Social lending is one of the newest and fastest growing segments in finance. Four companies are readily available online: Lending Club, Prosper, Pertuity / National Retail Fund, and Kiva. Below I describe a few differences between them. Please note that Prosper is undergoing regulatory approval for nationwide lending and is not accepting any new loans or funding. Hence their site is currently inaccessible and their program difficult to judge.

Primary Mission:

• Lending Club, Prosper, and Pertuity’s main goals are to decrease the cost of borrowing and increase the return from lending.
• Kiva’s main goal is economic development based on microfinance.

Geopraphy:

• Lending Club, Prosper, and Pertuity lend to US borrowers.
• Kiva’s focus is international small businesses or professionals. The largest amounts are lent to borrowers in Peru, Cambodia, and Tajikistan.

Who gets funded and interest rates charged:

• Lending Club and Pertuity select and approve borrowers using FICA scores. Interest rates are set accordingly. The Lending Club offers loans to consumers with good credit scores only. Interest rates range between 7.37% and 20.11%.
• Prosper is an auction and lenders bid on loans. Interest rates depend on the number and type of offers to fund these loans.
• Kiva works with local field partners who manage the loans in various countries. These partners must have microfinance experience and serve a large enough group of borrowers. It seems that borrowers do not have to pay any interest on their loans.

How to lend money and interest rates earned:

• Lending Club investors select loans they want to fund spreading their investment across multiple loans. They claim investors have earned an average net annualized return of over 9%.
• Lending for Perpuity is managed by the National Retail Fund. They claim their average interest rate is 13%, the average FICO score 760 and the average amount lent: $11,034
• Kiva currently has 7253 lending teams. Individuals can either join an existing team or create their own. The largest team is “Atheists, Agnostics, Skeptics, Freethinkers, Secular Humanists and the Non-Religious” with 4,648 members 21,492 loans and a total of $648,325 lent. The second largest group in terms of money lent is “Kiva Christians” with $470,050 lent. It is followed by “Team Obama” with $376,725 lent. Lenders do not earn any interest on their loans.

How the companies earn money or cover their costs:

• Lending Club charges a small percentage from principal and interest at the time they are paid back.
• Kiva is a non-profit organization with operations funded by donations.

Relevant links:

Lending Club – www.lendingclub.com
Prosper – www.prosper.com
Pertuity Direct – www.pertuitydirect.com
National Retail Fund – www.nationalretailfund.com
Kiva – www.kiva.org

This information is provided for informational purpose only. I am not affiliated with any of the companies. All information should be verified before making an investment decision.

Historical Comparison Between Depression and Now

Martin Wolf has published an excellent article “The Recession tracks the Great Depression.” It shows that the drop in global industrial output after June 1929 matched the one after April 2008. It also shows global trade volumes, global money supply, and fiscal balances. It is interesting to compare these trends although for deeper analysis, we would need more information.

Iran Unrest

Iran experienced deadly demonstrations over the weekend. It is hard to know what still goes on in Iran, if there is any resistance left, or if the crackdown is complete. It is clear, however, that the Iranian government has effectively shut down communications with the outside world. It expelled many journalists or put them under house arrest. It deep filtered Internet communications.

According to Reuters, Iran supplies about 4.5% of the global oil supply. This means, we should not expect the demonstrations to have much impact on the markets. Of course, all the demonstrators who were wounded or died in the name of just elections and freedom do not really care about the oil supply. May their sufferings and deaths not have been in vain! May we support Iranians in their quest for freedom!

Healthcare Costs

The New Yorker published the best analysis on healthcare cost I have read in a long time. Unfortunately, the findings seem to be a story from the handbook of Bear Stearns, AIG, etc. This is a must read article if you are interested in healthcare reform.

Blog Directory | Globe of Blogs

In my year-end blog, I recommended four stocks that should be relatively recession proof: Coca Cola, Goldman Sachs, Goodrich and Northrop Gruman. The table below shows that all four outperformed the SPY (S&P500 equivalent) so far. I still stand behind all four.

On October 20, 2008, I was bullish on Oracle for the short-term and bearish for the long-term. I found that they should use their cash to buy companies instead of buying back their own shares. Given that Oracle has been buying up companies in the past few month, I revise my outlook to buy. Moreover, checking predictions and accuracy, I see that the overall community has a four-star rating on ORCL, and the overall prediction direction is UP. Current price: 17.04.

From this evaluation, it is clear that my long-term picks have been better than my short-term picks lately. This means I have to get back to predicting more often. Keeping an edge in short-term thinking.

Blog Directory | Globe of Blogs

I have been watching the sentiment for the Dow Jones Industrial Average (DJIA) on www.predictwallstreet.com quite closely and it has been interesting. The sentiment for the Dow has been extremely up most of the times since Christmas. Price did not follow this pattern other than an initial push early in January. On the contrary, while initially there was a clear resistance for the Dow to break below the 8000 level, it has crossed it several times now, each times with more ease.

The question then becomes, why are investors so hyped up? Moreover, why is America shopping when the market continues to decline? Why the party when the house is burning?

I am sure there are many answers and we can only speculate. According to the Commerce Department, the causes for the spending gain were higher gasoline prices plus more spending on clothing and food. Chicken soup for the soul.

Unfortunately, no chicken soup has ever had a lasting effect or cured an illness. So unless the doctor prescribes some drugs, maybe even surgery, the illness will continue. And while I am writing this blog, we read that the Obama administration works on a program to subsidize mortgage payments for troubled homeowners. The Dow recovers 250 points.

Of course, for prices not only to stay above 8000, but also to  recover, we need more than a promise for a prescription. We need actual drugs that work – and be willing to swallow them even if they taste bitter. While we wait for the cure, we can see the placebo effect of promises by observing the DJIA sentiment trend chart. We can also see that, while still extremely high, sentiment slowly decreases. The placebos are losing their impacts.

We can only hope that 2009 will be better. While trying to be rational, we need to recognize that no rational person would have predicted the financial meltdown of 2008.

What are the driving forces for 2009? First, there is a new administration and with it a new outlook. There is hope that his administration will act and create jobs. No laissez-faire approach. The sizzle is in a serious, pragmatic hands-on approach. The result should be a lift in consumer confidence and thus a lift to the stock price of consumer companies such as Coca Cola.

The big meltdown for the financial industry is most likely behind us although the pressure on the industry will continue. 2009 will be about getting rid of the troubled assets, managing risk and creating new opportunities for income. Goldman Sachs is well positioned for growth by operating the Fed’s program to buy back mortgage-backed securities. For banks, loan volumes will be low and low interest rates will hurt margins. Investment management companies will need to rebuild their customers’ trust if they want to get them back into the game.

For main street, 2009 will be about consolidation, cost savings, and smart investing for those companies who have solid balance sheets with lots of cash and low debt. Debt ridden companies will still have a hard time to get loans and many companies will run out of cash. Layoffs and company takeovers will be the norm. On the other hand, companies with low debt ratios will be able to find loans at very advantages rates, take advantage of opportunities and position themselves for long-term growth and leadership.

War related stocks will also increase in 2009. Stock prices of major aerospace companies such as Goodrich and Northrop Gruman continue to go up. Troubles in the Middle East, Iraq, Aghanistan, Pakistan, and other places will force the US to spend heavily on weapons.

Overall, 2009 will bring many challenges but also opportunities. It is important to realize that the market bottom is usually reached when everybody gives up and is pessimistic. Hence, given that I still see opportunities means that we must not have reached the bottom yet! But I doubt that we are far since markets now react in a much more “normal” way, namely stocks going up when companies announce layoffs or being taken over.

Happy and prosperous 2009 to all of you!

Blog Directory | Globe of Blogs

We are so weary, the news are so bad, we would like Obama to jump in, start governing, get things turned around. Immediately. We need it. Bitterly.

His first press release was anticipated. Disappointment set in when he announced that we still have a different president until January. The markets did not like it. But they did recover. They closed up for the day. A good sign.

Markets are down more than 30% for the year. They are lower than 5 years ago, even 10 years ago. Did not Bush tell us we should convert social security into stocks because they have a better return? I guess, we won’t talk about that idea again soon.

GM announces that it is running out of money soon. Unemployment rate is up. The economy lost 1.2 million jobs since the beginning of the year. And no end in sight. Obama promised a stimulus plan for January. Can we wait?

Russia is pushing. Wants to take its former place. Iraq cooperates with Obama, wants the US out. Us – their saviors! Pakistan gets nervous about our actions. They have Bin Laden and nuclear bombs. Iran wants them too.

Obama did not smile during his victory speech. He knows the enormity of the challenge. He will need help. From every single one of us. Sacrifices are expected. We all need help. From God. Miracles. One already happened. Obama got elected.

Obama will need to stand firm. Make decisions. We will like some, others not so much. We need to let him do his magic. Unafraid. Move forward. Help him where we can. Selfless. For the good of society.

Obama will have to watch out. If sacrifices are expected in the short run, they must be rewarded in the long run. Abuse must be prevented. Greed cannot prevail.

President Obama will have to include us. Cannot reign as a king and ignore our needs. We want to be heard. A master in social media, he has the tools to talk to us. Directly. No intermediaries needed. We’ll reward him too. We’ll help.

A new era has begun. Direct democracy has arrived. For the people. With the people. A silent revolution. It was about time. God bless America!

Blog Directory | Globe of Blogs

Like many other companies, Oracle (ORCL) recently has hit a 52-week bottom. On the other hand, it is close to the market high of 2006 and above the market highs in 2005, 2004, and 2003. In 2000, the stock price was more than twice the amount it is now before losing 80% of its value between 2000 and 2002.

Looking at insider transactions on Yahoo!Finance, I realized that the last purchase by insiders was done in April 2008. Since then insiders either sold stocks or traded options. The highest option price listed is $14.57 per share. Given that we are in the middle of the quarter and most likely in an open trading window, I expect insiders will be selling.

While artificially propping up the stocks might be good for the insiders, buying back stock wastes company money. Oracle could use this money to better position the company for the long-run and to weather the storm we are still in. This might better prevent another eighty percent drop in the stock price and benefit all investors instead of just a few. While I predict up on PredictWallStreet for the short run, my long-term prediction is down. I do not trust companies that use company money to generate personal returns.

Blog Directory | Globe of Blogs

I use two simple guidelines:

1. I only trade securities for which I have a four- or five-star rating
2. NEVER, ever do I trade securities for which I have a one- or two-star rating

Here is how it works:

1. I only trade securities for which I have a 4- or 5-star rating

After opening an account on www.predictwallstreet.com, I start predicting on some companies I like. A prediction is always made for the end of the next market day. This means that at the end of the next market day, I know whether or not my stock pick and direction was correct. I track my performance on the My Page.

After predicting a few times on the same stocks, I notice that I have stocks for which my predictions are mostly correct and others that are consistently incorrect. This means I have a different level of affinity for different stocks. PredictWallStreet expresses this affinity in terms of star ratings, which is a measure of accuracy and number of predictions. A four- or five-star rating indicates that my predictions are correct most of the time. It means that I am usually able to correctly forecast a stock price’s reaction to buzz, news such as earnings, or any macroeconomic events.

Hence, by investing only in stocks for which I have either a four-star—or better yet—a five-star rating, I can minimize stock- picking risks and improve the odds for a successful trade.

2. NEVER, ever do I trade securities for which I have a one- or two-star rating

Following the previous argument, logic dictates that investing in one- or two-star-rated stocks is a recipe for disaster. While it is tempting to try to be contrarian to oneself, I do not believe it is even remotely possible. And, yes, I tried it. It WAS a disaster.

Of course, this guideline does not mean that I should give up if I have a one- or two-star rating on a particular security. It only means that I should delay trading and just observe the security until I am able to better forecast its behavior.Of course, if this new knowledge leads to more accurate predictions, my star rating will increase and the first guideline will hold.

Therefore, in order to prevent loss, the most important guideline to follow is to refrain from trading on low-affinity stocks.

I hope this information is useful to you. Feel free to comment on this blog or to send me your feedback.

Blog Directory | Globe of Blogs

However, these actions have done nothing to add value to the economy and cannot stop a downturn caused by systemic problems. Hence, every rally will be short-lived and the markets will continue to fall until they reach the true market potential. As markets fall, demand for products and services fall.

When demand softens, companies have to cut costs to balance income statements. This is usually done through layoffs, which will help individual companies but further decrease overall market demand for goods and services.

Strong companies have war chests for such situations. They can invest in R&D, invest in the future and position themselves for the moment when demand returns. These companies will be market leaders after the shakeout.

As a long-term investor, I need to find companies that show this strength potential. I will look for companies that are streamlining operations and expanding/maintaining their expenditures into R&D.

I will also look for companies with relatively stable sentiment trends on www.predictwallstreet.com. A stable sentiment tells me that the price is most likely driven by a company’s market performance rather than psychology. For example, investor sentiment for Johnson and Johnson (JNJ) is stable on the 3-month sentiment chart.

Investor sentiment for JNJ

As a short-term trader, I can take advantage of the market fluctuations caused by investor sentiment. Again, I use the sentiment meter and sentiment charts on www.predictwallstreet.com to see which direction the wind is blowing. Right now, PredictWallStreet has 746 predictions on the Dow Jones Industrial Average (DJIA) showing that investor sentiment is extremely bearish.

Investor sentiment for DJIA

Over the last 3 month, investor sentiment for Apple (AAPL) varied a lot. I see that sentiment was in the extremely bearish zone several times but very few times in the bullish zone. The blue line shows a price that is mostly decreasing.

Investor sentiment for AAPL

These are just examples of how I use sentiment in my investing decisions. Please send me comments on how you use it.

Blog Directory | Globe of Blogs

“…dow rally mon WAS A CLASSIC BEAR RALLY..I’M THINKING TUES…”

You can read the full message on PredictWallStreet’s reputation-based message board.

I just quoted him on Twitter. Do you twit? You can follow me or PredictWallStreet by clicking on these links: follow Celia728, follow PredictWallStreet.

Blog Directory | Globe of Blogs