ES Volume Surges At Close As $3.3 Billion Sale Hits The Tape

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S&P Downgrades Greece To CC From CCC, Expects Recovery Of 30-50% By Principal Bondholders

Long-Term Sovereign Rating On Greece Cut To 'CC' On Likely Default; Outlook Negative

Overview

Following review of the July 21 statement by the European Council (EC), Standard & Poor's has concluded that the proposed restructuring, in the form of an exchange into discount or par bonds or a rollover into 30-year par bonds, of Greek government debt would amount to a selective default under our rating criteria.

In anticipation of the debt exchange, we have lowered the long-term rating on Greece to 'CC' and we have affirmed the 'C' short-term rating.

The outlook on the ratings is negative.

We view the proposed restructuring as one that would amount to a "distressed exchange" under our criteria because, based on public statements by European policymakers, the debt exchange or rollover is likely to result in losses for commercial creditors, and the objective of the debt exchange/rollover is to reduce the risk of a near-term debt payment default. Under our criteria, we characterize a distressed borrower as one that would--in the absence of debt relief--fail to pay its debt on time and in full.

While no exact date has been announced to initiate Greece's debt restructuring, we understand that it will commence in September 2011 at the earliest.

Our recovery rating of '4' for Greece remains unchanged, indicating an estimated 30%-50% recovery of principal by bondholders.

Rating Action

On July 27, 2011, Standard & Poor's Ratings Services lowered its long-term sovereign credit rating on the Hellenic Republic to 'CC' from 'CCC'. At the same time we affirmed the short-term rating at 'C'. The outlook is negative. Our recovery rating of '4' for Greece remains unchanged, indicating an estimated 30%-50% recovery of principal by bondholders, including on those bonds subject to a 20% reduction in net present value (NPV) as estimated under the Institute for International Finance (IIF) proposal.

Rationale

Following review of the European Council's (EC's) July 21 statement, Standard & Poor's has concluded that the proposed restructuring of Greek government debt would amount to a selective default under our rating methodology. We view the proposed restructuring as a "distressed exchange" because, based on public statements by European policymakers, it is likely to result in losses for commercial creditors. Moreover, the objective of the debt exchange/rollover is to reduce the risk of a near-term debt payment default and to give the Greek government more time to undertake fiscal consolidation and policy reforms.
Under our criteria, we characterize a distressed borrower as one that would--in the absence of debt relief--fail to pay its debt on time and in full.

The restructuring proposal put forward by the IIF gives investors the option of exchanging either into discount or par bonds, or rolling over into 30-year par bonds.

In the debt exchange option, we understand that new, discount bonds would be offered in exchange for existing bonds at 80% of  par and would pay investors effective interest rates of 7.17% and 7.69% on the 15-year and 30-year maturities, respectively.

Alternatively, investors could swap into 30-year bonds at par, which would pay an effective interest rate of 4.6%.

At the same time, the IIF is proposing a €40 billion debt buyback fund that would aim to repurchase Greek secondary market debt at an average discount of just under 40% of face value.

In our opinion, the terms of both the exchange and rollover options appear unfavorable to investors. The new debt instruments' maturity would extend well beyond the maturity of bonds tendered in the proposed exchange and rollover options, and beyond what Greece could currently issue in the market. We assess the interest rate levels paid on the new bonds as significantly below rates available to buyers in the secondary market. As a consequence, we assess the restructuring as distressed, and we view the terms of the restructuring as offering less value than the promise of the original securities. Under our criteria, this leads us to conclude that the restructuring amounts to a selective default.

The purchase of Greek sovereign bonds in the secondary market one at a time would not be viewed by Standard & Poor's as a selective default, as we would view these as transactions entered into voluntarily by both the buyer and the seller. Nevertheless, purchases of debt securities at large discounts to par are an indication of weakened issuer creditworthiness. Moreover, under Standard & Poor's methodology, coordinated bond buybacks at fixed prices could be considered selective defaults. For these reasons, we are downgrading Greece's long-term foreign currency rating to 'CC.'

Our recovery rating of '4' for Greece remains unchanged, indicating an estimated 30%-50% recovery of principal by bondholders after taking into account the 20% reduction in NPV likely to occur under the first round of restructuring, as estimated under the IIF proposal. Our recovery rating base-case default scenario for Greece continues to incorporate a second debt restructuring, including considerably higher principal "haircuts" on top of those proposed under the IIF exchange. Under the IIF's accompanying exchange
proposal, some of the securities into which investors can swap will be collateralized with 'AAA' rated, zero-coupon bonds. In that case, we will assess if the recovery of principal on 'AAA' collateralized instruments could be significantly higher than that of senior unsecured Greek government bonds, which could then lead to higher issue ratings for the collateralized instruments. Nevertheless, our experience with similar arrangements, such as that for Brady bonds, suggests that the new securities may not be immune to
future restructuring and losses, and that recovery may not necessarily be higher than for that of unsecured securities.

Our country transfer and convertibility (T&C) assessment for Greece, as for all eurozone members, is 'AAA'. A T&C assessment reflects Standard & Poor's view of the likelihood of a sovereign restricting nonsovereign access to foreign exchange needed to satisfy the nonsovereign's debt service obligations. Our T&C assessment for Greece reflects our view that the likelihood of the ECB restricting nonsovereign access to foreign currency needed for debt servicing is extremely low. This reflects the full and open access to foreign currency that holders of euros enjoy, and which we expect to remain the case in the future.

Should Greece exit the eurozone (which is not our base-case assumption) and introduce a new local currency, the T&C assessment would be reset to reflect our view of the likelihood of the Greek sovereign and its central bank restricting nonsovereign access to foreign exchange needed for debt service.

Contrary to the current case, the euro would in this scenario be a foreign currency, and the Bank of Greece would no longer be part of the European System of Central Banks. Under our criteria, the T&C assessment can be at most three notches above the sovereign foreign currency rating. In most reasonable scenarios, Greek-domiciled holders of euros would likely continue to face no
restrictions in converting euros to dollars, Swiss francs, or other foreign currencies, the issue addressed by the current T&C assessment.

Outlook

The outlook is negative. While no exact date has been announced to initiate Greece's debt restructuring, we understand that it will commence in September 2011 at the earliest. Upon the announcement of the implementation of the restructuring, a downgrade to 'SD' (selective default) would likely occur. Should the exchange/rollover be initiated, Standard & Poor's would expect to revise the rating on the specific obligation to 'D' (default) even if only a portion of the rated bonds is subject to the exchange offer. We would also likely revise the sovereign credit rating (the issuer credit rating) to 'SD'.

On conclusion of the exchange and/or bond buybacks, we would likely raise the sovereign credit rating on Greece to a level commensurate with our forward-looking opinion on the likelihood of future defaults given Greece's adjusted debt profile. If the exchange involves multiple separate transactions over several weeks or months, we would assign our 'SD' sovereign credit rating
to Greece on completion of the first repurchase. Subsequently, all other things being equal, we would likely raise our sovereign credit rating as early as a few days after completion of the first repurchase.

In our opinion, the likelihood of a future default on the new securities is likely to remain high. We anticipate that we would assign a
low-speculative-grade rating to Greece, given our view that Greece will likely continue to be burdened by high debt to GDP of just under 130% of GDP at end-2011 and uncertain growth prospects even after the debt restructuring is concluded.

Conversely, if the terms of the transactions do not result in a default under our criteria, and the Greek government complies with the revised EU/IMF program, our ratings on Greece could stabilize at the current 'CC' levels, even taking into account the risk of a debt restructuring in the form of a principal haircut by 2013.

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The Small Bank Problem: Why We Are 40,000 Properties Away From Recovery

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White House Says Treasury Will Be "Running On Fumes" Shortly

Contrary to calculations performed by Barclays and other analysts (including Stone McCarthy first presented on Zero Hedge), which speculated that the Treasury would have enough cash to last it through August 15th due to an increase in tax receipt, the White House's press secretary Jay Carney said that the Treasury will be "running on fumes" if the debt ceiling is not raised by August 2, naturally adding the traditional doomsday phrase that it is a "crisis situation." He had also added previously that tax revenues are not coming at an accelerated pace and that the cash will not last longer than Tim Geithner's original forecast of August 2. As the chart below shows the Treasury had $75 billion in cash as of last night, and will raise another $55 billion in net cash over upon settlement of this week's auctions. In other words, Geithner now predicts that the pro forma cash of $130 billion will last the US just one week. Well, at least we can see what the source of all the problems is.

From Reuters:

White House press secretary Jay Carney said that at midnight on August 2 the country will lose its authority to borrow for the first time, meaning there is no alternative for Democrats and Republicans other than to compromise over a deal to reduce the deficit and lift the debt ceiling.

"People keep paying their taxes. Revenue comes in. Money comes in. The problem is there is not enough money because we can no longer borrow money to pay all our bills. You're basically running on fumes," Carney told reporters. "It is a crisis situation."

Rating agencies warn they could downgrade the top-notch U.S. AAA credit rating if the United States misses debt payments or if it fails to take significant steps toward controlling the long-term budget deficit. 

Carney said that if there is no deal by August 2, the failure of Congress to have acted would send shock waves through financial markets. "There will be assessments made by investors around the globe about what the heck is happening in Washington," he said.

We will present an updated cash burn analysts from Stone McCarthy as soon as one is available, probably in the next 2 hours.

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Trade Ideas

Trade Ideas

Business Class: Longer Lives and Lower Health Costs - Bloomberg

Business Class: Longer Lives and Lower Health Costs - Bloomberg

Trade Ideas

Trade Ideas

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The Masked Trader

The Masked Trader

Soybeans May Open Higher on U.S. Export Sales; Corn May Fall; Wheat Steady - Bloomberg

Soybeans May Open Higher on U.S. Export Sales; Corn May Fall; Wheat Steady - Bloomberg

U.S. Stocks Advance on Earnings, Europe - Bloomberg

U.S. Stocks Advance on Earnings, Europe - Bloomberg

How to get margin of safety with commodities

How to get margin of safety with commodities

Oil Declines From Near Highest in Week on Chinese Manufacturing, Dollar - Bloomberg

Oil Declines From Near Highest in Week on Chinese Manufacturing, Dollar - Bloomberg

Warren Buffett: 'Disruptive' Debt Limit Debates Are 'Waste of Congress's Time'

Official White House Photo by Pete SouzaWarren Buffett meets with President Obama in the Oval Office on July 18, 2011/As the White House and Congress continue to fight over raising the nation's debt limit, Warren Buffett says it would be better if the U.S. didn't have one at all.

Speaking to NBC's Kristen Welker at the White House today, Buffett said an "artificial" limit of the nation's debt is "disruptive" in Washington.

"All it does is slow down a process and divert people's energy, causes people to posture.  It doesn't really make any sense ... To have this artificial limit, which always gets raised in the end, disrupt the activities, in an important way, of Congress, periodically, I think is a waste of Congress's time."

He's not alone.  Today the credit rating agency Moody's suggested that eliminating a statutory limit on government debt would help ease uncertainty among bond holders.

Buffett was at the White House today with Bill Gates to speak with President Obama about their Giving Pledge project.

In the brief NBC interview after that meeting, Buffett said he encouraged Obama to continue to push for "something very big."

Buffett said it would be a "terrible mistake" if both sides agree to a compromise in which the White House would be able to raise the debt limit without the approval of Congress.

He also repeated the 'Russian roulette' analogy we first heard from him in his live CNBC interview on July 7.   While no one knows what would happen if there's no deal by the August 2 deadline, Buffett said there's no reason to find out.  "You're running a totally unnecessary risk and you're sending a signal to the rest of the world that we really can't think ahead in this country."

Despite all the cataclysmic talk we're hearing, Buffett said he doesn't think the U.S. will actually default on its debt.  "That's a level of immaturity that I don't believe even this Congress is up to."

A video clip of the entire NBC interview is attached to this post.  Here's our transcription:

KRISTEN WELKER, NBC News:  Thank you for doing this interview, we appreciate it.  So, what was just discussed in your meeting in regards to the debt ceiling?

WARREN BUFFETT:  Well…are you talking…excuse me…yeah, well I want to get clear first, are we talking about the meeting, the big meeting …?

WELKER:  That you just had, just had, with the President.  Where did…what came out of your discussions today with the President on the debt ceiling?

BUFFETT:  Well, I agreed with him going in, so there wasn’t much in the way of new thinking on it.  It was just,  I certainly encouraged him to keep shooting for something very big.  The American people want something big, he wants something big, and I certainly hope we get it out of the next week or two.

WELKER: Do you think it’s realistic, the big plan, four trillion dollars in deficit reductions over the next ten years, is that a realistic plan do you think?

BUFFETT:  Well I know it’s realistic, I mean we’re going to have to come to terms with it, so the real question is whether, you know, we have the foresight to do it today, or we keep waiting and waiting and waiting.  But we, the problem is with us, and the President believes in addressing a problem like that, and addressing it in a big way.  I believe in that.  The American people believe in it.  I mean, my friends, back in Nebraska, believe in that.  So I hope it gets done.

WELKER:  A lot of people are saying the most realistic option right now is the plan that’s being hammered out behind the scenes between Senators McConnell and Reid that would allow the President to increase the debt ceiling in three increments through 2012.  What do you think of that plan?

BUFFETT:  I think it’s designed to give political cover to people, and I don’t think we need political cover now.  I think we need a real deficit reduction plan, and I think it’s an opportunity to do that.  I think the President’s said he’s willing to talk about things that, that hurt in terms of his, what he would like to see in this world, and he expects the other side to do the same thing.  And I think that any plan that simply says, you know, we’re going to think about this later, essentially, and we’re going to try and figure out how if things go wrong we can blame it on the other party, is a terrible mistake.

WELKER:  The President has said it might be the last, best option in terms of preventing Armageddon.  Do you see it that way, do you agree with the President or no, should he…?

BUFFETT:  Well, in the end you prevent Armageddon, sure.  I mean we, we cannot go to August 2 and tell the rest of the world that because we’re having this little fight in our sandbox back here, that we’re going to essentially default on obligations of the United States for the first time in our history.  That, that, that’s a level of, of, of immaturity that I don’t believe even this Congress is up to.  So I…it’ll happen, we’ll get something and, and in the end we have to get something. But why not, why not aim high rather than aim low?

WELKER:  Do you worry that if the McConnell-Reid Plan does pass, that it looks like the Republicans have won this fight?

BUFFETT:  Well I don’t worry about whether it’s the Republicans.  I think what, what it looks like is that Congress couldn’t stand up to making a decision on something like this that they’ve known about for, for years and years and,  I think it reflects badly on Congress.  But forget about which party.

WELKER:  Moody’s has just come forward and said ‘You know what, maybe we should just get rid of the debt limit all together.’ What’s your reaction to that?

BUFFETT:  Well I think they’re right.  I mean here’s a debt limit, we’ve changed it almost a hundred times over the years.  We changed it, I think, seven times during the Bush administration.  It’s, all it does is slow down a process and divert people’s energy, causes people to posture.  It doesn’t really make any sense.  The way to limit debt is by taking in revenues that are appropriate in relation to your expenditures.  And, to have this artificial limit, which always gets raised in the end, disrupt the activities, in an important way, of Congress periodically I think is…it’s a waste of Congress’s time.

WELKER:  I’m getting the wrap so one more quick question.  As you know, Treasury Secretary Timothy Geithner has been hammering this point that if August 2 comes around and we haven’t resolved this, it could be calamitous.  Do you think the Treasury Secretary is right, or is that overstating?

BUFFETT:  Well I think he’s right in that it could be.  I mean nobody knows exactly what would happen.  If people thought that ten minutes later it was going to get solved it wouldn’t be calamitous.  But they’re, but…you’re running a risk that’s absolutely silly to run.  I mean why, why stick a gun to your head and say ‘Well there’s only a bullet in one of the six chambers, so I’ll spin it and pull it and probably it won’t happen.’  You’re running a totally unnecessary risk, and you’re sending a signal to the rest of the world that we really can’t think ahead in this country.

WELKER:  Thank you.

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India to head IRSG

Last Updated : 15 July 2011 at 17:00 IST

KOTTAYAM(Commodity Online): India has been elected as the new Chairman of the International Rubber Study Group (IRSG). The decision was made unanimously in the meeting of the Heads of Delegations (HOD) held at Singapore on 14 July 2011.

Head of the Indian delegation to IRSG, Sheela Thomas, Chairman of the Indian Rubber Board, will officiate as the Chairman of IRSG representing India. She will remain as the Chairman of the Group for the next two years.

The meeting was part of the 107th Group Meetings of IRSG held from 11 to 14 July 2011. The position of Chairman became vacant as Cote' d Ivoire completed two years as Chairman. EU was elected as the new Vice-Chairman for the next two years.

Members opined that India, being both a producer and a consumer of rubber, would be in a good position to protect the interests of both producers and consumers in IRSG. Apart from Chairman, Rubber Board, the Indian delegation to the IRSG Group Meetings included Mr. J.B. Upadhyay, Under Secretary, Ministry of Commerce and Industry and Mr. Toms Joseph, Deputy Director, Rubber Board.

Another major development in the meeting was the adoption of a revised constitution for IRSG. The Group was formed in its present form in 1944 and the constitution was formulated then. The headquarters of the Group was shifted from London to Singapore in 2008.

This necessitated changes in the constitution with regard to administrative and logistic matters. There was also need to change the structure of the organisation, its work pattern etc according to the changing trends in world rubber industry, developments in commodity organisations and requirements of stakeholders.

During the last three years several meetings were held to negotiate a revised constitution. Finally in a meeting of HOD held in November 2010 in Singapore, a revised text was accepted by the member countries. This revised text had to be approved by the governments of member countries before formal adoption. Govt of India accorded approval for the revised text in February 2011.

The revised constitution was formally adopted by the HOD meeting. Members hoped that the provisions in the new constitution would provide the leverage to the member governments, secretariat and Rubber industry as a whole to participate more effectively in the Group for common benefit.

The HOD also took several decisions to move the Group forward and make it more useful to rubber industry stakeholders. One of the important decisions was to organise the World Rubber Summit as a mega event in Singapore during the next three years on an annual basis. The Summit scheduled to be held in May 2012 would be organised by IRSG in association with International Enterprise, Singapore. The rubber industry stakeholders would have opportunity to be co-sponsors.

In the HOD pre-meeting held on 11 July, the member countries highlighted the relevance of the Group as it is the only forum where NR and SR producers and consumers can come together for discussing issues of mutual interest. It is also the only comprehensive source of rubber statistics in the world. Further it is the only International Commodity Body approved by Common Fund for Commodities for development financing in rubber sector. The communication circulated by chairman of the Indian Rubber Board among member countries, substantiating the relevance of the organisation and boosting the morale of the prevailing members was highly appreciated in the meeting.

The meeting of the Industry Advisory Panel (IAP) held on 12 and 13 July was attended by stakeholder representatives from public and private sectors. The members of the IAP coming from member and non-member countries strongly supported the work programme of IRSG.

There are three major international rubber organisations viz., ANRPC, IRSG and IRRDB. The first two are intergovernmental and the third one is a network of research institutions in the rubber sector in different countries.

The new Chairman of the Group, Mrs. Sheela Thomas, while presiding over the meeting of the HOD, highlighted the need for increased coordination among these organisations. She said that there should not be duplication of work among the organizations and the synergy of expertise of the three organisations would be appropriately utilised for the benefit of rubber industry.

The next meeting of the HOD will be held in Singapore in May 2012 in conjunction with the World Rubber Summit.

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Soft commodities remain mixed for the week

Last Updated : 16 July 2011 at 12:05 IST

NEW YORK (Commodity Online) : Soft commodities remained mixed at close for the week as Sugar and Coffee dropped while Cocoa and Cotton recorded marginal gains.

Reports of world’s largest coffee producer, Brazil is expecting a bumper harvest next year is not good enough to make any impact on global coffee price last week as prices remained steady in most markets.

Arabica-coffee futures for September delivery fell 4.8 cents, or 1.9 percent, to $2.5355 a pound in New York, marking a 3.7 percent decline for the week that was the fifth in six weeks.

In London, refined sugar and robusta coffee retreated, while cocoa rose on NYSE Liffe

Sugar fell, capping its first weekly decline since early May, as importers delayed purchases following a rally in prices to a five-month high. Cocoa climbed, while coffee declined.

Demand for sugar slowed after prices rose above 25 cents a pound in New York. The sweetener surged to a five- month high of 31.33 cents on July 13 as supply was disrupted from Brazil, the world's largest grower and exporter.

Raw sugar for October delivery dropped 0.05 cent, or 0.2 percent, to settle at 28.97 cents on ICE Futures U.S. at 2 p.m. in New York. Prices declined 1.3 percent this week.

The premium that buyers are prepared to pay for white Sugar from Brazil slumped 81 percent over the past month as high prices curbed physical demand, Kingsman SA said on July 13.

Cocoa futures for September delivery advanced $12, or 0.4 percent, to $3,168 a metric ton in New York, climbing 2.5 percent this week.

Spot Cotton quotations averaged eight and one-half cents lower than the previous week, according to the USDA. Quotations for the base quality of cotton in the seven designated markets averaged 117.85 cents per pound for the week ended Thursday.

The weekly average was down from 126.28 cents last week, but up from 75.05 cents reported the corresponding period a year ago. Daily average quotations ranged from a high of 124.34 cents on Friday, July 8, to a low of 124.00 cents on Thursday,

Spot transactions reported in the Daily Spot Cotton Quotations for the week ended July 14 totaled 2,228 bales. This compares to 78 bales last week and 393 bales reported a year ago. T

Total spot transactions for the season were 646,198 bales, compared to 888,355 bales the corresponding week a year ago. The ICE October settlement prices ended the week at 106.35 cents, compared to 116.20 cents last week.

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Stimulus Shock: US unemployment is rising

Last Updated : 15 July 2011 at 22:50 IST

by Dr Jeffrey Lewis

Economics has been declared the “dismal science,” one in which there are very few opportunities to test the real world outcome of varying decisions made at a high level. Today, the study of economics may be dismal for other reasons: the boost from unemployment benefits and other stimulus programs will soon run out.

When we think about stimulus, the near $800 billion program often comes to mind. But the biggest stimulus program is that which touches the most budgets. Several of the largest stimulus programs and subsidies are ending.

Unemployment insurance

Unemployment insurance is approved by demand-side economists who suggest that automatic anti-cyclical government programs help boost demand when demand stifles. With each job loss, states and the federal government have offered up 99 weeks of unemployment benefits, nearly two years of cash payments.

The extension, approved last December, will end this year. Regular unemployment claims are met with 26 weeks of benefits. However, due to the length of the recession, the program has been extended to 46 weeks through December, 2011. Following those 46 weeks of benefits are four other unemployment extensions, scheduled to end on January 1, 2012, which tally up to a maximum of 53 weeks of unemployment.

Demand will surely fall as these benefits run out. Unemployment benefits are typically spent immediately after receipt, as those who receive them cannot, by law, have another source of income. The weakness of the American consumer was recently exposed in a piece by the Wall Street Journal. The newspaper reported that more than 50% of Americans could not come up with $2,000 in 30 days should they need to pay for an immediate financial difficulty.

FICA stimulus
Alongside the expiration in unemployment benefits comes another source of demand: the reduced FICA tax rate for employees, which was dropped from 6.2% to 4.2% for one year. In reducing the amount of taxes paid, the government can add some strength to the paystubs of the employed. Economists note that a stream of small stimulus benefits is better than one-off stimulus checks, which are typically saved, not immediately spent.

Food for Fed Thought?
The Federal Reserve has a dual mandate to increase aggregate demand and protect the US dollar’s value by minimizing inflation. As we have all experienced, the CPI, the Fed’s measure of inflation, hasn’t kept up with surging energy and food prices, which are excluded from the calculus.

Investors should be left to wonder where the next stimulus will be sourced. New extensions for unemployment benefits are a non-starter in election season politics, and Congress is concerned more with decreasing the cost of government than increasing its size.

This leaves us with one source that can skirt process of federal law: the Federal Reserve. The bank has been more active in legislation and regulation since Congress fell into budget discussion deadlock. It recently passed a policy which would cap debit card fees at 21 cents. That decision is now law, without the vote of Congress.

So if Congress is stuck on debt discussion, and the presidential election makes new spending unpalatable, who will step in? There hasn’t been a better case for QE3 than the removal of federal stimulus from the economy. If “deflation risks” arise, you can bet your bottom dollar that the Fed will come in strong with QE3.

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How to Become a Stockbroker in the UK

The first thing to consider when looking at becoming a broker is that the role of a traditional stockbroker is almost dead. Low cost online trading sites and cheap 'execution only' services dominate the traditional stock broking arena and leave little margin for broking firms to make money.

More diverse instruments have cropped up over the years such as 'Contracts For Difference' (CFDs), spread trading and other 'derivative' instruments. So becoming a 'stockbroker' is a little outdated, these days you are looking at becoming an 'advisory broker' or a 'trader'.

The difference between the two is wide. An advisory broker is typically someone who works within a firm and relies heavily on the recommendations of the research department in that firm and, generally, 'sells' those trades to clients. This may seem a cynical description of the job role but is not meant as such. Regulations within the financial service industry are heavy and investor protections fierce so each and every trade needs to be justified in order to pass regulatory scrutiny. To a certain extent this ties the hands of any advisory broker.

These days, however, many research departments are extremely professionally run and create trading ideas for brokers and their clients that are well thought out and justifiable. As a start in the broking world this is a great step. It gives you a grounding in the markets, you begin to understand why recommendations are being made and, along with training from the firm you work for, can be an excellent introduction to the world of broking.

Later in your experience of advisory broking you will be able to make recommendations of your own as you become more adept at spotting opportunities in the market and, as your success grows, you will be given more autonomy in your recommendations.

As a 'trader' you are more in the deep end. A typical trader will be focused, initially, on one particular marke e.g an equities trader. The firm you work with will have an extensive trading program and you will spend time as a 'trading assistant' to an experienced trader. After this period, and when your employer feels you are ready, you will be given limited trading funds of the banks own cash.

This is what is known as a 'Proprietary Trader' or 'Prop Trader’. Basically you are trading the firms own money in order to make profits for your employer. As you become, hopefully, more successful your trading limits will be increased, you may also be allowed to trade other instruments in order to make more sophisticated trades and, if your are profitable, your bonuses will increase.

The traditional Prop Trader will be working on the floor of a bank or trading house, however, 'prop traders' work in hedge funds and pension funds trading clients funds that have been deposited with the employer.

Another area of trading is 'discretionary trading'. This is typically where an experienced trader is responsible for trading the accounts of individual clients rather than a fund or employer’s funds.

This is an extremely interesting area of trading for those who enjoy the human element as well as trading. A discretionary trader will be responsible for a number of accounts which are traded individually. Many traders create relationships with a client base that have the same risk profile which enables them to trade on an 'omnibus' basis.

'Omnibus' accounts are, essentially, a number of accounts traded in the same manner across all accounts. This enables the trader to make trading decisions that are then executed across the accounts in proportion to the size of each account. For example, let’s say you are a trader and are looking to trade Google shares. You would make a 100,000 purchase of Google shares and execute these across the accounts allocating 5% of each account to the trade.

So this is a brief run-down of the types of broking jobs out there, so how do you get in?

Typically, you get into a prop traders job, these days, by having the necessary qualifications. A maths, economics and more frequently now, a physics degree will get you an interview. However, just smarts will not get you the job. Most successful traders have the 'X-factor', an ability to be confident in their own decisions and a track record of such. Involvement in after hours activities such as debating, sports and, of course, finance related activities will be a plus.

Taking qualifications off your own back, such as Securities Institute exams won't hurt and shows commitment.

Getting into advisory roles is probably easier than a prop trading role. Many firms are looking for good sales people to market the services of companies and will train you up on the technical and broking side of things but existing SI qualifications will give you a head start as no firm really wants to spend six months paying you and training you on the required FSA exams, although if you are a good candidate they will.

If you have no particular qualifications then you will have to start off at the bottom. You should research companies that are in the smaller company market and make enquiries; most do not advertise jobs but are always looking for good candidates. Turnover is high so new recruits are always required. You will be better received (and will probably get an interview) if you have taken the SI exams before you apply, or can demonstrate that you are studying for them.

In the interview for such a job, you will be asked your sales experience, you may even be put on the spot to sell something. (In my first interview I was asked to sell a cup on the desk to the interviewer!)

It is also important to know that the environments in dealing rooms are traditional male, and harsh. If you are a sensitive soul a trading floor may not be the place for you as you will be expected to give as good as you get. With all the rules these days on how to conduct yourself at work it is not as harsh as it used to be, but it is still a pressured environment.

Earnings

What can you expect to earn? As a prop trader you will probably be started on a salary of around £30,000 + if you have the right qualifications. It very much depends on who you are working for. A first tier bank or trading firm will pay higher than this.

You should expect (if the company is making profits) to get at least 50% of your salary as a bonus. As you progress and your trading prowess becomes better your salary can increase exponentially, million pound salaries and bonuses are common place for the best traders.

As an advisory broker, without the necessary qualifications you will probably earn £20,000 per annum plus commissions. Typically someone who approaches the job correctly and works hard could expect to be making £50,000 in their first year and £100,000 + thereafter.

As a discretionary account trader you will probably be on £30,000 plus a share of profits related to how much money the firm is making. Typically a discretionary trader will be managing 100 - 200 clients after 2 years. With an average of £50,000 per account that is £5mn - £10mn. Annual management charges to the company will be about 1%, so that is £50,000 - £100,000 which, essentially, covers your salary. A performance fee of 10%-20% is charged on the profits of the accounts, making this (at 10% performance) around £50,000 - £100,000 per annum. You would expect to get 25% of this.

Of course if your performance is higher, or your average client account size is more, you earnings will increase on that basis.

What if you are not so good?

Unfortunately the broking industry does not really care if you are a 'nice person' these businesses are based on performance and you will find that you will be unceremoniously dumped if you do not perform consistently.

The industry is also very cyclical and in times of a poor market or low profits, banks and trading house will cut back staff rapidly and you may find yourself looking for a job.

The good news, however, is that if you are dedicated and good at your job you will be able to apply for ever increasingly lucrative jobs in trading, management and fund management which can produce astronomical levels of pay.

I wish you all the best in your trading endeavors and would recommend that you download an online trading system in demo format to see if you have what it takes, or even to trade your own money and begin learning what is, to me, the best job in the world... apart from driving a Formula One car for Ferrari... but that is a whole new article...

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PIMCO: +$50 Million; Morgan Stanley: -$50 Million

It just has not been Morgan Stanley's year: first the bank's prop desk got decimated by the massive tightening in MBIA CDS (previously discussed here), and then, as noted last week, the firm's rates desk got creamed by a massively wrong bet on 30s - 5s TIPS breakevens (courtesy of another ex-master of the universe who realized the hard way that things are not quite as profitable when you move away from being God's right hand guy). We previously broke down the details of the trade, and the only open question was: qui bonoed? Courtesy of the WSJ we can now close the file on that one. The firm, which as so often happens to be the case, that took Morgan Stanley to the cleaners is the one true rates behemoth, PIMCO, which sooner or later, always gets it pay day. Bottom line: "Pimco made about $50 million from its trade over several months." Perhaps prop trading really should be banned to protect banks, if not from their stupidity, then certainly from their hubris.

Some more details from the WSJ:

The bond powerhouse, a unit of Allianz SE (ALV.XE), scored gains of about $50 million on an inflation-related trade, according to people familiar with the matter. Morgan Stanley, meanwhile, suffered tens of millions of dollars in losses on an opposing trade and related moves, according to another person familiar with the matter.

After joining Morgan Stanley, Mr. Hadden put out word that his firm was determined to become a more-active bond player, according to two investors in contact with Mr. Hadden's team. They placed a trade reflecting a view that investors' expectations of inflation over the next 30 years were too high, while predictions for inflation over the next few years were too low, traders say. They began to "short"--or bet against--30-year TIPS, expecting long-term inflation to be muted, traders said. They also bought "nominal" 30- year Treasury securities, or bonds not protected against inflation.

This two-part trading move ensured their trade would rise and fall solely on changing long-term inflation expectations rather than other factors that drive prices of all bonds, including TIPS.

At first, the Morgan Stanley trade worked. Mr. Hadden made it clear to investors that Morgan Stanley was going to stick with its positions, and even add to them, traders say. When investors asked to buy 30-year TIPS, Morgan Stanley offered to sell investors even more of these bonds, these traders say. Morgan Stanley also recommended clients bet against 30-year TIPS, arguing it was the best move for those wishing to wager against bonds, according to a hedge-fund manager who received the pitch.

"It was a well-telegraphed trade" by Morgan Stanley, says Keith Price, head of U.S. inflation trading at BNP Paribas.

Like other traders, Pimco's team, headed by Mihir Worah, became aware of what Morgan Stanley was up to. As Morgan Stanley continued selling 30-year TIPS, Pimco bought even more of these bonds in the market, the people say. Meanwhile, Pimco's buying enabled Morgan Stanley to add to its own short position, traders say.

The standoff came to a head in the middle of June, as demand for 30- year TIPS grew. Some rivals say they came to a conclusion: Mr. Hadden's team, under pressure as prices of TIPS rose, would start exiting from its trade, probably by buying a big chunk of 30-year TIPS at an auction on June 23. Rivals decided to make strong bids in the auction, traders say. Pimco also decided to bid aggressively, to ensure it could get its hands on these bonds. The auction of $7 billion of 30-year TIPS resulted in a record amount of bids in relation to the auction size; Pimco succeeded in buying several billion dollars of the bonds, according to a person close to the matter.

It is as of now unclear just where the formerly amazing Mr. Hadden will go next if his masters end up being displeased with his performance of ~($50) million in six months.

In the meantime, the recent blow out in the USGGBE30 - USGGBE05 has served as a very appetizing entry point to those who wish to be the next Morgan Stanley, as expected: "What is ironic is that everyone and their grandmother will now slowly bleed MS' team to death as it is forced to unwind the spread, only to immediately put the compression trade back on, at which point the 30Y - 5Y will resume its tightening bias.... "

Well, when all else fails, there's always Jefferies, which will be a bulge bracket boutique, pardon, bank, any... minute.... now.

h/t London Dude

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New MasterCard Stake and Secret Holdings for Warren Buffett's Berkshire Hathaway

Warren Buffett's Berkshire Hathaway is reporting a new, but relatively small, stake in MasterCard.

It's not, however, publicly reporting some "confidential information" on its just-released 13-F filing with the SEC.

As of the end of the first quarter on March 31, Berkshire reports adding 216,000 shares of MasterCard to its U.S. stock holdings.

At today's closing price of $279.15, that stake is worth just over $60 million.

Current price: [MA  Loading...      ()   ]

That's not much by Buffett standards and it is likely the stake was bought by Berkshire's new portfolio manager Todd Combs.  He specializes in financial stocks.

Berkshire also reports a miniscule reduction in its holdings of ConocoPhillips, selling just 8,000 shares, a change of -0.02748 percent. Current price: [COP  Loading...      ()   ]

But that's not the whole story.  The filing notes that some information has been omitted from the document released to the public.  Buffett's Berkshire sometimes asks for, and receives, SEC permission to keep some holdings secret, usually as the company is building a stake.  That's designed to discourage copycat buyers who could drive up the price of Berkshire's future purchases.

Current Berkshire stock prices:

Class B: [BRK.B  Loading...      ()   ]

Class A: [BRK.A  Loading...      ()   ]

For more Buffett Watch updates follow alexcrippen on Twitter.

Email comments todocument.write("");document.write("buffettwatch"+"@"+"cnbc.com");document.write('');

© 2011 CNBC, Inc. All Rights Reserved

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How To Become A Hedge Fund Manager

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Home Page > Finance > Investing > How To Become A Hedge Fund Manager How To Become A Hedge Fund Manager Posted: Aug 17, 2008 | Views: 39,408 |

Becoming a hedge fund manager certainly has its perks... if you are successful. The King of the Hedgies is currently John Paulson who raked in £1bn for a years work shorting the sub prime markets and others certainly are not poor.

Can you do it?

The answer to that question is a yes and no. Just like it is possible for everyone to be a sports star. If you have the right physical capacity, the mental toughness and the commitment you can get to the top of your game, and of course, there is an element of luck in everything.

The first thing to know about hedge funds is what they are. There are many resources on the web that will go into chapter and verse but the simple explanation is that, typically, a hedge fund is a set up as a company, lets call it XYZ Ltd, which is set up in a tax efficient jurisdiction such as the Caymans or BVI, for example.

The company generally has two classes of shares (it can have more) one are mangement shares (so you own the company) and the other shares are investors shares (which carry no voting rights).

This company will have various service providers such as:

Prime brokerage: Prime brokers provide a range of customised services to hedge funds. Current services include handling trade execution, clearing and settlement, providing financing and technology services, risk management and operational support facilities, securities lending, and making introductions to sources of capital.

Fund Administration: Some hedge hedge funds conduct administration internally while others choose to outsource certain functions such as their accounting, investor services, risk analysis or performance measurement functions to third party administrators. Some outsourcers offer independent pricing of a fund's portfolio of securities.

Custody: Hedge fund assets are generally held with a custodian, including cash in the fund as well as the actual securities. Custodians may also control flow of capital to meet margin calls.

Of course there will also be a manager of the fund. Assuming you are the one looking to set the fund up, that would be you.

This all sounds a little complicated but there are plenty of administrative services that could put this set-up together for you for around $70,000.

The set up, however, is not the problem. Getting money into the fund is.

Lets say you have a fund set up, you have even managed to get yourself a fund management company properly licensed, you are ready to go as a newly fledged hedge fund manager. Problem now is that you have to get money into the fund and this is where your problems start.

The continuing fees from your administrators above are payable on an annual basis so your overhead is there. Covering these overheads will be the fees you get from your fund. Fees are the now notorious '2 & 20' meaning that there is a 2% annual fee and 20% of the profits.

Lets say your overheads are £100,000 per annum, you will need at least £5mn into your fund for the annual fee to cover your overhead. In anyone's language, that is a large chunk of change. To get this you will need to prove to potential investors that you know what you are doing.

Sarah Butcher, editor of eFinancialCareers.com agrees. "You can't just be someone off the street and set up a hedge fund," she says. "Investors want to put their money with someone who has a track record."

When speaking with investors you need to be able to show them your performance and the strategies you use. Gaining this experience is the key.

Going the traditional route you will either train with an investment bank or directly with a hedge fund company. Investment banks are looking for someone with a good degree, maybe in maths or physics, they want someone who is tough minded, a quick learner and someone who has the capacity to make trading decisions based around sometimes complex structures.

Finding your way directly into hedge funds can be hard, they are notoriously secretive. By far the more tradional route is through working as a trader with an investment bank.

So if you have missed the boat as far as becoming a new boy at an investment house are your dreams of becoming a hegde fund trader over?

Not quite. The thing about managing money is that people are looking for performance. If you can show a track record of performance then people will want to invest money with you. You clearly have to have the capacity for enjoying the stock market, so you probably have been buying and selling stocks but you will need to learn more about other market instrument such as futures etc.

You can do this by opening an account at a reputable trading house and downloading their trading system. They will provide you trade ideas and the explanations behind them and they will help you develop your portfolio operating on trades similar to what the hedge funds do. If you immerse yourself in this type of trading, making profits on your own portfolio, then you are creating a track record. If you are successful enough then you may get to the point where you believe you have the capacity to start a fund.

We are not saying it is easy, it most certainly is not, but not being a 20 year old with a first from Oxford does not necessarily limit your potential career as a fund manager. It is a long hard slog to get anyone to believe that you are credible but the rewards are there if you get to that stage.

The billionaire boys have spent years perfecting their art in most cases and now have the ear of huge amounts of money, but don't give up becuase you can't work in an investment bank.. remember 'money follows performance'.

If you would like to see if you have what it takes there are several platforms you can download for free and test out your skills. This online trading system is something you may want to consider if you are trading.

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The author has spent 20 years in the financial services industry trading everything from physical commodities to futures. Currently writes for a variety of sites including online trading sites and general market information sites.

Questions and Answers Ask our experts your Investing related questions here... Ask 200 Characters left How many hours do hedge fund managers work? Do hedge funds beat the market? How is a hedge fund structured? Rate this Article 1 2 3 4 5 vote(s) 16 vote(s) Feedback Print Re-Publish Source:  http://www.articlesbase.com/investing-articles/how-to-become-a-hedge-fund-manager-524909.html Article Tags: hedge fund manager, hedge funds, becoming a fund manager, investment, financial, money Related Articles Latest Investing Articles More from David Brown Emerging Hedge Fund Manager Sentiment Survey Declares Technology As Best Investment

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Commodities Hedge Funds Hit Hard In June | FINalternatives

Commodities Hedge Funds Hit Hard In June | FINalternatives

How to Trade Commodities

The key to successful investing is developing your knowledge in the markets and to take things slowly and methodically. Commodities trading is no different. It is an exciting market which, if you are preapred to put in the time and effort, can be very lucrative, but always be aware that risks lurk in the shadows just like any other investment. 

Physical Trading

Physical commodities trading is buying and selling the actual commodity itself not some sort of derivative instrument like a futures contract. There are obvious downsides to this method namely storage costs, insurance costs and shipping costs.

The physical market, for our purposes, focuses on those commodities that are easily stored, bought and traded for the average investor. These are such things as Gold, Platinum, Palladium and Silver.

The most popular method of trading such items on a retail basis is in the purchase of coins. There are many companies on the web that provide services for the purchase of coins for collectors and speculators.

The internet, of course, has given investors many options for the purchase, storage and trading of gold coins however, our favourite example of trading gold on the web is Bullion Vault. They allow the purchase and storage of gold in small quantities and have an efficient trading system. They hold $290mn of gold for clients and appear to have a very good reputation.

Leverage

If you didn't know the term 'leverage' before the current financial mess, you do now. For those who need a refresher, here is how it works. Let’s say you buy £100,000 of gold and whomever you buy it off only needs you to put down a 10% deposit, £10,000. Let’s say gold goes up 10%. You now have gold worth £110,000, if you sell it now you pay back the £90,000 you borrowed and you get your original £10k back along with your £10k profit. Basically you have turned a 10% gain in the price to a 100% gain on your investment.

Obviously if the price dropped 10% you lose your money, hence the mess that some are in at the moment.

Physical Commodities on Leverage.

There are still some companies around that provide leverage on physical commodities across a range of products, however, the costs associated with trading, such as interest on loans, storage and insurance fees have made the product less attractive to the active trader. Having filled a gap in the market for some time the product was overtaken by some of the instruments mentioned below.

ETFs (Exchange Traded Funds)

More accurately described as 'Exchange Traded Commodities' these instruments  take into account all the fees such as storage etc associated with trading. They trade like shares are liquid.

An Exchange Traded Commodity is an investment vehicle that tracks the performance of an underlying commodity or basket of commodities. ETCs work on exactly the same principle as ETFs – with the ETC tracking the performance of a single underlying commodity or a group of associated commodities. Single commodity ETCs follow the spot-price of a single commodity, whilst 'index-tracking ETCs' follow the movement of a group of associated commodities, such as cattle, energy or livestock.

ETCs offer the commodities trader a number of inherent advantages without the associated vagaries of trading an individual stock:

Direct exposure to the commodities markets – the value of your investment will rise and fall in direct proportion to the price of the underlying commodity.

Liquidity - ETCs are ‘open ended’ securities, which are created and redeemed on-demand. This means that the supply of ETCs is unlimited and that price changes will accurately mirror developments in the price of the underlying commodity.

Stamp duty & CGT - ETCs are not shares and so trades are exempt from stamp duty. Furthermore, ETCs can be traded within ISA accounts, allowing you to shelter your profit from Capital Gains Tax.
Low dealing costs - ETCs are traded on the regular stock exchange, making them both accessible and affordable – they can be traded through your share dealing service for a commission.

Portfolio diversification – ETCs give broad representation across entire commodity sectors and different geographic regions.

Futures

A futures contract is an agreement to buy or sell your chosen commodity at a specific date in the future - at today’s prevailing market price. These markets are highly liquid and the contracts can be sold on again at any point before the final delivery date, i.e. the day when the farmer or miner will deliver the raw materials to the person holding the contract.

The producers and end-users are still present in today’s markets, but it is the traders and speculators who are now responsible for most of the volume that keeps the market liquid.
The main benefit of trading futures is that you are making a direct investment into the underlying raw material and your future profit or loss is entirely dependent upon fluctuations in the underlying commodity price.

Going back to leverage, most futures trading is done ‘on margin’, which dramatically increases potential profits (and losses, remember).

Shares

Exposure to the commodities market can be gained from buying and selling companies whose business it is to mine, distribute or trade in commodities that you are interested in.

The shares are, generally, liquid and accessible for trading, the problem, however, is that there are many other factors that could effect the share price that may not have anything to do with the underlying commodity. These could be management issues, cash flow, macro economic issues and geo-political issues.

CFDs and Spread betting.

CFDs and Spread betting are easily accessible trading instruments which are essentially derivatives of many of the above, however spreads and dealing costs can be harsh to investors.

Technical Phrases

You will hear such phrases as 'contango' and 'backwardation'.

Contango is a term used in the futures market to describe an upward sloping forward curve (as in the normal yield curve). One says that such a forward curve is "in contango" (or sometimes "contangoed").

Formally, it is the situation where, and the amount by which, the price of a commodity for future delivery is higher than the spot price, or a far future delivery price higher than a nearer future delivery.

Backwardation is a futures market term: the situation in which, and the amount by which, the price of a commodity for future delivery is lower than the spot price, or a far future delivery price lower than a nearer future delivery. One says that the forward curve is "in backwardation" (or sometimes: "backwardated").

Commodities trading has many aspects that set it apart from trading other markets and for those that become learned in the trading of the instruments it can be lucrative. Commodity traders over the last few years have seen huge swigs in price which have lead to large profits (and no doubt some large losses).

Currently the global market in commodities is in a state of flux. Gold, for example, is seen as a safe haven against inflation and uncertain times, hence it recent volatility.

Having worked in commodities for some years it was always noted that volatility is our friend, whether a price is going up or down there is money to be made, when commodities are flat there is not much action and the cost of trading out ways the potential profits.

For the foreseeable future volatility is definitely here to stay. Stock market issues and global recessionary fears on the one side and continued development of emerging markets using vast amounts of the world resources on the other, will see volatility in this market for many years to come. This, therefore, as a market to learn about and trade ,is a very interesting and potentially lucrative proposition.

As with all trading, however, there is a very real possibility that trading commodities, especially on leverage, could lose your portfolio a lot of money and you should be aware that it is highly risky. Do not risk more money than you can afford to lose and make sure you have a system that allows you to use limits and stops to contain this risk.

The online trading system available from HF Markets allows you to trade all of the above with assistance, if required, from a professional regulated broker who can guide your initial trading strategies and help you become familiar with trading this exciting area of investment.

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Trading Independence

Trading Independence - Commodity Trader Commodity Futures Market News Trading Independence By Mathew Bradbard on June 30, 2011 7:06 PM | No Comments | No TrackBacks

June has come and gone ...to all a happy Independence day...see you in July. Crude should finish slightly higher but again today prices were unable to take out the 18 day MA; in August at $96.25. On a trade above that level our next target would be the 40 day MA at $98.80. At this juncture we're assuming an interim bottom was established this week just above $90 in the August contract. As RBOB and heating oil trade higher we feel they could propel Crude back near $100/barrel. Wild trade in natural gas today with a 21 cent trading range... at the end of the day a bullish engulfing candle should mean higher ground. We're thinking another 5% from here and have advised longs in September. In the last two weeks indices have gone from over sold to overbought and at this point we feel the 2% advance in the last four days is too much. We will likely be selling into this strength as we anticipate a return to 1275 in the coming weeks.

The dollar has lost ground the last four sessions and we maintain a trade back under 74.00 in the coming weeks. The commodity currencies remain the standouts and the Loonie is the pick of the litter in my opinion. On their lows August live cattle completed a 38.2% Fibonacci retracement...we expect a trade to the 2o day MA another 2% from current pricing. Lean hogs posted a 2 1/2 week low doing minor chart damage so expect more downside. Bearish engulfing candle in gold with a settlement below $1500/ounce. As long as $1485 holds in August on a settlement basis we suggest remaining in bullish plays. We hold small long overexposure with some clients in silver but we would like to see a settlement above the 9 day MA in the coming sessions to be convinced the downside is behind us. That level is just above $35/ounce in September.

Cocoa advanced to a two month high and has gained nearly 7% this week. We continue to work out of long for clients thinking we're nearing an interim top. It appears we're seeing triple top in the making in sugar as prices broke just over 2% today. Our clients shorts are under water but if you stay the course we should see a significant break in the immediate future. Remember we were at 23 cents just over one month ago and that remains our target in October. Bearish is an understatement in terms of the reaction by grain traders to this morning's USDA report with corn and wheat trading down their respective price limits. We suggest buying corn closer to $6/bushel as prices will likely be limit lower (45 cents) tomorrow. Some clients are long soybean oil and wheat and though painful today we feel will be profitable in the next two/three weeks. The numbers today were bearish corn but my interpretation was neutral to mildly friendly in the other grains and talking to farmers I think the USDA has discounted the less than ideal weather way too much. We advised clients today to offset any short exposure in 30-year bonds and 10-yr notes. If they want to keep exposure in this complex we advised moving to the short end of the curve in December 2012 contracts.

Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

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Recognizing Correlations was the previous entry in this blog.

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Farmland investment the next big portfoilo

Last Updated : 15 June 2011 at 16:25 IST

By Joshua K Cohn
Many investment professionals, including the legendary Jim Rogers, believe agriculture commodities are only in the early-to-middle innings of a major "super cycle" of increasing prices.

The argument for this is fairly simple. The number of people in the world is increasing, and projected to reach nearly 9.1 billion by 2050 according to the United Nations. Meanwhile, the amount of arable farmland has been decreasing.

In addition, as with many major trends in the world today, a large reason behind the rapid run-up in food prices is China's development. As investors we always want to be on the correct side of global macro trends, and whatever China needs or is buying lots of, we want to own as investments.

The question is what are the best ways for making money from the agricultural sector? One way is to invest directly into agriculture stocks such as farm equipment maker John Deere (DE), global seed giant Monsanto (MON) or fertilizer company Potash Corp of Saskatchewan (POT).

Another method is to invest in agricultural futures through Exchange Traded Funds (ETFs) such as AIGA on the London Stock Exchange or DBC in the US which tracks an entire basket of agricultural commodities including corn, soybeans, wheat, cotton, sugar, coffee, cattle and pigs. These commodities ETFs try to track the spot price of the various commodities they include.

The advantage of these stocks or ETFs is that they are easily trade-able by anyone who has an online brokerage account. The disadvantage, however, is that they are still financial instruments, and as such can fluctuate widely in price.

One option most individual investors tend to overlook is direct investment in farmland. In many ways, a farmland investment is more secure, stable and tangible then putting money into stocks.

Farmland allows investors to still benefit from the global trends in agriculture we have discussed, whilst providing much greater stability then agriculture stocks or commodities which can fluctuate wildly.

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Hedge Fund Ad-ban.. Causing More Problems Than Its Worth?

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Home Page > Finance > Investing > Hedge Fund Ad-ban.. Causing More Problems Than Its Worth? Hedge Fund Ad-ban.. Causing More Problems Than Its Worth? Posted: Aug 18, 2008 |Comments: 0 |

If ever there was an argument for the advertising ban on Hedge Funds to be lifted it is this one. Over three years a brazen group of New York scam artists raised about $30 million from unsuspecting investors by posing as principals of a successful hedge fund and then fled with the loot.

Investments from $5,000 to $500,000 were obtained from college professors and educated professionals. It took the group a little more than three years, from early 2003 September 2006 to raise the $30 million.

A grand jury empaneled by Michael J. Garcia, the U.S. Attorney in Manhattan, is said to have handed up a sealed indictment in the case, according to a lawyer hired by 10 of the victims, who said that the FBI was investigating the matter.

The criminals are clearly to blame here, however, this is a problem that, in our opinion, is caused in part, by the regulators themselves.

There is a scam out there that is based on "Prime Bank Guarantees" or "Medium Term Notes" that has taken billions from investors with promises of astronomical returns. The SEC web site says:

"Lured by the promise of astronomical profits and the chance to be part of an exclusive, international investing program, investors are once again falling prey to bogus "prime bank" scams. These fraudulent schemes involve the purported issuance, trading, or use of so-called "prime" bank, "prime" European bank or "prime" world bank financial instruments, or other "high yield investment programs" ("HYIP"s). The fraud artists who promote these schemes often use the word "prime" – or a synonymous phrase, such as "top fifty world banks" – to cloak their programs with an air of legitimacy."

The thing that allows the bogus 'brokers' and 'investment managers' of this fraud to operate is that they have created a veil of secrecy over the whole operation. The SEC says:

"Promoters claim that transactions must be kept strictly confidential by all parties, making client references unavailable. They may characterize the transactions as the best-kept secret in the banking industry, and assert that, if asked, bank and regulatory officials would deny knowledge of such instruments. Investors may be asked to sign nondisclosure agreements."

This 'secrecy' is what perpetuates the fraud. Simply put, the peddlers of this scheme will tell you that when you do your research that you will find everyone denying the existence of the scheme. They will say that those not in the industry don't know about it because there would be outrage that rich people could make so much money and those in the industry will deny it because they either aren't high enough up or are trying to keep it a total secret. They will also tell you that a minimum investment of $10mn is the norm, but they have split up that $10mn to allow their investors in.

This secrecy is the perfect cover, and I speak from personal experience, 15 years ago as an investment pup, to my eternal shame, I got caught in a the same scam.

So we have an 'investment' that is supposed to be super secret, has a minimum investment and is not advertised anywhere. Do elements of this ring any bells?

Simply put, the regulators are perpetuating the 'secrecy' of hedge funds by not allowing advertisement of the funds. Their rules about only being able to invest a certain amount of money did not protect the people in this case who invested $5000, did it? Something tells me the scammers did not check to see what the net worth of the investors was either.

How would advertising funds have helped? As with everything, the fact that advertising is allowed generates an awareness of a particular industry. How many of you knew how to play poker before the online casinos plastered the web with advertising? My limit was 'Snap', now I am a stone cold poker shark.

By the very nature of advertising and, therefore, informative web sites, brochures etc etc, this kind of fraud would be more difficult to perpetrate because the veil of secrecy would be lifted for all to see.

Of course, there will always be criminal elements who will attempt to subvert whatever rules are out there but the regulators throughout the world don't need to make it easy by perpetuating a secrecy myth that can be exploited by the criminal element.

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The author has spent 20 years in the financial services industry trading everything from physical commodities to futures. Currently writes for a variety of sites including online trading sites and general market information sites.

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