• World War I Finally Ends
    Posted by on September 30th, 2010 at 2:29 pm

    This Sunday Germany will pay off the final installment of its World War I reparations.

    At the end of the First World War, the belligerents got together in Paris for a Peace Conference and subsequently signed the Treaty of Versailles in 1919. The French pushed hard to squeeze Germany for all they had—and then some. The Germans had to accept guilt for the war and had to cough up 226 billion Reichmarks in reparations. The U.S. never got any money since the U.S. Senate shot down the treaty which meant we didn’t join the League of Nations either.

    The countries that did get reparations already owed us so much, though, that we got money indirectly. The reparations figure was later cut back to 132 billion Reichmarks which is about $438 billion in today’s money. The Germans were allowed to pay off the debt with commodities like coal. They even gave up the trademark for aspirin which is why it’s spelled in lowercase today. The plan was to have Germany pay off all the reparations by 1988.

    The problem was that Germany couldn’t pay off that much and by paying it off the debt was actually hurting its ability to recover. John Maynard Keynes thought the terms were so over-the-top that he resigned from the British Treasury. On top of that, right-wing nationalist parties were making hay of the Treaty’s harshness. They even started the myth that Germany had been “sold out” by Communists or Socialists or Jewish bankers.

    Once the Great Depression started, everyone could see that the reparations could never be repaid. The Germans were so far behind on their repayments that it was turning into a joke. Hoover declared a moratorium. Then in the summer of 1932, Germany, Britain and France got together in Lausanne to agree to cancel the reparations. The U.S. didn’t go along. Interestingly, it was during the Lausanne Conference that the U.S. stock market reached its ultimate mega-bottom of 41.22 on July 8, 1932.

    Once Hitler came to power, he stopped payments all together. After Germany was reunified, they promised to pay off their reparations by the 20th anniversary of reunification which is this Sunday.

  • Michael Douglas got `whacked` in the stock market crash
    Posted by on September 30th, 2010 at 11:55 am

    Uh oh.

    Michael Douglas has admitted facing another crisis alongside his cancer battle – getting ‘whacked’ and losing almost half his money in the financial crash.

    The actor insists his tumour is ‘shrinking’ and refuses to even consider the prospect of not beating the cancer he is currently fighting.

    And he revealed he plans to take a year off to take wife Catherine Zeta Jones and their children around the world.

    But he also admitted to another crisis he recently faced when his dabbling in the stock exchange had a devastating effect on his wealth.

    ‘I lost 35 to 40 per cent of my net worth,’ Douglas says of the most recent stock exchange crisis that inspired his latest Wall Street movie. ‘I got whacked big-time – it was serious.’

    He admits that he had no idea what to do when the crash was happening.

    ‘I was the classic deer in the headlights,’ he said.

    ‘I didn’t know what to do with the advice I was getting. There were a couple of huge drops and it kept on going, and by the time you woke up the next day, people were down anywhere up to 60 percent of their net worth.

    ‘I knew a lot of people who lost everything.’

  • RIP: Q3
    Posted by on September 30th, 2010 at 11:05 am

    Today is the final day of the third quarter. Maybe it’s just me, but it seems like the third quarter has been going on since 1974.

    The good news is that the government revised the GDP growth number higher for the second quarter to 1.7% from 1.6%. As I said before, don’t be too impressed since this is for a time period that began six months ago and ended three months ago. When the original report came out in July, it said that GDP had grown by 2.4%.

    Overall, GDP continues to be dragged down by a widening trade deficit between the United States and foreign exporters, said Mark Vitner, senior economist with Wells Fargo.

    But the report did contain a small sign of hope for the recovery, he said: spending by both consumers and businesses was up significantly from the prior quarter, and investments in new equipment and software alone were up nearly 25%.

    “When you look into the details of the report, consumer spending and business investment actually ticked up,” Vitner said. “They’re not off the charts, but they are posting very solid gains. So in some ways the economy looks a bit firmer.”

    The Dow is now up for the year. Of the previous 68 years when the Dow was up after three quarters, it continued to rise 71% of the time and ended the year in the black 94% of those years.

    Our Buy List is having another market-beating day. I’m very happy to see that NICK has been as high as $9.60 per share today. The stock is up about four-fold from its low point two years ago.

  • Morning News: September 30, 2010
    Posted by on September 30th, 2010 at 7:32 am

    China Says U.S. Yuan Legislation Will Hurt World Economy

    European Stocks Fall on Irish Banking Woes

    AIG to Sell Japan Life Units to U.S. Pru for $4.2 billion

    Nearly One in Four Second-Quarter Home Sales a Foreclosure

    Thursday Look Ahead: Stocks Set to Close Out Best Quarter in a Year and Best September in 70 Years

    BofA Quant: 21 Dividend Growth Stocks We Like

    Did Peter Thiel Make The Single Best Investment In History?

    Metal Plaque Commemorating the Opening of the Canary Wharf Offices by Gordon Brown on 5th April 2004

    Guy on CNBC Says Farmers Are Driving Porsches in Peoria

    Going Beyond the Statistics: A Look at the $PHYS Premium

  • Former Swiss Finance Minister Speaks to Parliament on Spiced Meat Imports.
    Posted by on September 30th, 2010 at 12:21 am

    Geithner really ought to try this.

  • 68 S&P 500 Stocks Yield More than the Average Corporate Bond
    Posted by on September 29th, 2010 at 11:30 pm

    I really miss the Old Normal. Sigh.

    More than $600 billion have gone into bond funds since the end of 2008, according to the Investment Company Institute, a Washington-based trade group. That’s even as 68 stocks in the Standard & Poor’s 500 Index paid dividends exceeding the average corporate bond yield of 3.8 percent as of Aug. 31, more than at any time in at least 15 years, data compiled by Bloomberg and Charlotte, North Carolina-based Bank of America Corp. show.

    This means that there can be free money for a company to issue bonds and use the proceeds to buy back its stock.

  • The Death of Prop Trading?
    Posted by on September 29th, 2010 at 10:46 pm

    Wall Street screamed and whined and successfully fought to keep prop trading, but they’re not doing it so much anymore. Michael Lewis wonders why. He examines a few reasons: Wall Street has gotten religion (um, no), prop trading isn’t profitable (possibly), they’re still doing it (yes, just with a new name), none of the above or a combination of the others.

    And yet news of the death of the Wall Street prop trader has been greeted with hardly a peep. And I wonder: is this the nature of our new financial order? Big decisions, in which the public has a clear interest, being made outside public view, with little public discussion or understanding.

    If so, it isn’t a future at all. It’s just the past, repeating itself.

  • Tomorrow Marks the Low Point of the Presidential Election Cycle
    Posted by on September 29th, 2010 at 1:15 pm

    Tomorrow, September 30th of a mid-term year, is a big day. This marks the market’s historic low point during the Presidential Election Cycle. Historically, September 30th of the mid-term year is the best time to buy stocks.

    A few years ago, I crunched the entire history of the Dow from 1896 to 2007. Here’s what I found:

    Historically, the Dow has gained an average of 24.1% from September 30 of the mid-term election year to September 6 of the pre-election year. This means that nearly two-thirds of the Dow’s four-year gain (24.1% of 36.7%) comes in less than one-quarter of the time. That’s a pretty stunning stat.

    After September 6 of the pre-election year, the Dow has historically pulled back 5.2% to May 29 of the election year. After that, it puts on a nice 23.2% climb to August 3 of the post-election year. Then trouble starts. After August 3, the Dow then pulls back 5.6% and we’re back at our starting point, September 30th of the mid-term election year.

    By the way, if you take out some of the unpleasantness from 1929 or 1987, it doesn’t really alter the trend of the long-term chart terribly much.

  • Tomorrow’s GDP Report Isn’t Important
    Posted by on September 29th, 2010 at 11:54 am

    This going to be an interesting week for folks in the finance/econ stat biz. For one, Wall Street is about to close out its best September since 1939. Personally, I can do without the starting of major world wars.

    I’m happy to say that the Buy List is also wrapping up a great month. Through yesterday’s close, we’re up nearly 13% for September and we hit our highest close in four-and-a-half months.

    Tomorrow, the final GDP report comes out for the second quarter. This usually gets more attention than it deserves. The report will cover a period that began six months ago and ended three months later. The stock market usually focuses slightly forward, perhaps three to eight months ahead.

    On Friday, we’ll get the ISM index for September. Here’s the odd thing: There’s a decent correlation between ISM level and GDP growth so we might get a glimpse at Q3 growth. The correlation is around 40% which is far from perfect but it’s worth paying attention to.

    The past few quarters, however, have been a bit off-key. GDP growth has decelerated, meaning it’s still growing but the rate of growth has dropped over the last two quarters. That’s been one of the main drivers of the “Double Dip” thesis. I think the economy was impacted by problems in Europe much harder than people expected. The ISM has been fairly steady in the mid- to upper-50s. Normally, that signals growth of around 4%.

    If the economy has been growing that quickly, then we would now see some evidence in the jobs market. Unfortunately, that evidence has been sorely lacking. While there’s been some growth in jobs, it’s nowhere close to the kind of growth we normally see coming out of a recession. During the 1990’s, the economy regularly created huge amounts of jobs each month. We’ll get a look at the jobs market next Friday when the Labor Department releases its jobs report for September.

    Soon after that, earnings season will start. On October 7, Alcoa (AA) will be the first major company to report earnings. According to estimates, this earnings season will show a slight sequential decline from last quarter (meaning, Q3 earnings will be below Q2 earnings). I think estimates are just a bit too low, so that may mean there won’t be a sequential decline, but it’s hard to say right now.

  • Morning News: September 29, 2010
    Posted by on September 29th, 2010 at 7:25 am

    Savers Told to Stop Moaning and Start Spending

    After Recalls of Drugs, a Congressional Spotlight on J.& J.’s Chief

    BP to Create New Safety Division in Wake of Spill

    Stock Futures Point to Lower Open on Wall Street

    European Economic Confidence Unexpectedly Improves

    Barrick Says Gold Could “Easily” Exceed $1,500/oz

    Asian Shares End Mostly Higher; Tankan Survey Lifts Tokyo

    Food is the New Pharma: Nestlé Aims to Enter the Functional Foods Market

    Sometimes It’s Just a Black Duck