Wednesday, April 23, 2014

The Haiku of Finance for 04/23/14

Apple splitting stock
Meeting Dow inclusion rule
Prepare index change

Tuesday, April 22, 2014

IRS Pays Premium For Tax Inefficiency

Oh, this is just rich (pun intended.  The IRS paid performance bonuses to underperforming employees.  I am quite familiar with the entitlement mentality of many federal government employees, especially the ones in unions.  These people wouldn't last a day in the private sector yet the government coddles them all the way to their retirement.  The quoted sums from that article work out to less than $1000 per IRS employee, which is a pittance when you consider that performance-based bonuses make up the lion's share of compensation for most financial sector employees.  Any self-respecting financial adviser or floor trader who was offered such a tiny bonus would probably quit in disgust on the spot.

Clueless tax experts should read my past articles on taxation.  I come out swinging in favor of a flat tax on all income, earned or unearned, with no deductions or other exceptions at all.  This is fair and it will stop all sorts of economic leeches from gaming the system.  The federal government typically collects somewhere between 17% and 20% of the nation's GDP as tax revenue, and making it harder over time with a more complex tax code has not raised that figure.  Simplifying things with a flat tax will make it easier for businesses to plan for growth.

Machine learning is on the verge of automating every routine business function.  Uncle Sam is slow to catch on to everything so I give the federal government a couple of decades to figure out how to automate its revenue collection.  Doing it automatically with a much simpler tax code means firing all of the IRS problem children and returning their bonuses to the Treasury.  

Monday, April 21, 2014

Financial Sarcasm Roundup for 04/21/14

This week's sarcasm combines a few seemingly unrelated items in one brute force face-smash.  First, insider trading may get a lot harder to convict if prosecutors must prove foreknowledge of benefits.  The modern surveillance state doesn't cover telepathy.  Second, IMF research shows just how much the Fed's bond buying has boosted bond prices by lowering yields.  The World Bank noticed the relationship almost a year ago in one of their papers, so maybe it takes the IMF longer to do math.  I should be fair to the IMF since they've been busy bailing out Europe and other deadbeat regions.  Finally, there is now documented proof that Silicon Valley's biggest tech firms colluded in hiring practices to hold down tech compensation.  It reminds me of the greed I witnessed in financial institutions.  I feel badly for the nerds who thought they'd be raking in dough working for tech titans.

I threw these three news items together because they all make me think of how elite privilege is becoming entrenched in America.  Preppies can risk more insider trading and the more pedigreed traders at hedge funds will probably get away with it.  The biggest banks get first run at borrowing low to fund their carry trades under the Fed's pumped buying programs.  Even tech firms resist legal challenges to their unfair competitive practices.

This ominous trend in favor of elite privilege is antithetical to free enterprise.  Retail investors can't compete against insiders who routinely access non-public information at little risk.  Small firms can't compete against big banks skimming carry trades or big firms cherry-picking talent.  Challenging this atmosphere in court requires expensive class action lawsuits that extract a pinprick in damages from giant firms.  Those firms continue to earn monopoly rents.  The more likely solution is a massive market crash that flushes many bad actors out of C-suites and into bankruptcy.  That outcome is the only corrective mechanism the free market has left.  

Updating the Alpha-D Portfolio for 04/21/14

This is the regular portfolio update I had planned to make, even though I made an unplanned update last week.  I did not do anything else today with FXA other than what I described last week.  My covered calls on FXC were assigned and the shares were sold away.  I bought them back in a wash sale and renewed the covered calls.  My covered calls on all of my GDX holdings expired unexercised, so I renewed those again.  My covered calls on FXF expired unexercised, and I renewed them.

Nothing else has changed.  I still have a pile of cash and a long put position against FXE.  I am still hedging for the possibility of hyperinflation.  It is a long, lonely wait and I couldn't care less.  There is no penalty for being early when the alternative is to ride a panic wave down with everyone else.  I would rather be long hard assets and stable currencies while other fools chase artificially pumped returns in conventional stocks and bonds.

I need to remind all of you idiots once again that none of this commentary constitutes financial advice.  I disclose my actions as a favor to the general public because you people should admire my genius.  I am not the least bit interested in what other people do with their own money.  

Sunday, April 20, 2014

The Limerick of Finance for 04/20/14

Beating HFT systems is hard
Quant algos can play hidden card
Routing orders so fast
Other trades come in last
Giant block trade cut by a small shard

Saturday, April 19, 2014

The Haiku of Finance for 04/19/14

Wisdom of a fool
Keep making the same mistake
Lose cash every time

Recent Wisdom From Financial Fools

I have learned about as much from watching stupid people do dumb things in finance as I have from formal education and autodidaction.  Fools are better teachers than they will ever realize.

Leveraged funds continue to use high-frequency trading strategies even though large institutions increasingly route their orders to negate the HFT advantage.  All of the computational horsepower devoted to HFT will gradually lose its reason to exist as large block trades in dark pools go elsewhere.  Math wizards earning huge sums in hedge funds will wonder where it all went.  Hedge fund fools are not prepared for the next financial crisis.

Crypto-nerds still love Bitcoin even though its exchanges are collapsing.  The myth of anonymity dies hard but the magical thinking of child-like Bitcoin fans is an impenetrable shield against real-world hardship.  I really think a lot of these people live with their parents or have marginal careers.  There is no other way they could have the free time to jerry-rig video cards that mine Bitcoins.  Digital currency fools are not prepared for the real-world consequences of shady financial dealings.

Retail investors still love actively managed mutual funds.  They ignore the preponderance of evidence for the advantages of low-cost index funds.  The siren song of outperformance dies hard in the minds of people disinclined to think critically.  Investing fools don't mind throwing money away on costly, underperforming financial products.

A handful of prominent San Franciscans still find the phony tales of a Stolen Valor con artist to be enthralling.  Evidence and facts count for less than emotions when naive people commit their prestige to a charlatan's schemes.  Google searches make due diligence easy but some business "leaders" would rather not take the time.  I guess keeping up appearances at the City Club matters more than integrity.  Elite fools will be blindsided by subpoenas even though they had plenty of warning.

I laugh at fools and I avoid making their mistakes.  I love it when humans who have learned nothing make the same mistakes over again.  It is too easy to outperform investors who play weak hands.  

Friday, April 18, 2014

The Haiku of Finance for 04/18/14

Monitor munis
Treasury tracking trouble
Powerless to rule

Thursday, April 17, 2014

The Haiku of Finance for 04/17/14

Obese consumer
Drive fast food franchise profits
Fat America

Wednesday, April 16, 2014

Unexpected Update to Alpha-D Portfolio for 04/16/14

I was surprised to see that my in-the-money covered calls on FXA were exercised this week, prior to their expiration date this month.  They were only slightly in-the-money, so whoever had their brokerage assign them must have been desperate for a tiny gain and unwilling to roll their hedge forward.

I repurchased the exact number of FXA shares that had been sold away, and renewed the covered calls on those shares for another month.  I remain committed to the Australian dollar as a hedge against US hyperinflation and I don't mind the tiny transaction cost of this wash sale.  The cash I've received from FXA's dividends and covered call premiums more than cover these rare costs.  This is just one of those things that happens to investors like me who use options in a hedging strategy.

Tuesday, April 15, 2014

The Haiku of Finance for 04/15/14

Income tax deadline
File on time to get refund
Many forms to send

Monday, April 14, 2014

The Haiku of Finance for 04/14/14

Forecasting guesswork
Try building scenarios
At least one may fit

Financial Sarcasm Roundup for 04/14/14

I am seriously pressed for time this week.  Someday you'll find out why but I don't care to disclose it today.  Suffice it to say that I'm doing something very important in the short term.  I can still make a minimally sarcastic effort.

Japan hints that Europe should follow its example in fighting deflation.  I say Japan is nuts for saying this and Europe is nuts for taking it seriously.  Deflation isn't so bad if it forces indebted businesses into bankruptcy so more efficient businesses can take charge.  The generation that comes of age in a hyperinflationary Japan or Europe will never forgive the modern leaders who destroyed their national currencies.

American shareholders are demanding that their companies acquire for growth.  They do this because they are stupid.  They should instead ask for huge special dividends to get that cash back.  The few hundred corporate CFOs in the country who sit on trillions of dollars of uncommitted cash know how insanely high any NPV would have to be in these pumped markets to justify any acquisitions.

I've read a bunch of brief news items lately about what nouveau riche twentysomethings want from a financial adviser.  It's all really impressionistic and contradictory stuff, but the general sense is that today's young rich enjoy throwing money away and want advisers to praise them for throwing even more away.  The cleverest and most dishonest advisers will step up and take as much as they can in fees while praising these young idiots for their nonexistent brilliance.  I will enjoy watching these preppies and their advisers starve in the gutter.

The most sarcastic thing I can say today is that people in Japan, Europe, and America are all getting a lot dumber about money.  I am living on the wrong planet, or the wrong time period on the right planet.  

Sunday, April 13, 2014

The Limerick of Finance for 04/13/14

Singapore is exposed to the Fed
Higher rates are the one thing to dread
City-state stays a course
No reason for remorse
Staying balanced can keep it ahead

Saturday, April 12, 2014

The Haiku of Finance for 04/12/14

Finding cash online
Connecting every net node
Cyber-everything