Friday, August 21, 2009

More from the Margin Front

Well, things in the old margin account have certainly gotten interesting. Hospira, which I plan to sell in order to pay down the "debit balance," is doing okay--in fact, it's worth about $3,600, which is enough to pay down the initial loan. But, well, things got a little complicated. I had inherited 200 shares of FMBI, which is a bank holding company. Why did my 70-year-old mother hold shares of a bank holding company headquartered in Itasca, IL? Apparently, her father--my Grandpa Olson--was a founder of the Farmer's Bank of Wyanet, which was purchased by FMBI along with about a dozen other small Illinois banks. Why Mom had never mentioned any of this--who knows. In any case, the stock had been devastated, along with all other financial/bank stocks, and I was not willing to watch it drop to zero. So, I placed a sell-stop at $5.99. As you know, that meant that if the stock dropped to $5.99 or lower, it would be sold.
It did, and it was.
Well, I suffered the usual seller's remorse and started to worry that the stock would eventually rise without me. So, I placed a buy-stop on 100 FMBI at $10. As you know, that meant that if the stock rose to $10 or higher, it would be purchased.
It did, and it was.
This being a margin account, $1,000 of stock (plus a $9.99 commission) was purchased and placed on my tab, a tab which is now $4,557.78.
Hmm. I should probably place a sell-stop on HSP right now. That way if it plummets, I won't lose my best chance to pay off most of this silly margin loan.
I don't know. Every sell-stop I enter seems to be sold a few days later, at--by definition--a lower market price.
Oh well. Nobody forced me into this loan, and it isn't like I owe Tony Soprano. The interest rate is right around prime, and is tax deductible, unlike the juice I would have to pay to Mr. Soprano. I'll survive. I just want to win this one, even though I know how quickly I could end up losing.

Thursday, August 20, 2009

Economic Indicators

Today's headlines declare that US initial jobless claims rose unexpectedly. This, of course, is a negative sign. I'm just not sure why it's so "unexpectedly." There is a strange tendency of the media and investors to expect things to move in some smooth, linear path. If we're supposed to be in a recovery, surely all economic data will point to progressively more positive signs, right?
Not sure where that assumption comes from, but economic indicators never all point one way or the other. Maybe new claims for unemployment drop, while the number of people on unemployment rises a little bit--happens all the time. As I see in one of the news items today: The Labor Department said the number of people collecting long-term unemployment benefits edged up 2,000 to 6.24 million in the week ended August 8. However, the four-week moving average declined 2,500 to 6.27 million.
That's how tricky economic data can be--even though the number of people on unemployment ticked upward, the 4-week moving average declined. Moving averages, remember, help to show a trend as opposed to over-representing what happened just yesterday or just last week.
So, if you're wondering why it sometimes seems that nobody really knows where the economy is right now or where it's headed, there is a very good reason for that--nobody does.

Sunday, August 16, 2009

Active Military Duty

On the Series 7 exam you will see several questions about the registration of representatives and principals of a broker-dealer. One question might ask what happens when a registered representative volunteers or is called into active military duty. If he or she is away from the firm more than two years, does the license expire? Does he have to take continuing education courses in some cave in Afghanistan? Does she lose all the commissions she could have made on her "book of business"?

Not surprisingly, FINRA and the SEC are extremely accomodating when a registered rep or principal is called away from the firm to serve Uncle Sam. Here are the basic facts:

  • license is placed on "inactive status"
  • continuing education requirements waived
  • dues, assessments waived
  • two-year expiration period does not apply - exam might refer to this as "tolling"
  • can earn commissions, usually by splitting them with another rep who will service the book of business
  • the "inactive" rep can not perform any of the duties of a registered rep while on inactive status

You could see a question about a "sole proprietor" called into active military duty. If so, tell the test that the same bullet points above would apply.

Friday, August 14, 2009

Let's call it what it is--stealing

As usual, I'm up on a Friday morning reviewing the FINRA website to see if any new disciplinary actions or notices have been published. As usual, I'm not disappointed. As you can see by clicking the link below, it is a very bad idea to take money from clients and then try to cover it up with bogus account statements. Remember that you'll need to use the BACK arrow on your browser to return to the blog. See the full announcement at:

Also, I see a broker and her firm being sanctioned for talking people into taking out home equity loans in order to buy variable life insurance. This action is probably just the tip of the iceberg; I know of at least one firm who trains their new rep's to do exactly that--or did when the housing market made such loans readily available. See the full announcement at:

Today's Friday Free Broadcast covers industry rules and regulations. Sometimes I think every Friday should cover that topic.

Tuesday, August 11, 2009

Economic Indicators

If you're studying for the Series 7 exam right now, you picked a pretty good time. Every day the economy is in the news, it seems, and the news typically uses some of the same terminology you'll see on the test: new unemployment claims, unemployment rate, consumer confidence, corporate profits, GDP, recession, economic stimulus, etc. Try to relate what you're hearing, seeing, and reading in the news with what you're studying for your exam. When the media begins to chatter about new unemployment claims dropping, remember that this is a leading indicator, and it's good news. Recently, it was reported that while new claims for unemployment were dropping, the unemployment rate rose slightly. That's the difference between a leading indicator and a coincident indicator. The number of new unemployment claims was changing before it was being reflected in the number of people who remain on unemployment. GDP, a coincident indicator, has been shrinking, but since the rate of shrinkage has slowed lately, some economists point to this as "good news." The stock market, a leading indicator, has been rising since March, and many people pin their hopes of a recovery on that signal. If it seems that nobody really knows where the economy is headed over the next year or so, there is good reason for that--nobody does. But that doesn't stop anyone from reading the economic indicators and using the numbers to make predictions about the economy. Your job is to know which indicators are leading, coincident, and lagging, and to know their significance. Expect two or three questions on economic indicators on the Series 7 exam.