While bankers have been lambasted in the press over the past year or so brokers and financial advisors at the very same institutions have been earning multiples more than their heavily criticized counterparts:
Bonus has become a bad word for traders, investment bankers and top executives at Wall Street securities firms. For thousands of brokers, though, the big bucks just keep rolling in.
Mark Curtis, one of the biggest generators of commissions in the brokerage giant formed last year by Morgan Stanley and Citigroup Inc.'s Smith Barney unit, got a payout in 2009 that people familiar with the firm estimate at $10 million or more.
Morgan Stanley Smith Barney promised top brokers like Mr. Curtis 75% of certain fees and commissions generated in 2008 as part of the pay plan agreed to by both companies as a way of enticing top brokers to stick around after the merger. A team of brokers led by Mr. Curtis has brought in more than $15 million in annual fees and commissions in recent years, these people say.
About one-third of the combined firm's 18,000 brokers got a one-time payment, structured as a multiyear loan that is forgiven if the broker stays put. Merrill Lynch & Co.'s top brokers received a similar award last year when Bank of America Corp. acquired the securities firm.
The retention awards and similar signing bonuses for brokers exceed $10 million in some cases across Wall Street, people familiar with the matter say. At most firms, the highest producers with retention deals also get smaller payments later on that are based on future or past asset growth or revenue. The retention payments are in addition to $3 million to $5 million that top-dog brokers earn yearly through fees and commissions.
If you thought bankers were outrageously overpaid over the past few years you should take a look at broker pay over the last 100 years or so. Fred Schwed's "Where Are the Customers' Yachts?" was first published all the way back in 1940. "The more things change..."
For more on this topic read the February issue of The Felder Report.
We pick on financial advisors using American Funds because it's the most ubiquitous "legal abuse" in the business.
American Funds is the Paris Hilton of investing - it spends the most resources on self-promotion and is only famous for being famous. It really has no special talents to speak of relative to its peers. They were worthy of note back in the 20th century, but not anymore.
From the investor's point of view, there isn't anything American Funds has or does better than any other mutual fund family. So why are they so popular? It's not because of investment performance.
They're popular because they pay big money to be popular. The one thing American Funds excels in, is doing business the "American way." Which is charging their shareholders high (semi-hidden) fees, and then spending their money on slick advertising, marketing schemes, and kickbacks to Broker Dealers and financial advisors...
We’ve taken to following a measure of money supply that adds together M2 and the only surviving component of M3: institutional money funds. As you can see below, it has been falling since June of 2009 and is now down year-over-year. Money supply spent all of 2009 in a deceleration pattern, a period in which we had actual CPI deflation, a rare event. Since the peak in June of 2009, this measure of money supply has dropped $314 billion from a peak of nearly $11 trillion.
It's official: Google is now in the energy biz. Cnet news reports:
The Federal Energy Regulatory Commission has authorized Google Energy to buy and sell electricity in bulk like any other utility.
The FERC, the agency with oversight of the U.S. power grid, signed an order (PDF) on Thursday that grants Google Energy market-based rate authorization. This paves the way for the search giant to not only better manage its own energy costs, but to possibly add electricity marketer to its repertoire of services.
The order specifically grants Google Energy--a subsidiary of Google--the rights "for the sale of energy, capacity, and ancillary services at market-based rates" while acknowledging that neither Google Energy nor its affiliates "own or control any generation or transmission" facilities.
I still believe this amounts to a large step outside the company's "circle of competence."
The world’s largest retailer, reported fourth-quarter sales that trailed its projection after cutting grocery and electronics prices, and predicted a “challenging” first quarter for U.S. stores. Sales at U.S. stores open at least a year fell 1.6 percent, the Bentonville, Arkansas-based company said today in a statement. Wal-Mart had projected sales to decline no more than 1 percent. Wal-Mart reduced prices on laptop computers, along with turkeys and cranberry sauce for holiday meals, to attract shoppers living paycheck to paycheck. The deflation hurt sales...
[ADM's] Revenue decreased 4.6% to $15.91 billion as higher sales volumes and foreign-exchange impacts were more than offset by lower average selling prices because of reduced commodities costs.
Profit from equipment operations in the quarter ended Jan. 31 gained 2.6 percent to $315 million, mostly because of lower materials costs, Deere said. Material and logistics costs fell about $160 million in the quarter, the company said. The average price of U.S. hot-rolled steel sheet was about $516 a ton in the three months ended Jan. 31, according to figures published by Purchasing magazine. That’s down 12 percent from an average of about $587 in the same period a year earlier.
What's in your best interest is typically of no concern to your "financial advisor." In fact, congress wants to force advisors to put their customers' best interest first but the industry is fighting it tooth and nail:
While most of the debate about financial overhaul legislation has focused on the impact on how big banks do business, one piece that would affect consumers directly has received little public notice: a requirement that stock and insurance brokers act in their customers’ best interest.
And that provision may not make it into the final overhaul plan.
The insurance industry, in particular, has been fighting the requirement...
At issue is whether brokers should be required to put their clients’ interest first — what is known as fiduciary duty. The professionals known as investment advisers already hold to that standard. But brokers at firms like Merrill Lynch and Morgan Stanley Smith Barney, or those who sell variable annuities, are often held to a lesser standard, one that requires them only to steer their clients to investments that are considered “suitable.” Those investments may be lucrative for the broker at the clients’ expense.
Over the years, it has become more difficult for consumers to understand where their advisers’ loyalties lie, especially as the traditional stock-peddling brokers have started to look and act more like financial advisers...
...the insurance industry was “apoplectic because if they sell a variable annuity and they are subject to fiduciary duty, that means they will probably have to fully disclose the compensation they are getting.” This, he added, “would make clear the excessive incentives they have to mis-sell the variable annuity, which has been the cause of regulatory problems in that area.”
I highly recommend reading the whole article. It only begins, however, to lift the veil on the retail investment industry. For more information about the perils of investing with an "advisor" read the February issue of "The Felder Report."
Hedge fund manager, John Paulson, made a name for himself by profiting from the financial crisis. He famously placed big bets against CDOs with the help of Goldman Sachs that paid off to the tune of about $15 billion.
It recently came to light the Goldman is once again at the forefront of another crisis this time involving the PIIGS (Portugal, Italy, Ireland, Greece and Spain), more specifically the Greek debt problem. And it is rumored that Paulson is once again working with Goldman to squeeze a profit from this tragedy, as well.
I don't really have any comment one way or the other here. I just came across the GIF above and thought it fit well with the story.
Even those that didn't have to bail them out should be outraged by how much American bankers take home:
I recently wrote a piece about how I believe Toyota is killing their brand with the way they handled the recent "unintended acceleration" issues and I have honestly been surprised by the company's defenders.
For Toyota to know about this major issue and, in response, pursue a policy of "denying the problem exists, implying motorist error and simply hoping the issue will go away," is to send a clear message that they couldn't care less about customer safety.
Today Bloomberg reveals that not only has Toyota known about the "unintended acceleration" issues for quite some time, the company has gone so far as to hire former regulators to help it quash federal investigations into the problem:
Former regulators hired by Toyota Motor Corp. helped end at least four U.S. investigations of unintended acceleration by company vehicles in the last decade, warding off possible recalls, court and government records show.
Christopher Tinto, vice president of regulatory affairs in Toyota’s Washington office, and Christopher Santucci, who works for Tinto, helped persuade the National Highway Traffic Safety Administration to end probes including those of 2002-2003 Toyota Camrys and Solaras, court documents show. Both men joined Toyota directly from NHTSA, Tinto in 1994 and Santucci in 2003.
So let me get this straight: rather than acknowledge the existence of the problem and pursue the appropriate remedies, Toyota decided to whitewash the problem by influencing or obstructing federal investigators. It sounds like Toyota just added a new chapter to, "how to kill one of the most powerful brands in the world."
Two-thirds of Americans are "dissatisfied" or downright "angry" about the way the federal government is working, according to a new Washington Post-ABC News poll. On average, the public estimates that 53 cents of every tax dollar they send to Washington is "wasted."
Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.
It is not clear whether China’s motive is simple risk aversion in the wake of a sharp widening of corporate and mortgage spreads during the past two weeks, or whether there also is a political dimension. With the expected termination of the Federal Reserve’s special facility to purchase mortgage-backed securities next month, some asset-backed spreads already have blown out, and the Chinese institutions may simply be trying to get out of the way of a widening. There is some speculation that China’s action has to do with the recent deterioration of US-Chinese relations over arm sales to Taiwan and other issues...
U.S. trade policy will likely morph from political publicity to serious tool for economic expansion. With monetary and fiscal policies constrained, this is the only way to decrease unemployment. The administration's goal to double U.S. exports won't happen organically. U.S. exports rose one-third in the past five years. Even if we assume U.S. exports could rise another one-third over the next five years, exports to financial crisis-weakened overseas markets would fall short of Obama's goal by more than US$ 600 billion. China would become an obvious target for making up the difference, requiring that China appreciate its currency dramatically and make a major switch to consumption-oriented economy...
Without benefiting from China's growth, the United States lacks incentive to be China's biggest export market. So to pressure China, I expect many more U.S. protectionist measures this year. Before the November mid-term election, Congress could pass a bill that calls for a 30 percent tariff on all Chinese products unless China appreciates its currency by the same amount... Clouds are gathering over China's exchange rate policy. We've seen these clouds before. This time, however, the U.S. pressure is much more serious. Without careful handling, a stormy trade war could erupt, with negative consequences for all. So rather than playing defense, China should move soon to adopt constructive measures and prevent confrontation.
Like millions of American households, the Mortgage Bankers Association found itself stuck with real estate whose market value has plunged far below the amount it owed its lenders. But the trade group for mortgage lenders is refusing to provide the terms of a deal it made with creditors to escape from that predicament... When the MBA announced the purchase of the building in early 2007, the trade group's president at the time, Jonathan Kempner, said: "We have come to the inescapable conclusion that owning our own building was the smartest long-term investment for the association." In October 2009, however, the MBA informed its members that it had put the building up for sale. At that time, the MBA said that continued ownership of the building, which was financed with $75 million of variable-rate debt, would be "economically imprudent."
the Shiller data still suggest that stocks needed to get much cheaper than they did at last March’s low before they could start a true renewed bull market. His cyclically adjusted p/e fell to 5.8 in 1932, and 6.6 in 1982. Last year, it started to rebound at 13.3. Surely this is not the compelling cheapness that is needed for a new bull market?
The BLS has seriously underreported job losses for the past two years due to their flawed methodology. TrimTabs has identified the following four problems:
1. The BLS employment estimate is based on a survey, and not on an actual count of employees. While the BLS survey is large and supposedly designed to capture the complex nature of the employment market, it is still a survey and therefore subject to error. TrimTabs believes that rapid changes in an employment cycle cannot be captured by surveys.
2. Several times a year, the BLS applies enormous seasonal adjustments to their survey results to account for seasonal fluctuations in the job market. For example, this January, the BLS added 1.92 million jobs to their survey results to report a job loss of 20,000 to account for the layoff of retail holiday workers. In our opinion, the sheer magnitude of the seasonal adjustment which dwarfs the monthly result renders this month’s job loss estimate meaningless.
3. At the time of the first release, only 40% to 60% of the BLS survey is complete and is subject to large revisions over the next two months.
4. The BLS applies a mysterious “birth/death” adjustment to their survey results to account for business openings and closings. While the payroll data was adjusted substantially, the “birth/death” adjustments were left unchanged. In 2008 and 2009, the BLS’ “birth/death” adjustment added 904,000 and 882,000 jobs, respectively, for a total of 1.79 million. By way of comparison, in 2006 and 2007, the BLS’ “birth/death” adjustment added 964,000 and 1.13 million jobs, respectively. We find it highly unlikely that in 2008 and 2009, during the worst recession since the 1930’s, more businesses opened than closed netting 1.79 million jobs.
In our opinion, flawed BLS survey results, month-after-month, do the public a huge disservice. While its results point to a slowly recovering economy, TrimTabs’ results point to a dangerously weak economy.
This is Taleb at his most quotable and least helpful. Of course most human beings shouldn’t get involved in shorting anything. What’s more, Larry Summers actually put on that trade — that long-term interest rates would rise — while he was at Harvard, with disastrous consequences. Even no-brainers can lose you billions.
Here is a little nugget of trading wisdom: the market systematically punishes salience. Show me a strategy that makes use of highly salient information (i.e., information that is likely to stick in the mind at first, casual exposure) and I'll show you a strategy that underperforms. Market technician Joe Granville famously asserted that if it's obvious, it's obviously wrong. That's the salience principle, and it's why impulsive trades so often are losers.
If 90% of your assets are in safe Treasury bills [as Taleb recommends in his book] and a large chunk of the other 10% is being put to use shorting Treasury bonds, essentially what you’re doing is putting on a curve steepener — at a point in time when the curve is already as steep as it’s been in some time. What’s more, unless you’re extremely leveraged, you’re never going to get rich shorting Treasuries. And I’m sure that Nassim would never recommend that kind of leverage.
If factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments.
Nov. 20. 1905
J. H. Todd
1212 Webster St.
San Francisco, Cal.
Dear Sir,
Your letter is an insoluble puzzle to me. The handwriting is good and exhibits considerable character, and there are even traces of intelligence in what you say, yet the letter and the accompanying advertisements profess to be the work of the same hand. The person who wrote the advertisements is without doubt the most ignorant person now alive on the planet; also without doubt he is an idiot, an idiot of the 33rd degree, and scion of an ancestral procession of idiots stretching back to the Missing Link. It puzzles me to make out how the same hand could have constructed your letter and your advertisements. Puzzles fret me, puzzles annoy me, puzzles exasperate me; and always, for a moment, they arouse in me an unkind state of mind toward the person who has puzzled me. A few moments from now my resentment will have faded and passed and I shall probably even be praying for you; but while there is yet time I hasten to wish that you may take a dose of your own poison by mistake, and enter swiftly into the damnation which you and all other patent medicine assassins have so remorselessly earned and do so richly deserve.
Adieu, adieu, adieu!
Mark Twain
