Dow closes above 10,000 for 1st time in a year

October 14, 2009

DJ comeback: Stock market’s best-known barometer closes above 10,000 for 1st time in a year

By Sara Lepro and Tim Paradis, AP Business Writers
5:08 pm EDT, Wednesday October 14, 2009

NEW YORK (AP) — When the Dow Jones industrial average first passed 10,000, traders tossed commemorative caps and uncorked champagne. This time around, the feeling was more like relief.

The best-known barometer of the stock market entered five-figure territory again Wednesday, the most visible sign yet that investors believe the economy is clawing its way back from the worst downturn since the Depression.

The milestone caps a stunning 53 percent comeback for the Dow since early March, when stocks were at their lowest levels in more than a decade.

“It’s almost like an announcement that the bear market is over,” said Arthur Hogan, chief market analyst at Jefferies & Co. (JEF) in Boston. “That is an eye-opener — ‘Hey, you know what, things must be getting better because the Dow is over 10,000.'”

Cheers went up briefly when the Dow eclipsed the milestone in the early afternoon, during a daylong rally driven by encouraging earnings reports from Intel Corp. and JPMorgan Chase & Co. (JPM) The average closed at 10,015.86, up 144.80 points.

It was the first time the Dow had touched 10,000 since October 2008, that time on the way down.

“I think there were times when we were in the deep part of the trough there back in the springtime when it felt like we’d never get back to this level,” said Bernie McSherry, senior vice president of strategic initiatives at Cuttone & Co.

Ethan Harris, head of North America economics at Bank of America Merrill Lynch (BAC), described it as a “relief rally that the world is not coming to an end.”

The mood was far from the euphoria of March 1999, when the Dow surpassed 10,000 for the first time. The Internet then was driving extraordinary gains in productivity, and serious people debated whether there was such a thing as a boom without end.

“If this is a bubble,” The Wall Street Journal marveled on its front page, “it sure is hard to pop.”

It did pop, of course. And then came the lost decade.

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Wall Street’s Math Wizards Forgot a Few Variables

September 14, 2009

by Steve Lohr
Monday, September 14, 2009
The New York Times

In the aftermath of the great meltdown of 2008, Wall Street’s quants have been cast as the financial engineers of profit-driven innovation run amok. They, after all, invented the exotic securities that proved so troublesome.

But the real failure, according to finance experts and economists, was in the quants’ mathematical models of risk that suggested the arcane stuff was safe.

The risk models proved myopic, they say, because they were too simple-minded. They focused mainly on figures like the expected returns and the default risk of financial instruments. What they didn’t sufficiently take into account was human behavior, specifically the potential for widespread panic. When lots of investors got too scared to buy or sell, markets seized up and the models failed.

That failure suggests new frontiers for financial engineering and risk management, including trying to model the mechanics of panic and the patterns of human behavior.

“What wasn’t recognized was the importance of a different species of risk — liquidity risk,” said Stephen Figlewski, a professor of finance at the Leonard N. Stern School of Business at New York University. “When trust in counterparties is lost, and markets freeze up so there are no prices,” he said, it “really showed how different the real world was from our models.”

In the future, experts say, models need to be opened up to accommodate more variables and more dimensions of uncertainty.

The drive to measure, model and perhaps even predict waves of group behavior is an emerging field of research that can be applied in fields well beyond finance.

Much of the early work has been done tracking online behavior. The Web provides researchers with vast data sets for tracking the spread of all manner of things — news stories, ideas, videos, music, slang and popular fads — through social networks. That research has potential applications in politics, public health, online advertising and Internet commerce. And it is being done by academics and researchers at Google, Microsoft, Yahoo and Facebook.

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Investors trading 3 stocks that may be doomed

August 27, 2009

Investors still trading Fannie, Freddie, AIG shares, even though prices are likely to hit zero

Daniel Wagner, AP Business Writer
Thursday August 27, 2009, 5:36 pm EDT

WASHINGTON (AP) — Investors are still trading common shares of Fannie Mae (FNM), Freddie Mac (FRE) and American International Group Inc. (AIG) by the billions, even though analysts say their prices are almost certain to go to zero.

All three are majority-owned by the government and are losing huge sums of money. The Securities and Exchange Commission and other regulators lack authority to end trading of stocks in such “zombie” companies that technically are alive — until the government takes them off life support.

Shares of the two mortgage giants and the insurer have been swept up in a summer rally in financial stocks. Investors have been trading their shares at abnormally high volumes, despite analysts’ warnings that they’re destined to lose their money.

“People have done well by trading them (in the short term), but when it gets to the end of the road, these stocks are going to be worth zero,” said Bose George, an analyst with the investment bank Keefe, Bruyette & Woods Inc.

Some of the activity involves day traders aiming to profit from short-term price swings, George said. But he said inexperienced investors might have the mis-impression that the companies may recover or be rescued.

“That would be kind of unfortunate,” he said. “There could be a lot of improvement in the economy, and these companies would still be worth zero.”

The government continues to support the companies with billions in taxpayer money, saying they still play a crucial role in the financial system.

Fannie and Freddie buy loans from banks and sell them to investors — a role critical to the mortgage market. They have tapped about $96 billion out of a potential $400 billion in aid from the Treasury Department.

Officials have said AIG’s failure would be disastrous for the financial markets. Treasury and the Federal Reserve have spent about $175 billion on AIG and AIG-related securities. The company also has access to $28 billion from the $700 billion financial industry bailout.

But analysts say the wind-down strategies for the companies are almost sure to wipe out any common equity, making their shares worthless.

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CFTC moves to rein in small ETF investors: report

August 22, 2009

Sat Aug 22, 2009 12:18pm EDT

CHICAGO (Reuters) – Exchange-traded funds or ETFs have become a top target in U.S. regulators’ efforts to rein in excessive speculation in oil and other commodity markets, The Wall Street Journal reported on Saturday.

Commodity ETFs, which came into existence in 2003, offer one of the few avenues for small investors to gain direct exposure to commodity markets. The funds pool money from investors to make one-way bets, usually on rising prices.

Some say this causes excessive buying that artificially inflates prices for oil, natural gas and gold.

Commodity ETFs have ballooned to hold $59.3 billion in assets as of July, according to the National Stock Exchange, which tracks ETF data.

The Commodity Futures Trading Commission has said it seeks to protect end users of commodities, and that cutting out individual investors is not the goal.

“The Commission has never said, ‘You aren’t tall enough to ride,'” CFTC Commissioner Bart Chilton was quoted as saying in the WSJ article. “I don’t want to limit liquidity, but above all else, I want to ensure that prices for consumers are fair and that there is no manipulation — intentional or otherwise.”

Limiting the size of ETFs will result in higher costs for investors, the WSJ reported, because legal and operational costs have to be spread out over a fewer number of shares. Investors range from individuals to banks and hedge funds with multimillion-dollar positions.

The CFTC is currently considering a host of measures to curb excessive speculation, including position limits in U.S. futures markets. Many U.S. lawmakers called for greater regulation of some commodity markets after a price surge last year sent crude oil to a record high of $147 a barrel in July 2008.

(Reporting by Matthew Lewis; Editing by Toni Reinhold)


A Few ETF/ETN Picks – One Year Later

July 28, 2009

Here is an update on our ETF/ETN picks that are one year old today.

Not your normal 12 months by any stretch.

Staying disciplined and taking what the market gives leaves us well ahead of the market in even the worst of times.

ETF/ETN picks after 1 year

ETF/ETN picks after 1 year


6 Millionaire Traits That You Can Adopt

June 23, 2009

by Stephanie Powers
Investopedia
Tuesday, June 23, 2009

Millionaires have more in common with each other than just their bank accounts — for some millionaires, striking it rich took courage, salesmanship, vision and passion. Find out which traits are most common to the seven-figure bank account set, and what you can do to hone some of these skills in your own life.

1. Independent Thinking

Millionaires think differently. Not just about money, about everything. The time and energy everybody else spends attempting to conform, millionaires spend creating their own path. Since thoughts impact actions, people who want to be wealthy should think in a way that will get them to that goal. Independent thinking doesn’t mean doing the opposite of what the rest of the world is doing; it means having the courage to follow what is important to you. So, the lesson here is to forge your own way, and let your success drive you to financial spoils – rather than doing it the other way around and trying to chase the money.

Just look at David Geffen. A self-made millionaire with $4.5 billion to his name in 2009, this American record executive and film producer was college dropout, but made millions founding record agencies and signed some of the most prominent musicians of the 1970s and ’80s. Although he didn’t take what many assume to be the usual path to success, his tireless work ethic and sense of personal conviction about artists’ potential allowed him to rack up a sizable fortune.

2. Vision

Millionaires are creative visionaries with a positive attitude. In other words, wealthy people not only have big dreams, they also believe they will come true. As such, wealth seekers should set lofty goals and not be afraid of uncharted territories.

Bill Gates, the world’s richest person in 2009, did just that. The American chairman of Microsoft (MSFT) is one of the founding entrepreneurs who brought personal computers to the masses. Gates jumped into the personal computers business in 1975 and held on tight, creating Microsoft Windows in 1985. When consumers began to bring computers into their homes, Gates was ready to profit from this new age.

3. Skills

Writer Dennis Kimbro interviewed successful people to determine the traits they had in common for his book, “Think and Grow Rich” (1992). He found that they concentrated on their area of excellence. Millionaires also tend to partner with others to supplement their weaker skills. If you don’t know what you are good at, poll friends and family. Use training and mentors to refine your strong skills.

4. Passion

Billionaire investing guru Warren Buffett says “Money is a by-product of something I like to do very much.” Enjoying your work allows you to have the discipline to work hard at it every day. People who interact with money for a living, bankers for example, often love creating new deals and persuading others to complete a transaction. But finding your dream job may take time. The average millionaire doesn’t find it until age 45, and tends to be 54 (on average) before becoming a millionaire. Kimbro found that millionaires tried an average of 17 ventures before they were successful. So, if you want to be rich, stop doing things you don’t enjoy and do what you love. If you don’t know what you love, try a few things and keep trying until you hit on the right thing.

5. Investment

Millionaires are willing to sacrifice time and money to achieve their goals. They are willing to take a risk now for the opportunity of achieving something greater in the future. Investing may include securities or starting a business – either way, it is a step toward achieving great financial rewards. Start investing now.

6. Salesmanship

Millionaires are constantly presenting their ideas and persuading others to buy into them. Good salesmen are oblivious to critics and naysayers. In other words, they don’t take “no” for an answer. Millionaires also have good social skills. In fact, when writer T. Harv Eker analyzed the results of a survey of 753 millionaires for his book, “Secrets of the Millionaire Mind” (2005), he found social skills were more important than IQ. Just look at Donald Trump. His fortune has fluctuated over the years, but his ability to sell himself – whether as a TV personality or as the force behind a line of neckties – has always brought him back among the ranks of celebrity millionaires.

The ability to communicate with people is essential to selling your idea. Contrary to the traditional view of salesmen, millionaires cite honesty as an important factor in their success. If you want to be a millionaire, be an honest salesman and polish your social skills.

***

Becoming a millionaire is not a goal that can be achieved overnight for most people. In fact, many of the world’s richest people built their wealth over many years (sometimes even generations) by making smart but often bold decisions, putting their skills to the best use possible and doggedly pursuing their vision. If you can learn anything about millionaires, it’s that for many of them, their riches are not necessarily what most sets them apart from the rest of the world – it’s what they did to earn those millions that really stands out.


Countrywide’s Mozilo charged with fraud

June 4, 2009

Thu Jun 4, 2009 7:41pm EDT

By Gina Keating and Rachelle Younglai

LOS ANGELES/WASHINGTON (Reuters) – Angelo Mozilo, who built the largest U.S. mortgage lender, was charged with securities fraud and insider trading on Thursday, making him the most prominent defendant so far in investigations into the U.S. subprime mortgage crisis and housing bust.

Mozilo, 70, co-founder of Countrywide Financial Corp (CFC), was accused by the U.S. Securities and Exchange Commission with making more than $139 million in profits in 2006 and 2007 from exercising 5.1 million stock options and selling the underlying shares.

The sales were under four prearranged stock trading plans Mozilo prepared during the time period, the SEC said.

The accusations were made in a civil lawsuit filed by the SEC in Los Angeles on Thursday.

The SEC said that in one instance, the day before he set up a stock trading plan on September 25, 2006, Mozilo sent an email to two Countrywide executives that said: “We are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales.”

Those executives, then Countrywide President David Sambol, 49, and Chief Financial Officer Eric Sieracki, 52, were charged by the SEC with knowingly writing “riskier and riskier” subprime loans that they had a limited ability to sell on the secondary mortgage market.

The SEC said that all three executives failed to tell investors how dependent Countrywide had become on its ability to sell subprime mortgages on the secondary market. All three were accused of hiding from investors the risks they took to win market share.

At one stage, Countrywide was writing almost 1 in 6 of American mortgages. The lawsuit said that by September 2006, Countrywide estimated that it had a 15.7 percent share of the market, up from 11.4 percent at the end of 2003.

“While Countrywide boasted to investors that its market share was increasing, company executives did not disclose that its market share increase came at the expense of prudent underwriting guidelines,” the lawsuit said

Bank of America Corp (BAC) bought Countrywide last July 1 for $2.5 billion, less than a tenth of what it had been worth in early 2007.

“TWO COMPANIES”, EARLY WARNING SIGNS

“This is a tale of two companies,” the SEC’s director of enforcement, Robert Khuzami, told reporters. “One that investors from the outside saw. It was allegedly characterized by prudent business practices and tightly controlled risk.”

“But the real Countrywide, which could only be seen from the inside, was one buckling under the weight of deteriorating mortgages, lax underwriting, and an increasingly suspect business model,” Khuzami said.

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Still overbought, but over first resistance also

May 5, 2009

Another update finds the market shaking off initial profit taking to challenge the highs for the year. Monday’s big push finally left the late January, early February highs behind for the S&P 500 (SPX) after about two weeks of backing and filling to make room for the exit of early profit takers. Volume for this stage of the rally has not been impressive, declining since the large profit taking day in the third week of April. What is impressive, is new buyers have stepped up to continue to push prices higher. Fear of “missing the bottom” is setting in and chasing the rally at this point remains dangerous.

spx050509

The NASDAQ has been leading the charge, already surpassing the highs for the year to challenge the early November 2008 highs and the 200 day simple moving average. Up more than 39% in less than two months is a remarkable move and building on that through the seasonally weak summer session is going to be difficult. Up days are beating down days by more than 2 to 1 since the bottom, but the pace of gains is decelerating. Volume has remained relatively solid and this change in market leadership posture is notable. Investors have clearly decided to favor more aggressive stocks in this recovery, with the small and mid caps also showing relative strength.

comp050509

It’s time to break out a chart we were saving for later, as the comparison may be valid already. This is a chart of the bottom formed in the SPX during 2002-2003, after the tech bust. While the bottom itself formed an inverse head and shoulders pattern (which we expect this time also), the recovery from the right shoulder is what really interests us here. Since the drop was not as violent and much more time was worked off with the head and shoulders bottom, the moving averages were not as far above the low prices and were overtaken sooner as a result. But look at the trend that steadily moved up from March to June, before flattening out for the summer, then racing higher again into 2004. It was less than a 30% gain for the first leg up in 2003 from the March low; it’s already 36% for the SPX from the bottom in March this year. While the low was much lower this time, the highs and resistance levels from both years are almost identical. In 2003, the SPX overtook the early January highs around 930 in early May. After a quick, steep drop below 920 to test the breakout, it was off to the races for another straight month, rising over 10% before the June highs. Then it was one test of the inverse head and shoulders neckline in early August at 960 before moving over 1150 by early 2004. This year, the early January highs are in the area of 944 and the SPX is again challenging them in early May. A breakout here followed by a retest of the 920 level could again produce a similar result. The only problem is finishing the inverse head and shoulders bottom, which should happen somewhere around the end of June time wise to produce a symmetrical pattern. At this point, it looks like the January highs need to hold as resistance to keep the inverse head and shoulders pattern in play. This is also the approximate level of the 200 day moving average currently and the 200 day stopped the SPX multiple times from 2001-2002, plus twice early in 2003. The first test early in 2003 led to the formation of the right shoulder in the bottoming pattern and the second test required a test of the 50 day moving average as support before breaking out and leaving the 200 day well behind. Either of those would be a welcomed event for this market to burn off some overbought conditions and excess euphoria. With the VIX at the lowest levels in seven months, purchasing some protection via puts is probably a good idea. We continue to hold and look to add to our position in the ProShares Short S&P 500 ETF (SH) which is about 5% under water now from our first entry. Select longs continue to beat the market averages by a wide margin.

spx20022003bottom


The Power of Paying Attention

April 30, 2009

by Laura Rowley
Thursday, April 30, 2009, 12:00AM

If you want to be happy, pay attention.

That’s the conclusion of the new book ‘Rapt: Attention and the Focused Life’ by behavioral science writer Winifred Gallagher. Interviewing neuroscientists, psychologists, philosophers, and others, Gallagher argues that your happiness depends in large part on where and how you choose to place your focus.

Paying attention sounds like a no-brainer, but it’s similar to the platitude “Live within your means” — it makes a gigantic difference in your well-being, yet many people can’t figure out how to do it. Gallagher breaks down the science of attention, explaining what happens in the brain when we focus on something; why certain things grab our attention and can sabotage our mood, creativity, and productivity; and how to take control of the tool of attention to create a more fulfilling life. At its heart, the book optimistically affirms that no one is a victim of his circumstances — no matter how difficult those circumstances might be.

Gallagher knows that territory intimately. The book was inspired by her battle with cancer a few years ago. “When I got the diagnosis, I interviewed doctors, talked to friends who went through it, chose the best surgeon and radiologist in the best hospital for me,” she recalls. “And once I did that, I made the executive decision to hand my body over to them and direct my attention to moving forward with life. That’s not to say I was happy, or thought, ‘Gee, cancer, what a blessing.’ I hated it. But I didn’t let it monopolize my focus.”

Shifting Your Attention

Instead, she shifted her attention to what was engaging and meaningful. “I would get up in the morning and look in the mirror; I was bald and I could have thought, ‘I don’t feel good, I’ll lie here in bed and watch Oprah.’ But I got dressed and booted up the computer,” she says, adding that she also concentrated on her five children and day-to-day tasks. “The thing that impressed me was it really worked. We do have much more control over our attention than we think.”

Perhaps first and foremost, “you have to choose your target,” says Gallagher. “If you don’t choose a target, your brain will choose one for you — the brain is out scanning around and saying, ‘Let’s stare at that screen, let’s listen to that infomercial.’ When you focus on something, your brain photographs that sight or sound or thought or feeling –and that becomes part of your mental album of the world. So it’s important to make those choices count.”

And when it’s not deliberately focused, the brain tends to home in on bad news. “We evolved to pay attention to painful, negative feelings for the excellent reason that if something is scaring you or making you angry, you are motivated to do something about it,” says Gallagher.

The problem is, research has shown that “negative feelings shrink your visual and conceptual reality, which limits your options,” Gallagher explains. “The attentional issue is particularly important now, when so many people are under terrific financial stress. You can’t focus on it 24/7. Focusing on the positive literally broadens your visual field; you can take in the big picture, both visually and conceptually, consider more options. You’re in a better decision-making space.”

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Overbought and moving into resistance

April 14, 2009

An update on the SPX chart today to show the market finding resistance near previous highs. We are adding a new indicator to the top of the chart, the MACD. The negative divergence in the MACD histogram reinforces the strength of this resistance as the market advance begins to stall. Finally, we have a short term reversal pattern showing in the candlesticks as an Evening Doji Star has formed over the last 3 trading days. Taken together, it looks as if profit taking may have already started.

spx041409

The NASDAQ chart shows similar resistance being met at the Jan highs with negative divergences in the MACD histogram and the Rate of Change indicator which is approaching the zero line.  Both of these confirm the loss of momentum as the market approaches resistance.

comp041409

Exactly the opposite looks to be developing in the ProShares Short S&P 500 Fund ETF (SH) as positive divergences are present with the price firming near support.  Hedging long exposure here and/or taking profits looks like a good idea.  It’s still a bear market rally at this point.

sh041409


The Fight Over Who Will Guard Your Nest Egg

March 28, 2009

By JASON ZWEIG
wsj.com

A power struggle in Washington will shape how investors get the advice they need.

On one side are stockbrokers and other securities salespeople who work for Wall Street firms, banks and insurance companies. On the other are financial planners or investment advisers who often work for themselves or smaller firms.

Brokers are largely regulated by the Financial Industry Regulatory Authority, which is funded by the brokerage business itself and inspects firms every one or two years. Under Finra’s rules, brokers must recommend only investments that are “suitable” for clients.

Advisers are regulated by the states or the Securities and Exchange Commission, which examines firms every six to 10 years on average. Advisers act out of “fiduciary duty,” or the obligation to put their clients’ interests first.

Most investors don’t understand this key distinction. A report by Rand Corp. last year found that 63% of investors think brokers are legally required to act in the best interest of the client; 70% believe that brokers must disclose any conflicts of interest. Advisers always have those duties, but brokers often don’t. The confusion is understandable, because a lot of stock brokers these days call themselves financial planners.

Brokers can sell you any investment they have “reasonable grounds for believing” is suitable for you. Only since 1990 have they been required to base that suitability judgment on your risk tolerance, investing objectives, tax status and financial position.

A key factor still is missing from Finra’s suitability requirements: cost. Let’s say you tell your broker that you want to simplify your stock portfolio into an index fund. He then tells you that his firm manages an S&P-500 Index fund that is “suitable’ for you. He is under no obligation to tell you that the annual expenses that his firm charges on the fund are 10 times higher than an essentially identical fund from Vanguard. An adviser acting under fiduciary duty would have to disclose the conflict of interest and tell you that cheaper alternatives are available.

If brokers had to take cost and conflicts of interest into account in order to honor a fiduciary duty to their clients, their firms might hesitate before producing the kind of garbage that has blighted the portfolios of investors over the years.

Richard G. Ketchum, chairman of Finra, has begun openly using the F-word: fiduciary. “It’s time to get to one standard, a fiduciary standard that works for both broker-dealers and advisers,” he told me. “Both should have a fundamental first responsibility to their customers.”

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Contrarian Quotes

March 19, 2009

“Follow the path of the unsafe, independent thinker. Expose your ideas to the dangers of controversy. Speak your mind and fear less the label of ‘crackpot’ than the stigma of conformity. And on issues that seem important to you, stand up and be counted at any cost.”
– Thomas Watson

“Whenever you find yourself on the side of the majority, it’s time to pause and reflect.”
– Mark Twain

“The ‘crowd’ is most enthusiastic and optimistic when it should be cautious and prudent; and is most fearful when it should be bold.”
– Humphrey Neill


March is the crazy month

March 2, 2009

According to some of our proprietary research, March is an outlier month.

Without going into too much detail, we have found that the month of March historically behaves in an unexpected, atypical manner. This has compromised otherwise solid systems to the point that we simply do not trade some systems only during the month of March. March has produced significant turns in long term trends historically, including the top in March of 2000 and the ensuing final bottom in March of 2003. A significant bottom was made in late March of 1994, which launched the market into the massive bull that ended in 2000.  Many other minor trend changes also occur frequently in the month of March.

Various explanations have been offered for this phenomenon, including the Ides of March.  One cannot discount the cultural and religious significance of the March equinox either.  While we are certain the cause is a number of factors, one that seems to stick out to us is the timing for the end of the first quarter. Many things are happening around this time of year from a fundamental standpoint including closing the books on the first quarter, which not only sets the tone for the new year, but in many cases finalizes budgets also.  Fourth quarter and end of year earnings are being reported around this time to the public as well.  More importantly, it is the first triple-witch expiration of the year.  Recently, this has become quadruple-witching with the addition of Single Stock Futures (SSFs), but historically it has been a triple-witch event.  This event alone is known to cause weird things to happen, so much so it is called “freaky Friday” as it occurs on the third Friday of March, June, September & December.

Whatever the reason, if you feel something strange or think that people are just being crazy, it could be true.  Whether the cause is internal, external, fundamental or fabricated is not nearly as important as how you prepare yourself.  Be aware and alert.  Take advantage of the situation or just sit it out.

Please share any March experiences or planning that you have in the comments section below.  I know I am missing many things and will come back to this note as I come across or remember them.


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