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Archive for June, 2010

Financial Reform Bill Deal Reached

Friday, June 25th, 2010

It’s been talked about for months now, but today the deal was finally reached by negotiators early this morning. The negotiation wasn’t easy and it ended up lasting through much of the night, but lawmakers finally came to a compromise and now the United States Bank Financial Reform Bill is ready to go to a vote in both the House and the Senate.

There is much debate in Washington as to whether this move was the right one to make, with democrats saying it will avert another financial disaster and republicans saying it will slow down the economy in the long run. The only thing that is definitely true at this point is that the landscape is about to change for banks in the United States. The financial industry as a whole is about go through the biggest changes in many years.

There is a delicate balance that needs to be reached where economic expansion can continue without too much regulation, but some regulation needs to be in place in order to keep Wall Street and the banks under control. Derivatives trading will be watered down quite a bit, which is probably a good thing for the safety of the economy. Many lawmakers said that the goal of the bill is to regulate areas where banks and investment firms have found that there was no regulation. These areas were used to run up record profits, but when these markets collapsed, we ended with firms that were “too big to fail.”

In the short-term it is hard to say how this will affect the stock market in the United States. It’s quite unclear as to how this will change the business of some financial firms, but the certainty that a reform bill is now set should help the overall trading pattern in financial stocks. The true test of this bill will be in the long run, when we determine whether or not adequate steps were taken to keep us out of another credit crisis like we saw two years ago.

Stock Market Overview

Sunday, June 20th, 2010

Stocks posted their second straight week of gains, as the euro regained ground on signs the European debt crisis is being contained with both governments in the region and global banks being able to access the markets and raised debt for their financial needs. Weak economic data in the U.S. limited the upside in the market, on concern over the strength of the economic recovery.

Apple is still on fire. Apple moved to the upside as Kuafman raised its estimates and target price a day after the company announced it logged 600,000 pre-orders for its iPhone 4. Apple closed at $274.

CBOE Holdings Inc’s IPO received enthusiastic response from the crowd, it’s slightly off from its first day close. It has good potential to be as profitable as ICE when it comes to trading. I own ICE, I am waiting to buy CBOE on weakness.

Federal Reserve policy makers meet this week to discuss their target for the federal-funds rate. They are likely to keep the interest rates unchanged. Meanwhile, the growth rate of the Economic Cycle Research Institute’s weekly index of leading economic indicators has fallen into negative territory for the first time since May 2009, indicating the froth has come off the recovery, at the very least.

China surprised with a pledge to make its exchange rate more flexible, but quickly damped the idea that the move would trigger a dramatic revaluation of the yuan by saying it would make the adjustment “gradually.” Whether this is a political game or real thing, we need to wait and see.

Related Link: Searching for stability in stocks

Searching for Stability in Stocks

Tuesday, June 15th, 2010

Though it may sound like it, the title of this post isn’t meant to be a tongue twister. The stock market truly is looking for stability right now. The volatility that has occurred since the Flash Crash of May 6th has been a negative for investor confidence and what we now need is some solid footing to build a base from. The summer trading season is coming soon and that generally means lighter volumes and it can lead to increased volatility when news breaks. Right now the stock market doesn’t need a huge catalyst on the upside, rather it just needs the bad news to stop pouring in.

The oil spill in the Gulf of Mexico and the constant concerns about the European crisis and the plunge of the Euro have led to a whole lot of uncertainty about where things will go in the near-term for stocks. It hasn’t helped a bit that the jobs data and the retail sales reports have come in weaker than expected, since many have been banking on a healthy recovery in the economy. The European fears may be overdone here in the United States, but I can’t fault investors for worrying about the oil spill and the economic data.

While traders may see volatility as a great thing since they are able to make more money during these times, I am fully convinced that for the average investor stability and a nice quiet market is much healthier. You’ll find that those days with huge swings in the market tend to end up negative more often than not.

The game plan for investors should be to be ready to scoop up quality names during significant drops in the market, but don’t jump in with both feet until we see a little bit quieter action in stocks. There’s no sense trying to be a hero in this market. Play it smart and be cautious with your investments!

No V Shaped Recovery Here

Monday, June 7th, 2010

Earlier this year the stock market in the United States had moved up more than 60% from its low, based largely on the hopes of a strong economic recovery. Fast forward to June 2010 and the market is now in a correction and has lost about 13-14% of its value in the last few weeks. Why has the market reacted so violently in the last few weeks? The single biggest reason for this drop in value is clearly the lack of investor confidence in the economic recovery.

The most recent economic numbers are still better than they had been a year ago, but they are far short of what most had been hoping for. Last week is a perfect example of the level of disappointment that the current economic numbers are bringing. Many economists were expecting 550,000 or 600,000 jobs created, but in reality the May employment report was weak. The census hiring made the number look good, but the private sector created a scant 41,000 jobs in the month. The day before the retail sales figures showed that the consumer isn’t diving back into the economy like many had hoped. The news wasn’t terrible, but it was much less encouraging than many were expecting.

The flash crash of May 6th also hurt investor sentiment and the last thing this market could afford was a bunch of scared individual investors. The summer doldrums is now getting ready to become a more important factor, so don’t be surprised if volume is low in the weeks and months ahead.

The bottom line here is that it is absolutely clear now that there is no V shaped recovery taking place. The recovery isn’t completely dead, but it is on much weaker footing than many thought it might be at this time. The hope here is that this market consolidation will lead to a longer-term uptrend in stocks and the economy, but for now the disappointment is bound to weigh on results in the short-term.

Credit Card Balance Transfer Game

Sunday, June 6th, 2010

Have you ever played this game? Get a credit card with 0% balance transfer rate for 12 months, transfer $10,000 from credit card to your CD account, earn free money of about $300 in your CD for a year and return $10,000 back to credit card company after a year? It may not work any more with CARD act and the lack of 0% balance transfer offers.

“Teaser rates aren’t going to go away, but they’re probably not going to be as lucrative for the consumer as they were — you’re going to see a higher rate and a shorter introductory term,” says Jerry Straessle, president and CEO of JLS Associates, a consulting firm specializing in the credit and debit card industry. If you are still into this game, read the devilish fine prints carefully before transferring the money from credit card account to your checking/CD accounts.

Even if you get 0% balance transfer rate for 6 months, you may not get higher rate in CD account to justify the balance transfer fee and any other one-time fee your credit card company charges. Always calculate the total fees and total gains you would make before writing the balance transfer check.

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