Friday, December 19, 2008

Pay It Forward With Links

I don't know whether you have seen the movie 'Pay It Forward'. Basically it is a movie about a kid who gets given a school project to come up with an idea to change the world. He decides that three acts of kindness to strangers who are told to pay it forward will accelerate by the nature of compounding.

It is a sweet movie which has had some affects in real life, such as the 'Pay it forward foundation' that was set up by the author.

Recently Starbucks in the US had one guy pay for the coffee of the car behind and the car behind did the same, it happened all day long and began spreading across the US.

In the Christmas spirit I have selected some random blogs to link to in the hope that they too will pay it forward and link to others.. for no other reason that it is Christmas.

Merry Christmas

Thursday, December 18, 2008

Reasons To Be Bullish

As we approach the end of an annis horribolus for the markets with great big dollops of more to come we find some reason to be bullish for traders in the coming weeks, months and years.

1. Gold. OK so it hasn't exactly been on fire recently and it certainly hasn't performed as a safe haven as we'd all expect but is there some upside to come? Citibank seem to think so.

The bottom line, according to Citibank, is that the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.“They are throwing the kitchen sink at this,” said Tom Fitzpatrick, the bank’s chief technical strategist. “The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

“Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don’t think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes,” he said.

“This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised.”

“What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We’re already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore,” he said.

Gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies. “If true, this is a very material change,” he said.

Not exactly a nice story to begin with but gold could be a play for 2009.

2. Obama Mania

No doubt that Obama is the man of the moment and in 36 days he will be Presdent of the United States. He has a tougher job than he would have imagined when he started his campaign but as they say 'Commeth the hour, commeth the man'.

Obama is set to unveil dramtic spending in the US on infrastructure and on 'green' technologies. WE have no reason to believe that he will flim flam on this so anything in this sector will look to have a good 2009.

Short term traders will be fingers poised anytime he speak after his swearing in and we predict some wild moves in the markets.

3. Autos.

In the toilet, we know. However a bailout in some way, shape or form will be done. Can you imagine a scenario where Obama's first few weeks in the Presidency is spent explaining why 3mn people have a 'change they don't believe in' i.e becoming jobless.

4. Santa is coming to town

Despite a series of storms—peril in the auto industry, soaring unemployment, tight credit conditions—stocks have managed to hold their ground. That has fueled hopes that the traditional Santa Claus rally may still happen, helped by a plate of government-sponsored goodies.

"We're looking for a six-week rally," says Kathy Boyle, president of Chapin Hill Advisors in New York. "An Obama-Santa Claus rally."

Of course, market pros say the rally could have a fairly brief shelf life, with pessimism likely to return shortly after Obama takes office amid a flurry of dismal economic news. But in the meantime, the mood is fairly positive.

5. Market Bottom?

It may seem that this is an idiotic statement, and we must admit with all the economic news it even sounds silly to us, however markets typically bottom 6 - 12 months before the economy does, so if you believe that we ae done an dusted with the worst by the end of 2009 positioning yourself now may be an idea.

Bear in mind that all of the above are just opinions, the markets are very, very hostile and the reverse of the above could easily happen so be careful, keep tight stops and do lots of your own research.

Merry Chrsitmas.
Source - HF Market - Online Trading

Monday, December 15, 2008

Madoff Exposes More Regulatory Failings

The investigation into the alleged Madoff Ponzi scheme is revealing more well-known names have potential losses with the former NASDAQ chief’s company.

RBS, SocGen, a gaggle of Swiss banks and AXA are amongst those who have lost millions in client funds. You can be sure that these companies are hiring some flesh eating lawyers to extract whatever they can from counter parties and directly from the wreckage of the firm but one group who will not be paying the price is the regulators, as usual, they are immune.

The thing is, and yes, this is another regulator rant, what were they doing? Over the years I have come to believe that the regulatory system (and in the UK is where most of this experience comes from) is broken in a very, very bad way.

The regulatory exposure for small firms such as stockbrokers is crushing. Rules on how you market, who you market to and what you can and can't sell are an obsession with regulators. I believe that all of this 'over-regulation' has lead to much of the problems we are facing now. Sounds ridiculous? Let me explain.

Take hedge funds for example. The regulators decided that if you had a net worth of over $1mn you could invest in hedge funds as you are 'sophisticated' enough to know what you are doing, if you don't have a net worth of $1mn you are not able to be 'accredited'.

We wrote in this article back in August that this approach was just plain stupid. We said;

"When the hedge fund Armageddon comes (and we all know it will) there will be a law suit from Mr X in XVille USA who made millions from a trucking business and invested $5mn in the latest fund to explode. He will sue on the basis that, although he was wealthy, he was not sophisticated enough in financial markets to understand what he was investing in. He will name the SEC as co-conspirators in his downfall because they effectively 'certificated' him as sophisticated on the basis of his wealth."

This may not be the exact scenario we are dealing with in the case of Madoff but its close. In fact it’s even worse.

The SEC, in 2006 granted a license to Madoff as an investment advisor. When you submit your application to the FSA in the UK, for example, you have to complete a huge amount of forms, even for the most vanilla of businesses. You then sit with the regulators who question you on your investment strategies and your business and make a decision based on these interviews.

Now if you are selling shares to retail customers, for example, clearing through another regulated company and your 'know your client procedures' are OK you will pretty much get through, but after a thorough grilling.

Imagine, therefore, that you are Bernie Madoff trying to explain trading strategies around end of month expiry of options and other complex trading strategies. Long conversation right?

You would assume therefore that the regulators did their home work and, by approving the firm, approved its strategies and internal systems.

If I was an investor that had just lost his shirt investing with this guy I would be after the regulators big-time, because if they could not figure out what the score is, with all their access and power, how the hell would I be able to?

In my opinion, regulatory oversight needs to get away from who can market to whom, what clients can and can't invest in and concentrate on the procedural issues of where the money goes.

If you are a broker, you have to have a segregated account. Meaning that your money is separate to the company’s money, so that if they go bang, you don't lose you cash, not so with the banks. They have been gambling with your money and giving you a pittance of the upside while all the time charging you for the privilege of you getting your money.

A simplistic view of the banking system I know, but at its core that is what it is.

Of course, all this works if the regulatory system works, but it doesn't.

Before anyone starts going on about how great the regulatory system is I will tell you now that I don't buy the bull. It is too complicated, to unwieldy, too restrictive and not focused. The regulatory regime does not work where it is needed most, in the big fat institutions and if you disagree, take a look at Madoff, Northern Rock, UBS, Bear Stearns, Lehman Brothers... shall I go on?

There can only be two reasons for the regulatory failures and the latest Madoff situation, either the regulators didn't know or they didn't care... either is unacceptable

Deflation And The Ski-Gear Indicator

I like to look for alternative market indicators. Previously I have explained how the humble croissant saved the day on a research report I was doing on the Asian crisis and, more recently, how my French teacher gave me the inkling that the markets were going to implode.

Today, dear readers, I approach the deflation issue sure in the knowledge that I have uncovered another little gem.

Let me first preface this eureka moment with a little background. I live in Switzerland which, although in the brown stuff just like everyone else, will probably escape the very worst of the crisis. This is mainly due to the fact that the housing market bubble here is virtually none existent.

We have cursed the fact that house prices hardly ever move here when the rest of Europe has seen meteoric rises in property values, but now it is our savior. Relatively low unemployment is the norm and fiscal conservatism is the by-word. UBS aside, we have not seen a total meltdown of our banking system and pretty much everyone is confident that although we will see a recession, it won't be as bad as elsewhere.

However, and getting back to my new market indicator, I spotted a deflationary indicator if ever I saw one. At the weekend my wife and I took my son and a friend karting in Montreux. Unfortunately we arrived early and the track was not open. Needing some ski gear for the season we headed to the commercial area and stumbled across a Reebok store going out of business.

We managed to pick up about $600 worth of gear for about $200. We went around the other stores and fond that most were deeply discounting their products. Now, bearing in mind that we are at the start of the ski season, this seemed a little odd. Of course we phoned a couple of friends and told them of the bargains on offer, their response, however, gave me fodder for today's article.

"We have heard that a few are going out of business, I think we will wait for the New Year, there are bound to be cheaper deals then" they said.

Cheaper than 70% off the sticker price is what our friends (who are not short of a bob or two) are looking for. This is not just in the latest ski-wear but they are looking to the New Year for a new car ('prices too high now' they said).

This seems to be a trend, discussing a similar situation with a friend in the UK, he said 'if you have cash on your hip right now, you're laughing'

Well, maybe for the moment. Deflation is the worse scenario we could be facing. Many say it is off the table as fiscal measures to boost the economy will cut off deflation in its tracks. I happen to disagree. When my French teacher cancelled her holidays and battened down the hatches we said we were in for a rough time and recession was looming, this was when market commentators were giving only a 50% of recession, now we know we were already in it.

The fear factor is rife with the public and this means that stores will have to discount, this will fuel deflationary affects, I am pretty sure of that, at least for the short term. Whether this cycle is going to last is less certain as money is being pumped into the system at a huge rate.

I do believe that I have a solution to all this though and it is my old nemesis, the press. We wrote an article a while ago about 'talking ourselves into recession'. The press, of course, sensationalise everything, that is their 'job'. But they have jumped on every bit of bad news and twisted it in the same way that they pumped up stocks at the highs of the markets.

I am not suggesting that they turn around and say everything is now OK go out and spend, spend, spend, but imagine if everyone did. Banks would lend more (responsibly we hope) business would generate more money and things would start to improve quicker and maybe conversations at dinner parties would not be so gloomy these days.

These dinner party topics have been a source of alternative indicators for articles I have written for many years. When non-financial friends were engrossed over canap├ęs in the latest Internet stock and recommending that I buy, I knew the game was over. When the topic of conversation turned to how many buy-to-let houses an engineer friend had bought, it was time to sell out of the UK. When enquiries from sober dinner party goers came onto the subject of how they could get into hedge funds and private equity funds, and those funds were listing, we said a top was near and now a humble outlet mall in the middle of nowhere gives up a market indictor on a micro scale that cannot be brushed aside.

No, my friends, I may have picked up a fabulous bargain (being a Yorkshireman, this is in my DNA) and will look marvelous on the slopes this year, but when previously price-unconscious friends decide that 70% discounts are not enough it is time to start considering the 'D' word.

Friday, December 12, 2008

Former NASDAQ Chief Arrested

"In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner's name is on the door. Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark"

That text from Bernard Madoff's web site looks now to be just another statement that will go down in history as another load of bull.

The former chairman of the US Nasdaq was arrested for fraud, after allegedly admitting to running a $US50 billion pyramid scheme.

Bernard L Madoff, founder of Bernard L Madoff Investment Securities, was released on a $US10 million personal recognisance bond last night in the US, after having made an initial court appearance on charges that he had participated in a “giant” $US50 billion pyramid, or ponzi, scheme.

Mr Madoff, who was charged under a criminal complaint, didn't enter a plea at the hearing. The bond will be secured by his apartment in Manhattan.

In a ponzi scheme, new investor funds are typically used to pay distributions and redemptions to existing investors.

Mr Madoff, 70, was arrested by the FBI early yesterday in the US and charged with a single count of securities fraud. He faces up to 20 years in prison and a maximum fine of $US5 million on the charge.

Prosecutors and the FBI have alleged that Mr Madoff told senior employees at a meeting at his apartment the night before his arrest that his investment advisory business was "basically, a giant ponzi scheme", according to court documents. He told them the business was insolvent, and had been for years.

The investment advisory business is separate from the firm's market-making and proprietary trading operations. In a January filing with the US Securities & Exchange Commission, Mr Madoff reported that the investment advisory business served between 11 and 25 clients and had about $US17.1 billion in assets under management.

Mr Madoff also allegedly said that the losses from the fraud were at least $US50 billion, according to the criminal complaint. He told the employees he was "finished", and that he had "absolutely nothing" and "it's all just one big lie".

He told the senior employees that he planned to surrender to authorities in about one week, but wanted to use the $US200-300 million he had left in his possession to make payments to certain selected employees, family and friends, according to court documents.

The meeting at his apartment occurred after Madoff, who appeared to be under great stress in recent weeks, told senior employees earlier this week that he had recently made profits through business operations and that now was a good time to distribute it, which was earlier than employee bonuses are traditionally paid, according to the criminal complaint.

Mr Madoff had told employees the week before that there had been requests for clients to redeem about $US7 billion and that he was struggling to obtain the liquidity necessary to meet those obligations, but thought he would be able to do so, according to court documents.

In a meeting with a FBI agent on Thursday, the agent asked Madoff if there was an "innocent explanation" for what happened.

Mr Madoff reportedly said: "There is no innocent explanation." He also said he had personally traded and lost money for institutional clients and that it was all his fault, according to the complaint. He further stated that he "paid investors with money that wasn't there", according to the charging document.

Mr Madoff’s lawyer, Dan Horowitz, said: "Bernard Madoff is a long standing leader in the financial services industry with an unblemished record.

"He is a person of integrity. He intends to fight to get through this unfortunate event."

Neither Mr Madoff nor his lawyer would comment after the hearing.

A preliminary hearing is set for January 12, 2009.

Time For Us To Bail Out Our Governments?

Gordon Brown made an hilarious gaff in the House of Commons, starting a sentence "Not only did we save the world.." Freud would have a field-day with this apparent slip of the tongue, but it just shows the shift of egos.

Not so long ago hedge fund managers and bankers were described as 'Masters of the Universe' and 'rock stars'. Loved and hated in the press in equal measure, they did not care for criticism because their power came from the money they had generated for themselves, their employers and their clients. Politicians were a niggling nuisance easily fobbed off with a few campaign contributions.

The worm, however, has turned and Brown's gaff shows, in a Freudian way, that the politicians know it.

I wish I could say that our politicians have hitched up their sleeves, taken control of the situation and, like a father scolding a wayward son, slapped the bankers behind the ears and taken care of the mess they have made, all the while comporting themselves with dignity... unfortunately, I can't say that.

What we are witnessing now is more like a playground push and pull, industry and banking has been the popular group, the football team and the cheerleading squad. Politicians have been the 'geeks', jealous of the popularity of their mortal enemies just waiting for an opportunity to strike.

And so we have the politicians summoning bankers, federal chairman, auto-maker CEO's and hedge fund managers to the Hill to roundly beat them up in public.

I would have no problem with this process if it served any purpose and I would have no problem with this if it was being done to get genuine information.

But, like the Macarthiest witch hunts it is just a political show. Senators being rude to the 'evil rich' to show their constituents that they can be hard on those that have ruined it for us 'ordinary' people.

What tosh.

How long ago was it that these parasites would have been fawning all over the hedge fund managers, the auto CEO's and bankers to 'contribute' to their political effort in order to pay for their campaign to cling onto power for another four years.

Harsh, possibly. Just as I was thinking that I maybe being a bit too cynical up pops Rod Blagojevich, the Governor of Illinois. We all know the story, the none-to-bright Blagojevich, decides to talk over the phone about profiting from the selection of Barack Obama's replacement as senator.

You may say that a one off dodgy politician does not a bad government make. I agree, however, when you realise that if our friend Rod goes to jail, he will be the fourth governor out of the last eight in Illinois, to get banged up.

OK, there was a huge screw up by greedy people, bankers, house buyers, private equity and everyone else basically, but to see politicians taking center stage portraying themselves as some kind of 'heroes of the people' is, frankly, sickening.

The vote last night in the senate not to bail out the auto-makers in the US and the potential that these 'public servants' are going to go on holiday, to celebrate Christmas and not vote until the New Year is diabolical.

How will the auto-workers at Ford, Chrysler and GM feel at Christmas? What about the parts suppliers, the sales men and women at the dealerships, the cafe across the street from the factories and the towns that rely totally on the work generated by these firms, how will their Christmas be?

I have made no secret of the fact that in the main, I detest politicians. I have met a few and none of them were impressive, most were more interested in money and power than any altruistic service of the people and this latest scandal both in Illinois and the auto-makers farce has done nothing to sway my belief that most are crooked on some level, and that is depressing.

Obama has a big task ahead of him, and I believe he could be different, but I am none too hopeful these days. Bankers screwed up, got caught up in the greed of it all but never forget that these same politicians who are now lampooning various people stood by and did nothing to stop it.

It is no good saying they didn't understand, ignorance is no defense, these people should have known, should have done something and they didn't.

Much is written about how Wall Street and The City will never be the same again, that is probably for the best, but one thing that will not change, unless we demand it, and that is the 'systemic risk' that politicians pose to us all with their greed for power, money and fame, leading us into war and turning a blind eye to corruption and greed as long as they stay in power.

We should use this time, not only to clean up the banking industry, but to reform politics. Ban making money from memoirs, speaking engagements, jobs in banks and trips on oligarch’s yachts. Mandatory jail time for indiscretions like Spitzer and Blagojevich have been accused of and total transparency in all areas of a politician’s life.

These would be my conditions for bailing out the largest failing business of all.. government.

Friday, December 05, 2008

Credit Crunch Affecting E-commerce? No, Just Pay With Cash...

The credit crunch is certainly biting and consumer credit will soon be feeling the pinch even more. Egg, the credit card supplier, withdrew cards from 161,000 customers recently and it has been reported in the press that over one trillion dollars worth of credit will be withdrawn from card holders through various banks soon.

What will this do for the online e-commerce sites? To pay with Paypal you have to have a bank account and, generally, a credit card as I understand it so could we see online sales dipping for the first time since we all went online?

The reality is that the gloabl slowdown is bound to affect sales, but an interesting concept has been developed over the pond that could aid online shops in their efforts to allow access for customers; paying online with cash..

No, we won't suddenly be having a coin-slot on our laptops but an enterprising company has created a payment system that allows users to get a virtual credit card for use on the web.

Yep, a virtual credit card. has developed a system that allows you to pay cash into a Western Union to a specific number which then generates a code, go back to the site and you are delievered your virtual credit card replete with number, svc code, expiry date and name.

We have seen the rise of the pre-paid debit card and now, I am sure, we will be seeing the rise of the online virtual card.

The leap from offline to online cards is a natural progression and it may be a signal that 'virtual' payment methods are on the rise, the technology for which has been talked about for many years, such as mobile phone payments etc.

Of course, this particular business has started during the 'perfect storm' for such methods. Bad economic conditions, lack of credit and massive discounts in online stores.

It remains to be seen how succesful the business is and, currently, it is only available in the US, but as ideas go it is very well timed and, judging by feedback I have had from people who have used the system, it is very well executed.

This may be just one of those ideas that was in the right place at the right time.

Just remember, you heard it here first.

Wednesday, December 03, 2008

Dollar and Pound at Parity With UK Zero Interest Rate

What a difference a year makes. A year ago we were happily skipping over to the US, buying up whatever we could to take advantage of a 2:1 exchange rate on the dollar. Then.. Armaggedon..

The pound has slumped to (as of writing) 1.47 Pounds to the Dollar and by all accounts it is not going to get better any time soon with the possibility of zero interest rates in the UK.

Former UK policy maker Willem Buiter said that the only thing stopping the Bank of England from cutting interest rates to zero on Thursday is a fear that it will turn sterling's recent weakness into a "rout".

Professor Buiter, a founding member of the Bank's Monetary Policy Committee, told the Daily Telegraph: "I expect rates to be cut to zero before long, the reason why this will not be done in one go but in two to three is because they'll be worried about what it would do to the pound."

Last month he called on the MPC's to slash interest rates by 1.5 percentage points to 3pc, a day before it made the shock decision to do so.

He is predicting another 1.5 point cut on Thursday to 1.5pc, arguing that the pound's current level against the dollar would not yet be considered a sterling crisis.

"When you get to $1.30, you are no longer talking about a welcome adjustment and competitive advantage, it's a rout," he said after giving a speech at the Council of Mortgage Lenders annual conference in London earlier in the day.

He expects further interest rate cut will bring the bank rate down to zero - a first for the UK - in January or February.

The pound has fallen by 25pc against the dollar this year, and continued its decline today. Yesterday the pound dropped by the most in one day since Black Wednesday, when measured against a basket of major currencies.

Charles Bean, the Bank's Deputy Governor for Monetary Policy, has stated previously that the depreciation of the pound should provide a welcome boost to exports, giving the UK a competitive advantage.

My father is visting with us at the moment. He used to work in the oil sector and was paid in Dollars. He remembers a time when the pound was close to parity and was very happy about it, problem was the UK was racked with massive unemployment... Doesn't bode well..

Trading the currencies is a franetic pursuit these days but there must have been a lot of money made over the last year with the wild swings we have seen. The prospect of zero interest rates will be a relief for homeowners, but will these rates get passed on... unlikley.

Also, low interest rates are what got us into this mess in the first place, low cost of leverage fueled the boom and is now being looked at as a solution to the problem. The problem that is being forseen, however, is an economic downturn of Japanese proportions. After their crisis, low interest rates and loose fiscal policy caused what has become known as 'the lost decade' in Japan, where fiscal policy caused a decade long downturn for the country. Lets hope the slide of the Pound re-ignites exports and does some good, rather than plunging us into the abyss.

Source: HF Markets - Online Trading