20,000+ Wall Streeters to Wave Farewell by end of ‘09

The below story ran in Wednesday’s Financial News and that figure doesn’t include any losses from the Bear Stearns/JPM acquisition.

Gulp.

Wall Street may lose 20K jobs by end of 2009
Stephanie Baum
25 Mar 2008

Job losses in the financial sector in New York City are expected to reach 20,200 by the end of next year as the credit crunch deals its hardest blow to Wall Street, according to the Independent Budget Office of New York City.
The figures reflect an analysis of the mayor of New York’s preliminary 2009 budget and financial plan through 2012.
A spokesman for the budget office emphasized that the information in the analysis was subject to change.
The report provides estimates through 2009 based on information received by the end of February, before JP Morgan agreed to acquire Bear Stearns.
The spokesman said: “I hear repeatedly that every recession is different. This one is heavily based on finance and that’s going to hit New York City hard because New York is so dependent on the financial services sector... It remains to be seen how hard this will be.”
The agency predicts the financial activities sector will shed 12,600 jobs in 2008, a 2.7% decline from last year.
The estimate includes 5,300 jobs in the securities industry. Jobs tied to the credit market will account for the biggest percentage decline with 4,100 job cuts projected for 2008, a 4.4% decline over last year. It expects losses to slow down to 7,600 job in 2009.
Securities industry profits last year reached their lowest level since 1994 with $3.2bn (€2bn) according to the Independent Budget office estimates, a dramatic downturn from the near record $20.9bn in profits the sector produced in 2006.
The budget office expects losses to continue in the first quarter, but predicts an improvement in Wall Street’s performance later this year with “positive quarterly profits for the rest of 2008.” It predicts Wall Street companies will make a profit of $6.6bn and to nearly double next year to $12.2bn.
Investment banks and the mortgage industry have sustained much of the job losses since the onset of the credit crunch.
Another analysis of the city’s preliminary budget will be released in May.

For the independent research world, Wall Street job losses provide an interesting conundrum: will most firms cut back on spending so drastically that they confine spending to bare bones, in-house necessities and entirely scale back the use of outside products and services?

Or will they invest in fractional ownership or outsourcing-type solutions that can help them to contain costs without all together sacrificing valuable insights and information?

Bottom line: for any companies servicing the financial sector, proving value, providing an edge, and impacting the bottom line has never been more critical. And for the users of information, keeping in-house costs contained will prove equally vital....

'Mad Money' Causes Mad Losses

Whether or not Jim Cramer ‘knew better’ about BSC when he made the statement below to Erin Burnett on CNBC yesterday afternoon:

“Look, let’s understand two things, I said the common stock was worthless on Friday, as soon as this thing was at 36 because we saw a look at the bonds. If you kept your money in Bear you made out. You got the liquidity. Keeping money at Bear – I guess I could have caused a run on the bank and said take your money out of Bear. I guess people could say hold it, he’s saying buy the common stock. I mean, what the heck. I cannot cause a run. It turned out the Federal Reserve guaranteed the money. I’m not going to tell people to pull money out of these places. The Federal Reserve is guaranteeing the money. They are not guaranteeing the equity. I got a lot of things wrong in my life, but I don’t regret the fact when I said don't take your money out of Bear. If you have your money in Bear you still got it today. Remember, there’s Bear Stearns the common and that person was going to pull the money out of Bear. We got a guarantee. JPMorgan is now Bear.”

One thing’s for certain: this is the danger that exists when a large group of investors rely on a single source as their primary source of investment information – and suddenly, that source is wrong.

We don’t mean to go lightly on Cramer – I mean, if he did in fact make the ‘strategic decision’ that he ‘could not cause a run,’ then 20/20 hindsight given what’s occurred tells us his response was irresponsible. But quite frankly, we think this was just one of those situations where it was impossible for him to come out unscathed. Would we have rather had him ‘cause a run’ on the bank? Would that have been responsible? I suppose we’ll never know.

The real problem is the bigger picture issue – when investors are looking to one source, and when that source understands the power (as Cramer well understands) and credibility their recommendations have with their audience, we’re treading into dangerous territory. Dangerous for the investment ‘advisor’ because he needs to responsibly weigh his influence into the words he chooses; and dangerous for investors, because this ‘skewing’ – no matter how honorable the intentions – can result in conflicted advice.

Clearly we didn’t learn any lessons from the Global Settlement back in 2003, or investors would recognize that when they blindly follow the direction provided to them by a single source, they know how the story ends: massive losses.

Hopefully investors – and maybe even Cramer himself – will learn a lesson from this situation and recognize that diverse views strengthen our market structures and help in educating investors so that they are more capable of making sound investment decisions.

We Called It

(Per our usual disclaimer…”It Ain’t Braggin’ If It’s True!")

On November 29th, 2007, StreetBrains held a client event where each of our analysts made their ‘Big Calls’ for 2008. Some of those calls have already come to fruition, and we’re not even out of the first quarter.

Steve Digilio, senior analyst at The Bank Notes made his call that a top bank would fail or be acquired in 2008, and today, he’s right twice over. Today JPMorgan Chase (JPM) and the New York Fed have had to step in and provide financing to a failing Bear Stearns (BSC). Also, the Wall Street Journal noted this morning that National City Corporation (NCC), the 13th largest bank holding company by assets as of December 31, 2007, has reportedly put itself up for sale.

Larry Rothman, senior analyst at DebtVisions, made the call back then that Sharper Image (SHRP) would file bankruptcy in 2008, which it did in late February.

Additionally, Rothman said that increased volatility would lead to increased convertible issuance from certain sectors, particularly biotech. Since then, Vertex Pharmaceuticals (VRTX) and OSI Pharmaceuticals (OSIP) have utilized the convertible market.

Last but not least, this Wednesday, March 12th, Gotham Research closed a pair trade - long Aetna (AET) and short Humana (HUM) - with an advance of 20.13%.

Uh-oh, Client 9! You got Hook-Winked!

We won’t beat the dead horse by recapping one of the ‘most glorious days on Wall Street’ (according to one floor broker), but the hypocrisy of the Client 9 scandal is deserving of its own definition.

How does a guy who tears down Dick Grasso by tearing apart his personal life (affairs, lovechild, whatnot) get off saying things like, “I do not believe that politics in the long run is about individuals, it is about ideas, public good, and doing what is best for the state of New York.” My how the rules do shift when people suddenly find themselves under fire.

Grasso’s likely throwing himself a party, as he now gets to play the role of the helpless victim who was unjustly taken down by a corrupt politician. Hats off to you, and your turn of luck, Mr. Grasso. We can’t wait to see the 60 Minutes exclusive interview we’re sure you’re already working on.

From a business perspective, we have to wonder what this will mean for the Global Research settlement, which is set to end in ’09. Will Spitzer’s fingerprints undermine the importance of the original causes behind the settlement?

We certainly hope not, but in the meantime, plenty of Wall Street types are going to pull up a front row seat to watch him squirm.

Accountability: Does Yours Add Up?

This past weekend, I walked into my upper west side laundromat to let them know that the wash-and-fold laundry they had returned to me was missing 5 garments. Upon the discovery of my missing items, I thought “Hmm. This must happen from time to time. They must have a lost and found for lost/dropped items, or a way to contact other patrons to track down misplaced pieces. I’m certain this can be resolved.”

To my dismay, not only did the store not have a lost and found, or a system to track down my (favorite) lost items, but the owner adamantly demanded that I “go home and check again” and assured me that her laundromat (and I quote):

“Does Not Make Mistakes.”

This statement infuriated me. I assured her that her business should certainly win an award, because if they in fact had never once made a mistake, as she claimed, then they were the first business in the history of all business to do so. I stormed out steaming, and short $600 worth of my favorite garments, with no one to hold accountable for my loss.

Once cooled off, I started to think more about accountability, and more importantly - lack thereof.


“Your First Loss Is Your Best Loss.” (‘Ace’ Greenberg)

Katherine Burton, hedge fund reporter at Bloomberg News and writer of the book Hedge Hunters, noted at a recent conference that the main thing that sets a great hedge fund manager apart from a mediocre one is their ability to reverse a position – or more specifically, ability to say “I was wrong” and get out of the water before the damages become too great to overcome. This, I thought, is what it means to be accountable. This, is what 'Ace' Greenberg (and the many others who have used this line) meant when he said “Your First Loss is Your Best Loss.” Mistakes will be made in any business (even at my delusional, former UWS Laundromat), but having strategies and processes in place to mitigate risk will help contain damages.

It seems many bulge bracket firms haven’t quite nailed this delicate risk/reward balance either, and instead, the research provided by these firms often sticks with any calls or positions it takes - despite prudent cause to adjust their recommendations.

Perhaps you’re thinking this is responsible, for analysts to not waver greatly in their positions, so as not to upset the overall flow of the markets. But if that is your contention, I would counter with one simple term, which quite succinctly embodies the type of thing that occurs when analysts are 'locked in' to positions:

Sub-prime.


We agree that there is a balance that must be achieved, but we also think that analysts should have the freedom to weigh in the factors they believe are most pertinent. That is, by way of their title, what ‘analysts’ are suppose to do, isn’t it? Analyze the facts at hand, and make recommendations accordingly?

Fortunately, the independent research world has created a safe-haven for analysts to properly utilize their abilities. If they change their mind about a position, they are well within their rights to say so. On the contrary, if they adamantly stand by a call, despite absolute upheaval in the markets, they’re welcome to hold true to that as well – but the point is, they make calls based on all of the factors they feel are relevant to take into account, not the set of factors that are afforded them. Particularly in a volatile market, the ability to be nimble is a critical element for responsible, accountable analysis.

mjb

Good Money is on the Alpha Bet

Alpha is a huge buzz word in the fund management industry these days, as noted in the Special Report on Asset Management in this past week’s issue of The Economist.

Similar to how people default to call a tissue a “Kleenex” or a cola a “Coke”, the true meaning and value of alpha, it seems, is being diluted as it becomes overused and overextended.

There’s a lot of chatter out there about how ETFs, hedge fund replicators, and other relatively new investment vehicles are being designed to match the returns of hedge funds, and that perhaps alpha is a farce, and that if returns can be replicated without the implications of management fees and huge payouts to fund managers, then that is of course a more desirable way to invest.

We whole heartedly disagree.

While in theory it may sound great to get all of the upside reward of fund returns without the overhead/management fees, the logic is slightly flawed.

Consider this:

You invest with a managed fund – mutual fund, hedge fund, or other. Let’s say for argument’s sake that the average fund returns – meaning, the average return of a grouping of funds – is about 8%.

But, as an astute investor, you of course don’t want to invest with a fund that is just making the average. You want a fund that will outperform its peers, its index. On the high end of the scale, there are firms who have returned somewhere in the range of 20%. Perhaps this fund is run by a tried and true manager, who has mastered his skill. Perhaps he’s a pretty lucky guy this year.

Or perhaps, he’s got better, more exclusive information and analysis than everyone else to base his trading decisions upon.

This small pool of highly skilled managers who fall into the latter category seek out exclusive information that helps to ensure that they stay out ahead of the pack. This is where true alpha exists.

Of course we understand that the higher the best performer comes in, the better the index as well, but investors looking at fund investments typically see “average” as a four-letter word.

So, while the media, fund replicators, index funds, and funds with mediocre returns would very much like to lead investors to believe they can access alpha and the returns it generates by taking these various short cuts, we think outsized returns from managed funds - generated by alpha - will continue to speak for themselves.

The RaaS Revolution

For all of us tech geeks, the past decade or so has brought about the evolution of an important enhancement to the software business – Software as a Service (SaaS.) Essentially, SaaS means that customers (as explained by Wikipedia) ‘do not pay for owning the software itself, but rather for using it.’ In other words, although the end user may not pay $100,000 to own the software, they will pay the software provider $1,000 a month to utilize the software.

This is a win-win scenario – it means that the end user makes a smaller commitment (often on a monthly, or quarterly basis) – so there is flexibility in case it doesn’t work out – which is often an enormous hurdle in the purchasing process; the software provider is servicing the account, so the end user has an ‘on call’ service center to help them with any issues; and it works in the favor of the software provider because the client is paying them on an ongoing basis, which helps the company to establish a more long term business model.

SaaS may have taken some time to evolve, because this is not the way people were used to paying for things, but we do believe it’s here to stay. As we said in a blog earlier this week: If you show people a more reasonable way to do something that they’re already doing, you can, over time, shift their behavior.

We believe that this model can be (and is being) effectively replicated in the investment research world – or, more specifically, how institutional investors pay for research.


“Just Because It’s Always Been Done That Way Doesn’t Make It Right”

Research has traditionally been provided to portfolio managers and investors as an ‘add on’ to a trade. More or less, a ‘pay-for-play’ for ideas, where a sales trader calls with a great idea, and the PM appreciates the idea, so he kicks a few hundred thousand shares to the trader to execute, and those commission dollars (or pennies, really, as the case may be) cover the expense of the idea.

However, as commissions shrink, this model faces a serious threat. If commission compression means that there are less commission dollars to put toward research (to cover the overhead of having a research desk at all) – then research becomes a cost that cannot be covered or justified by the firm. The only way a firm can then justify the research is on volume rather than pricing. However, to be dependent on volume alone because commissions are almost completely compressed is an extremely risky business model, because it means there is no ‘cushion’ built in to pricing that helps you weather dips in your volume.


RaaS: Creating the Category

Research-as-a-Service, we believe, is the future of the research business, in the same way that SaaS is the future for software. Providing access to analysts as well as research, on a limited distribution basis; a payment schedule and commitment period that is comfortable for the end user, but provides a steady income stream for the provider; encouraging provider-customer interaction and feedback – are the key components to an ongoingly successful business model in the RaaS category.

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.

Will Wall Street ‘Misremember’ the Lessons of the Global Settlement?

It’s safe to say that not much good came out of yesterday’s Clemens vs. McNamee battle on Capitol Hill. Both parties seemed to be on a crusade to display the most loathsome qualities of humanity, as Congress (having no more pertinent matters to tend to) refereed the clash.

If nothing else, the one good thing that came out of yesterday’s battle royale was that Mr. Clemens, in his infinite wisdom, pulled out his finest Bush-ism, and reminded us all that sometimes people simply “misremember.”

This got us thinking – misremembering is not a plight suffered solely by fallen heroes representing our national pastime. Misremembering runs rampant in our financial markets as well. We won’t delve deeply into this topic (we think you can probably recall enough instances on your own) but as one example, the brilliant financial wizards putting together subprime loans (as well as the mindless lemmings who jumped into this market with both feet) must have ‘misremembered’ the tale of The Junk Bond King. You get our gist.

With the global research settlement set to end in April 2009, we couldn’t help but wonder: Will Wall Street ‘misremember’ its lessons from 2003?

A Journey Back in Time, To Avoid Misremembering

To briefly recap history, the global settlement was the result of Spitzer’s investigation into Wall Street research which found that many (primarily bulge bracket) firms were providing tainted/conflicted research to their investors. The firms were forced to pay fines, and also to offer independent (i.e. outside) research in addition to ‘cleaning up’ their own research offerings.

Much has changed in the research world since 2003, as many new Independent Research Providers (IRPs) have jumped into the market – if for no other reason than to capitalize on the terms of the global settlement. With so many IRPs in the market, the definition of an IRP has expanded greatly as well. From expert networks, to quants and research tools, to traditional research providers – these offerings all fall under the IRP banner.

While it is a very positive move for firms to utilize and offer more independent research, it seems they may misremember the problem at hand. In-house research at the large firms has not made any great strides to improve quality or be less tainted. As a matter of fact, in December, the Wall Street Journal reported that Wall Street research hadn’t cleaned up its act at all – there were still only 7% ‘Sell’ ratings in Street research as of then.

Given the current state of the markets, we find it hard to believe that only 7% of stocks deserved sell ratings as of last December. So, either the analysts a) are in a stranglehold by their trading desk or investment banking counterparts, or b) they’re incompetent. As much as we do not believe the waffling accounts of either McNamee OR Clemens, we also do not believe Wall Street analysts are incompetent. We do believe, however, that many are the puppets of their bullying investment banking and trading brethren.

So, the question remains what will happen as of April 2009? Will Wall Street immediately drop its IRP counterparts, and open itself up to closer SEC scrutiny of their internal research? It wouldn’t seem to make sense, but, as firms look to eliminate any and all expenses that can help alleviate some of the pain of the subprime woes, it’s not entirely out of the question.

The SEC plays a major role as well, as they still have not issued guidance to require unbundling that mirrors the requirements in the UK. Although unbundling has steadily gained traction in the past couple of years, this key driver to the ongoing success of independent research has not yet been pushed through.

So, much like the Clemens/McNamee case, it’s hard to tell which way things will play out for the post-global-settlement research world – but we can only hope that the eventual outcome includes cleaner, clearer policies and programs designed to avoid these stumbling blocks in the future.

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….)

Any Given Quarter

**Disclaimer: This entry was written by a disgruntled Pats fan who dropped $5k to take a whirlwind trip to AZ only to watch my team fall from grace in the most despicable fashion. The SuperBowl views reflected here are not supported, nor endorsed by the obnoxious, gloating Giants fans I contemptuously call "colleagues."


Whether you were a Patriots fan, a Giants fan, or an agnostic viewer, this weekend’s SuperBowl proved one thing:

The unthinkable can occur on Any Given Sunday...and it did.

If you were tuned in, what you might have seen was an up-until-today mediocre Eli Manning have the game (or 4th quarter, at least) of his career – which included the luckiest of all lucky plays when he scrambled away from an imminent sack and tossed a prayer up to Tyree for a miracle completion.

Impressive? Yes. The result of a calculated and well-designed play? Not so much.

The SuperBowl MVP-crowned quarterback, happens to also be the leader of a much less glamorous NFL category: Turnovers. And Sunday certainly didn’t go by without a few near additions to this category, as Eli, on three separate occasions, threw the football directly into the fumbling hands of the Patriots defenders. Despite being in the right place at many of the right times, the Patriots were unable to capitalize on these errors.

Not to take anything away from the well-executed Giants defeat of the New England Patriots, but our question is this:

Despite one All-Star performance on a random Sunday in February, who would you rather have as your QB:

An 18-1, League MVP, Tom Brady or 14-6, Turnover-leader, Eli Manning?


Take Care of the Ball

We ask about Tom versus Eli, because we think it makes for an interesting parallel to how firms identify their top independent research providers (IRPs). You’re probably wondering, “How so?”

First off, let's understand how many IRPs receive payment. Some firms who utilize the research and insights of IRPs have implemented broker votes for paying outside IRPs. These votes are ultimately set up so that brokers can provide payouts to analysts who make the most accurate calls. Some of those broker vote systems use analytics that will help them to ‘calculate’ who provided top results, and others are arbitrarily decided upon.

I guess our question is really, is this the most reasonable way to pay for – and encourage the consistent production of - quality research? Wouldn’t firms rather pay an analyst that consistently provides quality insights and information, rather than one who happens to accurately nail a quarterly EPS down to the penny? It could happen any given quarter, and you might just be the one to capitalize on this lucky call. But that doesn’t mean his prediction is indicative of future success - just a lucky, one-off guesstimate.

Analysts that provide accurate information should absolutely be rewarded – however, a ‘call-by-call’ comparison against their peers seems to be a flawed model for identifying top quality research and insight.

Bottom line: I’m sure most of us secretly pull for a Cinderella story…but more times than not, smart money is best placed on proven success. When in doubt, it may not be as glamorous, but it’s probably best to hand over the reigns to the guy who’s proven time and again he can take care of the ball.

Lessons Learned From Sporks

If you made it through elementary school, chances are, you’ve used a spork at some point in your lifetime. Upon introduction to this odd tool, you likely thought to yourself “in theory, this makes a lot of sense.” After all – why have two separate utensils when you can just have one?

But as you moved on through life, this tool seldom reemerged. It seems that most people preferred to have two separate utensils, each to be used at the appropriate time and for its designated purpose, despite the convenience of the bundled item. Apparently, the multi-use tool often proves not to perform either of its jobs as efficiently as the separate utensils.

And therein lies the key differentiator between success and failure of bundling. The services or items bundled must produce equal or enhanced quality performance than the a la carte items or services.

Why are we talking about sporks?

The spork is a fitting parallel to the ‘bundling’ of execution and research that takes place in the financial industry – while it makes sense in theory, it fails in practice.

Like the spork, neither function is able to deliver optimal performance in the bundled model, and therefore, the bundled model is flawed and unsustainable. Like a TV with a built in VCR, the convenience and seeming practicality is undercut by the problems that occur when one of the bundled pieces or services fails. Upon failure, the entire system needs to be replaced, and worse, it can be difficult to assess which piece actually caused the issue so that future problems can be avoided.

The bundling of execution and research has the same inherent problem. Consider this:

Joe pays $.03 a share for execution, despite the fact that best execution pricing could get him execution for less than a penny. But Joe gets research as an ‘add-on’ because he pays $.03 a share, so he pays more for the ‘bundled’ service.

But now, Joe’s paying outrageous fees for minimal returns, and he doesn’t know why so he can’t figure out how to fix the problem. Is he paying too much for execution? Is the research he’s buying poor quality so it isn’t delivering trade ideas that will generate great returns? There’s no way to tell, because the services are bundled together, therefore masking which piece of the bundled product is the source of the failure. This is a detrimental disservice to Joe – and to all investors.

The UK has already implemented requirements for execution and research to be unbundled. It is still unclear whether or not the US will implement similar rules, but hopefully the SEC will acknowledge the inefficiencies that occur in the bundled model. Many firms are taking the shift in the UK as a cue that similar requirements will be imminent in the US, and are using this as an opportunity to offer more transparency to their investors.

More…ehem…’Shortcomings’

In case you’re curious, here are some other bundled items that seem practical in theory, but never quite made it big:

Smell-O-Vision (movies with scent) http://en.wikipedia.org/wiki/Smell-o-vision
Flowbee (vaccum/haircut system) http://www.flowbee.com/
Umbrella Hats http://www.umbrellahat.net/
Windshield-wiper glasses http://www.shadesoffun.com/Nov-CP/wiper_sunglasses.html

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.

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.

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.

Frenkel's 'Tea Leaves' Suggest Throwing in the Towel

For the second time this week, Steve Frenkel, chief technical analyst with PatternWatch - a member of StreetBrains' Actionable Information eXchange (AIX) - was invited to come on CNBC to discuss his views of the market.

In a segment titled 'Reading the Technical Tea Leaves' on today's 'Powerlunch' program, Steve got to talk about what he does best: analyzing and interpreting technical charts.

Although Frenkel's assessment of the current state of the market may not coincide with popular opinion, he certainly doesn't lack conviction in his calls (as Michelle Caruso-Cabrera points out.) And to the dismay of many investors, his calls for a vastly declining market have been spot on.

Click here to view the segment.

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.

The ‘Race to Zero’ Zooms On

The fact that commissions are drying up, and that brokers are competing over a half or a quarter of a penny at this point to win execution dollars, is nothing new. However, the Race to Zero will kick into high gear in 2008, as research desks get slashed at large firms (which used to be an ‘add on’ that justified higher execution pricing), and the surge in unbundling execution from research sends clients searching for best execution providers.

Brief History

With the onset of the tech era, commissions started facing their first hurdles in the 90’s. New execution providers flooded the market promoting faster and cheaper execution than ever before. Existing brokerage firms were able to implement similar technologies that also touted volume scalability that kept them in the game. As technology improves commissions become increasingly more commoditized, and thus coined was the ‘Race to Zero.

Current State of the Union

Large brokerage firms now look primarily to volume, not pricing as the key to feeding the execution beast. However, as most large brokerages look to slash their workforce, the research departments – long considered a ‘cost center’ and often referred to as the ‘red-headed stepchild' of the brokerage world – will certainly take a hit. With less research being written internally to justify higher execution pricing, unbundling research will almost evolve organically from the current issues in the market.

Mid and small executing brokers who provide research – despite their hopeful musings that the sky is not in fact falling - are facing some trouble. Many seem to have hung their hat on the idea that hedge funds want to continue to use an over-abundance of executing brokers, so that competitors won’t be able to follow their trading patterns. Based on our talks with market insiders, this notion seems rather unreasonable. We’re not suggesting that any hedge fund out there is handing his entire trade book over to one execution firm, but minimizing the number of executing brokers is not only something most have said they’re willing to do – from a cost point of view, it’s a priority.

Mid and small guys who recognize the threat on the horizon still have the opportunity to choose a business, any business – either research OR execution – not both – and have a chance at survival.

Alpha or Artifice?

A story titled “And God Created Alpha” from the January 5th edition of The Economist, knocks some fund managers off their high horses by making an important point about replicators and other tools/products being developed to mirror the returns of well-performing funds:

“…If those returns can be reproduced by a set of mechanical rules, is skill really involved?”

We’re not here to throw under the bus any fund managers who’s masterpiece-like returns have made them the idyllic poster-children for knock-offs and frauds, but investors should know that the faux-Picasso and the Canal Street Prada purse have found their way to the fund industry. The difference here is – if the returns are the same, will anyone care that it’s a fake? Probably not.

In a volatile market where hedge funds themselves are not able to generate the same volume of returns, can replicators really find their place in the market? Or will it be survival of the fittest, where only the top performing hedge funds will survive, the rest will fold, and replicators will vacuum up the dollars left behind by the vacating failed funds and go on to match the leaders?

Is there such a thing as ‘alpha’? If replicators succeed, will ‘alpha’ find itself thrown into a category with wives’ tales and urban legends? It could be a true concern down the road, but for now, replicators can’t win if they don’t have great fund performance to replicate. So, at very least, the top-performing funds won’t be closing their doors anytime soon.

However, with these new competitors trying to steal a piece of the pie, there won’t be any room for mediocre performance amongst hedge funds that have been riding the gravy train of ‘hedge fund’ allure. Where artifice substitutes for alpha, there will be abundant failure.

Securing Alpha

The surest way to ward off replicators is to outperform the indexes. Funds that find top-quality research and information to set them apart from the pack will be crucial if they are to outperform ‘synthetics’.

As The Economist story points out, “it’s certainly not a crisis yet…but it ought to be a long term worry.”

StreetBrains Top Reads for 2008

If you haven’t already immersed yourself in the following books, you’re missing out. Some are new, and some are ‘oldies but goodies’ that stand the test of time, but all are required reading for any self-professed market junkies. Enjoy!

Mavericks at Work: Why the Most Original Minds in Business Win
by William C. Taylor, Polly G. LaBarre

Hedge Hunters: Hedge Fund Masters on the Rewards, the Risk, and the Reckoning
by Katherine Burton

The Predictors
by Thomas A. Bass

Blood on the Street: The Sensational Inside Story of How Wall Street Analysts Duped a Generation of Investors
by Charles Gasparino

(an oldie but goodie…or a great re-read!)
Liar's Poker: Rising Through the Wreckage on Wall Street
by Michael Lewis

The Coffee Trader
by David Liss

Running Money: Hedge Fund Honchos, Monster Markets and My Hunt for the Big Score
by Andy Kessler

My Life as a Quant: Reflections on Physics and Finance
by Emanuel Derman

The Last Tycoons: The Secret History of Lazard Freres & Co.
by William D. Cohan

The Dark Genius of Wall Street: The Misunderstood Life of Jay Gould, King of the Robber Barons
by Edward J. Renehan

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.

Wall Street Swarmed With McFlys

For those of you who remember the 80’s classic, ‘Back to the Future’, I’m sure you’ll agree – George McFly is the most spineless character in cinematic history.

Sadly, it seems that McFly has cloned himself a thousand times over, and his spawn have infiltrated Wall Street in the form of research analysts.

In Scott Patterson’s ‘Ahead of the Tape’ column in today’s Wall Street Journal, he pulls the lid off of Wall Street research in his story titled, ‘Analysts Botch Profit Forecasts on Home Turf.’ (click here for full story.)

While the entire article goes on to point out conflict-ridden research coming out of the Street, particularly in the wake of the subprime mess, one quote in particular stuck with us.

Paul Hickey, co-founder of Bespoke Investment Group is quoted in the article, saying, “You often see brokerage companies giving their peer companies the benefit of the doubt, so they don’t get in this shooting match.”

What is it exactly that has stripped Wall Street analysts of their backbone? Fear of being fired? Perhaps. But that exists for all employees, no? Even full out whistleblowers out there in the past 5-10 years have stood up to ‘The Man’ and been rewarded, so the fears of these analysts to issue negative or contrarian reporters seems unfounded. Yet Wall Street analysts seem to cower in their corners, doing as they're told, content to simply keep their heads down, collect their paychecks, and pray they aren’t asked to become a profit center. McFlys.

With only 7% ‘Sell’ ratings on the year, and with all of the Biffs out there pointing the bullying finger in their direction, in-house analysts are going to have a tough go in ’08. Independent analysts have a tremendous opportunity to make inroads with players on the prowl for valuable research.

Appropriately, here’s the dialogue from a scene between Biff (the bully) and McFly (the spineless wuss):

Biff Tannen: And uh, where's my reports?

George McFly: Uh, well, I haven't finished those up yet, but you know I... I figured since they weren't due till...

Biff Tannen: Hello? Hello? Anybody home? Huh? Think, McFly. Think! I gotta have time to get 'em retyped. Do you realize what would happen if I hand in my reports in your handwriting? I'll get fired. You wouldn't want that to happen, would ya? Would ya?
George McFly: Of course not, Biff. I wouldn't want that to happen. Now, look. I'll finish those reports on up tonight and I'll run 'em on over first thing tomorrow. All right?