The Dow tumbled nearly 150 points this afternoon after a fake tweet about White House explosions was posted from the AP's hacked twitter account. Markets recovered almost completely after the AP clarified that the news was false.
Invented by Charles Dow in 1896, The Dow Jones Average ("The Dow") is perhaps the most widely known metric of equity market behaviour. Calculated as a price weighted average of thirty stocks, The Dow is generally eschewed by professional investors who prefer the broader S&P 500, a so-called market capitalisation weighted index consisting of 500 stocks. Regardless, proponents of the Dow claim its simplicity, long history and careful design as a reliable proxy of US economic activity as points in its favour. But can they now claim predicability as well? [more inside]
High frequency trading crop circles. Automated trading is flooding stock exchanges with nonsensical orders making odd patterns like The Knife at millisecond scales. Bugs, emergent phenomena, or market jamming strategies? No one seems to know.
Academic discussions of stock markets frequently reference The Efficient Markets Hypothesis; an idea that share prices are fairly valued, their prices reflecting all available information. However folklore such as "Sell in May and go away", which proved prudent in 2007, clashes with this theory. [more inside]
Want to learn about investing? Morningstar, an independent investment researcher, is offering 172 free online "classes" on stocks, bonds, funds, and portfolio building. And there's nifty quizzes at the end of each lesson where you can earn points that can be used for Morningstar products.
EarthShell, a small Maryland company that makes environment-friendly packaging (among others) may wink out of existence thanks to PIPEs, or private investments in public equities. Who likes PIPEs? Hedge Funds, mostly. Companies that take the pipe, as it were, may be sealing their doom. 10 percent of PIPE deals done this year are 'death spirals', where the company's stock price plummets from short selling by the financiers who structured the deal in the first place. And of course it's legal if you don't get caught shorting the stock naked and covering with the shares from the PIPE. (BTW, http://www.earthshell.com appears to be on the margins now or I'd have linked it).
Five Years After the Bubble is a collection of ten links from the perspective of those who were neck deep in the whole thing. I found the link while reading up on Andy Kessler, who had an interesting piece in today's WSJ, and is giving away his new book.
One man's retirement math: Social Security wins At the heart of President Bush's plan to sell Social Security private accounts is a simple notion: You're always better off investing your retirement money than letting the government do it. By doing it yourself, you can stow some money in the stock market, and over the long run will get a better return on that investment than today's Social Security system offers. The idea is broadly accepted. That's why the administration's plan to partially privatize the system sounds appealing to many. But that better return won't always happen. Just ask Stanley Logue of San Diego. For 45 years, the defense-industry analyst paid into the system until his retirement in 1994. But with all the recent hoopla over reform, Mr. Logue, a Massachusetts Institute of Technology graduate, decided to go back and check his own records. Would he have done better investing his money than the bureaucrats at the Social Security Administration?
Why Stock Markets Crash : Critical Events in Complex Financial Systems. Professor Didier Sornette of UCLA has some very interesting things to say about stock markets. In his book, he explains how his "theory of cooperative herding and imitation [...] has detected the existence of a clear signature of herding in the decay of the US S&P500 index since August 2000 with high statistical significance, in the form of strong log-periodic components." Although his timing has been just a bit early, the theory, the predictions to date and the pictures are all pretty uncanny. This is easily the most interesting book on the stock market I have ever read and provides interesting and believable hypotheses about things I never imagined could have rigorous explanations. For an overview, here is an interview with the author.
Another "Google heading for an IPO" report - but this time it's for real, according to the Financial Times. Apparently the shares will be sold through an electronic auction "designed to prevent a recurrence of the sort of financial scandals that have engulfed Wall Street since the collapse of the dotcom bubble". Not that Google was ever going to be Enron.
Someone we trust says something reassuring. Fed Chairman Alan Greenspan, arguably the most powerful man in the world, blames "infectious greed" for the recent panic-like tail-spins on Wall Street, but says that the economy is on the way to recovery. One comment held that Greenspan was finally able to let out how he feels about what's going on, without shrouding his opinion in economic jibber-jabber.
"For once he really spoke his mind. He usually tends to obfuscate things quite a bit."But really, how many of you expected Greenspan to say anything other than "the fundamentals are in place for a return to sustained healthy growth"? Does Greenspan actually feel this way? Could it be that he is actually majorly pessimistic, but is using his soothing sweet-song voice and obvious clout and earned respect to somehow buck recent trends? Bush's speech didn't do much for our faltering economy, but will Greenspan's? Can one man's mere words possibly change the course of history? Well?
Oooh, Martha's in trouble... Looks like her ex-boyfriend may have tipped her off to some insider information (and subsequently got popped). News of the incident has caused Martha Stewart Omnimedia stock to drop. Not a Good Thing.
Worldcom had lent $430 million to Bernard Ebbers, its CEO - apparently to meet margin calls on its stock.
Worldcom had lent $430 million to Bernard Ebbers, its CEO - apparently to meet margin calls on its stock. (The amount was $366 million as per BusinessWeek). Bernie Ebbers resigned on April 30th. "About the best that can be said of the arrangement is that it keeps a big block of WorldCom stock out of the market, leaving it safely parked in the CEO's portfolio. Price to WorldCom: almost 20 percent of its balance sheet cash as of year-end 2001." I wonder, what could the board have been thinking?!
Fake profits are causing the stock market to descend. Could someone explain to me the meaningful difference between Enron and Amazon.com? One company recently reported fake profits of $5 million, while having billions in debt. Enron, well...no profits either, and billions in debt. So why is Amazon.com considered "promising"? Enron had a revenue stream too.... Prediction: Amazon.com's stock will be "revalued" sharply lower as people get lucid about real profits and as the accounting/profit scandals spread.
The Catch with Wells Fargo's Share Builder Some of you may have seen Wells Fargo's ads touting $4 per transaction and unlimited transactions for $12. The main catch is that you cannot trade every day. From their FAQ- "ShareBuilder trades can be made the first, second, third or fourth Tuesday of each month. You select which day you would like your trade to take place when setting up your ShareBuilder Plan. In the event of a month with five Tuesdays, no ShareBuilder trades will take place on the fifth Tuesday." When the rest of the world is going to real-time trading, why do you think Wells Fargo is pushing this? Do you think it is deceptive that this is not mentioned up-front?
An idea to support the U.S economy. The suggestion is that everyone American should buy 10 or 20 shares in their favourite stock on Monday, and in doing so support their country in the time of crisis. It sounds like a good idea to me. (The story is at the bottom of the page)
An Australian Man who sent millions of e-mails around the world falsely stating shares in an American company would rise 900 per cent was today sentenced to two years in jail. The charges filed are believed among the first of their type made against anyone in the world. Mr Hourmouzis had pleaded guilty to two charges of making a false statement on the Internet.
"I wasn't doing anything wrong..." So says Jonathan Lebed, the 16-year-old who paid out $285,000 to the SEC to settle his pump-and-dump case. His father agrees: "He earned it. He did a lot of work. He didn't sit behind a garage smoking pot, or stealing wheels off a car." Yeah, right: after all, he bought his parents a Mercedes with the profits of his stock manipulation.
NBCi relaunches as probably the most boring, blase portal site I've ever seen and their stock goes up? Is it just me, or does it look like they bought the site from "Al's Do It Yourself Portals"?
Will MSFT go up or down tomorrow on the market? Whatcha all think?