Book recommendation — “The Investment Answer”

If you are investing (and I hope you are), if you are thinking about investing, or if you just think you might start investing sometime in a foggy future, do yourself a huge favor and pick up a copy of “The Investment Answer” by Dan Goldie and Gordon Murray.

It is very short and very sweet. And eye opening in a very good way.

I picked it up months ago and finally read it the other night. Great, great stuff. And full of simple, actionable advice.

Line the nest, this recovery is gonna be slow

Real slow.

From the link:

A gauge of future economic activity rose 0.4% in May, signaling slow growth for the U.S. economy in the summer and fall.

The private Conference Board’s leading economic index is designed to forecast economic activity in the next three to six months.

Economists had expected a reading of 0.5% in May.

Want to shake up your investment ideas?

Check out this article on six, well different, approaches to investment.

From the link, number one:

You should hold more in stocks when you’re young, and less when you’re old. That’s the conventional wisdom. After all, stocks tend to do well in the long run but are volatile in the short term. But when you’re in your twenties or thirties and have the longest to run, you might have only a few thousand bucks in the market. By the time you’re in your fifties and sixties, you’ll have the most money but will want to risk less of it.

In their book “Lifecycle Investing,” Yale economists Ian Ayres and Barry Nalebuff propose an audacious solution: Increase your stock position with borrowed money when you’re young. You can do that with a margin loan from a broker. Or, as Ayres and Nalebuff prefer, with LEAPS, which are options to buy an index like the S&P 500 in the future at a low price. (You win if stocks beat that price plus your cost.) Either way, your top allocation to stocks should be 200% of assets, meaning every $1 of your own money is effectively matched by another $1 borrowed.

Apple’s market cap passes Microsoft

Interesting. Probably not all that meaningful, but interesting.

From the link:

On Wednesday, Apple’s market capitalization edged past its longtime rival’s as investors made official what consumers have long suggested: Microsoft is no longer the industry’s alpha dog.

Just last month, Microsoft’s market cap exceeded Apple’s by about $25 billion, but now Apple is in the lead by nearly $3 billion.

New SEC rule is a short-selling speed bump

I stridently opposed restrictions on short-selling last April, but added this caveat:

I agree some regulation [ … kills me to write that] in the financial and public sector needs to come to pass, but this accomplishes nothing aside from cheap public relations. If the markets are so weak selling short is capable of breaking them, maybe they should be broken.

Not too sure this move by the SEC is the answer, but it does seem measured and could well fall under the “some financial regulation is necessary” rubric I created in the previous blog post. I don’t like the idea the SEC is stifling the open market, but given the amount of pure jacking around the market has endured over the last two years, curbing “spiraling sales sprees” is probably not that bad an idea. It’s tough to remain a market purist in the face of market failure and the reality of ongoing market tinkering.

From the second link:

Federal regulators on Wednesday imposed new curbs on the practice of short-selling, hoping to prevent spiraling sales sprees in a stock that can stoke market turmoil.

The Securities and Exchange Commission, divided along party lines, voted 3-2 at a public meeting to adopt new rules.

The rules put in a so-called “circuit breaker” for stock prices, restricting for the rest of a trading session and the next one any short-selling of a stock that has dropped 10 percent or more.

Short-sellers bet against a stock, in a practice that is legal and widely used on Wall Street. They borrow a company’s shares, sell them and then buy them when the stock falls and return them to the lender — pocketing the difference in price.

The SEC move followed months of wrestling with the controversial issue. The SEC asked for public comment last April on several alternative approaches to restraining short-selling, and a bipartisan group of senators have been pushing the agency to act or face legislation.

The agency got more than 4,300 comments on the issue.

Four new asset bubbles to watch

Oh, man.

From the link:

Less than two years after the housing market collapsed, the U.S. economy is threatened by a new bubble in asset prices. This time, four billowing balloons are hovering: two commodities — gold and oil — stocks, and government bonds.

Don’t be fooled into thinking that last week’s 5% drop in the S&P, and the recent sell-off in oil, remotely makes them fairly valued, let alone bargains. Equities and commodities, as well as Treasuries, which actually rallied as stocks dropped, still have a long way to fall. The reason: They’ve already seen huge run-ups that put their prices far above their historic averages, and far above the levels justified by fundamentals.

Predictions for 2010 from Cato’s David Boaz

Do go read the entire (reasonably short) post, but here’s Boaz’s very sensible conclusion:

All of which is to explain why you’re not going to find any predictions for 2010 in this post.

Americans richer — on paper

As far as this goes, it’s good news. It’s also a nice reminder that a lot of personal economic woes are purely paper losses (and then gains when things start rebounding like right now.) Not to understate the real pain being felt out there, but when the media starts tossing gigantic numbers around it’s always a good idea to keep a little perspective.

From the first link:

Americans got wealthier for a second straight quarter in the fall, thanks to gains in stock investments and home values.

Net worth — the value of assets such as homes, bank accounts and investments, minus debts like mortgages and credit cards — rose 5% from the second quarter to $53.4 trillion, the Federal Reserve said Thursday.

Yet even with that gain, Americans’ net worth remains far below the revised peak of $64.5 trillion reached before the recession began. That underscores the vast loss of wealth over the past two years. Net worth would need to rise an additional 21% just to return to its pre-recession peak.

And many analysts don’t expect a repeat of the strong second- and third-quarter gains anytime soon. That’s why Scott Hoyt, senior director of consumer economics at Moody’s Economy.com, thinks household wealth won’t match its pre-recession peak until about 2012.

We all know …

… the 2000s were a fiscal disaster — tough markets, bubbles growing to bursting by the end of the decade and drunken sailor federal spending by a GOP-led government. The party of fiscal conservatism? Hardly.

Things were bad, but look at the longer view to get an idea of exactly how bad using just one indicator — the S&P 500 index (emphasis mine):

With the ’00s about to flip the odometer to the ’10s, there has been a raft of commentary about how lousy a decade this has been. Stock investors can vouch for that: The ten years since Y2K are on track to produce the worst total returns for investors since the 1930s. And, after the roaring ’80s and ’90s, the disappointment of the last decade is all the more galling.

Indeed, it will be hard for investors to wash the taste of trillions of dollars of losses from their mouths.

In both the 1980s and the 1990s, the broad S&P 500-stock index index provided a total return (which includes dividends) of more than 400%, according to Capital IQ, a Standard & Poor’s business. The total return for the S&P 500 since New Years 2000 has been negative 10.8%.

Now the Bush 43 administration and GOP Congress are given a pass on the events of 9/11 and how that disrupted the entire American social structure, including commerce. But that event was over eight years ago, plenty of time for the party of fiscal restraint to get the economy back on track, right? Not so much. And where did the profligate spending go? Into half-assed and outright fraudulent foreign adventures:

Hirsch believes a key factor for stocks in the 2000s was the September 11 terrorist attacks and the U.S. government’s expensive involvement in wars in Afghanistan and Iraq. The Vietnam War hurt stock returns in the 1970s, he notes, while World War II kept the market down in the early 1940s.

Of course Bush inherited what is now considered a highly over-valued market that was ripe for a fall back to earth. September 11 was the balloon bursting sledgehammer and seven additional years of absolutely horrible fiscal policy and economic management has put us where we are right now, and leaving a steaming bag for Obama’s administration that will most likely dominate the bulk of his first term, if not much, much longer.

And right wing media is now happily blaming Obama for the economic conditions on the ground.

That Dow bump? Blame irrational exuberance

At least according to one University of Alabama at Birmingham professor.

The release:

Irrational exuberance behind recent stock gains, says UAB finance expert

BIRMINGHAM, Ala. – A second straight week of stronger-than-expected third quarter earnings from a broad cross section of U.S. industries has held the nation’s Dow Jones Industrial Average above the psychological benchmark of 10,000 points for the week of Oct. 19, but the climb isn’t likely to last, says a finance expert at the University of Alabama at Birmingham (UAB).

Assistant Professor of Finance Andreas Rauterkus, Ph.D., says the current levels of the major U.S. stock indices are unquestionably inflated. Rauterkus says the gains are a rubber band-like snap reaction from investors to the market lows of March.

“There is no doubt that the current market levels are the result of the irrational exuberance of investors who were stuck on the sidelines for many months while the country’s economy collapsed,” Rauterkus says. “Many investors now are back into the market and buying up shares on the kind of news that under more stable conditions would not justify a run up of stock buys.”

Rauterkus says he expects the market to reset itself as early as the end of the current earnings season as investors look to take profits from the Dow’s climb back to 10,000.

“I think it is wrong to interpret current earnings reports as great news because all that these companies have done in the third quarter is exceed extremely low expectations,” he says. “It’s like a student earning a grade of D instead of D-minus on a test, neither one is particularly good.

“So, I believe the market is likely to pull back,” Rauterkus says. “Certainly not to anywhere near the lows of earlier this year, but the adjustment could be a noticeable.”

Rauterkus also expresses concern over the continued weak performance of the U.S. dollar and growing international worry about its role as the international reserve and commodities currency.

“The dollar has lost its one-time title as the world’s most reliable currency, which is driving up the prices of commodities like oil at a time when consumers cannot take much higher prices on anything,” he says. “It is clear based on the performance of the dollar over recent months that the U.S. is slipping from its status as the world’s lone dominant economy, and many up-and-coming nations like Brazil and China will have a growing voice and role in international finance.”

###

About the UAB School of Business

The UAB School of Business is located in the heart of Alabama’s largest city and business center. For more information on how the school’s Birmingham location provides unique internship and other out-of-the-classroom experiences, log on to http://www.uab.edu/business/.

VIDEO: www.youtube.com/uabnews TEXT: www.uab.edu/news TWEETS: www.twitter.com/uabnews

Americans are $2T wealthier

At least on paper for Q2 against Q1. All thanks to a stock market recovery.

From the link:

After nearly two years of declines, the net worth of Americans rose by $2 trillion to an estimated $53.1 trillion in the second quarter compared with the first three months of the year.

The soaring stock market accounted for much of the gain. Stock holdings rose by 22% to $6.3 trillion, while mutual funds’ value jumped 15% to $3.7 trillion, according to a Federal Reserve report released Thursday.

To be sure, these are not exactly flush times for many people. Unemployment stands at 9.7%, the highest level in 26 years. And many people have yet to see their home values and portfolios recover from their recent trouncing.

Since only half of Americans own stocks, with even fewer having significant holdings, only a narrow group of people benefited from Wall Street’s springtime gains. The Dow Jones industrial average and the Nasdaq had their best performances since 2003 and the broader S&P 500 since 1998.

Homeowners, who make up about two-thirds of the population, also saw a little relief. Real estate rose in value for the first time since the end of 2006, climbing 2% to $18.3 trillion.

Still, Americans have a long way to go before they recover the wealth they once had. U.S. net worth peaked at $65.3 trillion in the third quarter of 2007. That’s 18.7% higher than the current level.

SEC to ban flash orders

Want a peek into the dirty world of high finance and get a more detailed picture of the total fail of the Securities and Exchange Commission? Check out this NYT article.

From the link on how flash orders were abused:

Critics say flash orders favor sophisticated, fast-moving traders at the expense of slower market participants. Using lightning-quick computers, high-frequency traders often issue and then cancel orders almost simultaneously and get an early peek at how others are trading.

And getting a bit more granular on the abuse:

Getting flashed an order offers traders a distinctive edge. When buy and sell orders come into an exchange, they are first flashed to those paying to see them for 30 milliseconds — 0.03 seconds — before they are available to everyone else. In the blink of an eye, the systems can detect patterns and get a jump on other investors. Before others even sees the order, high-frequency traders swoop in and then out.

PennyPic.com launches new daily report

The release from today:

PennyPic Daily Report Alerts Subscribers on Market Movers: JNJ, GS, GOOG, YHOO, FSLR

MIAMI, FL, Feb. 20 /PRNewswire/ — PennyPic.com, a premier micro-cap research firm, announces the launch of PennyPic Investment Stock Report. The PennyPic Investment Stock Report focuses on small to micro-cap companies poised for movement in the market, with an emphasis on stocks with the greatest potential for advancement.

The daily trading notes are available to interested investors at no cost. Investors simply need to subscribe for free at: http://www.pennypic.com/

Today’s Trade Alerts include: Johnson & Johnson (NYSE:JNJ), Goldman Sachs Group Inc. (NYSE:GS), Google Inc. (NASDAQ:GOOG), Yahoo Inc. (NASDAQ:YHOO), First Solar Inc. (NASDAQ:FSLR)

PennyPic.com’s Investment Stock Report covers and analyzes active stocks that are typically overlooked by the markets. The daily reports include breaking news, insider activity, recent 52-week highs/lows, technical breakouts, and other market driving information. PennyPic provides small investors with authoritative research on potentially huge movers in the micro-cap sector, and delivers that information before the rest of the market has noticed those stocks.

In addition to investment information, PennyPic’s FREE report is filled with daily trading ideas. Interested investors may receive the free report by visiting: http://www.pennypic.com

PennyPic.com is one of the market’s most reliable micro cap research providers. PennyPic uncovers promising small cap companies, many of which are overlooked by the standard Wall Street investment advisors. We consolidate the publicly available information available on these companies to provide our investor subscribers with important and timely information they need for their research and due diligence. Our subscribers also receive frequent updates and trading ideas to s. For more information and to become a subscriber, please visit: http://www.pennypic.com

PennyPic.com Disclosure

PennyPic.com is not a registered investment advisor and nothing contained in any materials should be construed as a recommendation to buy or sell any securities. PennyPic.com is a wholly owned entity of, a financial public relations firm. Please read our report and visit our website, PennyPic.com, for complete risks and disclosures.

Christopher Lim of Pennypic.com is a member of the National Association of Securities Dealers, CRD number 2124654.

Source: PennyPic.com

UK ends stock shorting ban

The U.K. Financial Services Authority came to its senses and ended the idiotic ban on shorting financial stocks. This move punished a group without a hint of blame in the ongoing financial crisis and likely did some real harm to all markets.

From the link:

The short ban might already have caused longer-lasting harm by injecting doubt over the very rules of the game. To have maintained it in today’s less febrile environment would have made no sense, leading to less effective price discovery and wider spreads. After all, recent losses in financial stocks are the result of management and bulls getting carried away during the boom, not shorts profiting on the way down.

Stocks still very volatile

The markets are just crazy volatileright now. Anyone doing any serious trading has either a lot to gamble with, or just gets a sick thrill out of outrageous risk.

From the link:

Fears of a global recession slammed Wall Street on Wednesday. The Dow finished the session down 514 points – its seventh-worst point loss ever.

The glum mood, sparked by weak corporate profits and falling oil prices, hit global stocks. Major markets in Asia dropped. Japan’s Nikkei finished the session 2.5% lower. European shares also fell in Thursday afternoon trading.

The Labor Department’s weekly report on jobless claims gave investors another reason to be nervous. Claims rose 15,000, to 478,000, for the week ended Oct. 18, which was worse than expected. A consensus of economists surveyed by Briefing.com had expected claims to rise to 465,000.

RealtyTrac, an online marketer of foreclosed properties, added to the market malaise Thursday with a report showing that more than 81,000 homes were foreclosed in September.

The House scuttles bailout plan

And the market takes a big hit.

From the link:

The House on Monday defeated a $700 billion emergency rescue package, ignoring urgent pleas from President Bush and bipartisan congressional leaders to quickly bail out the staggering financial industry.

Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor.

When the critical vote was tallied, too few members of the House were willing to support the unpopular measure with elections just five weeks away. Ample no votes came from both the Democratic and Republican sides of the aisle.

Bush and a host of leading congressional figures had implored the lawmakers to pass the legislation despite howls of protest from their constituents back home.

The vote had been preceded by unusually aggressive White House lobbying, and spokesman Tony Fratto said that Bush had used a “call list” of people he wanted to persuade to vote yes as late as just a short time before the vote.

Lawmakers shouted news of the plummeting Dow Jones average as lawmakers crowded on the House floor during the drawn-out and tense call of the roll, which dragged on for roughly 40 minutes as leaders on both sides scrambled to corral enough of their rank-and-file members to support the deeply unpopular measure.

From the New York Times and news on the Dow freefalling over 400 points on the news.

Update — Dow is down almost 700 points.

I’m glad the vote failed. And no, I don’t think it’s a case of cutting off one’s nose to spite the face. I think it’s a case of a failed administration making one more attempt at a naked and craven power-grab. Get Paulson out of the picture, bring in some adult nonpartisan brains and knock-out a real solution, not some BS version of, “be very afraid and give me unlimited power.”

I think the US public finally woke up, and maybe the GOP did too after the Bush 43 effort at corporate socialism and their presidential standard bearer choosing an unqualified religious nutjob as his running mate.

Go below the fold for additional updates as the situation warrants.

Yahoo trading at five-year low

After all the Microsoft offer/takeover attempt, Yahoo is now trading below $19 per share. The move from Microsoft has cost Yahoo significant market share.

From the AccountantsWorld link:

By Tuesday’s closing bell, Yahoo YHOO shares had dropped 3.3% to close at $18.75. The drop was more pronounced than other tech stocks, which slipped in late-day trading tracking a turnaround in the broader market. The Nasdaq COMP closed the day down nearly 0.8% to 2,349. See Tech Stocks.

Yahoo has shed a large portion of its market value since early this year, when the company was a takeover target in a $47 billion offer from Microsoft MSFT.

The software titan offered to buy Yahoo for $31 per share in a half-cash, half-stock transaction on Feb. 1 — when Yahoo shares were trading just above the $19 mark. Yahoo rejected the offer as undervaluing its business, and the two companies spent the next few months battling over the proposed deal, with Yahoo reportedly holding out for a price closer to $40 per share.

In May, Microsoft upped its offer to $33, and then pulled the offer after failing to come to agreement with Yahoo.

Yahoo was heavily criticized by shareholders for failing to close the deal. The company was targeted in a proxy campaign by billionaire activist Carl Icahn, who eventually won three seats on the board under a settlement with the company. As part of a move to improve its market value, Yahoo struck a deal with search rival Google to outsource some of its search activity in exchange for a portion of ad revenue.