The Larry Lasser era has officially ended at Putnam Investments.

Sure, Lasser left Boston-based Putnam way back in 2003. But the team-based mutual fund manager system he championed ended today with news that Putnam is restructuring its equity unit and assigning individual managers to run funds. Leading the charge is Putnam’s newly appointed CEO, Robert L. Reynolds, who is a Fidelity Investments alum.

“I have always believed that success in asset management depends on fundamental research, individual manager responsibility and accountability, retaining and attracting the best people, and rewarding those who deliver sustained, superior results,” Reynolds said in a press release. “The changes we are making today reflect those beliefs. They lay the groundwork for us to move aggressively toward our highest priority of helping clients succeed by delivering sustained top-quartile investment performance.

In other words, expect Putnam to look a lot more like Fidelity in the coming months.

This video is fascinating for two reasons:
1. Watch as Peter Schiff of Euro Pacific Capital -- in 2006 and 2007 -- describes with amazing precision the very crisis that unfolded in the past two months.
2. Watch the reaction of reporters and especially other market pundits. It's not just that they disagreed, it's that they obviously had no idea what Schiff was talking about.

A caveat: What's unnerving to me about this video is how certain both Schiff and his critics are that they are right. Obviously Schiff was proven right, to his credit.
But at the time, you could agree with Schiff's general critique of the U.S. economy (that the country is too indebted, for example), but you could find little evidence that it would get as bad as he predicted.

That's one reason everyone else looks so baffled on this video: At the time, Schiff (who I've interviewed) often sounded like he was from another planet. His view of the world so differed from both the market consensus and from certain supposedly objective measures of the U.S.'s financial strength.

I don't think the lesson of the financial panic of 2008 is "always listen to Peter Schiff" or "we need better prognosticators." It's "you never really know what's going to happen," and "pay attention to evidence, not predictions."

(via Andrew Sullivan)

If you're an investor in Crocs (CROX), the faddish shoemaker, you're used to disappointment. But even by Crocs' low standards, today was a doozy. Crocs shares fell almost 45% to 1.05.

A brief history of Crocs: The firm's shoes may be ugly but they're also apparently very comfortable and they caught on quickly with children and adults, particularly those with jobs that keep them on their feet all day. A wave of hype followed, investors piled into Crocs shares, Jim Cramer touted the stock, and executives expanded a distribution network worldwide with dreams of being the next Nike (NKE). Even after it became clear that Crocs was an overhyped stock market fad, analysts continued to recommend the stock.

At one point, Crocs shares were approaching $70, and now, after yet another bad quarter of financial results, they're just above $1, a decline of about 98%.

On Nov. 12, Crocs reported a loss of $1.79 per share in the third quarter. Revenues fell from $256.3 million a year ago to $174.2 million last quarter. But even more disturbing to investors was its fourth-quarter outlook:

The maker of colorful plastic clogs said it expects a loss of 50 cents per share to 65 cents per share on revenue of $100 million to $120 million. Analysts surveyed by Thomson Reuters forecast a narrower loss of 6 cents per share on revenue of $185.7 million, on average.

Executives tried to reassure investors. Crocs still has cash of $56.6 million, and it paid down debt last quarter. It's slashing capital expenditures and closing plants to, as chief executive Ron Snyder put it, "further right-size our operations to better align with our lower volumes and revenues."

But I bet investors were disturbed that executives frequently mentioned broader economic troubles. This "has obviously been a very tough year as we deal with one of the most challenging economic and global and retail environments in some time," Snyder told analysts.

A tough economy is one thing, but surely it's not the main factor in a 33% drop in sales in the third quarter and (based on projections) a fourth quarter sales drop of as much as 55%. Crocs sales are in near free-fall, and you can't just blame the macroeconomic environment for that.

Snyder argues the firm still has "compelling growth opportunities both domestically and overseas." But this is not longer a growth stock. It's shrinking before our very eyes.

Here's Jon C. Ogg at 24/7 Wall St.:

If the company wants to really give anything back to shareholders, there are several things it can do. First, halt all production and pink slip all employees. Put the brand up for sale. Sell off whatever property plant and equipment it can at reasonable prices. Donate the inventory to the homeless and recently unemployed for the tax credits, and then try to monetize those credits.

Yes, this is cruel. That is the state of the market right now, and the company sounds like it is in an untenable position.

Maybe, just maybe, it isn't that bad. Crocs' hope is that there is a built-in permanent demand for Crocs shoes even after fashions change and competitors try to copy Crocs with similar shoes. Crocs have become staples for many nurses and chefs, for example, and parents still find them convenient, cheap and comfortable footwear for their children.

One scenario is that Crocs could be acquired by another firm looking to capitalize on its brand name and shoe technology. This would be similar to the fate of a fad stock of the 1990s, Snapple, which after a few ownership changes is now part of Dr. Pepper Snapple Group (DPS). (That firm also just reported earnings.)

It seems more than a little quaint given the current state of the stock market that analyst "sell" ratings were once the center of so much controversy. Wall Street firms were loath to tag companies with a "sell" and often used a downgrade to the "hold" rating as a subtle, wink-wink warning that a stock might tumble. But these days, stocks are tumbling all over. Morningstar's equity analysts have gone a step further than dubbing some with the "sell" label. They're warning of five stocks that are completely worthless -- five stocks they say may go to zero.

And it's hard to quibble with their choices of companies with a fair value of nada. Citadel Broadcasting Corporation (Symbol: CDL) is a highly-leveraged radio station owner with declining cash flow. Mall owner General Growth Properties (GGP) is staggering under an immense debt load and can't find fresh capital at the same time retail sales are plunging. Regional airline Mesa Air Group (MESA) doesn't have the cash on hand to weather the weak economy, according to Morningstar. Trans World Entertainment (TWMC) is in one of the worst niches, selling DVDs and music CDs in retail stores. And deCODE Genetics (DCGN) is running down on cash without having any of its drug approved by the FDA yet, Morningstar warns.

It's a convincing if bracing piece which ought to stimulate further analysis. Behavioral economics has shown that people are loath to sell a stock that has dropped in price because they're embarrassed and may hold out hope that the loss will be erased eventually. But that's a terrible posture for today's market. Maybe instead of bargain hunting, it's time to take stock of the stocks you already own and get rid of any other potential zeros.

A lobbying group has sent the U.S. Congress a letter (signed by 300 companies: public, private, business groups) asking that the funding requirements for Defined Pensions under the Pension Protection Act of 2006 be suspend for one year. The letter states that current market conditions have deteriorated their assets and that if plan sponsors divert cash to the pensions it "will increase unemployment and slow our economic recovery".

There have been discussions of this for several weeks now. Congress, if it desires, can amend the rules when it comes back into session next Monday (11/17), or in January (under new management), making the rules retroactive, prior to the required payments. As noted below (Oct 22 posting), pensions have the potential to set a new under funding record this year (2002 was -$219B). While assets are the center, the key item is the liabilities. Due to the current yield curve the rate used to determine liabilities is high, the discounted liabilities are therefore smaller, making pension funding appear at a higher level. The joke, back in 2002, was that if rates were high enough pensions would be fully funded. While rates are no where near that high, the situation has to be looked at not just from a GAAP and ERISA basis, but from cash flow. With retirees living longer and the ranks of retirees growing due to recent layoffs and packages, time for assets to recoup from the current downturn is limited, and rates remain anything but stable. On aggregate, S&P Industrial (Old) companies have sufficient cash on the side line (record Q2 value of $648B) to cover pension costs, but that’s on aggregate. There are a host of high-priority issues before congress and the administration, this, while much lower down, is now on the table.

October 22, 2008
COMPANY PENSIONS THAT WERE OVER FUNDED ARE EXPECTED TO TAKE A HIT, A VERY BIG HIT

Last year S&P 500 companies were able to brag with $63 billion in over funding for their pension funds, a value not seen since 1995. Well, its ten months later, and at this point it looks like they are on the way to reporting the largest under funding in history.

Going into the year the companies estimated an 8% return on their pension assets for 2008, and used those numbers in their reporting, allocations, and planned contributions. They had 61% of their money in Equity, 28% in Fixed Income, 4% in Real Estate and 7% in the catch all Other category. They also had 15% in foreign markets, which significantly helped them obtain that over funding status last year. Well, while someone might be doing 8%, the reality is that any pension fund manager that is even breaking even this year is most likely demanding a bonus. The U.S. market is down over a third, and that’s good compared to the Emerging markets that are down over half this year alone – so that 61% in Equity may not be doing that well. Interest rates are down, but the key to the 28% in Fixed Income is what instruments you are invested in. At best a small profit would be nice; at worst, some of the fixed investments may make the mark to market level three look good. When you calculate it all out at the current market returns, or even assuming a nice Q4 rebound, you get a number that is worse than the $219 billion in under funding reported in 2002, and that’s after starting from the positive 2007 $63 billion position.

Since 2002 the accounting requirements have changed, and companies now have to put their funding status on the balance sheet; and since assets still equal liabilities, equity will have to be marked down. The under funding will also have to be addressed with large unplanned cash infusions, which will come at a time when liquidity is tight. Overall, I expect few companies to remain over funded and for the payments to add more pressure on companies to reduce the already dwindling number of defined pension programs out there.

Then there are retiree medical programs, but going into that might be hazardous to your health.

If you want the2007 pension report, please click on the link
http://www2.standardandpoors.com/spf/pdf/index/051908_SP500_PENSION-Report.pdf

Putnam Investments held its quarterly fixed income conference call today. With credit markets still under pressure, it should be of little surprise that the subtitle of the event was "Crisis, Credit and Confidence."

Much of the discussion related to the historical cheapness of bonds relative to Treasuries. All non-US government bonds are trading at unprecedented premiums. The big question is whether the high interest rates reflect greater fundamental credit risk or liquidity issues -- that is, supply overwhelming demand. So is it time to buy fixed income? Here's Putnam's take in live-blog form:

9:11 "1998 looks quaint by comparison." Spreads on AAA mortgage securities trading at 600 basis points over treasuries. During Long Term Capital Management crisis, spread was only 100 basis points.

9:15 High Yield. Since 1987, two periods of bad credit conditions: 1990-1991, Drexel Issues, and 2001-2003, dot com bust. Spreads on high yield over Treasuries was around 10 percentage points. Currently, spreads have shot to 14 percentage points, but default rates are still low, under 4%. The market is pricing in much greater level of defaults.

9:19 where is value in the market? When we've been at these levels before, you see what happened in the ensuing years relative to equity. During 1990-1993, High yield returned 82.41% v. 49.76 for the S&P500. From 2000-2003: 24.63 return on high yield. -19.71 for the S&P. When looking at high yield, now yielding 18.84%, claims that you have to compare with expected returns from equities.

9:22 The Muni Market. Spreads are over 300 basis points between AAAs and BBBs, and rates are 120% of Treasuries, well above historical norms. (Munis are tax free and typically offer lower interest rates than taxable Treasuries.)Are markets pricing in more muni defaults or is their a liquidity issue?

9:26 Collapse of auction rate securities market increased supply on the muni market. But the market is juggling credit risk and liquidity risk. AAAs have started a recovery, but lower rated investment grade munis are still trading at a huge discount. Default risk is higher, and you have to do your homework, but investment grades are trading at junk muni levels.

9:30 Pockets of muni market under stress: anything connected to real estate, biofuel plants. But opportunities exist in A and BBB bonds.

9:31 Obama administration will probably provide relief to municipalities and the muni bond market.

9:33 Question: What will defaults in high yield market be like? Some of the stress ratios are not as high as you've seen in other periods. There are a number of spread widenings, from Libor over Treasury, to AAA corporates over Treasuries. That has to do with liquidity issues, rather than pure fundamentals.

9:35 Fixed income spreads were buys at the beginning of the last quarter and got hammered. What are you telling your shareholders who have watched the value of their funds drop? A bond eventually returns, you're going to get pull back to par over the time and you get a running yield that is probably paying you handsomely today for the volatility you're riding. Highest credit quality in portfolio, but the distribution yield relative to cash is higher than it's ever been as well. High credit quality portfolio and a high running yield.

9:38 Liquidity risk makes up 60-70% of a portfolio's risk. Market volatility has seen a five fold increase in the risk factor for commercial mortgage spreads over the last year. If you ran that model back in 2007 or 2006, it gives a very different risk perspective than it does today. Commercial mortgages, pre-2007, 5-10 basis point move in one year was a big move. Now, moving 40-50 basis points in a day.

9:42 In 1930s, there was a lot of business-to-business lending. Your supplier would finance your inventor. We expect to see those elements coming down the road.

9:44 Munis: we expect choppiness. We don't see a significant snap back. When you look at sorting good credits from ok credits, it's hard to see those snapping backs., We've seen some nontraditional buyers coming in on clean stuff. They could venture down into single As and BBBs. Going to be a balancing act until middle of next year, aligning with general economic conditions. I think the opportunity will be around for a little bit of time now. It's very hard to time tops and bottoms in spreads. Take advantage by buying good credits. The market "still feels a bit fragile."

9:50 First thought that the China stimulus package would negatively effect Treasuries. But so far that hasn't been the case. Short term, people are still rushing to safety. In a world where we've moved away from the stable disinflationary trend we've had over the last 7-10 years. I would anticipate longer term rates to reflect risk consistent what we've seen in other sectors. That means higher rates for Treasuries.

9:53: If you go back to Drexel Burnham area -- people determined you could be overpaid for high yield. Before that, nobody issued high yield. They became high yield by accident. 16% default in the 1990s. A lot of the fixed income classes will still look good v. equities. Cash flows you get between now and default look good.

The presenters were:
Bill Kohli, Portfolio Manager and Team Leader, Portfolio Construction Thalia Meehan, Portfolio Manager and Team Leader, Tax Exempt
Paul Scanlon, Portfolio Manager and Team Leader, U.S. High Yield

Phew. Just when I was starting to get worried, new data suggests that the total value of credit default swaps outstanding is smaller -- much smaller -- than we've been told. It's only $33.6 trillion, according to new information released by the the Depository Trust & Clearing Corporation on Nov. 4, in the first the first of what promises to be a weekly wave of information on the credit default swap market.

Until yesterday, the only available public information on credit default swaps -- complex financial insturments that act like insurance on bonds or allow financial players to make bets on a company's likelihood of default -- was the total value of outstanding contracts, which was recently estimated at around $42 trillion. The DTCC's numbers show that to be much smaller -- around $33 trillion. It also, for the first time, broke down the numbers -- now it's possibl;e to see which companies and, perhaps surprisingly, countries have the most contracts outstanding on their debt.

I know this data is supposed to make us feel more comfortable with the market and yes, it's great knowing that only $33.6 trillion in contracts are outstanding, less than originally estimated. But it was bad enough watching the cost of CDS on financial companies gyrate like an epileptic belly dancer. I'm not sure I feel better now that I know market players are placing enormous bets on the debt of countries like Turkey, Brazil and Russia, too.

Nor is the DTCC data a complete picture of the credit default swap market place, as Yves Smith from Naked Capitalism points out:

In the blind man and the elephant game, DTCC probably has a sense of what most of the elephant looks like. But I get bothered when casual readers might assume it has a comprehensive view (the Bloomberg article acknowledges that indirectly by saying, "a Depository Trust & Clearing Corp. report that gives the broadest data yet"). I'd feel much better if they admitted there were gaps and reassured us that they were less than X rather than remaining silent and letting the public assume they know more than they might really know.

Why does any of this matter? Defenders of credit default swaps say that the complex financial instruments cut back on risk rather than exacerbating it, and a little more information can reduce the chance that CDS will bring the financial system down. Others, however, claim the instruments magnify losses and could suck up any stimulus money pumped into the financial system.

On Nov. 11, the DTCC will release actual trade information, rather than outstanding volume. Until then, here are the top ten credit default swaps based on total dollar value outstanding, net dollar value outstanding and number of contracts.

Total Dollar Value
1. REPUBLIC OF TURKEY: $188.6 billion
2. REPUBLIC OF ITALY $148.6 billion
3. FEDERATIVE REPUBLIC OF BRAZIL $147.3 billion
4. RUSSIAN FEDERATION $110.0 billion
5. GMAC LLC $100.6 billion
6. MERRILL LYNCH & CO., INC. $94.6 billion
7. THE GOLDMAN SACHS GROUP, INC. $92.8 billion
8. MORGAN STANLEY $91.9 billion
9. GENERAL ELECTRIC CAPITAL CORPORATION $86.0 billion
10. COUNTRYWIDE HOME LOANS, INC. $84.6 billion

Total Net Dollar Value
1. REPUBLIC OF ITALY $22.6 billion
2. KINGDOM OF SPAIN $16.6 billion
3. DEUTSCHE BANK AKTIENGESELLSCHAFT $12.4 billion
4. FEDERATIVE REPUBLIC OF BRAZIL $12.3 billion
5. GENERAL ELECTRIC CAPITAL CORPORATION $12.2 billion
6. FEDERAL REPUBLIC OF GERMANY $11.4 billion
7. MORGAN STANLEY $8.4 billion
8. RUSSIAN FEDERATION $8.3 billion
9. HELLENIC REPUBLIC $8.2 billion
10. MERRILL LYNCH & CO., INC. $8.2 billion

Top Contracts
1. REPUBLIC OF TURKEY 14,093
2. GMAC LLC 13,602
3. COUNTRYWIDE HOME LOANS, INC. 11,919
4. FEDERATIVE REPUBLIC OF BRAZIL 11,664
5. MERRILL LYNCH & CO., INC. 9,931
6. MORGAN STANLEY 9,913
7. THE GOLDMAN SACHS GROUP, INC. 9,793
8. GENERAL MOTORS CORPORATION 9,683
9. GENERAL ELECTRIC CAPITAL CORPORATION 8,457
10. CIT GROUP INC. 8,180

The market has rallied 18.3% since the October 27th close, including the 10.8% October 28 gain. The fact that we have been able to hold on to it is impressive. The political environment has added hope of quick positive action to the current economic problems, but whoever wins, and regardless of Senate makeup, it will be a tough journey. Since both candidates state that they will start to address the issues quickly, the market test should be in the details of the plan - which shouldn't be long to be disclosed or at least test ballooned.

On Sunday, the Anchorage Daily News reported that the Alaska Permanent Fund, formerly home to $40.4 billion in investments, fell to $33 billion in the 3rd quarter, before losing another $3 billion last month. Here's a breakdown of the Alaska Permanent Fund's losses:

Non-U.S. stocks -- down 22.5 percent
Global stocks -- down 17 percent
U.S. stocks -- down 8.1 percent
Private equity and hedge funds -- down 9.1 percent
Foreign bonds -- down 3 percent
U.S. bonds -- down 1.6 percent
Real estate -- up 0.2 percent

Here's one rare investment that, at least so far, has paid off handsomely in 2008: Barack Obama.

Various election futures markets allow traders to make bets on politics. On Nov. 1, 2007, on the Iowa Electronic Markets, the Illinois senator was given about a 14% chance to merely win the Democratic presidential nomination.

Today, traders are betting Obama has a 90% chance of winning it all by being elected president.

Of course, the Republican nominee, Arizona Senator John McCain, could make a lot of money for certain investors by pulling off an upset on Nov. 4.

As of midday on Nov. 3, the Iowa Electronics Market gives the Republican a roughly 8.8% chance of winning the presidency.

Thus, if you bet on McCain for a "share price" of $8.80, you get a payoff of $100 if he wins. That's a return of more than 1,000% if you're right.

Intrade also runs a presidential prediction market: It gives Obama a 92% chance and McCain a 9.5% chance of victory. Another site (not open to U.S. bettors) is Betfair.com, which gives Obama odds of almost 93% and McCain probability of about 8%.

How accurate are these markets?

Many, including the founders of the Iowa Electronic Markets (see video below for more on IEM), say the collective wisdom of traders often beat the accuracy of polls in past elections.

Ben Kunz makes the argument for prediction markets -- both in politics and other fields like public health -- in this BusinessWeek piece.

On the IEM, you can bet on each candidate's percentage of the popular vote. Right now, that gives Obama about 53.4% and McCain 46.8% of the vote. A key test of these markets will be how close this is to actual results.

There are plenty of legitimate questions about how well these markets work. This fall, observers alleged that Intrade's presidential futures market was being manipulated, creating odds that were inconsistent with (and more favorable to McCain than) other markets. Intrade's CEO John Delaney investigated and said one institutional Intrade member had been making big buys that skewed the market. Delaney said the trader was trying to "manage certain risks."

Alex Tabarrok at Marginal Revolution didn't think this called into question the concept of prediction markets:

This supports Robin Hanson's and Ryan Oprea's finding that manipulation can improve (!) prediction markets - the reason is that manipulation offers informed investors a free lunch. In a stock market, for example, when you buy (thinking the price will rise) someone else is selling (presumably thinking the price will fall) so if you do not have inside information you should not expect an above normal profit from your trade. But a manipulator sells and buys based on reasons other than expectations and so offers other investors a greater than normal return. The more manipulation, therefore, the greater the expected profit from betting according to rational expectations.

Even if markets get the liquidity they need to work efficiently, they have yet to prove they're much more than an entertaining parlor game.

These markets might be able to predict the obvious, but do they really tell us more than a statistically adept poll-watcher like Nate Silver or Chuck Todd?

If working properly, the markets end up reflecting conventional wisdom. But they don't really predict the future. A year ago, while Obama was given 14% of winning the Democratic nomination, McCain was given a 7.5% chance of winning the Republican nomination. Both “predictions” weren't just wrong, but wildly so.

Furthermore, the usefulness of election prediction markets for investors as a so-called “risk manager” is questionable. First, the risks and benefits of an Obama victory should already be reflected in other markets. For example, health care stocks already have been hurt by the prospects for a successful Democratic effort to reform health care. Second, unless you expect to get a job in a McCain or Obama administration, the direct economic effect of a political outcome is not easy to determine. The impact of, say, the Indiana gubernatorial race (which you can also bet on at Intrade) is even harder to detect.

If you're betting for McCain or Obama, in other words, it's unlikely you're trying to hedge against other losses if you lose. Rather, you're probably just a political junkie having fun and trying to make a little money.

More than 100 million people will vote for president, and each vote will have been determined by a multiplicity of factors. The complexity of it all is mind-boggling. The only thing that comes close to complexity of the factors that influence election vote totals is the many inputs that determine the price movements of a stock or other investment.

And, as the past year has shown in both the presidential campaign and the stock market, life can be very unpredictable.

(Below the jump, a video interview with Joyce Berg, director of the IEM.)

I was at an ETF media event hosted by NASDAQ OMX Global Financial Products and the Journal of Indexes today. One topic of discussion was the recent bout of late-day stock market volatility.

Today is a perfect example. When the panel met with the media around lunchtime, the DJIA was up some 300 points. In the last hour of the trading session, the market surged significantly to close up 889 points.

Why is this happening?

Even the featured panelists at the media event, who are among the brightest in the investment business, are uncertain. "Talk to 10 people, and you'll get 10 different answers," says indexing guru Gus Sauter of Vanguard Group. "Maybe 11," chimed in Lee Kranefuss, global chief executive officer of iShares, Barclays Global Investors.

One theory for the late-day swings is that mutual funds and hedge funds are selling (or, like today, buying) stocks later in the trading session to cover expected redemptions, or inflows. Another theory is that active managers and hedge funds are meeting margin calls. Maybe it is a result of program trading.

I'm surprised no one has a concrete answer. What is your take on the late-day swings? Why is this happening now? Will it ever end, or is this part of the "new normal"?

People love to argue politics. And one way of making those arguments is to claim that the stock market agrees with you.

Here are a few examples from the past two months:

CNBC's Jim "Mad Money" Cramer in New York magazine:

There is a growing belief on Wall Street that Barack Obama has the capacity to lead us out of this wilderness while John McCain does not. I’ll go a step further: Obama is a recession. McCain is a depression.

Cramer's CNBC colleague Charles Gasparino in the New York Post:
"As it looks increasingly likely that Obama will be [the next president], the markets are casting a vote of "no confidence."

Felix Salmon strongly disagreeing with Gasparino:

He reasonably blames much of the current financial crisis on "a lack of leadership from Washington" -- but somehow manages to convince himself that it's Obama's leadership which is lacking, rather than Paulson's or Bush's.

And on Sept. 4, Jim Tamny of RealClearMarkets said the stock market was "booing" John McCain's choice of Sarah Palin as his vice presidential candidate. He wrote the Alaska governor was such a poor choice that "markets concluded last week that whatever John McCain’s true economic views, on Friday he handed the election to the anti-growth candidate," Barack Obama.

The stock market never explains why it goes up or down, so these arguments are impossible to prove or disprove. Still, there are plenty of misconceptions regarding investors and the political process. I took a crack at some of these in an article called "Five Myths About the Election and the Stock Market."

Myth No. 1: The stock market is waiting to see who wins.
Myth No. 2: Wall Street is disappointed at Obama's lead in the polls, because it always wants the Republican to win.
Myth No. 3: Investors and traders are watching the election closely, following the candidates' proposals and rhetoric.
Myth No. 4: The market is alarmed by prospects the capital-gains tax rate could be raised.
Myth No. 5: Wealthy investors can breathe easier because the next President wouldn't dare raise income taxes in a recession.

Read it all here.

Despite all signs to the contrary early this morning, the stock market didn't crash today. Maybe Monday?

Overnight, Asian stocks plunged, then European stocks followed suit. U.S. stock futures fell so far they hit their downside limits of 6%.

In "the couple hours leading up to the open, people were clearly preparing for Armeggedon," John Wilson, chief technical strategist at Morgan Keegan, told me.

Those were the headlines U.S. traders saw when they woke up this morning. But by the time they got to work, hung up their coats and sat down at their computers, their mood had shifted. Wilson apparently wasn't the only person who put in a few buy orders at low price levels, hoping to pick up a few bargains if the stock market went into free fall.

"Random Roger" Nusbaum sounds like he was preparing to do the same -- "and then the panic never came or at least not yet," he writes.

Yes the market opened lower today, but then major indexes gradually clawed their way back up a bit. A 3% or 4% decline for stocks is bad, but it's nothing compared to the 9.6% sell-off Japan's stock market saw a few hours earlier.

Here's the funny thing: I've been talking to fund managers and strategists all day, and no one seems to be celebrating today's escape from disaster.

For one thing, many technical traders seemed to be hoping for a crash. They're waiting for a decisive day of sheer panic -- with the counter-intuitive idea that that's exactly the moment when it would be safe to start buying stocks again. "The faster the market goes down and washes things out, the faster you get to the bottom," says Mark Arbeter, chief technical strategist at Standard & Poor's Equity Research Service. (More from Mark on Oct. 24's trading session here.)

Instead, this stock market has fallen day after day after day. For technical traders looking for a bottom, there hasn't been ENOUGH wild panic by traders all heading for the doors at once -- just a steady stream of sell orders stretching for weeks.

There seem to be three main reasons for all this day-after-day selling of stocks:

1. Panic/fear
"This has been an irrational market in a lot of ways," Wilson told me. Many stocks and other financial assets are trading at levels that don't make sense given their likely fundamentals (like earnings).

And some of this fear isn't unreasonable, at least from a short-term perspective: There could be more serious crises around the corner. Maybe the federal government is on top of problems at U.S. insurance companies or investment banks, but recent events in Argentina, Hungary and Iceland reminded investors that serious trouble can come from anywhere around the world. So some plain old generalized fear might make some sense these days.

2. Forced selling
For the stock market, "the biggest challenge is the mystery around hedge fund redemptions," says Jim Dunigan, managing executive of investments at PNC Wealth Management. No one knows how much stuff-- stocks, commodities, bonds, whatever -- hedge funds might still need to unload as fund investors pull out their money. Mutual fund investors are pulling out money too, but hedge funds use a lot of leverage, so they need to sell far more -- to both pay off those debts and pay off their customers.

3. Pessimism on the economy
A U.S. recession? We know that already. Credit crunch? That's getting a tiny bit better, thank you.
No, the real economic worry seems to regard emerging economies, especially those in Asia and their near neighbors. That's one reason the Friday's panic originated in Japan, South Korea and Hong Kong.

Some interesting thoughts on this from Michael Yoshikami, president and chief investment strategist at YCMNET Advisors:
He told me Asian and emerging economies eventually will become "a dominant force" in the world economy. But for now, "much of their fortunes are tied to developed nation's economies." When the U.S. and Western Europe stumble, countries like China may feel it far more than anyone expected. Emerging economies "probably have gotten ahead of themselves," Yoshikami says. Commodity markets hit new highs this year on the expectation that "emerging economies would just inhale commodities forever." On Friday, OPEC cut production of oil, and the price of crude dropped yet again. "It's not a supply issue, it's a demand issue," he says.

For stocks, it's a demand issue too. No one seems to want any.

UPDATE: Some extra perspective on Oct. 24's trading session after the jump...

I wrote a story for this week’s issue about tightening credit standards and how borrowers with great credit rule the roost.

The financial elite can certainly find deals on credit cards, which is why those folks who have credit scores above 720 and carry a balance on a credit card with a rate of 9% and up should ask for a rate cut, says Curtis Arnold, founder of CardRatings.com.

For Marc Rosner, a chemistry teacher in Hastings-on-Hudson, N.Y., it just took one phone call to American Express to get the rate on his small-business credit card slashed from 18%. “They apologized, cited a single late payment I made two years ago, and dropped me to 8% before the call ended,” Rosner says.

Lenders are more willing to listen to credit card customers like Rosner, thanks to the current market environment. After all, it costs them about $200 per in marketing fees to replace you if they lose your business. “In this tight credit market, if you are a good customer, you have some room to negotiate,” says Bill Hardekopf, CEO of LowCards.com. “If your rate is too high, call up your issuer, and say you have offers from competitors.” It also pays to persevere. If your request for a lower rate doesn’t work the first time, wait a month and do it again, and then try again the following month, Hardekopf says.

In addition, 80% of credit cards don’t have annual fee, so if you have good credit and are paying an annual fee, it is worth a shot to call up and request a fee waiver. Indeed, I was feeling so empowered by my own reporting, that I called up American Express on Oct. 16 and asked them if they would waive the fee on my card. (I still use the same plain-Jane green card, which has a $55 annual fee, and it isn’t a credit card since I pay off the balance every month.)

The Amex customer service rep offered me a Blue card, which is no-fee credit card, but I don’t want a card that allows you to revolve a balance.

Then I got passed along to another rep. While she couldn’t waive the fee entirely, she did credit $15 to my account. Not bad for a 10 minute phone call. Following Hardekopf’s advice, I’m going to try again next month to see if I can get the fee cut even further—next time I’ll ask them if they would consider waiving it for one or two years.

You will not have much wiggle room with college financing because federal and state student-loan rates are typically fixed. At least 36 private lenders have suspended writing loans, but borrowers with the best credit can still get loans.

On the flip side, if you have lots of cash socked away for college and it is time to pay tuition, ask the school about a prepayment tuition plan, which lets you lock in current tuition prices. “It’s not something we advertise,” says John Gudvangen, associate director of financial aid at Colorado College in Colorado Springs. With tuition outpacing the rate of inflation for the past 10 years, it can be a smart move to pay upfront.

Another tip for parents who are about to pay for school with cash: If you live in one of the 32 states that offers tax deductions for 529 savers and you don’t have a 529 College Savings Plan, open one up. Even if you park the money an account for a week and then yank it out to pay for school, you will get a tax deduction. Admittedly, this is a little sneaky, but college administrators and financial aid experts say they have seen it happen.

As for real estate, Bob Moulton, president of the Americana Mortgage Group, Manhasset, N.Y., told me the fascinating story of a client who was buying a $2.5 million home in Nassau County, N.Y., over the summer and planned to put $1.5 million down. But the first bank, which was a local one, rejected him for a mortgage because his credit score (671) was not high enough. It turns he had missed a mortgage payment within the year while he was traveling. He ended up getting a mortgage from another bank, Moulton says.

There's an interesting proposal for fixing part of what went wrong in the credit crisis over at Harper's magazine written by Harvard Law School professor Elizabeth Warren and her daughter Amelia Warren Tyagi, who co-founded the Business Talent Group after working as a McKinsey consultant. The pair co-authored the book The Two Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke a few years ago. Their Harpers piece is behind the magazine's subscription wall but you can read a summary, cleverly titled "Where are the Subprime Toasters," at the Columbia Journalism Review by Elinore Longobardi.

The authors note the irony that consumers get better protection from harm when buying a toaster than when borrowing to buy a house. That's because the Consumer Product Safety Commission, a federal agency, enforces safety standards for toasters, baby cribs and about 15,000 other things consumers buy. There's no such agency charged with overseeing the "safety" of financial products.

"When a baby stroller or an eyeliner is discovered to be dangerous, it is removed from the shelves," they write. "Yet financial products go unmonitored for basic safety. When shopping in the complex and constantly evolving financial market, where actual costs and unfavorable terms are regularly concealed, consumers are on their own."

The article goes on to point out the myriad ways that current rules about disclosure and product marketing have empirically failed to protect consumers -- or the entire banking system, at this point -- from abusive practices. And the subprime mortgage is hardly the only product to have its shortcomings revealed lately. Don't forget the auction rate securities mess and improper sales of indexed annuities to senior citizens.

We've seen in the comments on prior posts that readers of Investing Insights offer a diversity of views on government regulation and whether more or less is needed in the wake of the credit crisis. So what do you think? Do we need a federal consumer watchdog agency for financial products?