Former Citigroup (C) star energy trader Andrew Hall and his new partners are going into the hedge fund business.

Hall and Occidental Petroleum (OXY), which bought the lucrative Phibro oil-and-gas trading unit last year, have set up Astenbeck Capital Management. The new firm will manage outside money—it already boasts $1.4 billion in assets under management—while Phibro will manage Occidental’s money exclusively, the Financial Times reports.

After sweeping into power last year, democrats have fallen on hard times. Approval ratings are slipping across the board and several incumbents are vulnerable heading into mid-term elections. The latest blow came from Senator Chris Dodd, the Chairman of the powerful Senate Banking Committee, who announced that he will not be seeking reelection later this year and will retire in December.

Dodd has been a very controversial figure over the past few years thanks in large part to his ties to the financial service industry. Dodd has raised millions from financial professionals and has found himself mired in controversy over two loans he received from Countrywide. He also came under fire for his handling of bonuses from AIG, where Dodd supported a measure that allowed the embattled insurance company to make payouts to its executives. At the start of the year, Dodd found himself far behind in the polls in Connecticut, where according to Real Clear Politics, he was down by double digits in late 2009.

Nobody has ever predicted the future with consistency; yet, that has never stopped investors, speculators or economists from trying.

Perhaps the most common forecasting endeavor for market enthusiasts is the identification of price trends. Simply stated, millions of individuals as well as major institutions make financial decisions based upon where the price of a given security is in relation to a moving average (MA) of prices for that security.

Millions are still out of work and losing their homes while Wall Street celebrates its rebound with bonuses and a return to profitability. It’s frustrating, but it does present ETF opportunities.

On the one hand, unemployment rates remain elevated, companies continue to implement lean measures and overall consumer confidence is down. On the other hand, the largest four investment banks have earned $22.6 billion so far this year, recovering much faster than anyone had envisioned they would.

As the U.S. economy starts to show signs of a recovery, the market for mergers and acquisitions has shown signs of life. There are 2 ETFs you should keep an eye on as this market heats up even more in the coming year.

There have already been 41 announced U.S. deals worth an estimated $47.5 billion in November. Those who stand to benefit from this trend are large Wall Street banks and some boutique financial firms, states Jessica Papini of The Wall Street Journal.

“Words from the Wise” this week comes to you in a shortened format as I am about to leave Cape Town for a visit to the colder environs of Switzerland and Slovenia. Although reduced commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included. Blog posting will be slow (and totally absent on some days) while I am on the road. The normal blogging service will be resumed on my return to Cape Town on November 16.

The Federal Open Market Committee (FOMC) maintained its extraordinarily accommodative monetary policy following its meeting on Wednesday. The communiqué had no surprises and said that the committee expected to keep the fed funds rate target in the 0-0.25% range “for an extended period”. As expected, the European Central Bank (ECB) and the Bank of England (BoE) also kept interest rates unchanged at 1% and 0.5% respectively.

October 21, 2009



SUDDEN AIR POCKET SPOILS THE DAY

Despite continuing skepticism, the market continues to move higher during what many argued was the season of danger. Those following "calendar rules" advised investors to sell in May, to sell in September, and to sell in October. In a couple of weeks we will be out of the danger period. It will be interesting to see if the calendar adherents stick to their method. If they do, we should see fresh buy recommendations from some unlikely sources.

Our indicators are only mildly bullish, but there are specific sectors worth consideration. Emerging market ETF's make up most of the portfolio, but there are also other choices.

When the U.S. financial sector experienced an unprecedented meltdown and set off a global recession, many investor wondered just how far financial stocks would slide. After struggling to find a bottom for nearly two years, many financials ETFs have found their footing since hitting market lows in March, posting solid gains for the year.

But there are a few glaring exceptions.

Looking to invest in the capital markets but wary about putting all of your wealth into a couple individual stocks? ETFs that include broker-dealers and related sectors is one way to get in on the financial sector with reduced risk.

Instead of picking individual stocks, an investor may consider iShares Dow Jones U.S. Broker-Dealers (NYSEArca: IAI) for exposure to brokers, exchanges and other capital-market facilitators, writes John Spence for The Wall Street Journal. IAI’s main competitor is SPDR KBW Capital Markets (NYSEArca: KCE), which also provides a similar exposure to the sector.

One year ago yesterday, Lehman Brothers collapsed and sent the entire financial system and its related ETFs on a downward spiral. Today, the picture looks much different. Are financial ETFs ripe for the picking?

Since the market lows on March 9, financials have rebounded handsomely, up as much as 140% since then. Most of them are perched firmly above their 200-day moving averages, as well.

Just last week, Agilent Technologies (A) agreed to buy Varian (VAR) for $1.5 billion. Also in the technology space, International Business Machines (IBM) agreed to buy Chicago-based predictive analysis software provider SPSS (SPSS) for $1.2 billion.

Better-than-expected earnings from Goldman Sachs (GS) last week helped to bolster SPDR’s KBW Capital Markets ETF (KCE) by 4.13% for the week ending July 20 and encouraged investors to examine financial ETFs once more. KCE held the No. 6 position in our Sector Momentum Tracker ETF ranking on July 20, up from the No. 23 spot on May 19. Both KCE and rival iShares Dow Jones U.S. Broker-Dealers (IAI) have risen in recent weeks, as trading revenue helps to drive profits for broker-dealers.

KCE tracks the KBW Capital Markets Index, a float-adjusted, modified-market, capitalization-weighted index that measures the performance of publicly traded companies in the U.S. capital market industry. KCE’s index includes broker-dealers, asset managers, trust and custody banks, and a stock exchange. Morningstar classifies KCE’s portfolio as 9.46% giant cap, 49.58% large cap, 26.67% medium cap and 14.29% small cap.

Over the past year, the financial sector has been a favorite target of criticisms, frequently accused of outrageous greed that sparked the mortgage meltdown in the U.S., eventually spreading to nearly all corners of the global economy.

Moreover, the volatility of financial companies has skyrocketed, perhaps best evidenced by the fact that Direxion’s 3x leveraged Daily Bull (FAS) and Bear (FAZ) Financial Funds (which are vulnerable to big losses in oscillating markets) are down more than 60% and 80%, respectively, since the start of year. These big swings and substantial losses have caused many investors to stay away from the financial sector altogether.

With information streaming over newswires 24/7, it is easy to get bogged down with noise. We’d thought we cut through the chatter and find the most relevant, big picture articles of the week. Enjoy.

The Good:

• “Goldman Gains on Rivals’ Pain” – Goldman (GS) crushes earning expectations. “Net income in the second quarter was $3.44 billion, or $4.93 a share -- more than Goldman earned in all of 2008, when it was hammered by the financial crisis. Analysts had been expecting strong earnings, but they were surprised by how much the firm exceeded expectations.” (WSJ)

Good to see some positive earnings news for once, but let's not get too ahead of ourselves here. You better make a profit if you borrow for virtually nothing and loan it out of 300/400 basis point margin.

Fair value may be in the eye of the beholder. And when it comes to Morningstar's assessment of intrinsic worth of exchange-traded funds, bloggers have been less than kind.

Nevertheless, Morningstar makes a valid attempt at determining a price at which... above it, you might sell, below it... you might buy. So it is interesting to note that 4 out of 5 of the most "undervalued" ETFs in the Morningstar system are healthcare ETFs.

By Murray Coleman

Anticipating a return in U.S. mortgage markets, State Street Global Advisors launched Thursday an exchange-traded fund focusing on companies involved in that corner of the market.

The latest offering from State Street, the SPDR KBW Mortgage Finance ETF (KME), began trading Thursday. The new ETF is designed to track a Keefe, Bruyette & Woods (KBW) index of the 24 largest mortgage finance companies listed on U.S. exchanges. KME is the first new equity ETF in the SPDR family since last July, when the SPDR international sector ETFs were launched. The five launches earlier this year were all bond ETFs.

Like the rest of the financial services sector, the performance of the underlying index had a rough time this past year. At the end of the first quarter (March 31, 2009), the index was down -9.7% year-to-date and off -62.5% for the past twelve months.

There are over 800 ETFs and ETNs. Of those 183, have 50-day average Dollar trading volume of at least $5 million, and are neither short funds nor leveraged long funds, as of April 15, 2009. We put those 183 funds through a quantitative price performance filter to identify those that may be in a short-term up move.

We used a three-step process of progressively more stringent requirements. The criteria for each step and the number of funds passing through the filter are shown below:

April 13, 2009



The line above from the Eagles' “Tequila Sunrise” seems apt if you hate this market but still must stay systematic. Three Mondays in a row we open lower and close higher than the open, making doing so a profitable exercise.