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Signs the Recession May Be Past its Peak
Tweet Share on Facebook March 30, 2009 Comment (4)Here's some optimistic market commentary to help offset today's gloomy market (from BlackRock's global CIO of equities, Bob Doll). Bold is mine:
On the broader economic front, there have been some signs that the economic recession may be moving past its peak. Lately, housing, retail sales and durable goods orders all have come in at better-than-expected levels, and the Federal Reserve’s recent announcement of its bond purchase program has helped drive up the levels of mortgage refinancing. Additionally, we anticipate two major tailwinds for consumer spending for the remainder of this year: Tax cuts start to take effect on April 1, and the opportunities for home refinancing should continue. Outside the United States, there are signs that conditions may be starting to improve (or at least are not becoming worse). Both Japan and Korea recently announced multi billion dollar jobs packages, and there is increasing evidence of an economic rebound in China.
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Why Young Investors Should Double Down
Tweet Share on Facebook March 30, 2009 Comment (5)Earlier today, I talked 401(k) investing strategy with John Carl of the Retirement Learning Center. His big tip for 20- and 30-somethings? Invest as much as you can bear: "Double-down your contributions if you can possibly afford it," he says. "If you're younger, focus on accumulating more shares--don't focus on the dollar amount."
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MIT Professor: Stocks are Too Risky
Tweet Share on Facebook March 25, 2009 CommentThere are many who say now is the time to buy stocks. The time to double-down, in fact!
And there are others who say sell. MIT Sloan School of Management's visiting professor Zvi Bodie is in that camp:
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The Dow's Jump: Just Another Bear-Market Rally?
Tweet Share on Facebook March 24, 2009 Comment (81)The Dow jumped nearly 7 percent yesterday, firing up investors (including me, as I just put more money in index funds. I'm taking a break from ETFs--here's why.) The rally, following news about the government's toxic asset plan, was the biggest in five months. So...does this represent a turning point?
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What's a Reverse Stock Split?
Tweet Share on Facebook March 19, 2009 Comment (5)Citigroup today announced that it's going to seek approval from shareholders for a reverse stock split on its common shares. So how does a split work, and what does it mean for shareholders? Here's a quick run-down:
According to the SEC, a reverse stock split reduces the number of shares outstanding, but increases the share prices proportionally.
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Why Investors Fall for Ponzi Schemes
Tweet Share on Facebook March 12, 2009 Comment (5)Reading the big Madoff news today might make you wonder not only how he made off with $50 billion of investors' money, but why investors fell for the scam in the first place.
It's unclear exactly how Madoff charmed these investors, but there are a handful of likely possibilities. Using telephone transcripts of fraudsters working their magic, the Financial Industry Regulatory Authority came up with five psychological tactics that are often used:
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Forbes Rich List Includes 'Poor' Billionaires, Mexico's Most Wanted Man
Tweet Share on Facebook March 12, 2009 Comment (6)Forbes' annual list of the world's billionaires is leaner this year (the world now only has 793 of them, compared with 1,125 a year ago, and their average net worth is $3 billion, down 21 percent.)
With $40 billion, Bill Gates recaptured the title of world's richest from Warren Buffett, whose fortune fell to $37 billion. Once again, telecom tycoon Carlos Slim took the third spot, with $35 billion this year.
The year's biggest eyebrow-raiser is #701 on the list, Joaquin "Shorty" Guzman, whose source of fortune is listed as drug trafficking. Forbes' description:
Mexico's most wanted man, "El Chapo", or Shorty, heads the Sinaloa cartel, one of the biggest suppliers of Cocaine to the U.S. In 1993 was arrested in Mexico on homicide and drug charges. Escaped from federal prison in 2001, reportedly through the laundry, and quickly regained control of his drug trafficking organization, which he still controls today. In 2008 Mexican and Colombian traffickers laundered between $18 billion and $39 billion in proceeds from wholesale shipments to the U.S.
Shorty, an alleged tunnels expert, is believed to have directed anywhere from a third to half of that during the past 8 years.
Guzman, who is five feet tall and apparently extraordinarily charismatic, isn't the first alleged drug trafficker to make the list. In 1989, Pablo Escobar ranked at #7, according to the BBC.
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Defining a Depression: Myths and Facts
Tweet Share on Facebook March 11, 2009 Comment (3)How on-spot are all these comparisons between the Great Depression and the current recession?
Let's start with how you define a depression. Interestingly, there's no formal definition, Calculated Risk points out today, but many experts agree that it's a prolonged slump with a 10 percent or more decline in real GDP. However, there's disagreement over the definition of a "prolonged slump." CR concludes that while this recession is exceptionally nasty, it's only about one-third of the way to a depression (see charts that back his analysis.)
More analysis of what makes a depression comes from Mark Hulbert via Barron's. He dispels three myths:
1. "It took 25 years for the stock market to recover its losses from the high reached just before the stock market crashed in October 1929." Hulbert (referencing Jeremy Siegel): When you take inflation and dividends into account, it took less than eight years. Another big factor that explains the gap: IBM was removed from the Dow.
2. "If we're playing out a 1930s script, now would be a bad time for long-term investors to get into the market." Hulbert (again citing Siegel data): "if the stock market were to exactly adhere to a 1930s-like script, equities would provide a handsome return over the next five years."
3. "The stock market's recent extraordinary volatility provides a clue to the wild ride that lies ahead if we're playing out a 1930s-like script." Hulbert: Recent volatility doesn't hold a candle to Great Depression-era volatility (here's why.)
Want to hear more? Here's why Morgan Stanley's economics team firmly believes the Great Depression comparisons are misplaced.
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The Low-Down on the Uptick Rule
Tweet Share on Facebook March 10, 2009 Comment (3)Today, Rep. Barney Frank, head of the House Financial Services Committee, said he expects the SEC to bring back the "uptick" rule--which was eliminated in June 2007.
So what's this uptick rule? Here are the basics:
- The rule essentially put constraints on short-selling (read more about how short-selling works here.) It calls for short-sellers to sell at a price higher than the previous trade.
- The uptick rule was originally put in place following the Great Depression, to keep short-sellers from piling on and quickly driving the price of a stock up or down.
- The SEC killed the rule in 2007 on grounds that it didn't prevent market manipulation.
- Some think the rule's elimination fueled the market's plunge by pushing battered stocks down even further. One critic went so far as to say it was an "aphrodisiac for volatility."
- The idea is that reinstating the uptick rule will help calm the markets.
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Moody's Bottom Rung: The Grim Reaper of Corporate Bankruptcies
Tweet Share on Facebook March 10, 2009 Comment (8)Credit-rating firm Moody's released a list today called The Bottom Rung, which includes 283 companies it believes are at risk of corporate bankruptcy. The companies span sectors of the economy (ZDNet breaks it down with a pie chart and lists a few dozen companies that made the list, including AMD, Blockbuster, Orbitz, and Sirius XM.) Not surprisingly, industries that make up the biggest pieces of the pie include autos, casinos, retailers, and media companies.
What's odd about this list, says MarketPlace's Ashley Milne Tyte, is that ratings agencies have traditionally highlighted only companies with a low likelihood of default.
It's worth pointing out that Moody's has come under fire for dragging its feet on cutting the ratings of bonds backed by subprime mortgages.
