Wednesday, August 18, 2010

Our Economy, Crumbs and GM

I have thought about this post for some time and by chance the news today spurred me into action so here goes.

As many of you who follow the capital markets on a regular basis are well aware today famed money manager and George Soros protege Stanley Druckenmiller has thrown in the towel deciding to retire at 57 years of age. It is not his retirement that has prompted me to pen this post but rather something else buried in it.

I do not know Mr. Druckenmiller personally but I have read much about him and his exploits and from all accounts he is a top notch fund manager. There is nothing wrong with his retiring, as a matter of fact by all accounts he is worn out by the stress of it, that and his frustration to match his own previous lofty returns. Quite a driven cat by all accounts and I wish him health and happiness in retirement.

What prompted me to write this was the press accounts, particularly Forbes, reporting that his net worth is approximately..... are you sitting down for this.....$2.8 billion.

Yes billion with a B.

I say congratulations Mr. Druckenmiller well done there is nothing wrong with making a boatload of money and enjoying it. I can imagine by now you are asking, where the heck you going with all this. Well, remember my trip to the East coast back in June when I had the occasion to visit Newport and the gilded age mansions?

Well, back then all the extremely wealthy by and large were men who MADE something. I realize men like Druckenmiller make money, no question about that. But the money they make needs a base of money to be made upon, which is the result of making something. You follow?

We interrupt this regularly scheduled broadcast with this news item...

You think GM went bankrupt making lousy cars or by making lousing loans (think NINJA and Liar loans) via their finance arm GMAC?

You think GM went bankrupt shutting down profitable Oldsmobile with the Aurora, and the Bravada but keeping open perennial money loser and all time comedy show Saturn?

The joke today is that GM is run by politicians now news flash, it has been run by cover their ass politicians for decades, accountants and as an old friend like to say tampon salesmen, afraid to make tough decisions. how else was Saturn able to survive losing money for as long as it did, egos and reputations my friends, egos and reputations keep it alive, the kind of decision that would make a John McCain or Harry Reid blush proudly in envy.

Don't get me wrong GM had some candidates for Eyeshore of All Time like the Cimarron and the Aztec but GM's lineup the last few years was top notch ie. the CTS, Enclave, Acadia, Danali, and Tahoe. Simply the cars had been an issue but weren' t now.

Hey wait a second, didn't the new and improved GM, the one on the verge of a blockbuster IPO just buy subprime lender AmeriCredit for $3.5 billion? Can you say deja vu? My apologies for the GM rant and back to our regularly scheduled programming.

The turn of the century wealthy were all men who made something tangible, Carnegie with steel, Vanderbilt with railroads, Henry Ford with automobiles, Hiram Walker with liquor, Edward Berwind with coal, you get the picture.

Fast forward to today where the wealthy are as Tom Wolfe aptly put it in the classic Bonfire of the Vanities "crumb chasers".

It got me to thinking of the net worth of cats like ambulance chaser and former VP candidate John Edwards net worth. Think about all the other crumb chasers of the FIRE (finance, insurance, and real estate) economy, or career politicians with 8 figure net worths, people who make absolutely nothing and have amassed immense wealth.

What I am saying simply is this, when the crumb chasers - and again no offence to Stan Druckenmiller here, his retirement simply spurred this piece -are the big kahunas in the pond there is something seriously wrong structurally with our economy.

Remember Richard Gere's character in Pretty Woman, he made nothing.

This is just my opinion as someone who by the way who has never made anything in his life other than homemade ice cream and even then needed a ton of help from his wife!

As always thanks for reading.

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 @ $60.30
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
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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
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Short 1 unit Apple ticker AAPL @ $275.20 stop @ $266.50

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