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Posted
Jan 16 2008, 03:50 PM
by
Jon Markman
Rating:
Money Blog: Top Stocks Blog - MSN Money
During times of great volatility in the stock market, a lot of people will turn to high-yielding money market funds to stash their funds. Yet late last month, I wrote a column – “Your safe money might not be so safe” -- observing that in some cases, money market funds might not be so worry-free themselves.
I highlighted one money market fund at brokerage Charles Schwab -- Schwab Value Advantage Money Fund -- as an example of the type of fund that has in the past obtained a significant amount of its yield from investments in commercial paper issued by troubled banks’ structured investment vehicles.
Schwab spokesperson Sarah Bulgatz disagreed with my assessment of the fund. Here is her response:
“It is a mistake to imply that all structured investment vehicles (SIVs) have subprime mortgage exposure. In Schwab's case, our money market funds have no direct investment in subprime mortgages or collateralized debt obligations. We do hold a small percentage of highly-rated SIVs, but these SIVs themselves have very limited exposure to subprime. As of January 2008, Schwab’s taxable, non-government money market funds have less than 3.7% of their funds invested in SIVs, and these SIVs themselves have on average less than 1% of their investments in subprime. That translates into less than 0.04% of Schwab’s money market portfolios indirectly exposed to subprime. Since our money market funds are all managed similarly, the percentage of SIV holdings within each fund are close to the average. To say, as the column does, that "If you … keep cash in the Schwab Value Advantage Money Fund you have had a sub-prime time bomb ticking away in your brokerage account," is simply not true.
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Posted
Feb 19 2008, 04:38 PM
by
Jon Markman
Rating:
Money Blog: Top Stocks Blog - MSN Money
The slimmest sliver of hopefulness crept into the gloomy residential construction industry today, as the National Association of Home Builders reported that its index of market confidence has edged higher this month by a single point, to 20. But when you consider that anything below 50 on the scale is considered lousy, it’s plain to see business is still a world of pain.
Home builders’ stocks rallied on the news, signifying that investors may believe some sort of bumpy bottom is now being set in place. Yet it is evident that this is the consensus view, and the consensus has been bitterly wrong about housing for the past two years. So if you want to be a contrarian today, you actually have to expect home prices and home-builders shares will commence to fall from their already low level.
At the risk of sounding like a spoil sport, I actually think that this is likely. To be bullish on home builders as an investor, after all, you need to make two assumptions (and both have to be right): You need to believe that home affordability will materially improve, and that the inventory of houses for sale will materially shrink.
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Posted
Mar 20 2008, 12:09 AM
by
Jon Markman
Rating:
Money Blog: Top Stocks Blog - MSN Money
The big question on investors’ minds this week is whether the market has reached a major bottom following the Federal Reserve’s sensational attempt to rescue troubled brokerage Bear Stearns and slash short-term interest rates. It sure looked that way to many Tuesday after the big stock indexes soared by 4%. But Wednesday not so much, as stocks forfeited three-quarters of their gains.
So here’s the plain facts: You can only get a major bottom in stocks if the impulse to sell has been exhausted and if investors respond to lower prices with a powerful, sustained wave of buying. And the actions this week suggest that neither has occurred. Selling was clearly not exhausted Tuesday because sellers came roaring back Wednesday.
(Update: The market's gain on Thursday shows investors are hope the worst is over. But it hardly proves that stocks are cheap enough.)
The verdict is therefore clear: A major bottom in the market hasn't yet arrived. To understand why, consider what got folks excited Tuesday. The bailout of Bear Stearns might seem positive on the surface but it loses its allure when you stop and ponder the implications of the fact that the fifth-largest brokerage in the nation lost 95% of its value in a few weeks' time. And the three-quarter point cut in interest rates means the Fed believes the economy is in terrible shape. As if to put an exclamation point on this issue, on Wednesday Merrill Lynch, UBS and Lehman Brothers, all of whom had business models with similarities to Bear Stearns, were on the hot seat -- sinking in value by up to 11.5% and closing at lows. Investors thus collectively decided more shoes will drop, and the Fed cannot bail them all out at once.
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Posted
Mar 27 2008, 12:46 AM
by
Jon Markman
Rating:
Money Blog: Top Stocks Blog - MSN Money
If it seems like you are paying more for your cereal, beer and pizza lately, shake your fist in the direction of Pakistan, Uganda and Argentina, because a weird confluence of international events are combining to slash the world supply of wheat and boost prices. The downside of globalization is that a crop failure 10,000 miles away can lead to pricier brewskis here.
It's actually a lot more serious than that. The New Scientist magazine reports that a wheat disease that started in central Africa actually threatens to destroy most of the world wheat crop, leaving millions to starve. A fungus called Ug99 has already spread from Africa to Iran and is bearing down on Pakistan, according to the report. This is bad news because Pakistan and Punjab wheat is extremely important to the entire food chain of the densely populous plains of South Asia.
According to reports, scientists hope to slow the spread of Ug99 by spraying new forms of fungicide but the only real firebreak will come when agronomists are able to create Ug99-resistant strains of wheat over the next few years. The disease, which is said to be a super-strong strain of black stem rust, first came to light in Uganda in 1999 and has since ruined crops in Kenya, Ethiopia and Yemen. Now winds are expected to take the spores to Egypt, Turkey, Syria and Iran. Chinese scientists are said to be on a crash program to develop Ug99-resistant wheat strains before the disease ravages its already weakened croplands.
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Posted
Apr 03 2008, 05:53 PM
by
Jon Markman
Rating:
Money Blog: Top Stocks Blog - MSN Money
Bummed that you missed the skyrocketing advance of credit card vendor Visa when it debuted as a stock last month? The 50% move higher in the shares in the first few days paid for a whole lot of shopping sprees among shareholders, you can be sure -- and they could pay with cash, not plastic.
Well fret no more, because this crazy market is giving you another shot right now with the shares of the company behind a different credit card issuer: American Express. And the author of a brilliant new book about buying super-discounted stocks says this is one idea you should definitely not leave home without.
Vitaliy Katsenelson, a Denver portfolio manager whose cagey Active Value Investing was published last year, says Amex is one of the “cleanest” financial stocks you can buy right now, not to mention one of the cheapest. Its value is down, he says, because it is mistakenly lumped in both with banks and with companies that will suffer in a recession. He says that, to the contrary, Amex is in the virtually the same business as Visa and Mastercard, whose own shares are up a stunning 406% since they debuted in mid-2006: They just take fees from merchants and earn interest on cardholders’ balances.
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Posted
Apr 10 2008, 03:53 PM
by
Jon Markman
Rating:
Money Blog: Top Stocks Blog - MSN Money
Watch out, Texas! Get back California, Louisiana and Alaska! North Dakota and Montana are on track to knock all of you off your high horses as the oil capital of the United States.
According to a government report published today that has stunned the energy biz, a thin layer of rock known as the Bakken Shale, located a couple of miles under the Badlands, holds up 4.3 billion barrels of recoverable oil, making it the single largest oil reservoir that federal scientists have ever assessed.
At today’s price of $110 per barrel, that puts the value at $475 billion, give or take a few bill, or more than enough to make people think ND stands for North Dallas. Or maybe that’s New Dhabi.
The U.S. Geological Survey only assessed the Bakken Shale in U.S. boundaries, so the full extent of the find, which stretches north into the Canadian provinces of Saskatchewan and Manitoba, will ultimately be larger. Already the estimate for “technically recoverable” oil – or that which is exploitable using current technology -- is 25 times higher than the last time the USGS surveyed the area, in 1995.
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Posted
Apr 21 2008, 01:25 AM
by
Jon Markman
Rating:
Money Blog: Top Stocks Blog - MSN Money
Last week’s stunning 5% advance in the stock market is likely to have one consequence that credit-starved sensitive businesses won’t like: It has eroded the likelihood of further cuts in interest rates by the Federal Reserve when its Open Market Committee meets next week.
Despite a rise in joblessness, decline in housing activity and spate of bankruptcies, the futures markets and even dovish Fed governors are now expecting the central bank to stand pat for the first time in six months.
This is something of a shocker when you consider that the odds of a cut of a half percentage point were extremely high just two weeks ago. Now traders who bet on the likelihood of cuts don’t even consider it likely that the Fed will cut by a quarter of a percentage point. If the economy really is on solid ground now, just because stocks are up, it sure will be a surprise to businesses who are seeing more dramatic sales and profit declines than they can recall in years. We’ll learn more on Tuesday and Thursday mornings when existing and new-home sales data is released, and on Thursday afternoon when continuing jobless claims for April are released, but already the news from corporate America is grim.
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Posted
Apr 25 2008, 01:46 AM
by
Jon Markman
Rating:
Money Blog: Top Stocks Blog - MSN Money
Every frat house manager knows that if you want to end a party, you take away the keg. And that’s pretty much all you need to know about why the stock market is so sluggish this year.
The banks have sharply cut back on the credit they’ve allocated to hedge funds, making less money available to purchase stocks and bonds of all stripes. Less borrowing = less buying power. It's pretty simple.
The latest evidence of this action has come from reporters at the Financial Times, who say they’ve discovered that the most leveraged funds are now borrowing no more than five times their asset base -- down from at least 10 times their base six months ago. That means a $100 million hedge fund that was buying up to $1 billion worth of stocks a year ago now can only buy less than $500 million worth. That's a big difference.
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Posted
May 06 2008, 12:05 AM
by
Jon Markman
Rating:
Money Blog: Top Stocks Blog - MSN Money
If soaring gasoline prices are blowing a hole in your commuting budget, perhaps you ought to consider going to work for an oil company. That seems to be the employment road to riches these days, as the industry reportedly faces the loss of half of its aging work force over the next decade.
According to a report by Cambridge Energy Research Associates, the energy industry will lose as many as 15% of its engineers in just two years to retirement, and has therefore launched an all-out assault on finding, training and retaining new young staffers. It sounds like the boom in demand for software developers in Silicon Valley in the '90s. Bonuses and perks are escalating as companies vie for talent. Report author Pritesh Patel said new workers will stream into the industry from around the world, but there will still be a “knowledge gap” that will hamper efforts to find and exploit new oil and gas reserves.
It sounds like this is a better direction for college graduates to head than the traditional havens of medicine and law. The Society of Petroleum Engineers has published a survey that shows the average base salary for petroleum engineers was $122,458 in 2007, up 5% from 2006. Bonuses, housing allowances, retirement plan contributions and the like reportedly push the average compensation to $167,712. All this at a time when doctors and IT pros are facing cutbacks.
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Posted
May 22 2008, 10:30 AM
by
Jon Markman
Rating:
Money Blog: Top Stocks Blog - MSN Money
It’s a sad commentary on our times when the strongest growth in the financial sector is coming from companies that specialize in debt collection. But what do we expect when wages are flat, inflation is rising, mortgages aren’t being paid and people are forced to decide being paying their Best Buy bills or buying gasoline for the commute to work.
We’ve got something like 6,100 debt collection companies in the United States now, and they are rapidly adding more Americans to their speed-dial lists. In the past year, companies in the industry have bought something like $140 billion worth of delinquent debts, which is more than double the amount they bought as recently as eight years ago.
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