Making Money Fast

Posted by adgag adgadgvadgv on Tuesday, January 18, 2011

Convenience is the general theme that our society has been speeding towards, getting things fast and easy, that’s the way we like to roll. We can see this through the popularity of services like Netflix; instant movies, and iTunes; instant music.  Credit cards in essence, are fast money, but not fast enough.

Services for taking payments on your iPhone is relatively new. A company called Square released an app and dongle last May that would allow users to accept credit cards from their iPhone, it has since caught on and many variants including card readers are hitting the streets.  Enabling small vendors, artists, even used item hockers, to charge their customers via the seamless instant swipe of plastic.

In the last two days two companies have begun offering credit card reader swipers free to new customers. Intuit Inc. is one of them, makers of the ever popular Tax accounting software.  They want to give the little guy a small boost by offering its GoPayment mobile payment service, which will include a free credit card reader and zero monthly service fees, for business owners that sign up by mid-February.

GoPayment is a system that utilizes mobile handsets, like the iPhone, and uses them as a cost-effective method of processing credit transactions. Since its launch almost two years ago GoPayment has enabled small businesses to process $80 million in mobile transactions using a mobile handset and the GoPayment system, and the market is still expecting significant growth in the coming years. GoPayment is compatible with more than 40 handsets and a large range of traditional credit card readers, this includes the popular credit card reader from ROAM Data, which is used with a variety of iPhone, Blackberry and Android devices, making it more accessible for a new start-up business owner to start accepting mobile transactions.

“By offering a free card reader and no monthly service fees, we want to give more small businesses a head start in the New Year by enabling them to take mobile payments without any upfront investment,” said Chris Hylen, general manager of Intuit’s Payment Solutions division. “And this is just the beginning. We’ll introduce new ways all year long to help more small businesses get paid quickly and inexpensively using their favorite mobile devices.”

GoPayment offers a selection of different rates and pricing plans to accommodate any business’s needs. There are no long-term contracts, or any hidden cancellation or setup fees, and one account allows up to 50 users. Their app is called the Intuit GoPayment Credit Card Terminal and is free from iTunes. Below is a brief highlight of the general pricing plans for the service.

For lower or intermittent credit card processing volume:

No monthly service fee for businesses that sign up before mid-February

Discount rates: 2.7 percent for card swiped; 3.7 percent for both key entered and non-qualified transactions; $0.15 per transaction.

For higher credit card processing volume:

$12.95 monthly service fee

Discount rates: 1.7 percent for card swiped; 2.7 percent for key entered; and 3.7 percent for non-qualified transactions, such as corporate cards; $0.30 per transaction.

The second is from App Ninjas, developers of Swipe Credit Card Terminal for iPhone, today have decided to give away the Apple-approved Credit Card Swiper for iPhone 4 and iPod touch hardware free to all new users who sign up by January 15th. Their app that works with the swiper is available on iTunes for 99 cents and is called iSwipe Global Credit Card Terminal.

Their fees are as follows:

  • 1.74% VISA/MasterCard Qualified Discount Rate

  • 2.29% VISA/MasterCard Mid-Qualified Rate

  • 3.79% VISA/MasterCard Non-Qualified Rate

  • $0.24 per Transaction

  • $24.95 per month (Includes Authorize.Net Fee)

“Providing iPhone 4 and iPod touch users with a swipe accessory allows any mobile merchant to quickly process transactions, saving them money and time,” said John Waldron, CEO of App Ninjas. “Swipe’s features help manage credit card transactions with virtual terminal access, online reporting, real-time authorizations, and premium customer support, including access to a customer support rep assigned to their account, from the moment they download Swipe.”

Depending on your business, how many transactions you expect to do, and the payment gateway you are dealing with either solution could be good for you.  We haven’t had any hands-on time with either products, so we’re unsure of the reliability and ease of use between both products.

A front page story in today’s Wall Street Journal (“Hedge Funds’ Behavior Magnifies Swings in Market,” January 14, 2011) highlighted the relative performance of so-called “crowded” hedge fund trades versus the broad market. The premise of the article is that hedge fund ownership magnifies the beta of particular stocks and reduces the importance of company fundamentals in determining share performance.

We long ago concluded that money flow is important to the performance of stocks and that it made sense to follow the proverbial “smart money.” We have analyzed more than 7,000 individual stock and ETF positions of roughly 600-800 hedge funds every 90 days for the past decade. Five years ago we started publishing our quarterly Hedge Fund Trend Monitor to track the hedge fund money flow into and out of individual stocks and hedge fund sector tilts on both a long and net basis.

1. Time horizon is vital to understanding how hedge fund ownership data should be incorporated into the portfolio management process. On a daily or even weekly basis, hedge fund positioning is noisy in terms of explaining relative excess return. However, on a quarterly basis the hit rate of outperformance of hedge fund positions is notable.

For example, our basket of stocks with the “most concentrated” hedge fund ownership (Bloomberg ticker: <GSTHHFHI>) has a 71% hit rate of quarterly outperformance versus the S&P 500 since May 2001 with an average quarterly excess return of 296 bp.
Our basket of “stocks that matter most” to hedge funds (<GSTHHVIP>) has outperformed the S&P 500 on a quarterly basis 66% of the time since 2001 by an average of 74 bp. [and here we get the all important footnote from Goldman: "Note: The ability to trade these baskets will depend upon market conditions, including liquidity and borrow constraints at the time of the trade." in other words everyone can get in, but when everyone has to get out, nobody will. Enjoy.]

2. Our analysis shows hedge fund holdings generally outperform during equity market rallies and lag during corrections. We recommend investors use our hedge fund holdings baskets to generate alpha during “risk-on” rallies and as a tool for risk reduction during periods of elevated market uncertainty (see Exhibits 1-3).

For example, our “most concentrated” hedge fund basket has outperformed the S&P 500 by an average of 868 bp (745 on median basis) during the six rallies since the market low in March 2009 and underperformed the S&P 500 by an average of 322 bp (385 bp on median basis) during market corrections.

The reverse is also true! Our basket of “least concentrated” hedge fund positions (Bloomberg ticker: <GSTHHFSL>) lagged the S&P 500 during market rallies by average and median of 69 bp but outperformed the broad market by an average of 99 bp (37 bp on median basis) during corrections.

Our hedge fund VIP list (Bloomberg: <GSTHHVIP>) consists of stocks in which fundamentally-driven hedge funds have a large stake. We define stocks that “matter most” to hedge funds as the positions that appear most frequently among the top ten holdings within hedge fund portfolios. For this analysis, we limit our hedge fund universe to funds with 10 to 200 distinct equity positions in an attempt to isolate fundamentally-driven investors from quantitative funds or funds that mirror private equity investments. Hedge funds own between 1% and 38% of the equity cap of the stocks in the basket with an average of 9%, almost twice the 5% average for the S&P 500.

By construction, our VIP list identifies the 50 stocks whose performance will largely influence the long side of many fundamentally driven hedge funds. The VIP basket lagged the S&P 500 by 822 bp during 2008 (-45% vs. -37%). It reversed in 2009, outperforming S&P 500 by 1,391 bp (40% vs. 27%). In 2010, the basket outperformed S&P 500 by 443 bp (19% vs. 15%).

Our VIP basket has a large-cap bias with a median market capitalization of $49 billion compared with $11 billion for the S&P 500. The VIP basket overweights the Information Technology sector (24%) and underweights Industrials (2%). Turnover for the VIP basket since 2001 averages 34% quarterly (52% annually) with 17 stocks typically entering the basket. The next re-balancing will take place after February 15, 2011.

Current constituents of our hedge fund VIP basket scheduled to report 4Q 2010 results next week include the following. Tuesday: C, AAPL, IBM. Wednesday: WFC and USB. Thursday: GOOG and FCX. Friday: SLB and BAC. Exhibit 52 contains the complete list of constituents for all three baskets.

We define “concentration” as the share of market capitalization owned in aggregate by hedge funds. The stocks in the “most concentrated” basket tend to be mid-caps (at the lower end of the S&P 500 capitalization distribution). Hedge funds own between 17% and 48% of the equity cap of the stocks in the basket with an average of 24% vs. 5% for the S&P 500. Stocks with the “most concentrated” hedge fund ownership outperformed the S&P 500 in 2010 by 84 bp (16% vs. 15%).

In contrast, hedge funds own between 0.2% and 0.6% of the equity cap of the stocks in our “least concentrated” hedge fund basket with an average of 0.5% vs. 5% for the S&P 500. The basket outperformed the S&P 500 in 2010 by 255 bp (18% vs. 15%).

Translation: ignore the voice of reason which argues that if everyone else is on the same side of the trade, then you are the guaranteed sucker on the table, and instead follow the Siren song promising untold riches... until such time as there is an actual downtick in the market (better known as the 100 or so shares that make up 50% of market volume) and where no matter how hard you try to get out, you are stuck. For reference: see the first time Goldman butchered the Greeks...

And some pretty charts: ignore the fact that the least concentrated stocks are solidly outperforming their most widely held cousins...



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