tag:blogger.com,1999:blog-82696444612760400462024-03-13T07:51:04.569-07:00Merry'sSimpleFinanceMerry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.comBlogger25125tag:blogger.com,1999:blog-8269644461276040046.post-23148158116951341182017-02-02T11:21:00.000-08:002017-02-02T11:21:21.611-08:00<!--[if !mso]>
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<br />
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CyberSecurity—It’s a
People Problem<br />
<br />
</div>
<div class="MsoNormal">
Most
companies have had a cyber hack—or if they haven’t yet, they soon will,
according to a panel of experts at the January 31, 2017 European American Chamber of Commerce’s
symposium on The Shifting Paradigm of Data Security. It’s not a question of <i>if
</i>it will occur, but rather, <i>whe</i>n. And when it does, it’s expensive.<span style="mso-spacerun: yes;"> </span>According to Stewart Rose, President of <a href="https://www.threatreadyresources.com/">ThreatReady Resources</a>, a
Boston-based cyber security awareness training firm serving top corporations in
the US, "The average cost a company incurs is $6.5 Million, including
expenses associated with brand, reputation, and litigation."<br />
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDxgjIfyXzdnccO6Nda0DhKHvmkAuZBkaUvicvG5par8wdoASpVGenFjyNFTCbcMqu8VU3aOKYWSJ6T3ct1ZXl3nZ10XkFkiJ85Q8-fcJjOyb4pkvTLbuAFiddHyusULlVo54tg8RYnDA/s1600/hacking.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="146" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDxgjIfyXzdnccO6Nda0DhKHvmkAuZBkaUvicvG5par8wdoASpVGenFjyNFTCbcMqu8VU3aOKYWSJ6T3ct1ZXl3nZ10XkFkiJ85Q8-fcJjOyb4pkvTLbuAFiddHyusULlVo54tg8RYnDA/s400/hacking.jpg" width="400" /></a></div>
<br />
We’re all too familiar with the more common ways hackers grab
our data:<span style="mso-spacerun: yes;"> </span>phishing, rogue emails, and links
containing embedded malware or ransomware.<span style="mso-spacerun: yes;">
</span>What we’re not prepared for is how hackers are using human behavior to
penetrate security, pointing to the need to “think diabolically, just like
hackers do,” says Philip Kibler, who was a Global Partner in IBM’s
Cyber Security Practice and now heads Cyber Risk Consulting at AIG. For
example, social media outlets, such as LinkedIn and Facebook, are easy entry
points for hackers to obtain email addresses, and they’re learning how to
bypass even the most sophisticated spam folders.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFTtyW0TNokm-9tBAJlFgWFC8GPMZyGNLnK88CNWTJbEH1e27p7wcMSgF5lY1rToaof75U7U591MzIkCfRf5siPoXo4oo10-BrTWHI8n1A3ioibYwltDTGJIAVXX5wvWyDSSj4G9HsdnE/s1600/boy+hacking.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="263" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFTtyW0TNokm-9tBAJlFgWFC8GPMZyGNLnK88CNWTJbEH1e27p7wcMSgF5lY1rToaof75U7U591MzIkCfRf5siPoXo4oo10-BrTWHI8n1A3ioibYwltDTGJIAVXX5wvWyDSSj4G9HsdnE/s320/boy+hacking.jpg" width="320" /></a></div>
<div class="MsoNormal">
Cyber hackers are growing more savvy, often
targeting third parties as a way to access company data.<span style="mso-spacerun: yes;"> </span>Companies mistakenly assume their third-party business partners
have strong controls, only to discover that's not the case, leaving them
vulnerable.<span style="mso-spacerun: yes;"> </span>Global regulations are still
in flux (after all, the cyber industry is somewhat nascent—only 30 years old),
making compliance challenging.</div>
<div class="MsoNormal">
</div>
<div class="MsoNormal">
<br />
One trend that is gaining hacker traction is acquisition
targets.<span style="mso-spacerun: yes;"> </span>These companies may have lax
defenses as they focus on getting the deal done and containing expenses, with
employees scurrying to find new jobs, which can leave the organization exposed.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A solution that could help is for companies to have the equivalent of a
cyber FICO score—with a defined road map outlining what must be done to improve
it. Also, recognizing that most times, cyber hacks can be traced back to failure
at the human level.<span style="mso-spacerun: yes;"> </span>“No router is malicious, but people can be foolish and careless when it
comes to how they handle data,” says Joseph DeMarco, partner at <a href="http://devoredemarco.com/">DeVore &DeMarco LLP</a>, a litigation and counseling boutique law firm dedicated to the protection of intellectual property, emerging e-commerce, and Internet law</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Vendors have culpability, too.<span style="mso-spacerun: yes;"> </span>According to one statistic, 30% of breaches
in a major US government organization could be traced directly to the products
it purchased to guard against vulnerability, shining a spotlight on the need to
prove these products are secure <i>before </i>they're installed. <span style="mso-spacerun: yes;"> </span><br />
<br />
<span style="mso-spacerun: yes;"></span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="mso-spacerun: yes;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-4Tf8OObt7M7tEutM7zAQ2036jvS0UQzVSZOqDTDMUuLJ4Hw5H2pYiyfdGSbC8vcu3g7MrE4HLnoM7ao7tQYPfxuNyY4vW8LaaztJL7HcGFbGWuBdSo9uUAZkzPsQAimFASOwVxStfGo/s1600/cybersecurity.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="245" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-4Tf8OObt7M7tEutM7zAQ2036jvS0UQzVSZOqDTDMUuLJ4Hw5H2pYiyfdGSbC8vcu3g7MrE4HLnoM7ao7tQYPfxuNyY4vW8LaaztJL7HcGFbGWuBdSo9uUAZkzPsQAimFASOwVxStfGo/s320/cybersecurity.jpg" width="320" /></a></span></div>
<br />
Most software companies
issue patches to fix problems, but the problems they address are often the direct result of
having discovered a vulnerability, tantamount to locking the barn after the proverbial horse
is stolen. Instead, patching should be
rigorous and diligent, driven by guarding against potential susceptibility,
rather than by corporations' drive to save money and improve the bottom line.</div>
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There is no magic bullet to prevent a hack, but training
employees how not to make silly mistakes can make a company less vulnerable. As
Rose explains, most employees don’t sit at their desks planning how they can
hack their companies’ data. But these same people may nonchalantly plug a thumb
drive into a corporate computer’s USB port—a simple act that can have
disastrous consequences. ThreatReady Resources employs instinctive, active
learning techniques designed to change human behavior permanently.</div>
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<br /></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhF3YV8VVs7yvleejmGgGTYNfg5wFv_zujyTmSnkD80rxc4jYA1CfDrHuP9YcUnTZvUZ1oXhpDAkhg8IRCnq9j0YnezEnTtnZyP4nZgnrdo_lgZLs4z8MV4RrZGp6Lg2nl9X19I0HaMzGs/s1600/protection.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhF3YV8VVs7yvleejmGgGTYNfg5wFv_zujyTmSnkD80rxc4jYA1CfDrHuP9YcUnTZvUZ1oXhpDAkhg8IRCnq9j0YnezEnTtnZyP4nZgnrdo_lgZLs4z8MV4RrZGp6Lg2nl9X19I0HaMzGs/s1600/protection.jpg" /></a></div>
<div class="MsoNormal" style="margin-left: 3.0in;">
And if your company does get
hacked?<span style="mso-spacerun: yes;"> </span>“Your first call should be to
your lawyer, so he or she can guide you on your legal rights and obligations as
to the protection of your systems and sensitive data, says DeMarco.</div>
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Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-56997676314670965082017-01-31T08:45:00.000-08:002017-01-31T08:45:07.556-08:00Investing in the World of Trump<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYHUERBH4YESduFQGNu-nFDuiu0kJ_-GY0S4xX0b-Onwg1tghmowKR3X4mNsVTBcq0E4G12dfJt_RTNhfGvp9aqRJxiMHvEIddTm0zvZBxOE6uBXEKCIBhZ4feYJkO75URVNnwi1mrkcs/s1600/GreenArrows.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYHUERBH4YESduFQGNu-nFDuiu0kJ_-GY0S4xX0b-Onwg1tghmowKR3X4mNsVTBcq0E4G12dfJt_RTNhfGvp9aqRJxiMHvEIddTm0zvZBxOE6uBXEKCIBhZ4feYJkO75URVNnwi1mrkcs/s1600/GreenArrows.png" /></a></div>
<div class="MsoNormal">
<span style="font-size: 12.0pt; line-height: 115%;">No matter
whom you voted for in November,few can argue that the election result has been
a bonanza for the stock market. As it continues posting a 19,000-plus close,
pundits are out in full force to opine on where we go from here.<span style="mso-spacerun: yes;"> </span>Some say a further climb is in store—others
predict financial Armageddon.<span style="mso-spacerun: yes;"> </span>What
should investors do? It may be wise to revisit investing 101.</span></div>
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</o:shapelayout></xml><![endif]--><span style="font-size: 12.0pt; line-height: 115%;">Attempting to predict the market’s
move can be a fool’s game—witness what happened after Brexit, and more
recently, on November 9.<span style="mso-spacerun: yes;"> </span>What <i style="mso-bidi-font-style: normal;">does</i> make sense is having a long-term
strategy and sticking with it.<span style="mso-spacerun: yes;"> </span>That
means a diversified portfolio weighted according to your own risk profile and
time horizon.</span><br />
<span style="font-size: 12.0pt; line-height: 115%;"> </span></div>
<div class="MsoNormal">
<span style="font-size: 12.0pt; line-height: 115%;">It also
means dusting off some basic tenets of successful investing, starting with being
smart about managing gains. As the old adage goes, ‘No one has ever gone broke
taking profits.’<span style="mso-spacerun: yes;"> </span>Many traders have a
different view, but they aren’t long-term investors, and that’s an important
difference.<span style="mso-spacerun: yes;"> </span>Being invested for the long
haul means taking gains when a stock position has appreciated—selling half to
protect the profit and letting the remainder continue to grow is one
strategy—thus generating liquidity to purchase new investments or having cash
on hand to take advantage of lower prices when the market turns (and it always
does—but we never know precisely when).</span><br />
<br />
</div>
<div class="MsoNormal">
</div>
<div class="MsoNormal">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjpOTPEEPlqrAL9Yb2K1TMNrKY2M5sEklIMF7l8dX-VwUbutGv0Rpk-jELtCXhN3IWPGYt-dMHElvYyumphs_ifgPPtf-IQeqZ1bMoPEcHgfcTrNN3GB9G-VaqCu2QnoKg2EIvxKgXHUWU/s1600/Buffet.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjpOTPEEPlqrAL9Yb2K1TMNrKY2M5sEklIMF7l8dX-VwUbutGv0Rpk-jELtCXhN3IWPGYt-dMHElvYyumphs_ifgPPtf-IQeqZ1bMoPEcHgfcTrNN3GB9G-VaqCu2QnoKg2EIvxKgXHUWU/s200/Buffet.png" width="175" /></a><span style="font-size: 12.0pt; line-height: 115%;">And it includes watching investment
costs, something the sage of Omaha, </span><a href="http://www.warrenbuffett.com/warren-buffett-10-ways-to-get-rich/"><span style="font-size: 12.0pt; line-height: 115%;">Warren Buffet</span></a><span style="font-size: 12.0pt; line-height: 115%;"> touts.With the proliferation of
index funds, ETFs, and on-line trading platforms, investors can keep
transaction costs to a minimum.<span style="mso-spacerun: yes;"> </span>Knowing
when to quit is another one of his rules—the sell decision is often the hardest
one for an investor to make.</span><br />
<br />
</div>
<div class="MsoNormal">
<span style="font-size: 12.0pt; line-height: 115%;">Finding good
businesses at good prices will pay off over time (the operative word),
something </span><a href="http://www.warrenbuffett.com/buffetts-tips-for-investing-when-the-market-is-high/"><span style="font-size: 12.0pt; line-height: 115%;">Buffet advocates</span></a><span style="font-size: 12.0pt; line-height: 115%;">.<span style="mso-spacerun: yes;">
</span>“It is far better to buy a wonderful business at a fair price than a
fair business at a wonderful price.”</span><br />
<br />
</div>
<div class="MsoNormal">
<span style="font-size: 12.0pt; line-height: 115%;">Energy and
infrastructure are hot investment areas because the new administration is
committed to both.<span style="mso-spacerun: yes;"> </span>And so long as people
drive cars and need heat and electricity, energy companies will provide
them.<span style="mso-spacerun: yes;"> </span>But energy can be fickle—and
prices to a large extent are a function of global supply, which is beyond our
control. Yes, OPEC has agreed to cut production to stabilize the market, but
getting member countries to comply is a different story.<span style="mso-spacerun: yes;"> </span>Domestic producers, on the other hand, are
taking advantage of higher oil prices to increase </span><a href="http://www.marketwatch.com/story/rising-us-shale-oil-output-threatens-opecs-production-pact-2017-01-17"><span style="font-size: 12.0pt; line-height: 115%;">rig count</span></a><span style="font-size: 12.0pt; line-height: 115%;">, so may represent shorter-term
investment opportunities.</span><br />
<br />
<span style="font-size: 12.0pt; line-height: 115%;">Infrastructure will likely be funded
by bonds, and now that interest rates have finally begun to rise, the returns
are at least palatable, although no one could argue with a straight face that even
a prospective 5% coupon holds a candle to the potential profits of the stock market.</span></div>
<div class="MsoNormal">
<div class="separator" style="clear: both; text-align: center;">
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<br />
<span style="font-size: 12.0pt; line-height: 115%;">But therein
lies the rub—bonds stabilize a portfolio against the volatility of stocks. As
the stock market moves higher, the </span><a href="https://www.briefing.com/investor/our-view/page-one/fomo-trade-makes-its-return.htm"><span style="font-size: 12.0pt; line-height: 115%;">FOMO</span></a><span style="font-size: 12.0pt; line-height: 115%;"> trade—fear of missing out—picks up
steam.<span style="mso-spacerun: yes;"> </span>The market always has and always
will be driven by fear and greed.<span style="mso-spacerun: yes;"> And sometimes both at the same time.</span></span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-size: 12.0pt; line-height: 115%;"><span style="mso-spacerun: yes;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWyPaWY4KaZhRyq1K8GymAjedKXn157wMEqzCyf_nF1ojY4Z7BwinAcsQzMUWrcr3nKB164txpz6hISikuR0HaR4b8wWahh2oUzprzuYzqTv9ZchgJVz9D-oDFCNbR32MeRIasLt1pgec/s1600/Fear%2526Greed.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="87" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWyPaWY4KaZhRyq1K8GymAjedKXn157wMEqzCyf_nF1ojY4Z7BwinAcsQzMUWrcr3nKB164txpz6hISikuR0HaR4b8wWahh2oUzprzuYzqTv9ZchgJVz9D-oDFCNbR32MeRIasLt1pgec/s200/Fear%2526Greed.png" width="200" /></a></span></span></div>
</div>
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<div class="separator" style="clear: both; text-align: center;">
</div>
<span style="font-size: 12.0pt; line-height: 115%;">Long-term growth in the stock market
is grounded in a healthy outlook for corporate earnings.<span style="mso-spacerun: yes;"> </span>As of January 20, 12% of S&P companies
had reported, and of those, </span><a href="http://insight.factset.com/hubfs/Resources/Earnings%20Insight/EarningsInsight_012017.pdf"><span style="font-size: 12.0pt; line-height: 115%;">61%</span></a><span style="font-size: 12.0pt; line-height: 115%;"> beat average estimates.<span style="mso-spacerun: yes;"> </span>Sam Stovall, Chief Investment Strategist at
CFRA, makes the case that 4Q 2016 earnings could be up by 8%.<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_cFrkfWXmr8A2vrTCSjzWGzno-gIAMCfGpn6DohQkeeRNjYm9GLCeA1YMo5a9isz6pJb9ZqL269qeH5_r-3C9vS0H7u8eqmljXYi-mhyphenhyphenmm46lViQIOOaheCaUCPEyxP-TwPjpsryq9j8/s1600/Profits+%25282%2529.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="107" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_cFrkfWXmr8A2vrTCSjzWGzno-gIAMCfGpn6DohQkeeRNjYm9GLCeA1YMo5a9isz6pJb9ZqL269qeH5_r-3C9vS0H7u8eqmljXYi-mhyphenhyphenmm46lViQIOOaheCaUCPEyxP-TwPjpsryq9j8/s200/Profits+%25282%2529.png" width="200" /></a></div>
</span><br />
</div>
<div class="MsoNormal">
<span style="font-size: 12.0pt; line-height: 115%;">If that
trend continues, we may see even more positive momentum in the stock market.
Buying companies with solid earnings performance has always been a good
strategy, along with a suitable allocation to bonds as a buffer.</span><br />
<br />
</div>
<div class="MsoNormal">
<span style="font-size: 12.0pt; line-height: 115%;">Rather than
attempting to invest by figuring out the new administration’s investment plans, paying attention to basic investing principles may be a better path.</span></div>
<div class="MsoNormal">
</div>
Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-61867032379070693672016-04-05T07:30:00.000-07:002016-04-05T07:30:12.122-07:00What Lies Ahead—and What It May Mean For Your Portfolio<!--[if gte mso 9]><xml>
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As the stock market has recovered from its February 11 low
(and posted a modest gain for the year), many of us wonder what lies ahead.<span style="mso-spacerun: yes;"> </span>Given the Federal Reserve’s recent decision
not to hike interest rates now, low-risk investors are looking elsewhere for
return, and many are questioning whether the stock market is their only option.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
At a recent economic forecast presentation hosted by
Denver-based <a href="http://www.amgnational.com/">AMG National Trust Bank</a>,
insights were offered that could be a guideline.<span style="mso-spacerun: yes;"> </span>Themed, “growth with a speed bump”, the
speakers were careful to point out both the positives and negatives that may be
in store.<span style="mso-spacerun: yes;"> </span>On the plus side, consumer
spending, which accounts for around 67% of our country’s Gross Domestic Product
(GDP), looks to be running in the range of 3%.<span style="mso-spacerun: yes;">
</span>Add to that figures for rising home prices, low energy costs, an
improved labor market, and expectations for GDP growth ranging from 1.5% to
3.2%.<span style="mso-spacerun: yes;"> </span>(Although that figure may be a tad
optimistic:<span style="mso-spacerun: yes;"> </span>Other analysts put it at
2%-2.5%).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
On the other side of the ledger is declining business
investment, particularly capital spending in the energy industry, which has
seen sharp declines.<span style="mso-spacerun: yes;"> </span>A few other risks could
cloud the picture:<span style="mso-spacerun: yes;"> </span>high domestic
inventories, an increase in foreign imports, and weakening credit
standards.<span style="mso-spacerun: yes;"> </span>High inventories mean that
businesses won’t produce goods while they are drawing down inventories.<span style="mso-spacerun: yes;"> </span>Increased foreign imports mean we are buying
more from other countries than from our own US manufacturing base. Deteriorating
credit standards are reflected in troubled real estate and construction loans, which
may compress banks’ interest income and margins. <span style="mso-spacerun: yes;"> </span>These things combined make for a somewhat
murky outlook.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The credit picture is further complicated by high-yield
debt, currently yielding around 7%.<span style="mso-spacerun: yes;">
</span>Although improved from the higher rates seen in December and January (primarily
because of a better outlook for oil prices that caused those bonds to rally),
the spread between these rates and the risk-free rate of the US 10-Year
Treasury remains fairly wide compared to a couple of years ago.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So what does this mean for investors?<span style="mso-spacerun: yes;"> </span>First, valuations for stocks are high:<span style="mso-spacerun: yes;"> </span>A current price/earnings ratio of 17 (versus
the long-term average of 15) for our stock market suggests that it may be tough
for the market to have a significant rise.<span style="mso-spacerun: yes;">
</span>According to another analyst, Vinny Catalano, President of <a href="http://bluemarbleresearch.com/">Blue Marble Research</a>, either interest rates need to drop or earnings have to accelerate for
stocks to rise much more.<span style="mso-spacerun: yes;"> </span>Interest rates
can’t drop much (they are already low: just .50%), and first quarter earnings
for 2016 are expected to decline by more than -7% over last year, and fall another
-2% for the second quarter versus a year ago, before turning positive for the
third and fourth quarters.<span style="mso-spacerun: yes;"> </span>These
forecasts amount to a projected overall increase of a mere 1.49% for the
year.<span style="mso-spacerun: yes;"> </span>Not exactly a rosy scenario.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
But the outlook for European stocks may be better, given their
lower market valuations.<span style="mso-spacerun: yes;"> </span>The European
Central Bank (ECB) also recently expanded (and extended) its quantitative
easing program, by which it will purchase more bonds, thereby putting more
money in circulation.<span style="mso-spacerun: yes;"> </span>The ECB also
introduced negative interest rates (that encourage savers to spend), and the
Eurozone is enjoying a strengthening currency.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The outlook for oil is not clear.<span style="mso-spacerun: yes;"> </span>Although its price peaked at $41 per barrel
before retreating slightly to around $36, it still represents around a substantial increase
from the $26-per-barrel low reached in February.<span style="mso-spacerun: yes;"> </span>As a commodity, oil prices are determined by
supply and demand, and several factors have affected both sides of the
equation.<span style="mso-spacerun: yes;"> </span>Demand from emerging markets
(China, among others), has contracted, and at the same time, we have more
supply from US oil producers.<span style="mso-spacerun: yes;"> </span>As low
prices prompted domestic producers to cut back production, Saudi Arabia and other
global producers continued to pump to preserve their market share.<span style="mso-spacerun: yes;"> </span>In addition, now that we have an agreement
with them to remove sanctions in return for their adopting a more acceptable
nuclear policy, Iran is now a factor, and is expected to add sizable production to
the supply.<span style="mso-spacerun: yes;"> </span>Given these facts, oil may
trade between $40 and $60 per barrel—higher than the rock-bottom low we saw
earlier this year, but still a far cry from the $82-per- barrel-price of 2014.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
For the time being, talk of recession seems muted, given the
improving economic data and how well the stock market is performing.<span style="mso-spacerun: yes;"> </span>But economists do draw some interesting
parallels.<span style="mso-spacerun: yes;"> </span>According to their findings,
recessions that occurred during a bear market (defined as a drop of 20% or more),
typically lasted 500 days. Contrast that scenario with historical trends for recessions
that occur outside a bear market lasting around 136 days.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So how can we use this data to our advantage?<span style="mso-spacerun: yes;"> </span>Most professional investors view market
timing to be a fool’s game, because it demands making two correct
decisions:<span style="mso-spacerun: yes;"> </span>when to sell out, and when to
buy back in.<span style="mso-spacerun: yes;"> </span>A more prudent stance is to
have a well-diversified portfolio that is in line with your comfort level with
risk.<span style="mso-spacerun: yes;"> </span>In the short term, it is tough to
get meaningful return in bonds, as the US 10-Year Treasury yields under 2%, and
once interest rates begin to rise, capital will be risk (as bonds with higher
rates are more attractive to an investor).<span style="mso-spacerun: yes;">
</span>That reality has spawned much ink in the financial press about how
standard equity/fixed income asset allocations for conservative investors and
retirees may be passé.<span style="mso-spacerun: yes;"> </span>It also has pushed
many investors to invest in the stock market without adequately understanding, much
less being comfortable with, the added risk.<span style="mso-spacerun: yes;">
</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Risk has many connotations, among which are the degree to
which you can “sleep at night”; the likelihood that your portfolio will lose
value; and the possibility that you may need to make withdrawals to cover
retirement living expenses at a time when the market is in decline. Depending
on the severity of the decline, you may have insufficient time for your portfolio
to recover, meaning your assets could be substantially depleted while you still
need income. That degree of equity exposure may be uncharted territory for you,
and you should understand the risk. One <a href="http://www.marketwatch.com/story/why-a-100-stock-portfolio-can-ruin-your-retirement-2016-03-22">study</a>
showed disastrous results for a portfolio that was invested entirely in stocks
for the 15-year period 2000-2015. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Building a portfolio with a mix of different types of
equities, including those in international developed countries, along with some
exposure to bonds for stability, may be a more acceptable strategy.<span style="mso-spacerun: yes;"> </span>Stocks with dividends are one option, as
typically—but not always—dividend-paying stocks do not suffer as much during a
market selloff.<span style="mso-spacerun: yes;"> </span>Another option is to
select a balanced fund with a mix of both equities and bonds.<span style="mso-spacerun: yes;"> </span>Although investors generally purchase bonds
for their income characteristics, fixed income investments also stabilize a
portfolio, as the underlying capital is a loan to the corporate issuer.<span style="mso-spacerun: yes;"> </span>An issuer with solid credit is unlikely to
default on the obligation.<span style="mso-spacerun: yes;"> </span>Having bonds
in your portfolio will help preserve your capital should the market suffer a
decline.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
You also should realize that in an election year, fiscal
policy and market behavior can have an impact on how your portfolio
performs.<span style="mso-spacerun: yes;"> </span>When election campaign
rhetoric is leading the charge, the outcome may be beyond your control.<span style="mso-spacerun: yes;"> </span>But you can control how you react, and having
a properly diversified portfolio is one way to counter the chaos.</div>
Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-33640441025297071052013-03-14T12:29:00.000-07:002013-03-14T12:29:43.452-07:00Reading the Tea LeavesAnyone invested in the market since pre-March 2009 has to be ecstatic - we've recouped our losses, and then some, on the Dow, and the S&P is not far behind. The bulls think it could go even higher, and bears, well, there will always be bears.<br />
<br />
While the economy is improving, as witnessed by the surprisingly high number for retail sales released this week and consumer sentiment on the rise, a high stock market doesn't necessarily signal strength. We maintain that investors seeking yield cannot get it in traditionally risk-averse areas like bonds, and are being forced to increase their portfolio's risk by chasing higher-performing stocks. <br />
<br />
Having drunk the Black Swan Kool-aid, and forever on the lookout for
what could trigger another one, I recently saw a piece on Briefing.com
that suggests we may want to monitor margin activity, particularly as it
pertains to managing risk. After all, if you see the black swan
circling, you have time to duck for cover.<br />
<br />
According to the report published March 11, 2013, January's margin debt was the highest since January 2007, and we all know how that year ended. Also, there is a $77.2 Billion <i><b>deficit </b></i>in the margin account credit balance, suggesting that meeting margin calls could be dicey. Further, the last time there was such a significant margin deficit was in the spring of 2011, just prior to a 19% correction.<br />
<br />
All of this suggests strong speculation in the market, fueled in part by increased confidence in the economy, but also signaling that there is a significant increase in market risk. Should there be something that comes out of left field that induces selling, then forced liquidation of stocks to meet margin calls (since cash is not available) could cause a sell off.<br />
<br />
Black swans don't come around all the time, but when they do, they can be deadly. Protecting your portfolio from that kind of shock means being willing to settle for lack-luster yields in what seems like a boring bond market. But it won't be so boring should the market suffer a correction. At the very least, some exposure to bonds will give you a safety net, and placing the equity portion of your portfolio in relatively safer dividend-yielding stocks is a smart way to position yourself for what could be a bumpy ride. <br />
<br />
You can read the full report at:<br />
<br />
http://www.briefing.com/investor/our-view/the-big-picture/margin-debt-rises-into-thin-air.htm<br />
<br />
<br />
<br />Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-30081636309036909302013-01-16T05:39:00.000-08:002013-01-16T05:39:49.463-08:00FrackNation<!--[if gte mso 9]><xml>
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While lunching recently with an old boyfriend (one of the few
liberals with whom I can engage in friendly political sparring), we were discussing
the ailing economy (on which we both agreed) and debating the merits of more
stimulus for the economy (on which we did not).<span style="mso-spacerun: yes;">
</span>He made, however, what I thought was a poignant observation, that our
country needs another “new thing” to get things moving again. While he and I
are destined to stay on opposite sides of the aisle, his comment resonated.</div>
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<br /></div>
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Harking back through our economic history, America has
experienced booms and busts throughout.<span style="mso-spacerun: yes;">
</span>The railroads, the roaring twenties, the influx of returning World War
II veterans and the demand for housing, products and services, the oil boom,
the dot.com rush, and the credit-fueled real estate market are but a few
examples. Each of these made millionaires out of mere minions (as well as
fattened corporate coffers).<span style="mso-spacerun: yes;"> </span>And each
was followed by a severe bust.<span style="mso-spacerun: yes;"> </span>We still are
suffering from the last one, leaving an overhang that we cannot seem to
shake.<span style="mso-spacerun: yes;"> </span></div>
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<br /></div>
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What does this have to do with finance you may ask (since
this blog deals with financial issues)?<span style="mso-spacerun: yes;"> </span>If we can unharness the gas companies and let them drill safely, it
could be as meaningful as the gold rush.<span style="mso-spacerun: yes;">
</span>Being the low-cost producer in any business is an important
advantage.<span style="mso-spacerun: yes;"> </span>The US has the potential to
produce and export natural gas, with untold benefits for the global
marketplace, and potentially rich returns for investors.<span style="mso-spacerun: yes;"> </span>Reducing our dependence on
foreign oil is one natural outgrowth.<span style="mso-spacerun: yes;">
</span>Slashing the cost of energy is another, as families struggle to pay
heating bills.<span style="mso-spacerun: yes;"> </span>Stories abound about the
economic boom in Williston, North Dakota, where jobs are plentiful and housing
scarce.<span style="mso-spacerun: yes;"> </span>There is even news for single
women:<span style="mso-spacerun: yes;"> </span>the ratio of available guys to
gals is 95:1.<span style="mso-spacerun: yes;"> </span>You go girl!</div>
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<br /></div>
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While I have no intention of moving to North Dakota, I believe,
as do others, that the burst in natural gas exploration and production could be
our “next best thing” and <span style="mso-spacerun: yes;"> </span>make the
mid-west the next emerging market (according to Jason Trennert, of Strategas
Research Partners LLP), with untold opportunities for global investment,
trading and profits.<span style="mso-spacerun: yes;"> </span></div>
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<br /></div>
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But not everyone agrees.<span style="mso-spacerun: yes;">
</span>Many media outlets have exposed the problems—primarily, water
contamination-- and the recently produced Gasland documentary is an example. Like
any hot debate, tempers flare on both sides.<span style="mso-spacerun: yes;">
</span>Fracking is the enemy of all who seek pure water and cancer-free
health.<span style="mso-spacerun: yes;"> </span>At dinner parties country wide,
lively discussions ensue on the need to curb corporate excesses caused by
irresponsible fracking.</div>
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<br /></div>
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There are others, however, who have a different opinion.<span style="mso-spacerun: yes;"> </span>FrackNation, a new documentary which I just
saw in Manhattan last night, depicts a distinctively opposite view, and every
responsible American should take the time to see it.<span style="mso-spacerun: yes;"> </span>While no one can deny, with a straight face, that
corporations have not always acted responsibly when it comes to the
environment, it is also true that having their collective feet held to the fire
has forced necessary changes in regulation and responsibility, with demonstrable,
concomitant changes in behavior.<span style="mso-spacerun: yes;"> </span></div>
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(Remember
the Hudson River, anyone?)<span style="mso-spacerun: yes;"> </span>One of the
funnier scenes in the film shows the mound of required tests and studies that
are required before a single drill bit can enter the ground.<span style="mso-spacerun: yes;"> </span></div>
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<br /></div>
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<![endif]-->Currently playing at The Quad Theatre on 13<sup>th</sup>
Street in Manhattan, FrackNation also airs next week on local TV.<span style="mso-spacerun: yes;"> </span>If, indeed, natural gas holds the potential for
helping us out of the economic doldrums, we all need to be informed. In
evaluating any investment, it’s imperative to calculate both the risks and
rewards.<span style="mso-spacerun: yes;"> </span>Go see FrackNation.<span style="mso-spacerun: yes;"> </span>It is rare to be given a chance to view both
sides of a hotly contested issue, and it’s a compelling antidote to the
hysteria surrounding the issue of fracking.<span style="mso-spacerun: yes;">
</span>Funded not with corporate dollars, but with Kickstarter, a grass-roots
funding program for creative projects, the less-than-$300,000 production price tag
was financed with investments of sometimes just a dollar by those interested in
getting out their side of the story.<span style="mso-spacerun: yes;"> </span>Go
to <a href="http://fracknation.com/">http://fracknation.com/</a> for more
information and to check local TV listings.</div>
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<div class="MsoNormal">
<br /></div>
<br />Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-39848910903104811662012-12-28T09:29:00.000-08:002012-12-28T09:30:09.675-08:00A Bright Star in a Cloudy SkyAmid the dysfunction of the pending Fiscal Cliff disaster, we can take comfort in seeing the beginning of a housing rebound. Finally.<br />
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As John Waggoner states in a USAToday.com piece, the housing market is by far the biggest economic stimulator out there. With mortgage rates hovering just north of 3%, buyers have a great incentive to take a leap of confidence and buy. Record-high rents, brought about by the understandable reluctance of consumers to buy into a falling market, are another push as demand is far outweighing supply.<br />
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Of course, it's not just about signing up for a mortgage. Even houses in pristine condition require some sprucing up, if only to reflect the buyer's individual taste in curtains, furniture and updated appliances. Come spring, buyers need lawn and gardening tools, and winter demands, at the very least, a snow blower. That is why Lowe's and Home Depot have seen share prices climb steadily since summer (although the Longshoreman's Strike, if it occurs, could cause prices to ease).<br />
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The Schiller Home Price Index, arguably the most often-watched housing indicator, and a significant data point reflecting prices nationally as well as in 20 metropolitan cities, recently registered 4.30, a level not seen since June 2010. While the southwest, particularly Phoenix and San Diego, enjoyed the highest rebound, New York and Chicago reflected lower annual prices, understandably, since those two markets did not fall nearly as far during the downturn. <br />
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Steadily improving employment, if the figures are to be believed, should contribute to the rebound.<br />
Now all we need do is hope that the Fiscal Cliff is nothing more than a bad dream, and that we will wake up on January 2 with the mortgage deduction still intact. Fingers crossed.Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-85478642428639650182012-09-07T07:19:00.002-07:002012-09-07T07:23:56.350-07:00The Grinch that Stole Jobs<span style="font-family: "Trebuchet MS", sans-serif;">We all know the upcoming election is about the economy - and specifically, employment, or lack thereof.</span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">Today's release is disappointing: while new unemployment claims are down, businesses still are not hiring. Our own fiscal house is not in order, and we all know what's happening in Europe. China's slowdown scares us. Conditions most likely will not improve until the beginning of the year, and some say that even 2013 could be tough.</span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">We aim to give credit where credit is due, but the drop in the unemployment rate from 8.3 to 8.1 is misleading.</span> <span style="font-family: "Trebuchet MS", sans-serif;">The labor force dropped by over 4 percentage points, from 63.7 to </span>63.5 - <span style="font-family: "Trebuchet MS",sans-serif;"><i><b>the lowest participation rate since 1981.</b></i></span> <span style="font-family: "Trebuchet MS", sans-serif;">In absolute numbers, that means that the number of employed workers <b>dropped </b>by 119,000.</span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">Companies clearly lack confidence, and only when it is restored will they be willing to invest. Capital equipment is one type of investment; hiring is another. This far into a recovery should signal significant gains in jobs. It's not happening, and while there is much blame to be shared, Washington's policies are up there.</span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">Investors are driving up the stock market in search of yield, since with QE3 threatened, they won't find it in bonds. High-quality, dividend-paying stocks are a good choice, and the market is reflecting it. If the economy goes into another recession (have we really come out of this one?), stocks of companies producing basic goods (food, energy) will hold their own.</span><br />
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<span style="font-family: "Trebuchet MS", sans-serif;">Now if we can just get a few more million people back to work... </span>Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-15473936196630808442012-05-11T06:39:00.001-07:002012-05-11T07:46:26.878-07:00The Great and the MightyYesterday's surprising admission from JP Morgan that it incurred a $2 Billion trading loss is stunning, so much so that $5 was lost on every single share. The media is abuzz about this snafu, not the least of which is that even "safe" banks, in an effort to hedge risk, screw up. Although $2 Billion, when compared to JPM's total annual revenue of $100 Billion, is a small percentage, to quote the esteemed Senator Everett Dirksen, "a billion here, a billion there, pretty soon you're talking about real money". And real money it may be, as the losses could increase by another $2 Billion before year-end.<br />
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While, granted, JPM was hedging risk on its own capital (rather than on bank deposits), it was doing so using derivatives on complex credit investments, similar to what banks were doing in 2008 that caused the meltdown. Shareholders still are picking up the tab. Despite Dodd-Frank and The Volcker Rule, there seems to be an absence of adequate risk monitoring. We appear not to have learned our lesson, despite the lingering fallout that has resulted in the ongoing Great Recession. Who's watching the banks?Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com1tag:blogger.com,1999:blog-8269644461276040046.post-62906957258235489962012-04-09T09:55:00.001-07:002012-04-09T10:05:47.367-07:00It's All About Jobs<span style="font-family: Verdana,sans-serif;">It had to happen - the euphoria about the economy improving paled</span> <span style="font-family: Verdana,sans-serif;">in the face of a less-than-stellar jobs report.</span><br />
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<span style="font-family: Verdana,sans-serif;">Yes, the numbers say the jobs picture is improving. But, investors recognize that it takes many, many more than 120,000 new non-farm payrolls to do so, especially when nearly twice that number had been anticipated. The disappointing news, coupled with the market's being closed on Good Friday, meant we had the weekend to lament the obvious: until more people are working, the Great Recession is not over.</span><br />
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<span style="font-family: Verdana,sans-serif;">Coupled with a sluggish outlook for corporate earnings - companies have slashed costs about as much as they can; real "organic" growth in revenue is anemic - and low first quarter GDP, investors are concerned. They register that concern by fleeing "risk assets" (READ: stocks) and opting for the safety of bonds. The 10-year Treasury note dropped its interest rate slightly, meaning it doesn't have to pay quite so much to attract buyers.</span><br />
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<span style="font-family: Verdana,sans-serif;">Obviously, one poor month of employment data does not a trend make, just like robust employment numbers the previous month did not. But, the next few months may be bumpy, and some analysts are expecting a 3%-5% decline. That may represent a good buying opportunity, as we now are close to February's closing level on the S&P 500.</span>Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-46923272585529445362012-03-15T12:24:00.000-07:002012-03-15T12:34:32.852-07:00The Greg and Mike Show<div style="font-family: "Trebuchet MS",sans-serif;">
Greg Smith's very public resignation from Goldman Sachs, via an op ed piece in the <i><b>New York Times</b></i>, has everyone talking while Goldman does double duty in damage control.</div>
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I interviewed Mike Mayo for the <i><b>Financial Times</b></i> to get his take (he wrote <i><b>Exile on Wall Street</b></i>, a 20-year account of the abuses he witnessed).</div>
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His comments are still spot on.</div>
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Here is the link to the <i><b>Financial Times </b></i>piece: </div>
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http://ftalphaville.ft.com/blog/2012/03/15/925871/mayo-on-greg-smith-and-the-abcs-of-change/</div>
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<br />Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-36296382036186631442012-03-14T06:33:00.001-07:002012-03-14T07:43:17.855-07:00Data DiveMy mother named me Merry because she wanted me to be happy - and I am. But not with the retail sales number released yesterday. We're all eager to see legs under the economic recovery, and none more than me. But when the market runs up and closes at its highest since the Great Recession began, partly because retail sales are up, looking at the data behind it gives me pause, as it should you, too.<br />
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Retail sales were up from a revised 0.6% to 1.1%. Sounds great. But, that includes higher prices for gasoline, and no one with a pulse thinks higher gas prices are cause for celebration. Gasoline sales were up a full 3.3%, clothing and building materials were up 1.8% and 1.4%, respectively.<br />
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A strong increase in clothing and building materials bodes well for a strengthening economy. Although I hate to be perceived as a modern-day Cassandra, furniture sales were down -1.2%, and general merchandise was down -0.1%. These last two data points don't inspire confidence that we're out of the woods. Coupled with rocketing gas prices and a still crippled employment market, things may not be as rosy as they seem.<br />
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I'll be the first to herald a strong economy - we're long overdue. But until real unemployment drops significantly, I'm less than sanguine.Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com2tag:blogger.com,1999:blog-8269644461276040046.post-23770295813601470212012-02-24T09:45:00.000-08:002012-02-24T15:39:55.771-08:00What a Guy!Last night I attended the New York Hedge Funds Roundtable and heard Mike Mayo speak. He is a banking analyst who maintains high principles and dares to speak out about companies who do not.<br />
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He just published "Exile on Wall Street", which chronicles his career as arguably one of the country's top bank analysts and perhaps one of the few who understands that his fealty must be to the clients who invest, rather than to the companies he was employed by who were most interested in seeking profits. It is a great read - especially for his honesty and willingness to admit when he was wrong (rarely) and not to gloat when he is right (frequently). His mantra: bank executives must be held accountable. When fat compensation packages accrue to management who've managed to drive the share price down, thereby hurting its investors, something is wrong. Very wrong. He names several.<br />
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I've written before about banks and how those at the helm seem not to be accountable for the errors they made and the financial losses they have caused. We the people are paying the piper.<br />
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Mike Mayo calls them out with truth and humor.Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-10361889428398989942012-02-15T14:19:00.000-08:002012-02-15T15:03:12.365-08:00The Devil's in the DataThe latest retail sales report should come as no surprise to anyone - despite the rosier picture painted by Washington, few appear to be buying it. Nor, it seems, are they buying much of anything. Instead, buyers are voting with their feet, and the results aren't pretty.<br /><br />Things like building materials, autos and furniture were hardest hit, dropping to barely a tenth of their combined December levels. Some try to suggest that retails sales are up, if you subtract gas, autos and building materials - which seems to be a crazy way of looking at it. After all, gas prices have risen steadily for several months, and most of America drives daily. Subtracting gas prices from overall retail sales is hardly representative of any economy, healthy or not.<br /><br />Food sales shot up to the highest level in months. But it may not mean necessarily that people are buying more. Rather, a more reasonable explanation could be that prices are higher, as nearly anyone who enters a grocery store - even Costco and Sam's Club - will attest. <br /><br />What the data signals is that we're still slogging our way out of this recession, and will be doing so for the foreseeable future. Until people get back to work, don't expect much to change.Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-90671869219854935402012-01-31T07:21:00.001-08:002012-01-31T07:25:31.298-08:002012 Market ForecastAs many of you know, I write a regular column for WomanAroundTown.com, a site that addresses women in NYC and Washington DC. Here is a piece WAT published on the outlook for 2012.<br /><br /><h2 class="post-title">Bull or Bear? The 2012 Market Forecast</h2> <p class="post-info noprint">Friday, January 27th, 2012<br /> by <strong><a href="http://www.womanaroundtown.com/author/merrys/" title="Posts by Merry Sheils">Merry Sheils</a></strong> on <a href="http://www.womanaroundtown.com/category/sections/living-around">Living Around</a></p> <div class="entry"> <p>We are hard pressed to find anyone who isn’t a bit more optimistic about the state of affairs this year than last. There are positive signs that the economy is beginning to pull out of the mud: corporate purchasing agents are buying slightly more products and services, so manufacturing is creeping up. The consumer seems more confident, or at least says so, since consumer sentiment just notched its highest level in a year. Even housing is beginning to move out of its mud hole. While it is much too soon to say we’re out of danger, at least we can peek out from the mud and begin to see some signs of life.</p> <p>With better news comes a panoply of outlooks, ranging from dire, to muddling through to, in a few cases, daringly optimistic.</p> <p>This year’s 2012 Market Forecast, sponsored by the New York Society of Security Analysts (NYSSA) an event I attend annually, was another sell out, as investors and those who work with them gathered to glean the wisdom of the sage. Vinny Catalano, who heads Blue Marble Research, put together an impressive panel of analysts, strategists and prognosticators, all of whom shared their wisdom, thoughts and, yes, a few fears, on what lies in store in this all-important election year.</p> <p>Before embarking on it, however, let’s see how well a similar panel did for 2011. Readers of this column may remember some of the forecasts from last year:</p> <p><strong>2011 Forecast vs. 2011 Actual</strong></p> <p><em>Corporate Profits:</em> $95 (forecast) vs. $98 (actual)</p> <p><em>Real unemployment rate:</em> 15% (forecast) vs. Still 15% (actual)</p> <p><em>Commodity prices: </em> higher (forecast) vs. most prices lower (actual)</p> <p><em>Wikileaks:</em> will be defanged (forecast) vs. appears to be (actual)</p> <p><em>S & P Index:</em> 1400 (forecast) vs. 1258 – didn’t move at all (actual)</p> <p>The S&P index was a huge disappointment in 2011. Corporate earnings performed, but the price/earnings multiple did not – rather than a projected 15, it was below 13. (Remember, the multiple reflects investors’ optimism regarding future earnings growth. A lower multiple suggests that investors are not very optimistic, and last year’s market close confirmed it).</p> <p class="post-img"><img class="aligncenter size-full wp-image-71326" title="broken euro photo" src="http://www.womanaroundtown.com/wp-content/uploads/2012/01/broken-euro-photo.jpg" alt="" /></p> <p>Even though the tone of this year’s conference was cautiously optimistic, there are different concerns, mainly, the Euro zone debt crisis and its spillover effects on us. And, for that matter, on China. Remember last year, when China was all the rage? This year, China presents cause for concern. According to Peter Bookvar, equity strategist at Miller Tabak 7 Co., LLC, “China’s cooling growth is compounded by the slowdown in Europe, since Europe is China’s biggest trading partner.” That’s as good a reason as any to be cautious – China is the largest holder of US debt, so we want them to continue to do well, at least while we are running such huge deficits.</p> <p>Will Europe default? While the Euro zone fall apart? “No”, said Mujtaba Rahman, an analyst with Eurasia Group’s Europe practice. “But there are big issues between Germany and the rest of Europe. If you look at Europe’s history, the current situation is unprecedented. If there is no resolution on policy, it will continue to ‘muddle through’”.</p> <p>Glen Reynolds, who runs CreditSights, Inc., commented that both banks and consumer balance sheets are stronger now, and that while corporations have the ability to spend, banks still are not lending, despite their capacity to do so. Why? “There is little corporate demand. Much of the lending we saw early in 2011 was for refinancing, rather than origination. At current capacity utilization levels, there is not yet a need for expansion”. He also commented that if Europe weakens further, US banks, as counterparties, could too. Let’s hope not.</p> <p>The best news appears to be the inflation outlook – in the range of 2%-3%, according to Phil Orlando, Equity Market Strategist for Federated. He also predicts $102 for corporate earnings, and while higher than last year, the multiple is lower. (The corporate earnings figure derives from adding all earnings for all 500 companies in the index and then applying a divisor to the equation.)</p> <p>By way of explanation, in previous years, the S&P index could be estimated by applying perhaps a 14 multiple to the earnings, or a 1428 year-end level, in this example (102 x 14 = 1428). Now, however, he suggests that 13 may be a more realistic multiple for 2012, or a 1326 level for the S&P by year-end (102 x 13 = 1326). The lower multiple again suggests that investors are less optimistic about future earnings. So, from today’s 1292, that represents a mere 2% gain. Not exactly robust, but in this economy, we’ll take it.</p> <p>Nearly all panelists agreed that utilities, consumer staples and health care will be strong performers as we move forward in 2012.</p> <p class="post-img"><img class="aligncenter size-full wp-image-71328" title="what's next photo" src="http://www.womanaroundtown.com/wp-content/uploads/2012/01/whats-next-photo.jpg" alt="" /></p> <p>The panelists also commented that 2012 has some unpredictable outcomes: the Supreme Court will hear the health care arguments, and there will be uncertainty in the markets. Also, while the panelists all agree that stocks are cheap, based on their fundamentals (earnings, cash position, debt levels), the 2012 election outcome is critical for fiscal policy and regulatory reform.</p> <p>And, to paraphrase Pepys, so to the election. Dan Clifton, who heads up the Washington office of Strategas Research Partners, LLC, noted why the South Carolina Republican race is so important. “South Carolina has picked the Republican nominee in every election since 1976”. As we go to press, the election results may be prescient.</p> <p>No matter who wins, the election’s outcome will give us certainty as to the regulatory landscape and taxes. There is ample debate on both sides of the aisle. Whoever wins, at least we all will know the rules. Then things can move forward. Nearly everyone agrees that the ongoing uncertainty is anathema to a robust economy.</p> <p>Sam Stovall, Equity Strategist at S&P, weighed in with some election thoughts. He tracked the historical stock performance during election years from 1948 onward, and had these comments:</p> <p>1) During an election year, the stock market offers an attractive intra-year entry point that is about 8% below the prior year’s closing level (READ: sometime this year, the market will probably drop 8% from the 2011 year-end close of 1258, to somewhere around 1157. That level should be considered a buying opportunity).</p> <p>2) In all elections since 1948, the January Barometer was accurate in forecasting positive calendar-year performance. As the saw goes, “As goes January, so goes the year.”</p> <p>3) 85% of the time since 1948, the market has accurately predicted whether the party in power remains. The critical period to watch is from July 31, 2012 through October 31, 2012. If the market is up during that 3-month period, the Democrats are in. If not, look for a change.</p> <p>This year, we won’t need to wait until January 2013 to know how the year will fare. November is only a little over 9 months away.</p> </div>Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-75301741063172757342012-01-25T08:13:00.000-08:002012-01-26T05:22:04.314-08:00Here's a Novel Idea - Making Banks PayEveryone who listened to President Obama's SUTU speech on Tuesday evening has something to say, as new programs were outlined and the expected backlash articulated. And, from the tenor of the early news shows, some did not appear to listen. Not all the programs involve increasing the deficit.<br /><br />One novel idea may have merit: making some of the largest financial institutions pay a small fee to help homeowners take advantage of record low interest rates and lower their payments. Heretofore, refi qualifications are so stringent that many applicants cannot qualify.<br /><br />The President stated, and rightly so, that "A small fee on the largest financial institutions will ensure that it won’t add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust.”<br /><br />It strikes me as equitable - we all know that banks made a bundle from packaging mortgages with dubious credit ratings that then were sold to institutions and individuals. A housing crisis ensued, with disastrous ramifications. People who then lost their jobs in the downturn could not sell their houses in this real estate market. Not all of these people bit off more than they could chew in terms of houses beyond their means. Many put down the requisite 20% or more, made payments regularly, have FICO scores of 800 or better, but cannot refinance. Those without a job are especially hard hit, and reducing their payments, just until they land, would be a welcome respite. Asking banks, who did much to create the current problem, to help homeowners get back on their feet seems appropriate.<br /><br />However, the bill has to pass Congress, so don't hold your breath. But, you may want to contact your Congressman.<br /><br />Bloomberg Business Week has an article that explains the proposal in greater detail. Here's the link:<br /><br />http://www.businessweek.com/news/2012-01-25/obama-pushes-proposal-to-streamline-refinancing-for-homeowners.htmlMerry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-88500107374697996642012-01-24T11:17:00.000-08:002012-01-25T05:24:36.153-08:00Fat Cat PaydayYesterday's Marketwatch.com has a piece on huge comp packages for executives at some of the largest companies receiving the bailout dollars. Gee, what a surprise. And what an outrage.<br /><br />The rationale, and I use the term loosely, is that executives who were not paid well would not stay at the institutions to shepherd them through the payback phase. So, it seems that Patricia Geoghegan, who represented the Office of the Special Master (of the Special Inspector General for the Troubled Asset Relief Program), was pressured by the US Treasury, no less, into granting these fat cats' wishes.<br /><br />49 different individuals received pay packages of $5 Million or more. During the worst economic downturn since the Great Depression, when real rates of unemployment are from 15% to 19%, depending upon whom you believe, it is astounding that the fear that top executives would quit drove such an egregious decision. Who are they kidding? Where would they go? Even now, most people with jobs are terrified of losing them. And a myriad others would be happy to work for a fraction of what these guys got.<br /><br />It's easy to understand the OWS movement - who's watching out for the little guys?Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com1tag:blogger.com,1999:blog-8269644461276040046.post-67972640049544983902012-01-12T07:25:00.000-08:002012-01-12T08:17:25.904-08:00The Book of JobsI can't take credit for this catchy title - it is a direct quote from a piece in the January 2012 edition of <span style="font-weight: bold; font-style: italic;">Vanity Fair</span> written by the eminent Columbia University's Economics guru, Joseph E. Stiglitz. I was so impressed with the piece that I want to share some salient points as well as the link: http://www.vanityfair.com/politics/2012/01/stiglitz-depression-201201<br /><br />While I'm not a Keynesian, i.e., proponent of government spending to cure recessions, Dr. Stiglitz appears to be as makes some important comparisons between our current Great Recession the Great Depression. He discusses a primary cause of the Depression as centered around the structural changes in an agricultural-based economy at the time. An agricultural revolution (improvements in farming techniques, better seeds, fertilizer and equipment) increased output, drove down prices and required fewer farmers. We all know the disaster that ensued in terms of declining incomes and jobs--our parents who lived through it never let us forget it. Nor should we.<br /><br />Today's economy has similarities in principal, as we move from a manufacturing to a service economy. About 1/10th of our workforce today is employed in manufacturing, versus 1/3 60 years ago, because of greater productivity (for example the Internet reduced the need for some employees) and globalization (sending lower-paying jobs oversees where labor is cheaper).<br /><br />World War II got us out of the Depression, which, in fact, was a massive example of government spending. According to Dr. Stiglitz, while we don't need another war, we now need something equivalent to that significant level of government spending because monetary policy is not working. Nor did bailing out the banks, because most of them stopped lending and many used that money for bonuses. The piece also suggests changes in tax policy and suggestions for a productive economy that focus on increasing living standards, rather than creating greater risk and inequality.<br /><br />Well worth the read, so don't be fooled by Lady Gaga on the cover.Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-31902320207333511072011-12-21T04:29:00.000-08:002011-12-21T10:53:10.901-08:00Political AcrimonyThe legislative debate on extending the payroll tax cut will garner much press today, as the Republicans are excoriated for getting in the way of helping out workers.<br /><br />Today's <span class="blsp-spelling-error" id="SPELLING_ERROR_0">WSJ</span> has an interesting op-ed piece by John B. Taylor, arguing otherwise. Among the points he makes is that a temporary tax cut does little to help the economy. When was the last time any of us made an investment decision i.e., buying a new house, based on having an additional couple of months' payroll tax to help with the cash flow?<br /><br />Uncertainty is the nemesis of investing, and consumers want to know what they will be paying in taxes long term before embarking on any major purchases. We are amazingly adaptable as consumers, so long as we know the rules.<br /><br />A sluggish economy will be with us, unfortunately, until we have a clear idea of permanent tax and regulatory issues. Businesses are reluctant to hire, citing weak demand and unpredictability. Demand will stay weak until consumers feel more certain about the economy. It's a vicious cycle, and something has to break for things to get better.Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com1tag:blogger.com,1999:blog-8269644461276040046.post-35512793948975837342011-12-08T05:02:00.000-08:002011-12-08T05:34:37.619-08:00Is the Unthinkable Upon Us?Today's <span class="blsp-spelling-error" id="SPELLING_ERROR_0">WSJ's</span> headline on planning for the demise of the Euro is sobering. Or is it? Touted as totally unthinkable just a few weeks ago, that leading institutions, including the august JP Morgan Chase & Co., already are suggesting that investors make contingency plans to protect portfolios says a lot.<br /><br />Investors are being advised to hedge against "possible adverse moves" (READ: a possible collapse of the common currency), even though the probability of said collapse is only 20%, according to <span class="blsp-spelling-error" id="SPELLING_ERROR_1">JPM</span>. When "euro zone disintegration" and the "collapse of Lehman Brothers" appear in the same sentence, however, it gives us pause. Or it should.<br /><br />Across the pond, the subject seems to be centered around how to print sovereign currency in the event of a Euro zone break up. <br /><br />But on this side of the pond, there may be a silver lining. A serious fall in the value of the euro signals strength in the US dollar. Although, if the global markets are in free fall, that may be scant comfort.Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-12053134621140748052011-11-28T05:41:00.000-08:002011-11-28T05:43:31.143-08:00Banks: Pass or Fail?<!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--> <p class="MsoNormal">Today’s Wall Street Journal has an op-ed piece about the ongoing calamity befalling banks, on the heels of the Fed’s announcement that a new round of stress tests is in the works to measure banks’ exposure to the Euro Zone disaster.<span style="mso-spacerun:yes"> </span>Included in the test is an estimate of revenues, losses and capital losses were there to be a market shock.</p> <p class="MsoNormal">Designed to give investors more certainty about the risks they face, banks and other large institutions, numbering 19 in total, must submit capital plans by January 9, 2012.<span style="mso-spacerun:yes"> </span>Banks are eager to pass the test so they can raise dividends, repurchase stock or be forced to raise more capital.<span style="mso-spacerun:yes"> </span></p> <p class="MsoNormal">The last three months, however, already have signaled a market shock, as measured by a severe spike in volatility, suggesting that investors are extremely nervous, if not quite yet in panic mode. The chart accompanying the piece in today’s WSJ shows volatility of bank stock prices at a level dangerously close to the level in the Great Depression.<span style="mso-spacerun:yes"> </span>Because banking depends on investor confidence, lack of said confidence causes investors to panic and pull out money, leaving the banks with little to lend.<span style="mso-spacerun:yes"> </span>Investors may be saying that banks are barely passing.</p> <p class="MsoNormal"> </p> <p class="MsoNormal"> </p>Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-20710868864053089622011-11-22T08:07:00.000-08:002011-11-22T08:13:47.444-08:00A pyrhhic victory?It seems the Super Committee isn't so super, after all - failing to reach compromise on the issue of what boils down to spending cuts versus tax increases, or some amalgam of both.<br /><br />Both parties in Congress have their respective axes to grind. But as business leaders know, the battle for successfully effecting a company's bottom line depends on growing top-line revenue while keeping a lid on expenses. In the throes of a deep recession, with record unemployment, spurring economic growth for job creation must be the priority.<br /> <br />What will continued high deficit spending mean? While some bemoan a further shaving of our credit rating, S&P and Moody's say otherwise. Only Fitch holds out. On the other hand, the credit rating agencies may not be the most reliable source of comfort and assurance, given their snafus of the past few months.<br /><br />While the current administration claims a sort of Pyrrhic victory in the debacle, <span style="background: yellow none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;" class="J-JK9eJ-PJVNOc"><span class="blsp-spelling-error" id="SPELLING_ERROR_0">bloviating</span></span> that now defense spending can be cut while entitlement programs remain intact in time for the ensuing election, the other side of the aisle is thrilled that at least for the time being, there will be no new taxes. Meanwhile, the recession grinds on, and an important opportunity to break the stalemate was missed.<br /><br />But the larger issue is lack of leadership. With our country's perceived economic prowess under <span style="background: yellow none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;" class="J-JK9eJ-PJVNOc"><span class="blsp-spelling-error" id="SPELLING_ERROR_1">seige</span></span> internationally, leadership at home is vital to maintaining our ability to attract foreign capital and create jobs.Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-59889676914797459852011-11-15T10:42:00.000-08:002011-11-15T11:12:37.091-08:00A Novel Unemployment SolutionWith FHA broke and begging for a bailout, it is interesting to note the success of the other bailouts. While some may argue that they kept the global financial system from cratering, that's only half the story. The other half is record unemployment.<br /><br />Many banks who received bailouts have kept the cash on their balance sheets, afraid to invest because of economic uncertainty. Although the companies look healthy, digging deeper suggests they could help solve the unemployment debacle by targeting 25% of the bailout funds for job creation. Of course, there's the ongoing argument that companies will hire when they see demand, but that begs the question. Hiring will <span style="font-weight: bold; font-style: italic;">create</span> demand, as the ranks of the once unemployed find themselves earning a living again and finally having cash to spend on the kids' school clothes, buy better groceries, travel more or simply spend a bit more than their barely eking out an existence fostered.<br /><br />If just half of the estimated 14 Million unemployed (or 7.5 Million) began working, at an average of $100,000, it amounts to $750 Billion. Isn't that about what the bailout cost? At least we'd be getting something for the money we taxpayers are on the hook for. If each newly employed person paid just 15% in taxes, ($112.5 Billion), we just may see some positive movement in bringing down the budget deficit, although not in time for the Super Committee's November 23 deadline. But maybe in time for Christmas.<br /><br />Just cutting costs won't make a corporation grow long-term. But, a disciplined plan for long-term growth will. So, which of the top money-center banks will be first to recognize they can create long-term shareholder value? And extend a helping hand to those who gave them one?Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-11818321649676909242011-11-14T11:02:00.000-08:002011-11-15T07:03:38.128-08:00EuropeSo Italy now has a new government, and all is well, right? Not so fast. Europe continues to teeter, and some of our banks are beginning to worry, and investors would be wise to pay heed. Morgan Stanley announced its exposure to Euro zone debt, and its shares lost 9% last week.<br /><br />With the demise of <span class="blsp-spelling-error" id="SPELLING_ERROR_0">MF</span> Global Holdings Ltd., investors want to know not only the<span style="font-weight: bold; font-style: italic;"> extent </span>of exposure to risky European debt, but also the <span style="font-weight: bold; font-style: italic;">nature</span> of exposure through hedges. Before the market meltdown, investors assumed that hedges, implemented through credit default swaps, were a protection. As the old saying goes, "once burned, twice shy", and now they are savvier. Why? Because the companies on the other side of the hedge, known as <span class="blsp-spelling-corrected" id="SPELLING_ERROR_1">counter parties</span>, could be vulnerable, and the somewhat limited level of disclosure outside our country compounds the problem.<br /><br />Even so, if Morgan Stanley is an example, investors are right to be wary. Morgan Stanley currently includes $1.9 billion of potential losses if the credit defaults fail in its $7.2 billion in gross exposure. Its share price reflects investor concern: down 26% since July 31, versus -11% for the S&P. It suggests that those hurt by the credit disaster 3 years ago have learned a valuable lesson.Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-957200363041072802011-11-07T09:07:00.000-08:002011-11-08T12:50:19.095-08:00Still Greece-y and a bit of Italian OperaSo now, despite surviving a confidence in Greece's parliament, Papandreou quits, the bailout package is back on deck, the Euro is saved, and all is fine. Or is it? It would seem not quite. Now Italy seems a bit shaky, at least if the 10-year bond rate of 7.5% is any indicator. Prime Minister Silvio Berlusconi is the leader in the headlines now.<br /><br />Investors looking for yield may think Italy's bonds to be a viable option. Option, yes, but viable, not so fast. Italy very well could be the next boot to fall. The Euro zone is far from solid, and anyone who doubts its impact here need but count the headlines describing our own volatile stock market in which tumult in Europe is cited.<br /><br />Stateside, our own markets are volatile, as we digest the MF Global debacle and the sudden appearance of $659 Million in an account at JP Morgan, amid news that Wall Street's profits are higher under the current administration than in the 8 years of George W. Bush's. Even so, Europe's woes continue to wreak havoc, as gold again climbs to 1800.Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0tag:blogger.com,1999:blog-8269644461276040046.post-58319580238088890392011-11-03T13:40:00.000-07:002011-11-03T14:01:37.744-07:00It's Greece to MeYesterday's surprise from Greece (it seems there is at least one each day) is for a referendum. Not just on the bailout, thinly disguised as a rescue package. The terms for the package include some severe cuts, and few in Greece are in favor of the bitter medicine they must swallow.<br /><br />Rather, Papandreou is risking his already-shaky career by asking his fellow Grecians, in effect, whether or not they still want to be part of the European Union. That could have some far-reaching ramifications. Words like "market panic" are being bandied about. The US market sell-off on Monday and Tuesday was part of it.<br /><br />Several months ago, several investment folks debated whether or not the EU would survive. Smart minds on both sides of the pond were fairly certain that it would remain intact. Now, some of those same souls are scratching their collective heads.<br /><br />The G 20 countries are in Cannes, amid much gnashing of teeth. All eyes are on Greece tomorrow, when the confidence-in-Papandreou vote will be held. His Pasok Socialist party controls a mere 152 seats in the 300-seat Parliament. But, he's savvy enough to recognize that unless he has the support of the Greek people, chaos is likely to ensue. Stay tuned.Merry'sSimpleFinancehttp://www.blogger.com/profile/03400158841453667022noreply@blogger.com0