Jody Eisenman on Finance » fraud

Another Example of Why “Buy and Hold” is Dead

Jody Eisenman — Wed, 22 Apr 2009 02:29:40 +0000

As I wrote yesterday,“since there is very little correlation from day to day on Wall Street nowadays, tomorrow could be radically different”. Remember Vornado and Simon Properties that were down about $6 each yesterday? Well both were UP about $6 today. Bank of America (BAC), which got crushed yesterday, opened today at $7.23, and closed at $8.75. C opened at $2.70 and closed at $3.24. When I started as a broker in 1984, a 15% gain for a stock over the course of a year was considered to be an acceptable return on your money. Many of these stocks now make these moves in a day. The funny part is, there really wasn’t much news to account for these swings. It seems that almost every day, some prominent analyst or some government official will make a comment that will move stocks dramatically. Today, Geithner reassured everyone that banks have several avenues available to them in order to raise capital if needed. I don’t consider this to be very significant. Why not? Because banks are only going to raise money from investors when the investors feel that the potential return more than justifies the risk. Geithner has no control over this, other than his “private/public partnership” which is still in the planning stage. If a bank “fails” the stress test (which is due to be made public in two weeks), they will be forced to either get more government money, or go under. You can structure the government assistance any way you like, it’s still a handout. This situation has not changed in the last several months.

Meanwhile, the short term traders continue to rule the equity markets. It is an exciting time to be on Wall Street, as stocks and bonds continue to make wide swings on a daily basis. As a bonus to all my blog readers, I will be offering a free report in the coming days. Stay tuned for more details.

200 Years of Losses?

Jody Eisenman — Mon, 22 Dec 2008 02:14:21 +0000

In calculating Bernie Madoffs’ self admitted $50 billion in losses, I came up with the following:

Assuming 250 trading days per year, and a staggering $1million in losses per day, it would have taken Madoff 200 years to lose $50 billion. In connection with this massive fraud, I have included a link to an incredible document, namely, Harry Markopolos’ written complaint to the SEC in 2005. http://d.scribd.com/docs/1xze9pjljc8zx53bbsbj.pdf

Although it is 19 pages, I would suggest reading it to get a critical view of Madoffs’ strategy. In the complaint, Markopolos lists 29 red flags and states on page 2 of the document that it is highly likely that “Madoff Securities is the Worlds’ Largest Ponzi Scheme”. As we now know, the SEC chose to completely ignore this and any other complaints about Madoff even though according to Bloomberg, the misconduct dates back over 30 years. http://www.bloomberg.com/apps/news?pid=20601087&sid=aj44JrWmAOGA&refer=home

I think much of the investing world is transfixed by this incredible story.

In other news, it seems that the auto industry will receive over $13 billion in loans. It is not immediately clear how and under what terms these loans will be repaid. Thus far, other than emergency assistance, it is difficult for me to see any real improvement in our economy. Banks are still not making loans and investors are still shying away from fixed income investments that are not government guaranteed. I do not see how our country could avoid a severe economic meltdown unless this situation improves soon.

See How the Mighty Have Fallen

Jody Eisenman — Mon, 15 Dec 2008 01:16:43 +0000

Investors all over the world are stunned by the ongoing fraud revelations of Bernard Madoff. Madoff, who was a former chairman of NASDAQ, also serves on several prominent boards in both the academic and charitable fields. Apparently, according to his own admissions, Madoff managed to somehow wipe out virtually his entire investor base of $50 billion. Of course, there are still many unanswered questions regarding his operation and how he managed to hide this from everyone (especially the regulators) for all this time. Although there have already been several high profile names mentioned as having invested with him, I have been told by 2 prominent attorneys that the client base Madoff had was incredible in scope. How did he manage to fool everyone? Were other employees involved? What about the auditors?

Although I don’t know more than anyone else here, I can surmise that what possibly happened is that Madoffs’ investments started going south. Madoff pioneered something called a “split-strike” strategy that supposedly profited in any type of market, both good and bad. The fact that no other trading firm could duplicate what Madoff did should clearly have raised some red flags. When Madoff starting losing money, he probably started to get more aggressive and lost more. All this time, he continued to report sterling returns to his investors. When redemptions struck, he simply didn’t have enough cash left to meet them, and so he admitted to his sons that the whole game was a giant Ponzi scheme. Again, I am quite amazed that no one at the firm knew what was going on. I find that hard to believe, but I’m sure the truth will come out eventually.

List of affected investors