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Five Things You Need to Know: Free Money, I'm Not Wrong... Just Early... A Lot, Famous "Early" Predictions, Fantasy League Mania, From the Department of Impossible to Make Up


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Free Money

The Financial Times' John Dizard takes a close look at "free money" being generated these days by so-called "negative basis trades."

  • "Free money? Sounds too good to be true," you say. Man, you people are so cynical!
  • Here's how it works, according to Dizard. "Over the past few months professional managers of US dollar bond portfolios have been buying corporate bonds, then buying the credit default swaps (CDSs) that allow them to cover the default risk on the bonds."
  • Now that should not be profitable, you are wisely saying to yourself, because the cost of full credit default swap protection should be greater than the cost of the bonds.
  • Yes. And the difference between the two is called the "basis."
  • And yet, Dizard points out, "thanks to a bizarre anomaly in the financial markets, the cost of protection using the CDS market is less than the interest yield on the bonds. So we have "negative basis.""
  • In other words, because of the negative basis you are being paid for taking the risk of owning corporate credit, but you don't have to actually take the risk! It's like magic.
  • Of the 150 most frequently traded corporate names in the US bond world, about a third have negative basis spreads available that are more than 10 basis points, Dizard notes.
  • That means a bond manager can buy, say, 10 bond positions of $10,000,000 each, then buy the corresponding credit default swap protection and collect (given the negative basis spread of 10 basis points, $100,000 a year. Risk free.
  • According to Dizard, this is all the result of our old familiar friend... excess liquidity.
  • Chris Whalen, of Institutional Risk Analytics, tells the FT: "It's kind of sad. People are running out of ways to deploy their capital intelligently, so they turn to this kind of financial masturbation, trying to get their performance far enough inside the herd so they don't have to deal with redemptions."

2. I'm Not Wrong... Just Early... A Lot

James Glassman, best known for his seven-year-old prediction that the Dow Jones Industrial Average will rise to 36,000, says he wasn't wrong, just early, according to Bloomberg.

  • James Glassman tells Bloomberg that his seven-year-old prediction that the Dow will rise to 36,000 wasn't wrong... just early.
  • Seven years after Glassman and co-author Kevin Hassett first published their theory in the book, "Dow 36,000," the index has returned a total of 17.9%, excluding dividends, an average annual return of a little more than 2.5%.
  • Barry Ritholtz, of Ritholtz Capital and The Big Picture blog, put things in perspective, telling Bloomberg, "These guys come out of the woodwork when society is foaming at the mouth and receptive to these things."
  • Still, Glassman remains unbowed and steadfast in his prediction that the Dow will reach 36,000.
  • "There's nothing that's occurred over the past few years that's changed our minds about the original thesis,'' said Glassman.

3. Famous "Early" Predictions

Glassman is not alone in being correct in his Dow 36,000 prediction, if slightly early. Minyanville has learned of a couple of other famous predictions that also weren't wrong... just early.

In April 1975, citing "ominous signs that the earth's weather patterns have begun to change dramatically," Newsweek warned of an impending "drastic decline in food production" due to Global Cooling.

Prediction Status:
We now know for certain that Global Cooling is inevitable, thus the Newsweek prediction is not wrong, only early. Global Cooling will take place shortly after the forthcoming disastrous Global Warming period. Because after things heat up, they tend to cool down.

"Stocks have reached what looks like a permanently high plateau." - Irving Fisher, Professor of Economics, Yale University, 1929.

Prediction Status:
We now know that Fisher was indeed correct, if slightly early, in his prediction of a permanently high plateau for stock prices. For today, indeed, stocks have reached what can only be described as a permanently high plateau.

Permanently high stock plateau as correctly predicted by Fisher

4. Fantasy League Mania

It's the fourth quarter and everything is riding on this one, final play. Everything you've worked for all season long. Your adrenaline is pumping as you wait for the snap. Here it comes. Dropping back to pass, looking, looking, now the throw, deep toward the end zone, it's... it's... it's INCOMPLETE! "Yes! Yes! Yes!," you scream and pump your fist in the air. "Hahaha," you laugh to yourself. "There's no way the Hungry Midgets Fantasy Football Team can beat me now," you say. "Not with Jake Plummer failing to connect for one more long pass and failing to pick up those 5 fantasy football points. I RULE office fantasy football." It feels good, doesn't it?

Ah yes, fantasy football. The above is a typical scene that gets reenacted week after week from September through December as fantasy football league participants spend countless hours tracking the statistics of their chosen players. Meanwhile, those who aren't sports fans sit on the sidelines and wonder what all the fuss is about. Sport fans have fantasy football, fantasy baseball, even fantasy golf, but what do folks who are sports fans (not so much) have? Nothing. Nada. Zip. Until now, that is. Make way for Fantasy Congress.

  • "For those who have no idea how many yards Peyton Manning threw for on Sunday but can cite every legislative amendment proposed by Senator Richard Durbin, Democrat of Illinois, [Fantasy Congress] could be an alternative to the prevailing fantasy sports culture," the New York Times says.
  • Just as in fantasy football or baseball, each player picks a team - in this case, 4 senators and 12 House members of varying seniority levels - and competes with other players in a league typically managed by a friend or a co-worker, the Times reports.
  • Players accumulate points as the legislators they have chosen go about their business on Capitol Hill.
  • A House member or senator earns five points for introducing a bill or an amendment, and more points for negotiating successfully each step in the legislative process.
  • On the Fantasy Congress Web site,, leagues have names like "We the Peeps" and "Foley4Prez," the Times says.
  • "Everyone knows about football, but more people need to know about Congress," Andrew Lee, a senior at Claremont who came up with the idea for the game, told the Times.
  • "If as many people knew about Congress as knew about football, baseball and basketball, we'd all be more educated," Lee said. Indeed.
  • Below, Minyanville takes a look at another popular fantasy alternative to sports leagues.

Fantasy Job League
In this exciting fantasy league competition, players sit at home and monitor the career progress of a select roster of people with jobs. Live vicariously through the real-life career ups and downs of a member of the corporate rat race.
40-hour work week = 5 points.
(Subtract 1 point for every 10-hour extension of work week.)
Every potential firing offense that goes unnoticed by employers = 10 points.
Taking full lunch hour = 3 points.
Add 1 point for every 15 minute extension of lunch hour beyond 60 minutes.
Less than full lunch hour = Subtract 5 points.
Stealing credit for project = 25 points.
Completing project without credit = Subtract 10 points.

5. From the Department of Impossible to Make Up

According to the Wall Street Journal, Jean Thomas, a Washington, D.C., psychiatrist, recently saw a patient who was struggling with her emotions. She was agitated and couldn't stop crying. She was recovering from an eating problem and had trouble forming relationships.

  • Typical day at the shrink, right? Yeah, kind of. Except for one very small thing.
  • The patient was 11 months old.
  • According to the Journal, therapists are increasingly moving their treatments from the couch to the crib.
  • The field of mental health for infants is getting a serious push from anxious parents, who are increasingly eager to catch problems in their children as early as possible, the WSJ says.
  • The cost of infant mental-health therapy varies, but generally runs between about $85 to $250 per session.
  • Most popular diagnosis of infant mental health disorders: Paraphilic Infatilism
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No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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