A Wolf In Sheep's Clothing

Much has been written about Goldman and the Timberwolf deals since the now infamous “shitty deal” showdown between Senator Levin and GS officials last fall. In reading the majority/minority report issued last week in its entirety, there’s a few things that really stuck out to me. Continue reading

SEC investigating structured products: Déjà Vu all over again?

Never let it be said that the denizens at the Securities and Exchange Commission are a stodgy, humorless bunch. A recent WSJ article, Complex bond faces regulators Scrutiny , almost got me. I am not sure if they meant to have an early jump on April Fools, or if some fat fingers at the WSJ was involved.  In any event, well played Schapiro!
The Complex bonds being scrutinized, also known as “reverse convertible notes” falls under the broad investment category of structured products or in the old school vernacular Derivatives, the eleven letter four letter word.
According to the complaint, apparently the bad boys of Wall Street:
“failed to disclose the risks and fees to the investors before they bought the notes.” and possibly failed to disclose “potential conflicts of interests, such as selling a note linked to the stock of a company it is advising.”
Not only have we been down this path before, but with a few well placed directorships, maybe an IPO allocation or two, whatever the legislation and if indeed there is one, it will be tepid and ineffective. I have many reasons for my opinion but I will give three. One is history, two is legislating for greed, stupidity and downright laziness is nigh on impossible and the third I will give you at the end.

Caveat Emptor, Part 7,931

For the past few months, Long Island, NY-based David Lerner Associates has been advertising on CNBC with some pretty aggressive claims and customer testimonials.  Were I not of the cynical, skeptical variety, I could see myself being quite intrigued by the commercials, which portray customers heaping nothing short of the highest praise for the investment performance and service they’ve received from Lerner.  Now, EVERY broker/dealer gets fined and subject to arbitration for Regulatory violations, customer complaints, etc, that’s just the nature of the business, but that’s another conversation for another time.  Let’s use DLA as an example for how retail investors can and should protect themselves:

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Fuzzy Logic, or: Those Who Fail to Learn From History

I firmly believe the influx of people (many “quants” but others as well) in Finance over the past decade who posess little-to-no knowledge of Financial history contributed to the bubble and the resulting collapse.

Unfortunately, many of these people who know not the many, many lessons of financial history are lured into finance by the promise of money and all that comes with it.  More unfortunately, despite the many and various lessons of which we’ve been recently reminded during/after this most recent crash, many of these people are still among us.

Today, I read an article about China Media Express Holdings, and how its going to be the biggest short squeeze the author has ever seen/of 2011.  My 1st reaction was that whoever this author was (I’d never heard of him), he must not have been around for very long.  Remember Volkswagen (to use but one recent example)?

Apparently the short thesis is that the company is a fraud.  I do not know this company well, so I can’t speak to that point, however, I CAN and will now, for your viewing pleasure, proceed to destroy the author’s rationale for why the firm ISN’T a fraud.  He says:

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Exploiting Economic Illiteracy, by Macrotradr

I think it’s important for people to understand the ideas of scarcity and decision making in every day life so that they won’t be ripped off by politicians…Politicians exploit economic illiteracy.

- Dr. Walter Williams.

Those were the comments that resonated with me in the recent WSJ Op-Ed,The State against Blacks; Then I got to thinking, yah, not only politicians pal!

In the article, Dr Williams, a George Mason Economics Professor, discusses how the welfare state has done more harm to African-Americans than slavery did. And that “black people cannot make great progress until  they understand the economic system, until they know something about economics”

Not to take away from Dr. Williams’ message, but I believe his statement holds true for more than just the African-American population.  I believe its imperative for investors – of all stripes – to have a basic knowledge of economics. With the cacophony of noise emanating from Wall Street and politicians pushing their agendas, many investors are tearing down the rapids sans a guide and indeed some without a paddle.

A proper understanding of the true state of the global economy is vital for investors to avoid investment land mines.

Yesterday, Mark Cuban (who incidentally made his fortune in the stock market; during the Tech bubble nonetheless), blogged in Wall Street’s new lie to Main Street – Asset Allocation:

Today, your investment advisors want you invest in things you have absolutely no fricking clue about and have pretty much absolutely no fricking ability to learn about.

Although I agree with one half of his proclamation, I do not agree with the other. With this one sentence, I believe he highlighted one of many myths and misconceptions under which current investors toil, that you can’t possibly, under any circumstances learn this stuff! Nothing ensures the longevity of myths and misconceptions like a modicum of half-truth.

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