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Why and How to Make Investments in Brazil

February 8th, 2010 · Portfolio Management, Specific Investment Ideas

By Ken Faulkenberry

Brazil has the tenth largest economy in the world and the fifth largest as measured by land mass. With a population of 193 million and a 2 trillion dollar economy, it is a political and economic leader in Latin America.  However, social and economic problems have kept it from being an effective global power. But future economic growth may drastically change the role of Brazil in our world.

 

The booming global demand for commodities, particularly energy and agriculture, is a major proponent of a robust Brazilian economy. Brazil is now a global power in agriculture and natural resources; two areas that are expected to provide strategic advantages for decades to come. (See “Five Essential Themes for your Portfolio in 2010: http://tinyurl.com/yaj576a).

 

Brazilian exports are booming and include aircraft, electrical equipment, automobiles, ethanol, textiles, footwear, iron ore, steel, coffee, orange juice, soybeans, and beef.  The country has been increasing its’ presence in international financial and commodities markets and is perfectly situated to take advantage of global trends. It can meet growing demand for its’ products with an ample and efficient work force at competitive prices. Hosting the 2016 Olympics is only going to accelerate the economic growth of Brazil including billions of dollars in infrastructure investment that will benefit the country for the next decade and beyond.

 

How and when you make investments in any emerging market country is critical to investment success. Diversification is always an important consideration and therefore low cost ETFs are a great way to add country specific investments to your portfolio. But due to severe volatility; your asset allocation should be small and only made on pullbacks in prices.

 

The Arbor Asset Allocation Model Portfolio (AAAMP), for the benefit of Arbor Investment Planner subscribers, holds a position in the ishares MSCI Brazil Index ETF (EWZ).  If you would benefit from specific investment options and help with asset allocation, the Arbor Investment Planner can help you manage your own portfolio.

 

More information at: www.ArborInvestmentPlanner.com

 

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Weekend Stock Market Report (Humor)

February 6th, 2010 · Investment Humor

Helium was up, feathers were down.

Paper was stationary.

Fluorescent tubing dimmed in light trading.

Knives were up sharply.

Cows steered into a bull market.

Pencils lost a few points.

Hiking equipment was trailing.

Elevators rose, while escalators continued in slow decline.

Weights were up in heavy trading.

Light switches were off.

Mining Stocks hit rock bottom.

Diapers remained unchanged.

Shipping lines stayed at an even keel.

The market for raisin dried up.

Coca Cola fizzled.

Caterpillars stock inched up a bit.

Sun Microsystems peaked at midday.

Balloon prices were inflated.

Scott Tissue touched a new bottom.

And batteries burst in an attempt to recharge the market.

 

We like to have fun, but investing is serious business. The Arbor Investment Planner is dedicated to helping people save and invest their own money.

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AIP Money Management Tip

February 2nd, 2010 · AIP Money Management Tips, General Advice

Gifting to Family Members Can Save Taxes  

 

Each person is allowed to make gifts of up $13,000 per recipient per year free of federal gift and estate taxes. The gifts can be made to an unlimited amount of people. A man and wife can each give $13,000; making the limit $26,000 for a married couple.

 

Use of the gift tax exclusion can take a large estate out of taxable territory without gift taxes.  As an example let’s assume the federal estate tax exclusion is 1 million; you currently have a taxable estate of 1.5 million, and have 4 children and 6 grandchildren. You could give each of your children and grandchildren 13,000 per year for 4 years ($13,000 x 10 recipients x 4 years) and eliminate future taxes on your estate.

 

Be sure to consult a tax professional before making such a move; especially since Congress keeps changing the federal estate tax exemption amount.

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AIP Money Management Tip

January 27th, 2010 · AIP Money Management Tips, Portfolio Management

Always Re-invest Your Dividends – By re-investing your dividends you are always dollar cost averaging back into your investment.  When prices are low you buy more shares, and when prices are high you buy fewer shares. Your dividend will continue to grow because with each dividend payout you have more shares than the last. In addition, if you own a stock with growing dividends you will witness the powerful results of compounded growth.  It’s also an efficient way to add small amounts to your position, as it would be costly to pay a commission to purchase small positions.

 

If you are retired and require income, take a monthly check from cash and periodically sell positions of appreciated or overvalued stocks to replenish your cash.  This is simpler than trying to match dividend income to your withdrawals and allows you to reap the benefits of re-investing dividends.

 

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Mr. Brown Goes to Washington – The Implications Beyond the Obvious

January 24th, 2010 · Economics, Investment Planning

By Ken Faulkenberry

The election of Scott Brown to the Massachusetts U.S. Senate Seat has been called one of the biggest upsets in elections history. There are obvious important implications of his election. The fact Mr. Brown will be the 41st vote in the Senate takes away the democrats’ ability to dictate policy. His election probably derailed the current healthcare bill which was one of the biggest expansions of government ever. And certainly his election changes the tone in Washington because it shocked and scared politicians as to both the anger and power of the American people.

 

The implications beyond the obvious may be more important and have a greater effect on our lives and investments than the realized realities.  History may show this as a marking the top of the “government bubble”.  Our society and our government in particular, has been living far beyond its means; living literally on borrowed money. Many American families have realized this and have already made drastic changes in consumption and borrowing. The reductions in consumer spending and popularity of anti-debt, and pro-savings financial advisors such as Dave Ramsey are evidence of mass change toward frugality among much of the populous.

 

The government has been holding up the economy with massive deficit spending and expansionary monetary policies. While these kinds of policies are unsustainable and harmful in the long-term, it has provided stimulus and a false sense of prosperity in the near term. The long term unfunded liabilities of Social Security and Medicare are looming disasters even without additional programs or new mandates. The government is always the slowest and last to make changes; and rarely do make changes until they are forced.

 

The election of Mr. Brown to the Senate was a sign the American people are ready to force the government to deal with the problems we face. If the current politicians choose to not address these changes, the election of Scott Brown demonstrated the public is willing to vote for politicians who will do so next November.

 

While we will be better off in the long run if we implement sound policies, it does not mean we won’t pay a high price for our past policies and highly leveraged economy. Even if we don’t reduce the size of government, but only take the smaller step of getting our fiscal policy more balanced, the economy will go through a long period of adjustment. This adjustment will be painful; reducing deficits, withdrawing government stimulus, and deleveraging balance sheets are short-term negatives for economic growth. In addition, interest rates are being kept artificially low by Federal Reserve policy. Higher interest rates can only put additional drag on economic growth.

 

The result is that investing for the future will be harder than ever. Periods of stagnation or slow growth require excellent stock picking and a sound asset allocation policy.  The Arbor Investment Planner provides investors the resources to manage their own money successfully by providing a diversified asset allocated model portfolio with specific buy and sell trade alerts. The Arbor Asset Allocation Model Portfolio (AAAMP) finished up 120% for the past decade; providing subscribers the opportunity to flourish even in a decade where the market lost money.

 

More information available at: www.ArborInvestmentPlanner.com

 

Connect with Ken Faulkenberry here:

www.facebook.com/ken.faulkenberry

www.linkedin.com/in/kenfaulkenberry

www.twitter.com/arborinvestment

 

 

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Five Reasons to be Cautious Now

January 22nd, 2010 · Economics, Investment Planning, Risk Management

1. The velocity of money circulating in the economy is very low. The growth we are experiencing right now is from massive government spending and expansion of the money supply. The Federal Reserve has kept short-term rates near zero and provided extremely loose monetary conditions. They have little left to help the economy if it stalls. What if the economy continues to struggle and government deficits mount from already excessive levels?

 

2. The U.S. Consumer is tapped out. The main driver of the economy the past several decades is facing shrinking credit due to high debt, sagging wages and high unemployment, higher taxes, and greater uncertainty; all at the same time. The U.S. Dept. of Labor Bureau estimates the unemployment rate at over 17% when people who have given up looking for work are included. Homeowner’s equity of 38% (as a percentage of real estate value) is the lowest in 58 years.

 

3. Commercial Real Estate is in trouble. Almost 800 billion in commercial real estate debt is expected to mature between 2010 and 2014. Experts estimate that 2/3 of these loans are for more than the property is worth now. Already weak banks have this additional problem to deal with for years to come. This means reduced credit expansion for several years.

 

4. The powerful rally from March 2009 to date is showing signs of exhaustion. Economic growth and higher earnings are already priced into the market. Insiders are selling stock to the public. Who knows better about the value of their company than insiders?

 

5. Too many investors are focused on making back losses rather than assembling a well diversified asset allocated portfolio. This has been evidenced by the public buying the more risky investments and the blue chip dividend stocks lagging in 2009.

 

The challenging market we faced the past decade requires expert stock picking and portfolio asset allocation.  The Arbor Investment Planner can provide both.  Additional information and our long term record at: www.ArborInvestmentPlanner.com.

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The Short-Term Case for a Higher Dollar

January 19th, 2010 · AIP Portfolio Investment Tips, Portfolio Management, Specific Investment Ideas

There are plenty of reasons the dollar is near all-time lows: the Federal Reserve printing money like mad; huge budget and trade deficits; large unfunded liabilities for Social Security and Medicare; and short term rates close to zero. These have all weighed on the price of the dollar. But all these problems are well known and may be fully discounted in the price of the dollar, at least in the short term.

 

The dollar still accounts for 65% of the world currency reserves.  Since the price of the dollar is measured relative to other world currencies you must analyze the dollar in comparison to other currencies, especially the euro, the pound, and the yen. Western Europe and Japan are both growing slower than the United States. They are also plagued by big budget deficits, large debt loads, huge unfunded liabilities, weakened banks, and falling real estate prices.

 

When our economy begins to recover, short-term rates will most likely rise significantly which could give the dollar a huge boost. Investor sentiment for the dollar is so bearish it is at levels that almost always signal a bottom.  If everyone believes an asset will decline, then everyone has already sold. Investors who look to buy low and sell high can take advantage of this opportunity right now.

 

One way to profit from a rising dollar would be to purchase the PowerShares DB US Dollar Index Bullish ETF (UUP).  This is an ETF that seeks to replicate being long the US Dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc.

 

The Arbor Investment Planner helps investors save and manage their own money.  More information on the Arbor Asset Allocation Model Portfolio (AAAMP) and long term track record is available here: www.ArborInvestmentPlanner.com.

 

 

 

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