Thanks, Integrity!

Yesterday, Integrity Research blogged about the current state and future of independent research and how the Wall Street woes are affecting analysts.

Integrity touches on some sobering truths regarding the industry, mentioning that ‘grim days’ are ahead. That might sound bleak, but StreetBrains wants you to know that not all’s lost! While analysts may be suffering and the future looks ‘grim’, we’re providing an answer. StreetBrains is a solution to your research needs. By improving our technology and adding more research providers on a weekly basis, we’re leaving our mark on the industry.

We may be in desperate times but there’s always a way to rise above. If you’re making scrupulous decisions and doing right by the people you serve, then you’re already one step ahead of the curve.

We thank Integrity Research for pointing out that StreetBrains has been making moves and adapting to the Wall Street woes. We appreciate being noted as one of the few research providers who are ramping up their offering in response to the poor economy.

StreetBrains has decided not to be a victim. We’re choosing to rise above the problems of the industry and strive for something better. Downsizing our offering would only hurt us; we’ve chosen to upgrade. With the imminent launch of StreetBrains 2.0, we’re proving, day in and day out, that we are here to compete and show the buy-side how good research really gets.

Young But Seasoned

Earlier this week, during a call with potential client, we were asked, "Why StreetBrains?"

We noted the best-of-breed research portal, the enterprise search, the dynamic list of research providers, and all the other benefits our content and technology have to offer. But somehow, that wasn't enough. This client needed more. They were concerned that StreetBrains might be too young, too inexperienced, too new.

We are a young company. There's no denying that. Those concerned with the age of our business have every right to ask, "Why StreetBrains?" If you're an investor looking for research or investment strategies, you want to be sure that the source is stable and well versed in the language and history of the business.

As Barack Obama mentioned in his inauguration speech, we are a young nation but we must choose our better history. At StreetBrains, we do just that. While still a young organization, we have decades of Wall Street experience under our belt. Our analysts are well aged in the industry, some working in their field since they were teenagers.

The platform is new, but the content is seasoned.

We have built the StreetBrains platform around a large and strong group of independent providers who tackle their covered industries with a voice of experience and professionalism. Their work is second to none and we are proud to offer them an outlet that appropriately markets their value.

Though young, we choose our better history. We choose the pedigree of excellence that our content provides. We see ourselves as a very seasoned company and we are proud of the many analysts and research providers who have allowed us to offer the best information money can buy. We will be called too young, too inexperienced, too new, but we won't blink an eye because we are confident in the content that defines us.

Looking Forward: StreetBrains '09

While we try to forget about '08, is there something to be learned? Maybe a few things, but let's not dwell on the disappointments. The TARP, Lehman Brothers, Bernie Madoff, bad markets... the list goes on.

'09 should be better, right? It has to be.

At StreetBrains, we're not going to focus on the negative news. '08 has taught us that our industry isn't perfect no matter what paper you print it on. So what?

The answer is to move on. Keep going. Do the right thing. Think and act positively.

Information Matchmaker

It's a new year. StreetBrains loves a new year. We love staying fresh, we love changing it up and we want you to benefit from our embrace of change.

Our new website, StreetBrains 2.0, will soon be launching. With our new research hub, we will be your information matchmaker. Have a research need? No problem. We make it simple and easy to get the insight you need to make trading decisions. We are opening the door to an information portal that will match your profile with the right research. Looking for research on the Middle East? Want to know when to buy energy related stocks? All of our research is at your fingertips. We have a research pipeline of 76 providers representing over 170 analysts - one of the largest teams on Wall Street, independent or otherwise.

StreetBrains has been working very hard to make '09 a very exciting year. We want you to share the excitement with us.

Hitting the Streets

It was an interesting scene at 745 7th Ave!

Bugs, Quirks and Hiccups

Apple’s new 3G iPhone launched last week greeting the market with fresh applications, cheaper prices, and faster speeds. Enter, hiccups.

Since last Friday, iPhone users have encountered several issues ranging from poor MobileMe functionality to complete iPhone black-out. If you change things up, there’s always the possibility that any well-laid plan will meet setbacks, especially when launching a high-tech product like this.

Should Apple lovers be shocked? If you’ve bought an apple product, you’re probably in the majority of consumers who have found most of their devices flawless and their compatibility seamless. You would expect the quirks to be minimal, perhaps non-existent. However, the reality is that nothing is perfect; Apple customers understand that problems may arise. Everyone is still buying iPhones, right? Apple’s brand is still in tact – they can afford to have hiccups.

Would You Still Buy Research?

Regardless of the offering, a product must add value upon its release. Apple wouldn’t launch an iPhone the size of a Kindle with a fatal flaw in its wireless technology – Apple knows better than that. There would have to be an incentive to buy, adding value to your work or your life. Hiccups or not, iPhones will still be flying off shelves because of the value offered.

Wall Street is a different world, and a research product is far different from an iPhone. When held to an investor’s high expectations, research providers are not given leverage – there is no room for error. Research providers must be resilient, precise and completely entrenched in their work. Every part of the process must add value. There isn’t a research provider anywhere who would hand-write their insights on scroll paper, seal it with wax and then send it to a client via horse courier – at least not in this century.

The same is true for the content. What adds more value: the analyst who walks the factory floor, or the analyst who makes phone calls asking what the factory floor looks like? The standards of a research provider must be high, as it should be assumed that someone is always paying attention to quality. At StreetBrains, we’ve identified realistic strategies and goals that enhance our products and their distribution invaluably. Our clients demand the best and we pride ourselves on delivering just that.

Whatever you offer must beat expectations, so as to never raise doubt about your value. In this world, you can’t afford to deliver bugs or duds; unless, of course, you have the iPhone 5G.

And the All-Stars Keep Coming...

I've come to the conclusion that the two most important things in life are good friends and a good bullpen. -Bob Lemon

The upcoming MLB All-Star Game reminds us of one important point: victory is the work of many great players.

The All-Star Game transcends a star-studded publicity stunt, remaining a competition where the best players can showcase their larger-than-life abilities. The bullpen is the key – the bases would be empty without it.

At StreetBrains, we are adding to our list of all-stars, stacking our bullpen to exemplify the best in investment insight. Our roster is incomparable and continues to grow. Just three hours before the first pitch is thrown at Tuesday’s All-Star Game, StreetBrains will be unleashing our newest all-star.

At 2pm on July 15th, Joe San Pietro, a former aerospace/defense analyst at Wachovia, will be hosting a webinar that will informally launch his brand, DEFINITIV, on the StreetBrains platform. His addition to our bullpen is just one of the many ways in which StreetBrains is adding value and sustaining victory.

DEFINITIV is one of the best sources for aerospace/defense research. With a large roster of industry contacts and unmatched experience, San Pietro is able to find hidden value and strategic plays within the sector.

StreetBrains is excited to continue our all-star tradition.

If you would like to join the DEFINITIV webinar on Tuesday, July 15th, please contact Robert Livingston at 212.430.3043 or James Kempski at 212.430.3050.

2nd Degree Burn: The Information Loss Superhighway

Surfing is often considered a territorial sport. It’s likely that passionate enthusiasts are drawn to the ownership of a hot spot, compelled to keep it to themselves or within a tight group.

Before paddling out this past weekend, a fellow surfer came up to me and explained that I couldn’t surf his break and that I would have to find somewhere else to go, down the beach about a half mile. Looking up and down the unobstructed 18 miles of shoreline, I thought about how ridiculous this was, especially considering that he had no idea where I was intending on heading out in the first place. Also, I didn’t recognize him; having known this spot for years, this triggered a warning sign in my head.

We stood on the beach talking, motioning through our wetsuits, trying to come to some sort of understanding. I kept the focus on his total lack of solidarity while he was most concerned in why I was picking this particular zone to paddle out. After a few minutes, it was clear that he was just waiting for me to tell him where to get in the water because he didn’t even know the break and was ultimately looking to see what I was going to do.

I was going to paddle out where I originally intended, directly where he didn’t want me to go. Since he was terribly stubborn about it, I knew he would do the exact opposite of me just to have a quarter mile stretch all to himself (probably the only thing he wanted in the first place). Instead of asking me straight out what was good in the break, he tried to strong-arm me into giving him information.

He ended up paddling out where he had originally wanted me to go. I could have told him about the dip in the shoreline over there that made the waves short and the rip current strong. And I could have told him about the sandbar that would have killed any swell energy close to shore. But why would I want him to come back? Why would I want him to know what I know? He hadn’t earned it.

This got me thinking about protecting information that you value and respecting it enough to not risk contaminating it by providing it to others who haven’t done the legwork.

Insights in the Hands of Expert Networks

If your expert network isn’t yet causing a headache for your compliance department, then they probably have you wondering, “How can they potentially compromise my investments ideas?”

‘Information loss’ is the nice way of saying, “You just flushed your best ideas out to sea.” In speaking with an expert network, you probably let them in on your insights, giving them a starting point from which they can begin to help you build support for your idea. In this process, there is no definitive standard in place to keep your ideas out of the hands of others. In trying to grow your ideas and generate appeal for them, you’ve essentially released them to the market, uncertain of how they are being assessed and used. Your ideas are lost. You’ve opened the door on your security, your intellectual assets now in full view.

If one day you pick up the phone and gather some insights from an expert network participant based on your impending investment decisions, take pause and think about how vulnerable your idea is to being compromised.

Communicating your ideas to expert networks is a risky venture that can potentially put your private insight on the Street, making your unique idea fodder for the masses.

As we mentioned last week, expert networks are valuable in theory, but when weighing the risks, there can be many uncertainties.

You wouldn’t sit in the middle of Bobby Van’s Steakhouse spewing your next best idea in earshot of your competition. Why would you openly discuss this information with an expert network?

‘Information loss’ is going to happen in any business. It’s the reason why painters don’t talk about their brushstrokes; why scientists don’t share their notebooks; and why Street Brains doesn’t email reports through highly accessible PDF documents. You want to make sure that limited means limited.

In working with an expert network, an expert has to take into account any insights he’s gathered from his conversation with you – that information is now part of his knowledge and expertise. When the expert picks up the phone to discuss it with others seeking his “expertise,” your conversation with that expert may very well help to shape that expertise. If your goal is to generate alpha – as is the case for most institutional investors – you put it seriously at risk when you rely on a source that is not accountable to you.

Former Bear Stearns Research Analyst Launches REITology on StreetBrains Platform

This week, StreetBrains announced the launch of REITology through an exclusive partnership with Amy Lauren Young, formerly of Bear Stearns’ II ranked real estate team. REITology offers insights focused on the global real estate sector with a primary focus on companies with retail exposure.

REITology marks the 10th independent research provider to join the StreetBrains Actionable Information eXchange (AIX).

Former Bear Stearns Research Analyst Launches
REITology on StreetBrains Platform

New York, NY, April 2, 2008 - StreetBrains, LLC, the Actionable Information eXchange (AIX), today announced that they have partnered with Amy Lauren Young, formerly of Bear Stearns, to launch REITology, a research product that will cover the $14 trillion global commercial real estate sector, with a focus on companies with retail exposure. REITology is the 10th independent research provider (IRP) to join StreetBrains’ AIX.

REITology will provide written research as well as expert hours through the StreetBrains AIX. From company reports, retailing perspectives and international trends, to sector overviews and thought pieces, REITology’s insights will be delivered through written reports as well as through webinars and client-only panel discussions. Each REITology license will also include 40 hours of expert access in which customers may speak directly with REITology senior analyst, Amy Lauren Young.

During the pre-launch phase, REITology hosted two webinar events for clients and prospects. The first covered “The Reality of Retail REITs: What Consumers Aren't Consuming” and the second, held after Ms. Young returned from the world’s largest real estate conference, MIPIM, in Cannes, France, discussed “U.S. versus International Real Estate: Where are the Recession-Proof Investments?” Qualified institutional investors may click here to be granted a free trial, as well as access to the REITology webinars.

Prior to launching REITology, Amy Lauren Young spent nearly 6 years covering real estate at Bear Stearns & Co. Inc. where her real estate research team was ranked 3rd in its category by Institutional Investor in October 2007. Ms. Young previously spent 3 years at Deutsche Bank (formerly Deutsche Banc Alex. Brown Inc.); and two years at Lehman Brothers covering Conglomerates. Prior to the sell-side, Amy worked on the buy-side for four years in Denver, Colorado at Wells Fargo.

Additionally, after eight years of studying Mandarin Chinese, Amy studied abroad in East Asia, spending six months in Hong Kong and China. Amy is also involved in the Young Executive Board of Camp Interactive, a non-profit organization. She is a sustainer of the New York Junior League, and also an Apollo Circle member of the Metropolitan Museum of Art.

"REITology offers a unique perspective on the international retail real estate market by factoring in investor psychology into its valuation model," says Lawrence Margolis, Managing Director of StreetBrains. "Their research fits into the StreetBrains platform by delivering information and perspectives that are actionable and offer clients an edge."

To learn more about REITology, please visit www.reitology.com.

To learn more about StreetBrains, please visit www.streetbrains.com or www.streetbrains.blogspot.com.

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StreetBrains LLC, the Actionable Information eXchange (AIX), provides limited distribution research and expert access to qualified institutional investors. Launched in May 2007, StreetBrains partners with unique independent research providers (IRPs) to bring exclusive analysis to hedge funds, proprietary trading desks, mutual fund managers and family offices via our proprietary research HUB. StreetBrains is not a broker/dealer, and operates free of any trading or investment banking conflict of interests and follows the Investment Protection Principles. To view StreetBrains' current AIX partners, please visit www.streetbrains.com.

The Payment Paradigm

In this weekend’s New York Times, Joe Sharkey wrote an article titled ‘The Skies Are Alive With Fees,’ which points out some of the payment adjustments and ‘unbundling’ of services that many airlines are undertaking in order to generate revenue. Since most passengers have been conditioned to pay in a more conventional, ‘bundled’ manner for flights, many are immediately skeptical of this new payment model – even though at first glimpse, it does seem to make sense and have some advantages.

After all, wouldn’t you rather pay for what you want, than pay for ‘perks’ you have no interest in or have any intention of using?

We point to the airlines’ new payment models, because it draws an interesting parallel to the current payment transition in the investment research world. As the SEC this past week has proposed rules that will require further disclosures for soft dollar transactions, different payment options that simplify payments for research services will become a more common part of the equation. Despite the growing popularity of flat-fee type payments for research, many portfolio managers (PMs) seem to have a difficult time embracing the idea of paying for research as a full product, rather than paying for each individual idea (through trade commissions). However, as time ticks down for the SEC to fully implement new disclosure rules, flat fee payment for research will seem like a far more desirable option. Disclosing a flat fee payment for research services will minimize compliance confusion and bookkeeping nightmares.

As with the airlines, it will also become attractive to portfolio managers and investors to buy the research they use and want, rather than paying for ‘add on’ research that delivers no value.

For independent analysts, the shift to a model where they can be compensated for full access to their insights, rather than solely for specific ideas, means that they are finally getting some of the respect – and compensation – that they deserve. PMs also benefit, because by essentially having fractional ownership of the analyst, they are able to access the insights of an analyst whose insights they trust, at a fraction of what they would pay to put that analyst on their staff. The SEC is creating a win-win situation by taking steps that benefit analysts who generate actionable ideas and the portfolio managers that use/need them.

There was a lot of resistance to the internet when it was first born, too, and people who were used to handling their business and information gathering in other ways had a hard time adapting…but before long, it was widely embraced because the advantages were indisputable.

If perks to flat fee payment are implemented – such as selling the research solely on a limited distribution basis, and making the analysts accessible as an extension of the PMs own research team, independent research providers with payment models like StreetBrains’ will prove to have indisputable advantages over the conventional model, too.

Movin’ On Up – Or, In StreetBrains’ Case, Down

Pardon the departure from our typical subject matter, but, today, we’d just like to gush a little bit about the new office space we moved into over the weekend, located in the Flatiron neighborhood of Manhattan.

After 3 long days of grueling work to get our new space up and operational, today is our first day up and running at 72 Madison Ave. So far, so good - save for the slight high we all have from the paint fumes.

The office itself is a wide open loft space (5,000 sf), with high ceilings, exposed industrial piping, hard wood floors, and just overall ‘downtown cool.’ Dark wood furniture, a few Carolina-Tar-heel-blue accent walls, and a pool table separating the two sides of the office give the space a StreetBrains ‘edginess.’

As cool as the space itself is, the true pride of the office is the enormous StreetBrains road sign that we had custom made to hang over our reception area (identical to our logo, except this is 5x7 feet, 150 lbs, and made of reflective highway sign material!). Once that was hung, it really felt like home. See picture above.

We still have some decorating to do, but overall, we are extremely proud of our new space, and can’t wait to host our first big social gathering to bring our clients, friends and family together to celebrate with us.

To read the full press announcement about our move, please click here.

I Want it All, and I Want it Now!

We know them as the men who collect Ecosse Titanium Series Motorcycles, Bugatti Veyrons, Ferraris and Aston Martins. Men who spend over $500 million on their art collections, and $12 million on tiger sharks encased in formaldehyde. Men with temperature-controlled wine cellars containing chronological libraries of Romanee-Contis and Chateau-Lafites – many well past their drinkable stages. Men who shop for trinkets for their wives and mistresses at Harry Winston and Cartier, and buy Richard James suits and Charvet shirts for no reason other than they can.

The men described above are covetous. They exude a sense of entitlement. They expect to be granted access to the best of the best the world has to offer – and they hold out altogether until those demands are fulfilled. Many of these men, as you might have already guessed, are hedge funders. Creators of their own fate, their sense of entitlement is earned, not given. These men “eat what they kill” so to speak, and they work tirelessly to ensure that doors swing open for them. They strive for excellence, deliver it, and expect it in return. “Work hard, play hard” was coined to describe men like these. With Veruca Salt-like determination, they want it all, and they want it now, and they simply will not take “no” for an answer.

Understanding the mentality of a (successful) hedge funder in his natural habitat (as above) is a critical component to building a business that exists to serve the needs of a hedge fund.

Make no mistake - despite the tongue-in-cheek Veruca Salt comparison, we are not faulting these men for insisting upon the best of everything. In fact, if they did not have a 'want it all, and deserve it' mentality, they would not be as successful as they are. We do submit, however, that many people have a misconception about this rare breed of personality, and how to effectively work with and appeal to their attitude and behavior.

Demand Drives the Market. No, Demands Drive the Market

Yesterday, Cheyenne Morgan of Advanced Trading wrote a story entitled “Customize My Dark Pool.” (click here to read the full story.) We bring up the mentality of a hedge funder today because after we read this story, we realized that many companies and people marketing to hedge funds may not truly grasp their audience, or simply don’t have the capacity or business model to be able to comply with a hedge fund’s needs and demands (while still remaining compliant with regulators).

The story points out several key ‘buzz words’ that properly describe what hedge funds look for in just about anything that they bother with (no different than how they operate in their personal lives): “Premier.” “Exclusive.” “Unique.” These qualities are of utmost importance to the hedge fund audience. However, first, a business needs to assess whether or not their model can support this limited type of access that hedge funds look for to begin with.

In the case of dark pools (as discussed in the AT article), the jury is still out. While of course it makes sense that hedge funds would much rather pump their trades through a ‘black box’ of trade matching rather than have the whole world try to ride their coattails by having their trade patterns revealed at a larger broker, there is also reason for skepticism when it comes to the allegiances of these ‘dark pool’ offerings.

It sort of reminds us of that girl or guy you might have dated in college, who, you knew had cheated on every person he/she had ever dated, but promised they would NEVER cheat on you – putting trust into a ‘dark pool’ and buying their shtick that ‘you’re their #1 customer’ as they go sing that song to twenty other firms can (and should be) a bit disconcerting. Many seem to be offering ‘security’ out of one side of their mouths and ‘open access’ from the other. Either they don’t know their capacity/capabilities, or they don’t know yet which one sells. If there are clear lines to be drawn that will help hedge funds clearly understand the draw for one dark pool offering over another, the marketing efforts are in need of some bolstering.

StreetBrains had the hedge fund mentality in mind when we developed our model, so we are able to rest easy. We provide limited distribution research and expert access, solely to qualified institutional investors. It doesn’t get any simpler than that, and it’s exactly what hedge funds covet. Unique…limited…premier. Check. Give them what others can’t have. That’s the key.

At the end of the day, whether it’s undrinkable wine, inedible food, ugly paintings or broken statues - value is in the eye of the beholder. (After all, wealth as we know it might cease to exist entirely if the affluent stopped buying $6k Neorest toilets and $15 Renova toilet paper based solely on the fact that other people can’t afford it….)

Expert Networks: Elephant Trap?

According to Integrity Research, “at the end of 2007 at least 26 firms generate between $325 and $375 million in sales by providing expert network services to the buy-side.”

It’s undeniable that the demand for experts of all shapes and sizes has grown exponentially in the past couple of years, and will continue to grow as market volatility drives the need for more information upon which to base trade ideas. Since the implementation of RegFD, it has been increasingly hard for investors to ‘go to the source,’ for any useful/actionable information, so expert networks are a seemingly sensible way for hedge funds and other institutional investors to get a lay of the land without having to wait for company ‘spiel’ to be released.

But, with no real obligation to properly serve the interests of investors, the ‘experts’ – no matter how carefully ‘vetted’ by the network itself – are still not in any way, shape or form, accountable or held to the same standards as a Registered Investment Advisor (RIA). The further these networks expand, the more difficult it will be for networks - and regulators - to keep a pulse on credibility and expertise.

Because regulation of pure-play expert networks is still rather lax, the level of accountability for the experts themselves is minuscule. There has not been a major incident…yet. But if there were to be a major incident today, the information provider (expert) is not held accountable by any standards at all…which should cause investors to proceed at their own risk.

Of course hedge funds and other institutional investors are, by and large, big boys and girls, who should be able to make decisions for themselves about information they find credible and information they do not. But if one of these institutions loses millions or even billions after being mislead (purposely or not purposely) by a so-called 'expert' – who will be to blame?

More Landmines

Beyond the lack of regulatory oversight, there are two other downfalls for pure-play expert networks. The first is that these experts are not exclusive to any one network. So, in essence, these experts could be delivering the same insights to all of your competitors – or worse, in cahoots with the competition. With some hedge funds and other entities choosing to launch their own expert networks, it’s clear that many are not comfortable with the lacking exclusivity that exists in the industry.

The other downfall is that expert networks are a purely ‘pull’ model. What we mean by that is, you have to have the ideas first – there is no dialogue, or anything coming in to you. So, sure, you might wake up this morning and decide that pencil erasers are the next big thing, and you can find a whole range of experts to tell you why they are, why their not, and even put together a custom report outlining how and why – but you have to conjure the notion of pencil erasers as the next great investment all on your own.

At StreetBrains, we believe that the true value of expertise, in any realm, is for experts to offer both ‘push’ and ‘pull’ insights. StreetBrains calls this model the Actionable Information eXchange (AIX.) More specifically – after enduring our stringent vetting process, analysts are accessible and available to discuss incoming ideas, but also push out to clients fresh information and ideas they are encountering as they assess the markets. Furthermore, this information is delivered exclusively through StreetBrains research HUB, to a finite number of customers.

To learn more about the benefits of the StreetBrains AIX, click here.

Wall Street Sings the Executioner's Song

Yesterday, Sara Hansard at Investment News wrote a brief update announcing that the SEC will soon be releasing new guidance on soft dollars. Although there is no indication that the SEC plans to mandate the explicit separation of research dollars from execution dollars, it seems clear that they endorse the value this separation of services brings to investors, and will be watching carefully to be certain that firms are providing this level of transparency to their clients.

In the article, Jennifer McHugh, senior adviser to the director of the SEC’s division of investment management explains that the separation of research and execution has “had a positive result.”

Although soft dollars (or CCAs/CSAs) were not immediately embraced by most large U.S. brokerage firms, the inevitable separation of research from execution services is leading many large firms to seek opportunities to partner with independent research providers (IRPs). By doing so, these firms are hoping to keep a tight leash on their execution dollars - even if it means abandoning their own in-house research offerings for the more lucrative/less overhead option of IRP partnership.

To no one’s surprise, in-house research may once again face the internal firing squad, as their execution-focused counterparts have increasingly less success selling their commoditized research.

The New Arm Candy

While IRPs may be the new arm candy for execution providers to shop around to clients, this could potentially be a detriment to the end user. Great research will have a difficult time setting itself apart from the pack as more providers gain the ‘endorsement’ of execution firms who are looking to coattail on IRP trade ideas by securing the execution business on the back end of the trade.

For this reason, anyone using independent research will need to be very selective about research providers they choose to work with. The vetting process for finding quality research is a critical component for finding top quality ideas and insights.

Click here to learn more about StreetBrains vetting process.

Gold Losing Its Luster

Yesterday, StreetBrains technical guru – Steve Frenkel of PatternWatch – was on CNBC to discuss whether or not there are still investment opportunities in Gold.

While Douglas Doyle of Blanchard & Company (which on their website boasts they are “the largest and most respected retail dealer in rare coins and precious metals in the United States”) called for Gold to reach $1150 this year (shocking prediction from a firm that specializes in precious metals), Frenkel countered that Gold technical indicators show that Gold is well on it’s way back down to $720.

At the time of this posting, Gold sits at $877, down $33 from where it was yesterday just moments prior to our CNBC appearance, and down $39 from it’s $916 high (which Frenkel had previously targeted as the high).

Click here to watch the video.

Wall Street Analysts Avoid the “B” word

If you were off drinking egg nog martinis in Saint-Tropez in late December, you may have missed “Settling for ‘Hold’” - a very informative piece of commentary from Bloomberg’s David Wilson. (click here for full story.)

Wilson first relies on Bloomberg’s own database of research to present his case. Most notably, he points out:

• Just 43 percent of the calls made [in December were] buy ratings or equivalents, including ``overweight,'' ``outperform'' and ``accumulate,'' according to data compiled by Bloomberg. The percentage is the lowest since these numbers were first tallied a decade ago.


• Sell ratings and comparable calls have amounted to 5.7 percent. That's less than half the peak reached in July 2003, when brokerage firms were reeling from then-New York Attorney General Eliot Spitzer's investigation of Wall Street research.


• Analysts are retreating into the relative safety of ``hold'' recommendations, telling investors who own shares to keep them and those who don't to avoid buying them. The number of ratings in this category surpassed 50 percent for the first time in October and rose to 52 percent this month.

Wilson goes on to make an important point. He says, “Analysts' growing reluctance to say ``buy'' on companies, including securities firms, is understandable. U.S. stocks more than doubled, as measured by the Standard & Poor's 500 Index, in the five years ended Oct. 9. They have since gone through a so - called correction, or a more than 10 percent loss.”

We agree that collectively, it is understandable that analysts have been reluctant to say ‘buy’ and that the overall sentiment of the market led the ‘abundance of ‘hold’ calls. However, we also think that the reluctance of analysts to seek out new ‘buys’ sheds light on the fundamental problems inherent in the Wall Street research model.

When analysts are siloed off to exclusively cover specific companies, they are pigeon-holed into making some sort of call on those names, rather than seeking out new names that are more primed for investment. If the sector the analyst covers doesn’t do well, their position may become obsolete within their firm. This is precisely the problem – an analyst who is on the front lines is most qualified to see trouble in the sector or company he covers. He should be rewarded for identifying coming problems and threats - not punished by his firm, or stonewalled by a company he downgrades. The model is inherently flawed.

We’re not suggesting we have the solution for fixing the way research is handled, but we do believe that the industry is long overdue for an overhaul. The current model is not scalable, and does not lend itself to improving the quality of research.

A Ray of Hope

One encouraging sign reflected in Wilson’s story was uncovered in research conducted by Greenwich Associates:

Stock recommendations dropped to 8 percent of commissions from 18 percent during the period, the Greenwich, Connecticut-based research and consulting firm found.

This finding suggests that good information and new insights and ideas – not straight stock recommendations - are gaining ground as the benchmark for quality research. This is not particularly helpful to research desks at large brokerage firms, where stock recommendations will continue to govern coverage until ‘the powers that be’ come to their senses – but for independent analysts and research firms, like StreetBrains, this shift can be capitalized upon immediately by increasing the information channel, and scaling back on stock recommendations.

In our experience, PMs are plenty qualified to pick stocks, and don’t really need many recommendations from outside sources. What they do appreciate are new insights and valuable information upon which to base those picks.

The Value of Vetting

We see it in all sectors, professions, and projects: A vetting process for identifying value. Whether it’s the A&R guys who find us the best bands; the headhunters that find us the best executives; or the search engines that finds us the best information – we are a society that has come to value the processes that fast-track us to top results.

We’re learning the same is true for StreetBrains and its vetting process for qualifying the analysts we add to our brand. To give a rough idea, 400+ analysts have been through StreetBrains vetting process in the past 8 months. However, we have only launched 10 of those as brands. Our purpose has always been that we want to represent great insights and analysis, so we’ve been extremely selective in bringing on new brands who offer insights that cannot be found anywhere else. But we’ve learned from several clients recently that the value of our vetting process is actually much bigger than that.

A recent study by the Noble Group – a UK investment bank – found that financial directors of AIM (Alternative Investment Market) listed companies had a very low awareness of independent research.

The findings show:

75% of respondents could not name an independent research company.

58% did not even try to name an independent research company.

17% thought they could name one but named a broker or an information service rather than an independent research company.

Only 24% could name an independent research company.

Part of the problem with even the best of the best independent analysts is that most clients don’t have the time to go out and seek out and assess the quality of every independent researcher they come across. In theory, they like the idea of using independent research…but, where to find them? We’re hearing more and more often that firms find this ‘discovery’ process to be a daunting task.

By bringing a variety of analyst brands onto one platform after a stringent vetting process, StreetBrains is able to cut an enormous amount of ‘vetting’ time out for the client. That client is now able to focus on finding tradable insights, rather than trying to assess credibility, writing style, or brand focus. In essence, we bring the mountain to Mohammed.

The Noble survey also found that 84% of the surveyed AIM financial directors think that broker research is biased.

While this comes as no surprise to us, it underscores the importance of increasing the awareness and visibility of truly independent analysts. (Truly being the operative word…but that’s a topic for another day!)

Bottom line: if the objective insights of independent analysts can be more easily accessed, it seems that their insights would be welcomed by clients who are clamoring for non-biased research.

The End of Pollyanna Propaganda?

It almost pains us to ‘pile-on’ with yet another blow to Wall Street’s favorite punching bags, but let’s be honest, they’ve brought this upon themselves.

In yet another story this week that bullies research analysts about their collective incompetence (to make the distinction, we are referring to the 'mouthpieces' at big firms who are payed to spew rhetoric, not analysts who are independent and conflict-free), Geoff Colvin, writing for Fortune, brought us ‘Analysts in Fantasyland.’ To excerpt from the painfully accurate account delivered in Geoff’s story:

Maybe Wall Street analysts are more honest and less compromised than they were pre-SarbOx, but recent events show that they're still awful at their most important job: predicting bad news. They haven't lost their habit of falling in love with the companies they cover and refusing to face unpleasant realities until everyone else has already done so. Now, eight years after they were inflating the bubble, we again have to question whether analysts do retail investors any good.

The latest evidence: Analysts have only just discovered that corporate profits in the fourth quarter aren't going to be nearly as strong as they had supposed a month or two ago. The consensus view going into the quarter was that S&P 500 profits would go up 12 percent to 15 percent, a large jump coming on top of the 20 percent rise in last year's fourth quarter. In light of the credit crunch, the housing collapse, and the towering price of oil, that forecast seemed highly - one might say insanely -optimistic. This it proved to be, but only after the quarter began did the consensus view finally lurch into the real world. Their growth forecast is now about 1.5 percent and still falling.

It has been obvious for many months that profit growth would have to slow way down simply because it couldn't continue at recent rates. Profits have been rising sharply the past few years, which makes sense after the hole they fell into in 2001 and 2002. But by early this year they had grown to 12 percent of GDP, way above their historical average of 9 percent. Analysts knew all this, and in case they didn't, various commentators (including Fortune's Shawn Tully) were insistently pointing it out. But the analysts, ever hopeful, chose to believe that U.S. companies would perform magic.

Although their hand was somewhat forced, in-house analysts are finally able to call it like they see it (as long as they talk ONLY about what has already occurred/is occurring). Perhaps it’s better late than never? Could the days of Pollyanna Propaganda be over?

We doubt it, but at least they’re not denying the sky is blue….for now.

We Called It

As previously mentioned, every couple of weeks we will be highlighting some of the big calls made by StreetBrains’ portfolio of independent analysts.

Remember: StreetBrains provides conflict-free research – the analysts do not hold positions in the stocks they cover, and are not affiliated to any investment banking outfits. Period.

Below are some of our calls:

• Boo-hoo, Mickey - PatternWatch put the squeeze on Walt Disney (DIS) this past Friday, when they pointed to technicals and fundamentals that supported shorting this stock. Click here to read ‘Mouse Trapped’ by Carrie Coolidge from the 12.24.07 issue of Forbes, now on newsstands.

• Known best for great pairing ideas, Gotham Research recently was up 15% on a Bob Evans (BOBE) (long) / Brinker (EAT) (short) pairing. They worked their magic again when they closed out up 11% on a Commerce Bancorp (CBH)/Bancolumbia (CIB) play last week.

• Photizo Group continues to cultivate their contrarian calls by putting a BUY rating on Xerox (XRX) this past week.

• Coming from very different sector perspectives, both Sterling Account and inMotion issued BUY ratings on Schlumberger (SLB) recently. Perhaps they’re on to something….

DeCommoditizing Investment Research

In the brilliant book, Mavericks at Work (a must read) – there’s a great quote from Vernon Hill at Commerce Bank who says:

“We’ve shown that you can decommoditize a commodity business. Nobody needs another me-too bank.”

The notion of decommoditization is one that the investment research world should take to heart. The lack of insight and value in most investment research has become appalling. When the biggest difference to be found in ten research reports is a 2 cent discrepancy in target price, it’s safe to say that research has become a commodity. But how can analysts change the playing field?

Realistically, it’s not easy for in-house analysts. They are all talking to the same sources as their competitors and learning the same information at the same time (thanks to SarbOx, RegFD and other regs). They all have a mandate to cover specific companies, and truthfully – they really aren’t there to be creative and see/analyze outside of the box. This is a necessary tool, and not one to be undervalued. But is it necessary for firms to have this research from more than one source?

The answer, of course, is no. But big firms – for CYA reasons – need to have in-house analysts dedicated to the companies that their firm invests in. Makes sense. They can’t rely on outside analysts for that. But why would they pay another firm to receive the same research they produce in-house?

Right now, it’s simply because in most cases, they get the research ‘for free.’
(READ: they get it for 3 cents a share as a tack on to their execution pricing.) So why pay for MORE research in addition to that research?

Many firms are starting to understand why. They’re asking themselves what the value is in the commoditized research they currently pay for through their execution, and they’re recognizing how little new information they are accessing. This is leading to a trend in unbundling for some in the industry. It’s possible that decommoditization has already begun. But can it continue?

We believe it can. The feedback StreetBrains gets from clients is that straight forward research is important, but so is insightful, objective analysis. Value is the name of the game – and if indie research providers can step their game up and provide new insights and niche material to their clients, rather than duplicating what firms are already doing in-house or receiving as an execution add-on, decommoditization of this valuable product will occur.

On Wall Street, Sell = Salmonella

If you read Dana Cimilluca’s story in yesterday’s Wall Street Journal titled, “Research Analysts: Best-Paid Concierges?” (click here for story) and thought, “That’s just absurd!” - you’re with us.

In the independent research world, we tackle this issue on a daily basis. Some independent research providers pride themselves on their abilities to set up company management meetings for their clients. In fairness to them – in many cases, this is what clients want. We are constantly surprised at the interest and desire amongst our hedge fund and bulge bracket firm clients to have such meetings. Not to suggest that company management doesn’t have anything insightful to say – but when have you ever been to a company meeting where the company provided insights into how they are falling short or worse - failing?

What is the true value of these meetings? And more importantly, are they really worth paying commission pricing for? Are there actually companies out there who are unwilling to sit down and meet with hedge funds and other institutional investors without a middle man (analyst) being involved? Wouldn’t it be much more simple and cost effective for these high powered investors to go directly to company management and arrange a meeting?

"The Catering Business"

We affectionately refer to our research counterparts who focus on company management luncheon schmooze sessions as ‘The Catering Business.” In the catering business approach to research, an analyst issuing a SELL (GASP!) recommendation on the host company is the equivalent of serving up salmonella to the black-tie crowd at Cipriani.

Besides the fact that regulatory rules won’t allow for companies to really open up in these meetings, does any party involved really expect an analyst to offer up an objective, insightful, potentially critical report after a company has played host to interested investors?

If so, we respectively contend these people reside in FantasyLand.

Since access to companies is important to analysts’ abilities to do their jobs, it’s no wonder sell recommendations this year have dropped to 7% (according to WSJ story). Our question is, why would anyone want such conflict-ridden research, let alone pay for it? Do these people still have Jack Grubman on speed-dial?

Isn’t it about time that analysts band together and raise the bar for objective research? Isn’t it up to analysts to manage companies’ expectations about what a company meeting entitles them to? It should be a chance for them to be heard – not an automatic guarantee of a buy rating.

Analysts should take a page from journalists and recognize that their job is to provide objective and insightful perspectives – not make friends. Fears of being stonewalled, bruised egos, and negative market impacts should not have any impact on the integrity of an analyst’s research.

StreetBrains believes analysts should leave the catering to Cipriani, and focus on writing insightful, objective research.