The return of Banking Bonuses is a good thing

It would seem that bankers have replaced real estate agents as the profession to hate right now. The new hate wave is starting again with the announcement of some large Christmas bonuses for the supposed architects of our worldwide recession.

No-one deserves all that cash

The general opinion of the masses seems to be that the bonuses are too big, these guys don’t deserve them and it’s our money. Or it could just be jealousy!

We all should be jealous and it’s natural so let’s not go looking for a moral high ground to fire our arrows into the boys in the tailor-mades. The reality is that nothing has changed – multimillion dollar payments have been going on for the last twenty or thirty years – my direct boss got paid $28m in 1997 and sure the green eyed monsters way back then said he didn’t deserve it but hold on – these payments have always been approved directly and indirectly by shareholders – as they are now. And why are they approved?

For three reasons: 1. The organisation made a profit 2. The individual performed well and 3. The shareholders made money

Who DOES deserve the cash?

So surely the only reason for complaints now is jealousy? Just like premiership footballers or US baseball swingers the money (profits remember) can either go to the players (footballers or bankers) or the fat cat shareholders. What’s more in most G20 countries they pay higher rates of tax – up to 50% in the UK next year! So again what’s the problem? I can hear you screaming from here and it’s all about the level of Government intervention – be it TARP or European bank bailouts – $20 trillion of our money poured into the economy. Without that money the banks would not be in existence and they wouldn’t be able to pay bonuses now, so the argument goes.

Correct – and every pension holder would have a load of worthless paper to take into their retirement, every mortgage holder would be in negative equity and every high street would be a boarded-up reminder of our greed. In short the world would not resemble anything like the world we have known since the 1980s. It is a fact that financial markets would have collapsed and lots of fat cats would be out of work – along with millions and millions of ordinary Joes - the plumbers, the shopkeepers, the workers - the real people would be on the streets with no money, no jobs and no hope.

Cash is King – For all of us

So why get so hot under the collar now with the bankers? They didn’t make the rules. They are not the governments who bailed out their old college mates with no constraints and no rules. They are just doing what they have always done – executing extremely smart financial engineering and taking percentage points of huge profits for themselves in return. If we don’t like that then best we stop borrowing money and best we stop living in houses valued at x10 our annual salaries. Let’s go back to the good old days in the 1960’s and 1970’s when we paid 20%+ interest rates on mortgages and credit was virtually non-existent. That’s right folks stop the bonuses, stop the smart guys working in banks, stop the banks making too much money and they’ll start charging you more – or maybe not even doing business with you at all so you go back to living in your parents terraced house until you are married, travelling by bicycle and paying everything off in cash over three and four years.

You know what is folks – it’s jealousy – it’s human and its fine but it’s also a necessary evil of our lives. The fat cats are necessary evils. You don’t have to like them and to be honest on the whole they are deluded, self obsessed horrors – much like our elected politicians who have demonstrated that they haven’t got the first clue of how to manage an economy or regulate the smart guys. Deal with it – and if you can’t just make sure your kids do their sums at school and become the next generation bankers.

It may not be popular but these bonuses work for us and improve our lives too.

Toddle along now sonny

Everyone loves a winner - apart from your online broker maybe!

Trading is tough enough without having to fight your broker isn't it?

Make sure you have the right relationship with your online brokers. It is NOT true that they want you to lose - but it IS true that sometimes they make more money when you do lose. What they make and how they make it doesn't really matter to us as long as we all know the rules of engagement and win, lose or draw we get the same level of service and execution. If you ever thought that may not be the case and that maybe the quotes were getting a tad tardy or your broker was being a bit less helpful just take a moment to read this timeless story below and make sure you don't recognise your broker:

St Louis Bucket Shop – 1920’s

“Just come over here Livingston, will yeh? Do yeh see them?

See What?

“Them guys. Take a look at em kid. There are three hundred of em! Three hundred suckers! They feed me and my family. See? Three hundred suckers! Then yeh come in and in two days yeh cop more than I get out of the three hundred in two weeks. That ain’t business, kid – not for me! I ain’t got nothin’ agin yeh. Yer welcome to what ye’ve got. But yeh don’t get any more. There ain’t any more here for yeh!”

“why, I........

“You look here Livingston” he said “I’ve heard all about yeh. I make my money coppering suckers bets’, and yeh don’t belong here. I aim to be a sport and yer welcome to what you pried off’n us. But more of that would make me a sucker, now that I know who yeh are. So toddle along sonny!”

This is an extract from “Stock Reminiscences of a Stock Operator, Edwin Lefevre” but much of it holds today.

The game is the same – online brokers mostly “warehouse” or “b-book” retail trades. This is not illegal and they are accepting your trades (and risk) so offering a service but just know they love a sucker and .... well sometimes are not so fond of a winner. If your quotes slow or your trade size is limited you know you’ve been spotted and hopefully you are a winner.

It figures doesn’t it? These retail online execution only brokers offer spreads so tight and commission so low (or free) that if they hedged every little itty bitty retail trade they would lose a fortune so they go with the assumption that most private retail traders lose in the end – they do I’m afraid. So they never hedge or offset your trades – some match or hedge themselves – meaning the bookie (or broker ;-) ) makes the spread – nice business and the net prevailing position from the retail traders – well normally it works for them and they win on the opposite side of your trades.

That’s all ok folks – we get great prices and great systems and they make some money and if they lose - well that’s their lookout. Let’s make it clear, online execution-only brokers have been a great thing for the private trader – our execution costs are a fraction of what they were 20 years ago.

When it’s not ok – is if your broker suddenly treats you differently when you win. When the quote slows or you can’t get on or worse – you can’t get out – this is their favourite trick - they reduce the trade size so you have to execute on the phone or in many trades online. Any of these and more - STOP – that just ain’t fair and as the St. Louis says above “that ain’t business – not for me!”. Move your account immediately . There are plenty of brokers who won’t do this so trade with one who doesn’t seem to mind you winning.

Play the game guys – even be a sucker if you have to be – but make sure you play on a level playing field.

Mama knows her markets

Mamamarkets

US Masters trading special - Tiger Woods: An all time great.....Trader!

Tiger Woods could be the best trader we have ever not known.

We already know he is the best putter in the world. The reason is simple - he maximises his opportunity every time by never ever hitting a putt until he is certain he knows the direction and the pace; after that he trusts his execution. The secrets to his putting success are discipline and research. Just like trading.

Can you see the similarity? No, I guessed not. Well let's keep it simple - Don't trade until you know, you are certain, you absolutely believe you know the direction of your trade. That takes discipline - not to trade before you are ready and it takes research - to use all the information around you to know the direction before you put the trade on.

Let's go back to Tiger - watch him tonight on BBC2 from 9pm - watch him stalk the green on every putt - not just some putts - every single putt - he looks at it from every angle - studies every shadow, every undulation, every gust of wind - he is doing his research. He stands up addresses the ball - eyes the line - and sometimes .....walks away and starts all over again - he has the discipline to walk away because he is not ready - he is not certain. He stands up again and hits the putt - every time on the direction he knew was right bearing in mind all the information available to him.

You watch - he'll hole more than his competitors. He can't hole them all and neither will you when you are trading but if you apply the same mentality as Tiger you will maximise your opportunity and do better than most - you may even win. But only if you do the research and only if you show the discipline every time - on every trade - not just most of them.

So there you have it - easy - Tiger Woods can teach you how to trade better - if you don't get it - sit back and enjoy the best sporting spectacle of the year and the azaleas of course.

Mama knows her markets

Mamamarkets

Trading Do's and Don'ts

MamaMarkets Spreadbetting Do’s and Don’ts

A couple of trading facts for you – 80% of all traders lose but 65% of their trades win. You can be a winner but you need to follow some rules. Try these for starters:

1. Don’t Trade because it’s easier than working for a living
2. Don’t trade because it’s fun
3. Don’t trade because you NEED to make money
4. Don’t trade because you are bored
5. Don’t trade because there was a Free Bet* offer
6. Don’t trade just because it’s tax free**
7. Don’t trade because your mate the banker made a fortune last year
8. Don’t trade a product or company you don’t understand
9. Don’t trade if you cannot admit you are wrong
10. Don’t follow someone’s stock tips unless you know them well enough to sleep with them

* There is no such thing as a free lunch
** There is never any tax on losses

And now the Do’s

1. Keep your discipline
2. Stick to a plan and have a budget
3. Set a target and start small
4. Admit you are wrong sometimes
5. Run profits not losses
6. Educate yourself and listen to the pros
7. Do your research and know your product
8. Remember your broker makes money when you lose
9. Negotiate your brokerage fees and spreads
10. Try to enjoy it

If you get into difficulty STOP! If you make money - don't get Greedy.

Mama knows her markets
Mamamarkets

Cash is King: The only true measurement of success is money

Is your mum rich? – No, mine neither and she’s the most successful person I know.

In the city money and particularly the size of your bonus is success - a guaranteed cast iron fact propagated by the former masters of the universe. And yet I cannot be the only one who is amazed on a daily basis by the fat, lazy, talentless but incredibly rich “success” stories I see. Obviously they’re right and we’re wrong and they are successful and we’re failures. But what about mum?

Let’s face it they have the boat, the £10m house just off Sloane street, the red Italian sports car and a place in Cap Ferrat whereas we …don’t. So whenever they speak we listen and they’re right and we’re wrong again….

Nope people – absolutely wrong - they’re just rich – maybe they were born that way, maybe they were lucky or maybe they made it because they had some arithmetic ability or creative talent but it doesn’t make them better or even…a success.

Is Bill Gates a successful man because he’s rich – No – he’s a success story of our times because he happened to change the way we all live because of a brilliant mind – and into the bargain he seems like a good guy who is generally interested in helping others. He’s successful, he’s rich and we like him; Richard Branson? - Hell yeah – we love the guy. The fat rich guys wallowing in the Hamptons? Dick Fuld – successful? Fred the Shred? Roman and the Oligarchs – rich beyond belief – successful? I’ll take my mum….. or Saint Bill

Define your own success criteria and only measure yourself against that – if you make it money alone you’ll be doomed to failure because like the best boxer in the world there’s always someone bigger just around the corner….

And speak up – for goodness sake people - just because someone is worth £300m or a yard or two (that’s a Billion pounds folks) – disagree with them and argue with them- don’t bow down before them - their money does not make them God – it just makes them rich…..

Live a little people – be happy – you are already a success. Just ask your mum.

Mamamarkets

Successful guys are never wrong

Just ask Rupert Low – The former Chairman of Southampton FC, which is currently in administration. Not his fault. It never is? When has the guy at the top of your organisation ever taken the blame – when is it ever his fault. The economy; the staff; his managers; the competitors; the industry, the regulators - anyone but the boss.

This guy blamed Barclays – how ridiculous can you get?

The bankers – they blame other bankers and the regulators - surely they can look at themselves just once and admit it.

Any big guys out there listening – take it on the chin – we work; you win; you take the credit we work, you lose; you take the blame – surely that’s a fair deal.

Please, please let us not hear these excuses any more – stand up and be counted and admit you got it wrong. You have passed failure on the way to success so give it a hug again on the way down – we’ll respect you more.

Mama knows her markets

Protest pah - we did it better back then...

Spot the difference - Yep no lamposts and sunshine - the naughties version look like they're off to Glastonbury!

Luck, Leverage and Theft in the Markets – Mama knows

So you’ve seen the media hype from the socialist journalist middle classes who take every opportunity to stick it to the bankers – Fred the Shred, Dick Fuld – “Greedy *ankers” - the story that is pure porn in the business pages these days! But do you believe it?

Arrogance to blame
Mamamarkets doesn’t know the individuals but she knows the type - extreme hubris and upper percentile intelligence is a pre-requisite on the floors of the city – success and environment invariably lead to a glitzy marble sheen of arrogance.

But is that arrogance enough to cause global meltdown on the scale we are seeing? Don’t you believe it and don’t believe the hypocrisy of the fawning city journalist – promoted by snippets of planted knowledge over the years – now pushed to the fore and pretending to be the voice of the people – the arrogant “greedy bankers” still paying his kids school fees and holiday in St. Barts.

The fault is ours – yes you and I - and every single one of us that sat on our new B&B sofa in our lateral space apartment boasting of the 100% growth in our house value over the last three years and the 25% returns on our stock portfolio.

Ask yourselves the question – How do you think YOU made those returns? You must know it’s impossible with cash. If you lent $100 to anyone how much would they pay you for the use of those funds – 5% yes; 10% maybe; 15% unlikely unless they are worried they can’t pay back the principal – 25% - come on get a life – they aren’t going to pay it back.

So how did your fund manager, your advisor or your stock portfolio perform so well? There are 3 ways; 2 legitimate and 1 Madoff - let’s ignore the latter because a hustle is a hustle whether that be short-changing in the supermarket or short changing at the Board table.

Legitimate 1: – you got lucky and bought Google at a buck – well done – now just don’t expect to get lucky again and again. Even Buffet failed this year.

Legitimate 2: You invest in normal market products with yields of 10% and you leverage it 4 times meaning a gross return of 40% and net 20% (assuming interest rates at 5%). Does this look risky to you? Well it is and you still only make 20% a year. Remember who pays you 10% a year when the market is 5%?

Ignorance no defence
Don’t plead ignorance now please and pretend you didn’t understand leverage – you bought a house didn’t you?

So yes blame every investor and shareholder including yourself. Investment banks have targeted returns every year of over 25% return on capital - impossible but what’s the worst that could happen if you worked there – you didn’t make it – lost the lot, blew up the bank and lost your job. If you didn’t try and gave back the capital you lost your job anyway and the next sharp shooting arrogant master of the universe rolled straight in from Harvard. Investors and shareholders demanded 25% returns – Which as we have already established takes luck, leverage or theft.

Who were these investors and shareholders? – That was You and Mama here with an arrogance to match that of Mr Fulds and Mr Goodwin but at least they got to keep the house and a pension to pay for it I guess.

Mama knows her markets
Mamamarkets