October 2006

Yahoo has a short fluff piece about the latest problem with spyware and malware… once a system is compromised, the bad guys are sniffing for login credentials at discount/online brokers. Not so they can withdraw your money, but rather so they can use your account to manipulate trading in illiquid stocks…

Remember the Internet chat-room hypester? The one who would tout some obscure penny stock that he had recently purchased in the hopes of creating a buying frenzy that he could sell into? That kind of “pump and dump” chicanery eventually evolved into email and online message-board hype. […]

Today’s cybercrooks are simply cutting out the middleman. They use your account to fire up the “pump,” in order to “dump” from their own account shortly thereafter.

The Hacker Made Me Do It (Yahoo Finance)

Interactive Brokers announced today that they would offer options priced to the penny: Penny Priced Options. IB is well ahead of the other brokers and exchanges on this one, so there are some interesting footnotes to be aware of, but nothing to scare me away.

Before this announcement, the smallest increments for options was $0.05, so it should be interesting to see how the spread collapses (or doesn’t collapse) on the most heavily traded options, like the options on the QQQQs and the popular day-trading stocks.

In the spirit that Quicksilver pointed out recently in his Long Live Linkfest post, I’ll actually do a little linkfesting myself as I’ve spent some time this afternoon reading random stuff…

Mish talks with Mike Morgan about real estate from the front lines in Florida. Holy shit, after reading that I’m scared. Not too scared, mind you, our local real estate never got so frothy or very divorced from natural supply and demand (our population is still growing).

John Hussman writes that his strategic fund is also going long in a risk-controlled way. Hussman tends to lead the pack, so I see this as the beginning of sentiment shifting back to bullish… To be sure, he and I both believe we’re playing a game of the “greater fool” or at least the “slower fool”.

Mauldin’s weekly email mentioned some flow of funds information from TrimTabs Investment Research

Money is pouring into US mutual funds. Last month saw $2.2 billion, the second highest month of inflows this year. And so far this month, we have seen $2.6 billion, says Trimtabs. Since gold disappointed, investors started to bail last month. They took out $214 million last month in mutual funds that invest in gold and precious metals, as opposed to the previous six months which saw an average of $129 million in additions.

TrimTabs offer a free month’s subscription to their research… I will report back on how useful I find it. (Incidentally, “trim tab” is a sailing term.)

Chart of the Day did a recent chart on the Dow priced in Gold terms. I’ve posted about their relative performance before.

The Big Picture looks at the Dow Reaching a new high (great graphic from NYT), and how small our Defense Budget is compared to historical levels during other, more traditional wars.

Not a big surprise (to me at least), but mutual funds are making more off fees than they are returning to investors in returns.? “The Russell 3000 Investment Management Company Index has gained 15.6% a year over the past five years, outrunning the average stock-fund?s annual return of 10.4%.”

Footnoted.org may have found patient-zero in the options backdating epidemic.

Off topic, but still relevant, Econobrowser points to a map of the expected outcome of the US Senate races…? from gambling website TradeSport’s online data…? in case Electoral-Vote.com wasn’t accurate enough for you.

The Wall Street Journal recently reported that “there are now more than 430,000 households in the U.S. with a net worth of $10 million or more.” That is a whopping 0.14% of the population in the Deca-Millionaire Club…

I keep thinking back to the scene from Brewster’s Millions when John Candy is chanting “Ten million, ten million, ten million dollars!”

Once again, the most reliable indicator I know is flashing a sell signal for equities… I’m declaring my prediction — today is the top of the current rally in the stock market.

What’s the indicator you intelligently ask? I went long on a broad stock market index this morning! (more…)

As we know, the demographics in the US will have a large affect on investments due to shifting preferences as baby boomers retire. I just caught these random statistics from Newsweek…

  • There are 78 million baby boomers (around 26% of the total population)
  • Approximately 9 million boomers will retire in the next 10 years
  • Baby boomers make up 38% of US households
  • 78% of baby boomers own a home
  • Median Net Worth of baby boomer household: $149,500
  • Average value of a baby boomer house: $181,700
  • 11% of baby boomers plan to buy real estate within the next year

So, some quick math will tell you that the average baby boomer either hasn’t paid off their mortgage yet — the value of the house is greater than the net worth, or they have some other debt that makes the math work.

Likewise, while 9 million people retiring in the next 10 years is a large number, it is only a fraction of the total baby boomers. I’m not sure if the 9 million would-be-retirees would be the total number, or if a non-working spouse would be included (which raises the possible number to a theoretical 18 million).

The total net worth of all the baby boomers would be $1.35 trillion (assuming the median is not too far from the average). I would hope that those who are retiring within the next decade make up a larger portion of those above the median…

In case you haven’t heard, Bank of Ameica is offering stock trading without any commissions… Business Week. There are plenty of catches including account minimums and number of trades per year… Hopefully this will spur another round of commission competition as I don’t personally want to switch to BofA.

Those of us who are cynical have to ask the question though… if the Bank is willing to give us free trades, where are they making their money from offering this service? Front-running my orders? Lower money market rates? Fees for other services?

When I first saw this chart of Manchester Inc.’s stock price, I thought it was a mistake… that some web developer was using this as a unit test of his charting site…

No, it is a real bulletin board stock, and yes, it really did go from $8 to $3 in two days.? No real reason for it either…? just traders riding the chart pattern and then all trying to get out at the same time.

PowerShares has recently released a new ETF called the G10 Currency Harvest Fund and it trades under the symbol DBV. Their website has a pretty good description of the fund; the fund tracks the Deutsche Bank G10 Currency Harvest Index. Despite tracking a very passive index, the fees are around 0.8% per year, which is not bad, but not low either.

The general strategy is to capture a carry trade without leverage. The index goes long the three highest yielding major currencies and short the three lowest yielding currencies. Right now the index is long the US Dollar, New Zealand, and Australia. It is short the Japanese Yen, the Swedish Krona, and the Swiss Franc.

DBV is not as sophisticated as the Uberman Portfolio Quicksilver has developed, but it’s available to retail investors today via a traditional brokerage account.

This one should be worth watching to see how well it performs, as well as how well it tracks the index. I’m curious if one could beat their performance by simply opening up an account at OANDA and following the index yourself…

When working on my data for analyzing liquidity, I calculated the yield spread as TNX – IRX (10 year minus 3 month), where StockCharts provides an easy way to see TNX / IRX (10 year divided by 3 month)… and this got me thinking about my post a while ago on inflation expectations… it seems as though I may have made a minor mistake in my analysis… which leads to a major mistake in my conclusion. Mea culpa. (more…)

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