THREE THINGS I THINK I THINK
by ilene - March 18th, 2010 2:15 am
THREE THINGS I THINK I THINK
Courtesy of The Pragmatic Capitalist
- The complacency in the market is now reaching a fever pitch. It always amazes me that investors can be so bearish near the bottom and then be so incredibly bullish after the
market has risen so substantially. On January 28th I said the market was not forming a major market top and that the downside was “more likely a correction within the uptrend”. At S&P 1,140 I went net short for just the second time in the last 12 months. With our H1 outlook largely playing out as expected I now find myself wondering if we are in a euphoric blow-off top and on the wrong side of the trade….
- Mad Money started 5 years ago on CNBC. I vividly remember seeing the show when it started because it began right around the same time when the great Louis Rukeyser got sick. My first thought was: “there is something seriously wrong with the market if its participants are willing to listen to a man banging on buttons and acting like a lunatic.” The power of Cramer over the years is undiminished and leaves me wondering exactly the same thing today. Cramer is a good investor and a GREAT salesman, but you just have to wonder after 5 years – the market is flat over the same period – have any of his viewers actually come out on top after taxes and fees? My guess is very few….Investing is not a joke. It is not entertainment. I am not sure why anyone thinks it is okay to make it seem that way.
- While I continue to think the VIX is a sign of near-term complacency you just can’t help but wonder if investors are still too fearful in the long-term. The majority of investors still don’t have an ounce of faith in the recovery and this is reflected in the historically high VIX. In the past two recessions, the VIX did not reach its historical low of 10 until at least 3 years into the recovery. Perhaps most important, the market rallied this entire time.
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
FINRA Story
by ilene - March 17th, 2010 9:12 pm
Larry Doyle’s been reporting on the Financial Industry Regulatory Authority (FINRA) over the past year and a half. His efforts are beginning to pay off. Recently, investigators from the government watchdog unit, the Project on Government Oversight, referenced Larry’s work in a letter sent to banking, finance, and oversight sub-committees up on the Hill regarding FINRA. Here’s three important posts by Larry that help tell the FINRA story. - Ilene
Barron’s Highlights FINRA’s Stench
Courtesy of Larry Doyle at Sense on Cents, posted on March 6, 2010
The stench surrounding FINRA is attracting real attention.
The executives of Wall Street’s self-regulatory organization FINRA should not think that the recent dismissal of one legal complaint is reason for celebration. Why? Those who care for transparency measure success not in terms of judicial victories but to a much greater extent by public pressure and awareness. On that note, at long last real progress in creating transparency into FINRA is occurring.
From the highly regarded government watchdog Project on Government Oversight to now the leading weekend business periodical Barron’s, FINRA’s stench is attracting attention from more than the blogosphere and a few selected journalists (Bloomberg’s Susan Antilla, The Washington Examiner’s and Baltimore Sun’sMarta Mossburg, and also Barron’s Jim McTague).
The news in an article this weekend by Barron’s is not news to regular readers of Sense on Cents, but to most of America FINRA remains a foreign entity. Those days are changing.
Barron’s excoriates Wall Street’s self-regulator today in writing, FINRA, First Heal Thyself:
IN 2007-08, regulators at FINRA were so distracted with empire-building and lining their pockets, they overlooked the world’s two largest Ponzi schemers: Bernie Madoff and, allegedly, R. Allen Stanford. So what’s the deeply flawed Financial Industry Regulatory Authority up to now? Building itself an even bigger empire.
The quasigovernmental body, which advertises itself as the white knight of 90 million investors, is lobbying Congress for the power to regulate 11,000 investment advisors who now fall under the jurisdiction of the Securities and Exchange Commission and state securities regulators. The states regulate those with less than $25 million in assets, but want Congress to bump that to $100 million. Why? The SEC does such a poor job, it visits an average of one advisor every nine to 11 years!
Finra currently regulates Nasdaq and New York Stock Exchange brokers and securities dealers, and pays its executive staff high-on-the-hog salaries, despite abysmal performances. This is the same behavior that contributed to the failure of big financial firms that operated under Finra’s purview. If Congress accedes to its power…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Poachers Turned Gamekeepers
by ilene - March 17th, 2010 8:25 pm
Poachers Turned Gamekeepers
Courtesy of The Epicurean Dealmaker
As the slow-motion train wreck which was Lehman Brothers unfolds once more before our eyes, if not in the pages of our mainstream media—who continue to proclaim against all available evidence that they really, really do perform a valuable function in democratic society and hence should continue to be paid more than bupkis for it—then in the febrile, overheated backwaters of the econoblogosphere, Your Oft-Ignored Pontificator has been inspired to venture a few modest observations.
My aperçu of the day was inspired by readings among several of the more rational and composed voices in said bloggy peanut gallery, including David Merkel, Mike Konczal, and Felix Salmon. It was Felix’s piece which offered the most direct spur to my reflections, with the following remarks:
In other words, the Fed has the ability to regulate; all that’s needed now (and was missing in 2008) is the willingness to do so and to bare teeth once in a while.
A good way to institutionalize that is to implement what David Merkel calls “dumb regulation” — once you put simple rules in place, it becomes much more difficult (although never, of course, impossible) to override those rules or to ignore them. The problem with Lehman was that there were no simple rules, and that no one at the Fed or the SEC felt comfortable making up new ones on the spot, like “you’ve got to be able to pass the stress test which we invented five minutes ago”. I, for one, wouldn’t want to be the regulator who had to receive the phone call from Dick Fuld after implementing a rule like that, using dubious legal authority.
One of the problems with giving lots of supervisory authority to the Fed is that the Fed is run by economists who care primarily about setting monetary policy, as opposed to being run by bankers who care primarily about bank regulation and systemic risk. The base-case scenario is that unless and until we start staffing the Fed with a bunch of poachers-turned-gamekeepers, the biggest banks are likely to be able to smooth-talk their way past the Fed’s regulators.
Like Felix, I agree with David that "dumb regulation"—or, in less pejorative language, simple and relatively inflexible regulation—is far more likely to do the trick than the kind of complex, encyclopedic, tick-all-the-boxes regulation exemplified by the bloated pig currently wending its way through the legislative python in Congress. But I also agree with Felix (and, so it…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Investing By Jerks
by ilene - March 17th, 2010 7:08 pm
Investing By Jerks
Courtesy of Tim at Psy-Fi Blog
Punctuated Equilibrium
Back in the early 1970’s a couple of young biologists came up with an suggestion that profoundly annoyed many of their colleagues and has continued to divide their subject ever since. The idea was called “punctuated equilibrium” and argued that evolution doesn’t develop smoothly and continuously over time but proceeds with long stops and short starts, thus making the chances of finding intermediary forms in the fossil record vanishingly small.
The opponents of this, to non-biological eyes, non-controversial extension to evolutionary theory responded sarcastically that this was “evolution by jerks” invoking the rejoinder that the alternative was “evolution by creeps”. Clearly, the world of the evolutionary life sciences is populated by some seriously adult people. However, the idea of punctuated equilibrium is a powerful one and its applicability to other systems characterised as evolutionary, like the world’s economy, is replete with possibilities. After all, can investing by jerks be any worse than everything else we’ve witnessed?
Another Long Argument
The scientists behind the idea of punctuated equilibrium were Niles Eldredge and Stephen Jay Gould. Subsequently Gould became involved in a series of intellectual spats about the concept up until his death in 2002. Critics included Richard Dawkins, Daniel Dennett and E.O. Wilson which amounts to a fairly serious barrage of opposition given that everyone involved is a committed evolutionist.
Roughly two counterarguments can be discerned. The first is that punctuated equilibrium isn’t really a major idea in its own right, it’s more a minor extension of evolutionary theory which has gained vastly more public attention than it deserves through Gould’s extraordinary ability to make scientific ideas accessible to the general public. Obviously, that’s a bit of a back-handed complement given the opposition.
Reductionism
Secondly, though, is a more interesting debate, which is the argument between adaptationists and their opponents. Adaptationists suggest that (nearly) every feature and trait of biological lifeforms can be explained as an evolutionary adaptation.
Gould was firmly opposed to this idea, arguing that not every feature of every living thing is a direct result of evolutionary pressure. In fact, he went so far as to suggest that pursuing this approach to its ultimate conclusion was to substitute a Creator with evolution, since if you state that natural selection has directly caused every trait without always knowing how they evolved then you have a handy theory for explaining everything that ultimately explains nothing. Opposing him are a wide variety of…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
MORGAN STANLEY: PREPARE FOR A SELL-OFF
by ilene - March 17th, 2010 5:19 pm
Pragcap looked and looked and looked and found it. One lone bank afloat in bull-land sea sees risk in the market waters. - Ilene
MORGAN STANLEY: PREPARE FOR A SELL-OFF
Courtesy of The Pragmatic Capitalist
It wasn’t easy to find in this sea of bulls, but there is actually a bank out there that is not full-blown bullish following the huge rally of the last month. Morgan
Morgan Stanley says these two risks could overshadow the market in the coming weeks as investors adjust their portfolios to account for the large discrepancy between bulls/bears and risk assets versus lower risk assets. According to Morgan Stanley the put/call ratio represents overly bullish sentiment levels that are historically followed by sell-offs. In addition, the sign of excessive risk can be best seen in the run-up in the small cap vs. large cap ratio. Risk assets, represented by the Russell here, have surged to their highest ratio in terms of large caps in the last 12 months:
Source: Morgan Stanley
(What's this?)
(THE PRAGMATIC CAPITALIST, 3/17/10)
(THE PRAGMATIC CAPITALIST, 2/17/10)
(naked capitalism, 3/5/10)
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Wait…What?
by ilene - March 17th, 2010 3:54 pm
Wait…What?
Courtesy of Michael Panzner at Financial Armageddon
We interrupt the euphoria in the stock market to bring you this breaking news flash –
"Shipping Market Worst Since World War II, Fisher Says" (Bloomberg)
The world shipping market is mired in its biggest slump since World War II, said James Fisher & Sons Plc, a U.K. hauler of oil products.
“This is the worst shipping recession since the war,” Chairman Tim Harris said today in a telephone interview. He spoke after the Barrow-in-Furness, England-based company reported little-changed annual profit. Prospects for a rebound at its shipping unit hinge on the timing of any increase in industrial output in northwest Europe, Harris said.
Demand to haul cargoes has plunged because of the global recession, sending charter rates lower and spurring carriers to take vessels out of service. BW Gas Ltd., the world’s biggest shipper of liquefied petroleum gas, said last week it idled four tankers because rates plunged so low that each vessel was losing the company about $25,000 a day.
“There’s been an unparalleled collapse in demand,” said Harris, who was previously chairman of Clarkson Plc, the world’s largest shipbroker. Fisher has a fleet of tankers that haul oil products around U.K. waters.
"Wait…what?" said one of the countless bulls who’ve been blindly bidding up share prices, "I thought the global economy was on the road to recovery…?
(What's this?)
(Financial Armageddon, 3/17/10)
(Red Hot Energy and Gold - Global…, 3/16/10)
(Red Hot Energy and Gold - Global…, 3/10/10)
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Propping Continues As Shady Activity Seems To Ensure Market Does Not Fall.
by ilene - March 17th, 2010 3:16 pm
Propping Continues As Shady Activity Seems To Ensure Market Does Not Fall. (NYSE:SPY), (NYSE:DIA)
Courtesy of Gareth Soloway at InTheMoneyStocks
The markets are all hovering higher today. Dow, Nasdaq and S&P 500 up over half a percent on the day. The SPDR S&P 500 ETF (NYSE:SPY) is higher by .60%. The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) is up the same. Since the February 5th bottom, the markets have gone straight higher. Rumors and speculation jump out on why the markets have done this. Across the board, it is looking more and more suspicious. Suspicious? Yes, it is looking like there are other factors at work in keeping the market near the highs if not making new highs.
One interesting coincidence to look at is the President Obama tough talk. Where has it gone? Did anyone notice how Wall Street rebelled as soon as President Obama started talking about regulation for Wall Street? This started in mid January and Wall Street fought back. The markets tumbled drastically, dropping almost 10%. Since that happened, has anyone heard a peep from the President on Wall Street regulation? I think not! Anyone who thinks the markets are a true barometer of the economy needs glasses. Anyone who thinks that Wall Street and big business does not control the government also needs to be admitted into a psychiatric ward in my humble opinion.
As the markets trade higher, a few key stocks are pushing this market. Exxon Mobil Corporation (NYSE:XOM) is making up for the previous lackluster days. It is surging 1.70%, a monster move for that stock! Of the oil plays, that is the leader today, no doubt about it. Technology is being headed by the semiconductors. The Semiconductor HOLDRs (ETF) (NYSE:SMH) is higher by 1.6%, a big move and even bigger, considering the SMH was up huge yesterday as well. Apple Inc. (NASDAQ:AAPL) is having a average day, just up .65%. Financial stocks continue to lead the market, charged by JPMorgan Chase & Co. (NYSE:JPM). JPM is up 1.75%.
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Pressure Increasing on China to Revalue Yuan; What Can Go Wrong?
by ilene - March 17th, 2010 3:01 pm
Pressure Increasing on China to Revalue Yuan; What Can Go Wrong?
Courtesy of Mish
Pressure on China to do something about its allegedly undervalued currency is mounting by the day. Please consider the following articles.
World Bank Calls For Stronger Yuan
The World Bank Says China Must Pare Stimulus to Counter Bubbles
The World Bank indicated that China, the world’s third biggest economy, should raise interest rates to help contain the risk of a property bubble and allow a stronger yuan to help damp inflation expectations.
The nation’s “massive monetary stimulus” risks triggering large asset-price increases, a housing bubble, and bad debts from the financing of local-government projects, the Washington- based World Bank said in a quarterly report on China released in Beijing today. The group raised its economic growth forecast for this year to 9.5 percent from 9 percent in January.
The World Bank’s call echoes the assessment of private economists — analysts at Morgan Stanley this week said higher reserve requirements for banks may be “imminent” and interest rates could start to climb as early as next month. China’s economic rebound has also sparked increasing calls for an end to its exchange-rate peg to the dollar, adopted in mid-2008 to help shelter exporters amid the global recession.
Senate Considers Currency Manipulator Regulation
Bloomberg is reporting Senate May Force Obama to Take Tougher Yuan Stance
Five senators including Charles Schumer of New York and Lindsey Graham of South Carolina introduced legislation yesterday to make it easier for the U.S. to declare currency misalignments and take corrective action. Even if the bill stalls, it may have “ripple effects” that lead the Treasury Department to declare China a currency manipulator, William Reinsch, president of the National Foreign Trade Council, said.
Obama’s goal of doubling U.S. exports in five years depends on his ability to get China to raise the value of its currency, said Sherrod Brown, an Ohio Democrat and co-author of the legislation. China’s intervention in currency markets to keep the value of the yuan, or renminbi, at a set value acts as a subsidy to exports and tax on imports, Brown said at a news conference yesterday.
Senator Debbie Stabenow, a Michigan Democrat, and Sam Brownback, a Kansas Republican, are also supporting the legislation. Graham is a Republican and Schumer is a Democrat.
The senators said the U.S. recession could boost the political prospects for the legislation, which Schumer has proposed in various forms since 2003. Schumer said the Senate proposal will be attached…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Michael Lewis On The Daily Show
by ilene - March 17th, 2010 2:27 pm
Michael Lewis On The Daily Show
Courtesy of John Carney at Clusterstock
Michael Lewis talks about the financial crisis and subprime mortgages with the only news anchor Americans trust, Jon Stewart.
| The Daily Show With Jon Stewart | Mon - Thurs 11p / 10c | |||
| Michael Lewis | ||||
|
||||
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
JPMorgan, UBS and Deutsche Bank Charged with Derivatives Fraud
by ilene - March 17th, 2010 12:21 pm
JPMorgan, UBS and Deutsche Bank Charged with Derivatives Fraud
Courtesy of JESSE’S CAFÉ AMÉRICAIN
More like international crime families sending out enticing emails trying to lure and trick the unsuspecting than serious financial institutions. This is banking?
Notice that these were operating out of their London units, similar to the AIG derivative scandal that helped to worsen the US financial crisis. The FSA is apparently working hard now to enforce its rules and bring these banks to heel. Contrast that with the SEC in the States which seems reluctant to do anything regarding enforcement, and even when a judge puts them to the task, are able to administer only the mildest of financial chastisement to be passed on to the shareholders.
There is speculation that the US government cannot reform these banks because it is deeply involved in financial transactions of a questionable nature with them itself, ranging from enormous individual campaign contributions to market manipulation in various financial instruments in support of government policy which is otherwise failing badly. The opacity of markets and government bodies like the ESF makes this difficult to assess, but the outrageous size of positions amongst some of the banks, together with the occasional slip in the redacted transcripts is the smoke that indicates more heat beneath the surface than we might imagine.
The US Treasury Secretary himself is recenly implicated in an outrageous accounting fraud perpetrated by Lehman Brothers with the apparent complicit silence of the NY Fed which he was leading at the time.
And yet the Congress seems to be able to do little or nothing, it is so controlled by the monied interests. The Senate has the temerity to propose giving Consumer Protection to this very Fed as it is revealed to be complicit in bank fraud of epic proportions, and a track record of fighting and delaying consumer reforms and sensible regulation of OTC derivatives for years. The Republicans are unashamed of their venality, and the Democrats are seemingly leaderless.
The banks must be restrained, the financial system reformed, and balance restored to the economy before there can be any sustained recovery.
Bloomberg
Deutsche Bank, JPMorgan, UBS Are Charged With Derivatives Fraud
By Elisa Martinuzzi and Sonia SirlettiMarch 17 (Bloomberg) – Deutsche Bank AG, JPMorgan Chase & Co., UBS AG and Hypo Real Estate Holding AG’s Depfa Bank Plc unit were charged with fraud linked to the sale of derivatives to the City of Milan.
Judge Simone Luerti scheduled the trial of…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(