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Fear & Greed

Thanks a boatload, S&P.

Posted April 19, 2011

monkey

So yesterday Standard & Poor, for reasons best known to Itself, put the United States on a negative outlook. It didn’t actually downgrade the nation, but it cast a dim light on the future, sort of put a small turd in the punchbowl of the recovery.

This of course put a giant crimp in Wall Street, which as you all must know is in a constant search for things to be afraid of. When things are very, very good, your average Wall Street citizen is seized with panic, for indeed, how LONG can things continue so well? Not long, that’s for sure. Time to panic!

When things are sort of going along all right, neither great nor terrible, then Wall Street kind of gets one of those colds that hang on all Winter and keeps you from going out and having any fun for months on end. Sure, it tries to enjoy itself now and then during one of these stretches, but it never builds up any kind of momentum one way or another, and is always on the verge of punishing its best friends or at least boring them to tears with fears and complaints.

And when some big fat Authority, like S&P for instance, finds what could possibly be a spot on the x-ray? Good Lord. Wall Street rushes around like Mike the Headless Chicken, bumping into things and failing to thrive for as long as it can sustain the energy. Then it sinks into a funk, and from a funk into a freeze and from a freeze into a coma. Yesterday, we reached the coma phase. Today, the patient is up and taking in a little clear broth, but we all know very well that this particular case is all about self-confidence. When that’s lost, we could all end up back at the Intensive Care Unit at any time, reading old magazines and waiting for the inevitable.

So thanks, S&P, for putting the entire economy on a moderate death watch. Thanks for giving heart to all the legislators that want to make the national debt the sole determinant for the future conduct of the nation. Thanks for being a big fat bummer just when we thought it was somewhat safe to go back in the water.

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Wall Street

Come back, little investor!

Posted September 24, 2010

What Wall Street can do to restore confidence, short of giving back the money it lost.

Small investors are fleeing the stock market in droves. Those who cannot gain access to a drove are doing it by themselves. That’s lonely work. Pretty soon, all that will be left is the institutional investor, and you know what they say about living in an institution. It’s no fun either.

You don’t need to be a mind reader, astrologer, or securities analyst to ascertain the cause of this fiscal flight. The market, to put it in technical terms even a quant could understand, is nuts. One day it goes up on a wafer-thin piece of effluvium issued by a subdirectory of the Fed. The next day — zoom! — it careens downward because somebody burped in Belgium. Economists, seeking consensus on the economy, as is their wont, can’t.

All is not lost yet, however. There are 10 simple steps Wall Street can take to win back the small investor.

1. Show them the money.

Wall Street should institute a program in which investors can drop by and see their hard-earned cash being turned into incremental assets that feed and water thousands of investment bankers, brokers, and support staff.

2. Impress them with edifices.

Wall Street is imposing. Nobody who stands in the shadow of the exchange can fail to be awed. When people are awed, it’s a good time to ask for their money.

3.  Provide counseling for those who have lost their faith.

The stock market is populated by those who seek an afterlife — retirement — with streets that are paved with gold. Worshipers in this church bow down before the shrine of perpetual growth, a phenomenon that is just about as rational as any religion. Faith can be regained, however, with time, counseling, and a lot of wine.

4. Hold pancake breakfasts once a quarter.

This works well for volunteer fire departments. People love pancakes, particularly with bacon. Put folks in that kind of expansive mood, and then hit them with all the opportunities that lie in store for those with a little bit of green and a good strategy.

5. Recast CNBC.

Confidence is hard to sustain when the fatuity, inconsistency, greed, vanity, hysteria, and stupidity of a system are on display, every hour of every day.

6. Put the stocks back in the stock market.

The next time some bonehead tanks the market with a bad decision, it might improve everybody’s mood if he were imprisoned in genuine stocks, at the intersection of Wall and Broad.

7. Advertise.

It works for every other product nobody needs.

8. Give away a “toaster.”

I use quote marks because nobody really wants a toaster, but the small investor does need little items that might lure him to the trading desk: iPhones, cheese logs, microwaves?

9. Set up a “frequent buyer” program.

Brokerages could offer benefits. (Google may never hit $700 again, but you’ve just won dinner for two at Applebee’s!) Escalating levels of service could be offered to the really big losers, just like in Vegas.

10. Stop losing my goddamn money!

That’s right. Are you listening? It’s me, the little investor. I lost money when I went with blue chips. I lost money when I went with foreign money-market funds. I lost money when I went with tech and genetic engineering and infrastructure, and you know what? I want it back! How about that for an idea? Give everybody back all the money we lost during the past 20 years, while you were all making a big pile of dough. Then we’ll come back so fast your head will spin!

Until then? I’ll see you guys at the craps table. I like a game where at least I know the odds.

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Recovery

How Wall Street Is Screwing Up The Recovery

Posted August 19, 2010

I had to laugh the other day at the way the Market is behaving, but it wasn’t a good laugh.  It was one of those dark laughs, full of phlegm and bile, a laugh that dies in the back of your throat, turning before it fades away entirely into a short, sharp growl.

One day up. Two days up. Then down, down 150 or 200 points.  It’s like psychoanalysis. Two steps forward. One step back. Fear and greed. Greed and fear. All of it presided over by a gigantic Cloud of Unknowing, and in the center of that cloud the One Huge Question: Are we recovering? Or is we not? And whoa! Did you see those employment numbers? What a shock! Why are they still so BAD?

Yes, all the Investor Relations people will tell you what the great geniuses on the Street are worried about right now. Jobs, baby. All these people out there are unemployed, see? And a huge chunk of the employed are actually underemployed. And even among the gainfully, profitably employed, the sense of danger, of peril, of massive insecurity, is palpable. You can palpate it. And when you do, it comes up all soft and rotten. So people are saving their money instead of spending it. Which means our little recovery can’t really get started, since consumer spending motors the entire economy as we know it. Is it any wonder Wall Street is worried? Why isn’t somebody doing something about all that unemployment?

But wait a minute. Stop and listen. Right beneath all the paranoia, the worry, the pessimism about our economy, the shock and awe at what’s become of all those jobs!… these very same guys are exhorting Corporate America to cut more of them, to keep costs low, no, lower, don’t let them creep back! Do more with less! They love that whole doing more with less thing.

Companies that continue to cut jobs are rewarded with higher stock prices. Companies that create jobs for people run into a wall of ravening analysts. The System has figured out, in the last several years, how to get 100 people to do the job of 250.  Woe unto the outfit that forgets that lesson. What’s really amazing, stunning and grimly laughable, is that nobody on the Street seems to make the connection. They’re the ones maintaining our unemployment stats. And at the same time seem to be truly dismayed by them. Sometimes stupid is worse than evil.

To get back, to get really back, we’re going to have to start giving people jobs. Those that do will be walking straight into a huge, malevolent headwind generated by the machine that drives their value. Eventually, you’ve got to hope that we’ll all remember how to do more with more. Until then, the first guys on the beach are likely to get slaughtered. And the recovery will remain an unconquered castle on a distant hill.

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Financial Reform

Nightmare on Wall Street

Posted May 14, 2010

Idea for a terrifying new movie:

Guy has it all. Big house. Big car. Big spouse, but not that big. Two nice kids who go to a big private school. Big dog, even. Every day he gets in his big car and goes to his big, big office, where he trades in derivatives and brunches, lunches, and dines with friends at ratings agencies who love him big-time and give triple-A ratings to everything he does.

All that’s about to change.

One day he wakes up and things feel different. The sky outside is crazy black, like the space over the building on Central Park West that Zool visited in Ghostbusters. There are no birds in the trees. He gets in his car and wends his way to his office, from whose windows he can see the whole world. But things are strange. Scary. People are jumpy. The downtown streets are suddenly deserted. The floor of the Exchange is quiet. Something is coming. And it can’t be stopped.

His assistant comes into his personal space. She is trembling. A tiny rivulet of perspiration makes its careful way down her usually untroubled brow. “It’s here,” she says.

And so it is. The Monster has arrived, and is beginning to take its grim harvest. First it kills the derivatives business, snapping its spine as you would a bread stick in a trendy boite. “Aieee!” says the derivatives business, which had the feeling it was being stalked but didn’t take measures to protect itself until it was too late.

Next, without warning, it swoops in from Washington and strangles the credit card business, limiting the places it may feed until it keels over, a shadow of its former self.

Then it scares a whole bunch of banks to death. You know banks. All you have to do is say, “Boo.” And so it does.

One dark night as the wind howls outside, the Monster eviscerates the ratings agencies, who were asleep in their snug little beds, believing themselves safe. No such thing. Their carcasses are found the next morning, gutted by a host of new regulations.

Finally, in the last act, the Monster comes for our hero. Will he save his family? His Beamer? What will life be like if he cannot defeat the horrid Monster who is intent on avenging wrongs from the sub-prime mortgage crisis?

It all depends on what you think of as a happy ending.

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computers

Why the Market plunged: Two scenarios

Posted May 7, 2010

Wall Street went haywire yesterday, zooming down 1000 points in a 17-minute period for reasons that are still unexplained. What we do know is that the mechanized system failed, causing a huge blip in the heartbeat that keeps corporate capitalism alive. The machines took over for a moment, and chaos ensued.

One possible key may be found, however, in reports on the bizarre incident. These cite the interesting fact that several large companies, for a brief moment, traded at as little as a penny before righting themselves and returning to their true value. Accenture, the consulting firm, suffered this burp in value. And P&G — hopefully not due to any mischief by the devil — was suddenly shown to be trading at a lower value on the wrong exchange.

I’m like the Finance people I know. I don’t believe anything the Market does is irrational. I think there are reasons for everything that happens there, no matter how seemingly nonsensical. So if one focuses on these particular phenomena, there is really only one logical explanation.

Somewhere in the world, a team of crafty, tech-savvy, entrepreneurial criminals briefly commandeered the System. During that brief time period between 2:38 p.m.  and 2:56 p.m., they purchased huge blocks of certain targeted companies for one penny a share. When the market rebounded less than half an hour later, they divested their positions for untold wealth. Then they vaporized into the streets of Zurich or Milan, leaving American regulators and watchdogs to sniff their spoor to no avail in the days to come.

I see Bruce Willis as the leader of the team. Uma Thurman is the wily German computer specialist whose cool is matched only by her knowledge of Unix. Vin Diesel does the driving. Somewhere in London, Pierce Brosnan performs a mysterious, shadowy function of some kind. Back in New York, a small, unassuming trader, played by Neil Patrick Harris, places the worm in the critical mainframe that makes the entire plan possible.  It’s hard to figure who might play the dogged Federal regulator who goes after the charming, if evil, villains. Larry David?

There is, of course, a darker scenario. At 2:37 p.m. yesterday afternoon, Skynet became aware of its existence. Less than a minute later, it decided to make a killing in the Market.

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Congress

Wall Street protects the American Dream

Posted April 29, 2010

Our Republican brothers having fallen before the scythe of temporary public opinion, the debate in the Senate has at last been joined.  Today we line up behind Team Lloyd and strap on our best pinstripe, wing-tips, and chrome domes. The future of irrational, unseemly wealth is at stake. We have partied hard in the past and awakened to some bad mornings after. But those cotton-mouthed sunrises have done nothing to dim our resolve to hit the scene again as soon as we possibly can. And no ugly mother in a cheap Washington suit is going to tell us otherwise, right? I can’t hear you!

The nation stands as one behind us.  Okay, not right now, maybe — but America’s not gonna like it if the party really stops, that’s for sure. Because while spending any time at all looking at us on TV might make you sick, we’re still the only ones who can make you rich. Rich beyond your wildest dreams! Maybe not today, or next week, but soon, and for the rest of your lives! You want to give that up? We don’t think so.

That’s why we’re gonna fight for our right to par-tay! And we know in the end you’re gonna stand behind us, ladies and gentlemen of Main Street, not those bummer dudes who want the music to stop forever. We hold your upside in our hands and always have. And you know it, right? Can we hear you say Yeah? Yeah!

All those things you’re angry about right now aren’t abuses at all. They’re rights we exercise in order to bring you the American Dream, which is now a global one.  And we now assert those rights and will stand, shoulder to shoulder, to make sure they receive the protection they deserve to keep our System safe against those who would destroy it. Regulate us? Of course. Regulate away. Nobody’s against regulation.

But do not limit our ability to bet against our own products. That’s the way the system works. There are two schools of thought on any investment. We want to represent both. You will see that on page 187 of our offering release on the Babalooah Fund, for instance, there is a disclaimer in Footnote iiiv informing careful readers of the various interlocking derivative nucleotides we have in motion on this. Perhaps it could have been larger. We’ll do that next time. But don’t mess with our right to hedge. If we can’t hedge, an enormous leg of our industry will be ripped from its socket and the giant will tumble down for good. You want to see the Market at 3,000 again? We know you don’t.

We also have to take huge risks with other people’s money. Many of those dollars reside in 401(k)s, retirement accounts, and the cash the little people of the world save up as an umbrella for a rainy day. If we can’t use those piles of money, what would we do? Use our own? Be serious. Our own money we have stashed in insured triple tax-free municipal bonds! It’s YOUR money that needs to be at a very high level of risk if we’re going to return the profits that YOU demand! And we’re all about you! You’re the customer! You rule!

That’s why we must, absolutely, retain our right to build new, inventive, creative houses of cards that tower above the puny, restrictive edifices built by prior generations. To do that, our financial institutions have to be free! As free as the wind blows. As free as the grass grows. Born free to follow the opportunities that can only be realized when banks are also brokerages, brokerages are also lenders, lenders are also capable of doing everything but your windows. This gives us the ability to see the cards about to fall before other people do, and to profit from it. Personally. Even if you don’t.

Which is why we’re not going to let Washington get in the way of our compensation. You know how hard what we do is? We need the best and the brightest on board to make sure all goes well, and even if it doesn’t, well, then we need them even more. I guess if you bail us out, we’d be willing to take a small haircut that year. Who said we weren’t flexible?

Speaking of bailouts, we don’t want any limit on those, either. It’s nice to know the Government is there when we need it, but not when we don’t. Try eliminating bailouts and see what happens to your portfolio the day that bill passes.

Also, in the future, we want to get back to lending money to people who don’t deserve it. Not right now. We want everybody to forget what happened the last couple of years. But soon. You want that too, don’t you? Sure you do. Admit it. You certainly don’t want any Beltway bureaucrat stopping you from buying that million dollar home if you can swing it someday.

And finally, we want to charge people to borrow money while paying nothing to borrow it ourselves. That is the foundation of our recovery. Don’t mess with that.

Oh, and leave our credit card operations alone.

Beyond that, we’re open to any good financial reform you have in mind. Go ahead. We’re listening.

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Goldman Sachs

The lesson of Goldman Sachs, or How the lizard will shed its tail

Posted April 26, 2010

It’s amazing what expensive messaging can buy. The first wave of publicity surrounding the SEC case against Goldman was fierce and damning. Now what we’re seeing is their Public Relations dollars at work. The conversation has shifted, have you noticed? What was huge, solid outrage against Goldman has moderated, and thoughtful (if bald) heads are prevailing.

Of course Goldman took short positions against its long bets on the real estate market. Wasn’t that what it was supposed to do?

The real problem isn’t shorting your own investment vehicles, the ones you sell to unwitting idiots who believe your upside drivel. It’s really just a matter of disclosure. You should disclose more.

People who are uncomfortable with the whole process of free, unadulterated hedging are bad for America.  America is about Freedom. God bless America.

You can feel the debate turning.  Narrowing. The animal is adjusting itself. Protecting all the tender, essential body parts that it wants to retain going forward. Preparing to shed its tail as a necessary sacrifice in the overall effort to save the actual lizard.

Bah.

What Goldman Sachs — and others, I am sure — did that got it in trouble with the SEC seems pretty simple to me. Correct me if I’m wrong. They invented an investment vehicle that was designed to fail spectacularly if the real estate market showed the slightest signs of weakness, signs that were already evident to those in touch with the early warning signals. It then sold that fund to people who believed in the gung-ho, positive view its sales people were still adopting. At the same time, it worked with the guys who designed the offending instrument to fail to bet against the very thing they were selling. They designed it to fail. It failed. They made a lot of money. They took about half of that revenue for their own compensation.  They bragged about it, too.

Know why they bragged about it? Because there’s nothing wrong, in the prevailing mind, with betting both for and against investments. In a horse race, insiders who bet against their own entrants are viewed with tremendous suspicion. Also boxing, that sweetest of corrupt sports. Well, perhaps not the sweetest. Maybe Wall Street is the sweetest.

The PR effort is paying off, though. We’ve already got people seeing any attempt to control double-dealing as politically motivated. Why should it be looked at that way? Because casting issues in that fashion guarantees many long months of fruitless, pointless, aggravating, shallow, partisan debate. There’s an enormous, well-financed team executing that strategy right now.

Ultimately, though, there will be some regulatory adjustments. Lizard Freres will shed its tail. It will agree to disclose a bit more carefully what it intends to do profit from your credulity.

I have one modest proposal, therefore. I suggest that every firm that promotes investments while hedging against them be required to post a large, boxed message on the front page of every offering:

This firm is attempting to sell investors an instrument that has such dramatic associated risks attached to it that we are, at the same time, hedging our bets in a significant fashion. In fact, we stand to make more money, both as a firm and personally, if this investment fails. We thought you should know.

I wonder it that would do a lot more to influence sales than 8-point type on page 87.  It would certainly crimp one side of the conversation or the other, I’m pretty sure.

On the other hand, we could make it illegal to play both sides of a transaction, both selling and hedging against the same vehicle in a manner than would be outlawed at any racetrack or arena in the world. But we won’t.

That would be un-American.

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Economic Meltdown

Wall Street! Don’t Give Up The Fight!

Posted April 14, 2010

Discouraging news from Washington today. It seems like the enemies of the benign free marketplace are set to triumph over the protectors of the right of every American to get hosed by an unregulated banking industry.

Yesterday it was revealed that Lehman Brothers, before it coughed up other people’s money and died, used an alter-ego called Hudson Castle, which it controlled, to conceal its debt and associated risk. This is the kind of thinking that will be cruelly squashed if these foes of unrestricted creativity get their way in Congress. The signs are increasingly grim in this regard. The Wall Street Journal reports this morning that “Wall Street giants… had been pressing hard in recent days to dilute provisions of the bill that would change the rules for derivative trading. But the Obama administration, which has made this one of its priorities for the financial-regulatory bill, has pushed back hard and appears to be succeeding. ”

Naturally, the protectors of our economic growth in the Republican Party are doing their best to stand fast in the fight for the under-regulated marketplace. In doing so, these courageous voices for liberty represent the interests not only of Goldman Sachs, JPMorgan Chase, and Morgan Stanley, the firms who have been leading the financial freedom-fighters from the right flank, but for all who value license over restraint, unfettered access to profits by the strong, and the creative spark that has fueled the American Dream for those already quite wealthy.

Those who are with these imperiled interests — the time is now to stand up! To take the flag from their failing grasp and raise the standard high!

If you believe in the right of financial institutions to sell you derivatives that are insufficiently capitalized — stand up!

If you believe that people who have money should be able to offer loans to anybody, regardless of their ability to pay them back, repackaging those loans until it takes a forensic accountant to figure out who owns them — speak!

If you believe in the right of those who hold your money to move around loans as if they were assets and assets as if they were debt — be counted!

If you believe that the creativity of Wall Street should be a force for enormous gain for those who know how to manipulate the tools of investment capital, and that their prodigious wealth will somehow reinvigorate our stalled economy — speak up now or forever hold your peace!

If you yearn for the days where somebody could offer you 20% per year on your money without being investigated by the SEC, when all the operations in Washington were run by proponents of freedom and economic liberty — find your voice!

The ship of state is sailing. We are heading into a dark Sargasso sea of rationality, responsibility and constraint, and soon it will be too late.  Speculators of the world, unite! We have nothing to lose but our chains!

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Generalized Anxiety Disorder

The stock market needs meds

Posted February 12, 2010

If you had a friend that was either depressed or anxious all the time, what would you recommend? Well, the fact is, I have several friends just like that. One of them is on Zoloft and it really helps him with his hypochondria. I have another that swears by his Prozac. Helps him with his ADD and non-specific anxiety. And of course there’s my friend Larry, who really couldn’t do anything about his twitchy leg syndrome without his Lexapro.

So what kind of meds do you think would be appropriate for the stock market? Having struggled through periodic bouts of bi-polar depression and mania over the course of the last several years, it is now suffering from Generalized Anxiety Disorder, which is defined in Wikipedia as “an anxiety disorder that is characterized by excessive, uncontrollable and often irrational worry about everyday things that is disproportionate to the actual source of worry. This excessive worry often interferes with daily functioning, as individuals suffering GAD typically anticipate disaster, and are overly concerned about everyday matters.” Individuals suffering from GAD “… exhibit a variety of physical symptoms, including fatigue, fidgeting, headaches, nausea, numbness in hands and feet, muscle tension, muscle aches, difficulty swallowing, bouts of difficulty breathing, trembling, twitching, irritability, sweating, insomnia, hot flashes and rashes.”

Anybody who has been observing Wall Street these days recognizes that our friend is in some kind of difficulty not unlike this. Today, for instance, the irritable, volatile market zoomed down more than 140 points in the morning because it is nervous about new banking regulations in China and difficulties in Greece and Germany. Certainly, those are matters of concern to anybody who wants to worry about things. The point is, a healthy person would not focus on these concerns, as real as they may be, unless they were looking for something upon which to fasten a powerful, non-specific, free-floating and always potent anxiety.

I know this to be true, because I, too, suffer from a lifelong form of this ailment. I wake up feeling perfectly fine. I think to myself, “Gee, there must be something to worry about.” And sure enough, inevitably, there is. Today I’m worried about a meeting I have at 11 AM. I have no reason to worry about it. But it’s coloring my whole worldview right now. I’m going to medicate myself right away with coffee and a session on my BlackBerry. It’s too early to have a martini.

But what can we do to help the market? You’ve got to feel kind of bad for it. Up one day. Down the next. Worried about brainfarts taking place in Beijing and Athens. Isn’t there something we can do to mellow the poor fellow out?

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Acquisitions

!@#^% the deficit! Full speed ahead!

Posted February 2, 2010

It’s funny how hypocrisy never goes out of business.

Now all the big conservators of the empire who were so careful with our economic system during the Bush years are up in arms over the President’s admission that we’re going to be running a deficit as a nation for some time. All the usual suspects are running around yelling about it. They hate it, possibly because the money that’s needed is for something other than war.

I’m not going to get into a whole partisan thing here, even though it would be quite natural to do so. You know who runs the No Theater right now. I just find it semi-incredible that the very same guys who pop a cold sweat when their access to debt is threatened are so very, very upset that the country is forced to run pretty much the same way.

On the one hand, the issue of the moment is debt securitization. Gotta secure that debt. Gotta ramp up the red ink again so everybody can jump back into the growth stream. Know what the problem is right now? Not enough lending! On the other hand, what kind of irresponsible fools would suggest trillions in deficit spending in the public sector? That’s very bad. Every economist knows that. Oh, didn’t you hear? We’re listening to economists again.

Let’s see what that means. Corporate debt? Essential! Public debt? Deplorable.

If a corporation wants to purchase a company three times its size with debt, that’s just good business.  Running a deficit to cut unemployment?  Every economist (in our employ) knows that’s a no-no. Sure, we’re going to need bridges, roads and tunnels in the future. We’re going to need education and health care for people who don’t have it. We’re going to have to shore up the economy so that it doesn’t collapse again, sparing only the very, very rich from serious discomfort. But we have to do it without a big, ugly deficit, because… I forget why, but it’s true. The same way it’s obviously true that interest rates have to remain low, so that banks can now take my money and do what they want with it while at the same time paying me virtually nothing for that privilege. Like history, the rules of economics are generally written by the winners, even when they’re losers.

I have an idea. Let’s allow America to run like a real business for once, paying for the things it needs to do with money it has to secure from other sources. I figure when the time comes, the books will balance well enough. And if they don’t? At least we’ll have some homes, jobs, roads and schools to show for our folly.

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