Blogs Worth a Click

 
What are you doing here? I post at Chicago Boyz now.

 
... And Yet Another One

Several mutual fund subsidiaries owned by Allianz AG have settled with the SEC over market timing. Once again, the case involved the Canary Partners hedge fund. The subsidiaries include the fund distributors, the investment advisor, and the sub-advisor for the stock funds. The PIMCO fixed income funds were not involved. Civil suits against two top managers are still pending.

I recall reading that a majority of mutual fund investments made in the US are through intermediaries, including insurance companies, financial planners, retirement plans, banks, and brokers. Please let me point out that not one fund sold directly to the investor has been implicated.

 
Not Many Left to Settle

Invesco/AIM was one of the last fund families to settle with the SEC and the attorneys general of New York and Colorado for $450 million. The company press release doesn't mention it, but their former CEO has agreed to a $500,000 fine and a lifetime ban from the industry.

Invesco was involved in market timing with Canary Partners, the hedge fund that kicked off the whole scandal. Their involvement led to substantial withdrawals from their funds. The combination of bad press and heavy penalties may bring on a sale or reorganization of the fund unit by its UK parent, Amvescap Plc.

 
I guess I've been putting more effort into other blogs than into my own, so I'm going to cross-reference the places I've posted comments. Go read them -- they usually make more sense than I do.

Meryl Yourish

Sassy Lawyer

Samizdata

 
How to Speak Liberal

Sometimes it seems like we're not all speaking the same language. It sounds the same, but doesn't always mean the same. The ancient sages struggled with this, too:

'When I use a word,' Humpty Dumpty said in rather a scornful tone, 'it means just what I choose it to mean--neither more nor less.'

'The question is,' said Alice, 'whether you CAN make words mean so many different things.'

'The question is,' said Humpty Dumpty, 'which is to be master--that's all.'

With that in mind, I offer a few handy words and phrases in Liberal, with their approximate meanings in plain English.

Liberal: arguably
Translation: not
Example: The Canadian health care system is arguably the best model for the US.

Liberal: extremist
Translation: Any person or thing that is not liberal; antonym of "progressive"
Example: We must stop the Bush administration from installing extremist judges.

Liberal: fiery
Translation: homicidal, psychotic
Example: Muqtadar al Sadr is the fiery Shiite cleric whose militia fought the occupation.

Liberal: larger truths
Translation: lies
Example: Rigoberta Menchu's book contains many larger truths.

Liberal: militant
Translation: murderer
Example: A Palestinian militant today attacked an Israeli settlement, killing three settlers.

Liberal: nuance
Translation: incoherence, self-contradiction, delusion
Example: The EU considers America's approach to the Middle East to be without nuance.

Liberal: populist
Translation: synonym of "progressive"
Example: Edwards' populist theme of "two Americas" appeals to the core Democratic voters.

Liberal: progressive
Translation: Marxist
Example: The New York Times endorsed the candidate, calling him "a fresh progressive voice."

Liberal: revenues
Translation: taxes
Example: We will reclaim the revenues we lost to Bush's reckless economic program.

Liberal: rich (n.)
Translation: wage-earners (collective noun); you
Example: George Bush enacted tax cuts for the rich.

Liberal: settler
Translation: civilian; especially a woman or a child
Example: A Palestinian militant today attacked an Israeli settlement, killing three settlers.

 
Another Shoe Drops. Too Bad a Centipede Lives Upstairs

Pilgrim Baxter has settled, leaving Pilgrim and Baxter to face the SEC. There are still civil actions against them, so they may have to bring that jar of pennies to the bank. Or not.

 
The Most Dangerous Man is a Poet with a Gun

Go read Wretchard, ignore me.

 
Pondering the Imponderables

Do Junior Mints imply a Senior Mints?
Not according to the history on the manufacturer's website. The candy was named for a Broadway show, Junior Miss. (The link is to the movie. Consult your local high school drama club for the stage script.)

So was there an Absorbine Sr.?
Closer. The original Absorbine was a horse liniment. Farmers started using it themselves, similar to the Bag Balm marketing accident.

OK, how about a sanitary tablecloth?
Don't push it.

 
Product Endorsement

No, no one is offering money for me to wear athletic shoes — or loafers, for that matter. I want to recommend the SanDisk Cruzer, a USB flash memory unit. It's slightly smaller than a pack a gum, which means I keep losing it. Usually it turns up next to the driver's seat, in the wrong pants, under the sofa cushions, etc. This time it reappeared in the clothes dryer, having been subjected to the permanent press wash cycle and the low heat setting of the washer. I brought it upstairs, plugged it in, and was able to access my files. Great!

It wasn't until later that I realized it had shrunk from 256 Mb to 128 Mb. <rimshot> Next time, cold water wash, hang to dry.

 
Sarbanes-Oxley Update

There is no link available, but the dead tree edition of the Wall Street Journal had a guest editorial by Paul Volker and Arthur Levitt (if you don't recognize these names, consider yourself excused from reading any further). I'm not posting this to Chicago Boyz because we covered it last month. Don't skip the comments.

The central argument they raise is that SarBox requires companies to institute and maintain a system of internal controls. This is fine, but it still seems to me that it is solving the wrong problem. Internal controls only work if management lets them work. Remember the Putnam fiasco? It turns out that their compliance department (which is very good) found the market timing issue two years ago, and management failed to act on the information.

If Enron and WorldComm had not known what the right numbers were, SarBox would have made them put a system in place so they would know. Unfortunately, they knew only too well what the numbers should have been. That's why they changed them.

 
Top Stories from Reuters May 25 11:36am ET

• Iraqis Demand More Freedom, Swift End to Occupation


• Bush's Public Approval Rating at New Low, Poll Says


• Holiest Shi'ite Shrine in Iraq Damaged in Attack


• Iraqis Say U.S. Soldiers Steal During House Raids


• Qaeda Has 18,000 Militants for Raids - Think Tank

Is it just me, or is it Reuters?

 
Another Fund Settlement
One more of the holdouts in the mutual fund scandal has settled. Richard Strong, founder of the Strong Funds, has paid a $60 million fine and been banned from the industry for life. His company paid $115 million and agreed to expense reductions (there it is again), and two other executives have also been banned for life. This was an especially bad case — Mr. Strong was market-timing his own funds.

The company's letter to the shareholders is here.

Update June 14, 2000:

It looks like Mr. Strong is not going to have to eat much macaroni after all. According to this Forbes article, he owned 85% of the investment company named after him. It was just sold to Wells Fargo for about $500 million. Sure sounds better than my 401k.

He should have gone to jail.

 
Local Flavor
I had not linked to this before because I could not get the audio to work. It looks like the site has added an MP3 that works fine, so without further ado, permit me to introduce Hoover, the famous talking seal. I had the honor of meeting Hoover at the New England Aquarium many years ago and remember enjoying his conversation very much. His remarks were more cogent and intelligible than anything John Kerry has ever said.

 
Spring Cleaning
I've deleted some items from my blogroll, where either the link has been broken or the blog is clearly dormant. The one exception is Norwegian Blogger, for sentimental reasons. I keep hoping he will come back. Sigh. Maybe if we pester him enough ...

 
Unintended Consequences — Spam and the Blogosphere

Back in the day, one of the easiest ways to get spammed was to post your e-mail address to Usenet. Within days of posting, connoisseurs of Nigerian 419 scam letters could relish new variations on the theme (taking off the caps lock, for example). Putting your e-mail out on your website is still a good way to get a spam-a-lanche for your inbox. Lately, the comments section of reputable weblogs (oxymoron alert!) have been both the target of spamming and the source of e-mails to spam. Those families of deposed African dictators are nothing if not resourceful.

Actually, it's not the bereaved Mrs. Laurent Kabila who so diligently searches out the e-mails. Instead, there are programs called spambots or spiders that search web pages for valid e-mail addresses. The spammer either runs the program or purchases/steals a list generated by one. If you can confuse the spider, the e-mail address will either be unrecognizable or invalid. Since the spammer relies on massive volume, more than likely any error, no matter how trivial, will not be corrected.

Here are some strategies for reducing your spam:

• Spoofing your e-mail address with characters to be deleted or replacing the "@" sign with "at." This is sort of a Turing test — easy for a human, difficult for a computer to fake. This method is easy to use and widely known, so I suspect the spammers will figure it out before too much longer.


• Using javascript to either hide or encode the e-mail. You need access to the HTML to do this. The simple approach works very well -- I only received two spam e-mails in the first six months of using this method.


• Using disposable e-mail addresses. Either use one of the many free e-mail services and abandon them when you get spammed (not recommended except for occasional use), or use the wonderful Spamgourmet service. This lets you set up temporary e-mail addresses and specify how many times it can be used. The Spamgourmet database application forwards that many messages to your permanent e-mail account, then blocks any more. You can set up a temporary account that lets you track where the spammer got the e-mail. For example gum.2.mitcht@spamgourmet.com will forward two e-mails to my real e-mail address, and if I look at the message header, I can see what temporary address gave rise to the spam. This does not work very well for comments on blogs because the spiders seem to find the temporary address fairly quickly and use up the message allotment.


• Get your commenting software up to date. Samizdata uses a graphic Turing test to enable a comment to be posted. I believe it was installed by his excellency the Dissident Frogman when he gave their site an extreme makeover.


• Whitelists and blacklists. Most e-mail programs let you set the account to accept only messages from specific addresses. You can set it to allow only your close friends and family to reach you. It works best if you use another address for the general public. Blacklists simply block known pests.


• Filters. These vary in quality. Some legitimate messages get blocked and some spam inevitably squeezes through, but you really need to set the filters and accept the risks.

 
Local Boy Makes Good
Hey, I'm one of the Chicago Boyz. No, they're not making me move out there to Flatland. It's one of the blogs I have been reading daily for over a year, and they put out a notice asking if anyone wanted to join. I did, of course — this is the big leagues. 'Course, now I have to think of something to write.

 
Guilty Conscience
Here's an actual work-related link on the fund scandal — John Bogle (who else?) saying Hate to Say I Told You So. Journal of Indexes, the site where I found it, is also a great site for research.

 
OK, it's a slow Friday, so here goes nothing
Euphemisms according to vocations and pastimes:

Network engineer hitting on a woman: pinging the server.

Naturalist dumping her boyfriend: returning him to his natural habitat.

Investment banker dumping his girlfriend: spinning off a division.

Fisherman's one-night stand: catch and release dating.

Any suggestions?

 
Another Fund Settlement
Janus has settled with the SEC and the various attorneys general. Of the total $225 million settlement, $125 million comes in the form of reduced fees over five years. This latter sanction, similar to several others, addresses the real mutual fund scandal: exorbitant expense ratios.

This leaves Strong, Pilgrim Baxter, Franklin, Federated, and quite a few others still open. The box score on the scandal can be found in the free content of Morningstar's website. Settlements had already exceeded $1 billion in total.

 
"Victory for the Iraqi resistance"
OK, now can I question their patriotism? And to think that I saw it in the Boston Globe.

 
MFS Again
One of the other well-known but even more damaging practices in mutual funds is when brokers are given incentives to push customers into a particular fund or family of funds. True, there are rules requiring brokers to consider whether an investment is appropriate for an investor, but this leaves an awful lot of wiggle room. Also, for example, if an international equity fund is appropriate, is there a problem if the broker recommends a fund that barks, chases cats, and scratches its ear with its hind leg? Not really.

Mutual fund families pay brokerage commissions to get their products sold, but the commissions are pretty much the same for all funds of a particular type, so there has to be some incentive to get the broker to push a fund. One way is what is called "directed brokerage." Under this arrangement, the fund management company agrees to make its portfolio trades through the broker in exchange for their promotional efforts. This is what MFS, among others, used to do, and it just cost them a $50 million fine. The problem with the practice is that they are using the investors' money, in the form of increased trading costs, to benefit the management company. Believe it or not, the practice is currently permitted as long as it is disclosed to investors. If disclosed, it is merely malodorous, not illegal.

 

Civil suits against mutual fund management companies will be consolidated in Baltimore, according to this article in the Miami Herald. Scroll down for an excellent timeline of the whole nasty business.

I realize I haven't been posting about this, but I have an excuse: I've been working non-stop on this in real life, plus a big dollop of Sarbanes-Oxley work.

What seems to be a recurring theme now is that Spitzer is getting fee reductions as part of the settlements he reaches. This is an excellent thing for individual investors. They actually lost very little in the market timing and late trading activities, but they have been gouged for years in fees. The highest fees, of course, are found in those fund groups sold through a broker. They do not compete on price, which is what the expense ratio really represents. These funds do not move on their own — someone has to push them. No load funds are conspicuously absent from this scandal.

Meanwhile, another writer wonders whether the competition for audiences is driving the SEC and NYAG. Maybe, but so what? In this instance, competition has sharpened all the participants.