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A Dying Banker’s Last Instructions

Sunday, November 28th, 2010

A Dying Banker’s Last Instructions

There are no one-handed push-ups or headstands on the yoga mat for Gordon Murray anymore.

No more playing bridge, either — he jokingly accuses his brain surgeon of robbing him of the gray matter that contained all the bidding strategy.

But when Mr. Murray, a former bond salesman for Goldman Sachs who rose to the managing director level at both Lehman Brothers and Credit Suisse First Boston, decided to cease all treatment five months ago for his glioblastoma, a type of brain cancer, his first impulse was not to mourn what he couldn’t do anymore or to buy an island or to move to Paris. Instead, he hunkered down in his tiny home office here and channeled whatever remaining energy he could muster into a slim paperback. It’s called “The Investment Answer,” and he wrote it with his friend and financial adviser Daniel Goldie to explain investing in a handful of simple steps.

Why a book? And why this subject? Nine years ago, after retiring from 25 years of pushing bonds on pension and mutual fund managers trying to beat the market averages over long periods of time, Mr. Murray had an epiphany about the futility of his former customers’ pursuits.

He eventually went to work as a consultant for Dimensional Fund Advisors, a mutual fund company that rails against active money management. So when his death sentence arrived, Mr. Murray knew he had to work quickly and resolved to get the word out to as many everyday investors as he could.

“This is one of the true benefits of having a brain tumor,” Mr. Murray said, laughing. “Everyone wants to hear what you have to say.”

He and Mr. Goldie have managed to beat the clock, finishing and printing the book themselves while Mr. Murray is still alive. It is plenty useful for anyone who isn’t already investing in a collection of index or similar funds and dutifully rebalancing every so often.

But the mere fact that Mr. Murray felt compelled to write it is itself a remarkable story of an almost willful ignorance of the futility of active money management — and how he finally stumbled upon a better way of investing. Mr. Murray now stands as one the highest-ranking Wall Street veterans to take back much of what he and his colleagues worked for during their careers.

Read more at: NYTimes.com

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{Photography by Chuck Coker}

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Banks buy GM shares, making IPO largest ever

Saturday, November 27th, 2010

Banks buy GM shares, making IPO largest ever

General Motors inched further forward in its effort to repay taxpayers, announcing Friday that the banks backing its historic initial public offering had exercised their right to buy an additional block of shares in the restructured automaker.

The banks’ move expanded the auto giant’s IPO by 15 percent to $23.1 billion, making it the largest in global history and bringing the company about $2 billion closer to returning the $49.5 billion spent on its bailout.

GM reclaimed its old stock ticker with fanfare last Thursday after weeks of anticipation on Wall Street. The company could barely keep up with demand for the newly issued stock as investors clamored for a piece of the American icon. In response, during the week of the IPO, GM said it was expanding its offering by 31 percent.

As part of the deal, the banks underwriting GM’s IPO also had the option of buying about $3 billion in additional stock – in case investors remained hungry.

GM confirmed Friday that the banks had exercised that right, buying an additional 71.7 million common shares, worth $2.37 billion, and 13 million preferred shares, totaling $650 million. The company said the closing on the sale of these added shares will take place Dec. 2.

The government still owns about one-third of GM. The stock price needs to hit around $50 a share for taxpayers to break even. GM debuted at $33 a share, and on Friday, in a holiday-shortened trading session, the stock closed at $33.80.

It remains unclear whether taxpayers will recover all of their investment in the company, but Friday’s announcement means the U.S. government has moved closer to that goal.

Here’s the math: Before the IPO, the government had recovered about $9.5 billion from GM, bringing the company’s balance owed to $40 billion.

Last week, the government sold $11.8 billion of common stock, leaving GM still owing the government $28.2 billion.

Greg Martin, a spokesperson for the company, said money from any additional common stock sales would go straight to the Treasury. And so the underwriters’ expansion of GM’s IPO would bring the latest amount owed to taxpayers down to $25.83 billion.

Read more at: Washington Post

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{Photography by John Manoogian III}

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Will Currency Derivatives Get a Pass on Oversight?

Friday, November 26th, 2010

Will Currency Derivatives Get a Pass on Oversight?

Banks want them exempted. Treasury Secretary Geithner seems to concur

Treasury Secretary Timothy Geithner is in a difficult spot. Last year, as Congress was negotiating what became the Dodd-Frank financial-reform law, he sought to exclude foreign exchange derivatives from new regulations. Gary Gensler, the Commodity Futures Trading Commission chief and soon-to-be-regulator of derivatives, opposed the move. Congress split the difference by including currencies but also giving Geithner the authority to study the instruments and decide whether to exempt them.

Now a coalition of 20 companies, including Deutsche Bank (DB), Bank of New York Mellon (BK), and UBS (UBS), is pushing Geithner to give currency derivatives a pass from oversight. They argue that foreign exchange is less complex than other derivatives and played no role in the financial crisis, unlike the credit default swaps that brought down American International Group (AIG).

At $42 trillion, currency swaps and forwards—the types of derivatives in question—make up the second-largest over-the-counter derivatives market after interest-rate swaps. “This is the ultimate unregulated market,” says Bill Brown, a professor at Duke University School of Law who once oversaw exchange-traded derivatives at Morgan Stanley (MS). “You’d better believe if you leave the currency markets totally unwatched they will probably be one of the places that blow up next,” says Brown, who thinks both sides have valid arguments.

Read more at: Bloomberg Businessweek

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{Photography by mrMark}

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Investors seeing farmland as safer bet than stocks. Wary of fluctuations on Wall Street, more wealthy Americans, private funds and foreigners are putting money into parcels of cornfields, fruit orchards and other U.S. agricultural products.

Monday, September 20th, 2010

Investors seeing farmland as safer bet than stocks. Wary of fluctuations on Wall Street, more wealthy Americans, private funds and foreigners are putting money into parcels of cornfields, fruit orchards and other U.S. agricultural products.

Reporting from Kern County, Calif. — As investors tire of Wall Street’s roller coaster, more of them are plowing their money into land’s€” farmland.

Few people understand this shift better than farm manager Carl Evers.

On a recent morning, Evers steered his pickup truck through a Central California almond grove, his drawling sales pitch at the ready. Evers is co-founder of Farmland Management Services, which runs about 30,000 acres of nut groves, fruit orchards and wine grape vines for a Boston investment firm. Sunburned and stocky, tugging down his wide-brimmed hat, he talked about how farmland — and the food it produces — is the safer bet these troubled days.

“You want to throw your money into something you can’t touch?” said Evers, 50. “Or do you want to put your money here, into soil and sun, into food that feeds people around the world?”

It’s the fourth time this year Evers has wandered through these trees and given his spiel to pension fund managers, hedge-fund operators and hungry investors on behalf of Hancock Agricultural Investment Group. He’s reeled it off many more times over the phone.

Read more at: Los Angeles Times

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{Photography by Let Ideas Compete}

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Hedge Fund Managers Set Up for Next Acts

Sunday, September 19th, 2010

Hedge Fund Managers Set Up for Next Acts

James J. Pallotta, a legend of the hedge fund industry, is calling a do-over.

After shutting his giant fund following a humbling loss, Mr. Pallotta, the money manager who is an owner of the Boston Celtics, is doing what hedge fund types do in tough times: he is opening a new fund.

There have been plenty of mulligans in the rarefied realm of hedge funds these days. Mr. Pallotta, 52, is one of a number of prominent money managers who are trying to start afresh after the tumult of the financial crisis.

By closing one fund and opening another, managers can, in a stroke, wipe clean their investment records and start collecting fees from new investors.

Who would entrust their money to a hedge fund washout? Plenty of people, it turns out. Before the financial collapse, Mr. Pallotta had a record of handsome returns. His new fund, called Raptor Evolution (his old one was Raptor Global), will in all likelihood have no trouble drumming up investors, analysts said.

Read more at: The New York Times

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{Photography by Matt Trostle}

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Downturn sees ‘boiler room’ share scams make a comeback

Sunday, September 19th, 2010

Downturn sees 'boiler room' share scams make a comeback

“I think they did this completely without feeling for the hurt and the financial ruin that they were causing to people.

“These people are quite young I believe. They’ve got time to rebuild their lives; I don’t. I’m coming up to retirement. I’m 64 years of age.

“They have destroyed my latter years and quite frankly I hope they rot in hell.”

John (not his real name) speaks out angrily after falling victim to a so-called “boiler room” scam.

He was enticed into buying bogus shares after being cold-called by a salesman, and initially invested £10,000.

Little by little he was enticed into buying more fake stocks, and by the time the crooks had finished with him, he had squandered his life savings – around £97,000 – with nothing to show in return.

Now he wants to share his story to prevent others from falling victim to the same kind of con.

Read more at: BBC

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{Photography by Victor Lima}

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Three Numbers That Make Sense of a Bipolar Market

Saturday, September 18th, 2010

Three Numbers That Make Sense of a Bipolar Market

The stock and bond markets are swinging daily between optimism and despair. Given all the whipsawing, you might be tempted to write the whole thing off and stay in cash.

But three easily followed indicators can help you make sense of today’s chaotic, macro-driven trading environment—and maybe even get out in front of the next big move.

Just how volatile have the markets been? The Dow Jones Industrial Average fell 4.3% last month, the worst August in nine years, as fears of deflation and a double-dip recession spread. In September, better economic data and increased merger activity have propelled the Dow to a 5.8% jump, the biggest since at least 1990 for the month if the market holds on to its gain.

Or consider this: If the Standard & Poor’s 500-stock index keeps its 7.5% September gain, it will be the fifth consecutive month with a move of at least 4.5% in either direction, which has happened only three times since the 1930s, according to hedge fund Lakefront Partners: in 1974, 1998 and 2009.

Read more at: The Wall Street Journal

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{Photography by Katrina Tuliao}

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Investors Head for Bunkers, Driving Up ‘Shelter Shares’

Monday, September 6th, 2010

Investors Head for Bunkers, Driving Up 'Shelter Shares'

Amid the market tumult, a handful of stocks have seen their share prices ratchet up to record highs in recent weeks. And many of them are connected by a curious, if disconcerting, thread: Between them, they provide an investor with essentials for any respectable fallout shelter—makers of bottled water, canned goods, dehydrated broth, gas masks and auxiliary generators.

A portfolio of the 18 companies that reached their peaks in the past month would be up about 24% this year, compared with the broader market’s 4.5% decline, a sign some investors may be taking the prospects of financial Armageddon more seriously than one might think.

Hormel Foods Inc., the 120-year-old producer of that dugout staple, Spam, is up 12% this year, and hit an all-time high of $43.95 in recent weeks. The company’s stable of long-life provisions, from instant packets of dehydrated broth to wrapped sausages, are critical for weathering even the most prolonged storm.

Bottled-drink maker Dr Pepper Snapple Group Inc., whose brands include DejaBlue purified drinking water, has soared 32% this year. The company also makes Schweppes ginger ale, great for any gnawing queasiness.

Read more at: The Wall Street Journal

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{Photography by Freezelight}

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Taxpayers may lose out in GM IPO: report

Sunday, September 5th, 2010

Taxpayers may lose out in GM IPO: report

Taxpayers are likely to lose out on the initial public offering of General Motors Co. stock, according to a report published Saturday.

Citing sources familiar with the preparation of the IPO, Reuters said that in part the loss might stem from the fact that initial stock offerings are typically priced at a discount to reward early buyers.   

The report added that the U.S. government may make its money back in future — over a period of perhaps three years — depending on the stock’s market performance.

In a bid to avoid the dissolution of the giant carmaker at the height of the recent economic crisis, the government poured $49.5 billion into the company in exchange for a 61% stake. The government has about $43 billion left in the company.

Reuters cited a source saying the float might take place on Nov. 18. But the report added that it could take years for the government’s final accounting in GM to become clear.

Read more at: Market Watch

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{Photography by Pete Casellini}

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Is a Crash Coming? Ten Reasons to Be Cautious

Sunday, August 15th, 2010

Is a Crash Coming? Ten Reasons to Be Cautious

Could Wall Street be about to crash again?

This week’s bone-rattlers may be making you wonder.

I don’t make predictions. That’s a sucker’s game. And I’m certainly not doing so now.

But way too many people are way too complacent this summer. Here are 10 reasons to watch out.

1. The market is already expensive. Stocks are about 20 times cyclically-adjusted earnings, according to data compiled by Yale University economics professor Robert Shiller. That’s well above average, which, historically, has been about 16. This ratio has been a powerful predictor of long-term returns. Valuation is by far the most important issue for investors. If you’re getting paid well to take risks, they may make sense. But what if you’re not?

2. The Fed is getting nervous. This week it warned that the economy had weakened, and it unveiled its latest weapon in the war against deflation: using the proceeds from the sale of mortgages to buy Treasury bonds. That should drive down long-term interest rates. Great news for mortgage borrowers. But hardly something one wants to hear when the Dow Jones Industrial Average is already north of 10000.

Read more at: The Wall Street Journal

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{Photography by Davide Galli}

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