This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stock Under $10 that he thinks could potentially double or triple in the next 6 to 12-months. See what he's trading today with a 14-day FREE pass.

Doug Kass: 15 Surprises for 2013

Stocks in this article: AAPLGSPGFGOOG

Surprise No. 4: A tax on securities transactions is instituted in exchange for an increase in Medicare eligibility -- its implementation has broadly negative ramifications for financial stocks and hedge funds.

  • Financial stocks underperform and miss profit forecasts.
  • The transaction tax forces a further consolidation in the hedge fund industry.
  • Hedge fund fees decline.

"Speculators may do no harm as bubbles on a steady stream of enterprise. But the situation is serious when enterprise becomes the bubble on a whirlpool of speculation."

-- John Maynard Keynes (when he first proposed a securities transaction tax in 1936)

In conjunction with Congressional Democrats (and in exchange for an increase in Medicare age eligibility), Senator Elizabeth Warren spearheads a successful campaign to force the House to introduce a financial transaction tax attached to all securities trades. The legislation is sold to Americans (and to the Republicans) as a way to:

1. curb market volatility;

2. reduce the disruptive role of high-frequency trading on the markets; and

3. increase tax revenue.

The ramifications of this tax are broad -- financial stocks suffer, and the hedge fund industry retrenches, consolidates and lowers fees.

The implementation of a financial transaction tax, weak capital markets, reduced merger and acquisition activity, continued pressure on net interest margins and poor loan demand lead to well-below-consensus bank and brokerage industry profits and underperforming stocks.

In 2013's macro-driven market, correlations remain at historically high levels (see below), rendering excess return generation hard to deliver by the hedge fund community. Moreover, the implementation of a financial transaction tax pressures trading-based and high-frequency-trading hedge fund strategies to close, and nearly one third of the existing hedge funds close shop in 2013.

As pressure on returns intensifies, a large institutional manager introduces a menu of low-fee hedge funds that further accelerate hedge fund closures. Hedge fund management fees move toward 1% (or lower), and performance fees move toward 10%, as the industry begins to resemble the traditional money management industry.

Several large hedge funds lower fees and structure fees to more resemble Warren Buffett's hedge fund in the 1960s, which charged no management fee but took in 25% on performance above a 6% threshold return.

Strategy: Short Financial Select Sector SPDR (XLF) and GS.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Our Tweets

Brokerage Partners

Top Rated Stocks Top Rated Funds Top Rated ETFs