New Money
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The Low-Down on Libor: Why its Surge Signals Desperation in the Credit Markets
Continue reading… 5 CommentsTurmoil in the credit markets has pushed Libor—the London interbank offered rate—to an all-time high, according to the British Bankers' Association.
So what exactly is Libor, and why is this significant?
Libor (pronounced LYE-bor) is an interest rate set in London each business day. It's the rate at which banks lend to other banks that need temporary funds, by way of the London interbank market. This benchmark is significant because it represents the rate at which the world's most preferred borrowers are able to borrow money, and it's also a widely used reference point for short-term interest rates.
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Campbell's Soup: Lone Survivor of the S&P Sell-off
Continue reading… 4 CommentsMarket got you down? In times like these, you can't go wrong with a warm bowl of soup. And in this economy, it doesn't hurt that soup is cheap.
Perhaps that's why Campbell Soup Co. was the only member of the S&P 500 that escaped the sell-off Monday. "The one thing you can afford to eat when you're destitute is soup," says Tom Sowanick, chief investment strategist of Clearbrook Financial in Princeton, N.J. "Silly as that may sound, if you have no confidence in your banking system and no confidence in the financial markets, the only thing you can have confidence in is the ability to build a bunker."
Campbell's shares (symbol CPB) rose 0.3 percent, or 12 cents, on Monday, to close at $37.75. By no means is this stock shooting out the lights, but it's up 23 percent since mid-January and has been on a steady climb since July. The company—which is also responsible for Pepperidge Farm, Pace salsas, and V8—announced last week that it's increasing its quarterly dividend by 14 percent, to 25 cents a share.
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Consequences of the Bailout Bust
Continue reading… 3 CommentsHere's a take on the market from Tom Sowanick, chief investment strategist of Clearbrook Financial in Princeton, N.J. Excerpts:
What do you see as the consequences of the rejected bailout?
The consequences are exactly as they were described in advance. We're having a financial panic, and just had the worst day of equity performance since 1987. I don't think it can last very long, in part because the devastation that will occur to financial assets will force some sort of a different type of intervention—I'm not even sure what that would be. It could be the Federal Reserve buying stocks outright or lending outright to industrial companies, not just financial companies—opening the discount window to all companies if there's no resolution soon.How will that shake out for stocks?
Stocks are getting to the point where value isn't important. We've taken some of these companies down to levels that are so inexpensive, they're actually frightening. That's when people start to panic. Nobody cares about value in this marketplace, just about safety. Right now, owning a T-bill and earning 0.29 percent sounds pretty good.What advice do you have for investors?
Do some serious homework on where you're doing your banking, where you're doing your brokering. If you're an investor, you have to take a long-term view. Oftentimes, you're much better served to enter the markets when they're as chaotic as they are now and start to establish positions. -
Wachovia Buyout: What It Means for Customers and Investors
Continue reading… 32 CommentsCitigroup's strategic acquisition of Wachovia will make Citi the largest U.S. bank by total deposits. But what will it do for Wachovia customers and shareholders?
Wachovia plans to sell its retail bank, corporate and investment bank, and wealth management businesses to Citigroup. The transition for customers should be seamless, the company said in a press release: "Customers of both companies should continue banking as usual and feel confident that their deposits are secure." The FDIC also assured continuity of service. It's unclear whether Wachovia will operate under its own name or the Citigroup name, the Atlanta Journal Constitution points out.
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On Diving Into a Down Market
Continue reading… 0 CommentsThis may sound counterintuitive to those who haven't had "buy low and sell high" drilled into their heads, but a down market signals a great time to invest.
Says Carmen Wong Ulrich, host of CNBC's "On the Money" and blogger: "Don't think you're diving into a pool with no water; what you're really doing is diving in and buying low," she says.
She adds, "You shouldn't look at [your balance] every day.... Try to understand that the loss you're seeing is what you have in your hand, but it's not disappearing."
Here's what she had to say specifically about 401(k)'s:
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What's Next for This Crazy, Mixed-up Market
Continue reading… 0 CommentsIf lawmakers cement a bailout deal soon, the market's likely to see a bounce on Monday. But then what?
Says Mike Avery, comanager of the Ivy Asset Strategy fund: "I think we're in a period where global growth—including U.S. growth—is going to be very slow for a long period of time, maybe for the next couple of years."
Avery, who runs a fund that invests in a combination of stocks, bonds, cash, precious metals, and currency, says he'll probably use the rally to get more defensive with "more gold bullion." He adds that "the equities we're sticking with I'd characterize as large-cap global brands—the Nestlés, Coca-Colas, and the Yum Brands of the world; companies that have clean balance sheets and the ability to self-finance through their own cash flow."
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Meet the World's Soon-to-Be Largest Candy Company
Continue reading… 0 CommentsAre you ready for the marriage of Wrigley's gum to the maker of Combos and Skittles?
Shareholders of the William Wrigley Jr. Co. (symbol WWY) just approved a $23 billion sale of the company to the privately held Mars Co., maker of such recognizable brands as Snickers, M&M's, and, of course, the Mars bar (interestingly, the company also owns the Pedigree and Whiskas pet-food brands). The deal, to be finalized in early October, will make Mars the world's largest candy maker—knocking Cadbury from the top spot. It also marks the end of more than 100 years of family control—including four generations of Wrigleys—over the gum empire. Dealbook points out that Mars, founded in 1911, is still run by descendants of its founder, Frank Mars.
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What the Buyout Means for WaMu Shareholders
Continue reading… 76 CommentsIn terms of what the Washington Mutual takeover means to regular people, the company's employees won't feel any immediate impact (they'll report to work as usual today), customers can still get to their cash, but shareholders will lose out.
Here's how it breaks down, according to the Seattle Times (WaMu is a Seattle-based company):
The $1.9 billion that JPMorgan paid for WaMu's operations will go into a fund overseen by the FDIC for WaMu's creditors. The only investors likely to get anything will be holders of WaMu's senior unsecured debt. With $7 billion of that outstanding, those investors are looking at a payout of around 27 cents on the dollar. Stockholders will get nothing, as will holders of more than $11 billion in WaMu subordinated debt and preferred stock.
Shareholders of the company's stock (symbol WM) already saw shares plunge from nearly $40 a year ago to $4 in early September. The stock dropped to $1.69 yesterday and was trading around $1.50 this morning.
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Reserve Primary Fund: Ameriprise, TD Ameritrade Customers Luck Out
Continue reading… 26 CommentsHelp is on the way for some money market investors: TD Ameritrade says it's going to put up $50 billion to make sure its brokerage customers who have money in the Reserve Primary Fund suffer no losses. A drop in the fund's net asset value last week left investors with less than $1 for every dollar invested. Meanwhile, Ameriprise Financial says it'll backstop losses with up to $33 million. The firms said those amounts represent the cost of making up the 3 cents per share their customers stand to lose (the fund's net asset value dropped to 97 cents a share last week).
TD Ameritrade reports that less than 0.5 percent of customers' holdings are in the fund (some of those clients posted in this blog's comments section this week). The firm also says that once the Reserve processes the TD Ameritrade redemption request, customers will see their cash return to their accounts. The Reserve halted redemptions on September 16.
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Warren Buffett Sure Has a Way With Words
Continue reading… 3 CommentsCorrected on 09/26/2008: An earlier version of this blog post should have said that the investment in Goldman Sachs was $5 billion.
I've been so entertained by Warren Buffett's quotes in the news this week. The Wall Street Journal reports:
On Tuesday, Mr. Buffett says, he was sitting with his feet on his desk in Omaha, drinking a Cherry Coke and munching on mixed nuts, when he got an unusually candid call from a Goldman Sachs Group, Inc. investment banker. Tell us what kind of investment you'd consider making in Goldman, the banker urged him, and the firm would try to hammer out a deal.
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Reserve Primary Fund Sends Goodyear Scrambling for Cash
Continue reading… 1 CommentIt's not just small investors who have their money locked up in the Reserve Primary Fund, which broke the buck last week when its net asset value dropped to 97 cents a share. Goodyear Tire & Rubber Co. (symbol GT) said in a press release Thursday that it will draw $600 million from its credit lines because it can't access more than half of its cash investments, which are tied up in the fund, reports Dow Jones. The Reserve Primary halted redemptions on September 16.
Although the company has been trying to pull its $360 million out of the Reserve Primary, the fund has delayed acting on Goodyear's request "because federal regulators have called for an orderly disposition of the fund's securities," says the WSJ. Goodyear says it's going to use the $600 million credit to support seasonal needs and enhance its cash liquidity (it maintains that its other cash investments are still accessible.)
Shares of Goodyear aren't in good shape. They've fallen from $30 at the end of September 2007 to just $16 at yesterday's close.
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Everything You Always Wanted to Know About Buffett (but Were Afraid to Ask)
Continue reading… 0 CommentsI've always liked Warren Buffett, with his unpretentious lifestyle (this gazillionaire lives in the same house he bought in 1958, drives his own car, unapologetically eats lots of steaks and burgers—hold the veggies—and has a thing for Cherry Cokes.) And you've got to love his candid observations. This morning, he told CNBC: "It's nice to have a lot of money, but you know, you don't want to keep it around forever...I prefer buying things. Otherwise, it's a little like saving sex for your old age."
Yes, he's a brilliant investor. But a soon-to-be released biography, The Snowball: Warren Buffett and the Business of Life, makes me like him even more as a person. The book, written by former insurance analyst Alice Schroeder, will be the first biography in which Buffett has taken part. "Whenever my version is different than somebody else's, Alice, use the less flattering version," Buffett told Schroeder, according to the book (the Associated Press obtained an audio version). Judging from the handful of snippets that have been released, the book reveals an even more endearing side of Buffett, and a very sad one.
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Pickens Loses $1 Billion on Oil Bets
Continue reading… 2 CommentsA setback for T. Boone Pickens: Funds run by the Texas oil tycoon and hedge fund manager have lost roughly $1 billion this year. That includes $270 million out of Pickens's own pocket, the WSJ reports. One hedge fund focused on energy was down nearly 30 percent through August, and the paper said a smaller, commodity-centric fund is down a whopping 84 percent. "It's my toughest run in 10 years," he told the Journal.
Crude oil prices are up by more than a dollar today, at nearly $108 a barrel. Pickens told the paper he thinks oil will finish the year around $120 or $125 a barrel.
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For a Moment, iPhone Steals G1 Google Phone's Thunder
Continue reading… 1 CommentGoogle may be rolling out its G1 phone today (here's a peek and some details), but Apple is generating buzz of its own.
Piper Jaffray analyst Gene Munster said late Monday that he thinks Apple—which doesn't report earnings until mid-October—has sold 4 million iPhone 3Gs (in addition to the 1 million it sold the first weekend it went on sale).
Munster raised his estimates of Apple's fourth-quarter earnings 13 percent to $1.17 a share from his previous estimate of $1.04 a share (more details here). Munster left his price target for calendar year 2009 at $250 per share.
The main number to watch, says Cnet, is 10 million—which Apple pegged as its 2008 target. "That number appears easily within reach if the 5 million estimate is accurate: Apple sold around 2.5 million iPhones during the first six months of 2008 as it ran out of the original model," Cnet says.
Apple's stock was up more than 3 percent midmorning. Google's stock was up just less than 2 percent.
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New Penny Shows Lincoln Reelin' in the Years
Continue reading… 42 CommentsGet your penny loafers out. The U.S. Mint rolled out four new designs for the penny yesterday, in honor of the bicentennial of Abraham Lincoln's birth (and the 100th anniversary of the production of the Lincoln cent).
Heads will still feature Lincoln's mug, but the tails side will capture four stages of Lincoln's life. The new coins will be issued in roughly three-month intervals throughout the year. The first, which will be put into circulation on Feb. 12, 2009, will represent Lincoln's birth and early childhood in Kentucky. The others will feature his formative years in Indiana, his professional life in Illinois, and his presidency. You can see the full lineup here.
The Los Angeles Times argues that it makes more sense to get rid of the penny than to redesign it, given that the cent can cost more than a cent to make. In other words, it has outlived its usefulness.
Do you agree?
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Money Blog Buzz: Lotto Sales Are Up, Bono's Investments Are Safe
Continue reading… 14 CommentsThis week's Carnival of Personal Finance linked to a handful of interesting posts, including How Wal-Mart Is Watching You and How to Leave the Workforce at Age 29 (The carnival also included my post on How Kraft's Entry Affects the Dow.)
Elsewhere, I enjoyed this rundown from RooshV on Credit Default Swaps for Dummies, and a couple of quirky links from the Kirk Report: Manhattan strip-club traffic is down and lottery sales are up.
And for those who were concerned, Infectious Greed reports that Bono's investments are safe. Whew.
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Ameriprise Suit Alleges Reserve Primary Fund Tipped Off Big Investors
Continue reading… 5 CommentsMore on the Reserve Primary Fund saga: Financial-services company Ameriprise Financial is suing Reserve Management Co., alleging it selectively tipped off big institutional investors about the troubled fund—leaving small investors in the cold. More specifically, the suit alleges that on the morning Lehman Bros. filed for bankruptcy—September 15—Reserve's agents notified a number of big-time investors that the fund held material exposure to the securities issued by Lehman and that the fund was at risk of "breaking the buck." Ameriprise says it filed the suit to "protect the interest of its retail investor clients." Clients of the company and its subsidiary, Securities America, hold more than 300,000 accounts in the Reserve Primary Fund.
Other brokerages that swept client money into the Reserve Primary include TD Ameritrade. Last week, an analyst with Friedman, Billings, Ramsey & Co. estimated that the Reserve's decision to cut the value of its shares could cost TD Ameritrade's customers as much as $100 million.
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Treasury Leaves Reserve Primary Fund Investors Hanging
Continue reading… 68 CommentsThe Treasury released more details Sunday about its guarantee to insure money-market funds against losses. Unfortunately for investors of the Reserve Primary Fund, Treasury said it will cover shareholders only for balances held in these funds as of the close of business last Friday (September 19). The Reserve Primary fund dropped below a $1 net asset value on Tuesday, September 16.
Over the weekend, scores of Reserve Primary Investors posted to message boards—including the comments section below—in search of answers, such as whether Treasury insurance would cover them. More details:
- The program will be available for one year.
- Tax-exempt money market funds—aka munis—are eligible.
- The IRS will release further details on the program, including what documentation fund companies will need to participate.
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Oliver Stone: <em>Wall Street</em> Was Right on the Money
Continue reading… 1 Comment"Greed, for lack of a better word, is good," proclaimed cutthroat corporate raider Gordon Gekko in the 1987 movie Wall Street. It's about time that the movie's director, Oliver Stone, weighed in on Wall Street's unfolding crisis. Here's what he told the WSJ's Washington Wire blog:
"The Gekkos of the world are still there," he added, castigating industry icons who have partied lavishly while mortgage corporations and establishment banks were tanking. "It was greed that drove this. Look at the greed, the size of it, the derivative schemes, the hedge funds..." He said he feels sorry for workers who lost their jobs. He said, "But it was inevitable it would end like this."
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The 10 Biggest Bankruptcies in History
Continue reading… 6 CommentsThis has been a week of superlatives. AIG: the biggest government bailout. Lehman: the biggest bankruptcy. Russia: the worst financial crisis since the country defaulted a decade ago (and now home to the world's cheapest stocks). What's more, the Dow Jones industrial average dropped to its lowest close in more than two years on Wednesday. And today, U.S. stocks rallied the most in six years.
Here's a list to cap the week off. The Consumerist posted a list of the 10 Biggest Chapter 11 Bankruptcies in U.S. History (culled from a CNBC slideshow and Bankruptcydata.com). Drum roll, please:
