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Archives for August 2013

False Downside Protection

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You don’t want to fall into the trap of using stop/losses. They look good on paper but not so much in reality. With a stop/loss you set a floor price for a stock. If it’s reached a sell order is placed. The problem becomes finding a buyer. Just because you place a sell order doesn’t mean there’s a buyer at your price. The eventual price you get may be far lower than the level you set as the floor. For the first time this year the Dow and S&P 500 have been down on four consecutive trading days and are down 9 of the last 11 trading days. Investors may think they’re protecting their downside … [Read more...]

Aviators, Regulators and Speculators

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After seven months of negotiating with the FTC, US Airways and AMR Corp (parent of American Airlines) have been told that the government will sue to block their merger. Remember now, American Airlines is in bankruptcy—right now. Now the merger will head to court, but it’s too late to undo the damage some shareholders have endured. Take a look at the drop in price for AMR shares over the last two days. That’s what can happen to speculators who jump into shares of dodgy companies. Shares are down 53% in two days. … [Read more...]

Bezos vs. Buffet: Billionaires’ Different Take on Media

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With the sale of The Washington Post, Warren Buffet has unloaded a large stake in a drowning media company. Taking it off his hands is another billionaire, Jeff Bezos. Buffet’s Berkshire Hathaway has been the largest holder of Post Co. shares since the 1970s and will receive $53.5 million of the $250 million buyout price for its stake. One might assume losing Warren Buffet, who runs one of America’s most profitable companies, as a major shareholder would be a burden on The Washington Post, but that’s simply not the case. With Bezos coming onboard, WaPo is getting a manager who is an expert … [Read more...]

Record Gold Demand in China Drives Prices Higher

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It turns out that among China’s 1.3 billion people, there are enough gold bugs to move the market. The newly affluent Chinese are driving a demand increase for the yellow metal. According to the South China Morning Post, China will overtake India this year as the world’s largest gold bullion consumer. The SCMP quotes Zhang Yongtao, vice-chairman of the China Gold Association, as saying, "We saw some frenzied buying following gold's rout in April and our preliminary estimate confirms that consumption reached about 137 tonnes, more than double a typical month. Chinese demand for gold will remain … [Read more...]

Fed: Money Printing Not Effective After All

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Five years after the initiation of the largest money printing campaign the world has ever seen, the Fed is finally coming to the same conclusion that many Americans reached years ago—pumping trillions of dollars of freshly printed money into the financial system does not create lasting economic growth. As we've argued on this site and in our monthly strategy reports regularly, quantitative easing does little for the real economy. It does unduly inflate stock prices and encourage manipulation, mispricing, and misallocation, but as far as creating economic growth? There is very little evidence … [Read more...]

Conflicting Advice

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An investment advisor is required by law to act as a fiduciary for his client. A stock broker, or “wealth manager” as they refer to themselves, are not. Brokers follow a less stringent “suitability” rule. The difference means that investment advisors must avoid conflicts of interest, whereas a broker should simply disclose them to you as this article points out. Make sure you work with an investment advisor. … [Read more...]

IMF Prescription: Borrow it Forward

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The IMF recently released an “annual check-up of the U.S. economy.” The prescription offered by the international organization was similar to its only prescription ever for economies, kick the can down the road. The IMF’s Deniz Igan calls the strategy, “Protect the fragile recovery,” but what that means is obvious. The IMF solution is to keep tax rates low (which we generally agree with if spending is controlled), and to keep spending as much money as possible. Oh, the IMF calls for deficit reduction, but only somewhere down the line when the economy can handle the shock “the bulk of … [Read more...]

Summer Job(less)

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Employment as a percent of the population is near 1970s levels. That's a lot of unused productive capacity going to waste here in the United States. Without a significant recovery in this ratio, don't look for rapid GDP growth anytime soon.   … [Read more...]