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As of Sept. 18 money market funds are no longer govt-secured

Monday, September 21st, 2009 | Economics | Permalink | 1 Comment |

Reuters - Money fund outflows quicken as US insurance to end

BOSTON, Sept 17 (Reuters) - Investors stepped up their withdrawals from money market funds this week days before a federal guarantee to safeguard their assets expires on Friday, industry data show.

The outflows could sharpen scrutiny of how to regulate the funds, which now hold $3.5 trillion despite paying almost no interest of late. Investors took out a total of $55 billion from money market funds on Tuesday and Wednesday, far more than usual, Peter Crane, president of fund-watcher Crane Data LLC, said in an interview.

Tags: investing

Stock of bailed-out AIG up more than 200% this month

Thursday, August 27th, 2009 | Economics | Permalink | No Comments |

CNN - AIG stock up 274% in August:

NEW YORK (CNNMoney.com) — Shares of AIG were selling for $49.16 in midday trading on Thursday. At the start of the month, shares were at just $13.14.

What’s going on here?

AIG’s stock has nearly quadrupled in August, but the company is no closer to paying back the $80 billion it owes taxpayers.

AIG was up 27% today alone, closing at $47.84, despite the fact the AIG and other bailout recipients are pleading with Federal courts to not let the public know how much money government had to to give them to keep them from going bankrupt. And despite previous assertions that AIG was in a strong financial position and could pay back the government TARP funds, they haven’t paid back any of the money.

Google Finance AIG chart for August.

LATER: Here’s a distressing take on AIG’s future.

Today’s Wall Street Journal reported that AIG has changed its timetable for selling assets. That was to be expected, because if it sold its assets quickly, shareholders would get nothing, and the government would not get paid in full. It is also AIG’s probable future scenario, albeit the losses may be mitigated.

Benmosche’s own analysis shows AIG “wouldn’t be able to repay the government even if it sold everything.” His strategy is loss mitigation, not a return to AIG’s salad days.

Even the U.S. Treasury, not known for its transparency or candor during this crisis, wrote that its AIG investment is highly speculative.

AIG seems disappointed that its Asia focused life insurance unit, American International Assurance Co. (“AIA”), might only raise more than $5 billion as estimated last spring, especially since AIG valued it at $20-$40 billion in February 2009. AIG is also disappointed with valuations for American Life Insurance Co (“Alico”).

Yet despite AIG being worth less than zero its stock price is soaring. Welcome to Bizarro World.

Tags: bailouts, investing

Wells Fargo halts sales of leveraged and inverse ETFs

Thursday, August 27th, 2009 | Economics | Permalink | 1 Comment |

The other week I mentioned the dangers of investing in inverse ETFs and leveraged ETFs. Now Wells Fargo Advisors is “no longer permitting its advisers to sell leveraged and inverse exchange-traded funds through advisory accounts.” Link.

According to Minyanville other investment firms are either cutting back on activity surrounding those investment vehicles or eliminating them entirely.

Tags: etfs, investing

Harry Markopolos on the SEC and Bernie Madoff

Thursday, August 27th, 2009 | Economics | Permalink | No Comments |

“I am suggesting that if you flew the entire SEC staff to Boston and sat them in Fenway Park for an afternoon, that they would not be able to find first base.”
– Harry Markopolos

Madoff ran the biggest Ponzi scheme in history, but he never got caught. In the end he had to turn himself in. Markopolos is one of the SEC staffers who tried in vain to alert the agency to Madoff’s schemes.

Continue reading the rest of this post right here ›››

Tags: investing

More on leveraged and inverse ETFs, and natural gas

Thursday, August 20th, 2009 | Economics | Permalink | 2 Comments |

The other day I mentioned that inverse and leveraged ETFs (such as 2x ETFs) could be dangerous. I wanted to buy some natural gas stocks, which are crazy low right now. I looked at HOU and found this description:

Horizons BetaPro NYMEX Crude Oil Bull Plus ETF (the Fund) seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that correspond to two times (200%) the inverse (opposite) of the daily performance of the New York Mercantile Exchange (NYMEX) light sweet crude oil futures contract for the next delivery month. The Fund is managed by BetaPro Management Inc. ProFund Advisors LLC is the portfolio manager of the Fund. ProFund Advisors LLC serves as the investment adviser and provides management services to Horizons BetaPro NYMEX Crude Oil Bull Plus ETF.

That bolded part means it’s a 2X inverse ETF, which is bad joojoo. Chart from 2008 to present here. Note the January 2, 2009 reverse split - they had to convert five shares to one to increase the stock price and avoid delisting.

Instead I bought UNG. Chart from 2008 to present here. It’s currently trading right at its 52 week lows. Equities are way overpriced right now, but some commodities are crazy low and poised for a takeoff.

Tags: etfs, investing

Gates Foundation charity exits health care, pharma stocks

Wednesday, August 19th, 2009 | Health Care | Permalink | No Comments |

Wall Street Journal - Gates Foundation Sells Off Most Health-Care, Pharmaceutical Holdings:

The Bill and Melinda Gates Foundation, the world’s largest private philanthropy fund, sold off almost all of its pharmaceutical, biotechnology and health-care investments in the quarter ended June 30, according to a regulatory filing published Friday.

The Seattle-based charity endowment, set up by Microsoft Corp. founder Bill Gates and his wife, sold its total holding of 2.5 million shares in health-care giant Johnson & Johnson in the quarter, according to the filing.

The foundation also sold millions of shares in major drug makers, including 14.9 million shares in Schering-Plough Corp., almost 1 million shares in Eli Lilly & Co., 8.1 million shares in Merck & Co. and 3.7 million shares in Wyeth, over the same time period. The foundation no longer holds shares in any of those companies.

Among the other health and life sciences-related investments the foundation liquidated are Allos Therapeutics Inc., InterMune Inc., Auxilium Pharmaceuticals Inc. and Vertex Pharmaceuticals Inc.

The only life science-related holding the foundation retains is a 3 million-share stake in Seattle Genetics Inc.

Gee, can’t imagine why they’d do that.

Tags: investing

S&P 500 P/E ratio hits fresh record high

Tuesday, August 18th, 2009 | Economics | Permalink | 3 Comments |

The historical average Price/Earnings ratio for the S&P 500 is 14.7. After hitting 120 at the end of May and 134 at the end of June it now stands at a mind-boggling 144. That’s bad - it means the S&P 500 and by extension the stock market in general is wildly overpriced based on current earnings.

If the P/E ratio is so lousy why is the stock market so high? The most likely answer is that the stock market is being pumped up by loose money provided by the Federal Reserve. All of those billions and trillions of dollars have to go somewhere. Once all that liquidity leaves the stock market stocks are going to take a tumble.

Tags: investing

“Warning: Leveraged and Inverse ETFs Kill Portfolios”

Monday, August 17th, 2009 | Economics | Permalink | 3 Comments |

Morningstar - Warning: Leveraged and Inverse ETFs Kill Portfolios:

If you think ‘Morningstar is just too conservative,’ then please read any one of these articles from other sources here, here, and here. My intent is not to scare you away from pursuing an actionable investment idea. If you’re hell-bent on using leverage for any period of time longer than a day, you’d be better off using a margin account in almost any real-world scenario. This is not an opinion–it’s a highly likely statistical probability. And interestingly enough, each successive time you bet against the odds, probabilities tend to become mathematical facts. It is my fiduciary duty to inform you as to why these products do not work exactly like their names imply, and I urge everyone in the ETF industry to embark on a similar public awareness campaign.

And the problem is that while a real index tracks said index over any time period, the leveraged and inverse ETFs can only do so on a daily basis. Look what happens:

If you were to repeat 10 consecutive days of up 10% days followed by down 10% days, both of the leveraged funds would end up at $81.54, which is a sizable difference from the $95.10 the index would end at. Repeat this process for only six months, and your ‘investment’ in either of these leveraged funds would stand at only $2.54. Yes, that’s a 97.46% loss. Talk about tracking error.

Now I understand why people say that leveraged and inverse ETFs are intraday plays that shouldn’t be held overnight. Oh, well. This is one of those discoveries that makes me glad I don’t attempt short-term trades.

Tags: etfs, investing

California pensions loses 23% of assets, managers get millions in bonuses

Thursday, August 13th, 2009 | Economics | Permalink | No Comments |

Sacramento Bee - CalPERS, CalSTRS award big bonuses despite losses:

California’s two biggest public employee pension funds handed out millions of dollars in bonuses last year to their top executives and investment managers, despite losing billions of dollars. The biggest bonus check, $322,953, went to Christopher Ailman, chief investment officer of the California State Teachers’ Retirement System. It nearly doubled his base pay of $330,000 for fiscal 2007-08.

Ailman’s counterpart at the California Public Employees’ Retirement System, Russell Read, received a $208,677 bonus to his $555,360 base pay in August, more than a month after he had resigned from the fund’s top investment job.

Much has been said about private investment firms rewarding failure. Judging from above it isn’t just private companies that pay big bonuses even when they lose money. Government outfits do it, too. That doesn’t make it right, of course. It does suggest that there’s something to the notion of a perverse bonus culture inside the financial community that’s disconnected from reality.

Tags: california, investing

The stock market rally is being inflated by easy Federal Reserve money

Tuesday, August 11th, 2009 | Economics | Permalink | No Comments |

Any number of blogs I read have been saying that the recent stock market rally is based on nothing but loose money provided by the Federal Reserve to banks and other financial institutions. The stock market P/E ratios are crazy and the price increases are accompanied by tiny volumes. No one in their right mind would buy into this market unless they had lots of money lying around and nothing to do with it.

I’m amazed to see that even Reuters and CNN realize this is a rally built on cheap money provided by the Fed, just as the housing bubble was built on cheap money provided by the Fed.

CNN - Stocks: The latest Fed bubble:

Though liquidity is admittedly a nebulous concept, there’s no question that central bankers around the globe have poured huge amounts of money into the markets to ease the financial crisis. Given free money, investors’ appetite for risk shoots higher and they gobble up stocks.

But surely all the free, cheap money (”quantitative easing” is the central banks’ preferred term) won’t cause inflation, right?

Fed officials have stressed that they will start to unwind their financial support programs at the earliest sign of inflation. Given the cost of cleaning up after the last bubble, Becker writes that “this time, policymakers are unlikely to remain inactive should they suspect the formation of another asset price bubble.”

But it’s clear that bankers are loath to pull back on their support for the financial system before it’s clear the economy has staged a stronger recovery. And the Fed has a long and painful history of ignoring asset price inflation.

“The central bankers have this textbook belief that the only inflation is the kind that appears in consumer price indexes,” said Simons. “They don’t believe what they’re doing could cause an asset price bubble.”

But comparing the bankers with a driver pulled over for speeding for the umpteenth time, Simons said, “At some point, you have to say maybe your speedometer’s broken.”

Yep. See here:

Tags: inflation, investing, the fed