(Before we get to the article I just want to say that for the long term investor with a self-directed retirement account (IRA, 401k), there are some tremondous bargains. The world is not ending and if your time horizon is 5 years or more, you should start doing your due diligence and start search for those bargins, some of which you may never see again. Now on with the Essay.)

Determine Your Risk Tolerance

Each individual has a risk tolerance that should not be ignored. Any good stock broker or financial planner knows this, and they should make the effort to

help you determine what your risk tolerance is. Then, they should work with you to find investments that do not exceed your risk tolerance.

Determining one’s risk tolerance involves several different things. First, you need to know how much money you have to invest, and what your investment

and financial goals are.

For instance, if you plan to retire in ten years, and you’ve not saved a single penny towards that end, you need to have a high risk tolerance – because you

will need to do some aggressive – risky – investing in order to reach your financial goal.

On the other side of the coin, if you are in your early twenties and you want to start investing for your retirement, your risk tolerance will be low.

You can afford to watch your money grow slowly over time.

Realize of course, that your need for a high risk tolerance or your need for a low risk tolerance really has no bearing on how you feel about risk.

Again, there is a lot in determining your tolerance. For instance, if you invested in the stock market and you watched the movement of that stock daily

and saw that it was dropping slightly, what would you do? Would you sell out or would you let your money ride? If you have a low tolerance for

risk, you would want to sell out… if you have a high tolerance, you would let your money ride and see what happens. This is not based on what your

financial goals are. This tolerance is based on how you feel about your money! Again, a good financial planner or stock broker should help you

determine the level of risk that you are comfortable with, and help you choose your investments accordingly.

Your risk tolerance should be based on what your financial goals are and how you feel about the possibility of losing your money. It’s all tied in together.

If you are anxious to get your investments started, you can get started right away without having a lot of knowledge about the stock market. Start by being a conservative investor with a low risk tolerance. This will give you a way to making your money grow while you learn more about investing.Start with an interest bearing savings account. You may already have one. If you don’t, you should. A savings account can be opened at the same bank that you do your checking at – or at any other bank. A savings account should pay 2 – 4% on the money that you have in the account.

It’s not a lot of money – unless you have a million dollars in that account – but it is a start, and it is money making money.

Next, invest in money market funds. This can often be done through your bank. These funds have higher interest payouts than typical savings accounts, but they work much the same way. These are short term investments, so your money won’t be tied up for a long period of time – but again, it is money making money.

Certificates of Deposit are also sound investments with no risk. The interest rates on CD’s are typically higher than those of savings accounts or Money Market Funds.

You can select the duration of your investment, and interest is paid regularly until the CD reaches maturity. CD’s can be purchased at your bank, and your bank will insure them against loss. When the CD reaches maturity, you receive your original investment, plus the interest that the CD has earned.

If you are just starting out, one or all of these three types of investments is the best starting point. Again, this will allow your money to start making money for you while you learn more about investing in other places.

Check them out, they’re free………..it can’t hurt.

My suggestions…and they are only suggestions:

Citigroup (c)

Wells fargo (WFC)

General Electric (GE)

Novartis

Merck

Any Water Distribution Companies

………will post some specifically this week end…..I’m back from vacation and will start posting regularly again.

Cheers

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The United States Save The World Financial Markets………We Hope

That, is essentially what the US administration and Congress are trying to do. 

Those that follow this blog know that I don’t follow or trade news, to me its all built into the daily charts, simple I trade, ……………but I feel I have to chime in on the events of this week.

These are just my personal thoughts and speculations.

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What was witnessed in the last seven days will not be witnessed again by anyone alive today.

THAT, is how big this is/was.

In my humble opinion, we were days away from a Global Banking Meltdown that would have seen many major banks and corporation simply disappear into bankruptcy.

A Summary if you will…….

On top of Bear Stearns deal, the historic monetary policy moves by the Federal Reserve Bank’s Board of Governors and Ben Bernanke, and last but CERTAINLY not least, the federal bail out of Fannie Mae and Freddie Mac…………..we add the following events of this week for your reading pleasure……

Lehman is gone

Merrill Lynch is now owned by BofA

Morgan Stanely is about to merge with some other bank……

That’s three of the top five Wall St Bankers, gone or part of other entities.

AIG,  which it turned out, was THE weak link, is now owned by the Fed/Treasury

….and we, in all probability, averted at least one MAJOR Money Center Bank (read Citi, in my opinion), from failing by the end of next week.

Not one of those Lehman Holdings bankruptcies, where the subsidiaries are allowed to be sold off……………………..

Nope, this would have been announced on a Friday after 6PM Pacific Time, and which ever bank it was, would have re-opened with “federal” in it’s name on Monday morning. (Remember FDIC insurance covers only personal accounts up to $100,000.00 per depositor/bank.  If I have four $100K accounts, $400k in total, I only get back $100k…………….and businesses lose everything.)

We know it would not have been JPMorgan Chase, the Fed is already partner’s with them on the Bear Stearns theft,….uhhh., I mean “deal”.

Bank of America just bought Merrill so that’s not it.

WellsFargo is a solid bank, not in any real trouble, so its not them.

Maybe it would have been foreign, like UBS………possibly

My bet is still on Citi though, and THIS IS NOTHING BUT MY OPINION AND ITS BASED ON NOTHING OTHER THAN PURE SPECULATION ……hello, big brother, I’m talking to you.

Breaking the Buck

The sign that something had to be done immediately came late Tuesday/early Wednesday when the Reserve Primary Fund, one of the world’s largest Money Market Funds BROKE THE BUCK!!!!!.

To “Break the Buck” essentially means that the value of your money market fund at the bank was reduced from $1.00/dollar deposited, to in this instance $0.97. That’s essentially devaluing the USD by 3%.

I don’t care what any one says, the “breaking of the buck” by more Money Market Fund Managers this coming week, would have begun a run on the major banks. 

Money Market depositors are usually happy with their small but “guaranteed” interest from Money Market accounts, but they never stop to think that ………………….hey it is a fund, ………………its value could go down.

Their next statement would have shown the value of their Money Market Savings accounts go DOWN, ………negative NOMINAL INTEREST RATES.

We’ve had negative real interest rates for a while but negative nominal, where it costs you money to keep your money in a Money Market Fund.

Had the US Government sat on their hands, in my opinion, the runs on major banks, throughout the world would have been apocalyptic.

I think there would have been a world financial collapse so fast and so swift that many of the larger economies of the world would have been thrown into a decades long depression, in my humble opinion.

I noticed something was weird early in the week when my ECNs were quoting me ridiculously wide spreads most FX Pairs, relative to last week

Why?…………..it turns out some big FX dealers (read Global Banks) had backed out of the market, either partially or completely, to see what was going to happen. Which ever bank makes a big market in the Pound was probably one of the Interbank dealers that sat out, because I was getting 12 pip spreads and Cable, 18 on the Guppy and more on Sterling/Swiss.

What does all this mean to FX traders next week…………..more on that later.

Whoosh, sorry for the long post.

Mr Bernanke today finally demonstrated that he is not prepared to cow-tow to what WallSt. wnats and will do what he thinks is best.

Ben, you just became a man.

Why?………he knew Merrill was next…………and so did the Fed/the Treasury and the government knew letting Merrill fail was unacceptable, it would have led to a systemic collapse, in my opinion. 

If you were monotoring the news on Sunday here in the US, you heard many reports about the fact that Barclays and BofA had each backed out of buying Lehman, because they couldn’t obtain “guarantees” on the value of Lehman’s assets.

Now, let me ask you,,,,, who, besides the Fed (US Treasury), could even pretend to be capable of that kind of guarantee?

So how did it all go down?

In my humble opinion it went like this:

Paulson and Bernanke decided it was cheaper for them and much less dangerous to the ”markets”, to let Lehman fail, than to let Merrill Lynch, the largest US Brokerage house, to fail, and they made sure all the meeting’s participants knew it.

So the officials gathered tried to work a deal to save Lehman without using government money or guarantees, the way the Fed did with the Bear Stearns deal. That didn’t work so Barclay’s and BofA pulled out.

Then, John Thain and  Mr. Lewis, BofA CEO, saw each other, standing across the room, like two high school sweet hearts at the prom,…………. knowing the government’s thought processes………….. and  decided to dance, knowing the US Government would help them out if they needed it in the future………………..there is no doubt in my mind that as far as the US government is concerned, BofA is too big to fail, no doubt.

The deal worked for everyone, Merrill saved itself and BofA got the premier broker on Wall St. for $18 in stock, they (BofA) didn’t part with a dime of cash.

Thain new he (Merrill Lynch) was next to fail and the Fed knew it too by mid Saturday, in my opinion, that’s why they let Lehman fail……… 

 What’s next?

AIG is negotiating a loan with the FED to avoid a Moody’s rating cut.

WaMu is on the brink of failing.

……………?

From  NYTime.com

Wall St. Goliath Teeters Amid Fear of Wider Crisis

Fearing that Lehman Brothers is only days away from collapse, government officials and senior Wall Street executives met on Saturday to try to arrest a downward spiral that might imperil other financial institutions.

For a second day, the group convened at the Federal Reserve Bank of New York in Lower Manhattan, but the situation remained fluid, and the talks were set to resume on Sunday morning .

Stay tuned for a response from BigBen and the Sec O’ Treas…

Everyone says this, but I say it for a different reason. I say it because part of investing is making a plan to keep your monthly cash outlays low and your inflows high. Investing isn’t just “putting”money into something, its maximizing the return on your time and effort, its investing in yourself.

In other words, you work 40-50 hours a week and you come home with X at the end of each month, isn’t planning how to keep the most “X” you can part of investing. I think it is, I work hard for my paycheck and I want to keep as much of it at the end of each month as I can. what I do with it after that is my business. I don’t mean to suggest a miserly life, on the contrary, I simply believe in putting a little extra time each week, maybe 2-5 hours a week,  looking over my finances and thinking about how I can make a better on return on my money and my time.