Posts Tagged ‘Financial Services’

The Age of The Trader

The Age of The Trader

Courtesy of Edward Harrison at Credit Writedowns 

I have written a number of posts which point to a shift in the center of power on Wall Street from the client-facing advisory business to the market-making trading business. I think understanding this shift is vital to understanding what caused the financial crisis and to understanding the defense that Goldman Sachs has proffered for its actions in the Abacus AC1 deal.

What has happened is that major international investment banking groups have taken on a sales & trading ethos of caveat emptor where once the client was king. In my view, this is a direct result of the rise of securitization, structured products and derivatives as a profit center in financial services and is the major contributor to Wall Street’s new unfortunate public image as a casino.

I took on different aspects of this shift in these posts:

I suggest you read them to get more colour on various aspects of Wall Street culture which have eroded the ethics of bankers and led to self-preservation over client-focus.

Here’s the statement in all of those posts I want to dwell on. It came in my post on Goldman’s earnings announcement from July of last year. I wrote:

The Goldman press release is here.  What I find notable is the order in which the press release presents the earnings, with a statement on the advisory business first, followed by equities and then fixed income even though fixed income was where the most revenue and profit came.  That is revealing – and shows Goldman execs still consider the advisory business of relatively more importance from a reputational perspective. (emphasis added)

Reputation is one thing, reality is another. Former banker turned journalist Bill Cohan gets at the heart of this in his recent blog post "Goldman: Still Greedy, No Longer Patient." He writes:

Once upon a time, Goldman Sachs’ raison d’etre was to serve the ongoing needs of


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America Just Declared The Recovery Over So You’d Better Get Ready For The Double Dip

America Just Declared The Recovery Over So You’d Better Get Ready For The Double Dip

Courtesy of John Carney at Clusterstock/Business Insider  

american america flag usa u.s. us stars and stripes

Today’s bleak consumer confidence number is undoubtedly bad news for the economy. The bigger than expected drop suggests that consumers have lost confidence in the recovery, which will drive down home prices and consumer spending.

Consumer confidence is typically our "first look" at the state of the economy. While most government aggregated data come out with a two-month lag, or more, consumer confidence hits with just a one month lag. Studies have shown that consumer confidence is a good predictor of consumer spending numbers. Basically, people surveyed seem to be good at accurately reading their own economic situation, and those surveyed accurately reflect the broader economy. When consumer confidence drops to such deep unexpected levels--today’s were the worst in 27 years--then it is a flashing red-light about the economy.

There wasn’t anything good about today’s numbers. Every part of the survey was awful. On jobs, the optimistic folks who say jobs are plentiful fell to 3.6 percent from 4.4 percent. The pessimistic people who said jobs are hard to get increased to 47.7 percent from 46.5 percent. The gauge of expectations for the next six-months fell to 63.8, from 77.3 the prior month. The share of people who believe their incomes will increase over the next six months fell to 9.5 from 11 percent. The share of those expecting more jobs fell to 12.4 percent from 15.8 percent.

The message: the economy sucks.

The recovery we were supposed to have.
You’ll read a lot about how the consumer confidence numbers are a lagging indicator. Indeed, they are a lagging indicator when measured against the stock market. The real time data conveyed by the stock market is often a better indicator than any survey or government data. But that doesn’t mean you shouldn’t pay attention to the consumer confidence number, especially since stocks have declined for most of this year. 

Lets be clear here. The story-book recovery was dependent on a recovery of the consumer and a decline in the saving rate. If consumers lost some of their apprehension about future income prospects and future employment, they might begin to spend more on both retail goods and to purchase homes again. Anticipating this return of the consumer, businesses would increase capital spending and inventory.  

We got half of that equation. Business spending…
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‘Low Cost’ ETFs Actually Cost Investors More Than Some Hedge Funds

‘Low Cost’ ETFs Actually Cost Investors More Than Some Hedge Funds

Courtesy of Vincent Fernando at Clusterstock/Business Insider

Devil Fire Costume

ETFs bill themselves as low-cost alternatives to standard mutual funds or even hedge funds. The idea is that their management fees are lower and trading costs are low since you can simply buy and sell them easily through a discount online broker. 

But here’s the problem --  it’s only true if ETFs are actually tracking their benchmarks effectively. Unfortunately they aren’t.

WSJ:

In 2009, ETFs missed their targets by an average of 1.25 percentage points, a gap more than twice as wide as the 0.52-percentage-point average they posted in 2008, according to a study of ETF returns released this week by Morgan Stanley.

Part of this so-called tracking error stems from the recent proliferation of ETFs targeting exotic investments or areas where trading is less frequent, such as emerging-market stocks and junk bonds.

Last year, 54 ETFs showed tracking errors of more than three percentage points, up from just four funds the prior year. And a handful of the 54 missed by more than 10 percentage points.

1.25% is more than the management expense of some actively managed funds, or some hedge funds even (before performance fees).

We think ETFs are great for tracking broad, liquid benchmarks such as the S&P 500 where they are likely to be worthwhile in terms of cost and trading ease. But ETF products for niche investments are highly suspect. The more illiquid investments the worse off ETF investors will be, especially since savvy traders will likely be able to line up and pick-off trades ahead of the ETF. 

For anything niche, investors are probably better off with old fashioned mutual funds once all of their real expenses are factored in.

Yet we’re fully aware of the fact that expenses of an ETF such as the above are near-invisible, especially if someone is been trading in and out of an ETF. So we’ll expect investors to keep lapping these products up. In investment management, products with the least visible expenses, and best ability to avoid blame, win.

(Tip via Abnormal Returns)


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Now See What Banks Are Really Doing With Your Tax Dollars

Now See What Banks Are Really Doing With Your Tax Dollars

chartCourtesy of Joe Weisenthal at Clusterstock/The Business Insider  

What are banks doing with the billions upon billions of dollars they’ve taken from the taxpayer?

The St. Louis Fed has just updated its latest data on bank health and activity, and the charts paint a great picture of what’s really going on in our banking system.

The bottom line: lending is still tanking (unless you count lending to the government)

See the whole story of the banking system >

 


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Traders Churning Derivatives Like Never Before As Volume Soars 20%

Traders Churning Derivatives Like Never Before As Volume Soars 20%

Courtesy of Vincent Fernando at Clusterstock/Business Insider

Anyone who thinks that the business of derivatives ended with the financial crisis had better check out the recent trading volumes released by the derivatives exchange company CME Group.

Just this January, total derivatives trading volume shot up 19% year over year, with particularly feverish activity in interest rate derivatives (for fixed income, Up 33%), foreign exchange derivatives (Up 78%), and metals derivatives (Up 65%).

Traders are loving derivatives like never before:

Chart

Also, keep in mind that CME Group just began clearing infamous credit default swaps (CDS), which comprise an enormous market for further trading growth. The sky’s the limit, until it comes crashing down again.

See the CME Group release here >


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Financial Services: From Servant to Lord of the Economy

Financial Services: From Servant to Lord of the Economy

Close-up of a rolled up Indian one hundred rupee banknote on a chessboard with chess pieces

Courtesy of Jesse’s Café Américain

Here is an interesting chart that shows the ascendancy of the financial sector in the US.

Commercial banking is largely an administrative function, with a few highly paid decision makers, and many lower paid functionaries and clerks that make a decent if unspectacular wage commensurate with a utility function.

Starting with the Reagan privatization revolution, the finance sector began to grow in importance, moving from a utility serving the capital distribution and storage needs of the real economy taking a relatively small percentage of real output, to a dominant force in the national decision making process, controlling the allocation of capital through its powerful influence and lobbying in Washington, placement of its supporters in political positions of power, and the consolidation of the mainstream media into an oligopoly of four or five major corporations.

Now we have a financial sector dominated by a relatively few number of multinational corporations that are certainly not utilities serving the productive economy. In reality the big multinational banks have become hedge funds speculating in a broad range of markets, often in competition if not contrary to the interests of their customers, relying on other people’s money for capital to sustain an outsized leverage and a steady stream of rents and speculative winnings, and to cushion any losses in the event of the occasional market downturns.

And if we do not give the banks their demands, if we do not maintain the status quo, then they threaten that they cannot protect the world from financial ruin and a collapse of the money system, which they themselves control. And this is no mere extortion, no corruption of a single party or person, but the foundation of an enduring modern tyranny.

“Single acts of tyranny may be ascribed to the accidental opinion of a day; but a series of oppressions, begun at a distinguished period and pursued unalterably through every change of ministers, too plainly prove a deliberate, systematic plan of reducing a people to slavery." Thomas Jefferson

 


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Government Screwing Savers, Retirees To Keep Secret Wall Street Bailout Going

Government Screwing Savers, Retirees To Keep Secret Wall Street Bailout Going

Courtesy of Henry Blodget at The Business Insider

gethosed.pngAs PIMCO’s Bill Gross notes in this NYT article on zero-percent interest rates, the Fed’s ongoing Wall Street bailout is coming at a cost: Anyone who has any cash savings is getting screwed. 

This includes retirees who did exactly what they were supposed to do--save.  Their incomes are now getting clobbered.

Meanwhile, for those who prefer to borrow money, the ongoing bailout has created the world’s easiest way to make $1 billion.  Borrow short-term from the taxpayers and lend the same money back to the taxpayers--and get a guaranteed risk-free spread.

Here’s Bill Gross:

“What the average citizen doesn’t explicitly understand is that a significant part of the government’s plan to repair the financial system and the economy is to pay savers nothing and allow damaged financial institutions to earn a nice, guaranteed spread,” said William H. Gross, co-chief investment officer of the Pacific Investment Management Company, or Pimco. “It’s capitalism, I guess, but it’s not to be applauded.”

Mr. Gross said he read his monthly portfolio statement twice because he could not believe that the line “Yield on cash” was 0.01 percent. At that rate, he said, it would take him 6,932 years to double his money.

See Also: How To Make The World’s Easiest $1 Billion

 


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The Harvard-Goldman Filter Keeps Too Big To Fail Banks Intact

The Harvard-Goldman Filter Keeps Too Big To Fail Banks Intact

harvard commencementCourtesy of John Carney of Clusterstock/Business Insider

Arnold Kling explains why our political leaders won’t break up the Too Big To Fail banks:

My answer to both relates to what I call the Harvard-Goldman filter.

The Harvard-Goldman filter works like this.

1. To get into a position of power, you have to pass through a filter. The easiest way to show that you can pass through the filter is to go to Harvard and then work for Goldman.

2. If you do not go to Harvard and work for Goldman, then you have to show that you can get along with people who did.

3. The best way to show that you can get along with people who pass the Harvard-Goldman filter is to show that you believe in applying the Harvard-Goldman filter.

Why was Tim Geithner regarded as such an obvious, in fact necessary, choice to be Treasury Secretary? Because he satisfies the Harvard-Goldman filter, particularly point (3). He is not going to bring people from the wrong social caste into the policymaking arena.

 


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Second mortgage debt collections

Two articles on collections of second mortgage debt being attempted, prior to resolution of the first mortgage. Justice BrandeisNormally, first mortgages have priority, but it appears owners of second mortgage obligations – debt collection agencies – are cutting ahead and demanding payback early and then using questionable tactics to accomplish their goals (e.g., filing suit without giving notice). – Ilene  

Decency, security, and liberty alike demand that government officials shall be subjected to the same rules of conduct that are commands to the citizen. In a government of laws, existence of the government will be imperiled if it fails to observe the law scrupulously. Our government is the potent, the omnipresent teacher. For good or for ill, it teaches the whole people by its example. Crime is contagious. If the government becomes a lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy.  Justice Louis Brandeis

Debt Collectors Raiding Coffers Of Homeowners With Second Mortgages

By Vince Veneziani, courtesy of Clusterstock

foreclosureAmericans who decided to take out a second mortgage on their home who are now underwater are in big trouble. In fact, they may finding their bank accounts empty and their paychecks dwindling in the near future:

Housing Doom: Josh Zinner of the Neighborhood Economic Development Advocacy Project in Manhattan said some lenders or trusts for banks that went out of business are selling off second mortgages today to debt collectors for pennies on the dollars. Those debt collectors are then going after the homeowners’ bank accounts or pay checks to recoup whatever money they can.

And if a bank or debt collection agency goes after you, for god’s sake, respond to the complaint in a timely manner:

Perhaps in part because they are not notified, people sued in New York City often fail to appear in court to protect their interests, according to a study released last year by MFY Legal Services, a nonprofit law firm in New York.

MFY found that just seven law firms filed nearly one-third of all the cases seeking to collect $25,000 or less in


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JP Morgan: Stop Freaking Out, The UAE Can Easily Save Dubai

Good morning!  Hope everyone had a great Thanksgiving. – Ilene

JP Morgan: Stop Freaking Out, The UAE Can Easily Save Dubai

Dubai - tbi Courtesy of Vincent Fernando at Clusterstock

Kian Abouhossein at J.P. Morgan delivers some excellent insight into the Dubai crisis. The wealthy UAE will be able to easily bail out Dubai if need be, this time. It just might not be so optimistic to do so in the future.

We are less concerned for global banks about Dubai World’s direct $59bn outstanding debt exposure with $4.3bn due to mature in Dec-09 and a further $4.9bn in 1Q10, considering “only” $13bn of syndicated loans across global banking sector based on Dealogic data. Assuming a 10% “hold” strategy, the most exposed banks would be RBS with $0.23bn, DB and CS with $0.17bn each.

The view from our MENA team is that this event reflects cash flow challenges rather than refinancing ability. They believe that obligations on Dubai World and its property unit Nakheel PJSC are likely to be fulfilled at the new May 2010 earliest repayment date, and that Dubai should be eventually be able to fulfill its debt obligations maturing in the short-term ($4bn in Dec-09, relating to Dubai World, and $9 to $10 in 2010) with continued Abu Dhabi support. Abu Dhabi is strong financially with fiscal and current account surpluses, ~$150bn in FX reserves and a ~$300bn sovereign wealth fund. However it seems that Abu Dhabi will no longer be happy to underwrite all debt, and rather will differentiate more strongly between supporting Dubai’s strategically important assets (such as DEWA, and Dubai Ports), and the non strategic assets – hence the concurrent timing of the Dubai World debt restructure and the Abu Dhabi underwritten government of Dubai debt raising.

Here’s one rough measure of relative bank exposure to Dubai, based on Dubai World syndicated loans since 2007. Overall, JP Morgan believes the exposures are relatively small compared with the major banks involved.

jpk

Here’s probably a better estimate of relative exposure, by loans made to the UAE as a whole. The amount of direct loan exposure to Dubai specifically, within this UAE-wide figure, are apparently very difficult to know.

jpg

Conclusions for some of the major banks exposed:

jpj

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Overall


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Phil's Favorites

Brexit: wisdom of crowds proves effective predictor of Britain's chaotic EU departure

 

Brexit: wisdom of crowds proves effective predictor of Britain's chaotic EU departure

Shutterstock

Courtesy of Aleks Berditchevskaia, Nesta and Kathy Peach, ...



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Zero Hedge

Facebook Won't Say Whether Banned Individuals Can Use Libra Despite Claiming To Be 'Politically Neutral' 

Courtesy of ZeroHedge. View original post here.

Facebook's second day of Congressional hearings over Libra was by most accounts a total debacle - between Rep. Carolyn Maloney (D-CA) suggesting that the social media giant 'shouldn't launch' the cryptocurrency - as new currencies should be 'left to democratically accountable institutions,' and another lawmaker accusing the company of 'winging it.' 

"Would you trust your money with a company that is just winging it?" She isn't buying w...



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Kimble Charting Solutions

Aussie Dollar About To Send Bullish Message To Precious Metals?

Courtesy of Chris Kimble.

The Australian Dollar and its ETF (NYSEARCA: FXA) have traded sideways for much of the past 4 years (see blue shaded area on chart above).

And since the Aussie Dollar and precious metals are highly correlated, this hasn’t helped gold and silver.

But this setup may be changing soon as a big test comes into play for the AU$.

It is currently testing falling resistance on a bullish falling wedge pattern.

If it succeeds in breaking out at (1), it will send metals and commodities a short-term bullish message. Stay tuned!

This article was first writ...



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Insider Scoop

Cannabis Stocks Gainers And Losers From July 17, 2019

Courtesy of Benzinga.

Read more about our latest Cannabis News! CANNABIS HOME Gainers
  • Aurora Cannabis (NYSE: ACB) shares rose 3.49%, to close at $7.41.
  • Aphria (NYSE: APHA) shares increased by 3.97% to close at $6.55.
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Digital Currencies

Bitcoin Breaks Back Below $10k, Crypto-Crash Accelerates As Asia Opens

Courtesy of ZeroHedge. View original post here.

Update 2010ET: Having briefly stabilized after this morning's weakness, cryptos are tumbling once again as Asian markets open.

Bitcoin has broken below $10,000 again...

*  *  *

While all eyes are on Bitcoin as it slides back towards $10,000, the real mover in the last 12 hours has been Ethereum after...



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Biotech

DNA testing companies offer telomere testing - but what does it tell you about aging and disease risk?

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

 

DNA testing companies offer telomere testing – but what does it tell you about aging and disease risk?

A telomere age test kit from Telomere Diagnostics Inc. and saliva. collection kit from 23andMe. Anna Hoychuk/Shutterstock.com

Courtesy of Patricia Opresko, University of Pittsburgh and Elise Fouquerel, ...



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ValueWalk

Professor Shubha Ghosh On The Current State Of Gene Editing

 

Professor Shubha Ghosh On The Current State Of Gene Editing

Courtesy of Jacob Wolinsky, ValueWalk

ValueWalk’s Q&A session with Professor Shubha Ghosh, a professor of law and the director of the Syracuse Intellectual Property Law Institute. In this interview, Professor Ghosh discusses his background, the Human Genome Project, the current state of gene editing, 3D printing for organ operations, and gene editing regulation.

...

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Chart School

Gold Gann Angle Update

Courtesy of Read the Ticker.

Charts show us the golden brick road to high prices.

GLD Gann Angle has been working since 2016. Higher prices are expected. Who would say anything different, and why and how?

Click for popup. Clear your browser cache if image is not showing.



The GLD very wide channel shows us the way.
- Conservative: Tag the 10 year rally starting in 2001 to 2019 and it forecasts $750 GLD (or $7500 USD Gold Futures) in 10 years.
- Aggressive: Tag the 5 year rally starting in 1976 to 2019  and it forecasts $750 GLD (or $7500 USD Gold Futures) in 5 years.

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

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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Promotions

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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