The following analogy comes from Ralph Wanger, founder of the Acorn Fund (via Bill King):

“Zebras have the same problem as institutional portfolio managers.

“Firstly, both seek profits. For portfolio managers above-average performance; for zebras, fresh grass.

“Secondly, both dislike risk. Portfolio managers can get fired; zebras can get eaten by lions.

“Thirdly, both move in herds. They look alike, think alike and stick close together. If you are a zebra, and live in a herd, the key decision you have to make is where to stand in relation to the rest of the herd. When you think that conditions are safe, the outside of the herd is the best, for there the grass is fresh, while the middle sees only grass that is half-eaten or trampled down. The aggressive zebras, on the outside of the herd, eat much better. On the other hand - or other

This post is a guest contribution by Bill King*, well-respected and straight-talking author of The King Report.

Most of the Street heralded the 1% decline in Q2 GDP because it was 0.5% better than consensus - even though the US government admitted in the release that its GDP estimates over the past several years were consistently wrong! So why should the latest report be any more accurate?!?!

We feel compelled to address the scheme of past-month lower revisions producing better-than-expected m/m or q/q results, even though the aggregate metric is worse than expected. We have incessantly noted and commented on this scam but most of the trading and investing universe omits it.

We will again utilize basic math to illustrate the scam. If Q4 ‘08 GDP was 100 units, and Q1 ‘09 was reported at -5.5% and Q2 ‘09 GDP was expected to be -1.5%, the

Gold added about five bucks to its price from the time that trading began in the Far East Thursday…and the London a.m. gold fix. Then from there, it gave back seven dollars going into the p.m. gold fix…and after that, it gained over eight dollars until half past lunchtime in New York. Then a really serious seller showed up taking nine bucks off the price between then and the close of electronic trading in New York. It was pretty choppy trading all around…and it was obvious that every rally ran into serious resistance. The same could be said for silver. But according to the usual New York gold commentator [who is not Dennis Gartman, by the way], volume in gold was heavy…estimated at 140,658 contracts…”which involved a 21.6% surge in the last half-hour. The presence of such determined buyers and sellers during the floor session is unusual.”

Wednesday’s open interest in

This post is a guest contribution by Bill King*, well-respected and straight-talking author of The King Report.

For the past several years Street operators have assumed that the computer jockeys who were being employed by proprietary trading departments on The Street were developing algorithms that would find other algorithms that represented buyside orders so prop desks could trade against those orders.

Another trading prop that has been occurring for years is certain firms feed their electronic trading systems into prop desks so traders can see in real time money flows into and out of stocks and groups.

However recent revelations are forcing the Street to consider the possibility of automated front-running on an unfathomable scale. The two “front-running” issues are: 1) “queuing” [of orders] - finding orders loaded into a system, particularly limit orders, and trading against them; and 2) “latency” - discovering and then front-running

“Words from the Wise” this week comes to you in a shortened format as I do not have access to my normal research resources while on the road in Europe (also see my post “Gone A.W.O.L. - to Slovenia and Switzerland“). Although very little commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included.

While investors’ hopes of an economic recovery might have got ahead of reality, the cartoonists continually reminded us of worrisome issues …

Source: Signe Wilkinson, Washington Post,  June 18, 2009.

The past week’s performance of the major asset classes is summarized by the chart below - a mixed bag so to speak.

Source: StockCharts.com

A summary of