IPOs Making A Comeback – For Large Companies

Judging by the LinkedIn IPO, “going public” may be fashionable again.

Investors lucky enough to own LinkedIn shares (i.e., employees and a small number of wealthy, well-connected investors) saw their shares more than double in price in a single day, jumping from the initial offering price of $45 to $94.25 by the end of the day.  Investors who owned private shares, which were being traded on secondary markets, enjoyed even larger gains.

Prices dropped the next day, as some investors cashed in on their profits, but few who own shares are complaining, given that LinkedIn’s debut was the biggest since 2006. read more

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Housing Market Needs Rehab

It wasn’t long ago that housing seemed like the best possible investment.  Housing prices just kept going up, up, up.

Now 2011 is on track to become the sixth consecutive year of declines in new home sales and, as a consequence, prices are going down, down, down.  Unless the housing market rebounds, which appears unlikely, 2011 will see the fewest homes sold on record (records have been kept since 1963).

The Wall Street Journal notes that “The 323,000 new homes sold in 2010 was less than 60% of the number of new homes sold in 1963, even though the
population today is nearly two-thirds bigger.” read more

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T-Bills, Munis Are Hot … Compared With Everything Else

You could say that the yield on three-month Treasury bills has quintupled this month, which would explain why they are in demand.

Or you could say that yields on three-month Treasury bills are now at 0.05%, which comes out to just over a penny on every $100 invested.  You could make more than $120,000 on such an investment … if you had $1 billion to invest.

So why are T-Bills and municipal bonds, which likewise offer barely any return, hot today?

One reason is that supply is low and, in an effort to keep national debt below the $14.3 trillion ceiling, new debt is not being issued.  With demand and supply out of balance, prices are rising.  When prices rise, yields drop. read more

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Steroids Running Out For Stock Market

Lackluster economic performance, continuing concern about debt in both Europe and the U.S., and other factors have been pushing the stock market down in recent weeks.

Another factor receiving less attention is the pending end of quantitative easing.  Quantitative easing had the perverse effect of making stocks look good by making other investments look bad.  Investors, consequently, invested in stocks because there was nowhere else to put their money.

Like steroids, quantitative easing provided artificial performance enhancement to the stock market.  Now that it’s ending, prices are becoming more market based and, as a result, have generally been falling. read more

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Let’s Hear It for Growth … A Little Louder, Please

You call this a recovery?

Typically, the rule is this – the bigger the recession, the stronger the recovery.  By any measure, the recent recession was a whopper.  Yet gross domestic product (GDP) grew by only 1.8% for the first quarter of 2011.

In comparison, after the big recession that ended in 1983, GDP grew by at least 7.1% for five consecutive quarters and even grew by 9.3% in one quarter.

Of course, there are major differences between the most recent recession and the recession of the early ’80s: read more

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Day Traders Returning

The Wall Street Journal recently noted that day traders are returning to the market.

When speculative traders start betting on the market, it’s typically a sign of trouble ahead.  Their return may add to demand and, short-term, continue to boost stock prices, but investors who “buy high” typically end up selling low and losing a great deal of money.

 Have you ever met a rich day trader?

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Pick One: High Risk or Low Returns

Here’s your choice: Take on lots of risk and hope for the best or watch your standard of living erode.

The stock market has been soaring, thanks to the Federal Reserve Board’s quantitative easing program, which has continued to hold interest rates at or near record lows for several years now.

Investors came back into the market, not because the market was showing signs of strength, but because it became the least objectionable place for investors to put their money.

A 12-month certificate of deposit (CD) is yielding 1.25% interest today.  The U.S. inflation rate rose to 2.7% in March and is continuing to rise – a deliberate outcome of Fed policy.  So the real rate of return, in exchange for tying up your money for a year, is negative 1.45% (2.7% – 1.25%). read more

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