18 November 2013

INSIDERS, How they do it.

i have advised some green readers of this blog that stocks are for insiders, here below you find a related article from wsj.

a really good article about insider trading that SEC helps expose and how they do it.


Executives Hit Sweet Spot on Stock Sales

Corporate Executives Give Favorable Stock Guidance, Sell Shares, Then Disclose Bad News

By
Nov. 13, 2013 11:00 p.m. ET
When George Weinert, then chief executive of Novatel Wireless Inc., found out one of the company's largest customers planned to cancel scheduled orders, he warned managers in an email that losing the sales "would have a major impact on our business."
His email, written in January 2007, has surfaced in a lawsuit because of what happened next. Novatel didn't inform shareholders about the bad news. In a news release that May, the San Diego-based maker of telecommunications equipment said its quarterly earnings would exceed expectations, citing "strong sales" across the board. That June and July, Mr. Weinert sold $3.3 million of company stock.
When an analyst later disclosed the problem with the big customer, Sprint Corp. , the stock slumped. Months after that, Novatel disclosed that waning customer demand would hurt sales.
Ordinary investors often are dismayed when senior executives sell their own stock before hitting the market with bad news. The situation can be even stickier when corporate insiders declare their company's outlook bright, sell shares, then disclose bad news. Such one-two punches sometimes give rise to accusations that executives boosted the stock price—and withheld unfavorable news—to increase personal profits.
A Wall Street Journal examination of earnings-guidance data compiled by research firm Earnings Whispers identified 1,468 cases since 2005 in which public companies issued so-called upward guidance—saying results looked better than expected—then followed with downward guidance within 120 days. Securities and Exchange Commission filings show that in 755 of those cases, corporate insiders sold in the window between the up and down, an advantageous time to sell.
There is no way to tell from the data whether sellers knew about impending bad news before selling, and it is perfectly permissible for insiders to sell stock after upward guidance. In the 1,468 guidance-change cases, about 9% more insiders sold in the favorable window than in the year-earlier period. Executives often buy and sell stock around the same time each year.
Among the 2,389 corporate officers who sold between swings in guidance, about 74% would have collected less money had they waited to sell until after guidance was lowered, according to the Journal analysis. The stocks declined in value by an average of 10.8% between the sales and the day after the guidance was lowered.

Earlier: Dark Markets

The Journal is investigating a new age of murkiness in the financial markets and the challenges that creates for investors.
Novatel shareholders claim the executive selling there was fraudulent. Their lawsuit, slated for trial early next year in federal court in San Diego, alleges that Mr. Weinert and other top executives withheld bad news from shareholders, allowing them to sell their shares at higher prices. Novatel has responded in court documents that any lost Sprint business was immaterial and didn't trigger the stock sales. A Novatel spokeswoman says Mr. Weinert and the other executives had preset trading plans that "met all legal requirements."
Some market experts say any trading by senior executives around the time of good or bad news is potentially problematic. "There is the timing and the content of disclosures by companies, and those two can be played with because you know you have a sale coming," says Stanley Veliotis, a professor of accounting at Fordham University, who has studied trading by insiders after positive earnings developments.
On Jan. 14, Ixia, a Calabasas, Calif., company that makes Internet testing equipment, said revenue for last year's fourth quarter would exceed earlier guidance. It cited better-than-expected performance at two recently purchased companies.
As the stock rose, insiders began selling. Over the next two months, eight senior executives, including then CEO Victor Alston and the chairman and general counsel, sold a total of more than $18.4 million of stock at an average price of $20.96 a share. The sales exceeded what the firm's executives had sold during the previous seven years.
Then came a surprise. On April 11, Ixia lowered guidance for the first quarter, citing revenue-recognition problems. Revenues for 2010, 2011 and the first three quarters of 2012 were restated. On April 30, the firm said earnings for the second quarter would likely miss analyst expectations. By May 1, its stock had fallen to $14.51. If the insiders had sold at that point rather than when they did earlier in the year, they would have collected $5.7 million less, a Journal analysis determined.
It isn't clear when senior executives learned about the problems. An Ixia spokesperson and the insiders declined to comment on the trading.
On Oct. 24, Ixia said in a news release that Mr. Alston had resigned after the company determined he had misstated his age, academic credentials and employment history. Its chairman and founder, Errol Ginsberg, has taken over that position.
Federal regulators last year accused the top executive of another company of hiding bad news from shareholders while he unloaded stock. In a civil suit filed in a California federal court in July 2012, the Securities and Exchange Commission accused the founder and former chairman of STEC Inc., a Santa Ana, Calif., maker of computer storage devices, of providing false or misleading information to shareholders.
STEC shares shot up about 800% between January and August of 2009 after the company disclosed good news: a new agreement to supply equipment to EMC Corp. The lawsuit alleges that founder, chairman and CEO Manouchehr Moshayedi learned that July that EMC was planning to order less the following quarter than STEC had hoped.
According to the SEC, he complained to fellow executives in a July 26 email that STEC was "now going to miss the top line and EPS [earnings per share] estimate numbers for Q-3." The following day, an EMC manager wrote to his boss that Mr. Moshayedi "wants us to make a deal in advance of their earnings call next week so he can guide appropriately," the lawsuit said.
The SEC alleges that Mr. Moshayedi persuaded EMC to place an order it didn't need, in exchange for a deep discount. The suit said that in a July 28 email, Mr. Moshayedi wrote to an EMC official: "Just tell me what you need, I knew asking you guys for a favor would go nowhere so I am now back at paying for favors. What is your price for keeping inventory for a week or two?"
The next day, Mr. Moshayedi and an EMC official "agreed to a secret deal to have EMC commit to purchase $55 million of STEC product in the third quarter, even though it only projected needing about $33-34 million," according to the complaint.
Days later, on Aug. 3, STEC kept its third-quarter earnings guidance unchanged. Mr. Moshayedi sold a chunk of his STEC shares through a secondary stock offering that same day, for $88 million, according to his lawyer.
Three months later, in a Nov. 3 conference call with analysts, Mr. Moshayedi disclosed that the EMC contract had been a "one-off" deal. STEC's stock dropped 38.9% by the end of the next day.
The lawsuit accuses Mr. Moshayedi, who stepped down as chairman and CEO in September 2012, of insider trading and fraud.
A lawyer for Mr. Moshayedi called the SEC's claims baseless and said the secondary offering was planned "long before" the SEC says Mr. Moshayedi learned the bad news. The lawyer said Mr. Moshayedi, based on past experience with EMC, had expected the company to boost its order.
The SEC declined to comment, as did EMC, which wasn't accused of wrongdoing. STEC has been acquired by Western Digital Corp.
At Aruba Networks Inc., a Sunnyvale, Calif., wireless-networking company, executives early this year tried to calm investors concerned about a competitive threat. Aruba-made equipment was for sale at an auction in 2011. Bloomberg News
At Aruba Networks Inc., a Sunnyvale, Calif., wireless-networking company, executives early this year tried to calm investors concerned about a competitive threat. In a Feb. 21 conference call, investors pressed management on whether competition from rival Cisco Systems Inc. would hurt Aruba's results. Chief Executive Officer Dominic Orr responded: "It seems like they seem to have lost the interest to compete with us head on."
Less than three months later, on May 7, Aruba lowered its revenue guidance, saying competition from Cisco was partly responsible for a deteriorating outlook for the quarter that would end in June. The stock dropped 23% that day.
Top executives at Aruba sold $8 million of stock during the three months before lowering guidance. On May 1, six days before the guidance adjustment, Mr. Orr, the CEO, sold $168,000 of stock. If he had waited until right after the announcement, he would have collected $39,000 less, the Journal calculated.
To avoid accusations of insider trading, executives can create preset trading plans that call for automatic sales of stock, as long as the plans don't use inside information as a basis for the trades. An Aruba spokesman said Mr. Orr's sales were made under preset plans, and that the sale in May was consistent with his historical pattern of sales. He declined to elaborate.
Securities filings show that Mr. Orr sold more shares during the first four months of this year than he did all of last year. The spokesman said Mr. Orr continued to sell even after the stock fell in May, and that the other executive also sold under present plans.
Wall Street analysts were skeptical about the timing of Aruba's guidance shift. In a May 16 conference call, Ehud Gelblum, then a Morgan Stanley analyst, asked whether the heightened competition "really happened in the last four, five weeks?" according to a transcript.
Mr. Orr responded that the "uniformity and ubiquity" of the competition from Cisco was "rather dramatic." Mr. Orr didn't respond to requests for comment, and Mr. Gelblum declined to comment.
In May, shareholders filed suit in a California federal court, alleging that Aruba "purposefully downplayed the intense competition it was experiencing from Cisco." Aruba denies wrongdoing.
In the case of Novatel, the telecom-equipment maker that lost business from Sprint, the first sign of trouble came in January 2007 when Sprint notified the company it would cancel some planned orders for Novatel's big-selling product, a computer modem, according to court documents. Novatel had told investors that product was "a primary growth driver," according to the documents.
That May, when Sprint followed through on its warning, Mr. Weinert, then the acting CEO, sent an email to senior managers who now are defendants in the lawsuit, including current CEO Peter Leparulo. "We cannot loose [sic] all of our SPRINT business," his email said. "I made this clear in January didn't I??????"
The following month, on June 8, Mr. Weinert said in a news release: "We are currently seeing strong demand across our major product lines."
Between that May 14 and June 13, Messrs. Weinert and four other executives put in place new or amended preset trading plans calling for automatic sales. Under his plan, Mr. Weinert sold $3 million of his stock.
In court documents, Novatel and the other defendants have argued that the information about any lost Sprint business wasn't material, that insiders didn't believe it would affect the company's financial performance, and that sales by insiders weren't spurred by the Sprint development.
A Novatel spokeswoman says Sprint never canceled any current orders and that its customer "transitioned" from one product to another in the fall of 2007. Mr. Weinert didn't return calls for comment.
That July 20, analyst Anthony J. Stoss of Minneapolis's Craig-Hallum Capital Group published a note to clients saying he believed Novatel "may lose market share at Sprint," which he said accounted for 38% of Novatel's business at the time. Novatel stock closed down 5% that day. Mr. Stoss declined to comment.
Novatel raised its earnings guidance two more times in 2007 and said its outlook was bright. No mention was made of the change in Sprint orders. On an earnings call that Aug. 6, Mr. Weinert said: "We had an exceptionally strong first half of the year with Sprint."
That Nov. 5, Mr. Weinert said on an earnings conference call: "We don't see any shortage of demand…we are very optimistic."
Bad news arrived for investors about three months later, on Feb. 20, 2008, when the company announced disappointing fourth-quarter results and said first-quarter results in 2008 would be lower than expected, citing a shift in the market.
The next trading day, Novatel's stock declined by 22.9%.
Less than two months after that, on April 14, Novatel reported results that were $19 million lower than forecast, attributing the downturn to even weaker demand. The stock was hit hard, leaving it more than $6 below the $14-a-share level in early February.
That May 13, the company disclosed to investors that an "enhanced review of the accounting for a specific customer contract" would cause a delay in filing first-quarter results.
That August, the company said an internal accounting review would result in the lowering of first-quarter 2008 results by $3.4 million. It later said it had failed to provide "adequate training" regarding its "revenue recognition cutoff policies and procedures to ensure that revenues…were recognized in the proper period."
Jury selection in the case, which the judge has certified as a class action, is expected in January, according to lawyers who are involved.
Novatel's shares dropped to around $3.50 by November 2008 and haven't risen above $11 since 2011. Novatel stock closed at $2.14 in Nasdaq trading Wednesday.
Write to Susan Pulliam at susan.pulliam@wsj.com and Rob Barry at rob.barry@wsj.com
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15 November 2013

Quantitative Easer

if you want to hear from an insider about QE, here is it.

article from wsj

Andrew Huszar: Confessions of a Quantitative Easer

We went on a bond-buying spree that was supposed to help Main Street. Instead, it was a feast for Wall Street.

By
Nov. 11, 2013 7:00 p.m. ET
I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.
Five years ago this month, on Black Friday, the Fed launched an unprecedented shopping spree. By that point in the financial crisis, Congress had already passed legislation, the Troubled Asset Relief Program, to halt the U.S. banking system's free fall. Beyond Wall Street, though, the economic pain was still soaring. In the last three months of 2008 alone, almost two million Americans would lose their jobs.
The Fed said it wanted to help—through a new program of massive bond purchases. There were secondary goals, but Chairman Ben Bernanke made clear that the Fed's central motivation was to "affect credit conditions for households and businesses": to drive down the cost of credit so that more Americans hurting from the tanking economy could use it to weather the downturn. For this reason, he originally called the initiative "credit easing."
My part of the story began a few months later. Having been at the Fed for seven years, until early 2008, I was working on Wall Street in spring 2009 when I got an unexpected phone call. Would I come back to work on the Fed's trading floor? The job: managing what was at the heart of QE's bond-buying spree—a wild attempt to buy $1.25 trillion in mortgage bonds in 12 months. Incredibly, the Fed was calling to ask if I wanted to quarterback the largest economic stimulus in U.S. history.
Phil Foster
This was a dream job, but I hesitated. And it wasn't just nervousness about taking on such responsibility. I had left the Fed out of frustration, having witnessed the institution deferring more and more to Wall Street. Independence is at the heart of any central bank's credibility, and I had come to believe that the Fed's independence was eroding. Senior Fed officials, though, were publicly acknowledging mistakes and several of those officials emphasized to me how committed they were to a major Wall Street revamp. I could also see that they desperately needed reinforcements. I took a leap of faith.
In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing.
It wasn't long before my old doubts resurfaced. Despite the Fed's rhetoric, my program wasn't helping to make credit any more accessible for the average American. The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn't getting much cheaper. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash.
From the trenches, several other Fed managers also began voicing the concern that QE wasn't working as planned. Our warnings fell on deaf ears. In the past, Fed leaders—even if they ultimately erred—would have worried obsessively about the costs versus the benefits of any major initiative. Now the only obsession seemed to be with the newest survey of financial-market expectations or the latest in-person feedback from Wall Street's leading bankers and hedge-fund managers. Sorry, U.S. taxpayer.
Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. They'd also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed's QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way.
You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless."
That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector.
Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.
And the impact? Even by the Fed's sunniest calculations, aggressive QE over five years has generated only a few percentage points of U.S. growth. By contrast, experts outside the Fed, such as Mohammed El Erian at the Pimco investment firm, suggest that the Fed may have created and spent over $4 trillion for a total return of as little as 0.25% of GDP (i.e., a mere $40 billion bump in U.S. economic output). Both of those estimates indicate that QE isn't really working.
Unless you're Wall Street. Having racked up hundreds of billions of dollars in opaque Fed subsidies, U.S. banks have seen their collective stock price triple since March 2009. The biggest ones have only become more of a cartel: 0.2% of them now control more than 70% of the U.S. bank assets.
As for the rest of America, good luck. Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy. Yes, those financial markets have rallied spectacularly, breathing much-needed life back into 401(k)s, but for how long? Experts like Larry Fink at the BlackRock investment firm are suggesting that conditions are again "bubble-like." Meanwhile, the country remains overly dependent on Wall Street to drive economic growth.
Even when acknowledging QE's shortcomings, Chairman Bernanke argues that some action by the Fed is better than none (a position that his likely successor, Fed Vice Chairwoman Janet Yellen, also embraces). The implication is that the Fed is dutifully compensating for the rest of Washington's dysfunction. But the Fed is at the center of that dysfunction. Case in point: It has allowed QE to become Wall Street's new "too big to fail" policy.
Mr. Huszar, a senior fellow at Rutgers Business School, is a former Morgan Stanley managing director. In 2009-10, he managed the Federal Reserve's $1.25 trillion agency mortgage-backed security purchase program.
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ROTE LEARNING

this article is for parents with young kids and teachers who have been through new style teaching should be aware of the goods of rote learning.

an article from wsj


What's 12 x 11? Um, Let Me Google That

Contrary to today's educational theories, memorization is critical in the classroom and life.

By
Oct. 30, 2013 6:59 p.m. ET
I'm a bad teacher. Or so I would be labeled by today's leading education professionals. My crime? Not my classroom performance and not my students' test scores. The problem is that I require students to memorize.
My students learn proper grammar by drilling. They memorize vocabulary by writing given words and their definitions multiple times for homework, and then sitting the following day for an oral quiz. They memorize famous quotations by reciting them at the start of class each day.
For centuries, these pedagogical techniques were the hallmark of primary and secondary education. But once John Dewey's educational theories were adopted in public schools beginning in the 1940s, they fell out of vogue, ridiculed and rejected by education professionals across the country as detrimental to learning. In schools of education such techniques are derisively labeled "drill and kill" and "chalk and talk." Instead, these experts preach "child-centered" learning activities that make the teacher the "facilitator" in education, which is understood as a natural process of self-discovery.
This educational philosophy has driven every national educational initiative of the last several decades: New Math, Whole Language, Outcome-based Education and now the Common Core Standards that are being rolled out across the country.
Getty Images
All of the previous initiatives have at least three things in common. First, they didn't work. The U.S. still lags behind the world in education, even though each program, in its day, was touted as the means to bring our children to the top. Second, they all espoused the same child-centered educational philosophy, which has coincided with American students' mediocre performance in the classroom. Third, they rejected memorization out of hand.
Of course, all good teachers want their students to acquire not just basic knowledge, but a deeper, conceptual understanding that is manifested through critical thinking and analysis—skills that educational fads and initiatives rightly extol. But such thinking is impossible without first acquiring rock-solid knowledge of the foundational elements upon which the pyramid of cognition rests.
Memorization is the most effective means to build that foundation. Yet drilling multiplication tables, learning to spell, and reciting formulas and rules are almost nowhere to be found in today's classrooms, tarred as antithetical to true learning and even harmful for students.
My classroom experience proves otherwise. Once students have memorized a given set of vocabulary and grammar rules, they are able to apply their knowledge to more difficult concepts and activities. Having the fundamentals at the ready gives them both skill and confidence, two attributes that make learning effective and enjoyable. If they skipped the memory work on the grounds that the information can easily be found online, they would drown in a sea of URLs as they struggled to find the basic information necessary to answer the deeper questions.
Memorization doesn't need to be as odious as schools of education make it sound. In fact, memorization exercises in the classroom can be made exciting with a little ingenuity and humor on the part of the teacher. Elementary school students, whose minds are particularly fit for memorizing, but not yet ready for critical thinking, especially excel in these activities.
Even so, students are not likely to love doing homework or studying for tests. It's a safe bet they also don't like eating vegetables or going to bed early. But these are all necessary habits for good health.
In our technologically sophisticated culture, some people have concluded that memorization is no longer necessary since all the information we need is available at the push of a button or tap of a screen. But I shudder at what might have happened to the Apollo 13 flight crew if its NASA team had to spend precious minutes looking up multiplication tables, or what will happen if our government's national-security advisers needed to consult Wikipedia to shape their foreign policy decisions. If teachers compel their students to memorize basic facts about math, science, grammar, literature and history, then these students will be far more adept at responding to challenges when they become leaders.
Before we implement the same faulty educational philosophy disguised in the new dressings of the Common Core, memorization deserves to be reinstated to its foundational role in learning. Only then will American students have a core of knowledge that they can think critically about.
Mr. Bonagura is a teacher and writer in New York.
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