Friday, August 24, 2012

Struggling To Reconcile

Came across an interesting chart recently via the ICI Investment Company Institute in the WSJ. Its illustrates where investors have been putting their money the last few years. Green is bonds and orange is equities. Above the line is positive (money inflows) and below is negative (money outflows).

I struggle to reconcile the above chart with the one below which is the S&P. Maybe 2+2 really does equals 6 as the MBA's at Wall St.'s primary dealers keep telling us. Or maybe in the fullness of time the turth

Thursday, August 23, 2012

Social Networking Junk

I haven't touched on the social networking sector in some time so I thought I would today. These gems are really something to behold. The sector is highlited by Facebook ticker FB. What do you say about this? The chart says it all. The latest news is the sale of a huge whack of stock by insider Peter Thiel.

All the experts out the woodwork now that the horse has left the barn. I especially enjoyed the laughable rant by Jim "any investor who can get shares of Facebook should purchase as many as possible Mad Money 0516/12" Cramer the other day regarding the Thiel sale of stock. Funny how Jim gets lathered by an insider selling out, which by matter of fact is EXACTLY what an IPO is, yet the billion dollar purchase of a NO revenue, NO profit less than 2 yr old startup company Instagram (or Instacam as it should be called) is not concerning? Sadly for the minions who follow the pied piper of hype, the common denominator for Jim Cramer is if things are going up "who gives a shit", but when things tank, look out cause he's a scapegoat huntin'.

But it wasn't just Jim Cramer. The street is full of his ilk. Do you remember these gems.

"I would invest in Facebook, I don't care what the opening price is"
Apple co-founder Steve Wozniak as part of Facebook pre-IPO hype which should become case study blueprint material for aspiring Wall St. propagandists. So sure Steve, and the rest of us would eat, drink and party like drunken sailors were we worth a couple billion.

"Investors looking to short Facebook stock are getting in front of a freight train" 
Needham and Co. senior analyst Laura Martin Wed May 23. 2012 with FB trading around $31-32/share. I didn't even mention the $40 target she had on the stock. Thank heavens they didn't let a junior shill, excuse me, I meant analyst near the stock.

Well, the social networking stocks continue to get crushed which is at it should be. Math is math and 2+2=4 no matter how many times an literal army of paid, Wall St. MBA's tell you it equals 6.

Anyway back on April 23 of this year I had the following posts on twitter regarding some social networkers.

"ZYNGA shareholders join GRPN 1's hope'g 4 an Instagram-esque buyout miracle. Like GRPN, no fraud, simply "growing pains" 

That comment about  growing pains was from some Wall St. "Henry Blodget-esque' analyst reassuring the 'muppets' that holding the stock that all was well.

"With Wall St. track record sell'g toxic paper I marvel @ the sheep lining up 4 shear'g. IPO shud B renamed ISO. Insiders Selling Out."

To remind everyone the term 'muppets' is how Goldman Sachs fondly refers to its paying clients. I wonder how many Goldman clients out there think, "they can't be referring to me, gotta be the 'other clients"

"Don't forget that other social networking 'must own' gem Angies List ANGI - 14.5 better hold or the target is 9.25"

Below is a daily view of Angies List ticker ANGI. The yellow highlited area is April 23 where I outlined the 14.5 mark. Notice the activity April 27 (purple), May 3 (green) and May 9 (blue). I suspect high frequency trading algorithms on a short stop loss hunt, but I am not an expert in that arena.

I bring this up because ANGI although it took a while and attempted to gouge out the eyes of anyone daring to short it the piece of junk, yes thats what it is, is now trading 9.70 and hit 9.43 this morning.  It took the the milk bus route to get there but arrived nonetheless. 

Tuesday, August 21, 2012

The Math Doesn't Lie

I realize we live in a new world economy. One ruled by the Ivy league MBA, smartest in the room, set, who, full of arrogance, hubris and the next bonus cheque have created this financial Frankenstein that refuses to end. I understand that in this new fangled era of financial alchemy, schemery and chicanery lead can not only be turned into gold, but once you done so and sell it to the Sisters of the Covenant pension fund you can keep your bonus and avoid prosecution when the truth is revealed. Now this can only be accomplished if you possess that Ivy league MBA or have been a guest on CNBC because if you have, you simply cannot be a hack (Jim Cramer's conclusion not mine) or a thief.

In this new era ponzi,  old economic indicators like employment, income per capita, debt, net cash and other meaningful indicators mean little. Why would anyone waste the benefits of said MBA analyzing say shipping rates or container rates when you can spend your day buying the dip, writing an algorithm or gaming the central banks.

Now in keeping up appearances you go to conferences and tell wealthy institutions and individuals that you focus on tried and true financial ratios and fundamentals to help with your asset class selection and allocation but you really don't. I mean, David Tepper told us all on CNBC that "investing is easy" right? So why all the claims of investigation and analysis or to quote Lt. Daniel Kaffee questioning Col. Nathan Jessup in the movie A Few Good Men;  "If you gave an order that Santiago wasn't to be touched, and your orders are always followed, then why would he be in danger, why would it be necessary to transfer him off the base?"

If its so easy, why all the research and analysis?

Well in the non-ponzi real world 2+2=4 whether you matriculated at Harvard, MIT, Insead or the local Community College. It equals 4 no matter whether your net worth is $1,000, $1 million or $1 billion. It equals 4 whether you are a Libor rigging CEO, a customer fund stealing former Governor, or a corner hot dog vendor.

Speaking of the real world have you had a look at the Baltic Dry Index, which you can view here, lately? You should. is in free fall. The Telegraph had a piece last week World Shipping Crisis Threatens German Dominance as Greeks Win Long Game. There's a couple of choice real world quotes from the piece;

"Britain’s oldest shipowner, Stephenson Clark, dating back to 1730,went into liquidation last week." 
"Container volumes arriving at European ports plunged in June, dashing expectations of a summer rebound. Imports fell 7.5% from North America and 9% from Asia. Flows into the Mediterranean region crashed by 16%."

Not enough? Check out this 'real world' quote form Martin Smith of ship operators Norddeutsche Vermögen in Hamburg. 

"The market is barely paying above operating cost. If you are loaded with debt, you are in trouble,” 

Now there's a novel concept, loaded with debt = trouble and here I thought, via the smartest in the room because they keep telling us over and over again, that more debt will solve a global debt problem. Remember now, its all an issue of liquidity not solvency! Too funny.

"Commerzbank – the world’s second-biggest provider of ship finance, and reluctant owner of a flotilla of foreclosed ships – said it is shutting down its €20bn (£15.7bn) ship funding operations entirely to “minimise risk and capital lock-up”"

Nice. Seems like banking stupidity wasn't confined to liar, Ninja, fog a mirror you qualify real estate loans. Those genius bankers really spread the stupidity evenly. At least they repossessed the vessels which more than I can say for all our lovely banks here playing the delay and pray, extend and pretend game with their notes. I love the author's (Evans-Pritchard) comment in the piece about how forcing banks to raise capital too fast and too soon can choke lending to the real economy.

Really? Sounds to me like cutting off a crack addicted junkie, but alas we are all accustomed to 24/7 extortionist propaganda fed to us by the banks and their paid media stooges, that we need the banks, Armageddon comes if we let any fail blah, blah, blah. 

The only good part of all this is no matter what the smartest in the room and their brainless stooges concoct and foist upon us, the laws of mathematics are immutable. Or as Ayn Rand once said;

" You can avoid reality, but you cannot avoid the consequences of avoiding reality."

Monday, August 13, 2012

Musings of An Economic and Financial Sociopath

New York Magazine's Jessica Pressler had a great piece over the weekend with $JPM's #JamieDimon entitled 122 Minutes With Jamie Dimon which might be more appropriately titled as my post is.

Take some time to read it as it offers great insight into the thoughts of a real live sociopath. Jamie Dimon, much like Dorothy in the Wizard of Oz, believes he can click his heels 3 times and keep repeating
"Bankers are decent honorable people, bankers do good things, I'm not responsible for the financial crisis and dammit wheres my 8 figure bonus check!"

Tuesday, August 7, 2012

Breathtaking Idiocy

Sometimes you read a story and it simply is breathtaking in its idiocy. I want you to take a quick few minutes and have a look a this must read piece, Where Borrowing $105 million Will Cost $1Billion: Poway Schools via the Voice of San Diego.

I have seen some lunacy in my day but this simply breathtaking in its idiocy.

If you choose to skip it here it is in a nutshell;

"The bottom line: For borrowing $105 million in 2011, taxpayers will end up paying investors more than $981 million by 2051, or almost 10 times what the district borrowed" 

The piece references that the district sought the advice of a, as of yet unnamed, financial consultant. What are the odds this consultant has an MBA, better yet a prestigious Ivy league one at that?

 California’s ever-strapped districts have increasingly looked to capital appreciation bonds to raise money for improvements without increasing taxes on current residents. Across the state, districts have borrowed billions this way, using exotic financing to shift the burden for paying for today’s school construction to future generations of Californians.

Sadly this story is not confined to the Poway School district. This something for nothing, kick the can, end run bullshit has become an epidemic around the globe.

I saw it firsthand during the tech bubble when sound analysis was replaced with tales, hype lies and outright deceit. Think Henry Blodget, Mary Meeker, Frank Quattrone, Jack Grubman et al.

Sadly nothing will change so long as the clients, or muppets as they are more accurately described by Goldman Sachs personnel, both institutional and retail continue to accept it period. The phrase "shit for brains" comes to mind for the whole thing. Advisor, client everyone. 

Thursday, August 2, 2012

Culture of Risk

The news de jour is Knight Capital ticker $KCG. It appears their in house high frequency trading algorithm went berserk resulting in a, are you ready $440 million loss.  Just to give you an idea of the order of magnitude of this loss, Knight Capital financially had;

Q2 revenue of $289million and net income of $3.29million
Q1 revenue of $349million and net income of $33.11million

If you do a quick cocktail napkin tally Knight's quarterly net income backwards this loss wipes out ALL net income since the beginning of 2008. Yes 4.5 years of profit wiped out in 1 day and as you might have guessed, put the company's very survival at risk without a lifeline.
I would hazard a guess that there may be a problem with the risk reward model they use over at Knight. Acutally I wish Wall St. would do us all a favor and stop using phrases like risk management and loss prevention. Start calling it for what it is, a culture of risk  plain and simple. A get rich or die trying mentality. Who cares if you sink the ship and 1400 odd people get thrown out of work over your bonus chasing psychopathy you retire in grand fashion maybe even catch a gig at Fed, Treasury or regular on CNBC.

One of the comments I heard to today in the multitude of articles and commentary on this fiasco was something to the tune of 'Knight Capital has been one of the biggest beneficiaries of the evolution of the market (high speed trading)'. Over at the Room Temperature IQ institute, of which I am still a senior fellow in good standing, we call it;

 "you live by the sword die by the sword"

This whole Knight fiasco should simply stand on its own as yet another shining example of how the financial alchemists, snake oil salesmen and Ivy league ponzi prostitutes (shall I keep going) have utterly distorted, corrupted, and perverted a market that was once the envy of the globe into a listless, lifeless shell of its former self. Be proud of your creation fellas, you deserve all the karma that's coming for what you have done. 

When the dust of your genius experiment settles I expect to see many out there, face to face, on the curb under the buttonwood tree readily employing the 4 c's of credit not to mention a handshake as from the ashes of your avarice and greed will arise the trust, honor, integrity and class that an public securities exchange should have and be.

P.S. under that new scenario, fraud and transgressions will NOT result in fines with neither admissions nor denials of wrongdoing!

Wednesday, August 1, 2012

When Thugs Apologize for Other Thugs

I don't know if you happened to catch the news but it appears that the cats over at Zynga are in some hot water. An insider trading lawsuit has been filed against Zynga's executives. It appears that the traditional "lock up" restriction that bans insiders from selling their shares until a certain 'later' date was somehow circumvented or waived.

For reference purposes Zynga went public in December 2011 at $10/share. The stock peaked in early March 2012 at about $16. Since they it has been in free fall notwithstanding Jim Cramers admonitions back in March "the force is with Zynga".  The accused insiders were allowed to dump their holdings 43 million shares at $12/share.

In case you were wondering Zynga is now $3/share. How lovely. This is yet another crony capitalist story to pile on top of the existing heap. But I enjoyed this story for its sidebar. That sidebar is one Henry Blodget the former BA in english proof reader, turned internet guru, turned securities fraudster, turned history revisionist, turned born again financial messiah.

Here's what banned for life from the securities industry Blodget had to contribute to the discussion about this cess pool our capital markets, in particular the IPO market has become and that he knows all too well;

"I know many of these folks personally, including at the company's underwriters, and like and respect them.  I think the last thing they would intentionally do is unload stock when they thought it was about to crash—especially when the amount they made in the sale, though huge, is still relative chicken feed for them.

Also, all of these folks only sold a fraction of their holdings, so they've been hammered along with the rest of Zynga shareholders by the subsequent collapse."

What more does one say about this. So because its chicken feed we should ignore it? Because Blodget knows and respects them they get a pass? Too bad Carlo Ponzi wasn't around for Bernie Madoff or his legal could have called him a character witness.

He went on to claim;

"I also know from personal experience (unfortunately) just how quickly things that seem to be going well can fall apart."

Funny how ponzi schemes and scams tend to from the penthouse to the outhouse overnight when the suckers stop showing up.

Some Random $GM Thoughts

I want to touch on the General Motors - $GM - something as I haven't done in quite a while. We all know this is the new and improved, born again, General Motors. 

A quick glance at that chart suggests that lower band around 19 sure better hold.
Today we received the news that GM July auto sales were down 6%, Ford's were down 4% by comparison. We do know from previous reports that GM is ramping up subprime auto loans to drive sales. You can debate the merits of this marketing strategy till the cows come home but put simply this is business decision risk which, on a planet known as Earth and a system formerly known as free market capitalism, would normally be born by management and the company's shareholders. Not so anymore.

Some while back ultimate insider Fritz Henderson was shown the door by the board. That move by the omnipotent Ed Whitacre got me to REALLY thinking a lot about all of GM. Fritz had been a lifelong GM'er. So to those who thought he was something different than Rick Wagoner you can continue to keep dreamin' on. I will admit that it must be nice to get fired and then hired back for a $3,000/hr consulting gig but what would I know.

On to more important things. Below is a long term chart of GM's market shares vs imports. Suffice to say GM's dominance peaked in the 60's near 50%. 

Now lets compare this market share chart with the chronological list of GM's former chief executives and their background;
  • Alfred Sloan 1923-1946 (engineer)
  • Charles Wilson 1946-1953 former CEO of GE (mftg concern at the time and not a closet hedge fund like today)
  • Harlow Curtice 1953-1958 (wholesale produce family biz exec)
  • James Roche 1967-1971 (statistician)
  • Richard Gerstenberg 1972-1974 (comptroller, treasurer)
  • Thomas Murphy 1974-1980 (accountant)
  • Roger Smith 1981-1990 (MBA)
  • Robert Stempel 1990-1992 (engineer)
  • Jack Smith 1992-2000 (MBA)
  • Richard Wagoner 2000-2009 (MBA and Hygiene salesman from P&G Ron Zarella)
  • Frederick Henderson 2009-2009 (MBA)
  • Ed Whitacre 2009- present (engineer)

It sure looks to this simpleton like the fall started with James Roche as the paper pushers and money changers took over. Sure Stempel (who I was a big fan of) got a shot but for the most part MBA's finance and number experts took over. 

According to GMWiki, the transition from Roche to Gerstenberg;

 "When James Roche retired the chairmanship in 1971, Gerstenberg was elected to that post. His main rival for the position was GM President Ed Cole. Cole was a "car guy" with a background in engineering and production and was seen as the logical heir from the traditionalist view point. However, Gerstenberg was chosen by the board because his strengths as a money manager and an articulate defender of the increasingly criticized auto industry were viewed as necessary to handle the problems GM looked to face in the coming years. "

Strengths as a money manager and an articulate defender of the auto industry huh. Lovely. I have a good friend whose father is a very successful 'old school' attorney who was visiting and had the opportunity to meet and have a long discussion with on many subjects. His age, his experience coupled with his insight made for a very interesting and educational evening. He did make one comment in particular that night that has stuck with me in which he said;

"Whatever you do never, ever under any circumstances invest in a company where the fella in charge is an attorney or an accountant unless that company is in the law or bookkeeping business."

Based on the above market share chart and CEO time line that advice sure would have saved some GM shareholders some money.

I cannot help but look at that CEO list and not notice a couple of things in particular. First good ol' Roger Smith and his baby Saturn. Smith's baby Saturn which was started back in 1985, had never, ever, ever made a profit but that sure didn't keep the brain trust of GM from pumping billions into keeping afloat this modern day marvel of ego. Sure the dealers made a few bucks sellin' em but at the manufacturing level this "New Kind of Car Company"  had never earned a dime. This would, one might think, beg the question as to at what point any of the management or board of directors- assuming they were anything more than a Neiman Marcus dressed version of the Keystone cops-  might ask the question why are we keeping this thing going? Maybe they were too busy flying first class cashing their cheques and shutting down money maker Oldsmobile but I digress. Secondly is Bob Stempel who in my opinion over the past decades of rotting decay yes men and governmentication at GM was the only 1 guy worth a red cent over there. Lastly Rick Wagoner. What more needs to be said about this empty suit surrounded by grovelling yes men that hasn't already been 'cept we can always he was responsible for landing that gem Ron Zarella.

Here is my 2 cents. GM needs someone with engineering or industrial back ground period. In a perfect world GM would find another Alfred Sloan. Think about this Alfred Sloan quote I dug up;

"If we are all in agreement on the decision - then I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about."

Now juxtapose that with the lightweights and con artists of today like GM CFO Dan 'the scam' Ammann. Now tell me your shocked he worked in investment banking at Morgan Stanley. So long as he's sorry, has apologized and really promises not to do it again I really am okay with dirt bags like this rising to the top, getting caught and everyone letting bygones be bygones. Of course this is definitely NOT cronycapitalism nor selective justice just.  Sign of the times I should think. Now contrary to popular opinion and while I may be pessimistic when the facts support it, I don't believe even for a NY minute there is not another Alfred Sloan out there in this great country amongst the reams of Dan Ammanns out there. We simply have to know where to look for him or her. To save us all some time I can most readily assure you Harvard, Princeton, Yale and Wall St. are the very LAST places you will find him or her. 

I would assume that such a person will, by having an engineering or production background and NOT someone having that country club coveted Ivy league MBA. This lack of Ivy league MBA most assuredly guarantees his/her comprehending that 2+2=6 no matter what your Wall St. financiers and investment bankers tell you! Being MBA-less will also indicate that he/she understands that when you build an garbage product (think Vega, Aztec, Cimarron, Citation and Catera) it bombs and when sell your product to people who cannot pay, bad shit happens to your profits, period! 

I am definitely no expert nor do I possess an Ivy league MBA (thank my lucky stars) but I do believe that better people and better products win out as least they did in a true free market capitalist system.

But They're Sorry!

A 5 yr weekly view of #HSBC ticker $HBC (below). Lower highs, lower lows, money laundering etc. Worry not shareholders as management at HSBC has apologized. Ya gotta love not only cronycapitalism but our justice system as well or as Gerald Celente is fond of saying justice is  "just us".

#Netflix - $NFLX update.

Remember this weekly chart of Netflix ticker $NFLX I posted on June 8 ( reprinted below) where we wondered if that level could hold?

Well it didn't. Things will get interesting now and not in a good way. The daily view belowThe dead cat hit the pavement, bounced,  and has now fallen through a manhole cover on the street. Big time trouble ahead.