We Called It

As the adage goes…

“It ain’t braggin’ if it’s true!”

StreetBrains analysts have spent the first 24 days of 2008 beefing up the benchmark for correctly calling market moves. Below are some of the items that StreetBrains independent analysts have nailed in the past few weeks.

(See how smart analysts can be when they’re able to say what they’re really seeing and hearing, rather than being muzzled by investment bankers, traders, and compliance departments?)

Steve Digilio, The Bank Notes, told us in November ’07 that ’08 would bring at least one major bank consolidation or acquisition, and 3 top bank CEO departures/ousters. 24 days in, we have already seen Countrywide acquired by Bank of America, and Jimmy Cane step down as CEO of Bear Stearns.

In September ’07, Larry Rothman of DebtVisions made the definitive call that retail was in a tailspin. To date (from his call on 9/28), the RLX has declined 13.8%.

On January 9th, 2008, Jim Sterling of the Sterling Account (who was up a whopping 44% last year on his calls) wrote a report titled “Throwing In the Sponge” where he advised the exiting of all energy stocks. He still loves many of the companies, but the stocks are going to continue to be battered for a long while out, he claims. Since January 9th, the XLE is down 7.95%.

Gotham Research proves that there’s money to be made, even in a bear market – if you’re nimble. The following 3 pairs have brought in generous returns when closed out today:

IEF/XLE – iShares Lehman 7-10 Year Treasury Bond Fund vs. Energy Select Sector SPDR Fund. Closed long IEF and short XLE spread from 9/21/07 with an advance of 26.04%.

USB/SPY – U.S. Bancorp vs. SPDR Trust Series I. Closed a long USB and short SPY spread from 1/10/08 with an advance of 17.35%.

ONB/VTI – Old National Bancorp vs. Vanguard ETF Total Stock Market. Closed a long ONB and short VTI spread from 12/12/07 with an advance of 18.46%.

Last but certainly not least, Steve Frenkel of PatternWatch, whose several CNBC appearances in the past few weeks you can find in blogs below, has also been consistently spot on in calling the Dow, S&P, Gold, and CCI Index moves. Click here to view his most recent television appearance, where he discusses the current state of the market.

Rejecting Researchecution

Just as Hollywood’s got Brangelina and TomKat, Wall Street has Researchecution: a hybrid coupling that seemed like a good idea once upon a time, but ultimately has the shelf-life of canned fruit.


The days of Researchecution – the ‘bundling’ of research and execution costs - are very close to numbered here in the US, and are already a thing of the past in the UK. Increasingly more Wall Street firms are asking themselves why they continue to bundle these services, and the case for client commission arrangements (CCAs; commission sharing agreements/CSAs; soft dollar arrangements, etc, etc.) to aid ease of payment for a la carte research - while enabling best execution pricing - is gaining traction. However, this isn’t the first divorce that some on Wall Street have been reluctant to embrace.

Not long ago, you may recall the painful breakup of investment bankers from their beloved research desk counterparts. Although research had been a supportive and loyal partner, investment bankers abused the relationship, and eventually divorce ensued.

The same separation is imminent for research and execution. The issue of transparency over what monies pay for execution vs. what monies pay for research will eventually come center stage – whether it be on a regulatory level, or internally at firms as they struggle to justify all spending in the current volatile market.

The questions that firms are starting to ask themselves are: “What are the benefits to unbundling research from execution? Will it save my firm money? Is it necessary? If so, why has the SEC not implemented a rule requiring unbundling? What advantage will it provide? Will it cost me more in compliance?"

Integrity Research’s blog on Sunday offers a ‘state of the union’ for the current environment for CCAs. At StreetBrains, we’ve been having these same discussions with clients and potential clients as well. The landscape for CCAs is still somewhat uncharted territory and some firms are hesitant to jump on the CCA bandwagon. However, an increasing amount seem to see the value and advantages to unbundling.

To answer the questions above:

1) The benefits of unbundling research from execution are many. First, you will be able to ensure you are getting best execution pricing (since you won’t be ‘factoring in’ research costs.) Second, you can pay solely for research you want and use, rather than being bombarded with research you neither want nor need. You can establish relationships solely with those research providers you value and trust. Third, unbundling research costs from execution costs make for more transparent bookkeeping – and although there is no rule that currently requires that level of transparency, the likelihood of such a rule coming about is imminent.
2) There is little research out there thus far showing whether or not unbundling saves money. What we do know is that unbundling helps firms to more accurately assess the value of their research purchases, so they are able to adjust spending accordingly. Although the cost savings are still unclear, what is clear is that unbundling provides a clearer picture to assess what you are paying for. In a market environment where purse strings are tightening, the ability to pinpoint the cost: value ratio is of utmost importance.
3) Although there is no rule currently requiring research to be unbundled from execution pricing, such a rule is likely to come – and soon. So, using CCAs would seem (and does seem, to many of our clients) to be a no-brainer – stay ahead of the regulatory curve; get a clearer picture of what your firm is spending its money on; and pay for what you value. (best execution, and great research.) Additionally, unbundling improves transparency without adding to compliance costs.

Many more firms are beginning to understand the implicit value of unbundling, and are looking to independent research providers such as StreetBrains as they divorce Researchecution. To learn more, please visit our complete “Myths and Facts” page that helps dispel some common myths about paying for independent investment research.