Thursday, May 13, 2010

Thursday Collection of Jumbled Thoughts

My commute home today was complicated by the huge "operation" in Watertown and Brookline which are right across the river a ways from where I work. Allegedly some money couriers that were involved with fund movement in the NYC truck bomb attempt were being arrested. Of course the local authorities only reported an "immigration related arrest" which is so stupid because Cambridge is a Sanctuary city and the whole Boston Metro area could not care less about such things. In any case my drive home was a mess because some roads were blocked due to TV coverage and all that stuff.

I am adding to the blogroll. It is a really wonderful poor man's Bloomberg terminal. Check out the "Bubbles" feature, it is really a cool view.

Tomorrow is Friday night and I would like to open it up a bit. Get creative with song requests or some other new ideas for some fun. I am open to anything at all. Let it fly!

Are People Fuming About the Wrong Perfect Banking Quarter Issue?
Kid Dynamite had an expansive post which really layed out the particulars of just where the profit in the perfect quarters for the banks came from. For those who were not sure, it was only partially the kind of trading that gets everyone all riled up:
Big Bank Perfect Trading Quarters - The Real Story
The entire piece is nice original work. Mr. Dynamite combed through the 10Q reports and found some hard data all should be aware of. The big take away point:
Still, its disappointing that the analysis to come out thus far has focused on irrelevant demonstrations of how impossible it is to have 63 consecutive winning days if your probability of winning on each day is 50%. Or on how this means that the big boys must be "cheating" "fixing the game" or "frontrunning all of their orders." See, the probability of winning when your cost of funds is near zero and you can invest at positive interest rates at assets which are already being supported by the Government is probably closer to 100% than 50%. As for the complete misunderstanding of "frontrunning" and all that crap: people have no clue that only roughly TWENTY PERCENT of these earnings that we're talking about are coming from equities businesses! By focusing the anger on the wrong "causes," we guarantee that we won't change the patterns. People have a right to be angry about these earnings - but not because of banks manipulating equity markets - it's because the Fed is feeding them with free money and asset price support.
Leave it to the poker player to get the real odds right. Quite a few bigger bloggers ran with the 50% of the time thing even though the channels of revenue for the banks were not random events like a coin flip.

In the comments section I opined:
I hear you and I do get the point you are getting across. I think the issue here is that many people are internalizing the banks "edges" mostly in the trading end of things. I think many traders and average joe personal brokerage account users read many blogs and they see the HFT angle (and others) and get very mad. They know getting one winning day can seem hard most of the time so they fail to see where most of the real money is being made. I get that. Myself, and I imagine almost everyone else on earth, cannot borrow from the FED and lend back to them (love how this makes sense) for a spread so that does not resonate quite as hard. You are correct that the offloading of crap paper into the hole of FNM, FRE, FHA is the real outrage here.
Later I added:
The edge the banks have due to ALL the subsidies means they have the best hand going into the river card and also have redraws with 16 outs to a better hand. This is NOT a 50% coin flip but a freeroll!
I like this analogy!
If you know poker I have to say this was pretty good! I know, I am humble.

Pragmatic Capitalism adds on this issue:
Everyone is making a big fuss over the fact that four U.S. banks went 61 days in a row without any losses. Well, the better question in this environment is how did any bank manage to not make a profit on all 61 days? These big banks are borrowing from the Fed for nothing and can effectively sell low risk bonds back to the government for a 3%+ annualized gain. This is a no-brainer when it comes to making money. If you’re a big bank you’re just laddering into a massive fixed income portfolio without almost no risk. The confusion or misrepresentations made by many regarding this “phenomenal performance” is that these firms are just sitting around “trading” the Nasdaq 100 like Joe Schmo does at home. That couldn’t be farther from the truth. These firms make most of their “trading” revenues by playing market maker or “trading” in these low risk fixed income markets. They’re essentially just pairing buyers and sellers and scraping a fee off inbeteween.
Add in the dreaded "Mark Ups" in Level III assets (remember those) and the illusion is now complete. Now you can get angry about all the right things! Have at it.

Dripping With Irony
Tonight's visual fun comes courtesy of Time Magazine.

From 1999, consider:
The Committee to Save the World

Three men who were wrong about almost everything at the helms of almost unlimited power posts. How did that work out?

And from 2010:
The New Sheriffs of Wall Street

Three women who are mostly right about things in positions with next to zero power to do anything.

Let me know how this works out.

On a related note, we have Ratings Agency Reform! Are you excited? You should be, if you like the old way of doing things:
Senate measure would lower boom on credit-rating agencies
WASHINGTON — The Senate took strong steps Thursday to fix a key cause of the recent financial crisis, approving measures to limit the ability of Wall Street firms to shop around for favorable ratings from now-discredited credit rating agencies.
Lawmakers approved two rating-agency amendments to a sweeping overhaul of financial regulation, despite objections from Senate Banking Committee Chairman Christopher Dodd , D- Conn.
Moody's Investors Service , Standard & Poor's and Fitch Ratings were all key players in the nation's financial meltdown, giving blue-chip ratings to complex mortgage-backed bonds that turned out to be junk.
A McClatchy investigation last October revealed how Moody's and its competitors sold out investors by trading their ratings for huge fees that came from rating complex deals.
Sen. Al Franken , D- Minn. , offered an amendment aimed at putting an end to this Wall Street behavior that passed on a bipartisan 64-35 vote.
"They shop around for their ratings. They select those agencies that tend to offer them the best ratings, and threaten to stay away from rating agencies that are too tough on them," Franken said.
Not bad! This sounds like they finally get a key part of the whole debacle. So what's the new deal?:
His amendment would instruct the Securities and Exchange Commission to create a credit-rating board, composed mostly of investors, that would assign rating agencies to rate asset-backed securities such as bonds backed by mortgages.
And this is different how? No need to answer, the stocks of ratings agencies are moving up after hours. Nothing ever changes it seems. Remember I said we get what we deserve, and we do.

Daily Reminder That There is Nothing Holding Things Up But Hope
In any closed system, any number of random events can influence the movement of the whole. The markets dropped a bit near the close, and this presser was out right before that (via CR):
Deutsche Bank CEO Expresses Doubts About Greece
"Ob Griechenland ├╝ber die Zeit wirklich in der Lage ist, diese Leistungskraft aufzubringen, das wage ich zu bezweifeln"
Deutsche Bank CEO Josef Ackermann, May 13, 2010

Translation: "Whether Greece - over time – is really in a position to raise its [economic] performance [to repay its debt], I doubt it"

But everything was fixed last Monday so what gives?

Money Is All Powerful
It is said that money equals power which is attractive. I would not know, I am broke as a joke. How many 50 plus year old men have you seen drive around in red sports cars with women 20 somethings in the passenger seat living the high life? Maybe a few. Here we have the ultimate in insult:
Girls Plan To Sit In The Audience Robe-Less While Jamie Dimon Gives His Graduation Speech
Protest or not, Jamie Dimon may see some naked chicks due to his money. Here I steal from my favorite Edgar Allen Poe story (and NO it is not "Gold Bug"! Get off it!):
"The thousand injuries of Fortunato I had borne as I best could, but when he ventured upon insult...."
The Cask of Amontillado
In case anyone is silly, I was just working the Poe story in here, I am not threatening anyone. That I even have to write that should say something about today's climate.

Have a good night.


Anonymous said...

I wonder if it's fool's gold?

Lt. G

getyourselfconnected said...

Lt G sir!
I am sure its the real thing. I saw these ATM's come out last year as well. This has got to be driving the FED/ECB mad. In asia gold is readliy available at banks and moeny centers. Wonder why it is not bigger here?

Good to see you so much now!

getyourselfconnected said...

For Anon,
how gold does well in Deflation:

See, its a hard thing to figure!

Lurker said...

My Friday night music pick is "Bette Davis Eyes" by Kim Carnes.

getyourselfconnected said...


GawainsGhost said...

Ted Nugent, "Stranglehold."

GawainsGhost said...

On a side note, The Poker MBA by Greg Dinkin and Jeffrey Gitomer is a pretty good book. It's all about how the strategies used to win at cards apply to how to succeed in business. A very good read.

Also, there's an interesting review in BusinessWeek on Last Call: The Rise and Fall of Prohibition by Daniel Orkent. Basically, the imposition of the income tax made prohibition fiscally feasible; women's sufferage made it politically feasible.

Hmmm. Let me see if I have this straight. First, tax men's income. Second, give women the right to vote. Then outlaw alcohol! That worked out real well, didn't it.

At least for the Kennedys, that is. Patriarch Joe made a fortune bootlegging.

I thought about that when I looked at the contrasting magazine covers. Oh, yeah, the future's so bright I got to wear shades.

By the way, the upper corner of the first magazine cover asks, "Who Wrote Shakespeare?" This is one of my pet peeves. Mainly because almost everyone who writes or talks about the subject always mistakes the fanciful, like Francis Bacon for example, for the most glaringly obvious, Edward de Vere, the Earl of Oxford. There is absolutely no question that he wrote the poems and plays. I won't bore you with the argument, except to say that the definitive book on the subject is The Mysterious William Shakespeare by Charlton Ogburn, Jr. It's only the best piece of investigative literary criticism ever published, very highly recommended. Read that, and you'll never look at an English professor the same way again.

Anyway, I'm off to Austin for the weekend.

regularly scheduled programming said...

How about Love is like Oxygen by Sweet, since Greenspan looks like he had a little too much of both in that cover shot.