1-2 Knockout

Curse you TED! (For being so good)

First off: My deepest apologies for being MIA lately.  This stomach flu going around has taken the wind out of yours truly's wings. 

Secondly: While plotting and scheming a way to fire back at Bill Cohen and the other "yahoos" at the FT who currently feel their sole job is to deride the payscales of THEIR OWN READERS the ever great Epicuean Dealmaker made about as comprehensive an argument as could ever be made.  Last time (here) the FT went on its blitzkreig against pay TED and I went duo e mano against their worthless authors; this time he took it alone.  Alas, all i can do is point you his way.

Enjoy: TED "Penny for the Guy"

It's better to drive than walk?

From my new favorite hypocritical, cognitivie dissonance inducing, populist pandering rag--the NYT!

This can also be filed in the "unintended consequences of saving the world" drawer...

This challenge comes from Chris Goodall, the author of “How to Live A Low-Carbon Life.” Mr. Goodall is a member of the Green Party in Britain and a devout environmentalist — he says he has ceased air travel because of its emissions. But he also questions how much good is being done by eliminating short trips by car. In fact, he says that in some circumstances it’s better to drive than to walk...

How can that be? Because Mr. Goodall takes into account something that a lot of environmentalists don’t: the human energy expended in averting fossil-fuel use. “Walking is not zero emission because we need food energy to move ourselves from place to place,” he writes. “Food production creates carbon emissions.” Now, you could argue that most people are oveweight and so could use the exercise anyway, but that doesn’t mean that they’re not going to consume calories to replace the ones they’ve burned. In fact, some experts argue that most people do in fact simply eat more to compensate (which is one reason so many people remain overweight). And judging from the fitness of the pedicab drivers I’ve seen, they don’t have much weight to lose anyway.

If you walk 1.5 miles, Mr. Goodall calculates, and replace those calories by drinking about a cup of milk, the greenhouse emissions connected with that milk (like methane from the dairy farm and carbon dioxide from the delivery truck) are just about equal to the emissions from a typical car making the same trip. And if there were two of you making the trip, then the car would definitely be the more planet-friendly way to go.

Full Article

You Should Be:

Listening to Sergio Mendes

Reading Beyond Fear and Greed

Watching Ashes and Snow

NYT Argues Against Self

Today, the NYT penned a news article (not Op-Ed) about the problems facing European style healthcare (something I will rant about from time to time).  I simply find it amazing that these problems, which NYT writers have now explicitly acknowledged don't find their way to their op-ed sections.

One such case was Debbie Hirst’s. Her breast cancer had metastasized, and the health service would not provide her with Avastin, a drug that is widely used in the United States and Europe to keep such cancers at bay. So, with her oncologist’s support, she decided last year to try to pay the $120,000 cost herself, while continuing with the rest of her publicly financed treatment.

By December, she had raised $20,000 and was preparing to sell her house to raise more. But then the government, which had tacitly allowed such arrangements before, put its foot down. Mrs. Hirst heard the news from her doctor. “He looked at me and said: ‘I’m so sorry, Debbie. I’ve had my wrists slapped from the people upstairs, and I can no longer offer you that service,’ ” Mrs. Hirst said in an interview...

Officials said that allowing Mrs. Hirst and others like her to pay for extra drugs to supplement government care would violate the philosophy of the health service by giving richer patients an unfair advantage over poorer ones.

Patients “cannot, in one episode of treatment, be treated on the N.H.S. and then allowed, as part of the same episode and the same treatment, to pay money for more drugs,” the health secretary, Alan Johnson, told Parliament.

Timmy The Great

Today, DealBreaker posted a piece that was guessed to be from Tim Sykes.  Assuming it is, you will find my response to my favorite mini-trump (not a compliment) below.  Even if it's not him, just replace any direct mentions of Timmay with whomever it turns out did pen the diatribe.

He said:

So, to all my naysayers out there, I say screw you! Yup, you heard me. I don’t have to be polite anymore—I’m not trying to get investors, I’m not trying to gain credibility. Everybody—and I mean everybody—in finance makes mistakes, but I seem to be the only one who celebrates them, detailing them thoroughly because they hold the keys to understanding the market.

Awwww yeah, it feels damn good to let it all out! How many of you industry insiders are insanely jealous right now? Sorry, but if you’re not willing to provide the exact details and thought processes behind all your investments, you don’t deserve to speak about them because you’re holding back...you people should be ashamed for you are cowards and frauds. It’s people like you that have made this industry so poorly understood and lacking in societal respect.

That’s right, no more Mr. Nice [redacted]—it’s disgusting that finance, our true national sport, gets such little love and respect. It’s all due to the arrogant, slimy and secretive ways of Wall Street that keeps some people wealthy and most people poor and uneducated.

This industry needs to change and [redacted] will see to that.

I say:

"So, to all my naysayers out there,"
You mean people who call your penny trading bullshit, well bullshit?

"I say screw you! Yup, you heard me. I don’t have to be polite anymore—I’m not trying to get investors, I’m not trying to gain credibility."
Screw me? For calling you out? Challenge.

The reason you're not "trying to get investors" is because no one will invest with you--not because you're not trying. The reason you're not "trying to gain credibility" is because you have proven you don't deserve any.

"Everybody—and I mean everybody—in finance makes mistakes, but I seem to be the only one who celebrates them, detailing them thoroughly because they hold the keys to understanding the market."
1) Everybody makes mistakes, not just financial gurus...most try to learn from their mistakes and better themselves to ensure they don't make them again. You, on the other hand, use them as a crutch, an excuse, a marketing tool. If a batter has a bad season he probably made some mistakes, but he doesn't quit and then proclaim "MAJOR LEAGUE BASEBALL IS MAD AT ME BECAUSE I MADE MISTAKES! THAT'S WHY I QUIT! STUPID MLB, YOU DON'T KNOW HOW BADLY YOU NEED ME!". He goes to the batting cage, fixes his swing, and tries to get better.
2) If learning from YOUR mistakes made us better by learning vicariously through you, then why can't you get better by learning first hand from your experiences.

"Awwww yeah, it feels damn good to let it all out! How many of you industry insiders are insanely jealous right now? Sorry, but if you’re not willing to provide the exact details and thought processes behind all your investments, you don’t deserve to speak about them because you’re holding back...you people should be ashamed for you are cowards and frauds. It’s people like you that have made this industry so poorly understood and lacking in societal respect."
1) Insanely jealous? Once again, challenge.
2) As BSD said, holding proprietary data secret doesn't mean you're lying, cheating or stealing...it only means you have (theoretically) found some intellectual property you wish to protect. If people could patent trading schemes they would; since you can't protect them you're only being smart to not discose them.
3) "This industry" is not poorly understood or lacking societal respect because SAC, Rennaisance, or Bill Ackman are hiding their trading/investing methods...it's because they work and everyone else's (hyperbole) don't. That's called jealousy. Wall street is hated because of deuchebags like you, amongst other reasons (too many to name).

"That’s right, no more Mr. Nice [redacted]—it’s disgusting that finance, our true national sport, gets such little love and respect. It’s all due to the arrogant, slimy and secretive ways of Wall Street that keeps some people wealthy and most people poor and uneducated."
1) See above
2) You're telling me that people are refusing to go to school, college, or read millions of investment books because wall street is secretive? I would say it's the opposite: uneducated people either a) want to learn more and do, or b) don't care. But I am pretty sure my practices aren't sending signals to others not to go to school.

Tim, all i have to say is SCOREBOARD!

You Should Be:

Listening to: Buena Vista Social Club, Rhythms del Mundo

Reading: Stumbling on Happiness, by Dan Gilbert

Watching: Why aren't We Happy, By Dan Gilbert (courtesy of TED)

Peace

Bonus just hit the account.

Resignation is on the boss' desk.

Sleeya!

Is Wall St. Taking Crazy Pills?

I feel like Wall St. has lost its mind. While many have accused me of being a perma-bull recently, I must concede that I am now terrified. Why? Read this article, then circle back.

I was on our bank's hoot yesterday (and garnered a little more information today), so here are some important things to know:

1) This really is a shit-show. You could hear fear and confusion in everyone's voices.

2) These securities were sold as cash-equivilants, but (I swear to god) on the box they actually said to FAs "these should no longer be treated as cash/cash-equiv...they are now fixed income." This raises a few questions:
a) How many tort lawyers are crafting a class action suit against all the banks right now? 50? 100? This is going to be the next huge securities gold-mine for the legal begals.
b) Since these were expected to be extremely liquid, what happens to HNW clients who get PE capital calls and can't access their requisit cash? How will the PE firms handle multiple investor defaults?
c) What are firms who use ARCs/ARSs to manage intra-month cash supposed to do? These products haven't failed in years (if ever). If I am GE and use these products to manage cash *knowing* that they would roll-over every two weeks (say for payroll), how do i access the cash I need? Obviously you can borrow, but they're only giving you 50-80% release at an (expected) high interest rate. Instead of making money earning interest you are now paying for liquidity you don't have.

3) Word has it there are HFs out there who are buying this shit up like wild fire. They have excess cash and these products are going to be extremely high yielding so long as the markets won't clear, so they're taking their negative liquidity preference and being paid mightily by the banks to take these off their hands. Yet another example of how the "vultures" are actually keeping our system on track...for now.

4) Apparently the banks have been backstopping this market for 3 months now. 80-90% of these auctions would have failed without the underwriter taking on their unsold inventory, yet no one was made aware of this. Lesson: don't think that liquidity problems will go away if you just wait long enough--history shows they don't. As Keynes' said, "the market can remain irrational longer than you can remain solvent."

There are a plethora of other notes, but those are the main ones we've thrown around today. As an aside, even though i am being personally screwed (1/3 of my portfolio was in these for various reasons, none of which had to do with making an effort to enter the securities) I don't think anyone should be bailed out over this. I do not believe there should be more regulation, oversight, or help. Why? Because no one thought about the fact they were actually taking on risk; they should have. Heck, even i didn't read any of the print involving these--and I should have, since part of my job is due diligence on potential investments. There is a reason these had a higher yield than tresuries...they weren't risk-free...nothing is...and that's a lesson that must be re-learned.

Washington Chicanery in Insurance

This is just the type of situation that truly irks me. Unfortunately the always witty, insightful, and exceedingly sharp Equity Private said it better than I ever could.

This is a must read

Blame the ratings agencies? Not so fast.

Is there fault to be layed at the feet of the ratings agencies? Yes. I conceded that yesterday. But I want to revisit a line I "threw away", but probably should have made clearer:
Anyone who reads this site knows i am a pretty strong "libertarian" (I use quotes because liberatarian has a sh-t ton of connotations and some of the self-professed libertarians are anarchists in disguise or just crazy...im mainstream libertarian). That said, it is pretty obvious that i have a pretty strong disdain for government intervention in most instances. I believe a large part of this mess was created BY the government--and any attempts to "fix" this with new regulations will only push problems down the line.

If anyone recalls, Mikey Milken went off and sold junk bonds to the S&Ls under the guise of "if you diversify enough then you are getting a free lunch in junk rated paper" back in the 80s and 90s (hmm, sound familiar??). When they caved (sound familiar) and the S&Ls had to firesale them and be bailed out (sound familiar??) the government declared they could only buy "investment grade" paper and ordained the ratings agencies as ultimate arbiters of that investment/junk status. Since, if a bond is rated junk, there is an automatic reduction in willing (able) buyers. To circumvent Milken's method of selling individual junk bonds, then declaring that through diversification they are stable as a portfolio the ibks simply bundled them at the start. Why? Because then they could get investment grade status, and then institutions could purchase them (in a low yield environment).

Now let's take the contra-example. What if institutions weren't required to hold only investment grade paper? Well, then these CDOs would probably have been given more accurate (lower) ratings. It is the same crowding out effect as when you add a substantial amount of subsidised housing: all the housing around the area's price increases because of decreased supply. You are either subsidised (and thus cheap) or you arent (and thus expensive). With securities you are either investment (expensive) or junk (cheap). By negating a stratification of ratings the agencies were incented to rate things as either AAA or junk. You get a barbell, not a pyramid. This effect is only amplified by the basel accords and other regulations stating that reserve capital must be seen in terms of risk. As Carney said (and im simplifying) AAA securities didnt count as liabilities on European balance sheets, since they were seen as risk free.
This is not to say the gov't intervention is ALWAYS bad, but in the rush to seem like they're doing SOEMTHING regulators forget about secondary incentive cascades (see Carney's post on behavioral finance and regulation). Case in point: Dodd's new, rediculous mortgage market "fixer".

It is also important to remember that these subprime ARM borrows are not being forced out of THEIR homes. They are being forced out of the BANK'S (lender/servicer/etc) homes. If they put no money down, and payed, say 1/30 (1 year out of 30) they maybe "own" their bathroom...but that's it.