Monday, December 05, 2005

Economic Confusion...or Lies

Just this past Saturday, the AP reported a story with the headline "Greenspan: U.S. Deficit May Hurt Economy". The article states that 'Outgoing Federal Reserve Chairman Alan Greenspan warned Friday that America's exploding budget deficit and a protectionist backlash against soaring trade deficits could disrupt the global economy.'

He went on to say that 'If something isn't done to trim benefit costs, the resulting budget deficits would "cast an ever-larger shadow" over the future living standards of Americans'.

This is pretty severe rhetoric and one would think should be taken seriously.

But today Reuters reports that 'Treasury Secretary John Snow said that a steadily expanding U.S. economy has reached a point where it should start generating good news about incomes and jobs.'

Confusing to say the least.

Monday, September 19, 2005

Psychopaths Best Traders...

Just thought this was interesting (perhaps offensive to some, but still interesting).

Psychopaths could be best financial traders-research

LONDON (Reuters) - "Wanted: psychopaths to make a killing in the markets".

Such an advert will not be appearing in the world's newspapers any time soon, but it may have a ring of truth after research revealed the best wheeler-dealers could well be "functional psychopaths".

A team of U.S. scientists has found the emotionally impaired are more willing to gamble for high stakes and that people with brain damage may make good financial decisions, the Times newspaper reported on Monday.

In a study of investors' behaviour 41 people with normal IQs were asked to play a simple investment game. Fifteen of the group had suffered lesions on the areas of the brain that affect emotions.

The result was those with brain damage outperformed those without.

The scientists found emotions led some of the group to avoid risks even when the potential benefits far outweighed the losses, a phenomenon known as myopic loss aversion.

One of the researchers, Antione Bechara, an associate professor of neurology at the University of Iowa, said the best stock market investors might plausibly be called "functional psychopaths."

Fellow author, Baba Shiv of Stanford Graduate School of Business said many company chiefs and top lawyers may also show they share the same trait.

"Emotions serve an adaptive role in speeding up the decision-making process," said Shiv.

"However, there are circumstances in which a naturally occurring emotional response must be inhibited, so that a deliberate and potentially wiser decision can be made."

The study, published in June in the journal Psychological Science, was conducted by a team of researchers from Stanford University, Carnegie Mellon University, and the University of Iowa.

Wednesday, August 24, 2005

Same as Last Post, Just Different...

I just wrote about cause and effect, and the lack there of on most days. But today is another great example. The market is volatile. Trading is volatile. And calling the market moves are impossible.

Here are some headlines from the past hour:

'Stocks up on homes data, oil limits gains', 'Stocks Climb on Bullish Oil Inventory Data', and 'Stocks Move Higher As Oil Prices Drop',

The problem is the Dow is down 22 points (0.22%). No 'up', no 'climb', no 'limit on gains', no 'move higher'. The media knows the markets can move quickly, but insist on providing 'something', anything to justify their space.

So what happened between the time those headlines were written, and the market moved into negative territory and down 22 points? Homes data change? Oil inventory news not bullish anymore? Oil prices stop dropping and start moving higher?

A headline from 7:15am this morning read 'Stocks Mixed As Investors Weigh Data'. I like that. It tells me nothing and yet at the same time it tells me everything.

By the time you read this, the markets will have moved one way or another, so here's my headline for today:

'Stocks Move Up or Down Whether or Not Someone is Writing About It.'

Tuesday, August 16, 2005

Take Your Pick...

Today's headlines - wonderful cause and effect without cause or effect.

"Stocks fall on worrisome earnings"

"Inflation Worries Send Stocks Down"

"Disappointing U.S. economic news drives stock markets lower"

I really like the first headline though because it was preceded by these two:
"J.C. Penney earnings rise" and "Wal-Mart profit up"

Surprised that the oil markets haven't made the headlines today to blame the falling stock market - oh, oil is only up 18 cents today, guess the media needed to find other reasons for the negative moves...

Update, 1:43 EST (two hours after this main post):
I should have known better as the following headlines are hitting now:
"Stocks fall as oil hurts retailers", and "Stocks retreat as Wal Mart report raises fears that high fuel prices choking spending". (Just fyi - crude is now down 2 cents.) The media just can't help themselves...

More fun.....uhh, I mean fraud...

8/15, Reuters:
"Four former Wall Street brokers have been indicted for a scheme allowing day traders to eavesdrop on internal communications and profit by trading ahead of large share orders and subsequent price movements, U.S. prosecutors said on Monday.

The four brokers -- Ralph Casbarro, who worked at Citigroup Global Markets; David Ghysels, formerly at Lehman Brothers; Kenneth Mahaffy, previously at Merrill Lynch and Citigroup; and Timothy O'Connell, formerly at Merrill Lynch -- provided day traders at A.B. Watley Inc. and Millennium Brokerage LLC with material, non-public information, according to the indictment.

Day trader John Amore, of A.B. Watley, was accused by the SEC of paying the brokers to gain live audio access to the Wall Street firms' so-called internal "squawk boxes" that broadcast institutional orders to buy or sell large blocks of securities."

Citigroup, Lehman, and Merrill - all working for small guy....gotta love it.

And what is Citigroups response?
"We are vigilant about respecting client confidentiality," said Kim Atwater, a spokeswoman for Citigroup's (NYSE:C - news) Smith Barney unit. "The inappropriate sharing of proprietary information is prohibited, and we are committed to ensuring that anyone who violates our policies is held accountable."

Keep up the great work Kim, I'm sure we won't see your firm involved in another scandal next week...

Monday, August 08, 2005

This Insider Trading Gem Reported Today...

(Associated Press): "The chairman of the Senate Finance Committee called Monday for a federal investigation into whether doctors are supplying investment firms with information about clinical drug trials before companies announce the results.

The Seattle Times reported Sunday that, despite confidentiality agreements, doctors are divulging details about ongoing research for a fee. The newspaper's investigation cited 26 cases in which doctors leaked confidential details of their research, including 24 in which firms issued reports to select clients that advised whether to buy or sell a drug stock."

Can't wait to see which one (or two) of the big boys was involved in this one...of course it will be a big surprise to see no admission of guilt or wrong doing.

Full story here.

Another 1,300 S&P Outlook...

Paul McManus of Independence Investment was interviewed on Bloomberg this morning and is calling for the S&P (now at 1,226) to end the year at '1,333' (an 8% gain) due to strong economic conditions (employment good, interest rates low, higher corporate profits).

The July 11th entry also highlighted another great predictor of the S&P.

We'll see.

Tuesday, August 02, 2005

It's Just the Way Things Are...

"NASD Orders Morgan Stanley To Pay Over $6.1 Million For Fee-Based Account Violations"

"NASD announced today that it has fined Morgan Stanley DW, Inc. $1.5 million and has ordered the firm to pay more than $4.6 million in restitution for failing to adequately supervise its fee-based brokerage business. More than 3,500 Morgan Stanley customers will be receiving restitution."

The full story can be found here.

I know that about every one or two weeks a story like this comes out, and that we have all become callous to this type of news and behavior, but it still requires more attention than it gets from the mainstream.

A few years ago (during 'the bubble'), investors were lied to, misled, swindled, and taken advantage of. Many so-called changes were implemented. But has anything really changed? The answer is yes and no:

Yes - many brokers have found new ways to take advantage of investors and take their money. And no - many brokers have not changed.

Sunday, July 31, 2005

And the Truth is Simple....

I found an article that all investors should read. It is something you won't see on the mainstream financial news shows, nor will it ever gain traction in the media outlets. It's a shame that it has been relegated to the weekend AP news releases.

The article is 'Study Shines Light on Earnings Statements' by Ellen Simon of the Associated Press. Aside from the one erroneous statement in the first paragraph that "if a company's earnings meet analyst estimates, the stock gets boosted. If it doesn't, it's busted" (which simply is not true), the article presents some very interesting information on funny accounting.

Here are a few selected paragraphs:
"A study by independent research firm RateFinancials, based in New York, concluded that nearly 33 percent of Standard & Poor's 500 companies file financial statements that don't accurately reflect their financial condition. Victor Germack, RateFinancials president, wrote about the study under the headline, "How Good are Those Earnings ... Really?"

A series of $1 billion-plus restatements, including HealthSouth Corp., Computer Associates International Inc. and the nation's largest insurer, American International Group Inc., have driven that question home."

The full article can be found here.