Money & Investing - Banks.com

Global stock markets are the rise today, giddy with relief over some of the latest bits of news to come out of efforts to stimulate the economy. Here are some of the things that have investors optimistic that economic recovery is on the way:

1. The International Monetary Fund is about to get more funding.
2. More trade funding to promote international trade.
3. Banks are going to be allowed to value their own assets.

Items #1 and #2 came out of the G20 summit that is almost done. Indeed, these items are considered a huge step for the global economy. The fact that the G20 nations are committed to keeping the flow of capital moving at a good pace is telling. Liquidity is a big part of the global credit markets, and world stock markets are responding to the news that more money will be floating around in the economy.

Item #3 has more to do with the U.S. The Financial Accounting Standards Board changed some of the rules that require banks to value their illiquid assets at market prices. Additionally, banks will not have to report entire impairments to profits. These new accounting rules basically make it possible for banks to determine the value of their assets and allow them to “fix” their balance sheets with the new values. Nothing has changed at the fundamental level, but now banks appear to be closer to financial health.

If you are looking for quick gains, it might be worth it to buy some banks; there are estimates that put banks at 20% undervalued now that they will be able improve their balance sheets just by saying that their toxic assets are worth more. This is a risky move, and you could lose out, but if bank stocks really do rally dramatically in the next few days, you could make a tidy profit. For the long term, however, it is worth it to stay away from all but the best-capitalized banks and focus on other companies in other sectors that are more fundamentally sound.

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 and any loss that may result from your decisions.

Image by Getty Images via Daylife

As the economy continues to show signs of weakness, a number of measures are being taken to shore up Wall Street and the financial system. But, at the same time, leaders are also trying to find ways to keep a meltdown of this magnitude from happening again. And, even though it seems as though we spend a lot of time mentioning Timothy Geithner, there is not a whole lot that can be done about that. He’s just so visible, from comments on the latest currency reserve proposal by China to plans to seize non-bank financial institutions. This time, though, Geithner is proposing regulatory changes to investments.

Complex and opaque investments partially plamed for financial crisis

One of the many culprits being blamed for the financial crisis is greed stemming from the propogation of difficult to understand investments that were under-regulated and allowed to flourish — even though they were highly leveraged and no one knew how to value them. Geithner thinks he can prevent this from happening again by strengthening regulations and requiring transparency. His remarks this morning specifically addressed derivatives, hedge funds and money market mutual funds. These investments have long been outside the purview of traditional regulation. Geithner wants to see more transparency and acknowledgement of risk in  investment. The hope is that by requiring more scrutiny for some investments — especially derivatives — another mess can be prevented in the future.

While this is a nice thought, I wonder how it will work. Regulations that were put in place after the Great Depression, in response to the gross oversights that led to the stock market crash of 1929, were shed about 70 years later. Even if there are regulations in place, who’s to say that — in the name of more explosive economic growth and assurances that things are so much more sophisticated — 70 years from now the same thing won’t happen again? Will we see more deregulation as complacency sets in? Will desire for the wild and unstable growth of the late 1990s and the early 2000s cause backsliding sooner?

It remains to be seen whether or not we really can learn from this mess.

In the current economy, and with all sorts of worries about the stock market, some people have begun saying that the old rules and the old definitions don’t apply. I say that the age-old rules of solid fundamentals, carefully chosen stocks and regular returns still do apply. Nonetheless, with nothing seeming to work to pull the stock market out of its fund, it is no surprise that there are some definite changes to the way people view the stock market. Here’s my example, using credit derivatives:

Old definition: Surefire way to make insane profits. Don’t ask how, just invest.

New definition: Toxic “assets”. How could all those people have been so stupid?

My Simple Trading System has re-worked some of the common stock investing and market terms we hear to reflect the general cynicism prevailing amongst investors:

CEO –Chief Embezzlement Officer.

CFO– Corporate Fraud Officer.

BULL MARKET — A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET — A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

VALUE INVESTING — The art of buying low and selling lower.

P/E RATIO — The percentage of investors wetting their pants as the market keeps crashing.

BROKER — What my broker has made me.

STANDARD & POOR — Your life in a nutshell.

STOCK ANALYST — Idiot who just downgraded your stock.

STOCK SPLIT — When your ex-wife and her lawyer split your assets equally between themselves.

FINANCIAL PLANNER — A guy whose phone has been disconnected.

MARKET CORRECTION — The day after you buy stocks.

CASH FLOW– The movement your money makes as it disappears down the toilet.

YAHOO — What you yell after selling it to some poor sucker for $240 per share.

WINDOWS — What you jump out of when you’re the sucker who bought Yahoo @ $240 per share.

INSTITUTIONAL INVESTOR — Past year investor who’s now locked up in a nuthouse.

PROFIT — An archaic word no longer in use.