Having 2,000 feed items stuffed in one’s reader when returning from even the shortest vacation has me thinking about how to put said reader on vacation as well.

• MySpace and Facebook apps suck. That’s not what they really said, but The Silicon Alley Insider did point out how little they might really be worth. I’ve got no experience with MySpace apps, and my only brush with Facebook apps was getting some notification that a friend had installed one and I should do the same. My first impression - I’m getting spammed (and others share that feeling). I would never react to such a notice again, even if I was an active Facebook user. Hence, they are worthless to me too (or maybe I’m just worthless to marketers). Also of note: based on their numbers Facebook should be worth something in the neighborhood of $850 million.
• The New York Times infers that things are getting overheated in Silicon Valley. I disagree - I think a lot more bets are being placed on a lot more companies, and I suspect those bets are generally a lot smaller than post-Bubble 1.0. There may be a lot of duplication of effort going on, but the best execution in each category is going to turn out a winner. The money is just trying to find each of those winners. Meanwhile, TechDirt had its take on the Dallas Cowboys backing out of a domain purchase, but I says its a simple matter of the rest of the world not paying much attention to the chaos.
• Commodities traders are in short supply. As a general rule, the commodities business also retains far fewer numbers than its big sister on the securities end. I think the actual registered headcount via the CFTC is less than 200K, while the NASD numbers hover around 800K. Someone throw me a bone on those numbers (and if anyone needs a Series 3/30, drop me a line).
• OpenID gets a victory in the fight against phishing, as well as some competition. I think the first part is great - now the challenge is getting anyone and everyone to embrace Information Cards. On the latter, I’m going to bet it’s a non-starter - too little, too late. Despite being widely embraced, even OpenID is having slow goings regarding consumption (both in systems and people). More power to SlashID if they can be more effective on that end, but I’m skeptical.
• After consuming this, I dropped TechMeme from my reading list. I guess I can just read each of these every morning from here on out. That, by the way, is a joke.
• Seems that debt problems extend beyond the government, those bought out, and even mortgagees. I thought much of the last year’s rally was purely cash-driven, but I guess I was wrong. Personally, I only use my margin account for short selling.

I think that covers last week.

I know a lot of stock brokers. The good ones are excellent sales people, but their skill sets usually end there. They generally have rudimentary knowledge of fundamental and/or technical analysis, money management principles, and even basic economics. I don’t know if they forgot all that subject matter right after they passed the Series 7 exam, or they are just plain stupid, but that matters little. If you can sell, you can make commission, and that is what brokers are concerned with.

The retail brokerage culling after the market debacle of 2000-01 has not been fully rejuvenated, and the replacements that are in are being called “advisors.” Unfortunately, most of these folks couldn’t advise their clients way out of a wet paper bag, and the firms they work for know it.

In From Traders to Tech Support, BusinessWeek outlines how the traders’ role is changing. Once the executor of the order, the trader now spends a growing portion of their time assisting customers with executing the order themselves. The advent of the internet, high-speed connections, and cinema quality displays have given the customer many of the advantages previously reserved for traders. Instant information and high resolution display of the data, at the customers’ desks, is the order of the day.

So the brokerage firms are providing those customers with front-end interfaces that take advantage of all the horsepower. Now that doesn’t mean that every person who owns or is interested in owning some stock is mentally equipped to deal with the markets, but the opportunity is there.

Where does that leave brokers? Well many brokers are moving to fixed fee business models, whereby they charge their clients based on a percentage of assets under management. The rest? Some have enough of a high-net worth client base to keep them busy for a while, but they will eventually be overcome by the RIAs and the software moves. Others will simply be selling used cars.

By the way, I know a lot of insurance brokers as well, and I think the same goes for them. A significant portion of that business is already being grabbed by CPAs and estate planning attorneys that know products like life insurance are complimentary to their hourly charges - and they likely know the client better than the broker does anyway. Picking up a life insurance policy is no more than a recognition of need, and participating in a data gathering exercise. Underwriters have enormous data crunching capabilities, and personal information on a prospective insured is readily available from a number of information brokers. It needs much less human intervention than it did even ten years ago. With all the goings on with large insurer price fixing, and insurance pricing that has been hyper-competitive (particularly in the life business) for too long, the need to maintain competitiveness will force wholesalers out the door, and only the big retail brokers will survive.

Quick question:

What do potato chip manufacturers and mutual fund companies have in common?

They both have to pay for shelf space.

Potato chip makers pay supermarket chains for prime space on store shelves. Fund management companies pay brokerage houses for pushing their products. There is a difference, however, between the two. The potato chip deals are legal, and represent an incentive for the chip makers to make sure that good product is on those expensive shelves. In the mutual fund case, it is not so legal, and presents brokerages with an incentive to push poor performing funds on their unsuspecting customers. I hope the latest SEC crackdown puts some additional shady deals in the spotlight, and the perps in the hotseat.

Let’s remember something, boys and girls. Brokers are not money managers. They are sales organizations. They will sell you their grandmother’s kitchen sink if the commission is good enough. And when it comes to kickbacks (and that is exactly what the funds’ payments to brokerages are), they are seen as more desirable than sugar sprinkles on strawberry shortcake. If this garbage continues, it will eventually result in global distrust and a systemic breakdown of the US’s securities markets.

For more information, check out this article from Institutional Investor.

On a lighter note, the gouging that takes place in the securities markets is finally taking its toll, this time on Deutsche Bank’s telephone system (see Phone Gremlins Strike Deutsche Bank). Imagine being a dot-com billionaire, sitting on the back porch of your estate in Woodside. You decide to call your broker, to buy a million shares of Apple Computer, and hear “We’re sorry you have reached a number that has been disconnected or no longer in service.” Now, if you are fairly saavy (which you obviously are, if you are a billionaire living in Woodside), what is the first thing that comes to mind?

The brokers stole my money and skipped town!

For a colleague of mine: Financial Industry Floats Open-Source Messaging Standard for Web Services, SOA. I was recently introduced to some folks who have been working on a competing product (albeit for some time). It doesn’t surprise me that JP Morgan would try one on their own, with the goal of opening it up. Message queuing is well ingrained in the securities industry.

I will be curious to see if someone picks up on the idea of integrating these systems with Michael Stonebraker’s StreamBase.