Monday, January 21, 2008

Tomorrow Shaping up Ugly

Posted by TraderMark at 11:55 AM TweetThis
As I wrote late last week and this weekend, we need to stop opening up on hope and than selling off all throughout the day. Instead we need a panic open, that drives out all hope. Judging from the news flow today it looks like tomorrow could be that day...

These are some nasty headlines

Economic Fears Cuff Asia; India, Hong Kong Slide - Recession Fears Spark Heavy Selling

Stocks in Europe Crushed on Financial Sector Worries

British Shares in Worst Fall Since Sept 11 Attacks

US Stocks Point to Major Decline on Re-Open

And somewhere Stanley O'Neil is enjoying is $160M "golden parachute" laughing smugly at the US system of compensation [You're Fired! Now Here is $160M to Help Ease the Pain] - you win, you win, you lose ... well you still win. I've said it before, and I'll say it again - before this is all over they will find someone to put in jail. There must be a fall guy, rightly or wrongly. Myself, this is the system's fault - no regulation, off balance sheet accounting in our banking system of all places, and a compensation system built due reward huge risk taking (as long as you do very well as a CEO for 3 years you build enough wealth to take care of generations of your family) no matter what the ultimate fallout is of your decisions. You will be basking with your "separation package" on an island with your umbrella drinks by the time the %#@@ hits the fan. And did I mentioned those who set the compensation are your friends? and fellow CEOs? Fox. Hen house. Anyone?

All these banks were "guilty" of is milking the system for all it was. If anyone should go to jail its the people who allowed all this to go on in Washington with a blind eye. I cannot believe the fact off balance sheet accounting (which was the downfall of Enron) has not raised a massive fuss in Washington - these financial firms must really have some fantastic lobbyists. This is truly a way to hide things from the public shareholders - yet no one has really raised an eyebrow on this - I am blown away. Regulation is a 4 letter word in this country as it "stops innovation" and "stops job creation" (or so we are told nightly), but greedy humans left to their own devices lead to these outcomes. We just saw it not even 7-8 years ago, and now we already repeated it again less than a decade later. Those who fail to learn from history....

If this plays out like the last time, the politicians will raise a fuss, outraged... someone who probably should not go to jail will (hello Martha Stewart), calls for 'real regulation' will ring out in the hallowed halls, a few meaningless laws with massive loopholes will pass to appease the electorate, this will be on the front pages for 6 months, before Americans attention span wanes and we focus yet again on the exploits of Paris Hilton and Brittney Spears... and we'll just go back to status quo (America, for the corporation by the corporation as Cramer says) within 2 years... and build up the next excess, enriching a new generation of flaccid CEOs, until the dam bursts somewhere else in around 2015. And then we'll repeat the whole dog and pony show.

Posted by TraderMark at 11:55 AM Comments (3) | Edit This Post | Create A New Post

3 comments:

Raphael said...

Putting up Ron Paul's campaign banner and at the same time calling for more regulation, that's quite an interesting way to go. Are you hedging your views by putting up his banner ;o)
Seriously, you should not underestimate the influence of regulation and bad government in this mess. Inflexible captial requirements partly led to bank's creating off-balance sheet entities. GSEs, Freddy and Fannie, took away a big share of the market with comparative advantages. Negative interested rates, in real terms, distorted the market's risk perception. Tax credits, etc etc. More regulation won't do any good. It will just lead to more "innovative" (read complex) products and more massive crahes in the long term.
Don't get me wrong, banks deserve their share of the blame, too. And I am not a favorite of golden parachute, but that's the shareholder's business to deal with.

January 21, 2008 3:53 PM  
Raphael said...

Oh, I forgot to say. I really like your blog and your analyses of the market are among the best and most interesting. Great work. Keep it up!

January 21, 2008 4:05 PM  
TraderMark said...

Raphael you got me on the Ron Paul thing. Myself, I think we need some basic common sense regulation. Generally anything coming from the gov't is nonsense but if you put 10 business/community leaders in a room, gave them a week to discuss and has out ideas, we could have 'effective' regulation (relatively light) in the areas we need. Would it be perfect? No. But this era of 'self policing' has caused problem after problem. Would I prefer the government not do it? yes. But it seems to fall to the government. I think there are very many good people WIHTIN the lower reached of the gov't - unfortunately they seem to be swallowed up by the system. For example the comptroller of Budget is generally a sharp guy - but political influence seems to stop many good people from doing anything good. At this point with Ron Paul having no chance I am hoping for a Bloomberg - perhaps someone who can put business standards and accountability in at the govt level, is the best chance for real change. More of the same from these 2 parties is scaring me.

As for Freddie and Fannie, talk about 2 poorly run institutions - anything quasi gov't would be eaten alive by the free market if not for an insistence they exist. I am sure there is some happy medium. Regulate everything to death is not an option and let the free market rule 100% is not an option. If so, we should just stop all govt functions such as police force - yes the free market would sort everything out in the end but man it would be messy getting there. I'd like to see 10 Wise Men/Women council :) who make decisions in non partisan way. Generally old people who are past the point of needing to acquire assets have a good viewpoint on things and I am sure if we found 10 of them and let them hash these things out they could come up with some common sense approaches.

Thanks for your comments and I am for Ron Paul more for the reasoning he actually has a clue what is going on economically. Some of this views are a bit extreme in other places. :)

January 21, 2008 4:39 PM  

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