The media and blogosphere have been busy tearing part President Obama’s plan to shake up the auto industry, but one detail that isn’t getting enough attention is the deductibility of sales and excise taxes on new cars:
“Third, the IRS is launching a campaign to alert consumers of a new tax benefit for auto purchases made between February 16th and the end of this year -- if you buy a car anytime this year, you may be able to deduct the cost of any sales and excise taxes. And this provision could save families hundreds of dollars and lead to as many as 100,000 new car sales.”
It will take an awful lot of work to shore up automotive sales, but I’m not sure that a minor tax break will move cars off dealers’ lots. After all, look at how cheap cars are already:
And in the real world outside of statistics, one must question of anyone on Obama’s team has visited a car lot in the past few years. It is incredibly easy to get a good deal on a new car.
What isn’t easy, however, is getting an affordable loan. Comerica Chief Economist Dana Johnson recently said the following:
“The underlying data show quite clearly that car buyers are facing stringent financing conditions,” said Dana Johnson, Chief Economist at Comerica Bank. “In the latest quarter, car buyers had to put down bigger down payments, pay higher interest rates, and limit the maturity of their loans.”
And there’s that other elephant in the room – the economy. People are freaked. Their 401/K’s have been decimated, their home value is down, and job security is a thing of the past. You’re not going to get 100,000 people to buy new cars by throwing them a few hundred bucks in tax breaks.
There are no easy solutions for Detroit. This tax break is a Band-aid on a gaping wound – it’s just not enough to stem the bleeding.
Over a variety of periods, our long-term buy recommendations earned investors more money than those made by the major brokerage firms. Similarly, our sell recommendations helped investors identify which stocks to avoid.
Investars calculated that Zacks Equity Research's buy-recommended stocks rose 23.9% over the past 5 years, nearly 200% better than the Russell 2000.
To put this performance in perspective, let's look at how Investars says other firms performed. Following the buy recommendations from Goldman Sachs, Standard & Poor's, Deutsche Bank, Citigroup, Piper Jaffray, Raymond James, BMO Capital Markets and Ameriprise would have lost you money. Not a single one of those well-known brokerage firms had a positive return.
At the same time, Zacks Equity Research did a great job of telling you which stocks to avoid, or even short. According to Investars, Zacks' sell-recommended stocks fell 50% more than the Russell 2000. In other words, not only did Zacks warn you about the bad stocks, we helped keep you out of the worst of the worst - the ones that wreck your portfolio.
One interesting thing here – Zacks is comparing itself with the Russell 2000. I can only imagine that their relative performance vs. the S&P was not nearly as impressive. But if their quantitative methodology helped them pick small caps, it probably worked equally as well with large caps.
This is perfect marketing. This is the kind of data that speaks directly to individual investors who have been burned by the sell side’s constant stream of Buy recommendations, even when fundamentals and the economy are turning.
But will it change the institutional side of Wall Street? NO!
You might now know this, but a good portion of the sell-side research function is just as much about communicating information and setting hurdles than actually picking stocks.
A portfolio manager for a major hedge fund will not care about the bold-printed analyst rating on the front page of a report. They want the fine print that comes from being in the information loop - is a solar company’s plant in China down for a week at the end of a quarter? Did Verizon run out of the new BlackBerry? Is Sony about to drop the price of the PlayStation 3?
At the same time, to the novice eye, sell-side research is very well-packaged. In a typical initiation report, there are 50+ pages of well-produced charts, graphs, financial projections, and in-depth industry data.
The numbers tell us Wall Street research is not particularly effective, but it looks and sounds good. That’s enough for some people.
Numerous media sources are reporting that "Fast Money" host Dylan Ratigan quit CNBC after an expletive-filled tirade directed at “Fast Money” producer Susan Krakower.
It’s too bad. Some thought Dylan was a little too long-winded, but I liked his aggressive style. Expect Fox Business News to pick him up pronto.
Trading of options to buy optionsXpress Holdings Inc. was the busiest in almost two years as investors bet it will be the next online derivatives brokerage to get a takeover offer.
Call trading jumped to 13,295 contracts, the most since May 2007 and 23 times the average over the last four weeks. OptionsXpress, based in Chicago, added 2.8 percent to close at $11.93 in Nasdaq Stock Market composite trading after earlier gaining as much as 5.6 percent.
“There’s takeover speculation,” said Frederic Ruffy, the senior options strategist at WhatsTrading.com, a New York-based provider of options market analysis. “Investors are taking positions with the expectation that the stock will move higher over the next few weeks.”
The discount brokerage industry is in a permanent state of regular consolidation as those who can’t build market share through organic means (superior service offerings and customer care) will buy it.
The options business is hot, and following TD Ameritrade’s (AMTD) takeover of thinkorswim (SWIM), there aren’t many sizeable options specialists to go round.
So who could be a buyer of optionsXpress? Schwab (SCHW) might be a good candidate as the OXPS platform might be a nice addition to their platform, assuming they didn’t meddle with it too much. The stock is also cheap enough that a private-equity firm might take a look at it, though it would be disastrous if the company was levered up and stripped down.
I’m holding steady now with my tiny position in OXPS, and buy a little more if it comes down.
“The same f*ckers that rounded us up and sank us into this mess are telling me they'll bail me out? F*ck you.”
-Verbal Kint
As we’ve learned, President Obama is going to sit down and have lunch with the heads of Wall Street titans Goldman Sachs (GS), JP Morgan (JPM), and Citi (C), following recent meetings with American Express (AXP) and Microsoft (MSFT). Wow, sounds just like Carrie, Samantha, Charlotte, and that lady with the red hair.
Obama adviser Larry Summers said that “This is about our duty to do everything we can to support a robust and sustained economic expansion and the reality that the country’s major financial institutions have a major role to play.” Well duh.
And Valerie Jarrett said “It would be very unnatural if we didn’t engage them and have a direct opportunity to pick their brains and look to the future.”
The only problem is, Wall Street’s best and brightest are what got us into this mess. They overleveraged their balance sheets and constantly pushed the envelope in terms of risk management, all because a few spreadsheets said it was a good idea.
Everyone can come up with financial villains to blame for the economic mess, stock market volatility, and the collapse of some of our largest financial institutions.
But there is another set of villains that needs to be destroyed, and that is the rumor mongers. You know, the guys who come up with absurd gossip like “General Electric (GE) is gonna buy Taser (TASR)!!!” to drive stock prices up and make easy money.
Here’s an easy recipe for making money in any market:
Stock price rises, implied volatility rises, and you cash in. It’s that simple.
This happens on practically a daily basis in this market and the SEC does nothing about it even though there is a direct cost to the spreading of false rumors to engage in profitable options trading.
Options are a zero-sum game. An option is not created until somebody who wants to buy one connects with someone who wants to make an opposite bet, which would typically be a market maker.
Given how fast options prices can move, an honest options MM can easily get screwed by a false rumor, no matter how ridiculous it may be. MM’s do accept this sort of risk as part of their job, but shouldn’t the government fight for an honest marketplace, and punish those who profit from lies?
Or is this a cause that isn’t attractive enough from a political standpoint? After all, it’s a fight against something that makes stocks go up.
Hi folks! Just wanted to let you all know that I'm starting a new blog following Treasury Secretary Tim Geithner at GeithnerWatch.com. He needs to be monitored and I think I'm the man for the job.
Being half-Italian, I sometimes feel guilty for indulging guilty pleasures like Domino’s Oven-Baked sandwiches. It’s definitely not authentic - does anyone in Italy eat chicken parm heroes? And if they do, do they order them online?
But who cares? Just take a look at the bad ass Domino’s Pizza Tracker:
Maybe I’m easily amused but I find this thing to be awesome. Watching that Bake button blink, I can just visualize the laboratory-grown cheese and fake sauce bubbling on top of that amazing, crispy bread.
Now just imagine if FedEx (FDX) or UPS (UPS) had something this cool on their websites.
I want an animation of a FedEx worker scanning my new camera from Amazon (AMZN) for explosives. Or the package falling off a truck. Or the guys at the UPS depot using a box of wedding photos as a soccer ball.
"As we seen with AIG, distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can," Geithner said in prepared testimony submitted to the committee. "The administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context."
He said this authority would allow the government to make loans to an institution, purchase its obligations or assets, assume or guarantee its liabilities and purchase an equity interest. As a conservator or receiver, he said, the government "would have additional powers to sell or transfer the assets or liabilities of the institution in question, renegotiate or repudiate the institution's contracts (including with its employees), and prevent certain financial contracts with the institution from being terminated on account of conservatorship or receivership."
I find this development to be potentially disastrous. The government has enough trouble running the existing Federal Reserve, Treasury Department, and all the various regulatory agencies. Now they want to take on decisions regarding the fate of trillions of dollars in financial assets and liabilities.
Its decisions would suffer from political motivations – decisions could easily be affected by public perception/outrage and personal connections rather than what would happen between two independent parties in a free market.
We can draw a parallel with Defense contracts. You know, when a high-ranking military official hands a sweetheart contract to a defense company. And then that company hires that official at a 7-figure salary after he retires from the armed forces. Just substitute ‘military official’ for ‘Government crony’ and ‘defense company’ for ‘savvy hedge fund’.
You don’t think the public will get screwed for billions there?
Will the public be offered the same deal? I mean, they sound more attractive than savings bonds. Thankfully, BlackRock (BLK) Chairman Laurence Fink is considering creating mutual funds for individual investor participation. Now that’s a super idea, because it will allow the regular guy to get in on opportunities the government is gift-wrapping for big money managers like the Carlyle Group
And will the government hit those hedge fund managers with 90% tax rates on the profits they make on these deals? These guys are smart enough to pull the wool over the eyes of government officials and they’re going to make out like bandits.
The US government has been raining money down on banks to manipulate them back into shape. Now it wants to serve as one big fat lender, prime broker, investment banker, trader, and analyst to the financial world. Talk about a power grab!
Supposedly smart people failed at running companies like AIG (AIG), Lehman Brothers, and Citigroup (C). And now the government, which failed to properly regulate financial services companies, wants to be in charge of it all? All we would get is a massive concentration of power within the Treasury that would bully the market and private institutions as it sees fit.
Looks like the top dogs from AIG (AIG) read the political landscape correctly. Nine of the top 10, and 15 of the top 20 executives decided to do the smart thing and give back their bonuses.
I’ve been thinking a lot about how the public perceives Wall Street, big business, and their interactions with the government. For the economy to turn, people need to have some confidence in those bureaucracies that and institutions that affect their lives.
This baby step is actually an important part of the healing process. The average person wants to see some kind of sacrifice coming from those in power, even if we all know it’s moot. These guys were not and will never be in the poorhouse, and considering their inside view of the financial markets, they most likely weren’t putting their own money in wacky MBS securities to squeeze out an extra quarter point of yield.
Following the AIG' target=_blank>AIG (AIG)BonusGate (non)scandal, everyone in the world is wondering who’s getting paid what bonus at which bank. Dutch Bank ING Groep INV (ING), purveyor of those ever-popular high-yield savings accounts, is starting what could be a new trend in asking employees to repay bonuses.
"That is why we are asking the top 1,200 (managers) to give up their bonus," he said. No bonuses were planned for this year, he said, and the group is reviewing its policy on pay packages.
This is a very savvy political move by ING. This is exactly the type of move that both governments want to see right now, and will help the company avoid public relations disasters relating to executive compensation.
Like it or not, populism is alive and well, and people want a little (a lot?) bit of flesh from the fat cats. ING is smart to give a little bit up. Don’t be surprised to see similar moves coming from US firms like Goldman Sachs (GS) and Morgan Stanley (MS). The implicit message to employees would be, “give up a few bucks for a year or two and we’ll be out of the government’s way. Then we can all get richer as the governments tries to inflate its way out of this mess.”
It’s not without precedent. When current Morgan Stanley CEO was running CSFB, he asked top people to break multiyear contracts. Given the awful Wall Street job market, many employees would surely give up some pay in exchange for something resembling increased job security.
Obama will call for increased oversight of 'executive pay at all banks, Wall Street firms and possibly other companies' as part of sweeping plan to 'overhaul financial regulation', NY TIMES reporting Sunday, newsroom sources tell DRUDGE... Developing...
Despite their primarily political motivations, I can understand public officials wanting to cap the bonuses of TARP recipients and take aim at AIG. But going after everyone else is just pure insanity.
If a company is not taking government money, then the government should not meddle with how much those companies pay their employees. The average CEO of a major company is dramatically overpaid, but it’s the shareholders job to complain.
If they don’t like what a CEO is getting paid, they should sell the stock or sack the Board of Directors, the latter of course being something that doesn’t happen nearly often enough.
Plus, how the heck will any troubled company (pick a bank, any bank!) find a new CEO? Being the CEO of a distressed company is an absolutely awful job. You have to be greedy or just a masochist to do it. Do you think Vikram Pandit likes getting up in the morning to go to work every day? The only way to get anyone with a brain to take a top post at Citigroup (C) or AIG (AIG) or General Motors (GM) is to bribe them!
Just about everybody out there wants the rich guys to take a hit. But arbitrarily deciding who makes too much money and who doesn’t smacks of extreme heavy-handedness and could in fact backfire on President Barack Obama. If this news is true, I just may regret my vote for him.
Purchasing $10 billion in CDS (roughly in line with what Viniar claims happened) at a hypothetical average price of 25 bps (and realistically much less than that) and rolling that would imply that at today's AIG 5 yr CDS price of 1,942 bps, the company made roughly $4.7 billion in profit from shorting AIG alone!
There’s some argument in the comments section of ZH’s blog posting, but you get the idea – Goldman Sachs (GS) did very well in betting against AIG (AIG). Perhaps Goldman was hedging counterparty risk or an investment in another asset class, but this bet alone shielded Goldman from some of the subprime mess and helped keep it alive.
ZH also makes this conclusion:
Implicitly, one could say GS was incentivized to see AIG fail. Does that maybe answer some of the questions of why GS allegedly pulled AIG's collateral and started the avalanche that lead to its bailout? However, a fine point - if AIG had really tanked none of the CDS would be collectible as the entire CDS market would have likely imploded... Thus demonstrating the need for a zombie bank system: not totally dead (systemic collapse) but barely alive to pocket a nice little CDS annuity from daily cash collateral posts as it leaks wider (and taxpayers foot the bill).
The fine point – the potential damage to the CDS market – is not fine at all. It is huge. Goldman would surely like to profit from any bet it makes, but its traders would have assumed that massive trouble at AIG would decimate not only the booming CDS markets. It would crater confidence in the capital markets – the engine of Goldman’s profits.
Now if a scenario like the government financing a Goldman Sachs acquisition of AIG (you never know!, the conspiracy theorists will be out in force. But for now, there’s no reason to believe Goldman would want AIG out of business.
Goldman Sachs got its bailout. Now some of its bankers, those aristocrats of Wall Street, apparently need a bit of a bailout too.
Goldman, which accepted billions of taxpayer dollars last fall and, as learned Sunday, was also a big beneficiary of the rescue of the American International Group, is offering to lend money to more than 1,000 employees who have been squeezed by the financial crisis. The loans, offered via e-mail last week, could range from a few thousand dollars to hundreds of thousands.
Working at Goldman has long been regarded as a sure path to riches. But Goldman’s employees are losing money on their personal investments — particularly in Goldman’s own elite investment funds, which have been considered one of the perks of working at the bank.
Now these funds have stumbled, and some Goldman employees who financed their gilded lifestyles by borrowing in good times are suddenly short on cash needed to meet commitments to their personal investments in the funds.
I think these folks at Goldman Sachs (GS) need to understand some basic elements of diversification in one's investments. You should never put all your eggs in one basket, no matter how good that basket looks, especially if that basket pays your check every two weeks.
Let's get some things straight: these guys were dependent upon Goldman Sachs for their income and probably owned Goldman Sachs stock. They then decided it was a good idea to have their personal money invested in private equity, real estate, and hedge funds - yes, managed by Goldman Sachs.
Perhaps there was internal peer pressure to invest in these funds, but why put your eggs all in one basket? The financial performance of Goldman Sachs itself was largely dependent upon the performance of its funds, and the alternative investments industry as a whole. And even then, it would have been smarter to just load up on Goldman Sachs stock, which has a major advantage over any kind of alternative investment fund - you can sell it pretty much whenever you want.
The US government has stepped in to stop the bonus mess at AIG (AIG). You can bet they'll be looking at these loans very soon unless that TARP money gets paid back pronto.
Formerly big-paid employees of AIG will effectively have no bonus at all, and that's just not fair. So I've come up with three solutions to BonusGate that are a lot more entertaining for the public than some boring tax bill:
1) Cage Fights
That's right. Cage Fights. At South Oak Cliff High School in Dallas, troubled students were forced by the principal to fight in cages to settle disputes and be discliplined. Well, if it's good enough for the teenage population of Dallas, it's good enough for credit derivative traders.
Here's how it works. You get in a cage with a UFC fighter like Georges St. Pierre. If you can last five minutes, you keep the money. If you win, you get double, tax free. If you lose, well, you'll be broke financially and physically. Put it on pay-per-view and it will make millions!
2) Call Options on the FAS or FAZ ETFs.
I've spoken about the Direxion FAS and FAZ ETFs before, and we're well aware of how wild these things are. So let's pay the bonuses with FAS or FAZ call options, and have them throw the rest of their retirement savings in there too. These guys like to gamble, right? Let them flip a coin, and then watch the FAS and FAZ bounce around for a year or too. Sure the AIG guys might get rich off this, but they could also end up with nothing - a perfect antidote to Wall Street's typical 'Heads I Win, Tails I Win' attitude.
and finally...
3) Become a Registered Sex Offender
Okay, you can keep the money. But you'll have to register as a sex offender and go door-to-door to your neighbors telling them so. This may work for some people willing to leave the country and never come back, but overall, it's a big hurdle for most to jump.
Achim Steiner, head of the UN Environmental Program, is out pushing a $750 billion "New Green Deal", an effort that would supposedly boost the world economy and help protect the environment. The program would target the building of more energy efficient buildings, renewable energy programs, better transport, and safeguards for nature and agriculture. Sounds good, huh? But I have five questions:
1) Why $750 billion?
The UNEP says this is 1% of global GDP, and I understand the attraction of round numbers, but how exactly did they come up with this number? Why not 1.2% of GDP? Or 3% of global capital spending? Call me crazy, but I always raise eyebrows at huge spending programs with very exact, round numbers attached to them. They always seem calculated to be soundbite-friendly. 2) Where's the oversight? A major problem with throwing huge amounts of money around is that unsavory people are going to get some of their hands on it. Think about all the nonsense involved in the supposed reconstruction of Iraq. Every corrupt government contractor would come out of the woodwork looking for a piece of this. Would the UN be willing to be tough with these characters? 3) Who's going to pay for it? Ok, the US government is throwing trillions of dollars around trying to fix the economy, tax revenues will be down, and unemployment is growing. Can we really spare 1% of GDP for a program with less-than-certain results? 4) Why should we do this with no guarantee of a payoff?
Long-term forecasts for major spending programs are usually WAY off the mark (think about any Presidential candidate's tax plan). We don't have much data on how environmental programs could pay off over the long term in terms of growth, job creation, etc.
5) So why can't we just do my lazy, easy plan?
Given my doubts about this program, I must not give a damn about the environment, right? Wrong. I just believe that being an environmentalist is less about spending large amounts of money and more about doing low-cost, basic things on a daily basis that reduce energy and resource consumption. I don't think we need to take money from ExxonMobil (XOM) and ConocoPhillips (COP) and hand it over to First Solar (FSLR) to be environmentalists.
There are a million ways to reduce energy and resource consumption TODAY with ZERO cost.
So my plan would be to simply educate the public about the financial benefits of becoming more environmentally-friendly. It might be wishful thinking, but times are tough right now, and helping people save money will get their attention more quickly than trying to wow them with big-dollar spending.
Here are five easy ways to help the environment while saving money TODAY:
1) Use Freecycle and Craig's List
There's no better way to reduce your resource consumption (and spending) than by taking someone else's used stuff - especially when it's free. I don't know about you, but to me a free bookcase is just as good as a new one, even if it is a bit scratched up. So just sign up with Freecycle and get free stuff! You can also reduce waste by donating things you don't need, or by selling them used. It's a lot more environmentally-friendly than throwing it in the trash! 2) Put your water in a pitcher and stick it in the fridge.
Sounds basic, right? But it's a damn good idea because you won't have to leave the water running until it gets cold enough for drinking. Voila, your water waste is partially eliminated (unless you take long showers...). 3) Eat smaller portions
I feel like a hypocrite here because sometimes I eat like a pig, but cutting your portion sizes is a very easy way to help the environment, and improve your health at the same time. We don't have to all go vegan, but the food industry uses tons of natural resources and quite a bit of land in manufacturing/farming.
4) Use Cloth Bags When Food Shopping
It's pretty easy to wind up with a huge pile of plastic bags in your closet, especially if you have a family. Unfortunately, those plastic bags use a lot of energy in their production and they don't degrade easily. So just use reusable cloth bags, which can be tossed in with your usual laundry load for cleaning.
5) Only Wash Full Loads of Laundry
Washing clothes uses plenty of water and energy, so wait until you have a full load before doing the laundry. If you don't, double up with a friend or roommate to make the most out of each load.
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Now if the government is going to spend big things, I don't think there should necessarily be a big rush to spend it on alternative energy sources. I think the immediate focus should be on reducing consumption of oil and natural gas, because the taxpayer gets a more certain return on investment.
For example, countless apartment buildings produce enormous amounts of heat. The result is the people on the bottom floors have their windows open to stop from roasting to death. That's a huge waste of oil, gas, and money. So it would be helpful for the government to help with low-cost loans for upgrading boilers and duct systems, or for improving insulation to increase the effectiveness of heating/air conditioning.
Isn't eliminating 20% of our current oil consumption by using common sense more cost-effective than putting together renewable energy projects? That money would go directly into consumers' and business' pockets, which could then go into new investments in our economy.
My ideas aren't nearly as sexy as a big solar plan, but it's a lot easier to add up the dollars at the end of the day. I mean, our dollars!
It's become pretty obvious to anyone following the AIG (AIG) bonus drama that one way or another, those financial products executives are not going to keep their big fat bonuses. Whether its taxes or public ridicule, the government is determined to stop those bonuses from being paid.
In fact, the mess needs a name: BonusGate!
We're walking on dangerous ground when the government arbitrarily interferes with private contracts as it sees fit. Making new laws to heavily tax those bonuses is obviously discriminatory when they haven't similarly punished other bailout-money recipients. The government also wants to name names, which would be disastrous for the personal safety of anyone that received a bonus. It would simply be criminal to put any of those names in the public record - somebody would die.
This mess will be an effective test of just how far the Obama administration and other government officials will go in trying to appease an angry public. But when you take $1 million from a guy who probably made $20 million between 2003 and 2007, you're not really punishing him. You're just taking away a new ski house or Ferrari. It's an inconvenience.
I'm left with no emotion on BonusGate. It's just a sideshow for politicians pretending they give a damn. They took tons of money from the companies that they're crucifying and all of a sudden they want to get tough and regulate. Please.
CNBC has taken a beating in the press lately following Jon Stewart's assault on the network and its commentators. And just recently, a new site called FixCNBC has been launched with an open letter saying the following:
Americans need CNBC to do strong, watchdog journalism – asking tough questions to Wall Street, debunking lies, and reporting the truth. Instead, CNBC has done PR for Wall Street. You’ve been so obsessed with getting “access” to failed CEOs that you willfully passed on misinformation to the public for years, helping to get us into the economic crisis we face today.
You screwed up badly. Don’t apologize – fix it!
CNBC should publicly declare that its new overriding mission will be responsible journalism that holds Wall Street accountable. As a down payment, we ask you to hire some new economic voices – people who have a track record of being right about the economic crisis and holding Wall Street executives’ feet to the fire.
I've always thought that CNBC could do a much better job of disclosing information about guests. We get info about the usual stuff like investment banking conflicts (not that anybody pays attention) or whether or not a guest owns any stock in a particular company.
But I think the GE-owned network could do a lot to improve its disclosure policies, starting with these three changes:
Online Records of Guests' Stock and Market Calls Jim Cramer does a decent job of this at TheStreet.com. But CNBC could hire a few interns to log all guests' stock and market calls and post them publicly on CNBC.com. This way the public can better tell the difference between a savvy money manager and someone that just sounds good on television. If a particular guest is chronically wrong we should know about it.
Disclosures of Guests' Personal Investments There's no need to reveal too much personal information here. I don't need to know how rich anyone is or whether they own six houses. But if a guest is telling me solar stocks are the way to go, I want a message on screen telling me just how much of his personal portfolio is in solar stocks. Everyone talks their books, but we should know if a chef is eating his own cooking. If any particular guest is unwilling to share their brokerage statements with the network, they should be shown the door immediately. Disclosure of Advertising Conflicts Whenever a guest working for a current CNBC advertiser (car company, brokerage firm, etc.) appears on the air, a disclosure should be posted on screen saying so. After all, can CNBC be truly independent if it covering its own customers? If Ken Lewis of Bank America (BAC) is being interviewed while running an extensive ad campaign on CNBC, I'd like to know. Tons of media outlets have these conflicts (like a camera review magazine printing Canon ads), but CNBC should take the high road and tell us then they're happening.
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These changes would be simple and cheap to implement, and would go a long way towards restoring the public's trust in CNBC. If CNBC truly wants to be on the side of the people who rely on it for timely, objective financial reporting, they'll listen.
What do you guys think? What else should change about CNBC's disclosure policies?
In my past life working as a Consultant/Excel Jockey to Toyota (TM), I actually had the feeling that it was the former. Hybrid-car lovers seemed to be more focused on helping the environment and promoting a positive image of themselves (some would call it smugness) than on saving money. It did take a quite a bit of driving to make up the cost differential between a hybrid and non-hybrid, so hybrids didn't make a ton of sense from a pure cost-of-use basis.
So I did think that hybrid sales would hold up decently during the current auto market slowdown. Boy was I wrong, at least according to the LA Times. Just look at how hard it's become to sell a hybrid:
This news throws a massive wrench into President Obama's idea that General Motors (GM) and Ford (F) can recover by focusing on fuel-efficient vehicles.
With the economy in the toilet, consumers are just buying what's affordable - small, used cars. They just don't have the cash to put the environment first. You can buy a tough-as-nails used Honda Accord for $5,000. That's a heck of a lot cheaper than buying a new Prius.
Over the weekend, embattled American International Group (AIG) published a list of its counterparties in the wild credit default swaps (CDS) market, and more importantly, the amount of collateral paid to them on various CDS bets.
Among the lucky parties were banking giants Goldman Sachs (GS) and Bank of America (BAC) received $12.9 and $12 billion respectively. Foreign banks were also in on the party, with Societe Generale and Deutsche Bank (DB) each taking down nearly $12 billion.
Some folks out there are complaining that AIG, which is using TARP money to settle up on these complex bets, is simply handing out public money to fix its mistakes. It especially looks bad that the company is handing out a boatload of contractually-promised bonuses to its financial-products staff in the face of this use of taxpayer money.
These bonuses range in amount from $1,000 to $6.5 million, so at the top end, folks are getting paid pretty nicely for a total failure in performance. They could voluntarily take pay cuts, but don’t count on that happening. Wall Street, and AIG in particular, has a pretty bad reputation right now.Cutting the big boys’ bonuses from $6.5 million to $3 million isn’t going to calm an angry public watching their tax dollars passed around like candy.
News like this is toxic for the public's faith in business and government. The average person sees a "heads we win, tails you lose" series of outcomes for banks, engendered by an endless stream of cash flowing from Main Street to Wall Street. All while the average American has seen his 401K evaporate, purchasing power decline, and job disappear.
We gave it 4½ out of a possible five stars, and the highest overall score. The company continues its blistering pace of innovation while offering customers multiple points of access, accompanied by great education tools. Customer support is top-notch, and a wealth of trading information comes at you from a variety of media while you are logged in to the platform.
The company had zero downtime in 2008; quite a few other brokers hit bumps in the road during heavy trading days as the market plummeted. "Even with the market down 50%, our customer assets are at an all-time high," claims thinkorswim's president, Tom Sosnoff.
Thinkorswim's trading platform, which is easily customized, allows you to trade everything from stocks to complex options to futures to foreign exchange, all on the same screen. (The firm takes top honors for options and frequent traders, too.)
The platform is clean and easy to navigate, in spite of its complexity. Orders are filled very quickly, and customer support is staffed around the clock.
Thinkorswim also won the categories Best for Frequent Traders and Best for Options Traders. However, Barron’s also noted the dark side of the company’s buyout by TD Ameritrade (AMTD):
There is a cloud in the sky, however, which is the recent acquisition of thinkorswim by TD Ameritrade, with its very different look and feel as well as pricing structure.
One big worry of mine is that the platform will change now that TD Ameritrade (AMTD) has its hands on it. But according to my chats with thinkorswim’s ace customer service team, that isn’t going to happen.
Given the accolades bestowed upon thinkorswim by Barron’s, it looks like TD Ameritrade’s timing in this deal couldn’t possibly be better –they just received the best possible no-cost marketing for an online broker.
I was happy to see that optionsXpress (OXPS), had a solid showing, finishing second in “Best for Long-Term Investing” and fourth in “Best for Options Traders.” I have a small position in optionsXpress and am considering buying more.
Financial stocks have had a huge rally, up 47% off their March 6th low, as measured by the Financial Select Sector SPDR (XLF). But the high-quality survivors like Raymond James (RJF), Schwab (SCHW) and Goldman Sachs (GS) have enormous potential to continue their rallies, and that’s where I’m focusing my attention.
Not many people are defending my old boss Jim Cramer following his appearance on the The Daily Show show last night.
James Altucher, while not an unbiased observer given his position at TheStreet.com (TSCM), steps up to the plate and knocks Jon Stewart for not pointing out some positives.
Among other things, JKW notes that “There's nothing you can do with inverse ETFs that you can't do with puts” and that “Although it might be a good idea to separate them out as a different class of instruments and require explicit permission, extra paperwork and waivers to trade them, like options have. That way, people won't just think that they can buy SSO and leave it for 40 years and expect to get twice the returns of SPY.”
And here’s my former boss at TheStreet.com, Jim Cramer, railing against the UltraShort Financial Proshares (SKF): Says Mr. Cramer: “I think we can go a long way towards shoring up our tattered financial system if the SEC simply banned the SKF, uh that’s a hideous instrument called the UltraShort Financials Proshares. I call it the ETF of mass banking destruction.” In this regard, he was focusing on the impact falling share prices can have on the banking system.
With all this discussion on the wild world of leveraged ETFs, it’s time to ask:
Are leveraged ETFs good or bad for the market?
Like with most complicated questions, the answer is… …MAYBE!
Unlike Jim, I don’t believe the short sellers were particularly at fault for driving down banking stocks. Nobody has produced the data yet, but I’d be willing to bet a vast majority of the declines came from long investors like big mutual funds dumping their stocks on the way down, creating an endless cycle of negativity.
And what about the actual companies? It’s not like these were high quality companies with pristine, or even understandable balance sheets. The shorts can be an convenient scapegoat for failing companies suffering the results of mismanagement.
As far as investors go, we should make the distinction between investors and traders. The leveraged ETFs, including the triple-leveraged Direxion variety, are clearly designed for short-term trading, not long-term investing. Not that any of the traders using these ETFs is paying attention, but this message appears on DirexionShares.com:
Anyone playing with these instruments knows how dangerous they are, and with trading volumes exceeding tens of millions of shares a day, they’re clearly being used as trading vehicles.
Traders using ETFs like the FAS and FAZ are looking to make short-term bets and they are well aware of just how quickly they can lose. One could easily get in just as much trouble trading options, futures, or currencies. So why is there no outrage over 100 to 1 leveraged currency trading? Or naked shorting of puts and calls?
JKW may be on the right track with the idea of having investors fill out extra paperwork with their brokerage firm saying they fully understand the risks of playing with leveraged ETFs. But then again, how many people actually read the CBOE’s Characteristics and Risks of Standardized Options document which is required to open an options account?
The real question quickly becomes, how much should regulatory bodies protect people from themselves? When it comes to leveraged ETFs, they shouldn’t bother, because people who want to gamble will always find a way. If it’s not wacky ETFs, it will be something else. You can’t stop people from wanting a quick buck.
I’ll end with this quote from Chris Rock. Just substitute ‘ETFs’ for the drugs:
People love to get high. You could get rid of all the illegal drugs in the world and it won't mean sh*t. People want to get high. You could get rid of all the crack, all the herb, all the blow, you know what would happen? People will just think of new ways of getting high. That's right, guys would go into their basements and become scientists. 'Like dude, check this out, check this out, you know, if you get a baby's bottle, and you fill it up with a little gasoline and dead lima beans, and you suck it, you'll be f*cked up!'
What do you guys think – are leveraged ETFs good or bad for the market? Post a comment below.
Is anyone out there hearing rumors of a takeover of asset management giant AllianceBernstein (AB) LLP? Because the folks at AllianceBernstein are looking for them:
Now why could people from within the company be searching for takeover rumors? It’s possible that the company is working on something and is checking the web to see if anyone’s got wind of a deal. Secondly, it’s something that people who work for public companies do. I did it myself when I worked for TheStreet.com.
AllianceBernstein, which is actually a publicly-traded master limited partnership, has gotten absolutely creamed, along with the rest of the sector, and I fully expect consolidation. In fact, I would not be surprised to see Warren Buffett become interested in some of these names given his positive long-term view of the U.S. stock market.
Stocks like T. Rowe Price (TROW), Legg Mason (LM), and Janus (JNS) are very much levered to the performance of the stock market, but they are huge cash flow generators and ripe to be bought during bear markets at reasonable multiples to both earnings and assets under management (AUM).
Profits of asset managers skyrocket in bull markets because of the inherent operating leverage in the model. In a rising market, the growth of revenue will dramatically outstrip the growth of expenses because there aren’t many variable expenses. Managing $100 billion doesn’t cost twice as much as managing $50 billion. Therefore, it makes sense to acquire asset managers when things are in the toilet. Cheap multiples on cyclically low earnings can’t be beat.
For now I’ll stick with my positions in optionsXpress Holdings (OXPS) and Raymond James Financial (RJF). As a rule, I don’t buy on takeover rumors and I’m not doing so now when I'd be in the position of looking like I'm pumping and dumping.
Today, Roche announced that it reached an agreement to buy the 44% of Genentech (DNA) that it does not already own, increasing its bid to $95 a share to close the deal.
Roche first tried to take over Genentech last July, bidding $89 a share, raising it to $93 a share last week. However, Gentech’s directors rejected that offer, saying that Goldman Sachs (GS) valued the stock at $112 a share.
But now that an agreement is in place, what do you do?
My philosophy is to always sell a stock of a company that is being taken over, simply because deals can fall apart, and you do not want to be left holding the bag when that happens.
Just look at what happened to holders of Take-Two Interactive (TTWO). Or Harman (HAR). Or Yahoo! (YHOO). Wall Street analysts tend to slap hold ratings after a stock receives a takeover bid, but that makes no sense to me.
Take the money and run. Genentech is trading at about $94 right now. Don’t wait for $95, especially when there are other quality stocks on sale right now.
This is definitely one of the more interesting news stories I’ve seen in quite some time. According to The Australian, Google (GOOG) co-founder Sergey Brin is launching a multi-million dollar study on Parkinson’s disease after discovering a genetic mutation that could lead to the disease.
It is horrible that any human being out there has to suffer from Parkinson’s, but this news could actually advance research of the disease. As a billionaire, Mr. Brin certainly has the money to fund a large number of studies on the disease, which could spell advancements for countless others. With his technical and entrepreneurial background, he is likely open to alternative methods of combating Parkinson’s.
Mr. Brin’s son is also being tested for the LRKK2 mutation. Though the results have not come back yet.
While I don’t use Twitter much in the traditional sense. I’m a huge fan of its stock-flavored offshoot StockTwits.com and make a point of posting there just about every day. It offers helpful stream-of-consciousness commentary from market players, a wealth of interesting links, and the ability to engage in quick conversations about stocks without the hassles of a message board.
And what are the folks at StockTwits talking about? Those high-octane Direxion FAZ and FAS exchange traded funds (ETFs):
So what are they?
Direxion specializes in ETFs that leverage an underlying index three times. For example, the company’s Large Cap Bull 3X Shares ETF aims to deliver 300% of the return of the Russell 1000 Index. Direxion does not hide the fact that these are not for the faint of heart, stating the following in the prospectus that nobody reads:
“These ETF’s are clearly high-risk vehicles, and the fund family’s prospectus (does anybody read these) states the following:The Funds are intended to be used as short-term trading vehicles. The pursuit of leveraged investment goals means that the Funds are riskier than alternatives which do not use leverage.”
And over time, the funds’ returns will likely return less than 300% of the return of each one’s underlying index. This is because Direxion’s funds incur financing costs relating to their leverage, and also because the quantitative and statistical methods used in managing the funds will not always deliver exactly 300%.
Now the reason the FAZ and FAS ETFs are so popular these days, trading millions of shares a day, is because they focus on the financial sector. They aim to return 300% of the return of the Russell 1000 Financial Index (FAZ is for the bears, FAS is for the bulls), which is pretty insane when you consider how volatile the financials are.
It’s not hard to see why they’ve become a big favorite of active investors and day traders. Stock jockeys love volatility and the FAS/FAZ ETFs deliver it in spades.
And if you really want to get crazy, you can buy options on them!
Think about it. If you’re bullish on financials, you can buy call options on an index that is leveraged three times. I’ve heard of big banks using options on options, but this is the closest the average Joe can get to something like that. Just be aware that the implied volatility readings on these ETFs is sky-high – well over 200% for March.
So if you really need some juice for your portfolio, check out these ETFs, and don’t forget your barf bag.
One thing you should know about covered call trading is that commissions can quickly eat into your profits if you're not careful in your broker selection. This is especially true if you're a regular investor like me and only do with small lots.
If you are interested in covered calls, you should call your broker and find out what commissions you will have to pay. My broker, thinkorswim (SWIM) charges $5 for a 100 share/1 call trade, which is a pretty good deal. Some other brokers charge outrageous fees on options trades. It may cost you $15 to $20 just to buy the option, and on top of that, you're responsible for a stock commission as well. And if you close the trade out, you can double that.
Now let's take a look at how commissions can affect the profitability of a covered call trade on Research In Motion (RIMM). The trade consists of:
Long 100 shares of RIMM @$39.26 Short 1 April $45 call @$1.76
Let's assume all goes as planned, and the stock closes above $45 at expiration. So, the profit on the trade before commissions is $45 - $39.26 + $1.76 a share = $7.50 a share, or $75. Now if you paid $25 in commissions to make the initial trade, that profit is cut down to $50. And then may have to pay ANOTHER commission when the stock is called away.
Get it? Commissions matter big time with covered calls.
Word is crossing the wires that Sen. Chris Dodd (D-Conn) and Rep. Barney Frank (D-Mass.) are in support of bringing back the uptick rule. This news may be contributing to the market’s big pop today, but I am skeptical that it will have much of an impact on the market.
First, traders already have access to leveraged bear ETF’s like the Direxion Financial Bear 3X Shares (FAZ). This particular ETF, and others like it, trades tens of millions of shares a day and provides an easy way to bet against the market without having to engage in a short sale. The sheer trading volumes of the bear ETFs suggests that short-sellers (and hedgers) are increasingly looking to these instruments to benefit from market declines.
Secondly, reinstating the uptick rule does not change any fundamentals. It is merely a change in market mechanics, and one that favors long investors. Many pundits blame shorts for knocking down financial stocks, but conveniently fail to acknowledge the impact of huge mutual funds dumping financial stocks on the market. The economy will not change because of a rule change, and neither will General Electric (GE), Bank of America (BAC), or Apple (AAPL).
Bringing back the uptick rule will not help the market. We will still see volatile action on a day-to-day basis, but investors should remain focused on the usual stuff – fundamentals, technicals, sentiment, etc. The uptick rule does not change any of these items.
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This just in - I am watching CNBC right now, and a commentator claims that bringing back the uptick rule will draw buyers back into the market. This is just plain ludicrous – have you ever heard of anyone pulling their money out of the market because of the uptick rule? Or refusing to buy because of the absence of the uptick rule?
With the market action improving dramatically today, I decided to build my long exposure a bit by buying a small position in options-focused discount broker optionsXpress Holdings (OXPS).
Here’s why:
1) Consolidation – the discount brokerage industry continues to consolidate, and optionsXpress is one of the only decent-sized independent firms out there available to buy. TD Ameritrade (AMTD) is in the process of buying thinkorswim (SWIM), whose options-based business model is fairly similar to that of OXPS.
2) Balance Sheet – unlike the big financial names like Merrill Lynch (MER) or Citigroup (C), OXPS has a clean and easy-to-understand balance sheet. And they're liquid, with about $3.50 a share in cash and no long-term debt. That’s pretty nice for a stock trading hands at $9 and change. That 3.2% dividend yield is safe.
3) Valuation – OXPS is trading at an extremely cheap valuation of 6 times trailing earnings, and 9 times expected full-year earnings, a great bargain considering the huge cash position. This is a stock that can easily trade up to 15 to 20 times earnings in a bull market. We’re still in bear-market territory, but OXPS is staying profitable and growing its book value which will keep the stock getting nailed too hard.
It’s tricky to have a timeline longer than 5 minutes in this zany environment, but there will be winning financial stocks going if you look out 6 to 12 months. OXPS isn’t nearly as exciting as the Financial Bull 3X ETF (FAS), but I’m confident that OXPS is a winner.
Jon Stewart takes another look at Jim Cramer’s recommendations/mentions of Bear Stearns from early 2008. Bear subsequently went under and was sold to JP Morgan Chase (JPM) for a pittance. What do you guys think of this video?
out of China, ARS Technica just delivered a pretty good list of the reasons Apple (AAPL) should and should not enter the booming netbook business. Here’s their conclusion:
“There are many reasons for Apple to release a netbook-like device, and reasons for it not to. Even though the company continues to beat the drum against sub-$500 devices, however, it's clear that Apple is at least entertaining ideas in this space. We're just not convinced any Apple netbook prototypes will ever emerge from Cupertino.”
As for prototypes of netbooks, they almost certainly exist within Apple. The company spent over $1.1 billion on R&D last year, and with that kind of money, they’re likely churning out prototypes of all kinds of stuff. You know, coffee makers, scooters, and blanket/robe hybrids.
But on the case of an actual netbook being released on the market, I have to agree with ARS’ point that “the iPhone and iPod touch may already fill the space that would be occupied by an Apple netbook.”
The only way Apple will move down-market into the lower margin world of netbooks is if it sees a serious slowdown in sales volume and it sees no other choice. The iPhone is a superior product to sell because of the huge subsidies paid by the phone carriers. It would be insane for Apple simply to cannibalize that business, or even its own MacBook business, with a lower-margin product.
If they ever do make that move, sell your house and buy put options on the stock.
The Financial Times has a piece out today discussing a newer generation of gold bugs, including hedge-fund honcho David Einhorn of Greenlight Capital:
Investors such as Mr Einhorn are turning to gold because they are worried about the response of the US Federal Reserve and other central banks to the economic crisis. A bet on gold is a bet against paper currencies.
"The size of the Fed's balance sheet is exploding and the currency is being debased. Our guess is that if the chairman of the Fed is determined to debase the currency, he will succeed," Mr Einhorn wrote to investors.
"Our instinct is that gold will do well either way: deflation will lead to further steps to debase the currency, while inflation speaks for itself."
Mr Einhorn's comments - and the revelation that he is buying gold - are in line with the views held by other institutional investors in Europe, according to bankers in London.
The head of commodity sales at one bullion bank told the Financial Times that he had never been so busy dealing in gold for large investors.
I am typically wary of imitating what hedge funds do, but betting on gold, and also silver, makes a lot of sense to me. The U.S. government is throwing an awful lot of money at its economic problems, and that is the perfect recipe for inflation over the long-term.
At the same time, investors are likely to be extremely risk-averse for the next few years (or until the next bubble comes along!) and that is bullish for gold.
As far as actual investments go, I would favor the SPDR Gold Shares (GLD) ETF over any of the actual gold companies, which are subject to production/operational snafus which can trip them up, even when the commodity price is rising. Call options on GLD might even make some sense, because implied volatility readings are actually lower than that of the S&P 500 (as measured by the SPY ETF). Personally, I tend to shy away from making directional bets with options, but the GLD might be an exception for me.
The dollar will probably be a victim of the Fed’s moneyprinting strategy, though that would be positive for the major averages. Many large companies like Caterpillar (CAT), IBM (IBM), and Oracle (ORCL) are very dependent upon exports for growth, and a weakening dollar significantly boosts earnings numbers.
This morning, credit-card giant Capital One (COF) announced that it is cutting its quarterly dividend by a whopping 87% to 5 cents a share.
According to the press release, this move will save the company $500 million annually, “equivalent to approximately 25 basis points of the company's Tangible Common Equity to Tangible Managed Assets, or TCE, ratio.” After trading down at the opening, Capital One (COF) is now catching a bid, rising about 16% versus a 4% gain for the financials overall.
This was a very wise move by Capital One, though not a complete surprise. A 10%+ dividend yield is unnecessary for a financial stock, especially when so many big names have already cut theirs.
But would I buy the stock? No way. Unemployment and the savings rate are both rising, which is a big negative for a company dependent upon consumers being both 1) willing to borrow lots of money for discretionary items and 2) able to pay it back.
The financials are still awfully tricky, and I’ve taken quite a beating on my long position in Raymond James Financial (RJF). I’m convinced that stock can easily triple from here in a more stable market (wishful thinking) due to massive share gains in wealth management and the independent advisor business.
Another name I’m starting to like a lot is optionsXpress Holdings (OXPS), which is dirt-cheap and a likely takeover candidate given ongoing industry consolidation in the options business. TD Ameritrade (AMTD) is buying the object of my affection, fellow options specialist thinkorswim (SWIM), and OXPS will be acquired sooner or later.
Michael Comeau is a writer based in Brooklyn, NY. He blogs at LongShortTrader.com and VideoGameStocks.net.
Michael spent 2004 through 2008 at TheStreet.com, starting out as a member of the research team. Before long, he became a featured columnist across the company's network of sites, and managed an investment newsletter service.
Prior to TheStreet.com, Michael worked as a Research Analyst for Toyota Motor North America, studying the U.S. auto industry and emerging automotive technologies.
Nothing on this blog constitutes investment recommendations or advice regarding what anyone should do with their portfolios. I am merely giving my opinions on the market and detailing some of my personal investment activities.
What I do may not be right for you, so I recommend that you perform your own research and/or consult a qualified investment professional before making decisions related to your financial health.
