Saturday, April 02, 2005

energy,inflation,interest rates and the dollar

March 28th 2005

Hello,

The trend is your friend, but what is the trend? That at the moment that is the million dollar question. Will the dollar continue to decline? Will inflation flare up? Will interest rates continue to creep higher or sky rocket? And will oil continue it’s up word spiral driven by demand and fear? It is the trend that counts, not just the single events or the daily volatility. It is often very difficult for investors to discern the forest from the trees as they say. Recent events both with economy and the geopolitical suggest that the trends that have driven the market the last few years are still intact. Interest rates for moment will continue their slow steady upward climb. The FED has strongly telegraphed its intentions to the markets. The question has become how high and how long? The effect on the bond market has so far been contrary to what logic and history would suggest. While short rates have continued to rise steadily. The long bond as witnessed by consumers thru mortgage rates has risen very slowly. We may however be near the end for rate increases and this may be the inflection point in the housing markets that so many including yours truly have been warning about. Long rates may begin to jump up .I am not looking for a melt down just a stagnant environment. Real estate is very much a regional issue so some areas may be more impacted than others often depending on the local economy, property and other tax rates. The one area that we may be seeing a significant change in trend is the movement of the dollar. The change in direction may have a very negative impact on some of the major export industries. Remember the value of the dollar is dependent on the currency liquidity level another words the level of short and long term interest rates and the amount and ease of credit availability . The main stream media continues to present a falling dollar as a negative judgment being passed on the US economy, even though the US economy continues to out perform all other major industrial economies by a wide margin in virtually every economic category. The dollars recent rise is being characterized by “US economic growth outpaces Europe and Japan” gee wiz no “Shot” Sherlock. Who would have thunk it, it only took 5 years for the mainstream media to notice. I just want to say thanks guys for doing such a “professional” service to the great unwashed. On the inflation front I am still very skeptical. Even with the huge increases in fuel prices pricing power has remained marginal at best. I think the jury is still out as to weather a long term inflationary spiral is bubbling up or pricing is just performing an equalizing adjustment in a post deflationary time period.


I have noticed many of you are asking me a lot of general questions on getting your finances organized. Here are some basic steps:
1) Consolidate your accounts; most investors have disparate IRA’s, Mutual funds, old 401k’s and brokerage accounts. If the account serves no specific purpose it is time to move it. Start with old 401k’s from past employers they can be easily rolled over tax free into a single IRA. Scattered Mutual funds can be consolidated at no cost into one account. And perhaps some old brokerage accounts that no longer serve their function can be consolidated.
2) Work on a plan to pay off credit cards. Figure out the real balance and what it would take to pay them off. Remember it is not how much you make, but how much you keep that counts in the long run. Start with the smallest balance and pay extra to get rid of the balance ,once it is payed off take the money used to pay down the smallest and apply it to the payments of the next smallest ,there by snow balling your debt reduction . If you pay off a bill with a 10% interest rate you can guarantee your self a 10% return to pay off the bill.
3) Don’t be fooled by the “discount”, just like shopping it is important to know what you’re really paying. Discount brokerages often have lower commissions but have much higher fees. Many discounters charge for stock certificates, money wires, extra for limit orders, $25 fund switch charges and so on. It is often the fees you don’t see that are the largest. Full service brokers like my self don’t charge for any of that and fees are generally negotiable. Remember no matter what you invest in or advice you take someone is making money off that information, it is foolish to think otherwise. If you what help with your investments you have to pay for it and if you pay for help you should expect to get it. If you don’t pay for it don’t expect it.


James Foytlin

www.jamesfoytlin.com

http://onesmallvoice.blogspot.com/

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