pone

Sigma Designs to Acquire CopperGate

Except for two exceptional years in 2007 and 2008, SIGM rarely has a return on equity of more than about 8% average, looking back over the last seven years. Is this really the kind of growth against equity that anyone should get excited about?

CDS Reform: Making Wall Street Safe for Capitalism

On Aug 14 09:57 AM Tom Armistead wrote:
> These are all good points. DTCC has a CNS system that permits manipulators
> to trade fictitious shares for days at a time, another example, while
> the technology is easily developed to individually identify every
> share electronically and limit short sellers to selling specifically
> identified shares that they have actually borrowed.

Tom, do you know of a good resource that explains the patchwork of financial regulatory structures in the US for various financial markets? When I visit the DTCC's web site it is barely comprehensible to me, and some of these sites like FINRA seem to be industry-controlled, whereas others pretend to be pseudo-governmental bodies that are in fact just captured regulators that do whatever the 20 largest banks tell them to do.

CDS Reform: Making Wall Street Safe for Capitalism

On Aug 14 09:57 AM Tom Armistead wrote:
> And so it goes. I just finished getting letters off to my congressmen
> on the CDS, I guess it's time to start writing them on the other
> issues also.

For me the worst situation is the corporate and government bond market. This market is many times the size of the stock market, yet it trades through a loose collection of broker dealers and without an electronic exchange and full transparency. How people can allow a situation where the middleman is taking 3%+ on every trade in a multi-trillion dollar marketplace is incomprehensible.

CDS Reform: Making Wall Street Safe for Capitalism

Maybe we do not have a third world financial system in this country, but I am starting to wonder if we do not have a second world financial system. Consider how antique many of our trading and settlement systems are.

For stocks, do people realize that for 99% of all trades on the US market, the buyer of the stock never takes ownership in his name? The stock is left in the name of the broker (the "street name") and you are trusting the broker's internal systems to correct assign the stock to you. If the broker goes bankrupt, you have potential risk to lose the asset, particularly for amounts in excess of insured coverage. The only way to register a stock in your name is to take physical possession of the stock certificate, then go through a complex and time consuming registration process. Obviously no one has time for that.

Compare our stock market to Australia and other systems where the ownership of the equity is traded electronically, and even if your broker goes belly up you remain the registered owner of the security, and all of the key registration data is transferred instantly when you buy or sell the security.

Look at our bond market, which is a shocking and almost fraudulently anti-competitive market. Do people understand that every time a small investor buys or sells a bond that Wall Street has rigged this system so that you lose three to six percent of your principal on every trade? Go compare the bond quote your broker gives you to the trades recorded on FINRA. It's shocking.

In our bond market there is no single electronic exchange for trading. You cannot efficiently register a limit price for buying or selling as an investor. You cannot transparently examine the trade, and the markups at multiple levels of middlemen. Try to even publish the bond trade data, and you find that Wall Street has managed to "self-regulate" the trade data in such a way that you have to pay them millions of dollars for the data and cannot then publish it for others to examine.

CDS is simply the ultimate excess in corrupt Wall Street attempts to "self-regulate" a financial market in a way that deliberately limits competition, limits price discovery, and maximizes Wall Street fees. But it's hardly unique.

While the attempt to regulate CDS is welcome, it seems to me our inability to bring our stock and bond markets to a First World standard of transparency and competitiveness is a huge stain on our country and its financial market credibility. With so much of our government financial regulatory infrastructure captured by the entities we are regulating, government has become the advocate of the financial middleman and stopped being the advocate for the consumer.

CDS Reform: Making Wall Street Safe for Capitalism

On Aug 12 03:40 PM cds ftw wrote:
> Why are cds worse than puts?
>
> Why is speculation ok, but naked cds's are not?

Put and call buying exaggerate demand and supply for the stock, but this tends to be self-regulating excess because ultimately the value of the stock will reflect the continued financial results of the company, and the stock market is very liquid.

CDS speculation is far more dangerous because the CDS insurance rate is supposed to be an insurer's direct reflection on the chances that a company will go bankrupt. If a short seller buys enormous numbers of CDS contracts and pushes up the rate to some speculative meaningless value, it incorrectly suggests the company is in some immediate peril, which then forces a sell off of both bonds and stocks in the company. Because CDS is NOT a liquid market (it was in fact *designed* to be illiquid in order for Wall Street to gouge huge fees at every step) it is possible to completely distort CDS pricing for an extended period of time, independent of the financial performance of the underlying company.

We shouldn't want an illiquid market to be unregulated when it can be used to incorrectly price the risk of bankruptcy in an entity.


> Why is the possibility that someone *might* manipulate the market
> reason for banning it altogether?

Because they *did* manipulate the market, and it almost collapsed the entire financial industry.

S&P 500: Which Earnings Are Most Relevant to Its Performance?

On Jul 18 04:47 PM untrusting investor wrote:
> Why not use cash flow vs. S&P index and then calulate your regression
> and correlation. Cash flow and S&P index are both objective numbers.
> Corporate profits and NIPA are both subject to bias depending upon
> how the entities choose to "manipulate" the numbers.

operating cash flow? operating cash flow minus maintenance capex? free cash flow?

S&P 500: Which Earnings Are Most Relevant to Its Performance?

Tom, is there any free or commercial web site that maintains a graph of updated weekly of NIPA corporate profits?

Valero vs. Tesoro: Comparing Two Refiners

On Jun 09 07:06 AM Tom Armistead wrote:
> pone, thanks for mentioning HOC. I haven't been following them but
> went to their website and browsed the presentation on the refinery
> they just bought from Sunoco. I liked what I saw and will probably
> take up a starter position.

I should mention that HOC has a bit of a headwind. They had a supply constrained situation in the Phoenix metro area, but a new very large pipeline will be come in there soon, which will hit their margins. Personally I am still hoping for a refiner sector selloff and I would be a buyer of HOC around $10/share.

Then again, this market is getting a bit frantic and nothing seems to want to sell off.

Valero vs. Tesoro: Comparing Two Refiners

Tom, do you have an opinion about a niche refiner like Holly Corp (HOC)? They tend to invest in regional refineries with limited supply in the regional market.

Irrational Stupidity

Thanks for common sense and analysis.

On the CEG shares, wouldn't it make more sense to be in the CEG common and get exposed to further upside if we get a real offer to beat Buffett's offer above $26.50?

On the GGN shares, who are you talking to there? When I called them, they were extremely legalistic and did not want to answer any question concerning the preferred A shares. They said that their board was reviewing the preferred A shares and may do things to prevent the call that your article refers to. It definitely did not leave a great impression.

The Met life situation was caused by a market panic that the financial meltdown was spreading to insurers. If that ever worked its way to completion, I could see it getting very ugly.