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funnyzguy · 2010-02-22 14:13:09

Subscribe to Tips....Its much cheaper and produces better returns. :thumbup:

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Our Man Goes Undercover and Tells All

He spent days sitting through free seminars to become a super trader. Lesson number one: It’ll cost you.

By Thomas M. Anderson

From Kiplinger's Personal Finance magazine, March 2010
Admit it: You’ve been tempted. You’ve seen the infomercials for trading systems that will teach you how to master the markets. Sign up for a free seminar in your area and you’re on your way to wealth and freedom. Ordinary people just like you are earning thousands each month. Why not join the club?

With visions of early retirement dancing in my head, I decided to take the plunge, or at least the initial part of it. I would attend the free seminars of three big trading-education outfits: Online Trading Academy, BetterTrades and Profit Strategies. I wanted to see whether these outfits delivered on their promises to help people become successful traders. Here’s what I found.

“Respect your capital”

The first rule you learn at the Online Trading Academy (OTA) is not to trust Wall Street with your money. “Wall Street has trained us to be buy-and-hold investors,” the instructor, Chris, told me and the two other students attending the Power Trading Workshop at the company’s offices in Vienna, Va., a suburb of Washington, D.C. (OTA also has offices in the United Kingdom, Singapore and Dubai, as well as in 29 other cities in the U.S. and Canada.) This is a bad thing, Chris said, because the market goes up, down and sideways. And when it heads south, as it did during the 2007-09 bear market, buy-and-hold investors get crushed. OTA’s mission was to teach the likes of me how to make money regardless of what the market does.

How, you ask? Through the power of technical analysis. Technical analysts study past data -- primarily a security’s price and trading volume -- to predict the future. They look for patterns to find reliable signals of when to buy or sell financial instruments, such as stocks, options, futures and foreign currencies. The process involves studying a menagerie of indicators, such as candlestick charts, Bollinger bands and something called the stochastic oscillator. Technicians care little, if at all, about fundamental analysis -- the examination of, say, a company’s earnings and balance sheet or of general economic conditions.

Technical analysis has both passionate critics and ardent adherents. For example, an October 2009 study by New Zealand’s Massey University found that of more than 5,000 strategies that employ technical analysis, none produced returns in the 49 countries where researchers tested the strategies beyond what you’d expect by chance. However, scores of traders, including billionaire Paul Tudor Jones, say the discipline helped them amass great fortunes. So I tried to keep an open mind.

But a debate about technical analysis was not part of the program at OTA. Instead, the seminar quickly evolved from a round of Wall Street bashing to a pitch to enroll in the company’s $4,990 Pro-Trader class. The seven-day course would show “how to treat your capital with respect,” Chris said. He added that some of the academy’s students had doubled their money in three months after taking the Pro-Trader class. Once I paid tuition, I could retake the course as often as I wanted. And if I used one of the six discount brokers that partnered with OTA, I would earn rebates on commissions up to the cost of the classes I took.

Overall, I left my free OTA seminar less than satisfied. I wanted to learn how to trade and all I got was a sales pitch. It was time to hit the road.

“Who likes money?”

I drove to the Hilton Airport Hotel in Norfolk, Va., to attend the Financial Freedom Expo, sponsored by BetterTrades. About 30 would-be zillionaires, mostly baby-boomers, sat in a cavernous ballroom. Men outnumbered women two to one.

BetterTrades’ presentation was the most lavish of the three seminars I attended. At the front of the room a large projection screen was draped in velvety purple curtains. Tables displaying neat rows of BetterTrades DVD box sets surrounded the screen. I felt like a contestant on The Price Is Right, especially after I met the expo leader, Steve, who was tall, tan and likable -- just like the game show’s Bob Barker. Steve fired up the crowd with questions such as “Who likes money?” and “Who would like to make more?”

For Steve, successful trading was a matter of identifying support and resistance levels for a security. Look at a stock chart. If you draw a line that hits multiple points where the stock price bounces back from a low point, it is known as a support level. The line drawn on the chart that hits multiple points where the price peaks is known as a resistance level. Under technical analysis, a stock trader wants to buy at support (low) and sell at resistance (high). Sounds easy, but it’s difficult to know where the support and resistance levels are until after the fact.

With the class wrapping up, Steve had a special offer for me. For just $3,995, if I acted now, I could attend the two-day Market Essentials seminar coming to Norfolk. The first five people to sign up would get free bonus training materials. Steve said I had nothing to lose because if BetterTrades’ strategies did not earn me three times what I spent on tuition within six months, the company would refund my tuition or train me free of charge for up to a year until I mastered the program. (His offer did not take into account how much capital I would put up.)

Despite the guarantee, I wanted to know more about what I was going to learn in the class and what kind of return I could realistically expect to earn. Profit Strategies gave me a glimpse of what to expect.

“Work your tail off”

Profit Strategies (PS) takes the total-immersion approach to education, kind of like throwing you into the pool to force you to learn how to swim. That’s how I felt during PS’s free Active Investor Methods class at the Hilton Miami Airport. The two-day course, which had about 40 students, mixed beginners with trading veterans. We skipped the introductory material and jumped right into trading strategies.

The instructors, Mike and Jay, detailed several complicated systems. One moment we were discussing how to use a spike in a stock’s one-day trading volume to predict whether the price would rise. The next moment we were reviewing how to construct an “iron condor,” a strategy of buying and holding four different options with different strike prices. Between the presentations, Mike and Jay flogged PS’s eight-week courses on various trading systems, each of which cost $3,495. Students in the course would meet with the instructor online once a week for class and to review trades. “Only a limited number of seats left,” Jay said.

The audience had the opportunity to pepper Mike and Jay with questions. A newcomer asked them what kind of return one should expect to earn from trading. Mike said that a 5% monthly return sounded reasonable. That works out to 80% annualized.

All the seminars I attended were quick to point out that individual results will vary. And there’s the rub. Because the performance of individual traders is not public, you have no way of knowing how well these trading programs work. Sure, the seminars present testimonials from their top earners, but you don’t know how well the average student does. Studies show how tough it is to succeed at trading. In 1999, for example, at the height of the day-trading craze, the North American Securities Administrators Association studied the accounts of day traders. Only 11% consistently generated profits, and 70% sustained losses that wiped out their accounts. None of the seminar com-panies monitors the success rate of all their graduates. Says Judy Hackett, BetterTrades’ marketing chief: “We can only track the satisfaction of our customers, and we have lots of very happy customers.”

Students who have succeeded with these systems swear by them. Jeffery Kronenberg, a 30-year-old former life-insurance salesman, says he is able to support himself in New York City using the skills he learned at OTA. He has been a full-time trader since October 2009 after taking a class last May. “You have to work your tail off,” says Kronenberg, who typically gets up at 6:30 a.m. on trading days and works until the markets close at 4 p.m. “They will teach you, but you’ve got to really want it,” says Abba Genes, 26, of Mount Vernon, N.Y. He adds that the skills he acquired from BetterTrades allow him to earn about $1,000 a month to supplement his income as a concierge. Genes, who trades three hours a day in the morning, plans to become a full-time trader after he completes college. He says it took months before he learned how to generate trading profits. Meanwhile, big early losses nearly wiped out his account.

The seminar instructors I met said they made a good living from trading. But it’s impossible to know whether they are successful traders or just great salesmen. The trading-education industry does not have a good track record when it comes to sales practices. Seminar promoter Teach Me to Trade shut down in the U.S. after the Securities and Exchange Commission filed a 2008 complaint against two of its salespeople. The SEC alleged that in Teach Me to Trade seminars the pair claimed to be successful traders, but they actually earned their millions from commissions selling seminars rather than from trading. In December 2009, Investools paid $3 million to settle an SEC complaint that two of its salesmen misrepresented themselves at seminars as expert traders.

As I completed my journey, I couldn’t help but wonder why those who possess the magic formulas for successful trading would give away their secrets -- even if they did earn $4,000 or so per customer. After all, if you can earn 80% a year, why would you run the risk of seeing the effectiveness of your strategy diminish as more and more people started using it (a common occurrence in investing)? That aside, what’s clear is that if you decide to learn how to trade from any of these companies, you will need to have faith that your instructors know what they are doing and that you can convert their knowledge into winning moves. The odds will be against you.

Why it’s hard to trade and win

High costs. Most trading programs charge more than $4,000 for their workshops and tutoring packages. In addition, trading generates a lot of commissions, usually $5 to $9 per stock trade at the typical discount broker.

Too much time. It can take years of practice to earn trading profits consistently. Even if you are not trading on a daily basis, you will have to dedicate several hours a week to studying charts and related data.

Potential losses. Trading can lead to huge investment losses. This isn’t for widows, orphans and those with weak stomachs.

Tough competition. Financial firms have better trading tools than you do. High-frequency trading systems utilized by professionals make it harder for individual traders to succeed.

agrossfarm · 2010-03-09 08:49:22

from Canaccord this morning:

Respected Credit Suisse Strategist Jonathan Wilmot issued a new strategy update in which he
highlights – “Don’t Short the Recovery”. While he states that the issues around fiscal sustainability are deeply important and
serious, but equally a lot of poor analysis and loose use of the data goes with the territory. The rebound in industrial production
has been an inventory story thus far. But the early signs that income growth and final demand are set to accelerate are now
visible behind the weather-related statistical fog. Meanwhile, the immediate outlook for growth is much less demand-dependent
than is often assumed. His analysis suggests that even in the absence of a significant pickup in final demand, production is likely
to rebound strongly in the next few months. The effect on client psychology is palpable: push back against the idea of an
income-driven and sustained recovery remains strong, and the majority of enquiry and debate is around negative risk appetite
events and scenarios. However, behind the weather-battered data, he sees good evidence that the developed world recovery is
moving into "Phase II" – the moment when strong inventory-driven output gains start to boost income growth via a lengthening
work week and (modest) employment gains, setting up a self-reinforcing mechanism that keeps output growing strongly for
several months at least. His new economic model of this interaction between production, inventories, income and demand
strongly suggests that this is not the moment to short the recovery and risk appetite. While Credit Suisse will soon address in
new research the real issues on sovereign debt and fiscal sustainability, except to highlight the obvious but currently overlooked
point: a stronger, more resilient-looking recovery will make all forms of "exit strategy" – fiscal, monetary and regulatory – safer
to implement.

agrossfarm · 2010-03-15 22:50:22

How Men’s Overconfidence Hurts Them as Investors
By JEFF SOMMER
Published: March 12, 2010
MEN and women invest differently, a growing body of research has found. And in at least one important respect, women may be better at it.
Weekend Business: The feminine advantage in investing.

The latest data comes from Vanguard, the mutual fund company. Among 2.7 million people with I.R.A.’s at the company, it found that during the financial crisis of 2008 and 2009, men were much more likely than women to sell their shares at stock market lows. Those sales presumably meant big losses — and missing the start of the market rally that began a year ago.

Male investors, as a group, appear to be overconfident, said John Ameriks, head of Vanguard Investment Counseling and Research and a co-author of the study. “There’s been a lot of academic research suggesting that men think they know what they’re doing, even when they really don’t know what they’re doing,” he said.

Women, on the other hand, appear more likely to acknowledge when they don’t know something — like the direction of the stock market or of the price of a stock or a bond.

Staying the course and minimizing costs — selling high and buying low, if you trade at all — are the classic characteristics of good long-term, buy-and-hold investors. But during the financial crisis, the Vanguard study showed, men were more likely than women to trade — and to do so at the wrong times.

That fits the patterns found in path-breaking research by Brad M. Barber of the University of California, Davis, and Terrance Odean, now at the University of California, Berkeley. In a 2001 study titled, “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment,” they analyzed the investing behavior of more than 35,000 households from a large discount brokerage firm. All else being equal, men traded stocks nearly 50 percent more often than women. This added trading drove up the men’s costs and lowered their returns.

The economists found that while both sexes reduced net returns through trading, men did so by 0.94 percentage points more per year.

In a telephone interview, Professor Barber said, “In general, overconfident investors are going to be interpreting what’s going on around them and feeling they are able make decisions that they’re really not equipped to make.”

Short-term financial news often amounts to little more than meaningless “noise,” he said. Far more than women, men try to make sense out of this noise, and to no avail.

Of course, gender generalizations must be taken with caution: they clearly don’t apply to all men or all women. “The differences among women and the differences among men are much greater than the differences between men and women,” he said.

Nevertheless, numerous studies show that men are more prone to make this particular mistake than women.

Women have also been shown to be more risk-averse than men. In portfolio selection, women tend to have a greater preference for fixed-income investments. That could cause their portfolio returns to lag over the long run, assuming that stocks outperform bonds — though in a shaky market like the one of the last decade, this greater caution might be beneficial.

Selling volatile stocks in a down market — as male I.R.A. investors did more often than women, according to the Vanguard data — might seem to protect a portfolio. But that isn’t necessarily so. Selling before the market falls and buying after it falls is the smart move. For long-term investors, though, the best strategy may be to ignore short-term market movements (perhaps rebalancing a diversified portfolio every so often).

Gender differences appear to extend to other financial behavior. For example, women who are C.E.O.’s and company directors tend to pay a lower premium in corporate takeovers, saving their shareholders a bundle, according to a 2008 study of mergers and acquisitions by Maurice D. Levi, Kai Li and Feng Zhang of the University of British Columbia.

What explains these differences? The answer isn’t clear.

“Is it biological, or cultural?” Professor Barber asked. “Nature or nurture? At this point, we don’t know.”

Plenty of research is under way, though. Over the last five years, brain-imaging technology has made it possible to determine “what is happening in the brain just before people make financial decisions,” said Brian Knutson, a Stanford psychologist and neuroscientist.

Researchers have found that activating the nucleus accumbens — a brain region that is stimulated when you eat delicious food or look at an attractive person — can affect financial risk-taking. When young Stanford men were shown pictures of partially clothed men and women kissing, he said, that region of their brains was activated. And when they were then given financial tests, the men became more likely to “make high-risk gambles.”

Women didn’t respond much to the same pictures, he said; it’s possible the researchers didn’t test enough women or that they haven’t found the right stimuli.

Others studying the effects of hormones on financial behavior have found correlations between testosterone and risk-taking.

Alexandra Bernasek, a professor of economics at Colorado State University, said that the weight of history — enormous gender disparities in earnings, wealth, power and social status — might explain many behavioral differences. It’s also possible, she said, that evolutionary psychology accounts for some of them. Before the dawn of history, aggressive risk-taking might have given men an advantage in finding mates, she said, while women might have become more risk-averse to protect their offspring.

Science may eventually provide some answers. In the meantime, she said, it would be a mistake to “force women into riskier financial behavior” that may be inappropriate, both for them and for society at large.

“Excessive risk-taking has gotten all of us into a lot of trouble,” she said. “That’s certainly one

of the lessons of the financial crisis.”

agrossfarm · 2010-03-16 07:44:03

Retirement account investing is a big factor in the Canadian Market, especially for income stocks. More money in means higher prices. Same effect for Mutual funds and Hedge Fund investing in both the US and Canada. US Hedge Funds are doing better, as have Canadian RRSP (retirement account) investing. Bullish signs that move markets up.
With plenty of people's money still on the sidelines, available to push prices higher, later.
++++++++++++++++++++++++++++++++++++++++
David Parkinson

From Tuesday's Globe and Mail Published on Monday, Mar. 15, 2010 8:20PM EDT Last updated on Tuesday, Mar. 16, 2010 3:09AM EDT

The first RRSP season since the end of the bear market showed that Canada's small retail investors are back – but they're not back to normal.

The scars from the past two years of market turmoil are still evident as investors make their way back to Canadian mutual funds, and they speak volumes about how volatile markets have changed investors' thinking.

The Investment Fund Institute of Canada's sales numbers for the mutual fund industry for February – the final month for RRSP contributions to receive the tax benefit for the 2009 income tax year – showed a sharp net inflow of $3.1-billion of investor money in the month, almost double the inflows of a year earlier. New investment in long-term mutual funds – as opposed to money-market investments, which essentially amount to parking money in cash holdings, the fund-industry equivalent of putting it under a mattress – were $5.1-billion, the best February since 2007.

But while IFIC vice-president Pat Dunwoody said the industry group was “surprised by just how strong fund sales were this RRSP season,” this February's total was still nearly 40 per cent below the average February total over the previous 15 years – a sign that investors are still holding back. Even more tellingly, the bulk of the money is finding its way into much more conservative investments such as balanced funds and bond funds – evidence that the volatility of the past two years has changed investors' appetite for risk.

“I think the recovery has been far quicker than what we saw in the last bear market,” said Jonathan Hartman, vice-president of investment products at RBC Global Asset Management, referring to the more sluggish recovery in mutual-fund buying after the 2001-2002 bear market in stocks. “But we're seeing them coming back more cautiously.”

Net purchases of balanced funds – which invest in a mixture of equity and fixed-income assets – totalled $3.7-billion in February, while bond fund net purchases were $1.3-billion. While equity fund sales were in positive territory for a second straight month (after nearly two years of steady net redemptions), they totalled a mere $104.5-million, as investors remain wary of stock-market volatility.

Thomas Dyck, president of TD Mutual Funds, said the deep stock market declines of late 2008 and early 2009, together with the whip-saw volatility that markets have demonstrated over the past couple of years, have caused a lot of investors to re-assess their appetite for more risky equity holdings.

“Those two things, combined, frightened a lot of people,” he said. “Investors may have over-estimated their tolerance for risk.”

“It does fundamentally change the nature of the conversations advisers have with their clients,” he said.

“Actually experiencing a 50-per-cent drop in the market provides a lot of clarity bout how people really feel about that kind of loss, as opposed to just how they think they'll feel,” Mr. Hartman said.

But mutual fund industry analyst Daniel Solomon at BMO Nesbitt Burns thinks the more conservative shift of investor appetite is a healthy sign for the fund industry.

“I think we will get into a more stable market from investors – something that more closely matches their risk appetite,” he said.

agrossfarm · 2010-03-18 08:18:34

Great results at FedEx is a good indicator that the economy is getting stronger.
++++++++++++++++++++++++++++++++++
Samantha Bomkamp

New York — The Associated Press Published on Thursday, Mar. 18, 2010 8:22AM EDT Last updated on Thursday, Mar. 18, 2010 9:11AM EDT

FedEx Corp. (FDX-N89.80----%) is indicating the global economic recovery is gaining steam.

The world's second-largest package delivery company said Thursday its fiscal third-quarter profit more than doubled from a year earlier. FedEx also raised the forecast for full-year earnings — bringing it in line with Wall Street's projections — on expectations of “a continued modest recovery in the global economy.”

The company, considered an economic bellwether because of the variety of products it ships, said Thursday it earned $239-million, or 76 cents per share, compared with $97-million, or 31 cents per share a year earlier.

Revenue rose 7 per cent to $8.70-billion. The results exceeded Wall Street expectations for earnings of 72 cents per share and revenue of $8.37-billion. Shares were down about 2 per cent in pre-market trading, but they had risen 4 per cent this week ahead of the report.

The company, based in Memphis, Tenn., said results were boosted by higher shipping volume, particularly at its international express and Ground units.

Average daily volume in International Priority packages — those shipped express outside the U.S. — grew 18 per cent, led by exports from Asia.

Average daily package volume at FedEx Ground grew 5 per cent, mostly due to businesses shipping more packages to other businesses. Better volume is a good sign for FedEx — and in turn, the economy — because it means consumers and businesses are shipping more goods.

FedEx made more money per package mostly due to higher package weight — another positive economic sign.

Cost cuts also boosted results.

But the results also show that large transportation companies like FedEx continue to battle higher fuel costs. In addition, a loss at the company's freight unit and partial reinstatement of some employee benefits the company had taken away during the recession damped results.

For the fourth quarter, FedEx expects earnings per share of $1.17 to $1.37, compared with analysts' prediction of $1.26 per share. FedEx said reinstatement of more employee compensation programs will hurt earnings in that period as well as in the next fiscal year, which begins in June.

UPS, the world's largest shipping company, said last month its fourth-quarter earnings nearly tripled from a year earlier. Still, UPS said its freight business — which transports larger products like appliances and cars — continued to lose money.

FedEx shares lost ground in premarket trading after it released results. But shares climbed more than $3 in the week before the earnings report.

agrossfarm · 2010-03-28 08:19:20

NY Times article on day-trading and other ways to beat the market or at least the pros:

http://www.nytimes.com/2010/03/28/busin … amp;emc=th

agrossfarm · 2010-04-04 13:51:36

It has always been a stock-pickers market, whether in 2008 to lose less or to short or to pick the few stocks that made money, or in 2009 to choose the ones that were going to go up a lot versus a little. But in some markets you don't have to be good to make money because ~all valuations rise. Apparently, that is no longer the case, as you may know already but looking at your own portfolio.
+++++++++++++++++++++++++++++++++++++
When Stocks Stop Moving Like a Herd
By PAUL J. LIM
Published: April 2, 2010

AMID all the market uncertainty of the last two years, investors have had a hard time knowing when to jump in. But once they have, they’ve at least known that their stocks stood a good chance of moving in the same direction as the broad market — until the last few months, that is.

Last year, when the economy was emerging from the financial crisis, more than 90 percent of the stocks in the Standard & Poor’s 500 index moved higher. Every sector of the market participated in the S.& P.’s gain of 26 percent for the year.

The year before that, as the credit crisis was heating up, every sector of the S.& P. 500 lost ground, as did more than 95 percent of the stocks in the index.

“You didn’t have to get the stocks right,” said Duncan W. Richardson, chief equity investment officer at Eaton Vance, the asset management firm in Boston. “You were going to make money in 2009 if you bet on equities, and you were going to lose money in ’08.”

But this year, things have started to change. It’s a sign that this rally could be evolving.

Although the S.& P. is up since the end of December, its underlying components are much more of a mixed bag. So far this year, 376 stocks in the benchmark are up, but 124 are down. That means a quarter of stocks are bucking the market trend.

Strategists say that there is a simple explanation for this shift. Typically, in an extreme market crisis, like the mortgage mess of late 2007, most types of equities tend to lose money in lock step. That’s because investors race for the sidelines in the hope of finding safer alternatives — like bonds — to ride out the storm.

Then, when the panic is over, investors rush back into the market in unison to catch the inevitable rebound.

Now, equities are entering their next phase — one traditionally marked by lower stock market correlations, said Brian G. Belski, chief investment strategist at Oppenheimer’s equity research group.

According to Mr. Belski, stocks tend to diverge from one another in the year after a recession ends. And this trend often continues for two additional years thereafter.

To be sure, the National Bureau of Economic Research (the organization of economists that is considered the official arbiter of economic cycles) has yet to declare the end of this recession, which began in December 2007. But many economists believe that it probably ended sometime last fall.

And while stocks could start moving in the same direction again if the economy suffers another setback, “as long as the recovery continues on track, you should expect correlations to continue to settle back into more or less their historic norms,” said Robert D. Arnott, chairman of Research Affiliates, the asset management firm in Newport Beach, Calif.

If that’s the case, what does it mean for investors?

At the very least, it means that “people will have to start worrying about the value of assets, not just volatility in the market,” said James W. Paulsen, the Minneapolis-based chief investment strategist for Wells Capital Management.

More specifically, investors may want to consider tilting their portfolios toward undervalued or beaten-down shares, rather than highflying, growth-oriented stocks.

Historically, “value stocks tend to significantly outperform growth stocks in these environments,” Mr. Belski said.

That’s certainly been the case this year. Value stocks in the S.& P. 500 have gained 7.4 percent in price since the end of December, versus 4 percent for growth stocks. That’s a contrast to last year, when the S.& P. 500 growth index rose 29 percent, versus 17 percent for the S.& P. 500 value index.

THESE results repeat a historical pattern. In the 12 months after the 2001 recession, for example, value stocks lost less than their growth counterparts. And in the year after the 1981-82 slump was declared over, value stocks trounced growth shares, 23 percent to 16 percent.

Even if investors prefer growth stocks, market strategists suggest focusing on shares of fast-growing companies that also happen to be trading at relatively cheap prices — a strategy that’s often called “growth at a reasonable price.”

After all, if the market has indeed entered a new phase when its broad behavior won’t necessarily dictate the fortunes of individual stocks, it stands to reason that the fundamentals of a stock are likely to matter more.

And a fundamental question that investors ought to consider is the price they pay for their shares.

agrossfarm · 2010-04-07 09:57:28

Just what we need, more 20 somethings with super-fast computer trading programs :rolleye:
Competition for the Goldmans?
+++++++++++++++++++++++++++++++++++
REUTERS Start-ups fuel growth in super-fast trading [KGQFHSZ]

* Lower costs, more choice of technology encourage start-ups

* Traders come out of banks, universities

* HFT's share of Europe market volumes likely to rise

By Laurence Fletcher

LONDON, April 7 (Reuters) - Tumbling technology costs have
opened potentially lucrative ultra-fast trading strategies to
tiny start-up players, fuelling growth of the opaque and
controversial business across Europe and the United States.

Backed by private equity, or armed with bonuses earned at
banks, traders have been encouraged by an 80 percent or greater
fall in the cost of setting up lightning-fast systems over the
past five years, trading software provider Portware said.

"The numbers of these firms has exploded," Richard Balarkas,
chief executive of broker Instinet Europe, said at the Reuters
Global Exchanges and Trading Summit last week.

"I hear venture capitalists are giving money to guys coming
straight out of MIT (Massachusetts Institute of Technology) and
setting up desks," he said.

In high-frequency trading, firms such as hedge funds use
lightning-fast computers to beat other investors to profitable
trades, sometimes moving their computers physically next to an
exchange to gain an extra advantage.

It is a highly secretive world, where the fear to give away
trading secrets is omnipresent and there is often no
accountability to external investors.

Europe could see the biggest rise in high-frequency trading,
being a less mature market. Ultra-fast trading accounts for
30-50 percent of equity market volumes, against 60-70 percent in
the United States, the UK Financial Services Authority said.

Martin Cornish, managing partner of law firm Katten Muchin
Rosenman Cornish in London, said he is now working with many
more traders emerging from banks, while his U.S. colleagues were
seeing the same trend.

"We've seen definitely a big increase (in start-ups) over
the last few years, out of major banks," he said.

High-frequency trading strategies can include making markets
in a stock on a wide spread or very quickly detecting a large
would-be buyer or seller in the market and then trading on it.

LOWER COSTS

The cost for new launches to set up one of these systems has
dropped by a fifth or more over five years, said Scott DePetris,
global head of accounts at Portware.

Recent technological advances, such as programs that can
place trades based on news reports, have become more widely
available, while start-ups can now buy a selection of ready-made
algorithms or trading systems, rather than build their own.

"High-frequency firms no longer have to use their own
computer systems to support their activities," DePetris said.

"Exchanges, connectivity providers, trading system vendors
and other service providers offer high-tech software that
addresses the needs of high frequency trading firms, all of
which lowers the barriers to entry for firms looking to enter
the market for the first time."

Mark Hemsley, chief executive of electronic trading platform
BATS Europe, for whom 35 percent of turnover comes from
ultra-fast traders, said there was also plenty of potential for
growth in Europe as U.S. firms open up offices here.

"It will grow because it's relatively early stage for
high-frequency trading here ... You're seeing a lot of American
firms start to see that and come over here," he said.

07Apr10 15:54 GMT

agrossfarm · 2010-04-19 21:53:04

Tavia Grant

Globe and Mail Update Published on Monday, Apr. 19, 2010 8:58AM EDT Last updated on Monday, Apr. 19, 2010 9:50AM EDT

Foreign investors continue to flock to Canadian securities, snapping up bonds for the 14th month in a row in February.

Non-residents added another $6.7-billion to their holdings of Canadian securities in the month, all of which were bonds as they sold stocks and money-market paper, Statistics Canada said Monday.

Foreign investors have added Canadian bonds to their portfolios for 14 straight months, with acquisitions totalling $100.7-billion since January of last year, the agency said. Foreign holdings of federal government bonds nearly doubled during the period.

“The investing world continues its infatuation with Canada,” said Stewart Hall, economist at HSBC Securities (Canada), adding that investors have been lured by a number of factors, among them a country in relatively sound fiscal shape with a more stable economy.

Inflows from abroad over the past year reflect new issues activity of Canadian corporations and provinces, as well as secondary market purchases of federal government bonds, the report said.

In February, non-residents bought another $7.8-billion of Canadian bonds. Secondary market purchases of federal government bonds accounted for half of the inflow, with the remainder split between new provincial bond issues and outstanding private corporate bonds, Statscan said. Canadian mortgage bonds again attracted “sizable amounts” of foreign funds.

Canadian investors, meantime, bought $3.9-billion of foreign debt and equity securities in February, the largest outflow since March of last year. Much of this was in U.S. government bonds, particularly the seven-year benchmark bond.

agrossfarm · 2010-05-19 08:50:26

German markets have been notorious home to naked short speculators who sometimes mercilously attack companies by selling massive amounts of stock without any intention to deliver any shares to the buyer. Germany also allows companies to be listed to trade there, without their permission. So people get the listing so they can short unrestrained by the laws that make this illegal in the US and Canada.

Germany is finally acting to curb this abusive trading, but in a limited way.
+++++++++++++++++++++++++
German Ban on Naked Shorts Spurs Volatility
May 19, 2010, 6:02 am

Chancellor Angela Merkel on Wednesday urged the German parliament to pass the euro rescue package just a day after the country’s financial regulator announced borad new rules for credit derivatives.

The German financial regulator, BaFin, announced sweeping, unilateral regulation of credit derivatives late Tuesday, which included a ban on naked short-selling and naked credit default swaps on Eurozone sovereign debt, the law applicable to the country’s exchanges as of midnight.

Blocking short-sellers from what might have been an indirect bet on European sovereign debt, BaFin in the same statement also banned naked shorts on the equity of its most important banks and insurers, namely Deutsche Bank, Commerzbank, Allianz, Generali Deutschland, Deutsche Postbank and Munich Re.

The regulator cited the “extraordinary volatility of debt securities” to justify the move, adding that the spreads on credit default swaps for the debt of several European countries had substantially widened.

Under those circumstances, massive short-selling and naked CDS trading would lead to excessive price movements, the agency said, which would produce “significant disadvantages for the financial market” and could “endanger the stability of the entire financial system.”

The bans are in place until the end of next March.

The International Swaps and Derivatives Association, or ISDA, responded to the German decision by saying that organization and its members were prepared to cooperate with regulatory authorities, while nuancing the debate of naked credit default swaps.

“ISDA also notes that so-called naked sovereign CDS may be used by banks that extend credit to corporations and banks, by investors in stocks and by entities that have significant real estate or corporate holdings,” the association said.

In the interest of transparency, it said Tuesday that “all CDS transactions today are – in advance of the adoption of any legislation or regulation — being recorded into a central data repository.”

Ironically, the German decision set off another round of furious market activity in London on Wednesday, where the lion’s share of eurozone sovereign debt is traded.

The decision is “causing a lot of volatility at the moment,” an industry source said this morning, because “people are desperately trying to cover their short positions.”

“Sovereign C.D.S.’s are tightening massively,” the person said.

The euro was also hit by increased trading, and had slipped to $1.2194 in morning trading.

“The regulatory noose is certainly in danger of tightening at a crucial point in this crisis,” said Jim Reid, a strategist at Deutsche Bank, adding that “if the authorities prevent free market activities in some areas, the risk is that the pressure moves somewhere else.”

Meanwhile, Chancellor Angela Merkel appeared before the German parliament Wednesday morning to urge it to pass the 750 billion euro rescue package agreed upon by eurozone finance ministers. Germany is expected to pay about 148 billion euros of that over three years, but the country’s must first vote to approve the package this Friday.

“It’s about more than a currency,” Ms. Merkel told the Bundestag. ”Monetary union is a common destiny: it’s about nothing more and nothing less than preserving the idea of Europe.”

Reproached by the opposition for not being tough enough with the financial sector, Ms. Merkel also argued in favor of a global tax on certain financial transactions, a call that the Austrian Finance Minister Josef Proell made Tuesday.

Credit default swaps are derivative contracts tied to an underlying debt security, which are used to insure against the default on that debt.

The spread of a CDS is how much must be paid to maintain them, and the spread widens in step with the perceived risk of default on the underlying debt. When CDS are bought by parties that do not own the underlying debt, they are called “naked.”

tankumo · 2010-05-19 12:18:42

It's worse in US and Canada right?

agrossfarm · 2010-05-19 12:24:41

Naked shorting?
Yes there seems to be more "sharpies"trying to get away with naked shorting in the US, from my impression, but I have seen no data. In retail brokers in Canada, in my experience, if they can't borrow the stock in advance of you selling, they will not let you sell it short. I don't know what the Institutional houses like their customers get away with.

Because, although the customer may initiate a naked short, it doesn't become against the rules unless the underlying stock is not delivered to the clearing corporation within the statutory 3 days. And it is up to the Broker to either deliver the security or cover the buyer's short position in the market before the end of the 3rd day.

Many brokers have not bothered to do that.

agrossfarm · 2010-05-19 15:27:37

The more news I read about the reasons for today's selloff, the more incensed I get.
I guess there is no longer an honest journalist left, one that can write a headline that is honest, and an article that, even though it may quote people talking their own book, calls them on it.

Germany is just BELATEDLY restricting a kind of trade that is illegal in North America and just about everywhere else. The shark speculators that attack by massive naked short selling have long been attracted to the Germans markets because it was legal there.
It is still legal there except for the banks and other securities that they just added restrictions on. Anyone that is in favor of naked short selling is admitting they are in favor of predatory investing, where the investor make money by ruining or crippling the business of the company it shorts.

Do it with currencies or debt and you can force artificial changes there that will affect whole economies and political systems...all because you allow someone to sell an unlimited quantity of something they do not have, and then never deliver what was sold. There is no honorable excuse for chronic FTDs (failures to deliver). In fact, there is no excuse for not delivering within the normal 3 day period that any seller has to deliver. Certainly, short sellers should not have easier regulations than if they were a regular seller of a security they owned.

And the excuse that North American investors are worried because it must be so bad that Germany is passing these rules, would better be worried that Germany is still stupid enough to continue to allow naked short selling, in general. They are demonstrating that they know it is a destructive and abusive process that hurts companies and economies and they SHOULD be banning it outright and instituting major civil and criminal penalties for the shorters and the Brokers who allow them not to deliver, since it is up to the broker to deliver what was sold or to close the naked short seller's position (by buying the stock) prior to the expiry of the 3 day period.

tankumo · 2010-05-19 16:14:45

Actually I heard gang members are involved in this thing too, it's more profitable than selling drugs, which is more risky. So they work together with brokers, who are under pressure to follow orders.

Canadian banks are the worst, they naked short and got fined very little.

agrossfarm · 2010-05-21 07:49:50

How is uncertainty about whether the Eurozone will collapse because of defaults worse than the certainty that it will collapse because the countries in the zone won't do what's necessary to defend their currency union?

How is the uncertainty about how long before the global financial system collapses because of unregulated derivatives and unlimited counterparty risk because of no margin requirements and unbridled risk exposure compared to the uncertainty about how much profits will be lost by banks who are involved in these derivatives in such an excessive manner that the rules that would be imposed on individual investors may reduce the billions they have to pay bonuses to their traders?
++++++++++++++++++++++++++++++++++++++++++++
REUTERS GLOBAL MARKETS WEEKAHEAD-Rattled by regulatory recidivism [KJSGZLG]

By Jeremy Gaunt, European Investment Correspondent

LONDON, May 21 (Reuters) - It may be a cliche, but it is
true -- nothing upsets markets more than uncertainty.

Heading into a new week, investors are beset by it, hammered
by worries over everything from potentially slowing economic
growth and striking workers to wrenching changes in currency
rates and fears about boisterous populism among governments.

Berlin's ban on speculators and Washington's plans for bank
reform have come as additional headaches for those wanting to
know what the future will bring.

With no one factor dominating markets except fear, the
volatile mood is likely to continue into a week that includes a
meeting of G20 negotiators, U.S.-China economy talks and a visit
to Europe from U.S. Treasury Secretary Tim Geithner.

Financial markets, in the meantime, have been growling like
a bear.

MSCI's all-country world stock index <.MIWD00000PUS> has
lost around 12 percent this month with its emerging market
counterpart <.MSCIEF> down some 14 percent.

The euro, rattled by the debt crisis, has fallen more than 5
percent this month against the dollar <EUR=> and is down 12
percent for 2010.

Safe haven U.S. bond funds are among the few beneficiaries
of the mood, according to the lastest flow data from fund
trackers EPFR Global. [ID:nSGE64K034]

Many of the latest moves were triggered during the past week
by a renewed worry hitting investors, that of governments moving
to regulate the way markets work in way not seen for decades.

Germany rather spectacularly shocked investors with its
immediate ban on naked short selling of euro zone government
bonds and shares in 10 leading German financial institutions, as
well as transactions in credit default swaps (CDS) linked to
euro government bonds.

Although many investors reckoned the impact itself would be
limited, the idea that governments might suddenly do something
along those lines greatly unsettled them.
"It creates quite a lot of unnecessary uncertainty. The
concern is that we are now in an environment where legislation
is being rushed through without thinking about it," said John
Stopford, head of fixed income at Investec Asset Management.

Germany was not alone in seeking to change the rules.

The U.S. Senate on Thursday approved a well-flagged, but
nonetheless sweeping Wall Street reform bill designed to prevent
future government bailouts of financial institutions and to
protect consumers.

MEETING FOCUS

With this in mind, investors will be nervously looking on at
a series of high-level meetings in the coming week at which the
world's current economic and market imbalances will be on the
agenda.

Negotiators, or sherpas, for the Group of 20 nations meet in
Calgary early in the week to put together plans for a summit
later in the year in Toronto and a finance ministers meeting in
Busan, South Korea.

A G20 deputies meeting in Berlin on May 19 discussed the
fact that while the "real" economy is recovering, disruptions in
financial markets continue, according to one official present.

It could well be brought up again in Calgary.

The United States and China, meanwhile, meet for what is
dubbed a strategic and economic dialogue on Monday and Tuesday
with the U.S. view that China's yuan is undervalued haunting the
background.

The dollar's broad-based rise against other major currencies
-- sparked by the euro's troubles, but also a general flight to
safety -- may make life harder for U.S. exporters but it has
also made a Chinese yuan move less likely.

One result may be that the two sides will find agreement
about the need to stem the euro's slide, particularly as the
yuan has risen 11 percent against the euro since mid-April.
On his way home from China, meanwhile, U.S. Treasury chief
Geithner has decided to stop over in Europe, partly to meet new
British counterpart George Osborne but also to have talks with
euro zone officials.

He will meet European Central Bank President Jean-Claude
Trichet in Frankfurt and German Finance Minister Wolfgang
Schauble in Berlin on Thursday.

Geithner said in a CNBC television interview that he wants
to see Europe stick with agreed plans for restoring economic
stability to the region.

He said it was important to keep moving on the
750-billion-euro package of loans -- from the European Union and
International Monetary Fund -- to prevent the European debt
crisis from spreading.

NO CAPITULATION

While there is no doubt, meanwhile, that investors are
rattled by the return of regulatory pressure and other worries,
the flight to safety has not been unambiguous.

EPFR Global's flow tracking showed that as well as U.S. bond
funds becoming popular, supposedly higher-risk emerging market
bonds continued to attract investors.

They had net inflows of $533 milion in the week to May 19.
Record inflows were seen for the asset class in both March and
April.

At the same time, EPFR noted that money market funds, the
safest of safe havens, saw net outflows of $33.9 billion.

"(It suggests) that sentiment has not turned to the point
where capital preservation is the overriding concern," the firm
said.
(Additional reporting by Swaha Pattanaik, Brian Love and Glenn
Somerville; editing by Jason Webb)

(c) Copyright Thomson Reuters 2010. Click For Restrictions.
http://about.reuters.com/fulllegal.asp

21May10 13:41 GMT

mplaut · 2010-06-24 11:57:40

The REAL explanation for the Flash Crash - and Quote Stuffing

This looks like the real thing, as reported by Nanex a company which collects and saves all quote data as well as transaction data.

The Quote Stuffing (generating thousands or ten thousands of bogus quotes) should definitely be stopped.

As far as I am concerned, they may as well ban high frequency trading altogether as it seems that it may only supply liquidity when it is not needed.

-----------------------------------------

This is a link to the main page which has links to charts and supporting data: http://www.nanex.net/20100506/FlashCras … Intro.html

Back to Main Page

Analysis of the "Flash Crash"
Date of Event: 20100506
Complete Text

There are 9 exchanges that route orders to NYSE listed stocks: NYSE, Nasdaq, ISE, BATS, Boston, Cincinnati (National Stock Exchange), CBOE, ARCA and Chicago. Each exchange submits a bid and/or offer price for each stock they wish to make a market in. The highest bid price becomes the National Best Bid and the lowest offer price becomes the National Best Ask. Exchanges compete, fiercely at times, to become the best bid or offer because that is where orders will be sent for execution. Exchanges also go to great lengths to ensure they avoid crossing other exchanges (bidding higher than others are offering, or offering lower than others are bidding), because if they do, many High Frequency Trading (HFT) systems will immediately execute a buy/offer and capture an immediate profit equal to the difference. Today, it is very rare to see markets crossed in stocks for longer than a few milliseconds.

Beginning at 14:42:46, bids from the NYSE started crossing above the National Best Ask prices in about 100 NYSE listed stocks, expanding to over 250 stocks within 2 minutes (See Part 1, Chart 1-b). Detailed inspection indicates NYSE quote prices started lagging quotes from other markets; their bid prices were not dropping fast enough to keep below the other exchange's falling offer prices. The time stamp on NYSE quotes matched that of other exchange quotes, indicating they were valid and fresh.

With NYSE's bid above the offer price at other exchanges, HFT systems would attempt to profit from this difference by sending buy orders to other exchanges and sell orders to the NYSE. Hence the NYSE would bear the brunt of the selling pressure for those stocks that were crossed.

Seconds later, trade executions from the NYSE started coming through in many stocks at prices slightly below the National Best Bid, setting new lows for the day. (See Part 1, Chart 2). This is unexpected, the execution prices from the NYSE should have been higher -- matching NYSE's higher bid price, unless the time stamps are not reflecting when quotes and trades actually occurred.

If the quotes sent from the NYSE were stuck in a queue for transmission and time stamped ONLY when exiting the queue, then all data inconsistencies disappear and things make sense. In fact, this very situation occurred on 2 separate occasions at October 30, 2009, and again on January 28, 2010. (See Part 2, Previous Occurrences).

Charting the bid/ask cross counts for those two days reveals the same pattern as 5/6! Looking at the details of the trade and quote data on those days shows the same time stamp/price inconsistencies. The NYSE stated that during the same intervals, they were experiencing delays in disseminating their quotes!

In summary, quotes from NYSE began to queue, but because they were time stamped after exiting the queue, the delay was undetectable to systems processing those quotes. On 05/06/2010 the delay was enough to cause the NYSE bid to be just slightly higher than the lowest offer price from competing exchanges, but small enough that is was difficult to detect (See Part 3, The Evidence). This caused sell order flow to route to NYSE -- thus removing any buying power that existed on other exchanges. When these sell orders arrived at NYSE, the actual bid price was lower because new lower quotes were still waiting to exit a queue for dissemination.

This situation led to orders executing against whatever buy orders existed in the NYSE designated market maker (DMM) order book. When an order is executed, the trade is reported to a different system (CTS) than quotes (CQS). Since trade report traffic is much smaller than quote traffic, there is rarely any queueing or delay.

Because many of the stocks involved were high capitalization bellwether stocks and represented a wide range of industries, and because quotes and trades from the NYSE are given higher credibility in many HFT systems, when the results of these trades were published a few milliseconds later, the HFT systems detected the sudden price drop and automatically went short, betting on capturing the developing downward momentum. This caused a short term feed-back loop to develop and panic ensued.

Some trading firms have stated that they detected a problem with the accuracy of the data feed and decided to shut down which further reduced liquidity. We think the delay in NYSE quotes was at the root of this detection.

On the subject of HFT systems, we were shocked to find cases where one exchange was sending an extremely high number of quotes for one stock in a single second -- as high as 5,000 quotes in 1 second! During May 6, there were hundreds of times that a single stock had over 1,000 quotes from one exchange in a single second. Even more disturbing, there doesn't seem to be any economic justification for this. In many of the cases, the bid/offer is well outside the National Best Bid/Offer (NBBO). We decided to analyze a handful of these cases in detail and graphed the sequential bid/offers to better understand them. What we discovered was even more bizarre and can only be evidence of either faulty programming, a virus or a manipulative device aimed at overloading the quotation system. You can see our results in Part 4, Quote Stuffing.

Recommendations:

1. Quote and trade data must be time stamped by the exchanges at the time it is generated. This will ensure delays can be detected by everyone.

Reasoning: Changing the procedure to time stamp at the time a quote or trade is generated is a near trivial exercise. It probably comes as a surprise to many that time stamping isn't done that way now.

2. Quote-stuffing should be banned.

Reasoning: It is a manipulative device designed to overload the quotation system. Quote and trade dissemination (data feed) is a finite resource, and should be treated as such.

3. Add a simple 50 millisecond quote expiration rule: a quote must remain active until it is executed or 50ms elapses. If the quote is part of the NBBO, it may be improved (higher bid or lower offer price) at any time without waiting for the expiration period.

Reasoning: The exchanges must protect the integrity of the National Best Bid/Offer system. What is the point of having a National Best Bid/Offer, if not everyone in your nation (apologies to Alaska/Hawaii) can reasonably execute a trade against it? 50ms is approximately the time it takes light and electronic communication to travel from New York to California and back. It is impossible to transmit information any faster. This rule would not limit quote/trade rates. So long as trades are executing, quotes can update thousands of times a second. Only a small percentage of quotes today would be affected and the potential for catastrophically high rates would be eliminated.

Inquiries: pr@nanex.net

Publication Date: June 18, 2010
http://www.nanex.net

Copyright © 2010 by Nanex, LLC
All Rights Reserved.

agrossfarm · 2010-07-19 15:15:33

Obama's Bull Market Intact as Midterm Gridlock Signals Gains
By Kelly Bit and Lynn Thomasson - Jul 19, 2010

Growing dissatisfaction with U.S. President Barack Obama before this year’s elections is good news for stock investors, if history is any guide.

The Standard & Poor’s 500 Index has surged 48 percent on average starting in the second year of each U.S. presidential term, measured from its lowest level through the high the next year, according to data going back to 1928 compiled by Bloomberg. That compares with trough-to-peak gains of 38 percent in other years.

An advance this year would come after Obama already presided over the biggest rally during the start of a presidency since Franklin D. Roosevelt in the 1930s. Bets on Intrade show a 54 percent chance Republicans will take control of the House, enabling them to block Obama’s policies. That may help prevent a bear market after equities tumbled as much as 16 percent in the past two months, says billionaire Kenneth Fisher.

“I envision a rally from before the midterm elections,” said Fisher, who oversees $35 billion in Woodside, California, as chief executive officer of Fisher Investments. “Markets love gridlock. What the market wants to see is no change: less legislation that engages in changes in taxes, spending, regulation or property rights.”

The S&P 500 slipped 1.2 percent to 1,064.88 last week, extending its 2010 loss to 4.5 percent, after revenue at Charlotte, North Carolina-based Bank of America Corp. and General Electric Co. in Fairfield, Connecticut, trailed analysts’ estimates. Futures on the gauge rose 0.2 percent to 1,065.20 as of 1:20 p.m. in Hong Kong.

Republican Majority

The benchmark measure for U.S. equities has advanced 15 percent on average in years when there was a Democratic president and Republican majority in Congress, the most of any combination, according to Strategas Research Partners.

Republicans will gain 40 to 50 House seats in November, based on historical trends including times when presidential support falls to Obama’s current level, New York-based Strategas said. Obama has a job approval rating of 52 percent, according to a Bloomberg National Poll of 1,004 U.S. adults.

Odds that Democrats will lose their Senate majority are 18 percent, according to Intrade, a prediction market based in Dublin. Republicans must win at least 40 seats in the House and 10 in the Senate during the Nov. 2 elections to take control.

“The current thinking is that the administration is punitive towards business and any erosion of power in Congress would create an environment that’s less punitive,” said Walter “Bucky” Hellwig, a Birmingham, Alabama-based senior vice president at BB&T Wealth Management, which oversees $17 billion. “From the standpoint of a lot of investors, that would certainly help equities.”

Bush, Clinton

The S&P 500 gained 6.7 percent in the 12 months after the 2006 midterm election, when Republicans and President George W. Bush lost control of both houses of Congress. In the 1994 congressional elections under President Bill Clinton, Democrats gave up their majority in the House and Senate. That preceded the S&P 500’s 34 percent surge in 1995, the biggest in 37 years, data compiled by Bloomberg show.

Losing seats may make it harder for Obama to scale back Bush’s tax cuts to boost revenue and pay down the budget deficit. Democrats are seeking to raise taxes on dividends and capital gains and end breaks for Americans earning $250,000 or more. Obama signed the largest change in U.S. health-care policy in 45 years into law in March, enacting a $940 billion plan to extend coverage to tens of millions of uninsured Americans.

‘Uncomfortable’

“The market has been uncomfortable with the pace of the legislative agenda this year,” said John Canally, a Boston- based investment strategist and economist at LPL Financial, which oversees $285 billion. “Republican control of the House could usher in some gridlock and slow the pace. The view of the market is that Washington is pushing a little too far.”

The S&P 500 sank 8.1 percent in the three weeks after Jan. 19 as Obama proposed legislation to limit risk-taking at banks and prevent a collapse of the financial system. Better-than- estimated profit reports then spurred a 15 percent rise through April 23. That extended the rally for the first 15 months of Obama’s presidency to 43 percent, as the government spent, lent or guaranteed as much as $12.8 trillion to pull the country out of its longest recession since the Great Depression.

Spending cuts to trim record budget deficits may now curb further gains in stocks, according to Jason Pride, director of investment strategy at Glenmede.

Presidential Cycle

“The U.S. is going to have to deal with its debt issues, so we see that as a constant wall that the market and economy is going to have to slowly find its way through,” said Pride, whose Philadelphia-based firm manages $18 billion. “I don’t think you should make an entire investment decision on the presidential cycle.”

The White House is scheduled to release an updated 2010 U.S. deficit forecast on July 23. It predicted a record budget shortfall of $1.6 trillion in February, compared with a $1.4 trillion gap last year. More than half of Americans say the deficit is “dangerously out of control,” according to results from the Bloomberg National Poll conducted July 9-12. Obama has pledged to cut the 2009 deficit in half in five years.

Concern that the economic recovery is faltering pushed the S&P 500 down to the lowest level in 10 months on July 2. New U.S. home sales fell to a record low in May and reports on manufacturing and consumer confidence trailed the median forecasts from economists in Bloomberg surveys, has trimmed the S&P 500’s gain since March 2009 to 57 percent.

Most Since 1995

Worse-than-estimated revenue from Bank of America, the largest U.S. lender, and GE, the world’s biggest maker of jet engines and medical-imaging equipment, sent the S&P 500 down 2.9 percent on July 16, wiping out the week’s advance.

Companies in the benchmark index for U.S. equities are projected to increase profit by 34 percent in 2010 and 17 percent in 2011, the fastest two-year gain since 1995, according to analysts’ estimates compiled by Bloomberg.

The Bloomberg National Poll showed Americans still disapprove of Obama’s handling of almost every major issue and are pessimistic about the nation’s direction, presenting an opportunity to Republicans in November.

“Midterm years have an historic tendency,” said Sean Clark, chief investment officer of Clark Capital, which oversees $2.1 billion in Philadelphia. “The market doesn’t like when one party or the other has control of both the executive and legislative branches. Business leaders are very much paralyzed waiting on a definitive set of rules.”

‘Huge Election’

The U.S. Senate passed an overhaul of financial-industry regulation on July 15 that creates a consumer bureau at the Federal Reserve, a council of regulators to monitor firms for systemic risk to the economy and a mechanism for liquidating financial firms whose collapse would threaten the economy.

Most Senate Republicans voted against the measure, saying it doesn’t go far enough to prevent future taxpayer-funded bailouts of Wall Street firms. White House spokesman Robert Gibbs said the Obama administration will promote the biggest change in banking regulation since the Great Depression during the midterm elections.

“I see a rally into year-end,” said Louis Navellier, who oversees $2.5 billion at Navellier & Associates Inc. in Reno, Nevada. “It’s going to be a huge election. The people who are going to vote are the people who are mad. Independents and Republicans are mad. There’s going to be a big shift.”

agrossfarm · 2010-08-02 13:27:40

The following article makes a valid point although it doesn't really show much understanding of the standard curve and how it affects return.

This is the normal or standard curve (or distribution)

It illustrates that, assuming investment returns in the Market as a whole are "normally distributed", that 64% of the time, return will be, not at the average (really called the "mean") but within 1 standard deviation above and below the mean. So it is crucial, not just what the mean is (assume 9% with dividends over 100 years) but hom much a standard deviation is. If a SD is 2%, it suggests that 68% of the time the return would be between 7 and 11%.

More important, it indicates (in the assumed example) that 16% of the time it would be under 7% and 16% of the time it would be above 11%.

Be that as it may, this is all pretty irrelevant unless you investment program is to invest "in the Market" getting an Market-average return. In other words, no stock picking at all. The cheapest way to do this would be by a low-fee index fund, from Vanguard possibly because they charge the least.

What is interesting is that avoiding the Market bad days is more important than catching the best days.
++++++++++++++++++++++++++++++++
July 30, 2010, 12:03 pm
Outliers Matter: Why Average Is Not Normal
By CARL RICHARDS
Carl Richards is a certified financial planner and the founder of Prasada Capital.

Most of the traditional wisdom that we follow when we are making investment decisions is rooted in models referred to as modern portfolio theory. One of the theory’s basic assumptions is that stock market returns are normally distributed. In other words, when graphed, the returns will form a traditional, bell-shaped curve.

The idea is that you can expect an average return to be your average experience. Returns either greater or less than the average are less and less likely as you move further and further from the average. At extreme tips of this nice little bell are positive or negative returns that are so unlikely to happen that they are thought to be almost statistically impossible.

We have heard a lot about these little guys lately. They have been called Black Swans, fat tails and, most often, outliers. In theory, an outlier is something that is so unlikely that it is thought to be unrepresentative of the rest of the sample. In this case, these outliers generate returns that, according to the theory, we are almost never supposed to see.

When something is never supposed to happen, we don’t spend much time thinking about it. Instead we focus on the average. This is certainly true when it comes to investing: we focus on the stock market average over time. It is the average that we plug into our calculators when we project into the future. It is the average that we talk about. The problem is that average is not normal and focusing on it leads us to greatly underestimate the impact that these outliers can have when they do show up.

The reality is that they have such a huge impact that they actual obscure the importance of the average. Last year, The Wall Street Journal discussed a study that shows the significant impact that outliers have had in history.

If you take the daily returns of the Dow from 1900 to 2008 and you subtract the 10 best days, you end up with about 60 percent less money than if you had stayed invested the entire time. I know that story has been told by the buy-and-hold crowd for years, but what you don’t hear very often is what happens if you were to miss the worst 10 days. Keep in mind that we are talking about 10 days out of 29,694. If you remove the worst 10 days from history, you would have ended up with three times more money.

To be clear, this is not a suggestion to try to time the market, but an attempt to make a simple and narrow point: outliers matter. In fact, they matter so much that they almost make the average meaningless. Because most of our lifetime return is determined by how many of these outliers we experience, it is time we stop ignoring them.

phiz83 · 2010-08-02 14:04:52

This would be a real fun argument to have but I don't have time. Who says the market returns are normally distributed???? I can almost guarantee that it is a hybrid between normal and lognormal distributed, which makes all sorts of arguments reserved for normal distributions go out the window.

In a former life, I spent 2 years doing nothing but studying this stuff and applying it to an O&G portfolio. Incredibly complicated.

George

agrossfarm · 2010-08-02 14:41:02

Yes, you get no argument from me about overall Market performance not being normally distributed. And I don't believe that you can't beat the market picking stocks on a continuing basis, because the market is somehow random.

It is a bit like saying that the earth is covered by water over 68% and by pavement and trees for 16% each, so that the average is water and therefore you can dive headfirst from 25 ft. and survive.

Meanwhile, it is obvious to anyone that has been in the Market for many years that the biggest moves are down, in a crash, not up. This does absolutely no good as an investment aid because you can't predict the occurence of a super bad day.

And if you could, so everyone would exit the day before, the day before would become the super bad day.

But the brokerage industry has sold the average person the idea that, if you hold on long enough, the Market's average return will happen to your portfolio.

That is not all that likely to be true because
1. most people are not investing in just the benchmark stock with the market-weights
2. the industry calculations use averages that change constitutents, like throwing GM out of the DJIA and replacing it with something that is doing well (in other words, the averages are "cooked" to increase.
3. the starting and ending time for a period under study makes a big difference to average return (for example, if you started investing in 2000 instead of 2001, your return is forever going to be worse.
4. end point for real people is when they die or need to spend the money in some way and this may not be the best time to sell and figure your return (like selling out in Oct. 2008, having started investing at the top of the Tech bubble).
5. the studies don't measure individuals real return and plot them to see if they are normally distributed, they study the Market in some way (and each study defines the Market differently).
6. Real people find it difficult to buy when price is declining and to sell when it is rising
7. Real people usually don't just invest all their money at one point in time and then liquidate everything at another point in time, as the models often presume, so the models don't accurately reflect portfolio performance of real people
8. If real people buy Funds of some kind to get a portfolio closely related to actual Market characteristics, the Market will always do better because of fees and commissions
9. taxes make a big difference, especially over time, and investing in a tax efficient (or not) manner affects returns

utee72 · 2010-08-04 15:41:20

Think you folks will be interested in this link.

http://www.theatlantic.com/science/arch … ers/60829/

Key quote:

<snip>
"Often, the buy or sell prices that they are offering are so far from the market price that there's no way they'd ever be part of a trade. The bots sketch out odd patterns with their orders, leaving patterns in the data that are largely invisible to market participants."
<snip>

It's either a trading SW package bug(s) or an attempt to create unusual boundary condition(s).

If the latter presumably they are measuring response to their forcing function and trying to take advantage of it but it should have no effect since it is far out of trading range. Presumably it delays display and/or recording functions to all traders because of the load it induces and that might have some affect that the initiating trader(s) are trying to see whether it's beneficial.

FYI the broker(s) that sent in these trades can be determined(easier to see in off hours) and said broker could(if they wished or had to) then determine what customer originated them and then said customer(s) could be "interrogated as to why" so the "reporter investigative quality" is half ass as usual.

JD

agrossfarm · 2010-08-09 11:09:41

Zero return on the S&P in the last 10 years and 8% return for 20 years (with the average investor not even doing this well) suggests that, at the very least, the Financial Industry and prudent Financial Advisor industry, and all the market-mirroring ETFs and other Funds have been the WRONG investment.

If fear and greed has made individual investors buy high and sell low, they still would have done horribly for 20 years, half the average person's working life, if they bought the idea that you make money buy buying and holding a diversified portfolio of the "leading" companies.

It should come as no surprise that the "safest" trade would also be one of the lowest yielding ways to "make" money.

Yes, make money but lose buying power, given that there has been inflation that more than ate up the gain....and you still have to pay tax on the non-existent gain. If I didn't make more than 8% a year, I'd be in real estate or some other business, instead.
+++++++++++++++++++++++++++
August 5, 2010, 4:35 pm
Investors Are Still Behaving Badly
By CARL RICHARDS
Carl Richards

Every year the research firm Dalbar does a study that tries to quantify the impact of investor behavior on real-life returns by comparing investors’ earnings to the average investment (using the S&P 500 as a proxy).

The latest study looks at the 20-year period that ended Dec. 31, 2009:

* Average investment return = 8.20 percent
* Average equity investor return = 3.17 percent

If you had put money into an S&P 500 index fund 20 years ago and just left it there — no buying, no selling, just investing and forgetting about it — you would have earned (minus fees) about 8 percent.

But real people don’t invest that way. We trade. We watch CNBC and listen to Jim Cramer yell. Despite knowing better, we give into the genetic tendency to get more of those things that give us pleasure — buy high — and get rid of things that cause us pain — sell low. We’re just wired that way.

What is really interesting is how little this seems to change over the years. When it comes to investing, the tendency to behave badly is not going away.

So what do we do about it?

1. Admit it. Like any destructive behavior that first step to fixing it is to admit that there is a problem in the first place. Being honest with yourself and reviewing past decisions will help:

* Did you get caught up in the tech bubble in 1999?
* Real estate in 2006?
* Did you sell in 2002, late 2007, or early 2008?

2. Develop a checklist. Then go through that checklist before you make major investment decisions. It works for pilots and doctors. It will help you avoid mistakes in investment behavior, too.

Try writing down the proposed change and then let it sit for 24 hours, or call a trusted friend or adviser and walk them through your thinking before you make the change. Often just hearing yourself explain why you want to make the change will convince you to forget the whole thing.

3. Don’t play. Sometimes the answer might be to take our money and go home. There is nothing that says you have to invest in the stock market to be considered an intelligent human being. It is fine to recognize that it might work better to follow Will Rogers’s advice and focus on the return of your money instead of the return on your money.

The reality is investing successfully is hard. But hopefully by focusing on our behavior, we can close this gap in the next 20 years.

bluesky · 2010-08-31 11:06:08

the "goodness" of High Frequency Trading from two of our esteemed Congressmen looking to be re-elected... http://blog.themistrading.com/?p=1354
........................................................................................

Bachus Hensarling Letter to Schapiro, and Our Comments.

This morning we awaken to find the Bachus/Hensarling August 24th 2010 letter to Mary Schapiro in our inbox, which we include as an attachment for you to read. Ever since the HFT industry formed their own lobbying group in Washington DC a few months back, we have expected a letter like this to surface. We certainly have expected it to surface given the recent anti-HFT media attention post May 6th. Please allow us summarize their letter for you.

“In 2008 markets functioned exceptionally well. High Frequency Trading is beneficial to all. We all benefit from their liquidity. If it goes away we will all suffer. Spreads have never been narrower. Costs of trading have never been lower. There is no evidence that flash order types are bad. Don’t make any changes unless you have more data. Turning back the clock on innovation will do harm. With our bias in mind, please answer in writing to us by September 10th, 2010 the following 15 rhetorical questions.”

Had we told you this letter was written by the HFT lobby, you would have shrugged while commenting that such drivel is what you would expect that lobby to say. Perhaps we all should shrug less, and be more alarmed, that it comes from two congressman up for re-election, and written on the Committee on Financial Services letterhead. Incidentally, you can see who contributed to Representative Bachus so far in 2010 here : Open Secrets Bachus, and you can see who contributed to Representative Hensarling so far in 2010 here: Open Secrets Hensarling.

We understand how politics work in the United States. We know there will always be certain groups that have the ear of certain Congressman. However, let us compare this letter, with its open-ended and one-sided blatant bias with the well thought out letter from Senator Kaufman dated August 5th, where he analyzed our market structure deficiencies and offered up 9 separate potential solutions Kaufman Letter to Schapiro.

The Bachus/Hensarling letter states as fact that the US markets functioned exceptionally well during the financial meltdown of 2008. But did they? Where is the Congressmen’s data to support that claim, aside from comments made by HFT proponents? In addition, their letter wants us all to ignore everything that has happened in 2009 and subsequently regarding HFT. They want us to ignore the arrest of Sergey Aleynikov, who stole code from Goldman Sachs that could be used to manipulate markets. They want us to ignore the studies by brokerage firms and TCA firms that demonstrate the negative and predatory effects of HFT. They want you to pretend you never heard of quote stuffing.

The Bachus/ Hensarling letter also states as fact that our markets remain efficient, transparent, and accessible to all investors. They obviously do not understand that our markets have become tiered, based on the degree of co-location paid to the exchanges. They also don’t understand that 20% of trading volumes are executed in the dark, which is less than transparent, shall we say. They also don’t understand that our markets have altered their focus from investing and towards ultra-short term hyper trading, collateral damage and capital formation be damned.

The Bachus/Hensarling letter states that, as we all do not know what caused the events of May 6th, we should refrain from using terms like “Flash Crash”, as it presumes flash order types were the culprit. To this point, we say the following: not only is the “re-naming and spin management” game a silly one for the civil servants, whose salaries we pay, to play, but their argument demonstrates the lack of knowledge by these two Congressmen. The May 6th Flash Crash is aptly named, because the events of that day took place in flash-like speed. The May 6th Flash Crash was never named because of any reference to flash order types. The Congressmen know precious little of the issue they are attempting to address! Given the other portions of this letter that specifically address the SEC’s focus on flash order types, we easily see the real purpose of this letter, which is to advocate the position of those who wish to utilize these order types in equities and options.

We suggest that the Congressmen listen to what the real owners of our market have been saying. They may want to read the letters recently written from Iridian Asset, Southeastern Asset, and Baron Asset. Or listen to the words of Invesco and Principal Global. These large institutional players have become frustrated with our fragmented market structure and they are now demanding change. Most of them have warned that unless significant changes are made then we should expect more flash crashes to happen. They may also want to listen to the legions of retail investors who have totally lost confidence in our equity market and are withdrawing their funds every month. So, who are we to believe? Two up-for-reelection Congressmen who appear highly conflicted, or the true owners of this market, as well as the outgoing Senator Kaufman who has clearly demonstrated that he understands what the issues are facing our market structure?

B&H letter available via - http://www.zerohedge.com/article/bachus … ttachments
Kaufman letter - http://www.sec.gov/comments/s7-27-09/s72709-96.pdf

agrossfarm · 2010-09-02 07:06:12

See, the Premium Service is really inexpensive and let's people join with less than $10 million!
++++++++++++++++++++++++++++++++++
Rob Carrick

From Thursday's Globe and Mail Published on Wednesday, Sep. 01, 2010 6:39PM EDT Last updated on Thursday, Sep. 02, 2010 7:35AM EDT

You may never be a member of an exclusive investment club for the wealthy called TIGER 21, but you can still benefit from its expertise.

The Investment Group for Enhanced Results in the 21st Century has about 140 members in the United States and expects to sign up more than 50 Canadians by next year. Membership requirements include at least $10-million (U.S.) in investable assets and a willingness to pay $30,000 a year in membership fees.

The co-founder of the New York-based group is Michael Sonnenfeldt, a onetime real estate entrepreneur who in addition to running TIGER 21 manages investments and runs a solar lighting company. Here, he discusses risk, portfolio building and other issues from the perspective of the wealthy investor.

What is the most common investing objective with your members, preserving what they already have or growing it?

Capital preservation. About 70 per cent of our members are former entrepreneurs who sold their business, and now their primary economic activity is wealth preservation. They already made the choice to get off the merry-go-round.

Do your members all have investment advisers?

No. Some do and some don’t. We have a very clear predisposition that we’re agnostic on whether somebody can be more or less successful using an investment adviser. The skills that we teach are how do you become the CEO of your investment company. Some CEOs are successful by being a hands-on manager, and some CEOs are successful by delegating.

What percentage of your members have online brokerage accounts to place their own trades?

I would imagine that over half have online brokerage accounts. But a lot of our members have an incredibly small allocation that they “play” with, and that would be in an online brokerage account.

What type of asset mix would you typically see in member investment portfolios?

The most recent survey we did shows our members are roughly 30 per cent in long-only equities, a healthy percentage of which are international [long-only means investing to benefit from price appreciation, rather than short-selling to profit on price declines]. They probably have 10 to 12 per cent in private equity [companies that aren’t publicly traded], 10 to 15 per cent in bonds and 25 per cent in real estate, about half of which would be personal real estate. The other half would be investment real estate. They would also have 8 to 12 per cent in cash. Recently, we’ve noticed that there’s a 5- to 10-per-cent allocation to gold, or more, with some of our members. The balance would be in hedge funds.

Hedge funds would seem to the “it” product for your demographic. How popular are they in reality?

At the top of the market, let’s say in mid or early 2008, our members had between 10 and 15 per cent in hedge funds. By the end of 2009, they appeared to have closer to 4 to 5 per cent in hedge funds. That was largest shift in any asset allocation that we’d ever seen, keeping mind that half of that reduction was direct losses in the hedge fund and the other half was withdrawals and liquidations.

How important are fees and commissions to high-net-worth investors?

Our members are paying more and more attention to fees.

Let’s talk about passive index investing versus active management. Which way do your people lean?

There are a few purists at either end, but most members would be somewhere in the middle based on their experiences.

What kinds of investments do your members own? Let’s start with mutual funds.

The people who have been in Tiger a while, read a few of the books on our list and been to a few of our presentations, would think that if they’re not going to be a stock-picker and own individual stocks, they would move more toward index funds rather than mutual funds. But I would imagine one-third of our members probably own mutual funds.

What about exchange-traded funds?

ETFs are hot. What’s so exciting about them is that there’s such a broad array of them that you can pick any industry, commodity or theme and express it through some combination of ETFs.

What’s the mood of the membership right now about the markets?

Pretty bleak. It looks like there’s an increasing possibility that we will be going into a double-dip recession here in America, and the situation isn’t much better in Europe. The overwhelming concern is the deficit. Most Tiger members are people who got to be successful because they had to make a budget every year and, if they spent more than they received, they were out of business. The notion that we’re running a trillion-and-a-half-dollar deficit is enough to choke on every time you think about it.

--------------------

Fast facts on TIGER 21

Stands for: The Investment Group for Enhanced Results in the 21st Century.

Founded: In 1999 by Michael Sonnenfeldt, a real estate entrepreneur, and Richard Lavin.

Purpose: To give high-net-worth individuals a forum to share information and expertise on investing.

On the agenda: Guest speakers, presentations on investments by members and “portfolio defence,” where members disclose their investments and then receive feedback from the group.

Membership requirement: $10-million (U.S.) in investable assets, $30,000 in annual dues. Locations: Based in New York, with chapters in San Francisco, Los Angeles, San Diego, Miami, and Dallas, and plans to expand to Washington, D.C. and Chicago.

Membership: 140 individuals with a combined net worth of about $10-billion.

Coming to Canada: In 2011.

Trust Intelligence

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