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Showing posts from April, 2010

Extraordinary Bullishness

by Mark Hulbert

Commentary: Nasdaq timers now most bullish in nearly a decade

These are times that try contrarians' souls.

Maddeningly, it's unclear whether the mood out there is too positive (which would be bearish), or too negative (which would be bullish).

On the one hand, individual investors remain profoundly skeptical of the stock market. Domestic equity mutual funds, for example, over the last year have actually suffered a net outflow. That's extraordinary, since the usual pattern is for investors to pour huge amounts of new money into the stock market in the wake of rallies as strong as the one we've experienced over the last year.

Furthermore, according to the latest data for April, there is no sign that this trend is about to change.

On the other hand, investment advisers are bullish right now -- more bullish, in fact, at least by some measures, than they have been in a decade.

Since I devoted a column earlier this week to discussing the mutual-fund flow data, I…

Sentiment Is Contrarian, Not So Reliable

Acting on feelings might seem like wisdom in romantic comedies, but it's a lousy way to make investment decisions.

In fact, it's such a crummy way to invest that some sentiment indicators work in a contrarian fashion. In other words, when the market seems to be telling you how much it loves stocks, it's time to grab your wallet and run.

The problem with sentiment indicators is that they're inconsistent. IBD lists several on the How's The Market? page, today on Page B2.

They are best used as a confirmation of your primary guide. Your primary guide is the price and volume action of the major indexes, along with the action of top-rated stocks.

Here are a few contrarian indicators you can find on the How's The Market? page:

• Bulls vs. Bears: This contrarian indicator from Investors Intelligence measures bullishness and bearishness among investment advisers. When the bullish percentage is 20 percentage points greater than the bearish percentage, that is considered a war…

Bears, Is it Time to Throw in the Towel?

Simon Maierhofer

They say that the first step in overcoming an addiction is to admit the problem and eliminate the denial component.

Ok, here it is: 'I am a bear! Am I cured now?'

'Not quite. Explain to me, what moved you to become a bear?'

Oh my, where to start. There is so much that went wrong and so much that can still go wrong.

Anytime the broad indexes a la Dow Jones (DJI: ^DJI), S&P 500 (SNP: ^GSPC) and Nasdaq (Nasdaq: ^IXIC) rally more than 75% in a one-year span is concerning. I think the last time this happened was in the 1930s.

Reasons for denial

I'd like to be a bull, but being a bull would have gotten me burned twice already in the past decade. In 2000 it was the tech bubble (NYSEArca: XLK - News) that busted, in 2007 it was the financial spill (NYSEArca: XLF - News) that flooded the system.

Being a bear wasn't wrong back than. And today it feels just like 2000 and 2007 all over again. Ok, there are a few major differences.

Unemployment is higher today, …

Protect assets from the next Bernie Madoff

Chris Morris

Determining whom to trust with your money isn't as easy as it once was. As Bernie Madoff proved, some of the most successful crooks have the right diplomas on the wall, the right credentials and plenty of references. If heeded, these tips can help you protect yourself and your assets from fraudulent financial advisers.
Use an independent custodian
Giving funds directly to an adviser is an invitation to fraud. Instead, ensure that an independent, reputable custodian, such as Schwab, Vanguard or Fidelity, holds your money. Doing so adds transparency and additional oversight.

Your adviser will still have the power to conduct trades on your behalf -- but because a neutral third party holds your money, it ensures the adviser isn't claiming to execute trades while actually just taking cash out. Also, be sure you have full access to the custodian account online and via phone (through the client service desk).

"Never make out a check to your adviser," says Laurie L. …

The Bears are Wrong: "The Consumer Is RE-leveraging," Jon Markman Says

The recent data is convincing; The U.S. consumer is making a comeback. New home sales jumped 27% percent in March, rising to a seasonally adjusted annual pace of 411,000, the Commerce Department said Friday. Meanwhile, durable goods orders (large manufactured products) rose the most since the 'great recession' began.

As sure as buying low and selling high is a winning formula, an American with money will purchase goods, says Marketwatch columnist and author Jon Markman. "Anybody who's bet against the American consumer over the long term has gone broke," he tells Aaron in this clip.

Markman believes renewed consumer confidence starts with an improving job market. In a recent column Markman writes, "household employment has increased at a rate of 371,000 jobs a month, on average, over the past three months - the strongest run in over three years."

Retailers are enjoying this return to form. "Retailers are already well on their way to their next bull m…

NORMAL RECOVERY? DON’T BELIEVE IT

By Comstock Partners:

The “Street” and the financial media are portraying a totally misleading impression that the economy is now undergoing a normal recovery as each new piece of economic data is issued. At the same time the stock market has been in the process of pricing in the so-called great news. Let’s have a look at the actual numbers.

1) March retail sales were up 8.6% from the low a year earlier. However, this was still 3.6% below the peak sales in May 2008, almost two years ago. Moreover, sales are still slightly below the level reached back in December 2006, over three years earlier. Over the last 43 years retail sales had hardly ever gone down at all, even in recessions.

2) March industrial production (IP) was up 6.1% from the June trough, but was still down 9.1% from the top December 2007. At its current level IP is still where it was over 10 years ago in December 1999. Never since the depression in the 1930s has IP failed to exceed a level established 10 years earli…

Where's the Goldman Sachs That I Used to Know?

by James B. Stewart

"Surreal" was the word Goldman Sachs Group's (NYSE: GS - News) Fabrice Tourre used to describe a meeting in which the firm of hedge-fund billionaire John Paulson discussed with an investor a portfolio of mortgage-backed securities it eventually planned to short. That Goldman Sachs, a name once synonymous with professionalism and integrity, now stands accused by the Securities and Exchange Commission of fraud also might be deemed surreal.

It's hard to imagine the damage that these developments have done already to Goldman Sachs's reputation. The company has always maintained a public position that the business of investment banking depends on trust, integrity and putting clients' interests first.

Whether those clients remain loyal to Goldman, and whether the firm can attract new ones, remain to be seen. Investors' reaction to the news was swift and negative: Goldman shares closed down 13% Friday after the SEC filed its suit. Goldman says i…

Why Even Bernanke Sees Trouble Ahead

Simon Maierhofer

Just as you can't be a motivational speaker with a constant frown, you can't be the Fed President without being a 'glass half full' kind of guy. Ben Bernanke fits the bill well.

In 2005, Mr. Bernanke said that a housing bubble was a 'pretty unlikely possibility.' His judgment echoed Mr. Greenspan's assessment given in 2004 that the rise in home values was 'not enough in our judgment to raise major concerns.'

Even in 2007, Bernanke went on record to state that the Fed 'does not expect significant spillovers from the subprime market to the rest of the economy.'

I am not sure what Mr. Bernanke considers a significant spill, but what we got is more than your average Bounty paper towel can mop up.

According to Bernanke's assessment we are at the tail end of a minor spill, or are we?

Some of the comments made at the last Fed meeting certainly leave much room for concern. And when even Bernanke's outlook is less than rosy, ther…

Don't Let This Mistake Weigh You Down

By Dan Caplinger

Say I gave you a choice between two stocks. Which would you pick?

* One has seen its share price more than double over the past 12 months.
* The other is down an average of 27% per year since April 2008.

The average investor would probably chase performance and go with the winning stock. Contrarian readers would see that that was the obvious pick and go the other way, arguing that the falling stock could possibly be a better value.

But actually, it's a trick question. Both choices refer to the same investment, Bank of America (NYSE: BAC), which has obviously seen a lot of movement both up and down since the beginning of the mortgage meltdown.

Weighing anchor
When you focus on a particular stock price or some other financial metric, you're doing something known as anchoring. Anchoring is a behavioral response to the seemingly random fluctuations of stock prices. In an effort to impose some order on those movements, we latch onto a specific point of reference,…

The great debate: Are stocks pricey?

By Carla Fried

(Money Magazine) -- Equities have soared more than 70% since last March, but they're still down 25% from their 2007 peak. Does that mean stocks are trading at a bargain, or has the recent rally made the market frothy again?

Well, that's at the center of a raging debate on Wall Street.

In one corner you have Yale economist Robert Shiller, who popularized a method of calculating the market's price/earnings ratio -- the most common gauge of valuing stocks -- using 10 years of historical, inflation-adjusted earnings.

Using this system, Shiller famously predicted the bursting of the tech bubble in the late 1990s.

Today the Shiller P/E says the market is less than half as expensive as it was back then. But at 21, this trusted gauge is signaling that stocks are again overvalued -- by as much as 30% -- after last year's stunning rise. And if history is any guide, this means there's a decent chance equities will deliver subpar annual gains of less than 4%, after …

Economic recovery

Strong Indications...
The Organization for Economic Cooperation and Development (OECD) released its monthly report on composite leading indicators (CLIs) for February, 2010. The CLI came in at 103.57, continuing a streak of higher readings since the bottom of the CLI in early 2009. The OECD noted the strongest readings in the United States and Japan, with weakness in France and Italy.

The purpose of a leading indicator series, as the name suggests, is to give an early sign of a turn in the economic cycle. The OECD said that the CLI usually turns up six to nine months before the economy itself turns up. Although this doesn't always hold true, and a turn in the economic cycle can fall outside that range, the latest data implies that we are already in a fairly strong recovery.

Railing the Competition
The Association of American Railroads reported in its monthly Rail Time Indicators report that U.S. freight railroads originated 1.4 million carloads in March 2010. The weekly average of 2…

The Three Phases of Fed Tightening

by Jeremy Siegel
The Fed’s action to flood the financial system with liquidity in the wake of the Lehman bankruptcy has prevented another Great Depression. But the Fed’s job is far from over. As the economy recovers, Ben Bernanke must raise interest rates and withdraw the over $1 trillion of liquidity -- now located in the excess reserves of the banking system -- that he has created to shore up the financial system or risk a flare-up of inflation. This will become necessary because as the economy improves, the threat of inflation rises. Fortunately, the Fed now has a new tool to ease the economy and the financial system into a higher-interest-rate environment.3 Steps to NormalizationThe Fed has already taken its first steps to normalize policy. In February the Fed raised the discount rate 25 bps to 75 bps, putting it now 50 bps over the upper level of the 0 percent to 0.25 percent range the Fed has set for the Funds rate. Normally the discount rate is 100 bps above the funds targe…

The money coach's playbook

By Christopher Tan
CEO, Providend

WHEN you hear: 'This time it's different', isn't it always a case of de ja vu?

Eighteen months ago, when the markets fell heavily in the last quarter of 2008, detractors of buy and hold strategy scorned at investors who adopted this approach of investing, saying that buy and hold is dead and suggested moving into cash.

Eighteen months later, this same sentence is heard again, in a totally opposite scenario. Singapore's property prices have sky rocketed and despite being warned against buying at ridiculous prices and borrowing at near unhealthy levels in a very low interest rate environment, the answer is the same: 'This time it's different.'

Actually, everything is still the same, whether with tulip bulbs in Holland during the 1630s, real estate bubble in Japan in the 1980s, the Internet stocks in the 1990s, the Singapore's property bubble in the mid 1990s, or the recent financial crisis in 2008/09. Just as contagious eu…
I think SEC doesn't have strong fact. Goldman created a product, a collateralized debt obligation, for hedge fund Paulson & Co., which “at the time wasn’t known as a particularly smart client,” , that allowed for a bet against the value of housing. To make sure the product was vetted ahead of its sale, Goldman hired an independent company, ACA Management, to do just that. And they released a report telling potential buyers exactly what was in there.

Now, I would never have bought the CDO, but not everyone was as bearish on housing as he was in late 2006, which is when the product was put together. Though we could see how less informed clients may have found it attractive. But in the end, no one forced people to buy this CDO. And “a *censored* was born the minute the trade was made,” “and the loss booked soon after.”

So did Goldman do something illegal when it vetted the product, letting everyone know what was in it? Or was the buyer just plain stupid for wanting it in the firs…

Goldman Sachs Makes Further Comments on SEC Complaint

New York, April 16, 2010 - The Goldman Sachs Group, Inc. (NYSE: GS) said today:We are disappointed that the SEC would bring this action related to a single transaction in the face of an extensive record which establishes that the accusations are unfounded in law and fact.

We want to emphasize the following four critical points which were missing from the SEC’s complaint.

• Goldman Sachs Lost Money On The Transaction. Goldman Sachs, itself, lost more than $90 million. Our fee was $15 million. We were subject to losses and we did not structure a portfolio that was designed to lose money.

• Extensive Disclosure Was Provided. IKB, a large German Bank and sophisticated CDO market participant and ACA Capital Management, the two investors, were provided extensive information about the underlying mortgage securities. The risk associated with the securities was known to these investors, who were among the most sophisticated mortgage investors in the world. These investors also understood that …

Here's What Day Traders Don't Understand

Henry Blodget

As we explained earlier, day-trading is one of the dumbest : According to one academic study, 4 out of 5 people who do it lose money and only 1 in 100 do it well enough to be described as "predictably profitable."

Most of the folks who do it, in other words, would be far better off working at Burger King.

As is often the case when we bring up these facts, some readers screamed. One said that our brain-damage was made patently obvious by the fact that Wall Street professionals day-trade all day. If day-trading were so dumb, then why would professionals do it?

Here's what that particular reader is missing:

Most Wall Street traders get paid to day-trade other people's money.*

That's a huge difference compared to what most stay-at-home day-traders do.

The average professional trader gets paid somewhere between 1% and 3% of assets per year just to trade those assets all day. The average hedge-fund trader gets paid another 20% on top of that for any "ga…

Commodities Rally "Just the Tip of the Iceberg," Tom Lydon Says

With exports rising 55% to $737 million in the first quarter, China surpassed the U.S. as the number one market for polished diamonds from Europe's diamond capital -- Antwerp, Belgium, The Wall Street Journal reports.

That, in a nutshell (or maybe a Tiffany setting) explains why we've only seen "just the tip of the iceberg" for commodities demand, according to Tom Lydon, president of Global Trends Investments and editor of ETFtrends.com.

"The average citizen in China who now has an opportunity to make money - the first thing they're doing after buying a cell phone is buying a gold necklace," Lydon says. "There's that inherent demand in many of these emerging market countries as we have more and more people moving up to the middle class and having discretionary income."

For now, he recommends and is long gold mining ETFs such as the SPDR Metals & Mining (XME) and Market Vextors Gold Miners (GDS) vs. ETFs like the SPDR Gold Shares (GLD) tha…

Could China's real estate bubble burst?

Chris Isidore

It may be the world's last real estate bubble, one that is still inflating rapidly. And its end could become the "pop" heard 'round the world.A growing number of economists are worried that a bubble in Chinese real estate has the potential to rattle the world economy that is still struggling to recover from the shock of 2008's global meltdown.Soaring real estate prices in China's coastal cities, with prices rising as much as 50% a year, have lifted some rents to levels comparable to Manhattan and driven a building boom of luxury apartments and office space many fear far outstrips demand. "China is clearly in an asset bubble. It's almost like it didn't learn its lesson," said Nariman Behravesh, chief economist for HIS Global Insight. That rapid growth in real estate has led to 10% annual economic growth in China. Among the world's major economies, China is alone in surging at a blistering pace -- a nearly 12% …

Why Traders Fail

Courtesy of Conrad Alvin Lim
Link to original article: http://www.conradalvinlim.com/?p=2422

This lesson looks at the most popular reason why most Traders get wiped out – The HypeThrough the years, trading has always been a pipe dream for most who wanted to get filthy rich. With the advancements in technology over the last decade, this pipe dream has been brought closer to home than ever before. Today, it is a very accessible dream to anyone and everyone. All you need is a computer and an internet connection.And of course, you need the right kind of market.This is where the hype starts. We have been over-exposed to all sorts of advertising and promotional rah-rah that makes us believe that it is actually possible to make that fortune a reality. We see ads with winners making really fantastic profits from a single trade and we hear of friends who make a living from trading and living the good life. We see the rich and famous on TV that have made fortunes in the market. We re…

New Ways to Read Economy

by Cari Tuna

Experts Scour Oddball Data for Trends Ahead of Official Releases

When the city's top economist needs a rough prediction of sales tax revenues, he watches the number of subway passengers emerging from the Powell Street Station on Saturdays.Ted Egan, chief economist in the San Francisco Controller's Office, said he could wait six months for California to release the detailed sales-tax data he needs for city revenue projections. But it's quicker to look at passenger tallies from the station closest to the Union Square shopping district, which generates roughly 10% of the city's sales-tax revenue. The Bay Area Rapid Transit District releases the data within three days, he said: "Why should I have to wait?"Mr. Egan is among a growing number of economists and urban planners who scour for economic clues in unconventional urban data—oddball measures of how people are moving, spending and working.Broadway ticket sales are a favorite indicator fo…

6 Investing Strategies for Retiree Wannabes

by Diana Ransom

Having shaken off the jitters, many investors have either re-entered the stock market or upped their exposure in recent weeks. But for retirees or folks nearing retirement age, simply exiting safer investments such as bonds and certificates of deposits might not be the best strategy.

Some clearly are seeking to recoup losses suffered during the downturn. According to a recent survey by Charles Schwab & Co., in the first quarter of 2010, 46% of investors were focused on growing their retirement savings, while just 29% aimed for protecting their savings. (There is no comparable earlier study). Further, Schwab reports its advisors have to spend less time reassuring their clients these days. This past January, just 31% of investment advisors reported needing to reassure clients about the stock market, down from 49% a year earlier, according to a separate survey.Fueling the confidence: the belief that the economy is in the early stages of recovery -- not to m…

That Was Then, This Is Now

by Daisy Maxey

In November, we asked a panel of financial advisers for their 2010 recommendations. We caught up with them recently to see if they have changed their minds.

It has been an eventful five months. The continuing stock-market rally, passage of the health-care bill, financial troubles in Greece -- to name just a few of the most obvious events. In light of it all, we thought it would be interesting to return to a panel of financial advisers we had convened in November to get their recommendations for 2010. We wanted to know: Have they changed their minds about anything?Here's what they said. William T. Baldwin, president and co-founder of Pillar Financial Advisors in Waltham, Mass.In November, Mr. Baldwin said he was recommending more conservative equity allocations than in the past. Because the market has gained since then, some of his clients now tend to be more willing to take risk. But Mr. Baldwin said he doesn't believe it's the time to change that…