Friday, January 23, 2015

"Pulling Out All The Stops"

Journos, observers, commentators, bloggers, traders, analysts, strategies, newscasters, reporters, and so it seems just about everyone else has a view on QE. And the result is overwhelmingly INTENSE. They've PULLED OUT ALL THE STOPS!!!!. No, not the ECB. I mean, anyone writing about the ECB's announced policy actions.

Below is an exhaustive (hyperbole?)list of the terms and associated language casually garnered from almost all the QE headlines and articles over the past few days. One could of course forgive any single instance of excitement, but in surveying the landscape, it's clear something's in the water. Especially in the United Kingdom (the nation with the highest and most pernicious sustained primary deficit, and a grand-canyon-sized CA gap - NB: intentionally exaggerated language) which is the source of most hyper-ventilative language (yes you guessed the Telegraph & Ambrose E.P. wins again). Even the usually-dry FT leapt on the bandwagon (sorry - OTT metaphoring is infectious), and sober BBC "joined the party" (drats!I did it again). Just have a look....

pushes-the-button on
financial bazooka
shock & awe
severe reservations
wrong type
tensions simmer
inevitably fail
deservedly fail
last throw of the dice
won't save
will not solve

Poor Draghi must feel like he's been gang-raped. OK, so it's "momentous", unprecedented" blah blah blah. Really? Euro 1 trillion (including existing programs) over the course of a year across an economy sporting GDP > EUR14 Trillion; Net Assets> (I've no clue but'll stake a stab...EUR 70 Trillion??)....hardly worth losing one's integrity over, considering all the program's practical limitations. As it happens, the Irish, and foreign obserservers writing in ENglish (India, Japan) were the most measured and least hyperbolic, using neutral language and refraining from the gratuitous ummm errr gratuitousness with words tethered to reality like.


Yes, the latter list is short...

Friday, January 16, 2015

A Recursive Crisis of Faith in My Chosen Lack of Faith

Uncountable belief paradoxes, logical flaws and non-sequitirs.
Magical thinking.
Legitimacy of dubious Profits.

One would be forgiven if one's first thoughts turned to the financial industry. Rather, as a sympathetic [amateur] satirist, I am of course referring to religion.

Such is my dismay at the actions of people claiming to speak, and act in the name of God - emphasising that this net is cast wider than Charlie Hedbo's assasins - I am beginning to seriously question my own faith in my chosen lack of faith - The Church of the Apathetic Agnostic. CAA's basic creed is simple: there is little point to arguing about something that neither can be proved nor disproved, though, even if a Supreme Being exists, he/she/it displays little concern for the affairs of humanity, so it's only sensible to requite with similar apathy. However, when the faithful project their inner beliefs outwardly, in a manifestly violent manner, I begin to wonder whether we need to respond with more serious weapons. Dawkins? Perhaps. But hardly as potent as...

Thursday, November 13, 2014

The Truth Hurts

Yes, I admit that I am surprised, that The People are surprised, that Bank FX Desks routinely (and I emphasize 'routinely') predated customer orders. This is, judging by the long list of things diddled when People have the opportunity(s) and incentive(s) do do so, Standard Operating Procedure, endemic not just to Banks, but, more or less, I am sad to say, most of the human enterprise. Banks undoubtedly are eyebrow-raising, less for their routine seeking of advantage at others' expense (let's term this 'business'), but rather for the breadth and magnitude of their repeated gluttony in a profession where trust is, I daresay, rather crucial to the entire undertaking.

Yet, what I, personally, find most surprising about The Banks, and the cast of characters who run, and inhabit them, is that they are incredulous, and somewhat mystified, to the suggestion that people really do hate them. Take the case of one of the largest American money-center banks where an uncle of mine was engaged to help them understand how to exploit opportunities on their newly-embarked-upon course of "Bancassurance". Specifically, he was asked by their Board to help them understand how to cross-sell insurance services from their newly-acquired insurance arm, into their existing customer base. My uncle, being a pioneer in focus groups, and brand-extension, did what he does best: conductive exhaustive focus-group study of the issue and analysis before presenting his findings to the Board. His results were categorical. He told them, in no uncertain terms, they had almost no chance of selling their subsidiary's insurance to their existing customers. "On what basis?" they asked rather angrily. He said it was obvious: all his research showed that people HATE their bank. It almost didn't matter which one. Most people think the other banks are better than their own, so you actually have a far better chance of selling their subsidiary's insurance to anyone BUT their customers. Awkward silence ensued. Meeting was quickly adjourned. Contract abruptly terminated shortly thereafter. And (unusually for him) no further work from this giant Bank. The truth is painful, yet people in general, and it would seem, bankers in particular, go to great lengths to avoid it.

(NB: The American experiment in Bancassurance, like Mitterand's disastrous nationalization of the French banks was eventually reversed, the ill-informed "guilty" architects, of course, inculpable, and unpunished.)

Wednesday, November 12, 2014

"Bear's Anonymous" - Finance's Answer to A.A.

The following is a voyeuristic peek into a meeting of the Stamford, CT branch of "Bears Anonymous", duly held a Rippowam High School….recounted in 2007 and rediscovered, and ever so apt in 2014.

(Camera pans on participants taking their chairs , seated in a circle in a school room (a dozen or so men and women of varying ages. The moderator, a clean-cut optimist, who is always "fully invested" clears his throat and begins...)

Moderator: I'd like to welcome everyone this evening. I understand this is a big step for most of you: but the mere act of admitting you have problem is the first step to overcoming it. We have a number of new faces here tonight and I'd like to welcome all of you, as well as those who are returning. First and foremost, we are here to share our problems, support each other, so we can begin the road to recovery. Remember: there are many faces to our affliction, but the only requirement for 'BA' membership and attendance is that you must refrain from "going Short". In time, you may even learn to appreciate the liberating exhilaration of being long. (Moderator turns to early-thirties man) Let's start with you, Sir. Please Introduce yourself and begin...

Chuck: Hi everybody. My Name is Chuck, and I am a bear. I have had a bearishness problem for a long time. Not just a predilection for the usual contrarian stuff, which when I look back I have had since I've been a child, but a real nagging and pressing fear that the financial sky is about to fall at any moment.

I don't know where it first began. Maybe it was 1987. Yeah, that scarred me. I was naive, I guess, and long, and got slapped 20% that day in Oct 87. I tried to get out, but ended up exiting at levels near where it closed. A couple of years worth of savings just vaporized, that was!! But as things recovered, I was out of the market and then I didn't get back in because it looked to me like the world was really was going to end with thirld world debt, the S&L crisis, and the massive commerical real estate crash that seemed bound to cause a depression. Then, in 1991 when the UAL deal exploded - you know all those Reagan deficits coming home to roost - I thought that we were set for an ever deeper recession, but I was wrong, and again uninvested when the market started rallying. Come 1994, the bond market exploded and it looked like the end again - budget deficits, trade deficits, political gridlock and remember we were still working off the thriftbank and S&L issues, not to mention the near-destruction of the Texas oil patch and US agricultural sectors. Damn! If that wasn't enough to keep me out of the market, I don't know what is, but it did, and I was sure that I'd get a better opportunity to get in later.

Then came large cap cap growth and technology speculation. Germany and Japan were in near-depression, yet investors were paying silliest prices for big-pharma and global large cap growth. Who would thought they could continue to grow like that and justify the high prices? Not me. I missed it again.

All the while, I told myself: "It's ok. It's good to be prudent. The reckless will suffer like the Okies of the 30s. And, after all, it's only opportunity cost. Better one in hand than none in the bush". And I probably had a hundred other justifications and rationalizations for my bearishness, just in case I gnawed through these.

1998 came along and finally, finally, I was proven right with the unraveling of LTCM and bitch-slapping of Russia! Now we would witness the frightful reckoning, the deleveraging-yielding-to-parsimony that was needed to return assets to Graham & Dodd value and redeem America's sense of thrift! So I sat on the sidelines, waiting for the real blood in the streets that was imminent. But the Fed cut rates for fear of Y2K, the tech bulls ploughed ever-more money into the market. Some said don't fight the Fed, but I rationalized my bearishness that the Fed was "pushing on a string" and their efforts would have no effect.

The market did crash in 2000 - the tech and dotcom market anyway - and the broader market stood at 5 year lows, but I looked back to the financial history of the 30s and thought that when it hit its lows in 2002 that this could continue for a decade, especially with the Gulf War imminent and, with near-zero rates, it really looked like the Fed was pushing on the proverbial string. So I sat tight, waiting for a better entry point that was certainly around the corner.

Then weak dollar, credit bubbles, twin deficits, foreign accumulation of US reserves, muddling war in Iraq, incessantly rising energy prices and peak oil, and on each occasion - Aug 04, Mar and Nov 05, May and Nov 06, Feb 07 the market swooned, corrected, only to rally even more strongly out of the trough as if it were teasing me, taunting me, seducing me then mocking my now increasingly irrational fears and bearishness. And they were irrational, they must have been irrational right? for the market continued its inexorable rise on each occasion, laying waste to the rationalization or justification of the day for NOT being long long long.

In 2008, I felt vindicated. All my fears were realized. The world WAS going to on. It was so bad, I took all my money out of the bank, for fear of their collapse, and put it under my mattress. But be careful what you wish for. Things became so bad, I was afraid even money wouldn't have value, so I went out and bought gold (coins). Even the Fed rescue looked like it might not work. And then, there were new bank regulations which made it impossible to get a loan, all that shitty foreclosed housing to work through, and of course the EURO - oh my god - the EURO was bound to cause the biggest upheaval since the Panic of 1907, and Japan was imploding with deflation, while the Chinese were creating the largest bubble the world had ever seen. Would YOU have invested"??

It's taken nearly twenty-five years - almost the entire length of this grand new experiment in seemingly unlimited and unrestricted credit - for me to realize that this really and truly is MY problem. The world is just the world, and it's not going to end tomorrow, and that its better to suffer with the fools in the event the system unravels, than sit idly by and watch alone, a big pile of savings become a small pile of savings. Where o' where is joy in THAT?

In turning over a new leaf, and recognizing that I have a perpetual bearishness problem, I have terminated my newsletter subscriptions and vowed never again to watch or read Marc Faber, David Tice, Dr. Hussman and Fred Hickey. I will not read ZeroHedge, Peter Schiff, Max Keiser, anyone named "Rickards" and especially anyone like Mike Shedlock who wraps their politics so deeply into their strategy vision, they cannot possibly provide objective counsel. And I will make Investors Business Daily my read of choice in the financial markets. I will personally go and apologize to Abby Cohen, Vic Niederhoffer and Charles Gave for all those less-than-nice things I said about them. Further, I have vowed to place 50% of my money into a Vanguard global equity Index Fund, and also have vowed not to look at its asset value more than once a quarter. I have taken 25% of my funds and placed in them in a global balanced fund, and earmarked the balance for disciplined allocation on any subsequent drops, to momentum strategies. I have also asked my doctor to prescribe some little blue pills that will help me see the bright side of life, and stop being so pessimistic. And I have told my secretary NOT to hang up on salesmen that cold call for you never know when a good idea might fall on one's lap through a seemingly altruistic phone call. And I am going to stop all that stupid exercising and dieting in a bid to be "fat and happy", enroute to my ultimate goal of being fat, happy, AND lucky!!

My name is Chuck. And I have a bearishness problem. But I have now acknowledged my problem in hope that such recognition is the first step towards getting better. Thank you.

(applause of other members, camera pans on circle and focuses in on upon late twenties girl with tears in her eyes; Camera fades out, other members get up and give Chuck a group hug - but not a 'Bear-Hug'.)

(NB: While the author neither admits nor denies having a bearishness problem, the above account is entire (well, mostly anyways) fictional.

Tuesday, October 28, 2014

Perception of Reality vs. Objective Reality

A recent article in the New York Times cast a seemingly jealous eye upon the Dutch pension system. Why? By comparison with the US, the Dutch system appears scrupulous, fair, but most of all typically Dutch in the brutal honesty with which they objectively deconstruct and tackle contentious issues. In America, by contrast, even after bi-partisan commissions comprised of eminent panel members try to get to the bottom of something, we seem no more enlightened as to where truth lies (no pun intended) or how to tackle it for the greater good of the public's interest.    

Pensions speak volumes about contrasting national characters. Sober-minded Danes and Dutch have transparent and logical approaches that attempt to maximize reality in actuarial analysis, funding and benefit requirements, while minimizing the fantasy of projecting above-market returns, and limiting the ability of pigs to feed at the trough. Canadians, too, have well-run, transparent systems that reflect their earnest, solutions-minded national character. Germans's rely almost wholly on pay-as-go reflecting their confidence to make tough fiscal choices when required, while the UK institutionalizes the rape and theft of savers and beneficiaries for the advantage of the City and her Managers, a legacy microcosm of UK class-based inequity. America's system reflects her faith in hope and fantasy over preparation and analysis, and plagued by the same byzantine structure incrementally etched by lobbyists and interest groups, that makes America's healthcare system The Very Best In The World. The New York Times is of course to polite, and would appear too partisan were it to represent the image of the US system as such.  

I, must admit that I, too, am jealous of the Danes and The Dutch. So much acrimony over public policy would be disarmed if more peoples were capable of similar detached objectivity. So much angst would veritably disappear from our broadsheets and evening news. The energy could then be rightfully focused upon coping with what might often be a painful solution requiring shift and behavioral change, rather than exhausting oneself in an attempt to avoid confronting the problem itself.
A striking analogy springs to mind from the realm of industrial sociology, that is worthy of recounting, for it was a vivid attempt to objectively measure our national perceptions against a benchmark of some objective reality. Some three decades ago, researchers used driveshaft manufacturing within the auto-parts industry, as a baseline. If memory serves me correctly, the german conglomerate Bosch had plants manufacturing more or less the identical piece in four different countries - Holland, Spain, the UK and USA. Each of the plants, similarly equipped, had precise data on their quality as measured by their defect rates. The consultants set out to measure the workers attitudes towards the quality and effectiveness of their work, by asking them questions that measured their perception of the quality of their work. This might have value to firm when faced with wage demands, or consolidation decisions. The results, were striking, though not  unsurprising.     

The Dutch workers had a high opinion of the quality of their work. This was set against a low defect rate, giving the Dutch perception of reality a characteristically close approximation to objective reality (as measured by the defect rates). The British workers had a low opinion of the quality of their work. This was exemplified by high defect rates, making their perception of reality reasonably-close to the  objective reality of their work. Workers at the Spanish plant had a reasonably low opinion of their work  , which was at odds with the high quality of their efforts evidenced by a low defect rate. This was an interesting result - probably one there company would prefer to keep hidden from their Spanish workers.  Perhaps @Ibexsalad can verify whether self-deprecation is endemic to the Spanish national character.  At the American plant, survey results showed workers had a very high opinion of the quality of their work, completely at odds with the relatively high objective defect rates of the output of the plant. And it is precisely this gulf - between perceived reality and objective reality - which has proven problematical to overcome whether in politics, public policy, or, as in this topic, pensions. To be entirely fair, it is the stuff that helps put men on the moon, and cure cancer, but it also is the stuff that gives us Enron, 'AAA' sub-prime securitisations, Detroit, Puerto Rico, and ant-fuckingly irrelevant public-policy obsessions with creationism, same-sex marriage, and abortion while proverbial Rome burns and decays.  

Thursday, October 23, 2014

AAMC: How's That Working Out For You Guys


TO:        Luxor, SAB, White Elm, Tiger Eye et. al. 
FROM:      Cassandra
DATE:      24 October 2014
SUBJECT:   AAMC Altisource
In Feb 2014, I was curious as to the investment thesis(if there was one) underpinning the large positions you (individually and collectively) held in Altisource Asset Management (AAMC), and the Ocwen related entities. 
Despite my pleas, and promise to publish any such theses, no readers (or interested parties) came forth to enlighten me regarding the allure (investment or otherwise) that caused you (but not only you) to buy more and more shares, at high, and higher prices, culminating in a crackerjack-of-a-year-end mark, up more than 10-fold from beginning of the CY. 
The tone of my curiosity, was, unashamedly skeptical for reasons described in the post. Outsized positions, acquired with investors' capital, in illiquid  stocks, moving their price by eyebrow-raising amounts in the process of accumulation, with performance fees crystallizing at a single-point-in-time, which doesn't reflect liquidity or prospective unwind or investment risk, does raise potential conflict-of-interest questions, however unfounded they may be.  
So, here we are in October 2014, and I am certain many observers are wondering just how that's working out for you guys? 

Wednesday, October 22, 2014

In Memorium: Nelson Bunker Hunt

Farewell then

You were 
born with
a Silver Spoon
in your 

But, apparently
was not
enough Silver.

You said
"I was
just trying
to make 
some money"

Your catchphrase 
have been: 
"Never squeeze
the people 
that can 
change the rules.

(with apologies to Private Eye & EJ Thribb)