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One of the dumbest lines in the 9/11 Commission Report - re "insider trading"

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HamdenRice Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 08:16 AM
Original message
One of the dumbest lines in the 9/11 Commission Report - re "insider trading"
Some things in the 9/11 Commission Report and "official conspiracy theory" are so stupid that they deserve a post of their own. The 9/11 Commission report dismissed evidence of suspicious trading with a footnote that includes this sentence:

"A single U.S.-based institutional investor with no conceivable ties to al Qaeda purchased 95 percent of the UAL puts on September 6 as part of a trading strategy that also included buying 115,000 shares of American on September 10."

The implication is that the institutional investor could not have been betting against American Airlines because it also bought shares.

The Report does not mention the obvious: This transaction is a classic hedge.

The Report doesn't mention the motive of the investor. But it is consistent with foreknowledge that AA stock was going to decline. For example, if the investor had to buy AA stock for some reason but had heard or read rumors of an event, one way of protecting that investment would be to purchase put options. In other words, if the stock declined in value the investor has protected himself by buying the right to sell the stock at a locked in high price.

To conclude: The fact that the investor both purchased stock and purchased puts in no way is dispositive that the trade was innocuous.
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LARED Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 08:44 AM
Response to Original message
1. So I am to understand that hedging strategies are now
evidence of foreknowledge?

But it is consistent with foreknowledge that AA stock was going to decline.

Fascinating.

Most people would conclude hedging strategies are evidence of a lack of foreknowledge.

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HamdenRice Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 08:51 AM
Response to Reply #1
2. Your ability not to understand is always amazing! nt
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hack89 Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 09:08 AM
Response to Reply #2
3. Perhaps you could explain to those of us that are not financial smart
Edited on Sat Sep-20-08 09:12 AM by hack89
or am I simply to take your word for it?

on edit:

According to this LARED appears to be correct:

In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. Hedging is a strategy designed to minimize exposure to an unwanted business risk, particularly in inflationary economies, while still allowing the business to profit from an investment activity. Typically, a hedger might invest in a security that he believes is under-priced relative to its "fair value" (for example a mortgage loan that he is then making), and combine this with a short sale of a related security or securities. Thus the hedger is indifferent to the movements of the market as a whole, and is interested only in the performance of the 'under-priced' security relative to the hedge.


http://en.wikipedia.org/wiki/Hedging

How does "unwanted business risk" = forewarning?
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HamdenRice Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 10:20 AM
Response to Reply #3
7. The definition is completely consistent with my OP
Most people buy shares of a company with the expectation or hope that the shares will increase in value.

If you buy a share and at the same time buy a put option for that share, you are engaging in the most basic hedge -- you are hedging against the possibility that the share will decrease in value.

What about this don't you understand? If you could explain why you think the definition of hedge is inconsistent with what I wrote, perhaps I could help you out.

The point is that the institutional investor believed that AA stock would or could go down in value.
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hack89 Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 10:25 AM
Response to Reply #7
9. Can you explain the UA part of the strategy?
this is all new to me.
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HamdenRice Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 10:32 AM
Response to Reply #9
12. It would be a hedge bet vis a vis the overall industry
Which makes it more likely that the investor was making a bet about airlines in general, not AA or UA.

The 9/11 Commission doesn't tell us what the "strategy" was, but it is consistent with a belief that the industry share prices would decline, not proof that the investor wasn't making a bet on downward movement in airlines share prices.
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hack89 Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 11:10 AM
Response to Reply #12
17. So were strategies like this involving airlines uncommon before 911?
or is the only unusual thing is the timing?

Was there anything going on in the airline industry at the time that would justify such an investment strategy?
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Realityhack Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Sep-22-08 06:44 AM
Response to Reply #17
27. Yes on both counts. n/t
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deconstruct911 Donating Member (809 posts) Send PM | Profile | Ignore Fri May-28-10 09:37 PM
Response to Reply #27
29. CBS News Profiting From Disaster?
"But what raised the red flag is more than 80 percent of the orders were "puts", far outnumbering "call" options, those betting the stock would rise.

Sources say they have never seen that kind of imbalance before, reports CBS News Correspondent Sharyl Attkisson. Normally the numbers are fairly even."

http://www.cbsnews.com/stories/2001/09/19/eveningnews/main311834.shtml
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zappaman Donating Member (1000+ posts) Send PM | Profile | Ignore Sat May-29-10 01:29 AM
Response to Reply #29
30. hahahahahhahahahaahaa
At this point, you've accused EVERYONE of profiting from 9/11!
Hysterical!
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deconstruct911 Donating Member (809 posts) Send PM | Profile | Ignore Sat May-29-10 04:39 PM
Response to Reply #30
31. If insurance companies/banks and weapon manufacturers
is everyone then indeed I have.

As far as I know that makes up a tiny portion of the human population....
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William Seger Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 10:26 AM
Response to Reply #7
10. No, the point is...
... that hedging is a good strategy if you think an investment will probably go up, but want to avoid the risk of it going down. It would be a really stupid strategy if you thought the investment would probably go down.
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SDuderstadt Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 12:55 PM
Response to Reply #7
19. HR....

"If you buy a share and at the same time buy a put option for that share, you are engaging in the most basic hedge -- you are hedging against the possibility that the share will decrease in value"

Did you bother to read the paragraph you're critiquing? The investor did not buy shares of AA, then buy puts for the same stock. It bought shares of AA and also bought puts for UAL. You just destroyed your own argument. Did you see that?
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LARED Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 09:37 AM
Response to Reply #2
5. Well Hamden, it's in your court
Please explain your post so those of us lacking your financial acumen can understand.
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HamdenRice Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 10:22 AM
Response to Reply #1
8. huh?
Your post is incoherent. Could you explain what you are trying to ask?

A put is a bet that the price of a stock will go down. The purchase of a share and a put is a hedge, a form of protection against the price of the share going down.
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LARED Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 10:42 AM
Response to Reply #8
14. I understand what a hedge is, what I don't understand is your
conclusion how a hedge strategy indicates foreknowledge.
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William Seger Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 09:14 AM
Response to Original message
4. Say what?
> "For example, if the investor had to buy AA stock for some reason but had heard or read rumors of an event, one way of protecting that investment would be to purchase put options."

Another way would be to not buy AA stock in the first place, huh. What possible reason could there be that they "had to buy AA stock," even though they had "foreknowledge that AA stock was going to decline?" The usual purpose of buying a stock is to make a profit if it goes up, and the purpose of hedging is to minimize the loss if it should instead go down. I gotta go with LARED here; that sure sounds like a lack of foreknowledge. Are you sure you thought this through before posting?

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HamdenRice Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 10:28 AM
Response to Reply #4
11. There are unlimited number of reasons an institutional investor has to buy shares
"Another way would be to not buy AA stock in the first place, huh."

That's the whole point.

Institutions "have to" buy shares for all sorts of reasons -- because it fits their investment model, because they have pledged to deliver such shares to someone else, to cover a short sale, to deliver specified form of collateral -- there is an endless set of reasons someone might "have to" buy a particular set of shares. Or this could have been a deliberate purely "technical" hedge strategy.

That's why the motive is irrelevant, and at any rate unknowable. What matters is that this investor was indicating a belief that the share price could or would go down.

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LARED Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 10:52 AM
Response to Reply #11
16. I don't think you will get much of an agrument about this
Edited on Sat Sep-20-08 10:54 AM by LARED
What matters is that this investor was indicating a belief that the share price could or would go down., but he hedged this belief.

The problem is you think and advocate that this particular investors action indicate foreknowledge about 9/11.
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William Seger Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 12:49 PM
Response to Reply #11
18. ...ALL of which argue against foreknowledge! n/t
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LARED Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 09:48 AM
Response to Original message
6. I do agree with you on this
To conclude: The fact that the investor both purchased stock and purchased puts in no way is dispositive that the trade was innocuous.

The problem is if you agree with the above you logically need to agree one cannot conclude the transactions indicate foreknowledge.
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JackRiddler Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 03:24 PM
Response to Reply #6
21. How true.
The problem is if you agree with the above you logically need to agree one cannot conclude the transactions indicate foreknowledge.

Which means empirical investigation is required to answer the question, but to announce "no conceivable ties to al Qaeda" and go no further begs the question. So the SEC, that bastion of unrelenting investigation into financial fraud that happened to have its offices destroyed on 9/11, provides an answer that loses credibility for being obviously incomplete, and thus itself keeps suspicion alive.
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Realityhack Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 10:41 AM
Response to Original message
13. No.
"The implication is that the institutional investor could not have been betting against American Airlines because it also bought shares."

That isn't how I see it. The issue is did the stock puts represent some form of insider trading. The report shows that rather than being a large group of people one investor was responsible. It then shows that they were using a hedged investment strategy which would probably not be used if one knew for certain that the stock would plummet.
They obviously know more about this particular set of trades than is being published.

Sure. This is not 'proof'(tm) that the trade was innocuous (you can't prove that BTW), but it is hardly evidence of foreknowledge.

Some of the airline stocks were expected to go down for other reasons. A hedged put option is hardly something noteworthy under the circumstances.
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wildbilln864 Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 10:44 AM
Response to Original message
15. They haven't proven that Al CIAda had anything to do with 9/11. nt
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JackRiddler Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 03:19 PM
Response to Original message
20. String of omissions and embarrassing fallacies...
"A single U.S.-based institutional investor"

Using whose money? Its own? A client's? Are we referring to the buyer or the broker?

"with no conceivable ties to al Qaeda"

Presumes only "al Qaeda" (whatever that is) could have known the relevant information about Sept. 11th, and thus begs the question. In outrageous fashion. Information based on foreknowledge could have been transmitted through several stations before it reached this particular investor.

"purchased 95 percent of the UAL puts on September 6 as part of a trading strategy that also included buying 115,000 shares of American on September 10."

Is it the same fund or trader within the institution performing both transactions?

If the puts were at term in September, that's a pretty lucky hedge, since the puts would have been a total loss soon after their purchase.

And: This is what took the SEC three years to find out?!

And: Who were the ones who didn't collect $2.5 million in profits for months afterward, in the period when the idea of trading based on 9/11 foreknowledge became public and controversial? Did they collect later? Why the delay?

The other transaction they treat, in United puts, is attributed to a tip from a "fax newsletter"? (Elgindy's?!) This apparently requires no further elaboration, since tips from fax newsletters come magically from the ether. They could not conceivably be based on information from a source.

And that's it, far as the footnote is concerned.

The main deception lies in ignoring all the other suspicious transactions, including on companies headquartered in the WTC and surrounding buildings, the CONVAR story of supposed hundreds of millions in credit card transfers happening through WTC computers during the attacks themselves, and the deals on international markets (Frankfurt was mentioned and the Bundesbank president promised a report, never delivered; cries of manipulation suggesting foreknowledge went up from Tokyo, London and Hong Kong).

The London trading was attributed within a few weeks to a "small airline" following a hedging strategy, but, ahem, why is this small airline doing so, might it not be based on specific foreknowledge? The question is again begged. And what if this small airline was Kuwait Air, or one of the CIA proprietaries? Some low-level operative or spook with foreknowledge seeking to profit from it would also seek to do so through an entity that can be placed above suspicion.
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Name removed Donating Member (0 posts) Send PM | Profile | Ignore Sat Sep-20-08 06:14 PM
Response to Reply #20
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hack89 Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 06:36 PM
Response to Reply #22
23. No-planers and Judi Wood acolytes get my vote. nt
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SDuderstadt Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-20-08 07:23 PM
Response to Reply #23
24. I second that....n/t
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LARED Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-21-08 08:03 AM
Response to Reply #22
25. Priceless, your overweening attitude is amusing too no end
Edited on Sun Sep-21-08 08:04 AM by LARED
Your confidence is what you view as straightforward inferences only highlights your bias and lack of critical thinking. Your particular conclusion about these inferences is simply one of many, and hardly straightforward. Actually convoluted comes to mind.

The question is, is your inability to see this intentional, or born of inadequate skills.


BTW, you still have not explained how hedge strategies indicate foreknowledge.
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Realityhack Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Sep-22-08 06:41 AM
Response to Reply #20
26. What a silly post.
"A single U.S.-based institutional investor"
Using whose money? Its own? A client's?

It doesn't matter who's money it is. What matters is why the decisions were made, which means the important party is the one making the decisions. Which in this case is the institutional investor.
Are we referring to the buyer or the broker?

I don't know that much about institutional investment but I would imagine when talking about this type of investment you are looking at a strategy discussed/approved by at least several people within the company.
It is quite clear we are talking about the institution that purchased the stock, not how they did so.
"purchased 95 percent of the UAL puts on September 6 as part of a trading strategy that also included buying 115,000 shares of American on September 10."
Is it the same fund or trader within the institution performing both transactions?

Yes. That is what that sentence clearly indicates. Reading comprehension FTL.
The London trading was attributed within a few weeks to a "small airline" following a hedging strategy, but, ahem, why is this small airline doing so, might it not be based on specific foreknowledge?

You are actively looking for a conspiracy rather than rationally investigating facts.
How is it that you think a hedging strategy indicates foreknowledge? The entire POINT of hedging is that you aren't certain.
Furthermore it seems a lot more likely that the small airline knew a lot about the airline industry. Their were reasons to think these stocks might fall outside of foreknowledge of the events on September 11th.
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eomer Donating Member (1000+ posts) Send PM | Profile | Ignore Mon May-31-10 08:01 AM
Response to Reply #26
32. Yes, it obviously does matter whose money it is.
Large institutional investors *famously* have been known to invest other peoples' money in vehicles that they were simultaneously betting against with their own money. Of course it matters.

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Name removed Donating Member (0 posts) Send PM | Profile | Ignore Sun May-23-10 06:28 PM
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