If you notice, education in any stream follows a certain pattern. A person wishing to become a doctor has to attend regular classes at a medical college, pass state licensure exams, and finally get a license approved for practice. So also with a person wishing to become a lawyer, a businessman, and so on. Now, if you have developed the desire to indulge in currency trading, you need not go to any college/school, but get counsel from an expert on how to go about the business.

To help you out, here are some “dos” and “donts” of currency trading, and why you should be cautious while going into business for yourself–

(1) As an option for investment, currency trading is definitely worth it. There are people who have accumulated a fortune in thousands, and sometimes even in millions! But they did not just jump headlong into the business! They did take time to grasp the basics and play the game with caution, before they finally achieved success.

(2) If you want to emulate their success, you have to enhance your own knowledge about the basics of this type of trade. These basics include–your duties and responsibilities regarding your employees, how to secure the necessary permits and other noteworthy factors. They should help you figure out what you should do regarding your business.

(3) Trade is a game of profits and losses, but you can neither be too cautious nor too foolhardy. Start with short-term goals and do not go for long-term success immediately. Develop a realistic attitude towards winning and losing.

(4) Currency trading is considered a high-revenue return market. But there are certain variables/factors that can have an impact on the business. How will you face such unexpected situations unless you are prepared for them? It is like committing suicide! So proceed with caution always.

(5) Coming to the actualities of the business, it is important for you to understand how the process works. As a trader or investor, you need to buy foreign currencies (as a pair) first. Then, sell them as a pair to other currency investors or traders.

This transaction takes place within the boundary of a pre-determined foreign exchange rate. This rate acts as a comparison between a pair of currencies, plus decide what is their actual market price from the other pair of currencies.

(6) You may wonder if currency trading also has a demand and supply pattern, like other kinds of trade? Yes, it has!

As a matter of fact, it is an economic law that governs the direction in which the price of a particular commodity or service moves in the market. For instance, if there is a high demand for a certain commodity but the product itself is in short supply, its price is bound to rise. In contrast, if the demand of that commodity has come down and there is excess supply, its price is bound to come down.

Similarly, if the supply is less and the demand is more, the market value of currencies will shoot up! And if there is more supply but less demand, the reverse is going to happen!

(7) So it is “demand” that will decide how a particular foreign currency will “proceed” in the future. The variables that could have an impact on this rise and fall in value include–gross domestic product percentage or GDP, and the current business trends in the market.

(8) There is no fixed currency exchange rate as of now. Hence, neither you nor anybody else can predict a permanency in the current foreign exchange market trends.

(9) In your haste to learn and get started in the business as soon as possible, do not fall prey to brokers who entertain you with pictures of profits just pouring in if you utilize the system that they are going to show you! There are genuine brokers too, of course! But do check out their backgrounds before you consider getting into a business partnership with any of them.

(10) There are plenty of stories about scams today, most of them centered round currency trading. Poor regulation of participants has been a primary cause. Secondly, “frauds” have gone around selling software that has proved to be totally useless, or opening accounts that will harm the investor or trader. These false brokers have ended up with millions in their pockets!

(11) Therefore, the best advice for you is to go in for expert advice where currency trading is concerned. There are professionals to be found in banks or large financial institutions, who are more than willing to help you.

Tags: loans, mortgage

Right now, the conventional wisdom seems to be that the United States is looking at a “U-shaped” recession and recovery. Output declined gently in the third quarter, is dropping sharply now and will continue dropping sharply in the first and possibly the second quarter of the New Year, finally bottoming out and beginning a slow recovery thereafter.

That’s the natural pattern that most recessions follow. However, this has been a pretty unnatural recession, with a number of highly artificial actions undertaken to fight it, meaning we must plan for the possibility that it won’t be a “U” pattern, but will instead follow a less-frequently seen pattern.

When you think about it, the alphabet presents a number of fun shapes, patterns or trajectories that an economic cycle might follow. There’s a slightly slanting J - a shallow downturn followed by an energetic, near-vertical upswing. There’s an L - a descent into the recessionary pit, followed by a total refusal to recover - kind of like an accident victim who flat lines on the way to the emergency room. There’s an O, round and round in circles, never going anywhere - you can think of that as being the typical pre-industry economy, without significant technological change.

When the Roman Empire collapses or the Industrial Revolution happens, you get a (possibly upside-down) Q, in which the economy escapes from the static O, to move down or up in the Q’s tiny tail. There’s an R - round in circles for a time, followed by a sharp descent into the economic mire: That’s static - albeit cyclical - economy, where some environmental disaster hits, causing output to tank.

There’s both the U and the V - the latter being an economic cycle where a slump is immediately followed by a sharp rebound, with no period of depressed activity at the bottom.

And of course there’s the W, the classic “double-dip” recession, like the one the United States experienced in 1979-82. W-shaped recessions can be further divided into two types: There’s the “lazy W,” in which the second downturn is worse than the first; and there’s the “energetic W,” in which a deep recession is followed by a shallower one that is barely a blip in a strong recovery.

The recession of 1979-82 was a slightly lazy W, whereas the 1929-41 Depression-era downturn can be thought of as a very deep energetic W, in which the second dip (1937-38) was still part of the same overall economic event, but was much shallower than the first.

Had the United States been on a gold standard with an administration determined to maintain budget discipline, the current unpleasantness - which started with a major banking crisis - would probably have followed a V-shaped trajectory. The banking crisis would have caused output to descend rapidly to a considerable depth. But once a bottom was reached, the U.S. economy would have recovered almost immediately, showing a period of extra-rapid growth as output returned to a normal trajectory.

That’s how it worked in pre-Keynesian gold standard days, when governments and business followed the downturn advice of onetime U.S. Treasury Secretary Andrew Mellon, who said it was wise to “liquidate everything.” The economy might descend to an unpleasant depth, but once it turned, the forces that would fuel the recovery were very strong. Thus, the recoveries after the recessions of 1893-96 and 1920-21 were both exceptionally vigorous by modern standards.

Most modern recessions are U-shaped, rather than V-shaped. When a recession hits, governments run budget deficits while central banks lower interest rates and allow the money supply to expand. That limits the depth of the downturn, but it also reduces the speed of the recovery, since the natural stimulus from a smaller downturn is weaker, while the government stimulus wears off after a while. That’s what we got in 1991 and 2001; in the latter case, the U.S. government stimulus, both monetary and fiscal, was very strong indeed, so the recession was extremely shallow, but recovery was exceptionally slow.

In 1979-82, we had a W-shaped recession. The first leg was caused primarily by U.S. Federal Reserve Chairman Paul A. Volcker’s now-famous attack on inflation, in which he boosted interest rates well above their normal level, and choked off economic activity. That caused the first dip, which was ended by monetary relaxation. However, monetary policy was tightened again in late 1980, so we got a second dip, which was not balanced by the usual fiscal stimulus, and so proved to be quite deep. Being deep, the second half of the W was followed by a strong recovery from 1983.

This time around, both the initial banking crisis and the fiscal and monetary stimuli have been exceptionally strong. That raises the possibility of a W-shaped double-dip recession. Initially, the stimulus may act like a shot of adrenalin, causing the downturn to abort and be succeeded by what seems like recovery. However, the stimulus must inevitably be temporary, and will produce both extra-rapid money supply growth and an extra-deep budget deficit. That is likely to lead to a second downward leg, this time accompanied by unpleasant inflation, as the “hangover” from the excessive stimulus is felt.

Even more unpleasantly, we could see an L shape - “Bloody L,” if you’ll allow me to use a British Cockney phrase, reflecting the unpleasantness of the outcome. That would result in a situation in which the ultra-low interest rates left in place too long fuel inflation, while out-of-control public spending produces deficits that permanently dampen growth, so recovery never really arrives at all.

That can happen: Japan in the 1990s had an L-shaped economic downturn, although with zero growth rather than a prolonged recession. More ominously, Argentina after 1945 transitioned quite quickly from a rapidly growing, buoyant economy into a global basket case, with occasional bursts of hyperinflation. That’s the worst-case scenario for the United States. It’s not likely, but neither is it impossible.

So what are we most likely to see? The factors causing short-term strength are currently powerful. The collapse in oil prices has caused retail sales to be considerably less weak than expected, stronger consumer confidence and leading indicators both point to an approaching economic bottom, and the stock market is up more than 10% from its November low.
Instead of a “worst” down quarter, the first half of 2009 may see a period of unexpected strength, with cheap mortgage money producing an apparent bottom in the housing market, a bottoming out and initial recovery in U.S. gross domestic product (GDP), and an additional bounce in U.S. stock prices.

Don’t be fooled if this happens (though by all means try and make a buck or two out of the short-term stock market bounce). The Obama “stimulus package” and massive federal government slush funds will exact a price - in the second and probably deeper leg of a lengthy lazy W recession - the much-feared “double-dip” downturn.

Tags: loans, finance

Let us analyze the volatility being faced in the Wall Street. Events moved at a quick pace with Lehman Brothers applying for bankruptcy, The Merrill Lynch sold to Bank of America, and the American International Group bailed out by the Feds. The Stock Market seemed deeply affected with the stocks crashing and the stock markets of Europe and Asia also plunging further. The prospects of a severe global recession became more evident.

The Treasury decided to invest USD 250 billion to boost the bank’s capital and to help buy the weaker banks. The stock markets performance induced the investors to carry on yen-trading, affecting the Dollar, the Euros and the British Pound, finally precipitating a plunge in the Tokyo stock market also. The British Prime Minister asked the government to invest heavily and his decision was supported by Germany, Switzerland, France and other countries. On October 29th, the Fed cuts its lending rate to a mere 1 % and the other international banks followed suit. This did boost the stock exchange, even if in short term.

Now, we face turmoil in the credit market, a subsequent reduction in deal-flow, a looming recession, and the pink slips have also begun to litter. Banks, Private Equity firms, law firms are announcing major lay-offs amounting to 220,000 jobs. Merrill Lynch, Citigroup, Credit Suisse, State Street, Carlyle, Barclays, Goldman Sachs and J P Morgan are a few to be named who are slashing their workforce between now and the last quarter. This Christmas is turning out be very bleak, indeed.

The Fed has used most of its available tool as far as the reduction in lending rate is concerned, by bringing it to near zero. The scenario now:

• The credit markets still needs fixing with the magic of the British Prime Minister having faded
• United States being accused of a tight fist
• Delays in price cuts may affect future supplies of the oils
• Fannie Mae to sign new leases to aid those facing eviction
• Money managers stranded with the investors using their cash to cover investments

We need to start where the problem originated from- the mortgages of the individuals, re-analyze, lower the principal balances, instead of lending more money to institutions and wasting the tax amounts. In the meanwhile, if a few more organizations fail, allow them to restructure from bankruptcy.

Until then, let us use these tips to act more wisely in the Stock Market:

• Investors will see positive gains from housing. Housing will stabilize eventually but is not a fast opportunity buck
• A spending package on infrastructure will see the stock market rally up
• Additional gains in assets will increase hopes, the oil and gold assets are increasing but the trend needs to be valued long-term
• We need some industry sectors to pull us back to a bull market. Currently, transportation sector is showing a positive trend
• Inflation-protection assets and weak dollar assets exhibit poor demand

Tags: finance, loans

The U.S. economy shrank 0.5% in the third quarter, marking the slowing pace since 2001 and continuing a still deepening recession that has wrung the markets since last year.

Dana Saporta, an economist at Dresdner Kleinwort in New York, told Bloomberg projects a 5.4% overall contraction in the fourth quarter.

“Some of the factors that led to negative growth in the third quarter will be amplified this quarter,” Saporta said. “We have negative growth factored into our forecast through the first half” of 2009.

According to Commerce Department figures, consumer spending fell 3.8% in the third quarter, a sharp contrast from the 1.2% increase in the second quarter – marking the biggest drop in 30 years.

Residential fixed investment, the gross domestic product (GDP) component that includes spending on housing, dropped by 16.0% in the third quarter after falling 13.3% in the second quarter.

Real nonresidential fixed investment decreased 1.7%, in contrast to an increase of 2.5% in the second
Fresh statistics from the National Association of Realtors suggest similar pain. Single-family home sales fell 8.0%, the slowest sales growth since July 1997. And the national medium home price fell 13.2% from last year to $181,300, the largest drop since the NAR started tracking statistics, and likely the largest decline since the Great Depression, said Lawrence Yun, the trade group’s chief economist.

“Falling home prices would lead to faster contraction in consumer spending and further deterioration in bank balance sheets,” Yun said in a news release. “More importantly, falling home values would lead to higher loan defaults, including those recently modified distressed mortgages.”

Tags: finance, mortgage

Natalie’s Three-Ingredient Investment Recipe for Cooking Up Profits

1. Start with what you know and love.

2. Pick the leader in the sector (in real estate, it’s location, location, location).

3. Buy low; sell high (easy to say; hard to do).

Any time a potential investment seems too complicated and twists your mind into endless debates, go back to the simplicity of this formula. If it doesn’t pass this test, just say, “Not now.” You still need more information before you can make a well-informed decision.

Be disciplined about following the recipe. You need all of the ingredients, and if you take the steps out of order, you could end up with a brick that sinks your profits rather than a cake that rises light and fluffy to Cloud 9. Since we all want to vacation on Cloud 9 before we’re ninety, let’s sharpen your skills and start cooking.

Step One: Start With What You Know and Love

The first ingredient is easy enough. If you want to invest in infrastructure in India, and you’ve never been there, you have to commit to visiting India and doing a lot of research or be disciplined enough to just say no to the investment.

Warren Buffett, one of the most successful investors of all time, is notorious for not investing in NASDAQ. He didn’t understand or care about technology enough to compete with his buddy Bill Gates (and conversely, Bill Gates is heavy in technology and lighter in insurance — one of Buffett’s fields of expertise). In the latter part of the 1990s, Warren was ridiculed for missing out on the rocket ship gains that the NASDAQ enjoyed. He missed the high and he missed the crash landing, and meanwhile, his returns chugged along for steady, reliable, strong gains.

What few people realize is that trading individual stocks is a tennis match. One person wins (buys low; sells high) and the other loses (buys high; sells low). A novice is a sitting pigeon for the master. Imagine stepping out on the tennis court with Roger Federer (who by the fall of 2008 had already won thirteen Grand Slam tennis titles) and expect to even see a ball coming at you. Very unlikely.

If you don’t know the first thing about a company or its product and you’re not excited enough to get savvy, why step on the court and humiliate yourself with a devastating loss to the pros? Instead, focus on long-term results and proper nest-egg diversification strategies, find the perfect broker (who is your second most important life partner), and tithe to the plan from every paycheck. The average returns of the stock market over the last twenty-five years have been over 11 percent (higher than real estate), so that discipline alone could make you a millionaire.

Over the years, I’ve come across a lot of people who say that they don’t know anything about anything, which is completely untrue. My police officer cousin found Taser International, my 2003 Company of the Year, which went on to earn up to 9,000 percent gains over the next three years. Whatever you do for a living gives you an insider’s view of something. Your cleaning lady or people on the janitorial crew where you work know why they like certain cleaning products over others. I use a carpet cleaner who has taken the trouble to become the expert on organic cleaning products. You have some passion and some expertise. I’m simply giving you a framework within which to use it.

Of course, just loving the product or the store doesn’t prove the stock is a good deal or that the company will continue to beat out the competition. That’s why there are two other steps.

Step Two: Pick the Leader in the Sector

The second ingredient is easy to come by when you line up the numbers in my Stock Report Card (see Chapter 6) and ask the Four Basic Questions for Picking Winning Stocks (Chapter 5).

For those of you who really have a taste for investing in individual stocks — and who hasn’t wanted to invest in some product that s/he loves! — picking the leader in a sector is not overly complicated. Picking the leader means that you have to take a devil’s advocate approach to the product that you know and love. There were people who were buying an interest in the leading maker of horse-drawn carriages just when Ford was releasing its first motor car. People were buying stock in Worldcom the year before Skype began giving away free long distance over the Internet. You have to determine whether or not the product, company or real estate will be valuable to buyers in the future.

Every month, I go through the exact same research and analysis on a different sector, employ this exact recipe, ask my four questions and inevitably there’s one company that’s leading the pack. And that company is usually pretty easy to identify because it shines in more than one category. Better yet: none of these strategies require earning a Ph.D. in economics or sitting at your computer watching the markets every day at the crack of dawn.

Interview your friends and neighbors on whether or not they like the product or service or prefer the competition. (Don’t ask your friends about the stock; ask them about the product. It’s their preferences as consumers/users of the good that you want to know, not their layman’s opinion on Wall Street strategies.) Ask them the four questions if you really want to get them to deeply consider their love of the product.

Remember: the CEO is the soul of the company. Get to know the CEO of the company you love and the competition a little better by researching some of her speeches online and/ or reading the CEO’s Note to Shareholders in the company’s annual report. (The annual reports should be available on the SEC.gov web site, as well as the company’s web site.)

Once you pick the leader in a sector, the final determination is simply whether or not you’re buying for a good price or paying through the nose.

Step Three: Buy Low, Sell High

The third ingredient in the recipe is largely a game of mastering your emotions as much as employing strategies for identifying the low and high prices.

Buying low and selling high is completely against human nature. Buying low means that when everyone is crying Apocalypse, you’re seeing Opportunity. Selling high means that you’re leaving the party at midnight (sober), while all the punch drunks are screaming that the party is going till dawn, and you’re going to “Miss out, man. If you just hang out a little while longer, imagine how much more fun you’ll have.”

No one has a crystal ball on when the low and high of an investment will occur, but there are a number of factors you need to consider before you make a buying or selling decision.

Calendar Trends
• Santa Rally
• Back-to-School Stock Sales
• Summer Doldrums
• Preelection Year Rally

Other Considerations
• Natural Disasters
• Small Caps for Performance
• Large Caps for Stability
• Exchange Traded Funds versus Mutual Funds
• Diversification and Asset Allocation
• Happy People Make Better Products Faster and Cheaper
• The Economics of Freedom
• Emerging Markets

Historical Performance

If you already have some market experience, you might be stunned to notice that I haven’t included P/E — price-to-earnings ratio — on this list. Yes, price-to-earnings ratio counts, but the above factors can be as important to determining the optimum buy/sell time as P/E is. When you read the P/E discussion later in these pages, you’ll start understanding why.

If you don’t know price-to-earnings ratio from hieroglyphics, don’t worry. It’s not difficult to understand “Never Pay Retail” and “Buy Low, Sell High.” It’s pretty easy to find out what the 52-week high and low prices are or even what the five-and ten-year highs and lows are, to use as a gauge. Start now with what you understand and accept that you will continue to gain knowledge as you keep reading.

Mastering The Three-Part Recipe-Water Your Money Tree: Your Brain

Write out the Three-Ingredient Recipe on an index card and stick it up in your office — or wherever you do your investments — until thinking about investing this way becomes second nature. This recipe works every time — except in an apocalypse . . . and if one of those comes, you’ll have much bigger problems to worry about.

The Bottom Line

You already have the tools you need to become successful in investing. The reason you might have lost money in the past is that you didn’t trust your wisdom (you placed blind faith in someone else’s), or you didn’t tithe regularly, or you didn’t have a disciplined approach to profit-taking (like the recipe offers), or you didn’t ask enough questions before jumping in (like the four questions force you to do), or you didn’t have the fundamentals of a diversified, asset allocation plan in place that changes as you age.

Investments are like a mosaic. The more tiles you uncover, the clearer the picture. If you plunge your head in the sand and rely solely on the plan of a broker you hardly know, or on a single hot tip, or any other single piece of the puzzle, don’t be surprised if your nest egg lies broken in pieces, never quite assembled into the life of your dreams.

Following the ups and downs of a stock price is not educating yourself. It’s obsessing and may lead to an ulcer or, worse, a heart attack. Do your research and evaluation before you buy, and you’ll be able to sleep soundly when the markets are unruly. Many investments treat you to a jittery period of volatility before they go on to great gains. Successful investors almost always go through a price roller-coaster before the stock soars. The roller-coaster ride can be totally worth it in the end, if you’re not having a heart attack. (If you have confidence that your investment is a winner, the ups and downs of the market will seem more like a child having a temper tantrum than Apocalypse Now.)

If your potential investment passes all three criteria of the investment recipe, odds are in your favor to start getting rich the easy way — by following your heart and adding your brain.

Natalie’s Three Takeaway Tips

1. The path to investing wisdom is like learning a foreign language. The words sound like gobbledygook in the beginning, but as you keep talking, you start understanding more and more words, and soon enough you can master the language. There’s no shortcut. Just start talking.

2. Investments are like a mosaic. The more tiles you turn over, the clearer picture you’ll have of the health of the investment.

3. Picking the leader in the sector is the most difficult task. It pays to fill out a Stock Report Card and ask the four basic questions, which are outlined in Chapters 5 and 6.

The above excerpt is a digitally scanned reproduction of text from print. Although this excerpt has been proofread, occasional errors may appear due to the scanning process. Please refer to the finished book for accuracy.

Tags: mortgage, loans