The Markets Are a Stacked Deck in a Rigged Game…But I Can Teach You How to Win
The markets are broken.
And what has to be done to fix them likely won't get done. That's because the folks capable of fixing them are actually captives of the folks who like them the way they are.
That's the bad news.
The good news is, if you understand what's wrong and who's responsible, you can actually make a lot of money playing the game the way it's been set up.
Let me explain.
First of all, what's happened isn't by some grand design. There is no great conspiracy to screw the public. (Not this time.) Rather, incremental changes in various corners of the capital markets manifested innumerable unintended consequences.
The net result is this: Our capital markets aren't functioning for the greater good of the economy and the nation. And the public is getting screwed. But you knew that.
The markets have become a kind of stacked deck in a rigged card game.
A game being played by a bunch of whispering pros against mostly deaf, dumb, and blind amateurs (yeah, I'm taking about too many people you know) in a shady casino overseen by pit bosses who work for the house – which is owned by the pros who set up the game in the first place.
I'm not going to break down what the incremental changes were that got us here. I've done that over innumerable articles I've written for, Forbes, Wall Street Journal's MarketWatch and right here.
This isn't about how we got here. This is about proving where we are now by means of a kind of grand supposition that hopefully is going to open your eyes. It's probably going to scare the you-know-what out of you.
Earlier I said the public is getting screwed, but you knew that.
How do I know that you know the public is getting screwed? Most people are out of the market. They are either on the sidelines or out of the game for good. They know the markets are a casino, and most people have come to realize that they have no idea what the game is, let alone how to play it.
And that, children, is the unhappy ending.
Precisely because the public is so leery of losing their shirts and knickers in the strip poker club, investing is a thing of the past.
Long-term investing is dead. Long live short-term trading.
Is The Rally For Real…Or Just Part Of the Games Bankers Play?
The markets are rallying, again. Will this time be different? Or is this just another head fake?
The truth is the current rally is not surprising given what's coming out of the G20 meeting, what's likely to come out of the Fed's Open Market Committee meeting today and Jamie Dimon's Congressional testimony yesterday.
But things aren't what they appear to be. What's happening behind the scenes is far more important than what's being said publicly.
So, investors better understand what the real game is here and how to play it.
To do it, we need to work backwards.
Jamie Dimon, CEO of JPMorgan Chase, has repeatedly said under oath that his bank isn't too big to fail.
That fact that he's implying it's okay to let a bank the size of JPMorgan collapse and enter bankruptcy in the event of "a moon hitting the earth" (admittedly unlikely) or potentially huge losses from something like bad bets on derivatives, is a flat out lie.
Of course, that lie can't be proven unless the bank was to actually fail, so it's unlikely that Mr. Dimon could be brought up on perjury charges. But it's still a flat out lie.
JPMorgan Chase and all the big U.S. banks are too big to fail.
And in that lot we can also cast all of Europe's big "universal" banks. They're all too big to fail in a very real sense because they are all interconnected.
Between the crossover of portfolio holdings, interbank lending mechanisms, derivatives bets and counterparty exposure, all of the big banks suffer from real contagion calamity concerns.
As a result, the breakdown of trust anywhere impacts trustworthiness of banks everywhere.
Mobile Wallet Technology: Warming up For the Battle Royale
The mobile wallet movement is inevitable. But so are the bumps in the road.
If there's anything that's going to delay the mobile wallet's future on a global scale rivaling, well, telephony itself, it's going to be because there are so many players and stakeholders tilling the same soil to sow what they hope to reap.
The fact that so many giants and would-be giants are trying to make their networks and systems-in-development the standard mobile wallet platform ensures a battle royale.
The development race will be just that, a race.
But, in the end there will only be a few competitors and everyone else will cease chasing the Holy Grail and fall in under one or another network.
But, because we're investors seeking an edge and know that by the time the end-game is resolved the big money will have been made, we are looking for a "heads-up" on where to place our bets early.
A Mobile Wallet Heads-Up: This Will Be Critical
The answer to that will be evident by watching whose systems and networks offer the best interoperability.
It won't be just about who owns the rails that tomorrow's locomotives will run on. If there are a lot of different sets of tracks headed towards the same destination, what will matter will be how many trains travel each track and pay what tolls .
The way to gauge who is laying the most attractive tracks will be visible in terms of which systems offer the most intersections from which dead-end travelers can reverse course and join the mainstream path to everyone's desired destination.
That's where interoperability will be critical.
Who will build their systems and networks to best and most easily allow parallel ecosystems to merge, or converge, onto a set of easily accessible shared tracks.
The shakeout will result in some spectacular losses.
So, it's better to be on the right side early on than to take your lumps and invest what's left in the final contestants, all of whom will continue to fight for dominance for years to come, if not forever.
But, it's not just the end-game winners we're seeking, though they will emerge and we will be invested there long before the finish line is in sight.
Mobile Wallet Technology: The Giant Killers in the Weeds
When it comes to the revolution in mobile wallet technology, Isis Mobile Wallet is a collaboration between some super-heavyweights.
This is a monster worth watching.
The idea behind Isis is to allow users to pay with "preferred" credit or debit resources available through their Isis-enabled phones by tapping or waving their devices at NFC (near field communications) terminals in participating merchant outlets.
Isis-enabled phones are being manufactured by additional partners Research in Motion, Samsung and Sony Ericsson.
Card.io is a mobile phone application (available at the Apple App Store and as a Google Android app) that allows users to receive and make payments by letting them (in the case of making a payment) enter an amount they want to charge on their app, for what they want to buy, and holding the card they want to use up to the phone's camera lens, which logs the card and processes the transaction.
Received payments can be channeled directly into the user's checking account, savings account, or PayPal account. Card.io charges a hefty 3.5% (of the transaction amount) fee and 15 cents per transaction.
Another mobile solution to not having a credit swiping machine in your pocket is offered by Square.
Square, named after the small square magnetic tape data reader that you plug into your phone's audio jack to convert encoded data from the tape on the back of cards to an electronic file, was started by Jack Dorsey, creator of Twitter.
Electronic data from the magnetic strips on the backs of cards is encrypted automatically, sent to Square's servers and rerouted through the Global Payments Network. You sign the electronic receipt with your finger, which is then sent to you via SMS or email. Now anyone can accept credit cards for anything.
There are lots of start-ups and up-and-comers wading aggressively into the exploding mobile wallet space. Some of these companies will become giants and some will go the way of the dodo.
But, one thing's for sure, the winners will be worth investing in.
Why Facebook Stock is doing a Faceplant
Forget all the hype.
And you can even forget that I told you Facebook was a hyped-up offering, and that I would sell my shares if I was an insider, and that I definitely wouldn't buy the IPO on its first trading day.
Did you listen to me?
If you didn't, and you own Facebook stock (Nasdaq: FB), here's what you have to worry about.
The Facebook Stock Concerns
First, did you get your confirmation? Probably by now you did.
But the problems that NASDAQ OMX Group had sending out electronic trade confirmations in the heat of trading on Friday were staggering. (They eventually went "manual" on the opening day of the biggest tech offer ever on the biggest tech exchange in the world… how ironic… manual.)
There's nothing out there, nothing anywhere about who or how many people did or didn't get confirmations or when they got them. There's nothing out there because the exchange is panicking, and if thousands of confirms, or tens of millions of shares, are up in the air… well imagine what could happen.
Heavy Betting in the Middle of Mayhem
There's going to be a lot of very heavy betting over the next few days, weeks, and months on what's going up, what's going down, and what's going around:
- How far will Facebook IPO price go?
- How far DOWN from here will JPMorgan go, with the FBI and DOJ now sniffing around?
- How far AROUND the globe will the fallout be if Greece loses its game of chicken?
If you don't have the stomach for what's going to feel like an out-of-control rollercoaster ride, sideline yourself.
If, on the other hand, you like a lot of action, welcome to Mayhem – the preamble month to what will likely be the Summer of Some Discontent.
That is, unless you like rapid-fire trading.
Which, by the way, is not just fun, but can be very, very profitable. I'm in, and so are the subscribers to my Capital Wave Forecast. We're gearing up for some heavy betting in the weeks and months ahead.
So, what's front and center today? You know. The big three headlines: Facebook, JPMorgan Chase, and Greece. Are you sick of hearing about them? I'm not. I like trading the headlines.
Here's my "heads-up" on the big three headlines.
The Facebook IPO Facts: The Good, The Bad and The Ugly
Face it, you want it. It seems that everyone wants a piece of the Facebook IPO.
But, can you handle the truth? Will the hyped sensationalism be a boon or a boondoggle?
I'm not going to tell you what to do, whether you should buy Facebook sooner rather than later. That's up to you.
However, I will tell you that I won't be buying it right away, but, I will be buying it if…
First though, here's the good the bad and the ugly truth about the company, the IPO and owning "FB."
The Good News About the Facebook IPO
The good news is overwhelming if you're Mark Zuckerberg, any of the company's founders, executives, or venture capital backers, many of whom own Facebook stock (Nasdaq: FB) at a dollar a share.
So far, the target range the stock is expected to be priced at–which was originally $28-$35/share– has been raised to between $34-$38.
And it could very well go higher before tonight's pricing deadline. The amount of shares to be floated is being raised too.
That's all good news for the insiders, the underwriters and the company itself.
FB is causing its own IPO hype, partly because it will be the largest IPO in U.S. history, in terms of the value it will put on the company, which will likely approach $100 billion. However, Visa in 2008 and GM in 2010 will have raised more money on their IPO debuts. (I know, calling GM's IPO a debut is strange to me too.)
Facebook will raise at least $13 billion (at the lowest end of the price and share offering range) and bank some $9 billion in cash on its balance sheet. That's good news.
But better than that, the company will now have a huge hoard of stock as currency to use to buy up companies and technology to advance its master of the social media universe status.
Mobile Wallet Technology: The New Barbarians are at the Gate
The big brand credit card issuers: American Express, MasterCard, Visa, and Discover Card, along with every other card issuer and wannabe credit extension intermediary are all already into the mobile wallet space.
Their offerings vary and competition between them will be as brutal as it always has been. And that's good for consumers.
Creating choices for consumers to drive business will lead to more innovation and more services offered at more competitive prices. At least, that's the way the free market is supposed to work.
But, traditional credit card issuers that are forcing banks to compete to offer credit to card borrowers, aren't the "disintermediators" I talked about in Part One.
They help spread banking relationships across the spectrum, they do not remove banks from the equation. And because banks are all in the present equation, pricing pressures aren't prevalent and fees and costs remain stubbornly high.
But as you'll see, that's about to change.
The Greater Fear for the Banks
What banks fear most in the burgeoning mobile wallet world are New Barbarians breaking down the gates that traditionally walled off banks from meaningful interlopers.
The biggest, baddest New Barbarians at the gate are some of the biggest names in the Internet world, the social media world, and the telecom world.
If you want to make a fortune on the mobile wallet future the giant players and Barbarian disintermediators to watch and invest in include: Google, Yahoo (yes, Yahoo), Microsoft (believe it or not), Facebook (when it goes public), Nokia, Research in Motion (yes, I am advocating buying Nokia and RIMM), Apple, Verizon, and Vodafone.
There will be other giants worth buying, but until the ground shakes from their emergence, these giants have a giant head start in the mobile wallet world of the future, starting now.
Of course, keep in mind that the scope of this series is intentionally broad.
So, it's not the place to give specific reasons to buy specific companies. My purpose is to explain to readers the extraordinary opportunities inherent in the mobile wallet future.
But, if you want to know why these specific companies will be huge winners in mobile transactions and what they are doing to warrant their own exceptional futures, as well as when you should buy them, take heart. Keep reading Money Morning.
As it takes shape I will follow this report with specific recommendations accompanied by all the reasons and metrics you'll need to make informed investment decisions.
In the meantime, here's why these businesses are primed to rake in profits on the digital wallet phenomenon.
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.