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Markets are knocking on the doors of some important milestones. The Dow is flirting with 13,000. The Nasdaq Composite is flirting with 3,000. And the S&P 500 is flirting with 1375, a technically important resistance level.
Getting through those doors are important in terms of investor and consumer perception.
Aldous Huxley wrote, "There are things known and things unknown, and in between are the doors of perception."
If you're a fan of Jim Morrison and The Doors, you know Huxley's famous line. It's where The Doors got their name.
If you play in the markets, you know there are knowns and unknowns, and that perception is what drives most investment decisions.
Perception is critical in the trading game because investors want a leg up. They don't want to get in after the facts have moved markets. They want to get in before big moves.
We'd all like to be extraordinarily perceptive and correctly interpret and synthesize all the knowns and the unknowns in our world, and to make prescient calls on every tradable vehicle in existence.
But that's not possible all the time. Some of us are pretty good at it enough of the time to make money year after year after year.
That's not that hard when you're endowed with enough objectivity to perceive what's in between the known and the unknown. After all, you only have to be right 51% of the time if you cut your losses and let your profits run. That's it.
Then there are the greedy types who have excellent natural skills, usually a superior education, brilliant perceptive abilities, and extraordinary positions that afford them insights that you and I don't have access to. How do they do? Very well, thank you.
They make money the old fashioned way. They trade on inside information.
The "Who Needs Perception" Bunch
Who needs perception when you've got access for sale? Who needs perception when you can just pay for turning unknowns into knowns?
Apparently there are some 240 "subjects" under scrutiny by federal authorities (that would be the FBI, and a bunch of usually hapless regulatory agency types) that are the "Who Needs Perception" Bunch this time around.
As if this is anyone's first rodeo… please!
Because it's just too hard to make money by actually working for it, our always-on-top-of-it lawmen and women figured out that all that money being made on Wall Street maybe wasn't always being made legally.
Amazing! How did they ever figure that out?
Oh, they didn't.
What's coming out-as an aside to the main show, which I'll get back to in a second-is that most of the tips on the recent "Who's Who Book of Insider Trading" came to light because employees at the firms where these misdeeds were occurring pointed them out to authorities.
Extraordinary you say? Not exactly. There's a reason. No, it's not that they weren't invited into the game, or that they are morally superior (well, maybe some of them are).
It's that they don't like to work that hard either. Wouldn't you know it, under the great Dodd-Frank Act they can actually get paid for turning in the men and women whose ranks they once wanted to join, one way or another. In fact, the FBI called the level of cooperation "surprising." They must have never even heard of Dodd-Frank!
I'm going to save the details of the whistleblower pieces of the Dodd-Frank Act for another edition of Wall Street Insights and Indictments (so don't cancel your free subscription. I need the money).
Back to the insiders.
The Business is Just a Game
Of the 240 "subjects" the FBI has been watching and probably wiretapping (you know anybody can do that now thanks to the Patriot Act. Got a recorder? Want to buy one?), they've identified 120 individuals they're calling not just subjects, but "targets."
None of this should surprise you. You didn't really think all those folks making all those timely bets down on Wall Street and up in Greenwich, Connecticut, were that perceptive, did you?
And wouldn't you know it; caught up in the wake of the flood are a couple of Goldman Sachs managing directors.
You see, because it's so important to coddle your clients-especially your hedge fund clients. They give you huge trades to execute on their behalf, which allows you to legally manipulate markets (because the more big trading clients give you big orders, the more you know where the buy and sell orders are and at what prices, the more you can game the markets… the business is a game, get it?). So it's important to keep them happy.
So, if you're a senior "salesman" managing director at Goldman like David Loeb, and you work with a top-notch technology analyst like Henry King (also a managing director at Goldman), you just may have some technology tidbits to give to your clients. That's what salesmen do, folks; they sell clients on using the firm so they don't trade elsewhere.
I'm not suggesting these two did anything wrong… but the FBI is.
There's always a possibility this is all a mistake, that good lawyering will prove their innocence, and some FBI agents will crawl back into their holes, or retire and go to work for Goldman Sachs in their dirty little basement.
Oh, but I digress. Forgive me. I'm putting the cart before the horse.
After all, it hasn't been proven that former Goldman Sachs client (and former hedge fund billionaire) Raj Rajaratnam-who was found guilty of insider trading in May and is serving 11 years-actually got some of his inside information from Rajat Gupta, the former Goldman Sachs director (as in board of directors of the FIRM, not a lowly managing director), who is going to trial on insider trading charges himself.
I ask forgiveness because apparently Rajat's lawyers are going to prove that he didn't pass on any inside information to Raj, but "that guy" did.
"That guy" being Mr. Loeb, the salesman.
Like I say, I know what I don't know. But, when it comes to perception and these guys doing this insider trading stuff, well, I still don't know.
What's your perception?
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of 10X Trader, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade.
Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps.
Shah is a frequent guest on CNBC, Forbes, and Marketwatch, and you can catch him every week on Fox Business's "Varney & Co."
He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.