Clinton Agrees about Goldman

Former President Bill Clinton, not Hillary, that is. I mention this only because it was unexpected. First, I didn't expect to see Bill in the press commenting about Goldman; second because I would have guessed he'd spin it somehow on account of his links to the Administration's tough stance. Rather, here is what Bill had to say in a CNBC interview:

"base on what I read in the press about the--of Goldman and the CEO, it didn't seem to me that that was illegal, what they did."

"If we don't think it's advisable for people to be gambling one step removed on derivatives because it adds to the instability inthe marketplace, then there are plenty of ways to deal with that without claiming that it's illegal."

"...what we ought to do is have an honest conversation about what really happened, how to fix it, and how to get what's best about vital capital markets...I think to lower lower the rhetoric and talk about the facts, that's how we ought to deal with this."

Well, that was more or less my sentiment about SEC vs. Goldman. Even Slick Willie haters have to admit he can be pretty darn pragmatic sometimes. Regardless, unless a scandal is involved, I doubt anyone will pay attention to Bill's advice.

Auto Draft

Tech skills wanted

We are interested in moving from Wordpress to Blogspot. Unfortunately, we don't know of a good way to port TLRB over. To be more accurate, I don't technically know how to do it; nor do I have the time to figure it out. So, if you have a few hours and some technical skills and would like to give us a hand, please email us and let us know. We'd be very grateful for the help. Thanks!

Ugh. Some thoughts on today's market crash that wasn't

Whew, some ride! What started as a "normal" skittish day in the markets nearly turned into outright disaster. In case you didn’t see it, around 2:25 PM, the market began to inexplicably plummet. Within minutes, the market was down over 8%- a veritable crash. It was truly stunning was just how fast things turned. Usually there is a little warning- a sense of impending action, bad news on the tape or other confluence of events that ease everyone over the falls. Not so today. Rather it came like a bolt out of the blue. Naturally everyone immediately sought reasons- a hung British election, spreading of the Greek debt crisis including riots at roughly the same time, possible liquidation of a hedge fund or program trading. Early indications seem to point, in part at least, to a system malfunction or rogue trade. P&G traded from $62 to $39 while Accenture traded down from $42 to $0.10! That just doesn't happen in functioning markets and clearly some glitch plagued the market today.

Yet "bad prints", which is trader terminology for a mistake, happen often and don't unglue the system. One view might be that the market was exceptionally skittish going into today. Many metrics indicated that the market had overly bullish sentiment, “overbought" conditions, expensive valuations and had largely ignored recent negative economic developments in Europe. Complacency on account of "the recovery" is rampant.

One example of how investors seem to be throwing caution to the wind lately is how they have reacted to, or failed to react to, Greek woes.  The situation in Europe has been known for months yet the markets have been complacent. Did investors just wake up for the first time today and notice how pathetically the EU is dealing with the situation? That is very plausible and if true, then caution had certainly been thrown to the wind and we could be in for a sizable correction. Just as a relatively small amount of subprime loans crippled the entire banking system, Greek debt along with Spain, Portugal, Ireland and Italy could also cripple the system.

Then again, this may have been a very random event; a mere matter of coincidence which we’ll all soon forget. At this junction, it is impossible to tell yet. While it may be comforting to hear pundits (yes you, CNBC!) definitively claim this or that, the reality is that we don’t know how this will play out.

---------------------

We've witnessed nearly everyone bash the US Dollar over the past few years. As I've often commented, the dollar is indeed a weak currency-  except for all the rest. The Euro is not a currency; rather it is a currency experiment and we're in the lab right now. The ECB has been quiet and largely powerless, Germany and France have made promises
only to reneg, while the Greeks seem to want their cake and to eat it too. Spain, Portugal, Ireland and even Italy face huge issues. As painful financially and politically as TARP was- at least we dealt with the issues in about a month and on short notice.  The EU hasn't done anything to address Greece after months and months of fair warning. Yet some continue to insist the Euro should be the stronger currency? I think not.

---------------------

Watching CNBC today, I heard discussion on the possible rogue trading  include comments such as "where are the regulators?" and "where are the checks to make sure these things don't happen"? I must laugh at the hypocrisy- CNBC is a bastion of pro free-market, anti-regulation rhetoric. God forbid someone want to regulate market processes- how dare they! Let the private sector decide if program trading, high frequency trading, co-location and hedge fund algorithim flows are okay. As soon as something goes wrong however, out come the calls for adult supervision! Those pundits really ought to think about their positions a little more than superficially. Alas, they're just talking heads I suppose. Too bad people take them seriously.

---------------------

I've wanted to address high frequency trading since it surfaced as a potential abuse last summer, but didn't get to it. Perhaps now it is time. Coming soon...

Goldman vs. SEC

Everyone "knows" Goldman Sachs is the root of all evil and that this SEC complaint is just more proof of that fact. While I'm not going to defend the morality or ethics of GS in any way, shape or form, I will say this is a pretty weak complaint on the surface. In fact, I think it might have ulterior motive.

The complaint is relatively short at 22 double-spaced pages. (Why do government documents always look like they were typed in 1952? Haven't they heard of Microsoft Word?) You can read it for yourself here. Anyway, the crux of the issue is a "synthetic CDO" called ABACUS 2007-AC1.

A little spot of Greece

Okay, I have to first admit something. I've always wanted to use this title for something. Anything really, but I didn't have a good opportunity until Greece got itself into a bit of economic trouble. That line comes from Mel Brook's movie To Be or Not To Be (about 1:03 into this clip):

Make Money Fast

I would hope nearly all of The Long Run blog's readers know instinctively the problems with pyramid schemes and their fellow traveler the "multi-level marketing" errr "opportunity". The Internet is always adapted by the MMF (that is to say the "make money fast", not "money market fund" or "male/male/female") types. Back before the web, when USENET was the social media venue of choice for many, the scourge of USENET was the "make money fast" post. Wiki has a pretty good history of it. Cult animator Mike Jitlov did an enduring parody of it called "Big Money Now". (Be sure to click the "hit space bar" links at the bottom to get the whole uber long work of art.)

Let's go postal!

One strawman that is often raised when arguing about the efficiency of government bureaucracies is the U.S. Post Office. The GAO just released their assessment of the Postal Service’s financial viability and proposed fixes to the system. Let’s take a look at some postal facts.

The USPS is not profitable. It hasn’t been profitable since 2007.

April Fools on Me

I had dinner with some clients of mine last night. A husband and wife, the three of us spent several hours going over things and having a nice dinner. Then I get the following email today, which admittedly made my heart skip a beat:

Dear Brett:

Thank you for your visit and for dinner last night. We buy next time...

that is, if there is a next time. I must be honest to say that we were both taken aback and shocked, to say the least, by your display of poor judgment, lack of common good taste and appalling lack of appreciation for one of our core and life-centering principles:...

By now, I'm thinking "oh no, what did I do/say/not do or say?"  How in the world could I possibly screw up so bad?  It continues...

Your credit score hurts more than your credit

At a party this week, I was chatting with a friend. She relayed to me a story regarding her credit which serves as a good cautionary tale to all, the gist of which is this: your credit score can affect more than just your the rate on your cards.

You see, companies have figured out that FICO scores are good predictors of who will pay their bills on time. Insurance companies have started giving discounts to customers with higher scores on the notion that they will pay on time and are generally more responsible. Actuarial data tend to support this. Of course, we could easily look at it the other way: that insurance companies penalize those with lower scores by raising their premium.

A Greek Tragedy for Anti-Keynsians

It's common for Austrians and pro-freemarketers to lambast even light Keynesians about their conclusions. We hear things such as "you just don't understand" economics or markets constantly. For better or worse, Wall Street is overwhelmingly pro- free market and anti-Keynesian. As we often point out, people have a fantastic ability to fool themselves. Here is a great example.

Chinese Effrontery, part II

We have an old saying, "the pot calling the kettle black". This English proverb simply means "when you accuse a person of doing something that you are guilty of doing yourself."  Perhaps there is no such similar Chinese proverb? I wonder this aloud because China's Premier is doing just that.

A Ski Day

A significant storm dropped 3 feet of snow on the southern Rocky Mountains last week. Friday was the first full day since the snow stopped and if ski patrol had time to clear avalanche danger, the ridge would be open. Forecast to be clear, sunny  and warm, taking a ski day was certainly in the cards.

My day started with the best breakfast burrito one can find, from Abe's Cantina in the  tiny hamlet town of Arroyo Seco, NM, about 12 miles from Taos Ski Valley. Not long after I  found myself warming up on a few groomed runs in perfect conditions. Arriving at the  top of the highest lift, the view of the ridge opened up with it's bright white  cornice reflecting the morning sun. It was time.

The irksome version of "going green"

This will be a short one.

It seems everyone, everywhere is "going green". This usually consists of going "paperless" by sending invoices and account statements electronically. I'm all for that.

What irks me is when retailers print lots of posters, signs, banners, end-caps and other in-store promotional materials just to tell me they are "going green". What also irks me a great deal are companies that find it important enough to put something like "XYZ co is proud to be green" in all their electronic communication, then attaches the forms you need to renew your policy/account/billing info etc. Of course, those electronic forms must be printed and mailed or faxed back. This is what is known as "greenwashing"- promoting the intangible niceties reflected by green initiatives without actually accomplishing anything green. Most often, these activities merely shift the cost of printing to you rather than truly eliminating paper and ink from the process.

This irks me almost as much a the prolific tip jar that springs up everywhere from coffee shops to fast food joints and just about every service counter in America. But that's a rant for another day.

Always blame the speculators

"Speculators" are an old scapegoat standby. Those with fiduciary responsibility always like to blame someone else for their mistakes. I suppose it's a natural human reaction that it must be someone else's fault. The most recent nonsensical iteration of this phenomenon is currently being played out in Europe as officials there seek someone to blame for Greece's woes.

Finally a stimulus plan that works

Finally a stimulus plan that will save America. Or at least that's how the email reads. I've seen it too many times now, that I just have blog about it. Some genius' plan goes like this:

Toyota Grades

I've spent years watching companies over time. You get to observe lots of neat things if you look closely. Companies almost appear as living, human entities (they're not, Supreme Court!) For example, one can observe a formerly innovative and nimble company get "fat and happy" and lose their competitive lead. This can happen for all sorts of reasons, not the least of which is simply good, old fashioned arrogance. Corporate culture plays an important role too, particularly when a company's work force doubles in a relatively short time. The newer employees change the culture or have trouble integrating or are simply less manageable due to the sheer size and speed of the expansion.

Investments that cost you money and why I don't like them

A mouthful of a title for sure, but it says it all. I frequently find myself dealing with people who get into "investments" that cost them money. By "cost them money", I'm not talking about an investment that went south and ended up at a loss. That happens all the time and is part and parcel of all investing. Rarely do investors find themselves without any losers. No, that's not what I'm talking about.

When does the Chinese Credit Card Crisis Hit?

Koreans, as in Koreans who live in Korea, are not the best drivers. Korea has some of the highest car fatality rates in the developed world. The first time I set foot in Korea, it struck me how almost every car on the road had some kind of dent. Road rules seemed Darwinian. If you had the biggest vehicle, you had the right of way. Pedestrians were 10th class citizens, even on sidewalks.

International Intrigue, Swiss-German Style

An otherwise quiet government organization in Europe is attempting to buy secret cross-border bank account data. The unknown organization that has the data is asking $3.5 million for it. Authorities from two countries are trying to negotiate with the data hostage taker. Sound like a plot for a James Bond movie? Actually, this is exactly the dilemma faced by German and Swiss authorities right now! First, a brief background.

Another Ponzi scheme exposed in Fraud Lauterdale

Yep, another Ponzi has been exposed. Though not quite in Madoff's league, it is still a big one at $1.2 billion. One Scott Rothstein created a large 70-lawyer law firm in Florida where he used the scheme to buy influence. According to news reports, he made generous donations to political campaigns, owned "hundreds" of cars, homes, jewelry, watches and businesses. He used the faux wealth to hobnob with politicians, sports celebrities and support an extravagant lifestyle. When discovered, he got on a private jet and fled to Morrocco with $500,000 in cash after wiring $16 million to Casablanca.

Keynes vs. Hayek

Yo yo yo! Rap style!



Word.

Obama proposes bank taxes, reforms

A couple of thoughts on the proposals this week. Let's start with this proposed "bank tax". Given the outrage centered around bank bonuses, the tax is supposed to penalize the banks for requiring government help last year (in the form of TARP). The idea is that the banks benefited from TARP and TARP will probably lose money on some portion of its loans, therefore we'll tax all banks to make up any shortfall to the return of taxpayer funds.

Google's threat to pull out of China: What does it have to lose?

So Google threatens to pull out of China.

What does it stand to lose? The most obvious answer is it loses out on 1.3 billion people to click on Google ads. Like any business Google has to weigh the cost of complying with local regulation versus the profit or potential profit.

It's January, so that means more of the January indicator myth

Every January, without fail, the financial press haul out their stock articles about the January indicator*, update a few numbers and voila! another article done for the month. The WSJ ran a piece about this "bellwether indicator". As expected, journalists got it wrong and only promoted the often quoted myth. If the WSJ can be lazy enough to post the same old tired article, I can take a few sentences to point out again why this particular bit of Wall St. lore is wrong.

Market Rally Explained by Fed/Treasury Conspiracy

Ah, the first grand conspiracy theory of the new decade. That's what my email tells me anyway. A friend informed me about a story that a major Wall St. research shop has publicly said it thinks the Fed and Treasury are behind the massive stock market rally of 2009. According to sources (the WSJ's MarketWatch and Financial Times), founder and CEO of TrimTabs, Charles Biderman, claims that the money required to raise the market so much could not be accounted for, hence the government must have done it. I'm paraphrasing of course, so let's see what he really said:

Think for Yourself, Buffett Style

We've written twice about the pending hostile takeover of Cadbury by Kraft. As an illustration of the Agency Dilemma or principal-agent problem and a quick followup. The story continues to remain interesting (at least to me- hey, I find this stuff dramatic, ok? Some like football, I like hostile takeovers. Call me a finance nerd!) Anyway, Kraft's largest shareholder is none other than Warren Buffett's Berkshire Hathaway. Berkshire owns some 9.4% of the company, a significant voting block. Kraft just sent out proxies for a "special shareholder meeting". "Special" shareholder meetings are not, as one might assume, some grand event to celebrate the company's success complete with band, sushi buffet, dancing and balloons.

Reflecting on Y2K. Ten years on. Thirty eight years on.

I used to write an Internet column for a daily newspaper in Toronto. I started writing it in 1995. Back then web browsers were new fangled ways to access the Internet, although I was certain the Web was just a fad and Gopher and FTP were the way to go. To toot my own horn, I was the first person in Canada to write a regular column about the Internet for a Canadian daily paper.