More from iheartwallstreet.com 

It’s a sneak peek: They’re testing new software. (47 seconds, cute)

A hash tag in Twitter is a search term and yesterday our CEO released  #iheartwallstreet.  As of this writing, in less than 24 hours it has 4660 google results. Not because he’s a twit though.

iheartwallstreet is a web documentary video that was picked up by Huffington Post and Business Insider. Thank you to both of them for celebrating our leader.

It sure is cool to hang out with smart people, isn’t it? We hope you enjoy.

Think about it.  Every bust, every scandal: Technology is their undoing. That’s why bankers hate technology.  No–that’s not the reason bankers hate technology, I kid.  

Why? What’s the biggest issue secular trend staring the industry in the face today? Cut waste and inefficiency.  And, you see? Technology is quite capable of solving that problem. But it is in these inefficiencies of information flow and waste that bankers grow fat. They live in the margins of friction.

The truth of the matter is, when these Schwab commercials came out (below), Wall Street laughed. Afterall, he’d started out marketing newsletters. They were on ‘the inside’, no competition.
 

It was 1974 and the investment world was changing. Legislation had just deregulated commissions and of course, that changed the face of finance.

Computers were beginning to come on-line. Within a few years? Mainstream. And within enterprises all over the world, including the stock exchanges. (read: goodnight trading)

It was technology that was creating the ‘real change’. It started with being able to pick up a phone, call a computer,  and put in an order directly into the exchange. Read: No Broker, No Trader. And so, it was light’s out for the business as they’d known it: trading in huge spreads between buyer and seller.  Living fat off the land. 

Now. Philosophically, banks are nothing more than a manifestation of a bunch of people. And, in, this group of people there is arguably, even probably, a desire to survive.  And this grouped ‘desire’ lives, thrives,survives,or dies within the framework we give them: taxes, laws, &ethics.  We, as a society, grant them their role. To be certain, there are also generational advantages, but most of the wealthiest people are of course, self-made. We create the bankers.

Bankers are a special breed. But they can get lazy.  And to be certain, we’ve bred them to not suffer the ills of a plebian life.

So what happens when we take their money? They seek survival in a different profit center: InitialPublicOfferings. (…And didn’t that turned out lovely.)

And then we can roll the tape. From there: we scampered to Loose Lending, which then shotgunned into bizzaro Financial Engineering. Rocket fuel for the entire eco-system.  And all within a framework we set up. And, now the genie is out of the bottle.  There is no going back. It is a new interconnected world we live in. And this, to me, is incredibly exciting…

And so, why: why, this constant shuffle? Why do the banks keep moving the ball? Well; bankers keep inventing new stuff to sell because, they don’t really ‘make’ anything.

Technology has yet to fully integrate into the banking model.  It will though.  Sharespost is a perfect example.

You see, bankers exist in the cracks of millions of transactions. They are Friction. The friction of the transaction, is their life blood.  They need it.  And you don’t.  No one in their right mind would.

Technology removes this friction especially from an intellectually based transaction.  It’s not like we have to ship you a car or anything.  A couple of emails and a phone call, things get done.  

Now imagine all of that overhead sitting in those offices….It’s sad but true.  Banking is the one industry that hasn’t really seen the change technology is going to bring.

The truth of the matter is, most of the people in my industry are sales monkeys. I should know, to some that’s what I may seem like.  

I worked for one of the ‘majors’. I spent almost 10 years in the industry. I’ve attended all of the conferences. And I have seen all of the types of people we label a success and failure in this business.  

A couple of my favorites are still the rich boy or girl playing banker with their family and friend’s money.  Then there’s the hard nose, pushy person who argues their way into your wallet, gotta love ‘the street’ in them.  And the truth is, we know this.  Yet, we perpetuate the cycle. Over, and over, and over.

We trick ourselves into thinking that if "so and so" is working at "such and such", then ‘this is what we should do’– this is how it works.   The media perpetuates it with guru worship, because you watch. Hollywood aids in it, with sexy voice overs ’cause it pays the bills. Politicians live by it because it’s easier. And if you really took the time to look, you’d notice– Wall Street is exactly like Amway; top heavy. 

The thing is, we know from behavioral science, the human condition likes to forget. Otherwise, we cannot be so brain-dead to think another $20 million in an ad campaign is going to make us forget.  How many times have we been burned, by the very people who feed us our information? Oh, no…

After much thought and personal debate about where to host such an endeavour to change this lemming movement, I’m starting a new series here at GDP.  

Everything your broker won’t tell you. Are you ready?

[youtube=http://www.youtube.com/watch?v=sIFYPQjYhv8]

I love iTunes University.  While scanning through Yale’s site, I came across this gem: The State of the Private Equity Market by David Jackson, famed Yale Alum who went on to be CEO of Istithmar World, sovereign wealth fund of Dubai.  Once touted the best private equity fund in the world…it’s ironic that they’re imploding now.  

Nonetheless, here is either video, audio, or a downloadable podcast of his Yale Presentation (26:18)– interesting, especially in hindsight of their potential debacle.  

Here’s a quick lesson on High Frequency Trading. Get yourself up to speed on how things really work on the exchanges.

Dear Valued Readers and Clients,

I’m sorry for the radio silence this week on our blog and sporadic posting since we’ve upgraded the site.  It is my goal for us to be back to at least one post a day in the coming days.  We’ve been trying to upload new code to the site and it’s been a miserable failure.  We will try to tackle it with a fresh perspective next week.  As for the markets, I do think they are overpriced; whether looking at it from a technical or fundamental standpoint.  That being said, the markets are rallying and it can’t be ignored (albeit on smaller volume). So, celebrate today.

As a firm we are currently invested (on a basic level) as follows: 46% Stocks, 35% money market and alternatives, 15% in Bonds, and 5% alternatives. I do expect our allocation to change in the coming days. I was originally in the "retest the lows" camp–I still think we are due for a market correction (approx. 10%) but a retest of the March lows looks unlikely given this week’s action from a technical standpoint.  That is all I will say at this time in this forum, for competitive reasons.  Of course, you can email questions to ceo@gdpwealth.com . 

I hope we will have more interesting charts, documents, and, in general more compelling media to show in the coming weeks.  Thanks for your patience.  Wordpress (our website platform) is infinitely more powerful, but also WAY more complicated. 

If I could compel you to watch one thing for the summary of this week it’s this video.  The video involves a discussion of yet another example of how Wall Street is trying to squeeze the little guy, you, the millionaire next door. The panelists bring up the term, "front-running."  For those who don’t know about front-running— 

here’s the definition. Have a good weekend.

(this is not an endorsement to effect trades/allocation for your own personal account or solicitation) 

I recently read Felix Salmon’s article on buy-side vs. sell side and it reminded me of a rant I’ve been developing and harboring for some time. Just another aspect of why Wall Street is broken.

Here’s a little 101, for those that don’t know.  Trading securities for cash or other securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is referred to as the "sell side". Dealing with the pension funds, mutual funds, hedge funds, and the investing public who consume the products and services of the sell side are known as the ‘buy-side.’ Many firms have both buy and sell side components in order to maximize their return on investment.

Here’s the rub.  Your average advisor/broker works in a firm that makes HUGE, I mean, insane margins on their ’sell side’ activity.  We’ve seen this truth with their ridonkulous exhibits of privilege, as the kids would say.

So, where do you fit in Mr. and Mrs. Client?

Well, you do not have more money than mutual funds, or Wall Street’s perennial favorite, the hedge fund client. And it’s sad when I see one of the usual suspects (with Lynch or BS in their name) bragging about how their trading desk is the biggest in the world, because that, often stretched truth, means absolutely nothing to most of their client base in terms of benefit. I cringe when I am told about some hot bond or secondary a person bought from their broker. Because here’s the reality: Almost every deal, every bond, every issue you see Mr. and Mrs. Retail–has been passed over by insurance companies, corporate clients, private equity, hedge funds, mutual funds, everybody…before it came to you.

Today’s ‘Financial Industrial Complex’ is about distribution, plain and simple.  Oh sure, you probably have a bevvy of third party managers in your portfolio to give you the idea of arms-length dealing, but even those managers are part of the game.  Remember those third party managers also buy IPOs and secondaries–and a lot more than you. 

Those third party managers also give the Wall Street firms trading revenue every time they switch your portfolio.  And all of that activity: Amounts to a mountain more than your fee (which is still too high).

All I’m offering is the truth, nothing more…

You are the quagmire. The average household is a marsh.  Your job is to stay in the market, to keep buying what they are selling (even if it’s a sell rating).  Your job is to take concentrated risk and played out trades (from their bigger, better clients or even their own inventory) and wash it out over millions of accounts so no one gets hurt (too much). The system’s PH balance is maintained.

 It’s a game changer, once you open your eyes. Focusing solely on wealth management or solely on investment banking is where the business should arguably return, back to their roots. Brokers are realizing it.  Customers are realizing it.  And someday Wall Street will have to realize it, as their market share continues to dwindle.