for yourself. Throughout your life, you may do a little or a lot of both. You may earn hundreds of thousands of dollars per year, or you may never crack six figures. But none of this has much to do with wealth. Wealth is whether or not you have what you need when you need it. When you lose that six-figure job is when you are going to need real wealth. If you ever get a catastrophic costly illness and cannot work for two years, that is when you are going to need real wealth.

The difference between earnings and wealth is the difference between wants and needs. I want a vacation to Hawaii. I need a heart transplant. Needs are best met through savings and investment. Wants are met through spending.

For this subchapter, allow me to assume you have gotten married (or have made some sort of relationship commitment) and have decided to have children. Private colleges in America today cost approximately $45,000 per year. Figure on a 4% yearly rate of inflation and you can start to guess how much it will cost by the time your child is ready to attend college. And if you have more than one child… The mind reels.

Does your child need college? Although there will always be exceptions, that seems to be the majority opinion in our ever-changing world, full of emerging technologies and global finances that get more complicated by the day. In fact, there are so many people with undergraduate degrees wandering around today that now the badge of honor when applying for a skilled job position is to have a Masters or a PhD. Generally speaking, more schooling equals more money.

The trick to using a 529 College Savings Plan, one of a variety of college savings vehicles, is not to start it once your child is a junior in high school and already has a good idea of what he or she wants to do with his or her life. It’s to begin saving as quickly as possible, such as when the child is born. Setting one up and making contributions to it is a better use of the money from that baby shower you just came home from than buying a few dozen more stuffed toys.

A 529 Plan is a tax-advantaged investment vehicle designed to encourage saving for the future higher education expenses of a designated beneficiary. It is named after Section 529 of the Internal Revenue Code (have you noticed a pattern of incredible lack of creativity in the world of taxes and finance?). Each state generally has its own types of plans.

Generally, the features of these plans are:
• You pay no taxes on the account’s earnings. Generally, the money grows federal and state income-tax free.
• The child doesn’t have control of or access to the account—only the parent/sponsor/guardian does.
• If the child doesn’t want to go to college, you can roll the account over to another family member.
• Anyone can contribute to the account.
• There are no income limitations that might make you ineligible for an account.
• Most states have no age limit for when the money has to be used.
• If the child gets a scholarship, any unused money (up to the amount of the scholarship) can be withdrawn without paying any penalty. All that must be paid at that juncture is regular income tax on the proceeds.
•

Summary: With higher education costs continuing to soar, a 529 Plan should be opened for each child at birth. Family and friends wanting to give gifts throughout the life of the child should be encouraged to contribute to the plan. If started at birth, annual contributions of at least $3,000 ($250 per month) should be made to insure adequate funds available for when the child goes off to college. Quite simply, there is no downside to opening up a 529 Plan for each of your children as soon as they are born or adopted.

So, how do you go about opening a 529 Plan?

Each of the fifty states has its own version, most with many options to choose from. Some plans are offered only to state residents, while others are open to anyone. Some states tax withdrawals from out-of-state programs, while others don’t. All but a handful of states also offer an income tax deduction.

Is there any way to cut through all the clutter to find the best plans? Yes. Like finding out about the best of anything, go onto the Internet or watch for current cover articles on major and reputable financial magazines such as Fortune or Kiplinger’s. What was good two years ago may not be so good this year. Some savvy investors end up opening accounts in other states that allow participation to nonresidents.

To properly evaluate the quality of a state’s 529 Plan, one must focus on the quality of the mutual funds offered in that state’s plan and the annual fees charged. Some of the best plans use low-fee funds from major, historically well-performing mutual funds. However, there is usually only a limited selection of funds, and in most cases, you can only change the allocation once per year. The worst states charge big fees on top of the funds’ fees, while other states charge next to nothing. Avoiding high fees is the first rule of 529 selection.

The second rule is to steer clear of funds sold through brokers. These generally entail paying upfront sales commissions known as “loads,” and the continuing annual fees are often larger than those of plans sold directly to investors by the providers. Fees can chew into your earnings. If your plan were to return, say, 8% a year, a single $1,000 contribution would grow to nearly $4,000 after eighteen years. Add a 2% fee, cutting the return to 6%—and you’d end up with just $2,850.

Damage from fees is especially bad when returns are relatively low, and most experts think a typical mix of stock and bond funds will return less over the next decade or so than in the past.

Of course, a high-fee plan can be a winner if its returns, after fees are deducted, still beat the competitors. But many of today’s 529 plans have not been around long enough to establish any clear track record.

In the long run, then, it’s probably best to pick a plan using low-fee index-style funds that simply try to match the performance of specific segments of the stock and bond markets.

Listen to Braun speak on Financial Literacy.

Braun Mincher with Neil Cavuto on Fox Business News

Braun Mincher talking about Financial Literacy on Fox Business

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The Secrets of Money:A Guide for Everyone on Practical Financial Literacy- Stocks, Bonds, and Mutual Funds (Part 8)

March 12, 2009 10:24 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 8 of his book and the eight in a series of ten entries on this subject. For more on Braun click here.

I probably should first apologize for using a number of terms in some of the preceding subchapters with which you may not be familiar. These are the kind of financial terms that, perhaps, make your eyes glaze over while your head nods knowingly, despite the fact that you have no idea at all what the words really mean. These words can also cause anxiety, panic, and a general feeling of inferiority because of our ignorance of them, thus the reason why we nod as if we know all about them anyway.

Well, I’m here now to give you a VERY brief summary of what some of these terms mean, bearing in mind my promise that this is NOT a book on how to make a killing as an investor. Sure, some people like Warren Buffett have done just that—one of the world’s richest men despite listing his occupation simply as “investor.” His brilliance in this area is unparalleled. I wish I could say the same for myself.

Yet Warren Buffett is a man to be admired because of a number of reasons, not the least of which is his solid, feet-on-solid-ground approach to life. Mr. Buffett, despite his billions (not millions, but billions) has lived in the same modest home in Nebraska (yes, I said Nebraska—I have been there and it looks just like a regular house—no gates, no staff quarters, no pretentious statutes). He drives himself to his office each day in a very un-flashy car, and believes in making prudent and often downright conservative financial investments. One of his favorite quotes is, “Only buy something that you’d be perfectly happy to hold if the market shut down for ten years.” What Warren Buffett is talking about is saving—long-term investing—not making quick hit-and-run financial killings.

Here we go:

Stock – A stock is a small ownership of a portion of an individual company. Companies may choose to be either publicly traded (i.e., anybody can buy or sell them on a stock exchange) or privately owned. Stock prices may go up or down, depending upon the perceived value of partial ownership of the company in question.

Bond – A bond is a fixed interest financial asset issued by governments, large companies, banks, public utilities and other large entities. Bonds pay the bearer (essentially you are a “lender”) a fixed interest percentage amount at a specified end date —for example, you can purchase an 8% 3-Year Bond. Bonds have different ratings and do carry varying degrees of risk. Municipal bonds, issued by towns to finance capital projects, are generally tax free, but have lower rates of return. The tax-free aspect, though, is enticing to someone in a high tax bracket who needs some financial planning and tax-planning assistance. Someone only earning enough to be in the 15% tax bracket should probably not be tying up their money on the relatively nominal returns of tax-free municipal (“muni”) bonds.

Mutual Fund – Mutual funds are portfolios of multiple company’s stocks, picked and managed by a professional fund manager. Each company’s stock within the portfolio has a different value that will fluctuate. The mutual fund’s share price is determined by its net asset value, which also fluctuates with the circumstances of the various companies within the fund. Mutual funds offer a lot of diversity.

Put simply, instead of picking individual stocks yourself, some people choose to “place their bets” with a professional stock-picking firm, so to speak. The performance of the fund itself can also be tracked, not only day-by-day/hour-by-hour as individual stocks are, but more importantly, on a quarterly or yearly basis. A good mutual fund will perform well year in and year out; providing, usually, a more stabile investment for the individual than having that individual picking their own stock or stocks.

Index Fund – An index fund essentially matches the market. It has no manager in the traditional sense and is simply made up of representative amounts of each stock in the index. The most well known are the Dow Jones Industrial Average (DJIA) and the Standard and Poors (S&P) 500 index. The “500” are the 500 largest publicly traded American companies. With an index fund, you are essentially wagering on the stock market as a whole. An index fund buys equal shares of each of these stocks, which really spreads your risk around.

“No-Load” Mutual Funds – A no-load mutual fund is one which does not impose a sales or redemption charge, selling and redeeming its shares at net asset value.

English translation: A “load” can be a sales fee. Think of it like a tax. You make a $1,000 investment into a mutual fund that has a “Front End Load,” and you might only be investing $950, while the “load” – the remaining $50 fee – is the commission paid to the broker who sells it to you. There can also be “Back End Loads” where you are paying the same such fee in addition to or instead of the front end load when you go to sell or redeem your investment.

Look for “no load” mutual funds. Watch out for any fees or commissions that will reduce your earnings!

Company Stock “Options” – An employee stock option gives you the right to buy (”exercise”) a certain number of shares of your employer’s stock at a stated price (the “exercise” price) over a certain period of time (the “exercise” period). For example, if your company gives you 100 “options” at $1 each, and your company’s stock (after your hard work) becomes worth $5 per share, you can make $400 by exercising your options. You get to buy $5 stocks for $1 each. Lots of newer companies do this for their employees in lieu of cash bonuses or higher salaries. When the company grows and grows, this can be great. Imagine having stock options when Microsoft, Apple, or Yahoo was just getting off the ground. On the other hand, weighing two job offers – one from a start-up offering a horrible salary, but stock options, and another with a high starting salary, it can be a tough choice. Not every new company becomes a Microsoft.

The most prudent, basic investment is an indexed fund. Historically, since 1926, index funds – the stock market as a whole — have had an average annual growth of about 11%. Now you see how something as relatively safe and conservative as this far outperforms a regular savings account or interest-bearing checking account, which languish at around 4 or 5%. Granted, there were some times in the late 1990s where index funds were over 30%, while there were a few times some years ago where they were negative 20%. But year in/year out 11% growth—over an extremely long period of time—is a good deal.

Now, as previously stated, I realize that all these possibilities can be frightening. That’s okay. What’s not okay is if your fear of them causes you to not participate in your employer’s 401(k), or for you to not invest in an IRA. These savings vehicles will, most likely, be invested in stocks or bonds or mutual funds or index funds. That’s Ok. My recommendation to you would be to try to direct your personal funds toward an index fund as your first choice, and a good, reputable mutual fund as a second choice.

By the way—beware of “privately created” mutual funds. Really. It is possible for Joe Stockguy—the market know-it-all who bores everyone at cocktail parties —to set up his own mutual fund and try to get other people, such as you, to invest in it. Joe Stockguy may be a legend in his own mind; maybe he’s even made some incredibly lucky stock picks over the years. But that does not make him a Vanguard, Smith-Barney, Salomon Brothers, Oppenheimer, or Janus—some of the biggest names in the business. When those companies name a new fund manager, it is like the naming of a new Pope. White smoke billows from the top floor of their fifty-story office towers. Trust me, if our friend Joe Stockguy was wise enough to get that gig, he wouldn’t have time to be talking to either of us.

Speaking again of 401(k)s and IRAs, resist the temptation to invest all of your money in your own company’s stock plan (think: Enron, WorldCom, etc.). Sure, you want to be a “team player” and of course, you feel that being an employee there, you have some inkling of what’s going on behind closed doors and that you yourself are making some contribution to the success of the company. Dream on. Remember the 20% rule and diversification. Unless you are the company president or the Chief Financial Officer (CFO), you may actually have less of a perspective and less impact on the bottom line than someone outside of the company.

Generally speaking, picking individual stocks is not the best choice for the average investor. Sure, it looks like fun, and some people get really excited watching a stock ticker each day. But it has also been proven that certain primates without opposable thumbs can be just as lucky or unlucky at picking stocks as the average investor. My advice would be that once you’ve maxed out your yearly contributions to your 401(k) and IRA and if you have some other money lying around to play with, then fine, knock yourself out and pick some stocks in which to invest. It’s more likely to make money for you than simply spending it on things you don’t really need. If you do so, it is not recommended that you have more than 20% of your portfolio with one single stock. Again, the word “diversify.”

But please, remember this: Get an IRA, get a 401(k), make sure they are invested prudently in index funds or well-established mutual funds, and then max them out every single year. Start doing this early in your life and keep doing it for your entire life. If you do not make enough money to max out these investments each year, do not invest in any other gambles (individual stock picks, etc…). Exercise self-restraint. Do not be bullied into doing dumb things with your money to show-off. Manage your risk by taking as little risk as possible. 401(k)s and IRAs, invested in index funds and well-managed mutuals, are as small a risk as one can reasonably find.
Listen to Braun speak on Financial Literacy.

Braun Mincher with Neil Cavuto on Fox Business News

Braun Mincher talking about Financial Literacy on Fox Business

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The Freedom ETF folio - 2/22/09

February 24, 2009 11:14 am

Carl Delfeld

It is incredibly difficult in turbulent markets to look ahead with the big picture in mind. Let’s give it a try.

I have been following for some time the annual report on the Index of Economic Freedom published by the Heritage Foundation and the Wall Street Journal. It ranks countries based on a grading system that includes ten freedoms such as property rights protection, investment freedom, tax rates, government intervention in the economy, business freedom, freedom from corruption and monetary, fiscal and trade policy.
The idea is not just to rank countries but to track movement both up and down and to highlight the proposition that freedom and prosperity are highly correlated.

Here are the top twelve countries for 2009 and their corresponding ETF.
1) Hong Kong (EWH)
2) Singapore (EWS)
3) Ireland (IRL)
4) Australia (EWU)
5) New Zealand (up one slot)
6) United States (SPY) (slipped from #5)
7) Canada (EWC)
Denmark
9) Switzerland (EWL)
10) United Kingdom (EWU)
11) Chile (ECH) (slipped from #8)
12) Netherlands (EWN)

The average score for the 183 countries that were ranked was roughly what it was last year. It is interesting to note that all of the top seven slots are countries formerly associated with the British Empire (sorry, Mr. Jefferson the Francophile, it looks like Alexander Hamilton was right on, France is #48) and that half of the ten top ranked countries hail from Europe. Egypt, Mauritius and Mongolia were the three countries that moved the most up the rankings.

I was a bit surprised that some well respected economies as well as fast-growing emerging markets with high flying stock markets did not move up much at all and actually had rather poor rankings.

Here are just a few examples.
#19 Japan (down two slots)
#25 Germany
#23 Austria (up 7 slots)
#49 Mexico (down 5 slots)
#58 Malaysia (down 7 slots)
#54 Thailand
#105 Brazil
#123 India (down 8 slots)
#131 Indonesia (down 12 slots)
#132 China (down 6 slots)
#144 Russia (down 10 slots)

This brings us to the relationship between stock market performance and the degree of economic freedom. Cynics might point to the fact that Ireland (#3) has been perhaps the worst performing market during the last year and that Chile has been sliding and Singapore has also hit a rough patch. Meanwhile, the hottest markets of the last few years were three countries ranked below #100; Brazil, India, China & Russia also so known as the BRICs.

But wait just a darn minute. First, we need a much longer perspective than just a year or even a few years to test whether this divergence is sustainable. For example, both the Ireland and Chile markets outperform any of the BRIC countries if you use a five-year time frame. Plus the MSCI emerging markets index in U.S. dollar terms is down 20% year-to-date.

The other interesting angle is just how good some of these emerging markets could perform with only marginal progress in all or some of these economic freedom categories. My opinion is that it is very unlikely that China and India can maintain double-digit growth rates without addressing these issues as soon as possible.

Then you need to look at per capita income levels. The top 20% of countries ranked have per capita incomes twice that of the next 20% and a stunning five times that of the bottom 20%. It is time for economic freedom to trickle down and the sooner the better.

Instead of just talking about these important issues, why not put some money on the table and put them to the ultimate test. Chartwell Partners Wealth Management has launched the Chartwell Country Freedom Folio for private clients. It is a basket of the top ten ranked countries using country specific exchange-traded funds also known as ETFs. Because that New Zealand and Australian markets have a great degree of overlap, we are putting the Netherlands in the tenth slot and will weight each country equally.

And don’t forget America in the #6 slot. The record of stock markets during a recession is sometimes surprisingly quite good. In the nine U.S recessions (zero to negative growth) since World War II, in four of those recessions the stock market actually soared: 40% in 1954, 22% in 1961, 30% in 1980, and 30% in 1991.

It is a tough and tricky time to put new capital to work but why not start with the freest economies in the world?

Financial Literacy Documenary - 1st Draft

February 25, 2009 12:02 pm

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This small clip is a preview to his upcommin documentary on Financial Lieracy. For more on Braun and this project click here.

Braun Media, LLC is currently producing a shocking new feature-length documentary film which exposes the state of Financial Literacy (Illiteracy) in America, and the correlation between the level of financial literacy and how financially successful a person is. Using a creative and entertaining medium, our end goal is to create a new awareness for the topic that in turn inspires positive change and action on the part of individual consumers, parents and the school system to place more emphasis on basic financial literacy education.

The crew traveled the entire country over 3 months – both coasts and everywhere in between – interviewing numerous REAL people, government officials, celebrities, educators, personal finance experts and others. They expect to release the film worldwide in May 2009.

Here is the FIRST DRAFT of the trailer for Secrets of Money: The Documentary Movie.

Which Way China - 3/2/2009

March 2, 2009 6:10 am

Carl Delfeld

PUNDITS ARE POUNDING THE TABLE RECOMMENDING going long on China, often citing improving shipping stats and the pent-up consumer demand as signs that China will weather its slowdown. While wary of headlines trumpeting stimulus packages concocted by the mandarins in Beijing who are anxious about political stability, I think China’s downside market risk is significant and even China bulls need to hedge.

Its export- and investment-led economy is reeling. Many analysts are still clutching at their 8% growth targets for 2009, but my guess is that the number will come in at half that figure. The signs of a sharp slowdown are clear. Electric utility use—an excellent barometer of the economy because most usage is industrial—was down nearly 8% in December from a year ago across China and in Guangdong, which accounts for 30% of China’s exports.

Thousands of export-oriented companies have already gone under. China’s two big export markets, America and the EU, as well as intra-Asian trade, are weakening as well. China’s consumer prices grew at their slowest pace in 30 months in January and producer prices continued to decline. China import levels are also reflecting its weakening economy, with Japanese exports to China falling 45% in January. There has also been a sharp increase in the number of Korean and Japanese expatriates working in China leaving for home.

Finally, the International Monetary Fund recently forecast that Asia would grow by just 2.7% this year, a sharp cut from the 4.9% that it had predicted for Asian growth as recently as November. The money and investment flows are also gaining negative momentum.

While China is sitting on a $2 trillion war chest, the quarterly pace of accumulation in China’s foreign exchange reserves plunged 74% over the course of last year. In the fourth quarter it reached $40 billion, the lowest point since the spring of 2004.

Then there is the slowdown in foreign direct investment. The Institute for International Finance in Washington predicts that net private sector capital flows to emerging markets will be no more than $165 billion in 2009, less than half the $466 billion inflow in 2008 and only one-fifth the amount sent in the peak year of 2007.

Worried about the impact of slower economic growth, some Chinese citizens are starting to send more money out of the country while foreign investors are pulling money out, too.

Even the urbanization of China has stalled. More than 20 million rural migrant workers in China have lost their jobs and returned to their home villages as a result of the global economic crisis—according to government figures. You can bet that this number is bigger and that many are staying behind in the cities as well.

These trends will heighten China’s already high tension between the go-go coastal areas and the left behind rural areas. The razor thin margins of China’s export-manufacturing centers do not have the cushion to weather these sharp setbacks. Production in China’s manufacturing sector declined for the sixth successive month in January, according to Hong Kong brokerage CLSA. The survey showed that manufacturers shed jobs in January at the fastest rate since the survey began in 2004.

The point made by China bulls regarding the nation’s ability to grow internally through domestic demand and consumer spending is intriguing. The question is what will be the catalyst and when will this consumer spending kick in?

The reasons why Chinese save so much of their household income demographics and a lack of a government-sponsored safety net—remain the same. My sense is that this spending will coincide with economic recovery, not lead it.

This is no time to take on Chinese company risk—exchange traded funds are the way to go.

While the iShares FTSE China (FXI), a basket of the largest 25 Chinese companies listed on the Hong Kong Exchange, is down sharply from a price of $54 in late April to its current price of $25, it is not particularly cheap trading at about ten times suspect earnings.

A more skeptical investor might consider the ProShares Ultra-Short China ETF (FXP) inverse ETF that moves 200% opposite FXI. Investors should also be aware of the availability of options on FXI out as far as January 2010. If you are bullish on FXI, go with a call option. If, like me, you are skeptical, go with a put option. Another possible strategy is a play on volatility in FXI through a straddle: executing a call and put option usually at the same strike price. And if you think the Chinese market will go up but wish to sleep at night, invest in FXI and buy a put option as an insurance policy.

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ETF Pick of the Week - New Ireland Fund (IRL) 03-09-09

March 9, 2009 6:40 am

Carl Delfeld

Rationale and Overview
Ireland has without question lost its magic and no country’s stock market has fallen further during the global financial meltdown. The New Ireland Fund has fallen from over $20 to close yesterday at $3.30.

Ireland’s real estate bubble was and is perhaps the worst in the world and has greatly impacted its banking system.

Ireland’s largest bank and the second largest holding in the New Ireland Fund, Allied Irish Banks PLC, reported a 57% fall in its net 2008 profits as its written-off debts soared amid crumbling property markets in Ireland and neighboring Britain. Allied Irish shares have plummeted more than 90 percent over the past year “because nobody can really call how deep or long this cycle is going to be.” AIB shares hit a record high of euro23.95 in February 2007. Ireland’s government has unveiled a deal to invest euro3.5 billion in the bank but AIB shareholders still must approve that bailout — which would give taxpayers a 25% stake and require the bank to pay a euro280 million annual dividend to the government later this month.

Meanwhile the largest holding in the New Ireland Fund, CRH Construction, has successfully launched a rights offering and seems to gaining its footing despite the construction slowdown. Well over half the cash from the Irish building materials producer’s rights issue announced on Tuesday is reserved for acquisitions, leaving €500m to retire debt. CRH’s balance sheet also looks reasonably solid. At the end of 2008, net debt to earnings before interest, tax, depreciation and amortization was an acceptable 2.3 times, well below debt covenants of 3.5 times. After the cash call, it falls to 1.8.

I have been wrong on Ireland before but its seems to me that relative to its current price, IRL offers investors a reasonable chance at significant upside especially since it is trading at a 27% discount to net asset value. The risk of AIB demise is real and the Ireland economy is reeling but a bet on its eventual recovery from these depressed levels warrants consideration.

Catalyst
The successful rights offering of the fund’s largest holding, low valuations and the expectation of economic aid from the European Union. Allied Irish Bank (AIB) may also be oversold and is up 18% in trading this morning.

Risk Factor
The risk factor is high, strongly suggest an 8% trailing stop loss.

The Secrets of Money:A Guide for Everyone on Practical Financial Literacy- Stocks Brokers and Financial Planners (Part 9)

March 25, 2009 10:02 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 8 of his book and the ninth in a series of ten entries on this subject. For more on Braun click here.

Now for one of “Braun’s Favorites:” How do people get paid, and is there an alignment of interests?

Financial planners and stock brokers usually work on commission. Just like in insurance, some of these commissions are very lucrative and do not necessarily indicate an alignment of interest. Most financial planners and stock brokers make money on you when you make a transaction, not just when those transactions are profitable for you. In this situation, where is the incentive to give you the very best possible financial advice? If I am a stock broker, I can tell you to buy a great stock that I believe is going to go up in value, or I can sell you a “dog stock” that no one wants—and I still get paid the same. Nice work if you can get it. However, there are becoming more and more “fee only” investment advisors that charge a flat rate for their services, and I generally like this option the best if you are seeking investment advice.

I’ll tell you a personal tale of woe. I bought a stock once that I thought was going to be a winner. It was in an industry in which I was involved, so I wasn’t just throwing darts at a board. I went to a stock broker and bought $1,500 worth of shares. I also paid him a sales commission on top of the $1,500.

Well, the stock tanked. The value of my holdings had gone down to $180 and it didn’t look like it was ever going to come back. I called my stockbroker and asked him to sell it for me so that I could use it for a tax write-off. I anticipated receiving a check for $180—the current value of my holdings. I got a check for $-0-. His fee for selling those shares was … $180.

Now, in that story, I had been the one to pick the “dog” stock. But one must be wary, also, of stock brokers or financial planners who have a corporate or personal interest in a particular stock. This relationship may not be readily apparent and might not be fully disclosed in the kind of detail you might wish for it to be. The broker may, in fact, be getting paid a company “bonus” for selling one particular stock over another. There are millions of tear-filled stories of “boiler rooms” (there’s even a movie of the same name) where stock brokers cold-call people, hyping a stock—a stock whose price may be artificially inflated by virtue of those very same calls. In other words, “value” is based purely upon perception, not reality. If I can be convincing enough to get enough people to buy stock in a company that is going down the drain, I can be holding enough of that stock myself so that not only can I get commissions from you when A) you buy it and B) you sell it, but when the stock “artificially” rises enough, I can sell you my shares and put even more money in my own pocket. It’s dirty, but it happens.

So what are your options? Generally, the large discount brokers (i.e., Charles Schwab, Fidelity, ScottTrade, AmeriTrade, E-Trade, etc.) are a good fit for the average investor. They have great research online, online trading and expert help if you need it— kind of an ala-carte offering. As the word “discount” infers, their costs and prices are very competitive compared to a “full-service” broker.

If you have a complex enough financial situation, you should think about a “fee only” financial planner like I mentioned previously, rather than one who makes a commission whenever you buy or sell. This should be your next step up after discount brokerages and should only be considered once you are dealing with moving around hundreds of thousands of dollars. The idea here is that you should not want to pay a commission on each transaction, but rather, you pay them an hourly fee, a monthly fee, or a yearly percentage of the total assets. Because of this neutral fee structure, they are more likely to represent the best interest of the client, rather than seeing a commission each time a transaction takes place.

When you start getting substantial assets (i.e., $1 million or more invested), you will generally pay a trust company to administer your investments and they will get paid yearly a flat percentage (i.e., 2-6%) of your total assets. This means that the return they need to achieve for you needs to be more than this to cover their fee.

In the end, when it comes to choosing stocks, bonds, or mutual funds, you have to do a lot of due diligence yourself—and the Internet has made that incredibly easy to do. These “experts” do not necessarily have financial interests that align with yours. If you buy a stock from them that loses money, they do not lose money. If that were the case, it would be a whole different ballgame.

Listen to Braun speak on Financial Literacy.

Braun Mincher with Neil Cavuto on Fox Business News

Braun Mincher talking about Financial Literacy on Fox Business

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Fund.com ETF Affiliate, AdvisorShares, Announces Strategic Relationship and ETF Plans With HS Dent

March 19, 2009 10:58 am

NEW YORK, NY–(Marketwire - March 18, 2009) - Fund.com Inc. (OTCBB: FNDM), an online financial content provider, announced today that ETF-Developer, AdvisorShares Investments, has finalized and entered into agreements for a strategic relationship with the HS Dent organization and its founder, Harry S. Dent Jr.

Working together, AdvisorShares and HS Dent will provide a packaged investment strategy through AdvisorShares’ ETF platform utilizing HS Dent’s proprietary demographic research and relative strength. “True diversification means not just diversifying asset classes, but also diversifying investment strategies,” said Noah Hamman, CEO and founder of AdvisorShares.

Dent says, “As we discuss in our recent book, ‘The Great Depression Ahead,’ we believe the path to growth is through innovation in the marketplace. AdvisorShares serves as a great example of this type of innovation.”

HS Dent is an economic research and forecasting company providing Financial Professionals and individuals with the proprietary economic tools needed to accurately forecast the economy based on The Dent Method, a long term economic forecasting technique based on the study of and changes in demographic trends and their impact on our economy. The Dent Method has been in use by financial professional for over 20 years.

Fund.com owns a majority of AdvisorShares Investments, LLC.

About Fund.com
Fund.com is an online content provider for the investment fund, savings and retirement markets. Our objective is to engage individual investors and to match their needs with interested fund product providers. The Fund.com website experience is intended to be approachable by everyday investors and to serve as an educational and research resource. Through AdvisorShares, Fund.com has also made a strategic investment in the exchange traded Fund (ETF) sector, a sector Fund.com believes represents considerable growth and investor value.

About AdvisorShares
AdvisorShares is an innovative investment management firm designed to offer actively managed ETFs. Exchange Traded Funds are one of the fastest growing investment products due to their operational and tax efficient structure, and easy of accessibility. AdvisorShares intends to offer a variety of investment products designed to help investors reach their financial goals. The Company seeks out top investment management firms interested in sub-advisory and product development opportunities, as well as qualified emerging money managers.

Safe Harbor Statement
This news release contains various forward-looking statements which consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as “may,” “expect,” “anticipate,” “estimate,” “plan,” “continue” or the negative thereof or other variations thereon or comparable terminology. The reader is cautioned that all forward-looking statements are speculative, and there are certain risks and uncertainties that could cause actual events or results to differ from those referred to in such forward-looking statements.

We caution that these statements are further qualified by important factors that could cause actual results to differ materially from those contained in the forward-looking statements, that these forward-looking statements are necessarily speculative, and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. These risks and uncertainties include those set forth from time to time in our filings with the Securities and Exchange Commission. We are under no obligation, and do not undertake any duty, to update these forward-looking statements at any

ETF-Trend Changes 3-20-09

March 23, 2009 11:07 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

ETF Pick of the Week - Powershares International Dividend Achievers (PID) 03-20-09

March 23, 2009 11:51 am

Carl Delfeld

Rationale and Overview:
To follow up on this week’s ADR focus, you may wish to take a close look at Powershares International Dividend Achievers ETF (PID) which is a basket of offshore companies traded on U.S. exchanges showing five years of dividend growth. This ETF offers investors the comfort that these international companies are adhering to US reporting standards but more importantly, the companies have increased annual dividends for four straight years. To quote PID’s prospectus, “To become eligible for inclusion in the International Dividend Achievers Index a stock must be incorporated outside the United States, trade on the NYSE, NASDAQ or AMEX, and have increased its annual regular dividend payments for the last five or more consecutive years.”

Catalyst:
Investors are looking for high quality international plays with some income protection.

Risk Factor:
The risk factor is medium and I suggest an 8% trailing stop loss.

The ABCs of ADRs

April 2, 2009 6:27 am

Carl Delfeld

As interest in investing in overseas markets has grown, so has interest in ADRs which are negotiable certificates issued by a U.S. bank representing shares in a foreign stock that is traded on a U.S. exchange. Sounds complicated but ADRs are actually designed to make investing in overseas companies easy.

ADRs are not some new fangled financial invention. JPMorgan created the first depositary receipt in 1927 for UK retailer Selfridges. There are now almost 2,000 ADRs listed on NYSE, AMEX or NASDAQ exchanges but, as we shall learn, not all are equal.

The growth of ADRs during the last 25 years has been impressive. More than 2,000 issuers from more than 80 markets have established programs and broadened their shareholder base. Depositary receipts now account for more than 15% of the entire U.S. equity market.

In America alone, the level of investment in foreign equities exceeds $2 trillion, reflecting 100-fold growth since 1980. One good example is BP or British Petroleum. In many ways, it is more an American than British. It is the largest producer of oil and gas in the U.S. and over the past five years has invested more than $30 billion in U.S. energy projects. Surprisingly, 40% of BPs shares are now held by Americans.
What are the benefits of ADRs?

ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. The leading sponsors/issuers of ADRs are JPMorgan and the Bank of New York.

The advantages of ADRs to investors are primarily convenience and cost. For individuals, ADRs are an easy and cost-effective way to buy shares in a foreign company. They save money by reducing administration costs and avoiding foreign taxes on each transaction. When you buy and sell ADRs you are trading in the U.S. market. Your trade will clear and settle in U.S. dollars. The depositary bank will convert any dividends or other cash payments into U.S. dollars before sending them to you. The depositary bank may arrange to vote your shares for you as you instruct.

However, keep in mind that ADRs do not eliminate the currency and economic risks that go along with investing in another country. For example, dividend payments in euros would be converted to U.S. dollars, net of conversion expenses and foreign taxes and in accordance with the deposit agreement. This has been a welcome feature for the last few years, as the U.S. dollar has declined relative to most major currencies but it could go the other way as well.
How are ADRs created?

ADRs actually created by big banks as they simply purchase a bulk lot of shares from the company, bundle the shares into groups, and reissues them on the NYSE, AMEX or NASDAQ. In return, the foreign company must provide detailed financial information to the sponsor bank. The depositary bank sets the ratio of U.S. ADRs per home-country share. This ratio can be anything less than, equal to or greater than 1. This is done because the banks wish to price an ADR high enough to show substantial value, yet low enough to make it affordable for individual investors.

Are all ADRs equal?
It is important that investors realize that there are three different types of ADR issues which have different SEC reporting requirements:

Level 1 - This is the most basic type of ADR where foreign companies either don’t qualify or don’t wish to have their ADR listed on an exchange. Level 1 ADRs are found on the OTC market. Level 1 ADRs also have the loosest requirements from the SEC.

Level 2 - This type of ADR is listed on an exchange or quoted on Nasdaq. Level 2 ADRs have slightly more requirements from the SEC.

Level 3 - The most prestigious of the three, this is when an issuer floats a offering of ADRs on a U.S. exchange. Level 3 ADRs are able to raise capital and gain substantial visibility in the U.S. financial markets.
Foreign entities like ADRs because they get more U.S. exposure, allowing them to tap into the wealthy North American equities markets to raise capital and broaden share ownership at the same time.

How do ADRs trade?
Once an ADR is priced and sold on the market, its price is determined by market forces just like an ordinary stock. However, if the U.S. price varies too far from the Russian price after taking the exchange ratio and the ratio of ADRs to home country shares into account, an arbitrage opportunity may arise. ADRs tend to follow the general trend of the home country shares, but this is not always the case. Sometimes they can be a bit more expensive than the dollar value of their home shares.

Again, remember that the ADR shares track the shares in the home country. If a country’s currency is devalued, it will impact the value of your ADR. If the home country currency suffers a sharp depreciation, it may lead to a loss, even if the company had been performing well.

Also remember that issuing/depositary banks charge fees for their services and will deduct these fees from the dividends and other distributions on your shares. The depositary bank also will incur expenses, such as for converting foreign currency into U.S. dollars, and usually will pass those expenses on to you. Sometimes the terms “ADR” and “ADS” (American Depositary Share) are used interchangeably. An ADR is actually the negotiable physical certificate that evidences ADSs and ADRs are the instruments actually traded in the market.

Are there any ADR exchange-traded funds?
You can pick you own ADRs for you portfolio but another option is to select a basket of them through an exchange-traded fund also known as ETFs. The BLDRS family of ETFs offers four choices based on The Bank of New York ADR (American Depositary Receipt) IndexSM.

In addition to the four listed below, Powershares also offers the International Dividend Achievers ETF (PID) which is a basket of ADRs that have increased their annual dividend for five or more consecutive fiscal years. The portfolio is rebalanced quarterly and reconstituted annually.

BLDRS Asia 50 ADR Index Fund (ADRA)
Based on The Bank of New York Asia 50 ADR Index, which is designed to track the performance of approximately 50 Asian market-based ADRs.

BLDRS Developed Markets ADR Index Fund (ADRD)
Based on The Bank of New York Developed Markets 100 ADR Index, which is designed to track the performance of approximately 100 developed market-based ADRs.

BLDRS Emerging Markets 50 ADR Index Fund (ADRE)
Based on The Bank of New York Emerging Markets 50 ADR Index, which is designed to track the performance of approximately 50 emerging market-based ADRs.

BLDRS Europe 100 ADR Index Fund (ADRU)
Based on T Bank of New York Europe 100 ADR Index, which is designed to track the performance of approximately 100 European market-based ADRs.

ADRs have opened up the world to American investors who are waking up to the need for a more global perspective in building their portfolios. Whether you pick individual ADRs or a basket of them through an ETF, they are a useful investment tool to capture overseas value and growth.

It is not ETFs vs. Mutual Funds

March 27, 2009 7:48 am

Noah Hamman

These days “ETFs” are being tossed around as an investment strategy. Please remember they are not an investment strategy! Each ETF has a specific investment strategy. You should select based on the investment strategy first and then the right structure to deliver that strategy. 99% of current ETFs are index-based which means if you want them to react to the changing markets, you have to make the change. So often we read that people are “turning to ETFs”, I think they mean more investors are turning to index-based products. Soon active ETFs are going to be a much larger component of the ETF market, and it will be critically important to look at the investment strategy. As mentioned in a prior post, ETFs are a way of accessing an investment strategy. Mutual funds, separate accounts and hedge funds are also ways of accessing an investment strategy, each with its own benefit.

As a firm, we will enjoy the benefits of the wide spread adoption of ETFs, however we will put an enhanced focus on educating on the investment strategy. It is important to know what you own. If you are not doing your homework, find an Advisor. The market is more risky today than it was 3 years ago, and odds are your risk tolerance has remained the same or moved lower, have you adjusted your risk exposure? do you know how? If not, call an Advisor who can respond to your needs and to a more dynamic market.

ETF-Trend Changes 3-27-09

March 30, 2009 3:16 pm

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

Why You Should CUT UP Your ATM Debit Card, But KEEP Your Credit Card

March 30, 2009 3:35 pm

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. For more on Braun click here.

I was recently reminded of the importance of carrying and using a credit card, as opposed to a debit card, after attending a speaking engagement with Frank Abagnale.

You may recall that he was portrayed by Leonardo DiCaprio in the 2002 movie Catch Me if You Can, which chronicled his early life as a confidence man, specifically the cashing $2.5 million in fraudulent checks before being caught by the authorities. In exchange for a reduced prison sentence, Mr. Abagnale agreed to work with the FBI for 5 years, but after “going straight,” he has now been voluntarily associated with them for over 35 years. As he was describing some of the most ingenious scams he has seen perpetrated over the years, he too supports my “Credit, Not Debit” philosophy, something few people practice, or even know about (until now).

Before we get into the details, you need to understand a simple concept and answer a question: If somebody is going to steal money, would you prefer it be yours, or that of somebody else? Obviously, you chose the latter and now I am going to explain how this applies to credit cards and ATM debit cards.

Simply put, when you use an ATM debit card, you are spending YOUR money; when you use a credit card, you are spending THEIR money. An ATM debit card (or a regular check for that matter) has direct access to the funds in your checking account, whereas a credit card does not. If you loose your ATM debit card, it gets stolen (or the numbers copied), or it gets cloned (increasingly more popular), and it falls into the hands of a perpetrator, they now have full direct access to ALL of the funds in your attached checking account. Your life savings, rent money, car payment, college tuition, grocery allowance, emergency fund, etc. - anything and everything possibly in that account — are all at risk and could be completely wiped out before you finish reading this article. Have I got your attention yet?

Used responsibly, credit cards are a great tool and offer extensive consumer protections not available with an ATM debit card. By using a credit card, it puts THEIR money at risk, not YOURS. Under federal law, consumer liability for fraudulent credit card charges is limited to $50, and most credit companies even reduce this to -0-.

About once a year, my credit number is either compromised or I run into a dispute with a merchant — when this happens, I simply call my credit card company and the charge is removed. If I had an ATM debit card, more likely than not, I would be out these funds, or at the very least, have a time consuming fight on my hands.

Although there are many similar stories, Mr. Abagnale told of a scam in which a computer system was hacked and the card numbers of thousands of consumers was stolen and used by the thieves. Those with ATM debit cards were COMPLETELY WIPED OUT and those with credit cards lost nothing. It’s not to say that your ATM debit cards have no recourse, but it will take MONTHS of fighting with your bank and possibly pursuing legal action with no guarantee of success, during which time you will not have access to YOUR money. In this particular case, there were thousands of college students who could not register for classes because their tuition funds were gone. Which one would you rather be?

Personally, I practice what I preach. For the past 15 years, I have not carried an ATM debit card, but rather a credit card. I use my credit card for every purchase possible and then pay the bill in full at the end of the month to avoid finance charges. Not only does this give me an easy reconciliation, but also the ultimate consumer protection since it is THEIR money at risk, not mine. Whenever the bank mails me a new ATM debit card, I cut it up immediately.

Braun Mincher is a young and successful entrepreneur who became a “Financially Free” self-made millionaire several years ago at the age of 30, despite starting with nothing and dropping out of college. For the past 5 years, he has served as a passionate Financial Literacy Advocate working to combat the “Financial Illiteracy Epidemic” sweeping America. Braun’s ultimate goal is to see Financial Literacy classes become a nationwide high school graduation requirement.

Listen to the video now!

ETF Commentary 4-3-09

April 4, 2009 8:27 am

Carl Delfeld

This is sobering even amidst the sharp global rally yesterday. The U.S. government and the Federal Reserve have spent, lent or committed $12.8T for rescue and stimulus attempts so far. That’s 14 times the $900-odd billion in circulation; almost equal to the entire 2008 U.S. GDP; and works out to $42,105 for every man, woman and child in America.

Japan (EWJ), South Korea (EWY) and China (FXI)

The so-called Tankan survey in Japan — a closely watched quarterly poll by the Bank of Japan measuring sentiment among big manufacturers — plummeted to -58 in March from -24 in December, the lowest level since the survey began in 1974. Japanese exports, which make up about one-third of the overall economy, fell by nearly half in January and February, in part because the yen’s strength has made Japanese goods more expensive for consumers abroad.

Fresh data Wednesday showed that South Korea’s overseas shipments in March had fallen 21.2 percent from a year earlier. Imports slumped 36 percent.

In China, a purchasing managers index compiled by the brokerage C.L.S.A. slipped back in March snapping a three-month streak of tentative improvement. It was the eighth month in a row that the reading had come in below 50, which is the dividing line between expansion and contraction.

On Tuesday, the Organization for Economic Cooperation and Development said it expected the economies of its 30 member states to contract 4.3% this year, rather than by the 0.4% it forecast last November.

Canada’s (EWC) Strengths and Weaknesses

Canada’s growth dropped 2.4% year on year in January. Consumption is weak and exports have fallen for the longest quarterly stretch since the 1940s. Having more than 7% of output tied to the automobile industry does not help. Then there is the collapse in commodity and energy prices. But high levels of consumer debt and January’s 40% year-on-year fall in existing home sales suggests a weakening financial situation. The big plus for Canada is their relatively robust banks. The ratio of deposits to total liabilities, for example, is a high 70%. No Canadian bank has yet needed government capital.

US Real Estate Continues Weakness

Turning to America, the Standard & Poor’s Case-Shiller Home Price Index of 20 metropolitan areas fell 19% in January from a year earlier. Prices in the worst-hit metropolitan areas have now fallen nearly by half. None of the cities showed month-to-month improvements. Thirteen showed record annual rates of decline.

Phoenix is down 48% and Las Vegas, Miami, San Francisco and San Diego are not far behind. All have fallen more than 40 percent. The best performing city in the index is Dallas, down a mere 10.8 percent from its peak. Unlike the rest of the Sun Belt and the coasts, Dallas never had a boom, so it did not have as far to fall.

The monthly Case-Shiller report, widely considered one of the most authoritative gauges of home prices, focuses on major cities, which happen to be the places where the boom was most frenzied. Even in those communities, realty agents argue that the report does not give a full picture of a market that can vary by neighborhood and price level.

India’s (INP) Prime Minister Touts Democratic Edge Over China

Democracies have a far better chance of sustaining economic reform than one party states Manmohan Singh, India’s prime minister told the Financial Times in an interview before leaving for the G 20 Summit in London.

In the interview, Mr. Singh has placed the long-term success of the world’s largest democracy over the potential fragility of the fastest growing large economy under Communist party rule.

“The Chinese have certain advantages: the fact that it’s a single party government, but I do believe in the long run in the fact that India is a functioning democracy, committed to the rule of law. Our system is slow to move but I’m confident that once decisions are taken they are going to be far more durable.”

China/India comparisons are a common topic amongst Indian executives who often speak in awe of China, struck by its fast improving infrastructure and speed in decision making. India, meanwhile, faces criticism for its poor infrastructure and its tortured coalition-type style of government.

“We’ve seen since 1991 there have been four or five governments in our country and none have dared to reverse the path of reform that we started,” Mr. Singh said. “Democracy has its problems. It’s slow moving. The decision making process is slow. But once decisions are taken they are far more durable.”

Brazil’s (EWZ) Leader Stumbles

President da Silva, known as Lula, unleashed a flurry of controversy over comments he made last week, in which he blamed the economic crisis on “white people with blue eyes” while standing next to Prime Minister Gordon Brown.

Brazil’s economy has also stumbled recently. Its gross domestic product fell by 3.6% in the last quarter of 2008 from the third quarter, the worst drop of any Latin American nation. The country lost 654,946 jobs in December 2008, and another 101,748 jobs in January, according to the Labor Ministry.

Shanghai (CAF) Market Not What It Seems

The Shanghai market has very little to do with the fundamentals of the companies behind listed shares. China’s wholly state-owned parents have moved most of their productive assets into listed subsidiaries, usually retaining perhaps four-fifths of the shares.

Over time, the proportion of technically tradable shares has risen to over 50%. But since the vast majority of those are still in state hands, they are not really tradable shares. A share price in China represents the value of the share – it tells you next to nothing about the value of the issuer.

The Shanghai market is also not really open to global investors that account for just over 1% of the market cap. Chinese investors are captive investors having no alternative if they want exposure to equities. Perhaps a third of the China’s 400% increase in bank lending has ended up in stocks.

Australian (EWA) Exports Buck Global Trend

Australia recorded a 4% rise in exports in February. The trade surplus of A$2.1 billion was the second highest on record and is a ray of good news in a time of rising unemployment and falling retail sales. Australia’s exports have benefited from the sharp fall in the Australian dollar, which after coming close to parity against its US counterpart in mid-2008 is now trading at 70 US cents.

Outgoing Merrill Guru Stays Bearish

David Rosenberg, the outgoing strategist from Merrill Lynch could not be more negative about the near term market. He writes in his last report the following.

“In fact, even if the builders were to declare a moratorium immediately – that is taking starts to ZERO – demand is so weak and the unsold inventory so intractable that it would now take over three years to achieve the holy grail of price stability in the residential real estate market. The combination of a 10% savings rate and 10% unemployment rate is a lethal deflationary combination that the Obama dream team of economists seems prepared to fight hard against, and we wish them good luck, but we think we are in for another year of very weak economic growth that warrants a focus on safe income wherever you can get it, and a focus on high-quality assets and defensive sectors in the equity market.

We remain of the view that the risk of earnings disappointments will take the S&P 500 to new lows before the bear market runs its course. Based on the outlook for corporate profits and the typical trough P/E multiple that characterized recession bear markets, it would not surprise us to see the S&P 500 gravitate in a 475-650 range for an extended period of time.”

It’s good to hear all sides. We are up about 25% from the lows. n the 1930 bear there were five DJIA rallies of > 20%, including a 48% rally after the first big dump. In Japan’s big bear (which saw 80% declines from the 1989 peak) there were even bigger rallies - four rallies of greater than 50%.

ETF-Trend Changes 4-3-09

April 6, 2009 6:57 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

Why America needs Financial Literacy in Every School

April 15, 2009 6:23 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. For more on Braun click here.

Why does the school system require classes like math, English and science but not basic personal finance? We force students to learn trigonometry, yet how many of us really use it after graduation? In contrast, how many transactions involving money will we each conduct on a daily basis for the rest of our lives?

Think about each time you purchase something with a credit card, make a car payment or reconcile your bank account. Even though these transactions are a daily occurrence for most consumers, more likely than not, we receive almost no financial education from our school system, or even our parents.

According to a 2007 survey commissioned by the National Council on Economic Education, only 7 states currently require students receive some form of financial education in the school system. What about the other 43 states? We need to look no further than the daily news headlines about the Mortgage Meltdown, the Stock Market Crisis, the Housing Slump, or the Rising Cost of Oil to truly see how relevant financial literacy is, particularly for the next generation.

Just 20 years ago, personal finance was significantly less complex than it is today, and in many cases, parents supplemented what the schools did not teach. Fast forward to present day, and we now have hundreds of different home mortgage options and the burden of retirement planning has been shifted from the government and traditional company pension plans to consumers through investment vehicles like IRA’s and 401k’s. Because of their own financial woes, in many cases, parents are no longer comfortable with talking to their children about the touchy subject of money and personal finance.

Sadly, research shows that financial illiteracy has reached epidemic levels with no end in sight. Much has been done to bring awareness to other growing crisis like childhood obesity, the need to wear sunscreen, and drug and alcohol abuses, but why has something as important as financial literacy been largely ignored?

According to recent online consumer survey results from http://www.FinancialLiteracyQuiz.com:

• Only 40% know that their liability for credit card fraud is limited to $50.
• Only 50% know that Property Taxes and Mortgage Interest are tax deductible.
• Only 33% know what “Annual Percentage Rate” (APR) means.
• Only 56% know that the annual interest rate on most Payday Loans is 390%.
• Only 32% know what required deductions are taken from their paycheck.
• Only 59% know that the “Rule of 72” is the time required to double your money.

So, why should you care? The better job we do of financially educating the next generation, the more financially independent and self supporting they will be.

There is much discussion right now about the government’s $700 billion bailout package, but instead consumers should focus on what they can directly control – saving as much as possible, avoiding or paying off debt, and living within their means.

Our school system has an obligation to prepare students for success in an ever changing world. Personal finance is a subject which will affect each and every consumer for the rest of their lives, regardless of age, education level or income. Financial literacy is a fundamental life skill that needs to be properly taught in the school system, alongside traditional Math, English and science.

The public needs to put pressure on lawmakers to mandate this and parents and students need to be vocal locally. In the meantime, consumers need accept personal responsibility and invest in themselves to get financially educated. It can start by reading a book, attending a seminar or getting coaching from a trusted advisor. Nobody will ever look out for your financial well being as good as you.

This small clip is a preview to his upcomming documentary on Financial Literacy.

The Importance of Financial Literacy

April 8, 2009 10:19 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. For more on Braun click here.

What do people want more than love, respect or good looks?

Surprise: money. Study after study continues to show that we believe money is the key to happiness, and while I agree that financial security is certainly a factor to leading a balanced and fulfilled life, money alone does not buy the perfect life. The reality is that once you have enough money to meet basic needs (i.e. food, shelter, etc.), incremental increases have little effect on your happiness. But, money does provide you with options and opportunity.

What amazes me the most, considering our society’s fascination with money, is how little people actually know when it comes to getting their share. We just expect it to be given to us from some magic place or higher power; a sense entitlement is common. Large lottery winnings, windfall inheritances and “straight to the top” IPO’s are rare. I’ll let you in on a little secret — for most of us, it takes hard work, calculated risks, some time, and most importantly, financial literacy and education.

Personally, I have undertaken a major personal initiative to bring a new awareness to the importance of financial literacy at all age, income and education levels. Did you know that doctors and lawyers make the same financial mistakes as homeless people? Financial illiteracy in this country is at epidemic levels, and I cannot believe how many people – from educators to consumers – are sticking their heads in the sand oblivious to how serious this really is. In recent years, we have brought so much attention to causes like breast cancer, second hand smoke and childhood obesity, but what about financial literacy?

A few years ago, I found myself in the position financially to be able to retire at the ripe old age of 30. I didn’t sell a dot-com, receive a large inheritance or have some other kind of windfall. In fact, I started with nothing and dropped out of college. But, what I did do, was get myself financially literate at a very young age and then used that education to achieve the level of financial success I wanted for me to be comfortable. Consequently, many people have sought me out and asked me to share with them my Secrets of Money. Most of my financial knowledge has come through trial and error, my willingness to take some calculated risk and my own reading and research. I always tell people that I have learned much more from my failures than my successes, and this is the truth. Each time I make a mistake, it usually costs me time and/or money, and I try to be smarter the second time around. It’s like the old saying — If you do the same thing, you will continue to get the same result – yet people continue to make the same financial mistakes because they do not adjust their habits when it comes to money.

In a perfect world, we would all be taught the basics of personal finance (along with other “life skills”) in the school system or by our parents, but this is not happening and needs to change. I have found that in many cases parents today are too uncomfortable or unknowledgeable themselves to teach little Johnny about personal finance, even though this will be relevant for the rest of his life, regardless of whether he makes a small or large income, or gets a GED or a Ph.D.

Unfortunately, the same resistance holds true for the public school system in our country, considering that only 9 states currently require even the most basic financial education class to be part of the required curriculum. Schools would never think of letting students graduate without knowing “core” subjects like math, English, science and the like, but I am more than frustrated with their lack of cooperation in mandating a baseline of financial literacy. To some degree this position is explained – but not justified — because of the three primary ways in which schools are currently held accountable:

1. Percentage of students who graduate. Adding another required class, which inevitably some students will fail, does not make the schools look good;

2. Percentage of students who go on to college. Since I am not aware of any college who requires applicants to demonstrate any level of financial literacy (other than paying their tuition…), what incentive do schools have to require financial education? And finally;

3. Performance on standardized tests such as the ACT and SAT. While these evaluate knowledge of subjects like math, English and science, they do not contain any questions pertaining to personal finance.

Obviously, it would be ideal for schools and parents to work together to make the next generation more financially literate, but until this happens, we each need to accept personal responsibility for our own financial education, as well as imparting basic financial knowledge to those we care about. There is no shortage of books, videos, seminars and other teaching resources on the subject of financial literacy, and I challenge consumers of every age to take my online financial literacy quiz for free. If you cannot “pass” with a score of at least 75%, please use this as a friendly wake up call to get some financial education.

I know a lot of people from all walks of life, and a certain percentage of these people have experienced some degree of financial success. One clear delineation I generally see between the “haves” and the “have nots” is their level of financial literacy. The people with money generally have basic financial knowledge – and exercise these traits – while the others do not. Thus, financial literacy is the foundation of financial success.

In closing, I would like to share with you some of the basic fundamentals I feel are necessary to achieve financial security throughout your life, and as you will see, these are actually quite simple and the earlier you start exercising these skills the better:

• Get financially literate. Read a book, take a class or ask a trusted advisor for help. We can turn to attorneys, accountants and financial planners when we have specific or complex questions, but each of us should understand the basics of credit, real estate, mortgages and loans, insurance, taxes, savings and estate planning.

• Live within your means. We have become a society of “hyper consumers” wanting bigger and better of everything, whether we can afford it or not. Even though the American family continues to shrink, house sizes are exploding and people are continuing to spend money they do not have to buy things they cannot afford.

• Start early. Thanks to compounding, time is VERY important to achieving financial success. This point seems to be illustrated much more effectively by looking at some graphs that show total savings over a long period of time, say 10, 20 and 30 years. While the first years may seem slow – causing many people to procrastinate – during the later years you will see exponential growth. Each day you wait to start saving for your future is a day lost and in the long run may literally have cost you thousands of dollars.

• Save consistently. Just like most of us now have our paychecks automatically deposited into our bank account, and our bills automatically withdrawn, I encourage people to “pay yourself first” by having a set amount transferred into a savings or investment account each month before anything else. Make it automatic and without thought.

ACTION: Take personal responsibility for your own financial literacy; nobody is going to look out for your financial well being better than you.

This small clip is a preview to his upcomming documentary on Financial Literacy.

The Upside of the Current Economic Crisis

April 16, 2009 5:13 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. For more on Braun click here.

In case you’ve been living under a rock or in a cave, we are currently in the midst of a widespread financial crisis and looming recession. But before lapsing into a coma induced by a glimpse at your most recent 401(k) statement, realize that there may be a silver lining in this ever-darkening cloud, at least for those who choose to notice it.

The roiling financial markets might prove to be the “slap in the face” that consumers and educators need to realize the importance of teaching financial literacy in the school system.

Shockingly, only three states currently require a semester-long course devoted to personal finance as a high school graduation requirement. The results from a 2008 survey conducted by the Jump$tart Coalition – a financial literacy advocacy group for students ¬– prove that more is needed. More than 6,500 high school seniors took the group’s 31-question survey and, in general, could only correctly answer 48.3 percent of the questions. That’s down from the 2006 survey when the mean score was 52.4 percent.

It’s human nature to be reactionary. We’re not clairvoyants – well, most of us aren’t – and cannot be expected to predict when disaster will strike. But in many cases, such as in the current financial crisis, the fissures that lead to mass failure aren’t impossible to read and are a long time in forming.

Now, fingers are flying, quick to place the blame for worldwide economic ruin as far from themselves as possible – Washington, Wall Street, real estate brokers, mortgage lenders, and the regulators who were charged with supervising them all. The argument over whether mortgage lenders or the home buyers are responsible for using the poor financial instruments that have played a major role in tens of thousands of foreclosures as well as the fall of some of the nation’s largest companies may never be settled.

The truth is, we are all responsible. Consumers must accept personal responsibility and cannot count on anyone else to take care of their financial health as well as themselves.

Whether devious or not, real estate agents, mortgage lenders, car dealers, credit card companies and the like have a financial interest in making the deal, regardless of whether the deal is the right for the individual. There is certainly no direct financial alignment of interest between the two parties.

The mindset that we can live beyond our means is an underlying theme to the current crisis. Consumer acceptance of fiscal limits has become nearly non-existent. Why would you limit your spending power when it’s so easy to extend your credit? During the past decade, financial instruments have become exceedingly complex, but at the same time easier to access.

While most high school or college students are receiving their first credit card solicitations, a majority of them don’t even understand how finance charges will accrue. Only 48 percent of the Jump$tart survey participants were able to point out that a credit card holder who only pays the minimum amount on monthly card balances will pay more in annual finance charges than a card holder who pays the balance in full. Financially uninformed students soon become financially unaware adults.

According to recent survey results from http://www.FinancialLiteracyQuiz.com, only 40 percent of participants knew that their liability for credit card fraud is limited to $50. The Web site’s 50-question multiple-choice quiz covers such topics as credit and banking; real estate and mortgages; car buying; taxes and insurance; and saving for the future. Sadly, the average adult quiz taker scores just 53%, similar to the Jump$tart survey administered to students.

If we can’t teach students about the mechanisms that dictate credit financing, how can we expect them to decipher the terms of an adjustable rate mortgage or the understand the consequences of a financing plan that begins with the borrower owing 110 percent the value of the home?

While legislators and regulators are discussing how the financial markets can avoid further stress, parents, educators, business leaders and the general public should be addressing how the future generations can avoid the mistakes of their predecessors. Every state should have dedicated financial education classes as a required part of its K-12 curriculum. There is no excuse for lack of knowledge of this practical life skill in a subject that impacts our lives everyday. We require students to study trigonometry and physics, which a vast majority of them will never use outside of the classroom. So why not arm them with at least the basics of leading a financially secure life?

We do not need to waste time fretting over the current state of the financial markets. No amount of worry will soothe the system. Instead, we need to wake up and smell the opportunity that this crisis presents — an opportunity to demand that the future will be one of financial enlightenment rather than fiscal ignorance Regardless of the economic climate in the future, the best defense is a financially educated consumer.

This small clip is a preview to his upcomming documentary on Financial Literacy.

Accept Responsibility

April 8, 2009 3:42 pm

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 10 of his book, Your Keys to Financial Success and the first of 20 entries on this subject. For more on Braun click here.

As I said in the beginning of this book, we of the current generation are known as “Generation E,” with the “E” standing for “Entitlement.” Responsibility is something many have forgotten long ago. Nothing is anybody’s fault. When something goes wrong, fingers are pointed everywhere except where they belong, which is often right at our own chest. Finding a scapegoat to blame is more important than fixing what is wrong. It just sickens me.

When I do business, there is a reciprocal arrangement I enter into that is often unspoken, but simply demonstrated by how I conduct myself. If you tell me that you are coming to work on my chimney at 10 am Tuesday, then I expect you there anywhere between 9:45 and 10 o’clock, period. Nothing else is acceptable. I will hold your feet to the flame (in the chimney example, this may, in fact, be literal). Conversely, I will do the same for you. If I say I will be at your office to install a phone system on a certain day and time, I will be there, come hell or high water. And how hard is that, really?

Think about it. If you know a trip usually takes thirty minutes, give yourself an hour to get there. Traffic is unpredictable. Calling to say you’re stuck in traffic is no excuse when you are doing business with me. And please, administer the same pressure on me. I can accept it. I accept that responsibility.

If you arrive early, your client may be pleased. If not, I’m sure there are some business calls you can make on your cell phone while you wait. Maybe you were worried you wouldn’t have time for a quick snack; well, now you’ve been handed the time. You won’t get low blood sugar so you’ll do an even better job. See how well things work out when you work them out well?

If you DO make a mistake, admit it and try to work it out. Don’t make up excuses—what’s the point? If I back my car over your new flower garden, does it really matter that the sun was in my eyes, or that I had just gotten an upsetting call on my cell phone? No matter how you look at it, my car just ran over your flower bed. As a person who accepts responsibility, I should simply offer to replace your flowers.

That’s that. Furthermore, think of all the litigators you’ll put out of business. If everyone conducted themselves this way, half the lawyers in America would be working at other jobs.

Failure to accept responsibility actually costs you more money in the long run. I’m a landlord. My tenants are given certain responsibilities along with the basic responsibility of paying their rent on time. Some have to water the lawn, cut the grass, or most importantly here in Colorado, shovel the snow. These things are written into my leases, but not because I’m looking for cheap labor. The snow shoveling, for example, is required by municipal ordinance. Snow must be cleared within a certain amount of time after a storm or else A) there will be a management fee and B) the city will shovel it for you—for a much higher price than the open market will bear.

If my tenants don’t want to shovel the snow in front of their property, right off the bat they have the opportunity to rent from someone else who does not require it. I don’t hide these things on my leases. They’re plain as day and I make sure my tenants are well aware of them. But having accepted the responsibility, it is far cheaper to simply go out for thirty minutes and shovel than get a very large fine and shoveling bill from the city. And no, when you’re my tenant and you make the wrong decision, I really don’t sympathize with you. When it snows here in the Rockies, it doesn’t just fall in front of one building. We ALL have to shovel.

Companies no longer accept responsibility. What ever happened to “the customer is always right?” Sure, there are some customers who border on the downright criminal in their demands, but more often than not, customers simply want a fair deal. This also applies when mishaps occur. If I order a chocolate milkshake and you bring me a strawberry shake, all you have to do to make me happy is accept responsibility, take back the strawberry, and bring me back a chocolate one as quickly as possible. If you do, I’ll be a happy customer who will return again and again, and I will likely even send you referrals. To err is human, to forgive divine. To make me feel like it was my fault, or to argue with me, or to give me dirty looks, or to spit in my shake when I’m not looking is not right. Furthermore, my demands are reasonable. Like the snow shoveling example, the cost to make me happy is another shake, nothing more. What’s the wholesale cost on that, eight or ten cents? Conversely, multiply the profit the business can garner from me if I remain a regular customer who comes in every week or two for the next decade. It’s no contest. Accepting responsibility is usually the least expensive and most effective option in the long run.

Our disposable society needs to hang on to some of the permanence that made it great. Sure, companies come and go, but they need not. Take a consumer electronics store.
Certainly, technology will constantly change (anybody want to buy a Beta VCR?), but the concept of consumer electronics should be around for as far into the future as I can imagine. Thus, businesses should not consider themselves to be disposable entities that do not have to nurture customers. “Customers for Life” always used to be the goal of business, and that goal should remain intact.

Accept responsibility for your life. You are owed nothing. If you live in America, you are blessed with a free public school system and minimal social safety nets for your health, nourishment, shelter, and retirement. But no one owes you wealth. You are given opportunity to achieve wealth, which is a rarity in much of the world. Be grateful for it.

Work for what you want. To get to the top, you must start at the bottom. Do the best job you can. Find ways to make things better. Work hard and do not waste your life away.

Sitting around and playing video games all day is not a good use of your time! It is okay to relax once in a while, but do something productive and fulfilling with your time.

A good, hard-working handyman I use did some work at an apartment I rent to college students. When he presented his itemized bill to me, it looked like this:

Vanity: $318.00
Vanity Top: $99.00
Faucet Set: $59.00
7 Hours Labor at $35 per hour: $245.00

Watching Your Two Tenants Play Video Games for 7 Hours: Priceless

Okay, so he stole the last line from a TV commercial, but the best laughter comes from truth. The truth was, while this blue-collar guy was working his tail off, these two college guys did nothing but play video games like a couple of brainless couch potatoes. Should they have pitched in and helped the handyman? Not necessarily, although if they had shown initiative and expressed to me a willingness to do their own repairs, or to do some repairs on my other rental units, I would have paid them handsomely. Heck, if they had done it enough, they could have lived rent free! Now that’s taking responsibility.

So maybe these weren’t the world’s handiest guys. They were attending college. Shouldn’t they have been doing some homework? Studying? Reading? Trying to cure cancer? Somehow I doubt that future Nobel Prize winners waste seven straight prime-time hours making little cartoon men jump up and down. I have a funny suspicion that once those particular guys managed to get out of college, they were hard-pressed to earn the $35 per hour my far less-educated handyman does. And yet they probably look down their noses at him. Entitlement. What a concept.

Make a difference. Leave a positive mark on society. Take initiative; be a self-starter. Be persistent. Be passionate. Work long, hard hours until you have met your goals. These are the tenets of success and wealth-building. When you do these things, you are accepting personal responsibility for your own future.

Be honest and ethical. People will always try to teach you shortcuts in life. It takes a solid base of morality, ethics, and the willingness to investigate all claims, in order to know the difference between a savvy tip and something that could land you behind bars. Scams are everywhere, and what is most dangerous about them is that they are so seductive.

Something for nothing. Con artists have been around forever because of one thing: greed. Yes, if you ever watch a scam being run on some TV news program, even though they set out to vilify the con artist, cons always work because the “mark” wants something for nothing. That’s the inducement that blinds good people to bad ideas. So what, then, does that say about the “mark,” the dupe? It means that on some level, he or she is almost as unethical as the con.

Know the difference, then, between a logical suggestion such as, “You might want to consider leasing equipment rather than buying,” and “Hey, do you wanna know how to fleece the IRS?” Granted, this is an obvious example. If something looks less cut and dried, take the responsibility of doing research. If you make bad decisions in life because you didn’t do your homework, it is no one’s fault but your own.
Learn the trade before you learn the tricks of the trade.

Fight for what you believe in. Set precedence. Each day of your life, you are making a reputation for yourself. Sure, some things can be out of your control. You might call out a crook who attempted to rip you off, and suddenly you turn around and he’s trying to ruin your good name by telling everyone who will listen that you’re the crook. What could be more infuriating? But time is the great equalizer. Time acts as judge, jury, and executioner. If you take responsibilities for your actions, if you do the right thing, eventually, the truth will win out. A lie can hurt your reputation for a short time, but in the long run your reputation is your own making. Make it a good one and it will be a good one. But reputations, like money and wealth, are earned. Just as you are not entitled to a pot of gold, no one is entitled to a good reputation. Those things are earned. If you do everything I’ve outlined in this book, but don’t accept responsibility, your character flaws will always drag you down and keep you from living the life of which you dream.

Every business I ever worked in, I made paying my bills on time the most important thing on my professional “to do” list.

You would be surprised at how much that contributed to my personal success. If I dealt with a vendor and he had one widget left on his shelf, and he had to ship it to me or to some other guy, and that other guy was always making his payments thirty days late, sixty days late, who do you think always got the last widget? Me. Little things like that can be the difference between success and failure in business.

Now picture that other guy who wanted that widget. Now he’s waiting and waiting for it and I can only imagine he’s blaming the vendor, he’s blaming me, he’s blaming the weatherman, he’s blaming God; he’s blaming everyone but himself. He’s not taking responsibility.

Listen to Braun speak on Financial Literacy.

Braun Mincher with Neil Cavuto on Fox Business News

Braun Mincher talking about Financial Literacy on Fox Business

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Always Pay Yourself First

April 20, 2009 6:00 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 10 of his book, Your Keys to Financial Success and the second of 20 entries on this subject. For more on Braun click here.

There are a lot of people who feel they’re doing all the right things. They’ve got a good job, they’re aggressive and hard-working, they earn greater and greater amounts each year, they don’t appear to overspend … and yet they never seem to have any real net worth. Net worth is the liquidation value of your entirety. Net worth is your estate. The best form of net worth for you to have is liquidity, meaning, money you can lay you hands on relatively easily.

For example, your home is not liquid … unless you want to move in with a friend and sleep on his floor. The same goes for your car …how are you going to drive to work?

I find myself chirping a lot about homes and cars in this chapter, and it’s because they can be such a trap. They are often the biggest measure of most people’s self-worth. This is wrong. So take the person I’m describing in the first paragraph—the hard-worker who earns more and more each year. He or she has probably been programmed to think that this also mandates that he or she must also keep driving a better car and keep moving into a bigger and better house.

NO!

The irony of this is that this person may, in fact, be otherwise frugal with their spending—no big partying expenses, no large credit card bills, no closets full of junk they don’t need or really want. But the house and car, well, isn’t that what you’re supposed to do as you move along life’s highway? Keep moving up? Isn’t that the reason you get up each morning and go to work?

NO!

Pay yourself first! Paying yourself first means that the house and the car come after the IRA, the 401k, the money market, the investments, and the health and insurance plans. Paying yourself first means creating enough wealth through automatic investment and savings that you could literally retire and live off of only the interest of your investments.

Paying yourself first means that, if you start early enough, working itself can literally be optional once you reach a relatively young age.

THIS IS DOABLE!

The house, the car, the big vacations; these are your enemies. THIS IS NOT A STARVATION DIET! It’s not the ownership of a house or a car, or the going away for a week or two each year in and of itself that is the problem. It is the “movin’ on up” mentality. As you earn more, these three big things do not have to grow each year as well. For when they do, it is almost always at the peril of the long range plan—the “paying yourself first.”

Start early. If you do only one thing once you’ve laid this book down, have it be that no matter how young or old you are, you immediately take care of the basics I’ve outlined for you in the previous chapters. START NOW! Time builds wealth. Even if you never make more than $45,000 a year, if you make the largest possible contribution to your retirement programs, if you automatically and consistently set money aside for investment, if you become a saver, you will find yourself in a great position come retirement time. In fact, you will move up your retirement time. You will be able to set your own retirement time. You may even reach a point where you will be able to look at most of your present day earnings as icing on your financial cake. You will be able to spend that money on the things that make you happy. You will have financial freedom, and that, my friends is freedom, period.

Do it automatically. Don’t even let that money hit your hand when payday comes. Every program I’ve suggested, you can set up to be automatically deducted every single pay cycle.

If you are an employee, you already have taxes taken out every time you get paid. So just add a few more line items to those deductions.

Draw up a realistic budget. No matter how little you make, work within those constraints. Find a home or apartment you can afford. If you can’t afford even a car, take public transportation. But even if you are making minimum wage, break it on down so that you are paying into these programs first. That prioritization is the key. Learn that and you’ve gotten more out of this book than you could ever imagine.

Most people have no concept of the compounding ability of money. I was sent a birth announcement from some dear friends. Instead of some baby clothes the kid would grow out of in a few months, or a toy that wouldn’t last out the week, I gave them a check for the first payment into the kid’s 529 College Savings Plan. I even gave the parents literature on how to open the account and keep it going. Now, as far as I’m concerned, this was a wonderful gift. The issue was not one of simply giving someone a check for a gift—we all do that from time to time. The idea was also to try to teach them how to use that check to start this college fund.

They took the check and cashed it. Months and months later, I asked them and they still hadn’t started up their child’s 529 Plan.

This is bad. It’s not like I think they took the money and did something heinous with it. That’s not the point. The point is, that first check I gave them is now gone. It should have been in that dedicated account and it would have been earning interest. Each subsequent month, they should have been depositing the same amount or greater and those checks would have been earning interest. Had that been done, in the first year alone, they would have earned a few hundred dollars of interest toward their child’s future education. Does that sound like a lot? Of course not. But now, stretch that principle and accruing interest out eighteen years, and suddenly, we’re talking tens of thousands of dollars! Yes! THIS is how you grow wealth!

Those months and those payments are now gone forever.

That interest will never be earned. When they finally begin that college fund, it will be a good thing, but it will still never get back that money that it should have had from the time the child was born.

Do NOT save for the big house. Do NOT save for the fancy car. Save for YOU! If you do, the other things will happen, I guarantee it. Time is the key; automatic consistency is the key.

Listen to Braun speak on Financial Literacy.

Braun Mincher with Neil Cavuto on Fox Business News

Braun Mincher talking about Financial Literacy on Fox Business

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Spend Wisely

April 24, 2009 6:17 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 10 of his book, Your Keys to Financial Success and the third of 20 entries on this subject. For more on Braun click here.

I do not consider myself to be “cheap,” but rather just shrewd. I generally buy the best quality I can afford when I make purchases, and I ALWAYS get the best deal. This does not always mean the CHEAPEST, because there is sometimes hidden value. You have to become good at distinguishing the difference.

For example, I travel a lot on business. I’m sure you’ve heard of “no frills” airlines. Hey, God bless them. This is a need that should be addressed and when one company in this market niche folds, another comes along to take its place.

There will always be people who need to get somewhere fast, even if it is on a “flying bus.”
But it’s not for me.

When I’m doing business, I need to arrive on time, be safe, be calm, and not appear frustrated. I need to look and feel good. This is a priority for me. For no matter what business you are in, we are all in the business of sales, in one way or another. Personally, I can’t sell my best if I’m an hour late, sweating like a hog, wearing a wrinkled suit, and feeling like I might punch the next guy I meet right in the nose. This can be the difference between a successful business trip ($$$$$) or an unsuccessful one ($).

Now, do I over-spend when I fly? No, I don’t do that, either. I’ve learned all the tricks for getting the best airfares on carriers I’ve grown to trust. A few mouse clicks here and there and I can find out the reputation of an airline I may not have flown before. I can compare prices, I can figure out the optimal lead time to book flights and the best times of day or days of the week for the best fares, etc. That’s the shrewd part. See, any fool can be cheap. “Cheap” and “shrewd” are as different as chicken and ice cream. Sure, they’re both food; but personally, I don’t care for a banana split as my main dinner course.

Now, do not misinterpret this subchapter to be about the narrow topic of air travel. Look around at your life and see where the importance lies. I know; it’s so easy to justify any purchase. “No, really, a big fondue kit will force me to invite more people over to my house, and that will help me break out of my shell socially, and I can then make lots of great business contacts, and my life will improve because I will be making lots more money and it will all be because I bought the world’s biggest, best, and most expensive fondue kit!”

Don’t laugh; I’ve heard worse.

Ever go to high-end gadget shops? I’m a guy, and guys LOVE gadgets. But, you have to ask yourself, do you really need a multi-speed electric nose hair clipper? I mean really? So what we have are the questions of:

• What is it you really need? along with
• What level of quality do you need in such a purchase? and finally
• How do I get the quality I need at the most affordable price?

Once you’ve set your priorities and answered these questions, do your due diligence. Don’t let savvy shopping be only hit-or-miss luck. Even a broken clock is right twice a day. You can do better than that. If you’ve come to realize that a well-made business suit is important to your success in life, then study, research, and analyze how, where, and when to make such a purchase. The time spent doing that will be time well spent. Get the quality you need for the right purchase at the best possible price!

Listen to Braun speak on Financial Literacy.

Braun Mincher with Neil Cavuto on Fox Business News

Braun Mincher talking about Financial Literacy on Fox Business

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Protect Yourself

May 8, 2009 5:57 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 10 of his book, Your Keys to Financial Success and the 4th of 20 entries on this subject. For more on Braun click here.

• Be a savvy consumer.
• Do your research.
• Make educated decisions.
• Ask questions.
• Beware of scams.
• And when things don’t go your way, don’t be afraid to walk away.

This goes a step beyond simply accepting responsibility. It can be a nasty world out there. While the majority of people you will do business with are completely honest and perform with integrity, some are not and do not. It doesn’t hurt to be wary. Trust is earned. Remember what I said about reputations. Don’t just buy into an “honest face.” Make sure there’s an honest person wearing it.

I sometimes drive people crazy by proceeding slowly. If I’m buying a house and there’s a stack of papers half a mile high in front of me, what’s my rush? It’s my time; it’s my money.

If I want to read it all, I’ll read it all. That’s my prerogative. And if someone wants to rush me, that’ll usually make me go even slower. Is this passive/aggressive behavior? Not at all. I simply figure that anyone who doesn’t want me to read through contracts must be hiding something from me.

If I have a question, I ask it. The only dumb questions are the ones you don’t ask. Everyone is so worried that people will think they’re stupid. Frankly, I don’t care what you think of my I.Q. If I’m buying your property or your business, or I’m purchasing insurance or a service from you, I really could care less if you think I’m stupid or dense because I’m not buying into your logic.

Don’t be insecure. I know; it’s hard. We grow up wanting everyone to like us. But be liked for the right reasons. I honor the commitments that I make. That’s a likeable quality as far as I’m concerned. I expect the same of others. That sometimes makes me unpopular. I accept that. You have to as well, if you want to be successful. Otherwise, you are placing a big “Kick Me” sign on your back.

Don’t be afraid of your gut (unless it is unhealthily large and bloated). Sometimes I sit across from someone and I just have a gut instinct that this is not a trustworthy person. If that’s your first instinct, it’s more frequently correct than incorrect. If your sixth sense tells you to be on alert, then be on alert. And if things begin to go south, abort, abort, abort! We have instincts for a reason. Nothing will make you kick yourself more and longer than ignoring your internal warning signals and winding up in a horrible business deal.

Get second opinions. Surround yourself with people you can trust. Rely on personal recommendations. Remember what I’ve been saying all along about alignment of interests? If I need a good estate attorney and I have a friend who is a podiatrist and I trust and admire him, I might ask him who he uses and is he happy with him. Unless the podiatrist tries to send me to an estate attorney who is also his brother-in-law,
I feel protected and secure that I have asked a neutral source who has no personal agenda. There is an alignment of interest—he has no immediate monetary stake in the transaction. If we are friends who respect one another, he may ask me next week if I can recommend a good roofer. If we both continue to give each other good business leads, we will also continue to be friends as well as continue to do business with one another.

Still, don’t be lazy. Protect yourself. Maybe ask two friends for recommendations for professional services or whatever it is you need, particularly if it is a major purchase. Then, do some independent research as well. No one watches your own back as well as you do.

Am I paranoid? No, I don’t think so. But wary, be very wary. Careful—that’s an even better word. Be careful. Bad decisions can be costly. No, I’m not talking about going to one gas station, filling up, then driving another few blocks and seeing gas for two cents per gallon less. Big deal; so what? I’m talking about major business and life decisions. Get a lousy building contractor and it can over-cost you tens of thousands of dollars and keep you in litigation for a year or two. These are not the kinds of decisions to enter into lightly. Protect yourself!

Know what you want and what you need and demand that you get it. Some people might call you a jerk for doing this, but I believe it is all in how you present yourself. I don’t walk into a store and immediately slam my fist on the counter.

Heck, I don’t slam my fist on the counter even if some catastrophe has occurred. That doesn’t get you your way; it just makes you look like a raging lunatic.

If I go into a men’s clothing store and I say that I want tan chinos without pleats in the front, then that’s what I want.

If you, the salesperson, want to try to educate me that pleats are in this season, that’s fine, but only up to a point.

I’m never averse to learning something new. But, perhaps I really don’t care about what the current issue of GQ is saying about pleated pants. I don’t want pleats. At this point, either sell me what I want or I’ll go elsewhere. And like the old saying goes, I don’t go away mad; I just go away.

I had a horrifically scary business transaction recently where I am incredibly glad I stood my ground. Looking back on it, I wonder out loud how many other people would have simply allowed themselves to be bullied.

I bought a used motorcycle from a dealer. He said he wanted to “mail” me the title in a couple of weeks, and I told him that he would need to give me the clear title that very day, to which he reluctantly agreed. I tried to register the vehicle the next day, but could not do so because the title still had a lien on it! This is called “title kiting,” and it is one of the new automotive scams sweeping the nation. I won’t get too deeply into it, but basically, people have started selling cars to which they do not possess clear title. Maybe there is a lien on the title, or perhaps the car is being held as collateral—sort of like in a pawn shop. Most commonly, it might involve you buying a car and your money being used to pay off some other debts—maybe to the car dealer’s loan shark. Then you have to wait for the next guy to pay for another car before the car dealer can use his money to purchase or clear the title on your car. Any way you slice it, it’s a mess and it’s completely illegal.

The dealer I bought the motorcycle from didn’t want to give me my title right then and there, like I asked. He said, “By law, we have thirty days to mail you the title.” And he may have been legally correct. But that was not what I wanted. I’m Braun and this is what *I* wanted and how *I* wanted it done. If push came to shove, I was prepared to turn on my heels and leave. There are a lot of motorcycles in the world.

I could buy another one elsewhere.

You must always remember: you are empowered to act this way, too. You don’t have to be a millionaire to want what you want and get what you want. The poorest person in the world can still make a stand that he or she is not going to be pushed around or bullied. In a transaction or conflict, no one is going to empower you but you!

Frankly, the motorcycle dealer has his rights, too. If I had said, “Not only do I want clear title, but I want the keys to your house,” he would have been right to tell me to jump off a cliff. And I would respect him for feeling that way.

Back to the story … I wanted to pay for the motorcycle by credit card. Remember, my credit card company gives me added consumer protections against fraud. “No,” the dealer said, “we don’t take credit cards.” I considered my options and offered him a check, which he accepted, but I still was not going to leave with that motorcycle unless he gave me a title. Again, I could have buckled, but I didn’t. I was prepared to stand my ground until it became obvious I would not get a deal that I could live with. Was that to occur, I was ready to walk.

Well, you already know the climax of the story: the title was not clear. Because I paid by check (my second best option next to a credit card), I immediately stopped payment on it before it cleared. This is not very hard to do, although it does cost a few dollars. But when you’re making a purchase for several thousand dollars, what’s a small bank service fee?

I called the dealer up and told him what had happened and that I had stopped payment on the check. Needless to say, he was not a happy camper. Again, the bullying began. He became very threatening and said that he was turning the case over to the District Attorney and he would sue me as well. Note to readers: No one threatens lawsuits more often than crooks. Prepare to deal with it. When it happens, find your “happy place” and calm down. If you’re in the right, you will almost always win out in the end.

Since I’m not a lawyer, I called one that I trust and told him what happened. In order to put myself in the best possible legal position, my lawyer had me write out a new check to his law firm’s trust account for the amount of money in question. We both feared that if I simply returned the motorcycle at this point, this crooked guy would probably deface it intentionally when my back was turned, then try to sue me for damages. My lawyer then sent the dealer a registered letter explaining that the money was being held in escrow and that once he provided me with clear title, the law firm would release the funds to him.

In the end, it all worked out. Was I happy? Not really. The whole thing wasted a lot of my valuable time. Was the dealer happy? No, because I caught him in the midst of a scam and if I wanted to waste more of my time, I probably could have made a ton of legal trouble for him. But I’m not about vengeance. Revenge isn’t cost-effective.

Bottom line: I protected myself. If I had not been a prudent consumer, I would have been out thousands of dollars. The art of the deal (stealing a line from Donald Trump) is not simply getting what you want, but getting it the way that you want. I could have allowed myself to be bullied by this dealer and in the end, I eventually might have ended up with the motorcycle and a clear title—maybe. But that’s not how I roll. Fair is fair and if I buy something, I’m buying it without undisclosed liens. Those are my terms.

Beware of bullies. The world is full of them. The thing always to remember is that this is a civilized society. Usually, no one is going to punch you in the nose if you stand your ground in a negotiation. If they do, they go to jail for assault.

Speaking of Donald Trump, I’m reminded of the late Merv Griffin (Huh? Bear with me; this will all make sense in a minute). Merv was a D-list actor and big band singer when he first got started. A chubby guy with no overpowering talent, he wasn’t going to ever become a big Hollywood star.

Eventually, he morphed into a TV talk show host, where his friendly and non-threatening manner made him a hit with housewives across the nation.

Then Merv found his true niche. He loved games and he eventually developed the TV game show “Jeopardy,” followed shortly thereafter by “Wheel of Fortune.” Suddenly, Merv was a billionaire entertainment mogul. He invested his money wisely and his fortune grew and grew.

One day, Merv decided to enter the casino business. He made a move to take over Resorts International, a major player in the casino game. Unfortunately, at that very same moment, Donald Trump was trying to do the very same thing (See, I told you I would tie them together.).

Now, Trump is a tough-talking New Yorker and Merv was, well, a little guy, much older, and more than a little on the effeminate side. In a street fight, I’d have bet on Donald Trump, no question about it. But like I’ve been saying, life is not a street fight.

As Merv tells it, “The Donald” called him up screaming and yelling, threatening and bullying every way he could—the kind of treatment that had cowered so many other businessmen Trump had conquered over the years. Merv simply chuckled.

He responded, “Donald, you’ve got a fleet of sharp-toothed lawyers and so do I; so let’s stop the bellowing and talk business.” In the end, Merv got Resorts International and the everlasting respect of Donald Trump. Now, if a guy like Merv can stand up to a guy like Trump, you can stand up for what you believe is right, too.

In the end, think things through. Consider where you are vulnerable. Cover your flanks. No one watches out for you better than you—but only if you’re paying attention to the details and looking at all the angles. And if you’re not sure about something, get some advice, then get some more advice, then research, research, research. Anyone can become an expert at anything if they’re willing to invest the time.

Listen to Braun speak on Financial Literacy.

Braun Mincher with Neil Cavuto on Fox Business News

Braun Mincher talking about Financial Literacy on Fox Business

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Live Within Your Means

June 5, 2009 7:14 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 10 of his book, Your Keys to Financial Success and the 5th of 20 entries on this subject. For more on Braun click here.

“Living within your means” is a mantra I’ve infused into a lot of previous chapters, but admittedly rather obliquely. If, for example, you own a house that costs you three quarters of your monthly income (mortgage, insurance, taxes, upkeep), then you don’t own the house; the house owns you. This is not a way to live.

What really gets to me is that some of the poorest people I know make the most money. The house example is the best.

Living here in Colorado, Boulder is one of the most affluent communities around. The average home there is around 4,300 square feet. That’s a nice-sized house. I recently read that most new residential home construction in Boulder is averaging around 8,000 square feet. That’s a heck of a nice-sized house. But here’s the rub: Neither the average nor the median income in Boulder has risen significantly, if at all. Does this mean that you can now get an 8,000 square foot house for the price of a 4,300 square foot one? No way! Those houses cost a lot more, and thus, people are putting a higher percentage of their income into the roof over their heads.

This is dumb.

But it’s not just the big ticket items such as homes and cars, although they’re the worst offenders. People waste money all the time.

Credit cards are the root of all evil. I’m convinced of this.

Go to the mall, pull out that card, buy something here and there, then here and there again, and pretty soon what seemed like a little impulsive trip just cost you a lot of money. Make only the minimum payment per month on that credit card and keep spending like that and what do you get? Right—more credit cards.

To truly achieve wealth, drop the credit card mentality. Only buy what you can easily pay off the moment you get that credit card statement. And make a budget! This is so basic. Sit down and look at the entire picture every few months—this exercise doesn’t take long to do. How much is your housing? Your car and transportation costs? Your TV and Internet? Food? Clothing? Utilities? Rattle off every single category of “where your money went” and take a cold, hard look at it. Are you happy with what you see? If so, you probably didn’t need this book in the first place. But most people are less than happy with their financial picture. A budget is a good place to begin.

If your house is killing you, owning you, then downsize. If it’s your car or cars, do the same. Trade in the Beemer for a Honda, if that’s what you can better afford. But so many times it’s the little things. Food—do you eat out a lot? If yes, why? Eating in is far cheaper than eating out. It is not unusual in this day and age for a family of four to spend $2,500 or more on food each month. If that family could find a way to cut that food bill in half, they’d be $1,250 per month richer. That’s real money!

How do you do it? Simple. First off, really think about those meals out. Are they for business lunches? Those may be fine. If you’re picking up the tab for a client, that’s a partial tax write-off. But if you’re going out to a restaurant for lunch—even a fast food place—by yourself or with your co-workers, you are wasting money. Brown bag it to work. It’s even cheaper than a Happy Meal.

What about the groceries themselves? Eggs are eggs. Milk is milk. Are you going to the cheapest place in your neighborhood to buy those things, or do you not even know which place has the best prices for food staples?

Clip coupons.

I’m not telling you to be miserly. I’m telling you what to do if you look at your monthly expenditures and you don’t like your personal profit and loss statement. So many people look at these facts staring them right in the face and say, “But there’s nothing I can cut.” I’ll guarantee, if you called me up and asked me to come over and look over the same things you were looking at, I could show you a ton of things you could cut if you were highly motivated and ready to make changes in your life.

There’s even a show on TV where a guy literally does that. A fellow named Larry Winget has a show called “Big Spender” on the A&E Network. He shows up at people’s houses and puts them on a “tough love” spending diet. And what he finds would amaze you. There is fat in all of our living budgets—mine included. But luckily, I’ve reached a point where I’m not staring up at the ceiling when I should be sleeping, shaking from the cold sweats because I have no idea how to make my next mortgage payment. So if I want to fly first class, I can afford it. But nothing is more mind- boggling than the guy with the cold sweats and the looming mortgage payment sitting next to me in first class, telling me his problems. It makes me want to toss him out of the plane!

“We have met the enemy, and he is us.” — Pogo

“The only person that can drive you into debt is you.” – Braun

Do you really need “name brand everything?” Take the classic polo shirt. I’ll grant you, they’re all cut a little differently and we all have different bodies, so maybe one brand fits you a bit better than another. But seriously … I find more people hung up on whether the little logo on the left nipple is a polo player, an alligator, a yacht, a moose, a name (BOSS, DKNY, etc.) than anything else. Now, if it’s because the alligator is on sale this week and is cheaper than the yacht, great; you’ve proven yourself to be a good shopper. But if it’s because you think one is more “prestigious” than another, I hope you can truly afford it. If you can’t, just remember—it’s just a shirt. The only people who get close enough to you to see the little logo probably already like you.

I’m not embarrassed to shop at Wal-Mart. I don’t know where this fad started, but I don’t understand it. Some people have political issues with Wal-Mart and so be it. But whatever they’re griping about—if it’s true at all—is probably also true about Target, K-Mart, or a dozen other retailers in the same category. We’re talking discount stores for basics.

You don’t need designer socks! Need some tube socks? Go to Wal-Mart or K-Mart. You can probably get a 12-pack for two or three dollars. And you won’t have to buy tube socks again for another three or four years. This is smart consumerism.

Sin may be fun in moderation, but it is also costly. Cigarettes, liquor, gambling, lap dances. All expensive.
Peer pressure? All the guys at the office are going out after work and you don’t want to be the “un-cool guy?” So go with them, but order a club soda. It’s the cheapest thing you can get at a bar and still be allowed to take up a stool.

Your co-workers may think you’re a recovering alcoholic.

Believe it or not, people actually have grown to respect that. It means you’ve lived a little, but now you’ve grown up and taken responsibility for your life. That could make you management material! And who is more popular nowadays than the “designated driver?”

And if you’re single, do you know the best thing about Happy Hour? Finding the one with the big free food buffet! I’ve known young single guys who have been able to scarf down an entire free meal for the (Happy Hour reduced) cost of a $1.25 club soda!

On the other hand, when you’re actually eating out in a restaurant, forget that club soda entirely and simply drink water. No, not that designer bottled water! They charge you for that. And you know where most of it comes from, don’t you? The same spigot that your free water came from!

I travel a lot. Do you have any idea how much luggage can cost? Every product that exists, there are low-priced models, medium, and high. So ask yourself; do I really need a $1,500 bag when a $200 one would do? Frankly, I’m a guy who, even though I can afford the $1,500 bag, simply can’t abide the apparent (to me) waste of money. Luggage doesn’t last forever. I know, longevity is a major selling point for high-end goods. But once the $1,500 bag gets banged and smashed around enough by the baggage handlers, it eventually starts to look like crap, too. So what if it lasts a year or two longer? For the math to work out in its favor, it would have to last over seven times as long as the $200 bag for it to make financial sense. That’s asking a lot.

I could make an entire book out of this topic alone. Suffice it to say, there are ways to save on EVERYTHING. The question is, where are you at with your personal budgeting?

Do you have money left over after all the bills are paid each month? Are you carrying balances on your credit cards? Are you religiously contributing the maximum to your IRAs and 401ks? If not, then look at all the ways you can cut, cut, cut. This is how “living within your means” is defined.

If you are in a personal financial crisis, you have to cut your expenditures quickly and viciously. But if your only complaint is that your savings is not as great as you’d like it to be, then analyze that budget of yours and see where you can make some painless surgical cuts. It’s easily doable.

Listen to Braun speak on Financial Literacy.

Braun Mincher with Neil Cavuto on Fox Business News

Braun Mincher talking about Financial Literacy on Fox Business

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Make More Money

June 25, 2009 11:17 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 10 of his book, Your Keys to Financial Success and the 6th of 20 entries on this subject. For more on Braun click here.

All right. Tens of thousands of words into this book and you’ve learned a million ways to save money—to spend less and to “live within your means.” Now let’s try an earth-shattering concept; a creative alternative that is rarely discussed: Why not make MORE money?

I doubt most people are maximizing their income. If you work for someone else, one of the easiest ways to do this is ask your boss for a raise. I am shocked at how few people ever do this. Perhaps it’s a holdover from the days when unions ruled the land and collective bargaining dictated how, when, and how much everyone would make, no matter how well or badly they performed. But let’s take you, a person who is doing a good job and working hard. You’re probably not a member of a union (their numbers are presently dwindling in America), so no one’s got your back except the man in the mirror. I’ll bet you’ve been trained to pull out the local Want Ads or go online and look for a new job in order to make more money, rather than ask your boss for a raise. This is crazy!

Your boss will rarely just offer you more money unless you ask for it. Why should he? By not asking for more, you’re telling him that even you don’t believe you deserve it!

I know, asking the boss for a raise is like asking the most attractive person in school out on a date. A lot of people get all choked up and befuddled. Not to worry.

It’s not that hard.

First, be honest with yourself and ask yourself what, if anything, you have done to deserve higher wages.

Maybe you really don’t deserve more. If so, look at your own shortcomings and figure out how to add value to your workplace. Is there an additional skill you could learn? Are you working as hard as you possibly can? Could you put in more hours? Maybe you’re having trouble getting the hang of something. If so, ruminate upon how you could get better at it. Depending upon your occupation, maybe it would pay for you to take some of your work home and practice until you gain greater mastery over a certain skill. Or perhaps there’s a guidebook you could buy and read. Maybe there’s a more experienced mentor you could seek out and ask for assistance.

Here is another funny story that actually happened to me several years back, and it is one that my close friends still talk about. I had a housekeeper who cleaned my house every couple of weeks. She barely did an acceptable job, only putting forth the most minimal of efforts, and if I’d had the time, I would have found a replacement, but I was busy building a business and this was not a priority. One day, after a hard day at the office, we crossed paths when I came home and she made a comment to the effect of, “I see you have gotten some nice things around the house recently, so you must be doing pretty well. How about giving me a raise?” Obviously, I was put off that this person made judgments about me and simply thought she deserved a raise since she thought I could afford it. Unfortunately for her, this strategy backfired and I finally made the time to find her replacement. The moral of this story is that if you are only giving a marginal work performance, you may not deserve a raise and you also may not like the outcome if you demand such a thing.

There’s nothing worse, nothing more lame, than to go up to the boss and say, “I need a raise because I’ve got lots of bills.” That’s a “pity raise.” Do you really want the boss to think you’re pathetic? Is that a good long-range plan? I don’t think so.

Worse yet is, “I deserve a raise because I’ve been here a year.” SO WHAT?! Simple longevity is no reason for reward; not in my book. Use either of these two methods and you’ll be lucky to keep the salary you have, let alone increase it.

If you want a raise, build your case as to why you have earned it. Then ask for an appointment with the boss in order to present that case. That case presentation should be the same as a sales presentation, and IT IS. You are selling YOU. It doesn’t matter that the boss knows you already. The argument is that he doesn’t know enough about you to understand how fabulous you are and what value you bring to his business.

Notice how both times above I mentioned the word “value,” I italicized the phrase. I know that you value you, but the opinion you have of yourself that you’re a great guy or gal is meaningless in this situation. Are you valuable to your employer? Now, before you answer that in the affirmative, understand what I really mean by this question. If you’re a receptionist and you simply walked off the job without telling anyone, now being without a receptionist would prove that your position had value. But the question really is, “did you bring value to the position?” Did you do whatever you were asked to do with such aplomb that you were able to add “extra value” to the job? Did clients see the boss and say, “Wow, what a great receptionist you have! She was so nice and friendly. She offered me coffee or tea. She recommended a good place for lunch. She let me know exactly how long I’d be waiting. She made coming to do business with you a joy and a pleasure.” That’s bringing value to your job.

But still, even the best sales pitch for a raise is not always successful. Maybe the boss has a counter-argument of where you let him down. If so, listen intently. This is the area where you are being told to improve. Do it, then re-approach the raise issue again later.

Other times, the boss will give you a more nebulous answer, or simply an excuse. “Times are tight. The company isn’t doing well right now. Can’t afford it.” If that’s the case, pose the question: “What can I do to help? What more can I do in order to be of greater value to the company?” In short, ask what you have to do in order to get a raise.

An even less confrontational way of earning more money within a firm is to keep on the lookout for job openings in higher positions. Be aware of what’s going on around you. If your immediate supervisor is rumored to be looking for a new job elsewhere, picture yourself doing his or her job. Do you have the skills? Again, don’t look at this like, “Well, I deserve his job if he leaves.” You don’t “deserve” anything. You earn it!

Maybe there’s an issue of education. Maybe you’ve hit an invisible ceiling to your success because you don’t have certain schooling or training. If so, figure out what you can do about it. Some big companies even assist ambitious employees by contributing to their advanced schooling or training. Ignoring such a benefit is no different than passing up an employer-contributed 401k. You’re leaving money on the table!

If, on the other hand, you own your own business, or if you work on commission … increase your sales volume! There must be a thousand good books on salesmanship out there.

If you haven’t availed yourself to a few, perhaps you should look into it. Some people are naturals at sales, yet could always use a few good tips to improve their game. Others find sales to be an unnatural act, and reading up or seeking out a strong mentor can be just what is needed.

Maybe you don’t actually work on commission, but you are still in the business of sales, or in a position to bring in more clientele for your employer. As to sales volume, this is a great quantifier when you want to approach you boss about a raise. While platitudes about, “I’m a team player,” or “Customers really like me,” can be debated, numbers don’t lie.

As to bringing in new business or simply being innovative, I think most employers would be open to “sharing the wealth” if you could find a way to show them a significant increase in productivity, profitability, or client volume. Obviously, if you are self-employed, you should always be on the lookout for improving the bottom line. Too many people don’t understand the difference between “working hard” and “working smart.”

It’s hard to disparage “working hard,” but doing it in an ostrich-like fashion (head buried in the sand) rarely leads to wealth and success. “Working smart” means that your head is always up, eyes wide open, looking to maximize every possible way of improving your bottom line. Are there more cost-efficient ways of doing things? Are there ways of reaching more clients that you haven’t been exploiting? Are your prices in line with your competitors, or are you far too high or low? Do you even know who your competitors are, what exactly they do and how they do it, and how much they charge? If not, find out, find out, find out. That’s working smart.

I’d like to make a confession here. I’m actually not that great a salesman. Seriously—I’ve listened to guys who could sell video games to Amish grandmothers. They have a gift of gab
I may never achieve. My success has been built more upon innovation, imagination, motivation, reputation, and perspiration—and creating wealth from what I have earned.

So I say to you, if you’re witty, super-personable and great at sales, God bless. And if you’re not, fret not; financial success can still be within your grasp. But in either case—even for you “super salesmen”—it always pays to be aware of what’s going on around you; you should always be thinking to yourself, “Is there an innovative way that I can maximize my earnings? Is there something more that I can do? Am I missing an opportunity here?”

Work more hours. Sounds simple, and, frankly, it is. This one works whether you are self-employed or working for someone else. Maybe your employer has overtime available. Are you taking advantage of that opportunity? Perhaps you should.

It’s good both in the short run (more money today) as well as the long run (it demonstrates a good work ethic, which can lead to promotions and raises).

Personally, I can’t abide people who moan and groan about their financial status and they ONLY work forty hours per week. It’s ridiculous! Every financially successful person I know spent a huge portion of their life working seventy, eighty, and ninety-hour weeks. Forty hour work weeks are semi-retirement.

Can’t pick up more hours where you work? Get a side job.

Get a second job. Do what you have to do to get what you need and to get where you want to go. You’re not entitled.

If you want something, go out and get it!

Here’s one of my favorite variations on this. It embodies “working smart” versus simply “working hard.” Start a side business. Here’s what I did:

When I was in the phone business, we would sell big and expensive new phone systems to businesses—mainly call centers. I started buying their old phone systems for cheap (they generally had no clue what to do with them) and would then advertise them in the paper and sell them as “used.” It took three to four hours per week for me to do all of this, but

I found a way to make extra spending money. Most people never would have thought of it, but I took advantage of an opportunity right in front of me.

People trip over opportunities like this every day. No matter what your occupation, I’ll bet there’s a way of making more money. Deliver pizzas for a living? Hand out business cards for some other enterprise with that large sausage and pepperoni —maybe your own business. For example, anybody can paint. If you handed out a card for “XYZ Painters” with your phone number on it, I’ll bet within the first week somebody will call. That’s being enterprising. Want to take it a step further? Maybe the florist next door to the pizza place would pay you to hand out their card, or a coupon, to all of your deliveries. Hey, you’re going to those places anyway; think about ways you can maximize each trip. And you’ll still be able to get that pizza there in thirty minutes or less!

If this sounds like small potatoes, bear in mind that this is the mental foundation upon which great fortunes are made. Wherever you are in your personal life cycle as you read this,

I’ll bet you could apply the pizza delivery or the used phone system concept. Don’t look at my examples literally—think creatively. I can’t think of everything for you, but I can help you to understand how successful entrepreneurs think.

Listen to Braun speak on Financial Literacy.

Braun Mincher with Neil Cavuto on Fox Business News

Braun Mincher talking about Financial Literacy on Fox Business

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Stop Trying to Keep Up With the Joneses (They’re probably miserable and in debt)

August 13, 2009 6:51 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 10 of his book, Your Keys to Financial Success and the 7th of 20 entries on this subject. For more on Braun click here.

You may be thinking, “How does this materially differ from, “Spend wisely,” and, “Live within your means”? I understand the confusion. Look at it this way: Keeping up with the Joneses is an emotional issue, even more than it is a financial one. It is based upon jealousy, which is one of the 7 Deadly Sins, meaning that it far supersedes “Generation E.”

If there was a somewhat realistic American ideal of a fabulous residential property, it would probably be about four nicely manicured acres, a 5 bedroom, 5 bath home—all large rooms, professionally decorated, with a circular driveway, a 3-car garage, and an in-ground swimming pool. Does that sound about right? Now, how many of you have that house? Sorry, but I don’t see many hands.

In most real estate markets, this is about a $1 million dollar house. In the more expensive neighborhoods of this country, it could cost you upwards of $5 or $6 million.

Now, let’s look at an incredible conundrum. Who needs a really big house like this? Answer: A young couple with a few kids and some pets. Think about it. That’s the perfect time to have that much land for the kids and the dogs to frolic, lots of rooms and bedrooms, and lots of toys (the swimming pool included). So we’re talking about a couple in their thirties. How many couples in their thirties can afford such a mansion? Answer: Very, very few.

The conundrum continues: Who is more likely to be able to afford this dream house? Answer: A couple in their fifties.

But do they need it? No; what for? Since when do two people need that much room and that many beds? It makes no sense.

So what we have are two scenarios both based upon wanting things we’ve been programmed to want. For the couple in their fifties, it’s finally having the money to blow on something they really don’t need. To me, that’s dumb. I salute the fact that they had the fortitude to wait until they could afford it, but you have to admit, they are most likely doing it for purely emotional reasons, reasons that may still have a lot to do with jealousy of other people or concern for other people’s perceptions of them. The money they might be spending on such an unnecessary luxury would be better utilized if placed into savings, disability policies, and all the sorts of things that would give their latter-year futures the stability to weather any storm. But if they’ve already done that and they still have money to blow, I suppose what to blow it on is a personal matter. Personally, I’d rather travel, but who am I to judge?

But the people I really have a problem with are the ones in their thirties. The percentage of families in America who can responsibly afford a house like this is less than 1%—and more of them are in their fifties than in their thirties. Despite that, it amazes me as to how many young couples—people my age—are trying to live this way —stretching on their tippy-toes to qualify for a designer mortgage that will choke them like a vice.

When it comes to keeping up with the Joneses, nothing says it more than the big purchases—homes, cars, and vacations.

I won’t even talk about designer coffees in this subchapter.

There’s an upscale coffee shop on almost every street corner in America today. That $5 coffee in your hand doesn’t impress anyone—because everyone else has one, too. I doubt you are even thinking about impressions when you are buying it. Designer coffee is not about status. But homes—man, that’s where the damage is done.

Think about someone who could easily afford that $1 million dollar plus mansion while still in their thirties. How about a top brain surgeon? Those guys probably make about $750,000 per year in salary alone, plus, if they’re smart enough off of their investments, it could send them up around a million dollars a year—every year! Nice work if you can get it.

This brain surgeon, who may be your age and may send his kid to school with your kid, made a career choice early in life and went into a very lucrative field. Good for him! We need brain surgeons in this world.

Now look at yourself in the mirror. Maybe you’re a policeman. What you do is of incredible value to society and I, for one, thank you for doing it. But let’s face it; if you are doing it in your thirties, you are probably lucky to make around $60,000 a year. That’s not bad; not bad at all. It is definitely above the American average. Perhaps you have a spouse. Maybe he or she is a social worker, a school teacher, a truck driver, or a nurse. All of these occupations are invaluable to the quality of life we all take for granted in this country. But these occupations also do not pay a lot of money. So together, you and your spouse make, perhaps, $100,000 a year. That’s great! If you do everything I’ve told you to do in this book, you should be able to live a nice, comfortable, and secure life. That is, of course, unless you start trying to live like the brain surgeon.

This is the crucial failure, the disconnect so many people make and have. Jealousy, whether realized or not. So that $100,000 a year family, instead of doing all the right things as outlined in this book, “over houses” themselves in order for their kid to feel on par with the surgeon’s kid. Maybe they figure it will give them a better chance at being invited over to the surgeon’s home for dinner some time. And to what end?

All of these emotional issues are completely counterproductive to your own financial success in life. Life can be a lot like high school sometimes. If you have to buy breast implants in order to be accepted at the “popular girls’ table” in the cafeteria, what does it say about them as well as you? Those people are not your friends, they’re never going to be your friends, nor should you want them to be your friends. The relationship will always be as fake as those implants. If the brain surgeon is a good guy, he will want to be friends with you if he respects you and finds you interesting and fun to be with. If you possess all those qualities, but are socially shunned by certain people because you don’t have a certain sized home or drive a certain type of car, don’t bother. Those people are shallow creeps and any relationship you might have with them will be phony.

When you try to keep up with the Joneses, a number of scenarios can occur. For one thing, people aren’t stupid. If you’re the “cop and social worker family” and you try to move into or build a house like the brain surgeon owns, people will either figure that you are living way over your head or that you are doing something illegal. Neither of these are good.

For this reason, so many “keeping up with the Joneses” people soon discover that their station in life has not risen—they still are not taken into the fold at the “popular girls’ table” of life. There, I’ve just saved you a lot of money and therapy.

Take pride in who you are. Be a decent human being, work hard, and have solid values. As a policeman or a social worker, you had to have known from the start that you weren’t going to live in a big mansion on what you earned at that job. Keep reminding yourself of that. Maybe you didn’t quite have what it takes to be a brain surgeon, or more likely, you simply had no passion for that field. Fine then. You’ve heard the old joke: What do they call the person who finished last in medical school? Answer: Doctor. You may be every bit as smart as the brain surgeon, but you followed your own muse. Come to terms with that and hold your head up high. Accept what the field pays or make changes or adjustments to your vocation (re-read the “Make More Money” subchapter).

Live within the means of your chosen field. Better yet, live below your means. If you do, you’ll have enough to fund all the wise expenditures I’ve outlined for you in this book. I can’t say this enough: Wealth is what you keep, not what you make.

I can’t tell you how many rich guys, ones who make a million dollars a year or more, spend 20% more than that. Do you know what that makes them, Mr. Policeman? Poorer than you! Debt is a prison. In my short time on earth, I have seen many mighty millionaires who have fallen. Can you imagine driving a Rolls Royce one day and a few years later working as a clerk in a store for a little over minimum wage?

I’ve seen it happen.

Some of the worst emotional spenders are the “Suddenly Wealthy.” These may be lottery winners, large inheritors, or professional athletes or entertainers. Emotionally, they try to buy their way into a certain social class. It matters not that they were driving a perfectly nice Volkswagen that they loved the day before they hit the jackpot. Now they feel they have to buy the Maserati because, well, you can’t drive up to the entrance of a country club in a Volkswagen, now can you? And you must join the country club because … well, you can’t hang out with poor people anymore, can you?

This is why the aforementioned list of the Suddenly Wealthy (lottery winners, etc.) tend to hang onto their wealth for less time than almost any other demographic.

Sure, if you hit it rich, you want the types of things you never could afford before. But think it through first. Maybe you never felt you could adequately fund that 529 Plan for your kids or set up a good long-term savings vehicle for yourself. Maybe you never had long or short-term disability insurance. Take care of all that first. Once that’s done, if you have money left over for a boat and you really, really always had a passion for boats, then buy yourself a darn boat! But do it for YOU. Don’t do it to fit into some new social strata. Don’t do it because you think it’s expected of you.

Your net worth can go up and down. As an entrepreneur, I don’t have all the advantages of the brain surgeon, either.

Those guys make a pretty high and steady wage. Personally,
I’ve had good years where I’ve out-earned them handily, and
I’ve had some not-so-good years as well. Do you want to know the key to success? Find a lifestyle and stick with it.

If you find you’ve had $1 million dollar years as well as $100,000 years, learn to live on $100,000 a year. That way, you can never lose. The big years can provide a little extra gravy to get you through the leaner years.

Lack of money can make people very insecure. It certainly makes one financially insecure. But deal with the emotional issues maturely. Work hard to achieve financial security, which has nothing at all to do with how big your house is or what kind of car you drive. While doing that, work hard on developing the emotional security. Be a good person, and do the right things. If you achieve that, you are a wealthy person no matter how much or how little you earn.

Listen to Braun speak on Financial Literacy.

Braun Mincher with Neil Cavuto on Fox Business News

Braun Mincher talking about Financial Literacy on Fox Business

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Wake Up – Literally!

September 29, 2009 7:00 am

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 10 of his book, Your Keys to Financial Success and the 8th of 20 entries on this subject. For more on Braun click here.

Get up early and get to work early. Most of the successful people I know (with the exception of the one who runs a night club) get into the office very early (5 to 5 am) and get more work done before other people start arriving (8 to 9 am).

There is a method to this madness. From 9 to 5, the workday is in full swing. Telephones are ringing, co-workers are running around, people are tugging you in a thousand directions. Ever feel like a gerbil on a fly wheel? There’s such a thing as “being at work,” but getting very little done. And it’s not necessarily your fault. Many of us feel like air traffic controllers, putting out fires and reacting, reacting, reacting when we’re on the job. Things may need to be done that way, but it makes it hard to move forward your long-range work agenda. The things that are not of greatest immediacy sometimes fall between the cracks.

That’s what those first few hours are for. If you work for yourself, I deem them mandatory. I hate it, HATE IT, when people say, “Ah, now I own my own business. I work for myself. Now I can sleep in and take it easy.” Those clowns are lucky to last a year.

Successful bosses are always the first in. They’re often the last to leave as well, but there’s something special about those early morning hours.

Employees can use this method as well. When I talked about asking for a raise in pay, I mentioned building a case for yourself. Well, coming in early is a great way to build such a case, although that’s only scratching the surface. There are people who actually come in early just so they can put their feet up on their desk and contemplate their navel. That doesn’t cut it. I’m talking about coming in early in order to spur productivity. It moves you out of that, “I only put out fires” mode. Accomplishing that, you can show your employer and clients significant gains in productivity and for that, you can build a case for greater personal financial reward.

Another great thing about getting in early is “The Breakfast Meeting.” Smart businesspeople know the value of meeting with clients as often as possible. Business lunches are the norm. Once you’re in business, before you take a bite of lunch, ask yourself why you’re doing it alone. You should be doing it with someone else, every day, preferably with a client! Getting in early doubles those opportunities. Top people know that getting up and into work early is the key to success, so it is easier than you think to get a client to take a breakfast meeting with you. Face time is important. If you are seeing your client more often than does your competition, it often results in a higher volume of business for your company. Clients tend to be less interested in dinner meetings. Many people view that as family time, or else it becomes cocktail time. Also, if your client is, like you, an early riser in to work early, that is when they are fresh out of the shower and ready to conquer the world. If they get in early enough, they may be sort of burned out and groggy by the end of the day. So get them when they’re spry and alert.

Also, breakfast and lunch meetings have the advantage of having natural “end times.” You can’t—or you shouldn’t—stay out for a four-hour business lunch. That’s rarely productive. The same goes for breakfast. But dinner can drag on and on and on, especially if cocktails are involved. Sure, in a few rare cases this elongated face time can help you solidify a big account, but I often find myself in these situations thinking, “Damn, there is so much other work I could be getting done while this guy keeps droning on about his kid’s Little League team.”

So if you notice, I’ve just advocated getting in to work early, taking as many breakfast business meetings as you can, taking as many lunch business meetings as you can, and doing a dinner business meeting as well, if possible. Holy cow; I just suggested that you work straight on through from 5 am to … whenever!

Yep.

That’s what most successful people do. Sure, you get some sustenance during those meal meetings, but you’re still working. And if you can’t line up a business meal, consider brown bagging it at your desk so you can still keep on working. Is this suggestion obnoxious? Okay, throw stones at me if you like. But you wanted to know the tactics of highly successful people, and these are some of them. Be productive!

On the other hand, I know some people who are so productive that they can actually leave work early. A close friend of mine is a lawyer who is the top biller in his firm. He gets in at 5 am every day, works productively in solitude from 5 to 9, takes a one hour break to exercise and then continues working until 3 pm. And then he goes home.

During that time, he is the “King of Productivity.” He has done so much —particularly between 5 am and 9 am, that he can leave at 3 pm knowing that he has accomplished a lot—and his pay reflects that.

Bottom line: If you’re asking me how to be successful, my recommendation is that you begin by ignoring what is generally considered to be normal “working hours.” The person who is told that work is from 9 to 5 and who only works from 9 to 5, is rarely the person who gets ahead or makes a ton of money. The person who gets ahead works far longer hours, and more often than not, those hours begin before the work day officially begins.

Listen to Braun speak on Financial Literacy.

Braun Mincher with Neil Cavuto on Fox Business News

Braun Mincher talking about Financial Literacy on Fox Business

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National Holdings Corporation and Fund.com, Inc. Announce Agreement for $5 Million Strategic Investment

April 9, 2009 7:56 am

National Holdings Corporation
Mark Goldwasser, 212-417-8210
Chief Executive Officer
or
Leonard J. Sokolow, 561-981-1005
President
or
Fund.com
Daniel Klaus, 212-941-4330
Chairman
or
Greg Webster, 212-618-1633
Chief Executive Officer

ETF-Trend Changes 4/9/9

April 13, 2009 6:47 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

ETF Commentary 4-10-09

April 14, 2009 10:01 am

Carl Delfeld

In terms of performance, almost all the international ETFs on the ETF Focus list are doing quite well. Hong Kong, Canada, Singapore, the Japan options are all up nicely. The Templeton Emerging Markets (TEI) is up over 22%. The S&P Global 100 (IOO) surged nicely this week as did the recent International Dividend Achievers (PID) addition. The British Pound and Australian Dollar additions are performing modestly as expected.

But Another Japan Stimulus Program

Japan’s central bank took new steps to encourage lending and Australia cut its benchmark interest rate to the lowest level in nearly half a century.

Japan is in a recession that economists say could be the worst since World War II. Both the government and the central bank have made repeated efforts to bolster the economy as the downturn deepens.

On Friday, the Japanese government announced Y50,000bn in loan guarantees to government affiliated financial institutions to buy stocks in the market as part of a record stimulus plan that will cost the government Y15,400bn.

The size of the new package, which amounts to 3 per cent of GDP, highlights the government’s intention to act aggressively to combat the debilitating impact of the global recession on the Japanese economy.

Japan has been hit hard by plunging exports — down by nearly half in the first two months of the year.

Taiwan is the Weak Link

Data from Taiwan on Tuesday showed exports there, too, continue to plunge. Exports in March were 35.7% below levels of a year earlier, the seventh consecutive month of decline.

“Japan and Taiwan are the countries we are most concerned about in Asia, while the risk looks to be small and manageable for most other countries in the region,” Robert Prior-Wandesforde and Frederic Neumann, economists at HSBC, wrote in a report released Tuesday.

Will the Chinese Consumer Drive Global Recovery?

Many are banking on the Chinese consumer to drive growth in the region. This may be an overly optimistic view for two reasons. First, is the destruction of the “iron rice bowl”, as once-free health and education systems have been sharply reduced people do not trust the state to look after them.

Second, most Chinese are what Dragonomics, a research firm, calls “survivors”, whose purchases of basic food and clothing are meaningless for multinationals or global demand. Only about 150m are part of “consuming China”, although this may double to 300m by 2015. Consuming China’s median household income is about $6,000, against $45,000 in the US.

Ireland Raises Taxes?

In plans for the banking sector that were much wider in scope than expected, Irish Finance Minister Lenihan announced a plan to buy up to “a maximum” of €80 billion to €90 billion in impaired assets, mostly real estate loans, lurking on Irish banks’ books.

He also announced a plan to reduce the budget deficit predicted to be about 13% of GDP. Most of the deficit reduction this year would come from higher income taxes, rather than from cuts in spending, which would accelerate in 2010, he said. Ireland’s income tax rates, low by European standards, must be raised drastically, Mr. Lenihan said. Taxes also would be increased on state health coverage, diesel fuel, cigarettes, insurance policies and savings accounts, he said.

Spending cuts, if approved, would include a reduction in the allowances paid to the young unemployed.

New Sector Emerging Market ETFs

About 70 million people from emerging market countries are being added to the global middle class each year. There is a growing opportunity for companies in such areas as infrastructure, banking and financial services, communications, consumer staples and energy. Soon, we will have the opportunity to invest in ETFs that contain a basket of emerging market companies in each sector.

Robert Holderith, CEO at Emerging Global Shares and former ProFunds’ managing director of institutional sales, said his firm will launch the first emerging market sector-based exchange-traded funds in the first part of this year. The twelve ETFs will track the Dow Jones Emerging Markets Titan Composite Index. “The funds will be the first of their kind to grab the 30-best companies across all emerging market countries,” said Holderith. “Before now, investors had to take what sectors they like in Brazil or China and everything else wrapped in the country ETF,” said Holderith.

A “Soft” conservative approach to tapping into this emerging market growth potential is investing in multinationals that actively target these lucrative consumer markets like General Electric, Intel, Nokia, Philips Electronics, Nestle, Colgate Palmolive, GlaxoSmithKline, HSBC and IBM.

How Long Will it Take?

After the deep 1981-82 recession, it was seven years before the economy regained the lost production.

Some predict that the recovery from the current recession could be similarly sluggish. New occupants have to be found for empty stores. Factory owners who are hesitant to ramp up production will wait until they are sure of demand. And imports, entering the country in ever greater quantities, will slow any expansion by reducing domestic sales.

Then there is the growth rate itself. In the six years of recovery since the 2001 recession, the economy grew at a real average annual rate of only 2.5%. If that growth rate were to resume, just $350 billion a year would be added back, requiring three years to restore the $1 trillion in lost capacity. “Excess capacity, once entrenched, perpetuates itself, and that is what is happening now,” said James Crotty, an economist at the University of Massachusetts, Amherst. “Companies cannot hire workers to make more goods and provide more services until their sales go up. But people can’t buy goods and services until they are hired — so the excess capacity just sits there.”

With orders dwindling, manufacturers are using less than 68 percent of the nation’s factory capacity, the lowest level since records were first kept in 1948.

Chile as the Star of Latin America

Copper, Chile’s main export, is highly cyclical. Thus, in the last few years the country has built up an Economic and Social Stabilization Fund, to which copper revenues are committed when prices are high. By January 2009, that fund was worth $19.5 billion, or 10.5% of Gross Domestic Product (GDP). Therefore, Chile’s recent fiscal stimulus of about 2.5% of GDP has been easily affordable.

Chile’s economy grew by 4% to 5% annually during the boom years and is expected to grow just 0.4% in 2009. The currency has already dropped, by 23% against the dollar in the last year and its stock market is down 30% from its October 2007 peak. But because of the country’s relative stability, the market is still not especially cheap, trading at 12.2 times earnings compared to 11.0 times for the S&P 500.

Thais Take to the Streets Again

Wearing the red shirts of Thaksin loyalists, about 100,000 demonstrators streamed into Bangkok to present the biggest challenge to the four-month-old government of Prime Minister Abhisit Vejjajiva. He took office after a pro-Thaksin government was dissolved when a court ruled that the governing party had engaged in electoral fraud.

Former Prime Minister Thaksin, ousted in a coup in September 2006 while he was out of the country, was convicted last year on charges asserting he had abused his power. He left the country before his conviction and now lives in exile, principally in Dubai. Mr. Thaksin faces other charges in Thailand, and the courts have frozen an estimated $2 billion in his and his family’s assets.

International and Emerging Markets Lead ETF Assets and Fund Inflows

April 16, 2009 7:26 am

Carl Delfeld

According to State Street Global Advisors’s ETF Snapshot, as of April 1st, there were 735 ETFs in the US with assets totaling approximately $482 billion managed by 22 ETF managers. ETF industry assets increased $30.8 billion for the month, or 6.8%. Only 2 new ETFs were launched in March. SPA ETF closed all 6 of its U.S. Market Grader funds.

All ETF categories gained assets. The International category accounted for more than one third of the combined gains, rising more than $10 billion. Fixed Income assets were up nearly $5 billion, or 8.2%. The top three managers in the US ETF marketplace were: Barclays Global Investors (BGI), State Street, and Vanguard. Collectively, they accounted for approximately 84% of the US-listed ETF market.

The top three US ETFs in terms of assets were: the SPDR® S&P 500® [SPY], SPDR® Gold Shares [GLD], and iShares MSCI EAFE® Fund [EFA]. Sector performance was positive across the board, with Financials gaining close to 18%.

Looking at the EPFR Global fund data, ETF and Emerging Market Equity Funds took in $2.2 billion of inflows last week, or 0.9% of their total assets, and bringing year to date inflows to $5.4 billion. Asia ex-Japan Equity Funds enjoyed another solid week, underpinned by the belief that China’s stimulus will help keep its growth story intact. It was the best week of inflows for Asia ex-Japan equity funds since April 2008. More than half of the $794 million of weekly inflows were received by China ETFs and funds.

Latin America was next in line buoyed by continued overweighting of Brazil and optimism about commodities helped Latin America Equity ETFs and funds post their biggest weekly inflow in USD terms since late 2Q08. This represents the biggest weekly inflow as a percentage of total assets in the fund group since mid-2006. The diversified global emerging market funds extended their winning run to three weeks and $3.7 billion, but EMEA Equity Funds again recorded outflows despite posting the best performance numbers of any major emerging markets fund group.


“This is the fifth week in a row we’ve seen this combination of positive net flows into funds dedicated to emerging markets equity and the riskiest kind of bonds,” noted EPFR Global Managing Director Brad Durham. “You have to think that all this liquidity being pumped in by central banks around the world is finally removing some of the shackles.”



EPFR Globalprovides fund flows and asset allocation data to financial institutions around the world. Tracking both traditional and alternative funds domiciled globally with $11 trillion in total assets.

ETF-Trend Changes 4/24/09

April 27, 2009 6:40 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

ETF - Trend Changes 5/01/09

May 4, 2009 6:40 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

A New Way to Tap Emerging Market Growth

May 5, 2009 3:18 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Investing in Asian and emerging market growth is likely to be the dominant theme of the next decade. One can, however, argue about the best strategy and tools to tap into this economic growth, demographic change and rise of the emerging middle consumer class.

But first let me make a point about America. I have a new book coming out in June, The New American Century, that highlights America’s significant strengths and why I believe it will remain “first among equals” for a long, long time. Another major theme of the book is that America will do so by growing with Asia and emerging markets.

Here is a sample of some of my bullet points highlighting how the world is rapidly filling in from my presentation on the topic of “The Case for Asia and Emerging Markets”:

• Thawing of India and China - 40% of world’s population
• Emerging markets = 83% of world’s population
• BRIC = 17% world GDP
• China - FX reserves, $2.1 trillion
• Candidates for 2007 CFA Exam - Asia (52,900), US (45,400)
• apan’s bilateral trade with China larger than US
• India adding 25 MM each year to middle class
• ASEAN GDP exceeds $1 trillion•Last month of US trade surplus during Ford Administration•72 of Fortune 500 global companies headquartered in emerging countries

And the growing emerging market consumer class will have a profound affect on company growth and profitability and investment returns.

• Each year, 75 million people from emerging markets join the global middle class.
• By 2030, 90% of the world’s middle class consumers will reside in developing nations. These people will control over $6 trillion in disposable income.
• 25,000 more cars hit the road every single day in China.
• As many as 15 million new cell phone subscribers will sign up every month in India this year. That’s more new users each month than the entire population of Chicago.
• By 2012 there will be two billion new computer users in Africa, Latin America, Asia and Eastern Europe.
• Argentina’s number of Internet users has gone up 700% since 2000. And still only 6.4% of the population has broadband access.
• China alone consumes a third of the world’s steel. And in the next few years, they have plans to build 97 new airports and spend $292 billion on railways.

Much of this is driven by urbanization which is captured well in the following quote from the Wall Street Journal: “In the next 24 hours, approximately 180,000 people in developing countries will be moving from the countryside to cities such as Shanghai, Sao Paulo and Johannesburg. The same will happen tomorrow and every day thereafter for the next 30 years.

Now there are many ways for investors to tap into this growth. Stock picking, mutual funds, ETFs are just a few options but the interesting thing is that the geography of where a company is headquartered tell you increasingly little about where its growth is coming from. A small cap company in Ireland may be zeroed in on Brazil. Procter & Gamble gets 35% of its sales in emerging markets. Many Japanese multinationals are only alive because of their focus on emerging Asia.

Still, the purest play on emerging market growth are companies located in and focused on growing with their domestic economy and the region as a whole.

I have primarily used country ETFs and closed-ended funds as proxies for these emerging markets though they have shortcomings. Many country ETFs are dominated by just a few large companies and this can lead to overweighting specific companies and sectors.

This is why a welcome the launch of the first family of emerging market sector ETFs by Global Shares. The first few are expected to hit the market on May 9th and while these funds are not yet deemed effective by the SEC, the full menu is as follows:

• Emerging Global Shares Dow Jones Emerging Markets Titans Composite Index Fund EEG Launch May 09
• Emerging Global Shares Dow Jones Emerging Markets Basic Materials Titans Index Fund EBM Launch TBD
• Emerging Global Shares Dow Jones Emerging Markets Metals & Mining Titans Index Fund EMT Launch May 09
• Emerging Global Shares Dow Jones Emerging Markets Consumer Goods Titans Index Fund ECG Launch TBD
• Emerging Global Shares Dow Jones Emerging Markets Consumer Services Titans Index Fund ECN Launch TBD
• Emerging Global Shares Dow Jones Emerging Markets Energy Titans Index Fund EEO Launch May 09
• Emerging Global Shares Dow Jones Emerging Markets Financials Titans Index Fund EFN Launch May 09
• Emerging Global Shares Dow Jones Emerging Markets Health Care Titans Index Fund EHK Launch TBD
• Emerging Global Shares Dow Jones Emerging Markets Industrials Titans Index Fund EID Launch TBD
• Emerging Global Shares Dow Jones Emerging Markets Technology Titans Index Fund ETX Launch TBD
• Emerging Global Shares Dow Jones Emerging Markets Telecommunications Titans Index Fund ETS Launch TBD
• Emerging Global Shares Dow Jones Emerging Markets Utilities Titans Index Fund EUT Launch TBD

Using these emerging market ETFs allows a fund manager or investor to easily gain exposure to an undervalued sector without being preoccupied with geography. Chartwell will also use a ETF plus strategy whereby we layer some individual stock picks on top of a sector ETF.

Let’s look at one example using the Emerging Global Shares Dow Jones Emerging Markets Financials Titans ETF (EFN).

This financials emerging market sector ETF because the growing urban middle class throughout the region are underserved and the regions capital markets are underdeveloped.

Below are its expected top holdings and weightings.

• Dow Jones Emerging Market Titans Financials Index
• Company Name Country Capped Wght
• Industrial & Commercial Bank of China Ltd. China 10.00%
• China Construction Bank Corp. China 10.00%
• China Life Insurance Co. Ltd. China 8.99%
• Banco Bradesco S/A Pref Brazil 6.41%
• Banco Itau Holding Financeira S.A. Pref Brazil 6.31%
• Standard Bank Group Ltd. South Africa 3.92%
• Bank of China Ltd. China 3.88%
• Housing Development Finance Corp. Ltd. India 3.70%
• Itausa-Investimentos Itau S/A Pref Brazil 3.53%
• ICICI Bank Ltd. India 3.34%

The first thing you notice is the dominance of China, India and Brazil. This is consistent with the fact that these three countries account for about 40% of the MSCI Emerging Market Index.

I would balance this out by layering on top of this ETF five or so financial companies based in say Malaysia, South Korea, Indonesia, Turkey and Taiwan. I would also be open to including banks domiciled in developed countries such as the UK but focused on emerging markets. HSBC and Standard Chartered (up 18% during the past two days) would definitely be possibilities. This “core & explore” strategy may work for you as well.

Investors and investment managers can only look forward to the launch of this new family of emerging market sector ETFs . The possibilities and opportunities are endless.

ETF - Trend Changes 5/08/09

May 11, 2009 6:50 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

China Leads Fund Inflows But Fundamentals in Question

May 13, 2009 12:23 pm

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Following a trend that began in late March, with cash coming off the sidelines and in favor of emerging markets equity ETFs and funds, High Yield Bond and some sector funds carried into the first week of May. EPFR Global-tracked Asia ex-Japan, Latin America, EMEA and the diversified Global Emerging Markets Equity Funds posted combined inflows of $3.6 billion and Emerging Markets Bond ETFs & funds recorded their best week since early in the first quarter of 2008.

China remains a major driver of both sentiment and fund flows for the emerging markets asset class as its economy responds to aggressive lending by domestic banks. Through May 6 China Equity Funds had taken in fresh money eight of the past nine weeks and 29 of the past 30 trading days, including a year-to-date daily high of $294 million on May 4.

But some recent data is in conflict with the “China will buck the downturn” thinking that the sharp increase in bank lending will allow China to maintain a 6-7% GDP growth rate is emerging.

Electricity production, often regarded as a proxy for economic growth in China, fell 3.5% from a year earlier in April.

China’s industrial production growth from a year earlier slowed to 7.3% in April from 8.3% growth in March. This also half the percentage growth that was posted one year ago as reported by Chartwell ETF.

China’s exports slumped for the sixth straight month amid warnings that weak overseas demand was more than offsetting government spending to boost factory investment.

The 22.6% drop in exports in April from a year earlier, to $91.9 billion, was bigger than March’s 17% fall and larger than projected.

For investors going forward, the question is, pass on China, go long with (FXI) or short with (FXP)?

ETF- Trend Changes 5/15/09

May 18, 2009 6:18 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

ETF-Trend Changes 5-22-09

May 26, 2009 7:03 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

ETF-Trend Changes 5-29-09

June 1, 2009 5:11 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

ETF-Trend Changes 06-05-09

June 8, 2009 7:24 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

ETF-Trend Changes 6-12-09

June 15, 2009 6:07 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

ETF Trend Changes 6-19-09

June 22, 2009 10:48 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

ETF Trend Changes 6-26-09

June 29, 2009 7:47 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

AdvisorShares Weekly Podcast

July 21, 2009 5:45 am

Noah Hamman

Find out which ETFs is up over 100% in the past 3 months, and get all of your weekly ETF news from the AdvisorShares podcast at www.advisorshares.com

Click here to listen to this weeks Podcast>AdvisorShares Weekly Podcast

ETF Trend Changes 7-04-09

July 7, 2009 5:40 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

ETF Pick of the Week 7-5-09

July 6, 2009 4:20 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

WisdomTree Dreyfus Emerging Market Currency (CEW)

Jordan Kimmel

August 10, 2009 8:33 am

Jordan Kimmel is the Market Strategist of National Securities Corp.

Jordan will be contributing to our Experts Desk with entries on the Market and various Strategies. He has a new book out that I am sure will be a worthwhile read.

To order his book, please click here.

ETF Trend Changes 7-11-09

July 16, 2009 1:53 pm

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

ETF Pick of the Week 7-17-09

July 17, 2009 12:45 pm

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Please click here for Around the World with ChartwellETF.com, Volume 6, Issue #97

vol06-iss097

ETF Trend Changes 7-17-09

July 20, 2009 4:45 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

Stir Fry Investing

July 23, 2009 12:26 pm

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

In general, liquidity and confidence drives markets. Many point to leverage, low interest rates and high government spending as the source of America’s market boom and recent uptick. It is clear to me that the surge in Chinese markets this year is speculation largely due to the huge jump in bank lending and the lack of many viable investment options to put this money to work.

The Chinese refer to putting this cash into markets as “stir frying”.

The MSCI Emerging Markets index, for example, trades at a price-to-earnings ratio of 16.1, which is 25 percent higher than its average P/E over the last five years. The Shanghai Composite in China recently hit a one-year high while the Hang Seng index in Hong Kong reached a level unseen since last October.

China’s hot market has overtaken Japan to become the world’s second biggest stock market by capitalization as investors pile into the fast-growing economy. China’s listed companies had a market capitalization of $3,210bn as of July 15 compared with Japan’s $3,200bn, according to Bloomberg data.

Investors have driven the Shanghai and Shenzhen markets up 75 percent and 95 percent respectively this year, thanks to the government’s $600bn stimulus plan, the effect of which was reflected in the faster-than-expected 7.9 percent second-quarter economic growth. The two Chinese stock markets are among the best performers globally this year though others in the region such as Taiwan and Indonesia are not far behind.

The economic rebound has been driven by a powerful source of liquidity controlled by the ruling Communist party: a jump in lending by state-owned or controlled banks. Chinese banks, all but a handful of which are owned by the government, lent over a trillion dollars in the first half of this year, nearly double the total loans extended in the whole of 2008. As for June’s lending, at $220bn in new loans confirmed the trend as banks opened the spigots under the watchful eyes of the mandarins, just as they did in March (to $280bn).

This liquidity is fueling the Shanghai Stock Exchange, where daily volumes are currently three times the five-year average.

Some state-owned companies have set up separate divisions just to speculate and trade stocks. We have seen this cycle before. Keep in mind that the Shanghai composite was as low as 1,717 last November — a 70 percent drop from its peak in late 2007.

In the first half of the year, it is estimated that banks operating in China made about $1 trillion in new loans — an astounding figure considering that all of the 2008 bank loans totaled about $620 billion.

What about earnings? The 741 companies in the MSCI Emerging Markets index that reported results since the end of the first quarter posted an average earnings drop of 92 percent, trailing analysts’ estimates by 14 percent, according to Bloomberg data. That compares with a 46 percent profit slide for Europe and a 31 percent fall for the S&P 500, Bloomberg data show.

What about valuations? Are investors paying too much for growth? The MSCI emerging markets index trades at 15.6 times reported earnings, compared with just over 14 for the S&P 500, according to weekly data compiled by Bloomberg. When developing nations last commanded a premium, the 22-country benchmark sank 54 percent in the next year.

But there are some that feel that this premium is now justified with banks in Asia generally healthy compared to developed countries and the growth potential of emerging markets going forward. Using a peg ratio whereby a market’s price earnings ratio is divided by its growth rate, many emerging markets still look attractive.

Another opportunity may be investing in China’s H shares that trade in Hong Kong. Some estimate that they trade at about a 40% discount to the A shares for the same companies trading in Shanghai and Shenzhen. iShares FTSE/Xinhua China 25 Index (FXI) is a basket of 25 of these companies and is up 4.6% at mid-day trading.

It’s hard to fight this kind of momentum but investors need to stay on top of these markets and manage the risk. Be wary of getting carried away with China’s and emerging market bull markets. The MSCI emerging-market index had 13 bull-market rallies of at least 20 percent and 12 bear-market declines of the same magnitude according to data compiled by Birinyi Associates. That compares with five bull markets and four bear markets for the S&P 500 during the same period.

Enjoy the sizzle but watch out for the burn. The sting may be in the tail.

ETF Trend Changes 7-24-09

July 27, 2009 5:21 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

ETF Pick of the Week:Sweden(EWD)

July 31, 2009 12:04 pm

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

iShares MSCI Sweden (EWD)

Rationale and Overview:

The main rationale for recommending Sweden (EWD), which is weighted only 1% in the MSCI World index, is its relative value despite being right at the top in terms of performance this year – up 33%. Trading at just over ten times earnings, it seems oversold compared with many other European developed markets trading in the mid and high teens as well as some emerging markets such as Mexico at 18 times, Taiwan at 25 times, and India at 21 times earnings.

The top company in the Sweden ETF (EWD) is the telcom equipment maker Ericsson which accounts for 15% of the basket. Ericsson is a much stronger balance sheet than its peers. Just over 40% of all telephone calls worldwide go through an Ericsson system. Other top companies in the Sweden ETF include Sandvik, Volvo and Atlas Copco. About 50% of EWD’s exposure is to the financial and industrial sectors.

Sweden’s big banks, namely: Nordea, Handelsbanken, SEB, and Swedbank all have some non-performing loan problems especially with their Baltic borrowers but recent earnings reports indicate that the situation is under control. Consumer confidence is now off the lows hit in the first quarter of this year, increasing for the second consecutive month in June and Sweden’s business confidence indicator also improved - for the third straight month in June. Retail sales are also climbing albeit from a low base. Another great aspect of Sweden is the he Swedish central bank (Riksbank),the oldest central bank in Europe and is a fierce inflation fighter.

Sweden’s reputation as a big spending, high tax state might also be due for a re-valuation. While government spending, even excluding investment outlays, were boosted from 22% of gross domestic product in 1970 to 30% in 1980, the number has come back down. Sweden’s finance minister Anders Borg is pushing Sweden in the opposite direction, encouraging the legislature to cut taxes, cap spending and privatize parts of health care according to recent Forbes interview.

“If you’re working yourselves upwards in taxes and deficits, we’re working ourselves downwards,” says Borg. In 2009, Sweden’s government is projected to have gross financial liabilities equal to 57% of GDP while the debt he debt of U.S. government entities, by contrast, is expected to be 100% GDP by next year, versus 63% in 2007, says the Organization for Economic Cooperation & Development.

Catalyst: The main catalyst is relative valuations and the momentum of Sweden’s market. The recent Swedish banking earnings reports were, on balance, positive and the expected global economic recovery should buoy Swedish companies in the industrial sector.

Receive your own ETF Pick of the Week each week by joiningChartwell ETF today. The ETF Picks of the Week so far this year are up 19.6% and 24.9% with recommended 8% trailing stop loss in place.

The Chartwell ETF Focus List equally weighted is up 14.85% so far this year.

ETF Trend Changes 7-31-09

August 3, 2009 7:55 am

The following Exchange Traded Funds are changing trends. Exchange Traded Funds changing to Buy require that the fund be trading above its key moving averages. Conversely, Exchange Traded Funds changing to Sell require that the fund be trading below its key moving averages. Lists are not ordinal.

Please Note: The Tactical suggested prices are the signal prices while the actual entry and exit points should be determined by your trading strategies. For more information on this report and MarketMetre, please click here.

Indonesia (IF) a Hidden Gem

August 10, 2009 7:36 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Around The World with ChartwellETF

August 17, 2009 10:57 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

vol06-iss101

Chartwell ETF Pick of the Week EUM up 4.2%

August 17, 2009 11:02 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

In fact, EEM is up just over 50% for 2009 compared to 11.2% for the S&P 500 index.

Keep in mind that the MSCI Emerging market index has had five times more 20% pullbacks than the S&P 500 index since 1987. Not only have these markets come a long way fast, Valuations have become a bit toppy especially for India, Mexico and China.

One way to look at investing, especially in emerging markets, is akin to a stop light. When valuations are low and nobody is interested or talking about emerging markets, this is a green light. When valuations are high and returns have been stellar and everyone is talking emerging markets, this is a red light to sell.

We are at least in a yellow light stage so hedging is appropriate. Keep but lighten up on some of your emerging market positions but add a dash of EUM to your portfolio in case they move the other way.”

Three Strikes Against New Vietnam ETF

August 19, 2009 9:52 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

The new and long-awaited Vietnam ETF has hit the market with much fanfare.

Unfortunately, it has three strikes against it.

But first here is some basic information on the Market Vectors Vietnam (VNM) as the first U.S.-listed ETF dedicated to Vietnam. It will track the Market Vectors Vietnam index which contains companies that generate at least 50% of their revenues in the country, with financials, energy and materials getting the top weightings. Vietnam represents 67.9% of the index; Singapore, 7.5%; United Kingdom, 6%; Malaysia, 5%. Canada, South Korea, India and Thailand are also represented.

The underlying index, Market Vectors Vietnam Index, currently has 28 constituents. To qualify, companies must generate at least 50% of their revenues from Vietnam or hold a dominant position in the Vietnamese market. Today, that means that about 70% of the index is composed of locally listed companies, with the other 30% being comprised of companies from Singapore (7.5%), United Kingdom (6.0%), Malaysia (5.1%), India (4.7%), Canada (4.5%), and others.

Currently, sector exposure is heavily tilted toward financials at 36.7%, followed by energy (19.1%), materials (12.3%), industrials 12.2%, and consumer staples 10.8%. The top holdings include Viet Nam Dairy Products (11.2%), Hoa Phat Group (7.3%), Saigon Thuong Tin Commercial (7.3%), HAGL (7.3%), PetroVietnam Fertilizer & Chemical (5.5%), and PetroVietnam Drilling and Well (4.7%).

Expenses for the new ETF are estimated to be 1.42% but will be capped at 0.99% until May 2010.

Proponents of investing in Vietnam base it largely on its growth potential. The country has a population that is relatively young with about half of its 90 million citizens under the age of 25. Given the right pro-market growth policies, this could lead to strong economic growth. The Vietnamese economy grew an estimated 3.9% in the first six months of 2009 from a year earlier, and a total of 5% growth is estimated for this year.

Now back to the three strikes.

The first is timing. Based on relative valuations, we are at best at the stage of a yellow caution light and most likely a red warning light when it comes to new investments in any emerging market. This is no fault of Van Eck Global that faces and long regulatory tunnel in bringing new ETFs to market.

The second is political. If one distinguishing facet of some emerging markets is a system based on relationships rather than rules, Vietnam is at the extreme. I do not know why investors would want to take on the political risk of Vietnam and believe its record on political and economic freedom is out of line with other more successful and promising models and markets.

This brings me to the third strike against Vietnam. It is not Indonesia.

Members of Chartwell ETF and Seeking ETF Alpha know that Indonesia offers investors the same growth potential and young population as Vietnam but with the advantages of being a democracy, the fourth largest population in the world, ample natural resources, a consumer-led economy, and substantial opportunities for huge increases in industry and exports if it clamps down on corruption and opens up more to foreign investment.

Therefore, my advice, after the sharp pullback in emerging markets is over, is to skip Vietnam and travel to Indonesia (IF) which, by the way, has been a stellar performer this year.

The Risk-Wise Investor: How to Better Understand and Manage Risk

August 24, 2009 4:07 pm

Mike Carpenter

Here is a book that will be published in September that is sure to be a best seller.

The new investor book The “Risk-Wise” Investor - How To Better Understand and Manage Risk published globally by John Wiley & Sons, Inc. September 2009. The book introduces a new, user-friendly, practical, non-technical approach to better manage risk.

A few words from the author…..

My purpose in writing it is to help advisors and investors everywhere better understand and more effectively manage the risks of our rapidly changing and less certain world. The book introduces a totally new, user friendly, non-technical way for advisors and investors to better understand and more effectively manage accelerating change, uncertainty, and risk.

Implemented properly, the method outlined in the book will help investors reduce the likelihood and impact of unpleasant and painful negative surprises, convert many worrisome risks into inconveniences and even potential opportunities. It will also help investment firms and advisors who implement it to convert elevated investor anxiety and concerns about uncertainty and risk into powerful business building forces instead of business impediments.

To reserve your copy now. click here.

Forbes Asia Expert’s Blueprint for a New American Century is Red, White & Bold

August 27, 2009 11:02 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Carl Delfeld, Forbes Asia columnist and global investment strategist’s new book, Red, White & Bold: The New American Century, takes dead aim at renewing America’s prosperity and global leadership while pointing the way forward for the Republican Party.

“Carl’s perspective is truly unique and insightful in understanding the global economy and the geopolitical situation today, which is why this book is so helpful and timely.” Steve Forbes

“Delfeld’s conservative blueprint to renew America’s prosperity is right on the money.” Larry Kudlow, Host of CNBC’s Kudlow & Company

Without question, this can and should be a new American century.

This is decided view of global investment strategist and Forbes Asia columnist Carl Delfeld who closely follows America’s potential global challengers.

Delfeld believes that our future lies in our hands rather than in Beijing, Brussels or Brasilia. America’s edge is its indomitable “why not?” attitude as well as its openness and opportunity for second chances. Deep in the DNA of America is the ambition for success and the drive to stay “first among equals.”

Red, White & Bold: The New American Century, takes dead aim at renewing America’s prosperity and global leadership role while pointing the way forward for the Republican Party. This means thinking big and understanding the “guts” of America’s strength and resiliency.

Red, White & Bold: The New American Century addresses the following key themes:

Will America remain the world’s preeminent power?

Could China challenge our leadership or will it hit a giant speed bump?

Can America avoid the low growth, high debt fate of Japan?

How can America rebalance and put in place a pro-growth agenda?

Learn how America can stay a dynamic global leader by following a pro-growth economic agenda based on America’s ten winning traits, rebalancing eight key relationships such as complexity & simplicity, dependence & self reliance and unity & diversity. Carl also advocates growing with emerging markets, pursuing a realistic China policy, and executing a forward-leaning trade policy as well as a conservative foreign policy.

Specifically, Delfeld calls for a simple one-rate tax structure that will unify the country, spur growth, reduce barriers to capital flows and innovation as well as eliminate our national debt in thirty years. He also wants to unleash America’s entrepreneurial spirit with a five-year federal tax holiday for new startups with less than 25 employees, and a doubling of exports during the next decade by growing with emerging markets.

Delfeld also makes the case that to move forward, we need to look back to George Washington, Alexander Hamilton and Abraham Lincoln for they left us a blueprint to remain the strongest, the most prosperous and the most independent, respected, and influential nation on earth.

We just need to follow it to build both a new American century and a resurgent Republican Party. To build on the ideas in his book, Delfeld has launched a new economic think tank, AmericaUnbound.org

Delfeld is head of the financial publisher Chartwell Partners, writes the “Global Gambits” column for Forbes Asia and is the author of four books on global investing. He was a vice president with Robert W. Baird & Company opening markets in Tokyo, Sydney and Hong Kong. Carl served as an international economist with the Joint Economic Committee and as a consultant on emerging markets with the U.S. Treasury before representing the United States on the Executive Board of Directors of the Asian Development Bank in Manila during the administration of George H. W. Bush. He earned a Masters Degree from The Fletcher School of Law & Diplomacy followed by study at Keio University as a Japanese Government scholar.

To reserve your copy now. click here.

Japan 360

September 14, 2009 10:25 am

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

I went to Japan to learn the secrets of its success. Now, thirty years later, I have written a book, founded a think tank and crisscross America preaching that we must not follow its failed policies and tragic fate.

It seems like yesterday that I first went to Tokyo’s Sophia University where I studied Japan’s language, history, culture, literature and economics. I then underwent further language studies at Harvard, Asian studies at the Fletcher School of Law & Diplomacy followed by a Japanese Government scholarship for further study at Keio University.

Japan and the Japanese economy were riding high in the
1980s. The bestseller Japan Is #1 was the talk of the town, companies around the world were rattled by seemingly invincible Japanese companies like Sony, and U.S. congressmen were clamoring for protectionist legislation.

As late as 1989, Japan seemed simply unstoppable. No less than David Halberstam included in his book The Next Century part of a speech he gave in early 1989 before the governors of the fifty states of the Union:

“If there were any purely economic model for the future, it was the Japanese. They were a fierce and relentless competitor; it was now quite possible that they were setting the standards for other nations in terms of being a well-educated, industrious, disciplined society. “

Later that very year, the Tokyo stock market hit its apogee and then things fell apart.

How hard has been Japan’s fall from grace?

In 1989, Japan’s per capita income ranked fourth in the world, now it is fourteenth. In 1989, the Nikkei stock index was 38,915, now it is 10,473. In 1989, Japan had $2.2 trillion of public debt, now it has $9.1 trillion - equal to an astounding 190% of its GDP.

Speaking of GDP, statistics from the Cabinet Office show Japan’s economy was the same size last year as it was in 1996. During that same period, the United States economy grew more than 50 percent.

What happened? A banking crisis, combined with a real estate meltdown, led to a sharp and prolonged recession and the much-talked-about “Lost Decade.” In an attempt to put off the inevitable pain, the government and the banking system failed to aggressively confront its bad loans. Politicians avoided tough choices instead launching a series of ten stimulus packages and interest rates were brought to zero. Policies continued to support the large multinationals at the expense of smaller business, regulations continued to stifle competition and innovation, and taxes were raised just as a recovery began to take hold in 1997.

In short, the political system could not adapt, consumers stopped spending and companies ceased investing. Many of Japan’s previous advantages, its education system, government/big business ties, political stability, dependence on exports, and cultural unity led to inflexibility and paralysis.

After much reflection, I have decided that there are broader, deeper reasons for Japan’s economic morass. It is a bit different from the conventional wisdom that Japan responded too slowly to the crisis or that it was the result of a series of policy blunders by Japan’s vaunted technocrats. We need to dig deeper to get at the cultural reasons for Japan’s collective
loss of confidence.

First, when a country has a head of economic momentum, when the wind is at its back, many shortcomings can be put aside to be dealt with another day. For Japan, this was the cozy cross-holdings of shares, which tied its great industrial groups together, normally with a large bank at its core. As the economy and share prices declined, these arrangements proved to be too inflexible to adapt.

Japan’s politics was also deeply entrenched, and the ruling Liberal Democratic party’s (LDP’s) incredibly close ties to corporate interests prevented it from acting independently and aggressively. Only a brief respite, during the leadership of Prime Minister Junichiro Koizumi from 2001 to 2006, breathed some fresh air and initiative into Japanese politics. That this is the period of more growth and the stock market rebounded is not a coincidence to me.

Japan’s political system has proven to be a major handicap in reacting to its reversal of fortunes. Karel Van Wolferen in The Enigma of Japanese Power vividly describes how there is no ultimate leader or power center that can take decisive action. The one-party dominance of Japan’s Liberal Democratic party is also an illusion, since it has relied on many conflicting constituencies in order to win elections. In short, there is no place in Japan where, as Harry Truman put it, “the buck stops.”
We will see if the newly elected Democratic Party of Japan (DJP) represents real change or a just a change of hats.

Most importantly, as it sank in that a quick economic recovery was not in the cards, Japan incrementally lost its confidence.

The swagger of the 1980s was replaced by a downcast attitude of survival. The Japanese financial system became known for its “zombie” banks, Japanese families hoarded cash and invested overseas, and Japanese companies were preoccupied with cutting costs rather than expanding domestic markets.

The rise of China accelerated Japan’s loss of self-confidence.
While expanding exports to China and America gave the
Japanese economy some life, the current global slowdown
is crippling its single-engine export machine. The Japanese economy is battered by its worst economic contraction in thirty-five years and a recession that may be the worst in fifty years. According to Japan’s Ministry of Finance, the country’s industrial production and exports may fall 30 percent, and its GDP could drop as much as 10 percent in 2009. Toyota is experiencing its first losses since 1938, as every digit of yen appreciation results in an additional $450 million in operating losses.

All this negative news has also destroyed the confidence of the Japanese consumer. Between 2001 and 2007, per-capita consumer spending increased only a minuscule 0.2 percent. Here are just some indications of Japanese miserly ways: Many use old bath water to do laundry, sales of whiskey have fallen to a fifth of their peak, and car sales have fallen by half since 1990.

And just as American economy has been overly dependent on the consumer (and now government spending) as its primary economic growth engine, Japan is overly dependent on exports. “Japan is so dependent on exports that when overseas markets slow down, Japan’s economy teeters on collapse,” said Hideo Kumano, an economist at the Dai-Ichi Life Research Institute. “On the surface, Japan looked like it had recovered from its Lost Decade of the 1990s. But Japan in fact entered a second Lost Decade—that of lost consumption.”

In contrast its traditional lifetime employment, about a third
of Japan’s labor force has been transformed into temporary workers who have no job security and fewer benefits.
Japan’s aging population also poses a significant headwind to growth. Retiring baby boomers are just not spending as expected. Japan’s population has been falling since 2005 and its low birth rate means that there will be fewer working-age taxpayers to support a growing numbers of retirees. In 2005, there were three working people per pensioner; that ratio will drop to 1.8 by 2040, according to the Health Ministry.

America can only avoid the high debt, low growth fate of Japan by a doubling down on the ten traits that have made it “first among equals”. These traits are in dire need of renewal and relationships such as simplicity & complexity, dependence & self-reliance, and responsibilities & rights need to be rebalanced. Above all America needs a big “why not?” pro-growth agenda rather than the business as usual, frugal consumer, big government model that has decimated Japan’s once envied economy.

Delfeld is head of the financial publisher Chartwell Partners, writes the “Global Gambits” column for Forbes Asia and is the author of four books on global investing. He was a vice president with Robert W. Baird & Company opening markets in Tokyo, Sydney and Hong Kong. Carl served as an international economist with the Joint Economic Committee and as a consultant on emerging markets with the U.S. Treasury before representing the United States on the Executive Board of Directors of the Asian Development Bank in Manila during the administration of George H. W. Bush. He earned a Masters Degree from The Fletcher School of Law & Diplomacy followed by study at Keio University as a Japanese Government scholar.

To reserve your copy now. click here.

Thinking Small and Global

September 23, 2009 2:09 pm

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

My first job in the investment business was as an institutional broker for Robert W. Baird which was a specialist in small cap stocks based primarily in the Midwest. Off I went to Tokyo, Hong Kong and Australia with my bag of stock ideas. Many Japanese institutions were hesitant but Hong Kong and Australian money managers were intrigued by companies they had never heard of before.

It seems to me that many otherwise smart global investors using ETFs as a core investment tool also overlook the small cap sector. A basket of small caps in an ETF somewhat softens the higher risk that comes with small cap investing. The big attraction is of course, the chance for much higher returns.

Smaller companies, primarily because of their lack of visibility within the investment community, often experience a “valuation gap” between their stock prices and their underlying fundamentals. This is the opportunity and for international companies and especially emerging markets, this gap can sometimes present tremendous opportunities if you do your homework.

Here are some of the characteristics of small cap stocks – all of which present opportunities and commensurate risks.

Smaller Capitalization and Low Trading Volume

Small caps tend to be thinly traded and, while this is a characteristic that can work both ways, it often presents a huge opportunity for shrewd investors. As the company grows its revenues and earnings over time and the public becomes more aware of its existence and future growth prospects, demand for the stock can jump sharply as demand for a limited amount of outstanding stock increases.

Potential Discovery by Analysts

There are about 35 different analysts covering a major stock like P&G but many small cap stocks are hardly covered at all and when one does get picked up by a prominent analyst, the results can be surprising.

Opportunity for Institutional Support

When large institutional investors learn about a new company with solid growth potential and good management, they often times begin building positions and this can have a marked impact on stock prices. I recall many instances of a good presentation at an investment conference resulting in a small cap stock soaring. Of course a poor presentation or just plain disappointing news can send it the other way as well.

Flexibility & Growth Potential

Smaller companies can seize new opportunities and change direction quickly while quickly while Google’s Eric Schmidt laments that big companies were like aircraft carriers or cruise ships, “they take a long time to change direction.”

The management of these companies tends to be more entrepreneurial and less bureaucratic. There is less corporate infighting since everyone knows each other on a personal basis. Many smaller companies cannot offer mega salaries and stock options are a very powerful performance motivator. The ability to be nimble enables a small company to seize opportunities much faster than its large cap brothers. This means potential double digit growth, not plodding 3-4% growth.

The Potential for Acquisition

Of course big companies and their balance sheets do come in handy as partners or, even better, when they swallow a small company at a hefty premium to market value. This means a nice payday for investors as well. Even if an acquisition does not take place, just the thought of it can be a nice level of support for a stock in a promising sector.

Global Small Cap ETF Opportunities

You can imagine carrying the above points worldwide opens up an unbelievable number of potential small cap opportunities.

•Over the past five years, 2,000 new companies have listed in the Asia-Pacific region’s stock markets.

•There are now 6,000 companies with a market cap less than $3 billion listed in America versus 8,000 listed in Asia ex-Japan.

•During the last five years small cap company IPOs have raised $116 billion.

•Access to credit, transparency, professional management and listing quality have all improved.

•Claymore China Small Cap (HAO) 2009 performance is double that of China large cap (FXI).

•Van Eck Brazil Small Cap (BRF) offers 40% exposure to consumer staples and discretionary sectors while (EWZ) closely follows commodity and material sectors.

Interestingly, small-cap companies have actually rallied more strongly than large caps since the March lows of this year.

The MSCI All Country Asia ex Japan Small Cap Index rose 68% from March to August, outperforming the MSCI All Country Asia ex Japan Large Cap Index by 21 percentage points. Initial Public Offerings (IPOs) also improved with improved liquidity and risk appetite—more than 130 small companies have listed since January this year.

The growth is not just in Asia. Over the past five years, more than 2,000 new small companies in various industries have raised more than US$120 billion through IPOs. Of those, consumer-related companies account for almost a quarter, and capital raised has been used to expand growth potential by expanding capacity, sales networks and distribution channels. You might also be surprised by how global oriented many of these smaller firms are. They seek growth on a global scale that matches their ambitions.

Companies are also spending more on brand building. The new focus on domestic demand may prove an important structural change in the environment for small companies. For many, it will be easier to thrive in their home markets, unshackled from the domination of multinationals—it is these long-term strategic considerations that are important, rather than a fixation on short-term earnings momentum.

For most investors, a shotgun approach may be best for their foreign small-cap exposure.

The WisdomTree International Small-Cap Dividend ETF (DLS) follows small-cap, dividend paying stocks in the industrialized world outside the U.S. and Canada. WisdomTree weights the companies in its basket based on annual cash dividends paid. Due to the dividend nature of the index, the fund focuses on value stocks. The ETF’s holdings are broken up in a variety of sectors with industrials being the largest at 31%. The fund also has a 30% weighting towards Japan with the United Kingdom and Australia rounding out the top three. The fund currently yields 5.6% and has an expense ration of 0.58%.

Another ETF option for more growth-oriented investors is the SPDR S&P International Small Cap (GWX). This ETF has larger weightings towards consumer discretionary and technology sectors as well as more basic material companies. Again, Japan is its largest country weighting at 35% and GWX also includes exposure to Canadian companies. GWX expenses are only 0.59% and the ETF yields about 2%.

Don’t forget emerging market small cap ETFs. Keep in mind that they can be as volatile as they are explosive and please pay close attention to country weightings. The SPDR S&P Emerging Markets Small Cap (EWX) offers the following country weightings: Taiwan 28%, China 12%, Brazil 10%, South Africa 10%, and India 10%. EWX has been the better performer of the two emerging market small cap funds largely because of its high weighting to Taiwan, no exposure to South Korea and inclusion of Brazil. Another choice is the WisdomTree Emerging Markets SmallCap Dividend Fund (DGS) ETF with the following country weightings: Taiwan 28%, South Africa 16%, Malaysia 10%, Thailand 9%, and South Korea 7%.

If you go with DGS, you may wish to supplement it with some country-specific ETF such as the Market Vectors Brazil Small-Cap ETF (BRF) that is a better bet than the more widely held large cap EWZ simply because it offers access to Brazil’s consumer products and services sector while EWZ is slanted toward a few big names and the materials sector. The fund is up nearly 140% year-to-date.

And while big name dominated China ETFs such as FXI have bounced back strongly, it has been surpassed by a wide margin by its small stock sibling Claymore/Alpha Shares China Small Cap ETF (HAO). HAO has 134 holdings and helps steer clear of the heavy hand of the Chinese mandarins. It is easy to forget that 34 of the top 35 companies listed on the Shanghai Stock Exchange are either owned or controlled by the Chinese Communist Party.

Small cap investing is anything but small.

Delfeld is head of the financial publisher Chartwell Partners, writes the “Global Gambits” column for Forbes Asia and is the author of four books on global investing. He was a vice president with Robert W. Baird & Company opening markets in Tokyo, Sydney and Hong Kong. Carl served as an international economist with the Joint Economic Committee and as a consultant on emerging markets with the U.S. Treasury before representing the United States on the Executive Board of Directors of the Asian Development Bank in Manila during the administration of George H. W. Bush. He earned a Masters Degree from The Fletcher School of Law & Diplomacy followed by study at Keio University as a Japanese Government scholar.

To reserve your copy now. click here.