A few days ago, Reuters reported that the Obama administration is considering another plan to stave off foreclosures: Rent-to-own.
(The administration's original plan--mortgage modifications--has so far been a disappointment).
The goal of the program would be to reduce foreclosures and keep people in their houses - by reducing their monthly payments and eliminating the crushing burden of debt on homeowners that underwater.
Reuters reported few details about what, exactly, the administration is considering, and with rent-to-own, the devil is in those details. For example: Does the bank have to become a landlord? Can it sell the house? What will the rent be? How will the bank handle the writedown?
Our guest Dan Alpert of Westwood, has proposed a version of rent-to-own that works like this:
The homeowner is given an option to give his or her house to the bank in exchange for a 5-year lease (at market rates) on the property. The homeowner must be able to decide singlehandedly to pursue this "deed for lease swap", or the banks won't agree to it.
The bank takes over ownership of the house and rents it back to the homeowner for the lease term, at which point the homeowner has the option to buy the house back at fair market value.
In this video, Dan explains the details of this proposal. The big drawback, from the bank's perspective, is that the bank would have to take the loss on the mortgage right away, which most banks are desperate to avoid doing.
Friday, July 17, 2009
Wednesday, July 08, 2009
Robert Kiyosaki Why the Rich Get Richer
July 7, 2009
I am often asked, "What advice do you have for the average investor?" My reply is, "Don't be average."
Most of us know of the 80/20 rule. That rule is a good rule for averages. And in the world of money, the rule is 90/10. This means 90 percent of the people make 10 percent of the money and 10 percent of the people make 90 percent of the money.
This 90/10 rule holds true in almost anything financial. Take the game of golf, for example. Ten percent of the professional golfers make 90 percent of the money.
Taking the ratio to the next level, the top 10 percent of professional golfers make 90 percent of the money. Just look at Tiger Woods. When you compare his winnings plus endorsements, he is in a league unto himself.
Last year, my wife Kim was invited to play in a pro-am as part of a professional Tour event in New York. (No, they did not invite me...) Kim is pretty good and was the only woman in a field of around 300 golfers. I was a proud husband as she confidently walked alone to the women's tee. Without hesitation, she placed her ball on the tee, took a clean back swing, and swung her club.
She out-drove two of the men in her five-some. Bruce Vaughn, the professional golfer in the group, rushed up to congratulate her. The men amateurs were also complimentary. I could tell they were relived to have a much better than average "woman golfer" in their group. Kim hits her drives longer than most men, myself included.
Tough Way to Earn a Living
The tournament was the first time I got to see the real life of a professional golfer. It is a tough life. It is not the glamour I thought it was. If a professional did not make the cut, they simply moved on to the next tournament in some faraway city...and teed up again. They do not stay for the tournament. They pay for their own transportation, lodging, food, and fees. They are on the road, away from their families for months at a time. Even those who make the cut and play on the weekend have no guarantee of enough earnings to offset expenses. It's a tough way to earn a living.
Like professional golfers, who live and die by the ‘money list,' money is how I keep score. It's my score card, my report card as an investor. It's how I tell how well -- or how poorly -- I'm doing. My rich dad said, ‘Making money is my game.' It's my game, too. And that's why I have so much respect for professional golfers... their livelihood depends upon how well they play the game -- as professionals.
In the world of golf there are average and professional golfers. The same is true with investors. The problem with being an average golfer or investor is that average people rarely make any money. Many average investors are in financial trouble today because they are simply that: average. They never turned pro.
When the financial crisis began in 2007, the professional investors were already out (or getting out) of the market. The average investors did as they were told, which is to invest for the long-term, hanging on tight as the Dow plunged from 14,000 to below 7,000, a 50 percent loss in value. Many real estate flippers and homeowners enjoyed the same wild ride.
Tragedy of the Average Investor
The tragedy is that many amateur investors are still clinging to their losses. They hope the market will bounce back. Amateurs are still following the advice of "invest for the long term in a well-diversified portfolio of stocks, bonds, and mutual funds." Or they continue to believe "your home is your biggest investment." That is subprime advice for subprime investors.
It seems to me that more people keep track of their golf scores than keep track of their money... their ‘financial' scores. That's why they're amateurs... in the money game.
Even after the crash, the same subprime financial advice continues to be dished out in magazines, newspapers, and on television. Subprime advice continues to flow from real estate and stock market professionals who are not professional investors. They are professional sales people. They live on commissions -- not ROI, the returns on their investments. If they do not sell, they do not eat.
If you're going to turn pro, you will need to upgrade your financial advice. Why continue to invest for the long term while the market is crashing? Why continue to diversify when diversification did not protect investors from the crash?
In 1974, as I was leaving the Marine Corps, I decided I wanted to become an entrepreneur and investor. In other words, I did not want a job with a 401(k). That meant I had to become street smart, rather than school smart. It meant I needed a different set of life skills and better financial mentors if I were to survive on the street.
Just like the life of the pro golfers, there were long stretches of losses, no wins, no money or security.
In early 1985, things got so bad that Kim and I were temporarily homeless. I still remember leaving her in San Diego with only $2 for the week, while I traveled to Australia to put a deal together. Somehow we survived the year. In December of 1985 we finally made $1,500 after a year's worth of losses. That year was a great qualifying school. Today, even in this tough economy, our investments continue to grow. This crisis is a good time for professionals and a bad time for amateurs.
Not Good Enough
Years ago, I asked my rich dad, "What is the difference between a professional and an amateur?" His reply was, "Professionals know their best is not good enough. They always want to do better." He paused before continuing and said, "When someone says, ‘I'll do my best' or ‘I'll give it my best shot' or ‘I'll try,' they've already lost. Those are not words of a winner."
In the world of ‘the best,' your best is never good enough. If you're going to be a winner in life, you have to constantly go beyond your best. Most people are happy being average. Most are happy being faceless in a sea of faces. That's why 10 percent always win 90 percent of the rewards. I get up every day, grateful for what I have accomplished, yet looking forward to doing better. I want do better than my (previous) best everyday. It's not about the money anymore. I have enough money. I just love the game of making money.
Today I give most of my money away...but I will not give up the game of money. I play the game because the game is always better than me...and my best will never be good enough. I continue to work hard to become better at a game I love.
I once read a book on golf that said, "People say amateurs play for the love of the game and professionals play for money. That is not true. Amateurs are amateurs because they do not love the game enough. When it is cold and rainy, a professional golfer will play. The amateur will not. When they are sick, the professional will play. The amateur stays in bed. When they are losing, the professional will practice harder and enter more tournaments. The amateur will quit and take up tennis."
It matters little if the game is golf, tennis, or money. Ten percent of the people will always make 90 percent of the money. When the markets began crashing in 2007, the money did not disappear. Ninety percent of the money went to 10 percent of the investors.
A financial crisis is a great time for professional investors and a horrible time for average ones. If you're going to invest, don't be average. It's time to turn pro... or take up tennis.
I am often asked, "What advice do you have for the average investor?" My reply is, "Don't be average."
Most of us know of the 80/20 rule. That rule is a good rule for averages. And in the world of money, the rule is 90/10. This means 90 percent of the people make 10 percent of the money and 10 percent of the people make 90 percent of the money.
This 90/10 rule holds true in almost anything financial. Take the game of golf, for example. Ten percent of the professional golfers make 90 percent of the money.
Taking the ratio to the next level, the top 10 percent of professional golfers make 90 percent of the money. Just look at Tiger Woods. When you compare his winnings plus endorsements, he is in a league unto himself.
Last year, my wife Kim was invited to play in a pro-am as part of a professional Tour event in New York. (No, they did not invite me...) Kim is pretty good and was the only woman in a field of around 300 golfers. I was a proud husband as she confidently walked alone to the women's tee. Without hesitation, she placed her ball on the tee, took a clean back swing, and swung her club.
She out-drove two of the men in her five-some. Bruce Vaughn, the professional golfer in the group, rushed up to congratulate her. The men amateurs were also complimentary. I could tell they were relived to have a much better than average "woman golfer" in their group. Kim hits her drives longer than most men, myself included.
Tough Way to Earn a Living
The tournament was the first time I got to see the real life of a professional golfer. It is a tough life. It is not the glamour I thought it was. If a professional did not make the cut, they simply moved on to the next tournament in some faraway city...and teed up again. They do not stay for the tournament. They pay for their own transportation, lodging, food, and fees. They are on the road, away from their families for months at a time. Even those who make the cut and play on the weekend have no guarantee of enough earnings to offset expenses. It's a tough way to earn a living.
Like professional golfers, who live and die by the ‘money list,' money is how I keep score. It's my score card, my report card as an investor. It's how I tell how well -- or how poorly -- I'm doing. My rich dad said, ‘Making money is my game.' It's my game, too. And that's why I have so much respect for professional golfers... their livelihood depends upon how well they play the game -- as professionals.
In the world of golf there are average and professional golfers. The same is true with investors. The problem with being an average golfer or investor is that average people rarely make any money. Many average investors are in financial trouble today because they are simply that: average. They never turned pro.
When the financial crisis began in 2007, the professional investors were already out (or getting out) of the market. The average investors did as they were told, which is to invest for the long-term, hanging on tight as the Dow plunged from 14,000 to below 7,000, a 50 percent loss in value. Many real estate flippers and homeowners enjoyed the same wild ride.
Tragedy of the Average Investor
The tragedy is that many amateur investors are still clinging to their losses. They hope the market will bounce back. Amateurs are still following the advice of "invest for the long term in a well-diversified portfolio of stocks, bonds, and mutual funds." Or they continue to believe "your home is your biggest investment." That is subprime advice for subprime investors.
It seems to me that more people keep track of their golf scores than keep track of their money... their ‘financial' scores. That's why they're amateurs... in the money game.
Even after the crash, the same subprime financial advice continues to be dished out in magazines, newspapers, and on television. Subprime advice continues to flow from real estate and stock market professionals who are not professional investors. They are professional sales people. They live on commissions -- not ROI, the returns on their investments. If they do not sell, they do not eat.
If you're going to turn pro, you will need to upgrade your financial advice. Why continue to invest for the long term while the market is crashing? Why continue to diversify when diversification did not protect investors from the crash?
In 1974, as I was leaving the Marine Corps, I decided I wanted to become an entrepreneur and investor. In other words, I did not want a job with a 401(k). That meant I had to become street smart, rather than school smart. It meant I needed a different set of life skills and better financial mentors if I were to survive on the street.
Just like the life of the pro golfers, there were long stretches of losses, no wins, no money or security.
In early 1985, things got so bad that Kim and I were temporarily homeless. I still remember leaving her in San Diego with only $2 for the week, while I traveled to Australia to put a deal together. Somehow we survived the year. In December of 1985 we finally made $1,500 after a year's worth of losses. That year was a great qualifying school. Today, even in this tough economy, our investments continue to grow. This crisis is a good time for professionals and a bad time for amateurs.
Not Good Enough
Years ago, I asked my rich dad, "What is the difference between a professional and an amateur?" His reply was, "Professionals know their best is not good enough. They always want to do better." He paused before continuing and said, "When someone says, ‘I'll do my best' or ‘I'll give it my best shot' or ‘I'll try,' they've already lost. Those are not words of a winner."
In the world of ‘the best,' your best is never good enough. If you're going to be a winner in life, you have to constantly go beyond your best. Most people are happy being average. Most are happy being faceless in a sea of faces. That's why 10 percent always win 90 percent of the rewards. I get up every day, grateful for what I have accomplished, yet looking forward to doing better. I want do better than my (previous) best everyday. It's not about the money anymore. I have enough money. I just love the game of making money.
Today I give most of my money away...but I will not give up the game of money. I play the game because the game is always better than me...and my best will never be good enough. I continue to work hard to become better at a game I love.
I once read a book on golf that said, "People say amateurs play for the love of the game and professionals play for money. That is not true. Amateurs are amateurs because they do not love the game enough. When it is cold and rainy, a professional golfer will play. The amateur will not. When they are sick, the professional will play. The amateur stays in bed. When they are losing, the professional will practice harder and enter more tournaments. The amateur will quit and take up tennis."
It matters little if the game is golf, tennis, or money. Ten percent of the people will always make 90 percent of the money. When the markets began crashing in 2007, the money did not disappear. Ninety percent of the money went to 10 percent of the investors.
A financial crisis is a great time for professional investors and a horrible time for average ones. If you're going to invest, don't be average. It's time to turn pro... or take up tennis.
Friday, June 26, 2009
lucky me
| lucky i have sold the share the next day, when i buy the share, and find out the share news have file the "Chapter 11 bankruptcy protection". the next day, i quicky sell the share. |
Try cool new skins, plus more space for friends. Check it out on Singapore Yahoo! Messenger now.
Monday, June 22, 2009
You could have learned alot from your
You could have learned alot from your
Daddy! I sit here realizing that I could have gotten away with a bunch of nonsense when I was younger. All I had to do was sit at the dinner table and ask for it. I realize it now, because my oldest asked if he could go race with his racetrack and my wife immediately said, "Not until you eat your dinner!" So he ate his dinner and is now racing.
Well, I remember the same scenario when I was younger, but what I didn't realize is that I could have asked for anything.
Example 1: Hey dad, can I go to my girlfriends house, her parents aren't in town and her older sister is smoking hot.
Usual response would have been, "Not until you eat your dinner!"
Example 2: Hey dad, can I go to the nudy bar?
Usual response would have been, "Not until you eat your dinner!"
The list is endless:)
Tonight I asked my wife if I could go play 18 holes of golf after dinner......you just think you know what the usual response was don't you. If you guessed something like this:
"Unload the canoe and beach stuff from the car. Give both boys a bath and put the oldest down for bed. Clean up after dinner and take out the trash. Then if you have time, by all means go have fun."
Then you would be right.
Well, needless to say I am sitting here writing a post, because I think it is funny and I want to help educate all those savvy young investors that think this doesn't help them.
Realize this, when your younger, all you have to do is pound some tuna casserole. When your older, the responsibility grows.
Hence, if you are young, the consequences of investing don't seem too terrible, but just wait until you get older and have kids and a wife....maybe even grandkids and see what it means to drop 40% of your investments in one year. Talk about having your juevos shrink up.
Moral of the story, be smart about your positions and by all means ask for alot when your younger. I bet as soon as you take the jump, the net will appear.
Daddy! I sit here realizing that I could have gotten away with a bunch of nonsense when I was younger. All I had to do was sit at the dinner table and ask for it. I realize it now, because my oldest asked if he could go race with his racetrack and my wife immediately said, "Not until you eat your dinner!" So he ate his dinner and is now racing.
Well, I remember the same scenario when I was younger, but what I didn't realize is that I could have asked for anything.
Example 1: Hey dad, can I go to my girlfriends house, her parents aren't in town and her older sister is smoking hot.
Usual response would have been, "Not until you eat your dinner!"
Example 2: Hey dad, can I go to the nudy bar?
Usual response would have been, "Not until you eat your dinner!"
The list is endless:)
Tonight I asked my wife if I could go play 18 holes of golf after dinner......you just think you know what the usual response was don't you. If you guessed something like this:
"Unload the canoe and beach stuff from the car. Give both boys a bath and put the oldest down for bed. Clean up after dinner and take out the trash. Then if you have time, by all means go have fun."
Then you would be right.
Well, needless to say I am sitting here writing a post, because I think it is funny and I want to help educate all those savvy young investors that think this doesn't help them.
Realize this, when your younger, all you have to do is pound some tuna casserole. When your older, the responsibility grows.
Hence, if you are young, the consequences of investing don't seem too terrible, but just wait until you get older and have kids and a wife....maybe even grandkids and see what it means to drop 40% of your investments in one year. Talk about having your juevos shrink up.
Moral of the story, be smart about your positions and by all means ask for alot when your younger. I bet as soon as you take the jump, the net will appear.
Monday, June 08, 2009
7 questions to ask before you buy a stock
Putting your money in the market can leave you open to some nasty surprises. Avoid them by doing the right research
Value and growth investors seldom agree on what's important for evaluating a stock. But here are seven questions every investor, regardless of persuasion, should ask before plunking down money:
What does the company do?
Do you know what your company actually does for a living? Is it in a hot growth sector or in a saturated industry whose best growth days are long gone? Or does it make those proverbial buggy whips?
That first question is not as silly as it sounds. Sometimes we become so focused on analyzing the numbers that we forget about the big picture.
You probably know what the company does if you're looking at the likes of Wal-Mart Stores (WMT, news, msgs) or Google (GOOG, news, msgs). But it's a different story when you start examining at lesser-known names. For example, what do Icon (ICLR, news, msgs) and Knoll (KNL, news, msgs) do for a living?
You can find out in a New York minute by checking MSN Money's Company Report pages. Though only one paragraph, each report describes a company's products and/or services in pretty good detail, and it's written in understandable English.
The reports give you more than enough information to gain a feel for the company's products and/or services. For instance, Icon provides outsourced clinical-trial services to pharmaceutical companies, and Knoll makes office furniture.
What do you do with that wisdom? It depends. If you were looking for hot growth stocks, you would probably find Icon of interest but drop Knoll like a hot potato.
On the other hand, value investors, knowing that the market ignores unglamorous industries, seek out stocks such as Knoll in hopes of finding an undervalued gem.
How many widgets is it selling?
Companies are in business to sell products and/or services. We're talking big numbers here. Most publicly traded corporations rack up sales running into the hundreds of millions of dollars annually.
However, as an investor, you often encounter companies with a supposedly hot product on the drawing board but with little or no sales. When you buy such companies, you're buying the "story," which may or may not come to pass. That's risky business.
Risk-averse investors should stick with companies racking up at least $500 million in annual sales. Does that limit the field too much? Not really. When I checked recently, more than 1,700 U.S.-based stocks fit the bill.More-adventurous investors can go lower, but the risk meter goes off the chart when you get below $100 million in 12 months of sales. At the very least, disqualify stocks with less than $10 million in sales in the most recent quarter.
You can find the past four quarters' figures (look for "last 12 months") on each Company Report page, and you'll spot the quarterly figures on the Highlights report in the page's Financial Results section.
You can't apply minimum-sales criteria to banks and similar institutions, because their income comes from interest earned, which usually doesn't show up in the sales totals.
Just how profitable is the company?
For stocks, profitability means more than not losing money. Here's why.
Consider two hypothetical companies, company A and company B, both selling widgets for $100 each. After considering all expenses, company A makes $50 on each widget sold, while company B makes $25 per widget. If they both sell a million widgets a year, company A's profit totals $50 million compared with company B's $25 million.
Thus, each year, company A has $25 million more extra cash than company B. It can use that cash to develop new widgets, build more factories, pay dividends, etc. There is no way that company B can keep up with company A's spending without going outside to raise more cash, either by borrowing or by selling more shares. Both alternatives diminish shareholders' earnings.
Obviously, you'd be better off owning stock in company A than in company B, but how do you know which is which? That's where profitability measures come into play.
Return on equity, or ROE, the ratio of a company's 12-month net income to its shareholder equity (book value), is the most widely used profitability gauge. But relying on ROE has a downside. The way the math works, all else being equal, the higher the debt, the higher the ROE.
By contrast, you calculate return on assets, or ROA, by dividing net income by total assets, which includes liabilities. Consequently, all else being equal, the lower the debt, the higher the ROA.
You can see ROAs in the Investment Returns section of the Key Ratios report (under Financial Results). Look for companies with ROAs above 10%. Avoid ROAs below 5%.
Growth investors should pay most attention to the trailing-12-months ROA. However, because value stock candidates may have recently stumbled, value investors should focus on the five-year-average profitability figures.
Is cash flowing in or out?
Cash flow measures the amount of money that moved into or out of a company's bank accounts during a reporting period.
Cash flow is a better profit measure than earnings because it's harder to finagle bank balances than numbers like depreciation schedules that figure into earnings. In fact, many companies that report positive earnings are actually losing money when you count the cash.
Operating cash flow measures the cash flow attributable to the company's main business. You can find it on either the quarterly or annual cash flow statement (see Statements under Financial Results). However, the quarterly statements are timelier. That said, be aware that the quarterly cash flow columns reflect the year-to-date (cumulative) totals, not the individual quarters' results.
You want companies with cash flowing in, not out. So look for positive numbers in the Net Cash from Operating Activities row. Though any positive number is OK, it's best if the operating cash flow exceeds the net income (top line) for the same period.
Is the company submerged in debt?
High debt is not always a bad thing. For instance, there's nothing wrong with a company borrowing at 6% if it can put the funds to work earning 12%. Nevertheless, the higher the debt, the more susceptible a company is to rising interest rates. Rising rates result in higher debt-service costs, which subtract from earnings.
The financial leverage ratio (total assets divided by shareholders' equity) is an all-purpose debt gauge. A company with no debt would have a financial leverage ratio of 1, and the higher the ratio, the more debt.
As a rule of thumb, avoid companies with leverage ratios above 5, which is the average of S&P 500 Index ($INX) stocks, and lower is better.
You can't apply the leverage ratio -- or any other debt measure, for that matter -- to banks or other financial organizations. For them, borrowed cash is their inventory. Financial companies always carry high debt compared with companies in other industries.
Any bad news lately?
Negative news, such as an earnings shortfall, problems with a new product or an accounting restatement, not only pressure a company's share price but often portend even more such news on the way.
Bad news is the death knell for growth stocks, and growth investors should avoid all such stocks.
Even value types, who seek out stocks beaten down by bad news, should wait on the sidelines until they're reasonably sure that there is no more to come.
Think months, not weeks.
Take a look at the company's latest doings by selecting Recent News at the left of a stock's quote page.
Which way are forecasts moving?
There is much to be gained by paying attention to analysts' earnings forecasts.
MSN Money displays consensus earnings forecasts for most stocks. These are the average forecasts from all analysts covering a stock. The consensus numbers tend to move in trends. Why? I'm not sure. One reason may be that after one analyst makes a significant change, others re-examine their models and then revise their estimates in the same direction.
Changes in consensus earnings forecasts move stock prices. A positive forecast trend moves prices up and vice versa.
You can use the Consensus EPS Trend report (under Earnings Estimates) to see current, next-quarter and fiscal-year estimates going back 90 days. Focus on the fiscal-year data and ignore 1-cent changes. Avoid negatively trending stocks -- that is, stocks for which the latest fiscal-year estimates are more than 2 cents below the figures of 90 days ago.
Answering these seven questions will help you make better investing decisions, but they are just a start. Dig deeply and learn all you can. The more you know about your stocks, the better your results.
Late rally brings market back
Late rally brings market back
The Dow recovers all of a 130-point loss. Supreme Court Justice Ginsburg delays the sale of Chrysler to Fiat. Apple cuts prices on iPhones. Banks hope to get the OK to repay government funds. McDonald's falls; US sales miss estimates.
Stocks stormed back from their lows this afternoon despite pressure on technology and metals shares and worries about rising interest rates.
But it wasn't clear if that momentum will carry over to Tuesday after U.S. Supreme Court Ruth Bader Ginsburg delayed Chrysler's sale to Italian automaker Fiat (FIATY, news, msgs). Several Indiana pension funds as well as consumer groups had opposed the deal.
The Supreme Court will consider a request for a longer postponement that could derail the deal.
The order gives Ginsburg or the full court more time to consider whether to delay the transaction while opponents file appeals. A decision may come in a day or two.
The Obama administration had warned that an intervention might lead to the liquidation of Chrysler. Fiat could walk away from the sale if the transaction if it is not closed by June 15, although Fiat CEO Sergio Marchionne told Bloomberg News that the company will "never" abandon the deal.
Today's late-day rally was triggered in part by a comment from Nobel Prize-winning economist Paul Krugman that the U.S. economy may start to emerge from the recession in September, Bloomberg News reported. Krugman made the comment at a lecture at the London School of Economics.
"Things seem to be getting worse slowly," he said. "There's some reason to think that we're stabilizing."
At the same time, short-sellers who had sold borrowed shares expecting the market to move lower were forced to buy the shares back when the Standard & Poor's 500 Index ($INX) started to move higher. The S&P 500 finished down 1 point to 939.
The Dow Jones industrials ($INDU), which had been down as many as 130 points at 12:30 p.m., closed up 1 point at 8,764. That was 12 points below their 2008 closing level of 8,776.39. The Dow did move into the black briefly in the last hour of trading but faded at the close.
The Nasdaq Composite Index ($COMPX) was off 7 points to 1,842.
Volume was very light on the New York Stock Exchange -- barely 1 billion shares; 1.7 billion shares is about normal. Nasdaq volume was about 2 billion shares.
The major averages have moved up a third or more since bottoming in March. Like today, the Dow moved into positive territory briefly on several days last week. The blue-chip index finished Friday above its 200-day moving average -- a big sign of investor confidence. With the late rally, the index finished above its moving average for a second day.
The interest-rate focus today was on the 2-year note, whose yield jumped to 1.40% this afternoon. A week ago, the yield was 0.95%. Meanwhile, the yield on the 10-year note, down much of the day, finished at 3.89%, up from 3.86% on Friday.
The Treasury is supposed to auction $35 billion in 7-year notes on Tuesday, $15 billion in 10-year Treasurys on Wednesday and $11 billion in 30-year notes on Thursday.
Stock Charts (Year)
Apple
Freeport-McMoRan Copper & Gold
Apple also introduced a faster model of the iPhone.
The price cuts on current iPhones -- to as low as $99 -- were a response to new competition from Palm (PALM, news, msgs) and Research In Motion (RIMM, news, msgs). Palm fell 6.5% to $12.16; Research In Motion was off 0.9% to $81.95.
Cisco Systems (CSCO, news, msgs), in its first day of trading as a Dow component, closed unchanged at $19.87. The stock had been lower most of the day. Cisco replaced General Motors (GMGMQ, news, msgs), which is working its way through Chapter 11 bankruptcy.
Meanwhile, falling prices for gold, copper, silver and steel pushed metals stocks lower. Copper was down 1.4% to $2.253 a pound. Gold was off 1.1% to $952.50 an ounce in New York.
Shares of US Steel (X, news, msgs) were down 3.7% to $34.87 and Freeport McMoRan Copper & Gold (FCX, news, msgs) was off 1.2% to $56.48.
Crude oil, which had been lower in overnight trading and much of the morning, was up 23 cents to $68.67 a barrel this afternoon. Exxon Mobil (XOM, news, msgs) was up 0.3% to $73.17. Offshore driller Transocean (RIG, news, msgs) was down 1.2% to $81.43.
- Top Stocks blog: Will gas hit $3 this year?
Financial stocks were generally higher; American Express (AXP, news, msgs) was the best performer of the 30 Dow stocks, up 2.8% to $25.65, followed by JPMorgan Chase (JPM, news, msgs), up 2.4% to $35.39. Goldman Sachs (GS, news, msgs), however, was down 0.4% to $148.35.
The S&P 500 Financial Sector exchange-traded fund -- technically the Select Sector SPDR-Financial (XLF, news, msgs) ETF -- was up 0.7% to $12.41.
Insurance company Travelers (TRV, news, msgs), which replaced Citigroup (C, news, msgs) in the Dow today, rallied to a 1.1% gain at $43.92. Citigroup closed down 1.2% to $3.42.
The nation's big banks awaited word from the government as to whether they can start paying back their Troubled Asset Relief Program funds.
Dow components 3M (MMM, news, msgs) and DuPont (DD, news, msgs) and were down 0.4% to $60.69 and 2.9% to $26.21, respectively, as the dollar rose. Their declines subtracted about 14 points from the Dow.
Both generate more than half their business outside the United States. When the dollar rises, the value of foreign profits falls.
The Dow has risen 11 of the past 13 weeks, but worries about rising interest rates could pressure stocks going forward.
Sunday, June 07, 2009
3 signs you should sell a stock
Shareholders of companies as diverse as Healthways (HWAY, news, msgs), Silicon Motion Technology (SIMO, news, msgs) and Tween Brands (TWB, news, msgs) have all suffered big losses in recent weeks after those companies reduced forecasts or produced results that fell below the market's expectations.
But that sort of bad news doesn't have to be a surprise to you. Many times, checking a company's earlier quarterly reports for telltale signs that something is amiss will alert you to future problems. Those checks are vital because, in the market, such shortfalls often spell big trouble for shareholders.
How to know when to sell
Here's how to identify three of those telltale signs, or red flags, that warn of future bad news. You can do the checks using the financial statements on MSN Money. You'll need a calculator, but the calculations are easy. Once you get the hang of it, you'll be able to do the analysis in less than five minutes.
Considering the consequences of not doing the calculations, I'm sure you'll find them well worth the effort.
Margins
I'll start with margins, which are useful for detecting deteriorating competitive or operating conditions. Margins are the profit a company makes on its sales. For example, a 25% margin means the company is making 25 cents for every dollar of sales.
Gross margins are a measure of profit before a company accounts for overhead, marketing, research and development, interest and taxes. Rising gross margins tell you a company is reducing production costs or raising prices. Conversely, deteriorating margins say either that production costs are increasing and the company can't raise prices proportionally or that the company is cutting prices in an attempt to maintain market share.
Operating margins are a gauge of profit after a company accounts for overhead, marketing, and research and development. Rising operating margins generally indicate the company is operating more efficiently. However, falling operating margins signal something is amiss. Often, operating margins drop because the company has to increase advertising and other marketing expenses to maintain sales growth.
Margins tend to move in trends. That is, if margins rose in the previous quarter, they will probably be even higher in the current report. That's good news because rising margins usually lead to positive earnings surprises. Margins might fall for innocuous reasons, such as expenses related to a new product's introduction. However, falling margins, either gross or operating, often signal a declining competitive position. Thus it's important to check both.
Finding the sweet spot
Calculate gross margins by dividing gross operating profit by sales for the same period. Calculate operating
margins by dividing operating income by sales.
You can find all three items on MSN Money by looking at quarterly income statements.
To rule out seasonal variations, always compare the most recent quarter's margins to the year-ago quarter.
I'll use specialty retailer Tween Brands to illustrate the process. Tween's share price dropped more than 30% after the company reported disappointing quarterly results in July. So we would have relied on its April quarter report to detect red flags warning of that event.
Find the income statement in the Financial Results section under Statements. The default is an annual income statement. To analyze margins, select the quarterly income statement, which lists data for the past five reported quarters.
For Tween Brands' April 2008 quarter (which actually ended May 3), the income statement listed revenue (sales) of $251.74 million, gross profit of $86.34 million and operating income (profit) of $8.45 million. So the gross margin was 34.3% (86.34 divided by 251.74), and the operating margin was 3.4% (8.45 divided by 251.74).
Doing the same calculations for the April 2007 quarter yielded gross and operating margins of 37.9% and 8.1%, respectively. (Because the statement lists only the five most recent quarters, the April 2007 data disappeared when the July 2008 results were posted. So you won't be able to check my math for April 2007.)
First red flag: Deteriorating gross and/or operating margins
Tween Brands' April 2008 gross margin dropped to 34.3% from the year-ago 37.9% figure. That's a 9.5% drop. Small changes in gross margins translate to big changes in reported earnings. Consider a year-over-year gross-margin drop of 5% or more (for example, from 20% to 19%) a red flag.
Tween's operating margin dropped 58% (3.4% versus 8.1%). Operating margins are more volatile than gross margins, so they require more leeway. Consider a 20% drop in operating margins (for example, from 50% to 40%) a red flag. However, treat a 10% drop as a "yellow flag" that requires scrutiny.
Receivables
Corporations usually don't pay cash when they buy from another company. Instead, they have a predetermined time, such as 90 days, to pay for the goods. The amounts owed to a company by its customers for goods received are termed accounts receivables.
Usually, receivables track sales. For instance, if a company sells twice as much as it did the year before, you would expect its receivables to double. Sometimes sales grow faster than receivables, which signals the company is doing better at collecting its bills, which is good.
But beware when receivables increase faster than sales. That means customers are taking longer to pay their bills. Here are three reasons that could happen:
1. The company is slow in billing its customers.
2. Customers don't have the cash to pay.
3. The company is giving customers longer payment terms to encourage them to order the products they don't need right away.
Though No. 1 is fixable, reasons No. 2 and No. 3 will likely result in future shortfalls in sales and earnings.
To analyze receivables, compare the ratio of receivables (balance sheet) to sales (income statement) for the most recent quarter to the year-ago ratio. I'll demonstrate using Silicon Motion Technology. Silicon Motion's share price took a big hit after the Taiwanese chip maker reported disappointing June 2008 quarter results.
Here's what you would have found if you had analyzed Silicon Motion's receivables after it released its March 2008 quarter's results:
For the March quarter, Silicon Motion's sales totaled $1.586 billion (in Taiwanese dollars), and its receivables at the end of the quarter totaled $920.3 million (a Taiwanese dollar is worth about 3 U.S. cents). So the ratio of accounts receivable to sales, or AR/S, was 58% (920.3 divided by 1,586). The same calculation for the March 2007 quarter yielded a 44.2% figure. Thus Silicon Motions' receivables increased to 58.0% of sales in April 2008, up from 44.2%.
Second red flag: Accounts receivables versus sales
Consider a 20% increase in AR/S (for example, from 50% to 60% or from 10% to 12%) as an accounts-receivables red flag. Silicon Motion's ratio increased 31% (58.0 versus 44.2), which more than qualified for red-flag status.
Count the cash
Cash flow is the cash that moved into or out of a company's bank accounts during a reporting period. Because cash flow must be reconciled with actual bank balances, it is a more reliable measure of a company's results than reported earnings, which are subject to arbitrary accounting decisions.
Operating cash flow is primarily net income with noncash accounting entries such as depreciation expenses added back in. Generally, operating cash flow should exceed net income. But many companies report positive net income when, if you count the cash, they are actually losing money.
Academic research has found that comparing reported net income with operating cash flow is a good way to spot future problems. Specifically, the researchers found that a situation in which net income grows
but operating cash flow doesn't is a red flag pointing to future earnings shortfalls. Interpreting a cash-flow statement is a little tricky. The quarterly statements show the cumulative year-to-date totals for each quarter instead of each quarter's individual figures. For instance, if a company's fiscal year starts in January, its June-quarter figures include the total of the March and June quarters. To get the June quarter's operating cash flow, you would have to subtract the March totals from the June totals.
However, there's no particular advantage to analyzing the quarters separately. So I make it simple and compare the most recent quarter's numbers to the year-ago figures, regardless of whether they represent single or multiple quarters. Thus you need only compare the change in net income with the change in operating cash flow from the year-ago quarter to the most recent quarter.
To illustrate, I'll use Healthways. Shares of the specialty health care services company recently dropped 20% after it cut its forecasts for future quarters.
Here are the numbers you would have found had you checked Healthways' cash-flow statement after it reported its May 2008 quarter results:
Net income Operating cash flow
May 2008 $37.6 million $69.3 million
May 2007 $33.7 million $70.3 million
Third red flag: Rising net income combined with a decline in operating cash flow
Healthways' May 2008 net income rose 12% over May 2007, while its operating cash flow dropped slightly over the same period.
It's a red flag if net income increased from a year ago but operating cash flow didn't grow. Consider it a yellow flag requiring attention whenever net income exceeds operating cash flow.
Better safe than sorry
Nothing always works in the stock market, and these three red flags are no exception. Sometimes cash flow drops because a company loads up on inventory for a new product or because gross margins drop under short-term conditions. In today's weak economy, I'm seeing this a lot.
Nevertheless, successful investing is more about avoiding disastrous losses than it is about riding hot stocks. Paying attention to these red flags will help you do that.
But that sort of bad news doesn't have to be a surprise to you. Many times, checking a company's earlier quarterly reports for telltale signs that something is amiss will alert you to future problems. Those checks are vital because, in the market, such shortfalls often spell big trouble for shareholders.
How to know when to sell
Here's how to identify three of those telltale signs, or red flags, that warn of future bad news. You can do the checks using the financial statements on MSN Money. You'll need a calculator, but the calculations are easy. Once you get the hang of it, you'll be able to do the analysis in less than five minutes.
Considering the consequences of not doing the calculations, I'm sure you'll find them well worth the effort.
Margins
I'll start with margins, which are useful for detecting deteriorating competitive or operating conditions. Margins are the profit a company makes on its sales. For example, a 25% margin means the company is making 25 cents for every dollar of sales.
Gross margins are a measure of profit before a company accounts for overhead, marketing, research and development, interest and taxes. Rising gross margins tell you a company is reducing production costs or raising prices. Conversely, deteriorating margins say either that production costs are increasing and the company can't raise prices proportionally or that the company is cutting prices in an attempt to maintain market share.
Operating margins are a gauge of profit after a company accounts for overhead, marketing, and research and development. Rising operating margins generally indicate the company is operating more efficiently. However, falling operating margins signal something is amiss. Often, operating margins drop because the company has to increase advertising and other marketing expenses to maintain sales growth.
Margins tend to move in trends. That is, if margins rose in the previous quarter, they will probably be even higher in the current report. That's good news because rising margins usually lead to positive earnings surprises. Margins might fall for innocuous reasons, such as expenses related to a new product's introduction. However, falling margins, either gross or operating, often signal a declining competitive position. Thus it's important to check both.
Finding the sweet spot
Calculate gross margins by dividing gross operating profit by sales for the same period. Calculate operating
margins by dividing operating income by sales.
You can find all three items on MSN Money by looking at quarterly income statements.
To rule out seasonal variations, always compare the most recent quarter's margins to the year-ago quarter.
I'll use specialty retailer Tween Brands to illustrate the process. Tween's share price dropped more than 30% after the company reported disappointing quarterly results in July. So we would have relied on its April quarter report to detect red flags warning of that event.
Find the income statement in the Financial Results section under Statements. The default is an annual income statement. To analyze margins, select the quarterly income statement, which lists data for the past five reported quarters.
For Tween Brands' April 2008 quarter (which actually ended May 3), the income statement listed revenue (sales) of $251.74 million, gross profit of $86.34 million and operating income (profit) of $8.45 million. So the gross margin was 34.3% (86.34 divided by 251.74), and the operating margin was 3.4% (8.45 divided by 251.74).
Doing the same calculations for the April 2007 quarter yielded gross and operating margins of 37.9% and 8.1%, respectively. (Because the statement lists only the five most recent quarters, the April 2007 data disappeared when the July 2008 results were posted. So you won't be able to check my math for April 2007.)
First red flag: Deteriorating gross and/or operating margins
Tween Brands' April 2008 gross margin dropped to 34.3% from the year-ago 37.9% figure. That's a 9.5% drop. Small changes in gross margins translate to big changes in reported earnings. Consider a year-over-year gross-margin drop of 5% or more (for example, from 20% to 19%) a red flag.
Tween's operating margin dropped 58% (3.4% versus 8.1%). Operating margins are more volatile than gross margins, so they require more leeway. Consider a 20% drop in operating margins (for example, from 50% to 40%) a red flag. However, treat a 10% drop as a "yellow flag" that requires scrutiny.
Receivables
Corporations usually don't pay cash when they buy from another company. Instead, they have a predetermined time, such as 90 days, to pay for the goods. The amounts owed to a company by its customers for goods received are termed accounts receivables.
Usually, receivables track sales. For instance, if a company sells twice as much as it did the year before, you would expect its receivables to double. Sometimes sales grow faster than receivables, which signals the company is doing better at collecting its bills, which is good.
But beware when receivables increase faster than sales. That means customers are taking longer to pay their bills. Here are three reasons that could happen:
1. The company is slow in billing its customers.
2. Customers don't have the cash to pay.
3. The company is giving customers longer payment terms to encourage them to order the products they don't need right away.
Though No. 1 is fixable, reasons No. 2 and No. 3 will likely result in future shortfalls in sales and earnings.
To analyze receivables, compare the ratio of receivables (balance sheet) to sales (income statement) for the most recent quarter to the year-ago ratio. I'll demonstrate using Silicon Motion Technology. Silicon Motion's share price took a big hit after the Taiwanese chip maker reported disappointing June 2008 quarter results.
Here's what you would have found if you had analyzed Silicon Motion's receivables after it released its March 2008 quarter's results:
For the March quarter, Silicon Motion's sales totaled $1.586 billion (in Taiwanese dollars), and its receivables at the end of the quarter totaled $920.3 million (a Taiwanese dollar is worth about 3 U.S. cents). So the ratio of accounts receivable to sales, or AR/S, was 58% (920.3 divided by 1,586). The same calculation for the March 2007 quarter yielded a 44.2% figure. Thus Silicon Motions' receivables increased to 58.0% of sales in April 2008, up from 44.2%.
Second red flag: Accounts receivables versus sales
Consider a 20% increase in AR/S (for example, from 50% to 60% or from 10% to 12%) as an accounts-receivables red flag. Silicon Motion's ratio increased 31% (58.0 versus 44.2), which more than qualified for red-flag status.
Count the cash
Cash flow is the cash that moved into or out of a company's bank accounts during a reporting period. Because cash flow must be reconciled with actual bank balances, it is a more reliable measure of a company's results than reported earnings, which are subject to arbitrary accounting decisions.
Operating cash flow is primarily net income with noncash accounting entries such as depreciation expenses added back in. Generally, operating cash flow should exceed net income. But many companies report positive net income when, if you count the cash, they are actually losing money.
Academic research has found that comparing reported net income with operating cash flow is a good way to spot future problems. Specifically, the researchers found that a situation in which net income grows
but operating cash flow doesn't is a red flag pointing to future earnings shortfalls. Interpreting a cash-flow statement is a little tricky. The quarterly statements show the cumulative year-to-date totals for each quarter instead of each quarter's individual figures. For instance, if a company's fiscal year starts in January, its June-quarter figures include the total of the March and June quarters. To get the June quarter's operating cash flow, you would have to subtract the March totals from the June totals.
However, there's no particular advantage to analyzing the quarters separately. So I make it simple and compare the most recent quarter's numbers to the year-ago figures, regardless of whether they represent single or multiple quarters. Thus you need only compare the change in net income with the change in operating cash flow from the year-ago quarter to the most recent quarter.
To illustrate, I'll use Healthways. Shares of the specialty health care services company recently dropped 20% after it cut its forecasts for future quarters.
Here are the numbers you would have found had you checked Healthways' cash-flow statement after it reported its May 2008 quarter results:
Net income Operating cash flow
May 2008 $37.6 million $69.3 million
May 2007 $33.7 million $70.3 million
Third red flag: Rising net income combined with a decline in operating cash flow
Healthways' May 2008 net income rose 12% over May 2007, while its operating cash flow dropped slightly over the same period.
It's a red flag if net income increased from a year ago but operating cash flow didn't grow. Consider it a yellow flag requiring attention whenever net income exceeds operating cash flow.
Better safe than sorry
Nothing always works in the stock market, and these three red flags are no exception. Sometimes cash flow drops because a company loads up on inventory for a new product or because gross margins drop under short-term conditions. In today's weak economy, I'm seeing this a lot.
Nevertheless, successful investing is more about avoiding disastrous losses than it is about riding hot stocks. Paying attention to these red flags will help you do that.
Thursday, May 07, 2009
Weak Treasury auction sends US stocks lower - Forbes.com
Weak demand at a Treasury bond auction touched off worries in the stock market Thursday about the government's ability to raise funds to fight the recession.
The government had to pay greater interest than expected in a sale of 30-year Treasurys. That is worrisome to traders because it could signal that it will become harder for Washington to finance its ambitious economic recovery plans. The higher interest rates also could push up costs for borrowing in areas like mortgages.
Investors also pocketed some gains after strong rally in stocks this week and ahead of the government's April employment report on Friday. Investors were jittery ahead of the formal release of results from the government's "stress tests" of bank balance sheets, which came out later Thursday.
Major stocks market indicators slid more than 1 percent, including the Dow Jones industrial average which lost 102 points after gaining nearly the same amount Wednesday.
Stocks fell almost from the start of trading as investors quickly looked past upbeat reports on the job market and retail sales as traders asked "What's next?" and cut back their holdings following what had been a 4.8 percent gain this week in the Standard & Poor's 500 index.
Analysts said investors are already starting to expect economic numbers that aren't as bad as they had been and are now looking for the next catalyst that could take stocks higher after a surge of more than 30 percent from 12-year lows in early March.
"This is a market that is starting to bake in a lot of positive surprises," said Craig Peckham, a market strategist at Jefferies & Co.
The Dow fell 102.43, or 1.2 percent, to 8,409.85 a day after the blue chips jumped 102 points to close above the 8,500 level for the first time in four months. The index is down 4.2 percent for the year.
The S&P 500 index fell 12.14, or 1.3 percent, to 907.39, and the Nasdaq composite index fell 42.86, or 2.4 percent, to 1,716.24.
Technology shares posted the biggest losses Thursday after security software maker Symantec Corp. posted weaker-than-expected results. Retailers were mixed even after many of them, including Wal-Mart Stores Inc., reported better-than-expected April sales.
"The fact that we're seeing the retailers sell off on these positive surprises suggests the bar has been raised on what companies need to do to take stocks higher," Peckham said.
Wal-Mart said sales of Easter merchandise and more shoppers in its stores helped its sales jump 5 percent, much more than the 2.9 percent rise analysts had forecast. Wal-Mart rose 80 cents to $50.31.
The well-being of retailers is key to the economy because consumer spending accounts for more than two-thirds of economic activity.
Symantec reported a loss for its fiscal 2009 fourth quarter, hurt by a hefty goodwill impairment charge and lower-than-expected revenue. The stock fell $2.60, or 14.8 percent, to $14.99.
Financial stocks mostly fell after big gains Wednesday and ahead of the government report cards on banks. The tests, designed to determine which banks would need a stronger capital base if the economy weakens, are at the crux of the Obama administration's plan to fortify the financial system. The market rallied this week ahead of the results, despite some initial concerns that the tests would show more pain in the industry.
Citigroup Inc. fell 5 cents to $3.81, while Bank of America Corp. rose 82 cents, or 6.5 percent, to $13.51. Regions Financial Corp. fell 60 cents, or 10.3 percent, to $5.23, while Wells Fargo & Co. fell $2.33, or 8.7 percent, to $24.51.
Two stocks fell for every one that rose on the New York Stock Exchange, where volume came to a heavy 2 billion shares.
"Today was a little dose of reality and maybe a little fear coming back into the market," said Joe Saluzzi, co-head of equity trading at Themis Trading LLC.
Saluzzi said investors shouldn't mistake the strong trading volume seen this week as a sign of conviction behind the moves. He said an absence of the big block trades that large financial firms make suggests the trading is more speculative, particularly in financial stocks.
"The real investor needs to be careful," he said.
In economic news, new applications for unemployment benefits fell last week to the lowest level in 14 weeks. The Labor Department's tally of new jobless claims fell to 601,000 from 631,000 the previous week, well below the 635,000 economists had been expecting. A four-week moving average of initial jobless claims that smooths out fluctuations fell from a high in early April.
The employment reading follows a better-than-expected private snapshot of the labor market on Wednesday and comes a day ahead of the government's April employment report. It is often regarded as the most important economic news each month because a drop in unemployment could bolster everything from banks to retailers if consumers can continue to make mortgage payments and go shopping.
There were also reports showing that productivity rebounded slightly in the first quarter while wage pressures eased.
In other trading, the Russell 2000 index of smaller companies fell 12.15, or 2.4 percent, to 492.94.
05.06.09, 04:01 PM EDT
The government had to pay greater interest than expected in a sale of 30-year Treasurys. That is worrisome to traders because it could signal that it will become harder for Washington to finance its ambitious economic recovery plans. The higher interest rates also could push up costs for borrowing in areas like mortgages.
Investors also pocketed some gains after strong rally in stocks this week and ahead of the government's April employment report on Friday. Investors were jittery ahead of the formal release of results from the government's "stress tests" of bank balance sheets, which came out later Thursday.
Major stocks market indicators slid more than 1 percent, including the Dow Jones industrial average which lost 102 points after gaining nearly the same amount Wednesday.
Stocks fell almost from the start of trading as investors quickly looked past upbeat reports on the job market and retail sales as traders asked "What's next?" and cut back their holdings following what had been a 4.8 percent gain this week in the Standard & Poor's 500 index.
Analysts said investors are already starting to expect economic numbers that aren't as bad as they had been and are now looking for the next catalyst that could take stocks higher after a surge of more than 30 percent from 12-year lows in early March.
"This is a market that is starting to bake in a lot of positive surprises," said Craig Peckham, a market strategist at Jefferies & Co.
The Dow fell 102.43, or 1.2 percent, to 8,409.85 a day after the blue chips jumped 102 points to close above the 8,500 level for the first time in four months. The index is down 4.2 percent for the year.
The S&P 500 index fell 12.14, or 1.3 percent, to 907.39, and the Nasdaq composite index fell 42.86, or 2.4 percent, to 1,716.24.
Technology shares posted the biggest losses Thursday after security software maker Symantec Corp. posted weaker-than-expected results. Retailers were mixed even after many of them, including Wal-Mart Stores Inc., reported better-than-expected April sales.
"The fact that we're seeing the retailers sell off on these positive surprises suggests the bar has been raised on what companies need to do to take stocks higher," Peckham said.
Wal-Mart said sales of Easter merchandise and more shoppers in its stores helped its sales jump 5 percent, much more than the 2.9 percent rise analysts had forecast. Wal-Mart rose 80 cents to $50.31.
The well-being of retailers is key to the economy because consumer spending accounts for more than two-thirds of economic activity.
Symantec reported a loss for its fiscal 2009 fourth quarter, hurt by a hefty goodwill impairment charge and lower-than-expected revenue. The stock fell $2.60, or 14.8 percent, to $14.99.
Financial stocks mostly fell after big gains Wednesday and ahead of the government report cards on banks. The tests, designed to determine which banks would need a stronger capital base if the economy weakens, are at the crux of the Obama administration's plan to fortify the financial system. The market rallied this week ahead of the results, despite some initial concerns that the tests would show more pain in the industry.
Citigroup Inc. fell 5 cents to $3.81, while Bank of America Corp. rose 82 cents, or 6.5 percent, to $13.51. Regions Financial Corp. fell 60 cents, or 10.3 percent, to $5.23, while Wells Fargo & Co. fell $2.33, or 8.7 percent, to $24.51.
Two stocks fell for every one that rose on the New York Stock Exchange, where volume came to a heavy 2 billion shares.
"Today was a little dose of reality and maybe a little fear coming back into the market," said Joe Saluzzi, co-head of equity trading at Themis Trading LLC.
Saluzzi said investors shouldn't mistake the strong trading volume seen this week as a sign of conviction behind the moves. He said an absence of the big block trades that large financial firms make suggests the trading is more speculative, particularly in financial stocks.
"The real investor needs to be careful," he said.
In economic news, new applications for unemployment benefits fell last week to the lowest level in 14 weeks. The Labor Department's tally of new jobless claims fell to 601,000 from 631,000 the previous week, well below the 635,000 economists had been expecting. A four-week moving average of initial jobless claims that smooths out fluctuations fell from a high in early April.
The employment reading follows a better-than-expected private snapshot of the labor market on Wednesday and comes a day ahead of the government's April employment report. It is often regarded as the most important economic news each month because a drop in unemployment could bolster everything from banks to retailers if consumers can continue to make mortgage payments and go shopping.
There were also reports showing that productivity rebounded slightly in the first quarter while wage pressures eased.
In other trading, the Russell 2000 index of smaller companies fell 12.15, or 2.4 percent, to 492.94.
05.06.09, 04:01 PM EDT
AIG 1st-quarter loss narrows to $4.35 billion
AIG 1st-quarter loss narrows to $4.35 billion
05.07.09, 04:51 PM EDT
Battered insurer American International Group says its first-quarter loss narrowed, and was sharply lower than the record-setting lost it posted a quarter ago.
The New York-based insurance giant says it lost $4.35 billion, or $1.98 per share, during the quarter ended March 31. AIG ( AIG - news - people ) lost $7.81 billion, or $3.09 per share during the year-ago period.
AIG is coming off the biggest quarterly loss in U.S. corporate history. It lost $61.7 billion during the fourth quarter.
The first-quarter loss was primarily tied to costs from the winding down of its financial products unit, which was the at the center of its near collapse last fall. AIG was bailed out by the government, and has received a package of loans worth up to $180 billion to help the firm.
---- remark : buy in at US$1.65 5th May (est S.+8hour) sell at US$2.10 (before the report out)
05.07.09, 04:51 PM EDT
Battered insurer American International Group says its first-quarter loss narrowed, and was sharply lower than the record-setting lost it posted a quarter ago.
The New York-based insurance giant says it lost $4.35 billion, or $1.98 per share, during the quarter ended March 31. AIG ( AIG - news - people ) lost $7.81 billion, or $3.09 per share during the year-ago period.
AIG is coming off the biggest quarterly loss in U.S. corporate history. It lost $61.7 billion during the fourth quarter.
The first-quarter loss was primarily tied to costs from the winding down of its financial products unit, which was the at the center of its near collapse last fall. AIG was bailed out by the government, and has received a package of loans worth up to $180 billion to help the firm.
---- remark : buy in at US$1.65 5th May (est S.+8hour) sell at US$2.10 (before the report out)
stress test
or Most Banks, Not Too Stressful
Joshua Zumbrun and Liz Moyer, 05.07.09, 06:25 PM EDT
Federal regulators determine 10 of 19 big banks need to raise capital; BofA, Wells Fargo and Morgan Stanley to sell new shares.
WASHINGTON, D.C. -- Federal regulators have determined that after a relatively successful first three months of 2009, the largest 19 banks only need to raise $75 billion to remain well-capitalized through a prolonged downturn.
The government's so-called "stress tests" relied on estimates of how different classes of loans would perform in a prolonged recession, and then evaluated the portfolios of the 19 largest banks to determine how large their losses might be. The results will require some banks to raise additional common equity as a buffer against recession.
The banks that do not need additional capital will be able to begin the process of repaying TARP funds, provided they demonstrate an ability to raise private debt.
The government has determined that nine banks do not need additional funds: American Express ( AXP - news - people ), BB&T ( BBT - news - people ), Bank of New York Mellon ( BK - news - people ), Capital One ( COF - news - people ), Goldman Sachs ( GS - news - people ), JPMorgan Chase ( JPM - news - people ), MetLife ( MET - news - people ), State Street ( STT - news - people ) and US Bancorp ( USB - news - people ).
Of the $75 billion the other 10 banks need to raise, the bulk of the obligation falls on Bank of America ( BAC - news - people ), which was judged to require $33.9 billion; GMAC ( GJM - news - people ), which needs $11.5 billion; and Wells Fargo ( WFC - news - people ), which needs $13.7 billion according to the tests. Citigroup ( C - news - people ) needs $5.5 billion.
Fifth Third Bancorp ( FITB - news - people ), KeyCorp ( KEY - news - people ), Morgan Stanley ( MS - news - people ), PNC Financial Services ( PNC - news - people ), Regions Financial ( RF - news - people ) and SunTrust Banks ( STI - news - people ) need to raise sums under $2.5 billion.
After the government's announcement, Wells, Bank of America and Morgan Stanley said they would sell new common shares. Bank of America also said it was considering the sale of certain businesses, but added it saw no need for new injections of government money. That has been a sticking point for Kenneth Lewis, Bank of America's chief executive, who was stripped of the title of chairman last week after shareholders lost confidence in his leadership. "We are comfortable with our current capital position in the present economic environment," Lewis said Thursday.
In the most adverse economic scenario tested in the exercise, the government determined the banks stand to lose $600 billion on loans in the next two years, with poor performance for many loan classes. The adverse scenario assumes losses as high as 20%, including as high as 28% from subprime mortgages and 16% from second mortgages. The complete report is available on the Federal Reserve's Web site.
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