Sunday, July 1, 2012

Marketing Finance Products in a Down Economy

When the economy is going well and customers are spending money there is typically less emphasis on selling process of financial services products. However, during a down economy a financial institution's marketing finance team needs to develop a plan for increasing sales from top to bottom.

Market Focus

During a down economy it is important for all institutions selling financial products to determine the focus of their marketing efforts. To do this an institution must understand the needs of their customers that are being served by the products being offered and their available resources. Resources to consider will need to include the marketing budget and if customer needs can adequately be met. To determine which customer needs should be met a survey or focus group can be used.

Marketing Plan

Once the market focus has been determined a marketing plan needs to be developed. This plan needs to define the customer segments to target specific products. The plan also requires the services that will be necessary to meet the needs of each customer segment. Once this marketing plan has been developed, it needs to be analyzed with the resources that the financial institution has available to complete their plan successfully.

Upgrading Technology

The customers of financial institutions in a down market expect advances in technology to decrease the cost of doing business. Technology upgrades can include a new phone system or an updated website that allows customers to conduct business online. The use of apps for customers using smartphone should be considered to aid customers who are mobile or travel. Financial institutions should look at the products that are offered by competitors to not fall behind.

Avoid Mistakes

One mistake that financial institutions need to avoid in a down market is to provide to many products to all customer segments. Financial institutions can improve efficiency by highlighting three or four of the most popular products or services that are offered. Other products can still be offered but focus needs to concentrated on only a few.

Promote Service

Many financial institutions offer the same type of products and services to customers. This means when in a down economy the quality of service needs to be emphasized. To do this a customers problems can be addressed at the first point of contact and not escalated to higher levels. This enhances the quality of service that can differentiate one marketing finance team from another.

Wednesday, April 11, 2012

Fannie May and US Mortgage Market

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

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

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

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

How to Approach the Stock Market For Beginners

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

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

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

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

Ignore Stock Market "Talking Heads"

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

WHY?

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

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

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

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

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

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

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

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

Sunday, April 1, 2012

Financial Advisor Marketing: Marketing Is About Testing

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

It's a foundational understanding about what marketing is.

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

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

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

- the number of responses

- the number of sales (from responses)

- the quality of the leads/sales

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

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

- how much traffic it drove to your website

- how many requests for more information you received

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

- and more.

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

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

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

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

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

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

Are Central Banks in Control of the Gold Market?

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

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

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

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

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

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

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

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

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

Will we see a new gold standard in the future? It is impossible to say but as long as central banks continue to buy gold and devalue their currencies, gold is likely to keep breaking records.

Can You Really Get Rich Quick Through Internet Marketing Schemes?

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

Focus On Work At Home Jobs

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

Is This Reality?

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

What Are The Statistics?

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

Are There Real Work At Home Jobs?

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

How Can I Tell The Difference?

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

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

Saturday, March 10, 2012

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

1) Start with a small amount-

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

2) Keep an open mind and keep experimenting-

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

3) Don't be greedy-

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

4) Buy the best stocks-

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

5) Use you own mind-

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

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

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

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

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

Good Real Estate Market Or Bad?

So you want to check out the real estate market, but you don't know what to look at. You hear all sorts of stories about foreclosures, dropping home prices, lending problems, and the like. In fact, you are pretty sure it's a bad market, right? NOT!

There are five (5) key statistics you need to look at to get a simple, but strong view! They are 'Home Sales', 'Median Price', 'Inventory', 'Mortgage Rates', and 'Home Affordability'. These will paint a nice picture of what's really going on.

From 1999 through 2005, home sales rose from 5.2 million to 7.1 million. Starting in 2006, home sales starting dropping, and in 2009 we were back to 2005 levels. This is what is known as a 'Market Correction'. If you were a home owner, and trying to sell during this period, you know exactly what this is. If sales are down, usually that means prices are down as well. However the real story lies in the fact that from 2008 to 2009, home sales rose by 300,000 homes. Out of the slump? Well, let's look further!

Median home prices dropped in 2009. In 2008 the median home price in America was $198,000, and in 2009 it dropped to $174,000. Not good, but explainable! For one there was a huge surge in distressed properties, which sell for 15% to 20% less than market value. Also, there was a huge influx of new home buyers, due to the government tax break, and these are typically lower cost homes. Lastly, there was a huge slowdown of high-end homes because jumbo loans became almost non-existent. So factor all this in, and the drop is very understandable! Bad market? Let's look further!

The saying goes, if there is five or less months of inventory (number of homes on the market divided by the number sold), then it's a seller's market. Anything at six months or higher, it's a buyers market. From 2003 to 2009, a span of seven years, we only had three seller's markets, 2003, 2004, and 2005. 2009 has a nine month inventory, down from eleven months in 2008, ouch! The only thing to remember is that one half of the market are buyers, and the other half is sellers. An inventory of eleven months is darn good for buyers, half of the real estate market! So what's my point, it's always a good market, it only depends on what you are doing, buying or selling! So, is it a bad market? Let's look further!

Anyone buying today, and financing, it is a tremendous market. Money is cheap these days, and history points this out. The trend is down, all the way from 10% in 1989, to now under 5%! No if, ands, or buts about it, the mortgage market is the best it has almost ever been, certainly the best over the last twenty years! So, is it a good market? Let's take a look at the last, but not least, category - affordability!

Can you afford a home? Not a bad question if you're getting into a mortgage. In fact, you really don't have to do anything but give your lender all the facts, and loan guidelines will tell you what you can afford. Simply put, it's a ratio between what you make, and what you spend. But there is a measurement for this, over time, and it's called 'affordability'. Affordability in the U.S. measures the ability to purchase a home. It's the amount of a median family's income consumed by the medium mortgage. In 1981 it took 36% of the family income to pay a mortgage. In 2009, it took only 15%, and this is a historic low!

If you are going to measure whether it's a good real estate market or not, which of the above factors is important to you? Sure home sales are down, but beginning to rise again, so what! Median prices are down, but rising again, so what! Inventory shows us it's a buyers market, so what! But, no matter if you are trying to sell a home, or buy a home, the major factors are interest rates, and affordability, right? It makes sense that if you're going to sell a home, you want low-interest rates, so a potential buyer can by your home. The same goes for affordability. In fact, the same reasons apply to both sellers, and buyers.

The word: It's a great real estate market, right now! Tell everyone you know!

Information on this article came from 'The 5 Statistics Every Agent Should Know', A Keller Williams Market Navigator, Vision and Opportunities publication.

Investing in a Bear Market

Currently the share market is in negative but still there is no need to panic because there are some rules to survive in the bear market and these rules would help in returning back to its original position quickly.

Sorry to say, but there are many investor who just could not resist the attraction to experiment in the market, as these investor believe that they can earn good profits because of the short-term price movements. However, there would be some good deals as well but it would be very difficult to recognize and could also give very painful rewards in a bear market.

Bear market as known to everyone particularly to the investors that it is completely different to bull market, not only in terms of price movement but also there are other differences as well that includes:

1. Time Factor:
Bear markets show slow movement of prices provided it is not activated by a crash like the October, 1987. Generally, the price movement in the bear market is slow and reduces gradually.

2. People become poorer:
In bear market there are very few investors who would have the funds and would be willing to invest. Besides broker no one would be interested in trading because the earnings of brokers would have been dried up.

An investor needs to change his mindset if he wants to survive in a bear market, particularly if the bear market has come up after a long-run bull market when everyone would have invested their money on stocks had yielded good returns.

3. Stay happy even if your investment yields low returns
It is the time when an investor earning zero return on his investment must be satisfied because he is better than those who are having negative returns on their investments. It is the time when people used to see their value of investment and stocks falling.

4. You must have cash in hand:
Since most of the investment would give negative returns therefore you must have cash in hand in such time of crisis.

5. You must have diversified your portfolio before bear market or else it's too late:
It is important that you have diversified your portfolio and by doing this you would have reduced your risk, but if you have not done this until the bear market is reached, then it is too late now.

6. If you have cash, keep it with you:
Many brokers would suggest investing in the market and will say that the market is going to get better, but remember that they are thinking about their own personal fee therefore, it is a better idea to wait and enter the market when others have started investing.

Thursday, March 1, 2012

Defining Bull and Bear Markets

If you listen to much financial news, you may hear a variety of odd phrases used to describe the activities of the stock market. Perhaps two of the more confusing of these are the terms "bull market" and "bear market", while these terms are descriptive of major trends across the market, if you're not sure what they mean then that information doesn't do you a whole lot of good. To help you make sense of the bulls and the bears, this article compiles definitions of each type of market as well as what they mean to investors and their investments.

Bull Markets

A bull market is the term that's used to describe an optimistic market, or one in which the prices of stocks and other securities continues to rise. Major investors are usually more than willing to make new investments in a bull market because they are reasonably sure that they'll be able to earn a profit on their investments due to the market-wide trend of growth and expansion.

What an Optimistic Market Means

Basically, an optimistic market means that the economy is doing well and that people are more willing to spend their money on investments in companies that they trust. During an optimistic market, many lesser-known companies begin to thrive because they share something in common with their well-known counterparts; sometimes it's simply being in the same industry as a well-performing company.

Though there is a lot of money being made with an optimistic market, it's important that you don't start thinking that it's a guarantee of success... the stock market is very volatile and fluid, and just because large portions of it seem to be doing well this doesn't mean that some sections can't begin to drop in value without warning. On many occasions optimistic markets end because investors are artificially inflating the price of many stocks with repeated investments, and when the stock is discovered to be worth less than what people are paying for it the market shifts from large amounts of buying to great sales of stocks and other securities.

Bear Markets

The opposite of a bull market, a bear market is the term that's used to describe a pessimistic market. Instead of rising, a pessimistic market sees the process of stocks and other securities lagging behind or falling outright. Many major investors are hesitant to make new investments in a bear market, because they know that there's a good chance that prices will fall even lower due to the market-wide trend of falling prices and reduced profits.

What a Pessimistic Market Means

As opposed to an optimistic market, a pessimistic market usually means that the economy is not doing as well and that people are less willing to spend their money on investments or anything that they don't really need. During a pessimistic market, lesser-known companies tend to struggle to stay afloat and even larger companies tend to have to make cutbacks or lay off employees until the economy picks up again.

It's important to keep in mind that though the prices of most stocks are dropping in a pessimistic market, it's still possible to make money... especially in long-term investments. Many companies will recover from pessimistic markets to show record profits in the following years, and stock prices will rise substantially. Buying shares when the prices are low can seem risky at times, but in many cases will prove to be quite profitable down the line should you stick with the investment and ride out the economic troubles.

Standing Armies in Modern Finance - A Global Credit Crisis

"I sincerely believe... that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." - Thomas Jefferson, 1816

Jefferson's warnings almost two centuries ago about the pernicious banking establishments were indeed prescient. The seismic events of 2008 set off by the chicanery of the high priests in modern finance have borne out his suspicions as citizens of the world grapple with the sheer scale of the global credit crisis.

In March 2003, as America's military was amassing on the borders of Iraq to uncover Saddam Hussein's phantom cache of weapons of mass destruction, America's army of investment bankers on Wall Street were quietly manufacturing its own arsenal, diabolically concocting an alphabet soup of financial sludge that masqueraded shaky mortgages and risky loans as AAA-rated investment grade bonds. At the click of a mouse, these toxic securities would transmit electronically over the trading terminals of the world and land on the doomed balance sheets of the unsuspecting buyers, where they would lie in wait to wreak maximum devastation.

With copious amounts of liquidity from the Federal Reserve, collaboration from the rating agencies, an insatiable investor appetite for yield, and good old fashioned American ingenuity, enablers at every level in the financial food chain were about to be richly rewarded for their parts in the great American revolution called "Securitization". In a low interest rate environment, debt or income producing assets such as mortgages, consumer loans, car loans, credit card loans and student loans would be securitized and sold as high grade investments, boasting yields superior to those on treasury bonds.

In the aftermath of 9/11, the world held its collective breath over the apocalyptic warnings of dirty nukes smuggled by terrorists in suitcase bombs. Concurrently, in the far-flung money capitals of New York, London, Sydney, etc, Saville Row suited bankers unfettered by regulators and trained in the dark arts of alchemy diligently sliced, diced and bundled credit derivatives for global distribution, setting the stage for carnage in markets and economies, while receiving eye-popping compensation for devising yet another amazing feat of financial wizardry.

Emerging from the tech bubble and bust of 2001/2002, individual and corporate balance sheets became leveraged at a dizzying pace as America gorged on Chairman Greenspan's largesse of low interest rates and easy credit from lending institutions. Living within one's means, once a lauded personal virtue, lost its quaint charm in the age of hyper-consumption. Without good paying jobs, consumers struggling to maintain high standards of living tapped into home equity to supplement discretionary spending, and sank deeper into personal debt.

Lenders took advantage of the credit binge and promoted variants of risky mortgages and facilitated their refinancing. Mortgage backed securities coveted by yield- starved investors enjoyed robust growth, and complicated derivatives engineered by former physicists fuelled rampant speculation on the trading floors of banks, broker dealers and hedge funds. Barely out of the ruins of the dotcom bust, America was ready to roll the dice again.

Customized to the risk appetite of the investor, derivatives of asset backed securities called CDOs (Collateralized Debt Obligations) would consist of portfolios of fixed income assets divided into separate tranches. The higher quality tranche would offer risk averse investors a lower yield, while investors in the lower quality tranche would be the first to suffer any portfolio impairment in exchange for the highest yield. Mathematical models of financial engineers had shown that, in a perfect world, securities of varying credit qualities could be bundled together with the desired amount of risk and return allocated to each investor. Such models would soon be discredited in the ensuing turmoil of the current global credit crisis.

Seeking the quickest and most attractive returns, vast amounts of liquidity poured into the housing market beginning in 2003, bringing dramatic changes to the status of housing in American society. The bricks and mortar of a residential home no longer provided just a shelter and a sound, long-term investment for the homeowner. Housing began to appeal to the speculative frenzy of the trader class, and runaway prices in California, Nevada, Florida, Arizona and other hot markets were enticing misinformed and unqualified buyers to take on mortgages they could not afford.

While Congress preached the ownership society, unscrupulous lenders used predatory lending practices to sell the quintessential American dream of home ownership. Affordability was sidestepped as a critical issue for the individual homeowner because housing prices were projected to rise in perpetuity, a fatally flawed assumption which remained unchallenged until it was too late. Real estate was deemed a safe investment, and a setback in prices was unimaginable. Standard & Poor's model for home prices had no ability to accept a negative number, according to the cover story titled "After the Fall" by Michael Lewis in the December 2008 issue of Condé Nast Portfolio magazine.

Eventually, the alchemists' gold would revert to lead, and clueless investors in all manners of ill-conceived derivatives and asset backed securities, from Norway to China to the Middle East, would begin the painful process of writing down billions in losses. Seven years after the World Trade Center attacks aimed at destroying American capitalism failed, the world has since dodged another major bullet from Osama bin Laden. However, the irony cannot be lost on anyone that, having risen from the ashes of 9/11, the titans of Wall Street would ultimately succumb to their own greed, hubris and incompetence. The global Credit Crisis now threatens the very survival of the global financial system and the real economies of the world.

Since March 2008, storied names in banking, insurance and mortgage lending have collapsed from the rapidly imploding values of their sub-prime mortgage and derivative portfolios, while other lesser known, but similarly over-extended institutions on the brink have received taxpayer bailouts and written down close to US$1 trillion in losses. What has started as a U.S. housing crisis has evolved into a global credit crisis and has now morphed into a full-fledged economic meltdown that threatens to deflate asset prices worldwide. Haunted by the specter of 1930s depression reprised, governments in OECD countries rush to bolster their national banks and stimulate their economies; desperate to arrest the deflationary pressures from a de-leveraging process that is unwinding the financial system's historic indebtedness at warp speed.

The once mighty, now humbled and chastised, eagerly accept taxpayer balm at the federal trough which, in better days, would have been roundly condemned as utter folly of liberal socialism and, distinctly anti-capitalist. However, with the survival of industry behemoths like AIG and Citigroup in question, and the very future of the modern global financial economy in jeopardy, even the principled free marketeers who subscribe to Adam Smith and Ayn Rand recognize the dire need for temporary suspension of their much cherished laissez faire ideology, and grudgingly accept the economic pragmatism of government intervention. The day will hopefully soon return when the economy will right itself, and charges of socialism can again be thrown about in the same careless and carefree manner as they once were. But that day is not today.

The cumulative fallout from the housing and credit crises reverberating around the world has caused an unprecedented erosion of confidence in the global financial system. Balance sheets bloated with derivatives and mortgage backed securities suffer drastic impairment as the dubious values of non-performing assets are rapidly written down. Credit dries up and lending grinds to a halt at many banks because their capital reserves have depleted dangerously close to regulatory minimums. Without the flow of credit, global economies slam on their brakes simultaneously and enter recession. Stock market investors worldwide have suffered losses exceeding US$30 trillion in 2008, while commodity markets have also cratered with staggering losses in energy, metals and grains from their stratospheric peaks registered barely months ago.

The U.S. government has so far committed US$7.5 trillion in cash injections, loans, guarantees and consumer stimulus to bail out Wall Street, Main Street and Corporate America. The Federal Reserve has also cut short-term rates to almost zero with three and six month treasuries now yielding effectively nothing, Panic-stricken investors in their rush to de-leverage and exit risky investments have pushed up the prices of U.S. government bonds and put a floor under the US Dollar. In spite of massive bailouts, plunging markets, soaring deficits and mounting job losses that shatter investor confidence in the American financial system, the US Dollar has defied gravity and continued to frustrate traders hoping for a quick resumption of a greenback sell-off.

With the tidal waves of the financial tsunami rippling to the far corners of emerging markets like Iceland, South Korea and the Ukraine, it is apparent that the U.S.-originated systemic havoc is no longer contained domestically. Rather, the spreading contagion has exposed the vulnerabilities of an inter-connected global economy, confounding central bankers and policy makers alike as they ponder a global recession cascading over the economic horizon.

Without swift, bold, aggressive and coordinated policy action, a deflationary environment could take hold and the global recession could become a global depression. Although the extraordinary amounts of liquidity provided to counter the deflationary forces of wealth destruction could ultimately be inflationary in an economic recovery; that is probably an outcome which policy makers would not mind confronting, as they face the vastly more ominous threat of falling prices and shrinking output. At that time, when the economies of the world do finally recover, the US Dollar may come under renewed pressure as the currency market will have to digest the implications of an historic expansion of the U.S. money supply.

In the strangest of ironies, the US Dollar which has come to symbolize the collective ills of the American financial system has benefited the most from the de-leveraging process, and emerged amidst the chaos as the undisputed safe haven currency of choice. This phenomenon may be an aberration, but will likely continue until the last bit of excess and euphoria has been wrung from the system. It will take a gargantuan effort to extricate the world from the worst financial crisis since the Great Depression.

It is time to encourage real engineers to build roads, bridges and repair the crumbling infrastructure rather than allow financial engineers to wreak havoc with the next generation of destructive derivatives.

South Florida Condo Market: Trends for 2006

During the past six years, the scene in South Florida has transformed from low-rise structures to high-rise condominiums hundreds of feet high--South Florida condo market has been booming. But as the building heights rise, so did selling prices. Now, the dramatic hype of condo development is on the verge of landing its way back to ground, as real estate analysts predict.

The apparent upward inertia of the South Florida condo market has been thwarted by inevitable economic realities, making even the most headstrong condo developers of the region recoil. As supply outpaces demand in the South Florida condo market, selling prices already are equilibrating. Values of newly-built condos could pretty much tumble by at least 30% by the time the market plummets. As a result of unbridled overbuilding, lenders are wary of financing condo construction, thus compelling developers across South Florida to cancel, defer or overhaul their respective projects.

In May 2005, T-Rex Capital of Connecticut announced that it would construct a luxury condominium, named Eighty Points West, which will provide views of the West Palm Beach waterfront and a marina for yachts up to 90 feet. It will also have amenities such as a fitness center, theater, and library. However, none of that has started yet, and the company's president Cliff Preminger said that construction has been postponed to next spring.

Metrostudy, a consulting firm based in West Palm Beach, reported that as of June 30, 2006, nearly 52,000 condo units in Miami-Dade, Palm Beach, and Broward counties were either still under construction or already done but still unoccupied. The figures exclude the thousands of units built in South Florida since the year 2000, when the housing boom initiated. Roughly 104,000 units are being planned for the coming years. Analysts doubt that most of these will ever be built.

Analysts trace the condo problems to short-term investors, who bought condos at low pre-construction prices and waited as the units rise in value before having to close on the properties. These investors "flipped" the properties to other buyers for hefty profits, essentially trading condos like shares of stock. This trend systematically induced demands to inflate, steering prices upward while driving developers to build more. For the case of downtown Miami, the epicenter of the condo construction shockwave, the development is fuelled by international money.

Condos also sprung up in downtown West Palm Beach as buyers were enticed by the idea of living near CityPlace, the shopping and entertainment complex that opened in 2000. Fort Lauderdale, on the other hand, isn't as overbuilt because the city restrains further residential building downtown until an affordable housing law is passed. Overall, the insufficient number of long-term owners purchased condos combined with investors dumping properties for sale has created a surplus of properties across the South Florida condo market. More than 11,000 units remain vacant in South Florida, according to Metrostudy. Investors have been getting frantic as they have been advertising all sorts price slashes, plasma TVs and other perks to attract buyers.

While some lenders have discontinued financing for condo construction, others who remain have tightened lending policies, such as insisting at least 60% pre-sales. This starkly contrasts the situation before when some lenders had no pre-sale requirements.

Another striking blow to developers is the continually increasing costs of construction materials. Due to this, several condo developers "have canceled projects, returned deposits, put land up for sale and are at risk of foreclosure." For instance, the Waves Las Olas would not be built in downtown Fort Lauderdale. Neither will the Courtyards at Flagler Village be constructed. Several other projects have been put into cessation in South Florida.

Developers and investors are attempting to salvage anything from the condo slump by converting units back into apartments. Only a few years ago, the condo conversion craze was really hot when developers were buying apartments and turning them into condos to satisfy the insatiable demand. Since the start of 2004, more than 1,800 condo-converted units in Palm Beach County have been reconverted to apartments. In Broward, 1,088 condos have been transformed into apartments, while 672 condos in Miami-Dade have been switched back to apartments. Real estate experts concur that it will take at least two years for the South Florida condo market to bounce back, provided that consumers stop using condos for overnight investments and instead revert to home-buying philosophy of past generations.

Thursday, January 19, 2012

Understanding and Controlling Your Finances

Have you ever wondered what it would be like to be able to have complete control over your finances?

If you are like most normal people, you have a job. You go to your job every day. Every week or two weeks or month you get a pay check for some amount.

You have taxes.
The government, in an effort to make your life easier, lifts something like a third of your pay check without your having to do a thing.

You have problems.
For example, you get a speeding ticket one day, and then your insurance goes up. Or your car blows a gasket. Or you lose your job!

Then you have desires.
All humans do, some more than others. You might desire new living room furniture, a new TV or stereo, new clothes... Whatever. You may desire all of it all at once. Occasionally you cannot control yourself and one of your desires is filled.

Therefore you have debt!
Debt makes up the difference between income and expense. For most people day-to-day debt goes on a credit card, and large items like cars and houses are handled with more formal loans. Debt itself is not bad. The problem arises when debt accumulates for no apparent reason. Problems and desires would push your credit card balance upward each month because there is no other place for the money to come from.

Notice what you do not have in the above scenario?
There is no mention of a savings program. Nor a retirement plan. There is no particular hope of reaching future financial goals. No safety net! And most importantly, no peace of mind, no sense of control, no control of your life and your finances.

Let's face it!
Investment planning is not the activity of choice for most individuals. If we had our way, the various pieces of our financial lives would magically fall into place. All of our financial needs would be met effortlessly without having to devote even a minute of time to planning!

Unfortunately, real life doesn't work that way!
Making sense of your finances requires more time and effort than ever in today's constantly changing economic environment. You are likely to have many different - and sometimes conflicting - financial goals. Deciding how to meet those goals requires careful planning.

So, is there a solution to this problem?
The answer is "maybe!"...
But it does require a big mental shift and if you are willing to make the mental shift the answer is yes!

It turns out there is a different way to live life. This way of life involves figuring out what you really want to do, and what is really important to you as an individual, and then working toward those goals rather than proceeding randomly.

What you gain in the process is a sense of control and satisfaction, and a sense of achievement, that is difficult to beat.

Traditional Financing Still Works in Today's Market

We have been reading for quite some time how it is hard to get financing in today's market to complete a real estate transaction. You will find that many of the old ways are still available.

While it might not be in vogue today, many of the old traditional ways still work.

In these tight times, many of the owners are willing to finance the deal just to get rid of the house. A stressed owner is increasingly supportive as the source of their distress become greater. This transaction might help in two ways: positive cash flow for you and stress relieve for the owner.

Private money has always been an option but with the low rates offered on savings in the financial community along with the highly volatile stock market, more and more people are seeking a steady 8% return on their investments. If your deal makes sense to you, it may make sense to the cautious investor.

Final but not least: if you are looking at a good deal, you may have only two options - use a hard money lender or walk away from the deal. A good deal is worth spending a little more (hard money) and taking advantage of the good deal that you spent so much time to uncover. One of the oldest proverbs in real estate investing is 10% of something is better than 100% of nothing.

Use Internet Marketing As a Means to Finance a College Education

Internet Marketing offers a viable avenue to finance a college education. Start early enough and you might even have your child do all the work and finance college for himself or herself.

The internet has created opportunities for just about anyone to create an online business that can generate a stream of revenue. Many successful online entrepreneurs have several streams of online income.

It's even possible that once you get a child working at such an endeavor he or she might start making enough money that the need for a college education might be questionable. This might be especially relevant if the only reason for going to college is financially driven.

There certainly are many reasons for pursuing an advanced education. But, if you are encouraging your child to go to college only because conventional wisdom says that it's the best way to guarantee a good income, you might want to reconsider.

Some recent studies have cast a significant aura of doubt on such beliefs. Those studies are beyond the scope of this article, but you might want to do some online research to see what you find.

To be success online, it is best if your child knows how to read above a sixth grade level, write coherent sentences, and balance a checkbook without help. It won't be necessary to know how to do calculus, write a thesis, or be able to do complex chemical analyses.

Don't construe what you are reading to mean that an advanced education is useless. Far from it. It's just not required to be able to make an above average income.

You might think of an online income as being a new avenue to a middle class life style like our grandfathers were able to earn with the help of the unions after World War II. Those jobs are almost gone, along with the unions and even some of the companies that provided those jobs.

The internet didn't exist until about 20 years ago. It has grown to be a force to be capitalized
upon.

Those who are savvy enough to recognize that have opportunities way beyond anything our grandfathers ever dreamed possible.

Sunday, January 15, 2012

Investing in the Stock Market

Most people want to take steps early on to ensure that their personal finance status will be secure when they retire, however few really understand what it takes to create a stock market portfolio that will be able to meet their financial needs when they retire. To create the best portfolio possible it is important that you educate yourself on how the economy impacts stocks, how to research a stock, and how to buy a stock.

The first step in making the stock market work for you is to understand how the economy impacts the performance of a stock. One thing that usually impacts the stock market is the federal interest rate. When federal interest rates go up spending tends to go down. On the other hand, if the federal prime rates go down spending tends to go up. By identifying items that impact the health and performance of the stock market, like interest rates, and by knowing how they will impact stock performance, you will be better able to judge when it is a good idea to sell a stock, and when it is a good idea to buy a stock.

The next step in making the stock market work for you is to learn how to research a stock. There are a lot of free research tools that you can use to learn about stocks. For example you can get stock quotes from a number of financial websites, as well as company information, financial reports, and stock reviews. Another way that you can learn about the stock market is to talk with a professional financial planner or stock broker. They will be able to provide you with information about the stock market and information about how to invest your money wisely.

The last step in making the stock market work for you is to learn how to buy and sell stocks. To make a stock investment you will need to first find a stock that you are interested in, set up an investment account with a stock broker or with an online stock broker, fund your account, and enter your stock order. When you are ready to sell a stock you either tell your stock broker to sell or you enter your sell request through your account with an online stock broker site.

Network Marketing - Romancing the Dream or Financing the Truth?

A lot of people sell you dribble on the web. Everyone has a 'secret' that they cannot wait to tell you about. At a price. Work it this way, work it that way. Is it any wonder that people get confused and fail in their endeavors? And, It is so-called fellow marketers that are doing this to the same people in the Industry, as they want to supposedly become successful?

Listen, talk with anyone who runs a successful offline business and learn the truth. The high failure rate in the network marketing Industry is down to just one thing.

It is called lack of finance.

The real truth is that people, who have money, are able to make money. Period. Sure, you will find a clever few, or someone who was in the right place at the right time managed to coin a few bucks. One thing I have never done is tell lies to people. If their finances are shot, then why not tell them to go and save a few thousand bucks before getting started?

Of course, most people simply will not do that because they are scared of losing a potential member and their bottom line might suffer. Is it any wonder why the network marketing industry is being discarded by so many as an impossible dream? One thing that springs to mind is the saying; "Network Marketing is the last bastion of commerce that can enable the small person to grow into a giant."

Sure it is. The only problem with that statement lies in the fact that starting cheap does not mean starting broke!

"A McDonalds franchise would cost you at least $500,000!" Sure it would. But claiming that a $50 a month network marketing business opportunity, is somehow going to replace that franchise deal smells like hype. It is a lot cheaper to start a business on the internet and avoid all the costs involved with a mainstream business. But not that cheap.

So what should someone do, when faced with a prospect that has financial difficulties? Tell them to go get a job, start saving and to call you back when they have sufficient funds to start a business, not a hobby. Making financial matters worse for someone is not what network marketing is all about. Personally, I would rather keep my credibility and self respect.

What about you?

If you are sponsoring someone into a network marketing business and you start with a lie, then you are not setting the stage for a loyal and long-lasting business relationship. If you feel the person is right for the business but that person does not have sufficient funds, then think of ways, financial or otherwise, that you could help them.

Investing in the right people is not a foolish option to take. In many cases, it is a wise business decision. The biggest problem with our Industry at present is that most people find it difficult to see beyond their next month's commission check. Until the day dawns when everyone has quit and the check does not arrive any more.

Common Cents When Financing Your Small Business

"The Best Advice is always free"

Starting a small business requires bucket loads of wisdom. Financial wisdom offered through various media is not always inherently beneficial to the reader and their business.

The foundations for financial excellence are elementary and logical; here is a new perspective on financial insight to starting your small business. Making use of purely scenario planning this illustrated scenario would be a recommendation for all businesses that you intend financing.

The average cost of setting up a franchise and small business in U.S.A. is currently in the $300,000.00 to $ 474 000.00 marks, a sizeable sum taking into consideration the prevailing economic climate and business confidence levels.

Loans or Finance

In order to stimulate the economy, banks are eager to finance new business as this has a long-term stimulus on the economy and contributes to job and wealth creation.

Most individuals do not have the entire capital amount available to finance their new venture and financing becomes the preferred and logical route to market.
Taking into consideration the average price of a new franchise $474 000.00, the average cash portion of financing that particular business would be $ 153 000.00 which includes the initial, cash joining or franchise fee.

This would equate to a financing portion of $321 000.00 or 68% of the initial set-up cost of the business.

From a personal and statistical point of view, the gearing or debt ratio is too high and the minimum recommended debt ratio should never exceed 50%.

Why is gearing so important?

It is nerve-wracking and soul-destroying to build a business for you only to allocate the major share of your income and profits to servicing a loan and the commensurate interest payments. The strain on the cash flow and reserve funds is too great, and the business rapidly becomes a financial risk to the entrepreneur and the banks concerned.

"The Free Advice"

Total Cost

When using the above figures as our reference and benchmark, if the inclusive cost of the business is $474 000.00.
It would be prudent to assume that if shares were offered at $1.00 per share then the business would have 474 000 shares on offer.

Share Distribution

Taking my advice of a 50% gearing or financing ratio, the business when financed by the entrepreneur would allocate to the entrepreneur, 50%(237 000 shares) of the shares currently on offer (The portion he/she has paid cash for)
The remaining 50% of shares on offer would be the right and technical ownership of the banks or financing institution.

The Thinking Motivating This Strategy

As the entrepreneur pays off the loan, their ownership or share-holding increases exponentially.
Goals are easy to set, time and financing permitting the entrepreneur sees his/her goal of 100% ownership as achievable and desirable.
When the bank is essentially a partner in your business the relationship changes, the entrepreneur can take the banks perspective into consideration as they are a valuable share-holder, the logic of having a "you" and "me" approach becomes a "we" approach to the business.
Any extra funds available will inherently go toward servicing the loan on the business.

The Ultimate Lesson

That our thinking and approach has changed, it is a recommendation that one ignore financing by financial institutions and approach friends, acquaintances, and family to finance your business using this share-holding approach. The entrepreneur develops a fiscal policy that is easy to equate and calculate, profit distribution is just as equitable, and the entrepreneur has a clearer indication of the status of the business free of financing and interest costs and charges.

Saturday, January 7, 2012

Creative Marketing/Financing - Businesses Become More Creative in Tough Economy

Small business owners are turning to more creative ways to market or to finance their businesses in order to remain competitive.

And yes, this is being done more out of necessity than just the typical result of business competition. Not only are businesses looking for more creative ways to attract and retain customers but they are also looking for alternative ways to fund business improvements, pay for advertising, purchase inventory or buy new equipment and more.

It's been said that "necessity is the mother of invention" and in today's economy business owners are finding that creativity and resourcefulness are just as necessary as a great service and product. Necessity has spurred a few interesting ideas for business owners looking for ways to grow or stay in business.

We can look at any number of factors for the falloff in the economy and say 'that's where the problems started', whether it was the "housing crisis", "job layoffs", "banks not lending" and on and on. The bottom line is people are not spending like in "better times" and a lot of business owners are feeling the impact when they see the "percentages" that their business has dropped off from past years.

In dealing with a wide range of business types I have watched different businesses take a lot of creative approaches to improve business. I've had auto repair shops do things like hire a decorator to remodel waiting areas or to decorate the restrooms because statistics show them that a large percentage cars are being bought in for service by women. They feel it is very important to keep the waiting area and restrooms fresh and clean to offer a shop that women will be comfortable coming into. And in many of these cases the shop owner never even thought about how the shop looked before, he only cared about doing quality auto repairs.

More auto shops are looking for Customer Financing to help their customers who need "emergency" short-term financing to get and keep their vehicles on the road. This has proven to be an extremely effective way to attract new customers as well as up-selling existing customers on repairs that they need.

Now owners are in many cases paying attention to "other" details, like what will attract new customers. Owners are focused on what they can do in their advertising that will differentiate them from the competition.

You see restaurants offering special discounts that you never would have seen two-three years ago.

We see more medical offices offering Customer Financing programs in addition to programs, like Care Credit, GE and Chase that are based on a patients credit rating because they are finding that even some of their patients that last year had great credit have run into issues that have left them with less than perfect credit now. And that patient will no longer quality for financing that require a 650 or better FICO. They need an alternative to help those without great credit to get financing for needed health care.

Attracting new customers and patients is important but being able to provide the additional services when the customer does patronize your business is just as important. One of the most effective resources that many owners are starting to finally to utilize to attract new business is "LOCAL SEARCH MARKETING". Here's why: and it's important that you think about this as if it happened to you.

Imagine you recently got a puppy for your son or daughter. And at 1 am on Saturday your child woke you saying something was wrong with the puppy. Now you need "Emergency Veterinary" service. Your kids are crying the Vet you would normally go to is not open. Do you look in the "Yellow Pages" or do YOU go online and type in the search term "24 hour Emergency Vet in your zip code"? Or perhaps you need a dentist or a doctor for a specialty whether in an emergency or not, do you search online? If you answer yes, then imagine how many of your "potential" LOCAL customers do the same.

To research a product or service in their area 97% of consumers use the Internet. And 90% of those use search engines compared to 48% who use the Yellow Pages. And MOST of those will make a "Buying Decision" based on their Internet search results. That is very powerful! And it's amazing that more businesses are not EFFECTIVELY using Local Search Marketing when taking into consideration how inexpensive it is. (By the way, I'm not talking about expensive pay-per-click campaigns that can cost a small fortune).

Now, let's talk about the most important thing that "many" businesses at some point want or need. A CASH INFUSION - WORKING CAPITAL - A BUSINESS IMPROVEMENT LOAN - whatever we want to call it, many businesses at some point need money to grow, remodel, expand or stay afloat. But banks are tightening credit or not lending and the reality is many businesses still need to borrow.

In today's economy a lot of business owners are looking at "creative" short-term solutions like "Credit Card Receivable Financing" or "Merchant Cash Advances" which are based on your businesses future credit card sales or a fairly new funding option that is based on your "Business Banking History".

These funding options can get an existing business $5000 to $500,000 in as little as 5 days with no out-of-pocket fees for an owner with a FICO score as low as 500. The lenders look at the businesses cash flow and not on collateral or solely on credit score.

You know your business. How many times have you thought 'if I had the money right now I could buy that inventory for $20,000 and easily sell it for twice that' or 'if I had such and such equipment I could add another $10,000 per month in revenue'. But as we all know, that's not how the banks look at lending.

With these creative alternative financing options your business can get approval in 24-48 hours and have funds wired to your bank account in days - not weeks or months. The lender will want to know if you have been in business at least 1 year, and will require very little documentation.

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5 Sources of Financing For Small Business Growth

In the experience of many small businesses over the years, one thing is certain - no matter what type of business you start, it is going to require money from somewhere. Although many entrepreneurs are one-person companies, raising sufficient money is often overlooked seriously by many new startups. The word sufficient here is defined as the amount of money that will really make this business succeed through practical and aggressive means.

Most of the time, the passion of starting a new business overtakes common sense and a real clear idea of the startup and operating capital needed is lacking. So it is advised that when you consider shopping for money to start your business, that you do so after completing some form of a business plan. Even if you take money out of your own pocket or borrow on the equity on your home or from your credit card, it is essential that you know ahead of time that it will be well spent.

Let's take a look at the most popular options for financing small companies.

Credit Cards

This is the easiest type of money to obtain. According to the Small and Medium Size Business Survey of 2007 by the National Small Business Association (NASB) credit cards are the number 1 financing choice of 61% of businesses of 0 to 4 employees. Frequently, the instant that a small business is formed, the owner takes the EIN number to the bank and starts a checking account. Oftentimes, these small business owners are encouraged to sign up for a credit card and offered favorable terms (sometimes 0% financing) for the first few months.

The problem with credit cards is that the interest rate is often very high at 15 to 20% + and according to the NASB, 71% of small and medium-sized businesses are carrying balances from month to month. This has grown from 64% in 2000. The amount of interest expense carried thus obviously affects profitability and cash flow. If credit cards are used as the principal source of financing, the situation is even worse because the amount borrowed is often higher in this case.

The advantage of credit cards is that there are no barriers to this form of borrowing. This is easy money to obtain. There is no system of checks and balances to ensure that the purpose for which the financing is being carried out is qualified by formal business planning and review.

Earnings of the Business

This may seem a bit obvious, but plowing cash back into the firm from earnings is a form of financing. It is important to keep that in mind, because the cash that becomes available from operations could alternatively be used as a distribution to owners or shareholders. Some of these owners may require that they receive distributions. Depending on the stage of the business, this could have deleterious effects on the business, with respect to growth.

Putting money back into the business should be done consciously, with a clear idea for what specifically the money will be used. If the money is getting put back strictly to grow inventory, it may take a much longer time to grow the business. However, if the money is getting put back to invest in systems and people that represent critical choke points in the current business operations, that is a much better plan for higher growth.

Line of Credit

This could come in the form of a business asset or home secured loan. This means that the bank will utilize the company's property (equipment, building, accounts receivables) or personal property (usually your home) to ensure that they will obtain significant value in the event that you default on your loan. This is also a much easier form of loan to obtain however is best used for incremental financing not a major infusion of cash.

Bank Loan

One of the best strategies early in the business is to establish good relationships with a community bank in your area with assets around $100 to $200 million. Ideally, their investments in the sub-prime mortgage business are limited so that their interest in lending in general is not tainted. Discuss your business and forthcoming lending interests with the individual that has the final say so on the loan approval. Unsecured loans will be the only option for new businesses and usually have serious limitations on the amount that can be financed and usually comes with higher interest rates.

Private Equity Firms

These are venture capital or private investors that will invest in your business in return for some direct control (or say so) into company matters so that they can extract the return that they expect from your company. This requires that you carefully choose from people/firms with whom you develop a good rapport and that are familiar with your type of business.

Private equity is a good choice for small businesses that need to move to the next level due to limitations on the current business that presents obstacles to growth. This is because, the firms that will invest their money will want to see a good operating and financial track record before they inject their money.

Investing in Real Estate - Financing Improves Investment Opportunities

With Fannie Mae relaxing their rules around financing real estate purchases, financing is becoming less of an obstacle for investors. As financing becomes easier, investors and buyers will become critical players in the real estate market as this market slowly makes a recovery. As the barriers are removed, opportunity, market timing and money combined will motivate more and more real estate sales.

A key factor in making property financing easier can be attributed to the number of properties a buyer is allowed to finance at one time. Originally, each borrower is only allowed to finance up to four properties. Now, the maximum is ten properties. This updated policy is applicable to joint ownership of single-family units, as well as duplexes and quadruple unit homes.

While financing barriers have been removed, qualifying guidelines have somewhat become more conservative. For the most part, Fannie Mae is seeking experienced and high-quality credit investors. For instance, an investor is required to:

- make a down payment of at least 25% in order to purchase a single-family unit,
- make a down payment of at least 30% in order to purchase a duplex or a quadruple property unity,
- have a credit score of at least 720 to qualify for financing,
- be clear and free of mortgage delinquencies (in the last year),
- show that he/she does not have a bankruptcy history or any foreclosures in the last seven years,
- provide documentation of rental income,
- provide verification of tax returns detailing each and every rental property going back two years,
- show that he/she has reserves for 6 months for principle, interest, taxes, insurance needed for every property, and
- show that a partial cash-out refinancing option is available (with up to 70% of the loan value)

This is a positive change for our fragile economy, despite the fact that strict rules have narrowed down the number of qualified investors, leaving potential investors out of the market. However, on the upside, the change can bring growth to stimulate investments, which will in turn leverage purchasing power.

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Tuesday, January 3, 2012

Why Do CFD Brokers Charge CFD Finance When Holding Positions Overnight?

One of the subtle differences of trading Contracts for Difference (CFDs) compared to trading the stock market is the fact that CFD brokers charge CFD finance when holding positions overnight. Today we will take a look at this subtle difference of CFD finance and how that may affect your CFD trading business.

The CFD brokers major source of income

You may or may not know that CFD brokers have significant amounts of money under management and it would not be uncommon for a large CFD broker to have in excess of $100 million in client's funds in the bank. These clients' funds sitting in the bank represent an amazing amount of passive income for the CFD broker and at this stage we haven't even talked about CFD finance.

So what exactly is CFD finance?

The CFD finance is a debit or credit to your account as a result of holding a CFD position overnight. Overnight simply means you hold your position past 5 PM New York time which equates to about 7 AM Australian time. This is known as the roll over time.

In effect the CFD finance is a cost you incur for borrowing the leveraged money that you are trading with in the market. As you would already know, one of the greatest benefits of trading CFDs is the ability to put a small amount of margin upfront in order to control a much larger position. For example $500 will control a $10,000 position in one of the top 20 ASX stocks.

You get credited or debited on the full amount

Traders new to CFDs often get confused with the amount the finance is charged on. Most CFD brokers charge finance on your full CFD position irrespective of the amount of margin you put up front. Having said that it is always important to check your CFD brokers product disclosure statement to ensure that is the case.

So in effect you are borrowing the full amount of your CFD position and as a result you incur a financing charge. This charge or credit is normally the overnight financing rate plus or minus 2%. This is a yearly rate which is then calculated back to a daily rate.

As of January 2009 the RBA rate in Australia is 4.25% so if you held a CFD position long you would be charged 4.25% +2% per year calculated back at a daily rate. So we are talking 6.25% per year and only if you hold the position overnight. If you happen to hold your position during the day and closed before 5 PM New York time then you will not be charged overnight financing allowing you to effectively borrows much money as you like for no charge.

Another way to think about it is if you held your CFD position for a full year then you would need to make a 6.25% capital gain just to break even with your CFD finance.

Do I get paid when I short sell a CFD?

Another great advantage of trading CFDs is the fact that when you are short you actually get paid interest every day you hold the position overnight. Normally the rate you would earn is the overnight cash rate -2% calculated as a daily rate. As you can see that doesn't equate to a massive amount of money but it is still a credit nonetheless.

Mezzanine Finance - Viable Financing During Tough Times

The economic outlook for 2008 remains suspect as the tumultuous conditions afflicting the financial markets have created a turbulent business climate for middle market companies that is likely to continue unabated well into 2009. Commercial banks and Investment banks recently the paragon of the financial services industry have become pariahs in less than a year.

Adversity, however, creates opportunity and indeed many companies have been successful in obtaining financing amid the melt down of the credit markets. Middle market companies looking to grow and needing capital to do so need not panic as banks pull back on financing and credit tightens. Money is still available for companies with solid business prospects - you just need to know where to find it and how to get it.

Mezzanine finance can play an important role in funding the growth of privately owned "middle market" companies in good times and bad. This type of debt financing, however, isn't really understood by many outside of the industry.

Often called subordinated debt, mezzanine debt is often viewed as quasi equity. As such it is a hybrid of debt and equity financing that is often used to finance acquisitions, product development, plant expansion and new equipment purchases. Company owners also use it to diversify or invest in other opportunities.

Lenders that provide mezzanine financing, for the most part, lend based upon a company's cash flow rather than a business' assets. Since there is little or no collateral to support the borrowing, this type of financing is priced significantly higher than secured bank debt. Mezzanine financing is advantageous because it is treated like equity on a company's balance sheet and may make it easier to obtain standard bank financing. It is also very attractive to a business owner as it reduces the amount of equity dilution, which increases the equity's expected return.

Mezzanine financing has many of the debt features associated with traditional term debt including interest payments, covenants, and in some cases amortization. But it also has an upside in the form of an equity interest. Mezzanine debt is typically secured by the equity of the company rather than its tangible assets and is subordinated to the debt provided by banks and commercial finance companies.

Mezzanine debt is more expensive than secured debt or senior debt because of the increased credit risk assumed by the subordinated lender. The debt holders receive a higher interest rate than senior debt as well as a quasi-equity stake in the company to compensate for the increased risk. It is a much less expensive source of capital than equity financing; perhaps more important, existing equity holders are subject to significantly less dilution.

On a balance sheet mezzanine debt is found between the senior debt and equity. It is subordinate in priority of payment to senior debt, but senior in preference to common stock if a company is liquidated. It can take the form of convertible debt, senior subordinated debt or debt with warrants.

In the middle market, mezzanine lenders look for a fixed current coupon rate of 11% to 15%, which equates to a spread of 5% to 9% above the prime rate, plus the additional return from the equity stake in the company. This compares to a rate of 1% to 4% above the prime rate for term loans from senior debt lenders.

While most equity investors look for returns of between 30 to 45 percent, mezzanine investors look for annual returns of between 20 and 30 percent. Lenders tend to be flexible in tailoring the structure of the investment to meet the borrower's operating and cash flow needs, which makes mezzanine debt a useful form of financing.

Most mezzanine loans last from five to seven years with the possibility of early repayment. Unlike bank debt, which usually requires amortization, mezzanine repayments are often not required until maturity. This allows a business owner to reinvest cash flow in growth opportunities rather than paying back senior debt.

Because their return is largely driven by their equity upside, mezzanine lenders are more accommodating during difficult business conditions. While a business owner may lose some independence, he rarely loses outright control of the company or its direction. Owners don't usually encounter much interference from a mezzanine lender as long as the company continues to grow and prosper. Amounts raised through mezzanine financing can be substantial. A company can leverage its cash flow and obtain senior debt between 2 and 3.5 times cash flow. With mezzanine debt, it can raise total debt to 4 to 5 times cash flow depending on the risk appetite in the debt markets.

Mezzanine lenders are usually paid off through a recapitalization of the business with less expensive senior debt or through the accumulated profits generated by the growth of the business. For years, mezzanine debt has proven to be a viable source of growth capital to finance privately owned "middle market" companies whether the economy is going full bore as well as when it is in the tank.

Develop the Skills of Doing Profitable Business Through MBA Marketing, Finance and HR

Marketing a product is somewhat similar to selling a concept which involves great deal of estimation and farsighted conventions of the existing market. This is because it is not at all a child's play to convince a person based on the concepts which he never tired to understand till marketing advisor knocks his door. Such a skill can be best grasped after learning the basic in MBA marketing. We all know that financial conditions matters a lot behind any asset before investing or selling. A master degree in MBA finance erases all the lacunae that might crop while making financial deals or any activity related to economy and value of assets. Besides, work or a manager or an administrator is not easy as they have to continuously deal in decision making that should meet all the demands of both the employee and the employer. To excel in such a challenging profession, a post graduate degree in MBA HR can automatically assist an individual to cope with situation where he might need to obey the rules of the brain than the feeling of his heart.

There are many reputed institutes and colleges that offer both full time and distance learning course before pursuing a degree for any of the above mentioned educational qualification. All India Institute of Management Studies, also known as (AIIMAS) imparts education on marketing and management to the students in an admirable learning atmosphere. Situated at Tamil Nadu, this reputed institute also provides distance educational programs to interested students in management. In India, acclaimed in St. Angelo's Computers Ltd. is widely acclaimed as a foremost IT group since it was founded in 1993. Opening around 40 branches in Pune and Mumbai, this institute is reputed for offering a master degree in MBA marketing. Established in Pune in the year 1978, Symbiosis Institute of Business Management (SIBM) is one such recognized institute that almost every individual dreams to seek an admission for pursuing an MBA degree. The reputation of this institute which got its recognition as a deemed university in 2002, touched the sky high limit after UGC renamed it as Symbiosis International University (SIU) later in the year 2006.

Affiliated by AICTE, the Institute for Financial Management and Research (IFMR) was established in the year 1970 and situated at Tamil Nadu is one of the best organizations for the students who are sincere enough to pursue a post graduate degree in MBA finance. In 1992, Indian School of Business Management & Administration (ISBM) was established in Maharashtra. This reputed institute can fulfill every dream of those individuals who are interested to develop the fundamentals of finance and business administration.

Situated at Noida in Uttar Pradesh, Amity Business School is one such institute where students across the globe enroll their names to purse a master degree in MBA HR. the reputation of this institute is widely spread by providing rich and high quality education in the field of business management and human resources by esteemed faculties. In collaboration with Bharathidasan Institute of Management (BIM), University of Aberdeen, Retailers Association of India (RAI) and Pondicherry University, Bangalore Management Academy (BMA) is a dream platform of every aspiring student to seek an admission for pursuing a post graduate degree in human resources.