“How to Choose a Mutual Fund” is a series devoted to covering the basic factors of mutual fund selection in short, easily digestable posts.

OK, we’re almost done with this category business, the only categories left are bonds. Bonds are debt (loans) so they pay interest payments instead of dividends and they have a set maturity date at which investors are repaid their initial investment. You don’t have to hold the bonds to maturity, though - there is a market (the “secondary market”) where bondholders can buy and sell with each other at prices that will reflect supply and demand for particular interest rates.

Bonds are generally considered to be “safer” than stocks, but keep in mind that “safe” is a relative term. To keep things simple, you can think of bonds in three major categories and subdivide them from there: READ the rest of this entry »

This jumped out at me from an article discussing worldwide food prices and the eating habits of Americans:

Portion sizes in the United States not only exceed those in less-developed countries, but also in the developed world. In fact, Americans have the highest per capita daily consumption in the world, eating 3,770 calories a day, more than a Canadian at 3,590 calories or an Indian at 2,440, according to data from the U.N. Food and Agricultural Organization.

Oh. My. Goodness.

I have to assume that this figure is not actually for all Americans, that it doesn’t include children, but still - 3,770 calories a day?

Just to play around with that a bit, I went to active.com and checked out their calculator section. READ the rest of this entry »

It shouldn’t come as a surprise to anyone that in a time when people are cutting back on dining out, five dollar coffee beverages are going to be one of the first household line items to get cut. In the last year, Starbucks has seen their share price drop by almost half, and their earnings release yesterday was in stark contrast to last year:

Starbucks posted a third-quarter loss of $6.7 million, or 1 cent per share, compared with a profit of $158.3 million, or 21 cents per share in the same period a year ago.

Yowzah.

And yet, in typical Wall Street fashion, Starbucks was actually up in after hours trading. Not much, only 4%, but how does that happen? Well, because after announcing that they’re cutting 1,000 non-retail jobs, closing 600 stores (which means they’re ultimately cutting a lot more than 1,000 jobs), and telling Wall Street that they just need to lower their expectations in general, they said that it’s all OK - 2009 will be better … somehow:

Starbucks also discussed plans to introduce new food items next year, as well as, an enhanced version of its Starbucks card.

The company did not provide details on the “new food platform” it has in store, but Schultz said it will take advantage of customer demand for “whole grains” and “more lean options.”

Schultz also addressed recent reports about Starbucks’ foray into the realm of breakfast sandwiches.

“We are working to adjust the recipe so that the odor does not interfere with the coffee aroma,” he said. He added that Starbucks is working to make sure its food items “meet high quality standards.”

Starbucks plans to promote an enhanced version of its Starbucks card for the holidays, Schultz said, though he did not provide details of the enhancement.

Anyone who knows me personally knows that I am not a Starbucks fan. It’s partly because I’m just not much of a coffee drinker, which isn’t their fault, but it’s mostly the whole Starbucks “thing.” To me, coffee and a muffin shouldn’t be a 800 calorie gut bomb and even though I’m sure lots of people go in and order the non-fat sugar free stuff, I’m just as sure that a lot of people go straight for the grande java chip frappuccino (460 calories) and a nice lowfat blueberry muffin (290 calories) on a pretty regular basis and that just ain’t right. I think there’s a fairly strong mental feeling that coffee is low calorie, even when they do it all up, and a lowfat muffin is somehow good for you.

And of course, there’s the cost - what does a grande frap and a muffin run, do you figure? I honestly don’t know, but am going to wager somewhere around $7. That’s a lot for a rather nutritionally empty meal, don’t you think? You might even be better off, nutritionally and financially, going to McDonald’s for an Egg McMuffin and a coffee with cream.

My heavens, did I just say that??

Anyway, I’ll be interested to see if they can turn things around - color me skeptical.

“How to Choose a Mutual Fund” is a series devoted to covering the basic factors of mutual fund selection in short, easily digestable posts.

We will whip through a big chunk of the list today.

Foreign Large/Mid/Small Value/Blend/Growth - all of the combinations of these categories mean the same thing as they do for domestic funds except that the majority of their stocks are going to be of companies based outside the United States.

A world fund invests in companies all over the world, including the United States.

Regional funds focus on a particular region, and if you’re using Morningstar, you have the following options: Europe, Pacific, Pacific excluding Japan, Japan (alone), Latin America, and Emerging Markets. Emerging markets are usually areas with political instability, low per capita income, and a growing commercial or industrial base. There is great potential for growth in these countries but it’s high risk. READ the rest of this entry »

Setting records is so exciting, isn’t it?

President Bush’s budget chief blamed the faltering economy and the bipartisan stimulus package for the record $482 billion deficit the White House predicted for the 2009 budget year.

Jim Nussle, the director of the Office of Management and Budget, said the deficit would be about 3.3 percent of the nation’s gross domestic product, the measure of the nation’s total economy.

For the record, the budget deficit and the national debt are two very different things. The deficit is the difference between what the government brings in and what it spends, and the debt is how it pays for the deficit. It’s like if you spend more than you earn and use a credit card to make up the difference, except that the federal government gets to borrow at much better rates. READ the rest of this entry »

Last month I wrote a post about whether or not you should let your engine idle if you’re stuck in the carpool line at school or in the drive-thru (no, you shouldn’t), but then just recently I read about about a guy named Wayne Gerdes and his groupies called “hypermilers.” These folks go way beyond the standard keep your tires properly inflated, change the filters, empty the trunk gas savings tips. They are SERIOUS. 84-mpg-in-a-Ford-Ranger serious.

Mr. Gerdes is, in my opinion, a little OCD and probably more than a little dangerous on the road. A few excerpts from this article in Mother Jones would seem to back me up:

“Buckle up tight, because this is the death turn,” says Wayne. Death turn? We’re moving at 50 mph. Wayne turns off the engine. He’s bearing down on [an] exit, and as he turns the wheel sharply to the right, the tires squeal—which is what happens when you take a 25 mph turn going 50 …

READ the rest of this entry »

“Support Our Troops”

It’s a phrase we hear quite often and regardless of our differences on whether or not we should be involved in our current conflicts, I think the overwhelming majority of Americans believe that our soldiers deserve our respect and support. Unfortunately, those who serve in our military appear to be feeling less than supported by the financial industry:

• The number of military families seeking emergency assistance from a military charity doubled in the first few months of 2007.
• Active-duty military personnel are three times more likely than civilians to have taken out a “payday loan”—a cash advance on the borrower’s next paycheck.
• The number of military families seeking emergency assistance from a military charity doubled in the first few months of 2007.
• Payday loans and other high-interest loans often leave the service member with enormous debt, family problems and a tarnished career, according to the Department of Defense.
• Three in 10 active-duty military families reported having trouble paying bills in the previous year, according to a 2004 survey.
  More than 1 in 5 active-duty military families had to apply for food stamps or Women, Infants, and Children (WIC) aid from the government.
• Approximately 16,000 active duty members of the U.S. military file for bankruptcy each year.

A law that took effect in October 2007 attempted to cap payday loan interest rates for military folks to 36%. That’s a good start. Unfortunately it appears that some lenders have gotten around that rule, if I read the FAQ from a company called Military Financial correctly (I can’t find an actual rate quote on their site, just this): READ the rest of this entry »

“How to Choose a Mutual Fund” is a series devoted to covering the basic factors of mutual fund selection in short, easily digestable posts.

Moving right along …

The next group of mutual fund categories in the Morningstar screener is the Specialty group. You may see these listed on other screeners as Sector funds. Both terms are pretty self-explanatory, right? Included in this group (on Morningstar) are the following specialties: natural resources, technology, utilities, health, financial, real estate, precious metals and communications.

Although these funds are not solely limited to investing in stocks from their respective sectors, they will be heavily weighted and therefore less diversified than broad based funds. We know from previous posts that less diversification means higher risk and volatility, and with higher risk comes the hope of higher returns. These funds should therefore be considered more aggressive. Really, just looking at these particular specialties, you’d be a little crazy not to expect volatility - right?

Bear market funds invest in the downfall of civilization. Not really, but it’s an easy way to remember it. Another way to remember what bear markets do, if you happen to like to play craps, is that it’s like placing a “don’t pass” bet. Mutual fund managers of bear market funds use investment products that we’ll cover a teeny bit in a moment that bet against the market, and in general their returns are up when the market goes down.

Many people don’t go near bear market funds much in the same way I won’t place “don’t pass” bets - a mostly irrational fear that it’s bad mojo. In reality, markets go through cycles of up and down times so there can be some really great times to be in a bear market fund. The problem, though, is that over the long term the market keeps going up. The decision regarding whether or not to invest in a bear market fund comes down to how comfortable you are with your understanding of those business cycles and how much time you want to devote to keeping an eye on them.

Long/Short funds bet on both sides of the pass line (sorry - more craps talk). They’ll bet on the upside of stocks they feel are under-valued and on the downside of stocks they feel are over-valued, or on the market as a whole.

Since most funds are only “long” (meaning that they only BUY stocks to hold in their accounts because they feel like there is positive potential for capital gains or dividends), long/short funds (and bear market funds) take “short” positions where they bet that a stock price is going to go down.

Short selling carries with it certain significant risk. Very briefly, if you want to sell a stock short, you borrow it from someone else (just an accounting entry at a brokerage firm - the owner never even knows it’s gone) and sell it to a third party. You are hoping that the stock price will go down so that you can buy it back for less and pocket the difference.

The risk is simply this: If you own a stock, the most you can lose is 100% if the share price goes to zero. That sounds bad, but the risk with shorted stock is much worse - theoretically, the stock price could go up forever. You wouldn’t wait forever to buy it back (even if you wanted to, your brokerage firm wouldn’t allow it) but the difference in maximum loss is still there - 100% vs infinite.

I think that’s enough for today, don’t you?

As I was going through some old news that I had set aside to read during some free time that I wistfully recall in my past and dream of for the future, I saw this headline:

McCain Urges More Drilling, Blames Obama for Gas Prices

Excuse me? Oh, yeah, I HAVE to stop and read this one.

The Ad: (Narrator) Gas prices — $4, $5, no end in sight, because some in Washington are still saying no to drilling in America. No to independence from foreign oil. Who can you thank for rising prices at the pump?

(Chant) Obama! Obama!

(Narrator) One man knows we must now drill more in America and rescue our family budgets. Don’t hope for more energy, vote for it. McCain.

I’m so glad we cut off our cable television subscription so that I don’t even have the temptation to watch this crap.

Look, regardless of what you think about whether or not we should open up offshore drilling, ads like this are just petty and ridiculous - especially the “Obama, Obama” chanting, which seems to be to be a blatant “Hey, look at him, his name sounds like Osama and you heard he’s Muslim, right?”

And by the way, he’s not. So stop it.

Anyway, from an independent analyst:

David Kirsch, an oil analyst at PFC Energy, a consulting firm, said that if the most promising areas off Florida and California were opened for drilling, their peak production in a decade could be as little as 250,000 barrels a day — less than a quarter of what the gulf produces now.

“It’s almost a desperate attempt to take advantage of the political climate brought on by high energy prices to steamroll through legislation that won’t fundamentally address those high energy prices,” Mr. Kirsch said.

I try not to get into politics much here but these kinds of statements just tick me off because it’s something that goes to the core of our economic fears right now. These commercials don’t bring anything to the table, they don’t help people make an informed decision, they appeal to our basest fears. And what’s really depressing is that it works.

A couple of weeks ago, I gave you a website address for the Federal Reserve where you could leave your own thoughts on credit card reform. I just found this follow up piece from a few days ago:

A Federal Reserve proposal to ban “unfair or deceptive” trade practices in the credit card industry has generated the second-highest number of public comments of any Fed proposal — and there are still more than two weeks left before the Aug. 4 submission deadline.

… As of July 18, the credit card proposal had more than 30,000 comments, according to the Fed. The total includes more than 19,000 form letters that are not posted on the Fed’s Web site.

Only 30,000? That seems really low to me.

This is funny:

Consumer advocates say the large public response is a reflection of just how frustrated and angry many Americans are about treatment from credit card issuers. Bank industry representatives, however, say the comments were spurred by media attention and by consumer groups who solicited public input.

Poor banking industry - they’re being bullied and pushed around my mean old consumer groups and people who don’t like that they’ve been behaving more Louie the Loanshark. Boo hoo.

It gets better:

The Fed later released notes of the meeting. According to the notes, the banking officials again defended their practices of anytime rate increases and universal default as beneficial to consumers because they hold down costs overall. The representatives said the proposal “would prevent card issuers from adjusting the rate on the existing balance to reflect increased risk of consumer default. Because initial underwriting cannot identify the 5 percent of consumers who will eventually default on their accounts, issuers must continue to re-evaluate the risk over time by, for example, looking at credit scores.

“Increasing the interest rate for these consumers does not lead to higher defaults; instead, some consumers charge less and pay off faster,” the notes summarized industry officials as saying. “When the interest rate is increased due to increased risk, additional revenue is earned from the majority who do not default, which is used to offset losses on the smaller number of accounts that go into default and will be charged off.”

What. Ever. I tell you what, I will provide, out of the goodness of my heart, a free service to all of these banks who are having trouble predicting which clients will default:

1. If part of your credit card issuing campaign involves handing out free t-shirts to college kids who are thinking to themselves, “cool, now I can go get a keg and don’t have to do laundry for one more day,” you have a default risk.
2. If you’re combing the bankruptcy filings for new clients (because they can’t file again for several years and you know you’d have them over a barrel), you have a default risk.
3. If you’re offering credit cards to people WITHOUT JOBS (as I happen to know happens because I had a broke friend living with me for a while), you have a default risk.

Bring down the temple, I say.

Here’s a recap of the rules:

The proposal calls for:

• banning interest rate increases except for a limited number of circumstances, such as when a promotional rate ends or if customers are late making payments.
• giving credit cardholders a reasonable amount of time (at least 21 days) to make monthly payments.
• prohibiting over-the-limit fees caused when holds or blocks are placed on credit card accounts.
• eliminating upfront fees on so-called fee harvesting credit cards when they eat up the majority of the available balance on the cards.
• requiring credit card issuers to allocate monthly payment amounts either 1) to items with the highest interest rates, 2) by dividing the payment equally among high- and low-interest rate items, or 3) through a method that allows consumers to benefit from a discounted interest rate plan. Currently, many issuers allocate the entire monthly payment to items with the lowest interest rate until they are completely paid off — a method that allows high-interest rate balances to continue to accrue.
• eliminating double-cycle or two-cycle billing practices where interest charges are stretched over more than one month.
• requiring that credit card ads offering low “teaser rates” disclose the factors that will determine a customer’s final interest rate.

And finally, from my other post, if you want to go comment now (you have until August 4th):

To comment on the proposed rules, go to www.federalreserve.gov, click on “Consumer Information” at the top of the page, click on “Proposed Rules for Credit Cards and Overdraft Services,” scroll to bottom of the page, and under “Regulation AA,” click on “Submit Comment.” Comments are public.