Carnival of Everything Money 8th Edition

Welcome to the 8th edition of the Carnival of Everything Money. I wanted to give my thanks to everyone who is contributing to making this carnival a success! I would appreciate it if anyone who is featured in the carnival links back to this post. If you want to submit an article for next week's edition, the submission form is here. Just a reminder: I am not including articles that are not submitted with a category. If your article wasn't included, that's most likely why. 

Editor's Pick

Investing School presents Realized and Unrealized Gains and Losses posted at Investing School, saying, "It's a simple subject but it's often confused. Unrealized and realized gains explained."

Manshu presents Greater Fool Theory and Keynes Beauty Contest | OneMint posted at OneMint.

Peter presents When Will We See An Increase In Our Paychecks Due To The Stimulus Package? posted at Bible Money Matters, saying, "When will we start seeing an increase in our paychecks - because of the stimulus package?"

Alvaro Fernandez presents Change Your Environment, Change Yourself posted at SharpBrains: Your Window into the Brain Fitness Revolution, saying, "Trading expert Brett Steenbarger's Lesson #4: "When you act as your own trading coach, your challenge is to stay fully conscious, alert to risk and opportunity. One of your greatest threats will be the autopilot mode in which you act without thinking, without full awareness of your situation. If you shift your trading environment, you push yourself to adapt to new situations: you break routines.""

Nickel presents Money Tips from Twitterville posted at fivecentnickel.com.

budgeting

RB presents Start Budgeting Today posted at Recessions Blow, saying, "How to start a budget."

Ben Dinsmore presents Motivation and Your Financial Plan posted at Trees Full of Money, saying, "If you think about it, starting a budget is really no different than starting a new diet and exercise routine.After a few weeks, the results that we were hoping for never materialize (at least not as fast as we hoped) and we end up in worse shape then we started in."

Livingalmostlarge presents still budgeting posted at LivingAlmostLarge.

credit

Jim DeSantis presents Free eBook - Credit Rescue! posted at Emotions and Credit at On Line Tribune, saying, "How emotions impact credit is a subject that few people think about but more and more therapists are talking about. As a Pastoral Counselor I have long known that there is a powerful link between our emotions and our money. We may think that money is all about our rational selves but, in fact, our emotions very much determine our financial decisions."

Credit Shout presents Best Buy Credit Card Review posted at CreditShout.

Credit Card Addict presents American Express Offering Double Membership Rewards Points posted at CreditAddict.

Money Tipper presents How to Opt Out of Unsolicited Credit Card Offers posted at Money Tipper.

Mr Credit Card presents American Express Platinum Card Review posted at Ask Mr Credit Card.

debt

Joe Mueller presents Debt Consolidation Loans For Beginners posted at Debt Consolidation For Beginners, saying, "When you are just becoming aware that you have a mountain of debt that you need to take care of you need a simple approach and sound mind to get you out of debt and back on the path to financial freedom. Debt consolidation might be a route you would benefit from taking, but it might not. Proceed down this road with caution."

Mike presents This Great Depression Will Be Known As The Great Stagflation posted at Great Depression Version 2: Bear Market and Economic Depression, saying, "The current economic crisis is just beginning. It will wind up being known as the Great Stagflation."

The Dough Roller presents Debt Cures by Kevin Trudeau–Do his “secrets” really work? posted at The Dough Roller, saying, "So does the book live up to his sales pitch? No, and it’s not even close."

frugality

Ishanbansal presents 25 Tips to Save Money on Vacation posted at Save Few Bucks, saying, "This article presents practical tips to save money while on vacation."

PFCreditCards presents Lower Your Monthly Subscriptions Cost by Calling posted at PF Credit Cards, saying, "It's simple. Just call to lower your monthly bills."

Dan presents To Tip or NOT to Tip: 3 Case Studies - Opinions? posted at Everyday Finance, saying, "With tip jars showing up in more and more places, this begs the question as to whether this tipping theme has gone too far."

Abigail Perry presents What's in your bills? posted at i pick up pennies, saying, "I thought I had found any and all hidden costs in my bills. Then I took another look and saved almost $100 a year with a four-minute phone call."

Nancy Muller presents Gardeners: What To Plant Now -- Very Comprehensive posted at Recession Depression Therapy, saying, "If you are trying to save on groceries through gardening, but a little unsure of yourself, bookmark this treasure I found. It makes life so much less complicated."

Heidi presents Serving Nutricious Meals on a Budget, Can it Be Done? posted at Little People Wealth.

Nora Dunn presents Lower Your Credit Card Interest Rate and Reduce Your Phone Bill, Immediately and Easily | Wise Bread posted at Wise Bread, saying, "Learn how to easily reduce your credit card interest rates and fees, cable tv, internet, the power bill - you name it."

investing

Ifvat presents Junk Silver Coins - How to Purchase Silver Bullion Under Spot | ifvat.com posted at ifvat, saying, "I’m going to tell you about a certain type of coins that you can purchase under the spot price of silver."

MoneyNing presents Inheriting Generations of Frugal Living posted at Money Ning, saying, "Think ahead and do something for your future generations. Start saving."

etrades presents Why Buy Silver Bullion? posted at eTrades, saying, "Buying Silver Bullion is becoming hugely popular. At present, silver is relatively cheap if you compare it to the cost of gold. With it’s lower price, the vast majority of people can afford to buy greater quantities of it. If you compare it to gold, your average person may be able to afford 1 ounce whereas the same person purchasing silver could buy many more times that amount."

Pinyo presents Investing In Treasury Inflation-Protected Securities posted at Moolanomy.

James Fowlkes presents Would You Have Been Sucked in by Bernie Madoff? How to Avoid a Ponzi Scheme posted at JamesFowlkes.com, saying, "This article will save you from becoming a victim of the next Bernie Madoff-type ponzi scheme."

Lenox Ramsey Jr presents A Guide to Forex Leverage, and Employing it Safely posted at Forex Boost, saying, "A Guide to Forex Leverage, and Employing it Safely"

other

Patrick Smith presents Understanding Job Benefits posted at Real World Advice, saying, "If you are fortunate enough to get a job offer, do not discount the benefits involved, such as health insurance."

Michael presents Save Money with Discounts on Your Auto Insurance Policy posted at Vital Motion, saying, "No one likes to pay auto insurance premiums, but you can cut down the cost of your policy with a number of different discounts."

Dave presents Job Search - The Series posted at Do You Dave Ramsey?.

The Hoss presents AIG Too Big To Fail? posted at Hoss Cents Free Financial Money Magazine, saying, "The Hoss examines AIG and answers the question is AIG to big to fail?"

The Smarter Wallet presents Would You Go Into Business For Yourself During This Recession? posted at The Smarter Wallet.

Kate Kashman presents Transferring Your GI Bill - The Paycheck Chronicles posted at The Paycheck Chronicles, saying, "Many people consider military service for the educational benefits. Beginning in August 2009, the benefits are improving dramatically, including a provision to transfer the benefits to a spouse or child."

Miss M presents The First Time Homebuyer – Starting the Search posted at M is for Money.

Homemaker Barbi (Danelle Ice) presents 5 Surefire Ways to Recession Proof Your Job posted at Homemaker Barbi, saying, "5 Surefire Ways to Recession Proof Your Job: Guest poster Shellie shares several simple steps that can help you avoid being laid off."

saving

retirehappy presents Earning $20,000 Equals Half Million Dollar Nest Egg posted at My Retirement Blog.

RB presents Negotiate to Save Money posted at Recessions Blow, saying, "An article about the importance of negotiating in these tough times and some tips to help you do it."

Brian McKay presents Online Savings Account posted at MonitorBankRates.com, saying, "GMAC Bank is offering a high interest online savings account that currently has an annual percentage yield (APY) of 2.50% which is well above the national average for a savings account."

Sun presents Can You Get a Better Rate at MoneyAisle? posted at The Sun’s Financial Diary.

Jorge presents Adding Insult to Injury - Losing Your FSA Money posted at Independent Minded, saying, "How to keep from losing your FSA money if you lose your job!"

David presents Checking Accounts posted at Personal Finance Ology, saying, "Learn about the different types of checkings accounts and how to keep more of your money!"

stocks

cody butler presents Money Market Investing, What Is It And How Does It Work posted at Dream Life Coaching Blog. Ask your questions., saying, "A basic guide to money market accounts."

taxes

Wenchypoo presents Omnibus Obama Tax Avoidance Tip Sheet and Small Loophole Collection posted at Wisdom From Wenchypoo's Mental Wastebasket.

Weekly Must Reads

These are my favorite articles from around the blogosphere this week!

Why the Roth Conversation Is A Bad Deal For You

McDonald’s (MCD) Dividend Stock Analysis

Visualizing One Trillion Dollars

What is the Uptick Rule?

Are stocks safer than bonds?

Dear A.I.G., I Quit!

Carnival of Investing Strategies: 8

Welcome to the 8th edition of the Carnival of Investing Strategies. This is a carnival focused on different strategies of investing your money. If your article was included, please be sure to link back to this carnival. If you want to make a submission for the next edition, the form is here.

Editor's Pick

Manshu presents Greater Fool Theory and Keynes Beauty Contest | OneMint posted at OneMint.

John R. presents Investing to Beat Inflation posted at Live Money Smart, saying, "If you're not worried about inflation yet, you should be. Here are some tips to stay ahead of inflation in the coming years."

Investing School presents Realized and Unrealized Gains and Losses posted at Investing School, saying, "It's a simple subject but it's often confused. Unrealized and realized gains explained."

Marcus presents Buying Stocks For Beginners - Back To Basics posted at Stock Market Investing For Beginners, saying, "There's doom and gloom everywhere. Investors and traders all rushed for the exits months ago. It's a tough time if you're just starting out in the stock market. In this post I offer some reminders about what it means to be an investor. I talk about buying the business and not the stock, buying for the long term - all the basic stuff. We all know it, but sometimes we need a gentle reminder."

And the rest...

Mesquite Pete presents Don’t Take Too Much Risk | Sound Stock Investment posted at Sound Stock Investment, saying, "If there is one thing we all could learn from the recent crisis, it is the danger of taking too much risk."

James Fowlkes presents Is Your Mutual Fund Eating Away Your Profits? posted at JamesFowlkes.com.

Patrick @ Cash Money Life presents Pertuity Direct Peer to Peer Lending Review posted at Cash Money Life, saying, "Pertuity Direct is a new Peer to Peer Lending company that offers investors the opportunity to invest in a mutual fund of personal loans."

Barry presents HyperInflation Coming But Financial Crisis Not Over Yet posted at Jeflin's Investment Blog.

Silicon Valley Blogger presents Best Places For Your Money When The Stock Market Tanks posted at The Digerati Life.

Silver Investor presents Why I'm Piling Into Silver posted at Gold Investing Info, saying, "Given the prospects of stagflation, buying silver is looking like a good investment option."

Freddy presents Stock Market's Weekly Recap (Ended March 20th, 2009) posted at Protege Analytics.

Nickel presents The Best Online Discount Brokers (Updated) posted at fivecentnickel.com.

Cody Butler presents Investing In Cds, How Does It Work? posted at Dream Life Coaching Blog. Ask your questions., saying, "The basics of investing in CD's, the pro's the cons and when is the right time to do it."

Tony presents Facebook and Twitter Are One Massive Bubble posted at Biz World Blog, saying, "Facebook and Twitter will prove to be horrible investments for anyone that is considering investing in them now."

Michael Haltman presents Pop The Economic Pimple While The Cancer Runs Wild posted at The Political and Financial Markets Commentator, saying, "I find the bonuses paid to the AIG executives and financial "geniuses" that created and sold the products that has helped to bring the economy of the United States and the world to its knees to be abhorrent and bordering on the immoral. If there is a way to abrogate them within the boundaries of contract law, then it must be done! But that is not the point of this post. That said, let's move on."

JC presents Stock Market Advice posted at 6Bubbles - Grad School, Money, Life.

Thanks to everyone who submitted!

What are moving averages

Moving averages are a way to find trends in the stock market. They are primarily used by technical analysts. The graph of the moving averages smooths out the graph of daily prices. They are lagging indicators, showing what the market has done in the past, not necessarily predicative of the future. There are two popular types of moving averages - simple moving average (SMA) or exponential moving average (EMA). 

The idea behind a SMA is simple: you find the average of the most recent five days. So basically you take a certain number of days and find the average over those days. Then every day after that you replace the oldest day with the most recent one. For instance, when finding a 5 day moving average:

Day	Price
1	10
2	11
3	12
4	11
5	13
6	14
7	15

On the 5th day the SMA would be (10+11+12+11+13)/5 or 11.4. The next day the SMA would be (11+12+11+13+14)/5 or 12.2. On the 7th day the SMA would be(12+11+13+14+15)/5 or 13.

The EMA is slightly more complicated. It gives preference to the most recent days, but no day is ever entirely taken out of the average (as in the SMA, all days not within the most recent period are discounted) they are just weighted extremely lightly. For instance, in a 10 day EMA, the most recent day would be weighted 18.18% with every preceding day being weighted a little bit less. 

What is the difference between these two? Well, to start, since more recent days matter most in EMAs, they are much more sensitive to recent changes. On the other hand, SMAs sometimes lag behind more. The trade off here is that EMAs could sometimes can give false signals whereas a SMA could be more accurate. Another thing to take into account when looking is the length of the average. A shorter/longer average could show the same differences as a EMA/SMA. The longer average will lag more but be more accurate than the average of a shorter period.

What are you going to use a moving average for? To spot trends. Regardless of the volatility of day-to-day trading, moving averages allow you to look at the big picture and see how the stock has been trading over a long period of time. Also, if the stock is trading above the moving average, it can be considered to have an upward trend; if it's trading below, it has a downward trend. Finally, comparing moving averages of different periods can be compared. If the shorter moving average is above the longer moving average, there is an upward trend. If it is below it has a downward trend.

Moving averages by themselves are in no way a determination of whether to buy or sell. It's important to remember that you are only looking at trends in the past. They are not guarenteed to predict the future and can give bad signals sometimes. However, they are a useful tool when you are trying to look at stock trends as one one part of your stock analysis. 

Carnival of Everything Money: #7

Welcome to the 7th edition of the Carnival of Everything Money. I wanted to give my thanks to everyone who is contributing to making this carnival a success! I would appreciate it if anyone who is featured in the carnival links back to this post. If you want to submit an article for next week's edition, the submission form is here. Just a reminder: I am not including articles that are not submitted with a category. If your article wasn't included, that's most likely why. 

Editor's Choice

KCLau presents Save money the stupid way posted at KCLau's Money Tips, saying, "Simple ways to save money"

MoneyNing presents The Latte Factor and Becoming a Millionaire posted at Money Ning, saying, "Stick to thinking about how much you can save, not necessarily how much you are spending."

Insurance Toolbox presents A Comparison of No-Risk Investment Options posted at Fine-Tuned Finances.

The Smarter Wallet presents Would You Go Into Business For Yourself During This Recession? posted at The Smarter Wallet.

Barry presents Letting Kids Earn Their Allowances posted at Associate Money.

budgeting

Finance Tips 101 presents Discover How To Pay Off Debt posted at Finance Tips 101.

Silicon Valley Blogger presents FNBO Direct: Best Online Savings Account, ETrade Bank Interest Rate At 3% APY posted at The Digerati Life, saying, "Thanks!"

credit

PFCreditCards presents Changing Your Discover Card’s Payment Due Date posted at PF Credit Cards, saying, "Change the due date can be a powerful and easy way to organize your finances"

David presents Payday Loan Flipping?Are Interest Rate Caps the Answer? posted at Payday Loans Review, saying, "Many states have enacted interest rate caps on payday loans, but this may not be the best answer to chronic borrowing."

David presents Capital One No Hassle Miles Rewards Credit Card Review posted at Credit Card Offers IQ, saying, "Review of one of the top travel reward credit cards."

debt

Joe Mueller presents Getting Information On Debt Consolidation Loans posted at Debt Consolidation For Beginners, saying, "When considering a debt consolidation loan the most important thing that a beginner is going to need to get is information on their loan. The more information you have, the better the decision you will be able to make concerning whether or not consolidation is in your best interests financially."

ChristianPF presents Would you walk away from your mortgage? posted at Money in the Bible | Christian Personal Finance Blog.

frugality

Ishanbansal presents 10 Tips to Reduce Car Expenses posted at Save Few Bucks, saying, "Practical tips to reduce car expenses by hundreds of dollars every year. Thanks for taking out time to review this."

Kate Kashman presents Store Brand Groceries - The Paycheck Chronicles posted at The Paycheck Chronicles, saying, "A plan for trying store brand groceries - you can save a bundle!"

Wren Caulfield presents The Save-Big Shopping Secret posted at True Adventures in Money Hacking.

investing

Llamamoney presents Investing – a Conundrum posted at Llama Money.

Joshua Dorkin presents The Asset Protection Misconception: Why Insurance Alone Isn’t Enough posted at Real Estate Investing For Real.

Investing School presents Zecco Review posted at Investing School, saying, "Zecco may have changed their free trades policy but it's still one of most popular stock brokers."

The Dough Roller presents ALERT: Refinance Your Mortgage Now! posted at The Dough Roller, saying, "If you are considering refinancing your mortgage, rates may be going to their lowest point now. Here's why and how to refi!"

Rob presents How to Respond to Late-Paying or No-Paying Tenants posted at Two Wise Acres, saying, "How to deal with tenants who pay late or not at all."

Silver Investor presents Why I'm Piling Into Silver posted at Gold Investing Info, saying, "Given the prospects of stagflation, buying silver is looking like a good investment option."

other

Mesquite Pete presents Don’t Take Too Much Risk | Sound Stock Investment posted at Sound Stock Investment, saying, "If there is one thing we all could learn from the recent crisis, it is the danger of taking too much risk."

Leanie Belle presents Follow Up Tips For Your Internet Business posted at Internet Business Make Money Online With Welly Mulia.

DMH presents Lending Club $25 Promotion Code posted at Daily Money Hack.

Matt K presents How to Find the Best International Air Fare Deals posted at Flight Attendant, saying, "Some tips to save money when flying international."

Michael presents Negotiating with Car Salespeople: How to Get the Best Deal on Your Car posted at Vital Motion, saying, "The thought of negotiating with car salespeople is enough to make some people dread buying a new car."

Jay Green presents Remote Computer Maintenance: RCM posted at Remote Computer Maintenance, saying, "Save Money"

saving

Mr. Banker presents Savings Rates May Stop Dropping? posted at Best Interest Rate Banks.

stocks

Steve Patterson presents FastSwings - Blogs - US Markets Rally Despite Being Overbought posted at FastSwings, saying, "The markets have really rallied the past 5 trading days make all short positions difficult to hold."

Finance Tips 101 presents Personal Grants To Pay Off Debt posted at Finance Tips 101.

taxes

Madeleine Begun Kane presents Finally, An Up Side To Filing Tax Returns posted at Mad Kane's Political Madness.

Obama on 60 Minutes

Obama was on 60 Minutes tonight:


Watch CBS Videos Online

Watch CBS Videos Online

What Are Credit Default Swaps?

Credit default swaps are relatively new and have recently been making headlines in the current economic crisis. But what are they? Well, the easiest way to explain it is that they are a kind of insurance.  Everyone knows how car insurance works. You pay a certain amount periodically, then if you ever get into an accident, the insurance company will cover the cost. You might never get the payout, but you pay insurance just in case you do need it. Credit default swaps work in the same general way, but instead of insuring a car, you are insuring bonds against defaulting. You have a contract where you pay someone a fee until either the bond reaches maturity or the bond defaults. If your bond defaults, meaning the company doesn't pay you, then the person who insured your bond will pay you value of the bond. The whole point of these swaps is to switch all the risk of that bond onto someone else.  If the bond defaults, the person who bought the credit default swap doesn't lose any money (other than the money they paid for the swap itself) because the person who sold the CDS to you is going to repay you the amount you should have gotten.  Therefore the person selling the CDS has assumed all risk. However, if your bond never defaults, then you lost money in insuring it and the person insuring your bond made money.

In some ways, they are extremely similar to car insurance. The amount you pay varies for every driver. An experienced driver isn't going to have to pay as much as a new teenage driver because there is a smaller chance that they are going to get into an accident and therefore a smaller chance that the insurance company is going to have to pay them. Similarly with credit default swaps, the higher the chance that your bond is going to default, the more you will have to pay to insure it. The amount that you have to pay is based on the credit spread of the bond you are "insuring."  See this article for a description of credit spreads.  Since credit spreads increase as the risk of default increases, the amount that you have to pay to be insured is also going to increase as the risk of default increases. 

However, they are not exactly like insurance in all ways. When you get insurance for a car, you buy it from an insurance company, not your next door neighbor.  Anyone can sell a CDS. Also, if you do not buy car insurance, you actually have to have a car. When you buy a credit default swap, you don't actually have to own the bond you are trying to insure. This makes credit default swaps a type of investment in their own right; you can buy/sell credit default swaps based on if you think a company is going to default. If the bond doesn't default, then your investment gave you a great return as you now have all the payments the buyer of your insurance paid. However, if the bond does default, then you lose money as you have to pay the buyer of your insurance the value of the bond. So, if you do some homework and decide that company A is in great shape and won't default on their bonds, then you could sell insurance for the bond and make money.

Now that you understand the basics, let's say that you want to buy a CDS for the full value of a 5 year bond for company XYZ from bank ABC. You're buying $1 million worth. The bond has a credit spread of 100 points. This means that you are going to pay $10,000 a year in premiums to bank ABC. There are 4 possible outcomes.

1. XYZ never defaults. This means that you paid $50,000 to ABC and got nothing back from them.
2. XYZ defaults after 3 years. This means you paid $30,000, but since ABC is covering the default, they will pay you the $1 million XYZ owed you. So you come out with $970,000.
3. Now, after 1 year, the credit spread has widened to 200 basis points. You decide you want to make some more money so you offer ABC a CDS of the same bond with the new rate. This means that they will be paying you a premium of $20,000 a year. You will still continue to pay them the original $50,000. However, they will now pay you $20,000 x the remaining 4 years = $80,000. After all 5 years, you've made a $30,000 profit. 
4. This time the credit spread narrowed to 50 points after a year. Since the spread narrowed that means that the company is less risky and less likely to default. This means that option #1 is more likely. To offset your losses, you can do the same thing you did in option #3 and offer ABC a CDS. This time they will only be paying you $5,000 a year or $20,000 total. However, if XYZ doesn't default, you will only lose $30,000 to ABC rather than the $50,000 you would have lost.
   

Now I wrote about credit default swaps on a personal basis, however it is extremely hard to insure a bond yourself because credit default swaps are done on a large scale, such as selling and buying hundreds of millions of dollars in bond insurance. However, it is important to understand what a CDS is because that is one of the main problems AIG and other financial institutions are having. 

Must Reads!

Here are this week's must read articles!

The Latte Factor and Becoming a Millionaire

The Buy and Hold Strategy And Your Long Term Investment Horizon

Velocity: The “Speed” of Money

Selling puts isn’t “money for nothing”

The Pursuit of Financial “Happyness”

In Dividend Investing, Cash Is King

The Problem With Flogging A.I.G.

Carnival of Investing Strategies: #7

Welcome to the 7th edition of the Carnival of Investing Strategies. This is a carnival focused on different strategies of investing your money. If your article was included, please be sure to link back to this carnival. If you want to make a submission for the next edition, the form is here.

David presents The Effects of Inflation on Your Money posted at Personal Finance Ology, saying, "Inflation hawks are on the look out. Learn why and what you need to do to protect your money!"

Sri2701 presents Value investing and The Small Investor posted at Mind Meditations.

Cody Butler presents How Do Mutual Funds work? posted at Investment-For-Beginners Blog, saying, "Article on the basics of Mutual Funds, what they are and how they work."

Mr Wall Street presents Wall Street and Main Street are the Same posted at Mr Wall Street.

Insurance Toolbox presents A Comparison of No-Risk Investment Options posted at Fine-Tuned Finances.

Dana presents One way of dealing with a broken economy: Ignore History posted at Investoralist, saying, "Many past beliefs on how the economy functions have been obliterated by this crisis. Is it time to construct a new feedback cycle for a more sustainable economy?"

Steve Patterson presents FastSwings - Blogs - US Markets Rally Despite Being Overbought posted at FastSwings, saying, "Just waiting for the 13 day moving average to move above the 50 day moving average on the S&P 500 for a good sign to get back in."

KCLau presents Save money the stupid way posted at KCLau's Money Tips, saying, "Simple ways to save money"

Aussie Investor presents Buying US Shares posted at Australian Investing, saying, "Although this post is written from the viewpoint of an Australian investor, the principles are the same whenever you buy international shares. Currency risk and local research are just a couple of the factors you'll need to consider when buying stocks in foreign companies."

FMF presents Safeguard #6: Recognize and Avoid Financial Hooks posted at Free Money Finance, saying, "One key to making investing work."

Investing School presents What are Treasury Securities posted at Investing School, saying, "Treasury Securities are the safest investment of them all but is it really the right investment for you? First, let's find out what they are."

Brian McKay presents Term Asset Backed Securities Loan Facility posted at MonitorBankRates.com, saying, "The Federal Reserve Board has come up with another program to plan to restore stability to our financial system by jump starting the credit markets and the economy."

Silicon Valley Blogger presents $50 TradeKing Bonus Extended, Zecco Free Stock Trades Update posted at The Digerati Life.

Aussie Investor presents Australian Stock Of The Week - McMillan Shakespeare Limited posted at Australian Stock Market Today, saying, "Investing for the long term requires patience and an eye for quality. So with that in mind, this week I have a look at McMillan Shakespeare Limited, one of the better quality stocks at the smaller end of the market."

The Smarter Wallet presents Trading The Market: What Market Trends Are Stock Traders Riding On Recently? posted at The Smarter Wallet.

Shot presents How to fix Mark to Market posted at Conunderground.com, saying, "New and original ideas on how to fix mark to market"

JD presents The Global Debt Disease & How It Affects You posted at debthelpcreditrepairpro.com, saying, "The world, Americans included, is suffering from a serious disease - the disease of excessive debt. The problem has been an availability of very cheap credit in recent times, and no real regulation on who can or cannot take on debt."

Thanks to everyone who submitted! It was a great week of reading.

Bernanke's 60 Minutes Interview

In case you guys missed it, here is Bernanke's 60 minute interview. I would definitely check it out if you haven't seen it yet.


Watch CBS Videos Online


Watch CBS Videos Online

What is Shorting Stocks?

Traditionally, when you’re trying to make money in the stock market, you buy stocks at a certain price and hopefully that price will increase so you can sell the stocks at a profit. This method is called going long and is the most common way of trading stocks. However, there is another, lesser known way of trading stocks called short selling. Short selling is the opposite of going long. When you go long, you make money as the price of the stock increases. When you short a stock, you make money as the price of the stock decreases.

So how does this work? Say that you believe stock ABC is over-valued and its price is going to drop soon. You couldn’t make any money off of this prediction going long, so you must short the stock.

1. First you contact your broker to borrow, say 100 shares of ABC. Typically the broker himself is not the one lending you shares, they are in turn borrowing the shares from another investor; however, this really doesn’t matter to you.
   
   
2. You then immediately sell all 100 shares for the price at the moment – let’s assume $20 a share. This gives you $2000.
   
   
3. This $2000 is not your profit. Obviously you can’t just borrow shares, sell them and be done. You still owe the person you borrowed the stocks from. The basis of shorting stocks lies in the fact that you borrowed 100 shares of ABC, not the value of those shares. You only owe the lender those same 100 shares back, regardless of their value.
   
   
4. Now, a week later, the price of ABC has dropped to $10, as you predicted. You now buy 100 shares at $1000. 
   
   
5. You give your broker the 100 shares, which means you have repaid your loan. You still have $1000 left over, which is your profit. (You will likely owe your broker a small fee for borrowing the stocks as well)

This could have gone another way though. For instance, say the price of ABC had increased to $30 a share. You eventually have to pay back the stocks you owe. Though brokers rarely if ever call in your loan, it is possible for them to do so. This means you would have to buy back the stock at whatever price it is at the moment, regardless of the price. Oftentimes when someone is shorting a stock, they will cover their positions to limit their losses. Covering means buying back the shares that you owe to repay the loan, even if it means taking a loss. In this case, you would have bought back 100 shares of ABC at $30, taking a loss of $1000.

Shorting stocks is usually done over a short time frame. When you borrow someone else's shares, you are essentially taking out a loan from them. They in turn charge you interest, as with any other loan. Therefore, the longer you keep their shares, the further the stock must drop to earn you a profit after paying back the interest.

There are risks involved with shorting a stock; more than going long. When you go long, your profits are infinite (the stock’s price can go up innately) yet your losses are finite (the price can only drop to zero). The opposite is true with shorting a stock. Your profits are limited and your losses are infinite. Now to be realistic, obviously no stock prices goes to infinity; they eventually hit a peak, but the idea is that a stock has more room to go higher than it does to go lower.

Shorting stocks is a debated topic. There are those that support it for various reasons. For instance, Warren Buffet believes that it is a useful way to reveal fraudulent companies. Yet, there is still a lot of unease around shorting stocks. It is associated with corruption, such as when hedge funds create false news to drive down the price of a stock and profit by shorting it. Many people view it unfavorably, simply because you are profiting off someone else's misfortune.

Personally, I don't like the idea of shorting stocks. When you go long, you are investing in a company. When you short a stock, there is no benefit other then the money you get. There is nothing produced. I see shorting stocks as an example of the way the stock market is turning into a money making scheme rather than a way to invest in a company, which is what the stock market is intended to do. 

How do you guys feel about shorting stocks?

Carnival of Everything Money #6

Welcome to the 6th edition of the Carnival of Everything Money. I wanted to give my thanks to everyone who is contributing to making this carnival a success! I would appreciate it if anyone who is featured in the carnival links back to this post. If you want to submit an article for next week's edition, the submission form is here.

WE ARE ALSO LOOKING FOR NEW HOSTS FOR THIS CARNIVAL. If you are interested please email us at thepennydaily@gmail.com

budgeting

Wren Caulfield presents Reviews: Online Money Mgmt Tools: Mint, Quicken, and Rudder posted at True Adventures in Money Hacking.

Silicon Valley Blogger presents Lower Your Car Insurance Rates! How To Cut Insurance Premiums In Half posted at The Digerati Life.

Beth Dargis presents Save Hundreds of Dollars this Month posted at My Simpler Life - Simple Living.

The Smarter Wallet presents Budget Your Money and Control Your Spending Using This Simple System posted at The Smarter Wallet.

Relax presents Book Review: Your Money or Your Life posted at The Wise Curve, saying, "I suggest you to invest some money in this five star book. The knowledge in it will help you to build a solid foundation for your wealth."

credit

Julie Guarnizo presents Safeguard Your Identity posted at Beef Up Your Piggy.

PFCreditCards presents Why I Still Get My Bills and Credit Card Statements in Paper posted at PF Credit Cards, saying, "I am a computer geek who love new technologies but I still love my paper statements."

Mr Credit Card presents Household Bank Credit Card Review posted at Ask Mr Credit Card, saying, "This is a review of the Household Bank Mastercard."

Lisa presents Saving Money with Credit Cards posted at The Budgeting Blog, saying, "Some advice on saving money with credit cards"

The Dough Roller presents 10 Lies that Got You (and Keep You) in Credit Card Debt posted at The Dough Roller, saying, "Here are 10 ways we convince ourselves that credit card debt is ok."

debt

Raj Patel presents Student Loan Debt Forgiveness Options posted at DebtGoal.

Insurance Toolbox presents American Express is Paying Customers to Cancel Their Credit Cards posted at Fine-Tuned Finances.

Sam presents NEW !! Free Home Foreclosure Help.. posted at Surfer Sam and Friends.

frugality

Vince Scordo presents Top Colossal Money Wasters: 11 Tips posted at Scordo.com.

Save Money presents Frugal Frauds Revealed posted at How I Save Money.net.

Tom Tessin presents How Can I Find The Best Auto Insurance Companies? posted at FGC Auto Blog, saying, "Everyone has to buy auto insurance. Here are some tips that you can use in order to save money."

Celes presents Materialism Breeds Unhappiness posted at EmbraceLiving.Net, saying, "Are you a materialistic person? Do you look towards material and physical goods, such as money, luxury items, car, property, to make you feel happy? This article looks into materialism and why it cannot make us happy."

investing

Sri2701 presents Value investing and The Small Investor posted at Mind Meditations.

Doug Willis presents Attending A Real Estate Investment Seminar posted at Up2Date.

Investing School presents What are Treasury Securities posted at Investing School, saying, "Treasury Securities are the safest investment of them all but is it really the right investment for you? First, let's find out what they are."

Brian McKay presents Term Asset Backed Securities Loan Facility posted at MonitorBankRates.com, saying, "The Federal Reserve Board has come up with another program to plan to restore stability to our financial system by jump starting the credit markets and the economy"

other

Constantin presents How to fix Mark to Market posted at Conunderground.com, saying, "Original ideas to fix mark to market"

Livingalmostlarge presents Adding the fat posted at LivingAlmostLarge.

Len Penzo presents Immunize Yourself from the Layoff Bug posted at Len Penzo . Com, saying, "Don't wait to get a pink slip before figuring out your next steps! Here's how to go on the offensive to minimize disruptions and impacts to your family that comes with being laid off."

Leanie Belle presents Give And Create Value First, Receive Second posted at Internet Business Make Money Online With Welly Mulia.

Steve Patterson presents ATM Skimming Leads to 1 Billion in Losses for Consumers posted at ISMagazine.com, saying, "Great story about ATM safety and something to present to your bank to make sure their ATMs are safe."

Marjorie presents Watch Out For Scams: 3 Big Ones posted at Wealth Junkies, saying, "There are plenty of rumors about stimulus packages and taxes floating around — and many of them aren’t true. "

saving

Mr. Banker presents Banking Online Safety Tips posted at Best Interest Rate Banks.

Free From Broke presents Is 8 To 12 The New 3 To 6? posted at Free From Broke, saying, "Do we need to save more in emergency expenses in this economy?"

Condo Blues presents How I Slashed my Electric Bills without Moving into a Yurt posted at Condo Blues, saying, "My goal was to reduce the amount of electricity in my 1500 square foot free standing Condo used for 2008 by 20%. I wanted to do it without alternative energy generators, by keeping of my current non-Energy Star appliances, and as inexpensively as possible. I didn't meet my goal - I beat it. Here's how I did what I did."

Jim presents Don’t Save Your Money posted at Blueprint for Financial Prosperity.

Mike J presents 20 Saving Tips for the Lazy Single Man posted at @FinancialPlan, saying, "Are you a single man? Here are some tips to help you save money and time"

stocks

Aussie Investor presents Australian Stock Of The Week - McMillan Shakespeare Limited posted at Australian Stock Market Today, saying, "This week I have a look at McMillan Shakespeare Limited, one of the better quality stocks at the smaller end of the market."

Zach Scheidt presents Blackstone Group (BX) - Silver Linings posted at ZachStocks, saying, "Blackstone as a company is well capitalized with a strong balance sheet. BX has raised capital for the funds and is sitting on $25 billion of dry powder"

taxes

Jim DeSantis presents You Are A Banker And A U.S. Automaker posted at On Line Tribune | Front Page Blog, saying, "In an old Hollywood movie, actor Burgess Meredith's character said he invented - 'conspicuous consumption.' This is what we have become and this is at the heart of our economic disease - conspicuous consumption without regard for the consqquences."

Thanks again to everyone who participated! Please remember to link back to this post. Check back next week for a new edition.

Festival of Stocks #132

Welcome to the 132^th Festival of Stocks! There were a lot of great articles on a wide array of topics. If you are featured in this edition, please make sure you link back to this post. Thanks!

Editor's Pick

James Cullen presents Entertainment Properties (EPR): Load Up, or Lights Off? posted at College Analysts, saying, "Is it time to step up and buy this REIT?"

Fitz Villafuerte presents Investing In Mutual Funds posted at Ready To Be Rich, saying, "A simple explanation of mutual funds and the advantages and disadvantages of investing in mutual funds"

Dividend Growth Investor presents Merck/Schering-Plough Merger Arbitrage Opportunity posted at Dividend Growth Investor.

Ramis presents Dollar Cost Averaging posted at Financial Highway, saying, "What is Dollar Cost Averaging? A look at how you can build your investment portfolio through dollar cost averaging."

Mike Power presents US Stocks that can Make The Best Stocks in 2009 List posted atBuyMyStockPicks, saying, "look for companies that should perform in a though economic period. Stocks that have been under evaluated by a psychotic market!"

The Rest...

The Smarter Wallet presents Investing In The Stock Market? Rules To Help You Sleep At Night posted at The Smarter Wallet.

Sun presents Bought 600 Shares of Citigroup posted at The Sun’s Financial Diary.

Cody Butler presents What Is A Money Market Account And How Does It work? posted at Investment-For-Beginners Blog, saying, "An introduction to money market accounts, what they are and how they work."

Steve Alexander presents Quick Take: Deckers Outdoor Corp (DECK) - MagicDiligence posted at MagicDiligence - Optimizing Joel Greenblatts Value Stock Strategy, saying, "Deckers Outdoor benefits from product momentum driving strong growth, and a very sound financial footing. But beware - this could be another fad stock in the making."

MoneyNing presents Zecco vs TradeKing - Online Stock Trading Comparison posted at Money Ning, saying, "TradeKing and Zecco commands the market of cheap trades but who is actually better? Check out this comparison guide before you decide which one is right for you."

Jae Jun presents Negative Enterprise Value Screen for Net Nets posted at Old School Value, saying, "This screen will help you to find companies that are loaded with cash and with manageable debt. A quick way to find companies trading at cash value."

Super Saver presents Bear Market Maxims posted at My Wealth Builder, saying, "Although published in July, 2008, Andy Kessler's Bear Market Maxims are worth hearing again, as we enter the eighteenth month of a bear market."

The Financial Blogger presents Long WebMD(WBMD)/Short Yahoo(YHOO) posted at Intelligent Speculator, saying, "I found it a bit difficult and frustrating to be short Yahoo! because the recent changes in the structure have been followed by almost weekly announcements of changes in the direction, or new technology arrivals."

Jack presents What China Market Offers Nike(NKE) to Fight Recession? posted at Silent Treasure.

Silicon Valley Blogger presents Find Investment Opportunities In Any Business Market Environment! Ride The Economic Recovery posted at The Digerati Life.

Ryan Suenaga presents Dude, Where’s My Dividend? posted at Uncommon Cents.

George presents Ultimate 2009 Berkshire Hathaway Annual Meeting Guide posted at Fat Pitch Financials, saying, "In anticipation of this year’s Berkshire Hathaway (BRKa) annual meeting, Fat Pitch Financials is starting its 2009 annual meeting guide early this year."

Aussie Investor presents Australian Stock Of The Week - McMillan Shakespeare Limited posted at Australian Stock Market Today, saying, "Stock markets all over the world have been decimated in recent times, and Australian shares have been no different. But investing for the long term requires patience and an eye for quality. So with that in mind, this week I have a look at McMillan Shakespeare Limited, one of the better quality stocks at the smaller end of the market."

To read any past posts, see future hosts or apply to host a future edition, check out the Festival of Stocks homepage. If you'd like to submit an article for a future edition of the carnival, here is the carnival submission form.

Understanding Credit Spreads

One important indicator of the state of the economy is the credit spread. Before we start explaining how the credit spread can give you valuable insight into the economy, you first have to understand what a credit spread is. To understand those, you need to know the basics of Treasury Securities and Corporate Bonds.

A general credit spread is a comparison between the yields of two bonds with equal maturity, but different credit ratings. The difference is measured in "basis points." Every 0.01% difference between the two bonds is 1 basis point. Therefore, if bond A has a 6% yield and bond B has a 7% yield, the credit spread would be 100 basis points. Remember that yield increases as risk of default increases; so the credit spread is showing the increase in yield you can expect with an increase in risk. Typically when you are calculating credit spread, you will be comparing a bond to a treasury security. This is because treasury securities are the safest investment as they are backed by the United States Government - essentially risk free. This makes treasury securities a good benchmark to compare the relative risks of other bonds against.

However, when we are trying to use credit spreads to look at the economy as a whole, we are not going to compare 2 random bonds. While knowing the risk of investing in company A compared to a treasury security is useful when analyzing that specific company, it is not going to be an accurate reflection of the economy as a whole. This is why large groups of corporate bonds are measured at once. There are many different indexes that are composed of various corporate bonds.  A list of some of the major indexes can be found at the Wall Street Journal.

Why are credit spreads important when looking at the economy? First, let's think about what the credit spread is measuring. It is showing the return people expect for the risk they are taking by investing their money in a company. If people think they are taking a high risk by investing, they will expect a high yield to compensate. Since it is always compared with treasury securities, which are risk free, rising risk/yields will mean a widening credit spread. If they feel safe investing, they will not expect as high of a return because they are not taking as much of a risk. This would make the yields/risks closer to that of treasury securities and the credit spread will narrow. 

Now, if the credit spread for a single company widens, that is a sign people think that investing in that particular company is risky; they believe it is more likely that company will default on its loans for whatever reason. While this is not good for the company, it doesn't say much about the economy. However, if the credit spread for a huge index widens, this means people are afraid to invest AT ALL. They think that all companies have a higher risk of defaulting. There is wide concern of the ability of all companies to deal with their debts. It is not only predictive of how people think these companies will do in the future; it actually hurts the companies as well. One of the ways companies raise money is by selling bonds. If less people are buying, as well as demanding higher yields, this makes it more likely that companies will default on their loans because they won't be able to raise enough capital.

Here are two graphs of credit spreads over the past 10 years. Both are compared to a 20 year Treasury Constant Rate. The first graph shows the spread with Moody's Seasoned Aaa corporate bond yield; a collection of corporate bonds with aaa ratings - their highest. The second shows Moody's Seasoned Baa corporate bond yield. Baa is considered "lower medium grade," much more risky.


Data is from: http://research.stlouisfed.org/
You can see the recent high spikes in both, though it is much more drastic in the Baa bonds. This shows that the credit spread is widening right now, a sign that people do not have faith in companies' abilities to pay off their bonds, especially those that do not have great credit ratings to begin with.

So what does this say about our economy right now? It shows that people are uncertain about the future of the economy, they are unsure when the current crisis will end. Overall when companies are at risk of defaulting, that means that they are not generating enough income. Usually this is because consumers are not spending enough money, showing that the economy is in bad shape. S&P has said that 35 companies have defaulted so far this year, compared to 12 in the same period last year. Big name companies such as Blockbuster are cited as risks for defaulting. Certain companies such as GE have had their credit rating downgraded. All of these factors contribute to people seeing these investments as riskier.

This basic understanding of credit spreads can really help you understand what directions companies and the economy are moving in.

Weekly Must Reads

Here is my list of articles from around the blogosphere that I think you should take a look at.

1929 Stock Market Cycle: Are Technical Indicators, Stock Trends Repeating History?

Horizontal diversification

Should You Sell A Dividend Stock After A Dividend Freeze?

Ten Laws of Technical Trading by John Murphy

Nationalization and Capitalism

Trading The Market: What Market Trends Are Stock Traders Riding On Recently?

Investing In Treasury Inflation-Protected Securities

Where Did All The Money Go?

Sixth Carnival of Investing Strategies

Welcome to the 6th edition of the Carnival of Investing Strategies. This is a carnival focused on different strategies of investing your money. If your article was included, please be sure to link back to this carnival. If you want to make a submission for the next edition, the form is here.

Nesher presents Free Trade Position Size Calculator posted at Internet Stock Trading for Beginners.

Nickel presents Alternatives to High Yield Savings Accounts posted at fivecentnickel.com.

The Dividend Guy presents Future Stock Market Returns posted at The Dividend Guy Blog, saying, "A interesting post on the future of stock market returns."

The Investor presents Stocks vs corporate bonds posted at Monevator.com.

Brian McKay presents Best Savings Account posted at MonitorBankRates.com, saying, "Broadway Federal Bank is offering a promotional online savings account that currently has an annual percentage yield (APY) of 4.08%"

Insurance Toolbox presents A Comparison of Low-Risk Savings and Investment Options | Fine-Tuned Finances posted at Fine-Tuned Finances.

Silicon Valley Blogger presents Lending Club Investment Performance, Loan Returns: Should You Invest Via Direct Lending? posted at The Digerati Life.

Darwin presents Using Google Search Trends to Exploit Market Moves posted at Darwin's Finance, saying, "This unique article highlights the method of utilizing Google Search Term Trending in order to exploit future market moves in stocks and commodities."

Sigrid Landau presents What Does The Future Hold For The Big Three Auto Industry? posted at A1 How To, saying, "What is the problem with the Big Three Auto Industry? Are they ever going to make a comeback from, recover from their current funk? Is now the time to take a chance to buy Ford or GM stock?"

The Smarter Wallet presents Investing In The Stock Market? Rules To Help You Sleep At Night posted at The Smarter Wallet.

Rob presents Obama’s “Making Homes Affordable” Program and Evil Real Estate Investors posted at Two Wise Acres, saying, "Are real estate investors really evil? Apparently the Obama Administration thinks so with its new Making Homes Affordable program."

Cody Butler presents What Is A Money Market Account And How Does It work? posted at Investment-For-Beginners Blog, saying, "An introduction to money market accounts, what they are and how they work."

Michael Cintolo presents An Easy Way to Time the Stock Market posted at The Iconoclast Investor.

Zach Scheidt presents Intrepid Potash Inc. (IPI) - Pressure From All Sides posted at ZachStocks, saying, "Intrepid Potash has reduced its production schedule which will likely have a short-term impact on earnings, but management is preserving assets so long-term gains will be more likely"

Steve Patterson presents Don?t Take Your Losses! posted at 2009 Taxes.

Insurance Toolbox presents How to Get Tax Credits and Tax Deductions by Saving For Retirement posted at Fine-Tuned Finances.

Dana presents Believe it or not, the recession has perks posted at Investoralist, saying, "The younger generation feels squeezed by the financial crisis on multiple fronts, not realizing this recession offers unprecedented opportunities years down the road, for both property ownership and investment."

Gold Investor presents Gold/Silver Ratio | Gold Investing Info posted at Gold Investing Info, saying, "If you are going to invest in precious metals, it is useful to look at the gold to silver ratio."

Michael Haltman presents Beware The Misleading Nature Of 24 Hour Business News posted at The Political and Financial Markets Commentator.

John Duke presents Happy 9th Anniversary posted at OrangeHornet.

David presents Jim Cramer Responds to Jon Stewart posted at Pimp Your Finances, saying, "We've all heard the soundbytes from the Cramer-Stewart debate. But have we looked into the facts? I take a look at Cramer's response to the original Daily Show piece."

Sherin presents Ayurveda for young investors posted at Investment Internals, saying, "Most succeeded investment strategy for beginner as well as experienced investors"

Darwin presents Intrade Futures and Trades - You’ve Gotta See it to Believe it posted at Darwin's Finance, saying, "This article highlights the ability for everyday investors to trade on rather bizarre world events via Intrade futures."

Thanks to everyone who submitted!

Is This Rally Here To Stay?

And another big rally today. It seems that this rally has been based off of good news, rather than technicals. A lot of technicians have been saying we are going to get a rally because of technical factors. But to me, this is a rally based off of fundamental changes. And that is why I think this is a legit rally that is here to stay. Not some one day wonder. There was a lot of good news out this week that has really moved the markets.

First off, after the market closed, Citigroup announced that they do not need anymore capital injections. This is excellent news because it shows the banks are beginning to be able to sustain themselves and may finally be turning for the good. This news came out today after the close of the markets, but Citi was up 6% after hours.

Second, Bank of America, Wells Fargo, and JP Morgan Chase all followed after Citigroup and announced that they too were profitable throughout the year. I expect the market to go up in early trading tomorrow as Citi made its announcement that it won't need more capital injections.

Next, GM announced that they did not need the 2 billion dollars the government was ready to give them. This is good news because finally maybe the car industry has cut costs and will be able to start recovering.

Fourth, retail numbers came out today and were better than expected. On top of that, January retail numbers were revised to show that there was actually an increase in retail sales. After all the negative economic news we have been getting, it is nice to see that things COULD finally turn around.

Mortgage rates have been dropping, mortgage applications have been rising, and less and less houses are being built. There is going to be a turn in the housing market soon.

Additionally, GE got its credit rating cut, and the stock skyrocketed. This was the first time that really bad news has been priced into stocks, and when reality came around, the stocks went up. We've been searching for a bottom where the worst of news has been priced in, could this be it?

And finally, Congress is pushing to have the mark to marketing accounting rules revised. This is going to give banks a lot of breathing room.

These changes show that the economy and the market is making fundamental changes to turn around. We are not out of the woods in the economy yet, but we are finally moving in the right direction.