Category

Wall Street

Buy Timber Stocks and Watch Your Money Grow on Trees

Chances are you've never considered timber stocks in your investing strategy.

But if that's the case, then you've been missing out.

Timber is a long-term investment that can reward your portfolio in good times, and protect it in bad.

In fact, investing in timber has proven to be more profitable – and less risky – than any other asset class for almost 100 years. Investing in timber stacks up well against stocks, bonds, oil and other commodities-even gold.

Here's why…

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High-Frequency Trading Could Cause Another Flash Crash

The threat of another flash crash caused by high-frequency trading is as great as ever.

And the next flash crash could be much worse than the one that shocked investors in May 2010.

Although the Securities and Exchange Commission (SEC) has taken some steps to prevent another flash crash caused by high-frequency trading (HFT), some experts question whether the additional disclosure and "circuit-breakers" designed to prevent big, sudden price moves will make a difference.

"Those things won't prevent another flash crash – they can't," said Money Morning Capital Waves Strategist Shah Gilani. "All they will do is soften the move."

The real issue, Gilani said, lies with the computers that execute the trades – thousands of them in milliseconds.

HFT has changed the nature of the stock market since these trades now account for between 60% and 70% of the transactions on the U.S. stock exchanges.

"You can't stop a flash crash unless you stop the computers from doing what they're programmed to do. And that's not being addressed," Gilani said. "The SEC is looking at keeping the ship from sinking, not stopping it from hitting icebergs."

HFT's heavy volume and high speed made it the prime suspect in the flash crash of 2010, when the Dow Jones Industrial Average plunged more than 600 points in five minutes, before recovering almost as quickly.

Mini Flash Crashes

Since then, the frequent occurrence of mini flash crashes – when a single stock or exchange-traded fund experiences a steep and rapid drop in price that quickly reverses – have served as nagging reminders of the vulnerability of the system to such events.

"It's like seeing cracks in a dam," James J. Angel, professor at the McDonough School of Business atGeorgetown University told The New York Times. "One day, I don't know when, there will be another earthquake."

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Three Luxury Companies That Can Bring You Closer to the Good Life

A lot of consumers are hurting right now, but you wouldn't know that looking at the earnings of major luxury companies.

Many luxury companies like LVMH Moet Hennessey Louis Vuitton SA (PINK: LVMHF), Burberry Group PLC (PINK: BURBY), Hermes International SCA (PINK: HESAF), and Coach Inc. (NYSE: COH) had a stronger-than-expected 2011 campaign.

Better still, they're set to expand on that success this year.

U.S. sales are regaining momentum and emerging markets – led by China – have been an outright boon for luxury companies.

Although you may not have realized it, China is now the world's second-largest market for luxury goods, behind Japan. And it could become the largest as soon as this year.

China's National Statistics Bureau says that there are now more people living in the country's towns and cities than in the countryside – making China a predominantly urban nation for the first time in history.

Worker pay is rapidly rising in China, with officially mandated base wage minimums up an average of 22% in 2011. And a new class of workers as well as a wealthy elite are driving luxury sales globally.

Two good examples of this are Burberry and Compagnie Financiere Richemont (PINK: CFRUY).

Luxuriating in Success

Burberry, the U.K's largest luxury-goods maker, reported third-quarter sales that beat analysts' estimates, and said it sees no reason to change full-year forecasts even in light of a "challenging" economy.

Burberry's revenue in the three months ended Dec. 31 climbed 22% to $882 million (574 million pounds). Asia-Pacific sales climbed 36%, while sales in Europe surged 20%. Sales rose 4% in the Americas and 31% in the rest of the world.

The company said it can weather any fallout from Europe's sovereign-debt crisis because Chinese consumers will help offset losses.

Chinese customers alone account for 10% of Burberry's total sales.

Swiss-based luxury goods group Compagnie Financiere Richemont also has benefited from China.

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Don’t Be A Wall Street Patsy

You want to know the truth? The truth is that Wall Street has stacked the deck against you.

That's why you need to understand how the game is played. Otherwise you'll end up a Wall Street patsy.

So, here's the truth along with some lessons that will help you play the game like a pro.

First, though, we'll need to debunk a few myths…

Let's start with the myth that the Street lowered brokerage charges for the benefit of retail investors. At one time, these fees used to be obscenely high and fixed.

But, on May 1, 1975, fixed commissions were abolished after brash upstarts like Charles Schwab and disgruntled investors decided to attack The Street's price-fixing schemes.

The negotiated commissions regime that followed lowered the cost of access to the stock market, essentially ushering in the era of the "individual investor."

The influx of these individual investors, many of whom didn't have enough money to create diversified portfolios, soon became a boon for mutual funds – which have since grown like weeds in an untended sod farm.

Wall Street Changed the Game

Since the commission business was no longer profitable, Wall Street moved its retail business to an "assets under management" model.

So instead of making money on commissions the game changed to gathering as many assets as you could into a retail investor's account and charging a fee to "manage" them; in other words, just watch them.

That's one of the reasons why Wall Street advocates a "buy and hold" strategy for retail investors. They don't want you to take those assets away from them.

It's the same thing with mutual funds.

And conveniently, if your broker puts you into mutual funds that are losers, it's not your broker's fault.

Now, it's the mutual fund manager's fault. That way the broker can't be blamed if your account loses money.

Instead, your broker can tell you, "Don't fire me, let's fire the mutual fund manager and let's find you a better fund to invest in. But, no matter what happens, we need to buy and hold and not try and time the market."

That's what retail investors are told to do over and over and over again.

But guess what? That's definitely not what Wall Street firms do.

In fact, while you're being told to buy and hold, exchange specialists, market-makers, hedge funds and every trading desk at every Wall Street bank and firm are busy trading.

Some individual investors began to see how Wall Street was really making its money and started trading themselves.

Of course, that only increased the competition for easy trades as more retail investors traded in and out of stocks.

To continue their advantage over the public, Wall Street fought to do away with the uptick rule. The rule was wiped out so traders could short sell any stock at any time.

But it's the big Wall Street players who benefit from the rule change because they can use their huge capital positions and work with each other to drive down stocks they have shorted.

Who gets hurt? The buy-and-hold retail investors who are told to buy more at lower prices are the ones who get fleeced.

And, who is selling to them?…

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Five Tech Stocks to Avoid: RIMM, HPQ, YHOO, ORB, GRPN

After a rocky 2011, tech stocks have gotten a nice bounce so far this year.

The Nasdaq 100 index is up about 7% so far, well above the 4.6% rise in the Standard & Poor's 500 index.

Strong earnings last week from Intel Corp. (Nasdaq: INTC), Microsoft Corp. (Nasdaq: MSFT) and International Business Machines Corp. (NYSE: IBM) have drawn still more attention to tech stocks.

But while tech stocks may look tempting right now, knowing which tech stocks to avoid will prevent a lot of pain to your portfolio in 2012.

So here are five tech stocks you should avoid, at least for now.

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Occupy Wall Street, Consider This My Gift to You…

Out of far left field, I see something coming that I never expected.

It's more like the coming together of pieces of a puzzle that have eluded us for too long.

By the way, Occupy Wall Street, if you're listening, and I hope you are, and you're still floundering (which I know you are) without a cause that anybody can really wrap their heads around, drop your drums, chants, and wanderings, and make the coming together of this puzzle what you're protesting.

And make what could result what you are demanding.

Because, really, this could be the mother lode.

The U.S. Securities and Exchange Commission (SEC) is accusing six former executives of Fannie Mae and Freddie Mac of playing down the risk to investors of their firms' aggressive fast-forward into subprime mortgages… which caused them to implode spectacularly.

Two separate civil suits, filed last Friday, allege that the executives "knowingly misled investors" who owned shares in the companies and were thus deprived of critical information against which meaningful investment decisions are generally made.

The two wards, currently under U.S. conservatorship (life support attended by a wet-nurse), were themselves spared being sued, on account of their signing civil non-prosecution agreements and promising to cooperate and not dispute allegations (and also not have to admit nor deny wrongdoing). Yet the SEC is seeking financial penalties, disgorgement, and an order barring guilty parties from serving as officers or directors of any public companies in the future against the implicated executives.

The SEC faces an uphill battle based on one word – "subprime."

The problem is, subprime has never been legally defined.

You know what it means, I know what it means, everybody knows what it means, without knowing its exact definition. But if there's no definition of subprime, defense lawyers will counter that it's not possible to sue based on a standard that has never been defined.

How about we compare mortgages to cars and subprime to clunkers. If you're on my used car lot and I offer you two cars at the same price and don't tell you one is a clunker, is that fair? You wouldn't need me to define "clunker." If I said one was a clunker, you would simply choose the other car; after all, it's the same price.

There is a difference, there's a big difference.

Over on the Fannie and Freddie lots between 2006 and 2007, they were loading up on clunkers and not telling anyone what they were stocking. In fact, they were saying things like, "basically (we) have no subprime exposure" in the single-family realm.

They lied.

One of the reasons they were loading up on subprime was because Wall Street banks were eating their lunch by buying up subprime loans, packaging them, and selling them to investors hand over fist, and Fannie and Freddie wanted in on that very lucrative business. It's not that they hadn't dabbled in subprime before; they had. But as they saw stresses in the marketplace on the better mortgages in their portfolios, they still loaded up on far weaker credits; also known in the business as SUBPRIME.

So what's next?

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When Fund Managers Sell, It's Time to Go Bargain Hunting

You may not realize it, but the annual practice of "window dressing" – a process through which fund managers dump their worst-performing stocks and replace them with high flyers – can create some real bargains for retail investors.

The sleight-of-hand does actually little to improve the fund's performance, but it does keep a fund manager's biggest mistakes of the year out of the annual reports sent to investors. For that reason, most fund managers do some window dressing every December. And in years that the overall stock market has struggled – as it has this year – they're busier than usual.

Indeed, managed funds have actually fared worse than market averages this year. The Merrill Lynch composite index of hedge funds is down more than 7% on the year, and many mutual funds are hovering below such benchmarks at the Standard & Poor's 500 Index. The S&P 500 itself is down more than 1% on the year and more than 2% over the past six months.

In fact, this year's third quarter was the fourth-worst performance in hedge fund industry history.

Playing the Rebound

Even though the types of stocks fund managers sell in December tend to be major dogs, the extent of the selling is so severe that many of them rebound come January.

"Ideally, you're buying these stocks now when the selling pressure is still there and selling them in the middle of January," Pankaj Patel, an analyst at Credit Suisse Group AG (NYSE: CS), told Reuters.

Patel has found that large-cap stocks with prices close to their 52-week lows in November outperform the S&P 500 through the following January. Last year Patel developed a list of downtrodden stocks that beat the S&P 500 by 5.8% over that time frame.

It's a pattern other investing experts have noticed as well. George Putnam, editor of The Turnaround Letter, has for 24 years published a list of downtrodden stocks he believes fund managers have punished disproportionately.

Last year Putnam's picks gained more than 15% on average just from mid-December to mid-January, while the Dow Jones Industrial Average gained only 2.7% and the S&P 500 4.26%.

Fund managers were plagued by external forces in 2011 – primarily political gridlock in the United States and the deepening Eurozone debt crisis – that wreaked havoc on stocks.

The carnage left fund managers selling heavily out of some of the worst-hit sectors. Bank of America Corp.-Merrill Lynch (NYSE: BAC) strategist Mary Ann Bartels told the Chicago Tribune that hedge fund managers have dumped 50% of their holdings in financial stocks and 49% of their holdings in industrial stocks.

But the best way for investors to use the annual window dressing dance to their advantage is to peruse the list of abused stocks.

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Maverick Judge Jed Rakoff Stares Down The Street

One of the biggest problems with Wall Street's malfeasance is how the ruling elite view legal settlements – as little more than an acceptable cost of doing business.

Well, no more.

Thanks to Judge Jed Rakoff we may see some real regulatory action leading to good old-fashioned investigations, perp walks, and even jail for the guilty.

I'm not talking just about the Bernie Madoffs or the Raj Rajaratnams either. I'm talking about potentially CEOs and even entire corporate boards.

Judge Rakoff recently rendered a 15-page decision rejecting the U.S. Securities and Exchange Commission's (SEC) $285 million settlement with Citigroup Inc. (NYSE: C) over toxic mortgages, calling it "neither reasonable, nor fair, nor adequate, nor in the public interest."

This is important because settlements like these have been a farce for years – little more than the financial equivalent of a parking ticket and having about as much impact.

In fact, in a world where banking secrecy is paramount and investment firms like Goldman Sachs Group Inc. (NYSE: GS), JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC) and others rule the roost, they're little more than obfuscations of the truth.

The investigations into these banks are toothless or highly secretive at best. Rarely does the public see anything even remotely resembling full disclosure.

Instead we're supposed to be placated by headlines insinuating that the SEC, the National Futures Association (NFA) and more than 20 other regulatory agencies are looking out for our best interests.

Who are they kidding?

A Drop in the Bucket

Remember the $550 million fine Goldman was forced to pay for its role in toxic credit default swaps (CDOs)? At the time it was the largest ever levied.

SEC officials couldn't stumble over themselves fast enough nor get enough sound bites. I recall lots of PR shots with earnest-looking people evidently proud of themselves for having made Goldman pony up at the time.

And the mainstream press loved it. But there was one tiny problem.

The firm booked $13.3 billion that year. Paying off the SEC in a settlement that neither admitted nor denied wrongdoing was an acceptable cost of doing business that amounted to a mere 4% of revenue.

The proposed Citi settlement was much the same. It would have required Citi to give up $160 million of alleged ill-gotten profits, $30 million of interest, and a $95 million kicker for negligence.

Bear in mind, Citi reported full-year net income of $10.6 billion on revenue of $60.5 billion in 2010 which means that, like the Goldman fine, the settlement is a drop in the bucket at a mere 1.50% of net income.

I think Judge Rakoff's ruling has been a long time coming.

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New York Stock Exchange Holiday Calendar 2011-2013

Under normal circumstances, the New York Stock Exchange (NYSE) is open from Monday through Friday 9:30 a.m. to 4:00 p.m. ET. It closes for official U.S. holidays; most U.S. exchanges follow the NYSE's schedule.
The NYSE will also close for special occasions or emergencies.

New York Stock Exchange Holiday Calendar 2011-2013

Notes on the Schedule

  • New Years' Day (January 1) in 2011 falls on a Saturday.The rules of the applicable exchanges state that when a holiday falls on a Saturday, we observe the preceding Friday unless the Friday is the end of a monthly or yearly accounting period. In this case, Friday, December 31, 2010 is the end of both a monthly and yearly accounting period; therefore the exchanges will be open that day and the following Monday.

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Why Warren Buffett Is Buying – And You Should Be Too

Legendary investor Warren Buffett recently made news with his purchase of International Business Machines Corp. (NYSE: IBM), though I can't say I'm surprised.

Despite criticism that he's buying into a top-heavy market, that IBM is at a premium, and that he's losing his touch, chances are Buffett knows exactly what he's doing.

And guess what, it's exactly what I've been counseling investors to do since this crisis began – bolster defenses by putting money to work in companies that are backed by trillions of dollars in tailwinds, and have solid defensible businesses (Buffett calls these "moats").

According to a Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) filing made Monday but dated Sept. 30, 2011, Buffett also waded into General Dynamics Corp. (NYSE: GD), DirecTV (Nasdaq: DTV), CVS Caremark Corp. (NYSE: CVS), Intel Corp. (Nasdaq: INTC) and Visa Inc. (NYSE: V).

In the third quarter, Buffett funneled $10 billion into Berkshire's IBM stake, which now stands at 5.5%. Of course, Berkshire maintains a $13.5 billion stake in The Coca-Cola Co. (NYSE: KO) that remains the firm's largest.

Buffett Pulls the Trigger

As a long time Buffett watcher, I am somewhat surprised that he picked up Intel and IBM, if only because the Oracle of Omaha has a well-documented aversion to tech.

Still, I can see the logic. Both companies are global giants poised to profit from the whirlwind of growth set to take place thousands of miles from our shores in the decades ahead.

There are technical similarities, too.

For instance, IBM's price has risen more than 29% this year. As a result, at least five analysts have removed their buy recommendations because they believe the stock may have run its course, according to Bloomberg News and YahooFinance . At the moment, less than 50% of the analysts who cover IBM recommend buying the stock.

Back in 1988, it was much the same situation. Coke had more than doubled in size and analysts had much the same reaction when it came to doubts about further growth. Many openly bashed the stock's prospects and completely ignored the global growth potential that today is Coke's mainstay.

Coke is up tenfold since then. Enough said.

Here's what I think Buffett sees:

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