The Daily Alpha – 11.04.15

The Daily Alpha – 11.04.15

Garrett Baldwin

Alternative Thinking on Spoofing, Ackman’s Enemies, Pot Oligarchs, Bill Gross’ Bad Decade, and the New Illusion of Sin Stocks.

“There’s going to be more of them. The CFTC has a new tool in its toolbox that it wasn’t sure worked. Now they know it works.”

It didn’t take a U.S. jury long to decide the fate of Michael Coscia under the 2010 Dodd-Frank Act’s spoofing law. Five years ago, the financial reform bill outlawed any attempt to manipulate prices by placing orders that were never intended to be traded upon.

Eight men and four women took one hour of jury deliberation to decide that Coscia, the head of Panther Energy Trading, had violated the spoofing law. Now, with the conviction – markets have precedent in knowing how to define spoofing. In Coscia’s case, he lured investors into the market by creating a false illusion of demand and profited off of smaller trades. Prosecutors said he’d made roughly $1.4 million in three months using the spoofing technique.

The precedent many lead U.S. officials to follow up on other charges against traders. That includes the possible extradition of a trader in Britain who has been named in the 2010 flash crash. It also includes another trader in Chicago who was fined more than $600,000 after he allegedly spoofed the world’s largest futures markets.

As Michael Friedman, general counsel at Trillium Trading, tells Bloomberg – we’re going to see more trials like this in the future.  Here’s the breakdown.

“When asked last week if he had ever met Ackman he said he would prefer to ‘hang out with drug dealers and prostitutes.’”

Bill Ackman’s long positions in Valeant Pharmaceuticals and Platform Specialty Products have taken their toll on Pershing Square Capital in 2015.

Bloomberg reports that his fund is down 19% on the year.

Now, he’s receiving taunts from other hedge fund managers via email.

The latest attack came from John Hempton, a hedge fund manager in Australia who had been sharpening knives for Ackman since the latter made his short bet against Herbalife public.

In an email sent as Ackman prepared for his press conference on VRX stock last Friday, Hempton outlined his concerns about Valeant, predicting that the company could very well collapse to a price of $0 per share.

He signed off with "Love as always, John."

Business Insider reports that this feud/spat has been going on for a while.

“George Soros’s firm has pulled its roughly $500 million investment with Bill Gross, less than a year after the billionaire investor gave the former bond king his stamp of approval, according to a person familiar with the matter and industry data.”

Bill Gross has had a rough few years.

  • In 2011, he called for investors to abandon Treasuries, only to see Treasuries surge higher. Gross would later apologize to his clients.
  • In 2012, he said that the "cult of equities” was dead. But the S&P 500 finished up 13.4% on the year.
  • In 2013, Gross predicted that stocks would return a meager 4% to 5% return after a strong 2012. The S&P 500 had a record year, and had its best performance in 16 years.
  • In 2014, Mohamed El-Erian announced he was leaving Pimco, only to see Gross leave later in the year.
  • In 2015, it was revealed the Pimco’s Total Return Fund had outperformed Gross’ new fund at Janus Capital during his first year at the new firm.

And 2015 isn’t getting any better as we continue deeper into the fourth quarter. George Soros – who handed Gross $500 million less than a year ago for his new fund strategy – has asked for his money back, the Wall Street Journal reports.

In a blunt assessment, Todd Rosenbluth, director of exchange-traded-fund and mutual-fund research at S&P Capital IQ explained that investors who put money into Gross’ new fund over the last year took “a leap of faith” that this new strategy would pan out.

Simply put: “It hasn’t.”

But CNBC has just published his latest concerns about yield curves.

Proceed with caution…

“But the new paper, by Hampus Adamsson and Andreas Hoepner, argues that the supposed sin premium disappears when various other pertinent factors are added to those Hong and Kacpercyk (HK) considered.”

Two scholars at the University of Reading published a fascinating new paper on the alpha-generation of “sin stocks.”

According to their research, it turns out that the so-called “sin stock premium” is an illusion.

When we hear about the best ways to invest in sins, it’s common to think of alcohol, tobacco, and gambling.

But a tentative conclusion by the research team puts greater faith in investments in biotech, contraceptives, hotels and restaurants and bars.

Read a short profile of the research here.

"Issue 3 was nothing more and nothing less than a business plan to seize control of the recreational marijuana market in Ohio. Issue 3 was designed and built primarily to garner massive and exclusive profits for a small group of self-selected wealthy investors."

Because at the end of the day, does American really need to give Nick Lachey any more money?

Last night, Ohio voters rejected a bill that would have legalized recreational and medicinal marijuana use in the state.

The bill’s failure had less to do with the Ohio natives’ opinion of marijuana, and more to do with the crony network on which the entire law would have operated.

Rather than open it up to a free market where anyone could get involved in the game through permitting and regulation, Ohio’s foolish solution was to create a 10 pre-chosen properties that would have been a de facto oligarchy for marijuana growth and distribution. AP reports.

Among the hardest hit – investors like Jessica Simpson’s ex-husband and boy band star Nick Lachey and former NBA player Oscar Robinson. It was

The measure failed by a steep margin.

Roughly 65% of voters rejected the bill.

That said, it’s likely that the bill will see changes and possibly show up again on the ballot in 2016 as politicians attempt to boost voter turnout for the Presidential election in the swing state among millennial.

Check back on Thursday for more insight.


Getting in on the Groundfloor

Dara Albright

Alternative Thinking on Today's Market Events

The Daily Alpha - 09.21.15

Garrett Baldwin

Assume Breach

Garrett Baldwin


The Week Ahead for Forex


Alternative Thinking

The Daily Alpha - 09.18.15

Garrett Baldwin

Alternative Thinking on Today's Market Events

The Daily Alpha - 09.17.15

Garrett Baldwin

Alternative Thinking on Today's Market Events

The Daily Alpha - 09.16.15

Garrett Baldwin

Modern Trader

Rise of the Ethical Hacker

Garrett Baldwin


Quotes of the Day

Garrett Baldwin

Modern Trader

Why are Hedge Funds Hiring Poker Pros?

Garrett Baldwin

Gambling and Gaming

Wall Street Casino

Garrett Baldwin

Gambling and Gaming

Investing: A Pretentious Word for Gambling?

Doug Litowitz

Gambling and Gaming

Gambling and Gaming: A Common Thread of Risk

Michael Stegemoller, Baylor University


Where Gambling Meets Trading

Modern Trader, William Ziemba


Fire-sale: Were Three Leading Organizations Hit By A Global Cyber-Attack?

Dr. Timothy Summers and Dr. Joseph Wall

Real Talk

CNBC Demystified

Doug Litowitz

Modern Trader

False prophets

Garrett Baldwin, Illustrated by Mario Zucca


Why OTC is Back in Vogue

Edward Lopez

Modern Trader Magazine

Does Your Alma Mater?

TAP Innovation Series

Alpha Pages Innovation Series: Acorns

Garrett Baldwin

Alternative Energy

Yield Cos? More like Yield Can’ts!

Bryan Birsic

Vice Spending

April Vice Index Shows Strong Rebound

Andrew Zatlin

Disruptive Technology

Part II: Possible Hedges Against the Robot Apocalypse

Garrett Baldwin

Disruptive Technology

Part I: Possible Hedges Against the Robot Apocalypse

Garrett Baldwin

Water Investment

Rick Rule: Time to Change California’s Water Policy

Global AgInvesting

Insider Trading

Why The Second Circuit Refuses to Reconsider Its Newman Decision

Jonathan N. Halpern, Ehren M. Fournier

Futures Magazine



Art, Antiques & Collectibles • Forestry • Film Investments • Alternative ETFs • Wine, Spirits & Cannabis • Hard Assets • Sports & Exotic Wagering • Oil & Gas Exploration • Startup Investing • Private Equity • Treasure Recovery • Commodities • Digital Currencies • Peer-to-Peer Lending • Venture Capital • Hedge Funds • Private Real Estate • Managed Futures & CTAs • Forex & Derivatives Trading • Alternative Energy • Futures & Options