Best Wishes

I would like to take this opportunity to wish you all Happy Holidays!

I wish you the best this holiday season and hope that we can look forward to a better year ahead!

Have a Merry Christmas and a Happy New Year!

Beware Of The High Yield Trap

Many analysts and advisers have been recommending high dividend yield stocks as one of the most effective and defensive instrument against the current beaten down and volatile markets. The principal to follow here is that as long as you are buying or holding on to stocks that continues to distribute decent percentage of dividend on an annual basis, you are assured of receiving at least a decent amount of dividend income, as a cushion against the possible slide in share prices.

The dividend yield is calculated as the amount of dividend per share against the share price. The projected yield is therefore taking into account the future projected earnings and the average dividend distribution ratio. Instances where companies are committed to a certain percentage of their net earnings as dividend distribution augurs well for such defensive strategy.

However, beware of the earning trap, before you jump out of the bandwagon and start collecting high yield stocks!

Technically, as every country is experiencing recession or severe economic slowdown, so will the corporate earnings! This is inevitable as business and consumer confidence will surely take a hit, whether one likes it or not. In some cases, business could be driven down by slower and lesser demand, thus driving them out of business. In most cases, people could well be taking a more cautious or "wait-and-see" approach, thus limit spending. Bnnks on the other hand, are more likely to take a cautious approach to lending, although liquidity may still be abundant. This literally reduces credit availability in the market and ultimately increases cost of borrowing. All-in-all, business and consumer spending sentiment will be affected.

As the above takes place over a period of time, it remains to be seen the degree of severity of the business downturn. As you can see now, more of more companies are reporting lower than expected corporate earnings recently.

As such, one has to review carefully the forecasted earnings of companies before taking the defensive high yielding approach. When the chips are down, do not be surprised that companies may actually declare lower dividends or even cancel them altogether in order to preserve cash (for rainy days)!

Look out for companies that are least affected by the economic slowdown and consistently payout dividends through rain or shine. Companies in the utility sector (such as power generator) may be one of them.

Short Term Pain, Long Term Gain?

This is a video of an interview with Alan Valdes, trader and Vice President of Hilliard Lyons on the current loss of confidence in the market and what he claims to be a short term pain, long term gain for America (and possibly the rest of the world?). His favourite quote:"Don't Short America"! Find out why he thinks America is not heading into a depression and why Americans are going to change the way they do business but definitely not out of business!

Is It Much Easier To Make Your Second Million Than First?

According to surveys in the US, most millionaires are not made by winning the lottery, a brilliant business idea or through inheritance. Most do it the steady way via disciplied savings and investing. But how hard is it to achieve a million this way?

Let's say you start with nothing in the bank and put away $1,000 a month. With income increases and bonuses, let's assume you add to the savings at the rate of 5% a year. After one year, you would be putting away an average of $1,050 a month. With an average return of 8% per annum, you would hit the $1 million within 22 years!

But then, here's the bad news. In 22 years, your million would be worth only about $340,000, assuming annual inflation rate of 5%.

The good news is, given that the assumptions are right, your second million will be much easier to achieve. It the rate of savings remains, the second million would be made in another seven years. The third million, you would make in another four years. Even if you stop contributing after you reach the first million, the second million would be made in nine years, less than half the time it took to accumulate the first million.

If you put away $1,000 a month without increasing your savings, you would go from zero to $1million in 26 years and $2million in 35 years.

In a nutshell, most of the effort is spent in accumulating that first million. Once you get to that level, the magic of compounding and the opportunities that will open up to you, will help you get that second and third million.

They say the rich gets richer, and that is really true.

No Pay Cut, Says Auto Union!

Here's the bad news....negotiations to approve U.S. automakers $14billion bailout plan had stalled, due to rejection from U.S. Senate. Strange decision for me, considering the amount was only a "fraction" of what the U.S. banking industry had sought earlier ($700billion)! Further digging revealed that the only reason the plan was rejected was due to the fact that the U.S. Auto Workers Union rejected the Republican demands to accepting a pay cut, in order to realign the wages with Japanese automakers, namely Toyota, Honda and Nissan.

Doesn't sound like an unreasonable demand, does it? Let's face it, in order for someone to gain (from continued employment), it's fair to expect that someone ought to give up something in return. So given the unrealistic nature of the union workers, the decision probably serve them right!

It is reported that both General Motors and Chrysler are experiencing severe cash flow problems and they may not even survive beyond the month of December without filing for bankruptcy.

I would imagine is probably wiser now to bite the bullet, and then demand for better package when business improves later down the road!

Nevertheless, the White House later said it was willing to consider using money initially set aside to shore up the banking sector to give these beleaguered auto makers urgent aid. However, whether such plan will materialize or not remains to be seen.

One other thing, the investment community may not have the patience to wait for the saga to unfold. It may just lead to another global market white wash!

Let's hope not!

$15billion U.S. Auto lifeline

There were fresh news on U.S. Congressional Democrats and White House negotiators agreed on the outlines of a $15 billion plan to give General Motors and Chrysler federal loans to stay in business while requiring them to restructure their operations. An agreement in concept with lawmakers and that negotiations on details were still continuing. However, the plan still needs voting of approval from the Senate.

The legislation would however, include protections for taxpayer money, including the appointment of a so-called car czar who could force the companies into Chapter 11 bankruptcy if the companies don’t come up with a viable business restructuring plan by the deadline of March 31, 2009. Nevertheless, a 30-day extension beyond the deadline is possible if the plan is determined to be positive on a preliminary basis.

Both GM and Chrysler have said they need at least $14 billion in combined aid to keep them from running out of cash by early 2009.

More than a million Americans are believed to be employed in the U.S. automotive sector. Another reason why U.S. Government cannot afford to let them vanish, perhaps?