dirty pool: keeping afloat and finding the calm in teeming markets

8132019 Dirty Pool Keeping afloat and finding the calm in teeming markets

httpslidepdfcomreaderfulldirty-pool-keeping-afloat-and-finding-the-calm-in-teeming-markets 141

The Full StoryAlso available The Short Story Version

Find it at mikeonthemarketswordpresscom



Many investors todayare feeling like thisand they donrsquot know

why



If this is their view of the poolhellip Could you blame them



A Just So Story tells you how something got the way it didIn a way that makes you think and chuckle andnot want to scream

And itrsquos a Just-So Story

Itrsquos a fish storyA fish story is about the one you thought you had on the hookThen it got away from youSometimes money and investing feels like that

This fish story is NOT a Tall Tale

So Irsquom going to tell you a storythat might help



The fish in this story are investorsand the water is the marketenvironment they swim in

I tell this story Just So you know what has

happened to the pool that retirement investorshave been forced to swim in

So maybe you know why you feel like somethingfishyrsquos going on

So maybe you can find help navigatingtoward shelter

So maybeyour retirement story

wonrsquot be about

The One that Got Away

Just So You Know



The standard industrydisclosure statements can beabout as useful as the sign

above

As an investor you want toknow if itrsquos safe to goswimming here right now

I can helpA LOT of todayrsquos trading is done

via complex algorithms onremote computers

A word on sharks before we begin

Sharks are not evil

Sharks are sharks -- they are eatersVery efficient eating machines

When the food (in this case money)becomes irresistiblethey will show up every time



I spend a lot of time working on my sharkdetection abilities

As the food supply multiplies (money)

so do the sharks

And as investing gets more technicalit takes more tools and knowledge to justkeep up with where they are

Itrsquos what I do

Back to the storyhellip

Sharks are part of the investing ecosystemSome investors enjoy the risk of swimming near them others do notThe trick is to know where they are most likely to beAnd to make investment decisions based on where they are not



MIKE



Industrial revolution (machine horsepower) modern transportation(not horses) modern communication (not Pony Express)

Stocks bonds corporations big banks wildcatters tycoons

Major Immigration Growing US middle class early global economy

AND hellipSTOCK INFORMATION hellip WAS TRANSMITTEDhellipLIKE THIShellip

and the world was starting to look like this

when financial markets yoursquod recognize

were born



the pool of stock market investors was small

Photo Credit Library of Congress Prints amp Photographs Division Bain News Service 1912 [reproduction number LC-DIG-ggbain-10782]



Things caused that pool to grow really big really fastBy the 1920s the financial scene in America and Europe

looked like this



Then this happened

Occupy Wall Street 10



The country thoughtldquoMaybe this shouldnrsquot happen againrdquo

(Guess which future President this is)

So Congress did a little of this

Glass Steagall Act

bull Commercial Investment

Banks will be separate

from Consumer Deposit

Banks

bull Yes completely

bull No not even a little bit

bull Yes We mean it

Investment Company Act

bullIf you play in the publicpool you will have rules

and you will follow them

bullYou will share your toys

(information) with thepublic Yes all of it

And gave us one of theseThe Securities Exchange Commission (SEC)rsquos job

was to police investing and weed out the rule breakers

R o n a l d R e a g a n

The unspoken rule for the Big Banks was this No you donrsquot have to like it What you did caused Big Problems



They were also separated from insurance companies but thatrsquos a whole different Fish Tale Or is it

Those of the

pretentious double names

were now fully separated

Investment CompaniesSuch as

Morgan Stanley

Goldman SachsBear StearnsLehman BrosEdward Jones

Legg MasonMerrill LynchDean Witter

The most important part was this

Banks Such as

Chase Manhattan

Bank of AmericaBank of New York

Barclayrsquos HSBC

CitibankUS Bank

State Street

from those

who stored the cashof individuals and businesses



This 1930s-model financial systemlooked pretty much the same for a very long time

Wersquore talking 50-60 years

Comparatively there was remarkable uniformity in the financial world

This pool in Kansas (a 1938 WPA project)helliphelliphelliphellip helliplooks remarkably like this one in Portland OR

A pool meant a rectangle with a deep end a shallow endseveral lifeguards and enough chlorine to turn your hair greenWhen someone said ldquopoolrdquo or someone said ldquoinvestmentsrdquo

you knew what they meant



Which means A certain set of attitudes and platitudes(ways of thinking and talking)

followed three generations of investors to the table

Sellwood Park Pool circa 1935 where my grandparents probably swam

For those 50-60 years therestill werenrsquot many investors inthe stock market pool Folksfunded their retirements withpensions bank CDrsquos corporate

bonds or insurance Manywouldnrsquot own stocks becausethey or their parents (wholived with them) rememberedThe Great Depression Oy

The investors might look a littleBORED standing there on theside of the pool butrespectable modest evenhealthy Until the mid-to-late1980s investments behavedgenerally as expected



And then a sea change occurred

More people started investing in stocks Why now

In 1981 Congress passed a law saying everybody could have an Individual Retirement Account(IRA) not just those who didnrsquot have a pension at their job You could buy stocks in your new IRA

More folks bought Mutual Funds too which are made up of stocks Remember Janus Or FidelityMagellan Or Vanguard Itrsquos easy to forget how new and exciting it was to finally have a chanceto participate in the stock market

Many retail-oriented brokers who sold stocks and Mutual Funds opened up shop They didnrsquot justcater to the wealthy like Those of the Pretentious Double Names

The Baby Boomers were in their 30-Somethings Just starting to save for retirement

Heady times were a brewinrsquo

Sound familiar



But there were still rules right

In 1999 Congress repealed The Glass Steagall ActInvestment Companies Deposit Banks and Insurance

Companies could once again officially join under a singlecorporate umbrella called a Bank Holding Company

Bank Holding Companies are Very Big Fish

If other reporters used my metaphor yoursquod hear them call Bank Holding CompaniesToo-Big-to-Fail-Fish ndashor-- Systemically Important Fish

I call them other things

Glass Steagall Act

These guys had been setting things up andtesting the waters for more than a decadeanyway so they were ready and raring to go



The investment environment today is closer to this

These newfangled Water

Parks (we donrsquot call thempools anymore) havesprung up all over theworldmdashtheyrsquore a HUGEattraction

The water parks are likethe Bank HoldingCompanies Investorshave more and trickierways to ldquoJump Inrdquo thantheyrsquove had since beforethe Great Depression

Itrsquos important tounderstand It only looks like separate pools butthey are all connectedsomewhere

It no longer costs 50 cents to swim all day



Therersquos awhole lotmore of us

Wersquore allswimmingin the samefinancialwater

Asia cracked way open for trade at this time Rapid cheapcommunication followed Since then we have very nearlyachieved a Global Economy

Whether we want to admit that or not



Some investors havecreated oases--places most of uswill never get to

swim at

Hedge funds fit inthis category

Hedge funds are big

buyers of stock

You must be anaccredited investorto own shares in ahedge fund

Accredited personshave a net worth ofat least $1 million(your house doesnrsquotcount) or joint

income of $300o00

Now that we know about the poolletrsquos talk about who and what is

in there alongside our investments



IPOrsquos are another type of oasis When a corporation splits itself into pieces (or shares) that people can buy itrsquos called an Initial PublicOffering (IPO) or ldquogoing publicrdquo Investment Banks usually run the show and receive a fee For theirtroubles they sometimes also get first right to buy the IPO for themselves or offer shares to their

favorite people Then on the IPO date these early investors are allowed to sell their shares on the thesecondary market (you and I call it The Stock Market) for what the rest of us are willing to pay to ownthem

Other IPOrsquos are more about founders and funders recouping earlier investments (and a little extra for theirtroubles) Sometimes therersquos not a great deal of value left once they do so When this happens in an

actual swimming pool they blow the whistle and everybody has to get out

Some IPOrsquos are about raising money to grow the company

Itrsquos generally safer to see if a new stock will sink or swim

a little before you buy it

All IPOs get hyped into a feeding frenzy It can be hard to tell the froth fromcompanies with good fundamentals The dotcom bubble is the poster child for thisCompanies with little value sold for a lot of dollars

Vonage IPO raised $531 million

May rsquo06 IPO price $1700One month later $ 875 Wikipedia-Vonage

Dec 2011 $ 238 Yahoo Finance-(VG)

Too bad thisdidnrsquot have

one ofthese


httpslidepdfcomreaderfulldirty-pool-keeping-afloat-and-finding-the-calm-in-teeming-markets 2341Photo Credit Library of Congress Prints amp Photographs Division Theodor Horydczak Collection [reproduction number LC-H812-T-M04-079]

Herersquos another oasis

It is a very exclusive pool

The authors of the rulebook arenrsquot subject to the rules

Try Googling this phrase

ldquoCongress exempt from insider trading lawsrdquo

Itrsquos illuminating

After the crisis hit Congress created a HUGE new bureaucracy toprotect investing and banking consumers One of the Senatorswho put his name on this bureaucracy received preferential

treatment from one of the lenders at the center of the housingcrisis Companies such as that lender employ lobbyists Lobbyistsspend money to influence lawmakers There is a $100yr limit ondirect lobbyist gifts to lawmakers Irsquod presume the perks theSenator received were worth more



Also in the wateris a class of swimmer called

Institutional Investors

They make very big waves

They do not turn on a dime

Pension Funds (both Public and Private)

Mutual FundsEndowment FundsForeign Governments (sovereign wealth funds)

Insurance Companies

and of course the aforementioned Bank Holding Companies who also invest



Herersquos another oasis Dark Pools Yes itrsquos really called that

hellipbut they are not illegal and are in fact growing You might say ldquoButeverybody knows secret backroom deals happen itrsquos just part of thegamerdquo Irsquod say just because something is legal doesnrsquot make it rightDark Pools are like cartels They create pricing inaccuracies

Institutional Investors (the whales) trade more and more often onprivate exchanges called Dark Pools Itrsquos just like it sounds

Nobody knows whorsquos trading how much or why

These Dark Pools tradethe same stocks you

and I own and rely onTruly Free Trade only

happens if both sides

have equal access toinformation If big

deals happen in backrooms the rest of us

donrsquot have thatinformation We

cannot see the full

picture of supply anddemand

It is tempting to sayDark Pools are evil



Herersquos a word

Who else is in the water

If the Discovery Channel did a show on these guys yoursquod see Hedge Fund Managers High Frequency Traders and Investment Bankers

Also Mergers and Acquisitions Guys like Gordon ldquoGreed is Goodrdquo Geckofrom the movie Wall Street or Real Estate magnates like Donald

ldquoYoursquore Firedrdquo Trump



These guys are Triathlete Level Investors

with investing muscles that look like this



They look like this in Lycra

Most of us shouldnrsquot go near Lycra



This is the Donald J Trump Sharkskin suit

You can buy it at Macyrsquos



This is Donald J TrumpHis suits are made by

Brioni of Italy

I donrsquot think you canfind them at Macyrsquos

F F t



Fun Fact

International

Men ofMystery

also wearBrioni



I suspectthis is what individual investors

look like to a shark



Why does this picturecome up when I

Google ldquostockbrokerrdquo

This is the car I driveSometimes to the beach

I never thought Irsquod drive one of these But the kids can sit far enough apart that they canrsquot touch each other

I value that



But these guys have always been around

What are ya gonna do

I was once told bya Pretentiously Double Named One

Which made me wonderHow much movementAnd whorsquos making the waves

[insert nervous laughter ]

Wersquore not in the money storage business

Wersquore in the money movement businessldquo ldquo



But I digresshellip

Just keep swimming

Finding Nemo is a RegisteredTrademark of DisneyPixar Pixar

was Steve Jobsrsquo brainchild afterApple kicked him out I miss Steve



Individual Investor U$ DollarldquoThe Dow is at ___rdquo

786K

21M

32M

122M

468M

1639M

108B

201B

479B

Thatrsquos where The Banks were

deregulated Donrsquot forget theyrsquod been

testing the waters since the late 80s to

the early 90s And when did stocks get

popular Early-mid 80s

See the orange dots at 1999

Shares of stock traded daily

My point is This is the environment in the investment poolyou and your stockbroker grew up with

This is a chart of the Dow Jones Industrial Average

An index of 30 important US companiesI got the chart from Yahoo Finance which is free You can use it too





So you could be forgiven for feeling like this

rsquo hi i fi k l f fi h



Isnrsquot this is a fine kettle of fish

I know of investments with reasonable returns and(I believe) a better chance of avoiding the price

waves that whales create and sharks loveThese investments make a lot of my clients more

comfortable

In my next article Irsquoll tell you what thoseinvestments are and how you can get them

Some investors get a kick out of wave-running andshark-avoidancemdashand thatrsquos OK

Others Not so much And thatrsquos OK too

If thinking about all this makes yougreen around the gills I want you to know thattherersquos ummm hellip other fish in the seahelliphellip

Check out the next page to find out how to make sure you get the rest of the storyhellip



Securities provided by Pacific West Securities member FINRASIPC Advisory Services through Pacific West Advisors a Registered Investment Advisory

To read the new stuff from theprivacy of your own Inbox

Educational erudite edgyenjoyable

Evenmoney can

be fun

Financial Advisor 971-212-9464





Many investors todayare feeling like thisand they donrsquot know

why



















wonrsquot be about


Just So You Know




above





Sharks are not evil







so do the sharks


Itrsquos what I do





MIKE









were born








looked like this



Then this happened







Glass Steagall Act




Banks

bull Yes completely


bull Yes We mean it













Those of the




Morgan Stanley




Banks Such as

Chase Manhattan


Barclayrsquos HSBC

CitibankUS Bank

State Street

from those



























Sound familiar









Glass Steagall Act



















swim at


Hedge funds are big

buyers of stock



income of $300o00

















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun






















wonrsquot be about


Just So You Know




above





Sharks are not evil







so do the sharks


Itrsquos what I do





MIKE









were born








looked like this



Then this happened







Glass Steagall Act




Banks

bull Yes completely


bull Yes We mean it













Those of the




Morgan Stanley




Banks Such as

Chase Manhattan


Barclayrsquos HSBC

CitibankUS Bank

State Street

from those



























Sound familiar









Glass Steagall Act



















swim at


Hedge funds are big

buyers of stock



income of $300o00

















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun







above





Sharks are not evil







so do the sharks


Itrsquos what I do





MIKE









were born








looked like this



Then this happened







Glass Steagall Act




Banks

bull Yes completely


bull Yes We mean it













Those of the




Morgan Stanley




Banks Such as

Chase Manhattan


Barclayrsquos HSBC

CitibankUS Bank

State Street

from those



























Sound familiar









Glass Steagall Act



















swim at


Hedge funds are big

buyers of stock



income of $300o00

















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun








so do the sharks


Itrsquos what I do





MIKE









were born








looked like this



Then this happened







Glass Steagall Act




Banks

bull Yes completely


bull Yes We mean it













Those of the




Morgan Stanley




Banks Such as

Chase Manhattan


Barclayrsquos HSBC

CitibankUS Bank

State Street

from those



























Sound familiar









Glass Steagall Act



















swim at


Hedge funds are big

buyers of stock



income of $300o00

















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun






MIKE









were born








looked like this



Then this happened







Glass Steagall Act




Banks

bull Yes completely


bull Yes We mean it













Those of the




Morgan Stanley




Banks Such as

Chase Manhattan


Barclayrsquos HSBC

CitibankUS Bank

State Street

from those



























Sound familiar









Glass Steagall Act



















swim at


Hedge funds are big

buyers of stock



income of $300o00

















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun












were born








looked like this



Then this happened







Glass Steagall Act




Banks

bull Yes completely


bull Yes We mean it













Those of the




Morgan Stanley




Banks Such as

Chase Manhattan


Barclayrsquos HSBC

CitibankUS Bank

State Street

from those



























Sound familiar









Glass Steagall Act



















swim at


Hedge funds are big

buyers of stock



income of $300o00

















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun











looked like this



Then this happened







Glass Steagall Act




Banks

bull Yes completely


bull Yes We mean it













Those of the




Morgan Stanley




Banks Such as

Chase Manhattan


Barclayrsquos HSBC

CitibankUS Bank

State Street

from those



























Sound familiar









Glass Steagall Act



















swim at


Hedge funds are big

buyers of stock



income of $300o00

















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun






Then this happened







Glass Steagall Act




Banks

bull Yes completely


bull Yes We mean it













Those of the




Morgan Stanley




Banks Such as

Chase Manhattan


Barclayrsquos HSBC

CitibankUS Bank

State Street

from those



























Sound familiar









Glass Steagall Act



















swim at


Hedge funds are big

buyers of stock



income of $300o00

















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun









Glass Steagall Act




Banks

bull Yes completely


bull Yes We mean it













Those of the




Morgan Stanley




Banks Such as

Chase Manhattan


Barclayrsquos HSBC

CitibankUS Bank

State Street

from those



























Sound familiar









Glass Steagall Act



















swim at


Hedge funds are big

buyers of stock



income of $300o00

















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun







Those of the




Morgan Stanley




Banks Such as

Chase Manhattan


Barclayrsquos HSBC

CitibankUS Bank

State Street

from those



























Sound familiar









Glass Steagall Act



















swim at


Hedge funds are big

buyers of stock



income of $300o00

















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun





























Sound familiar









Glass Steagall Act



















swim at


Hedge funds are big

buyers of stock



income of $300o00

















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun












Glass Steagall Act



















swim at


Hedge funds are big

buyers of stock



income of $300o00

















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun





















swim at


Hedge funds are big

buyers of stock



income of $300o00

















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun


















one ofthese



















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun






















Insurance Companies














cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun
















cannot see the full





Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun






Herersquos a word




















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun



















Brioni of Italy


F F t



Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun






Fun Fact

International

Men ofMystery

also wearBrioni











I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun














I value that












But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun















But I digresshellip

Just keep swimming






786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun







786K

21M

32M

122M

468M

1639M

108B

201B

479B






















comfortable











Evenmoney can

be fun















comfortable











Evenmoney can

be fun









Evenmoney can

be fun




dirty pool: keeping afloat and finding the calm in teeming markets

Documents