The Carnival of Finance, Investments and Trading

25th of January 2009 Edition

What’s on in the Financial Markets, who are the Big Shots of the Investment Arena up-to? Who’s the New Hot Hand Trader in the Town? And more importantly, how much money are they making or… losing?

Markets

Timothy Lutts presents Steve Jobs, Apple and AAPL posted at The Iconoclast Investor.

Jed Norwood presents Volatility And Wider Spreads posted at Forex | ForexStrategySecrets.com, saying: “This article is especially for Forex traders but can be beneficial for other investors also. Markets are a mystery place but they don’t have to be. Learn more about why the market is the way it is.”

James Hills presents The Currency Commision or How to Pay for Your Next European Mancation! posted at Man Tripping - Tips for Mancations, saying: “Not sure if this fits exactly but thought this was an interesting company that does pertain to finance as well as trading. Certainly a great opportunity to raise a little money for your next mancation by trading in some old forgotten money.”

Investments

Pinyo presents Treasury Inflation-Protected Securities (TIPS), The Best Bond To Buy? posted at Moolanomy.

The Investor presents How to invest with the Rothschilds via RIT Capital Partners (RCP) posted at Monevator, saying: “RIT Capital Partners is no mystery fund – it’s a huge investment trust. But not every investor knows RCP is the personal investment vehicle of the Rothschilds.”

Praveen presents Making Passive Income With Minimal Niche Sites posted at My Simple Trading System, saying:”Besides stocks and bonds, construct a portfolio of simple websites to provide a passive income stream…”

Investing School presents What is a Hedge Fund - A Definition posted at Investing School, saying: “What is a hedge fund? Here’s a definition.”

Mark presents Money - Yours, Mine, and Not Pink Floyd’s posted at Icarus Landing.

SimplyForties presents Emotionally Attached To Your Investments? posted at SimplyForties.

Personal Finance presents How Much Home Can You Afford To Buy? posted at Personal Finance Ology, saying: “Calculating how much home you can afford is an important precursor to house hunting. Do your homework before investing your time and money!”

Obadiah Shoher presents The barbarously socialist American economy posted at Samson BLinded.

Jeff Williamson presents Best Way To Invest Money posted at PE Financial Services.

Trading

PatrickCML presents Free Stock Trades - Zecco Discount Brokerage Review posted at personal finance tips, saying: “A comprehensive review of Zecco Discount Brokerage. “

Average Investor presents Fibonacci Retracement on S&P 500 posted at 17th Avenue Money Talks, saying: “This article highlights the importance of the Fibonacci retracement levels and how to use them with long term and short term stock charts. ”

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That concludes this edition. Submit your blog article to the next edition of carnival of finance, invest and trade using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

The Madoff Dream and the Mad Cow Disease, what do they have in common?

They spark schizophrenic fear, they put economies onto a halt, every business in the sector gets quarantined at the slightest hiccup and the farmers always lose their shirts…

Does anyone have a logical explanation for everything that happened in regards to Madoff and his fund?

Honestly, I believe that no logical explanation seen the light yet and that more ink has to dry off till we find one. And, I believe that the rabbit’s hole is deeper than it seems. We may never find out the truth. Is Madoff just the tip of the iceberg, or has he decided to take the blame for himself to cover someone else?

And for the thousands of investors that believed in Madoff, the dream just vanished… And it is always hard to accept a scam… Due diligence? Big banks with tens of analysts got screwed. This makes me think that the analysts were not as experts as they thought or something else happened. What SEC did to prevent the fraud? Can not answer. I have a better question: from his 200 employees, where was the Risk Management and where was Internal Compliance and Control? Has really nobody seen anything fishy going on? No stories yet about them… And then, we start to really question the independence and the power of a function as long as you work for somebody.

I will cite some of the journalist impressions, as seen in the last few days:

“A scam artist like Madoff to deceive not just widows and orphans but also sophisticated investors” (LA Times)

“The smartest guy in the room” fallacy. […] You create a smoke screen of impenetrable complexity around your operations and call it brilliant innovation. So long as you go on delivering bankable returns that can’t have any other honest explanation, some people — even sophisticated ones — simply will assume that it’s because you’re smarter than everybody else.” (LA Times)

“Wall Street big hitter accused of the largest investor swindle perpetrated by one man” (Times Online)

“Did Madoff investors overlooked the obvious? Signs point to safeguards being ignored – and safeguards prevent pyramid schemes, advisers say.” (Boston Globe)

Really…? If it was that obvious then why nobody stopped him earlier? I just have the feeling that this is just “the post confirmation bias” - once something has happened, it always seems so obvious… (see more on The Blinding Obedience to a Paradigm)

Or it was just pure luck that “Bernie” got to have his own hedge fund and once in place, he did not know… how to make the returns he promised. So maybe one of the strategies did not pay-off and he started “putting his hands deep into the customers’ accounts once”, to save the face, the Great Expectations about him. And then, maybe the crisis and the market caught him deep in. And this where the “bad” investment manager psychology comes into play: “If I lost a few mil and I cannot recover, what do I have to lose if it gets worst?” And his Ponzi scheme came in?

It’s just that mix of intricate psychology, conjuncture and randomness that we, as human beings we just cannot grasp its meaning. It’s just like in dreams, we cannot explain what triggered them and if they really mean something. In Madoff’s case it was the dream that the investors bought in and got nothing… I just cannot figure out more!

See more in Press Display or for French speaking in Le Point FR

This post has featured on:

- the 12th of January, on Sequence Inc - The Carnival of Fraud

- the 11th of January, on Dollar Frugal - The Carnival of Wealth, Money and Life

- the 7th of January, on G7 Financial - The Crisis Carnival 01

- the 2nd of January, on Sports Blog - The Carnival of Gambling, thanks to Jim

- the New Years’ Eve, on Colorado Health Insurance Insider - The New Year’s Cavalcade of Risk, thanks to Louise

- the 30th of December, on The Money Gardener - Investing Carnival, New Year’s Eve edition, thanks to…

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Fulfilled Dreams

Here’s an interesting comparison of Madoff’s Ponzi Scheme and the Social Security System on White Rabbit Cult…

I can still remember the day when I read this. It is about a trader that gets the tomorrows’ paper with stock prices and sees his death predicted by the same “divine” paper. I did not know if I should freak out or take it a little lighter. Anyway, it’s still the best story ever about Wall Street, Finance and Traders that I heard so far and it still remains there back of my mind and it just comes back from time to time. It is one of those cases where reality melts into fiction, dreams and premonition. The point is that, you just cannot ignore it!

Here we go. I will relate it as I read it myself.

Let’s say that there was an institutional sales guy named Jud. He was about fifty; he worked for a security firm into a research department on Wall Street. His career has never been successful and he changed a few jobs in his time. Let’s just say he has been put on the line by his bosses after while. He really was “an empty suit”. Anyway he got this job in the equity research department and because nobody wanted to take any chances with him he was only paid for production. He had to sell and make trades so that he could cash in his check. Anyway, Jud was simply out of touch. Any stocks that he recommended as “hot” died suddenly a quiet dead. Everything that he recommended that will go up went down and all that he recommended for sale improved miraculously. No wonder his clients gave him a hard time. They were just listening to him out of a compulsive portfolio manager disorder not to lose an event. That was all for Jud! And Jud was exaggerating a little bit with the Martinis and had a constant hangover.

Anyway, everyday Jud was commuting by train from the suburbs to the City. That day, he bought a Wall Street Journal and he only looked for the most active stocks. He sees Intel and the closing price. He folds and throws the paper away. He gets to work, but he finds out that Intel is not even in top three for the day and he thinks he had too many Martinis the night before. At lunch time he bumps up in a colleague and finds out that Intel got on top after they published their results a few minutes ago, but not in the morning.

The next day he does the same with the paper and he remembers Amgen. He places an order for a client and he realizes that he was getting the paper for the day after! The closing prices in the paper were nowhere near for the day in other papers and on his Bloomberg! End of the day, Amgen closes what he saw in the paper.

The third day he sees Motorola and the saga continues. Jud suddenly becomes his clients’ pet and gets considered “hot hand” for short term. Jud gets the paper almost every day and he does his routine – he only peaks on Most Active and throws it away in exactly the same spot as the days before, fearful not to upset the genie.

He is made a partner at his firm and he touches $4 million in bonuses for the year. He starts dressing in Hugo Boss suits and Pink shirts. One day, Jud suddenly makes a heart attack in the train station and one of his acquaintances is called urgently at the hospital. There the doctor warns him that Jud was out of oxygen for quite some time so he might have a brain damage. Jud tells his story about the tomorrows’ paper in the intensive care room. The friend just stands there open-mouthed and eyes wide open. Jud then explains that this time he got the next week paper and that next to the section he was reading his name was in the Obituary. So this is how he got the heart attack.

Next week, Jud dies exactly in the day he said he saw in the newspaper…

What about that? No other comment… If you have similar stories please put them in a comment and I will publish them.

The source of this post is Chapter 20 of the book by Barton Biggs,“Hedgehogging”, “Divine Intervention or Inside Information - A Tale that Will make Your Blood run Cold”

Also a similar version of the above mentioned chapter was printed in the Institutional Investor Magazine of July 1971.

This story was published:

- the 7th of January, on G7 Financial - The Crisis Carnival 01

- on the 30th of December on The Money Gardener - Investing Carnival, New Years edition, thanks to MG

- on the 29th of December on Intelligent Speculator -120th Festival of Stocks - Who Wants to Become a Millionaire? Edition, thanks to Mike

- on the 21st of December on Postcard from the Funny Farm - Inspiration for the Holidays Amazing Vision Blog Carnival Ed.6, thanks to Ed

- on 15th of December 2008 on The Frugal Duchess - The Carnival of Personal Finance, the 183rd edition, thanks to Sharon Harvey Rosenberg

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Fulfilled Dreams