Worth a read

Buy When There's Blood in the Streets?
The old market adage , attributed to Baron Rothschild, Bernard Baruch and John D. Rockefeller, is that you should "buy when there's blood in the streets." But as a torrent of money has flowed into emerging markets , countries with a history of political turmoil like Brazil and Chile -- once considered exotic by Western investors -- have become mainstream. Even China now seems ordinary, with its nearly two dozen ETFs now trading.
For a true contrarian play, consider the frontier country where, just this week, two demonstrators set themselves on fire to protest an authoritative and corrupt government (one protester later died). Egypt, like other pockets of the Arab world, has been rocked by violence. In nearby Tunisia, more than 100 protesters were killed in an uprising that toppled the government earlier this week. (See video .)
TOTAL RETURN IN 2010 LOCAL CURRENCY
Kuwait    33.00%
Qatar    29.94%
Morocco    26.98%
Tunisia    19.97%
Egypt    14.39%
Saudi Arabia    11.32%
Source: Bloomberg
On Wednesday Moody's cut Tunisia's bond ratings closer to junk status and the country's stock exchange, after falling 15% in a week, has now been closed for four straight days.
Up until fairly recently, Middle Eastern and North African markets had actually been strong performers. In 2010, select local currency returns ranged from 8.09% in Oman to 33% in Kuwait.
So, given all the violence and uncertainty, the stock investor looking for greater risk and return might ask himself just one question: " Do I feel lucky "? (well, do you, punk? )
Unlike South America or even China, the Middle East is still relatively inaccessible. Only a small handful of products like Market Vectors Gulf States ( MES: 24.23, +0.31, +1.29% ) , PowerShares MENA Frontier Countries ( PMNA: 13.82*, -0.08, -0.57% ) and WisdomTree Middle East Dividend Fund ( GULF: 17.38, +0.11, +0.63% ) directly track the region

http://www.smartmoney.com/investing/stocks/should-you-buy-when-theres-blood-in-the-streets-1295553047922/

How Euro-Zone Strugglers Can Say 'Buy' to Debt
The debate about boosting the effectiveness of the euro zone's main government bailout fund now appears likely to extend well into March. Germany, the fund's paymaster-in-chief, seems willing to consider new ideas for the fund, but at a price—tougher reforms from beneficiary governments aimed at improving the long-term health of their struggling economies.

The idea that gathered most attention this week has been the suggestion that the fund, the European Financial Stability Facility, could lend money to troubled governments to help them buy back their own bonds.

Because of worries about possible future defaults or restructurings, most bonds of Greece, Ireland and Portugal are trading at deep discounts to their face value. The idea would be to harvest those discounts for the benefit of the governments, which would extinguish the bonds and thereby lower their debt and interest payment burdens.

This proposal has gained ground over a related idea that the EFSF should buy the bonds itself. In an interview with Dow Jones Newswires that appears also to reflect the views of Germany, Dutch Finance Minister Jan Kees de Jager said this week that the direct buybacks appear to be in violation of EU treaties. "So I don't see it as a viable option."

Better, say some European officials, for governments to take over the responsibility for buying back their own bonds, than having the fund become the owner.

Such debt buybacks have a pedigree. In Latin America during the late 1980s, attention was focused on the ways government debts could be lowered by formal debt swap mechanisms, such as debt-for-equity swaps. But before many of these formal programs got into full swing, countries such as Brazil and Mexico were making informal purchases of debt at deep discounts to face value.

These purchases were carried out quietly in the secondary market. This meant there was no sharp rise in debt market prices that would have reduced discounts and lowered the benefits to the debtor country. There were willing sellers because the holders of these debts—the banks extending the loans in the first place—had already written them down. They set aside reserves for likely losses that were bigger than discounts implied by market prices. When they sold, the difference flowed back into profits.

In Europe now, many holders of European government bonds are euro-zone banks, whose financial weakness may discourage them from writing down the value of bonds they hold. Their inclination is to hold them to maturity and hope there is no default.

But the European Central Bank, which as of last week held €76 billion ($102 billion) of government bonds issued by Greece, Ireland and Portugal, has no such constraint. If Greece, for example, bought bonds from the ECB, it could do it without affecting market prices.

Cutting debt could be an important factor in reviving growth. Latin America's 1980s travails led to "debt overhang" theories. If a country's debts were so high as to raise questions about future repayments, that would act as a constraint on investment, and therefore growth.

Investors shy away from high-debt countries for fear that foreign creditors are going to absorb too much of a country's future income—or that their investments would be at risk in a future default. Debt overhangs also mean that debt holders could increase the value of their debt by accepting debt writedowns. That's because the debt burden would fall, investment and growth would rise and a country's ability to pay would therefore be enhanced.

How much could debt buybacks help, say, Greece? The ECB doesn't break down its bond holdings, and we don't know their maturity profile either, but though it's guesswork, it may be instructive.

Market yields of 10-year Greek bonds Thursday were about 11.5%, too high for Greece to borrow. But that high interest rate translates into discounts to the bonds' face value, of about a third. If the ECB holds, say €50 billion face value of Greek bonds and Athens buys them, it would cut about €15 billion from government debt.

Such reductions are not to be sneezed at. But given Greece's government debt burden now stands at €325 billion, they do not appear on their own to be a solution to a debt burden that stands at 140% of GDP and is still growing. Greece could vacuum up more bonds in the secondary market—but even in the unlikely event that it could buy back its entire debt at a 30% discount, its debt would still be equivalent to 100% of annual economic output.
http://online.wsj.com/article/SB10001424052748704881304576094100678533870.html?mod=WSJ_article_related
..

Stow, thanks for posting. Interesting stuff.

One thing I often wonder when I read these stories, is the motives of the author. I'd say a significant number of stories are effectively ramping. For instance, the 1st story is written by someone who works for a hedge fund. Now are these his views, or is he trying to encourage trade in his firms' direction? i.e Are they heavily short?

Stow, your point is well taken. One needs to be aware that the writer may be just "talking his book". Always good though to consider all points of view and then reach your own conclusions.

There's some much going on right now, it's hard to stay on top of everything at times.

Best of luck.

talk about a transfer union... basically europe will have to lend 250 bion euros to greece at 5% so that they can use this money to buy back their 325 bion of debt stock priced at 11%...
what if portugal want to do the same, then ireland... unfeasible. governments will leave this accounting tricks to banks.

Merrill Settlement Likely to Stoke Trading Suspicions
On the fifth floor of Merrill Lynch & Co.'s headquarters at the World Financial Center in lower Manhattan, a small team of traders who bought and sold securities with the firm's own money for two years were close enough to see the computer screens of traders taking orders from clients and overhear their phone calls.
The Securities and Exchange Commission said Tuesday that the proprietary-trading desk, which traded electronic messages with its nearby counterparts, was illegally spoon-fed information about what Merrill's clients were doing, and then copied an unspecified number of trades between 2003 and 2005. Merrill also encouraged market-making traders to generate and share "trading ideas" with the proprietary-trading desk, according to the SEC.

Merrill, acquired by Bank of America Corp. in 2009, agreed to pay $10 million to settle the accusations, which also included charging institutional investors undisclosed trading fees. Merrill neither admitted nor denied wrongdoing.
Such enforcement cases are rare, and the Merrill settlement is likely to fuel longstanding suspicions among many investors that Wall Street firms tap the continuous flow of orders from customers for their own benefit. Securities firms are lobbying U.S. regulators over the wording of the "Volcker rule," part of last year's Dodd-Frank financial law that is expected to force banks to wind down or sell their proprietary-trading desks.

In a statement, Bank of America said the "matter involved issues from 2002 to 2007 at Merrill Lynch." The proprietary-trading desk, which had one to three employees and authority to trade more than $1 billion of Merrill's capital, was shut down in 2005 "for business reasons" after the SEC began investigating, according to people familiar with the situation.

The employees involved in the trading no longer work at Bank of America, these people said.
Bank of America said Merrill has "adopted a number of policy changes to ensure separation of proprietary and other trading and to address the SEC's concerns."

Merrill Lynch also voluntarily implemented enhanced training and supervision to improve the principal-trading processes at the securities firm.

The SEC accused Merrill of numerous regulatory breakdowns, ranging from supervision failures to cheating customers.

"One of our goals in a case like this is to make sure that the problems we find are fixed going forward," said Scott Friestad, an associate director in the SEC's enforcement division. The Merrill case is "one of the few times that the [SEC] has ever charged a large Wall Street firm with misconduct involving the activities of a proprietary-trading desk."

The traders involved in the matter weren't identified in documents released by the SEC. People familiar with the situation said the proprietary traders, who worked on what Merrill called its Equity Strategy Desk, were led by Robert H. May. Mr. May was among four traders from Bank of America hired last week by boutique-trading firm First New York Securities Inc.

Mr. May couldn't be reached to comment. Neil Bloomgarden, who reported to Mr. May, now works at Morgan Stanley. He and the firm declined to comment.

Bank of America hasn't announced plans to shut down or sell its remaining proprietary-trading desk.
As a result of the investigation, though, the company has physically separated such traders from the rest of the trading floor. Merrill also separates client orders from other trades to eliminate any mingling with positions taken by market makers who buy and sell on behalf of clients.

The SEC cited four examples in which Merrill traders on the proprietary-trading desk bought or sold shares within minutes of a similar order for a customer, according to the agency. Customers of Merrill were assured by the firm that information about their orders would be kept confidential, and the company's code of ethics requires employees to "not discuss the business affairs of any client with any other person, except on a strict need-to-know-basis," the SEC said Tuesday. The number of trades detailed by the SEC was small.

In September 2003, an unidentified institutional client placed an order to sell about 40,000 shares of Teva Pharmaceutical Industries Ltd., according to the SEC filing. Three minutes later, a market-making trader "sent an instant message to an ESD trader informing him about the trade," the filing said. The proprietary trader then sold 10,000 shares in the company for Merrill's own account.

"[i] always like to do what the smart guys are doing," one Merrill proprietary trader wrote in an electronic message, according to the SEC filing.

The SEC said the misuse of customer-order information occurred in "these and other instances." The exact number wasn't disclosed.

The alleged abuses are different from front-running, in which trades are placed ahead of those from customers. But placing orders only minutes after clients could have helped Merrill access stock prices that didn't fully reflect the market's reaction to buy-and-sell orders from institutional investors.

The company had agreed to charge customers commissions only for certain deals, but Merrill sometimes charged undisclosed markups and markdowns by filling orders at worse prices than it had paid to execute them, according to the SEC. These fees were charged by Merrill to some of its wealthiest clients between 2002 and 2007, according to the SEC.

Merrill's decision to invest billions of dollars of its own money in mortgage-backed bonds contributed to its near collapse in 2008. Bank of America acquired Merrill for $19 billion in January 2009.
http://online.wsj.com/article/SB10001424052748704013604576104090997516476.html?mod=ITP_moneyandinvesting_0

The Fed's Magic Show Appears to Be Over

The Federal Reserve is at the end of its rope.
On Wednesday, the central bank probably will wrap up its latest meeting with a decision to do…nothing. Fed officials may update their postmeeting statement from last time to acknowledge the U.S. economy's recent improvement and even may nod at rising inflation expectations. But they aren't likely to call off their $600 billion government-bond-buying campaign.

Nor are they expected to introduce any new measures, much to the relief of inflation hawks. But despite stock market bullishness, this is hardly a "mission accomplished" moment for the U.S. economy.

For all the Fed has done, it hasn't managed to spur job creation. U.S. output may be returning to prerecession levels, but the total number of nonfarm workers still is more than seven million shy of its December 2007 peak, and in fact is back at 1999 levels.

More broadly, the Fed's failure reflects a longstanding flaw in its approach. For years, it has been pushing interest rates lower, doing so after each successive downturn as inflation became less and less of a concern. But that wasn't simply due to successful monetary policy. Technological innovation, the globalization of the work force and demographic change had plenty to do with it, too.


Instead of being a cure-all, the Fed's policies spawned two great asset bubbles, first in stocks, then in real estate. Economic rebounds and job creation lagged behind, despite the Fed's Herculean efforts.

That is especially true today. Some say the Fed ought to double down, that policy makers actually have been too gun-shy. Yet the limits of monetary policy are becoming clearer. History suggests any further easing probably would do too much for the stock market and asset prices, and too little for jobs.

The only real fix is to lower the cost of U.S. workers relative to foreign rivals and machines, or else raise their bang for the buck. The latter, while clearly preferable, requires education and training that won't turn things around overnight. The Fed, meanwhile, has tried its hardest to generate separate, asset-based sources of income and spending. But that has bred backlash and complacency. The Fed, in other words, is out of silver bullets.
http://online.wsj.com/article/SB10001424052748704013604576104524239070288.html?mod=ITP_moneyandinvesting_0

Empty Promises: 5 Reasons Why Barack Obama’s State Of The Union Address Was Completely Wrong About The Economy

Barack Obama's State of the Union address sure sounded good, didn't it?  There were lots of solemn promises, lots of stuff about America's "bright future" and a line about how we are now facing this generation's "Sputnik moment" that will surely make headlines all over the globe.  But we all knew that Barack Obama could give a good speech.  That has never been the issue.  What the American people really need are some very real answers to some very real problems.  So were there any real answers in Barack Obama's State of the Union address?  Well, Barack Obama promised that America will "out-innovate, out-educate and out-build" the rest of the world.  He also pledged that America will become "the best place in the world to do business" and that the government must "take responsibility" for our deficit spending.  But does all of this rhetoric mean anything or is all this just another batch of empty promises to add to the long list of empty promises that Barack Obama has already made and broken?

The American people certainly don't need any more empty promises.  Millions of American families have been pushed to the edge of desperation by this economy.

There has been a lot of talk that the economy is "turning around", but in many areas of the country the employment situation continues to get even worse.  Payrolls decreased in 35 U.S. states during the month of December.

The truth is that the number of "good jobs" produced by the U.S. economy continues to shrink.  In fact, only 47 percent of working-age Americans have a full-time job at this point.

The American people are not going to buy this "economic recovery" as long as unemployment remains at epidemic levels in so many areas.  Just consider some of the stunningly high unemployment rates in some of our most important states....

Nevada - 14.5%
California - 12.5%
Florida - 12.0%

So did Barack Obama propose anything substantial that will actually create real jobs?

No.

Instead, all he had to offer was just a bunch of empty promises.  It is almost as if Obama believes that a really good inspirational speech will somehow make things better.  The following are just a few of the empty promises Obama made during his address to the nation....

Empty Promise #1: America Will "Out-Innovate" The Rest Of The World And This Will Create More Jobs
During the State of the Union address, Barack Obama promised that the United States will "out-innovate" the rest of the world and that this will create more jobs.
Oh really?
Perhaps we could create some more cutting edge products like the Apple iPhone, right?
After all, Apple iPhones were one of the most wildly successful American technological innovations of the past decade.  Surely this is the kind of innovation that Obama would like to see more of.
Well, do you know where Apple iPhones are made?
Apple iPhones are manufactured in China by workers making about 293 dollars a month (and that was after a big raise).
But it isn't just the Apple iPhone that is made overseas.  The truth is that almost all high technology products are made outside of the United States.
In 2008, 1.2 billion cellphones were sold worldwide.  So how many of them were manufactured inside the United States?  Zero.
Ouch.
Not only that, another fact to note is that manufacturing employment in the U.S. computer industry was actually lower in 2010 than it was in 1975.
So exactly how is more "innovation" going to produce millions of U.S. jobs if all of the high tech manufacturing continues to be shipped out of the United States?
Empty Promise #2: America Will "Out-Educate" The Rest Of The World And This Will Create More Jobs
For decades, U.S. presidents have promised that "education" is the key to competing with the rest of the world.
Okay, if suddenly every single person in the United States had an extra college degree, would that mean that more jobs would suddenly start popping into existence?
Of course not.
Right now, we can't produce enough nearly enough jobs for all of the college graduates that we already have.
Sadly, the truth is that we are already experiencing an epidemic of unemployment among our college graduates.  According to the Project on Student Debt, unemployment for new college graduates stood at 8.7 percentin 2009, which was way up from 5.8 percent in 2008.
But that is not the whole story.
Millions of college graduates that have been able to find jobs have ended up taking jobs that they didn't even need a college education for.  The "underemployment rate" among college graduates is absolutely exploding.
In 1992, there were just 5.1 million "underemployed" college graduates in the United States, but by 2008 there were 17 million "underemployed" college graduates in the United States.
Many of our brightest young minds are now flipping burgers, waiting tables and welcoming people to Wal-Mart.
In fact, in the United States today 317,000 waiters and waitresses have college degrees.
Oh, but certainly the answer is to get more Americans to go to college, right?
It certainly sounds good in a speech for a politician to say that "more education" is the answer, but in the end all it amounts to is a hollow promise.
Getting more Americans to go to college will not create any more jobs, but it will create more debt.  Americans now owe more than $884 billion on student loans, which is more than the total amount that Americans owe on their credit cards.

Empty Promise #3: America Will "Out-Build" The Rest Of The World And This Will Create More Jobs
So Barack Obama says that we are going to "out-build" the rest of the world?
Well, that certainly sounds good.
But what exactly does that mean?
Does it mean that we are going to quit shutting down our factories and tearing down our economic infrastructure?
After all, over 42,000 U.S. factories have closed down for good since 2001.
So is Obama going to do something to stop the flood of jobs and factories that are leaving the United States?
No, in fact he intends to "increase" trade with countries such as China and India.  That is going to mean that thousands more factories and millions more jobs are going to be "outsourced".
Well, what about building up infrastructure such as roads, bridges, power grids, dams and ports?
That is certainly a very good idea.
According to the American Society of Civil Engineers, we need to spend approximately $2.2 trillion on infrastructure repairs and upgrades just to bring our existing infrastructure up to "good condition".
So we desperately need some investment in that area.
But there is a big problem.
We are flat broke.
As will be discussed below, the U.S. government is flat broke.  Not only that, our state governments are flat broke and our local governments are flat broke.
So where will the trillions of dollars that we need for infrastructure come from?
Obama did not even come close to answering that question.
Empty Promise #4: America Will Become "The Best Place In The World To Do Business" And This Will Create More Jobs
It was incredible that Barack Obama could suggest that America is "the best place in the world to do business" with a straight face.
First of all, when you consider all forms of taxation, U.S. businesses face one of the most oppressive taxation regimes in the entire world.
But not only that, U.S. businesses also have to deal with one of the most horrific regulatory environments in the history of mankind.
As I have written about previously, the mountains of red tape that U.S. businesses have to wade through just continues to grow every single year.
The Federal Register is the main source of regulations for U.S. government agencies.  In 1936, the number of pages in the Federal Register was about 2,600.  Today, the Federal Register is over 80,000 pages long.
So is Barack Obama going to do anything about that?
Of course not.
In fact, Barack Obama and the Democrats have been really busy passing even more ridiculous regulations.
For example, the U.S. Food and Drug Administration is projecting that the food service industry will have to spend an additional 14 million hoursevery single year just to comply with new federal regulations that mandate that all vending machine operators and chain restaurants must label all products that they sell with a calorie count in a location visible to the consumer.

Empty Promise #5: Barack Obama Pledges To "Take Responsibility" For Our Deficit Spending
During Barack Obama's first two years in office, the U.S. government added more to the U.S. national debt than the first 100 U.S. Congresses combined.
In fact, since Barack Obama took office, the U.S. government has gotten us into so much new debt that it breaks down to $10,429.64 for each of the 308,745,538 people counted by the 2010 U.S. census.
So is that "taking responsibility" for our deficit spending?
When Barack Obama took office, the U.S. national debt was 10.6 trillion dollars.
Today it is over 14 trillion dollars.
Government debt is absolutely out of control.  At this point, the U.S. national debt is increasing by roughly 4 billion dollars every single day.
If all of this debt is not brought under control, it will bring down the entire U.S. financial system.  According to a recent U.S. Treasury report to Congress, the U.S. national debt will reach 19.6 trillion dollars in 2015.
Can you imagine being 20 trillion dollars in debt?
That is 20,000,000,000,000 dollars.
So it would be really great if Barack Obama could do something about all of this debt, but based on his track record perhaps we should not be holding our breath.
Not that Obama is to blame for all of this.
The sad reality is that both parties have been involved in a massive debt orgy for decades and decades.  Now the day of reckoning is almost here and it is going to be incredibly painful.
We are in so much trouble that it is hard to even try to put it into words.  None of our politicians are telling us the whole truth.  We are headed for a complete and total disaster.
http://www.zerohedge.com/article/empty-promises-5-reasons-why-barack-obama%E2%80%99s-state-union-address-was-completely-wrong-about-e?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+zerohedge/feed+(zero+hedge+-+on+a+long+enough+timeline,+the+survival+rate+for+everyone+drops+to+zero)&utm_content=Google+Reader

please tell me the great minds here have some sort of answer to that and stop me jumping out the window.

If everything is going down the p1ss whole at some point as much of this seems to suggest, what should we do? Our currency could be worthless and you can't eat gold. Perhaps we should all be buying a farm and growing & breeding all of our own food. We should be erecting fences and arming ourselves to defend our turf/food supply. [:p]

Stow_judge

One thing I often wonder when I read these stories, is the motives of the author. I'd say a significant number of stories are effectively ramping. For instance, the 1st story is written by someone who works for a hedge fund. Now are these his views, or is he trying to encourage trade in his firms' direction? i.e Are they heavily short?

You got it in a nutshell here stow.Except you drew the wrong conclusion.If its  a hedge fund ramping- they are more likely LONG.
  You've got  to learn how to interpret the propaganda, and it is propaganda.THEIR objective is to take YOUR money- do you really think if the market were going down they would tell you its going down? Think about it.
  Do you notice the abundance of articles in 2010, tv stories etc about how bad things are? What happened to markets up up up.Every time some talking head gets on telly they arre telling you the markets are overvalued, that inflation is coming, that printing money can't work blah blah blah.Its all designed for the unsophisticated to swallow as gospel.

  I was watching today someone at the davos confrence, saying that the "euro continued to fall and is in peril"?????  Seems he didnt  notice the rise this year from 1.29 to 1.37?????

   I mean our revered melly- the boutique fund manager who splits his time between new york and london- has swallowed it hook line and sinker.

  Its a con.Read those articles you posted, where does it say something is good?

Im telling you stow- markets are going up, there is no inflation that will have an impact, printing money is not an issue and gold will continue to fall.

  If you want to lose money bet on calamity, if you want to make money- bet on recovery.

   Good luck and well done on taking the time to post  those articles.

I don't understand that. If they are short, they would want to convince everyone that the end is nigh and to sell everything, wouldn't they?
(So the market goes down the swanny & they collect on their shorts)

ps I'll try to find some positive stories

Stow, ask him if he figured out how money gets created yet?

I'm struggling to find positive stories. This must be a buy sign!
I link this one. Stella Creasy is firmly behind the bid to save Walthamstow Greyhound stadium.
Is Stella Creasy MP the Next Labour Prime Minister?
John Rentoul thinks that she might be. Which must rule the above enquiry out of inclusion in his Questions To Which The Answer Is No Series. The MP for Walthamstow, brimful of confidence, asked a question of David Cameron today which she prefaced by saying that he had said something last week with which she agreed. He responded very respectfully and referred to a “blossoming friendship”.

With Cameron an admirer of Tony Blair, Blairites such as John Rentoul would love the next Labour leader and PM to be an admirer of David Cameron. Somehow it would help keep the whole Blair show on the road.

Does Stella Creasy have what it takes to lead her party and then her country? Don’t know yet.

But look at her CV and it is clear that she starts with a major disadvantage if she does ever want to be PM. She didn’t go to public school, which after an interregnum—Wilson, Heath, Thatcher, Major, Brown—seems to be a standard requirement once again. Instead Creasy attended a grammar school in Colchester.

Another issue. She was born as recently as 1977. I’m struggling to get my head round the idea of a Prime Minister who arrived in the world in the year the Sex Pistols released “God Save the Queen”.

http://blogs.wsj.com/iainmartin/2011/01/26/is-stella-creasy-mp-the-next-labour-prime-minister/?mod=rss_WSJBlog&mod=iainmartin

Life Partners Will Change Sales Pitch
A company that arranges for individual investors to buy pieces of strangers' life-insurance policies is altering the way it sells to those investors, amid growing scrutiny of the firm's practices.

Life Partners Holdings Inc. of Waco, Texas, arranges for investors to pay premiums, then collect when the insured person dies. [:o] It says it has sold about $2.8 billion worth of policies to 27,000 clients.

In an announcement emailed to its outside sales agents that was reviewed by The Wall Street Journal, Life Partners said the new approach would target annual returns for its clients of 7% over seven years, instead of the targeted 12% to 14% annual returns over shorter periods, typically four to six years, it had promoted as recently as last year.
In the announcement, the company told the agents it had conducted a review "in light of the issues raised by the Wall Street Journal," which published a Page One article in December focusing on Life Partners. The article reported that many of the insured people are living well beyond the estimates provided by Life Partners, requiring the investors to pony up more money for annual premiums and cutting their eventual returns.

The company confirmed earlier this month that it is the subject of an investigation by the Securities and Exchange Commission and said it is "cooperating fully" with the agency. The full scope of that investigation isn't clear.

In a written statement, a lawyer for Life Partners, Ida Draim, said the target rate of a 7% compounded annual return over seven years was "derived through feedback from our clients" about the level of return they generally seek for life-settlement investments.

Life Partners said in the email to agents it would alter the way in which premiums are paid to insurance companies. It will begin to pay insurers the least possible amount each year to keep policies in force, rather than the annual amount recommended by insurers. The switch means that the upfront payments that investors make to purchase policies and cover premiums would be stretched further than under current practice, to seven years, the company said. In general, life insurers don't like being paid the minimum in premiums because it makes it tougher for them to turn a profit.

That change is aimed at alleviating investor concerns about repeated annual premium calls after an insured person has outlived the initial life expectancy, Ms. Draim said. Clients "would rather escrow a larger amount of premiums upfront than receive premium calls" years after making a purchase, she said.

Life Partners also said it would help to expand a secondary market for its fractional policies, aiming to ease concerns that the investments are difficult to resell.

The Life Partners attorney said executives "do not anticipate making any change" to the way the company estimates life expectancies. That issue is a critical part of the investment equation and one focus of the SEC investigation, according to people contacted by the agency.

As previously reported, the life expectancies are calculated by a Reno, Nev., physician who in 2008 testified he sometimes did dozens a day and didn't review his prior predictions for accuracy. Life Partners has said it stands by the doctor's methods.

http://online.wsj.com/article/SB10001424052748704062604576106531380521132.html?mod=ITP_moneyandinvesting_0

http://www.oftwominds.com/blogjan11/Zeus-one01-11.html

Stow_judge
I don't understand that. If they are short, they would want to convince everyone that the end is nigh and to sell everything, wouldn't they?
(So the market goes down the swanny & they collect on their shorts)

Thats exactly what they want you to think stow.

You have to learn to interpret the propaganda, and it is propaganda.

Think it through.For every buyer there must be a  seller, theres someone on the other side of the transaction.Do you really think if  everything was going down the hedge fund would tell you?Their objective is to take YOUR money.

  Now if the  hedges were selling and the punters were selling----- whose buying? No buyers would mean prices collapse.

   See charts during the GFC for confirmation of this principle.

  The hedge fund says everything is bad , things are going down etc. The punter  sells, goes short. Who do you think the buyer is?mmmmmmmmmmmmmmmmmmmmmmmmmmmmmm could it be the hedge fund?

  The punter is then dumfounded when things actually go up, how can this be? They then close the shorts and pile on so they  dont miss the rally.Who do you think the sellers are now?mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm  could it be the hedge fund?

    Dropkicks like melly are sucked in by this everyday.

This is how the market works stow.This receipe is worth millions to you if you take it on board.

   Good luck and thanks for taking  the time to post all those articles.

Small Gold Trader Makes Big Splash
Daniel Shak's Aggressive Bet Grabbed Sizable Chunk of Contracts, But Prices Fell and Wager Went Bad
A huge trade by a tiny hedge fund has sent shudders through the gold market.

Thanks to the nature of futures trading, Daniel Shak's $10 million hedge fund held gold contracts valued at more than $850 million, more than 10% of the main U.S. futures market, and the equivalent of South Africa's annual gold production.

But as gold prices started falling this year, the trade, which was a combination of being long and short gold contracts—bets that prices will both rise and fall—started going bad. Monday, he liquidated his position, and is returning money to clients.

As a result, the number of gold contracts on CME Group Inc.'s Comex division plunged more than 81,000, to about 500,000, the biggest single reduction ever. While his trade didn't account for all of the contracts, an average daily move is about 3,000 to 5,000 contracts.
hat Mr. Shak and his firm, SHK Asset Management, could control one of the largest positions in the gold market underscores how leverage can enable investors to control huge positions in many commodity markets.

"Yeah, that was just me liquidating my spread position," Mr. Shak, 51 years old, said in an interview. "I had a significant, fully margined position. The dollar amount of the gold liquidation was very small, it was just a lot of contracts."

Mr. Shak said he quit the trade when he was 70% down. People close to the firm confirmed the loss was about $7 million.
Just over a week ago, he put his apartment on Manhattan's Fifth Avenue up for sale with a price tag of $7.5 million. He said the sale wasn't related to his losses.

While the drop in contracts didn't appear to hurt gold prices, it caused some panic in the market. Brokers said they fielded calls from clients worried that a big trader may be dumping holdings. Monday, gold futures rose slightly to $1,344.50 a troy ounce and settled at $1,318.40 Thursday. The front-month contract is down 7.3% from its record close on Jan. 3.

Gold has been one of the hottest trades of the past few years, attracting big hedge-fund managers such as John Paulson and George Soros. Since the metal shot up 30% last year to records, some investors have become concerned that some large holders could sell, triggering an exodus.

Many are buying gold futures, which trade on the exchange and enable investors to buy the metal at a fixed price before a fixed date, and others are plowing money into exchange-traded funds, which are backed by the physical bullion.

What Mr. Shak took on was a "spread trade," in which he was long and short gold contracts of various maturities.

It isn't an outright bet on gold prices, but rather on the degree of movement among different contracts. The fact that the sale came from a spread trader, rather than a gold holder, could put some investors' minds at ease.

Spread trading often flies under the radar of regulators and exchanges, as it is regarded as involving little risk. Therefore, traders are able to use high leverage to command a big number of contracts with only little capital.
For example, with as little as $135, a trader can control a spread trade, which is nominally valued at more than $260,000 at today's price.

In comparison, traders need to put up $6,751 to invest in one futures contract. Mr. Shak's positions were extended as far as December 2015, according to exchange data.

"He just had too much position on," said a person who is familiar with his trades. "He didn't think he was flying naked the whole way."

A CME spokesman said he couldn't comment on specific trades.

Mr. Shak said the trade had been profitable for him for years, but it stopped working and the exchange kept raising his margin requirements, forcing him to put up more money. Mr. Shak said that when the exchange raised it by 25% Monday, he decided to cut his losses and end the trade.

Some Wall Street banks and gold producers were on the other side of the trade, according to people close to the matter.

"It was David against Goliath," Mr. Shak said, referring to his position in the market in relation to banks and the commodity exchange. "I just decided to get out; down 70% is better than down 100%."

He had worked as a floor trader at Comex for years before he set up his own fund in 2002. The firm suffered losses of about 12% in 2008, before rising 20% in 2009 and 100% last year, Mr. Shak said.

Mr. Shak, who lives in Las Vegas and also owns a home in the Hamptons on New York's Long Island, also is a competitive poker player and says he has won more than $2 million, including a $1 million win at the Aussie Millions in Melbourne, Australia, last year.

Discussing his business before the poker tournament, he told an Australian newspaper that he trades with the biggest gold and metal producers.

"I am one of the very few people willing to sit down and make a market in any spread transaction. It's a niche market, but it's my niche," he said.

Mr. Shak said his decision to close his position wasn't related to the faulty trade, but rather was a "lifestyle decision."

"I just chose to close, I didn't like my positions so I chose to liquidate, I wasn't forced," he said. "I was in the process of closing anyway."

Mr. Shak said he will return to trading in a few weeks, though perhaps not manage money for others.

"This is not career ending," he said. "I'm not stopping trading."
http://online.wsj.com/article/SB10001424052748703399204576108463818702014.html#mod=most_viewed_markets24

U.S. Firms, China Are Locked in Major War Over Technology

A titanic battle is under way between U.S. business and China, a battle reflected in President Barack Obama's State of the Union address last week and destined to dominate relations between the two countries for years.

The new initiatives—shaped by rising nationalism and a belief that foreign companies unfairly dominate key technologies—range from big investments in national industries to patent laws that favor Chinese companies and mandates that essentially require foreign companies to transfer technology to China if they hope to sell in that market.

To hear U.S. business executives describe it, Beijing's mammoth new industrial policy is like the Borg in "Star Trek"—an enormous organic machine assimilating everything in its path, in this case the inventions of other nations. Notably, China's road map, which is enshrined in the "National Medium- and Long-Term Plan for the Development of Science and Technology (2006-2020)," talks in those terms. China will build its dominance by "enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies."

"It's a huge, long-term strategic issue," says a top executive at a U.S. technology firm operating in China. "It isn't just the crisis of the day for U.S. business. It's the crisis."

So it is that Mr. Obama, fresh from wrangling with Chinese President Hu Jintao over these issues, made U.S. innovation—China-beating innovation—a centerpiece of his State of the Union speech. China and India are "investing in research and new technologies," he warned. "We need to out-innovate, out-educate and out-build the rest of the world."

President Obama also wrested some concessions from President Hu during their summit last month, including getting China to scrub—or promise to scrub—new government-procurement lists that discriminate against foreign companies that don't design their products in China.


US business is in a big tangle with China again over a range of new measures that china has taken to control its technology market. John Bussey talks with the author of an in-depth report on China's new initiatives.

Spats over market access have been endemic to the U.S.-China business relationship from the start. But China's latest initiatives, which began getting traction at the end of 2009, have changed that game, revealing a much broader national battle plan for conquering global technologies.

Deluged by complaints from companies, the U.S. Chamber of Commerce, a business trade group, commissioned a report to measure the scope of China's actions. It found what it calls, in sometimes sparky language, an "intricate web" of new rules "considered by many international technology companies to be a blueprint for technology theft on a scale the world has never seen before."

The 44-page report, "China's Drive for 'Indigenous Innovation': A Web of Industrial Policies" (http://www.uschamber.com/reports/chinas-drive-indigenous-innovation-web-ind... maps the complex set of new initiatives that foreign companies face. The report received media attention when it was published last summer and then gathered steam over subsequent months, becoming a talking point in corporate and government offices globally in advance of recent negotiations with China.

"It's an outstanding piece of work," says Charlene Barshefsky, the top US trade negotiator in the Clinton administration. "It provided policy makers a far better understanding of China's policies than ever before."

It also sent up a warning flare over the broader business community. Representatives of companies as diverse as IBM, Praxair, Microsoft, Alstrom, Motorola, Cisco, Corning and Caterpillar got briefings. Chinese academics also lined up. And GE distributed the report to its senior management.

China says there's nothing threatening in its efforts: It simply wants to modernize. Developing homegrown technology is better than continuing to pay stiff royalty fees for foreign inventions, the Chinese ministries say. As for "re-innovating" or "assimilating" foreign technology, that's no different from what Japan and Western countries did when they industrialized, they add.

U.S. companies don't see it that way. They worry, for example, that China's new approval process is holding up products at the border as technicians examine designs with the intent of doing a little early "assimilating."

"We just connected the dots for the first time to show the scale of this industrial policy," says James McGregor, the author of the report and a senior counselor for APCO Worldwide in Beijing. (Mr. McGregor was also the Wall Street Journal's bureau chief and corporate representative in China during the 1990s.) "I had no idea this amount of stuff was going on, including the turn back toward emphasizing state industries."

Which puts Mr. Hu's promises to President Obama in context. China's commitment to its broad new program— "the government's highest strategic economic priority," the Chamber says—overwhelms any incremental market concession.

In the innovation race, China is thinking long term—and big. Its goal isn't just to tinker with foreign technology. It plans to supplant it.

As any competitor might.
http://online.wsj.com/article/SB10001424052748703439504576116152871912040.html?mod=WSJEUROPE_hps_LEFTTopWhatNews

Are you a creator or a server?
If you are a server, are you a Slopper, a sponge, a Superslopper, a Slimer, or a thief?
Classic article & terms


Is Your Job an Endangered Species?
Technology is eating jobs—and not just obvious ones like toll takers and phone operators. Lawyers and doctors are at risk as well.

By ANDY KESSLER

So where the heck are all the jobs? Eight-hundred billion in stimulus and $2 trillion in dollar-printing and all we got were a lousy 36,000 jobs last month. That's not even enough to absorb population growth.

You can't blame the fact that 26 million Americans are unemployed or underemployed on lost housing jobs or globalization—those excuses are played out. To understand what's going on, you have to look behind the headlines. That 36,000 is a net number. The Bureau of Labor Statistics shows that in December some 4,184,000 workers (seasonally adjusted) were hired, and 4,162,000 were "separated" (i.e., laid off or quit). This turnover tells the story of our economy—especially if you focus on jobs lost as a clue to future job growth.

With a heavy regulatory burden, payroll taxes and health-care costs, employing people is very expensive. In January, the Golden Gate Bridge announced that it will have zero toll takers next year: They've been replaced by wireless FastTrak payments and license-plate snapshots.

Technology is eating jobs—and not just toll takers.

Tellers, phone operators, stock brokers, stock traders: These jobs are nearly extinct. Since 2007, the New York Stock Exchange has eliminated 1,000 jobs. And when was the last time you spoke to a travel agent? Nearly all of them have been displaced by technology and the Web. Librarians can't find 36,000 results in 0.14 seconds, as Google can. And a snappily dressed postal worker can't instantly deliver a 140-character tweet from a plane at 36,000 feet.

So which jobs will be destroyed next? Figure that out and you'll solve the puzzle of where new jobs will appear.

Forget blue-collar and white- collar. There are two types of workers in our economy: creators and servers. Creators are the ones driving productivity—writing code, designing chips, creating drugs, running search engines. Servers, on the other hand, service these creators (and other servers) by building homes, providing food, offering legal advice, and working at the Department of Motor Vehicles. Many servers will be replaced by machines, by computers and by changes in how business operates. It's no coincidence that Google announced it plans to hire 6,000 workers in 2011.

But even the label "servers" is too vague. So I've broken down the service economy further, as a guide to figure out the next set of unproductive jobs that will disappear. (Don't blame me if your job is listed here; technology spares no one, not even writers.)

• Sloppers are those that move things—from one side of a store or factory to another. Amazon is displacing thousands of retail workers. DMV employees and so many other government workers move information from one side of a counter to another without adding any value. Such sloppers are easy to purge with clever code.

• Sponges are those who earned their jobs by passing a test meant to limit supply. According to this newspaper, 23% of U.S. workers now need a state license. The Series 7 exam is required for stock brokers. Cosmetologists, real estate brokers, doctors and lawyers all need government certification. All this does is legally bar others from doing the same job, so existing workers can charge more and sponge off the rest of us.

But eDiscovery is the hottest thing right now in corporate legal departments. The software scans documents and looks for important keywords and phrases, displacing lawyers and paralegals who charge hundreds of dollars per hour to read the often millions of litigation documents. Lawyers, understandably, hate eDiscovery.

Doctors are under fire as well, from computer imaging that looks inside of us and from Computer Aided Diagnosis, which looks for patterns in X-rays to identify breast cancer and other diseases more cheaply and effectively than radiologists do. Other than barbers, no sponges are safe.

• Supersloppers mark up prices based on some marketing or branding gimmick, not true economic value. That Rolex Oyster Perpetual Submariner Two-Tone Date for $9,200 doesn't tell time as well as the free clock on my iPhone, but supersloppers will convince you to buy it. Markups don't generate wealth, except for those marking up. These products and services provide a huge price umbrella for something better to sell under.

• Slimers are those that work in finance and on Wall Street. They provide the grease that lubricates the gears of the economy. Financial firms provide access to capital, shielding companies from the volatility of the stock and bond and derivative markets. For that, they charge hefty fees. But electronic trading has cut into their profits, and corporations are negotiating lower fees for mergers and financings. Wall Street will always exist, but with many fewer workers.

• Thieves have a government mandate to make good money and a franchise that could disappear with the stroke of a pen. You know many of them: phone companies, cable operators and cellular companies are the obvious ones. But there are more annoying ones—asbestos testing and removal, plus all the regulatory inspectors who don't add value beyond making sure everyone pays them. Technologies like Skype have picked off phone companies by lowering international rates. And consumers are cutting expensive cable TV services in favor of Web-streamed video.

Like it or not, we are at the beginning of a decades-long trend. Beyond the demise of toll takers and stock traders, watch enrollment dwindle in law schools and medical schools. Watch the divergence in stock performance between companies that actually create and those that are in transition—just look at Apple, Netflix and Google over the last five years as compared to retailers and media.

But be warned that this economy is incredibly dynamic, and there is no quick fix for job creation when so much technology-driven job destruction is taking place. Fortunately, history shows that labor-saving machines haven't decreased overall employment even when they have made certain jobs obsolete. Ultimately the economic growth created by new jobs always overwhelms the drag from jobs destroyed—if policy makers let it happen.
Mr. Kessler, a former hedge fund manager, is the author most recently of "Eat People And Other Unapologetic Rules for Game-Changing Entrepreneurs," just out from Portfolio.


http://online.wsj.com/article/SB10001424052748703439504576116340050218236.html?mod=googlenews_wsj

OECD Sees Real Demand Driving Commodity Prices
WASHINGTON—A report being prepared for the world's Group of 20 leading economies indicates the main factor behind rising prices for wheat, sugar, cotton, metals, oil and other commodities isn't speculators, as some have suggested, but that the global demand to consume these goods is growing faster than the supply.

The Organization for Economic Cooperation and Development's study, which is being put together ahead of the next G-20 meeting of top finance officials in April in Washington, may lead to increased efforts to boost commodities output around the world. It could also help temper criticism of the U.S. Federal Reserve's easy-money policies, which some policy makers have blamed for stoking global inflation.

French President Nicholas Sarkozy, who heads the G-20, recently warned that rising commodity prices were a threat to the world economy and is one of several G-20 leaders who have blamed financial speculators for the strong increases in commodity prices in recent years. The French leader earlier this month was critical of a draft report from the European Commission that had suggested no correlation between rising prices and a substantial increase in positions held by index funds. (The controversial paragraph was removed.) Finance ministers and central bankers meeting in Paris a week ago said they would look into the underlying drivers of the price increases and consider possible actions.

"It's very hard to distinguish between financial and structural factors behind the price increases, but it looks like demand and supply are playing the predominant role," Pier Carlo Padoan, chief economist and deputy secretary general at the OECD, said, describing the report's initial findings in an interview.

A drought and fire in Russia last summer, coupled with the government's export restrictions, helped bring about soaring wheat prices. Poor harvests in the U.S., Europe, Australia and Argentina have contributed to surging prices for other agricultural products on international markets.

There have been few investments in agriculture over the past few years, and productivity has been stagnant, the OECD report is expected to note. At the same time, demand for food has been growing in China and India, the world's two most populous countries, as their economies expand at a rapid pace.

A similar supply-and-demand argument can be made for oil prices, Mr. Padoan said. Oil prices were climbing in recent months as the global economy strengthened, even before jumping above $100 a barrel amid concerns that the current turmoil in the oil-rich North African and Middle Eastern countries could curb production. The price of Brent oil settled Friday at $112.14, up 9.4% on the week, while Nymex oil surged 9.1% over the week to $97.88.

Fed Chairman Ben Bernanke has been making a similar case about commodity prices, responding to strong criticism that the U.S. central bank's policies have sent floods of cash into China and other developing economies as well as into commodities, driving up prices for food and energy. The Fed chief puts the blame on strong growth in developing economies and their inadequate policy responses, including China's reluctance to let its currency rise faster.

The last meeting of G-20 heads of state took place last November, just a week after the Fed announced it would inject $600 billion into the economy to buy government bonds in an effort to fuel stronger U.S. growth. At that gathering, U.S. President Barack Obama faced accusations that the Fed's policy was stoking inflation. The criticism overshadowed Obama's priority for the summit: applying greater pressure on China to revalue its currency.
http://online.wsj.com/article/SB10001424052748704692904576166711336935554.html?mod=WSJ_Commodities_LEFTTopNews

Big brother is watching you!

Web's Hot New Commodity: Privacy
As the surreptitious tracking of Internet users becomes more aggressive and widespread, tiny start-ups and technology giants alike are pushing a new product: privacy.

Companies including Microsoft Corp., McAfee Inc.—and even some online-tracking companies themselves—are rolling out new ways to protect users from having their movements monitored online. Some are going further and starting to pay people a commission every time their personal details are used by marketing companies.

Giles Sequeira now sells personal details about himself to advertisers.

"Data is a new form of currency," says Shane Green, chief executive of a Washington start-up, Personal Inc., which has raised $7.6 million for a business that aims to help people profit from providing their personal information to advertisers.

The Wall Street Journal's year-long What They Know investigation into online tracking has exposed a fast-growing network of hundreds of companies that collect highly personal details about Internet users—their online activities, political views, health worries, shopping habits, financial situations and even, in some cases, their real names—to feed the $26 billion U.S. online-advertising industry.

In the first nine months of last year, spending on Internet advertising rose nearly 14%, while the overall ad industry only grew about 6%, according to data from PriceWaterhouseCoopers LLP and WPP PLC's Kantar Media.

Testing the new privacy marketplace are people like Giles Sequeira, a London real-estate developer who recently began selling his own personal data. "I'm not paranoid about privacy," he says. But as he learned more, he says, he became concerned about how his data was getting used.


Companies are introducing free and paid products that help people manage the way companies track their online activities. Some services pay people when their personal details are used.

People "have no idea where it is going to end up," he says.

So in December, Mr. Sequeira became one of the first customers of London start-up Allow Ltd., which offers to sell people's personal information on their behalf, and give them 70% of the sale. Mr. Sequeira has already received one payment of £5.56 ($8.95) for letting Allow tell a credit-card company he is shopping for new plastic.

"I wouldn't give my car to a stranger" for free, Mr. Sequeira says, "So why do I do that with my personal data?"

As people are becoming more aware of the value of their data, some are seeking to protect it, and sometimes sell it. In January at the World Economic Forum in Davos, Switzerland, executives and academics gathered to discuss how to turn personal data into an "asset class" by giving people the right to manage and sell it on their own behalf.

"We are trying to shift the focus from purely privacy to what we call property rights," says Michele Luzi, a director at consulting firm Bain & Co. who led the Davos discussion.

Allow, the company that paid Mr. Sequeira, is just one of nearly a dozen start-ups hoping to profit from the nascent privacy market. Several promise to pay people a commission on the sale of their data. Others offer free products to block online tracking, in the hopes of later selling users other services—such as disposable phone numbers or email addresses that make personal tracking tougher. Still others sell paid services, such as removing people's names from marketing databases.

"Entrepreneurs smell opportunity," says Satya Patel, venture capitalist at Battery Ventures, which led a group of investors that poured $8 million in June into a start-up called SafetyWeb, which helps parents monitor their children's activities on social-networking sites and is rolling out a new privacy-protection service for adults, myID.com.

For the lightly regulated tracking industry, a big test of the new privacy marketplace is whether it will quiet the growing chorus of critics calling for tougher government oversight. Lawmakers this month introduced two separate privacy bills in Congress, and in December the Obama administration called for an online-privacy "bill of rights." The Federal Trade Commission is pushing for a do-not-track system inspired by the do-not-call registry that blocks phone calls from telemarketers.

The industry is hustling on several fronts to respond to regulatory concerns. Last week, Microsoft endorsed a do-not-track system. Microsoft also plans to add a powerful anti-tracking tool to the next version of its Web-browsing software, Internet Explorer 9. That's a reversal: Microsoft's earlier decision to remove a similar privacy feature from Explorer was the subject of a Journal article last year.
The online-ad industry itself is also rolling out new privacy services in hopes of heading off regulation. Most let users opt out of seeing targeted ads, though they generally don't prevent tracking.

The privacy market has been tested before, during the dot-com boom around 2000, a time when online tracking was just being born. A flurry of online-privacy-related start-ups sprang up but only a few survived due to limited consumer appetite.

As recently as 2008, privacy was so hard to sell that entrepreneur Rob Shavell says he avoided even using the word when he pitched investors on his start-up, Abine Inc., which blocks online tracking. Today, he says, Abine uses the word "privacy" again, and has received more than 30 unsolicited approaches from investors in the past six months.

In June, another company, TRUSTe, raised $12 million from venture capitalists to expand its privacy services. At the same time, Reputation.com Inc. raised $15 million and tripled its investments in new privacy initiatives including a service that removes people's names from online databases and a tool to let people encrypt their Facebook posts.

"It's just night and day out there," says Abine's Mr. Shavell.

Online advertising companies—many of which use online tracking to target ads—are also jumping into the privacy-protection business. AOL, one of largest online trackers, recently ramped up promotion of privacy services that it sells.

And in December, enCircle Media, an ad agency that works with tracking companies, invested in the creation of a privacy start-up, IntelliProtect. Last month IntelliProtect launched a $8.95-a-month privacy service that will, among other things, prevent people from seeing some online ads based on tracking data.

In its marketing material, IntelliProtect doesn't disclose its affiliation with the ad company, enCircle Media, that invested in it. When contacted by the Journal, IntelliProtect said it would never give or sell customer data to other entities, including its parent companies.

A cofounder of Allow, Justin Basini, also traces his roots to the ad industry. Mr. Basini came up with the idea for his new business when working as head of brand marketing for Capital One Europe. He says he was amazed at the "huge amounts" of data the credit-card companies had amassed about individuals.

But the data didn't produce great results, he says. The response rate to Capital One's targeted mailings was 1-in-100, he says—vastly better than untargeted mailings, but still "massively inefficient." Mr. Basini says. "So I thought, 'Why not try to incentivize the customer to become part of the process?"

People feel targeted ads online are "spooky," he says, because people aren't aware of how much personal data is being traded. His proposed solution: Ask people permission before showing them ads targeted at their personal interests, and base the ads only on information people agree to provide.

In 2009, Mr. Basini left Capital One and teamed up with cofounder Howard Huntley, a technologist. He raised £440,000 ($708,400) from family, friends and a few investors, and launched Allow in December. The company has attracted 4,000 customers, he says.

Mr. Basini says his strategy is to first make individuals' data scarce, so it can become more valuable when he sells it later. To do that, Allow removes its customers from the top 12 marketing databases in the U.K., which Mr. Basini says account for 90% of the market. Allow also lists its customers in the official U.K. registries for people who don't want to receive telemarketing or postal solicitations.

Currently, Allow operates only in the U.K., which (unlike the U.S.) has a law that requires companies to honor individuals' requests to be removed from marketing databases.

Then, Mr. Basini asks his customers to create a profile that can contain their name, address, employment, number of kids, hobbies and shopping intent—in other words, lists of things they're thinking about buying. Customers can choose to grant certain marketers permission to send them offers, in return for a 70% cut of the price marketers pay to reach them. Allow says it has finalized a deal with one marketer and has five more deals it hopes to close soon.

Mr. Basini says Allow tries to prevent people from "gaming" the system by watching for people who state an intention to buy lots of things, but don't follow through.

Because Allow's data comes from people who have explicitly stated their interest in being contacted about specific products, it can command a higher price than data gathered by stealthier online-tracking technologies. For instance, online-tracking companies routinely sell pieces of information about people's Web-browsing habits for less than a penny per person. By comparison, Allow says it sells access to Mr. Sequeira for £5 to £10 per marketer.

Mr. Sequeira, the London real-estate executive, says that after he filled out an "intention" to get a new credit card, he received a £15.56 credit in his Allow account: a £10 signing fee plus a £5.56 payment from the sale of his data to a credit-card marketer. So far, he says, he hasn't received a card offer from the company.

"I don't think it's going to make a life-changing amount of money," says Mr. Sequeira. But, he says he enjoyed the little windfall enough that he is now letting Allow offer his data to other advertisers. "I can see this becoming somewhat addictive."
http://online.wsj.com/article/SB10001424052748703529004576160764037920274.html?mod=WSJ_article_MoreIn_Business

Market Crash 2011: It will hit by Christmas
Commentary: The S&P 500 is worth only 910. Get out or lose big

SAN LUIS OBISPO, Calif. (MarketWatch) — Politicians lie. Bankers lie. Yes, they’re liars. But they’re not bad, it’s in their genes, inherited. Their brains are wired that way, warn scientists. Like addicts, they can’t help themselves. They want to sell stuff, get rich.

We want to believe they’re telling us the truth. Silly, huh? Both trapped in this eternal “dance of death” controlled by programs hidden deep in our brains, telling us what to do, telling us to ignore facts to the contrary — till it’s too late, till a new crisis crushes all of us.

Psychology offers us a powerful lesson: Our collective brain is destined to trigger a crash before Christmas 2011. Why? We’re gullible, keep searching for a truth-teller in a world of liars. And they’re so clever, we let them manipulate us into acting against our best interests.

In fact, behavioral science tells us that bankers and politicians are lying to us 93% of the time. It’s 13 times more likely Wall Street is telling you a lie than the truth. That’s why they win. Why we lose. Because our brains are preprogrammed to cooperate in their con game. Yes, we believe most of their lies.

One of America’s leading behavioral finance gurus, University of Chicago Prof. Richard Thaler, explains: “Think of the human brain as a personal computer with a very slow processor and a memory system that is small and unreliable.” Thaler even admits: “The PC I carry between my ears has more disk failures than I care to think about.” Easy to manipulate.

Eternal love story: Your brain’s in love with Wall Street’s brain

Thaler’s a quant, speaks mostly in cryptic algorithmics. So if you really want to know how Wall Street’s con game works on you, Barry Ritholtz, the financial genius behind “Bailout Nation,” recently summarized it in the Washington Post: “Humans make all the same mistakes, over and over again. It’s how we are wired, the net result of evolution. That flight-or-fight response might have helped your ancestors deal with hungry saber-toothed tigers and territorial Cro Magnons, but it drives investors to make costly emotional decisions.”

Humans have something “akin to brain damage,” says Ritholtz. “To neurophysiologists, who research cognitive functions, the emotionally driven appear to suffer from cognitive deficits that mimic certain types of brain injuries. … Anyone with an intense emotional interest in a subject loses the ability to observe it objectively: You selectively perceive events. You ignore data and facts that disagree with your main philosophy. Even your memory works to fool you, as you selectively retain what you believe in, and subtly mask any memories that might conflict.”

Worse, there’s no cure.

Your brain needs to believe lies; Wall Street loves telling lies
   

Examples: USA Today headline: “Average Bull is 3.8 years: We’re not at 2 yet.” More upside. Wall Street loves it. The Wall Street Journal: “Stock recovery in high gear … S&P500 now speeding toward its next landmark,” double its March 2009 bottom.

Other lies: Inflation and rate rises won’t push China and America over the edge into a new bear recession. That one’s real popular in Wall Street’s echo chamber. Wall Street also cheers every time cable pundits and journalists repeat their favorite statistic: That stocks rally in the third year of a presidency, often more than 20%. Yes, Wall Street loves those 93% lies.

Biggest lie? Wharton’s perennial bull, Jeremy Siegel, of “Stocks for the Long Run” fame, recently told a TD Ameritrade Institutional Conference, “There’s nothing but upside to come …the next several years are going to be good for stocks.”

Yes, one of Wall Street’s favorite co-conspirators is hypnotizing thousands of our best money managers and advisers into believing the lie that this bull market will roar indefinitely. Worse, they’ll use that message to sell naive investors on buying whatever junk Wall Street is selling.

Get the picture? A little conspiracy begins in your head, a conspiracy between your gullible brain and Wall Street’s con men selling hype, hoopla and happy-talk. Listen and you’ll lose.

http://www.marketwatch.com/story/market-crash-2011-it-will-hit-by-christmas-2011-02-22

Warning: This little conspiracy is a retirement killer. Remember: It’s odds-on you’re being lied to. So for a few moments, listen to some highly respected contrarians. They’re short-selling this conspiracy, betting that 2011 will hit headwinds before Christmas, turn a cyclical bull rally into a cyclical bear market.

Our brains never learned 2008’s lessons, will fail again in 2011

Remember, we can’t help it. Our brains are defective, biased, manipulated by unseen forces 93% of the time. So blame all the lies, lying and liars on our brain wiring. A perfect excuse. Sure, political dogma and insatiable greed factor into our bizarre mental equations. But your brain is as susceptible to the “great con” as Ben Bernanke, Henry Paulson, Bernie Madoff.

Go back a few years: The subprime credit meltdown was widely predicted years in advance. For example, back in 2007, the IMF’s Chief Economist, Raghuram Rajan, “delivered a stark warning to the world’s top bankers: Financial markets were headed for doom. They laughed it off,” said the Toronto Star. Both Alan Greenspan and Larry Summers were there.

In April 2007, Jeremy Grantham, whose firm manages $107 billion, also warned investors: “The First Truly Global Bubble: From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; it’s bubble time. … Everyone, everywhere is reinforcing one another. … Bursting of the bubble will be across all countries and all assets … no similar global event has occurred before.”

We knew a crash was coming, Wall Street laughed.

Call it denial, or lying, or just a brain defect, late that summer as the meltdown spread like wildfire, shutting down the economy, our manipulative Treasury Secretary Hank Paulson, a former Goldman Sachs CEO, told Fortune “this is far and away the strongest global economy I’ve seen in my business lifetime.” And Fed boss Bernanke was telling us the subprime crisis was “contained.” Alan Greenspan agreed. He was on tour, making millions hustling his new book of excuses, delusions and lies, “The Age of Turbulence.”

Today, just three years later, the market’s just a shade above its 2000 peak. Adjusted for inflation, Wall Street stocks have lost roughly 20% of your retirement money the past decade. Get it? Wall Street’s a big loser the past decade. And they’ll lose another 20% by 2020. Why? Because 93% of what comes from Wall Street is suspect, can’t be trusted.

Warning: Cyclical bull ends in 2011, new cyclical bear roars back

At the beginning of 2011 USA Today reported a contrarian forecast. Ned Davis Research says the S&P 500 will make a run at the 2007 high of 1,565, but hit a “midyear peak.” Then it will crash as interest rates rise. Davis concludes: “The midyear peak could mark the end of the cyclical bull market that began in March 2009 and the start of a new cyclical bear market.”

Warning, even though your brain doesn’t want to hear it, there is a high probability a new cyclical bear market will begin this summer … and overshadow the 2012 elections.

The Journal’s also warning: “Inflation jitters spread through emerging markets, prompting China’s central bank to raise interest rate for the third time in four months amid worries that a drought threatening the country’s wheat crop will put further pressure on global food prices.”

Wake up America: With commodity prices rising rapidly, all the bizarre rationalizations Wall Street uses to keep Bernanke’s interest rates low are rapidly vaporizing. Yes, Ned Davis’ prediction of a bear will soon be a painful reality.

S&P 500 inflated, worth just 910, get out before it tops 1,500

Grantham also sees inflation and rising interest rates killing the lies, popping the bubble and ending the rally: “As a simple rule, the market will tend to rise as long as short rates are kept low. This seems likely to be the case for eight more months and, therefore, we have to be prepared for the market to rise and to have a risky bias.”

With $107 billion at stake Grantham better be concerned. He predicted the 2008 meltdown, now sees a repeat dead ahead: “Be prepared for a strong market and continued outperformance of everything risky, but be aware that you are living on borrowed time as a bull.”

Yes, the bubble will pop this year says Grantham: “If the S&P rises to 1,500, it would officially be the latest in the series of true bubbles. All of the famous bubbles broke, but only after short rates had started to rise.”

So keep a close watch on those two tipping points in your planning, interest rates breaking to the upside and the S&P closing near 1,500. When inflation pushes interest rates up they’ll choke off this bull market. If you’re active, better stop chasing higher returns, especially emerging markets.

Bottom line: In what sounds like a direct shot at super-bull Jeremy Siegel, Grantham says that GMO’s research warns that “the market is worth about 910 on the S&P 500, substantially less than current levels” just above 1,300.

Then Grantham throws his fast ball right down the middle: “The speed with which you should pull back from the market as it advances into dangerously overpriced territory this year is more of an art than a science, but by October 1 you should probably be thinking much more conservatively.”

Translation: Get the heck out of Wall Street’s stock market casino soon, maybe as early as July 4th, and definitely get out by Christmas, because soon all the lies, lying and liars will stop working.

Why the Dollar's Reign Is Near an End
For decades the dollar has served as the world's main reserve currency, but, argues Barry Eichengreen, it will soon have to share that role. Here's why—and what it will mean for international markets and companies.


The single most astonishing fact about foreign exchange is not the high volume of transactions, as incredible as that growth has been. Nor is it the volatility of currency rates, as wild as the markets are these days.

Instead, it's the extent to which the market remains dollar-centric.

Consider this: When a South Korean wine wholesaler wants to import Chilean cabernet, the Korean importer buys U.S. dollars, not pesos, with which to pay the Chilean exporter. Indeed, the dollar is virtually the exclusive vehicle for foreign-exchange transactions between Chile and Korea, despite the fact that less than 20% of the merchandise trade of both countries is with the U.S.

Chile and Korea are hardly an anomaly: Fully 85% of foreign-exchange transactions world-wide are trades of other currencies for dollars. What's more, what is true of foreign-exchange transactions is true of other international business. The Organization of Petroleum Exporting Countries sets the price of oil in dollars. The dollar is the currency of denomination of half of all international debt securities. More than 60% of the foreign reserves of central banks and governments are in dollars.

The greenback, in other words, is not just America's currency. It's the world's.

But as astonishing as that is, what may be even more astonishing is this: The dollar's reign is coming to an end.

I believe that over the next 10 years, we're going to see a profound shift toward a world in which several currencies compete for dominance.

The impact of such a shift will be equally profound, with implications for, among other things, the stability of exchange rates, the stability of financial markets, the ease with which the U.S. will be able to finance budget and current-account deficits, and whether the Fed can follow a policy of benign neglect toward the dollar.

The Three Pillars
How could this be? How could the dollar's longtime most-favored-currency status be in jeopardy?

See the share of global foreign-exchange transactions involving the dollar, and the dollar's share of official global foreign-exchange reserves.

To understand the dollar's future, it's important to understand the dollar's past—why the dollar became so dominant in the first place. Let me offer three reasons.

First, its allure reflects the singular depth of markets in dollar-denominated debt securities. The sheer scale of those markets allows dealers to offer low bid-ask spreads. The availability of derivative instruments with which to hedge dollar exchange-rate risk is unsurpassed. This makes the dollar the most convenient currency in which to do business for corporations, central banks and governments alike.

Second, there is the fact that the dollar is the world's safe haven. In crises, investors instinctively flock to it, as they did following the 2008 failure of Lehman Brothers. This tendency reflects the exceptional liquidity of markets in dollar instruments, liquidity being the most precious of all commodities in a crisis. It is a product of the fact that U.S. Treasury securities, the single most important asset bought and sold by international investors, have long had a reputation for stability.

Finally, the dollar benefits from a dearth of alternatives. Other countries that have long enjoyed a reputation for stability, such as Switzerland, or that have recently acquired one, like Australia, are too small for their currencies to account for more than a tiny fraction of international financial transactions.

What's Changing
But just because this has been true in the past doesn't guarantee that it will be true in the future. In fact, all three pillars supporting the dollar's international dominance are eroding.

First, changes in technology are undermining the dollar's monopoly. Not so long ago, there may have been room in the world for only one true international currency. Given the difficulty of comparing prices in different currencies, it made sense for exporters, importers and bond issuers all to quote their prices and invoice their transactions in dollars, if only to avoid confusing their customers.

Now, however, nearly everyone carries hand-held devices that can be used to compare prices in different currencies in real time. Just as we have learned that in a world of open networks there is room for more than one operating system for personal computers, there is room in the global economic and financial system for more than one international currency.

Second, the dollar is about to have real rivals in the international sphere for the first time in 50 years. There will soon be two viable alternatives, in the form of the euro and China's yuan.

Americans especially tend to discount the staying power of the euro, but it isn't going anywhere. Contrary to some predictions, European governments have not abandoned it. Nor will they. They will proceed with long-term deficit reduction, something about which they have shown more resolve than the U.S. And they will issue "e-bonds"—bonds backed by the full faith and credit of euro-area governments as a group—as a step in solving their crisis. This will lay the groundwork for the kind of integrated European bond market needed to create an alternative to U.S. Treasurys as a form in which to hold central-bank reserves.

China, meanwhile, is moving rapidly to internationalize the yuan, also known as the renminbi. The last year has seen a quadrupling of the share of bank deposits in Hong Kong denominated in yuan. Seventy thousand Chinese companies are now doing their cross-border settlements in yuan. Dozens of foreign companies have issued yuan-denominated "dim sum" bonds in Hong Kong. In January the Bank of China began offering yuan-deposit accounts in New York insured by the Federal Deposit Insurance Corp.

Allowing Chinese companies to do cross-border settlements in yuan will free them from having to undertake costly foreign-exchange transactions. They will no longer have to bear the exchange-rate risk created by the fact that their revenues are in dollars but many of their costs are in yuan. Allowing Chinese banks, for their part, to do international transactions in yuan will allow them to grab a bigger slice of the global financial pie.

Admittedly, China has a long way to go in building liquid markets and making its financial instruments attractive to international investors. But doing so is central to Beijing's economic strategy. Chinese officials have set 2020 as the deadline for transforming Shanghai into a first-class international financial center. We Westerners have underestimated China before. We should not make the same mistake again.

Finally, there is the danger that the dollar's safe-haven status will be lost. Foreign investors—private and official alike—hold dollars not simply because they are liquid but because they are secure. The U.S. government has a history of honoring its obligations, and it has always had the fiscal capacity to do so.

But now, mainly as a result of the financial crisis, federal debt is approaching 75% of U.S. gross domestic product. Trillion-dollar deficits stretch as far as the eye can see. And as the burden of debt service grows heavier, questions will be asked about whether the U.S. intends to maintain the value of its debts or might resort to inflating them away. Foreign investors will be reluctant to put all their eggs in the dollar basket. At a minimum, the dollar will have to share its safe-haven status with other currencies.

A World More Complicated
How much difference will all this make—to markets, to companies, to households, to governments?


One obvious change will be to the foreign-exchange markets. There will no longer be an automatic jump up in the value of the dollar, and corresponding decline in the value of other major currencies, when financial volatility surges. With the dollar, euro and yuan all trading in liquid markets and all seen as safe havens, there will be movement into all three of them in periods of financial distress. No one currency will rise as strongly as did the dollar following the failure of Lehman Bros. There will be no reason for the rates between them to move sharply, something that would potentially upend investors.

But the impact will extend well beyond the markets. Clearly, the change will make life more complicated for U.S. companies. Until now they have had the convenience of using the same currency—dollars—whether they are paying their workers, importing parts and components, or selling their products to foreign customers. They don't have to incur the cost of changing foreign-currency earnings into dollars. They don't have to purchase forward contracts and options to protect against financial losses due to changes in the exchange rate. This will all change in the brave new world that is coming. American companies will have to cope with some of the same exchange-rate risks and exposures as their foreign competitors.

Conversely, life will become easier for European and Chinese banks and companies, which will be able to do more of their international business in their own currencies. The same will be true of companies in other countries that do most of their business with China or Europe. It will be a considerable convenience—and competitive advantage—for them to be able to do that business in yuan or euros rather than having to go through the dollar.

U.S. Impact
In this new monetary world, moreover, the U.S. government will not be able to finance its budget deficits so cheaply, since there will no longer be as big an appetite for U.S. Treasury securities on the part of foreign central banks.

Nor will the U.S. be able to run such large trade and current-account deficits, since financing them will become more expensive. Narrowing the current-account deficit will require exporting more, which will mean making U.S. goods more competitive on foreign markets. That in turn means that the dollar will have to fall on foreign-exchange markets—helping U.S. exporters and hurting those companies that export to the U.S.

My calculations suggest that the dollar will have to fall by roughly 20%. Because the prices of imported goods will rise in the U.S., living standards will be reduced by about 1.5% of GDP—$225 billion in today's dollars. That is the equivalent to a half-year of normal economic growth. While this is not an economic disaster, Americans will definitely feel it in the wallet.

On the other hand, the next time the U.S. has a real-estate bubble, we won't have the Chinese helping us blow it.
http://online.wsj.com/article/SB10001424052748703313304576132170181013248.html?mod=WSJEUROPE_hps_MIDDLETopNews

As Budget Battle Rages On, a Quiet Cancer Grows

If Washington's leaders need a reason to get serious about the long-term-deficit problem—now—here it is.
There is a cancer eating away at the budget from within, one that steadily drains American wealth, sends much of it overseas and only gets worse over time. It is the interest America pays on its national debt.

This year the U.S. will spend more than $200 billion—roughly the gross domestic product of Chile—merely paying off that interest. That's nearly as much as it will spend to provide health care to poor citizens through the Medicaid program.

By comparison, the spending debate now raging in Washington, over whether to cut discretionary programs by $20 billion or $60 billion this year, is about chump change, and misses the real long-range threat almost entirely.

By comparison, the spending debate now raging in Washington, over whether to cut discretionary programs by $20 billion or $60 billion this year, is about chump change, and misses the real long-range threat almost entirely.

That's because the interest burden gets worse—much worse—as time goes on and spending grows, not so much in the programs now being discussed as on Medicare, Medicaid and Social Security. Without a change, in 10 years the federal government's net interest bill rises to $928 billion annually. That would be 17% more than the government would pay to provide health care to the elderly through Medicare that year, and 82% more than the cost of all non-security discretionary spending programs combined.

After that, unless something is done, the interest bill becomes truly debilitating. By 2080, the country would be spending more than 10% of its entire gross domestic product—that is, more than 10 cents of every dollar of goods and services produced—just to pay interest. Over time, this represents a giant transfer of American wealth overseas, particularly to China, where much of America's debt is held.

Sen. Tom Coburn, a Republican of Oklahoma and member of the national deficit commission President Barack Obama appointed, summarizes the danger this way: "Our threat is that our destiny will not be controlled by us."

Sen. Coburn, who has become a kind of one-man alarm bell warning about the dangers of debt in general and the insidious force of interest payments in particular, notes that the situation could be even worse than it appears, because current projections assume that interest rates will remain reasonably low.

If interest rates rise more than expected, he warns, the situation could become catastrophic. "The chances of a downward spiral are high, not low," he says. Sen. Coburn is concerned enough that he voted for the commission's recommendations on attacking the deficit, even though they included tax increases he doesn't like.

Compared to the focus on the mushrooming cost of entitlement programs—Medicare, Medicaid and Social Security—this mounting interest bill doesn't get much attention. It should.

When the government pays for health care for its poor and elderly, a valuable social benefit is delivered. When Americans get a Social Security check, the money by and large stays in circulation in the American economy.

The same can't be said for interest payments, which take money out of the private economy, sending much of it to foreign investors who hold American Treasury bonds and provide no services in return. A recent study of the debt sponsored by the National Academy of Sciences cites one credible projection that, by 2030, the U.S. could be transferring 7% of its entire economic output, or $2.5 trillion, to foreigners every year to service its debt.

The really sinister part of America's interest bill is that it just gets worse the longer Washington waits to act on the budget deficit. The math and the logic are simple and unavoidable. Big deficits require taking on more debt, which in turn adds to the interest payments required to service that debt. In short, it's a Ponzi scheme.

And the cost of delay comes not merely in dollars and cents, but in lost opportunities. Every dollar spent servicing the debt is one dollar less to spend on health care or invest in education or use for social programs. Liberals ought to be at least as worried about the mounting debt as conservatives are, for it presents a genuine long-term threat to the programs they most cherish.

The good news here is that the interest demon can be brought under control. The budget President Obama presented last month contains enough deficit reduction to reduce interest payments by $325 billion over the next decade. The problem is, it presumes some new taxes on the wealthy but doesn't propose any serious new reductions in the cost of entitlement programs.

If Washington can get its arms around those entitlement costs sooner rather than later, a virtuous cycle of lower interest payments can begin to replace the upward spiral. Waiting comes at a cost, measured in wasted billions of dollars.

http://online.wsj.com/article/SB10001424052748703883504576186163767307644.html?mod=ITP_pageone_4
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http://uk.finance.yahoo.com/news/Overheating-East-falter-tele-3737216260.html;_ylt=Akoo4TT3NNo1z09oLMlJk1jSr7FG;_ylu=X3oDMTE4aXM4aGkzBHBvcwMyBHNlYwN5ZmlUb3BTdG9yaWVzBHNsawNvdmVyaGVhdGluZ2U-?x=0
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The safest bonds in the world
Commentary: Norway’s savvy investing pays off

Wall Street will tell you that government bonds issued by advanced Western countries are the safest investments money can buy.
But recent events have made a mockery of that idea. If it weren’t for international rescue packages, Greece, Ireland and Portugal surely would have defaulted on their bonds.
Don’t think the trouble’s going to end there. Spain’s finances are in trouble. Italy’s net debts are 100% of its gross domestic product.
Germany’s OK and so is Switzerland. But how much of Europe’s bad debts are their banks holding? Money men here in London suspect that the German banks are the new Lehman Brothers Holdings Inc. (LEHMQ 0.04, -0.0014, -3.51%)  , hiding massive losses in places like Spain down in the fine print.
Elsewhere, public finances are in disarray. Japan’s debts are off the charts, more than twice the size of the economy.
America’s net national debt is just hitting 100% of GDP and is rising quickly. The country can’t even fix its own problems. Last Friday was a harbinger: The United States came within an hour of an embarrassing government shutdown. That crisis probably won’t be the last.
Yet Wall Street continues to insist that U.S. Treasury bonds are “risk-free.”
In this mess, who can you trust? If you fear a meltdown, which countries, if any, actually have safe and sound public finances?
There aren’t many.
Dollar looks more ill than thought
Not only are yields moving against it, but debt-default fears and reserve diversification are conspiring to ensure that the dollar doesn't have an early recovery.
According to the International Monetary Fund, only a handful of countries are really rock solid.
They include Australia and New Zealand, as well as the countries of Scandinavia — Denmark, Finland, Sweden and Norway.
While most developed countries have racked up huge debts, these guys have kept their liabilities small in relation to their economies, according to the IMF. They have well-funded public pension plans. A few have no net debts at all.
The country with the strongest finances? Norway.
By the IMF’s own calculations, Norway’s public savings exceed public debts by 160% of GDP.
No kidding: In the IMF’s tables, Norway’s “net debt” figure comes up with a big minus sign.
Nowhere else comes close.
The reason for this miracle? Norway has a ton of North Sea oil. But instead of blowing its oil windfall on tax cuts and a housing bubble, like any normal country, Norwegians decided to save for a rainy day.
They’ve diverted their oil revenues into the Government Pension Fund Global, which the Ministry of Finance invests in a diversified portfolio of stocks and bonds — outside the country.
The fund is now worth $512 billion, making it the second-largest sovereign-wealth fund in the world.
Some will say they’re lucky. Look at all that oil.
But lots of countries have precious natural resources. Most just blow the money. The United States hasn’t been short on oil, coal, natural gas and any number of other resources. And look at our national debt.
Great Britain had a lot of North Sea oil, but it is also heavily in debt. Most of the money went to finance tax cuts in the 1980s, and unemployment insurance for millions of unemployed.
Most countries use public pension money to buy their own bonds. Norway’s money goes abroad.
By law, Norway can only spend the fund’s real return each year — after deducting inflation and costs. Last year, that paid 13% of the government budget.
Norway’s fund is mostly managed directly by the Ministry of Finance. But it has made a real annualized return of 3.1% a year since 1998. (That was when it first became a properly diversified fund of stocks and bonds.) That’s after inflation and costs.
Total gain: 49%. Not bad.
Bear in mind that 1998, near the peak of the stock-market bubble, was a poor year to start investing in stocks. Bear in mind too that these returns are in krone. The krone has boomed during that period, depressing returns in local terms.
For most of that time, the fund was 60% bonds, 40% stocks. Now it’s the other way around; the weighting is heavily toward Europe.
To put this in context: According to FactSet, over the same period a Norwegian investor in Vanguard’s Total (U.S.) Stock Market Fund would have made just a 23% return (in krone). In Vanguard’s International Stock Index fund he or she would have made 46%, and in the Total (U.S.) Bond Market Index Fund, 57%.
As for costs? They come to just 0.1% a year.
The real twist here is that despite all this, Norway’s government bonds currently pay higher rates of interest than U.S. Treasury bonds. (Admittedly, a U.S. investor has to take account of exchange-rate risk: If the krone falls against the dollar, you’ll get less back. If it rises, you’ll get more.)
Ten-year Norwegian bonds, which you can buy through a broker, yield 3.9%. A 10-year U.S. Treasury: 3.5%. Which one would you rather own?

http://www.marketwatch.com/story/the-safest-bonds-in-the-world-2011-04-12?siteid=rss
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As Gordon Gecko once said "If you're not on the inside, you are on the outside"

Banks Woo Funds With Private Peeks

One day in early March, the phone lines of hedge-fund traders around London and New York suddenly lit up. A stock that many of them had placed hefty bets on—Pride International Inc., an energy company in the process of being sold to a rival—was falling. The traders had no idea why.

They soon figured it out: J.P. Morgan Chase & Co. had hosted a meeting that day between a handful of hedge-fund traders and executives from a company that was considered a prime candidate to start a bidding war for Pride. One of those executives had indicated they weren't likely to make a bid.

The lunch meeting casts a spotlight on a practice that has long occurred in the shadows of Wall Street and the City of London—but which is now causing concern among regulators and some banks.

Investment banks vie for business from elite hedge funds by offering traders at those funds special access to senior deal makers and corporate executives at dinners and other gatherings. The traders sometimes pick up valuable nuggets of information that aren't available to other investors, according to people who have attended such gatherings.


The meetings are held by many of the world's largest investment banks for their hedge-fund clients. The funds are prized clients because they collectively pay billions of dollars in fees each year for buying and selling stocks. Banks including Bank of America Corp., Barclays PLC, Citigroup Inc., Credit Suisse Group AG, J.P. Morgan, Morgan Stanley, UBS AG and Scotiabank host the gatherings, generally several times a year or more, according to traders, bankers and brokers.

Representatives of the banks say their investment bankers aren't permitted to discuss material nonpublic information, and that the meetings serve a legitimate business purpose. In addition to helping the banks win trading business, the get-togethers allow the bankers and corporate executives to cultivate relationships with the hedge funds, the banks say. The funds often are major shareholders in multiple companies and frequently help determine the outcome of key corporate events that are subject to shareholder approval, such as mergers and acquisitions.

But the longstanding practice is coming under fresh scrutiny as regulators in the U.S. and U.K. try to discourage the dissemination of market-sensitive information to select groups of investors. Amid intensified scrutiny of insider trading, the U.S. Securities and Exchange Commission recently warned some banks that they need to be careful that such meetings don't result in the improper exchange of privileged information, according to people familiar with the matter.

Under insider-trading laws, it is generally illegal to buy or sell securities based on "material," or significant, information that isn't publicly available. Securities lawyers say the appropriateness of the meetings banks set up with hedge-fund traders depends on whether such information changes hands and is subsequently traded upon.

It is unclear how often useful trading information is disseminated in the meetings.

The meetings appear to have made some banks nervous. Goldman Sachs Group Inc.'s compliance department last year barred its brokers from arranging dinner meetings between Goldman's bankers and outside hedge-fund traders, say people familiar with the matter.

Bank of America's investment-banking arm, Bank of America Merrill Lynch, this year cut down on the gatherings after the SEC expressed concern, although it still allows them in some circumstances, according to people familiar with the matter.

The increased scrutiny comes as prosecutors in the U.S. and U.K. are pursuing a variety of insider-trading cases, some involving information that hedge funds allegedly received from officials at banks and through so-called expert networks. A New York jury last week convicted hedge-fund magnate Raj Rajaratnam of insider trading, including trading on confidential information from a Goldman director. British authorities, meanwhile, have intensified their scrutiny of investment bankers' communications with the media as part of a crackdown on leaks about planned corporate transactions.

Many banks nevertheless continue to hold closed-door meetings with hedge funds on a regular basis, according to traders, bankers and other industry officials. Banks try to differentiate themselves from rivals by dangling access to key players—coveted by hedge funds, for which incremental bits of information can be extremely valuable.

Many banks enlist their senior investment bankers to attend dinners and other private gatherings with hedge-fund traders. Last September and October, for example, Credit Suisse held about a dozen meetings for small groups of investors. Each meeting featured a senior Credit Suisse banker with expertise in a specific industry, who was available to answer questions from the hedge-fund officials.

The banks also set up lunches and other "corporate access" meetings that give the traders the chance to grill top corporate executives about pending deals and other matters.

Such opportunities are rarely available to individuals and other small investors.

The meetings, generally involving at most two dozen hedge-fund traders, sometimes veer into discussions involving potentially sensitive information, for example about planned or pending mergers and acquisitions, according to people who attend the gatherings.

On March 8, for example, the small group of investors gathered at J.P. Morgan's offices in central London for lunch with executives from Seadrill Ltd., an offshore-oil drilling company. The handful of attendees included representatives of hedge-fund companies GLG Partners LP and SAC Capital Advisors. No J.P. Morgan bankers were present, according to one J.P. Morgan official.

J.P. Morgan arranged the meeting at an opportune time. Speculation had been swirling that Norway's Seadrill would bid for Pride, its U.S. rival, which had agreed to sell itself to Ensco PLC in a $7.3 billion deal that had not yet been completed. Seadrill owned a nearly 10% stake in Pride and had previously made no secret of its desire to fully acquire the company.

On Feb. 24, following the announcement of the Ensco-Pride pact, Seadrill had said it had "not decided how to react to the present offer, but we appreciate Ensco's effort to consolidate the industry. We will consider our options in the coming weeks."

The prospect of a bidding war had lifted Pride's shares above where they likely would have traded in the absence of a potential interloper.

At the March 8 lunch, though, as the traders munched on scallops and fish, Seadrill vice president and board member Tor Olav Trøim splashed cold water on the idea of a bid. He recalls telling traders that the company's Feb. 24 statement was "not normally what you would say if you were interested in bidding yourself."

His intended message, according to one person familiar with the matter, is that Seadrill was "very unlikely" to launch a competing offer for Pride.

The information was market-moving, traders say. In the hours after the lunch, some traders wagered that the odds of a bidding war had declined. Seadrill's shares rose more than 1% as it was viewed as less likely to pursue a costly acquisition. Pride's shares fell by about 0.5% in the minutes before markets closed.

The moves may seem small, but they were significant for "merger arbitrage" traders, who make short-term bets on deal stocks. In the case of the Ensco-Pride deal, the movements translated into a sudden 64% spike in the deal's "spread." That arcane measure reflects the difference between a target company's stock price and the per-share value of the acquirer's offer. The spread is closely watched by hedge funds that focus on merger arbitrage, which stand to gain or lose large sums based on the spread's movement.

As the shares moved, anxious investors bombarded Seadrill's investor-relations office with phone calls, trying to figure out whether the company had issued new guidance about its appetite for bidding on Pride, according to a person familiar with the matter. Company officials responded that they hadn't released any new information.

Mr. Trøim says Seadrill executives regularly meet with large and small investors and that it is appropriate to help them understand the company's strategy. "We cannot see that we in any way have crossed any lines for giving privileged information," he says.

It is unusual for the meetings to yield market-moving information about pending deals. Regular participants say traders are more likely to come away with a deeper understanding of a specific industry or company or of a certain chief executive's temperament and management style.

Still, some hedge-fund officials say they regularly attend the meetings in part out of fear that they'll miss the one that yields a valuable nugget.

Spokesmen for some of the banks say that to ensure nonpublic information isn't improperly shared, the gatherings are chaperoned by bank compliance officials who vet traders' questions in advance.

Several bankers and traders who regularly attend such meetings dispute that characterization. They say compliance officials are rarely present. The discussions, they say, often are free-wheeling and delve into the latest chatter about companies that are in play.

Some bankers say the meetings make them uncomfortable because they feel under pressure from the investors to divulge sensitive information.

"It made me congenitally nervous," said a banker who until recently worked at a top Wall Street investment bank. "It certainly should be on [regulators'] radar."

"There's clearly an element of risk in it," another banker said. "You're relying on a banker's judgment and on him not having too much to drink."

Hedge funds are a big business for banks. U.S. and European hedge funds last year shelled out a total of about $3.7 billion in brokerage commissions to banks for equity trades, according to research firm Greenwich Associates.

Large hedge funds generally have relationships with many banks. They route their trades based on a variety of factors, including the fees charged by banks and their ability to get the best price for whatever security the hedge fund wants to buy or sell.

Hedge funds, craving any information edge over other investors, sometimes also route their trades through firms that get them in the room with plugged-in bankers and executives, according to traders and bankers.

"If you can provide your client with good information, that distinguishes you," one banker says.

The meetings with bankers and corporate executives are useful not just for the information gleaned over dinner. Afterwards, traders sometimes phone their new acquaintances, peppering them with questions about specific deals.

At around 7 o'clock on a December morning, a senior Citigroup banker was boarding a commuter train on the outskirts of London when his cellphone rang. On the line was a hedge-fund trader he had met a few nights earlier at a dinner hosted in a plush Citigroup dining room.

The trader called with questions about a potential takeover deal the banker was working on for a client. The banker said he couldn't talk openly about a sensitive topic while on a crowded train. But he invited the trader to throw out some theories about his client's strategy. When the trader hit on the right one, the banker replied: "That's a pretty good explanation."

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