Monday, December 22, 2008

Wall Street Journal: Oil's Crash Stirs Unrest in Russia as Slump Hits Home & Protectionism on the Rise

I believe 2009 will be a year with growing social unrest; domestically and internationally. Gosh, even the stoic Icelandic are stirring. (this is one country we exported our toxic junk to the level that imploded their banking system)

2 minute video - which if you removed the world Iceland, and replaced United States would really sound like a complete parallel (except their stock market is down 90%; and their exports of horses are on the rise as their currency crumbles)

In my 2009 Outlier Predictions [Dec 16: 13 Outlier 2009 Predictions] posted on Tuesday, I wrote specifically of my fears with Russia

Russia, if low oil prices persist, invades another former satellite country both as a nationalistic reason (diversion to the populace from worsening domestic conditions) and to try to light a fire under European natural gas, and/or oil prices.

In Friday's Wall Street Journal, the front page story focused on Russia... keep your heads up.
  • Russia's oil-fired economic miracle is unraveling as industry shrinks and job losses mount. Now the first stirrings of social unrest have the Kremlin groping for a response.
  • Gloom deepened over the outlook for oil-export revenue, Russia's main earner, as prices plunged Thursday despite OPEC's move this week to deeply cut production. This could spell trouble for Russia, which has pegged its 2009 budget on much higher oil prices, meaning it will have to trim spending.
  • The drop in oil prices is eroding the Kremlin's ability to replenish its gold and foreign-currency reserves just when it needs them most. Although the country's reserves are the world's third-largest behind China and Japan, it has been spending tens of billions of dollars in an attempt to prop up its falling ruble and stave off public panic.
  • Since October, more than 7,500 firms have informed the government they intended to lay off people, and 207,000 workers have had their working hours reduced, he said, calling these "worrying signals."

  • The government is drawing up a list of the most significant enterprises that might need a bailout, Mr. Putin added. That would come on top of the more than $200 billion the Kremlin has already pledged to shore up the economy. (sound familiar?)
  • ...popular discontent is growing. Last weekend, thousands of angry residents in the far eastern city of Vladivostok took to the streets and blocked traffic to protest government plans to raise tariffs on secondhand foreign cars, which are one of the impoverished region's biggest moneymakers.
  • Similar protests have been attempted in Moscow, St. Petersburg and Kaliningrad, and further demonstrations are planned for Sunday in Vladivostok.
  • Public anger also spilled onto the streets this fall in the Siberian town of Barnaul, as thousands of pensioners who had lost their right to discounted public-transport tickets staged noisy protests.
  • The prospect of further unrest poses what could be the biggest challenge yet to the authoritarian system built by Mr. Putin. It also foists a stark choice on the Kremlin: to stifle dissent, or to placate protesters to provide some kind of pressure outlet. For now, the Kremlin has decided on a mixture of both. But the government's options may narrow as its financial reserves shrink.
  • "They're incredibly scared of this," says Yevgeny Gontmakher, an economic adviser to the Kremlin. "They don't know how to operate in this environment."
  • Such social protest has been rare in recent years amid widespread political apathy and fear of government retribution.
  • Previous periods of low oil prices in the 1980s and 1990s contributed to the downfall of two Kremlin administrations -- those of Mikhail Gorbachev and Boris Yeltsin. Often, social discontent has begun in Russia's far-flung regions, where Kremlin control is comparatively tenuous.
  • Public panic is one of the Kremlin's greatest fears. "I've already seen how things get worse as the result of an oil-price collapse," says Yegor Gaidar, who was acting prime minister in 1992. "It's dangerous -- but people who have not governed a nuclear-armed country don't quite understand that."
Now, unlike some experts, I haven't looked into his eyes personally and concluded he was "trustworthy and very straightforward" but I do not believe Putin will let go of his power as easily as a Yeltsin or Gorbachev. Hence my worries about a military move as a tactic to rally a populace and "create jobs" (and drive up natural gas prices, for which Russia is dominant in Europe).

*note - only political junkies will understand the implied joke about looking into Putin's eyes. For the rest of you, trust me it was funny ;)

On to the social acrimony I see rising substantially in the Happy New Year... folks, American papers really seem to gloss over much of what goes in the world. We are very American-centric here. Thank gosh for UK papers who actually have a more world friendly view. Behold what could await the globe after the firecrackers Dec 31st. As each individual country's politicians are threatened by a peeved off citizenry (except here in the US where people seem to just "take it"); expect protectionism as a reaction.

UK Telegraph: Protectionist Dominoes Are Beginning to Tumble Across the World
  • Greece has been in turmoil for 11 days. The mood seems to have turned "pre-insurrectionary" in parts of Athens - to borrow from the Marxist handbook. This is a foretaste of what the world may face as the "crisis of capitalism" - another Marxist phase making a comeback - starts to turn two hundred million lives upside down.
  • We are advancing to the political stage of this global train wreck. Regimes are being tested. Those relying on perma-boom to mask a lack of democratic or ancestral legitimacy may try to gain time by the usual methods: trade barriers, saber-rattling, and barbed wire.
  • ...."If we are not able to do that, then social unrest may happen in many countries, including advanced economies. We are facing an unprecedented decline in output. All around the planet, the people have reacted with feelings going from surprise to anger, and from anger to fear," he said. (not so far in the US - first you need to teach people what is going on before they can be outraged about it)
  • Russia has begun to shut down trade as it adjusts to the shock of Urals oil below $40 a barrel. It has imposed import tariffs of 30pc on cars, 15pc on farm kit, and 95pc on poultry (above quota levels). Police crushed "Dissent Marchers" holding copies of Russia's constitution above their heads in Moscow's Triumfalnaya Square.
  • India and Vietnam have imposed steel tariffs. Indonesia is resorting to special "licences" to choke off imports.
  • The omens are not good in China either. Taxis are being bugged by state police. The great unknown is how Beijing will respond as its state-directed export strategy hits a brick wall, leaving exposed a vast eyesore of concrete and excess plant. Party officials have warned of "mass-scale social turmoil".... saw a move towards export subsidies for the steel industry and a dip in the yuan peg - even though China already has the world's biggest reserves ($2 trillion) and the biggest trade surplus ($40bn a month).
  • So is the Communist Party mulling a 1930s "beggar-thy-neighbour" strategy of devaluation to export its way out of trouble? Such raw mercantilism can only draw a sharp retort from Washington and Brussels in this climate.
  • The last great era of globalisation peaked just before 1914. You know the rest of the story.
Over in Greece...
  • Masked rioters set fire Saturday evening to the offices of a credit data company in Athens, continuing protests that have raged across Greece for two weeks.
  • Earlier Saturday, protesters attacked a city-sponsored Christmas tree in central Athens, tossing garbage and hanging trash bags from its branches before clashing with riot police.
No wonder the dollar is strong! No such protests from Americans no matter what level of scandal, political or financial - in fact.... $1.6 Billion in bonuses to 600 top bankers who got TARP funds? It's all good! That economics stuff is too complicated to follow for the sheeple - more Paris Hilton news please! What's the company line again... oh yes, normal people working normal jobs are expected to work hard. However, the elite can only work hard if you compensate them at 250-300x the normal folk. Otherwise, they leave and are "unmotivated".
  • Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits in the calendar year 2007, an Associated Press analysis reveals. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.
Heckuva job Brownie....err, bankers! No Congressional hearings for you to ask why you do not cut back on corporate jets and why you didn't drive to Washington D.C. to explain yourself on your bailout. What's that? Oh yes - your deal was done without you needing to even show up at Capital Hill. We got your back - $700B in the TARP and unlimited support from the Fed. We're doing this Schumer style! [New York Times: A Champion of Wall Street Reaps Benefits]
  • Crisscrossing the country in corporate jets may no longer fly in Detroit after car executives got a dressing down from Congress. But on Wall Street, the coveted executive perk has hardly been grounded. Six financial firms that received billions in bailout dollars still own and operate fleets of jets to carry executives to company events and sometimes personal trips, according to an Associated Press review.
  • Wall Street's reliance of the rarified mode of travel has largely escaped the scorn poured on the Big Three automakers.
  • Insurance giant American International Group Inc., which has received about $150 billion in bailout money, has one of the largest fleets among bailout recipients, with seven planes, according to a review of Federal Aviation Administration records.
If it wasn't so surreal I'd be disgusted.

Off to go find some panda pictures....98% gloom/2% panda - 2009 here we come.

"Seriously" Redux

This is like Groundhog Day.

1 week ago to the day in [Seriously] we wrote

We just went from S&P 858 to S&P 874 in the span of 5 minutes... 1.9% return. How the heck does the market change direction 2% in that amount of time?

Seriously, "they" are making a mockery of this market...
I wonder if anyone in the SEC is the least bit intellectually curious why this is happening.

Where's Fonzie when you need a shark to be jumped?

Well today, the exact same move in 25 minutes... S&P 857 to 872... 1.8% return.

Fonzie is back. More importantly "S&P 870" (critical line in the technical sand) is saved - just like a week ago. I don't know who can take this stuff seriously anymore.

When you really watch the action day to day, there is so much under the surface stuff going on that is bordering on Madoff ;) Yep, a market down all day that could not burst over any moving average - suddenly has an influx of (ahem) buyers in the last 25 minutes and our technical condition is "saved". Oh well, we'll just chalk it up to "short covering" (wink) and continue on to the next day.

Bookkeeping: Parachute Deploying

I am hitting the rip chord for the first time on some of the "thesis" plays. We have the Chinese thesis, the infrastructure thesis, and the housing recovery thesis. None of these we "believe" in but hedge funds have been running them up.

All 3 charts are now entering "do or die", they have fallen back to support (or begun to broke below support) - hence I'd rather shoot first and ask questions later. If this is just a head fake to shake people out before resuming an uptrend so be it; all we lost was opportunity.
  1. Thesis #1: All the country shall be awash in bridges and roads - Jacobs Engineering Group (JEC) is dropping from a 2.6% stake to 1.1%. $43ish is a line in the sand that is being tested
  2. Thesis #2: All the country shall be awash in unemployed workers looking to buy homes @ 4.5% interest - Lennar (LEN) is dropping from a 1.5% stake to 0.8% We said we'd be hitting the exits below $9.
  3. Thesis #3: China is ready to rebound as $500B of government spending and interest rate cuts will offset 100M of migrant workers losing their jobs. (sound familiar?) iShares Xinhau China 25 (FXI) is dropping from a 2.7% stake to 1.1%. This one is closing fast on our line in the sand at $28.
Once more, all 3 of these could reverse back to the upside tomorrow so its always tricky selling "around" support. If you are aggressive you'd actually be buying here with a tight stop loss, anticipating a "bounce" off support. I don't have the luxury of stop losses in so I'm just culling. I'll call this the basket of thesis - we're down on the basket from 6.8% to 3.0% of portfolio. If they continue to break down tomorrow, we'll cut more. FXI has a particularly nasty "double top" formation brewing. Also Jim Cramer is now on the China bandwagon (which makes me even more pessimistic than I was earlier on China in the near term), saying they will save us.... if it's not the US government saving us, it's the Chinese. I would like to ask the open question - when do we save ourselves? (save more, act like reasonable adults, end favoritism, have financial and political transparency, sensible regulation, et al)

Make or break tomorrow
Obama help us

Long all 3 mentioned in fund; no personal positions

Bookkeeping: Closing (BIDU)

We've made a couple of very good trades on (BIDU) since we've jumped back in the past month - despite a poor chart; similar charts in Apple and Research in Motion - none of these stocks are really acting well during this period of calm in the market. (Apple acting very poorly in fact, RIMM saved by an earnings report but still nothing to get excited about)

I want to focus our energy on stocks that have used this type of calm in the market to regain key moving averages and cut out names that have not. is one of the latter - we sold most of it last week hoping that perhaps it was building a large base that would lead to an upside resolution; but hope only works for Obama stocks it appears. We'll return at a later date to this name; in a bull market we'd almost never own a chart this bad. We want to focus on relative strength, and on the next correction load up on those type of names. Apple, Baidu, Research in Motion have charts that look no different than oil producers or mall based retailers - all poor; just "a little less poor" than a month ago.

All we had left was our 0.1% stake (holding position) so we are exiting that tiny piece in the $125s

No position

Bookkeeping: Beginning to Rebuild A-Power Energy (APWR)

One of the reasons we have such high cash is, aside from doubting any rally on anything other than Obama hope and Ben Bernanke printing presses, is most of our stocks have run and we took our profits. Most have not fallen back to a point I'd feel comfortable making a much larger stake. In fact many of the Obama/Ben hope stocks are now at very important points - the infrastructure stocks have given up in 3 days what took 3 weeks to build... housing stocks now have fallen back sharply the past two days, Chinese stocks are pulling back sharply, etc. As we have been saying, we are willing to put our Santa cap on and partake but hope can only last so long, and our parachute is ready to be deployed once reality comes back to the market. These sectors are not moving on reality, only thesis - so once sentiment turns against them you need to able to run because hedge funds will be dropping loads of shares onto your back once their algorithm says "onto the next thesis".

That said, we still want to make excursions in stocks we like, and the trading has been exquisite the past 3-4 weeks. Moves are so sharp (huge % moves in 1-3 day periods), and charts are being obeyed as everything is so technically driven of late. We've been trading A-Power Energy (APWR) heavily of late since the moves have been quite nice, and our last exit was way back... Thursday [Dec 18: Another Layer Out of A-Power Energy]

Exciting move out of A-Power Energy (APWR) today, up yet another 15% today on half its daily volume (in the first 1.5 hours). It is now hitting its long term resistance (50 day moving average).

....but we've been content to trade it in a range until it proves it's ready to stop being stuck in said range.

So true to form the stock hit resistance and fell back; I actually cut even more as the stock failed $6 and we went into the week down to a 0.8% stake. The stock is down 11% today alone so we'll begin to redeploy back into the name, but allowing for a move back to the upper $3s/low $4s if the market returns to reality in the coming weeks. I will continue to trade this wide range (upper $3s to 50 day moving average, currently $6ish) until the stock proves it is ready to make a move above resistance. Even if I think fair value is much higher. This will be the correct thing to do, until it is not. Follow the pattern, until the pattern changes... one time it will be wrong to sell at resistance... but each time up to that one time, it will be correct.

We're back to a 2.0% stake, replacing the shares we sold in the $5.90s, here in the $5.20s - 2 trading sessions later. I really don't want this position at less than a 2% stake at any time, but the technical set up just screamed "sell" so we dumped a lot of the position. We'll release the shares bought today if APWR gets back to $6.00 until the stock proves its ready to make a sustained run, and keep repeating. Rinse, lather, repeat - until a real move happens.

We're not playing big since believe me, all these bottom callers who have ONCE again emerged will go scurrying back into their holes if the market breaks down - along with the whole "it's all priced in" crowd. By the time we get to March or April's employment report I doubt "it's all priced in" will be so. That said, I expect some seriously wide swings in 2009 as we ping pong between reality and hope, and most of our major purchases want to be focused during the times of despair (reality). But we'll trade around a couple of names in the interim. (this is actually a fantastic environment for those trading around positions for a personal account - hand raised. But nothing to see here for "investors" - move along)

On the S&P our first support level (S&P 870) is being tested and thus far holding; again we won't read much of anything into this week as much of institutional America is off Christmas shopping. Below S&P 820-840 we are bears, above S&P 940ish bulls, in between we're cash heavy and neutral, while trading the gifts the market gives us every 48 hours (huge swings in individual stocks)

Long A-Power Energy in fund and personal account

Goldman Sachs Downgrades Monsanto (MON) and Potash (POT)

Goldman is out with a note this morning against some of the major names in the agriculture space. What they write is effectively why we are going to have a commodity issue in the years to come; lack of investment now will cause shortages when the bulls dreamed of recovery happens. We're seeing this across the spectrum of commodities. Specific to agriculture, this continues to build a case for coming food shortages and unrest in many 2nd and 3rd world countries. So once more, thank you regulators and NYC bank executives for the crisis not only that you created today, but the ones you will bring upon us in the future - in return for your great work, please take our tax dollars.
  • Goldman Sachs downgraded agricultural products maker Monsanto Co (MON) and Potash Corp of Saskatchewan (POT) , saying it expects a smaller crop in 2009 as falling grain prices delay planting decisions.
  • "The dramatic rise and fall of commodity prices, credit concerns and fertilizer costs have partially paralyzed fall buying activity," analyst Robert Koort wrote in a note in which he cut the companies to "neutral" from "buy."
  • In a typical year, 40 percent of annual fertilizer application occurs in the fall, but this year the rate could be half that level, he said. With the decline in crop prices and the financial crisis, farmers are reducing their fertilizer usage, shifting their focus to cost savings rather than profit or yield maximization, Koort said.
  • "Food demand is generally considered recession-resistant, but not quite recession-proof," the analyst wrote.
  • The analyst cut his six-month price target on the stock of Mosanto to $80 from $93, but raised that on Potash Corp shares to $73 from $60. In a separate note to clients, BMO Capital Markets cut its price target on Potash Corp to $115 from $145 on lower fertilizer demand. However, it maintained its "outperform" rating on the company saying it could weather the crisis.
  • Fertilizer demand has also been soft in other parts of the world and, coupled with the lackluster US demand, this has prompted widespread shutdowns and curtailments in the fertilizer space, the Goldman Sachs analyst said.
If the chart was not so horrid I'd be a buyer of Monsanto here which we've been watching for a very long time for entry. Instead I added just a little Potash; again folks the moves we are seeing used to take 5-6 weeks or indeed months to play out. We sold out of our entire stake (except 0.1%) in the middle of last week near $80; [Dec 17: Bookkeeping: Cutting Potash to "Holding" Stake] a few days later and we are already back in the $66s. This is a 17% drop in a few days. I am going very slow since Potash could fall much farther, and increasing from a 0.1% stake to 0.6%. So we're just getting back about HALF of what we sold at $80, half a week later. I'd rather be an aggressive buyer back near the lows (low $50s) There is some weakness in the fundamental story [Dec 19: Potash Cuts Full Year Guidance; Intrepid Potash Falls off Cliff] but it's all relative; at this point I'm taking whatever analysts have for 2009 estimates, and cutting it in half and we still have some decent valuations - but it's a technical trading market, which is all we are doing. The fertilizer companies keep saying the weakness is just a 1 quarter issue but based on my assessment of the global slowdown it will not just be 1 quarter but "all things being equal" food will be the least elastic of the commodities. (citizenry tends to get P.O.'d when there is a lack of food and hence politicians - worst case scenario - will be "motivated" to make sure there is a decent supply of food) But that doesn't mean these stocks could not be down another 20% in a flash. We have >50% cash so I'm tossing a few sheckles to the long side - nothing more than that as we wait for the market to realize there are no quick fixes in 2009 that will be leading to a "2nd half 2009 recovery".

As for Monsanto, if it does not hold $64 on the chart, it could have much farther to fall.

The commodities and "global growth" I'm afraid, despite the Obama hype, are going to be trades and not investments for quite a while. It makes no sense that "late cycle" growth would rally before "early cycle" growth. Unless Ben Bernanke has not only stopped the economic cycle from happening, but reversed the order of it happening. But as the past few weeks have shown, you can have tremendous oversold rallies so we want to have some exposure. (it's called hedge fund thesis, nothing else)

Long Potash in fund; no personal position

Wall Street Journal: Property Developers Ask for Government Bailouts

Unbelievable. This story just goes to show you why this market is unmanageable - the rules change every week and the government supersedes everything. My entire thesis for the year ahead is that the US government would not allow any major financials to go under but they would allow the free market to play out in commercial real estate. It looks like that assumption could be under threat. If things like this start happening, this is truly heading to full socialism.

And in a cynical note, we see why the REITs were so strong of late - information is so leaky on Wall Street, the smaller guy will always be the last to know. Honestly if this goes through there is no reason to short anything ever again since everything is protected from failure. We simply will not be allowed to have a business cycle anymore.
  • With a record amount of commercial real-estate debt coming due, some of the country's biggest property developers have become the latest to go hat-in-hand to the government for assistance.
  • They're warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years -- with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off.
  • Unlike home loans, which borrowers repay after a set period of time, commercial mortgages usually are underwritten for five, seven or 10 years with big payments due at the end. At that point, they typically need to be refinanced. A borrower's inability to refinance could force it to give up the property to the lender.
  • A recent letter sent to Treasury Secretary Henry Paulson, and signed by a dozen real-estate trade groups, painted a bleak scenario: "Right now, we believe there is insufficient systemic capacity to refinance expiring, performing commercial real-estate loans," said the letter. "For many borrowers, [credit] simply is not available," the letter noted.
  • To head off some of the impending pain, the industry is asking to be included in a new $200 billion loan program initially created by the government to salvage the market for car loans, student loans and credit-card debt. This money is intended to go directly to help investors finance purchases of securities backed by these assets. If commercial real estate is included, banks might have an incentive to make more loans to developers since they'd be able to repackage and sell them more easily to investors with the assurance of government backing.
  • As part of their lobbying efforts, some industry representatives have asked lawmakers to explore the idea of setting up a separate program aimed at boosting lending to commercial real estate only. (there go those lobbyists, the backbone of Cramerica)
  • The real-estate executives are warning that the approaching surge in commercial mortgages coming due poses another major threat to the global financial system, which already is on life support. With rent prices falling and vacancies rising due to the weakening economy, delinquencies on commercial mortgages already have begun to rise sharply.
  • Real-estate owners are pressing the government to take preemptive action before thousands of properties begin to fail. Among those who have been active in the lobbying effort: William Rudin, whose family is a large Manhattan office-building owner, Stephen Ross, chief executive of The Related Cos., a major U.S. developer, and Steven Roth, chief executive of office and retail landlord Vornado Realty Trust. In recent weeks, industry representatives have met with officials in the Treasury Department, Senate Majority Leader Harry Reid, senior lieutenants of Federal Deposit Insurance Corp. Chairwoman Sheila Bair, members of President-elect Barack Obama's transition team, and Sen. Charles Schumer (D., N.Y.). (and we know why Schumer is meeting with them - how many hours after the meeting did the contributions come pouring in? I'll set the over/under at 18 hours)
  • Treasury and Fed officials have said they would consider including commercial real-estate in the new $200 billion loan initiative. But such a step won't happen soon. The program is not likely to be operational until February. Even then, expanding it to include the immense commercial real estate market would likely require additional financial support from the Treasury. (well the way I read this is, it's happening but not until a "new program" is in place - which in this day and age can be announced any week now)
  • While commercial real-estate developers restrained themselves during the boom years when it came to speculative development, property investors bid up the prices of office buildings, malls and other projects to record levels assuming rents and occupancies would keep rising. With cash flows now falling, a growing number of developers are having a tough time repaying their debt. In cases where owners need to sell buildings to satisfy loans, the current environment makes that difficult. A revitalized lending climate is necessary, they say, to keep them afloat.
  • Some analysts predict the delinquency rate will leap to 2% by the end of next year. During the real-estate collapse of the early 1990s, the worst-performing commercial mortgages -- those that were made in 1986 -- sustained losses of about 10%. (So the projection is for 1/5th the delinquency rate of 1986, yet we need a bailout. But somehow the economy survived in 2006, at 5x the delinquency rate. Give me a break)
How can you place any positions in this market? You simply can't - you wake up to a whole new world and everything can be immediately upside down.

A general sense of disgust

Sunday, December 21, 2008

Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 20

Year 2, Week 20 Major Position Changes

Fund positions of 1.0% or greater can be found each week in the right margin of the blog, under the label cloud and recent comments areas; I highlight weekly the larger position changes.

Being a long only fund, via Marketocracy rules, the only hedges to the downside I have are cash or buying short ETFs. I cannot short individual equities.

To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.

Cash (2 positions [SHV/BIL] + cash): 52.0% (vs 35.5% last week)
31 long bias: 37.0% (vs 58.1% last week)
7 short bias: 11.0% (vs 6.4% last week)

40 positions (vs 41 last week)
Additions: Lennar (LEN)

Removals: Apple (AAPL), Research in Motion (RIMM)

Top 10 positions = 23.5% of fund (vs 32.0% last week)
26 of the 40 positions are at least 1% of the fund's overall holdings (65%)

Major changes and weekly thoughts
The past week the market has sort of stalled into a very narrow range; we are in a gray area both in market direction and hopes for the financial/economic condition. As one of the great philosophers of our time (no, not Socrates... no, not Aristotle... I'm talking Yogi here)

When you come to a fork in the road, take it.

This is essentially where we are on both the market and economic fronts. Which is very different than most times - generally you model a path, and make allowances for divergences either side of a relatively well known road; 20 degrees to the left, 30 degree to the right. As opposed to our current situations which are 180 degree bipolar outcomes. Obama saves us; or Obama doesn't save us. 4.5% mortgages save us; or 4.5% mortgages don't save us. Ben Bernanke has it all figured out; or Ben Bernanke is desperate. Deflation; Inflation. Stocks are cheap; stocks are expensive. It truly is quite amazing the divergence in opinion of the intermediate future. And as I have written - no one can say for sure where we end up, because the nature of the financial experiment we are embarking on is without precedent and historical models are mostly moot. I say many times we are like Japan, but even then - history only rhymes; obviously we have 2 very different situations in some manners (there - a high savings rate, here a non existent one; to name one). I can at least see the bull case if not agree with it. The issue with the bull case is really we are just kicking the can down the road - which unfortunately is the most "positive" outcome if B-52 Ben Bernanke is successful. We will solve a national problem of debt, by encouraging the same thing that got us here in the first place - layering on of debt. This is the battle plan, and while I think a scared consumer threatened with losing their job and with little savings will not embark on a quest for oodles more debt to reinvigorate the economy - I always allow for the chance I could be wrong (never happens, but I allow for it) ;)

A quick (edit: not so quick) layman's economic discourse before we go to our normal discussion. I'll spare you the economic formulas but if you are interested, click here. Right now we have a problem of money flow - both the amount of "money" in the system, and the velocity of said money. In the simplest terms, just think of velocity as the amount of times money changes over. The higher the better. About 4-5 months ago both these areas (amount and velocity) were lacking. Capital was being destroyed in an over levered system; much of it unregulated in a "shadow banking system". For every 1 "actual dollar" in the system, 10-20-30x was "lent". Much of it was based on the housing bubble. So as the 1 actual dollar is destroyed, the capacity to lend 10-20-30x of that dollar is also destroyed - and your velocity of money crumbles. As we've outlined the past few months, our money supply is now going off the charts - the Federal Reserve has made it clear they will create money at any cost. They are going to do everything and anything in their power to liquidate the system, assuming I suppose that a currency crisis is a better outcome (or predicting no currency crisis will happen) than a financial crisis. It is very sad how we lurch from emergency to emergency in this country - but it is what it is.

When I say the Fed will do anything; I mean anything - the latest shake your head in surreal disgust moment - from "Hedge Funds Gain Access to $200 Billion in Fed Aid" - it appears anyone can now access our money. Anyone. The Federal Reserve balance sheet which used to consist of staid Treasury Bills was at $800Billionish last year, it is now approaching $2.3 Trillion and much of that is now the junk, I'm sorry - "the undervalued assets that once the market returns to normalcy will return to their rightful value- which will be MUCH higher" - that banks want to get rid of. So the Federal Reserve, and by implication, the taxpayer is now holders of said auto loan, student loan, mortgage, consumer loan securitizations. It is now to the point the Federal Reserve will take it said "undervalued assets" off the books of hedge funds so our shadow banking system can re-emerge (the one that got us here in the first place) They are desperate and they will do anything. I said in my 2009 Outlier Prediction that $2.3 T is just getting started, we could be headed for $5 Trillion. In the meantime they shall slay all the poor suckers in America (such as retirees) who'd like a decent CD rate. They want you to spend and take risk, not save @ 1-2% interest. (saving is for loser countries) The 65+ crowd? Get your money out of banks and back in this here stock market; the water's fine!

So let's frame this since we are becoming immune to the large numbers thrown out there - a few billion here, a few billion there and it all gets lost in the mess. U.S household wealth fell 11% year over year as of Sep 30, 2008 (and it's lower from there as stock markets and home values have continued to fall dramatically) - it was down to $56.5 Trillion.

So, about a year ago we were at $64 Trillion in net worth, the Federal Reserve balance sheet was full of the safest US government Treasury bills - about $800B worth, and there were no backstops (backstops ultimately mean "we" are on the hook if the underlying asset goes bad)

Fast forward a year, we have $56 Trillion in net worth, the Federal Reserve balance sheet has tripled ($2.3 Trillion), much of which of the new stuff is now much more risky loans of all types to heavily indebted US consumers along with stuff we can only imagine that the Goldman Sachs, Morgan Stanleys, Citigroups, AIG's et all "lent to us", and we have in excess of $8 Trillion backstopped. And we have just now begun the buying of "new stuff" that the Federal Reserve is promising will be coming in 2009.

So a year ago, about 1.5% of household net worth was on the Federal Reserve balance sheet and 0% was backstopped. Now, just 12 months later 4.1% (and growing - and of a much riskier variety) of our household net worth is on the Federal Reserve Balance sheet, and 14%ish is now "backstopped". So effectively 20% of our household net worth is on the shoulders of the Federal Reserve; either through loan or backstop. And it will only grow from here, as promised at the latest Federal Reserve meeting. And Wall Street is happy about this. Just "have faith" - the government is here to save us.

So that's half the picture; the other is the even more tricky question of velocity. We are handing the banks (and other parts of the financial system) dollars by the wheelbarrow, but if they do not get circulated within the economy there are useless to everyone but banks. Who can park them in ... well let's say US Treasuries yielding 2% and we all sit here and say "this sucks, we are Japan". So we have one half the equation being force fed by the Fed/Treasury - the money supply will be ballooning - no matter the potential cost to the currency, and the other half of the equation is based on the belief that at some point so much money will be provided to said financial institutions that even the most risk averse will lend a portion. And we can begin anew. I won't even touch the long term questions this brings since we only deal with one crisis at a time. So that's what we are facing in a very simplistic fashion - either you believe that the Federal Reserve will not (no longer an issue) or can not (due to the potential of the US dollar plummeting) print enough money to offset the capital destruction going in the system - this is our deflationary spiral; or you believe at some point before this all blows up, the banks will begin to lend again - and as important, the consumers WANT the money (all about confidence and job creation/retention) and a flood of newly formed capital will awash the countryside, potentially creating heavy inflation.

Don't look to me for an answer; just understand we are all lab rats in the biggest financial experiment in history. In the biggest economy, with the largest amount of money created; with the potential for the biggest blow up ever. Frankly it's kind of scary to me, but CNBC assures me - it will work. So as I wrote above - we have bipolar outcomes. 180 degree differences in opinions. It did not work in Japan, but we're not Japan. Just keep repeating that to yourself when you worry about the implications - we're #1! USA! USA! USA! That solves everything I have found.

On to the stock market - I can make the same bipolar bull or bear cases in the near term. Back to our weekly list of conditions to turn us from a trader mindset to an investor mindset
  1. reduction in volatility
  2. separation of "benign" sectors from "poor" sectors
  3. separation of "solid" companies from not so solid within a sector
  4. the end of "student body left" (sell everything!) and "student body right" (buy everything!) trading
  5. the ability to invest in 98% of stocks with more than a 2-48 hour time frame
  6. the emergence of any sort of sustained leadership
  7. stocks that go up on bad news (bad news priced in) .... or at least stocks that respond to good news!
  8. individual company metrics mean more than government announcements
  9. a 20 second comment on CNBC doesn't move the stock market 5%
#7 has been our calling card the past 3 weeks; but now #1 is also working more in our favor. While it is all relative (the type of volatility we have had of late would of been considered bone chilling in 2006, but relative to the past 4-5 months it's almost "quiet") We still lack any sort of leadership as hedge funds jump from 1 sector to another to ride for a few days/weeks based on "theme" and "thesis", and government announcements mean more than anything else. Occasionally we can invest for more than 48 hours, but there still remains the problem in that many "themes" that if you jump in on day 4 of the move - you missed most of the move. In a return of the bull, rallies will last for months and months and day 4 will be inning 1, not inning 8 of a move. So it remains a trading market.

In my "core" and "edge" strategy, I don't look for time frames when I take partial positions off the table; I am looking for % gains. If I can book a 20-30% gain, I like to take 20%, 30% maybe more off the table and try to rebuy lower. And keep rinse, lather, repeating. Those 20-30% gains used to take months, or at best 3-4 weeks to play out. Now, they take 1-2 days. So when our targets get hit, no matter the time frame, we are booking those profits. We've repeated some trades 3x in the past three weeks as the individual stock continues its ping pong, round trip moves. Great for very short term traders - terrible for investors.

As for our positions we have moved to a much higher cash position since many of our stocks have "run" but not pulled back materially yet. But in a bigger picture, we've now effectively rallied a bit over 20% from the worst lows the week before Thanksgiving. We caught much of that move with only some of our capital exposed which is the best of both worlds - gain without major risk. As I was saying through October and November, what we were going through "then" was abnormal - a continued straight line down. The S&P 500 was at historic divergence from the 200 day moving average - which means the rubber band was pulled as far away from a trend line (37%) as it had ever been. We were due for a snap back and we now have had (some of?) it. If you look back at charts of 2001-2002 you see a more normal bear market pattern - similar to what we experienced in the 1st half of 2008 and now... large swings down, followed by multi week rallies (or in some case multi month) before resuming a trend down. From these eyes, that's where we are now - and it's very normal. We've been like a magnet to S&P 900 of late, and stuck between S&P 850 and 920 for two weeks straight.

We were able to catch much of this move since we reduced our short exposure (which had been running in the 25-35% range in Oct/Nov) and many of our long names have jumped tremendously. So the danger now is complacency - as you've experienced, when the mood turns back sour - it happens very quick and you don't have time to escape. I am not saying it is imminent as we've been calling for a Santa Claus rally and "year end mark up" by hedge funds to goose their performance for quite a few weeks now. Unfortunately, in the past 5-7 days I am starting to read about Santa Claus rallies EVERYWHERE, and on Wall Street rarely does what everyone assume to happen actually happen. So my thesis from early in the month makes me me nervous from "everyone is expecting it" in the past week; so perhaps we either end the rally "now", we rally way past Christmas (straight to inaguaration?), or we do nothing but stagnate. It just seems too convenient for what is now EVERYONE looking for a Santa Claus rally, to actually have one.

But really we don't need to guess. Our cash is up from 35 to 52% this week as we took a lot of profits; and our short exposure is back to "not really bearish but closer to a normal hedge" level of 11%. We've been moving sideways now for the better part of a month, and the longer we go sideways (building a base) the larger the move eventually will be. The question is direction. Right now we still sit below the 50 day moving average and the longer you sit below key moving averages the more propensity for the move to be down. However, we are not far from breaking back above the moving average (now in the 920s) as we are near S&P 890. That's only 3% away which is 1 hour of work (3 PM to 4 PM) in this market... so if we indeed break north of that resistance, we have capital to deploy back to the long side and drink egg nog (Kool Aid variety). But if we cannot break above this resistance level, we don't want to be overly deployed. Adding to the trickery is a holiday week dominated by smaller players so as I said, reading anything into this next week and a half is not to be done. Volume has been light, which makes an argument for bears (the rally is on light volume!) and bulls (the pullbacks are on light volume!) - which brings us full circle. It's 180 degrees out there.

ABC News: More Americans Finding 'Fund My Mutual Fund' Blog and Discovering the Truth

Ok, that's not really the headline but it should be after seeing this news blip... boy, this list of items is like a whose who of topics we discuss monthly.

Unfortunately this data does not synthesize well with Wall Street's "6 more months to go and we're good!" theory, but "they" have been espousing that "6 month" theory for over a year now. Perhaps as more Wall Streeters hit the cold pavement out of work, they can relay back to their peers what the "real world" is like. Unlike Mr. Cramer, who thinks an avalanche of people are out there ready to put 20% down, and snap up homes with the new and sexy 4.5% (or lower) 30 year mortgage loans coming down the pike; I'd like to argue for a middle class that has been eviscerated of savings the past decade, stuck in non secure jobs (hey that makes US industry 'flexible!'), with median wages which have not kept up (more profits for those at the top! I mean if CEO's don't get 250x the average worker pay how will we retain the 'best and brightest'?) and without the house ATM Ponzi scheme.... said consumer has years of savings to rebuild... slowly. Or the alternative view is Uncle Ben will cause everyone to dip into their savings with his low interest rates. Wait... savings... or lack thereof.... that's the whole problem.

I really don't think the upper 1% get what's been happening in the hinterlands as they've enjoyed the fruits of the 2nd Gilded Age ... [Do the Bottom 80% of Americans Stand a Chance?]
  • Across the country's kitchen tables, this recession is written in cutbacks, layoffs -- and pure worry. Job insecurity is at its worst in 33 years of polls; holiday spending plans, their worst in data back 23 years. Americans report cuts in work hours and pay, and concerns about making the rent or mortgage, heating the house, paying for retirement. In all, it's an extraordinary loss of confidence -- with repercussions in families across economic and political lines.
  • Sixty-three percent in this ABC News/Washington Post poll now think the country is in a "long-term economic decline," (FMMF readers!) up from 49 percent 10 months ago; just a third say the economic system is still "basically pretty solid." (this third does not live in Michigan, Ohio, Indiana, California, Florida, Nevada, or Arizona)
  • And while economic distress tends to be greatest among lower-income Americans, the biggest increase in views of a long-term decline has been among the better-off, who have been hammered by the stock market. (well 10 years of a zombie stock market, followed by loss of "paper wealth" via home equity gains will do that to the "better-off"; at least most still have decent jobs unlike those lower-income folk who never have enough to be in the stock market in the first place, or have a home unless its with a predatory loan. They are too busy praying they don't get sick so they won't go bankrupt. But not a problem - cut tax rates for the upper 2% - that solves everything - I heard it all summer and fall; must be true - worked like a dream the past 6 years)
  • An identical 63 percent say they themselves have been hurt financially by this recession, 10 points higher than the damage in the recession of 1990-91. (hmm, strange since most pundits denied a recession up until September - so these 63% of Americans have been hurt by the NON recession - the next year is when the recession will hurt them) Three in 10 say they've been hurt "a great deal," double what it was just after that recession 17 years ago. (I'm not making light of it, I'm just shaking my head at these "thesis" on Wall Street; apparently they do not talk to the plumbers that come and fix the toilet their $2.8M apartments and ask how thing's are going out there)
  • Two-thirds of Americans are worried about maintaining their standard of living, up from 51 percent a year ago -- nearly a 30 percent increase. (std of living - it's going down - global forces and your government - which is "saving you" - are going to make sure of that. Hey, Mr. 65+ year old - wanna know what you can get on CD rates now with the Greenspan/Bernanke tag team fiddling with rates below 1% twice in 5 years? Answer: your losing purchasing power by the day)
On the job front
  • For many, these worries are more than theoretical: Twenty-seven percent -- more than one in four -- say they or someone in their household have had their pay or work hours cut in the last few months.
  • Eighteen percent, nearly one in five, say someone in their household has lost a job lately.
So let me get this straight - you are saying in your "random" study - you found 27% of people are or know of someone who is underemployed, and 18% has someone in their household who has lost a job. Hmm, that is so starkly below what the government reporting says. [Nov 7: October's Unemployment Rate is Rises to "6.5%"] Surely your "random" statistics must of just been focused on Ohio, Michigan, Rhode Island, and California - otherwise these numbers are vastly overstating the damage out there. The government statistics point a much rosier story - something must be amiss. I am guessing the ABC reporting must be "off"; I mean I've read on a few blogs that the truth is more like 1 in 5 people are underemployed and unemployment is closer to 15% if you use the methodology the government used to employ before the 1990s; but I call those bloggers wackos. ;) (note to self: hi wacko)

Onto the stock market
  • Far more, 51 percent, say they've been hurt in the stock market rout -- up from 43 percent just two months ago and more than half for the first time in ABC/Post polls dating to 1987. That soars to two-thirds of higher-income adults, who are more apt to have stock investments. (yes, Average Joe laying pipe generally is not making enough dough to lose 50% with such sound investments as Citigroup - oops, did I say 50%?)
  • And less than half of Americans, 46 percent, are confident they'll have enough money to retire, down from a high of 69 percent three years ago. (this one will get far worse - a country of non savers who lack discipline to save for 5 years out, not to mention 30 years out, ripped of pensions their parents enjoyed and facing "401k matching freezes" every time the economy falters... combined with people trying to do the right thing but facing a stock market that has fleeced them twice in 1 decade.... well you get the picture. That's one of the long term emergencies facing the nation - but we don't even bother talking about it much since we have short term fires to face every week. In 10 years as waves of people are unable to retire, the myth of what a great idea 401ks are will be shown - much too late for a few generations) [Sep 1: Laboring Longer is a Growing Trend for Americans]
So let's review - not only do you not have job security, and companies have moved from pensions to 401ks to relive themselves from obligations, but the top honchos have increased their share of profits at levels not seen since the 1920s. Dear worker on the other hand, get the 3% salary increase as reward (3.5% if you're performance review is awesome!) Granted much of that annual bump goes to higher health care premiums but not to worry - you can make it up in the stock market. (or by flipping homes) And in return for this, the sheep of the nation will be forced to work til they drop as Walmart and Home Depot greeters - but it's all in the name of "flexibility" of our economic engine. (i.e. the flexibility to move much production offshore) The engine that has transformed us to a service based economy while offshoring many jobs that actually built a middle class. (darn those unions - it is ALL their fault) Yep - this flexibility has been working out great for all involved. Well at least shareholders and CEOs. Ok, not so much for shareholders... but at least the CEOs. Dogma rules. [Feb 18: Economic Woes Reveal a Long-Felt Unease & Denmark is the Happiest Place on Earth?] One year people are going to wake up to this all, and a heck of a backlash shall ensue. Until then, "baaaah".
  • Among people who are currently employed, 21 percent -- one in five -- are worried about getting laid off -- nearly double what it was a year ago, and the most in polls dating back to 1975.
  • If they were to get laid off, moreover, nearly half, 47 percent, think it's unlikely they could find another job as good
How about beyond jobs?
  • Fifty-three percent are concerned about being able to afford health care for themselves or a family member; a third are "very" worried. And it rises to 75 percent among lower-income Americans; a majority in this group is very worried. (Fox News tell me the nearly 40% of Americans who lack healthcare insurance just don't work hard enough to deserve it, so spare me the pity - work harder!)
  • Nearly four in 10 Americans, 36 percent, are concerned about being able to heat their homes this winter -- 28 percent of men, but 44 percent of women, and soaring to 68 percent of the lowest-income Americans. (this is something we talked about this summer [Jun 24: IBD - Heating, Electricity Rates Rising as Natural Gas Surges] - but not to worry, as gasoline drops from $4 to $1.65, people will be snapping up homes; just not heating them)
There's more in the ABC story but you get the picture... granted I live in a state with a 5 year recession so I'm biased with my gloom and doom. Apparently so are many in this study (Phil Gramm just called to repeat, it's all in their head) But it appears most of the punditry with their claims of imminent recovery and government saving us all, needs to go spend some time among those 2-3 income brackets lower (or at least talk to someone in the sub $60K salary crowd) to see what's really going on out there among the unwashed masses. For all the aspirational spending of the Coach(COH)/Whole Food Markets (WFMI) crowd - until there is health in the JCPenney (JCP)/Walmart (WMT) crowd - you don't have a national return to good times. There is no "economic bliss" in 6 months [The Economic "Recovery"] - this is brought to you by the same population espousing the "stimulus rebate" of spring 2008 which (they promise) would turbocharge the economy and fill our malls and home builder lots with eager spenders. That didn't quite work out....

So, to summarize, the Federal Reserve has deemed they will expunge all savers from our economy (including those "work til they drop" retirees trying to get a darn return on a CD over and above inflation rates) as cash is "trash". Although many are exhausting savings, the thesis is we'll dip into our (non) savings to return to a spendthrift culture soon enough since money will be free. Sounds (cough) reasonable. I, on the other hand, would like to propose far out solutions like actual job creation in industries that create products or goods that others in the world actually demand will pay for. That would help replenish savings without layers of more debt. Hmmm - open question is where or what are those industries....

On a related note - I saw this video on Yahoo Tech Ticker Friday - Gary Shilling was one of the few out there to actually forecast much of this mess. Even more impressive to me, is his investment predictions for 2008 were so dead on - even making calls like go long the dollar and US bonds. Which were counter intuitive to what the rest of us who were fearing the economic storm were thinking (long the US dollar?!) Granted "short commodities" did not work out the first half of the year but anyone with the steel stomach to sit through oil jumping to $147 actually made out in a very short amount of time. (things tend to fall in the market much quicker than they rise!)

I am bringing this video here because he pretty much sums of my thoughts on the current... and future, in a much more polished manner - it's about a 5 minute video. We both agree: 2009 will be a make or break year for the government's interventions. Again, anyone saying they "know" how this magic experiment will turn out is lying, since we have no true precedent to rely on... should be another fascinating year.

He also believes, like I, that a "forced frugality" shall sweep the land; I think what people have to get their minds around is we are going to take years to get back to a normalized consumption pattern. And normalized is going to feel very different than what we just, collectively, did.

Saturday, December 20, 2008

CBS News: Secret Santas

As part of my 2009 resolutions, I plan on trying to intersperse some uplifting stories in between the unfortunate economic gloom and doom. So if you start seeing videos of baby pandas in the future, don't be alarmed - you are still in the right place. Consider this my mission of "balance" - 98% gloom/2% panda. ;)

Below is an uplifting story of a Secret Santa in Kansas City, Missouri. The reactions by the people he is helping are both, heart breaking and warming. Tough times out there but even with Secret Santa's stock portfolio down 44% (seriously) he has increased his giving. Awesome.

He has a great quote - "In our country, we have a lot of people who make $8-$10 an hour, and they live in a $12-$14 hour world."

3 minute video.

Watch CBS Videos Online

New York Times: A Champion of Wall Street Reaps Benefits

The New York Times is posting an interesting series of articles in "The Reckoning" series - exploring the causes of the financial crisis; some of which are quite eye opening. The Phil Gramm ("it's just a mental recession") story is a fun one. One area I harp on a lot, directly and indirectly, is how skewed the system in the U.S. has gotten for the very few, and how money buys so much political favor in the country. I don't know if people are ignorant to it, or too busy surviving day to day life to care - but the implicit laws of fairness in the country which in theory is something that makes us stand apart seem to be have been "bought and paid for". Only when national emergencies arise to we try to fix a few things, until the American public loses interest and then we slowly go back to how things were. The whole lobbyist system in itself is simply a complete disaster. An entire website could be devoted to these piranhas. Frankly, it is all quite dispiriting because while the faces, names, and organizations change - I read the same stories year after year.

Below are some blurbs from the New York Times series in relation to Chuck Schumer, who many consider one of the "good guys" or "moderates". And frankly he is doing what every state representative does (from either party) - protect the turf of his constituents - but since his donor list includes the high and mighty firms of NYC a lot of the "protections" he builds into bills for his contributor list, cost the rest of us. This is just one example, but a proxy for how Cramerica works - for the corporation, by the corporation. The dogma of lack of regulation and let free markets reign (self regulation doesn't stifle innovation!) jammed down our throat for years on end, until it blows up - and then we have to come to the resuce with our personal resources to save the system; the same system which was built agains the "common guy" in the first place. If it wasn't so tragic it would be laughable. I'm just amazed in 3rd world countries people take to the streets and protest "injustices" - here we just say it's the system. And take it.
  • As the financial crisis jolted the nation in September, Senator Charles E. Schumer was consumed. He traded telephone calls with bankers, then became one of the first officials to promote a Wall Street bailout. He spent hours in closed-door briefings and a weekend helping Congressional leaders nail down details of the $700 billion rescue package.
  • The next day, Mr. Schumer appeared at a breakfast fund-raiser in Midtown Manhattan for Senate Democrats. Addressing Henry R. Kravis, the buyout billionaire, and about 20 other finance industry executives, he warned that a bailout would be a hard sell on Capitol Hill. Then he offered some reassurance: The businessmen could count on the Democrats to help steer the nation through the financial turmoil. The message clearly resonated. The next week, executives at firms represented at the breakfast sent in more than $135,000 in campaign donations.
  • Mr. Schumer became a magnet for campaign donations from wealthy industry executives, including Jamie Dimon, now the chief executive of JPMorgan Chase; John J. Mack, the chief executive at Morgan Stanley; and Charles O. Prince III, the former chief executive of Citigroup. And he was not at all reluctant to ask them for more.
  • But in building support, he has embraced the industry’s free-market, deregulatory agenda more than almost any other Democrat in Congress, even backing some measures now blamed for contributing to the financial crisis.
  • Mr. Schumer, a member of the Banking and Finance Committees, repeatedly took other steps to protect industry players from government oversight and tougher rules, a review of his record shows. Over the years, he has also helped save financial institutions billions of dollars in higher taxes or fees.
  • He succeeded in limiting efforts to regulate credit-rating agencies, for example, sponsored legislation that cut fees paid by Wall Street firms to finance government oversight, pushed to allow banks to have lower capital reserves and called for the revision of regulations to make corporations’ balance sheets more transparent. (and this is a Democrat - it's called beholden to those who fund your political campaigns)
  • At the same time, Mr. Schumer has cast himself as a populist who looks out for the middle class.
  • In an interview, Mr. Schumer said that until the recent market turmoil, he did not fully appreciate how much risk Wall Street had assumed and how much damage its practices could inflict on ordinary Americans. “It is a learning process, no question about it, an evolution,” he said, adding that he now believed that investors and homeowners must be better protected. (something about horses and barn doors would be appropriate here)
  • He is serving the parochial interest of a very small group of financial people, bankers, investment bankers, fund managers, private equity firms, rather than serving the general public,” said John C. Bogle, the founder and former chairman of the Vanguard Group, the giant mutual fund house. “It has hurt the American investor first and the average American taxpayer.”
Bogle nails it - the 2nd half of the story gives many individual stories of bills he fought or watered down to the point of making them useless in terms of regulation. But in our two faced culture of politics (watch what they do, not what they say) after all the things he was parner in (Phil Gramm was his best buddy in many of these initiatives) he has the audacity to come to the floor and say
  • “After eight years of deregulatory zeal by the Bush administration, an attitude of ‘the market can do no wrong’ has led it down a short path to economic recession,” Mr. Schumer said on the Senate floor in September.
  • He has not assigned responsibility to himself or fellow Democrats, saying he had no way of knowing of the misdeeds going on on Wall Street.
And how would we know when our politicians are fighting to make regulation as lax as possible? Duh.
  • In recent weeks, Mr. Schumer has listened to Wall Street leaders for advice on what should come next. At a dinner at Morgan Stanley’s headquarters the night before the presidential election, John Mack, the chief executive, and a dozen top hedge fund officials talked with Mr. Schumer about possible changes affecting their industry. “He is mindful that this is a very big part of his constituency — Wall Street.”
*note - before the emails rain in, I am independent and believe both parties have hijacked our system for self benefit. I'm not picking sides. Frankly there is very little different between either side anymore and they enjoy their monopoly. It's a broken system, perio - and as long as they keep the sheep from each side busy fighting each over over minutia - they win. I don't attack one side or the other - they both, plainly, let the average American down in a huge way year after year. The story is simply a showcase of the symptom - it applies to farming bills, energy bills, transport bills, healthcare bills, everything. And to show when we get on our high horse about how everything is superior (USA! USA! USA!) - that it's really no different than crony filled "3rd world" countries - it's just placed in a much nicer package.

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