Vanderpool

Leveraged ETFs: Handle with Care

I appreciate the authors answers to my queries and also
the thoughtful and in-depth analysis by aarc. I think you are both valid while your time frames for these analyses are different, thus generating different observations.
Once again - a timely and engaging article with some very intelligent and valuable follow up contributors.

Leveraged ETFs: Handle with Care

This is the best article about these funds I have read yet... Thanks Kevin for the effort. Still I have some questions...
What I do not understand is what effect do they have on your holdings if you stay in them overnight. Do they open up the next morning compensating for any plus or minus action that occurred since closing the previous day?
Can they be used at all to protect you from overnight swings in the market?
If not, how do you trade in these if you have a long term perspective on where the market is headed? (In them in the AM and close out in the PM? Everyday until your market expectations change?) How do you capitalize on their potential to out perform?
Anyone got the answer?

Who Will Profit from Mark to Market Changes?

I agree, that Mark to Market will be rescinded in some way.
It is certain to result in another straw lifted from the Banking Camel's back and will have such consequential ramifications for the banks that their shares are sure to rise again. In the short run, values will probably rise in a wobbly way but in the long run this change will be a long term salve to the carnage that's been wrought.
Those who do not support the changing of MTM should not confuse their dislike for the change with the certainty that it will be beneficial to the value of bank stocks. Ignore this fundamental shift at your own risk.

"Populist perception is that everyone working in a big investment bank was greedy and/or incompetent. That is simply not true. This may sound shocking, but professionals who’ve built up a lifetime of skills, experience, and contacts do exist at these firms. They are not so easily replaced. I’ve heard rumblings already that anyone worth their salt has left any firm taking TARP money. If this legislation passes, that will no doubt be true." (Economist)

Too be fair, not all firms taking TARP money needed it. Some did it because the government wanted them too. For those people, this is unfortunate.
But for the firms that have needed it: AIG, Citi...etc (and are now our all time biggest "welfare queens") it seems appropriate that bonuses not be paid.
I understand that, at least in some cases, "Bonuses" were contracted prior to the determination of the year's profits or losses. Is that a bonus?
It seems more like a predetermined salary with a portion paid out as a "bonus". I wonder if the tax consequences of this sort of set up were?
Maybe the difference is that when "Joe six pack" hears his tax money is going to pay "Bonuses" to the "Wizard of Wall Street" he thinks that the "Bonus" is "Merit" based and he wonders what is so "meritorious" about the results these organizations on Wall Street produced? (He might actually think their work is criminal.)
Now, the "Wizards and those who played the game, they see it in a more sophisticated way. (Kind a Like they saw CDO's...) The bonuses were "Predetermined". Based on the assumption that "Past performance IS a predictor of future results" Therefore, they feel they are "owed" the money IN SPITE of outcome. Some might call this "Noblesse Oblige"... or a creeping sense of entitlement.

What's Another $1.15 Trillion?

On Friday China's Premier Wen Jiabao warned (pleaded with?) (or ordered?) the US to protect the value of treasuries saying:
"We have made a huge amount of loans to the United States."... "I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets."
Now, just 5 days later our treasury responds by flooding the world with dollars but buying treasuries. Hmmm, I wonder whose in charge?

Avon Looks Pretty - Barron's

The Barrons article does not suggest that growth in sales will come only from the US. 86 percent of its revenues come from outside the US.
They suggest a doubling in China and some in Russia. The door to door sales concept is not assumed to be a strong method in the US but is still relevant in economies that are not as "mature" as ours (Economies about where we were in the 1950s perhaps?).
It also says that the average earnings are $2000. This is apparently enough to interest volunteers for the job since their sales force is expanding. A weakening economy often pushes people to be more entrepreneurial and to opt to find jobs where they are their own boss and work their own hours. Avon offers a relatively inexpensive way to do that. The idea that a multi level marketing scheme does not work does not seem to have discouraged tens of thousands of real estate brokers and associates from sharing listings and making satisfactory incomes over the years in this country. So why should it not be valid for Avon which sells cosmetics?
The concern mentioned in the article is of depreciating currencies in the growth markets. This is valid, but apparently Avon is addressing this in part by finding ways to lower their costs and raise prices (Thereby maintaining margins). If the dollar does begin to drop, Avon will be well poised to thrive in the new economy ahead.

"Women aren't going to stop wearing make-up," Barron's says, which is why the magazine predicts shares of Avon (AVP) ($17) could double over the next year.

If door to door sales were good enough for Solomon Guggenhiem and his family... one would think that Avon's door to door cosmetic sales would be a no brainer. Simple businesses, understandable concepts, day to day needs. These are the places to invest. Just think "McDonalds" to appreciate simple businesses well run.
I would buy Avon.

The 15 Most Cash Rich Companies

Cash rich doesn't mean a whole lot if the company doesn't
have a good strategy for deploying their cash. Microsoft is a good example.
It seems to be at a loss as how to use its surplus and has not been able to
make creative use of its bounty.
On the other hand Apple has a huge cash surplus but is deftly utilizing it
and is thereby defining the future of communication and media for decades
into the future.
So an important step is to screen the authors information by determining
which company has the superior management and imagination to not
just "bank" the cash but to intelligently put it to work for future
growth and profit.

FASB Unlikely to Suspend Mark to Market

The present Mark to Market rules were put in place in the early '90s. This was done over the objections of banking experts such as the former FDIC chairman Bill Isaacs. (Isaacs as you know oversaw the government takeover of the Continental Illinois Bank).
The other time in our history when we had Mark to Market was... you guessed it... the Great Depression. Ultimately, Roosevelt was persuaded to rescind the onerous rules albeit 8 years later).
The idea of Mark to Market is to value assets to what is determined by the the market. Sounds good. But Isaacs and others who opposed this accounting rule asked "But what if there is no market?"
If there is no market then values will be non existent and we would soon find ourselves in a financial panic such as we have today, they argued.
Their fears have been borne out and now their advice is being heard in Washington. The new market values would be determined by cash flow. This is a better determinant of value in comparison to the absurdly low value assigned by the current market panic (read non-market).
The argument is that getting rid of Mark to Market will allow the banks to stop hoarding the Billions of taxpayer cash and instead put the money to work in the REAL economy.
You can't sail a boat without a rudder and you cant Mark to Market without a market. Replacing Mark to Market now will get things rolling again. There will be time to adjust the details later.

The U.S. Financial Accounting Standards Board ((FASB)) will discuss mark-to-market guidelines at a board meeting Monday. The FASB says it will focus on "additional application guidance that would clarify how mark to market is used in illiquid markets." Earlier today, FASB chairman Robert Herz told a House subcommittee that new rules could be implemented within three weeks.

I have read that if this change is passed it will be bad for the stock market. That to me seems illogical. I expect it will be a benefit. Any other opinions?

I Have a Bad Feeling About This Market

Seems to me that anyone interested in "facts" and "figures" and professional advice wouldn't waste their time on an article about how someone "feels" about the market.... So if the denigrators of the authors work really feel that way... Why read an article entitled "I Have a Bad Feeling About This Market"?
Let me suggest a reason: We read it because despite the "rosy facts" we are instinctively doubtful. We fear he may be right. And we respect his clarity? Remember, even the most savvy, well educated, most lauded, degree decorated investor in the end will admit the market is moved by emotion and not fact... "Up on greed and down on fear". Could it be that there is, still, more fear than we like to admit?

David Reilly: "Banker bashing is great sport. It satisfies the populist need for an identifiable villain in the financial crisis. It provides an outlet for our collective anger. It absolves us from thinking about just how we - the credit-card-loving, mortgage-craving, debt-addicted consumers of America - helped foment the meltdown."

HuskerBob is right. He is right that we all knew something about what was going on and he is right that the blame ultimately does lie with the Bankers and authorities charged with the priviledge of overseeing how we utilize our credit in this country.
We all suspected something was askew when our neighbors bragged about buying second and third houses by maxing their mortgages, equity lines and credit cards. When Plumbers advised their customers to "invest" in million dollar condos like themsleves... (These are my experiences). Yes "We" all knew something was wrong... but that certainly doesn't mean "We" knew how to correct it or why it was happening... BUT the bankers knew and the Fed knew and the mortgage brokers knew. These were the people charged to be alert to abuse of the system and whose responsibility it was to stop abuse... not PROMOTE it.
Like a Canary in a coal mine, these people should have been doing their professional "darndest" to stop the rampant abuse of credit but they failed and many people will suffer.
I did not participate, I did not support the "Deregulate everything" blather. I could not support the political winners of the last 8 years but I have lost out just the same... And I have minimal debt.
The only thing sensible people like myself could have done is instead of voting once, in an election, would have been to vote 3 or 4 times to counter balance the wave of suspended disbelief the nation operated under the last several years.

Russia: Now vs. 1998

I am shorting RSX big time. My perspective is that oil is going to keep going down ($75/barrel) and that the Russians have oil but don't have an economy. Therefore where oil goes so goes the RSX.
I am also pessimistic in the short term about surrounding 3rd world economies (Overheated and inflation prone). Hence I expect less trade for Russia. And lest I forget, Russia's BAD behavior (Invading Georgia) just puts the cherry on the cream. Short Russia - Make some dough!