Saturday, September 21, 2013

TOP 3 FOR THE WEEK: This Week in Finance

Hello Investors!

Hope everyone had a great week. I am here to share the top 3 finance news of the week (a.k.a the headlines that caught my attention the most) and my thoughts about them. As an investor, it is important to remain aware of market news. Information is golden and here is the good news--- we live in a world where information is everywhere, 24/7, at our fingerprints so there is really no excuse. And here we go:

1. Bernanke wont be tapering (at least not for now!): For my investors whom are fairly new to the market-- Ben Bernanke is the chair of the Federal Reserve (The FED). The FED is in charge of monetary policies (ie: adjustments of interest rates to leverage economy, etc.). One of the "actions" the FED took after the chaotic times of 2008 when the market tumbled was implement a program to "lift the economy back up again". The name of the initiative is: Quantitative Easing. The objective of Q.E is in part to buy "junk debt" from the corporations whom had significant debt (mostly from mortgage backed securities) in their portfolios after the crisis. The debt gets 'credited' in to the account the FED has for these corporation and in return; this corporations have more money to lend out. 

How much is this costing you ask? well, great question! Right now the plan is for the FED to continue buying $85B (yes, billions) in bonds each month, indefinitely. Yes, that means money is being printed for this on an ongoing basis. Many in the media have compared this to feeding a drug addiction. Do you see the comparison? 

The idea behind the program is that having more money available to lend can help the economy by increasing liquidity and more movement of funds rather than having the economy stay "stuck" and damaged. There are a gazillion opinions about this Q.E program one of them being that pumping so much money in to the economy will bring future consequences in regards to a ridiculous amount of inflation, etc. Part of the criticism has a lot of valid points but there are always two sides to every story. The idea behind "tapering" is that the FED is supposed to slow down their purchases of these bonds (and lessen the amount of money being 'pumped' in to the economy) as the economy continues to show improvement  Well, as per Bernanke, there is not enough improvement yet, hence, he wont be changing anything for the time being.

All I can say is that as an investor that believes is important to be informed; I will continue monitoring the actions of the FED and then act accordingly. My advise? Keep your eyes and ears aware as this story develops! 


2. S&P 500 and DOW report all time highs: So this is whats so ironic about the stock market-- Logic would tell you that if the Q.E program is to continue this means that the economy has not improved enough. A "less than stellar" economy [theoretically] should "scare off" investors and Wall Street because things are still not where they are suppose to be. Well, GUESS WHAT--That's not the case. The announcement that the Q.E program would continue actually made wall street cheer with excitement and a shopping spree of stocks begun! The fact that the FED will continue "pumping" money in to the economy was seen as "amazing news" (regardless of the fundamentals for this decision). The results? The top industry benchmarks jumped to all time highs. Hence, this is a clear example that investing has a MAJOR psychological component. Fundamentals are important but often times simple "good" or "bad news" can surpass the effect of fundamentals by a long shot! If you want to read more about the excitement in the market this past week click here.


3. JP Morgan Chase to pay $920B (yes, billions) in penalties: In case you didn't know, there are very solid laws in place when it comes to securities trading. If an individual or a corporation (which is the case with JP Morgan here) violates said rules and is found guilty the results are hefty fines which come in part with the hope to discourage any similar actions from other corporations. 

Part of the reason for the fines was due to evidence which concluded that during April 2012; trades at the JP Morgan Chief Investment Offices in London were pricing derivatives portfolio in a way that reduced the reported losses; essentially lying to the public and the owners of these portfolios. It should go without saying that reporting FALSE information in financial statements is strictly prohibited by the securities and exchange commission (an organization that, in part, monitors  trading activities by corporations and protects investors). The interesting thing is, however, that JP Morgan stock price didn't drop by much when this news was announced (only about 1.2%) many investors believe that although the dollar value of the fine is quite significant is only a "drop in the bucket" for a company like JP Morgan. You can read the full story here. 

And that's all Folks. Thank you for reading and have a great weekend! Stay aware of market news. "Stay Hungry, Stay foolish". -Jobs. I think that quote can apply to pretty much anything in life!

Happy Investing.