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Investment in a Brave New World

Post recession the United States will likely have a slow economy and persistently higher unemployment than before. Energy demands in the United States will be lower as people buy fuel efficient cars out of necessity, but the price of fossil fuels will go up as Asia, particularly India and China, continue to industrialize. Investment in a brave new world of increased governmental regulation may require some rethinking of what constitutes an expected rate of return. Energy stocks, particularly coal companies, may be a good long term bet.

After last year’s financial meltdown and the need for massive bailouts of financial institutions, continually increased government regulation could well limit the ability of large financial institutions to make the kind of money they made pre-recession. A persistently slow economy and continued high unemployment will reduce investment gains in large numbers of US companies. However, the USA has massive coal deposits. Although the USA’s growth may slow dramatically, India and China still have a long way to go and it’s expected that the world’s demand for coal for energy needs will increase by fifty percent in the next decade and a half.

Those with the expertise to extract coal, those with leases on large coal fields, will be in position to profit over the next century from the world’s increasing energy demands.

High unemployment in a relatively slow economy is likely to keep labor costs down in the United States. The assumption has always been that Asian labor will always be cheaper than US labor. However, that is not necessarily true. As Japan industrialized and prospered wages for skilled workers approached those in the USA. China may never “catch up” but as its society ages the “one couple one child” rule will diminish the numbers of available young workers available to work for sweatshop wages. A combination of lower US labor costs with continued investment in research and development may well be the engine that brings the USA, eventually, out of a slow economy and persistent unemployment.

Genetic engineering and the pharmaceutical business in general will profit from an aging world. A slow economy does not affect a company that sells a cure for a deadly disease as much as one that sells oversized cars. While unemployment may plague ex auto workers it will not be a big a problem for the Genentechs, Glaxos, Mercks, and Roches of the world.

Investment in a brave new world may do better away from Wall Street and closer to the small companies that will use stem cell research to grow cartilage and make knee and hip replacement surgery obsolete. Investment in a world of high US unemployment and a slow economy may do better in the dirty world of extracting coal, for the price of energy is the same throughout the world. Even if energy demands drop in the USA due to a slow economy, better home insulation, more fuel efficient cars and the like, an Asian economic expansion will drive the price of energy.

North America is also an agricultural bread basket. Whether corn is processed for bio fuel for energy, for cattle feed, or for human consumption, its price will be driven by worldwide demand more than demand of the slow economy in the US plagued by unemployment.

Investing and Trust

The word is that lots and lots of big money is changing money managers in the wake of the Madoff scandal and last year’s market meltdown. The question is raised regarding investing and trust. Portfolio management is a business and investment success is never guaranteed. It’s best be able to do your own investing and trust in yourself. If you choose to place your money with an expert in portfolio management be sure that you have a very clear idea when he or she is up to and be sure than you can get your money back promptly. If any big money had demanded that Madoff cease portfolio management and return their money the scam would have collapsed years ago.

Regarding investing and trust, it’s not about trust. It’s about money. Portfolio management by someone other than yourself always has an element of risk. Thinking otherwise is fantasy. After the great depression and the creation of deposit insurance a lot of survivors of the Great Depression never let a bank balance get over $10,000 before they started depositing savings in another bank. When the limits went to $100,000 the old timers remembered but those without the memory of the Depression and the Dust Bowl years didn’t have that experience as a guide and tended to put all of their portfolio management eggs in one basket.

Everyone wanted investment success and folks who never saw the bad years wanted better returns on investment and not security. Investment success was measured in high rates of return on progressively chancier portfolio management decisions. The core problem gets back to what constitutes investment success over the long run. Trust is a good thing but it must be earned. That is why many are moving their money around after loosing large portions because of risky portfolio management. Investing and trust should not really go together. Investing and skepticism should be what guide the investor when letting funds go for portfolio management by someone else.

No one was skeptical with Madoff. They stood at the door begging for the con man to let them in. Those who should have been skeptical were preaching investment and trust and let many estates disappear in a grand ponzi scheme.

Investment success is when you have more money in the end than you started out with. Investment success comes from having a solid investment plan, sticking to a manageable number of investment vehicles, and always doing your homework. If you choose portfolio management by someone else then choose two or three individuals in different firms for portfolio management. Forget investing and trust and ask pointed questions. Investment success comes from being able to manage your own money and using portfolio management only if they make you more money in the end than you would have made putting the money in the bank, or perhaps, a number of banks.

There is old advice to beware of “story stocks.” Perhaps we should all, especially in the wake of Madoff, beware of “story” portfolio management and money managers. In the end you have to trust yourself. So, get busy and write down your investment plan, do your homework and manage your money, even if portfolio management by someone else is part of the game plan.

The Trader’s Mindset for Forex Trading

Choose one of these mindsets if you aspire to become a Forex trader.

The Independent trader or the Dependent trader. How much money you have the potential of making in the markets is determined largely by the type of trader you are. Actually, it could affect what happens in the rest of your life, including how long you work for someone else, when and where you vacation, and how and where you live.

You may think I’m exaggerating, but really, those who are proactive can have a positive effect on the course their lives (and their trading) will take as opposed to those who sit back passively and let others steer the course of their lives for them.

Anything that requires nil or little effort is not likely to produce results, or will produce limited results. On the other hand, you will realize permanent results from anything that forces you to think and act on your own.

This is especially proven to be true by trading, it doesn’t matter if it’s Forex trading or a different market. Getting back to the two kinds of traders, they exhibit typical ways of thinking. Which type are you?

The Dependent trader is always on the lookout for an easy way. This is someone looking to make a quick buck, or hit the big one, but who also wants to avoid actually working to get what he or she wants, if such things even exist. Not to mention that it could and should be argued that they do not.

Dependent traders are followers, they make trading decisions based on “hot” tips, they look for automated ‘millionaire-making’ trading programs, they listen to those who supposedly have news expertise, and then blindly place ‘can’t lose’ trades (which always do seem to find a way to lose). They do all of this with no plan of their own, no forethought, and apparently little or no understanding of the actions they are taking.

It’s only natural to become frustrated with repeated failures and losses, so they do what comes naturally in those situations, which is to give up.

Dependent traders are similar to those who play the lottery — they are fully aware that the odds are against them, but they think that anyone can have a stroke of luck, so why couldn’t it be them?

It goes without saying that Dependent traders will have a low chance of financial success and maintain little control over their own lives.

The independent trader is the opposite. This trader wants power over their financial future and already knows (or will know) how the markets operate, which approaches to trading the markets are really effective, and how to make it possible to make their own trades without having to lean on others for assistance, whether it be for advice or tips or news.

An Independent trader realizes that he/she is responsible for maximizing the odds for their own success and attaining financial and life goals. They will learn from their failures and strive to accomplish more in the future, seek out others and learn from them, as well as educating themselves.

But keep in mind that at some time or other, we all exhibit traits of the Dependent trader. The difference is that the person who will become Independent may rely on a mentor or other educational source when he/she is first starting out, but as he/she becomes more knowledgeable, the Independent trader will start using what they know on their own. This is something the Dependent trader will never do.

Three easy steps to become an Independent Trader:

Step One: Devise and execute a trading plan. Figure out what BEST fits your daily schedule — day trade, trade end of the day, trade once a week — and then nail down the sources from #2 and #3 below that line up best with your scheme. You’ll probably discover that applying day trading methodologies to end of day trading will not work, and vise versa.

Step Two: Find several reputable sources of education. We will give you the names of a few, but you must select the one that you can trust and understand. Use these sources to learn as much as you can. Then figure out how you can apply it yourself.

Step Three: Try several trading methods, and learn from your experience. Your chance of succeeding is minuscule if you do not grasp the basics of trading methodologies, mainly in the application of technical or fundamental indicators.

The previous steps will require time and money. Think of them as your costs for trading education and keep in mind that it is much smarter to invest in yourself than to lose money in the market before you know it.

Return on Investment after Inflation

A question the long term investor always needs to ask is, “what is my return on investment after inflation?” For trust funds and other entities that require a long term approach to investing it is important to not lose the money and to make sure that there will always be a return on investment after inflation. In the last few months the US economy has seen deflation so it currently does not take a big return to get a positive return on investment after inflation.

After nearly everyone in the stock market got stung badly last year it is understandable that a lot of folks are looking at interest bearing vehicles such as CD’s, treasury bills, and the like to stay on the cautious side and not lose any more money during a time of deflation.

These vehicles currently look pretty good since the rate of inflation has been negative (deflation) since March with a 2.1 percent deflation rate in July. For many who survived the inflationary spiral of the sixties and seventies culminating in twenty percent interest rates, this is new territory. For those who survived the stock market crash that led to the Great Depression, this is familiar ground.

In fact one hears suggestions that the United States is undergoing a cultural shift that will bring frugality back into vogue. Along with the habit of turning off the lights when one exits a room may be a return to conservative, interest bearing investments so long as inflation stays in check or deflation reigns.

Considering the fact that the most recent auctions of treasury bills have seen the short and medium term notes sell well, it would seem to indicate that the consensus of many investors is that inflation will not run rampant for a few years and that conservative, interest bearing investments are the way to go. During times of deflation cash is, indeed, king.

When interest rates were high in the early 1980’s it was smart to buy bonds because you got a great interest rate and, as the rate slowly fell, your bonds could always be sold at a premium. Now, with interest rates low there is the risk of getting trapped in a low rate of return if rates spike. Thus the current strategy of buying interest bearing investments is a conservative one and not a speculative one. Buy treasury bills and be assured that your money will beat the rate of inflation. In fact, during deflation, holding cash does the same thing although no one is suggesting a large sock or a firm mattress as an investment vehicle even in times of deflation.

The stock market has had a good run recently but now investors are pensive. Much of the run-up this year was catching because the market probably went low last year as folks bailed out. Now investors are asking about the strength of the economy, and if business is really going to recover.

If the economy does, in fact, recover then watch for deflation to exit and inflation to enter the scene again. This is where an interest bearing investment of a few years is handy as you will be cashing out just as deflation stops and inflation starts to eat into your interest income.

Forex Trading: What Makes Most Amateur Traders Fail?

Method complexity syndrome is a chief culprit that strikes novice traders repeatedly. They investigate a trading method, make a purchase, and the second they get it in their hands, they fast-forward to where “the guts” of the method appear to be located. By going at it like that, they entirely disregard the other important parts of trading, like risk management, psychology, and discipline.

They dive into the “guts” of the method searching only for that huge, magical, eye-popping, thigh-slapping “secret” that will swiftly reveal the key to the Forex lockbox and enable them to become Master of the Universe in the Forex world. Again and again, they end up feeling entirely deceived or dismissing the “guts” as something familiar (but had never pursued further). Novice traders will then reject the system as “too easy”.

More often than not, the amateur trader gets hung up in searching for some secret complicated formula, or some arcane mixture of signs, signals and omens but what they usually get is nothing more than a set of basic indicators that come together in an unusual way, and they think, “Well what’s so special about that!” Then they get angry or become disillusioned, because in their heart of hearts they truly believe that any successful method HAS TO BE complicated; they won’t let themselves see that it really can be that SIMPLE! Therefore, they put aside the method or send it back and criticize it because it is “not as complicated” as it should be.

This is a dangerous error because the novice trader will then make this same mistake again and again, whatever the method, and they will fail to take the time to study and comprehend the whole process of trading.

Avoid making this mistake. You must comprehend that the majority of trading methods are pretty simple. They put together a smaller unit of rules in a simple way (sufficiently simple for any person to successfully use them) but apply them in a novel manner. Complicated methods are for computer gurus and major banks – how can you possibly use something if you cannot comprehend it?

Don’t jump ahead when learning a strong new technique for trading Forex. Be sure that you figure out the rules for getting setup, getting in, and getting out (these all should exist. Learn how to employ stops to protect your trade. Whatever your method, learn how to use it in a timely manner (whether it is by the hour, the week, the day, whatever) to make your method the most effective it can be. Learn how to make every aspect of your knowledge come together to improve your success as a trader.

Don’t Forget, Simple but Powerful – The trick to getting an upper hand in the markets is to use only a limited set of indicators or rules utilized in a non-textbook manner.

Advice for Managing Your Forex Trades

A common issue was discovered when we spoke with some Forex traders about one of the problems they faced while their trades were in progress, and that was that they often saw their winning trades become losing trades.

As we have discussed previously, if you are not managing your forex trades from beginning to end, this will happen to you – and most likely it will occur repeatedly.

This is the underlying basis of the dilemma: Trades are approached with a stop loss initially.

The majority of traders don’t even have a ‘target’ as they attempt to obtain ALL their profit in one shot – many traders will ’screengaze’ once their trade starts to become profitable – they pay attention only on how much they have gained or are gaining at the moment. They fail to make plans to exit the trade, staying too long in the trade and often standing by while their profits go up in smoke when the market turns against them. And to make matters worse, they remain in the trade EVEN LONGER in an attempt to recoup those lost profits. In Forex trading, this proposition is a loser.

They lose the view of the trade’s purpose due to GREED.

Why is a trade made? Very simply, it is minimization of risk and maximization of gain.

Maximizing gain does not mean the you will necessarily exit a trade at the exact peak, but it does mean that while the trade is ongoing, you have a set of rules that you follow to exit for profit – and that is not where YOU believe it is!

We will return to that thought later. To minimize risk, you must do more than merely set an initial stop loss – you MUST manage your stop losses throughout the entire trade.

Protection of capital comes first, when a trade is entered by Forex traders, and profit is thought of second. Once the position begins to trend up, it is possible to adopt the correct action to secure both capital and profit margin.

It is ASSUMED that there will be a loss on each trade by most Forex traders that are successful. They conduct this “mind game” to ensure that they remain focused on their risk method. Upon a trade starting to go the right direction (to their astonishment), the first things they perform is to see themselves get into a break-even trade condition and then utilize continuous stop loss management to maximize their winnings on the trade.

Profit is second, risk is thought of first.

View this video to see how to do it:

Learn How to Trade Forex THIS Way

According to our research and surveys, too many rookie and unseasoned Forex traders just lack the knowledge on the proper risk management of each trade, and quite too frequently, end up with the same result: total obliteration of their accounts.

This is what we have found that is occurring. Forex has gained ardent participants so rapidly that a lot of rookie Forex traders have just dived right in, opened an account and started placing trades without any concrete idea or feasible trading system in place.

It goes without saying that the problem with this behavior is lack of understanding of how to properly trade foreign currencies and the extreme risks the capital will be exposed to in consequence. Many times trading is first for traders, and learning secondary.

The end result of that education is the loss of the balances of their account. Hey, let’s not deceive ourselves, trading a demo account is vastly different than using real money to trade. Your emotions will behave differently; you will diverge in applying your trading principles/rules; and you will ignore risk with the demo account but be overcautious with your live account (often to your detriment).

Turn your thought process around — trading second, learning first. As a matter of fact, people’s thoughts about Forex need to be changed, and this is a necessity. First, learn the correct way to trade, BEFORE applying that insight in the market and using it to trade.

As a component of the learn first process – the NUMBER ONE Forex trading fundamental which new, unseasoned or defeated traders should take to heart is how to MANAGE RISK FIRST in every individual trade.

Bill Poulos, among the most esteemed Forex instructors, released a video today showing traders PRECISELY how to trade Forex the right way. In addition to how traders can make more trades go their way by cutting out risk, it is very calm thinking and not what is being shown by most of the alleged ‘Guru’s’ out there.

Here is the video to watch:

Traders will learn a better way of trading by understanding the importance of managing risk FIRST and be imparted with a different perspective, a system for risk avoidance and a concrete set of rules to use for trading.

Too Big to Fail?

“Too big to fail” seems to be a point of discussion again. The theory is that allowing failure of the nation’s largest financial institutions would cause catastrophic disruption of credit markets and the nation’s economy. This theory was not put into practice in the United States until the creation of Federal Deposit Insurance and then not for another thirty years. Since the 1980’s and the bailout of Continental Illinois Bank and Trust setting the precedent that the nation’s largest financial institutions are deemed too big to fail. The argument is made that previous bailouts and the standing “too big to fail” policy allowed large institutions to act irresponsibly and cause the worst financial crisis since the Great Depression.

A current vocal critic of the “too big to fail” policy is Thomas M. Hoenig, president of the Kansas City Federal Reserve Bank and the longest serving Federal Open Market Committee member. Hoenig is quoted as having accused the government of “regulatory malpractice” in modifying regulations without dealing with, what he believes is a core issue, too big to fail.

Certainly inadequate caution by large financial institutions contributed to the recent near financial collapse in the United States and throughout the world. If we can believe what we read in the press, measures are being taken to improve regulations and oversight of the nation’s monetary policy and its large financial institutions.

If the “too big to fail” issue is dealt with then what does that do to the value of long term investments in those, previously protected, large financial institutions? On the one hand a better run bank is probably a better investment than a poorly run bank in danger of needing a bailout. On the other hand much of the money made by large financial institutions came from derivatives and other leveraged investments. A large financial institution, knowing that there is no potential bailout in case of financial disaster, may do business more conservatively. A conservative large financial institution will be a safer one and a more conservative large financial institution will generate less of a profit and have a lower stock price as well.

Bank stocks have traditionally been conservative investments. If the “too big to fail” issue is adequately addressed they will become more conservative. That is, large banks will be very safe investments at a lower price and lower returns. Large brokerage houses will still see their values go up and down with trading volume but internal financial practices would probably also become more conservative if there is never a bailout possibility.

“Too big to fail” begets recklessness. Recklessness can result in short term profits and adversely affect other institutions. As the reckless large financial institution makes more profits other large financial institutions are forced to mimic their actions or risk being bought out in hostile takeovers as they see their stock prices drop. Thus, it does not take a financial collapse for investors to pay the price of the recklessness engendered by “too big to fail.” If “too big to fail” is addressed, the long term investor will need to look at his or her portfolio to see which large financial institutions may need to clean up their act and see their stock price readjust to a more realistic level.

Why Trading Forex Now Is Better Than Trading the Stock Market

You more than likely have been hearing the word Forex recently – it’s getting to be one of the most popular trading trends in the markets right now. It is a trend we trust will persist, but now let me take a few minutes to show you the reason and also why trading foreign currencies should be the profitable undertaking for you to consider.

Only two years ago, the foreign exchange markets were run all over by the large brokers and big banks around the globe. Today, it’s the ‘little guys’ that are driving the action – and with them, currency trading has grown from $1.9 trillion to almost $3 trillion in that short span of time (just like the average turnover in the markets each day – doubled growth in turnover).

So is trading Forex for you?

First, the Forex markets are extremely liquid (in the major pairs) and are constantly prone to ‘trend’ while indifferent to events in other markets, such as stocks and bonds.

The liquidity drives ceaseless volatility – and volatility creates opportunities for gaining profits from the trend movements. The potential for profit is greater with greater volatility.

Next, the stock markets have taken a beating and bounced back repeatedly and it’s looking like another beating is on the way. The unpredictability in those markets is stopping them from going in a particular direction or trend. Anyhow, “bull” or “bear” markets are never a concern for traders in the Forex markets – the currencies are always under a trend, be it up, down or sideways.

Moreover, the financial upheaval resulting from the credit crisis and the heavy response from governments signals a significant change for investing or trading for the future – while these exact same events helped fashion even more opportunities in the Forex markets.

Forex trading is not risk free, and honestly, the majority of individuals go into the Forex markets incorrectly. The recent economic and financial situations make now an excellent time to try Forex trading, but only if you do it right.

Bill Poulos, with over 35 years’ experience teaching and trading Forex, has just come out with a new video showing the CORRECT way to trade Forex.

It seems the majority of traders get into Forex trading thinking they’re going to make loads of money right away. And they become very poor.

Bill teaches you how to start with trading Forex by handling risks FIRST and SECOND, you make a profit. The community of Forex is being completely turned upside down by it.

Check out this video, free of charge, and decide for yourself whether or not you agree:

How Do You Predict Investment Success?

A lot of folks have moved their money out of large Wall Street firms after last year’s financial disaster. The reasoning is that the big boys were not so smart or we would not have had a Wall Street meltdown. The question for the future is how do you predict success and whose advice do you go with? Maybe the best advice for investments should be your own!

There seems to be an unspoken aspect to the big move of money into smaller brokerage firms in the last months. Investors put their money with large Wall Street firms, closed their eyes, and expected unending investment success. That is not an adequate investment plan. An investment plan needs to be more than allocating your money to someone else’s so called conservative stocks, growth stocks, or small cap basket of funds.

If your investment plan is to let someone else manage your money in its entirety then don’t complain when your initial investment success turns to investment failure on Wall Street.

This is not to say that you cannot have investment success with a hard working, smart person managing your money. However, you need to stay connected to the investment plan and you need have a clear idea of what the investment advisor is putting your money into.

The very wealthy can afford to pay someone to develop an investment plan and, with attention to detail, expect investment success. The problem is that when you put your money with a large outfit you tend to get ignored by the money managers. For many investors last year, no one executed an investment plan to get them off Wall Street before the market collapse.

Investment success comes from knowing what you are doing, not just from picking the right investment advisor. Investment success comes from periodic review of your holdings and a well thought out investment plan that takes into consideration the perils of the markets when every investment advisor on Wall Street is in love with derivatives.

The question for all those folks moving their money to smaller firms is how do you predict success? If the folks you just moved your money to were contrarians last year does that mean that their investment plan for the future will lead to your investment success?

Investment success doesn’t come easy and it always involves some thought on your part. This will be especially true if you just moved your money to a small firm and the money manager is getting progressively busier. When will the next large investor’s business push your investments to the back burner?

When you start getting ignored and your investment plan turns stagnant maybe it’s time to pay attention to whether or not the people who are managing your money are heading for investment success or their own personal success.

Many smaller investment advisors may be doing very well right now and will attract more business becoming larger investment advisors. If you are one of the folks who moved your money away from the big firms, keep your own investment plan in mind and make sure that your new advisor doesn’t get too busy for you and your investment plan or you will see less and less investment success.

Keep in touch with your investments whether they are on Wall Street or Main Street. Don’t blame the advisor when it’s your money and you have ultimate control over your own investment plan. The best predictor of investment success is the time and effort you put into your own investment plan.

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