Blog Posts by Matt Nesto

When it comes to the holy trinity of investing, (stocks, bonds and cash) it seems the rules and nuances of investing in the bond market often are the most baffling for newcomers.

For this edition of Investing 101 we are going to demystify the bond market and have put together five quick tips to help you get your head around buying bonds.

1. What is a Bond?

Simply put, a bond is a loan. Just like a mortgage, bonds involve a lender and a borrower, and also come with a predetermined interest rate and maturity date that never changes. And just like you and me, bond issuers also have credit scores (or ratings) that make it more or less expensive for them to borrow depending on the likelihood that the lender will be paid back. Bonds typically are sold in $1,000 increments and have a face value (or par value) in the same amount.

2. How Do Bonds Work?

A bond is essentially a contract between a buyer and a seller in which the borrower (or issuer) agrees to make semi-annual (twice a year) payments to its creditors (that's you) until the agreed upon term is up (the maturity). At that point you get your original investment (or principal) back in one big lump.

The amount of these payments is determined by an interest rate (or coupon) that is fixed for the life of the bond or loan. You may have heard of the term "fixed income" investments before, well now you know it's because your Treasury bond, come hell or high water, will pay the exact same income, a feature that is particularly adored by retirees.

For most of us, Tuesday will simply mark the first day of October or perhaps the start of the fourth quarter. But in Washington, October 1st is New Year's Day, as in fiscal new year, and once again, the federal government looks like it's going to be late to the party. This as lawmakers haggle and horse-trade down to the final minute, risking the closure of non-essential government offices, in hopes of securing the best possible political outcome for themselves.

While the President, the chairman of the Federal Reserve and many others are warning that such a closure would hurt an already fledgling economic recovery, not everyone agrees.

"I don't think shutting down the government can do any more destruction than a lot of what government actually does right now," says Jonathan Hoenig of CapitalistPig.com, in the attached video. "Anything that can be done to slow the size and scope of government is ultimately a beneficial thing for the bottom line."

Related: 12 Ways A Government Shut-down Would Effect You

For the record, Hoenig says he doesn't want the government to "grind to a halt" but if it does, it'll be fine with him presuming we get something beneficial out of it.

"I am from the school that says if it wins us a longer term victory in terms of keeping this country more free, more capitalist, that's a beneficial result," he says.

Having just issued three press releases in two day, the media relations department at J.C. Penney (JCP) is arguably the ailing department store's most functional division. The latest announcement from Plano, Texas shows that an unexpected secondary offering of 84-million shares was priced at $9.65 per share, which was also below the market price at the time it was announced.

While the stock sale will net the company close to a billion dollars that it can use for general corporate purposes, it also dilutes the stock by at least one-third, and sent it plunging to levels last seen since the '80s.

Related: J.C. Penney Shares Whipsaw as Debt Concerns Grow

"It's exactly why you never want to catch these falling knives," says Jonathan Hoenig of CapitalistPig.com in the attached video. "Just when you think a weak stock can't go any lower, it does, time and time again."

The point is, if you're thinking about getting in early on the comeback story of the year, Hoenig says don't do it and points to all the bottom fishers over the last five years who have lost money doing exactly the same thing.

As the long-awaited debut of so-called Obamacare approaches, it should come as no surprise that the single largest piece of legislation ever written - that directly impacts one-sixth of the U.S. economy - is giving rise to lots and lots of unexpected outcomes, both positive and negative.

Although the official launch is not until October 1st, three serious side effects have already emerged in the country's job market says Bob Funk, the CEO of Express Employment, the fifth largest staffing firm in the nation.

As we discuss in the attached video, this former chairman of the Federal Reserve Bank of Kansas City cites the demise of the 40-hour work week as the first major theme that is emerging from the pending health care legislation. It's a trend that he's personally opposed to even though it is benefiting his staffing business.

''We're trying to go to full time employment. We'd love to have people on 40 hours a week but the government is going in just the opposite direction," Funk says, noting that lower-waged hourly workers are particularly likely to see their shifts cut from 40 to 29 or 30 hours a week by employers intentionally looking to dodge mandatory health benefits.

Related: Beware of Obamacare as Corporate America Adapts to New Policies

At the same time, Funk says he's seeing a trend where some small businesses no longer want to grow out of fear of becoming big, and find themselves required to offer the most costly and unpredictable benefit of them all. He says this "disincentive to grow" is not in the best interest of industry and is even causing some companies to consider placing their entire workforce on his staffing company's payroll rather than hiring them themselves.

"I think in the end we will see some resolution, some compromise," says Mark Luschini, chief investment officer at Janney Capital Management of the current Congressional impasse that's dominating the headlines and providing endless fodder for the media.

As predictable as the 2013 version of the budget showdown might feel, Luschini explains in the attached video that he still thinks investors should use caution.

Related: DC Budget Showdown: Ugly, Familiar, Avoidable

"I think by the end of the year, once we get past this fiscal issue, I think investors are going to focus on some of the underlying economic data," he says, calling the improving domestic and global environment encouraging and likely to benefit risk assets.

"I think (the continuing resolution and debt ceiling battle) is something that we will look at in the not-so-distant future as having been largely a non-event," he says, cognizant of the slump that has plagued stocks since the day after last week's surprise Fed decision.

Related: Debt Ceiling, Budget Showdown Won't Derail Bull Market: Johnson

It's been a week since the Federal Reserve shocked the world by not moving to rein in (or taper) its bond buying program, but a growing number of people are refusing to let it go and move on. While stocks have reversed after a brief euphoric jump to record highs, the aggrieved parties now are largely regulators and advocates who argue the timing of this latest release and others wasn't fair.

Specifically, reports that certain high-speed traders had access to the FOMC's market moving statement a millisecond (that's one 1/1000th of a second) early, has New York Attorney General Eric Schneiderman fuming, to the point where he's just launched a new whistleblower hotline to field anonymous tips in order to crack down on what he's dubbed "insider trading 2.0".

This is not the first probe into the timing of sensitive data releases, but it is the latest, and perhaps the biggest, as some estimates show nearly a half-billion dollars of the very fastest money was able to get a jump on the merely fast. For what it's worth, it takes about 300 to 400 milliseconds to blink your eye.

"To have that (information) even a millisecond ahead of others is, I think, totally unfair," says Mark Luschini, chief investment officer at Janney Capital Management, in the attached video. "It's not so much that the information is reaching some pocket of the world (eg trading desks in New York or Chicago) slower or quicker than another, it's the fact that somebody was able to trade in advance of others."

There's a catch to all of this that no one really wants to talk about and that is, as often as not, the so-called "first trade" is wrong.

They don't come around that often, but when a so-called hot IPO (initial public offering) does appear on the radar screen, the competition between the exchanges to get the listing is fierce. The latest example is Twitter, which TheStreet.com's tech editor Chris Ciaccia says has chosen to list on the New York Stock Exchange (NYX) instead of the Nasdaq (NDAQ).

"We saw what happened with Nasdaq and Facebook (FB), so it really makes sense that Twitter will go with the NYSE," Ciaccia says in the attached video, adding that the creator of the famed 140-character news feed service wants its debut to be as low key as possible.

Related: #TwitterIPO: Let the Frenzy Begin!

For the record, no official announcement has been made yet by Twitter or the exchanges and the NYSE would not comment on the report when we asked them about it.

If true, the choice to list on the NYSE is hardly a shock given the embarrassing technical delays that marred Facebook's first day of trading in May 2012, as well as three recent outages that took the tech-heavy exchange offline for up to three hours.

When the Dow Jones Industrials (^DJI) hit an all-time high following the Fed's recent meeting, it was front page news across the country. Similarly, the S&P 500 (^GSPC) also burst higher to its own record close, seemingly immune from the reality that the central bank's unexpected decision was predicated on economic weakness.

But as the accolades and confetti were showering down upon these esteemed benchmarks of big business, a barometer of smaller companies measured by the Russell 2000 (^RUT) was enjoying a victory lap of its own, albeit without the fanfare and hype given to its larger peers. Rather than feeling slighted, most small cap investors prefer it this way, caring only for the short and long term performance advantage they are enjoying.

"We found that small cap stocks, as long as we're in bull market mode, tend to be in a leadership position," says Sam Stovall, chief equity strategist at S&P Capital IQ in the attached video, "and this year is no different."

In fact, the out-performance of the so-called little guys has been so pronounced for so long that some are thinking that, should their five-year rally come to an end, it could be a warning sign that new leadership is coming or perhaps that a small cap retreat might be a precursor of a broader sell-off that would take down the big boys along with them.

But Stovall's research shows that's just not the case.