Help us to make TickerTalk work better for you by giving us your suggestions, advice and feedback here.

How useful is TickerTalk to you now?

Very useful Quiet useful Not very useful Useless

Select your feedback topic:

Bug Suggestion Compliment Complaint

What can we do to improve TickerTalk for you....

FEEDBACK
 
Search:
Posted: 28 January 2010 - 5 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Ask...

For delegates attending Standard OST course:- Click here to fill in Course Feedback Form


Total votes: 0
Average(Out of 5): 0
Posted: 28 January 2010 - 5 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Ask...

For delegates attending Standard OST course:- Click here to fill in Course Feedback Form


Total votes: 0
Average(Out of 5): 0
Posted: 28 January 2010 - 5 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Ask...

For delegates attending Standard OST course:- Click here to fill in Course Feedback Form


Total votes: 0
Average(Out of 5): 0
Posted: 28 January 2010 - 2 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

 

 

1, When I want investment advice, I get it from:

 

a) The Wall Street Journal b) The Street Dogs column c) Complete strangers at the video store.

 

2. When I wake up in the morning, I:

a) Shower b) Get dressed c) Lift my head off the keyboard and start shorting stocks.

 

3. In order to trade stocks intelligently, one must have a:

a) BA b) MBA c) Mouse.

 

4. The last book I read was:

a) Madame Bovary. b) How to Invest like Warren Buffett c) Windows 2000 for Dummies.

 

5. I go to the doctor:

a) Once a year. b) Once every two years. c) When I put my fist through the screen.

 

6. GE is a company that manufactures:

a) Paper b) Cowboys c) I have no idea but I just bought two hundred shares.

 

7. When I am in a bar and meet a beautiful woman/man who seems to be attracted to me, the first thing I look at is:

a) Her/his face b) Her/his body c) CNBC screen

 

8. Beating the spread refers to:

a) The way whipped cream cheese is made

b) The way Honduran peasant women clean their bed coverings

c) Don’t know/care.

 

9. P:E ratio means:

a) Something to do with, like, stocks and junk like that

b) The number of times an hour that a day trader has to use the bathroom

c) Like I care?

 

10. A tick is:

a) A nervous syndrome common to day traders

b) Something that often lives in a day trader’s hair

c) These questions are really starting to annoy me, dude!

 

If you answered (c) to any of the above questions ... Congratulations! You have what it takes to succeed

in the fast-paced, action-packed world of day trading!

 

 


Total votes: 0
Average(Out of 5): 0
Posted: 3 February 2010 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

VIRGIN TERRITORY

 

I am often asked if I have found a secret — or at least a consistent answer — to successfully building businesses over my career. So I’ve spent some time thinking about what characterises so many of Virgin’s successful ventures and, importantly, what went wrong when we did not get it right. Reflecting across 40 years, I have come up with five “secrets”.

 

1 Enjoy what you are doing. Because starting a business is a huge amount of hard work, requiring a great deal of time, you had better enjoy it. When I started Virgin from a basement flat in West London, I did not set out to build a business empire. I set out to create something I enjoyed that would pay the bills. There was no great plan or strategy. The name itself was thought up on the hoof. One night some friends and I were chatting over a few drinks and decided to call our group Virgin, as we were all new to business. The name stuck and had a certain ring to it.

For me, building a business is all about doing something to be proud of, bringing talented people together and creating something that’s going to make a real difference to other people’s lives.  A businesswoman or a businessman is not unlike an artist. What you have when you start a company is a blank canvas and you have to fill it. Just as a good artist has to get every single detail right on that canvas, a businessman or businesswoman has to get every single little thing right when first setting up in business in order to succeed. However, unlike a work of art, the business is never finished. It constantly evolves. If a businessperson sets out to make a real difference to other people’s lives, and achieves that, he or she will be able to pay the bills and have a successful business to boot.

 

2 Create something that stands out. Whether you have a product, a service or a brand, it is not easy to start a company and to survive and thrive in the modern world. In fact, you’ve got to do something radically different to make a mark today. Look at the most successful businesses of the past 20 years. Microsoft, Google or Apple, for example, shook up a sector by doing something that hadn’t ever been done and by continually innovating. They are now among the dominant forces.

 

3 Create something that everybody who works for you is really proud of. Businesses generally consist of a group of people, and they are your biggest assets.

 

4 Be a good leader. As a leader you have to be a really good listener. You need to know your own mind but there is no point in imposing your views on others without some debate. No one has a monopoly on good ideas or good advice. Get out there, listen to people, draw people out, and learn from them. As a leader you’ve also got to be extremely good at praising people. Never openly criticise people; never lose your temper, and always lavish praise on your colleagues for a job well done. People flourish if they’re praised. Usually they don’t need to be told when they’ve done wrong because most of the time they know it. If somebody is not working out, don’t automatically throw him or her out of the company. A company should genuinely be a family. So see if there’s another job within the company that suits them better. On most occasions you’ll find something for every single kind of personality.

 

5 Be visible. A good leader does not get stuck behind a desk. I’ve never worked in an office — I’ve always worked from home — but I get out and about, meeting people. It seems I am travelling all the time but I always have a notebook in my back pocket to jot down questions, concerns or good ideas. If I’m on a Virgin Atlantic plane, I make certain to get out and meet all the staff and many of the passengers. If you meet a group of Virgin Atlantic crew members, you are going to have at least 10  suggestions or ideas. If I don’t write them down, I may remember only one the next day. By writing them down, I remember all 10.

Get out and shake hands with all the passengers on the plane, and again there are going to be people who had a problem or have a suggestion. Write it down, make sure that you get their names, get their e-mail addresses, and make sure, the next day, that you respond to them. Of course, I try to make sure we appoint MDs who have the same philosophy. That way we can run a large group of companies in the same way a small business owner runs a family business — keeping it responsive and friendly.

When you’re building a business from scratch, the key word for many years is “survival”. It’s tough to survive. In the beginning you haven’t got the time or energy to worry about saving the world. You’ve just got to fight to make sure you can look after your bank manager and be able to pay the bills. Literally, your full concentration has to be on surviving. Obviously, if you don’t survive, just remember most businesses fail and the best lessons are usually learned from failure. You must not get too dispirited. Just get back up and try again!

 

©2010 Richard Branson


Total votes: 0
Average(Out of 5): 0
Posted: 3 February 2010 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

VIRGIN TERRITORY

 

I am often asked if I have found a secret — or at least a consistent answer — to successfully building businesses over my career. So I’ve spent some time thinking about what characterises so many of Virgin’s successful ventures and, importantly, what went wrong when we did not get it right. Reflecting across 40 years, I have come up with five “secrets”.

 

1 Enjoy what you are doing. Because starting a business is a huge amount of hard work, requiring a great deal of time, you had better enjoy it. When I started Virgin from a basement flat in West London, I did not set out to build a business empire. I set out to create something I enjoyed that would pay the bills. There was no great plan or strategy. The name itself was thought up on the hoof. One night some friends and I were chatting over a few drinks and decided to call our group Virgin, as we were all new to business. The name stuck and had a certain ring to it.

For me, building a business is all about doing something to be proud of, bringing talented people together and creating something that’s going to make a real difference to other people’s lives.  A businesswoman or a businessman is not unlike an artist. What you have when you start a company is a blank canvas and you have to fill it. Just as a good artist has to get every single detail right on that canvas, a businessman or businesswoman has to get every single little thing right when first setting up in business in order to succeed. However, unlike a work of art, the business is never finished. It constantly evolves. If a businessperson sets out to make a real difference to other people’s lives, and achieves that, he or she will be able to pay the bills and have a successful business to boot.

 

2 Create something that stands out. Whether you have a product, a service or a brand, it is not easy to start a company and to survive and thrive in the modern world. In fact, you’ve got to do something radically different to make a mark today. Look at the most successful businesses of the past 20 years. Microsoft, Google or Apple, for example, shook up a sector by doing something that hadn’t ever been done and by continually innovating. They are now among the dominant forces.

 

3 Create something that everybody who works for you is really proud of. Businesses generally consist of a group of people, and they are your biggest assets.

 

4 Be a good leader. As a leader you have to be a really good listener. You need to know your own mind but there is no point in imposing your views on others without some debate. No one has a monopoly on good ideas or good advice. Get out there, listen to people, draw people out, and learn from them. As a leader you’ve also got to be extremely good at praising people. Never openly criticise people; never lose your temper, and always lavish praise on your colleagues for a job well done. People flourish if they’re praised. Usually they don’t need to be told when they’ve done wrong because most of the time they know it. If somebody is not working out, don’t automatically throw him or her out of the company. A company should genuinely be a family. So see if there’s another job within the company that suits them better. On most occasions you’ll find something for every single kind of personality.

 

5 Be visible. A good leader does not get stuck behind a desk. I’ve never worked in an office — I’ve always worked from home — but I get out and about, meeting people. It seems I am travelling all the time but I always have a notebook in my back pocket to jot down questions, concerns or good ideas. If I’m on a Virgin Atlantic plane, I make certain to get out and meet all the staff and many of the passengers. If you meet a group of Virgin Atlantic crew members, you are going to have at least 10  suggestions or ideas. If I don’t write them down, I may remember only one the next day. By writing them down, I remember all 10.

Get out and shake hands with all the passengers on the plane, and again there are going to be people who had a problem or have a suggestion. Write it down, make sure that you get their names, get their e-mail addresses, and make sure, the next day, that you respond to them. Of course, I try to make sure we appoint MDs who have the same philosophy. That way we can run a large group of companies in the same way a small business owner runs a family business — keeping it responsive and friendly.

When you’re building a business from scratch, the key word for many years is “survival”. It’s tough to survive. In the beginning you haven’t got the time or energy to worry about saving the world. You’ve just got to fight to make sure you can look after your bank manager and be able to pay the bills. Literally, your full concentration has to be on surviving. Obviously, if you don’t survive, just remember most businesses fail and the best lessons are usually learned from failure. You must not get too dispirited. Just get back up and try again!

 

©2010 Richard Branson


Total votes: 0
Average(Out of 5): 0
Posted: 24 February 2010 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Off-beat

 

The London Telegraph reports that Austrian millionaire Karl Rabeder is “giving away every penny of his £3 million fortune after realising his riches were making him unhappy.”

Rabeder told the paper, "It was the biggest shock in my life, when I realised how horrible, soulless and without feeling the five-star lifestyle is. My idea is to have nothing left. Absolutely nothing. Money is counterproductive -- it prevents happiness to come."

Rabeder will be giving his money to charities he set up in Central and Latin America. He said he made his decision while on vacation in Hawaii.

Rabeder follows in the footsteps of other people of means who have come to the conclusion that, net worth does not equal self-worth.

There seems to be a (non-scientific, admittedly) correlation between the amount of money given to charity by the country’s most generous businesspeople and the success of their businesses.

1. Bill Gates, founder of Microsoft (MSFT)
Total donated: $28 billion


The Bill and Melinda Gates Foundation backs coalition groups that attempt to solve seemingly unsolvable health issues, particularly HIV, malaria, and tuberculosis.

Here’s how Microsoft has fared over the years:

alt

2. George Soros
Total donated: $7.2 billion


Soros gives to a variety of causes, including needle-exchange clinics in California, he funds scientific research in Russia, and founded MoveOn.org.

As Soros does not head up a public company, no chart is available to track his financial success.

3. Gordon Moore, co-founder of Intel (INTC)
Total donated: $6.8 billion


The Gordon and Betty Moore Foundation focuses on science, environmental issues, and takes a special interest in nursing education, as Betty Moore once received the wrong medication from a nurse while in the hospital.

Here’s how Intel has fared over the years:


alt

4. Warren Buffett
Total donated: $6.7 billion


In 2006, Buffett made a pledge to give more than $30 billion over 20 years to the Bill and Melinda Gates Foundation -- the largest single charitable donation in history.

Here’s how Berkshire Hathaway (BRK.A) has fared over the years:

alt

But in at least one case, the converse appears to hold true: Donald Trump.

Trump, who has chased the almighty dollar unlike any other -- lending his name to everything from clothing to vodka to bottled water to magazines to disposable cameras to steaks to golf courses to modeling agencies to an online travel website -- will even lend himself out for cash. If you're having a party, The Donald will appear for the jaw-dropping rate of $300,000 an hour.

Trump also happens to be one of the business world’s least-generous figures.

The Smoking Gun calls Trump “an absolute cheapskate” and points out that the Donald J. Trump Foundation doled out $287,000 in 2002, down from 2001's $306,000. (These were the latest figures available at press time). They describe these figures as “remarkably paltry -- not to mention pathetic -- sum[s] for someone who's reportedly worth 10 figures.”

Let’s take a look at how Trump Entertainment Resorts (TRMP) has fared over the years:

alt

Yes, you’re reading that chart correctly. The stock is currently trading at $0.08 a share.

Which means, if you’re an investor holding 3,750,000 shares of TRMP, you’ve got just enough to spend 60 minutes in the company of the great man himself.

From MInyanville


Total votes: 0
Average(Out of 5): 0
Posted: 24 February 2010 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Off-beat

 

The London Telegraph reports that Austrian millionaire Karl Rabeder is “giving away every penny of his £3 million fortune after realising his riches were making him unhappy.”

Rabeder told the paper, "It was the biggest shock in my life, when I realised how horrible, soulless and without feeling the five-star lifestyle is. My idea is to have nothing left. Absolutely nothing. Money is counterproductive -- it prevents happiness to come."

Rabeder will be giving his money to charities he set up in Central and Latin America. He said he made his decision while on vacation in Hawaii.

Rabeder follows in the footsteps of other people of means who have come to the conclusion that, net worth does not equal self-worth.

There seems to be a (non-scientific, admittedly) correlation between the amount of money given to charity by the country’s most generous businesspeople and the success of their businesses.

1. Bill Gates, founder of Microsoft (MSFT)
Total donated: $28 billion


The Bill and Melinda Gates Foundation backs coalition groups that attempt to solve seemingly unsolvable health issues, particularly HIV, malaria, and tuberculosis.

Here’s how Microsoft has fared over the years:

alt

2. George Soros
Total donated: $7.2 billion


Soros gives to a variety of causes, including needle-exchange clinics in California, he funds scientific research in Russia, and founded MoveOn.org.

As Soros does not head up a public company, no chart is available to track his financial success.

3. Gordon Moore, co-founder of Intel (INTC)
Total donated: $6.8 billion


The Gordon and Betty Moore Foundation focuses on science, environmental issues, and takes a special interest in nursing education, as Betty Moore once received the wrong medication from a nurse while in the hospital.

Here’s how Intel has fared over the years:


alt

4. Warren Buffett
Total donated: $6.7 billion


In 2006, Buffett made a pledge to give more than $30 billion over 20 years to the Bill and Melinda Gates Foundation -- the largest single charitable donation in history.

Here’s how Berkshire Hathaway (BRK.A) has fared over the years:

alt

But in at least one case, the converse appears to hold true: Donald Trump.

Trump, who has chased the almighty dollar unlike any other -- lending his name to everything from clothing to vodka to bottled water to magazines to disposable cameras to steaks to golf courses to modeling agencies to an online travel website -- will even lend himself out for cash. If you're having a party, The Donald will appear for the jaw-dropping rate of $300,000 an hour.

Trump also happens to be one of the business world’s least-generous figures.

The Smoking Gun calls Trump “an absolute cheapskate” and points out that the Donald J. Trump Foundation doled out $287,000 in 2002, down from 2001's $306,000. (These were the latest figures available at press time). They describe these figures as “remarkably paltry -- not to mention pathetic -- sum[s] for someone who's reportedly worth 10 figures.”

Let’s take a look at how Trump Entertainment Resorts (TRMP) has fared over the years:

alt

Yes, you’re reading that chart correctly. The stock is currently trading at $0.08 a share.

Which means, if you’re an investor holding 3,750,000 shares of TRMP, you’ve got just enough to spend 60 minutes in the company of the great man himself.

From MInyanville


Total votes: 0
Average(Out of 5): 0
Posted: 24 February 2010 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Off-beat

 

The London Telegraph reports that Austrian millionaire Karl Rabeder is “giving away every penny of his £3 million fortune after realising his riches were making him unhappy.”

Rabeder told the paper, "It was the biggest shock in my life, when I realised how horrible, soulless and without feeling the five-star lifestyle is. My idea is to have nothing left. Absolutely nothing. Money is counterproductive -- it prevents happiness to come."

Rabeder will be giving his money to charities he set up in Central and Latin America. He said he made his decision while on vacation in Hawaii.

Rabeder follows in the footsteps of other people of means who have come to the conclusion that, net worth does not equal self-worth.

There seems to be a (non-scientific, admittedly) correlation between the amount of money given to charity by the country’s most generous businesspeople and the success of their businesses.

1. Bill Gates, founder of Microsoft (MSFT)
Total donated: $28 billion


The Bill and Melinda Gates Foundation backs coalition groups that attempt to solve seemingly unsolvable health issues, particularly HIV, malaria, and tuberculosis.

Here’s how Microsoft has fared over the years:

alt

2. George Soros
Total donated: $7.2 billion


Soros gives to a variety of causes, including needle-exchange clinics in California, he funds scientific research in Russia, and founded MoveOn.org.

As Soros does not head up a public company, no chart is available to track his financial success.

3. Gordon Moore, co-founder of Intel (INTC)
Total donated: $6.8 billion


The Gordon and Betty Moore Foundation focuses on science, environmental issues, and takes a special interest in nursing education, as Betty Moore once received the wrong medication from a nurse while in the hospital.

Here’s how Intel has fared over the years:


alt

4. Warren Buffett
Total donated: $6.7 billion


In 2006, Buffett made a pledge to give more than $30 billion over 20 years to the Bill and Melinda Gates Foundation -- the largest single charitable donation in history.

Here’s how Berkshire Hathaway (BRK.A) has fared over the years:

alt

But in at least one case, the converse appears to hold true: Donald Trump.

Trump, who has chased the almighty dollar unlike any other -- lending his name to everything from clothing to vodka to bottled water to magazines to disposable cameras to steaks to golf courses to modeling agencies to an online travel website -- will even lend himself out for cash. If you're having a party, The Donald will appear for the jaw-dropping rate of $300,000 an hour.

Trump also happens to be one of the business world’s least-generous figures.

The Smoking Gun calls Trump “an absolute cheapskate” and points out that the Donald J. Trump Foundation doled out $287,000 in 2002, down from 2001's $306,000. (These were the latest figures available at press time). They describe these figures as “remarkably paltry -- not to mention pathetic -- sum[s] for someone who's reportedly worth 10 figures.”

Let’s take a look at how Trump Entertainment Resorts (TRMP) has fared over the years:

alt

Yes, you’re reading that chart correctly. The stock is currently trading at $0.08 a share.

Which means, if you’re an investor holding 3,750,000 shares of TRMP, you’ve got just enough to spend 60 minutes in the company of the great man himself.

From MInyanville


Total votes: 0
Average(Out of 5): 0
Posted: 24 February 2010 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Off-beat

 

The London Telegraph reports that Austrian millionaire Karl Rabeder is “giving away every penny of his £3 million fortune after realising his riches were making him unhappy.”

Rabeder told the paper, "It was the biggest shock in my life, when I realised how horrible, soulless and without feeling the five-star lifestyle is. My idea is to have nothing left. Absolutely nothing. Money is counterproductive -- it prevents happiness to come."

Rabeder will be giving his money to charities he set up in Central and Latin America. He said he made his decision while on vacation in Hawaii.

Rabeder follows in the footsteps of other people of means who have come to the conclusion that, net worth does not equal self-worth.

There seems to be a (non-scientific, admittedly) correlation between the amount of money given to charity by the country’s most generous businesspeople and the success of their businesses.

1. Bill Gates, founder of Microsoft (MSFT)
Total donated: $28 billion


The Bill and Melinda Gates Foundation backs coalition groups that attempt to solve seemingly unsolvable health issues, particularly HIV, malaria, and tuberculosis.

Here’s how Microsoft has fared over the years:

alt

2. George Soros
Total donated: $7.2 billion


Soros gives to a variety of causes, including needle-exchange clinics in California, he funds scientific research in Russia, and founded MoveOn.org.

As Soros does not head up a public company, no chart is available to track his financial success.

3. Gordon Moore, co-founder of Intel (INTC)
Total donated: $6.8 billion


The Gordon and Betty Moore Foundation focuses on science, environmental issues, and takes a special interest in nursing education, as Betty Moore once received the wrong medication from a nurse while in the hospital.

Here’s how Intel has fared over the years:


alt

4. Warren Buffett
Total donated: $6.7 billion


In 2006, Buffett made a pledge to give more than $30 billion over 20 years to the Bill and Melinda Gates Foundation -- the largest single charitable donation in history.

Here’s how Berkshire Hathaway (BRK.A) has fared over the years:

alt

But in at least one case, the converse appears to hold true: Donald Trump.

Trump, who has chased the almighty dollar unlike any other -- lending his name to everything from clothing to vodka to bottled water to magazines to disposable cameras to steaks to golf courses to modeling agencies to an online travel website -- will even lend himself out for cash. If you're having a party, The Donald will appear for the jaw-dropping rate of $300,000 an hour.

Trump also happens to be one of the business world’s least-generous figures.

The Smoking Gun calls Trump “an absolute cheapskate” and points out that the Donald J. Trump Foundation doled out $287,000 in 2002, down from 2001's $306,000. (These were the latest figures available at press time). They describe these figures as “remarkably paltry -- not to mention pathetic -- sum[s] for someone who's reportedly worth 10 figures.”

Let’s take a look at how Trump Entertainment Resorts (TRMP) has fared over the years:

alt

Yes, you’re reading that chart correctly. The stock is currently trading at $0.08 a share.

Which means, if you’re an investor holding 3,750,000 shares of TRMP, you’ve got just enough to spend 60 minutes in the company of the great man himself.

From MInyanville


Total votes: 0
Average(Out of 5): 0
Posted: 24 February 2010 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Off-beat

 

The London Telegraph reports that Austrian millionaire Karl Rabeder is “giving away every penny of his £3 million fortune after realising his riches were making him unhappy.”

Rabeder told the paper, "It was the biggest shock in my life, when I realised how horrible, soulless and without feeling the five-star lifestyle is. My idea is to have nothing left. Absolutely nothing. Money is counterproductive -- it prevents happiness to come."

Rabeder will be giving his money to charities he set up in Central and Latin America. He said he made his decision while on vacation in Hawaii.

Rabeder follows in the footsteps of other people of means who have come to the conclusion that, net worth does not equal self-worth.

There seems to be a (non-scientific, admittedly) correlation between the amount of money given to charity by the country’s most generous businesspeople and the success of their businesses.

1. Bill Gates, founder of Microsoft (MSFT)
Total donated: $28 billion


The Bill and Melinda Gates Foundation backs coalition groups that attempt to solve seemingly unsolvable health issues, particularly HIV, malaria, and tuberculosis.

Here’s how Microsoft has fared over the years:

alt

2. George Soros
Total donated: $7.2 billion


Soros gives to a variety of causes, including needle-exchange clinics in California, he funds scientific research in Russia, and founded MoveOn.org.

As Soros does not head up a public company, no chart is available to track his financial success.

3. Gordon Moore, co-founder of Intel (INTC)
Total donated: $6.8 billion


The Gordon and Betty Moore Foundation focuses on science, environmental issues, and takes a special interest in nursing education, as Betty Moore once received the wrong medication from a nurse while in the hospital.

Here’s how Intel has fared over the years:


alt

4. Warren Buffett
Total donated: $6.7 billion


In 2006, Buffett made a pledge to give more than $30 billion over 20 years to the Bill and Melinda Gates Foundation -- the largest single charitable donation in history.

Here’s how Berkshire Hathaway (BRK.A) has fared over the years:

alt

But in at least one case, the converse appears to hold true: Donald Trump.

Trump, who has chased the almighty dollar unlike any other -- lending his name to everything from clothing to vodka to bottled water to magazines to disposable cameras to steaks to golf courses to modeling agencies to an online travel website -- will even lend himself out for cash. If you're having a party, The Donald will appear for the jaw-dropping rate of $300,000 an hour.

Trump also happens to be one of the business world’s least-generous figures.

The Smoking Gun calls Trump “an absolute cheapskate” and points out that the Donald J. Trump Foundation doled out $287,000 in 2002, down from 2001's $306,000. (These were the latest figures available at press time). They describe these figures as “remarkably paltry -- not to mention pathetic -- sum[s] for someone who's reportedly worth 10 figures.”

Let’s take a look at how Trump Entertainment Resorts (TRMP) has fared over the years:

alt

Yes, you’re reading that chart correctly. The stock is currently trading at $0.08 a share.

Which means, if you’re an investor holding 3,750,000 shares of TRMP, you’ve got just enough to spend 60 minutes in the company of the great man himself.

From MInyanville


Total votes: 0
Average(Out of 5): 0
Posted: 7 April 2010 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

 

In characteristically tough prose, several steps in the USA big banks' world were outlined as heinous cons in a piece originally written by Matt Taibbi on Rollingstone.com, and I have posted it all in several parts.

 

 

Parts 1 and 2 described Con 1 as  the "Swoop and Squat," in which a target car is trapped between two perpetrator vehicles and wrecked, with the mark in the game being the target's insurance company — in this case, the government, Con 2 as the "DollarStore" or "Big Store" scam — popularized in movies like The Sting — a huge cast of con artists is hired to create a whole fake environment into which the unsuspecting mark walks and gets robbed over and over again. A warehouse is converted into a makeshift casino or off-track betting parlor, the fool walks in with money, leaves without it. Con 3 was the “Pig in the Poke”. At one point or another, pretty much everyone who takes drugs has been burned by this one, also known as the "Rocks in the Box" scam or, in its more elaborate variations, the "Jamaican Switch." Someone sells you what looks like an eightball of coke in a baggie, you get home and it's baby powder. The scam's name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he'd miss the switch, then get home and find a tied-up cat in there instead. Hence the expression "Don't let the cat out of the bag."

 

 

Part 3  gave you Cons 4 and 5. Con 4 – The “Rumanian Box” was one of the great innovations of Victor Lustig, the legendary Depression-era con man who wrote the famous "Ten Commandments for Con Men". This was a little machine that a mark would put a blank piece of paper into, only to see real currency come out the other side. The brilliant Lustig sold this Rumanian Box over and over again for vast sums — but he's been outdone by the modern barons of Wall Street, who managed to get themselves a real Rumanian Box. How they accomplished this is a story that by itself highlights the challenge of placing this era in any kind of historical context of known financial crime. What the banks did was something that was never — and never could have been — thought of before. They took so much money from the government, and then did so little with it, that the state was forced to start printing new cash to throw at them. Even the great Lustig in his wildest, horniest dreams could never have dreamed up this one. Con 5 was the “Big Mitt” All of that Rumanian box paper was made even more valuable by running it through the next stage of the grift. Michael Masters, one of the country's leading experts on commodities trading, compares this part of the scam to the poker game in the Bill Murray comedy Stripes. "It's like that scene where John Candy leans over to the guy who's new at poker and says, 'Let me see your cards,' then starts giving him advice," Masters says. "He looks at the hand, and the guy has bad cards, and he's like, 'Bluff me, come on! If it were me, I'd bet everything!' That's what it's like. It's like they're looking at your cards as they give you advice." In more ways than one can count, the economy in the bailout era turned into a "Big Mitt," the con man's name for a rigged poker game. Everybody was indeed looking at everyone else's cards, in many cases with state sanction. Only taxpayers and clients were left out of the loop. At the same time the Fed and the Treasury were making massive, earthshaking moves like quantitative easing and TARP, they were also consulting regularly with private advisory boards that include every major player on Wall Street. The Treasury Borrowing Advisory Committee has a J.P. Morgan executive as its chairman and a Goldman executive as its vice chairman, while the board advising the Fed includes bankers from Capital One and Bank of New York Mellon. That means that, in addition to getting great gobs of free money, the banks were also getting clear signals about when they were getting that money, making it possible to position themselves to make the appropriate investments.

 

The benefits of free money are outlined in a more strait-laced fashion in this video…

 

 

 

 

The final part now tells of the last two cons, the Wire, and the Reload. Enjoy it all…

 

Cheers

Stuart

 

 

 

"CON #6 THE WIRE

 

Here's the thing about our current economy. When Goldman and Morgan Stanley transformed overnight from investment banks into commercial banks, we were told this would mean a new era of "significantly tighter regulations and much closer supervision by bank examiners," as The New York Times put it the very next day. In reality, however, the conversion of Goldman and Morgan Stanley simply completed the dangerous concentration of power and wealth that began in 1999, when Congress repealed the Glass-Steagall Act — the Depression-era law that had prevented the merger of insurance firms, commercial banks and investment houses. Wall Street and the government became one giant dope house, where a few major players share valuable information between conflicted departments the way junkies share needles.

 

One of the most common practices is a thing called front-running, which is really no different from the old "Wire" con, another scam popularized in The Sting. But instead of intercepting a telegraph wire in order to bet on racetrack results ahead of the crowd, what Wall Street does is make bets ahead of valuable information they obtain in the course of everyday business.

 

Say you're working for the commodities desk of a big investment bank, and a major client — a pension fund, perhaps — calls you up and asks you to buy a billion dollars of oil futures for them. Once you place that huge order, the price of those futures is almost guaranteed to go up. If the guy in charge of asset management a few desks down from you somehow finds out about that, he can make a fortune for the bank by betting ahead of that client of yours. The deal would be instantaneous and undetectable, and it would offer huge profits. Your own client would lose money, of course — he'd end up paying a higher price for the oil futures he ordered, because you would have driven up the price. But that doesn't keep banks from screwing their own customers in this very way.

 

The scam is so blatant that Goldman Sachs actually warns its clients that something along these lines might happen to them. In the disclosure section at the back of a research paper the bank issued on January 15th, Goldman advises clients to buy some dubious high-yield bonds while admitting that the bank itself may bet against those same shitty bonds. "Our salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research," the disclosure reads. "Our asset-management area, our proprietary-trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research."

 

Banks like Goldman admit this stuff openly, despite the fact that there are securities laws that require banks to engage in "fair dealing with customers" and prohibit analysts from issuing opinions that are at odds with what they really think. And yet here they are, saying flat-out that they may be issuing an opinion at odds with what they really think.

 

To help them screw their own clients, the major investment banks employ high-speed computer programs that can glimpse orders from investors before the deals are processed and then make trades on behalf of the banks at speeds of fractions of a second. None of them will admit it, but everybody knows what this computerized trading — known as "flash trading" — really is. "Flash trading is nothing more than computerized front-running," says the prominent hedge-fund manager. The SEC voted to ban flash trading in September, but five months later it has yet to issue a regulation to put a stop to the practice.

 

Over the summer, Goldman suffered an embarrassment on that score when one of its employees, a Russian named Sergey Aleynikov, allegedly stole the bank's computerized trading code. In a court proceeding after Aleynikov's arrest, Assistant U.S. Attorney Joseph Facciponti reported that "the bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

 

Six months after a federal prosecutor admitted in open court that the Goldman trading program could be used to unfairly manipulate markets, the bank released its annual numbers. Among the notable details was the fact that a staggering 76 percent of its revenue came from trading, both for its clients and for its own account. "That is much, much higher than any other bank," says Prins, the former Goldman managing director. "If I were a client and I saw that they were making this much money from trading, I would question how badly I was getting screwed."

 

Why big institutional investors like pension funds continually come to Wall Street to get raped is the million-dollar question that many experienced observers puzzle over. Goldman's own explanation for this phenomenon is comedy of the highest order. In testimony before a government panel in January, Blankfein was confronted about his firm's practice of betting against the same sorts of investments it sells to clients. His response: "These are the professional investors who want this exposure."

 

In other words, our clients are big boys, so screw 'em if they're dumb enough to take the sucker bets I'm offering.

 

CON #7 THE RELOAD

 

Not many con men are good enough or brazen enough to con the same victim twice in a row, but the few who try have a name for this excellent sport: reloading. The usual way to reload on a repeat victim (called an "addict" in grifter parlance) is to rope him into trying to get back the money he just lost. This is exactly what started to happen late last year.

 

It's important to remember that the housing bubble itself was a classic confidence game — the Ponzi scheme. The Ponzi scheme is any scam in which old investors must be continually paid off with money from new investors to keep up what appear to be high rates of investment return. Residential housing was never as valuable as it seemed during the bubble; the soaring home values were instead a reflection of a continual upward rush of new investors in mortgage-backed securities, a rush that finally collapsed in 2008.

 

But by the end of 2009, the unimaginable was happening: The bubble was re-inflating. A bailout policy that was designed to help us get out from under the bursting of the largest asset bubble in history inadvertently produced exactly the opposite result, as all that government-fueled capital suddenly began flowing into the most dangerous and destructive investments all over again. Wall Street was going for the reload.

 

 

 

A lot of this was the government's own fault, of course. By slashing interest rates to zero and flooding the market with money, the Fed was replicating the historic mistake that Alan Greenspan had made not once, but twice, before the tech bubble in the early 1990s and before the housing bubble in the early 2000s. By making sure that traditionally safe investments like CDs and savings accounts earned basically nothing, thanks to rock-bottom interest rates, investors were forced to go elsewhere to search for moneymaking opportunities.

 

Now we're in the same situation all over again, only far worse. Wall Street is flooded with government money, and interest rates that are not just low but flat are pushing investors to seek out more "creative" opportunities. (It's "Greenspan times 10," jokes one hedge-fund trader.) Some of that money could be put to use on Main Street, of course, backing the efforts of investment-worthy entrepreneurs. But that's not what our modern Wall Street is built to do. "They don't seem to want to lend to small and medium-sized business," says Rep. Brad Sherman, who serves on the House Financial Services Committee. "What they want to invest in is marketable securities. And the definition of small and medium-sized businesses, for the most part, is that they don't have marketable securities. They have bank loans."

 

In other words, unless you're dealing with the stock of a major, publicly traded company, or a giant pile of home mortgages, or the bonds of a large corporation, or a foreign currency, or oil futures, or some country's debt, or anything else that can be rapidly traded back and forth in huge numbers, factory-style, by big banks, you're not really on Wall Street's radar.

 

So with small business out of the picture, and the safe stuff not worth looking at thanks to the Fed's low interest rates, where did Wall Street go? Right back into the shit that got us here.

 

One trader, who asked not to be identified, recounts a story of what happened with his hedge fund this past fall. His firm wanted to short — that is, bet against — all the crap toxic bonds that were suddenly in vogue again. The fund's analysts had examined the fundamentals of these instruments and concluded that they were absolutely not good investments.

 

So they took a short position. One month passed, and they lost money. Another month passed — same thing. Finally, the trader just shrugged and decided to change course and buy.

 

"I said, 'Fuck it, let's make some money,'" he recalls. "I absolutely did not believe in the fundamentals of any of this stuff. However, I can get on the bandwagon, just so long as I know when to jump out of the car before it goes off the damn cliff!"

 

This is the very definition of bubble economics — betting on crowd behavior instead of on fundamentals. It's old investors betting on the arrival of new ones, with the value of the underlying thing itself being irrelevant. And this behavior is being driven, no surprise, by the biggest firms on Wall Street.

 

The research report published by Goldman Sachs on January 15th underlines this sort of thinking. Goldman issued a strong recommendation to buy exactly the sort of high-yield toxic crap our hedge-fund guy was, by then, driving rapidly toward the cliff. "Summarizing our views," the bank wrote, "we expect robust flows . . . to dominate fundamentals." In other words: This stuff is crap, but everyone's buying it in an awfully robust way, so you should too. Just like tech stocks in 1999, and mortgage-backed securities in 2006.

 

To sum up, this is what Lloyd Blankfein meant by "performance": Take massive sums of money from the government, sit on it until the government starts printing trillions of dollars in a desperate attempt to restart the economy, buy even more toxic assets to sell back to the government at inflated prices — and then, when all else fails, start driving us all toward the cliff again with a frank and open endorsement of bubble economics. I mean, shit — who wouldn't deserve billions in bonuses for doing all that?

 

 

Con artists have a word for the inability of their victims to accept that they've been scammed. They call it the "True Believer Syndrome." That's sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn't so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn't matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn't going to work, no matter what we do. Sure, mugging old ladies is against the law, but it's also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.

 

That's why the biggest gift the bankers got in the bailout was not fiscal but psychological. "The most valuable part of the bailout," says Rep. Sherman, "was the implicit guarantee that they're Too Big to Fail." Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. "It's evidence," says Rep. Kanjorski, "that they still don't get it."

 

More to the point, the fact that we haven't done much of anything to change the rules and behavior of Wall Street shows that we still don't get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload." The End

 


Total votes: 0
Average(Out of 5): 0
Posted: 31 August 2010 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Off-beat

There has been a lot of comment about banks, their role in the recent market turmoil, and their raison d'etre.

 

Back in 1957, this piece from UK humour magazine Punch seemed to understand what many people still wrestle with...

 

Cheers

Stuart

 

___________________________________________________

 

 

 

Q: What are banks for?
A: To make money.

Q: For the customers?
A: For the banks.

Q: Why doesn't bank advertising mention this?
A: It would not be in good taste. But it is mentioned by implication in references to reserves of $249,000,000,000 or thereabouts. That is the money they have made.

Q: Out of the customers?
A: I suppose so.

Q: They also mention Assets of $500,000,000,000 or thereabouts. Have they made that too?
A: Not exactly. That is the money they use to make money.

Q: I see. And they keep it in a safe somewhere?
A: Not at all. They lend it to customers.

Q: Then they haven't got it?
A: No.

Q: Then how is it Assets?
A: They maintain that it would be if they got it back.

Q: But they must have some money in a safe somewhere?
A: Yes, usually $500,000,000,000 or thereabouts. This is called Liabilities.

Q: But if they've got it, how can they be liable for it?
A: Because it isn't theirs.

Q: Then why do they have it?
A: It has been lent to them by customers.

Q: You mean customers lend banks money?
A: In effect. They put money into their accounts, so it is really lent to the banks.

Q: And what do the banks do with it?
A: Lend it to other customers.

Q: But you said that money they lent to other people was Assets?
A: Yes.

Q: Then Assets and Liabilities must be the same thing?
A: You can't really say that.

Q: But you've just said it! If I put $100 into my account the bank is liable to have to pay it back, so it's Liabilities. But they go and lend it to someone else, and he is liable to have to pay it back, so it's Assets. It's the same $100 isn't it?
A: Yes, but....

Q: Then it cancels out. It means, doesn't it, that banks haven't really any money at all?
A: Theoretically......

Q: Never mind theoretically! And if they haven't any money, where do they get their Reserves of $249,000,000,000 or thereabouts??
A: I told you. That is the money they have made.

Q: How?
A: Well, when they lend your $100 to someone they charge him interest.

Q: How much?
A: It depends on the Bank Rate. Say five and a-half percent. That's their profit.

Q: Why isn't it my profit? Isn't it my money?
A: It's the theory of banking practice that.........

Q: When I lend them my $100 why don't I charge them interest?
A: You do.

Q: You don't say. How much?
A: It depends on the Bank Rate. Say a half percent.

Q: Grasping of me, rather?
A: But that's only if you're not going to draw the money out again.

Q: But of course I'm going to draw the money out again! If I hadn't wanted to draw it out again I could have buried it in the garden!
A: They wouldn't like you to draw it out again.

Q: Why not? If I keep it there you say it's a Liability. Wouldn't they be glad if I reduced their Liabilities by removing it?
A: No. Because if you remove it they can't lend it to anyone else.

Q: But if I wanted to remove it they'd have to let me?
A: Certainly.

Q: But suppose they've already lent it to another customer?
A: Then they'll let you have some other customers money.

Q: But suppose he wants his too....and they've already let me have it?
A: You're being purposely obtuse.

Q: I think I'm being acute. What if everyone wanted their money all at once?
A: It's the theory of banking practice that they never would.

Q: So what banks bank on, is not having to meet their commitments?
A: I wouldn't say that.

Q: Naturally. Well, if there's nothing else you think you can tell me....?
A: Quite so. Now you can go off and open a banking account!

Q: Just one last question.
A: Of course.

Q: Wouldn't I do better to go off and open up a bank?
 

Total votes: 0
Average(Out of 5): 0
Posted: 30 September 2010 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

I have been known to say on the fundamentals courses I give  ( Company Financials and Announcements course group ), that Graham's classic "The Intelligent Investor" has a deceptive title. The point I try to make, in my clumsy references to brains selling for six bob a kilo at Cato Ridge abattoir, is that pure IQ cleverness is not going to get you there. The uncommon thing which you need is actually common sense!

 

Talking more to the brains, egos and so on that can bring big companies to their knees, Bill George  of Harvard Business School  here sets out some delightfully clear notions on how to find and harness the skillsets needed.

 

Enjoy the clip...

Stuart

 

 

Play 2.5 minute Video


Total votes: 0
Average(Out of 5): 0
Posted: 11 November 2010 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

At 11 o'clock on the 11th day of the 11th month a bugle was sounded, and World War One officially ended.

 

Read poems from the likes of Wilfred Owen , Siegfried Sassoon and Rupert Brooke to get a flavour of this crazy conflict... below  is a famous piece by Owen, who died on November 4 - a week before the conflict ended.

Relevance to the Markets? Plenty.

 

Rightly, it was known as the Great War - not because this or any war is "great", but because of the bizarrely high death tolls. World War One has also been called "the war to end all wars", since its accepted figure of 38.8m killed, woulded and missing in action seemed an unbeatable level. Taken over the 4 and a bit years, that amounts to 24,907 people lost every day, of which around 6,350 died. Daily!  Which seems impressive, unless you compare it with battles like the one at Canae in 215 BC, where Hannibal's Carthaginians gave the Romans a bloody hiding, with a one day Roman death toll of 48,200 ( according to Livy), 50,000 (Appian, Plutarch) or 60,000 (Quintillian). Add some 8,000 dead Carthaginians, and that was a very bloody single day.

 

So, it appears that history does repeat, with due adaptation for the technology and fashion of the day. And the reason is dreadfully simple - humans seem unable to evolve. The species agglommerates into empires, the winners conquer, then they collapse. And so it repeats.

 

So where is our much-loved JSE right now?

 

Here is the last 50 years, tracking the index vs earnings, and showing CPI inflation. The smooth line is the "trend" of where it seems both profits and the index normalise - a geometric compound return of 12.3% (excl dividends). Can we ever get very far from either the earnings line or the trend?

 

alt

 

And here is a zoom in onto the last decade. Notice the average forecasts for JSE earnings, predicting strong growth of 30% then 17%.

And yet we are still some 51% higher than the average earnings multiple would have us trading, and 19% above the multi-decade trend.

 

alt

 

So if you think history may come round again, are the eps forecasts too low? Is sharp profit growth going to get the blue line back up to, or maybe even above, the trend? Or, will it be different, this time?

 

Cheers

Stuart 

 

 

 

 

 


Total votes: 0
Average(Out of 5): 0
Posted: 28 January 2010 - 5 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Ask...

For delegates attending Standard OST course:- Click here to fill in Course Feedback Form


Total votes: 0
Average(Out of 5): 0
Posted: 28 January 2010 - 2 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

My wife's life policy with Liberty requires an annual premium to be paid. Liberty seem to require either a visit to a physical bank branch to deposit a cheque, or consent to a debit order. Why should it be such a mission to pay this by internet banking (the reference given me by Liberty when trying to pay from Standard internet banking was rejected). Is this a unique hassle?


Total votes: 0
Average(Out of 5): 0
Posted: 17 March 2010 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

 

For governments which borrow (all governments)?  A friend – because it pays down the borrowings, by eroding the payback obligation.

 

For the asset management industry?  A friend – because it grows the nominal value of its pool of assets on which fees are based, and often triggers performance fees en route.

 

For you?

 

This article may give you some tips as to how to deal with inflation…

Cheers

 

 

"Embrace Inflation": How to Profit and Protect Your Wealth

by Aaron Task in Investing (Yahoo)

 

Related: TIP, TBT, GLD, SLV, ^GSPC, JNK, ^DJI

"Deflation is a very serious risk [but] inflation is a greater likelihood," Arun Motianey, senior strategist at RGE Monitor, says of the great economic debate of our age.

 

Despite ongoing (and legitimate) concerns that a combination of China's economic risk, debt deleveraging and technology will spur Japan-style deflation in the coming decade, Motianey is more concerned about inflation for a simple reason: "I'm expecting the central banks of the world to embrace inflation," he says.

 

If you think the Fed is easy now, just wait. Motianey predicts the Fed will monetize the public debt in the not-too-distant future, meaning it will print money and buy Treasuries -- well beyond what it's done in the past year. The Fed will also probably require banks to hold a higher level of government debt in order to maintain demand, he says.

 

Unlike the inflation of the 1970s, Motianey predicts we'll soon enter a period of "voluntary inflation," not unlike the 1948-1951 episode when the Fed somewhat surreptitiously helped Uncle Sam inflate its way out of the huge debts incurred during World War II and its aftermath.

 

A big difference between then and now is the sensitivity and sophistication of the financial markets to such Fed maneuvers. In his new book, SuperCycles: The New Economic Force Transforming Global Markets and Investment Strategy, Motianey details how investors should prepare for what he calls a "targeted period of higher inflation," including:

 

--Avoid government bonds: "The so-called risk free bonds ironically will now become the riskiest," he says.

--Hold corporate bonds as a "quasi-equity": A little inflation will provide corporations with pricing power, leading to higher earnings and the cash flow needed to meet their debt obligations, he says.

--Stay long stocks, with a narrow focus on dividend payers, as well as companies that produce natural resources and basic materials.

--Own gold and other commodities, which Motianey predicts will do "extremely well" in this scenario.

 

All this may sound self-evident but deflationary pressures - or the perception thereof - have been driving some market action lately, meaning opportunities are being created for those who believe inflation is the greater long-term threat.


Total votes: 0
Average(Out of 5): 0
Posted: 5 July 2010 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

As the market prices and sentiments come and go, it can help to stay objective.

 

Right now, the JSE is priced at almost 14 times earnings - in other words when you buy a share, you are asked to surrender 14 years of profit to pay for the damn thing - rather more than the mulktidecade average of less than 12X.

 

As we pass the middle of this year, the attached table shows what the 'expert' analysts out there are forecasting for growth in earnings per share in the three largest companies in each broad sector/discipline, from now till next July, and for the following year.

 

It does seem that - IF the earnings forecasts come through, then the overall price/earnings (PE) ratio is maybe not too bad! 

 

Cheers

Stuart

 

JSE mid-2010 eps forecasts


Total votes: 0
Average(Out of 5): 0
Posted: 17 September 2010 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

OK, so you want to play it safe, and buy an index product.
 
In this piece, two investment professionals Bogan associates and an economics academic from  Princeton  probe a concern in the ETF world - the very link they have to markets makes them sought after hedging tools; and this can lead to a situation where the counterparty from whom you buy a sincere ETF position looking for market exposure may find that while you want your holding, the product issuer has been taken down by an imbalance between real and virtual positions.
 
Could get nasty...
 
Cheers
Stuart

 
September 15, 2010
Andrew A. Bogan, Ph.D., Brendan Connor, and Elizabeth C. Bogan, Ph.D.

 
Like many innovations in finance that emerge from nowhere to explode in popularity with unknown consequences, exchange-traded funds (ETFs) have gone from obscurity when they were first invented in 1993 to making up more than half of all the daily trading volume on American stock exchanges today.  They also made up 70% of all the canceled trades during the Flash Crash on May 6, despite representing just 11% of listed securities in the United States, suggesting that ETFs remain poorly understood by both investors and regulators.
The extraordinary popularity of exchange-traded funds, open-ended mutual funds that trade like stocks on an exchange, is undeniable. However, the source of this popularity would seem to have two very different origins.  ETFs are bought by many retail and institutional investors looking for low cost and highly liquid vehicles with which to buy whole indices in a single trade, and ETFs serve that noble function well.  But, they are also extremely popular with and widely used by hedge funds and other traders looking for a simple way to mitigate broad-market risks, or neutralize beta, with a single trade.  The appeal to a hedge fund manager of being able to short an entire market index or a whole sector with one transaction, instead of say 500 separate stock shorts to span the S&P 500 Index, makes ETFs very widely used as hedging vehicles by short-sellers.  It increasingly looks like many new ETFs are now being designed for the purpose of marketing them to short-sellers. 
These seemingly opposite interests in ETFs make for a large and lucrative market not just for the ETF operators like BlackRock’s iShares and State Street Global Advisors SPDRs, but also for the authorized participants--institutions that can create or redeem large blocks of new shares in an ETF (called creation units) for sale, and countless brokers that profit by trading ETF shares.
While ETFs often appear to be a benign innovation as compared to some of Wall Street’s arcane derivatives, a closer look at the mechanics of short selling ETFs (which have become one of the most prevalent securities to short) raises some serious concerns.  While an ETF owner believes their ETF shares represent ownership of the underlying shares of stock in the index that the ETF tracks, that stock is not always all there.  Because of explosive short interest in some ETFs, owners of ETF shares often far outnumber the actual ownership of the underlying index equities by the ETF operator.  One might ask how that can be possible, but the creation and redemption mechanisms inherent to ETFs mean that short sellers need not be concerned about the availability of shares outstanding when they sell an ETF short—since they can always create new shares using creation units to cover short positions in ETFs in the future.  In essence, there appears to be no risk to being naked short an ETF since the short seller can always “create to cover”.  This has led to some ETFs having shockingly large short interest as compared to their number of shares outstanding and for every additional ETF share sold short, there is another owner of that share.
Take the SPDR S&P Retail ETF (NYSE: XRT) as an example.  The number of shares short was nearly 95 million at the end of June, while the shares outstanding of the ETF were just 17 million.  The ETF was over 500% net short!  Or to look at it from another perspective, the ETF’s operator, State Street Global Advisors, believed that there were 17 million shares of the SPDR S&P Retail ETF in existence and owned shares in the S&P Retail Index portfolio to underlie those 17 million ETF shares.  But, in the marketplace there were another 95 million shares of the ETF owned by investors who had purchased them (unknowingly) from short sellers.  78 million of those ETF shares were naked short--the short seller had promised their prime broker to create those non-existent shares if necessary to cover their short in the future.  In both cases the share buyer, however, is completely unaware his ETF shares were purchased from a short-seller and no doubt assumes the underlying assets in the index are being held by the ETF operator on his behalf, but no such underlying stock is actually held by anyone.  Clearly this creates a serious counterparty risk and quite possibly the potential for a run on an ETF—where the assets held by the fund operator could become insufficient to meet redemptions. 
Even more alarming was the recent rate of redemptions from the SPDR S&P Retail ETF in July and August 2010.  Redemptions occur when more owners wish to sell out of their holding in the ETF than there are new buyers for the existing shares, so unwanted blocks of 50,000 ETF shares each are redeemed through the authorized participants with the ETF operator for cash, or more typically for in-kind shares in the ETF’s underlying index’s stocks.  The SDPR S&P Retail ETF was one of the fastest contracting ETFs in July due to redemptions and as of July 31, it had just 7 million shares outstanding. However, the short interest was little changed—still over 80 million shares short.  Suddenly, 11 times the number of shares outstanding was short, which is even more worrisome than 5 times back in June. By late August, the shares outstanding in XRT had dipped briefly below 5 million shares with 80 million shares still short (16 times the shares outstanding).  Mercifully, net buying interest has rebounded somewhat for the SDPR S&P Retail ETF with the improving outlook for retailers and shares outstanding in XRT had rebounded to 12 million by mid-September.  But if the rate of contraction last month had continued, the ETF was just days away from running out of underlying shares altogether.
So what happens if the recent monthly redemption rates return and 15 million more shares in the ETF were redeemed by the end of this month?  Presumably the SPDR S&P Retail ETF would simply close and cease to exist once its remaining 12 million ETF shares outstanding had been redeemed and all its underlying equity holdings had been delivered to redeeming authorized participants.  But where does that leave all the ETF owners who unknowingly bought their shares in the ETF from naked short sellers?  If the ETF is all out of underlying equities and is essentially shut down, what happens to the remaining owners of the 80 million shares of the ETF?  The ETF operator would have no more underlying shares (or cash) in the fund and the ETF would have essentially collapsed since all the shares outstanding were already redeemed.  At recent prices the unfunded remaining ownership in the marketplace for which nobody currently owns any shares would be over $3 billion for just this one ETF!  Extend this hidden unfunded liability from massive scale short-selling of ETFs (both traditional and naked) across the entire ETF spectrum and it is a $100 billion potential problem.  
Who gets left holding the bag?  Is it the retail account holders who own defunct shares in a closed ETF? The prime brokers that were counterparties to all those short sellers?  The hedge funds that sold non-existent shares in an ETF assuming they could always be created another day?  The ETF operator?  Or the Federal Reserve?

About the authors:

Andrew A. Bogan, Ph.D. is Managing Member
of Bogan Associates, LLC, a global equity fund management firm based in Boston, Massachusetts.

Brendan Connor is an investment analyst in New York City.

Elizabeth C. Bogan, Ph.D. is Senior Lecturer in Economics in the Department of Economics at Princeton University in Princeton, New Jersey.


Total votes: 0
Average(Out of 5): 0

« Last Page  |  viewing results 1-20 of 133  |  Next Page »