When I was growing up my mother would often tell the story of those competitive 1960s women who would — oops — omit the most important ingredient in a shared recipe. Somehow Marge’s dish just never came out right. Gosh. Wonder why.
Now the Wall Street Journal would have us believe a recipe shared in last weekend’s paper accidentally messed up critical ingredients:
The chef Wylie Dufresne’s version of eggs Benedict doesn’t include egg-yolk foam… Also, MAD attendees were served ants in bee-larvae mayonnaise. In some editions, the article incorrectly said they were served ants in buttermilk.
Inside the Madhouse
The New York Post has an incredible review today of a Trust Me, I’m Lying, a book by an unscrupulous pr man who uses social media to manipulate the press. This is a must-read for journalists. Some of the ploys will feel familiar to anyone who has dealt regularly with public relations reps — both the good and the bad. But the story of Ryan Holiday is uniquely creepy, especially his manipulation of the blogosphere and social media. Holiday preys on journalists who are either too lazy, overwhelmed, inexperienced, or too anxious to win readers to catch his scams. Reviewer Larry Getlen writes:
Websites make their money by selling ads that are evaluated by the number of pageviews they receive, putting bloggers under constant pressure to produce as many clickable posts as possible. …
Given this environment, Holiday says that spreading one’s own agenda can be as easy as sending carefully tailored e-mails from a fake address or via some other false pretense, techniques that Holiday has used frequently.
Once, when he wanted certain legal information about American Apparel widely circulated, he alerted several bloggers, who responded with a collective yawn. So he wrote a fake internal memo and e-mailed those same bloggers posing as a low-level company employee, with the note: “memo we’d just gotten from our boss.” The same blogs that rejected the official news, he says, now covered it with a big “EXCLUSIVE!” tag across the top.
The New York Post
Can’t see anyone in this story comes out looking particularly well.
Savita Subramanian, mom, and head of quant and equity strategy, BoA Merrill Lynch
Last week, I finally got on the phone with Savita Subramanian, head of quant and equity strategy for Bank of America Merrill Lynch. The Street has been abuzz with her bullish comments on the stock market. I wanted to get a feel for her market insights, which are based in part on an indicator that shows her peers are so bearish that it’s time to become bullish.
At the end of the interview, the conversation turned somewhat personal. We went from the laser focus of professionals to working moms, juggling work, kids, and whatever else may have once been part of our personal lives. She mentioned that given everything she knows about markets, she was thinking about investing in stocks for her six-month-old’s education fund.
Over the years, I’ve spoken to plenty of proud dads about their kids and family. But it always feels a little different talking to another working mom; there’s a special camaraderie that comes from the unique challenges we share. And when Savita talked about her son and the college fund, I knew I was hearing something very special and real. Sometimes as reporters and readers we see these expert recommendations fly by, and they feel pretty impersonal, like moves on a chessboard that don’t have any real import. But when you hear a mother saying this is how I am saving for my child — that’s an endorsement above and beyond the usual blather on Wall Street.
Read the story here.
You can capture most of your stock gains by trading 24 hours ahead of the Fed policy statements, eight times/year
Turns out there may be free lunch from the people who brought us zero interest rates. All you need to do is buy stocks as the Federal Reserve board members gather in Washington, D.C., to discuss monetary policy. Really.
It sounds completely crazy, and even the brainiacs at the NY Fed who wrote a study on this phenomenon are completely befuddled. But the so-called “stock drift” is real.
Here’s the back story. In 1994, the Federal Open Market Committee began releasing a statement about interest rates and other key monetary policy issues after each of its regular eight policy meetings. That was part of a move to make the Fed more transparent. The announcement typically comes at 2:15 ET. Ever since then, in the 24 hours running up to that moment, the annual return on those days for stocks has been 3.89% versus 0.89% on non-FOMC days. It accounts for 80% of the premium investors can reap on stocks for the entire year.
And here’s what makes the pattern so wacky: Only stocks benefit from the pre-FOMC announcement bounce. Not bonds. Not forex. After the FOMC announcement, things get dicey but for the most part, the gains hold, the NY Fed says.
One last chart to show just what they are talking about:
Excess trading returns leading into the FOMC statement. Crazy.
The next FOMC statement will come August 1. Here’s a calendar for the rest of the year. It could come in handy.
This Facebook thing is getting waaaaay out of hand.
Barry Ritholtz posted a video interview Thursday with the WSJ Hub crew in which he compares Facebook to Bernie Madoff, the ponzi king. ”There’s greed and greed that gets you sent to prison,” Ritholtz says. And the reporters didn’t challenge him. Unimpeded, Ritholtz pivoted to a warning that investors must be wary of companies that invent their own system of metrics — like Groupon (arguably, a Ponzi scheme). Anyone who has ever touched a “like” button on any website counts as a Facebook user. This is no secret. It’s stated in the regulatory filing. Loads of people believe that the Facebook system of counting users is ridiculous, so they look to Nielsen or other third-party firms for the data.
And what about all that trading of Facebook on private exchanges before the IPO? That was totally opaque, Ritholtz says. I guess that’s supposed to be Bernie like. By definition, those exchanges are not transparent. Anyone who treads there is stepping into treacherous waters. That’s why you need to be an accredited investor to swim in those waters.
Do all those things make Facebook a minor Madoff? When last I checked Facebook was a real business with earnings and revenues.
True, the underwriters and Facebook tried to raise as much money as possible. They overplayed their hand. Nasdaq made a mess of the opening. And there was some real ugliness: the media is reporting that Facebook and analysts at the major underwriting firms notified favored clients that second quarter earnings were likely to disappoint — just days before the IPO priced. All that is certifiably icky. But it appears to be legal.
Even before the Facebook IPO became a slo-mo train wreck, people like me were saying don’t invest unless you are using money designated for high-risk ventures. Read my ebook, The Facebook IPO Primer. Read the Wall Street Journal. I personally know brokers even at Morgan Stanley were trying to steer away their clients. The media was filled with interviews with tons of bloggers and analysts saying that the company was probably worth about $70 billion, not $100 billion. In my ebook, I included one who said the company was worth only $30 billion — at the time an assertion so outlandish that I almost didn’t include it.
And what about our friend Bernie? He was the hail-fellow-well-met who lied through his teeth. The big man on campus was a putz. He fabricated monthly statements. The lone voices who questioned his returns were hushed by his admirers. Madoff deserves to be in jail for the rest of his cursed days.
But the execs at Facebook? I don’t think that should be their fate. Unless greed and stupidity are indictable offenses. In which case we’d really have a jail-crowding problem!
I had a great interview today on CBC radio’s The Current, the top morning program in Canada. Anna Maria Tremonti asked great questions. Also on the interview: David Fitzpatrick, author of The Facebook Effect (a great read), and investor David Andrews of director of investment management at Richardson GMP.
Listen to the interview here.
The king of risk management
When you’re the king, beware the scepter of hubris.
JP Morgan chief Jamie Dimon tells Meet the Press that when he first learned about a hedge that has produced $2 billion in losses (so far) he ”got defensive” and began ”justifying” the worst laid plans in hedging history.
The gut reaction also has the ring of truth. The bank sailed through the financial crisis, it’s vigor never in doubt. Why cast doubts on its prowess now?
So stop chewing for one moment on the irony of the bank with ironclad risk management systems suffering a meltdown. Here’s something better to chew on: JP Morgan took a long walk out on the risk curve because its deposits way exceeds its loans. It needed to put the excess capital to work. And, well, US Treasury securities earn next to nothing, thanks to the Federal Reserve policies put in place to save the financial system. So JP Morgan did what every other investor has been doing for the past few years: Look for more yield elsewhere.
Dimon is the trendsetter. Who’s next?