Was it serendipity? A coincidence? Or are we in cahoots with Fed Chairman Alan Greenspan? There he was, speaking today in Georgia, urging regulators to overhaul laws on stock options and advocating for more openness in corporate accounting. And here we were, releasing Declaration #3 of our Motley Fool Manifesto, saying, well, exactly the same thing.
Said the Fed Chief: "I fear that the failure to expense stock option grants has introduced a significant distortion in reported earnings -- and one that has grown with increasing prevalence of this form of compensation."
Said our Motley Manifesto: "Many companies have fallen deeply in love with the ability stock options allow to compensate managers and insiders at a high level without needing to recognize this as an expense."
The bottom line: Shareholders and prospective investors must be able to clearly determine the economic cost of compensation.
Whether you agree or disagree with us and Mr. Greenspan, let your voice be heard. We'll gather the comments we receive and report them to the SEC.
The Motley Fool 50 got caught in a wave of general market pessimism today after the Labor Department reported that the nation's jobless rate spiked to an eight-year high. The index fell about 1%.
In today's Motley Fool Take:
Time to Go for the Gold?
While the bear market continues among the broad stock market, there's a bull market heating up in... you might want to sit down for this... gold.
Yes, after a 20-year bear market, gold prices are heating up. The Gold Bugs Index (AMEX: HUI), composed of a handful of the major gold producers, is up over 3% as of mid-afternoon today, and is up over 70% since the beginning of September.
During the high-tech boom of the late 1990s, gold was all but written off for dead as the price per ounce reached a low of $253 in 1999. That's down from $400 in January 1996 and $800 in January 1980. Today, gold prices are back above $300. In the wake of dwindling corporate profits, accounting scandals, and high-profile bankruptcies, gold has regained its luster.
Gold may seem like the ultimate fuddy-duddy investment, but Fools should at least be aware of gold's unique qualities as a financial asset. Unlike stocks or bonds, which generally represent paper promises of future cash flows, gold has intrinsic value and no default risk. As such, gold has a "safety premium" that becomes prominent during uncertain times.
Gold has intrinsic value via its demand in jewelry, electronics, dentistry, industrial and decorative uses, medals, medallions, and official coins. On the supply side, gold is not only rare but also costly to locate, mine, process, and refine. This balance of enduring demand and limited supply has made gold a classic store of wealth.
Another interesting aspect of gold is that its price has historically risen during periods of recession and depression, right when stocks have been at their worst:
S&P 500 Gold
Dec. 1929 - Jan. 1934 -63% 69%
Dec. 1968 - Dec. 1974 -34% 347%
Aug. 2000 - Apr. 2002 -26% 9%
Fools wanting to consider a conservative way to invest in gold may want to take a closer look at Newmont Mining Corporation (NYSE: NEM). U.S.-based Newmont is the largest producer of gold in North America and the second largest in the world. At a recent price near $30, the stock trades at a market cap of $5.8 billion. Adding in about $1.3 billion in net debt, the company has an enterprise value of about $7.0 billion and trades at an EV-to-EBITDA multiple of 20x. In addition to today's cash flow, a significant amount of value exists in the company's gold reserves in the ground, which are sufficient to supply a decade of production.
"The art of investing in public companies is… simply to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter you need only monitor whether these qualities are being preserved." -- Charles Munger
You Too Can Be a Spider-Man. . . or a Spider-Woman
So you've got web-slinging prowess and a keen spider sense that gives you the inside track on where the market will be heading. Are you brave enough for Exchange Traded Funds (ETFs)?
Regarded in some circles as index funds for the impatient, ETFs provide the same low expense access to a set basket of stocks as your garden variety index mutual fund -- only with the perpetually changing bid and ask prices of a publicly traded stock.
ETFs were born in 1993 with the market debut of Standard & Poor's Depositary Receipts (AMEX: SPY), more affectionately known as Spiders due to the SPDR acronym. These aren't genetically altered crawlers bent on changing Peter Parker's seemingly ordinary life. Nope. Spiders simply track the performance of the S&P 500 Index, trading continuously on the American Stock Exchange.
ETFs have grown to account for the lion's share of trading on the Amex. For example, yesterday the Nasdaq 100 Shares (Amex: QQQ) vehicle traded nearly 10 times as many shares as the most popular non-ETF on the exchange.
The Spiders aren't weaving solo, as more than two dozen new ETFs were rolled out last month. However, these are specialized sector-based funds. They just don't pack the same round market punch of a Spider's kiss.
To find out more about how ETFs work, including their pros and cons, check out some of these Fool.com articles: The Age of the Exchange Traded Index Fund, The "Index Plus a Few" Strategy, and Spiders: The Index Fund Alternative.
Good luck out there, Spider fans. Always remember that with great power comes great responsibility.
Discussion Board of the Day: Spider
Are Exchange Traded Funds right for you? Do they encourage day trading the market as a whole? All this and more -- in the Spider Discussion Board. Only on Fool.com.
Shameless Plug: The Perks of Being Foolish
As another company once put it, membership has its privileges, and ours is free. From special yields on certificates of deposits to free issues of Investor's Business Daily, we've always got some Fool perks for you. Take advantage of them, and check back often for more.
Stop me if you've heard this one before: TRW (NYSE: TRW) shareholders have rejected a Northrop Grumman (NYSE: NOC) takeover proposal as financially inadequate. TRW says the door is still open for Northrop, however, as well as any other interested suitors.
As Conoco (NYSE: COC) and Phillips Petroleum (NYSE: P) move closer to their wedding date, the two companies announced they will cut some jobs, but didn't say how many. The new, combined company will be headquartered in Houston.
Microsoft (Nasdaq: MSFT) co-founder Paul Allen has unloaded all of his 20 million shares of USA Networks (Nasdaq: USAI). The private transaction netted Allen about $568.6 million.
A day after cutting the debt ratings of Xerox (NYSE: XRX), Moody's Investors Service downgraded Vivendi Universal's (NYSE: V) long-term senior debt rating to the lowest investment-grade level -- one notch above "junk" status. Moody's expressed concern about Vivendi's ability to reduce its debt levels as quickly as it had planned.
And Finally...
Today on Fool.com: The Motley Fool Manifesto unveils Declaration #3: We want management to provide an accurate picture of company financials.... Dayana Yochim teaches us how to be the CEO of You, Inc. with the help of some creative accounting... Selena Maranjian asks if you've considered the advantages and disadvantages to joining a credit union.... If you're worried about the cost of college, take heart -- there is Hope!
Contributors:
Bob Bobala, Robert Brokamp, Jeff Fischer, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Reggie Santiago, Dayana Yochim
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