Ten Guidelines from Richard Bernstein on His Final Day at Merrill
Is Richard Bernstein the best strategist on the Street? Not in my book, but we will cut him some slack today - after all it is his last day at Merrill Lynch.
He is distilling his 20 years at Merrill into 10 investment guidelines:
Tomorrow will be my last day at Merrill Lynch. I want to sincerely thank my colleagues and clients for the opportunity to work with them. It is because of them that my 20 years at the firm have been so rewarding.
As a last report, here are what I view as 10 of the most important investment guidelines I’ve learned in my time at the firm:
1. Income is as important as are capital gains. Because most investors ignore income opportunities, income may be more important than are capital gains.
2. Most stock market indicators have never actually been tested. Most don’t work.
3. Most investors’ time horizons are much too short. Statistics indicate that day trading is largely based on luck.
Credit Suisse Unveils New “Fear Barometer”
Are the days of the VIX numbered? No, of course not, but Credit Suisse's top notch equity derivatives team is rolling out a new product tailored to institutional clients that they might find more helpful as a hedging tool. And while it might not capture mindshare with the odd-lotters, chances are the big money crowd will find it as useful product:
The CSFB is an indicator specifically designed to measure investor sentiment, and the number represented by the index prices zero-premium collars that expire in three months, Credit Suisse said in a research note issued on Monday.
The collar is implemented by the selling of a three-month, 10 percent out-of-the-money SPX call option and using the proceeds to buy a three-month out-of-the-money SPX put option...It differs from the Chicago Board Options Exchange Volatility Index .VIX, or VIX, Wall Street's favourite barometer of investor fear, in its use of SPX options and data.
The VIX, calculated from S&P 500 option prices, measures the market's expectation of future volatility over the next 30-day period and often moves inversely to the S&P benchmark. Reuters
While the VIX can whip around the new CS Fear Barometer "taps the persistent fear levels expressed by the segment of investors that have long-term investment horizons."
A better mousetrap? Maybe, for some of you.
Thud: Goldman’s Deal Fizzles Right Out of the Gate
Goldman Sachs got their deal done today, but it did not work out so well for anyone but Goldman. Yes, they priced the deal “in the hole” (down from yesterdays close) but apparently did not find enough strong hands to place the stock. And their secondary offering might just mark a top in this overbought market, which will now have to snake its way through earnings season.
The past few weeks have been notable ones for the history books and for Goldman in particular....and Matthew Goldstein - who has earned my respect over the past few years - is voicing a common refrain:
....if Blankfein really wants to help U.S. taxpayers out, he can go the extra mile and give back some of that AIG money the firm got, too. If the government had allowed AIG to file for bankruptcy, Goldman likely would have incurred an even bigger fourth-quarter loss than it reported. So Blankfein owes a bit of gratitude to Uncle Sam. And as my BusinessWeek colleague Roben Farzad pointed out on CNBC on Mar. 27, Blankfein can thank taxpayers by forking over its AIG largesse.
Now we know Goldman will object that the AIG bailout money is different from TARP. The firm will argue that the dollars that passed through AIG were nothing more than money it was owed on all those credit default swaps it had purchased to insure some of its portfolio of collateralized debt obligations, or CDOs. In Goldman’s world, all the government was doing was allowing AIG to live up to its contractual agreements. But, as we have seen in this financial crisis, some contracts can be broken.
It won’t happen of course. But if you don’t like Goldman you can make your presence felt - just don’t do business with them. It will hit them right where it hurts - in their pocketbook. And for those of you who got burned today taking down a slug, I am sure you salesman will make you whole on the next hot deal. That is how they roll at 85 Broad.
Goldman, Give It All Back
Business Week
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.
FAS 160: The Special Sauce for Investors in Financials
Are you hungry for more info on how Wells Fargo set the table for the other financials? Sleuths all over the Wall Street continue to scratch their heads over Wells Fargo surprise pre-announcement, including the gumshoes at the Housing Wire, in a follow up to their earlier piece.
It appears, however, that as much as nearly one-third of the bank’s first quarter earnings may be nothing more than the result of an accounting treatment; without such a move, tangible common equity would be 10 bps less than the 3.1 percent the Street expects.
The jump in earnings pertain to FAS 160, an accounting rule first announced in 2007 that became effective on January 1, 2009. The rule addresses accounting for minority interests, and mandates that the ownership interests in subsidiaries held by parties other than the parent corporation be clearly identified and presented as equity for the purpose of consolidated reports. Until now, minority interests in the U.S. have been reported either as a liability or as a mezzanine line item between liability and equity.
The effect of the new accounting rule allows certain liabilities to ‘jump over’ to the asset book as non-cash transactions via paid-in capital, thereby rolling directly into earnings and boosting reported equity. In the case of Wells Fargo, the bank found itself with up to $824m it could use this quarter as an accounting gain to earnings. Housing Wire
