Tuesday January 31. Is risk ever to remain a subjective phantom, or can it be meaningfully quantified?

Tuesday January 31. Is risk ever to remain a subjective phantom, or can it be meaningfully quantified? Let’s try to deal with it conceptually first, then try to quantify it second, OK? Types of Investment Risk:

1. Asset-backed risk: Risk that the changes in one or more assets that support an asset-backed security will significantly impact the value of the supported security.

2. Credit risk: Credit risk, also called default risk, is the risk associated with a borrower going into default (not making payments as promised). Investor losses include lost principal and interest, decreased cash flow, and increased collection costs. An investor can also assume credit risk through direct or indirect use of leverage.

3. Foreign investment risk: Risk of rapid and extreme changes in value due to: smaller markets; differing accounting, reporting, or auditing standards; nationalization, expropriation or confiscatory taxation; economic conflict; or political or diplomatic changes. Valuation, liquidity, and regulatory issues may also add to foreign investment risk.

4. Liquidity risk: This is the risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit). There are two types of liquidity risk:
Asset liquidity - An asset cannot be sold due to lack of liquidity in the market - essentially a sub-set of market risk. This can be accounted for by:

• Widening bid-offer spread
• Making explicit liquidity reserves
• Lengthening holding period for VaR calculations

Funding liquidity - Risk that liabilities:

• Cannot be met when they fall due
• Can only be met at an uneconomic price
• Can be name-specific or systemic

5. Market risk: This is the risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in market risk factors. The four standard market risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices:
Equity risk is the risk that stock prices in general (not related to a particular company or industry) or the implied volatility will change.

• Interest rate risk is the risk that interest rates or the implied volatility will change.
• Currency risk is the risk that foreign exchange rates or the implied volatility will change, which affects, for example, the value of an asset held in that currency.
• Commodity risk is the risk that commodity prices (e.g. corn, copper, crude oil) or implied volatility will change. Operational risk

Plus Operational risk, Reputational risk, Legal risk, Information Technology, and Model risk per Wikipedia. I would hasten to add let’s not forget Stupidity Risk!

A five factor model of investment risk ...

A five factor model of investment risk ...

The research shows that financial risk can be thought of in terms of five factors or dimensions:

Three Stock Factors

 1. Market: Stocks have higher expected returns than fixed income
 2. Size: Small company stocks have higher expected returns than large company stocks
 3. Price: Lower-priced “value” stocks have higher expected returns than higher-priced “growth” stocks

 Two Fixed Income Factors

 1. Maturity: Longer-term instruments are riskier than shorter-term instruments
 2. Default: Instruments of lower credit quality are riskier than instruments of higher credit quality

Two pieces of good economic news helped the market come back.

Two pieces of good economic news helped the market come back. A Federal Demand for business loans increased in the fourth quarter as economic growth accelerated, according to a Federal Reserve survey of senior loan officers at banks.

Seventeen of 56 banks reported stronger demand among companies with $50 million in annual sales or more, according to the survey released today. Six reported weaker demand. Demand among small businesses for loans increased by the most in any quarter since 2005. While business demand for borrowing increased, banks reported "little change in standards on commercial and industrial loans but a continued easing of pricing terms," the survey said.

Second, the Federal Reserve Bank of Dallas' monthly Manufacturing Outlook Index showed a big jump from -0.3 to 15.3 in its general business activity index. Most components in the index showed improvement.

From "Stocks shrug off Greek worries" By Charley Blaine on Mon, Jan 30, 2012 1:20 PM

I can’t figure out what to do in this market!

I can’t figure out what to do in this market: prices are too high to buy and too low to sell!

Where to put your money if the bond bull stumbles. Search for yield in less-popular areas of the fixed-income market.

Where to put your money if the bond bull stumbles. Search for yield in less-popular areas of the fixed-income market. By Wallace Witkowski, MarketWatch

SAN FRANCISCO (MarketWatch) — Bond buyers enjoyed another banner year in 2011, with total returns in all classes outperforming the broad U.S. stock market, and investors continuing to pile into bonds and shun stocks.

As Dow climbs, worries persist. The strong pace set by the market since Jan. 3 hasn't persuaded skeptics that the rally has legs, Brendan Conway reports on Markets Hub. (Photo: Reuters)

The celebrity status for bonds troubles some investors and investment strategists. They sense that this great bond bull market will slow in 2012. Not that sticking with bonds at this juncture is a recipe for disaster, but with more of their nest-egg tied to fixed-income securities, investors need to ask some hard questions.

Start with the worst case — what would an investor do in the admittedly unlikely event where a “perfect storm” collapses the bond market and spikes yields. (Bond prices and yields move inversely.)

For that to happen, several developments would need to converge, said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

In this scenario, bond investors would be surprised as U.S. job growth accelerated dramatically, the sovereign debt crisis in Europe found a clear solution, China’s economy demonstrated a so-called soft landing and a pickup in growth, and the Fed ended Operation Twist and implemented a third-round of quantitative easing, Luschini noted.

“It would have to be a confluence of those things that could put pressure on bond prices,” Luschini said. “One ... alone would not be enough of a shock.”

A more realistic possibility is that stronger than expected economic growth spurs U.S. interest rates, raising yields and making existing bonds less attractive...

... Wallace goes on to describe various bond market segments that one can consider for investing. I don't understand Wallace's point here. He seems to be saying, if the bond market collapses, buy more bonds, just different ones, as if diversification into various bond markets will protect you if the bond markets collapse. It doesn't make any sense the way it is written.

Read his full article at http://www.marketwatch.com/story/where-to-put-your-money-if-the-bond-bull-stumbles-2012-01-20

Friday January 27. Free Tax Services and Filing. By Eva Rosenberg, MarketWatch

Friday January 27. Free Tax Services and Filing. By Eva Rosenberg, MarketWatch

LOS ANGELES (MarketWatch) — The IRS’s online filing system is up and running on time. No last-minute bits of legislation to change the whole playing field. What’s the big news this year? Lots of free advice and better question paths in all services.

About 145 million tax returns were filed last year. The IRS estimates that over 70% of taxpayers are eligible to file for free using the Free File Alliance program or the Free File Fillable Form system .

With that system, skilled computer adepts can avoid commercial tax firms. This no-frills system doesn’t integrate with any state filing systems. It’s useful for folks who are either in a state without a state income tax, or a state with an online tax-return system.

Meanwhile, under the Free File Alliance program, 15 companies offer free federal tax returns to taxpayers with income under $57,000. Each provider has different age and form restrictions and other conditions. Most service all states. But some don’t. For instance, ezTaxReturn.com says it covers “any state, except...” — then lists 30 states it doesn’t service.

Some providers have age restrictions. Most provide free services to active members of the military. Many services accept taxpayers with foreign address.

Drawbacks of both systems. While the federal tax returns are free, all of the companies require that you pay for the state tax return, if you need one.

One benefit of the Free File Alliance program is that the companies may not try to sell you additional products or services.

Once you’ve entered all the information, if your tax return doesn’t qualify for the free program, you’ll need to exit and start all over again with the company’s regular software. Neither system stores your information from one year to the next. So you always have to start over.

What’s the alternative? Today, most online tax-return processors offer free versions of their own these days. With lots of desirable benefits.

More free services. All major providers allow you to start your tax return for free. You can print or e-file the free federal returns. You can save your file with a username and password, without entering a valid Social Security number.

Test the services without worrying about compromising your security or identity. Once you become a user, even of their free services, they generally keep your prior-year tax return on file for years. Some of them, forever.

Don’t worry about selecting the right starting level. Start at the cheapest level and enter data. Before you finalize your tax return, the software will let you know if you have reached more expensive levels of service. While the federal return may be free, in all cases you must pay for the state return. They all provide accuracy guarantees.

What they each offer. What are the companies excited about this year? Look at them in alphabetical order.

CompleteTax. The basic tax-preparation service is free. That covers your 1040EZ for all filing statuses. You can produce estimated tax vouchers if you need them. You can import a PDF version of last year’s tax return from a competing company. You can import W-2 and 1099-INT and dividend data. If your tax return is more complex than the Basic level allows, your potential fee is locked in, based on the date you start your tax return. Free tech support is provided by email. For $19.95 you’ll get three months of unlimited phone support with a tax professional. (State return: $34.95.)

H&R Block Online. In addition to the 1040 EZ and 1040A, most common forms are supported. You cannot import prior-year returns or W-2s and 1099s at the free level. That capability starts at the Basic/$19.95 level. Although you cannot prepare estimated tax vouchers, you can prepare a full 1040 return, including itemized deductions, employee business expenses, capital gains, and more. Support is available online, via the new Tax Answers resource, or by telephone. Worry-free Audit Support® is included, at no charge, with the free version. That means, H&R Block will not only help you answer any tax agency correspondence, they’re even prepared to represent you at the audit. (State return: $27.95.)

TaxAct. The free service includes all forms that can be e-filed, including Schedule C for business and rental income. Extensions are free. You can import the PDF file of your prior-year return. Using that, TaxAct offers a prior-year comparison of numbers, for returning clients. Email support is free. You can expect a reply within 1-2 business days. Everything is iPad compatible. A one-time fee of $7.95 gives you phone support for the entire tax season, or upgrade to the Deluxe service for $9.95, which includes the phone support. They are the only company with a tool to help you with your FAFSA (financial aid) applications for private school or college. You can prepare multi-state tax returns (though the additional states are not free). (State return: $14.95.)

TurboTax. This free service includes lots of forms, including the Treasury Report of Foreign Bank Accounts (FBAR), installment agreements, and even the application for a federal ID number (Form SS-4). It does not include estimated tax vouchers. Most credits are included. Business and rental schedules are not included. Multi-state tax returns are supported (though the states are not free). This year’s software allows you to import practically all of your data, with little or no additional typing on your part. The big news is the free telephone support. Ask a Tax Expert provides free phone and chat support to anyone. Or use the Live Community database, with years of questions and answers. (State return: $27.95.)

Face-to-face help. While free online filing options abound, some people prefer the personal touch. You can get free, live, walk-in help at tax centers all around the country. IRS and the Taxpayer Advocate Service support the VITA and TCE programs for seniors and low-income taxpayers.

These programs are staffed by trained volunteers and tax professionals, who are required to pass an IRS test . They will answer your questions with great patience. VITA volunteers understand about support disputes, retirement distributions, and other complicated tax issues. They can help you find credits and deductions you may not realize are available to you. If the tax returns are too complex, they can often refer you to someone who can help.

VITA Program. The Volunteer Income Tax Assistance program offers free tax preparation and efiling assistance to low-income households outside urban areas and in hard-to-reach urban areas.

You qualify if your household income is below $50,000. You will find VITA centers at libraries, colleges, community centers, religious centers and more. For instance, starting Jan. 28, Golden Gate University has teamed up with Goodwill Services and Tax-Aid to provide Saturday open-houses to help taxpayers in San Francisco Bay Area. To find a site near you, call 1-800-906-9887 or scan this partial VITA site list .

The armed-forces version of VITA is called AFTC, for Armed Forces Tax Council. Volunteers and experts know the special credits, deductions and exclusions available to members of all branches of the armed forces, and their families. They understand about state income-tax exclusions.

TCE Program. Tax Counseling for the Elderly, or TCE, volunteers understand issues related to retirement income, Social Security, IRAs, etc. They may be able to provide counseling on other financial issues as well, since many of the volunteers and staff are in the same position as you. AARP’s Tax-Aide is one of the largest TCE programs in the country. Visit the AARP Tax-Aide website or call the IRS for a TCE location: 1-800-829-1040.

These programs welcome volunteers. You don’t need a tax background or education to participate. It’s easy to get hooked.

Eva Rosenberg, EA, is the publisher of TaxMama.com , where your tax questions are answered for free. Eva is the author of several books and e-books , including the newest edition of “Small Business Taxes Made Easy.” Eva teaches tax courses at IRSExams.com and CPELINK.

Thursday, January 26, 2012. Our forecast of the Dow is still pretty much on target. “In January 2012, the market will test out new [period] highs.

Thursday, January 26, 2012.  Our forecast of the Dow is still pretty much on target. “In January 2012, the market will test out new [period] highs. That would mean that it will break through the 12,700 barrier and run up into the 13,000’s. After exploring the 13,000’s for a while, it will discover a new psychological top between 13,100 and 13,500. The economic recovery will still not be fully on track, so I predict 13,450 for 12/21/2012.” Some are not as bearish as I, Norm Fosback for example.

Fosback, for those of you who don’t know, has been a close and scientifically minded student of the stock market for nearly five decades. For three decades he was the head of the Institute for Econometric Research, during which he authored a widely followed investment textbook entitled Stock Market Logic and edited several investment advisory services. He currently publishes a service called Fosback’s Fund Forecaster.

In the latest issue of that service, published late last week, Fosback boldly states that “the market’s fundamental position has evolved to the most favorable alignment in 20 years.” His econometric model is projecting that the stock market will rise by 19% over the next 12 months, and 89% over the next five years. That five-year rate is equivalent to nearly 14% per year on an annualized basis.

While Fosback’s model incorporates numerous different indicators that he has found to have predictive abilities, he says that the major underlying issues for the U.S. market right now are “domestic corporate profits, valuations of domestic stocks, and Federal Reserve policy.” This is what Fosback has to say about each:

• Corporate profitability is an all-time high. “Not only have pretax profits soared to match their highest levels in history, but plunging effective corporate tax rates have sent after-tax corporate profits soaring to even greater heights compared with historical norms... With after-tax profits running at 10% of the nation’s $15-trillion GDP, net additions to business cash coffers are running at least 1-1/2 trillion on an annual basis, even after dividend payouts to stockholders. At the moment, that is effectively doubling cash holdings on an annualized basis. Liquidity, in other words is enormous.”

• Despite these record profits, the P/E ratio on the S&P 500 index is back to where it stood in 1990 (when calculated on the basis of operating earnings). The decade of the 1990s, of course, was one of the most bullish in U.S. stock market history.

• “Monetary policy [is] still in an aggressive easing mode.” Interest rates remain “at record lows” and the money supply is expanding.

What about Europe? Won’t slowing economic growth in that crucial region sabotage the U.S. market, even if it were otherwise poised for a major bull market? Fosback thinks not, arguing that the media’s obsession with Europe is little more than a “sleight of hand: Look over there ... while the real action is right here.”

Are there any flies in the ointment? Of course. Ironically, though, the major such fly that Fosback acknowledges derives from how good things otherwise are right now for corporate America: “The only meaningful negative investors can take away from the current corporate profit and tax environments is that they are so favorable it is almost inconceivable they can get any better; in other words, the path of least resistance for corporate profits going forward may be down, simply because it is almost unimaginable it can get any better.”

But even if corporate profit growth slows to a standstill, which he thinks is most unlikely, the market is still likely to go up because of rising P/E ratios. Needless to say, you might not agree with Fosback’s cheery assessment. But regardless, and especially if you don’t, you need to have good answers for why the factors he mentions aren’t as bullish as he believes them to be.

Wednesday January 25. Thought of the day

Wednesday January 25. Thought of the day: There's only one sure way to stop the politicians from slinging mud: stop rewarding them for doing it.

Wednesday January 25, 2012. New-home purchases fall, 2011 worst ever for sales. By Derek Kravitz | AP

Wednesday January 25, 2012. New-home purchases fall, 2011 worst ever for sales. By Derek Kravitz | AP

The Commerce Department said Thursday new-home sales fell 2.2 percent last month to a seasonally adjusted annual pace of 307,000. The pace is less than half the 700,000 that economists say must be sold in a healthy economy.

About 302,000 new homes were sold last year. That's less than the 323,000 sold in 2010, making last year's sales the worst on records dating back to 1963. And it coincides with a report last week that said 2011 was the weakest year for single-family home construction on record.

The median sales prices for new homes dropped in December to $210,300. Builders continued to slash price to stay competitive in the depressed market. Still, sales of new homes rose in the final quarter of 2011, supporting other signs of a slow turnaround that began at the end of the year.

Sales of previously occupied homes rose in December for a third straight month. Mortgage rates have never been lower. Homebuilders are slightly more hopeful because more people are saying they might consider buying this year. And home construction picked up in the final quarter of last year.

"Although this decline was unexpected, it does not change the story that housing has likely bottomed," said Jennifer H. Lee, senior economist at BMO Capital Markets. Ian Shepherdson, chief economist at High Frequency Economics, said easier lending requirements, historically low mortgage rates and improved hiring all point to consistent, albeit slow, rises in sales in the coming months.

"A sustained rise in new home sales is imminent," he said. "Homebuilders say so too, and they should know."

Hiring is critical to a housing rebound. The unemployment rate fell in December to its lowest level in nearly three years after the sixth straight month of solid job growth.

Economists caution that housing is a long way from fully recovering. Builders have stopped working on many projects because it's been hard for them to get financing or to compete with cheaper resale homes. For many Americans, buying a home remains too big a risk more than four years after the housing bubble burst.

Though new-home sales represent less than 10 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.

A key reason for the dismal 2011 sales is that builders must compete with foreclosures and short sales — when lenders accept less for a house than what is owed on the mortgage

Builders ended 2011 with a third straight year of dismal home construction and the worst on record for single-family home building. But in a hopeful sign, single-family home construction, which makes up 70 percent of the market, increased in each of the last three months.

Monday January 23, 2012 Slow Growth Ahead? From Lost Decade of Growth for the West By Stella Dawson

Monday January 23, 2012. Slow Growth Ahead?  From Lost Decade of Growth for the West By Stella Dawson

Although the United States has shown encouraging signs in recent weeks, the economy remains far too feeble for any upturn to be either strong or sustained. Europe is no better off and already appears to have fallen back into a mild recession. Goldman Sachs calculates that per capita GDP growth in the United States has shrunk by 0.7 percent each year between 2007 and 2011, compared with 2.0 percent growth in the decade prior to the recession. In the euro area, the decline has been similar, 0.6 percent drop against a 1.8 percent pre-recession rate. The concern is that the destruction of skills and capital investment caused by recession and slow growth rates will lead to a structurally lower rate of growth and higher rate of unemployment for a protracted period. If left unchecked, it would make it even harder to handle huge government debt loads, making the growth outlook even less stable. Jerome Levy Forecasting sees the United States trapped in a low growth cycle throughout the rest of this decade, at least until household debt levels are paid down, businesses have restructured to regain competitiveness and wage growth returned. "We are not holding our breath for a rapid turnaround. In fact for this year, we are investing in scuba gear in case it worsens," said economist Robert King.

Friday January 20. As the housing market firms up, that more than any other single factor, will probably lead the recovery, don't you think?

Friday January 20. As the housing market firms up, that more than any other single factor, will probably lead the recovery, don't you think? Because there is a humongous amount of wealth there, even a small change has a big effect. It was the real estate bubble more than anything else that caused the 2007 "great recession". But how could so many smart people be wrong? How could so many smart people, at the Fed, in Congress, business people, homeowners, even speculators and the average citizen, fail to see that coming? That is the burning question, because we continually fail to see the bubble bursting, but it has happened on the average every eight years for 236 years now. In order to be smart investors, we must keep our bearings, our wits, our perspective and our balance. That is why I am so interested in trying to predict the macro-economic trends. and also because they are not that hard to predict. I don't know if I proved it in part by predicting the DJIA a year in advance. But the business cycles in the United States follow fairly predictable patterns, if you stand back and look at them. Our problem comes when we invest, we throw this perspective away. I feel that it is just this perspective that is so critical to us. That is why I pursue this line of reasoning in the newsletter.

Friday, January 20, 2012. DJIA closed at 12,720.48 today. In April 2011 I predicted the DJIA would end the year 2011 at 12,700 and then push up towards 13,000

Friday, January 20, 2012. DJIA closed at 12,720.48 today. In April 2011 I predicted the DJIA would end the year 2011 at 12,700 and then push up towards 13,000 in January. I was off a little bit on my timing but fairly close. So what will the stock market, as indicated by the DJIA, do in 2012? This is what I predicted in April of 2011, and I still don’t see any reason to change it.

“In January 2012, the market will test out new highs. That would mean that it will break through the 12,700 barrier and run up into the 13,000s. After exploring the 13,000s for a while, it will discover a new psychological "top".

“That could be as low as 13,100 or as high as 13,500. But the economic recovery will still not be on track yet nor very strong. So I predict 13,450 maximum. We have to remember another important factor here: the 2012 presidential elections.

“Incumbent presidents always want things to SEEM LIKE THEY ARE GETTING BETTER just at the time they come up for re-election. And it does not matter how bad it has been: people lose perspective. So as long as things are improving, they stand the best chance of being re-elected for another term in office.

“Since presidential advisers all know this behavioral pattern, they know they must obey it. It gives them an incentive to "dump" all the bad news they have into the markets during their first few years, so that things will be improving come re-election time. I think that may explain a lot of the situation we see now.

“The executive office (president) will start "priming things up" very soon, and we will see what they call a real economic recovery begin to form. It will not be anything really dramatic, but it will be just enough to get Obama and his group re-elected.

“Prediction: Obama re-elected in 2012 with 50.4 % of the popular vote. The Republican candidate will get 46.7 % of the popular vote. Obama will get 74 % of the electoral vote and most of the same states as he won in 2008.

“Ohio is a "toss-up". Obama has visited there 13 times already. He is campaigning hard for Ohio. It has high unemployment, a large population and is a "swing state". It could go either way. Obama will win it given a "decent" economic recovery. He will lose it if the economy falls off track.”

"I've basically been a Democratic voter, but I won't vote for Obama again," said Rozell, 61, standing outside the steel plant, which was belching smoke into a drizzly Ohio afternoon. "I don't like the bailout, I don't like taxes, I don't like talking about trillions of dollars of deficit. Here in Stark County, which has voted for the winner in every presidential election but one since 1980, the concerns of people like Rozell and Sweitzer reflect the challenge confronting President Obama. Despite blue-collar job creation in steel mills, ball-bearing manufacturers and meatpacking companies, many working-class white voters here, and in much of Ohio, say they have reservations about him this time around. Although this swing state's 20 electoral votes went to Obama in 2008, the latest poll from Quinnipiac University suggests a tight battle, though it is still 10 months before election day. In head-to-head matchups against the president, Romney and Gingrich each were favored by 43% of those surveyed to 42% for Obama. I just don't think he's doing the job," Sweitzer said. On Wednesday, the president will make his 17th trip to Ohio. He will be talking about the economy, though voters here have other concerns too.”

New Predictions: The Dow will close 2012 up about 6% from 2011’s close of 12,700: and that would be at or about 13,450.

New Predictions: The Dow will close 2012 up about 6% from 2011’s close of 12,700: and that would be at or about 13,450.

“The broad moves of the market ultimately must reflect the economic realities or fundamentals on which stock prices are ultimately based. When all the noise subsides, stock demand a multiple of expected earnings in the market place, discounted for the perceived risk, and must compete with all other investment opportunities, bank CD’s, real estate, commodities, gold, private and personal investments, etc.

“Therefore, the long run stock price movements should reflect the long ruin moves in the economy of which they are a part. Stocks historically earned 11% for 100 years. Now they are earning about half that for many reasons: in a “mature” economy, “drivers of growth” must be rediscovered every 7-8 years, about the same length of time of the broad economic cycle of boom and bust.

“We are in the process of discovering what those drivers are now, but it is unclear. I personally think natural gas will be a driver, as well as discovery and innovation, i.e. technology and especially tech as applied to the systems of our lives, like the manufacture and distribution of goods. Therefore, it is predicted that the 11% traditional stock growth will be about cut in half: ergo the 6% prediction.

“Predictions are only as good as the assumptions they are based on. And sometimes, the assumptions are more important than the predictions themselves.

“If the predictions prove wrong, it will not be unthinkable. It is vain to read more into these things than is meant by them. If the predictions prove accurate, it is partly by plan, partly by accident, and partly by the unknown.

“The most fundamental reason for making predictions is that since we anticipate the future in all our dealings, why not try to approach it the most informed and rational manner possible? Predictions also help us to plan our investments and other behaviors.

“As in most things, we gather as much information as possible and then guess.”

Thursday January 19. “Some analysts would not be surprised by a pullback in the S&P 500 from highs not seen since last July

Thursday January 19. “Some analysts would not be surprised by a pullback in the S&P 500 from highs not seen since last July, especially after recent weak results from JPMorgan Chase & Co and Citigroup Inc. No question we've seen some encouraging news with earnings and Europe, but the question is whether we're getting ahead of fundamentals," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, Ohio. Clearly things have improved, but it remains to be seen if there really has been a turn, or if this is just a January thaw ahead of more winter storms, McCain said. There are still a lot of parts of the world with significant problems and concerning trends.” By Ryan Vlastelica

Wednesday January 18. I believe for me right now the best investment strategy is not to try to "beat the market" but more to try to make small, incremental improvements

Wednesday January 18. I believe for me right now the best investment strategy is not to try to "beat the market" but more to try to make small, incremental improvements in some things. The market is up today to its highest levels in a long time. So what I am doing is selling stocks but in mutual funds. The advantage for me of having the stocks in a mutual fund is, of course, management and diversification, but also that I can trade in the mutual funds all I want for free, that is, there are no trading commissions or fees. So I am still selling off stocks that have under-performed for ten years. I am still buying bonds, but I am also just selling and accumulating cash for the next market downturn. The market may be trending up with the improvement in the economy, but investors are still very skittish and panic easily, and there will still most certainly be periodic little panics. It would be nice to be able to buy, even if it is just bonds, in those downturns. There will be more downturns, panics, market corrections. That is one thing you can bet on with almost what amounts to certainty. Why not have a little cash set aside to take advantage of the? Or look at it this way: if there is anything you want to buy, why not buy it at the best price? I can't argue with that logic. So, rather than try to dispense investment advice, I just share with you what I am doing. That would be my best advice for anyone, because I am doing it myself. And, of course, everyone's circumstances are different. Investments must be personalized: what is good for the goose is not necessarily good for the gander. Good luck? Or should we say, "Luck comes to those who persist in working hard"?  One thought that keeps running through my minds is this: If I can purchase a bond mutual fund that is yielding 6% right now, do I really want to try to buy a stocks that might or might not yield more? And my answer is: Well I have tried that before and did not like my results. Plus the economy is so weak. I think I am better off with the bonds, and they put cash in my pocket at the end of every month.  And by generating extra income, I am running a nice surplus that I could reinvest in stocks if I wanted to.

Thursday January 12. What is this new concept Fair Value? FV = S [1 + (I - D)]

Thursday January 12, 2012. What is this new concept Fair Value? FV = S [1 + (I - D)]

One of the most frequently asked questions from viewers calling into CNBC's morning Squawk Box is "What is Fair Value?" "S" is the S&P 500 Stock Index. The ticker symbol is SPX and/or INX on most platforms.

"I" is the amount of Interest paid to your banker or broker to borrow the money to buy all of the stocks in the S&P 500 Index. The interest is calculated based on a percentage lending rate (R) from the current date (today) until the date that the S&P Futures Contract expires in March, June, September, or December.

"D" is the amount of Dividends paid to you from the companies that you own in the S&P 500 Index that pay a dividend. This dividend income is expressed as a percentage rate too.

That's it. Very simple. FV is nothing more than......the value of S&P 500 Index, plus the interest I pay my broker to buy all of the stocks in it, minus all of the dividend checks I get from those stocks.

Now that you know what FV is, you can go on to learn exactly what it means and how it works. For example:Did you know that FV is basically irrelevant for most investors?

Thursday January 4, 2012. MORE ON BONDS. Mortgage rates to stay low for most of 2012. Why rates will stay low this year, and why it won’t matter for some. By Amy Hoak, MarketWatch

Thursday January 4, 2012. MORE ON BONDS. Mortgage rates to stay low for most of 2012. Why rates will stay low this year, and why it won’t matter for some. By Amy Hoak, MarketWatch, Jan. 5, 2012, 11:42 a.m. EST

“In general, the financial troubles in Europe, combined with the Federal Reserve’s pledge to keep short-term rates on hold at least through 2013, will keep mortgage rates from rising significantly, McBride (senior financial analyst for Bankrate.com) said. Europe’s woes have caused a “flight to quality” among investors, sending their money in the direction of U.S. bonds.”

Monday January 2, 2012. Issue Number: IRS TAX TIP 2012-01 Top 10 Tax-Time Tips

Monday January 2, 2012. Issue Number: IRS TAX TIP 2012-01 Top 10 Tax-Time Tips

The income tax filing season has begun and important tax documents should be arriving in your mailbox. Even though your return is not due until April, you can make tax time easier on yourself with an early start. Here are the Internal Revenue Service’s top 10 tips to ensure a smooth tax-filing process.

1. Gather your records Round up any documents you’ll need when filing your taxes: receipts, canceled checks and other documents that support income or deductions you’re claiming on your return.

2. Be on the lookout W-2s and 1099s will be coming soon; you’ll need these to file your tax return.

3. Have a question? Use the Interactive Tax Assistant available on the IRS website to find answers to your tax questions about credits, deductions, general filing questions and more.

4. Use Free File Let Free File do the hard work for you with brand-name tax software or online fillable forms. It's available exclusively at www.irs.gov. Everyone can find an option to prepare their tax return and e-file it for free. If you made $57,000 or less, you qualify to use free tax software offered through a private-public partnership with manufacturers.　If you made more or are comfortable preparing your own tax return, there's Free File Fillable Forms, the electronic versions of IRS paper forms. Visit www.irs.gov/freefile to review your options.

5. Try IRS e-file IRS e-file is the　safe, easy and most common way to file a tax return.　Last year, 79 percent of taxpayers - 106 million people - used IRS e-file. Many tax preparers are now required to use e-file. If you owe taxes, you have payment options to file immediately and pay by the tax deadline. Best of all, the IRS issues refunds to 98 percent of electronic filers by direct deposit within 14 days, if there are no problems, and some may be issued in as few as 10 days.

6. Consider other filing options There are many options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free face-to-face help at a volunteer site. Give yourself time to weigh all the options and find the one that best suits your needs.

7. Consider direct deposit If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than a paper check in the mail.

8. Visit the official IRS website often The IRS website at www.irs.gov is a great place to find everything you need to file your tax return: forms, publications, tips, answers to frequently asked questions and updates on tax law changes.

9. Remember this number: 17 Check out IRS Publication 17, Your Federal Income Tax, on the IRS website. It’s a comprehensive resource for taxpayers, highlighting everything you’ll need to know when filing your return.

10. Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes slow down the processing of your return. Be sure to double check all the Social Security numbers and math calculations on your return as these are the most common errors. Don’t panic! If you run into a problem, remember the IRS is here to help. Start with www.irs.gov.

Links:     Information on e-file     Forms and Publications

Friday December 30. The Dow ended the year at 12,217. I had predicted 12,700. And less 1000 words …

Friday December 30. The Dow ended the year at 12,217. I had predicted 12,700. And less 1000 words …



The FAGIX low-grade corporate bond fund paid an extra-large dividend on December 30. I am grateful especially becuz I have still been recommending to buy it. I am guessing that it will be OK throughout 2012. The biggest danger to bonds is a rapidly growing economy. If the economy starts to grow faster now than has been forecast, because that growth has been the discounted into the market at the present, then this will put a downward pressure on bond prices, including FAGIX. The reason I am guessing that FAGIX will be OK is that I am guessing that this will not happen. That is, I am guessing that the economy will continue to grow slowly, along the lines that have already been forecast. I personally hold a lot of FAGIX and increased my holdings the last several months. So I am betting on it myself. I would never recommend something that I did not believe in enuf to buy it myself. So I hope, of course, that it will do well. Nevertheless, there may be some downward pressure start to come against bonds like FAGIX as time goes on. So it is good to watch it. People often say, "Don't put all your eggs in one basket." Andrew Carnegie, the wealthy 19th century steel magnate and Christian philanthropist is quoted as having said, "Concentrate your energies, your thoughts and your capital. The wise man puts all his eggs in one basket and watches the basket." So, altho we do not have all our eggs in one basket, we are still wise to watch our baskets. I will be watching FAGIX very closely. If the price drops, I will probably still hold it. It pays a handsome dividend, and if the market price per share drops, the dividend will repurchase a larger number of shares. I have watched my bond funds rise and fall in price over more than ten years. What keeps them a good investment is several things: 1) the low return on equities becuz of slow growth, 2) slow economic growth, and 3) low inflation, which is kept low by the slow economic growth. It is, more than anything else, the slow economic growth, that makes them a good investment. And, as I said before, FAGIX returned average 10% over the last ten years, whereas my large equities fund FAMRX returned about 3.5% OVER THE SAME PERIOD. U.S. News and World Report gives FAGIX top rating for mutual fund performance in 2011. http://money.usnews.com/funds/mutual-funds/rankings/high-yield-bond. But as the standard investment disclaimer always says, "Performance data shown represents past performance and is no guarantee of future results."