The Daily Cow

The efficient market hypothesis succumbs to technology. In the time that it takes your request to your favorite finance portal to reach the local Comcast router, the robotic trading computers have already downloaded the trading histories of the entire market, analyzed them for patterns, created a strategy, and executed thousands of orders.

It is impossible for anyone else to compete against them. In less than a blink of an eye (approximately a 30th of a second), the robots have made enough money to make human traders envious. But they are robots and know nothing about the true valuation of the company--all they do is recognize rapid fluctuations in demand and cater to that (if demand is falling, quickly sell short and immediately buy back at a lower price; and if demand is rising, quickly buy long and immediately sell back at a higher price).

That makes me wonder: Since they don't fulfill the purpose of the market, which is to increase liquidity and to efficiently and fairly value assets, should high speed trading be allowed? They are essentially more sophisticated speculators, and as such their only purpose is to drain money from more value-focused investors.

Instead of contributing to the efficiency and accuracy of the market, they distort it. Although I don't think it's possible to decide when automatic trading becomes too parasitic, I believe that it should be regulated and kept under control. We need to be careful not to discourage true investors from participating in the market and destroy the entire spirit of investment.

After costing taxpayers over a hundred billion dollars, AIG is already thinking about bonuses for next year. What the hell?

Warren Buffet asserts: "If I have any serious illness, or something coming up of an important nature, an operation or anything like that, I think the thing to do is just tell -- the Berkshire shareholders about it. I work for them. They’re going to find out about it anyway, so I don’t see a big privacy issue or anything of the sort."

The fact that Steve Jobs' presence and health are materially relevant to the company and thus its shareholders, it is Apple's and Jobs' fiduciary responsibility to keep the public updated on the status of Jobs' health. If he did not want to be subject to such public scrutiny, he has every right to resign and let someone else take over his role. However, because he still remains the CEO of Apple, the shareholders deserve to know everything that may affect the value of their holdings.

It was wrong for Apple to cover the stories up. It's even more wrong for it to encourage others to cover it up--the hospital in which Jobs got the surgery (ironically, although there are patients waiting for more than a year for a liver, he was one to receive the first available liver, which smells of improper use of money, but that's another topic) reported that they did not admit Steve Jobs.

What a lie!

Today, we see another demonstration of the European Commission collecting money for its general funds by preying on American companies. The EU decided to fine Intel 1.5 billion dollars for "abuse of monopoly power." Apparently Intel offered volume discounts to retailers and computer manufacturers (a rebate if you bought a lot from them), and apparently that's illegal. The EC believes bulk discounts hurt consumers, and that is its basis for the fines.

Just in January, they fined Microsoft 2 billion dollars for a similar assertion, except it was for including Internet Explorer and Windows Media Player with their operating system. Neither pay exorbitant executive packages, so their revenues are recycled back into research and development (Intel has pretty nice chips now), given out as discounts, and used to pay their 3% dividend. The 3.5 billion dollar fine is 3.5 that R&D, consumers and investors aren't getting. That's 12 dollars for every American, 110 dollar for every Californian and 300 for every working Californian adult!

It's unfair that the EC can force money transfer from us to them. They are obviously desperate for money to fund their recession programs. We are too, so why don't we fine their IT firms? Oh yeah, they don't have any that are worthy of fining. SAP comes closest, but even it cannot remain independent.

This sucks. I don't like the idea of a foreign commission collecting money that is ours, either in more R&D, consumer discounts, investor rewards, or more employment. Since when was it OK to force successful foreign companies to pay for our general services? Never? Good. So the EC shouldn't do it either.

Goldman Sachs’s CFO said that running the company without government money “would be an easier thing to do,” by which he means "I want my bonuses, dammit!" (Keep in mind Goldman Sachs set a Wall Street record for pay last year)

From the New York Times:

Spurred by anger over A.I.G. bonuses, the House voted 328 to 93 to levy a [retroactive] 90 percent tax on bonuses paid by any company owing more than $5 billion in bailout money.
...

In a statement, President Obama suggested he was supportive of the legislation, urging Congress to deliver a “final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated.”

Since this applies to every company owing more than $5 billion in bailout money, this would effectively eliminate the "keeping top talent" argument, the primary reason why exorbitant bonuses are tolerated, because every other company will be limiting its bonuses.

Why do regions that pretend to be "fiscally conservative" (Say, states like Louisiana, Georgia and Mississippi) send in so much less to Washington than more liberal regions like New York City and San Francisco? Maybe some states are fiscally conservative by necessity--I mean, if your population is a bunch of poor bums it's pretty difficult to raise taxes on them. But they should avoid complaining about the amount of spending that's planned. After all, although poor regions send in the least tax (Think of Mississippi), they're getting the most out of the stimulus.

Stop complaining, hypocrites. Otherwise we'll go by a state-by-state basis.

Legendary investor Warren Buffet's Berkshire Hathaway corporation reported that its entire portfolio value fell 25% last quarter, which is a significant amount. Contrary to his own assertions in the New York Times about how now is the time to buy stocks (a philosophy I believe he follows for his personal portfolio because, let's admit it, he can afford to lose some money), his firm is buying fixed-income securities: Preferred shares and debt at various firms such as Goldman Sachs, General Electric, Tiffany's, Harley-Davidson (etc) each paying his firm 10%, 10%, 10% and 15% a year.

Those are immense return rates from solid American firms (except maybe for Harley-Davidson) that only he can negotiate (the rest of us are lucky to get half of that). The fact that he's going for 10-15% safe return vs. potentially 40-80% (if the economy recovers in a reasonable amount of time) suggests that he thinks the chances of a fast recovery are extremely low.

I don't know what that says to you, but to me, if Buffet believes that recovery will be delayed and slow, I am inclined to believe him. For those of us with lots of money in equities (stocks), it might be time to shift to fixed-income.

Pelosi denies that the stimulus bill is a cry for protectionism, even though it stipulates that everything must be contracted out to domestic suppliers. She asserts that "we want [the people] to be assured that we're looking out for their interest as we look to grow the U.S. economy." She then asserts, "I don't think that's protectionism." How is she looking out for "their interests" by "protecting" them from foreign suppliers? What she described is the definition of protectionism, and we mustn't fall prey to that selfish, ignorance-derived mentality.

International trade protectionism brought the whole world to its knees in the Great Depression of the previous century and triggered the ultra-competitive nationalism (economic self-interest) that pulled millions of the most desperate and destitute behind the most destructive war machines of human history. In a vain effort to protect its domestic industries and workers from international competition, each country enacted exorbitant and punitive trade restrictions that strangled the global economy, making recovery that much more difficult to achieve. It was only with the resumption of favorable trade (albeit done out of desperation) between the Allied nations involving foodstuffs, commodities, and war supplies that the full effects of the Depression began to recede.

I am relieved that the countries of the G7 assured the world that each is committed to open trade, even if just in word. But the "Buy American" provision of the American Stimulus Package is a step in an extremely dangerous direction. I hope Congress amends that provision before the bill is signed.

The stimulus package was meant to be over a trillion dollars, and spent mostly on ready-made infrastructure projects that pay for future growth, but instead it's become a package that's 20% smaller and is half saturated with tax cuts. Right now we need public transportation systems. We need subways, high speed rail, buses. We need investment in green energy. We need the complete nationalization of banks like Bank of America and Citigroup and the resulting elimination of their shareholders.

In short, we need to start anew and invest in it.

We can't have a half-assed program that will only saddle us with more debt; we need a big stimulus package that can be quickly spent on important projects that we've been neglecting: Fixing bridges, building infrastructure, supporting research and development. If we look to Japan, we will see that its lost decade is not what we want to simulate--but unfortunately we're doing just that. The US won't go into a depression like in the 1930s, but it will not resume normal growth for a long time unless prompt action is taken now.

If people don't want to spend, tax cuts won't help much. Instead we need the government to take initiative and put people back on work doing things that should've been done long time ago.