TradeBlog (TM) .net / Personal Finance Blog

Trade Blog, a investing and trading information blog.
Providing a daily dose of news and features from the world of the personal finance, business forecasting, and financial industry for both the consumer and brokerage professional.

Advantage of Youth: ignorance

Young people make better entrepreneurs because they're too inexperienced to know that their ideas are silly:

The mistakes novices make come from a lack of experience. They overestimate mere fads, seeing revolution everywhere, and they make this kind of mistake a thousand times before they learn better. But the experts make the opposite mistake, so that when a real once-in-a-lifetime change comes along, they regard it as a fad. As a result of this asymmetry, the novice makes their one good call during an actual revolution, at exactly the same time the expert makes their one big mistake, but at that moment, that’s all that is needed to give the newcomer a considerable edge.

» corante.com [ Contribute: submit link / submit article / submit company ]

How To Beat The Stock Market: Buy Companies With High Customer Satisfaction Scores

A study in the Journal of Marketing concludes that you can beat the market consistently by buying stock in companies with high customer satisfaction ratings:

Using a back-tested paper portfolio and an actual case, the authors of a study published in the Journal of Marketing found that companies at the top 20% of the the American Customer Satisfaction Index (ACSI) greatly outperformed the the stock market, generating a 40% return. From 1996-2003, the portfolio outperformed the Dow Jones Industrial Average by 93%, the S&P 500 by 201%, and NASDAQ by 335%.

[ PDF ] view document » consumerist.com [ Contribute: submit link / submit article / submit company ]

Rising Exports Putting Dent in Trade Gap

Over half of the 9.1 million vehicles General Motors produced last year were sold in foreign countries... With the slumping housing market taking a toll on its business at home, Caterpillar is counting on sales of equipment and diesel engines in Europe, Asia and the Middle East to keep growing… Faster growth in Europe and Asia is helping to cushion the blow of a collapsing housing boom that has hampered domestic consumer spending, creating more demand from elsewhere for goods and services made in the United States.

» nytimes.com [ Contribute: submit link / submit article / submit company ]

US Fed Survey: Subprime Lenders Tightening Standards; Prime Lending Business As Usual

In its periodic Senior Loan Officer Opinion Survey on Bank Lending Practices released Monday, the Fed found that while bankers have become more stringent when dealing with subprime and nontraditional mortgages, policy toward standard loans remains largely unchanged. 56% of the banks responding reported tightening standards on subprime loans, and 46% did the same on nontraditional mortgages (such as interest-only loans and loans with minimal income verification), while only 15% said they changed requirements for prime residential mortgages (see graphic; click to enlarge). About one-third said they had tightened lending standards on commercial real estate. 36% said loan demand for all loans was softer while 52% said it was unchanged. 10% said business loan requests dropped, hinting to a possible pullback in business spending. The Mortgage Bankers Association expects home-purchase loan activity to fall 7% this year and refinancing activity to drop 10%.

» federalreserve.gov [ Contribute: submit link / submit article / submit company ]

SEC steps up action on insider trading

International stock ex­changes and electronic trading are changing the way US regulators detect and punish insider trading, forcing them to speed up their investigations and take court action more quickly. During the past year and a half, the US Securities and Exchange Commission has gone to court to freeze accounts belonging to residents of Croatia, Pakistan and Switzerland in an effort to stop the profits of suspected insider trading from disappearing overseas.

Wharton: Are Hedge Funds out of Control?

If you go to Amazon.com and search for books about venture capital, you get 14,114 responses, which include many text books. Andrew Metrick, a professor of finance at Wharton, has just written a new book on the subject titled, "Venture Capital and the Finance of Innovation." Unlike the thousands of other books, though, this one offers a different approach, especially in areas such as valuing startup companies and IPOs, by bridging the gap between finance fundamentals and venture capital practice. Knowledge@Wharton spoke to Metrick about his new book and also about the increasing power and presence of hedge funds.

[ mp3 ] listen or download / Knowledge@Wharton

Steve Forbes says the American economy is stable, but anxiety remains.

“There may be yet another villain at work: inflation. Many of us are familiar with John Maynard Keynes' quote, "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." True, prices are not rising in the fashion in which they rose in the 1970s and early 1980s. But the inflation the Fed mistakenly fired up three years ago has certainly distorted the economy, thereby unnecessarily stirring up anxieties.”

Steve focuses on housing.

“Housing construction was crackling before 2004 because of Congress' virtual elimination of the capital gains tax on primary residences in 1997. But the Fed-fed inflation fired up the housing boom to white-hot levels. Flush with cash, lenders lowered loan standards, and new players entered the mortgage market. Fraud blossomed--why examine too closely a borrower's 1040 when rising prices will bail you out if the borrower gets in trouble? Speculators paid people to file mortgage applications to buy houses and apartments and quickly flip them. Now the sale price of houses is falling in many parts of the country. To add insult to injury, property taxes continue to climb as assessments catch up with housing values.”

» forbes.com

Courtroom intelligence: Hedge fund investment strategies

Hedge fund managers are always looking for an edge. Lately they've found one by sending patent litigators to court -- not to try a case, but as highly informed (and highly paid) observers. Their task: to pick up and quickly report back to the money managers any intelligence that could move a stock.

Litigators have often been called in to evaluate the investment impact of a patent conflict during the course of due diligence for an acquisition. Now hedge funds are moving earlier and faster. They are putting lawyers in the courtroom to report on the outcome of a trial as it is happening. "I hear these stories of Markman hearings; the minute the ruling comes down, 15 guys jump up and run out of the room," says Ron Laurie, of Inflexion Point Strategy, an IP investment bank. "These guys are texting the hedge fund, so they can short the stock." By the time the market-moving information hits financial news services like Bloomberg, the investors get to take their gains.

» law.com

Big rise in suspicious trades

US stock and options exchanges are spotting more suspicious trading connected to high-profile deals, such as News Corp’s bid for Dow Jones, and are making more referrals to US regulators for investigation of possible insider trading.

Between January 1 and April 20 of this year, the New York Stock Exchange referred 45 potential instances of insider trading to the Securities and Exchange Commission, compared with 111 for all of last year. The NASD, which monitors Nasdaq, the American Stock Exchange and the over-the-counter markets, has not released any 2007 data. But it referred 119 instances of suspicious trading to the SEC last year, up from 102 in 2005.

» ft.com

Regulators probe trading in Dow Jones before Murdoch's bid

US authorities have reportedly launched investigations into suspicious trading in Dow Jones Co. before a bid for the company by Rupert Murdoch's News Corp.

Dow Jones received a subpoena from the New York state attorney general's office and an inquiry from the Securities and Exchange Commission (SEC), a company spokesman told the Wall Street Journal.

Hedge funds pose a risk, but less alarming, says Federal Reserve Bank of New York

The Federal Reserve Bank of New York said on Wednesday that the risk hedge funds pose to the global financial system has reached levels by some measures comparable to those just before the Long Term Capital Management fund imploded in 1998. But the New York Fed said the similarities - involving close correlation among hedge fund returns seen before the LTCM crisis and again recently - had different causes, making the current environment less alarming.

Dow Stocks: Best winning streak since '55...

The Dow Jones industrial average hit another record high Wednesday, capping its longest winning stretch in almost 52 years as investors welcomed strong earnings, lower oil prices, media merger news and a strong reading on manufacturing.

The Dow (up 75.74 to 13,211.88, Charts) rose 0.6 percent to close at an all-time high for the fifth time in the last six sessions. The Dow also hit an intraday record high of 13,256.33 during the session before retreating near the close.

» money.cnn.com

Citigroup to buy Bisys Group, for $1.45bn

Citigroup and hedge funds. The US uber-bank can't decide whether it wants to get into bed with the industry - or hide under it, for fear that it starts asking awkward questions about how the component parts of the world's biggest financial services company fit together. Today is a day for the former. Citi has said it will buy Bisys Group, a hedge fund administrator, for $1.45bn in cash, plus the $20m of final dividend - after shedding the retirement and insurance services units to private equity group JC Flowers, the net cost of the deal for Citi comes out at £800m. That leaves the bank with the investment services business of Bisys, which provides administration for mutual funds, hedge funds and private equity.

» Alphaville

Where the Next Big Bets Lie for Venture Capitalists

The venture capital sector is finally bouncing back from its post-bubble blues, although it's still a long way from the euphoria of the late 1990s. Blockbuster deals -- like YouTube's recent sale to Google for $1.65 billion and Skype's sale last year to eBay for $2.6 billion -- are giving venture investors new confidence in their ability to cash out, said a group of venture capitalists who spoke on a panel at the 2007 Wharton Economic Summit. In addition, new sectors like "clean tech," an umbrella term for environmentally friendly technologies, and trends like the aging of populations in the developed world are creating promising investment opportunities.

Even so, times remain challenging for many venture capitalists, the panelists warned. According to David Mathias, a managing partner at the Washington, D.C.-based Carlyle Group, "15% of the firms have provided something like 90% of the returns." One leading firm, Sevin Rosen in Dallas, Tex., decided last year to abort plans to raise money for a new investment fund, telling its investors that the industry's business model was broken. The New York Times called the decision "a kink in venture capital's gold chain."

[ mp3 ] listen or download / » wharton.upenn.edu

Crestmont Research: The top hedge fund myths

The tone from Crestmont - which, according to its web blurb, says it “develops provocative insights on the financial markets and on the hedge fund industry” -  is a tad tetchy.

“Never has an industry so extensively studied by “experts” produced such a surplus of myths,misunderstandings, and half-truths. Many of these myths could easily be clarified with a call or two to knowledgeable industry professionals. Too often, a seemingly logical statement that sounds-good-when-you-say-it-fast becomes accepted conventional wisdom despite the reams of evidence weighted against it.”

[ PDF ] Hedge Funds: Myths and Facts / » Crestmont Research

So here, according to Crestmont are the top myths about hedge funds:

Top 3 fund managers earn over $1bn

The combined earnings of the world's top 25 hedge fund managers of almost $15bn exceeded the national income of Jordan last year and three individuals took home more than $1bn, according to an industry survey.

China expects trade surplus of $168 billion for 2006

The Chinese trade surplus will swell by 65 percent to a record $168 billion this year, the Chinese customs bureau said Thursday, less than a week before the U.S. Treasury secretary, Henry Paulson, travels to Beijing to discuss ways to reduce the gap.

Full-year exports will rise 27 percent to $963 billion and imports will climb 20 percent to $795 billion, the bureau said on its Web site. The trade surplus through November reached $157 billion.

China's ballooning trade surplus has flooded its economy with cash and sparked calls from the United States and Europe for Beijing to let its currency rise faster and to crack down on counterfeiting.

» Search Financial-Specific Tags: Chinese Trade - Trade Surplus - International Trade
» IHT

Deloitte & Touche: Holiday Spending Predictions

A quick glance at the windows of our nation’s retailers reveals that, once again, holiday season is upon us. While the holiday shopping frenzy is recurring and predictable, the nuances of consumer behavior during this time of year can have enormous impact on the retail industry.

Listen to Pat Conroy, vice chairman and national managing principal of the Consumer Business practice, and Ira Kalish, the director of Deloitte Research Consumer Business, as they discuss consumer trends and purchasing patterns that will likely impact retailers this holiday season.

[mp3] Listen or Download / Deloitte & Touche (22 minutes)

Drowning in zeros — computing the OTC

Nowhere is it easier to be blase about big numbers than in the market for over-the-counter derivatives. Yet the numbers released by the Bank for International Settlements this morning, charting OTC derivative activity during the first half of this year, still manage to boggle. Notional amounts covering all contract types "expanded at a brisk pace" -- up from $297,670,000,000,000 to $369,906,000,000,000 in the period. They must have big calculators in Basel.

Lest we all drown in a sea of zeros, however, the BIS points us in the direction of gross market values, which measure the cost of replacing all existing contracts. This is seen as representing a better measure of market risk at any given point in time. The numbers here are much more manageable. Such values, which net off exposures between counterparties, expanded from $9,749,000,000,000 to $10,074,000,000,000 during the first six months. Huh. In OTC land that must look like the overall market is in danger of going ex-growth.

» Search Risk-Specific Tags: International Settlements - OTC derivative
» Alphaville

Insider: A hedge fund revolution? A prominent hedge fund manager is causing ripples within the industry for using a pay structure based on the idea of delayed gratification.

Among the certain unalienable rights of finance in 2006 is that of successful hedge fund managers to make a lot of money.

That right is embedded in the compensation structure of the funds: Most managers receive 2 percent of the assets they manage as a management fee and take home 20 percent of the profits as incentive pay.

» Search Financial-Specific Tags: Hedge Fund - Compensation Structure
» International Herald Tribune

Investing: How to recognize a bubble - before it bursts

Asset bubbles, like artistic geniuses, have a reputation for going unrecognized in their lifetimes. That does not deter Ajay Kapur, Citigroup's chief global equity strategist, from trying to identify markets around the world that may be experiencing dangerous, unsustainable expansions.

Kapur claims to be able to flag bubbles one year before their peaks, on average, by using a simple criterion to define when one is in progress: returns that deviate markedly from the long-term trend. That does not seem like a high hurdle to breach, but in a study of three centuries of market action in developed economies, 7he found just 26 examples.

» Search Financial-Specific Tags: Investing - Asset Bubble - Housing Bubble
» International Herald Tribune

Study: The controversial practice of backdating stock options went hand-in-hand with poor corporate governance practices and overbearing chief executives.

The research by three academics is the first to suggest a link between lax internal controls and stock options backdating. The scandal has so far engulfed more than 130 US companies in internal and regulatory probes but the study suggests that number could climb to 720.

» Search Financial-Specific Tags: Backdating Stock Options - Corporate Governance - Stock Options
» FT.com

Straight forward VC advice from Sequoia

In the crowded field of US venture capital, where arguably too much money is chasing the available quality investments and some firms bemoaning the industry's prospects , Sequoia Capital is on something of a run. Having reaped a reported $495m - or 43-fold return - on its investment in YouTube.

VC Ratings points to a new feature on the company's website - a list of 10 characteristics that Sequoia, which backed both Yahoo! and Google, looks for in companies and advice on submitting a business plan. It is striking that - "Team DNA" aside - the list is light on high-level, empty rhetoric and full of common sense. Under "Clarity of Purpose" - Sequoia suggests summarizing a company's business on the back of a business card. No need for reams of management speak here - for a business plan a single declarative sentence is all it should take. Under "Painkillers" - "pick the one thing that is of burning importance to the customer then delight them with a compelling solution."

Whatever the product is, who could resist? And under the mysterious heading of "Inferno" - it concludes, "start with only a little money. It forces discipline and focus. A huge market with customers yearning for a product developed by great engineers requires very little firepower." How refreshing.

» Search Financial-Specific Tags: VC Advice - Venture Capital
» Alphaville
» sequoiacap.com/ideas

Algorithmic trading to take majority share in 2010

More than half of all equities trading in the US will be done using algorithmic dealing systems by the end of 2010, according to Boston-based research consultancy Aite Group.

Aite says algorithmic trading has hit the mainstream in the US equities market and is increasingly becoming the execution tool of choice for both the sell-side and the buy-side traders.

At the end of 2006 the share of algorithmic trading will approach one-third of total US equities trading volume, says Aite, but this will rise to 53% by the end of 2010.

» Search Financial-Specific Tags: Algorithmic Trading - Equities Trading
» aitegroup.com

Judge postpones criminal trial of 16 former KPMG executives accused of selling illegal tax shelters.

One of the Department of Justice’s most high-profile white-collar crime cases has been dealt a blow after a New York federal judge postponed indefinitely the criminal trial of 16 former KPMG executives accused of selling illegal tax shelters.

The ruling represents a setback for prosecutors in the US attorney’s office in the southern district of New York, who have been heavily criticised by Judge Lewis Kaplan for their role in pressing KPMG, the accounting firm, to cut off legal fees to its former employees.

» Financial Times

US economy on track for soft landing as consumer spending remained resilient

A slew of economic reports on Tuesday showed the US economy feeling the strain from the sharp slowdown in the housing sector, while offering very tentative hopes that inflation pressures could be easing.

The news came as Japan announced a stronger-than-expected 2 per cent annualised growth rate for the third quarter, raising the prospect of a second interest rate rise there.

» Search Financial-Specific Tags: US Economy - Consumer Spending - Housing Sector

Equities Swing With Harvard MBAs

Mr. Soifer tracks how many Harvard Business School graduates choose market-sensitive jobs each year. If 10% or less of that year's class take jobs in investment banking, investment management, sales & trading, venture capital, private equity, or leveraged buy-outs, it's a long-term 'buy' signal.

If 30% or more take such jobs, it's a long-term 'sell.'

This year, some 37% of Harvard Business School's graduate found work on Wall Street, up from 30% a year ago and 26% for the Class of 2004. The trend suggests that Wall Street is becoming bloated and the American economy is ripe for a slowdown.

» New York Sun

US trade gap narrows

The US trade deficit narrowed in September in a sign that economic growth may have been stronger than previously thought in the third quarter.

The Commerce Department said the trade gap shrank to $64.3bn after hitting a record high of $69bn in August, as exports climbed by $600m to a high of $123.2bn and imports fell for the first time since the start of the year after the price of foreign oil eased.

The narrowing in the trade gap was greater than economists predicted, but left the deficit close to all-time highs, underlining concerns about global imbalances.

The trade deficit with China reached a record of $23bn, a total of $166.3bn for the year to date, and put the deficit with the fast-growing Asian economy on track to surpass last year’s record of $202bn.

» Financial Times

UBS Rolls Out Buy-Side Research

The New York arm of Swiss financial services firm UBS is introducing a curious animal into stock research: internally generated buy-side research that competes with the firm's own sell-side research. The brokerage firm is assembling a group of 10 to 20 analysts who will compile stock recommendations, ostensibly intended to supplement the recommendations put together by the firm's existing staff of sell-side analysts. In putting together their recommendations, the new group would be at liberty to consult research conducted by other Wall Street firms.

» UBS Embraces the Buy Side TheStreet.com

Bank of America/MBNA — first the merger, now the song

Here's a clip of two Bank of America executives -- one on the guitar, the other doing his best Bono impression at the microphone -- celebrating the coming together of two great institutions into one great bank. It's quite shocking, particularly since it appears to be sincere. It was posted by someone calling themselves Mrfruitypants.

[video] http://www.vimeo.com/clip:114601

SEC chief gets blogging

Chairman of the SEC, Christopher Cox, has joined the blogging world.

In a comment on Sun Microsystem's chief executive, Jonathan Schwartz's blog, the SEC chief showed interest in Mr Schwartz's recent request that blogs be used as a way to expand investors' access to information. In a triumph of PR, Mr Cox posted the text of a letter he had sent last week in response to a letter from Mr Schwartz on the subject. "Since you're talking about trasparency and efficiency in communications, I though you might appreciate my taking advantage of the internet's speed and potential for broad dissemination by posting here as well," he added.

87 percent of parents believe scholarships and grants will cover at least part of their children's undergraduate expenses

The study looked at the college saving habits and goals of parents with children under 18 and compared them with what college financial aid administrators have to say about college funding. Financial aid administrators said 92 percent of parents overestimate the amount of scholarship money their children will receive. Meanwhile, parents are not saving much on their own for their kids' educations, the study found.

Via: PDF Download

Starbucks Raises Prices on Coffee Drinks

Got three bucks? That and a nickel will buy you a coffee drink at Starbucks . Starbucks Corp. said Thursday that it planned to raise prices of its lattes, cappuccinos, drip coffee and other drinks by 5 cents, or an average of 1.9 percent.

Southern California Real Estate Sales

Home sales in Southern California continued at their slowest pace in nine years as price levels appeared to be nearing a plateau.

A total of 25,628 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 12.8% from 22,712 in July, and down 25.3 percent from 34,292 for August a year ago, according to DataQuick Information Systems.

All Homes;	No Sold Aug-05	No Sold Aug-06	Pct. Chg	Median Aug-05	Median Aug-06	Pct. Chg
Los Angeles	11,653	9,193	-21.1%	$494K	$517K	4.7%
Orange County	4,708	3,203	-32.0%	$617K	$633K	2.6%
San Diego	5,379	3,666	-31.8%	$493K	$482K	-2.2%
Riverside	6,452	4,879	-24.4%	$388K	$415K	7.0%
San Bernardino	4,522	3,611	-20.1%	$344K	$365K	6.1%
Ventura	1,578	1,076	-31.8%	$592K	$598K	1.0%
So. California	34,292	25,628	-25.3%	$476K	$489K	2.7%

Why does it take so long for a trader to learn?

Like I've said before, I've seen as  much so-called wisdom over the years that I've eventually learned to hold as  inviolate truth, as that which should be thrown out with yesterday's garbage.  Yet why does the eventual accumulation of pertinent knowledge translate so  slowly into one's trading results? If we are capable of weeding out the good  stuff from the bad, why doesn't the good stuff just take over and guide us  directly towards success?

Eyes Wide Shut / via: tradingthoughts.blogspot.com

Tourism Satellite Accounts Q2 - 2006

Growth in real tourism output slowed to an annual rate of 1.4 percent in the second quarter of 2006, according to data released today by the U.S. Bureau of Economic Analysis. In the first quarter of 2006, real tourism output grew 5.0 percent (revised). By comparison, real gross domestic product (GDP) grew at an annual rate of 2.9 percent in the second quarter of 2006, and 5.6 percent in the first quarter of 2006.

Link: http://www.bea.gov/bea/newsrelarchive/2006/tour206.htm

UK Online Insurance Sales Forecast: 2006 To 2011

Online non-life insurance has grown spectacularly in the UK over the past five years, driven by fierce competition between insurance companies and customers' tendency to shop around every two or three years, particularly for motor insurance. We expect that rapid growth to continue for the next few years, with the number of online non-life insurance buyers growing from 7 million customers today to 11 million by 2011. Motor insurance will remain the most common online insurance purchase.

Link: http://www.forrester.com/go?docid=40091

When Words Get in the Way: The Failure of Fiscal Language

Does the federal deficit matter? Oceans of ink track and report this monster tally (current estimates for fiscal year 2006 stand at $260 billion), yet Jerry Green of Harvard Business School and Laurence J. Kotlikoff of Boston University contend that the deficit and related fiscal measures are arbitrary terms with no intrinsic meaning, a lesson that even economists have not learned.

"On the General Relativity of Fiscal Language," a working paper for the National Bureau of Economic Research, provides a mathematical proof that the deficit, taxes, and transfer payments are no more than labeling conventions—representing, in the words of the authors, "an exercise in linguistics, not economics." Like Einstein's General Theory of Relativity, which concluded that concepts like time and distance depend on one's reference point, current fiscal language "represent numbers in search of concepts that provide the illusion of meaning where none exists."

Full-Service Brokerages: Stop Neglecting The Net

Full-service firms like Merrill Lynch and Morgan Stanley are betting that their high-net-worth clients don't mind anemic Web sites. But it's a bad bet: Affluent investors are more active online than ever before, and they recognize the quality gap between their full-service brokerages' sites and the rest of the Web — especially direct brokerage sites. Forrester believes that the widening gap will compel full-service firms to recommit to the online channel.

 

Title: Full-Service Brokerages: Stop Neglecting The Net
Link: http://www.forrester.com/go?docid=40250

U.S. International Transactions: Second Quarter 2006

The U.S. current-account deficit--the combined balances on trade in goods and services, income, and net unilateral current transfers--increased to $218.4 billion (preliminary) in the second quarter of 2006 from $213.2 billion (revised) in the first quarter. The increase was mostly accounted for by increases in the deficits on goods and on income. Net unilateral current transfers to foreigners also increased, and the surplus on services was virtually unchanged.