Oyster Bar powwow no pearl for Street

It started, allegedly, at the Grand Central Oyster Bar and Restaurant in New York in 2001 as two old friends tried to settle a $25,000 debt.
It culminated last week in one of the most “pervasive Wall Street insider-trading rings since the days of Ivan Boesky and Dennis Levine,” according to Linda Thomsen, chief of enforcement at the Securities and Exchange Commission.
To settle his debt to Erik Franklin,the SEC and federal authorities charged, Mitchell Guttenberg agreed to pass on to Mr. Franklin, then a hedge fund manager at New York-based Bear Stearns Cos., advance word of potentially market-moving stock analysis from Zurich, Switzerland-based UBS AG, where Mr. Guttenberg was a research executive.
Eventually, authorities said, the scheme mushroomed into an insider-trading web that ensnared prominent investment banks, hedge fund day traders and attorneys.
Last week, nine individuals were arrested, and four pleaded guilty to charges ranging from securities fraud, conspiracy to commit securities fraud and bribery. Mr. Guttenberg pleaded not guilty, while Mr. Franklin pleaded guilty.

Wanted: New ‘Oracle’
Polishing up your résumés, hot-shot stock pickers?
Legendary Wall Street investor Warren Buffett, aka “The Oracle of Omaha,” is looking for a successor. The 76-year old chairman of Berkshire Hathaway Inc. revealed in his annual letter to shareholders last week that he is looking for someone to take over his duties as chief investment officer of the holding company when he dies.
What are the qualifications for overseeing a stock portfolio currently valued at more than $61 billion for a company whose stock price topped $100,000 last year?
For starters, candidates must be younger than 70-year old Louis Simpson, who has helped Mr. Buffett manage equity investments at the company for the past 25 years. In addition to having a stellar track record, a worthy successor must be “genetically programmed to recognize and avoid serious risks, including those never before encountered.”

Timing is everything
Yes, Wall Street still listens to former Federal Reserve Board Chairman Alan Greenspan, and yes, timing is everything.
His remarks last week that the U.S. economy might slip into a recession by the year’s end unfortunately coincided with a sell-off in China, helping to spark the biggest decline in the U.S. stock market in more than three years.
And speaking of timing, just as the market was doing a nose dive, Robert Steel, undersecretary of domestic affairs at the Department of the Treasury, was testifying before Congress that, not to worry, financial markets can discipline themselves and don’t need more regulation. He may be (and perhaps was) proved right, but Steven Pearlstein, economics columnist for the Washington Post, argued otherwise.
“When markets are at their most frothy and in need of discipline, lenders and investors and the highflying fund managers tend to get the sloppiest … as we were reminded [Tuesday], one thing [competitive financial markets] are not good at is controlling their own excesses,” Mr. Pearlstein wrote.

New view
Yet another Wall Street legend was in the news last week.
At a conference in San Francisco of the Greenwood Village, Colo.-based Investment Management Consultants Association, investing icon Burton Malkiel, author of the 1973 classic “A Random Walk Down Wall Street,” was charged with taking the wrong approach to index investing. The capitalization-weighted index investing approach that he advocates “overweights all overpriced stocks and underweights all underpriced stocks,” asserted Robert Arnott, principal of Pasadena, Calif.-based Research Affiliates LLC.
Mr. Malkiel, a revised version of whose book was published by W.W. Norton in January, admitted during a session at the conference that he may have been wrong when he claimed that all information is priced correctly into every stock. But as far as indexing goes, he stuck to his guns, declaring that capitalization weighting “is still the right way to invest.”

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