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Discussion in 'Men's Economics' started by Michael Scally MD, Aug 14, 2011.
Of course we will the $USD will be worthless
50 Smartest Companies
From the Editor: How the Smartest Companies Stack Up | MIT Technology Review
50 Smartest Companies 2014 - MIT Technology Review
The Vampire Squid Strikes Again: The Mega Banks' Most Devious Scam
YetBanks are no longer just financing heavy industry. They are actually buying it up and inventing bigger, bolder and scarier scams than ever
The Vampire Squid Strikes Again: The Mega Banks' Most Devious Scam Yet | Politics News | Rolling Stone
Today, banks like Morgan Stanley, JPMorgan Chase and Goldman Sachs own oil tankers, run airports and control huge quantities of coal, natural gas, heating oil, electric power and precious metals. They likewise can now be found exerting direct control over the supply of a whole galaxy of raw materials crucial to world industry and to society in general, including everything from food products to metals like zinc, copper, tin, nickel and, most infamously thanks to a recent high-profile scandal, aluminum. And they're doing it not just here but abroad as well: In Denmark, thousands took to the streets in protest in recent weeks, vampire-squid banners in hand, when news came out that Goldman Sachs was about to buy a 19 percent stake in Dong Energy, a national electric provider. The furor inspired mass resignations of ministers from the government's ruling coalition, as the Danish public wondered how an American investment bank could possibly hold so much influence over the state energy grid.
There are more eclectic interests, too. After 9/11, we found it worrisome when foreigners started to get into the business of running ports, but there's been little controversy as banks have done the same, or even started dabbling in other activities with national-security implications – Goldman Sachs, for instance, is apparently now in the uranium business, a piece of news that attracted few headlines.
But banks aren't just buying stuff, they're buying whole industrial processes. They're buying oil that's still in the ground, the tankers that move it across the sea, the refineries that turn it into fuel, and the pipelines that bring it to your home. Then, just for kicks, they're also betting on the timing and efficiency of these same industrial processes in the financial markets – buying and selling oil stocks on the stock exchange, oil futures on the futures market, swaps on the swaps market, etc.
Allowing one company to control the supply of crucial physical commodities, and also trade in the financial products that might be related to those markets, is an open invitation to commit mass manipulation. It's something akin to letting casino owners who take book on NFL games during the week also coach all the teams on Sundays.
The situation has opened a Pandora's box of horrifying new corruption possibilities, but it's been hard for the public to notice, since regulators have struggled to put even the slightest dent in Wall Street's older, more familiar scams. In just the past few years we've seen an explosion of scandals – from the multitrillion-dollar Libor saga (major international banks gaming world interest rates), to the more recent foreign-currency-exchange fiasco (many of the same banks suspected of rigging prices in the $5.3-trillion-a-day currency markets), to lesser scandals involving manipulation of interest-rate swaps, and gold and silver prices.
But those are purely financial schemes. In these new, even scarier kinds of manipulations, banks that own whole chains of physical business interests have been caught rigging prices in those industries. For instance, in just the past two years, fines in excess of $400 million have been levied against both JPMorgan Chase and Barclays for allegedly manipulating the delivery of electricity in several states, including California. In the case of Barclays, which is contesting the fine, regulators claim prices were manipulated to help the bank win financial bets it had made on those same energy markets.
And last summer, The New York Times described how Goldman Sachs was caught systematically delaying the delivery of metals out of a network of warehouses it owned in order to jack up rents and artificially boost prices.
You might not have been surprised that Goldman got caught scamming the world again, but it was certainly news to a lot of people that an investment bank with no industrial expertise, just five years removed from a federal bailout, stores and controls enough of America's aluminum supply to affect world prices.
How was all of this possible? And who signed off on it?
Hey Doc you don't have to wait five years.
Ben Graham Formula: Empirical Evidence [ANALYSIS]
Ben Graham Formula: Empirical Evidence Through The Decades [ANALYSIS]
60 Minutes: Is the U.S. stock market rigged?
60 Minutes: Is the U.S. stock market rigged? | The Big Picture
Bailey DH, Borwein, JM, Lopez de Prado M, Zhu Q. Pseudo-Mathematics and Financial Charlatanism: The Effects of Backtest Overfitting on Out-of-Sample Performance. Notices of the American Mathematical Society. 2014;61(5):458-71. http://www.ams.org/notices/201405/rnoti-p458.pdf
We prove that high simulated performance is easily achievable after backtesting a relatively small number of alternative strategy configurations, a practice we denote “backtest overfitting”. The higher the number of configurations tried, the greater is the probability that the backtest is overfit. Because most financial analysts and academics rarely report the number of configurations tried for a given backtest, investors cannot evaluate the degree of overfitting in most investment proposals.
The implication is that investors can be easily misled into allocating capital to strategies that appear to be mathematically sound and empirically supported by an outstanding backtest. Under memory effects, backtest overfitting leads to negative expected returns out-of-sample, rather than zero performance. This may be one of several reasons why so many quantitative funds appear to fail.
When Use Of Pseudo-Maths Adds Up To Fraud
When use of pseudo-maths adds up to fraud - FT.com
An academic journal called the Notices of the American Mathematical Society may seem an unlikely periodical to have exposed fraud on a massive scale. The investigation, published in the current edition, is certainly not going to sit among the nominees for next year’s Pulitzer prizes. But a quartet of mathematicians have just published a piercing article in the public interest and in the nick of time.
In their paper, entitled Pseudo-Mathematics and Financial Charlatanism, they make the case that the vast majority of claims being made for quantitative investment strategies are false.*
By calling it fraud, the academics command attention, and investors would be wise to beware. With interest rates about to turn, and a stock market bull run ageing fast, there have never been such temptations to eschew traditional bond and equity investing and to follow the siren sales patter of those who claim to see patterns in the historical data.
The (unnamed) targets of the mathematicians’ ire range from individual technical analysts who identify buy and sell signals in a stock chart, all the way up to managed futures funds holding billions of dollars of clients assets.
There will be many offenders, too, among investment managers pushing “smart beta” strategies, which aim to construct a portfolio based on signals from history.
There is even a worrying do-it-yourself trend: many electronic trading platforms now have tools encouraging retail investors to back test their own half-baked trading ideas, to see how they would have performed in the past.
Twisting strategy to fit data
The authors’ argument is that, by failing to apply mathematical rigour to their methods, many purveyors of quantitative investment strategies are, deliberately or negligently, misleading clients.
It is reasonable to want to test a promising investment strategy to see how it would have performed in the past. The trap comes when one keeps tweaking the strategy until it neatly fits the historical data. Intuitively, one might think one has finally hit upon the most successful investment strategy; in fact, one is likely to have hit only upon a statistical fluke, a false positive.
This is the problem of “over-fitting”, and even checks against it – such as testing in a second, discrete historical data set – will continue to throw up many false positives, the mathematicians argue.
Do not despair. The paper does not conclude that history is bunk, just that backtesting ought to require more statistical thought than investment managers need to display to make a sale to investors.
The perennial success of Renaissance Technologies, founded by code-breaking maths genius Jim Simons, suggests that some can separate signal from noise in financial markets.
At least the best quantitative hedge funds are attuned to the problem of overfitting. London’s Winton Capital published a paper last year warning that, even if individual researchers are scrupulous about calculating their probabilities, institutions risk “meta-overfitting”, because the tendency is to only submit the best fitting strategies for approval to the higher-up management committee.
It seems that finance may need the same overhaul as the pharmaceuticals industry did a decade ago.
Amid a furore over the safety of its antidepressant Paxil in 2004, it was discovered that GlaxoSmithKline had conducted numerous trials that failed to prove the drug was an effective treatment for children. However, a minority of trials did suggest efficacy, to a statistically significant confidence level, and these were the studies that got published. It wasn’t until scientists added together all the unpublished data that it became clear the drug increased the risk of teen suicides, for no offsetting benefit in treating depression, and it was banned for use by minors.
GSK responded by promising to reveal all its trials and to publish all its data, regardless of their outcome, and other large drug companies followed, more or less reluctantly. As a result, we continue to learn that large claims made for blockbuster medicines tend not to stack up over time, Tamiflu being the latest example.
When it comes to quantitative investment strategies claiming to have performed well historically, it is not good enough for managers to stamp “past performance is no guide to future performance” on to a marketing document. A crucial detail, almost never revealed, is how many discarded tweaks and tests led to the miraculous discovery of the strategy.
The authors of the Notices of the AMS paper are upbeat about the chances of banishing pseudo-mathematics from finance.
One of their number, Marco Lopez de Prado of Lawrence Berkeley National Laboratory, distributes open source software, at quantresearch.info, which can improve the modelling of mathematical probabilities and limit the risks overfitting. Another, David Bailey of the University of California, Davis, suggests that a regulatory body such as Finra could step in to promote best practice in the marketing of mathematical claims, just as the Food and Drug Administration monitors drug advertising. Together they have created a blog at financial-math.org to debate their ideas.
Raising the issue is necessary for raising the bar. Too many investment managers and advisers, it is claimed, are purveyors of false positives, getting rich on statistical flukes. If their methodologies do not improve in line with the improvements in academic thinking about backtesting and overfitting, then they really will deserve to be called out as frauds.
*Pseudo-Mathematics and Financial Charlatanism: The Effects of Backtest Overfitting on Out-of-Sample Performance – DH Bailey, JM Borwein, ML de Prado and Qiji Jim Zhu
Good book but I am a Michael Lewis fan been on board since internship when Liars Poker was on the list of books to read.
Start-up investor bets on biotech
Y Combinator has high hopes for low-cost biotech innovation.
Start-up investor bets on biotech : Nature News & Comment
Y Combinator, a company that backs technology start-ups, is famous for its early support of successful software firms such as Airbnb and Dropbox. It historically has invested a few thousand dollars into web-based businesses that require only small grants to get up and running at their earliest stages. But the programme is now expanding its reach to back biotechnology start-ups, says company president Sam Altman.
Altman spoke to Nature together with Elizabeth Iorns, hired last week as a part-time partner at Y Combinator, which is based in Mountain View, California, for her expertise in life sciences. A former cancer biologist turned entrepreneur, Iorns has herself benefited from Y Combinator funding — she co-founded Science Exchange, a firm in Palo Alto, California, that provides an online marketplace where scientists offer up spare capacity and instrumentation to do other researchers’ experiments.
Doug Kass: Preparing for the Bear's Return
Investment pro Doug Kass, who thinks the S&P is at least 12% overvalued, has ramped up his short positions.
How Doug Kass Is Preparing for the Bubble to Burst - Barron's
Doug Kass, a regular presence in Barron's since 1992 and a longtime student of the markets, brings keen insight, contrarian ideas, and humor to any financial conversation. Kass, 65, is president of Seabreeze Partners Management, an asset manager in Palm Beach, Fla., with several hedge funds. Concerned about stocks' big gains in recent years, he has put a lot more short positions into the firm's portfolios. "Most bull markets end with the emergence of speculative excesses," he says. "Some end with bubbles, and this one could be ending with both." Kass, a prolific pundit and television commentator, has put many of his ideas in Doug Kass on the Market: A Life on TheStreet, a book that John Wiley & Sons plans to publish this fall. Barron's spoke with him recently by telephone.
Barron's: What's your assessment of current stock valuations?
Kass: Prices are high, and values are growing scarce. Warren Buffett, based on the words of Benjamin Graham, teaches us that price is what you pay, and value is what you get. And my buddy Howard Marks, at Oaktree Capital Management, says that investing success is not a function of what you buy—but what you pay. Last year, the S&P 500's earnings were up only about 5% or 6%, but the index advanced by more than 30%. The difference in performance between earnings and investment returns was an outsize increase of 25% in market valuations, as animal spirits were awakened. Since 1990, the average annual increase in the multiple has been 1%. So last year's valuation rise borrowed and has taken away from future market returns.
What's driving stock returns?
Share prices have obviously benefited from massive liquidity and a zero interest-rate policy. The recent high-beta earthquake in which stocks sold off was probably the first shot across the bow. Increasingly, the market seems to be realizing that each progressive quantitative easing is having a more restrained impact on growth. With rates at zero, QE has become a blunt tool. The Federal Reserve has built a bridge to growth, but it can't deliver the destination on its own. And the flattening of the yield curve tells a story of slowing growth. There is about a 230 basis point [2.3 percentage points] spread between two- and 10-year Treasuries, compared with almost 270 bps at the end of last year. That's signaling muted economic growth. If growth fails to emerge in the months ahead, we'll see an ah-ha moment in which investors, to quote the singer Peggy Lee, say, "Is that all there is?"
What concerns you about projected earnings growth?
The consensus is looking at $120 a share this year for the S&P 500. But these are anything but normal earnings. They are inflated because corporate profit margins are at a 60-year high, and they are 70% above the average of the past six decades. So normalized earnings are well below that estimate of $120 a share, just as normalized earnings back in 2009 were well above the deflated estimate of $45 a share, which was the 12-month trailing number. So the S&P 500 might appear to be trading at only 16 times stated earnings. But against reasonable margin assumptions and normalized earnings, the market is probably trading closer to 19 times. Based on my analyses for different cases for growth, interest rates, and valuations, the S&P's fair market value is about 1650, 12% below where it traded recently.
What concerns you about corporate profit margins?
Corporate profits are the mother's milk of stock prices. First, we've had this lengthy improvement in corporate productivity, and that's likely near complete. We've had years of fixed-cost reductions by corporations, and that's also likely over, because they've cut to the bone. If the employment market gradually tightens, labor costs will rise, pressuring margins. Both interest expenses and effective tax rates will have to rise as central banks normalize monetary policy and the U.S. sees the need to reduce its deficit. And a very costly regulatory policy is likely to continue, increasing corporate costs. And finally, the quiescent capital-spending cycle will ultimately be awakened. With that, amortization and depreciation costs will ascend.
We are in a market with no memory from day to day, sometimes from hour to hour. But we are seeing the rotation that we began to see between 1999 and 2000. Warren Buffett was really out of favor when, during the technology and Internet boom in 1997, '98, and '99, people said he had lost his touch. Value stocks were out of favor and tech stocks were in favor, but then, all of a sudden at the beginning of 2000, you began to see a rotation out of high-beta, high-octane stocks, which eventually collapsed into value stocks. In early 2000, that move presaged a late-2000 considerable decline. So, we are moving from a one-way market to a two-way market where you can make money both long and short. At another important top, in early 2000, the market leadership rotated from high tech to value stocks—exactly what has happened in the past two months. Leadership changes are often the sign of a market correction or bear market.
What in particular will pressure the markets?
Disappointing global economic growth, weaker-than-consensus earnings, and a contraction of the price/earnings multiple, compared with a 25% expansion last year. Those will be the culprits for a negative return this year. The consensus view is missing, among other things, the vulnerability of the middle class, which provides an important source of economic growth. It's missing the economic vulnerability of our young people. It's missing our addiction to low interest rates, both in the public and private sectors. It's missing the consequences of higher rates and the risks to profit margins, probably my biggest concern. And it's missing the widening gap between the haves and have-nots—and the economic and social consequences over time.
You have been long a group of closed-end municipal bond funds. How has that worked out?
The group is up more than 10% this year. My belief at the end of last year was that, contrary to the consensus, rates were going lower. At the end of last year, muni-bond funds were under pressure, owing to concerns about credit quality and rising rates. The yield on the 10-year Treasury went over 3%, and funds were selling at near-record discounts—almost 10%—to net asset values. They were at a near-record tax-equivalent yield, compared to taxable bonds. The discounts are now 6%, but they're still attractive. The funds were under intense year-end selling pressure. Investors had lots of unrealized stock gains and were using them to take losses to pair against gains. My funds include Invesco Pennsylvania Value Municipal Income Trust [ticker: VPV] andNuveen Quality Income Municipal Fund [NQU]. By the end of 2014, I suspect, total return will be north of 15%.
Do you still see any opportunities in the stock market?
One of my long holdings is Ocwen Financial [OCN], a leading player in origination and servicing of subprime loans. The nonprime mortgage business is likely to undergo a renaissance. No company is better positioned than Ocwen, the largest player in subprime. Prior to the financial crisis, about 60% of U.S. households could qualify for a prime mortgage, and about 10% could qualify for a subprime mortgage. The remaining 30% were renters. Postcrisis, approximately 30% of households qualify for a prime mortgage, and subprime is almost nonexistent. So unless we're destined to become a nation of renters, something has to change. At the same time, the recent rise in home prices hasn't coincided with income gains for average home buyers. That represents an opportunity for nonprime mortgage companies. Gone are the days of low- and no-documentation nonprime loans. Today, these loans are very secure. The nonprime industry space has been abandoned and created a void for Ocwen.
What about other sectors of the market?
This is a pair trade. I'm short Tesla Motors [TSLA] and long General Motors [GM]. GM's shares have dropped from over $41 at the end of 2013 to $34.17 recently, down nearly 20% since the recall problem stemming from the ignition-switch malfunctions. It is serious, but GM is intelligently addressing its problem. It reminds me of BP's [BP] oil spill a few years ago. That, too, created a major investment opportunity. GM has taken important steps, including hiring Kenneth Feinberg, an accomplished attorney with a history of dealing with these sorts of events. And GM is taking a voluntary charge of more than $1 billion for repairs, warranty costs, and other restructuring charges. These events, although extremely unfortunate, have provided a fantastic entry point for the stock.
What about Tesla? The shares are up 37% this year, though they're down about 20% from their 52-week high of $265, set in February.
My interest in Tesla started out when I found something in the fourth-quarter earnings release and the most recent 10-K. Based on my analysis, the company reduced its warranty reserve by a hefty $10.1 million, a gain that flowed directly into the income statement and boosted margins. The stock rose substantially, providing a great short entry point. Then there were reports of Apple [AAPL] having had discussions with Tesla, allegedly about possibly acquiring it. To me, that was silly. Nothing has come of the rumor. Tesla is being capitalized at about $1.2 million a car, versus roughly $10,000 a car for Ford Motor [F]. A lot of future growth is in Tesla's share price. The narrative has moved to Tesla's plan to build the world's largest battery factory—a risky move. With a market cap of about $26 billion, Tesla has a lot of execution risk and competitive issues. The hope for bulls is that the Gen III vehicle—a lower-priced vehicle [than Tesla's core Model S sedan] to be launched in 2017—will be enormously successful. We think the new Tesla will be hit by pricing pressures from incumbent manufacturers with deep resources, which have demonstrated a willingness to lose money on electric vehicles and have a big head start in mass production.
Moving on, what do you think of the large U.S. banks?
FICC activity, which involves trading of fixed income, currencies, and commodities, has been weaker lately for many of them, including JPMorgan Chase [JPM]. As for credit quality, interest rates, and the yield curve, if all these go in the wrong direction, capital-market activity could be weak. If I'm correct about a market correction, that will put pressure on these banks. Loan demand is tepid and growing slowly, partly because of subpar economic growth and partly because the country's largest companies are very liquid and don't need a lot of credit. Credit quality has improved in the past three or four years, but it's more of a headwind now, as loan-loss provisions start to be less of a benefit. That leads us to interest rates and the slope of the yield curve, by far the most important factor for bank profits; it should be the most worrisome area for bank investors and bank profits. Consider the hedge-fund community's favorite bank, Bank of America[BAC], which I'm short. Its net interest margin, fell to an adjusted 2.29% in the first quarter, and net interest income around $10 billion was disappointing.
Let's finish up with one more of your ideas.
Monitise [MONI.UK] is a London company that provides a platform for payments on mobile devices. It trades in London and over the counter in the U.S. [MONIF]. I see this as at least a five-bagger. There is probably no larger business than the mobile-payments industry. This company has a market cap of about $1.2 billion, and could well be one of the most important disrupters in the mobile-payments industry. Visa [V] and Visa Europe own about 13% of it. Monitise just did a private offering in the U.K. at 68 pence [$1.14] a share. The stock is down a little to about 66 pence. MasterCard [[MA] has also taken a stake in it. Leon Cooperman, who runs the hedge-fund firm Omega Advisors, has increased his stake to 12% and is the largest shareholder. Monitise, which isn't making money, owing to heavy investment in future growth, has 28 million subscribers. It plans is to have 100 million by 2016, and 200 million by 2018, and it expects fees to go up.
The Feuerstein-Ratain Rule Update: Still Perfect Predicting Small-Cap Cancer Drug Failure
The Feuerstein-Ratain Rule Update: Still Perfect Predicting Small-Cap Cancer Drug Failure - TheStreet
6 stocks on my watch list
6 stocks on my watch list | Open Reading Frame
BIOTECH IPO RETURNS- SEPARATING THE DATA FROM THE CHAFF
Biotech IPO returns- separating the data from the chaff | biotechvk
Time to take some chips off the table
Shine a light on the sharks that lurk in dark pools
Relying on caveat emptor to keep the trading system from becoming too murky is naive
I hate the fact they cross these trades and not have that volume reflected. As a small guy in this game I have learned the system and follow the tells the system gives me. The dark pool hides the tells of the institutions....completely unfair.
Now with that said I understand the correlations of other markets options, currencies, and futures. All of these which still can be hidden in dark pool blocks trades esp[ecially the F/X market but by following these I can see the institutional movement happen. Seem to always be adding screens. The NDX is my primary playground... I monitor 5 other instruments and charts just to spot the tell in the NDX.
Central Bankers Issue Strong Warning on Asset Bubbles
The organization often uses its annual reports to send a message to political leaders, commercial bankers and investors, and reflects a widespread view among central bankers that they are bearing more than their share of the burden of fixing the global economy.
The language in the 2014 edition was unusually direct, as was its warning that the world could be hurtling toward a new crisis."There is a disappointing element of déjà vu in all this,” Claudio Borio, head of the monetary and economic department at the B.I.S., said in an interview ahead of Sunday’s release of the report, which he described “as a call to action.”
Warning of us of there manufactured currency reset? Hey thanks for the warning.
Inside One of the U.S.'s Biggest-Ever Investment-Fraud Stings
FBI's Operation Pennypincher Targets Murky World of Penny Stocks, a Haven 'Rife With Fraud'
HaHa about time those penny stock pirates got what they deserved.