Solving Your Personal Debt Crisis

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Have you financially over-extended yourself to the point where you can no longer keep up with your debt? Perhaps you have lost your well-paying job and are now trying to live on unemployment benefits. You have been running yourself ragged trying to locate another job, but the opportunities are few.

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7 Steps To Building A Paperless Financial Organization System

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So you decided it was time to get rid of the paper clutter and store things electronically - but not certain what to do next? A few years ago I made that decision also and struggled with the concept of letting go of all that paper. Through trial and error I came up with these 7 steps to a paperless financial organization system.

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NPR: Will China Dump U.S. Debt?


With the political clash over the U.S. debt ceiling in full swing this week, I’ve been inundated with people asking variants of the same question:  with the U.S. in (temporary) danger of defaulting, will China, which holds at least $1.2 trillion worth of U.S. Treasuries, finally get fed up and dump its share of the U.S. national debt?   It certainly sounded that way, with the official People’s Daily condemning Congress’ handling of the debt crisis as “irresponsible” and “immoral,” while Chinese diplomats urgently pressed their American counterparts for reassurance.

In fact, as I pointed out in a National Public Radio (NPR) interview on Thursday, China may well be unhappy with the situation, but unless it dramatically changes its approach to its own economy, it’s pretty much “along for the ride.”  You can listen to that report, and read the text, by clicking here.

China’s growth model for the past 30 years relies, in large part, on running a trade surplus (selling more than it buys from abroad) in order to maximize capital accumulation and therefore investment at home.  At the same it, it encourages inflows of foreign investment into China in order to speed up that process even further, while restricting Chinese money from flowing abroad, in all but a few controlled circumstances.  The result is that foreign currency flows into China and piles up, with no outlet to flow back out again.  Normally, all those excess dollars that were piling up in China would fall in value relative to the RMB, until the imbalances corrected themselves.  However, in order to keep those imbalances in place, the Chinese government intervenes to buy up all those excess dollars (and euros, and yen) itself, to keep its currency from appreciating, and accumulates them as official reserves.  It has to invest those reserves somewhere until it decides to use them to buy U.S. goods or make more direct investments with them abroad.

Since the U.S. is China’s largest customer, and since many smaller customers also settle their international trade in U.S. dollars, roughly 70% of China’s $3 trillion reserves are in dollars.  In theory, it could sell some of those dollars for other currencies or for commodities, like gold or oil, but in practice, given the huge sums they are already holding, its hard for China to sell off even some of its dollars without undermining the value of what it has left.  Even if it could do that, there just aren’t any markets that are as large or liquid as the market for U.S. Treasuries, to accomodate the amounts of money we’re talking about.  The fact is, as long as China wants to sell goods for dollars, and decides to accumulate those dollars as reserves rather than spending them on imports or investments, it has little choice not only to hold the Treasuries it already owns, but keep buying more and more.

Outside of central bank circles, this is poorly understood, even within China.  Occasionally, we’ll hear about a Chinese general threatening to use China’s holdings of U.S. debt as a weapon.  China is the creditor, the U.S. is the debtor, and if the U.S. doesn’t behave, China may very well decide to foreclose.  People who talk this way — either from fear, or from arrogance — simply do not know what they are talking about.  Unless it dramatically changes its whole approach to its own economy, China is simply in no position to sell its Treasuries, or refuse to buy new ones.

In fact, it’s the U.S. which has been encouraging China to move in precisely that direction: rebalancing its economy in order to run lower surpluses and accumulate fewer reserves — or even reverse the flow by becoming a net importer and net exporter of capital.  China has been reluctant to do this because of the short-term pain it would inflict on existing export industries — but in the long-run, it would be to China’s advantage, by giving Chinese consumers greater buying power and a better standard of living.  It would benefit the U.S. too, by directing the dollars that China has earned, and would continue to earn, towards buying American goods and investing in American industries, rather than shoring up American deficits.  So the day that China actually is in a position to buy fewer U.S. Treasuries will actually be a good day, not just for China, but for Americans as well. 

Until then, China and the U.S. are locked in a dysfunctional co-dependence.  The U.S. consumes too much and save too little, so it needs to borrow from China.  China saves too much and consumes too little, so it has to lend to Americans to let them to keep buying what China produces.  Whether this is a good investment or not is — unfortunately — not the issue.  So while they may fret and fume, don’t expect China to dump the U.S. debt, unless it finds a way to dump its own reliance on lopsided trade and investment first.


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Why PepsiCo's Earnings Aren't So Hot

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow (FCF) once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That?s what we do with this series. Today, we?re checking in on PepsiCo (NYSE: PEP  ) , whose recent revenue and earnings are plotted below.

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Source: Capital IQ, a division of Standard & Poor's. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Source: Capital IQ, a division of Standard & Poor's. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, PepsiCo generated $4,843.0 million cash while it booked net income of $6,315.0 million. That means it turned 7.8% of its revenue into FCF. That sounds OK. However, FCF is less than net income. Ideally, we'd like to see the opposite. Since a single-company snapshot doesn?t offer much context, it always pays to compare that figure to sector and industry peers and competitors, to see how your business stacks up.

Source: Capital IQ, a division of Standard & Poor's. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. TTM = trailing 12 months.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at PepsiCo look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

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Source: Capital IQ, a division of Standard & Poor's. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

Source: Capital IQ, a division of Standard & Poor's. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With questionable cash flows amounting to only -4.2% of operating cash flow, PepsiCo?s cash flows look clean. Within the questionable cash flow figure plotted in the TTM period above, changes in taxes payable provided the biggest boost, at 7.6% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures which consumed 42.1% of cash from operations. PepsiCo investors may also want to keep an eye on accounts receivable, because the TTM change is 2.2 times greater the average swing over the past 5 fiscal years.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

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Source: http://feeds.fool.com/~r/usmf/foolwatch/~3/dufcVo2KQu8/why-pepsicos-earnings-arent-so-hot.aspx

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The Young and the Debt Ridden

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The Y Generation is struggling to find its footing in a recovering economy. With an abundance of credit being offered, young people are finding themselves sinking in debt before they have a chance to establish a firm financial foundation. Many individuals from the Y Generation are now considering debt consolidation as a answer to their payment woes.

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Source: http://ezinearticles.com/6417042

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Adelaide Law Firm And Divorce Lawyer

As new law are becoming introduced by the government, and old laws are becoming implemented inside a brand new modified manner. To tackle this day to day law, a firm requires a specialized lawyer in an Adelaide law firm to assist their client out with regards to explaining newly introduced laws. With experience of lengthy [...]

Source: http://www.legaldebthelponline.com/2011/07/30/adelaide-law-firm-and-divorce-lawyer/

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