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~ Investing Advice for the Everyday Investor

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Tag Archives: Trading

The Volcker Rule

12 Thursday Dec 2013

Posted by Sudarshan Sridharan in News

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Finance, Investing, Investor, Investors, Rule, Stock, Stocks, The Volcker Rule, Trader, Traders, Trading, Volcker, Volcker Rule


Well we all know that America’s international competitors have the clear cut upper hand advantage on American companies for at least the next 10-14 years. Other than that, have you ever actually bothered to learn what’s in the almost 900 page document? An article from NYT explains it clearly and Perfectly. WARNING: You should settle down for a couple of minutes and sit back in your chair if your going to read this, it’s MASSIVE.

When Paul Volcker called for new rules in 2009 to curb risk-taking by banks, and thus avoid making taxpayers liable in the future for the kind of reckless speculation that caused the financial crisis and resulting bailout, he outlined his proposal in a three-page letter to the president.

Last year, when the Dodd-Frank Wall Street Reform and Consumer Protection Act went to Congress, the Volcker Rule that it contained took up 10 pages.

Last week, when the proposed regulations for the Volcker Rule finally emerged for public comment, the text had swelled to 298 pages and was accompanied by more than 1,300 questions about 400 topics.

Wall Street firms have spent countless millions of dollars trying to water down the original Volcker proposal and have succeeded in inserting numerous exemptions. Now they’re claiming it’s too complex to understand and too costly to adopt.

Having read at least some of the proposed regulations — I made it through about five pages before sinking in a sea of acronyms — I can assure you that the banks are right about that. Even the helpful summary prepared by Sullivan & Cromwell, a law firm that represents big banks and that has associates who no doubt wrote the summary over several all-nighters, runs a dense 41 pages.

In numerous interviews this week with people across the political spectrum, I couldn’t find anyone who actually supports this behemoth — including Mr. Volcker, whose name it bears.

“I don’t like it, but there it is,” Mr. Volcker told me in his first public comments on the sprawling proposal.

“I’d write a much simpler bill. I’d love to see a four-page bill that bans proprietary trading and makes the board and chief executive responsible for compliance. And I’d have strong regulators. If the banks didn’t comply with the spirit of the bill, they’d go after them.”

He says he likes the fact that the proposed regulations, complex as they are, make top management and boards responsible for compliance. “If they think it’s too complicated, they have no one to blame but themselves,” he said of the banks.

Do we need to go back to the drawing board?

“Here’s the key word in the rules: ‘exemption,’ ” former Senator Ted Kaufman, Democrat of Delaware, told me. “Let me tell you, as soon as you see that, it’s pronounced ‘loophole.’ That’s what it means in English.” Mr. Kaufman, now teaching at Duke University School of Law, earlier proposed a tougher version of the Volcker Rule, which was voted down in the Senate. “We’ve been through this before,” he said. “I know these folks, these Wall Street guys. I went to school with them. They’re smart as hell. You give them the smallest little hole, and they’ll run through it.”

“I support the concept of the Volcker Rule,” Representative Peter Welch, Democrat of Vermont, said, “but these rules aren’t going to be effective. We’ve taken something simple and made it complex. The fact that it’s 300 pages shows the banks pushing back and having it both ways.”

And these are Democratic critics of the proposed regulations. An overwhelming number of Republicans oppose them, as they have virtually every aspect of Dodd-Frank. Even Senator Richard Shelby, Republican of Alabama, the ranking member of the Senate Committee on Banking, Housing and Urban affairs, who was the lone Republican to support the tougher Brown-Kaufman legislation, dismisses the latest incarnation.

“This proposal, however, is filled with central questions that Congress should have answered before even drafting Dodd-Frank,” said Jonathan Graffeo, a spokesman for Senator Shelby. “Instead, Congress willfully ignored the ramifications of its actions, just as it did in repealing Glass-Steagall.”

Yet the Volcker Rule, or something like it, could be the most important reform measure to emerge from the financial crisis.

If there was any doubt about that, this week the Securities and Exchange Commission unveiled its latest charges involving mortgage-backed securities. In what may be a new low for conduct by a major Wall Street firm in the walk-up to the financial crisis, Citigroup settled charges (without admitting or denying guilt) that it defrauded investors by creating a package of mortgage-backed securities for which it selected a pool of mortgages likely to default, bet against the security for the bank’s benefit by shorting it and then foisted it off on unwitting investors without disclosing any of this.

According to the S.E.C., one trader characterized this particular security in an all-too-candid e-mail as “possibly the best short EVER!”

Compared with this, Goldman Sachs mortgage traders look like Boy Scouts. In settling its fraud charges for $550 million last year, Goldman was accused by the S.E.C. of being the middleman in a similar deal, allowing the hedge fund manager John Paulson to help choose the mortgages and then bet against them without disclosing this to the other parties.

Citigroup dispensed with a Paulson figure altogether, grabbing those lucrative roles for itself. The S.E.C. said Citigroup earned fees of $34 million on this travesty and generated net profits of at least $126 million. (In a statement, Citigroup said it was pleased to put the matter behind it and has since “returned to the basics of banking.”) Nonetheless, Citigroup is paying just $285 million to settle the charges, and, needless to say, its chief executive at the time the deal was marketed and closed, Charles Prince, will pay nothing.  

I asked an S.E.C. enforcement lawyer if he could assure me that a transaction so brazenly fraudulent — not to mention risky, since a naked short ranks at or near the top of high-risk strategies — would be unambiguously prohibited under the proposed Volcker regulations. “There are some tricky definitions in there,” he said. “Could this be interpreted as hedging? But this was a naked short by the bank, and I believe it would be prohibited.”

I found this less than reassuring, since you can bet that if there was a way to call it hedging, lawyers would find it, and at the very least, years of costly litigation would result.

Last week I stopped by to see the financier Henry Kaufman, a former managing director of Salomon Brothers, a former Lehman Brothers board member and author of “The Road to Financial Reformation” (and no relation to Ted Kaufman, the former senator), who has been arguing for years that the proposed Volcker Rule doesn’t go far enough.

“Nobody listened,” he said. Mr. Kaufman has witnessed, by his count, 15 major financial crises since he and his family fled the Nazis when he was 10 years old. 

“Paul Volcker and I are the same age,” 84, he observed. “Paul wanted to take an aspect of risk-taking out of the financial conglomerates. That’s a worthy endeavor. But the history of regulation shows that the private sector pushes back and waters it down. Dodd-Frank didn’t want to address the longer-term consequences of ‘too big to fail.’ The 10 largest banks held 10 percent of the assets in 1990; today they control over 70 percent. This trend accelerated in 2008. The ‘too big to fail’ got even bigger.”

“My view is that we should break up the big financial conglomerates and separate investment banking,” he continued. “Otherwise we’re going to have ongoing government intervention in the credit allocation process. That threatens economic democracy, and the U.S. is the last bastion of economic democracy.”  

Financial concentration also worries Congressman Welch, who has called for an antitrust investigation into whether big banks recently colluded to charge debit card fees. “We need a strong financial sector,” he said. “But it should be in service to the real economy, the productive economy. The large banks have become trading platforms. They make the real money on the trading desks. The depositors, the consumers, become a base to fund that trading activity. There should be a separation and there certainly should not be a taxpayer backstop for their losses. Contrast this to the Main Street banks facing severe pressures from the big banks. Their model is more traditional, in service to the productive economy. In Washington the debate is about the needs of the large banks, but there’s no debate about the basic function of these banks. Do we want the financial sector to be in the service of the producing economy, or vice versa? It’s time we call the question.”

Former Senator Kaufman, Congressman Welch and Mr. Kaufman are all part of a chorus calling for a return to the separation of commercial and investment banking once embodied in the Depression-era Glass-Steagall Act, which was repealed in 1999.

“The need for 300 pages of rules just shows you’re trying to define something indefinable,” Mr. Kaufman said. “I think Paul Volcker is great, but let’s step back and ask, why are we doing this? We‘re doing this because we don’t want banks with federal deposit insurance to be involved in risky investments. There’s a simple solution. We didn’t have that problem for over 60 years because we had Glass-Steagall. It worked, we changed it and guess what, we got into trouble. I want to go back to what worked for 60 years. That’s a very conservative position.”

 Critics of a return to Glass-Steagall note that Lehman Brothers was an investment bank, and Glass-Steagall would not have prevented its failure. Goldman Sachs and Morgan Stanley were investment banks (and would probably be so again), and yet they were still too big to fail.

Mr. Volcker said that reinstating Glass-Steagall was unrealistic in today’s political climate. “It was a magnificent piece of legislation that didn’t need any regulations,” he said. “Do you think they could rewrite Glass-Steagall today without 300 pages?”

Even if Glass-Steagall isn’t a panacea, it would be a start. It would put a firewall around federally insured institutions, protecting taxpayers and helping contain the crisis as well as potential future ones.

“I don’t know if this Congress will address this,” Ted Kaufman said. “I won’t try to forecast. But I believe from the bottom of my being that we’ll eventually have to restore Glass-Steagall. The only question is, How much agony do we have to go through before we do it? We know the solution, but do we have the will?”

In the meantime, “It scares the hell out of me. We can’t afford to have this happen again.”

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Aside

Netflix ready to have a great 2 weeks? Or it’s 2 worst yet!

14 Thursday Nov 2013

Posted by Sudarshan Sridharan in News

≈ 2 Comments

Tags

First, First Solar, FSLR, Invest, Investing, Investor, Investors, Netflix, NFLX, Solar, Stock, Stocks, Tesla, Ticker, Tickers, Trade, Trader, Trades, Trading, TSLA


image

Picture Courtesy of T.D. Ameritrade ~ Text typed on chart using Windows Paint

Remember that nice long article I wrote about Netflix (Ticker NFLX) the first day I published this blog? Well if you do (and I honestly hope you do since it’s only been something like 2 and a half weeks since I started the Prime Pick), then you’d know I covered Netflix extensively like how I covered Tesla for a little while. Anyways, I was on stockcharts.com (great site) just looking up some typical stocks because I was bored today and two stocks REALLY caught my eye. Want to guess what the other stock was? It was First Solar (Ticker: FSLR) which I’ll cover in another article (probably the next one). FSLR reached Multi-Year highs.

As you can see (where I’ve typed in the picture), if Netflix penetrates the $338.08 mark for 2-3 days, you can be guaranteed to see a Netflix run starting between November 19, 2013 – November 20, 2013. Why? Because it’ll be breaking it’s 50 day moving average and 200 day moving averages.

On the flip side, if Netflix can’t penetrate 340.44 by November 20, 2013, prepare for a nice little Bear run or at least a stagnation of stock price. Ultimately Netflix’s stock price hangs in jeopardy and can instantly go either way for the rest of the next two weeks, and if anything like Tesla happens to Netflix (or any stock really), you can rest assured that that particular stock is going to have a bad week. (Yes that sentence is supposed to have two that‘s in it.)

That’s my Prime Advice for today!

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The Penny Stock Introduction ~ Part I

13 Wednesday Nov 2013

Posted by Sudarshan Sridharan in News

≈ 8 Comments

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Business, Equities, Finance, Investing, money, NASDAQ, New York Stock Exchange, NYSE, Penny, Penny Stock, Penny Stocks, Stock, Stocks, Stocks and Bonds, Tesla, Tesla Motors, Trade, Trader, Traders, Trades, Trading, Volume


So lately we have been seeing trends in the Penny Stock World. Penny Stocks only have a 6.28% chance of making a profit, you only have a 12.56% chance of making money. Investors trading on the NYSE have a 54.58% chance of making a profit, and close to a 74% chance of breaking even. But the profits are far less than what they could be in Penny Stocks!

Before I start the stock list, I’d like to say that I started off investing in tons of shares of Penny Stocks, sometimes owning up to 10% of the company itself. And if you’re wondering how penny stocks can make you rich with all these pitfalls, don’t worry, there is an answer, and it’s simple.

Often times, Penny Stocks are not even worth a penny, they are worth less than a penny. However, the cheaper the stock, the more you can buy. For example, I saw a stock called DSNY way back in April at around $00.40 cents and bought it (100,000 shares of it, and unfortunately I sold it at .98 cents. Now it’s at $2.00). I spent $40,000.00 to make $58,000 profit. That’s 145% gain. Even though Penny Stocks only have a 6.28% chance of making a profit, penny stock traders have one advantage that we normal investors (normal as in non-hedgefund, non-Carl icahn) don’t: They have Volume!

If you have every heard the saying, “ Quantity over Quality,” this is one of the few times that saying would be true. As long as the penny stock even goes up a thousandth of a cent, money is still going to be coming through. Volume is everything with penny stocks, and although the jump I described with DSNY happens everyday, the challenge is finding the right stock and sticking with it.

Well that’s all for today. Expect either a article today or tomorrow of Part II!

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Tesla Heading to $200.00 a share says Deutsche Bank

08 Friday Nov 2013

Posted by Sudarshan Sridharan in News

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$, 200, Bank, Deutsche, Deutsche Bank, Stock, Stocks, Tesla, Trader, Traders, Trades, Trading, TSLA. Ticker, Twitter, TWTR


As we all know, everyone’s favorite stock started its death spiral two days ago on Wednesday after reporting stellar earning reports because of the third Tesla crash fire within 5 weeks. However, even after several highly regarded banks and Hedgefunds have downgraded Tesla severely, but Deutsche Bank says that it maintains its $200.00 goal for Tesla, and that Tesla will start rebounding soon enough. 

What does this mean for Tesla?

It’s going to go up. It’s not going to go to its 200 day moving average ($108.00) before rising (thank god). The question is when? Thankfully it’s not that hard to guess (especially if you have read my past articles) that Tesla is going to go up next week – Monday or Tuesday.

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Security Stocks on the rise?

06 Wednesday Nov 2013

Posted by Sudarshan Sridharan in News

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Stock, Stocks, Trade, Trader, Trading


Well today has been a very interesting day so far. The typical Nasdaq and big name stocks that should be performing extremely well are in a low stupor. Stocks like Tesla are completely in the dumps ~ loss of $25 dollars, while security stocks are on the rise (The days biggest gainer added 25% to its IPO). 

Why are security stocks on the rise?

Frankly speaking, I have no idea. Countries and corporations are the majority of the people who provide the majority of the income security companies, and following Edward Snowden, I have no idea why they would be on the rise.

Well bottomline, it’s a good idea to keep your eyes on companies like IMPV and CUDA.

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SAC Capital: The Once trendsetting Hedgefund is now in the dumps

04 Monday Nov 2013

Posted by Sudarshan Sridharan in News

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Capital, Insider Trading, SAC, SAC Capital, Stock, Stocks, Trade, Trader, Trades, Trading


The now notorious SAC Capital, owned and operated by Steven Cohen (who was influential enough to get himself on the cover of two Vanity Fair Magazine issues) settled an insider trading case with the SEC for a cheap sum of 1 billion dollars (complete sarcasm intended.) But they still aren’t done with this mess. Cohen has a civil suit filed against him for lack of management skills (some of these laws that they make….), and if convicted pretty much loses all rights to invest and loses SAC Capital. Of the 8 traders charged with insider trading, 6 have plead guilty and 2 are expected to fight the case in court. The Hedgefund did produce 25% profit a year on close to 15 billion dollars for 20 years, so it’s not surprising that they finally got caught. The problem with this case is that if Cohen is convicted, up to 40% of investors could lose any money they currently have in SAC Cap.

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Solar Stocks: How and Why they Failed before and the Difference Now

01 Friday Nov 2013

Posted by Sudarshan Sridharan in News

≈ 2 Comments

Tags

City, Difference, Fail, First Solar, FSLR, How, Invest, Investing, Investor, Investors, Now, Solar, Solar City, Solar Stocks, SolarCity, Solars, Stock, Stocks, Ticker, Tickers, Trade, Trader, Traders, Trades, Trading, Why


After Solar companies failed one by one last year and the year before, many people wrote Solar companies off as has beens and stocks that could never take off. Now however, solar stocks have been OFF THE HOOK! 

Some solar stocks have posted gains anywhere from 100% – 800% (Once a stock passes the 800% threshold, and goes into 900% gains without a steep loss, it generally has enough momentum to propel to the veryr are 1000%+ gains range) in share price, and a very select few have posted gains in the 1000% range. First Solar Inc. (Ticker: FSLR) is one of the stocks that has posted monumental gains lately, and it’s a GREAT example of why solar stocks have been on the rise lately. With the rise of Tesla, Solar stocks and electric stocks were back on the map, and when investors started to realize that the Solar industry had fallen so low, and that the stocks were so undervalued that it was easy to buy stocks and drive up the value ridiculously fast – they went for it. 

Why can’t the industry just crash again?

Elon Musk – the infamous owner of Tesla – also owns SpaceX and SolarCity. When Tesla goes up, SolarCity goes down, when SolarCity goes up, Tesla crashes into the ground. Why I bring this up is because SolarCity is an amazing indicator of how the Solar market is going to go. When SolarCity goes up, the solar stocks all go up, when it goes down, all the Solar stocks go down. In fact, one of the first stocks to go down when the Solar bubble burst was SolarCity. This time however the Solar market is protected by SolarCity. The company has been rechristened as another “too big to fail” company by Reuters. (Recognize that slogan? I know you do.) Basically. this means is the company falls, then the market crashes alongside it. And since SolarCity is a indicator of the Solar Market it’s doubtful that it’s going to fall anytime soon. 

 

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This Day in History: The Great Depression Started

29 Tuesday Oct 2013

Posted by Sudarshan Sridharan in News

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Bad, Depression, Great, Great Depression, Investing, Investor, Investors, Stock, Stocks, The, The Great, The Great Depression, Trade, Trader, Traders, Trades, Trading, Tragedy


84 years ago today, the Great Depression began. The Crash of ’29 or Black Tuesday as it is known caused million to lose their fortunes in the stock market. A grim reminder of what COULD happen to those of us unfortunate enough to face tragedies such as this.

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Microsoft and Tesla: The Day’s Biggest Gainers?

28 Monday Oct 2013

Posted by Sudarshan Sridharan in News

≈ 2 Comments

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Invest, Investing, Investor, Microsoft, MSFT, Stocks, Tesla, Ticker, Trade, Trader, Traders, Trading, TSLA


Microsoft (Ticker: MSFT) announced Thursday in after hours that they had beaten earnings expectations for Q3, and boy oh boy did Investors reward the company. Expect more gains from Microsoft. 

Tesla (Ticker: TSLA) reported that it had hired former Apple Exec. David Field, who would bring his years of technological experience and mechanical experience to Tesla. Shares of Tesla did soar on Thursday before falling drastically on Friday. It’s up again in pre-market. Expect it to go up again.

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News on Twitter (Ticker-To-Be: TWTR)

25 Friday Oct 2013

Posted by Sudarshan Sridharan in News

≈ 2 Comments

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Invest, Investing, Stock, Stocks, Trade, Trader, Trades, Trading, Twitter, TWTR


Twitter has set a price range of $17 to $20 per share for its initial public offering and says it could raise as much as $1.6 billion in the process. The pricing is relatively conservative considering that Twitter is poised to pull off the year’s hottest IPO.

At the $20 share price, Twitter’s market value would be around $12.5 billion, roughly one-tenth of Facebook’s current valuation. Twitter’s value is based on 625.2 million outstanding shares expected after the offering, including restricted stock units and stock options.

The company’s valuation is conservative. Some analysts had expected the figure to be as high as $20 billion. Back in August Twitter priced some of its employee stock options at $20.62, based on an appraisal by an investment firm.

Twitter’s caution suggests that the company learned from Facebook’s rocky initial public offering last year. Rather than set expectations too high, Twitter is playing it safe and will very likely raise its price range closer to the IPO, and thus fuel demand.

Last week, Twitter disclosed that it lost $65 million in the third quarter, three times as much as in the same period a year earlier. It was the company’s biggest quarterly loss since 2010. Founded in 2006, Twitter has never posted a profit, but its revenue is growing. Revenue for the latest quarter more than doubled from the same period last year, to nearly $169 million.

The IPO has been long expected. The company has been adding to its arsenal of advertising products and working to boost ad revenue in preparation. Still, it’s ad revenue is small compared with Facebook. Twitter says it has more than 230 million monthly users, compared with Facebook’s roughly 1.2 billion.

 

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