Category: Wall Street/Investing

Gardeners and baseball fans may love May. But investors often dread its arrival.

That’s because May through October is typically the weakest six months of the year for stocks.

According to the Stock Traders Almanac, since 1950, the Dow Jones Industrial Average has gained an average of 0.5% in the May 1 - October 31 period. That’s a lot less than the average of 7.9% the index has gained in the November 1 - April 30th period. The Almanac takes it a step further, with a six month investment switching strategy:

The big event of the year for shareholders of Berkshire Hathaway is Warren Buffett’s annual meeting in Omaha, Nebraska. They look forward to learning from the richest man in the world. This year 31,000 shareholders -- some from as far away as India and Australia -- made the pilgrimage.

The other big event: The Movie. The meeting opens every year with this humorous hour-long satire featuring Buffett and his sidekick, Charlie Munger, Berkshire’s 84-year-old Vice Chairman. It’s produced by Buffett’s daughter, Susie. You won’t ever see clips from it on TV or You Tube. Buffett doesn’t allow anyone to film it. But it’s a perennial favorite with shareholders. And this year’s movie was a huge hit.

So what did I think of Warren Buffett’s kids? Here are some impressions of Susie, Howard, and Peter Buffett.

They are normal.
They are remarkably down to earth, considering their father is the richest man in the world with a net worth of $62 billion. When Howard greeted me at his home he was wearing shabby chinos, a khaki work shirt and muddy construction boots. He drove me to his farm in an old pick up truck. He is so “real” and it was refreshing to see that. When I asked Howard the size of the staff working on his 850-acre farm, his answer was “none”. He plants and harvests the corn and soybeans by himself. Sometimes he has a helper or his son gives him a hand. He can afford hiring a team of workers, but he chooses to do it this way, because he enjoys it. And I think it’s also part of his Warren Buffett DNA—keeping things simple and low budget.

Since the beginning of our Republic, farmers and agricultural interests have accused speculators of manipulating markets and capturing the financial gains that ought to go to producers.

The lastest chapter in this long story was played out today at the Commodity Futures Trading Commission. Regulators brought together investors, ag producers and groups representing farmers to talk over recent volatility in the markets.

The investors say they're simply trying to hedge inflation risk for pension funds and other big groups. After all, people on a pension have to buy bread and beef and gas.

Groups representing farmers and bakers complain that the $175 billion poured into commodity funds in recent years has whipsawed the market adding to price swings.

The numbers are eye-popping: Rice up 123% this year, Wheat 99%, Corn 66% and Cotton 48%.

What's happening? CFTC economists say its all about demand in Asia, ethanol demand in the US, and poor crops in Australia and Canada.

Whatever it is, prepare to pay more at the grocery store.

To some on Main Street, Wall Street and all its financial shenanigans are to blame for the crumbling housing market. After all, if there hadn’t been a market for sub-prime mortgage debt, some people might have had a tougher time getting a mortgage and perhaps wouldn’t have bought homes they really couldn’t afford.

Now it appears Wall Street could also shoulder some of the blame for those skyhigh oil prices.

It’s unclear to me why the market for student loans has been dragged into the credit crunch. My guess is that investors don’t understand the myriad of government and private loan programs and just don’t want to touch any potentially poison asset-backed security.

There’s direct government lending, which is untouched by the credit crunch. There’s the Federal Family Education Loan Program or FFELP for students, PLUS loans for parents, and other private loans. Under the FFELP program, lenders have a near-guarantee they will be paid back. If a student defaults on the loan, the government pays back the lender 97% of the principle of the loan, plus interest. These loans have a low default rate. The lenders who make these loans say they are unprofitable in today’s market, and many have stopped making these loans.

Wall Street was thrilled that Citigroup cleared its books of much of the debris left by the hurricane which swept through the credit markets. Citi wrote off billions on its holdings of CDOs and auction rate securities and other high risk pools which are now can barely be given away, let alone sold.

But analysts I talked to today warned that Citi still faces the same kind of risk other financial sector companies face in this time of economic crisis. More write-downs are expected for credit, home equity, mortgage and other kinds of retail debt as consumers battle with lower home values and higher prices for food and energy.

By the way, for those of you who saw my Tech Talk segment last night, I got a call today from Verizon. Stay tuned for more.

It’s easy to understand why investors are piling into Bear Market funds.

Consider that the Direxion NASDAQ-100 Bear 2.5X Inverse Fund is up 35% year to date. It is designed to produce 2.5 times the inverse of the Nasdaq 100’s daily return. What most investors probably don’t know is that last year it tanked 36%.

This is a prime example of the volatility of these funds -- they can go down as quickly as they go up.

Historically, the stock market has gone up more often than it has gone down. So, while the funds may outperform in the short term, they don’t usually do well over long periods of time. That’s why financial planners say one of the most common mistakes investors make is holding bear market funds too long.

The word “authentic” has been overused lately. But it’s about the best word I can come up with to describe the CEO of the New York Stock Exchange who I interviewed for the first time today. Duncan Niederauer is a regular guy. He took over as the boss of the Big Board last December when John Thain moved over to Merrill Lynch to become the new Chairman and CEO of the troubled investment firm.

Niederauer talks and acts like a stock trader. His style is breezy and friendly. Minutes after I shook his hand, we were already talking about his years at Goldman Sachs, his three kids, and why he’s a fan of the Cleveland Indians (His mother is from Brooklyn and doesn’t like the Yankees, forcing him to pick any other team to root for. He was attracted to the underdog Indians.) He’s starkly different from Thain, who is reserved and formal. I found it revealing that Niederauer chose not move into the grand office that Thain occupied -- with a combination of antique English furniture and a stock ticker -- preferring a more modest space down the hall.

I thought it was interesting that Boeing stock went up, even though the company announced today another delay in the development/delivery schedule for the 787 Dreamliner.

The answer is that while Wall Street doesn’t exactly like bad news, it really hates surprise. And Boeing has been doing a good job of keeping the analysts in the news, so today’s announcement was just as expected.

Guess building a new airplane is harder than it looks. And it looks plenty hard.