The Gloss is Coming Off the Eurozone
Europe, Europe, Europe…
I know, you're sick of hearing about problems in the Eurozone.
But the problem with Europe is that it won't go away. And if it does go away, we'll have even bigger problems. What a mess.
Of course, I'm talking about the Euro-currency zone and the European Union, not Europe itself.
I love Europe. I love every country in Europe. I love the different cultures. I love the different languages. I love the different societal models. I love the history of Europe.
And no doubt all the Europeans love all the same things about their Europe – except maybe some of their history.
But even more than loving Europe, Europeans love their own countries. Why? Because they have different cultures, languages, societal models, and differing views of their history. Vive la différence!
So, whose bright idea was it to gloss over (with shiny promises and, later, a shiny new currency) thousands of years of differences and shove all Europeans into a funnel in the hopes that they'd all come out the other end as one homogeneous mass of humanity?
Oh, that would be the bankers and financiers who wanted a United States of Europe so that the free flow of goods and services payable with a common currency would make everyone better off, and make themselves better, better off, by a lot of betters.
And now, what a surprise! There are differences all across Europe about, well, Europe and what it has become and where it has to go to get out of the mess it's created for itself.
How that's going to end is playing out right before our eyes.
The JPMorgan (NYSE: JPM) Losses: Here’s What Happened
Yesterday's announcement by JPMorgan Chase & Co. (NYSE: JPM) that it lost $2 billion on a "hedge" position is not only surprising, it's frightening.
I'll try and make this short and easy to understand, but the truth is that it's complicated. If we have a decent idea about what happened (and I do), it's bad. And if it's a tip-of-the-iceberg thing (which I don't believe it is), it could be really, really bad.
Investors put on hedges all the time. In fact, in our investment services like the Capital Wave Forecast we put on essentially the same type of "economic" hedges that JPM CEO Jamie Dimon is saying blew up on them. The economic hedges we put on are essentially hedges against long positions we hold.
For example, if I see some potential danger ahead, then I recommend we buy some protection, like buying the VIX in anticipation of rising volatility, or buying puts on broad market indexes.
The broad protective measures we take are economic hedges because they are not specific hedges designed to hedge potential loss in any one position. For example, if we owned JPM stock and we wanted to hedge our position, we might buy puts on JPM, or sell calls, or employ another specific hedge against our long position.
Mobile Wallet Technology Will Make You Rich
Your future is calling on your mobile phone, and the ringtone sounds like a cash register.
The proliferation of affordable mobile phones has created a global paradigm shift that will give investors with vision innumerable investment opportunities.
As I discussed in an earlier article, you don't realize it but there's a fortune in your wallet right now. Mobile wallet technology will make you rich.
Let me explain.
Traditional wallets and purses are being replaced with smartphone "mobile wallets" that incorporate cameras, Internet connectivity, thousands of "apps" and increasingly, banking, credit and payment transaction technologies.
Knowing who the winners and losers will be in this world of tomorrow is the stuff investors' dreams are made of.
This report is the first in a series of four articles. Consider it your first reality check. Or better yet, your wake-up call.
From it you'll learn why the world is moving to mobile wallets, how we'll all get there, and when.
More importantly, you'll be primed for making investment decisions on hardware device makers, on network providers, and on what software solutions will be most in demand.
You'll be able to weigh the future of banks and banking, credit and debit card issuers, and their love-hate relationship with powerful non-bank commerce facilitators.
You'll be able to picture how some merchants will profit more than others, and what impact social media will have on commerce and payment schemes.
You'll understand what the singularly most important question is that hangs over our digital future: who will own, control and profit from the data that drives everything.
You will be able to glimpse what the big security issues will be and how to profit from them as well.
You will recognize who the giants are now, who are the up-and-coming giants, and who will be the likely giant killers.
You'll understand the importance of interoperability and what that means to creating economies of scale.
And you will be able to see how an evolving regulatory environment will change fortunes.
Above all, you will be tuned in and abreast of the changing dynamics and investment opportunities in this brave new world.
At its core, it is about change.
To continue reading, please click here…
The Views from Near and Far
There are always two ways (at least two ways) to look at everything, including the market. In fact, whether one looks at the market from near or far makes a big difference in what you see.
Like most complex equations with multiple inputs, synthesizing the different inputs is critical to what comes out on the other end of your equation.
In this case, I'm talking specifically about two inputs – the perspective from near and from far away.
And I am talking about how they affect one's view of what's happening in the market and where it's likely going to go next.
Thursday was a good example.
Early in the morning (in my travels), I saw that the Dow futures were up 82, and I thought, it could be a good day and we might finally tip the scales resting on the pivot point fulcrum we've been teetering on for a couple of weeks now.
As the morning rolled on, before the open, company after company reported earnings, and they all handily beat consensus estimates – some by huge margins.
From a distance, if that's all you saw, you'd be inclined to think, as I did, that the market was headed for a great day.
But that was just the far view…
Closer to the action (which I wasn't always seeing, because I was in transit), as one after another earnings report came out, again before the opening, the futures ticked down, lower and lower.
I didn't catch the open, so let's pretend I still don't know what happened at that moment.
The opening is important because sometimes it sets the tone for the day, especially if the futures are up big and the market opens up strong and rises steadily from there.
Of course, that's not always true, especially these days. But stay with me.
Later in the day, I'm walking past a TV monitor that has CNBC on, and I see the Dow down 116. That's a far view, again.
We ended up rallying towards the end of the day, and the Dow closed down only 68 points.
But again, that was the view from afar.
Sure, I see all that, and take the far view. But, I also take the near view.
Up close, earnings look great, and the U.S. looks like it's "basing" and laying the groundwork for reasonable growth.
All that is tentative, however, when we look closer.
Subprime Student Slaves: The Lowlife Trap of Higher Education
"And the strong to seem to get more
While the weak ones slave
Empty pockets don't ever make the grade
Mama may have, and Papa may have
But God bless the child that's got his own
That's got his own."
We can thank the late, great Billie Holiday for those lyrics. And we can thank our higher education system for giving "the child that don't his own"a chance to get some.
Some debt, that is.
Students, many of them adults looking to gain new skills, are being systematically ripped off and enslaved by schools and lenders, blinding them with hope about what a higher education can do for them while bilking them for billions in the process.
It's a dirty game, and a big one at that. You probably know, because you probably owe.
First, let me offer some insights on the market before I get to my indictments…
Why the Doom and Gloom?
So far, so good…as far as earnings season, that is. Three quarters of companies reporting, so far, have beaten Street expectations. And 81% have offered up better than expected revenue forecasts for the future.
So… why all the doom and gloom?
Turn Your Digital Wallet into a Money Machine
You don't realize it but there's a fortune in your wallet right now.
What? You don't see it? That's because you're looking in the wrong wallet.
Take out your cell phone. In your hand right now is your financial future if you want to get rich.
Your smartphone is about to become your new "digital wallet."
When it comes to your credit, your investments, your banking relationships, how you shop, how you are marketed to and how you pay for everything, your new digital wallet will be at the center of it all.
Understanding what kind of hardware your wallet takes, who delivers your digital services, and understanding your relationship to digital money will be the keys to making a bundle off of it all.
In fact, as the race to shape the future of e-commerce and e-payments develops, fortunes will be made by investing in the companies destined to be big winners in this fast-growing trend.
With that in mind, here's a snapshot of what's here now, where the trend is headed and how you can ride this phenomenal wave all the way to your own private beach.
The Rise of the Digital Wallet
First, you have to realize that you don't use a lot of cash-even though you think you do.
The truth is the whole world is using less and less cash.
On the low end, Swedes transact commerce in cash only 3% of the time. Europeans pay with cash 9% of the time. And Americans pay in cash only 7% of the time.
The rest of the time we're using credit cards, debit cards, prepaid cards, checks, coupons, the Internet, and increasingly, cellphones.
There are several reasons why we're using cash less.
The Housing Market's Biggest Hurdle
Forget about optimistic headlines on the housing market.
Whether it's record low mortgage rates, improvement in the Case-Shiller Index, higher housing starts, or any other report, the headlines don't tell the whole story – and the story matters.
The real story is that the housing bubble was inflated by cheap and abundant mortgage financing and a sustainable recovery is only possible if that story has a second chapter.
But, that's not happening.
In fact, structural changes in the mortgage industry are about to make buying a home loan a lot tougher than it has been in the last quarter century.
Let's start with the premise that no matter how cheap a house is, and no matter how low interest rates go, nobody is buying anything if they can't qualify for a mortgage.
Or, if lenders decide to charge too high a rate because they're either not constrained by competition or they can't offload the mortgages they underwrite, how can there be a housing recovery?
The Changing Landscape in Mortgage Finance
Let's look at what's happening in terms of buyer qualification standards, competition in the mortgage industry, and lenders' ability to package and offload mortgages.
Lenders have been consistently raising standards for borrowers. Long gone are the days of the famously named NINJA loans, as in: no-income, no-job, no-assets, no-problem.
The primary reason standards have risen is that buyers of securitized loans crammed with mortgages have "putback" rights that force mortgage lenders to buy them back.
Fannie Mae and Freddie Mac, who ultimately bought hundreds of billions of dollars of mortgage-backed securities, have been forcing lenders to buy-back billions of dollars of non-performing mortgages.
In 2011, Fannie and Freddie demanded $33 billion in mortgages be bought back. That was a 10% increase over what they putback to lenders in 2010.
Basically, the standards by which lenders were supposed to judge borrowers were overlooked or fraudulently misrepresented. Other factors, like faulty appraisals, are also a factor in accessing the covenants that lenders have to abide by when they sell mortgages.
I'll come back to higher borrower standards in a moment, but the standards issue flows immediately into what's happening on the competitive landscape today.
Big banks not only got heavily into the mortgage origination business during the boom, they also bought mortgages that were already underwritten from "correspondent" lenders.
Correspondent lenders have contractual relationships with bankers that allow them to sell the mortgages they make to the banks, thus freeing up correspondents' invested capital to underwrite more loans.
Correspondent lenders are not depository institutions.
They are usually private companies that have their own capital to make loans or borrow money through what's called a warehouse line of credit.
Here's how it works.
The Trend is Your Best "Friend" in the Stock Market
Everybody's got an opinion about the stock market.
That doesn't make it easy for anyone who listens to anyone else, or worse, listens to everyone else, to get a clear picture about what's really out there.
Of course, I have an opinion too. And of course, I'm going to tell you what it is.
But first, let me say this about that.
I never start with an opinion. I end up with an opinion, after trying not to have one.
That means I know I don't know what's going to happen, so I have to look at what's really going on. And I get to my opinion by pulling back further and further until I can't see anything small.
I pull back as far as I can because I want the big picture.
And the big picture is all about the major trend. If you're on the right side of the major trend, you can't get killed. You might take a few hits, here and there, but you make money. And while making money is great, it isn't everything.
There's something more, something bigger than making money…
It is not losing money, as in, not getting hit so hard that you're hurting real bad, or that you get killed and are out of the game totally.
That's never happened to me. I always make money, every year.
It's not that I don't have losing trades; I have plenty of those. But I make money because I mostly ride the big trends.
Usually, my losing trades are my more speculative trades, where I try and jump on a smaller counter-trend within the major trend.
For example, I see the big trend as positive, so I'm mostly long (I'm buying), but I might think a stock is prone to a sell-off, so I'll short it. Sometimes that's a huge winner, but sometimes I will lose on a play that is counter to the trend because the major trend eventually overwhelms everything else.
My point here is this…
The trend is your friend, but within the major trend there can be opportunities riding mini-trends going in the opposite direction. Just don't get greedy on those plays; the major trend will eventually consume most smaller counter-trending plays.
So, here's what I see, and here's my opinion about what I see.
Why the Volcker Rule is a Cop-Out and a Joke
Right now everyone's talking about the Volcker Rule.
For heaven's sake! What's the big deal? After all is said and done, there is only one real problem with it (and I'll get to that in a minute)…
The 300-page draft Rule, named after its champion architect, former Federal Reserve chairman and inflation-fighting icon Paul A. Volcker, is an addition to the ever-evolving masterpiece of legislation (yes, I'm being sarcastic) known as the Dodd-Frank Act.
Now, draft SEC rulemaking and regulatory actions are first submitted to the public for "comment." The SEC collects all comment letters and posts them on their website.
Well, wouldn't you know it, this draft (some might call it "daft") Volcker Rule has caused a flurry of letter writing; letters were due to the SEC by no later than this past Monday evening.
All in all, this august (not the month) regulatory body received 241 detailed comment letters (that's a lot of comment letters) and an astounding 14,479 mostly form letters, as well.
Almost all of the form letters to the SEC, many of which were "personalized" by submitters, were strongly in favor of the Volcker Rule and called for strengthening it and not watering it down by allowing any exemptions.
How do I know that? (No, I didn't read them all.) They resulted from an e-alert campaign to activist supporters of the Americans for Financial Reform group and Public Citizens, who posted appeals on their websites.
Other notable comments in favor of the Rule, and weighing-in in more detail, came from Paul Volcker himself and Senators Carl Levin (D-MI) and Jeff Merkley (D-OR), who championed the Volcker Rule in the Dodd-Frank legislation and in their comments called the draft too "tepid."
The lengthiest comment letter in favor of the Rule (and of tightening it significantly) came in the form of a 325-page love letter from the Occupy Wall Street movement.
However, of those 241 detailed comment letters, most of them came from detractors.
Detractors like individual banks (who normally let their dogs and lobbyists do their biting) and industry groups, such as the Securities Industry and Financial Markets Association (Sifma) and the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce.
Powerhouse law firm Davis Polk was itself drafted by several banks and Sifma to help draft at least 10 letters on behalf of the cause ("cause" banks want to keep making big bonuses).
Detractors of the Volcker Rule warned of dire consequences for American capital markets, American corporations, the American economy, the world, and the universe beyond even our own little constellation, if the Rule is allowed to curtail their most coveted and conscientious shepherding of their clients' best interests.
Prop Trading, Market Making and the Volcker Rule
The Volcker Rule comes down to this: To continue reading, please click here…