Money & Investing - Banks.com

After yesterday’s dismal performance, the stock market is on the rebound today. A rally is taking place as optimism makes a comeback.

Ben Bernanke and the Senate Banking Committee

Earlier today, Fed Chair Ben Bernanke testified before the Senate Banking Committee. He said that while there are still some downside risks that could throw off economic recovery, he fully expects to see a beginning by the end of 2009 or the start of 2010. He did, however, warn that total recovery from this debacle will take years.

Bernanke also reiterated his position that eocnomic recovery will come after the financial companies are put back in order. He insisted that strong action now will mean a faster end to the recession. He said that bank stability was a top priority, and that the Fed will use any number of tools at its disposal to contribute to the continued viability of our financial system. This is providing some confidence for the market — as it should. The U.S. government has been making it abundantly clear for the past several months that it is willing to support Wall Street, and willing to support the banks.

Bargain hunting and the stock market

I would also imagine that bargain hunters are helping the stock market rally along as well. With yesterday’s plunge, there are plenty of deals to be had right now. Bargain hunters with a little extra capital to spread around are doubtless taking advantage of the situation and making an attempt to buy up more shares of value stocks with fundamental strength.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Related articles by Zemanta

• Wall Street shares hit 12-year low (guardian.co.uk)
• Tim Geithner’s ‘conceptual’ banking rescue fails to reassure investors (telegraph.co.uk)

Earlier today, there was a stock market rally as the government announced its plan to back the banking system, and as rumors of bank nationalization took shape. Indeed, for a brief period of time, a rally in banking sector stocks propelled the stock market higher.

Now, though, all of those gains have been utterly erased. The Dow is down more than 200 points, approaching the 7,000 mark. Tech sector stock concerns overtook bank euphoria — as did U.S. investor distaste for anything that looks like nationalization of private banks.

Recession still the main driver for the stock market

Even with hope for banks coming in the form of some type of nationalization, the stock market cannot seem to get ahead. This is because there are serious problems with confidence felt by investors. Company earnings are expected to continue to disappoint as consumer spending continues to drop off. If people aren’t buying products, then it’s hard to realize profits — no matter what the government is willing to do for the stock market.

On top of that, there are concerns about plans for bank nationalization as a whole. After all, Americans are widely known for not wanting the government to own once-private businesses. Jokes about government inefficiency ensue. But can the government really be worse at running banks than the bankers have been?I mean we’re in this position, aren’t we?

In the end, it will depend on a “stress test” to determine which banks (if any) are nationalized. It will be interesting to see what happens when the government really starts getting involved.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Image via Wikipedia

One of the more popular investment vehicles these days is the bond. Bonds are becoming popular because they are seen as “safe” investments. And at a time when people are concerned about preserving their capital, bonds can seem like a good idea. I agree that bonds can be a useful part of your investment portfolio, but I also think that panicking and avoiding stocks and other investments altogether is a bad idea. Try to approach asset allocation with long-term goals in mind, and use bonds as part of an overall investing strategy.

The basics of bonds: Treasury, Corporate and Municipal

When investing in bonds, it is a good idea to understand how they work. First of all, bonds represent debt. You are essentially making a loan to an entity. You will be paid a certain rate of interest for the loan, which you can collect regularly. When the term of the loan is up, you are repaid the full face value of the bond. There are three main types of bonds, and TheSUBWAY explains what they are:

Treasury bonds, also known as “T-bonds” for short, are issued by the United States government and are considered to be the safest of the three bonds.  The only risk is if they are sold prior to maturity (but this holds true for all bonds). Super-safety comes at a cost, though, and in the case of treasury bonds that means lower returns than other bonds. …

Corporate bonds are issued by companies in order to raise capital.  While they can be very safe investments when issued by strong, established companies, the reverse is true for companies that are not rock solid. Unlike treasury bonds, corporate bonds have what is known as a “call provision”, which allows the bond holder to get their principle investment back before maturity.

Most corporate bonds have fixed interest rates, and some, called “zero coupons” are sold at a significant discount in exchange for the bondholder agreeing to wait until maturity to receive interest payments. …

Municipal bonds are issued by state, county, or city governments for the purpose of financing government sponsored functions (I.E., building a highway or a school), or for other “non governmental” purposes, such as raising money for low income housing or student loans.

Municipal bonds, like T-bonds, pay interest twice a year.  These investments can be very safe, but do carry risks as well. Moody’s and Standard & Poor rate municipal bonds based on their credit quality, so when investing in them, it’s a very good idea to use these ratings as a guideline.

Depending on whether you sell in the secondary market, or whether there is a chance of default, different bonds have different risks. Carefully evaluate your situation and goals to figure out which bonds are best for your investment portfolio.

Related articles by Zemanta

• Muni Bonds Get Ahead of Themselves (businessweek.com)
• Would You Buy US Debt for Zero Return? (delawarewatch.blogspot.com)
• Basics of Treasury Bonds & Securities Explained (bargaineering.com)