In the Long Shadows of Zero Responsibility

I am off work until next Monday! Little mini-vacation for me. Always good to get the down time. Blog tonight may be a bit rant-like, so you have been warned.

In the Long Shadows of Zero Responsibility
Over the years I have read, been in touch with, and met all kinds of financial participants. Maybe I have been lucky, but the vast majority are great people. Hardworking people. Scary smart people. A common thread shared by all is that we know and accept that trading and investing is a risky endeavor, anyone telling you otherwise is not credible. It's no surprise some of the best operators have extensive backgrounds in game theory and may have played chess or poker at a high level. Over the past few years a troubling trend keeps bubbling up and I think is hovers like a shadow over the entire structure of the market.

Just what are the rules and who is responsible should they be broken?

And there is no answer.

It's not the point of this post to go over all the past chicanery of the past 3 years. The end analysis is the same. The rules are fluid and no one is responsible when whatever rules exist are broken.

We all like to joke about "Chinese Burrito" stocks that are shown to be total fakes. Sino Forest or Focus Media are the rage now (aside: if you trade this kind of junk you are not the manager a type like me will ever give their money to manage) and yet what is the vetting process for such things? How can they be rated "overweight" and then collapse into oblivion overnight? It's always "who could have known?'.

But what about Green Mountain Coffee (GMCR) or a simple staple company like Diamond Foods (DMND)?

Ok, you may say that those are all specific fails that happen all the time. Maybe.

The Grand Poobah here is MF Global, which took money from clients to try and make it another day. This is so damaging to belief and confidence I don't think it can be known now the damage it will cause.

And it goes on and on.

QE? TARP? ECB funding the IMF to side step an issue over what is legal? CDS ruled invalid? Banning short selling? Flash crash cancelled trades? Bond markets that are a farce?

What are the rules? Are there any? When they are violated who is responsible? Nobody is of course. It's just smoothing out market pressures or what not. Things change overnight that have been sacrosanct and no one is responsible, it's all just the way things are. Or are now, this minute.

I think all would agree there are serious issues facing the markets now at the structural level. Nobody is doing anything about it. It's all a blameless, faceless Dance of the Macabre.

If the rules are bent or done away with it's not a market, it's the wild west. The signs are mounting up. Capital cannot and will not be deployed if it's a shrug shoulder and say "Dunno" kind of market going forward. We need adults to look past the next five minutes but it's all kids running the toy store now.

Have a good night.

Financial Meltdown has Gone Super Critical

You know I have tons of stuff to do but I cannot draw myself away from all the unfolding drama. I feel that adding coverage to this moment is good use of my time and I hope all the loyal readers feel like this site adds value to your information basket. Be smart and be wary my friends, the dance is about to become dangerous.

Bill Gross Tells the Taxpayer What a Great Deal is Available, it is Just One Nobody Else Wants
I hate spending so much time on one guy, but every time Bill Gross opens his mouth I wish more and more he would take me up on that steel cage match! The latest nugget of wisdom from the PIMCO bond man is this wonderful tidbit:
Reuters
Pimco's Gross: Bailout to benefit Main Street-WPost

NEW YORK, Sept 24 - The U.S. Treasury's proposed $700 billion bailout for financial firms could yield a profit of at least 7 percent to 8 percent and benefit taxpayers, Bill Gross, who manages the world's biggest bond fund, wrote in an opinion piece in The Washington Post on Wednesday.
Gross, the chief investment officer of Pacific Investment Management Co., or Pimco, estimates the average price of distressed mortgages that pass from "troubled financial institutions" to the Treasury at auction will be 65 cents on the dollar. That will represent a loss of one-third of the original purchase price to the seller, and a prospective yield of 10 percent to 15 percent to the Treasury, Gross said.
"Financed at 3 percent to 4 percent via the sale of Treasury bonds, the Treasury will therefore be in a position to earn a positive carry or yield spread of at least 7 percent to 8 percent," Gross argued. "The Treasury proposal will not be a bailout of Wall Street but a rescue of Main Street, as lending capacity and confidence is restored to our banks and the delicate balance between production and finance is given a chance to work its magic," Gross added.
Gross' estimate of double-digit returns in scooped up mortgage securities assumes lengthy ownership of the assets and is in turn dependent on the level of home foreclosures, "but the Treasury's program is, in fact, directed to prevent just that," he added. Gross manages the $133 billion Pimco Total Return Fund and helps oversee the more than $812 billion in assets at Pimco.

So this is a once in a lifetime deal that the taxpayers should be thankful for? If this wonderful return is so in the bag, how come nobody else is rushing in? Why is that Mr. Gross? I would like to further take apart this ridiculous piece, but I am confident that you, dear reader, can put it together by the sections I have marked off. What a sham. The bailout is of Main Street, not Wall Street according to Mr. Gross. OK.

Financial Meltdown has Gone Super critical


Above is a picture of a plutonium sphere as it is used for criticality experiments. There was a serious accident using this setup in 1945 that almost resulted in a nuclear accident:
http://en.wikipedia.org/wiki/Criticality_accident

I include this picture to try and make it clear that the financial system is close to a runaway failure on many levels. We all know about the insolvency issues thanks to fractional reserve banking. We are also facing a point where the average person is beginning to understand just how much of a sucker they are being played for.

The Bernanke/Paulson plan to pay high prices for bad assets has resulted in a widespread revolt. They would have the US taxpayer give a "Do Over" to the banking industry as they threaten the people with "The Abyss" unless this happens. There is NO REASON I can think of to burden ourselves with astronomical taxes and high credit costs for the foreseeable future when all we get in exchange is some kind of freedom to buy more useless lead paint crap from China. The game is up.

We are face with a clear choice:
1. Take the banking losses on our backs and eat the losses over time so they can carry on with business as usual
2. Just say NO and face an impaired system that will require an adjustment to a new way of living.

I cannot know what will happen if the banking system goes really bad. Nobody does. But I do know one thing; Give in to this fiscal hijacking and the failure we are trying to avoid will come soon enough. That is a fact.

It matters who you vote for. A person running for public office cannot be the sort our halls of government are filled with. All is well until something goes wrong and then of course it is too late. It matters who you vote for.

Sorry for the rant. There is just such a DIRTY feel to all of this I think there is no way to come out of it clean. The president will address the nation tonight at 9pm, and I imagine he is going to try and scare us all into stopping our faxes, emails, and phone calls against this action. I will tell you what; I AM SCARED. I am terrified that things could go bad in a hurray. I have a wife and we are taking care of her elderly mother and I could do without the stone age being pressed upon us. I am scared.

I am also fed up with this crap. I think things will pan out. I think this country has too many good people, too many good minds, and too much spirit to collapse. I think we can shatter the old banking network that has brought us to this junction and begin again.

It is decision time. There seems to be some kind of whisper about Monday being time zero for action, and I wonder what or whom is pushing that timeline (hello Japan and China!). I do not like being pushed. In fact I am a bit tired of all the poor treatment my money and my efforts has been put through over the last 10 years. Everyone must do as they feel is best, but my vote is for finding out if "The Abyss" means the end of Wall Street and the entire universe, or just the end of Wall Streets monopoly on financial matters.

Have a good night.