Money & Investing - Banks.com

After serious drops last week, and an initially slow start this morning, the stock market is rebounding a bit. Oil prices dropping back are one of the main drivers of the turnaround in the stock market today. (The real question is how long it will last.)

Stock market news has an effect on Treasury investing. Because they are backed up by the US government, Treasury bonds are considered amongst the “safer” investments that can be made. This means that when the riskier stock market drops, many investors hedge — or even go with safe haven investing — with Treasury bonds. Conversely, when the stock market rebounds, Treasury bonds are often significantly affected.

But things aren’t working quite that way this time around.

Instead, inflation is affection the relationship between Treasury investing and the stock market. While a soft stock market has been in evidence, Treasury bonds have not increased a great deal in popularity. Part of this is because inflation actually erodes the value of the Treasury bonds over time. In the current climate of inflation, many investors are reluctant to invest in government debt because they may not get as good returns. This lack of interest in Treasury bonds is probably why the stock market rebound today isn’t having much of an effect — investors haven’t been investing in them anyway.

Additionally, investors aren’t sure how long the stock market rebound will last. All moves are rather warily made right now, as investors await key economic data and try to decide how the stock market will be affected. Investors who might jump into stocks are holding off, waiting to see whether this is a recovery or merely a short bounce.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.

Tags: stock market, stock market news, investing blog, Treasury investing,
Treasury bonds, investments, inflation

Occasionally I get reader questions about different stock investing strategies. I am, always, happy to answer questions. This is the latest I have received:

I had a buddy tell me something about a practically risk-free investment strategy called long/short. Should I try long/short stock investing?

The first thing I want to do is drive home the fact that now stock investing is “practically risk-free.” The only type of investing that is “practically risk-free” is cash investing in things like savings accounts and certificates of deposit. And even then, technically, there is a degree of risk (albeit a very small one). In any type of investment, there is a risk of loss. Always.

What is long/short stock investing?

I liked this explanation of what long/short stock investing is from Money Talks:

Long-short or long/short is a stock investing strategy followed by many hedge funds, portfolio managers and individual investors. The strategy was introduced in late 1980s. Long-short stock investing includes buying (taking long position) stocks which are assumed to perform high and selling (taking short position) stocks which are assumed to perform low, than early ones.

The idea is that you should buy stocks that do better than the stocks you sell. In this way, in theory, you always make a profit. One of the common ways of doing this is through paired trades in order to reduce risk.

However, it should be noted that you have to realize that in practice things don’t always work out this way. Fund managers and others have complex rules and algorithms that help them assess buying and selling choices. And even then, as we’ve witnessed in the last few months, they can still be wrong.

Bottom line: The casual investor should not try the long/short stock investing strategy. It carries a great deal of risk, and is not for someone who does not actively manage his or her investment portfolio. Indeed, long/short stock investing requires regular adjustment and the assumption of risk that may exceed most “regular folks” tolerance.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.

Tags: stock market, stock investing, investing blog, investing strategy,
long short investing, investment portfolio, risk free investing

The stock market right now is being rather affected by oil prices. As crude oil rises above $143 a barrel, the stock market is in a bit of trouble, falling as companies expect cuts into their profits. But this falling stock market news has another implication — that there will be an effect on mortgage rates.

The Mortgage Reports Blog has an interesting analysis of how the stock market has been almost directly affection mortgage rates:

The greater demand for mortgage bonds led to lower mortgage rates on conforming home loans and this would have never happened if the Fed hadn’t set the table for a mortgage bond market recovery.

This week, therefore, as the stock market goes, so should mortgage rates.

If stocks are up, rates should be up. If stocks are down, rates should be down. This is happening because — at least for now — the mortgage bond market is serving as a safe haven from Corporate America.

Right now (and for the past couple of sessions), the stock market has been down. And current mortgage rates are down.

Mortgage rates often follow the lead of US Treasuries. This is because the rates on bonds (especially the ten year variety) are more closely tied to the long term nature of home mortgage loan rates. But things have been a little crazy lately. In some cases, mortgage rates have been rising when tey should have been falling. And now, with the Federal Reserve trying to ensure a mortgage bond market recovery, the stock market has become tied to mortgage rates — for now at least.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.

Tags: stock market, stock market news, investing blog, Federal Reserve,
mortgage rates, investments, mortgage bond market