The difference between stocks and shares has been blurred in today’s complicated financial market. Basically, these terms refer to the pieces of paper which denote ownership in a particular company, also known as stock certificates. Though the real difference lies in the context in which they are used. Stock is originally a term used to describe the ownership certificates of any company; whereas shares denote the ownership certificates of a particular company. Therefore it is important to realize that when an investor says he/she own stocks, it is a general reference to the overall ownership in one or more companies, while share is the number of portions of ownership in the particular company.

When buying a share of stock, you are in fact taking an ownership in the company in which you are investing, and as a result you will share both the profits and losses of the company. For both stock and shareholders if a company generates more traffic and higher revenues, it ensures higher profits. In the short term it’s more likely to lose money in the stock market than in the share market. There few minor difference between stocks and shares which is usually overlooked, also because of the fact that it has more to do with syntax than financial or legal accuracy. However when trading the stock market both can disappear at any time

Today’s Word: Subordinate Financing.

This is actually when a mortgage facility (loan) or other lien on any asset holds a lien position behind that of the first lien or mortgage. Actually meaning that the second is subordinate to the first.

Between 1990 and 2000 many schools of thought cited that real estate market was neither positively nor negatively correlated and in fact had little or no effect on the US economy. The premise of this theory did have merit as during the 90’s many claimed it was the manufacturing sector which was the main driver for economic growth during the period.

However we disagree strongly. In essence we examined why both must be related especially in such a heavily invested market as the USA real estate market. Mortgage related companies that are listed on the stock exchange NYSE or are in the DJIA (Dow Jones Index) are not the only companies that feel the pinch of a weakening real estate market. But it does signal some trouble on the market. It must be said however that a deeper analysis on the incomes of these companies must be done to truly see a correlation. This leads us to believe that though both are positively correlated, one is a trigger.

First the real estate market is typically reactive and the stock market proactive. When the New York Stock Exchange or the Dow Jones Industrial Averages are booming then many investors turn to the mortgages market to park their hefty returns. This leads to increased demand and invariably an increase in the cost of properties. This phenomenon is evidenced even in the UK as property prices continue to steadily rise. However when the market comes crashing down then investors who were in real estate begin to cover their losses by liquidating real estate and property held mortgages and liens driving the prices down.

Empirical evidence can be found in the Japanese stock market and the Japanese real estate market where once the stock market crashed in 1985 and the real estate market followed unwinding by more than 60% in values and 23 years later in 2008 can still not fully recover. Even closer to home is the 2001 NASDAQ crash in the stock market led to a drop in real estate values by twenty to thirty (20% – 30%). Yet during this time not many investors threaded carefully. However many US based investors and European investors bought into UK mortgage companies, lending them money through Mutual Fund companies and collecting hefty returns.

Again the bottom of this market fell out as it began to unwind in July 2007 in the sub-prime mortgage crisis and to date the fully consequence of that dilemma has not been brought to book for many companies. To be fair however there are other factors that can precipitate a real estate market crash:

• The Federal reserves move to tighten liquidity increasing interest rates led to parking and a slow down in the building market without reaching any market equilibrium. Leading to higher mortgage rates and more foreclosures.
• Rising petrol costs and other inflationary pressures postponed the middle class man from purchasing property whittling demand
• Lack of Government regulatory legislation allowed collusion between property developers to price each other out of the market driving down prices of existing homes.

The stock market unwinding is just a trigger, real estate vales would have passed sustainable levels based on speculative demand and now the real estate market has collapsed under its own weight.

[tags]correlation between real estate and stock market,stock market crash,Masdaq crash 2001,Japanese stock market[/tags]

Credit cards are an extremely bad investment in the USA in 2008 for both small businesses and everyday consumers. There is a simple reason behind this. These two target markets are the life blood of credit card issuers. However during 2007 and in early 2008 the tell tale signs of the Dow Jones Stock Market winding down will impact heavily on these players.

The Dow Jones Index is indicating that the US is quickly reaching recession levels as companies lose profitability. However the average person has little or no idea what this will mean. The most devastating effect of a recession is unemployment levels. Non-Farm Payrolls (nonfarm payrolls) have been on the decline over the last year and this means that employment levels are falling and this can lead to one damaging effect.

With high unemployment levels come reduced family or household incomes. This means that less money to spend and greater demand on credit facilities in order to meet the basic amenities of every day life. This means that if you did apply for a credit card in 2007 or early 2008 then it’s not a good idea to activate that card.

As someone in your immediate or extended family/household could be in need of some additional resources in the near future due to unemployment the cash that you might spend to keep your credit in check might have to be used to assist a family member. This presents an immediate quagmire which all the fees attached such as late payment fees, cash advance fees, balance transfer fees, over the limit fees and others can inflate a credit card debt to unmanageable levels. Hence in order not to incur these fees you should avoid credit card debt at all costs.

Debt Managers will tell you that have 3 – 4 credit cards that you pay on time can really boost your credit score. However it’s best to use the bunker down strategy and pay off some of these cards and hold only one card during a recession. Otherwise you can attempt to get what is known as an interest free credit card.

These are credit cards with 0% interest in either the first six months or up to a year. These are really rewards for those with a high credit score as they are much less unlikely to become delinquent. The other interest free credit cards are to se such as prepaid credit cards like the Account Now credit card offer that reports to credit repositories even though it is a prepaid card.