There’s a term in chess called zugzwang, which describes the point in a game when it’s your turn to move but every move you could make would worsen your situation. That’s pretty much what the chessboard looked like for Federal Reserve chairman Ben Bernanke when he testified before Congress this morning. What everyone most wants to know is when the Fed is going to start tapering off its bond-buying program (called Quantitative Easing), which has flooded the banking system with money for the past five years and kept interest rates abnormally low. And that was something Bernanke couldn’t answer. In his testimony, the Fed chairman gave a carefully hedged commitment that the central bank would continue buying bonds – currently $85 billion a month – until the economy is stronger. And he repeated last December’s official statement that the Fed intends “to maintain highly accommodative monetary policy as long as needed to support continued progress toward maximum employment and price stability.” When asked at what point the bond-buying policy might change, Bernanke was more evasive, saying that the Fed might need a few more meetings to make that decision. Asked if it would be decided by Labor Day, he demurred. Bernanke’s hedging isn’t primarily a sign of indecisiveness. His real problem is that given current economic conditions, there aren’t any good moves he can make. The conventional wisdom – and the presumption behind the Fed’s current policy – is that the economy is steadily improving, even if progress is slow. And while easy money eventually leads to higher inflation, that threat could still be several years away. So ideally, the Fed’s stimulus could get the economy back to a normal rate of growth before inflation becomes a problem, at which point the Fed could taper off its bond buying little by little and gracefully exit the picture. (MORE: The Unspeakably Wonky Idea That Can Solve the Corporate Tax Debate) But what if the economy isn’t getting better, or is improving so sluggishly that it will take years to get back to normal?
(TAMPA, Fla.) — Shareholders at JPMorgan Chase will let Jamie Dimon, the chairman and CEO, keep both his jobs. At the bank’s annual meeting, 32 percent of shareholders voted for a measure that would have required the bank to split the roles. Had the measure succeeded, Dimon would have had to relinquish the role of chairman. Shareholder groups lobbying for the split gained momentum from last year’s surprise $6 billion trading loss, which tarnished the reputation of both JPMorgan Chase & Co. and CEO Dimon. The bank and Dimon had argued that letting Dimon keep both jobs was the most effective form of leadership. It’s a topic that has turned into a referendum on Dimon, who emerged from the financial crisis heading one of the strongest banks in the country. His reputation has been hurt over the past year over fallout from the so-called “London whale” trading loss, nicknamed for its size and the location of the trader who made the outsized bets on complex debt securities that went wrong. At the meeting, held at company offices on the outskirts of Tampa, Fla., off a highway exit populated with gas stations and the Florida State fairgrounds, had fewer theatrics than last year, which was held just days after the trading loss was disclosed. Last year, two or three dozen protesters showed up, but Tuesday was quieter. One woman with a cardboard sign was spotted, but only briefly. The bank is facing regulatory investigations and lawsuits, not only over the trading loss but other practices including foreclosures and alleged rigging of power prices. Michael Garland from the New York City Comptroller’s Office, which supports splitting the roles, said he appreciated that JPMorgan led its peers by certain financial measures. But, he added, “it also leads its peers in regulatory investigations.” Lisa Lindsley from the union group AFSCME, which filed the proposal asking to split the jobs, said the bank needed “a new tone at the top.” She said the proposal was never intended as a referendum against Dimon or a “personality
Facebook‘s intensely hyped initial public offering one year ago today was supposed to be a triumphant moment for Silicon Valley and Wall Street. After years of buildup and a valuation that had ballooned to $100 billion, ordinary investors would finally get the chance to own a slice of the hottest tech company on the planet. In the weeks leading up to the IPO, many tech experts — including some of the most prominent venture capitalists in the country — repeatedly insisted that once public, Facebook’s stock price would soar beyond the $38 per share offering price. Is it any wonder that thousands of ordinary investors clamored for a piece of the action? Easy money, right? One New York man even considered taking $25,000 from his daughter’s college fund to invest in Facebook’s IPO. “She doesn’t need this money for another eight years,” Jim Supple told The Wall Street Journal. “If it goes the Google route, I’ll be in good shape.” Google’s share price has increased by 735% since the Web search giant went public in 2004. (MORE: Shopping for Cool: Yahoo! in Talks to Buy Tumblr) Luckily for Supple’s daughter, Jade, he reconsidered his plan to gamble her college fund on Facebook shares. The wall-to-wall media hype, it seems, made him nervous. ”I’m going to sit on the sidelines on IPO day,” Supple decided. “We’re going to have to wait until the smoke clears. Facebook’s IPO was a disaster for regular investors. After going public at $38 per share, Facebook’s stock price quickly rose to $45 before plunging to $20. One year later, Facebook shares remain 30% below the offering price, and the company is still dealing with the fallout, including lawsuits from irate investors who feel they were duped. Hindsight is 20-20, of course, but one year after Facebook’s IPO, here are five technology stocks that investors would have been better off buying. Sure, these companies have been around for longer than Facebook, and didn’t have the white-hot buzz that Facebook had at the time of its IPO. What they did have, however, were business models and
On Wall Street, it’s all about finding an edge — no matter how small or seemingly insignificant. Whether it’s a snippet of chatter in a restaurant, a stray comment on the squash court, or a scrap of barroom banter after work, Wall Street traders are constantly on the hunt for nuggets of information they can use to gain advantage over rivals. Because success on Wall Street is often measured in seconds, access to information equals money. That mentality also applies to the hypercompetitive world of financial journalism, as the unfolding Bloomberg snooping scandal demonstrates. With its wide-open office layout packed with shirt-sleeved employees hunched over banks of flickering data terminals, Bloomberg’s newsroom looks like a take-no-prisoners Wall Street trading floor. Apparently, it has been acting like one as well. For two decades, reporters at Bloomberg News have been using special access to Bloomberg’s ubiquitous financial data terminals to glean sensitive — and potentially proprietary — information about Wall Street banks, hedge funds, and possibly even financial regulators, according to multiple reports. The blockbuster disclosure, first reported by the New York Post, has pulled back the veil on the cozy relationship between the company’s financial-data service and news-gathering divisions, and could undermine the reputation and client trust it has built over three decades since its founding by Michael Bloomberg, currently mayor of New York City. On Monday, Michael Bloomberg declined to comment on the matter, citing an agreement he made with the city’s Conflict of Interests Board when he first took office in 2002, in which he said he would no longer be involved in day-to-day operations at the company. Michael Bloomberg has an estimated net worth of $27 billion, thanks in part to his majority stake in the company he founded. (MORE: Aaron Swartz’s Father Calls for U.S. Legal Reforms Ahead of MIT Report) Regulators at the U.S. Federal Reserve and Treasury Department — where Bloomberg terminals are widely used — are investigating whether any of their confidential data has been misused, according to Reuters, and the European Central Bank said it was
Way back in 2011, JPMorgan Chairman and CEO Jamie Dimon was on top of the world. TIME selected him as one of the 100 most influential people in the world, and even Charles Ferguson, director of the scathing, anti-Wall-Street documentary Inside Job praised his performance during the financial crisis: “Dimon had the wisdom and the long view to prevent his employees from succumbing to the insane greed that enriched so many bankers while destroying their firms, not to mention ruining millions of lives. As a result, JPMorgan caused far less damage during the financial crisis and emerged more powerful than ever, while Bear Stearns, Lehman Brothers, AIG, Countrywide and WaMu collapsed. For this, Dimon deserves enormous credit.” Less than a year later, Dimon suffered one of the most humiliating setbacks of his career, when the so-called “London Whale” trades cost the firm approximately $6 billion, and shook Wall Street’s faith that Dimon was adequately managing risk at his too-big-to-fail bank. Dimon did as a good a job as anyone could to reassure the markets and public of his and his firms’ competence. He even went down to Washington to show his contrition and submit himself to a Congressional inquiry into the matter. And for the most part it was effective. The media firestorm over the trading debacle ultimately settled down, and JPMorgan’s stock price has recovered from the deep hit it took following the loses. (MORE: Too Big To Fail: 3 Lessons of the “London Whale” Debacle) But Dimon isn’t quite out of the woods yet. Due in part to the London Whale mess, shareholder advisory firms like Institutional Shareholder Services and Glass Lewis are recommending that JPMorgan shareholders vote to split the roles of CEO and Chairman, and hand the Chairmanship over to another director — effectively demoting Dimon, though he would remain CEO of the bank. Meanwhile, according to The Wall Street Journal, JPMorgan directors are lobbying their biggest shareholders like Blackrock, Vanguard, and Fidelity to vote to keep the positions merged. It’s worth noting that in the grand scope of these things, $6
Federal Reserve chairman Ben Bernanke doesn’t get much respect. PIMCO’s Bill Gross, who oversees some of the country’s biggest bond portfolios, has warned that Bernanke risks rousing inflationary dragons. NYU professor Nouriel Roubini, who correctly anticipated the 2008 financial crisis, has argued that Bernanke’s policies are failing to help the economy and are instead fueling a stock market bubble that will end in a financial crisis. Even experts who are sympathetic have been cutting at times. New York Times columnist Paul Krugman has acknowledged that the Fed chairman is a fine economist. But his long-running disputes with Bernanke – known in some quarters as the Battle of the Beards – have included charges that Bernanke was assimilated by the Fed Borg, a reference to Star Trek’s collective alien intelligence that overwhelms individuality and personal will. Renowned investor and business magnate Warren Buffett has described Bernanke as “a gutsy guy,” but he has also criticized the Fed’s policies as brutal toward retirees, who depend on interest payments from their investments. Indeed, Bernanke himself acknowledged as much in a 2011 press conference: ”We are quite aware that very low interest rates, particularly for a protracted period, do have costs for a lot of people. They have costs for savers. We have complaints from banks that their net interest margins are affected by low interest rates. Pension funds will be affected if low interest rates for a protracted period require them to make larger contributions. So we are aware of those concerns, and we take them very seriously. I think the response is, though, that there is a greater good here, which is the health and recovery of the U.S. economy.” (MORE: How Silicon Valley is Hollowing out the Economy) It’s understandable that a public official would feel obliged to do whatever is best for the country at any given moment. If the lack of sound long-term fiscal policies is holding back growth, then up to a point the Fed can justify pumping large quantities of money into the banking system as additional stimulus. But there is a limit. In the long run, excessive money creation may engender
NEW YORK — The Dow Jones industrial average is punching through another milestone: its first close above 15,000. The Dow rose 87 points to 15,056 points Tuesday, a gain of 0.6 percent. It was another milestone in the market’s epic ascent in 2013. Good economic reports, higher corporate profits and support from central banks have eased investors’ concerns that another economic slowdown could upend the market. Two months ago the Dow recovered the last of its losses from the financial crisis. So far this year it’s up 15 percent. (MORE: How Silicon Valley is Hollowing Out the Economy) The Standard & Poor’s 500 rose eight points to 1,625, also a record close. The Nasdaq rose four to 3,396, or 0.1 percent. Three stocks rose for every one that fell on the New York Stock Exchange. Volume was light at 3.2 billion shares.
In the stock market, there are countless strategies for making a buck. Some investors like to focus on the fundamentals of the companies they invest in — poring over financial statements to figure out which firms are over- or under-valued. Others invest based on trends or macroeconomic events, like whether the Fed is raising or lowering interest rates. These may be effective approaches, but the greatest trading strategy of all — were it possible — would be to simply learn how much a particular asset will, in the near future, be valued by everybody else in the market. After all, all the hard data in the world cannot compel a seller or buyer to give you the price you want. That’s why, at the end of the day, stock markets are about mass psychology as much as anything else. And with the proliferation of the internet, it has never been easier to tap into moods and feelings of the masses. This is what researchers Tobias Preis, Helen Moat, and Eugene Stanely had in mind when they set out to prove that you can make money in the stock market just by following what people are searching for on Google. (MORE: How Does One Fake Tweet Cause a Stock Market Crash?) In a study published yesterday in the journal Nature, these researchers showed that from 2004 through 2011, by making trades purely based on the prevalance of specific search terms, they could earn outsized returns. The most lucrative search term these researchers found was, unsurprisingly, “debt.” The researchers found that if they had sold a Dow Jones Industrial Index fund during times when the search term “debt” spiked, and consistently did this over the 7-year-period between 2004 and 2011, they would have earned a healthy 326% return. By contrast, had they simply bought a broad stock market index fund in 2004 and held it until 2011, they would have earned just 16%. Some of the other terms that would have yielded hefty returns were a little less intuitive, like “color,” “stocks,” and, oddly enough, “restaurant.” The