Wall Street
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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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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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Don't Let Wall Street Play You For a "Fool"
If you're like me when you go out shopping, you look for deals. You watch for sales. And you search out bargains. Why pay full price when you can get the same item at a hefty markdown?
That's an economic concept known as "price elasticity." This "rule" essentially says (and I'm dramatically oversimplifying this) that when the price of a product rises, demand for it falls.
But here's the part of this "law" that I really find fascinating: When it comes to the "real-world" products and services that you and I purchase, there are no exceptions.
Except for the stock market.
Time and again during my 30-year career as a financial journalist, I've watched this play out.
When stocks are cheap, nobody wants them (by "nobody," I'm referring to individual investors). But once stocks move, and the higher they go, the more individual investors want to buy them.
Need an example? Think back to the dot-com madness of 1999 and 2000; the higher they soared, the more investors had to have them.
Economists refer to this exception to the law of price elasticity of demand as the "bandwagon effect." But there's a better term: The "Greater Fool Theory," which demonstrates how Wall Street uses the retail investor.
That's right ... uses. Those experts have labeled this as the Greater Fool Theory because there's always some other ("greater") fool to unload the stock on - at least until the retail investor decides not to play.
You see, the retail investor is the designated loser - the ultimate "Greater Fool."
Think of it as a game of musical chairs - but one in which the outcome is predetermined: Wall Street investment banks set this game up so the retail investor gets left holding the bag.
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Stock Market Today: Do You Own This 30% Winner?
It was no surprise that the stock market today was quiet with little volume and not much movement.
In a day when the U.S. markets closed at 1 p.m. positive economic reports on motor vehicle sales and factory orders sent the markets slightly higher, and one company was up more than 30%.
Factory orders for U.S. factories rose 0.7% which was the first increase in bookings in three months. Last month's revised figure showed a 0.7% drop and economists had expected a 0.1% increase for June.
Many major automakers reported increased sales with U.S. automakers Chrysler, Ford and GM leading the way.
With the market off tomorrow and a shortened day today, traders expect a subdued state until Friday's latest unemployment numbers are released.
The major news came from British banking empire Barclays PLC (NYSE ADR: BCS).
Barclays PLC (NYSE ADR: BCS) announced Tuesday that its CEO Robert Diamond would resign effective immediately in the wake of the scandal involving lending rate manipulation.
Barclays was fined $450 million last week by British and U.S. regulators and is among other banks involved in similar lawsuits concerning rate fixing during the financial crisis of the past four years.
British Chancellor George Osborne cheered the resignation of Diamond calling it the "right decision" and encouraged banks to move forward and continue lending.
"We need our banks to be focused on lending to the economy, not on the scandals of the past, and I hope this will be the first step towards a new culture of responsibility in British banking which is what the British people want to see," Osborne told BBC Radio 4's "Today" program.
Diamond, who became CEO on Jan. 1 2011, is set to face British lawmakers tomorrow for questioning. Barclays stock fell 16% on June 28 when the scandal broke and is down almost 2% today.
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The Five Questions You Need to Ask Your Financial Advisor Right Now
If you have a financial advisor you need to read this-especially if you are one of the 99%.
That's everybody who isn't a gazillionaire. You may know a few people who fit this bill.
Being a 99-percenter just means that you want to do better.
In that regard, you're no different than the 1%. They just have more money and by extension more freedom than you.
That doesn't mean they are any smarter.
I know plenty of uber-rich people who are financially inept. You probably do, too.
What sets people apart sometimes, though, is as simple as the questions they ask. True 1-percenters have this down pat-even if they don't have a gazillion dollars.
Here are five things you need to ask your financial advisor today if you want to join them.
If you do, you'll profit more consistently, reduce your risk and invest with greater peace of mind.
And I have no doubt that you will join the real 1%.
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Stock Splits Suddenly Getting Cold Shoulder From Wall Street
Once upon a time, Wall Street loved stock splits.
Back in 1997, 102 companies in the S&P 500 did a stock split. Last year there were just 16 down from an average of 35 a year from 2004-2007.
This year there have been just four as of May with four more expected by the end of July.
So why has Wall Street turned a cold shoulder to stock splits?
It may be because strictly speaking, shareholders gain nothing from a stock split.
When a stock splits at 2-1, for instance, it simply doubles the number of shares while cutting the price in half.
So an investor who holds 50 shares of Company X at $100 a share ends up with 100 shares at $50.
Still, many investors see stock splits as a sign a company is doing well.
In addition, the more affordable price often helps attract more retail investors, and the increase in shares improves liquidity, making the stock easier to trade.
Historically, companies would consider a stock split whenever its stock price climbed over a certain level, such as $100 a share. But attitudes have changed.
"Nobody is scared of a $100 stock or a Google or Apple at $600," Howard Silverblatt, senior analyst art S&P, told MSN Money.
But what changed Wall Street's mind?
One explanation is that many corporate executives today see a lofty stock price as a status symbol, particularly the younger CEOs of tech companies. And some company heads point to the questionable benefits of a stock split.
"Splitting is nothing more than window dressing," Chris Arnold, a spokesman for Chipotle Mexican Grill (NYSE: CMG), told Bloomberg Businessweek. Chipotle has never split its stock, which trades at about $400 share.
But some analysts think sentiment against stock splits started with the collapse of the dot-com bubble in 2000 and deepened with the 2008 financial meltdown.
"There's a reluctance to split a stock after such a decline is still fresh in the collective memory of management," Doug Ramsey, the Minneapolis-based director of research at Leuthold Group LLC, explained to Bloomberg. "A stock split is just an accounting mechanism, but the psychology behind it is, you're not going to do it unless you're confident you're going to trade at an elevated level."
The Consequences of Fewer Stock Splits
Given the mostly cosmetic nature of stock splits, you might think having fewer of them wouldn't matter. But the lack of stock splits has had several consequences.
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This is the Stock Market to Invest in Now
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Earnings Fuel Stock Market Gains – Dow Jones Soared More than 100 Points Midday
Yes, Friday was all about the earnings.
The stock market rallied Friday thanks to a roaring round of positive earnings reports - with a little help from positive news out of Europe.
Just after noon, the Dow Jones Industrial Average climbed 113 points, the Standard & Poor's 500 jumped 9 points and the Nasdaq gained 22.
With little on the economic calendar to close out the week, and no major reports due, market participants focused on encouraging first-quarter results from a spate of several large and market-influencing firms.
"There's been a wrestling match all week long between strong earnings and weak economic data. At the moment earnings are winning," Lawrence Centura, portfolio manager at Federated Investors told the Associated Press.
Strong Earnings Push Stock Market Gains
To date, quarterly earning has been pleasantly strong.
"The number of companies reporting positive surprises is much higher than it typically is at this stage in the game," Fred Dickson, chief market strategist of D.A. Davidson & Co. told CNN Money. "They're only beating by a little, but it's still a significant number of companies and that's the wow factor."
Of the 212 companies in the S&P 500 that have reported, better than 80% have exceeded expectations, according to Thomson Reuters. During a typical quarter, the percentage of companies that top forecasts is 60%.
Here are some recent highlights:
- Tech giant Microsoft (Nasdaq: MSFT) lead Friday's gains in the broad-based rally after beating expectations late Thursday, reporting sales growth of 6% thanks to its Window and Office products. MSFT gained 4.55% Friday to close at $32.42.
- Investors also ate up better-than-expected numbers from fast-food king McDonald's Corp. (NYSE: MCD), which ended the day up. The company proved it remained a worldwide favorite with same-store sales up 8.9% in the U.S., 5% in Europe and 5.5% in Asia-Pacific, Middle East and Africa. Revenue rose 8% (excluding currency fluctuations).
- Robust earnings from General Electric (NYSE: GE) pushed its stock up 1.15% to $19.36. GE narrowly beat expectations with quarterly profit of 34 cents a share, a penny higher than expected, and revenue of $35.18 billion compared to a forecast $34.7 billion.
- Meanwhile, traders traded E*Trade (Nasdaq: ETFC) up some 6% on better-than-expected first-quarter results. E*Trade's first-quarter profit rose 38% from a year earlier.
- Technology manufacturer Honeywell (NYSE: HON) beat on both earnings and revenue, sending the honey pot buzzing. First-quarter income climbed 17% from a year earlier, and the company raised its 2012 forecast.
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What the JOBS Act Means for Investors – and Why It's "One Giant Leap for Fraudsters"
U.S. President Barack Obama signed the JOBS Act (Jumpstart Our Business Startups Act) into law yesterday (Thursday) - and just put more money in Wall Street's overflowing pockets.
The JOBS Act intends to help small businesses and startups raise money and ease the IPO process for "emerging growth companies." These are companies with less than $1 billion in annual revenue, issued no more than $1 billion in debt, floated no more than $700 million in stock, and have gone public within the past five years.
While the law is designed to create jobs and help business growth, the JOBS Act actually is giving Wall Street a new way to soak money out of investors looking for the next huge money-maker. It lightens regulation that was established to prevent firms from encouraging ill-suited investments for their own financial gain.
"This law is a perfect example of how corrupt our lawmakers are," said former hedge fund manager and Money Morning Capital Waves Strategist Shah Gilani. "They're blatant about making laws to benefit paying constituents who will use and abuse the public to line their pockets and those of Congress. The public should be outraged. This is one small step for entrepreneurs and one giant leap for fraudsters."
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