Monday, November 29, 2010

The Urine Eliminator - CSI: Mr. Griffey

I was going to tell this story last week as another effort to show the diversity of products my wife and I buy on when she ordered a Hoover Steam Cleaner, but I had to delay.  See, we were on our way to my dad's house for Thanksgiving, and although he loves Oscar with a passion, he's suspicious of Mr. Griffey, and doesn't want the G-man messing up the house.  Coincidentally, unbeknownst to my dad, Griffey recently started peeing on the floor again, hence, the Steam Cleaner.  Obviously, since my dad reads the blog, I couldn't write about how we got a steam cleaner to clean up Griffey's soiled rugs.  Also, the blacklight didn't arrive until tonight.  Let me explain...

Mr. Griffey is super cute:

But he's devious.  Can't you see his scheming mind shining through those beady little black eyes?  When we fostered him in April, Griffey came wearing a diaper.  After only a week or so, we realized that he wasn't peeing in the house, so we let him roam free, freeballin', no diaper.  Things were going great until a few weeks ago when he started having setbacks.  Although we take him out frequently - 3 walks plus 2 pee breaks daily, he was still sneaking off to whizz on the carpet in one of several different rooms at seemingly random times.

It didn't seem like marking behavior, and the other problem is that we couldn't really tell when he was doing it.  Our carpets are all patterned, so we frequently wouldn't notice until after the fact, but once we started looking, we started finding more spots.   Mrs. Dynamite concluded that Griffey must have a urinary tract infection, and called the Vet, who said "sure, just bring us in a urine sample and we'll test it."

"Ummm, do you have any suggestions on how to collect the urine sample?"  Mrs. Dynamite inquired hopefully, but was met with the classic "catch it in a cup when he squats" response.

Sadly, I didn't have the camera handy when Mrs. Dynamite "collected" the sample, but she used a Tupperware lid and transferred it into a Ziploc baggie.  Who wants some leftovers at the Dynamite household!??!?  Guaranteed puppy pee-free Tupperware.

Anyway, in the meantime, in addition to the carpet vac, she'd ordered the Urine Eliminator kit from Rug Doctor, which consists of special pee-destroying enzymatic sprays, and a blacklight that you can use to FIND the pee, CSI style!  The blacklight turned out to be craptastic, so she ordered another, higher quality blacklight (from of course), which just came via UPS tonight.  We jacked 8 AA batteries into this thing, turned off all the lights, and hunted around the house for signs of Griffey's pee.  Yep - this was EXCITING for us!

We hit the jackpot in one of the guest bedrooms - finding several "spots" and even some puppy footprints where he'd stepped in his own pee and tracked it on the floor.  Too much information?  Hey - this is my life.    Griffey seemed like he KNEW we were onto him when we went into the guest bedroom in question! He slinked away.  

Then, in the middle of our blacklight pee-hunt, the Vet called us to say that Griffey did NOT have a UTI, but that the test isn't positively conclusive.  We'd kinda been hoping that it was a UTI, which made sense, as Griffey had been peeing when we got him, but had then stopped after a course of anti-biotics to treat his Lyme Disease.  Mrs. Dynamite had concluded that it all made sense, including the "skunk-like" aroma of the carpet pee spots, and that G-man must have another infection.  Sadly, the Vet couldn't confirm this...  We're gonna pick up some antibiotics for him anyway, just in case.

So, it's back to running around the house with the lights out, holding a blacklight like a cast-member of CSI: NH Woods, searching for the urine spots of a 12 lb dog and spraying enzymatic Urine Eliminator cleaner on the spots.


Gratuitous picture of Oscar, cause he's the best:


ps - Mr. Griffey has lost his free-ballin' privileges and is once again wearing a diaper.

Three Things Confusing Me Today

"And in Atlanta, before the Apple Store opened on Friday morning, the first people in line were Jose Aguiar, 50; his son Tiago, 20; and two of Tiago’s friends. They had driven 45 minutes from Kennesaw and were in line at 2 a.m.

The store opened at 5 a.m., and by 5:05, the group had bought their items — an iPad and four iPods — and were ready to leave. There were no special prices that day, which disappointed Jose Aguiar.

“I thought it would be much cheaper,” he said, but it didn’t stop him from buying."

I thought buying a toaster just like the one you already owned just because it's a good deal was crazy.  But this just makes no sense to me at all.

2) David Leonhardt wrote a massive piece on China.  I don't understand this paragraph:

"For the rest of the world, the Chinese consumer is one of the best hopes for future economic growth. In the years ahead, when the United States, Europe and Japan will have no choice but to slow their spending and pay off their debts, China could pick up the slack. Millions of Americans — yes, millions — could end up with jobs that exist, at least in part, to design, make or sell goods and services to China."

Why would China want to buy goods from us when they can buy their own goods for much less?  Said differently, China will buy Chinese goods for the same reason Americans buy Chinese goods.

"Lame duck lawmakers will have only one day when they return to work on Monday to renew the expiring benefits. If they don’t, two million people will be cut off in December alone. This lack of regard for working Americans is shocking."

Huh?  Working Americans?  Last time I checked, working Americans don't get unemployment benefits.


Sunday, November 28, 2010

Netflix and the Paradigm Shift in Media Consumption

I was at my Dad's house for Thanksgiving, and couldn't help but think about the future of content distribution as I viewed his media consumption habits, which haven't changed in 30 years.  My dad still watches the nightly news!  To my generation, that probably sounds incredible (it does to me, at least).  I mean, I watch the news in real time all day long as I'm online - I'd never sit down to watch a half hour show with fewer details than all the stories I already read about the topics that day.  But it gets even better - my dad tapes the news.  On VHS.  Seriously!  How many of my readers have a VCR?  If you have a VCR and are under 60 years old, please let me know.  This got me wondering if it was even possible to buy an audio cassette tape anymore.  I spent much of my youth buying Maxell XLIIs high quality audio tapes to make mix tapes out of on my Sony dual-drive boom box.  Can one even buy these tapes at CVS anymore like I used to?  But I digress...

Many market watchers are aware that Netflix's (NFLX) stock price has gone babbaloo:

The company now has a market cap nearing $10B, and the stock continues to march mercilessly higher, destroying many a short seller in its wake.  I'm one of those guys who wanted to short NFLX, although I currently have no position.  I was actually a Netflix customer about 10 years ago, when we had these things called DVDs that they sent us in the mail in a little red envelope.  We'd watch them and then send them back by dropping them in a mailbox, with no postage necessary!  It was amazing, kids, I tell ya.  Nowadays, they're moving onto the Cloud and eventually DVDs will be for old fogies - everything will be streamed via the internet.  I thought I had earned my stripes by being one of the original NFLX hard-DVD subscribers, but my Dad is the 5 Star General in the Army of Antiquated Technologies with his nightly taping (not DVR-ing - taping) of the nightly news.  My dad reads this blog, and he'll probably send me an email that says "HEY! Why are you picking on me?"  I'm not picking on him, I'm just trying to illustrate a point - that my parents' generation is not going to widely adopt the online streaming mechanism for content delivery.  They're just not.  That probably doesn't matter for these companies - the younger generations will embrace it voraciously - but it's worth noting nonetheless. 

Bulls will tell you that NFLX is the future of content delivery.  Bears will tell you that NFLX has ample competition (AAPL, AMZN, Blockbuster Streaming, Vudu, Hulu, CinemaNow).  They're both right - I think we'll move toward streaming consumption of on-demand content.  The question is, why aren't any of the competitors adopting NFLX's pricing model?  Let me explain.

I finally got a streaming device - a Samsung Blu-ray player that connects wirelessly to my home network.  Within an hour, I had the thing up and running, had logged into my YouTube account, set up a Vudu account and a Blockbuster account, linked my Pandora account, and browsed CinemaNow's content library.  What I noticed was this:  these guys basically have largely the same content.  It's not identical, but the "new releases" were pretty much the same on all three sites.  Checking Netflix this morning, I saw that their library was also largely similar, although Netflix looked like it had a better selection of older TV series (The Wire, Dexter, etc).

At first I thought "jeezus, if these guys all have the same stuff, it makes NFLX look even worse, they have no competitive advantage"  but I quickly realized the other side of my argument:  VUDU, Blockbuster, and CinemaNow all charge in the neighborhood of $3.99 per movie (slightly more for HD streams) for watch-it-now streaming content.  NFLX charges $7.99 a month for unlimited content.  If they have the same content, it's a no-brainer to go with NFLX instead of the others, assuming you'll watch more than one movie a month.

Of course, content is the battelground - these guys won't always have the same content, that's how they try to set themselves apart.  Content contracts cost money, though, and getting exclusive content in increasingly competitive delivery markets probably won't be getting cheaper for these companies.  Another issue is the quality of the streaming - I haven't used any of them yet, so I'm not qualified to comment on that, but I welcome reader feedback.

My main question is, will NFLX's competition adopt their pricing model - the "one price for unlimited streaming" model?  If not, why not?  

My cable company, Comcast, charges $5.99 for on demand movies!  That's pretty aggressive, but they have a monopoly on a lot of that content.  I can't get it at NFLX, Vudu, etc, right now.  Of course, I can wait a month or two or however long it takes.  Will the NFLXs of the world pay up for immediate content access?  I tend to doubt it - I'd guess that cheaper and slightly slower (in terms of having to wait for access) will prove to be a viable business model, and I look forward to see if any of the competitors will try to offer a one-fee subscription based service.   

Karl Denninger has written a few posts about another potential issue with the streaming companies  - their increasing dominance in bandwidth consumption, which the internet service providers might push back on at some point.

I have no position in NFLX right now, but I think that my recent Blu-ray purchase which put me in position to consume streaming content makes me slightly more bullish on NFLX's prospects.   However, I remain flummoxed as to why their competitors don't try to actually compete with NFLX on price.  NFLX currently seems to have a virtual monopoly on what they specialize in - unlimited streaming for a flat rate - and the rate is pretty cheap at that.  Can one of the big boys - AMZN, GOOG, AAPL - offer a better product at a better price?  We'll watch and see.

Saturday, November 27, 2010

Deals, Deals, Deals

I'd be remiss if I didn't point out a few interesting online deals I found that should be good at least through the end of Saturday. has seasons one, two and three of Mad Men on Blu-Ray for $9.99 each - if you're into that sort of thing (although I passed on Mad Men).  I actually bought seasons one and two of Breaking Bad instead for about $20 each, I hear it's pretty good.  I needed something Blu-Ray to try out in my new Blu-Ray player that I bought from Crutchfield.

Elsewhere, in "Black Friday Stories I Just Don't Understand,"  this tidbit from the NY Times summed it all up for me:

"Gwen Watson, who was shopping at the Mall at Short Hills in New Jersey, said she didn’t even plan on doing Black Friday shopping, but this year the prices were too good, like a $19.99 toaster that was exactly like one she had bought for $60."

I love a good deal as much as the next guy - but I'm not buying another toaster exactly like the one I already have even if it's a great bargain.

note: see my Amazon Affiliates disclaimer on the sidebar.

Friday, November 26, 2010

Why Is GLD So Hard For People To Understand? An ETF Lesson: Part III

Isn't the Wall Street Journal supposed to be the premier source for financial information (ok, maybe they're number 2, behind the Financial Times)?  Somehow, even their authors can't understand that an ETF like GLD is not a mutual fund.    I've been through this twice already (please read my prior two pieces if you are still confused), but let's do it one more time. 

The WSJ article states: 

"GLD shares trade on the New York Stock Exchange, as well as in Tokyo, Hong Kong, Singapore and Mexico City. Each share represents one-tenth of an ounce of gold. That, in effect, gives shareholders the right to their share of proceeds from selling a full bar, minus fees. Before GLD issues new shares, it takes in the necessary gold to back them. On days when there are more sellers than buyers of GLD shares, the fund offloads some of its gold."

Ouch.  There's a whole lotta WRONG in that paragraph, which is too bad, because the piece is otherwise a decent history of the GLD ETF.

First, the "you've gotta own physical gold" crowd will correctly have a cow about the claim "That, in effect, gives shareholders the right to their share of proceeds from selling a full bar, minus fees."  As regular readers already know, GLD tracks the price of roughly 1/10th of an ounce of gold (slightly less, since they have to sell some gold to pay for their expenses) - but it doesn't give common shareholders the right to much of anything.  Large shareholders can, with the assistance of Authorized Participants (ie; big broker dealers), redeem their GLD shares for gold bullion - but apart from that redemption feature (which is done in minimum increments of 100,000 shares), shareholders have no "right" to any gold or to the proceeds from the sale of any gold (unless the Trust is wound down and liquidated for some reason).

The statement "Before GLD issues new shares, it takes in the necessary gold to back them," is correct! That's exactly how it works!  Authorized Participants deliver gold to the GLD Trust, and the APs receive newly issued GLD shares in return - that's called creation.  But the next sentence gets into the Land of Confusion again: "On days when there are more sellers than buyers of GLD shares, the fund offloads some of its gold."  As I've explained previously, the GLD Trust does not buy and sell gold.  It issues new GLD shares in exchange for APs delivering gold (creation) and takes back GLD shares from APs while delivering gold to the APs (redemption).    Ah hah - but the WSJ didn't actually say that GLD sold gold, right?  It said that GLD "offloads" some of its gold - maybe the WSJ meant that the Trust offloads gold to the Authorized Participants as part of redemptions which occur naturally as a result of supply and demand imbalances which cause arbitrage opportunities (if that sentence scared you, read down a few paragraphs, I'll explain)?   Although I wish I could give the WSJ the benefit of the doubt and pretend that they understood this creation/redemption process, it's clear from further down the article that they don't:

"If GLD shareholders get spooked by drops in the gold price and sell en masse, the fund would have to dump metal to meet redemptions, possibly accelerating declines by prompting others to sell even more."

Ugggh. No. Wrong - it doesn't work like that.  Let's review this one more time, because it's such a simple concept:  that's' how MUTUAL FUNDS work:  when you buy a mutual fund, the money goes to the fund itself, and they use it to purchase more of all of the stocks that they own.  When you want your money back from a mutual fund, they have to raise funds by selling little bits of the stocks in their portfolio and they then return the cash to you.   ETFs like GLD do not work like this.  When you buy GLD, you buy it from other people in the market, just like when you buy IBM, AAPL, NFLX, or GE.  When you buy GLD, you don't send money to the GLD Trust so that they can buy more gold.  It simply doesn't work like that.    How do the assets in the trust change then?  Via the creation/redemption mechanism.  I'll quote myself from the ETF Lesson Part I:

"If "the market" is lacking GLD sellers, and the price of GLD rises so that it is in excess of it's NAV (net asset value)  there are arbitrageurs standing by ready to short you shares of GLD while they simultaneously buy gold bullion as a hedge.  Since they are selling GLD "rich" to its fair value, they will make a profit when they eventually collapse their position.  How do they collapse it?  Well, they take their gold and "create" GLD by delivering the gold to the trust, receive newly created GLD and use that to cover their GLD short position.  Voila - they're now flat, and the GLD's assets have increased, as have the shares outstanding. 

Of course, if everyone wants to sell GLD, the opposite happens - the arbitrageurs, if GLD is trading "cheap" to its NAV, will buy GLD while simultaneously shorting gold bullion.  Then, they'll take their GLD shares, deliver them to the trust, redeeming them for gold which they use to close out their short position.  In this case, the assets held by the trust decrease, as do the shares outstanding (after all, the arbs have taken GLD shares out of circulation, and given them back to the trust, effectively "retiring" the shares temporarily.)"

Since we're talking about an ETF, there's no chance that "the fund will have to dump metal to meet redemptions."  ETFs simply do not do that.  Will GLD (and gold) go down if everyone wants to sell it?  Of course - if selling pressure in GLD mounts, the natural tendency is for arbs to buy GLD slightly "cheap" to it's Net Asset Value, while hedging themselves by selling actual gold.  A surplus of selling (aka, supply), results in lower prices.  But note that by the time the actual "redemption" happens - where the AP delivers GLD shares to the trust in exchange for gold - the selling has already occurred (they've hedged themselves by shorting gold, in response to investors selling GLD to a price below its NAV).  Again, this is the opposite of a mutual fund, where "redemptions" - aka "I want my money back,"  require selling to raise the funds.

The mechanics of ETFs with easy create/redeem mechanisms like GLD are not rocket science, yet that doesn't seem to stop the media, even professionally targeted sources like the Wall Street Journal, from continually demonstrating a lack of comprehension of the product.


disclosure: long GLD

As usual, comments of the nature "GLD doesn't actually own any gold" will be deleted unless they are wicked intelligent.

Tuesday, November 23, 2010

Insider Trading, Or Not

I actually kinda like talking about insider trading because it's a topic that can have a lot of gray areas in it and requires some legitimate careful thought.  Despite having worked on Wall Street for many years, I'm well aware that insider trading questions are frequently not cut and dry, which is why we were usually trained on the maxim "If you have to ask, don't do it."  I wrote a few posts on this topic earlier, but it's come back into play with a vengeance this week, with the crackdown on "expert networks."

Uninformed populist ragers will act shocked, and scream "OMG!  So wall street takes all of these industry insiders, re-labels them "experts" and then sells inside information?!!!  How unfair!"  Now, I just want to clarify one thing - the point of expert networks is to allow people who want to do real due diligence to get the information they need by talking to people who know what they are talking about!  The vast majority of the information in these sessions is almost certainly perfectly legal to share.  It's also entirely possible that there are people who mistakenly disclose information that they should not be disclosing and are guilty of misappropriating material non-public information - but I'd guess that they are a minuscule minority.  My point is only that expert networks are positively not inherently evil.  In an ideal world, this is how everyone would do research - talk to experts.  Instead, we rely on greed, the desire to make a quick buck, penny stock touts, and Cramer.  But I digress. (Here's a pretty decent description of Expert Networks)

Let me just give a few quick examples:  If you want to know about how ETFs work, you might pay to have a conference call with me, and I would explain it to you.  Talking to me, an expert in the field, is a great way for you to quickly get a grasp of a concept or industry in a short amount of time, without the journalist or mutual fund industry bias that you'll get reading white papers on the 'web.    

If you want to know about the effect the expiration of Apple's exclusive AT&T contract might have on the mobile phone industry, you might contact Gerson Lehrman (one of the "expert network" pioneers), who would (for a fee)  put you in touch with the former VP of sales for Sprint, who could explain the entire process to you.  Nowhere in the chain is the goal supposed to be to get the current VP of AT&T to comment on material nonpublic information about his company's subscribers or business plans.  The expert you are talking to knows this (or is supposed to know this!) also - and doesn't want to go to jail  or get fired just to make you rich and get $200 an hour for himself.    

If you want to understand the effect that higher fuel prices might have on Wal-Mart's distribution costs, you might talk to a shipping company about the number of miles they drive each year, and how that might change with economic conditions and higher commodity costs.  

If you want to understand the process by which BP will have to close down its leaking well, you contact an expert in the field who could explain to you in an hour what you might otherwise spend 2 weeks researching on your own. (A friend of mine actually mentioned that he talked to some Gerson Lehrman experts on this very subject, and they ended up being wrong about their prognosis!)

Is it possible that one might encounter a policy-ignorant industry insider who shares material non-public information?  Of course it's possible - but it's positively not the goal of expert networks.  The goal is to allow investors to gain an in depth knowledge of a business from people who understand that business.  Increased due diligence is a good thing, and  insider trading is a bad thing - but the two are not even close to synonymous.

Amazingly, in the wake of this week's FBI activity on insider trading, the boys at Themis, Sal Arnuk and Joe Saluzzi wrote and absolutely embarrassing article attempting to liken high frequency trading to insider trading.  Sal and Joe are not idiots.  I don't generally agree with their view of the use of technology in the markets, and view them as victims of the progress in technology, trying desperately to cling to their niche by maligning their opposition - but at least they usually try to make well reasoned, factually sound arguments.

Their piece today, however, was utter nonsense.  It's so bad that I hate to call attention to it, but it needs to be corrected, and it touches on insider trading topics I've addressed on this blog previously.  Themis writes (emphasis theirs):

"We believe that if the FBI and SEC feel that information that investors are getting  from some “expert networks” is defined as inside information,  then a case can be made that the data that the exchanges are providing could also be considered an “expert network”.  The question becomes is the information that the exchanges provide in their private data feeds considered “material, non-public information”?  It is certainly not widely disseminated but is it non-public information?  We realize that anybody can subscribe to the data feeds and this is most likely the defense the exchanges will use.  But is it realistic for most investors to subscribe to these data feeds and then establish the computing capacity to analyze this information.  The fact of the matter is not all investors are looking at the same information.  Whether this is technically inside information is not for us to decide."

Readers should have no confusion on this matter:  this is not non-public information.  In fact, it's quite public - it's available to anyone who wants to subscribe to it - for a fee.  Remember from my prior post - "public" doesn't mean you can get it online in 15 seconds via a Google search for free.  I've tried to repeatedly make the point that this is another reason why high frequency trading is a better model than the old NYSE specialist model:  the specialist model was a tight Old Boys' club - you couldn't become a specialist just because you wanted to and had the ability to - you had to crack the club.  It was positively non-public in terms of opportunity.  Today, however, the process has become democratized - anyone who has the ability and the means can compete in the world of high frequency trading, using PUBLICLY available data that doesn't cost millions of dollars a month.  It's not just the rich, it's not just men, it's not just certain ethnicities - it's democratized.

So when Sal and Joe write "whether this is technically inside information is not for us to decide,"  I can only hope that they are being intentionally disingenuous and that they in fact are fully aware that this is not anything that can even be intelligently debated as inside information, and are simply trying to write a fear/hype piece to mis-educate the masses.   Just because John has access to information that Jane doesn't have does not mean that John's information is non-public, or that he has some unfair advantage.  All investors are rarely looking at the same information - the important point is that investors have the opportunity to have access to the same information.  If you still don't understand this, please read PeterPeter's comment on Themis's Business Insider post, which reiterates a number of points I've discussed on this blog previously.


Monday, November 22, 2010

Free Music Downloads from Amazon

No strings attached here - you can get $3 in free mp3 downloads to use in the next week.  Mrs. Dynamite is pumped to download "G6" by the Far East Movement.  I already used my 3 free downloads on Katy Perry hits. (/sarcasm)

And since you're reading my blog, you're probably not the kind of person who lines up at Kohls for a 3am (!?!?!?) opening on Black Friday - you'll seek out online deals instead.  Amazon has a whole week of Black Friday deals.  Seriously - Kohls... 3am?  WTF?


note:  I am in the affiliate affiliate program.  If you click on one of my links and purchase something from, I earn a small commission.

Chart it Up!

Seeking Alpha has been working on ways to add more value for their users, which has resulted in them launching an "app store."  Fortunately, there are several free apps, including a pretty interesting charting application from  ChartFacts allows users to easily retrieve, customize, and overlay a variety of data streams. (Note: I think you will have to have Microsoft Silverlight installed to see these embedded charts, but not to create your own charts - you can save them as images too)

So if you wanted to quickly pull up a chart of 30 year mortgage rates, you can do that:

If you were more interested in the weather in Concord, NH, you can do that too:

Notice that I clicked on "min" "max" and "mean" - you have the choice of including whichever data you want.

I was even able to graph Wade Boggs's performance over his career, again choosing the categories I wanted:

I found ChartFacts well worth the time to play with, enabling users to quickly and easily obtain well formatted charts to use in whatever illustration they are trying to make.


Sunday, November 21, 2010

Sign of the Times - Electronic Forensics of Brett Favre's Junk

This is what it's come to.  The NFL is doing an electronic forensics audit trail on Brett Favre's dong pics.

"In an effort to determine what Brett Favre did or did not text Jenn Sterger, the NFL is conducting high-tech forensic work to trace the electronic pathways and transmission of any photos or messages that might have been sent during communication between them, according to a source familiar with the situation."

I wonder who the NFL's Executive Vice President of Inappropriate Electronic Transmissions is, and how many people they have working to track the electronic trail left by the pictures of Brett Favre's junk.

Friday, November 19, 2010

Dear Penthouse? Or the New York Times? Take III

It's that time again - I give you a quote, and you tell me if it comes from a Dear Penthouse (NSFW) letter, or from the New York Times.

“I didn’t really expect her to touch my vagina through my pants.”

This one is tricky.  It screams "Dear Penthouse" so loudly that you might be inclined to guess that it's a trick, but then again, you know that I know that you know... etc..

Sadly, this quote is indeed from the NY Times - today's article about passenger complaints regarding the new TSA pat downs.

For earlier episodes of Dear Penthouse or the NY Times see this post, and this one.

ps - I was hesitant to write this post, because I am positively not making fun of the fact that people feel molested by airport security - but the quote was just too good to pass up.  When life gives you lemons...

Harrah's Fails to Sell it To You, Sucka

Harrah's (which is changing its name to Caesar's) canceled their planned IPO citing "market conditions."  I went through what this really means when I wrote about Liberty Mutual last month - the company was unable to attract the valuation that they wanted from the market.  The AP tells us:

"A Harrah's spokeswoman said the company is not commenting beyond Friday's brief statement announcing the cancellation."

So let's speculate (sarcastically) on what market conditions Harrah's could have found so unfavorable, and could have resulted in the canceled IPO...

Could it be that one of the largest IPOs in history (GM) was just completed as a  majorly oversubscribed smashing success that resulted in the deal getting hugely upsized and also priced at the top of the range?

Could it be that the market has rallied TOO MUCH over the last 10 months, and Harrah's just doesn't feel like they are offering prospective equity purchasers enough value?  

Could it be that Harrah's wanted to go back and try to develop some metals and mining businesses to take advantage of the commodity rally?

The S&P is within spitting distance of a 2 year high, asset classes across the globe have surged in an orgy of return chasing, and interest rates remain near multi-year lows.  As far as market conditions, it doesn't get much better than this.  Yet it still wasn't good enough to get investors to buy Harrah's.  That's a warning sign, to me - or maybe a sign that investors still have some sanity left.


Wednesday, November 17, 2010

Jerome Kerviel Talks More About His Rogue Trades

As a former trader, I'm somewhat fascinated by the story of SocGen's rogue trader, Jerome Kerviel.  What confuses me most is how the bank could have been so flat out unquestionably incompetent as to let this happen.  Kerviel basically asserts that they weren't in the dark about it - that many people knew what he was doing, but that they didn't complain until things went bad.

I am by no means attempting to abdicate Kerviel of responsibility, but I'm flummoxed by how SocGen could have missed the reality of this situation.  Their lack of risk management is, in a word, remarkable.   Lets talk about some details.

I'll talk in the first person, although I never in my life booked a fake trade to my system. When I trade, there is a counterparty to all of my trades - someone on the other side - which is to say that I buy FROM someone, and I sell TO someone.  Most of it is booked electronically now, although back in the day we did lots of stuff via phone and wrote manual tickets:  Bot 250,000 IBM @ 108.25 MSCO  4c.  This is pretty self explanatory:  it means I bought 250k shares of IBM @ $108.25 from Morgan Stanley and paid them 4c a share.  I'd probably then type that trade into my electronic order management system, and at the end of the day all of the trades would flow through to an electronic booking system which would send an electronic file of all of my trades to ADP for processing.   Morgan Stanley does the same thing on their side.

The next morning, the first thing that happens is that my operations guys come over and tell me if there are any "breaks."  A break would occur, for example, if Morgan Stanley's version of the trade didn't match up with mine.  Maybe I accidentally put in $109.25 for the price - or maybe they thought it was supposed to be 6c a share commission, or maybe I made the trade up entirely and there was no real trade at all - in any case, there are lots of people whose job it is to figure this out.  There's an entire settlement system designed to figure this out. 

Additionally, there are internal risk management groups and PnL monitoring groups that watch trader positions and keep a very close eye on the difference in the positions in the trader's position management system and those that have actually "settled."

If the operations guys were all on vacation, and everyone decided to ignore the break, there would be another notification at settlement, which is T+3 for stock trades.  If I buy 250k IBM from Morgan Stanley on Monday, the trade settles Thursday - that's when I actually deliver them the money and they deliver me the shares (electronically, almost all the time).  If I made up a fake trade, it might take MSCO a few days to figure out why I was trying to send them money to pay for IBM that they didn't sell me, but it shouldn't take my bank long at all to figure out that MSCO didn't give us the IBM we were paying for.  This is yet another check and balance in the system.  It's probably very hard to book a fake trade in common equities.

Now, I think that Kerviel was trading futures - likely DAX (German index) futures (and CAC - French index futures).  I don't know the intricacies of settlement in European futures markets, but if they are anything like US markets, I cannot fathom how it's possible for him to "fool" the bank's systems simply by entering fake "offsetting" trades, unless, of course, the systems were completely inadequate.  My former colleagues suggest that he could have booked fake over-the-counter swaps that don't have exchange settlement, but again, that's the point of all the other links in the chain of command within the banks:  the PnL monitoring group, the risk management group - we are talking about $50 BILLION in trades here - that's not the kind of thing that gets ignored or written off with an "oh, ok - no problem."  Additionally, the bank would send and receive margin flows for the real positions on a nightly basis.  Someone should absolutely realize that there are not offsetting margin maintenance flows coming from the fictitious trades (cause they're fake, of course) even though there would be money flows if the trades were real.  This would be yet another red flag.  At the end of the day, the actual daily flow of money from bank to bank is pretty hard to fake from the trading desk - traders have nothing to do with that process.

If there are any European ops experts in my audience, feel free to weigh in.  The basic question is this:  Was SocGen grossly incompetent in operations and risk management?  Or did Kerviel take advantage of some flaw in the European settlement process that I don't know about?  Either way, again, I'm not trying to absolve Kerviel of responsibility here, but it's important to hold SocGen accountable as well, as they appear to be complicit in the outsized risk positions (or incompetent in their inability to detect them).  A complicit (or incompetent) bank is just as dangerous to the system as a rogue trader.  It seems clear to me that one cannot pull off this type of fraud alone at a bank with any sort of capable oversight - he'd need at least 2 other key people  in other divisions helping him.  But to clarify again, I'm not alleging that this is a deeper conspiracy, rather, I'm alleging that SocGen's risk oversight procedures are/were completely unacceptable.

I am confident that I could not have done this at my bank.  Are there traders out there who think that their bank's risk management procedures are so craptastic that they could pull of this kind of fraud without anyone noticing?  I'd love to hear about it.

On More Bank Stress Tests

Regarding the just announced 2nd round of stress tests for the banks, I have but one rhetorical question:

If a loss falls on a bank balance sheet, but no one is there to mark it to market, does it affect their capital?


ps - In case it wasn't painfully obvious, I'm channeling my inner "If a tree falls in the forest and no one is around to hear it, does it make a sound?"

pps  - Banks are currently holding a metric crap ton of mis-marked home equity loans and second mortgages.  Unless the stress tests plan to treat these bad loans realistically, Stress Tests Part Deux will be a total farce.

Thank You, Uncle Sam (???)

A lot of people are going to be talking about this Warren Buffett NY Times Op-ed.  Buffett writes a cutesie "Dear Uncle Sam,"  thank you note, commending the government for its great work managing the financial crisis. 

"The challenge was huge, and many people thought you were not up to it.

Well, Uncle Sam, you delivered. People will second-guess your specific decisions; you can always count on that. But just as there is a fog of war, there is a fog of panic — and, overall, your actions were remarkably effective.

I don’t know precisely how you orchestrated these. But I did have a pretty good seat as events unfolded, and I would like to commend a few of your troops."

There's something about this I find flat out disgusting.  Oh yeah - Buffett himself was far from an impartial bystander in this whole mess - being a massive beneficiary of the government's generosity and willingness to subvert the capital structure.  He likely even shaped some of the programs himself (see: Warren Buffett Invented the PPIP?).

So, while Buffett gushes:

"So, again, Uncle Sam, thanks to you and your aides. Often you are wasteful, and sometimes you are bullying. On occasion, you are downright maddening. But in this extraordinary emergency, you came through..."

I'm thinking that I'd really like to hear from the 15% of Americans (17 million families!)  who had trouble putting food on their table in 2009 or the 14.8 million unemployed people. 

I don't really want to read Warren Buffett's thank you to the government for bailing out his investments.


Monday, November 15, 2010

Puppy Communists

A funny piece from Olivia Munn @ The Daily Show:

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Big Red Dogs
Daily Show Full EpisodesPolitical HumorRally to Restore Sanity


Sunday, November 14, 2010

Show Me The Money

Readers are probably not surprised to know that I make approximately zero dollars from this blog. I have a revenue source - Amazon Associates, but my year-to-date earnings from that are in the vicinity of $20.  Ship it!   If you click on one of my links and buy anything - even if it's not the product in the link that you clicked on - I get a small commission, yet you don't pay any extra.  So, this holiday season, remember your favorite blogger if you do any holiday shopping at  Of course, if you're feeling generous, you can also hit my tip jar directly - there's a link on the right sidebar.

Aside, I continue to love  My wife and I buy so much stuff on there, it's scary.  In the past 6 months, I've bought:

- Two different pairs of soccer socks
- Peltor Hearing Protector for when I use my leaf blower
and more!

I've said it before and I'll say it again - is for real.  Free 2-day shipping via Amazon Prime, solid customer service, easy returns and a wide product selection.  I wouldn't be at all surprised if in 10 years I bought electricity from Amazon.


Friday, November 12, 2010

A Plethora of Stuff

When my Dad sends me an email asking if I'm ok because I haven't updated my blog in several days, I know I have issues.  So here's a bunch of stuff I've been reading over the past few days:

"While we’re on the subject of prepping for interviews, if you find yourself applying for a gig in China, please be advised that according to the South China Morning Post, “mainland job-seekers are increasingly required to exhibit ‘grey skills’ – binge drinking, playing mahjong and even ballroom dancing – to provide them with an edge in the market.” Several individuals took this advice to heart recently, resulting in the following scene."

You'll have to click over for the awesome picture.

"Note to self: Never lend money to a country where happy hour starts at 9 A.M."

This whole Ireland thing is unreal.  They didn't solve the problem at all earlier in the year, yet global markets rejoiced anyway.  Extend and pretend is GLOBAL, bayyy-beeee!  Reality is coming...

-State of Mind Music has a cool 15 minute video about God Street Wine's reunion.  This is a band that used to be one of my favorites, but they broke up and went their own ways.  I went to a few of the reunion shows down in NYC this summer, which were tremendous. Lo and Aaron, the two frontmen for GSW, played an acoustic show last week in NJ.  There is a free live recording posted on, available for streaming or download, and I'd recommend it to curious potential fans.  Check out their cover of Romeo and Juliet on this one too. 

- Las Vegas Condo sales - holy cow.  Unreal numbers (in a bad way)... There are BILLIONS of dollars of inventory, and according to Bill @ Calculated Risk:
"Note: high rise condo units are not included in the new home inventory report from the Census Bureau, and they are also not included in the existing home inventory report from the NAR (unless they are list for sale). This is hidden inventory, and for certain cities like Las Vegas, this is significant."
"The unholy triumvirate of my mom, Cramer and Richard Russell are in.  The prophecy has been fulfilled."

- Steve Wynn on the market forces of supply and demand: "Strong Demand Prompted $110 Increase In Garth Brooks Tickets"

"My decision to raise the ticket price was a simple one. The demand for Garth was so overwhelming that it caught us by surprise. We could fill a theater many times the size of this, twice a night,” Wynn said in a statement. “When the greatest live performer of our time appears in such an intimate theater, the seats should be priced at least competitively with other great Las Vegas entertainers."

"Talk about biting the hand that feeds you. Here we have a government-sponsored enterprise -- which depends on Treasury’s financial support to remain solvent -- suing an arm of the Treasury Department. Some thanks this is."

I've written about things like this before:  I'm paying you with your own money (Teddy KGB)

- The Kauffman ETF report got a lot of buzz.  IndexUniverse penned two very accurate replies pointing out blatant errors in the Kauffman Report's understanding of ETF mechanics, which come to a conclusion similar to one I came to months ago while debunking other ETF misunderstandings.  ZeroHedge jumped in by pointing out some potential ulterior motives for the author of the Kauffman report (in brief, ETFs hurt the mutual fund industry).   Speaking of ETFs, this one from FT Alphaville made me laugh:

"Its Index Opportunities Fund will take long positions in stocks scheduled to enter one of 25 indices at their periodic rebalancing, which passive funds will then be forced to buy when the rebalancing takes effect. It will likewise short stocks due to be demoted in the knowledge index funds will have to sell.
It claims the fund can profit from price “inefficiencies” to produce returns uncorrelated to other asset classes. It is targeting a return of five percentage points above one-month Euribor."

This was basically one of the main drivers of profitability for my old business.  10 years ago, we owned this space - but it's obviously not rocket science, and once the idea and research behind it got out, the profitability got marginalized pretty quickly.  Now it's more of a game theory Russian Roulette trade - where the main point is to try to figure out how much of the trade has already been priced in by everyone trying to capitalize on it.  Easy money has become very tough money.  Final ETF link:  my own piece on GLD mechanics was very well read and well received.

Talk about a sign of the times!

-Marginal Revolution:  Goat Banking


Tuesday, November 09, 2010

No, GLD Is Not Overdue to Buy 200 Tons of Gold: An ETF Lesson Part II

Let me start this post off by saying that I own GLD - but I don't care in the slightest if you choose not to.  This is NOT a post trying to convince you to buy GLD instead of its competing instruments, or to tout the merits of gold investments.  It's simply a clarification of a horrendous misunderstanding by another very popular blog about how GLD works. 

I sent out a tweet last night accusing the very popular ZeroHedge of demonstrating a thorough lack of understanding of the mechanics of the GLD exchange traded fund.  A few of my followers asked me to write a rebuttal and clarify, so here we go. 

If you haven't read "An ETF Lesson: Part 1,"  please go scope out the first several paragraphs of that post right now to familiarize yourself with the process of ETF creation and redemption. Summarizing, when you buy an ETF, regardless of if it's the SPY, IWM, or GLD, the ETF manager does not receive your money and does not use it to go out and buy the underlying instruments in the ETF.  When you buy SPY, the SPY trust doesn't buy a basket of S&P 500 stocks, and when you buy GLD the GLD trust doesn't buy gold.  

Instead, you're buying from other market participants.  Whoever sells the ETF to you is the one who gets the money, just like any other stock - when you buy MSFT in the market, the money doesn't go to Microsoft Corporation - it goes to whoever sold the stock to you.   A great feature of many ETFs (including GLD and SPY) is the creation and redemption mechanism, which allows authorized participants (ie, big broker dealers) to arbitrage price anomalies in the ETFs.  

Taking GLD as an example: GLD, like every other ETF, has an NAV:  net asset value - this is the value of the underlying gold in the trust corresponding to each share outstanding.  If tons of people want to buy GLD and no one wants to sell it, the price of GLD might rise above the NAV, and at some point authorized participants will come in and short GLD to you, while simultaneously buying gold.  They'll then take the gold they bought, deliver it to the GLD trust, and "create" new shares of GLD which are backed by this newly delivered gold.  The authorized participant will use these newly created shares to cover the shares they shorted to you and close out their position.  The authorized participant profits because they shorted the GLD shares to you at a slight premium to NAV.

Which brings us to the ZeroHedge post:

"One of the completely unmentioned side effects of the recent surge in gold prices, has been the fact that one of the biggest holders of gold, the GLD ETF (presumably physical, even though it is kept in the cellars of HSBC in London, one of the two banks recently charged with a RICO suit for precious metal price manipulation) which as of close today held 1,294 tonnes, has not really bought any gold in over 5 months. The issue is that GLD's gold actual holdings, which feed right into its NAV, have been flat since June, peaking at 1,320.44 tonnes on June 29, and flat-lining and even declining through today. Since then, however, gold spot has risen by 14%. As the chart below shows, GLD tends to reindex its NAV in spurts, buying up gold during specific periods when gold goes up, notably in March of 2009, and between May and June of 2010. As of today, the trust's NAV per GLD in gold is at an all time low of 97.67. The bottom line is that GLD is now long overdue to replenish its actual gold holdings, net of redemptions. Assuming that GLD will increase its holdings in line with prior accumulations, when gold price surged, the ETF may soon be due to buy about 200 tonnes of gold. Should that happen, GLD will further increase its distance to 6th sovereign holder of gold, China, which as of September 2010 held "just" 1,040 tonnes. As to what would happen to the price gold if it is made known that there is a buyer for 200 tonnes of gold, we leave to our readers' imagination."

So, let's count the errors and misunderstandings here.  

1) Of course the GLD hasn't bought any gold in the last 5 months - GLD NEVER buys any gold, unless of course they decide to do a secondary offering.  

2) GLD does not "re-index its NAV in spurts,"  - I don't even know what Tyler is attempting to say here.  He provides a useful chart based on publicly available data from a spreadsheet that GLD provides on its website.  As you can see from his chart, there is usually some correlation between the price of gold and the number of tons of gold held by the GLD - this makes perfect sense:  it illustrates that it's likely that investors are using GLD as a way to gain exposure to gold.  As we talked about above, investors go out and try to buy GLD, APs arb the NAV premium and create new shares of GLD, the price of gold rises and the amount of gold held by GLD increases.

3) The trust's "NAV per GLD in gold" was, at the time he wrote this, 97.76% of its starting value of .10 ounces of gold per GLD.  It's the quantity of gold backing your GLD share.  This is different from the "NAV per share" which is $135.61 (As of 11/8/10) -  the value of the gold backing your GLD share.  The 97.76% number represents the fact that GLD must sell a little gold to pay its bills.  Originally, back at inception, the "NAV per GLD in gold" was 100% of .10 oz, which is to say that 1 GLD represented 1/10th of an ounce of gold.  Currently, 1 GLD represents almost 98% of 1/10th of an ounce of gold.  The 97.76% number is indeed an all time low.  And the new number will match or make a new all time low every single day. That's how it works.

4) "The bottom line is that GLD is now long overdue to replenish its actual gold holdings, net of redemptions."  Again, this is not what GLD does.  You can run your own chart of NAV per GLD in gold over time - it's a straight downward sloping line.  As I explained above, this is by design - GLD is constantly selling tiny quantities of gold to pay for the costs of storage and other expenses.  They don't "replenish" this number back up to 100% of the original .10 ounces.  The amount of gold delivered in creations and received in redemptions changes along with this number.

then it just deteriorates into pure hype:

5) "Assuming that GLD will increase its holdings in line with prior accumulations, when gold price surged,"  That's a horrendous assumption, because it doesn't happen.  Maybe investors tend to buy more GLD when gold prices surge - I've explained that as a possible scenario above already in #2, which can lead to the end result of GLD's assets increasing - but it's got nothing to do with gold that the GLD trust needs to go out and buy to "replenish" or "re-index" anything.

and the coup de grace:  the hyperbolic headline grabber:

6) "the ETF may soon be due to buy about 200 tonnes of gold. Should that happen, GLD will further increase its distance to 6th sovereign holder of gold, China, which as of September 2010 held "just" 1,040 tonnes. As to what would happen to the price gold if it is made known that there is a buyer for 200 tonnes of gold, we leave to our readers' imagination."  The only way the ETF will go buy 200 tonnes of gold is if they somehow get wind that there is flat out rabidly insatiable demand for a huge chunk of gold that someone would rather hold in GLD shares than in gold bullion, in which case they would file papers with the SEC and do a secondary offering.  I think the odds of a 200 ton secondary offering happening is roughly zero.

It's scary to see a site like ZeroHedge write such a blatantly erroneous article demonstrating a gross lack of understanding of the reality of how GLD works.  It's even scarier to read the comments and see not a single reader pointing out that there are mistakes.  Which is why I spend my time writing corrections to mass mis-education like this.

Now, we can even try to deduce some actual useful information from the chart that Tyler put together (and then misinterpreted) which graphs Tons of Gold held by the Trust vs Price of Gold.    Back in the first quarter of 2009, the assets of the trust rose while the price of gold remained steady.  What could explain this?  Perhaps this was a time when investors were clamoring to own GLD as a result of the turmoil in the financial markets.  Their buying interest resulted in lots of GLD demand,  and thus more arbitrage and share creation.  Why didn't the price of gold increase?  Again, during the turmoil, there were also ample investors who needed to raise funds, and perhaps gold was a source of funds for them (but not GLD, since if there was massive natural selling of GLD, the arb would go the other way, and result in a decrease in assets in the trust).

How about recently?  We've seen the price of gold skyrocket, while the assets in GLD have remained relatively flat.  Perhaps that means that investors are gaining exposure to gold via other methods - alternative ETFs, physical coins, gold stocks.  If investors were relentlessly buying GLD shares,  we'd expect arbs to short the GLD shares to them, while buying gold and creating new GLD shares with the trust.  The trust tonnage data doesn't show this.

If you take the time to understand the facts, you can actually draw some useful conclusions from data instead of relying on hype and hysteria to fabricate nonsensical headlines.


note:  Ignorant ranting comments will be deleted without prejudice, but genuine questions for clarification will be answered.

Monday, November 08, 2010

Happy Birthday Oscar!

My pup Oscar turned 5 this weekend.  Mrs. Dynamite baked him a peanut butter pie, of course, and let him and Mr. Griffey go at it.

From the vault:  Oscar as a puppy:

And back to the present - Oscar looking at his birthday cake:

And lounging on the couch :

Of course, we took video too.  Really, I'm warning you in advance, they are not very exciting videos, although it's interesting to watch Oscar hesitantly scope out the pie, and Griffey seems to not want to eat it while Oscar is eating it.  Oscar showed a keen awareness of the danger of the candles, while Griffey was attempting to dive right in before we blew out the candles (not in the video).  Also, near the 1:24 mark, Griffey sticks his nose in the camera and will make you laugh - you can hear him sniffing before he pokes his mug in the camera.

Then, they both got the hang of it and dug in, sharing:

and Griffey got peanut butter stuck on his lips/mouth in the final video:

yep - this is my life.