Desiderata

Wikileaks: Coming to a Bank Near You – Over on the Premise page, we make it clear that we don’t believe in conspiracies; except the ones designed to stick up liquor stores. So, it will be interesting to see what comes out of the next set of Wikileaks which are apparently going to target a major US bank. One comment from Julian Assange, Wikileaks’ founder, is that the documents will illustrate the unethical policies and lack of regulation that are common at US banks. We look forward to the release of internal documents that support our contention that the sort of bad behavior we talk about here is in fact going on, and is actually the POLICY of some (read “all”) major financial institutions.

Insider Trading – A quick update here from an utter shill name of Halah Touryalai at Forbes. This a breathtaking example of bad writing, muddled thinking and just plain stupidity. Halah’s hard nosed take on all of this? When you play a rigged game, you’ve got to expect this kind of stuff AND she’d be shocked if anyone was put in jail (it’s not clear but I think she’d be shocked as in outraged, not shocked as in surprised). Hey Halah, the stated premise of EVERY company that sells stocks to the public is that it ISN’T a rigged game. And of course, in case you forgot, it shouldn’t be. You’re not hard bitten and cynical, your a moron and a shill for the big boys. BUT, keep in mind, that is the way many, many people who write about Wall Street view the matter.

Your Job is Gone…Forever – You may have seen last week that US businesses posted record profits (and you thought we were in a recession!). One way they’re doing this is by asking workers to find every way possible to save money (great) and to do so with existing technology so the company doesn’t have to buy new or upgrade (hmmmm). What this translates to in many cases is that there really will be persistent unemployment even when the economy does start to rebound. Too bad your 401(k) was decimated in the recent crash or you’d be cashing in on the rising stock prices.

Just a Thought – I keep hearing talk about how our economy is going to crash and go the way of Greece and Ireland because we have such a consumer focused economy and don’t have adequate exports. Here’s a thought: to start to turn that around, let’s devalue our currency (just like China does) and encourage manufacturing and exporting. Any takers? Sure, all the people who would get jobs would love it. And, since pretty much every country in the world manages its currency rate to some extent, it wouldn’t be anything new. But any thoughts along these lines will ALWAYS be railed at as protectionist. Anyone with a good answer as to why this would be so bad, let us know. Mind you, we only want real answers. Any answer that is based upon the sanctity of free trade, the need for global trade etc. will be put in the spam folder.

Desiderata

Happy Thanksgiving! We have much to be thankful for in America. Despite the hard times for many, this is a great country and a great place to run a business!

KKR Buyout of Del Monte – It’s often said that venture capital funds and hedge funds are helpful, and even essential, to the economy since they provide liquidity needed to make markets and for people to grow businesses. That’s true in many cases. Of course, it’s also not true in many cases. KKR is leading a buyout of Del Monte; they’re taking it private (buying all the stock so it is no longer publicly traded, and thus a private company). Del Monte is doing fine. In fact, it’s a solid company that’s in no financial trouble. The private equity firms are going to buy the shares, gut the company and then take it public again in around five years. Nothing especially productive will come of this, and lots of people will lose their jobs. What will happen, however, is that the ultra-rich investors will make more money and their lawyers and advisers will stay busy.

The point: private equity firms and hedge funds often engage in financial transactions which add little or no value to the underlying business, but make the funds lots of money. Don’t believe it when people say they are essential to our economy. They’re not.

Advantage Sales and Marketing – Here’s more evidence of the above point. A company called Advantage Sales and Marketing is going to be bought by a private equity group for about $1.8 billion. The company was is being bought from another private equity group which bought it for $1.05 billion all the way back in 2006. This is an example of a “secondary buyout” where one private equity firm buys a company from another. This lets the seller lock in profits and lets the buyer do something with its money. No underlying value being added AT ALL.

Ongoing Insider Trading Story – We saw the first of what will undoubtedly be many stories with the angle that people think the stock market is rigged in favor of the big guys and against the individual investor. Hmmmm, you think so? The only reason I can think of to publish a story like that is to raise the idea that there may still be people who DON’T think the market is rigged. If there are, find them and sell them something; they’re suckers.

Insider Trading (cont.)

As predicted, the business press is trotting out the expected comments on the brewing insider trading scandal. I may have been a bit imprecise with my three categories, but they pretty well cover the water front.

One view that I missed entirely is the unrepentant one voiced very clearly by John Carney from CNBC http://finance.yahoo.com/news/The-SECs-Absurd-War-Against-cnbc-1773887254.html?x=0. The fancy name for this point of view is the Efficient Market Hypothesis (“EMH”).

EMH says there shouldn’t be ANY rules against insider trading because the market should be totally transparent, and only by letting insiders trade freely in a stock will the market accurately reflect all the available information on that stock. Let me guess, this guy just loves Ayn Rand and thinks the Atlas Shrugged is a great piece of literature. I thought this kind of nonsense went out with Greenspan’s public recanting. That was where former Fed Chair Alan Greenspan owned up to his profoundly naive belief that markets would regulate themselves. At least Greenspan had the balls to look at the wreckage his outlook helped create and say that he was terribly wrong.

The only way someone can continue to believe this nonsense is that they’re just naive. Carney read this theory, probably in business school, and bought it hook, line and sinker. It makes sense, in a vacuum, especially to young people and people with little or no real world experience. If insiders have information others don’t they’ll use it to their advantage and to your disadvantage. I don’t think the owners of a business would like it if their employees started buying stock based on a positive development the company wanted to keep under wraps until a specific point in the future. When you hear this theory or arguments that sound like it, just laugh at the proponent. They’re wrong. Tell them Alan Greenspan had the same idea and look where that got us.

Personally, I have a comic vision of guys like Carney and Greenspan being conned into believing this nonsense by people with real money who are just using them as shills.

So let’s dismiss Carney. He’s a shill. But remember, this is an outlook that ruled the business press roost for years, and won’t go away quietly.

Todd Harrison brings another perspective. Todd says it’s just terrible that people are viewing big finance as a bunch of thieves. He even pats himself on the back for not being acrimonious as he throws in a link comparing people who disagree with him to the idiotic supermodel in the movie Zoolander. He also casts those who disagree with him as conspiracy theorists. At the end of his article, Todd tells us that hedge funds are essential and that without them (if this makes sense to anyone, please send me an email explaining it) “the specter of free market capitalism will be forced to endure an entirely more profound pathway.”

Does profound mean bad? Will the specter be forced to endure such profundity, or will capitalism itself be forced to endure it? Even your humble decoder is left wondering what this means.

Calling these people to the carpet doesn’t make you a conspiracy theorist. Pointing out that the hedge funds have structural advantages that ordinary investors can’t compete with isn’t bad or wrong. Todd’s made good money in the business and is paid to defend it. That said, I agree with him that there aren’t any conspiracies at work here; that most people in this industry haven’t broken the law; and that people shouldn’t be found guilty before a trial.

The big press will probably have stories over the holiday weekend. There’s a lot of digging to do and no one wants to go off half-cocked on this one. There’s a LOT of life left in this one! I think the “overzealous prosecutor” angle will get some play, but less than in the past, given Bernie Madoff et. al. I’m still hoping for some “this stuff is too complicated” stories.

Stay tuned!

Desiderata

Insider Trading Probe

– The SEC and the Manhattan DA are in the midst of a massive insider trading probe. It’s early in this one, so we can follow it from the beginning. Initial focus is in part on “expert networks” that trading companies put together to bolster the information they have on certain industries and companies. No charges yet. Let’s guess how the story is cast in the B-press: 1) overzealous prosecutors with some anti-Obama administration angle; 2) the ever changing face of insider trading rules; 3) insider trading rules are so complex even sophisticated investors don’t understand them. This should be fun. Stay tuned.

War of the Worlds (brought to you by a moron)

– Some clown at Yahoo wrote a piece about how the world would end if the Chinese stopped buying US Treasuries. Presumably, this is part of the rhetoric being put up to slow down QE2. Not mentioned by this moronic fear monger is what happens if the US stops buying Chinese goods, why the Chinese would benefit from total chaos in world financial markets, why others wouldn’t buy US Treasuries or the fact that these same stories were written 20 years ago, only then the villain was Japan, not China. Japan, with a structurally fucked up economic system went down. China will too, but it will take some time.

The World Isn’t Going to End

– Meanwhile, back at the ranch, or in this case the Cleveland branch of the Federal Reserve, a report says that inflation will stay low for the next couple of decades. OK, we have a bias against professional economists, but it is fun to see a group of economists saying inflation isn’t a big worry when there is a constant drumbeat from politicians that the Fed’s program of buying Treasuries to put money into the economy to increase investment (and thus economic activity) is going to turn the US into the Weimar Republic. The only group less dependable than economists is politicians. Particularly any group or politicians which includes the dumbest, most consistently wrong person alive today Billy William Kristol of the National Review. Whatever this gas bag says…bet on the opposite.