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The Reformed Broker

A for sale sign hangs in front of a house in Walpole, Mass. last month. Institutional buyers are snapping up homes, taking up their largest share of the housing market in two years (Steven Senn/AP/File)

How investment firms are threatening the housing market

By Guest blogger / 10.25.13

A young client of mine told me he and his wife had been outbid on a handful of houses this past spring, despite the fact that they had literally begun showing up to see homes for sale with a checkbook and engineer in tow. They couldn't figure out who it was buying up all the properties in the upper middle class enclave in which they hunting.

Turns out, it was private investment firm, paying cash. This meant no mortgage contingency, which is music to a seller's ears. In some cases, homes were being bought over the phone, their realtor told them.

Bloomberg tells us that this phenomenon hasn't stopped yet...

"Home purchases by institutional buyers reached a record high in September and all-cash buyers accounted for almost half of sales as investors responded to rising demand from renters.

Institutional purchases accounted for 14 percent of sales, according to a report today from RealtyTrac. That was the highest share since the real estate data firm began in 2011 to track transactions by that group, which it defines as buyers of 10 or more homes a year. All-cash sales rose to 49 percent from 40 percent in August and 30 percent a year earlier, a sign that rising mortgage rates since May have kept some people out of the market and that smaller investors are stepping up purchases."

Ten years ago, we were told to become owners.

Now we're all supposed to be renters. ( Continue… )

A street sign for Wall Street hangs in front of the New York Stock Exchange. Brown suggests the new MSCI index may be a good benchmark for managers of global portfolios. (Lucas Jackson/Reuters/File)

Beta managers, this is your new benchmark

By Guest blogger / 10.23.13

[Editor's note: This post has been removed at the request of the writer.]

Salanda Bowman, left, talks with Jason Ward about job openings at the Owensboro Health Regional Hospital during a Regional Career and Job Fair in the Owensboro Sports Center in Owensboro, Ky. Brown outlines career pitfalls to avoid. (Gary Emord-Netzley/The Messenger-Inquirer/AP/File)

Never make these 10 career mistakes

By Guest blogger / 10.21.13

Never sell a service or product that you cannot deliver. Never sell a service or product that the buyer doesn't absolutely need or love. Be essential or desired, not annoying and unnecessary.

Never work for someone who isn't as smart as you are. Or plan your exit the moment you figure out that you have learned all you can and that you are now the smarter one.

Never work for or with people with a lesser moral code than your own. Be aware of how your colleagues feel about doing the right thing. You should watch how they prioritize it. Once you determine that the moral failings of the people around you are systemic and indefatigable, it's time to get going. If you can fix a bad situation, by all means try. If you can't, reserve judgment and simply say goodbye.

Never work in a career that relies on opacity, obfuscation, rhetorical fallacy or sleight of hand. There are plenty of people who can do this sort of work, fooling their neighbors and customers or tricking them into transactions that aren't what's in their best interests - the key is to not be one of them. Those who engage in this sort of work are either sociopathic or trapped because of financial circumstances or too stupid to have thought the consequences of their career choice all the way through.

Never cut any corners, there is no such thing as a free lunch and everything has a cost, even if you can't see it right in front of you. Riskless reward is a desert mirage.

Never pursue something that you really don't want in the first place just because you think you have to. You don't have to and it won't work out anyway. Successful people become successful because they are doing what they love and have a talent for.

Never keep a bad client just because they're willing to keep paying you. Never allow a mismatched customer relationship to skew the way you do business or take care of your other clients. Never put off firing a customer the moment you realize there is a bad fit and that neither of you will be satisfied in the relationship. Life is too short to do business with unreasonable people or nice folks whom you just cannot make happy.

Never go through the motions. Find a psychologically rewarding way to go about your tasks, remind yourself constantly where the day-to-day drudgery of your job is leading. If it's leading nowhere or toward something you don't truly want, stop immediately. Don't spend a moment being busy for no good reason.

Never taunt others when things are going your way, people like dealing with gracious winners who raise others up with positivity. Never burden others with your problems when things are not going your way, the amount of mileage you'll get out of pity is minimal and people will go out of their way to avoid getting involved with you.

Never watch the clock or calendar. Have reasonable expectations for the timeline of your success. If you enjoy what you're doing and are going to work with purpose each day, then what's the rush? Only people who are doing something they hate are worried about how many dollars they can rip out of the endeavor right away.

Never believe for one moment that your path is already laid out for you or that you can't break away and find your own road toward happiness and success. Remember - Fate is the cards you're dealt, Destiny is how you play them.

Trader Edward Curran, left, and F. Hill Creekmore works on the floor of the New York Stock Exchange Thursday, Oct. 17, 2013. (Richard Drew/AP)

Are we poised for an economic explosion?

By Guest blogger / 10.17.13

Let me set the scene for you:

* There is a Debt Deal in the works that removes the ceiling and related draconian cuts from the discussion til at least February. Out of sight, out of mind.

* There is no election this fall.

* There is no war with Syria and high level talks are happening with Iran for the first time in decades.

* The incoming Fed Chairperson is the most dovish in the institution's 100 year history. There will be no taper talk whatsoever so long as employment data remains muted. At least not this quarter and probably not until the spring barring a huge tsunami of good economic data.

* Stock markets around the world are selling at fair to absurdly cheap valuations.

* The banks are as highly capitalized as they have ever been.

* Home prices are back to long-term trend and appreciation continues despite recent mortgage slowdown -normalization being the operative word.

* US households reclaimed the 2007 peak in total net worth and have now surpassed it.

* Small and mid cap stocks are at all-time highs and yet still under-owned by the largest pools of capital in the US - pensions, endowments and insurance companies.

* Going back 110 years, when the Dow has been up in the first half, it's finished the year strong with gains in the back half 70% of the time.

* Hedge funds are at their highest net short positions since January and have massively trailed every equity benchmark you can think of.

Thats the set-up going into year-end.

What happens from here?  My guess would be that we have all the rocket fuel we need for an explosion.

Your thoughts?

People parade down Tulane Avenue during the Occupy NOLA parade in solidarity with the Occupy Wall Street protests in New Orleans. Brown argues that unprecedented income inequality is preventing the economy from recovering (Matthew Hinton/The Times-Picayune/AP Photo/File)

Is unprecedented inequality the reason our economy can't recover?

By Guest blogger / 10.16.13

Business-minded people hear the word "inequality" and their reproductive organs crawl back up inside their bodies reflexively.

The "I Word" smacks of socialism and it runs counter to everything we learn in free-market capitalism and private enterprise. The way it's supposed to work is that the winners are separated from everyone else because of how smart, hard-working and, yes, occasionally lucky they are.

But what if, after decades and decades of this - along with a rewriting of many rules and the pulling up of ladders after they've been used, the club just becomes too hard to join? What if the opportunity  distribution just becomes so prohibitively lopsided that mere effort and chance aren't going to cut it anymore? And what if The Law of the Jungle can no longer be relied upon to keep the system fair for new entrants?

And more than this, what if rampant inequality is what's really holding back the economic recovery for everyone?  ( Continue… )

Federal Reserve Vice Chair Janet Yellen addresses the 29th National Association for Business Economics Policy Conference in Washington this March. Yellen is expected to win nomination from President Barack Obama to be the next Fed chairman. If approved by the Senate, her appointment would crack one of the highest U.S. glass ceilings and make her the first woman to head the central bank in its 100-year history. (Gray Cameron/Reuters/File)

Janet Yellen: The Dove Queen

By Guest blogger / 10.09.13

Janet Yellen is official according to the New York Times...

WASHINGTON — President Obama will nominate Janet L. Yellen as chairwoman of the Federal Reserve on Wednesday, White House officials said Tuesday night, ending an unusually prolonged and public search to fill one of the most important economic policy-making jobs in the world.

Ms. Yellen, 67, has been the Fed’s vice chairwoman since 2010, when Mr. Obama nominated her to the post and she was easily confirmed on a voice vote by the Senate. She would be the first woman to run the central bank. 

She is also expected to win bipartisan support for her new role in the Democratic-controlled Senate, said Senator Charles E. Schumer of New York. But some Republicans could throw up hurdles. Senator Bob Corker of Tennessee voted against her appointment as vice chairman because of what he called “her dovish views on monetary policy,” and he was already expressing reservations on Tuesday night about her nomination for the top job.  ( Continue… )

Investor Warren Buffett speaks to students at Georgetown University with Bank of America CEO Brian Moynihan (not pictured) at an event co-sponsored by Bank of America and the Global Social Enterprise Initiative (GSEI) at Georgetown's McDonough School of Business in Washington last month. (James Lawler Duggan/Reuters/File)

Why Warren Buffett is richer than George Soros

By Guest blogger / 10.08.13

If you're not familiar with Veryan Allen, he writes these insanely awesome rants about how the passive indexing cult is clueless and real alpha is out there for real managers to capture. I love reading his stuff, even when I disagree with some of it.

He's just tweeted a link to a classic post on his aptly and spartanly titled "Hedge Fund" blog,  in which we learn about how Warren Buffett is essentially the lead hedge fund manager in the universe even though he runs, for all intents and purposes, a no-fee actively managed closed-end fund.

I especially liked this part, where he explains why Warren Buffett has become wealthier than George Soros (not that it matters at that level), despite Soros's better performance...

"Mid-career professionals like Warren and George are thriving while hedge fund managers aged under 80 gain experience. Over 41 years and net of fees George has turned $1,000 into $14 million and Warren to $3 million from his actively managed closed end fund. He charges less fees than "cheap" unskilled index funds and his hedge fund is available to anyone with $80 to invest.

George's track record is better but Warren is richer. Why? The snowball of POSITIVE compounding for longer. Both were born in August 1930 and Warren ran his hedge fund from 1957 but George didn't set up his until 1969. Warren was lucky to be in Omaha while Dzjchdzhe Shorash was in Budapest, more affected by WW2. Also Warren got into currency trading and philanthropy later. George's outperformance is due to stronger international diversification and because reflexivity is ignored."

Head over to read the whole post, it's great food for thought.

The Steamtown National Historic Site in Scranton, Pa. is empty on Tuesday, Oct. 1, 2013 due to the federal government shutdown. Brown argues that a fall in the stock market could be the reality check Washington needs to pursue negotiations on a funding bill and re-open the government. (Butch Comegys-The Scranton Times-Tribune/AP Photo)

The market needs to scare Washington into re-opening government

By Guest blogger / 10.07.13

As I write, the S&P is indicating a down-1% open as the shenanigans from Washington have ceased to be cute. I've written about why the markets have been able to shrug the fiscal fight off so far - owing mainly to a sentiment shift after a near limitless rewards program for dip-buyers.

This morning, there are signs that the equity optimism may have reached its limit. If so, I would say that this is a good thing. Every once in awhile, the business world - manifested as the Dow Jones Industrial Average's closing price - needs to remind Washington who the boss is. A sudden 3-5% correction for stock prices would almost certainly send a message strong enough for even the most intransigent pois to notice. 

The market needs to scare this congress straight, perhaps. It's certainly worked before.  ( Continue… )

The Nasdaq logo is seen on the exterior of the Nasdaq MarketSite in New York. Brown explores the mistakes that lead traders to failure and the decisions that lead others to success. (Brendan McDermid/Reuters/File)

Why most traders fail

By Guest blogger / 10.02.13

You can use the terms trader and investor interchangeably on this one...

What I like best about the Larry Benedict chapter in Jack Schwager's Hedge Fund Market Wizards  book is that it opens with a story about repeated failure. Before becoming the uber-successful founder of Banyan Capital Management, Benedict failed and failed repeatedly but kept at it, using the proper discipline to assure that failed trades wouldn't knock him out of the game and never looking for a shortcut to make up for them. 

Here he discusses why this is so important:  ( Continue… )

A sign is seen on the Canary Wharf offices of JPMorgan in London last week. The bank has been surprisingly unaffected by the litany of lawsuits, investigations, and fines that have come its way over the past four years, Brown says. (Neil Hall/Reuters/File)

Is JPMorgan Chase out of control?

By Guest blogger / 09.25.13

Is the headline risk finally catching up with JPMorgan? The relentless barrage of legal problems hasn't hurt the company's business one whit so far from outward appearances, but might it be affecting the stock price?

Josh Rosner's latest investigative report at Graham Fisher suggests that the nation's most notorious Too Big To Fail bank is an absolute swamp.

Over the four years ending 2012, Rosner notes that JPMorgan has paid more than $8.5 billion in legal settlements, equal to roughly 12% of all company net income generated during that period. And with the investigations and actions continuing to pile up, it seems as though there's no end in sight.

How are they able to do this?

Simple - no high-ranking executives at the company are ever at any personal risk, it's just the company's profits at risk - and those profits have been fattened to such a huge extent, for so long, by the Federal Reserve and Treasury, that it almost doesn't matter. There's probably no amount of money that JPMorgan can be forced to settle for that can stop the company from rolling on. And if a handful of people have to lose their jobs every once in awhile, so what?

This is what happens when you make it clear to the marketplace that a firm is too important systemically for it to ever truly be in danger. The big banks would have to be caught openly funding assassinations in a third world country to actually be at existential risk - and even then they'd probably claw their way out using the near-limitless amount of money and influence at their disposal. Five years after the financial crisis, we now have banks that are even bigger and more unmanageable, despite the rickety latticework of new regulation we've attempted to encircle them with.

I'm not casting judgment on this system, I'm just pragmatically relaying to you the facts and the way things currently work. It is for you to decide if there is a better way or if we should allow the TBTF banking hegemony continue in the interest of the nation's economy.

JPMorgan's CEO Jamie Dimon has made the case that America needs giant, global banks so that we can compete for giant, global deals. He seems to believe very strongly that this is somehow worth the risks that his firm's giant-ness engender. Apparently, there is consensus in Washington for this view, because his bank has only grown larger in the wake of the bailouts.

The stock market looks to be voting on whether or not the bad press matters once again. In the wake of the London Whale fiasco, the markets rewarded JPM shares for the deftness with which the bank put the issue to bed. But now, from a technical standpoint, the headlines appear to be keeping equity buyers away from the name as the recent lower-high put in might represent the right hump of a textbook head-and-shoulders pattern.

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