The Current State of the Financial Markets

This past week has brought back the feeling of a falling knife. Not a good feeling, especially if you are over invested. The good news is that the markets are probably going to find a bottom soon. The bad news is that no one knows at what price. That is the $1MM question. And by far and away, that is the question that I am hearing most often from friends, family, and readers. So, where will the market find support?

Before we get to the charts and some levels to keep an eye on, let me provide you with 5 pieces of information that carry importance in understanding the summer lead up to the current state of the financial markets:

1) The European sovereign debt situation worsened and became contagious over the summer months. The PIIGS (Portugal, Italy, Ireland, Greece, and Spain) have always been a concern, but it wasn’t until July/August that the markets really hammered the debt of these nations (see: credit default swaps). This, in turn, hit the European equity markets… hard. The anxiety across Europe has grown to a light boil and social mood is only getting worse. Youth unemployment is unacceptably high in many European countries and will have dire consequences down the road if its not dealt with soon. Consumer confidence in Europe (and America) is low and the mood dreary and anxious, to say the least

Money Management for Financial Markets

If you are serious about trading on any kind of time frame you have to know what you are going to risk before you buy or sell short. This is true in any kind of business. With the stock market you can be extremely specific on your loss expectations because of the vast amount of liquidity in the markets. With a stock exchange that is open 24 hours a day 5 ½ days a week there is ample opportunity to know your risks.

In order to succeed in any kind of venture you have to treat it like a business. You wouldn’t start a successful retail business without planning the various aspects of what to market and who you are going to market towards. You must treat trading the same way. Far too many beginners haphazardly start trading thinking they will make quick fortunes. That is nothing more than a mental trap. The stock market is, as much if not more, a mental business than the technical and fundamental information it trades on. Opening an account without a game plan is a plan for disaster.

If you are brand new to trading you should go out and open a practice account. It is critical that you treat this account like it is real money. Don’t leave trades open that you would profit on with real money and don’t let losers run. You need to prove to yourself that you are a successful trader, and to do that you need to see the beginning balance grow, no exceptions or excuses. After you have successfully added value to your account over a 3 month time period is it acceptable to start trading live.

Gold and the Current Financial Market

When inflation plays tricks on your savings, you cease to trust the banking systems. No bank is able to offer the guarantee of keeping your money safe forever. And you don’t solve the problem by keeping the cash under your pillow. You will realize one day that you only own a pile of paper that has little value although you thought you had a fortune. But what is it that one can do during exhausting periods of recession?

Experts can easily explain your opportunities. What is it that you want? Financial stability. How can you obtain it? By storing your wealth in a safe deposit. And if you are still wondering what is the form of that deposit, the answer is simple: gold. If shares and stocks and other sorts of investment lack stability and have an unpredictable behavior, gold cannot fail you.

History proved that this metal stays firm in difficult times of inflation. When currencies decline, a certificate of ownership of gold bullion guarantees your wealth is protected. An economic crises can show you an empty deposit where you thought nothing could shake your savings. But with gold bullion or bars, coins or jewelry, you physically hold your money. Its notional value becomes real value which nobody can deny.

The Current Financial Market Situation

The last two days the stock market has recovered some lost ground. On Friday, it recovered because of the Fed action to reduce the discount rate. Much was said about this but what does it really mean? It means that banks can borrow money from the Fed at a reasonable market rate that hopefully allows them to invest and earn a profit. This helps with liquidity. It does not, however, address the most fundamental issues facing the market, unless it results in an overall reduction in interest rates along the yield curve.

Let me explain this. The basic problem with the “subprime” crisis is that liberal lending standards have resulted in large pools of assets that investors of all sorts have purchased at relatively low spreads over the market interest rates. This means that there is a low risk premium built into those investments. If in fact, the underlying mortgages have higher than expected default rates, higher foreclosure rates, and higher loss rates, the investors are not fairly compensated and the investments in those bonds are not worth what was paid for them. While we cannot predict the future, it appears that this will in fact be the case. Mortgage default rates are increasing, real estate values are decreasing, and the likely result is that more losses will accrue on those portfolios and the bonds will be worth less than full value.

Now let’s say that you are a Hedge fund. If you purchased a lot of these bonds and in order to increase the return on the equity put into your Hedge fund, you leveraged those bonds by borrowing against them, then the value of your assets may be less relative to the debt you owe against them. Then the value of the equity investments in your fund can rapidly decline or become zero.

Financial Markets and Institutions

If you enjoying watching television or listening to the radio, it is likely that you have seen or heard an advertisement on refinancing your home. Many homeowners have refinanced their home, even more are interested in doing so, but others do not even know what refinancing is. Whether you are just interested in learning more about home refinancing or you are interested in doing it, there are a number of things that you should first examine.

Refinancing is done for a number of different reasons. Those reasons are all likely to depend on the homeowner in question. Many homeowners make the decision to refinance their home to lower the interest rate on the mortgage that they currently have. There are others who refinance their home to help pay off any debt that they may have accumulated.

As with just about anything else in life, refinancing has a number of advantages and disadvantages. The biggest advantage of refinancing is the amount of money that you can save. It is important to emphasize the can. If you are looking to reduce the amount of money that you are paying in interest, you cannot refinance your home whenever you’d like. You will need to pay close attention to the market and the average interest rates. You will only be able to save yourself money if the going interest rate is less than what you are paying now.

Learn How the Financial Markets Really Move

Many experts rely on other experts to indicate a general trend and what then follows is a herd mentality which is then reflected in articles and press reports that you read in your newspapers and elsewhere. Of course there are exceptions to this and some experts really do seem to have an incredible knack for calling the market whether it be for the market to move higher or lower.

Some experts rely on fundamentals which include the underlying strength of certain high profile sectors and companies in order to derive a feeling for the general market direction.

While other experts rely on technical analysis which attempts to predict certain trends believing that once a trend is established it often continues for a considerable time, allowing traders to profit from these trends.

Look Into Financial Markets Before Leapin

Uncertainty with employment and the economic market have encouraged many people to find wealth building opportunities on their own. With a Internet connection and some basic research, anyone can become knowledgeable about the different investment options available. Investing in stock market for forex funds is one alternative way in which to build wealth. This presents an opportunity to generate an income that is outside of the standard methods. It involves making a financial investment in the foreign exchange market. Not only will it offer potential to solidify personal finances but it will also provide resources for emerging markets.

Using the stock market as a means to create an income can be a risky endeavor. Traditionally, smart choices will increase in value. The key to becoming an effective trader is to understand how the market works and pick investments that have good potential. This is where the work comes into play. Before making an investment for any company, review the background. Gain understanding of their business practices and review the potential marketplace for their offerings. Investing in stock market for forex companies will offer the chance to expand into new areas of the world. Knowing when a product can make an impact will improve chances of success.

Another factor to consider when investing in stock market for forex is the country that is involved. An area of the world that is undergoing change can be a risky investment. Wars, social upheavals and changes in government can signify the potential of failure. They can also result in major wealth. The right opportunity at the right time can provide many benefits to a country experiencing change. Depending on the usefulness of the new technology, it can help stabilize the economy in the nation. It will also provide excellent opportunities to realize a profit.

Why Global Financial Markets Are Doomed

Global central banks led by the Fed have painted themselves into a corner, as their two levers of control, interest rates and currencies, are apparently now seen as ineffective for fostering economic recovery and financial stability. Higher interest rates and an appreciating US dollar could cause severe stock and bond market corrections (by reducing earnings and price/earning multiples for the former and increasing debt payments for the latter). Debt-burdened global governments and private companies especially in emerging markets and the oil-ravaged energy sector could be particularly hard hit and even face bankruptcy in many cases. All of that would exert strong deflationary pressure on a global economy struggling to grow since 2009.

Lower interest rates and a depreciating US dollar could fare even worse, as they could thwart central banks’ ability to have any meaningful control over the financial markets and could pose an existential threat to the fiat currencies of their respective sovereignties. Gold and other precious metals could replace those paper currencies in that scenario. A weaker dollar would also likely boost prices of global commodities generally, including oil, industrial metals, food and other important production inputs, thereby creating the potential for runaway, even hyper, inflation.

The fact that a decisive move in either direction for interest rates and currencies could lead to economic calamity probably explains the Fed’s tentative, peripatetic and at times schizophrenic outlook and policies. It also explains the public’s assumed and publicized disdain for gold and precious metals, even though many nations have been privately, quietly expanding and securing their gold reserves recently. If the price of gold is “allowed” to increase it would signal a de facto loss of faith in paper currencies and in central bank authority and influence.

Mixed Signs on Troubled Global Financial Markets

The Dow Jones Industrial Average experienced a massive rally recently, as did most global markets, but the general trend for the first half of 2009 continues sideways. In Asia, banks jumped recently as described by MSN Money, quote”…with banks extending gains on hopes the struggling global financial system is stabilizing”.

Hope has no place on the financial market unless you are into funding abstract start-ups but the use of the word is perhaps indicative of today’s global sentiment: unstable uncertainty and suppressive denial of  indications of further decline.

The fact that the market contractions are gradual and constant instead of sharp massive corrections marks a historic difference to earlier crashes and bursting bubbles.