New Money
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Zombie Companies: Nightmare on Wall Street
Continue reading… 7 CommentsA curious investing buzzword (or buzz term) has been popping up on blogs and in the news lately: Zombie companies. Bernanke even used the word "zombie" yesterday in front of the Senate Banking Committee when he refuted charges that Citigroup and Bank of America--both candidates for nationalization--are "zombie banks," meaning they're essentially insolvent, according to the Washington Times.
Zombie companies are like animated corpses: they generate little or no profit for shareholders over extended periods and their shares are pretty much worthless. "They're just there," as Turner Investment Partners chief investment officer told MarketBeat.
For a better idea, check out the blog's frightful list of zombie candidates. They include AIG and E.W. Scripps.
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WG Trading Company: The List of Alleged Investing Scammers Grows
Continue reading… 18 CommentsFirst Madoff, then Stanford. The list of money managers accused of defrauding investors is growing: add honchos from WG Trading and Westgate Capital to the list. Again, one of my favorite Warren Buffett quotes seems pertinent: "Only when the tide goes out do you learn who's been swimming naked."
Bloomberg is reporting that two money managers from WG Trading Co. (based in Connecticut) were arrested for an alleged $550 million fraud scheme involving institutional investors and universities, and two other money managers were arrested this week for two separate securities fraud cases. One of those is the head of Westgate Capital Management, and the other was an associate of the WG Trading managers.
FINRA, the Financial Industry Regulatory Authority, thinks it time to roll out an investor alert: Avoiding Investing Scams contains something for everyone. Pick your scheme: Ponzi, pyramid, pump-and-dump, advanced fee fraud, and offshore scams. The paper also explains the psychology of scams and how fraudsters tailor their pitch to match the psychological profiles of their target (they do this by asking about your health, political views, family, and previous employers.)
The FINRA alert also describes the specific tactics scammers use, such as the "reciprocity tactic," in which they offer you a break in return for a big favor. For example, "I'll give you a break on commission if you buy now."
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15 Things You're Paying Too Much For
Continue reading… 3 CommentsThere are obvious ways you can cut back spending: avoid the $4 lattes at Starbucks (okay, the $3.25 latte, as the company insists). Go to the library instead of the book store. Ride a bike instead of driving.
Here's a list of mostly not-so-obvious things you can eliminate from BillShrink.com, a money-saving tips site:
- Pseudo health products. Think protein bars that cost three times more than candy bars, and offer about the same nutritional value.
- Just-released electronics. Technology prices come down substantially after new products have been on the market for several months to a year, says BillShrink.
- Bottled water. This is a biggie. Those bottles cost $2 or so each and many pile up in landfills. Meanwhile, the cost of tap water is pretty much negligable. If you can't bring yourself to drink tap straight, get a filter for under $20.
- Individual cups of coffee. Alright, this is along the lines of buying lattes and such. Brew your own fancy coffee at home. No coffee maker? Try a French press. You can get one for about $12.
- Prepackaged food. The cost of pre-made sandwiches, sliced fruit and veggies, and those cute little cups of Jello really add up. It doesn't take much effort to save here. Buy a loaf of bread and some peanut butter and keep it in your office. Think about it this way: wouldn't you rather save money for a nice restaurant meal than on a $7 wilted salad in a plastic bowl?
- Apple accessories. Because of its brand popularity, Apple's able to demand high prices on many aftermarket accessories, BillShrink says. If you can give up the name, there are plenty of manufacturers that make products compatible with Apple's MP3 players and other products.
- Sending faxes from a business center. Places like Kinko's charge $1 to $2 per fax, BillShrink notes, so consider a web-based fax service, for which you just need a scanner.
- Car maintenance at the dealership. Car dealerships are usually more expensive than regular repair shops, and they often claim that certain work can only be done at an authorized dealership. They're also less inclined to negotiate prices, BillShrink says.
- Music. Don't buy the album, just the individual songs you like. Pandora.com is a good way to set the mood with different types of songs along the same theme at parties.
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To Roth or Not to Roth
Continue reading… 3 CommentsWhen it comes to retirement investing, you have a lot more options than your parents did. Of course, you probably don't have a pension, but you do have plenty of choices: the 401(k), the IRA, its cousin, the Roth IRA, and even the Roth 401(k) in some cases. But how to decide which one? Let's start with the basics (assuming you already know how a 401(k) works):
Traditional IRA: When you put money into a plain-vanilla IRA (that stands for Individual Retirement Account) your contributions are not taxed. They grow tax-free until retirement, when they're taxed as income at the time of withdrawal.
Roth IRA: You pay income tax on the amount you contribute now, then take tax-free withdrawals in retirement. Think of yourself as a farmer, says Christian Cordoba, wealth advisor and principal at California Retirement Advisers in El Segundo, Calif.: "It's like paying tax on a seed and getting the harvest for free."
Roth 401(k): This is a hybrid between a Roth IRA and a traditional 401(k). One difference is that the contribution limit to a Roth 401(k) is higher than a Roth IRA. Another is that you can receive matching contributions from your company in a Roth 401(k). And in a Roth 401(k), you only get to choose from among your employer's menu of investment choices.
Whether you go with team 401(k) and traditional IRA or team Roth IRA and Roth 401(k) is a big decision. Some might call it a gamble: You need to weigh your current tax rate against what you think your tax rate will be in the future. So if you expect that you'll be in a higher tax bracket when you reach retirement, Roth is a good bet. But if you are making a ton of money now--and think your salary will likely be lower in retirement--you might want to delay taxes and stick with a traditional 401(k) or IRA.
It's not an either-or decision, though. Consider hedging your bets by contributing to both, says Cordoba. "Say you're putting $5,000 a year into a 401(k)--be sure to get the employer match--then it might be prudent to put another $5,000 into a Roth IRA so you have half of your money tax-free, and on the second half, you pay tax."
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Mardi Gras Parties On Despite Recession
Continue reading… 1 CommentSinking investments got you down? New Orleans has a solution: Mardi Gras!
"It's the perfect place to forget your problems and have fun!" (Those words are straight from the Big Easy.)
The price of beads has increased, krewe membership fees are up and corporate sponsorships are down, but Mardi Gras is still marching on, reports USA Today: This year, only three of the 49 parades in the area have been canceled (interestingly, the story says, Mardi Gras has only been canceled 13 times. Those included the Civil War and a yellow fever epidemic.) Bead store sales are picking up, and costume stores say it's business as usual.
If you do plan to go, the official site offers some helpful tips for party animals:
- Don't be sassy or contrary
- Don't get overly drunk, be obnoxious, or behave irrationally in public (ha)
- No risqué behavior elsewhere. In other words, keep it in the French Quarter--don't go crazy at the Popeye's drive-thru.
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The Oscars, Recession-Style
Continue reading… 2 CommentsOn today's Good Morning America, anchor Robin Roberts described this year's Oscar glitz as "toned down." Apparently, stars and designers had to make some tough decisions. Notes the Los Angeles Times, "It's a delicate balance to strike in a town not known for its restraint."
And let's not forget the viewers. InStyle magazine's fashion director told the LA Times (pre-Oscars), "Would you really want to tune in and see a bunch of women walking down the red carpet in black pantsuits?" he said. "It's a recession, not an apocalypse." The horror! The stars didn't disappoint last night, but they did acknowledge the recession in their own little ways:
-Accessories designer Stuart Weitzman, who usually adorns a lucky actress with $1 million shoes, decided it wasn't appropriate.
-Stars opted for "statement" pieces over going the head-to-toe diamond route.
-Vanity Fair went for a more "intimate" location for its annual party, and used decorations from past years' events.
But apparently Wolfgang Puck didn't get the memo. His menu for the Governor's Ball included 3,000 Oscars statues made out of smoked salmon and 6,000 made of chocolate. He told reporters it was essential to do it up and support Obama's stimulus plan.
One of the night's great lines came from host Hugh Jackman, who's also the star of the "Australia." He quipped: "“Because of the recession, everything is being downsized. Next year I’ll be starring in a movie called ‘New Zealand."
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Dow Below 7500...Oh, My!
Continue reading… 5 CommentsThe Dow has officially tripped another "psychological barrier," writes the AP. Today, the index busted through its November low, which many analysts hoped was the bottom of the bear market. In fact, today's close left the index languishing at its lowest since October 9, 2002, the bottom of the last bear market.
It seems like just yesterday that we were talking about how the Dow below 10,000 was a psychological downer.
What Real Time Economics is reporting is also a downer for those who were expecting a quick market turnaround: a survey of top executive don't think the economy will even start recovering before 2010.
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Despite the Economic Slump, Birthright Israel Trips Continue
Continue reading… 0 CommentsAlthough the global economy is currently a mess, young Jewish adults can still look forward to their likely once-in-lifetime free trips to Israel. Registration opened today at 9 a.m. Eastern time for Birthright Israel, an organization that sponsors 10-day trips to the country each summer and winter for those in the 18-to-26 age group.
The largest donors of the program are a group of philanthropists, followed by the Israeli government, according to the Institute for Global Jewish Affairs. The rest of the funding comes from various Jewish community organizations. Despite this hefty backing, Birthright Israel has run into a few "fundraising conundrums" and may not be financially indestructible, according to the Wisconsin Jewish Chronicle. In late December, Forward, a U.S.-based Jewish weekly magazine, reported that Birthright Israel might be unable to pay for thousands of summer 2009 trips due to the financial problems of its largest donor.
The average cost of the trip is about $2,300 per participant. In the institute's post about the program, Leonard Saxe, a professor of Jewish community research at Brandeis University and coauthor of Ten Days of Birthright Israel: A Journey in Young Adult Identity, said that it's remarkable that relative stability in costs has been maintained over the years.
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Stanford Financial Blow-Up: What Will Happen to Investors' Money?
Continue reading… 10 CommentsAcross the country--and even throughout other countries--investors of Stanford Financial Group are pounding on doors, demanding their money back.
According to this report, a SEC spokeswoman said it's too soon to tell if the CD investors will lose their funds--it may be a "somewhat timely" process--and that the commission has concerns that money may be lost. The story also says the SEC will have a web site up and running Wednesday to answer Stanford investors' questions.
Investors shouldn't get their hopes up just yet, though, according to one expert. The reason: Houston-based Stanford issued certificates of deposit through Stanford International Bank, which is based in Antigua.
Michael Gurland, co-chair of Neal Gerber Eisenberg’s White Collar Criminal, Regulatory & Internal Investigative Services Practice Group, says the fact that the bank is based outside of the U.S. complicates matters because offshore accounts make it more difficult for the SEC to enforce their regulations, according to Gurland.
Reuters is reporting that lawyers have not yet received documents determining whether investors are insured, and Stanford representatives are directing questions to the SEC. A class-action lawsuit has already been filed by a group of investors.
Updates to come.
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The Consumerist Gives the Scoop on Facebook Privacy Snafu
Continue reading… 2 CommentsIf you've logged into Facebook recently, you may have noticed a peculiar "Terms of Use" update at the top of your home page. It essentially says that due to user feedback over the past couple of weeks, the social networking site will return to its previous terms of use.
Like me, you may wonder what the previous terms of use contained.
Here's the scoop, courtesy of the Consumerist blog, which initially broke the story thanks to a reader tip:
"Facebook's terms of service (TOS) used to say that when you closed an account on their network, any rights they claimed to the original content you uploaded would expire. Not anymore."
How so?
"Now, anything you upload to Facebook can be used by Facebook in any way they deem fit, forever, no matter what you do later.* Want to close your account? Good for you, but Facebook still has the right to do whatever it wants with your old content. They can even sublicense it if they want."
So essentially, Facebook said, it could retain archived copies of your user content. Reportedly, the site updated the term of use on Feb. 4. -
How Long it Could Take to Get Your Portfolio Out of the Red
Continue reading… 0 CommentsNeed a little good news? Check out this nifty tool from the NYT, which calculates how long it may take for your investments to return to their peak levels.
What does the calculator tell me? I really need to keep contributing to my portfolio in order for it to move anywhere in the next 30 years (read more about my investments here and here.)
For anyone who enjoys financial calculators (maybe enjoy isn't the right word), check out this one on U.S. News: "What Will It Take to Reach Your Investment Goal?" It allows you to enter your primary investments, such as large companies, small companies, etc. And here's how to calculate how long it may take you to reach the millionaire mark.
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Stanford Financial: SEC Accuses Texas Firm of CD Fraud
Continue reading… 4 CommentsAs Warren Buffett once said, "It's only when the tide goes out that you learn who's been swimming naked."
Just two months after Bernie Madoff was arrested for allegedly running a $50 billion Ponzi scam, the SEC today charged Robert Stanford and three of his companies for defrauding investors through a CD program. The SEC says Stanford International Bank sold roughly $8 billion of "so-called 'certificates of deposit' to investors by promising improbable and unsubstantiated high interest rates."
Interestingly, Stanford suffered $400,000 in losses related to the alleged Madoff scheme, according to the NYT.
The commission said the CD rates were "supposedly earned through SIB's unique investment strategy, which purportedly allowed the bank to achieve double-digit returns on its investments for the past 15 years."
Reports say about 15 agents raided Stanford's Houston and Memphis offices today.
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2 Sectors to Keep an Eye On
Continue reading… 0 CommentsAccording to Citi's February 2009 "Small Cap Sector Snapshots," analyst Lori Calvasina thinks two sectors look compelling right now: technology and consumer discretionary (that last category includes things consumers spend on non-necessities, such as restaurants. Apparently companies like Chipotle and Buffalo Wild Wings have been somewhat successful in weathering this recession.)
Writes Calvasina in a note to clients:
Still Intrigued With Consumer Discretionary and Technology - We remain overweight these two sectors, where valuations look compelling and our economic models are continuing to climb higher. These two sectors also tend to outperform late in recessions, after broader markets have bottomed. Both have been outperforming YTD and since the November 20th, 2008 lows in equity markets.
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Michael Moore to Chronicle Wall Street's Meltdown
Continue reading… 5 CommentsFans of Fahrenheit 9/11 and Bowling for Columbine, get ready for your next Michael Moore fix. The controversial documentarian wrote on his website that he's in the middle of shooting his next movie and is looking for "a few brave people who work on Wall Street or in the financial industry to come forward and share with me what they know":
I believe there are a number of you who know "the real deal" about the abuses that have been happening. You have information that the American people need to hear. I am humbly asking you for a moment of courage, to be a hero and help me expose the biggest swindle in American history.
Read Moore's call for volunteers in its entirety here.
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Friday the 13th: Don't Fear the Market
Continue reading… 1 CommentOn Wall Street, Friday the 13th superstitions go way back. It all started when a Boston stockbroker published a book called--you guessed it, Friday the Thirteenth--about an evil broker attempts to bring down the stock market on that day, according to Time's brief history of Friday the 13th. Some traders even saw it as a sign that during 1987--the year of Black Monday--three Fridays fell on the 13th of the month.
Jason Zweig looks at the hard numbers today in his Intelligent Investor column: it turns out that on average, the stock market actually performs better on Friday the 13th.He looked at stock-market returns going back to 1885, and found that the market rose by an average of 0.02 percent a day. Since 2000, he says, the market has gone down by about the same amount, but Friday the 13th surprisingly delivered an average of 0.28 percent. Says Zweig:
In the 1990s, Friday the 13th kicked butt, generating more than five times the return of the average day in the market. Researchers used to think there was nothing in these daily variations but random noise...but now some theorists are wondering whether the fear of Friday the 13th may actually raise average returns for the day, over time. Superstitious investors, afraid of “tempting fate," might sell stocks that day, creating purchase opportunities for more informed buyers and causing the market as a whole to go up. Scholars have documented that such factors as seasonal affective disorder, the shift to Daylight Savings Time and even how sunny it is outside can all influence short-term stock returns.
The takeaway: Don't fear the market today (any more than you normally would).
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Will Gold Go to $1,000?
Continue reading… 2 CommentsGold is once again flirting with the $1,000-an-ounce level, as investors leery about the economic rescue plan flocked to "safe haven" investments this week. Gold futures ended the day near $950, the highest level in seven months. Many analysts believe the metal's price will continue its upward climb this year, including Leo Larkin, Standard & Poor's metals and mining analyst.
Larkin's thinking: low interest rates in the near term mean a lower cost for holding gold; meanwhile, increased volatility among currencies means greater demand for bullion: "In addition, we believe that gold production will remain stagnant for the balance of the decade, as old mines become depleted and are not replaced to the extent needed to lift output," according to S&P's The Outlook newsletter.
Still, regular investors should be wary of snatching up gold as a "safe" investment. The thing about gold, says Andrew Lo, Harris & Harris Group Professor at M.I.T. and director of its Laboratory for Financial Engineering, is that it exhibits tremendous volatility at times. The reality is that "investors are taking on a risky asset class...but thinking they're flocking to safety." -
Get Out Your Loafers: New Penny Debuts on Lincoln's Birthday
Continue reading… 3 CommentsCoin enthusiasts, rejoice. Today, the U.S. Mint unveiled the first of four new pennies depicting Abraham Lincoln reelin' in the years. The coins, produced to honor the bicentennial of Lincoln's birth (and the 100th anniversary of the production of the Lincoln cent), are the first redesigned pennies to enter circulation in a half-century. They'll debut as part of Lincoln's bicenntenial celebration held near his birthplace of Hodgenville, Kentucky.
Heads will still feature the 16th resident's mug and "In God We Trust," and the flip side will highlight a stage of his life. The first release features a picture of the one-room log cabin where Lincoln was born. The other three coins will be issued in roughly three-month intervals throughout the year and will depict Lincoln's formative years in Indiana, his professional life in Illinois, and his presidency. You can see the full lineup here.
The penny, which won't buy much--if anything--these days, has long been the target of a heated debate over whether to scrap it on grounds that it costs more to produce than its worth. What's your two cents?
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Analyst: Great Depression Comparisons Are Bunk
Continue reading… 19 CommentsLots of headlines these days are comparing the current economic crisis to the Great Depression--even Obama said in a speech this week that this "is an economic crisis as deep and as dire as any since the Great Depression." Morgan Stanley's global economics team begs to differ:
...the comparisons are misplaced. The GD lasted almost four years, with US real GDP and the price level falling by almost 30% and the unemployment rate rising to 25%. Importantly, the GD was due to a series of policy mistakes: monetary and fiscal policy were passive, and governments started a trade war. Now, monetary and fiscal policy are hyperactive, and a trade war will probably be avoided. The Fed allowed US money supply to contract by close to 40% during the GD as it didn’t rein in bank failures and was restrained by the gold standard and ideology. The GD ended when President Roosevelt abandoned the gold standard and stabilised the banking system. Now, central banks are pumping large amounts of money into the banking system and the economy. This, together with the coming fiscal stimulus, is the main argument against a repeat of the Great Depression.
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4 Ways Investors Can Play This Market
Continue reading… 0 CommentsAside from Treasuries and a handful of other asset classes, not much worked for investors in 2008. Hopefully 2009 won't play out like a bad sequel. In this week's The Outlook newsletter from Standard & Poor's, equity strategist Alexander Young lays out four investing strategies he thinks have the potential to deliver positive returns in this market (they may also reduce the volatility of an overall portfolio):
1. Investment-grade corporate bonds. Young says these bonds can boost the yield on your cash investments without adding too much risk. One access point: iShares iBoxx Investment Grade Corporate Bond ETF (LQD), which pays quarterly dividends quarterly and recently yielded 5.5 percent.
2. S&P "Dividend Aristocrats." U.S. companies with a history of raising their dividend payouts have historically delivered higher returns than their peers, Young points out. The S&P High Yield Dividend Aristocrats index tracks the 50 highest yielding companies in the S&P 1500 Composite index that boosted their dividends every year for at least 25 consecutive years. An ETF that tracks that index is the SPDR S&P Dividend ETF (SDY) It pays dividends quarterly and recently yielded 6.1 percent.
3. The U.S. Dollar. Quality rules in a down market. Young says the dollar has benefited from the so-called “flight to quality" Treasury buying, as well as the decline in overseas economies. "We believe the global recession and credit crunch will be with us for a while. This should help maintain a 'flight to quality' bid in Treasuries, which would offer further support to the U.S. dollar, as would continued international economic deterioration, which we think is likely," he writes. An ETF in this space is the PowerShares DB U.S. Dollar Index Bullish ETF (UUP).
4. Commodities. Global economic deterioration could drive commodity prices even lower, says Young, but the long-term outlook is compelling. "Our conviction is due in part to the much larger drop in raw material prices than equities in reaction to the global recession," he writes. The iShares S&P GSCI Commodity-Indexed ETF (GSG) is one way to play this idea.
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Bob Marley's Family Hooks Up With Private Equity Firm
Continue reading… 3 CommentsBob Marley's family just announced that it's partnering with private-equity firm Hilco Consumer Capital in a deal that would put Hilco in charge of licensing Marley's image. The company says it's considering everything from accessories and footwear to video games, restaurants, and even luggage.
According to the WSJ, Hilco invested some $20 million in exchange for half of House of Marley, LLC., which is a joint venture with the Marley family. On the agenda: cracking down on counterfeiters and selling the rights to make products under the brands Tuff Gong, One Love, Three Little Birds, Catch A Fire, and Relics of Antiquity. Also high on the list is rolling out a Jamaican beer called "Marley Lager."
Hilco's chief executive told the Journal that the Marley products could turn into a $1 billion retail business within a few years.
