Tuesday, November 17, 2009

Have We Lost Our Way?

Over the past weekend I was doing some reading and came across an article "Goldman pays Junior CDO's Before Junk Senior Classes" via Bloomberg. Step back for a moment and 'forget the legality of it' because legal or not Goldman does not get the short end of the stick in deals and focus on the foundation, that of right and wrong.

Buried deep within the financial alchemy of it all is a clause that lets one party supersede another.
Oh its legal all right, but is this what our capital markets have become.? Make the bill (in congress) or the contract so convoluted, so opaque, that you need a team of lawyers fluent in latin just to read it let alone begin to understand it, and one wonders why we have to graduate as many lawyers as China graduates geologists. Helloooo!

I read recently the former University of Michigan football coach Bo Schembechler operated with a handshake agreement. Yes you read that correctly, no contract. A handshake! How far we have come, or is it regressed? You wanna try operating with a handshake agreement with a unit like Goldman Sachs, but of course they're just doing God's work.

It is easy to sit back and do nothing but complain about what is going on around us. Asking what has this great nation come to? But there comes a time when one gets to, the apex as it were, where complaining morphs into something more. Are we there yet? Who knows as it is hard to time when the mood rolls over from anger and frustration and into something worse.

I have been sitting here watching and listening to this developing Galleon insider trading situation. The details continue to come out and it does not seem to be ending anytime soon. Hedge Fund valet boyz and girlz, senior executive at IBM, former CEO of Advanced Micro (AMD) just to name a few.What I find interesting is something a friend asked me the other day regarding the subject, "why are they winding Galleon down if the charges are in regards to approx. $20 million in trades when the fund(s) are worth 3 billion?" Can they not just pay a fine, and this has to go down as the all time best line, "neither admit nor deny wrongdoing!", Kinda like JP Morgan did after raping and pillaging Jefferson County.

Now I am no Christopher Cox, he being the former chief eunuch at the SEC, but it seems to me a good question, why wind down the fund? So what could this signify? Is this just the tip of the iceberg? Is the dollar figure a low ball one? Are there bigger names involved?

Have you noticed how the SEC and the feds go after bottom of the totem pole pikers like Cioffi and Tannin from Bear Stearns. Absolutely hilarious if it were not so insulting.
Here's a hint Mary Shapiro, stop wasting your time with a a couple of Ferrari owning street hustlers like Cioffi and Tannin. Get some onions, stop wasting resources chasing down the couriers, runners and lookouts while the drug kingpins sit comfortably ensconced in their palaces.

Here's another hint Madam SEC Chair Shapiro, the list of guys you can commence arraignments for are thugs like Mozilo, Raines, Dodd, Conrad, Mudd, Syron, Blankfein, Geithner, Paulson and Greenspan. Is this enough of a start for you? Or do you need more?

Buy hey, who am I kidding. You don't want the truth. We don't want the truth, or as Col. Nathan R. Jessep in the movie A Few Good Men would say "YOU CAN"T HANDLE THE TRUTH ! "

Yes unfortunately we can't handle the truth. We don't want the truth, as we would rather live in a complete fantasy land. I can assure you that this charade absolutely cannot and will not go on forever. Or alas maybe I am wrong and it can go on as we might just be gallactically stupid a la Lt. Cdr. JoAnne Galloway.

Quick side story time.

Once upon a time, circa 1999, back when I was a retail broker back in my previous life I had a conversation with a rookie broker, excuse me, developing I.A. (investment advisor) as you are not allowed to call them rookies as that is demeaning. Kinda like giving a trophy to placing 13 out of 15 contestants but yet again I digress.

Anyway in this conversation we were discussing the market, in particular tech stocks and their valuations, if you could call it that. I was counselling him in the arena of risk and the potential danger some of these issues could inflict on a portfolio and a young broker's career. Seeing as how I was not getting through I offered the following analogy.

If someone told you it was going to rain for 40 days and 40 nights. What would you do or could you do? Well, you could build an Ark or not build an Ark. Now if you built the Ark and it did not rain what are you out? Labour, materials, your time (we can assume you needn't insure it nor get a permit for it!) Now if you don't build the ark and it does rain..... well, you're dead.

Back to my point about
trust. How can markets function under this type of environment? How can a participant make a decision with any amount of confidence? A wizened trader/friend often comments that confusion breeds contempt. So does this start to explain how this market rises on basically fumes and vapor (re: lack of volume)

Has this become a 50 Cent market, that some have called a 'get rich or die trying" environment for hedge fund valets and pension managers?

I have no idea what is coming down the pipe for us whether it be for our markets, our nation or as a society, but might I humbly suggest that one be prepared for all outcomes, both good and bad. (hence my side story about the ark !)

Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $6.05
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 1 unit Ultrashort Xinhua China ticker FXP @ $8.32
Long 1 unit Ultrashort Real Estate ticker SRS @ $9.82
Long 1 unit Direxion Tech 3X Bear ticker TYP @ $10.68
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97
Short 1 unit i-shares Russell 2K ticker IWM @ $61.70 stop @ $63.80
Short 1 unit Vornado ticker VNO @ $68.30 stop @ $70.71
Short 1 unit Bed Bath ticker BBBY @ $37.75 stop @ $38.41


Vicki said...

Oh but this is EXACTLY the problem! How to properly prepare for the coming shit storm, because there is no telling how darn ugly it will be. There are people making excellent arguments for hyperinflation. Others with deflation and even others saying stagflation, then hyperinflation... hell, we are just trying to hang on & keep them from stealing it all from us, but I think they have us surrounded and outflanked.

Thanks for your blog, it is appreciated!

Harleydog said...


thx for reading and your note. Ask yourself how you would prepare if things as we have become accustomed to were interrupted. ATM, Grocery store, fuel, electricity, safety, etc.

I don't have all the answers but I sure as hell am not going to get caught with my pants down. think of ways to insure your way of life life you have insured your home or your auto.

Outflanked, maybe surrounded no. Acually we have them surrounded, we just need to sober up and realize it.

appreciated your thx and continued success to you.