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Today's Top News1. Is the fiscal cliff a buying opportunity?
The fiscal cliff looms over the whole market, and this just might produce some interesting trading ideas. Hedge funds and others will be all ears, as the drama plays out. Guggenheim Securities analyst Marty Mosby has put forward an interesting idea on Bank of America, as noted by TheStreet.com. Mosby is bullish on the stock. His 12- month target is $12 a share, which would represent a nice premium over the current price. But he also think the stock could be in for short-term turbulence due to the fiscal cliff drama. Mosby has told clients that he believes "BAC could trade below $8 over the next three months if it becomes apparent that the U.S. economy is about to be pushed over several of the upcoming Fiscal Cliffs." The analyst's "short-term trading range for the next three months for Bank of America is from $7 to $8 a share, based on a 60 percent price to current tangible book value multiple. BAC currently trades at 73 percent of current tangible book value." So what are the risks to this idea? It all depends on fiscal cliff drama intensifying to the point that stocks react significantly on the downside. The firm is convinced that this could happen. According to Guggenheim's Washington Research Group, several major sticking points need to be addressed before "there can be real optimism on a deal to prevent December ending like Thelma and Louise." Mosby argues that "the risks to this tactical trading call are twofold: Washington politicians work together to craft the 'Grand Bargain,' avoiding the upcoming Fiscal Cliffs, or the economy builds up enough momentum to absorb the unfavorable impacts of higher taxes and spending cuts and still keep growing." For more: Related articles: Read more about: Sequestration, Fiscal Cliff
2. Zoe Cruz starting over -- again
It's not easy being the "most powerful woman on Wall Street." Even after you leave the position that earned you the mythic title, you will always be in the public eye. And so it goes with Zoe Cruz, the former Morgan Stanley co-president who was terminated in the midst of the financial crisis by her mentor, then-CEO John Mack. Since then, she has struggled. She tried gamely to establish a hedge fund, but she was forced to shutter Voras Capital earlier this year. Now, another personal setback has been revealed. The New York Post reports that "Cruz is going through a divorce from her longtime partner and fellow financier, Credit Suisse honcho Ernesto Cruz, while she also tries to make her return to high finance." The couple had "been married for more than three decades. They have three children, with the youngest still in high school. Cruz, a Greek immigrant (née Papadimitriou) who arrived in America when she was a teenager and methodically climbed the Wall Street ladder, was blind-sided by the divorce…" One source was quoted saying, "She never saw this coming." It remains to be seen if this derails her attempt to make a comeback on Wall Street. Reportedly, she and Mack, with whom she has reconciled, are angling to get her a job with a top private equity company. I can only hope she picks up the pieces and gets on with her career. She is obviously a formidable executive. For more: Related articles: Read more about: Zoe Cruz 3. Warren Buffett on alternative investments
Warren Buffett is definitely old school. He's still got some Wall Street "cred" because Berkshire Hathaway has fared well. "If somebody bought Berkshire Hathaway in 1965 and they held it, they made a great investment — and their broker would have starved to death," Buffet said in a recent interview with DealBook. But Buffet's not enamored of the current crop of alternative investment gurus. When columnist Andrew Ross Sorkin asked if there were any private equity investors that he admired, he flatly replied: "No." When asked if he followed any hedge fund managers, "he struggled to name any, before saying that he liked Seth Klarman, a low-key value investor who runs the Baupost Group, based in Boston." He was quoted by Dealbook saying that, "They're not as good as the old ones generally. The field has gotten swamped, so there's so much money playing and people have been able to raise money by just saying 'hedge fund,'" he said. "That was not the case earlier on; you really had to have some performance for some time before people would put money with you. It's a marketing thing." He remains a fan of Julian Robertson, an example of an old-school hedge fund manager. All in all, people would have done better investing in Berkshire Hathaway rather than any hedge fund. As long as that holds true, he has the right to criticize. For more: Related articles: Read more about: Hedge Funds, Private Equity 4. HFT vs. retail in S&P 500 futures
If you're an avid reader of FierceFinanceIT, you know that I've often noted that the lifeblood of some high-frequency stock traders is the retail sector. That's the order flow that is juiciest, where the big profits are to be had. This is not new. What is new is a study from the outgoing chief economist at the CFTC, Andrei Kirilenko, who will soon take a position at MIT. As noted by the New York Times, "Using previously private data, Mr. Kirilenko's team found that from August 2010 to August 2012, high-frequency trading firms were able to reliably capture profits by buying and selling futures contracts from several types of traditional investors…The researchers found that more aggressive traders accounted for the largest share of trading volume and made the biggest profits. The most aggressive scored an average profit of $1.92 for every futures contract they traded with big institutional investors, and made an average $3.49 with a smaller, retail investor. Passive traders, on the other hand, saw a small loss on each contract traded with institutional investors, but they made a bigger profit against retail investors, of $5.05 a contract." This phenomenon was underway in the stock market as well. But as retail liquidity dried up--and it's unclear if the HFT trading really pushed them out of the market--the high-frequency traders have been wounded. Many continue to ail amid the low retail volume and low volume in general. All this points to the need to re-think the current market structure, perhaps making peace with the two-tier system that has evolved. For more: Related articles: Read more about: Market Structure, HFT 5. Bank branches continue to morph into cafes
When it comes to bank branches, we're always in a middle of a revolution. People are always pledging to do away with the traditional branch offices and replace them with something sleek and modern. Recall that Commerce Bank, led once upon a time by Vernon Hill, was a leader in a movement to recreate branches in the image of more inviting and convenient retail stores. Leadership of the transform-the-branch movement has since shifted to Umpqua. With just 150 branches, it has emerged as trend-setter in reimaging the bank branch as place that someone would want to spend time at, even if they are not strictly banking. Internet access figures prominently in the plans. More banks are moving in this direction, inspired by the likes of Apple and Starbucks. Capital One, for example, plans to open at least six branch offices in the Boston area starting next year. They will not be traditional branches, notes Boston.com. "Instead, they'll be sleek marketing offices, called 'cafes,' that will serve up coffee and other amenities. If they are anything like cafes in other cities, they will include free wireless Internet access, flat-screen televisions, and comfy furniture for hanging out…Capital One's cafes, already operating in eight cities, don't have tellers to handle deposits and withdrawals, bankers to handle loans, or safe-deposit boxes to store valuables. They're designed to introduce consumers to its online bank." Citigroup has been experimenting with this approach in Singapore, and may migrate the experience to the U.S. at some point. Lots of banks are pondering this movement. For more: Related articles: Read more about: Bank Branches Also Noted
SPOTLIGHT ON... SEC charges China units of audit firms The nasty battle between U.S. regulators and the China units of big accounting firms stepped up, as the SEC has charged the China affiliates of Deloitte, KPMG, PricewaterhouseCoopers, BDO and Ernst & Young. The PCAOB and SEC have been seeking information related to the audits of imploded reverse mergers. But the China affiliates have refused, saying they are governed by Chinese law. That has prompted the SEC to play hardball. Article Company News:
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Wednesday, December 5, 2012
| 12.05.12 | Is the fiscal cliff a buying opportunity?
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