Wednesday, December 31, 2008

What Are Your Hopes and Dreams For 2009?


Happy New Year 2009!!!

The big question at midnight after the New Years kiss(es) is what is your New Years resolution? The usual that get broken within 3 hours are losing weight, being a better father, better mother, work harder, not work so hard, visit my mother in the nursing home more often, drink less, take my medicine, go to the doctor and so on and so on.

Bigger Picture Hopes and Dreams

We will all typically have so of the same grandiose hopes and dreams for the new year. Make more money, world peace, better stock market, home prices stabilizing, our new president working out as we hoped for some and better than we expect for others, tolerance among different ethnicity's and religions, a government that actually gets things accomplished as opposed to posturing for their own political expediency, safer streets, happy children and any number of other things that I forgot.

My Question To You The Reader In The Many Places That This Blog Gets Published

What are your resolutions, hopes, dreams, wishes, fears, concerns and desires and thoughts for 2009? Are they the same as they were in 2008, and how did you do in keeping your resolutions in the year gone by.

It is interesting to see how ideas vary, although no one is right and no one is wrong. They are what they are and they are yours. Share them if you are comfortable.

A Very Happy New Year To All, And I Sincerely Hope That 2009 Brings All That You Desire!!!

English rendition of the Robert Burns poem

Should old acquaintance be forgot,and never brought to mind ?Should old acquaintance be forgot,and old times since ?
CHORUS:
For auld lang syne, my dear,
for auld lang syne,
we'll take a cup of kindness yet,
for auld lang syne.
And surely you’ll buy your pint cup !And surely I’ll buy mine !And we'll take a cup o’ kindness yet,for auld lang syne.
CHORUS
We two have run about the slopes,and picked the daisies fine ;But we’ve wandered many a weary foot,since auld lang syne.
CHORUS
We two have paddled in the stream,from morning sun till dine† ;But seas between us broad have roaredsince auld lang syne.
CHORUS
And there’s a hand my trusty friend !And give us a hand o’ thine !And we’ll take a right good-will draught,for auld lang syne.
CHORUS

Tuesday, December 30, 2008

What Is "Appropriate" Blog Material And Why Was Mine Pulled?


What topics should be off limits in a blog?

The answer is that it depends on the nature of the blog, its' stated areas of discussion, the audience that has access to it and where it is posted.

Is a blog written by or for Disney a good forum for a discussion of pornography? Should a blog about the history and virtue of war be posted by its' writer on a website that is specifically hosted for discussions of pacifism? The answer to these questions are no and maybe in that order.

Part of a blogs purpose is that when possible it will create a discussion and debate among its' readers. I twill hopefully provide some food for thought and in some cases stretch the limits of peoples minds. Not every post is a gem in any blog, but many are.

My blog on Bernie Madoff and Anti-Semitism

As I had anticipated the response to this blog on Monday was swift and diverse. I posted this blog on a variety of websites, and it was only pulled from one. Opinions ranged from positive to critical, but there was no shortage of them.

Some of the responses included:

  • This is a fantastic post. What won't be fantastic is that for the most part it will be ignored. JS
  • Your blog was poorly positioned, badly written, careless in its appraisal and too flippant to be considered an objective statement. Rob.
  • If that were the case, I could understand it, but Mike's post didn't mention sh-----s or k---s, it simply showed a blog and asked for opinion.I would be curious to know if someone complained about it through personal offence, or the fact they perceived it may be offensive to someone else - the fact anyone can call something politically incorrect and it's acted upon these days without evaluation is creeping in to day to day life more than ever.
  • I've just read your blog and can understand why it was deleted here. There is nothing you wrote that is offensive but you quote very offensive posts made by Jew haters and I don't think ________ is the right place to read those quotes.

Anti-semitism is a painful subject, much like racism or any racial, ethnic or cultural hatred. Should it be discussed? Should it be ignored? Should we stick our heads in the sand and pretend that it doesn't exist although we know only to well that it does? What is the right place to mention the quotes of haters? Hater blogs or on more mainstream blogs where those that want to believe these thoughts don't exist can remember that they do.

Who should have a forum for their ideas? The hate mongers alone or those who oppose them. Should these statements see the light of day so that those who would like to think these thoughts don't exist, or who would rather not think about it, are forced to face reality.

The purpose of a blog is to inform, spark discussion, speak on topical subjects and get people thinking at various times of topics that they might otherwise not think about.

As I said, should we pretend that these thoughts and ideas don't exist? Should we concentrate only on business ideas or on who will be the next president or the strength of the dollar against the Euro.

"Those who cannot remember the past are condemned to repeat it." George Satayana


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Friday, December 26, 2008

Madoff And His Fuel For The Anti-Semetic Fire


Bernie Madoff Cost The Jews A Lot More Than $50 Billion!

True to form the Madoff scandal has not only cost individuals and charitable organizations billions, but it has brought the specter of anti-semitism that normally bubbles just underneath the surface out into the light of day.

I'm sure this article will receive comments that fall on both sides, but the fact of the matter is that there are people in the world that do not feel any sorrow for the people that lost their money in this scandal. To the contrary they use the scandal to proliferate the stereotypes that exist.

These hatemongers will also use the internet as the vehicle for the comments, because you are basically free to say whatever you want and do so anonymously.

So where in history will Bernie Madoff fall. On the side as one of the worlds greatest thief's, a conduit for a rise in the level of anti-semitism around the world, or both? Both would seem the most likely.

Some Examples From Around The Internet

Examples of anti-Semitic postings include:

"The greed and corruption of the Jews has brought the financial system and the American economy low." - post by "jeanrenoir" on portfolio.com.

Ho hum, another Crooked Wall Street Jew. Find a Jew who isn't Crooked. Now that would be a story - anonymous post on dealbreaker.com.

One Jew thief robs another bunch of Jew thieves - I suppose that's what you'd call a victimless crime. I suppose if he'd not scre*ed his fellow Jews - and robbed us poor gentiles it would've been absolutely kosher, eh?" - post by "XDFXDFXDF" on nymag.com.

"Nice he could manage to send money to Isreal (sic) and pass the losses on to US investors." - post by "cbmiked" on Forbes.com.

"Just another jew money changer thief. It's been happening for 3,000 years. Trust a Jew and this is what will happen. History has proven it over and over. Jews have only one god - money." - post by "Adolf" on PalmBeachPost.com.

Madoff is "another Jew banker ... The Sec is filled with Jewish gatekeepers who routinely turn a blind eye to jewish financial bandits ... It's no conspiracy that the Jews are the source of all the financial troubles in the world." - post by "Thieving Bastards" on sunsentinel.com.

Nice Job Bernie, You Screwed Us All!!!


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Does Baseball Need A Salary Cap?

Does Baseball Need A Salary Cap?

There are definitely bigger issues to ponder these days, but with spring training only a few months away, it's time to take another look at the process by which baseball allows some teams to use the system to get more powerful, while other teams without the TV contracts and big market positions struggle.

I know the argument that these teams earned their positions and need to funnel the money that they make back into the team and into a superior product for their fans who expect playoffs if not championship every year.

These teams that inflate salaries by signing players to these contracts do pay a penalty in the form of the luxury tax, but for them it is just one more cost of doing business and is in no way an impediment, merely a small financial nuisance.

For me the fan (Mets although this is not sour grapes), some of the enjoyment of watching games goes away when some teams can in effect become all-star teams, picking up all of the best players simply because they can and most others can't.

Let's level the playing field so that the job of GM and head of minor league development become relevant again, as opposed to what has become relevant today. The size of the owners checkbook. Drafting quality prospects and bringing them up through the system has for the most part become a lost art. Let's bring it back.

Although the Mets did pick up a couple of good ones, let's look into a salary cap!


Thursday, December 25, 2008

A Video Satire Look Back At How The Mortgage Crisis May Have Begun

A Christmas Day Look Back At How The Financial Crisis May Have Begun

To all of my loyal readers I would like to take this opportunity to wish everyone a very Merry Christmas and Happy Holidays. Here's hoping that at the same time next year all of this year will be nothing but a bad memory as we have moved forward into much better times!!!


Wednesday, December 24, 2008

Madoff and Some Of History's Other "Great" Ponzi Schemes and Frauds


Sad Postscript

In a sad commentary to the Madoff ripoff, the first suspected suicide took place on Monday night as a fund manager took his life after having reportedly been distraught over the vast sums lost by his hedge fund. Thierry Magon de la Villehuchet, co-founder of money manager Access International was found dead in his office on Tuesday morning. In addition to the current charges, Madoff should somehow be held complicit in this death.

Who Amongst Us Has Not Been The Victim Of Some Type Of Fraud?

Ever play 3-card Monti, shoot a game of nine ball against a hustler, play poker with two guys tipping each other off, buy tickets to a game from a scalper only to find out they are not real? There are few of us that have not had a scam of some type pulled on us in our lives. Some cost us money, some cost us a place in line or some other small or temporary inconvenience. There have, however, been many GREAT frauds and schemes pulled off over the years that have cost people enough as to make a permanent difference in their lives or to cost firms enough to make a dent in their operations.

Some Examples From Wall Street and the World

From the Associated Press:
- William "520 Percent" Miller of Brooklyn, N.Y., claimed in 1899 he had inside information on stocks and promised interest of 10 percent a week. He defrauded investors out of $1 million.
- Charles Ponzi, an Italian immigrant in Boston, ran a bogus investment scheme in 1919-20 involving postal currency. As many as 20,000 people invested $8 million to $10 million. He spent time in prison before being deported in 1934.
- Lou Pearlman, the mastermind behind the Backstreet Boys and 'N Sync, operated a $300 million stock and investment scam. He was sentenced earlier this year to 25 years behind bars.
- James Paul Lewis Jr. told investors he made money by buying and selling distressed businesses, leasing equipment to medical offices and financing medical insurance premiums. He was sentenced to 30 years in prison for a scheme that ran from 1985 to 2003 and cost nearly 3,300 investors around $70 million.
- Steven Hoffenberg, a bill collector who once briefly ran the New York Post, admitted he defrauded investors of $460 million. He pleaded guilty in 1995.
- Reed Slatkin, co-founder of Earthlink Inc. and once a Scientology minister, was sentenced in 2003 to 14 years in prison for swindling investors out of about $240 million over 15 years. Groups affiliated with the Church of Scientology agreed to return millions received from his scheme.
- Daniel Heath was sentenced to 127 years in prison for running an investment scam in Southern California that bilked 1,800 people out of $187 million in the early 1990s. Prosecutors said he preyed on the elderly in a scheme that involved money-losing real estate and small-business projects.
- Tom Petters of Minnesota is accused of orchestrating a $3.5 billion Ponzi scheme that lasted at least 14 years. He has pleaded not guilty.

From CNBC and Wall Street:
Dennis Kozlowski
The former Tyco International CEO was convicted in June, 2005, for misappropriation of about $400 million of the company’s funds.
Bernie Ebbers
Ebbers, the former CEO of WorldCom, was imprisoned on charges of fraud and conspiracy for falsifying the telecommunications company’s finances. It’s estimated that the fraud cost investors about $11 billion.
Nick Leeson
The British investment bank Barings collapsed after massive currency market losses were incurred but hidden by trader Leeson in 1995. The fraud cost the company about $1.4 billion in losses.
Hunt Brothers
Oil executive Nelson Hunt and his brother William Hunt tried to corner the market on silver. The market eventually crashed in 1980, a day known as Silver Thursday. The Hunts were convicted in 1988.
Jerome Kerviel
The French trader was charged in January, 2008, of abuse of confidence and illegal access to computers for losing a reported $7 billion for Societe Generale.

If you have other favorites from history (or perhaps a personal experience), please leave a comment below.

Tuesday, December 23, 2008

You Are Facing Foreclosure? Now What?

You Are Buried Under Your Mortgage, Now What?

For any number of reasons many homeowners find themselves in the position of either being late on their mortgage or about to be late. There could be a death of the breadwinner, loss of a job, an adjustable mortgage, divorce, loss of a tenant in an investment property and the list goes on.

Prior to going into the foreclosure process, there are other steps that should be considered in dealing with the lender and the mortgage they hold on your property. Some may delay the process, others will avoid it, but in the end the borrower will likely lose the house.

  • Deed in Lieu - this is a process in which the homeowner simply turns the keys to the house (deed) over to the lender and no foreclosure needs to take place. The bank has to agree to it, and procedures need to be followed. It is quick and relatively clean.
  • Forbearance - in a forbearance the bank allows the borrower to make up the amount that they are behind a little bit every month in addition to their normal mortgage payment. The little "secret" here is that if the homeowner was unable to make the original payment, how are they going to make that payment plus a little more? The answer is that they may be able to for a little while, but will stand a good chance of facing foreclosure down the road.
  • Bankruptcy - if the borrower declares bankruptcy, there are legal proceedings that can definitely slow down the foreclosure process, and for borrowers who know the ins and outs of the process they may be able to delay it for a significant amount of time.
  • Modification - in a modification the lender, due to a documented hardship on the part of the borrower, may "modify" the terms of the mortgage, reduce the interest rate, add the amount delinquent onto the back of the loan and in some cases reduce the principle amount owed. All of this is done in order to reduce the payment to an amount the borrower can afford and avoid the foreclosure process which is not good for either borrower or lender. It has been shown recently, however, that many borrowers going through the modification process will end up being foreclosed on anyway.
  • Short Sale - in a short sale, the lender is simply willing to less to satisfy the mortgage than the amount that is actually owed on it. In the long run for the lender, it will most likely save them time and money by avoiding the foreclosure process. As the manager at a firm that I was trading bonds for once said, your first loss is your best loss.

All in all the best action is to speak with your lender and try to negotiate the best terms that you possibly can and to make the best of what is certainly a bad situation.

“Yesterday is history, tomorrow is a mystery, today is God's gift, that's why we call it the present.” Joan Rivers

“Yesterday is a canceled check; tomorrow is a promissory note; today is the only cash you have - so spend it wisely” Kay Lyons

Monday, December 22, 2008

Positive Thinking For A Troubled World Circa 2009


Photogamer, Glass Half Full
Originally uploaded by WxMom

2008 Has Been A Tough Year: How Do I Get Focused On 2009?

It is Holiday time in the politically correct secular world, or Christmas and Hanukkah time and any other event you celebrate in the non-secular world.

This is a good time to reflect on the year that was, but more importantly to get our heads straight and focused for 2009. This is certainly not an easy task as 2009 most likely will present some of the same and some unique challenges. But for our own good, it has to be done.

A Quick Look Back

There is no question that 2008 has pushed our limits in a variety of ways. In business and personal finance we have experienced a tidal wave of events that have had an enormous impact and that could continue to affect us going forward. I don't really have to rehash it all. We were all there. But just to name a few we had the financial explosion led by real estate financing and the "weapons of financial mass destruction" that created a bubble and then burst it. A global recession that could be nearing an end or perhaps not. The surge in oil prices that helped contribute to the recession. A continuation of terrorist attacks around the world.

There were historic events as well. I didn't vote for him, but America elected its' first black president, an event that not many years ago would never have been possible. The tide also seems like it may have turned in Iraq, although that is an extremely fluid situation.

Let's Look Forward

The following is from the Originator Weblog (http://mymortgagecommunity.typepad.com/originatorweblog/):

To achieve our financial and career goals and to truly live our dreams, we must have a plan to succeed and we must have a motivating message. Life doesn't always go according to plan and sometimes we veer off the intended course for one reason or another. Therefore, we need to have a motto, message or mission in mind that we can repeat out loud that will help us find our way through difficult times.

A former NAVY SEALS Trainer was once asked in front of a large audience what it was that they did inside their SEALS training that prepared this group of special forces officers to endure such dire circumstances in battle without losing their focus on the job at hand and the trainer responded "We teach them to NEVER QUIT". The audience wouldn't accept his answer. "Come on you must train them using unique psychological techniques or have some special program to train them to endure such things as torture and other near death circumstances" and the NAVY SEALS trainer responded quite firmly "We train them to NEVER QUIT".The reason why the NAVY SEALS are so highly regarded in their field is because they NEVER QUIT.

They have an extremely high success rate of accomplishing goals because of this act of self-discipline. Now let me ask you a question.... What if you decided not to quit on your plans, dreams and goals? Where would you go in the world today? I imagine you'd go as far as you wanted to go.

What's Your Motivating Message?

What is the message that you repeat to yourself when you're tempted to veer off the course of success? Each of us needs a motivating message that brings back our focus and motivation to stay the course to help us achieve our goals and dreams. Let me share a few examples with you....

"My long term commitment is greater than my immediate desire!""I won't quit""I can do this""Failure is not an option""I was created for this moment...I will stay the course!"

By saying a statement like this when you're tempted to give up and/or veer off from your plan, you'll be energized and motivated to accomplish the things you've always dreamed about and you'll live the life you were created to live!

Simple But True

The fact of the matter is that the art of positive thinking and self-motivation is not rocket science, and most of the tolls are common sense. The trick is remembering to think and act using these tools, and to not fall back into complacency and inertia.

This is as much for me as for anyone reading this because there are very few among us that at times to not fall into the trap of self-pity, self-doubt and an inability to move forward.

The trick, as always, is to try and see the glass half full instead of half empty. Not always easy, but imperative!



Friday, December 19, 2008

"10 Outrageous Claims For 2009"

Friday Snippets

A New SEC Chief Named

- Barack Obama names Mary Schapiro as new SEC head. She has strong experience at a time when the SEC has shown itself to be an ineffectual and anemic institution. Is she a good choice? Change and tough new leadership is what is needed, and maybe someone that has no axe to grind in the bureaucracy is a good choice.

Pawn Shop Bernie

- Anecdotal evidence of the impact of the Bernie Madoff scandal abounds. One is the increased traffic that is being seen at pawn shops in some of the nations ritziest areas. The Royal Pawn & Jewelry in Palm Springs has seen a large jump in inquiries since the event took place. On Long Island in New York, there is also rumors of a large volume of resignations from country clubs due to the scandal.

Thursday Market Action

- Crude tanks close to 10% closing at $36.18. As I have talked about here before what is good for us at the pump may be bad for us in the longer run as this drop indicates that there is absolutely no demand around the world for the commodity. The market took a late tank (no pun intended) today as General Electric was put on credit watch and President Bush expressed uncertainty as to whether the government would step in to provide money to the auto makers. Today is quadruple witching which will pump in a lot of volume and could create a lot of volatility.

"10 Outrageous Claims For 2009"

- Finally, Saxo Bank of Denmark has come out with a list of potential events for 2009 entitled "10 Outrageous Claims 2009." - CNBC It is a very interesting group.

  1. An Iranian Revolution
  2. Crude dropping to $25 a barrel
  3. The S&P 500 falling to 500 (880 now)
  4. Italy dropping the Euro
  5. Australian dollar slumping versus the Yen
  6. The Euro falling below $1.00
  7. Chinese GDP growth falling to 0% (current estimates range from 6-10%)
  8. Eastern European Forex Pegs to Fail
  9. Sharp declines in commodities prices
  10. Yen could become the Asian currency peg over the dollar

Many of these are forecasts that hopefully do not come true.

Thursday, December 18, 2008

Crude Prices, House Arrest and SEC Ineptitude

Quick question: Why is Bernie Madoff, apparently one of the biggest crooks of all time, doing house arrest with an ankle bracelet in his $7 million house when he couldn't make bail?

In a related story SEC Chairman Cox had this to say: the agency has found "no evidence of wrongdoing by any SEC personnel" in connection with Madoff's alleged $50 billion Ponzi scheme and that the SEC intends to get to the bottom of where it may have gone wrong. Is this guy kidding me? While he is at it he should find out where he went wrong alleviating the uptick rule.

OPEC Meets, OPEC Cuts Output, Crude Falls

In a meeting yesterday the OPEC ministers agreed to cut a record 2.2 million barrels of production a day from the market. This type of news at one point would have had the power to put fear into the trading pits and a tight squeeze into the crude shorts.

The announcement came as U.S. crude inventories rose more than expected which pushed the price of crude lower. Total motor gasoline inventories increased by 1.3 million barrels, compared to the 1.0 million barrel rise expected by analysts. And distillate fuel inventories increased by 2.9 million barrels, while analysts had expected an increase of 0.9 million barrels. This rise in inventories are in the face of sharp price declines that one would have assumed would drive demand up.

Where Do We Go From Here?

"Goldman, Once Warning of $200 Oil, Sees $45 in 2009", CNBC
"Merrill Lynch Says Oil Could Fall to $25"

Any of this look at all familiar? Maybe if you rushed to lock in your heating oil for the winter at $4+ because the "experts" were forecasting crude above $200 a barrel. Like they forecast Google above $1000 and so on and so on. Ah the experts. Where would we be without them? We could go by the random walk theory or maybe just flip a coin.

There is no question that demand for the product is weak and may remain that way for sometime which is bullish for a decline in price. Maybe I am just a contrarian which I am. But what I do know from watching Wall Street analysts for oh these many years is that when the momentum is strong in one direction regardless of the product, and they begin to fall over each other trying to outdo price targets, it can be time to look in the other direction.

Not that this time these forecasts might not be right. They may be. But where is the Mea culpa from Goldman regarding the $200 call. The same place it will be if crude makes a beeline for $100. No accountability, the Wall Street way.

I did, however, just lock in my heating oil price.



Wednesday, December 17, 2008

Fed Cuts The Funds Rate To Just About Zero

No Bazooka Here, More Like An Atomic Bomb

Bucking the expectation of a 50bp cut in the funds rate to .50%, the Fed took out the big guns and instead set up a target range of between 0% and .25%. In doing this they acknowledge that the economic environment is even weaker than many thought, and that they are committed to doing whatever it takes to get us out of one of the worst recessions ever. Whether this rate cut will have any impact is debatable, but some of the other weapons they will use might.

The Fed, led by Chairman Bernanke, pledges to use extraordinary measures to deal with the longest recession in a quarter century. Some of these include buying large quantities of mortgage debt in an attempt to lower rates and boost liquidity. The central bank was still "considering" buying long-term Treasury securities, which is also thought to be aimed at lowering borrowing costs by going around commercial banks. All of the steps that the government has taken to date has increased the size of it's balance sheet from $900 billion to $2 trillion.

What Is The Fed Trying To Say?

In a nutshell, this type of bold action by a Fed that is typically measured in its approach to problems indicates that things are in worse shape than they thought, and that throwing the kitchen sink at the problem is the only way to handle things.

In a perverted response the stock market took off to the upside, possible viewing this move as the true beginning of the end of the recession. The stock market will typically start to move up six months prior to the official end of a recession in anticipation of the improvements to come. On the other hand, it is possible that in an environment of tired sellers and thin markets the path of least resistance, at least today, is up.

Bank stocks, led by Goldman Sachs post earnings had a big day, and GE said the dividend is good for now and that they will not be giving earnings guidance going forward. When markets react to bad earnings or any bad news by rallying, it is an indication that the worst has already been built into prices. Unless it hasn't been.

Investing In Bond

The 30 year Treasury rallied huge today pushing the yield down to 2.82%. The 2 year is at .67%. Given the amount of borrowing that the government is going to have to do to finance all of the things that it has committed to finance, and the prospect for a spike in inflation once we begin to pull out of this recession, the 30 year is probably not the place to be unless you will need tax losses if you have to sell it down the road. The place in fixed income to be at this point in time would probably be in high quality corporates (if you can identify which company's are still high quality) that are being priced at spreads to Treasury bonds that are much wider than historical norms (non-Treasury fixed income is typically quote at some spread of basis points over Treasury debt. For example a corporate bond might typically trade +275 basis points to a comparable Treasury maturity).





Tuesday, December 16, 2008

Bernie Madoff: Who Could (Should) Have Known?

Question: How do you make a small fortune?
Answer: Start with a large fortune and give it to Bernie Madoff to invest!

"When the truth is found to be lies, and all the joy within you dies": Jefferson Airplane,1967

"I would not join any club that would have someone like me for a member." - Groucho Marx

If something seems to good to be true, it probably is.


Don't ask, don't tell


Bernie Madoff: The Man, The Myth, The Thief?

I had heard about Bernie Madoff when I was at a Wall Street firm, working with guys that happened to know him personally. Whether they invested with him is something I don't know, but if you look at the three phrases above, each is very appropriate to this case. The man was something of an investing superstar.

The Ticket For Admission

In order to invest with Bernie Madoff, you had to be invited in. The exact rules for admission I do not know, but they were in place. Maybe you belonged to the right country club, knew the right people or belonged to the same organizations. Whatever got you in, you were happy to be there. His results were steady, year after year, up market or down. It was a good place to be. Until now. People now thank their lucky stars that for whatever reason they were denied admission to this club. Sometimes it is definitely better to be lucky than good.

How he generated these returns was a mystery, particularly because you apparently could not understand your statement and because you were not allowed to ask questions. But that was OK, because your checks kept coming. Like in all Ponzi schemes you are lulled into a false sense of security and don't know until the hammer comes down. Don't ask, don't tell until it is to late. We have seen it before and we will see it again. Greed trumping common sense and good business practices.

Greed vs. Common Sense

Greed will tend to trump all aspects of common sense. He fooled some very smart and very rich people, some of whom may have lost a large part of their fortunes. Success breeds success and comfort, so over the years I am sure that investors got comfortable and put more and more of their money there These stories will only come out over time. The fact of the matter is that investing is a very tough game and not a smooth process. We have had some incredibly turbulent years in the markets where returns resembled the EKG I recently had done. But not for Bernie, he merely plodded along with the same performance year after year with very few aberrations. Unbelievable and incredible, but if you kept getting your checks you were happy. Until now.

Not Just A Great Investor, But A Great Dad As Well


The story goes that the sons knew nothing about the fraud, the schemes or anything else that was going on, and turned in their dad when they found out about it. As remarkable and unbelievable as this seems, maybe, just maybe, this is a dad trying to give his sons the ultimate gift of freedom. Maybe Bernie knew that the walls were crumbling down, that the game was at the end, that the piper had to be paid. Maybe, just maybe, he set all of this up to spare them and will take the fall himself. Or try to. I kinda have a gut feeling that they knew something at the very least, and everything at the very most. Maybe they did know nothing, or maybe Bernie is just a good dad. In a case like this, SEC ineptitude not withstanding, the truth will ultimately be told.

For the rest of us that did not get into the club for one of a hundred different reasons, let's count our lucky stars. Maybe I will apply to join the Rotary Club.






Monday, December 15, 2008

A Sign Of The Times: Blagojevich and Madoff

Is America Going The way Of Ancient Rome, Or Are We There Already?

"Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men." Lord Acton, 1887

We have two stories that were developing last week, each one incredible in its' own right. We have the apparent scheme to sell the soon to be vacant senate seat of Barack Obama by Illinois Governor Blagojevich, and the disappearance of what could be $50 billion in potentially one the largest fraud schemes of all time.

The Selling Of Washington

If this story of the attempt to sell Barack Obama's seat for personal gain proves to be true, or even if not true which is a less likely scenario, it could mark the end of the short honeymoon period for the president elect as names close to him are going to be dragged through the investigation.

Get This Guy Out Of There

The Attorney General of Illinois is trying to get the governor removed from power pending these investigations saying that he is unfit to perform his duties, as just another example of the corruption and greed so prevalent today that threatens to pull apart the fiber or the country.

The Suddenly Shy Rahm Emanuel

Rahm Emanuel, the Chief of Staff for Obama has done his best to stay out of the public eye and not answer the questions relating to whether he has any involvement with the Governor and this scheme. His office vehemently denies any such involvement This move away from getting out in front is not typical for Emanuel, who is known as something of a pit bull and no shrinking violet. I remember back to the Clinton controversies and how he had no shortage of things to say in front of any camera that he could find. It would be helpful to Obama, assuming that there is nothing to know, for him to do the same now.

Given the current state that the country is in, and the tough decisions that are going to have to be made once inaugurated, this is not the time for these types of distractions. Obama needs to be decisive, swift and accurate in what he does and what he says regarding this situation. If there is anything to know, tell it, because it will come out. In this day and age there is no such thing as hiding the truth if people are interested enough in finding it. As they say in sports, man up and tell the American public whatever there is to know. If you say there is nothing to know, you best be telling the truth. Truth is one of the "changes" from Washington that would be refreshing. Remember the saying that is true in politics as well as most anything else:

The cover up is usually much worse than the crime.

Tuesday: A Look At Bernie Madoff and his Band of Billions





Friday, December 12, 2008

Memories Of A Day Trader

As In Life and Trading, Timing Is Everything

Buy the dips, sell the rallys.

I became a proprietary equity trader back in 1987. At the time, one of the most volatile stocks on the NYSE was MMM with moves that could be a full point or more. These moves were not that remarkable, given the fact that it also had a price above $100 a share. My first trade in the business was with this stock, and I think I made something like 3/4 on 1000 shares. Funny how you remember things.

Trading on the New York back then was grinding for 1/8's and 1/4's and finding the sectors that were in play at any given time. I remember the country funds that began to be issued and that would be exrtremely volatile, with the best exit strategy for weeks being a market on close trade because the final print would usually be up at least $1. Different stocks had their own distinct personalities that you learned from the experience of watching, trading and studying. Back then the biggest action was in the OTC market, where a system called SOES (small order execution system) allowed traders to sit in front of a machine and bang away at market makers that might be a little slow or asleep at the switch. You could only use SOES for 1000 shares, but if a news story came out and a trader on that stock at a market maker was in the bathroom, they would get pounded as the market was moving up or down and their market was not being adjusted.

The Markets Changed

In 1999 and 2000 when the tech boom hit the country the nature of trading changed from focusing on New York stocks to the wild wild west of the OTC market. What had been grinding for 1/8's and 1/4's turned into the boom times of trading for 5, 10 and even 20 points at a clip. Four dollar stocks could have moves of $3. The controls and disciplines of cutting losses and timing into trades lost meaning as the bull rally let traders sit with large losses on positions knowing that they would more likely than not get bailed out. Momentum trading became the vogue as we would trade stocks in companies that no one had ever heard of or any idea of what they did or the industry that they were in. Most of these companies had no earnings, some had no sales and had multiples and prices that were impossible to justify. Analysts became famous by falling over each other putting price targets on stocks that they seemed to pull out of the air. One, Henry Blodget, made a huge name for himself in just this way, and fell from grace just as fast. Traders made fortunes during this time, and it looked like it was never going to end. To use a phrase made famous today, this time it was different. But it wasn't.

As the tech bubble cracked, the lack of controls and disciplines in trading would come back to bite many traders, as they were no longer getting bailed out on bad buys. They were just bad buys that kept going lower. The market tanked, and for a while volatility, a traders best friend, was just not there.

What Is The Point Of The Title

I left the business a few years ago, but the goings on the past year or so brought back the memories of volatility, and then some. The VIX which normally fluctuated between 15 and 25 almost hit 90 earlier this year. The financial stocks did their best imitation of the tech stocks, only in reverse as stocks like Bear Stearns and Lehman completely disappeared, Fannie Mae and Freddie Mac fell to under a dollar, AIG is under $2 and the list just goes on and on. Traders have probably had their best year since the tech boom almost 10 years ago, although the economy is in shambles. Is it different this time as well? Time will tell.



Unfortunately for the rest of us, this money made by the few is due to the fact that the global economy and financial systems are riding along the precipice of collapse. At least someone is making money.

The Senate is debating the bailout bill for the auto industry tonight (Thursday), and we may have a vote on Friday. Round and round she goes.



Thursday, December 11, 2008

The Auto Bailout: Between A Rock And A Hard Place

To Bailout Or Not To Bailout, That Is The Question

The House of Representatives should be voting on a bailout package Wednesday, and if it actually takes place it will undoubtedly have been passed. A much stickier road is present in the Senate where there is enough Republican opposition that a filibuster to prevent a vote is very possible. There is some very strong opposition that a bailout is the absolutely wrong way to go.

Is A Bailout A Better Proposition Than A Pre-Packaged Bankruptcy Or A Forced Liquidation?

We have the ultimate game of chicken going on here, particularly since nobody can know how any of these potential near term outcomes would play out.

A bailout of an inefficient and badly run industry would hopefully prevent what could be an absolutely disastrous trickle down of unemployment, bankruptcies and economic dislocation. Odds are that once the government coffers were opened, the companies would be back in a very short amount of time. Once you have given them money, how do you say no the second and third times?

A pre-packaged bankruptcy, or Chapter 11 that would allow the auto company's to continue operations while ridding themselves of some of the onerous contracts that are choking them would seem to be a good option. They would be in a position to negotiate with all involved, scale down, control costs and eventually emerge smaller and competitive with the foreign manufacturers. All without the taxpayers having to throw what might be good money after bad.

Now a forced liquidation or Chapter 7 filing might be the worst of all possible outcomes, as this would result in the enormous trickle down impact that would be felt in many different industries and not just in Michigan.

It appears that the politicking and posturing should end, and a decision be made and followed. The prospect of this hanging out there with no firm direction is as painful as the decision that will ultimately have to be made. There is 100% of a chance that none of these solutions will be 100% perfect, only that some will be less perfect than others. Let's just do what has to be done in what is an unbelievably bad situation, that if given the wrong methods to secure a solution has the potential to royally compound what are already some severe problems.

Remember that whatever happens, our congressmen and senator's will be going on their Christmas recess soon. No matter what!

Chicago Being Chicago
In yet another case of Chicago being Chicago , Governor Blagojevich was arrest on charges that included he is trying to sell the soon to be vacated senate seat of Barack Obama to the highest bidder. Even in Chicago, long storied for the way that the political system works and things get done (bought), even this story stretches the boundaries of believability.

Neel Kashkari is also hammered on the Hill one more time.

Wednesday, December 10, 2008

Athletes, Privilege and the Law

Law, Order and Sports

World class athlete. College star. Professional athlete. It is not only a state of being, but it is most definitely a state of mind. What brings me to think about this is the conviction and sentencing of O.J. Simpson for murder. Did I say murder? I mean kidnapping, armed robbery and 10 other charges. This verdict came exactly 13 years to the day from when OJ was acquitted for the murders of Nicole Brown Simpson and Ron Goldman in what many saw as a travesty of justice, while others saw it as a huge civil rights win.

The current verdict also seems to come at a time when we may be ushering in a new age of reality for athletes who, for as far back as I can remember, have been treated with deference and a wink and a nod by the justice system. All because they can throw, catch, run or hit better than you or I can. This treatment has tended to transcend any racial, ethnic or religious boundaries and been based on athletic ability and or star power. We have historically seen the same type of treatment come out of Hollywood, where repetitive drunk driving and narcotics possession for the stars from television and the movies seem to get treated with a slap on the wrist and a few hours of community service.

Now there is no doubt that the OJ case has a life and history of its own, but we are reading more often the stories of crimes that in the past may have been swept under the rug, that are now being treated with a higher degree of seriousness and consequences for those involved.

Let's say I get into a fight in a bar, get caught driving drunk, steal something from my neighbors house, get caught with a knife or a gun or maybe even kill someone. What is going to happen to me? Who will defend me? I am just a regular guy, so the chances are that I will be at the mercy of the legal system. No special treatment or deals. Just the best attorney that I can afford who will lead me through the system. No question I will most likely be treated more fairly than those who cannot afford counsel of their own choosing and must go with the legal aid attorney that is assigned to their case. But at the mercy of the system none the less.

This is not to say that there have not been high profile convictions and sentencing for serious crimes because there most certainly have been (List Of Professional Sports People Convicted Of A Crime), but it seems that for those who are considered to be special in the public eye (aka valuable from a monetary stand point), there will be many people willing to lobby for them.

What the O.J. verdict shows us is that this is a bad guy, who more likely than not committed and got away with murder 13 years ago. He put together his legal dream team then that wiped the floor with a prosecution team in over its' head and a judge basking in the lime light. Many in the world cheered the verdict as if it were a civil rights victory more than a legal one. In reality it was really not a civil rights victory, because O.J. was not, and is not really a civil rights spokesman. He is a man who has been coddled and taken care of by the system all of his life because of his skills as a running back at USC and later for the Buffalo Bills. Self centered, self absorbed and incredible arrogant.

This has typically been the way that things work in society. How many campus crimes have been swept under the rug in order to keep the "franchise" player or players on the field and the glory and revenues continuing to roll into the particular schools coffers.

We are now hopefully seeing a move towards accountability no matter who you are or what you do for a living. Even if you do that something exceptionally well and make a lot of money for a lot of people.


Let's Let Justice Be What It is Supposed To Be: Justice For All

FYI: On Tuesday the 3-month Treasury bill yield was actually negative. This means your are lending the government money in order to lose, all in the desire to keep your principle safe. Interesting.

Tuesday, December 9, 2008

Are Stocks Off To The Races? Maybe, Maybe Not

Does The Friday Reversal Into A Strong Move Up Monday Signal Up, Up and Away?

To recap, Friday we had horrendous numbers on the employment front, an initial market drop on the order of 3% into a closing rally pushing stocks up around 250 points. As is typical when you get that type of key reversal, the follow through Monday was quite strong, aided by a reported plan floated by President Elect Obama for a huge public works program that could run in the neighborhood of $1 trillion as well as an apparent deal in the auto bailout talks.


Now when we have bad news that becomes good news for the markets, that would usually signal something very bullish. Is that the case now? Is this the start of something good? The end of the bear market and now a forward looking stock market predicting an end to the recession? Or is this a bull rally in a continuing bear market? Well, volume is not particularly great which is not a positive sign. That could mean that there is a temporary exhaustion on the part of the sellers, with no real conviction by the buyers. On the other hand, if this spending plan were enacted by soon to be President Obama, would this type of fiscal policy by the government take us to the promised land? Governments should probably not be in the position of trying to spend our way out of an economic malaise, but there might be a short term pop or perhaps the start of something big.


What we do know is that the economic conditions that were in place on Thursday of last week are not any different today. Prognosis still remains in the camp of this recession/depression going on a ways more. The Conference Board estimates that job losses which have reached 1.9 million during this downturn could reach 3 million before it's all over.


Should we, if there is any money left in the piggy bank, be aggressive buyers of stocks at these levels? Tough question with no right answer. If the market is going up you should, and if it is going down you should not. You can listen to a variety of analysts and get firm answers on both sides. All that I do know, is something that Harry Truman said:


“It's a recession when your neighbor loses his job; it's a depression when you lose yours.” ~ Harry S. Truman

While I am at it, remember this quote by J. Carl Cook:

"Minor surgery is surgery someone else is having."

Monday, December 8, 2008

Stocks: Have We Found This Elusive Bottom?

The Elusive Bottom Of The Stock Market

Friday morning the employment numbers for November were released showing a decline of 533,000 jobs, well above the already painful estimates of 340,000, with the unemployment rate ticking up to 6.7% from 6.5%

With the number released being so bad, it was normal to expect a significant decline in the stock market that would carry to the close.

From my experience as an equity trader and trainer, one of the basic tenets is that when a stock or a market can rally on bad news, it is typically an excellent trading opportunity, if even for a day or two. You would have to term the reversal on these employment numbers as just such a situation. Down 3% or so at the open into a strong rally into the close.

So I ask the question again: Have we put in the lows and are we now poised for a strong rebound. Conventional wisdom goes that the stock market will typically start to rally months before solid evidence that the economy is turning up. So are we poised to go much higher?

This Time It's Different

This is a famous saying used to describe markets that are either going up huge or down huge to explain why they can keep going and defy all reasonable and common tools of measurement. In the case of this economy and this stock market, the plain truth is that it is different this time, because there are so many cross currents at work that are extremely dynamic and which we have not really dealt with before. At least in this magnitude. We will have the analysts and the "experts" explaining why, after this rally off of the lows set a month or so ago has already taken place, that we have seen the bottom. That we are forming a base, backing and filling, poised to now go much higher and all of the other cliches that you will hear on T.V. These are the same guys and gals who simply go with the momentum trade disguised by fancy talk. When oil was at $140 a barrel, there was no doubt that it was going to $200. Now that it is $40 a barrel, there is no doubt that the next step is $20.

Nobody Really Knows

What will the outcome of the Big Three hearings be?

Will the employment numbers continue to get worse?

Will retail sales fall off of a cliff due to unemployment, low consumer confidence, end of housing as a piggy bank, foreclosures, etc.?

Will the huge inflow of liquidity be successful in getting banks lending and the economy off of its' backside?

Will oil continue to fall or spike back up taking away what has amounted to a huge tax cut?

How will the economic problems in the UK and the EU play out?

Will the new Obama administration follow through with raising taxes on the"top 5%"?

With all of the brewing tensions around the world, will there be a geo-political crisis such as in the India-Pakistan situation?



All of these questions and more that I have not thought of makes this call of a bottom a little more difficult than an economy that is rolling through a typical economic downturn and that may be poised to come out of it. I hope that we have seen a bottom, and there is nothing to say that we will not see a huge bear market rally that will take us much higher in the near and intermediate term. The key is:



Watch All Of The Cross Currents, And Hope For The Best.

Friday, December 5, 2008

Global Blast Of Liquidity: What Does It All Mean?

The Rate Cut Merry-Go-Round Just Keeps On Spinning

In a throwback to an earlier time, the Bank of England cut its key lending rate 100bp. to 2.0%, the lowest level since 1939. If they were to cut it to below 2.0%, it would be the first and only time since the Bank of England came into existence in 1694. In a similar move, the EU cut its key lending rate 75 bp. to 2.50%.

These cuts are just more of an indication that the growing and spreading global recession is showing no signs of abating despite the massive infusions of capital around the world. Inflation, the term that has historically brought fear and quick action not only to our fiscal watchdogs but to those around the world as well, is obviously nowhere in sight, with deflation closer to the real story.

These massive and unprecedentedly aggressive easing moves, together with the flavor of the day action taken by the Fed and Treasury to try and stem the escalating tide of economic destruction, makes one think that what we see as a very bad situation, might be just that much worse.

The newest trial balloon is an unconfirmed story that the Treasury and Fannie and Freddie will enter into a program the net result of which is to bring mortgage rates for new home purchases down to about 4.5%. Good news for prospective buyers of homes, but what about current homeowners seeking to refinance high interest loans (which is where most of the mortgage problems are) as well the unknown effect a move like this would have on the secondary fixed income markets. Just another in a long line of wait and see situations.

The Big Three Go To Washington

You can bet that in some way, shape or form Detroit will get some amount of money sent their way (terms and conditions attached), but not before the congressmen and senators get to play that famous Washington game,

"Who Can Ask The Most Irrelevant and Asinine Question?"

From listening today, the winning question is one that was not hard to predict would be asked beforehand, but which still makes you wonder about what it is that is that rolls around inside the heads of some of our elected officials. You have an industry on the brink of failure, a failure which has the potential to bring an economy that is already extremely weak to its' knees, and the important questions asked were:

"You drove to Washington to show us you were serious, but who drove. Did you have a chauffeur? How are you getting home? Are you driving? Are you flying?"

For the love of Pete, can someone tell me how this makes any difference in terms of anything what so ever? Will the answer to this question somehow give some insight as to whether or not to vote for money to the big three? Or is it simply just one more example of a politician trying to get that gotcha answer to put in the trophy case? Let's get serious.

The Employment Numbers On Friday
Expectations are that the non-farm payroll numbers are going to show an extremely large decline, and that the unemployment rate is going to show a large increase when released at 8:30 this morning. Some thinking goes that if it comes in at those estimates or better, the equity markets could take off. The one thing that I know is that I don't have any idea and neither does anyone else. It's all just educated guesswork.

Thursday, December 4, 2008

Torture: What Is The Correct Definition?

What Definition Of Torture Should We Go By?

Why talk about torture now? I heard a news brief on the radio Wednesday morning that there was going to be a committee hearing or symposium discussing the use of torture by the U.S. I did not catch who was holding it or exactly when, just that it was happening.

Let me open by saying that I totally agree with the premise that under normal circumstances nobody should be inflicted with torturous techniques. Period the end. I don't think that anyone, left or right, would disagree that the deliberate use of torture for no apparent purpose is absolutely wrong and should not be tolerated.

That argument however, does not carry a great deal of sway when we are talking about the safety of Americans and our allies around the world, during what can only be termed as a time of immense global insecurity. Not a war by definition, but very unsafe times. An argument exists that by torturing to get imperative information that will hopefully be used to save lives, we may be no better than the enemy that we are trying to combat. To that point I have two questions:

  • What constitutes torture?
  • Is there some threshold by which those that oppose any degree of torture would accept it, were it to prevent an action brought by our enemies that would be so abhorrent and devastational as to justify it?

Is it perhaps possible that in the hatred of, and the rush to condemn the current administration no matter what (an administration that has no doubt committed significant blunders), the bigger picture has been lost? That is that we are fighting people that want us dead, and who do not play by the rules of the Geneva Convention. Far from it.

What Does The Geneva Convention say?

Should we go by the Geneva Convention when we determine what is an acceptable level of torture? Just what are some of the things that the Geneva Convention stipulates?

1. Persons taking no active part in the hostilities, including members of armed forces who have laid down their arms and those placed hors de combat by sickness, wounds, detention, or any other cause, shall in all circumstances be treated humanely, without any adverse distinction founded on race, colour, religion or faith, sex, birth or wealth, or any other similar criteria.

To this end the following acts are and shall remain prohibited at any time and in any place whatsoever with respect to the above-mentioned persons:

(a) Violence to life and person, in particular murder of all kinds, mutilation, cruel treatment and torture;
(b) Taking of hostages;
(c) Outrages upon personal dignity, in particular, humiliating and degrading treatment;
(d) The passing of sentences and the carrying out of executions without previous judgment pronounced by a regularly constituted court affording all the judicial guarantees which are recognized as indispensable by civilized peoples.

2. The wounded and sick shall be collected and cared for.

(From the Office of the High Commission for Human Rights)

By Whose Definition Is Torture Determined?

I am not sure if the groups that seek to do us harm are abiding by all or any of these terms. One needs only to look at the attacks on 9/11 to see that is the case.

In a manual discovered at an Al Qaeda safe house there was a description of the methods to use when interrogating and torturing a captive. Some of these included the use of:

Electric drills, hammers, blow torches, meat cleavers, pliers and wire cutters, chains, screw drivers, whips and handcuffs. Some of the drawings included the methods to be used for perpetrating some incredibly gruesome acts, including "how to drill hands, sever limbs, drag victims behind cars, remove eyes, put a blowtorch or iron to someone’s skin, suspend a person from a ceiling and electrocute them, break limbs and restrict breath and put someone’s head in a vice." (Fox News, May 2007)

Now let's compare these acts with some of those reported to be used by the U.S. in a Washington Post story on June 10, 2004. This story outlines and derides some of the "techniques" being used by the U.S. at Guantanamo Bay to "torture" the detainees or prisoners.

If we compare the methods in the terms of the Geneva Convention, or any other convention for that matter, we have to wonder why the outcry is over the actions of the U.S. to a much greater degree than that of our enemy. These are some of the ones mentioned:

"Some of the more severe methods available to interrogators in Iraq, if they got proper approval, include forcing detainees to sit or stand in stressful positions, using sleep or sensory deprivation, and using military dogs to intimidate. Others requiring prior approval included isolating a detainee from peers; pride and ego up or down, which means attacking someones personal worth and sense of pride; and "fear up/harsh," in which interrogators could yell at prisoners, throw things around the interrogation room and convince a detainee that he has something to fear, change of scenery up; change of scenery down; dietary manipulation; environmental manipulation; sleep adjustment (reversal) ; isolation for 30 days"; and a technique known as "false flag," or deceiving a detainee into believing he is being interrogated by someone from another country."

Does the end justify the means? It depends which case you are looking at.




Wednesday, December 3, 2008

The Big Three: This Time They Drove

More Public Relations Nonsense

This is what it has come down to. Three of the nations oldest industrial companies seeking a bailout, bridge loan or cash infusion in order to survive. With a potentially crippling trickle down of bankruptcies and job losses that would result, they were initially grilled on their use of private jets to get to the hearings. As if this was the crux of the problem, and had they found an alternate way to get there, all of the actual management mistakes and the economic downturn would miraculously disappear and the companies would be well on their way to profitability.

With that in mind, these corporate leaders, these icons of industry, chose to drive from Detroit to Washington so that the senators and congressmen would now know just how serious they are about taking these companies from the brink back to profitability. Now they know. These politicians have to stop pandering to the folks back home and focus on the problem at hand, without looking for the buzz phrase that will get them the headlines and face time. This stuff is serious business, and should not be used as just a tool to get ammunition for the next re-election cycle.

We will see Thursday and Friday.

What Went Down Tuesday?

The three car companies submitted proposals for what they need and why they need it.
General Motors said that it needed $12 billion in loans and another $6 billion in credit in order to survive. Ford said that it wanted to get a $9 billion stand-by letter of credit but that it did not expect to have to use it. Chrysler said that it needed to get a $7 billion bridge loan before the end of December or its' cash position would fall below the level considered a minimum for continued operations.

Meanwhile, as an exclamation point, new car sales for the month of November took a nosedive, with GM and Chrysler sales dropping more than 40%, and Ford sales 31%. These numbers show that the bleeding has not even come close to stopping, and that in addition to receiving money from the government, serious changes have to be made in the way that these companies do business. As an example, GM proposed these changes to its' business model in return for funds:

-Increased production of fuel-efficient vehicles and energy-saving technologies;
-Rationalization of brands, models and retail outlets;
-Reduced wage and benefit costs, including further reductions in executive compensation;
-Significant capital structure restructuring;
-Further consolidation in manufacturing operations.

"Welcome Back My Friends To The Show That Never Ends", ELP, 1974

Tuesday, December 2, 2008

The Selling Of America: The List Goes On And On

Monday Market Footnote

Both Fed Chairman Bernanke and Treasury Secretary Paulson spoke Monday, and the markets had the typical reaction of a flight to quality and safety in Treasury's, and an accelerating slide in equities. Is there a way that until they leave office that they can give any public comments from inside the cone of silence (for all you Get Smart fans out there). They need to formulate a plan and give it time to work, as opposed to coming out with a new flavor of the day. That does little to inspire confidence. The S&P closed down over 7% and the Nasdq over 9%.

The more you listen to our our government financial leaders who seem not to be able to get any type of handle this crisis, as well as economic leaders outside the government that paint an extremely gloomy picture for the immediate future, one wonders what the economy's around the world will look like same time next year. What will the extent of the economic as well as social dislocation be?

Hilary Clinton Nominated For Secretary of State

As discussed in this blog on November 24, Hilary Clinton was nominated for the position of Secretary of State which is curious from the perspective of both the nominator and the nominee. It may go under the title of keep your friends close and your enemies closer.

AIG Announces Agreement to Sell AIG Private Bank Ltd to Aabar Investments

I was watching the business news Monday morning, and saw this cross the tape on the bottom of the screen. Not a big deal. AIG is in trouble, and an overseas company sees some value and is swooping in to pick up an attractive asset at what they hope is going to be an attractive price. Not a big deal, right? The reality is that we probably sell somewhere in the neighborhood of 50% +/- of our U.S. government debt to buyers that are foreign, as well as a piece of a variety of companies.

This fact puts us into a very dependent and vulnerable position, particularly as some of the biggest Treasury buyers are considered "friends", but definitely not the best of friends. More like acquaintances. Let's take a look at the list of the top holders of U.S. treasury debt:
  1. China, Mainland
  2. Japan
  3. U.K.
  4. Carib. Banking Centers
  5. Oil Exporting Countries including Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria.
  6. Brazil
  7. Luxembourg
  8. Russia
  9. Hong Kong
  10. Norway

(Department of the Treasury/Federal Reserve Board November 18, 2008)

Note that if numbers 1, 5, 8 and 9 decided to hold us economically hostage, they would be in a fairly good position to do so, particularly as our borrowing needs rise substantially.





Monday, December 1, 2008

The War On Terror: Still In The First Round

What Round Of The Fight Are We In?

If the war on terror was a 15 round fight, I would say that we are probably still waiting for the bell that starts the first round. The war has not been won, and this is no time for the public to let its' guard down. The people that want us dead are still very much in business and active, yet very patient. This creates a feeling of complacency that causes us to forget that this danger is still out there. To get an idea of the truth in this, we only have to look at one actual event and one potential event of the past days.

Mubai, India has had a vicious few days where terrorists, apparently targeting western tourists, businessmen and a Jewish organization held hostages with what apparently was an incredible arsenal of weapons, killed hostages and with most of the perpetrators dying in the process. The fact that they were going to die was probably part of the plan going in, and may have actually been a desired result. The exact make-up and origin of the terrorists is not exactly known yet, but this type of attack is possible anywhere. Speculation is that it was brought on by a dispute over control of Kashmir and carried out by Muslim militants, but hatred is hatred and a pre-disposition to violence is prevalent among many groups around the world.

This makes two things obvious, at least to me:

  1. The enemy that wants us dead is still out there and active.

  2. It is an enemy, unlike in conventional "wars", who feel that their own death is a good thing, as death will take them to a better place. This is a much different enemy than in conventional warfare, where combatants on both sides want victory, but also desperately want survival.

New York City on Wednesday, November 26th, faced what was termed a non-specific, but credible threat that the New York City subway system and Long Island railroad could be targets of a Madrid style bombing. This bombing in Madrid in March 2004 targeted four commuter trains and killed 191 and injured over 1,700 innocent people in a well coordinated attack. In order for the authorities in New York to come out with the warning, particularly considering it was Thanksgiving eve and the importance of tourism at this point in the cycle, you would have to imagine that the source and tone of the information was very credible.

What this says to me is that we as Americans need to resist the temptation for the "out of sight, out of mind" behavior and thinking that we are typically disposed to. We need to move away from OUR mindset in which things needed to be done yesterday, and understand that for the people that wish to do us harm, time and patience are part of the arsenal. A large part. The fact that we have not had a domestic attack since 9/11 is due to many factors, chief among them are the efforts of the government to step up covert and overt activities to thwart them. Unfortunately another could be due to patience.

It would have to be assumed therefore, that we are not out of the woods. This fight is going at least 15 rounds, and we are closer to the opening bell than to any decision.

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