When I first got interested in markets I thought technical analysis was a great tool. It was easy to learn, made logical sense and most importantly, appeared to work.

I was fooled by this cunning, seductive mistress. Technical analysis is the fools gold of finance. It is an illusion that is as real as Michael Jackson’s face. But to quote Levar Burton’s Reading Rainbow: “You don’t have to take my word for it”. Read more

Microsoft is turning into quite the hussy. Shortly after breaking up with Yahoo! before they even officially dated, Microsoft has been seen holding hands with Facebook…. and they might even kiss.

I never liked the proposed Yahoo merger. This one, however, might have legs.

Firstly, lets ignore the $15 billion valuation that Facebook claimed to have in October. That number is just silly. Facebook is still a new kid on the block, they’re still working on a business model that will work in the long run.

Although it is still growing like vile weed, I have noticed that fewer and fewer people on my Facebook account update their profiles in a regular basis. Facebook could just be an Internet trend. A flash in the pan. Not a $15 billion dollar company.

Microsoft could bring a lot of help to ensure that Facebook becomes a long term juggernaut on the Internet. They have the reach, the knowledge, the experience and most importantly, they are just as evil.

Facebook has built a reputation for having poor privacy controls and whoring out users to advertisers. Microsoft has a reputation for whoring out user’s rights to media lobbies. Together they can ruin your online experience and share it with the world.

Seriously though, these two firms would benefit from each other. Microsoft would gain a growing Internet database of consumer information, Facebook would get a grownup to steer it in the right direction.

I say go for it! 

Another day, another round of layoffs at an investment bank. Today’s casualties are the employees of UBS AG, a Swiss based bank that has come onto hard times.

The firm’s investment banking division lost $17.3 billion in the first quarter. You can bet that the majority of job cuts will be from that division.

The 5,550 jobs represent about 7% of UBS’s 83,800 worldwide employees. That number is actually less than the rumored 10% cut that was floating around the market yesterday.  

This newest round of layoffs brings the total reductions in the industry to over 53,000 since this whole mess began. There is still no sign that the credit market has turned around, so expect more cuts to come during the next few months.

With all the recent negative press on the economy, I’ll forgive you for not noticing that the Dow Industrial Average had a really good month in April. Super Really Good. 4.6% returns good.

May is not doing too shabby either. Two days into the month and the Dow is up 1.4%. Aren’t we supposed to be in the middle of a Bear Market with a looming recession? What gives??!?!

What gives is that prior to April, the market went down too much, too quickly, thereby attracting buyers. From October 1st to March 31st, the Dow tumbled almost 13%. That’s quite a haircut for a 6 month period. Based on where we are today, the market still needs another 8.3% in gains just to break even with October’s numbers.

So here’s the big question: Is this just a blip correction, or do we call out the bulls and shout recovery?

 Lets take a look at what we know based on data from the last few weeks:

- The US Federal Reserve has been slashing rates. This usually leads to a boost to stocks, as companies will be able to borrow for less, and consumer get access to cheaper money (so that they can spend it).

- Job numbers for the month of April weren’t as bad as expected. The results were a quarter of the street consensus.

- GDP also topped analysts expectations in April.

- Oil & Food prices continued to rise rapidly, with no real end in sight.

So overall there’s been more positive than negative economic news this past month. However, and this is a BIG however, the continued rise in oil and food prices can lead to high inflation, which can undo a lot of the positives from the past month.

The good news is that things aren’t so bad after all, but we’re not out of the woods yet.

 

“In the worst start to a year for more than a decade, most money managers had retail outflows, and even stalwarts such as American Funds and Vanguard suffered a drop in assets, of 6.6 per cent and 4.3 per cent respectively.” Via (Financial Times).

Translation from business speak into English:

“People are taking money out of mutual funds”

This shouldn’t surprise too many people. The Dow Industrial Average went from over 13,000 to 12,300 during the first three months of 2008. Couple the market turmoil with the new year when people traditional re-evaluate their portfolio, and you have your explanation.

There is a nugget of good information towards the end of this article.

“….long-term assets do not include money market funds, which have seen big inflows”

Translation: “People are simply switching from equity funds to money market funds” (money market funds are simply short term highly liquid and secure parking spots for cash that yield a bit of interest)

Why is this good news?

Because it shows the problem in the 1st quarter was just market confidence. People aren’t dipping into their investments to pay for bills. If we saw a drop in equity assets and money market, that would be an alarm bell.

After reading a heated discussion in a personal finance forum earlier this week, I thought it would be a great idea to write my thoughts on one of the most intensely debated and discussed issues in finance. This is a question that I ask MBA grads during 1st round interviews. You’d be surprised how often very smart people can sound very stupid when asked if markets are efficient, and what to do about it.

There are two basic schools of thought in regards to investing in the stock market. In one corner we have the active investor. She believes that markets are inherently inefficient. An inefficient market is one where prices do not accurately reflect the value of an asset at that point in time. Therefore, some stocks will be “cheap” and others “expensive”. The goal of the active investor is to purchase the “cheap” stocks and then sell when they match/exceed their true value.

On the flip side we have the passive investor. He believes that the market is efficient and all prices accurately portray the true value of an asset. There are no “cheap” stocks. Everything is priced to perfection for that point in time. Depending on how far the investor is on the passive scale, they either base purchases purely on future expectations, or opt for the ultimate in passive investing: indexing.

Which is the better approach? Read more