Memes, Money, Madness
by ilene - May 5th, 2010 12:29 pm
Memes, Money, Madness
Courtesy of Tim’s THE PSY-FI BLOG
Meme Machines
The appearance and disappearance of investment themes over time is a fact of life – remember “you can’t lose with the railways”? Me, neither, but in the 1840’s it was a guaranteed winner until it wasn’t.
Other dubious ideas have more legs, like the Efficient Market Hypothesis and the theory that most analysts can figure out which shoe goes on which foot. All of these ideas influence markets and participants and help move prices, sometimes with startling synchronicity. A popular theory of how this happens is based on the idea of the meme, a cultural equivalent of the gene, propagating itself through human brains and influencing group behaviour. So are we meme machines, buying stocks at the whim of transient ideas?
The Selfish Meme
Richard Dawkins introduced the idea of the meme in his book The Selfish Gene : 30th Anniversary edition
The idea of memes was elaborated into the broader subject of memetics, the study of how memes actually work. There’ve been lots of popular works covering the subject but the idea is, in fact, curiously hard to get a handle on. At root the memetic approach is an attempt to use Darwin’s Big Idea – that evolution occurs through natural selection and random mutation – to culture and thus argues that culture is itself a complex, adaptive system. This is not uncontroversial.
Econbiology and Memetics
However, the attraction for financial scholars is obvious. There’s a fair amount of work going on in the world of econobiology which also sees the financial ecosystem as a complex, adaptive system altering itself in response to both changes in its environment – interest rates, central bank liquidity, etc – and its internal state – securities prices, investor confidence levels, etc. So it’s not a particularly surprising leap to find that…
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The Future of Public Debt
by ilene - May 1st, 2010 8:41 pm
The Future of Public Debt
Courtesy of John Mauldin at Thoughts From The Frontline
There Had to Be a Short
How Should Our Institutions Invest?
The Future Of Public Debt
The Future Public Debt Trajectory
Debt Projections
Montreal, New York, Connecticut, and Italy
Everyone and their brother intuitively knows that the current government fiscal deficits in the developed world are unsustainable. They have to be brought under control, but that requires some short-term pain. Today we look at a rather remarkable piece of research from the Bank of International Settlements (BIS) on what the fiscal crisis may morph into in the future, how much pain will be needed, and what will happen if various countries stay on their present courses. Some countries could end up paying north of 20% of GDP just on the interest to serve their debt, within just 30 years.
Of course, the markets will not allow that to happen, long before it ever gets to that level. And what makes this important is that this is not some wild-eyed blogger, it’s the BIS, a fairly sober crowd of capable economists. We will pay some attention. Then I’ll throw in another few paragraphs about Goldman.
But first, I want to bring a very worthy cause to your attention. For my Strategic Investment Conference last weekend, Jon Sundt and I bought some mighty fine wine for our guests. That of course, is to be expected. But each of those bottles also bought a wheelchair for someone in a most needy part of the world. Here’s the story.
Gordon Homes at Lookout Ridge Winery in Napa Valley has gotten five cult winemakers to create special wines for him. These are winemakers whose production is sold out well in advance – they’re the all-stars of wine (like Screaming Eagle). And while they can’t sell them from their own wineries, they blend these special signature wines for Lookout Ridge.
Each bottle sells for $100, well below what it would take to get one of these cult artists’ bottles – even if you could get them. And then Lookout Ridge donates the entire amount to buying a wheelchair for someone who can’t afford one in a less-developed country. Attendees at our conference bought enough to send 200 chairs to people desperate for mobility all over the world. Part of it was, I am sure,…
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Rick Bookstaber: Hedge Funds Are Pumping The Gold Bubble And Luring Investors Off A Cliff
by ilene - March 9th, 2010 4:13 pm
Rick Bookstaber: Hedge Funds Are Pumping The Gold Bubble And Luring Investors Off A Cliff
Courtesy of Gus Lubin at Clusterstock/Business Insider
The SEC’s Rick Bookstaber can hardly watch as sheep-like investors chase the gold bubble straight off a cliff.
Although his employer doesn’t give market advice, the SEC’s senior policy adviser shows his personal frustration in a post on Roubini Global Economics. First, he drops this great line about how people don’t even pretend that gold isn’t a bubble:
Even if a guy is just after sex, he at least has the decency to act like there is some substance behind his interest.
Second, Bookstaber thinks hedge funds managers like John Paulson have a pump and dump scheme on gold.
RGE:
Given that “hedge fund” and “highly secretive” are usually said in the same breath, don’t you get suspicious when so many of the top managers are so vocally out there about their gold investments? And when their positions are structured in a way that make them open to view? Paulson and Soros have huge positions in gold ETFs. We know that, because if you buy ETFs, they show up in your 13-F filing. Granted, with an equity investment you can’t help putting that information out into the market, but with an asset there are plenty of ways to take the position without signaling it.
That they are taking a highly visible route to their positions suggests the game that is being played is one of leading the herd. The 13-F reports positions with a big lag, so no one will notice if they quietly slip out the side door while the party is still hopping. And how about when the view is backed up by none other than Goldman Sachs? Will they let everyone know when they think it has gone too far before they get out. Or before they go short? Maybe they already have.
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Charles Schwab: US Investors Are Still Worry-Wart Savers Who Avoid Risk And Spending
by ilene - March 3rd, 2010 9:55 pm
More evidence that the public is not drinking the proverbial Kool Aid. See also my recent article, Volume – Hiding in Plain Sight. - Ilene
Charles Schwab: US Investors Are Still Worry-Wart Savers Who Avoid Risk And Spending
Courtesy of John Carney and Gregory White at Clusterstock/Business Insider
Charles Schwab has released their latest survey of independent investment advisors and it points towards an across the board increased conservatism on the part of most clients.
While hedge funds and investment banks might have made a killing on distressed and risky asset classes, the retail investor isn’t chasing those particular rabbits.
In fact, the report make a good case for continuation of the "new normal," with retail investors focused on savings over spending, security over risk, debt reduction over accumulation.
Of course, you never can tell whether the retail sector is an indicator of things to come or a contrary indicator pointing in the wrong direction.
Check Out The Trends On The Minds Of Investment Advisors Across The U.S. >>>
Image: Charles Schwab
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Research Shows How Chinese Stocks Kill Unsuspecting Investors
by ilene - March 1st, 2010 1:02 pm
Research Shows How Chinese Stocks Kill Unsuspecting Investors
Courtesy of Vincent Fernando at Clusterstock/Business Insider
A new research paper called "Do All Individual Investors Lose by Trading?", written by Wei Chen, Zhuwei Li and Yongdong Shi, by shows how retail investors, who account for 90% of trade volume, are taken to the cleaner by large institutional investors on China’s Shenzen stock exchange.
They used complete trading data for all 68.4 million individual and institutional accounts and came out with some pretty damning numbers:
In aggregate, individuals lose at an average annualized rate of 7.2% over the sample period, equaling 1.36% of China’s GDP and 3% of total personal income. Sources of this loss are gross trading performance (32% of loss), broker transaction fees (34% of loss) and government transaction taxes (34% of loss). * Institutions capture part of this loss, realizing an average annualized gain of 2.63% after broker costs and government transaction taxes. Each category of institutions exhibits raw profitability.
Institutions always win and retailers always lose:
To make matters worse, the most wealthy retail investor accounts perform far better than smaller accounts:
Individuals with mid-size and large accounts (representing only 3% of individual trade value) realize an average net annualized gain of 0.57% from trading.
We feel this has to be due to trading on inside information. Trading on inside information is pretty rampant in many emerging markets including China, and we can imagine it’s an issue in Shenzen. Big players, whether they be rich individuals or institutions, tend to have inside knowledge through private company meetings. Thus we don’t feel like we’re going out on a limb by saying that the above research results must due to this insider problem.
Which means that this Shenzen research sheds light on the fact that blind investors are taken to the cleaners in emerging markets, whether they realize it or not.
So think twice before throwing money into emerging market index funds and ETFs, you’re just setting yourself up to be quietly picked off over time by savvy local traders. If anything, go with an active manager with focused positions rather than index funds or even closet-indexer funds who hold giant portfolios of ‘actively selected’ emerging market stocks. Else you’ll be just like the unsuspecting Shenzeners.
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‘Low Cost’ ETFs Actually Cost Investors More Than Some Hedge Funds
by ilene - February 20th, 2010 8:33 pm
‘Low Cost’ ETFs Actually Cost Investors More Than Some Hedge Funds
Courtesy of Vincent Fernando at Clusterstock/Business Insider
ETFs bill themselves as low-cost alternatives to standard mutual funds or even hedge funds. The idea is that their management fees are lower and trading costs are low since you can simply buy and sell them easily through a discount online broker.
But here’s the problem -- it’s only true if ETFs are actually tracking their benchmarks effectively. Unfortunately they aren’t.
In 2009, ETFs missed their targets by an average of 1.25 percentage points, a gap more than twice as wide as the 0.52-percentage-point average they posted in 2008, according to a study of ETF returns released this week by Morgan Stanley.
Part of this so-called tracking error stems from the recent proliferation of ETFs targeting exotic investments or areas where trading is less frequent, such as emerging-market stocks and junk bonds.
Last year, 54 ETFs showed tracking errors of more than three percentage points, up from just four funds the prior year. And a handful of the 54 missed by more than 10 percentage points.
1.25% is more than the management expense of some actively managed funds, or some hedge funds even (before performance fees).
We think ETFs are great for tracking broad, liquid benchmarks such as the S&P 500 where they are likely to be worthwhile in terms of cost and trading ease. But ETF products for niche investments are highly suspect. The more illiquid investments the worse off ETF investors will be, especially since savvy traders will likely be able to line up and pick-off trades ahead of the ETF.
For anything niche, investors are probably better off with old fashioned mutual funds once all of their real expenses are factored in.
Yet we’re fully aware of the fact that expenses of an ETF such as the above are near-invisible, especially if someone is been trading in and out of an ETF. So we’ll expect investors to keep lapping these products up. In investment management, products with the least visible expenses, and best ability to avoid blame, win.
(Tip via Abnormal Returns)
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Jeff Saut: The Time To Buy This Dip Is Right About… NOW
by ilene - February 16th, 2010 12:19 pm
Jeff Saut: The Time To Buy This Dip Is Right About… NOW
Courtesy of Joe Weisenthal at Clusterstock
wall street bull
Raymond James strategist Jeff Saut has been on top of his market-timing game, calling both the runup and the recent dip.
So you might want to pay attention to the fact that he’s licking his chops again, at least per his latest weekly call:
—-
We revisit The Great Blizzard of 1888 this morning because of the weather that has crippled the Northeast corridor over the past few weeks. Fortunately, communities are more capable of dealing with such storms today than they were more than a century ago. Still, the loss of productivity is likely going to be impactful in some of the upcoming economic reports.
That said, over the long weekend we studied the D-J Industrial Average (DJIA) chart from 1888 and found that March 11 – March 14 marked a bottom for the stock market. Also of interest is that today is session 18 in the envisioned “selling stampede” so often discussed in these missives.
For new readers, “selling stampedes” tend to last 17 to 25 sessions, with only one- to three-day counter trend rally attempts before they exhaust themselves on the downside. While it is true that some stampedes have extended for 25 to 30 sessions, it is rare to have one last for more than 30 days. Accordingly, we are getting increasingly interested in stocks again, and have been adding
names to our “watch list.” As for Dow Theory, which we have often been asked…
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The Only 10 Important Things Said So Far In Davos
by ilene - January 28th, 2010 2:35 pm
The Only 10 Important Things Said So Far In Davos
Courtesy of Clusterstock’s Lawrence Delevingne 
Davos is a crowded place this week.
Luminaries and assorted hangers-on are all jostling for attention at the World Economic Forum’s annual meeting. There are some 224 sessions over five days for opining on the future of the world, not to mention countless interview opportunities from hoards of reporters.
In short, there’s plenty said, most of it a huge snooze.
Here are the only 10 important things that have been said so far, including:
- The recovery will be U-shaped
- Bankers should aim for 10% return on equity, not a greedy 20%
Ten Can’t-Miss Quotes From Davos So Far >>>
See Also:
Soros: ‘The Ultimate Asset Bubble Is Gold’
Saudi Oil CEO Comes Out Swinging In Davos: ‘We Don’t Believe In Peak Oil’
Davos Goers Still Having Way More Fun Than You
Image: WEF/Monika Flueckiger
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Kass: Sell the News
by ilene - January 20th, 2010 3:30 pm
Kass: Sell the News
By Doug Kass at TheStreet.com:
I fully recognize that the crowd usually outsmarts the remnants and that the momentum in health care stocks and in the overall market has been strong.
The conventional view is that the Massachusetts election result will kill health reform and, thus, is bullish for health care stocks and for the market as a whole, but, for several reasons, I think that the crowd could prove mistaken on this one. I would not be surprised to see both health care stocks and the major market indices sell off over the short term.
A Scott Brown Senate win was growing more likely over the course of the past week…
The Massachusetts Senatorial race was not necessarily a referendum against the administration’s policies (health care being one of them); it’s broader than that. The populist uproar is geared toward the incumbent, toward anyone in power. It does not run on party lines, nor is it focused on health care. It is the zeitgeist of dissatisfaction, a sign of the times. Maybe it’s a function of high unemployment or the electorate ticked off at the wealthy and the largest institutions (especially of a banking kind). This dissatisfaction was expressed in the Democratic tsunami that brought Obama the Presidency, and it was seen yesterday in the Massachusetts Senatorial election that brought Brown the Senate seat. In other words, the mood of the country has been changing for a while, and it is being reflected in a very negative view toward those who have not suffered from high unemployment or from wayward derivative bets (and still got paid). And, as I have written before, this will lead to policies that are arguably needed but, generally speaking, are valuation deflating…
Read more here>>
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Jim Cramer: Markets Will Surge Wednesday If Coakley Loses
by ilene - January 18th, 2010 11:51 am
Jim Cramer: Markets Will Surge Wednesday If Coakley Loses
Courtesy of Joe Weisenthal at Clusterstock
On Mad Money Friday, Jim Cramer predicted a huge market rally on Wednesday if Martha Coakley loses.
JIM CRAMER, MAD MONEY HOST: We know it’s earnings season. You can no more avoid it than you could avoid getting your report card or worse – your parents getting your report card. You saw that today when people sold the market on allegedly weak earnings from Intel and JP Morgan, emphasis on allegedly. The Dow getting hurt bad, down a hundred big ones. S&P giving back more than a percent. But that doesn’t mean that the most important factor in next week’s game plan is an earnings report. Far from it. Come with me. The number you need to watch is the number that Scott Brown racks up against Martha Coakley in this amazing Massachusetts Senate race. I say amazing ’cause this was supposed to be a walkover. I mean, even a few weeks ago it was a lock for Democrat Coakley. But now everything’s up in the air, and a Brown win would be devastating for the president’s agenda. Let’s put Brown, okay, and I don’t mean UPS which I happen to own for my charitable trust. Particularly on healthcare reform, because Republican Brown has said he will definitely vote against the plan.
Brown in the Senate? That wrecks the 60-vote supermajority the Democrats have been counting on. It could spell the end for this almost year-long nightmare of a piece of healthcare legislation.
What does a Brown election mean larger than this? Well, first you’re going to get a knee-jerk rally in all the so-called penalized stocks — the HMOs, the drugs, the medical device-makers. I call it "knee-jerk," though, because these stocks have been on fire for months. Look at Cramer fave WellPoint, or United Health. 52 week high. 52 week high. Merck, 52 week high. It’s been clear as a bell that the healthcare reform wasn’t going to affect most healthcare stocks. That’s versus what we thought last year.
More important, though, I think investors who are nervous about the dictatorship of the Pelosi proletariat will feel at ease, and we could have a gigantic rally off a Coakley loss and a Brown win. It will be…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(