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The North Korea nuclear test that has roiled the markets this morning was most likely a dud according to an article at DefenseTech. He goes through the calculations, but basically even if North Korea got the yield it claimed, it is 1/40th the yield of the device dropped on Hiroshima.

A commenter points out that it may be possible to even fake a yield of the size North Korea was claiming with conventional explosives.

Oh, and the Kim Jong Il will have me cracking up all day.

Yahoo! Finance has several fantastic how-tos available on their website. My particular favorite is their how-to guide on successfully investing. They go through sensible advice on picking stocks, bonds, and even commodities. They cover both mutual funds and ETFs.

If you are unsure where to start investing, this is a fantastic resource and a great place to start.

Fidelity Investors’ Weekly has a list of the five “must have” books for investors. I have only read one of them (Lefevre’s) and have the Graham book on my “will read eventually” list. Their five:

• Reminiscences of a Stock Operator (revised 1993) by Edwin Lefevre
• How to Make Money in Stocks (revised 2002) by William J. O’Neil
• The Intelligent Investor (revised 2003) by Benjamin Graham
• One Up on Wall Street (1989) by Peter Lynch with John Rothchild
• The Essays of Warren Buffett (2001) by Lawrence A. Cunningham

These five books are all classic investing tomes that, with the exception of the Buffett book, were written more than one cycle ago and have stood the test of time. I am disappointed in one book that didn’t make the list. It’s my favorite investing book. I picked it up in 1999 and after reading it, looked around and laughed at the tech investors paying billions for stocks in companies that didn’t really exist. It shouldn’t be a surprise what it is. Guessed it yet?

• Extraordinary Popular Delusions & the Madness of Crowds by Andrew Tobias (Foreword), Charles Mackay (Author)

It’s a fantastic book that I think should be required material in any finance/investing course.

Last week, I highlighted an article on some of the home remodeling products that may not be the best idea. To accompany that article, here is a table on the estimated paybacks of home improvements.

The best payback ratios are on siding and bathroom remodeling. Home office remodeling and a sunroom are the worst paybacks for major renovations.

I really hope that a mid-level basement remodel doesn’t cost 50 grand. We’ll never get it done at this rate!

Back in April, I highlighted a service that provided a ton of free Excel templates for personal finance related items. It turns out that all of the links on that site point back to Microsoft. The direct link for the free templates is here.

Whether you are looking at buying vs leasing a car, or trying to decide if an Option ARM is right for you (yeah, it isn’t), Microsoft provides free templates to determine that. Even if you want to start tracking investments, start using a home budget, or calculate your net worth Microsoft has you covered.

Go check them out.

See, I mention my favorite whipping company yesterday and they get back in the news with something juicy. H&R Block has decided to lower the rates on their tax refund anticipation loans (though, we’ll still gouge ya!) and go into high-yield banking and more IRAS!

After I stopped laughing, I realized they were serious. They say they are no fee, but we’ve heard that before. I’m sure they’ve devised a way to suck the balance of the accounts to benefit themselves. Very few companies take advantage of customers so routinely as H&R Block does.

As I’ve said before, friends don’t let friends do H&R Block.

There are few things that Ben Stein and I see eye-to-eye on. I still love reading his columns because, although I disagree with them, they are well researched and he does have impeachable credentials. When he’s arguing for regulation, however, you know something is up. This week, he did argue for regulation in a way that I never really considered, but completely and totally agree with.

His argument is that management led buyouts should be completely banned. If not completely banned, then all documents relating to the buyout should be made public prior to the shareholder vote. His reasoning is that management buyouts are a huge violation of fiduciary duty. Usually when you see the words “fiduciary duty” I’m rallying against H&R Block, but not in this case.

Basically, fiduciary duty of managers is to run the company in the best interest of shareholders. Now, we all know that isn’t happening in instances of option backdating, financial statement chicanery, and other ills of the modern management age but the management led buyout is one of the worst ideas for shareholders. What happens is that managers get together with banks and take a company private. Then, they either spin it back off to the public (making a boatload of money) or sell it off in pieces (making a boatload of money).

Stein’s argument (and my concurrence) is that the managers are ripping off shareholders because that money belongs to the shareholders and not to management. There is a conflict of interest because the managers, who are the agents of stockholders, want to pay their stockholders as little as possible. Obviously, this is not in the stockholders’ best interest. As an agent, the management has a duty (fiduciary, of course) to act in the stockholders’ best interest.

This is all encapsulated in the memo that management prepares for investors detailing how much they plan to make on the deal. Investors wouldn’t invest unless they plan to make (a boatload of) money. The memo is kept confidential because you wouldn’t want it leaked to shareholders to see the potential billions they won’t make if they sell for just a little more than the stock is worth now.

My second favorite part is the “fairness letter” written by an investment bank to tell the shareholders they are getting a fair deal. It’s usually written by an investment bank with their hands on the deal. Now, whatever motivation would they have to mislead investors on a fairness letter? Oh yeah, the boatloads of money they have their hands on.

So, if you are a shareholder and are looking at a management buyout *cough*HCA*cough* you may want to think about why management and a bunch of investment banks want to buy the company. What do they know that you don’t?

Alan Mulally, remember that name. He may be delusional, but he just took the reins at Ford Motor Company. Why is this news? Well, other than replacing a man named Ford at the top, he turned around Boeing’s commercial planes division that was slipping fast. He introduced the 777 and 787 which have largely saved the commercial division from falling behind Airbus and have now put Airbus behind the eight ball.

A lot of people had speculated that Bill Ford was in waaaayyyy over his head and that he might step down. Most people assumed someone from inside the company, or at least inside Detroit, would take over the top job as the Big Three had traditionally done. Maybe Ford took a long look at what happened to Chrysler when outsiders were brought in to run the company (Chrysler is not only profitable, but has cars people want to buy)?

Mulally is a design geek and has business sense, a combination that those inside Detroit seem to be sorely lacking. He was able to trim Boeing’s line from 15 planes to 4 (hmm, does that sound familiar?) and drastically cut production to make the commercial business profitable.

These are some of the challenges Mulally will face at Ford. I hope for the company’s sake that the Ford Family gives him a long leash and doesn’t expect the turnaround to happen tomorrow. He’s either going to be Lee Iacocca or Jacques Nasser and he may be Ford’s last chance. I wouldn’t buy the stock based on this, but I think they made a great decision hiring Mulally.

I’m shocked, SHOCKED! to learn that insider trading happens before big deals are announced. I can’t imagine Wall Street lining its own pockets while fleecing the rest of us! My whole world view is shaken to its very core! [/sarcasm]

Of course, it’s illegal to use insider knowledge to buy and sell stocks. But, really, when has the law really stopped anyone from making money before? A lot of Wall Street has become so focused on greed and moneymaking that not even securities laws seem to stop people from making every dollar they can. It seems like every month something else comes to light to show how people are cheating on their taxes, cheating on their financial statements, or cheating on their trading.

So, how does the information get out? Well, with brokerages increasing becoming a one-stop shop, it’s easy for information to leak from the M&A department to the trading department. Of course, the brokerage houses claim that it isn’t happening, but the data is undeniable.

Trading quadrupled in a particular stock on the day that investors came to check the books. According to the NYTimes analysis, the company was not involved in any pre-merger speculation to explain the anomaly. Another stock jumped when GE contacted the CEO of the takeover target and offered to raise its bid by 5%.

The largest deal that appears to have benefited from insider trading was the purchase of Georgia-Pacific last year. In the two trading days before the deal was announced, trading in the stock increased by 127% over its year average. That coincided exactly with the day that Koch agreed on a price, but the deal was not announced for three days. The kicker? A month earlier, Koch had told Georgia-Pacific that a deal could not be struck and trading in the stock had dropped from the earlier fervent speculation of a takeover.

In another surprise deal, Wachovia purchased Golden West Financial. On the deal that Wachovia’s board met to consider a deal the call option activity tripled. The deal wasn’t announced for another five days and was a surprise as Golden West was largely considered too large to take over.

So, what can you do? Not really much. Some say insider trading is a victimless crime, and that appears to be the rationalization in these cases. But is it? Wouldn’t the person who sold the shares for much less than they were worth be victimized? Their only crime was not being well-connected enough.

This is another example of why I don’t invest in individual stocks. Wall Street is a fool’s game for those that don’t have buddies at the trading desks at Goldman or Merrill Lynch. Can you make money? Sure, but you are always running the risk of being cheated by those that have insider information or by those that backdate options or those that know the books are cooked.

Frank Quattrone has become the Apple of the business journalism world. He’s polarized the few people that care into two camps: apologists and haters. His every move has been rumored about and scrutinized for the slightest signal of what he’s going to do next. You know what? I don’t care.

Who cares what he does next? He’s a guy that pumped and dumped a bunch of stocks to enrich himself. The apologists say “oh it was one email typed out in a matter of seconds” to shred files or “he didn’t really mean to interfere with the government probe” or other statements. That’s total bs.

How many times did he say or think negative things about the stocks that he breathlessly pumped to the masses? He may have been prosecuted for obstruction of justice, but that was his real crime, deluding people into believing the companies were worth a damn.

Now, the government has essentially given him a $120 million gift by not prosecuting him any further and letting him essentially plead no lo contendre to the charges against him. Plus he’ll now get whatever some company throws at him to pump and dump more stocks.

I wish Frankie would take the advice of the metal philosophers Motley Crue:

Don’t go away mad, just go away.