Monday, June 30, 2014

The stealth financial markets rally of 2014

As of this past weekend, markets overall have been uniformly on the rise in the first half of 2014.  Best estimates available here show that the Dow is up over 2%, the S&P up 7%, the Nasdaq up 7.5%, Extended market small cap index funds up 5.8%, Gold up almost 10%, a widely used UBS commodity index up 8%, the ten year U.S. Treasury note up 6.4%, the MSCI world index of developed markets up 4.8%, and the MSCI emerging markets index up 4.3%.  This all sounds idyllic.  Does this make sense?  Why does this performance not feel as good as it looks to many investors?

What is undeniable is that this is an unusual situation.  Securities that tend to rise in strong economic markets and securities and gold that tend to be hedges in weak or uncertain economic markets are all on the rise at the same time.  Despite these gains or maybe because of them, many investors still seem to remain edgy.  They are afraid of jumping into equities at just the wrong time or continuing to buy bonds in the face of a long expected rise in interest rates that has failed to materialize.  Both retail investors and corporate managers of liquidity remain under invested in equities by historic standards, while pension funds, private investors and some corporate treasury managers have gravitated to private equity funds and well established hedge funds in greater amounts, investments that are not accessible to most retail investors.

What is clear here is that this Goldilocks scenario cannot continue forever.  I still look for anomalies and opportunities in equities, just can't help myself, especially focusing on small caps, acquisition candidates, and troubled companies, but these are not in the aggregate big bets.   Long held bond fund investments have been maintained and a few more esoteric ones added, but they are certainly at the moment only a small cause for concern.  Will it take deflation for them to continue to have more gains of any consequence.  That would not be good for anyone. 

Overall, this does not seem like a time for any radical moves.  It seems like a time for patience.  Unfortunately when some market, political, or global event is significant enough to rattle markets change will come fast.  That has this investor, already with what would be called a balanced portfolio if not exactly a risk adverse one, trying to make decisions on selling portions of stock positions with significant gains just sitting there, and reinvesting WHERE?

If answers to these questions were clear to anyone, market volatility would not be so dull.  As always, however, one can be sure that there are some market professionals out there in the investment world that have angles that most of us can't see, and we shouldn't waste time worrying about that.  For those without extensive networks and unique skills, trying to out think the market is more likely to lead to trouble than glory.  

Of course there is always luck, spin that wheel.


Sunday, June 29, 2014

Church of the Holy Innocents under pressure, threat of closure

The Catholic Church of the Holy Innocents is under threat of closure by the New York Archdiocese for several reasons.  First, it is the only Catholic Church in New York City to offer a daily traditional Latin Mass at 6pm with traditional music for that mass.  That is to some extent in violation of the Second Vatican Council of the 1960's, although Pope Benedict was not strict on that edict.  Other current style masses are offered throughout the day, but some parishioners simply prefer or are comforted by the old liturgy.  Now an archdiocesan panel has recommended that the church be closed.

A visiting priest urged the parishioners to be obedient, but also to speak up as traditionalist Catholics.  Within two weeks that priest was reprimanded by the Archdiocese and dismissed from his job at the Mission of the Holy See at the United Nations.

It is no secret that the New York Archdiocese is undergoing  a review of its 368 parishes and will close some over time, due to a shortage of priests and a declining number of parishioners, through a planning process called "Making All Things New", that involves mergers of parishes and elimination of buildings.  The list of those to be closed was supposed to be completely confidential, but it was somehow leaked(business experience tells me that most leaks are done purposefully by those responsible for whatever action is being planned) and the Church of the Holy Innocents was on the closure list.

Somehow this hopefully just tentative conclusion has been reached even though the modestly elegant Church of the Holy Innocents has 300 regular parishioners, attendance at Sunday Mass has tripled since 2009, the church operates at a surplus, has a thriving thrift shop, and self funded a recent $350,000 restoration of an 1870's mural behind the altar.  The historic Gothic structure is located on West 37th street between 7th ave and 6th ave.  It is a beautiful building, inside and out.

Why am I writing about this?  I am not a Catholic and not a practicing churchgoer, although if I didn't live in this suburban Selfish Town the thought has come to mind that attending a church for community purposes and the good works done(soup kitchens, thrift markets, charity) might be a good thing to do at some point.  Who says it's required to go listen to mostly boring, monotonous, and retread sermons to participate in some virtuous church activities.

This uncertain but possibly plausible churchgoing idea is not a Pascal's wager thought.  I am not clairvoyant or superstitious.  It is just based on the fact that I like people, I like talking, and probably that was almost all of what I took away from required churchgoing in my childhood.  Well, that and the eventual realization of the widespread and often ugly racism that many of the southern Virginia churchgoers harbored.  Some were honorable exemplary citizens and open minded people, but they were a definite minority in this Methodist congregation.  In fact, a black family showed up at the beginning of a Sunday service sometime in 1963, sat quietly in the back pew, and all "worshippers" in the church, excluding our family, several other families, a few individuals, plus the two ministers, got up and walked out of the building. 

Anyway in this spontaneous writing style an earlier question was not answered.  Why write about this?  From 1986 to 2004 I walked daily from Penn Station at 7th and 34th to my office in midtown at Park and 47th.  While I varied my walks regularly, West 37th was often the first crosstown street that I chose.  After several years of probably unnecessary thought, I stopped in at the Church of the Holy Innocents.  Even between 7am and 7:45am, my usual pass by times, the Church always had at least 30 or 40 people praying or sitting in pews quietly. I found my first stop restful and serene, a nice break before joining the fray of meetings and phone calls that awaited me.  It was by no a means regular stop as work always called, but once or twice a year at least I would drop in for a few moments of peace.

On any measure, how could this amazing church be closed?  Maybe the archdiocese has a lucrative offer from a high end restaurant, nightclub, tech tycoon, disco, or rave promoter.  Excuse the cynical thought.  

Saturday, June 28, 2014

Discovering Lorrie Moore

The writer Lorrie Moore has of course long been "discovered" by many readers, just somehow not here.  I am now reading her seminal highly acclaimed 1998 book of short stories "Birds of America".  The stories just naturally attract my complete attention.  There are occasional sentences of observations that are just so naturally logical and meaningful that they stop me in my tracks.  That, however, is not the hook or even the intent of her stories.  They have an impact in their entirety, one that evokes thoughts about normal human behavior, or maybe the fact that the thought that there is such a thing as normal human behavior is a corrosive way of thinking.

Moore came to my attention as she was mentioned a number of times in a book of essays by Geoff Dyer that was read here earlier this year.  Since most of the short stories in "Birds of America" were originally published in "The New Yorker", which I have subscribed to for at least 35 years, it can seem like a mystery that her name is new to me.  There is no mystery really.  In the 1990's and early 2000's  I generally worked 10 to 12 hours a day, not including commuting time.  In times when confidential mergers or acquisitions were being discussed, some major ones being consummated, my hours were longer than that and included weekends. With children that delighted me when at home and wasn't working, there is a gap in my reading and watching films during that period that will likely never be filled.  I don't care so much about the films, but books I do and finding Lorrie Moore is just indicative of other written work that will eventually be found here, missed during that almost all consuming banking job time, much of which I really enjoyed, with its constant talking, writing, and public speaking.  It was not exactly a desk job.  I had a great little department of people that did that work.

Moore, now 57 years old, was a creative writing teacher at the University of Wisconsin, Madison, for 30 years. In 2013 she moved to a similar position at Vanderbilt University.  She is not exactly a prolific writer.  She has written two novels and one, "Who Will Run the Frog Hospital?" received excellent reviews and some acclaim  while the second, "A Gate At The Stairs" also was reviewed positively by many publications, most notably with strong endorsements from the New York Times and the Washington Post.  She has written other stand alone notable short stories that were published in an anthology that now seems to be out of print, and has just published this year a new book of short stories, "Bark", which is in my pile of books to pick and choose from later.  "Bark" is generally seen as different from prior Moore books as some of the stories are "darker" and "grim" according to some critics.  I will soon have my own opinion.  Despite some mixed commentary, there have been many positive reviews and her humor is said to still remain intact, if less frequent.

Dyer's view of Moore is that she is an exceptional writer and he seems to feel that she has in her a book that could be stunningly better than anything that she has ever written.  Time will tell, but happy here with what's in my hands now.

Thursday, June 26, 2014


For a complete change of pace, we watched the animated film "Frozen" last night.  Obviously Idina Menzel's "Let it Go" was an attraction, but the movie was also the highest grossing animated film of all time.  Why not watch it here?

An animated film has not been watched here in maybe 12 years, back when the enjoyment, pure enjoyment, was doing so with children.  Children grown now, we still enjoyed the film, finding it engaging and simply entertaining.  It was relaxing to watch and the story line, while elementary, was interesting and open to broader interpretation than what a child might relate to.  Or maybe many children see more things that adults don't notice as they are not naturally cynical from their life experience.

Thumbs up!

Wednesday, June 25, 2014

Unusual alliances and surprises abound in what passes for politics today

The title of this commentary is news to no one.  Recent events have made it all the more obvious.

One alliance over the last few years has been the commonality between some tea party members and liberal Democrats on certain issues.  While their differences are more than wide on most issues, when it comes to a "populist" interpretation of economics, they often arrive at the same conclusion despite having different rationales, if there is any explainable rationale at all on the part of some of the tea party folks.  They agree that big banks and big corporations are exploiting the regular people of this country in an almost criminal way.  This coming together of these two disparate groups makes any consensus on any economic issue in the House of Representatives almost impossible.

Another alliance of until recently unimaginable magnitude was the one that led the long standing Senator from Mississippi, Thad Cochran, to winning his Republican primary against a much younger State Senator, Chris McDaniel, who was clearly a tea party type.  At 76 Cochran ran what the NYT referred to as a "languid" campaign until the last few weeks, when he decided to reach out to traditional Democrats and Black voters as someone who would represent their interests better than McDaniel, who until the last week had advocated substantially cutting state education spending as a way of managing the state budget more prudently.  Extrapolating that thought to the national stage was not attractive to some Democrats and many blacks and Cochran won an election that had seemed to be "in the bag" to many of the 41 year old McDaniel supporters.  As an example of the nature of the upset and rejection of some tea party ideas, in one recent Senatorial election Cochran received just 2% of Democratic votes in the state.

The upset of House Majority Leader Eric Cantor was another stunner.  Up until less than a month ago his own obviously out of touch advisers and pollsters had told him that his lead was up to 30%.  After seven terms in Congress and national recognition as House Majority Leader, Cantor seemed to be a shoe in.  It was not to be.  An almost unknown tea party devotee and college professor at Randolph Macon University, David Brat, trounced Cantor, 54% to 46%, in the seventh district of Virginia that Cantor assumed he owned.

In "House of Cards" there is one sequence of Frank Underwood visiting his South Carolina home district and in the most neighborly fashion visiting constituents, making speeches to small groups, and joining in at larger traditional county gatherings.  He made the point of saying to one of his assistants that one can never lose touch with their home district.  That's the basis of the whole deal.  In D.C., we all know Underwood as the relentlessly manipulative politician who is a master of deception.  Cantor obviously did not get the fictional Underwood's message as he relentlessly postured to unseat John Boehner as Speaker of the House and looked for every opportunity for media exposure.

As a home grown Virginian myself, I know well that it is a conservative state turning partially blue as Northern Virginia grows exponentially.  As a culture, however, Virginia is generally a polite state and one that does not especially like flamboyance, arrogance, or excessive self promotion.  Cantor struck out on all counts(I am not suggesting that these are necessarily the real personal characteristics of Cantor, but they are definitely the image he projected nationally, and by definition to Virginia and his home district).  Brat beat him with basically one issue, and that was his constant ranting about Cantor being weak on immigration restrictions.

Cantor was by no means a leader of immigration reform, but because he understood the needs of business and the value of law abiding tax paying immigrants, he was villified by Brat as chronically weak and dangerous on the issue, and the xenophobic nature of old style Virginians was apparently swayed by that argument, swayed as Cantor acted as if the election was rightfully his and did not require major first hand campaigning.

Much of the national business community is aghast at Cantor's defeat, but he could have made a much better effort on the campaign trail and by presenting a more humble way of behaving.  Cantor defeated himself.

It seems that there will be many more primaries and elections this year that have unusual twists and turns, as the two major political parties have no compelling leaders and as unrestricted contributions flow into every corner of the country.       

Kerry's dangerously naive request to Iraq's quasi autonomous Kurdish region

Secretary of State John Kerry made a visit to Iraq's Kurdistan leader to ask them to join in the battle against ISIS, presumably with all military strategy still under the overall control of Iraqi Prime Minister Maliki.  By the way, the Kurds detest Maliki, who has an ongoing habit of threatening them and instigating, so far, minor border assaults.  Certainly, representing the Obama administration, it was a completely selfish attempted act of face saving by the U.S.

As an aside the Kurds are in the majority moderate Sunni's that were not followers of Saddam, and their age old ethnic background is Indo-European, not Arab.  

Without going through lots of history, Kurdistan declared itself quasi autonomous from the Iraq central government after the first Gulf War, the war that to a limited extent was intelligently managed by the first President Bush to kick Saddam Hussein out of Kuwait after he had brashly decided to take over that country.  With enough problems on his hands dealing with massacring huge numbers of Shiites in southern Iraq that went unprotected after the Americans encouraged their common alliance and then left, Hussein let the Kurdish independent stance stand for some time, and finally turned his attention to them, but only after they had the time to organize a reasonably effective government and build up a small but competent military.

Hussein then began to attack the Kurds with traditional military assaults, successful in causing tumult but not successful enough to take over the region.  Then he began his unbelievably heinous poison gas assaults on towns in the region, before world opinion became aware enough of the situation to finally, after an inexcusable delay, begin to put pressure on Hussein to stop the type of carnage that had not been seen since WWI.  The shock of seeing blond haired children, a minority still retaining Indo-European physical characteristics, deadly gassed probably was a compelling and important  reason for the West to act.

Since then, Iraqi Kurdistan has recovered and managed its own affairs for the most part, doing its best to keep its distance from any substantial involvement with Baghdad and limit their cooperation to efforts to reinvigorate the overall country's oil industry. 

Now the Obama administration represented by Kerry has the audacity to ask for the Kurds to join in with the under-trained and mostly uncommitted Iraqi army, combined with the completely untrained but highly committed but disorganized Shiite militias, to participate in this calamitous turn of events led by ISIS, and fomented in great measure by the autocratic, mean, and exclusionary behavior of Maliki that has been enabled by the Obama administration.

It can be certain that Kerry came bearing gifts, with the promise of money and military treasure.  One can also be assured that he suggested that the U.S. would guarantee Kurdistan's continued autonomy.  From Kurdistan's point of view, it can almost be certain that these words were quietly met with insulted astonishment and had no integrity whatsoever.  If fact, most thoughtful observers of this conflict on all sides would question "integrity" as a word that could apply to anything Kerry might have said.

What an embarrassing and humiliating display of foreign policy by the Obama administration.

Why this large amount of white space is here is unknown to me.  

Monday, June 23, 2014

Michael Kinsley reevaluated

For years during Michael Kinsley's tenure on Crossfire, as editor of the New Republic, and then for a shorter while at Harper's, I admired his success and often agreed generally with his thoughts, but at the same time found him annoyingly arrogant and rigid in his opinions.  Today's Michael Kinsley seems to be a different person, quite admirable now from this perspective.

After a variety of writing and editorial roles in recent years, he is now a contributing editor at Vanity Fair.  His vagabond job style of late is likely due to the fact that he announced about 15 years ago that he has Parkinson's disease.  This disease has many shapes and sizes, and not all are of the commonly thought of shaking and physical disability attributes.  Parkinson's is a neurological disease and can have cognitive effects that are just as troubling as physical ones.  Fortunately there are many medications and treatments for the condition, and many like Kinsley lead successful if perhaps somewhat less than completely desired lives for many years, in Kinsley's case for the last 23 years with the disease.

In the late April issue of "The New Yorker" Kinsley wrote a lengthy article about the perils of aging of the less self destructive members of the boomer generation.  Part of it focused on dementia and his sort of humorous thesis is that the real competition among boomers is not who ends up with the most money but who ends up with their marbles intact for the longest period of time.

The article eventually led into a discussion about Parkinson's which was found to be fascinating here.  Kinsley writes well and thoroughly discusses the disease and the treatments and conditions that he has been through.  Yet there he is, writing cogently and informatively.

This week he did many of us a big favor by writing a two page commentary on Thomas Piketty's much heralded book "Capital in the Twenty-First Century".  The bet here is that the ratio of the number of people who have talked "knowledgeably" about the book or actually read it is at most 10%.  Piketty's more than 600 data dense pages of "of translated French philosophy" is not by any means a glib Malcolm Gladwell advice book or a James Patterson novel.

Kinsley describes reading the book "as a bit of a shock.  It's both much more radical and much less radical than its reputation."  He goes on to say that "I was anticipating a left-wing rant, but Piketty's tone is modest and polite, not at all what you would expect from a rock-star French intellectual."

Kinsley's brief article was helpful, as there has been no attempt to enter the fray of data based academic economics here.  It would be hopeless really.  This summary of Piketty's thoughts in Vanity Fair offers great challenges, no easy answers, and some improbable suggestions, but it does raise important issues that need to be addressed more seriously in many countries.  Vanity Fair is available on line, and reading Kinsley's piece there might interest many who want to avoid the 100 or so pages of displays of amazingly expensive fashion in its print edition.  Sort of ironic isn't it.     

Sunday, June 22, 2014

Equity investing on a wing and a prayer

Why not some possibly interesting ideas on investing bets today?  What better day?

Briefly, here are three.

The first is Vodafone(Vod).  Because of some creative and unusual financial engineering, to retail investors this stock may look like a dog.  It sold its major stake in Verizon Wireless back to Verizon and then gave a whopping tax advantaged dividend to shareholders from some of the gains on that sale.  That dividend of course took a chunk out of Vodafone's stock price so on paper it looks as if the stock has been a meaningful money loser.  All things considered, it has definitely not been.  Its stock price has been leaking recently as its European market remains less than robust, but it is the leading wireless provider in India which seems set for a rebound in economic opportunity.  Vodafone also has franchises in Africa and 21 countries in total, a few that may seem not so important now, but that can change.  Among VOD's top ten shareholders there are no index funds, just well known investors.  Paulson and Co. is the largest shareholder, followed by Fidelity, Hotchkiss and Wiley, Invesco, T. Rowe Price, and other well known firms.  Money here is in already, more likely on the way.

The second much more dicey pick is Twitter(TWTR).  You may remember from a previous post that their business model has been questioned here.  Still, with the price dropping so far from its high and even its IPO price, some was bought here eight days ago and more on Thursday.  Short term performance really means nothing, but so far so good.  Twitter has a powerful balance sheet as befits a new IPO and has meaningful revenue growth, why I don't really know.  It is losing money due to high expenses, presumably marketing expenses and expenses to attract more first class talent.  Its precipitous drop is partially due to a poor decision to bring in huge private investors late in the game before the IPO, and one of those investors has been completely liquidating his position.  A few others have as well.  With that going on there is not a good way to value this stock.  What is visible however is how ubiquitous Twitter and its symbol have so quickly become widely recognized, and used by television programs, radio programs, and other media outlets to get quick feedback from audiences.  This may not be a flash in the pan, and if not the stock price may ultimately justify its value.  Still timid here, but in the game.

The third suggestion is the wildest by far, by far.  That's American Apparel(AAP), who just fired its founder and CEO Dov Charney, and Charney has apparently vowed to fight his dismissal.  His many issues with sexual harassment and odd behavior may play a part in this, but the real legal strength of his dismissal may be proof that he was using company funds for personal and family expenses.  That's just plainly illegal, while all of the sexual harassment claims are tedious to prove, take lots of time, and can be quietly bought off.  AAP has a horrendous balance sheet with modestly negative shareholder equity, but fortunately I guess, depending on terms of the agreements, much of their balance sheet is long term debt.  Over the last four years revenues have grown moderately but consistently, but the most recent quarters have been sketchy.  One could guess that same store sales growth numbers now stink.  Each year has experienced modestly negative net income due to high expenses.  AAP has 256 stores that are interspersed among 20 countries, an obvious expansion beyond reasonable means it seems and perhaps a perfect example of the pathological hubris that has characterized the talented  Charney in many areas.  The store has a well known brand and a following among some segment of young style conscious customers, not well known here, so it has a chance.  Here I went into the stock Thursday with a very modest investment and made a few cents, but am willing to vacate with a loss rapidly if everything falls apart further.  Call me reckless on this and you will be right, but there have been times when this type of investing has been lucrative.

I wouldn't recommend that others follow my lead on TWTR  without doing homework and knowing the substantial risks involved.  I wouldn't recommend that anyone follow my AAP investment unless you want to throw caution to the wind.  VOD may look good if their financial engineering becomes more widely understood and if its markets begin to show some improvement.  There should be no big risk of loss in that company, at least from this perspective.

Signing off on what I hope is a lucky day.  

Friday, June 20, 2014

Dexter Filkins strikes again

On Tuesday, a short post with a couple of topics was written here, with one concerning the current crisis in Iraq.  It was mentioned that if Obama and his team had read Dexter Filkins over the years none of today's events would have been much of a surprise.  Due to the "improved" mail service over the last two years, today we finally received the current issue of "The New Yorker", dated June 23.

Looking at the Iraq chaos and having followed it with strong opinions in recent years, I had felt compelled to write something here,  something that captured much of the truth of the situation as seen from this perspective.  Now there is no need to do that at all.  Filkins writes the lead "Talk of the Town" piece in this current magazine in a way that I never could.  There is little to be added here, except to say that everyone with access to this article should read it.

Of course, something must be said here, so a look back may be appropriate.  It is really impossible to say how one President would have fared versus another in such difficult situations, but it is fair to say that Obama's foreign policy, timid and mostly just hopeful, has probably not helped.  As always, only history will tell but right now it doesn't look too good.

First, there was his unwillingness to provide any aid or support, of any type, to the joyous regular citizens of Homs and a few other Syrian cities when all of the protest against Assad began three years ago.  For the most part they were not even close to being radicals, just oppressed citizens finally taking a stand and getting viciously attacked for doing so.

Second, Obama's faux tough guy "red line" comment on chemical weapons was just plain stupid if he had no thoughts as to how to back it up, as he did not.  It made both him and America look impotent to important forces, especially radicals on both the insurgent and government sides of the fight.

Third, Obama, NATO, or the U.N. never made any serious effort, at least publicly, to open up channels of distribution of humanitarian supplies to the suffering Syrians, those many people who were neither insurgents nor government supporters, just citizens who were leading normal family lives in their historic cities or with their small businesses and farms.  Opening up those channels may have required some limited warfare, but it would have been worth every ounce of it.  This must have been discussed, there were certainly more that a few things actually done with the adjacent and concerned country Turkey's help, but overall Obama's leadership in that overall effort appears to have been abysmal.

Fourth, everyone with an ability to think and read knew that Maliki was systematically excluding all Sunni's from any positions of even middle level power from any aspect of his government and the military.  In fact he was going further, and launching indiscriminate attacks on for the most part peaceful Sunni towns in the Aleppo district.  Obama, at least publicly, until very recently professed an ongoing and close partnership with Maliki as a way of respecting his democratic election, one in which Maliki's 33% of the vote carried the day.  Is that Obama's idea of a mandate to be embraced.  Guess so.

Of course this is all hindsight, easy to have, but in fact these opinions were intuitively held here at the times of the perceived mistakes described.  It would never be suggested here that Obama was handed an easy situation from the Bush/Cheney administration, not at all.  At the same time, it can seem like Obama hoped to wait this thing out and work on planning for the location of his Presidential library I guess, but now it has all imploded.

Filkins explains all of the current situation succinctly in this week's New Yorker, and has done such writing consistently for the last seven years at least.  My reading of his work goes back no further.

For now, there is no way to predict where all of this is heading.  The past is just that and must be accepted, so the question now is whether can we muster the leadership and intelligent decisions to address today's challenges.  One could make an informed guess that it's not going to be close to an easy resolution, and that it is unlikely to lead to anything especially positive.  Hopefully it will not turn into some catastrophic widespread middle east conflict across multiple countries.

Postscript --- fyi, Filkins has yet another commentary in the current June 30 issue of The New Yorker, not seen here in the always post office delayed magazine yet but noticed online.

Thursday, June 19, 2014

That "fair" specialist system

Many people with a little age on them and some experience with the stock market will remember vividly the specialist system that ran the floor of the New York Stock Exchange until the late 90's or early 2000's.  In that system each listed firm had a specialist, aided by unknown and underpaid minions, who traded their stock to the market each day.  These specialists were held to no known exact standards by the incredibly lax NYSE at the time. These specialists excelled at knowing the minute by minute ups and downs of the market in the stocks they covered, to their advantage.  They definitely provided liquidity, except in times of extreme crisis when they mysteriously vanished, and they and their specialist firms definitely profited handsomely from their activities.

With the more sophisticated trading firms they were no doubt scrupulously working with miniscule margins, but with unsophisticated corporations that did not specialize in finance they had a somewhat open playing field as long as they did not wildly overstep.  With small orders placed on behalf of retail investors by brokerage firms, they were in completely open territory for wide margins.

Talking with my firms' various specialists went like this.  First sports and stock market talk in general, then whatever Catholic charities that they were so generously supporting, and most importantly golf.  They talked like normal people through all of that.  When it finally came to talking about how they did their jobs and traded our stock, it was all complete gibberish.  I'm more than half smart, my CFO was intuitively brilliant, and our Treasurer always did a great job of pretending to be smart.  But the fact is, the specialists did not want us to have the slightest idea of how they were managing our stock trades.  The one thing I did learn over time is that they always tried to work from a short position, and except in the most unusual circumstances always ended each day substantially short stocks.

In short, pun intended, they were there to make money for themselves and their firms, not to carry out some noble mission for the vaunted NYSE.  The people that got screwed the most by far were retail investors.

I bring all of this up because of the heavily promoted Michael Lewis book "Flash Boys".  In his many promotional events, he and his interviewers suggest that he is looking our for the little guy, and that Wall Street is a scam to exploit them.  Compared to the specialist era, today is the golden age for the retail investor in individual stocks, most notably those who use the many capable discount brokerages, or those who choose to invest in the very low expense ratio index funds like those at Vanguard, Fidelity, or Schwab.

While I can't say that I fully read the relentlessly tedious and tiresome "Flash Boys" except in various parts and through constant skimming, what the at times humorous and talented Lewis is really describing is a financial competition between high speed trading firms, firms that handle such large volumes that tiny margins add up to a reason for huge expenses for fiber optic cable lines that are closer to trading centers.  That's a story of note, but not one that has much if any affect on retail investors.  If it does through pension funds, mutual funds, index funds, and the like, I would bet that the impact is much less than what the age old specialist system had.  Many union and government related pension funds in particular were notoriously naive or unscrupulous, and especially vulnerable to the specialists.

 The big unanswered question here is what having half of all equity market trading done by these warp speed searchers for tiny advantages means for the market as a whole, and whether it in any way diminishes the search for real valuation that is the hallmark of the U.S. equity market.  If that is mentioned in Lewis's book, I did not take the time to find it, and it is not a subject that shows up in any of his interviews to my knowledge.

From this perspective, "Flash Boys" is mainly a major successful act of self promotion.

Tuesday, June 17, 2014

Tax annoyance and middle east chaos

If I had an hour or more and the inclination, the story could be told about how reading Dexter Filkins seminal 2009 book "The Forever War" and following his voluminous feature writing in The New Yorker and elsewhere over the last four years would have made today's current middle east chaos an obvious outcome to understand.  One could guess that the State Department and the President don't read much, or more likely only choose to believe the boring bearers of the recent past, or even more likely just had their fingers crossed and hoped everything would just stay localized and OK.

Maybe a later time for that.  Today's brief topic is the IRS, and how they are attempting to dun yours truly for thousands of dollars of back taxes from 2012!  They relate to Citibank accounts, supposedly with my SS# attached.  It's really bizarre, but as has been written many places it is typical of Obama appointee lead or mid-level bureaucrats out of control, or perhaps better said in no control(note the VA head example or Katherine Sebelius and perhaps even Chuck Hagel now in action. Would it be politically incorrect to mention the highly compromised "independent" Attorney General Eric Holder.  Of course it would be, but that risk will be taken as it is obvious that Obama's strong policy, political, and personal biases are reflected in Holder's every move).

I have not had a Citibank account since 1993 and K has not had one since the early eighties.  There are no related 1099's.  The time and paperwork being consumed by this IRS mistake is remarkably annoying, and they are slow as molasses with any response, and almost impossible to reach by phone.  It still must be dealt with and my accountant is doing his best to move things along and get an explanation.  What technology was supposed to solve seems not to be working.  Unfortunately, technology does not eliminate incompetent people.

Truth be told, I wish that there was a Citi account in my name that generated the interest that they claim.  In this low low low rate environment, that would necessarily indicate a  huge chunk of change.