Thursday, May 31, 2012

CNBC audition

Last night's comment was a result of having a lingering notion about what is going in the financial markets.  Obviously a conclusion or even a credible hypothesis was never reached.  Undeterred by that, a comment was made anyway.

What was written last night certainly makes one worthy of a CNBC invitation, if not an anchor spot.  Nothing of consequence said in five or six paragraphs.  Beat that Simon Hobbs, but why be specific as you have a colleague in the afternoon who is even worse.

Wednesday, May 30, 2012

Bond yields and stock prices, commodity prices and real estate

Maybe we are just in one of those near term cyclical retraces as we were at this almost exact time last year that will last until September like, as I said, last year.  Profits were not hard to find in the first quarter of this year and they are, for long investors, almost impossible to find in any market this quarter.

The month of May has been pushing some stocks off of whatever precipice they were on, and pushing bond investors to wonder how long this "rally" can continue.  Looking at the yield curve is jaw dropping for anyone with a long term perspective.  Thank goodness it still slants upward, but finding a yield above 1% in Treasuries requires well over a one year horizon and finding a yield of  over 2% requires more than a 10 year security in the U.S. government market.

Whether this is sustainable or not is really not the issue.  The issue is what this portends for our economy, and what kind of slingshot turnaround this sets the U.S bond market up for in an unexpected treat, sarcasm intended.

Now some basic stocks associated with rail transport, with steel and steel wire production, and with materials companies have been giving up lots of ground just in May.  These are stocks that are associated with the strength of the economy broadly and the commitment of the government, or governments, to commit resources to rebuilding anything in this country. 

Penn Station in Manhattan, the nexus of the Long Island Railroad, New Jersey Transit, and Amtrak's northeast corridor, has not had a functioning air conditioning system for the last two days in 85 to 87 degree heat.  Tomorrow, maybe, this armpit of humanity may be cooled down.  All markets are in decline or are suspect as being overpriced, and the infrastructure of the trading center of this country is breaking down.

Concerned mood tonight I guess as one wonders... it's too soon to buy into this downturn, almost certain about that, but is it too late to make some selling decisions into the few safe havens left like closed end preferred funds, Ginnie Mae funds, and U.S. large corporate dividend payers.  Oops, just did a little of that today.

Tuesday, May 29, 2012

"Hemingway and Gellhorn", debut HBO film last night

As soon as we finished reading the New York Times review of this film on Monday morning, it was an absolute certainty to be watched.  A television review writer with a byline that was not familiar, Mike Hale, had an absolute hissy fit of destruction.  It is hardly possible to give a film a worse review.

How interesting.  With Clive Owen and Nicole Kidman, even a bad film must have some merit.  HBO throws big money at their productions.  Despite its obvious merit in the breadth of its coverage of events, the Times is deeply flawed in many ways, and a review in this type of attack mode represents something worth watching.

We watched.  The reviewer certainly was not completely deranged.  Some of the dialogue was stilted, some clichéd, and Clive Owen as Hemingway gave a completely one dimensional performance.  The attempt at sex scenes was excruciatingly painful to watch.  What were they thinking.

One could guess that the reviewer did not get beyond those flaws. 

In fact, the film was really one that had Martha Gellhorn as the central character.  Kidman, as her character, had the central role as narrator and the central role as an individual with a moral purpose.  She was stuck with some awkward lines as well, but the storyline was absorbing.  The integrating with actual footage from the events covered with the action in the films was a key to bringing the history alive.

To anyone with a decent knowledge of history there was no new ground broken except, in this case, a much greater knowledge and appreciation of the war journalism of Martha Gellhorn, the risks that she took to break an obvious gender barrier, and the risks that she took as a reporter in general.  One of the first reporters on the beaches in Normandy while her husband at the time enjoyed his celebrity status in the pubs of London while later writing about it as if he were there, she was the real thing.  A little research today confirms more than the film even suggests.

The NYT reviewer does somewhat remotely mention the backdrop of many of the places covered in the film as perhaps something worth noting, but otherwise it is not a balanced review in the least.  He obviously found something to hate, something that he was above.  We were pleased to have something interesting to watch and comment on while watching.  We synched up on the timing of certain historic events.  We learned much more than we had previously known about Gellhorn.  Even though we were very tired, we didn't need to watch a repeat Law and Order, Closer, or House, and in that sense we really appreciated HBO's somewhat flawed effort and liked the film immensely.

Postscript - since the NYT almost always tries to have some balance to anything it writes, this somehow reminded me of their obituary of Dodi Fayed.  That has been buried somewhere as it can no longer be found it seems, as least here even in this digital age - should have clipped it. 

Sunday, May 27, 2012

Do retail investors price stocks?

Generally speaking the answer is no, but the talk of the business media this past week has been the Facebook offering and its less than stellar execution and performance, especially focused on retail investors.  First let's start with some facts and then get to the issue, says the former grade school teacher.

Facebook and its underwriters allocated a huge amount of the IPO shares to the retail investor market, at least 20%.  On almost any major IPO, the amount allocated to retail has been somewhere between 2% to 5%, mostly focused on high net worth individuals.  How many times have retail investors looked at a promising innovator, tech or biotech IPO, seen the stock soar by 20%, 30%, or more on the first day, and say to themselves and their broker "why didn't I have access to that".  The big institutions got it all.

For whatever reason, the likely one being that they had so many loyal retail users, Facebook and its underwriters decided to do things differently.  Retail investors lined up to buy 50 or 100 shares, sometimes probably much more, but buying in such small lots is mostly unheard of in an IPO.  If this had been primarily an institutional offering, only big boys and girls buying, the primary focus of the follow up would be on the Nasdaq execution errors, and where the responsibility lies.

That is said because Facebook did amend its proxy statement for the offering around two weeks(don't know the exact time here) before the offering to suggest a moderated change in outlook.  Informed institutional investors would have had access to that, and certainly salespeople at the underwriters would have mentioned to their clients to look at the modestly revised statement.  It was public information in any legal sense.  The stock was priced with that in mind and roughly 80% of the offering was bought at the $38 offering price by institutions that should have been well informed and made the decision to buy.

It is certainly terribly disappointing for retail investors to finally get an opportunity to pick up a few IPO shares and have them fall, but broadly that has not been at all abnormal for IPO's in 2012.  The execution blunder simply exacerbated the problem with the pricing and the decline, and that is an understatement.

Getting back to the original question which, put in a different way, is does the participition in equity markets by retail investors have any major impact on the performance of equity markets?  The evidence suggests otherwise.  Look at the rebound in stocks from the spring of 2009 to the fall of 2011.  Stocks, generally speaking, recovered all of their losses implying a gain of 100%.  Retail investors in the aggregate either stayed out of the market or continued selling their equity mutual funds throughout the entire period with only a few slight interruptions.  That's "sad but true."  The market collapse from mid-2008 to March '09 simply scared them away which is understandable.  Their lack of participation certainly did not hinder the market rebound.

Retail investors can, one could suggest, be influential in unique situations:  small cap stocks that go viral for some reason in either direction;  small cap stocks that have little or no following by institutions or research analysts; and possibly in periods of hysterical selling or manic buying when they are additive to a radical move in either direction.

Retail investors have been net sellers of equity mutual funds for the past five months, and the Facebook experience will for sure not turn that around.  JPMorgan's widely reported trading mistake does not help the mood either.  Are the retail sellers right this time?  Who knows but more on that in a later comment.

Pension funds, other retirement funds, annuities, college endowments and other financing vehicles in many cases are broadly representing individual investors so they are in the market, like it or not.  Accepting that, why not just sleep on a lumpy mattress.  Maybe the sleep will even be better.

Postscript - additional thoughts at 8:30pm same day -

---While this post focused on the financial side of this IPO that was an unfortunate for many retail investors, it did not mention the political and societal implications.  While the money is important,  adding to the distrust in the financial system and the feeling that everything is rigged in favor of those already rich is a more serious issue.

---As is meant to be clear from the post, institutional investors can have no legitimate beef with the changed outlook for FB because it was made public in a legal sense two weeks before the offering.  Those retail investors that deal with full service brokers and pay their high fees were likely to have been called, or certainly should have been called, by their brokers or asked their brokers for information if that firm still has a competent analyst.  That said, most of the major trading by retail seems to have been through discount brokers.  For $8 trading fees, one does not get investment advice on individual stocks, as in you get what you pay for. 

Saturday, May 26, 2012

5/24 NYT Business section on "The Tycoons of Greece"

More than confirming what has been written here over the past few weeks, the Thursday NYT 's article would be almost humorous if one were really cynical. 

The article details how the oligarchs of Greece pay only 7.7% in taxes and that of course is only on the earnings that they choose to report.  The shipping magnates, by Constitutional mandate, are exempt from all taxes.

As to philantropy there is no evidence that they do anything, relatively speaking.  One well meaning member of that wealthy class runs a charitable foundation and in January promised to raise 100 million Euros for charity projects to alleviate the current economic challenges of the increasingly large number of those less fortunate.  So far, "there has been little giving."

The NYT, no doubt trying to strike some kind of balance and listen to whatever flack represents these incredibly wealthy and unregulated folks, notes that "Greek shipping assets are about $85 billion - although they hasten to add that those assets underpin a debt burden of $380 billion."  Oh dear me, poor billionaires.  That statement means absolutely nothing without a few numbers like revenues and earnings, how those values are established.  The amount of unreported earnings ciphoned off to Switzerland, Monaco, and wherever would be difficult to establish.

Rather than focus on any meaningful charitible events, the NYT found one shipper who said that the problem is jobs and that is why he is not laying off any workers at the moment.  Who knows.  My favorite quote is "another rich shipper, insisted on not being identified because he did not want to draw attention to himself (such humility) said that he was providing thousands of free meals to families in and around his ancestral village.  That's like me giving $25 to Doctors Without Borders and claiming to be substantially supporting that group's intense efforts to aid the sick, wounded, and injured coming across the Syrian border into Turkey.

The final "positive" factoid provided is that the shipping industry employs 200,000 people and brought in 13 billion Euros in 2010, making the country's top single foreign exchange earner.  What does that mean and who pocketed most of that money.  It raises the issue so clearly, why no taxes, why no meaningful charity.

This could go on, at least from the writer.  Most bankers who are not infatuated by the incredible hospitality of the Greek wealthy realize that they often do not repay debts, or try to deny responsibility for their own decisions.

Friday, May 25, 2012

"The Yankee Comandante", by David Gramm

This lengthy article in the May 28th  "The New Yorker" is sub-titled "William Alexander Morgan's" Cuban exploits."  It is a fascinating history, one of those that brings to mind the phrase "stranger than fiction."

As a devotee of this magazine for many years and one who finds many things to read that are appealing and exemplary articles at least several times a  month, it would make no sense to mention them here on this blog.  For those who choose to read the magazine it would not be worthwhile, and for those who don't it may not be so interesting.

This is an exception.  It is the story of a young man(boy really) who is always rebellious and independent, naturally intelligent it seems, and who at age 15 leaves home and travels the U.S. on his own, finding many different jobs in many different places.  One could say he preceded the exploits of Jack Kerouac's "On the Road" if it could really be documented, but Morgan had no real political or literary beliefs at that age it seems.  He was an adventurer.  At 18 or so he joined the Army but was kicked out for non-conformity, but he did learn quite a bit.

Somehow at age 20, he decided to go to Cuba to join the beginnings of the Castro led revolution, believing that Castro was looking to overthrow a corrupt and vile leader(he was) and that Castro intended to lead a free country(at first he supposedly did).  Somehow, he arranged for some semi-automatic weapons to be shipped with him to the country and when the rebels were barely 100 men strong, he found them in the remote area they hid in and was accepted after being subject to significant hazing and testing.  At the time he barely spoke Spanish, and with his blond hair and American background he was completely unique.

Within a year he was one of four "comandantes" below Castro, joining Ché, Raul, and one other who is less well known.

I will end this teaser here.  The article is about 30+ pages long and is a great read.  This issue goes off of the newstand today or tomorrow but, as mentioned here a couple of months ago, the USPS has now totally destroyed the quality of our mail delivery so only received it here yesterday.  If interested, you may need to rely on the internet or local library. 

Wednesday, May 23, 2012

The bizarre Chesapeake Energy annual report

Yesterday the new Chesapeake Energy annual report arrived through the mail slot.  What planet it came from is unclear.

Chesapeake, as anyone who follows it or just reads the business section knows, has some big issues with its business and with its Chairman.  This AR is just one long advertisement.  At a time when even the most successful companies will limit the high quality, high gloss, photo shot part of their report to no more than ten pages, Chesapeake peaks out at 48 pages, an almost unknown length these days.  On top of that the proxy statement begins with an additional seven pages of the "high quality" marketing material.

This is not a sound decision by their IR department, marketing department, and their Chairman.  So many smiling faces, but then look at their stock price performance and what looks like improprieties by the CEO...

"Don't Mess With Travis", a first novel by Bob Smiley

Those of you with right leaning political views, like the great majority of my Danville Facebook friends, should be attracted to this just published novel.  Hey, it even has endorsements by someone from the Cato Institute and from Steve Forbes on the cover.

The writer began his writing career doing research for William Buckley and has had other writing projects including a book about following Tiger Wood's tournament rounds, in their entirety, for the 2008 season.

There is plenty of political opinion intertwined with political history,  much of it based in Texas.  Much more than expected, there is a solid dose of humor on many pages, caricatures of political types of all persuasions.

While I certainly don't pray at the altar of Cato, the book was much more entertaining than was expected.  It was one of those pick-ups at the library that was viewed as something that might be put down next to my reading chair after a few chapters.  While some on the right might get overly aroused by the book, to this reader it was just entertaining and at times informative.

Of course, like many novels it was not especially plausible.

Two other recently published books worth mentioning are a new book of old and new short stories by Don DeLillo, literate to a fault and thoughtful as well.  I passed on some of the earlier stories but those written in recent years were easily worth the time.  The other that I liked was "The Cut" by George Pelecanos.  This is in the beat-em up, shoot-em up, tough guy crime category, but if you want to go there it's one to choose.  Pelecanos was an Emmy nominated writer for the HBO series "The Wire" and now is a writer for "Treme". 

Wednesday, May 16, 2012

"A Little Romance"

K and I just watched this 1979 film tonight.  What a charmer.  Laurence Olivier with a group of younger actors some of whom later became well known in their own right.  It's set in Paris and Verona and Venice.  Almost all scenes are familiar for the most part and the story itself is light and entertaining while having periods of tension - should make for a peaceful night.

No contagion if Europe just lets Greece go

Look at the facts.  Greek leftists with no plan other than no cutbacks to anything but continued EU support are now in control.  A run on the banks has begun, and will only accelerate to U.S. Depression era levels in the next week unless some major compromise is reached. 

The issue is not support of the banks.  The issue is the value of the drachma when Greece withdraws or is kicked out of the EU.

Greece is a country that produces almost nothing but tourism, it is a country whose richest citizens hide all of their assets and do not support the country.  Has anyone ever heard of a hospital wing, a charity group, or anything of that nature named after an Onassis or anyone like him - doesn't exist.  It's not in the culture, and they cooked the books on joining the EU and ever since they have belonged.

Telling the truth about Greece would, could, be a way to differentiate Greece from Ireland, Portugal, Spain, and Italy, countries with significant issues but where a public spirited nature to some extent definitely exists.  In Greece, it is ouzo tonight, patronage tomorrow, for anyone but the most ambitious and the most poor.  Let the darn country go and set up both rhetorical and financial firewalls to get past this event.

Greece is a charming country in some ways, but overly built up on the tourism agenda now, grossly so in some areas, and overrun by tour ships and drunken Brits.  Let it go.  Get past it.  It is barely 2% of the entire Euro economy.  Prepare, plan, and drop it.

Their people will suffer short term, but they already are.  Give them the ability to devalue the drachma and the country will be so crowded by so many value seeking tourists that in a few years they will be a prosperous country again.  Well, that's a possibility?

More biased tidbits on the JPM issue

---Bloomberg today had a major post saying that civil trial lawyers were suing JPM for misinformtion and malfeasance.  How may times does one need to say this here.  It always happens.  Whatever settlement these firms reach actually repays shareholders, out one pocket on the balance sheet and into another, EXCEPT for the 30% plus expenses that the trial lawyers receive.  This is really legal extortion, and it is an accepted practice given that the trial lawyers are the Democrats largest contributors and no stranger to Republicans either.  I will not mention John Edwards, oh I just did.  I went through three SEC and FBI intimating sessions during my time, having done nothing wrong.  They start out by saying anything that " they" deem as a mistatement is a felony and that is the starting point.

---Leading advocates for clawbacks and sanctions against JPM are Elizabeth Warren(the extremely rigid and tightly wired candidate for the U.S. Senate in her home state, but who could have been the perfect candidate for the the head of the consumer protection agency had she not been so almost stupidly anti-corporate in any way that would have allowed consumer access to credit), and John Liu, the New York city comptroller who is obviously corrupt and under numerous investigations for political fund accumulating vilolations, some so transparent that he will likely end up in jail.

---The role of the Dodd Frank bill in this debacle is still unexamined, and never will be.  Could JPM in trying a conservative macro hedge have been told by their internal lawyers or external examiners to unwind it, as it could be perceived as a Dodd Frank violation.  All unknown.

Postscript- I've thought about adding this commentary reluctantly, but since Ina is all over the news I will go ahead.  When leaving JPM in mid-'03, the head of the investment bank was a former  CEO of BofA who was not as competent as he viewed himself, manipulative, and viciously vindictive.  It was great news when Jamie Dimon quickly dispensed with him after taking over from the very presentable C student Bill Harrison.

Unfortunately the decision was difficult and he made Bill Winters and Steve Black co-heads of the investment bank.  Black was a long time associate of Dimon, really nice guy, smart for sure, but perhaps just as interested in having as many cars as Labron James or Floyd Mayweather.  In sports that's maybe just an entitlement, in business it's an obsession that there is not time for.  Winters, on the other hand, was a JPM veteran and one of the smartest capital markets professionals that could ever be encountered(that means among there things that he was so smart that he could explain what he was doing to people like me as well as talk to the tech nerds and engineering quants). He was a generally well liked almost too regular guy.  He ran New York capital markets, then London, and then became co-head of the investment bank.  My guess is that the co-head idea did not work.  Winters quit or was fired and Black went home happily to his massive garage.

Then the new head of the investment bank became Jes Staley.  That is something that I have never understood.  He obviously has Dimon's confidence, which is troublesome.  The thoughts of "competent, intelligent, or compassionate" never entered my mind whenever I met with him.  Entitled and arrogant did.  Securities analysts that he met with simply did not publish anything about the meetings out of, I think, sincerely puzzled thoughts or respect for the fact that I had set the meetings up.  Now Staley is apparently angling to be named the next CEO or he will leave.  Please, Mr. Dimon, let this self centered small minded man go his own way.

Of course, Staley may have changed, but when I first knew him in the early 2000's, in his former JPM role as head of part of the asset management division, he was obsessed with getting attention.  His meetings with securities analysts were embarrassing bragging sessions.  His comments at analyst meetings made almost no sense.  The root cause of this whole disaster may be Staley.  Maybe not, maybe I'm wrong, and his obvious blustery incompetence at the time was just an aspect of his insecurity.  Who knows.  Is he part of the inability to sort out the differences between the London and New York offices that caused this trading fiasco?

Monday, May 14, 2012

"Drifting House", a debut book of short stories by Krys Lee

This new book of short stories is really a stunning and emotional read.  While praised by a Pulitzer Prize winner, a National Book award finalist, and other notable writers on the back cover, the most queroluously strange comment precedes the neophyte Krys Lee's remarkably short biography.  It compares this book to those of Chang-rae Lee and Jhumba Lahiri.

There is no comparison.  This book is completely different.  Chang-rae Lee's Korean characters are adjusting to America, often with some considerable success.  Jhumba Lahiri's characters are so familiar as I have worked with many Indian nationals in financial services, one woman worked for me for over five years, and there are two Indian restaurants, one out here on Long Island and one at Lex and 27th in Manhattan where I am almost treated like family when I show up.  The stories of Lee and Lahiri are glorious in their own way but they are not completely foreign.

Krys Lee's characters and stories are completely foreign.  The writing is fluid and simple in the right way.  The stories are about escapees from North Korea or families in South Korea after the Korean war that had relatives in North Korea and were treated as second class citizens under a U.S. sponsored dictatorship in South Korea at the time.   Were it not for the gentle and agile writing, these stories would be too depressing to read.

As the short stories develop, there is always hope in the picture.  Endings to many of the stories offer no conclusion and leave it to the reader to contemplate.  Children are often the most astute observers of events as adults struggle to adapt, often unsuccessfully.  Awful sacrifices are made.  Some shared shreds of help are there as well. 

Calling this book enjoyable may seem cynical, but it was.  I have never knowingly had any experience with Koreans who have been through the cycle of events that these stories highlight.  This is not "M*a* s*h"   These stories feel real but necessary.

They are also not so distant from the dislocation going on in our own country and others today.  The stress of financial difficulties, second class status or worse, domestic violence, and raising children in a hostile environment has unfortunately achieved a universal reality for many.  There is more to this book than just a recanting of the tragedy of Korea in the 50's and even in North Korea today.


One more comment on the JPM trading loss, and what we do not know

While everyone speculates about what happened, one thing is clear.  The media in all of its formats has no real idea.  They talk and write extensively with no knowledge, just hearsay and bias.

Once I worked for a Vice Chairman who clearly was a highly, very highly, functioning Asbergers victim, a math genius and a talented speaker at events and on CNBC.  Strange though, he almost always looked at the floor or ceiling when talking, sometimes even closing his eyes.  He was brilliant at many times, emotionless at most times, had no interest in anyone really(other than his children that he often did not see) and had the fatal flaw of his obsequiousness to those few above him.  He could have been CEO and a much better one than we inheritied after Shipley despite his limitations.

The reason for this prologue is one comment he made to me on a business trip.  We had been through the LTCM crisis, the internet craze bust, and now it was Enron.  His comment was, roughly speaking, "why do we read the financial press and know that most of what they write is just factually incorrect and based on rumor and pure fabrication, and then we read the rest of the NYT and WSJ business sections and tend to believe what they write?"

That is the danger now.  The recent years have produced the 24/7 news cycle, and idiots like Simon Hobbs on CNBC, due to his British accent I guess, are allowed to comment on things they know nothing about.  All news reports about what really happened at JPM are suspect, and generally I would guess not even accurate. 

It is unclear whether even JPM and Jamie Dimon have really begun to understand how this happened.

The earlier May 12 comment here on ENS and the one earlier this morning are maybe the best one can know at this point.  That's not meant to seem arrogant.  Nuggets of interesting information can be found in many print new articles, as long as they stay away from writer's opinions.  As always, almost anything by Gretchen Morgenson is just pure poison fed to her by hedge fund operators with agendas.

The JPM trading loss and the resignation of Ina Drew

Another post will follow about the mystery surrounding this trading loss, although my prior post said about as much as one could know.

One thing is certain.  Ina Drew was a real professional.  She did not seek attention.  She worked long hours at her job, her mind there whether in her office, on the road, or at home.  She was market savvy and market conservative.  What happened remains unknown really, but I and many others held Ina in the highest esteem.  Others, many others, at the companies that evolved sought attention and adulation.  Ina just did her job, and until recently apparently chose the best possible people to be her lieutenants.  What happened in the London office is unclear, but "dubious" may be the only word to describe it at this point.

When I first knew her in the early '90's, her intelligence was transparent but she was to some extent terrified of public speaking and attention.  She grew beyond that, beyond me I guess, but I am sure that this episode is excruciating for her. 

Her contribution to Chemical, Chase, and JPMorgan Chase over three decades was immense.  This little ENS blog wishes her its heartfelt best.

Saturday, May 12, 2012

Could little Greece be a more meaningful model than we realize

One longstanding characteristic of Greece has been that the richest people, the shipping magnates in particular, are Greek only in nationality and with possibly more than one legitimate passport.  They invest their wealth elsewhere, they live lavish lives mostly in other countries, and they do little to support their native country.

Are China and Russia, giant countries, on the same path now? 

The Chinese megarich have trashed their environment,  poisoned the political atmosphere, and are uncertain when political winds might blow against them.  They are buying properties all over the world, educating their children all over the world, and moving their wealth out of China in as many legal and illegal ways as possible.

The Russian oligarchs are following the same pattern.  They stripped the government privativation efforts through bribery and fraud, and fear that the dictator Putin could turn on them at any time.  They too are buying properties all over the world, living outside of Russia as much as possible, spending lavishly, and doing little to nothing to help rebuild their country.

This is disturbing and so different from the so-called 1% in the U.S. who are viewed as excessively rich by many,  as these wealthy in Russia and China are taking their money out of their countries and not reinvesting for job growth, research, and capital investment.  Most Western Europeans and Americans really view themselves as life long citizens with a commitment to their countries, even if they are wealthy.

The Dodd Frank bill's tax rules about foreign bank accounts, drafted primarily by the dangerously resentful Carl Levin and his staff, could over time well start a movement in this country that mirrors what has always happened in Greece, and is now a regular occurance in China and Russia.  The rule is called FATCA, maybe a joke on fat cat to some cute Senate aides.  It's one more reason that Romney is becoming the favorite.

(postscript 1) - this is meant to say that over time many wealthy citizens could choose to seek citizenship in other countries if they can no longer effectively handle global business as a U.S. citizen.  Last I heard, these FATCA rules apply to anyone with as much as $10,000 in overseas accounts, hardly enough for a social security retiree to retire to Costa Rica, Panama, or wherever, and now banking services will be hard to find.

(postscript 2) - for the companies doing work to increase our exports to other countries, this proposed Levin anti-corporate law is actually a triple tax, may a quadruble one.  First, companies must compensate overseas employees for their local(foreign resident) taxes, then any financial transactions to support them are possibly subject to taxes at their local banks(eliminating banking services), then corporate profits are taxed, and finally dividends to the shareholders(owners) of the company are taxed.  In many countries, local banks are now shunning expat accounts.  Even U.S. banks in many countries now can only accept deposits and payments, as mortgages and other financing vehicles are restricted activities for foreign banks.

(postscript 3) - many U.S. multinationals, those companies that sell our products throughout the world to our benefit, have substantial financial assets that have been earned in overseas countries.  These have been taxed at local rates and are there for reinvestment and research.  Some could be repatriated to the benefit of shareholders, pension funds, and retirees, but the Obama administration insists on a 35% tax on all repatriation.  That is an absurdly anti-corporate stance.  Who is this President? 

What happened at JPMorgan Chase?

This comment is purely opinion, based on questionable media reports.  While working at the firm at one time, it has been nine years since my time there.  None of this is based on anything other than guesswork, and although I do know some of those involved I have not talked to them since leaving the firm.  That's all just to say that there is nothing here that might be considered anything other than speculation(bad choice of words maybe).

JPM was executing a macro hedge against significant loan exposure both in Europe and maybe more importantly against the portfolio from the Washington Mutual forced or flawed acquisition.  The CIO has generally been brilliant over many years, so that is baffling from the start.  The CEO Dimon is known as a hands on capital markets leader like no other, so there is another baffling attribute to this.

Really simply speaking, JPM executed such huge hedges that they eliminated the liquidity in the market to modify those positions.  Hedge funds and other sharpies in the derivatives market saw their dilemma and squeezed them when they began an attempt to modify their hedge.  Exactly why they made such huge one sided hedges that could have had some value in the long term(three to five years) and then based on short term market moves worked to back out of their hedges with, I guess, long derivatives to modify their egregious mistake of overwhelming a derivatives hedging position is unclear.  Much is unclear, and here there is certainly not the expertise to get behind it all.

One really troubling aspect, or ironic aspect of this, is that it all happened out of the London trading operations.  That's remarked upon because after the evil Spitzer forced Greenberg out of AIG(acquitted of all charges eventually), the clueless Martin Sullivan became CEO and let 50 traders in London put on all of the credit derivatives that virtually destroyed one of the greatest global insurers and financial companies in the world.

Now JPM apparently at the CIO level, maybe even CEO level, decides to set up a derivatives based macro hedge and hands it over to 40 traders in London.  Here comes some completely politically incorrect commentary, because there are good people in all nationalities, but not necessarily in financial services.  The 33 year old "whale trader" that put on the billion dollar hedge in a thin market was Russian, the head CIO in Europe was hired several years ago and was Greek.  Totally politically incorrect I know, but the cultures these men come from are not uniformly risk averse or at times the least bit prudent, quite the opposite.

Russia is just chronically corrupt, almost manically so.  Giving this 33 year old the ability to overwhelm the liquidity of a market was close to insane.  He and his Greek counterpart may be fine people, but we are all influenced by our cultures.  There should obviously have been more oversight and more division of responsibilities.

Fortunately, JPM can handle this.  Macro hedges are not against the law and can often be soothing to investors.  They know that they are giving up some upside but they are also being protected from some downside.  Jamie Dimon did not point fingers at anyone but himself and his team.  Other CEO's would have blamed outside events(Spain bonds, speculators, bad accountants, fraud, rogue traders, etc.) but Dimon just played it straight, to his credit.  JPM's macro hedge was flawed.  To quote him, "this does not violate the Volcher rule, it violates the Dimon rule."

How it was flawed is still unclear, and if explained to a layman like myself it would probably still be unclear.  JPM was prediciting $19 billion in earnings for 2012, and now it may be $17 billion.  The numbers, however, are still coming in and due to some unwinding of other hedges some reports suggest that the net loss may be $800 million as opposed to $2 billion.  Other comments by Dimon suggest that more losses could be coming but would be closed out by year end.   Investors absolutely hate uncertainty so those comments should be priced into the stock now, one would hope.

It's all too early to say what happened, but this was just too juicy a story to not write about, especially given my distant knowledge of the firm and my respect for many of the people there.  Not all, I must add, but most.

Wednesday, May 09, 2012

Web site transitions

Making progress here on the major changes to the Google blogspot website. Changes keep happening as the days go on. It was explained to me that when website teams change, often into less experienced hands, stuff happens. Fidelity was a complete mess for a week several months ago and now this has happened to Google's blogspot. I have been told to be patient. On websites with either lots of personal effort or financial information, patience is not one of my virtues. Blogspot will hopefully continue to constructively re-evolve, and Fidelity will still focus on a few needed but not crucial corrections. Let's hope that blogspot once again allows paragraphs. That's sort of basic.

Google responds, or am I getting it

While I am finding the new Google format extremely troublesome, and the instructions misleading, there seems to have been some tweaks by them in response to complaints. This post is really a test, and we'll see what happens. Finally recovering from a trip through the grueling infrastructure of the Northeast road corridor on a busy day, and my agitated reaction to it, my wits may be able to write. Can Congress ever pass a bipartisan bill to begin to upgrade U.S. infrastructure. Are the Republicans afraid that Obama and the Democrats will get credit for creating jobs. Can you imagine a tourist coming into New York, especially LaGuardia which is undeniably the worst airport in the developed world, being lucky enough to not have their luggage stolen, renting a car, and then heading south to spend over two hours on a seven mile stretch of the potholded, no exit, Cross Bronx Expressway. Then on to the chaotic New Jersey turnpike, through the multiple toll booths and related back-ups in Delaware, before heading into the D.C. area with inadequate signage for someone unfamiliar with the area. The U.S. is arguably the most prosperous country in the world, but France, Germany, Italy, Singapore, South Korea, Spain, and other countries like these, some with some serious problems, are pristine and inviting compared to the gateway to the U.S. for most visitors. It is a national embarrassment. It of course is also a major headache for our own citizens. Sometimes one can get lucky, and roads can be less packed. One can choose to start out their trips from NYC at 5am and probably avoid the chaos. Still, it is really essential that across the U.S. infrastructure development and repair in highways, bridges, dams, levees, and tunnels begin with abandon now. What starts now will take years to complete, and will create a job boom that will be welcome and needed. Bonds to support these projects can be accessible because they are in a sense collateralized, unlike just borrowing for general purposes from the Chinese. Doesn't this make sense. Can a dysfunctional, increasingly dysfunctional, Congress possibly have enough smart and apolitical members to understand this?

Sunday, May 06, 2012

Bad trip by car through the northeast., and now can't figure out to write about the humor, horror, and special help around it

New Blogger format

You know I was doing just fine for over six years with Eyes Not Sold and now Google has complicated things in a way that is just not intuitive to me. I guess that I will learn to deal with it, but it seems like a Google takeover of blogspot freedom. It sure is annoying at the moment but I do have a local reasonable computer expert to help out. Just back from a trip and guess what, this happens. More later. John