Archive for 2008

Bernie Comes Out

More on the Madoff scandal.  First, some thoughts from Cassandra Does Tokyo.  Second, an update, via Bloomberg below.

Bernie Comes Out of the Closet

Courtesy of Cassandra Does Tokyo

Not a year has gone by during the past fifteen that I have not contemplated what Bernie Madoff did (or didn’t do) to make his money. Seventy to one-hundred basis-points-a-month. Net. Net. Net. During tempests, earthquakes, panics and crashes – even during the closure of the exchange itself, Bernie apparently minted coin like few others. Even Renaissance and Shaw tripped occasionally. Not Bernie. Yet no one new what he did. It was one of the best kept secrets in the world. Oh yeah, sure, split-strike conversions were the official line. But every skeptical arb trader knew this couldn’t be true.

I also never came across an ex-Madoff trader the way one meets ex-Shaw, ex-Moore Cap, or ex-Citadel employees. Resumes are sent in reply to postings and guys have done the rounds, even if they weren’t unhappy and making a moral statement. A spouse moves…whatever. Surely there must be disgruntled Madoffians somehwere, right?. Were they ummm underground? I mean, literally? My friends at a large IB (who were soliciting business from them years ago) who’d been to their offices said it looked the bridge from the USS Enterprise (the Starship – The Next Generation version). Entry to the IM sub was strictly verboten. Uh huh. He said it was a paperless office. No paper trails. Hmmmm. Violators were fired. Weird. No one transgressed.

Whatever he did, he came a long way from arbing the odd-lots that were the reputed foundation of his activities. I knew his shop from London where he was one of the few to make markets in US stocks out of hours, and if my clients for whatever (mostly ill-advised) reason needed to trade instantly, Bernie would make a price. Not necessarily a good price, but a price. But one does so at their peril since the folk with material non-public information are more predisposed to want to trade outside hours, so the pick-off risk was huge. But he never complained.

Next thing I know, he’s at the center of electronic trading revolution – an electronic market-maker facilitator at the center of trading universe. Yet even Timber Hill has bad hair days. Volkswagen…
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Collapse of Pension Funds

Thinking of retiring?  If you’re like most people, think again.  Shamus Cooke presents a terrible problem that many of us may be facing, but it would be interesting to know his reasons for believing there was a conspiracy. 

Collapse of Pension Funds: The End of Retirement?

By Shamus Cooke, writing at Global Research

Unless things change fast, human history will show that the phenomenon of “retirement” was limited to one generation.   After World War II, when European and Japanese economies stood in tatters, American capitalism could fulfill “the American dream,” since there was little foreign competition to speak of.  For the first time ever, workers were promised that — after working thirty or so years — they would be able to securely retire.  That was largely the case…for one generation.

The second generation is having a devastating reality check.  2008 was supposed to be a watershed year for retirement: it was the first year that the baby-boomers turned 62, and the retirement frenzy was to begin (since people could begin to draw on their social security benefits).   Early in the year, however, a study was conducted that found one-fourth of these boomers were delaying retirement (only the baby-boomers who were actually able to plan for retirement were studied).  The economy has since nosedived, and many more retirements are being delayed.  The unfortunate reality is that many who planned on retiring will work until the grave, joining the millions of other baby-boomers who never had such dreams.

The experts are calling this the “perfect storm” for retirement.   Everything that could go wrong is in fact going wrong.  This storm, however, was not created by supernatural forces, but the coordinated effort of big-business and their puppet politicians.

The deliberate destruction of the pension and its replacement by the 401(k) was, of course, a giant step towards attacking retirement; but now that the economic crisis has emerged, we’re beginning to see just how ruinous the effects are.

At the end of September, just as the crisis was beginning to gain steam, it was discovered that in the previous year the value of stocks in 401(k) accounts had fallen by nearly $2 trillion!  Much more has been lost since then.  This is especially devastating since almost one-third of 401(k) participants in their 60s had 80 percent of their money in stocks (pension funds have been similarly destroyed). 

The 401(k) was the scheme of the century.  Corporations…
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Let me, for a change, be blunt

Courtesy of NakedShorts, Greg Newton:

Let me, for a change, be blunt

In response to all those Madoff investors quoted this weekend “waiting to hear how much of their stake is left” and similar.  And it’ll be years before you see that.

Oh, and anybody who’s taken a redemption directly from Madoff (as opposed to the feeder funds through which most investors accessed him — that’s a whole other can of worms) within the last six years or so can look forward to eventually being sued for the return of both the “profits” and the capital component of those withdrawals.

The feeder funds will also be sued for their withdrawals, and Good Luck to them clawing back whatever they paid back to their investors. The feeders will also be sued by their investors but probably to relatively little effect as their Madoff chips (current est. NAV = 0.00) contained within the firewalls of a corporate entity. 

This post sponsored by the Legal Profession Full Employment For All Eternity Act. Under the auspices of the It’s An Ill Wind That Blows Nobody Any Good Foundation. 


The Honorable Louis Stanton, U.S. District Court Judge for the Southern District of New York, has granted the SEC’s request for emergency relief for investors, and issued an order freezing assets and appointing a receiver over Bernard Madoff and his firm.

Lee Richards of Richards Kibbe & Orbe LLP has been appointed receiver…


The Real Take-Away

Roger Ehrenberg’s writes on the Madoff Scandal, which keeps getting stranger.  Roger argues that the structure of Madoff’s firm allowed it to avoid third party scrutiny and slip through the cracks in our regulatory structure.  But as long as nine years ago, there were clues something was amiss.  So why did people invest with Madoff anyway? (See How Bernie Madoff Made Smart Folks Look Dumb for an explanation.)  

The Real Take-Away from the Madoff Scandal

Courtesy of Roger Ehrenberg at Information Arbitrage

Shocked? Yes. Surprised? No. This "stuff" (scandals so shocking that they practically take your breath away) can and does happen for a variety of reasons. The Madoff scandal is so interesting not for the classic reasons – abhorrent due diligence practices by fiduciaries, basing enormous financial decisions on the word of friends, wanting to be part of an "exclusive" club, etc. – but for the gaps it highlights in our regulatory apparatus.

Hedge funds, the purported touchstone of the unregulated entity, are far more regulated and subject to many more checks and balances than Madoff every was. I’ve long made the argument that hedge funds are actually heavily regulated, not directly but indirectly through their relationships with the heavily regulated prime brokers. Forget about the negative PR and spin – it’s true. Prime brokers have full transparency into the books of hedge funds, contribute data to the reporting of Net Asset Value (NAV), which is generally pumped out by the hedge funds’ administrator. There is a further layer of protection offered by the hedge fund’s auditor. Unless everyone is in cahoots it is pretty hard to see how a hedge fund is systematically mis-reporting NAV (except with repect to illiquid assets, but this is another issue entirely).

Some of the biggest non-market risks of hedge funds include style drift (veering from the strategy outlined in the prospectus, such as when Amaranth’s natural gas trades ceased to make it a multi-strategy fund), creeping illiquidy (taking advantage of the illiquid asset carve-out in the prospectus only to see the value of the liquid assets fall, resulting in a prospectus-breaching concentration in illiquids), overuse of side pockets (concentrated, balky public positions that don’t fall under the rubric of illiquids yet result in a similar risk profile) and manager fatigue ("If I’m down 50% and it will take me years to dig out from under my high water mark, I’ll just shut

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Ponzi, Madoff, Falling For It

Amazing story about Madoff and all that money that may have evaporated.  I know $50B may not seem like much anymore (as we keep hearing about trillions in bailouts!) but the last few months may have warped our perspective. The Financial Ninja, Ben, discusses the Madoff operation with a general introduction to the Ponzi way of life.   

Ponzi Schemes, Madoff and Falling For It Everytime

Courtesy of Ben, The Financial Ninja

Greed makes you do stupid stupid things…

This story has been well covered by other bloggers so I won’t get into it except to say that Ponzi schemes are so simple I’m always amazed at how people get sucked into one. Sometimes whole countries get sucked into massive Ponzi schemes.

For example, in 1997 Albanians actually rebelled when a giant Ponzi scheme imploded in The Lottery Uprising.

Now you may think to yourself, "Ha! But I’m way smarter than the smartest Albanian. I would never get sucked into a giant Ponzi scheme."

You’d be wrong off course. What did you think these were:

1) The Internet Bubble?
2) The Real Estate Bubble?
3) The Commodities / Oil Bubble?
4) The Credit Bubble?
5) The Emerging Market Bubble?

You see, these were all gigantic Ponzi schemes. The definition of a Ponzi scheme is: “A fraudulent investment operation that involves promising or paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi.[1] A Ponzi scheme has similarities with a pyramid scheme though the two types of fraud are different.”

That also pretty much describes the Anglo-Saxon way of life to me.

Madoff Securities’ Auditor Generated ‘Red Flags’ (Update1): “Aksia LLC, an adviser to hedge fund investors, warned clients not to put their money with Bernard Madoff after learning of “red flags” at his company, including that its books were audited by a three-person accounting firm.

Bernard L. Madoff Investment Securities LLC used Friehling & Horowitz, an auditor operating out of a 13-by-18 foot location in an office park in New York City’s northern suburbs. Madoff was charged by federal prosecutors yesterday with running what he said was a $50 billion Ponzi scheme. The auditor signed off on Madoff’s annual financial…
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THE WEEK THAT WAS 12/8-12/2008

We began the week with a follow through move on Monday as Obama’s proposed infrastructure program gave the market a lift as the DOW closed up 298 points.  I issued a market alert on Monday calling for a pullback.
Tuesday we pulled back as predicted and closed down 243 points on the DOW due to poor [...]


For the short term, we are still in a channel.  However, the market’s strength in the face of ugly news is very impressive.  We ended the session on Friday with a modest gain but we formed a “Bullish Harami, Hammer”  I feel that in the next few sessions we will go higher to test the [...]



This is a combination strategy that is very popular amongst traders and is represented by many to be an ultra conservative strategy.  The position has risk and in fact, its’ synthetic equivalent is a naked put.  You will see from the risk graph, that the covered call is identical to the [...]

THE WEEK THAT IS TO BE 12/15-19/2008

MONDAY 12/15
NY Empire State Index, Net Foreign Purchases, Capacity Utilization, Industrial Production
Building Permits, Core CPI, CPI, Housing Starts, FOMC Policy Statement
Crude Inventories
Initial Claims, Leading Indicators, Philadelphia Fed
FRIDAY 12/19
MONDAY 12/15

Intervention Time For Hedgistan

Here’s a post by StockJockey commenting on the hedge fund of fund industry. 

Intervention Time For Hedgistan

Courtesy of   StockJockey, at 1440 Wall Street 

The saga today with Madoff pretty much throws a cherry on 2008…it has been brutal.

Hedge fund of funds are proving to be the biggest losers from the events of the past few months. Yes, there are some that earn their keep, but the days of many khaki-wearing lemmings that populate the industry are over. Fairfield Greenwich epitomized the worst of the bunch; it is remarkable how many of these funds piggybacked each other into funds, assuming someone else’s due diligence sufficed. They passed on many great up and comers, using excuses not to allocate money to them because of operational issues, etc.

If some of the feeder funds did not lose enough money with Madoff to put them out of business, the fact they had placed money with him might be enough to do them in. David Faber is reporting that even "Sandra Manzke" had money with Madoff; which is the last thing I would expect.

Many will be toast by this time next year, as the alternative industry goes "back to basics". Citadel is retrenching, and might soon resemble an old-style $10 billion long/short fund more than Goldman Sachs circa 2006. Other managers are pulling back as well, keeping it simple in a return to their roots:

Louis Bacon, 52, has stopped making private-equity investments and is pulling money from most of the external managers that he used to help run his $9 billion Moore Global Investments fund. The fund, like Jones’s, started in 1990 as a macro fund.

He now has concentrated his equity investments among a smaller number of in-house stock-pickers with proven records of generating a return when prices fall or rise, and put more money with his macro traders. Bloomberg

And while it is unlikely we will return to 1995, when many small hedge funds could accurately be described as “3 guys and an ashtray” packed into an 800 sq.ft. office at 230 Park Avenue, the gravy train is all but over.

And people are talking advantage of the carnage, offering “rehabilitation services” in the latest sign of the times:

Epitome Global Services is offering up a hedge fund rehabilitation platform to advise and assist troubled funds.

Epitome says hedge funds and funds of hedge funds affected by…
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Zero Hedge

Americans' Economic Hope Has Collapsed

Courtesy of ZeroHedge. View original post here.

Which came first, the confidence or the stock market rally?

One thing is for sure, the crash in stocks in December has crushed the hope of Americans that their economic future is going to be better under President Trump.

Overall confidence dipped to 58.1 - a 4-month low, but, U.S. consumers this month were the most downbeat on the economy since November 2016, a third straight drop after expectations reached a 16-year high just three months earlier, as the partial government shutdown wears on toward a fourth week.


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Kimble Charting Solutions

Triple Breakout Test In Play For S&P 500!

Courtesy of Chris Kimble.

Is the rally of late about to run out of steam or is a major breakout about to take place in the S&P 500? What happens at current prices should go a long way in determining this question.

This chart looks at the equal weight S&P 500 ETF (RSP) on a daily basis over the past 15-months.

The rally from the lows on Christmas Eve has RSP testing the top of a newly formed falling channel while testing the underneath side of the 2018 trading range and its falling 50-day moving average at (1).

At this time RPS is facing a triple resistance test. Wil...

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Phil's Favorites

Brexit deal flops, Theresa May survives -- so what happens now?


Brexit deal flops, Theresa May survives -- so what happens now?

Courtesy of Victoria Honeyman, University of Leeds

As the clock ticks down to March 29 2019, all of the political manoeuvring, negotiating, arguing and fighting is coming to a peak. In the two and a half years since the 2016 EU referendum, views on both sides have hardened and agreement still seems as far away as it was the day after the referendum.

With Theresa May’s withdrawal agreement disliked by all sides, and voted down by an unprecedented majority in the House of Commons, everyone is wondering what can and should be done next?


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Digital Currencies

Crypto-Bubble: Will Bitcoin Bottom In February Or Has It Already?

Courtesy of Michelle Jones via

The new year has been relatively good for the price of bitcoin after a spectacular collapse of the cryptocurrency bubble in 2018. It’s up notably since the middle of December and traded around the psychological level of $4,000... so is this a sign that the crypto market is about to recover?

Of course, it depends on who you ask, but one analyst discovered a pattern which might point to a bottom next month.

A year after the cryptocurrency bubble popped


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D.E. Shaw Investment Calls For Leadership Change At EQT

By ActivistInsight. Originally published at ValueWalk.

Elliott Management has offered to acquire QEP Resources for approximately $2.1 billion, contending the oil and gas explorer’s turnaround efforts have done little to lift the company’s share price. The company responded and said that a thorough review of the proposition is imperative in order to properly act in the best interests of shareholders, “taking into account the company’s other alternatives and current market conditions.” The news came only a month after Travelport Worldwide agreed to sell itself to Siris Capital Group and Elliott’s private equity arm Evergreen Coast Capital for $4.4 billion in cash and two months after Athenahealth was bought by Veritas and Evergreen for $5.7 bi...

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Insider Scoop

UBS Says Disney's Streaming Ambition Gives It A 'New Hope'

Courtesy of Benzinga.

Related DIS Despite Some Risks, Analysts Still Expecting Double Digit Growth From Communications Services In Q4 ... more from Insider

Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...

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Members' Corner

Why Trump Can't Learn


Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...

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Opening Pandora's Box: Gene editing and its consequences

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


Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.


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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...

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Swing trading portfolio - week of September 11th, 2017

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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Free eBook - "My Top Strategies for 2017"



Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:


·       How 2017 Will Affect Oil, the US Dollar and the European Union


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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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