Fortune Cookie Advice: coping with daytrading blues

Am I an idiot for not buying Ford yesterday?


Could I have seen this coming? Or, did I see this coming and fail to take advantage?

Day-trading is a psychological minefield, not only because it intensifies our natural human craziness by placing clear dollar amounts on our mistakes, but there is no time to pause and reflect upon the mental mechanisms that may lead us astray.

So here's an attempt to help my fellow traders out there (and i'm doing this for free! aren't i wonderful?):

1 -- do something quickly to balance your perspective:

a. Actively think of how badly something could have gone and really really enjoy the feeling that that bad thing didn't happen. For example, you look at Ford's recent peak, and then you look back to the nadir the day before. You look at that nadir and mentally draw a new line downwards. Then you make that downward slope 4 time as steep. make it go waaaaaaay down. Now you're like -- wow. i'm all the way up here at 0. awesome.

b. find someone that took a big hit today and shamelessly judge that person in your head. (e.g. Ha ha! At least I'm not that Enron trader...).

c. think of all those people that failed the interview process, and think -- heh heh, well at least I'm here playing the game. i'm not like those losers sitting at home watching oprah and eating frosting from a tube.

2. Quickly think of a way to make money NOW, given the psychology of missed/seized opportunities...

a. trust that you're not the only one feeling whatever you're feeling. and trust that there are also a bunch of people feeling the opposite of what you're feeling, in an equally intense way. and USE that info. don't just sit there. assess just how intense the regret is, and make a judgment as to wehther the 'winners' are distracting themselves by basking in their win, or whether they're fearing a breaking point and preparing themselves to sell. And then DO something to make money off of that judgment--sell short, anticipate where they will put their money when/if they sell, or BUY! just because it has spiked a little doesn't mean you can't ride the wave for 3% or so.

b. trust that if you're not interested in thinking about it, you're not interested. full stop. There is always a better deal. A shiny new ford taurus may look good to a 12 year old in Kansas, but when you show this 12 year old a shiny new porsche 911 turbo (as i have referenced before), the shiny new ford starts looking....wait was I talking about something? mmmm, 911 turbo...

ok, enough of this nonsense, i've got some stocks to sell...

Disclosure Requirements: A Metaphor

Ok hedge funds, I know you like your privacy, but honestly you can't keep people away forever. when there is money to be made, people will loiter. So let me give you a little tip in advance. When the FTC/SEC/DOJ/bloggers/snoopers start coming around, stay away from the baked beans a la hugh grant...and try to keep your eyes on the road despite the motorcade of paparazzi behind you...

mmm...baked beans.... :)

More Bloomberg Hedge funds

Ok, here's another attempt at getting a better list of hedge funds. This is just a test...I'll try more later...

Bloomberg's favorite hedge funds - page 1

FFT: Pragmatism

I find myself to be a pragmatist most of the time (when it's pragmatic to be so, of course). However, I was thinking today about a couple of things that pragmatists never really address.

A little background...

Pragmatists (like Dewey, Pierce, James, etc.) think that figuring out what is true, or what we should do, is in 'actual consequences.' For example, how do I know whether or not something is a book? Hypothesize that it is a book, and see what happens. Similarly, how do I know whether to bite my nails? Try it, and see what actually happens. In the long run, watching consequences will guide you towards what is true and good.

'Actual consequences' resemble a scientist's 'data,' however, consequences include every aspect of experiencs; i.e. not only the 'external' consequences, but also the 'internal' ones--like, my feelings, thoughts, doubts, actions, frustrations, etc., etc..

My first thought...

Pragmatists always assume that being in a mindset of 'looking at the consequences' is immune from pragmatic testing. It is just assumed that the mindset of 'looking at the consequences' is a good thing. The mindset is necessary for pragmatism to get off the ground, so it's got to be good! (right...?).

My concern is that this presumptuousness is not very pragmatic. I mean, shouldn't it at least be tested which mindset leads to better consequesnces? e.g. shouldn't Dewey have tried stupidity, just to see what it was like?

But, of course that wouldn't have solved much either...

In fact, I'm am not making an argument about correcting an aspect of Dewey, Pierce, or James's particular versions of pragmatism. I'm making a general skeptical argument that pragmatism cannot justify itself, becuase someone without a pragmatic mindset does not collect data, so they cannot make a pragmatic comparison. My claim:

I cannot decide whether 'not looking at the consequences' is more pragmatic than 'looking at the consequences,' because there is no way to know the consequences of the former mindset.

In fact, for all I know, stupidity has the best consequences. (but since my stupidity prevents me from seeing the consequences of my stupidity, I'll never know...)

(ok in some cases i know that my stupidity leads to bad consequences, but isn't there still an argument here? think billy budd, forrest gump, or apples in edens...)


My second thought...

When does a 'consequence' occur?

I've noticed that happiness invariably leads to unhappy consequences. It's like, I'm happy, yay, great...and then eventually it's like, wait, where'd that happiness go? And then eventually it appears! Yay, life is great! And then...as always, that feeling fades, and one day i'm like--man this problem is really sucky; i wish i didn't have to deal with this...

So, if happiness always leads to a suffering, is the pragmatist forced to say that happiness should be avoided?

(of course not, but i'm trying to point out that absurd results can be reached depending on what we decide are 'causes' and 'consequences')

I (heart) activist investing

Could someone make me a t-shirt that says this?
Any artists out there?

Double Dare: A Transparant Hedge Fund

Ok hedge fund managers, if you're so smart, you'll be able to tell us exactly how you're going to take our money, and STILL take our money.

So here's my challenge to the best and the brightest fund managers out there -- tell us everything. Make a website, post every sale, every holding, every almost-sale, every strategy decision, every disappointment. (you can even hire me to do all of this data collecting/presentation).

I want to be impressed. I want PROOF that you're the smartest people in the room.

A problematic detail -- I don't want anyone breaking the rules, and the SEC is picky about Hedge Fund websites...

Use of the Internet by Domestic Hedge Funds
In 1995, the SEC determined that providing offering materials for a hedge fund on a website constitutes a general advertisement or solicitation, unless the materials are only provided to persons who had a previous relationship with the issuer-even when access to those materials is restricted to password holders. There may be no links from outside the site to an interior page of the fund website. And passwords may be given only to users with previous relationship to fund and only if financial sophistication is verified. (read more...)

So, all i am asking is that you disclose this information to your investors. Just let me know that you're doing this, and (depending on who you are) I may be there to give you some seed money.

In summary...I dare someone to form a fully-transparant hedge fund, that still makes money (in the long-run) because the managers know how people would react to any leaked information. Make that a double dare...

FFT: Launch HF in London or NYC?

Is london really a better place to start up a hedge fund?

Gary Vaughan-Smith and Alex Da Costa at SilverStreet Capital seem to think so. They just launched their HF in london...

However, one should keep in mind that SilverStreet is a fund of funds. In a sense fund of funds can be managed from anywhere with an internet connection, no? It seems like common sense that activist investing funds (M&A, restructurings, bankruptcy purchases, direct involvement in the board's decisions, LBOs, etc.) would prefer to stay close to their investments (and depending on the investments, this could imply that NYC or at least the US would be the best location). However...M&As are getting more international. In fact, i hear that the most common M&As these days are foreign firms grabbing US firms...

So...London or NYC?...who knows. i'll have to ponder this one a bit more...

Hedge Fund Manager Salary

NYTimes has an article on hedge fund manager compensation (240 mill for some)

here are a few reactions:
1. can i trust this 240 mill figure? what if last year they lost 190 mill, and over the last 10 years they're batting even?

2. what if they're just charging too much in fees?

3. what if none of the money is liquid?

4. what if they're not happy people -- money doesn't buy everything, does it? :)



Ok, so I attempted to track down this alpha list, but didn't feel like subscribing to the magazine. Here is what I found online (not particularly interesting, but whatever...):

The Alpha Hedge Fund Compensation Report reveals the truth about hedge fund salaries. Based on the results of questionnaires completed by nearly 900 professionals from more than 600 firms, now you can find an answer to the question, “What are hedge fund professionals really making?” If you work at a hedge fund or fund-of-funds firm, this is your chance to find out whether you’re being shorted; if you work in another industry, our findings may prompt you to consider a career change.

The Alpha report rips through the shroud of secrecy surrounding hedge fund compensation. We found that compensation varies widely within the hedge fund industry and is correlated to several factors, including firm asset size and geographical region. Job function and title also play an important role, but in general we can safely say that when it comes to hedge funds, 2 and 20 equals a hefty salary. (see the site)

And here are the top three money-makers (and the site claims to profile more tomorrow, see the end of the block quote):

JAMES SIMONS

Renaissance Technologies Corp.

$1.7 BILLION

EVEN THE MOST SUCCESSFUL hedge fund managers have to shake their heads in wonderment at the extraordinary continued success of Renaissance Technologies Corp. founder James Simons. Last year his $6 billion Medallion fund posted a 44 percent return after fees, easily exceeding its roughly 36 percent average annualized net return since he launched the quant-based fund in 1988. What makes his performance all the more impressive is that the 69-year-old Simons, who has a Ph.D. in mathematics from the University of California, Berkeley, and once worked as a code breaker for the U.S. Department of Defense, charges a hefty 5 percent management fee and 44 percent performance fee. (The gross return was an astonishing 79 percent.) With $1.7 billion in estimated earnings, Simons tops our list of the best-paid managers for the second straight year.

Medallion, which is closed to outside investors, uses sophisticated computer programs to identify price anomalies, trading everything from equities and commodities to futures and options. An acclaimed mathematician, Simons has hired about 80 Ph.D.s at Renaissance's offices in Manhattan and East Setauket, New York, to find ways to enhance his firm's existing strategies and discover new ones. In August 2005 he launched the Renaissance Institutional Equity Fund, a long-short product that invests exclusively in equities and has a longer holding period for its securities than does frenetic Medallion. By maintaining a net exposure to the market of 100 percent, RIEF has been popular among institutional investors looking for higher returns from their traditional equity allocation. The fund has quickly grown to $20 billion, or one fifth of its stated $100 billion capacity; it was up about 20 percent last year.

Simons, who has said publicly that most of the researchers Renaissance has hired in the past seven years were educated outside the U.S., is a major proponent of boosting math skills. He was named to the National Mathematics Advisory Panel by President George W. Bush's administration to suggest ways to advance the teaching of math and is the founder and chairman of Math for America, a nonprofit organization whose mission is to improve math education in U.S. public schools.

In February, Simons received an award from software and IT solutions company SunGard and the International Association of Financial Engineers as their 2006 financial engineer of the year. At the award dinner, which was held at the United Nations, in New York, Simons told the crowd that although he was flattered to receive the prize, before getting it he never really thought of himself as a financial engineer. "At Renaissance we have lots of smart, imaginative people making lots of money," he said. "If that's financial engineering, I'm all for it."



KENNETH GRIFFIN

Citadel Investment Group

$1.4 BILLION

KENNETH GRIFFIN HAS COME A long way since he began trading convertible bonds from his dorm room in Cabot House at Harvard College. Griffin, who founded Chicago-based Citadel Investment Group in 1990, when he was just 22, is building an empire that has more in common with the business of another famous Harvard student -- Microsoft Corp. chairman Bill Gates -- than it does with most hedge funds. Nearly half of Citadel's more than 1,000 employees work in technology, developing and maintaining not only the firm's proprietary investment models but also its state-of-the-art hedge fund administration and electronic trading platforms. Citadel Execution Services, which trades an average of 150 million shares a day, has been offering market making to investors, including other hedge funds, since 2005. Citadel Solutions, which provides middle- and back-office administration services using the same technology developed for Citadel's own funds, opened for business just this spring.

The buildout of Citadel's non-hedge-fund businesses has fueled speculation that Griffin, now 38, is preparing to take his company public. The timing would be propitious. In 2006, Griffin enjoyed his best returns since 2002. Each of his two main funds -- Kensington Global Strategies and Wellington -- was up about 30 percent, net of Citadel's 20 percent performance fee. (The firm does not assess a management fee; instead, it charges all expenses to the fund.) The gains were spread across a variety of strategies, including long-short equities, quantitative, credit and energy. At least 5 percentage points of the firm's returns were directly attributable to the decision by Citadel to team up with JPMorgan Chase & Co. to buy, at a discount, the bulk of the energy portfolio of collapsed hedge fund Amaranth Advisors. At the end of 2006, Citadel had $12 billion in assets under management.

Griffin and his wife, Anne, who has her own hedge fund firm, Aragon Global Management, are among the world's biggest art collectors. Last year they paid $80 million for False Start, a 1959 work by Jasper Johns. In October the couple gave $19 million to the Art Institute of Chicago, which in turn will name the central court of its new Modern Wing, currently under construction, the "Kenneth and Anne Griffin Court."

EDWARD LAMPERT

ESL Investments

$1.3 BILLION

THE FORTUNE OF EDWARD Lampert rises and falls largely with the stock price of one company -- Sears Holdings Corp. At year-end his firm, Greenwich, Connecticut­based ESL Investments, owned 42.5 percent of the U.S.'s third-biggest retailer, accounting for nearly $11 billion of ESL's $14.6 billion stock portfolio. Lampert, who is chairman of Sears, acquired the stake in March 2005, when he merged Chicago-based department store chain Sears, Roebuck & Co. with discount retailer Kmart Holding Corp., which he had taken control of in bankruptcy two years earlier.

Although some critics have complained that Lampert is destroying Sears' iconic brand by cutting costs and not reinvesting in its core retail business, investors have applauded his focus on boosting profits rather than sales. The shares of Sears surged 45 percent last year, helping to power the former Goldman, Sachs & Co. arbitrageur back above $1 billion in earnings, after a falloff in 2005. (Lampert was the first hedge fund manager to breach the $1 billion barrier, in 2004.) Apart from ESL, two of Sears' ten biggest shareholders are hedge funds, New York­based Atticus Capital and Perry Partners. Richard Perry, the co-founder of Perry Capital and a friend of Lampert's since they worked together in the merger arbitrage group at Goldman during the 1980s, sits on Sears' board of directors.

ESL's other two reported equity holdings were retailers AutoZone, whose shares rose more than 26 percent last year, and AutoNation, which finished the year roughly unchanged. ESL's nearly $18 billion hedge fund, however, rose 24.5 percent, net of fees, held down a bit by a multibillion-dollar cash position, say investors. Last fall Lampert announced that he would not seek reelection to the board of directors of AutoZone so he could devote more time to ESL and Sears. Last month he said he wouldn't seek reelection to AutoNation's board, for similar reasons.

Please visit us tomorrow where we profile: George Soros, Steven Cohen, Bruce Kovner, and Paul Tudor Jones II. (see site)

Bank of America Likes Movies?

Do Netflix and Bank of America have something goin' on?

First, there websites are strangely linked through an internet wormhole...
http://www.hackingnetflix.com/2006/09/netflix_on_bank.html

And now the netflix stock price is balancing on the fulcrum of BofA's words...

NFLX shares rallied 2.7% to $22.10 after Bank of America upgraded the stock to neutral from sell.

(see context...)

Dunno what's up. didn't know they were friends.

And Didn't Bank of America start in California?

Market Neutral Funds - Calamos

Definition -- "market-neutral funds," from smartmoney.com in 1999:

Market-neutral funds "neutralize" the effect of the market by owning both long and short equity positions. The long positions presumably earn high returns in a bull market, while the short positions post gains in a bear market. Some try to beat the three-month Treasury bill (which currently yields 4.62%) by as much as six percentage points. And they try to do that with very little volatility. (read more...)

Example -- "Calamos Market Neutral Fund (CVSIX)," from findarticles.com in Nov 2002:

Kinnel says that he is impressed by some "market neutral" funds that have adopted the hedge funds approach of aiming for profits in all kinds of markets. These "tame versions" of hedge funds have had mixed results, but there are some he cites with approval. "Calamos Market Neutral Fund (CVSIX) is run by a manager who is very knowledgeable about convertible bonds," he says. (read more...)

About Calamos...

1. morningstar on calamos (2006/7?)

2. Bloomberg on Calamos:

page1


page2


page3


page4

Arbitration or Lawsuits?

In response to a reader's comment below,

Anonymous said...
http://www.srz.com/publications/publicationsDetail.aspx?publicationId=1627

I wonder if this will be available to the public or only to those involved in the bankruptcy?

Check this out (from the WSJ on April 16). Perhaps hedge funds will start using arbitration:

Critics of arbitration say the three-member arbitration panels used in brokerage disputes often favor the industry over the consumer. In arbitration, the extent of a consumer's right to receive and review relevant information from the opposing side, a process known as discovery, is less clear than in litigation. Arbitration hearings also are often conducted in private, rather than in a public forum. (read more...)

Take 5: Wow, Paprika is awesome.

Paprika trailer...

Bloomberg's hedge fund listings

There are approximately 55 'Active' US hedge funds listed on bloomberg. This seems like a far from complete list of all hedge funds, but it's an interesting list nonetheless. I apologize that the resolution is exceedingly bad. If you cannot read something, just post a comment, and i'll look it up.

1-6


6-10


11-15


16-20


21-25


26-30


31-35


36-40


41-45


46-50


51-55

A Juror on the Nacchio Trial Explains...

WSJ law blog on Nacchio...

Fortune Cookie Advice: Dealing with Uncertainty

I am continually reminded that the dangerous uncertainty is the kind that you're not used to identifying as uncertainty. Your normal behavior-correcting habits don't kick in, so you just persist in a state of 'why is this so strange?'

My advice: beware of indulging the 'this is strange' feeling. it's just harmless ol' uncertainty. If you take it too seriously and want to do something to get rid of it, you may have a mess to clean up later.

Will SAC buy Fidelity?

Fidelity has been more 'activist' than other funds...

The funds have gotten lots of heat for their staunch support of management, with critics questioning if funds are upholding their legal obligations to vote in the best interest of their shareholders if they take management's side.

But some mutual funds appear to be warming up to the activist role, perhaps because of new rules that requiring fund companies to disclose how they vote in corporate elections. They also face increased competition for investors' money, especially from hedge funds.

...Fidelity Investments took a prominent role in opposing the proposed $19 billion takeover of U.S. radio broadcaster Clear Channel Communications Inc. by the private-equity firms Bain Capital Partners and Thomas H. Lee Co. Fidelity and other investors against the deal, which has yet to go to a shareholder vote, think the company is worth more than the $37.60-a-share offer.(read more...)

Fidelity and hedge funds have already been trading employees...

Fidelity Management & Research Co. (FMR Co.), the investment management division of Fidelity Investments, hired Brian Conroy as SVP and head of global equity trading. Conroy will be responsible for setting the strategic direction of domestic and international trading and will serve as the point person for both desks. He will have five direct reports, who, in turn, will manage FMR Co.'s trading force, says a Fidelity spokesman, who declines to reveal the number of Fidelity equity traders.

Conroy joins FMR Co. from New York-based Sigma Capital Management, where he served as COO. Prior to assuming the COO role, Conroy was a head trader with the $6.5 billion Stamford, Conn.-based hedge fund, SAC Capital Management - a Sigma affiliate. He also held positions at JPMorgan, Goldman Sachs and ABN AMRO. (read more...)

And Mutual funds have been losing people to hedge funds like crazy. From 2004:

In the face of legislation, lawsuits and media criticism, mutual funds have become significantly more cautious. They can't afford to become associated with any more scandals or be on the wrong side of any potential legislation. Mutual funds continue to lose their most successful fund managers and research analysts to unregulated hedge funds where such managers and analysts can make far more money with far less scrutiny. As if the brain drain wasn't bad enough, mutual funds can no longer (by virtue of their huge asset bases) command proprietary information from companies since Regulation FD mandates that all investors receive material information concurrently. (read more...)

Specifically, Fidelity lost people to London's TCI fund managment, and Highbridge Capital Management...(read more...)

Fidelity and SAC track each other's investments (at least some of the time). They were/are both big holders in...
>Martha Stewart Living
>Pacific Sunwear (read more...)
>Take-Two
etc...

What would SAC gain? $$$$$$ (and it's all about the money...)

President, Fidelity Employer Services
JOHNSON IS WIDELY believed to be next in line to run Fidelity, the $1.1 trillion mutual fund giant founded by her grandfather and now run by her father, Edward. Indeed, as the new head of Employer Services, a fast-growing unit that does benefit and payroll outsourcing that covers 19 million workers and retirees, Johnson, 44, is the driving force behind a transformation that will turn the company into a financial-services juggernaut. Fidelity watchers believe that a generation of consumers will receive their most important financial documents stamped or processed by a Fidelity computer, from their first pay stub to their last retirement check. "Abigail is running the company's next trillion-dollar business," says James Lowell, editor of the Fidelity Investor newsletter. "She is already CEO of the new Fidelity." (read more...)

The bottom line, though: Fidelity would be a cheap acquisition right now...

And...Fidelity is in the business of streamlining...From April 15, 2007:

BOSTON (MarketWatch) -- The mutual fund industry is a survival-of-the-fittest world where management companies frequently kill off their weakest offspring by merging them into their best and healthiest issues.
So when one of the industry's biggest players announces plans to merge two issues into sister funds, it's no big deal.()

Hypothesis: Technology Concentrates War Powers in the Executive Branch

Here is an excerpt from a paper which seems to be a response to pro-executive-powers theorists like John Yoo:

The main point in this paper is to suggest that technology is primarily responsible for expanding presidential war powers since 1957. Technology allows raw intelligence data to be personally reviewed by the president. In the 1960s, the Kennedy and Johnson administrations concentrated war powers in the cabinet because of new satellite surveillance. My hypothesis is that the Bush administration is similarly concentrating the war powers in the cabinet through new computer surveillance...

So, computer regulations could stop renegade presidents, and restore a balance of power between the three branches? Interesting...

GW Should Pardon Nacchio

Ok, this is a long story, but bear with me... :)

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1. NACCHIO HAD GOVERNMENT TIES WHILE HE WAS CEO OF QUEST (until 2002)....

A. Nacchio/Qwest was in bed with homeland security as far back (at least) as 2001...In fact, Nacchio's (unsuccessful) defense against during his recent (2007) trial for insider trading was that elements of these government contracts could not be made public. From technewsworld.com
on 3/19/07

The Defense
Nacchio has made it clear he will argue in his own defense that his estimation of Qwest's future outlook was based in part on possible contracts the carrier might win from the government. He is set to claim those contracts were not public knowledge because they involved homeland security and intelligence agency work. (read more...)

(i) It appears that these contracts were largely MAA contracts (Metropolitan Area Acquisitions Programs). See a subcommittee hearing transcript from 2001,

(ii) And Qwest held/holds MAA contracts for Albuquerque, Boise, Denver, Minneapolis, Salt Lake City, and Seattle. (see Qwest website)

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2. BUT NACCHIO BECAME LEGALLY VULNERABLE BECAUSE OF HIS OWN GREED BACK IN 2002...

A. In 2002, Qwest tanks -- the stock drops to about a dollar, and innocent people lose almost everything, though Nacchio suspiciously makes millions. Not surprisngly, Nacchio resigns as CEO and the lawsuits begin (including the insider trading lawsuit that was just resolved). From talkleft.com:

...the U.S. West retirees (Qwest bought U.S. West in the late 1990's) lost a lot of money when Qwest's stocked tanked to under $2.00 a share.

Qwest's stock price hovered around $35 to $40 a share from January 2001 to May 2001, which is the time period of the alleged illegal insider trading. The stock eventually plummeted to an all-time low of $1.11 a share in August 2002. (read more...)

B. Nacchio was not the only Qwest executive that was indicted, however. In fact, his case came at the end of a long line of Qwest indictments. Other Qwest executives were put on trial in 2003, but they got off! Apparently the government's case was plagued with procedural errors. From Denver News in Dec 2005:

In 2003, Grant Graham, Thomas Hall, John Walker and Bryan Treadway were indicted in an alleged scheme to fake $33 million in revenue for Qwest. Graham and Hall pleaded guilty under plea bargains. Walker and Treadway were aquitted at trial. (read more...)

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3. WHEN QWEST SNUBBED THE NSA, QWEST EXECUTIVES WERE SORTED INTO THE LOYALS AND NON-LOYALS.

A. Some of the loyals include James F. X. Payne (the government contract point-person). In 2005, Payne suddenly leaves Qwest and ends up at Bechtel (read more...)doing work that put him even closer to government agencies (and no surprise he was never prosecuted like most other Qwest execs). From WashingtonTechnology on 5/20/05:

Longtime telecom player James Payne has left Qwest Communications International Inc., where he headed the Denver company’s federal government business.

A company spokesman did not return phone calls, but other sources confirmed Payne has left. Payne also did not return phone calls.

Payne’s departure from Qwest is a risky move for the company as it pursues the huge Networx telecommunications contract, but how risky “depends on who they replace him with,” one source said. (read more...)

B. But simultaneously in 2003 the NSA wants Qwest to cooperate with it's creepy surveillance program! For obvious reasons, Qwest was rolling their eyes at the NSA's reqest (it was legally dubious, plus Qwest probably had little interest in turning over all of its documents considering the pending lawsuits).

So, while some of Qwest people (e.g. James T. X. Payne) were pandering to the government's interests, the Qwest CEO (Richard Notebaert - Nacchio's successor) was vehemently resisting the NSA's surveillance requests. Finally, in 2004, Qwest was so frustrated with the NSA's demands to conduct illegal surveillance, that Notebaert (CEO) cut off talks with the NSA and flat-out refused to hand over their customers' information. From cbsnews.com on May 12, 2006:

Though Verizon, along with AT&T Corp. and BellSouth Corp. began sharing records their customers' phone calls with the NSA shortly after the 2001 terror attacks former Qwest Communications CEO Joseph Nacchio broke ranks with fellow former Bell companies, according to USA Today.

"When he learned that no such authority had been granted and that there was a disinclination on the part of the authorities to use any legal process, including the Special Court which had been established to handle such matters, Mr. Nacchio concluded that these requests violated the privacy requirements of the Telecommications Act," Nacchio's attorney wrote in a statement.

Nacchio agreed with Qwest's attorneys that surrendering its customers' "call-detail records" to the NSA was wrong.

Qwest balked at the request, and pressure, from the NSA, with Nacchio reportedly "deeply troubled" by the implications, USA Today reports. Current CEO Richard Notebaert halted talks with the NSA in 2004 after the two couldn't agree on the details.

According to USA Today, the NSA told Qwest that not sharing the phone records could compromise national security and affect its chances at landing classified contracts with the government, two issues that play a role in Nacchio's own legal woes. (read more...)

C. There is always some lag before the public knows what's going on...so it wasn't until 2006 that the story broke about agressive, irrational surveillance of telephone records, and qwest's refusal to participate. From USA Today 5/11/06:

"One company differs

One major telecommunications company declined to participate in the program: Qwest.

According to sources familiar with the events, Qwest's CEO at the time, Joe Nacchio, was deeply troubled by the NSA's assertion that Qwest didn't need a court order — or approval under FISA — to proceed. Adding to the tension, Qwest was unclear about who, exactly, would have access to its customers' information and how that information might be used." (read more...)

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4. SOMEONE HAD TO TAKE THE BLAME FOR THE SURVEILLANCE SCANDAL, AND NACCHIO WAS THE EASIEST TARGET DESPITE HIS NON-INVOLVEMENT.

A. Someone needed to be the fall-guy...but Notebaert was kind of inaccessible because he hadn't done anything illegal. in fact, he was looking like a saint in the public's eyes for standing up to the NSA. Nacchio, however -- he was in some legal trouble. So, not unlike switching enemy #1 status from Osama to Saddam, the government switched the blame from Notebaert to Nacchio. In late 2005, Nacchio was indicted, and would eventually help the administration put 'Qwest' and 'guilty' in the same headline. From BusinessWeek on Dec 21, 2005:

A Nacchio indictment has been widely anticipated. In March [2005], the SEC charged him and six other former Qwest execs with orchestrating a massive fraud at the company... (read more...)

B. And...the president's people went in for the kill. As one could expect, they brought in a new US attorney. From TalkLeft.com March 18, 2007:

The Nacchio trial...There's a new prosecutor on board -- Clifford Stricklin from Texas who was on the Ken Lay/Jeff Skilling Enron team. Colorado U.S. Attorney Troy Eid brought him in as his First Assistant, after which Bill Leone, who had served as Interim U.S. Attorney for a year and a half while the White House sat on its a** not naming a new U.S. Attorney following the departure of U.S. Attorney John Suthers, who left to take Ken Salazar's place as state Attorney General when Salazar got elected to to the U.S. Senate, and who had prosecuted the first Qwest case, resigned. So, although Stricklin is from Texas, he now lives here and is a permanent part of our U.S. Attorney's office. The other prosecutors are from DOJ in D.C. (read more...)

Note: During this time, Miers and Gonzales were identifying the US attorneys without adequate "loyalty". From npr.org

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5. HOWEVER, FOR THIS ADMINISTRATION, IT'S NEVER THE WRONG TIME TO MAKE A PROFIT...

To add insult to injury (a la Halliburton profiting in Iraq), the government is now contracting again with Qwest. All bad feelings have been hashed out through the Nacchio prosecution, and things can return to normal. and by normal i mean freaky.From USA Today, 3/07:

WASHINGTON (AP) — AT&T (T), Qwest Communications (Q) and Verizon (VZ) on Thursday were awarded the government's largest telecommunications contract ever, a 10-year deal worth up to $48 billion. (read more...)

****************************************************************

6. IN SUMMARY

It seems that Nacchio was unfairly targeted because this administration wanted someone at Qwest to be punished for the NSA-surveillance scandal. Nacchio (CEO until 2002) was the most vulnerable Qwest target.

Now, I don't want to belittle the insider trading claims against Nacchio, I just want to point out that this administration seems to have a pattern of behavior: hire a big-gun lawyer to prosecute the case you want to win. even if it means firing some people for no reason.

And to me, this sounds like turning the legal system into a playground for presidential vengence.

So....since I'm all about justice, not vengence, i don't think it's unreasonable to request a 'correction' of the Nacchio situation. In fact, it doesn't seem so unreasonable that presidential vengence is met with a kinder presidential power -- the one that starts with 'p' and ends with 'ardon'...

just a thought...

I'm Watching You!!! Arrrrg!

(Abu Hamza, "preacher of hate" - gatewaypundit.blogspot.com)

New WSJ editor - Marcus W. Brauchli

Boulder, CO connections
namebase
Thoughts about China throught the World Resources Insitute (Wash DC)

Wow. Netflix Pulled Off the Amazing Value-Vanishing Trick.

So I've been following Netflix stock lately, just out of curiosity. It's been trying out this online DVD rental thing...

Anyway. It was doing really well lately. i was kicking myself for selling it a while back. Today, however. Wow. I don't even know what to say. It dropped 7.5%.



But a trading pro never gets duped by peaks and valleys. In fact, now that I think about it, this is nothin'. Just a wee dip. Gets the weaklings out of the system. In fact, it's probably a good time for me to buy back in...

Pop Quiz: Which Justice Would You Choose to be Your Lamaze Class Partner?

From the WSJ.com today: Supreme Court Upholds Ban On Abortion Procedure

WASHINGTON -- The U.S. Supreme Court Wednesday upheld a federal ban on late-term abortion procedures in a 5-4 opinion by swing vote Justice Anthony Kennedy.


[kennedy]Majority: "It is a reasonable inference that a necessary effect of the regulation and the knowledge it conveys will be to encourage some women to carry the infant to full term, thus reducing the absolute number of late-term abortions. The medical profession, furthermore, may find different and less shocking methods to abort the fetus in the second trimester, thereby accommodating legislative demand." --Justice Anthony Kennedy, writing for the majority.




[ginsburg]Dissent: "Retreating from prior rulings that abortion restrictions cannot be imposed absent an exception safeguarding a woman's health, the court upholds an Act that surely would not survive under the close scrutiny that previous attended state-decreed limitations on a woman's reproductive services." --Justice Ruth Bader Ginsburg, writing a dissent

CEOs and Group Relations Theory

An interesting article by Edward R. Shapiro...
The Changing Role of the CEO
Edward R. Shapiro, M.D. (Medical Director/CEO, The Austen Riggs Center)
INTRODUCTION

Leaders are under constant pressure from a rapidly changing environment, organizational transformation, the need to manage multiple boundaries, the irrational demands of staff, and their own psychology. To function in role, encourage a sense of community and authorize staff competence, CEO values and vulnerabilities must be visible to the staff. In order to respond to feelings as information, leaders must learn about irrationality and group dynamics and be able to contain and make organizational sense of these reactions in relation to the larger context. Staff can no longer readily find job security or a sense of belonging and identity in rapidly evolving organizations. Work commitments emerge from discovering links between the ideals of individuals, a meaningful organizational mission and larger social values. While many organizations have developed sets of 'company values', these are often limited to individual ideals that neither differentiate the organization nor place it in a larger context. In an increasingly interdependent world, even private organizations are now discovering their responsibilities toward the larger community. To effectively market themselves and energize their staff, organizations must join this wider system of meaning, including the discovery of their links to societal values. Leading a learning organization now requires a focus on organization-specific connections between personal, organizational and social values.

In a world of rapid change and little stability, the role of the CEO is under enormous pressure. Market turbulence, new technologies, demographic shifts and globalization have transformed organizational life. In contemporary organizations, the CEO must discern the shape of the institution, articulate and link the inputs of the various stakeholders and forge a clear mission that relates the institution to the larger society.

Read more...

Emails on Risk

Here is an email exchange I had with a loyal reader:

could you give me your thoughts on risk? I was just reading a blog on Ford that was along the lines of: "this stock is heading to $1"; "the only thing that will save F is a buyout...", etc. and I started thinking that maybe my optimism for F's future was misplaced...I was thinking $10...but $1??? So immediately my feeling of risk (in the sense of: the possibility of a negative outcome) went up...Perhaps the mistake was (after making a decision) was to continue to consider other opinions? But if eliminating one risk (stock price decline) just exposes another (inflation reducing the value of my safe gov't bonds) then where is the good night's sleep in this sea of uncertainty.

I replied:

My only comment right now on risk has something to do with this...

trust the reasons, not the rationalizations. it's like simple-math. if each step is correct, the outcome is correct, even if the outcome doesn't *seem* correct. Plus, it's the times when the outcome seems wrong but isn't, that the biggest gains can be found (because others will probably hesitate and miss out).

drawing a conclusion and then rationalizing is fantasy/fear land. rationalizations may miraculously work some of the time, but if this is all you're doing, you might as well just go play the slot machines or the lottery.

the fun part of the investment game is not going with the obvious 'this just seems right' logic, but by reasoning through how things must work, and trusting an action that others may find to be crazy. It's like stepping off a cliff when you've already calculated that at a particular moment/place a hover-craft will be there to catch you. Others (cowering far from the edge), see you stepping off and are like, "no no! what are you doing! you're crazy!" but you'll know that you calculated everything right, so you'll step off anyway and get the big payoff of looking like the smartest person alive. (or the richest, if you're playing in the market)



granted, even when you do your homework, you can be wrong. but if you don't even try...you're not even playing.

plus you don't have to be right all the time, just right more times than you're wrong.

The reader's response:

Your points are persuasive...the more I try to avoid any risk the more risks pop up with their causal chains ending right in my fallout shelter...one of the challenges post-Enron (where a lot of people didn't see the implosion coming) is to just keep refining the models to include any new info...rather than giving up on modeling and succumbing to fate/superstition (the lottery) as the primary risk management tool. I've been feeling that fear/greed pattern (standing on the cliff but oscillating between go/no go) with respect to my TSP...so I feel saner now as I just changed the allocation of my TSP from 100% Treasuries back to 50% govt securities/50% International Fund (EFA) where it had been from Nov-Feb...

Hope your TSP is treating you well!
tsp.gov
tsper.com
tsper.com newsletter

Hedge Fund Regs...So Yesterday... --What About Bank Regs?

The whole hedge-funds-need-to-be-regulated talk is losing steam...

From the WSJ, "Policy Makers Ease Push to Raise Fund Oversight" April 16, 2007: "Some policy makers in continental Europe are toning down their calls to step up oversight of hedge funds, given U.S. and U.K. resistance."

And also from the WSJ, "Bernanke Says Don't Regulate Hedge Funds Too Heavily," April 11, 2007: "WASHINGTON -- Federal Reserve Chairman Ben Bernanke warned against heavy regulation of hedge funds, saying the current market-based approach is working."

But in all the flurry about hedge funds have we lost our common sense? Hedge funds don't act on their own. If they did, i'd have a hedge fund too...

Hedge funds need money like everyone else, and investors or BANKS are the typical sources. Investors are fickle and difficult, but banks, man; banks will do anything for hedge funds. And what better toadies to have around than american banks. they have serious dependency issues, i swear. it's like they want to be part of the 'cool' crowd, so they'll do anything to be on the inside -- even if it means putting billions at risk...

For example - Banks are geniuses. --> let's lend money to hedge funds so they can pay out a big dividend when the hedge fund goes public!
From the WJS on April 17, "Executives Hedge Their Own IPOs":

"Here is how it works: Wall Street's investment banks loan these private firms significant sums of cash as the companies consider initial public offerings of shares. The loan money then is used to pay fat dividends to top stakeholders, typically senior executives in the companies, and can be paid down later with IPO proceeds or management fees and the like."

..."Last year, Fortress Investment Group, the New York money manager that recently became the first U.S. hedge fund to sell shares in an IPO, borrowed $750 million from a consortium of lenders, freeing up $250 million that it put toward a dividend to five key executives in the process. Blackstone Group, which announced plans late last month to undertake a roughly $4 billion IPO by selling a 10% stake of the company, is also contemplating a similar dividend, according to people familiar with the matter."

. I mean, why not? don't hedge funds print money? isn't this a risk free investment? yeah, yeah,...course....(cough - Amaranth - cough).

STOP THE MONEY MADNESS AT THE SOURCE! Yeah that means you Goldman...

OR at least make things equal. 14th amendment, yo. -- hey banks! yeah, i'm talkin to you; i need a 47 million dollar loan stat! i'm totally in love with this LBO idea, and you know i know your weakness for givin' money for nothin'....

FFT: Statute of Limitations and Adverse Possession

BACKGROUND...

Statutes of limitations rules cut off liability after so many number of years. If someone has been wronged, they only have a limited amount of time to bring their claim before the claim is dead forever.

Adverse possession rules (aka 'prescription') grant new property rights to a person that has been using/possessing property openly, continuously, exclusively (though there are variations), and adversely (variations here too) for a certain number of years. For example, that land in Colorado that seemed like a great purchase 30 years ago but you never ended up using it? Yeah, it may now belong to a local man that has been squatting on it for the last 29....


OLLIE WENDELL JR...

Oliver Wendell Holmes raises some interesting points in, "The Path of Law", 10 Harvard Law Review 457 (1897). THE ISSUE: when justifying cutting off a person's rights in order to grant rights to another, do you use reasons surrounding the point of view of the rights-gaininer or the rights-loser?

We have too little theory in the law rather than too much, especially on this final branch of study...Let me now give an example to show the practical imporance, for the decision of actual cases, of understanding the reasons of the law, by taking an example from rules which, so far as I know, never have been explained or theorized about in any adequate way. I refer to the statues of limitations and the law of prescription. The end of such rules is obvious, but what is the justification for depriving a man of his rights, a pure evil as far as it goes, in consequence of the lapse of time? Sometimes the loss of evidence is referred to, but that is a secondary matter. Sometimes the desireability of peace, but why is peace more desireable after twenty years than before? It is increasingly likely to come without the aid of legislation. Sometimes it is said that, if a man neglects to enforce his rights, he cannot complain if, after a while, the law follows his example. Now if this is all that can be said about it, you probably will decide a case I am going to put, for the defendant. A man is sued for trespass upon land, and justifies under a right of way. He proves that he has used the way openly and adversely for twenty years, but it turns out that the plaintiff had granted a license to a person whom he reasonably supposed to be the defendant's agent, although not so in fact, and therefore had assumed that the use of the way was permissive, in which case no right would be gained. Has the defendant gained a right or not? If his gaining it stands on the fault and neglect of the landowner in the ordinary sense, as seems commonly to be supposed, there has been no such neglect, and suggest that the foundation of the acquisition of rights by lapse of time is to be looked for in the position of the person who gains them, not that of the loser....It is in the nature of man's mind. A thing which you have enjoyed and used as your own for a long time, whether property or an opinion, takes root in your being and cannot be torn away without your resenting the act and trying to defend yourself, however you came by it. The law can ask no better justification than the deepest instincts of man. It is only by way of reply to the suggestion that you are disappointing the former owner, that you refer to his neglect having allowed the gradual dissociation between himself and what he claims, and the gradual association of it with another. If he knows that another is doing acts which on their face show that he is on the way toward establishing such an association, I should argue that in justice to that other he was bound at his peril to find out whether the other was acting under his permission, to see that he was warned, and, if necessary, stopped.

FFT: Mutual Funds and Hedge Funds - part 1

Pop quiz: when is a mutual fund a hedge fund, and a hedge fund a mutual fund? (source: bloomberg, April 9)

Was Lilly's Acquisition of Icos a "Retrograde Ejaculation"?

Eli Lilly - what were you thinking? Icos!?

From the WSJ, April 16:

Lilly booked $193.1 million in sales for erectile-dysfunction drug Cialis, versus $55.4 million a year earlier. Lilly gained full control of Cialis in late January when it acquired Icos for $2.3 billion. Recorded sales represent those for about two months of the quarter, from the date of the Icos purchase. Total Cialis sales for the entire quarter were $265.8 million, up 19% from a year earlier. Lilly had previously booked partial sales and income for the drug from its joint venture with Icos.

The Icos acquisition is expected to reduce Lilly's earnings this year but begin adding to profit in 2008.

Presumably Lilly wanted all the profits from Cialis, and when Icos was independent, Lilly had to share. But greed ruins so many things...doesn't it? Icos was just doing the Cialis marketing...so how much money was Lilly really missing out on?

Plus, man...the Icos baggage...

From a Press Release on Icos-Lilly synergy gains...(or lack thereof...)

"About Lilly ICOS LLC
Lilly ICOS LLC, a joint venture equally owned by ICOS and Lilly, is marketing Cialis in North America and Europe for the treatment of erectile dysfunction. ICOS Corporation, a biotechnology company headquartered in Bothell, Washington, is dedicated to bringing innovative therapeutics to patients. ICOS is working to develop treatments for serious unmet medical needs such as benign prostatic hyperplasia, pulmonary arterial hypertension, cancer, psoriasis
and inflammatory diseases".

So, if I have this right, Lilly wanted all the Cialis profits, so they agreed to acquire Icos' whole basket of pelvic-region and blood-disorder drug projects (pulmonary.../cancer/psoriasis/inflamm). But, was that really a good idea? Or should Lilly be more concerned about liability: keeping more players in the market, and avoiding consolidation so they'll share the blame on judgment day...? (And can't we all just sense an impending ED shakedown?)

A side note: Unlike researching sports cars , the pharmaceutical industry is a minefield of nightmare-inducing creepiness. For example -- a pulmonary arterial hypertension drug may...

"...cause ejaculation back into the bladder (retrograde ejaculation). This is not harmful."

Wow. Sometimes 'this is not harmful' doesn't quite cut through the unpleasantness in the previous sentence...

In any case, it'll be interesting to see if Lilly can turn this around...
Eli Lilly Official Website
Eli Lilly wikipedia
Eli Lilly Fortune 500

Orchestras as target firms?

Orchestras have been struggling to make profits lately. But there are so many great musicians! Really -- it's a shame that there is such a disconnect between musicians and the general public. There is money to be made here...someone just needs to step-in and consult the orchestra managers....

I swear, the public has become so incredibly stupid about classical music they're on the verge of snapping other way.
I mean, isn't there something just slightly offensive about the public snubbing Joshua Bell? Where's the love people!? Go to your nearest Symphony Hall now! Buy tickets! You OWE him. sheesh...

Is the half-live of ignorance increasing?

One of the odd effects of globalization in the financial markets is that it takes longer for information to be seen and reacted to...thus increasing the half-life of ignorance. For example, it has taken a couple of months for the markets to recognize the benefits to Nintendo's bottom line from the success of the Wii.

Send me an
email if you have a good example and I will post it.

Non-Profits, Hedge Funds

Sometimes thinking makes it so...

Below i was reflecting on the potential synergy gains of non-profits and for-profits (where a 'synergy' could be as intangible as 'goodwill').

And as always, i am thinking of hedge funds.

so you can imagine my glee when a mere hour after the non-profit post, I came across this article in the WSJ connecting H-Funds and Non-Ps

anyone know what some of the hedge funds' real strategies may be here?

Opportunity to Post:

If you have any issues you'd like a different perspective on (and it can be about anything...my experiences have been diverse). post a comment to this post -
kate.

blogger behind the blog...

I'm no one in particular. i just like to figure stuff out.

but really, who am i? like, what do i do? what life have i led? well...i've done the student thing, and the corporate thing, and the philosophical/spiritual epiphany thing, and the artist thing, and the entrepreneur thing, and the 'leave me alone' thing, and the 'who cares about the world i love you' thing, and 'ok fine i'll just make money' thing...

and all the while my priorities were clear--i just enjoyed problem solving. that's it.

so here I am, avoiding my 'real work' to hypothesize about big-time global mechanisms and social networks. why? because i can't help it. it's as simple as that.


but i have to be honest that i don't like to think of myself as a blogger without an audience (regardless of how true that really is). i like to at least pretend that i am actually doing work on real-world problems.

so i'll just say this--i have a weakness for other people that need me. so if you post a comment, or ask me for advice, i'll probably take it so seriously you'll wonder why i'm not asking to be paid in return. and, what's funny, is that i bet i'll be so entertained by the process that i'll be thinking the same thing--i can do get this entertainment for free?? i don't have to pay to have people listen to me? wow. cool.



-Kate


The closest thing to a Platonic form of problem solving? the return of Apollo 13...Hollywood-style. Ok, I wish i could find scene from the movie where they constructed an air filter from socks and trash, because that's awesome. but twasn't easily to be found on youtube.

however, i did find Jim Lovell *who was actually there* talking about his experience.
it's a little dry, and the voice/visual don't match up perfectly, but it's still an amazing story.

Searching: the best non-profit rating system

I'm looking for a list non-profits that *do the best work* (e.g. are the most efficient, effective, creative).

Anyone out there have a favorite rating system?

FFT: Could a Corporation Profit From Acquiring a Non-Profit?

Would a corporation ever have an interest in acquiring a non-profit? (when I say 'non-profit', i'm thinking more like the red cross and less like vanguard; however, either is possible.)

Some non-profit 'currency' that a corporation could profit from:

1. some non-profits have extensive grassroots networks in remote areas.
2. some non-profits have built an almost unshakable amount of goodwill in the community.
3. some non-profits have legal/political influence and are actively changing policies.
4. some non-profits are shaping the next generation of consumers/producers/lawmakers. (educational non-profits).

Some cullings from Barron's

LBO's good or bad: Barnes and Noble(?), TXU (greens liked-it), Home Depot maybe, Clear Channel (Fidelity and other major stock owners may block the management-led LBO)

Nintendo on tokyo exchange

nintendo

dreamtai blog

Alger affected Nintendo?

Alger settles for 40 mill


alger invested heavily in nintendo

Various topics

U.S. Regulations of Hedge Funds By Neil J. Koren, Douglas L. Hammer, Carolyn S. Reiser, Geoffrey W. Haynes

Apparently there are a lot of holidays in Japan this time of year...may explain the low volume??

Someone in London has written some papers on replicating hedge fund returns with options?, futures? /20711

SEC

SEC on hedge funds

morningstar -

morningstar on hedge funds

morningstar -

morningstar on hedge funds

i am not sure where to look to find stuff on hfunds

wikinancial? cool...

wikinancial.com

Hedge Fund Links

NY Hedge Fund Center:hedgefundcenter.com

NYTimes Blog: dealbook.blogs.nytimes.com

fundstreet.org

blogmaverick.com (Mark Cuban),
financeprofessorblog.blogspot (article about Mark Cuban)

hedgefundmgr.blogspot.com,
hedgefund.blogspot.com

moneyscience.org

People in Hedge Funds

Albria Alternative Investments: Davee Gunn, executive vice president of business development.(Albria, managed ~275mill in Jul-2005)

Peter Fusaro and Gary Vasey, who run the Energy Hedge Fund Center (NY).

Hedge Fund Listing

Investmentseek.com has a good listing of hedge funds and their websites.

Hedge Funds in the News

*New* Alphaville lists a handful of Intriguing Hedge Funds(Jan 31, 2007)
(Alphaville is associated with the Financial Times, FT.com)

1. SAC Capital Partners, managed by Steve Cohen.
2. Goldman Sachs Asset Management
5. Caxton Associates, founded by Bruce Kovner
9. ESL Investments, managed by Edward E. Lampert.
12. D.E. Shaw & Co., managed by David E. Shaw.
15. Vega Asset Management
17. Geronimo Financial

New Site Name!

globalmatrix.blogspot.com

hello?

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www.washedmasses.blogspot.com