Something happened Thursday to make the stock market suffer its sharpest drop in its history before rebounding like a rubber ball at the end of the day. And, no one has told us what caused these phenomena. Afterward, the stock market exchanges arbitrarily cancelled only those stock transactions where the stock price dropped more than 60%. Sadly, if you are one of the unfortunate investors who just happened to place a sell trade seconds before the big plunge you could have received only 59% (or less) of what you thought you would receive and you would have to live with it! The Stock Exchanges said there is no appeal of their arbitrary decision.
Why 60%. Why not 50%? Or, 70%? Or, 10%? Or, why not cancel ALL of the trades during the 40 minute interval that caused the problem? The arbitrary decision is just not right. Many innocent investors were hurt. And, there is no recourse.
Full disclosure is needed to explain what happened and exactly what will be done to prevent its re-occurrence. I will keep you posted.
The American economy is expanding at a healthy rate and more workers are employed. But, the Markets are not paying attention. Instead, they are focusing on:
1. Will Greece agree to reform its finances?
2. EU – will it survive the current crisis?
3. European banks – will they become the next Lehman Brothers?
4. What caused the Stock Market’s 800 point plunge in a matter of minutes?
5. FinReg – how will Congress change the financial industry landscape?
6. Will criminal charges be levied against Goldman Sachs?
In other words, the Market’s plate was so full last week that the market could not concentrate on the good news in the U.S. economy.
1. Google introduces image-based text translation on Android phones – Google introduced Thursday a new feature for the Goggle Goggles app for Android phones that allows you to point your phone at a word or phrase and get an instant text translation from English, French, Italian, German and Spanish to many more languages. Source:Translate Real World With Google
2. Endometrial stem cells could repair brain cells damaged by Parkinson’s disease – Stem cells derived from the endometrium (uterine lining) and transplanted into the brains of laboratory mice with Parkinson’s disease appear to restore functioning of brain cells damaged by the disease, according to a new study by Yale School of Medicine researchers. Source: PhysOrg.com
3. One in eight to cut cable and satellite TV in 2010 – Yankee Group has uncovered a new category of consumer: the coax-cutter — those who cut off their pay TV services and use their PCs, gaming consoles and other connected devices to access video programming instead. One in 8 consumers are set to join their ranks in the next 12 months. Source: Yankee Group
“Your Financial Choices” airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®. This week, Host Laurie Siebert, CPA, CFP® will be joined by guest, Rod Young, CPA, CFP and financial advisor with Valley National Financial Advisors to continue their discussion on 401k plans and additionally, ROTH conversions. When does a ROTH conversion make sense?
Laurie will take your calls on this subject and other financial planning topics at 610-758-8810. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton/Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville/Macungie area – or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.
Imagine if Rip Van Winkle had slept for 20 years and woke up (riding beside me as I drove through the Lincoln Tunnel to Manhattan as I did on Saturday). He would have seen one of those brilliant, electronic billboards which read, “DROIDS HAVE APPS !”.How would I have ever begun to explain that?
Traders work on the floor of the New York Stock Exchange May 7, 2010.
Credit: Reuters/Shannon Stapleton
SINCE NOTHING IMPROVES A BAD MOOD like spreading it around, this latest global outburst of negativity should ultimately make you feel better.
After months spent fretting about jobs, the hiring of 290,000 new workers in April — the best in four years! — couldn’t stop the slide of a stock market unsettled by Europe’s fiscal deterioration, China’s slowing growth and their combined drag on the U.S. economy. The flight from risk sent U.S. stocks down 6.4% last week, wiped out all 2010’s gains and, for a few minutes Thursday, set off a freefall that slashed a record 998.50 points off the Dow Jones Industrial Average.
The selling jag was quickly blamed on technical glitches, but the speed and ease with which the market fell apart won’t be forgotten quite as speedily or easily. The ensuing panic, however, helped wipe out some of the market’s recently excessive optimism — the first steps toward finding a short-term bottom.
Consider: Fear of sovereign defaults sent traders to hedge their exposure to financial firms, and a Bespoke Investment Group index tracking the risk of bank default jumped 25%. The lunge at safety drove 10-year Treasury yields toward 3.4%, down sharply from 4% a month ago, while gold climbed to a 2010 high. Thursday’s selling gave the Nasdaq its busiest session, and the New York Stock Exchange its second busiest. Investors rushing to buy protection in the option market traded more than 30.8 million contracts Thursday, besting the record set during the 2008 credit crisis.
How drastic was the mood swing? On April 15, bulls chasing the rally bought 1.85 calls for every put at the International Securities Exchange, a 52-week high. By Friday, that call-to-put ratio was plumbing a 52-week low of 0.59. Money managers were so unnerved by immediate risk they bid up premiums of one-month options on the Standard & Poor’s 500 above that for one-year options. This rare inversion may persist for a while before stocks rebound, but it’s often a first sign of capitulation, says one Wall Street analyst.
In a rare reversal, blue chips outgunned their smaller, riskier peers, even as the Dow suffered its worst start to May ever. It ended the week down 628, or 5.7%, to 10380. The S&P 500 index has pulled back 8.7% from its April 23 high, but is still 64% above its 2009 low. The Nasdaq Composite Index fell 196, or 8%, to 2266, while the Russell 2000 fell 64, or 8.9%, to 653.
Investors are nudging the odds of risky tail events like sovereign-debt defaults from “possible” to “probable,” says one well known strategist. “But are not equities more attractive now as tail events are discounted?” (Source: Barrons Online).
U.S. Stocks and Foreign stocks declined but Bonds rose. During the last 12 months, STOCKS have substantially outperformed bonds.
The Numbers
Returns through 5-07-2010 1-week Y-T-D 1-Year 3-Years 5-Years 10-Years
Bonds- BarCap
Aggregate Index 0.5 3.3 8.7 6.5 5.5 6.6
US Stocks-
Standard & Poor’s 500 -6.3 0.3 25.0 – 7.7 1.0 -0.7
Foreign Stocks-
MS EAFE Developed
Countries -10.3 -12.0 11.7 -15.1 -1.3 -1.7
Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized. Assumes dividends are not reinvested.
