Create a Financial Safety Net

Where do you turn when a financial emergency strikes? Do you resort to credit cards, borrowing money from friends and family, or do you have some money set aside?

How you respond to a financial crisis can significantly impact your finances for years to come. Tapping into resources that are meant for something else to cover an emergency can set your retirement back, take money away from a college fund, or even lead to bankruptcy. Creating a financial safety net lies at the foundation of any financial plan. We hope to never have to use it, but we're thankful when it's there in a time of need. Learn some of the ways you can create your own financial safety net.

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Make the Most of Your Savings

Where is the best place to stash your cash? Under your mattress? In a cookie jar? Your checking account? Savings account? Certificate of Deposit? With so many choices, it's easy to throw up your hands and take the path of least resistance, but that can end up costing you money in lost interest.

It also doesn't help that lower interest rates are making it more difficult to find good rates of return on your money. Nevertheless, this isn't a time to abandon your emergency fund just because the rates are low. Your goal should be to maximize returns while maintaining the liquidity you need.

There are five common places that you can use to manage your short-term savings:
Checking Accounts
Savings Accounts
Money Markets
Certificates of Deposit
Savings Bonds

Learn more about where you should keep your savings, and check out the primer on U.S. savings bonds to help you make the most of your savings.

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The Secret to Saving Money

I hate to break it to you, but there's no simple secret to saving money, but there are a few good money habits that can make it feel like you've discovered a secret. Granted, there's no silver bullet that will magically put money into your savings account, but there are a few things you can do to make saving money that much easier.

It really comes down to three things:
Budgeting
Paying yourself first
Spending less than you earn

Does it seem like common sense? Well, it really is, but that doesn't mean it's easy to do.

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Adjustable Rate Mortgage Terms You Should Know – “ARM” Yourself with Knowledge

With interest rates on fixed-rate mortgages trending upward, adjustable rate mortgages (ARMs) can be an attractive alternative.  Several times over the last 30 years, consumers have turned to ARMs in market conditions that favored short-term rates over the traditional 30-year fixed.

However, while most consumers responsibly carry an ARM, there have been situations where the ARM did not make financial sense, and as a result, the loan earned a tarnished reputation.  News of negative amortization loans and optional payment plans overshadowed the true function of the ARM which involves neither.

The truth is, many consumers have benefitted from ARMs and prefer to use them as a tool to save money in the short-term while planning for the long-term.  Current market conditions are once again leaning in favor of adjustable rate mortgages and it’s important to understand their function.  Here’s information about ARMs, how to interpret the “lingo” and how to decide if it’s right for you.


Adjustable Rate Mortgage Definition
An adjustable rate mortgage is a home loan with an interest rate that adjusts on a predetermined basis.  Most ARMs begin with a fixed rate for a certain period of time and then adjust up or down according to the index on which it is based, after the fixed period expires.  For example, if you have a 5/1 ARM, the interest rate is fixed for the first five years and then the rate adjusts once each year beginning in year 6.

ARMs typically offer a lower initial interest rate than a traditional 30-year fixed mortgage.  After the fixed period, the interest rate can fluctuate based on market conditions but the loan agreement typically has a lifetime cap so the monthly payments cannot exceed a specific threshold.  When interest rates increase, typically, loan payments also increase and the same is true when rates go down.  However, each time the rate resets, it does so on the remaining years and the remaining balance of your loan, not the initial loan amount, which can help mitigate an extreme disparity between the previous payment and the new one.


Adjustable Rate Mortgages
To comprehend the functionality of ARMs, there are a few terms you should understand when talking to your mortgage banker to determine if this loan program is a good match for your financial situation:


Index: The economic indicator used to calculate interest-rate adjustments for ARMs. The index rate can increase or decrease at any time.


Initial Cap: This cap is the maximum amount the interest rate can adjust after the fixed-period.  (The initial cap and the periodic cap may be the same or different i.e. 2/2/5 or 5/2/5)


Periodic Cap: This cap puts a limit on the interest-rate increase from one adjustment period to the next.


Lifetime Cap: This cap puts a limit on the interest-rate increase over the life of the loan. All adjustable-rate mortgages have an overall cap.


Adjustable Rate Mortgage Loans
You should also be able to recognize these terms in their numerical form, as this is the way in which your lender will illustrate the type of ARM you qualify for.


5/1: The five represents the amount of years the interest rate is fixed.  The one indicates that the interest rate will adjust yearly after the fixed period.


2/2/5: (Note: Caps can be different depending on the term of the loan.  For example, you may find that a 7-year ARM has a 5/2/5 cap structure). But for this example, the first two means that the most a rate can change is two percent the year after the fixed period expires.  The second two means that the rate can change two percent every year thereafter, and the five means the maximum percentage that can be added to the initial rate for the lifetime of the loan.

For example, the maximum rate and payment you would experience for a $200,000 5/1 loan (2/2/5) at 3.99% would be:

8 (rate increase 1% more because 5% is the lifetime cap)

It’s important to note that while interest rates can rise, they can also decrease, making your payments smaller.  The example above reflects the most you would pay if rates increased to the maximum or lifetime cap.  Knowing the maximum amount you could end up paying on your ARM is important, because it will help you decide if it’s best to refinance prior to the expiration of the fixed rate, or continue to allow the rate to adjust because it is still cost-effective.  Even with the adjusted rates, the average rate on this loan is 5.365%, which is comparable or lower than a 30-year fixed rate.  In addition, the ARM gives you the opportunity to save thousands of dollars the first five years of the loan (money you would have spent on the fixed-rate loan) and gives you greater equity in your home because you reduce your principal faster.  Being the financially savvy client that you are, you realize that the savings could be used to pay down additional debt, add to your retirement fund or something more creative!
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How To Live Without Borrowing Money

A few short years ago, consumers had a very different outlook on debt and personal finance. After decades of excessive consumerism, many people grew accustomed to living in debt. Unlike previous generations who had a real understanding of saving money and avoiding debt, a noticeable shift away from a more frugal lifestyle evolved. Of course, the recession has taught us several important lessons regarding personal finance, one of which is the need to reduce or eliminate debt. Here we look at how you can pay off existing debt and move forward without having to borrow money in the future.

Before you can embrace a life without more debt, you have to pay off any debts you currently owe. Depending on the type of debts you owe and the amount, this could take as little as a few weeks or as long as several years. The key is taking inventory of any debts you currently owe and developing a plan to pay off these debts in as short a period of time as possible.

Living free of debt may require sacrifice on your part. This is especially true for those who have become accustomed to a lifestyle that exceeds their income level. Living beyond your means is the easiest way to get in debt, therefore any chance of living without having to borrow money from one source or another will require lifestyle changes that reflect your income.

If you truly want to avoid borrowing money for the rest of your life, you will have to be serious about saving money from this point forward. Not only will you need money to live off of today and tomorrow but also have money set aside for emergencies and big ticket items in the future. A life without debt requires an individual to have both short and long terms goals which allow the person to save money in advance for major purchases in the future. Learn as much as possible about different savings and investment vehicles to get the most bang for your buck.

Just because you want to live debt free doesn’t mean you have to eliminate any chance of qualifying for credit in the future. Consider the ramifications of living a cash only life, one of which is the absence of credit history. If for any reason you find yourself needing to apply for credit at some point in the future, you may not qualify if you have successfully eliminated any history of credit. It is possible to maintain a good credit score and history without going into debt. This is an important element of personal finance that should not be overlooked in your quest to live without borrowing money.

There are some things that require the use of a credit card. For example, traveling without a credit card could be next to impossible. You need to book hotel rooms, rent cars and reserve airline tickets. Although not all debit cards are accepted in lieu of credit cards, you will find life is much easier if you have a debit card for many of these situations. Debit cards will offer many of the same conveniences of a credit card without owing anyone a balance when it is all said and done.

It is not impossible to live without borrowing money, however it does require a certain level of discipline and patience that is not common in our fast paced society. Understand that you can manage your money in a way that supports your lifestyle if that lifestyle is within your budget. To do this, many changes will have to take place and a new approach given to money management.

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Top 5 Reasons to Choose a Personal Loan

In this time of financial uncertainty, more and more people are reaching out to their family, their friends, and even to people they don’t even know when they need a loan.  Some of these people think it’s easier to get money, while others have become suspicious of banks and other lending institutions. Whatever the reason individual borrowers give, there’s no doubt that personal loans are making a comeback. If you feel skeptical about jumping into one, here are some things to think about.


5. Fixed Repayment Time Frame
If you’re thinking about using a credit card instead of getting a personal loan, think about this: most personal loans have fixed repayment terms, while minimum credit card payments are designed to keep you in debt longer. Most personal loans have a term of 1, 2, 3, or 5 years, and when you’ve made all the payments, you’re done. You can go into the process knowing exactly how long your debt will take to pay off, instead of watching it stretch into the future.

In addition, some personal loans can be paid off early without a penalty for prepayment. Many loans via financial institutions have this penalty, and thus are designed in the best interests of the lenders, not the borrowers.


4. No Collateral Necessary
Considering a home equity loan or another traditional type of loan through an institution? You’ll definitely need collateral. Whether this is your house, as with a home equity line of credit, your car, or something else of value, traditional lenders ask you to put something on the line in case you can’t repay the loan. Personal loans, though, don’t require this, so the valuable possessions that you’ve worked so hard to obtain are not on the line.  However, be aware that your credit history will most likely be damage significantly if you default on a personal loan.


3. Get Rewarded for Good Credit
Many loans that you can get via traditional means, as well as credit cards, have standard interest rates. No matter how good your credit is, you’ll pay the same amount of interest on your loan as someone with a poorer credit history. This is not so with personal loans. These loans offer a variety of interest rates, and you’ll be rewarded with a lower one of your credit score is high. That means you’ll pay back less money overall and there will be more in your pocket along the way.


2. Fixed Rate = Fixed Payment
In addition to offering lower interest rates for good credit, the interest rates on personal loans are fixed. Once you’ve qualified for a low rate, it’s locked in for the life of the loan. This separates personal loans from both credit cards and lines of credit, where the interest rate can go up or down at any time.

Having a fixed rate means that your monthly payment is fixed, too. This allows you to accurately plan ahead and include your loan payments in your budget, knowing that the amount won’t suddenly skyrocket and leave you scrambling for cash.


1. A Personal Loan Makes Things . . . Well . . . Personal.
When you take out a personal loan from a direct lending network like Lending Club, there’s no big financial institution behind the money that you get. There are just people like you who happen to have money available and who are willing to consider your need as their own investment. This adds motivation for making your payments in full and on time, because your money is going toward individuals with names and faces, not to a bank or a large corporation.

Even if you’re not a financial guru, you can see that this is a game-changer. With many people feeling suspicious of large institutions, personal loans allow you to take them out of the equation entirely and still get the money you need.

These are only a few of the reasons why you might want to consider a personal loan instead of a credit card, a line of credit, or a traditional loan the next time you need money. Not only will you get a better financial deal that way, but you’ll get rewarded for your good credit while connecting with investors instead of feeling anonymous and at the mercy of a large institution.

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How to Save Your Empty Home From “Mansion Squatters”

When visualizing “squatters,” you may imagine down-and-out bums sleeping in condemned buildings on the scruffy outskirts of town.

But in a troubled housing market where large numbers of homes in pricey suburban areas are vacant, the pickings for squatters are far more upscale.

Since the housing market tanked, cases of “mansion squatting” have been popping up in metropolitan areas like Chicago, Los Angeles and Seattle — to name a few. On Jan. 6, a Newport Beach couple was arrested after allegedly breaking into a vacant Newport Coast home, according to an Orange County District Attorney’s Office media release. The couple even contacted the local gas and electric company and — claiming to be renting the home – requested that the utilities be turned on. When the owner sent an appraiser to the home in order to sell it, authorities say the couple changed the locks to keep the appraiser out.

Roughly 2.5 percent of American homes — excluding rental properties — were vacant in the third quarter last year, including 1.9 million homes that were up for sale, according to the U.S. Census Bureau. That’s down from the peak of 2.9 percent in 2008, but still high compared to five years ago and earlier when the vacancy rate was under 2 percent.

Leaving a home vacant increases risk of vandalism by squatters and others. That’s why most insurance companies drop coverage on homes that are unoccupied for more than 30 days. But some will grant a vacancy permit if it’s requested before the 30-day expiration date, according to the Insurance Information institute (III).

But a permit provides less coverage than a standard home insurance policy. Vacancy home insurance is available from some insurers, but it will cost much more than standard home insurance policy, according to III.

Showhomes, a home staging company based in Nashville, Tenn., offers one solution. Targeting the high-end housing market, the company provides live-in home managers who take care of the home and keep it up to par for real estate showings. Because the home is occupied, owners can keep their standard homeowner insurance policy.

Here’s how it works: The homeowner pays the company a set-up fee, which varies depending on the market (usually somewhere between $750 and $2,000 and it can be paid at closing). The company then finds in-home managers to live inside the home. They pay the company rent to live there, but the cost is only a third of what they’d normally pay to live in a home of that quality. For instance, it may only cost $1,200 a month to live in a $1 million home. The home is staged with a combination of the in-home managers’ furniture and the company’s own furnishings.

“Our goal is to stage the entire home so it looks great but doesn’t look like a staged home,” says Thomas Scott, vice president of Showhomes. “It has food in the fridge and clothes in the closet — well organized — and looks like a homeowner who loves the home lives there. Having life in the home is really important. Buyers can sense — even smell — a vacant home.”

Scott says homes staged by the company often sell in four to five months when comparable homes take an additional year to sell.

When Charles Schudson and his wife decided to move to Sedona, Ariz., they first wanted to sell their home in Milwaukee, Wis. It should have been easy because their Wisconsin home was in a high-demand neighborhood where homes typically sold almost instantly.

But that was before the housing market slump. The couple tried to sell the home quietly for a couple of years and then aggressively for several months. Still, they couldn’t find a serious buyer.

“To our surprise we found ourselves in the uncomfortable predicament of possibly moving out of a home and leaving it vacant,” he says.

Because they didn’t want to rent out their home or leave it vacant due to home insurance issues, they hired Showhomes. Three months later, they found a buyer.

The typical in-home manager is generally in transition after moving out of his or her own high-end home — like after a divorce or a short sale. The person provides most of their own furniture. He or she doesn’t show the home, but must keep it prime condition for the showing.

Thomas says Showhomes conducts background and credit checks before accepting an in-home manager. In addition to the home owner’s insurance policy, the company also carries substantial liability insurance and a series of specially underwritten property damage insurance policies that feature replacement costs. Thomas says that demand for home staging companies has grown as the housing market has weakened. Thomas says business was up 41 percent in 2010, compared to the previous year.


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Brazil’s New Top Dog

World leaders routinely bog themselves down in the legislative mundane, promoting small social programs or new economic incentives for minute “Us vs. Them” political gains. However, neither Dilma Rousseff nor Alexandre Tombini are interested in petty politics, and as their terms begin, they’re ready to get things done.v

Banco Central do Brasil's new President Alexandre Tombini: out for blood?

Rousseff’s Fast Start

BRIC relations, as we have seen, are generally relatively cozy. Each country knows their role in the new economic powerhouse, and each are usually “polite” enough to keep the serious public discussion to a minimum. However, this is not the case for the newly elected president Rousseff. No, Rousseff wants a serious talk about China’s currency advantage.

Rousseff believes, as do many, that an artificially low Renminbi is hurting Brazil’s exports to China. Such artificially low currency values mean an unbalanced trade benefit, one that has propelled China’s foreign currency reserves to become the fastest growing stockpile in the world.

However, she’s not stopping at China, either. Her new proposals call for a cut in spending and a cut to inflation, two actions which are generally considered to be recession creating. Rousseff, however, sees opportunity in shrinking government and controlling monetary policy, allowing for Chinese-Brazil discussions to make waves in the currency markets. A new budget and central bank president will cool otherwise crippling inflation.

Alexandre Tombini’s Mission Impossible

Alexandre Tombini is the new president of Banco Central do Brasil, otherwise the Bank of Brazil, or more commonly, Brazil’s central bank. Early indicators suggest Tombini is out for blood, hoping new central bank goals will help reduce internal inflation and keep Brazil on a path for growth.

The first goal is to aim lower, one that should be easily achieved. While annualized inflation of 4.5% is the bull’s eye for the government, Tombini wants to go lower, shooting for a target of roughly 2% plus or minus 2% fluctuations. Such low inflation isn’t commonly seen in the emerging markets, but in contrast to the current inflation rate of nearly 6% annually, 2% doesn’t seem so bad after all.

The “Selic” interest rate, the Brazilian benchmark, is expected to take a hike on January 18th and 19th. The rate currently rests at 10.25%

Emerging Market Austerity?

The new presidential duo looks more like developed world dignitaries than the leaders of the Latin American emerging market. However, now may be the time to prepare Brazil for a future of world leadership.

The country maintains a healthy trade surplus that will allow it to exhaust some of its pricey government debts that currently amount to roughly 40% of annual GDP. A policy implemented years earlier exchanged foreign debt obligations for currency-linked debt products, a move that saved the country billions of dollars and averted a growing trade imbalance. Later investments in infrastructure meant oil independence and made Brazil one of the greatest uses of hydroelectric power.

Wall Street would be wise to watch this new duo. Their plans, should they come to fruition, will set Brazil up for an internalized national debt, reasonable inflation rate, and real, positive economic growth while continuing the upside in the Brazilian Real. This is a pro-growth administration in an economy that, even without government intervention, was already set for explosion.

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Have a Plan for Real Estate Investing

One of the biggest mistakes that new real estate investors make is not having financing in place or not knowing the cost of repairs or rehab. You should always have a plan for real estate investing and not just buy because it's a good deal.

The real estate market is booming right now. Due to increased layoffs around the country, individuals are not able to keep their homes. While this can be a gravy train for real estate investors, you have to be able to jump on the deal and know in advance how extensive the repairs are and the total amount of out of pocket expenses you will endure.

When you find a property, you must first decide what you want to do with it. Will you flip it for a short-term profit? Will you rent it out, or will you hold on to it until the market picks up for buyers?

If you want to flip the property and you know you can find a buyer quickly, perhaps you should consider an adjustable mortgage with a low rate. This is only if you're 98% positive that you can sell fast ' nothing is guaranteed.

If you plan on renting it out or holding onto it, consider a fixed rate. This allows you to manage your funds better. For example, a renter will cover all or most of the mortgage, but there is no guarantee that you will keep the home rented. With a fixed rate, you will have a fixed mortgage payment in case you have to foot the bill yourself.

Going into real estate investing without a plan, almost always ends up costing you money. If you're new to the game, consider talking with the experts to learn strategies that the top investors use every day. Get on the fast track to real estate investing.

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House Sales Experience Slide

Victor Hugo wrote, 'A house is built of logs and stone, of tiles and posts and piers; A home is built of loving deeds that stand a thousand years.'  Every Australian dreams of owning a good home.  Many will do anything'from applying for cash loans to saving up for years'just to own their dream home.  With this in mind, The Australian Government initiated a stimulus package for the housing industry to bolster the country's chances of coming out of an economic slump faster than projected.

Many took advantage of the first-time home owners grant and applied readily for it. These applicants submitted the necessary documents and other requirements in order to be eligible to get thousands of dollars in grant fund.   Many saw this as a great opportunity to acquire new homes for fewer payments.  Of course, mortgages rates still apply but grant recipients are eager to pay it, even if they have to get payday advances once in a while.  However, recent news cast a gloomy light on the successful stimulus from the Government.

An almost five percent spill in the new home sales two months past would be the reason the Reserve Bank will delay on a half percent increase in the standard rates, economic experts predict.

The skid in gross revenues from the Housing Industry Association information recently reported was related to a partial pulling out of government grants for fledgling home buyers and pursues an 11 percent ascent. Detached house sales decreased by a little over four percent in September, with apartment sales reduced nearly seven percent.

"People observed a later burst of sales from first home buyers in August in advance of the step-down in the first home buyers grant," stated Harley Dale, the HIA head economic expert.  The stimulant to new home gross sales is now on the ebb, he imparted.

"The gains in new home sales will center on a return of upgrade buyers and investors. The present status of new house sales lead to a small rebound in house construction that would drag the basic requisite for fresh domiciles," Dale said.

Later after the month of September, those participating in the industry would only be entitled for part of the first-time home owners increase of $7000 for settled homes and $14,000 for brand-new homes until the end of the year.  Head economist Craig James reported the numbers as a "reality check".

"Even though the Australian economy is doing better, events in some regions of the economic system is being artificially expanded by government input," he said. Australians would not be certain of the present situation of the housing industry until after the terminable stimulant is altogether pulled away.

However, many Australians choose to remain optimistic and are still in the buying mood for new houses or upgrading to bigger ones.  Some are trading their old houses for better houses in choice places or locations.  It is just a matter of weathering out the economic slump and hoping that things would look up sooner.

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Real Estate Records In The Computer Age

It wasn't long ago that the records of real property title could be found in a collection of huge, thousand page books residing in the office of the county recorder. Now those same records are all electronically stored in a computer database.

Before computers recording a change of title meant tedious paper handling by both title insurance companies and county recorder employees. Not any more.

With the advance in technology, more and more companies are recording documents electronically. It works like this:
1. The recording department of the title company electronically scans the documents that must be recorded. 2. Then the documents are sent electronically to the county recorder's office... either by way of a private line or the Internet. 3. The county recorder receives a notification that the title company has sent documents electronically. 4. A county recorder clerk opens the electronic file, reviews the documents to be sure they are in the proper form. When the submission for recording is approved an email is sent to the title company with the instrument number, escrow number, date and time of recording. 5. After receiving that email the title company can inform all parties to the transaction that the sale has "closed".

Those documents are now a matter of public record. When a document is recorded it gives "constructive" notice to the world that a certain act has occurred. Any one with a claim or interest in the indicated real property will now be bound by the action represented by the recorded document. It can only be challenged by legal action.

The public can easily access the records in the database by the computer terminals located in the offices of the county recorder. In many counties those records are now available to everyone through the internet. In those counties you can view the records from your office or home computer. For a fee the recorder will print a copy of any recorded document.

In a real estate transaction the deed is recorded, but it is rare that any of the other documents related to the transaction will be placed in the public record.

Computers have truly opened public records to the public. At least to those members of the public who will apply the few minutes needed to learn how easy it is to review the records.

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Financial Planning

What is financial planning anyway?  It sounds important, yet hard to define.  When it’s hard to define, it’s hard to figure out why it’s important.

And who does it?  Where do you go to "get" a financial plan, even if you decide you know what it is and you want one?

These questions explain why so many of us don’t have a financial plan.  But would the companies or organizations we work for try to operate without a financial plan?  Would they be successful 20 years from now if they didn’t have one?  Of course not.

So what is an earnest professional supposed to do?  Well ... nothing is definitely not the answer.

There are some companies that play with the idea of financial planning.  The irony is, the only companies that do financial planning provide it to people who don’t really need it (the wealthy).  We’ve all seen the ING commercials where people walk around with 7-figure “numbers”, which are supposed to represent the amount of money you need to retire.  The idea of having a “number” is interesting, but hardly financial planning.  If you try to “Talk to Chuck” about financial planning, you may find someone to talk about investment planning (if you have enough money in your Schwab accounts), but nothing more.

How is investment planning and financial planning different?  Well, how is advertising different than marketing?  Advertising is part of the marketing puzzle, but hardly an end to itself.  Investment planning is an important part of financial planning, but it is only a part.  Financial planning should answer these 6 questions:
 1. What are my financial and life goals?
2.  What financial resources will I need to achieve those goals, and when will I
need them?
3.  How much should I save, and how should I invest to meet these goals
4.  Do the following 3 things fit together well, or are they inconsistent with one
another?
a.  My personal profile
b.  My tolerance for risk
c.  My financial goals
5.  What do I need to do to protect my assets and my lifestyle as I am trying to
achieve my goals, should the unexpected or unfortunate happen?
6.  What kind of flexibility does my financial situation give me if I want to dream
bigger or take on more costs (retire earlier, one spouse work less, have
another child, donate to charity, travel the world, etc.)

That’s what good financial planning should do.  Now you can place a value on it and decide if that is something you want.  The good news is: it is now available to you, not just those who really don’t need it.

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Dow Jones Ramps up Forex Coverage

In a nod to the growing importance of forex ($4 Trillion per day and growing!), Dow Jones recently announced the development of a new forex news service. While many of the features may only be available at some expense to professional subscribers, retail traders should still enjoy some benefit.

According to the Financial Times, “Financial institutions spend over $1.7bn for foreign exchange news and information… However, Dow Jones’ estimated $22m forex market data sales last year trailed far behind Thomson Reuters, at $1.28bn, and Bloomberg, at $518m.” The “news and commentary” segment (which includes The Forex Blog…) accounted for about $100 million of such spending, “with two-thirds of the market controlled by Informa, Dow Jones and IFR Markets.”

DJ FX Trader will apparently aim to solidify Dow Jones position in forex news, while enhancing its stature in the forex information space. Towards that end, its news coverage will be backed by a staff of more than 100 – which have already been instructed to “seek out interviews that could move foreign exchange markets,” while its information offerings will be supported by its investments in algorithmic trading technology, the hiring of former currency traders, and use of a comprehensive outside data feed.

Of course, most of the advanced features will be made available only to those that pay a hefty subscription fee, estimated at more than $100,000 per year. (Bloomberg Terminal, by comparison, costs about $20,000 per year.) It’s not clear exactly what that will include, although for that price, you would expect nothing less than real-time quotes for all currencies on all major exchanges at all times. Its software package would presumably be the the best available, with the ability to run multi-variable trading strategies that execute instantaneously and automatically.

You might wonder why I bother to report on a service that will be prohibitively expensive for almost all retail forex traders. As I reported last week, a recent Federal Reserve Bank study showed that the effectiveness of technical analysis has gradually declined over the last few decades. As a result, the only way to consistently profit is through the use of increasingly sophisticated trading strategies and instantaneous and comprehensive access to information and rates. Similarly, the majority of currency traders (sadly in my opinion) rely on leverage and rapid-fire trading to eke out small gains on each trader. Being even one second late and losing to other traders (or scammed by your broker, as the CFTC has alleged) could mean the difference between winning and losing over the long run.

I’m not seriously encouraging anyone to consider plunking down $100K for DJ Forex Trader. Instead, I merely want to illustrate the gap in information that is forming between the “have” traders and the “have-nots.” As trading is increasingly electronic and algorithmic, and all technical analysis is performed by computers, I remain more convinced than ever that quality, fundamental analysis is the key to making money trading currencies over the long run.

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Shrink Nanotechnologies Receives Investment at Premium to Trading Price, Re-Locates Corporate Office and Reduces Cash Burn

Shrink Nanotechnologies, Inc. ("Shrink") (OTC Bulletin Board: INKN), an innovative technology company developing products and licensing opportunities in the alternative energy industry, medical diagnostics and sensors, and biotechnology research and development tools businesses, received investment through the purchase of restricted common stock for $.17 per share.  The Company moved its corporate offices to the Tech Portal office in Irvine on the campus of the University of California at Irvine.  Shrink also secured a reduction in its monthly administration commitments, effectively reducing its administrative operating costs by nearly 50%.

Shrink CEO Mark L. Baum stated, "In anticipation of transitioning from the development stage with our StemDisc and NanoShrink products, we are streamlining our operations and making certain that we have the resources we need to be successful as we launch our first products in the coming months.  We are pleased to have received a six figure commitment of new investment capital at a price which is at a premium to our current trading price, and to have moved our corporate office to the Tech Portal at UCI where much of our development work is now being handled."

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The PMI Group, Inc. Announces the Adoption of Amended and Restated Tax Benefits Preservation Plan

The PMI Group, Inc. (NYSE: PMI) today announced that its Board of Directors has adopted an Amended and Restated Tax Benefits Preservation Plan, between The PMI Group and American Stock Transfer & Trust Company, LLC, as rights agent, which amends and restates The PMI Group's original Tax Benefits Preservation Plan entered into between The PMI Group and the rights agent on August 12, 2010.

The amendments:
extend the final expiration date from August 11, 2011 under the original plan to February 16, 2014 under the amended plan;provide that the amended plan will expire if The PMI Group's Board of Directors determines that a limitation on the use of tax benefits under Section 382 of the Internal Revenue Code would no longer be material to The PMI Group; provide that the amended plan will expire on August 11, 2011 if stockholder approval of the amended plan has not been received before such time; andprovide that The PMI Group's Board of Directors will consider at least annually whether to permit the amended plan to expire.

All of the other terms of the amended plan remain the same as the original plan.  The amended plan will be submitted to The PMI Group's stockholders for approval at The PMI Group's 2011 annual meeting.
Additional information regarding the amended plan will be contained in a Form 8-K and in a Registration Statement on Form 8-A/A that The PMI Group is filing with the Securities and Exchange Commission.


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Except For Timing, China Rate Hike Comes As No Surprise

Surprising the markets, especially given that China is still celebrating the Lunar New Year holiday, the People's Bank of China moved today to raise their benchmark deposit rate, effective tomorrow.  This comes as the 3rd such rate increase in four months, and analysts expect that more will be forthcoming, as rising food prices and inflationary pressures bear down upon the second largest economy in the world.  According to the press release, the 1-year deposit rates will rise by .25% to 3%, with a corresponding rise in the 1-year lending rate to 6.06%.

In December 2010, consumer prices rose 4.6%, while the Chinese economy expanded nearly 10% in the year's last quarter, at a pace faster than that of the previous quarter.  Also in December, it was reported that the annual inflation rate had slowed to 4.6%, but analysts expect that January's numbers will have risen as global food prices soared to record highs.  According to one analyst from UBS Bank, 2011 inflation is expected to average 4.8%, while an analyst for Deutsche Bank expects inflation to run slightly higher at 5% for the year.   The Chinese government, meanwhile, has set 4% inflation as their goal.

Food prices and energy costs are being driven higher by increased demand from emerging countries such as China, which in turn drives inflation higher.  And, not just in China, but throughout the western economies; ultimately having a detrimental affect on the global economic recovery.  Included among those western economies is the U.K. and the Eurozone, and their respective central banks which are attempting to hold inflationary pressures at bay.  However, they may eventually have no choice but to raise interest rates, even before they've been restored to economic health.

With Australia being a key trading partner to China, it was no surprise that following the announcement, the Australian Dollar slipped against the U.S. Dollar; AUD/USD was trending lower at 1.0130.

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Robust Jobless Claims Supports US Dollar

The Department of Labor released its weekly jobless claims data on Thursday, and to the surprise of many market participants, the number of claims declined below 400,000.  Initial jobless claims dropped by 36,000 to 383,000 in the week ended Feb. 5, according to the Labor Department. It was the lowest reading since July 2008. The previous week's figures were revised to 419,000 from 415,000.

The four-week moving average of new claims, dropped 16,000 to 415,500 in the week ending Feb. 5.Analyst had expected that jobless claims would fall last week by just 4,000 to 411,000.  The weather in the US has created an inconsistent data series which many economist have pointed to.  Following a surge in the week ending Jan. 22, largely caused by unusual winter weather in some southern states, new claims have fallen sharply over the past two weeks.

The Labor Department reported that the number of continuing claims, those drawn by workers for more than a week, fell 47,000 to 3,888,000 in the week ended Jan. 29. Continuing claims are reported with a one-week lag.  The unemployment rate for workers with unemployment insurance was 3.1% in the week ending Jan. 29, unchanged from the prior week.

The strength of the jobless claims data continues to put upward pressure on US yields specifically on longer term maturities.  The 10-year note is currently trading with a yield near the 3.7% level.  The upward pressure on yields is supporting the US dollar, specifically against the Yen.

The USD/JPY currency pair is starting to break out to the upside, moving above the 83 level for the first time in the past 2 weeks.  Resistance is seen at 83.20 and then again at 83.65 and 84.50.  Support on the currency pair is seen at 81.05.

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China vs. Japan vs. U.S. And Yuan

News that China surpassed Japan as the world's second largest economy is one of the biggest stories in the financial markets. For more than 4 decades, the only country with a larger economic output than Japan was the U.S. However over the past 20 years, the Japanese economy stagnated, giving China the opportunity to usurp Japan and snag a title that it has held since 1968. Just 5 years ago, China's gross domestic product was around $2.3 trillion, about half Japan's but rapid growth has pushed economic output to $5.88 trillion in 2010. While the Chinese economy grew, the Japanese economy contracted by 1.1 percent, bringing Japan's economy to $5.47 trillion last year.

Although the absolute size of their economies are comparable in U.S. dollar terms, Japan and China could not be any more different. China has 10 times more people than Japan but the GDP per capita is also 10 times less. Some may look at this as room for growth but the rest of us may feel that the income inequality reflects the inherent weakness of the China economy. More than 150 million people, which is 10 percent of the population live on less than $1.25 a day. While growth in Japan is likely to pick up in 2011, it will have a very difficult time reclaiming its title from China.


Will China Usurp the U.S.?
The next big question investors are asking is whether China will usurp the U.S. to become the world's largest economy. Currently the U.S. economy is 3 times the size of China's which means that the Chinese economy would need to triple in order to match U.S. levels. This is an incredible feat that will be difficult to achieve but not inconceivable. In fact, many economists believe that China could eclipse the U.S. sometime between 2020 and 2030. Chinese incomes are rising and it is the government's goal to reduce income inequality significantly over the next decade.


Implications on the Chinese Yuan
For the financial markets, this means that over the next 20 years, there will be a significant change in the dynamics of the foreign exchange market. Not only will the Chinese Yuan be revalued and set at higher and higher levels, but I expect much more flexibility in the Chinese currency. In fact, by 2030, I would be surprised if the Chinese Yuan did not become a free floating, fully convertible currency that is as actively used as the euro and possibly even the U.S. dollar. This will of course undermine the importance of the Japanese Yen and other currencies.

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Merrill Lynch: Japanese Yen Expected To Weaken

The Japanese Yen has been steadily weakening against most major rivals this week and analysts say it can be attributed to a variety of things, among them a move by investors into higher risk currencies and the unwinding of long positions in the currency.The former won't come as any surprise to the research analysts from Merrill Lynch.  According to a recently issued report from Merrill Lynch the Japanese Yen is over-valued against major currencies.

They base this conclusion on a study of interest rate differentials, and suggest that, over the medium term, the currency is likely to weaken. It has been shown that USD/JPY typically closely follows U.S.-Japan interest rate differentials, most especially in the 2-year sector.  To some extent, this is because higher U.S. rates are attractive to carry trade.

Given all that, Merrill Lynch now advises that investors consider short Yen positions versus a 2-year U.S. Dollar rate (beta-weighted basis).   Merrill Lynch notes that such a trade would be consistent with their core call for a gradual weakening of the Japanese currency, and lower front-end U.S. interest rates over the medium term.

In Asian trading today, and with Japanese markets closed in celebration of a national holiday, the Japanese Yen slipped to a 1-month low against the U.S. Dollar.  Currently, USD/JPY is trading at 83.4850; on the eToro , among traders of USD/JPY, the sentiment is bullish with a ratio of 3 to 1 in favor of buying.  GBP/JPY is trading at 134.1342; on the eToro trading floor, the sentiment is significantly bullish with a ratio of 5 to 1 in favor of buying.

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Major Currency Trends For Major Gain – YEN And Dollar

Over the past few years Forex traders have really had to step up their game in order to continue making money in the currency market. Back in the day before currency trading was main stream, currencies used to trend in a direction for a long period of time with a low level of volatility. But with so many individuals now involved speculating on price action coupled with international concerns in most countries, the once slow and steady currency market now moves like the stock market with large price swings on a weekly and even daily basis.

With currency trading growing at an incredibly fast rate, stock traders have been giving tools to trade currencies using ETFs. If you are familiar with leveraged ETFS then you have most likely seen the huge opportunities (100,200 even 400% gains) which they can provide during major trends. Below are a couple major trends that both Forex and ETF traders should be keeping their eye on.


Japanese Yen – 30 year Monthly Chart
Over the last couple years China has taken most of Japan's manufacturing, creating some terrible fundamentals overall for the Yen. With a weakening economy and the Yen making a major top in 1995, I feel we could be seeing a 16 year double top forming. This means shorting the Yen for a multiyear correction (bear market). This could generate some serious gains in the coming 2-5 years with very little work.


YCS 200% Short Yen Exchange Traded Fund – Daily Chart Setup
This fund allows stock/ETF traders to play the currency market within a regular trading account. The YCS fund is a 200% leveraged inverse fund, meaning this fund goes up in value as the Yen declines. For example, if the Yen drops 10% in value YCS will rise 20%.


Everyone has seen that infomercial to cook food with the saying "Set-It-And-Forget-It!" Well that's more or less what this position will be like if we get a setup to buy this fund. This trade could easily last 5+ years with the potential to generate 150% – 400% gain.


US Dollar Weekly Chart Setup
Taking a look at the more common currency "The Dollar". It has been forming a similar price pattern and is trying to form a base and bottom. The dollar does have one major issue which will most likely cause a breakdown thus an even lower value in the coming year. The problem is that the fed reserve constantly prints money increasing the money supply and devaluing the dollar (quantitative easing).

Currently, the dollar is trading within a large range and is poised for a short term bounce. There will not be any major trends until a breakout of this trading range to either the up or down side.


Major Currency Trends for Major Gains
In short, while playing shorter term trends is exciting and rewarding and keeps us busy on a daily/weekly basis, it is nice to have some long term positions at work which slowly mature into large percentage gains which boost you're overall portfolio value each year with little work. Both the Yen and Dollar look like there is big potential just around the corner using the buy and hold mentality.

Each year I find 3-5 major opportunities where I can put some money to work, not tie up much capital and if they move 150% or more in my favor then those small investments boost my overall yearly portfolio gains substantially.

I do have another major trend setup forming which I'm calling the "Holy Cow" setup… which could be a real money maker this year. The exciting thing about it is that I have not seen ANYONE talk about this investment in years…

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Technical Tip – EUR/USD – Breach Of Trend Line Points To Further Declines

Following a breach of the rising trend line from the January low, the EUR/USD looks set to retrace its gains from this year.

The 100-day moving average has so far provided support but the failure of the pair to make new highs shows a lack of bids in the market for the euro. Falling long term stochasitics on the weekly chart also support a move lower.

Currently the pair is approaching the 38.2% Fib retracement (1.3480) from the January to February move which coincides with the recent support range the pair has found between the levels of 1.3480 and 1.3500.
A breach below this level should target the 61.8% Fib retracement of at 1.3250. This level lines up nicely with the mid-January pivot of 1.3240.

Resistance may be found at the falling trend line off of this year's high which comes in today at 1.3660. The high from February 9th at 1.3740 also stands out as a possible resistance level.

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