Monday, April 2, 2012

April 2, 2012 - Monday's Weekly Links

Here are some articles over the past week worth reading...

"Congress trades, you pay" - Via AbnormalReturns

Key Excerpt: "So let’s do some math. Adding up the costs across both the House and Senate shows $5.5 million ($4m + $1m) set-up costs and $1.2 million ($1.0m +$0.2) per year in ongoing fees. If we amortize the cost of the systems over five years we get $11.5 million in total costs. Spread that over 535 member of Congress we get a tracking cost of $4,299 per Congressmen per year. If we amortize the set-up costs over 10 years and assume no inflation in annual costs we get $3,271 per Congressmen per year."

"Chaos over a plunging note" - By Tom Lauricella, Jean Eaglesham, Chris Dieterich

Key Excerpt: "Regulators are examining volatile trading in a complex exchange-traded note that caused it to lose 60% of its value in the past week. The Securities and Exchange Commission is looking into the VelocityShares 2x Long VIX Short Term Exchange note, managed by Credit Suisse Group AG, which had about $700 million in assets before the decline, according to people familiar with the matter. The SEC review is preliminary, the people said. On the surface, exchange-traded notes, widely known as ETNs, appear similar to exchange-traded funds, which trade like stocks on an exchange. But the inner workings of ETNs are more complicated. An ETN doesn't actually hold any underlying investment as an exchange-traded fund, or ETF, would. Instead, an ETN is contractual agreement by the issuer to pay shareholders returns equal to the investments it is designed to track."

"Four Numbers add up to an American Debt Disaster" - By Caroline Baum

Key Excerpt:
1) 2.2 percent is the average interest rate on the U.S. Treasury’s marketable and non-marketable debt (February data).
2) 62.8 months is the average maturity of the Treasury’s marketable debt (fourth quarter 2011).
3) $454 billion is the interest expense on publicly held debt in fiscal 2011, which ended Sept. 30.
4) $5.9 trillion is the amount of debt coming due in the next five years. 

 "Turn a Hunch into a Strategy" - By Margaret Heffernan

Key Excerpt: "If I were right, what would I expect to see?" is one of the great questions not least because one of the characteristics of great leadership is pattern recognition and the ability to spot trends or see change before others do. But it's hard to persuade anyone you're right—or your hunch matters—without the data. If you wait until the data's obvious, you've lost your advantage. But if you test your hunches, you could discover you're smarter than you thought."

"March Badness" - By Joshua Brown

Key Excerpt: " As March comes to an end and the NCAA basketball tournament heads into the Final Four, most office pools are likely to be in tatters. But Joshua Brown — a financial adviser for Fusion Analytics Investment Partners who blogs and tweets as The Reformed Broker — is giving Wall Street fans another chance at bracket dominance. With his first book, “Backstage Wall Street,” hitting shelves this month, Mr. Brown sketched out a new type of tournament, a face-off between 16 well-known financial scandals. He calls it “March Badness.” Mr. Brown has come up with his own matchups for the Sweet 16, winnowing it down to the Elite Eight. In the end, he believes Mr. Cayne will take home the glory. It’s “too much money involved and too many livelihoods at stake,” said Mr. Brown."

"Why Groupon is Poised for Collapse" - By  Rakesh Agrawal

Key Excerpt: "It’s not a coupon company nor a marketing company. At its core, Groupon’s U.S. business is a receivables factoring business, as I wrote last year. They give loans to small businesses at a very steep rate (the price of the discount plus Groupon’s commission). They get the money to fund these loans from credit card companies such as Chase Paymentech. Groupon is essentially a sub-prime lender that does zero risk assessment. And as word continues to spread about what a terrible deal running a Groupon is for many categories of businesses, the ones that will choose to run Groupons are the ones that are the most desperate. For U.S. based businesses, the only time I can definitely recommend running a Groupon is if it is otherwise going to go out of business.  Yet another concern is that Groupon does not track how much outstanding Groupon “debt” there is. There is no one in the world who can tell you how many and how much Groupon value is outstanding. Unlike typical gift card sales, Groupon books revenue immediately and then does not show the Groupons on its balance sheet. By my estimates, Groupon has between $500 million and $750 million in liabilities that it doesn’t show on its balance sheet."

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