Thursday, December 22, 2011

The 4 Companies That Control the 147 Companies That Own Everything

Subject: Forbes:interesting)The 4 Companies That Control the 147 Companies That Own Everything
 Thanks for the article Bud very interesting reading.

The Four Companies That Control the 147 Companies That Own Everything

The major cause of European debt crisis is the political control of the money

Dan Ogden

It would be interesting to see what the effect of inclusion or removal from the S&P does to a public company’s value afterwards.

There may be 147 companies in the world that own everything, as colleague Bruce Upbin points out and they are dominated by investment companies as Eric Savitz rightly points out. But it’s not you and I who really control those companies, even though much of our money is in them. Given the nature of how money is invested, there are four companies in the shadows that really control those companies that own everything.

Before I reveal them, some light math:

According to the 2011 annual factbook from the Investment Company Institute, there is $24.7 trillion in all the mutual funds in the world (a little less than half from the US). Based on data from the ICI, $1.24 trillion of this is directly invested in index funds, plus another $992 billion in assets beyond that $24.7 trillion in Exchange Traded Funds, which aren’t mutual funds but are index funds. That means the bulk of that money is in “active” managed funds or fund of funds.

But then consider this: the chief of hedge funds at a very large asset manager told me last week (alas, I cannot identify either) that an internal study his firm recently performed found that the vast majority of mutual funds defined as actively managed see 95% of the assets they hold determined by an index.That means just 5% of actively managed funds really are driven by the active manager’s judgment.

This less-than-active management is for two reasons: one is to maintain the fund in a style box (i.e. large value stock, medium value stocks) and comply with the reality all mutual funds are required to have a benchmark index they compare their relative performance to. The other reason is to adhere to risk metrics to which most of the fund industry is beholden. This second point is partly due to Modern Portfolio Theory (a complex topic we won’t debate here) and to the human nature that active managers tend to build portfolios close to the indexes they benchmark against to avoid really awful downward relative performance years that ends up costing them their jobs.

So of the $25.69 trillion in worldwide assets we’ve identified, $2.23 trillion are directly in indexes (ETFs and index mutual funds) with another $22.3 trillion indirectly beholden to indexes (that 95% of actively managed fund holdings said to be determined by an index).

You can see where I’m headed here. That means the real power to control the world lies with four companies: McGraw-Hill, which owns Standard & Poor’s, Northwestern Mutual, which owns Russell Investments, the index arm of which runs the benchmark Russell 1,000 and Russell 3,000, CME Group which owns 90% of Dow Jones Indexes, and Barclay’s, which took over Lehman Brothers and its Lehman Aggregate Bond Index, the dominant world bond fund index. Together, these four firms dominate the world of indexing. And in turn, that means they hold real sway over the world’s money.

While that may seem benign – they are indexers after all you may say – a financial index isn’t cut and dried like the index of a book. It’s a misperception indexers merely do some simple math like identifying the 500 largest US companies and voila! you have the S&P 500. Every indexer has a fudge factor that allows them to say one company is more “economically significant” for the index at hand than another company. To again take the S&P 500 as an example, the 502-largest company by market cap could get the nod over number 500 by size if S&P decides it wants to.

The power is even more obvious in bonds. The now-Barclays Aggregate Bond Index attempts to mirror volume of bond issuance in a region or the world, but it can’t include even a sizable percentage of all the bonds issued. Essentially, there’s a big judgment call in there in what bonds it adds to its index. A judgment that influences bond fund flows worldwide.

What does all this mean? Researchers at a desk in midtown Manhattan are the butterflies that cause the hurricanes in the markets. For instance, 37% of all index funds in stocks are in a S&P 500 index fund. That’s $370 billion directly buying and selling stocks based on when the S&P analysts decide to drop ITT from the S&P500 and replace it with just one of three ITT spin-off, Xylem, as announced on Monday. Then add on top of that all of the so-called active mutual funds aiming to beat the S&P 500 (but still reflect 95% of the S&P in their funds) who react to the change and then all of the hedge funds who trade ahead of time trying to guess what S&P may drop or add.

I don’t have a grudge against any indexer (and full disclosure, I’ve done work for some of them). And the folks at McGraw-HIll don’t seem to spook people the way George Soros manages to. But when you discuss power in the world markets, the answer isn’t what you think it is.

Wednesday, December 21, 2011

Hedge Fund Exit Requests Running at Seasonal Norms

Why crazy bets. Aivars Lode

By Reuters

Tuesday, December 20, 2011 Email this story  |  News Tracker  |  Reprints  |  Printable Version

LONDON (Reuters)—More clients asked for their money back from hedge funds in December than in the rest of 2011, in line with the traditional year-end evaluation of funds' performance after a year marked by high volatility and erratic returns, data shows. The GlobeOp Forward Redemption Indicator, a monthly snapshot of clients giving notice to withdraw their cash as a percentage of GlobeOp's assets under administration, measured 4.58 percent this month, up from 3.44 percent in November.
"The month-on-month increase is within the normal range of a seasonal pattern, as investors prepare to rebalance their portfolios at year end," said Hans Hufschmid, chief executive officer of GlobeOp Financial Services, in a statement.
Hedge funds are closing a year in which they have largely failed to deliver impressive returns, with volatile markets making it difficult to time their bets or hold onto gains. The average hedge fund is down 4.45 percent in the year to Dec. 15, according to Hedge Fund Research.
Investors gave notice to withdraw 4.59 percent of assets under administration in December 2010, almost the same as this year. The previous high for redemptions in 2011 was in June, at 4.01 percent.
Forward redemptions as a percentage of GlobeOp assets under administration have dropped significantly since hitting a high of over 19 percent in November 2008, shortly after the collapse of U.S. investment bank Lehman Brothers.
While the volume of redemption notices have risen, a separate indicator by GlobeOp released earlier this month showed hedge funds were still seen as crucial ingredients of a rounded, diversified portfolio.
The sector recorded higher cumulative net subscriptions in December than at any time since Lehman's collapse, as investors turn to alternative strategies to ride out volatile markets.
By Yeganeh Torbati

Tuesday, December 20, 2011

How Safe Are We? Crime Writer Compares Stats, Then and Now

12/16/2011 @ 4:40PM |1,217 views

I have heard any number of mothers say we have to protect our children as the world is a lot less safe than when we grew up and that it is the internets fault, lets all keep it in perspective! Aivars Lode

I write about crimes, real and fictional, so my view of the world is a bit off-center. Perhaps it’s a natural outcome of spending months at a time in courtrooms taking notes on sensational murder cases.
It’s dramatic, sure, but it forces one to confront head-on a world most of us prefer to relegate to the things-that-happen-to-someone-else category. Once you know the families the worst has happened to, it’s not so easy to distance oneself. The truth is that they’re often not that different from the rest of us.
The result is that I tend to drive friends and family a bit crazy, warning them to be careful. My friends, thanks to my constant nagging, know all the cautions, from parking under lights in lots and having their keys ready when they leave to never, ever, ever getting in a car with a would-be abductor. One of my homicide detective friends is so adamant that he’s told his wife and daughter to turn and run even if an assailant has a gun. “The truth is that the guy’s probably not a crack shot,” my friend explains. “But if you get in the car, the statistics aren’t good.”
So, I have a tendency to be a worrier, I admit.
Yet I’ve never felt that way close to home. I live in a quiet Houston suburb, a bedroom community with tree-shaded streets where kids ride bikes and joggers dominate the sidewalks mornings and evenings. Sure, I know crimes occur all over the country, all over the world, including in neighborhoods like mine, but it’s always felt like a bit of a haven to me. I appreciate the fact that a big crime in my neighborhood is a kid knocking down a mailbox — that was, until last week, when I drove home from the local Kroger and noticed a hand-lettered sign on a wooden post stuck into the grass at a corner that read: “Anyone with information on the robbery/assault that occurred here, please call….”
For a moment, I felt puzzled. Was that real? Was someone mugged just blocks from my home? That night I watched the local news including video of a well-dressed middle-aged man driving a white Prius stealing delivered packages from front porches.
Over the years, I’ve heard often that tough economic times breed crime, and as I watched the news, I wondered what our will-it-ever-end recession is doing to crime rates.
So before bed, I did what many of us do when confronted with a question, I Googled, typing in: U.S. CRIME RATE STATISTICS PAST AND PRESENT. What I discovered was the opposite of my assumption; despite the anti-Santa who was stealing presents, despite the nightly headlines and news footage that makes us question our safety, despite the anomaly of a mugging in my quiet neighborhood, I was relieved to discover that we’re safer now than we were a decade ago. As a matter of fact, the overall crime rate in 2010 wasn’t much different than it was in 1968. Did you know that? I didn’t.
Looking at the trends, rates climbed from 1960 through 1990 and then began to fall. In fact, according to the United States Crime Index, rates per 100,000 inhabitants have declined nearly every year since 1990, both violent and non-violent offenses. In 1970, for instance, the overall crime rate was 3.984. Twenty years later in 1990, it hit 5.820. Fast forward two more decades, and by 2010 the figure had plummeted to 3.345. The only troublesome statistic I came upon was that a larger percentage of the crimes are violent now than they were in 1968. Then: 298.4. Now: 403.6. Yet in 1990 it was a whopping 731.8, so even that’s headed in the right direction.
Why? A bit more scouting, and I read a lot of theories, from the aging of baby-boomers (crime is predominantly committed by the young), to harsher sentences and more people in prisons, to better policing. There were also theories about cocaine fueling the rise in crime rates through the Eighties and into the Nineties. The bottom line, it appears, is that no one truly knows why rates are lower, at least not definitively.
Was this drop in crime reported and I missed it? It could be. Perhaps it was simply lost in the murders and mayhem that dominate the headlines. Whatever the situation, I was glad to read it now, to understand that despite my perception that the U.S. is a more dangerous place than decades ago, it’s truly not.
The gloomy economic environment and our high unemployment rates are admittedly painful on many levels, but it’s at least comforting to learn one result isn’t higher crime rates. That said, will I stop locking my doors and parking under lights? No. But it’s nice to know that statistically I’m safer now than I was twenty years ago.

Steer clear of commodities!

Interesting video to watch. Aivars Lode  

Monday, December 19, 2011

Trustee to Seize and Liquidate Even the Stored Customer Gold and Silver Bullion From MF Global

Buyer beware. Aivars Lode


17 December 2011

Trustee to Seize and Liquidate Even the Stored Customer Gold and Silver Bullion From MF Global

The bottom line is that apparently some warehouses and bullion dealers are not a safe place to store your gold and silver, even if you hold a specific warehouse receipt.  In an oligarchy, private ownership is merely a concept, subject to interpretation and confiscation.

Although the details and the individual perpetrators are yet to be disclosed, what is now painfully clear is that the CFTC and CME regulated futures system is defaulting on its obligations.  This did not even happen in the big failures like Lehman and Bear Sterns in which the customer accounts were kept whole and transferred before the liquidation process.  

Obviously holding unallocated gold and silver in a fractional reserve scheme is subject to much more counterparty risk than many might have previously admitted.  If a major bullion bank were to declare bankruptcy or a major exchange a default, how would it affect you? Do you think your property claims would be protected based on what you have seen this year?

You always have counter-party risk if you hold gold and silver through another party, even if they are a Primary Dealer of the Federal Reserve. As Ben said, the Fed offers no seal of approval.  

If a Bankruptcy Trustee can pool your bullion into the rest of the paper assets and then liquidate it at prices that are being front run by the Street, you will have to accept whatever paper settlement that they give you.

The customer money and bullion assets are not lost, or rehypothecated or anything else.  This is a pseudo-legal fig leaf, a convenient rationalization. 

The customer assets were stolen, and given to at least one major financial institution by MF Global to satisfy an 11th hour margin call in the week of their bankruptcy, even as MF Global was paying bonuses to its London employees.

And in an absolutely classic Wall Street move, they are still charging the customers storage fees on the bullion which they have misappropriated from them. lol.

And now that powerful financial institution does not want to give the customer money and metal back.  And they are apparently so powerful that the Trustee and the Court are reluctant to try and force its return to the customers, which is customary in this type of preferential distribution of assets prior to a bankruptcy, much less assets that were stolen.  And keep in mind that in those last days the firm sent checks instead of wire transfers to customers so they could bounce them, and in a few cases even reversed completed wire transfers!

And so in the great Wall Street tradition they are trying to force the customers and the public to take the loss.   The regulators and the exchange are aghast, and are trying to imagine how to resolve and spin this to preserve investor confidence and prevent a run on the system.

'Let them eat warehouse receipts.'

For many this would have been unthinkable only a few months ago. They had been cautioned and warned repeatedly, but chose to trust the financial system. And now they are suffering loss and anxiety, frozen assets, and the misappropriation of their wealth.

How more plainly can it be said? The US financial system as it now stands cannot be trusted to observe even the most basic property rights as it continues to unravel from a long standing culture of fraud.

Get your money as far away from Wall Street as is possible.  And if you want to own gold and silver, take delivery and store it in a secure private facility outside the fractional reserve system.

It's one thing for $1.2 billion to vanish into thin air through a series of complex trades, the well-publicized phenomenon at bankrupt MF Global. It's something else for a bar of silver stashed in a vault to instantly shrink in size by more than 25%.

That, in essence, is what's happening to investors whose bars of silver and gold were held through accounts with MF Global.

The trustee overseeing the liquidation of the failed brokerage has proposed dumping all remaining customer assets—gold, silver, cash, options, futures and commodities—into a single pool that would pay customers only 72% of the value of their holdings. In other words, while traders already may have paid the full price for delivery of specific bars of gold or silver—and hold "warehouse receipts" to prove it—they'll have to forfeit 28% of the value.

That has investors fuming. "Warehouse receipts, like gold bars, are our property, 100%," contends John Roe, a partner in BTR Trading, a Chicago futures-trading firm. He personally lost several hundred thousand dollars in investments via MF Global; his clients lost even more. "We are a unique class, and instead, the trustee is doing a radical redistribution of property," he says.

Roe and others point out that, unlike other MF Global customers, who held paper assets, those with warehouse receipts have claims on assets that still exist and can be readily identified.

The tussle has been obscured by former CEO Jon Corzine's appearances on Capitol Hill. But it's a burning issue for the Commodity Customer Coalition, a group that says it represents some 8,000 investors—many of them hedge funds—with exposure to MF Global. "I've issued a declaration of war," says James Koutoulas, lead attorney for the group, and CEO of Typhon Capital Management.

At stake is an unspecified, but apparently large, volume of gold and silver bars slated for delivery to traders through accounts at MF Global, which filed for bankruptcy on Oct. 31. Adding insult to the injury: Of the 28% haircut, attorney and liquidation trustee James Giddens has frozen all asset classes, meaning that traders have sat helplessly as silver prices have dropped 31% since late August, and gold has fallen 16%. To boot, the traders are still being assessed fees for storage of the commodities...