Mullooly Asset Management » media impact

Facebook IPO: Will This Be a Great Deal or a Bust?

Thomas Mullooly — Mon, 06 Feb 2012 22:59:31 +0000

Facebook IPO News February 2012

Last week, in February 2012, Facebook filed for their initial public offering of stock. In this podcast, we discuss some of the basics of all IPO’s (Initial Public Offerings) and some of the merits of Facebook which are known at this point in time (February 2012). We do not have all of the information disseminated yet from Facebook at this time.

Any offering of shares can be made by prospectus only.

However, every investment adviser is likely to get calls from clients and prospective clients about Facebook. Their offering will be historic in several ways. Like many famous initial public offerings, shares may be very hard to come by.

But keep this in mind — after the offering, Facebook will be one of the largest publicly traded internet and technology companies. Which means Facebook will probably be attractive to exchange traded funds and mutual funds which invest in technology and the internet.

We have to say “probably” in this blog post and podcast, because we have no guarantee anyone will buy their shares or even if the initial public offering gets completed. It’s also a bad idea to speculate about the future, period! But the media will have a field day with any news regarding a Facebook IPO.

Two other things:
1. This video is NOT a recommendation to buy or sell any of the securities mentioned here.
2. None of the securities mentioned in this video represent past specific recommendations of Mullooly Asset Management.

If you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.
If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website. Under no circumstances should the content discussed here to be considered specific investment advice.

If you would like to see a mutual fund, exchange traded fund or individual stock analyzed using point and figure technical analysis, please contact Mullooly Asset management at 732-223-9000. I would also add the following: Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions, or withdrawals may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for an investor’s portfolio.

Managing Money in 2012: What Investors Need

Thomas Mullooly — Tue, 03 Jan 2012 13:28:27 +0000

I have been helping individuals manage their money for over twenty five years.

Actually longer — if you count the days I spent with EF Hutton, before becoming a licensed stockbroker. I have seen everything, so I will not recount the glory days and the gory days here.
We all have our war stories.

Along the way, I learned how making investment decisions based on news can really kill your portfolio. I have employed point and figure analysis to help manage money for my clients since 1997. The beauty of these charts, if you have followed my work, is they cut through all the noise we hear (and read) on a daily basis. All you see on point and figure charts are columns of X’s going up, and columns of O’s going down. The patterns they form point us into the right choices.

No doubt, 2012 will give us some serious headlines. News that will make us want to vomit, and news that will make us scratch our heads.

And only then most folks TRY to figure out HOW this news will affect their investments. Yikes.

Over the weekend, I saw a very famous photo, courtesy of www.championsgallery.com.
It immediately struck me: this is what we ALL need to successfully navigate 2012.
Look at the photo, below:

Managing Money Needs Focus

I want you to look at something in this photo: even though Secretariat was THIRTY ONE LENGTHS in front of the competition…
Notice the blinders.
Notice the eyes.
Forward.

I’ll say it again: 2012 will bring some gut-wrenching news. The beauty of point and figure charting is these charts cut through all the noise we hear (and read) on a daily basis. Point and Figure keeps our blinders on, and keeps our eyes focused straight ahead. Not on some far-off dream like they preach at the big firms (“ya gotta be long term”). All you see on point and figure charts are columns of X’s going up, and columns of O’s going down. The patterns they form, point us toward the right choices.

Point and Figure charts have been pointing people in the right direction since they were created over one hundred years ago, in the 1880′s. These charts do NOT follow the news. They follow the ultimate indicator: prices. News often breaks well after people have placed their bets. In other words, charts will begin moving up (or down) well BEFORE the news is learned. By the time they are talking about it on TV, it is too late.

We remain focused on what is happening in the market, and what is happening with your investments in particular. We are keeping the blinders on, vowing NOT to be distracted.

Mullooly Asset Management Podcast for March 17, 2011

Thomas Mullooly — Fri, 18 Mar 2011 07:31:50 +0000

“Never make predictions, especially about the future.” — Casey Stengel

We encourage our readers and listeners to our podcast to consult with their investment adviser before making a decision to buy or sell any investment.

And if you are relying on a podcast for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making investment decisions.

If you do not have an investment adviser in the New Jersey or New York area, we encourage you to contact Mullooly Asset Management at 732-223-9000 or through our website.

Under no circumstances should any of the content discussed on this podcast be considered investment advice.

Since last week’s podcast, a lot has happened: earthquakes, a tsunami, and nuclear chaos. The VIX index (the volatility index) has skyrocketed – we can continue to expect plenty of volatility in the upcoming weeks. Tuesday the market was down 200 points; we saw the same on Wednesday, Thursday the market was up 160.

Strap on your seat-belts, get ready for plenty of volatility.

As a reminder to our regular listeners and to inform our newer listeners: the media makes money by selling advertising. Because of this, the news tends to be more sensational in an attempt to keep you watching (or reading).

We have been saying for a while the market has been over-bought and in need of a pullback. What’s happening now in the market is…not a surprise. The long term charts are still positive. Although it’s been rough, what we’re going through now may ultimately just be a correction, and not a re-run of 2008.

The thing that really gets me is we can spend months watching the market climb up inch by inch, only to give it all back in a week’s time.

The downside tends to happen a lot faster than the upside.

The biggest difference between now and 2008 is this: In late 2007, the relative strength chart measuring “cash vs. the stock market” actually flipped over, and started to favor cash.

Look, this chart doesn’t change like very often, so when it does flip over, it is a very big deal.

This chart answers the question, “which is currently stronger?” Putting money into cash, or putting money into the stock market? This is why we prefer to focus on what is happening now – instead of trying to predict what will happen next. Like we said last week, the big picture backdrop is still positive, but the short term is very, very sloppy.

Let’s take a side-bar and talk about the events in Japan in the last week:

1. Terrible 9.0 Earthquake
2. A 30-foot Tsunami Wave
3. Nuclear Reactor “issues”

I’m stunned at the political posturing and rhetoric thrown around regarding nuclear power here in the United States.

Let’s be clear: this nuclear power station has been online for 40 years and survived a 9.0 earthquake. The station was still working after the earthquake – it was the tsunami that knocked out the power.

Are any of the nuclear power plants in the US in danger of being hit by a tsunami? I don’t believe so.

But you won’t hear that on the news. As usual, the media drums up emotions.

It is this reason why we rely on point and figure charts when managing your money here at Mullooly Asset Management. These charts do not show any events, or points where you can add in emotion. Emotion is an ingredient you don’t need in this recipe.

These charts simply show the ongoing relationship between supply and demand. And again, that’s not a theory- it’s an economic law.

The Mullooly Asset Management Podcast can be found below. The Podcast can also be found on iTunes. Go to the iTunes Store and simply search for “mullooly.” Under no circumstances should the information contained in this blog or podcast be considered investment advice.

Thank you for listening. We welcome your comments and questions.

Mullooly Asset Management Podcast for March 10, 2011

Thomas Mullooly — Thu, 17 Mar 2011 22:49:27 +0000

We encourage our readers and listeners to our podcast to consult with their investment adviser before making a decision to buy or sell any investment. If you do not have an investment adviser in the New York or New Jersey area, we encourage you to contact Mullooly Asset Management at 732-223-9000 or through our website.

Under no circumstances should any of the content discussed on this podcast be considered investment advice.

In this week’s podcast, we discuss two primary topics:

1. Predictions (and this week’s John Dorfman column)

Dorfman runs an “annual contest” to predict economic indicators of the year ahead. Here at Mullooly Asset Management, we find this to be a total waste of time. If you turn on CNBC or read any financial publication, that’s all they want: predictions.

Even though some analysts may have a great track record of predicting (or provide compelling reasons why their prediction may come true) – when you get right down to it, they are still only guessing.

Here are Mullooly Asset Management, we don’t believe in predictions – we focus on what is happening right now. This keeps us flexible. When we avoid predictions and drown out any emotional noise, we’re avoiding boxing ourselves in. Point and figure charts accurately tell us what is in charge – supply and demand. When demand is in charge of a chart, prices rise. This isn’t some theory we’ve come up with – it’s an economic law.

The only time emotions have the chance to cloud our judgment is when we look at the name on top of the chart.

2. Current market conditions: We have a very, very volatile market. We’ve had more triple-digit up and down days in the last month than we’ve had in the last six months. The volatility index (VIX) had formed a bullish triangle. What does that mean? All that tells us is that we need to expect and prepare for more volatility – a LOT of volatility – in the coming weeks.

Oil prices are up. People are worrying about higher gas prices. So what are we looking at? Short term charts are mixed – all of the short term indicators are starting to reverse down.

What does that mean?

1. Stop buying.
2. Look for trading profits.

And, when intermediate and longer-term charts look okay,

3. Build a shopping list.

What do we want to buy?

Longer term, this market is still very positively constructed.
Short term, we’re going to see a lot of sloppiness.

Thank you for listening. We welcome your comments and questions.

Auditors project deeper deficits for Obama budget

Thomas Mullooly — Sun, 22 Mar 2009 10:42:56 +0000

Every time I see headlines about future budget deficits, I keep telling myself “that is a weather forecast!” Most folks read the headline, perhaps scan the first paragraph, proceed to get bummed out and turn on the NCAA Tournament.

Just drill down into this a bit. The forecast is for a $9 trillion deficit to amass between now and the next ten years. Ten years!

Ten years ago, we were all worrying about Y2K. Remember?

Buried in the next-to-last paragraph was this little golden nugget. Read this whopper: “Long-term deficit predictions have proven notoriously fickle — George W. Bush inherited flawed projections of a 10-year, $5.6 trillion surplus and instead produced record deficits — and if the economy outperforms CBO’s expectations, the deficits could prove significantly smaller.”

There is so much ink spilled every day in the financial media that is essentially nothing more than predictions, or a public relations spot for something else. Unfortunately many of the PR and predictions become headlines. Our decisions can be swayed by too many headlines that are merely predictions or opinions. I’ve come to the conclusion everything written by the financial media has an agenda attached to it. Or said another way, everything written by the financial media is intended to make you do precisely the wrong thing.

I cannot help but laugh when I see some “expert” interviewed about the stock market, and the excuses/reasons given why markets went up or down that day. “The market is worried about inflation.” Later the same week “deflationary fears rattled the market.” Look, the market is not that smart — or that “forward-looking.”

Don’t get hung up on the Dow Jones. The Dow Jones may not be a “relevant” yardstick for you to use. After all, it’s only 30 stocks…and you might not own ANY of them. And avoid predictions and projections. It’s just a waste of time.

Charles Schwab Advertisements are Great. Here’s why…

Thomas Mullooly — Sat, 21 Mar 2009 18:20:33 +0000

Have you seen the ads that Charles Schwab has been running on TV?
You probably have seen them. They sound like real people, but they’re actually cartoon/colorized images.

These may be the best ads for financial services ever created. Here’s why:

You’re probably not aware of this, but in the financial services industry, firms and advisors are strictly prohibited from running testimonials of any sort. Think about it… how powerful would an ad be if some firm could get a few of their clients on TV and have them say: “You know, at so-and-so brokerage firm, they told all of us to get out of the stock market last summer!”

Too bad we can’t do that.

I would love nothing better than to have one client after another — in print, audio or video — in their actual voices — splattered all over my website.

See, I can expend tons and tons of hot air (or spill a lot of ink) telling you how great I am. But it becomes much more believable when you see an image of someone who looks like you, or someone who looks like someone you know, or who talks like you, or has the same problems as you, and is seeking a similar solution as you.

Which is why referrals are the strongest kind of recommendation/testimonial I can get. You told your “story” in person to someone else, and told it in such a compelling way that it moved the other person to pick up the phone and say “I want that too!” I sincerely appreciate the countless referrals I have received from you. It tells me you appreciate the work I am doing for you, and also tells me you care enough to refer your friends and co-workers. How terrific is that?

Testimonials are great — they are real people telling you real things that are important, or, at least matter to them. Maybe their advisor or brokerage firm didn’t get them out of the market, but perhaps they provide a valuable service, like — “he clearly explained everything to me like no one else had ever done before…” or even something like “he’s the first advisor I’ve worked with who actually returns phone calls!”

Can you believe we are not even permitted to run testimonials saying “we were happy just to get a phone call back, that’s never happened before!”?

By the way, if you happen to spot a financial advisor or brokerage firm with testimonials on their website, run!

This is why brokerage firms usually resort to running only “branding” advertisements. Not that there’s anything wrong with branding advertisements, in fact, they’re usually very effective over time. It’s easier for them to say “we are bullish on America” (what precisely does that mean?), than to get their lawyers to approve an ad that says “well, my broker did not steal my money and basically did an okay job.”

This is precisely why these ads from Charles Schwab are excellent. They are not real people — they’re illustrated images of real people. Their voices are real, their situations are real — the woman on the street, the guy standing over the barbecue, the older couple. People you and I could know very well.

More than that — Schwab really captures the essence of what’s going on. You know, that conversation going on in the back of your mind. These stories they tell are dead-on, bull’s-eye perfect. I can tell you that every single one of these analogies they use in their commercials, I have also heard from new clients over the last few months. Schwab has nailed it.

These are real people that really need help.

Of course, the next time you are with a friend or co-worker, listen. Listen hard to what they are saying. The main theme I have heard lately borders somewhere between worry and hopelessness, which is a terrible neighborhood. The situation today is NOT hopeless, and worry never got anyone, anywhere. Do THEM a favor, send them over to me.

Jim Cramer: Exposed

Thomas Mullooly — Fri, 13 Mar 2009 15:06:47 +0000

I am not a big fan of Comedy Central or Jon Stewart, I’ve watched the show a few times. But on Thursday March 13, 2009 Stewart interviewed Jim Cramer on his show. And for the first time (at least that I can remember), someone actually tried to hold Cramer responsible for some of the advice he has given, and also for the fact that CNBC has “morphed” into an entertainment channel. The thrust of the conversation was more toward exposing CNBC (and to some extent Cramer) as shills for Wall Street and no investigative work is done on that channel.

Bravo. It is truly an excellent piece to watch and encourage you to do so now.

I expect Yahoo and Hulu will chop up this video shortly. So, don’t delay, see this video as soon as possible. It’s nearly 20 minutes, so take some time and watch this, it will be worth it. Here is the link: http://tv.yahoo.com/blog/stewart-vs-cramer-winner-take-all–183

Stewart said “CNBC could be this great financial tool…especially for people who believe there are two financial markets…the people who are told to invest in 401ks and just leave it there…invest for the long term…don’t worry about it.” And the other market — that occurs in a back room. Where giant piles of money are going in and out…” “But you go on TV and pretend (that market) isn’t happening.”

By the way, if you have not checked out Hulu (http://www.hulu.com) you really should. Full-length TV shows (and even some movies) are shown online. Free. Since they have no business plan to make money, I don’t expect them to be around very long. But worth a look.

Tearing Apart the Headlines

Thomas Mullooly — Sat, 07 Mar 2009 18:06:33 +0000

Did you know General Electric (GE) posted record revenues last quarter? That has not really helped their stock, has it? Remember always, price is the ultimate indicator, which is why I rely more and more on charts. Fundamental analysts and company management can pontificate all day long about market share, earnings and revenues. If the market doesn’t like it, the stock is going down.

I don’t think I’ll ever get tired of reminding people that the job of the media is to sell advertising. The fact that you get informed — or get information — is a side benefit.

I’m not saying the media dispenses incorrect information. What I’m saying is they tend to focus on some really dumb things, and then pound it over and over and over. Just keep reminding yourself: their job is not to hang around and “fill you in” on the news of the day. The media is there to sell ads. So their teasers and headlines will often be filled more with drama than facts.

And often, the drama persuades you into doing precisely the WRONG thing. My friend, Tom Dorsey has often said “Remember everything that is written or said in the media about Wall Street is made to make you do the wrong thing.”

Example of “News” headlines:

One of the headlines on CBS MarketWatch is Freedom Bank (Georgia) is the 17th bank failure in 2009. OK, look, in the previous recession, there were over 700 bank failures. Some will be spectacular. If we have less than 700 bank failures during this recession, now THAT will be news.
Here’s another:

General Motors shares trade near Great Depression territory. Face it, the stock trades for about a dollar, it’s not coming back. Sure, it might get to two dollars. But will this ever be a $30 stock again? I don’t think so, under its present structure. Now if they were to file bankruptcy, wipe out the common stock and reorganize (where the debt/bondholders become the new stockholders), anything is possible… see Kmart.

I am far more interested in learning what will happen to General Motors and the bondholders in a bankruptcy proceeding. The government has poured $13 billion into General Motors in the last few months, and company management is back at the trough asking for another $17 billion. Amazingly, the market capitalization of General Motors is less than $1 billion ($900 million currently — one third the size of Burger King). Where did all that money go?

And another:

This past week, the financial media focused on how the banks were killing the Dow Jones Industrial Average. This is total nonsense. Citibank trades for $1 per share, Bank of America trades for $3 per share. If these two companies filed for bankruptcy tomorrow (or were nationalized — essentially, the same thing), this would move the Dow Jones Industrial Average a total of 50 points. I wonder how long it will take Dow Jones to remove Citibank, Bank of America, General Motors and General Electric from the Dow Jones Industrial Average.

Another favorite topic:

Unemployment rate reaches 8.1%. Okay, lots of room for debate on this topic. Historically, the average unemployment rate hovers around 5%. Did you know, for the past 15 years, the economy has averaged an unemployment rate between 3% and 4%? This is actually a pretty spectacular news item, but no one was writing headlines about that. During economic recessions, the unemployment rate often reaches 10%. So be prepared for that, and don’t be surprised when that news arrives. In fact, there have been several times where the unemployment rate surges in the latter stages of a recession — and the first phase of recovery. You read that right — many times the unemployment rate will rise, as the economy is improving.

And lastly:

GDP numbers. The stock market fell out of bed last week when it was announced that fourth-quarter GDP came in at -6.2%. First of all, this should not be a shock to anyone. Secondly, the media never really puts it in its proper perspective. So let’s look at this number. It measures growth (or shrinkage) of the economy in the fourth quarter 2008. The quarter ended December 31, 2008.

The original estimate was released January 31, the preliminary number was released February 27, the final revised GDP for fourth-quarter 2008 will be released at the end of March. The final revision may be a completely different number — for better or worse. But by the time we get it, that information is petrified like a redwood. Irrelevant.

By the way, at the end of April we will receive the original estimate for first-quarter 2009 GDP. What do you think THAT number will be? I expect it will be absolutely dreadful. And the media will go crazy. Be prepared.

Bank Nationalization and Mark to the Market

Thomas Mullooly — Tue, 03 Mar 2009 06:06:31 +0000

Mark to Market is a topic I have written about previously.

You can read about them here. I don’t like changing the rules of the game in mid-stream, but something drastic needs to be done. A terrific opinion piece was written in the Wall Street Journal recently by Peter Wallison. If you click on his name, you can see his very impressive resume. Graduate of Harvard Law, adviser to Nelson Rockefeller, adviser to President Reagan, General Counsel to the US Treasury, Wallison has the credentials.

The Obama Administration has still not come up with a plan to remove troubled assets from the balance sheets at banks. Therefore, their solution appears to be “semi-nationalization,” as evidenced recently when the US Government and Citigroup agreed to convert the preferred shares held by the government into common shares. The US Government will soon own approximately 36% of Citigroup, which is about as aclose as you can get to nationalizing a bank without coming right out and saying it.

Wallison asks a very important question as the thesis of his article. Accounting rules are very important, and should not be bent. This situation appears exceptional, but that does not mean there will be other exceptions in the future. It is a dangerous precedent. What most commentators and other media are missing is this important twist. Wallison writes:

What happens, then, when there is virtually no market for these assets — as has been true for at least a year? In that case, accounting rules require the banks use whatever market indicators are available.

What will this imply for other banks that are in trouble, or soon fall into trouble? How endless is the money supply?

I agree with Wallison’s approach…nationalizing the banks is a terrible solution. Revisiting mark to the market needs to become a priority. And Wallison writes:

…Both taxpayers and banks could come out well — and so would our economy — if the government were to buy the assets at their “net realizable value,” which is based on an assessment of their current cash flows, discounted by their expected credit losses over time.

Take a look at the article here (printed in the Wall Street Journal February 25, 2009). Additionally, suspending mark to market can effectively replace another cash infusion from the Government. It is worthy of consideration.

GM seeks up to $30 billion in Aid: fact?

Thomas Mullooly — Mon, 02 Mar 2009 09:40:32 +0000

This was the headline on the Associated Press on the evening of February 17th, 2009. Is that a fact?

This is how the media distorts. Pay attention.

So many investment decisions — made by investors, traders, mom & pop, everyone — gets determined by the headlines.

I am no fan of GM whatsoever. I think their products are not very good, their cost structure is bloated and the executives should not get a bailout. Lots of bad decisions over the years have put and the entire American auto industry in this position — this isn’t something that unfolded in the last few months.

But the media should be shot for their careless and sloppy reporting. The distortion is maddening.

As a preface, GM is currently trading around $2.00/share. The stock price is ALREADY TELLING YOU the company should be in bankruptcy. Even if GM’s stock price were to jump 30% in a day (or even a week), it is still not hitting $3/share.

But the “early impression” I had from clients that had been in contact with me in these past 24 hours is that GM needs an *additional* $30 billion dollars. Why? Read the headline and first sentence from the Associated Press:

GM, Chrysler seek more government aid, to cut more jobs
THE ASSOCIATED PRESS

The U.S. auto industry needs even more help from the government to survive than originally thought.
General Motors on Tuesday said it could need up to $30 billion from the Treasury Department to keep operating.

Unless you read the entire story, you would never know the actual numbers.

GM had already been approved for $18 billion in November, but only used $13.4 billion. They are now asking for $9.1 billion. So they were originally approved for $18 billion and will need $22.5 billion.

By the way, buried further down is the point that the “new” $9.1 billion is not even actually cash, but loan guarantees.

What about the remainder?

The remaining $7.5 billion is an “emergency” line of credit GM does not expect to use, but wants to ask for and have lined up. This is a “worst case scenario” (it’s already pretty bad) but this will cover expenses like bankruptcy costs, if it gets to that.

It’s the media’s job to sell newspapers, attract eyeballs to their TV channel or website. Don’t forget that.

Economy shrinks at fastest pace in 26 years

Thomas Mullooly — Sat, 28 Feb 2009 19:19:05 +0000

This was the headline this morning on many websites and news sources. What you need to remember is this: they are reporting figures for the 4th Quarter 2008.

That’s right, the period from October 1, 2008 – December 31, 2008. That information is already TWO MONTHS OLD.

Nothing new here, we are all in the middle of this. In fact, keep in mind, with many economic numbers, including GDP, the schedule works like this:

Quarter ends (say, December 31)

First estimate of GDP due: January 31

Preliminary results due: February 27

Final results due: March 31. So we’ll be hearing again how terrible the 4th quarter was at the end of March.

Old news.

Economy shrinks at fastest pace in 26 years

Economy shrinks at faster-than-expected 6.2 percent pace in fourth quarter, worst in 26 years

Enough to make you sick, isn’t it?

Retention Bonuses

Thomas Mullooly — Sat, 21 Feb 2009 15:47:02 +0000

There have been several articles written recently regarding stockbrokers and retention bonuses.

If you are outside the industry you may not know when brokerage firms are merged or acquired, the brokers (the salesforce) are sometimes awarded bonuses merely for staying. The reason behind the bonus is the broker/salesperson may face a drop-off in business, the bonus may help smooth the transition period.

Often times, the retention bonus requires a broker to stay at the firm for a long period of time. That’s usually good for his or her business, showing they are stable while the sign outside the building may be changing.

Larger producers may get these retention bonuses, while lower-end producers may see a significantly smaller bonus, or perhaps nothing. Some of these deals, in my opinion, carry staggering, eye-popping numbers.

This has been getting attention lately because many of these same firms that planned retention bonuses also received TARP money from the government.

It’s hard to justify (in my opinion) handing out retention bonuses as a worthwhile use of taxpayer bailout money.

Others apparently agree.

On February 20, 2009, it was reported Wells Fargo has decided NOT to pay retention bonuses to the Wachovia brokers they recently acquired. “With the environment we’re in, with all the attention we’re under — all the firms are under — and with clients down 20%, 30% and 40 % … a [retention] bonus didn’t seem to be the appropriate approach,” said Wachovia Securities spokesman Tony Mattera. You can read more about it here.

And also here.

Also, on February 11, 2009, retention bonuses were also picked up by the Huffington Post (and other news outlets). In that article, it discusses how some brokers were informed “There will be a retention award. Please do not call it a bonus” The Huffington Post article also contains an audio clip from the conference call for Smith Barney and Morgan Stanley.

The article also cites some comments describing the retention bonuses/awards as a “gratuitous expense” and even quotes a former chief economist at the U.S. International Trade Commission as saying “They are putting lipstick on a pig,” said Peter Morici, a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission. “Very often, retention bonuses are paid to undeserving executives who helped drive their enterprises into the ground…”

You can read the entire article (along with the audio portion) here.

And also here.

Revisiting Mark to the Market

Thomas Mullooly — Sun, 15 Feb 2009 11:36:38 +0000

What is left in the governments bag of tricks to get the banks back on track? One topic that I wrote about — 5 months ago — has popped up this past week with more and more frequency. We are finally starting to hear more and more chatter about relaxing “Mark to the market” regulations.

What is mark to the market?

Suppose a house on your street went into foreclosure. Previously, that home — and every other home on the street had a value of $600,000. But the foreclosed property went through a sheriff’s sale and was sold for $250,000. Does it mean every home on the street must suffer the same price cut? Events like this can “dent” prices up and down the street. But following market to the market regulations, every home on that street would now be worth $250,000.

Is that fair, or even realistic?

This is what banks and brokerage firms have been dealing with. It’s absolutely glorious when prices are moving up. But it is a nasty, vicious, life threatening downward spiral when prices are going down. Let me explain:

In summer of 2008, Merrill Lynch desperately wanted to get out of a large investment ($31 billion) of mortgage backed securities. Merrill, and many other brokerage firms were still carrying these bonds on their books at approximately $.80 on the dollar (80% of the face amount). They received an offer of $.22 on the dollar, only a fraction of what they were carrying them on their books. When Merrill completed the sale, all other similar investments — at Merrill Lynch and every other firm — had to be marked down to those kind of levels.

Here’s where bad news gets worse. Most banks and brokerage firms were choking on debt like this. After all, Standard & Poor’s and Moody’s had rated these mortgage backed securities as high-quality investments. This allowed banks and brokerage firms to hold these investments instead of treasury bonds (which had much lower interest rates), and these high credit ratings also gave them the opportunity to borrow against them. The benefit to the banks was easy to see. But everyone else benefited too: somewhat higher rates were paid on CD’s and bonds, loans were available to many, and mortgages were created at lower rates. We all drank from the well. Some more than others.

Here’s where worse news becomes a catastrophe. Many banks and brokerage firms were leveraged 30:1 or 40:1. Meaning, if the value of these bonds dropped by 5%, they had a serious problem. This is why they started creating, buying and selling these additional “bets” or “side contracts” known as credit default swaps. Most of these mortgage backed investments had already been marked down to about 80%. But the bar was brought down to 22 with that Merrill deal. Yikes.

I am completely against bailing out incompetent management. Wall Street and the banks have taken some really dumb risks and made terrible decisions. Indeed, some of these executives need to be shot. But the problem is that the banks provide “the grease” that keeps the economy moving. So something needs to be done. Mark to the market needs to be modified. Yes, it means changing the rules in the middle of the game, which really isn’t fair.

There’s more (much more), but that’s enough for now.

Spin Cycle

Thomas Mullooly — Sat, 24 Jan 2009 15:22:08 +0000

When I was in college, I loved listening to a local college radio station (WFUV, Fordham) that had a sports-talk show on Sunday nights. The show featured something new: phone calls from listeners! This was more than 25 years ago, before WFAN in New York, ESPN Radio and all the other sports outlets we have today.

Incidentally, one of the announcers was an annoying student at Fordham, Michael Kay. Kay continues his annoyance today as the obviously homer-voice of the New York Yanke$$.

One day, I got into a conversation with my father about something mentioned on the show. He asked “where did you hear that?” I told him about the radio show.

He replied, “So, they are experts?”

That one line really stuck with me…especially as a communications student. Shortly after, I changed majors to business and focused on economics, later getting my MBA in Finance. But our conversation continued.

“Tom, the job of the media is to sell. They sell advertising. Not a bad profession. You can make a lot of money. But the media has no obligation to look out for YOUR best interests…or even tell you the truth. They want to sell ads. So what do you think they are going to say? And they can (and often do) twist a story to get a different perspective. Be skeptical.”

With that piece as background, let’s look at the top headlines Saturday morning over at CBS Marketwatch:

Freddie Mac to ask for an additional $30 billion

Gosh, that sounds awful, doesn’t it?
But wait…Freddie already was granted a $100 billion line, but only used $13.8 billion. They are tapping a line that is already established. Non-story.

Capital One results suggest gloomy 2009

The unreported part: Capital One also said they don’t see a bottomless pit of losses. Guess CBS Marketwatch missed that. Or maybe that’s just not a sexy headline today. The spin continues: “In the last three months of this year alone, Cap One lost a staggering $1.42 billion.” Sounds bad, right?

But wait: that number includes $1 billion it set aside to deal with expected losses. They are making provisions for losses that may — or may NOT — happen this year. I’m not recommending buying this stock whatsoever, but that sounds like pro-active management to me.

Californa-based 1st Centennial Bank Fails

And your point is…? Look, when banks fail (that is, when banks fail after 1933), they are taken over by the FDIC or sold in a pre-arranged marriage (through the FDIC) to another bank. In the last real-estate driven recession (18 years ago), 800 banks failed. Banks are going to fail in recessions. But accounts don’t get wiped out anymore because of this. They pull down the signs on Friday and re-open on Monday.

AFLAC assures investors it does NOT need additional capital, but S&P downgrades anyway.

What is S&P saying? Are they saying management is lying? Or does S&P just knows AFLAC’s business better than AFLAC? After all, S&P re-affirmed positive ratings on banks and brokers throughout 2007 and much of 2008 — all the way down the drain!

And from a few days ago:

Microsoft cutting 5000 jobs.

Microsoft announced they were cutting 5000 jobs — over the next 18 months. And while 5000 “jobs” were being cut, the actual number of employees being let go — again — over 18 months, is expected to be 2000. Many people will be re-trained and re-assigned.

Look, sites like CBS Marketwatch, Yahoo Finance, magazines like Business Week and channels like CNBC are designed to do two things: generate enough shock value to attract attention and then find a way to keep you glued to them.

This is a waste of your time, and straps you into the emotional roller coaster. Why do you want to do that?

Remember this: Everything said and written in the media on Wall Street is written or said to make you do the wrong thing.

I had a longtime client (and friend) call me yesterday. She told me one of the “experts on TV” said the market could drop another 20% from here. And she was scared, worried, and nervous.

Wouldn’t you be?

I reminded her — that’s just one guy’s opinion. If you met a guy named “Mr. CBS Marketwatch” in the line at the grocery store, you wouldn’t believe half of the nonsense he was spitting out. You’d just nod politely, and pray that he bags his prunes and oatmeal and gets out of your way.

Look, there’s a reason I use these point and figure charts. For the first fifteen years of my career, I was burned relying on “expert opinions.” What do you say to a client after you relied on the “experts” and lost money for them? There’s a lot of brokers wondering exactly that lately. They instruct brokers to tell clients “you have look at the long term picture.”

That’s nonsense. And it’s the path to losing money.

I use these charts because there is no “opinion” built into the chart. They only show price changes. And from price changes, you can see trends. And — unlike other types of charts — point and figure charts are not subject to interpretation. It is what it is. Charts either trend up, trend down, or stay in place. No opinion. Just facts.

And, a funny thing I’ve noticed, time and time again: Point and figure charts often start to move down (meaning, prices are falling) WAY before bad news arrives. And these charts often start moving up (reflecting rising prices) well before the good news is announced.

Keep that in mind as you read this again: Everything said and written in the media on Wall Street is written or said to make you do the wrong thing.

Don’t ever forget that.

The Economic Recovery of 2009, part III

Thomas Mullooly — Sat, 17 Jan 2009 15:32:57 +0000

The driver behind the whole economy is you, the consumer.

And everywhere you look, the media will remind you that we are “supposed” to be in a depression.
So let me share some things with you.

Have you ever heard of the CPI, also known as the Consumer Price Index? It’s actually the measure of price changes in OUR world…you know, how much more do groceries cost…gasoline…things we use every day. It’s also the measure often used to guage raises each year, how much social security checks will go up the following year.

With me so far?

With the price of oil dropping from $147 per barrell to under $40, the CPI has dropped four straight months. Let’s put this in perspective.

The drop in oil, alone, has created a $300 billion increase in purchasing power for the US consumer. Think about it, this is the same as putting an economic stimulus check in every consumer’s hand. If (in the last 4 months) you’ve been spending $75/month at Exxon Mobil — instead of $200/month, that’s $500 in your pocket (4 months X $125, the difference).

That is technically more money that can be spent or saved elsewhere, right?

In fact, average weekly earnings have risen three percent over the past few months.
That news is a very big deal — something very few are talking about.

Who else benefits from this? Any business that uses oil in the production of goods. There’s tons of them. In fact, many companies are seeing significant drops in production costs across the board, not just from oil prices. When things cost less to make, companies become more profitable. And higher profits turns into earnings.

Stock markets like earnings.

The downside to a drop in CPI is this: anyone who expects a raise — based on the Consumer Price Index — may probably not see one. Likewise, some Congressman or Senator will be grandstanding when all the senior citizens in his or her district don’t get an automatic increase in their social security checks. Watch for that.

The pieces are being put in place for recovery.

The Economic Recovery of 2009, part II

Thomas Mullooly — Sat, 17 Jan 2009 15:12:33 +0000

Here is WHY so many think the stock market is bad.

And, why is the economy so bad?

As many of you know, I use charts to help me manage the risk in your investments.

Not just any chart…but point and figure charts.

Why? Because, in my experience, these charts clearly indicate action points…when to buy, when to sell, when to hedge.

Also…when to be nervous.

But something these charts do not tell us — is WHY.
Why is this stock going down (when everyone tells me it should not be)?
Why is the market going down (when everyone tells me it should not be)?
Why is this sector in favor (when everyone tells me it should not be)?

The charts never tell us why. They tell us when to act.

Shoot first, ask questions later. If you wait for the “reason why,” you will be dead.

If you waited for the answer to “Why is Bear Stearns dropping?” or “Why are all these financial stocks falling?” to take action, you were destroyed.

The answer to “why” questions usually come with a personal response. Think about it.
Why is ________ happening (fill in the blank)?

Because the government is out to get us all. (focus: get US)
Because we are in a recession. (focus: WE)
Because I have no money. (focus: I)
Because my job is on the line. (focus: my)

The answer to “why” questions are often returned with a personal spin…think of it as your own personal editorial.

So…who is telling us the stock market — and the economy — is bad?

The Media.

Newspaper and news sources are getting destroyed by the internet. Their very livelihood/existence is being threatened. The Chicago Tribune. The Seattle Post Intelligencer. Even the New York Times. These publications are on the ropes. Some other “newspapers” have stopped printing and are online only: the Kansas City Kansan and Hoy Nueva York, The Christian Science Monitor and The Capital Times (Wisconsin) are already “online only.”

The Pew Research Center announced last week that over the past year, the internet, as a news source has surpassed print (newspapers) as a news source for the first time. Of course, The New York Times reports that the change “does not represent a decline in the popularity of newspapers,” but rather a “near-doubling” of the number of people that name the Internet as their primary news source. Newspapers actually gained a percentage point in popularity over the last year.

Wake up. That’s spin reporting (or, simpler, “denial”) at it’s finest.

Newspapers, and that entire business model are on their way to becoming dinosaurs, facing extinction. Are you listening New York Times and the Wall Street Journal? I single them out because they still believe their business model (charging premium prices for “news”) is truly not working.

So when the messenger’s job (the newspapers/media) is on the ropes…do you think they will inject their own personal spin on the news? Of course the sky is falling to them…their next paycheck may be their LAST.

And it’s not limited to print media. Why do think news channels always have “breaking news” at the bottom of their screen? Here’s some real breaking news: their advertising revenues are crashing, and their jobs are on the ropes. Film at 11.

The messenger is experiencing a life-threatening recession, and some of them may not make it. Especially the ones that cling to their old business models.

It doesn’t mean you have to live through their recession.

2009 Stock Market Predictions

Thomas Mullooly — Sat, 03 Jan 2009 16:05:33 +0000

This is not a buy-and-hold market.

As we roll into 2009, I’m sticking with the same overall theme as I have in years past: this is not for the buy-and-hold crowd.

Individuals looking to follow the “buy for the long haul” recipe will get destroyed. The media may call this a bear market, but this first decade of the new century has really been a “fair” market. Meaning, there have been (and will continue to be) opportunities to be bullish, opportunities to be bearish and opportunities to sit out for a dance or two.

I don’t see that overall theme changing anytime soon.

What I really hate about the first few weeks of any new year is this: anywhere you turn, you will find some “market expert” making predictions for the coming year. At Mullooly Asset Management, we do not predict. Which sets us apart from our competitors. Once you make a prediction, you are boxing yourself into a corner.

You had better be right — or you had better be good at coming up with the reasons (excuses) why your prediction didn’t work out. And then you are just like everyone else. Watch the talking heads the next few days — they will all make forecasts for the coming year. Why doesn’t anyone ever hold these people accountable?
TV networks can save a lot of money by having the weatherman make predictions about tomorrow’s weather — and the future the stock market as well.

Instead, you and I will focus on “what is actually happening right now.” I don’t really care what may or may not happen with the economy or the stock market in six months or a year. I care about what’s happening with your money right now. My job is to make sure that your money is invested in the right place, right now.

If you would like to know what is happening “right now” and what you ought to be doing, call us at 732-223-9000 to set up a phone appointment. If you have internet access available, we can also have a web-conference and show you the methods (including some of the charts) I use to manage money for clients. You can also sign up for our email newsletter (the box is right on this page).

How Capitalism Will Save Us

Thomas Mullooly — Fri, 26 Dec 2008 20:13:45 +0000

Steve Forbes wrote an article back in October for his magazine.

And you should read it. I speak to so many people each week who tell me “I don’t understand what/how this all happened!”

Forbes does an excellent job explaining how (and why) the economy ground to a halt over the past year. It will be well worth a few minutes of your time to read this article, as it clearly lays out why things happened as they did.

It’s also interesting to note that Forbes also calls for a quick end to the problem, and a speedy recovery — not only in the market, but in the economy too, as I have also been saying these past few months. I am significantly more optimistic now — than I have been in the past 12 months.

Here is the link:

http://www.forbes.com/forbes/2008/1110/018.html