Opinion

John Wasik

Three ways to play a U.S. stock rally: Wasik

Feb 28, 2012 14:30 UTC

CHICAGO (Reuters) – Every time I hear the rumblings of a broad-based stock rally, a song from The Who echoes in my head: “Won’t Get Fooled Again.”

Well, I’m not going to tell you that this time it’s different, because it’s not. You just can’t predict where the market is going based on two out of 12 months. There are some awful nasty things swirling around out there – European sovereign debt, a dreadful U.S. housing market, oil price increases, Middle East tensions. If you have worry beads, they are probably worn to the nub.

Yet there are some signs that the stock market’s animal spirits are not just howling at the moon.

On February 24, the Standard & Poor’s 500 Index hit its highest level since the collapse of Lehman Brothers in 2008. Will the rally continue? If the United States is in a sustained economic recovery mode, then broad-based investing makes some sense now – if you can afford to be in the market at all. Here’s what I’m seeing:

* Cyclical stocks – companies that respond to changes in business cycles – have been leading the way. That means institutional buyers believe – for the time being – that sectors like consumer discretionary companies (luxuries, entertainment, technology) will benefit from higher consumer spending. That’s a good sign the larger U.S. economy is on the mend. According to Standard & Poor’s Capital IQ, “this sector can keep outperforming as low economic expectations likely continue to be exceeded.” What S&P is saying is that if most economists are wrong about 2012 being sluggish at best, you’re going to make money betting against these dismal scientists. If consumers keep their wallets open, then you’d want to be in a diversified exchange-traded fund like the iShares S&P 500 Growth Index.

Savings made simple with seven easy tips

Feb 21, 2012 22:20 UTC

NEW YORK (Reuters) – My grandmother had a coffee can for spare silver coins. My Dad saved at his local post office in a savings account. Those were a sign of the times — the U.S. postal savings system was the first government-guaranteed savings vehicle, but it disappeared in 1967.

Now, we face a savings landscape that is so much more complicated than the one my grandmother and father faced. At present, there is no universal savings account with one set of rules.

Each year I bemoan the fact that I can’t consolidate the menagerie of retirement accounts I’ve opened and funded over the years. I have Roth individual retirement accounts, rollovers and 401(k) accounts that I’d love to merge, but can’t due to varying tax rules.

Four ways to prepare for mega financial woes

Feb 17, 2012 20:40 UTC

NEW YORK (Reuters) – Peter Orszag, former budget director for the Obama Administration and now vice chairman of global banking for Citigroup, sees a “trifecta” of mega financial woes coming toward the end of the year that are unlikely to be tackled by Congress before election day.

Speaking at the Executives’ Club of Chicago on Wednesday, Orszag said he sees this moment as a collision between dysfunctional national politics and the ongoing economic malaise. It is “a rare moment in economic history — a tectonic plate shift,” he says.

I prefer to call what he identifies as the trifecta as a triple-strength witch’s brew: The expiration of Bush-era income and estate-tax cuts and $1.2 trillion in automatic budget cuts triggered by the debt-limit compromise passed last year.

COLUMN: Four ways to prepare for mega financial woes

Feb 17, 2012 19:59 UTC

NEW YORK, Feb 17 (Reuters) – Peter Orszag, former
budget director for the Obama Administration and now vice
chairman of global banking for Citigroup, sees a “trifecta” of
mega financial woes coming toward the end of the year that are
unlikely to be tackled by Congress before election day.

Speaking at the Executives’ Club of Chicago on Wednesday,
Orszag said he sees this moment as a collision between
dysfunctional national politics and the ongoing economic
malaise. It is “a rare moment in economic history — a tectonic
plate shift,” he says.

I prefer to call what he identifies as the trifecta as a
triple-strength witch’s brew: The expiration of Bush-era income
and estate-tax cuts and $1.2 trillion in automatic budget cuts
triggered by the debt-limit compromise passed last year.

Prepaid cards gouge you to access your own money

Feb 13, 2012 20:36 UTC

By John Wasik

(Reuters) – Why should you pay to spend your own money? The newest generation of prepaid debit cards, which banks keep offering despite the growing chorus of advice to the unbanked against buying into them, often levy more fees than conventional credit cards. The latest indignities even include charges for adding money to your account.

There are myriad reasons people choose a prepaid debit card,

but they are all predicated on the hypothetical equation that the cards will save them money over traditional checking accounts with potential overdraft fees. Yet, with these cards, you don’t build a credit history to increase your credit score; you don’t avoid fees; and, you don’t structure your finances so that you spend more wisely.

The only real beneficiaries of these cards are the institutions that issue them, because the fees add up with the same regularity as with bank accounts, and sometimes amount to more charges for the users than there would be with a traditional checking account.

Despite mortgage deal, housing still dicey

Feb 10, 2012 22:24 UTC

NEW YORK (Reuters) – In the wake of the just-announced landmark $25 billion settlement over dodgy mortgage practices, is it time to buy a home?

While it’s laudable that those facing foreclosure may gain the ability to refinance or write down principal, there are still a host of unanswered questions about the U.S. housing market — which may not improve much at all in the short term.

Home buyers want security — the reassurance that their real estate investment will at least act like inflation-adjusted bonds and track the increase in the cost of living. During the bubble years, though, many mistakenly believed they were buying into the equivalent of bullet-proof stocks, paying both dividends and capital appreciation. Housing is neither.

Why hedge funds don’t live up to their name

Feb 6, 2012 20:47 UTC

By John Wasik

(Reuters) – In theory, last year should have been a great time to be invested in a hedge fund. With markets gobsmacked by U.S. and euro zone crises, what better way to protect your money than to hedge against the market — the nominal premise behind a hedge fund? Managers can be defensive and pick the sectors or countries that will do well when most of the market is sour. There’s a big catch here: Success depends upon whether managers guess which sector won’t decline or manage to retreat to bonds at the right time.

And hedge funds definitely got caught in the net in 2011.

Most hedgies guessed wrong last year or stayed their own doomed course. Like most actively managed investments, hedge funds fell victim to the myth that you can predict — and avoid — market gyrations on a regular basis. Except for fixed-income funds, every other category of hedge funds lost money in 2011, and all told, the sector lost about 5 percent. Depending upon which hedge fund strategy you bought into, you could’ve done even worse. Some 75 percent of funds in emerging markets lost money. India and emerging Europe were among the worst categories. Only Brazil was a winner among the developing countries.

Meanwhile, the passive S&P 500 Industrial Index gained about 2 percent on a total return basis, according to the HFN Hedge Fund Aggregate Index. You also would’ve been better off holding a portfolio of plain-Jane U.S. Treasury bonds.

Do big dividends signal big troubles?

Feb 3, 2012 18:08 UTC

NEW YORK (Reuters) – Last year, the dividend-growth strategy was a speedboat navigating the doldrums of the stock market.

While plenty of investments sagged from the European and U.S. debt crises, a portfolio mostly in healthy companies paying solid dividends beat practically all comers. Although the Standard & Poor’s 500 stock index was flat in price return last year, dividend-oriented funds like the Vanguard Dividend Growth Strategy gained 9.43 percent.

Dividends are usually a good bulwark against most market storms, especially for income-oriented investors. Yet the overall strategy may not do as well in 2012.

Want to narrow the tax gap? Raise capital gains rate

Jan 27, 2012 16:15 UTC

By John Wasik

(Reuters) – If the president and Congress are serious about income equality and cutting huge breaks for the wealthy, they should raise the capital gains rate.

While the president didn’t mention it by name in his State of the Union speech on January 24, it’s one of the many gorillas in the tax reform room.

There’s no question that the 15 percent rate on capital gains and dividends largely favors super-wealthy taxpayers over wage earners. Just look at Mitt Romney’s tax return. As former Labor Secretary and economist Robert Reich once noted: “It’s a loophole large enough for the super-rich to drive their Ferraris through. About 80 percent of the income of America’s richest 400 comes in the form of capital gains.” (link.reuters.com/gen36s)

What the State of the Union means for your wallet

Jan 25, 2012 16:15 UTC

By John Wasik

(Reuters) – While Americans might get a little break in their payroll taxes through the end of this year, greater financial relief for workers will be elusive. After the State of the Union speech by President Obama on Tuesday night, it’s clear that the wizard will still be hiding behind the curtain.

The best evidence of this was when President Obama invoked the progressive intent of the proposed Buffett rule to tax millionaires at a minimum 30 percent rate marginal rate – about twice the effective rate that Mitt Romney, the GOP presidential candidate, has paid in recent years.

It was obvious from the antarctic glare of House Majority leader Eric Cantor and the twitchiness of Speaker John Boehner that President Obama had a better chance of launching a mission to Mars in this caustic election year than gaining any ground on progressive tax reforms.

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