Madoff and the Financial Elite/PENSIONS/LEVERAGED ETFS AND VOLATILITY

After reading a few more stories about Mr. Madoff this morning,  most of the money that he managed was apparently sent to him by investment advisors and institutions steering their clients to Madoff, after performing "due diligence".WSJ.com Due diligence is one of those terms that must have a different meaning to those highly paid advisors than to this old man.   In fact, I am not sure that I could communicate to these whizzes since the same words have different meanings to them and to me. 

As I have said, I manage my own money.  All of the signs of fraud were present in the Madoff case according to the early press reports.  Returns were too good to be true.  The returns were too smooth.  The statements were simple.  The auditor was not known, and a cursory inspection of their office would -in itself- have been a red flag with bells ringing.  Madoff's operation was secretive with apparently no one involved other than himself.  To me, it is obvious.  But I am just an old man, admittedly incapable of communicating with the whizzes, managing my own money in a home located in the SUV Capital of the World. 

In an earlier post, I mentioned that I was buying 50 shares of  Walgreen.SARAH and the Cook Inlet Beluga Whales/WALGREENS AND REFINERS  and the 5th  paragraph of this oneLate Friday Buys: LNC and GXP  The WSJ noted in an article this morning that Walgreens is still planning to increase square footage by 8% in fiscal 2009, in spite of a slowdown in sales, because it locks in locations and leases 12 to 18 months in advance. WSJ.com  This does not change my plan for adding to my position when my price targets are hit.   

Since I sometimes buy leveraged inverse ETFs, I was interested the WSJ discussion of the debate over whether those funds were contributing to volatility in the last hour of trading. WSJ.com I suspect that the use of the leveraged ETFs is contributing to the volatility in the last hour but the primary causes are redemptions from mutual funds and the overall economic malaise and financial crisis.  I am sure that I was not the first person to figure out how these ETFs could work in a volatility trading model.  I have discussed in these posts the inverse ETFs that I have owned and the limited use that I intend to make of them in the future.  See, e.g., 

 A 10% 4th Quarter Decline in Revenues May be the Norm/more on VIX and My Asset Allocation Decisions

VANGUARD ASSET ALLOCATION: IS VANGUARD PROUD? MORE ON VXD

Trading and Asset Allocation in Stable and Unstable VIX Pattern

VIX Volatility over 30 = BEAR MARKET

Honeywell said its pension fund fell 33% in 2008.  MarketWatch  This is one of the many issues that have received scant press coverage today.  State and local pension funds were already woefully underfunded and have now fallen deeper into the hole.  Corporate pension plans may need to be funded. The Boston Globe Honeywell is adding 40 million of its shares to its plan.