Charge-offs are debts that a company deems “uncollectible.” According to Moody’s Investor Services, credit card charge-offs increased by 48 percent in August alone. And Moody’s expects them to continue increasing into late next year.

6.82 percent of all credit card debt has now been written off. With unemployment rising and the economy falling into even more dire straits, the credit card charge-off rate is sure to skyrocket. Which means that banks that have relied heavily on income from credit cards – like Capital One (COF) and American Express (AXP) – are sure to see bigger losses.

[Ed. Note: Keep away from companies that depend on credit cards. But keep an eye on companies that have issued a "red flag" alert. This could be your key to future profits. Find out what a "red flag" is and how it can make you money right here.]

Comment on this article

Muneera M.

Hi Muneera,

The answer to that question is actually pretty simple.

The reason the markets have been in a freefall lately is because banks have been unwilling to lend to each other, much less to corporations. So if corporations can’t borrow money from banks, how are they supposed to make upgrades – like improving their IT equipment?

For that reason alone, we should see a slowdown in the technology field (which includes telecommunications). While I won’t say that growth in this sector will disappear, the rapid growth we saw in the past five years won’t be sustainable.

Cash-rich companies that should be immune to this slowdown include Intel (INTC), IBM (IBM), and Nvidia (NVDA).

- Charles Delvalle

[Ed. Note: The real secret of how to bank riches in the market is to look in unconventional places. Right now, about 7,000 companies could be about to issue a "Red Flag" alert, an unconventional signal that you could profit from. Discover what this "Red Flag" is - and how to use it to your advantage - right here.]

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“So, with this in mind, wouldn’t it stand true that this bailout should help most (if not all) the bailed out banks to remain in business? If they can remain open for business, it might be wiser to hold those shares. Then, later, they could be once again worth at least what shareholders originally paid, if not more.

“I do hope Charles will comment in ETR for all to hear his thoughts on this matter.”

Steve

Dear Steve,

You are correct. When Chrysler was bailed out, it marked a great time to buy that company’s stock. But the bailouts happening today are very different.

Stockholders suffered the most when Bear Stearns was bailed out. That’s because the bailout was structured to protect ONLY bondholders (very unlike Chrysler’s bailout, which was really just a loan to them from the government).

In fact, practically every financial sector bailout that has occurred this year has been structured to protect bondholders, not stockholders. The only stockholders who might hope for some protection are holders of preferred shares. But even for them, the losses realized can be huge.

For instance, the bailout of Fannie and Freddie effectively killed the steady dividend payment that their preferred shareholders had been receiving. This helped drop share prices from over $20 to under $2. And while it is true that Fannie and Freddie’s preferred shareholders “may” eventually see their shares worth $20 again, it could take years.

The only recent bailout that was a plus for shareholders was the bailout of Ford, Chrysler, and GM. Under the government’s terms, the big three are eligible for $25 billion (split amongst the three), and they won’t have to begin to repay the loan for a few years. In this scenario, the bailout adds a layer of safety to their shares, since the companies are gaining access to cash during a credit crunch – allowing them to survive while the economy suffers.

The lesson here is to stay away from financial companies that are being bailed out. They are structured so that stockholders suffer while bondholders get all the benefits.

Makes you want to buy some bonds, right?

- Charles Delvalle

[Ed. Note: The economy may be in an uproar these days, but there are still ways for you to make money. The real secret to banking riches in today's market is to look in unconventional places. You can access one of these "hidden treasure troves" just by keeping an eye out for "Red Flag" alerts. Find out how to spot the Red Flags, and how they can help you prosper, right here.]
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A dividend is like a corporate profit split. As the company earns profits, they can choose to pay out a percentage of those profits to their shareholders.

Shareholders love dividends, because it gives them an interest in the continuing profits the company is making. Oftentimes, shareholders will even reinvest their dividend payments and buy new shares.

Had you been doing that with cigarette maker Altria (NYSE:MO) since 1970, you would have seen a return of nearly 98,000 percent to date. In other words, every $1,000 you invested would have turned into nearly a million dollars.

Another great thing about dividends is that they give you a clue as to how a company is doing financially. If a company is lowering its dividends, that’s an indication it is suffering financially – and you almost certainly wouldn’t want to own it. If a company is raising its dividends, it is growing quickly and would be one to keep in your portfolio.

Dividends are extremely helpful in creating lasting, true wealth. So whenever you’re searching for a stock, check to see if it’s been paying increasingly large dividends. If it has, you should be able to count on its “profit splits” for years to come.

[Ed. Note: Breaking down incomprehensible financial lingo is only one way ETR's investment team - including investment analyst Charles Delvalle - can help improve your investing IQ. With ETR's Red Flag Insider financial advisory service, you can discover a surprising way that dividends can make you prosper. Learn more here.

And be sure to send your financial questions to Charles and the rest of the ETR team at AskETR@ETRFeedback.com. Include your full name and hometown, and they may respond to your question in Early to Rise.]

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A bailout is when the government extends a loan (or takes over) a private company because it is deemed “too large to fail.” Bailouts are nothing new, although they never happened in the U.S. to the extent that we’ve been seeing recently.

One of the most famous bailouts was that of Chrysler Corporation back in 1979. They were on the verge of bankruptcy. But instead of letting a huge job provider fail, the government extended a $1.5 billion loan. (They also bought a bunch of Chrysler’s Jeeps for military use.) This helped Chrysler get back on its feet.

AIG, the country’s largest insurer, recently received an estimated $85 billion bailout. And the bailout engineered for Fannie Mae and Freddie Mac could cost over $200 billion.

If you own stock in a company being bailed out by the government, your shares will be worth next to nothing. Selling is usually your best option. But hold your bonds. Bondholders make out like bandits, since the bailout usually ensures that their interest payments are made on time.

[Ed. Note: Breaking down incomprehensible financial lingo is only one way ETR's financial experts can help improve your investing IQ. With our INCOME financial advisory service, we can show you the best - and safest - stocks to invest in and profit from. Learn more here.
And be sure to send your financial questions to our financial team at AskETR@ETRFeedback.com. Include your full name and hometown, and they may respond to your question in Early to Rise.]

It happened without much fanfare last December, when Congress approved a $25 billion loan package for the Big Three (about $8.3 billion per automaker). This loan was passed in part to help spur the development of fuel-efficient engines, designs, and technologies.

While a bailout is never good news, it does give the Big Three more than enough capital to keep operating past 2010. With the lowered default risk, GM and Ford bonds are very attractive (and safe).

You could get into GM or Ford bonds maturing in 2010 at a great discount to par (and interest payments in excess of 7 percent). To find them, simply go to the Yahoo screener (screen.yahoo.com/bonds.html) and enter your criteria.

[Ed. Note: As investment analyst Charles Delvalle points out, you need to understand what you're doing when you put your money into a company. We've put together a surprisingly simple system that can help you make the best choices. Learn more here.]

Since 1938, Democrats increased the budget deficit by about 8.3 percent, while Republicans grew the deficit by 9.7 percent – almost a 20 percent increase.

Perhaps most startling is what’s happened since 1946.

From 1946 to today, Democratic presidents pushed the deficit up by 3.2 percent per year. Meanwhile, Republican presidents increased the budget deficit by 9.7 percent. In other words, since 1946, Republican presidents have outspent Democratic presidents by almost 3 to 1. So much for the party of fiscal discipline.

This matters to you, because huge budget deficits decrease the value of the U.S. dollar.

Whether we elect a Democrat or Republican president in November, there’s a chance that we may actually see deficits decrease. And that would lead to a stronger dollar. The easiest way to play a stronger dollar is by buying the Rydex Strengthening Dollar ETF (RYSBX), which moves up 2 percent every time the dollar moves up 1 percent.

[Ed. Note: No matter what happens this November, you need to know how to protect your money. One of the best ways to do so? By following a simple system that can help you make money in any market condition.]

You see, demand spikes for certain commodities rely on what the weather is doing. If the summer is excruciatingly hot, for example, you’ll see electricity use rise as people crank up their air conditioners. As demand moves higher, utility companies are rewarded with more revenue.

A cold winter, too, causes demand spikes in commodities. And according to The Farmers’ Almanac (which has been right about 80 percent of the time), the coming winter is expected to be one of the coldest on record.

As the winter weather forces homeowners to bundle up and buy more natural gas to heat their homes, you can expect natural gas prices to move higher. And as those prices move higher, homeowners will have less money to spend on everything else, including holiday gifts.

One of the best ways to play this situation is to buy shares of Chesapeake Energy (CHK), which moves higher with the price of natural gas. Also, steer clear of buying retailers like Target (TGT) until spring.

[Ed. Note: Changes in the weather may reveal opportunities for you to profit. But there are other patterns you can follow that could put you on the path to more wealth than you can imagine. Get the details here.]

If you are a stockholder, you’ll see a huge drop in the value of your shares. And the worst part is that when it comes to paying back debtors, stockholders are at the very end of the list. Which means that if the company goes bankrupt, you take on the most risk. In fact, you shouldn’t expect to be compensated at all.

If you are a bondholder, your risk is much lower but it isn’t eliminated. When a corporation claims bankruptcy, it first has to pay any back wages, mortgages, credit lines, and other corporations it owes money to. Cash left over is used to compensate bondholders. Oftentimes, you can’t expect to get back your entire investment.

The best way to avoid what a corporate bankruptcy could do to your portfolio is to buy companies that have ample cash, little debt, and steady profit and revenue growth for the past three years.

How do you find that information? Go to finance.yahoo.com  and enter the ticker symbol of the company you are interested in. Once there, look at the bar on the right-hand side and choose “Key Statistics.” All of the company’s important financial numbers will be right there.

[Ed. Note: As investment analyst Charles Delvalle points out, you need to understand what you're doing when you put your money into a company. We've put together a surprisingly simple system that can help you make the best choices. Learn more here.]

The government controls billions of dollars. That kind of power can make or break an industry. And the effect that an Obama presidency could have on pharmaceutical companies is one you should be aware of.

As you may know, Obama (and Democrats, in general) is in favor of importing generic medicines from overseas. This would not only increase the use of generics in this country, but also allow the government to negotiate lower prices with U.S. drug manufacturers for their name brands. Sounds good for us… but it’s not good for the big pharmaceutical companies.

First of all, if the use of generics increases, the big pharmaceutical companies will make fewer sales with their name brands. Second, the drug companies charge Americans up to two times more than they charge Europeans and Canadians for the same medicine. If the government negotiates lower prices for Americans, that means their profits could be cut in half. And if that happens, you can be sure their stock prices will fall as well.

So do yourself a favor and stay away from pharmaceutical companies until well after November 11.

[Ed. Note: One of the golden rules of investing is DON'T LOSE MONEY. You can keep your cash safe by following market analyst Charles Delvalle's advice to stay away from pharmaceutical companies. And you can keep your money safe AND make it grow by investing in low-risk, high-value stocks. Learn how you can pinpoint the safest stocks with the highest profit potential right here.]