Monday, March 04, 2013

Golden Nuggets

Some people suggest that while it's difficult to precisely pinpoint a bubble, they know it when they see it. In housing, one saw all manner of weird predatory and non-sensical financial telltales be they smelly securitizations, 100% interest-only mortgages, low-down payments on properties whose alleged market"value" had vaulted many times over in the recent preceding years, liar loans etc. One saw it in the buyout market with nearly unlimited sums available for the most dubious of deals (e.g. TXU) with little protection (cov-lite) for the lender in the event business goes pear-shaped. Now, the bubble detector surely is pointing in the direction of the FX Bucket Shop and On-line Brokerage market.

To say that a good idea attracts imitators is to reveal (in the words of former RJR CEO F. Ross Johnson) a blinding glimpse of the obvious. And so from the first spread-betters like IG Index, arbing the UK tax code, we now have hundreds of imitators, each offering global market access, tight spreads, sexy-GUIs (shame on you for thinking that's in any way perverted!), and up to 1000-to-1 leverage (now THAT'S perverted!).

However, it is not the imitators but the wackiness and direction that things are moving. Take for example "Banc de Binary", who annoyingly has been monopolizing the banner ad space across my browser (thanks Google!). They call themselves (in the spirit of uber-bullshit) "Private Option Bankers", but it's merely an on-line bucket-shop specializing in rainman-like options. There is no mention of THEIR internalization, risk-management or hedging or their capital ANYWHERE, though, from their glossies, there appears to be lots of croupiers , ooops I mean "experts" ready to help you place your bets errr ummm I mean trades. Call me old school, but in my book it is almost always better to be a seller of insurance than a buyer, and better to be the house than the punter excepting when one is exposed to mandated or life-threatening unhedgable risks that one can ONLY mitigate via insurance. Our friendly "PRivate Option Bankers" however,  have managed to combine BOTH aspects into one business. It is, of course, highly predatory, and I will wager this "banc" will NOT be a household name in 10 years next to Ameritrade or Schwab.

Predation raises the good question of who or what is their market. It's likely the same as another big-spender with their annoying Flash ads occupying yet more of my banner ad-space (cycling with the binary bank) on my browser - one called Inter-Trader.Com What exacty is is Have a look. Is it just another on-line bucket-shop? Is it about investing? Is it about trading? Is it about gambling? Is it a about partying? It seems to be all of these things! Just read the "About" section:

InterTrader Limited is part of the family. was formed from the merger of bwin Interactive Entertainment AG and PartyGaming Plc in April 2011 to create the world’s largest listed online gaming company.

For further information go to

So, there you have it: the prescient and growing on-line financial buccaneer encompasses investment, trading, gambling, entertainment, gaming and partying online all rolled into one - though not necessarily in that order. To reorder them in terms of likely target customer profile it might be: Gambling, gaming, entertainment, trading, partying, and that's it. Sadly, FWIW, we don't see the word Investment too much in their website.

Some years ago (before most of you were born), the technical buzzword within the financial industry was "convergence". This primarily meant the narrowing of differences between between traditional banking and securities markets. What they (BOTH Banks and securities firms) completely missed was the other convergence: that between trading and entertainment/gambling.  Perhaps, if Schwab, e-Trade or ScottTrade had been more imaginative, adding modern casino-like sound effects (F16 turbothrusters when you place a trade;  ka-ching! when an open trade ticks in your favor or a rhinoceros fart when it moves against) along with more dramatic visual GUIs, they potentially could have have squashed the usurpers in their tracks. Perhaps they were too busy hanging out in the comfort zones. But the real convergence, still, is yet to come, as frankly I am waiting for elephants -  like Steve Wynn or Sheldon Adelson - those with the most comprehensive knowledge of how to inebriate, hypnotize, and seduce the punters while stealing their wallet, to expand into the online spread-betting business before I open my account.

All this begs the question: how will banks and securities firms respond to customers' seeming demands for entertainment and hedonism while investing? There is nothing worse than than the slow and painful torture of watching one's customers drift away without effective response. Bear Stearns (and others) have tried hiring entertainers  (at least that's what they called former Fed Governor Wayne Angell when he was their lead currency strategist).  I leave that one open for you to provide the requisite "strategic advice"...

1 comment:

Dapko said...

I apologize for being OT, but I wanted to thank you for taking the time to leave such a thorough but succinct comment on Seth's blogpost about the Brill piece in Time magazine. The lack of knowledge of most of the US population about other health care systems in the world is appalling. Unfortunately, the propaganda machine has been quite effective in demonizing every other health care system in the industrialized world. I remember during the health care debate when someone tried to pull Stephen Hawking into the battle and he he stated he would not be here today if it were not for the NHS.

Many of us appreciate the efforts of people like you, Yves Smith, Brad DeLong, Krugman, Mark Thoma etc who take the time to bring reason and sanity to the battle.