Energy Stocks: Time for a Fresh Look After the recent sell-off in energy shares, S&P has boosted its recommendation on the sector to overweight. Here's why. Energy Stocks: Time for a Fresh Look - BusinessWeek
Consumers Feeling Fallout of Fannie & Freddie Fannie Mae and Freddie Mac may or may not need a government bailout, but the turmoil surrounding the mortgage finance companies' decline has already meant four things for borrowers: higher interest rates, more fees and closing costs, bigger down payments and fewer loan choices. Consumers Feel Fallout from Fannie, Freddie - AOL Money & Finance Also: Future of Fannie & Freddie Uncertain
It's been over a year since I last posted on liar loans -- these are mortgages which the borrower obtains despite offering no documentation on their income, employment or assets. These liar loans were also known as Ninja loans -- which is short for no income, no job, and no assets. The Associated Press reports that such liar loans will add $100 billion to the losses our economy is already suffering thanks to $400 billion worth of losses from subprime mortgages.
The problem we face as an economy is that it's hard to see where the liar loans end and the collateralized debt obligations (CDOs) and other asset-backed securities begin. In a sense, they are all liar loans. In the case of the mortgages, borrowers created paperwork that was inconsistent with their actual financial condition so they could get the money. In the case of CDOs, the issuing investment bank bought a AAA rating from a rating agency which created the illusion that the security was safe. Conceptually, there is little difference -- both depended on essentially forged paperwork to make the loan go through.
Why did banks issue liar loans? They were afraid to lose market share. But that doesn't make it right. As my mother used to say to me, if the other kids jumped off the Empire State Building, would you do it too? AP brings this to life in an interview with David Zugheri, co-founder of Texas-based lender First Houston Mortgage who said, "Everybody drank the Kool-Aid. They knew if they didn't give the borrower the loan they wanted, the borrower could go down the street and get that loan somewhere else.''
The New York Times reports that the Federal Deposit Insurance Corporation (FDIC) is hiring back experienced people as the number of failed banks rises. Its report gives a good idea of what the FDIC does to rescue a failed bank. In a nutshell, when a bank fails the FDIC tries to find a stronger partner who can take over the foundering operations. Starting on Friday evening, the FDIC does triage so that it knows which assets and deposits the partner will get and which will go on the FDIC's books.
Here are six key steps:
Find a merger partner. For example, the Times reports that on Friday May 9, the FDIC seized Arkansas National Bank (ANB) -- a $2.1 billion construction lender -- and arranged for it to be acquired by Pulaski Bank and Trust Company. As it usually does, the FDIC planned to use the weekend to minimize the disruption to depositors of ANB.
Enter town quietly. FDIC personnel try not to alert the locals to their presence. The Times reports that they "used personal credit cards, rather than cards provided by the FDIC, to avoid detection." And they were told to give a false reason for their presence in town. The Times quotes Gary Holloway, a hired back retiree, who said: "If anybody asked why they were in town, they were told to say that they were with the Toy Shop on business."
I've always sensed that women make better investors than men. Call me politically incorrect but when I talk to a woman about investing, she's focused on protecting her savings, not using it to make more money. Women don't think about "beating the market." They think about being safe. They don't want to make a mistake and avoiding mistakes is sometimes what makes all the difference in getting investment returns. And women are less prone to trading and more attuned to buying and holding. As Warren Buffett says, "Activity is the enemy of performance."
Maybe it's our testosterone that drives us to turn investing into a championship sporting event. I don't know. But I've felt that the male competitive spirit often is the very thing that drives us into stupid investments.
Until recently, I couldn't put my finger on how our male "Y" chromosome puts us at a genetic disadvantage to women. However, I recently discovered that Brad Barber and Terrance Odean of UC Davis validated my intuition. They published an article in the February 2001 issue of The Quarterly Journal of Economics titled "Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment."
Barber and Odean obtained trading data from a discount brokerage for over 35,000 households and analyzed investing patterns for six years to test whether overconfidence leads to more trading and lower returns. Since in areas of finance psychologists have proven that men tend to be more prone to overconfidence, the genders were separated so that their trading habits could be studied individually.
Although Newcastle Investment Corp. (NYSE: NCT) continues to post losses, the real estate investment trust's board voted to maintain a quarterly dividend of 25 cents a share. The dividend is payable on July 30 to shareholders of record as of July 7. This continued support of the dividend leaves the stock above a 15% yield as of the close yesterday at $6.67.
Newcastle reported a loss in funds from operations of $87.7 million, or $1.66 a share, in the April-June period, compared with a gain of $34 million, or 64 cents a share, in the year-earlier quarter. The company booked a $63.2 million charge related to its sub-prime securities portfolio. Revenue fell nearly 40% to $115 million from $191.9 million in the second quarter of 2007.
This is a highly leveraged company that is trying to ride out a turbulent real estate and financial market. It holds a wide variety of industrial, commercial and retail notes, with about 10% of the portfolio in residential notes. It has been hurt by the collapse of the commercial mortgage-backed securities market (CMBS), which does not show signs of recovery in the near term.
Negative earnings and high leverage are not inviting to most investors right now. But I think the company will survive and it is paying a very high yield and has been for quite some time.
How the World Spends Its Money Ever wondered how global consumers spend their hard-earned incomes? Data from the World Bank's most recent study breaks global individual consumption into 11 buckets--from food and clothing to health care and recreation. While just 6% of U.S. income goes to food China residents spend 24% and Ethopians a whooping 55%. At the other extreme, Americans spend 18% of its income on healthcare, which is much higher than most other countries. How The World Spends Its Money - Forbes.com
What Happened to Safe Haven Stocks? When the markets hit a rough patch, many investors turn to 'safe' stocks for shelter. Stocks like Wal-Mart, GE, Exxon Mobil, Google etc. You would think these big name stocks can weather the market storms of late, but in fact have gotten caught and underperformed the Dow over the past quarter. They are hardly "safe" for investors who want to preserve capital in a bad market. If these firms can't post promising results, not many companies can. What Happened to Safe Haven Stocks? - 24/7WallSt.
Cash-Strapped States Quicker to Seize Unused Accounts Faced with swelling budget deficits, a growing number of states are taking control of unclaimed property -- such as bank accounts and traveler's checks -- sooner. Generally, states can seize abandoned property if the owners fail to claim it after a specified period that varies by state. People should track their bank accounts and other assets closely. ING, which turned over $3.8 million to states last year, is warning customers that states can seize accounts if there's no activity for a certain period, often three to five years. Cash-strapped states quicker to seize unused accounts - USATODAY.com
The Great Panic - One Year Later On August 9, 2007, it became clear that fear had paralyzed the world's credit markets. The question was no longer only about the quality of assets or the availability of cash. Everything was suspect and no one was willing to take any chances. The world had turned subprime. How the world changed on August 9, 2007 - Portfolio.com
Cell-Phone Health Concerns Persist Despite years of study, questions continue to be raised whether mobile phones can contribute to health problems. Why can't we get a definitive answer about cell phones and health? Why Cell-Phone Health Concerns Persist - BusinessWeek
Top Colleges for Getting Rich These colleges produce top earners. Graduates of Dartmouth College finished on top of the list with a median compensation of $134,000, edging out alumni of Princeton University who finished second with a median comp of $131,000. For public colleges the University of California, Berkley tops the list at $112,000 followed by University of Virginia and University of California, Los Angeles. Top Colleges For Getting Rich - Forbes.com Also: Top Public Colleges for Getting Rich
10 Tech Giants to Buy Now Shares of companies such as IBM, Nokia and Microsoft have taken a hit along with the rest of the market, but they don't deserve to be this cheap. Other tech stocks to consider include Apple, Cisco, Google, HP, Intel, Oracle and Qualcomm. Ten Tech Giants to Buy Now - Kiplinger.com
New Life for Grocery Store Standbys Innovation is Pinnacle's lifeblood. The N.J.-based company -- which so far owns or licenses more than a dozen food brands -- specializes in acquiring venerable, but stagnant, brand names in need of TLC. It then works to breathe new life into them with updated formulations, new products, improved packaging, added convenience and smart marketing. Among the brands in Pinnacle's cub bard are Duncan Hines, Lender's Bagels, Log Cabin, Hungry Man, Mrs. Butterworth, Aunt Jemima, Swanson and more. Pinnacle gives new life to old standbys - USATODAY.com
The Federal Open Market Committee issued its decision to leave interest rates at 2%. This was as expected. However, the statement was much more dovish than expected. Language in the previous statement indicating that downside risks to growth "appear to have diminished somewhat" was deleted, and the focus clearly remained on the economic situation, although inflation risks continue to be acknowledged.
The U.S. equity markets rallied prior to the statement being released and continued after the decision was issued. Oil prices also continued their retreat.
The dovish nature of the decision was indicated by the fact that there was only one member voting for an increase. As many as three members were expected to vote for an increase. Despite the recent hawkish statements, all members voted to maintain the 2% level.
This confirms what I have said in recent posts that hawkish talk does not necessarily translate into hawkish action. As I have said in my book, Follow the Fed to Investment Success, "watch what the Fed does not what it says."
The economy is still far too weak for the Fed to begin raising rates.
Falling Oil Prices May Not Be as Good as You Think Oil prices are falling sharply, and that's good news. But not nearly as good as you might think. Lower prices mean less pain at the pump - but tougher times ahead for the economy. Falling oil prices suggest that the recession the U.S. has so far avoided is well on its way, as consumers pull back from the spending spree that drove economic growth earlier this decade. A weakening economy will mean more layoffs, further pressuring already reduced spending. Lower oil prices: a mixed blessing - FORTUNE
What Now for Bennigan's Franchisees? What happens to franchisees when a franchisor goes bankrupt? Bennigan's owners are about to find out. The pub-themed casual dining chain filed a Chapter 7 bankruptcy on July 29, meaning it chose to cease operations and liquidate its assets rather than attempt to reorganize under Chapter 11. Bennigan's closed all company-owned locations and announced plans to sell off the assets. The remaining 138 franchisees are still operating, but they face a tough road ahead. After a Franchisor Files for Bankruptcy - BusinessWeek In Photos: 11 Big Brands That Went Bankrupt & What Handppened Next to Franchisees
I believe that everyone, no matter how much investment experience they have, should learn how to take control of their investing, buy a well diversified portfolio of index funds, periodically rebalance their portfolio, and allow their money to compound without fees. So do Warren Buffett (read what he wrote about fees), John Bogle, David Swensen, and other investment industry luminaries. This is because the fees charged by the financial industry, over time, decimate investment returns.
But many people just want investment advice. Most people will spend more time shopping for a car on the weekend to save $1000, than to understand the true cost of the investment advice they are receiving on the nest egg that they're spending their entire working lives building. If you must, here are some tips that I think will help you minimize the damage and give you a shot at having a successful relationship with your stock broker, financial adviser or investment manager.
1. Show Me The Fees. If your financial adviser is charging a fee to oversee your investments, he is probably investing your money in mutual funds that also have fees. Ask for a comprehensive list of all the fees you are paying each year including each fund, its fees, and his fees. Try to get these aggregate fees below 2% per year. My friend has a $6 million account with one of the largest four brokers and to make my point, I calculated his mutual fund fees, loads, and fees to his advisor. Last year he paid about $138,000! He is considering switching to index funds and where he would pay $18,000 per year.
2. Get Invoiced. Most financial advisors "debit" your account either in advance of the quarter or month. Ask them to send you an invoice and write them a check. That way you'll stay aware of the cost for these services.
3. Show Me The Commissions. Ask your adviser to disclose the exact amount of commissions, credits or any form of compensation he or she is paid as an incentive for having you invest in a certain financial product like a mutual fund, annuity, or life insurance product. Also ask for the cost of an index fund alternative so that you can understand exactly what it is costing you to be "sold" a particular product and so that you can justify its price in the future.
One 'Lettter' Stocks Offer Opportunity Several companies with single-letter ticker symbols currently offer potential for value investors, says George Putnam. The editor of The Turnaround Letter stock publication highlights a number of single-letter stocks that have been "beaten down pretty badly and now look particularly appealing." They include Agilent ('A'), Citigroup ('C'), Ford Motor ('F'), Kellogg ('K'), Macy's ('M'), NetSuite ('N'), Qwest ('Q'), Spring Nextel ('S') and AT&T ('T'). 'Singular' values: A, C, F, K, M, N, Q, S, T - BloggingStocks
August Trading Strategies August is traditionally one of the worst months for the market. Against an already volatile backdrop, Experts show you 12 ways to navigate the dog days of summer. http://www.marketwatch.com/newscommentary/tradingstrategies
The U.S. Bureau of Labor Statistics released the July Employment Report -- it was a mixed bag. Wall Street, concerned that the report would be much worse than expected, promptly breathed a sigh of relief with equity futures rallying after the release.
July nonfarm payroll employment was down by 51,000, which was less than expected. In addition, June unemployment was revised upward from -62,000 to -51,000. However, the unemployment rate was 5.7%, rising from 5.5% and was higher than expected. Hourly earnings rose by 0.3%, which was in line with expectations. Job losses were across the board, with the exception of job increases in healthcare and mining.
There was no real indication of any improvement in the economy. Why then did Wall Street react so positively? There is a huge fear that the economy is about to crash into a deep recession. This report gave at least some short-term comfort that the economy, although deteriorating, is muddling along.
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I believe that everyone, no matter how much investment experience they have, should learn how to take control of their investing, buy a well diversified portfolio of index funds, periodically rebalance their portfolio, and allow their money to compound without fees. So do Warren Buffett (read what he 
Slow approach to raising bank capital loses the race against write-offs
Cramer on BloggingStocks: The SEC's waffling will be deadly
How Fannie and Freddie will fail
