5 Ways to Avoid Financial STDs (Substantially Tremendous Debt)

In today's world, it's easy to fall into the trap of Substantially Tremendous Debt (STD). Many people are living paycheck to paycheck and struggling to make ends meet. It's important to take control of your finances and avoid getting into debt in the first place. In this article, we'll discuss five ways to avoid financial STDs and live a financially healthy life.

1. Create a Budget and Stick to It

Creating a budget is the first step towards financial stability. Start by tracking your expenses and income for a month. Write down everything you spend money on, from your rent and utilities to your morning coffee. Once you have a clear idea of where your money is going, you can create a budget that aligns with your income.

Make sure you allocate funds for all your essential expenses first, such as rent, food, and utilities. Then, allocate money towards your financial goals, such as paying off debt, saving for retirement, or building an emergency fund. Finally, allocate funds for your discretionary spending, such as entertainment or dining out.

Once you have created your budget, stick to it as closely as possible. If you overspend in one category, adjust your spending in another to compensate.

1. Save for Emergencies

Unexpected expenses can happen at any time, and they can quickly derail your financial stability. That's why it's crucial to have an emergency fund. Set aside at least three to six months of living expenses in a separate account to cover unexpected costs, such as medical bills, car repairs, or job loss.

Start by setting a realistic savings goal and contributing a small amount each month. Consider automating your savings by setting up a direct deposit from your paycheck or using a savings app to round up your purchases and save the spare change.

1. Avoid Credit Card Debt

Credit cards can be a convenient way to make purchases, but they can also lead to substantial debt if not used responsibly. Avoid using credit cards to finance your lifestyle, such as buying clothes or dining out. Instead, use credit cards for essential purchases, such as groceries or gas, and pay off the balance in full each month.

If you already have credit card debt, prioritize paying it off as soon as possible. Consider consolidating your debt into a low-interest loan or using a balance transfer card with a 0% interest rate to save money on interest charges.

1. Live Below Your Means

Living below your means means spending less than you earn. It's a simple concept, but it can be challenging to implement. Start by cutting back on your discretionary spending, such as dining out or shopping. Look for ways to save money, such as cooking at home, carpooling, or shopping at discount stores.

You can also find ways to increase your income, such as taking on a side hustle or negotiating a raise at work. The more you can increase your income and decrease your spending, the easier it will be to live below your means and avoid financial STDs.

1. Invest in Your Future

Investing in your future means making smart financial decisions today that will pay off in the long run. Start by contributing to your employer's retirement plan, such as a 401(k) or 403(b), and consider opening an Individual Retirement Account (IRA) to save even more for retirement.

You can also invest in yourself by furthering your education or learning new skills that will increase your earning potential. Look for opportunities to network and build relationships with other professionals in your field to increase your career opportunities.

In conclusion, avoiding financial STDs requires discipline, patience, and a long-term mindset. By creating a budget, saving for emergencies, avoiding credit card debt, living below your means, and investing in your future, you can take control of your finances and live a financially healthy life

Monday Morning Musings

Markets are back in rally mode this morning after Friday's selloff that closed near its lows.  The one saving grace from Friday was that volume levels ran low, which means there wasn't as much conviction behind the selloff.

There was some positive economic news this morning when the Empire Manuf. index came in at 7.84.  That's a pretty big jump from last months reading of -1.4.  It was also well above expectations.  Also, the June NAHB Housing Index rose to 52 from 44, which was also well above estimates.

Of course, the big news this week is the FOMC meeting.  It's big because traders are hoping the Fed chairmen will give more of a glimpse into when they might start "tapering" their asset purchases.  I really don't think he will change his tune that much.  I also don't think they will do much more than tinker with the size of purchases between now and 2014 when Bernanke's term ends.

Asian markets were mixed overnight.  Japan spiked +2.7% higher after reports suggested that the BoJ's REIT purchases will exceed previous targets.  China's markets were lower after Fitch warned that China's credit bubble is 'unprecendented in modern history'.  And the Bank of India left rates unchanged at 7.25%.

Europe's markets are mostly higher today.  Italy reported a trade surplus of 1.91 billion Euros, but this was below expectations.  Germany's Merkel said she would serve a full third term if re-elected in the fall.

Commodities are lower again today.  Oil prices are slightly weak near $98.15 and gold prices are lower to $1383.  Copper and silver prices are lower as well.

The 10-year yield is trying to hold support at it's short-term 20-day moving average around 2.13%.

And the VIX is lower on today's rally, but still holding above that 15 level at 16.77.

Trading comment: Last week's action was pretty constructive, with rallies coming on strong volume and selloffs coming on lighter volume.  The outlook for our thesis of another push higher in stocks into quarter end remains intact.  Bears will probably try to knock the market down this week with the FOMC meeting and all, but if they are unsuccessful we wouldn't be surprised to see more performance chasing by portfolio managers.  More growth stocks appear to be breaking out or nearing breakouts, which is also a good sign for investors.

The media has it backwards: It's not the gold bull that's coming to an end, it's the stock bull

I’ll start off today with the stock market. As most of you probably remember my thesis for months now has been that this parabolic move in stocks would eventually start to stagnate, roll over, and probably at some point crash. As that process plays out I’m looking for liquidity to begin leaking into the undervalued commodity markets. Basically the exact same progression that happened at the 2007 top.

I think that process began with the high-volume reversal on May 22. As you can see in the chart below, after that event the character of the market changed. Before that, every move out of a daily cycle low began powerfully. The initial thrust created momentum with follow-through.

 

When stocks came out of their most recent daily cycle low, no momentum was generated. Stocks immediately retraced the initial thrust. That was followed by another powerful rally as the dip buyers again tried to push the market higher. But as we saw on Friday it also had no follow-through. While it’s always possible that Bernanke can throw enough money at the market to break it out of this range, and retest or make marginal new highs, I think the odds are better that we have started the stagnation/rollover process that I have been expecting.

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Bond Yields Beginning To Ease

Markets were slightly higher near the open but have since faded into negative territory.  Yesterday's action was very positive.  The market gained strength all day and finished with what we call an outside reversal.  That means the low yesterday was lower than the previous day, but then the rally carried the indexes to a higher high than the previous day as well.  So the range expanded on both sides but finished at the highs.

One positive today is the action in the 10-year yield.  After hitting 2.25% on Tuesday, yields continue to ease back.  The 10-yr yield today is at 2.10%.  This should give some breathing room to bond funds that have been hit hard in recent weeks.

Some of this morning's softness is being attributed to the Univ. of Mich consumer sentiment reading falling to 82.7 in June from 84.5 last month.  But last month's reading was very high and anything around these levels is indicative of positive consumer sentiment.  So I am not worried there.

May industrial production was unchanged and capacity utilization actually fell to 77.6% from 77.8%.  Capacity utilization probably needs to rise before we start to worry about more inflation.

Asian markets were higher overnight.  Japan bounced back +1.9% amid reports the govt is expected to implement a corporate tax cut.  There are also rumors the Peoples Bank of China may cut interest rates over the weekend.  I find this one less plausible given its property bubble.

Commodities are trading higher with crude prices nearing $98 and gold prices higher to $1388.  Folks must be surprised to read on the cover of the Wall St. Journal yesterday that oil and gas production in the US is hitting record levels but at the same time oil prices are hitting $98 and look like they could get to $100.  Frustrating.

The volatility index reversed sharply lower yesterday which is another positive.  This morning it touched 16 before bouncing to 16.65 currently.  We are still watching for a potential move below the 15 level.

Trading comment: Yesterday's action was very positive and lends itself to our thesis that we could see another push higher in the markets as we move into quarter end and portfolio managers look to get more fully invested.  There could also be some performance chasing if and when.  But we also need to watch the SPX 1687 level that marked the highs at the end of May.  If the market is unable to break above those levels that could set things up for a deeper pullback as we enter the summer.

Is Japan In A Bear Market Already?

The markets were roughly flat at the open and have since pushed slightly into positive territory.  If you're like me and you check the futures before you go to be each night, you are probably breathing a sigh of relief given how negative things looked last night.

Asian markets slid across the board, led by a -6.4% plunge in Japan.  The volatility in Japan has been severe, and the Nikkei is now down 20% from its recent peak.  Technically that qualifies as a new bear market.  But I think it needs to be put in perspective.  The Nikkei was up over 50% in just the last 6 months since the BoJ announced its new quantitative easing program.  That program isn't over, so I suspect the Nikkei will find its footing at some point.

In economic news, May retail sales rose 0.6%, which was better than expected.  Ex-autos, retail sales were up 0.3% implying solid auto sales as well.  Weekly jobless claims also came in lower than last weeks tally.

China was also lower overnight to the tune of -2.7% after reopening following a 3-day holiday.  The World Bank lowered its growth forecast of China for 2013 from 8.4% to 7.7%.  But I'm not sure how good the World Bank has been with its forecasts.

In Europe, the ECB put out its monthly bulletin which singled out Italy for failing to control its deficits.  Peripheral bond yields in Europe have been on the rise, but hopefully the ECB has tools in place to prevent another flare up like we saw last year.

Commodities are lower today despite dollar weakness.  Oil prices are lower near $95.60 and gold prices are down to $1382.  Copper prices are weak today also.

The 10-year yield is easing back to 2.18% so far.  This positive move lower in bond yields seems to be trumping a stronger Yen today (at least so far).  Traders are worried that a rising yen will unwind the carry trade in Japan and hurt stocks.

The volatility index closed at 18.60 yesterday which was its 2nd highest close this year.  But today it is down -6% to 17.40.  We continue to watch the 15 level for an all-clear sign that the market might be ready to rally again and test its recent highs.  The longer we continue to hover with the VIX above 15 the higher the chance that the market breaks below recent support.

Trading comment: Traders are watching the S&P 500 1598 level for support.  That is the level the SPX hit last week.  It is usually not a great sign to see the market retest support levels that quickly.  The SPX came within 10 points of that level this morning.  But the market can do anything at any time and we are still leaning towards the scenario that favors the market making another push higher into quarter end.  If this were not to occur and the SPX broke back below both its 50-day and recent support levels it would likely indicate the summer correction  we said could be on the horizon may unfold sooner rather than later.  So for now the market looks okay, but watch SPX 1598 if and when.

STOCKS IN DANGEROUS TERRITORY

As I alluded to in my previous report both stocks and gold are due to mean revert. Short-term the stock market is getting significantly oversold and if we get a down day tomorrow I would expect some kind of bounce off of the 1600 level. If that bounce fails and we break below last Thursday's low it should confirm that stocks have begun an intermediate degree correction.

Since I think there is significant risk that the cyclical bull market that started in 2009 is now topping I would take a break of the $1600 level as confirmation that an intermediate level decline has begun.

Based on how artificially far the Fed has driven this rally, this should be a quite significant decline, possibly even filling the gap from January 2.

If one has retirement funds invested in the general stock market I think after four years and a 153% gain it's probably time to say "close enough" and exit this Frankenstein monster of a market that the Fed has created.

Back On Yen Watch

Markets in the US opened on a higher note, but have since faded back into negative territory.  Lately, strength in the Japanese Yen has been associated with weakness in stocks.  Today the yen started out lower but has reversed higher.  So it appears for the time being we are back in that mode where we have to watch the yen (FXY) to gauge stock sentiment.

There hasn't been any economic news today.  In M&A, Cooper Tire (CTB) is up 40% after it agreed to be acquired by Apollo Tyres for $35 per share.

Asian markets were lower overnight.  China and Hong Kong markets were closed for the Dragon Boat Festival.  In a surprise move, the Bank of Indonesia hiked rates 25 basis points to 4.25%.  S. Korea's unemployment rate ticked up to 3.2%.  And Australia's consumer sentiment rose to 4.7% from -7.0% in the prior reading.

In Europe, markets are mostly lower.  The German high court continues its debate on the constitutionality of the ECB's Outright Monetary Transaction (OMT) program.  Also, Eurozone industrial production rose 0.4% last month, above expectations.

The dollar is roughly flat today but commodities are mostly higher.  Gold prices are up to $1385.  Oil prices are higher near $95.85.  And silver and copper prices are up as well.

The 10-year yield is barely higher at 2.20%.  And the recent selloff in stocks this morning has pushed the volatility index +2.5% higher to 17.50.  We have seen larger intraday swings in the stock market as long as the VIX has been above the 15 level.

Trading comment: The market looks like it needs to find its footing soon to keep this uptrend intact.  There are some red flags on the horizon in the form of a stronger Yen, rising bond yields, and deteriorating credit conditions in emerging markets.  Look at the emerging market bond etf (EMB) for an example of a plunge.  CDS prices on emerging markets have also been rising sharply lately.  So there are some emerging strains in the financial system.  While we are still looking for another push higher for stocks into quarter end, we are mindful of the potential for a summer correction as well.  As such, we are being less aggressive about buying the dips here.