Trader’s Narrative

I have no idea why Geithner agreed to this. Maybe he thought he would be able to clean up his image or maybe Rahm Emmanuel took him aside and told him unless he did the interview, an atomic wedgie was coming his way. In any case, the digg community pulled no punches in drafting a list of questions for the current US Treasury Secretary. Alan Murray of the Wall Street Journal tried his best to soften the caustic tone of the interrogation.

The result is disappointing but not surprising. For the most part, Geithner either totally avoids answering the question or he sets up a straw man argument. For example, rather than actually addressing the revolving door between the US government (especially the Treasury Department) and Goldman Sachs (GS) he reiterates how important it is that civil servants be impartial and capable. And when asked about the recent campaign to audit the Federal Reserve, he asserts that we need to keep politics out of monetary policy.

None of these answers are actual answers. He substitutes the real issue with his own fantasies and chooses to addresses questions which are not asked. If anything, he missed his true calling as a shrewd politician. He somehow even manages to completely avoid answering the questions regarding his repeated and flagrant inability to pay his taxes from 2001 to 2004.

You can watch the video (press play on the left hand, bottom corner):

His assertion regarding transparency from the Federal Reserve is the most blatant and outlandish lie in the whole interview. Unfortunately, Alan Murray is not up to the task. If he were, he would have followed this flimsy assertion by pointing out that just one day ago the Fed was taken to court by Bloomberg and a judge ordered them to release information on what they did with $2 trillion of US government money.

Left to their own devices, the Fed was perfectly happy to draw a lead curtain over this matter and prevent any information to be made public about how much money went to who and when. The amount is gargantuan - being enough to provide universal health care coverage for all US citizens. But the public, the media (with the exception of Bloomberg) and the US government have no qualms about a secretive and insular quasi-governmental agency, such as the Fed, making decisions on such amounts with zero hesitation, zero accountability, zero oversight and zero discussion.

As well, his claims that the US government cut good deals on TARP (and is making 16-20% returns) is again, just laughable. According to Elizabeth Warren, the accounting for the TARP funds is extremely complex because valuing the toxic assets is far from clear cut. As well, we can easily compare the deals that were negotiated with the government with those that were negotiated at the around the same time by private institutions such as Berkshire Hathaway (BRK.A) - such a comparison shows that the Treasury Department cut ’sweetheart’ deals with Wall Street firms that they would never have gotten from truly arms length transactions.

While everyone waited for the open of today’s market with bated breath, the word crash was thrown around like confetti. Retail investors crapped their pants (again). Here are a few frontpage stories from digg:

That’s notable because digg occupies itself usually with technology and science news. The stock market and the economy rarely make it to the front page. When they do, it is sensationalist headlines like those above… which makes for great a contrarian indicator.

With so much anticipation, the only prediction that came true was the Fed “surprise” rate cut that had been telegraphed weeks ago. The market certainly did not crash. It quickly recovered after the gap down from overnight trading.

Volatility
The volatility indices finally spiked higher: VIX reached a high of 37.57 and the VXN 40.77 - an almost 5 year high.

I was surprising to find that the number of Nasdaq stocks above their long term (200 day) moving average reached a low not seen since 2002:

This indicator is saying that the market’s internal breadth is as bad as it was in the final days of the bear market. I don’t know what to make of this since we only reached such horrendous levels after a brutal 3 year bear market.

Now, we are nowhere near that kind of market condition. Even so, here we are - as oversold as then.

The rise of Web 2.0 is really the repackaging of old ideas with a few new technologies. One of the hottest trend in ’social networking’ websites are those focused on the stock market & investing.

Those that were around for Web 1.0 will remember the original investment social networking site: Marketocracy. It allowed anyone to create a track record. If you were good enough, you went into the top 100 (the “m100″) and were given extra attention and privileges. Eventually they spun the idea into their own family of mutual funds.

There was also Don Luskin of OpenFund, a mutual fund that was so transparent, you could not only see their real time trades but even watch a real time video feed from their offices and see their trading stations. I kid you not. Unfortunately OpenFund was a victim of the bubble and imploded. But who can ever forget Luskin’s infamous meltdown live on realmoney.com’s Columnist Conversation? Ahh, good times.

Now, each day seems to bring a new site that mashes together myspace and Wall Street. Here is a quick run down of them (if I miss any, let me know):

BullPoo is an unfortunately names site that is actually quite good. It is what you’d expect in a social investing site but it also has a few neat features. Since I already wrote a review of BullPoo, I won’t repeat myself. Except to add that they’ve grown nicely and attracted quite a crowd.

Cake Financial allows you to track your brokerage account as well as those of others. This is no fantasy and it is no game. All data is real. This is similar to Covestor (see below) but with looser requirements and restrictions. Cake currently can handle stocks, ETFs and mutual funds and has plans to add options and bonds. Currently it is free but it will be monetized later by charging for features like sending email notifications of trades from other members or assessing your portfolio based on what the community as a whole or “strong performers” are holding and trading.

Not to be outdone by these young whippersnappers, the Motley Fool community has come up with CAPS. It is their version of a ’social’ investing and stock picking site. And yes, it does have the obligatory Web 2.0 ‘beta’ slapped on the header. Like Zecco (see below) it is easy for establishe community sites to tweak a few things and come up with a social version. CAPS has a lot of Web 2.0 features like rating, tagging, blogs, and digg style vote buttons but its most innovative feature are ‘video pitches’. These are short videos by people who feature a stock and why it is a buy.

Collective2 is not the typical ’social’ investing website. C2 allows people to create verifiable track records and then to sell their services to others. These can be discretionary based or automated systems. In either case C2 even allows you to plug the signals directly to a broker so you don’t have to lift a finger - except to pick a system and monitor it. Some systems are very pricey while others are quite cheap. And others only charge you if there is a profitable month.

Covestor is probably the most exclusive and ambitious social investing website. Their members must have a $10,000 equity account, a “demonstrated investment experience” and be willing to share their trading with others. Unlike other sites where members input their picks, Covestor pulls the data from the members brokerage account. The idea of course, is that once you have an attractive and verified track record, others can piggy-back on your investment decisions. The part that’s missing is compensation. Who would want to expose their brokerage account to such transparency for no return?

FeelingBullish is all about reputation. The more stocks you rate and the longer (time frame) you use, and assuming you are correct, the more reputation points you will earn. They have also done an interesting integration of blogs, forums and ratings. For most sites these features are separate islands but in FeelingBullish if you read an interesting blog post about a stock, you can also find the rest of the mentions of it easily. It appears that FeelingBullish is no longer active (the website doesn’t load).

HedgeStop is less a social networking site than a fantasy stock market game. You are given $50 Million in fantasy money and invest it however you like. Your picks and portfolio are tracked and compared to other members. You can also invite your friends and create an independent conference to compete within your group. HedgeStop seems an informal and fun place to hang out.

InvestorFace is “a free online community designed to find, review and share investment ideas”. On the site there are different categories for sectors and within them individual stock picks. The picks have a digg like ‘vote’ button so you can see which have gotten the most nods. Other than that, the site seems to be pretty much like a regular forum or messageboard.

MarketGuru lets you create and track the performance of your portfolio as well as seeing how others are doing. The object of the site is to identify “market gurus” or experts. The site ranks members according to the risk they took to create their returns. Then you are allowed you to hire these top performers or “gurus” (up to 3 at a time). On the flip side, if you are a “guru”, you stand to make $5 for every paying member that follows you. Which makes MarketGuru somewhat similar to Collective2 (see above)

Mint is a well established presence in the online financial space. Mint allows you to manage your whole finances online, from checking accounts, credit cards and savings. Now they have moved into the social network side of things by allowing their members to track their portfolios: brokerage accounts, IRAs, etc. Here’s a backdoor to get a beta invite. I’m not sure how “social” it will be but Mint has plans to offer full access so you can buy and sell directly from your account and even pay bills. A complete one-stop shop for your budgeting and investing needs.

PredictWallstreet, as the name suggests, is a site where people can make predictions, keep track of them and see the predictions of others. The user interface is similar to the newly introduced marketwatch sentiment buttons. You call up a symbol and either predict it will go up or down. And then you see what others have ‘predicted’. I can’t help but think this will be a very good contrarian indicator. But only if enough people participate.

StokBlogs seems to be nothing more than a forum slapped on blogs. The site also allows you to keep and publicise a portfolio. But other than that, the features and offering is rather bare. Which probably explains that the site doesn’t seem to have many members nor activity.

SocialPicks is a community of investors that share ideas and exchange views. It has a neat feature similar to BullPoo (see above) which tracks a members performance and gives them a ranking. This is useful because it creates an incentive for a user to stick around and get a higher ranking (MMORPG style) and it gives a signal to the other members about the quality of their opinions.

Stockalicious is very simple and straightforward. Create a portfolio by picking stocks, trading them (buying/selling) and sharing it with the world. There are no bells or whistles here. Stockalicious keeps track of your performance, whether ugly or pretty. If you’re looking for a clean, easy to use site with no confusing features or options, this is probably the site for you. But strangely enough, their forum is one dedicated to ‘neural networks’.

StockFriend is another social networking investment site. As with almost all of them it is in public beta. It offers the usual: picking stocks, keeping a portfolio, seeing others’ stock picks, engage in discussions, etc. They even have a stock picking contest (like many other sites). You can be a member on your own or join a group and participate in a ‘team’.

StockPickr was founded by James Altucher and quickly has become one the most popular of such sites. It looks to be an early winner. Just a while ago it was bought out by thestreet.com which gave it even more street cred and traffic. I find the user interface a bit crowded and confusing. A unique feature of the site is different portfolios which try to emulate great investors like Warren Buffet, Carl Icahn, George Soros, etc.

The UpDown, the brainchild of a group of Harvard students, is the newest website to this scene. Unlike other sites you can earn real money by: outperforming the S&P 500 through your picks, getting votes for your high quality analysis and finally, a commission on everyone who you invite to join the site. The site is in closed beta so you either get one of those invites from current members or you wait for notification. The only qualm I have about their plan is that they don’t quite explain where this money comes from or how much you can expect to earn.

VesTopia is similar to Covestor but they have gone a step further and actually seeded their site with experienced money managers they call “investment directors”. This is probably the best feature since it allows you to peek at the thinking process and strategy going on behind the scene. But anyone can apply to be an “investment director”. The thing I can’t understand is what is VesTopia’s business model?

ValuWiki, as the name suggests is a wiki style community dedicated to gathering information on value stocks. The site allows, in wiki style, for anyone to add, edit or change the information they have. As well, members can create their own blogs and research. To date they have information on 75,644 securities. Although this isn’t what many would think of as a ’social networking’ site, it has great content and a very flexible user interface. The next time you want to research a stock drop by and check out what they have on it.

Wikinvest is what is sounds like it might be: a wikipedia like site that specializes on investing. It has a dizzying array of articles and a very strong community base. Similar to ValueWiki, you can research specific well-known companies like Apple or General Electric. Wikinvest has some good articles on economic and financial concepts like interest rates or oil prices. As well they cover sector and industry data. The coolest feature, as far as I’m concerned, is “WikiCharts”: stock charts annotated with important company milestones or news. So if you ever wondered what effect the confirmation of the 3G iPhone by AT&T had on Apple’s stock… wonder no more.

Worthio is so beta, it is just a screen! “Worthio is not intended to compete with the multitude of finance sites around the web. It complements them. We built Worthio with three specific goals in mind:

1. Assist people in screening stocks by providing easy to use filtering and sorting abilities.
2. Give people the ability to rely on each other for overall sentiment about a stock (bullish vs. bearish) vs. being forced to rely only on analysts and talking heads.
3. Build a community around stock screening.”

Worthio is being developed by Inkling who have previously developed prediction markets being used by corporations and other organizations. Worthio was never really developed and is now defunct.

ZeccoShare is very similar to Covestor but as you’d expect, it is for the customers of Zecco, the no commission brokerage. Right now it is in obligatory Web 2.0 beta. Again, I’m not too sure why someone would choose to turn on full transparency for their brokerage account and let the world in on their trades (along with the security risk of having their account compromised). Zecco also has a blogs section which provides information but isn’t a ’social’ site.

I’m not following the 2008 political race in the US that closely but there is a very cool and capitalistic way to keep up to date without doing any amount of hard work.

Did you know that there are marketplaces where capitalism can be used to predict the outcome of political events?

They are similar to futures markets where a contract can be bought or sold (bid/ask) that will pay a fixed return. So for example, if you thought that Barack Obama would win the Democratic nomination, you could buy or bid on his contract. If he did win, then you would be paid the full amount of the contract (usually 100 points).

The two most popular online marketplaces are intrade.com and the Iowa Electronic Markets. If you are in the US, be careful if you want to participate in these marketplaces. Some states have laws against gambling on political events. The Iowa markets though have received special treatment from the CFTC which allows them to pay out real cash (up to $500) to US citizens.

But you don’t have to participate in these markets to gain insight. Because of the way the contracts are setup, they in effect, act as a measure of probability for an event. Or atleast, what the crowd deems to be the probablity of a future event.

So for example, the contract for Hillary Clinton on intrade gives her a 47% chance of winning the Democratic nomination:

Obama is currently in second place with a 31% chance of winning. Iowa markets are showing very similar probabilities with Hillary Clinton having 42.4% and Barack Obama 33.4%

Recently, Mike Gravel has gotten a lot of attention from the online community (digg, reddit, youtube, etc.). But he’s nowhere to be seen on the prediction markets.

On a different note, I’ve continued to add articles, books and other choice trading related resources to my box.net widget. Make sure to check it out and let me know if you have any special requests.

A few weeks ago, I digressed from my usual topic and wrote a public service announcement on a new make money online scheme called Agloco. I was more surprised than anyone, when it made it to the front page of digg and even more so when my host took a licking and kept on ticking.

I thought, I’ll revisit this in a few months when Agloco implodes to have a good I told you so moment and do a Nelson: ‘Ha-Haaaa!’ (point finger).

From the Horse’s Mouth

But it turns out that it won’t take that long. When monitoring my traffic, I noticed many coming from the official Agloco blog. So I went to see what was up and I discovered this message posted by Brian Greenwald (bold is my emphasis):

AGLOCO’s early revenue will not immediately translate into cash distributions to Members. While we do not know how large our initial revenue will be, we do know that AGLOCO has operating costs to pay.[…] As such, the cash payouts will not begin until there is a comfortable balance between AGLOCO’s free cash flow and AGLOCO’s expenses.

I wonder how many of the Agloco pumpers and ‘members’ would go to work at a company that said, Sure, we’ll hire you, but you’ll have to work for months and months… we really can’t say how long… without pay. But we’ll give you a salary just as soon as there is a comfortable balance between our revenues and expenses..

Mmmmm-kay. Riiiiight.

Do the guys behind this crazy scheme really expect people to pollute their screen with the Agloco (still non-existant vaporware) viewbar and not be compensated? … until some, yet unknown, date in the future?

What does “comfortable” mean anyway? And how comfortable would it have to be before a ‘member’ sees a red cent?

And what about all the accounting chicanery that can go on? As much as they like to misrepresent this and say that the ‘members’ own the company Agloco is a private company. And as a private company they are not held to the more stringent standards of disclosure that public companies are.

Not that being a public company ever kept corporations from playing creative games with their books. Ever heard of Enron? WorldCom? Tyco? Global Crossing? Do I need to go on?

Think of the savings! Agloco doesn’t even have to hire $500/hr accountants. They can just present some scrap pieces of paper and say, Umm, sorry guys, not this month. Came close though. Let’s try for next month. Keep surfing (suckers).

Beginning of the End

This is the beginning of the end for Agloco. Before they could’ve succeeded they needed to have a massive base of people using their (still non-existent) viewbar. To begin with the scheme wasn’t all that attractive: a circuitous path through several shifting stages where 5 measly hours a MONTH would be swapped for ‘agloco hours’ (??) and then several other stages to finally reach a pittance of a payment.

But now, who is going to surf, with a viewbar crowding their screen, spewing ads… all for… what? a promise of some kind of payment when Agloco’s non-public accounting is ‘comfortable’? who’s going to expose themselves to the viewbar without knowing when or if they will ever be compensated?

To me and you it might seem obvious that Agloco is done. But human nature being what it is, not everyone will want to acknowledge the obvious. Some will even deny what is in front of their faces and keep on promoting Agloco. But it won’t matter.

As signups don’t convert to downloads and users, it becomes irrelevant when (or if) they ever release this fabled ‘viewbar’ (which, by the way, just missed another release date!) And without a user base, Agloco’s advertisers will pull out since there is no audience.

If you have an Agloco URL, better start trying to sell it now to some sucker who might think it is still worth something. Within a few weeks or months it will be worth nothing.

“Buddy, Have I got an URL for you. It’s brand new, hardly used. Worth its weight in gold. Trust me, would I lie to you?”

John Chow is in Toronto this weekend. Hopefully we’ll get together for lunch with other area bloggers and see if we can hash this out. It would be very cool to meet John within a week of getting together with Darren and the b5 media team. As the dot com mogul, I know John will insist on springing for the check