Friday, May 31, 2013

The Most Stinging Indictment Of Wall Street Bankers We've Read In A While

“From BI:  “ ...In a recent editorial, Reuters editor Edward Hadas got more specific about the group of wealthy people he examines. His meditation is specific to the world view of bankers, whom he calls "aristocrats."

He says their rewards are excessive for the work they do and the value it adds to society (very little). Consider that while the average pay of a JP Morgan employee is $192,000, it is the top third of employees (making around $485,000 compared to the bottom two thirds', say, $45,000), that skews it in that direction.

But being overpaid isn't Hadas' most damning gripe. To him, this is a sociological issue about identity that goes beyond dollars and sense. Bankers, he says "have persuaded broader society that they are modern day aristocrats... They go along with an unthinking sense of entitlement and a mix of self-righteousness and self-centredness, with just a hint of condescending tolerance for limited criticism."

Think about it as a form of nobless oblige. Hadas is arguing that, armed with the mysteries of our complex financial system, bankers feel like the masters of something lesser mortals cannot begin to understand. For that important understanding, they believe they should be rewarded handsomely….

The SAC Case: A Classic Dilemma

The New York Times’ James B Stewart writes: “Imagine the pressure on Mathew Martoma, the 38-year-old former portfolio manager at SAC Capital Advisors charged with insider trading who may — or may not — be in a position to implicate Steven A. Cohen, the hedge fund’s billionaire founder and owner.

“So far, Mr. Martoma has defiantly asserted his innocence and refused to cooperate with prosecutors. He could change his mind, but the clock is ticking. The government faces a mid-July deadline when it must decide whether to seek criminal charges against Mr. Cohen relating to the trades at the center of Mr. Martoma’s case.

For all concerned, the stakes are huge….With a net worth estimated by Forbes at $9.3 billion, Mr. Cohen could be the marquee name that would lend the investigation a new level of public awareness and potential deterrence.  Mr. Martoma could face decades in prison if convicted. His potential prison term is especially severe because the federal sentencing guidelines are based on the amount of the illegal profit, which in Mr. Martoma’s case are said to be huge. Prosecutors have called the case the most lucrative insider trading scheme ever….

How Fear of Risk Puts Hedge Funds Behind S&P 500

From Bloomberg: Hedge funds are paying a price for being too hesitant to buy stocks in the midst of a four-year bull market, according to Barry Ritholtz, FusionIQ’s CEO.

Hedge Fund Research Inc.’s broadest fund index fell out of sync with the Standard & Poor’s 500 Index in 2011 and has yet to recover. The HFRX Global Hedge Fund Index had a 4.8 percent advance for the year through last week, while the S&P 500 was 16 percent higher.

Many fund managers have been “overly timid and suffering from risk aversion” because of the magnitude of the losses that preceded the current advance, Ritholtz said yesterday during an interview. The S&P 500 tumbled 57 percent from its October 2007 high to its March 2009 low. Federal Reserve policy has worked against managers with a macro strategy, which focuses on political and economic events, he said…

Spygate: Bloomberg CEO frustrated he can't hold top editor more accountable for spying scandal

Bloomberg LP CEO Dan Doctoroff has privately expressed frustration with founding Editor-in-Chief Matt Winkler’s Teflon status in the fallout from the company’s spying scandal.

A source told the Post that while Doctoroff has made his feelings known to some clients and colleagues, he has also indicated his hands are tied “right now” when it comes to holding Winkler’s feet to the fire for the damaging data breach.  Winkler — who wrote the company’s ethics and style handbook, “The Bloomberg Way” — has admitted that Bloomberg reporters on his watch used the company’s ubiquitous terminals to gain access to proprietary information about clients, such as when they logged on and what functions they used.

As the Spygate scandal enters its fourth week, Mayor Bloomberg had thought the problems of the terminal excesses had been settled a long time ago.  Sources present at a recent discussion with Doctoroff said he indicated that he wanted to hold Winkler more accountable for the offending practices but believed that his options were limited because of internal politics and long-held allegiances….

Motivation Plus: Smithfield Bosses to Get $85.4 Million From Chinese Deal

How much more do you need to know?  In spite of what they claim, if the Chinese decide to poison the American pork consumers, these bosses won't give a crap.   From Bloomberg: Smithfield Foods execs, who run one of the worst-performing large U.S. food makers over the past five years, are set to reap at least $85.4 million from its sale to China’s Shuanghui International Holdings Ltd. The company has been under pressure from its biggest shareholder for lagging behind competitors Hormel Foods Corp. and Tyson Foods Inc. Continental Grain Co., which has a 6.8 percent stake, said in March that Smithfield should appoint new managers and break itself into three businesses as rising animal-feed costs made its hog-production unit unprofitable.

The total payout is based on the stock and share options held by Smithfield’s five top executives, according to data compiled by Bloomberg. Among the managers, CEO C. Larry Pope owns stock valued at $25.4 million based on the $34-per-share offer price, according a May 17 filing…

Goldman: This US Treasury Sell-Off Is for Real

According to CNBC with yields on government bonds jumping in the past week, Goldman Sachs has warned that a widely predicted bond sell-off is finally happening, while a major U.S. asset manager has warned investors to move out of long-duration bonds to avoid heavy losses.

Pessimistic growth targets, a fear of the Federal Reserve curtailing asset-purchases, and uncertainty over Japan's "Abenomics" policies are the three key reasons that Goldman Sachs cited for the move higher in yields.

"The bond sell-off: It's for real," Goldman's fixed income analysts said in a research note released on Friday. "Our end-2013 forecast for 10-year U.S. Treasurys remains 2.5 percent, above the forwards, and we will be looking for other opportunities to trade the market from the short side…"

Read all about it at

11 Horror Stories About The Killer Exam That Wall Streeters Will Be Taking This Saturday

One True Tale of Fear and Loathing From BI: CFA test-takers witnessed a girl get locked out of the exam room after the break session during the level 2 exam.

"Between the morning and afternoon sections of the CFA exam, there's a two hour break.  The proctors always warn you to get back to the exam room like 10-15 minutes before the break ends because they start reading instructions for the next part of the exam right when the 2 hours is up.

Just before the 2 hour mark (or maybe it was right at the 2-hour mark), the proctor started reading the instructions over the loudspeakers, but the doors to the entrance were still open.
Then, one girl walks through the door in mid-instruction. She was probably right on time, but late by CFA test standards.
The proctor stops reading, and tells the girl over the loud speaker: "I'm sorry, you have to go back through the doors." The girl stepped back, then the proctor said on the loud speaker "Can someone close that door?"  Everyone watched as the door closed on the girl, who just had this blank stare on her face. You could feel the collective gasp in the room as what just happened weighed down on everyone. Six months of study wasted.  

To read more chilling tales:

Thursday, May 30, 2013

At Goldman, Out of 17,000 applicants just 350 made the cut

From WSJ: Out of 17,000 applicants, just 350 college students made the cut and will begin their investment banking summer internships next week at Goldman Sachs offices around the world.

That is roughly the same yield as prior years, a 2% acceptance rate. It’s easier to get into Harvard or Stanford.

The 10-week program, which kicked off with an orientation on Thursday in the bank’s Jersey City offices, is supposed to immerse the summer analysts in the Goldman culture….

Two Things You Should Know If You Want To Be Real About Hedge Funds

From BI:  This morning, two snippets of information about hedge funds caught our eye. If you think about them at all, you should know these facts about their performance and who's behind it.

1. 61% of all the money in hedge funds is managed by the 100 largest hedge funds, according to research firm Prequin. So if you're tracking them you're really tracking the industry.

2. Hedge fund performance has been abysmal since the financial crisis. This year they're up an average of 5% compared to the S&P's 15% gain. Investors have kept putting their money in funds, though. That is, until now, according to Bloomberg:  Hedge Fund Research said in April that funds saw inflows in 14 of the last 15 quarters—but now there is evidence that substandard returns may finally be having an effect….

The Buzz: How Jamie Dimon Kept His Job

Q: What do Warren Buffett, Rupert Murdoch, Mayor Michael Bloomberg, former Treasury secretary Hank Paulson, venture capitalist Marc Andreessen, and Home Depot co-founder Ken Langone have in common? (Besides being rich white men, that is.)  A: All of them joined Jamie Dimon in battle as the JPMorgan Chase CEO fought to keep his job as the bank's board chairman.

From New York Magazine: "Corporate governance isn't usually a sexy topic….The threat of having Dimon taken down a peg — and potentially having him quit altogether in protest — was enough to send JPMorgan into a furious behind-the-scenes lobbying effort to keep the popular CEO in power.

"...The effort to keep Dimon looked more like a presidential campaign than a normal lobbying effort. Executives divided and conquered: Joe Evangelisti and Kristin Lemkau, two of JPMorgan's top spokespeople, contacted reporters and influential columnists and got messages of support placed in visible spots like Politico's "Morning Money" newsletter; William Daley, a former JPMorgan Chase executive and President Obama's former chief of staff, was tasked with reaching out to union leaders; Sarah Youngwood, the bank's investor relations head, and Marianna Lake, the bank's CFO, were dispatched to make nice with large shareholders and pension funds; and bank executives including Jimmy Lee, the bank's top deal-maker, called top corporate leaders to urge them to support Dimon in their public appearances….

Goldman: Keep Calm and Carry On Buying

From CNBC: Global stocks may have been on a wild ride of late, but the world's biggest investment bank has told investors they should see rising U.S. Treasury yields as positive and should continue to buy equities.

"While there are certainly risks around QE (quantitative easing) being withdrawn we continue to view rising bond yields as relatively benign for European equities," Goldman Sachs' European research team said in a report released on Thursday. "Indeed provided it is better growth that is driving yields upwards (which is what we expect) we would argue it is supportive. We find a positive relationship between real yields in the U.S. and European equities."

Harvard Grads Taking Wall Street Jobs Rises

From Bloomberg: The number of Harvard College’s graduating seniors going to work on Wall Street increased to 15 percent this year from 9 percent last year, according to an annual survey. Even with the increase, the figure is still down from before the global credit crisis when, in 2007, 47 percent of the graduating class said it was taking jobs in finance, the Harvard Crimson reported yesterday. The student newspaper’s survey of 780 students -- almost half the graduating class -- took place May 11 to May 21 and included questions about drinking and drug use and cheating on exams.

The survey found that 61 percent of seniors have jobs lined up, while 18 percent are going to graduate school. The rest are undecided, or plan to travel or pursue fellowships. The most popular industry is consulting, with 16 percent saying they will be working in that field. The most lucrative is finance, with 21 percent of respondents saying they will earn more than $110,000 to start….

Sleaze Street: Former hedge fund titan bares all in titillating Wall Street memoir

According to the NY Post Turney Duff went from an innocent 7-year-old in his first New York trip (right) to a hot-shot trader (right bottom in 2000) under crooked Galleon Group founder Raj Rajaratnam (middle) and a life of money, sex and drugs, as chronicled in his memoir.

“…The trading desk is surrounded by glass. I work in a fish bowl. I’m in the middle of a newly renovated office on Park Avenue . . . As the opening bell rings, every muscle in my body clenches. I sit upright and try to focus on the eight computer screens in front of me. There are 25 orders on my desk, each from five to 10 million dollars and involving some sort of investment decision. My head throbs...

If I can just make it to lunch, I tell myself. A cheeseburger with a fried egg will help. I try to see how many minutes I can go without looking at the clock — 16 is the record for the day. I can’t keep my eyes open. I just need to make it to the closing bell.. .

"...Forty-five minutes later: There’s an ounce of cocaine piled in the microwave. An additional few thousand dollars’ worth of blow sits on a single plate in the kitchen. The place is littered with Grey Goose bottles, ice, cups, and straws for snorting. We call this East Side apartment the White House for obvious reasons, but it’s more like a Wall Street crack house. Randy and James [two sell side traders] live here. Everything is provided and paid for, compliments of the sell side ... They like to please their clients. Tonight they were kind enough to order in: Chinese and Mexican escorts…

“The General” Petraeus Reboots With Private-Equity Giant

From WSJ: David Petraeus, the former U.S. Army general who resigned last year as Central Intelligence Agency chief over his running affair with a biographer/fan, is rebooting his career with KKR & Co., the giant private-equity firm. KKR, known for large debt-fueled corporate takeovers, hopes Mr. Petraeus’s experience and Rolodex will help the firm seek and size up deals, said people familiar with the move. The former general will be chairman of a new internal “institute” focused on macroeconomic forecasts, communications, public policy and advice on investments in emerging markets, they said. …

Ken Mehlman, a former Republican National Committee chairman who now serves as KKR’s global head of public affairs, said Mr. Petraeus is “someone who has served in an incredibly effective and in some ways heroic way…."  Folks at KKR had better learn to give a sharp salute and keep their boots polished to a spit shine.  Petraeus likes things done his way...or no way...  

Flop Suey: China’s $4.7 Billion Smithfield Deal

 From Businessweek: Announcing his company’s $4.7 billion acquisition by China’s largest pork producer, Smithfield Foods CEO used the moment to stress how the deal is designed to send more American pork to Asia, a boost for U.S. farmers. In other words: Relax. Shuanghui International Holdings won’t be sending Chinese pigs to your local Kroger store.

“People have this belief … that everything in America is made in China,” Smithfield President and CEO Larry Pope said on a conference call today. “I like to tell people, ‘Open your refrigerator door, look inside.’ Nothing in there is made in China

Buffett Hits Vegas!

The utilities sector has taken a beating in the stock market of late but that didn’t scare Warren Buffett.  MidAmerican Energy, a subsidiary of Buffett’s Berkshire Hathaway , announced after the closing bell that it will shell out $5.6 billion in cash to acquire NV Energy, a Nevada-based power provider at a price of $23.75 per share. Including debt the deal has an enterprise value of $10 billion and is expected to close in the first quarter of 2014…

Wednesday, May 29, 2013

Only in America: Hamptons summer rentals? A snap at just $1 million

From NBC News: Who's worried about the market tumbling?  Summer rentals like the one above at the ritzy Hamptons on Long Island, New York, have hit $1 million, according to local real estate agents.

If you think your rent is high, consider summer rentals in the Hamptons.  Brokers say there are now at least a half dozen homes and estates in the ritzy Long Island beach towns renting for around $1 million—just for the summer. That works out to $9,803 per day, or $408 an hour. And the $1 million lease doesn't include utility bills or other charges, which can run in the tens of thousands.

Brokers say the number of million-dollar rentals marks a new record.

"It's unprecedented," said H. Dolly Lenz, a Manhattan broker who also works with buyers and renters in the Hamptons. "The demand is not just strong, it's unbelievable."

Harvard Grads Are So Over Wall Street

From HuffPo: Dudes, the Wall Street brain drain appears to be over, according to a recent study.  Of Harvard graduates this year who already have jobs, about a third of graduating seniors plan to take jobs in finance, with 15 percent working on Wall Street and another 16 percent taking consulting jobs, according to a survey run by student newspaper The Harvard Crimson. Only about 20 percent of the class of 2012 went into finance and consulting.

Before the recession in 2007, 47 percent of Harvard graduates took jobs in finance and consulting, the Crimson previously reported. That number fell to 39 percent in 2008.  The reason for the decline depends on who you ask. Some suspect the financial crisis may have played a role in changing the aspirations of the nation's best and brightest. Now, millennials say they'd prefer to work in industries where they’re able to help people, such as health care….

Nasdaq to Cough Up $10 Million to Settle Charges Over Facebook IPO

The Securities and Exchange Commission slapped the Nasdaq stock exchange with a $10 million fine for alleged securities laws violations resulting from its "poor systems and decision-making" during the Facebook IPO.

This is the largest fine ever levied against an exchange by the SEC…

Fasten Your Seatbelts: USA Today Has A Huge Front Page Story About The Bull Market And All The Wealth That's Getting Created

CNBC's Carl Quintanilla has a very interesting observation in a tweet: "Market rally getting bigger and bigger play."

He points to the latest cover of USA Today, which has one of the bigger front page splashes about the stock bull market we can recall seeing in a long while. If there ever was a cover indicator, this is it.  It's going to be a bumpy ride.  

Read more:

Former Goldman partner to hit the comeback trail

From Dealbook: On Wall Street, the wheel of fortune can spin around and around, from enormous cash bonuses and luxurious perks one year to the unemployment line the next.

Then there is Fred Eckert, a onetime Goldman Sachs partner who soared as a star in “vulture” investing in ailing companies. But in the turmoil of the financial crisis, his business and wealth came crashing down. By 2011, he was bankrupt, divorced and, for two months, in a coma.

Today, he is in better shape, earning $1 million a year from a consulting job, although that expires next year. But most of his income is dedicated to paying leftover debts — he says he is running at “break-even at best” after expenses.  Now Eckert, 65, is planning to return to the arena. He says he has shed 25 pounds from his peak of 220 and has given up drinking. His cashmere overcoat may be rumpled, but his confidence is high. Eckert is trying to start a new money management business by raising up to $100 million. The new company’s name — Phoenix Star Capital.

Wait…wait…if this hasn't brought tears to your eyes, there's more  at

Liberty Reserve, Online Currency Exchange, Accused of Laundering $6 Billion

The operators of a global currency exchange ran a $6 billion money-laundering operation online, a central hub for criminals trafficking in everything from stolen identities to child pornography, federal prosecutors in New York said on Tuesday.

The currency exchange, Liberty Reserve, operated beyond the traditional confines of United States and international banking regulations in what prosecutors called a shadowy netherworld of cyberfinance. It traded in virtual currency and provided the kind of anonymous and easily accessible banking infrastructure increasingly sought by criminal networks.....

The 'Great Rotation' — Is It Finally Happening?

The sell-off in U.S. Treasurys on Tuesday, which took yields to their highest levels in over a year, and record high equities have once again given rise to talk that the "great rotation" may finally be here, CNBC reports..

Worries that the U.S. Federal Reserve could slow its massive bond-buying program led the yields on 10 and 30-year Treasurys to jump to their highest levels in 13 months, at 2.07 percent and 3.331 percent, respectively. Added to that, positive economic data out of the world's largest economy fueled the Dow Jones Industrial Average to hit a record close of 15,409.39 on Tuesday…

KPMG Ex-Partner to Plead Guilty of Insider Trading

From WSJ: A former senior partner at KPMG LLP agreed to plead guilty to securities fraud for providing confidential information about KPMG clients to a friend as part of an insider-trading scheme, the Justice Department said in court filings Tuesday.

Scott London, 50 years old, agreed to plead guilty to one count of securities fraud. The move was expected. London admitted wrongdoing almost as soon as the insider-trading scheme became known in April. His attorney, Harland W. Braun, has previously said London intended to plead guilty. Mr. Braun couldn't be reached for comment Tuesday.  London faces up to 20 years in prison, though he is likely to receive a lesser sentence under federal sentencing guidelines….

Tuesday, May 28, 2013

Achtung! The Weird/Wacky News Item of the Day: Teapot Happens to Look Exactly Like Hitler

From New York Magazine: A lot of people have noted that the Michael Graves Design Bells and Whistles Stainless Steel Tea Kettle being promoted on a J.C. Penney billboard on the 405 highway near Culver City, California, bears a striking resemblance — as so many things do — to Adolf Hitler. And it really is pretty Hitler-y. We've seen better, though…

Home Price Gains Go to Double Digits

According to CNBC home prices saw their largest annual gains in six years reaching double digits on a widely watched monthly report.

Prices in the nation's top ten and top twenty markets rose 10.3 percent and 10.9 percent in March from a year ago on the S&P/Case-Shiller Home Price Indices.  These are the highest annual returns since 2007 for the two. Nationally prices rose 10.2 percent annually in the first quarter…

Hamptons Slummer rental: Locals’ trade million-dollar homes for a 2-month trailer-park stay

 $50,000 RENTAL INCOME - $16,800 TRAILER SPACE = $33,200 PROFIT

From NY Post: Hamptons residents are trading in their luxury million-dollar homes for the summer — to live in a trailer park.
 The savvy folks are squeezing into digs the size of a tiny Manhattan studio so they can lease out their sought-after houses and rake in thousands of dollars during the sizzling summer rental season.

“We call it ‘glamping,’ or glamour-camping,” said real-estate agent Danielle Becker-Wilson, 36, who jumped on the bandwagon and is temporarily ditching her million-dollar pad for a trailer at “Montauk Shores Condominiums” — also known as the Ditch Plains Trailer Park — in Montauk….

Everything You Always Wanted To Know About How to Build a Hedge Fund

From Barrons:  Launching a new hedge fund has always been difficult, and even more so since the financial crisis. More funds are closing down than starting up these days, and most of the failures are small operations with short histories, says Daniel Celeghin, a partner at Casey, Quirk and Associates, which advises asset managers. Because investors have become "more educated and more paranoid" since the 2008 crash, he notes, they gravitate toward "the perception of safety" in large hedge funds that boast long track records. Of the $15.3 billion that investors poured into hedge funds during the first three months of this year, firms that managed more than $5 billion soaked up $10.1 billion; firms managing less than $100 million got just $1.14 billion, according to analysts at Hedge Fund Research….

Banks Cut 189,000 With Employment at Nine-Year Low

Ouch!  According to Bloomberg Britain’s four biggest banks will have eliminated about 189,000 jobs by the end of this year from their peak staffing levels, bringing employment to a nine-year low amid a dearth of revenue. More cuts may follow.

Royal Bank of Scotland Group Plc, HSBC  Holdings Plc, Lloyds Banking Group Plc and Barclays Plc will employ about 606,000 people worldwide by the end of 2013, according to data compiled by Bloomberg. That’s 24 percent below the peak of 795,000 in 2008 and the least since 2004, when they employed 594,000 globally….

Legendary hedge fund guru: moms and trading don't mix

From Money: Leaning in may work for women in the world of tech. But if you're a woman who wants to balance trading and a family, one hedge fund manager says that's not possible.  "You will never see as many great women investors or traders as men. Period. End of story," said billionaire Paul Tudor Jones at the University of Virginia's spring investing symposium last month.

The video of the event, which was off the record, was obtained by The Washington Post through a Freedom of Information Act request.  Children are the ultimate career killer for female traders, Jones said. He specifically alluded to breastfeeding as a reason why a mother cannot, according to him, be a good trader.

"As soon as that baby's lips touch that girl's bosom, forget it," he said. "Every single investment idea. Every desire to understand what's going to make this go up or go down is going to be overwhelmed by the most beautiful experience, which a man will never share about a mode of connection between that mother and baby….."

Friday, May 24, 2013

How Jamie Dimon Kept His Gig

From New York: "....The effort to keep Dimon looked more like a presidential campaign than a normal lobbying effort. Executives divided and conquered: Joe Evangelisti and Kristin Lemkau, two of JPMorgan's top spokespeople, contacted reporters and influential columnists and got messages of support placed in visible spots like Politico's "Morning Money" newsletter; William Daley, a former JPMorgan Chase executive and President Obama's former chief of staff, was tasked with reaching out to union leaders; Sarah Youngwood, the bank's investor relations head, and Marianna Lake, the bank's CFO, were dispatched to make nice with large shareholders and pension funds; and bank execs including Jimmy Lee, the bank's top deal-maker, called top corporate leaders to urge them to support Dimon in their public appearances.

"It became a media battle," the person close to JPMorgan's efforts said. "And then people started coming and saying, 'How can I help?'"

The charm campaign worked, as CEOs and corporate chieftains turned out in droves. TV airwaves filled with gushing hosannas to Dimon's leadership ability, boasts about JPMorgan's record profits last year, and dire warnings about what a Dimon-less JPMorgan might look like. Ken Langone had a fit on Bloomberg TV, saying he was "terrified" of what would happen to the bank if Dimon were to step down. Marc Andreessen called Dimon "one of the great all-time CEOs in the financial services industry." And last week, Rupert Murdoch tweeted, "JPMorgan would be up a creek without Jamie Dimon as Chairman. One of the smartest, toughest guys around. Didn't bend when times got hard."

Beware of that hedge fund in the window

 When hedge fund managers advertise, performance dips, according to Fortune’s Dan Primack.

Hedge funds soon will be allowed to advertise their wares to potential clients, thanks to a provision in last year's JOBS Act (which had no direct relation to actual jobs). As will private equity funds, venture capital funds and other alternative investment vehicles that heretofore were prohibited from general solicitation.
Former SEC Commissioner Mary Shapiro opposed the change, so she basically sat on it (apparently believing her personal opinion trumped the directive of federal legislation). New SEC Commissioner Mary Jo White has suggested that she'll move this and other JOBS Act provisions along shortly.

So in a few months expect the pages of your favorite financial rag and website to contain advertisements for investment opportunities that you probably can't afford (since you'll still need to be an "accredited investor" to actually participate). For the 1%, however, a word of warning: Future performance is likely to be worse than past performance. That's the finding of a new academic paper…

Only in NY: You Can Already See All Of The Hedge Funders Flying Out To The Hamptons Today

Who’s minding the markets?  Don't ask.  A bunch of hedge funders are already heading out to the Hamptons, but don't expect them to all drive there or take public transportation. 

If you check out the East Hampton airport (KHTO) on, there's been an uptick in flight traffic today.  We've monitoring this situation all week and have noticed flights departing from Westchester and Danbury landing at KHTO.

Bonus Watch ’13: Goldman Links Bonuses To Protecting Firm Reputation

Goldman Sachs has linked bonuses and promotions to employees’ success in protecting the firm’s reputation and put new restrictions on some client transactions to avoid a repeat of the damage to its standing in the wake of the financial crisis.

Bloomberg reports that a 'new-activity committee' will evaluate and approve suitability when clients undertake transactions that carry new risks, New York-based Goldman Sachs said Thursday in a report.

When setting year-end pay, the firm is reviewing employees’ efforts to protect its reputation and win clients’ trust, according to the report….

Under Arrest, Now Museum Quality: Bernie Madoff

In cooperation with the FBI, his victims and members of the Madoff family, the National Museum of Crime & Punishment this week opened a permanent exhibition devoted to one of the headlining villains of the Great Recession.

"He is the No. 1 public enemy for financial crime," said Janine Vaccarello, the curator of the Madoff exhibit and chief operating officer of the five-year old crime museum in Washington D.C. "He was a serial killer of the financial industry…."

Thursday, May 23, 2013

Only In New York: What Hamptons Rentals Tell You About the Stock Market

From CNBC: The Hamptons might be more than a summer playground for the rich and famous. It might also be your best clue about what the stock market will do over the next few months.

According to Nicholas Colas, ConvergEx's chief market strategist, a "white-hot" market for Hamptons summer rentals tells us that New York hedge fund managers are feeling confident about the market, and don't expect to see much happen this summer.

"There are some 70 listings in the [$500,000] to $900,000 range for the traditional Memorial Day to Labor Day period in the better parts of the East End," Colas wrote in a Wednesday morning note. "Think a lot of hedgies are anticipating a volatile summer while paying those prices to 'Chill Out East'? Probably not...."

Wait...wait...there's more at

Market Meltdown! Utility Stocks Flash Crash At Opening Bell

From BI: This morning, when New York markets opened at 9:30 AM, shares of American Electric Power and Nextera Energy, two big electric utilities, briefly plunged 54% and 62% respectively. Both companies are in the S&P 500, and the flash crash brought the utilities sub-sector of the index down nearly 8% overall.

The massive moves resulted in a trading halt in shares of both companies.
Now, AEP is only down 1.5%, and NEE is down 1.8%.

A Money Manager In Texas Is Upset That He Can't Give SAC Capital More Of His Money

 From  BI: As federal prosecutors circle Steven A. Cohen's $15 billion hedge fund in a long-running insider trading probe, one financial adviser in Texas is so devoted to the billionaire investor that he may give him more money.

"I'm thinking about putting more money with him," said Ed Butowsky, managing director at Chapwood Capital Investment Management, who manages $1 billion in client money. The Dallas-based adviser did not say how much his wealthy clients have invested with Cohen's SAC Capital Advisors, but said the figure tallies into the tens of millions.  "Stevie Cohen is the Michael Jordan of hedge fund managers," Butowsky said, comparing the billionaire trader's success in the markets to the feats of the legendary professional basketball star. "I'd be a fool to take out money."

An Uneasy Peace After Dimon's War

According to the WSJ James Dimon has won the battle of the board. Now he must win the peace with investors.

Shareholders at J.P. Morgan's annual meeting Tuesday voted down a nonbinding proposal to split the roles of chairman and chief executive. The debate around this had in recent weeks become something of a referendum on Mr. Dimon's performance, even though the proposal's backers said at the meeting that this wasn't the intent..

But another vote showed J.P. Morgan still needs to work on its relationship with its shareholders.  They approved the re-election of directors, including three members of the risk policy committee who had been opposed by proxy-advisory firms Institutional Shareholder Services and Glass Lewis. But those three received less than 60% of votes in favor, with one, Ellen Futter, garnering only 53.1%. Last year, no director received less than 86% of votes….

Can Funds Survive Bernanke?

From Bloomberg: "You have to wonder how long an industry that underperforms the broader market will stay around. Goldman Sachs published a chart today comparing the performance of hedge funds that invest in equities with the major stock-market indexes. Based on Goldman's research, the average hedge fund is up just 5.4 percent so far this year. During the same period, the Standard & Poor's 500 Index has risen 15.4 percent.

"....Then there's the lack of volatility. Hedge funds often profit from discrepancies in prices between related assets, and these tend to shrink during calm periods in financial markets  The biggest reason for the market tranquility might be the Federal Reserve's repeated assurances that it will maintain zero interest rates and provide monetary stimulus until the economy recovers, and unemployment ebbs.

"That may just account for the recent flurry of stories about how much hedge-fund managers hate Fed Chairman Ben Bernanke. He's putting them out of business…."

Wednesday, May 22, 2013

What Inequality? Median CEO Pay Rises To $9.7 Million In 2012

CEO pay has been going in one direction for the past three years: up.

The head of a typical large public company made $9.7 million in 2012, a 6.5 percent increase from a year earlier that was aided by a rising stock market, according to an analysis by The Associated Press using data from Equilar, an executive pay research firm.

CEO pay, which fell two years straight during the Great Recession but rose 24 percent in 2010 and 6 percent in 2011, has never been higher. But the numbers don't tell the whole story….

The First Jobs Of 13 Wall Street Titans (Smile. It's Hump Day!)

From BI: Before they were the masters of the universe, many of the biggest names in finance worked jobs outside of Wall Street.  We're talking about things from bagging walnuts to selling peanuts to delivering newspapers and attending parking lots.

Steve Cohen worked in the produce section of a grocery store.  Steve Cohen was a "fruit boy" at Bohack supermarket where he made a $1.85 an hour. He quit that job because he was making more at the poker table. 

Phil Falcone was a professional hockey player.  After graduating from Harvard, Falcone played hockey professionally for a year in Sweden.  He was injured and went to work on Wall Street….

David Tepper paid his college tuition by working at a library.   Tepper took a job at the University of Pittsburgh's fine arts library to help pay for school. He told Bloomberg TV's Stephanie Ruhle that he tried to get a job at McDonalds in high school.  "… I tried to get a job at McDonald's. I couldn't get a job. They would not hire me. It was a problem to get a hairnet over the afro," he said.

Google Is The New Hedge Fund Hotel, Boeing The Market Darling, And Apple's Looking Rotten

 From Forbes:  "....The 50 largest hedge funds in the world decided to sell Apple in the first quarter, replacing it with Boeing  and, interestingly, Norwegian Cruise Holdings which went public in January, according to a report by FactSet.  The group of hedge fund heavyweights, which includes the likes of Carl Icahn, David Einhorn, and Dan Loeb, bet on consumer discretionary, which appeared as the most overweight sector, while LyndoellBasell was the most overweight equity, compared to its weights in the S&P 500.  They shunned the IT sector, and particularly Apple, which still remains the sixth largest holding by dollar-value.  The hedge fund hotel: Google, held by 62% of the 50 largest hedge funds.

And hedge funds played the market, buying Boeing en masse.  Despite battery fires that forced the Chicago, Illinois company to ground the entire 787 Dreamliner fleet, the stock handily beat the S&P 500, as hedge funders poured in $1.6 billion in inflows, or about 250% of its fourth quarter value in the funds’ aggregate portfolio.

Basking in Apple’s former glory is Google, which is currently held by 62% of the largest funds and is the second largest holding by dollar value, at $6.8 billion….

The IRS Official Will Plead The Fifth Amendment Before Congress Tomorrow

From BI: Lois Lerner, the head of the IRS division that oversees tax-exempt organizations, will invoke her rights under the Fifth Amendment and not answer questions while testifying before a House committee on Wednesday about the IRS' inappropriate targeting of conservative groups.

Lerner is scheduled to testify before the House Oversight Committee on Wednesday. In a letter to committee Chairman Darrell Issa  that was obtained by the Los Angeles Times on Tuesday, Lerner's attorney, William W. Taylor III, wrote that "she has no choice but to take this course."

Read more:

Tuesday, May 21, 2013

Life is a Beach or Betting on a Summer Rally

Mark Hulbert, MarketWatch, writes: “….How did investors and advisers come to believe in a Summer Rally in the first place? I have no idea, but it might have had something to do with the extraordinary rally that occurred in the summer of 1932, in the depths of the Great Depression. The Dow nearly doubled during that year’s summer’s rally.  Without outlier years like that one, the Summer Rally loses even more statistical support.

“Since 1940, for example, the average Dow gain from the end of May to its highest close over the next three months is just 4.0%. Seven of the other 11 months of the calendar sport higher average “rallies” than this.

“Of course, the stock market will rally at some point this summer. But its odds of doing so are not any greater than at any other time of the year. After all, every season of the year sees the stock market at times going up — just as it also witnesses periods of market decline. The widespread belief in a Summer Rally is a good illustration of the tricks our minds can play on us…


SAC Cap to Stem Withdrawal Requests

 According to Dealbook: About $9 billion of the $15 billion invested at SAC Capital belongs to Steven A. Cohen, who could wind down SAC and manage his fortune separately.The embattled hedge fund SAC Capital Advisors is bracing itself for another round of withdrawal requests from investors after disclosing that it would no longer fully cooperate with the government’s scrutiny of its trading practices.

SAC’s investors have two weeks to decide whether to withdraw money from the $15 billion hedge fund, which is owned by Steven A. Cohen. Earlier this year, SAC investors asked to redeem $1.7 billion, and the firm is scrambling to stanch the outflow of more funds as fears rise that the insider trading investigations could further damage Mr. Cohen and his firm.

In the latest blow, SAC’s largest outside investor, the Blackstone Group, is preparing a request to withdraw a portion of its money before the June 3 deadline, according to people briefed on the matter. Blackstone could take out as much as half of its roughly $550 million investment, these people said.

JPMorgan's Dimon survives shareholder referendum


From the AP: Shareholders at JPMorgan Chase voted to let Jamie Dimon, the chairman and CEO, keep both his jobs.  At the bank's annual meeting, just 32 percent of shareholders voted for a non-binding measure that would have advised the bank to split the roles. That's less than the 40 percent vote that a similar proposal received last year.

Shareholder groups lobbying for the split gained momentum from a surprise $6 billion trading loss last year, which tarnished the reputation of both JPMorgan Chase & Co. and Dimon. The bank and Dimon had argued that letting Dimon keep both jobs was the most effective form of leadership.

Dimon emerged from the financial crisis heading one of the strongest banks in the country. But his reputation has been hurt over the past year over fallout from the so-called "London whale" trading loss….

Wall Street's Giants Try 'Flow Monster' Formula

From the WSJ report: “…..Welcome to the new Wall Street, where back-office work trumps backslapping. For all the talk that "Wall Street is back," bad habits and all, from the ravages of the 2008-2009 crisis, there are signs that the financial industry is undergoing a profound transformation.

It has taken half a decade of denial and trial and error, but some of the world's largest banks seem to be close to figuring out how to make money in an environment of tighter rules, less benign markets and more demanding customers….

The new normal still is a work in progress. But the first glimpses suggest that the global banking sector will be less crowded at the top, more boring and generally less profitable for both shareholders and employees. The hope is that it also will be less prone to regular blow-ups.

A Jamie showdown at the JPM corral today

From tne New York Post: Think of it as the tempest in Tampa.  JPMorgan boss Jamie Dimon is bracing for a shareholder brouhaha today in the Sunshine State that could set the tone for the future of the Wall Street firm. Dimon is in an epic struggle at the bank’s annual shareholder meeting to retain his dual roles as chairman and CEO.

It’s likely that the bank honcho will secure enough votes to keep his titles, but the backlash will certainly leave a scar.

“Regardless of the vote tally, it may be untenable for the [JPMorgan] board of directors not to take concrete actions to address the underlying concerns investors have about the firm,” said Mike Garland, assistant comptroller at the New York City Office of the Comptroller, which backs the split…

Gupta Challenges U.S. Use of Wiretaps in Insider Appeal

From Bloomberg (not one word has been changed):  Former Goldman director Rajat Gupta is set to ask a federal appeals court in New York today to overturn his insider-trading conviction by arguing the U.S. shouldn’t have been allowed to use evidence from wiretapped phone calls that didn’t involve him.

Gupta has already been handed one victory from the 2nd Circuit Court of Appeals, which will hear today’s arguments. In December, it allowed him to remain free while he fought his conviction. The court had overturned U.S. District Judge Jed Rakoff’s ruling ordering Gupta to surrender to prison authorities on Jan. 8 and begin serving his two-year sentence.

Gupta, 64, who was a managing partner at McKinsey & Co., and a director at Procter & Gamble Co., was convicted by a jury in June of one count of conspiracy and three counts of securities fraud. He was accused of passing illegal information about New York-based Goldman Sachs to Galleon Group LLC co-founder Raj Rajaratnam, his friend and business partner.

SAC investors fleeing as Cohen faces prosecutors

Steve Cohen’s looming confrontation with federal prosecutors isn’t sitting well with his investors, according to a NY Post report.  His $15 billion hedge fund giant, SAC Capital, is expected to be hit with another round of withdrawals after prosecutors issued a flurry of subpoenas to force Cohen and other execs to testify in the government’s long-running investigation of the firm.

“We don’t need the headline risk,” said one SAC investor who is on track to fully redeem his funds from SAC by the end of the year. “If we could pull out faster, we would,” said this person.

Adding to investor agita, SAC disclosed last week that it is no longer planning to fully cooperate with the government’s probe or give investors updates on the investigation….

Monday, May 20, 2013

Blackrock: The Giant of Shareholders, Quietly Stirring

From the NY Times: “…BlackRock is no activist investor. In fact, it’s far from it. It has never sponsored a shareholder proposal, and it rarely broadcasts its actions. Ms. Edkins says the firm generally votes against a director or a company proposal only when a behind-the-scenes “engagement” has failed.

A number of public pension funds and activist shareholders argue that BlackRock could use its influence to greater effect and say it sides with management far too often. It received a failing grade from the A.F.L.-C.I.O. in a 2012 survey; BlackRock voted with the federation just twice in 32 shareholder votes on issues that the union sees as important to the trustees of union pension funds.

 “We believe shareholders have the power and the obligation to use every tool at their disposal to encourage greater accountability,” said Brandon Rees, acting director of the A.F.L.-C.I.O. Office of Investment. “It’s disappointing that such a large company like BlackRock votes for so few shareholder resolutions.”

There is agreement, however, that the firm has become more active in recent years…

Jamie Dimon Has Never Liked Being Told What To Do

From BI: “….You might think that the administrators and teachers at Browning would be deeply impressed by his academic dedication. But you would be wrong about that. Even though he graduated fourth in his class, Dimon was rejected by Brown University—in part because of a backhanded recommendation letter written by the assistant headmistress of the school. "His lack of manners, due to his habits of making quick judgments and contradicting others, is greatly improved," the assistant headmistress wrote, according to Duff McDonald's biography of Dimon, Last Man Standing (from which this school days tale is lifted).

“She praised Dimon's "keen, analytical mind" and his "dedication and seriousness of purpose." But she could not avoid mentioning what she saw as his problem with authority. Dimon was too headstrong to win her unqualified praise.

“Forty years later, Dimon once again finds himself pitted against the corporate governance equivalent of a legion of assistant headmistresses. A pair of influential shareholder advisory groups, Institutional Shareholder Services (ISS) and Glass Lewis, have recommended that shareholders vote to split Dimon's role as chairman and chief executive. The AFSCME Employees Pension Plan, the Connecticut Retirement Plans & Trust Funds, Hermes Equity Ownership Services and various New York City pension funds have issued a shareholder proposal calling on JPMorgan Chase to name an independent chairman…..

Robert Shiller: Field Of Study That Will Shape Economics For Decades

Economist Robert Shiller has argued in favor of the "genuine beauty" in finance. He believes that financial instruments can contribute to a better society because humans have an innate tendency towards generosity.

In an interview published by Credit Suisse he says that that finance recognizes "the egotistical side of human nature. This presents potential for conflict." But these are things that he argues neuroeconomics will help shape in coming decade. Here is an excerpt from the interview:

Traditional theories of economics assume a rational, utility-maximizing person. One who is not necessarily interested in "good society.

Decades ago, the economist Kenneth E. Boulding showed how far removed we are from homo oeconomicus. People are much more dependent upon each other than the pure utility function would indicate. Generosity also seems to be an inborn trait, as Ernst Fehr at the University of Zurich has shown. People are generous and kind to people who they perceive as such. We want a society that reflects the golden rule: "Do unto others as you would have them do unto you." Of course, people aren't always good, but when generosity is fostered, they become better. Financial instruments can help with this, too.

Read more:

High speed trading a stiff challenge for U.S. regulators

Reuters reports: Financial trading in world markets has grown so lightning-fast that effective regulation is growing tougher by the second, increasing the threat of crashes sparked by hoaxes, electronic glitches or yet-unknown causes.

The latest alarm was triggered by a fake tweet saying that the White House was bombed, prompting a U.S. market nosedive that ended minutes later when the Associated Press said its Twitter account had been hacked. In 2010 U.S. stocks plunged in a "flash crash" following aggressive sales of stock-index futures by a mutual fund….

Hedge funds bet $1.6 billion on Boeing in first quarter

Boeing Corp. was the stock du jour among the 50 largest hedge funds during the first quarter.

Hedge funds moved $1.6 billion into Boeing shares, FactSet said in a report Friday that compiles data from 13F-HR filings that show quarterly stock holdings of large investors as of March 31.  Viking Global Investors was a huge buyer in the quarter, accumulating a fresh stake of 12.375 million shares. Jana Partners was a new buyer of Boeing’s stock as well, purchasing 1.55 million shares….

Who Got Rich This Week: Hedge fund legend Michael Steinhardt.

According to Forbes: When we last checked in with Michael Steinhardt in October 2012, shares of WisdomTree Investments, where Steinhardt serves as chairman, were up 12.4% on the week, netting the investor a $24.3 million paper gain.   I focused Steinhardt’s October entry on the recent success of WisdomTree, and on the merits of ETFs in general as investment tools for retail and professional investors alike. But Steinhardt himself is, simply put, a legend in his own right.

Worthy of mention alongside greats such as Soros and Robertson, he was a pioneer of the hedge fund industry and he was one of the best. His firm, Steinhardt Partners, achieved a compound average annual return of 24% from 1967 through 1995, more than doubling up the S&P 500 over that 28 year period.

And Steinhardt’s personal narrative is as intriguing as his investment record…..

Sunday, May 19, 2013

Hedge Fund Owner Gets Subpoena to Testify

Steven A. Cohen has received a subpoena to testify before a grand jury in the government’s insider trading investigation into his hedge fund, SAC Capital Advisors, a development that signals a newly aggressive phase in the multiyear inquiry, according to lawyers and executives briefed on the case.

Issued last week, the grand jury subpoena came as part of a broader round of requests from criminal authorities. Other SAC executives were also named in the subpoenas, the lawyers and executives said, and the fund itself received requests for information about its activities. The subpoenas suggested that federal prosecutors and the F.B.I. are intensifying their efforts to build a case, not only against SAC executives, but also the fund itself….