Market Volatility

Here is an insightful quote from Thomas Friedman in a recent New York Times speech...

"When we were young kids growing up in America , we were
Told to eat our vegetables at dinner and not leave them.
Mothers said, think of the starving children in India and finish the dinner.'

And now I tell my children:
'Finish your homework. Think of the children in India
Who would make you starve, if you don't.'?"

With that, here is the latest installement of Dale Gillham's weekly market report:

Given that the volatility in our market has continued to unfold in recent months, many are beginning to question whether the share market is really a good investment. However, as many of you would know with every pull back there are always opportunities that present when the volatility settles. Over the past few months many of the top shares on our market have fallen as much as 30% to 50% in price and while this presents some great opportunities for those who are patient, the question that a lot of investors are asking is when is it time to buy? While I believe there is still some more volatility to come, I expect it to settle in the not too distant future and when it does it will reward those who are patient.

So what can we expect in the market?

In my last report I indicated that if the market fell through 5222 points that it could fall to around 4800 points before rising in the next bull-run. Last week the market fell to 5130.10 points and while it closed higher at 5182 points for the week, the market was still displaying signs of weakness. You will remember in my last report I indicated that the market should rise for at least one to two weeks, and although this was delayed, it looks as though this is occurring now.

While the market has been trading for 13 weeks during 2008, it looks as though this week will be only the second week for the year in which it will close higher than it opened. Whilst this is encouraging, it is not a sign that the down move is over although the strength of the market this week is indicating that the buyers are keen. Given that the market has not risen for more than two weeks since October 2007, I would like to see it trade up for at least two more weeks before I start to change my outlook.

That said I do expect the market will continue to rise over the next one to two weeks before it pulls back once again. I believe the market will bottom out in the not too distant future, and when it does it will reward those who are patient. Remember, the share market is a medium to long term investment therefore as I indicated above, I would recommend sitting back and waiting until the market finds a direction before before deciding to invest.

Dale Gillham is chief analyst of share investment company Wealth Within

Proposed 2008-2009 tax cuts - Are they fair?

From News Limited media reports, here are the expected tax cuts (on average) for next financial year:

- Workers earning $15,000 or less will have their tax rates cut by 75 per cent, to just $150 a year
- Those earning $35,000 a year will get a tax cut of $20.19 a week, equivalent to 3 per cent of their salary
- Those on an average wage of $55,000 are in line for an extra $15.86 a week; and those on $60,000, $11.53.
- At the higher end, those on $150,000 or more a year will get the equivalent to just 0.7% of their pay or about $20 a week.

Australia's lowest-paid workers will be the big winners when $31 billion in federal tax cuts come into effect on July 1. I guess this confirms that the Labour party is back to its roots in helping the low and middle class income families per their election promises. Treasurer Wayne Swan said the previous federal government had turned its back on battlers - "For too long under the Liberal Party, low and middle income earners missed out on genuine relief while the bulk of tax cuts flowed to the top end... Out there in the suburbs and towns hardworking Australians are doing the right thing by their families and their country and we will reward them for their hard work," he said.

Given Australia's economic boom for the last few years, I am surprised the tax cuts were not more broad based. I imagine a number of people in Australia's metro areas are earning more than $35,000 a year , so the tax cuts for them will just be eaten by inflation and the increased cost of living. The government should really focus on improving Australia's education, health and infrastructure systems to keep pace with the rest of the world. What's your opinion?

See related posts here

Photo courtesy Bailey & Muppet

Stock Roundup - BHP, RIO, Babcock and Brown (BNB), Worley Pasrons (WOR) and Centro (CNP)

One stock that I have written about a number of times is Babcock and Brown (BNB) - Australia's second largest investment bank behind Macquarie Bank (MQG). I own this stock (bought @ $27) and even thought it is trading around $15, I am still holding on to it because I believe it is a solid company, well financed and a good long term growth stock. It has been caught up in the global maelstrom of the credit crisis and because it's model uses a lot of debt to fund projects (which is repaid via the steady stream of income these projects generate). I really do believe it is going to be a $40 - $50 stock in 3-5 years time. This was demonstrated by recent news that 25 banks have backed increasing Babcock debt facility by 19 percent to A$2.8 billion. The firm said the renewal, foreshadowed in its 2007 results, reinforced the strength and flexibility of its balance sheet.

``That 20 basis point increase in cost looks to be a pretty good result for them given the tension in markets is clearly very extreme,'' said Adam Donaldson, head of debt research at Commonwealth Bank of Australia in Sydney. ``The ability to lock in funding for a minimal cost......is a major positive.'' The increased cost of funding its debt facility has been offset by a reduction in the cost of drawing on credit in the U.S. and Europe, where benchmark lending rates have dropped. I still think BNB will have some volatile times ahead and is actively trying to restructure or sell a number of the funds and trusts it manages. So any sustained appreciation in the share price won't start till later in the year. So either put it on your watch lists or hold on to what you have (like me) and enjoy the ride.

Onto other company news, what is happening with the BHP and Rio Tinto (RIO) merger? Well, RIO has basically rejected BHPs revised offers. saying a merger does not increase shareholder value. Personally, I think that this merger will not go ahead and if it does, it will take a long time to play out with BHP having to end up paying a lot more than planned. If you want to benefit from this potential transaction, buy RIO shares.

Worley Parsons Ltd., (WOR) Australia's largest engineering company, has long been one of the stocks on my buying watch lists. I just haven't found the right time to get into it. Either it rose too much, or with the credit crisis fell too fast. However, it has continued winning contracts and the underlying business is strong. JP Morgan reaffirmed its ``overweight'' rating on the stock, which enjoyed a 10% share price rise this week. JPMorgan said the company was ``well placed'' to deliver strong earnings growth for at least the next few years. ``The business is highly cash generative and seems likely to continue to deploy capital to strategic acquisitions to complement its strong underlying organic growth,'' the March 26 note said. ``We believe the current price to be an excellent opportunity for investors to get exposure to a high-quality, long-duration growth stock.'' At $34 the stock has dropped about 40% from its high's. I am going to be watching it closely over the next few weeks and look to buy if it drops below $30.

Centro (CNP), previously a ASX 50 stock and now a speculative play I reviewed a couple of weeks ago, has now got more time to repay monies owed to the syndicate of Australian banks behind the embattled group's banking facility. They will extend the debt facility until September 30, contrary to speculation that they might pull the plug when it expires on April 30. At 0.25c it looks an even better "punt" now - providing you believe it will make it through the debt ridden mess it is in now.

Finally, the Australian dollar advanced to the highest levels in a week, reversing part of last weeks steep falls, as rising prices of metals the nation exports boosted the outlook for economic growth. The local dollar is headed for a quarterly gain as traders raised bets the US Federal Reserve will keep cutting interest rates, increasing the appeal of Australia's bonds. ``Metals prices are up so that's supporting the Australian dollar,'' said Richard Grace, chief currency strategist at Commonwealth Bank of Australia, the nation's second-largest. ``It's difficult to be bearish on the Australian dollar while the U.S. dollar continues to soften.''

Australian Stock Market Newsletter Reviews - Part 1 of 2

This is a 2-part post looking at some of the leading Australian stock market newsletters, or stock reports as some are called. In these volatile market times it is more important than ever to spend more time researching market trends and related stocks before buying or even selling. Having a detailed review and recommendation done by professionals that provides in-depth objective analysis on the facts and figures is very useful. Also, it provides a way to stay in touch with some of the smaller and up and coming stocks which have strong growth potential. These reasons are what got me to start looking at some of the leading newsletter and reports covering the Australian stock market. This article provides a summary of my findings and basis for my future subscription decision.

So how did I find the “leading” stock market newsletter and reports? I already knew of a few from being an active investor for a number of years and also did various Google searches around the keywords “Australian stock reports and investment newsletters”. Further, I did some research across the leading finance/business publications and media to see which newsletters were the most prominent. I then picked the Top 6 from a list of about 15. This post looks at the first three newsletters, with the second post looking at the remaining three. I will provide recommendations at the end of the second post as well and perhaps another reader poll to get your opinion.

Disclosure: This is an independent review. I have not got a paid subscription with any of the newsletter/reports and am not affiliated with any of the reports and their employed staff as of the publishing date of this article.

Eureka

Report Review (based on sample provided): This report is headed by Alan Kolher, one of Australia’s most well known commentators and journalists. The team is also comprised of other notable writers with considerable experience. From a sample report I reviewed, (Best of 2007), the analysis is presented by the various contributors who talk about general market trends or factors around a particular stock. Given the caliber of people they have on the team, they also have managed to get interviews with leading analysts and senior management at a variety of the ASX companies. They also cover a broader range of topics, like superannuation and managed funds, compared to other newsletters that focus on specific stocks. I found they have excellent commentary on a variety of topics, but wish they had a summary of specific buy/sell stock recommendations and price targets.

Free Stuff Available online: The Eureka website is well laid out, but most of the news items are for subscribers. However, there is “Finance Television”, available for free which provides streaming audio and video market updates. This is a good link to add to your reading/viewing list. There are also some links to externally sourced investment articles.

Trial Subscription Available: Yes a 21-day free trial to the report is available. You can also sign up (via email) for the free Daily Market Report.

Newsletter Frequency and Cost: Three times a week, with a weekly PDF roundup. Annual subscription is $A 295 p/annum & monthly subscription is $A29.95. You also get access to the website which contains various market resources, stock information and investor education articles.

The Intelligent Investor

Report Review: The newsletter focuses on a value based investing approach. The team behind the report is not as well known as some of the other newsletters, but has some experienced staff that know what they are talking about. I signed up for a trial subscription (in under 2 minutes) and was able to get a recent report, which was the basis for this review. The report was about 20 pages and easy to read. It contained overall market/investor news and about 12 specific stock reviews. For the stock reviews, each one is around 1 to 2 pages long and provides an insightful view into the stocks past performance, economic factors impacting the stock and future upside/risks. They complete the review by providing a trading recommendation and include their past recommendation and stock price at that time. This is a good sign of transparency. Another notable item was the investor education articles, which are great for beginners.

Free Stuff Available online: The website is well designed and there a number of free articles, based on past newsletter content, available for downloading.

Trial Subscription Available: Yes, you can sign-up for a free 2-week subscription.

Newsletter Frequency and Cost: Bi-weekly newsletter which can be delivered online or via post (slightly more expensive due to postage). 12 issues (6 months) cost $345 & 24 issues (1 year) costs $545. With a paid subscription you also get access to the website which has stock recommendations, Q&A forums and various other investor resources.

Fat Prophets

Report Review (based on website sample): Fat Prophets is probably one of the better-known names in the stock market newsletter world. Founder and CEO Angus Geddes has made regular media appearances and along with the rest of the team have a solid investment market background. They tend to pick out-of-favour and/or small mining stocks that they think have significant upside potential. The weekly report I reviewed (Fat 332, available on the website) looks at 3-4 stocks, plus an overall market theme (like Gold and Oil prices in this newsletter). The stock reviews were pretty good and they have a unique rating system for stocks (Great White, Signature dish). I felt that they could provide more information on the risk factors for the stocks they have a buy recommendation on. For those who like trends, they provide some detailed charts showing price movement and indicate where they previously had a buy/sell recommendation for that stock (good transparency). Overall the report is concise and easy to read on a weekly basis.

Free Stuff Available online: Sharp looking and well organized website. They actually have a “Free Services” menu item available. If you register your email address you can get access to their market reports and a selection of stocks they review. Worth getting this even if you don’t sign up.

Trial Subscription Available: No trial subscription available, but you can see sample newsletters on their website to get a flavor of their writing style. They do provide a 30-day money back guarantee for any paid subscription.

Newsletter Frequency and Cost: Weekly newsletter with a 1 year Australasian subscription costing $695. 2yr option is also available for $995. A mining and resources add-on is also available.

The following are newsletters I will review in the second edition of this post.

- The Rivkin Report
- Huntleys Newsletter
- Invest4Profit

I have purposely not talked about performance of the above stock reports/newsletters. One is because the only performance figures I have would be what I see on their websites – which is not going to be entirely objective. After all who will subscribe to a report that said last year our performance was negative 10% compared to the index. Secondly, and more importantly, the newsletters should be used to improve and/or augment the information you have available for making your investment choices. They should not replace your own research and decision making process. So pick the newsletter where you feel that the writing style is something you can understand, adds value to your decision making process and provides a thorough analysis (pros and cons) of the stock you are interested in.

I will look at this list in a few months again; so if you have any comments on the above newsletters (based on your own or others experience), please do leave a comment. Let me also know if you have any other newsletters worth looking at.

Photo courtesy epidenver

The big banks are at it again - more interest rate rises!

The National Australia Bank (NAB) has broken ranks with major banks and lifted its standard variable home loan by another nine basis points (0.09%). From Wednesday, NAB's standard home loans will attract a 9.36 per cent interest as the bank seeks to cover the increased costs it is paying for wholesale funds.The move equates to about an extra $15 a month on an average $200,000 mortgage for NAB customers. It is a worry for the RBA (Reserve Bank of Australia), in terms on monetary policy control, when the big retail banks act independently of the RBA. The RBA sets the official interest rates, but it is the banks who execute the actual rate changes from a consumers perspective. So if the banks start going out on their own and changing interest rates, the RBA's influence over monetary policy is greatly diminished.

NAB Australian head Ahmed Fahour said the latest rate hike reflected "sustained increases to short and long term wholesale funding costs". The reason behind this is the US driven credit crisis which has increased the cost of funds to banks worldwide. However, don't feel too sorry for the banks, they are just passing on their increased funding costs to their customers so that bottom line profits are protected. With inflation still running high in Australia, it looks like more interest rate rises are on the cards, so it wouldn't surprise me to see a 10% variable home loan rate by mid-year.

I was talking to friends back in Sydney over the weekend about this topic and was surprised at the huge interest rate differential on home loans between Australia and the US. I know Australia's official interest rates are higher than those in the US (which has lowered rates substantially to fight off a financial crisis), but I was stunned to here that home loan variable rates are at around 9.3% nowadays. They are about 6% here in the US for those with good credit. This is equivalent to $300 per/month differential on a $250,000 mortgage. On a more typical $500,00 mortgage in Sydney, it would equate to about $800 a month differential - a lot of money by any standards. If I return to Australia anytime soon, I should ideally get the loan for my Sydney property via a US bank - but unfortunately I don't think the banks in the US would allow that!

Tax Rebate checks won't get spent

The majority of Americans say they plan to put their $300-$600 tax rebate checks in the bank or use it to pay off debt, according to a recent CNN poll. Perhaps, the IRS/Government should send out gift cards instead of cash checks, so that consumer spend the rebates and pump up the economy? $50 gift cards for each of the major retailers could be the go.

Also, the rebate is not really free money. Apparently it will be added to your taxable income next year (in 2009) - a fact not publicized too much. The rebate is just a band aid solution by politicians in an attempt to buy votes and show that they are doing something to save the economy!

Recovery Stocks worth looking into

From the latest Aegis equity newsletter, here are the stocks that they think have potential to recover (potential buys). I have covered two of them on this site before - Centro Property group(CNP), Babcock and Brown (BNB), which I would still say are risky for now. BNB is one that I do own and like for the longer term. Do you fancy any from the list?

Click on the picture to expand.

Per some of my previous posts, I am still staying away from buying right now. However, I always am on the lookout for quality stocks that could be great buys when the markets stabilizes in a few months.

Carnivals and Festivals

(April 1) - stocktradingtogo.com has hosted the carnival of finance and my post on preparing for a potential job loss is there. Check it out.

(March 24) - Check out my post on " Will America drive the rest of the world to a recession" at Can I Rich on a Salary. G Blogmaster, hosts the 81st Festival of Stocks, with many other great articles there. The blog is also quite interesting and worth reading.

(March 18). I was also recently featured in the Carnival of Personal Finance #144- St. Patrick’s Day Edition hosted at beingfrugal.net. My article on tipping - "thoughts on tipping " was the featured article. Lots of other great posts there.

Thanks to the Quest For Four Pillars blog for hosting the 143rd Carnival of Personal Finance and for including my article on those pesky bank fees and how to avoid them. There a bunch of other great personal finance articles available there worth checking out. For blogs that I read regularly, check out my Aussie and US/Canada Blogrolls at Finance ViewPoint.

Want to know more about Australia?

Happy Easter everyone. Unfortunately here in the states, there is no long weekend with Friday and Monday being working days. So while my friends and family in Australia are relaxing in the southern hemisphere sunshine, I thought I would take this opportunity to provide some historical background and facts about Australia to my American, European and Asian readers. If you have any questions about Australia, just leave a comment on this post and I will try and get you an answer.

Historical background : Aborigines probably first settled in Australia around 40,000 years ago, having moved down from South-east Asia. A British settlement was established at Port Jackson (now Sydney) in 1788. Initially, the settlement was intended to be a penal colony only, but free settlers soon began arriving in substantial numbers. The transportation of convicts from Britain to New South Wales continued until 1840. Sustained UK investment in urban development, farming and mining resulted in rapid economic growth during the second half of the 19th century. Further impetus was provided by several gold rushes in the 1850s, which boosted immigration. Individual states established their own constitutions and democratic forms of government.

The Commonwealth of Australia (a federation of the states) was established in 1901. Its legislative, constitutional and financial structures were developed in the years leading up to the first world war. A mass immigration programme commenced in 1947, focusing on the displaced peoples of Europe. The result was sweeping demographic, cultural and social change. Defence ties between Australia and the US were deepened, leading to Australia's involvement in the Vietnam war during the 1960s and 1970s and the Gulf war during the early 1990s. More recently, Australia has participated in the US-led war in Iraq following the terrorist attacks on the US on September 11th 2001. Over the past few decades Australia has also tried to forge stronger commercial and cultural ties with its Asian neighbors. Australia has been enjoying sustained economic growth for the last 15 years.

Country Statistics

Land Area : 7,682,400 sq km (61% agricultural, 5% forest) - This is larger than mainland America!

Population : 21,017,200 (June 2007)

Population by Major City in '000 (June 2006):
- Sydney 4,284 - Still the biggest!
- Melbourne 3,471
- Brisbane 1,629
- Perth 1,393
- Adelaide 1,108
- Canberra (capital) 319

Climate : Temperate in the south; subtropical or tropical in the north; hot and dry inland. Hottest months, January and February, 13-28°C; coldest month, July, 0-11°C. Best times to visit are March - Jun & September - December.

Official Language : English

Currency : Australian dollar=100 cents. Current Exchange Rate : $1A = $0.90 US (or A$1.11:US$1)

Public holidays : January 1st (New Year's Day); January 26th (Australia Day); March 21st-24th, (Easter), April 25th (Anzac Day); second Monday in June (June 9th 2008, the Queen's Birthday, except Western Australia); December 25th (Christmas Day); December 26th (Boxing Day,)

Fiscal Year : July 1st-June 30th.

Political Landscape : Australia is governed by the Labor Party, which came to power in a federal election held on November 24th 2007. It replaced a coalition of the Liberal and National parties that had been in power since March 1996. The main opposition party is the Liberal Party.

Education Levels: In 2006, 24% of Australians in the 25-64 age group held a university-level qualification, while 30% of Australians in their late teens and early 20s attended universities.

Related Posts :
Australia Day Statistics

What started this bloody recession?

The New York times today provided one of the most succinct summaries of how the subprime contagion and ensuing credit crisis has caused the global economic mess that we are seeing today. The writer David Leonhardt has done a great job synthesizing a complex topic into a simple essay. So if you don't understand why we are having the financial crisis or just want a quick re-cap, here are the key points from the article that explain it all:

- It all started at the beginning of the US economic boom in 1998, when large numbers of people decided that real estate, which still hadn't recovered from the early 1990s slump, had become a bargain. At the same time, Wall Street was making it easier for buyers to get loans. It was transforming the mortgage business from a local one, centered around banks, to a global one, in which investors from almost anywhere could pool money to lend.


- The new competition brought down mortgage fees and spurred some useful innovation. As is often the case with innovations, though, there was soon too much of a good thing. Those same global investors, flush with cash from Asia's boom or rising oil prices, demanded good returns. Wall Street had an answer: subprime mortgages. Because these loans go to people stretching to afford a house, they come with higher interest rates — even if they're disguised by low initial rates — and thus higher returns. The mortgages were then sliced into pieces and bundled into investments, often known as collateralized debt obligations, or C.D.O.'s. Once bundled, different types of mortgages could be sold to different groups of investors.


- Investors then goosed their returns through leverage, the oldest strategy around. They made $100 million bets with only $1 million of their own money and $99 million in debt. If the value of the investment rose to just $101 million, the investors would double their money. Home buyers did the same thing, by putting little money down on new houses, notes Mark Zandi of Moody's Economy.com. The Fed under Alan Greenspan helped make it all possible, sharply reducing interest rates, to prevent a double-dip recession after the technology bust of 2000, and then keeping them low for several years.

- All these investments, of course, were highly risky. Higher returns almost always come with greater risk. But the powers that be and American homeowners decided that the usual rules didn't apply because home prices nationwide had never fallen before (people have short memories!). Based on that idea, prices rose ever higher — so high, says Robert Barbera of ITG, an investment firm, that they were destined to fall. It was a self-defeating prophecy.

- And it largely explains why the mortgage mess has had such ripple effects. The American home seemed like such a sure bet that a huge portion of the global financial system ended up owning a piece of it. Last summer, many policy makers were hoping that the crisis wouldn't spread to traditional banks, like Citibank, because they had sold off the underlying mortgages to investors. But it turned out that many banks had also sold complex insurance policies on the mortgage debt. That left them on the hook when homeowners who had taken out a wishful-thinking mortgage could no longer get out of it by flipping their house for a profit.

- Many of these bets were not huge, but were so highly leveraged that any losses became magnified. If that $100 million investment described above were to lose just $1 million of its value, the investor who put up only $1 million would lose everything. [Recent statistics point to potential exposure that could run into the trillions, so you can only imagine how deep the impacts of these losses will be]

- This toxic combination — the ubiquity of bad investments and their potential to mushroom through leveraging — has shocked Wall Street into a state of deep conservatism. The soundness of any investment firm depends largely on other firms having confidence that it has real assets standing behind its bets. So firms are now hoarding cash instead of lending it, until they understand how bad the housing crash will become and how exposed to it they are. Any institution that seems to have a high-risk portfolio, regardless of whether it has enough assets to support the portfolio, faces the double whammy of investors demanding their money back and lenders shutting the door in their face. Good-bye, Bear Stearns.

- The conservatism has gone so far that it's affecting many solid would-be borrowers, which, in turn, is hurting the broader economy and aggravating Wall Streets fears. A recession could cause credit card loans and other forms of debt, some of which were also based on over exuberance, to start going bad as well.

Many economists, on the right and the left, now argue that the only solution is for the federal government to step in and buy some of the unwanted debt, as the Fed began doing last weekend. This is called a bailout, and there is no doubt that giving a handout to Wall Street lenders or foolish home buyers — as opposed to, say, laid-off factory workers — is deeply distasteful. At this point, though, the alternative may be worse.

Bubbles lead to busts. Busts lead to panics. Panics lead investors to sell and markets to fall and that's why we are in the situation we are in now. Got it?

The full article, which is definitely worth a read, can be found here.


Pictures courtesy of Jeremy Brooks

A temporary reprieve and a time to sell

The American Federal Reserve's three-quarter-point cut in its key lending rate extended a stock-market rally that began after a pair of investment-banking giants (Goldman Sachs and Lehman Brothers) reported earnings results that, while weaker than a year ago, were free of nasty surprises.  The Dow was up by more than 400 points and the S&P 500 rose 4%.

The Australian, Asian and European markets should rally as well and most likely the euphoria will extend for a few days and perhaps to the end of the week. However, I think this would be a good time to "sell into the rally" rather than look for buying opportunities. The credit crisis is still around and it will take 3-6 months more before all the bad/dirty news is out. Also, a looming threat on the US economy is Inflation. Due to the aggressive interest rate cutting by the Fed, 2% this year alone, inflation is rearing its ugly head again. This could reduce consumer spending power, increase the cost of living and overall be a major impediment to the US economy's recovery.

Professional investors remain wary of calling an end to the Wall Street's credit woes. A series of Fed moves has not eased the crisis, and stocks have remained stubbornly volatile from day to day, never establishing the kind of firm upward trend that generally benefits everyday investors. Until investor fear subsides and optimism returns about the markets (stock and credit) future, we are in for volatile times with a marked downward trend.

Am I being too pessimistic?

Are you prepared if you lose your job tomorrow?

You get into work tomorrow and you are told that your position has been made redundant. Are you prepared for this scenario and its likely impacts on your financial security?

In these volatile times with company profits on the way down, layoffs being announced every other day and a general economic malaise you need to be prepared for adverse circumstances such as losing your job. Whether you are in a dual income or single income household, you need to have contingency plans in place if your one or more of your main sources of income goes away. Here are four key items to plan ahead for.

1. Get your financial house in order

Emergency Fund - have at least four to six months of living costs close at hand to whether the drop in your household income. If you don't have that kind of cash available keep other accessible sources like your home-equity line of credit untapped. It's a lifeline if you ever need it, and it costs nothing if you already have a mortgage. Pay-off any credit-card debt - normally the most expensive - if possible ahead of time while you have an income.

Here's one tip that a number of others will think is crazy -get more credit cards while you have a job - but don't use them! It is always much easier to get approved for credit cards when you have a job and income. The credit cards would then provide a last resort source of funds. Again I repeat, they are to be your last option, but they could give you some valuable breathing space before you get the next job.

Start keeping a budget so you know what you are spending money on, and where you can realistically afford to cut back. To state the obvious, now is not the time to make nonessential big-ticket purchases or taking that family holiday. Having a budget can provide you key information like how long you can manage with the funds you have and what mandatory/discretionary expenses you need to make allowances for.

2. Update your Resume & Networks - Make sure you keep your resume and networks up-to date. In times like these, using your networks to find new jobs is key. 70% of jobs are not advertised so knowing the right contacts in the industry you are in or want to move to is critical. If you have not been keeping up with your networks, start asap. You can also used social media sites like Linkedin for maintaining and extending your professional networks. Don't wait until you lose your job to start networking. This should be an ongoing thing and if you know you are going to potentially lose your job then start the search for a new job well in advance. Not only will you be in a stronger negotiating position, you will give yourself some time to evaluate options. Remember the benefit of networking is based on the old adage - It is not what you know, it is who you know.

Some people have also used losing a job as an opportunity to start their own business or to change career tracks. This is may be great for some people, but remember to have your financial house in order before you do this.

3. Family Plan & Support - Be prepared ahead of time. If you are in a job, discuss or think about how you would manage without one. If you have a family, make sure everyone is involved in these discussions because if the worst happens, then everyone will be impacted directly or indirectly. Family can be your best form of support and talking about these issues ahead of time will reduce the stress on relationships when/if times get tough.

4. Know your rights - If you are expecting a lay off or retrenchment, make sure you know what you should be entitled to. Know if and when you will have access to any unemployment benefits. In the US, most people's medical benefits are tied to their jobs, so understand your coverage costs under the COBRA policies (it's in those documents we get when we get hired, but never read). Review your employment contract for relevant termination clauses, notice periods and what payouts (like long service leave) you could be entitled to. Administratively, get direct phone numbers and names of people in your HR, Payroll and benefits department as you may need to contact them after you have left the company and getting to them via your company switchboard/operator can be very difficult.

I currently work in the financial sector and with the turmoil and mass layoffs across a number of companies, I have to be prepared. Even if you are in a relatively safe job, it makes sense to take some of the above steps because there could be other unforeseen circumstances that result in a job loss or big drop in income that you need to be able to manage.

Feel free to comment and suggest any other tips on this topic.

Fallen share prices drive dividend yields up

Here is the second installment of Dale’s weekly market report. Dale Gillham is chief analyst at share investment company Wealth Within and provides his perspective on what happened in the markets over the last week and what’s ahead.

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Depending on where the economy is in regards to the business cycle, there will always be those who will win and those who will lose. In today’s current economic conditions the winners are those who are generating a high income from their investments as interest rates continue to rise while others are struggling to meet their mortgage repayments.

Falling share prices in recent months has caused dividend yields to rise considerably, and it should come as no surprise to find Centro and Allco with the highest yields at 128.55% and 127.54% respectively. That said I am not suggesting you buy these shares to capitalise on the income, as the risk to your capital is likely to be much higher than the potential return right now. But it does highlight that there are some great opportunities for those seeking higher income with a longer term outlook.

Of the banks Suncorp pays the highest dividend at 8.9% followed by St George at 7.5% whilst the best of the big 4 is NAB at 6.97%. All of the banks are paying fully franked dividends, which means the actual return is much higher and with returns like this you can bet there are many retirees are smiling all the way to the bank.

So what can we expect in the market?

The market fell away earlier this week and instead of finding support at 5222, price continued down to form a new low at 5164 points. Right now the market is very sensitive as it continues to over react to any news, which makes it very difficult to determine with any sort of accuracy what will unfold in the short term.

That said I believe the market will be up over the next one to two weeks as many bargain hunters come in to buy what is perceived to be cheap shares right now. While this strategy is fine if you take a long term view of 3 to 5 years, it is not the smartest strategy if you are seeking quick returns as the market is yet to define a direction. If the market does rise over the next two weeks, I believe it will reach a target of between 5500 and 5700 points but only time will tell.

Related Posts :
Dollar cost averaging and market expectations from Dale Gillham
Aussie Banks Taking a Hit
Top Australian Dividend Stocks

Look out for an upcoming give away related to this report next week!

A conversation between Warren and Bill

So Fortune, published it's latest - Richest People in the World List - and after 13 years there is finally a change on top. Thanks to the decline in Microsoft shares (along with the rest of the market) and increases in Berkshire Hathaway stock, Warren Buffet is on top of the list. Bill Gates drops to number 3, after Carlos Slim. Now Bill and Warren are friends, so here is an imaginary conversation they may have had over the phone when the list was released:

Warren : "Morning Bill, Have you seen the latest list?"

Bill : "What list?"

Warren "Why, Fortunes Richest in the world list"

Bill : I don't pay attention to lists

Warren : Come on Bill, for 13 years you have been goading me about being the second richest man and now that you have been knocked of your pedestal, you are changing your tune. Not fair - why don't you "Google" the list now [Laughs].

Bill : Well....I have discovered my inner zen and that's why I am giving away all my money to charity and hedge funds shorting Microsoft stock. I now only focus on making the world a better place to live and work in through the use of Microsoft Productivity tools.

Warren: Come on Bill, you are taking all the fun out of this. But I guess you are getting used to being No 2 with Google, Apple, Nintendo and other companies overtaking Microsoft.

Bill : Hold on now, that is below the belt. I am sure we have a multi-year strategy to get back to number one...., but Steve [Ballmer - CEO of Microsoft] is not returning my calls.

Warren: Enjoy retirement Bill. See you at our Thursday night cards' game. Dinner and Drinks are on me, after all I am the richest man in the world...

Bill : [Mutters a profanity].....Wait till Microsoft takes over Yahoo, then we'll see.

Warren: Ha, Ha,,,,,You really are in the charity business.

Bill : Bye Warren, I've got some work to do.

Warren: Bye. Do you have Carlos' number by any chance?

Bill : [Hangs up]


Another interesting thing to note about the Top 10 (see list below) is the diversity. 7 out of the 10 people are non-American and most have made their fortunes outside of America.. This confirms the ongoing redistribution of wealth across the world. In a few years I wouldn't be surprised to see no Americans on the list.

1. Warren Buffett 2. Carlos Slim Helu 3. William Gates III 4. Lakshmi Mittal 5. Mukesh Ambani 6. Anil Ambani 7. Ingvar Kamprad 8. KP Singh 9. Oleg Deripaska 10. Karl Albrecht

The full list can be found here