Recession Lessons: 3 New Money Rules

The McMansion-owning, designer-bag toting, new-Mercedes-driving consumer is, well, so 2006. These days, faced with scary job prospects, fat credit card bills (that Louis Vuitton tote wasn�t even worth it, was it?!) and houses worth much less than we paid for them, the American consumer looks a lot different than she used to. In fact, she�s living by a whole new set of rules (or, at least, she should be). Here�s a look at what they are:

New Rule #1

Old Rule: Save 3 – 6 months worth of income in your �emergency fund�
New Rule: Save 8 – 12 months worth of income in your �emergency fund�
Back when jobs were plentiful and it was easy to tap into your home equity for cash, you could get away with having an �emergency fund� — money you�d use in case something happened, like you lost your job or had to fix the roof, that had just three to six months worth of income in it. “Now, that�s not enough,” says Elle Kaplan, the CEO of Lexion Capital Management. �You need at least eight months to a year.”
That�s because unemployment is still high and layoffs are common, so you may need a larger cushion. �Desperation can foil a job search,� she adds. “You don�t want to have to take a job that could hurt your career trajectory simply because you don�t have the money to keep searching for a better opportunity.”

New Rule #2

Old Rule: Go to grad school
New Rule: Do a cost-benefit analysis before taking on any school debt
Just a few years ago, it was common to head to grad school when you couldn�t decide on a career path after graduation, or you just simply hated the job you ended up with. These days, jumping into grad school is risky because you will likely take on tens of thousands of dollars in student loan debt and not be able to land a job that pays well.
�You have to ask yourself: does this make sense financially?� says Suki Shah, co-founder of career-s! earch we bsite, GetHired.com. As a general rule of thumb, you shouldn�t take on more debt than what you expect your starting salary to be, experts say. For example, if your starting salary is $50,000, don�t take on more than $50,000 in debt.
“It�s also important to look at the job market for the job you hope to get,” Shah says. �Are people getting jobs in that industry?� These days, you may be better off taking a professional development course in the field you want to move into or going to school part-time. Doing so will minimize the amount of debt you�ll have to take on.

New Rule #3

Old Rule: Buy a home
New Rule: Consider renting
A few years ago, everyone from personal finance gurus to Joe-schmo were screaming, �Buy, buy, buy!� from their overpriced rooftops. �Pre-2007, a lot of people were buying as big of a house as they could afford and then trying to flip it,� says Brian Conroy, a financial planner at Savant Capital Management.
But the tune has changed completely — to the point that in many cases, it�s simply better to rent than to buy. “It�s usually only a good idea to buy if you plan to stay in the house for a least five to ten years,” says Kaplan. �You have to expect slow appreciation.” Even then, it�s important to do your homework on everything from pricing to location to construction quality.

Good Penny Stocks In 2014

Many thanks to all of you who sent me an email with questions about your stocks. While there was no single company that seemed to be on everyone’s mind, there was a clear trend: Gold.

This week, I’ll cover three different precious metals companies to help show you the challenges and opportunities of the industry. But more importantly, I’m going to give you a clear buy signal for what I think is the very best stock to play the gold surge:

Good Penny Stocks In 2014:Miller Energy Resources Inc. (MILL)

 Miller Energy Resources, Inc. engages in the exploration, production, and drilling of oil and natural gas resources in the United States. It primarily holds interests in approximately 600,000 lease acres located in the Cook Inlet area of Alaska; and 54,500 acres of lease holdings located in the Appalachian Basin, Tennessee. The company was formerly known as Miller Petroleum, Inc. and changed its name to Miller Energy Resources, Inc. on April 12, 2011. Miller Energy Resources, Inc. is headquartered in Huntsville, Tennessee.

Good Penny Stocks In 2014:Aberdeen Asia-Pacific Income Fund Inc (FAX)

 Aberdeen Asia-Pacific Income Fund, Inc. operates as a closed-end, nondiversified management investment company. The fund primarily invests in Asian, Australian, and New Zealand, the United States, Canada, and western Europe debt securities. Its portfolio of investments includes securities issued by governmental entities, banks, companies, and other entities. Aberdeen Asset Management Asia Limited serves as the investment manager of the fund. Aberdeen Asia-Pacific Income Fund was incorporated in 1986 and is based in Plainsboro, New Jersey.

See what happens when the dead cat doesn't bounce in 2012

In Monday’s Daily Market Outlook, we examined charts of the S&P 500 and Nasdaq — two indices with a focused nature. The S&P 500 is generally considered to be the “best” 500 companies, while the Nasdaq is heavily weighted toward the technology sector. I concluded that it was likely that Friday’s rally resulted from the expiration of April options and was therefore a forced short-covering rally that could quickly turn into a dead cat bounce.
Today, we’ll look at charts of two of the broadest-based indices, the NYSE Composite, which is composed of all common stocks traded on the New York Stock Exchange, and the Russell 3000, which measures the performance of the largest 3,000 U.S. companies representing about 98% of all stocks traded in the United States.


The NYSE Composite chart shows a clear break of the 20- and 50-day moving averages following a strong sell signal from our internal indicator, the Collins-Bollinger Reversal (CBR). This coupled with a Moving Average Convergence/Divergence (MACD) sell signal (lower right) indicates that Friday’s rally was not sustained.
The only remaining bit of evidence to fully wrap it up for the bears would be a close under the green support line at about 8,220. A close under that line would confirm a breakdown from a double-top with a trading objective of about 7,900.


The Russell 3000 chart is similar to the NYSE, but shows twin CBR sell signals (strong bearish indicators). However, we require a close under the green support line at 770 to fully confirm a breakdown.
Neither chart supports the bulls, and both charts, as well as the ones of the S&P 500 and Nasdaq that we examined yesterday, closed below their respective 20- and 50-day moving averages.
Conclusion: The stock market is headed lower with objectives close to their respective 200-day moving averages (red solid line.)
Investors should remain on the defensive, selling into rallies, and traders should actively pursue bearish strategies. For one stock to sell or short, see the Trade of the Day.

Will Nordic American Tankers Whiff on Revenues Next Quarter?

There's no foolproof way to know the future for Nordic American Tankers (NYSE: NAT  ) or any other company. However, certain clues may help you see potential stumbles before they happen -- and before your stock craters as a result.
A cloudy crystal ball
In this series, we use accounts receivable and days sales outstanding to judge a company's current health and future prospects. It's an important step in separating the pretenders from the market's best stocks. Alone, AR -- the amount of money owed the company -- and DSO -- the number of days' worth of sales owed to the company -- don't tell you much. However, by considering the trends in AR and DSO, you can sometimes get a window onto the future.
Sometimes, problems with AR or DSO simply indicate a change in the business (like an acquisition), or lax collections. However, AR that grows more quickly than revenue, or ballooning DSO, can also suggest a desperate company that's trying to boost sales by giving its customers overly generous payment terms. Alternately, it can indicate that the company sprinted to book a load of sales at the end of the quarter, like used-car dealers on the 29th of the month. (Sometimes, companies do both.)
Why might an upstanding firm like Nordic American Tankers do this? For the same reason any other company might: to make the numbers. Investors don't like revenue shortfalls, and employees don't like reporting them to their superiors.
Is Nordic American Tankers sending any potential warning signs? Take a look at the chart below, which plots revenue growth against AR growth, and DSO:

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. FQ = fiscal quarter.

The standard way to calculate DSO uses average accounts receivable. I prefer to ! look at end-of-quarter receivables, but I've plotted both above.
Watching the trends
When that red line (AR growth) crosses above the green line (revenue growth), I know I need to consult the filings. Similarly, a spike in the blue bars indicates a trend worth worrying about. Nordic American Tankers' latest average DSO stands at 102.5 days, and the end-of-quarter figure is 117.3 days. Differences in business models can generate variations in DSO, and business needs can require occasional fluctuations, but all things being equal, I like to see this figure stay steady. So, let's get back to our original question: Based on DSO and sales, does Nordic American Tankers look like it might miss it numbers in the next quarter or two?
Investors should watch the top line carefully during the next quarter or two. For the last fully reported fiscal quarter, Nordic American Tankers' year-over-year revenue shrank 56%, and its AR grew 9.8%. That's a yellow flag. End-of-quarter DSO increased 149.3% over the prior-year quarter. It was up 186.6% versus the prior quarter. That demands a good explanation. Still, I'm no fortuneteller, and these are just numbers. Investors putting their money on the line always need to dig into the filings for the root causes and draw their own conclusions.
What now?
I use this kind of analysis to figure out which investments I need to watch more closely as I hunt the market's best returns. However, some investors actively seek out companies on the wrong side of AR trends in order to sell them short, profiting when they eventually fall. Which way would you play this one? Let us know in the comments below, or keep up with the stocks mentioned in this article by tracking them in our free watchlist service, My Watchlist.

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