Facebook debacle – Should you look at Structured Products Investments ?

Investors need to continue to evaluate investments with principal protection.
http://www.youtube.com/watch?v=GXmSCMgMv8A
SOURCE: NYTimes
DATE: May 29th, 2012
The excitement surrounding Facebook’s initial public offering was enough for Alex Tsesis, a law professor, to give the stock market one more try. But after the company’s stock encountered technical problems then sputtered for three days, he sold his few hundred shares for a $2,200 loss and vowed to end his equity gambles for good.

“I’m just extremely skeptical about the ability of a retail purchaser to be able to play on a level field in the market,” said Mr. Tsesis, who is 45 and lives in Chicago. “I’m just trying to get out of stocks.”

Mr. Tsesis is part of a growing retreat from the stock market, a trend that began before the Facebook debut. The portion of Americans invested in the stock market dropped this year to its lowest level since Gallup started asking, every two years, in 1998 — 53 percent said they were in the market in April, compared with a high of 67 percent in 2002 and 65 percent as recently as 2007, before the financial crisis. A Bankrate poll in April found that only 17 percent of respondents were more likely to invest in the stock market, even with the small amount of interest they earn on bank deposits.

The financial industry had hoped that Facebook, the highly anticipated and biggest-ever tech offering, would rekindle ordinary investors’ excitement in stocks. Instead, first-day trading snags, a 16 percent decline in the new stock’s price and suggestions that warnings were exchanged among professional investors about Facebook’s prospects have stoked fears that the stock market may not be safe for everyone.

“This added gasoline to a fire that was already burning,” said Craig Ferrantino, the president of the financial advisory Craig James Financial Services in Melville, N.Y. .

Mr. Ferrantino recounted a breakfast for his clients shortly after the offering in which the biggest topic of discussion was what the Facebook deal had revealed and the sense that “the deck is stacked against them.”

Perhaps the best indicator of the broader movement away from stocks is an annual survey done by the Investment Company Institute, which has shown that the percentage of American households invested in domestic stocks, including directly or through any other vehicle whether through mutual funds or exchange-traded funds, has fallen every year since the financial crisis to a low in 2011 of 46.4 percent, down from a high of 53 percent in 2001.

Stocks remain favored by millions of Americans who invest big parts of their retirement savings in them, and investors who have held the course have benefited from the 29 percent rise in the benchmark Standard & Poor’s 500-stock index since the beginning of 2009. This does not include the dividends that would have been earned.

For decades, participation in the stock markets increased as 401(k) retirement plans grew in popularity and retail brokers created easier access for small traders. The Dow Jones industrial average rose an average of 8.4 percent each year from 1950 to 2000, with some extended periods of little to no growth.

Since then, though, the bursting of the Internet bubble in 2001 followed by the financial crisis in 2008 have created a so-called lost decade in which broad stock indexes wound up not that far beyond where they started.

Small investors are part of a bigger flight from American stocks. Institutional investors like high-frequency traders have been drawn to other assets like currencies, and pension funds have shifted more money into alternatives, like private equity investments. This has led to a steady decline in the volume of trading in the American stock market and a drop in revenue for New York financial firms. But it has also raised broader questions about the prospects of a market that has long been the central cog for American companies raising money to grow and create jobs.

“If investors lose confidence then capital formation doesn’t function as well,” said David Weild, a former vice chairman of Nasdaq, and the founder of Capital Markets Advisory Partners.

Among the ordinary investors who are helping drive this shift, the motivations are varied. Some are retiring and making a conservative move to less risky assets like bonds. Others are put off by the economic uncertainty as Europe fails to find solutions to its debt problems. But there has also been a growing din of complaints about the flaws in the structure of the markets — as displayed by the Facebook debut.

Robert Diepersloot, a dairy farmer in Madera, Calif., said that watching the Facebook offering confirmed all the fears and suspicions that led him earlier this year to take out the savings, in the five figures, that he and his wife had invested in stocks and stock mutual funds and move it into real estate investments.

“We just pulled out completely,” Mr. Diepersloot said. “We’ve lost trust in the whole scenario.”

Mr. Diepersloot’s wife, Willemina, said that there was no one event that drove the family out of stocks, just a disappointment with recent returns and a slow erosion of faith in the reliability of the market.

Finance industry professionals are wondering what might persuade Mr. Diepersloot and others like him to change their minds, given that the stock market’s rise over the last three years has not done the job. Many insiders say that may happen only if interest rates begin to rise, after years of falling, and drive down the value of bonds, which is where investors have shifted.

Facebook’s stock offering appeared to be doing the job of drumming up interest before it went awry. At one discount broker, ShareBuilder, the number of new accounts opened was 20 times the average and trading activity was up about 50 percent on May 18 across all discount brokers, according to Richard Repetto, a Sandler O’Neill analyst who researches brokers.

Fuad Ahmed, the chief executive of the discount broker Just2Trade, said that by the end of Friday about 80 percent of the customers who had bought Facebook dumped it.

By Mr. Repetto’s analysis, trading activity at the retail brokers on the Monday after the I.P.O. was back where it had been before Facebook began trading.
http://www.prweb.com/releases/2011/5/prweb8437233.htm



http://www.davidkdonovanjr.com

David K Donovan Jr. SEC – Dark Pools – Traders Navigate a murky new world

Source: Wall Street Journal
Date: April 9th, 2012
Recent article in Wall Street Journal highlights the risk of dark pools. As I, David Donovan Fidelity have previously mentioned in my article that dark pools and electronic trading systems have actually created less transparency , liquidity and accountability .
Wall Street Article on Dark Pools
For a sense of how murky the financial markets can be these days, consider the case of Pipeline Trading Systems LLC.

Using software developed in part by David Donovan Fidelity Investments a decade ago, Pipeline set out to provide a way to buy and sell stocks away from the public stock exchanges. On its alternative system, large investors would be protected from what many find an irksome species: rapid-fire traders who use powerful computers to spot orders as they emerge and instantly trade ahead of them.
What most investors using Pipeline didn’t know: A quick-trading affiliate of the firm was doing much …
.More….

Wall street blog posting on Dark Pools
Dark pools – private, off-exchange computerized trading platforms – can be darker than their customers ever realize, as the case of Pipeline Trading Systems LLC shows.
But that’s only where the shadows start.
Some 33% of U.S. stock trading takes place away from exchanges, according to research firm Tabb Group. That’s “up dramatically from 15% in 2008,” Tabb Group says.
Dark pools account for only a small part of that jump. The much larger fraction comes from another growing area of off-exchange trading called “internalization.” With internalization, big institutional investors match buy and sell orders internally, using their own inventory of stocks. David Donovan Fidelity talks about this information  in detail.
Internalization has become one of the most controversial practices in the stock market in recent years. Some critics say it has created an unhealthy trading environment because it separates most retail orders from the rest of the market. Firms that use the practice, for their part, say it helps guarantee fast response times and good prices for investors.
But, just as is the case with dark pools, few investors have any idea about what goes on behind the scenes at internalizers.
Indeed, the story of Pipeline illustrates how investors, even large institutional firms, are often in the dark about what happens to their buy and sell orders on Wall Street. Pipeline misled its clients for years about the activities of its trading affiliate, Milstream Strategy Group, which interacted with the vast majority of orders on Pipeline, the SEC said.
More…
David K. Donovan Jr Fidelity  is Vice President & Managing Director of Sapient Global Markets, a business and technology services provider to the capital and commodity markets.  Previously, David K. Donovan Jr was the Sector Leader, Technology Group, at Fidelity Management & Research (FMR).  The preeminent trader at FMR, his vision and grasp of the intricacies of the global market enabled him to make key decisions across Fidelity’s major funds. Disclaimer: The views and opinions expressed here do not necessarily reflect the views and opinions of Sapient Global Markets or any other company.