Rising food and paper costs may have you paying more for your Big Mac. / Image: pointnshoot/Flickr/CC BY

McDonald’s is the world’s leader in the fast food market, garnering about 19 percent of that niche. However, faced with the rising costs of food and paper, the company has announced that it plans to implement more small price increases throughout the year in order to offset this trend somewhat.

Earlier estimates proved inadequate

McDonald’s estimates that food costs will rise between 4 percent and 4.5 percent in the U.S. and Europe this year. This is an increase from earlier estimates, which projected only 2 to 2.5 percent increases in the U.S. and 3.5 to 4.5 in Europe. Paper costs were also cited in the projected price hikes. McDonald’s claims that food and paper costs ate up 33.6 percent of the company’s sales in the first quarter of 2011. Those costs were up from 32.9 percent in the same quarter a year ago.

A bad time to raise prices

Consumers who struggle daily with the rising costs for housing, fuel and the other staples, may just stay home to eat if prices increase too significantly.  Steve West, an analyst for securities-related financial services company Stifel Nicolaus, said, “It’s very hard to pass through price increase[s] right now.”

Stock prices fall

After the company announced that it planned to raise prices, shares fell 1.5 percent in midday trading on the New York Stock Exchange.

The company’s CFO Pete Bensen says the company intends to sacrifice some short term profits in favor of long term growth.

Prices up by 1 percent

In March, McDonald’s implemented a 1 percent menu price increase in the U.S. and Europe. Other increases are planned throughout the year. Price increases are also planned for its stores in China.

McDonald’s continues to lead competition

McDonald’s continues to outperform its competition. Peter Jankovskis, an officer at Oakbrook Investments, claims, “The bottom line is they’re still doing a great job of growing revenue.”  The total first-quarter revenue for the corporation rose 9 percent, to $6.1 billion.  Sales in the European stores were especially significant.

Sources

Reuters

MSNBC

Daily Finance

Because investors equate lower payrolls with higher profits, the stock market historically performs better with higher unemployment. Image: CC Davic C. Foster/Flickr

Stocks rose on the jobs report released by the Labor Department Friday. Job creation in the last two months is the strongest it has been since before the recession. But the market’s current response to a positive jobs report is unusual, and stocks could fall again if the labor market continues to improve.

First quarter gain for stocks and jobs

The U.S. unemployment rate dropped from 8.9 percent in February to 8.8 percent in March, the lowest rate in two years, according to the Labor Department. In response, stocks rose across the market. The Dow Jones Industrial Average rose 87 points to 12,406, a 0.7 percent gain and a new high for 2011. The Standard & Poor’s 500 rose 10 points to 1,335, a 0.8 percent gain. The Nasdaq composite rose 15 points to 2,796, a 0.6 percent gain. Payrolls at U.S. companies increased by 216,000 workers in March after a 194,000 gain the month before. The unemployment rate has been dropping since it was 9.8 percent November, the biggest four-month decrease since 1983. U.S. stocks surged 5.4 percent in the three months ending with March for the biggest first-quarter gain since 1998.

The counterintuitive relationship between markets and labor

Normally companies announcing layoffs benefit on Wall Street because investors believe smaller payrolls equal higher profits. When the labor market was hemorrhaging jobs in January 2009, the stock market gained. In fact, in the past 60 years the stock market has performed better on average when the U.S. unemployment rate was higher rather than lower. According to Ned Davis Research, the S&P 500 mustered an average annualized gain of 13.5 percent when the unemployment rate was above 6 percent. When unemployment dipped to 4.3 percent or below, the S&P 500 managed just a 2.1 percent gain on average. In January 2009 Ed Clissold of Ned Davis Research told MarketWatch that in addition to lower costs and higher profits, traders salivate at high unemployment because it means they will benefit from economic stimulus provided by the federal government. Traders may also believe that by the time unemployment news hits the streets, stock prices have already been affected by job cuts and shares can be flipped for profit if they rise.

Traders hope job news doesn’t get too good

Stocks may have surged on Friday’s good labor market news not because unemployment has dropped but because it hasn’t dropped too much. Traders myopically chase short term gains and don’t consider long-term strategies. In the current environment, many of these traders believe the stock market has been propped up by the Federal Reserve bond buying program known as QE2. Some of them, especially those in the fixed-income market, worry that if the labor market gets too strong, the Fed will quit buying bonds after QE2 is slated to end in June, and the gravy train will stop. As the return of record profits and bonuses on Wall Street while average Americans have struggled has shown, what’s good for stocks isn’t necessarily good for the country. If more Americans keep finding work, the markets could change their tune.

Sources

Associated Press

MarketWatch

CNNMoney.com

The Santa Claus rally is a year-end stock market surge occurring in countries where Christmas is a national holiday. Image: CC Vanessa Pike-Russell/Flickr

The Santa Claus rally in the stock market, if it has arrived on schedule, will begin Monday, Dec. 27. Historically the Santa Claus rally is the last five trading days of the year in countries that celebrate Christmas. The Dow Jones Industrial Average, already enjoying a strong December, hit a two-year high on Dec. 22.

Yes Virginia, there is a Santa Claus rally

The Santa Claus rally, also known as the “December Effect,” occurs during the final week of trading before the new year. A Santa Claus rally is generally reliable because of an increase in trading that must be executed before the end of the year for accounting and tax purposes. Santa Claus rallies are also attributed to traders anticipating the “January Effect,” an infusion of funds into the market that occurs at the start of the new year. Since the financial crisis hit in 2008 the January Effect has had diminished impact, but Santa Claus rallies in recent years have remained strong.

Evidence for the Santa Claus rally

The Santa Claus rally may have something to do with celebrating Christmas as a national holiday. A study by researchers at a New Zealand university found that year-end stock market surges became evident in Britain when Christmas became a national holiday in 1835. The same phenomenon started happening in the U.S when Christmas became officially observed in 1870. The study also found that year-end market surges are stronger in countries where Christianity is the dominant religion and Christmas is widely celebrated. The study, however, doesn’t answer the question of why celebrating Christmas would lead to a Santa Claus rally.

The Santa Claus rally 2010

The 2010 Santa Claus rally may have started early. The Dow hit a two-year high on Dec. 22 and gained for the 10th time in 11 sessions. As Christmas drew near, volume was light and many traders had already taken the week off. The market has showed optimism over signs that the global economy is improving. Reassuring statements from China about how the euro zone will be able to solve its debt problems have also helped. Plus, the general lack of economic news or corporate maneuvers during the holiday season have put normally jittery traders at ease.

Sources

MarketWatch

Investorplace.com

Wikipedia

In a move everyone was waiting for Wednesday, the Fed announced QE2 -- printing money to buy $600 billion in Treasurys -- an effort to stimulate the sluggish economy. Image: CC NC in DC/Flickr

Just about everyone knew the Federal Reserve would launch another round of quantitative easing after the midterm elections. What wasn’t known was just how much quantitative easing the Fed was going to launch. The suspense ended Wednesday when the Fed announced it would buy $600 billion in Treasury bonds between now and June 2011.

The Fed’s big bond purchase

The Federal Reserve hopes to jolt the sluggish economy into recovery by pumping billions of dollars into the financial system. In an effort regarded as bold, risky and unconventional, the Fed will start printing money to buy $600 billion in Treasurys. In theory, the second round of a fiscal stimulus called quantitative easing, or QE2, will lower interest rates on long-term loans, stimulate consumer spending and reinvigorate hiring. The total QE2 package could add up to $900 billion as the Fed buys even more Treasurys with $300 billion it plans to make from mortgage portfolio investments.

Markets react strangely to QE2

QE2 was no secret, but the Fed’s move, in its depth and breadth, was bolder than most analysts had anticipated. Even so, in the financial markets, which had been pricing in an even bigger Fed bond purchase, interest rates surprisingly rose following the QE2 announcement. The yield on 30-year Treasury bonds was up 0.17 points to 4.09 percent. Ten-year Treasury bonds rose 0.04 points to 2.6 percent. The stock market also favored the news. The Standard & Poor’s 500 index was up 0.2 percent.

Fed has no faith in Congress

A few months ago the Fed considered a return to normal monetary policy, which has been customary following a recession. That would include raising interest rates and tightening credit. However, the possibility of continued political gridlock based on the outcome of the midterm elections convinced Fed chairman Ben Bernanke to act. Because the Fed can’t count on Congress to do anything to stimulate the economy, Bernanke has said, he will use all the tools at his disposal to stimulate employment and get the economy back on track.

Sources

New York Times

Washington Post

USA Today

Wall Street just can't stay stable. CC by believekevin/Flickr

The stock market forged ahead last week on news that the consumer confidence index rose. The markets went into reverse a short time later when the Fed released minutes from its latest meeting. The markets rose again on Wednesday, this time on data showing growth in American and Chinese manufacturing output.  This late burst of schizophrenia concludes the darkest August for stock traders in ten years. The Market Volatility Index, also known as the VIX, or “fear index,” jumped nearly 11 percent during the month for its biggest August jump since 2001.

Volatility defined: the fear index

At the closing bell Monday last week, the VIX was documented at 27.21. Tuesday, the VIX finished at 24.55 — a drop of 4.2 percent. The VIX made up the loss on Wednesday, moving to 28.77 — a 4.8 percent rise. A report on the current state of the VIX by MarketWatch said that traders gauge investors’ fear with the metric because the number grows along with market uncertainty. The rise of the fear index matched the fall of the stock market as August progressed to its dismal end. The VIX is up one day and down the next. However, the Wall Street Journal reports that it would have to shoot much higher to cause widespread panic. Genuine concern was evident in 2008 when the fear index went past 80 after Lehman Brothers imploded.The market’s “flash crash” in May generated global jitters. The fear index passed 80 at the time.

Markets not behaving normally

The Fed revealed it knows not where the U.S. economy is bound or exactly what actions will influence its direction. This lack of understanding scared the markets once more to bring a fitting end to the worst August for traders since 2001. Yet stocks resumed climbing Wednesday, the Associated Press reports. Reports showing robust gains in U.S. and Chinese manufacturing surprised everyone and generated optimism about economic recovery worldwide. The sputtering U.S. economy led traders to wager that corporate earnings would suffer in August, thus bringing down the markets. On the flip side, expanding economies in foreign countries will benefit many major U.S. corporations that conduct business internationally.

Analysts are united in their dumbfounded-ness

The market’s sudden turnaround Wednesday after finishing out a dismal August the day before left analysts flat-footed, according to the New York Times. Stephen J. Carl, an equity trader on Wall Street, told the Times that he was taking for granted that the pre-Labor Day week would be uneventful. The manufacturing index, a key metric offered to traders by the Institute of Supply Management, rose surprisingly in August to 56.3 after coming in at 55.5 in July. A lesser score was forecast by economists responding to a Thomson Reuters poll — 53.0. The impact of those numbers confounded Carl. He told the Times he was “perplexed” that manufacturing index of 56.3 would be bumping stocks. But reality may be setting in again soon enough. The markets have been looking ahead to Friday’s jobs report with trepidation. The Labor Department jobs report is expected to show the loss of another 100,000 jobs. Unemployment, after holding steady at 9.5 percent through the summer, is predicted to jump to 9.6 percent. Also rising, of course, will be the VIX.

Sources

MarketWatch

Wall Street Journal

Associated Press

New York Times

Consumer confidence posted a modest gain in August -- data that bumped stocks and eased concerns that anemic consumer spending will derail economic recovery. Charlie Brewer/Flickr photo.

The Conference Board’s monthly report on its consumer confidence index showed that the metric used to gauge economic outlook actually bumped up a couple of points in August. The modest gain gave the stock market a jolt into positive territory Tuesday morning.

Consumer confidence index beats forecast

Consumer confidence rose in August to beat predictions. Bloomberg reports that the increase in the consumer confidence index to 53.5 from a five-month low of 51 in July could be a sign the biggest part of the economy may avoid a further slide that could effectively end a stalled economic recovery. But even with the increase, an economist told Bloomberg that the August consumer confidence figure is at a “stunningly low level.” Even so, higher confidence brings a ray of hope that consumer spending — 70 percent of the U.S. economy — will recover. To do that, companies need to start hiring more. Yet according to the Labor Department, companies created an average of 51,000 jobs from May through July — down from 200,000 the previous two months.

Consumer confidence report details

In addition to the consumer confidence index, the Conference Board report contains other details. MarketWatch reports that more consumers are pessimistic about the present situation of the economy, yet optimistic that conditions will improve. The Conference Board’s present-situation index — a measure of attitudes about business climate and job opportunities — dropped to 24.9 in August from 26.4 in July. The expectations index — a measure of expectations for a better business climate and more job creation — rose to 72.5 in August from 67.5 in July. Consumers planning to buy a home within six months moved to 2 percent from 1.9 percent. People planning to buy a car rose to 5 percent from 4.7 percent. An economist told MarketWatch that despite the August gains, consumer confidence is at “incredibly depressed levels,” compared with previous economic recoveries.

Bump in index doesn’t guarantee consumer spending

A consumer confidence index above 90 indicates a healthy economy, according to the Associated Press. Yet the August bump put the brakes on a sliding stock market Tuesday morning. About two stocks rose for every one that fell on the New York Stock Exchange. Like all recent market rallies, this one is expected to be short-lived. Most economic reports show economic growth is slowing, and the slight uptick in consumer confidence doesn’t guarantee an increase in consumer spending. A high unemployment rate continues to motivate consumer saving and debt reduction — behavior considered virtuous from a personal finance standpoint. But until the job market recovers and people open their wallets, the late-summer slump could continue for the rest of the year and drag the U.S. economy into a double-dip recession.

Weak retail sales contrasted with a rising consumer confidence report to narrow trading and reduce stock market volatility on Friday. Flickr photo.

Retail sales dropped in May, and the stock market dropped in step with data delivered by the Commerce Department retail sales report. Stock market volatility has become the new normal. The stock market rose at the end of the day Thursday before reversing direction early Friday when the May retail sales report was released. A schizophrenic market then seesawed throughout the day as conflicted investors weighed the negative retail sales report with an unexpectedly positive analysis of consumer confidence.

Commerce Department retail sales

Retail sales derailed the optimism of a late stock market rally on Thursday. The New York Times reports that Wall Street indexes fell Friday morning after the Commerce Department reported that retail sales decreased 1.2 percent last month, the largest drop since last fall. Five of 13 retail sales figure categories in the report decreased with the largest drop in building materials at 9.3 percent. Excluding sales to commercial fleets (overall auto sales increased in May), retail auto sales were down 1.7 percent.

Stock market volatility week

Despite all the recent stock market volatility, all three major indexes closed higher for the week. Stock prices dove in the last hour Monday (jobless report), rebounded Tuesday (reassuring words from the Federal Reserve), dove again Wednesday (political pressure on BP dividends) and bounced back Thursday (overseas economic reports). The Times reports that Friday’s session, its volatility tempered by the good cop/bad cop consumer confidence and retail sales reports, made the difference for the somewhat happy ending.

Consumer confidence report beats forecast

A few hours after the May retail sales report sent investors out of stocks and into bonds, the Reuters/University of Michigan consumer sentiment index for early June came in higher than expected at 75.5, up from 73.6 at the end of May and better than the 74.5 economists had been expecting. Forbes reports that the disparity between the retail sales and consumer confidence reports signifies that many Americans still feel that their personal finances are under stress while they see the overall economy to be on the mend and hope for better days ahead.

Retail sales silver lining

A deeper analysis of the retail sales report may explain why consumers on Main Street feel better than traders on Wall Street. Frank Ahrens of the Washington Post points out that even though retail sales dropped 1.2 percent from April to May, compared with May 2009 retail sales were actually up 7 percent. Ahrens goes further to say that when excluding negative numbers from bigger pieces of the pie taken by auto sales, building materials and gasoline (down 3.3 percent) overall retail sales actually rose 0.1 percent in May.

North Korea news about the belligerent nuclear armed dictatorship is trying the patience of world leaders and tanking the stock market. Flickr photo.

North Korea news is dominating the headlines, scaring stock market traders and trying the patience of world leaders. Crass and belligerent as a rule, North Korea has turned its international misconduct up a notch lately. The nuclear-armed dictatorship can’t feed its own people attacked and sank a South Korean ship in March. After all available evidence implicated North Korea, South Korea responded with a naval exercise on Thursday. In return, the North severed a hotline between the two nations set up to prevent confrontations. Analysts trying to figure out the mysterious nation said North Korea’s behavior is related to the upcoming succession of power from dictator Kim Jong-il to his son Kim Jong-un.

The North Korea nuclear test

The first North Korea nuclear test in 2006 started painting a picture of a more desperate, impoverished dictatorship that would rather blackmail than borrow money. The Washington Post reports that since President Obama took office, dictator Kim Jong-il has launched missiles, conducted a second North Korea nuclear test and seized a pair of U.S. journalists. In March a North Korean submarine torpedoed and sunk the South Korean warship Cheonan in South Korean waters, killing 46 sailors. This week, after South Korea halted aid and trade to Pyongyang after evidence from the Cheonan sinking implicated the North, the North said it would sever relations with its neighbor. It also threatened more North Korea misbehavior if South Korea sees a U.N. Security Council resolution imposing additional sanctions.

Cheonan ship sinking

After the Cheonan ship sinking, North Korea news analysts are laying out another theory about the most recent boorish behavior from the Pyongyang regime. It could be part of an effort by 69-year-old dictator Kim Jong-il, who recently had a stroke, to establish his 27-year-old son as his successor in the family dynasty. The New York Times reports that no other explanation makes sense. To rational minds, the North’s accelerating confrontation is self-defeating. But it makes sense to Kim Jong-il. He needs to create a warlike atmosphere against a foreign enemy to rally public support. As for the Cheonan ship sinking, giving his son credit for planning and ordering a successful naval attack in a disputed sea border with the South boosts Kim Jong-un’s credentials as a “ruthless leader” who can command the military.

North Korea news: one thing for certain

North Korea news about such an isolated country is conjecture most of the time. At present the succession theory for North Korea’s recent provocations can only be a guess. CNN contributor Fareed Zakaria said until now North Korea nuclear tests could be understood as blackmail — make trouble, get paid off, then back off. Zarkira added that in the past, there has been considerable tension between South Korea and the United States on how to handle North Korea. With the Cheonan ship sinking, things are definitely not business as usual anymore.  Now the United States and South Korea are united in wanting to send North Korea’s leaders a very strong signal that they really have crossed the line, even if they can’t figure out what they’re thinking.

North Korea stock market fear

North Korea’s stock market influence continued to be felt this week. When the North Korean government ordered its citizens and troops last week to be ready for combat, investors ran for cover. In comments about the North Korea stock market connection to MarketWatch, Andrew Wilkinson, senior market analyst at Interactive Brokers, said “The words of the North Korean leader commanding his troops to be battle-ready are yet another excuse for markets to recoil once again.”

The Consumer Confidence Index exceeded expectations in May as it increased for the third straight month despite a tanking stock market and global economic uncertainty. Flickr photo.

Consumer confidence and the stock market took markedly different paths Tuesday. The Consumer Confidence Index, fueled by a brightening employment outlook, rose to a level that exceeded expectations. The stock market, on the other hand, dived below 10,000 Thursday afternoon as investors cowered in fear of the European debt crisis and escalating hostilities between North and South Korea.

Consumer Confidence Index report

The Consumer Confidence Index report from the Conference Board, a research group based in New York, said its Consumer Confidence Index rose to 63.3, up from a revised 57.7 reading in April. Economists surveyed by Thomson Reuters had expected 59. The Associated Press reports that the Conference Board Consumer Confidence Index survey — based on a random survey of consumers from 5,000 households between May 1 and May 18 — includes volatile days in the stock market like the May 6 Flash Crash and European debt crisis, but it was completed before the Korean crisis and a 376-point dive on May 20, the stock market’s worst one-day drop in more than a year.

Stock market ignores consumer confidence

For the first time in more than five years more people are eligible for no fax payday loans. The consumer confidence index is based on a representative sample of 5,000 U.S. households. Tuesday’s report was the third consecutive increase and the highest level since March 2008. MarketWatch reports that the percentage of people who thought there would be more jobs in six months outnumbered the percentage who thought there would be fewer jobs. Meanwhile, when the latest report on the Consumer Confidence Index was released, the Dow Jones Industrial average had fallen more than 12 percent from its recent high of 11,205, reached April 26.

Consumer confidence index data

The consumer confidence index has been rebounding slowly since a record low of 25.3 in February 2009. A reading above 90 indicates the economy is stable; above 100 signals strong growth. Consumer confidence index data means a lot to economists because consumer spending accounts for about 70 percent of U.S. economic activity. CNNMoney.com reports that the expectation index, which measures consumer outlook over the next few months, rose to 85.3, the highest level since August 2007, when it came in at 89.2. Last month, employers added  the most jobs since March 2006, and economists expect payrolls to increase by 500,000 jobs this month, which would be the most since September 1997.

The stock market consumer confidence disconnect

The consumer confidence index and the stock market appear to be on different planets. MarketWatch said that with banks withholding credit and U.S. consumers not spending, it was the $800 billion government stimulus package that jump-started a return to growth in gross domestic production, jobs and more recently consumer confidence. On the stock market planet, investors, after seeing stocks plunge more than 50 percent twice in the past 10 years, are looking for other ways to make easy money.

The bear market buzz has been getting louder as recent events scare investors, but while some analysts see a crash, others see a correction. Flickr photo.

Talk of a bear market (depressed stock market) has been circulating for most of 2010. But intense stock market volatility throughout May isn’t causing analysts to say the sky is falling yet. Some say the bear market signals aren’t a coming stock market crash, but merely stock market correction 2010. Others say the market has bottomed out already and can’t get any worse. One thing everyone seems to agree on is that no one really knows whether the bull market that began in March 2009 is about to end.

New bear market?

The bear market buzz began as early as January this year when marketwatch.com reported on the Elliott Wave Financial Forecast. The Elliott Wave, which successfully called the 2008 stock market crash and the 2009 stock market rebound, said a bear market would return in full force in 2010. It compared the situation to a brief stock market bounce after the initial stock market crash in 1929 and predicted a similar collapse. Other investment gurus, like Richard Russell, author of the Dow Theory Letter, have also predicted a stock market crash and urge clients to get liquid for quick cash. As the market tanks and rebounds depending on the news of the hour, that hasn’t been a consistently profitable position.

Stock market correction 2010

The bear market buzz is easy to understand, considering the confluence of recent events such as the Flash Crash, European debt crisis, the financial reform bill and the oil spill in the Gulf of Mexico. Investors, a skittish breed in the best of times, are lacking confidence now. But Anthony Mirhaydari, reporting on MSN, said a new bear market isn’t just around the corner. Mirhydari said long-term breadth, earnings, global economic growth and interest rates all suggest that higher highs are ahead for stocks. Also, there is historical precedent for a correction of the magnitude that occurred in May, as part of a long-term bull market.

Stock market volatility an overreaction?

Recent events like the May 6 Flash Crash have stoked a high fear index in the stock market. And the European debt crisis has been a wake up call for investors. But the new bear market buzz is overblown said Phil Dow, director of equity strategy RBC Capital Markets in Minneapolis, in an interview with CNNMoney.com. Some hard hit stocks have been oversold as investors turned chicken. May’s stampede into U.S. Treasuries is taken as a clear sign that investors overreacted to the European debt crisis. Dow told CNNMoney.com that energy, tech and health care stocks could be due for a comeback once investors realize that new bear market fears may just be stock market correction 2010.

Nimble traders thrive on volatility

It’s normal to expect some sort of a bear market given the duration of the present bull market, according to tradingmarkets.com. A 5 percent to 10 percent correction in the S&P 500 is normal, and when it happens it’s a good thing, helping to restore the market back to health. Also, the best trading opportunities, both long and short, often arise during market corrections. And nimble investors could find many opportunities to make money as volatility is expected to increase further before it subsides.

Market forecaster Richard Russell is advising investors to get out of stocks and into gold and cash as all signs point to a major crash. Flickr photo.

Richard Russell has made a name for himself as a fortune teller for investors seeking to stay a step ahead of the stock market. In his latest Dow Theory Letter prediction Tuesday, Russell forecasts a disastrous stock market crash that will render America unrecognizable by the end of 2010. Some other pundits who try to divine future events by analyzing and comparing stock market trends are also forecasting a crash.

Richard Russell’s Dow Theory Letters

Richard Russell’s Dow Theory Letters have gained a huge following in financial circles for the author’s comments, observations and stock market philosophy. Russell covers the U.S. stock market, foreign markets, bonds, precious metals, commodities, politics and economics. In the latest Dow Theory Letter, Business Insider reports that Russell advises investors to get out of the stock market altogether, avoid fast cash loans, eliminate debt and convert all wealth into liquid assets:

Do your friends a favor. Tell them to “batten down the hatches” because there’s a HARD RAIN coming. Tell them to get out of debt  and sell anything they can sell (and don’t need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country. They’ll retort, “How the dickens does Russell know — who told him?” Tell them the stock market told him.

Global Macro Investor agrees

Richard Russell has a kindred spirit in Raoul Pal — although Pal thinks the stock market apocalypse will happen in a matter of days or weeks, instead of months. Pal is a former Goldman Sachs executive who authors the Global Macro Investor, a independent research publication. Pal claims to have been observing a classic stock market pattern that has resulted in historical financial disasters — a sharp decline followed by a failed rally followed by a collapse.

Dow Theory forecasts

Richard Russell’s Dow Theory forecasts call attention to a deterioration in the stock market since April, despite improving business news. Russell offers a narrative that supports the Global Macro Investor prediction, pointing out recent April highs in the Dow and S&P Averages, followed by a plunge in both Averages to May 7 lows, followed by a short rally. If the two Averages turn down again to fall below their May 7 lows, the Dow Theory forecast is that a market collapse is inevitable, based on historic data.

Stock market crash unavoidable?

The Dow Jones Industrial Average fell 6.9 percent during the four days that ended May 7, sinking to 10,380.43, the lowest level since Feb. 26. The San Francisco Chronicle reports that the transportation gauge closed at 4,298.12, down 11 percent in four days. Downgrades of Greece, Spain and Portugal helped trigger the decline as the prospect of a sovereign default in Europe undermined investor confidence.

Russell speaks, market listens

Richard Russell’s Dow Theory Letter is taken quite seriously by investors. Chances are his prediction of a stock market crash will encourage a stock market sell-off and a run on cash and gold. Russell claims to have been the first to recommend gold stocks in 1960. Russell says he called the top of the 1949-66 bull market, the bottom of the great 1972-74 bear market and the beginning of the great bull market that started in December 1974. Russell began publishing Dow Theory Letters in 1958. Dow Theory Letters is the longest-running investor newsletter continuously written by one person in the financial industry.

Black Swan author Nassim Taleb, who writes about improbable events like Wall Street's Flash Crash, was actually linked to last week's mass selloff. Flickr photo.

Black Swan is the title of a book that examines stuff no one thinks can happen, but does — like last week’s high speed trading meltdown of the Dow Jones Industrial Average. Nassim Taleb, author of “Black Swan: The Impact of the Highly Improbable,” describes the rise of the Internet and the September 11, 2001 attacks as examples of Black Swan Events. In Black Swan, Taleb’s argument is that since Black Swan events cannot be predicted, society should at least try to practice policies that may minimize the damage of events, like the Wall Street flash crash, when they do.

Wall Street’s Black Swan

Various media are calling last week’s stock market flash crash a Black Swan event. And in an interesting coincidence, The Wall Street Journal reports that a hedge fund Nassim Taleb advises made a big stock market bet that may be related to the near-catastrophic market selloff, when the Dow dropped nearly 1,000 points in a matter of minutes. In lieu of fast cash loans, Universa Investments LP purchased 50,000 options that would pay off if the stock market dropped off a cliff. According to the Journal, the buy may have contributed to the panicked selling. Investors were already running scared because of the Greek debt crisis, so all it took was one big bet on failure to send them running for the exits. High speed trading made them trample each other on the way out.

Black Swan author Nassim Taleb speaks

Black Swan author Nassim Taleb showed up on CNBC Wednesday to talk about the Wall Street Journal’s Black Swan theory and the flash crash. He dismissed the link between himself and Universa’s Wall Street gamble. “I don’t know anything about Thursday’s event,” he said. “I don’t have enough facts to say whether the collapse was a Black Swan event.” Taleb said things have changed for the worse since he quit everyday trading a year ago. His sentiment:

The world is vastly more fragile than it was when I left it. The crisis of 2008 was caused by debt, hidden risks and irresponsible risk management. We have more debt, more irresponsible risk management and a lower tax base and more hidden risks.”

The Black Swan surprise

Black Swan wasn’t coined by Nassim Taleb. The term has been around since ancient times to describe improbability. Swans are almost always white, but every now and then a black one is hatched for no apparent reason. Taleb uses the term to focus on the markets. In “Black Swan: The Impact of the Highly Improbable,” he seems to predict a global financial collapse. Taleb states that the globalization of the financial markets has created that threat. When one financial giant fails, the rest fall like dominoes.

The next Black Swan: predicting the unpredictable?

Taleb says that Black Swan events, given their unpredictability and improbability, cannot be prevented. But he appeared to have the ability to see into the future when he listed “Ten Principles for a Black Swan-proof World” in the Financial Times last year. But it may be too late for markets, governments and the public at large. On CNBC Thursday, he said the government should shoot for a surplus — definitely a Black Swan event. He also said the worst may be yet to come. To paraphrase:

The U.S. is going to have $5 trillion to $6 trillion to borrow in the next 10 years. It’s going to be competing with European governments and corporates. One day, you’re going to have a bad auction. And that day will be the start of something new.

The Knot website discusses everything from venues to dresses. Image from Flickr.

The Knot is one of the web’s biggest wedding destinations. The Knot’s website and other media are all about The Big Day,  and today The Knot as a company is having a Big Day of its own. The Knot’s stock has been upgraded to a “buy” rating. So should you include purchase of The Knot stock as a part of your quick cash wedding plan? Maybe, maybe knot.

The Knot media company

The Knot is a publicly held media company. The Knot owns The Knot magazine and websit, which are targeted toward engaged couples and newlyweds. The Knot also owns The Nest, a sister brand that targets new parents. The company also owns Gift Registry 360, an online gift registry service. It is also working to produce The Knot TV, a TV station focused on engagement, weddings and new families.

The Knot financials

The financial reality of The Knot, like many weddings it features, is quite large. Advertising revenue alone brings in about $14.5 million every quarter. Operating expenses for the company are about $21.8 million per quarter. The gross profit margin is about 78.8 percent for The Knot. In short, The Knot is doing well – and its stock prices show it. In February of this year, The Knot stock experienced a drop in price from almost $10 a share to less than $7.50 a share. The price of The Knot currently sits at $8.28 per share.

The Knot ties itself up?

Of course, one would think that because The Knot has tied itself up in weddings and new families, it has limited itself as a media company. The reality, though, is that weddings are big business. The average wedding in America runs about $25,000 to $30,000. This is big money for many companies that want to target the market – so the market The Knot caters to can pull in big advertising dollars. At the same time, The Knot is expanding both the type and focus of its media offerings. Additionally, The Knot is trying to expand its focus to catch more of the low-budget, offbeat style weddings that are becoming more popular. No matter if you love or hate The Knot, as a company, it is definitely doing well in its chosen business.

Wall Street panicked as the stock market tanked during chaos triggered by a combination of investor fear and high speed trading. Flickr photo.

Wall Street breathed a little easier and the end of trading Thursday. The Dow Jones Industrial Average finished the day down only 348 points. Earlier in the day the stock market dropped like a rock — 1,000 points and nearly 700 points during one panic-stricken stretch. On Friday Nasdaq canceled the trades of 296 stocks that fluctuated most. It turns out that a toxic combination of algorithmic, or high speed, trading and fearful investors may be the culprit.

High speed panic on Wall Street

A Wall Street system to prevent what happened to the stock market Thursday may have actually caused it, thanks to high speed trading. When a stock price falls rapidly the number triggers a “circuit-breaker” that briefly halts New York Stock Exchange trades on it. CNN Money.com reports that at about 2:45 p.m. on Wall Street, shares of Procter & Gamble fell 10 percent. The circuit-breaker stopped NYSE trading on it for 80 seconds. Meanwhile the stock was in high speed play on other exchanges.

How does high-speed trading work?

The NYSE, down about 400 points, took a breather on P&G, Accenture, Boston Beer Co. and others. Meanwhile, investors afraid that the Greek debt crisis would leave them in need of faxless payday loans were clamoring to sell. How does high-speed trading work? Automatic programs in computers on other exchanges like Nasdaq began issuing tiny orders every millisecond. The computers found no offers to buy for the stocks that had hit their NYSE circuit-breaker. High-speed trading software seeking best offer saw the best bid as $0.  The high-speed trading computers, with greed in mind, are designed to add a penny to each trade to make a commission on every deal. The high-speed trading software placed millions of bets at 1 cent. Many stocks traded all the way down, triggering a massive sell-off.

High speed trading crackdown?

The computer-driven panic on Wall Street Thursday has people calling for a crackdown on high speed trading. Reuters reports that the massive sell-off that pushed the stock of highly regarded companies into a tailspin highlighted concerns that regulators can quickly lose control of the markets in the world of high speed trading. Democratic senators Edward Kaufman and Mark Warner said Congress needs to investigate the causes of the market plunge, which at its deepest point wiped nearly $1 trillion off equity values.

What is high speed trading?

On Wall Street, high speed trading has caused average daily volume on the stock market to explode. The New York times reports that powerful computers enable high-speed traders to transmit millions of orders at lightning speed and reap billions at everyone else’s expense. Stock exchanges say that a handful of high-speed traders account for a more than half of all trades.  What is high speed trading? It’s a bunch of computers that are so fast they can outsmart or outrun other investors, man or machine. It also appears they can outsmart and outrun themselves.

The Initial Public Offering of a company is big news on Wall Street. Image from Flickr.

The initial public offering of a company is usually a very closely and carefully watched event. Today, three separate company IPOs have gone very well. Calix Networks, MaxLinear and First Interstate BancSystem have all shown better-than-expected stock earnings. Calix and MaxLinear are both companies focused on internet infrastructure and are doing very well on the talk of the National Broadband Plan. First Interstate, on the other hand, is a bank that has shown strength in the difficult economy, its IPO is providing instant money to inject into their growth.

Calix Networks specializes in equipment

Based in Petaluma, California, Calix Networks started trading on the NASDAQ exchange today under the ticker symbol CALX. Calix specializes in designing and manufacturing equipment for fiber-based networks, including telephone, television and internet. One of Calix’s largest customers is independent service provider CentryTel, and the company is banking on the new National Broadband Plan to help increase sales. Calix’s initial $200 million start-up cost was funded by both private equity firms and venture capital investors. While Calix had assumed an IPO stock price of about $13, shares are currently trading for about $16. Most industry watchers are estimating that Calix will continue to improve its stock price as broadband becomes even more important to national infrastructure.

MaxLinear saves network power

Another network-focused stock that had a good IPO showing today is Carlsbad, California based Maxlinear. Trading on the NYSE as MXL, MaxLinear was last trading at about $18 a share. MaxLinear designs and manufactures processing chips for mobile and small-scale devices. MaxLinear claims that the technology it uses saves significant amounts of power, which helps extend battery life. Like Calix, MaxLinear raised initial start-up costs through quick payday loans from venture capital firms. MaxLinear was the most hotly anticipated IPO of the day and estimates were the stock would sell for $11 to $13 apiece, which they quickly surpassed. MaxLinear chips are used in a wide variety of cell phones, hand-held devices, televisions and consumer electronics.

First Interstate BancSystem

As an antidote to the high-technology Calix and MaxLinear initial public offerings today, the NASDAQ also saw the IPO of a regional bank. First Interstate BancSystem Inc. is a regional banking system with branches in Montana, South Dakota, and Wyoming. The first U.S. bank to go public since July of 2007, First Interstate’s stock price went from $14.50 a share to $16 in morning trading. Trading under the symbol FIBK, First Interstate Bank was able to show an improved net interest income and total assets while many other banks were being taken over by the FDIC.

Sources:

Wall Street Journal
Red Herring
24/7 Wall Street

Quadruple witching days are days of increased trading volume and volitility on the stock market. Image from Flickr.

Today is Quadruple Witching day on the stock market – the day where all four of the major linchpins of the stock market — market index futures, market index options, stock options, and stock futures — all expire. This “quadruple witching” happens the third Friday of every March, June, September, and December, and like the equinoxes and solstices that follow quadruple witching, they usually indicate change on the way. So if you’re a market investor looking for instant loans to pour into the market or a private individual with extra cash to invest, knowing what quadruple witching means will help you invest intelligently.

Quadruple witching day and quadruple witching hour

Quadruple witching day, like clockwork, falls on the third Friday of March, June, September and December. That day usually means increased volatility in the stock market, as investors scramble to make changes to their investments before their futures expire.

The quadruple witching hour – between 3 and 4 p.m. Eastern time on quadruple witching day – is the last hour of trading and is usually accompanied by a flurry of trading activity. The volume of trading on quadruple witching day is also very high – which means extreme changes in price can happen much more quickly.

What financial products does quadruple witching affect?

There are four financial derivative products that have a part in quadruple witching day. The first is a stock market index future – a contract that pays cash and is based on the price of a stock market index (such as the S&P 500).

Market index options give buyers the right (though not the obligation) to buy into a stock index by the end of the contract. A stock option, like a market index option, gives a buyer the option to purchase a stock at a set price. Finally, stock futures are contracts based on the projected future price of a stock. On quadruple witching day, all of these contracts expire, which means buyers and sellers must settle or re-purchase the contract for the next quarter.

Where does the name quadruple witching come from?

Before 2002, when single-stock future trading was not allowed, the day each quarter when contracts expired was called “triple witching” – most likely in reference to the three witches of Shakespeare’s Macbeth. The additional volatility and nearness to the 15th of most months made sure that investors were wary of the “ides” of the month. When single-stock futures trading was added to the market, however, the term became “quadruple witching” and is considered financial industry jargon.

The New York Stock Exchange is the barometer that most people go by to gauge the health of the economy. The NYSE also served as the barometer for the recovery of the economy. Beginning last March, the recovery began in earnest according to the numbers on the big board. Investors started feeling more confident and began buying bargain stocks from the financial sectors. The rush for bargains marked the early portion of the recovery. Now, the bargain hunt seems to be over and investors are buying more stocks from across the board. Analysts interpret this progression from bargain hunting in the financial sector to acquisitions across the exchange as indicating a maturity in the recovery process. The overall economy seems to be on a legitimate and sustainable track for long term health.

Standard & Poor’s 500 Index leads the way

The bull market’s coming of age story can be followed by looking at the Standard and Poor’s 500 Index’s performance since last March. The S&P 500 is up 69 percent since then. Those gains are even more impressive because the S&P 500 includes stocks in the financial sector and small cap funds which were hit hardest during the recession. In fact, the financial sector outpaced the overall index performance by double. Investors have migrated out of the financials and into health, telecommunications, large cap funds, and utilities. This indicates that investors believe that all the major gains in the financial sector have been seized, and they are moving on to greener pastures. The bull market is officially off and running.

Past two months sees shift in performance

Health and utilities have led the way for the past two months far out performing the darlings of the early economic recovery: financials and small caps. In fact, the latter are now lagging behind the rest of the S&P 500. High quality stocks like AT&T and Proctor and Gamble are now the most attractive on the board. These stocks have a history of performing well in any economy and provide greater dividends than low quality bargain stocks attractive earlier in the recovery. High quality stocks tend to out -perform the average by 20% in a maturing bull market.

Price –to- earnings ratio still attractive in large cap funds

Price-to-earnings ratios are looked at very closely by investors to decide whether a particular stock is either undervalued or overvalued. The ratio is calculated by dividing the per share market value of the company by the earnings per share. The ratios for many high quality stocks remain below historic averages. This means that investors have the opportunity to realize significant earnings on some of the best performing stocks on the board. Large cap funds can offer investors long term gains because they deal in the best performing stocks over the long run. The mature bull market offers stable earnings and ample opportunities for long-term gains. This migration from quick bargains to high quality stocks bodes very well for a continued economic recovery.

(photo courtesy of flickr.com)

There are many companies looking for money to increase and modify their production capacities. One way they do this is by sharing the ownership of the company with individual investors.

The ownership of the company is divided into many parts – there could be millions of these parts. A price is given to each part – called share or stocks — so that the person who wants to become a partial owner of the company buys a number of those shares. He or she is free to sell them to other people after some time. There are certain things that people who want to earn money from stocks should know and do.

How to earn money from stocks

If you want to earn money from stocks, you should understand the ways in which stocks make money. There are two main ways that stockholders earn money.

Dividends

The first way of making money from stocks is the dividends that accrue every year on the stocks you buy. As an owner of the company you are entitled to your share of the profit. The profit is calculated and given to you at the end of every year. But, if you depend on dividends, you will not make enough money from stocks.

Price appreciations

The second route is the price appreciation of the particular stock. This is the best way of making money from stocks. If a company is doing well, people want to be part of it. That means that these individuals will want to buy stocks of that company from those who originally bought them. They are usually willing to pay more than the price of the first person paid. The more people looking to buy a particular stock, the higher the price they will be willing to pay. Smart investors buy stock when prices are low and sell it when prices are high. The difference is the profit.

Earning more from stocks

Tip #1: Spread out your investments

When you buy stock in several different companies you diversified your investments and thereby minimize your risks. The stock market is a volatile thing. Things change very fast. If you have a lot of money to invest, it is wise to buy stocks in different kinds of companies so that if the price of one is falling, others may be appreciating. You should be aware of the saying “don’t put all your eggs in one basket.” If you put all your money in one company and things go bad there, you will lose.

Tip #2: Sell at the right time

There are times when you should hold onto stocks and times when you should sell. If you keep stocks when the price is appreciating, you are likely not to make any money. You need to sell your stocks when the prices are increasing because the appreciation will not last forever. Prices might fall sooner than you think. Watch prices carefully, so that after they have appreciated for some time, you are prepared to sell.

You can avoid the risks

You may have heard people say that stocks too are risky, yet if you understand the above principles you can and will make money from stocks. These are the principles that keep investors in the market for the long haul. People have made fortunes in the stock market and you can, too, if you play it right.

As long as they're OK, consider installment loans for your business's short-term financial needs. (Photo: flickr.com)

Small businesses are looking to installment loans rather than stocks for funding options. Before the recession, many small businesses were investing in the stock market, trading for added revenues. Dallas-area financial planner Chance Woods stated his clients have a “mixed feeling of relief at stock gains since March, and are reluctant to fully commit to the market.” Research is showing that most small business owners are feeling the same hesitation. The financial hit many of them took due to last years’ recession is having a huge effect on their confidence to move towards stock investing again.

Woods added, “People have been on an emotional roller coaster over the last two years, so they’re not quite ready to say, ‘I’m all in’…it’s going to take some time for them to recover and a lot less market volatility than we’ve seen.”

Alternative Investing

Although alternatives to stocks like money-markets and savings accounts were popular, it seems now that the return on investment is so low, business owners are hesitant there, too. According to Bankrate.com, the current rates for both modes of investments average about 1.5 percent around the country.  Seeing the lackluster interest rate, many business owners are opting for immediate installment loan options rather than wait out slow and minimal returns of other investing vehicles.

A Case in Point

Donnie Griffin, owner of a management consulting firm in Palm Springs, California, invested his money wisely. However, when the recession hit hard, he sold a good portion of his $250,000 portfolio. One week later, the stocks saw their biggest gain throughout the recession period. Griffin agreed he had “unfortunate timing” in his decision, but he also said that he wouldn’t venture back into the stock investing market easily. “Once you make a decision I think you’ve got to just ride it out… having experienced this drop, I’m better experienced for the next time one comes around.”

Griffin is not alone. As a business owner, his sentiments are shared nationwide. Many people lost a lot of money in stocks during the down economy. Although Griffin is patient, a lot of others aren’t. They want a more solid way of guaranteed money. Installment loans for a lot of qualified small business owners are proving to be that option. These types of loans are quick and simple for the qualified applicant. They potentially can bring money in when small business owners need it most. Rather than wait out a long-term investment and then reap only a small to moderate return, business owners are more confident in alternative types of loans.

No Guarantees on the Market

The most difficult thing for investors is that there is never a guarantee of market growth. The market is volatile and may take another turn for the worse. Robert Haley of Advanced Wealth Management stated, “It’s a gamble to hold and not sell now, and it’s a gamble to go all-in.” He believes that the way to mitigate the gamble is to build a long-term portfolio, but not rely on it for immediate funding. His belief is that a portfolio is never for immediate (or even moderate-term) funding. A better option may be immediate installment loans, or assets that are quickly liquidated. These are the types of funds that small business owners should have readily available for times of trouble.

Image from Flikr

Consumers are looking for more debt relief options as the stock market continues to fluctuate. This week the DOW Jones Industrial average made some drastic changes. The DOW Jones average is a roster of thirty stocks that most effectively weight the Wall Street’s financial climate. The DOW dropped Citigroup Inc and GM Corp. from its system. This is in response to GM’s recent filing for bankruptcy protection.

GM has been part of the DOW system for 83 years. This is a testament to the faltering economy and how different it may be once the recession is over. Travelers Cos. and Cicso Systems, Inc. are both set to replace Citigroup and GM, respectively.

Credit and the DOW Jones average

Many people look to the DOW as a barometer of the overall financial climate of the U.S.  With the DOW making major changes and going through restructuring, people are concerned.

Kelsey Glaser of Charleston, West Virginia said, “My family always used credit, but now that everything is so unknown, we are cutting back on plastic…with industry giants going down like they are, who knows what tomorrow will bring for us, the little guy.”  Glaser is not alone in his concerns.  Many Americans have been cutting back drastically as they maneuver the economy.

With huge corporations falling to the recession, no one is entirely at ease.  More and more consumers are trying to find debt relief options in other ways.  Some are drastically budgeting.  Many are using public transportation.  Some consumers are finding that combining households, reminiscent of the Depression days of the 40s, is the best option for them.  Regardless of the strategy, people are thinking in terms of the future and wanting to sustain themselves until things turn around and improve.

The future economy

With the Dow Jones average restructuring and dropping two industry giants, many economists are saying that though it is difficult news, it is the beginning of the end.

Maury Colevich, economics instructor, stated, “Although things are hard, this isn’t the calm before the stom anymore. We’ve already been through the storm and now things are settling themselves out.  We have to be prepared for that settling to include restructuring and reorganizing of what was typical in the past.  It’s all part of the process.”

Consumers and finances

Consumers are told to view the financial turmoil as temporary.  They shouldn’t take this as a sign of how things will be from now on. Like all things, there is an end.  In the meantime, many consumers are doing serious assessments of their finances, looking for new debt relief options.

One family in Missouri started a clothing-swap in their neighborhood to save on kids’ clothing.  Another family in Pittsburg said they are only going to restaurants that offer them half-off days.  It’s this kind of budgeting that seems to be ushering in a new way of life for Americans.

As one economist, Gail Graedey of Florida State University, stated, “People have made it through the recession, but now they are all going to hold tightly to their new altered lifestyles. … If something helped them with debt relief, they aren’t going back to their old ways just because the industry is better.  Consumers are smart and are going to watch their bank accounts for a while longer.”