Banks Taking More Risks (Forbes)Wall St., your ruse is up. Analysts are starting to realize that you're esteemed "investment banks" are little more than black-box casinos. Granted, the casinos are doing really, really well lately, but as profits climb, so too has risk-taking. What's particularly worrisome is that investors have no way of truly judging risk. Simple statistical measures fail to express the complexity of the operations, or the probability of various unlikely (but hazardous events). If a trader can go bust, basically have one devastating day that wipes off years of gains, can a whole trading operation?
Top traders made more than $1 bln in '05: magazine (Reuters)
Congratulations are in order to last year's top traders for their excellent haul. In the number one slot is well-named oilman T. Boone Pickens who is estimated to have pulled in more than $1.5 billion based on his long oil bet. The estimates, made by Trader Monthly, are based on public information, but may be total garbage. All in all, the top 100 traders are thought to have brought in $12.5 Billion, up from last years $6.6 billion.
Japan's Nomura Still Lagging (Bloomberg)
Nomura, the Japanese Goldman Sachs, has shown record profits lately, though it still trails the world's financial elite. Though profiting from the nascent Japanese recovery (no really, we mean it this time), the company still hasn't managed to become a global player in terms of M&A and advisory. Still, it would seem the potential is there. The company's proximity to some of the fastest growing world markets, including its own, gives it an opportunity for dealmaking. Then again, there's no guarantee that Asian companies will be as fond as the merger... spinoff... repeat rollercoaster that has proven to be an endless river of profits for American banks. Seems like a good company to get to know.
Hedge Funds Under Short-Selling Scrutiny (NYT)
In the age of Patrick Byrne, David Rocker, and Sith Lords, this story feels, well, timely. The Times has a long profile of Biovail pharmaceuticals' allegation that hedge fund SAC Capital and research house Gradient Analytics conspired to manipulate and profit from their declining share price, what's more is that two Gradient analysts corroborate the story. Yes, it looks pretty nasty, and surely some will call for the SEC to further crack down on short sellers, but isn't this just a case of insider trading? It's possible that the recent furor over the practice of short selling could put a chill on the hedge fund industry, as managers feel wary about using one of their most important tools.
Senators Coming Home From China, Finally (NYT)
After a week in China (was that all?) Senators Schumer and Graham, are coming home. The pair, who went to the country, committed to get China to "Float the Yuan, or else!", now are in disagreement. Take a guess on which one now thinks that China is doing enough: the one from the state with a large textile industry, or the one with Wall St. Good news is that the rift probably means their wild calls of 27.5% tariff on Chinese imports probably isn't happening anytime soon.
15 on its Way (NYT)
Tomorrow, The Fed is all but certain to raise interest rates for the 15th time in the last couple of years. Allow us to note a few things that haven't happened during this tightening cycle: A housing collapse, a recession, a consumer slowdown, and a stock market drop. Hell, we even got a flattened yield curve, which is supposed to be one of the four horsemen. But perhaps the markets just have a case of the "it's different this times", which almost always precede the realization that it wasn't different at all. Bring on 16 and 17.
Mideast Feels Stress of Stock Slide (WSJ)
Supposedly, the money flows in one direction only these days. The Middle East gets record amounts of petrodollars while Asia gets our money from everything else. So why are their markets wobbly, while ours, at multi-year highs, remain a see of calm? There are many reasons and many mysteries, though it's always nice to hear a little bit of applied behavioral economics -- "Some say the selloff was sparked by a rule change in the Saudi market that lowered the maximum one-day fluctuation for a stock to 5% from 10%.". Nope, you can't will calm. Maybe economies based on ideas and productivity are better than economies based on pulling black stuff out of the ground.
Goldman Sachs May Bid On British Ports (Bloomberg)
After a year in which shippers became the new .coms, the big money is looking to get in on the business of ports. It probably has something to do with this whole international trade thing, which seems to be taking off. Unlike ships themselves, the number of ports should remain relatively stable, have high barriers to entry, and presumably strong pricing power. Profits have risen %100 in the past five years. Look for more Wall St. money to go after this kind of infrastructure; Australia's Macquarie bank has made a killing in recent years with this type of investment as well as things like airports, bridges, and toll roads.
Tivo Vs. Echostar Starts This Week (AP)
After failing to profit from the market it started, Tivo is now looking to sue its way to riches instead. Claiming it has a patent, basically on the DVR itself, the company is heading to court against satellite operator Echostar, which produced and sold a DVR. Should the company win, it may make target other cable operators, which have distributed boxes made by third-party producers in recent years. Meanwhile, Cablevision is upping the DVR ante, hoping to push a product that would allow remote storage of a viewers favorite shows. Big media has generally frowned upon this kind of thing, though it's hard to see how it differs materially from having the recording done at home. Hats off to Cablevision for pushing the envelope.