Friday, March 23, 2012

Fannie May and US Mortgage Market

Us Mortgage Market:
Us mortgage market is considered to be the most vibrant and developed mortgage market in the world, especially before sub prime mortgage crisis thumped its reputation. First because it has fueled the progress towards the achievement of American dream (home ownership), and second because it offers various types of mortgage products. A home ownership rate as high as 67% (approx) and the flexibility of this huge mortgage market is largely influenced by The Federal National Mortgage Association (AKA Fannie Mae).

Fannie Mae:
The Federal National Mortgage Association (Fannie Mae), when launched in 1938 was intended to support and enable poor people so they will be able to buy houses for themselves. Fannie Mae is responsible for standardizing the mortgages. They modify mortgages into mortgage backed securities (just like any other asset backed securities, MBS are "securities backed by mortgage"); these MBS are then sold in secondary markets. Fannie Mae also holds some of these securities in their own portfolio. This mechanism allows a wide range of investors to invest in mortgage market. By doing this, Fannie Mae not only assumes risk for the investors but also injects the much needed liquidity for the banks and mortgage lenders.

Back in 1938, the primary purpose of launching Fannie Mae was to encourage banks and other conventional lenders to lend out home loans to middle class people at conditions that suit them most (e.g. low monthly payments). These "subprime" loans have higher interest rates because they are more risky then traditional loans. Fannie Mae grew rapidly as a company and in 1968 it was converted into a public shareholder owned company. Later in 1970, Freddie Mac was launched as a competitor, just to deal with its monopoly. Even though the securities issued by Fannie Mae carry no government guarantee, the investors had their trust in securities issued by these two huge companies. Despite of some scandals causing public outrage, these companies were doing well till the mortgage crisis of late 2007.

Mortgage Crisis:
Large numbers of "subprime" borrowers ended as defaulters, and lots of foreclosures resulted in the present credit crunch. Despite Government coming forward to help these mortgage giants by taking Fannie Mae into conservatorship along with a huge bailout plan, both companies suffered a sharp fall in their stock prices (as much as 95% in just one year). The truth is that future looks dismal for Fannie Mae, which recently wrote 29 billion losses in the third quarter. Will this huge system that was established to deal with consequences of "the great depression", collapse in the wake of ongoing recession? Only time will tell.

How to Approach the Stock Market For Beginners

Many different sources can probably try to tell you that they offer a stock market for beginners. But the stock market for beginners is pretty much the same for everybody, because everyone has to follow the same basic, elemental principles if they want to get off on the right foot and make sure that they will be able to make a fortune in the stock market rather than losing their shirt or having their money go nowhere fast.

When we are considering how to approach the stock market for beginners, we always start by telling people to buy low and sell high. This sounds all too simple enough to follow. But the fact of the matter is that this can be exceedingly difficult to follow. Buying low and selling high in the stock market is counterintuitive for many, many people, and they may resort to panic trading or overly emotional trading, all of which leads to eventual disaster. To take the emotion out of investing (key to understanding the stock market for beginners), a person must have a disciplined investment philosophy, and that begins with buying low and selling high.

What we mean by buy low and sell high is this: first study a given stock's historic performance by attaining its stock charts. After studying the patterns of its stock price ups and downs, determine (along with some other information) at what point you think a stock is at a "low"; a price that it is almost guaranteed to rise up from--it is "undervalued". When you see that stock actually at or approaching that price on the market, buy it. Don't pay much attention to the news about the company, news about the economy, etc. Just buy that stock. Now, you should also have in mind a price level at which you believe that stock gets to be "overvalued", or people are bidding up its price beyond rational expectations about that company. When your stock is getting close to that price, be prepared to sell. Again, forget about the news, forget about gambling on its going even higher. Just sell it at that point and take your profits (the difference between what you paid for it and what you just sold it for; your buying and selling events may have taken place months or a few years apart, keep in mind).

So understanding and getting into the stock market for beginners is all about creating a discipline. As an investor you will want to be coldly calculating, like a poker player (except in the market, if you're doing things right you really aren't gambling very much). You have to train yourself so that just because a stock you are holding seems to be skyrocketing, don't get too enthusiastic about it; and likewise, if it seems to be starting to tank, don't cry yourself a river. You are looking for certain signs that it's time to buy or sell a stock. Your feelings about it don't matter. You cannot have any attachment to your stocks. That's the essence of the stock market for beginners.

Ignore Stock Market "Talking Heads"

You should ignore analysts on TV, the radio, the newspaper and all other TALKING HEADS when it comes to investing!
What stocks do they talk about? - The same old group, every day of every year - Why? Because they don't know any better, they are sheep like the general public, repeating what every economic textbook says and every other economist tells them to say. Everyday, the same companies are highlighted on the evening news -


They aren't going anywhere. Some of the stocks that make the headlines every night were leaders of the market 20 years ago. New cycles bring new leaders; this has been proven year in and year out. So many of these TALKING HEADS shout out about "buy and hold" but what are they really holding? They hold old high-flyers that were superstars but have now become fallen stars that sit 20%, 50% or even 90% off of their all-time highs (some may have given you a small return - 10% or less over the past 5 years - WOW - BIG DEAL!). Yes, maybe over 15 or 20 years, you will get your money back - but what is the point? Many of these "so-called" investors tell you how they own XYZ stock and it has returned them 65% BUT they leave out the key factor that it has taken 16 years to get to that point.

One of the strongest and most promising stocks of the early 1900's (1920 decade) was RCA - this stock was one that people claimed you put in your portfolio and hold it till near death - it will NEVER fall and if it does, hold on because it will come back. Well, let's take a look: RCA soared over 1100% during the 1920's and crashed with the rest of the market in the early 1930's. It went from a low 0f $8.70 to a high of $106 to a crash level of $3.00. Some said to hold, some said buy on every dip. - Guess what, it didn't climb back to pre-crash levels until 1963! 30 years to break even for some. Maybe that stock in your portfolio is the RCA of yesterday; history always repeats itself because human nature is always the same!

Stocks are worthy to be held over long periods of time, this is a proven fact but don't EVER hold a stock when it is flashing SELL signals left and right (especially if everyone on TV is telling you to buy now on the dip, "it is a bargain"). These talking heads were saying this about every stock on their computer screen in 2000 and 2001 - "buy the dip". The only dip was the guy on TV and all of the suckers watching him/her. I don't mean to offend anyone but you need to take control of your investing life, you need to learn why stocks go up, why they go down and that NO STOCK is immune to a bear market like the one we just had.

Leaders of the market now, won't be leaders in the future - on some rare occasions, a stock here or there will defy everything and grow decade after decade, but even these stocks end their amazing rise at some point. Same is true for old leaders, they won't lead the markets of today - they become too large and their growth slows, preventing them from being excellent growth stocks and giving you excellent returns. Now - I never said you couldn't own a stock like this, many people are satisfied with these companies, they "feel secure", that is fine; everyone has different goals.

Let the market tell you what is going up or down. Watch "sister stocks", I talk about them in our education section of the website. What do I mean by sister stocks? They are stocks that are in the same industry. When an industry is strong, most of the stocks in this group will rise, hand in hand. (I say most - not all, laggards always stay behind). Fundamentals will be strong for most stocks in the group and technicals will guide you along the trip - think of technicals as a road map.

Once fundamentals have been established, check the charts, if several stocks from a particular group are breaking out of bases, this is a strong sign that something great is about to happen in this group. The more positive the overall market the better the group will perform (bear markets tend to hold down just about everyone). Why buy a stock that has great fundamentals in a weak group? If all other stocks in that group are acting weak, this may be telling you that the "one" bright spot in this group will eventually come back to the pack, so don't chance it. Investing is about lowering your risk! Don't take a risk on a stock that looks good but the industry is hurting.

Buy the leader of a group where several stocks are showing strength. Never buy the cheap stock that is lagging in performance, this is a sure way of losing money - buy the best of the group - the one with the best fundamentals (accelerating earnings, ROE, sales, etc.) and technicals (basing pattern, breakouts on huge volume, relative strength, etc...). What may look high to the general public; usually turns out to be low to the smart professional investor. I am not talking about the "talking heads" on TV - the smart investors work for institutions - they move the market! When they buy, everyone knows because volume jumps to extreme levels or levels not seen in prior months or years. The everyday guy doesn't have this power - ONLY institutions have this power - learn to understand this power, here lies the smart money.

Finally, as I grind this educational information into your subconscious mind, ignore the "Talking Heads" and learn to listen to the market. Price and volume will always give you the best advice.

Thursday, March 22, 2012

Financial Advisor Marketing: Marketing Is About Testing

This financial advisor marketing strategy isn't really a marketing strategy in the traditional sense.

It's a foundational understanding about what marketing is.

Marketing is simply a series of "tests" to see what works.

Believe me, I wish I could tell you that every marketing effort you launch will produce like crazy...but that is impossible.

Every time you market yourself/your business, remember, you are simply testing a marketing initiative to see how well it produces. The results of your test will tell you several things:

- the number of responses

- the number of sales (from responses)

- the quality of the leads/sales

- whether you should roll-it-out and go big with the same marketing strategy

- how well received the marketing piece/event/initiative was

- how much traffic it drove to your website

- how many requests for more information you received

- how many calls with questions (and the types of questions they are asking)

- and more.

Marketing is UN-emotional and you should not allow yourself to become emotionally attached to the outcome of any marketing effort.
I know you want every effort to be a huge success...BUT, always remember - it's a test.

With that said, there are certainly more predictably successful marketing initiatives that you can launch that will produce "guaranteed" just won't know what kind of results until you launch.

You can split test for faster results. Split testing is where you create similar or completely different ads (for example) and send one ad to half of your population (as in a direct mail piece or ad), or your client base, etc., and the other ad to the other half. This will provide you with results (responses, quality leads/sales, etc) fairly quickly and you which one you should use from now on.

Once you have this data, you should use that financial advisor marketing initiative/strategy over and over again until it stops working. Don't change a thing - UNTIL it stops producing.

I once sent the same email to the same list every Monday at 10:00 AM EST for six consecutive months, because it produced the same exact response - for SIX months. When I received 20-25% fewer leads, I changed the e-mail and started over. For some reason people think they have to change their ad every single day/week/month in a particular newspaper, in a direct email campaign, whatever. My advice is, use it until it stops working. That's smart marketing.

Since 1999, Dr. Len has worked with over 3,500 doctors/professionals in 20 countries. Dr. Len is committed to helping professionals automate the growth of their practice by offering consistent marketing, networking, press and publicity. Dr. Len teaches professionals how to strategically market themselves, so they become the best known, most recognized, most respected and most utilized professional of their specialty in their town.

Wednesday, March 7, 2012

Can You Really Get Rich Quick Through Internet Marketing Schemes?

You have seen the ads just about everywhere. If you sign up for such and such a program you can make thousands of dollars each week, or month. Perhaps you already have signed up for one of these programs, or, at least get their emails on a regular basis. Here are some things you need to know about the offers that you see plastered all over the Internet.

Focus On Work At Home Jobs

Just about all of these ads focus on getting away from your day job and firing your boss - something that most working people would like to do. So, there is the hook. It promises something that appeals to most. Then, it offers the opportunity to work from home, even in your pajamas if you want, and make tons of money.

Is This Reality?

If it were true, then why are there so many opportunities? And why do the same Internet marketers always need to keep coming out with new products? If a product works, and can make everyone who applies thousands of dollars each month, in some cases the claim is tens of thousands of dollars, then why do you need more products, or why is there a rush for everyone to make their own products? The obvious answer is because it's not as easy as it is claimed.

What Are The Statistics?

Overall numbers generally indicate that most people who sign onto some Internet marketing program and give it some effort fail. Some say that this number is way above 90%. This means one thing - these programs are not all that they claim to be. While there are many who do make money through some of these programs, they apparently are definitely in the minority.

Are There Real Work At Home Jobs?

Glad to say it - the answer is yes. They may not be so easy to find, though. One way to limit your possibility of being sucked into some scam or scheme, is to first do some research. The more you know the better off you will be in being able to avoid those ads that are real wastes of time.

How Can I Tell The Difference?

One simple way to avoid scams is by learning not to believe every ad that sounds good. Evaluate it, decide for yourself if it sounds too good to be true. If it does, it is most likely a scam. You should never have to pay anything to work. While ads promise you can work at home as a (whatever), you should find out if they are actually connected to employers, or if they are only selling you information. You can also call them and talk to them about it. If there is no phone number - you can guess why.

Finally, you can search the Internet and find reports about many real companies. Just type their names in and do a search - see what comes up. Scams will often be reported by somebody out there - by someone who was ripped off by the same people just before you were. Real job companies, on the other hand, will be glad to talk to you and answer your questions, and may even let you talk to someone else who is working for them doing the same thing.

Saturday, March 3, 2012

Are Central Banks in Control of the Gold Market?

Until President Nixon abolished the Gold Standard in 1971, central banks had full control of the bullion market as the value of the Dollar was tied to the gold price. It was illegal for a U.S citizen to own gold so all the gold in the markets was held in the bank's vaults. This system ensured a steady but slow economic growth since governments could just create more money to boost the economy.

After the abolishment of the Gold Standard, the price of gold rose from $43.35/oz up to $850/oz because everyone wanted to invest in gold. People didn't trust the paper currencies as they weren't backed by any physical asset. This didn't please central banks so the U.S with the help of the IMF tried to limit gold sales through auctions. This didn't work out because in reality the banks wanted to keep the yellow metal so the limitations were withdrawn.

After that the banks tried another tactic, which worked out well up until 1999. They lent their gold to gold miners to finance their operations, which created a massive over supply of gold and the price fell as low as $275/oz. This technically allowed central banks to keep their gold reserves since miners would pay them back with gold from the mines.

At the same time central banks threatened that they would sell all their bullion over time, which ensured the Dollar's position as the only reserve asset as it was the only currency to purchase oil with.

After Gordon Brown in all his wisdom decided to sell half of UK's bullion reserves in 1999, the IMF decided to limit annual gold sales to 403.3 metric tons. This removed the fear that central banks would sell all their gold and the gold price started a new bull run.

Central banks still had some form of control over the gold price after the IMF announcement until last year. For the last 20 years European central banks have been selling their bullion reserves and that way controlling the gold floating into markets.

Last year gold sales from the central banks stopped and they have started to buy gold bullion. When the banks stopped controlling the supply of gold bullion, they also gave up the control of the price.

As the old Western nations are paying the consequences of their loose monetary policy, the emerging economies from the East are enjoying healthy GDP growth figures. Such large nations as Russia, India and China have been buying more gold than the miners can supply, which has pushed the gold price up to the current levels.

Western central banks are facing a dilemma with their falling currencies and the rising gold price. If they start to purchase large amounts of gold, they would be admitting that they don't believe in the current monetary system. This would cause panic and would destroy even the smallest hope of recovery.

Stock Losses - Ten Tips On How Not To Burn Your Fingers In The Stock Market

Remember when you invest in the stock market you can lose all of your hard earned money. And as a newbie you are likely to make all the wrong decisions. So till you gain some experience it is best to invest a small amount of money. Invest only that much amount which you are comfortable losing especially if you are investing for speculative purposes or quick profits. This will be your best strategy to minimize your losses as you begin investing in the stock market.

2) Keep an open mind and keep experimenting-

There is no single right or wrong way to investing in the stocks. Even if you follow some tips you have read on a website or have read a book on investing in the stocks or taken some friends advice, remember things don't always happen as you plan or wish. So remember to keep an open mind and experiment new things.

3) Don't be greedy-

We all have been taught this principle from childhood. So you may think why am I even mentioning it here. But greed forms a cloud on your mind that causes you to stop seeing the obvious and you don't see the pitfalls which you could have easily spotted otherwise. When I started investing the only thing I kept thinking about was how much profit I would earn quickly if I acted on a stock tip. Even though I thought, I might make a loss, at the back of my mind, I would completely ignore that fact and behave as if I would never make any loss. Be practical. Don't expect to earn $10,000 on your investment of $1000 in 15 days!

4) Buy the best stocks-

Trade only in the best stocks. Choose well established companies. There are some stocks that have high price volatility, which means there is a higher fluctuation in the daily price of such stocks. These stocks may give you higher returns but beware! There is a huge risk in investing in such stocks! You may make some profit on one day and the next day all your profits may get wiped off! So choose reputed companies even though they make have lower price volatility.

5) Use you own mind-

This tip is not meant to offend you. But this comes from my own experience. Do not blindly follow the tips given by friends, family, discussion forums or websites. Do not believe in rumors. I read the discussion thread on a forum and bought huge quantities of a particular stock. Now my stock has eroded 65% of its value. Only later did I find that the company I thought was going to give me huge and quick profits was on the brink of bankruptcy and was making straight losses for the last 4 years. All this information was available on the internet but it never occurred to me that I should do some research about the company I was going to invest in. So even if you have never invested before make your own mind and choose your stocks. Your guess is as good as anyone else and if you have followed tip1 you don't have much to loose. Don't forget to find as much information as you can, about the stocks you are planning to invest in, on the internet.

6) Don't buy at 52-week high price-

Many finance related websites and the stock exchange website displays some basic details about each stock like its current price, previous days close price, stock charts etc. In addition you can find the highest price reached by the stock in previous 52 weeks. I bought my loss making stock at its 52 week high price only to find later that the price started sliding downwards. This may not be true in all cases but its better to avoid buying a stock at its 52-week high price.

7) Don't pour more money to cover your losses-

There is a tendency to cover your losses by investing more money in some other stock you believe will earn huge profits. It's best to avoid investing more money to cover your losses till you get some experience of investing in the stock market. This is one mistake I did not make but some of my friends did. There may be some macro events at play that may be affecting the entire market or a particular sector. Some examples are fears of a recession in the economy, this event will affect all the stocks to some extent. Take another example, imposition of new taxes in the cement industry will affect all stocks in the cement sector. So if you pour in more money into some other stock and some of these macro events are at play you stand to lose money in these new stocks as well.