Monday, June 28, 2010

Smart Money

Recently I came across an article by Michael Panzner, trader and author of the must read books Financial Armageddon and When Giants Fall. It seems I missed the piece as it was in the June issue of Risk Professional and for some curious reason my subscription had lapsed (hint: sarcasm)

The article "Crisis Analysis; Views from a Non-Risk Manager" is must reading, and as is his hallmark, Mike makes it all very easy to understand.

No offence to all you 'risk management professionals' out there with top notch pedigree to go with lots of letters on your business card, but why does anyone need you? Without question you are all dismissing Mike's simpletonian conclusions and like Dorothy in the Land of Oz, you are no doubt repeating to yourselves how brilliant and necessary you all are in perpetuity.

Now I do understand like any profession out there, there are some who excel and are truly professionals with much substance and acumen.

So where am I going with this?

Well, Mike's article on the risk managers makes me think back to my pointed criticisms of institutional money and Wall St. in general. My calling of hedge fund managers 'glorified valet parking attendants' drew much critical, profane laced emails from many of said valets out there.

I have posited that the institutional money is some of the dumbest money on the planet which I think more out there are starting to realize given the number of institutions who are loaded to their eyeballs on the derivative crap created during this housing debacle.

Back when I was a lowly retail broker at BMO Nesbitt Burns, the company would continually offer institutional participation conference calls with the likes of our global strategist Don Coxe along wit a host of sector analysts. The retail sales force or brokers were allowed on the calls in 'listen only mode'. And with good reason. Why you ask? Well, back at my old firm we had a big city branch that was known internally as the Holt-Renfrew branch. (Holt Renfrew being Canada's version of Nieman Marcus) Pretty people dressed fantastically who, if they knew as much about stocks as they did about Ferragamo and Fendi, might accomplish something for their clients but I digress. Understanding this you realize the vast, emphasis on vast, majority of retail brokers are not advisers as most wouldn't know common stock from livestock if it bit them on the ass, but rather salespeople. You can appreciate the management mandate of listen only mode. But let's not criticize the big investment firms. Barry Ritholz had a great piece recently on this over at this blog The Big Picture called 'Big Investment Firms Whine About News Coverage'.


Now if that is not enough for you on Wall St. and considering the carnage they have left in their wake that is our economy, are you shocked no one is behind bars and been held accountable. Okay Madoff and Sanford have been brought to account but who else? And because of this lack of consequences we see Wall St. is still up to it's standard operating procedure with this piece of news 'Fees Exceed Yield on Black Box Securities'

On June 15, RBS gave brokers a 2.75 percent commission to sell a three-month reverse-convertible note with a 2.56 percent potential yield, according to a prospectus. Last month, JPMorgan charged 5.25 percent in fees and commissions on a three-month Citigroup Inc.-linked note that paid 5 percent interest, and Barclays offered brokers a 2 percent commission on a security paying 2 percent interest, according to other prospectuses.

Yes, readers on Wall St., now as before the debacle was unleashed, 1+1=3. When you have an Harvard or Yale MBA 1+1 equals what you say it does. As the old saying goes, you can lead a horse to water but you cannot make him drink.

Word is over the weekend that BP is having trouble rousing interest in its capital raising efforts via a bond issue. Unsolicited tip for BP, offer the selling brokers 11% commission on a 10% yield bond and watch that puppy fly off the shelves, maybe even become oversubscribed.

But back to the dumb money. Listening in on those institutional calls were, as MasterCard likes to say, priceless! Thinking back, those calls and the discussions therein provided without any doubt to me why the vast majority of the so called "smart money" missed the housing bubble, missed the Japanese equity bubble, missed the dotcom internet bubble and of course why they will miss the next bubble (China?).

Simply put when it's not their money, the results don't matter. Imagine for a moment how they might manage this money if a blowup left themselves destitute and penniless. that if the ship sank, they sank with it. I know this is heresy to comtemplate but do you think they might reconsider their all in at all times strategies?

Do me an enormous favor and call this money institutional money, call it pension money, call it endowment money but whatever you do please don't ever call it smart money because it isn't.

Speaking of smart money I received a delightfully colorful reader email the other day regarding my Apple trade which I have copied and pasted below for your enjoyment.


Hey A**hole,
Short APPL huh? Apple has phenomenal fundamentals, it's product line across the board appeals to all demographic and socio-economic segments of the marketplace.
I love morons like you. I heard another idiot like yourself calling for AAPL $45. The only way AAPL goes to 45 is via a split !!
I hope you bears are right and the stock goes down so I can load up on more of this phenomenal company.
J.R.

What can one say. I wonder if the emailer remembers AAPL's drop from over $200 down to $80 back in 2009. Or can they remember any number of crash and burn "sure things" the Wall St. propaganda machine has promoted. Wall St. loves cats like this as they provide a constant source of funding for their lifestyles. Jesse Livermore was so correct when he said the game of speculation is as old as the hills and the one thing that never changes is the participants.

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 @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $42.45
Long 1 unit Ultrashort Real Estate ticker SRS @ $49.10
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $22.52
Long 1 unit ishares Barclays 20yr Treas ticker TLT @ 92.15 stop @ $92.15
Long 1 unit ishares Barclays 20yr Treas ticker TLT @ 93.48 stop @93.48
Short 1 unit Apple ticker AAPL @ $275.20 stop @ $280.06

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