ItsAValueTrap

Gun stocks?

What I'm saying is that regulators, ideally, would get rid of unfair advantages. 1a- I think the easiest problem to deal with is the sub-penny front running (subpenny pricing + "price improvement"). I don't know if Michael Lewis talks about this in his book. I think the sub-penny stuff is the easiest to understand: retail and investors are not allowed to buy shares of XYZ at $3.0001. Other market participants can, and that gives them an unfair edge. 1b- Related to subpenny front running is the rebate structure, which can be thought of as another form of sub-penny pricing. 2- The speed advantage that HFTs enjoy. I'm not sure if regulators should try to address that. The private market might do it on its own with IEX. 3- The weird order types that allow market makers and HFTs to post huge amounts of liquidity that get cancelled when you try to take it. 4- There are obscure loopholes in NBBO rules that are being exploited. I think regulators should address those. Related to this is all the ways in which retail order flow is abused. This leads to skimming and I think regulators should address that. As Thomas Peterffy argued, the futures markets have done pretty well without market makers. The futures market has a few problems but it hasn't had a flash crash-esque type crash (other than the 1987 crash).

But that would be a good thing, because overall costs should go down. The exchanges and market makers make money from skimming money from people who trade on exchanges. If this skimming didn't happen, then sure the exchanges would probably need to raise their rates. But overall, investors should benefit as their overall costs come down.

Um... yes it has. You can get paid a negative rebate and/or get price improvement. If you take liquidity on EDGEA, you get paid a negative rebate of 2 cents / 100 shares. With CBSX it's more. With price improvement it can be more. This happens most frequently on highly liquid stocks with a low share price above $1, e.g. Sirius XM. It's more likely to happen when spreads are very narrow and volatility is low, e.g. not near the market open or close.

I think you haven't realize that other parties have been front running and skimming small amounts of money from your trades. It's usually very, very small amounts of money. If you place limit orders then other parties cannot skim more than the bid/ask spread, which is usually a penny. So on a buy and a sell order, you might lose some fraction of a penny for every share you trade. *There may be exceptions where they can skim more. For example, NBBO rules don't apply to the closing cross. **For the sake of simplicity, I ignore rebates. I suppose that institutional investors are bigger losers from the current market structure. 2- If you place limit orders, you will lose a small amount of money to front running. There's the whole sub-penny front running game going on. If you look at the time & sales for massively liquid stocks like Sirius XM or the old Citigroup, you will see lots of trades going off at sub-penny prices like $3.0001/share. There are other games that go on. For example, let's say that you are retail, you want to buy Intel, and your broker actually routes your order to an exchange (which rarely happens, but suppose that it does). Let's say it goes to NASDAQ. Those taking liquidity on NASDAQ pay a rebate of 29 cents for every 100 shares last time I checked. NASDAQ - 29 cents BATS - 25 cents EDGEA - negative 2 cents Sellers, if they are rational, will take liquidity on EDGEA first. Then they try BATS next. Then NASDAQ. (Assuming that there is no price improvement going on.) Most retail brokers will simply pocket these rebates. So they post your order onto NASDAQ, where you are the last in line to get filled. When you do get filled, the broker keeps the rebate. If you wanted good execution, it might be better for you to have your order posted on BATS or EDGEA (or ARCA). But because your broker wants to make money, they might post your order on NASDAQ (29 cents), NITE (30 cents), or ISE (31 cents). 3a- On most of the ECNs out there, market makers and HFT guys typically have orders for hundreds of thousands of shares already posted. Most of those orders are fake and usually get cancelled. But the reason they post those orders is so they get to sit at the front of the line. The market makers and HFT guys might have orders for 500,000 shares of Intel at the bid (and another 500k for 1 cent less than the bid, 2 cents less, etc.). They might only want to trade 50,000 shares or some small fraction of that 500k. But they have their spot in line reserved for 500,000 shares. 3b- The real problem is the price improvement front running. Institutional investors and retail investors aren't allowed to do it. So those who have access to offering "price improvement" (a form of legalized front running) can cut in line if they offer some amount of price improvement, even if it is a miniscule amount like 1 penny for 100 shares.

Thomas Peterffy, the CEO of IBKR and somebody who made his first fortune in market making, delivered a pretty scathing speech which you can find here: http://www.futuresmag.com/2010/10/12/thomas-peterffy-world-federation-of-exchanges-keyn "Are market makers necessary in mature markets? I am not sure." <-- Coming from somebody who made his first fortune in market making. 2- I am really surprised that nobody has mentioned sub-penny front running. Clearly it is a form of skimming. 3- To be fair, trading costs (explicit commissions + skimming) are lower than ever before. 4- I'm not sure why some people say that retail investors have it better than institutional investors. Retail order flow often gets routed to internalization companies like Knight Capital Group, where they play all sorts of games with retail orders.

The US Visa system can be very difficult. Immigration lawyers tend to put up good information on their websites (because they want to attract clients) if you really wanted to learn about it. The latter. It's likely a lose-lose situation if you bring it up. From the company's perspective, they are the victim of stupid visa laws. From the foreign workers' perspective, they just want to advance their position in life (like you, when you immigrated). Perhaps some of them are truly talented and would like to move to the US; unfortunately for them it won't be happening. Is it fair that they should have less opportunities in life because they weren't born in the right country? As far as you go, the company may retaliate against you. From your boss' perspective, your boss would rightfully be pissed off if one of his employees was trying to sabotage the company.

Both online retail and online advertising generate a lot of value. I can see this pie growing. I actually like that a lot of software companies are coming into the stock market via IPO. Some of them are wonderful businesses with very high returns on capital. Many of the management teams are honest people. They are creating a lot of value. Contrast that with the mining, oil&gas, and pharma garbage that it is being IPOed. Many of those businesses have very poor economics and few of the management teams are honest. (*Disclaimer: I own some mining stocks via Altius Minerals and I don't own any Web 2.0 stocks.)

Interesting read. Thanks!

Mortgages are usually securitized in such a way that the servicing rights are cash cows. The party that owns the servicing rights gets paid a lot more than what its costs to service the mortgages. The actual cost of servicing mortgages depends on a number of factors and the income stream from servicing rights also depends on a number of factors. (Uh... it's a little complicated.) The cost of servicing has gone up due to new regulations and the unusually high level of foreclosures. The high level of foreclosures reduces the profitability of MSRs because the servicer is paid based on the unpaid balance. The servicer has some incentive to avoid foreclosures. However, it costs money to do this because it's a different ballgame that collecting money from homeowners and doing paperwork. You need to hire people to communicate with homeowners and to process loan modifications. I'd encourage you to do more research and to read the prospectus for a mortgage-backed security (they're on EDGAR).

Mortgage servicing seems to have better economics. But in both industries I think that it comes down to management. Insurance is generally a bad business. But those who are really good at it can make a lot of money. Look at Buffett's history. He loves well-managed insurance companies and otherwise shuns the insurance industry. Mortgage servicing is inherently a high-margin business. Contractually, the servicer is intentionally overpaid. (That leads to excess servicing rights.) If servicing rights are sold to another party then it's arguably a "low-margin" business if the purchaser has financing costs.

Geez. While I am shorting a bunch of stocks and trade against other people on this board (ATPG, PRXI, SD, etc.)... I would never short Facebook. Facebook and Google advertising works and is extremely compelling to advertisers. Affiliate marketer run blogs where they talk about how much money they make. Some of them advertise on Facebook and make a lot of money on it. On a cash flow basis, Facebook doesn't look overvalued at all. I wish you the best of luck on your short.

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At least you didn't get freezing rain and power outages...!

No, I'm not in the restaurant business. It just struck me that a lot of people in the business say that it's not so great. Anthony Bourdain says not to do it. David Chang had a rough time with the business side (this is from reading his cookbook). It always struck me as a very, very difficult business. But people rationalize it away, plunge in with their life savings, and some of them end up crying on camera on Kitchen Nightmares. (I would too if I lost most of my life savings. There's the dignity aspect too because your friends will envy you for being your own boss, and you lose that when you lose your restaurant.)

That smells fishy to me. Haven't you watched Kitchen Nightmares? The restaurant business is not easy. Also, his numbers don't make sure. He should go out and hire a 37k/yr chef and a 30k/yr manager if it was so easy to make 53k/yr. I have a feeling that his restaurant is extremely marginal and he wants to get out of it because it's a bad business for him.

Adam Feuerstein writes a lot of interesting things about pharma stocks. Here's his piece on PVCT: http://www.thestreet.com/story/12261242/1/the-obsolescence-of-provectus-skin-cancer-drug-means-current-speculative-run-ends-badly.html *Disclosure: I am short PVCT. I shorted PVCT before I read Adam Feuerstein's piece and didn't do that much research on it. I figured I would short it because Alpha Capital Anstalt was involved and because the company spent more money on G&A than R&D.

It's like spending the money on a vanity license plate that says THRIFTY. ;)

Companies that can raise prices without losing customers are arguably some of the best investments around. They're raising their earnings without investing any capital.

Watch the Doug Dachille lecture and read Buffett's letters on derivatives. Derivatives will show up as level 3 assets. But as Buffett says, it is difficult to judge risk without going through a company's derivatives book. On the other hand, Buffett has invested in Goldman Sachs via the preferred shares... Goldman likely has a derivatives book. So that's mostly a bet on them not being stupid with derivatives (and the government bailing them out).

Outstanding! No need to throw away money on a flashy website. At least their website looks better than this one for a multinational corporation: http://www.berkshirehathaway.com/

In theory, the North Dakota / Bakken shale producers are at risk because they flare a lot of wet natural gas. They just burn it, it goes to waste, and contributes to more carbon dioxide in the atmosphere. The economics of wet natural gas aren't that great if the area lacks infrastructure. You cannot sell wet natural gas because it burns too hot. Most pipelines won't accept it because (I'm not sure but I think this is the reason) the ethane will turn into a liquid if the pipeline is applying lots of compression. So you need cyrogenic processing plants to get rid of the ethane in the natural gas so you have "dry" natural gas. 2- There are major environmental movements against: A- oil and gas pipelines like Keystone XL. There are also environmentalists who want to stop Kinder Morgan's Canadian pipeline expansion. B- fracking. Environmentalists have concerns about water pollution and whether fracking might cause earthquakes. In New York fracking is banned. In my opinion, a lot of environmentalists are misguided. The real problems with water pollution happen when companies improperly dispose of the water that flows back after fracking. The right way to do it is to inject the water into a well. The wrong way is to dump it into rivers (e.g. they send the water to a plant for processing, the plant doesn't process it properly so they make easy money, and they just dump the water into the river). 3- IMO the biggest risk in oil and gas stocks is reserve inflation. Almost every company does it. You can commit fraud without almost no consequences or repercussions, and most investors are too unsophisticated to ask the right questions.

Look at stocks like AGNC... that yield! ;) (AGNC may actually be one of the better managed companies in the business of buying mortgage-related securities on a leveraged basis.) The FHA and the GSEs are also lenders. Weirdly enough, during the subprime crisis, it was not the FHA / Fannie / Freddie who were making dumb loans. It was the private sector originating all of the NINJA loans and the other nonsense loans. Unfortunately, Fannie and Freddie bought lots of mortgage backed securities which owned those loans. The ridiculously low downpayment on a FHA mortgage seems dumb but it might actually work. (The effective downpayment used to be close to 0%.) Things may not necessarily end badly for that type of lending.

The Bronte Capital letters suggest that they own Verizon and possibly other non-Australian telecoms. http://brontecapital.com/Letters.html

You can check to see if a company's taxes make sense. However, some frauds will intentionally overpay their taxes to avoid suspicions. This happened with Crazy Eddie.