Friday, November 30, 2007

Friday Poetry Corner

So farewell
Zoe Cruz

Wall Street's

"Take More
Risk You Weenies!"
was your

Next time
you'll be certain
to qualify
it with:
"(...but NOT
the stupid kind)"

(with usual apologies to PrivateEye and EJ Thribb)

Tuesday, November 27, 2007

Dearie Me...

Oh dear, what a spectacle! "I love it!", "I hate it!", "I love it!", "I hate it!". Today, I love it. Several things come to mind when epic battles of bulls and bears, such as this play themselves out in the markets, one being naked mud-wrestling. Of course this being a blog of highly outstanding moral character (Ha!), and Cassandra herself being rather prim, you'll have to settle for a gander upon a Sunday league match that probably should have been canceled due to the elements, to represent what we are all witnessing in markets over the past few weeks.

Yours truly has never - macro-ecnomically speaking - been tactically adept, unlike our wise friend, Macro-Man who exhibits steely detachment under the pressures of elevated daily price WOLATILITY! Knowing this, and my predisposition, helps me keep my perspective during the hairiest of short-covering bounces, or most extreme of vomit-like liquidations.
The only thing I might offer-up to those blue-in-the-arse today is that global real estate news flow is unlikely to improve soon; in the absence of a continuation of mindless credit expansion (and to all objective observation it has been stopped in its tracks) US & UK consumption is destined to disappoint despite diminished expectations, and this is true whether oil is $97bbl or $87bbl. Do note the bar-bell bounce at the extremes: at one end, those low-value, high-momentum with and higher-than-avg short-interest names so popular with specs, along with the the highly-shorted securities that everyone hates (financials, mortgage, housing, retail, etc.). And everything dragged up by exposure-scrambling in all FTF index things cap-weighted (SPX, RTY etc.). Yes, stocks were oversold. Yes, the reaction to financial distress now-across the popular media caught some me-too action. But the big story is, credit not only is - and will continue for at least the near future to be constrained - but that the constraint in itself will be a prime determinant of the bias of change in asset prices. Maybe authorities will eventually succeed in reflation, but NOT until after many-a-balance sheet shrinks, previously mis-marked securities find market value in the light of a new, more sober, era, with all the attendant ripples and cascades that this will cause. Do not take your eye off this medium-term tactical ball.

Saturday, November 24, 2007

Old Maxims (Updated for Inflationary Times)

Thanks Old Vet, you've inspired this compilation of Old Maxims (Updated For Inflationary TImes).

A penny saved is a penny burned.
A bird in hand is worth I don't know how many in the bush.
Never invest your money in anything that eats or needs repairing.
Always spend your money before you have it.
There's no such thing a free lunch (unless you;ve borrowed to buy it.
Money grows on trees (and in the ground!)
Genius is one percent inspiration and 99 percent leverage.
He who can, does; he who cannot, borrows.
The buck starts depreciating here.
It not what you pay a man, but when and in what currency you pay him that counts.
A fool and his money are esily parted when a bank is involved.
Nothing is certain but death taxes (and inflation).
Give a man a fish, he eats for a day; Teach a man to fish, he eats always. Teach a man to borrow in order to buy assets and he'll be richer than Croesus.
Buy what thou hast no need of, else it will cost twice as much tomorrow.
When in doubt, leverage to buy assets.

Friday, November 23, 2007

Piggybank's Tale

A sick and hollow feeling came over me this morning as I watched my youngest proudly bring his piggybank downstairs. Middle child emptied hers to donate to a local charity, causing youngest #3 to fetch his. And he was was positively beaming at the sound and weight of what he'd collected and saved, the physical affirmation of an expected future reward to foregoing the temptation of instant gratification that bombards us everywhere we go, even though at five he can hardly grasp what it might buy or the concept of relative value. Normally, the sight of this cute lad's magical smile in the morning, visible seven days-a-week, 365-days-a-year, brightens-up the darkest and wettest of dismal days, and dissipates the most acrimonious of spousal disagreements. But this morning, the sight of his happy face juxtaposed with his piggy-bank made me profoundly sad, for imbued in his pride was a trust and optimism that his not inconsequential delay of gratification will be preserved and rewarded accordingly, but authorities responsible for upholding their end of the bargain - i.e. the implied promise that a unit tomorrrow will not differ materially from a unit today, so preserving the confidence in the exchange value of a unit - were laughing and mocking the pure-hearted optimism and trust of my son. I hadn't the heart to explain the near-absurdity and futility of the piggybank in a era of fiscal irresponsibility in the west coupled with monetary and mercantile irrresponsibility in the east. The world is sufficiently cynical as it is without destroying yet another myth about the virtues of thrift, hard work, honesty and responsibility. I might as well shoot the tooth-fairy, loudly proclaim that Santa, too, is but an instrument of deceptions. But that can wait.

I recall the incessant advice "to save" from my late, depression-era gradparents, who rewarded me on their visits with cheques, and bills that I would religiously entrust to the local bank, my mother filling in the deposit form, and the teller duly making the required entry into my "passbook", after which I replaced the passbook into its protective sheath, and got to choose between a cellophane-wrapped red, green or orange lollipop. When the time came, I typically spent my savings on books science fiction), or shortwave radio equipment, but back in the 60s, I never, never, never had to consider the possibility that the value of my saved gifts and promises of future rewards might be grossly devalued due to forces beyond control. Of course that too, was misplaced innocence, given the 70s, culminating in Volcker's Friday night massacre, and the most-painful post-war contraction that followed. Nonetheless, I'd thought that we'd learned our lessons. I'd worried through the 90s that despite the appearance of prosperity, there were worrying and unsustainable longer-term trends that would need to be addressed. By 2001, I was rather certain that these fiscal and trade issues, serious and real as the were, would not be confronted, and things would play out, demagogically, how they may. Since then, everything that could go wrong has gone wrong. Credit growth (unil recently) has continued to increase causing all manner of asset bubbles, while Americans en-masse extracted equity from their homes to consume and speculate. Real wages for a large percentage of the people have been stagnant or been falling, whilst inequality returns to near-revolutionary levels a century ago. Energy policy remains non-existent while energy costs skyrocket. Taxes were cut in 2001, and thereafter coincidental to an expensive war and dramatic increase in military expenditure, emerging, GCC and mercantile nations seeking competitive advanntage have subverted BWII interest-rate and FX market adjustments further preventing the most fundamentally important message from reaching the brains of thick-skulled American's that they are, or will shortly be, f*cked if they persist on this course (which they have, thankyouverymuch Bush Admin and people who voted for them). And the response to this grand confluence of [avoidable] events is already known: fiscal policy will get even more generous, and monetary policy will return to uber-accomodative levels to prevent those who've wrecked the system from wrecking the system further. No where, in any policy dictates, or discussions is there any sense of "public interest", "culpability", or responsibility ascribed to those who've benefited more-than-enormously to stump up for bills of days passed. No where, is there any demand upon ordinary Americans who blindly and blithely facilitated it to retrench, cut-back, drive-less, turn the thermostat down, don't fly or driive a 1000 miles this thankgsgiving, eat-less meat, or simply eat-less.

So I look at the innocence and purity upon my lad's face, and the confidence and pride he has in thrift because I taught him that by example, and wonder whether I have done him well, or whether I have, in fact, failed. He IS very clever. Perhaps he's ready for the truth.

Thursday, November 22, 2007

C's Xmas Wish List

Dear Santa,

I hope this message finds you and Mrs Claus well! I looked outside my window this morning and believe-it-or-not the public servants (the ones not on strike at any rate) had already strung up effigies of you, Rudolph, and the rest of the herd, along with miles of kitsch lights, fake mistletoe and shiny ribbons. I always wondered whether you approve of all this fuss, or whether you think it's all got out of hand, and simply prefer that everyone make a donation to MSF to help them with their selfless good works, or contribute to The Sea Shepherd Conservation Society to insure there is life in the sea for our children generally, and The Majestic Humpbacks which the Japanese want to renew slaughtering again, in particular.

I've been good a good girl this year for the most part (excepting those ill-tempered remarks about The Administration, and the defacement of my passport when Scooter Libby was pardoned) and so I hope that I'm not being too presumptuous by getting you my list "early". Well it seems early to me anyway. As you will see, except for the Vintage Port you might surprise me with, and the Champagne that I've had difficulty affording now that the wealthy Russians have taken a fancy to using it for their foot baths, most of my requests are reasonably selfless and not for parochial benefit.

1. A large rise in the US marginal income tax rate (top Quintile).
Doesn't anyone believe in the most basic rhetoric of economic principles?

2. A forward-looking energy policy including carbon taxes, strict auto-fleet (and truck!) mileage targets, mandatory open-grids, funds for wind, solar, geothermal and CCS, intelligent public transport initiatives and anything you and Mrs Clause might think useful.

3. Single-payor national health insurance and universal coverage. France is a reasonably good model to copy in this respect, if you need to one to deliver.

4. Peace between Palestinians and Israeli's. I know you don't hold much sway in this part of the globe and that the herd HATES it, but if you could just convince the Israeli's that, as Gandhi suggested a little magnanimity, and lot less land-squatting goes a long way, and convince the Hamas-ites that there is very little point in continuously and aimlessly firing bad rockets in the general direction of the border without a Plan-B, we might actually build some trust for a final sittlement.

5. An end to Whaling, and all mindless sea-slaughtering including the Chinese finning of sharks, drift-netting, long-lining, seal-hunts, etc. Just watch this footage, and consider that whaling is even less acceptable than say, clubbing "Lassie", or garroting "Benji".

6. Replace the current crop of US Presidential Contenders with (for change) a leader with some gravitas, and a mandate to define a more inclusive and universal sense of public interest. Al Gore was perfectly acceptable, Bill Bradley was very good and independent-minded. Why can't you give us HIM for xmas?

7. Normalize Japanese interest rates (say at 2.5% to 3.5%?). Why authorities see that in a nation of savers, a virtuous circle would result from higher rates. More interest-income, more consumption, higher tax revenue, maybe even a bit of inflation, and certainly less disruptive carry-finance spilling over in to the ROW. Ohhh, but what of their Remora-like hold upon the RMB....

8. An Oyster Card. Another penny in the green fountain, but a bloody useful one!

9. Entropy in regards to USD Interest rates. Yes it will be painful, but "tough love" is precisely what is required to price and therefore allocate credit judiciously and certainly more efficiently, rather than upon yet another credit-card receivable, timeshare, autolease, or McMansion replete with jacuzzi, two dishwashers, and faux-granite counter-tops, that would make any Scandinavian engineer apoplectic with derision.

10. A copy of Toby Crabel's infamous guide. I will even trade you my rare and moldy original copy of Felix Zulauf's "The Zurich Axioms".
As with virtually all financial books (and Zulauf is no exception despite his skill at talking his book), particularly ones that proffer investment self-improvement advice, this is - at best - a stocking stuffer.

11. A piece of coal (metallurgical coal only, please), I jest you not. Actually, Santa, in hope that you'll fulfill my other selfless xmas wishes, I will let you in on a little secret that some ex-Mortgage Traders conjured up called "The Santa-Arb". You see with such loose fiscal policies and unsterilized intervention across the FX markets in the emerging, GCC, and mercantile nations, these too-clever-by-half kids have figured out that Coal is no longer a punishment but actually rather desirable, and they've set out to fool you into dropping some coal in their stocks, which they can then trade for twice-as-many stocking stuffers.

Fondly Yours,


Tuesday, November 20, 2007

That Walker Private Equity Report in Full

The findings of an inquiry into the Private Equity industry by Sir David Walker was released yesterday. Although some criticised the report as being "biased" and "not going far enough, criticsms were quickly countered by the BVCA who said: "any persual will reveal that its recommendations are indeed Draconian and likely to chase the industry and its incredibly talented, bright, innovative, humane, thoughtful, omniscient, public service-oriented entrepreneurial patriots to Lichtenstein, Switzlerland, or, heaven forbid Monaco.

Amongst Sir David's findings were:

* More tea should be made available in member firms. The quantities of coffee served and drunk by Private Equiteers might be responsible for accusations that their behaviour could be construed as "not in the public interest".

* There have been possible abuses of company Limo expenses for private use.

* Poor choice of PE firm names. The BVCA's image may be harmed by the poor and unfriendly choice of PE firm names. Walker suggested more inclusive and friendly-sounding names to help stem criticism

* Insufficient leverage at the investment advisory company level. Mr Walker said "What's good for the goose must be good for the gander" and queried why the Advisory firm doesn't employ more leverage to improve the look of their offices, and offer interested officials related to the inquiry more "perks".

* An unusual concentration of Partners at BVCA member firms posessing surnames in the first third of the alphabet.

* Rumours of PE firms responsibility for vicious rumours relating to Northern Rock's solvency are entirely false.

* Insinuations that the public interest and workers interests "suffer" when PE firms cause target companies to assume copious amounts of dubiously servicable leverage; collude unfairly in "club deals"; compromises sitting management's independence by offering overly lucrative follow-on engagaements; raid the company pension fund of any surplus and suspend future contributions by raising actuarial return assumptions; extracts loadsa' upfront fees that might have been better-deployed for longer-term R&D, are entirely unfounded and specious, and having been cynically circulated Al-Qaeda as part of a covert plan to sabotage Britain's miraculous economy.

Tomrrow: a new report by the I.o.D. entitled: "Private Equity: Can It Really Cure Cancer & Ameliorate PMS?"

On the Bus ??

It started out bright, fun, and energetic. Being on the bus was the main idea of author Ken Kesey, friend (driver, and general loser) Neal Cassady and the now-notorious Merry Pranksters. Tom Wolfe glorified them (and the bus)in The Electric Kool-Acid Test, and though I will not pass judgment on it all here, I will point out that whatever it meant, it provides a good metaphor for "the liquidity trade" in all things whose prices are sensitive to continued robust growth in liquidity and credit. In calendar year 2007, you are either "on the bus" or you're not.

Though Abby Cohen, Trennart, and Bianco were reported by Bloomberg to have prophecized that the market will explode upwards between now and year-end, they are at present pissing in the wind of most economic stats, the withering consumer, poor TIC data, the bond market, not to mention those equity internals who, one-by-one are getting off the bus.

The NDX with a high tech and consequentially, international component to their businesses, along with some non-US stocks and a small basket of hyper-growth stocks are feeling increasingly isolated, and are just about hanging in. This is contrasted by the Transports (TRAN), Small-caps (RTY), and Real Estate (S15REAL) and Retail (SPRETC) all look positively horrid. Copper is withering apparently irredeemably, while materials more generally barely are hanging in due wholly to the precious component. Retail and Real estate look decidedly oversold, while anything housing or mortgage by this stage look like Georgia after Sherman's romp, yet their collective depreciation continues unabated. Only Gold, Silver, and short USD vs. everything except CAD are arguably still on the bus.

The intra-day ranges are accelerating in their speed and the viciousness of reversals. Probably because there is an increasing urgency of unwinding amongst so-called "quants", the liquidity providers of the last five years, who themselves have been ejected from the bus, thereby intensifying volatility, of the market in general, and their positions being unwound, in particular.

In case you were wondering about what happen to the panksters and the bus, in November 67 Ken Kesey goes back to Springfield, Oregon. Cassady is found dead in Mexico. Drugs and a heart-attack. The Pranksters split up. Various communes. Pigpen is dead. Garcia is dead. People still make the pilgrimage to Springfield, to pay the former chief Prankster a visit, for he is still there. And there, they see the bus — it’s still there, parked beside the house, a shell of its former self.

Monday, November 19, 2007

Welcome to MER, Mr T.

Never one to eschew offering advice to those in need, Cassandra offers up her 10-Point "Road-Map to Personal Success" for the new and incoming chief at Merrill Lynch:

1. Fire your flow traders, Go Electronic, & Write Down Anything and Everything.
There is simply nothing worse than a flow trader thinking he makes money because he's smart, when the retail order originating from Podunk or Chapel Hill, is the source of profit, not overpaid "clerk" who books it and processes it. Indeed, invest in technology, NOT mediocre fraternity boys who carry inflated opinions of themselves. At the same time look deep and take the opp to write down (or off) everything including the proverbial kitchen sink. This will - of course - temporarily hammer the share price, and allow you to strike yet more options at low prices. More importantly it will allow you to...

2. Hire some smart risk traders.
Rock-bottom valuations will allow you to engage your friends and collectively "back up the truck" with stock, options, etc. and all other manner of comp. This is timely as there are lots of smart risk-takers that would take a flier with you, either for the opportunity or because they've simply been [recently] unlucky. You can get 'em cheap, too, as the worlds shakes out, and they want to be part of a ummm "thundering renaissance", of sorts. Mates and brains by your side, you can then set about to insure the firm is actually on the RIGHT SIDE OF RISK (for a change), rather than eternally being on the wrong side every industry-wide accident.

3. Stop Telling the Truth.
Merrill's biggest failing in comparison to other white shoe firms is that it seems to hold itself to higher ethical principles. THIS IS WALL STREET!! No one gives a sh*t about honesty or integrity. Just DO WHAT IT TAKES!

4. Stop Being Politically Correct.
Political correctness and diversity is fine for governments, charity work, and advisory boards, but, as was said before, this is Wall Street, not Main Street. If you want to make money you've got to hire the Chosen Ones. Forget the MBAs or CFAs, just make sure they've got either nepotistically impeccable connections or have coined mountains of cash and have been Bar Mitzvah'ed. Otherwise, you'll be left with the likes of "Cassandra", Michael Lewis, Sally Krawchuk or Joe Jett. This won;t make you any friends amongst the tree-huggers, or rainbow coalition, but as they say on The STreet: Want a friend??!? Get a dog....!!"

5. Get Rid of "the Merrill Mafia".
You'll know them when you meet them. They are in excess 110kg. They are not team players, but into protecting their own turf & P&L, parochial empire-building, nepotism, knee-capping, and, of course, Calzone and cannolli's.

6. Dump the BlackRock Stake.
BLK's current run is as good as it gets. The rating is uber-high, and the cash would be more useful at this point-in-time for use in opportunistic endeavors (read: "Dry Powder") than an unmarketable stake in a growing but way-over-valued investment management company, half of which was based upon the lame one MER contributed to the deal. Spin-it off if you have to, but get rid of it while the going's good, else might be left holding a "WP Stewart" or a "Legg-Mason".

7. Do Something Visible With the Bloomberg Stake.
Talk about hidden assets!!! The stake might be equal to more than 25% of MER market cap. You should probably drop it into a listed LP that MER owns 51% of, and let the market place an absurdly high value upon it, and use that as support for MER valuation now that you've struck all your options.

8. Thin the Ranks of the Bankers.
Does IB actually make money at MER? With the shakeout, just think the ranks, keep the guys with good relationships that produce and fire the rest because, the grand plan has to be that you'll....

9. Sell The Balance to Goldman!
Now that you've struck ALL your incentive options (as well as those of your friends) at great levels, firmed all the anti-takeover and merger clauses to your contract, hired all your old mates on similarly attractive deals, all at the expense of existing MER stockholders, call up Uncle Lloyd and ask him what he'll pay for the retail distribution, despite the coming storm, remains very valuable and something that GS has always coveted, but never taken the plunge.

10. Now Return to GS to Run the Combined Shop.
Round the bases, Home Run!! Bravo! Bravo! You win!! You win!! You win!! La vie est belle!! Now you can do something civic minded like run the Treasury or FRB in order to quickly liquify you from the oodles of GS stock you'll be sporting.

CBOT (Cynics Board of Trade) - Contracts I'd Like To See

I''ve always marveled at the London Bookies, and their willingness to take a flyer and make a price on well-near anything be it the probability of a hole-in-1 at a particular major golf tourney (they priced this one wrong!) or the altitude and circumference of President Cheney's obviously large hemorrhoid. By comparison, the US futures, and stock exchanges as gambling destinations are poor seconds for those desiring to make more exotic bets with utilitarian hedge usefulness that might, one-day, make them legitimate risk-transfer vehicles.

With this in mind, there are some Contracts I'd like to see:

Shadow CPI Futures. Everyone knows the CPI is royally buggered. The CRB contract trades once-a-week and in any event reflects on the commodity side. The Shadw CPI fixes the bent nature of the CPI calculations. Of course for savers, this just whets the appetite for the real deal: "Shadow CPI TIPS". If the financial engineers on the sreet were looking to invent really useful products, someone would offer this one to their customers.

Marginal Tax Rate Futures Everyone knows that the US Fiscal balance is deeply flawed. Not everyone understands nor agrees upon how precisely it will be rectified. Marginal Tax Rate Futures will allow those who've exploitedthe double-laxity of fiscal and monetary policies over recent years with unusually low tax rates to actualy keep it by hedging their tax rate out into the future. I am not certain the best way to express it quite yet for there are many variations: highest marginal rate; or income tax revs as %GDP collected etc.

Inverse Chelsea Property Futures. Ohhhhh to short the Cheyne Composite! Thing how many aspiring oligarchs (and offspring) need to hedge their future purchase of a Sloane dacha, and how manny of us on the other side would love to take the other side of the trade "on spec". This is risk transferrance in its most beautiful form and would make a super contract.

Aggregate Foreign Ownership % of Japanese Stock Futures". The key to Japanese benchmark stock-index relative (and absolute) performance is what the foreigners are doing. Rather than waste time oln the vagaries and uncertainties of stock-picking, or currency moves, why nott just speculate on the aggregate movemement of foreign money into or out-of Japan?

Compound Options on the CSE, SENSEX & SSE 25. These would undoubtedly become the "freebase" or "crack" of modern financial markets. So powerful, and so much embedded leverage would there be in these little Habaneros that punters from all the globe would be queueing up to have a go. The skeptic need only spend a small amount to purchase a call option upon a put option, such returns in the event of implosions would be positively Paulson-esque.

US Federal Military Expenditure Futures. Ever-hopeful republicans and evangelicals may want to bet that global unrest might spur further military expenditure increases, but takin ghte other side, unethtical investors long of defense can hedge their portfolios or ethical speculators can layout new shorts to profit from the coming bust in defense expenditure when the Dems take over the both the Executive and Congressional bodies. I just wish there was a ready-made contract to get ready for Carter-esque chiseling of the military budget come 2009.

Minimum US Federal Motor Fleet MPG Futures". Don't you wish you could fiind a hedge for rising gasoline costs that didn't have the negative carry costs associated with the energy complex directly? Betting on the minimum Federal mileage regulations would provide just such a hedge. Cynics and libertarians could short it, while those with a view on future energy prices, the value of the dollar, and the direction of US energy policy post-2008 coiuld punt big top offset the ongoing USD depreciation and inflation whittling away our dosh.

These are but a few of the contracts I'd recommend that BoT, CME or other reputable exchange launch to take advantage of the growing need for alternative risk transfer. Please feel free to contribute your contract and product suggestions to this space!

Tuesday, November 13, 2007

Letter from Everywhere

The Supreme Being
Upper Everywhere,
Universe (Central)
G0 D1
13 Nov, 12500002007

Mr & Mrs Humanity
Blue Marble Cottage
Plant Earth
The Solar System
Outer Milky Way
Great Galactic Cluster

Dear Friends,

Apologies, for I have been remiss, of late, but do not take my recent lack of smiting or conjuring of miracles for total and utter indifference. For I do remain keenly interested on precisely how you all are getting on. I just wanted to take this opportunity to pop you a note with some suggestions that you might find helpful in your own quest for immortality (of sorts), particularly as it relates to the prospects fr your offspring, planet earth and one of my favorite hobbies (believe it or not), The Stock Market.

  1. Might I suggest that you stop having so many kids? For Christ's sake, you are but one of my creations, so stop acting like you own the place (or for that matter, start acting like you own the place, but choose one or the other). You're infesting the planet! Now throughout history various charlatans have laid claim to know my will on the subject, but they are crocked. Let no mullah, rabbi, mufti, pope, vicar, tribal elder, cow, golden calf, buddhist toad or voodoo witch-doctor tell you that birth control is in any way contrary to my will, or that I ever said "go forth and multiply beyond the carrying capacity of the planet". Rather the opposite: I hereby command you to stop having so many sprogs, particularly if you can't or won't support them without ruining the place for all my other creations. I would, for a start, recommend two ("2") at a maximum, though one ("1") is even better, and please feel free to use any means at you disposal to achieve this end, be it pills (before or after), tools, implements, jellies, surgery, rat-poison, scarab beans, even obesity and vileness as a contraceptive deterrent is OK...anything but more humans.
  2. Let "quality", not "quantity", be your watchword. I had nothing to do with WALMART. That was entirely Lucifer's creation, and - for the record- I do not approve. In Upper Everywhere, we frequent our local boulangerie's and epicerie's only venturing to the devil's lair only infrequently in order to stock up on loo-paper, beer, and tinned tomatoes. How many genuine enlightened spiritual people throughout history have tried to get this concept through your heads? And what's with the mega-yacht and flying private phenom? Economics says you could have one OR the other...not BOTH for it is gluttonous! If everyone strives to have two SUVs, and lives as wastefully as America, I might as well pack-up and return home now, and you might as well stop having offspring and helicopter-parenting altogether. And the fair and just interim solution is not that they continue humbly on horseback, cyclos and nicely decorated three-wheeled auto-rickshaws. Modernity and globalization necessitates convergence, a word which has a very specific meaning in this context and for the sake of the planet and all living things, I urge you look it up.
  3. Carbon Taxes are remarkably well-suited to preventing wholesale environmental ruin, assuring better allocation of scarce resources, and dramatically reducing undesirable externalities, full stop. As a Supreme Being with some experience in the matter, take it from me that, quite often, human beings need some external help in order to help themselves, contrary to the putrid rubbish written by that Rand woman.
  4. "Inflation" is the same thing as lying to yourself (as well as others), and as such, it is entirely counterproductive, and, generally speaking, to be avoided since it's highly addictive, and once ensconced, the cures, are deeply unpopular to implement, even for a deity, let alone a mere mortal, or worse, an elected politician, or political appointee of the same.
  5. Do not be seduced by glamour stocks, eschewing them instead for greater values. I give this sagely advice with the best of intentions. But even here you will notice, Supreme Beings are not infallible for despite good models coupled with near-omnipotence and much omniscience, all that is of little help when money's cheap and the bulls are running. But always remember that, contrary to what momentum investors say: God is NOT with you [as a momentum investor], but only appears to be so for a while.
  6. Contrary to spin and their self-proclamation, neither Americans nor Jews, nor, let it be said here once and for frickin all, anyone else, are my Chosen People. I did once have some chosen ones that were from a place called "Atlantis" - and look where that got them. Then I had chosen some others - the gentle spiritual souls of Shangri-la - and they are now nowhere to be found. Since then, I've stopped choosing peoples. And think about it rationally: Why would I have given my chosen people a salty dust crossroads with little but rocks, bad food, and a mojo that makes their inhabitants insufferably argumentative and stubborn?? Anyone with half-a-brain could work out that IF I'd chosen them, I'd have given them "Switzerland", or "Canada", if I really fancied them. Or if they thought sand was the bees knees, and wanted rocks, I'd at least have deeded them the Arabian peninsula which is stuffed with useful hydrocarbons.
  7. Joseph Smith, founder of the CLDS, was, as anyone with any sense could see, a F-R-A-U-D. There is no earthly conceivable way Mitt Romney can explain THAT away, without violating a commandment and not appearing hypocritical, so do take appropriate care at election time to take this into consideration.
  8. Please extend my thanks to your Mr Terry Gilliam for his most flattering portrayal of me in "Time Bandits". As for that horrid man Mel Gibson, please will someone tell him that grotesque lies and revisionism notwithstanding, sycophancy and over-earnestness will - if anything - reduce his odds of of ever joining us here in Upper Everywhere. In fact, we don't even DO religion in our local thespian society.
  9. For the record, I only gave only 8 commandments. Adultery, though frowned upon and practiced only parsimoniously (if at all) in Upper Everywhere was, for humanity, left to conscience and free-will by design. And I don't know where the ancients got that "No Likenesses" taboo. I enjoy a good laugh as much as the next deity, so satire, cariacature, cartoon lampoons of yours truly are all entirely welcome and encouraged. Same goes for my prophets - both real and imagined, though in lampooning them, you must understand that in your zest for a chuckle, you run the risk of ignoring sagely prognostications that may, in fact, come to pass.
I do hope you find this note and its suggestion helpful. Self-extinction cannot be a pleasant thought for mortals so I hope it spurs you to some more definitive action than "The No Child Left Behind Act".

Yours truly,


Get Your Official BoJ Rubik's Cube

Hey folks. Put in your Xmas orders early for Cassandra's Special Edition BoJ Rubik's Cube, available for a limited time at only YEN 10,000!!. With the new BoJ Version you can impress your friends by showing-off the speed in which you solve the complex problem of The BoJ Cube, (which is almost as complex as the current monetary policy environment that the Japanese Central Bank faces). Be the hit of every party as your friends cannot help but observe the extreme degree of difficulty necessary to solve the multifaceted BoJ Special Edition Rubik's Cube, after which they will undoubtedly ask you whether you can teach them strategies that will, enable them to solve their own Rubik's-like monetary problems. The first 10 purchasers who act today will receive Cubes autographed by Gov. Fukui himself commemorating yet another "No Change in Monetary Policy" result from their meeting.

NB: Cassandra is also offering a "Carry-Traders Fat-Tailed Version" that randomly and periodically explodes leaving the wizened Solver blackened and ummm errr potentially insolvent.

Saturday, November 10, 2007

Exit Games

We are early November, and getting closer by-the-day to the close of the Calendar Year. Imagine yourself a hedge-fund manager. Maybe you're a long vs. short HFM who shorted oil and commodity stocks too early, or went long domestic drillers, or didn't own foreign stocks, favoured financials, or shorted the f*ck out of ISRG, RIMM, AAPL, CROX, DECK or some other momo shite with disastrous effect. Or perhaps you were a value manager who thought there was solid opportunity in all things mortgage, or worse, you were a way-to-leveraged quant-manager who unwound with the crowd in August and missed the sharp recovery bounce in a double-whipsaw body-slam. Whatever the case, you hoped for the best, pleaded, even made the pilgimage to your investors head-offices, but after all that, they apologized, sent you a pink-slip en-masse, for value Dec 31st, and will subsequently be shipping the money - in Darwinian-style - to those who've done well, or simply better than you. Or maybe they'll just give it all to Steve Einhorn. And as result, you now have to think about precisely what strategy to employ in order to take a large part of your still-leveraged and probably still-losing portfolios down to cash in order to repay investors their dosh, and thereafter think about swapping that NetJets Gold Package for regularly scheduled air travel.

What are your options? How do they differ? What are the benefits and drawbacks of your respective choices? Do you have D&O insurance? What does the CFA handbook say you should do? What does that little red devil that keep apparating on your left shoulder suggest? Let's take a look...

Option A - Be a Fiduciary.
I must tell that boring as it is, this is my preference. For I am at once, a poor liar, and as bad holder of untruths. And its a small world of investors and allocators, and one never whether what's gone around might come around. In any event, it's not personal (unless your are Dan Loeb or Tom Hudson). And in any event, maybe the redemptions are not terminal, and you'll live to fight another day so there's no point in ticking off remaining investors. So be a stand-up guy, take your position down in the context of the market, taking advantage of liquidity and shorter-term price aberrations pacing yourself to arrive at your desired leverage at the end of the year. It yields in effect under-leveraged, "lame-duck" management until the redemption date, but most allocators and would prefer this, I think, since they never know what side of the share register they'll be own.

Option B - Wish, Pray, Hope
Maybe you've had a spell of bad luck: long some earnings torpedoes, short some momentum upward revisions, but you convinced your positions are sound and right. You've looked at them upsides-down, sideways, you've asked Cramer on The Lightning Round and consulted the Ouija Board, Runes and your Eight Ball from sixth grade. You still think you;re right. Well, there is always a chance something awful might happen to market between now and then and THAT would cause temporarily bad positions to come good. There is also the chance that the January effect will come early and reward you, bailing you out with some roaring returns that will allow you to phone investors and suggest "all is now well" and that they pull theirredemption requests. Yes. it's possible. Not probable, but still possible. Unfortunately, if you've good sucky positions at this point of the year, the odds are (from the Trading Calendar) that November and December remain tough for fortune reversal, and that they historically have been rewarding for momentum, or precisely the opposite of what you require. And to boot, the Darwinian redemption cycle this Q4 looks vicious, so others like you will be pondering precisely the same question. Bit of a mind-fuck actually...but if you get it wrong, then you can certainly kiss your investment career bye-bye.

Option C - Unwind Now, Go Play Golf
You must ask yourself: "How bad is it?" If its really really bad, then you might as well just call up the GS portfolio-trading desk, gt a principal bid, do a program-trade and spend the next six weeks management fees to go to Vegas, Bali, Cabo and party. Unless your substance-abuse oriented, and you can behave like Nicholas Cage in "Leaving Las Vegas"? I actually suggest that like David Weill you could use the time to go to an Ashram somewhere in India and get on with the spirtitual repair that will undoubtedly be setting in when your ego faces the reality that you are Master Of The Universe, no longer.

Option E - PIK or Suspend Redemption
Now if you've been emulating Lancer's Michael Lauer (as was ex-Absolute fraudster FLorian Homm) you might not be able to exit at all, so IF the authorities haven't already gotcha, you could suspend redemptions, or choose to pay-in-kind which is SOP to almost all by-laws of Funds, at the sole disrection of the directors. Usually its reserved for illiquid and unmarketable securities, or those caught in litigation (quite common in reg-D funds). It's a shitty option, but if your portfoilio is micro-cap or worse, nano-cap, it is always option. The downside of course is that you'd better have a "Plan B Career" (do you Cook or Dog-Walk?), and a way of ensuring "Bubba" is not your cellmate, and doesn't take a fancie to you.

Option D - Leverage Up & Shoot the Moon
Nothing says you must unwind. Depending upon how clever you wrote the docs, you might not need to pay redemptions for several weeks, maybe even months if your lawyers were really goood, and the investors really desperate to throw money at you. This way, you'll be earning interest and the Prime won't know you've got to pay redemptions so your leverage won't look awry (to them). There are times when the January effect is vicious and pays huge. This could be it. But then again, maybe it won't be. Maybe whatever mortally-injured your portfolio continues, and you still have the full position, on a tiny veneer of capital. IF things went really wrong of course, the remaining investors could easily be obliterated in a morning. It's a high stakes game, but if you are in possession of non-public information about yourr positions, or the macroeconomy that carries a high degree of certitude, it just might worth the punt. It's "all in" as they say in poker....just make sure you've some cash and property ringfenced and secure, becuase if you get it wrong, you will have some irate folk at your door, even more so if you've got some of the pilfered billions from Russia.
Option F - Screw the Bastards
OK, lets blame your investors. They shouldn't have redeemed YOU in favor of some Frat-boy with a trophy wife who was "lucky". How stupid of THEM! IF only they'd waited...the positions would have come good. But you can get revenge. What IF you unwind all of the redeemed positions on the last day? Perhaps even in the last hour of the last day? What would happen? Well you and your remaining investors would experience a large negative return, But you could choose NOT to slam all the positions, but slamming some, and leveraging up for the balance is a market impact trade that transfers YOU the positions at the extreme-best prices. Maybe if your positions are really rather large, you can wait until the last few days of the year and really lean on the stocks your selling and jam-up the stocks your buying so that you do not attract the undue attention of the SEC. How much can you move prices? Hmmm, when Highbridge started the puke in July and August, they moved it 10%. With the end of the year being really thin, and the last day off the year being a half-day, something like 5 to 10% might be entirely possible if you tried really hard. So ideally, you'd double or triple your post redemption leverage on Jan1st, turning the 5% drawdown into 15% profit on the January bounce at +3x leverage. Remember that you need to inject some plausible deniability into your explanation or else you might be subject to lawsuit (which you might in any event). Some good examples might be: "Mea culpa, I underestimated the market impact, but it was YOUR decision to redeem." Or "I didn't want to disadvantage remaining investors (mostly YOU) by lowering their leverage diluting performance before the end of the year." Or "Tough luck, sue me (that'll teach you to f*ck with The [Former] Master of The Universe".

Option G - Screw the Bastards Royally
DO the same as the above, but the interesting thing to contemplate is that as the manipulator, YOU are privileged to material non-public information. While everyone else is scratching their heads wondering WTF is going on and why and who, YOU know, and there is no doubt. This allows YOU, in addition to the significant additional leverage. to trade options directionally on the last day or two. You could sell puts on the things you're liquidating and sell calls on the shorts your covering, or buy puts on things your covering and buy calls on names your liquidating. Or both. The point is: YOU finally have an edge, one that is apparently better than your stockpicking or asset-allocation or else you would be in your position in the first place. So heroic will your January post-redemption performance be that your former investors will be kicking themselves and flogging the analyst who made the redemption call on you, and you will have some new "I told them so" talking points in which to entice some new suckers into your fund.

For allocators, it is worth having this discussion with your HFMs to try to ascertain precisely what their exit strategy is. You might even want to ask them for a written legal representation, just in case they decide to Shoot The Moon or Screw You...

Friday, November 09, 2007

Sotheby's Sells Puts - Gets Hammered

Next to SW London real estate, and high-end US vacation property, art is clearly one the asset classes highly correlated to liquidity that one would love to short, but can't. Despite this difficulty for punters like me to "Go short art", Sotheby's managed the dubious pleasure of taking the other side of such a trade by selling half-a-billion USDs in puts on art...and getting carried out in the process.

For one of the prime reasons for their earnings torpedo yesterday was not only that buyers shied away from ringing the bell (again) amidst a wholesale banking credit crunch, but that to attract business, they guaranteed sale prices to insure they got the rights to "sell" the painting. But it's one thing to buy something as principal, speculating on the potentially unlimited upside, or with one's material non-public information, buy something with a seller in-hand. But giving away a put-option in exchange for the commission, to me sounds daftly like the epitome of bull-market foolishness. Sounds like some sharp hedgies found yet another sucker to pick-off when they weren't paying attention.

Of course its not the first time they've been hit. They have been famously known to extend margin loans, occasionally getting the put the collateral when the buyer can't make payment. While different from an outright put option for the commission opportunity, this is effectively selling a put for the interest spread margin. Hmmm, doesn't that sound like the Prime Brokerage business??

Dear Cassie....

In a new feature, "Dear Cassie" will be a periodic column where readers pose their burning questions to an often-verbose but delphic seer with an excess of opinions over credibility.

Today's letter features a question by a reader regarding HF manager's potentially confused moral sensibilities. She writes:

Dear Cassandra,

We generally think of Americans as the epitome of "Greed is Good" whereas one sees the Brits as somehow less singularly capitalist-minded. Intriguingly, I saw that Jeff Larson gave back investors the massive windfall of performance fees his firm, Sowood, earned in 2006 for managing hedge funds even though the losses themselves didn't force the funds into liquidation (unsightly and unwanted as they were). Recently, I read that Cheyne Capital earned megabucks in performance fees upon funds under management in 2006, and shortly thereafter a very large SIV they managed went POOOOF! into liquidation. I heard no mention of THEM returning Performance Fees earned in regard to their management of the SIV. What gives? Is Mr Larson a saint, or an ass?

Yours truly,

Ms. N. Censed
The Boltons-nr.Chelsky

Dear Ms Censed,

First, thank you for the observation. I've been mulling over this myself. I think it opens up an interesting topic for discussion. First, lets be clear that by the letter of the law (thank you Siddeley Austin & Esq), Mr Larson had no such legal obligation by the letter of the law. It would have been well within his right to to take his many millions and go to the slums of Tijuana with bags of his money and throw into the street to watch the ensuing riot for his private enjoyment (and those of his friends). But Mr Larson is obviously not like that.

In Cheyne's case, let's also be clear that Cheyne runs many funds and the celebrated gobs of money recently paid that hit the press were not all SIV-loot. And even the SIV-booty is not blood-diamond money! And of course they had to repay some for scamming Inland Revenue. That said, the question remains: why did Mr Larson make such an apparently magnanimous gesture - seemingly out of cultural character, and the iron-clad legal documentation of the fund and investment management agreement, and Mssrs F&L make a similar gesture, that would have taken the heat off all us for being heartless scallywags?

This takes us to the heart of the matter: while the letter of the law says "You can keep it", the spirit of the "two-and-twenty" incentive-fee phenomena says " the purpose is to align interests between agent managers and principal investors". Now HF managers are alledgedly some of the smartest (or luckiest) guys in the world, and every one of them, EVERYONE, knows 2&20% creates massive asymmetrical agent vs. principal dilemmas, for firm owners, for PMs, traders, and for FoF intermediaries. High-water marks attest to the fact the spirit is to align, not reward gluttony. Everyone knows that crystallized performance fees are not the same thing as "banked returns" for investors. The ways and means of gaming the structure are too numerous to recount, and quite often results in less-than-deserved payouts for which there is no redress and is, at the end of the day, theft, pilfering, and larceny by any other name.
The same people know that a true system of aligning interests would NOT instantly crystallize fees on mark-to-market, instead insuring fees remain "accrued", and released only of the course of years, thereby continuing to float or accrue up or down in subsequent years until paid. Three years is reasonable in my opinion.

So you see Mr Larson was not being magnanimous, or only insuring his children wouldn't be blackballed from Harvard, but was adhering to the spirit of his agreement with investors, in disregarding the letter of the law in favor of his investors (who were his business partners), did The Right Thing. As for Cheyne, while it's not blood-diamond money, some would suggest that there is a khamric taint to the dosh so earned.

One final thought: IF Cheyne didn't want to break ranks and set a bad precedent for expectations that investors might be rebated prior performance fees, whenever their funds subsequently lost money, but still felt a pang of guilt, they could very easily have said "We don't feel right in keeping this money, but don't want to encourage inverse moral hazard, and so will donate performance fees earned in relation to the now-combusted SIV, to former Greenpeace founder Paul Watson's "Sea Shepherd Conservation Society".

Yours truly,


Thursday, November 08, 2007

Oxymoronic Stock of the Day

The winner is Sotheby's, with the moniker BID, which I amusingly point out couldn't find one for much of the morning following its horrifically Munch-ian miss. This is yet another telltale for those looking for...well...telltales. For one thing, the dirty little secret of the art world is that in this market, too, there is a lot of leverage. The genteel folk at Sotheby's will be only to happy to margin your Monet, or lend against your Lutyens. Of course if you fail to keep up payment, then your Rodin might be repossesed. Interestly, it was less about future expectations which after this week, will no doubt be shot-to-shit, but about the recent past. Art-buyers, most of whom are hedgies, may be pulling in their horns, or, at least keeping their powder dry for the next Icarus-like manager to do a spectacular Niederhoffer.

(Bonus Factoid: Sotheby's should not be confused with Sazaby, the Japanese accessory manufacturer and half-owner of Starbucks Japan who admired their NY homophonic cousin so much, they named themselves after them. Just close your eyes and imagine Iron-Chef Morimoto pronouncing "Sotheby". BID filed suit to force their Japanese pretender to bail, but the suit was unsuccessful.)

Fat Thursday

Yup "Fat-Tailed Thursday" is what it will be referred to historically by those US equity momentum traders who do not manage to successfully erase this day from their memory. It is not dissimilar to the scale of destruction in the spring of 2000 when the tech bubble first started to unravel. The volatility pick up has signified something is awry, and today, whether by mass recognition of their prior delusions or through the puking unwind of some very large long vs. short momo strategies, pain will be most evident across the momo and speculative growth desks in trading rooms around the country.

Sadly, I am not short of them. For while certain flavors of momentum and growth model well historically, and provide nice hedges to more alpha-producing value-biased strategies, and while growth at any price is a stupid undertaking, it is undertaken by unwise people of unsound minds. I make it my business to be short of the stupid undertakings, but am cautious when my return is dependent upon unwise people recognizing their unsoundness of their decisions, return is all-too-often a ways off. So I watch this from a distance today, hoping that similar fears will rock the increasingly momentized-world of Japan.

Learning to Lie

I have some kids. And they are for the most part, pure unadulterated, magic. Maddening, at times, of course, for they know my buttons, but I wouldn't trade 'em for all the gold in the world. Once of the most interesting things about their development is watching them learn to lie. I,personally, am a horridly bad liar, so my lack of skill in such pursuits might have rubbed off upon them.

Sure enough, it is so easy to catch them out. One can see it on their faces, gestures, body language and posture (and I am not at skilled in the art of lie-detection as, for example Mossad is at Tel-Aviv airport). When confronted with the truth, in the face of a patent untruth, be it a little-white one, or a large "I promise I didn't scratch a likeness of little brother into the side of new car...". They look away, their skin flushes, her dimples appear as she smiles most uncomfortably, in the unfolding knowledge that the ruse is failing miserably, and the whole disinformation enterprise is losing altitude at a dramatic pace. They might implore their innocence, in one final attempt to confound, but the dimples remain, and the denial is accompanied by a knowing smile that is their undoing. As they get older they will of course learn to control these involuntary emotional responses (to greater or lesser effect) and pick-up a view other tricks like feigning anger or incense at even being accused, blame-shifting, or in desperation, counterattack.

There is no need to repeat Bear, Merrill or Citi's reluctant admissions of how many billions of little white ones they conjured. And Morgan came out of the closet yesterday with a mea culpa. But, thinking about how good it must feel to get The Lie off of your conscience, and how easy it is to see when people are lying (or more diplomatically, "not telling the whole truth"), I would ask the one that question that EVERYONE must be asking themselves today, post-MS disclosure: what about GS??!?!?!

Canary, canary, no longer contrary?

For the first time in almost five years the S&P1000 US Specialty Retail Index (SPRETC Index) has fallen through the thin ice of its 200 Week moving average, at the same time piercing August lows, amidst negative earnings revisions and subsequent broker downgrades. This second canary flies on the lagged flightpath of Canary#1, the US S&P REIT Index (S15Real Index GPC), whose post EOP-sale pummeling should get Sam Zell the Bernard Baruch award of 2007. Both indices, look very, sick. These are the facts and they are undisputed.

But the Specialty Retail Index has a somewhat unique place in the liquidity complex, particularly in America. It reflects many things: trends in PCE, nationwide trends in targeted real estate expansion; pricing stability in sourcing cheap manufactured goods in China; cost trends in transport, labour and other SG&E costs, and expectations of how the present environment will impact all of these things in the future. A brief look at the charts of CHS, BEBE, RSH, AEO, SCSS, CWTR, ZUMZ, KSS, HIBB, etc etc. is instructive. Restaurants - cutting right across socioeconomic spectrum such as EAT, PNRA, PFCB, BWLD, CPKI, BOBE, TRY, CAKE, JBX etc. have already been cooked (no pun intended) by the market. Of course they can go lower, for at the moment they've only been discounting what might or, is only slightly, happening. Should labour costs run amok, commodity inflation continue, transport costs balloon, and demand fall as inflation hits into PCE, and earnings really take a hit, one can speculate upon what price be their ultimate destination.

My point, and this is respectfully addressed to MrMacro, whose unemotional Jerry McGuire approach to recession and trading positions I greatly admire, is that the market IS telling us something. Look carefully. The weak shorts (and even the more strongly convicted ones) in these things have long been squeezed out as any review of their post-2002 price-performance will attest, at great cost and much confoundment amongst portfolio managers of the more bearish and skeptical ilk. Even I was nine-months early trumpeting a short US Consumer posture last Xmas, according the MMs "Show Me The Money" the maxim, enduring two wrenching rallies before the arrival of belated gratification. I say this affectionately, for as I've stated, I highly respect that thick-skinned detachment. But just because he doesn't have the "Long The US Consumer" position, doesn't mean its not hurting someone, somewhere, convincing them, and showing them the money (or rather, showing its diminuation).

Note, this is NOT a recommendation to sell these names or sectors (though that may in fact still be a good idea). No. This is just adding market-based anecdotal evidence of what RGE and Goldilocks fairytale-skeptics have been harping on for a while: The recession is coming to a place near soon...

Monday, November 05, 2007

Thinning The Ranks

Every good war or suspense flick essentially follows the same plot: the hero(es) or heroine(s), outnumbered, poorly equipped, low on ammo, injured and perhaps even cornered in an impossibly bad situation, proceed to pick off the enemy, one-by one, overcoming adversity to eventually triumph over the evil-doers. It never fails to enthuse and rally hope that good will triumph over evil, right will prevail over wrong. Or in the case of markets, convergence over divergence and rationality (or at least sobriety) over exhuberance.

In "The Great Millennial Post-Tech Bubble Liquidity Trade", Rommel had, until early 2007 proverbially triumphed over the pesky Rat Patrol, as the liquidity complex soared ever-higher after each heart-stopping correction, the strength of correlations amongst instruments increasing over time. Assets of all manner and variety trumped paper, from Commodities and real estates, to emerging market everythings to impressionist masters and Honus Wagner baseball cards. Ever-more-bullish investors looked up the supply chain and down the food chain, to thematic niches and ever-more-obscure corners of the globe, bugger-the-political-risk. Whereas in December 1999 it was that made specs salivate, or in July 2000, NanoFiberLLightwave Inc which rocked go-go mo-mo investors' world, by 2004 it was mining, commercial property, steel, fertilizer, shipping, China-this, Vietnam-that, chemicals, oil, leading to all precious metals, and yes, into softs such that while the Boskin CPI has barely had a pulse since 2002, the CRB Index has more or less doubled.

For a while, as liquidity itself was still growing (as was its rate of growth), some of the asset sub-classes were out-of-phase, either for random rotation, or cleverness of hedging purrpose, or simply insufficient aggregate specualtive dosh focusing its attention upon "IT" (note: this is not I.T.). But as trends get older, and more pronounced, occupying more pages of Forbes, or Portfolio.Com and then magazine covers, so specs the world over, attractedas they are by the biggest, brightest, gaudiest, most outlandish and outrageously volatile casino on the strip, [ile on and in. And the more the speculative punters focus upon IT, the greater the correlations amongst the asset classes and sub-asset classes become. The internals of the stock market are perhaps no different. The bull is narrow at first, then broadening, then roaringly so, only to eventually narrow before the whimpers or the BANG!

So on the one side we've the dollar and all things tethered to America (and Spanish, Japan-ish, United Kingdom-ish as well as The Land of The Bono). On the other, we have that which is related to liquidty and its growth which is ultimately correlated to China: BRICs & all EMs, mining, commodities, timber, art, antiiques, chamnpagne, energy, precious metals, infrastructure, shipping, real estate, cement, h-beams, bulk chemicals, capital equipment, etc. etc. And the while the swoons have been increasing in magnitude, so too have been the recovery bounces as those who've been margin puked or have "run away to fight another day" pick up the pieces to ramp prices yet again to new-and-unseen heights, courtesy of central banks in general, but the PBoC, BoJ, FRB , MAS, and SNB in particular.

All this is old news, and the patterns are now well-worn and apparent for all to see. Almost. For the liquidity complex IS THINNING. And the narrowing is what is important. Yes its happening amidst probable erosion and eventual recession in the US which has its own implications. But from within the global complex, there are whispers yielding to shouts. First, it was US residential property that went the wayside. Then US commercial property cratered following Blackstone's bell-ringing purchase of EOP. This was followed by global commercial real estate in all but the most bubblicious and under-developed of locations. Next, the lustre came off financials,, and importantly, not just US financials, but also globally. Last week, despite continued rioting in commodities - energy, coal, ag & fertilizers and especially precious metals, we've seen shipping getting slammed, and then steel (so long Posco!), and their related stocks be it stainless, titanium, or their raw materials suppliers like CLF, the king of Taconite. now more than 30% south of where Tourette's-sufferer Cramer touted it to his faithful this past June.

I will admit that I am sympathetic to the unraveling case behind Mr Roubini's US recession call, and the perils of a lower dollar upon global growth, and the recessionary impact of the eventual need to raise more tax revenue in the USA, as well as the increasing market and individual stock volatility, in particular the size of both torpedoes and positive revision changes, the strength of correlations within "the complex" and the visciousness by which the dishonored are spat out. And today, the remarkable trillion-dollar PetroChina telltale, which despite its 2X market cap to XOM, is still but a shadow of the senior-most of the "Seven Sisters". These are all saying something important. But it is the thinning and narrowing of the liquidty complex itself, that observers should take note of, for soon, The Bank of Brothers will have slayed all except for the most precious and speculative of metals along with select EM (maybe just BRIC) equity markets. Then we will see precisely how omnipotent Voldemort really is.

MOF Exclusive - "I Am Afraif Of My Shadow"

Vice-MoFFin, Naoyuki Shinohara was reported by Reuters to have said today that "Foreigners should pity us at the MoF for we are weak, and nearly everyone at the Ministry is afraid of their shadow." Quite an admission from those in Japan considered by themselves (and generally acknowledged by their compatriots) to be both omniscient and omnipotent. My paraphrasing of course took some liberty though the essence of Mr Shinohara's statement was "We are helpless."

Perhaps not coincidentally this statement from the MoF came as BoJ Governor Fukui, in a rare admission (perhaps "admission" is too strong....let's call it a rare "suggestion", or better yet, an "un-denial") that BoJ policy might, or could possibly have an impact upon the real world, or the world at large or even the rest of the world(outside Japan) insofar as keeping rates low could be risky and lead ultimately to policy errors.

Well thanks for the insight Gov! Where YOU'VE been for the last decade? And yet, even this laughably late admission (termed a "gaffe" by MoF) was deemed sufficiently seditious and dangerous to wheel-out a Vice-MofFFin in order to immediately innoculate the public or anyone who would listen, with counter-spin. IF if we are to believe them, then, "the State" (both Mof & BoJ) are hapless and helpless bystanders, capable of doing nothing to alter the natural course of events whereby capital leaves a feckless and entirely innocent Japan for wholly deterministic causes that have everything to do with the markets diminishing home bias and adventuresome spirit to explore abroad, and nothing to do with either MoF or BoJ policy, and a decade of ZIRP and near ZIRP. Forgive me a moment while I hurl chunks.

While not at all unsurpising or out of character for either actor in relation to prior scripts, roles, and cameos, I wish - oh how I wish - that Japan (lead by MoF & BoJ) might (like Korea and India) accept their global responsibilities within the international monetary system, and approach international culpability with the same generally high sense honor that they approach it as individuals.

Twelve Zeros

$1,000.000,000,000 ??

$1,000.000,000,000 !!

Rung the Bell
The towering heights
from which it fell.

Once enroute
The returns are swell
if only you swapped
your "buy" to "sell"

Thursday, November 01, 2007

Ho Chi Minh Sandals

Americans never quite figured out that that Vietnam was a nationalist phenomena, not a communist one, despite the best advice of the French, who were as it happened, speaking from experience. The Cheney Administration and his now-discredited neo-con still are sore we "lost" and blame the hippies and liberal media for our "loss". But the real reason we lost, apart from the American people's unwillingness to contemplate the total extermination of more than 50mm Vietnamese, is pictured above left: The Ho Chi Minh Sandal. More on that observation at a time other than when the market is so visibly shitting.

But with that thought in mind, I move on to the rather pleasing fat-tailed sight of CROX being vomited heavily by anyone and everyone today on the back of what one might term "channel indigestion". To their credit, CROX outlasted HLYS (Heelys) infadland despite my own small sample size which says [my] kids derive more glee from the latter than the former. But in an inflation challenged America, one would be forgiven for concluding that the indistinguishable oh-so-cheap imitations seen on every corner and increasingly in shop windows would be gaining some traction with consumers. And so it seems, Ho CHi Minh Sandals have struck yet again to sabotage American capitalists best-laid plans.