Zecco Trading

Gathering from your questions after the first part of this review, there is a lot of interest in Zecco.com and their promise of zero commission trades. In the concluding portion of this review, I’ll describe my impressions about their order execution, answer some reader questions, as well as relay some difficulties I’ve been having.

Order execution
First of all, Zecco is true to the name. Both buy and sell orders, market or limit, are free. You do have to pay the usual SEC fees upon selling. At $30.70 per million it shouldn’t break anyone’s bank.

Zecco claims the industry standard of 30 seconds for order handling. It doesn’t offer level II quotes but through another online broker I was able to see my limit orders routed through the Pacific Stock Exchange (PACX) only seconds after they were entered. On one occasion, I modified an existing limit order and it took over a minute to appear. It’s probably faster to cancel existing orders and enter new ones rather than using the “modify” function if such things matter to you.

Zecco also offers stop market and stop limit orders, but not conditional orders. I give their order execution a 4.5/5.

Reader questions
TJP asked if they offer dividend reinvestment. My original answer was “no” which was incorrect. From their FAQ,

Does Zecco Trading allow account holders to automatically reinvest dividends for equities and exchange traded funds?
Yes, dividend reinvestment is a feature that is available to our clients and can be setup during the account opening process. If you would like to add this feature after the account opening process is complete, you must submit the request in writing to our customer service department.

However, you can’t buy fractional shares at this moment.

Taz asked if there is a fee associated with ACH transfer. The answer is no, but it may take up to three days for the money to go through. Taz also asked a question regarding the $2500 minimum account balance to get zero commissions. The account balance is defined as the sum of the market value of all the securities and the free cash balance. The minimum applies to the account balance, not the free cash balance, so it doesn’t keep the $2500 tied up.

Trouble with my account
I’ve received reader comments about how thrilled they are with Zecco. Not surprising given what I’ve said so far. However, I have been experiencing some serious problems in my account personally.

This is what happened. I opened the account primarily to test a momentum trading model with holding period of several days on average. Naturally, the promise of zero commission was extremely attractive. My first trade involved 50% of the capital and lasted 5 days with a 1.4% profit. Everything went smoothly and I was able to use the full amount right after exiting that position (customary in a margin account). My second trade deployed close to 100% of the capital which I exited 2-3 days later at an average profit of 1%. However, I noticed that my cash was locked up for 3 days (customary in a cash account). To my horror, I also noticed that my balance became much less than what it should have been.

For some reason my account was deemed “subject to IRS backup withholding” of 28%. The punch line was that it was 28% of sales, not of profits. So after two profitable trades that turned over nearly 150% of my capital, my account is down 150% x 28% ~ 40% from what it should be.

Apparently, this was caused by some missing paper work. It happed frequently enough that Zecco actually has a page about this, titled, no joke, “Where is my money?” There is also an active thread in their forum about this.

Here are my gripes,

  • I followed the instructions after the on-line application and mailed in the signed W-9 form. My missing form (not required for all applicants) was not mentioned in those instructions. I found out about the missing form after the withholding had already taken place by calling customer service. As a matter of fact, the customer service rep promised that someone would contact me regarding the form, but no one did and I got the form myself from their website.
  • My biggest gripe was that nowhere on the website was there any record of the withholding. It was as if the money simply evaporated. If you follow the forum link above, you will find the issue was first raised at the end of October. The president of Zecco actually responded to that thread so I’m sure management is aware of this. Elsewhere on their website they say they are working with Penson, their clearing firm, to resolve that issue. At any rate, they have known the problem for at least 6 weeks and nothing has been done. This is unforgivable because I can’t imagine a more pressing concern than proper accounting of the customers’ money.
  • I faxed as well as mailed in the hard copies of the required forms last Tuesday. On Thursday there was a power outage in the middle of my call with a service rep. On Friday, I was finally able to confirm that all the needed paper work would be in place after the hard copy arrives.
  • Through out this ordeal, my emails were never answered. It was quite tricky to reach a live operator, although I’m getting good at it.
  • On more than one occasion, the customer service rep had to put me on hold for several minutes while looking up my file which makes me question their information organization system.

The other problem I had with money market sweep was probably related. Currently, I’m earning only 1% on the free cash balance. One person from Zecco’s marketing department contacted me to offer help after reading my remarks in the comment section of the previous post. I declined since I wanted to have the perspective of a typical customer.

They did say on their website that if they don’t receive the proper paper work within 30 days, Penson will forward the withholding to IRS. For now, I can only hope that I get money back soon.

Conclusion
One reason I waited so long to finish my review was that I was simply livid about the missing funds. As they say, you shouldn’t go food shopping while hungry… Bad analogy but you get the picture. Had I written this a week ago the tone would have been very much different.

I decided to try Zecco in the first place because of their “anti-establishment” feel, and I still want them to succeed. But I have to face up to how unpolished they are now. So I’ll make the following limited recommendations. I think Zecco is good for:

  • Experienced online investors who use Zecco as an alternative account. This is somebody who knows exactly what she wants and who sets up everything right in one shot.
  • Novice investors who care a great deal about trading cost and who is content with the basic buy and sell operations.

If you do decide to open up an account at Zecco, do learn from my experience: send in all your forms!

Festival Of Stocks #13

Welcome to Festival of Stocks #13 at 1stMillionAt33.com. Thanks to all those who participated, and thanks to George at Fat Pitch Financials to give me this opportunity to host. To find out how to participate and host this carnival event, go to the home page of Festival of Stocks.

If you’re on my site for the first time, I welcome you to take a look at my SiteMap or look through my categories and popular posts at the left column.

Onto the Festival of Stocks, posts are listed in the order of submission. Since majority of the posts are of high quality, I won’t be highlighting any to make differentiation.

  1. Long or Short Capital presents 2×2 Matrix: Less & More. Commentary on Google, Yahoo, Clear Channel, and newspaper.
  2. “D”igital Breakfast presents Small Cap Value Pick – Basic Energy Services (BAS). A value play which has bounced off support.
  3. HedgeFundDomain presents The Essence of Price. An argument for trading based on price-only.
  4. Market Poetry presents How to Get Rich Without Going Crazy. Very cool poem on investing and the Market. Refreshing reading.
  5. Debt Free presents Motorola vs. Apple for World Domination? Some observation on the strategies and competitions among the two tech companies.
  6. RDoctor Medical Portal presents Insurance Expert Discusses Health Care Crisis. Sort of. An interview with Hank Stern on the state of healthcare.
  7. Scatterbox at stevensilvers.com presents The big picture behind congressional investigations that are going to create new corporate scandals. Political wins of Democrats mean a hard time for frauds in big business.
  8. CONTROLLED GREED.com presents Kerkorian Unloads all of GM. Have you heard about this yet? Check it out.
  9. Stock Market Beat presents Don’t Hold Your Breath Waiting for More Semiconductor Buyouts. I agree with Trent’s analysis.
  10. TradeRadar Operator presents Use ETFs to profit in down markets as well as up markets. Using ETFs that either long or short the market can help you time the market easily. Well, that’s assuming that you are right about the timing of the market. That’s probably the hard part.
  11. Sox First presents How does Google stop turning evil? Pick a partner! Never really understand Google’s philosophy. Don’t do Evil? That’s a very tough word to define. You might as well use a tautological definition: whatever Google doesn’t do.
  12. China Law Blog presents China’s “Hottest” Companies. A list of great companies publically trading in Asia.
  13. StockReply presents Automotive War. From the analysis, I will certainly buy Toyota over GM or Ford for the long term.

That’s all for this week. Next week, Festival of Stocks will be hosted at Endless Gibberish Personal Finance Blog. Remember to check it out.

 

An Update On The $600k Home

After many thoughts about this home, the sticking point has really been the second-rated school district (but still better than probably 85% of the schools in California). Despite that the performance of a school district changes year from year, I just can’t make myself commit to it.

However, one really positive point about that home is that at the next door lives my nice friend from Church. It would have made baby-sitting so easily between the two families that I think my wife’s childcare burden will be reduced by at least some 25%. I keep thinking whether this positive would outweigh the negative.

I called the listing agent myself again this Thursday to check on the status. I thought the home must have been sold. Surprisingly, I heard the exact same story again:

There are two offers on the house. You should make your offer in the next couple of days before the bank approves those loan terms.

Not sure what’s the real story behind. But my agent certainly have delivered the words from listing agent verbatim. Looks like it was probably a trap.

After some research, I also found out that the price of my own residence has fallen further, now by some 10% from the very peak. I will update my net worth at the end of year to reflect this change (although I have assumed a more conservative price when calculating my net worth). In my own community, the homes that are sold or still active have gone through an incredible number of days on market (DOM):

  • The active ones have DOM of 160, 125, 21, 50, 97, 84.
  • The ones that have recently sold had DOM of 43, 131, 65, 59, 176, 17, 13, 31.

This housing market is getting REALLY slow. If I made a non-contigent offer on the home, I probably will have DOM of 150+ with either the similar pricing or lower.

I keep thinking to myself that maybe next summer I will have a lot more choices when more homes will come to the market. The slow housing market is making any house move to be difficult.

Many thanks to all who have responded last time. Your inputs gave me more angles on the issues. Waiting now should be to my advantage. And I can’t really spend $600K in just 1 week.

 

Test Driving Zecco

You probably have heard about Zecco already. The name stands for ZEro Cost Commission. True to their word, they offer zero commission internet trading for stocks and ETFs, for both market and limit orders as long as the account balance is above $2000. There is a limit the number of trades but it’s a more than generous10 trades/day, 40/month. Bank of America also offers free trading to customers with a combined $25,000 in all accounts in a dozen states (AL, CT, DC, DE, FL, GA, MD, MA, ME, NH, NJ, NY, NC, PA, RI, SC, VT, VA). However, after comparing the other fees it was obvious Zecco was the clear winner, so I decided to give it a try.


Source: Zecco

Application/ACH transfer
I was actually offered a Zecco account suppose back. I suppose because of my other blog. I signed up for an account which lets you participate in their forum and post blot entries. Online trading requires a separate application and password.

The online application was a snap and I received approval the next day. However, I found the interface unpolished in several places. It lacks the ability to enter trailing loss or conditional orders (which BAC lacks also). Since they were upfront about this limitation, I was not too disappointed.

When it came to set up the ACH transfer, however, I found the interface cumbersome and unintuitive. For example, on Nov. 27th, I scheduled a transfer on the 29th. However, once that request was entered, I had trouble finding a record of it. I ended up emailing them on the evening of 28th (No 800 number, phone number for trading help only) and got this reply the next morning.

Thank you for contacting Zecco Trading. You will need to click on PENDING Transfers to see that we have received the request. I do show a pending ACH for your account. We appreciate your input on our ACH processes, we would like you to know that we are constantly upgrading our website and this is an area we are looking to improve.

Should you have any questions, please refer to www.zecco.com

Thank you for your interest in Zecco.

The ACH transfer did manage to go through and I was fairly happy with the way they handled my questions.

My rating so far
Site interface: 3/5
Customer service: 4/5
Overall experience: 4/5

Next key area to be evaluated: order handling and execution

A Great Carnival This Week!

Here are all the great money/finance carnivals featuring 1stM@33 submissions. Please visit them for more good readings.

  1. Carnival of Frugality #53
  2. Festival of Stocks #15
  3. Carnival of Personal Finance #79
  4. Carnival of Investing #53

Yeah! Shame on me! Although I submitted to various carnivals, I have been simply too busy AND lazy to write up this regular post week after week. Initially (actually just 6 months ago), I didn’t bother to write this, since I derived most of my site traffics from carnival participation. But I guess there is probably some amount of traffics that I can share back with the carnival hosts now. Hopefully by doing this, I can add a little to the vibrancy of the online money/finance blogging.

Anyway, I will try to do this in the future week after week. And if I don’t forget to do that, PLEASE ping & pinch me. I truly owe all of the weekly great hospitable carnival hosts this post.

Why I Bought Gold Back In 2002

This is a holiday season, and a perfect time for me to divulge an investing secret that I don’t like to share with too many people. Only the ardent followers of my site will get to read it.

Do you know why I bought gold back in 2002 for $305? Was I really that smart, and forsaw the future gold price? NO. Absolutely not. I didn’t know that much about gold, but I remembered and followed the advice of the smartest financial wizard that I ever know of. It’s a lot more important to follow the smartest people than being smart.

Maybe some of you know the name of this guy. I may be writing more about him, but I won’t be spelling his name correctly so that Google Search won’t find my post. There is too many ugly things going behind the scenes that I don’t want to get myself into trouble either.

He is the ONLY person that I know of who has successfully predicted stock market crashes at least twice (and maybe more), 1987 US and 1990s Japan. His prediction came months earlier, and the date was probably down to within a couple of weeks if not days.

So what did this guy say in 1999? Gold’s bottom at about $250, and any price below will be the DEAL of the CENTURY. If I recalled correctly, he also correctly stated in 1999 that gold has PREMATURELY made a false bottom in 1999. It turned out to be a double bottom made in 1999/2001.

I waited for “the deal of century” to appear but it never did, and I couldn’t affirm whether gold had successfully bottomed because his numbers were so right on target. After it rose above to $300, I realized that the tide has already turned, and I bought in. I kept investing in gold, without realizing the alternative unfolding of his prophetic words: tangible assets will keep going up towards 2007. And that was real estate. In fact, Fed successfully diverted the monetary tide much more into real estate than other tangible commodities. Obviously, I was looking for the usual real estate slowdown after a stock market crash. But of course, history only rhymes, but never repeats.

When I read his articles before he went into jail in 2000, one of the article he talked about economic forecasting which is really fascinating. He compared quantum mechanics physics with classical mechanics physics, and how economics seemed to be so unpredictable. But through his studies, he has found that economics is more like classical mechanics. Once a motion is set forth, it is hard to turn it around. Basically, long term economics forecasting IS predictable and forces of the economics were often seeded YEARS earlier.

He made such an impression on me that I wish I remembered every word he said. Unfortunately, this guy was jailed in early 2000, and has been jailed because of contempt of the court (he cannot surrender the “cheated” money to court because all of his assets are confiscated and all of his managed accounts have been conmingled and most likely stolen by a guilty bank). He was jailed for almost 7 years now, and has NOT been given a trial at all. His trial if there is ever one got postponed and postponed and postponed, and in the meantime during these 7 years he simply kept waiting for a fair trial. And this is happening in USA, the land of “free” and “brave”? Just this year, finally he, an old man, admitted guilty by force and still without a trial.

I wish I’m lying, but I’m not. This reads almost like another fabled story. Unfortunately it is true, and so true for this poor and great economist. Both US and Chinese government had tried to obtain his economic forecasting model without success. So he was jailed for “good” probably in the opinion of USA. His predictions on financial markets were too accurate and too scary to the power of authorities. This is like what’s happening in “Enemy of the State” movie.

In his economic models, he also forecasted that there will be an international debt market crisis (and you know which currency, right?) In his economic models, there is a period of pi or 3.14159 *1000 = 3141 days. He said it’s a magical nature number. I fully agree, but having a minor in physics from college, I cannot concur that 1000 is a magic number. I don’t buy his theory of pi * 1000 at all, because I cannot explain how 1000 is a natural number in nature. However, for whatever reasons, 3141 days seems to be the magical period for economics through his studies.

He models within every 3141 days for 3 peaks, with the centered peak being the highest. However, only by collecting ALL international money flow and data from financial markets, and then run through his artificial intelligent computer model will you get the type of asset that will peak or bottom.

Do you know when is the next MAJOR peaking date? It’s Feb 25, 2007. And that has been the major reason that I have stayed put for my precious metal positions in the face of 2006 April’s Hindenberg’s Omen. And the reason is that I believed that the peak in 2007 may be even higher. But of course, I was aware that I didn’t know which asset class/index will be peaking in 2007. After the correction in precious metals in June/July, it started to become clear to me that actually the more likely candidate for peaking is the general stock market. I started to call to PUT money into the general stock market repeatedly through the fall season (well, if you were reading my advice back then). And so many analysts have called a stock market correction since its rise. But I know/believe that the MAJOR stock market correction will not come most likely until late Feb of 2007.

YES, it will be a TOP, and it is still not top YET.

I didn’t know whether it will be a peak date for real estate, or precious metal, or stock market. But I knew that the peak of real estate is either 2007, or summer of 2006 as predicted by UCLA professor Sornette. Certainly, real estate is out of picture. And certainly precious metals are too late to rise up to a NEW record high in my opinion. So, it has to be the STOCK market. And you bet that I will sell for sure. And sorry, I may or may not remind you. An investing secret that is too well-known will simply not work for sure. In fact, I know that there are (at least 2) investing professionals out there well aware of this mystical PI date.

Forget about 4-year election cycle, or 8-year cycles. I believe this 8.6 year cycle is more accurate than anything else. 1987 stock market crash fell on the EXACT PI date if I recall correctly.

If you want, you can google this guy. His full name is gnortsmra nitram spelled backwards. Again, don’t put his name in my comment section. I will delete them, since google also pick up words in the comments. It’s a little hard to google things out on him. You may need to add other relevant words, or else you won’t get the right things come up. After 7 long years, it’s becoming exceedingly difficult to find his written articles from the past.

And currently since precious metals will not peak in 2007, I believe that they will have more bull runs after that.

By the way, it may not be a game over for stocks. I tentatively believe that 2009, the next significant date in his model, will be more important peak date in terms of absolute price (but maybe not in relative price to gold).

I would pay more than $1000 for his research if it’s available. But now I’m kind of on my own, reading thousands of articles every year (about 15+ article a day), while watching various markets and observing closely where the money is flowing. After several years of investing in gold, I have become convinced many of the arguments made by gold bugs and peak oil people. I don’t know whether there will be an international debt market crisis as once predicted by this guy, but I can definitely conjure up ways and reasons of how it could happen, especially through peak oil theory.

People like to be optimistic about future, and take a more linear view on things rather than understanding cycles. But between peak oil and global warming, I would really much prefer peak oil. Truly, peak oil will save the Earth, despite the potential economic havoc that it could cause. More on this later, until next time….

A Dash Of Pink For Your Portfolio

Random Roger wrote about the Vietnam opportunity fund last week. Vietnam was in the news recently because of the failed trade bill on the eve of the APEC summit. In spite of that, Vietnam is due to become the newest member of the WTO next year while it’s doing to China what China has done to others in manufacturing. Roger’s article was about how much emerging markets in general and the Vietnam fund in particular has appreciated in the last couple of months, but I mentioned it as a long segue to the topic at hand which has to do with pink sheets.

It turns out the Vietnam Opportunity fund (VOF.L) trades in London which makes it difficult to buy from an online broker with the exception of IB. Fortunately, it’s accessible in the over-the-counter market known as the pink sheets. It trades under the symbol VTOPF at a decent volume of 300-400k shares/day. Most online brokerages (TD Ameritrade and Scottrade for sure) treat pink sheets exactly the same as other stocks/ETFs.

Pink sheets are formally defined as

A daily publication compiled by the National Quotation Bureau with bid and ask prices of over-the-counter stocks, including the market makers who trade them. Unlike companies on a stock exchange, companies quoted on the pink sheets system do not need to meet minimum requirements or file with the SEC. Pink sheets also refers to OTC trading.

The name came from the pink paper they are printed on. They have a bad rap as a lightly regulated market where penny stock pump-and-dumpers cruise for their prey. That reputation may be deserved; however, some well established foreign companies can also be found there. They tend to be smaller than household names like Sony and Nokia that have ADRs, but are solid nonetheless. In addition, a large number of Canadian junior mining companies can also be bought via pink sheets. While riskier, they aren’t exactly fly-by-night operations either.

Below are some examples that I have looked at one time or another. This is not a recommendation for purchasing them.

Established foreign companies
Sherritt S.TO/SHERF.PK (Large Canadian company in coal, oil and base metals)
Canadian oil sands trust COS-UN.TO/COSWF.PK
Western oil sands WTO.TO/WOTIF.PK
Vestas wind systems VWS.L/VYSPF.PK (Dutch wind energy company, trades on just about every European stock exchange)

More speculative plays
International Uranium IUC.TO/IUCPF.PK (uranium mining and processing)
Denison Mines DEN.TO/DNMIF.PK (uranium mining)
Dragon Oil DGO.L/DRAGF.PK (Caspian oil)

Symbol look up
Normally what happens is that you have a foreign company that you are interested in, but it’s only listed on a foreign stock exchange. You can use the Yahoo finance symbol look-up to see if it trades as pink sheets. Note you have to specify US&Canada or World Markets in the pull-down menu. After locating the symbol, you can check with your broker to see if you can purchase it from them. Yahoo uses the “.pk” extension, but most other quoting services do not.

Intraday quotes/pricing
The pink sheets are quoted only at the daily closing price. For intraday quotes you have to use the symbol on the native exchanges. Note the quote will be in the local currency while the pink sheets trade in US dollars, so you will have to do a conversion when placing an order.

Caveat emptor
– Limit orders are absolutely necessary as the volumes are usually low.

Places to do research
Canadian Stocks: Stock House
London Stock Exchange

As always, you need to thoroughly research what you’re getting into. But for those daring, a dash of pink may do wonders for their returns.

The Commercial and Vix Fear Index

VIX Background

The Volatility Index (VIX) was created by the Chicago Board Options Exchange (CBOE) in 1993; according to the CBOE, the ‘VIX measures market expectation of near term volatility conveyed by index option prices of the S&P 500.

In 2004 VIX futures were made available for trading providing investors with a unique opportunity to speculate on volatility. In general a rising VIX index is correlated with a declining stock-market while a declining VIX index is correlated with a rising stock-market.

(In the chart above, the missing data is a result of the VIX not meeting CFTC’s reporting requirements)

Recent Activity

As the VIX made new lows in November, commercials were big buyers (green rectangle) while large & small traders were sellers in the marketplace; meanwhile the stock-market was at new yearly highs. In other words, investors were becoming very complacent as commercials were buyers of volatility at these low levels. Soon after, volatility returned into the market place as the VIX broke out and went on to rally around 2.5%. As the VIX broke out, the Dow Jones declined around 200 points in two days.

Over the last two weeks net-commercial position decreased by 1,044 contracts but remains elevated at a total net-long position of 2,895 contracts. Watch for this week’s COT report for more clues on future direction for the VIX and consequently the stock-market.

Broad Markets

Russell 2000 [ http://www.buythebottom.com/rut.html ]
Net-commercial position decreased by 828 contracts. This is starting to look like a repeat of the commercial setup before May’s meltdown. Simply put commercials are sellers and large traders are buyers. As soon as the yellow line (net-commercials) crosses below the white dashed-line I would then start to look for a top in the stock-market. From the chart it would be logical to expect this setup in the early part of 2007.

S&P 500 [ http://www.buythebottom.com/spx.html ]
Net-commercial position decreased slightly by 440 contracts.

NASDAQ 100 [ http://www.buythebottom.com/ndx.html ]
Net-commercial position increased once more, this time by 1,252 contracts. What I find very interesting is that large traders are also big buyers over the last few weeks, which means that small-traders are responsible for all of the selling. This is a bullish setup in contrast to the other indexes.

Dow Jones [ http://www.buythebottom.com/indu.html ]
Net-commercial position continues to hover around the -22,000 level, increasing marginally this week by 117 contracts.

I would not expect a top in the stock-market just yet, especially when you look at the Nasdaq-100 chart, but the tide is slowly turning as best seen in the Russell 2000 chart.

Commodities

Crude Oil [ http://www.buythebottom.com/wtic.html ]
Net-commercial position increased by 4,343 contracts. I should note that commercials were buyers as oil rallied from $59 to $63. Meanwhile large traders were also buyers in the market, which leaves the small-traders as the lone sellers. Overall crude is setup for a rally, so keep watch for reversals and breakout opportunities.

Gold [ http://www.buythebottom.com/gold.html ]
Net-commercial position decreased by 2,444 contracts. From the commercial perspective I do not see a meaningful rally before we see a correction/consolidation.

Currencies

US Dollar [ http://www.buythebottom.com/usd.html ]
Net-commercial position decreased by 3,292 contracts. This is a critical point for the US dollar index, if commercials continue selling after the recent breakdown; this will be a big negative for this market. Unless that happens, look for higher prices as the dollar is setup for a rally.