Makin' Money - Most Commented
Bats goes bats: The worst IPO ever
Wow! Jaws are dropped all over Wall Street as Bats Global Markets -- the high-speed electronic-exchange -- withdrew its initial public offering (IPO) after computer glitches derailed trading in its stock. It had been priced at $16 yesterday, yet this morning its shares were trading as low as $0.02, according to Bloomberg News. Computer errors also forced a halt to trading in Apple, the world's most valuable company.
Imagine: Bats stands for Better Alternative Trading System. Oops.
The implications of the Bats debacle are huge. The exchange is a creature of the high-frequncy trading market. High-frequency traders use extremely powerful computers and sophisticated algorithms to exploit exceedingly small price movements, buying and selling in fractions of a second. The trading has led to weird market-shaking moments. Regulators are already investigating the firms and the impact of their high-speed trading on the market. In essence, the problem is that the quicksilver computerized networks have outrun the existing regulatory safeguards.
Greater scrutiny is needed.
A rush to hedge against inflation
The federal government sold $13 billion of 10-year Treasury Inflation Protected Securities -- better known as TIPS -- at a record negative yield.
In other words, investor demand was so strong that the yield on the TIPS was less than 0! The negative yield isn't unprecedented. The 5-year TIPS sold at negative yields in the past four auctions and the yield on the 10-year TIPS sold at auction under 0 percent for the first time last January, according to Bloomberg.
Are investors nuts? A yield on most safe investments of 0.0 percent to 1 percent is bad enough. But a yield less than 0 percent? Crazy, right? Not really.
TIPS are specifically designed as a hedge against a rise in the consumer price index, the main inflation benchmark. Right now, inflation is contained. Investors are essentially taking out an insurance policy against the risk that inflation turns out to be higher-than-expected or higher-than-feared over the next 10 years. The higher the inflation rate, the more valuable becomes the inflation hedge -- and vice versa.
The negative yield is essentially the price of the "insurance premium" for the protection from inflation.
Like most insurance policies, investors hope they're wrong and inflation stays dormant over the coming decade.
Reminder on first-time MRDs
What's an MRD, you ask? It stands for minimum required distribution. The reminder? Investors who turned 70 1/2 years old in 2011 should know that March 30, 2012, is the deadline for taking their first annual MRD from their IRAs and 401(k)s.
According to a note I got from the mutual fund behemoth Fidelity, as of December, 48 percent of MRD-aged Fidelity IRA customers who turned 70 1/2 in 2011 had not yet taken the full required amount. Here's the thing: Investors who do not withdraw their full MRDs by March 30 may get hit with a 50 percent tax penalty on the amount not withdrawn. Ouch.
To be clear, if you're age 70 1/2 and older, you must take your MRD from your traditional IRAs and 401(k)s by Dec. 31 of each tax year. However, if you're taking it for the first time, the deadline is extended until April 1 of the following year. Since it falls on a weekend this year, the deadline is March 30 for tax year 2011. Don't forget.