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Stock Losses Outpace Stimulus
Tweet Share on Facebook March 6, 2009 Comment (3)Bespoke Investments makes another uncomfortable point today. Losses in the stock market since the stimulus plan was announced are now far larger than the size of the actual stimulus. They say:
While Washington has lauded the $787 spending bill as the medicine that will help bring the economy out of the recession that President Obama 'inherited,' the market is taking a different view. Consider this -- since the spending bill was passed by Congress on February 13th, the S&P 500 has lost over $1.8 trillion in market cap, which is over twice the size of the plan signed into law! The question for economists now is whether or not the positive multiplier effect associated with the spending bill will be enough to offset the negative multiplier effect from the proportionately bigger decline in the value of US equities in the pension funds, IRAs, 401k's, and investment accounts of Americans.
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Bond Data Point Of The Day
Tweet Share on Facebook March 6, 2009 Comment (1)From Bloomberg:
Buying 30-year Treasuries is returning more than stocks for the first time since Jimmy Carter was president.
For three decades, owning equities in developed countries earned more than “on-the-run” 30-year government bonds. The advantage reversed after $36 trillion was erased from equity markets since October 2007 amid the first simultaneous recessions in the U.S., Europe and Japan since World War II.
See the chart here.
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Can Biofuels Bottom?
Tweet Share on Facebook March 6, 2009 Comment (5)In the universe of absolutely battered "green" stocks (See: For Green Energy Investors, a Particularly Tough Ride), biofuels have been among the worst. Falling prices and oversupply led to an industry-wide slump as ethanol prices sank along with other fuels, while being squeezed at the same time by a smaller drop in prices for crops used to make the stuff.
The damaged caused a few analysts to question the future of the entire ethanol industry. Happily, a few early signs are appearing that the floor might be in. Today Merrill Lynch is out with a report predicting a possible surge in ethanol prices next year as demand continues, oil prices rise and grain prices soften under the weight of a global recession.
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Madoff May Be Prepping Guilty Plea
Tweet Share on Facebook March 6, 2009 Comment (3)The world's biggest Ponzi scheme could end with a guilty plea. So says the AP:
Prosecutors have filed a motion indicating that Bernard Madoff may be ready to plead guilty to a sweeping financial fraud.
The U.S. Attorney's office indicated Friday in a brief court that Madoff is ready to waive an indictment. Such language is used when plea deals are ready to happen.
Madoff is accused of orchestrating one of the biggest financial frauds in history, a scheme that wiped out the life savings of investors around the world.
A message left for Madoff's lawyer was not immediately returned.
Prosecutor's spokeswoman Rebecca Carmichael declined to comment.
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4.4 Million Jobless Is A Lot
Tweet Share on Facebook March 6, 2009 Comment (2)Since the recession started in August of 2007, the U.S. economy has shed 4.4 million jobs, including more than two million in just the last three months. For comparison's sake, the growing army of job losses for Americans is larger than the population of New Zealand, Costa Rica and Puerto Rico.
A longer list of countries with fewer citizens than America has jobless is below (via the CIA World Factbook)
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Tim Geithner's Bad Week
Tweet Share on Facebook March 6, 2009 Comment (4)Tim Geithner is having a tough week. Wall Street obviously isn't confident in Washington's nebulous plan to fix the banking sector, and the pundits are losing patience with both the Treasury Secretary and the Obama Administration. Consensus is building that Geithner still hasn't owned up to the severity and even the true nature of the problems facing the economy.
Paul Krugman (The Big Dither) says Geithner sees value where there is none in all those bad assets:
[I]n a recent interview Tim Geithner, the Treasury secretary, tried to make a distinction between the “basic inherent economic value” of troubled assets and the “artificially depressed value” that those assets command right now. In recent transactions, even AAA-rated mortgage-backed securities have sold for less than 40 cents on the dollar, but Mr. Geithner seems to think they’re worth much, much more.
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Dollar Stocks Everywhere!
Tweet Share on Facebook March 5, 2009 Comment (2)It's almost impossible to draw any positive conclusions regarding stocks right now. Instead, we're mostly left with haunting statistics showing just how damaged the trading environment is, and how frightening and weird it's getting for Wall Street.
For example, what's one to make of the fact that shares in a chain of dollar stores are soaring to levels where its market cap now approaches that of what was once the world's largest bank. Welcome to the bizarro market:
Family Dollar (FDO): Current Price - $30.66. Market cap - $4.29 billion
Citigroup (C): Current Price - $1.02. Market cap - $5.59 billion
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Today's Horrible Headlines: Citi, GM and Housing
Tweet Share on Facebook March 5, 2009 Comment (5)This week in stocks could be one for the history books. After breaching November lows on Monday, the bad news just keeps on coming. Three headlines say it all:
GM Warns It May Fail Without Billions More in Aid. That March 31 deadline for a viable survival plan is looming.
Mortgage woes break records again in 4Q. The scariest part? A record 5.4 million homeowners with a mortgage were at least one month late or in foreclosure at the end of last year. That's 12 percent, or nearly one in every eight Americans.
Citigroup Hits the Dollar Menu. Just a decade ago, Citi was the largest bank in the world by market value. Now, its shares are worth less than cup of coffee.
Housing, banks and autos: The Big 3 culprits of this recession aren't going anywhere.
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Jon Stewart Blasts CNBC
Tweet Share on Facebook March 5, 2009 Comment (44)It's making the rounds, but Jon Stewart's takedown of Rick Santelli and CNBC is hitting my in-box like a virus. So here you go:
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Andrew Lo On New Challenges For Investors
Tweet Share on Facebook March 2, 2009 Comment (2)Andrew Lo, hedge fund manager and director of MIT's Laboratory for Financial Engineering, is a long-time student of investor behavior, especially the sort that belies the notion that markets move with cool efficiency. Particularly today, he sees animal spirits lurching about in some worrisome ways that could have long-term consequences for markets and the economy. "The big message is that right now all, of us are in a state of emotional shell-shock," he says. That goes for investors, regulators, bankers, and anyone else unlucky enough to get caught up in the fear and uncertainty flowing through the current financial crisis.
In this two-part Q&A with U.S. News, Prof. Lo discusses the best way to build a robust regulatory system for the financial sector (part one is here.) Below, he considers what massive changes in the investment landscape over the past few years might mean for your investments:
This crisis has shown some flaws in a lot of widely accepted beliefs about investing. Is it possible anymore for average investors to make informed, reasonable decisions based on the a limited amount of information at their disposal?
I think it is possible, but I think you point out a very good observation that the world has changed and in particular the old investing wisdom has changed pretty dramatically over the past couple of years. We've learned some things about investing that a lot of [members of] the public were not aware of, and probably still aren't aware of just yet. For example, this notion of diversification we all hear about. It sounds good, but that used to mean you buy lots of stocks or an index fund. But if you bought lots of stocks or an index fund, you still got killed this last year. So then what are you supposed to do? It turns out diversification has changed. In other words, what we used to think about as highly diversified is not diversified anymore because so many people are doing the same things. We're victims of our own success in a way because all of us have taken all of our wealth and diversified it to all these different mutual funds, so they all end up doing the same thing when all hell breaks loose.
How do you guard against that in the future?
The idea is to create different kinds of diversification, to diversify not just across stocks, but across different kinds of asset classes--stocks, bonds, currencies, commodities, real estate--and then on top of that be able to short. The whole notion of shorting up until recently seemed like voodoo. It was viewed as dangerous and mystical. It's really not, but it does take some time and effort to educate the public on what it is. If you were short even a little bit last year, it made a big difference to your portfolio. But if you buy mutual funds, most funds by law cannot short, so you are stuck with this infrastructure that hasn't caught up to the new realities of financial markets. Shorting and diversification are the two big messages of what we learned that we didn't know about retail investing.
