Inflation.. a constant worry

Inflation, is an economic concept. The effect of inflation is the prices of everything going up over the years. The effect of inflation is neutral on every economy. The impact is no loss no profit situation causing to Break Even Point. When the economy reaches saturation point, it ceases from side effects. And now Britain is under inflation status. Britain's inflation rate jumped over and above the Bank of England's 2 percent target to a sign higher interest rates have yet to wring price pressures out of the economy.

Consumer prices climbed an annual 2.1 percent making an increase of 0.5 percent on the prices in this month. There is fear that the British economy may face greater riks from gains in consumer prices or the little damage to their economy due to U.S subprime mortgage slump.

Whatever it is, but one thing is for sure, that the oil and food prices are under inflation magic and dealing with OIL in britain may be a little serious issue.

Oil climbed above $98 per barrel and food costs in British stores increased the most in almost two years.

I think spending on OIL and food are unavoidable and cant sit back without buying, but the purchase should be little sensible and reasonable. And when it comes to trading, beware is the best word to use.

Talk on USD

Just a Talk and USD is down against Euro. The talk that Federal Reserve would be cutting the interest rate added woes to the dollar. The U.S.D is down against the euro which has been trading about two U.S. cents off and indicating its all-time high. The U.S debacle session is still continuing because there is a slump in the housing market in United States.

The home sales have decreased steeply than anticipated. Adding to woes, the anticipation by the National Association of Realtors in U.S expect that the home-sales may be 10.8 percent below than last year. Forecast estimated that there is some 1.3% drop in the existing home sales, a slight improvement, but overall the housing market is still in slump mood.

but there is something good too.... On the other hand the Yen which is back into carry trade fashion has become an advantage to the U.S currency market. The dollar which rose very slightly purchased Yen at 117.29.

But the USD is in an unhealthy condition against the Euro and even against INR too. Indian Currency is becoming strong against the dollar. The current rate of 1 USD = 39 INR. Previously it used to be 45 INR.

I think the one solution where USD can be back in action is only when the housing market is again in boom.

Lets hope something best for USD.

Constant Worry Pick up’s Again on US Dollar

The US dollar is somewhat in bad condition. The dollar touched a new record low (1.4160) against the euro and sold off more than a cent against the Australian and New Zealand dollars. Given that consumer spending accounts for two-thirds of US economic activity, it is likely excepted by the excerpts that the US economy will continue to falter over the next 12 to 18 months as consumers retrench and rebuild personal wealth through investments and paying off debt rather than spending.

The markets are focused on the weakness in the US and what this means is that the US economy may be in rapid drop. The weak data from last week of September ‘07, and a 4.9% decline in August ’07, it is anticipated that the Federal Reserve will lower interest rates again in October, and as long as US interest rates are expected to fall further, relative to interest rates elsewhere, the US dollar will continue to fall.

How to Profit under Market Volatility

If the market is running in volatility, there are always moneymaking opportunities available - and if you use this remarkably simple and effective method, it's much easier and quicker to find them when needed...

Scan the markets.

Whenever the market soars or crumbles, always make a point of checking out the extensive list of stocks you have on your watch-list to see if you can take advantage of the move.

Many times, market volatility actually presents a great opportunity to enter positions at better prices. Keeping a watch-list is a simple, yet remarkably effective thing you can do. It keeps you focused, disciplined, and ready to take action faster than if you start from scratch.

The tools that will help you to be a better investor

Keeping a shortlist of potential companies to choose from still means you need to do your due diligence and revisit your reasons for buying. But if you can have candidates ready, you'll have a good head-start on the crowd. And when the market and individual stories change, you can add and delete from your list.

A Watched List Ensures No Opportunities Are Missed

Regardless of whether you go low-tech or high-tech, a watch-list is an incredibly useful tool. Not only will it help ensure you don't miss an opportunity in a stock that you're keeping close tabs on, it will help you evaluate your own strengths and weaknesses as an investor.

Be sure to review your list and your reasoning at least once a quarter (even the stocks you're no longer interested in). No doubt you'll have a few, "What the heck was I thinking?" moments as you'll have the benefit from a good hand-sight. But it's a good lesson that will only make you a better investor going forward.

I think this can help us to profit when the market is suffering from high volatility

A view on DAX

Germany’s DAX Index started sliding from July 10^th to July 11^th 2007 as the other stock symbols in Germany like Daimler Chrysler; the world’s fifth-biggest carmaker started decreasing from 2% to almost 2.5%, and the Siemens Europe’s biggest engineering company also decreased to round 2.2%. As the stock symbols in Germany were down, the DAX was also affected and declined to 1.2% that day.

On July 12^th as the DAX was down for consecutive two-days, the experts believed that the Dax may fall the following day too. But it didn’t. The DAX advanced as the Hypo Real Estate Holding raised their shares making the DAX to profit by 2%. The share prices were entirely justified by corporate earnings that time in German Stock market, that’s why there was some rise in the DAX index.

But again on July 25^th, the DAX had started to decline. Germany's benchmark DAX Index slumped for the two consecutive days, paced by Allianz SE as the company lost some shares in the quarter. The DAX dropped by 0.9%. The Germany’s DAX market was still in a consolidation, but not in a correction, and it is expected that expectations for corporate earnings have risen significantly since last quarter and smaller disappointments may cause big share price moves.''

That was the position of DAX in the previous month which had started to fluctuate at a very rapid speed. We have to see how DAX performs this month. And already four-days have passed, and the latest information on DAX is, it has moved down a bit in value as the Benchmark indexes in DAX like Allianz AG (ALV GY) Duetshe bank and Germany’s biggest bank and Continental AG Germany’s biggest manufacturing company have seen their share values in a depreciating condition. So the DAX has slipped to 1.3%.

I think the DAX position would be all fluctuating this week too as the Benchmark Index of the DAX is not performing well. Though, lets see how things will work for DAX.

What does an investor do to make money when indexes drop

Sometimes it can be a very difficult task to determine the optimal way to profit from a decline in the overall market. So, what should an investor do to make money when the indexes drop? Or what should one do to protect the gains they've already made without selling their investments and possibly getting a tax bill?

Options, such as puts, are one way. But if you guess wrong, you could lose your money in a relatively short period of time. Shorting stocks is another method. However, that can be riskier than buying options, as the losses can exceed your initial investment.

Reverse market mutual funds might be a solution. They offer professional management and may be safer than investing in options or shorting the market. However, these funds are not for the faint of heart. Long-term investors can get caught off guard and burned by a bullish rally. And expenses can be high.

Two Types
Reverse market funds, also known as bear market funds or short-funds, come in two different investment styles - reverse index and actively managed. Both are meant to make money only when the market goes down.

Reverse index
A reverse index fund is designed to go up when the index it follows drops. So, for example, if the index loses 2%, the fund's Net Assets Value (NAV) should rise 2% before fees and expenses. Some funds use leverage to magnify the impact of your investment by paying a multiple of the index's decline. For instance, if the fund will pay double the index's drop, and the index it follows loses 10%, the fund could earn 20%.

By taking an inverse position that corresponds to twice the daily drop in the index, you can hedge your long positions for half the amount of money. Then you might take the other half of your cash and put it in a money market fund, giving you the ability to increase your hedge down the road.

Reverse index funds follow just about every index out there, including the S&P 500, NASDAQ 100, S&P Madcap 400, DJIA, Dow Jones U.S. Financial Index, Dow Jones Precious Metals Index, Dow U.S. Real Estate Index and Nikkei 225 Stock Average..

And there are even funds that inversely track oil, natural gas and currency indexes. So you can focus as broadly or narrowly as you wish.

High Expenses
Because reverse market funds might frequently trade holdings to take advantage of quick market declines, fees and expenses can be higher than with traditional funds. You could, of course, take the short position yourself and not use a fund with its associated expenses. But keep in mind that a reverse market fund:

• Does not require that you open a margin account to hold short positions
• Will never cost you more than your initial investment
• Can be owned by your retirement account

Conclusion:

Reverse market funds can reduce your exposure to the market without selling the securities you own and taking taxable gains. You may even win big when the markets tumble, or you could earn back prior market losses. However, these funds - especially those that use leverage to magnify potential returns - can lose money quickly in market rallies, and are best used to regulate portfolio risk.

Mutual Funds

A mutual fund is a company that combines, or pools, investors' money and, generally, purchases stocks or bonds. Ideally, a fund's size and resultant efficiency, combined with experienced management, provide advantages for investors that include diversification, expert stock and bond selection, low costs, and convenience.

In terms of legal structure, a mutual fund is a corporation that receives preferential tax treatment under the U.S. Internal Revenue Code. The assets of a mutual fund consist almost entirely of the securities it holds in its portfolio. The most common type of mutual fund, called an open-end fund, allows investors to buy and sell stock in it on an ongoing basis.

But, many investors are still to fully understand the concept of a mutual fund. They continue to treat it similar to investing in shares. Therefore, they tend to buy mutual funds for wrong reasons -- low NAV of a fund; dividend announced by a MF; New Fund Offer, etc.

The same misconception is seen in selling too. One of the most common instances of selling a mutual fund has been to invest in a New Fund Offer. This is under the false impression that a fund at Rs 10 is cheap and an excellent opportunity to invest.

Therefore, what could be the possible situations for selling a Mutual Fund?

Financing a need

A very obvious reason to sell would be when you need money. We all invest money with a view to finance some need or a desire in the future.

Say, you planned to buy a car or a house; or need to pay your child's fees; or maybe you want to take a vacation abroad. All this would require you to liquidate some of your investment.

However, proper choice is essential in deciding which fund(s) to sell. You could either sell those funds, whose performance has not been encouraging; or those where the tax impact is minimal; or those where the amounts are not very significant; etc. Or sometimes, possibly it may be better to borrow rather than sell a good investment.

Poor performance

There are more than 200 equity funds and their number is growing. The returns from practically all funds have been comparatively quite good, given the current bull-run. Even the worst performing funds have given 30-35% returns in last 1 year.

In absolute terms these are excellent returns. But when compared to the top performers with 110-115% returns, these look extremely poor.

However, the key here is to look at long-term returns - 1-yr, 3-yr & 5-yr - and compare it with both the benchmark index and other funds in the peer group. In the short term there could be a genuine reason for under-performance. Some of the investments may be from a long-term perspective; certain sectors may have been under-performers; contrarian investments take time to catch market fancy, etc.

If possible, one should also try and assess the reasons for poor performance. This will give a good insight into the market.

Rebalancing the portfolio

We all have a certain asset allocation across various investment options such as debt, equity, real-estate, gold etc.

A change in your financial position may require you to rebalance your portfolio. Suppose you are presently having a well-paid job and are unmarried with no liabilities. You can, therefore, take much higher exposure in equity MFs. But with marriage and kids your responsibilities may increase, which would require you to reduce you equity risk to more manageable levels.

Hence you would need to sell equity and re-invest in debt to restore the original balance.

Or maybe a new asset class has been introduced in the market - a real-estate fund or a gold fund - and you want to take advantage of it. Thus you may have to sell a part of your existing investment and re-invest in this new asset class.

Change in taxation policy

A change in the tax policy could become a reason to sell and reinvest somewhere else.

Change in Fund-Style or Objective

We invest in a fund with a particular objective or style in mind. Suppose, we already have exposure in mid-cap funds and in order to diversify our portfolio, we choose a large-cap fund.

However, after some time we observe that the fund is taking exposure in mid-cap sector too. This increases our overall exposure to mid-cap. Thus it may be time to sell and move to a truly large-cap fund.

Change in the Fund Manager

When investing, one of the criteria is to evaluate the expertise, knowledge, experience and past performance of the fund manager.

However, while the fund manager is a key player in managing our money, one should not forget the contribution of the research team, the investment committee, the top management and Asset Management Corporation's investment philosophy.

Therefore, a change the fund manager need not necessarily mean exiting the fund. But it may be worthwhile keeping the fund under a close watch. If there is a perceptible decline in the performance, one could consider selling.

Change in the Fund's Size

Sometime the size of the fund starts affecting the returns. This is because (i) the mid-cap space is limited (ii) even small purchase of such stocks sent their prices soaring and (iii) too large a holding in such stocks will be difficult to offload when required.

Here, of course the funds took a proactive step to protect the returns of the existing investors. But if the funds themselves do not take such a step, we investors should keep track of the fund sizes.

Plan & Perform

If you plan and perform, you are bound to be successful. So I thought why not plan for my trading too. And I have found some six simple but essential things to keep in mind for building a perfect trading plan.

1. Skill Assessment: Are you ready to trade? if not, try once? Have you tested the system on which you are going to trade, Trading in the markets is like a battle of give and take.
2. Mental Preparation: Be prepared mentally for both the sides of the coin. You may win or lose. Be prepared to feel the challenge ahead. If you are not emotionally and psychologically ready to trade the markets, take a day-off otherwise distracted you may be risking losing your shoes. If you are angry, preoccupied by some problem or otherwise distracted from the task at hand, then these are symptoms that make us realize that we should be away from trading for that day. The successful Market Mantra is staying cool while trading.
3. Set Risk Level: set your portfolio as to how much you should risk on any one trade. It can range anywhere from round 1% to 5% of your portfolio on a given trading day. That means if you lose, you should still be able to perform for the next day.
4. Set goals: Before you enter a trade, set some profit targets and risk or reward ratios. What is the minimum risk or reward you will accept? Many traders will not take a trade unless the profit is at least 3times greater than the risk. For ex: if our stop loss is a dollar loss per share, our goal should be a at least $3 profit.
5. Do your homework: Before you start trading, update yourself about the market conditions. Are the markets up or down? And whether they are going to perform well today or not? Etc
6. Clear your cache: There should be no problems arising while you are trading, because a minor distraction can cost you expensive. So check that your computer is working properly and there is no cache left it.

Dow Jones dancing in air

It was 27^th April 2007, that Dow Jones index busted out through the 13000 mark for the first time in its history. At that time the key question was how long can it can stay there? But in fact, a most obvious question was – does it even matter? The Dow Jones Index had just powered through 13000 that week indicating that it’s the true state of corporate America. At the moment, there was a sudden increase of nearly 1000 points in the Dow which rose from 12000 to 13000 points gain. That gain wasn’t of any weight at that time, since many of the experts were thinking that the increase may not be stable.

But the Dow Jones Index has proven the experts opinion into a wrong statement. Earlier the DOW Jones was in trouble with the sub primes. There were worries about the sub-prime lending. But soon the DOW had recovered from those worries. On 13^th July, 2007, the Dow Jones hit another record high. It shot up more than 280 points. Rio Tinto‘s $38.1bn bid for Alcan helped for the new high. And just like that, in the wave of an analyst’s pen, the sub-prime problems had vanished.

The Dow Jones rebounded from its recent sub-prime-induced troubles. The mood has swung to wild optimism once again, and wishful thinking that problems in the mortgage market will just go away. The economy is expected to be just fine, despite the devastation being wrought in the value of the one asset that has been propping up US consumer spending since the turn of the century - housing.

There’ll be many more mood swings to come.

But before any bad-news…. There is some good news waiting for us.

And that is on 17^th July 2007, The Dow Jones index broke through 14000 points for the first time in early deals. And all this has happened because the key economic data and strong earning from Coca-cola company and Johnson & Johnson Co/- have increased. In earnings, the coca-cola company has disclosed a strong set of second quarter figures which showed profits up to $1.85bn gain in emerging markets in China and India. Johnson and Johnson Company also gained up to $15,31bn as the healthcare products announced a 9% hike in second quarter profit as the sales were up by 135 points.

The Dow Jones is currently 41 points higher at 13,992, having hit 14,011. So, trying a hand on DOW JONES may not be a bitter experience now.

Young investors and Trading

When we are young, we have to start planning for our future and start saving money for a rainy day. And many young people don’t think of it. Because the trouble is that only few actually plan. Even those that save a decent percentage of their take-home pay rarely plan for the future. But the good news is that we can achieve our financial goals if we start early enough.
Here are some few tips which can help every one of us. There are

saving
how much should we save? There is no perfect answer to this question. However, we should save as much as we can without adversely impacting the quality of our life. In other words, it is OK to indulge in a night out once in a while - as long as it doesn't become such a regular occurrence that you aren't left with money to save.

Ideally everyone should strive to save at least 10% of their salaries each year. That may not always be possible - after all, nearly everyone has months where they can't save a dime, because we have to shell out for some new things like new bikes, new mobiles etc etc. When we do have one of those months with high expenditure, however, we should really try to tighten our belt the following month.

Also, consider your spending habits.

We should not become spendthrifts and buy whatever we want and later on brood over split milk. We should buy things which we need the most. For this, we should prioritize our needs. The highest important thing should be bought first, thus maintaining the money in our pockets.

Debt: It is highly recommended for young investors not to fall in the deep hollow of debts. Never buy any such thing where you need to go for debts. Manage with our own money; else wait for the money to get stored. But never ever go for debts. In other words, wait until you have the money in your pocket before you spend it.

After keeping all the above in mind, now lets us plan to make more money.

When we have spare money and at times we think of buying something and that may not yield us anything good in our long run. So, instead of buying something which is useless, why not trade and buy stocks which will yield us something more or less, because something is better than nothing. Trading is always a better option to make some good money. And Investing in a stock market proves lucrative almost 90%. So, let’s invest our hard-earned money in something which will help us when we are in dire need.