Friday, July 30th, 2010

Daily Download: Financial and Stock Investing News for 10-19-09

October 19th, 2009 at 5:00 am by CB | No Comments

Good morning, investors and traders! You are reading the Daily Download (”Daily DL”), which includes summaries and links to the day’s selected economic and stock investing news. The Daily DL is maintained by Chain Bridge Investing, which is a financial blog at www.chainbridgeinvesting.com. Chain Bridge Investing is constantly improving and adding new financial and investing content to the website. Please let us know if you have any suggestions.

Quote of the Day:

“It is pride, and I want to win. After awhile, money is not the motivation. I want to win every time. Taking calculated risks gets my adrenaline pumping.” – Raj Rajaratnam

Upcoming Economic Data for the Day (all times EST)

1:00 PM Housing Market Index

1:00 PM 3-Month Bill Auction

1:00 PM 6-Month Bill Auction

Initial Public Offerings for the Week of October 19 -23, 2009

10-20-09 ZST Digital Networks – Network equipment supplier

10-20-09 AGA Med Hldgs – Manufacturer of transcatheter occlusion devices

10-20-09 Dole Food – Distributor of fresh fruit and vegetables

Source: WSJ Market Data Group.

News

Value is in Eye of the Holder – The Wall Street Journal

Summary: Economists and analysts have not been able to determine the proper value of the U.S. dollar. The U.S. dollar’s value is driven by the following: (1) trade balances; (2) government spending; (3) interest rates; (4) inflation; (5) economic growth; and (6) the U.S. dollar’s performance against other currencies. However, the interdependence and constant movement in these factors makes quantifying the U.S. dollar’s value very difficult. For instance, depending on the currency being compared to the U.S. dollar, it may be cheap or expensive. The trends that have led the decline in the U.S. dollar still exist, thus suggesting it may continue to drop. Some believe the U.S. dollar is losing its luster as a haven while the thirst for risky assets increases. U.S. officials have done little to stop the decline, mainly because the weaker dollar benefits U.S. exporters and helps the Fed fight deflation. According to the Commodity Futures Trading Commission, those betting on the dollar to fall outnumber those betting on it to rise 2 to 1, compared to the 3 to 1 ratio two months ago. FX Concepts stated that it expects a downward repricing of foreign currencies, thus allowing the U.S. dollar to rally some as other currencies appear to be overpriced in a purchasing-power parity model.

Site Lets Investors See and Copy Experts’ Trades – The New York Times

Summary: On Monday, KaChing, a website where approximately 400,000 amateur and professional investors manage virtual portfolios, will allow customers to set up brokerage accounts that will instantly mimic the trades of a selected KaChing money manager. KaChing will charge these users a fee ranging from .25% to 3% of their assets, as set by the investor being followed, and will keep 25% of the total fee. KaChing users will be able to log into their accounts at any time to receive alerts on the investors they are following and to send those investors private messages. The investors on the site are rated with an Investing IQ score that considers the investors’: (1) risk-adjusted returns; (2) quality of research for the investments; and (3) ability to maintain a certain strategy. Daniel Carroll, the founder, believes the purpose of KaChing is to provide individuals with advice as well as transparent investment actions to follow.

CB: On the surface, KaChing appears to be a great idea for both the user, an amateur investor, and the investor, a skilled or professional investor. Unlike other investments the user may have made in the past, he can observe the investor’s actions in real-time and even discover the logic behind the investor’s trades. However, the user can decide not follow the investor whenever he wants and that is both a gift and a curse. There seems to be little protection for the user. Yes, they can quickly follow and stop following certain investors, but if they are not researching the investments, then they may not fully understand certain investments and are unable to decide whether an investor should be followed. Furthermore, the investor’s financial goals may differ from those of the user, allowing for the chance of a mismatch of performance expectations. CB’s worry is that a user without the proper understanding of his financial goals may begin to day-trade financial investors, never deciding on one that would match his wants and needs. For the investor, KaChing offers a great way of being discovered and reaching many with relatively low start-up costs. However, unlike hedge fund’s there are no lock-up periods and users can come and go with relative ease. This is particularly troublesome if you implement a rather long-term oriented strategy. Also, easy access to the investor could cause the investor to become burdened with correspondence instead of controlling his investments. Finally, CB worries about the scale. If a well followed investor places a trade, then at what price does the trade execute for all the users? Will they be okay buying the shares at a slightly higher or lower number then everyone involved in the trade? Overall, CB likes this idea and would be willing to give it a chance; however, there are some downsides users and investors should think about.

Arrest of Raj Rajaratnam Unsettles Hedge Fund Industry – The New York Times

Summary: On Friday, Raj Rajaratnam the founder of the Galleon Group, which is a hedge fund with approximately $3.7 billion under management, was arrested and charged with running the largest insider trading scheme involving a hedge fund. He and five others are charged with using a network of company insiders and consultants to make more than $20 million of profit from 2006 to 2009. The U.S. Attorney’s Office views Mr. Rajartnam’s arrest as a wake-up call for those who think about insider trading. At present, hedge funds are notorious for using investigators, lobbyists, and other connected people for gathering information regarding selected investments, most of this information is thought to be gathered legally. The Galleon Group was no different, especially with many of its investors being executives at publicly-traded technology firms. According to Galleon Group insiders, there was intense pressure to perform and gain an information edge when conducting research. Such research was based on information gathered from: (1) regulatory filings; (2) supply chain checks; and (3) company sources. In 2005, the Galleon Group had to pay more than $2 million to settle a SEC lawsuit claiming it had conducted an illegal form of short selling.

CB: This case will be interesting to follow as it may help investors gain a better understanding of the information and activities that are defined as insider information. In the industry, there is much talk that occurs between insiders, former insiders, company stakeholders, and investors. How does one clearly know when he is on the line between information gathering and insider trading? It certainly is not clear all of the time. Furthermore, a $20 million profit is not a considerable sum for a hedge fund that managed $3.7 billion of assets, one has to wonder if the insider trading did indeed happen for $20 million of profits, then was it also responsible for a larger share of profits not under investigation?

Criticism of Wall Street Pay More Muted this Time – The Wall Street Journal

Summary: On Sunday, Obama aides David Axelrod and Rahm Emanuel stated their displeasure at the Wall Street banks for: (1) returning to high compensation schemes within a year of receiving aid from the government; and (2) lobbying against the various financial reforms being considered in congress, which are meant to prevent another crisis. As the Democrats prepare to positively spin this year’s events for the 2010 elections, the Obama administration’s aides kept their tones milder than previous attacks. Nevertheless, the Obama administration wields less influence regarding compensation policies at those banks that have already repaid government aid like Goldman Sachs and J.P. Morgan Chase.

The Free Market is Not up to the Job of Creating Work – Financial Times

Summary: The author argues that the “Great Recession” has changed the nature of unemployment, thus making it harder for those without work to find a job. He believes that through investing in infrastructure and innovation work can be created for those who are jobless. The following are cited from the article:

(1) At present, approximately a third of the 15 million unemployed have been without a job for more than six months. This is the largest proportion since records began in 1948.

(2) The average work week of 33 hours is the lowest in 60 years.

(3) Approximately 43% of those unemployed are eligible for unemployment benefits.

(4) The number of people dependent on food stamps has increased 6.2 million since the beginning of the recession.

(5) For every current job opening, there is approximately six people available.

(6) There is a fear that some jobs have been permanently destroyed in the finance and auto industries.

(7) The household index, which encompasses people that are unemployed and underemployed, reported 785,000 job losses in September to reached a record 17%.

(8) U.S. jobs have been lost for 21-consecutive months.

(9) There are 2.2 million discouraged workers not included in the official unemployment rate, if they were to be included the rate would be near 11%.

The author concludes that, given the above employment information along with the scarcity of credit and the current level of household debt, one has trouble seeing consumer spending rising enough to improve the economy beyond a weak recovery. A weak recovery results in limited job creation, instead investments should be made in massive infrastructure and innovation programs to restore the economy to stable growth.

CB: CB found the information regarding unemployment to be interesting.

More Links of Note

The Banks are Not Alright – Paul Krugman

Problem Bank List (Unofficial) Increases Significantly – CalculatedRisk

How to Save the Dollar – The Atlantic