Crash Market Stocks - Financial Tips On Making Money In The Stock Market

Another 100 point rally ended with the Dow today as surely many are buying into Bernanke's belief of an recession that is now over. Indeed, no one can deny how impressive it has been to see the market rally for so long and I congratulate those who have made some significant money off riding it up. I, unfortunately, have not been able to pull the trigger and will not be able until I see a stabilization of certain very critical areas of the economy. Don't get me wrong, my ultimate hope is for as quick a recover as possible, but despite such recent strong performance from Wall Street, I still strongly believe we are not finished with scary times.

As I have said before, a critical influencer in the economy is the movement and prices of homes. This summer, for many markets, housing sales have gone up a bit as have new home sales. Some have taken this as the sign that the residential crash is over. For me, there are things to consider when evaluating the housing market. First, the season. Everyone knows that Spring and Summer are hot home buying months. It's convenience for families to move in between school years and the weather is hot and warm. So to see a month to month change in home purchases is not all that surprising. However, year over year, we remain significantly lower.

Another big influence, especially on new home sales is the $8,000 tax credit. It is estimated that over 1/3 of all the new home buyers are using the $8000 credit. In fact, since its creation in January, there has been a consistent gain in new home sales. Home builders now worry that due to the program's November expiration, new home sales will considerably drop. They may be right.

In addition to the tax credit, is the mass amount of Freddie and Fannie debt that the US Treasury is purchasing. Conforming home loans are some of the only loans available in the market for most banks. This is because the US Treasury has been purchasing all Freddie and Fannie conforming loans. As a result, we have seen record mortgage interest rates, which have reached below 4.5%. It is estimated that a total of $2.3 billion has been saved from mortgage rate savings. Per household, that comes out to about an average of $110 per month. The problem is the government cannot buy these loans forever and plans to stop at the beginning of next year.

Openings at $100K & Above!


As I have said before, the big question is: can this economy stand on its own two feet? A recovering stock market is a great story and wonderful to see, but unfortunately, it has no fundamental tie to the actual progression of the economy. Sustainability is always the key. Happy Trading.

It is very evident by now that indeed the market has been on one heck of a run, for whatever reason that is. At many times, it defied a lot of negative data and crumbling bankruptcies and kept pushing on through. As positive as things look in the stock market, unfortunately, a lot of economic data is not following. This is why I believe that we are currently at the place we are in with stock market, sluggish movements with very little volume. Even market optimists believe a pullback is needed to propel the next rally. At any rate, eventually the stock market and the economy will run in the same direction, that's how it works. It is consumer spending which drives the economy, so I wanted to discuss the new perfect storm that is heading right towards the consumer.

Increasing Oil Prices
With oil prices now above $70 per barrel and climbing, this is quickly becoming a burden on the consumer. We already know consumers are saving more and spending less and the more money getting funneled to energy costs, expenses, and taxes, the less dollars that will be going into retailers, autos, hotels, etc. You can bet that a $70+ cost of oil will have a strong negative effect on the consumer.

Increasing Mortgage Rates
Just when everyone thought the bottom of the housing market was in sight, a new problem arises. I have said all along that my belief of the recent activity in the housing market was largely due to extremely low mortgage rates that were available. Also, not only are there federal incentives, but many states are matching federal incentives with state incentives to go out and buy a house. Now, as we see mortgage rates climb, be sure that this will take a toll on demand and when you consider the hundreds of thousands of houses that have been foreclosed on in the past two months (and the thousands of more that will be), we had better hope for a strong demand.

No Money Earned, No Money Borrowed
Although last month's jobless report was significantly better than expected, the unemployment rate was worse. As we continue to lose anywhere from 300-600,000 jobs a month, that's less discretionary income being spent in the markets. On top of that, when you take a $15.7 billion credit borrowing loss, it is obvious that people aren't borrowing much. So, yes, we've been able to see success with the help of a few trillion from the government and Fed, but we're beginning to see the price of taking that road costs, as Treasuries are becoming less and less desired. If there is less money coming into families, as well as less being borrowed, where will consumer spending come from?

These stand out as big concerns for me, as consumer spending makes up 70% of GDP. The stock market can respond whichever way it wants, but obviously there is not much confidence in it, as we have seen record low volume the past week. Until we see more normal, natural movements in the stock market, it's hard to use it as a measure of the state of the economy. Like I said before, eventually the two will align, but it's difficult to project when that is. I believe very soon, but that's me. Plus the best way to recreate demand for government bonds is how?...Tank the stock market. I believe I will find the best opportunities first in the retailers, which I will discuss which ones specifically on today's premium podcast (subscribe here).

A quick update on my Lending Club investment, I've experienced no late payments and my 10.5% target return is still being reached. They just posted an article saying that their average returns for investment are 9,9%. This makes sense, seeing how demand for loans must be spiking due to the illiquidity of the credit markets. Happy Trading.

When it comes to making money in a recession, understand two things; it can be done and flexibility.

For the past two decades, especially the 90’s and the tech boom, it was common to see a stock double or even triple within a short period. There was no major statistical analysis, throw the darts and roll the dice. Things have changed, the pendulum has swung. Our market is not producing the same results, yet we still want our portfolios to increase 10-12% a year. Obviously in a recession that is not going to happen, but our portfolios do not have to be down 40% either.

A close confidant of mine with Morgan Stanley has focused on taking advantage of the swings in the market by utilizing leveraged ETFs. The ideology is simple, but the need for flexibility is great. Two ETFs to keep in mind are Direxion 3x FAS and BGU. Both are bullish Financials and Large Cap respectively. But you need to understand exactly how ETFs work. ETFs can be traded just as easily as any other stock. All you need is a brokerage account. Zecco.com has some of the best rates around.

They have the diversification of a mutual fund but trade like a stock. The attraction recently to ETFs is their ability to take advantage of volatility, much like an option, but without the hassle of understanding calls and puts. But remember an ETFs whole goal is simply to outperform their respective sector each day, not over a long term basis. When an ETF claims to “double the DOW”, their time horizon is today, not tomorrow. Do not believe if over a five year period the DOW gained 10% that your return should be 20%, it does not work that way.

One of my goals of this website is to try and provide more and more knowledge and insights to you as readers. To help accomplish this goal, I have invited a good friend of mine to be an author on the blog as well. Chad Carlson has some great experience working at Morgan Stanley and will be a great contributor to Crash Market Stocks. His insider experience can bring a new light to the site and discuss other elements of trading that I have not experienced. I will continue to give my daily posts, so sometimes there will be two posts a day, so keep your eyes out. You can access all of Chad's posts at anytime by clicking either the link on top or on the side bar that says Chad's Corner. So on that note, I give you Chad Carlson:

Reinvent The Wheel

I sat there trying to absorb all the wisdom from a 25 year vet of the business. His plaques, certificates, and diplomas screaming at me while confidence oozed from every word. Hours later the epic event ended with a classic Al Sharpton moment, “Son, we don’t need to reinvent the wheel, what has worked in the past will continue to work today”. We don’t need to reinvent the wheel? Is the model T the best car available? Is bleeding still a medicinal practice?

We are in a new era of investing. What worked for the past thirty years will not suffice today. We can not be so naive to think that an 80/20 split is adequate to survive this day and age. Pension plans are a thing of the past, social security funds will be dry in the next the twenty years, the average person changes jobs seven times by the age of 28, and 401 k plans are limited in their capabilities. The responsibility falls on you. Treat your portfolio like a business.

You can diversify all you want amongst mutual funds, bonds or even stocks but you are still invested in the market. You are still going to throw up from the roller coaster ride that is our economy. Sure that mutual fund has a great track record. Sure that stock has the “chance” of doubling overnight. I have a chance of taking Kobe one-on-one too.

As a former financial advisor I was required to state to my clients that nasty little clause, “Past performance is not an indicator of future results”. In other words, this hypothetical I just made you is misleading and your little world is going to burst when that 12% return never comes. But we should not reinvent the wheel right. What has worked in the past will continue to work today. Just ask Ford.

The new wave of investing is the old way of capitalism. Flexibility. Adaptive. You must be paid for the risk you are willing to take. Yes the market is going to rebound, we all know that. The question is when and what to do until then. Do you sit on the sidelines with cash? Do you take chances on stocks with their all time lows? Do you simply let your portfolio ride the way it is? There are answers. The powerful will simply survive this recession, but the intelligent will succeed.

There is something in the finance world called smart money. University endowments, foundations and state funds invest differently than 99% of the world. They also outperform 99% of the world. The average investor can invest like the Yale endowment. There are more than just mutual funds and stocks. It’s about attacking all markets, minimizing risk and generating alpha. It has been done with the ultra wealthy and now it is time for the average Joe. It is time to reinvent the wheel. Check Out The Free Latest S&P Technical Points Video

Chad Carlson

During his tenure as a Financial Advisor for Morgan Stanley in Greensboro, NC, Chad Carlson specialized in alternative investments. As partner in a group that recently landed a billion dollar Pension Plan, Chad’s extensive analysis and unique investment outlook created high returns with low volatility. With clientele that included Hanes Brands and Sealy Mattress Co., Chad’s investment experience and knowledge makes him a valuable asset to the crash market stocks family.

Chad graduated with a BA from Brigham Young University. His current designations include: Series 7, 31, 63, 65, Rule 144 Specialist, Insurance Licensed. Is able to conduct business in Arizona, California, Florida, Georgia, North Carolina, Utah, and Virginia.