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Banks Continue to Push for Insane Special Favors (and Sadly Get Them)

The lack of rules that allowed the banks to gamble and go bankrupt but for the taxpayer (and saver) bailout and created the great recession was a huge failure. Caused mainly by our electing people that don't comprehend the issues they need to make decisions about. And also those same politicians selling out to those giving them lots of cash, investment banks for example.

The banks have been extremely successful at having government tilt the economy to push billions into the banks pockets every year (also deducting billions from savers with artificially low interest rates). The banks have also managed to buy or trick those we elect into doing very little to stop bankers from doing exactly what they did in the first place.

Of course if you are those bankers, why would you change. Get billions in bonus with government granted welfare. Then gamble and take billions in profits for winning gambles. Go get a bailout again when your gambles eventually fail.

They fight against each tiny step to return to a more capitalist economy (which these enormous banks are the antithesis of). They argue with every attempt to have banks be safe and split of speculation to entities that won't get taxpayer bailouts as soon as their gambles fail.

Banks say funding rules will make key equities trades more expensive

The banks are making a last-ditch effort to modify the Net Stable Funding Ratio, seen as the final plank of the "Basel III" banking reforms that seek to prevent a repeat of the 2008 financial crisis. … "By unnecessarily increasing the funding cost for banking organisations' equity market intermediation activities, the revised NSFR would also potentially force such activities into the largely unregulated shadow banking system, increasing systemic risk."

They have already won so many efforts to eliminate any meaningful reform. But they keep pushing for even more. Look you immoral cretins, you don't have the right to ruin tens of millions of people's economic life and get even more favors. Granted it is hard for you to believe that when you just pay the politicians a few tens of millions in cash to get billions showered upon you while others pay. But you don't. Now will you manage to buy the right to do so and have your cronies (politicians or their co-opted regulators) sell out country? Probably. We will re-elect those that you bought? Probably.

Just because you can do these things, doesn't mean it isn't immoral. We learned that a century ago, when the robber barons attempted to convince people business didn't related to morality. As if somehow actions people took to ruin an economy so a few cronies can split of the proceeds are any less immoral than some small time crook stealing cash directly from windows and orphans.

Unless you pay those we elect to sellout the country to allow an "unregulated shadow banking system, increasing systemic risk" it won't happen. Having banks have to be banks is what should happen. Those funding speculation have to have adequate resources and be willing to lose what they loan speculators. They obviously should not be allowed to come anywhere close to actions that "increase systemic risk." If that means speculators can't leverage themselves as much and banks can't gamble as much (knowing any big losses will be covered by the government) too bad.

If the cost of speculation without socialized failure and individualized gains that has been the hallmark of the crony investment banks the last 30-40 years then too bad. Less speculation will have to happen. I don't think speculation is bad. It is part of the market. But speculation doesn't have to be subsidized by society as you bankers seem to think is your right.

Stop trying to increase the amount you can gamble and leverage with threats that not allowing you to gamble the global economy means others will be allowed to do so. The idea is not to continue to allow the cronyism you all use to create massive speculation and leverage that threatens the global economy.

Related: Continuing to Nurture the Too-Big-To-Fail Eco-system - Lobbyists Keep Tax Off Billion Dollar Private Equities Deals and On For Our Grandchildren - Financial Transactions Tax to Pay Off Wall Street Welfare Debt

Investment Risk at the Portfolio Level Trumps That at the Individual Position Level

The risk related investment mistake that I think costs people the most money is thinking of risk as an isolated quality of an individual investment. What should matter to investors is the risk of their portfolio, not individual investment risk.

I don't accept that the sensible way to look at USA treasury bill risk is the same if I have 90% invested in treasury bills and am looking at what to do with the last 10% of my portfolio (or if I have 60% in USA index funds, 20% in REITs and 10% in global index fund). Putting that 10% in treasury bills in the first example is likely riskier than putting it in USA index fund, while in the 2nd example is likely a very good move to reduce risk.

Comment on: Risk doesn't get as much attention as it deserves in investing

Related: Looking for Dividend Stocks in the Current Extremely Low Interest Rate Environment - 401(k) Options, Seek Low Expenses - Disability Insurance is Very Important

Economy: Business is Looking Good, Employment Prospect Fairly Poor and Economy Overall Mediocre at Best

comments on: Very interesting charts. What story do you think they tell?

A misleading one by and large.

I don't believe "Fewer Americans" are working today - I believe a lower percentage of working age people are employed.

A significant portion of the wage issue is due to economic conditions and the market. Productivity increases are wonderful but, at a point they can make hiring labor less appealing (especially when combined with things like a hugely burdensome health care system that has been broken for decades).

There is a portion of the wage issue that has to do with executives today acting like the robber barons of old. That behavior was despicable and is today. A portion of the wage problem is due to the ethical and business failures of these executives.

Business profits are due mainly to lots of good things (higher productivity, better management of inventory and cash, innovation...) but is also due to some financial games (the huge bailouts to the still too big to fail institutions has created massive distortions including artificially low interest rates which juice corporate profits by artificially reducing borrowing costs).

If the message is regular wage earners (and hopeful wage earners) don't have things as great as they did in the 1960's USA - that is correct (and not as good as 1970s - even with the oil problems - or the 1980s - even with stagflation...). The prospects for workers are worse than prospects for the economy in my opinion - for the next year, 5 years, 20 years... The prospects for businesses may well be even better than for the economy.

It is definitely true people have failed to see how well business has been doing in the last 5 years - the story has mainly been about how bad the economy was. To the extent the message is business is doing very well, that is also a correct message. There is a large risk for those businesses that have foolishly leveraged themselves to try and justify ever increasing payments to executives that do juice results when things go well but have very bad consequences otherwise.

They also distort things using fake "special items charges" to take huge losses that they claim are "special causes" when they are "common causes." This serves to make gains seem part of the business and huge losses some mysterious act of god or something outside the executives responsibilities. leverage exacerbates this practice.

Related: The Economy is Weak and Prospects May be Grim, But Many Companies Have Rosy Prospects (2011) from my investing blog - Where are Profit Margins Headed? - Uncertain Economic Times

Capitalist Markets v. Markets Investors Want for Their Companies

A Failure of Markets and Other Observations from Asia by Kevin Meyer

Observing how capitalism is thriving in supposedly communist countries is interesting. China is an easy example, and many argue that capitalism is now more vibrant in China than in the U.S.. I thought Laos would be different, but it’s not. Markets thrive (even when shopkeepers are asleep) and entrepreneurial folks are setting up new shops and services to get tourists to part with their dough.

Even in the boonies there are stories. Such as the tiny Hmong village downriver from Luang Prabang. A collection of thatched one-room huts with dirt floors… each with a TV. TV? Power? The government didn’t bring power to the outlying villages. An entrepreneur came up with a way to pay for the infrastructure, deliver power to people with no money but with rice to barter, and make a profit. The “people’s” government frowns but tolerates it.

As an economics major one of the things that annoys me is that the biggest difference between capitalism and what we have has nothing to do with what the politicians talk about (too many regulations or whatever).  The theory of capitalism fundamentally relies on "perfect competition" which essentially means no-one has "market power."  If anyone tries to charge more than the market rate people will just buy from the next place.  The markets are a extremely good example of this.

In the west I would say a vast majority of transactions are done with businesses that have huge market power (often sustained by government action and government failure to restrict businesses from creating market power) - (Verizon, Comcast, GM, Google, Apple, Sony, Toyota, Exxon, United, Fed Ex, Bank of America, NBC, Visa, American Express...).

As a businessman perfect competition is horrible.  You can't get huge profit margins with perfect competition.

There is a difference between market power based on monopolistic tendencies (which is most of the problem currently) and price differentiation based on better offerings.  Looking at say why Four Seasons can charge a great deal to those that can afford it.

Businesses want to grab market power in every possible way.  Adam Smith understood the danger in businesses using this to sap the societal benefit of free markets.  The current politicians don't even understand that.  But even if they did it wouldn't matter.  They are not interested in capitalism they are interested in whoever can give them the biggest stacks of cash.  And those with market power (almost always aided by past acts and refusals to act by the government) have the most cash to give the politicians).

The beautiful nature of capitalism to provide the economic benefits to society is most easily enhanced by reducing market power and increasing competition.  Sadly it is almost diametrically opposed by our political nature to allow those with the gold to make the rules.

As an investor looking for companies that have market power (which has great overlap with Buffett's "moat") is wise.

I love some of the solutions to get electricity to those in need: Solar Power Market Solutions For Hundreds of Millions Without Electricity - We Need to be More Capitalist and Less Cronyist - Anti-Market Policies from Our Talking Head and Political Class.

I Don't See How the Ponzi Scheme Economy Doesn't End Badly

I am very worried about the ponzi scheme like action of the governments of the rich western countries the last 10 years.  I don't see how this is not going to end badly.

I also can't really figure out how it will end badly.  The first or second or third order effects shouldn't be too hard.  Eventually those getting the ious stop believing the ponzi creator and won't accept their promises anymore.  So then interest rates on debt sky and currencies collapse.  "Real assets" (I prefer real estate to gold) should do well.

But is the massive ponzi scheme so huge the economy breaks so completely that normal economic collapse history is useless.  Does it turn more into what happens with normally poor, corrupt, broken states?  How does that play out with the massive wealth the rich countries accumulated prior to the ponzi scheme "solutions?"  I really am not sure.

Does the failing cripple countries like Singapore, Malaysia, Brazil, Ghana, Indonesia, Korea?  The old model is the rich countries have so much wealth when they mess up they suffer a bit and others suffer a ton.  Does that happen again?  I am not so sure.

I can understand desire to avoid consequences.  That is what blew up the special favors to those giving lots of money to politicians into the ponzi scheme style in the first place.  But I don't understand how people believe this can work - just throw out more ponzi promises and avoid the consequences.

Sure something similar works fine if you can afford to just give away a bunch of money you saved for a rainy day to get through the tough times.  But we didn't.  Heck, even if you just hadn't gone hugely into debt in the boom times to give even more to those giving large amounts of cash to politicians and instead of saving for a rainy day just didn't go hugely into debt even during your boom times.  But we did go hugely into debt during the bubble times.

The USA is still extremely rich.  As is much of Europe and Japan.   But it sure seems to me that we are hugely rich but have been spending much more than we have been making by pretending these ponzi promises have actual value.  When the markets stop accepting that it sure seems like things could be VERY SCARY.  So scary and unpredictable I can't even figure out what the SAFE investment plays are.

By far the best hope is that I am just wrong about how rich we are compared to what seem like ponzi scheme promises to me.  If we are lucky the ponzi part is but a blip on top of a rich foundation.  I am very worried that the ponzi part is not a blip at all.  It is huge.

Diversity in investments helps when you are clueless (and also other times but specifically when you are clueless is important to me here).  I really can't see any way long term bonds are good now.  So that doesn't help in my opinion - of course if I am wrong about that the portfolio will suffer.

I don't like gold.  I don't like assets that are not capable of providing earnings.  For some amount of store of value if currencies lose most value fine.  But unless you are very wealthy I can't see putting much here.  Speculating in it, fine, but it seems to high to speculate to me (but I could be wrong).

Real estate I like though I am worried about what happens in a much much worse economy than we have had since the great depression.  Still putting some there is sensible to me.

A fair amount of cash just trying to not lose too much makes sense given this super risky ponzi atmosphere.  Savings account at a credit union seems the best place .  I trust the government will cover any real loses but my guess is the value of the $ will plummet if things get bad (at first it will rise as people think that is what you do in a economic crisis - buy $).  I can't see $ being the sensible thing if the ponzi scheme is no longer accepted but we will see.

Trying to figure out what companies should actually stay profitable is another sensible place.  Even if they earn less some companies will stay profitable.  While others may well go under.  Companies that have fairly low fixed costs to carry in bad times seem appealing.  I really think if companies like Google, Apple and Costco are not making actual profits things are so bad only the super lucky are doing well.  The tricky part is figuring out which companies are those that will remain profitable - I may have the theory right and still pick the wrong companies.  I would definitely be diversified globally (and Apple and Google do that for you, among other things).

Obviously, in order to work as an investment to be valuable in a ponzi collapse the company has to be profitable in very hard times.  I think another key is they can't need outside cash - I think likely currencies would collapse and interest rates would sky.  Solid cash flow, even in hard times is key.  Small, nimble companies can do well.  That is much harder for huge companies.  But small companies can also go under quickly.  After the fact seeing the nimble smarts is often easy.  Predicting the winners in advance is hard.

I am very worried about China too.  India still refuses to get serious about reducing corruption and taking sensible steps to build infrastructure, improve education so I am not very positive there either.  It has potential but big problems.  I am most optimistic about countries growing into mid income (Malaysia, Thailand, Brazil, Ghana [early], Indonesia...) of high income (Singapore…along with Canada, Korea and Australia, maybe).

If you have good ideas for investments based on much more significant economic problems than we have seen let me know.


Related: The USA Doesn’t Understand that the 1950s and 1960s are Not a Reasonable Basis for Setting Expectations - Economic Consequences Flow from Failing to Follow Real Capitalist Model and Living Beyond Our Means - We Need to be More Capitalist and Less Cronyist - The USA Economy Needs to Reduce Personal and Government Debt

If You Create a System That Includes The Perfect Conditions for Scandals, Expect Scandals to Happen

Massively overpay people for taking huge gambles with other people's money and they will do so (ethical people won't, but you only need a few unethical people and their is an oversupply - county on running out of unethical people is an extremely foolish "strategy").   Make it even worse by creating a culture where everyone sees lots of people getting massively overpaid for the times when the roulette wheel lands in the right spot and you create a culture ripe for claiming good results (no matter what the truth is).  Add in a very smart strategy (for those seeking to siphon off billions from the productive economy) of creating massively complicated schemes that allow for all sorts of false claims and you have what the leaders of our country (and a few other countries leaders) have created.

Other leaders abolished child labor, created universal education, sent us to the moon.  Ours are busy justifying massively unjust payments to a few at the cost of the well being of the country and the citizens of the world.

The too big to fail welfare banks have been practicing this behavior for a couple of decades.  And, like clockwork, huge scandals occur.  It seems like we have a huge spike in scandals in the last couple of years.  The scandals are entirely predictable given the systems created to try and justify paying unjustifiable payments to executives and gamblers.

The reason for the spike in scandals being discovered now is probably 2 fold.  First the unjustified pay has increased massively and thus increased the irresponsible behavior and rewards for being irresponsible.  Also, fraud often remains hidden in boom times and becomes uncovered when the ability to hide that the roulette wheel hasn't actually been providing the returns used to claim the unjustifiable payments taken by the executives and gamblers.

The quote of the latest massively overpaid CEO overseeing yet another scandal is just the same as all the other mindless "explanations": 

'But he stressed that it was an “isolated” incident and that JPMorgan had already cleaned house'

They then pay those we elect enough to have those we elect continue to grant them massive favors and continue to allow the undermining of our economy by the continued scandalous practices.  The process will continue, as it has for decades, until we refuse to elect those that sell out the country to pay back those giving the politicians lots of cash (or for the politicians that can't understand what is happening).

Eventually the delaying game of those operating these phony systems to extract big payoffs for themselves will no longer be tolerated.  But so far we seem happy to continue to support leaders doing all they can to support this system.

It doesn't appear, even now, we are going to demand change.  And it is completely obvious the too big to fail welfare banks are just increasing the scandalous behavior and the politicians are just increasing their support for these institutions.  Oh the politicians will say silly things to claim they don't like the bad things being done to the country and then run right back and do the bidding of those at the too big to fail welfare banks that give them cash.  Those giving cash know it doesn't matter what politicians say only what they do.  And the too big too fail banks couldn't ask for any better lackeys.

It will change when we throw out the politicians that are (and have been for decades) making this possible.  Until we do it won't change.  The executives and politicians have shown no amount of suffering is enough for them to behaving honorably.  As long as they get their cash they don't care what it does to the country or the economy of the world.

Netflix is Well Managed - People are Overreacting to Short Term Issues

Netflix and the Data that Lied

This past summer, high-riding Netflix announced an increase of 60 percent in the price of a combination of data streams and DVDs. Netflix subscribers were upset. Then, the company trumped that by announcing that, henceforth, DVDs and streaming would be handled by two different companies, requiring subscribers to use two different web sites.
The result was a net loss of 800,000 subscribers in the third quarter. Netflix stock was trading at close to $300 in mid-July. Today it's trading around $80.

I didn't get the idea of splitting up the company. And that logic seems even more questionable now that they reversed it.  But I still think Netflix is very well run.  I tend to believe we make a mistake when jump all over short term issues for companies that have long term positive track records.

Now I don't have a huge number of companies that I think have long term positive management track records.  But I think Netflix is one of them.  And just like all those jumping on Toyota a few years ago were mistaken (as I said at the time and still believe) I believe those thinking Netflix made huge errors are wrong.  Toyota made some mistakes.  They still were and are better managed than 98% (or more) of companies.

Netflix has made some mistakes.  My belief is the underlying business realities forced difficult choices.  Just sitting around doing nothing (and not "angering customers" was not an option.  They could have handled it better.  But once again I think they are better managed than most all companies - I don't trust them as much as Toyota.

Their stock price (given the business) seemed insane to me.  I liked the management wanted to invest with them.  Couldn't see doing it based on the stock price.  I will be looking at them again.

Today Amazon falls into that camp for me.  I love the management and business for Amazon.  The stock price just seems way to high given the risks (and limited profits so far).  I sold my shares in the last year (below where it is at now).  I hope I can buy again, but at these prices I just can't see it.  If the business improves a lot and the stock price even increases I could buy (it isn't the absolute price it is the price given everything I know and believe now).

The businesses Amazon and Netflix are in are challenging and full of risk.

Netflix stock price Nov 1, 2011 (when this was posted): $80.09.
Updates: Jan 19, 2012 stock price: $103.46.
March 10, 2004: $440

Related: Amazon Keeps Spending, Sales Growing But Not Income - Reacting to Product Problems

Saving for Retirement Globally

Comment posted to: Does the idea of planning for retirement vary across the globe?

Huge numbers of people in the in the USA and I believe in England too, have done a horrible job of saving for retirement. Many in China save over 20% of their income. Why shouldn't they be confident. Also comparing to your parents in China is a pretty easy comparison to beat. I am still learning about Malaysia (I would imagine they save well - but it is possible they are just optimistic :-)

Saving for retirement everywhere is pretty basic. You have to save 8-12% of your income to have a decent shot at a good retirement. And in exceptional circumstances you need something different. I write about investing and retirement on one of my blogs: Retiring Overseas is an Appealing Option for Some Retirees, In the USA 43% Have Less Than $10,000 in Retirement Savings, Delaying Retirement – Working Longer.

Laid Off? Take a Vacation Around the World

Expat software has adopted a operating plan along the lines of one of my dreams. Travel around the world and do work that pays the bills while you enjoy different locations.

Expat Software is a small consulting and development house, staffed by a number of expatriate Americans.

We offer high quality software consulting services at rates that are much less than you might find from other US based software firms. The reason for this is simple: we are not presently in the United States, and therefore do not suffer the high overhead costs that come with a base in a large city.

Where exactly are we located? That is difficult to answer, as it changes on a regular basis. A good place to look would be a nice beach with cheap bungalows to rent and a fast internet connection.

They posted an excellent blog post today, Laid off? The one thing you absolutely need to do on the first day:

You're in IT, right? So chances are you've been laid off at least once from some crappy company and it's going to happen again. Here is my one piece of advice to you. The single most important thing to do as soon as you make it back to your house with that box full of stuff:

Book a flight

Seriously. Do it now, before the initial shock wears off and that logical side of your brain starts coming up with lame excuses. You will never have a better chance to get out and see the world than right now. You have a pile of saving and a severance package. You've got 6 months to a year before your skills start getting rusty. There is absolutely no reason to start looking for work immediately, and every reason to take that round-the-world trip you've always dreamed about. Right. Now.
...
You're going to want to stay gone for 6-9 months. Less than that and it you'll be kicking yourself for not leaving enough time, and you'll be rushing through entire countries just to keep up with your itinerary. I know that this seems silly now, but somewhere along the way somebody will ask how long you've been in Vietnam for and you'll answer "Only one month." Timescales work differently on the road.

In my experience (did I mention that I take about 9 months vacation a year and spend most of that traveling in the developing world?), I tend to start missing work after about 6 months away.
...
But I don't have any money saved...
You can't possibly be serious. Are you saying that you've been working in IT for all these years and haven't put away a lousy ten grand??? Shame on you. Get a book on life skills and open a bank account fer cryin' out loud.

Very nice advice that I admit I would not likely follow (I have never been without a job so I don't really know...). But I wish I would. I might get to the point where I make the decision to just stop working full time and either travel and work on projects for pay or work on projects and then take 6 months off before taking on another project with another company.

Related: Save a Cash Reserve - Buy Less Stuff - Saving for Retirement - Curious Cat Travels

Google Challenges Baidu for China Market Share

Google Challenges Baidu for China Market Share by Andy Beal:

Well, Google's proving that the #1 spot can be challenged–at least in China. Reuters is reporting Google grew its market share by 4% (to 22.8%) while Baidu grew just 1% (to 58.1%).

Maybe this will give Yahoo, Microsoft, and Ask.com hope that they too can challenge Google's #1 US dominance. Then again, they might be thinking "crap, Google’s going to dominate the entire world!"

I would guess the dominate the entire world option :-) But it is very true if Google fails to return the best results they can easily fall fast.

Related: Search Share Data - Checking the ACSI - Is Google Overpriced

The Economic Benefits of Walkable Communities

The Economic Benefits of Walkable Communities. Examples of walkable design leading to higher property values, increased private investment, tourism, etc.. This is an example of positive externalities and the economic gain possible to all through proper regulation.

Related: Urban Planning - Designing Cities for People, Rather than Cars - Car-free zones

Think Like an Ant

Last year at this time we mentioned why it is important to plan ahead by saving for retirement:

Savings for retirement is difficult mainly because of our trouble planning for the long term, it is not at all a complex problem. The fable of the ant and the grasshopper illustrates this point very simply and it is really that simple. People need to do a better job of applying the lessons from that story to their retirement savings.

This is a great time to add to your IRA for 2006, if you have not done so already and for 2007, you have through April 15th (or when you file you taxes, I think?). If you already added to your IRA for last year take this time to add to your 2007 IRA.

Related: IRA information - Roth IRAs for everyone - retirement related posts from our investment blog

The Increase is Evidence of a Decrease???

Two consecutive sentences from a Washington Post article, Mortgage Rates Drop to 6.14 Percent:

Home prices grew 0.86 in the third quarter of this year, the slowest pace since 1998, the Office of Federal Housing Enterprise reported today.

This slow growth "provides more evidence that the long-forecasted national depreciation in housing prices is occurring," the agency's director, James B. Lockhart, said in a statement.

So the increase is evidence of the decrease? What!!!!

Related: Coming Collapse in Housing? - 30 Year Fixed Rate Mortgage Rates - Financial Literacy blog posts

Google Customized Search

We have setup several Google Customized search sites which seem to give good results very quickly.

Try our custom google search engines for 1) Management 2) Economics and Investing and 3) Science and Engineering.

Home futures: Price-drop seen for 10 top markets

Home futures: Price-drop seen for 10 top markets

Trading in housing futures on the Chicago Mercantile Exchange point to declines by next August of at least 5 percent for 10 leading markets; speculators are betting the biggest decline will be in Las Vegas, with a drop of 8.2 percent.
...
According to Shiller, the numbers may exaggerate the extent of the decline because there is a risk premium that has to be taken into account. In other words, more traders are interested in protecting themselves against loss than are interested in investing in a growing market.

Related: Housing and the Economy - Real Estate Investing articles - more investing articles

Rocketboom Interviews George Soros

Rocketboom interview of George Soros.

Investment articles

Google for the S&P 500

Google: S&P 500 wallflower, Only 15 firms in the benchmark are worth more than Google. So how much longer will it have to wait?

Well I certainly thought they would add it last year, I was wrong obviously. I think S&P also made a mistake in not adding it. So now, I think it will be added in 2006, we will see.

Google Stock Price Rises 5.7%

The price of a share of Google stock rose 5.7% to $255.45 today. The stand "explanation" "reported" by the media is along the lines of this quote from CNN:

Internet shares rose along with Google (up $13.84 to $255.45, Research), which jumped 5.7 percent on rumors that it could be added to the S&P 500. Should that happen, the stock would benefit from index fund managers having to buy it for their portfolios.

I don't understand how these types of "explanations" are accepted by the media and their customers. If some investor really was surprised that Google was going to be added to the S&P 500 they shouldn't be investing in the market, they should just buy an index fund and leave well enough alone.

If CNN (and the others [MarketWatch Potential index inclusion drives GOOG"], Reuters (via CNBC)... reporting the same story) really believes the increase of 5.7% is due to a rumor that Google could be added to the S&P 500 I don't know what to think of the other reporting they do. Even when much smaller companies are actually announced as new additions to the S&P 500 and that company's addition really was questionable (for say anytime in the next year or two) they don't go up 5% in price. But, if CNN doesn't believe it, wouldn't that be worse? It just seems financial reporting is more concerned with finding some explanation even if that explanation lacks almost any merit.

SmartMoney's "explanation" was much better: "Google (GOOG) shares shot up nearly 6% to the latest all-time high with nary a provocation." But if you don't know anything about investing this seems like SmartMoney don't know what the others are reporting. I don't know whether SmartMoney actually made a good editorial decision or they just wanted to vary the language a bit. I could see one could get tired of repeating the almost daily "rumor" explanation found after whatever stock went up significantly without any rational reason (even if the rumor were true - some rumors would explain price moves, if true, others like the example today have almost no actual chance of having the noted affect even if they were true). In this case you would have to assume that today the chances for Google being added to the S&P 500 greatly increased in liklihood. I would be amazed if the sites using the rumor today have in the past reported Google was to be added to the S&P 500 in 2005 - here is one example.

I have watched this type of "reporting" for years (decades actually) and really don't understand why it is accepted. Why did it go up 5.7% today? I have no idea, but we did include a large stake in Google in our 10 Stocks for 10 Years post a month ago.

It is not all that uncommon that a stock at its all time high price would move dramtically higher ("breakout") but that is not an "explanation" of why Google increased in price today it is just a statement that such an event is not uncommon. Taking advantage of this pattern is part of the investment strategy employed by many successful investors (Livermore, Darvas, O'Neil are examples) and also many investors who fail to achieve great results.