• Good Story on DirectEdge
    Posted by on June 3rd, 2009 at 4:43 pm

  • Rep. Alan Grayson at Ritholtz-Palooza
    Posted by on June 3rd, 2009 at 4:17 pm

    Congressman Alan Grayson had some interesting comments at Barry Ritholtz’s conference today:

    Grayson appeared on a panel with Nassim Taleb, best known as the author of The Black Swan. Their exchange about the proper role of government regulation of the financial system was entertaining, if a bit meandering. Grayson, who grew up in the Bronx and holds three Harvard degrees, has a rare ability to say relatively radical things without coming off as a rabid populist. Moderator Barry Ritholtz, author of the just-published Bailout Nation, asked a straightforward question: The U.S. government does a reasonably good job of regulating things like the safety of airplanes and foods. Why, then, does it do such a lousy job of regulating the financial system?
    Grayson’s answer was immediate and succinct: “Capture.” For those not up on regulatory theory, this refers to the notion that regulators become captive of the industries they regulate. Noting that Fannie Mae and Freddie Mac spent $100 million on campaign contributions over the last 10 years, Grayson said: “The system is in some sense corrupt. A senator said the other day that Wall Street owns Washington, and while I might not go that far, you don’t have the airlines ‘owning’ the [airline regulators]. There is a lot of influence that Wall Street has on the government, even the judicial branch.” Indeed, Grayson could have cited the front-page story in today’s Wall Street Journal, documenting the remarkable efficiency with which banking campaign contributions appear to have helped ease accounting rules that in turn helped the banks.

  • Ode to Becky
    Posted by on June 3rd, 2009 at 11:08 am


    (HT: WSF)

  • Oh Dear Lord
    Posted by on June 3rd, 2009 at 11:01 am

    A fund for investing in lawsuits:

    Richard W. Fields says he has come up with a win-win financial strategy for the downturn. He is investing in lawsuits.
    Not in trip-and-fall cases, mind you, but in disputes that are far larger, more costly and potentially more lucrative, often pitting major corporations against each other.
    Mr. Fields is chief executive of Juridica Capital Management, which runs a fund that invests in one side of a lawsuit in exchange for a share of any winnings, The New York Times’s Jonathan D. Glater writes.
    “It’s always a good time to invest in litigation,” Mr. Fields told The Times, though he added that the weak economy helped. “When the recession started to bite, the phones started ringing off the hook. Last year, we looked at 122 cases and we made 17 investments.”
    A small but growing number of investors are exploring this idea, helping companies avoid some of the risks and costs of litigation in exchange for part of any money paid out when the case is settled or resolved by a court. After all, it can be costly to hire lawyers, who may charge close to $1,000 an hour at elite firms.

  • A Closer Look at the 200-Day Moving Average
    Posted by on June 2nd, 2009 at 2:17 pm

    One of the quick-and-dirty tools used to technical analysts is to see where a stock or index is compared with its average price over the past 200 days. This is an easy way to get a read of a stock’s momentum.

    Yesterday was a big day for the 200-DMA world. The S&P 500 closed above its 200-DMA for the first time since December 26, 2007. That closed out the index’s longest run below its 200-DMA according to my records which go back to 1932.

    That streak, however, is still well short of the longest run above the 200-DMA which ran from November 1953 all the way to May 1956. Since the index has gone up over the time, the “above” streaks tend to be longer than the “below” streaks.

    On November 20, 2008, the S&P was a stunning 39.6% below its 200-DMA. That’s the biggest discount on my records. The only thing that comes close is the reading from this past March.

    So does the 200-DMA work? The evidence suggests that it’s a pretty good indicator of future price performance. When the S&P 500 has been below the 200-DMA, it’s dropped a total of about 20% over the equivalent of 27 years. In other words, the S&P 500 has been below its 200-DMA about one-third of the time.

    Historically, the best time to invest has been when the S&P is less than 1.7% below the 200-DMA.

    When the index is above the 200-DMA, well, then everything looks much brighter. All of the market’s gain and then some have happen when we’re above the 200-DMA which occurs about two-thirds of the time.

    The market seems to like nearly every point of being above the 200-DMA. Danger only clicks in when the S&P 500 is over 17.5% above the 200-DMA which is a very high reading.

  • Peter Lynch on Bottom Fishing
    Posted by on June 2nd, 2009 at 10:55 am


    You can also see Phil Carret, the legendary money manager. In 1924, he wrote “The Art of Speculation.” Carret died in 1998 at 101.

  • Academic Study: “Analysts’ revisions are typically information-free”
    Posted by on June 2nd, 2009 at 9:16 am

    The Irish Times notes that Wall Street analysts…you better sit down for this…often don’t know what they’re talking about:

    The Citi research looked at analyst recommendations over the last 15 years. It found that analysts were at their most bullish at the end of 1999, despite the fact that price-earnings ratios suggested markets had never been so over-valued. The dotcom crash in early 2000 triggered a vicious three-year bear market during which analysts grew progressively bearish. This bearishness increased even as the market bottomed in the autumn of 2002. Bullishness took root as the market rose over the following five years, peaking just prior to the outbreak of the financial crisis. Since then, analyst bearishness has risen inexorably.
    The report also looked at the difference in performance between the stocks most favoured by analysts and the stocks least favoured by analysts. It found that the furious global rally off the March bottom has caught analysts completely by surprise, with forecasters more off the mark than at any other time during the period under study.

    Later on.

    The Financial Times reported this month on an academic study that looked at the effect of analyst recommendations on stock prices. It found that “buy” and “sell” tips have little appreciable effect on prices. “Analysts’ revisions are typically information-free,” the study concluded, adding that investors were aware of this.
    One analyst who has been consistently critical of his fellow professionals is James Montier of Société Générale. The award-winning analyst said last year that it was “transparently obvious that analysts lag reality”. They “only change their minds when there is irrefutable proof they were wrong, and then only change their minds very slowly”, he said.
    The latter study appears to confirm this – almost 80 per cent of analysts’ changes in recommendations came after major corporate events. Analysts are “like rabbits caught in the headlights”, Mr Montier said, and are “seemingly incapable of any form of independent thought”.

    Do rabbits stare at headlights?
    Maybe analysts should start listening to this guy who has almost zero private sector experience:

    The market is up 35% since then.

  • Long Bond Hasn’t Suffered a Loss Like Since Since Another Century — And Not the 20th
    Posted by on June 2nd, 2009 at 9:07 am

    Mebane Faber writes that the long bond is suffering its worst draw down since at least 1900.
    By the way, his new book is out.

  • Dow Jones Admits It Paid Attention to Bloggers on Decision to Add Cisco to DJIA. Suck it S&P!
    Posted by on June 1st, 2009 at 10:32 pm

    In the WSJ, John Prestbo explains why they decided to replace GM and Citigroup with Cisco and Travelers today.Here are some highlights:

    Did the fact that Travelers used to be part of Citigroup play a role in choosing that particular insurance company?
    No. Citigroup spun off Travelers in 2002, so it has been operating independently for going on seven years. And it was independent prior to becoming part of Citigroup in 1998. We were committed to restoring the insurance sector to the Dow after ejecting American International Group, Inc. (AIG) last September after the government takeover. Travelers is a property and casualty insurer, as AIG is, and it is certainly a leader in that industry.
    Why choose a tech company, Cisco, to replace an automaker?
    We did not need another consumer goods company after adding Kraft Foods when we removed AIG. In looking around, we were struck by the fact that Cisco makes products that pave the Information Highway – computer networking equipment, things that enable high-speed data and video transmission, and so on. We saw Cisco helping the economy and culture adjust to the digital age, much as automobiles influenced economic and social changes in the 20th Century.
    Well, why not Apple (AAPL) or Google (GOOG)?
    Those companies certainly qualify as blue chips, but we chose Cisco this time.

    This part really caught my attention

    Cisco has been on bloggers’ suggestion list for a long time. Do you pay any attention to these kibitzers?
    Yes. They and many others take the Dow seriously enough to complain when they think we are doing something wrong and to offer their ideas. So, we take them seriously in return. However, most of these folks are looking at things from an investor’s point of view, as though the Dow was a portfolio they owned (and maybe some of them really do). But our goal is to maintain an index to accurately reflect the market as whole, and by extension the U.S. economy. That is a different purpose, which sometimes leads us in a different direction.

    Good for them! I’m glad they did two things. One, they listened to bloggers. Two, they said they listened to bloggers.
    This is pretty big news for financial blogs. We’re talking about a 113-year-old index and one of the best brand names around.
    Now…about Bing.

  • S&P Makes New High
    Posted by on June 1st, 2009 at 7:43 pm

    We did it. The S&P closed at 942.87, the highest close since November 5.
    The phony, fraudulent, manipulated, short-term bear market sucker’s rally is now up 39%.
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