Category: Investing

The stock market is feeling like a Friday the 13th movie.  Just when you think it can’t get any worse – Jason shows up again.  The amount of wealth that has been destroyed over the past few months is beyond my comprehension.  Personally, I think the greed of a few on Wall Street has damaged Main Street for many years to come.

Imagine the 20 year older investing their first $1000 into the market watching it get sliced in half in less than a year.  How about the 35 year older, who has been religiously participating in their company’s 401K program, suddenly realizing that their money would have been better off in a savings account paying 1% for the past 10 years.

Continue reading “Jason Meets the Stock Market”

I heard a great explanation of the current market turmoil a few days ago – “you can’t explain stupid.”  For a moment, let’s set aside the personal loss and devastation of a hurricane and think about it purely from an oil pricing perspective.  About 25% of the US oil and 20% of natural gas production comes from the Gulf of Mexico. When a hurricane enters the gulf, off-shore oil platforms must be shut down and the workers evacuated to safety on land.

Although hurricane Gustav’s bark was bigger than its bite, I understand that it will be November before production is back to 95% pre-hurricane levels.  Basic economics states that a decrease in supply results in an increase in price.  Oil pricing was falling before the hurricane, but shouldn’t a hurricane at least slow the decline?  Prices continued to fall when a second hurricane, Ike, barreled into the Gulf a few weeks later.

Continue reading “Stock Market Turmoil: You Can’t Explain Stupid”

The stock market has been on the brink of breaking three times this year alone and four if you go back to August of last year. Each time the good ole gumint stepped in to save the day. In January, on Martin Luther King Day, with the US markets closed the world markets were in free fall. I remember not sleeping much that night – thinking about how much money would evaporate from my brokerage account when the market opened.

Fed Chairman Ben Bernanke and his buddies didn’t sleep much either. One hour before the market opened, Bernanke announced an emergency 0.75% interest rate cut (Fed Slashes Key Rate). Since, the Fed normally moves in quarter point, at most half point, increments – the magnitude of the cut stopped the markets in its tracks. The market would regain its footing and grind higher over the next 6 weeks. Continue reading “Where Would the Stock Market be without Uncle Ben”

It is getting uglier and uglier.  Bear Stearns (BSC) a major Wall Street investment bank nearly filed for bankruptcy this weekend.  In a fire sale, J.P. Morgan with backing from the Fed bought Bear Stearns for $2 per share.  Bear Stearns closed at $30 per share on Friday.  A little over a year ago, January 2007, Bear Stearns traded at $170 per share.

It is simply amazing how much wealth is being lost during this “financial mess.” Billionaire investor Joesph Lewis is light about a billion bucks since his ill-timed investment in Bear late last year.  That will sting a little, but he will be OK.   However, there are many regular folks at Bear Stearns who are in the red zone (0-5 years from retirement).  Their retirements have been delayed, significantly modified or simply won’t happen. 

The reason for this blog is that I know many people who have substantial assets tied up in their company’s options and stock programs.  Like they say, a recession is when your neighbor gets laid off – a depression is when you get laid off.  I am not sure what they say when your retirement gets wiped out, but it “ain’t” good. 

Diversify. Diversify.  Diversify.

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The DOW triggered by a French Bank citing U.S subprime mortgage issues free falls 380 points and two homebuilders Beazer Homes (BZH) and Hovnanian Enterprises (HOV) go up 10%.  Often stocks up on down market days are signalling good news ahead.  What kind of news could be on the horizon for homebuilders? Maybe they will set a record for the most unsold homes in history.

I don’t know how it is in your town, but in mine new houses are still going up left and right.  Hello homebuilder CEOs – stop building houses.  How about taking an economics course.  There is this new concept called supply and demand that you should learn about. 

Obviously the stocks weren’t up on good news, but were up on some bizarre behavior by quantitative hedge funds.  According to an article in the Wall Street Journal, “Behind the Stock Market’s Zigzag,” quantitative funds are funds that rely on computer models to pick which stocks to bet on and which to bet against.  They have been liquidating positions to raise cash.  They sold stocks they liked forcing prices lower.  For the stocks they sold short, the opposite occurred; to exit those positions, they were forced to buy.

“A massive unwinding is occurring,” says Tim Krochuck, managing director of GRT Capital Partners.  Buying and selling by hedge funds are “pushing those crummy names higher, and pushing the names you like lower.”  Do you think these are the same computers telling the homebuilders to keep building houses?

Believe it or not there are roomfuls of Ph.Ds writing the computer models for these quant funds.  This is sorta like revenge of the nerds.