• Where the Hell is Beeks?
    Posted by on July 19th, 2010 at 1:22 pm

    A British financier named Anthony Ward recently bought a lot of cocoa—and by a lot of cocoa, I mean 241,000 tons.
    This is more than the entire supply of cocoa in Europe. It appears as if Ward is trying to corner the market, and cocoa prices are now at a 33-year high. Over the last two-and-a-half years, cocoa is up more than 150%.
    Thanks to Ward’s mega-buy, you’ll probably have to pay more for you next candy bar purchase.

  • Indian Court Rules that Hindu Gods Can’t Trade Shares
    Posted by on July 17th, 2010 at 11:49 pm

    ganesha.jpg
    Well, that’s cleared up.

    An Indian court has ruled that Hindu gods cannot deal in stocks and shares, after an application for trading accounts to be set up in their names.
    Two judges at the Bombay High Court yesterday rejected a petition from a private religious trust to open accounts in the names of five deities, including the revered elephant-headed god, Ganesha.
    “Trading in shares on the stock market requires certain skills and expertise and to expect this from deities would not be proper,” judges P.B. Majumdar and Rajendra Sawant said, according to Indian newspapers.
    The trust, owned by the former royal family of Sangli, in western Maharashtra state, of which Mumbai is the capital, brought the case after successfully securing income tax cards and savings accounts for the deities.
    But National Securities Depository Limited rejected the trust’s application for permission to open trading accounts, arguing that it would be difficult to take action against the gods in the event of irregularities.
    “Gods and goddesses are meant to be worshipped in temples, not dragged into commercial activities like share trading,” the judges said.
    Ganesha, also known as Lord Ganpati, is one of the most popular and well-known gods of the Hindu pantheon and is worshipped widely in Mumbai and Maharashtra.

  • Happy Friday
    Posted by on July 16th, 2010 at 6:26 pm

  • Minor Earthquake Hits DC!
    Posted by on July 16th, 2010 at 5:37 am

    I was woken up this morning by a very minor earthquake that hit the Washington, DC area. The USGS reports that it was a 3.6 quake and centered about 20 miles northwest of Washington.
    I’m fine but unlike a lot of West Coasters, I had never felt an earthquake before!
    Update: Here’s some of the destruction.

  • $1.07 a Share
    Posted by on July 15th, 2010 at 5:10 pm

    Goldman wins. They have to pay $550 million which comes to $1.07 a share.

    The penalty is the largest ever levied by the Securities and Exchange Commission against a Wall Street firm, the agency said in a statement announcing the accord today. Under the deal, Goldman Sachs acknowledged it made a “mistake” and that marketing materials for the instruments had “incomplete information,” the agency said.
    “This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” SEC Enforcement Director Robert Khuzami said in the statement.
    Goldman Sachs created and sold the CDOs in 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicles, the SEC said in an April 16 lawsuit. Billionaire John Paulson’s firm earned $1 billion on the trade and wasn’t accused of wrongdoing.

  • SEC To Have “Significant” Announcement on Goldman at 4:45 pm
    Posted by on July 15th, 2010 at 3:42 pm

    Shares of Goldie (GS) are up on speculation that they’ve reached an agreement with the Federales.
    When the news first came out three months, I was not impressed with the SEC’s case. I felt that at most, Goldman would pay a fine.

    Overall, I have to say that I’m not terribly impressed with the SEC’s case against Goldman Sachs (GS). Perhaps there’s more to it, but it seems pretty weak to me. My guess is that Goldman will eventually write a $200 million check to the feds, maybe less. To add some perspective, GS lost about $12 billion in market cap today. That could buy the New York Times (NYT) more than six times over.

    The day the SEC’s case was announced, shares of Goldman plunged from $184.27 to $160.70. I got several emails asking if GS was a buy. I said no. Fortunately, I got that right and GS fell as low as $129.50 on July 1. The stock has bounced back and it’s up again today. The outlook for the stock will be a lot better once this case is out of the way.

  • JPMorgan Profit’s Surges
    Posted by on July 15th, 2010 at 11:18 am

    Looks I got another one right. I said to expect a big earnings surprise from JPMorgan Chase (JPM), and that’s what we got. The bank earned $1.09 a share which smashed Wall Street’s consensus of 71 cents a share.
    The problem is that despite the earnings surprise, JPM’s business still has major weak spots:

    Chief Executive Officer Jamie Dimon, 54, said he isn’t satisfied with the results, even though they surpassed the most optimistic analyst’s estimate, because consumer lending charge- offs and late payments remain high. A 7.6 percent decline in revenue prompted Shannon Stemm, an analyst for Edward Jones & Co. in St. Louis, to question whether the profit report masked weakness in JPMorgan’s main businesses.
    “The results beat estimates by so much because of the large reserve release,” Stemm said. “Revenue fell quarter over quarter and year over year, largely driven by weaker investment- banking and fixed-income trading results, which were down because of the volatile trading environment.”

    Whenever a bank releases its earnings, there’s always a debate about quality. Are they properly reserved or not? You can do a lot by messing with your provisions for credit losses. Interestingly, JPM has been buying back stock but a dividend increase is still a ways off.

    Dimon said last month that it may be “too ambitious” to expect a dividend increase by the end of the year. Share repurchases may come first because they don’t have to be sustained like a dividend boost, he said.

    Yes, and share repurchases never have to be filled, just announced. I’m glad to see that retail banking is doing better, but considering how much effort the government has directed towards helping banks, the overall improvement isn’t very impressive. JPM could be a good buy soon, but not yet.

  • Small Investors and the Stock Market
    Posted by on July 15th, 2010 at 10:47 am

    Matthew Yglesias has a thoughtful post on the feasibility of democratizing the stock market. The celebrated Investor Revolution hasn’t been all positives for small investors as we’ve replaced defined benefit plans with 401k plans.

    The fact of the matter seems to be, however, that average people have no real ability to invest money in an effective way. I’m a pretty typical 401(k)-holder at this point—a college educated professional who has neither the time, inclination, or competence to do due diligence on the firms I “own” through my investment vehicle.

    If only Americans could somehow access free websites, “blogs” if you will, that provided excellent market-beating advice. Perhaps the government should subsidize these handsome, charming “bloggers” with untold millions.
    Yes, I’m in the oddball column since I actually enjoy this stuff but most folks simply don’t care what stocks do as long as they go up.

    The good news is that I know a person in that situation should invest in index funds rather than try to pick stocks. The bad news is that, per Salmon’s post, it’s not really possible to hedge yourself against tail risk this way.

    The obvious answer is that investors can sit out the market and invest in CDs or Treasuries, which are underrated investment. Or at least they were before the 10-year hit 3%, but then we get back to Matt’s point that small investors aren’t participating in the heart of capitalism which is stock ownership.
    Let’s remember that broad stock ownership is a relatively new phenomenon. The average American didn’t own stocks, they had savings accounts. The emergence of 401k plans came at the same time as the stock market boom which it naturally helped. The public and policy makers were spoiled by an 18-year boom in equities. Once that came to an end, well…then things don’t seem so easy.
    At the peak of the market in 1929, just 2% of Americans owned stock. During the Tech Bubble, it was closer to 50%. That’s a huge change. Even the idea of constantly rising capital gains is fairly new. Stocks used to bounce around their par value and then you’d wait to hear from the board what the dividend was. Now, dividends are dull and everyone puts pressure on management for higher equity prices.

    What’s more, the flipside of small investors not being able to manage our own investments in a sound way is that having small investors participate in the market can only serve to undermine financial markets’ role in providing corporate governance and allocating capital.
    Now defined-benefit pensions have declined in the private sector for some pretty good reasons. It’s both personally liberating and economically efficient for there not to be an expectation that you’ll work at the same place for decades. But the substitutes we’ve dreamed up—tax subsidies for middle class stock ownership—are regressive and don’t really make sense.

    He’s right. The stock market is a great place to invest but its inherent volatility is extreme for smaller investors. The Dow went nowhere from the mid-1960s until the early 1980s, plus an ugly bear market from 2000 to early 2009—that’s a huge part of a person’s post-retirement lifetime. A millionaire can handle it, but it’s very painful for younger investors.
    I really don’t know if there’s a good answer. If we give people more choices, that’s a good thing but we have to be prepared that they’re now make dumb choices.
    I worked in a brokerage firm with an account for a property management company. Each month, the manual laborers got a small deposit in their 401k from the company. And each month, they all took it out. It was a mockery of the system, but hey, these guys needed the money. They didn’t even know what it was but they knew one thing—it was their money.
    Personally, I’d like to see lower taxes on dividend income, but my argument isn’t one rooted in economic growth. Instead, I think it will reduce the market’s volatility and therefore be more conducive to small investors.

  • Ben Stein Watch
    Posted by on July 14th, 2010 at 9:13 pm

    I was checking out the Amazon.com listing for Ben Stein’s latest book, The Little Book of Bulletproof Investing: Do’s and Don’ts to Protect Your Financial Life. This seems to be the latest in the “Little Book” series.
    I haven’t read the book, but the Amazon review lists several do’s and don’t’s which the authors describe. One of them is: “DON’T give any weight to market forecasts. All opinion pro and con is already built into the price of equities today.”
    So the authors seem to be saying, “no, you can’t time the market” which somewhat conflicts with their previous book “Yes, You Can Time the Market!”

  • The S&P 500’s Six-Day Win Streak Comes to an End
    Posted by on July 14th, 2010 at 4:06 pm

    The S&P 500 plunged 0.0155% today. This was the first down day since July 2.
    In other words, the Double Dip is back on!
    (Yes, that’s sarcasm.)