Money & Investing - Banks.com

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.

U.S. Treasuries are trending higher right now as investors look toward bonds as a way to make money. With the stock market in turmoil, and returns falling in that investment vehicle, many are turning to the bond market. CNN Money reports on the decision by some to engage in the U.S. bond market:

Finding little in the way of return on investment in other markets, investors have placed conservative bets on the bond market. Recession fears and credit crisis anxiety have sent stocks falling in eight of 11 sessions thus far in November. Likewise, bonds have risen in seven of 10 sessions. …

Bonds may continue to rise for the rest of the week, which will bring a number of other economic indicators that are expected to be equally as disappointing. Investors likely will continue to buy up bonds as a safe-haven investment as stocks look for a market bottom.

With the U.S. heading for recession (or already there), investors are starting to look for instruments that are offering any return — even the relatively paltry return of government debt. But they are banking on safety. Government debt is considered amongst the safest of investments, and with worried investors, it is no surprise that bonds are finding popularity.

However, as demand for U.S. Treasuries grows, the yields will slip. Already bond yields on the 10 year note have dropped to 3.63% from 3.66%. And as more people demand them, it is likely that the yields will fall further. As far as your investment portfolio is concerned, it might not hurt to add some of these safer investments to help bring some balance — and some gains.

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.

Things have been a bit wild on the stock market lately. A lot of that has to do with the fact that the global economy is in recession, including official recessions in Europe and Japan. The G-20 meeting this past weekend hasn’t been helping matters. While leaders made pledges and commitments and came out saying a course of action has been agreed on, the fact of the matter is that there is very little substance to come out of the meeting. And, quite frankly, when that many people come out of a summit as satisfied as they are, it is a sure sign that very little indeed was actually resolved on and can be done practically.

One top of that, the newest incarnation of the Secretary Paulson’s TARP program is meeting less than enthusiastic response from investors. After all, Paulson hasn’t seemed to know what to do and has been changing his mind regularly. And if there is something that the stock market abhors, it’s uncertainty. So, while Paulson has a plan now, the way things are going, he might have a new plan later.

Could the new TARP plan be bad for investors?

But uncertainty isn’t the only thing in it. The new TARP plan, in which the government buys stock rather than making loans, could serve to cause problems for investors. Investing Blog makes the case against the TARP plan:

For example lets use a figurative company with 100 shares for a total market cap of $100. This XYZ company could then dilute, or create 10 new shares, for a total share count of 110. Each share would now be worth 10% less in that the 110 shares are still worth what the 100 were previously. If you owned 10 shares of stock you would own just 9% of the company when you owned 10% the day before. One share of stock would have a value of roughly $.90, opposed to $1 prior to the dilution. …

Many of the Federal government’s purchases will likely be preferred stock which does not hurt shareholder equity but instead opens more doors for taxpayer money to be lost. When a company declares bankruptcy the lineage for repayment starts first with debt owners, then preferred shareholders and then common stock holders. Before the change in the TARP program, taxpayers would be the first to be paid as they were debt holders. As of the new change, they’ll be either second or third in line rather than first, and judging from history it is unlikely that preferred shareholders will get their full value if they get anything and common stock holders will likely get nothing.

It appears as though volatility will be the norm on the stock market for quite some time.