(NYTimes) $GJN, “The security in question was extraordinarily complex in its name and its details, but simple in its selling points. It was marketed in $25 units, a popular price point for debtlike securities sold to individual investors, and it promised monthly interest payments for as long as 30 years, at which point the investor would get the $25 back. Those interest payments would fluctuate with interest rates on Treasury bills, but could not go below 3 percent a year or above 8 percent.”

“Wells Fargo, the bank behind the security, now says that anyone who had read the prospectus should have understood that disaster was looming in June, when news related to the security was disclosed. But that disclosure — I’ll get to the details in a minute — had the opposite effect on the market. In New York Stock Exchange trading, the price leapt higher, on heavy volume, and stayed there for weeks.”

“The price per share was $24.88 on July 12, when trading was halted as investors learned they would get just $14.69 a share. Trading never resumed. .. The difference between market expectations and realities boiled down to one fact: Wells Fargo concluded it was entitled to a payment of $10.69 a share to compensate it for the profits it would have made over the next 23 years had the security not been redeemed.”

“That was disclosed, on Page S-12 of the prospectus supplement, and investors were warned that ‘this loss could be quite substantial.’ Wells Fargo thinks that was perfectly adequate disclosure, even though no examples were given to indicate the possible magnitude of the termination payment.”

” ‘It was a very conservative security,’ said one investor, a computer science professor who lost money on an investment he had thought was ‘a very nice, Grandma type” of security.’ ”

” .. The bank had hedged its own exposure to that swap, she said, and it lost money on that hedge. “Substantially all of that payment was used in connection with unwinding hedges,” she said of the $10.97 a share Wells Fargo received. She  said the ‘securities were structured to meet investor demand at the time’ they were issued, ‘and the circumstances governing termination were fully disclosed to investors.’  She added that Wells Fargo might have had to pay money to investors on the swap if it had been terminated when interest rates were high, meaning the investors could have gotten a windfall instead of large losses. That strikes me as protesting too much. Under those circumstances, JPMorgan would not have wanted to redeem its security, and would not have done so. ”

So, if rates went UP, meaning that there was almost no chance of JP Morgan calling in the security early, investors might have MADE money?!  Sounds like their “hedge” was put on diametrically opposed to any common sense whatsoever.

“Ed Hall, a lawyer and blogger who has written on Strats — and who brought the security to my attention — says he thinks it is obvious that the investors had no understanding of the risks. “Wells needed to place a clear warning at the start of the prospectus, rather than buried deep in the prospectus,” he said.”

Full Story: Buried in Details, a Warning to Investors (NYTimes)

(Stocks, Bonds & Politics) “If an adequate warning had been placed in bold and large type at the beginning of the prospectus, WFC/Wachovia would not have been able to sell those certificates to the public at $25. The deal would not have gotten off the ground. There may be a statute of limitations issue, but I seriously doubt that the average individual investor could have reasonably foreseen the events that led up to their loss of capital until WFC took their money in mid-July 2012. On that issue, it is relevant that GJN was trading near $25 up to the time of its delisting.” — Wells Fargo-GJN-Securities Act of 1933

“I have committed fraud. For this I feel constant and intense guilt. .. Through a scheme of using false bank statements I have been able to embezzle millions of dollars from customer accounts at Peregrine Financial Group, Inc. The forgeries started nearly twenty years ago and have gone undetected until now. I was able to conceal my crime of forgery by being the sole individual with access to the US Bank account held by PFG. No one else in the company ever saw an actual US Bank statement. … I had no access to additional capital and I was forced into a difficult decision: Should I go out of business or cheat? I guess my ego was too big to admit failure. So I cheated, I falsified the very core of the financial documents of PFG, the Bank Statements. .. I also made forgeries of official letters and correspondence from the bank, as well as transaction confirmation statements.”

“Using a combination of Photo Shop, Excel, scanners, and both laser and ink jet printers I was able to make very convincing forgeries of nearing every document that came from the Bank. I could create forgeries very quickly so no one suspected that my forgeries were not the real thing that had just arrived in the mail.”

“When it became a common practice for Certified Auditors and the Field Auditors of the Regulators to mail Balance Confirmation Forms to Banks and other entities holding customer funds I opened a post office box. The box was originally in the name of Firstar Bank but was eventually changed to US Bank. I put the address “PO Box 706, Cedar Falls, lA 50613-0030″ on the counterfeit Bank Statements. When the auditors mailed Confirmation Forms to the Bank’s false address, I would intercept the Form, type in the amount I needed to show, forge a Bank Officer’s signature and mail it back to the Regulator or Certified Auditor.

When online Banking became prevalent I learned how to falsify online Bank Statements and the Regulators accepted them without question.”

Full PFG Affidavit (including part of the suicide note): PFG Affidavit (Scribd)

——————–

PFG once again proves that not only is the Sanctity of Segregated Funds “guideline” all but dead, but that it was really just a myth all along. Far be it for regulators to pick up a phone just once over a 20 year period and speak with an actual representative of the bank to confirm the existence of hundreds of millions of dollars.

But perhaps the most frightening thing about all these blowups using client capital, is that by the time this is all over, with so many firms secretly reaching for yield any way they can since interest rates have been stuck at 0%, how many more funds, companies, clearing firms, and brokerage houses blow up before all is said and done. And even if they get away with it for a while, I can’t imagine what hell will break loose once interest rates start climbing again in the U.S. (as they have in Greece, Italy, Spain, etc). Unfortunately, there’s still no way for the average person to tell who’s gonna get caught with their pants down once the tides turn. And while I don’t very much trust the FDIC or SIPC either (especially if many institutions all collapse simultaneously), it’s still better than nothing if regulators want to hold to the claim of actually somewhat protecting innocent customers. Just ask some of Madoff’s ex-clients.

Often times such blowups start with the coverup of a smaller loss (or some kind of “reaching for yield” or “naked hedge” scenario that backfired). The CEO figures he’ll be able to “kick the can” down the road long enough to figure out how to dig out of the hole (hey, the government does it all the time, so why can’t we all)! Perhaps he can outgrow the “discrepancy” over time and glaze it over. Such wishful thinking inevitably leads to even bigger failures and blowups (just like repeatedly lending more money to defunct countries who have absolutely no way to pay it back or even print their way out of it).

But perhaps the government can pass some new laws, rules, and regulations, and create a few new oversight bureaus, to make sure the original oversight commissions enforce the laws, rules, and regulations already in place.

So far, clients of these firms would have likely faced less risk had the government simply told them “caveat emptor”: realize that any firm where you entrust your hard-earned money could disappear with it overnight, so diversify wisely… And if you do get caught up in one of these frauds, hopefully your money went to help some other “poor” politically-connected bankster stay afloat and save the economy while you go back to eating cake…

In late 2011, once the market bounced off its early October lows, there was increasing chatter over how it’s probably too early for a real full-blown European debt crisis at that point in time, and how the “powers that be” would likely run the market higher into the new year.  But, the real “tell” would be how the markets behaved come the new year, and that’s when all hell would likely break loose all over again.  I too began to think that while the rest of 2011 may lead to a good bounce in the markets, early 2012 could bring back some real turmoil.

Then a thought struck me.  Between all the blog posts, newspapers, and television media pundits calling for a “let’s see how January goes” moment – hey, even I myself was thinking the same thing…  What if, with all of us worrying over that same possibility, January turned out just fine – a perfect “non-event”?  And heck, even Ben Bernanke was probably worried about the new year, and we all know what that leads to: more cheap money and credit would likely be dumped right back into the markets at the first hint of trouble.

So as 2011 came to a close, while I did sell a few positions just in case, I decided to leave most of my longer-term positions as is.  And, while hindsight is always 20/20, that did turn out to be a great decision.  Of course, we never know for sure, and that’s why traders and investors must consistently practice sound risk management.  One must always protect against the times we miss.  And it not only serves to protect and preserve your bankroll, but it also helps provide the clarity and peace of mind necessary – an edge in itself – to properly consider and evaluate the information available to you. Worrying if your over-leveraged position might blow up in your face is not going to help you make a smart decision.

Traders and investors alike must always be open to taking every piece of relevant information into consideration, including our own preconceived notions and biases.  As Ray Dalio of Bridgewater Associates once said “I constantly want to know what I don’t know.  I want to know when I am wrong.  And it helps when someone points it out.”  While it certainly helps if someone else points it out, we can also objectively look at our own thought process, feelings, and emotions and consider how they too may be wrong or dangerously biased.  This in itself becomes part of a valid trading edge.  Everything counts, and we are often our own worst enemy in most endeavors we pursue.  As in playing chess or poker, those players who patiently take a step back in order to “see the bigger picture” and contemplate the best moves will, in the long-run, always triumph over those less savvy players just itching to make a move.

We should always ask ourselves what do other traders think they know.  What are they worried about or afraid of and to what extent?  Am I starting to feel worried or nervous myself, and are these thoughts rational and based on sound reasoning?  There was a great line in the movie Margin Call when CEO Tuld (played by Jeremy Irons) says “It’s not panicking if you’re the first one out the door.”  Granted, no one (and no firm) should ever be leveraged to that extent in the first place, but from his “clear” perspective the mortgage game was up.  And you certainly don’t want to be the one panicking out at the bottom of a move, with or without margin calls over your head.

Am I afraid that if don’t buy some stock tanking like a “falling knife” right now, I’ll miss the huge bounce coming right around the corner?  Is it possible many other traders are thinking the same way?  The reality is that it’s rarely “too late” to get a better price when buying into a crashing stock.  When the price action settles down, stabilizes, and starts to rebound, the stock will probably still be priced below your initial entry.  Sometimes our own feelings can give us strong clues as to what the “crowd” is thinking as well.  There was no need to predict ahead of time that October 4^th, 2011 would be the low of the last crisis and panic.  However, through awareness of our own feelings, astute observation into the collective thoughts of others, and by watching the price action in relation to the current headlines, we are continually provided with clues as to what is more likely to happen next.  For example, each time new headlines appeared about Greece and its debt problems, the chatter they generated seemed to lead to increasingly complacent market action and behavior.  There would be short-lived dips that would quickly recover, as if no one really cared any more.

And more recently, how has the market reacted as we’re hitting new multi-year highs?  Ironically, the VIX (fear) index (and even more so, the publicly traded VXX index based on the VIX futures) has been acting more fearful of a potential coming crash the higher the market goes.  Markets don’t generally crash right after making new highs, unless they’ve just gone through a high-volume blow-off top.  I recently read a study analyzing future market behavior when there are strong upward moves in both the VIX/VXX and the overall market in the same day.  The study showed that it has lead to even stronger upward price action in the near future.  And so far in 2012, that’s exactly how things have played out in the market.  But human behavior is not rational, and memory of the recent volatile past is still imprinted in traders’ minds.  So with each new high in the market, traders buy the VIX products expecting a crash that never materializes, and are then hit over the head with some of the highest levels of contango (the huge cost of rolling over current futures and options contracts to the next month) the VIX market has ever experienced.  And of course, traders are also greeted with another leg up in the market as well.  Never has it been easier for me to explain or visualize the term “climbing a wall of worry”.

In reality, it is the unexpected shocks that lead to the most “real” fear.  Especially where credit and leverage is concerned, it is these quick shocks that are most likely to catch firms (such as MF Global) unprepared and caught with their pants down.  But the more time that goes by with an event in the forefront, the longer the world has to deal with it, adjust by preparing for the worst, and “get used to” the new norm.  Just remember back to the Japanese nuclear crisis, the BP oil spill, or even more recently, the fears over a massively understated Greek CDS credit event once the ISDA declared the Greek bond “re-pricing” a credit event.  Banks, governments, and central banks have now had upwards of eight months to deal with the possibility of messy CDS defaults.  While there were some pundits calling for the possibility of three trillion dollars worth of losses versus the three or so billion claimed, it was likely that “the powers that be” had all the time they needed to deal with these issues.  And, believe it or not, the ISDA CDS auction also came to pass without incident.  That’s not to say there aren’t plenty of roaches crawling around everywhere.  But just as Countrywide Financial and Morgan Stanley were rolled into Bank of America to perhaps conceal a much worst debacle in the sub-prime mortgage market, the “powers that be” have likely had enough time to take similar measures to deal with any more potential blow-ups in the Greek bond market (well, at least for the time being).

In conclusion, always consider all the information available to you, be aware of what you don’t know, and consider where you might be flat-out wrong.  Seek to develop the focus and patience to position yourself in the best possible way, as opposed to merely trying to capture the next small wiggle.  Instead of missing out or being incorrectly positioned, you may provide yourself a much better chance to capture a nice chunk of the real move about to appear just around the bend.

(Josh Brown / RegisteredRep) “There are some stock market land mines that will invariably destroy anyone foolish enough to stand on them for an extended period of time. .. Until you’ve been blown up by a few of these murder holes yourself, it’s hard to recognize them. Below is a list of the dark alleys you never want to wander down for your own future financial well-being. .. These alleys are strewn with various land mines, any of which could become your very own murder hole at any time. You probably won’t listen anyway, but don’t say I didn’t warn you.”

SPACs – “According to Reuters, the last big wave of 57 SPACs that debuted at the height of the credit bubble in 2007 had raised a combined $11.3 billion. That’s a whole lot of “dumb money.” The best thing that could’ve transpired for those 57 companies would have been the return of cash that occurs when the clock runs out and a deal hasn’t been consummated. In fact, there were a few hedge funds involved with some of those SPACs that were forcing that dissolution to occur using the voting power of their stock positions. .. If it weren’t so true, it would almost be laughable how horribly and slowly these things die. And by the way, many of these SPACs have been China-related in recent years. For investors, the China-SPAC combination is like being beaten up after school and then coming home to find that your parents have moved away without telling you. .. And just so you know, the investment banks that make these stepchild IPOs are almost always connected to an aggressive brokerage sales force. How else could $100 million be raised for such a hare-brained scheme?”

Chinese Reverse Mergers – “The short sellers who have attacked and unmasked the Chinese RTO fraud machine have done investors a favor in the long run. I’ve advised people to avoid the entire China stock sector until the companies grow up a bit and start acting like professionals. After all, if the legendary John Paulson can be taken in by these charlatans, what chance do you have?”

One-Drug Biotechs – “The vast majority of drug trials fail to satisfy the FDA, and approvals are the exception, not the rule. .. If you must own biotechnology, try to go with a larger company that has several drugs on the market or in development. It may not produce a 10-fold return, but it also won’t vaporize your portfolio on an FDA setback.”

Private Placements – “So I’ll tell you what happens and what will always happen when retail brokers bring their clients private banking deals. By the time a company is desperate enough to go to broker/dealers for funds, it means that it is already at the end of its rope. The retail brokers are offered a 10 percent commission to show the deal to their clients. They are also promised warrants and stock options should the company end up going public. (It won’t.) This exorbitant compensation for the brokers is a huge red flag. .. The higher the commission or selling concession a broker is paid to sell a product, the worse that product will be for his or her clients. Brokers take note: selling a client a private placement that pays you a tenth of that money back is the same thing as telling your client to go f*%k himself. And by the way, the more interesting the company, the more dangerous the private placement offering.”

Other investor traps to watch out for:

• “Oil and gas limited partnerships. (If you’re being cut in on them, the wells are dry.)
• Principal protection funds. (They always come out after the market’s been killed and cap your upside on the recovery.)
• Insurance brokers selling asset management. (Does your hairdresser also repair the roof on your house?)
• Stockbrokers selling guaranteed-return equity-linked annuities. (Yeah, that’ll end well.)
• Reverse convertibles and other structured products. (They will pit you against both the market and the banker — good luck!)
• Brokers with one day left in their pay period. (They will call you with the news that “we need to rotate and move some things around.”)
• Brokers with thick New York accents and Boca Raton area codes.
• Anyone who claims to have a “system.” (Why? Because there is no such thing, and if there were, you would be the last person to hear of it.)
• Anyone who calls himself a “financier.” (He’s guaranteed to be full of sh*t and probably wears dress shoes with no socks.)
• Financial advisors who self-clear or self-custody client funds. (Always be sure there is another pair of eyes on your money, preferably a large corporation’s.)
• Currency brokers and forex sites. (Nobody knows anything; this is all highly leveraged speculation, and the brokers are actually trading against you when you take a position.)
• Managed futures funds. (The fees are so over the top that your actual return will look nothing like the advertised return.)
• Movie investments. (The latest telemarketing scam; no studio worth investing in is going to unleash an army of cold callers to raise funds.)
• Closed-end fund IPOs. (These funds should only be bought at a discount in the secondary market. Within 90 days of the IPO, the “penalty bid” phase ends and brokers can freely dump shares while keeping their commissions — you will be down 15 percent in a blink.)”

Full Story: Staying Out of the Murder Holes (Joshua Brown / RegisteredRep)

And let’s not forget to mention double and triple ETNs (Exchange-Traded-Notes) that will evaporate your portfolio faster than you can say “WTF“?!… 

Full Story: Collateral Damage: TVIX’s Fall Could Have Broader Implications (TVIX, VXX)

(TheReformedBroker) “When stalking a growth stock awaiting better entries or looking for new growth stock ideas, one of the best things you can do is get a hold of Wall Street’s Upgrades and Downgrades each morning.  .. Typically a fast-growing company will stumble on a specious analyst downgrade and then the accumulation will resume as the institutional fans of the story get over it and come back with buy orders.”

Examples of B.S. downgrades:

“Valuation - growth stocks don’t trade on ‘valuation’, they trade on sentiment and the expectation of future earnings, see the numerous valuation-based downgrades of lululemon and Whole Foods.

Dropping Coverage - believe it or not there are institutions who will actually sell on the news that a brokerage firm is dropping or suspending coverage in a name due to an analyst leaving or something.

Channel Checks - there is only one thing sell-side analysts suck more at than tackle football and that is ‘channel checking’ – they literally cannot do it in such a way that there are actionable insights to be gleaned from it.  Think about how many times you heard about strength in non-Apple tablets (there never really was any) or weakness in the iPhone 2 (also, never really happened).  Channel checks are a money-loser in most cases – wait for the actual hard data, forget what people say they’ll do or think they’ll do.

Short-Term Pressures - chances are if you are interested in a growth stock investment, what happens tomorrow or the next day has little to do with anything.  For example, I saw an analyst downgrade Buffalo Wild Wings, one of this moment’s greatest growth stories, because of a rise in chicken wing costs in early February.  And while the analyst was correct in terms of those costs rising, it’s really a trivial, short-term matter to anyone who intends to invest in the business.

Strategic Direction - some people are meant to run businesses and others are meant to analyze and critique them. When a company announces a new strategic direction or goal, the knee-jerk Wall Street response is to cut it to neutral due to ‘uncertainty’.  I have no interest in seeing sell-side analysts vote on the strategic decisions of a company – management often knows more about their market than the eggheads do.”

Full Story: Growth Stock Strategy: Buy Bullsh*t Downgrades (TheReformedBroker)

(DynamicDividend) “If the data I’ve collected over the last six months is any indication, a very strong case can be made for the initiation of a dividend as a signal that a stock is about to generate market-beating returns.”

“Of the 36 stocks listed, only three are currently trading lower than their final closing price prior to declaring their first payout, and only seven have been outperformed by the S&P 500 since the same announcement. The average gain by the new dividend stocks (22.75%) is an absurd 15.67% better than the average gain by the S&P 500 (7.09%) during comparable periods.”

“Some highlights include: SMF Energy gaining 182% (vs. 17% for the S&P 500), Ebix gaining 58% (vs. 12%), Intuit gaining 40% (vs. 14%), Xyratex gaining 68% (vs. 2%), and Emcor Group gaining 53% (vs. 16%). Solutia has popped 77%, thanks in large part to Eastman agreeing to pay a 42% premium for the company last week.”

Full Story: New Dividend Stocks Absolutely Crushing Broader Market (DynamicDividend)

DynamicDividend.com is a terrific source of all types of dividend-related news and information, including lists of “Dividend Dynamo” stocks that have had the longest run of annual consecutive dividend growth.

Stocks from List: NRGM, RRMS, ZMH, A, ESIO, CSPI, FMCN, GNE, KNSY, SOA, FBNK, GFF, IACI, NOR, LXK, PCTI, OILT, CORE, ACFN, HSNI, EME, HL, PRA, EBIX, WWAY, NICK, CECE, INTU, CGI, NMFC, KINS, DSW, FUEL, AMOT, JCOM, XRTX

(read more...)]]> http://www.vlogolution.com/hot/2012-02-01-stocks-declaring-first-time-dividends-strongly-outperform-market/feed/ 0 http://www.vlogolution.com/hot/2012-01-20-where-do-billionaires-park-their-cash-and-assets/ http://www.vlogolution.com/hot/2012-01-20-where-do-billionaires-park-their-cash-and-assets/#comments Sat, 21 Jan 2012 04:53:37 +0000 http://www.vlogolution.com/hot/?p=1825

(BloombergMarketsMagazine) “Cash generates minuscule returns. Commodities, especially gold, can soar or tumble in an instant. In these perplexing times, Bloomberg Markets magazine in its January issue asked 10 billionaires 14 questions covering their views on the global economy, where they see opportunities and who gave them the best advice.”

Some highlights:

John Paul DeJoria (Primary Assets: Stakes in John Paul Mitchell Systems and Patron Spirits Co. Residence: Los Angeles Industry: Retail):

“Influential indicators? Beauty salons. Typically, customers will visit every six weeks; in downturns, that drops to every eight weeks. When the frequency starts to go up again, it indicates the economy is improving.”

“Where to park $1 million in cash?  Twenty-five percent in gold, 25 percent in silver, 25 percent in NYSE blue-chip stocks that pay a dividend and 25 percent between Asian and European blue chips that pay a dividend.”

Eli Broad (Primary Assets: Investments, art Residence: Los Angeles Industries: Banking, real estate):

“Influential indicators? Consumer confidence, unemployment and political gridlock.”

“Best investing advice? Don’t bet the farm.”

“Margin in portfolio? Not in this uncertain world.”

“Where to park $1 million in cash? High-quality multinational consumer companies such as Procter & Gamble Co., Coca-Cola Co., Kraft Foods Inc. and Johnson & Johnson. (JNJ)”

Peter Hargreaves (Primary Asset: 32.2 percent of Hargreaves Lansdown Plc, the U.K.’s biggest retail broker Residence: Bristol, England Industry: Financial services):

“Fixed-income investments? German bonds for the currency play when the euro implodes”

Where to put $1 million in cash? $500,000 in Singapore dollars and $500,000 in Norwegian krone.”

“Is there a money manager you would trust with your entire portfolio? Me.”

Full Story: Billionaire Prokhorov Touts Gold as Trump Embraces Foreclosures (BloombergMarketsMagazine)

(TheReformedBroker) “Sometimes when stocks gap down on earnings they don’t bounce – they keep going and going lower, never to be heard from again. But I knew $LULU would at least bounce, even if it eventually retests the lows from this morning where I bought in (41.75 to 42.25). This is because LULU didn’t miss earnings or revenue or guide lower for the coming quarter – it simply didn’t blow The Street away by the same magnitude that it had in prior quarters. It still grew faster than most other public retailers and it still has more room to grow than any retailer I can think of.”

“Only an imbecile looks at +30% revenue growth as a ‘disappointment’ – especially amidst a market full of other stocks that couldn’t grow their top line revenues if their lives depended on it. And the fact that LULU may not have met sell-side analyst expectations means absolutely nothing to me. Because I’ve seen this short-term myopia before back when Coach ($COH) was a young, mid cap growth story during the last recession (2002 – 2003). It would blast the Street’s stupid expectations out to Jupiter three quarters in a row and then have a quarter that was just okay. People couldn’t wait to write it off and say it was “decelerating” or had peaked. And then it would smash the numbers for another three or four quarters in a row just to piss the naysayers off.”

“Short-termism is foolish when you’re talking hyper-growth potential and a young company with nothing but room to expand. I’m not telling you LULU is cheap or ‘deserves’ a 30 multiple or blah blah blah. I’m saying that stocks don’t get punished for growing revenues at a 30% clip for long. I knew they’d bring it back simply for the fact that, well, there just aren’t any other LULUs to buy, plain and simple.”

Full Story: lululesson (TheReformedBroker)

(Interloper) “Mr. Achuthan has been arguably the most accurate economic forecaster over the past five years and perhaps more importantly, is apparently using new analytical techniques and indicators – his emphasis on short and long-leading economic indicators is an excellent example. As he noted this morning, he was virtually alone among prominent economists in predicting a slowdown for the latter half of 2011, even if his predicted official recession has yet to become evident.”

” .. Achuthan presented his view that despite recent stronger data a US recession was still on tap, followed by Steve Liesman (fairly) asking ‘What about recent stronger GDP and consumer spending data’, followed by Achuthan saying that it didn’t matter because there is contagion in the data whereby more indicators were turning negative, followed by Liesman asking (again fairly) ‘like what’, and Achuthan responding something like ‘it doesn’t matter what, it matters how many‘. .. Liesman continued to badger his guest with ‘what do investors do today?’ ”

“.. Achuthan, in other words, is telling investors you something you will not hear from any employee of a brokerage or investment bank (well, maybe SocGen): wait.”

“.. My real issue is with those who will complain, ‘Why would I listen to that guy? He can’t even tell me which indicator he’s basing his conclusion on’. These people want THE ANSWER, stated bluntly, with conviction. To these people I respond; there is nothing you should be more afraid of than a market pundit who is certain.”

“Certainty is a tremendous marketing tool but there is a reason that the ‘con‘ in con man is short for confidence. Remember that it would only take one highly-leveraged trade to make someone wealthy enough to never work again. This implies that if the ‘certain’ dude (and its 99% of the time a dude) was really 100% sure, they would be leveraged 200-1 on the trade and, if it were successful, you’d never see them again outside of Saint Tropez-situated photos in celebrity magazines. In truth they are not sure – it’s a marketing gimmick to attract your investment dollars.”

“We are naturally attracted to certainty and we want to believe that someone has the answer because psychologically the random nature of markets is repellent. But in the end it is most often a trap and all investors should remember what a portfolio manager once told me: ‘People don’t like to hear it but we are in the probability game, not the certainty game.’ ”

Full Story: Liesman vs Achuthan and why investors should be terrified of certainty (Interloper)

(GlobeInvestor) “ETNs expose investors to the risk of losing all or most of their principal. That’s because ETNs are set up as unsecured, long-term debt obligations of the issuer, Ms. Pelant explains. ETF investors don’t face the same default risk because ETFs own a pro rata stake in a basket of stocks, bonds, or derivatives held by a custodian in trust and legally separate from the issuer, she says.”

“When Morgan Stanley’s viability came under question in September , its family of Market Vectors ETNs sold off dramatically. ‘The Market Vectors Remnimbi/USD ETN (CNY) plunged more than 25 per cent versus a 1-per-cent drop in a comparable ETF,’ observes Greg Newton, a veteran financial journalist who writes the NakedShorts blog.”

However, if the ETFs don’t actually hold the securities that make up the fund, and instead use synthetics or swaps rather than physicals, investors may also be exposed to much more credit and counter-party risk than they realize. And as Jeffrey Gundlach discussed at the recent DoubleLine Luncheon at the New York Yacht Club, “Never, ever take counterparty risk. It is the one risk you are almost never rewarded for taking. Unless you are running $800 billion dollars, there is no need to use swaps, synthetics or baskets – trade cash markets and avoid any trades that require a counterparty.”

(HistorySquared) “In light of the counter party risks inherent in ETFs, especially those that use synthetic swaps rather than the physicals, there might be an inexpensive way to express a bearish view on some of the European banks.

For example, in 2008 Lehman Brothers had several failed ETNs. ‘The three ETNs were Opta Lehman Commodity, Agriculture and Private Equity. In September 2008, these ETNs halted trading when Lehman Brothers failed. Currently, the final results are being sorted out, but it appears that Lehman ETN holders will receive 2 cents on the dollar from their original investment.’ ”

These are some clever lower-risk trading ideas for expressing a bearish view on the future solvency of a particular counterparty:

“Perhaps there are some far OTM options on some of the Socgen ETFs that are worth a look . Or a less risky trade could be long an ETF with physicals underlying the ETF that is issued by a more secure bank, and short the highly correlated Socgen ETFs. A potentially catastrophic event could be triggered by Deutsche Banks popular x-trackers.”

Full Story: ETFs as Tail Risk Trades (HistorySquared)

(Bloomberg) “ETFs that use swaps to clone stock, bond or currency returns have been criticized by regulators and firms including Fidelity Investors, which say clients risk losing money should the banks writing the derivatives become insolvent. Outflows from Lyxor are another blow to Societe Generale, France’s second-largest bank, whose shares have tumbled this year as the escalating sovereign-debt crisis squeezes lenders’ funding.

‘It’s an issue of counterparty risk related to the financial health of the backing bank,’ said Jose Garcia Zarate, an ETF analyst at Morningstar Inc. in London. ‘Fears over synthetic replication have been building up, and at the same time, fears of banks’ peripheral-debt exposure have grown. Put those two together: bingo!’ ” — Swap ETFs, Lyxor Have Record Outflows (Bloomberg)

(TheMarketTicker) “Like paper coupons a Groupon has a ‘use by’ date. They’re attempting to leverage social media to ‘widely distribute’ the Groupons to consumers, and for this they get a piece of the action. The merchant effectively pays a ‘vig’ to Groupon for running the distribution system and collecting the money; once a Groupon is redeemed the merchant gets the paid price less a discount.”

“You, the merchant, are selling a “regular” $40 product or service for $20.  But in fact it’s not $20; Groupon takes a piece of the ‘sale price’ of $20 as well, so you might receive $18.  And you receive it late: The consumer buys the Groupon from Groupon.  This goes to Groupon’s balance sheet as ‘cash’ and the payment to the merchant is an accrued liability.  The merchant gets paid only when the groupons are redeemed.”

“Essentially Groupon ‘lives’ on the float. .. the firm is surviving on two things, neither of which is likely to continue: 1. Non-redemption – the consumer buys and then doesn’t use.  2. Delays in payment – Groupon ‘aggregates’ these coupons and pays merchants when the aggregation reaches a given level.  They have the use of the money in the meantime.  That’s nice for them, not so nice for the merchant who just delivered a good or service they didn’t get paid for in the present tense!”

“I don’t like this one bit as a prospective merchant – especially the second. .. As a consumer I’ll buy a $20 pizza for $10 (one of the deals being offered right now in my area.)  But the entire reason I’ll go to that pizza place is that the pizza is $10 — at $20 I’m not a customer!  In this particular case the merchant gets nothing for their trouble except a guaranteed loss and delayed payment!  It’s not a ‘loss leader’ as I won’t come back without the discount, it’s a loss maker.”

“I don’t see the business case for this company as I don’t see the sell-through on a consistent, forward basis.  Consumers will always take something for free: The store willing to give away steak will give away every piece of it they have!  That’s not the question: Will the people then come back and pay full price for the second slab of meat?”

Full Story: Groupon: Another Pets.Com (TheMarketTicker)

Groupon isn’t even profitable, though losses “appear” to be narrowing. It posted a net loss of $10.6 million in the third quarter, compared with a net loss of $101.2 million in the second quarter. And for the short period of time the stock was trading north of $30/share, the company was being valued above $19 BILLION. Even if they earned $100 Million next year, that would be about equivalent to receiving 1/2% annual interest that you can’t collect for all the risk incurred. And people wonder why they lose money investing… Well, it should at least make for some “fun” bubbley chatter at the next cocktail party.

Anyway, back to watching investors play hot potato with $GRPN.

First day of trading UPDATE:

(Interloper) “The confusion between the brilliance of a strategy and the ability to execute on it is at the heart of every poorly managed company. Far too often, a lack of corporate performance is blamed on a bad strategy when the strategy was perfectly fine. In other words, the architect is always blamed when the house falls collapses but the fault is more likely to lie with the builders.”

“There is a pervasive myth, propagated rabidly by biz schools and business consultants,  that a new “great management paradigm” has just arisen (cough-sixsigma-cough) that will transform your company into a global behemoth. The truth is that there is no premium on corporate strategy ideas – they are everywhere. The talent that is almost nonexistent is execution.”

“What Jack Welch actually did in practice was fire entire buildings full of people in under-performing businesses, to the point where he was given the nickname Neutron Jack.  Anyone could have come up with the idea of getting rid of poor businesses and focus on their successful counterparts, but it took a singular talent like Welch to execute.”

“What Buffett does, for instance, is about as complicated as Welch’s strategy – buy companies with consistent long term ROE assisted by competitive advantage when they are trading, ignored, at lower than historical valuation levels. His execution of the strategy, the unparalleled discipline, is what sets him apart.”

“All of this is not to say that managing money or global industrial companies is easy. The point is that, while there are multi-bazillion dollar industries trying to convince you otherwise, “The Plan” doesn’t really matter, it’s the person implementing the plan that does.”

Full Story: CEOs and Investors: Strategy/Execution Distinction Separates Good from Bad (Interloper)

(ContrarianEdge) “Investing is not an idea-­per-hour profession; it more likely results in a few ideas per year. A traditional, structured working environment creates pressure to produce an output — an idea, even a forced idea. Warren Buffett once said at a Berkshire Hathaway annual meeting: ‘We don’t get paid for activity; we get paid for being right. As to how long we’ll wait, we’ll wait indefinitely.’ ”

“I do my best thinking in the morning. At 3:00 in the afternoon, my brain shuts off; that is when I read my e-mails. We are all different. My best friend is a brunch person; he needs to consume six cups of coffee in the morning just to get his brain going. To be most productive, he shouldn’t go to work before 11:00 a.m.”

“And then there’s the business news. Serious business news that lacked sensationalism, and thus ratings, has been replaced by a new genre: business entertainment …” (WHY, you ask? cuz that’s what people want)

“You may think you’re able to filter the noise. You cannot; it overwhelms you. So don’t fight the noise — block it. Leave the television off while the markets are open, and at the end of the day, check the business channel websites to see if there were interviews or news events that are worth watching.”

“Numerous studies have found that humans are terrible at multitasking. We have a hard time ignoring irrelevant information and are too sensitive to new information. Focus is the antithesis of multitasking. I find that I’m most productive on an airplane. I put on my headphones and focus on reading or writing. There are no distractions — no e-mails, no Twitter, no Facebook, no instant messages, no phone calls. I get more done in the course of a four-hour flight than in two days at the office. But you don’t need to rack up frequent-flier miles to focus; just go into ‘off mode’ a few hours a day: Kill your Internet, turn off your phone, and do what you need to do.”

Full Story: A Few Simple Rules For Money Managers (ContrarianEdge)

Was the May 6^th, 2010 intraday crash and recovery just another one of those once-in-a-lifetime rare anomalies -– a rare confluence of events coming together to form the “Perfect Storm”?  And if a “Perfect Storm” generally occurs so infrequently, why does it seem that we are presented with a newsworthy “Perfect Storm” in the markets on an almost regular basis?  With all the misinformation and outrageous reasons the media and its “pundits” offer, perhaps it’s time to revisit exactly how markets work, and what (or who) may be to blame.  It’s a lot easier to blame a “fat finger” or some naughty short-sellers for a huge market-selloff, than to accept that markets do not always have a buyer for every seller.  Very simply, when a large number of market participants decide they all must sell (or buy) at the exact same time, an “air pocket” of price action will form.  Anyone who has traded a market knows that this type of single-sided liquidity “crisis” occurs every day in the markets to various extents, especially after significant news events are released.  While these relatively smaller moves may not be nearly as significant as a 1000 point intraday drop and overall market selloff, the dynamics are more or less the same.  The setup develops with a large number of market participants all thinking the same way (ie. very strong bullish or bearish sentiment), generally due to a strong extended trend in a market.  When the market finally turns, the large group of participants on the wrong side of the trade all decide to reverse course at the same time, at similar stop levels, just to save their leveraged hides.  Does the trading term “slippage” ring a bell?

(read more...)]]> http://www.vlogolution.com/hot/2010-05-19-the-perfect-storm-lessons-learned-from-the-dow%e2%80%99s-1000-point-flash-crash/feed/ 1 http://www.vlogolution.com/hot/2009-07-24-trading-for-control-and-avoiding-the-confidence-trap/ http://www.vlogolution.com/hot/2009-07-24-trading-for-control-and-avoiding-the-confidence-trap/#comments Fri, 24 Jul 2009 23:23:20 +0000 http://www.vlogolution.com/hot/2009-07-24-trading-for-control-and-avoiding-the-confidence-trap/

Most traders and investors at one time or another have fallen into the “confidence” trap. Sometimes it’s a result of believing in the infallibility of their research. Other times it’s due to having a presumed “hot” hand — they’ve finally got the game figured out and can do no wrong. Maybe they’ve gotten caught up with some hot new money-minting trading system with a great historical track record. Or perhaps they’ve been drawn in by someone else’s hot streak, in a chat room for instance (novice traders, trying to skip a few steps, are notorious for succumbing to this). All the calls turn out great, and even the fundamental and technical research that’s shared always seems right on the money. However, up to that point they’ve just watched –- and they’re kicking themselves for missing out on yet another huge gain. Let’s take our fictional trader and call him Bernie.

Bernie decides he’s not going to miss out on the next opportunity that comes up. When the next “hot stock” is revealed, it happens to be a stock that he himself already had on his radar. The additional research backs up his conviction. Everything seems right, and the stock appears perfectly poised for a huge move. Bernie’s confidence level for the trade is higher than ever. Forget about what he can afford to lose, this is the trade that’ll make his year!

Bernie decides to accumulate a position much larger than normal — 3 times as large in fact, equating to about a quarter of his total account size. At first, all seems to be working out great and the trade has even moved a nice 5% in his favor. Two days later however, he wakes up to find the stock down 25%, blowing right through any stop levels he may have considered. The company out of the blue announced a dilutive secondary offering to “better take advantage of opportunities that may become available” or some other similar mumbo-jumbo.

Bernie feels caught, but he figures the big picture still hasn’t really changed, and that prices should find support around the offering price. In fact, he decides to double his position around the offering price if he can. The company’s valuation seems cheaper than ever, and the company will now have even more cash to materialize its goals.

However, as the price continues to drop, Bernie starts to wonder… More investors, increasingly disgusted by the management’s apparent lack of regard for their investing well-being, decide to throw in the towel. By the end of the week, the stock is down another 38% just from the offering price! The same stock that traders and investors all loved at $9 just a few days earlier, they now hate at $5. Even those investors who bought into the secondary are feeling completely betrayed.

Ironically, if the research and valuations are accurate, the stock should be more attractive than ever at these levels. Of course, it doesn’t matter anymore, as most traders (including our newbie trader Bernie) decided to throw in the towel as the stock sells off in a panic around $4/share leaving Bernie with a whopping 44% account loss (requiring a 125% increase in account value just to reach breakeven). Several days later, the stock is trading back around its offering price. How’s that for the perfect reaming. Bernie feels crushed, blames the guy in the chat room for putting out such a horrible call, and calls him a fraud despite the fact that all his other picks turned out pretty well.

(read more...)]]> http://www.vlogolution.com/hot/2009-07-24-trading-for-control-and-avoiding-the-confidence-trap/feed/ 0 http://www.vlogolution.com/hot/2009-05-25-join-ron-pauls-drive-to-audit-the-fed-and-shut-it-down-with-hr-1207/ http://www.vlogolution.com/hot/2009-05-25-join-ron-pauls-drive-to-audit-the-fed-and-shut-it-down-with-hr-1207/#comments Tue, 26 May 2009 03:54:23 +0000 http://www.vlogolution.com/hot/?p=485

With many Americans slowly waking up to the reality that our government and banking system are entirely under the control of a criminal elite of private bankster crooks, Ron Paul has once again taken it upon himself to push for an audit of the Federal Reserve, the outcome of which would likely be so incomprehensibly shocking that the Fed may finally be forced to shut down for the greater good of our country and its citizens.

The Federal Reserve was originally created under the guise of being an “impartial” entity separate from the government that could be called upon to stabilize our economy in times of panic, while protecting and maintaining free market principles.  The sick twisted irony is that the Fed is the precise antithesis of what free markets are really about.  And since the Fed’s inception, it has done nothing but DESTABILIZE our economy with increased volatility by manipulating interest rates, along with leverage ratios used by the banks (in cahoots with those who control the Fed and the SEC).

It still boggles my mind that the SEC implemented the “Pattern Day Trader” rule to “protect the little guy” by forcing more active traders and investors to maintain at least $25,000 in a trading account or face severe trading restrictions.  I guess the SEC also forgot that they came into power largely because a big part of the 1929 crash was caused by the extension of 10:1 credit to investors (which couldn’t have happened without the Fed’s easy money policies).  So to make amends, the SEC goes on to serve and protect “the little guy” some more by allowing ONLY the largest (and most politically-connected) “too big to fail” investment banks pump up their balance sheets with over 40:1 leverage.

(read more...)]]> http://www.vlogolution.com/hot/2009-05-25-join-ron-pauls-drive-to-audit-the-fed-and-shut-it-down-with-hr-1207/feed/ 3 http://www.vlogolution.com/hot/2009-04-22-any-pork-in-this-stock-market-for-me/ http://www.vlogolution.com/hot/2009-04-22-any-pork-in-this-stock-market-for-me/#comments Wed, 22 Apr 2009 21:53:54 +0000 http://www.vlogolution.com/hot/?p=425

Video interview and update on the current State of the Markets, as well as the overall State of the Economy with Daryl Montgomery of the NY Investing Meetup (interviewed by Alexander Morris of moMoneyTV and PassMeThePork.com).  Watch NOW to learn if there are any opportunities currently offered by the markets.  We have the answers for what’s on everyone’s mind, “Is there any room in the stock market for it to PASS ME THE PORK??!”]]> http://www.vlogolution.com/hot/2009-04-22-any-pork-in-this-stock-market-for-me/feed/ 43 http://www.vlogolution.com/hot/2006-10-28-aleksey-vayner-impossible-is-nothing-spoof/ http://www.vlogolution.com/hot/2006-10-28-aleksey-vayner-impossible-is-nothing-spoof/#comments Fri, 27 Oct 2006 22:00:00 +0000 http://www.vlogolution.com/hot/?page_id=50

Like Trump says, “There’s no such thing as overexposure.” Here’s a little
spoof we came up with on Aleksey Vayner’s resume video as featured on MSNBC…
]]> http://www.vlogolution.com/hot/2006-10-28-aleksey-vayner-impossible-is-nothing-spoof/feed/ 5