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High-Yield Junk Bonds Rally On Fed Buying

April 13, 2020 by Finance Gourmet

So, this is new. The Federal Reserve announced that it would buy junk bonds, or high-yield bonds, depending upon your point of view. Despite the name, junk bonds are not worthless and aren’t “junk” at all. Also called, “high-yield bonds,” junk bonds are regular corporate bonds issued by companies just like regular, or “investment grade bonds.” Many corporate bond issues are rated by various companies including Moody’s, and Standard & Poor’s. The ratings go from AAA (Excellent), all the way down to D. Typically, bonds rated BB or lower are considered junk bonds. See my review about Rakuten rebates. Fed Buying Fallen Angels The Fed isn’t headed out to buy the most fragile of corporate bonds. Rather, the Fed is looking at buying the so-called fallen angles. Bonds that were rated investment-grade — B or higher — on March 22, but have since fallen into junk territory are eligible for Fed intervention. The idea is that there are several otherwise decently capitalized and secure companies out there that have been downgraded into junk territory not through any fault of their own, but rather due to the bottom of the economy falling out from under them due to the coronavirus. Many …

The Big Market Plunge

February 25, 2020 by Finance Gourmet

The stock market has been on increasingly shaky ground over the past several months as valuations raised quickly on dubious fundamentals. When this happens, market get skittish and start looking for any reason to make at least a small correction. That reason popped up this month in the form of the coronavirus. The coronavirus isn’t actually new. Several strains are already very well known both in the U.S. and abroad, but the latest strain seems to spread more quickly and easily than other strains. As fear of an epidemic (justified or not) rise, investors get nervous and start to look for safer investments. See my review of Acorns. While that may not mean wholesale selling out of portfolios it’s easy to see how investors might prune back international investments, and even investments in the United States that depend are harder hit countries like China. What Investors Should Do About the Coronavirus? As always, while any market plunge is scary, a well-crafted, regularly refinanced portfolio is best way to invest for the long-term. One day, the coronavirus will be old news, just like Ebola, and bird flu, and the other scary viruses that have made headlines in the past. When that …

Stock Market Correction in 2019?

December 5, 2019 by Finance Gourmet

Time is running out for all of those financial analysts, pundits, and economists who predicted a market correction, or worse in 2019. As always, there will be no accountability, nor any mention of the failure of these predictions when the same folks predict a correction in 2020 and then try and take credit for “calling the market.” Still, for those of us who don’t shamble along to the daily clutter of the financial media looking for some sort of clicks, it can be a funny exercise to watch. Every year, I tell my self that I’m going to keep a running tally of the “predictions” so I can create an easy to view table showing the failure of the majority of predictions. Unfortunately, that would be a very time consuming task considering the sheer number of financial professionals who confidently make bold predictions to grab a day or two of headlines. Rakuten and Ebates review. Don’t Listen To Predictions The reality, of course, is that nobody really goes out and makes investment decisions or trades based upon some analyst at Dewey, Cheatum, and Howe calling a market top in Spring 2020. In the end, such predictions are really about media …

Stock Trends Reversing to the Mean

November 6, 2019 by Finance Gourmet

Nothing makes a financial journalist salivate more than the sweet sound of statistics to make their stock market warning article sound more legitimate. Of course, numerous statistics are meaningless, others are easily cherry-picked based on data, and still others are far less useful or predictive than other statistics that might not say the same thing. Today’s fun example comes courtesy of MarketWatch and the gloomy warning that U.S. Stocks could be in for a world of hurt if this trend reverses to the mean. Check out my Rakuten rebates review. “World of hurt?” – Whew! Pulling hard on our masculine headline click bait phrase dictionary this morning are we? What Is Reversing to the Mean? Reverting to the mean is the statistical probability that for any observation away from the mean, the more likely the next observation will be closer to the mean. An easy way to think of this is if the mean speed of cars passing by on a road is 55 mph, and one goes by at 95 mph, statistically the next card that goes by will do so at a speed closer to the mean than 95 mph, that is 94 mph or less. Obviously, this …

Fidelity Joins Free Commissions Movement

January 12, 2023October 10, 2019 by Finance Gourmet

Fidelity announced that it too would be offering free trade commissions to its customers following earlier announcements from Schwab and TD Ameritrade. Fidelity free commission trades have some limits, but they are not onerous. While this is a newer movement among discount Wall Street brokers, it comes after many different investing apps, and services have pushed a commission free investing business model for a year or two now. Obviously, the free trade model is mostly aimed at smaller, do it yourself investors. It also works well for those doing the roboadvisor, or computer-based model investing. Fidelity Free Commission Larger investors already enjoyed “free” trades as part of an annual fee usually applied to their accounts that provided not only free trades, but investment and financial advice as well. Keep in mind that the free trades does not apply to mutual funds with loads, or other investments that charge their own fees. This new wave of freebies only applies to stock trades, ETF trades, options, and other market trades. And, of course, be sure to check the fine print where you’ll find tidbits, like $0.65 per option contract and a charge for sell orders: Sell orders are subject to an activity …

Everyone Who Called a Downturn in the First Half of 2019 Is Officially WRONG

October 8, 2019 by Finance Gourmet

It is now October. That is the third quarter of 2019. By any, and all, definitions the first half of 2019 is officially over. That means all of those analysts, pundits, economists, and big Wall Street talking heads who predicted a recession or stock market downturn in the first half of 2019 are officially wrong. They were also wrong about the first three-quarters of 2019, but that headline isn’t as catchy. 🙂 There is nothing wrong with that on the surface. Predictions of any kind are risky business. However, a great many of these same people trade on a weird blindness in the financial industry. No one keeps any real track of these predictions. As a result, if these same people go out and make the exact same prediction for next year, they get full credit in the media for “calling” the next downturn without any acknowledgement that they were wrong this year (and maybe several of the previous years.) Investing By Predictions is Dumb Past performance is not an indicator of future results. This statement is mandated to show up on all kinds of investing materials by regulators. It is a hopeless cry to the masses to not invest …

Free Trades

October 3, 2019 by Finance Gourmet

Charles Schwab and TD Ameritrade have both announced that they are eliminating their usual commission for stock, option and ETF trades, to provide free trades to their customers. In the coming days, we may see other discount brokerages follow their lead, in part, or in whole. Until now, most brokerages only offered free trades on select securities, often on company owned mutual funds. For example, Fidelity has a list of mutual funds customers can buy for “free.” Schwab has a similar list. This new move opens up free trades to the world of stocks and options. Trading vs Investing New investors often confuse the concepts of trading and investing. Trading seems exciting and romantic. While it very much can be for the right people, the average person actually needs to be investing for long-term goals, rather than slinging stock trades. For investors building a well-diversified, long-term portfolio high commissions can impose an overhead that diminishes returns. That’s why low-cost brokerages like Schwab and Fidelity are preferred for many do it yourself investors. Zero-cost takes it one step further, providing the opportunity to build, maintain, and re-balance a portfolio without the added overhead of even a low commission. Traders, obviously, will …

Is Southwest Airlines Risking the Company?

March 12, 2019 by Finance Gourmet

Is Southwest Airlines risking the entire company with its decision to keep flying the Boeing 737 MAX airplanes? Consider this: Countries around the world are grounding the Boeing 737 MAX after a second crash soon after take off killed all people aboard an Ethiopian Airlines flight. This includes the European Union, Australia, China and others. Several airlines have similarly grounded their airplanes until all the data is in. Reports today conclude that the CEO of Boeing essentially talked Donald Trump out of grounding the airplanes, action that comes on the heels of large donations to Trump, and corporate visits to Mar Largo. Add this all up, and if a Boeing 737 MAX crashes in the U.S., the world’s most incompetent lawyer will be able to paint a picture of an airline that couldn’t see what numerous other countries and airlines could see. An airline that cared more about profits and using its new airplanes than it did about passenger safety. If that weren’t enough, comments that the airline is “confident” in the safety of the airlines could be considered false statements. False statements that led to deaths. This scenario couldn’t possibly be worse, and the jury verdict would undoubtably and …

Wrong Stock Market Predictions

February 22, 2019 by Finance Gourmet

I read a lot of finance stuff. Most of the time, it’s a lot of the usual advice and tips wrapped up in new clothing. Finance and investing don’t really change that much. The exception is taxes, which change at least a little bit every year due to new tax court decisions, and the adjustments made to many tax numbers automatically each year due inflation. I keep reading about finance and investing both to keep my skills and knowledge sharp, and unfortunately, also to have some knowledge of whatever the latest finance and investing fads are. Investing for the long-term with a well diversified portfolio is the “eat less calories, burn more calories,” of finance. Everything else is a gimmick to achieve the same, while making is sound better (and easier). Tony Robbins Merchants of Doom I’m currently reading Tony Robbins’ Unshakeable. I like Robbins’ finance books. They repeat a lot of the sound financial advice that has been around for a while, often with a little more flair, and a lot more Tony. That is, Tony likes to name drop, which is fine, because he interviews some of the great minds for his books, but it’s always funny just …

Wild Wall Streets Computer Trading

December 13, 2018 by Finance Gourmet

In the past few days, the stock markets have whipsawed up and down by as much as 800 points, sometimes during the same day! It can be hard to put a finger on what is driving the stock market when the behavior seems so irrational, but the reality is actually pretty easy to understand. The computer programs have been tightened, and they keep firing off, sometimes together, sometimes opposed, and each movement they create triggers another program, which triggers another program, and so on. Program Trading Once upon a time, computer trading was nothing more that the pre-placed buy and sell orders entered by traders. A stop order to sell if the price dropped below a certain amount. A buy order if the price trended up. Those trades have been replaced by more sophisticated programs run by everyone from big Wall Street banks and brokers, to hedge funds, to so-called quant mutual funds. These programs fire off hundreds, or even thousands of orders in response to pre-defined market triggers. Is there a Credit Karma scam? Get the markets leaning too far, and they start kicking in, often triggering other programs in the process. The result is seemingly bizarre trading patterns, …