E-Trade Baby Loses Everything Video

Nothing against E-Trade but the linked video is hysterical. Found at Zero hedge
Video link
http://www.youtube.com/watch?v=iDmJcDvaBGU&feature=player_embedded

James Montier Is Back!

This is really good news. Mr. Montier is one of the best behaviorist investors around and having him reactivate his blog will be a treat. Welcome back James.

try this one:  The Sources Of Value at Behavioural Investing

Bank Credit Analyst Conference

i have just returned from a few days in New York attending the annual Bank Credit Analyst Conference. Second one i have had a chance to attend and it was outstanding. Martin Barnes and the many Analysts and Editors have a really strong group of speakers and panelists and the discussion is terrific.
i am dead tired now but will try to convey some of the discussions ater I get some sleep and have digested the information.

Updated to fix typos. i would fire my typist, if I had one.

Shaking Things Up In Shanghai

Shanghai was the first market up during the fall of 08. Let's ope it isn't the first to go down and this is only a needed correction. I am not so certain.

Hugh Hendry's most recent letter to investors

Hugh Hendry's latest. for those of you unfamiliar with Mr. Hendry, he is a very successful fund manager who anticipated the down market and has a very clear eye for market reality.

Don Coxe for Aug 13 2009

Mr. Coxe

John Kerry confirms he is an idiot. (again)

Cantwell is no prize either.
Bloomberg:

Goldman Sachs Group Inc. and JPMorgan Chase & Co. would be barred from a planned U.S. carbon- emissions market or face trading restrictions under proposals by Democratic senators crafting climate change legislation.

Lawmakers seeking restrictions on carbon markets say speculators contributed to a rise in energy prices last year, when crude oil futures reached a record $147.27 a barrel.

‘No Derivatives, Swaps’

“There will be no derivatives, there will be no credit swaps,” said Senator John Kerry, a Massachusetts Democrat, in a July 29 speech at the National Press Club in Washington. “There will be a tighter regulatory control on this so that it will be impossible to play any of those kinds of games.”read it all here

So John these companies who need carbon credits, who do they buy them from? What is the sound of one hand bidding? My guess is the real plan is for free market trade and price discovery of carbon credit values to fail. Then they will have to be awarded by the politicians who would then have a rich new supply of supplicants and political donors.

The Boekh Investment Letter

China's Reflation Experiment :

Short Term Gain / Long Term Pain

Tony Boeckh : Available Again

Tony Boeckh wwas for many years the editor of the Bank Credit Analyst and i have never read any one better on the economy. he and his son now produce commentary at http://boeckhinvestmentletter.com/index.html. If you are an investor this is worth your time.

Mr. Mauldin, I Respectfully disagree.

John Mauldin is one of my favorite writers and I find myself in agreement with his opinions far more often than not. On this occasion however, I completely disagree with one portion of his weekly letter. specifically this portion:

But first, I want to direct the attention of those in the US finance industry to a white paper written by Themis Trading, called "Toxic Equity Trading Order Flow on Wall Street." Basically, they outline why volume and volatility have jumped so much since 2007; and it's not due to the credit crisis. They estimate that 70% of the volume in today's markets is from high-frequency program trading. They outline how large brokers and funds can buy and sell a stock for the same price and still make 0.5 cents. Do that a million times a day and the money adds up. Or maybe do it 8 billion times. It requires powerful computers, complicity of the exchanges (because the exchanges get paid a lot), and highly proximate computer connections. Literally, the need for speed is so important that to play this game you have to have your servers physically at the exchange. Across the river in New Jersey is too slow. Forget Texas or California. This is a game played out in microseconds.

The retail world doesn't get to play. This is a game only for big boys who can afford to pay for the "arms" needed to fight this war. But the rest of us pay for the game, as that half cent is like a tax on transactions, not to mention the increased daily volatility, which skews pricing. Think it doesn't affect you? That "tax" is paid by mutual funds, your pension fund, and every large institution.

Frankly, this is outrageous. The more I read the madder I got. And it is going to get worse as computers get faster and software more intelligent. We need rules to level the playing field. Themis suggests one simple one: just make it a rule that all bids have to be good for at least one second. That would cure a lot of problems. One lousy second! In a world of microseconds, that is an eternity.

Goldman Sachs went after an employee who stole some of their latest and greatest software this last week. The US assistant attorney general said in the courtroom that the software had the potential to manipulate the market. Imagine that. I am shocked. There is gambling going on in the back room? Gee, commissioner, I had no idea.

All this "algo" (algorithmic) trading also gives a very false impression of volume. If you are a fund and see 10 million shares a day traded, you might feel comfortable that you could hold one million shares and exit your trade easily. But if 80% of the volume is false "algo" trading, that volume isn't really there. You may have a position that will be a problem if you want to exit, and not know it.

"High-frequency trading strategies have become a stealth tax on retail and institutional investors. While stock prices will probably go where they would have gone anyway, toxic trading takes money from real investors and gives it to the high frequency trader who has the best computer. The exchanges, ECNs and high frequency traders are slowly bleeding investors, causing their transaction costs to rise, and the investors don't even know it." (Themis Trading)

We are literally talking billions of dollars here. The SEC needs to step in and stop this, and soon. This is a lot more important than the salaries of investment professionals, for which the Obama administration today suggested new rules, which would allow the SEC to oversee salaries at member firms. Seriously? They don't have enough to do already? the paper referenced is here

I don't disagree with any of facts about volume increases or the existance of the liquidity provider incentive payments or the algorithmic trading systems, What i disagree with is the notion that this is harmful. My experience is that markets are tighter and more competitive than ever before. It is easier to get larger sizes done at lower total cost than before. It has not been very long since the minimum bid ask difference was a sixteenth not a hundredth. Plus one had to pay broker fees to get an execution, now one pays very, very little to get an electronic execution.

The quarter cent paid to the liquidity provider is paid by the exchange as means of remaining competitive with other exchanges for volume and tight bid ask quotations. What has been eliminated is several levels of commission that used to be paid to brokers. All of this reduces the frictional cost of trading for the public. These are good things.
The institution with a 20.00 price order doesn't have to pay 20.01 just because it is offered but it certainly is better than the best offer of 20.06 that used to exist. I believe the market is more efficient in terms of cost and liquidity down at this micro level than it has ever been.

Blaming electronic execution systems for the increased volatility of the market when the entire banking system is falling apart seems to reflect the bias of agency brokers whose business is being rendered semi-obsolete. i understand and sympathize with brokers being cut out of the process but all sounds like the complaints by floor traders at the commodity pits when electronic trade began to steal volume from the pit, an it is just as self interested and incorrect.

Bespoke: stocks with largest short interest

From Bespoke:

Stocks with highest short interest

Donal Coxe May 22 audio.

click here

Tim Price nails situation in makets.

The Price of Everything

It’s not just what you know, it’s who you know. And it’s not just who you know, it’s who you pay off.

Click on the this to read it all.

Also for those people fighting the market uptrend, which is most of the professionals, "it is the stimulus stupid". As I have said again and again the huge stimluls put in by the Bush administration has been cyclcling through the system for almost 8 months and it is leakking steadily into the stock market. The stimulus has a much bigger and faster effect on the stock market than on the economy. The money has to go somewhere and some of it is going into equity investment. Some of a stimulus that large is a lot of money. Later on, 4 to 8 months from now the Obama stimulus is going to have its effect and we get a surge from that too. It is all artificial and will eventually go bad, very bad, when they initiate their huge tax increases on a tiny minority group and simultaneously try to shrink the Fed balance sheet. Better get your skates on for that one.

Melt up?

Every once in a long while the market tone gets very bearish and individuals and institutions become so cautious they maintain a very defensive portfolio and carry lots of near cash positions rather than stay fully invested. Sometimes the market then begins to rise for no apparent reason. Usually descriptions like bear market rally, or correction, or pause are used to explain the action and not many jump on board the upward move. But the market keeps crawling upward and institutional fund managers find themselves underperforming the market for a quarter. Then for a part of a second quarter they still stay out they fall further behind and start to get a little nervous, but earnings season is coming and the market moves a little sideways. The fund managers are reassured the bear will resume or at least weak earnings will give them a sharp correction they can use to get on board.
But lo and behold the earnings period doesn't break the market and a crappy GDP number not only doesn't break the trend but buyers drive the market up sharply and a month in to the second quarter these fund managers really are way behin with less than 8 months to catch up and get ahead of the market. Now jobs are on the line. Soon the "Melt up" begins. An overbought overstretched rally turns into a frenzy as fund managers capitulate on their bearish ideas and buy in with waves of panicky buy orders. The market shoots far further than is justified in a fairly short period of time till the funds are more properly positioned for and up move. And just as suddenly the bull is over, vanished, gone like the wind. The bear resumes.
In 35 years in the market I have seen this once or twice. I think we may see it again very, very soon.
Be careful out there!

Treasury Bond yields and tipping points - Whither goest Yield?

from EconompicData :

Ten Year Yields: Higher or Lower?

This is a good bull case or bear case article linking to Across the Curve and Zero Hedge

Bespoke: On Corporate Credit Spreads

These spreads are a very good temperature gauge of sentiment about the economy. Right now they are negative but improving. A move back to normal will be very profitable for the courageous buyer of corporate debt, especially high risk debt. charts courtesy of Bespoke.

Thanks to Jim Paulsen.

I received the Monthly Perspective from Jim Paulsen at Wells Capital Management and had the great pleasure to read the following portion:

Many believe traditional economic policies have not worked in this crisis. However, despite potential mistakes made by U.S. policy officials (and each will painstakingly be studied for years to come), its resolution is nonetheless finally emerging “because” ofpolicy official actions! Wall Street has stabilized since November only because of massive monetary, interest rate and fiscal stimulus introduced since last summer!
Since last August, the real M2 money supply has risen at a postwar high annualized growth rateclose to 20 percent! Short-term interest rates have been driven essentially to zero! The yieldcurve has been spectacularly steep! Mortgage rates have plummeted to at least a four-decade low!Finally, federal deficit spending in the seven months since August is in excess of $900 billion!
Despite widespread perceptions these policies were not working, within three months, these massively stimulative economic policies began to stabilize Wall Street in November. And even though policies often take as much as a year before they begin to show noticeable impact on the economy, signs of economic stabilization are already emerging.

I have been pontificating to the young guys at my firm in my role as macro strategist that the media was contributing to the problem of pessimism by demanding immediate results from monetary and fiscal stimulus. Always in the past the rule of thumb was monetary stimulus took 6 to 12 months to produce any real results and therefore no one should even expect to see much from all those programs until at least March and probably a little later. So I continued, don't expect much good news till then but some surprises should begin to occur around the end of the first Qtr giving us a chance of a rally.
I have been expecting this to be a big point of conversation around the forecasting crowd but until Jim's report I had not heard a single mention of this issue. Times have certainly changed. I guess we really have become an instant gratification society.
You can read Jim Paulsen's report here, please note I will not be posting Wells Capital Management reports here since you should be contacting the company for these, but, since I quoted it and Jim is an analyst I admire I am posting just this one.

Review of 1st quarter

I decided to take a look at the first quarter compared to my expectations at the beginning of 2009.
I have posted my document on SCRIBD but I am still trying to learn how to use it. If you have problems please note in a comment so I will know to fix it.

Ouroborous Review Mch 2009.

23% Bounce? Where?

Upon returning from vacation I find a 23% bounce off of the lows in the SPY. can anyone see it? This chart courtesy of CQG.

Liberal Media Censorship In Action

I was sent this message about video that was suppressed by threat of law suit by Time Warner at the behest of liberal media supporters of the Democrat party and supporters of the Obama campaign:

Object: The video clip that was not allowed in the USA - Pass this on to everyone.

This video shows that George Bush tried to warn Congress starting in 2001 that this economic crisis was coming, if something was not done. But congress refused to listen, along with Barney Frank. This video says it all.

The liberal AMERICAN media did not want this video on You Tube, so they had Time Warner threaten a law suit (proprietary rights) if it was not taken off.

This link is of the same video but is routed through Canada . Everyone in America needs to see this!

video

the video is linked through Canada because it has been blocked for the US by the very people should be the gaurdians of free speech.