Forex@all

Gilbert Gottfried has been getting all kinds of grief -- including loss of a gig as the Aflac duck -- for tasteless jokes he made on Twitter about the tsunami horror in Japan. But what people are forgetting is that his job is to tell dumb jokes. Humour in even the worst circumstances, even bad humor, is a safety valve, a method of keeping our sanity when the world is going to hell. And make no mistake about it: There is a whiff of sulfur in the air. 

On Tuesday (and again today) the stock market in the U.S. accepted reality and followed the Japanese markets in staging a prolonged selloff. Isn't globalization wonderful? The tsunami was the proximate cause, but there was also a pent-up angst, a kind of mini-nervous breakdown from too many international crises piled on top of one another. What concerns me is that we're in for a significant siege, one that may rival the collapse of the markets in 2008. I hope I'm wrong, just as I hoped I was wrong in this space a couple of weeks ago, when I suggested that unrest in the Middle East might cause a decline in the markets. Boy, was I wrong. Things are actually far worse than I, or anyone, could possibly have anticipated.

On top of the pre-existing background noise of a lingering recession (despite an upturn in homebuilder confidence disclosed yesterday), and the prospect of Moamhar Gadhafi crushing the opposition in a prolonged conflict in Libya, we now have a humanitarian and nuclear crisis in Japan that would have been the stuff of science fiction just five days ago. I disagree with Larry Kudlow, the CNBC commentator who said the other day that the human toll looks to be worse than the economic toll and "we're grateful for that." That was a lousy choice of words for which he has been predictably pilloried, but to me the sin is less insensitivity than making a prediction that was, at best, premature.

Here's why:

The world is flat. I loved Tom Friedman's celebration of globalization, but now we're seeing the flip side of globalization: a horror in a developed nation on the other side of the world is only slightly less of a horror here. While the economic impact is muted for traditional competitors with the Japanese like General Motors (GM-N31.850.411.30%), chip-makers like Intel (INTC-Q19.930.030.15%) and National Semiconductor (NSM-N13.92-0.05-0.36%) were slammed yesterday. So was Texas Instruments (TXN-N33.360.290.88%), which has a plant in Japan. So were insurers like Aflac, MetLife (MET-N44.021.042.42%), Hartford Financial (HIG-N25.490.301.19%) and Prudential Financial (PRU-N60.631.131.90%). Any company with facilities in Japan (nuke-builder General Electric (GE-N19.250.030.16%) comes to mind) stands a good chance of being hurt if the nuclear crisis isn't resolved soon.

Japanese, banks, insurance companies, the yen (etc.) are under pressure. The yen actually gained yesterday as investors sought a safe haven, but the Bank of Japan is pumping billions of yen into the economy. It's hard to see how that will be successful if clouds of steam waft southward toward Tokyo and the industrial heartland of the nation. There is now dark talk on the Internet that a bond-market meltdown may be in the making. There's also chatter of an impending Japanese banking crisis. As blogger and hedgie John Hempton pointed out on Monday: "There is probably more uninsured damage in the destruction of North East Japan than in any other event in history -- and uninsured damage falls sharply on banks."

Everything else is still going on. Remember Libya? It's enmeshed in a civil war that is actually getting a lot worse, even as the horrific news from Japan is dominating the headlines. Since the rebels are losing, it's possible that the loon in charge of the place may force U.S. and European intervention by committing mass murder. If he loses, Libya may descend into even more chaos. Libya is still a major oil producer, last I looked. Sure, crude-oil prices gained a bit yesterday, but for the worst of reasons -- because investors are terrified about the Japanese economy.

We just don't know. There's nothing the markets hate more than uncertainty. Everything I've outlined above is speculation, but that's all we have to go on, apart from all the bad news. If Japan can't solve its nuclear plant issues, all of the above may actually turn out to be optimistic and cheery compared to a nuclear-poisoned third-largest economy.

Of course, I don't want to overstate the latter point. There are plenty of things we do know. We know that the Israel-Palestinian peace process is in the toilet, thanks to many things but including the massacre of a Jewish family in the West Bank. We know that Iraq and Afghanistan are continuing to bleed. Did anyone happen to notice that 11 people were killed at a car bombing outside an Iraqi base on Monday?

And then there's the U.S. economy, which is doing poorly enough without the help of any of the aforementioned nuggets of misery. I hope that Gilbert Gottfried isn't discouraged, because I'd sure like to find something to laugh about in that. 

Gary Weiss, a columnist for TheStreet.com, has covered Wall Street wrongdoing for almost a quarter century. His coverage of stock fraud at BusinessWeek won many awards, and included a cover story, “The Mob on Wall Street,” which exposed mob infiltration of brokerages. He uncovered the Salomon Brothers bond-trading scandal, and wrote extensively on the dangers posed by hedge funds, Internet fraud and out-of-control leverage.

Tokyo stocks rebounded Friday, lifted by a weaker yen after the Group of Seven industrialized nations agreed to conduct joint yen- selling intervention to help ease the impact of the quake-tsunami disaster on the Japanese economy.

The 225-issue Nikkei Stock Average rose 244.08 points, or 2.72 percent, from Thursday to 9,206.75.

The broader Topix index of all First Section issues on The Tokyo Stock Exchange was up 19.59 points, or 2.42 percent, to 830.39.

All 33 sectors on the TSE rose, with the mining sector leading gainers, followed by the nonferrous metals and securities sectors. The transport equipment sector had the least gains.

The U.S. dollar, which plunged to a postwar low of 76.25 yen the previous day, surged to trade in the upper 81 yen zone in Tokyo after the G-7 move, easing investor concern about the yen's strength hurting Japanese corporate performance, brokers said.

But investors refrained from buying further ahead of a three-day weekend and as they kept monitoring developments at the quake-hit nuclear power plant in Fukushima Prefecture as the Self-Defense Forces and police scrambled to cool an overheated reactor by spraying it with water, they said.

Major stock indexes rose Tuesday as investors awaited the results of Congressional elections, putting the Dow Jones industrial average near its highest point of the year.

The Dow Jones industrial average rose more than 60 points. The Dow has now traded above its 2010 closing high of 11,205 four times over the past two weeks, but failed to close above that level each time. Eric Thorne, an investment adviser with Bryn Mawr Trust Wealth Management, said many traders have been using the end of the day to take short-term profits.

A Republican gain of at least one house of Congress is most likely already reflected in stock prices. The slide of the dollar, which fell against the euro and the yen, helped push stocks higher on Tuesday as investors bought riskier assets.

Small companies performed especially well. The Russell 2000, the index that tracks the performance of smaller corporations, jumped 2 percent to 712.89. The index is up nearly 14 percent for the year, roughly double the return of the Dow and the broad Standard and Poor's 500 index.

The Dow rose 64.10, or 0.6 percent, to close at 11,188.72. It reached its closing high of 11,205.03 on April 26.

The broader Standard & Poor's 500 index rose 9.19, or 0.8 percent, to 1,193.57. The S&P 500, which is more closely watched than the Dow by professional investors, is also still below its 2010 high of 1,217.28, reached on April 23.

The technology-focused Nasdaq composite index reached a new high for the year, as tech titans like Apple Inc., Microsoft Corp. and Amazon.com Inc. all gained more than 1.2 percent for the day. The Nasdaq rose 28.68, or 1.1 percent, to 2,533.52. Its previous high for the year was 2,530.15, which came in late April.

Uncertainty over the size of the Federal Reserve's expected stimulus program due Wednesday has kept the market from ending with either big gains or losses in recent days. Traders are waiting for the Federal Reserve to announce plans to buy bonds to spur spending, a process known as quantitative easing.

The Fed's purchase of Treasurys hurts the value of the dollar, which fell 0.7 percent today against an index of six other currencies. A weaker dollar, in turn, drives the price of gold, oil and other commodities higher. Companies tied to commodities, including Freeport-McMoRan Copper & Gold Inc., ExxonMobil Corp. and Alcoa Inc., rose more than 1 percent.

Broad stock market indexes are up approximately 12 percent since the Fed began hinting that it would begin buying bonds. The size of that rally has some traders anticipating that stock prices will fall after the Fed makes its announcement, regardless of what action it takes.

"What we're most likely seeing is a buy-the-rumor, sell-the-fact trade going on," said Nick Kalivas, an equities analyst at MF Global. "We've had a great earnings season so far, so I'm concerned that we'll get a postelection sell-off from profit-taking."

Bond prices rose slightly as investors anticipate the Fed ramping up purchases of government debt in the coming days. That drove the yield on the benchmark 10-year Treasury note down to 2.59 percent from 2.63 percent late Monday.

Pfizer Inc. shares dipped after its third-quarter revenue fell short of forecasts. The pharmaceutical company did, however, beat profit forecasts for the quarter and raised its full-year outlook.

Three stocks rose for every one that fell on the New York Stock Exchange, where trading volume came to 913 million shares.

Score one for the activist hedge funds.

In a highly unusual move, the board and management of Citadel Broadcasting have agreed to rescind $110 million in stock compensation after R2 Investments, a hedge fund based in Dallas, attacked the radio company for its executive compensation practices, according to a court filing late Tuesday in Federal Bankruptcy Court in Manhattan.

R2 Investments accused Citadel’s management and directors of “a shocking display of corporate greed and dishonesty” for rewarding themselves with stock grants worth $110 million — more than $55 million to its chief executive. The Citadel board also awarded more than $1.35 million of stock to each of its members — “a disturbing game of quid pro quo,” the filing by R2 contended.

A spokesman for R2 declined to comment.

R2 asked the judge to revoke the stock award “to prevent one of the most egregious frauds by a company emerging from bankruptcy under Chapter 11.”

Citadel, the nation’s third-largest radio company with more than 200 stations across the United States, exited bankruptcy protection as a privately held company in June. It emerged under the control of its lenders, which in addition to R2 includes JPMorgan Chase and the buyout firm TPG.

R2, based in Fort Worth, is part of a family of funds called Q Investments. Run by Geoffrey Raynor, who formerly worked with the billionaire Bass brothers, R2 is a distressed-debt fund known for its aggressive tactics. Last year it sued Carl C. Icahn over a transaction involving XO Communications.

R2 argued that the payouts to management and the board were contrary to the company’s reorganization plan, which called for awards of options, not common stock grants, the filing said. Issuing common stock to Citadel’s board and management instead of options substantially diluted the new owners’ stake in Citadel.

In Tuesday’s filing, Citadel’s lawyers said the company’s board would issue stock options instead of common shares. This was done “to enable the company to focus on those business matters that will maximize value for its shareholders,” according to a Citadel statement.

The issue of management compensation had been hotly contested during the Citadel bankruptcy process, participants in the case said. Farid Suleman, who has served as the chief executive since 2002, said in testimony that he had tried to get common stock in the company’s reorganization but instead received options. Of the $110 million, more than $55 million was paid to Mr. Suleman.

After Citadel’s exit from bankruptcy, the new board, which was appointed by the company’s new owners, decided to award common stock grants to management instead of options.

“Citadel now has the highest-paid management in the terrestrial radio broadcasting industry,” said R2’s filing. If the stock awards are allowed to stand, it “would be a blueprint for all other management teams to emulate in order to loot company coffers.”

The filing continued: “There would be a new tag line in corporate America: ‘Attention all C.E.O.’s — not happy with your pay package? File your company for bankruptcy, mislead the judge about your true intentions immediately after you emerge from Chapter 11, and then you can become the highest-paid executive in your industry and potentially even become worth well over $100 million.’ ”

Question: I grew concerned about the prospect of a double-dip recession back in the spring, and I pulled part of my portfolio out of stocks and put the money into cash. Now that the economy seems to be stabilizing, I'd like to get back into the market but am concerned that I've missed my opportunity. Any tips?

Answer: It's probably small consolation, but rest assured that your conundrum is a common one. While getting out of stocks in a dicey market environment can provide psychic relief, investors who do so often replace one worry with another nagging concern. For example, investors who once feared the market could get even worse and shifted away from stocks might now be asking themselves whether and when it's safe to get back into stocks. In the end, investors who jockey their portfolios' allocations often wish they'd made no changes at all.

So at the risk of turning this into a lecture about the perils of market-timing, my first piece of advice is to find a reasonable target stock/bond mix that suits where you are in your investing life and stick with it through good markets and bad. Once you've done that, you should plan to make only modest changes to rebalance and to increase your portfolio's share of conservative investments as you grow older. Such a long-term, strategic asset-allocation strategy won't offer complete protection when stocks are shaky, as they have been on several occasions during the past few years. But it is the only way to ensure that at least something in your portfolio is performing reasonably well at any given point in time, and it helps enforce discipline at times of market stress. (For a good discussion of the benefits of buy-and-hold investing over a tactical approach, check out my interview with Jason Zweig of The Wall Street Journal--http://news.morningstar.com/articlenet/article.aspx?id=312390.) Morningstar's Lifetime Allocation Indexes showcase reasonable asset mixes for investors at various life stages and risk tolerances; our Asset Allocator tool can help you arrive at an optimal stock/bond/cash mix that's customized to suit your own goals and portfolio holdings.

Once you've identified an appropriate target allocation for stocks, your next step is to gradually transition your portfolio to your target weightings by dribbling equal installments of cash into the market for a period of several months or more. True, such an approach will mute your gains if stocks head straight up from here. But if the market's trajectory is more erratic--and if history is any guide, that will be the case--dollar-cost averaging will ensure that you're putting new money to work when stocks are relatively inexpensive as well as when they're dear.

You didn't say how much of your portfolio you had moved to the sidelines. If it's a small percentage--say, less than 20% of your portfolio--it's fine to bring your portfolio in line with your targets during a period of six months or less. But if you've moved an even larger amount into cash, you'll want to do so over a longer time frame of a year or so, to further smooth out your purchase prices and reduce the risk that you'll buy in near a market high. Contact your fund company or brokerage firm to automate your stock purchases, thereby limiting the odds that you'll chicken out and not go through with your investing program if stocks get rocky.

You raise a legitimate concern about missing what has turned out to be a good run for stocks. To avoid buying into potentially overheating areas, I'd be particularly deliberate and careful about deploying money into those pockets of the market that have enjoyed the biggest runups during the past year, including emerging markets and real estate. This table (http://news.morningstar.com/fundReturns/CategoryReturns.html) provides a quick overview of which market segments have been on fire.

Morningstar's Market Fair Value graph (http://www.morningstar.com/cover/market-fair-value.aspx), meanwhile, provides a good compass as you're deciding where to deploy new cash. Harnessing the bottom-up research of Morningstar's equity analysts, the graph shows that our stock coverage universe, in aggregate, has a price/fair value ratio of 1. That means that the companies the analysts cover, in aggregate, are trading roughly in line with our analysts' estimates of their fair values. That's not too encouraging, but when you dig below the surface, it's possible to identify market segments that still have upside potential. For example, the universe of companies that our analysts tag as having wide moats, or sustainable competitive advantages, is roughly 10% undervalued currently. That means it's an ideal time to upgrade the quality of your stock holdings and to do so at an advantageous price. Stock investors can use our Premium Stock Screener to home in on wide-moat firms that are trading below our analysts' fair value estimates, and I offered up some wide-moat mutual fund ideas in this article (http://news.morningstar.com/articlenet/article.aspx?id=346943).