Personal Finance Advice

The recent news that Bank of America has offered to buyout struggling mortgage giant Countrywide Financial could be signaling a period of consolidation in the banking sector.  As I wrote in a previous article, financial stocks are going through a rough period right now but could be potential bargains when the sector does recover.

Many of the larger financial institutions after suffering large losses last quarter have been re-capitalized with new investment.  This doesn’t mean the credit crunch will end anytime soon though.  Still stung by the mortgage meltdown, companies are still reluctant to lend out funds.

Awash with new money and unwilling to lend it out, larger companies could be seeking to gobble up their smaller brethren while stock prices are still down.  Financial stocks are trading at way below their historical PE ratios currently.  What would be a smart buy for a single investor is even more so for these companies but on a much larger scale in this case.

It may take a few years but the mortgage industry will eventually recover.  People will always need a place to live.  The industry was a solid profit maker before this mortgage mess started and will be again in the future.

Smart investing has always been about taking the long run approach.  If you start seeing more news about mergers and acquisitions, it means it’s time to jump back on the bandwagon.

Some analysts say a recession is coming and some say it isn’t. What is for certain is that the stock market has grown increasingly volatile since the summer. While this increases the risks for investors it also increases the chance for reward.

Large movements swings have been the norm the last few months depending on whether the daily news was good or bad. If you had idling cash lying around it would open the opportunity for some serious bargain hunting. There are quite a few stocks that are trading below their historical PE or price to earnings ratios.

Now the big question for many bargain hunters is whether it’s time to jump back into financial stocks or not. There are some big names out there that have lost a large chunk of their market values after they started reporting huge writedowns during the month of November.

While some of them do look tempting, I believe it’s still too early to jump back into financials.  Another surge in defaults is expected after rates adjust upward this quarter for the many ARMs that weren’t affected by the government’s bailout plan. There is also the fact that we are still in a credit crunch and while we may get it under control sometime soon in this country, that may not be the case for the rest of the world.

The housing market is also expected to continue it’s slump well into this year and possibly the next. So, while the financial sector may get it’s house in order and implement smarter lending practices, at least in the short run there just won’t be as many avenues open for profit potential as there were in the past.

However, this is definitely a sector that needs close attention in the next few months. Finding the right time to get back into these stocks should net you a tidy bit of profit as they climb back to their historical PE levels.

2008 is shaping up to be a murky year for the economy and the stock market.  A turbulent end to 2007 has many analysts wondering if the long bull run might be over.  Investors will face many difficult choices on where to best put their money to good use.

While the bond market is often seen as a safe haven in troubled times, even it has it’s share of risk.  Fears of inflation coupled with a weak dollar, not to mention the impact of international involvement, could send long term rates soaring and bond prices tumbling next year.

Commodities markets seem highly favorable now with the prices of oil, food and gold skyrocketing this year. However, any analyst will tell you that these markets are highly volatile and that with the chance of high reward comes high risk.  So while this market makes a good hedge against inflation, you wouldn’t want to bet the farm on it because that’s what this market is, a gamble.

Most analysts tend to agree that tech stocks will perform comparatively better than other types of stocks even if the economy were to go into a recession.  But who can forget when the tech bubble burst earlier this decade and with many fleeing into tech stocks nowadays, investors might be bidding up prices to unreasonable levels.

While the housing market as well as finance stocks are down in the dumps at the moment, that may not always be the case.  Although I believe that these markets will continue to fall for at least the next six months, an investment in these depressed markets in the near future could be the springboard for substantial gains to your portfolio in future years.

What may seem like a smart decision now, might not be in a few years.  Now more than ever, it is important to maintain a long term view in your investment strategy.