Tuesday links: high yield bond barrage

The appetite for high yield bonds is “ridiculous.”  (The Money Game also Felix Salmon)

Global market capitalization bounces back in a big way.  (Bespoke)

Hedge funds raked in cash in August.  (FINalternatives)

Is the investment management industry ripe for consolidation?  (Morningstar)

On the rise of modular investment management.  (Abnormal Returns)

Vanguard is switching to float-adjusted bond indices.  (Morningstar)

The Thomson Reuters/Jefferies CRB Global Commodity Equity Index Fund (CRBQ) launches.  (WSJ)

It shouldn’t be surprising that commodity trading firms want to get into the ETF game.  (FT Alphaville)

Contango in the crude oil business is easing.  (FT Alphaville)

In defense (sort of) of the Dent Tactical ETF (DENT).  (IndexUniverse also ETF Database)

On the performance of buy-write strategies.  (Minyanville)

That inner voice of yours may be unconsciously warning you of a problem.  (Kirk Report)

Are merger arbitrage mutual funds worth a shot as M&A levels rise?  (Marketwatch)

An M&A boom is being held back by reluctant corporate sellers.  (Money & Co. also The Pragmatic Capitalist, Atlantic Business)

“Forward, Comrades!  Let a hundred small- to mid-sized investment banks bloom!”  (Epicurean Dealmaker)

On private equity:  “We all had too much money. It was just too easy.”  (NYTimes also Matthew Goldstein)

Given their performance, why do people still invest in buyout funds?  (All About Alpha)

Bank CEOs have profited from the bank bailouts.  (Clusterstock , ibid)

The crisis has increased interest in majoring in economics.  (Real Time Economics)

An interview with “highly respected blogger” Paul Kedrosky.  (DailyFinance)

Overnight success is a myth.”  (Howard Lindzon)

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Monday links: bearish conversion

Jim Grant is bullish.  Should we be worried?  (Big Picture, Nancy Miller, Money & Co., Fund My Mutual Fund, Zero Hedge)

Are stocks now overvalued?  (Clusterstock)

“I can totally understand the panic setting in on money managers as we head into the fourth quarter. I have been there, done that.”  (Howard Lindzon)

“The fact that we are at decade-highs for spec option trading makes perfect sense when we consider the fact that there’s so much cash on the sidelines.”  (Investing With Options)

Dispersion trading is nothing new or novel. (Condor Options also Bloomberg)

Looking back at a review of Dow 36,000.  (Crossing Wall Street)

Look beyond the Baltic Dry Index to the longer term market for shipping.  (FT via Alea)

An index to track the carry trade.  (FT)

“But we need a divorce: the rating agencies shouldn’t be government-sanctioned and government-protected institutions and their judgments shouldn’t be part of the rules that govern how investors can act.”  (New Yorker also The Balance Sheet)

Why I am short the ratings agencies.”  (Aiki14 also Clusterstock)

Dell (DELL) is betting big on Obamacare by buying Perot Systems (PER).  (Deal Journal also 24/7 Wall St., Curious Capitalist)

Skeptical takes on the new Dent Tactical ETF (DENT).  (IndexUniverse, CBS MoneyWatch)

China sector ETFs are in the works.  (IndexUniverse)

Taking a look at some current hedge fund strategies.  (market folly)

Are small investment boutiques better mutual fund managers?  (BusinessWeek)

“When you are managing $35 billion, you can never say sell.”  (Mish)

“Even if pay did cause excessive risk-taking, the proposals probably will create more problems than they solve.”  (Ideoblog also Free exchange, Marginal Revolution)

Derivatives and debt are the needles of finance and bankers will continue to supply them to all the Dr. Jekyll’s and Mr. Hyde’s alike for the foreseeable future as long as there is money to be made in the trade.”  (naked capitalism)

What is Warren Buffett’s “desert island economic indicator” telling us about the economy?  (Manual of Ideas)

Don’t expect the Fed to move until employment trends are positive.  (Tim Duy)

Decent numbers on the economy but employment remains a concern.  (Econbrowser)

Under what conditions will capital spending pick up?  (Calculated Risk)

Toxic assets are not a phenomenon limited to the 21st century, think 18th century.  (Economist’s View)

“There are similarities between the architectures of financial systems and biological systems.”  (New Scientist)

Thomson-Reuters is buying BreakingviewsBloomberg bids for BusinessWeek.  (Silicon Alley Insider, BusinessWeek)

Labor problems are looming for the NFL and the players union.  (Atlantic Business)

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A Bigger Chuckle than Normal

I've previously noted that I'm a big fan of Dilbert. In fact, I have the RSS feed to Scott Adams' daily cartoon in my feed reader, just so I don't miss a day. That said, Mr. Adams latest effort triggered a bigger chuckle than normal in old Mr. Financial Armageddon (er, that's me):

Dilbert.com


Sunday links: lessons from Dow 36,000

What lessons can be gleaned from the mistake that was Dow 36,000?  (Big Picture, ROI)

The very best investors don’t even try to forecast the future. Rather, they seize such opportunities as the present affords them.”  (WSJ also Infectious Greed)

Low yields on money market funds have stampeded investors into bond funds.  (WSJ also Barron’s)

Gold gets all the headlines but platinum and silver have outperformed YTD.  (Bespoke)

Quants have lagged their peers and the stock market in 2009.  (WSJ)

Checking in on investor sentiment at week-end.  (Trader’s Narrative)

Net mutual fund inflows tell us nothing about the future direction of the stock market.  (Don Fishback)

“Investors should look at their investment ideas and strategies as a pipeline management process too.”  (VIX and More)

What does the science of rogue waves tell us about the risks of equity investing?  (Abnormal Returns)

Some familiar companies at risk of bankruptcy.  (24/7 Wall St.)

Talk swirling around Wells Fargo (WFC) and its exposure to credit default swaps.  (Clusterstock, ibid)

James Altucher asks:  What (public) companies should Google (GOOG) acquire next?  (WSJ)

Corporate America loved its own stock when prices were high. When prices fell, the companies were no longer as interested in buying.” (Floyd Norris)

Research from twin studies indicates that genetic factors play a significant role in explaining investor behavior.  (SSRN)

Just what effect can the Fed have on banker pay?  (Market Talk, Clusterstock, Curious Capitalist, Atlantic Business)

In practice the PPIP is just as bad as when first proposed.  (Rortybomb)

If General Motors can come back public, who can’t?  (FT)

The truth is – it’s awfully hard for Wall Street to change its ways. It’s a competitive, greedy place. Always has been. Always will be.”  (Deal Journal)

TIPS-derived inflation expectations are still less than 2%.  (Carpe Diem)

A positive review for Eric Falkenstein’s Finding Alpha.  (Marginal Revolution)

How Mint.com became a success.  (Slate)

What will the blogosphere do now that it doesn’t have Dennis Kneale to kick around?  (Daily Options Report, The Reformed Broker, Crossing Wall Street)

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Jim Grant: Ringing the Bell at the Top?

In the following Wall Street Journal commentary, "From Bear to Bull," a long-time critic of the excesses and wayward policies that brought this country to its knees suggests the outlook for the economy is brighter than many people, especially the pessimists, believe:

James Grant argues the latest gloomy forecasts ignore an important lesson of history: The deeper the slump, the zippier the recovery.

As if they really knew, leading economists predict that recovery from our Great Recession will be plodding, gray and jobless. But they don't know, and can't. The future is unfathomable.

Not famously a glass half-full kind of fellow, I am about to propose that the recovery will be a bit of a barn burner. Not that I can really know, either, the future being what it is. However, though I can't predict, I can guess. No, not "guess." Let us say infer.

The very best investors don't even try to forecast the future. Rather, they seize such opportunities as the present affords them. Henry Singleton, chief executive officer of Teledyne Inc. from the 1960s through the 1980s, was one of these enlightened opportunists. The best plan, he believed, was no plan. Better to approach an uncertain world with an open mind. "I know a lot of people have very strong and definite plans that they've worked out on all kinds of things," Singleton once remarked at a Teledyne annual meeting, "but we're subject to a tremendous number of outside influences and the vast majority of them cannot be predicted. So my idea is to stay flexible." Then how many influences, outside and inside, must bear on the U.S. economy?

Though we can't see into the future, we can observe how people are preparing to meet it. Depleted inventories, bloated jobless rolls and rock-bottom interest rates suggest that people are preparing for to meet it from the inside of a bomb shelter.

The Great Recession destroyed confidence as much as it did jobs and wealth. Here was a slump out of central casting. From the peak, inflation-adjusted gross domestic product has fallen by 3.9%. The meek and mild downturns of 1990-91 and 2001 (each, coincidentally, just eight months long, hardly worth the bother), brought losses to the real GDP of just 1.4% and 0.3%, respectively. The recession that sunk its hooks into the U.S. economy in the fourth quarter of 2007 has set unwanted records in such vital statistical categories as manufacturing and trade inventories (the steepest decline since 1949), capacity utilization (lowest since at least 1967) and industrial production (sharpest fall since 1946).

It isn't just every postwar disturbance that sends Citigroup Inc. (founded in 1812) into the arms of the state or has General Electric Co. (triple-A rated from 1956 to just this past March) borrowing under the wing of the Federal Deposit Insurance Corp. Neither does every recession feature zero percent Treasury bill yields, a coast-to-coast bear market in residential real estate or a Federal Reserve balance sheet beginning to resemble that of the Reserve Bank of Zimbabwe. Yet these things have come to pass.

Americans are blessedly out of practice at bearing up under economic adversity. Individuals take their knocks, always, as do companies and communities. But it has been a generation since a business cycle downturn exacted the collective pain that this one has done. Knocked for a loop, we forget a truism. With regard to the recession that precedes the recovery, worse is subsequently better. The deeper the slump, the zippier the recovery. To quote a dissenter from the forecasting consensus, Michael T. Darda, chief economist of MKM Partners, Greenwich, Conn.: "[T]he most important determinant of the strength of an economy recovery is the depth of the downturn that preceded it. There are no exceptions to this rule, including the 1929-1939 period."

Growth snapped back following the depressions of 1893-94, 1907-08, 1920-21 and 1929-33. If ugly downturns made for torpid recoveries, as today's economists suggest, the economic history of this country would have to be rewritten. Amity Shlaes, in her "The Forgotten Man," a history of the Depression, shows what the New Deal failed to achieve in the way of long-term economic stimulus. However, in the first full year of the administration of Franklin D. Roosevelt (and the first full year of recovery from the Great Depression), inflation-adjusted gross national product spurted by 17.3%. Many were caught short. Among his first acts in office, Roosevelt had closed the banks. He had excoriated the bankers, devalued the dollar, called in the people's gold and instituted, through the National Industrial Recovery Act, a program of coerced reflation.

"At the business trough in 1933," Mr. Darda points out, "the unemployment rate stood at 25% (if there had been a 'U6' version of labor underutilization then, it likely would have been about 44% vs. 16.8% today. . . ). At the same time, the consumption share of GDP was above 80% in 1933 and the household savings rate was negative. Yet, in the four years that followed, the economy expanded at a 9.5% annual average rate while the unemployment rate dropped 10.6 percentage points." Not even this mighty leap restored the 27% of 1929 GNP that the Depression had devoured. But the economy's lurch to the upside in the politically inhospitable mid-1930s should serve to blunt the force of the line of argument that the 2009-10 recovery is doomed because private enterprise is no longer practiced in the 50 states.

To the English economist Arthur C. Pigou is credited a bon mot that exactly frames the issue. "The error of optimism dies in the crisis, but in dying it gives birth to an error of pessimism. This new error is born not an infant, but a giant." So it is today. Paul A. Volcker, Warren Buffett, Ben S. Bernanke and economists too numerous to mention are on record talking down the recovery before it fairly gets started. They collectively paint the picture of an economy that got drunk, fell down a flight of stairs, broke a leg and deserves to be lying flat on its back in the hospital contemplating the wages of sin. Among economists polled by Bloomberg News, the median 2010 GDP forecast is for 2.4% growth. It would be a unusually flat rebound from a full-bodied downturn.

Our recession, though a mere inconvenience compared to some of the cyclical snows of yesteryear, does bear comparison with the slump of 1981-82. In the worst quarter of that contraction, the first three months of 1982, real GDP shrank at an annual rate of 6.4%, matching the steepest drop of the current recession, which was registered in the first quarter of 2009. Yet the Reagan recovery, starting in the first quarter of 1983, rushed along at quarterly growth rates (expressed as annual rates of change) over the next six quarters of 5.1%, 9.3%, 8.1%, 8.5%, 8.0% and 7.1%. Not until the third quarter of 1984 did real quarterly GDP growth drop below 5%.

One may observe that Ronald Reagan stood for enterprise, free trade and low taxes, whereas Barack Obama stands for other things. Yet President Obama's economic policies seem almost as far removed from Roosevelt's as they are from Reagan's. (Not for Obama, at least not yet, is a new National Recovery Administration). Certainly, Roosevelt never attempted anything like the fiscal and monetary resuscitation organized over the past 12 months. In the post World War II era, the government has attacked recessions with an average fiscal stimulus of 2.6% of GDP and an average monetary stimulus of 0.3% of GDP, for a combined countercyclical lift of 2.9%. (Fiscal stimulus I define as the cumulative change in the federal budget, monetary stimulus as the cumulative change in the Fed's balance sheet, both measured from the peak of the boom to the trough of the bust.) This time out, the fiscal stimulus is likely to measure 10% of GDP, monetary stimulus 9.5% of GDP, for a combined pick-me-up equivalent to 19.5% of GDP. Our Great Recession would be marked for greatness if for no other reason than by the outpouring of federal dollars to repress it.

What did we do before Timothy Geithner and Ben Bernanke? In the day, it was the self-regenerative power of markets that lifted us off the rocks. The brutality of the depression of the early 1920s could not have been far from the mind of President Harry S. Truman as he signed into law the 1946 act to make it the government's business to maintain the economy at full employment. That 1920-21 crackup featured a deflationary collapse—wholesale prices plunged by 37%—and, by 21st century lights, a highly unconventional set of government measures to set things right. To meet the downturn, the Fed raised, not lowered, interest rates and Congress balanced the budget—indeed, ran a surplus. Yet the depression ended. How, exactly, did it end? Falling prices opened wallets, the monetary historian Allan H. Meltzer explains. Finding bargains, consumers and investors snapped them up. "The fall in market prices raised the public's stock of real [money] balances above the desired amount, just as if the Federal Reserve had increased base money at a constant price level," Mr. Meltzer relates in his "A History of the Federal Reserve." After falling by 4.4% in 1920 and by 8.7% in 1921, inflation-adjusted GNP shot up by 15.8% in 1922 and by 12.1% in 1923.

Bargain-hunting is the balm of recovery even today, dead set against low prices the Federal Reserve might be. Detroit is a living laboratory in many things, including the so-called real balance effect. As Marshall Mandall, a RE/MAX agent in that city, tells the story, house prices are still falling at the high end of the market, though they have stabilized at the low end. Transaction volumes are rising. Speculators are on the prowl, but so, too, are ordinary home buyers. It seems—who'd have guessed it?—that value sells. "They can buy something for half of what they could three years ago," Mr. Mandall says. "Everybody perceives bargains in their house-hunting." At the end of the second quarter, according to the Detroit Free Press, the supply of unsold houses was equivalent to 8.5 months' sales, down 39% from the year before.

Through the first six months of 2009, the Case-Shiller 10-City Composite index of house prices fell by 5.5% compared to year-end 2008. However, the rate of decline has been slowing and, indeed, the index recorded month-to-month appreciation in May and June. It may just be that the Fed's assumption of a 14% decline in prices this year (built into the base case of its bank stress test) is unrealistically bearish.

The Fed's voice is among the saddest in the lugubrious choir of bearish forecasters, and for good reason. By instigating a debt boom, the Bank of Bernanke (and of his predecessor, Alan Greenspan) was instrumental in causing our troubles. You might have thought that it would therefore see them coming. Not at all. Belatedly grasping how bad was bad, it has thrown the kitchen sink at them. And it maintains this stance of radical ease lest it get the blame for a relapse. However, by driving money market interest rates to zero and by setting all-time American records in money-printing ($1.2 trillion conjured in the past 12 months), the Fed is putting the value of the dollar at risk. Its wide-open policy all but begs our foreign creditors to ask the fatal question, What is the dollar, anyway? Why, the dollar is a scrap of paper, or an electronic impulse, the value of which is anchored by the analytical acuity of the monetary bureaucracy that failed to predict the greatest financial crackup since the 1930s.

Federal Reserve Chairman Alan Greenspan testifies before the Committee on Banking & Financial Services in Congress Feb. 24, 1998.
.The Fed may be worried about something else. By sitting on interest rates, it is distorting every business and investment decision. If mispriced debt was the root cause of the narrowly-averted destruction of global finance, the Fed is well on its way to setting the stage for some distant (let us hope) Act II. In the meantime, ultra-low interest rates have lit a fire under the stock and debt markets.

By rallying, equities and corporate bonds not only anticipate recovery, but they also help to bring it to fruition. By opening their arms wide to such previously unfinanceable businesses as AMR Corp., parent of American Airlines, and Delta Air Lines Inc., the newly confident credit markets are implementing their own stimulus program. "Reflexivity" is the three-dollar word coined by the speculator George Soros to describe the dual effect of market oscillations. Not only does the rise and fall of the averages reflect economic reality, but it also changes it. One year ago, the Wall Street liquidation stopped world commerce in its tracks. Today's bull markets are helping to revive it.

I promised to be bullish , and I am (for once)—bullish on the prospects for unscripted strength in business activity. So, too, is the Economic Cycle Research Institute, New York, which was founded by the late Geoffrey Moore and can trace its intellectual heritage back to the great business-cycle theorist Wesley C. Mitchell. The institute's long leading index of the U.S. economy, along with supporting sub-indices, are making 26-year highs and point to the strongest bounce-back since 1983. A second nonconformist, the previously cited Mr. Darda, notes that the last time a recession ravaged the labor market as badly as this one has, the years were 1957-58 —after which, payrolls climbed by a hefty 4.5% in the first year of an ensuing 24-month expansion. Which is not to say, he cautions, that growth this time will match that pace, only that growth is likely to surprise by its strength, not weakness.

And that is my case, too. The world is positioned for disappointment. But, in economic and financial matters, the world rarely gets what it expects. Pigou had humanity's number. The "error of pessimism" is born the size of a full-grown man—the size of the average adult economist, for example.

James Grant is the editor of Grant's Interest Rate Observer. Among his books is "The Trouble with Prosperity."

To be sure, Mr. Grant rightfully acknowledges the folly of economic forecasting and is careful about pinpointing when we might expect to see his anticipated strong recovery.

Yet by citing the work of the Economic Cycle Research Institute, which has recently been suggesting that a major upswing is on the cards, Mr. Grant seems to make it clear that now is the time for optimism.

Unfortunately, his rationale is weak, if not totally wrong. For the most part, his argument rests on the premise that, historically at least, strong recoveries have followed severe contractions.

Aside from discounting the fact that there are aspects to the current unraveling that are historically unique and extraordinarily unsettling (e.g., total credit market debt relative to gross domestic product is well beyond anything this country has ever witnessed), Mr. Grant makes a number of curious assertions.

For one thing, he assumes that the current downturn is near its nadir, instead of a temporary floor built on a massive stimulus injection and a knee-jerk bout of inventory restocking. Among logicians, such an analytical approach might be described as "begging the question."

Mr. Grant also gives short shrift to the fact that in many ways -- see "A Tale of Two Depressions" by Barry Eichengreen and Kevin H. O'Rourke for more on this subject -- the economic episode that most closely parallels the current downturn is the one that occurred during the Great Depression, and which lasted twice as long as the latest one has.

Perhaps our economy will rebound sharply in 2011, but from what level? Should we really be preparing for the best right now -- instead of the worst -- given how many dangerous icebergs --like the accelerating meltdown in commercial real estate and the mortgage reset timebomb -- are only just floating into view?

History suggests that time is not on the side of the optimists when it comes to episodes like the one we are going through right now. As I'm sure Mr. Grant is aware, Professors Carmen M. Reinhart and Kenneth S. Rogoff have published a research paper, "The Aftermath of Financial Crises," based on data going back more than a century, which concluded that post-crisis downturns tend to be "protracted affairs."

To bolster his allegedly contrarian argument, Mr. Grant points to the swollen ranks of pessimists preparing to meet the future from "inside of a bomb shelter." But after decades of bubble-induced euphoria and an economy built on massive debt and unparalleled overconsumption, I wonder if he is engaging in a bit of dot-com era relativism -- where the Nasdaq was "cheap" at 4,000 because it was down 20 percent from its peak (it is now 2,132).

If savings rates, debt levels, and the share of the U.S. economy accounted for by consumer spending were to return to, say, pre-Greenspan era norms, then one bomb shelter might not be enough to handle the economic onslaught that is still headed our way.

Finally, Mr. Grant makes the cardinal error of many ivory tower economists. He credits equity investors with the wisdom of crowds. Those are the same people who bid share prices to new all-time highs in the fall of 2007, just as credit markets were unraveling, home prices were collapsing, and the bottom was falling out of the real economy. Hmmm.

That said, it is certainly not my intention to lump Jim Grant with all those clueless strategists, economists, and policymakers who failed to see things coming. In fact, I think he is a very smart guy and I've always enjoyed hearing what he has to say. But the fact is that bull and bear markets frequently have one thing in common: turning points marked by the public capitulation of one or more prominent contrarians.

Given what Mr. Grant has just written, I can only ask: Did one of the world's best known bears just ring the bell at the top of the great dead cat bounce?


Friday links: valuing liquidity

The trading is easy right now, but the farther we get from obvious support levels, the greater the risk of a sharp correction.  (AlphaTrends)

How much more room does this rally have to run?  (Big Picture, Wall St. Cheat Sheet)

The market doesn’t give a s**t about you.  It will exist whether or not you do.”  (Chart Shark via ppearlman)

Wall Steet and Main Street have once again become disconnected.  (Deal Journal, Breakingviews)

The move in the high yield markets has been “massive.”  (Distressed Debt Investing)

Are we getting too worked up about the state of the S&P 500 relative to its 200 day moving average?  (Don Fishback)

“But it’s important to keep in mind that simply because something is priced lower than it had been recently, it may not represent a good value.”  (Minyanville)

The options market needs weekly expirations for liquid stocks.  (Investing With Options)

How to overcome the desire for perfection in your trading.  (TraderFeed, Abnormal Returns)

Eight mental mistakes investors make.  (Morningstar)

College endowment forgot that “Liquidity is valuable, and should not be surrendered without proper compensation.”  (Aleph Blog)

Don’t feel so bad, European mutual fund investors can’t time the market either.  (The Money Game)

The equity risk premium in 150 textbooks.  (SSRN via Alea)

High frequency traders have a PR problem.  (MarketBeat)

Are the Feds trying to shrink the money market mutual fund business?  (The Pragmatic Capitalist also Money & Co.)

Is regulatory arbitrage, via new look-SIVs, back in play?  (FT, Baseline Scenario, Clusterstock)

The PPIP lives.  (Atlantic Business)

The two steps the Feds need to make to reform the banking sector.  (Clusterstock)

Why does Hank Paulson get so much of the heat for the bank bailouts?  (The Big Money)

“Our capital markets may have been irrevocably changed, but the doomsayers of the deal market are mistaken: deals will continue to be a driving force in corporate America.”  (DealBook)

New ways to guard against the issue of moral hazard.  (Atlantic Business)

There are still few signs of a turn in employment trends.  (Economist’s View)

Look for the BRIC economies to lead the global economy on the other side of the recession.  (Telegraph)

What effect has Fed buying had on mortgage rates?  (Calculated Risk)

Is an economic rebound set to revive the oil crunch?  (Green Sheet)

Macroeconomics is the triumph of hope over experience, and has been no more successful than sociology.”  (Falkenblog also Freakonomics)

The challenges of valuing a business like Twitter.  (Deal Journal also Free exchange)

For those of you who really like the A-Team.  (The Reformed Broker)

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Thursday links: pub power

This rally has been built on the back of individual investor skepticism.  Some 90% of flows into mutual funds this year has avoided equities.  (Fund My Mutual Fund)

A rare occurrence for the stock market.  (Abnormal Returns)

Playing an overbought market with call options.  (Investing With Options)

Hedge funds have come out on the other side of the crisis.  (All About Alpha)

Perhaps hedge funds need to be deregulated, breaking down the wall that restricts hedge fund investing only to the wealthy.”  (NYTimes)

More talk that the 2 & 20 fee structure for hedge funds is under pressure. (NYTimes also MarketWatch)

What is the FedEx (FDX) indicator telling us about the global economy.  (The Money Game)

The worst places to have your money in 2009.  (Money & Co.)

Investors need to get out of their comfort zone to find new patterns.  (VIX and More earlier Abnormal Returns)

Leveraged loan investments have paid off for private equity firms.  (WSJ)

Individual investors following the big endowment funds got lulled into a false sense of security by investing in alternative investments.  (Morningstar)

The US mutual fund industry isn’t great, but it looks pretty good compared to Germany and the UK.  (Curious Capitalist)

The SPDR Wells Fargo Preferred Stock ETF (PSK) launches.  (24/7 Wall St.)

Taking a closer look at the performance of the ProShares Credit Suisse 130/30 Index ETF (CSM).  (IndexUniverse)

Europeans love their ETFs as well. (FT Alphaville)

The introduction of an ETF drives up the discount on similar close-end funds.  (SSRN)

What to make of the rally in natural gas prices.  (MarketBeat)

High frequency trading is not market making.   (Matthew Goldstein)

What the “pub power” signal means for the stock market?  (EconomPic Data)

Good advice.  “When it comes to advice, especially in financial matters, it’s always best to pay directly rather than indirectly.”  (The Psy-Fi Blog)

Why did Victorian England invest so much abroad?  Returns, of course.  (SSRN)

“Multiple studies have shown no evidence that shareholders of acquisitive companies do better than their stingier counterparts.”  (WSJ)

Apparently Barclays (BCS) did not get the post-crisis memo on off-balance sheet entities.  (Clusterstock)

Can regulation prevent Wall Street from creating “toxic sludge“?  (Rick Bookstaber)

Are crisis-related prosecutions on Wall Street pretty much over?  (The Daily Beast)

Paul Volcker wants banks to act more like banks and less like hedge funds  (Big Picture, Matt Taibbi)

Looking to the NFL for risk management lessons.  (Crossing Wall Street)

Is Twitter worth $1 billion?  (TechCrunch, paidContent, AllThingsD also Howard Lindzon, 24/7 Wall St.)

“Twitter [and StockTwits] is resurrecting in cyberspace the teeming trading pits of yesteryear as traders sign up with the the social networking site to reconnect with global counterparts.” (FT)

How Felix Salmon became a blogging bigfoot.  (The Big Money also Felix Salmon)

Are “luxury dorms” the latest sign of the “college bubble”?  (Chicago Tribune)

An interesting interview with Chipotle (CMG) founder Steve Ells.  (WSJ)

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Wednesday links: free lunches

What a record number of stocks are stretched far above their 200 day moving averages might mean for the rally.  (Quantifiable Edges also Kirk Report)

“The Nasdaq’s gain of 33.25% year to date through 9/15 is the fourth best year on record for the index.”  (Bespoke)

Rising trading volumes indicate day trading is back.  (WSJ)

Just how big a role does high frequency trading have in the world of small caps?  (WSJ, FT Alphaville)

Using options to trade the United States Natural Gas Fund (UNG).  (Investing With Options, Zero Hedge also The Big Money)

Contango continues to weigh on oil ETF returns.  (WSJ)

A buy-write strategy has held its own during this market rally.  (Daily Options Report, ibid)

“If there’s still value to be had in stocks, shouldn’t companies be buying?”  (MarketBeat also Fund My Mutual Fund)

Five surprising ETF statistics.  (Morningstar)

The “free lunch in credit markets” is starting to fade.  (FT Alphaville)

Even simple arbitrage is tougher than it looks.  (SSRN)

Research shows a relationship between measures of downside risk and higher expected returns.  (SSRN)

Can Citadel Investment Group ever reclaim its prior position in the hedge fund industry?  (Bloomberg)

Cerberus finally wins one.  Talecris Biotherapeutics files for an IPO.  (Breakingviews)

Anheuser-Busch InBev NV (BUD) is back trading on the NYSE.  (CNNMoney)

Extricating itself from Citigroup (C) will be no small task for the Treasury.  (Dealscape, WSJ)

Break up the big banks.  “Though Obama says a return to “normalcy” means emergency rescue facilities can end, it’s a safe bet that they’ll come right back the next time we have a systemic event.”  (Rolfe Winkler)

Looking back at the last time Wall Street got a big dose of regulatory reform.  (WashingtonPost)

CPI is beginning to level (and turn) in year over year figures”  (EconomPic Data)

The recession is “very likely over.” Now the hard work begins.  (Calculated Risk, Market Talk, Curious Capitalist, The Globe and Mail)

There is no grand, unifying theoretical structure in economics. We do not have one model that rules them all.”  (Economist’s View)

Drawing parallels between Japan’s and China’s (nascent) speculative bubbles.  (The Pragmatic Capitalist)

A list of books to fill your need for “good bubble literature.”  (Economix)

Tech M&A is back.  What deals might be on the horizon?  (GigaOM)

On the dangers of the investment blogosphere.  “Can you imagine that anyone who can earn 10% month after month would tell anyone the secret.”  (Options for Rookies)

Abnormal Returns is a proud member of the StockTwits Network.

Tuesday links: breathless breadth

How much weight should we put on some recent breadth divergences?  (Trader’s Narrative also Tech Ticker)

Doug Kass is bearish.  Is this fodder for another leg up?  (TheStreet, Wall St. Cheat Sheet also Daily Finance)

A quick look at corporate bond spreads tells the story of the prior year in the capital markets.   (Abnormal Returns)

The TED spread is at its lowest level since 2004.  (The Pragmatic Capitalist)

When FedEx (FDX) speaks, you should listen.  (Jeff Matthews)

There is still too much natural gas out there.  (FT Alphaville)

The many ways to play gold prices via an ETF.  (WSJ)

Are large investors looking to bypass institutional trading desks altogether?  (The Reformed Broker)

The endowment model is not dead, but it is “..very difficult and internally expensive to implement well.”  (Absolute Return+Alpha)

What’s going right out there?  (Aleph Blog)

“That means the dollar has added “carry trade currency” to its other titles: safe haven and world’s reserve currency.”  (The Stash)

Thought the Bank of America (BAC)-Merrill Lynch controversy was over? Think again.  (Deal Journal, 24/7 Wall St.)

Citigroup (C) wants to get out from under Uncle Sam.  (WSJ, Clusterstock)

Obama comes to Wall Street.  Is reform coming next?  (Nancy Miller, Economix, Baseline Scenario, NYTimes, The Balance Sheet, Clusterstock, Atlantic Business)

The last word on Lehman recaps:  “The real lesson of Lehman and of all these recaps may be that we’ve learned very little at all.”  (Dealscape)

“It is simply not true that we need the mega-banks.”  (Washington’s Blog via Big Picture)

Put retail sales in the positive column for now.  (Calculated Risk, Capital Spectator)

“All in all, the Kindle ended up caught in a no-man’s land: it has a number of nifty features and convenient aspects – but also significant drawbacks and a high price tag. All of which leaves many consumers unconvinced that they really need to buy the thing.”  (The Atlantic)

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Monday links: leveraged letdown

Interest in leveraged ETFs has declined along with daily volatility.  (Daily Options Report)

Just how far down implied volatilities have come down for Dow components.  (VIX and More)

“The implications of September-October seasonality are largely dependent on the position of the market at the end of August.”  (Hussman Funds earlier Abnormal Returns)

What to make of the re-opening of the United States Natural Gas Fund (UNG)?  (IndexUniverse, FT Alphaville, The Money Game)

Commodity ETNs are a one-way bet for their issuers.  (FT Alphaville)

“Within a few year, I imagine we’ll see dozens of targeted corporate bond funds.”  (ETF Database)

2009 has been the year of the Treasury Inflation Protected Securities.  (WSJ)

“(S)uccessful investing requires paying attention as much to what’s outside the portfolio — our capacity for financial risk — as to what’s within it.”  (Margin of Safety)

“Most of us are better off trying to generate the income to invest with than trying to figure out how to invest.”  (The Psy-Fi Blog)

Are we trying to put activist investors out of business?  (Value Plays)

It’s a good time to be in the merger arbitrage business.  (WSJ)

The prime brokerage business is up for grabs.  (WSJ)

Those in favor of reducing the size of too big to fail banks.  (Big Picture)

Trying to pinpoint the beginning of the acute phase of the mortgage crisis.  (The Daily Beast)

Charlie Gasparino wants the big banks to make a decision about their risk profiles.  (Clusterstock earlier Abnormal Returns)

Jim Cramer thinks we should have saved Lehman and that “the shorts are too powerful.”  (NY Magazine)

Is the US dollar the ultimate loser in the aftermath of the financial crisis?  (Nancy Miller)

Is Congress to blame for much of the Lehman fallout for not passing TARP on the first go-round?  (The Balance Sheet)

Protectionism is no small matter. (Daniel W. Drezner, Economist)

What makes Mint.com worth $170 million to Intuit (INTU)?  (Felix Salmon also 24/7 Wall St.)

Is there hope for BusinessWeek?  (DealBook, 24/7 Wall St., Felix Salmon)

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Which Crisis?

Overlappingcrises

People are beginning to think that the worst of the crisis is behind us. But which crisis are they referring to? If they mean the financial crisis, they may be right. In fact, I would be surprised if the apocalyptic events of last fall did not mark a high point, of sorts.

However, there's plenty more trouble to come. From where I sit, the next big unraveling is playing out in the real economy. As the truth hits home that there is no recovery and those in charge have used up all their bullets, businesses and individuals that have been hanging on in hope will throw in the towel.

Once that happens, unemployment will ratchet up well into the double digits, bankruptcies, foreclosures and evictions will explode, those who have not yet adjusted their spending habits will make a dramatic about-face, and tax revenues will evaporate, driving many state and local governments to the brink.

In "Lehman Is a Footnote in the Great East-West Globalisation Crisis," The Telegraph's Ambrose Evans-Pritchard offers more insights on the crisis that is actually in the making.

You can see why markets and governments both like to blame Lehman Brothers for the "Great Contraction". Such wishful thinking shields investors from the nasty reality that deeper forces are at work: it absolves officialdom from its own destructive role in fixing the price of credit too low for 20 years, luring us into debt.

As my colleague Jeremy Warner puts it, Lehman no more caused the economic convulsions of the last year than the assassination of an Austrian prince caused the First World War. There was the little matter of a rising Germany then, and a rising China now. Both scrambled the international system, albeit in different ways.

The 48 hours that killed Lehman and AIG – and would have killed Merrill, Morgan Stanley, and Goldman Sachs within a week if Washington had not stepped in – merely brought to a head the inevitable exhaustion of a global order in which the West chokes debt, and the East chokes on export capacity.

As of last week, the ABX index of sub-prime mortgage debt showed that AAA-rated securities from early 2007 were trading at 28 cents on the dollar – AA was at 4 cents, near all-time lows. No one can say that $2 trillion (£1.2 trillion) of sub-prime and Alt-A debt is still trading at panic levels, exaggerating losses. The dust has settled. What we can see is that creditors will never recoup their money.

The housing crash has tipped 15m US home owners into negative equity. A third of sub-prime mortgages are in default. Some 7.8pc of all loans backed by the Federal Housing Administration are in foreclosure or 90 days in arrears. This is why the US Treasury had to seize Fannie Mae and Freddie Mac, the $5.3 trillion pillars of US housing. It is not a liquidity crisis. It is a bankruptcy crisis.

Foreclosures reached 358,000 in August alone. More Americans are being evicted each month than during the entire Depression year of 1932. This is not to pick on America. Variants of the bubble occurred across the Anglosphere, Scandinavia, Holland, Club Med, and east Europe. Defaults will hit with a lag in Europe, but hit they will. The IMF expects global banks to lose $2.5 trillion by next year. So far they have confessed to $1 trillion.

We know why the bubble occurred. Call its Greenspanism. Central banks rescued assets each time there was a hiccup, but let booms run unchecked. They pulled "real" rates ever lower, creating addiction to monetary stimulus. Larger doses were required with each cycle, until we hit zero, and it is still not enough. Debt burdens rose to records across the OECD.

Couldn't they see that this was cheating: stealing from the future? No, they were seduced by "inflation targeting" – watch goods, ignore assets – just as cheap imports from China rendered the doctrine obsolete. It always takes ideology to consummate massive error.

Asia in turn caused a global bond bubble by accumulating $5 trillion in reserves (a side effect of holding down currencies to gain export share). Long-term rates collapsed too. The global credit bubble was complete.

The Great Game can continue only as long as deficit countries – currently, US (-$628bn), Spain (-$109bn), Italy (-$62bn), France (-$58bn), Britain (-$53bn), Greece (-$42bn), and east Europe – are willing to bankrupt themselves buying Asian goods. Obviously, this is absurd.

America's baby boomers have lost 45pc of their net worth. US pay fell 4.8pc in June year-on-year as hours were slashed. US consumer credit has contracted for six months in a row, falling by record $21.6bn in July. The US savings rate has risen from near zero to around 5pc.

"Who will replace the US consumer to power global growth?" asked IMF chief Dominique Strauss-Kahn in Friday's Le Monde. "We have left the financial crisis, but we are still in the economic crisis. "

There is gaping whole in world demand. It is being filled by governments, all nearing the limit of fiscal stimulus. Some have exceeded it: Spain is to raise taxes by 1.5pc of GDP, and Japan's Democrats are retreating from spending pledges. China is trying to plug the gap, belatedly, by ramping up credit 70pc this year, but it will take a cultural revolution to induce the Chinese to spend. The liquidity is leaking into stocks, metals, and property.

Yes, markets are sizzling, but industrial production is still down 23pc in Japan, 17pc in the eurozone, 13pc in the US and 11pc in Russia. We have a global glut of manufacturing plant. This is why companies will have to slash staff. Don't be deceived: profits can look good at first when firms cut into the bone. It is no strategy for an economy.

We can all agree (except Germany, hiding bank losses) that the G20 in Pittsburgh should tighten ratios for lenders. But will we hear a word about the capital and trade imbalances of late 20th Century globalisation that caused this crisis? Probably not. It is easier to ignore the elephant in the room.

Eventually, the phase now underway will reach some sort of climax. At that point, I believe, things are really going to get scary.


Sunday links: price and quality

“Investors herded together for safety at the peak of the financial crisis, driving normally disparate sectors of the stock market to move in near lockstep. Now, the herd mentality is dissipating.”  (MarketBeat)

“Whatever else you might want to say about the virtues of international diversification, in this cycle it has done little to balance the risks of investing in any one market.”  (Floyd Norris)

“The real lesson of the past year isn’t a new one: it’s an old one that had been widely forgotten. Those who have too much of their money in the stock market may end up regretting it. Man (and woman) cannot live by equities alone.”  (ROI)

“Three cures are most commonly prescribed for investors worried about a weakening dollar: foreign currency, gold or a diversified basket of commodities.”  (WSJ)

David Rosenberg, “The rally in the U.S. equity market has been so pronounced that it is no longer just pricing in the end of the recession. It is pricing in two years of recovery.”  (Barron’s)

Recent rally notwithstanding the Dow has done nothing in the past eight years.  (Bespoke)

The sentiment picture is a bit schizophrenic of late.  (Trader’s Narrative)

Is the endowment model broken?  (World Beta)

The United States Natural Gas (UNG) plans to issue new shares.  What will that mean for the fund’s premium to NAV?  (IndexUniverse)

The new Thomson Reuters/Jefferies In-the-Ground CRB Global Commodity Equity Index (and coming ETF) that focuses on commodity equities as opposed to futures.  (Barron’s)

Investors believe that highly admired companies have higher expected returns and lower risk.  (SSRN)

Just how useful are “thematic ETFs“?  (IndexUniverse)

Why do overnight non-trading periods tend to show higher returns than when the market is open?  (SSRN)

Hunstman (HUN) has come out on the other side of a failed acquisition a stronger company.  (Deal Journal)

Lehman Bros. died so he rest of Wall Street could live.  (NYTimes)

Where did quant models go wrong this time around?  (NYTimes)

The real Lehman shock was that the contracting U.S. economy and the failed U.S. financial system could drag the global economy into its first recession since World War II.”  (Slate)

Have the bailouts created a riskier financial system?  (EconLog also Big Picture)

On the risks of a double-dip recession.  (Econbrowser)

The economic model has broken, for good. It’s time to stop pretending it describes our world.”  (Edge via Infectious Greed)

“Of all the levers a business has at its disposal, price is often the most powerful.”  (GigaOM via The Reformed Broker)

For better or worse, the blogosphere is getting professionalized.  (Atlantic Business)

Markets are just as apt to cause suffering as genuine happiness. (TraderFeed)

How our social networks affect our health and happiness.  (Wired)

“When I say, then, that in wine there’s no correlation between price and quality, what I mean is that there’s no correlation between price and quality except for in the 99% of cases where in fact the correlation is very strong — the cases when you know, more or less, how expensive the wine you’re drinking is.”  (Felix Salmon)

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Friday links: toe dipping

By one measure investors remain underinvested in equities.  (Big Picture)

Small investors are dipping their toes back in the stock market.  (NYTimes)

Documenting the dramatic reduction in daily volatility. (Bespoke)

Examining asset class performance since the market peak in October 2007.  (Capital Spectator)

The improvement in credit markets is a big plus for the equity markets.  (A Dash of Insight, Mish)

The recession has put a great deal of pressure on dividends and stock buybacks. (WSJ)

Gold is to us today what real estate was not too long ago. It’s the “near-sure” route to speculative gains for a rapidly growing portion of society.”  (The Money Game)

Harvard and Yale both faced 30% losses on their endowment portfolios for the fiscal year end.  (WSJ, Bloomberg, NYTimes)

Harvard is shifting management back in house.  (DealBook)

Has the case for timberland as an asset class changed now that ownership has shifted into investor hands?  (Morningstar)

The growing divergence in hedge fund assets under management.  (All About Alpha)

Jim Chanos on how to regulate hedge funds.  (Hedge Fund Facts via Clusterstock)

Ignore David Einhorn’s position in the credit rating agencies at your own risk.  (market folly)

Has Eddie Lampert killed Sears Holdings (SHLD)?  (Clusterstock, Jeff Matthews)

Skeptical takes on the wisdom of a Kraft (KFT) acquisition of Cadbury (CBY).  (Marketwatch, Value Expectations)

Is there a market for a Harry Dent-managed active ETF?  (IndexUniverse)

Using the output gap as a predictor of stock returns.  (SSRN)

One can’t improve on your trading process if you can’t clearly identify it. (TraderFeed)

Two of the five qualities a successful speculator needs.  (Wall St. Cheat Sheet)

No matter what Tim Geithner says money market mutual funds are still backed by the government.  (Telegraph also Clusterstock)

Proposed rule changes risk putting and end to A2/P2 commercial paper.  (WSJ)

“So are leverage ratios the new VaR?”  (FT Alphaville also Felix Salmon)

Have we just swapped the Greenspan put for the Bernanke put?  (Baseline Scenario)

Wall Street is stuck on a short-term treadmill.  (WashingtonPost)

“How the heck can we run a modern economy when college grads have falling real wages? The answer is, we can’t.”  (BusinessWeek)

Documenting the relationship between increased leverage (via mortgage equity withdrawals) and the severity of the subsequent downturn.  (Calculated Risk)

“If economists were unable to see their way to the macroeconomic consequences of the unfolding crisis, criticism needs to start with that [New Keynesian] framework.”  (macroblog)

It’s time to shrink Fannie and Freddie until they don’t matter to the markets.  (Atlantic Business)

(W)hat is the energy policy of the United States? I frankly have no idea. It’s never been articulated.”  (Gregor Macdonald)

Our financial skills seem to diminish with age.  (Real Time Economics)

Intellectual property is the hot new alternative asset class.  (Economist)

An interesting examination of the future of online finance.  (Valuecruncher)

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Thursday links: naive contrarianism

The stock market has been “on offense” since the July lows.  (Afraid to Trade)

Beware naive contrarianism.  (Big Picture)

Investors still want what hedge funds offer.  (Absolute Return+Alpha)

Recent hedge fund performance is actually bad news.  (The Money Game)

The first-mover advantage in ETFs is dissipating as investors become more discriminating.  (IndexUniverse)

Your bond fund manager is likely gaming his benchmark.  (Morningstar)

A skeptic takes a look at the moving average timing system for asset classes.  (Falkenblog)

Don’t count on market relationships to remain stable over time.  (CXO Advisory Group)

Historical volatility demystified.  (Know Your Options via Daily Options Report)

There is no shortage of mortgage REITs in the IPO pipeline trying to prey on distressed situations.  (BusinessWeek)

Research indicates that traders become less overconfident over time.  (SSRN)

“It is with trading as with sports or the arts: many people participate, but few are able to craft an ongoing livelihood from their talents. Trading for a living takes much more than people realize.”  (TraderFeed)

More on the similarities between poker and investing.  (Wall St. Cheat Sheet)

Computers don’t manipulate markets,  people do.”  (WSJ)

A fundamental misreading of a Treasury auction.  (Across the Curve, Clusterstock)

A couple of infrastructure funds haven’t performed as expected.  (TheStreet)

What big stories is the MSM missing?  (Aleph Blog)

If shareholders are ignorant, why would we want to give them more power?  (Clusterstock)

Paul Volcker thinks banks should not be able to own hedge funds.  (peHUB)

Good riddance, Lehman Brothers.  (The Reformed Broker)

Compensation is a necessary method of managerial control, but it is not a sufficient one. I continue to maintain that it was not even the determining one during the recent financial crisis.”  (The Epicurean Dealmaker)

Is banking getting back to basics?  (Economist also Christopher Swann)

The FDIC is thinking about getting out of the debt guarantee business.  (Atlantic Business)

The Fed is fueling a nice little train of trading, if not economic, activity. The Fed will fuel the ride until inflation pressures truly emerge, a ride that can last for a long time given the current state of the labor market.”  (Economist’s View)

Another signal that the economic recession is over.  (Carpe Diem)

Someone is making money off of cheap natural gas, i.e. the gas storage companies.  (WSJ)

Easy oil means cheap oil.  And difficult oil means expensive oil.”  (Gregor Macdonald)

The BBC’s Lehman Brothers movie will not be winning any BAFTAs.  (FT Alphaville)

An interview with John Maudlin.  (Wall St. Cheat Sheet)

Avoiding confirmation bias and how to make the most of StockTwits.  (Abnormal Returns)

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How to make the most of StockTwits

Today we are not talking about how to set up and run the new StockTwits Desktop.  For that sort of tutorial check out what Justin Paterno has to say on setting up your very own version of the software.  Instead we are talking about the broader notion of idea generation.

Smita Sadana at Minyanville has a thought-provoking article up which we quoted from in today’s linkfest that discusses the importance to traders of who they “hang out with.”  To remind you:

Dissenters can give us the greatest gift of all: an open mind. This is the prerequisite for a flexible approach toward investing. As Thomas Dewar stated: “Minds are like parachutes. They only function when they are open.”

As investors we are bombarded with fact and opinion on a continual basis.  That does not mean we approach each item with an open mind.  As traders we are often looking to find information that confirms our already firmly held beliefs.  In short, we are all plagued by confirmation bias:

Confirmation bias is an irrational tendency to search for, interpret or remember information in a way that confirms one’s preconceptions or working hypotheses.

The process of trading is nothing else if not the generation of working hypotheses.  Testing a hypothesis takes form as a trade.  In science a well-constructed hypothesis must be testable, that is falsifiable.  The same holds true in trading.

Each and every trade (or investment) must have a trigger by which the trade is found to be false.  For traders this often takes the form of a price (or time) stop.  For investors it may have some fundamental basis.  In either case, entering into a trade without some means by which you can judge your hypothesis to be false is almost always a mistake.  That is how novice investors end up riding losing trades down.

A recent example of this is the case of the United States Natural Gas Fund (UNG).  There has been a cadre of traders keen on the long-term bullish case for natural gas prices.  Unfortunately many of them have ignored the fact that natural gas prices have been in a pronounced downtrend and their vehicle of choice has lost touch with its net asset value.  While the long term case for natural gas prices may still be intact, the near term performance has (for now) falsified that view.

The good news is that it is now trivial to expose yourself to countervailing viewpoints.  In our daily linkfests we often link to posts that are at odds with each other.  You can also do this at home on a do-it-yourself basis.  Whether it be on blogs, Twitter or StockTwits it is easy to find investors and/or traders who approach the markets in a different fashion than your own.

For instance, a fundamental investor may want to see what a technical trader has to say.  A day trader may find it useful to follow someone with a longer term horizon.  A technical trader may want to follow a quant who automates their approach to the market.  As you can see the permutations are endless.

The point is that no one person (or method) has all the answers.  We learned this early on as a fan of Jack Schwager’s Market Wizards.  The fact is that there are as many ways to make money in the markets as there are traders.  The opportunity today is to expose yourself to some new ways of thinking about the markets.  The positive thing is that in the age of services like StockTwits, exposing yourself to a range of opinions is just a click or two away.

Wednesday links: flaunting failure

A TRIN-based short-term buy signal.  (Small Fish, Big Odds)

What does a day with zero new lows imply for the stock market?  (Trader’s Narrative)

Newsletter writers have become less bullish as the market has rallied.  (MarketWatch)

The Canadian stock market may be the best of both worlds:  a developed market with emerging market exposure.  (Market Blog)

Another gold-backed ETF, ETFS Physical Swiss Gold Shares (SGOL),  joins the fray.  (IndexUniverse, WSJ)

Did Barrick Gold (ABX) just put the kibosh on the gold rally?  (Bespoke)

Gold bugs look at gold as a currency, but it is not one and unlikely to be one in our lifetime.”  (Contrarian Edge)

Hedge fund investors are now keenly focused on redemption terms.  (WSJ)

Hedge funds are, contrary to popular belief, not back.  (The Reformed Broker)

“Dissenters can give us the greatest gift of all: an open mind. This is the prerequisite for a flexible approach toward investing. As Thomas Dewar stated: “Minds are like parachutes. They only function when they are open.”  (Minyanville)

How poker is similar to investing.  (Wall St. Cheat Sheet)

Research shows the Halloween Effect is an industry effect.  (SSRN)

Oil tanker stocks have not tracked oil prices higher.  (The Money Game)

Ten ETFs that don’t exist, but should.  (ETF Database)

Checking out Google Trends for investing.  (Calculated Risk)

NYSE Euronext (NYX) attempts to bolster its options business by taking on partners.  (WSJ)

Kraft (KFT) should not raise its bid for Cadbury (CBY).  (Deal Journal also Breakingviews, FT Alphaville)

Why Goldman Sachs (GS) always wins.  (The Atlantic)

Bogle and Buffett want to limit short-term speculation.  (WSJ, also Zero Hedge, Clusterstock, 24/7 Wall St.)

Is the moment for financial reform past?  (Big Picture)

Consumers seem to be getting their financial houses in order.  (Felix Salmon)

Shocking.  “The federal government is unlikely to recoup all of the billions of dollars that it has invested in General Motors and Chrysler…”  (WashingtonPost also Curious Capitalist, Dealbreaker)

The big media companies have only themselves to blame for their problems.  (The Atlantic)

“Higher education today also suffers from a deep cultural problem. Failure has become acceptable.”  (NYTimes also Clusterstock, Free exchange, Felix Salmon)

So don’t hide your failures. Wear them as a badge of honor. And most of all, learn from them.”  (A VC)

An interview with noted blogger Charles Kirk of the Kirk Report.  (Wall St. Cheat Sheet)

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Tuesday links: insurance costs

Hedge fund returns continue to shine in 2009.  (EconomPic Data)

“Insulation from extreme market events doesn’t come cheap.”  (WSJ)

“(I)f you know that there are simple things you can do to beat the market with confidence over the long term, why aren’t you doing them?”  (New Rules of Investing)

“Currently, in empirical finance we know that size, value and momentum are related to returns, but it’s not clear why.”  (Falkenblog)

A look at the consequences of the rapid growth in ETF issuance.  (IndexUniverse earlier Abnormal Returns)

Warren Buffett is shifting his portfolio away from equities.  (DealBook)

David Einhorn is still negative on the credit rating agency stocks.  (24/7 Wall St.)

Doug Kass loves cash.  (TheStreet)

Don’t discount the possibility of a Dick Fuld comeback.  (Clusterstock also Dealbreaker)

A surge in M&A always benefits the investment banks, always.  (NYTimes, Clusterstock)

The Efficient Markets Hypothesis never took hold in the corporate boardroom.  (Felix Salmon)

The story behind the Dole Corp. IPO.  (LA Times)

What a surge in life settlements may have on the life insurance industry.  (Rolfe Winkler, Aleph Blog)

The demise of Lehman Bros. has shaken up the world of prime brokerage.  (Breakingviews)

By one measure it is clear that the current economic downturn is no depression.  (Big Picture)

Was Fed policy too tight back in 2008?  (The Balance Sheet also Felix Salmon, The Money Game)

California’s budget misery“  has not stopped a big rally in California muni bonds.  (Money & Co.)

What should we make of China’s plan to issue renminbi bonds to offshore investors?  (Fund My Mutual Fund)

The benefits of a college degree in lifetime earnings and the majors that earn the most.  (Economist, PayScale)

Colleges, like newspapers, will be torn apart by new ways of sharing information enabled by the Internet.”  (The Big Money)

The financial crisis made Wall Street 2 possible.  (NYTimes)

In case you missed our holiday weekend linkfests.  (Abnormal Returns, ibid)

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Monday links: discouraged workers

Kraft (KFT) has a sweet tooth for Cadbury (CBY).  Is M&A back?  (NYTimes, WSJ, Economist, Clusterstock, 24/7 Wall St., Deal Journal)

This market isn’t asking for great. It isn’t even asking for “okay” since it is still well below where it has been in the past. This market just wants to see the US coming out of a hole.”  (The Money Game)

The benefits of successful market timing are obvious.  What is the downside?  (The Psy-Fi Blog)

Size is the enemy of investment performance.  (Institutional Investor)

Money continues to flow into commodity mutual funds.  (FT Alphaville)

A long term look at the stock market’s dividend yield.  (dshort)

Do buyouts (still) create value?  (Journal of Finance)

“Over the past decade, the U.S. private-sector has lost 203,000 jobs.”  (Big Picture)

Discouraged workers are the face of this economic downturn.  (NYTimes, Calculated Risk, The Money Game)

What do trends in temporary workers mean for the economy?  (True/Slant)

Why are so many people so afraid of inflation?  (New Yorker)

We are nearing the historical peak in the hurricane season.  (VIX and More)

If Jay Leno is the “future of TV” what does that say about TV?  (Time)

Inside the world of online shoe retailer Zappos.  (New Yorker)

Abnormal Returns is a proud member of the StockTwits Network.

Sunday links: meaningful risk

Closed-end muni bond funds have been on tear in 2009. They have easily surpassed their pre-Lehman highs.  (Bond Buyer)

Closed mutual funds that re-opened last year have outperformed their peers.  (Morningstar)

2010 could be the year of the IPO including some $1 billion deals.  (Deal Journal)

Successful trading requires the ability to take meaningful risk, but also the capacity for controlling that risk.  One can trade for sensation and one can trade for profits, but rarely can one do both.”  (Big Picture)

401(k) investors are surprisingly passive and equity-centric.  (WSJ also Atlantic Business)

Institutional investors herd into and out of industries.  (SSRN)

Should we be concerned that Wall Street is sniffing around the life settlements business?  (naked capitalism, Felix Salmon)

In praise of FINRA’s move to increase margin requirements on leveraged ETFs.  (The Reformed Broker)

Macroeconomics failed us.  Do the primary schools of economic theory have any of the answers?  (Aleph Blog, Ultimi Barbarorum)

“This recession has delivered a huge lesson in how far human folly and irrationality can lead us astray–into conflicts of interest, extrapolating long-term projections from short-term trends, putting too much trust in economic advisers, and so on.”  (Predictably Irrational)

The Geithner Plan foresees higher capital reserves for banks globally.  (The Stash, Clusterstock)

“The market for college education looks a lot like the market for houses circa 2006 –  very bubbly. And the reason is similar: There is too much credit.”  (Rolfe Winkler also Felix Salmon)

Are panics oversold by the societal elites?”  (Infectious Greed)

What to expect from the Apple iPod event.  (Silicon Alley Insider)

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A Long Year

It's been a year since Lehman Brothers bit the dust, and Britain's Guardian has put together a cool interactive timeline, "The Collapse, Week by Week," that details how shockwaves from the Wall Street bank's collapse spread around the world.

Lehman