Prudens Speculari

Former #GoldmanSachs Trader Accused of Fraud. $GS

2012-11-09T10:44:00.000-05:00

In what should be filed under same old, same old. A former Goldman Trader stands accused of fraud by U.S. regulators. Well now, what a shocker. It appears one Matthew Marshall Taylor stands accused of defrauding the bank of 118m. The FT piece states;

"in late 2007 “intentionally concealed from his employer the size of the S&P 500 e-mini futures contracts position, risk and profits and losses,” the Commodity Futures Trading Commission said in a civil complaint filed in a New York district court on Thursday."

Okay.

"For instance, the CFTC said, Mr Taylor put on a real trade of 34,604 e-mini trades on December 13 2007. He then manually entered a fabricated sale of 33,000 contracts, the regulator claims. The false sale had the effect of appearing to reduce Mr Taylor’s e-mini positions from 37,104 contracts to 4,104 contracts."

Okay.

"On that same day, the CFTC said, Mr Taylor went on to amass a position in the futures contracts worth over $8.3bn. Mr Taylor then prepared an end of day profit and loss report showing a false loss of $2m, the CFTC said. Mr Taylor’s actual loss for that day was $52m."

Okay

“He . . . was promptly removed from his job and terminated soon thereafter. Since these events, which had no impact on customer funds, we have further enhanced our controls.”

Okay got it.

"After leaving Goldman, Mr Taylor went on to work for Morgan Stanley."

Say what?

Okay, I think I have the picture but I have a couple of questions and then some comments regarding this whole thing.

First. This happened in late December 2007 and the CFTC is now filing this complaint now? Is the CFTC that busy chasing down thugs on Wall St. or have they caught the porn surfing bug from the SEC?

Second. How does a trader at a global leader in finance, a firm on the cutting technological edge of all things financial - the type of high tech stuff that can sniff linen with the number 100 & Ben Franklin's face on it from a couple hundred nautical miles-, the place where God's work is done, get away with manually entering a fabricated sale of contracts to conceal a position's size?

Third. How does an thug like Taylor pull off this stunt and then get hired across the street at Morgan Stanley? Sounds to me like Wall St. does a much due diligence on their new hires as they do on their IPO offerings to customers. ZERO!

Morgan Stanley either did or didn't investigate his background. Seriously. How long would it take Morgan to have found out the skinny on this dirt bag Taylor? About 15 minutes via the phone, that's how long. Wall St. gossips more than a room full of Italian ladies on their husband's bocce day. So let's assume Morgan did investigate him and knew his background. This tells me they simply don't care so long as he can make em' a buck.

I'll tell you why this happens. Because there is a culture on Wall St. today that would make a Charlie Merrill and others of his era cringe at the thought of. A culture of thugs and thieves that would sell their wife and/or daughter into sex slavery for a 6 figure bonus. A culture of tolerance for the intolerable so long as they make the managing partners buck. A culture of willful blindness by even the decent and honest (who are the majority) among them to patently offensive behaviour as to insult one's intelligence. A culture rotten to the core.

By tolerating this lawlessness and thuggery they are killing the proverbial golden goose which is the market. Not to mention what the criminal high frequency trading has done but you can re-read my piece Culture of Risk from August this year following the Knight Capital debacle for that .

Virnetx Holding - $VHC

2012-10-22T14:57:00.003-04:00

I came across Virnetx Holding, ticker $VHC, while I was chart surfing. Quite the flag formation after a volume laden impulse move down.

As my notes indicate, a break of the lower boundary of this flag implies things that are- how do I say this diplomatically,..... -not nice.

#Goldcorp - $GG

2012-10-18T14:08:00.000-04:00

After quite the impulsive move up off the 32 level Goldcorp - ticker $GG - has stopped to catch its breath and is sporting quite the nice looking flag formation. We could violate the lower bound of the channel to se up a small double bottom inside the channel. Need to see that low of Oct 15 hold.

As an aside the larger double bottom off $32 with a midpoint of $41 carries a target of $50 on it. This flag if broken to the upside carries a target of, depending on breakout of $61, which if you peek at a longer term chart would make new highs. Very bullish longer term!

#CarboCeramics - $CRR

2012-10-18T12:06:00.000-04:00

Weekly view of Carbo Ceramics ticker $CRR. Notes on the chart.

Below is a daily close up view where it appears to be sitting on some long term support. I want to watch this very closely here.

#FirstMajesticSilver - $AG

2012-10-18T11:27:00.000-04:00

The daily chart on First Majestic - ticker $AG - shows a really nice pennant (highlighted area) forming here. Coincidently, right on top of the prior reaction high at $22. Worth watching people.

Cummins - $CMI False Sense of Security?

2012-10-11T15:13:00.002-04:00

The weekly view of Cummins Engine ticker $CMI is shown below. Back in early 2011 we had what looked and then turned out to be a 'too good to be true' looking head and shoulders formation (shown in aquablue). The break of the neckline in August lead to quite the skirmish between bulls and bears with bulls winning out. Notice the low volume rally back in January this year. What was that about volume and validity???

Either way made a new high by about $10 bucks, attracted all the momo hedge fund valet attendants most of which know as much about risk management on YOUR money as they do about the ecosystem in the Republic of Congo. The stock looks to have rolled over with one last gasp forming a possible right shoulder of a NEW head and shoulders formation. So now having disappointed folks once will this new formation lull stockholders into a false sense of security??

The late 2009 consolidation around $45 looks like the target if the neckline and more importantly, the reaction lows of 2011 are broken.

#Caterpillar - $CAT Time to Say Good Night Irene?

2012-10-11T14:55:00.001-04:00

Quite the chart Caterpillar ticker $CAT, is sporting. The weekly view below shows couple of things. An interesting looking double top, a very tired looking 13/34 week moving average scene and last but not least the breakdown from a recent bear flag.

The break of the bear flag brings in a target of $50.
A break of the double top low of roughly $65 brings in a target of ..... ummm, uhhh, $15.

Remember now this is a weekly chart! Time will tell. The CAT bulls will consider this talk heresy but come to think of it the Nortel bulls thought the same way years ago. Of course this time, live every other, is always different.

A Look at Apple - $AAPL

2012-10-04T13:25:00.000-04:00

I took a moment to take a look at every Ivy League educated money managers favourite "must own" stock Apple - ticker $AAPL. Remember now, this is cheap and gold is the one in the bubble!

Or as one Wall St. uber-genius once proclaimed. “As long as the music is playing, you’ve got to get up and dance,”. Why yes you do, especially when (A) it's not your money and (B) your bonus depends on it.

It will be funny, yet again, to see all the "genius's" managing OPM fighting for chairs when the music stops playing.

Don't Forget About Me - Silver Wheaton- $SLW

2012-10-04T10:35:00.005-04:00

With all due apologies to the Simple Minds. Silver Wheaton $SLW a weekly view below. For what its worth, $40.50 looks to be a reliable trigger.

An Old Dear Friend - Agnico Eagle - $AEM

2012-10-04T10:21:00.000-04:00

Been watching an old dear friend from tech bubble of late. That old friend is none other than Agnico "you made em' all eat crow" Eagle, ticker $AEM, which looks poised for liftoff. The "you made em' all eat crow" comment comes from buying Agnico back in 1996 thru 1999 for clients in my former life as a broker. These buys were made when the 'all you could eat Gold buffet' was open yet barren of patrons. Sadly many were busy fighting over the much preferred regular fare menu of JDSU, NT, MSFT, INTC etc. and proceeded to take their appetite and their business elsewhere amidst many a derogatory comment to my pal Agnico. C'est la vie! Needless to say back to reality.

Nice rounding bottom as slowly the 50 has crossed the 200day and now the 200 is turning upwards. The stock poked its nose thru an almost 2 yr downtrend line recently only to back off. rejection off the downtrend line occurs coincidentally right near the top of a large outstanding gap, which we have now filled, from late summer/fall of 2011.

A convincing move up thru 53.25-50 on volume here would seem to do the trick and be your cue to buy a ticket on this train!

A Look at Natural Gas $UNG - Chart

2012-10-03T12:50:00.000-04:00

Been watching the chart of Natural Gas which you can easily follow via $UNG. Daily view below.

The last 4 years have been a relentless march lower. The action since late April has drawn my attention. We have formed a series of higher highs and higher lows. Just a few days ago the 50 day MA crossed over the 200 day to theupside. For some perspective the 50 has been buried under the 200 since 09/09/08 ! For those interested in longer term stuff the 13 week MA has crossed over the 34 week MA.

Couple of things could happen here. We could back and fill and retest the new upward trendline around 19 or the MA's or we could take out the Aug high along with the recent high at 23 which would be very bullish.

Things could get very interesting here for the patient among us.

Silver Wheaton - $SLW - WOW!

2012-09-26T11:25:00.002-04:00

The chart of #SilverWheaton, ticker $SLW, 5yr weekly shown below shows an absolutely outstanding flag pattern.

Delightful impulsive break out move through the upper band earlier this month on volume and now we wait. I am waiting on:

1) a re-test of the top of the flag (upper blue line) which would represent an entry point for those that missed the break out and 2) a move though the recent high of and

2) a break out thought the recent high just above 40 which is also the prior resistance lower high from the move down in early 2011.

For those wishing a longer term view of this gem, have a peek a the 10yr monthly below.

The Fed, Lunatics and Anonymity

2012-09-11T09:47:00.001-04:00

I want you to take a moment if you haven't already, and click the link here and watch CNBC's interview with former Reagan OMB director David Stockman. You don't have to wait very long for the money quote for at about the 1:30 mark Stockman unleashes with this classic that will go down in history;

"The Fed, and the lunatics who are running it, are basically telling the whole world untruths about the cost of money, about the cost of risk, about how you allocate capital."

And yes people that just about sums things up. Regular readers may notice that this very fact is something I have been harping on since this Twilight zone began. I also realize that we live in a country where pedigree and breeding count for much more than substance so maybe just maybe people might listen to a former OMB Director rather than an anonymous blogger.

While on the topic of anonymity, which is a subject I have wanted to write about for some time, I have a few things to say. Those not wishing a cure for insomnia may want to change the web channel now.

Few discuss it but I'd like to point out the distinct and sacred place anonymous writing and speech has in this country's society. I have come across some lucid well thought out defences of anonymous speech with few better than "Tyler Durden's" over @ZeroHedge, who put it this way;

"Anonymity is a shield from the tyranny of the majority. It thus exemplifies the purpose behind the Bill of Rights, and the First Amendment in particular; to protect unpopular individuals from retaliation- and their ideas from suppression- at the hand of an intolerant society."

We have all been taught or told the admonition not to judge a book by its cover yet few seem to remember this when the subject of anonymity comes up. People tend to forget that Mark Twain wrote under the psydonym 'Samuel Langhorne Clemens'. Founding fathers Alexander Hamilton, James Hamilton and others wrote under the nom de plume 'Publius' for the Federalist Papers. The widely read Economist magazine is basically and entirely anonymous publication. 20 yr old college juniors could be writing in it, with the help of fancy proof reading and editing gurus, for all we know.

Think to the venom of the economic debate in this country we have. I have often said that if many of the economic and financial pronouncements, analysis and conclusions of Fed governors, Treasury officials, senior Wall St. executives, Ivy league MBA's were uttered by a high school drop out who is roofing your house (no offence to roofers the country over who bust their ass but I need an example right now) we would dismiss them as horseshit but when an Ivy league educated, former Wall St. executive tells the planet Armageddon is coming if we don't bail out his golf buddies we check our brains at the door as we bow down and worship thy pedigreed guru.

Martin Luther King Jr's famous quote "I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin, but by the content of their character" epitomizes the not judging a book by its cover mantra

I bring this up because Finance and Economics has an extraordinary infatuation with pedigree and your DNA stock. I have seen statistics that are a bit dated but I would believe to still hold true that approximately 90+% of Econ faculty members have their PhD from a top 10 school. Yes, I know top 10 based on what? Content of the work, the merit of the ideas or on the DNA makeup of the family semen?

Years ago I got into a civil yet passionate debate with an Administration professor I had- who was also the VP Academic at my university -regarding school policy of putting your name and student number on all papers and exams. I argued vehemently but without success for 'student ID number only' as this would remove bias on the part of professors. I had seen another university's study showing a student final grade hovered very near his first piece of works grade. So if you first paper was a B odds showed you were B+ to B- range bound. The statistical spreadsheets bore this out. I do know of people who submitted papers that 6 years prior were good for an A but for a C+ student were only good for a B-. Needless to say he was a good man with a good heart who I will always respect and admire but he was caught in a system that as they saying goes "the nail that sticks out gets hammered".

Either way I hope you enjoyed what Stockman had to say, and maybe just maybe in the future we all can look more closely at the content of the idea rather that the packaging said idea comes in. Have a great day!

Facade

2012-09-10T12:22:00.003-04:00

According to the cats at Dictionary.com

fa - cade: [fuh-sahd]
noun

1. a superficial appearance or illusion of something

That pretty much sums things up today now doesn't it.

UK Daily Mail report last week that performer Lady Gaga has about 30 million followers with only 29% of those tweeting regularly. You do the math, real math now, not Wall St. twilight zone math that got us into this mess, but honest to goodness math and it reveals a fakery rate of about 70%. This report on Lady Gaga twitter fakes follows a report from late last week that the President has almost 19 million followers with claims that more than half of 'em don't exist. Half! Should we even hazard a guess as to the number of 'fake' followers the walking, talking, android Mitt Romney has as followers. Should we really be surprised, the come-ons I receive via the net offer 2k twitter followers for the bargain basement price of $15.

Facebook, the much heralded social media outfit that makes nothing, produces nothing which makes it the prototype for a -- sheering of the public, excuse me, I meant to say a vaunted much publicized Wall St. IPO. Actually I am being a bit harsh and overly critical when I proclaim that Facebook makes and produces nothing because it actually permits one to waste vast quantities of time doing nothing, most often while on the company dime. Did I mention Facebook also likes buying less than 2yr old companies with no revenues, no profits for about a billion dollars. Yes I like alchemy over math as well. I actually heard a story that Facebook is going aggressively after spam and fake accounts. Of course Facebook and its IPO handlers on Wall St. knew none of this pre-IPO and have only discovered this now, post IPO. Can anyone in the room spell due diligence? Anyone? Bueller? Anyone? Bueller?

But it doesn't end there. Take the executive Yahoo hired to run their outfit? Seems Scott Thompson fudged his resume a little bit by claiming he had a computer science degree that he actually didn't have one. Oops. Not like he said he varsity lettered when he really was only intramural.

Or the jobs number from last week. When more people drop from the labor force Wall St. and Washington math dictate the unemployment rate goes down. At least we all know how we can officially get unemployment down to 0.0%.

I could go on and on with yet dozens of episodes from the dotcom facade and the Wall St. thugs like Henry Blodget, Jack Grubman, Mary Meeker and their ilk but you have heard them and if not you can Google them. It is an epidemic of fakery and fraud has and continues to spread like locusts across the country. Remember how the banks were having a 'liquidity' problem back in 2009? That purported liquidity problem was so great they had to send in their professional water boys and stooges to get FASB 157 passed.

FASB 157 was the suspension of mark to market accounting on holdings to mark-to-make-believe. Yup, free market capitalism. But you're an idiot blogger when you call it what it is crony or criminal capitalism but you're a contributing regular to financial shill TV when you tow the party propaganda. I still remember former Fed imbecile Bob McTeer's comments on the benefits of allowing his country club buddies to market securities to any level they deemed. Club memberships do have their privileges right? Sure Bob, why would the public want to trust an open public market price discovery mechanism to value toxic waste, absolute garbage securities all you buddies and cronies are neck deep via 50:1 leverage when one can simply rely on the honesty, integrity of NINJA/Liar loan offering, robo signing, front running, LIBOR fixing, money laundering management of those same financial institutions? But why take my word for it when you can read what noted sober money manager (emphasis on sober) Paul Singer of Elliot Management had to say on this subject in his most recent communique.

"Decades ago, the balance sheets of the Financial Institutions contained most of the information you needed to know to understand their risks. Today the picture is profoundly different, predominantly due to the growth of leverage through derivatives....As a result, there is no major Financial Institution today whose financial statements provide a meaningful clue about the risks of the firm’s entire panoply of assets and liabilities including derivatives, nor how the firm’s performance, or even survival, will be affected by market movements in the future."

Whatever you do today do not look at the chart of this relic of an economic indicator because in doing so you may see through the facade.

Struggling To Reconcile

2012-08-24T10:40:00.001-04:00

Came across an interesting chart recently via the ICI Investment Company Institute in the WSJ. Its illustrates where investors have been putting their money the last few years. Green is bonds and orange is equities. Above the line is positive (money inflows) and below is negative (money outflows).

I struggle to reconcile the above chart with the one below which is the S&P. Maybe 2+2 really does equals 6 as the MBA's at Wall St.'s primary dealers keep telling us. Or maybe in the fullness of time the turth

Social Networking Junk

2012-08-23T12:03:00.000-04:00

I haven't touched on the social networking sector in some time so I thought I would today. These gems are really something to behold. The sector is highlited by Facebook ticker FB. What do you say about this? The chart says it all. The latest news is the sale of a huge whack of stock by insider Peter Thiel.

All the experts out the woodwork now that the horse has left the barn. I especially enjoyed the laughable rant by Jim "any investor who can get shares of Facebook should purchase as many as possible Mad Money 0516/12" Cramer the other day regarding the Thiel sale of stock. Funny how Jim gets lathered by an insider selling out, which by matter of fact is EXACTLY what an IPO is, yet the billion dollar purchase of a NO revenue, NO profit less than 2 yr old startup company Instagram (or Instacam as it should be called) is not concerning? Sadly for the minions who follow the pied piper of hype, the common denominator for Jim Cramer is if things are going up "who gives a shit", but when things tank, look out cause he's a scapegoat huntin'.

But it wasn't just Jim Cramer. The street is full of his ilk. Do you remember these gems.

"I would invest in Facebook, I don't care what the opening price is"
Apple co-founder Steve Wozniak as part of Facebook pre-IPO hype which should become case study blueprint material for aspiring Wall St. propagandists. So sure Steve, and the rest of us would eat, drink and party like drunken sailors were we worth a couple billion.

"Investors looking to short Facebook stock are getting in front of a freight train"
Needham and Co. senior analyst Laura Martin Wed May 23. 2012 with FB trading around $31-32/share. I didn't even mention the $40 target she had on the stock. Thank heavens they didn't let a junior shill, excuse me, I meant analyst near the stock.

Well, the social networking stocks continue to get crushed which is at it should be. Math is math and 2+2=4 no matter how many times an literal army of paid, Wall St. MBA's tell you it equals 6.

Anyway back on April 23 of this year I had the following posts on twitter regarding some social networkers.

"ZYNGA shareholders join GRPN 1's hope'g 4 an Instagram-esque buyout miracle. Like GRPN, no fraud, simply "growing pains"

That comment about growing pains was from some Wall St. "Henry Blodget-esque' analyst reassuring the 'muppets' that holding the stock that all was well.

"With Wall St. track record sell'g toxic paper I marvel @ the sheep lining up 4 shear'g. IPO shud B renamed ISO. Insiders Selling Out."

To remind everyone the term 'muppets' is how Goldman Sachs fondly refers to its paying clients. I wonder how many Goldman clients out there think, "they can't be referring to me, gotta be the 'other clients"

"Don't forget that other social networking 'must own' gem Angies List ANGI - 14.5 better hold or the target is 9.25"

Below is a daily view of Angies List ticker ANGI. The yellow highlited area is April 23 where I outlined the 14.5 mark. Notice the activity April 27 (purple), May 3 (green) and May 9 (blue). I suspect high frequency trading algorithms on a short stop loss hunt, but I am not an expert in that arena.

I bring this up because ANGI although it took a while and attempted to gouge out the eyes of anyone daring to short it the piece of junk, yes thats what it is, is now trading 9.70 and hit 9.43 this morning. It took the the milk bus route to get there but arrived nonetheless.

The Math Doesn't Lie

2012-08-21T12:07:00.002-04:00

I realize we live in a new world economy. One ruled by the Ivy league MBA, smartest in the room, set, who, full of arrogance, hubris and the next bonus cheque have created this financial Frankenstein that refuses to end. I understand that in this new fangled era of financial alchemy, schemery and chicanery lead can not only be turned into gold, but once you done so and sell it to the Sisters of the Covenant pension fund you can keep your bonus and avoid prosecution when the truth is revealed. Now this can only be accomplished if you possess that Ivy league MBA or have been a guest on CNBC because if you have, you simply cannot be a hack (Jim Cramer's conclusion not mine) or a thief.

In this new era ponzi, old economic indicators like employment, income per capita, debt, net cash and other meaningful indicators mean little. Why would anyone waste the benefits of said MBA analyzing say shipping rates or container rates when you can spend your day buying the dip, writing an algorithm or gaming the central banks.

Now in keeping up appearances you go to conferences and tell wealthy institutions and individuals that you focus on tried and true financial ratios and fundamentals to help with your asset class selection and allocation but you really don't. I mean, David Tepper told us all on CNBC that "investing is easy" right? So why all the claims of investigation and analysis or to quote Lt. Daniel Kaffee questioning Col. Nathan Jessup in the movie A Few Good Men; "If you gave an order that Santiago wasn't to be touched, and your orders are always followed, then why would he be in danger, why would it be necessary to transfer him off the base?"

If its so easy, why all the research and analysis?

Well in the non-ponzi real world 2+2=4 whether you matriculated at Harvard, MIT, Insead or the local Community College. It equals 4 no matter whether your net worth is $1,000, $1 million or $1 billion. It equals 4 whether you are a Libor rigging CEO, a customer fund stealing former Governor, or a corner hot dog vendor.

Speaking of the real world have you had a look at the Baltic Dry Index, which you can view here, lately? You should. is in free fall. The Telegraph had a piece last week World Shipping Crisis Threatens German Dominance as Greeks Win Long Game. There's a couple of choice real world quotes from the piece;

"Britain’s oldest shipowner, Stephenson Clark, dating back to 1730,went into liquidation last week."

"Container volumes arriving at European ports plunged in June, dashing expectations of a summer rebound. Imports fell 7.5% from North America and 9% from Asia. Flows into the Mediterranean region crashed by 16%."

Not enough? Check out this 'real world' quote form Martin Smith of ship operators Norddeutsche Vermögen in Hamburg.

"The market is barely paying above operating cost. If you are loaded with debt, you are in trouble,”

Now there's a novel concept, loaded with debt = trouble and here I thought, via the smartest in the room because they keep telling us over and over again, that more debt will solve a global debt problem. Remember now, its all an issue of liquidity not solvency! Too funny.

"Commerzbank – the world’s second-biggest provider of ship finance, and reluctant owner of a flotilla of foreclosed ships – said it is shutting down its €20bn (£15.7bn) ship funding operations entirely to “minimise risk and capital lock-up”"

Nice. Seems like banking stupidity wasn't confined to liar, Ninja, fog a mirror you qualify real estate loans. Those genius bankers really spread the stupidity evenly. At least they repossessed the vessels which more than I can say for all our lovely banks here playing the delay and pray, extend and pretend game with their notes. I love the author's (Evans-Pritchard) comment in the piece about how forcing banks to raise capital too fast and too soon can choke lending to the real economy.

Really? Sounds to me like cutting off a crack addicted junkie, but alas we are all accustomed to 24/7 extortionist propaganda fed to us by the banks and their paid media stooges, that we need the banks, Armageddon comes if we let any fail blah, blah, blah.

The only good part of all this is no matter what the smartest in the room and their brainless stooges concoct and foist upon us, the laws of mathematics are immutable. Or as Ayn Rand once said;

" You can avoid reality, but you cannot avoid the consequences of avoiding reality."

Musings of An Economic and Financial Sociopath

2012-08-13T11:14:00.002-04:00

New York Magazine's Jessica Pressler had a great piece over the weekend with $JPM's #JamieDimon entitled 122 Minutes With Jamie Dimon which might be more appropriately titled as my post is.

Take some time to read it as it offers great insight into the thoughts of a real live sociopath. Jamie Dimon, much like Dorothy in the Wizard of Oz, believes he can click his heels 3 times and keep repeating
"Bankers are decent honorable people, bankers do good things, I'm not responsible for the financial crisis and dammit wheres my 8 figure bonus check!"

Breathtaking Idiocy

2012-08-07T16:00:00.000-04:00

Sometimes you read a story and it simply is breathtaking in its idiocy. I want you to take a quick few minutes and have a look a this must read piece, Where Borrowing $105 million Will Cost $1Billion: Poway Schools via the Voice of San Diego.

I have seen some lunacy in my day but this simply breathtaking in its idiocy.

If you choose to skip it here it is in a nutshell;

"The bottom line: For borrowing $105 million in 2011, taxpayers will end up paying investors more than $981 million by 2051, or almost 10 times what the district borrowed"

The piece references that the district sought the advice of a, as of yet unnamed, financial consultant. What are the odds this consultant has an MBA, better yet a prestigious Ivy league one at that?

California’s ever-strapped districts have increasingly looked to capital appreciation bonds to raise money for improvements without increasing taxes on current residents. Across the state, districts have borrowed billions this way, using exotic financing to shift the burden for paying for today’s school construction to future generations of Californians.

Sadly this story is not confined to the Poway School district. This something for nothing, kick the can, end run bullshit has become an epidemic around the globe.

I saw it firsthand during the tech bubble when sound analysis was replaced with tales, hype lies and outright deceit. Think Henry Blodget, Mary Meeker, Frank Quattrone, Jack Grubman et al.

Sadly nothing will change so long as the clients, or muppets as they are more accurately described by Goldman Sachs personnel, both institutional and retail continue to accept it period. The phrase "shit for brains" comes to mind for the whole thing. Advisor, client everyone.

Culture of Risk

2012-08-02T11:58:00.002-04:00

The news de jour is Knight Capital ticker $KCG. It appears their in house high frequency trading algorithm went berserk resulting in a, are you ready $440 million loss. Just to give you an idea of the order of magnitude of this loss, Knight Capital financially had;

Q2 revenue of $289million and net income of $3.29million
Q1 revenue of $349million and net income of $33.11million

If you do a quick cocktail napkin tally Knight's quarterly net income backwards this loss wipes out ALL net income since the beginning of 2008. Yes 4.5 years of profit wiped out in 1 day and as you might have guessed, put the company's very survival at risk without a lifeline.

I would hazard a guess that there may be a problem with the risk reward model they use over at Knight. Acutally I wish Wall St. would do us all a favor and stop using phrases like risk management and loss prevention. Start calling it for what it is, a culture of risk plain and simple. A get rich or die trying mentality. Who cares if you sink the ship and 1400 odd people get thrown out of work over your bonus chasing psychopathy you retire in grand fashion maybe even catch a gig at Fed, Treasury or regular on CNBC.

One of the comments I heard to today in the multitude of articles and commentary on this fiasco was something to the tune of 'Knight Capital has been one of the biggest beneficiaries of the evolution of the market (high speed trading)'. Over at the Room Temperature IQ institute, of which I am still a senior fellow in good standing, we call it;

"you live by the sword die by the sword"

This whole Knight fiasco should simply stand on its own as yet another shining example of how the financial alchemists, snake oil salesmen and Ivy league ponzi prostitutes (shall I keep going) have utterly distorted, corrupted, and perverted a market that was once the envy of the globe into a listless, lifeless shell of its former self. Be proud of your creation fellas, you deserve all the karma that's coming for what you have done.

When the dust of your genius experiment settles I expect to see many out there, face to face, on the curb under the buttonwood tree readily employing the 4 c's of credit not to mention a handshake as from the ashes of your avarice and greed will arise the trust, honor, integrity and class that an public securities exchange should have and be.

P.S. under that new scenario, fraud and transgressions will NOT result in fines with neither admissions nor denials of wrongdoing!

When Thugs Apologize for Other Thugs

2012-08-01T16:01:00.000-04:00

I don't know if you happened to catch the news but it appears that the cats over at Zynga are in some hot water. An insider trading lawsuit has been filed against Zynga's executives. It appears that the traditional "lock up" restriction that bans insiders from selling their shares until a certain 'later' date was somehow circumvented or waived.

For reference purposes Zynga went public in December 2011 at $10/share. The stock peaked in early March 2012 at about $16. Since they it has been in free fall notwithstanding Jim Cramers admonitions back in March "the force is with Zynga". The accused insiders were allowed to dump their holdings 43 million shares at $12/share.

In case you were wondering Zynga is now $3/share. How lovely. This is yet another crony capitalist story to pile on top of the existing heap. But I enjoyed this story for its sidebar. That sidebar is one Henry Blodget the former BA in english proof reader, turned internet guru, turned securities fraudster, turned history revisionist, turned born again financial messiah.

Here's what banned for life from the securities industry Blodget had to contribute to the discussion about this cess pool our capital markets, in particular the IPO market has become and that he knows all too well;

"I know many of these folks personally, including at the company's underwriters, and like and respect them. I think the last thing they would intentionally do is unload stock when they thought it was about to crash—especially when the amount they made in the sale, though huge, is still relative chicken feed for them.

Also, all of these folks only sold a fraction of their holdings, so they've been hammered along with the rest of Zynga shareholders by the subsequent collapse."

What more does one say about this. So because its chicken feed we should ignore it? Because Blodget knows and respects them they get a pass? Too bad Carlo Ponzi wasn't around for Bernie Madoff or his legal could have called him a character witness.

He went on to claim;

"I also know from personal experience (unfortunately) just how quickly things that seem to be going well can fall apart."

Funny how ponzi schemes and scams tend to from the penthouse to the outhouse overnight when the suckers stop showing up.

Some Random $GM Thoughts

2012-08-01T14:13:00.000-04:00

I want to touch on the General Motors - $GM - something as I haven't done in quite a while. We all know this is the new and improved, born again, General Motors.

A quick glance at that chart suggests that lower band around 19 sure better hold.
Today we received the news that GM July auto sales were down 6%, Ford's were down 4% by comparison. We do know from previous reports that GM is ramping up subprime auto loans to drive sales. You can debate the merits of this marketing strategy till the cows come home but put simply this is business decision risk which, on a planet known as Earth and a system formerly known as free market capitalism, would normally be born by management and the company's shareholders. Not so anymore.

Some while back ultimate insider Fritz Henderson was shown the door by the board. That move by the omnipotent Ed Whitacre got me to REALLY thinking a lot about all of GM. Fritz had been a lifelong GM'er. So to those who thought he was something different than Rick Wagoner you can continue to keep dreamin' on. I will admit that it must be nice to get fired and then hired back for a $3,000/hr consulting gig but what would I know.

On to more important things. Below is a long term chart of GM's market shares vs imports. Suffice to say GM's dominance peaked in the 60's near 50%.

Now lets compare this market share chart with the chronological list of GM's former chief executives and their background;

Alfred Sloan 1923-1946 (engineer)
Charles Wilson 1946-1953 former CEO of GE (mftg concern at the time and not a closet hedge fund like today)
Harlow Curtice 1953-1958 (wholesale produce family biz exec)
James Roche 1967-1971 (statistician)
Richard Gerstenberg 1972-1974 (comptroller, treasurer)
Thomas Murphy 1974-1980 (accountant)
Roger Smith 1981-1990 (MBA)
Robert Stempel 1990-1992 (engineer)
Jack Smith 1992-2000 (MBA)
Richard Wagoner 2000-2009 (MBA and Hygiene salesman from P&G Ron Zarella)
Frederick Henderson 2009-2009 (MBA)
Ed Whitacre 2009- present (engineer)

It sure looks to this simpleton like the fall started with James Roche as the paper pushers and money changers took over. Sure Stempel (who I was a big fan of) got a shot but for the most part MBA's finance and number experts took over.

According to GMWiki, the transition from Roche to Gerstenberg;
"When James Roche retired the chairmanship in 1971, Gerstenberg was elected to that post. His main rival for the position was GM President Ed Cole. Cole was a "car guy" with a background in engineering and production and was seen as the logical heir from the traditionalist view point. However, Gerstenberg was chosen by the board because his strengths as a money manager and an articulate defender of the increasingly criticized auto industry were viewed as necessary to handle the problems GM looked to face in the coming years. "

Strengths as a money manager and an articulate defender of the auto industry huh. Lovely. I have a good friend whose father is a very successful 'old school' attorney who was visiting and had the opportunity to meet and have a long discussion with on many subjects. His age, his experience coupled with his insight made for a very interesting and educational evening. He did make one comment in particular that night that has stuck with me in which he said;

"Whatever you do never, ever under any circumstances invest in a company where the fella in charge is an attorney or an accountant unless that company is in the law or bookkeeping business."

Based on the above market share chart and CEO time line that advice sure would have saved some GM shareholders some money.

I cannot help but look at that CEO list and not notice a couple of things in particular. First good ol' Roger Smith and his baby Saturn. Smith's baby Saturn which was started back in 1985, had never, ever, ever made a profit but that sure didn't keep the brain trust of GM from pumping billions into keeping afloat this modern day marvel of ego. Sure the dealers made a few bucks sellin' em but at the manufacturing level this "New Kind of Car Company" had never earned a dime. This would, one might think, beg the question as to at what point any of the management or board of directors- assuming they were anything more than a Neiman Marcus dressed version of the Keystone cops- might ask the question why are we keeping this thing going? Maybe they were too busy flying first class cashing their cheques and shutting down money maker Oldsmobile but I digress. Secondly is Bob Stempel who in my opinion over the past decades of rotting decay yes men and governmentication at GM was the only 1 guy worth a red cent over there. Lastly Rick Wagoner. What more needs to be said about this empty suit surrounded by grovelling yes men that hasn't already been 'cept we can always he was responsible for landing that gem Ron Zarella.

Here is my 2 cents. GM needs someone with engineering or industrial back ground period. In a perfect world GM would find another Alfred Sloan. Think about this Alfred Sloan quote I dug up;

"If we are all in agreement on the decision - then I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about."

Now juxtapose that with the lightweights and con artists of today like GM CFO Dan 'the scam' Ammann. Now tell me your shocked he worked in investment banking at Morgan Stanley. So long as he's sorry, has apologized and really promises not to do it again I really am okay with dirt bags like this rising to the top, getting caught and everyone letting bygones be bygones. Of course this is definitely NOT cronycapitalism nor selective justice just. Sign of the times I should think. Now contrary to popular opinion and while I may be pessimistic when the facts support it, I don't believe even for a NY minute there is not another Alfred Sloan out there in this great country amongst the reams of Dan Ammanns out there. We simply have to know where to look for him or her. To save us all some time I can most readily assure you Harvard, Princeton, Yale and Wall St. are the very LAST places you will find him or her.

I would assume that such a person will, by having an engineering or production background and NOT someone having that country club coveted Ivy league MBA. This lack of Ivy league MBA most assuredly guarantees his/her comprehending that 2+2=6 no matter what your Wall St. financiers and investment bankers tell you! Being MBA-less will also indicate that he/she understands that when you build an garbage product (think Vega, Aztec, Cimarron, Citation and Catera) it bombs and when sell your product to people who cannot pay, bad shit happens to your profits, period!

I am definitely no expert nor do I possess an Ivy league MBA (thank my lucky stars) but I do believe that better people and better products win out as least they did in a true free market capitalist system.

But They're Sorry!

2012-08-01T10:49:00.005-04:00

A 5 yr weekly view of #HSBC ticker $HBC (below). Lower highs, lower lows, money laundering etc. Worry not shareholders as management at HSBC has apologized. Ya gotta love not only cronycapitalism but our justice system as well or as Gerald Celente is fond of saying justice is "just us".

#Netflix - $NFLX update.

2012-08-01T10:12:00.003-04:00

Remember this weekly chart of Netflix ticker $NFLX I posted on June 8 ( reprinted below) where we wondered if that level could hold?

Well it didn't. Things will get interesting now and not in a good way. The daily view belowThe dead cat hit the pavement, bounced, and has now fallen through a manhole cover on the street. Big time trouble ahead.

Seems I've Heard This Before.

2012-07-12T08:37:00.000-04:00

If you won't listen to me, then maybe you'll listen to an expert from MIT. He thinks The Market Has Spoken, and It Is Rigged. He's a bit more polished and offers people who can't site the musings of an idiot blogger the 'legitimate cover' to now do so.