John At The Center

Pump and Dump

Given that “hedge fund” and “highly secretive” are usually said in the same breath, don’t you get suspicious when so many of the top managers are so vocally out there about their gold investments? And when their positions are structured in a way that make them open to view? Paulson and Soros have huge positions in gold ETFs. We know that, because if you buy ETFs, they show up in your 13-F filing. Granted, with an equity investment you can’t help putting that information out into the market, but with an asset there are plenty of ways to take the position without signaling it.

That they are taking a highly visible route to their positions suggests the game that is being played is one of leading the herd. The 13-F reports positions with a big lag, so no one will notice if they quietly slip out the side door while the party is still hopping. And how about when the view is backed up by none other than Goldman Sachs? Will they let everyone know when they think it has gone too far before they get out. Or before they go short? Maybe they already have.

via Rick Bookstaber: The Gold Bubble.

Companies are quietly and gradually moving their pension funds out of stocks. They want to reduce their investment risk and are buying more long-term bonds.

But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk.

via Public Pensions Are Adding Risk to Raise Returns – NYTimes.com.

Today we are all grappling with the global financial crisis and have to make hard decisions. In living memory, we have not seen a crisis of a similar scale, so policymakers are in a vacuum and do not have any comparable historical precedents to validate their policy decisions.

If the global economy had been in existence for 100,000 years, this would be a different matter. We would have had many crises of a similar scale, and we could use these previous events as a benchmark to evaluate the current crisis. The modern economy with financial markets linked together through high speed communication networks trading trillions of dollars on a daily basis is a new phenomenon that did not exist even 20 years ago. People refer to the events of 1929 and subsequent years, but while these events can be used as one possible point of reference, they are not meaningful in the statistical sense. On a macro level, we can make observations but no inferences because we do not have the historical data. There is a void that researchers and policymakers need to acknowledge.

via Why policymakers need to take note of high-frequency finance | vox – Research-based policy analysis and commentary from leading economists.

In fact, there is much more to the history of subsidizing housing. While the crisis in the housing market shows that our current approach is far from perfect, there is a certain wisdom behind it, related not only to economic stimulus but also to the preservation of a sense of national identity. It’s important to remember this as we consider re-engineering our institutions as the crisis ebbs.

via Economic View – Rethinking the Government’s Role in Housing Finance – NYTimes.com.

CME Group, the world's leading and most diverse derivatives marketplace, today announced it has entered into a seven-year license agreement with the Chicago Board Options Exchange (CBOE) that will allow CME Group to list futures and options on futures for volatility indexes on a variety of asset classes. These contracts will be listed with, and subject to, the rules and regulations of the particular exchange where the products will be traded (CME, CBOT or NYMEX).

via CME Group, CBOE to Develop Volatility Indexes Across Multiple Asset Classes – Mar 05, 2010.

My favorite finance company that I met during my February trip to Brazil is called Crivo, and it left me wondering if that great wave of finance innovation might come from our Southern neighbors, not us.

Crivo has developed a way to do lightning-fast, three-second credit checks. Its servers pull information from a variety of sources, including all the places you’d expect but but also sources like utility records to verify an applicant’s address or ensuring that their phone number doesn’t just go to a payphone. “Even a single piece of information can be useful in detecting fraud,” says Daniel Turnini, one of Crivo’s founders. (Pictured above, on the right, with his co-founders.)

There’s nothing like a FICO score in Brazil so, in the past, credit decisions were made based on negative data and positive data. In other words you are “good” or “bad” in the bank’s eyes. There’s little record for positive data in Brazil, because the wealthiest people don’t want how much they paid for a house or a car in public records. It’s a security issue, Turnini says. That only leaves negative data.

via Brazil: The New Home of Financial Innovation?.

* the irony is of course, is that the millions in banker wodge financing the lobbyists is at least partly the hot money doled out by the Fed to banks in that extraordinary money machine called ” quantitative easing”: Fed buys up at full whack the treasuries it issues to banks at a discount, financed by cheap rates set by the Fed itself. Said banks, busting out with Fed-invented cash, or more properly, “trading profits”, refuse to lend it to small businesses like they’re supposed to in the textbooks and support the economy. No, they plow it into awarding themselves big bonuses and, most pricelessly, pay lobbyists to pay off politicians to subvert both good sense and a public opinion which is as viscerally opposed to big banking as it is ignorant and pliant, and make sure the status quo ante crisum is restored. An edifying spectacle.

via Econobloggers need their crisis back « Ultimi Barbarorum.

The “new mix” is out to topple the “new normal” as the paradigm for America’s economic future.

The 5.9 percent annualized surge in fourth-quarter growth

– the fastest since 2003 — was powered more by exports and business investment than the traditional drivers of consumption and housing. This new mix of demand will boost the economy by 3.7 percent in 2010 and pave the way for 3.5 percent annual average increases thereafter, said Joseph Carson, an economist at AllianceBernstein in New York, who coined the phrase.

His forecast contrasts with the 2 percent rate penciled in for later this year and the longer term by new-normal proponent Mohamed El-Erian, chief executive officer of Newport Beach, California-based Pacific Investment Management Co., who argues that growth will be depressed by consumer retrenchment and financial regulation.

via New Normal Becomes Old Normal as Exports Propel U.S. Recovery – BusinessWeek.

As the value investor Benjamin Graham pointed out, “most true bargains are not available in large blocks.” That puts small investors, who buy a few hundred shares at a time, at an advantage. Yet many individual investors try to beat the pros at their own game—a fruitless effort, since fast trading is a game even most of the pros can't win. As Mr. Laporte's career has shown, less is more.

via The Intelligent Investor: A Star Fund Manager’s Secrets – WSJ.com.

Hal Varian, who left a teaching post at the University of California, Berkeley, to become chief economist at Google Inc., conducted an analysis of searches using a Google tracking function called Insights that pointed to the trend in initial claims for unemployment benefits seven days before the government released them.

via Web Searches Preview Hiring Trends – WSJ.com.