by ilene - May 4th, 2011 12:45 pm
Courtesy of The Epicurean Dealmaker
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:
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
Goldman’s $430 Target, Screaming Buy On Apple At Its All Time High Is In Direct Contravention To Reggie Middleton’s Logic – Who’s Right? Well, Who Has Been More Right In The Past?
by ilene - December 14th, 2010 1:14 pm
Goldman has recently issued a strong buy recommendation on Apple, offering a $430 price target. I have been on record many times stating that Apples will be facing the toughest competition of its existence since Microsoft nearly put them out of business. This, of course, appears to be in direct contravention to the Goldman Sachs call which just happened to come out the day Apple hits its all time high. Being that Apple has more than its fair share of fans who ignore common sense, this is enough to set the stock on fire. The question still remains though, “Is Goldman right?” Goldman very well could be right, but not for the reasons most retail investors believe. Despite overwhelming evidence plus plain old history to the contrary, many investors and mainstream media outlets still take the sell side of Wall Street at their word. Sell side analysts are marketing arms for the brokerage sales force, the investment banking sales force and the traders who move inventory in and out of their respective banks. What they are not are wealth and strategy advisers for retail and institutional investors. Their historical performance clearly illustrates this, thus their is not need to take this entrepreneurial investor and blogger’s word for it. Well, for those of you who either don’t know of me or don’t know of Goldman, here’s a quick recap of Reggie Middleton vs. Goldman Sachs:
Who was more accurate concerning Google? Google’s 3rd Quarter Operating Results: The Foregone Conclusion That Was Amazingly Unanticipated by the Street!!! Monday, November 8th, 2010
Who was more accurate concerning Lehman Brothers, the Ivy league, ivory tower boys doing God’s work or that blogger with the smart ass mouth from Brooklyn?
Please click the graph to enlarge to print quality size.
As a matter of fact, who was more accurate during the ENTIRE Asset Securitization and Credit Crisis of the last three years? We believe Reggie Middleton and his team at the BoomBust bests ALL of Wall Street’s sell side research:…
by Chart School - December 9th, 2010 1:58 am
Courtesy of Gregory White at The Business Insider
The threat of the end of the Build America Bond program looms large, and it is scaring investors into selling out of the muni market.
It could be the next black swan looming, ready to cause an even larger problem for states already overburdened with debt.
Just check out the down move in the Muni bond ETF today. It may be off its lows of the day, but it still doesn’t look good.
by ilene - November 22nd, 2010 12:13 pm
Ever feel like this market just does not provide enough unique and suicidal ways for you to lose your hard stolen money within nanoseconds of trade execution? Never fear – here comes the TVIX, a levered third derivative bet on volatility: simply said, the TVIX will be the world’s first double leveraged VIX ETF. According to the ETF creator, VelocityShares, "the TVIX and TVIZ ETNs allow traders to manage daily trading risks using a 2x leveraged view on the S&P VIX Short-Term Futures™ Index and S&P 500 VIX Mid-Term Futures™ Index, respectively, while the XIV and ZIV ETNs enable traders to manage daily trading risks using an inverse position on the direction of the volatility indices. The indices were created by Standard & Poor’s Financial Services LLC, a division of the McGraw Hill-Companies, Inc." Then again, why not just call these what they are: a novel way (brought to you via the synthetic CDO legacy product known as ETFs) to lose money with a 99.999% guarantee. As always, we wonder why anyone would trade this product, when, with much better odds, one would at least get comped in Vegas…
Here is the full product suite about to launched by Credit Suisse.
One has to love the fine print:
The ETNs, and in particular the 2x Long ETNs, are intended to be trading tools for sophisticated investors to manage daily trading risks. They are designed to achieve their stated investment objectives on a daily basis, but their performance over longer periods of time can differ significantly from their stated daily objectives. Investors should actively and frequently monitor their investments in the ETNs. Although we intend to list the ETNs on NYSE Arca, a trading market for the ETNs may not develop.
In this case, and as in everything else related to the market, our advice is stay away from these synthetic contraptions which are merely CDOs (and now CDOs cubed) for public consumption. On the other hand, we can’t wait for someone to finally release an ETF or any other mechanism, that allows for the simple shorting of GM stock.
by ilene - November 18th, 2010 3:50 pm
Courtesy of The Pragmatic Capitalist
Being bearish is officially out of style. Sentiment readings have reached well beyond excessively bullish levels. The most recent Investor’s Intelligence survey showed another sharp increase in bullishness at 56.2%. This 7.6% surge in bullishness is the largest one week jump since April 2010. At 56.2% this is also the highest reading since December 2007. The last time bullishness was even near these levels was April 28th, 2010 just days before the flash crash.
Last week’s AAII survey also showed extraordinarily high levels of bullishness at 57.6%. This reading is literally off the charts and almost 10 points higher than bullish sentiment at the April highs.
Bespoke Investments highlighted how unusual it is to see both of these sentiment polls at such high levels:
“At a current level of 113.8%, the combined reading is the highest since mid-October 2007, which was shortly after the S&P 500 reached its all-time closing high of 1,565.15. More recently, the last time combined bullish sentiment was above 100% was in April 2010.”
“Buy the dip” and “don’t fight the Fed” have become universal rally cries in recent weeks. It now appears as though no one believes the market can sustain a decline. Unfortunately, the market generally frustrates the most people most of the time. If that saying rings true today the market is at a particularly risky juncture.
*AAII survey will be updated tomorrow after its latest release.
Update: AAII sentiment fell 17.6% this week to 40%. According to Charles Rotblut this is the largest decline since January 2009. Like the current reading, that decline followed a multi month high in sentiment. The market ultimately plunged until sentiment hit its low of 19% in March 2009.
by ilene - November 9th, 2010 5:02 pm
Courtesy of Robert Reich
Next time you hear an economist or denizen of Wall Street talk about how the “American economy” is doing these days, watch your wallet.
There are two American economies. One is on the mend. The other is still coming apart.
The one that’s mending is America’s Big Money economy. It’s comprised of Wall Street traders, big investors, and top professionals and corporate executives.
The Big Money economy is doing well these days. That’s partly thanks to Ben Bernanke, whose Fed is keeping interest rates near zero by printing money as fast as it dare. It’s essentially free money to America’s Big Money economy.
Free money can almost always be put to uses that create more of it. Big corporations are buying back their shares of stock, thereby boosting corporate earnings. They’re merging and acquiring other companies.
And they’re going abroad in search of customers.
Thanks to fast-growing China, India, and Brazil, giant American corporations are racking up sales. They’re selling Asian and Latin American consumers everything from cars and cell phones to fancy Internet software and iPads. Forty percent of the S&P 500 biggest corporations are now doing more than 60 percent of their business abroad. And America’s biggest investors are also going abroad to get a nice return on their money.
So don’t worry about America’s Big Money economy. According to a Wall Street Journal survey released Thursday, overall compensation in financial services will rise 5 percent this year, and employees in some businesses like asset management will get increases of 15 percent.
The Dow Jones Industrial Average is back to where it was before the Lehman bankruptcy filing triggered the financial collapse. And profits at America’s largest corporations are heading upward.
But there’s another American economy, and it’s not on the mend. Call it the Average Worker economy.
Last Friday’s jobs report showed 159,000 new private-sector jobs in October. That’s better than previous months. But 125,000 net new jobs are needed just to keep up with the growth of the American labor force. So another way of expressing what happened to jobs in October is to say 24,000 were added over what we need just to stay even.
by ilene - November 6th, 2010 9:09 pm
Courtesy of KID DYNAMITE’S WORLD
Let’s step back into our time machine and travel alllllll the way back to the 2000-2009 decade – the one we just finished. We suffered a massive financial crisis because we, as a country and a world really, had borrowed and lent far too much money based on paper asset prices. The assets in question were homes, and the prices were inflated by a massive ignorance of risk on the part of all parties – borrowers, lenders, insurers, modelers, financial wizards, etc. When we borrowed money based on paper asset prices, we were totally hosed when the prices of those assets declined and we then couldn’t afford to pay back our loans.
Now press "live" on your remote, and return your DVR time machine to the present. The solution our fearless leaders at the Federal Reserve have chosen is to run this play again – quantitative easing is designed to inflate asset prices, which in turn will hopefully result in people feeling wealthier, borrowing more, and spending more – it’s a "virtuous cycle!!!" Bernanke actually told us this, specifically, in an Op-ed today:
Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.
Just to recap, the Fed’s basic goal (in my opinion) is to force capital into risk assets. The Fed buys treasuries, driving their yields to unappealing levels, until investors are forced to put their money into other asset classes: stocks, corporate bonds, commodities. As that happens, portfolio valuations increase, everyone is supposed to feel good again, and we go out and spend money, which flows through to the rest of the economy. Now get back in the time machine and crank it back just a handful of years. How did that work out last time? Of course it was great while the bubble was inflating – flat screen TVs and newly landscaped yards for everybody! – but reality is always a bitch, and bubbles…
by ilene - November 2nd, 2010 2:55 pm
Courtesy of The Pragmatic Capitalist
We all know the Federal Reserve is trying to herd
“A former hedge-fund manager who made a fortune shorting stocks has switched to the long side, and is raking in money in the process.
William von Mueffling surprised clients and competitors last June by announcing he would close his hedge funds and return $3.5 billion to investors. His firm, Cantillon Capital Management of New York, kept managing $1 billion in long-only assets, typically considered the unsexy piece of the business.
Now, the 42-year-old stock picker controls more money than he did before he closed his hedge funds. Cantillon has raised billions of dollars from pension funds in the U.S. and abroad, and from sovereign-wealth investors, according to clients and other people familiar with the matter.”
Von Mueffling couldn’t justify running the short end of the book as the Fed was priming the pump:
“After years of “long-short” investing, Mr. von Mueffling and his analysts and traders no longer short, or bet against, stocks at all. Instead, like a typical stock mutual fund, they stick to buying company shares they expect will rise. Mr. von Mueffling said the strategy is “the right long-term decision.”
“I’m not saying there aren’t overvalued stocks out there,” he said in an interview. “There are, but trying to short them when the government is printing money is a very, very challenging game,” he said, referring to, among other things, Federal Reserve programs to buy government bonds, which the Fed is widely expected to announce this week.”
That gives new meaning to “herding investors”. I think sellers play an important role in the price discovery process. After all, when the fundamentals of an asset are consistently in disequilibrium with its current valuation it makes the system that much more unstable. Selling, and thus lower prices, can actually make the system more stable in the long-term. This is just one more sign that nothing has really changed since the Greenspan Fed ended. And that was a Fed run by a man who admitted that his model was flawed….
by ilene - October 30th, 2010 5:34 pm
Courtesy of Robert Reich
This, from the Washington Post’s conservative pundit George Will:
Total spending by parties, campaigns and issue-advocacy groups concerning every office from county clerks to U.S. senators may reach a record $4.2 billion in this two-year cycle. That is about what Americans spend in one year on yogurt, but less than they spend on candy in two Halloween seasons. Proctor & Gamble spent $8.6 billion on advertising in its last fiscal year.
Those who are determined to reduce the quantity of political speech to what they consider the proper amount are the sort of people who know exactly how much water should come through our shower heads — no more than 2.5 gallons per minute, as stipulated by a 1992 law. Is it, however, worrisome that Americans spend on political advocacy — determining who should make and administer the laws — much less than they spend on potato chips, $7.1 billion a year?
In a word, Mr. Will, yes.
The number of dollars spent isn’t the issue; it’s the lopsidedness of where the dollars come from. Even if the total were only $1000, democracy would be endangered if $980 came from large corporations and wealthy individuals. The trend is clear and worrisome: The great bulk of campaign money is coming from a narrower and narrower circle of moneyed interests.
Anyone who doubts the corrupting effect has not been paying attention. Our elected representatives have been acutely sensitive to the needs of Wall Street bankers, hedge-fund managers, and the executives of big pharma, big oil, and the largest health insurance companies. This is not because these individuals and interests are particularly worthy or specially deserving. It is because they are effectively bribing elected officials with their donations. Such donations are not made out of charitable impulse. They are calculated investments no less carefully considered than investments in particular shares of stock. They are shares in our democracy.
Why $4.2 billion and not ten times that amount? Because the high-rolling political investors don’t need to spend a dollar more in order to exert overwhelming influence.
This figure, by the way, leaves out the tens of billions of dollars dedicated to lobbying, lawyering, and public relations — all of which deliver specific legislative outcomes the campaign money fuels. The economy of Washington, D.C. depends on this gigantic flow of funds (supporting…
by ilene - October 29th, 2010 4:20 pm
Courtesy of Eric Falkenstein of FALKENBLOG
- expected real interest rates
- expected inflation
- risk premium
As current interest rates are around 2.5%, and current inflation expectations are around 3%, even with a slight convexity adjustment there’s a negative real expected return here. To guys like Campbell, that means, bonds are some kind of insurance, because the only reason investors would accept this is if they pay off in a very bad state of nature, just as you pay for car insurance. Specifically, everyone is supposedly afraid of a recession that would also bring with it deflation.
While the CAPM betas of bonds have historically been positive, they have been negative lately. If you believed in the CAPM, that would mean the expected negative return makes sense, it is a negative ‘risk premium’. Of course, the positive beta previously did not explain why bonds cratered from 1960 to 1980, and the CAPM does not work at all within equities, the arena it was designed for. It also does not work in corporate bonds, REITs, options, etc. But looked at in isolation it is a plausible explanation, and hope springs eternal.
I think a better explanation of the current interest rates is that the Federal Reserve has been buying hundreds of billions of dollars in US Treasuries. Considering, they have an infinite supply of capital to do this (they create the money when they write the check), the market is not going to offset this via expectations of future inflation. So, the expectations are there, but US Treasuries are a rigged market, with one huge buyer debasing the world’s most powerful currency because it’s in the standard Keynesian manual for how to treat excess unemployment when inflation is currently low. Once the evidence of this short-sighted policy becomes clear, the inflation toothpaste will be out of the tube, and on to the next bubble-crash.
That is, the expected return on bonds is negative, because bonds are in a Fed-supported bubble. Just look at gold to see what an