Wednesday, February 28, 2007

Yahoo Finance: "Financial world braces for huge Chinese investment fund"

So, are the interests of a 1,200 lb. gorilla somewhat aligned with ours? If wisdom prevails, yes they could be. How do you make someone a true capitalist? Make him a trillionaire, with responsibilities to match? That should do it.



Financial world braces for huge Chinese investment fund - Yahoo! News

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Words You Won't See Me Using Much, and Neither Should You

"Correction" Does it mean that something about the markets was wrong, and now it is right? All the word (poorly) describes is that the market went down, presumably when hedge funds and other short sellers speculatively attacked it en masse, in the hope that thousands of fools would follow them in selling, then they could buy back in to cover their positions.

"Support" This is the peculiar idea that the market has a mystical boundary at some lower point where buyers will appear and stop the price of a stock from falling further, unless they don't. A form of superstition known as numerology, er, no, technical analysis.

"Resistance" This is the mystical upper boundary for how far a stock's price can rise, because it is the level where it peaked before, one or more times. You see, it is where sellers are thought to appear from the woods and sell your stock, unless they don't. Another doctrine of the superstition of technical analysis.

"Overbought"; "Oversold" This is the belief that if your technical indicators did not work up until now, because all those fools did not know how to read the charts like you, then doom awaits them when the technical mojo gets to working.

The dumbest thing I heard today, from one of the usually astute guests on Larry Kudlow's show, "We needed a correction." Really. Investors do not need a "correction". In fact our long-term orientation armors us somewhat against market volatility. Traders, short-term-oriented folks, might need a correction; hedge funds oriented to short selling will do their utmost with their monstrous lines of credit to create "corrections". I think it is fair to say that if you are invested in such a fund, you should understand that in a sense their interest lies in damaging the rest of your portfolio as much as they can, whenever they can.

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Tuesday, February 27, 2007

The Markets Today -- A few Thoughts on China, and the USA, Mostly

It's interesting. The drop of the Shanghai Composite Index should be no shock, as it has been going up so fast for so long, looking ripe for some possible downward volatility. So we have some. What's important about this? Volatility happens. Speculators lose money, mostly. I really believe that what is most important is long-term in nature. I would hope that if China is fortunate enough and its leaders wise enough to avoid messing up their great possibilities, (and I think they may be,) this century can be the beginning of a golden age for China and indeed, for many of the emerging market nations. But human history show us that the leaders of great nations are too often not much wiser than the rest of us.

There have always been spectacular downs as well as ups -- much volatility -- as market economies mature and grow stronger.

Consider Hong Kong, over the last forty years. Mark Mobius' book, Mobius on Emerging Markets, has a discussion of the huge volatility, the sustained very high economic growth rate, and the great rewards in terms of investor wealth which came to patient, careful, (dare I add diversified) investors. Hong Kong can be the model for even a huge nation like China.

So what would I, an individual American, hope to see from China over the rest of my lifetime? Economic growth and freedom, and a sense of responsibility to handle well the marvelous possibilities still opening up before the eyes of the world. It would seem to me that there is no need at all for aggressive, substantial expansion of military forces. Or for forceful resolution of the Taiwan issue. I am far removed from a position of influence, but my friendly counsel would be to seek all possible ways to defuse tensions, strengthen trust, reward that trust well, and to build on the many things which are shared between them, cultural and otherwise. I would think it would be very wise even to unilaterally renounce the use of violence against Taiwan. Peace, shared prosperity, and a genuine sense of enduring brotherhood are the best ways to bring people together. If Germany can be peacefully reunited, so can China someday. So can Korea, for that matter.

Chinese investors would be very well rewarded for avoiding speculative behavior; that is not a good way to build anything. they should seek ways to invest patiently, in well-diversified ways, at minimal expense, and also invest globally. While I am not expert on the details of the matter, I understand that there are limitations on the ability of small China investors to invest in the securities of other countries. I would hope that the need for such limitations would recede.

On the US markets today. I find remarkable the behavior of the traders, who take something like today's China market news as an invitation to, well pardon me, but to start trying to take the other emerging markets, the US and other developed markets down as well. There is no rationality visible in this, at least to a much less tactically-oriented fellow like me. If you are irrational enough to think that you can out-trade all the other nuts, er, speculators out there, I guess you just do not need something like a reasonable basis for all that buying and selling.

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Monday, February 26, 2007

Bloomberg: "Hedge Fund Copycats Catch Mutual Fund Buyers as Returns Dwindle"

Back to a little blogging, after some time away. The linked article focuses on long-short, or market-neutral funds, now being sold to investors with much less in investable funds.

A couple of quotes:

"[S]ubpar performance isn't stopping the world's largest financial institutions, including UBS AG in Zurich and JPMorgan Chase & Co. in New York, from chasing higher fees by offering copycat hedge funds to people with as little as $1,000 to invest. Assets of the so-called long-short funds almost doubled to $16.5 billion in the U.S. in the past two years, according to Financial Research Corp. of Boston, which tracks money flows."

"'A lot of people buying these funds don't know what they're getting into,' said Ross Levin, 47, president of Accredited Investors Inc., an Edina, Minnesota-based financial advisory firm that oversees $650 million."

My take:
If you do not understand what you are getting into, don't get into it. Just don't. Ask for another explanation. Ask questions about how much you could lose. Insist on a clear answer. If it is a hedge fund-type of investment, you might ask how much leverage is used by the fund. The honest answer here is likely to be "I don't know. They don't tell." If your advisor or broker cannot or won't tell you how much leverage is used, you should know that more leverage involves more risk of extreme results, including extreme losses, and that even the SEC is having a tough time finding out how much leverage some of these funds are using. Ask him to tell you how this investment is safer than Amaranth, which "blew up", or Red Kite, which experienced severe losses when highly leveraged trades went bad. Or Pirate Capital. Ask him exactly how much he gets when you buy this thing. Ask him if he is being pushed or incentivized to sell it. If it is on some kind of list of things they wish him to sell, ask him if this is a conflict of interest. you might write down his answers, just as he gave them to you and ask him to sign it. He will not like that! Most likely he'll say that he can't do that!

You might ask how compatible this investment is with your risk and volatility tolerance. If you do not like the answers, it is OK to say "No". It's your money. The rep or advisor won't give you one dollar back out of his pocket if this thing hurts you financially.


Bloomberg.com: Exclusive

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Saturday, February 17, 2007

Chuck Jaffe's Back with another "Stupid Investment of the Week"

This series of his is always good. Well, I thought it, and this once I'll write it. Is there a particularly hot place in Hell, well-populated by the lowest, worst sort of insurance salesmen?


You're better off rejecting 'guaranteed acceptance life' policy - MarketWatch

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Friday, February 16, 2007

Another take on that Bear Stearns/Manhattan Investment Case -- Marketwatch

The key points...

Industry ramifications are huge. A number of big brokerages are deeply dependent on hedge fund business. If a client hedge fund goes belly up, their prime broker really, really does not desire to be held liable to the investors. There will be an appeal. A quote, " 'It was a shock to many on Wall Street,' said Robert Heim, a former Securities and Exchange Commission lawyer now in private practice. 'If it's allowed to stand on appeal it's going to heighten the responsibility brokers have over their hedge fund clients.' "

Or maybe it would just motivate the prime brokers to reduce the aggressiveness or the amount of leverage the hedge fund uses? Or maybe, the brokerages could send around some auditors every now and then to keep their hedge fund clients' numbers honest?


Bear Stearns loses one for the prime brokers - MarketWatch

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Are People Saving Too Much For Retirement???

Naahhh. Seriously, there is a debate on this. And while there is something to be said for not unnecessarily living the life of an ascetic, there is certainly the necessity in this life for most people to be a little bit prudent about saving for their retirement years. Ms. Rowley does a nice job, as usual, of reviewing the issue. The important thing, if you are not saving, is to start, and stick with it. Saving something is better than saving nothing. Saving a little more is better than saving a little less. Take a step for your future. This month.


here's the article

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Starting a small business? - Jennifer Openshaw has a nifty article on MarketWatch

Play within the rules, but use them. Hobbies are not businesses, so be careful.

It's titled "Let the tax genie out of the bottle" and she touches on a lot of things, and I'll refine on one. If you have a teenager earning his or her first few dollars, whether in the situations she describes, or in a "traditional" teenager job, think about (heck, do it!) setting up a Roth IRA for the kid. Nudge him or her to save half of the pay earned, and put it in the Roth. Since it's a Roth, and it is very long term money, you can invest it rather aggressively. One good possibility might be a good no-load growth stocks-oriented mutual fund. Don't do the load fund thing. Take a little time, look around the free content on Morningstar's site, find a high-rated fund with low initial and additional investment minimums. It could be the start of something very good for your child to have thirty or forty years from now. This is not a complete investment program, but it is a way to start.


Want to reap of more tax benefits? Start your own business - MarketWatch

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Thursday, February 15, 2007

Bloomberg: "Options-Toll Rises as Corporate Lawyers Retire, Quit"

Hey! So, what's the problem, huh? So what if a few executives finagled their options grant date? Why all this fuss? Everybody's done it, and no one will ever know. And you worked real hard for the company last year. You're entitled to be taken care of too. We'll just fix the papers, OK? Sign here. You don't want to be known as some kind of ethical freak do you?

Well, now we know.

And why are the corporate counsels being made the fall-guys? Well what do you want Apple to do, fire Steve Jobs? Yes, the corporate counsel should have stopped it. Corporate counsels can be removed if they get in the way of CEOs. It would be an unequal contest. But which is better, to be fired for doing what is right, or to be fired later as the fall-guy?

Well, imho it's like this. When the options grant date was illegally backdated, it was for a reason. It was certainly not done to cost the manager in question more money! Generally, a date was chosen using good 20-20 hindsight, to get a lower share price factored in and thus a larger gain later. Documents were falsified to cover the backdating. So where is the victim? The problem, is that the favored few were in a real sense stealing from the other stockholders. It is that simple. If anyone should be pilloried in these cases, it should be the offending manager(s) and the directors who were asleep, governance-wise.


Bloomberg.com: Exclusive

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Bloomberg: Bear Stearns Told to Repay Hedge Fund $125.1 Million

Well, actually the money is for the defrauded clients of the hedge fund. Bear Stearns was the prime broker for the fund. It's a sad, sad story. The fund manager, Michael Berger, lost money on short sales, fraudulently issued client statements for an extended period, and fled the country and is still a fugitive. Bear Stearns "learned as early as December 1998 that [he] may have been deceiving investors about returns." Manhattan Investment collapsed in 2000.

A few quotes:

"[Judge] Lifland concluded last month that Bear Stearns ... was trying to cover its own potential losses and didn't investigate thoroughly after learning of possible fraud at Manhattan Investment, court filings show."

``This is going to send shock waves through many prime brokers, because they've been very careful to limit their responsibility for their customers' actions,'' Michael Missal, a former SEC lawyer and head of the regulatory practice at Kirkpatrick & Lockhart Preston Gates Ellis LLP in Washington, said before today's hearing. ``They do not want to be seen as insurers for their clients.''

"Manhattan Investment, founded in 1996, collapsed into bankruptcy four years later in `one of the most egregious and costly frauds in the history of the securities markets,' the SEC wrote...."


Bloomberg.com: Worldwide

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Does Mutual Fund Upgrading Work? Part One

I'll be posting on a few of the commonly-encountered mutual fund upgrading approaches. Tip-off: there is essentially no objective research support for this idea. It is one approach to trend-following as an investment approach. We'll start with an overview of how these things try to work.

Fund upgrading approaches are often, but not exclusively based on someone's proprietary, undisclosed quantitative method for determining what kind of securities are moving upward, for which information you pay them. You would generally describe this as what is known as a technical approach. You buy the recommended funds, holding on to them as the trend continues to work, then selling and either going to cash if nothing is working or buying into a new trend when it shows up. It sounds powerful.

Is there a fly in the ointment?

Usually. Mutual funds generally do not like this behavior, as it screws up management of the fund. Cash moving in and out based on "market timing" systems forces them to buy and sell securities at times when they do not see doing so as beneficial to their investors, as short term gains are generated, portfolio trading costs are incurred, and their "steady" investors are left holding the bag. So they retaliate by imposing short-term trading fees and penalties, which can be as much as one or two percent of the amount invested. Get hit by charges like this two or three times in a year and you will be left wondering why you have fallen behind. The upgraders have evolved toward using exchange-traded funds and some funds which are more open to people trading in and out of them. Those funds typically nick you with hefty expense ratios though. So what you see is the upgraders having fewer choices with regard to actively-managed funds, and part of the appeal of that idea was the hope of finding the funds with managers on a hot streak, and getting in on the action while that fund's hot streak lasted. It's harder and harder to do that now. Index funds don't like people moving in and out like this either, for most of the same reasons.

But wait, there's more! Academic research mostly supports the idea that there is such a thing as a trend, sometimes. And, the research supports the idea that a trend can continue, for a time, sometimes. But trends end, randomly, unpredictably. Whenever it ends, it ends. Unless it doesn't! Sometimes they stutter. There is no research to tell you how to figure out when a trend will end. Market valuations can and do go to extremes, both high and low, sometimes. Sometimes trends end with a really bad reversal. Think dot-coms in the year 2000.

And that's not all! If you are out of the market when an investment style or asset class begins to move up, you miss participating in it. By the time you get in, you may have missed a good bit of it. Think of it as Investing 101: market timers just fall behind more and more over time. Steady investors (if they are well invested!) capture the full upward movement of the markets, including dividends, and their gains when they sell are long term and tax-favored, presuming we're talking about a taxable account of course. Patience wins big for you over the more impatient approaches. There is some justice in the world!

In the next week or so, I'll put up a few posts looking at returns of several trend-following approaches which have created mutual funds you can buy to get the convenience of their picks in one fund.

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Wednesday, February 14, 2007

Value Line's CEF -- Discussion of Mark Hulbert's Marketwatch Article

Value Line's closed-end fund, the First Trust Value Line Fund, FVL, has been trading at a discount to its NAV, its net asset value, per Mr. Hulbert, who writes for MarketWatch, mostly on newsletters. If there is a more tireless student of investing newsletters, I don't know who it could be. FVL is being converted to an exchange-traded fund.

Some points from the article: The CEF was trading at a 7.8% discount to NAV on February 5. Last year, per Mr. Hulbert's calculations, "a portfolio of Value Line's top-ranked stocks lagged the Dow Jones Wilshire 5000 index by some thirteen percentage points." Ooh, man, that hurts to think about. There you have the basis for the discount, I guess. He points out that Value Line's stock rankings have struggled for the last five years. Mr. Hulbert's research does indicate that over 26.5 years tracked, Value Line's picks have beaten the Wilshire 5000 by an average of 2.6 percentage points, so it has done well over time. In fact, that is a record worthy of respect.

It could do well again. It's a proprietary, undisclosed system, so it is pretty much impossible to formally research. One man I know even refers to it as the "Value Line anomaly." It's rather like a black box, research-wise. And it is difficult for me to endorse someone's black box investing approach. Sorry, I'm just funny that way.

Here's the article:

Conversion of Value Line fund presents unique opportunity - MarketWatch

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Another Twist on SRI (Socially Responsible Investing)

A story on how a group concerned about global warming, rather than dump or avoid stocks of companies they have concerns about, are using their status as shareholders to seek to influence the companies in the direction they wish them to go.

Now frankly, it is hard for me to see Bed, Bath & Beyond as some sort of villain on global warming, if man-made global warming even actually exists. Perhaps they will sell fewer blankets if it is warmer. But these activists are onto one thing. If you have shares, you have votes. If you don't, you don't. If you have enough shares, you have a voice. Win over other shareholders and you have change. But for the sake of the shareholders at large, the employees, and those who purchase the business's goods and services, you had better be right.


Investors criticize Exxon, Wells Fargo for climate agenda - Feb. 13, 2007

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Tuesday, February 13, 2007

Socially Responsible Investing (SRI), Revisited

I blogged a bit recently on how I see SRI, and wanted to use the linked story, involving alleged "improper foreign payments", aka bribes I guess. I admire J&J for its exemplary corporate citizenship history, and overall excellence in how it runs its business activities. But even when you screen out from your portfolio the "usual suspects", like Altria, or whoever, you will see things like this story on any given day. The lure of big money, and shortcuts to career advancement, to power can be more than many highly-credentialed individuals can resist. And in my book such behavior is more corrosive to your financial outcomes as an investor than whether your portfolio holdings run problem businesses.

Make no mistake, if you invest using single company stocks to build your portfolio, you can eliminate the companies you just cannot accept as personal holdings. But if you use mutual funds, either indexed or actively managed, to exclude Altria, for example, you just drastically limit yourself in terms of your choices and you will likely see significant performance degradation. There are enough things out there which can set you back financially, you do not need to add in any more, even in a well-intentioned way. Your retirement is at stake.



BBC NEWS | Business | J manager quits in fraud probe

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Sunday, February 11, 2007

Bloomberg -- "If Hedge Funds Kept Cows, Your Milk Would Go Sour: Mark Gilbert"

It's labeled "opinion", I'd call it humor, and it has a bit of an edge, maybe. And it's about much more than hedge funds.

Bloomberg.com: Opinion

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Friday, February 09, 2007

Fox Business Network details begin to Come out

Well, the rumors were right. The more, the better. Iron sharpens iron, maybe even in TV.

Forbes: br/>Fox Launching Business Network - Forbes.com

Slate weighs in, albeit somewhat sourly: "Fair and Balanced ..."

And FoxNews.com has a few words to say...here.

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'A Slugfest Gets Uglier' -- Washington Post

The story is by Steven Pearlstein, and is about a noteworthy fight between one company and the hedge fund which shorted its' stock. There are no angels visible in the story.

A quote:

There is disturbing evidence, for example, that hedge funds make some of their money by trading on what most laymen would consider inside information. There are entire firms devoted to obtaining proprietary information from present and former employees of companies, suppliers and contractors. Others have approached researchers offering to pay for an early peek at drug-trial results. Hedge funds reportedly spend big money for lobbyists who might tip them off to major legislative developments before they happen. And just this week, the SEC announced that it was investigating whether hedge funds had received tips from investment banks and brokerage houses about coming trades or merger announcements.




Steven Pearlstein - A Slugfest Gets Uglier - washingtonpost.com


The lesson from all this? Find the most honest people you can to deal with. What on earth next? Is there anything past the pale for these guys?

Remember, "you cannot con an honest man." Be the honest man, or woman. If an investment purveyor claims the ability to make you shockingly big returns, and has no better explanation for "how?" than his claimed larger, highly evolved brain, and implies politely that his ways are just too complex for you to understand, well, gee. Consider saying, "no thanks." and find yourself some more transparent approach to investing money.

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Mutual Fund Directors are Supposed to Represent the Investors, but ... Wellllll

SmartMoney should get a lot of credit for stories like this one and the last few I've linked to, instead of puffy, fluffy stuff. If you use mutual funds in your own investing, you have an interest in this issue, and should have some knowledge of the governance practices at "your" fund families. Silence is bad for your financial well-being, but ignorance is the worst. How they run the fund you're in should be part of your ongoing evaluation of whether you stay with it.

You can Google the Fund house's name and the word "governance", or just search a few of the major personal finance websites, (like SmartMoney's!), or Yahoo Finance, Marketwatch, MSN Money, for example. Morningstar.com has material on this, but it's in the premium section, not free (sorry, folks.) If you don't like what you see, you can always politely communicate with the fund, and let them know. When the numbers look meaningful to them, the better ones will respond. If they do not, you might owe it to yourself to consider searching out a better alternative, or let the person who put you into that fund know you are disappointed. He or she has obligations to you regarding this.

Three Years Later, Fund Governance Lacks Reform (Fund Insight) | SmartMoney.com

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SmartMoney Weighs In: "No Love Lost Between Hedge Funds, SEC"

It's a pretty nice review of the impending regulatory scene. And don't miss the linked MarketWatch article on people lying to become "accedited investors".


No Love Lost Between Hedge Funds, SEC (The Invisible Hand) | SmartMoney.com

That MarketWatch article:

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Common Sense: "Hedge Funds Charge Too Much for Returns, Calpers Says" -- Bloomberg

That title says it all, if you ask me. Subpar returns as a group, rapacious, eggregious fees, and no articulated rational basis for the idea that they can as a group deliver premium returns. They are a potentially destabilizing force in the financial markets. Other than that, they're great! Oh yes, and regarding the ones marketed to individuals, some of the managers have had big losses and then run off with what was left of the money. Why would anyone get concerned over tiny little things like that?

These things are a distraction or hindrance to investors seeking to accomplish their investing and financial objectives. Offering people an "easy way to big gains" that doesn't really work, except for the sellers of these things, does not help them one bit.


Bloomberg.com: Worldwide

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More on WSJ's "How Borrowed Shares Swing Company Votes"

There are some letters to the Editor in today's WSJ on this. (p.B5) I blogged on the original article Here.

The thrust of the letters seems to be that the phenomenon of "empty voting", or voting borrowed shares in order to influence corporate governance without benefit of having bought sufficient shares to properly do so is not common, and would violate a federal reserve margin regulation. Thank heaven. But should that be sufficient comfort? I'm glad that "empty voting" is uncommon.

It should be nonexistent. I would argue that it is wrong whenever it occurs or is attempted and should be precluded as suggested in the original article by a requirement that shares be owned in order to vote them. If this complicates life for short sellers, that's tough. Perhaps short sellers would have to offer their borrowed shares "ex-votes", with the votes only following when they close out their position! Wouldn't that be fun for the brokers? Buyers could refuse to buy, or limit their order to "owned shares", making the borrowed shares a little less valuable. Woo-hoo!

Doing this might even offer a way to get realtime aggregated short selling information to all market participants, and a way for the regulators to quickly target instances of another "uncommon" abusive speculative practice sometimes seen, the selling of shares in excess of those available for borrowing. Don't even get me started on that!

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Wednesday, February 07, 2007

FT - "Claims staked in [ETF] land grab"

As I noted before, the expansion of the ETF zoo has gotten pretty ridiculous. But I'll let you in on a secret. If, if mind you, I was into such things, and mostly I'm not, I would look every now and then at an ETF, active or passive, preferably passive, of smaller tech-related businesses located in Massachusetts. Hmm. It's just an interesting area. I won't even sue if someone takes the idea and runs with it. Just find a way to defend it from front-runners.



FT.com / Wealth / Hands-on investor - Claims staked in land grab

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Another Thought on Actively-Managed ETfs

A possible big downer. If the 'evil hedge funds', (sorry!) can 'crack' the rebalancing routines of an actively-managed ETF, and can front-run them, i.e., buy the things it will be buying first, then they will be lining up in droves to do so, to the detriment of the investors buying that fund. Tracking error could be an entirely inadequate phrase to describe the ugly result. Possible investors in any such fund should be given sufficient information to carefully evaluate the risk of the fund being exploited by front-runners.

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FT - "Investment vehicle could be a ‘better mousetrap’ for managers"

It's interesting, but I am still somewhat skeptical. 'Actively managed ETFs can perform better than open-end mutual funds because the managers are freed from the need to make purchases of stocks to deploy cash inflows'? But someone, the arbitrageur, has to buy the stocks, the 'creation units', exchanged for the the ETF shares, right? That's how ETFs work. It's formulaicly-driven, rather than analyst-driven, as to which stocks are purchased, but stocks get bought, by someone, when people want to buy the actively-managed ETF, at least while the ETF is ramping up in trading volume, and as buyers outnumber sellers. I just don't see that the conclusion, enhanced performance, necessarily follows from the reasoning in the article.

Anyway, watch for a lot of hype when the actively-managed ETFs begin to show up en masse. If what has happened with ETFs already is any indicator, there will be some really strange and useless critters evolving in this part of the financial arena. Hype will trump real utility for building portfolios. I can see it now, the 'Best-performing Small-cap Flashlight Makers' ETF; and its derivative concept for those feeling a little down on that group, the Double-inverse Worst-performing Small-cap Flashlight Makers ETF, etc. Boy, won't that be great!



FT.com / Wealth - Investment vehicle could be a ‘better mousetrap’ for managers

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Monday, February 05, 2007

Marketwatch: [Hennessee Consulting Says] "Hedge fund attrition rate falls in 2006"

A quote: "Failures, liquidations should decline in coming years"


Hedge funds shut down at slower rate in 2006, study finds - MarketWatch

I wonder who paid the consulting firm for the study?

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Jaffe's "Stupid Investment of the Week" (a beginner's day-trading book)


Day-trade by the book and you will get bitten - MarketWatch

What can I add? Don't try this at home, or anywhere else? If fifty percent of day-traders make money, does that mean that it works? Remember the coin-flipping analogy? If you work really intensely at your coin-flipping, and buy some books, and keep at it, ... bad streaks will still bust you, if you play against the house, and the hedge funds, and someone having a hot hand today.

El Dorado is still not there. You can hunt for it all you want. Or you can invest.

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Wasn't the Hoary Old Dow Theory Busted by Researchers Decades and Decades Ago?

Yes it was. It doesn't work. Just like every other publicly-disclosed charting strategy, when subjected to objective research, it fails, or succeeds randomly, same thing. Oh wait. There was one study, involving a trend-following approach, which suggested some mildly exploitable characteristics might exist, before taxes and trading costs. But not after. El Dorado is still not there. BTW, you do understand, that if it worked fifty percent of the time, you could do as well with coin flipping, right? These "charting" approaches can all be considered to be in a busted condition.

Sadly, the big brokerages sometimes still keep a few technical analysis research guys on staff. Technical analysis "systems" can produce frequent trading, and thus commissions. Guess which brokerages are officially on record that an entire body of objective research exists establishing that technical analysis, or "charting" does not work. I do not know of any. I do think that if sizable numbers of people were into trading based on animal entrails analysis, you would see brokerages adding staff with experience in that area and competing for their business.

There is a time and a place in this world for the exercise of faith. Technical analysis has never been shown by objective research to be a suitable object for the fervent faith placed in it by its disciples. Its use can cost you money, time, and lost real opportunities.

There are things that have worked in investing. They are not secret. Work is required to learn and employ them. They take time, and are not splashy. Charting is not one of them. Charts can beautifully explain what has happened, or illustrate a point, but have zero predictive value. Zero. That's not opinion, but the consistent conclusion of a mountain of research papers by many brilliant academics.


Transports hit new high, triggering Dow Theory buy signal - MarketWatch

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Sunday, February 04, 2007

Bloomberg: "Loss at [$10 Billion] Goldman Hedge Fund Racks Duo at Secretive Global Alpha"

It's good reading. To be fair, as with any investment, any one year has limited importance. It's made really good money in years past, but it added "negative alpha" in 2006. If you're not familiar with the term, that's OK. The article gives you a good definition.

One quote: "... size could work against Global Alpha, as it has in the past against once-celebrated mutual funds such as Fidelity Magellan. `When you're the biggest in a particular style, it's tough to shift your portfolio without everybody knowing it,' [quoting David Hendler, a senior analyst at New York-based CreditSights Inc.] `There is the question of whether you can continue to perform at the same level.' ''

Bloomberg.com: News

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posted by Etaoin Shrdlu @ 11:56 PM   0 comments links to this post

CNN Money: 'Found! 1 million jobs' (job growth has been much stronger than first thought)

Interesting, very interesting ... did we not just have an election where the lack of jobs growth was used as an issue?



About 1 million more U.S. workers to appear in federal count - Feb. 1, 2007

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posted by Etaoin Shrdlu @ 10:40 PM   0 comments links to this post

New York Times Will No Longer be Linked to from this Blog

There is some good content there, but this was unspeakable. Not that it means anything to them, but it means something to me.



Michelle Malkin: Lt. Gen. Odierno writes to the NYTimes

posted by Etaoin Shrdlu @ 10:00 PM   0 comments links to this post

Friday, February 02, 2007

"Mutiny at Pirate Capital Roils Hudson After Worst Year Ever" - Bloomberg

Arrrgh. I will say this for hedge funds: they make some of the most interesting stories. you know, you could do a whole blog just on the blow-ups. I know, I know. My point is that for every poor way to commit money in the financial world, there is a better way you could employ. Educate yourself or get yourself a fee-only, low-fee advisor with good fiduciary standards.


Bloomberg.com: Exclusive

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posted by Etaoin Shrdlu @ 3:09 PM   0 comments links to this post

Hedge Fund Red Kite having problems? - Financial Times

Another one about to bite the dust? This is just not investing, it seems more like roulette. if you want exposure to metals or more broadly, commodities for your portfolio, there are nonspeculative ways to do that.


FT Alphaville » Blog Archive » Problems at Red Kite spark sharp metals sell off

There's more at

Red Kite to extend redemption notice period after big losses - MarketWatch

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posted by Etaoin Shrdlu @ 2:30 PM   0 comments links to this post

Thursday, February 01, 2007

More of Henry Blodget's book in Slate - He Calls Jim Cramer 'that Crazy Man'

I wrote a post about the first two parts of Henry Blodget's book excerpts at Slate. The third is up, and in it he devotes quite a few words to Jim Cramer and his show on CNBC, Mad Money. His stats on Cramer's stock picks are more current than I have previously encountered, and it's not pretty. A few thoughts first.

When Kudlow and Cramer was on CNBC I thought it was the best thing going. Those two counterbalanced each other nicely. I guess you could say that with their show the total was more than the sum of the parts. It's gone but not forgotten. I would say that Jim is jumping the proverbial shark nightly for CNBC, and they have not had much success otherwise with their evening programming. Now don't anyone tell him I said that, or he really will jump a shark on the show, and that could be the end.

A fellow I met some time ago would short Cramer's stock picks right as he made them in after-hours trading. He was not down on Cramer at all, but he believed that people were buying Cramer's picks willy-nilly as he made them without doing any personal research, and his thesis was that many of Cramer's picks went up, down, and then back up again. Thus the short sales. I have read Cramer's book Confessions of a Street Addict and really enjoyed it and learned a little bit about the mindset of a trader, that trading as they do it seems to be mostly about outgaming the other traders, not even remotely about investing, as Ben Graham defined it, or about fundamental or technical analysis. It was, in a word, surreal, and just not rational. One thing I will say about Jim Cramer is that he can really write. I think I would like him if I knew him personally, but that we would agree on very little.



Why you should never take Jim Cramer seriously. - By Henry Blodget - Slate Magazine

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posted by Etaoin Shrdlu @ 8:03 PM   0 comments links to this post