Are You in the Top 5% of Investors

GregB is currently ranked 350 out of 15872 investors in the current Wall Street Survivor contest - Traders Wanted - Play $50,000 Stock Trading Game

This is the third time I have selected 5 stocks from the HingeBuy list as longs and 5 stocks from the HingeSell list as shorts the night before a contest opened and held the picks with no trades. The outcome has been the same in all three contests, the results are in the top 5%.

Isn’t time that you used information that could power top-ranked investing results? This is the power of the automated HingeBull and HingeBear selection process that is integrated in the FREE HingeScreen product.

One of the primary beliefs of the founders of HingeFire is that investors do not need $3000 seminars to be successful in the market. Investors simply need the tools to provide an edge in the market and a community of like-minded investors to work with. The objective of HingeFire is to build the tools and community to enable the success of investors at all levels.

I will confess that my results when I try to simply pick stocks that are “hot” or I got a “tip from a friend on" – are dismal. This is why it is important to use tools that can objectively screen the universe of stocks to define the stocks with the most potential. Start using the HingeFire stock screener today and get the information that will give you this type of edge on the market.

Disclosure: These stocks have been selected in a fantasy stock selection contest. They are not held in my real portfolio. Investing involves risk. Your results using software screening informational tools may vary. Proper portfolio diversification is important and any outlined investments may not be appropriate for your financial objectives or risk tolerance. This is not a solicitation to buy or sell securities.

The Independent Trader Crash Course

Over $300 of Trading Lessons, FREE through July 8!

Click Here to Get Your Free Lessons

More About the Independent Trader Crash Course

You've heard them say, "Buy low, sell high." You've also heard, "The trend is your friend." Then there's, "Don't fight the Fed" and many other age-old trading principles.

But have you ever actually tried to live by them? If so, you know that it's easier said than done. Because, for example, how do you know if you're really buying "low" and selling "high"?

Elliott Wave International, the world's largest market forecasting firm, has released 5 unique reports and videos that can help you bridge the gap between the theory of wise adages and the practice of benefiting from them.

The Independent Trader Crash Course compiles over 4 years of the best trading lessons from Elliott Wave International with 64 pages and 17 minutes of insightful online videos that you simply cannot get anywhere else.

These five reports and supplemental videos will reveal to you several key techniques of analysis, forecasting and risk-management that are tailored to fulfill one purpose: make you a better trader.

Click Here to Get Your Free Lessons

Introducing the Hinge Awards for inferior financial reporting

Every week brings its own set of inane articles in the financial press. The time has arrived to start awarding prizes for the worst examples of mainstream financial articles. Maybe in some small way this will help enable the improvement in business reporting, however unlikely the probability.

To kick this off, a set of three Hinge Awards have been created that will be presented quarterly. Naturally none of these awards are for excellence in financial reporting; in fact they are to outline examples of inferior business press.

The three categories for the Hinge Awards are provided below:

HingePitch – an article which is really a disguised pitch for a company, product, or service while pretending to give useful information. These pitches are common in the industry. Nearly 20% of the articles read in the mainstream financial media are effectively "paid-for" placement pieces. However some of these articles perform such a commendable pitch for a product while pretending to be an unbiased neutral resource that they are worthy of an award - especially if the product or service is really not in the best interest of most consumers.

HingeDuh – awarded for personal finance article where the information is obvious even to the most dimwitted consumer. The majority of these articles of fluff pieces containing meaningless quotes from selected "subject matter experts" with the simple objective of enabling the article to be at least an entire page long. Leading to the immediate question - don't the editors have something more meaningful for these business mavens to be writing about.

HingeCrock – the underlying facts are absolutely wrong in the article or the conclusions make no economic sense. Many of these articles use the selectable parsing of "facts" to slant the conclusions towards a designated point of view. A vast majority are politically oriented and have a pre-selected bias. Most turn plausible financial ingredients into inedible economic gruel.

Send your nominations to gregb@hingefire.com
Please list the award category in the subject header.

This week’s trite “that’s obvious” personal finance article

Every week a slew of personal finance articles appear in the mainstream press across the county. Many of these articles don’t go beyond what should be obvious to even what a consumer with a very low IQ should intuitively understand. You would hope that the “hard-hitting” financial news media would be able to provide useful information with some depth instead of the junk that is put out as meaningful financial reporting in this era.

In a world ruled by 30 second sound bites, it is easy to understand why not all articles are lengthy. At least consumers could hope that they could make points that are not obvious even to the most dimwitted.

With the continual pile of trite articles put out each week, maybe there is a need to establish an award for the most useless personal finance article of the week – sort of an Ig Nobel prize for personal finance. As long as they don’t name the trophy after me I would be quite content to see this happen.

This week’s winner would be a gem from U.S.News & World Report titled “Tips on Selling an Unloved SUV”. The article makes the obvious points of:

• Sell to individuals, not dealers.
• Don’t strip the bells and whistles from the SUV.
• Lower your price.
• Wait for winter to sell.

Where is Captain Obvious when we need him?

Sticking it to investors: SEC does not want to hold Credit Rating agencies accountable for their ratings

So what does a regulator do went they find out that the credit ratings applied to money market accounts are basically meaningless? Do they:

A) Get tough with the credit rating agencies and demand that they properly evaluate and grade interest bearing instruments.

B) Open the credit rating market up to new companies, hoping that the competition fosters an improvement in credit ratings.

C) Propose reducing reliance on credit ratings, including proposing to eliminate a requirement that money market funds hold highly-rated securities.

If you selected C then congratulations - you are a winner. The SEC is moving forward with a policy of weaning investors and Wall Street institutions from over-reliance on credit ratings, instead of fixing the credit rating firms. While the proposal does require that fund managers assess a security's liquidity and inform investors, we have seen quickly a formerly-liquid credit market can lock up. The major focus is to deemphasize credit rating agencies and effectively get them off-the-hook for the terrible job they have done in terms of properly rating securities. There is no need for the agencies to reform their processes.

Worst yet, investors are now basically being told that they are on their own when if comes to evaluating the safety of money market funds and interest-bearing funds. This is setting the table for a future crisis. At some point in the future there will be a large number of grandmothers spread across the nation who will be quite unhappy with this change in regulatory mindset.

SEC proposes reduced reliance on credit raters

Who wants to buy Circuit City?

An earlier summary regarding Circuit City outlined how all of the vultures that have been sitting on the sideline would be drawn out once Blockbuster started bidding. It is time to either fish or cut bait for all other potential suitors.

An article from Reuters today stated that Circuit City has received buyout interest from several strategic and financial bidders. A sale is expected to be announced over the next month.

The only question at this point is how much the carcass of this poorly managed electronics retailer will go for? I believe that many long suffering stockholders will be sadly disappointed at the price.

Wall Street Survivor Update

Is anyone else earning 88.57% returns on a yearly basis?

HingeBuy and HingeSell can help you achieve this type of return.

At the beginning of May, I entered the latest Wall Street Survivor contest. I selected 5 stocks from the HingeBuy list as longs and 5 stocks from the HingeSell list as shorts the night before the contest opened. Wall Street Survivor provides each player with $100,000 in “cash” for investing in the contest. I placed $10,000 into each stock on the first day of the contest and have not made any trades whatsoever since this time.

The longs were:
Symbol Return
------------------------
MOS +24.84%
XEC +11.49%
AXYS +6.16%
DAR +12.72%
BMI -7.92%

The shorts were:
Symbol Return
------------------------
FSNM +33.44%
GSAT +7.25%
CIX +21.57%
LYTS +17.25%
MEDX +1.37%

I did not use leverage (i.e. excess margin) in the contest. The portfolio is currently worth $112,617.93; this is a 12.62% return over a few weeks (or 88.57% on a yearly basis). Player GregB is currently ranked 326 out of 14762 players. Most other players in the contest trade regularly. My result is not bad for simply picking ten stocks, not trading them, and not using leverage.

This demonstrates the power of the HingeBuy and HingeSell automated selection process. Start using the HingeFire stock screener and get the information that will give you this type of edge on the market.

Traders Wanted - Play $50,000 Stock Trading Game

Disclosure: These stocks have been selected in a fantasy stock selection contest. They are not held in my real portfolio. Investing involves risk. Your results using software screening informational tools may vary. Proper portfolio diversification is important and any outlined investments may not be appropriate for your financial objectives or risk tolerance. This is not a solicitation to buy or sell securities.

See the HingeFire Videos

Want to lean how to use HingeScreen to improve your investing? See the excellent videos at the HingeFire website that explain how to use the tool.

The website also contains a wealth of other educational material. Explanations of all the indicators can be found within the Knowledge Base. A full set of documentation for HingeScreen can be found under Support.

HingeFire provides the tools and information that enables investors to improve their understanding of the market. So heat up your investing today, check out the HingeFire resources!

New Wind ETF

The First Trust ISE Global Wind Energy Index Fund launched this week. The ETF is trading under the symbol FAN – in another example of gimmicky ETF naming.

If oil prices remain high, companies involved in the wind turbine industry may gain significant traction. Wind turbines are common in Europe. The U.S. and Asian markets have huge potential, assuming people don’t get all NIMBY about seeing wind turbines from their backyards.

A couple of recent articles discuss the introduction of this new wind energy ETF:

Should You Buy an Alternative-Energy ETF?

Is Electricity From Wind Just A Lot Of Hot Air?

FreeWeek is Back!

We’re excited to announce that our friends at Elliott Wave International have announced a FreeWeek of expert financial forecasting for U.S. Stocks, Bonds, Gold, Silver and the U.S. Dollar from noon Wednesday, June 18 to noon Wednesday, June 25.

FreeWeek is always exciting, but we’re especially excited to share this one with you, as EWI has opened its new Financial Forecast Service delivery portal to you. The new portal combines all of EWI’s world-class analysis onto one easy-to-navigate webpage. It allows you to toggle between near, intermediate and long-term forecasts and analysis with ease, including recent archives. And, only during FreeWeek, will you get totally free access with no obligation to buy – ever!

You’ll get analysis and commentary from EWI’s top three analysts, including Robert Prechter himself, who’s latest Elliott Wave Theorist is interestingly titled Stocks and Oil; Barack and Hillary.

In today’s markets, having an independent market forecasting and analysis service on your side is more important now than ever. FreeWeek lets you test drive EWI’s U.S. forecasting service, giving you top-level access and FREE forecasts for U.S. Stocks, Bonds, Gold, Silver and the U.S. Dollar. This is not an opportunity you’ll want to pass up.

Dive into EWI’s FreeWeek Now!

How come Mutual Fund Managers don’t invest in their own funds?

Once again, an article highlights that the majority of mutual fund managers avoid their own funds. Why would a customer want to buy fund when the manager won’t touch it?

Maybe the manager knows that the expense fees in most mutual funds eat you alive over time, and most knowledgeable investors are better off investing directly in stocks. John Bogle, the former chairman of Vanguard group, talks about this trend in his discussion about the “The Battle for the Soul of Capitalism”.

Morningstar reported that 47% of the managers of U.S. stock funds reported no ownership in their own funds. 61% of the managers of foreign stock funds and 66% of taxable bond funds do not own their funds. Similarly 71% of the managers of balanced funds will not include the funds in their holdings.

Do they know the funds are so toxic or poorly run that these managers will not even pick up a small number of fund shares – maybe this would be a good display of confidence.

Once again this is a dismal reflection of the mutual fund industry, and demonstrates that many managers do not believe their “gimmicky market-driven funds” are designed for the long haul. Investors should focus on low fees when investing in mutual funds and take a look if the manager actually holds shares.

Does HingeBuy and HingeSell really work?

Yes, you better believe it!

At the beginning of May, I entered the latest Wall Street Survivor contest.

I selected 5 stocks from the HingeBuy list as longs and 5 stocks from the HingeSell list as shorts the night before the contest opened. Wall Street Survivor provides each player with $100,000 in “cash” for investing in the contest. I placed $10,000 into each stock on the first day of the contest and have not made any trades whatsoever since this time.

The longs were:
Symbol Return
------------------------
MOS +24.77%
XEC +11.44%
AXYS +6.47%
DAR +5.11%
BMI -7.16%

The shorts were:
Symbol Return
------------------------
FSNM +25.89%
GSAT +13.29%
CIX +12.48%
LYTS +9.82%
MEDX -2.73%

I did not use leverage (i.e. excess margin) in the contest. The portfolio is currently worth $109,847.18; this is a 9.85% return over a few weeks (or 79.78% on a yearly basis).

Player GregB is currently ranked 373 out of 13850 players. Most other players in the contest trade regularly. My result is not bad for simply picking ten stocks, not trading them, and not using leverage. This shows the power of the HingeBuy and HingeSell automated selection process.

FREE TO PLAY - Fantasy Stock Trading Game

Get the Free Asian & Indian Market Report

We’d like to announce a new 12-page complimentary special report on Asian and Indian stocks, courtesy of our friends at Elliott Wave International.

Investment Opportunities for Asia’s Big 6 Markets will give you specific forecasts and valuable commentary and observations for the following markets:

• India’s SENSEX
• Japan’s Nikkei 225
• Hong Kong’s Hang Seng & MSCI
• China’s Shanghai & Shenzen
• Singapore’s Straights Times
• Australia’s ASX 200 & All Ordinaries

This FREE 12-Page Report was written by an analyst who lived in Asia for most of the 1990s and knows the region's economy first hand. He digs deeply into today's investment potential for Asia to show you what's changed and what hasn't. He also presents the important socio-economic trends now shaping the Asian markets.

Click Here to Get the FREE Report Now

Go to My Broker Feature

One of the additions to the new HingeScreen 1.5 release is a “Go to My Broker” feature. This functionality in the Execute Mode pane allows you to go to your stock broker’s website with the click of a single button. This is a very useful feature at times when you are screening the market for new opportunities.

The image of the gentleman at the top of the screen is the link to your selected default brokerage website.

Under the Options menu at the top, there is a My Broker item. Pulling up this menu shows an Edit Brokers item at the top of the list. The remainder of the list consists of direct website links to major online brokers.

Pressing on the Edit Broker item pulls up a pop up that allows you to add, delete, and edit brokers in the list. Three buttons are at the top, Create New Broker Entry, Save Broker Details, and Delete this Active Broker. A drop down box below this contains a list of brokers, selecting an item displays the broker’s url in the text box below.

The user can select a broker and press the Default button at the bottom to have the broker set as the default (when you press on the image in the Execute Mode pane). Remember to hit the Apply button at the bottom left after all transactions to make them permanent.

The Go to My Broker website feature is a very useful function in the HingeScreen 1.5 release. Users can perform screens and easily pull up their broker’s website to perform trades or get more information.

Is the Housing Crisis at its apex?

The news cycle continues a downward cycle on housing. Homeowners can not open a newspaper, turn on the news, or browse online without immediately getting hit with the latest negative housing commentary.

On the front page today, US foreclosure filings surge 48 percent in May. The continuous stream of downbeat real estate news may be a sign that the housing market has finally hit the bottom. In the same way, that the endless stream of news on how to get rich speculating on real estate in 2005 marked the real estate market peak. Interestingly, the spin today is how to get wealthy buying real estate foreclosures.

There is continuing statistical evidence that indicates that housing has turned the corner. In many markets, the number of days on the market is falling, along with the amount of unsold inventory. Coupled with the rate of price decreases slowing as buyers and sellers come into alignment of the new expectations regarding the proper value for a house now that the speculative bubble has burst.

The mortgage situation is also easing, as banks have returned to traditional lending standards. Financial institutions now have an improved comfort level for underwriting and re-selling proper quality loans – the credit crunch is slowly moderating.

The summer of 2008 may mark the actual bottom of the real estate plunge on a national level; some markets will face further price correction. However the path out of the crisis across the country will still be lengthy and painful, extending well into 2009.

How to use Market News at HingeFire

One of the innovative community features offered at the HingeFire website is Market News. Users can submit financial news story links, and allow other members to discuss & comment on the articles.

It is easy to submit a link, simply go to Market News à Submit News at the top after you are logged into the site. A form appears asking you to provide a Title, Summary, url, and category before hitting “publish” at the bottom to post the news.

A direct link to submission is here (need to be logged in).

Market News is a great community feature and I would urge users to try it out!

Great News! HingeScreen 1.5 Now Available

The new HingeScreen 1.5 software client includes many features asked for by the user community; more fundamental indicators, additional technical indicators, and new candlestick & chart pattern indicators. The 1.5 software client contains links to many community features at the new website including a Forum, Market News, Broker Ratings, and the Blog.

There is a wealth of educational information at the new HingeFire Site. Some of the best information to see on using the new HingeScreen 1.5 release includes:

Take a Tour
http://www.hingefire.com/Education/TakeaTour.aspx

Videos on usingHingeScreen
http://www.hingefire.com/Education/KnowledgeBase/HingeVideos.aspx

User Documents
http://www.hingefire.com/Support/Documentation.aspx

Information on Indicators
http://www.hingefire.com/Education/KnowledgeBase/Indicators.aspx

One of the primary beliefs of the founders of HingeFire is that investors do not need $3000 seminars to be successful in the market. Investors simply need the tools to provide an edge in the market and a community of like-minded investors to work with. The objective of HingeFire is to build the tools and community to enable the success of investors at all levels.

Coming Wednesday: HingeScreen Release 1.5

Great News! HingeScreen 1.5 has arrived.

The new software release 1.5, and the totally updated website will become available during the day on Wednesday June 11th.

This does have a couple of important ramifications for the user community.

1) Users will have to download the new HingeScreen 1.5 software client at the new site in order to keep using the tool. The earlier 1.2 client is no longer supported. All of your existing screens, and results will automatically transfer on your PC when you upgrade to the same directory, so you will not lose any information.

2) All users' passwords have been reset to your username plus 123. For example an account with the username "paul" will have a default password of "paul123". Users will be able to immediately change their default passwords at their profiles on the new site.

The new HingeScreen 1.5 software client is still FREE, and includes many features asked for by the user community: more fundamental indicators, additional technical indicators, and new candlestick & chart pattern indicators. The 1.5 software client contains links to many community features at the new website including a forum, market news, broker ratings, and the blog. For a full list of the exciting new features in release 1.5, please see the Products section in the new website. A wealth of educational material and training videos are also provided on the new website.

I would like to thank the beta testers who gave feedback over the past couple of months. Our team is working to have a smooth transition tomorrow, and get the full-featured website and software release available to the entire community.

Dark Pools: A Regulatory Tangle

An increasing vocal chorus is asking when regulators are going to step into Dark Pools. The Dark Pool market represents the wild frontier in equity trading. Dark pools now represent over 10% of stock market volume and over 20% of all trades in NYSE stocks.

In years past, ECNs represented the upstarts that were edging in on the business of the exchanges. The proliferation of electronic exchange networks fractured the market and siphoned trades off the major markets. ECNs were seen as a threat to the orderly operation of the market according to many older-schoolers. Over the past years the ruckus died down as many ECNs were merged out of existence; many being acquired by the very exchanges that squealed about the menace they posed. One glaring example is the Archipelago ECN, famous for making fun of Wall Street exchange floor market makers, being acquired by the NYSE.

In comparison the major exchanges seem to be awfully quiet today about all the trading volume appearing on Dark Pool networks. These exchange mechanisms were created by major brokerage firms to move large blocks of stock.

One primary concern is the lack of transparency in the market. Exchanges and ECNs provide details of every trade. These venues allow all the participants in the market to discover pricing and be fully included in the overall market. The hidden fractioning of price information with Dark Pools has led to gaming of the market within Dark Pool networks, as traders utilize the mechanism as a profit driving instrument rather than simply as a tool to execute large orders without moving price.

Regulators appear to be absolutely confused in regards to the proper way to address the Dark Pool phenomenon. At most they mention the subject in speeches without outlining any policy or actions. The lack of action is disturbing considering the requirement for proper transparency in the markets in order to maintain the confidence of the investing public.

With the increasing number of Dark Pools, there is the expectation that consolidation is coming. The proliferation of dark pool networks has led brokerages to offer interfaces that link dark pool and “light pool” networks, or offer access to multiple dark pools. These offerings have simply increased the gaming of the system and the utilization of algorithmic trading over the networks.

At some point the news media will start focusing on the abuse of Dark Networks causing regulators angst, and leading Congress to demand more transparency for the investing public. This day may not be far off --- as the Dark Networks continue to quickly grow in market share and an increasing number of trades are hidden from investors.

Legal Nirvana

Nothing warms the hearts of corporate executives at public companies like the vision of class action lawyers being locked up in a cell. Especially when the visualization includes the lawyers responsible for 50% of the class action suits in the United States over a decade period.

Even more amusing is having one of the lawyers derided in the front page of a major newspaper for declaring that he is innocent, despite all the obvious evidence to the contrary. I expect that lawyer jokes will be at the top of the list in the executive happy-hour circuit during the month of June.

Serving Time, but Lacking Remorse

Q: What's wrong with lawyer jokes?
A: Lawyers don't think they're funny and other people don't think they're jokes.

Saving on Food: Avoiding the checkout coronary

The cost of food keeps going up. Most customers cringe when going through the checkout line at their local grocery store these days. Coupons are back in vogue, and many people are comparison shopping between brands and stores to save money.

One problem is that the most standard items like milk, eggs, and bread that have risen in price significantly don’t normally have coupon discounts. One way our family is saving is by going to big wholesale discount centers such as Sam’s to buy these items. Milk at Sam’s is cheaper than any of the local groceries. Until recently we were not focused on using discount centers for food purchased; when I used to think of Sam’s it was for cheap electronics, office supplies, and other stuff. Times have changed – thanks to the rapid inflation in food prices.

On an interesting financial note, regulators are proposing to increase the margins for agricultural products in the commodities markets to curb speculation. This step was recently enacted for energy futures to reduce volatility, apparently it has not worked out very well – Oil jumped $10 today.

One recent article outlined “How to Save $400 a Month on Groceries”. The piece outlines some of the websites and strategies for finding coupons that will help you save in the checkout line.

Is Oil in a speculative bubble?

Oil continues to trend upward with some pull-backs. It is an open question if the increases merely reflect a speculative bubble, or is indicative of real supply and demand.

Take the new survey at the top left of the blog to voice your opinion.

One interesting regulatory change over the past couple of weeks is the tripling of margin requirements at the energy exchanges. The New York Mercantile Exchange (Nymex) and ICE Futures Europe in London have boosted the margin required by speculators to make trades. The exchanges are hoping that the margin calls will reduce volatility and keep the lid on speculative price increases in the energy markets. On the day the changes were implemented, oil dropped by more than $7. Since this time however, the price has recovered to near $130.

A number of officials such as U.S. Treasury Secretary Henry Paulson have stated that high oil prices are here to stay, and are reflective of the world supply and demand situation. Jim Rogers agrees, stating that the oil bull market has years to go.

Other sources state that oil is in a classic bubble. No different than houses, dotcoms or tulips. The article in The Times makes the case that the oil price increases are not attached to reality, and outlines the case with some compelling numbers.

This leaves the question. Is oil in a speculative bubble that will pop before the end of 2008? Or do the price increases have years to go?

One truth is that bubbles always tend to go on longer than any pessimist ever believes it can; and eventually crashes harder than any optimist ever believed was possible.


The last survey – Gas at the Pump

The last survey on the price of gas at the pump showed that 43% of the poll takers expected gasoline to be between $4 and $4.50 per gallon on August 1st. 67% of the responders expected gas to be above $4 per gallon.

Is Lehman Next?

Lehman Brothers has plunged over the past few days as Wall Street is speculating if it is the next Bear Stearns. The bank has fought these allegations with a string of press releases and appearances stating that it is properly capitalized and reducing debt. (Wait a minute, this sounds familiar – didn’t Bear do the same thing).

A string of major articles outlining Lehman’s woes has not helped the situation. The Wall Street Journal stating that the bank’s “balance-sheet troubles threaten to harm the wider financial system unless the bank takes decisive action”. The paper went on to say the firm will be forced to sell all or parts of itself to stay above water. Naturally this news has LEH stock targeting 52 week lows.

Lehman’s has not taken the press sitting down; it has come out swinging at parties that portray the bank in a negative light. At the top of the list is head fund chief, David Einhorn, who runs a $6 billion hedge fund called Greenlight Capital. (Lehman Battles an Insurgent Investor). He has been a vocal critic of Lehman’s and has profited on their pain by shorting the stock. According to most market watchers, “Mr. Einhorn instigated the latest dive in Lehman’s stock price two weeks ago when he encouraged other investors to short the stock at a large conference in New York”. He followed this up by agitating for a reduction in debt ratings for Lehman Brothers.

The firm is trying to portray Mr. Einhorn as a short-seller who is simply trying to pad is pocket by spreading negative news about Lehmans. Many on Wall Street simply point to the many times he has been correct in the past. In any account, the situation will play itself out over the next few weeks. It is unwise to underestimate the headwinds facing Lehman Brothers, their eroding mortgage portfolio represents a systemic risk not only to themselves but other Wall Street firms. The media is most likely right on target when stating that a merger is needed and the bank is at serious risk.

The question remains of how much LEH will sink below $31 in the next couple of months. Will the firm regain investor confidence or is it doomed for a big fall?

Wall Street’s Graveyard

Bear Stearns was not the first firm to implode and float belly up on Wall Street. Portfolio.com takes us through the colorful history of other firms that have gone kaput since 1970.

Greed and lack of risk control is not a new story. However the danger in the modern era is that many of the firms are built on a mountain of derivatives and the collapse of one can lead to a cascading failure of others. Increased regulation of the derivatives market is needed to prevent this type of event.

Is Quantitative Trading alive or dead?

Scores of quantitative hedge funds have taken hits over past year that make NFL hits in Sunday football games appear to be minor league. Many have questioned if there is a future to the quantitative approach to trading the market, all the current models appear to be completely discredited. Yet to entire industry continues to drive forward, new algorithms are being created, however most are still focused on wringing raw profit out of the market based on differences in data input.

Similar to the movie Groundhog Day, repeating the same mistakes will only lead to a cycle of the same results. The continuing flawed premise is the over-optimization of models to focus on profit while ignoring risk.

A recent study by the CFA Institute outlines many of the issues with quantitative models used by Hedge Funds. Many factors have led to a complete decay in performance, leaving funds scrambling to unwind exposed positions. The information reveals that profits opportunities for quants are harder to find and exploit, while the updated strategies expose firms to increasing risk. The concept that firms will trade strategies that increase risk while possible gains are minimized bodes poorly for the industry.

A couple of HingeFire briefs have touched on this subject in the past (see Is there a future for Quant Funds and Quants search for new math). The complete 100+ page study from the CFA Institute is available for free in PDF format and is very educational. It can be downloaded here - http://www.cfapubs.org/doi/pdf/10.2470/rf.v2008.n2

Wachovia CEO given the Boot

The dirty laundry list appears to be almost endless, aiding telemarketers to steal money from account holders, money laundering investigations, selling customer lists, and a host of other activities that have Wachovia in trouble with regulators. Now all the problems have caught up with America’s most ethically challenged bank, CEO Ken Thompson of Wachovia has been shoved out the door.

Certainly the very poor acquisitions of mortgage companies such as Golden West also played into the decision. The resulting financial fallout has left Wachovia in state where it may need to further cut dividends and re-structuring.

"No single precipitating event caused the board to reach this decision, but a series of previously disclosed disappointments and setbacks cumulatively have negatively impacted the company and its performance," Smith said. It would be better to hear commentary on how Wachovia will in the future stay out of trouble with regulators and customers.

An earlier Hingefire article asked when the CEO would walk the plank (see Wachovia: Take Three Steps), now the board has taken steps to right the ship. The question remains if the directors can find a CEO candidate that has the moral backbone to place the bank back on course.