• Is Social Security a Ponzi Scheme?
    Posted by on December 29th, 2008 at 2:23 pm

    Jim Cramer says it is.

    “To everybody in the press, who’s calling Bernie Madoff’s alleged $50 billion scam the ‘largest Ponzi scheme ever,’ I say give me a break,” Cramer said on his Dec. 17 show.
    According to Cramer, the largest Ponzi scheme in history is run by the federal government – Social Security.
    “We know the truth about Ponzi schemes,” Cramer said. “We all know the name of the biggest Ponzi scheme in history and it’s not even illegal. In fact, it is run by the U.S. government. And the name of it – well they call it Social Security.”

    Oh, please. Social Security is not a Ponzi Scheme. I’ll define a Ponzi Scheme as a fraud that has zero investments; it merely pays off initial investors with funds from new victims, I mean, “investors.”
    First, the funds from social security do go into Treasury securities, which are real investments. Plus, social security is currently running a very large surplus. How much longer will it continue to run a surplus? Well, that’s a good question. But the system can stay healthy as long as there are adjustments to benefits and how much is paid in. Those choices aren’t easy but that’s a big difference from what Bernie Madoff was doing.
    Think of it this way: If no new money was allowed into social security, it would still run. When the same happened to Madoff and Ponzi, their frauds were over.
    Social Security has a lot of problems, but this talk of it being a Ponzi Scheme is just silly.

  • The Danger of Models
    Posted by on December 29th, 2008 at 2:10 pm

    One of the market’s better timing strategies hasn’t been having a good run decade. I think all models are destined to fall at some point. Still, comparing the market’s return to the yield curve had a very nice run. Perhaps it will make a comeback. Let’s look at the numbers.
    From 1962 through 1999, when the spread between the 90-day T-bill and the 10-year T-bond was 150 or more points, the S&P 500 returned about 1,140%. That happened slightly less than half the time. When the spread was less than 150 points, the S&P 500 rose just 65%. That’s a pretty sharp divide.
    Since 2000, the S&P 500 has lost about 41% when the yield spread was over 150 points, and it’s been roughly flat when it’s been under 150 points.

  • The Santa Rally
    Posted by on December 29th, 2008 at 12:27 pm

    Several months ago, I took the entire history of the Dow Jones and broke down its performance by days of the year (btw, what the hell was I thinking??). As it turns out, the Santa Claus Rally is quite real.
    By far, the Dow’s best time of the year is the 17-day period from December 21 to January 7. Over that period, the Dow has gained 3.39%—that’s more than 40% of the Dow’s annual capital gain, even though we’re talking about a period that’s less than 5% of the year.
    The worst time of the year is from September 6 to October 29. Eighty years later, we still feel the effects of 1929.
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  • The Weekend That Wall Street Died
    Posted by on December 29th, 2008 at 10:54 am

    Today’s Wall Street Journal has an excellent 4,000-word article on the weekend that Wall Street “died.” Personally, I think that’s a bit strong. A certain crucial aspect of Wall Street is no more, but Wall Street is far from dead.
    The other issue I have with the article is that it sees the collapse of Lehman as a battle of big personalities. That’s a favorite media take on things, especially when the personalities are big, which is also a Wall Street specialty.
    Unfortunately, the Panic of 2008 had causes that are far deeper and more complex. In fact, deeper and more complex than we probably understand right now. There’s no economic theory to explain what happened and why. Some day, there will be, but until then, some ideological humility is needed.
    Here’s a snippet from the article:

    Mr. Fuld had faced challenges to his firm before. Since taking Lehman’s reins in 1994, he expanded the 158-year-old bond house into lucrative areas such as investment banking and stock trading. Over the years, he had tamped unfounded rumors about the firm’s health and vowed to remain independent. “As long as I am alive this firm will never be sold,” Mr. Fuld said in December 2007, according to a person who spoke with him then. “And if it is sold after I die, I will reach back from the grave and prevent it.”
    In the summer of 2008, Mr. Fuld remained confident, particularly given the security of the Fed’s discount window. “We have access to Fed funds,” Mr. Fuld told executives at the time. “We can’t fail now.”

  • Department of Poetic Justice
    Posted by on December 29th, 2008 at 10:24 am

    Looks like Bernie got robbed.

    Swindler extraordinaire Bernard Madoff got a taste of his own medicine last weekend when a burglar stole a $10,000 statue from his posh, $9.4 million Palm Beach estate, according to a police report.
    The theft occurred sometime between 3 p.m. on Dec. 19 and 11:30 a.m. last Sunday, a week after Madoff confessed to ripping off $50 billion from investors in a decades-long Ponzi scheme.
    The five-foot, copper artwork overlooked the Madoffs’ inground pool, and portrays two young lifeguards sitting on a raised stand.

    From the looks of it, the real criminal was the artist. Oh, snap!

  • The 2009 Buy List
    Posted by on December 28th, 2008 at 2:12 am

    Here’s the Crossing Wall Street Buy List for 2009:
    AFLAC (AFL)
    Amphenol (APH)
    Baxter International (BAX)
    Becton, Dickinson (BDX)
    Bed Bath & Beyond (BBBY)
    Cognizant Technology Solutions (CTSH)
    Donaldson (DCI)
    Danaher (DHR)
    Eaton Vance (EV)
    Eli Lilly (LLY)
    FactSet Research Systems (FDS)
    Fiserv (FISV)
    Jos. A Bank Clothiers (JOSB)
    Leucadia National (LUK)
    Medtronic (MDT)
    Moog (MOG-A)
    Nicholas Financial (NICK)
    SEI Investments (SEIC)
    Stryker (SYK)
    Sysco (SYY)
    Once again, I’m only making five changes to the Buy List. The five new buys are:
    Baxter International (BAX)
    Becton, Dickinson (BDX)
    Cognizant Technology Solutions (CTSH)
    Eaton Vance (EV)
    Eli Lilly (LLY)
    Three of the new buys are in health care.
    The five sells are:
    Clarcor (CLC)
    Harley-Davidson (HOG)
    Lincare (LNCR)
    WR Berkley (WRB)
    Unitedhealth (UNH)
    I’ll start tracking the new list this Friday, January 2, 2009, the first day of trading of the new year. I’ll assume that all of the stocks are equally weighted with the closing price as of December 31 as the buy price. As usual, the rules state that I’m not allowed to make any changes to the Buy List throughout the year.
    My purpose is to show investors that by buying and holding a well-diversified portfolio of high-quality stocks, you can do well in the market. With only a few days left in 2008, we’re heading toward our second straight year of beating the S&P 500 while using less risk. Plus, our turnover is only 25% which is far less than most professional money managers.
    You can assume that I own any of the stocks on the Buy List. I won’t buy any of the new names until the new year.

  • The Christmas Bust
    Posted by on December 26th, 2008 at 10:27 am

    Despite huge discounts, many retailers had a lousy Christmas:

    “It’s been difficult, much more difficult than anyone expected,” Gilbert Harrison, chairman and chief executive officer of retail advisory firm Financo Inc., said today in a Bloomberg Television interview from West Palm Beach, Florida. Consumers “will spend on necessities, they’ll spend on what they need, but they’re being very particular in what they’ll buy.”
    Discounts of 70 percent off or more by Macy’s Inc., AnnTaylor Stores Inc. and other retailers failed to prevent a spending drop of as much as 4 percent during the final two months of the year, according to data from SpendingPulse. Including fuel, sales tumbled as much as 8 percent.
    More than a dozen retailers, including Circuit City Stores Inc., have sought bankruptcy protection this year as the credit squeeze and the U.S. recession dried up funding. The holiday results indicate further filings are possible, along with consolidation among similar companies, said Harrison.

  • Peter Schiff on Alex Jones
    Posted by on December 25th, 2008 at 2:22 pm

    Peter Schiff is not widely considered to be the crank that he is. Here’s a video of him with crackpot Alex Jones who believes, among other things, that 9/11 was a planned and carried out by the Bush administration.

  • Merry Everything
    Posted by on December 25th, 2008 at 11:40 am

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    I want to wish everyone a Merry Christmas and a happy, healthy and profitable new year.
    I’d also like to thank all of my readers over the past twelve months. I’ve had this site going for 3-1/2 years now and it’s truly a labor of a love. I enjoy getting emails and questions from folks all over the world. I really don’t think I could do it without all the feedback I get. I’d also like to thank all of the folks who have linked to this site over the past year, which has brought Crossing Wall Street to an even larger audience.
    Let’s hope 2009 is a big change from 2008!
    Oh, one more thing. This.

  • The Decline and Fall of Oil
    Posted by on December 23rd, 2008 at 3:28 pm

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    The January contract, which expired last week, got to a low of $32.40. On July, 11, oil reached $147.27.