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Week in Review* - Apr 18

Happy Emancipation Day! Last Friday anyway. Thanks to this little-known Washington, D.C. holiday that celebrates the freeing of slaves in the district, we enjoy three extra days to file our income taxes with Uncle Sam. While the official holiday isn’t until tomorrow, it is being observed today and under the official tax code, filing deadlines cannot fall on Saturdays, Sundays, or holidays. All procrastinators out there are rejoicing for the extra time! The last time an extension was granted for this reason was in 2007.

While your Stock Market Game trading session may be nearing an end, April 29, many teams are surely asking for a prayer to turn their portfolios around. Perhaps now is the time to get into dividend paying stocks to ensure returns in a difficult market. According to Jeffrey Kleintop, chief market strategist for LPL Financial, “a focus on yield makes a lot of sense in a low-returning and volatile market place. Prices tend to go up and down, but you can at least count on getting that regular dividend payment each quarter.” Earlier this month, the Associated Press reported there is no time is like the present as large companies are increasing their dividend payments by amounts previously unseen in history – to the tune of $16.6 billion. Since the beginning of 2011, 117 companies included in the S&P 500 announced they would begin dividend payments or raise their current payment. For the full article, be sure to click here.

In terms of dividend payments in The Stock Market Game, to check whether or not a particular company offers a dividend payment, enter a ticker symbol on the “Enter a Trade” page of your team's portfolio. Click “Validate Ticker.” The company’s stock quote will appear. Click the ticker symbol to display the full stock quote. If a dividend is paid, the payment will appear beside the “Dividend” column. The payment date will also be listed, but you need to pay attention to the Ex. Date column, as this is the date by which the team must have owned the stock in order to receive the next dividend payment.

Two-weeks left of trading!

Week in Review* - Apr 11

Is your team experiencing the end-of-the-year slump? Often I hear from teams with a positive return who continue to enjoy the project, but some teams have suffered losses needing some additional motivation. Read below.

As your team continues to invest in your portfolios, you may be interested in reviewing some stock picks that have experienced some incredible growth since early January. The goal of highlighting these companies is not to have your team rush to add them to your portfolios (you can), but rather to draw attention to possible trends within these companies’ industries and sectors. Your team may be able to then select your own winners based on further research.

The list is compiled from the states with the largest number of SMG teams, so it’s not exhaustive, but it’s designed to give you a sneak peek at some of the best performing companies this semester. The list of the top five stocks and brief descriptions follow.

Top Five Stock Market Game Stocks – Spring 2011 Company Ticker 1/3/2011 4/6/2011 Increase
5. VirnetX Holding Corp. VHS 14.42 25.88 79%
4. Travelzoo Inc. TZOO 41.29 77.88 88%
3. Mercer International Inc. MERC 7.85 14.86 89%
2. Weight Watchers International Inc. WTW 37.92 73.20 93%
1. Technology Research Corporation TRCI 3.62 7.16 98%

5. VirnetX Holding Corp.: an internet security software and technology company that owns a dozen US technology patents for establishing secure mobile Internet communications over the 4G network.

4. Travelzoo Inc.: publishes discount offers, promotions, and related information provided by more than 2,000 travel companies. Airlines, car rental companies, cruise lines, hotels, and travel agencies pay the company to publicize fares and promotions on its website, through its Travelzoo Top 20 newsletter, and across its Newsflash e-mail alert service.

3. Mercer International Inc.: one of the world's largest producers of virgin fiber (wood chips and pulpwood) and recycled fiber used by tissue and paper manufacturers.

2. Weight Watchers International Inc.: one of the world’s leaders in providing weight management services, operating globally through a network of company-owned and franchise operations.

And the winner is...
1. Technology Research Corporation: the company makes ground fault protectors, portable leakage current interrupters, and other electrical safety products that protect people and equipment against electric shock and fires.

Week in Review* - Apr 4

Snow in April? The East Coast may be viewing the recent Nor’easter as a cruel April Fool’s joke this past Friday after one of the worst winters in history, but the markets seem to have a sunny disposition in light of the government’s stronger-than-expected jobs report released on Friday. The report, one of the most closely-watched economic indicators on Wall Street pushed stocks up higher in early trading as the number of jobs increased by 216,000 in March, significantly topping analysts’ forecasts. The unemployment rate dipped to 8.8% - its lowest level in two years. Now if only the weather would respond in kind.

Week in Review* - Mar 28

Enough of the raw meat - some good news for the markets this week – the economy grew slightly faster at the end of 2010 than previously thought based on a Commerce Department report released last week. Gross domestic product (GDP), (NOTE: we get into this soon) the broadest measure of economic activity, was revised higher to an annual growth rate of 3.1% in the three months ending in December. It’s slightly better than economists expected and higher than the estimate made last month. Consumer spending and exports helped drive the overall number higher while the report also contained new information about strong corporate profits, which could be an encouraging sign for the job market going forward, so I've read. Additional signs of economic improvement include the government’s monthly jobs report, which showed the jobless rate slipped to a near two-year low in February. At the same time, it appears the Fed plans to continue supporting the economy through bond buying and keeping interest rates near zero for an extended period of time.

While this recent report has helped push the markets into positive territory this morning, some economists have scaled back their growth forecasts in the current January-March quarter in light of recent global events and challenges. From the spike in oil prices fueled by political unrest in the Middle East to the natural disasters in Japan, U.S. auto and electronics industries could take a mighty hit as many U.S. companies rely on Japanese companies to manufacture parts. Your team has a lot to consider when deciding where to invest or sell and the current events provide some great discussion topics for all teams.

By the way, do you get the idea of a stock split?. A stock split refers to a corporate action that increases (or decreases) the number of shares in a public company. A 2-for-1 stock split, for example, doubles the number of outstanding shares and divides the price by two. If you own 100 shares of a stock selling at $50 a share, for a total value of $5,000, and the company`s directors authorize a 2-for-1 split, you would own 200 shares priced at $25, with the same total value of $5,000. While 2-for-1 splits are the most common, stocks can be also be split 3-for-1, 10-for-1, or any other combination. In addition, a company can reverse the process and consolidate shares to reduce their number by authorizing a reverse stock split.

Below are three companies that have recently announced stock splits as well as a short description of each:

Lear (NYSE: LEA): 2-1 ratio split: designs and manufactures complete automotive seat systems.

FMC Tech (NYSE: FTI): 2-1 ratio split: designs and manufactures products such as subsea production and processing systems.

Stifel Financial (NYSE: SF): 3-2 ratio split: a regional brokerage and investment banking firm based in St. Louis.

It`s basically an accounting procedure. Instead of a $20 bill in your wallet, you now have two $10 bills. If a stock split simply rearranges the numbers, why do companies do them? The typical reasons include: making the stock appear cheaper than it really is (to encourage more buyers); to increase liquidity; to meet stock exchange listing requirements; and to express a bullish management attitude.

Week in Review* - Mar 14

It might be a rough start to a tough week as global markets continue to respond negatively after the massive earthquake and tsunami slammed Japan. An 8.9-magnitude earthquake hit northern Japan last Friday, triggering tsunami and prompting the US and nineteen other countries to issue tsunami warnings. Google was quick to respond by launching the Person Finder: 2011 Japan Earthquake a web tool for listing and finding missing people in Japan. The disaster comes on the heels of continued concern about volatile global political unrest such as the ongoing civil war in Libya and planned anti-government protests in Saudi Arabia (They fizzled out). European markets such as the British FTSE 100, the DAX in Germany, and France’s CAC all dropped this Friday morning along with the Asian markets which fell sharply. Investors were shying away from stocks and crude oil, while the dollar, considered a safe haven by global investors, rose sharply against the euro and the U.K. pound. Economists are urging caution saying it is too soon to speculate the possible impact of the tsunami. In light of these recent global events and their impact on the markets, it may be a good time to consider investing in bonds. There is a super section on the portfolio page (tab) that explains bonds in detail. Here is why your team might want to consider bonds - when the stock market is on a roller-coaster ride, bonds can help steady a portfolio because they’re a safe investment tool to help balance the overall risk in a portfolio. In essence, bonds are loans investors make to the issuers in return for the promise of being paid interest, usually but not always at a fixed rate, over the loan term. The issuer also promises to repay the loan principal at maturity, on time and in full. While bonds have a reputation as a dull investment in part because they are less volatile than stocks and produce a lower long-term return, their appeal has risen due to the current economic climate as they provide a great financial “buffer.” While all bonds share basic characteristics such as terms, rates, and par values (the face value, or named value of the bond – usually $1,000), they are not all alike. One of the major differences is that they’re issued or sold, by four distinct entities in the U.S. Corporations issue bonds to raise money for expansion, research and development, and other expenses of doing business. While corporations can also raise money by selling new stocks, they may prefer bonds because the existing stocks lose value when new stocks are issued. Municipal governments, such as states and cities, sell bonds called “munis” to fund projects for the public good like building bridges, sewers, roads, and schools. The U.S. Treasury also issues bonds to meet its regular and unusual obligations. And finally, government agencies issue bonds to raise money to do their work, such as provide mortgages as well as student loans.

Week in Review* - Mar 6

While the clock is ticking on hammering out an NFL deal, much of Wall Street remains focused on the rising cost of oil (blame Libya). Despite scoring its best one-day rally in three months on Thursday due to upbeat employment news, markets retreated this morning as investors question whether political upheaval in the oil-producing world will undermine this country’s shaky economic recovery. Crude oil prices jumped 2.2% in afternoon trading on reports of continuing unrest in Libya and news of protests planned in Saudi Arabia. But one person who seems to be optimistic is Federal Reserve Chairman, Ben Bernanke. On Tuesday, Bernanke told Congress that rising oil prices will cause only a brief and modest rise in consumer inflation.

One basic question that may be on the minds of some teams is why does the price of oil have such a broad impact on the overall economy? According to Joe Davis, Vanguard’s Chief Economist, the price of crude oil affects much more than just the price of gas at the pump. It’s a factor in the cost of countless other goods and services here and around the world, from airplane tickets to the food on our tables. A marked rise in oil prices could also reduce the demand for other goods because they reduce wealth, as well as deflate business confidence - similar to the declines in indicators observed following the European fiscal crisis last year. As a result, volatility in the oil market can have intense ripple effects throughout the economy, and a sustained surge in prices can trigger an increase in inflation.

Over the past 50 to 60 years in the U.S. every economic recession and inflationary period was associated with a prolonged rise in the price of oil. As with any other essential good, higher oil prices force individuals and businesses to forgo other purchases and investment, and in so doing act as a drag on economic performance. With oil front and center, Wall Street is pretty much overlooking the Labor Department’s recent report that the economy added 192,00 jobs in February, which was in line with analysts expectations. Question: How is your team reacting to the increases in oil?

Week in Review* - Feb 28

Welcome back to Spring 2011 SMG Week in Review! As you know, the goal of this weekly newsletter is to tie current economic news to the SMG project. Basic economic principles will also be discussed that may be helpful to your team as you participate in the project's final few months.

One of the biggest news stories on Wall Street as of late is the merger of some major stock exchanges. The London Stock Exchange is merging with the TMX Group which operates the Toronto Stock Exchange to create one powerful exchange. Also, in early February Deutsche Borse announced plans to merge with New York Stock Exchange parent NYSE Euronext (NYSE: NYX) in a ten billion dollar deal. To make things more interesting, rival Nasdaq OMX Group (Nasdaq: NDAQ) is reportedly considering a hostile bid for the NYSE, potentially bringing on other exchanges as partners in the takeover attempt. Possible partners include Chicago Mercantile Exchange owner CME Group Inc. and commodities trader Intercontinental Exchange Inc.

According to many stock analysts, no matter who comes out on top, everyone wins. The consensus is that fewer, bigger, more powerful exchanges could possibly lead to paying lower incentives to attract market makers. That’s one reason why the market has responded positively to the merger talks by bidding up shares of many exchange companies over the past few weeks. Be sure to keep tabs on what shakes out over the next few months. It will be an interesting semester for sure.

One easy way for your team members to follow current NYSE/Nasdaq news is to view the “News Update” link in their portfolio. This link will take you to a Reuters feed which provides up-to-date stock market and mutual fund news that allows team members to view the major economic events impacting the markets. You can narrow your search to a particular company by clicking on the “Investor Research” link. Since these links are inside your portfolio, there are no pop ups to distract you!

Week in Review* - Dec 27

Update: 1/7/11 The news is that Facebook will not being announcing an IPO until next year, possibly.

As a follow up to the previous article, read Goldman Invests in Facebook at $50 Billion Valuation.
With the holiday break comes some interesting news to watch. Did you know that Facebook might be forced to go public with their private shares? Just as Google and Microsoft did years ago, so goes Facebook - read this article. With the SMG approaching mid year already (amazing) out of 86 teams SLMS has three still in the Top-10, down from five a couple weeks ago. Still holding #1 spot is a team in 7th period who is earning on a risking 8% loan they initiated weeks ago to invest in shares they thought would be be big earners - so far they're right. Remember to monitor your portfolios during this break week, as the markets are running full speed ahead!

Week in Review* - Dec 20

As an investor, time is your biggest ally. The more time you have to invest, the longer your investment can compound, or grow in value. Compounding is a financial phenomenon that makes time work in your favor. This is why I have extended the SMG from 1/2 year to a full year of school. It’s what happens when your investment earnings are added to your principal, forming a larger base on which earnings may accumulate. And as your investment base gets larger, it has the potential to grow faster, as your team's assignment demonstrated.
The younger you are when you start investing, the more you will benefit from compounding. Let’s say you begin investing at age 25, putting $200 a month in a tax-deferred retirement plan earning 9%. Your friend starts investing in the same plan at age 45, but puts away twice as much money as you — $400 a month. At age 65, you will both have invested a total of $96,000, but your investment would have grown to $884,000, while your friend’s investment would be worth only $268,000. The reason your investment has grown so much more than your friend’s — even though you both invested the same amount of money — is because of 20 extra years of compounding. So, I highly encourage each of you to start saving now! (I started mutual fund investments at 42 years of age - yikes!)

A 9% return on your investment isn’t guaranteed (although it is the market average over 30 years), and, if you invest in stocks, chances are your portfolio will earn more than 9% in some years, and may even lose money in others. But, if you invest in stocks for the long term, history is heavily in your favor: From 1926 through 2005 large-company stocks have provided an annualized return of 10.4%.So start saving those pennies!

NEWS FLASH! - For you Best Buy investors read this article, "Best Buy Feels the Pressure of Rivals on the Web". Southern Lehigh MS still holds 7 of the top 15 rankings out of 86 MS teams playing SMG, and we have held onto the number one BEST portfolio now for two weeks!

Week in Review* - Dec 13

The S&P 500 index has been front and center this week as it reached a two-year intraday high on Tuesday as investors forecasted the deal to extend tax breaks will increase consumer spending and buoy the economy and boost shareholder returns. It was also recently announced that video king Netflix (Nasdaq: NFLX), F5 Networks (Nasdaq: FFIV), and energy company Newfield Exploration (NYSE: NFX) will join the ranks of the index. Companies getting the boot include The New York Times (NYSE: NYT), Eastman Kodak (NYSE: EK), and Office Depot (NYSE: ODP). The changes will take effect by this Friday, 12/17, and the demoted companies will be incorporated into the S&P MidCap 400 index.

As the SMG project approaches the mid-way point at the end on January , most likely your team is monitoring your portfolio and rankings very closely. And like your team watching your rankings, in the real markets, professionals track benchmarks to get a sense of how the market is performing. By the way, I am happy to report that Southern Lehigh MS has capture five places in the "Top 10" out of middle schools in Pa, with a SLMS team ranking #1 out of 86 middle school teams!

Anyway, a benchmark is an index, average, or other measure, whose movements serve as a standard, or basis of comparison, for evaluating the performance of the overall market. Investors use benchmarks as a gauge against which they set their market expectations, and judge the performance of individual securities, market industries and sectors, and the performance of different portfolios. The Dow Jones Industrial Average (the DJIA or the "Dow") and the Standard & Poor’s 500-stock Index (the S&P 500) both track the performance of large-cap stocks and are the most widely followed benchmarks of the U.S. stock market.

Your teams are probably familiar with the Dow as its fluctuations above and below 10,000 points are discussed daily on the news. But what does the Dow represent? It’s used as a sort of proxy for the overall health of the market and tracks the performance of 30 blue chip US stocks. Though it is called an average, it actually functions more like an index. The DJIA is quoted in points, not dollars. It’s computed by totaling the weighted prices of the 30 stocks and dividing by a number regularly adjusted for stock splits, spin-offs, and other changes in the stocks being tracked. Many analysts are critical of the Dow since it contains just 30 companies selected by the editors of The Wall Street Journal. Most feel the S&P 500, which tracks 500 major American companies, offers a more accurate gauge of the overall market.

Apologies for the gap in weekly posting, as I have been fighting a persistent cold.

Week in Review* - Nov 29

Recently I've read excepts from //The Investment Answer: Learn to Manage Your Money & Protect Your Financial Future// by Daniel C. Goldie and Gordon S. Murray. Murray decided to write this book as a lasting contribution to his profession, for he is dying of cancer. He felt he needed to speak honestly about investments for the common person, something not usually found in the financial community he believes. Here is on except from the New York Times article that reviewed his book. It that might be beneficial to your team's investment strategy.

The book asks readers to make just five decisions. First, will you go it alone? The two authors suggest hiring an adviser who earns fees only from you and not from mutual funds or insurance companies, which is how Mr. Goldie now runs his business.

Second, divide your money among stocks and bonds, big and small, and value and growth. The pair notes that a less volatile portfolio may earn more over time than one with higher volatility and identical average returns. “If you don’t have big drops, the portfolio can compound at a greater rate,” Mr. Goldie said.

Then, further subdivide between foreign and domestic. Keep in mind that putting anything less than about half of your stock money in foreign securities is a bet in and of itself, given that American stocks’ share of the overall global equities market keeps falling.

Fourth, decide whether you will be investing in active or passively managed mutual funds. No one can predict the future with any regularity, the pair note, so why would you think that active managers can beat their respective indexes over time?

Finally, rebalance, by selling your winners and buying more of the losers. Most people can’t bring themselves to do this, even though it improves returns over the long run.

This is not new, nor is it rocket science. But Mr. Murray spent 25 years on Wall Street without having any idea how to invest like a grown-up. So it’s no surprise that most of America still doesn’t either.
Lieber, Ron. "A Dying Banker's Last Financial Instructions." New York Times 26 November 2010

SMG Week in Review* - Special Mid-Week Announcement

Stocks took a plungeyesterday over news of artillery fire between North and South Korea, but as we head into the unofficial start of the frenzied holiday shopping session, it’s a good bet things will turn around by the week’s end. Black Friday originally received its name because of the heavy traffic experienced on the day, but has now come to mean the first day of the year retailers' balance sheets are in the black or enter positive territory. While no one can predict with certainty what the stock market will do on any given day, forecasting a gain on the day after Thanksgiving has been a safe bet in years past. We’ll keep our fingers crossed!In this season of tradition, The Stock Market Game has a tradition of its own to observe and that is to focus on five stocks experiencing phenomenal growth since early September. The goal of highlighting these companies is not to have your team rush to add them to your portfolios (you can if they wish), but rather to draw attention to possible trends within these companies’ industries and sectors. The list is compiled from the states with the largest number of SMG teams, so it’s not exhaustive, but it’s designed to give you a sneak peek at some of the best performing companies this semester. The list of the top five stocks and brief descriptions follow.Top Five Stock Market Game Stocks – Fall 2010Company Ticker 9/7/2010 11/22/2010 Increase5. National Oilwell Varco Inc. NOV 39.55 60.65 54%4. Exide Technologies XIDE 4.47 7.97 78%3. Arctic Cat Inc. ACAT 8.11 14.88 83%2. ZAGG Incorporated ZAGG 3.62 7.19 99%1. Motricity, Inc. MOTR 7.70 27.95 263%5. National Oilwell Varco Inc.: A worldwide leader in the design, manufacture and sale of equipment and components used in oil and gas drilling and production. 4. Exide Technologies: A maker and recycler of automotive and industrial batteries for retailers and transportation manufacturers including Wal-Mart, NAPA, as well as Fiat and Toyota. 3. Artic Cat Inc.: This Minnesota based company manufactures and markets about 20 types of all-terrain vehicles (ATVs) and over 50 snowmobile models. Think snow!2. ZAGG Incorporated: Your tech savy students may be very familiar with this company as it designs, manufactures, and distributes protective clear coverings and accessories for consumer electronic and hand-held devices worldwide. And the winner is...1. Motricity, Inc.: This company enables wireless carriers such as Verizon, AT&T, Sprint and T-Mobile to offer the Web on the go. At the center of the company’s data services is the mCore Platform, allowing wireless subscribers to download ringtones, videos, wallpapers, and games.

SMG Week in Review* - Nov 22

From the official engagement announcement at Buckingham Palace to the largest IPO in US history, it’s been an exciting week on and off Wall Street. The question many teams may be asking is whether or not General Motors (NYSE: GM) makes a good investment choice for your portfolio. It’s an interesting call as the company filed for bankruptcy in June 2009 (remember that?). However, yesterday’s blockbuster initial public offering will help the company raise as much as $23.1 billion by selling nearly $18.1 billion in common stock and another $4.4 billion in preferred stock. The topic of inflation is also front and center this week. According to the Bureau of Labor Statistics, inflation is at its lowest level since 1957. Consumer prices for everything other than food and energy are rising, but at a rate so slow, it’s the smallest price increase on record (unfortunately gas prices bucked the trend and are up 9.5% over last year). While a sluggish inflation rate may seem like welcome news to those pinching pennies, it raises concerns regarding deflation or falling prices which often signals falling wages and job cuts.
Teams may be wondering how inflation affects one’s investments. Inflation is the rate at which prices rise, and over time can erode the purchasing power of your money. For example, you can buy somewhat less with a dollar today than you could have bought five years ago, and significantly less than you could have bought fifty years ago. So if you have the same amount of income each year, your purchasing power gradually shrinks. Many factors influence the rate of inflation, from overall economic conditions and consumer spending to monetary policy and the political outlook. Investing can help your team offset the eroding effect of inflation by providing a rate of return on your money that's higher than the rate of inflation. If you expect your portfolio to be worth more tomorrow (well June anyway) than it is today in terms of buying power, your team will need to invest in securities that have a good chance of outpacing inflation, but picking them is easier said than done.

SMG Week in Review* - Nov 15

Despite strong performances earlier in the week, stocks stalled early Friday on news of a possible interest rate hike in China. While investors focused on U.S. centered news last week (midterm elections as well as the Fed’s announcement of the economic stimulus plan), attention shifted to global news as of late – specifically China. In an effort to halt its surging economy and combat inflation, investors fear China may be forced to raise its interest rates. The Chinese government said Thursday the pace of inflation hit a two-year high in October. Slowing down China's economy could have an impact worldwide since the country's robust economy has helped offset sluggish growth in the U.S. Many companies, such as General Motors, have credited international sales, particularly in China, as a reason earnings have been strong. Psst! I just bought a couple hundred share for my portfolio. In light of last week’s discussion of the Fed’s new $600 billion bond-buying program, how about we take a step back and look at bond basics. Also, for those teams who would like to add a little stability to their portfolios, bonds may be a good choice. In essence, bonds are loans investors make to the issuers in return for the promise of being paid interest, usually but not always at a fixed rate, over the loan term. The issuer also promises to repay the loan principal at maturity, on time and in full. While bonds have a reputation as a dull investment in part because they are less volatile than stocks and produce a lower long-term return, their appeal has risen due to the current economic climate. Types of bonds are U.S. Treasury bonds, Corporate bonds; Municipal bonds While all bonds share basic characteristics such as terms, rates, and par values (the face value, or named value of the bond – usually $1,000), they are not all alike. One of the major differences is that they’re issued or sold, by four distinct entities in the U.S. Corporations issue bonds to raise money for expansion, research and development, and other expenses of doing business. While corporations can also raise money by selling new stocks, they may prefer bonds because the existing stocks lose value when new stocks are issued. Municipal governments, such as states and cities, sell bonds to fund projects for the public good like building bridges, sewers, roads, and schools. The U.S. Treasury also issues bonds to meet its regular and unusual obligations. And finally, government agencies issue bonds to raise money to do their work, such as provide mortgages as well as student loans.
Special note this week! We have four SLMS teams in the top 10.

SMG Week in Review* - Nov 8

It’s been a full week on Wall Street with the Republicans taking over the House, the official announcement of the Fed’s new $600 billion bond-buying program, and the release of the latest jobs report. Regardless of how you voted, we all can breathe a sigh of relief that campaign ads are over for the time being. It appears investors are also breathing a bit more easily as stocks have been bullish with all three indices (the DOW, S&P 500, and Nasdaq) reaching two-year highs on Thursday. The rally came on the heels of the Fed’s stimulus – its attempt to jump-start the sluggish economy. And after months of painful losses, the Labor Department reported some good news this morning – the economy added 151,000 jobs in October. Not yet discussed in class your team may be unfamiliar with the role of the Federal Reserve Bank and why its policies have such a great impact on the overall economy and the individual investor. We’ll start with the basics. The Federal Reserve System is the central bank of the United States and plays many roles in the economy. The most important is regulating the money supply. This includes the currency in circulation, the reserves held by banks, and the amount of money being deposited and re-deposited in bank accounts. The process of injecting or withdrawing money reflects the monetary policy that the Fed adopts to regulate the economy. Monetary policy isn’t fixed, but rather a balancing act to keep enough money in the economy so that it flourishes without growing too quickly or too slowly. Therefore, the role of the Fed is extremely important – ensuring neither growth nor decline gets out of hand.In order to evaluate the current state of the economy, the Fed’s Open Market Committee (FOMC) meets roughly every five to eight weeks. It then notifies the Federal Reserve Bank System whether to speed up or slow down the creation of new money. The money supply is extremely important to individuals and businesses because the more money available, the easier and cheaper it is to borrow. The less money available, the more expensive borrowing becomes. The cost of borrowing, or the cost of credit, has a strong impact on whether the economy is able to grow or decline. One method the Fed uses to create money is called quantitative easing (QE) and it’s what we’re currently experiencing with the $600 million bond buying program. This process occurs when the bank interest rate or discount rate is zero or close to zero. To create money, the Fed buys government bonds from banks and brokerage houses. The money that pays for the assets hasn’t existed before, but has value, or worth, because the bonds the Fed buys are valuable. Additional new money is then created when the banks and brokerages lend the money they received from selling the assets to clients who spend it on goods and services.

SMG Week in Review* - Nov 1

While it’s probably been an interesting weekend at home for you all, with all the trick-or-treating festivities, Wall Street could use a bit of a sugar boost as it responds to news released from the Commerce Department regarding gross domestic product (GDP). U.S. stocks were mostly lower earlier last week after a report on economic growth showed tepid expansion in the third quarter. Regarded as the broadest measure of the economy, GDP grew at an annual rate of 2% in the three months ending in September, according to the government’s initial reading out today. While it’s slightly better than the 1.7% growth during the previous quarter, it’s still considered too weak to create jobs. Economists aren’t expecting significantly better growth any time soon as 2.5% growth is forecasted for the fourth quarter and 2.8% growth is expected for all of 2011. Nevertheless, stocks are on pace to close in the black for the month, marking the Dows’ best October since 2006 and the S&P 500’s best October since 2003. The climb has come amid increasing expectations for the Federal Reserve to announce added stimulus at its meeting next week - hundreds of billions of new asset purchases, particularly long-term Treasuries, in an attempt to jump start the economy. Your team may have noticed some interesting activity in regards to some big name companies such as Burger King (BKC) and Hewlett-Packard (HPQ). They are among many companies recently involved in “tender offers.” Before reviewing the particulars of each, let’s start with the basics. Tender offers are usually part of a bid to take over another company. When a corporation or other investor offers to buy a large portion of outstanding shares of another company (called the target company), at a price higher than the market price, it’s called a “tender offer” and it can be friendly or unfriendly. The tender is usually part of a bid to take over the target company. Current stockholders, individually or as a group, can accept or reject the offer. If the tender offer is successful and corporation accumulates 5% or more of another company, it has to report its holdings to the SEC, the target company, and the exchange or market on which the target company’s share are traded. If the company buys another company outright or accumulates enough shares to take a controlling interest, the deal is described as an acquisition. To complete the deal, the acquiring company may be willing to pay a higher price per share than the price at which the stock is currently trading. That means shareholders of the target company may realize a substantial gain, so some investors are on the lookout for companies that seem ripe for acquisition. Sometimes acquisitions are described, more bluntly as hostile takeovers, or more diplomatically, as mergers. Collectively, these activities are referred to as mergers and acquisitions, or M&A, on Wall Street. In terms of our real world examples, 3G Capital successfully completed its tender offer for Burger King Holdings Inc. which last month agreed to sell itself to the investment firm for $3.26 billion excluding debt, or $24 per share. Hewlett- Packard issued a tender to acquire ArcSight, a leading security and compliance management company for $43.50 per share, or an enterprise value of $1.5 billion. These two company examples highlight the importance of having your team follow company news. Encourage each other to visit the home page of the companies in their portfolio as there is usually a section devoted to corporate news containing press releases regarding up-to-date information affecting the stock price. We have a team in 7th place overall this week! WooT!

SMG Week in Review* - Oct 25

While many sports fans will be glued to their TVs to watch the World Series (go Giants!), Wall Street’s focus lately has been on company earnings as we are in the midst of third quarter earnings season. For the most part, the overall tone on the Street has been positive with an unusually high number of companies topping estimates. Apple (AAPL) and Citigroup (C) kicked off the week with both companies surpassing market expectations while McDonalds (MCD), Travelers (TRV) and Verizon (VZ) rounded it out by posting similarly impressive quarters. Blue chips McDonald’s and Travelers both hit 52-week highs yesterday helping the DOW gain 38 points to 11,146.57.For many of you, quarterly earnings may be unfamiliar. At the most basic level, a quarterly earnings report is similar to your report card except it’s for publicly traded companies. These reports, usually filed in January, April, July, and October, let shareholders know how well the company has performed over the past three months. It is important to note that not all companies report during earnings season because the exact date of an earnings release depends on when the given company's quarter ends. As such, it is not uncommon to find companies reporting earnings between earnings seasons. Included in most quarterly reports are net income, earnings per share, earnings from continuing operations, and net sales. Most often, the key metrics – net income and earnings per share, are compared to the previous year’s numbers. Analysts and investors then gauge the financial health of the company and whether or not to invest. Expect to see a lot of movement in the shares of companies releasing their earnings reports as the market reacts to the new data. It is not unheard of to see shares jump 20% or more or to see them fall by this same amount. One question you may want to pose to your team is whether or not they feel a quarterly earnings report will accurately predict the company’s future

SMG Week in Review* - Oct 14

Happy Fall and welcome to the first edition of The Stock Market Game’s Week in Review. This weekly e-newsletter will tie current events to the SMG project. Also, basic economic principles helpful for you and your team as you participate in this project.
While to many it may not feel like it, it’s official – the recession is over. According to the National Bureau of Economic Research (NBER), a group that dates the beginning and end of recessions, the longest recession the country has endured since World War II ended in June 2010. The announcement makes official what many economists have believed for some time, that the recession ended this past summer. Any future downturn in the economy would now mark the start of a new recession, not the continuation of the December 2007 recession, states NBER. That’s important because if the economy starts shrinking again, it could mark the onset of a “double-dip” recession which hasn’t happened since 1981-82. Another hot topic on Wall Street is the recent moratorium on home foreclosures. Pressure on banks and processing firms to suspend foreclosures over concerns of paperwork errors has continued to mount since Bank of American announced last Friday is was halting foreclosures and foreclosure sales nationwide. The core issue involves allegations that employees used unverified or false data to speed the foreclosure process. On Tuesday of this week, JP Morgan Chase and GMAC, which had already halted foreclosures in 23 states, agreed to expand their review of documents to all 50 states. What do these events mean for your Stock Market Game portfolios? At the most basic level,your team needs to realize the importance of following current events. Using the foreclosure issue highlighted above, a good question to ask yourselves is who is affected by this news and how? What impact does it have on the housing industry as a whole as well as individual companies like Fannie Mae and Freddie Mac? What impact, if any, will it have on the financial sector?While many SMG teams are just getting started with their investments, a great way for your team to stay abreast of market news is to view the “News Update” link in your portfolio. This link will take them to a Reuters feed which provides up-to-date stock market and mutual fund news that allows your team to view the major economic events impacting the markets. You can narrow your search to a particular company by clicking on the “Investor Research” link. Since these links are inside your team's portfolio, there are no pop ups to distract you!

* Hot News: Week in Review" content is from Elizabeth Reidel the New England Regional Director of The Stock Market Game and has been edited for SLMS students use during their project work. All viewpoints and opinions are of SMG, and while using outside resources for the Stock Market Game is encouraged, there is never a guarantee of success for invested funds.