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Wall Street

Wall Street

Don't Ignore Meredith Whitney's Bullish Market Call

Meredith Whitney, the prominent banking analyst known for making aggressive bearish calls, just made a strikingly bullish call on U.S. stocks.

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When it Comes to the Facts and Figures, America is in Trouble

There are always at least two sides to every story.

That's true when it comes to trading (there's always a buyer and a seller). It's also true when it comes to politics.

But, just like in trading or investing, when it comes to politics, it's not about being "right" or "wrong." It's about distilling rhetoric and opinions down to facts and figures that can then (hopefully) be more objectively observed and used to fashion compromises that lead to winning positions, financially and socially.

I try to let the facts and figures speak for themselves and peel back others' opinions to get at what's really happening and why.

I change my opinions all the time, whenever there are new facts that warrant consideration. But in the end, I take a stance.

I'm telling you this because I'm about to lay out some insights and some indictments regarding the economy, Wall Street, and oil, and then delve into something that's so charged that some of you are going to flip out.

But before you do, remember, there are two sides to every story.

First up: poverty.

Just look at the numbers out this morning…

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Why There’s No Jail Time for Wall Streeters

Wall Street is a "protected" operation. Protected means cops are aware of illegal activity, but are paid off to look the other way and even protect businesses from potential harm.

So, if you're waiting to get back into the markets once the trash has been taken out, you're about to find out your wait may be a lot longer than you expected.

The scheming racket that too many aspects of Wall Street have become reminds me of an old Clint Eastwood movie.

It's the one where Dirty Harry goes into a porno shop with a hooker hotel above it and the thug behind the desk tells him, "You can't come in here, this is a protected joint."

But Harry sets him straight. "To them you're something," he says, "but to me you're just a maggot that sells dirty pictures."

While Wall Street doesn't sell dirty pictures, it does sell the prospect of a glossy future full of positive investment returns when their "products" are embraced, as in bought and sold– but mostly bought, for the investor's long-term good, of course.

In Wall Street's world, the beat cops are their regulators, including the SEC and the CFTC. Above them are the Federal Reserve and an untold number of politicians and legislators who pimp and pander on behalf of banksters by writing laws with loopholes so their donating "constituents" can always get out of jail free.

There are plenty of examples, but the mortgage-backed securities bubble and its related fallout is, to date, the biggest and most obvious example of how protected the Street is.

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The Seven Secrets You Need to Know to Keep Wall Street From Hijacking Your Future

One of the great things about vacation – in addition to all the time I get to spend with my wife and five-year-old son – is that I actually get to peruse the books and watch the movies that I spent the other 51 weeks of the year setting aside.

Don't misunderstand: I don't spend the week away from the office holed up and away from my family. Quite the opposite.

This year, in fact, the three of us rented a house down at the Delaware shore for a week in mid-August, and spent our days swimming, shopping, walking, and playing miniature golf and Skee-Ball. We ate Dough Roller pizza and even had some Dumser's Dairyland ice cream.

My folks said my little boy later described it as "the best vacation ever."

Even so, I did manage to find some "me" time that week.

Late in the week, after my tired-but-happy son conked out in my arms (smiling to the very last), and I'd tucked him in, I found time to watch two films about the U.S. financial crisis that I suspected would be worth talking about here.

Turns out I was right….

The movies in question are "Too Big to Fail" (2011) and "Inside Job" (2010). They both address the same topic – how the 2009 financial crisis nearly brought down the global financial system (a tacit warning that this could easily happen again). But they attack the topic in totally different ways.

The HBO-produced "Too Big to Fail" (TBTF) is based on the superbly executed best-seller of the same name written by journalist Andrew Ross Sorkin. The film adaptation is actually a scripted "docudrama" – with Hollywood actors standing in for the real people they portray (William Hurt does a great Hank Paulson).

The Sony Pictures-filmed "Inside Job" is a straight documentary, narrated by "Bourne Identity" trilogy star Matt Damon. It features interviews with such financial stalwarts as billionaire George Soros, former Fed Chairman Paul A. Volcker and super-economist Nouriel Roubini.

Both efforts were critically acclaimed: "Inside Job" was a hit at film festivals around the globe, while "TBTF" was nominated for 11 Emmy Awards.

What You Need to Know About Wall Street

Both films underscore some valuable lessons for investors – the same ones, in fact, that we consistently convey here. Key among them:

  • Wall Street is out for itself, and will vivisect anyone who stands between it and a big profit. That goes without saying, I know. But the thing that doesn't get said is that America's individual-investing middle class is the single-easiest (and single-largest) target for most of Wall Street's profit-making schemes.

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What I Learned About Making Money

Thirty years is a long time to be doing anything; but it's a short time if you love what you do.

And the time spent is even sweeter if you're making a lot of money doing what you love to do.

I'm very lucky. I've been trading for 30 years. I love what I do. And I make money doing it.

The truth is, I didn't know what I wanted to do when I was growing up (some people say I'm still not grown up, I say thanks). I wasn't handed anything. I didn't go to college right out of high school. I didn't know what I wanted to do. I didn't know what to study.

So I worked, I travelled, I adventured. But the operative word there is "worked."

Don't get me wrong, I'm not lazy, I never have been, but I don't like to work.

I came to that realization after being a caddy, then a lifeguard, then a construction laborer, then a not-so-great carpenter, a dishwasher, then a not-so-great cook, tarring roofs in Arizona (in the summer) and working three jobs (at the same time) when I wanted to live in California and moved to San Francisco.

Then it hit me – all this stuff is work, and it feels like work.

I thought hard about what I really wanted to do. Something that was work, but could become a career, and it had to be something that wasn't really like work, at least the kind of work I had been doing.

I didn't have any money, but I had a plan. I figured that the best way to make money (when you don't have any, but know it takes money to make money) is to make money with other people's money.

That's exactly what they do on Wall Street, so that's where I was headed.


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Just Another Summer on Wall Street

Another week slipped by on Wall Street, and it was a quiet one. For summer, that is.

And thank goodness. All the scandals, all the negative news, all the time, always something. I'm getting tired of writing so much.

It's my summer too, you know.

So, when my extraordinary good fortune led me into the company of a spectacular woman this past week, I escaped the Street reality, enjoyed the beach, the Hamptons… and did I mention a spectacular woman?

But just because I was out of touch (from reality) last week doesn't mean the surreal wasn't spilling out all over the Street.

Okay, so it was little stuff, but it's still stuff. And it's still surreal…

Like finding out that Vikram Pandit, CEO of that little banking outfit Citigroup, got paid more last year than the bank paid in taxes.

That's news you ask? No. Granted, we know that all those poor banks that suffered deep losses on account of a lot of sore-loser homebuyers who got the Street mantra wrong (it's "buy high, sell low," right?) won't have big tax bills for a while because they saddled the good-guy banks with huge tax loss carry-forwards.

Besides, Vik (can I call you that?) deserves it.

Can you imagine all the negative press he gets? He deserves more; I say give it to him and the other banksters who have to work so hard to keep their jobs while their firms don't have to work nearly as hard to not pay taxes.

And then I heard that Jon Corzine was thinking about yet another career move.

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How to Protect Your Portfolio Against One of Wall Street's Greatest, Best Kept Secrets

"Can't anybody tell the truth anymore?" an exasperated Bob J. asked me at a recent cocktail reception.

"Evidently not" I told him.

Bob had seen me earlier that afternoon on Fox News. I appeared on the show to respond to a new study on corporate earnings by Professors Ilia Dichev, Shiva Rajgopal of Emory University and John Graham of Duke.

The study found that a full 20% of publicly traded companies lie about their earnings.

The shocking thing is that the figure wasn't much higher. Twenty percent strikes me as abnormally low. Earnings manipulation is one of Wall Street's greatest, best-kept secrets and has been for years.

In fact, CFOs I've met over the years have told me they could routinely swing things within 5-10% of the target earnings per share (EPS) if needed – a figure in line with the one cited in the study.

But lie is a big word.

As I noted during my interview, there are all kinds of reasons why companies manipulate the numbers, beginning with the terribly flawed system itself.

As appalling as this thought may be, the system actually encourages this kind of behavior.

Under the current system, the law requires quarterly performance reports when many publicly traded companies actually operate in business cycles that are 1, 3, 5, or even 7 years long.

This creates a disincentive to report what's actually happening and an incentive to "lie" about the numbers or at least "fudge" them, depending on your perspective. And, the longer the business cycle, the more a company must make estimates about quarterly results with the risk, of course, that things don't turn out as management expects.

So while some companies may have lost their ethical and moral compasses, what they are doing is entirely legal.

Why Companies Lie About Earnings

Having spent more than 20 years in the markets, I believe the reason for this comes down to three biggies, for lack of a better term. Companies may "lie" to boost stock prices, smooth earnings and jack up compensation packages.

Virtually every publicly traded company draws on reserves and engages in all kinds of financial hocus-pocus in an effort smooth things out.

Take Boeing Co. (NYSE: BA), for instance.

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Will a Weak Facebook Earnings Report Open Doors for these Competitors?

We know investors will want a few key details from today's Facebook earnings report, like how much more user growth the site expects, if it can increase ad sales and how it'll tackle mobile usage.

But something people haven't questioned as much is if there are any competitors lurking in the shadows that could eat away at Facebook's online presence.

Turns out Facebook has reason to be concerned.

MarketWatch's David Weidner last week addressed some competition creeping into Facebook's world. In his article "Here's the app that could kill Facebook," Weidner detailed how an up-and-coming app could actually threaten Facebook's hold on social networking.

Tack this on to the list of reasons to avoid Facebook stock – in case you needed any more.

Path: A Facebook Threat?

The app in question is called Path.

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What the Moody's U.S. Bank Downgrades Mean for Investors

Moody's ratings agency issued five U.S. bank downgrades Thursday and a total of 15 cuts for global institutions, but markets shook off the news.

The ratings agency cited concerns about the stability of the global systems. Moody's said the banks are not as sound now as they were before the recent global financial woes and contagion.

"All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities," Greg Bauer, Moody's Global Managing Director, said in a statement Thursday.

Included in the ratings cuts were Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM).

Bank of America and Citi are now rated just two notches above junk status, while Morgan Stanley sits a hair higher at three notches above junk.

Moody's announcement came after the close Thursday, a rocky day for markets with the Dow Jones ending down 250 points and the Nasdaq lower by 71.

The cuts appeared to be a non-event in trading Friday. Shortly after the open, all three major indexes were modestly higher, with affected banks all in the green.

But Moody's U.S. bank downgrades could be a precursor to aggressive trading activity.

"It is a trading indicator that speaks to more volatility in the future for the banks as traders will be jumping all over earnings, derivatives moves, counterparty fears, correlation concerns, "negative watch" implications and regulatory impacts," said Money Morning Capital Waves Strategist Shah Gilani. "I expect the volume in financials to go higher as traders play them more and more."

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There's More to the IPO Market Than Facebook (Nasdaq: FB)

Admit it, you love the Facebook IPO (Nasdaq: FB).

Besides its $100 billion-plus stock valuation, the social media company has over 900 million active users worldwide.

Plus, at $16 billion, Facebook will go down as the second largest U.S. IPO ever, trailing only Visa's $17.9 billion deal in 2010.

But let's not forget, this isn't the first IPO that's gotten a ton of attention, and it won't be the last.

In fact, the hype surrounding Facebook stock is overshadowing the entire IPO market, clouding the big picture, and perhaps, some worthwhile investments.

So let's take a look at what else has been going on in the IPO market and what's coming up that deserves your attention.

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