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Stock Buybacks

Not discussed enough is the effect stock buybacks are having on the stock market over the last several years. The concept is simple. Corporations buy shares in the open market the same way ordinary investors do, however, when corporations do it, they ‘retire’ these shares leaving fewer shares outstanding. Each remaining outstanding share then represents a larger piece of the corporation. Therefore, when total earnings are reported a smaller number of shares divide into them. This increases earnings per share more than total profit of the corporation would indicate. Share prices then rise accordingly with the increase in earnings per share. Additionally, buying shares in the open market provides a further boost to share price.

However, this may be sacrificing long-term growth for short-term gains. Corporate cash used for stock buybacks is diverted from investing in additional opportunities,i.e. of buying plants and equipment and employing more people to create more profits over the long run. Corporations are even borrowing to finance stock buybacks; putting more and more debt on their books for future managers to deal with. Activist investors concerned only with immediate gain are forcing the issue. Managers who do not implement buybacks are soon unemployed.

Stock buybacks are a major component of what is driving the stock market to record valuations. It also helps explain why the market is soaring while full-time jobs have not recovered to pre-recession levels.


Steps to Take After Graduating College to Get Your Financial Life in Order

Graduating from college can be as much a source of anxiety and dread as it is pride and joy—even students leaving the harshest, most exacting academic programs can feel some level of worry about the future stretching out before them. But fear not—our step-by-step guide will ease the burden by helping you get your financial life in order and engage the ‘real world’ on your own terms.

Make a budget you can live with.

Budgets are the core of financial planning, so that’s where you should start. Don’t fall for the trap so many young people do; saving doesn’t have to be all or nothing; if your current financial situation only allows for minor savings, that’s still better than not saving at all. Create a budget you can live with, with proper allowances for entertainment AND saving, then stick with it.  And don’t forget, the little expenses add up over time!

Start investing.

You might be tempted to delay saving for your future (a house, or retirement) until you get a raise in a few years.  That’s a trap.  Take advantage of employer match in a 401(k).  The compounding effects that happen by saving early will help you tremendously in the future.

Start paying your loans down quickly.

If you’re lucky enough to lock in a loans with low interest, it’s ok to pay the minimum amount.  But if you have private student loans, or loans with high interest rates (more than 5%), consider paying them off sooner—the faster you clear them from your ledger, the better off your finances will be moving forward. We can help to advise you on the most appropriate strategy.

Put together a career development strategy.

When you’re young, your career serves as the vital engine driving any financial planning you make—so make sure you’re making the most of yourself. Figure out where you want to be and how you intend to get there, then start making it happen.

Start keeping yourself informed.

The last step of getting your financial life is one which lasts forever: Get informed, stay informed. You’re participating in the financial world now, so keep tabs on it: talk to a financial advisor, subscribe to a finance blog, and pay attention.

Gold, Silver, and Japan

Another deflationary impulse hit the global economies. Japan announced shocking news. After several decades of no economic growth, the Japanese government has piled up massive debt. They desperately need to get their economy going and just announced a desperate plan. After the Bank of Japan (their Federal Reserve) copied our grand growth experiment of flooding the economy with vast quantities of newly created money (QE), they are going all in. While our Federal Reserve tapered money creation, Japan is boosting their efforts to the equivalent of three times that of our Federal Reserve. Moreover, the Bank of Japan will be indirectly investing in the stock market (governments creating cash to buy stock … what next?). Of course, the Japanese yen crashed on this news.

So what does this mean for the U.S. economy? In a word: deflation. A cheaper yen means they will try to undercut their Chinese, American, and German competition and export more. They are debasing their currency to steal business from other nations. Competing economies will be forced to retaliate by cheapening their currencies. In a currency war, when everyone tries to fix their slow economy problems at each other’s expense, everybody loses. Currency debasement leads to the inevitability of instability and/or eventual inflation.

Therefore, for now, there is worldwide deflation. The price of gold and silver, which traditionally hedges against inflation and instability, has stagnated. However, in a world of currency debasement or, in other words stuffing the world with more and more currency from nowhere, precious metals are the last stable currency. Governments cannot create gold. Citizens of developing economies know this. That is why they are buying gold and silver at record rates. Even some of the foreign central banks are buying gold and building their gold reserves.

In the past, gold has held its value. Currencies run by desperate governments have not.

Why Waiting For The Right Time To Invest May Cost You In The End

At least once a week, a client will give me a reason why they don’t want to invest in the US stock market. They mention the headlines (which are designed to scare investors), and talk about the crisis-du-jour, or reference the looming economic dark clouds growing in the distance.

And so they sit in cash, with its perceived safety, waiting for the dust to settle, the clouds to clear, and the right time to invest.

But will it ever come… will it ever be so clear to the investor as to when they should invest?
Perhaps not.