A Look Back at the Flash Crash of 2010: When Will it Happen Again?
We've just marked the third anniversary of the Flash Crash of 2010.
That May afternoon was already a down day for the Dow, with the index off by about 300 points since trading opened. Then, at 2:45 p.m., the Dow rapidly plunged by another 600 in just five minutes. By 2:47 p.m., the Dow had lost a staggering 998.5 points.
By 3:07 p.m., the losses had reversed and the Dow picked up most of those 600 lost points. In just about 20 minutes, the Dow had lost close to 9% of its total value – and then regained it.
But those 20 minutes were a virtual eternity, during which nearly $1 trillion in market value essentially disappeared.
The Next Wall Street Mega-Scandal Has Arrived
Well, it looks like the major financial institutions can't learn a lesson. They're neck deep in yet another financial scandal of global proportions.
U.S. and international securities regulators investigating manipulation of LIBOR, the world's most important set of benchmark interest rates, have uncovered another price-rigging scheme, this one in the $379 trillion market for interest rate swaps.
$379 Trillion, not Billion. Trillion.
The Commodity Futures Trading Commission (CFTC) has already issued subpoenas to Wall Street's biggest banks and is interviewing a dozen former and current brokers from the Jersey City, NJ, offices of ICAP Plc.
For investors in the big banks, new revelations may put an end to the upward push to the groups' stock prices, whose earnings of late have been helped by reductions in reserves meant as a cushion against future asset hits and litigation expenses.
The Ugly Truth About Bail-ins, Magic Wands and Con Men
Last week, I was emailed a link to Barry Ritholtz's "The Big Picture" site.
That's where David R. Kotok, Chairman and Chief Investment Officer of Cumberland Advisors, posted a piece on the "bail-in" of Cypriot banks, versus the bailout fixes that we're used to seeing.
As it was an email, a lot of people were copied on it. And a lot of them hit "Reply All," and forwarded their reactions and comments.
I read everyone's responses.
No one had any clue about what's really going on, or how to fix the banking mess the world faces, or whether bailouts or bail-ins are the answer.
Myself? I got really angry.
Why JPMorgan Wants to See More Americans on Food Stamps
Every time an American signs up for food stamps in one of 23 states, JPMorgan Chase & Co. (NYSE: JPM) adds to its revenue stream.
That because JPMorgan Chase contracts to operate as the processor of the Electronic Benefits Transfer (EBT) cards in those states. JPMorgan earns a fee for each recipient, ranging from 31 cents to $2.30, depending on the state, every month for the term of the contract.
JPMorgan's seven-year Supplemental Nutrition Assistance Program (SNAP, the official name for the federal food stamp program) contract with New York state, for example, brought in more than $126 million of revenue to the big bank.
Florida has paid JPMorgan more than $90 million since 2007. Pennsylvania's seven-year contract exceeded $112 million.
It brings a whole new meaning to "corporate welfare."
Don't Ignore Meredith Whitney's Bullish Market Call
Meredith Whitney, the prominent banking analyst known for making aggressive bearish calls, just made a strikingly bullish call on U.S. stocks.
When it Comes to the Facts and Figures, America is in Trouble
There are always at least two sides to every story.
That's true when it comes to trading (there's always a buyer and a seller). It's also true when it comes to politics.
But, just like in trading or investing, when it comes to politics, it's not about being "right" or "wrong." It's about distilling rhetoric and opinions down to facts and figures that can then (hopefully) be more objectively observed and used to fashion compromises that lead to winning positions, financially and socially.
I try to let the facts and figures speak for themselves and peel back others' opinions to get at what's really happening and why.
I change my opinions all the time, whenever there are new facts that warrant consideration. But in the end, I take a stance.
I'm telling you this because I'm about to lay out some insights and some indictments regarding the economy, Wall Street, and oil, and then delve into something that's so charged that some of you are going to flip out.
But before you do, remember, there are two sides to every story.
First up: poverty.
Just look at the numbers out this morning…
Why There’s No Jail Time for Wall Streeters
Wall Street is a "protected" operation. Protected means cops are aware of illegal activity, but are paid off to look the other way and even protect businesses from potential harm.
So, if you're waiting to get back into the markets once the trash has been taken out, you're about to find out your wait may be a lot longer than you expected.
The scheming racket that too many aspects of Wall Street have become reminds me of an old Clint Eastwood movie.
It's the one where Dirty Harry goes into a porno shop with a hooker hotel above it and the thug behind the desk tells him, "You can't come in here, this is a protected joint."
But Harry sets him straight. "To them you're something," he says, "but to me you're just a maggot that sells dirty pictures."
While Wall Street doesn't sell dirty pictures, it does sell the prospect of a glossy future full of positive investment returns when their "products" are embraced, as in bought and sold– but mostly bought, for the investor's long-term good, of course.
In Wall Street's world, the beat cops are their regulators, including the SEC and the CFTC. Above them are the Federal Reserve and an untold number of politicians and legislators who pimp and pander on behalf of banksters by writing laws with loopholes so their donating "constituents" can always get out of jail free.
There are plenty of examples, but the mortgage-backed securities bubble and its related fallout is, to date, the biggest and most obvious example of how protected the Street is.
The Seven Secrets You Need to Know to Keep Wall Street From Hijacking Your Future
One of the great things about vacation – in addition to all the time I get to spend with my wife and five-year-old son – is that I actually get to peruse the books and watch the movies that I spent the other 51 weeks of the year setting aside.
Don't misunderstand: I don't spend the week away from the office holed up and away from my family. Quite the opposite.
This year, in fact, the three of us rented a house down at the Delaware shore for a week in mid-August, and spent our days swimming, shopping, walking, and playing miniature golf and Skee-Ball. We ate Dough Roller pizza and even had some Dumser's Dairyland ice cream.
My folks said my little boy later described it as "the best vacation ever."
Even so, I did manage to find some "me" time that week.
Late in the week, after my tired-but-happy son conked out in my arms (smiling to the very last), and I'd tucked him in, I found time to watch two films about the U.S. financial crisis that I suspected would be worth talking about here.
Turns out I was right….
The movies in question are "Too Big to Fail" (2011) and "Inside Job" (2010). They both address the same topic – how the 2009 financial crisis nearly brought down the global financial system (a tacit warning that this could easily happen again). But they attack the topic in totally different ways.
The HBO-produced "Too Big to Fail" (TBTF) is based on the superbly executed best-seller of the same name written by journalist Andrew Ross Sorkin. The film adaptation is actually a scripted "docudrama" – with Hollywood actors standing in for the real people they portray (William Hurt does a great Hank Paulson).
The Sony Pictures-filmed "Inside Job" is a straight documentary, narrated by "Bourne Identity" trilogy star Matt Damon. It features interviews with such financial stalwarts as billionaire George Soros, former Fed Chairman Paul A. Volcker and super-economist Nouriel Roubini.
Both efforts were critically acclaimed: "Inside Job" was a hit at film festivals around the globe, while "TBTF" was nominated for 11 Emmy Awards.
What You Need to Know About Wall Street
Both films underscore some valuable lessons for investors – the same ones, in fact, that we consistently convey here. Key among them:
- Wall Street is out for itself, and will vivisect anyone who stands between it and a big profit. That goes without saying, I know. But the thing that doesn't get said is that America's individual-investing middle class is the single-easiest (and single-largest) target for most of Wall Street's profit-making schemes.
What I Learned About Making Money
Thirty years is a long time to be doing anything; but it's a short time if you love what you do.
And the time spent is even sweeter if you're making a lot of money doing what you love to do.
I'm very lucky. I've been trading for 30 years. I love what I do. And I make money doing it.
The truth is, I didn't know what I wanted to do when I was growing up (some people say I'm still not grown up, I say thanks). I wasn't handed anything. I didn't go to college right out of high school. I didn't know what I wanted to do. I didn't know what to study.
So I worked, I travelled, I adventured. But the operative word there is "worked."
Don't get me wrong, I'm not lazy, I never have been, but I don't like to work.
I came to that realization after being a caddy, then a lifeguard, then a construction laborer, then a not-so-great carpenter, a dishwasher, then a not-so-great cook, tarring roofs in Arizona (in the summer) and working three jobs (at the same time) when I wanted to live in California and moved to San Francisco.
Then it hit me – all this stuff is work, and it feels like work.
I thought hard about what I really wanted to do. Something that was work, but could become a career, and it had to be something that wasn't really like work, at least the kind of work I had been doing.
I didn't have any money, but I had a plan. I figured that the best way to make money (when you don't have any, but know it takes money to make money) is to make money with other people's money.
That's exactly what they do on Wall Street, so that's where I was headed.
Just Another Summer on Wall Street
Another week slipped by on Wall Street, and it was a quiet one. For summer, that is.
And thank goodness. All the scandals, all the negative news, all the time, always something. I'm getting tired of writing so much.
It's my summer too, you know.
So, when my extraordinary good fortune led me into the company of a spectacular woman this past week, I escaped the Street reality, enjoyed the beach, the Hamptons… and did I mention a spectacular woman?
But just because I was out of touch (from reality) last week doesn't mean the surreal wasn't spilling out all over the Street.
Okay, so it was little stuff, but it's still stuff. And it's still surreal…
Like finding out that Vikram Pandit, CEO of that little banking outfit Citigroup, got paid more last year than the bank paid in taxes.
That's news you ask? No. Granted, we know that all those poor banks that suffered deep losses on account of a lot of sore-loser homebuyers who got the Street mantra wrong (it's "buy high, sell low," right?) won't have big tax bills for a while because they saddled the good-guy banks with huge tax loss carry-forwards.
Besides, Vik (can I call you that?) deserves it.
Can you imagine all the negative press he gets? He deserves more; I say give it to him and the other banksters who have to work so hard to keep their jobs while their firms don't have to work nearly as hard to not pay taxes.
And then I heard that Jon Corzine was thinking about yet another career move.