“And the great owners, who must lose their land in an upheaval, the great owners with access to history, with eyes to read history and to know the great fact: when property accumulates in too few hands it is taken away. And that companion fact: when a majority of the people are hungry and cold they will take by force what they need. And the little screaming fact that sounds through all history: repression works only to strengthen and knit the repressed.” – John Steinbeck – Grapes of Wrath
John Steinbeck wrote his masterpiece The Grapes of Wrath at the age of 37 in 1939, at the tail end of the Great Depression. Steinbeck won the Nobel Prize and Pulitzer Prize for literature. John Ford then made a classic film adaption in 1941, starring Henry Fonda.
Michael Peltz has a mammoth 13-pager on High Frequency Trading in the latest issue ofInstitutional Investor magazine. The article is chock full of important information, including the 25 stocks most played with by high frequency traders (Sprint, Las Vegas Sands, Bank of America…).
It also contains some killer quotes. Here are a couple before I send you over to read the whole thing:
An exchange between the writer and financially-savvy Senator Ted Kaufman:
“We have a 300-pound gorilla in the room, and we’re saying that we’re going to keep it in a cage somewhere,” he told me. “This thing will be 600 pounds.”
“But isn’t part of the problem that there are 300 gorillas?” I asked, referring to the fact that an estimated 200 to 400 firms do high frequency trading.
“Good point,” he replied. “We have all these gorillas, and guess what? We put them in zoos where the people running the zoos don’t have enough information and authority to take care of them.”
Seth Merrin of LiquidNet, a block trading marketplace:
“The institutions are the equivalent of the British army, walking down the battlefield wearing bright red. The high frequency traders are the Americans hiding in the woods in camouflage, picking them off. If the British army hadn’t changed its tactics, they would have lost every subsequent war.”
There are some HFT defenders in the piece, spouting the usual rhetoric about how wonderful their liquidity is (a claim that I believe was invalidated during the Flash Crash as the robots drooped their heads like marionettes with cut strings just when their liquidity was needed most), but these defenders are industry insiders for the most part.
Anyway, get acquainted with the players involved and the terminology – this debate is just beginning.
"We have always known that heedless self-interest was bad morals; we know now that it is bad economics. Out of the collapse of a prosperity whose builders boasted their practicality has come the conviction that in the long run economic morality pays…
We are beginning to abandon our tolerance of the abuse of power by those who betray for profit the elementary decencies of life. In this process evil things formerly accepted will not be so easily condoned…"
Franklin D Roosevelt, Second Inaugural Address, January 1937
The hubris associated with the trading crowd is peaking, and heading for a fall that could be a terrific surprise. It seems to be reaching a peak, trading now in a kind of euphoria.
I had a conversation this morning with a trader that I have known from the 1990′s, which is a lifetime in this business. I have to admit that he is successful, moreso than any of the popular retail advisory services you might follow such as Elliott Wave, for example, which he views with contempt. He is a little bit of an insider, and knows the markets and what makes them tick.
He likes to pick my brain on some topics that he understands much less, such as the currency markets and monetary developments, and sometimes weaves them into his commentary, always without attribution. He has been a dollar bull forever, and his worst trading is in the metals. He likes to short gold and silver on principle, and always seems to lose because he rarely honors his first stop loss, which is a shocking lapse in trading discipline.
His tone was ebullient. The Street has won, it owns the markets. They can take it up, and take it down, and make money on both sides, any side, of any market move. I have to admit that in the last quarter his trading results are impeccable.
We diverged into the dollar, which he typically views as unbeatable, with the US dominating the international financial system forever. He likes to ask questions about formal economic terms and relationships, or monetary systems and policy. He
Do Goldman employees deserve any compensation, much less the $16 billion paid out in salaries and bonuses in 2009 when one considers that the firm would not only have no money to pay, but would be defunct had the US taxpayer not stepped in and bailed them out? Should this money have been used to prepay the firm’s $20 billion TLGP exposure instead, thus truly making the firm independent of taxpayer support, instead of just claims to Goldman’s public funding independence? Will the wave of public anger, now that President Obama has suddenly and inexplicably done a 180 degree turn and sides with the middle-class instead of the financial executives, take Goldman down at the next black swan occurrence? Is Goldman hypocritical in claiming it did not need a bailout after it rushed to become a bank holding company? Is Goldman a doomed business model which relies solely on the existence of the "greater fool" to sell to? Will its monopolist and ever-larger dominant status result in an implosion in the financial industry (especially with the DOJ continuing to deny there is any anti-trust problem)? All these questions and more seek answers in the just released Part Two of the PBS series "Is taxpayer money behind profits at Goldman Sachs."
We recommend watching Part One of the PBS series in advance of the clip below.
"If you wanted (as Paul Krugman and some of the questioners at the FCIC hearings did) to know just why things went awry, you’re wasting your time, says the Epicurean Dealmaker: Top bankers are "smart, scary smart," but they have little interest in why things are – and rather plenty of interest in how they can take advantage of the way things are." Phil
A study of recent—and not so recent—financial reform and regulation yields two rules. Rule No. 1: The banks have no idea what kind of regulation is good for them. Rule No. 2: If you ever think the banks have a point, remember Rule No. 1…
So there you have it from one of their own. They just didn’t have time to think about how paying exorbitant amounts of money to themselves that they earned from a game the government rigged for them, after the government bailed them out would play out. They weren’t stupid or foolish, just preoccupied with making money. As TED says, that is what they’re all about.
"Aesthetics is for artists what ornithology is for birds."
— Barnett Newman
Good morning, class.
Our quote for the day comes from Barnett Newman, painter, artist, and member of the loosely affiliated post-war group of US artists known as the Abstract Expressionists. Mr. Newman was widely regarded by many—none more so than himself—to be one of the smartest and most intellectual of this group, which contained other, less articulate1 but arguably more talented artists such as Willem de Kooning, Jackson Pollock, and Mark Rothko. Mr. Newman is credited with unleashing this bon mot upon an unexpecting world in the course of discussing art critics, art criticism, and aesthetics—the philosophy of art and beauty.
* * *
I recalled this quote to mind today when I read Paul Krugman’s latest broadside against all things—and people—financial in The New York Times. In his jeremiad, "Bankers Without a Clue," Mr. Krugman picks apart the recent testimony by four Wall Street CEOs at the Financial Crisis Inquiry Commission and asks the rhetorical question
Predictably, Wall Street and the banking industry don’t like President Obama’s plan to tax banks to help pay for the bailout. JPMorgan Chase CEO Jamie Dimon, an Obama supporter, said, "Using tax policy to punish people is a bad idea." Republicans generally denounced it, with RNC Chairman Michael Steele noting "this money has already been paid back by the banks" and calling it a "punitive tax" that "will hurt Americans’ savings and discourage job creation at the worst of economic times."
It would be a lot easier to accept this line of reasoning if JPMorgan Chase didn’t have about $40 billion in FDIC-guaranteed debt outstanding, and if the Federal Reserve didn’t have $27 billion of Bear Stearns assets on its balance sheet (which it had assumed to help JPMorgan take over Bear). Big banks might have paid back the money they borrowed under the Troubled Asset Relief Program, but they’re still benefitting hugely from the bailouts and taxpayer supports enacted after the crisis.
But there’s an even better reason to dismiss their concerns. A study of recent—and not so recent—financial reform and regulation yields two rules. Rule No. 1: The banks have no idea what kind of regulation is good for them. Rule No. 2: If you ever think the banks have a point, remember Rule No. 1.
This rule dates almost to the beginning of American history…
The same dynamic returned in the 1930s, after Wall Street and the commercial banking sector had essentially destroyed itself. The banking industry had proved utterly incapable of ensuring the safety of its customers’ deposits. Yet when the Roosevelt administration proposed the establishment of an industry-funded Federal Deposit Insurance Corp., Francis Sisson, then president of the American Banking Association, called deposit insurance "unsound, unscientific, unjust, and dangerous." After all, "overwhelming opinions of experienced bankers are emphatically opposed to deposit guaranties which compel strong and well managed banks to pay the losses of the weak."…
As it grew, the financial industry gained more of a voice in Washington and took a bigger role in shaping policy.
This is the second installment in my comments on Bo Cutter’s essay defending Treasury Secretary Geithner. Bo was a managing partner of Warburg Pincus, a major global private equity firm and led President Obama’s Office of Management and Budget (OMB) transition team. He was Bob Rubin’s deputy at the National Economic Council. The first installment discussed Bo’s extraordinary indictment of the finance industry.
Bo views Geithner as a martyr subjected to unfounded, ungrateful attacks for his actions that prevented the Second Great Depression. Bo doesn’t have much use for Americans that are upset with the senior managers of the finance industry. (This is a bit weird because Bo denounces these senior managers as universally incompetent, cowardly, and unethical.)
[L]iberals hate [Geithner] because he did not take over or dismember the banks, and publicly execute their senior managements.
This passage tells us nothing about liberals, but much about Bo and his peers’ fears of the public. The finance leaders know they are guilty of destroying much of the global economy — while growing extraordinarily wealthy in the process. They know that their primary means of destruction was accounting “control fraud.” They cannot understand why the public has not turned on the finance industry and demanded that the fraudulent financial leaders be prosecuted and their immense gains from fraud recovered. They also cannot understand why we allow the continued existence of systemically dangerous institutions (SDIs). Geithner, Paulson, and Bernanke have warned that the failure of any SDI could cause a global crisis. Under their logic, SDIs are ticking time bombs that will cause recurrent global crises. Geithner, like Paulson, is making the SDIs much larger and much more dangerous by using them to acquire other large, failed financial institutions. This policy is insane. Virtually no one (that isn’t on their payroll) supports the continued existence of SDIs and no one publicly argues they should…
Lobbyists from the financial industry have paid hundreds of millions to Congress and the Obama administration. They have bought virtually all of the key congress members and senators on committees overseeing finances and banking.
Will regulation hobble capitalism? I think the opposite is true. Properly done, government regulation of the financial industry will move the industry closer to the capitalist ideal. By capitalism, I mean where those who take the risks and put up the money get the fruits of their labor. And, importantly, where those who take the risks and put up the money actually do take the risks, bearing the full costs of failure as well as success.
Capitalism means bearing the costs
I sometimes miss the rugged beauty of Utah, where I spent some of my pre-Wall Street years. From my house on the foothills of the Wasatch mountains, I could see the cliffs of Mount Nebo to the south, nearly fifty miles away. Ten miles north, the western face of Mt. Timpanogas, capped with snow into early summer. To the west, the sun reflecting on Utah Lake. Oh, and on the eastern shore of the lake, the black smoke billowing out the stacks of Geneva Steel.
Geneva Steel was built to produce steel during the war effort, and kept in operation until seven years ago. It teetered at the edge – and at least two times over the edge – of bankruptcy, closing for good in 2002. Left behind were assorted furnaces, presses and scrap metal sold to a Chinese steel producer, and a giant pond of toxic sludge.
Fortunately, we’ve learned a thing or two about toxic sludge in steel production. The steel producer, in this case the original parent of the Geneva plant, U.S. Steel, has to set aside a fund to pay for the clean-up. The sludge is part of the production process, and the clean-up is a cost of production, even though it is a cost that is not realized until many years down the road. As a result, steel costs are a little higher and the shareholders fare a little worse than if this longer-term expense were not forced onto…
One of the key questions is, "Can the Fed ever unwind all of the positions it has taken on from failed banks and Wall Street firms?"
This is an important question, because if the answer is "No, at least not precisely when they wish to do it," then it raises the risk that all that hot money will prove immune to efforts to recall it and it will whiz around creating all sorts of monetary trouble.
Now that the Fed has declared that the recession has ended and green shoots are everywhere, the next obvious part of this journey will have to be the unwinding of the massive amounts of stimulus and thin-air money that has been injected into the system.
Certainly after watching the risk-money out-chasing junker stocks well up off their lows, we can surmise that the speculative animal juices are flowing again and that the Fed might want to consider taking away the punchbowl.
Instead, today the Fed bought another $18.8 billion net ($32.4 billion gross) in agency mortgage-backed securities, which represents the exchange of thin-air money for GSE MBS paper.
So far, all that we know about is that the Fed is talking about how to take the punchbowl away but that bankers are warning the Fed to "go slow."
Sept. 3 (Bloomberg) — The Federal Reserve is trying to prepare investors for an end to its housing-debt purchases, while keeping interest rates near zero, reflecting an economy pulling out of a recession with little momentum.
Federal Open Market Committee members discussed extending the end date of the agency and mortgage-backed bond programs, minutes of the group’s Aug. 11-12 meeting showed yesterday. The move would be aimed at avoiding disruptions in housing credit at a time when recovery prospects are clouded by rising unemployment and slowing wage gains, analysts said.
While the economy is projected to expand this quarter, central bankers had “particular” concern about the job market, signaling that the FOMC may need to see a peak in the unemployment rate before it begins withdrawing monetary stimulus. Some policy makers saw dangers of “substantial” declines in the inflation rate, yesterday’s report showed.
“They need to see labor markets improve and inflation stabilize, and not fall,
Let’s take a look at a few graphs of the dollar, from Feb 1, 2013 through Friday May 17, 2013. Yes, I said graphs of the dollar. I’ve priced the dollar in gold first (of course), then silver, the euro, and even the yen. The pattern is obvious. The dollar is going up.
I did not show copper, lumber, or wheat though they show the same trend. These commodities are not money, of course.
My point is simple. It’s not gold that is going anywhere. In past articles, I’ve used the analogy of measuring a steel ruler using rubber bands. Using the dollar to measure gold is like that. In this article I show that it’s not just gold, but silver, other currencies, and commodities. The dollar is r...
U.S. equity futures traded lower in early pre-market trade following a weaker than expected GDP report from the eurozone for the first quarter. GDP growth rose to -0.2 percent on a quarterly basis from -0.6 percent but missed forecasts of a 0.1 percent contraction. Weakness was notably seen in Germany, France, and Italy in the report, with the annualized rate of growth for Germany dropping to -1.4 percent vs. 0.2 percent growth forecast.
In other news around the markets:
The U.K. had fewer people claim unemployment benefits in April than expected, a positive sign for the labor market as the ...
Bernard Baruch (August 19, 1870 – June 20, 1965) was the son of a South Carolina physician whose family moved to New York City when he was eleven year old. By his mid-twenties, he is able to buy an $18,000 seat on the exchange with his winnings and commissions from being a broker. By age 30, he is a millionaire and is known all over The Street as "The Lone Wolf".
In his two-volume 1957 memoirs, My Own Story, Baruch left us with the following timeless rules for playing the game:
“Being so skeptical about the usefulness of advice, I have been reluctant to lay down any &lsq...
So, what did the market want today? Nothing it appears. It traded on weak volume and had very little movement. This morning the market hated commodities especially silver, but by days end, the market liked silver, gold and even oil but not the dollar. Why?
Last week the economic reports were tough, with bad misses on more than one occasion. But the market tended to ignore the bad news, probably because money continues to pour into equities from money market funds, long term fixed income, and many struggling foreign economies. On Thursday, investors finally caved to even more bad news from Initial Jobless Claims and weak Housing Starts. Then on Friday, when Michigan Sentiment and Leading Indicators posted large positive surprises, the money came pouring back to generate qui...
It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, the average for Regular increased seven cents and Premium four cents. This is the third week of price gains after nine weeks of declines, which followed eleven weeks of price rises. Since their interim high in late February, Regular is down 11 cents and Premium 16 cents.
According to GasBuddy.com, eight states are averaging above $4.00 per gallon, up from four last week. Six states are in the 3.90-4.00 range, up from two last week.
VOYA - ING US, Inc. – Shares in ING Group’s U.S. retirement, investment and insurance business are up as much as 8.0% today to $26.98, the highest level since the company’s May 2nd IPO. ING US was rated new ‘buy’ at BTIG LLC with a 12-month target share price of $31.00 today. The stock has rallied nearly 40% over the IPO price of $19.50, and some options traders are positioning for the price of the underlying to extend gains during the second half of the year. November expiry options are the most ac...
Again, not much to add to this market in terms of analysis – nothing matters other than central banks. Last Wednesday/Thursday there were some 9 economic reports, 7 of which were disappointing or could be considered as such and all it got was one rare day down, and then new highs Friday. Markets are up 10 of the past 12 sessions and 17 of 21. Friday's move to 1666 was an exact 1000 point rally from March 2009's 666 bottom. Since this most recent leg of the move has been medium fast rather than a huge spike ala 1999, things are not necessarily overbought on the daily chart but we are seeing extremely rare action on the ...
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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.
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I am going to share with you how I manage my IRA and the power of reducing your cost basis. My goal each year is a 20% return in my IRA. Sometimes I make it and sometimes I don't, but I believe that all of my success is due to reducing my cost basis. To illustrate the power of reducing your cost basis here are some trades we did last year. These trades are taken from an educational portfolio we ran in a paper-trading account for a little more than a year.
We bought RIG on 5/15/2012 for $44.13, sold it on 1/18/2013 for $46 but booked a profit of $1,154.
We bought MT on 1/4/2012 for $19.24, sold it on 12/21/2012 for $15 but booked a profit of $454.
We bought CHK on 1/27/2012 for $21.93, sold it on 10/19/2012 for $18 b...
Stock market posts another record setting week, but the big news came after Friday’s close.
Courtesy of NASA
The stock market put on another record setting show with the Dow Jones Industrial Average (NYSEARCA:DIA) closing at a record high 15,118 and the S&P 500 (NYSEARCA:SPY) closing at 1633.70, another all time closing high.
For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) gained 1%, the S&P 500 (NYSEARCA:SPY) climbed 1.2%, the Nasdaq Composite (NYSEARCA:...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Well, well, well....it is good to know that there are others in the scientific arena who believed that YMI Bioscience's data (cough - Gilead) is a better drug than Incyte's Jakafi. Now, the definitive data are still unknown, but there was enough evidence from a Phase 2 trial to take a small risk for a huge reward. So, let's forget about Apple (AAPL), and do nothing but biotechs from now until Congress passes universal health care coverage for prescriptions....and drive the prices down so that research and development is no longer feasible to conduct in the US. Even Seattle Genetics (SGEN) has been on a tear as of late...
Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Philstockworld, LLC (PSW) nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither PSW nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance, including the tracking of virtual trades and portfolios for educational purposes, is not necessarily indicative of future results. Neither Phil, Optrader, or anyone related to PSW is a registered financial adviser and they may hold positions in the stocks mentioned, which may change at any time without notice. Do not buy or sell based on anything that is written here, the risk of loss in trading is great.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.