Another bullish indicator

Earlier this week, the Dow gave another bullish signal that the bear market may be over. Or at the very least, that it will be a while before it resumes.

Bloomberg reports on this signal:

The Dow Jones Industrial Average is sending a buy signal that has foreshadowed gains of 18 percent during the past nine decades.

The 30-stock gauge climbed to more than 10 percent above its mean level from the previous 200 days, rebounding from 34 percent below the so-called 200-day moving average in November, according to data compiled by Bloomberg. Eighteen of the last 21 times the Dow rallied from at least 10 percent below the 200-day level to 10 percent above, it posted gains during the next 12 months, Bloomberg data since 1921 show.

Take a moment to look at the table contained in the article linked to above. It shows each of the 21 times this event has happened since 1921, nearly all of which occurred during or near the end of bear markets. Of the three times when the market was not higher a year later, it was less than 4% lower twice (i.e., very minimal losses in the year following the signal). Only once in 21 instances was the market substantially lower (-16.61%) a year after this signal.

For reference, a loss of 16.61% from today's levels would drop the S&P 500 from it's current level of ~989 down to roughly 824. It bottomed at 666 in March. So if the worst of the 21 instances from nearly the past century were to recur, the market would give back roughly half of the gains we've experienced since March. I think that's a dramatically more optimistic "worst case scenario" than most investors are harboring in their minds currently.

(I need to hasten to add that there are no guarantees with the stock market, and certainly none should be implied from my statement above about worst-case scenarios. I'm simply talking about the past record of this particular indicator — obviously the true worst-case scenario is potentially much worse than what this indicator has ever experienced before.)

It's probably also worth pointing out that in all three of the prior worst bear markets of the past century (1929, 1974, 2000), the ultimate bottom was already in place before this indicator triggered. One more reason to think the worst may be behind us.

Pursuing a similar line of thought, Jason Goepfert of sentimentrader.com published a study last week that looked at how long it took the market to fall back below the 200-day moving average after moving 10% above it, as just occurred this week. His study showed that on average, since 1932, it took the market nine months to fall back below the 200 dma. Even more interesting, it showed that the worst-case example took five months to fall back to the 200 dma.

That probably requires a little translating. The 200-day moving average takes roughly 40 weeks of data and averages it, so it isn't very quick to change. So what the paragraph above is saying is that five months is the fastest the market has ever dropped roughly 10% once it got this far above the 200 dma. That's a rough paraphrase, but pretty close to accurate. Five months takes us through the end of 2009.

Again, I think if you asked what the likelihood was that the market would drop 10% from today's levels at some point between now and the end of the year, many investors would answer the likelihood is pretty high. This study is saying that isn't the case, that since 1932 that has never happened in the time frame that would take us through year-end. Kind of surprising, frankly.

Once again, there's no guarantee with this indicator either. Just because it hasn't happened in the past 75 years doesn't mean it couldn't happen this time.

The reason for posting information like this is that there's a very natural tendency to be fearful following severe bear markets. This response causes most investors to miss out on a significant portion of the next bull market. Eventually, the market rallies so far from the prior lows that investors get comfortable that the last bear market really is over. Just in time to get back in near the highs and get trampled all over again.

That's why SMI tends to focus so much attention on purely mechanical signals, like the all-clear indicator, that can give us a stiff shove when we're reluctant to get back in the market after a big loss. We trust those historical indicators more than our own gut/intuition/reason after a big bear market, simply because we know that our emotions will continue to lie to us long after the worst is past.

I'm not saying you should throw caution to the wind. I'm definitely not saying you should take more risk than your plan requires in order for you to meet your long-term goals. But I am saying that it's time to start moving back towards the allocations your long-term plan calls for if you're significantly below those levels. And at a minimum, start giving at least as much consideration to bullish indicators like these and the all-clear signal as you are to any bearish information you're receiving.

The market has gained 4.4% since the all-clear indicator was triggered seven weeks ago. That may not seem like much, but it's an annualized rate of over 37%. For those still waiting on the sidelines, at the very least you need to answer the question, "What needs to happen for me to get back into the stock market?"

Posted by Mark at 2:53 PM | TrackBack
Category(s): Current Market Events

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Huge disparity in performance among microcap indexes

Something strange is afoot among the indexes tracking the smallest company stocks (microcaps). Through the first half of the year, the performance of these indexes varied widely.

Here was the year-to-date performance of the various microcap indexes as of June 30:

• Russell 2000 (small stocks) 2.6%
• Russell Microcap (tiny stocks) 6.0%
• MSCI Microcap 22.5%
• Dow Jones Select Microcap -3.2%
• Zacks Microcap -5.0%

In the latest newsletter (PDF) from Perritt Funds (Perrit Micro Cap Oppportunity is our current top pick in Category 3), Perritt's portfolio manager Michael Corbett explains what's going on:

The substantial difference in the performance of the various microcap indexes is somewhat astounding.... [T]here is a difference of nearly 30% between the best and worst performing microcap indexes year-to-date, all of which are supposedly tracking the same sector of the market.

A closer look reveals that a possible explanation to this irregularity is related to the number of companies being tracked by each index and how they are chosen. In its entirety, the microcap universe is made up of approximately 5,000 names.

The Russell 2000 and the Russell Microcap Index each track 2000 companies, the Morgan Stanley MicroCap Index tracks 1,300 companies, and the Dow Jones Select Microcap Index and Zacks Microcap Index each track less than 500 companies.

This serves as a good reminder that when investing in an index fund, make sure you know which index the fund is tracking and what that index actually measures — especially when you get down to the small cap and microcap area.

We offered an overview of the most widely used indexes in our May 2009 Level 3 article.

Posted by Joseph at 3:54 PM
Category(s): Mutual Funds

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Gov't earns 23% on Goldman bailout

Way back in September when the first TARP bailout was being considered, amidst the noise and debate, a few voices could be heard saying that, if structured properly, the government might not get fleeced when all was said and done.

That will probably end up being optimistic in the final overall analysis, but last week's news about Goldman Sachs repurchasing warrants from the U.S. Government as part of extricating itself from the bailout arrangement gives momentary credence to that earlier idea. In Goldman's case, they paid $1.1 billion to redeem the warrants, in addition to the $318 million in dividends they had already paid the government.

That means Goldman ended up paying the government $1.42 billion on the $10 billion in TARP assistance they received, or a 23% annualized return.

That's a pretty good return (although there are still plenty of questions surrounding the whole issue of whether they should have been bailed out, etc.).

Unfortunately, the government doesn't seem to be consistently replicating this type of success in other TARP repayments from other entities. So how the overall program will fare (in financial terms) remains to be seen. But at least in this one instance, we can see pretty clearly that the government didn't just "spend" the $700 billion in bailout money last fall. Chunks of it have been coming back a bit at a time, some with decent returns attached. Regardless of your feelings about the bailout overall, there's at least a little good news to be found in that news.

Posted by Mark at 4:45 PM
Category(s): Economy

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There's good news, and there's bad news

The good news is the index of leading economic indicators is signaling that the recession is nearing its end:

The index of leading indicators, which signals turning points in the economy, is rising at a rate that has accurately indicated the end of every recession since the index began to be compiled in 1959.

The index was reported this week to have risen for the third consecutive month in June, and to have risen at a 12.8 percent annual rate over those three months. Such a rise, pointed out Harm Bandholz, an economist with UniCredit Group, “has always marked the end of the contraction.”

Mr. Bandholz said he expected that the National Bureau of Economic Research, the official arbiter of American economic cycles, would eventually conclude that the recession bottomed out in August or September of this year.

The bad news? An end to the recession doesn't mean a healthy expansion is waiting around the corner. In fact, there are a number of reasons why a strong recovery is unlikely. This well-written piece by John Mauldin David Rosenberg explains them each in detail, but the short-list includes the likely absence of consumer spending (normally a driver of expansion), a still-ailing financial sector, revenues that continue to come in way behind those of a year ago (even if improving on the even-worse rates of the past two quarters), and a giant hole to fill on the jobs front.

Perhaps not surprisingly, then, Jeremy Grantham now says the market is trading at a Boring Fair Price.

Posted by Mark at 4:10 PM
Category(s): Current Market Events, Economy

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Speculative rally

In the August Level 4 report card, I wrote that "skeptics have pointed out that the biggest gains in the recent rally came from lower quality stocks, with the market running out of steam before those gains could extend to the rest of the market."

The last part of that assertion is obviously still being decided, as last week's strong performance helps give renewed faith to the bullish that the market rally hasn't yet run out of steam.

But what did I mean by that "lower quality stocks" term in the first place? That was a classic case where I wanted to provide a little more detail there when writing the article, but (1) didn't have space, and (2) didn't want to pull readers off topic delving into that side story.

Thankfully, we have the weblog, where I can circle back around to explain. Or better yet, just point you to these stats from Barron's Trader column (hat tip: The Big Picture) which make the point I was referring to:

HERE’S A SNAPSHOT OF JULY’S ROMP, courtesy of Bespoke Investment Group: From their July 10 low, the 50 smallest stocks in the S&P 500 had rebounded 17.2% through Thursday, outgunning the 50 biggest stocks’ 9.7% gain. The 50 most heavily shorted stocks have jumped 17.6%, versus just 8.8% for the 50 least-shorted names. Companies raking in foreign revenues outran domestic earners, a sign that traders are still uneasy about the dollar.

Besides short-covering, there are also ample signs of bargain-hunting and risk-guzzling. The 50 stocks with the lowest price/earnings ratios jumped 18.4%, the best performance of any decile. The 50 stocks with the worst analyst ratings are up 12.7%, versus 8.9% for the most beloved companies. And the 50 stocks that fell the furthest during the June correction have bounced back most resoundingly, their 17.4% rise trumping the 7.4% for the correction’s top performers.

Now, I should clearly note that it's very common for more speculative stocks to rally early like this, as they are usually the stocks that took the worst of the drubbing in the prior bear market collapse. So this observation doesn't discredit the rally we've witnessed since March. The key is that at some point, the rally needs to shift to include the "higher quality" stocks as well. That's what had been lacking, but is back on the table as a possibility since the market started acting perky again last week.

Posted by Mark at 4:17 PM
Category(s): Current Market Events

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SMI swims in the social media waters

In case you're new or just didn't see previous announcements, I wanted to let you know that Sound Mind Investing has been splashing around in the waters of social media.

We first dipped our toes in last October when we launched our official SMI Facebook page.

Then in early April, we dove into "micro-blogging" with Twitter. I even "tweeted live" from Tax Protest Rallies on April 15th and again on July 4th. We now have nearly 800 followers on Twitter and the waves are building. Again, if you're not familiar with Twitter, these posts will give you a brief overview.

We have also gotten wet in sites like StumbleUpon, where you can share articles with people who have similar interests as your own (side note: StumbleUpon is now SMI's second leading referral site, Google being number one). Not to mention sites like Digg or Tip'd where you can vote on articles to help increase their prominence and consequently, their popularity.

Many of you may have found Sound Mind Investing through one of these sources. If so, welcome! If you use any of these sites/services, feel free to stop by and say hello, and naturally, spread the word about SMI to anyone you know who might be interested.

Posted by Matthew at 12:06 PM
Category(s): SMI General Announcements

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Bipartisan health care reform a possibility?

Why all the wrangling in Congress over health care when there's a common sense approach that could gain support from both parties? See what you think of these seven principles for reform put forward by La. governor Bobby Jindal.

Update: Rep. Paul Ryan explains why he introduced the Patients' Choice Act as an alternative to a government-centric plan. The WSJ explains how it would work and why it's worth serious consideration.

Posted by Austin at 9:07 AM
Category(s): Health Care

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Presumably non-partisan federal budget commentary

You know blogging has gone mainstream when the director of the Congressional Budget Office (an independent nonpartisan agency) has his own blog. It's been around for more than a year... not sure why I never came across it before. Looks like he (or, possibly his staff, since he's presumably a pretty busy fellow) posts fairly regularly.

Here's the front page if you want to bookmark it for future reference. Tuesday he reported what went on at the White House when he met with President Obama, "his key budget and health advisers, and some outside experts."

There's an archive section devoted to budget projections. And from that archive, here's a July 16 post on The Long-Term Budget Outlook. Some excerpts:

Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy....

CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. This higher debt results in permanently higher spending to pay interest on that debt....

Not easy reading, but appears to be a good source of data directly from the horse's mouth rather than as filtered through the liberal or conservative media.

Posted by Austin at 4:00 PM
Category(s): Economy, Inflation Watch

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August issue now available

The August 2009 issue of the newsletter has just been posted to the website.

Readers following our Fund Upgrading strategy are advised that there are no fund changes to make this month.

We're adjusting our long-term posture regarding gold investing this month. Web members can check out all the details in this month's cover article.

Not a web member yet? Today's a great day to join and instantly gain access to all of the new August content!

Posted by Mark at 1:50 PM
Category(s): SMI General Announcements

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Politics and the SMI Weblog

Over the past several months (and culminating in the comments of a post a few days ago), there has been some feedback from a handful of readers that they would prefer we "stick to investing" with our weblog posts and steer clear of the political issues of the day.

Believe me, we'd like nothing better than to be able to do that.

If you go back and peruse the history of the SMI weblog, you'll find very few politically-oriented posts from the weblog's inception in May 2003 until about a year ago. We purposely ignored most political material, wanting to keep our blog focused on investing issues.

However, with the events of last fall and the unprecedented government responses, the lines between investing topics and political topics began to blur. It's our opinion that, due to the magnitude of the political issues currently in play, we can't responsibly cover what you need to know about investing without also covering what's going on with the political landscape.

Today, we're not witnessing politics as usual (which we used to be content to mostly ignore, figuring you'd pick up your political info elsewhere). These are potential game-changers. If you want to know how to invest now and in the future, you'd better know what's going on with these major issues.

Some have pointed out that what they don't like is when we talk about these political issues without offering specific investment advice tied to that commentary. (Although others request that we keep political posts completely separate from any investment advice; it's hard to please everybody all the time.)

The problem with that is these are evolving issues that we largely try to cover in real-time. We aren't going to try to flesh out the full investment implications of every single twist and turn of the health-care or cap-and-trade legislation, nor are we going to necessarily try to cover every angle whenever we want to delve into a specific principle or the background of an issue. This is a blog, one of the advantages of which is that it allows us to sometimes hit things briefly, sometimes share a link without much commentary, while other times writing long in-depth posts on a given topic. We're not going to give up that flexibility by agreeing to always attach specific investment advice to every post.

However, that said, it's not as though we are just lobbing political grenades and not getting around to the investment implications. You haven't seen it yet (but will within just a couple days), but we've got a very in-depth cover article coming your way this month with an extremely practical investment focus. In fact, it's so detailed we had to split it into two-parts (a rarity for SMI cover articles) so we can do justice to the implementation part of the issue. These two cover articles follow the pair that Austin and I wrote in April and May that also dealt with the investing implications of the recent shifts in government policy.

In other words, once these next two cover articles are out, four cover articles in a six-month span will have been written specifically regarding how to best position your investments given the huge changes going on in the political/economic/investment climate. Obviously we think it's important.

Now you could just read those cover articles and get the "big picture." But we know there are many SMI readers who want all of "the backstory." That's where the weblog posts on these various topics come in.

To sum up then, I want to assure any readers who are tired of the political topics in the weblog that frankly we're tired of them too. We'd like to quit writing so much about them. But until we feel like we can separate the investing world from the political world again (as we've been more easily able to do in the past), we feel obliged to continue to cover these issues and stories. Rest assured, we rarely break huge new investing advice in these types of posts, so you can skim them if you're not interested in all the details, or if you have the time to get your political news elsewhere.

We do try to be fair with our treatment of these issues. While we tend to lean pretty conservative, hopefully we've been able to stay respectful of other points of view and keep the discussion on a pretty high level. We ask that commenters follow that example in posting comments.

Changing times sometimes require changing approaches, in investing as well as in our approach to the weblog. Our preference would be to ignore the political and focus solely on the investment world. Unfortunately, that's not an option right now, as the two are overlapping to a great degree.

Posted by Mark at 1:27 PM
Category(s): About Our Weblog, Current Market Events

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More index funds and ETFs coming to 401(k)s

Ninety percent of 401(k)/403(b) money invested in mutual funds is in actively managed funds, even though, as a whole, such funds tend to perform less well over time than passively managed index funds.

The main reason retirement accounts are way overbalanced toward actively managed funds is simply that — for various reasons — many employer-sponsored plans don't offer the option of index investing. But the times they are a'changin'.

A trend is emerging toward adding indexes (and exchange traded funds) to defined-contribution plans, according to a report in the Wall Street Journal:

The stodgy 401(k) world won't change strategies overnight. Fund companies won't easily relinquish their active-management fees, which tend to be higher than those charged on index-tracking products, especially at a time when rocky markets are pinching profits. And actively managed funds tend to do more "revenue sharing," which involves fund companies making payments to plan administrators....

Still, some big players are betting that the stars will begin realigning.

Money manager BlackRock Inc., known largely for its actively managed products, last month stressed the potential for index funds' growth in retirement plans in announcing its acquisition of indexing giant Barclays Global Investors....

In a recent survey of about 150 employers by consulting firm Hewitt Associates, 17% of them said they are likely this year to replace some or all of their plan's actively managed investment options with index funds. That is up from 8% a year earlier.

While the largest employers have long had access to the lowest-cost index funds, many small and midsize plans, which have typically been sold pricier funds, are now demanding passively managed products, too....

Some smaller plans that don't have the purchasing power to access the lowest-cost index funds on their own are banding together in multiple-employer plans that take a passive approach.

In the best of all possible worlds, of course, employees would have access both to indexes and actively managed funds. But if some companies are going to make an either/or choice (as some apparently are, judging from the WSJ article), employees would be better served by having several indexes from which to choose.

If you're part of an employer-sponsored plan that now lacks indexing options, you may want to print the WSJ article and give it to the HR person at your office, perhaps along with a brief note that says something like, "Interesting trend. It'd be great to have some index funds in our plan! Would you check into that, please?"

Having access to several good index funds will enable you to implement SMI's Just-the-Basics strategy through your 401(k)/403(b). To be sure, being able to Upgrade via your retirement account would be even better. But indexing is a simple, solid approach to retirement investing.

Posted by Joseph at 4:33 PM
Category(s): Retirement

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Prosper.com back in business — again

In the June 2008 issue of Sound Mind Investing, we reported on the burgeoning "peer-to-peer" (P2P) lending industry.

P2P lending brings together the ideas of social networking and micro-credit, matching people who have money to lend with people searching for a loan. P2P eliminates the middleman — the banking industry — by allowing loans to be made directly from one person to another.

A few months later, most P2P lending came to an abrupt halt when the Securities and Exchange Commission stepped in. The Commission said that if P2P lenders wanted to stay in business, they would need to go through the SEC's registration process.

In October, P2P-industry leader Prosper.com entered a "quiet period," allowing no new loans until the SEC process was complete. Prosper briefly relaunched in late April under an intra-state exemption from the California Department of Corporations, then went quiet again after the SEC said the exemption wasn't sufficient.

Now the SEC registration process is complete and Prosper is up and running again, notes the WSJ's "The Wallet" blog.

The completion of the SEC registration process "means loans that are now purchased on Prosper are technically registered securities which means they can be resold in the secondary market," said Chris Larsen, chief executive and co-founder of Prosper.

As part of the registration process, the SEC approved Prosper’s auction-based platform, which works like an eBay-style marketplace for would-be borrowers and lenders. It’s the first time that regulators have approved a pricing mechanism where the final price of a security isn’t secured in advance. By contrast, other peer-to-peer players offer lenders a range of fixed rates....

Like more traditional lenders, Prosper has tightened up on borrowers. As part of its re-launch, Prosper raised the minimum credit score requirements for borrowers to 640 from 520 and introduced a new rating system that takes into account the loan performance of 29,000 Prosper loans as well as credit score data.

"The Wallet" also reports that two other P2P lenders, Lending Club and Pertuity Direct, are now registered with the SEC. U.K.-based Zopa Ltd., however, decided to exit the U.S. market.

This WSJ graphic offers a quick overview of the major P2P lending sites.

Posted by Joseph at 1:56 PM
Category(s): Family Finances

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The Empire Strikes Back

I'm back in the office today after a week of vacation, and haven't had time to think any particularly deep thoughts yet since my return. As such, I'll wade gently back into the blogging waters by pointing you to this funny edited version of the battle between Congress and the Fed.

Posted by Mark at 4:12 PM
Category(s): Current Market Events

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How the "cap and trade" bill will change your life

When Mark mentioned the Obama administration's push for "cap and trade" legislation back in a February blog post, his emphasis was on the tax burden it would impose. Those taxes are one part of the story, but another is the "Big Brother" aspect of the entire effort.

For example, how would you like it if you couldn't sell your current home until you "retrofit" it with the energy "improvements" dictated to you by Washington? It's not clear to me if there would be a direct prohibition via national zoning requirements, or if the same goal is accomplished by mandating that all Fannie Mae and other government-related mortgage programs require the retrofit before buyers would qualify.

Here are two recent reports concerning the scope of this legislation. Read them and you'll get a picture of just how bad this is going to be.

First, from the National Review, comes an article listing what the authors say are 50 reasons to fight the recently-passed House bill (by opposing it in the Senate). Excerpts:

Two main things to understand about Waxman-Markey [the American Clean Energy and Security Act]: First, it will not reduce greenhouse-gas emissions, at least not at any point in the near future. The inclusion of carbon offsets, which can be manufactured out of thin air and political imagination, will eliminate most of the demands that the legislation puts on industry, though in doing so it will manage to drive up the prices consumers pay for every product that requires energy for its manufacture — which is to say, for everything.

Second, it represents a worse abuse of the public trust and purse than the stimulus and the bailouts put together. Waxman-Markey creates a permanent new regime in which environmental romanticism and corporate welfare are mixed together to form political poison....

The House of Representatives, famously, did not read this bill before passing it... We cannot cover every swirl and brushstroke of this masterpiece of misgovernance, but here’s a breakdown of its 50 most outrageous features....

21. The bill regulates every light fixture under the sun. Actually, the sun might be the only light source that isn’t regulated specifically in this legislation. There are rules governing fluorescent lamps, incandescent lamps, intermediate base lamps, candelabra base lamps, outdoor luminaires, portable light fixtures — you get the idea. The government actually started down this road by regulating light bulbs in the 2005 energy bill. This bill merely tightens the regulations, which means the unintended consequences produced by the 2005 bill — more expensive light bulbs that burn out quicker — will probably get worse.

22. The bill extends its reach to cover appliances as well. Clothes washers and dishwashers, portable electric spas, showerheads, faucets, televisions — all these and more are covered specifically in the bill. You thought we were kidding when we said this bill represents the federal government’s attempt to expand its regulatory reach to cover everything. We weren’t....

24. The bill requires the EPA to establish environmental standards for residences, meaning a federally dictated one-size-fits-all policy for greening every home in America. When you’re retrofitting your home according to EPA guidelines, it will come as little comfort to know that the government is reimbursing you for your troubles, especially if you’re doing the work around April 15....

29. The bill undermines federalism by prohibiting states from creating their own cap-and-trade programs. Nearly half of all U.S. states have already taken some sort of action to cap greenhouse-gas emissions by forming regional compacts and implementing their own emission standards. Understandably, these states support a federal cap so that they are not at an economic disadvantage to states that do not cap emissions. If these states want to hamstring their own economies in the pursuit of green goals, that should be their business. States that don’t see any reason to do so should not be forced to share in their folly....

This is very serious stuff. The article is rather lengthy and not layman-friendly, but worth investing a little time trying to understand how it will change our country, your city, and your personal financial life and freedoms.

Reuters weighed in with this summary of the bill at the time it was passed in the House. Here are a few excerpts:

Section 201 of the Waxman-Markey Act calls for the development and adoption by state and local governments of a national energy efficiency code. A summary of the main provisions are as follows:

1. Establishes a “national energy efficiency building code” for residential and commercial buildings, sufficient to meet each of the national building code energy efficiency targets.

Goodbye to local authorities having the codes they think best for their state/city. Washington will now handle that little task, thank you.

2. Sets energy efficiency targets for the national building code...

Hmmm, and I wonder what happens if you don't meet the targets?

4. Requires that states and local governments comply with or exceed the national energy efficiency building code, and provides for enforcement mechanisms for states which are out of compliance.

Can't wait to learn more about those "enforcement mechanisms."

Even if you're not particularly activist when it comes to contacting your U.S. senators, this looks like a good time to speak up. Their phone numbers, where you can register your opposition to the Waxman-Markey energy legislation if you wish, can be found here.

Posted by Austin at 1:25 PM
Category(s): Family Finances, Taxes

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Student-loan changes now in effect

Interest rates and other terms for student loans change each year on the first of July.

What's new this year? Income-Based Repayment is now available for the first time, Pell grants have gotten bigger, and interest rates on new Subsidized Stafford loans and existing variable-rate loans have gone down.

Details here from the Project on Student Debt.

Also, this article from the Washington Post notes that "people working in public service jobs — all levels of government work, teachers in public schools and universities, employees of public hospitals, and anyone working for a 501(c)(3) nonprofit would all qualify" for the new Income-Based Repayment.

Posted by Joseph at 11:35 AM
Category(s): College, Family Finances

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July 4th Kentucky "Tea Party" recap

We can't get enough of finances around here. So rather than grilling out and shooting off fireworks, I attended my second Tea Party of the year (the first one was April 15th).

In case you're not aware of these protests or their purpose, here's a relatively objective description from Wikipedia:

The Tea Party protests are a series of locally organized protests across the United States, beginning in 2009, most of which have developed into nationally coordinated events. The events are in protest of President Obama, the federal budget and, more specifically, the stimulus package, which the protesters perceive as examples of wasteful government spending and unnecessary government growth. They oppose the increase in the national debt as well. The protesters also objected to possible future tax increases, with taxes on capital gains, estate taxes, federal income taxes, and cigarette taxes. Many of the protests were held on April 15, 2009 to coincide with the annual U.S. deadline for submitting tax returns, known as Tax Day.

I blogged live on Twitter, and here's a recap for our blog readers.

This Tea Party was in Kentucky's capital city, Frankfort, on the steps of the capitol. It was one of more than 1,400 such protests reportedly being held on July 4th across the nation. In spite of the sporadic rain, I'm guessing between 1,000-2,000 had gathered, The rally started with prayer and worship music. This seemed a bit unusual to me, I must confess. On one hand, it was wonderful to be so public about our faith, but the slow music initially zapped the energy.

Things livened a bit when the speeches started. A collection of politicians, pastors, and lobbyists from across the state spoke on everything from our overreaching government to school choice to gun control, even industrial hemp farming. But most of the cheers (and boos) came from one-liners concerning increased taxes and proposed energy bills.

And speaking of the crowds, there was a typical array of signs and t-shirts, ranging from anti-socialism to lower-our-taxes and, not surprisingly, plenty of anti-Obama sentiments. My favorite sign was being held by a child: "Mortgaging my future doesn't stimulate me."

All in all, the crowd was mild and respectful. In fact, I brought a friend who'd never been to such a gathering. His oft-repeated observation, "This is crazy. Everyone's so... normal." Mainstream media would have you believe that these rallies were filled with whacked-out right-wing extremists. Truth is they're filled with normal, everyday working folk who want to voice their displeasure with how the government is spending money it doesn't have (and the anticipated tax increases to pay for it all).

So two hours and some nice one-liners later (like "Our rights aren't inherited, they're defended"), the protest was over. I was glad the rain mostly held off, glad I attended, and glad to make my voice known. But mostly, I was just glad to live in a country where protesters can gather peacefully thanks to God's provision and the sacrifices of men and women who have fought to keep our country free for 233 years... and counting.

Posted by Matthew at 3:10 PM
Category(s): Current Market Events, Taxes

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Kiplinger picks best "529" college-savings plans

Kiplinger.com, the personal finance site, has combed through the data and selected what it considers to be the top choices for parents shopping for a "529 plan."

Such state-sponsored plans are good tools for saving for college because earnings are tax-free — if they're used to pay for qualified college expenses (tuition, books, school fees, room and board). And if you invest in the plan sponsored by the state where you live, you might also get a tax deduction or credit based on your contributions. (You can invest in any state plan no matter where you reside, but there's no deduction/credit if you invest out of state.)

Here are Kiplinger's choices:

Best for low fees. The Vanguard index-fund portfolios available in the direct-sold version of the Illinois Bright Start College Savings Program.

Best for overall investment mix. Alaska's T. Rowe Price College Savings Plan — prefab portfolios, but based on a strong mix of Price funds.

Best for conservative investors. The Michigan Education Savings Program, run by TIAA-CREF, has a savings option that guarantees principal and a minimum annual interest rate. The plan also offers portfolios tilted more toward bond funds than most other 529-plan offerings.

Best for fund choices. The College Savings Plan of Nebraska offers a selection of 20 funds from American Century, Fidelity, Pimco and Vanguard.

Best adviser-sold plan. The Virginia CollegeAmerica plan, with adviser-recommended portfolios based on 22 funds from American Funds.

Combining Kiplinger's data with our own bias (namely, we like you to be in the driver's seat as much as possible), we'd say the Nebraska plan is worth a closer look — unless your own state's plan offers a significant tax break.

Do your own research. Kiplinger (with help from SavingForCollege.com) has a state-by-state breakdown that can get you started.

Posted by Joseph at 1:23 PM
Category(s): College

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Enhanced Just-the-Basics update

We have updated the recommendations on the official Enhanced JtB page.

Enhanced Just-the-Basics takes the best elements of our indexing and Upgrading strategies and blends them together. Its quarterly update schedule is perfect for those who want to be a little more active than pure indexers, but don't want to keep up with potentially making changes every month, as Upgrading requires.

To learn more about Enhanced Just-the-Basics and get the current fund recommendations, become a web member today!

Posted by Mark at 2:03 PM
Category(s): SMI Advanced Strategies

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Sector Rotation update

There is no change to our Sector Rotation recommendation this month.

Our current SR fund has done very well for us in the first two months we've owned it, gaining 10.7%. That's roughly double the 5.2% gain of the Wilshire 5000 ('the market") since we bought the fund on May 1.

Want to see which Sector Rotation fund SMI is currently recommending? Become a Web Member today!

Posted by Mark at 10:17 AM
Category(s): SMI Advanced Strategies

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