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Making Sense of Short Selling
Tweet Share on Facebook September 19, 2008 Comment (1)The Securities and Exchange Commission is cracking down on short sellers by temporarily banning the short selling of the shares of nearly 800 companies "to protect the integrity and quality of the securities market and strengthen investor confidence," the agency said in a statement Friday morning. Short sellers have been blamed for exacerbating the steep declines in stocks including Lehman Bros. and AIG.
So how does short selling work? Instead of trying to profit from a stock's rise, a short seller essentially gambles on a stock's drop. Here's the process: A trader borrows shares of a stock, then turns around and sells them. The goal is to buy the stock back at a lower price before returning it to its owner, pocketing the difference. Hedge funds are big fans of shorting stocks.
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Money Market Funds: Treasury to the Rescue
Tweet Share on Facebook September 19, 2008 Comment (3)To stave off a money-market mess and restore confidence to the financial markets, the Treasury says it will insure the holdings of money-market funds that pay a fee.
The Treasury announced plans Friday to use up to $50 million from the Depression-era Exchange Stabilization Fund to guard money-market funds from a collapse and shore up confidence in the financial markets.
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Shareholders Sue Reserve Primary Fund
Tweet Share on Facebook September 18, 2008 Comment (154)Shareholders of the Reserve Primary Fund who did not bail before the company froze redemptions earlier this week are suing. The lawsuit, filed Wednesday, seeks damages for investors who didn't redeem their shares of the money-market fund as of September 16, Bloomberg reports. According to the lawsuit (via Bloomberg), the fund "deviated from its stated investment objective by sacrificing preservation of capital and liquidity in pursuit of higher yields. This strategy was exemplified by the fund's disastrous and unreasonable concentration of $785 million face value in commercial paper issued by Lehman."
The Reserve Primary "broke the buck" Tuesday when its shares fell below $1. Once the fund crossed that threshold, its adviser halted redemptions as a flood of investors bolted, further exacerbating the fund's decline.
As of last Friday, the fund held $62.6 billion in assets, including $785 million in bonds issued by Lehman Brothers. The fund held about $23 billion in assets on Tuesday.
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How Kraft's Entry Affects the Dow
Tweet Share on Facebook September 18, 2008 Comment (1)Former insurance giant AIG is getting booted from the Dow indexes "due to financial distress" in the markets, Dow Jones said in a statement. AIG's time spent in the Dow was the shortest of any company since the Great Depression. Effective Monday, Kraft will take its place in the index, making it the first food-focused company to be included in more than two decades. AIG was added to the Dow in 2004.
"We are refraining at this point from adding another stock in the financial industry because of the extremely unsettled conditions. We realize this decision leaves the Dow Jones industrial average under-weighted in financials, and we will address this situation in due course," Robert Thomson, managing editor of the Wall Street Journal, said in a statement.
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Buffett Swoops In, Nabs Constellation at a Discount
Tweet Share on Facebook September 18, 2008 CommentYou just knew Warren Buffett was going to roll in and make a discount buy amid the market upheaval this week. Sure enough, the mega-billionaire, who just lost the title of wealthiest person in the U.S. to Bill Gates, said Thursday that a company owned by Berkshire Hathaway would buy the flagging Constellation Energy Group for $4.7 billion in cash.
The price Buffett (or rather Berkshire-owned MidAmerican) is paying—$26.50 a share—is 60 percent below where Constellation was trading at the end of August. At 1:30 p.m., shares of the company (symbol CEG) were trading at $24.90.
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Funds Exposed to AIG, Merrill, and Lehman
Tweet Share on Facebook September 18, 2008 CommentAs of June 30, the following funds had the heaviest exposure to American International Group, Merrill Lynch, and Lehman Bros:
AIG
- Fidelity Select Insurance: 16.5 percent of assets
- Clipper: 8.6 percent
- Grisanti Brown Value I: 5. 3 percent
- Haverford Quality Growth Stock: 5.3 percent
- Fidelity Growth & Income: 5.0 percent
Merrill Lynch
- Natixis Harris Associates Large Cap Value A: 4.8 percent
- Clipper Fund: 4.8 percent
- Morgan Stanley Financial Services B: 4.7 percent
- MassMutual Select Focused Value S: 4.6 percent
- Foresight Value: 4.6 percent
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Money Blog Buzz: Financial Advice for Sarah Palin
Tweet Share on Facebook September 18, 2008 Comment (5)This week, the Personal Financier hosted the 169th edition of the Carnival of Personal Finance, which pointed to some interesting posts, from financial advice for Sarah Palin to saving on investing fees. The Financier also included my post—Economy Got You Down? Buy Booze, Guns, Smokes, and Slots—but chastised it for moral irresponsibility. Hey, it was meant to be thought-provoking.
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Microsoft Ditches Seinfeld Ads
Tweet Share on Facebook September 18, 2008 Comment (3)Microsoft is halting its quirky commercials featuring conversations between Bill Gates and Jerry Seinfeld, which met with mixed reviews. "The ads only reminded us how out of touch with consumers Microsoft is—and that Bill Gates's company has millions of dollars to waste on hiring a has-been funnyman to keep him company," says blogger Valleywag. Ouch.
Waggener Edstrom, Microsoft's PR firm, told Valleywag that the company is not going on with Seinfeld but that there is still the potential to do other things with the comedian. The next round of the computer giant's $300 million ad campaign features a play off Apple's attack ads that portray a boring PC character. (This time, the PC guy reportedly will say "Hello, I'm a PC, and I've been made into a stereotype.") The new commercials will also feature celebrities, including Eva Longoria and Pharrell Williams, Bloomberg reports.
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A Hedge Fund for Heebner
Tweet Share on Facebook September 18, 2008 Comment (1)Ken Heebner, the manager of a top-ranking mutual fund (CGM Focus, which has managed a stunning 27 percent annualized return over the past decade, and just a 1 percent loss year-to-date), is looking to start his first hedge fund, Bloomberg reports. Many would argue that CGM Focus is essentially a hedge fund for retail investors, although the advantage of a private fund is more freedom from regulatory oversight and the ability to buy or sell any assets. Such a fund also could charge much higher fees.
In other Heebner news, the manager recently slashed his exposure to commodities because of slowing emerging-growth markets, according to 24/7 Wall Street. Previously, his fund was gushing with oil and raw materials. In a recent CNBC interview, Heebner said Schlumberger was gone from the portfolio, but he was hanging on to Petrobras (though he was keeping an eye on oil prices).
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Lehman Lay-Offs Hit EBay, Seek Craigslist Encounters
Tweet Share on Facebook September 18, 2008 CommentThis week's Lehman collapse, and the subsequent job loss for thousands of employees, mean more competition for jobs—even bartending jobs—and fewer Wall Street opportunities for graduating seniors.
New York magazine reports that the newly unemployed are coping with Craigslist casual encounters and are posting company swag on eBay. Stress ball, anyone? Laid-off staffers also built a shrine to Treasury Secretary Henry Paulson and Lehman CEO Dick Fuld. Check it out.
