Central Perk

sâmbătă, 17 mai 2014

Mish's Global Economic Trend Analysis

New App Offers Stock Trades for $0 Commission; End of $7 to $10 Trades at E*trade and Schwab?

Posted: 17 May 2014 10:09 AM PDT

Many companies claim to be discount brokers. But there is no definition of the term. Charles Schwab was a pioneer in discount trading, but other online trading firms offer lower prices.

The ultimate in low-commission trading is $0 per trade, and that model is about to hit the street. "Robinhood", a new app in the works has a huge waiting list precisely because it offers trade commissions for noting.

CNN Money reportsTrading App has 340,000 Person Wait List.

The legendary archer of Sherwood Forest is taking aim at the stock market. Robinhood is a new trading app that promises users free trades and no account minimums.

That's a big departure from the $7 to $10 fees per trade that other brokers which cater to the masses like E*Trade and Charles Schwab charge. These firms offer discounts from time to time, but only if a customer has a large account or uses other services.

Plenty of people are excited about $0 commission trades on Robinhood. The app is still in beta test phase, but nearly 340,000 people have signed up on the company's website to gain early access.

The roll out process is reminiscent of the early days of Gmail, Gilt Groupe and the Mailbox app: There's an aura of exclusivity, and if you refer more friends, you move up the wait list.

Perhaps it's not a surprise that Robinhood is taking this approach since Google Ventures is one of the company's key backers, and a former Mailbox app employee is now part of Robinhood's 15-person team in Redwood City, California.

In December, the company said it was targeting "early 2014" for launch. Now they plan to open the app up to more people on the wait list in the coming weeks and have it available in app stores later in the summer.

"Rest assured when you use it, it will be unbelievably cool," Baiju Bhatt, one of the co-founders, told CNNMoney.

Robinhood was founded by former Stanford roommates Vladimir Tenev and Bhatt who worked on Wall Street after getting master's degrees in math.

Tenev and Bhatt's job on Wall Street was to build high-frequency trading (HFT) platforms for financial institutions.

"At the time, HFTs were commonly paying a tenth of a penny per trade, which enabled the business model to operate with razor thin margins," Bhatt says. "We had a head scratcher moment where we asked ourselves, 'Why do we pay $10 when we trade our personal accounts?'"

Video

How Does Robinhood Make Money?

CNN offered this explanation: "The company's business model is to make money on margin trading, interest on cash deposits and payment for order flow, a fancy way of saying making money by trading faster or slower than others."

Purposely trading faster or slower and stripping out the difference is not legal. With interest rates near zero, making a lot of money on cash deposits will not be easy unless the company takes some risks. E*trade nearly blew up making questionable investments.

The Robinhood website makes this more reasonable-sounding claim: "Robinhood will offer margin trading as well as API access, which will allow partnered developers to build applications in conjunction with Robinhood. Robinhood will also receive remuneration for providing trade volume in certain markets. In the future, we plan to offer premium services for active investors."

The Catch?

I don't see one. But don't expect service at Robinhood to be the same as service at Schwab or Merrill Lynch. If you need hand-holding, advice, or insist on paper-mailed statements, you may be better off elsewhere.

Those who trade frequently will be among those who benefit the most. And ultimately, this will cost Schwab, E*Trade, Scottrade and others some business. In response, commissions will drop everywhere, even if not to zero. Increased competition always leads to lower costs. And that is a good thing.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Working When Congress Won't Act

Featured

Weekly Address: Working When Congress Won't Act

In this week's address, the President discusses actions to expand opportunity for more Americans, with or without the help of Republicans in Congress, including his Administration's efforts to cut red tape for major transportation infrastructure projects.

In the coming days, the President will meet with business leaders to highlight the importance of bringing jobs back to America and will also discuss the economic benefits of making it easier for tourists to visit and spend money at attractions in the U.S., which in turn helps local businesses and grows the economy for everyone.

Click here to watch the President's Weekly Address.

Seth's Blog : The proven way to add value

The proven way to add value

Do extremely difficult work.

That seems obvious, right? If you do something that's valued but scarce because it's difficult, you're more likely to be in demand and to be compensated fairly for what you do.

The implication is stunning, though: When designing a project or developing a skill, seek out the most difficult parts to master and contribute. If it's easy, it's not for you.

• Email to a friend •

vineri, 16 mai 2014

Mish's Global Economic Trend Analysis

People in EU Aged 25-34 Who Still Live With Their Parents; Highest Paid Public Employees by State; Many Other Interesting Maps

Posted: 16 May 2014 03:17 PM PDT

A friend passed on a link to Interesting Maps You don't See in School. Some of the maps are economic or demographic related, some sex related, color of hair, and other wide varieties of topis.

Here are a few to consider.

People in EU Aged 25-34 Who Still Live With Their Parents

Highest Paid Public Employees by State

Countries Officially Not Using Metric System

Most Favorite Brand From Each State

Many more interesting maps. Click on link at the top to see.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Big Appetite for Risk

Posted: 16 May 2014 09:18 AM PDT

Jason Goepfert, president of Sundial Capital Research and producer of SentimenTrader had interesting articles the last two days regarding risk appetite. I asked for and received approval to post those sections of his report.

Black Rock Risk Assessment

From the sentiment report on 5-14

According to a risk gauge created by [Black Rock] the world's largest asset manager, investors have hit a new high in terms of their comfort level with the earnings power and valuation of the S&P 500.

The risk gauge takes into account three factors:

1. Enterprise value: Market cap plus debt minus cash
2. EBITDA: Earnings before interest, taxes, depreciation and amortization
3. VIX: Estimated future volatility using S&P 500 options
The formula basically determines how confident investors are in the current valuation of stocks, given their estimated earnings potential.
We've been keeping an eye on it since then, and it hasn't really gone anywhere of note. It dipped quite a bit when stocks stumbled in late January, but not to levels near prior lows.

Big Appetite for Risk

SentimenTrader has its own assessment of risk. This is from the sentiment report from 5-15

After Wednesday's mention of the risk gauge created by massive asset manager BlackRock, a few eyebrows were raised by the latest update of the Risk Appetite Index.

Risk Appetite takes a different tack than the measure from BlackRock, as valuation and earnings play no part in the calculations.

Instead, it aggregates several different indicators of risk-seeking behavior as compiled by institutional brokerage firms, comprised of the Citigroup Macro Risk Index, Westpac Risk Aversion Index and UBS G10 Carry Risk Index Plus.

Those indicators look at credit spreads, equity and foreign exchange volatility, gold prices, sector relative performance, and several others.

We combine and normalize these into a single index. On the chart, as the line rises, it means that investors are seeking riskier assets; as the line falls, it means that they are becoming more risk-averse.

On February 3, the index dipped into "extreme risk aversion" territory for a total of one day, and stocks immediately rebounded. Risk Appetite has understandably increased along with stock prices, and by Tuesday it reached 93%, in the top 3.5% of all readings since 1998.

Risk Appetite tends to rebound quickly in the months following a bear market low, and it becomes less common to see such high extremes as a rally progresses.

The only time we saw an extremely high Risk Appetite when stocks were near a high, and stocks did not subsequently stumble at some point in the weeks and months ahead was the very beginning of 2013. Then, the risk indicator hit 94%, and there wasn't so much as a hiccup going forward.

The other instances were clustered in April and November 1999 and October/November 2006. Both preceded bull market peaks, but stocks managed to chop higher for months before those peaks occurred.

No Fear

The VIX on which those are partially based shows no fear as well.

Complacency at these elevated index levels is highly unlikely to be rewarded.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Damn Cool Pics

Fun Parents Acting More Like Kids Than Adults
Awesome Life Moments Expectations Vs. Reality
Can't Decide If This Swimsuit Is Cool Or Creepy

Fun Parents Acting More Like Kids Than Adults

Posted: 16 May 2014 10:18 AM PDT

Parents aren't supposed to have more fun than their kids do. Isn't that against the rules?

Awesome Life Moments Expectations Vs. Reality

Posted: 16 May 2014 09:30 AM PDT

Sometimes we have a totally different picture of what's going to happen in our heads as opposed to what actually happens. We're all dreamers at heart but here are a few times when our dreams might have been let down by reality.