This clip is really hilarious. (HT Calculated Risk)
Month: May 2009
OneMint – Economy And Your Finances Carnival May 10 2009
Image by xAv
Welcome to the May 10, 2009 edition of this carnival. As usual, there are some great entries lined up here.
John Russell presents In An Accident? Don posted at The Low Cost Auto Insurance Guru, saying, “You pay your premiums, but when your car is damaged, you balk because you fear a claim will mean higher insurance rates. Here”
Handy Saputra presents How Mortgage Rates Calculators Help When Buying a Home posted at Home Loan | Mortgage Resources, saying, “Are you having a hard time deciding if you should buy a house or not? One of the things a potential homebuyer considers before getting a housing loan is whether they can afford the mortgage payment or not.”
nickel presents How to Get Out of Debt posted at fivecentnickel.com.
Jack Schmidt presents 10 Really Fun Things You Can Do Today on the Cheap posted at SectorMatic Money Journal, saying, “Personal Finance | Everything for the Big Spender on a Budget. Now you can live like a fat cat, even if you’re on a moeny diet. Laugh all the way to the bank with Jack Schmidt and SectorMatic Money Journal. It’s for you!”
Leave Debt Behind presents Where to Get Your Free Annual Credit Report posted at Leave Debt Behind.
cody butler presents 3 Steps To Financial Freedom posted at Dream Life Coaching Blog. Ask your questions., saying, “If you wish to be financially free, then you must start your own business, here are three steps to do that.”
Destroy Debt presents My Credit Limit Got Lowered Below My Outstanding Balance posted at Destroy Debt.
Verna Morris presents The Ultimate Guide to Leveraged ETFs: Their Uses, Their Risks, and More posted at ETFdb.
Steve presents Is The AllXClub Legit? posted at AllXClub.
KCLau presents Do You Have a Wedding Debt? posted at KCLau’s Money Tips, saying, “Most couples want to begin their married life auspiciously and free from the problems. However, it is not uncommon to hear about married couples who go into debt just to get married. Article explores the reasons.”
Ben presents Credit Card Scammers posted at Money Smart Life.
MatthewPaulson presents Money Merge Accounts: Are they Real and do they Work? posted at Fine-Tuned Finances.
Savings Toolbox presents How You Can Make Retirement the Best Time of Your Life posted at Savings Toolbox.
Deposit Accounts presents Benefits of Using Direct Deposit posted at Deposit Accounts.
Debt
Stanley Samuel presents Stressing out the banks posted at Wall & Main.
Khan presents Dealing With Financial Aid Debt posted at Higher Education and Career Blog, saying, “There are several ways for the grad to conquer college debt.”
ChristianPF presents Should college students be issued credit cards? posted at Money in the Bible | Christian Personal Finance Blog, saying, “What do you think, should college kids be preyed upon by credit card companies?”
Economics
Dorian Wales presents Stress Tests and Capital Adequacy Explained posted at The Personal Financier, saying, “The highly anticipated FED stress test results may very well serve as fuel for further gains or, more likely in my opinion, as a sought after excuse for turning the tide (in the short run).”
anotherjen presents Recession Trickles Down to the Teenagers posted at The Next Rich Girl, saying, “Could it be that today’s teens are learning a little fiscal responsibility from the recession?”
Investments
The Smarter Wallet presents Charting Stock Movements With Fibonacci Trading Techniques posted at The Smarter Wallet
sherin presents My Personal Biography of Investing – Part 1 posted at THE MONEY MANIAC, saying, “Personal biography explaining the self developed practices to valuate an investment”
Investing School presents Investor Mistakes – Constant Refresh posted at Investing School, saying, “Most of us love the real time information provided by our stock brokers but it really doesn’t help us much to look at it every day (or worst yet, several times a day). This article explains why.”
Stock Trading Brokers presents Zecco Discount Broker Review posted at Stock Trading Brokers, saying, “Zecco may suck with marketing and planning but they still offer one of the lowest commissions for trading stocks.”
Four Pillars presents Transfer In Kind posted at ABCs of Investing, saying, “Learn about the “transfer in kind” option if you are transferring an investment account to save taxes and money.”
Steve Patterson presents Chinese Internet Companies Climbing posted at FastSwings.com – Steve Patterson, saying, “The Chinese are spending a lot on internet gaming and services and these four companies are grabbing market share.”
The Smarter Wallet presents A Stock Trading System For Shorting Stocks: How To Short Estee Lauder posted at The Smarter Wallet
Jae Jun presents Stock Investments From Forbes 400 Best Big Companies posted at Old School Value, saying, “stock investment ideas and fair value calculations from Forbes 400 platinum list.”
The Investor presents Seven psychological quirks that destroy investment returns posted at Monevator.com, saying, “Don’t let your emotions get in the way of your profits.”
MoneyNing presents TradeKing Review posted at Money Ning, saying, “TradeKing is quickly becoming one of the best stock brokers out there. Find out why.”
Darwin presents Start Investing Today: An Amazing Comparison of 25 vs 35 Year Old Starters posted at Darwin’s Finance, saying, “This article shares some neat numerical and graphical representations of the stark differences between an investor/saver starting at 25 vs 35 years old.”
Personal Finance
Silicon Valley Blogger presents HSBC Direct Online Savings Account Review: With Free ATM Bank Card posted at The Digerati Life
Brandon Rowe presents Lockheed FCU $150 Checking Bonus posted at Bromoney Internet Banks.
Patrick @ Cash Money Life presents How to Do a Financial Checkup posted at Cash Money Life, saying, “A financial checkup is an important part of your financial well-being. When was your last financial checkup?”
Patrick @ Military Money presents Financial Planning For Military Families posted at Military Finance Network, saying, “Financial planning tips to help families prepare for emergencies and other life events.”
MoneyNing presents 20 Different Areas to Think About for a Cheaper Auto Insurance Policy posted at Money Ning
Lazy Man and Money presents My Tenant: I’ve Lost My Job and I Can’t Pay You posted at Lazy Man and Money.
Gregory E. Rouse presents How to Live Under Your Means posted at Frugal-Living-Skills Blog, saying, “One of the first principles of self-reliance and frugal living is the counsel to live under our means and if followed can be a foundation on which to build the other principles. The problem is that most people are not sure how to actually do it, they need a specific plan. To achieve this goal a family or individual can use the 70/30 Rule as their plan.”
That concludes this edition. Submit your blog article to the next edition of OneMint – Economy and Your Finances using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.
Interesting Reads 5-8-2009
I read some interesting and insightful quotes this week. Here are a few of them:
Shatrughan Sinha on why Indian movie stars are getting attracted to politics:
Glamour has limited power, whereas power has unlimited glamour.
This is an enormously influential group of people, and 90 percent of that influence is being spent to gain powers and practices that the world would be better off without.
On the Glass Ceiling (From The Economist)
One of the first women to head a major Japanese company, when asked in 2005 what had changed least in Japanese business in the previous 20 years, said: “The mindset of Japanese gentlemen”.
On to the other interesting articles I read this week:
Polar Bear Protection Won’t Be Broadened
Afghanistan’s only pig quarantined
Methods for Setting Up a Budget
How To Buy a Foreclosure: Buy Foreclosed Homes
Alternative Income is a Form of Insurance
Watch Out For Stimulus Check and Government Grant Fraud
Misunderstanding of Frugal Living
41 Investing Lessons We Already Know
Real Estate Investing For New Investors
Why Even Small Consistent Efforts Can Bring Big Results
Text Messaging is The Biggest Scam of the 21st Century
Stress Tests and The Nationalization We Got
Carnivals
Photo Credit: D Lemieux
Stress Test Results
The much awaited bank stress test results are finally out today and personally, the thing that interested me most was what they call — Buffer, in the report is exactly the opposite. I went to the tables first and got confused by that number, so, then had to read the report from the beginning.
The SCAP (Supervisory Capital Assessment Program) ran tests on 19 banks and came out with some numbers, which are not quite as bad as the IMF or the Roubini Estimates.
Of course, the Stress Tests are no longer “stress” because it is quite likely that the scenarios listed down while conducting the tests will play out and are no longer — worse case estimates.
Here are some numbers:
1. These tests ran on 19 firms, which hold two thirds of the assets and more than one – half of all loans in the US Banking system.
2. The losses at the 19 banks for 2009 and 2010 under the “adverse” scenario could be $600 billion.
3. The bulk of these losses will come from residential related mortgages and consumer related loans (houses and credit cards).
4. The 19 banks need to add $75 billion to their capital by the end of 2010 to reach their SCAP Capital Target.
5. 9 out of the 19 banks are good and don’t need to add any more capital.
6.. 10 of the 19 banks need to augment their capital (Tier 1) to reach the SCAP Capital Target.
7. These 19 firms have US Preferred Treasury Equity securities worth $216 billion dollars.
Here is a chart of the estimated SCAP Capital requirements for the 19 banks:
It Is Not Paper
A lot of people I knew lost quite a bit of money during the dot com bust. But there were quite a few who didn’t lose any money; primarily because they never invested in stocks.
There were two main reasons for that:
- They were too conservative to put their money in stocks.
- They were living in remote areas and didn’t have easy access to brokers.
If you look at real estate; it differs exactly in these two respects:
- A house is considered one of the safest bets you can make.
- It is found everywhere.
When land prices started to go through the roof; people derived confidence from the fact that they were so different from stocks. Somewhere along the line people started telling each other that houses are different from stocks. Stocks are just paper, but houses are real. Besides, whoever heard of declining home prices?
These things were of course true; houses are different from stocks, they are generally not as volatile as stocks — you can live in a house but not in a stock and owning a house saves your rent too. All these differences didn’t stop the speculative bubble in housing pop.
Gold is the New Real Estate?
There are a lot of pundits who are promoting gold these days. And they present the same type of arguments that were presented in favor of real estate.
Most importantly: it is not paper.
It is hard to argue that gold is not paper, but, then wasn’t that the case for houses too?
If something rises much faster than its historical growth rate, then there is surely some amount of speculative build up in that asset. We saw that with houses and also with oil in the recent past. Gold may look safe when the stock markets are falling, but, what happens when markets eventually rebound; wouldn’t lot investors who bought gold for safety, then move to stocks — taking gold prices down with them? That would also trigger a reaction where speculators exit gold and it sees the same kind of crash that we saw in oil prices.
No investment is conservative just because of the nature of the asset, the price at which you bought something decides whether it was conservative or not. So, don’t invest in gold, just because it’s not paper.
Adani Power Limited IPO
Adani Power Limited has recently posted its draft prospectus for filing an IPO. Here is an overview of Adani Power Limited IPO
Business of Adani Power Limited
Adani Power Limited will be in the business of developing, operating and maintaining power projects in India. It is part of the Adani Enterprise Limited, which is a large Indian conglomerate with revenues of over Rs.196,097.10 million in fiscal 2008. The parent company is one of the three largest coal traders in India and the largest power trading company in India (in the last three years).
The group itself is looking at vertical integration with power projects and it currently has presence in:
- Coal Mining
- Coal Trading
- Shipping
- Power Generation
- Power Transmission
- Power Trading
- Owning and Operating a SEZ
Adani Power Limited has four thermal power plants that are in various stages of development:
1. Mundra Phase 1 & 2 with a capacity of 1,320 MW. Both phases are split into sub – generation of 330 MW each. The first phase of 330 MW each are expected to get commissioned by June 2009 and the full project is expected to get commissioned by Feb 2010.
2. Mundra Phase 3 with a capacity of 1,320 MW, out of which 660 MW will be commissioned in Jan 2011 and the remaining by June 2011.
3. Mundra Phase 4 project with a capacity of 1,980 MW, out of which 660 MW will be commissioned by Aug 2011 and the remaining by April 2012.
4. Tiroda Power Project with a capacity of 1,980 MW, out of which 660 MW will be commissioned by July 2011 and the remaining by April 2012.
All dates are current estimates.
The company has applied for sector specific SEZ approvals for all its coal projects. If granted, this will give them substantial tax advantages.
Since Adani Power is part of the Adani group which is a major coal producer and trader — it will benefit in terms of obtaining raw materials in a timely and secured fashion.
Adani Power is located in the western region and has got a locational advantage; both in terms of sourcing as well as distribution. The power plants are located in the rapidly industrializing areas of Maharashtra and Gujarat and will benefit from the growth of these states.
India faces acute power shortage and with the deregulation in the power sector — there are plenty of opportunities up for grabs for private sector players. According to CERC the power shortage at Dec 2008 was 15,175 MW and so the company exists in a sector which is set for growth and has inherent demand.
Key Risks Facing Adani Power Limited
1. No Operating History: Adani Power has no current operational power projects or any other revenue generating activity that can provide a basis for evaluating its business.
2. Long Gestation Period: Power projects have a long gestation period and Adani Power will take a long time to get into the positive cash flow generating territory.
3. Significant Indebtedness: Adani Power has assumed significant debts to the tune of Rs.49,919.04 million and this increases its vulnerability to downwards economic conditions. Since the company has so much debt already — it limits Adani Power’s ability to raise more cash in the future if required.
4. Potential Promoter Conflict of Interest: Adani Power will rely heavily on its promoters to provide it financial know – how and access to key personnel. Since, some promoter group companies operate in the same business areas — this poses potential conflict of interest.
Financial History
Since the company has not engaged in any commercial activity till date there isn’t enough financial information to go evaluate the IPO.
Objectives of the Adani Power IPO
Adani Power is getting in the IPO to raise funds primarily for the following:
1. Finance the Mundra Phase IV 1980 MW Power Project partly
2. Fund the subsidiary that will engage in the construction and development of the 1980 MW Tiroda Power Project.
Conclusion
These were some key features of the Adani Power IPO and evaluating these benefits and risks should give you a better understanding of the company and help decide whether you should be invested in such a company or not.
This site has regular features about IPOs, FDs and other investment ideas, if you would like to get that content by email, please click here.
NHPC IPO is the next big power IPO, to read about that click here.
Value Traps
Value traps are stocks that have been beaten down in price to the point where they start looking like a bargain — only, to remain stagnant for a long period of time. Basically, you get trapped into a stock that looks undervalued.
When Does a Stock Look Like a Bargain?
A stock looks like a bargain when its P/E Ratio, P/B Ratio has fallen considerably below its peers and historical averages. On the other hand, when the dividend yield or sales to market cap ratio rises above its peers and historical averages — this is also an indicator that the stock is cheap. Value traps look like great buys in the first look; especially in bear markets. Investors who are used to see a company trade at 20 or 30 times earnings suddenly see that the stock is trading at just 5 times its future earnings and it looks like a great bargain.
There is no formula for detecting value traps, but, there are some common sense guidelines that can help investors watch out for value traps.
Investor Bias
The most tempting value traps are those stocks which you already own and that have fallen considerably. Something that looked the right price when it was $20, looks like a great bargain, when it comes down to $10 and of course, there is the added incentive of dollar cost averaging.
Losing Market Share
During recessions — the composition of key players in most markets change. The best example of this is the financial sector across the globe. If a company has lost market share in the ongoing recession, has piled up debt, lost its key talent to competitors — then, when the recession ends and the economy eventually turns around — such companies will not be able to grow at the same pace as its competitors and their stock price will be stuck.
Is the Management Willing to Unlock Shareholder Value?
There are some companies that are willing to pay decent dividends, be transparent about their results, issue conservative earnings estimates and generally don’t manage the company from one quarter to another. On the other hand — there are certain managements that are not as investor friendly. When the rebound comes — investors are likely to flock to companies that have investor – friendly practices and are willing to demonstrate them.
Past Performance is Not an Indication of Future Performance
Going by historical numbers is not enough; it is inevitable that the landscape in which companies operate changes. Is the company keeping up with the changing times? A good example of this is the newspaper industry. There are managements that acknowledge that the landscape has changed and they have to innovate accordingly, and there are managements that believe that the landscape has not changed enough to warrant a change in their core strategy. Which management would you prefer?
These were some qualitative measures that point out a value trap. There is no fixed formula to define a value trap, so it is impossible to avoid them all the time, but, understanding changing business models and environments — helps screen out dud stocks from your portfolio.
Photo Credit: Dave_7
Credit Card Regulation Changes
Last week, the Credit Cardholders’ Bill of Rights was enacted and a lot of unfair credit card practices will be eliminated with these credit card regulation changes.
Universal Default is Eliminated
Universal Default meant that if you had four credit cards and defaulted on any one of them — all four credit card issuers had the right to impose the default APR on you. So, even if you hadn’t defaulted on a particular card — you could be charged the default rate because you defaulted on some other credit balance. This practice has been eliminated.
Any – Time Any – Reason Changes in Terms is Eliminated
This was a standard disclaimer on cards and meant that the credit card companies could change your rates quite easily on existing balances.
Say, your credit score went down a few points because of some reason — the card companies had the right to increase your APR because of this credit score drop.
This rule has been eliminated now, and the credit card company can only change your fee or APR — after the expiry of your contract, or for reasons that have been specified in your contract.
Advance Notice on Credit Card Rate Increase
In cases, where the credit card issuer wants to increase your APR — they will have to give you a 45 day notice.
This rule is not applicable to introductory rates. So, if your 0% introductory rate is about to end, then they don’t need to give you any notice. Similarly, if your APR is indexed and the index rate itself changes — the credit card company doesn’t need to give you a 45 day notice.
Your APR can’t be Increased Retrospectively
The 45 day notice above means that credit card issuers can’t increase your APR retrospectively. So, you won’t wake up one morning and find that you have to pay a 15% APR instead of your usual 7%, on the shopping you did for Christmas.
Right to Cancel, When You Receive a Notice for Increasing APR
If your credit card issuer sent you a mail telling you about a rate increase — you have the right to cancel your credit card by paying off your balance and not incurring any extra fee or interest on your outstanding balance.
The time you get to cancel your credit card starts when you receive the notice and ends when you receive the third periodic statement after the effective date of the increase.
Double Cycle Billing Prohibited
The double billing cycle meant that the credit card company had the right to calculate your interest on the past two cycle’s daily balance. In some cases, this amounted to extra interest needed to be paid by you (on top of the interest on the current balance).
This has now been stopped and credit card companies can’t charge you interest on the balance that you have already repaid.
No Default or Penalty for: Only Accrued Interest
If your account balance consists of just accrued interest on previously repaid credit and you don’t pay it, then no fee will be imposed on this sum. Also, this will not constitute as default on the account.
Pro Rata Payment on Card with Two APRs
Normally credit cards charge a different APR for cash advances and regular purchases. In the past they had the option of using your repayment towards the amount that had the lower APR before applying it towards the amount with the higher APR.
Say your card charges you 10% on regular purchases and 20% on cash advances. You took a cash advance of $200 and made purchases worth $200. At the end of the month — you paid off $200. The credit card company had the right to apply a 20% rate on your outstanding balance of $200.
But, they can’t do that any longer. They will have to charge you 10% on $100 and 20% on the next $100. But, if they want to use the amount you repay to pay off the higher APR balance — they can still do that.
You Can Decline: Over the Limit Transactions
If you have a card with a limit of $3000 — there is a possibility that your credit card company allows you a purchase worth $3,500 and then charges you a hefty penalty because you went over your credit limit.
The change in credit card rules give you the right to stop over the limit transactions. You can tell your credit card company that you don’t want them to allow a transaction that crosses your credit limit and has you pay a big penalty. Let them accept credit card payment from you before allowing you to make more purchases on your credit card.
Wait For A Year Please!
These rules are not effective immediately and will only come into play after the lapse of an year from the enactment of the act.
Photo Credit: Credit Cards
Japan Sets up 61.5 billion dollar scheme for Asia
After China; Japan seems to be making efforts to reduce its dependence on the US Dollar and promote trade in its own currency.
From Reuters:
Japan will establish a scheme to supply up to about 6 trillion yen ($61.54 billion) to Asian nations in the event of a financial crisis, Finance Mininster Kaoru Yosano said on Sunday.
The yen swap plan will be in addition to Japan’s $38.4 billion contribution to a $120 billion regional liquidity fund.
Both measures are aimed at supporting the region’s economies in a crisis, Yosano told reporters on the sidelines of the Asian Development Bank’s annual meeting in Indonesia.
“This brings our contribution to supporting regional liquidity to about $100 billion,” Yosano said.
Japan hopes the yen scheme will also promote the use of the currency in the region, business daily Nikkei reported.
Guest Post at The Digerati Life
Last week, I had a guest post over at The Digerati Life about How I Prefer Picking Stocks rather than investing passively. I was pleasantly surprised to see that it received a lot of positive comments despite being against conventional wisdom.
Be sure to check it out.
There were a few carnivals that OneMint participated in: