I am so torn on the foreclosure debate. On one side, you have homeowners who made bad bets and are now getting kicked out of their homes and onto the streets – that’s a horrible thing no matter how you cut it. On the other side you have the big banks who also made bad bets, but arguably made these bets in good faith. They were essentially building models based on the fact that US housing prices never go down – totally irrational in retrospect of course, but at the time this did not seem so crazy to most people (aside from yours truly who advised his parents not to purchase several houses in 2006 and was ignored).
The homeowners obviously made a bad bet, but I find it hard to believe that the banks were intentionally trying to fleece the American public. After all, if they had known that 2008 would occur they never would have sold all that bad paper to one another. It was more a case of greed run amok. The fees and income generated from this business were too easy, too consistent and too abundant for any greed loving banker to ignore. Likewise, the homeowner wanted to profit from rising home prices and did little due diligence on the most important purchase of their life. The banks were equally ignorant in that they clearly did not do their due diligence either (some of the banks hedged their exposure which seems like a prudent thing to do after the fact. Whether that was legal or not is not for me to decide….)
At the end of the day it seems like a lot of people made bad bets and now they all want a government handout. And the government appears to be willing to give it to them. In other words, it’s more capitalism without losers. And now that the bankers got their bailout Main Street feels entitled to one as well (and rightfully so). I know it’s probably a harsh thing to say, but when you make a bad bet you have to face the consequences of that bad bet. One of the reasons I believe the US economy is such a mess right now is because we’ve attempted to create a marketplace where no one ever loses. It’s a ponzi approach…
Here’s a composite quote that could come from the market strategist of virtually any major firm, I’m certain you’ve read something like this over the last few days:
"The stock market is nearing overhead resistance, a punch through would be a positive catalyst only if volume picks up before or during the breakout."
- Any Chief Market Strategist, Any Firm USA
Price rules in this environment. Volume is completely and totally irrelevant until about 5 to 7% afterthe breakout.
The breakout could come with only 60% of normal volume and be just as meaningful. In counter-distinction to the conventional wisdom, I would argue that a low volume breakout would actually bepreferable right now. Here’s how I arrive at this idea…
Nobody is in. Nobody. We’ve documented the equity fund outflows ad nauseum, they are bigger than Precious after Thanksgiving dinner. Fine. The question becomes, what can we agree is the more motivating condition for investor psychology right at this moment, Fear or Greed?
The answer is undoubtedly Fear. How else to explain the endless Treasury rally and the full scale retreat from equities? Fear is the conductor of this train right now, period, end of story. With that in mind, I ask you to think about the one thing that American investors fear more than anything else – the fear of missing out on the big opportunity.
Nothing freaks out the average investor more than watching the train leaving the station without them. I could put up 75 charts showing parabolic blow-off tops in various markets or I could just remind you that I’ve worked with over 1000 individual investors over the years and I know this stuff.
Fear of missing out is exactly why a stealth rally in stocks with low participation would be more meaningful and bullish than almost any other scenario. What could possibly draw hundreds of billions out of money markets faster than a 5% S&P rally that no one was a part of?
So please, stop regurgitating the "we need real volume" pablum, it is functionally backwards. What we need are higher prices, the lower the participation the better. That’s the kind of milkshake…
I write about major problems: the collapsing US economy, wars based on lies and deception, the police state based on “the war on terror” and other fabrications such as those orchestrated by corrupt police and prosecutors, who boost their performance reports by convicting the innocent, and so on. America is a very distressing place. The fact that so many Americans are taken in by the lies told by “their” government makes America all the more depressing.
Often, however, it is small annoyances that waste Americans’ time and drive up blood pressures. One of the worst things that ever happened to Americans was the breakup of the AT&T telephone monopoly. As Assistant Secretary of the US Treasury in 1981, if 150 per cent of my time and energy had not been required to cure stagflation in the face of opposition from Wall Street and Fed Chairman Paul Volcker, I might have been able to prevent the destruction of the best communications service in the world, and one that was very inexpensive to customers.
The assistant attorney general in charge of the “anti-trust case” against AT&T called me to ask if Treasury had an interest in how the case was resolved. I went to Treasury Secretary Don Regan and told him that although my conservative and libertarian friends thought that the breakup of At&T was a great idea, their opinion was based entirely in ideology and that the practical effect would not be good for widows and orphans who had a blue chip stock to see them through life or for communications customers as deregulated communications would give the multiple communications corporations different interests than those of the customers. Under the regulated regime, AT&T was allowed a reasonable rate of return on its investment, and to stay out of trouble with regulators AT&T provided excellent and inexpensive service.
Secretary Regan reminded me of my memo to him detailing that Treasury was going to have a hard time getting President Reagan’s economic program, directed at curing the stagflation that had wrecked President Carter’s presidency, out of the Reagan administration. The budget director, David Stockman, and his chief economist, Larry Kudlow, had lined up against it following the wishes of Wall Street, and the White House Chief of Staff James Baker and his deputy Richard Darman were representatives of VP…
You are a believer, born again and yet you hear voices and you are possessed.
Okay. Are you ready [unintelligible] ?
Ha ha ha ha ha ha.
— Unidentified exorcist, New York, 19801
Consider, Gentle Readers, a simple game:
It is an auction, with any number of participants, the object of which is to win a single, unadorned one hundred dollar bill. If you win the auction, you get to keep the money. (No tricks, I promise.) Bidding starts at a minimum of one dollar, and topping bids must exceed the prior bid by no less than one dollar, in even, undivided dollars. There is only one additional rule: the runner up in the auction must pay his or her last bid to the auctioneer, as well as the winner paying the winning bid. So, for example, if the winning bid is $10, and the next highest bid is $9, the winner will pay $10 and collect the hundred dollar bill, and the runner up will pay $9 and receive nothing.2
So, here we go. I am holding in my hands a crisp, new, freshly-issued one hundred dollar bill. Genuine U.S. currency, guaranteed legal tender for all debts, public and private. The opening bid is one dollar. Only one measly dollar to walk away with a crisp new hundo. Who will start the bidding?
* * *
I wonder how many of you raised your virtual hands. Contrariwise, I wonder how many of you recognized the trap for what it is: a slight variant of Martin Shubik’s rational choice theory experiment, the Dollar Auction.
It is an odd sort of game, but one which leads to all sorts of interesting outcomes and associated implications. For some of you may have realized that once you make a bid, you are committed to a losing escalation. Sure, at the beginning, the prospect of winning $100 for a bid of $1, or outbidding a competitor to win it for $10, sets your rational utility-maximizing (i.e., greed) glands salivating. Eventually, however, you realize that
When we look at the genuinely successful business people of our time, that happy band of folks who’ve created true shareholder value, enriching themselves and their followers to an astonishing degree, we find an extraordinary thing. The vast majority of these people are not particularly interested in money and their companies are generally not dedicated to some New Age declaration of shareholder value maximisation.
Greed is not a quality that seems to drive the world’s greatest creators of shareholder value and creating shareholder value is not the aim of the companies that are best at it. In fact we can pretty much guarantee the alternative: wherever you find over-rewarded executives presiding over companies whose main aim is to increase their market capitalisation we should pick up our skirts and get the hell out of it. Corporate greed is bad for ordinary shareholders.
If you read Warren Buffett’s shareholder letters, for instance, you can’t help but notice that the people whose companies he takes over all, by and large, continue to work for him despite being made rich beyond the dreams of our avarice. They tap-dance to the workplace everyday and lead their companies through a set of values far removed from the value enhancing conceits of management consultants.
What seems to set aside great business people and their businesses from the pond life that mainly occupies executive positions is that they focus on things other than making money. These generally involve doing stuff that people actually want to pay good cash for, rather than an obsession with growth. Indeed, the last thing we should want is running our companies is people who are greedy for money, since the opportunities for unscrupulous executives to cheat us shareholders are huge.
Welch on Shareholder Value
The dangers of the concept of shareholder value are outlined by Jacques Reland who quotes Jack Welch with approval:
“On the face of it Shareholder Value is the dumbest idea in the world. Shareholder Value is a result, not a strategy. Your main constituencies are your employees, your customers and your products”
Welch, of course, was the man behind the elevation of shareholder value to cult status in his time as CEO of General Electric, so this looks like…
We are currently in the midst of a Fourth Turning. This twenty year Crisis began during the 2005 – 2008 timeframe with the collapse of the housing bubble and subsequent repercussions on the worldwide financial system. It is progressing as expected, with the financial crisis deepening and leading to tensions across the world. It will eventually morph into military conflict, as all prior Fourth Turnings have. The progression from High to Awakening through the Unraveling took from 1946 until 2006. The most treacherous period of the Saeculm is upon us. The intensity of a Crisis is very much dependent upon how a country and its citizens prepare for the Crisis during the final years of the Unraveling. The last Unraveling period in U.S. history from 1984 through 2005 was symbolized by Boomer greed, materialism, debt and selfishness. When Michael Lewis graduated from Princeton University in 1985 and joined Salomon Brothers, I’m sure he didn’t realize that he would end up book-ending the Unraveling period in his two best-selling books about Wall Street.
In his latest book, The Big Short: Inside the Doomsday Machine, Lewis seems bewildered by the fact that his first book Liar’s Poker, written in 1989, didn’t dissuade college students from pursuing careers on Wall Street. If Lewis had read The Fourth Turning by Strauss & Howe when it was published in 1997, he would have understood why the people on Wall Street couldn’t change. The generations were just acting out their part in a grand never ending cycle. Lewis explains what he thought would happen:
“I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people’s money, would be expelled from finance.”
As the market complacently melted higher we continued to warn investors of the increasing three headed risks in the market. The combination of China tightening, financial regulation and Greek sovereign debt continued to weigh over foreign markets and U.S. investors just continued to live in their domestic bubble where nothing matters besides how many iPads Apple sells on any given day. Of course, that complacency is quickly catching up to investors. As a risk manager this is my primary goal here at the site – not always to highlight the next best opportunity, but to help you keep from getting your face ripped off. My first short positions in over two years were not implemented due to some crystal ball I have hidden away in my desk, but due to pure risk management. The environment of the last two months has been rife with complacency. Unfortunately, the situation is little improved across the globe as more government intervention proves to do little in helping matters.
The situation has deteriorated in Europe over the course of the last 24 hours as spreads in European sovereigns continued to blow out today. My guess is that Trichet is in Berlin today having his Hank Paulson moment – down on one knee in front of a powerful woman (Merkel) begging for her to accept his proposal of “going nuclear”, i.e., buying bonds. I can only imagine how the German heads of the Bundesbank must be feeling right now. Disgusted is the only way they can feel. Do they try to save the EMU or do they potentially inflate themselves into an even larger mess while imposing harsh fiscal austerity measures on member nations that almost guarantee depression? There truly are no good answers here.
Arguably, the Hollywood human casino will give derivative traders the incentive and means to play with people’s lives very directly. So will they put their unproductive energies into destroying the hopes and dreams of others? If economic (recent) history tells us anything, they will. Max Keiser, who developed the virtual forerunner to the Hollywood Stock Exchange (HSX) computer technology, predicts that if his technology is approved for use with real money, Hollywood will go the way of Enron and Lehman within two years. – Ilene
As if attacks from paparazzi and star-crazed fans weren’t enough, Hollywood stars may soon have a literal price put on their heads by investors in the Cantor Exchange, a real-money trading platform where people can bet on the gross profits of upcoming movies. Sales of The Dark Knight skyrocketed after Heath Ledger died unexpectedly, and so did sales after the deaths of Michael Jackson, Elvis Presley and Marilyn Monroe. Will greed-driven investors now be laying in wait for the stars of movies they have bet on?
The Cantor Exchange (CE) is based on a virtual trading platform called the Hollywood Stock Exchange (HSX), a web-based, multiplayer simulation in which players buy and sell “shares” of actors, directors, upcoming films, and film-related options. The difference is that where the HSX uses virtual money, CE will turn the game into a real casino using real dollars.
On April 21, Cantor Exchange reported that it had just received regulatory approval from the Commodity Futures Trading Commission (CFTC), which oversees futures exchanges. “This is a significant step forward in achieving our ultimate goal,” it said in a letter, “which is to launch a market in Domestic Box Office Receipt Contracts.”
Having “contracts” out on movies and movie stars, however, has an ominous ring; and the Motion Picture Association of America (MPAA) apparently doesn’t like the sound of it. The Cantor letter said that its tentative launch date of April 22 was being delayed because the MPAA and others “raised concerns about the economic purpose of this market and its usefulness as a hedging vehicle.”
The legitimate hedgers, the moviemakers and equity holders with a real financial interest to protect, don’t want it. But Cantor is pushing forward, because gambling is big business and there are…
Given my recent two posts on greed (“More on greed, regulation, Lehman and the financial industry” and “Greed is not good”), Berger’s remarks bear posting. What I find most interesting about this commentary is the tie between the belief in market forces and greed – which on an individual level is defined as selfish and excessive. The question is whether greed, which has historically been viewed as a negative on a personal level and condemned by most major religions in the past, can actually be beneficial on a society-wide level. Berger says no and I agree. Markets are not self-correcting. As a result, regulatory oversight is necessary to prevent harm from excessive risk taking.
I read the May 10 column in the Inquirer and, while I disagree with the ultimate conclusion which you imply, you, nonetheless, deserve credit for raising a provocative subject: whether people on Wall Street were influenced by Oliver Stone’s film "Wall Street" in engaging in beyond risky, reckless behavior which has brought down almost the entire edifice of modern American finance and has threatened an economic calamity akin to that of the 1930s.
In my view, your column actually raises two interesting issues: First, do the arts and popular culture (including film) influence society, or is it the other way around; and, second, what do attitudes expressed in Stone’s film say about professionals working in financial markets, the America financial elites and the financial system as a whole? In quoting the memorable words in the film of Stone’s character Gordon Gekko that, "greed is good," you really are raising a larger question of
To make an analogy with the living body – growth is good. Nutrition and a healthy environment are vital for healthy cells growing in a healthy organism. Cancer – uncontrolled, excessive growth of a renegade line of cells – is not good. One way or another, it kills the whole system. Greed in an economic/political system is like cancer in a living being. – Ilene
In the 1987 movie classic Wall Street, the sinister protagonist Gordon Gekko played by Michael Douglas gives this famous quote:
In the last seven deals that I’ve been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. Thank you. I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.
Since that time, this quote has become famous as the “Greed is Good” philosophy of capitalism. Gekko symbolizes an era in which it is believed that the free hand of market capitalism will steer the economy efficiently and effectively with little need for government intervention or regulatory oversight. Instead, so the theory goes, we are each allowed encouraged to pursue our manifest destiny of getting filthy rich. Screw everybody else.
Well, let me tell you something greed is not good. Greed is corrosive and it is tearing at the very fabric of our democracy. A generation ago most people in America worked for a few institutions in their lifetimes. Many had employer-paid healthcare and employer-financed defined benefit pension plans.
But, since the 1980s the moorings have come off and set us adrift in a world of economic insecurity.
Global nutrition company Herbalife (NYSE: HLF), welcomes the judgment by a Belgian Appeal Court that states the company's sales model is in full compliance with Belgian law. This judgment overturns a previous ruling by the lower court, in response to claims brought by Belgian consumer organization Test-Aankoop, that Herbalife was operating a pyramid scheme.
Herbalife always believed that the first judgment contained factual errors and was based on misinterpretations of its direct-selling sales method, and was confident that the original judgment would be overturned on appeal.
Herbalife continues to focus on supporting its independent distributors and their customers in Belgium, and the company remains committed to an op...
This tragic story emanating from the UK just doesn’t seem to go away. Probably because it’s true. The food crisis across the pond first came to my attention in earnest back in October when the Red Cross announced it was set to provide food aid to the UK for the first time since World War II.
The latest twist to this unacceptable saga comes via a letter send by a ...
What's New: I've updated the charts below through Today's close. The yield on the 10-year note rose to 2.88%, which is 136 bps above its 1.45% all-time closing low on July 25th of last year and only 10 bps below its interim closing high on September 5th.
The latest Freddie Mac Weekly Primary Mortgage Market Survey, released today, puts the 30-year fixed at 4.46%, 115 bps above its all-time low of 3.31% in late November of last year and only 12 bps below its interim high reported on August 22nd.
The 30-year Treasury closed today at 3.92% and the 20-year at 3.65%. Both are new interim highs since their 2012 troughs.
Here is a snapshot of the 10-year yield and the 30-year fixed mortgage since 2008.
A log-scale snapshot of the 10-year yield offers a more accurate view of the relative change over time. Here is ...
CELG – Celgene Corp – Shares in Celgene rallied 3.6% on Thursday to an all-time high of $165.88 after the fourth-largest biotechnology company was raised to ‘Buy’ from ‘Neutral’ with an increased target share price of $200.00 at UBS. Options changing hands on the stock this morning suggests some traders are positioning for the price of the underlying to continue higher next week.
The most traded contracts on CELG by volume are the 13 Dec ’13 $165 strike calls, with around 2,500 calls in play against open interest of 675 contrac...
I love covering trials, which is one reason I've been a little sad since switching over to the Wall Street beat: Few of the bad guys in this world ever even get interviewed by the authorities, much less indicted, so trials are comically rare.
But we did have one last year, a big one, and though it was boring and jargon-laden enough on the surface that at least one juror fought sleep in its opening days, I thought it was fascinating. In a story about the Justice Department's Spring 2012 prosecution of a wide-raging municipal bond bid-rigging case, I called it the "first trial of the modern American mafia":
As the charts last week indicated might happen, the S&P 500 has fallen four straight days and failed to hold its breakout above 1800 while the Dow Jones Industrials lost 16,000. Only the NASDAQ is still holding on to its breakout above 4000. Although the Basic Materials sector was the leader on Wednesday, the Technology sector was strong, as well, and in fact Tech stocks have been the strongest over the past week and the past month.
As markets finally show a willingness to pullback somewhat from their torrid pace, the bears are trotting out every naysayer they can lay their hands on to scare investors away, including smart folks like Carl Icahn, who is “very cautious,” and Nobel Prize winner Robert Shiller and his stock market “bubble” assertions. Sure, valuations are high on a historic...
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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.
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.
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These rallies are becoming familiar. In early July we saw a streak of 12 of 13 sessions in a row up, early September 11 of 12, and mid October 11 of 13 (current streak). It is a bit uncanny the similarities and how the escalator goes straight up in vertical ascent as we see indexes come out of mini corrections during QE. So we are about at the same stage where the last two began to tire, so it will be interesting if this is similar or if the current consensus of the market that there is nothing to worry about until next year as the Fed and D.C. are both off the table and this 3% annual growth rate in earnings we are now seeing in the S...
Welcome to the fouth update of the IRA Virtual Portfolio. First I am going to summarize the current state of the Portfolio then I will get into all the activity we had during September expiration.
Profit and Loss – Net of closed positions the portfolio is up a total of $769
Market Commentary – Last expiration I said, "I would like to put a total of $20,000 to work by the end of SEP expiration. If the VIX pops up to around 20 I plan to put about $50,000 total to work." The market didn't quite reach the goal but I did manage to deploy $15,000 of buying power. I still feel the market is too high and expect a correction during October. If the vix pops up to around 20 I still plan to put about $50,000 to work. If a correction doesn't happen I still plan to have a total of $25,000 in buying power put to work by October expiration. Now on to the act...
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Come and get it! Read all about it! Biotechs, biotechs and more biotechs to buy buy buy for your portfolio! To date, almost 30 biotech companies have hit the market. Most of the time, there are fewer than 10-12!
For the last five years, biotechs have had issues obtaining offer prices above expectations. In 2013, that trend looks to be broken. According to BiotechNow, the offer prices are 4% above expectations! In addition, biotechs are going public with little more than a wing and a prayer (pre-clinical or Phase 1 data only). Really? What this means is that the drug or technology looks good in mice, rats, or dogs, etc, but there is no smidgen of evidence that it will work in humans. That's what is called an appitite for RISK!
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.