Friday, May 31, 2013

Blackout fever continues long after Sandy

They are called "brownouts" here, which means blackouts that only last anywhere from 2 to 6 hours.  In this reasonably prosperous area we have had three of these in the last month, all occuring from sometime around dinnertime or later in the evening, usually no later than 9pm.  Why they are called 'brownouts" is unknown to me.  They are periods of no electricity when nothing works, just not for a multi-day duration.  I guess that's the semantic difference.

Like last night they happen in perfect weather for no visible reason and with no warning.  Weather charts show no disturbances anywhere in a multi-mile area.  Why is this happening?  I of course have some answers that may be correct.  Sandy demolished the antiquated and mismanaged, or should I say unmanaged, power system of Nassau County New York.  With a population of approximately 1.4 million people, 90% were left without power by the storm, and while some issues were resolved within four or five days, many took as long as several weeks.  Our power restoration came after 11 days, some of which involved a snowstorm.

The Long Island Power Authority(LIPA), its union, and its trustees are still in place.  National Grid has been hired to essentially run the system but the trustees, all patronage appointees and only one with some minimal utility experience and the over compensated union employees with benefits way beyond anything in the private sector are protected, so the same generally incompetent crowd is still in place and being directed by another firm.  But that doesn't explain why we still have regular blackouts.

When Sandy had done its job, utility crews from all over the country came to help out.  LIPA was so inept that they did not have the information to use them effectively.  One eager crew from Tennessee waited for four days before being directed to a work site.  It was well meaning but poorly managed chaos.  Those LIPA employees who happened to be competent, hopefully a meaningful percentage of their workers, and the many out of town crews helping out worked to patch together the system so that eventually it worked, not perfectly but after about three weeks everything was up and running.

Problem is that these patches were not ever meant to be permanent solutions, and there is little evidence that any significant progress has been made on that front except in some beachfront areas where everything was so wiped out that the fix had to start from scratch.  The same partronage scum are apparently still trustees and being paid as there has been news to the contrary, even as National Grid is paid to guide their "work".  This is Long Island, and this type of union and management behavior is just part of the culture.

So the conclusion here is that regardless of weather conditions, our electricity reliability will still be shaky, not third world like but not up to most generally expected U.S. standards.

Our 200amp generator is now in place at the back northwest corner of the house, and all of the electical work will be done this Wednesday and Thursday if all goes well.  This is not an inexpensive exercise, but we have come to view it as essential.  Whenever we leave this town, I don't think a first rate whole house generator will hurt our sales price.  These electrical system issues are going to be long term, and most long term weather prognosticators forecast more unpredictable and powerful climate events in the coming years.

Last night was warm and worse yet we missed "Elementary" and I did not bother with any late night treats.  All was well by 3am, so I walked the house turning out lights and then the morning was fine.  So after Sandy this was nothing, irritations clearly minor, but the regularity of this is getting tiring.  We maintain flashlights in our den, living room, and the bedrooms in use as a matter of course.  If the generator works as planned, this will just become an expensive and annoying memory.

Thursday, May 30, 2013

Tiabbi tones down, in response to...

"As is pretty much always the case with modern American politics, people seem to find hobgoblins and conspiracies everywhere in every place except where the real thing, or something close to it, actually exists."

Guess who wrote this in his most recent poltical piece in his sponsor magazine, Rolling Stone.  It was Matt Tiabbi.  Any regular readers here may remember that there was a post here on May 2, "Matt Tiabbi, Conspiracy Theorist on Steroids" that focused on his missatements, misleading assumptions, weak sources, and self-adulating approach to an accusation that there was a vast conspiracy underway in fixing the global interest rate and swap rate markets.  As his crazed article went on he even suggested that all traded markets, not just rate and swap markets but gold, gas, oil, and other commodity markets were priced by "little private cabals of cigar chomping insiders that we are forced to trust."

That this article was even published was irresponsible.  My blog commentary was far too long to be a comment to the editor, but I sent it to RS's "letters department" anyway, not expecting a response and I did not get one.  Or maybe I did when I read Tiabbi's sentence above.

The article that this is sourced from is in the June 6th issue and the title is "The Mad Science Of The National Debt."  The focus of the article is the political "debate" in D.C. about the debt ceiling and somewhat tangentially the Fed concept of quantitative easing.  Quantitative easing in plain English is when a central bank prints more money and pushes it into the system for various reasons - to stimulate bank lending, to buy up and hopefully repackage bad assets that are gumming up the system, to prevent deflation while keeping interest rates as low as possible to force assets into riskier classes that are more productive for the economy, and to steal interest income from savers, mostly the elderly, to finance this action.  The U.S. has led the way with this approach, Japan has followed with gusto, and Britain has now stuck its its toes in the water.

In fact, central banks broadly are flooding the system with liquidity.  If this results in a stablization of markets, a halt to panics, and the beginning, just modest beginnings of growth in some places and slowing of deterioration in others, it may be tethered back slowly over time without some radical shock to the system.  That of course is the positive goal, and perhaps one of the only choices we have at the moment.  It is also an ambitious goal that eventually will require some sanity among our politicians.  The downside is that the "tethering" pushes us back into recession combined with an outburst of inflation, the worst of all worlds.  This is serious business and a risk that requires intelligent insight and action to manage, here and globally.

Tiabbi's approach to all of this is much more opinionated and he appropriately lambasts all of the Republican  rhetoric comparing running a massive global economy to a family sitting around a kitchen table balancing their monthly budget.  While focusing on the Republican's misrepresentations (ridiculing some in a humorous way) on virtually everything about scaling back our national debt in a sane way that doesn't just cut necessary public benefit programs, he also takes some Democrats to task as well, including some nonsense talk by President Obama.  Some of the writing is entertaining, depending on your political inclinations.

The most refreshing thing is that compared to the "massive conspiracy" article written about here on May 2, Tiabbi does not end with some with some ironclad conclusion from his own imagination.  He writes, "global monetary policy is drifting in the direction of semi-permanent stimulus, and no one has any idea how it all ends... God help us."

Wednesday, May 29, 2013

U.S. leads the world in 2013 market capitalization growth

With high seemingly intractable problematic unemployment levels, slow GDP growth, huge national debt, and an embarrassingly  inept government, it might seem surprising to find that the U.S. leads the nations with the highest overall  market capitalizations in market cap growth so far this year.  That's in a report from the respected research firm Bespoke.

The U.S. market cap growth thus far in 2013 is 2%, Japan comes in second at 1%, Thailand, Indonesia, Switzerland and China all have rises of around .5 %,  eight nations are roughly flat and 23 are down.  As an unneeded reminder these are just growth rates for 2013 to date for publicly traded companies.   For reference, the nations with the highest total nominal market caps are the U.S. at 34%, Japan at 8%, China, Hong Kong, and the U.K. at 6%, and Germany and France at 3%.   In my estimation and intuition,  these numbers and growth rates do not include privately owned companies or nationalized enterprises, as well as substantial off the books activity in many countries including the U.S., and if that's right, these numbers are to some extent meaningless. Nevertheless, they do show some resiliance here by U.S. public companies despite our government's every effort to make regulations more unpredictable, more opaque, and corporations less respected.

These are just current numbers, just numbers, and do not equate to qualilty of life, the outlook for the future, and country competencies(these may well be the most meaningful inputs if such things could be measured).  It still was interesting to see the U.S. as the leader in 2013 market cap growth, and to think what that means for the state of the world economy.  The "Great Recession" still looms over the world.

Tuesday, May 28, 2013

Filing and organizing, ugh.

Many people are neat, prompt, and orderly about reading and filing their documents:  financial; tax; insurance; and medical documents, at least I presume that is the case.  I am not and have spent much of the last two days paying a tedious price for my lack of discipline in this area.  Not finished yet either but progress has been made.  That may still be an illusion.  Another stack of mail just popped through the door.

There is always a good excuse to put off keeping up with this task, and then eventually it becomes the equivalent of an unsorted document hoarder.  Is that now something that has some disease name now.  That needs to be avoided.  Part of the problem is the management of not just some big consoldated accounts which would be relatively simple, but one of many smaller financial accounts that have resulted from inheritances, assisting with a few other people's accounts(gratis), old small gifts that were meant as important to my wife as a child but are now nuisances, and obliging requests from friends to make some modest investment in a few start ups.  My patience runs thin and my lower back gets sore as the documents are too many to fit on a single desk, so on floor the go to into somewhat random piles.

Computers in concept have simplified this task, but whether reading one's roughly 20 page car insurance, house insurance, medical insurance, long term care insurance, annuity aggreements, or other documents on paper or on a screen, the same time is required.  Often the best policy here is to ignore most of it and hope for the best, but some financial documents must be read to avoid making some stupid and costly mistake, not beyond me unless I stay alert.

We pay our bills on time almost always unless misplaced, but it is clear to me that management of a multi-adult household must have not been this demanding at some point in the past.  Is it the proliferation of regulation that has led to this.  If there is such a thing as a mid-year resolution, mine is to deal immediately with as many documents as possible, into the trash if  possible and dealt with with pronto if not.

A more interesting post is expected to be written tomorrow but this was needed to clear my mind.  I assume that I am not alone.

Saturday, May 25, 2013

"Lobbyist" is not necessarily a four letter word

Almost all media and almost all in normal conversation throw around the word "lobbyist" as if they are describing some con artist or near criminal that has a main goal of subverting the government.  That description aptly depicts some lobbyists, especially those back slapping ex-lawmakers who ask their former pals for favors or hold out better jobs and paydays in exchange for support for some change in or new legislation.

That's only part of the picture.  Many lobbyists are simply gatekeepers to the intelligence of their organizations.  My example, based on a financial background, is the publicity about modifications to the well intentioned but heavily flawed Dodd/Frank bill.   It is a certainty that this example could apply to issues in many other industries.

Recent polls have at times showed a 9% approval rating of Congress by the American people.  It could hardly be lower now and could be somewhat higher, not important.  The important question is how many members of Congress, especially in the House, could actually explain in coherent terms what a derivative is and what its redeeming values are if they are sensibly regulated and not abused.  How many members of Congress could explain how legitimate mortgage or other securitizations are structured and how valuable they are if not allowed to be abused.

A good guess would be less than 50%, and that is probably optimistic, maybe wildly so.  The majority rely on staff members who are chosen based as much on their political savvy as their knowledge, and they are often charged with the task of coming up with research that supports their bosses opinions.  I should note that some of the congressional staffers are brilliant hard workers but it is highly likely that few have worked in the real guts of capital markets financial services.  So what we have is voting members of Congress many of whom have little understanding of the issues that are being advised by their staffs that have been chosen for their political agenda and willingness to deliver research that is tainted, sometimes despite their intelligence.

As I said, many lobbyists are gatekeepers who valet their experts to Washington to try to better explain the issues to these research staffs, and sometimes even to the lawmakers themselves. You get my point.

One short example and this rant will end.  President Obama recently berated the banks for not lending enough to those who needed mortgages or to small businesses with start up or expansion needs.  At the same time, Dodd/Frank proposals could limit the securitization markets so severely that banks would need to hold much of their "new" lending on their balance sheets.  Obama administration regulators are strict and inflexible on capital levels, and international capital level requirements are rising.  There is now even talk about requiring so called "too big to fail banks" to have much higher capital levels than smaller banks.  Many banks are lending and would want to lend more, but with uncertain capital rules they have limited capacity and must choose only the most creditworthy borrowers and may not even be able to accomodate all of them.

Does Obama even understand this dilemma.  Does he even care and just want to score political points?

The constructive lobbyists, those called here the educators, can and do serve a valuable purpose.  The back slappers, steak house supporters, most ex-congressmen who exploit old relationships, and those who imply payback in the future should be run out of town.  They do not represent what the many "constructive" lobbyists are working to accomplish.

This of course is just a post that is contrary to easy popular opinion, so dismiss it if you choose.  It's right though.  To repeat, many "lobbyists" serve a valuable role as educators of a highly obstinate and at times ignorant Congress.

"Change The World", a George Packer New Yorker thought piece

George Packer is one of the most reliably insightful, informative, and talented reporters/essayists that there is.  In the May 27th issues of "The New Yorker", his article is about today's Silicon Valley.  That's not quite an accurate statement.  It is about one half devoted to a history of the development of what Silicon Valley has become today and an intense description of what Silicon Valley is today.  In other words, the development and the NOW.  For those with the interest, almost every second of reading these 11 dense New Yorker pages is worth the time for outsiders like myself.

Often when recommending an article or book here I will follow up with excerpts that entice.  That is not possible here.  They would be voluminous and the time for the task overwhelming.  Obviously this article is recommended.

Postscript after a night's sleep, or whatever my nocturnal patterns could be called --- Packer's article highlights both the unbridled brilliance and the almost complete isolation of the real creators in Silicon Valley.  It also emphasizes Silicon Valley's focus on the future.  Almost everything they do is looking ahead, often many years ahead, in designing products and schematics.  It seems so different from our government which is almost always using history as its roadmap and politics as its guide. As to looking long term even most quality non-tech consumer product companies focus on innovations that at best are based on what new gadget will sell their latest car or washing machine for the next year or two.

Contrary to what was suggested earlier, here's one quote.  "In Silicon Valley circles, government is considered slow, staffed by mediocrities, and ridden with obsolete rules and ineffciencies."  So while Silicon Valleyites are almost a completely different species from most of us, there are some similarities.  

Friday, May 10, 2013

So confusing, the stock market outlook

We are certainly now at a point where stocks are doing well, and just by any historical analysis will have at least a minor, at best,correction soon, deserved or not.  We have certainly participated in most of the upside, but that means a reason for concern.  I have eliminated some portions of my happy ,small cap stocks, all with gains but all that I see as vulnerable.  We do maintain and have even added to our small cap index funds, U.S. and the small allocations to foreign small caps.

The risk/reward on bonds is absurd in most maturities, and based on Bernanke's comments this morning you could wonder whether, on an inflation adjusted basis, money market funds or even bank held funds are safe at all.  On any inflation adjusted basis one loses money every day in a money market fund.   So we know that the Fed driven money market funds are essentially useless except as a diminishing but relatively safe store of value, and, this talk today of bank deposits was disconcerting.  My experience with various unanticipated market moves scares me.  Money is being forced into the stock market, much to our advantage thus far, but is there a breaking point?

Thursday, May 09, 2013


Otis, still active at 80 or so, remains a character in our minds.  Despite my issues with Facebook, I have been exchanging comments about Otis with Mike, a real home town friend.  For me and Andy, Otis and his family were incredible friends.  Others followed.  His wife, Dolichos and his daughter, Renee were delightful.  In fact, Renee was a great help  during the weeks of my father's passing.  I hope to see Otis again.  He has the best sense of humor of anyone I have ever known. 

Wednesday, May 08, 2013

Getting older

It happens.  Everyone gets older.  Some thrive. Many do  not.   I am at that threshold.  Some of my friends or people that I have known seemed to have crossed it successfully, I mean they come across like no change. Me, maybe a shy person in some ways, almost always Southern polite, but I have not led a shy life.  I have enjoyed almost everything, almost everywhere.  

I don't think that I am unique, maybe I speak for many, but, damn, I can't play tennis or basketball anymore.  My legs and knees have not quite worked  for the past 2 years.  At almost 64 many people may call me lucky,  but it is a darn change, and sometime involves a semblance of pain.

I still write, read, and still think that there is a next level to my life, but at this time as I write this blog, I am a little down on this beautiful spring day.  I thought canes came in at 70 or 80 but now I am thinking about that great place, a venerable cane and umbrella store on Oxford Street near the intersection with Regent Street that would make my casual dress look acceptable with a bit of unexpected style. 

Tuesday, May 07, 2013

"Beyond The Fence", op-ed by David Brooks, NYT 5/7/13

Today's NYT has an unsually thoughtful op-ed by David Brooks.  People, like me, can find things in it that strike home in a major way, but that may be just a few sentences.  It's a broad discussion of immigration and the positive benefits that abound but sometimes hit a wall.

When I married I had zero thoughts about the ethnic differences between my wife, American born Chinese, and myself.  Call me naive.  It worked, with the obvious ups and downs that any relationship may have, but in that context it has worked out wonderfully, 27 years and going.

She still has some barriers that she perceives and I can see, some I can't.  Maybe that's because of the community that we live in, or many other things that might be perceived as racist if I wrote about them.  I will not.  My wife manages ok with this, believe me I hear about it, but a dear friend of ours seems to be having some problems that have only recently emerged.  She has a longer continuity in the U.S. as her parents were detained during WWII as they were Japanese.  I don't get it really, but now our friend is incredibly sensitive about her race, although relative to my wife she does not have distinct racial characterics that would be be immediately recognized by store clerks and such.  Like my wife she speaks English grammar better than this Southern born writer.

Our older daughter is for the most part only percieved as Asian by Asians who can see the characteristics.  Most people would not recognize her ethnicity immediatley with any certainty.  Our younger daughter really has distinct Asian characteristics and occasionally has to deal with that at the, I hate to say it, the city-school George Washington University in D.C. which is not quite first rate.  That's a great town to go to college in, but that university does not seem to attract an array of students that are  as open minded as those at Georgetown that I attended many many years ago.  She handles it all well I think, and has a great sense of irony and humor.  More than my older daughter, she tends to hang out with Asian students, knowing where she feels accepted and safe.

Brook's comment that third generation immigrants are where the barriers really begin was disconcerting to me for obvious reasons.

This has been one of my not so organized comments, random observations abound from short paragraph to another, but do choose to read the David Brooks NYT column of today.   Thanks.

Monday, May 06, 2013

Middle East chaos continues

The title is truth that need not be said.  Egypt is a mess with its new despotic ruler that has further ruined the economy, destroyed tourism, and continued to defy any attempt to improve women's rights.  The Muslim Brotherhood seems to be just a slightly tamed down version of Islamist extremism, with the exception of rights for the really wealthy.

Iraq is pumping oil again with the help of non-U.S. firms, so has a source of funds.  Chaos still reigns but it is more personal than political perhaps,  Sunni and Shiite against each other, everyone against the Kurds, just random chaos that is meant to eventually empower extremists.  The ridding of that country of Saddam Hussein and his heinous sons by the U.S. was a meaningful and in my view a positive event, but the overstay of our welcome was definitely not.  Afghanistan is a country that will never be controlled by anyone, can only be bordered off and let the carnage go on.  So sad of a comment for the women there and I hope that I am wrong.  It is unclear if we or anyone is making long term progress there.  A friend of mine on one of those traveling adventures in the vogue after college, certainly enjoyed mine, ended up in Afghanistan.  When he came back he had the worst haircut ever, on the street there, and was convinced that there was no concept of law in the country.  That still seems to be true, as we deliver bags of cash to Karzai for no real reason except for his family's Swiss bank accounts and those of some Taliban leaders.

Syria as we knew it is history.  It is destroying itself and its people on all sides.  This could have been avoided by the incredibly selfish Assad and his spoiled wife more than a year ago with some concessions and some fair elections.  Now it is way beyond repair.  Iran is complicit but I believe has mixed feelings, Lebannon is frightened, Hezbollah is happy, Turkey is conflicted but constructive, and Israel is not going to sit and stay silent, as is obvious.  The U.S. will use gunboats and drones if its involvement is necessary. 

Libya is still just a band of competing militias, and even Tunisia is in some tumult.  Kuwait has become an openly visible dictatorship.  Where is there good news.  Dubai, I guess, with hotel temples and Las Vegas style nightlife that is hidden behind Muslim walls.

Whether U.S. involvement in all of this was constructive or not will eventually be decided by historians or by an all out civil war across the region, including Israel, Saudi Arabia, Iran, and Pakistan.  Big wars do happen as anyone with a perspective on history knows, and rationality goes by the wayside. 

Sunday, May 05, 2013

Syria is becoming a really Serious issue

Syria's result will not mirror the result in Libya.  There is a seriously divided issue in the Middle East on Syria as well as a seriously divided Syria into, very simply speaking, secular versus Islamist factions.  Many are caught between the middle and would just like their life back, a country destroyed by Assad in many areas to protect his family's legacy and the British/Parisian lifestyle of he and his elitist wife.  This is not going well, and there is more bad news to come.

Saturday, May 04, 2013

Please forget my Derby choices

Today's Kentucky Derby was a beautiful race.  Did you notice that the three favorites all went out at 6 to 1 odds, and several others close behind were at 7 to one or a little higher.  I have never seen anything like that.  Almost always there are a few big favorites at 2 to1 or 3 to one, but not this year. 

My upset favorite mentioned in the last post was not a contender, and my two somewhat sentimental picks finished in the fifth and sixth  positions, not bad in a race with 20 horses this year but not in the winning column of the top three. 

Orb and his jockey Joel Rosario ran an amazing race.  Orb was near the back of the pack for the first half of the race and at the three quarters point was in mid-range but still well behind.  Then choosing to ride in the middle of the muddiest part of the track Rosario turned him on and passed everyone.  It seemed close until the final seconds but at the end it was not close at all.  No finish by the nose, a very clear win.  Orb was the best horse.  Rosario rode him right.

It was a great race.

Kentucky Derby picks --- 5:50pm today

Favorite pick is a long shot, Charming Kitten ridden by the experienced Edgar Prado.  He knows how to win.  His horse is not necessarily the best, but the track is dry on the rail, muddy in the middle, and aired out on the outside. His 15 pole position may be a benefit, repeat that this favorite is a long shot and that is where the real money is made, but the money bet here is a modest amount.  I am only a gambler of any consequence in the stock market, and that can be studied and projected, not perfectly but with a lot more information than a horse race

Next two picks are just unlikely hopes, Mylute at number six pole with Rosie Napravanik as jockey, an incredible story if it could work out but she does not have a long term history with this horse and given the track condition her pole position at 6 is just about the worst unless she can get to the rail immediately.  The other is Goldencents with Kevin Krieger on board.  I like possible incredible news, and Kevin is black and like Rosie would make history, and the horse is partially owned by Rick Pitino, the Louisville coach just coming off a national championship.  Could his mojo hold?

Friday, May 03, 2013


There are rarely network or cable television programs that a point is made to see here.  "Elementary" is now the one that fits that criteria.  We will not change our schedule or forego some important event to see it, but that is rarely an issue for us.  For those not familiar, "Elementary" is a Sherlock Holmes mystery program of sorts with Lucy Liu playing a female Watson and someone British named Johny Lee Miller as Holmes. 

The writing and plots are well done, Lucy Liu is exceptional in her role, Miller is fine but we have no idea of comparison to his prior work.  Rarely do I watch commercial television due to the proliferation of advertisements, but due to this being the opening season of this program they are more limited.

Simple summary --- a modern day Holmes is the usual genius of observation but just out of extensive period of rehab for heroin addicition.  Watson has been hired by Holmes's father as his sober companion, a full time job of observation to prevent a relapse.  She also becomes an insightful partner in solving the crimes that he is uniquely hired to investigate.  There is no romantic relationship involved, more just a fragile state of mutual respect.  Other than the well done production, the thematic differences in this version of a Holmes story are first, a female Watson which has never been done or anticipated and second, the approach to Holmes drug use that was always part of the Conan Doyle series but in those and in all follow up productions has been treated as curious affectation rather than a real problem with both physical and reputational repercussions.

It's on at 10pm on CBS on Thursday nights, and must be approaching the end of its first season because we have seen mulitple episodes.

As an aside I wonder about a handful of sixth grade students at St. Francis School in Goshen, Kentucky that I used the Sherlock Holmes book with, short stories mainly.  Sounds almost silly now that a teacher would choose to use these somewhat dense English style detailed books with students of that age.  I worked at what was then called an "alternative school" and it was an exceptional place for my first four years there.  I taught fifth and sixth grade English mainly, and some history, with rotating classes.  The building had no discrete classrooms, just elevated pods, and space areas divided by the pod structures and modest railings.  With about 70 students in fifth and sixth grade  taught by four teachers, we had a reading program for a month or more, don't remember exactly the amount of time, that divided the students by ability into reading projects.  The largest number read C.S. Lewis, there were two other groups with the need for more experience, and as the newest teacher in my first year I was assigned the eight or nine best readers and chose the Sherlock Holmes titles to teach. The admin let me make the choice.  Sort of audacious in hindsight, but it worked.  These were the brightest of the brightest in a school that attracted students from educated families(I should note that the school had a  policy of providing scholarships to almost 25% of the students, many less fortunate, to promote the experience of diversity).

To teach Sherlock Holmes I made big posters and taped them to the concrete walls all around my area, some just one word clues that they would come upon if they did their reading --- an intuitive idea that really worked.  With all of the many Conan Doyle Sherlock Holmes films and television programs that have continued almost uninterrupted over the, believe it or not myself, 40 years since I put those students through their course, I sometimes wonder if they have followed all of the iterations to this day.  I can think of a few who certainly have, and must have "Elementary" on whatever device they choose to use these days that sometimes confound me.  PBS also has an ongoing new series of Holmes stories, and they had a different one last year.  They live on.

I think about my students of those days, now maybe 50 years old, and wonder whether they have had a long term ongoing interest.

The "benefit" of Jim Kramer

Everyone who has ever watched CNBC is well aware of Jim Kramer.  He is the outspoken, hyper-energetic market commentator and stock picker who also comes across as extremely confident.  The problem is that following his stock picks is fraught with risk.  There is no way to know whether he is recommending something for a short term trade or medium term holding, or just being obsequious to a corporate guest that he is interviewing.  Anyone observant would think that nothing he recommends is appropriate for a buy and hold strategy.

When Kramer first became well known, it was to a cadre of technology investors through a website he created that still exists under his partial ownership but without his participation today.  That is "the".  In those late heady boom days of the 1990's his recommendations worked like the often used analogy of a "blindfolded monkey throwing darts at a dartboard".  When that technology bubble collapsed he more or less became useless and with his ebullient on camera personality just annoying. 

In recent years he has become a fixture on CNBC, part time slots in the morning, stock picks at around 3pm, and his one hour 6pm show of interviews, stock picks, and market commentary, always of course just on market days.  His comments get my attention if it happens that the television is tuned in when he's talking because he is opinionated, at times has more of a sense humor than anyone else on CNBC and in fact is often interesting, but my viewing is usually not based on a serious attention to what he suggests as investments.

So what is the reliable "benefit" of Jim Kramer other than just entertainment and annoyance.  Recently, from my perspective, I have pinned that down.  It is, roughly speaking, the first 10 minutes of his 6pm program when he reviews the market day in a macro sense.  He's knowledgeable and seems to have a broad array of contacts.  He puts the market day in some macro summary context, right or wrong, who knows from day to day, but it is a genuine attempt to frame what has just happened and what that might mean for the overall market near term.  It is often 10 minutes of time well spent if one has the inclination, and after that he goes into his interviews, stock picks, and his ego boosting ability to immediately answer call in questions about almost any stock.  That is generally not time well spent for those who are not intense stock junkies.

Kramer is a character, and I happen to believe he is a good person in many ways.  His value, however, should be taken in small doses overall,  with positive emphasis on his macro views.

Postscript --- the only time that I ever met him, at a Chase investor meeting in the late 1990's, he was clearly ill at ease in an opening snack, alcohol, or ginger ale, type of opening reception.  We talked for a short while but that aggressive personality that he becomes on television was completely missing.  The word "shy" comes to mind.  That one meeting drives my conclusion that he is a good person, an even humble person in real life, but as a performer he assumes another personality.


Thursday, May 02, 2013

Matt Taibbi, conspiracy theorist on steroids

In the latest Rolling Stone magazine there is an article by their political analyst, Matt Taibbi, entitled "Everything Is Rigged".  Perhaps the word "theorist" in the title of this post is not used correctly.  Should it be manipulator, exaggerator, attention seeker, or simply just someone who writes well but understands very little, meaning not so insightful.

A little background  --- we started receiving Rolling Stone magazine a few months ago under my younger daughter's name, yet she was in college and did not subscribe so maybe someone else did it for her or Rolling Stone's demographic analysis found that she would be a perfect fit for their advertising promotions, and the subscription was actually a free circulation builder.  Who knows.  We now receive it, and I admit to finding articles that I like such as the one on Bruno Mars in the same current issue.

Matt Taibbi is another issue.  Of course he has made a name for himself as a conspiracy theorist and anti-corporate, especially anti-financial, corporate writer. At times I have been told that he writes about issues of consequence that might be sound and less vindidictive, but  I have read part of his occasionally clever hostile work before and seen him on a Bill Maher panel.  One might be inclined to call him a liberal, but that would be an insult to most intelligent people on that side of the aisle.  He is a polemicist in the worst way, a conspiracy theorist whose trade is exaggertion and distortion, combined with a lack of any real knowledge.  Yeah, he can write, but he makes the ever searching cynic Oliver Stone, sometimes rightly so, look like the even-thinking Thomas Friedman.

In this article he focuses on "scandals" involving the fixing of Libor rates(interest rates) and ISDA rates(interest rate swap rates) involving major financial institutions.  Point taken should be that any system involving multiple corporations reporting and then having aggregated their day's rates will not be perfect.  To Taibbi it is a vast conspiracy.

He backs up his "thesis" with unattributed quotes from seemingly mid-level, sometimes seemingly low level bureaucrats.  In this wired world, simple braggerts and jokers remarks are taken as an indication of a corporation's policies.  Goldman's scapegoat on a poorly structured mortgage security was Fab Five, a braggert who exaggerated his role in e-mails.  Carl Levin, over and over again in his inimitable ugly style, constantly used a phrase from some mid-level's e-mail that called that security "shit".  Was the mid-level trader referring to it as "shit" for Goldman(they lost money on it) or for investors.  Investors who bought that security at discounted prices were not me, you, or a barber in Peoria.  They were major instituions with analytical groups and fiduciary responsibilities who freely chose to buy that security.  There was no gun at their heads.  I will completely admit that the security in question was poorly structured and having a major investor complicit in designing the security seems questionable, but it was not illegal.  Major institutional investors were not those who sued the company as they were responsible for their decisions, it was the government whose behind was not kissed that found a way to torture Goldman for being fairly successful during a dire U.S. financial crisis.

But now back to Taibbi.  It seems as if, it is a fact that, he has never worked in a complex financial organization with thousands of employees and customers, and a complexity that is such that there can always be imperfections.  What does he want?  Does he want governments to set Libor and swap rates daily, political appointees with minimal financial experience controlling financial markets.  There could be more oversight, but only if there are government officials who have any understanding of these issues and are not making just political decisions.  Or does he want God to come down from heaven each night and set the rates perfectly, maybe blessed by the chronically corrupt Vatican. 

There are two decisive examples of his what must be purposely exaggerated extremism in his conspiracy theory approach.  First, in discussing the interest rate swap market and the supposed massive exposures there, he uses notional numbers.  They are meaningless.  Not to be pedantic, but notional figures are what the swaps are based on and have no relationship to credit exposure.  If a corporate or municipality issues a billion dollar bond at a floating rate because it will sell better and will offer a short term benefit, that's not abnormal.  Often they will then enter into an interest rate swap with a bank that switches their floating rate to a fixed rate so that they can better budget for the future(there are more reasons but that's another story).  The credit risk is not the billion dollar bond, it is simply the market moves that emanate from the swap.  If rates go up, the corporate or municipal issuer benefits, if rates go down they have opportunity cost and the bank that writes the swap benefits.  Of course, the banks do not set up these arrangements or issue bonds for free and if the banks have losses they have more financial capacity to hedge those losses.  They are businesses and not national utilities.  Those costs are generally transparent to financially aware folks, but unfortunately that term cannot be applied to some of the governors, mayors, and CEO's who make these decisions and are backed by their financially illiterate political appointees.  Taibbi ignores all complexity, and simply goes for jugular on blame and conspiracy.

The second example of his intentional exaggeration can be captured by this quote referring to all traded markets, not just interest rate or swap markets, but gold, gas, oil, and other commodities.  He writes "prices all over the world are dependent upon little private cabals of cigar chomping insiders we're forced to trust".  Just as an aside "cigar chomping" in public or semi-public meetings went out of style twenty years ago in most places beyond the newly emerging markets that have no effect on what he is talking about.  That's a minor point but an example of his intense resentment and tainted reporting.

Think about this.  Can anyone imagine, even remotely, the CEO's of Goldman, JPMorgan, UBS, Morgan Stanley, HSBC, Deutsche, and other banks sitting around table and fixing rates.  That is the last thing on earth that they would do.  This would not be, is not, the primary way that they make money.  These firms are all such intense, could I repeat INTENSE, competitors that they could never agree on anything as a group.  They want efficient markets and they are well aware that they are targets for any perceived violation of anything, as governments have shifted all blame for the financial crisis to the banks and never to their shoddy rules, crummy legislatures, corrupt leaders, and inadequate supervision.  The U.S. government under Obama is a prime example of this.  My strong belief is that the banks sincerely want the markets to work efficiently.  Trust is everything to banking success.

One thinks back to the days of the great Hunter Thompson at Rolling Stone as a political analyst who could make sometimes outrageous points, at times aggressive "liberal" one, but often good ones, and always with a sense of irony or humor involved.  Taibbi has no concept of a light touch.  He is on a vendetta of his own making and encouraged by hyper-egotists like Bill Maher and other disruptive and distorting activists, and some with well meaning resentments(who doesn't have a few of these) but with limited knowledge.

Taibbi is worth reading only to see someone prostrate himself before a radical fringe, incite a financially illiterate resentful public that needs someone to blame, and all of this really  must just be for his professional success.  I say that because he obviously must know the difference between notional and credit exposure in the swaps market unless he is not too, not at all, bright.  Why is he not worse with these distortions than the financial institutions that he attacks.