Tuesday, November 22, 2011

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.


Watchtower said...

I read that even Gerald Celente got hung up to dry in the MF Global debacle.

EconomicDisconnect said...

If you have zero faith that even most basic rules are real, how much capital you wanna commit?

Watchtower said...

I stole this from 'Jesse's Cafe Americain':

“The moment the idea is admitted into society that property is not as sacred as the laws of God, and there is not a force of law and public justice to protect it, anarchy and tyranny commence.”

John Adams

(Link to Jesse's is on GYSC's site)

TomOfTheNorth said...

It all makes perfect sense when you consider that MF CEO Corzine was rumored to be the Administration's pick for Treasury Secretary, replacing Turbo Tim in the event of a 2nd term....

EconomicDisconnect said...

Wow, hey Tom! How have you been? Hope all is well with you.

Mr Slippery said...

What a laundry list of broken rules you listed. It has become the wild west. Who is supposed to be in charge? Government regulators, at least ones that weren't eliminated with the wave of deregulation that started in the late 90s.

My IRA is theoretically at one of the safest firms (Vanguard), but who knows? I've seriously considered pulling everything out of my IRA and paying the penalties before it all goes poof. So far, the penalties have kept me from acting, but if a major, respectible mutual fund company goes MF Global, I'm out.