Archive for federal reserve bailout of mutual funds (TALF)

MF Global, Flatfooted Regulators & Chesapeake Energy, 401(k)s

Posted in Uncategorized with tags , , , , , , , , , , on November 3, 2011 by economicwarrior

It appears that all of the regulators, the SEC, the New York Fed, Finra, the CME and the Commodities Future Trading Commission (CFTC) were all asleep at the wheel when Jon Corzine’s $6.3 billion trade in European bonds sank the trading powerhouse. It appears at least $600 million, maybe $700 million is missing and nobody has a clue where the money is, its customers money.

But the reason, regulators who theoretically oversea the securities markets are all part of the revolving door between Wall Street, the government, the banking industry, and often Ivy League academia. The William Dudley, who runs the New York FED, is a former Goldman Sachs Banker. Mary Shapiro, who runs the SEC, used to be the CEO of Finra. The Commodities Future Trading Commission Gary Gensler, is a former Goldman Sachs banker and an aide-de-camp of Larry Summers when he was the go-to economic guy for U.S President William Jefferson Clinton. Richard Ketchum, the head of Finra, used to be chief counsel for Citigroup’s investment bank, a bank which would not exist without bailouts from the taxpayer. Don’t know much about Craig Donohue of the CME Group, but reckon he was making a Pirates pay of around $3.6 million in 2006. It is all just one big incestuous revolving door. Woe is us.

Chesapeake Energy’s CEO Aubrey McClendon, shows that outrageous pay is not just confined to The Pirates of Manhattan. It appears shareholders–who at the end of the day most likely to be funded with your 401(k), are thrown under the bus on a routine basis. As usual, CEOs extract monstrous paydays while rank and file employees get thrown under the bus. As I document in my upcoming book, The Pirates of Manhattan II: Highway to Serfdom, Chesapeake Energy has thrown rank and file folks into target-date mutual funds, while CEO Aubrey McClendon robs the store. In 2008, McClendon extracted $112 million in compensation, and sold 500 antique maps to his company for an eye-popping $12.1 million.

It does not appear that much will change in this corporate American culture. But more will be revealed in the next book as how your 401(k) actually fuels this mess. As Don Corleone from the Godfather once said, “A man with a briefcase can steal more money than a hundred men with guns.”

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Absolute Returns Are An Absolute Joke

Posted in Uncategorized with tags , , , , , , on October 28, 2011 by economicwarrior

“The mutual fund industry offers investors a remarkably wide range of strategies to suit their investment needs. The absolute-return strategy is one of many offered for investors to choose from.  As with all funds, the strategy’s approach and risks described in detail in fund disclosures.”  Rachel McTague, InvestmentNews, October 24, 2011

The greater fool theory is alive and well on Wall Street. The asset management industrial complex–who I call The Pirates of Manhattan, in its continual obsession to sell consumers financial products of questionable value have led the consumer into another maze of blatant misrepresentation.

Absolute, according to the American Heritage Dictionary. means 1. perfect in quality or nature; complete 2. Not mixed; pure: absolute alcohol.

The asset management industrial complex are master wordsmiths, spin doctors extraordinare. Calling mutual funds an absolute return is a scam, there is no absolute returns in the market, yet The Pirates of Manhattan continue to play God. Absolute return funds, which lifted the branding name from the hedge fund industry, maintains that they can achieve a positive return no matter the market will do. Of course everyone would want to achieve positive returns, we all want to be rich, good looking and have are children become Rhodes scholars. This of course is a blatant lie, promoting the greater fool theory is alive and well on Wall Street for the masses.

According to Morningstar, the average absolute-return fund it tracked up to the end of September 30, 2011, was a drop of -4.4%, not bad as the -10% drop in the S&P 500, but certainly not positive. And although this market reaches new zeniths on the chimera of a recovery of the European debt crisis, no doubt more pain is in store as the problems of the welfare-state and a dysfunctional banking system remain alive, a sickness so strong it is doing push ups in the parking lot.

Of course, the holy water for Wall Street is greater disclosure of the risks in prospectuses which no one reads. But this absolute scam of absolute return mutual funds is nothing in comparison to the complete transfer of wealth with target-date mutual funds, which make collateralized debt obligations and derivatives a game of marbles. The Pirates of Manhattan II: Highway to Serfdom is coming soon. www.thepiratesofmanhattan.com

Check out the article in InvestmentNews www.investmentnews.com, ‘Absolute return’ is absolute nonsense’ by Jeff Benjamin

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Mutual Fund Failures: Groupon, Risk Management and the Ultimate Exploitation of Other Peoples Money

Posted in Uncategorized with tags , , , , , on September 29, 2011 by economicwarrior

We made a post earlier in the week about the impending implosion of the social media bubble, it appears that highly touted firms like Chicago’s Groupon is bleeding buckets of red ink…hundreds of millions…and it cannot record revenues correctly…ghosts of the internet bubble. But giants of the asset management industrial complex, Fidelity Investments, T. Rowe Price, Capital Group (American Funds) and Morgan Stanley as well as Russia’s DST Global are the major investors behind Groupon, and sunk around $950 million into the web-based discounter.

Mutual fund managers are not the first string risk managers they pitch in their advertisements. In my next book, The Pirates of Manhattan II; Highway to Serfdom www.thepiratesofmanhattan.com about the asset management industrial complex, we illuminate how BlackRock, Fidelity, Federated, Janus, T. Rowe Price were bailed out by the Fed when Lehman Brothers collapsed.

Grant’s Interest Rate Observer sent an analysis to this office and it struck the fear of God in me when I saw mutual fund giant’s average exposure to European banks in mutual fund money market accounts. With $435 billion in money market funds from Fidelity, Vanguard and BlackRock essentially earning zero percent interest, on average mutual fund exposure to European bank debt average 41%, with Vanguard having the lowest concentration of 23%.

Groupon and money market mutual fund exposure to European bank debt should be a wake up call to anyone…

I don’t think much of the diversification mantra promoted by Wall Street and the asset management industrial complex. Target-date mutual funds, the latest product du jour are diversification on steroids. Jim Leech, who runs the $105 billion Ontario Teacher’s Pension Plan said this recently. “In our view, investing is all about conviction…sometimes many funds underperform because they become too diversified.” Amen.

An analysis we did on the Fidelity Freedom 2020 target-date retirement fund found that it had over 3,000 individual stocks…mutual funds, like the rest of the asset management industrial complex is all about exploiting the use of other people’s money.

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