Short selling is when an investor borrows shares from a company, sells these shares, buys them back later, and then returns them to the company. The investor makes the difference on the spread between selling at a higher price and buying back at a lower price. Naked short selling is when the investor sells shares without even borrowing them.
The height of the bear market, when many financial institutions saw their stock plummet without taking a breath, can thank naked short selling. Investors were relentlessly selling shares short without ever borrowing them causing prices to tank. The ban on naked short selling now requires an investor to borrow shares before shorting.
I would like to see the reinstatement of the uptick rule. This makes investors wait for the stock to go up a penny from the previous trading price before they can short. This would also help stocks to fall incrementally instead of crashing. Short selling is not a problem, in fact, many investors make cash money on short selling. When their is no order involved with shorting stocks, things can get dangerously bad.
Tuesday, July 28, 2009
Thursday, July 23, 2009
What Shape Will the Market Take?
A lot of analysts and economists are expecting the recovery in the market to take a W form. They think this rally is unsustainable. They think that we will see another type of meltdown within the next 6 to 12 months. I completely disagree. They only terrible news that we could have had is disappointing Q3 reports. We have not seen that at all.
An article I read on CNBC stated that 70% of Q3 earnings reports have been positive. Many of these companies lowered estimates in Q4 and Q1 that helped the market to reach its bottom in March. Now we are seeing companies raise estimates and give much better outlooks this quarter. Many companies think the recession has bottomed and may be over at this point. YOY growth declines will continue to decrease as we go into Q3 and Q4. Since this is when growth started declining last year, it will not be so hard to match those numbers this year. I think on the earnings front, as we move into the last half of the year and even into the first half of next year, it will be easier to beat YOY numbers and estimates will be raised.
On the economic level, I think we have hit bottom. We are seeing more and more positive housing numbers. We have seen bank losses dwindle. I think unemployment will start decreasing this quarter. In short, we are ready for the rebound. TARP money is being repaid, companies have neared the end of their layoffs and plant closures, and the declining dollar should raise sales and profits.
Historically, the market sees a rebound before the economy. We are seeing that rebound now. The economy will soon follow. I think the shape of the market will be a elongated V shape. It wont just rise back up quickly, but it will not go back down either. We are done seeing consistently negative news. Everything is on the mend. The only thing against us is time. It will take longer than most people will want; however, as long as we are patient we can find deals everywhere. Cash money is all over the place. Don't be afraid to go looking for it again. It will be a long time before the Dow hits 14,000 again. While we are waiting, we might as well look for the once in a lifetime deals and make cash money.
An article I read on CNBC stated that 70% of Q3 earnings reports have been positive. Many of these companies lowered estimates in Q4 and Q1 that helped the market to reach its bottom in March. Now we are seeing companies raise estimates and give much better outlooks this quarter. Many companies think the recession has bottomed and may be over at this point. YOY growth declines will continue to decrease as we go into Q3 and Q4. Since this is when growth started declining last year, it will not be so hard to match those numbers this year. I think on the earnings front, as we move into the last half of the year and even into the first half of next year, it will be easier to beat YOY numbers and estimates will be raised.
On the economic level, I think we have hit bottom. We are seeing more and more positive housing numbers. We have seen bank losses dwindle. I think unemployment will start decreasing this quarter. In short, we are ready for the rebound. TARP money is being repaid, companies have neared the end of their layoffs and plant closures, and the declining dollar should raise sales and profits.
Historically, the market sees a rebound before the economy. We are seeing that rebound now. The economy will soon follow. I think the shape of the market will be a elongated V shape. It wont just rise back up quickly, but it will not go back down either. We are done seeing consistently negative news. Everything is on the mend. The only thing against us is time. It will take longer than most people will want; however, as long as we are patient we can find deals everywhere. Cash money is all over the place. Don't be afraid to go looking for it again. It will be a long time before the Dow hits 14,000 again. While we are waiting, we might as well look for the once in a lifetime deals and make cash money.
Tuesday, July 21, 2009
Rally is Due to Outlooks
We have seen the market jump over 700 points in the past week. Earnings have been doing as well as we could have hoped for. Many companies are still posting a drop in profit but have managed to beat earnings. This isn't why the market has rallied. Outlooks have been the substantial basis behind this cash money increase.
A decrease in profits is expected as we are still struggling out of this recession. Most companies have been able to beat earnings. The cash money has been made in the outlooks. Wall Street is more concerned with the future right now. They are buying on any sign that the recession is losing its hold.
I would never encourage anyone to buy before an earnings release. That is nothing but a gamble. If you must buy and sell before a release, think about this. Companies that are expecting earnings at the low end of the target will be able to beat earnings and raise outlooks more easily than a company that is highly anticipating to do well. These companies will not fall as far either if they miss. The trick is to determine which companies are being extremely conservative and which companies have low end estimates for a reason. Being able to differentiate these two can pay out some real cash money in the end.
A decrease in profits is expected as we are still struggling out of this recession. Most companies have been able to beat earnings. The cash money has been made in the outlooks. Wall Street is more concerned with the future right now. They are buying on any sign that the recession is losing its hold.
I would never encourage anyone to buy before an earnings release. That is nothing but a gamble. If you must buy and sell before a release, think about this. Companies that are expecting earnings at the low end of the target will be able to beat earnings and raise outlooks more easily than a company that is highly anticipating to do well. These companies will not fall as far either if they miss. The trick is to determine which companies are being extremely conservative and which companies have low end estimates for a reason. Being able to differentiate these two can pay out some real cash money in the end.
Friday, July 17, 2009
CIT: Another Victim of the Financial Crisis?
The federal bailout has been a lifeline for many financial institutions. Many banks have received TARP money and some lenders have been swallowed up by commercial banks. CIT Group is one lender that is still struggling. Should it not receive any more help, CIT will have to file for bankruptcy.
CIT is one of the biggest lenders lending to 950,000 small and mid-size businesses. It is one of the largest credit and cash advance suppliers in the country. The government has established tax credits for small businesses to encourage entrepreneurship. If the government lets CIT file for bankruptcy, all these small businesses will get hurt. Saving CIT will help 950,000 businesses trying to stay afloat.
I wasn't in favor of the government helping businesses with our tax money. I thought that they should all pay the price for being greedy. Now I see that letting these businesses fail doesn't just hurt the business, it hurts us too. Letting CIT fail could lead to these small businesses failing. This would just lengthen the recession and jack unemployment up even further. CIT is in talks with Goldman Sach's and JP Morgan for short term financing. Hopefully, CIT will make it through. If not, many businesses could go under. At that point, cash money will be even scarcer than it is now. We should just do what we have been doing by giving some money to CIT and start regulating.
CIT is one of the biggest lenders lending to 950,000 small and mid-size businesses. It is one of the largest credit and cash advance suppliers in the country. The government has established tax credits for small businesses to encourage entrepreneurship. If the government lets CIT file for bankruptcy, all these small businesses will get hurt. Saving CIT will help 950,000 businesses trying to stay afloat.
I wasn't in favor of the government helping businesses with our tax money. I thought that they should all pay the price for being greedy. Now I see that letting these businesses fail doesn't just hurt the business, it hurts us too. Letting CIT fail could lead to these small businesses failing. This would just lengthen the recession and jack unemployment up even further. CIT is in talks with Goldman Sach's and JP Morgan for short term financing. Hopefully, CIT will make it through. If not, many businesses could go under. At that point, cash money will be even scarcer than it is now. We should just do what we have been doing by giving some money to CIT and start regulating.
Wednesday, July 15, 2009
The Return of Inflation?
Inflation has been MIA for the year so far. The Consumer Price Index (CPI) for June came in at 0.7%, slightly higher than anticipated. This was the largest rise since July 2008. Most of the rise was due to gas prices. Core CPI stayed tame at 0.2%.
The Producer Price Index (PPI), considered to be a better measure of inflation by Alan Greenspan, soared 1.8%. This is double the 0.9% that was expected. The is the steepest gain since November 2007. Taking out food and energy, core PPI came in at 0.5%. This is significantly higher than the expected 0.1%.
While these numbers are not as large as we have been accustomed to seeing, these are nevertheless rising. A sluggish economy coupled with inflationary pressure is an issue for any government. Given the slack that we have in our economy with inflation lower than the historical average means that we do not have to be worried...yet. Energy has been the main cause for the rise in inflationary measures. With energy prices subsiding the past two weeks, I see little reason to worry. However, if these numbers keep rising month after month, we will have to see action by the Fed which could be disastrous. If you are looking to keep money out of stocks but still beat inflation, fixed income is the way to make cash money. I recommend CDs.
The Producer Price Index (PPI), considered to be a better measure of inflation by Alan Greenspan, soared 1.8%. This is double the 0.9% that was expected. The is the steepest gain since November 2007. Taking out food and energy, core PPI came in at 0.5%. This is significantly higher than the expected 0.1%.
While these numbers are not as large as we have been accustomed to seeing, these are nevertheless rising. A sluggish economy coupled with inflationary pressure is an issue for any government. Given the slack that we have in our economy with inflation lower than the historical average means that we do not have to be worried...yet. Energy has been the main cause for the rise in inflationary measures. With energy prices subsiding the past two weeks, I see little reason to worry. However, if these numbers keep rising month after month, we will have to see action by the Fed which could be disastrous. If you are looking to keep money out of stocks but still beat inflation, fixed income is the way to make cash money. I recommend CDs.
Monday, July 6, 2009
Congrats Government! You May Have Gotten GM Right This Time
GM filed for bankruptcy a while back after it was determined the former #1 automaker could not run from its problems. After giving GM bailout money a couple times, the government finally did what it had to do. Now GM is in the midst of a bankruptcy plan in hopes of contending for the top spot in car sales in the future.
GM will retain its most profitable assets: Chevrolet, Cadillac, Buick, and GMC. These assets will be moved to a new company owned by the US Treasury. The US government will own 61% of the new company, the Canadian government 12%, the union will receive a 17.5% stake, and creditors will get a 10% stake. Should this plan work, GM will exit bankruptcy in the next 2 months. The company could even go public within the next 2 years.
The old GM will keep any bad assets that other companies will not buy. It will be liquidated over time. This is a great move by the government. Had GM been given even more bailout money and readjusted timelines every quarter, this would have drawn the process out a lot longer than it should have been. Liquidating the whole company would also have been terrible for the economy. Spinning off a new company with given timelines is a move that just could work. GM is still a terrible investing spot for individual investors. However, a spinoff in a couple years could be appealing. Be prepared for this terrible process to right itself and give you the chance to make cash money.
GM will retain its most profitable assets: Chevrolet, Cadillac, Buick, and GMC. These assets will be moved to a new company owned by the US Treasury. The US government will own 61% of the new company, the Canadian government 12%, the union will receive a 17.5% stake, and creditors will get a 10% stake. Should this plan work, GM will exit bankruptcy in the next 2 months. The company could even go public within the next 2 years.
The old GM will keep any bad assets that other companies will not buy. It will be liquidated over time. This is a great move by the government. Had GM been given even more bailout money and readjusted timelines every quarter, this would have drawn the process out a lot longer than it should have been. Liquidating the whole company would also have been terrible for the economy. Spinning off a new company with given timelines is a move that just could work. GM is still a terrible investing spot for individual investors. However, a spinoff in a couple years could be appealing. Be prepared for this terrible process to right itself and give you the chance to make cash money.
Unemployment May Be Stabilizing
Unemployment rose to 9.5% in the US, the highest percentage since 1983. Although the market reacted unfavorably, the rate seems to be stabilizing. Each month's job loss numbers are dwindling, suggesting a stabilization in unemployment rates. The EU has also seen its unemployment rate hit 9.5% showing a global impact.
We should know that unemployment will not decrease until we are well out of the recession. Until companies start making money and expanding their business lines again, they will not hire any more people. Investors should like the decline in monthly job loss numbers and should look at this as an improvement in the economy. However, investors refuse to see this and keep reacting adversely and will continue to do so until the rate itself declines. Rates should see a decline soon as outlooks look to improve in the near term. Cash money can be made whether you have a job or not. Just keep playing off of others' mistakes.
We should know that unemployment will not decrease until we are well out of the recession. Until companies start making money and expanding their business lines again, they will not hire any more people. Investors should like the decline in monthly job loss numbers and should look at this as an improvement in the economy. However, investors refuse to see this and keep reacting adversely and will continue to do so until the rate itself declines. Rates should see a decline soon as outlooks look to improve in the near term. Cash money can be made whether you have a job or not. Just keep playing off of others' mistakes.
Wednesday, July 1, 2009
The Dark Side to the Rally
The close of the second quarter left the Dow up over 800 points for the past 3 months. The 11% increase for the quarter was the best quarter for the Dow since 2003. Earnings are expected to soar compared to the past couple quarters as we look toward moving past the recession. Optimism has soared as sales are up and home prices are stabilizing. So where is the dark side?
Despite the rally, the Dow is still down on the year by almost 4% and is still 40% off its 2007 high. The S&P has fared slightly better as it is up on the year by almost 2%. As we move forward with renewed optimism, we must not forget where we have been or how we got here. We cannot let good times constrict our memory from remembering the irresponsibility and greed that initially knocked us down. We must continue to rebuild and establish responsibility in our regulatory bodies. While there is cash money to be made, we cannot forget how we came to these once in a lifetime buying opportunities.
Despite the rally, the Dow is still down on the year by almost 4% and is still 40% off its 2007 high. The S&P has fared slightly better as it is up on the year by almost 2%. As we move forward with renewed optimism, we must not forget where we have been or how we got here. We cannot let good times constrict our memory from remembering the irresponsibility and greed that initially knocked us down. We must continue to rebuild and establish responsibility in our regulatory bodies. While there is cash money to be made, we cannot forget how we came to these once in a lifetime buying opportunities.
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