Posts Tagged ‘Capital Markets’

Twilight of the Übermenschen

Courtesy of The Epicurean Dealmaker

Are you shooting at me?

This is the true joy in life, the being used for a purpose recognized by yourself as a mighty one; the being thoroughly worn out before you are thrown on the scrap heap; the being a force of Nature instead of a feverish selfish little clod of ailments and grievances complaining that the world will not devote itself to making you happy.

Beware of the pursuit of the Superhuman: it leads to an indiscriminate contempt for the Human.

— George Bernard Shaw, Man and Superman

* * *

Steven Davidoff opens a recent piece at The New York Times DealBook blog with the following words:

Reputation is dead on Wall Street.

This is powerful language. What does he mean?

Well, for one thing he means that the reputations of individual investment banks are no longer coterminous with the reputations of their executives and employees. He ascribes this to the tremendous growth in scale and complexity of financial markets over the past three decades:

Today’s Wall Street is not the Wall Street of 1907 when J.P. Morgan single-handedly used his reputation and wallet to stem a running financial panic.

Until the 1980s,… Wall Street was made up of traditional partnerships. These were small groups of investment bankers who represented companies in offering and selling securities and occasionally acquisitions. These bankers put their individual reputations on the line, because there were so few of them. Morgan Stanley, for example, had only 31 partners in 1970 and fewer than 1,000 employees.

But this began to change in the 1980s. Trading markets became much more sophisticated, and trading and brokerage became the investment banks’ primary business. This is a technology game. The better the technology, the better the trading and brokerage operation. Individuals became less important.

The growth of more complex capital markets and a global economy also created much larger financial institutions. Morgan Stanley now has more than 62,000 employees. These banks could use their assets and position to compete in the market for finance and trading. Again, individuals were less important as size dominated. A client now trades or does business with a bank based on its positions or ability to make a market or loan. The executive at the bank executing the transaction is unimportant.

In one respect, this is true. Lazard is no longer Felix Rohatyn. Goldman Sachs is no longer Sidney Weinberg. The


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Tavakoli: Biggest Fraud in the History of the Capital Markets

Tavakoli: Biggest Fraud in the History of the Capital Markets

Courtesy of JESSE’S CAFÉ AMÉRICAIN

newjanpic.jpg

Washington Post
‘This is the biggest fraud in the history of the capital markets’
By Ezra Klein
10/8/2010 

Janet Tavakoli is the founder and president of Tavakoli Structured Finance Inc. She sounded some of the earliest warnings on the structured finance market, leading the University of Chicago to profile her as a "Structured Success," and Business Week to call her "The Cassandra of Credit Derivatives." We spoke this afternoon about the turmoil in the housing market, and an edited transcript of our conversation follows.

Ezra Klein: What’s happening here? Why are we suddenly faced with a crisis that wasn’t apparent two weeks ago?

Janet Tavakoli: This is the biggest fraud in the history of the capital markets. And it’s not something that happened last week. It happened when these loans were originated, in some cases years ago. Loans have representations and warranties that have to be met. In the past, you had a certain period of time, 60 to 90 days, where you sort through these loans and, if they’re bad, you kick them back. If the documentation wasn’t correct, you’d kick it back. If you found the incomes of the buyers had been overstated, or the houses had been appraised at twice their worth, you’d kick it back. But that didn’t happen here. And it turned out there were loan files that were missing required documentation. Part of putting the deal together is that the securitization professional, and in this case that’s banks like Goldman Sachs and JP Morgan, has to watch for this stuff. It’s called perfecting the security interest, and it’s not optional. 

EK: And how much danger are the banks themselves in?

JT: When we had the financial crisis, the first thing the banks did was run to Congress and ask for accounting relief. They asked to be able to avoid pricing this stuff at the price where people would buy them. So no one can tell you the size of the hole in these balance sheets. We’ve thrown a lot of money at it. TARP was just the tip of the iceberg. We’ve given them guarantees on debts, low-cost funding from the Fed. But a lot of these mortgages just cannot be saved. Had we acknowledged this problem in 2005, we could’ve cleaned it up


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On Reflexivity & Animal Spirits: What Moves the Market from Here?

Kent Thune’s wonderful blog The Financial Philosopher is not just a financial site, it’s a "learning experience."  I highly recommend that you visit him and read some of his latest inspirational articles, such as Get Busy Livin’ or Get Busy Dyin’To Embrace Death is to Embrace Life, and Entrepreneurs: Use Your Delusion, Sell the Illusion. – Ilene

On Reflexivity & Animal Spirits: What Moves the Market from Here?

ITAR-TASS 02: IRKUTSK REGION, RUSSIA. NOVEMBER 30, 2008. Early twentieth century German pendulum clock with a statuette of Mnemosyne, Greek goddess of memory, on display at the Clock Museum, Angarsk, Irkutsk Region, Russia. (Photo ITAR-TASS / Nikolai Ryutin) Photo via Newscom

Courtesy of Kent Thune, at The Financial Philosopher

Are capital markets leading economic indicators or do they provide fuel for a growing economy? Or is it both? Isn’t the function of capital markets to raise capital for the financing of corporate and government operations through the sale of securities (stocks and bonds)?

If the stock market is rising, would this not then create the economic condition it is "predicting" as an economic indicator? In the absence of government stimulus, might financial markets save themselves? If so, how? Can financial markets rise spontaneously or do they require a fundamental boost or outside stimulation?

Capital markets have many functions and their participants have numerous objectives; however, we may simplify them all into two basic categorical functions: 1) Passive and 2) Active. Depending upon economic conditions and variables, capital markets can play one or both rolls. Consider recent comments by George Soros (Hat tip to Captain Jack):

…financial markets do not play a purely passive role; they can also affect the so-called fundamentals they are supposed to reflect. These two functions that financial markets perform work in opposite directions. In the passive or cognitive function, the fundamentals are supposed to determine market prices. In the active or manipulative function market, prices find ways of influencing the fundamentals. When both functions operate at the same time, they interfere with each other. The supposedly independent variable of one function is the dependent variable of the other, so that neither function has a truly independent variable. As a result, neither market prices nor the underlying reality is fully determined. Both suffer from an element of uncertainty that cannot be quantified. I call the interaction between the two functions reflexivity…

Mr. Soros’ idea of reflexivity asserts, as he says, "that financial markets do not necessarily tend toward equilibrium; they can…
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Seeking Solutions In An Uncertain World

Seeking Solutions In An Uncertain World

Courtesy of Todd Harrison of Minyanville

“We used to play for silver, now we play for life; ones for sport and one’s for blood at the point of a knife.” --Grateful Dead

We live in interesting times. During the last two years, a financial virus spawned and infected the economic and social spheres as a matter of course.

This isn’t just about money anymore. Our civil liberties, the foundation of free market capitalism and the quality of life for future generations are dynamically shifting as we traverse our current course. (See: The Short Sale of American Icons)

I once offered that Shock & Awe was a tipping point through a historical lens; as Baghdad blew-up on CNN, I somberly sensed America would never be the same. That’s not a political statement — we don’t know what would have been if we didn’t invade — it’s simply an observation. Almost overnight, world empathy turned to global condemnation.

If we’ve learned anything through these years, it’s that unintended consequences tend to come full circle. Whether it’s the moral hazard of bailing out some banks, the gargantuan profits of a chosen few — Goldman Sachs (GS), JP Morgan (JPM), Bank America (BAC), Morgan Stanley (MS), Wells Fargo (WFC) — the caveats of percolating protectionism, or the growing chasm of social and geopolitical discord, times they are a-changin’ and it’s freaking people out.

As speculators are vilified and hedge funds are perceived as acceptable casualties of war, financial fatigue will evolve in kind. We’ve already seen the burnout manifest in trading volume — upwards of 70% of the flow are the robots — and we’ve witnessed it in financial media, with reported ratings of some of CNBC’s marquee shows down as much as 25% year-over-year. (See: The War on Capitalism)

art of warSun-tzu once said, “If your enemy is superior, evade him. If angry, irritate him. If equally matched,…
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The Shanghai market isn’t really predicting anything

The Shanghai market isn’t really predicting anything

Courtesy of Michael Pettis 

A man looks at an electronic board at a brokerage house in Shanghai

It has not been a good year for the Shanghai stock market.  Since its closing peak at 6092 in October 2007, the closing high in the past year or so on Shanghai’s SSE composite was 3471, on August 4 last year.  Since then the market has been pretty bleak.  The SSE Composite finished 2009 by dropping nearly 6% from that high, to close at 3277.

This year things got only worse.  By May 20 the market had dropped a further 22% to close at 2556, and then bounced around for the past ten days closing yesterday at 2568.  In my May 12 blog entry, I finished the piece by saying “Last Friday the SSE Composite closed at 2688.  I bet it is much higher by the end of the summer.” 

Obviously my timing was off.  Within a week of my prediction the market had managed to lose another 132 points.  I still believe that the market will be higher by the end of this summer, and that within weeks we will see moves by the regulators to prop it up.  With all the liquidity sloshing around, all we need is a reasonable period off stability before the market comes roaring back, I suspect.

So am I predicting a strong economy?  Not really.  It is tempting to read falling stock prices as an indication that Chinese investors believe that the economy is poised to slow dramatically, and if the market surges, that Chinese growth is back, but we should be very cautious about how we interpret the meaning of the gyrations in Chinese stocks. 

We’re used to thinking about stock markets as expected-cash-flow discounting machines, and we assume that stock price levels generally represent the market’s best estimate of future growth prospects, but this is not always the case, and it is certainly not the case in China.  I am often asked to comment on big price moves on the Chinese stock markets and what they mean about growth expectations, but I usually try to caution people from reading too much meaning into the market.

Three investment strategies

To see why, it is probably useful to understand how investors make trading decisions.  This blog entry is going to be a pretty abstract piece on how I think about the underlying dynamics of a well-functioning capital market, and how these…
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Dylan Ratigan’s Explanation For The Crash

Dylan Ratigan’s Explanation For The Crash

Courtesy of Zero Hedge 

…the former Fast Money lead man is actually pretty spot on. And for all you retail investors who think this market is anything but a two-tiered playground built now exclusively for Wall Street to fleece you every single day, our advice is to get the hell out. Everyone else already is… Except of course for the banks and the various 3-3,000 man quant operations, which are the only market participants left. We hope they cannibalize whatever is left of each other and blow themselves all up in the process. Whatever is left will have infinitely more credibility than the busted mockery of capital markets we have now. 

Visit msnbc.com for breaking news, world news, and news about the economy


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An Independent Look into JP Morgan

An Independent Look into JP Morgan

Reggie MiddletonCourtesy of Reggie Middleton’s Boom Bust Blog

The JP Morgan forensic preview is now available. Remember, this is not subscription material, but a "public preview" of the material to come. I thought non-subscribers would be interested in knowing what my opinion of the country’s most respected bank was. There is some interesting stuff here, and the subscription analysis will have even more (in terms of data, analysis and valuation). As we have all been aware, the markets have been totally ignoring valuation for about two quarters now. It remains to be seen how long that continues.

Click graph to enlarge

image001.png, JP Morgan Notional Derivatives

Cute graphic above, eh? There is plenty of this in the public preview. When considering the staggering level of derivatives employed by JPM, it is frightening to even consider the fact that the quality of JPM’s derivative exposure is even worse than Bear Stearns and Lehman‘s derivative portfolio just prior to their fall. Total net derivative exposure rated below BBB and below for JP Morgan currently stands at 35.4% while the same stood at 17.0% for Bear Stearns (February 2008) and 9.2% for Lehman (May 2008).

JP Morgan cartoonWe all know what happened to Bear Stearns and Lehman Brothers, don’t we??? I warned all about Bear Stearns (Is this the Breaking of the Bear?: On Sunday, 27 January 2008) and Lehman ("Is Lehman really a lemming in disguise?": On February 20th, 2008) months before their collapse by taking a close, unbiased look at their balance sheet. Both of these companies were rated investment grade at the time, just like "you know  who". Now, I am not saying JPM is about to collapse, since it is one of the anointed ones chosen by the government and guaranteed not to fail – unlike Bear Stearns and Lehman Brothers, and it is (after all) investment grade rated. Who would you put your faith in, the big ratings agencies or your favorite blogger? Then again, if it acts like a duck, walks like a duck, and quacks like a duck, is it a chicken??? I’ll leave the rest up for my readers to decide. 

This public preview is the culmination of several investigative posts that I have made that have led me to look more closely into the big money center banks. It all started with a hunch that JPM wasn’t…
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Zero Hedge

Stronger Dollar Sends Futures Higher, Oil Lower, Asian Stocks To Two Month Lows

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Yesterday's weak dollar headfake has ended and overnight the USD rallied, while Asian stocks dropped to the lowest level in 7 weeks and crude oil fell as speculation returned that the Federal Reserve will raise interest rates as early as next month. The pound jumped and European stocks gained thanks to a weaker EUR.

Philadelphia Fed President Patrick Harker said on Monday that a hike in June is appropriate unless data weakens, while St. Louis Fed President James Bullard said holding rates too low for too long could cause finan...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

It hasn't been this bad for US manufacturing since the financial crisis (Business Insider)

The manufacturing recession may not have ended yet.

American companies are 'masking' a $6.6 trillion mountain of debt (Business Insider)

Debt can be a good thing. It gets the wheels of the economy moving.

...



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Phil's Favorites

IMF Demands "Unconditional" Debt Relief for Greece (Mish Says "Prove It")

Courtesy of Mish.

Most political and financial demands are nothing but bluffs or lies.

For example, on May 14, I noted Greece “Demands” Debt Relief, Owes Troika €11+ Billion by July.

That “demand” lasted one week. On May 22, I wrote Despite Depression, Greece Forced to Hike VAT, Add New Taxes.

Today the IMF demanded Europe to Give Greece ‘Unconditional’ D...



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Chart School

Market Recap May 23, 2016

Courtesy of Blain.

Monday was a choppy but quiet session with a bout of selling into the close pushing the S&P 500 down 0.21% and the NASDAQ 0.08%.    Fed Chair Janet Yellen is due to speak Friday afternoon, and again on June 6 so markets will wait to see if it’s the normal “dovish” Janet or “hawkish” Janet makes a rare appearance.  Always bet on dove until otherwise proven.

“I think the real focus is on the Fed. With the economic numbers continuing to improve I think the chances of a Fed rate hike continue to grow,” said Peter Cardillo, chief market economist at First Standard Financial.   “The market is probably just going to stay within a tight trading range here,” he said.

Indexes remain in tepid condition.

...



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ValueWalk

Bayer Offers to Purchase Monsanto for $62 Billion

By Jacob Wolinsky. Originally published at ValueWalk.

On Monday, German conglomerate Bayer AG finalized its $62 billion takeover offer for American agrochemical company Monsanto (MON). The acquisition would create the largest agrochemical company in the world. Here is what the sell-side is saying.

Monsanto- Bayer – deals, deals, deals

Jefferies:

At $122/share for Monsanto and no disposals the deal would require BASF to issue equity (Bayer issuing ~25% of the deal value) and would imply a deal ROIC in FY5 of 8.5%, 40bps below their WACC of 8.9% and below the buyback equivalent ROIC of 8.8%. The deal, however, would imply €4.55/share in FCF accretion in FY5 enabling BASF to delever to 0.5x net debt/EBITDA in the same time frame. If they levered back to 1.5x in FY15, we estimate EPS would reach €10.20/share.

…………...



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Kimble Charting Solutions

Gold & Silver Mining stocks facing triple kiss of resistance test

Courtesy of Chris Kimble.

CLICK ON CHART TO ENLARGE

The XAU Index is the oldest Gold & Silver mining index in the states, as it started keeping track of Gold & Silver mining stocks in the early 1980’s.

With this index having such a long history, it allows any of us to do pattern analysis going back 30-years. This chart looks at the XAU index over the past 20-years.

Miners have experienced a strong rally so far in...



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Insider Scoop

Benzinga's Weekend M&A Chatter

Courtesy of Benzinga.

The following are the M&A deals, rumors and chatter circulating on Wall Street for Friday May 20 through Sunday May 22, 2016:

Report Yahoo Bid Expected to Bid Only $2B-$3B for Core Business

The Rumor:
Verizon Communications Inc. (NYSE: VZ) and others are expected to bid around $2 billion to $3 billion for Yahoo Inc.'s (NASDAQ: YHOO) core Internet business, according to sources as reported by the Wall Street Journal on Friday. That's about 50% of the previous estimates of $5 billion to $8 billion.

Last week Quicken Loans founder Dan Gilbert, with backi...



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Digital Currencies

The Biggest Bitcoin Arbitrage Ever?

Courtesy of Chris at CapitalistExploits

Do you remember when you were growing up and all your friends were allowed Atari game consoles but you weren’t?

Well, I do and the things seemed as foreign to me as Venus. Mostly because the little time I managed to spend on the gaming consoles when my friends weren’t hogging them I found it all a bit silly. I never “got” computer games, and to this day still have poor comprehension of things like Angry Birds.

I suspect that many people around the world view Bitcoin in the same way as I view Angry Birds: with mild amusement and a general lack of understanding as to what the hell all the fuss is about.

I was thinking of this since a buddy of mine recently started ...



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OpTrader

Swing trading portfolio - week of May 16th, 2016

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Biotech

This Is Why Biotech Stocks May Explode Again

Reminder: Pharmboy and Ilene are available to chat with Members.

Here's an interesting article from Investor's Business Daily arguing that biotech stocks are beginning to recover from their recent declines, notwithstanding current weakness.

This Is Why Biotech Stocks May Explode Again

By 

Excerpt:

After a three-year bull run that more than quadrupled its value by its peak last July, IBD’s Medical-Biomed/Biotech Industry Group plunged 50% by early February, hurt by backlashes against high drug prices and mergers that seek to lower corporate taxes.

...



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Mapping The Market

About that debate last night

Although we try to stay focused on finding and managing promising trade ideas, the comments in the comment section sometimes take a political turn (for access, try PSW — click here!). So today, Jean Luc writes,

The GOP debate last night was just unreal – are these people running to be president of the US or to lead a college fraternity! Comparing tool size? The only guy that looks semi-sane is Kasich. The other guys are just like 3 jackals right now. 

And something else – if Trump is the candidate, that little Romney speech yesterday is probably already being made into a commercial. And all these little snippets from the debate will also make some nice ads! If you are a conservative, you have to be scared now. 

Phil writes back,

I was expecting them to start throwing poop at each other &n...



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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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