Friday, August 28, 2009

More Fed power vs. "Fed must die"

Some of you may have read Bloomberg's article on the Federal Reserve this week entitled, "Bernanke may redefine Fed mission in financial-market stability".

I found it to be an appallingly misleading piece of pro-Fed boosterism. If you're looking for one more piece of mainstream writing that supports the idea of increased powers for the Fed in the wake of the global financial crisis, you've found it:

"Ben S. Bernanke’s renomination allows him to redefine the Federal Reserve’s mission as he expands its power over financial markets and pulls back on a credit surge the central bank used to keep the economy from collapse, economists say.

Bernanke’s agenda during the next four years will include elevating the Fed’s role in reducing excessive risk in major financial institutions, figuring out how to curtail asset bubbles, and scaling back $1.2 trillion of monetary stimulus.

“He will have the opportunity to permanently change the structure of the Federal Reserve system,” said Vincent Reinhart, a former director of the Fed’s Monetary Affairs Division who’s now a resident scholar at the American Enterprise Institute, a Washington-based research group.

President Barack Obama nominated Bernanke, 55, for a second term yesterday, lauding the Fed chairman for helping “put the brakes on our economic free fall.”... "

The article goes on to laud Ben Bernanke for his efforts in bringing greater "transparency" to the Fed, while also citing him as "a steward...of Paul Volcker's legacy of establishing a regime of low inflation". Well, I think Ron Paul may have a few things to say about that.

Meanwhile, I'd like to point you to an incredible article from James Quinn at FSO entitled, "The Federal Reserve Must Die". If you'd like to get a rather unconventional (and enlightening) historical view of the Fed and its ever-expanding powers over our economy, give this one a careful look.

Related articles and posts:

1. Ron Paul: bringing transparency to the Fed - Fora.tv

2. Obama's plan could boost Fed's power - Finance Trends

Wednesday, August 26, 2009

Follow Roubini or catch the rally?

Bloomberg examines the trade off between following the economic forecasts of Nouriel Roubini and catching the recent rally in US shares.

Has keeping up with Roubini's insights meant that you've missed the rally? More from Bloomberg:

"Making money on the thinking of
Nouriel Roubini isn’t what it used to be.

The New York University professor, who in 2006 foretold the worst financial unraveling since the Great Depression, has yet to say the economy is worth investing in again. “There is a big risk of a double-dip recession,” wrote Roubini, also known as Dr. Doom, in his column in the Financial Times this week.

Anyone attempting to apply Roubini’s wisdom to stocks may be forgiven for missing the biggest rally since the 1930s as the Standard & Poor’s 500 Index climbed 52 percent in six months. While Roubini said in March the advance was a “dead-cat bounce,” that it may “fizzle” in May and warned in July that the economy’s “not out of the woods,” the MSCI World Index was posting a 58 percent gain, the largest since it began in 1970."

So I've been hearing a lot of this kind of chatter (often directly aimed at Roubini) since the rally in stocks heated up this past spring.

That Roubini was on record on March 9th saying that the S&P 500 might head back down to 600, the very day the market made its low in this current cycle, is
(for some) enough to fuel scorn for his opinions.

But, as others have pointed out, Roubini is an economist and the market is not necessarily the economy, and vice versa. In this particular instance, Roubini may be wrong, whereas earlier he was lauded for his prescient views on the dangers lurking within our financial system and in the stock market. No one is right 100% of the time.

Maybe the lesson here is to seek counsel from many, decide what's relevant, and incorporate that info (where useful) into your own plan and investing/trading methodology.

If a respected economist's views are likely to carry enormous weight over your investing decisions, you may need to reformulate your strategy to take advantage of your strengths and what you know, while accounting for (and protecting against) what you don't know.

Monday, August 24, 2009

Tim Knight on the "Big Picture"

Checking out a new post at Tim Knight's blog, Slope of Hope, entitled, "Big Picture".

As you can probably guess from the title, Tim has a rather definite bigger picture view of the markets and the economy. Let's just say that he's not convinced about the merits of the government's much heralded stimulus efforts.

Here's an excerpt from Tim's post:

"
One of the nicest compliments I ever received was from Tom Sosnoff (the co-founder of thinkorswim) who told an audience, "the thing I like about Tim, as opposed to a lot of other technicians, is that he actually has an opinion."

That I do! Oftentimes I will read newsletters or speeches where technicians will carefully word things so that "either A is going to happen or B is going to happen". This way, no matter what direction the market goes, they are safe. ("As I predicted, "B is going to happen", and it has!)

I believe the historic levels of government intervention and interference in what used to be a free market is going to have disastrous consequences.

I believe that the United States government, in collusion with financial institutions that have very close ties to the government, has embraced short-term solutions that will create long-term pain. In short, I think the market is going to be in much worse shape in 2014 compared to 2009..."

Go check out the full post, along with Tim's comments on the possible future direction of the major averages, at the link above (hat tip to Bear Mountain Bull).

Friday, August 21, 2009

Geithner: bailouts not designed to help Goldman

Those of you following Finance Trends on Twitter may have seen my earlier tweet about the upcoming "Digg Dialogue" interview with Tim Geithner, hosted by WSJ online editor Alan Murray.

That interview will include questions submitted to Geithner from Digg users - and many of them, from those concerning a proposed audit of the Federal Reserve to questions about Geithner's past tax "issues", are appropriately on target and often hilarious.

So while I had a great time reading through some of these user comments (hat tip: Howard Lindzon), I had to wonder how many of the top questions would actually make the cut.

Now, Alan Murray informs us that he has indeed posed these Digg questions to Tim Geithner, and that the full interview will be up on Digg and WSJ.com on Tuesday.



In the meantime, here's a brief clip from that interview. In this segment, Geithner states that the US bailouts and rescue efforts of financial firms were not designed to help Goldman Sachs or any particular firm.

Oh, and here's one more excerpt from the accompanying WSJ blog post:

"
Mr. Geithner said while he understands the public anger towards the bailouts, policymakers acted honorably in their efforts to save the financial system. He said the government needs policymakers who understand financial markets and are able to help craft efforts that protect taxpayers."

So I'll leave you with one question: have you seen evidence that our recent policymakers understand financial markets and are crafting "efforts that protect taxpayers"?

Update: full WSJ interview w/ Geithner now available online.

Thursday, August 20, 2009

Twitter, Stocktwits: markets for ideas

Just caught a new post from Zerobeta called, "How to be a market maker in ideas on Stocktwits", that serves as a great follow up to yesterday's post on filtering out noise and finding value in Twitter & Stocktwits.

Here's an excerpt from Zerobeta's post:

"The manner in which the market maker adjusts his/her bid-ask spread as information presents itself is crucial to success. Over the course of the day the market maker will get a ton of order flow and must discern which orders are contain no information (ie “noise trades”) and which trades contain relevant information (ie “informed trades”).

For example, if an informed trader hits the market maker’s offer, he/she knows to raise his bid/ask to adjust his inventory appropriately. In general, the best market makers are the ones who can filter through the noise and obtain the best information (and most informed bid-ask spread) at the lowest cost.

On StockTwits we are all market makers in ideas. The key is to separate the informed trades from the noise and get a nice stream of informed idea flow on your screen..."

Have a look at the full post to find out how to get the most value from the pool of ideas in the Stocktwits stream.

You may also want to check out Justin's earlier post, "On smart communities and Stocktwits", for more insight into why Stocktwits has been (thus far) a particularly useful and transparent market for ideas, and why it could become a model for the Twitter communities that will spring up in the future.

Tuesday, August 18, 2009

Stocktwits TV: filter noise & find value

Sharing a cool "After Hours" episode of Stocktwits TV (8/18/2009) with Howard Lindzon & Steve Gomez, aka TodayTrader.

In this program, Howard & Steve discuss the basics of getting started in trading, using Stocktwits for sharing & disseminating trading ideas, the rise of high frequency trading & flash orders, and how to stay focused on what's most important when you are confronted with a barrage of information.

One of the key ideas shared in this episode (and in the 8/17 ep.) was the importance of filtering out the noise in any given medium and finding the information that provides the most value for you. Howard & Steve offered the example of filtering your info flow on Twitter and Stocktwits to build a useful network for sharing info and ideas with like-minded people.

This theme of managing information in an age of 24/7 news cycle and information overflow is something that really stands out for me, and it is an idea that I touched upon in our 2007 radio interview with Financial Blog Watch (which is kind of funny to hear now).

Have you found value in the messages on Twitter or Stocktwits, even after factoring in the claims that a large percentage of tweets are just "pointless babble"?

Monday, August 17, 2009

2nd American Revolution has begun - Celente

Wanted to further highlight this article by trends forecaster Gerald Celente, who says that the "Second American Revolution" is underway.

Some excerpts from Celente's piece:


"The natives are restless. The third shot of the “Second American Revolution” has been fired. History is being made. But just as with the first two shots, the third shot is not being heard...

The third volley, fired in early August, was aimed point blank at Senators and House members pitching President Obama’s health care reform package to constituents. In fiery town hall meetings, enraged citizens shouted down their elected representatives. It took a strong police presence and/or burly bodyguards to preserve a safe physical space between the politicians and irate townspeople...

.
..Rightly or wrongly, the legislation is regarded as yet another straw on the already overloaded camel’s back. A series of gigantic, unpopular government-imposed (but taxpayer-financed) bailouts, buyouts, rescue and stimulus packages have been stuffed down the gullet of Americans. With no public platform to voice their opposition, options for citizens have been limited to fruitless petitions, e-mails and phone calls to Congress … all fielded by anonymous staff underlings.

Now, with Congress in recess and elected representatives less than a stone’s throw away, the public is exploding. The devil is not in the details of the heath care reform, the devil is the government mandating health care. Regardless of how the plan is pitched or what is being promised, to the public the legislation is yet another instance of big government taking another piece out of their lives and making them pay for it; again telling them what they can or cannot do.

Though in its early stages, the “Second American Revolution” is underway. "

Whether or not these events signal an oncoming revolution, one thing is clear; ordinary Americans are now striving to make their voices heard on the issues that are being forced upon them.

We are coming to the end of a decade marked by a huge wave of political (and societal) polarization, lies and deception, mass distraction, violation of personal liberties and our constitutional rights, deficit spending, and unjust wars.

Add to this the fallout from now-busted bubbles and a global financial crisis, along with the rise of our "bailout economy" and forced "healthcare reform", and you could have the makings of a powder keg ready to explode.

What kind of sentiment do you see & hear out there?

Related articles and posts:

1. Singing the middle class blues - Finance Trends.

2. Gerald Celente FSN interview - Finance Trends.

Friday, August 14, 2009

Contest winners + Features of the Week

Thanks to everyone who participated in this week's blog contest. I really appreciate all the feedback and suggestions that were offered to help us improve the blog.

Also, thanks to Aaron at MagsDirect.com for his help in sponsoring the contest giveaway, 2 free 1-year subscriptions to The Economist. I'm sure our contest winners will appreciate the prize.

I've selected Maria at Bear Mountain Books and John at Controlled Greed as this week's contest winners. Thanks for voicing your suggestions along with our other commenters (they were ALL great!), and I will email you to confirm your prize and pass your mailing info along to the publisher.

Now for some Friday links; our "Features of the Week".

1. Financial media coup d'etat - Wall St. Cheat Sheet.

2. John Paulson buys banks hit by credit crisis - Bloomberg.

3. Charting the markets: "Where to look next" - Quint Tatro.

4. Natural gas: down and out and unloved - Frank Barbera.

5. America: fat, drunk, and stupid is now way to go through life - Burning Platform.

6. The "Second American Revolution" has begun - Gerald Celente. (Hat tip: Bear Mountain Bull)

7. A "Four-Step Healthcare Solution" - Hans Hermann Hoppe, Mises.org.

8.
Beware of confirmation bias - Financial Philosopher.

9. Do we really need daily doses of news? - Growthology.

10. Last Word: Les Paul (video) - NY Times.

Thanks for reading Finance Trends Matter. You can also keep up with our RSS blog feed, and follow this link to hang out with us on Twitter.

Have a great weekend, everyone.

Wednesday, August 12, 2009

Contest: Free subscription to The Economist

As I mentioned in Sunday's post, Finance Trends is having a little contest giveaway this week. Up for grabs: two free subscriptions to The Economist.

The contest rules are pretty simple; I'm looking for suggestions on how to improve the look & feel of this blog (aside from a few added features & tweaks, we've pretty much stuck with the same "Classic Blogger" design template since inception). What I'd like from you is a suggestion (or two) on how to best update this blog for the future.

Should we change our layout design to include a more readable background color? Create new template features for mobile blog readers? Add new data feeds or interactive features to our sidebar columns? We're counting on your advice; the theme here is change for the sake of improvement, rather than change for the sake of change.

Leave us a comment with your suggestions, and please include your name & email
. I will make a careful note of all suggestions & announce the contest winners this Friday at noon (12 pm CST).

Thanks, and good luck!

Tuesday, August 11, 2009

Dasan on poker & investing

A little evening reading from rogue speculator & blogger, Dasan.

Being a bit of a poker player, Dasan has collected some of his thoughts on the parallels between poker and investing and put them down for us to read in a post entitled, "Fishes, Donkeys, Bulls & Bears...".

Here's an excerpt from that piece:

"
Element of Luck. No Limit Hold’em, for the uninitiated (is there anyone left in the US who hasn’t played Hold’em?) is a game consisting of luck and skill. Why is it so popular? Because it has a huge component of luck in the short run.

If I play one hand against Phil Helmuth, and just go all-in, he has no advantage over me. In fact, many beginning poker books advocate an extremely aggressive pre-flop game as a way to neutralize your disadvantage against more highly skilled players.

This is why you often see Helmuth go into a childlike tantrum when he raises the standard 3x raise and some amateur that raises him all-in pre-flop.
This is an important point – in the short run, luck dominates, but in the long run, skill dominates.

Stock price movements are the same thing- in the short run they are close to random, and the most skilled analyst has no “edge” at all.
In short periods, even lousy investors can make money in bull markets. But over medium to longer term periods, a skillful investor will completely blow away the performance of a lesser-skilled investor.
.."

While I'm not much of a card player, I can still appreciate the lessons drawn from Dasan's post. I hope you will too; enjoy the piece!

Related articles and posts:

1. Knowing when to fold - Davian Letter.

2. Wisdom of Johnny Chan - The Kirk Report.

Monday, August 10, 2009

Jared Diamond has Lunch with the FT

From the weekend edition of the Financial Times, evolutionary biologist & "guru of collapse" Jared Diamond has, "Lunch with the FT".

Here is a preview of that article:

"Jared Diamond is the guru of collapse.
Collapse is the title of one of the books that have made him a world-famous academic. It is a theme that captures the Zeitgeist: markets have collapsed, banks have collapsed and confidence, even in the capitalist system itself, has collapsed.

Diamond’s celebrated book – which added to the reputation he earned through Guns, Germs andSteel, a Pulitzer prize-winner about why some societies triumph over others – sought to discover what makes civilisations, many at their apparent zenith, crumble overnight. The Maya of Central America, the stone-carving civilisation of Easter Island, and the Soviet Union – all suddenly shattered.

The question lurking in Diamond’s work is: could we be next? Could the great skyscrapers of Manhattan one day become deserted canyons of a bygone civilisation, a modern version of Ozymandias’s trunkless legs of stone?..."

Reading through the Diamond's comments on the rise and fall of civilizations and the cultural or geographic advantages that some societies have over others, I couldn't help but think back to Charlie Munger (Vice Chairman of Berkshire Hathaway), an admirer of Diamond's work.

Munger has listed Jared Diamond's books as recommended reading material, and I think Diamond's interdisciplanary thinking and style must play a large part in Munger's appreciation for these books.

As noted in his 2008 talk at Caltech, Munger is a proponent of the multi-disciplinary approach, urging listeners to become familiar with the main ideas of many disciplines so that they may integrate their findings and better understand their world. Have a look at the video and notes of Munger's talk (see above link) for more on this theme.

Sunday, August 09, 2009

Heads up: MacroTwits & upcoming contest

Just wanted to give all of our readers (including those of you in RSS land) a quick heads up on a couple items of interest at Finance Trends.

First, Stocktwits will be hosting its weekly MacroTwits discussion hour tonight at 9 PM EST. For those who don't know, MacroTwits is a fun & engaging macroeconomic roundtable hosted by blogger and Stocktwits member, Gregor Macdonald.

As you can see from the link above, MacroTwits is now televised live on Stocktwits.tv, alongside of a streaming chat box where Stocktwits members share market commentary and macro links in 140 characters or less.

You don't have to sign up to Twitter or Stocktwits to follow the discussion, but you will have to join Twitter & "follow" Stocktwits if you want to participate in the forum. For more on how to use Twitter and Stocktwits, please see our explanatory post.

Secondly, we'll be running a little contest here in a couple of days. Details will be laid out in full early in the week, so I'll just mention it here as a quick FYI. We plan to give away a free print subscription (or two) to The Economist, so if you'd like to participate and aim for the prize, we'd love to have you join in (contest entry will be as simple as leaving a comment).

Thanks, and we'll see you tonight at MacroTwits hour!

Thursday, August 06, 2009

The Culture that Spawned the Crisis



John Bogle, Douglas Kmiec, and John Templeton Jr. share their views on current societal values and their effect on our behavior and the financial markets in, "The Culture that Spawned the Crisis: A Closer Look".

This talk provides an interesting follow up to the themes of capitalism and morality vs. immorality discussed in our last post, "BB&T prefer liberty & reason to bailouts".

A key point made by John Templeton Jr. early on in this talk: "Culture is Everything". As the opening argument suggests, changes in our cultural values have led to a marked change in the way that we live, interact, and do business with each other, and not necessarily for the better.

Hat tip to Stocktwits community member, Aiki14, for drawing our attention to this discussion.

When you find the time, please enjoy this video and the discussion on "the social, cultural, and moral causes of the current financial crisis in the United States"
. I hope it will spur some thoughts on the prevailing cultural & moral climate in our country (& in our world).

What lessons did take from the discussion? On what points did you agree or disagree? Please share your thoughts with us here.

Related articles and posts:

1. The Moral Case for Competitive Capitalism - The Freeman.

2.
John Bogle: The Free Market's Moral Crisis - Fora.tv.

3. Need for More Capitalism in our Financial System - Seven Scholars.

4. Friedrich A. Hayek at Stanford, 1970 - Finance Trends.

Tuesday, August 04, 2009

BB&T prefer liberty & reason to bailouts

Found a very interesting article yesterday from The New York Times on North Carolina-based bank, BB&T. It centers on the company's moral underpinnings and a business philosophy that has helped BB&T avoid much of the fallout of the current economic crisis.

It turns out that the bank's chairman, John A. Allison IV, is a devoted Ayn Rand student and a vocal critic of the government's interventions in the economy. He also feels that the current financial crisis, often pilloried as the result of excesses wrought by an era of free-market madness, was largely brought about by the government itself, through the monetary interventions of the Fed and government regulations that supported irresponsible lending by the GSEs.

Here are excerpts from, "Give BB&T liberty, but not a bailout":

"OVER much of the last four decades, John A. Allison IV built BB&T from a local bank in North Carolina into a regional powerhouse that has weathered the economic crisis far better than many of its troubled rivals — largely by avoiding financial gimmickry. And in his spare time, Mr. Allison travels the country making speeches about his bank’s distinctive philosophy...

...Mr. Allison, who remains BB&T’s chairman after retiring as chief executive in December, has emerged as perhaps the most vocal proponent of Ms. Rand’s ideas and of the dangers of government meddling in the markets. For a dedicated Randian like him, the government’s headlong rush to try to rescue and fix the economy is a horrifying realization of his worst fears..."

While your humble editor is not exactly a learned Ayn Rand disciple (still haven't read Atlas Shrugged), I'm sure many of us have heard the accusations that Rand's philosophy of individualism somehow promotes a sociopathic disregard for society as a whole.

With that in mind, here's an excellent example from this article of how BB&T have followed through on their philosophy to protect their firm and our society by working to uphold property rights and keep borrowers (the bank's customers) out of financial danger.

"Mr. Allison cites two examples in which the bank’s philosophy guided its real-world decisions.

After the Supreme Court upheld the right of local governments in 2005 to condemn private property and hand it to someone else for commercial development, he says, BB&T refused to make loans to developers who obtained property that way.

He also says BB&T decided not to offer the controversial “pick a payment” mortgages that got so many of its competitors into trouble. Such loans, also known as “option A.R.M.’s” or “negative amortization loans,” allow borrowers to make payments that don’t even cover the interest on the loans, which causes the amount they owe to grow.

“While we did not foresee the decline in the real estate market, we knew home prices would not continue to appreciate at 15 percent per year forever,” he says, adding that his bank knew that pick-a-payment loans would be trouble for many homeowners.

“We believe Rand’s concept of the ‘trader principle,’ where life is about trading value for value, where both parties benefit from the transaction,” he says."

Yes, morality is inherent to true capitalism. Go read the whole thing.

Related articles and posts:

1. Atlas Shrugged: from fiction to fact? - Finance Trends.

2. Thomas E. Woods interview: Meltdown - Finance Trends.

Monday, August 03, 2009

BofA's quick n' easy settlement w/ SEC

Bank of America has paid a $33 million fine in a quick n' easy lawsuit settlement with the SEC.

The agency had accused BofA of misleading investors on the issue of bonus payments paid out to employees of Merrill Lynch, the firm acquired by BofA in January 2009. BofA did not admit to or deny the SEC's charges of making "materially false and misleading" claims to investors on bonus payments at Merrill.

ZeroHedge and Aiki14 had a few things to say about the news and its effect on the day's trading. You can head on over to read their posts (be sure to flip through the comments section at ZeroHedge), as well as the Bloomberg news stories included here, for more detail and color commentary.

Related articles and posts:

1. Bank of America fined $33 million by SEC - Bloomberg.

2.
Paulson's gift to Lewis delivered at gunpoint - Bloomberg.