Archive for June, 2009
There are certain widespread practices that have existed in the financial industry for many years that seem to have no purpose but to defraud the retail investor that I’ve often wondered how they can still be legal. Window dressing is one such practice and as we approach the end of the second quarter 2009, now is an apropros time to broach a discussion about this controversial practice. If you are not familiar with the term “window dressing” it is the practice whereby fund managers, at the very end of each quarter,
(1) Dump many of the worst performing stocks in their portfolios; and/or
(2) Add some stocks that had the highest returns of that quarter to their portfolios.
Why do fund managers engage in this practice? Because investment firms are required to disclose their funds’ holdings to their clients and shareholders, and the holdings at the end of each quarter is the list of stocks disclosed to clients and future prospects. Thus, a good number of fund managers attempt to make themselves appear much smarter than they really are to clients and to prospects by “window dressing” their portfolios.
Read more …
June 28th, 2009
The most valuable lesson I learned in grad school a long time ago was about how media filters prevent truth from reaching the mass population regarding a large and varied number of topics.
During research for my Public Policy graduate thesis, I discovered that politicians often granted legislation misleading names or purposefully released misleading sound bites because they realized that in an attention deficit world driven by immediate gratification, headlines and the first three sentences of any leading story could effectively sell deception. I discovered that bills designed to make development of wetlands easier were given names like the Wetlands Conservation bill. I discovered anti-immigration bills that had been sold to the masses with promises to save billions in taxpayer money by denying schooling to immigrant children, when legal precedent had already been set at the highest levels of state court that education could not be denied to any child, legal or illegal. And I discovered that these shenanigans that markedly deviated from reality were not uncommon. Read more …
June 24th, 2009
Here’s yet another huge financial story that has been virtually blacked out by the US financial media. Although on the surface, this story appears to be a non-event, if we consider some of the released facts about this case, you will understand why I consider it to be a huge story. On June 8th, the Asia News reported the following story:
“Italy’s financial police (Guardia italiana di Finanza) has seized US bonds worth US 134.5 billion from two Japanese nationals at Chiasso (40 km from Milan) on the border between Italy and Switzerland. They include 249 US Federal Reserve bonds worth US$ 500 million each, plus ten Kennedy bonds and other US government securities worth a billion dollars each. Italian authorities have not yet determined whether they are real or fake, but if they are real the attempt to take them into Switzerland would be the largest financial smuggling operation in history; if they are fake, the matter would be even more mind-boggling because the quality of the counterfeit work is such that the fake bonds are undistinguishable from the real ones.”
Here are just a few fascinating facts about this case (at least they are being reported as “facts” at this current time):
(1) Though the smugglers have been identified in the press as “Japanese nationals” there has yet to be any confirmation if the smugglers were indeed Japanese or of some other ethnicity. How difficult is it to confirm the ethnicity of the smugglers and why is this information being kept secret? Read more …
June 16th, 2009
Just a couple of months ago, Jon Stewart of the Daily Show made numerous headlines when he ran a spoof of the terrible financial journalism displayed by major financial network CNBC. In his spoof, basically Mr. Stewart pointed out prediction after prediction after prediction by CNBC financial experts and global financial executives that carried not a shred of truth and amounted to financial cheerleading for Wall Street and the financial industry rather than hard-hitting, informative journalism.
Lately, I’ve been noticing the same pattern at MarketWatch online. At this website, the readers seem to be more knowledgeable that the journalists that contribute to the website. MarketWatch displays blatant cheerleading time and time again, spinning S&P futures markets that may be up only 2 or 3 points in the US as public advertisements for the continuation of US market rallies during pre-market hours. Read more …
June 15th, 2009
Though I still believe a significant global stock market correction, led by US markets, is on the horizon, what if, against all odds, the US stock market continues to rise? Massive intervention into capital markets today by every major world government has created an bizarre situation in which investors in the major global stock market indexes will ultimately lose whether the major global stock market indexes rise or fall. Since losses created by crashing stock markets are self-explanatory, let’s consider the opposite possibility of a continuation in the current global stock market rally. I’ve admittedly devoted few very articles to the possibility of a continued rally in US and European markets not because I don’t believe that this is a credible possibility but simply because the direction of the US stock market is largely irrelevant to my overall investment strategy (I’ll explain what I mean by that comment later in this article).
Let’s consider that the current rally in the broad US S&P 500 index has been led by the financial sector. To begin, it’s bizarre that a stock market rally has been led by a sector that is so fundamentally weak, that just last quarter, it had to scramble to inflate earnings based upon one-time, non-recurring events, changes in reporting periods, and changes in accounting laws that artificially created earnings from bogus asset revaluations. Read more …
June 10th, 2009
As has been the case for a while now, in regard to financial stories reported in the media, a breaking story is reported that is often followed by a completely contradictory story just several weeks later. The latest example of this is the following. On May 6, Friedman, Billings, Ramsey Group analyst Paul Miller stated that J.P. Morgan Chase & Co. (JPM) “would probably be the only one of the 12 commercial banks submitting to the stress tests that won’t need more capital.” Several weeks later, on June 1st, J.P. Morgan Chase (JPM) announced that it planned to raise $5 billion in a secondary offering. Other large financial institutions, such as American Express (AXP) and Prudential Financial (PRU) also announced respective secondary offerings of $1.25 billion and $500 million.
In my May 12th article, “US Bank Shares: The Pump is Almost Over, Get Ready for the Dump”, I noted the “urgency of many financial institutions to complete their secondary public offerings of stock and debt as soon as possible.” However, given that one of the biggest beneficiaries of this crisis, JP Morgan, has just announced a secondary offering that may not be completed until the end of June, we can now be assured that the markets will not experience an extended correction until JP Morgan has completed its secondary offering. Read more …
June 2nd, 2009
