Friday, June 27, 2008

Never Go Food Shopping on an Empty Stomach

"Never go food shopping on an empty stomach" will ring true to any epicurean who's ever had the the munchies at the same time as finding themselves upstairs at Harvey Nicks or a new and clean Whole Foods market. Likewise, any thoughtful investment contrarian or value-oriented investor with more than a nano-second of attention span will tell you never to capitulate upon positions, or change your fundamental views as a result of inferred month-end, and quarter-end noise resulting from the multitude of performance jockeying, window-dressing and outright manipulation that seemingly concentrates itself at such calendar points in time.

Sure, some apparent breakouts will inevitably result, taking root in such moves. And some tactical swoons or rallies that over-do themselves will find reversal with the arrival of the new calendar quarter. But on the whole, it is decidedly important to keep one's sights on the central tendency of parochial moves, and keep highly attuned to those emerging secular exogenous trends that are generating and contributing to the noise at what will be seen in hindsight as a large inflection. It remains one of the hardest things to accomplish - filtering the genuine sustainable and secularly accelerating from the bogus, long-in-the-tooth mercenary price action that results at the end of a move, or from something unnaturally induced. Telltales are bountiful - be they relative volume,s microstructure activity, changing correlations. ownership behaviour, option implied vols, prior month-end and quarter-end relative performance, relative moves (to sectors and indices) that in part, and taken together, resemble footprints in fresh snow to the attuned.

So whatever your predilection be towards action today, remember the calendar, have a good long lunch - don't skimp on the wine, let those that desire to do so complete their sub-optimal objectives, and use the opportunity to lay out the most attractive of your contra-trend shorts, whether for a swing-trade, or as a basis for something more substantial. For today, here and now, for the very bold, there are no shortage of fat-tailed prey to hunt.

An Open Question

I have a simple question for everyone today:
At what USD prices do energy property rights create such dislocation, instability and inequality in America that they are de facto seized by the State into the public domain?
Prior lease and mineral rights null & void?? Prior owners and leaseholders perhaps permitted to continue stewardship and extraction under contract? Fixed rates of return to extraction based upon costs, granted and periodically reviewed as with state utility boards? I can envisage some of the fiercest political battles ahead that will cross the lines of philosophy, economics, politics, potentially shredding historical precedents of constitutional law, in attempts to equitably resolve what will be deepening energy and economic crises. Thoughts?

Thursday, June 26, 2008

Notes To Self - End Q2 2008

This one is not for you, but for me...for the internal dialogue I run with myself - the one that integrates and assimilates the masses of new information arrival and worldly observations in order to update my forecast of the future. Necessarily, such a dialogue must be honest and as much as possible free from flowery language, normal humourous observations and effect to insure its integrity. Here goes...

Markets are pushing the commodity and the inflation meme to an extreme. And this swing of the pendulum from deflation in 2002 to the present was forecasted from the moment US authorities decided to rescue markets and the economy from cyclical recession by overly loose fiscal AND monetary policies , and in earnest from 2004 when Asian mercantilists joined the fracas by (i) continuing ZIRP and nearZIRP (ii) by not liquidating previously accumulated USDs (iii) and by unprecedented reserve accumulation by China, (iv) and other partially or unsterilized USD interventions and accumulations. Expectations in modernity are for the pendulum to swing with great speed - the speed with which epiphanies conjure themselves in market participants heads. But since these are policy-driven consequences reinforced by market feedback loops, the price and economic trends that emerge are strong and persistent. That is until the gravitational forces acting upon the pendulum assert themselves causing the pendulum and associated feedback loops to reverse direction.

By 2006 it was obvious to anyone who looked that the course was unsustainable: consumption by a tapped out consumer with a negative savings rate, the course in global house prices (particualrly in Anglo-Saxon land), putrid fiscal and monetary policies, current account deficits, reserve accumulations, currency pegs - the whole lot. YET, The Authorities chose to address these with co-conspiracy and not-so-benign neglect, and the markets requited with drawing down all manner of leverage to buy anything and everything, from "collaterized" re-packaged dogshit, to BAD art, to unimaginable large and vulgur stinkpots that apparently help compensate for the buyer's lack of natural physical endowments.

This asset-price run abruptly stopped (in things core) as the infamous Minsky moment arrived in 2007 causing said core-asset prices to begin to fall precipitously, but more importantly, its arrival marked the denoument of wanton credit expansion, the lifeblood of further asset price expansion and consumer deficit-spending, and ultimately inflation. I look around, I see carnage at the core. Carnage in real estate. credit, and equity. Look further and one sees the emerging devastation in the US consumer, financial institution balance sheets. "Wealth" has been prodigiously destroyed, with those at the center unable, unwilling and fearful of totalling up the losses. The impact is, and will be profoundly deflationary, whether people realize it or not just yet.

YET that inflation (of sorts) apparently is rife, is hard to deny. Its on the gas pump, at the supermarket, on the utility bill, and everywhere on the radio airwaves and print magazines. Its on the allocations of pension funds (be they TIPs or a dollop to the GSCI) , YET, (and this is important) IF it [inflation] is really here and going to stay, it is NOT in yet incorporated into nor discounted by equity prices (in terms of earnings forecasts and impact upon valuation ratings) , and most certainly NOT discounted by the king of financial paper, USD bond prices. What one CAN say is that food, industrial commodity and energy prices have already gone up. And that it is hurting one and all to greater and lesser effect. And that continued consumption has (in the USA) been debtor-financed courtesy of those that feel they have no other choice or are too spineless to do otherwise, leading to a BWII equivalent of "Dawn of the Dead".

But globalization, slack labour markets, wealth destruction and deflation in core asset prices has, is, and continues to place a boundary upon requiting the rise in commodities with a rise in consumer incomes necessary to afford said commodities. The result will ultimately be in diminishing quantity of demand - hardly encouraging for the forces of prolonged inflation. But for the moment, mercantilists and (to borrow Macro-Man's eloquence) the currency piss-takers, finance (still unsterilized) over-consumption, a tether that soon must, and will break, which allows the current deflation and inflation to co-exist in Olympiad Stagflation. But, unlike the 70s, this will be short-lived, because the credit-pendulum has already reached its highest point, the American consumer is more-than-spent, further commodity price rises themselves are highly destructive in terms of end-demand, real-estate in the developed world , be it commercial or residential, entirely satiated.

I am not arguing against Hubbard, or the likely continued rise in agricultural terms of trade from historically low levels, and the changes this will wring to our advanced energy-dependent consumer societies. These Malthusian trends may well be secularly robust until the emergence of cold nuclear fusion, or Craig Ventner's mass-commercialization of bacterially-produced crude oil. However, we are well on the divergent road towards demand destruction, de-leveraging and credit revulsion, and with globalization, these trends will insure that a wage-price spiral is not on the menu. And consequentially, since I believe that the world is MORE inter-dependent, not less hence, hence the hopeful panacea of decoupling is bunk -at least for the moment. I think the more interesting next question will be: "How do the EMs, mercantilists, and currency piss-takers fiscally and monetarily respond to dramatically lower demand from the US and credit availability from traditional sources ?? In the meantime, stay short of stocks, long-bonds and bad credit, rent rather own, insure your car is fuel-efficient, ride your bicycle more, and apprise yourselves in the art of market-gardening.

Tuesday, June 24, 2008

Sea Shepherds: "...Whalers Can Be Hunted Sustainably..!!"

In a bold bid to break the impasse at the IWC summit in Santiago, Chile, the Sea Shepherds conceded that Whalers - particularly those plentiful species from Japan and Norway - CAN be sustainably hunted and harvested without adverse impact upon the general population. "It is not only humane, but necessary" a spokesperson for Greenpeace explained. "We must continue our cull of whalers for scientific research since there are many unanswered questions about why, in the face of overwhelming opposition from the rest of the planet, depletion of numbers, and compelling evidence that whales are MORE intelligent that humans, that the whalers continue to do the absurd". She added: "It just doesn't make sense, and we must torture, capture, and kill them (for research) to figure out why they are doing this."

A member from the crucially important whaling nation of [land-locked] Mongolia went on record as saying: "Whales? What are whales?!? We're here because some wily-looking guy named Hiro told us there was a free pancake breakfast with all the fermented yak-milk we could drink..."

Monday, June 23, 2008

Here today. Where tomorrow?

Fortis is big and and errr ummm Belgian. That is perhaps the only explanation for their new global campaign which proposes as it's tag-line:
Fortis: Here today, Where tomorrow?"
What could they possibly have been thinking? Have their marketing people not seen the carnage, the worry and the uncertainty of investors? Could they have missed the obvious double entendre??!? Why not something simple but reassuring such as "Here today, Here tomorrow?"

The campaign, hilariously (in today's environment) called "Life is a curve" campaign asks one to contemplate one's position and the future. The positive side is they have stopped making empty promises. The catch is: What if you are the stick-figure. so-poised to give your hard-earned savings to Fortis just before the curve becomes extremely concave. They might have just as easily used as their tagline: "Wrong place, wrong time??" for THAT is the image conjured in this observers mind. Just what you want to hear from your investment manager cum insurer whose market value is dropping like piece of The rock...

Wednesday, June 11, 2008

Latest Econ Statistical Data Releases

Suburbiavilletown, BlueState (Retuers 13:51PM) Two new data points released today has provided economists and market observers yet more (anecdotal) evidence that higher food and energy prices are beginning to bite. The first data series, The Main Street "EyeDrX Appointment Backlog index " has shown a dramatic fall since the same time last year. The release, poorly attended by my spouse, heard the doctor reveal at said spouse's annual vision check-up that his appointment book, which was running consistently at three months wait for the past several years dropped precipitously during the last quarter, and is currently hovering at a mere two weeks wait for an appointment. No external factors (competition, weather, etc) can explain the drop other than that diminishing disposal income is beginning to bite into what historically may have been seen as non-discretionary purchases, but in a crunch can be delayed, perhaps indefinitely. "I've a lot more time on my hands" said the Doc, "and I'm none too thrilled about it. And by the way, my fees have gone 15% since this time last year, but your insurance reimbursement rates are the same! Happy Tuesday"

The second time series that is an insightful tell-tale into current middle and upper-middle class consumer distress is the "End of year Teacher Gift Reimbursement Ratio". Measured on an oscillating scale between "zero" and a "hundred", it measures the percentage of reimbursement received by the Class Moms, that compensates them for their prepayment of the their childrens' teacher's end-of-year gift. Historically (since the beginning of the index's compilation) we were at 75% by the end of the first week. "This year", said the bubbly class mom, "we're at 25%". "It's inexplicably low!! I've been class Mom for six of the past seven years, and even at the trough of the tech wreck in 2002, I've never seen a reading below 55% in week-one of asking for repayment. . " Something is incredibly wrong...."

In related news, the "Toddler's Median Value Birthday Present" time series fell in for a fourth consecutive month, both on a YoY and MoM from $29.50 in May, to $22, in what analysts say is another sign of our times. "Not only has the value fallen due to presumed consumer distress, but due to inflation, the quality of gifts at various pricepoints has diminished too". When one reveler was asked about what he thought of the trend, he replied: "I mom bought it. Can I have more cake??!?"

Tuesday, June 10, 2008

Please, Mr Obama No Half-Assed Measures

Dear Mr Obama,

I mocked Mr Icahn, and defended you because like many Americans, I believe we share a visceral feeling that the nation's recent path has been wayward - not only from the optimal, but even from the tolerably wrong. As such, I am of the opinion that it is incumbent upon the opposition - all opposition - to do whatever it takes to place the levers of power in the hands of those more watchful of the Public Interest, and of an integrity that does not call itself into question as a result of each new contract, policy change or executive order. I realize the Executive Branch is only part of the problem, but nonetheless am hopeful that with strong leadership, the worst of shameful parochial pork-barrel politics will recede in favor of the greater good. In this regard, despite my stated distaste for dishonesty, I would (so to say) turn a blind eye to the little white lies and truth benders emanating from the opposition, provided it insures a transfer of the stewardship of the state to those who treat it with the respect and fiduciary reverence it deserves, which, in its absence may realize the worst of the criticisms and vitriol of the anti-statists. I am aware of philosophical paradox of this view, but can stomach the inconsistency in favor of goodness of the outcome, though I say again, I am not proud of stooping this low, but at least am honest with myself about it.

With this preamble out of the way, I must express my concern to you over your rant yesterday regarding the rhetoric of windfall profits tax, which to an economist, and even one who is rooting for your success, sounded, well, just lame, and fell outside the box of "necessary little white lie" I am willing to sanction into the cauldron of demagoguery. And let it be said, it is not the fact of a windfall profits tax, but rather the cynical ad-hoc pandering of seizing from A and giving to B, that will likely result in (and I never thought I'd be parroting an API talking point) BOTH a reduction of supply, and a prolonging of the adjustment of The American consumer to the realities of constrained supply in a neo-Malthusian century, which ultimately is counter-productive to the objective.

You see, I have high expectations of the next government, despite the historically-based probability that it will remain unrequited. Long before you start with energy-sector Robin Hood-ism for short-term electoral boost, you need to define a forward-looking energy policy, and more importantly sell it to the people. That means it has to be seen to be fair - in the long-term and short term, and achieve objectives that are truly in the public's interest. Sacrifice must be universal, and create discomfiture across the spectrum. Indeed, IF you're going to dip into supply-side with the windfall profits tax, (which by the way, I have doubts since the slope is slippery to coal, fertilizer, and all manner of resource whose price has risen through no fault or action of said resource- "owners") then it must be seen as part of a generalized sacrifice that would likely include regressive carbon taxes, as well as a gluttony surcharge upon large boats, private aircraft and their fuel, and home energy use above a reasonably allocated household threshold. Now, the shame is that you are squandering this opportunity by suggesting you'll simply do the absurd - i.e. subsidize consumption by the poor. No. No. No. This is precisely what is hammering India and China presently, and is the antithesis of the longer-term public interest. Proceeds from levies that essentially discourage fossil fuel use should be used to accelerate the US move away from imported carbon towards sustainable, renewable sources - the market decide which be they CCS. wind, solar, geothermal, tidal, or all the aforementioned as well as investment in transit infrastructure that will likely be MORE viable and attractive in the future, rather than less.

Some think this is unsalable. I beg to differ and think it is eminently salable and attractive - to blue and red-staters alike, for its logical cornerstone embraces the market and the freedoms, liberties and energy of the people. You see, it needs to be explained as a crisis - and a shared-one at that. And crises require sacrifice, which can be sold provided there is a feeling that the burden is shared. Of course, no one needs the government to tell one precisely which sacrifice to make, or how to contribute positively to our collective future betterment. Everyone's sacrifice will be different according to each individuals values, and the market is undoubtedly powerful in its wisdom to select, fund and develop the best and most efficient technologies. Energy policy in America, contrary to other developed nations, has been skewed towards promoting consumption. This is simply daft in the present day, given America's poor and unbalanced international financial position, and the trends in global resource supply and demand. And each day we persist upon this course, we become poorer, and children even poorer then. No, the time has come for an energy policy promotes conservation, and wise use of resources. That is not only because it is in our interests in the long-run, but because even in the short-term, we simply cannot afford to do anything else, and continuing an ostrich approach by denying the inevitable only conspires to detract from the future public interest for short-term parochial gain of a few.

It will not be pleasant. But it could and should be just, and fair, and in everyone's heart, they will know it (if explained with sufficient passion and empathy) to be the right thing to do. Yet while all change is initially difficult, there is no reason to be pessimistic. America is at presently vastly wasteful in its use of energy and water. The savings from anyone and everyone from barely noticeable changes are immense and will immeasurably alter the balance. This will give time for the market and our ingenuity when applied to an objective, to come to fruition that will decidedly improve the financial and economic prospects of future generations.

So please, Mr Obama, take a pause from thinking with your mouth open, and stop with the short-term demagoguery which in any event will be unmasked before November, and instead think with the Big Picture Systemic Vision of policy that enlists every American to overcome the challenges wrought by two decades of rudderless administration and eight years of bassackwardness and corrupt plundering that at once is patriotic, economically sensible, and finally, for a change, in the interests of our children, not to their detriment.

Good luck, and good night.


Monday, June 09, 2008


"B-E-R-S-E-R-K". What a funny word! It encapsulates vibrations that captures its underlying meaning. Webster defines it as "...destructively or frenetically violent; Mentally or emotionally upset; Deranged...".

And do not forget the Berserkers, from who the word derives its descriptiveness: " of a band of ancient Norse warriors, legendary for the savagery and reckless frenzy in battle..."

Friday the Thirteenth approaches.

Friday, June 06, 2008

Oil Traders: - OMG! They killed Kenny!

Everyone watching market prices today - especially those with large SUVs, Pick-ups, Cadillacs, and 30-foot Gallery ceilings - stood in awe, shock, and horror as known swing-short trader "Kenny" was killed today. "OH MY GOD! THEY KILLED KENNY!!! was the phrase hanging on everyone's lips. Kenny, had been a voicifierous proponent of theories suggesting that despite long-term supply concerns, oil is in a short-term bubble and speculators (both short-term and commodity indexers) are responsible for the state of a market where the daily amount of oil traded exceeds the entire daily US consumption by a factor of more than 15x.

I heard the mob chanting "In yer face you pussy!!" before it got ugly, said his closest friend, Kyle. "I guess they shut him up real good" said E. Cartman. "Nobody deserves a beating like that...I mean, like the kid can't even talk right!" But you know that the fuckin' weirdest thing of all was that I could've sworn I heard some suited spec with a huge wad of buy-tickets shouting "Allu Akbar!!"..

Are You On or Off The Bus??

Ever wonder why - over the past four years - commodity stocks have risen ceaselessly yet periodically crater in despair before vaulting to the upside with even more vigour, each up-leg catching more traders and portfolio managers with the equivalent of Commodity-Cat Scratch Fever?? It's easy to say "the specs", the BRIC bulls and dollar bears , though one must admit that rising prices have belatedly been requited with continued upward earnings revisions. That said, future earnings projections have in the main NOT caught-up with the pace of the rises in the stock prices, leaving "ratings" (valuation based upon out-of-sample forward-looking PEs) unprecedentledy high for a period when earnings are stable or rising.

Well I think I have stumbled upon the answer: guys... big guys... you know really big investors who punt around in round-lot percentages of shares outstanding, simply cannot make up their minds whether to stay-on the hard-asset bus, or get-off the commodity bus. This is perhaps best exemplified by Glenn Krevlin's Glenhill Advisers' position in Southern Peru Copper's parent Grupo Mexico SAB de CV (right). Krevlin, a former partner in Cumberland Advisers, now runs his own quiet $3bn operation, apparently throwing around large blocks in I "love it" - "I hate it" fashion.

Now the company itself has a reasonably small float anyway, but what's with the largest arms-length shareholder trading like a yo-yo??? Just look at the buy-puke-buy-puke-buy sell way early-jump back onto the
commodity trampoline. To me it is the classic reactive response that knows these thing aren't the thing to hold when the party is over, but ever the reveler, doesn't want to miss a good thing so-long as the party looks like it'll continue to cook. Importantly, judging by the historical price action, mirrored across the whole complex, Mr Devlin is almost certainly not alone in his hot and cold flashes of affection for the companies in this group.

Maybe this is as it should be. Maybe what he is doing is completely rational, processing, and discounting new information - sometimes bullish for the complex, sometimes not. But each time, The Trade attracts more marginal buyers and newly-converted portfolio managers, the pari-passu risk in "The Trade" increases in, what is in the hackneyed but nonetheless apt phrase, "archetypical bubble fashion".

Thursday, June 05, 2008

The Conjuring of Alternate Realities

Some time ago, when I was about the age of 10, I fell out of a tree and broke my arm in several places which was placed in plaster and duly casted to the orthapaedists liking. My father has warned me about the perils and likely outcomes of constructing a reasonably-sized clubhouse rather high in the crotch of a tree without either the proper tool or engineering experience - not that deterred me, or the construction of "Fort Ralph", named as it was after the one amongst us with a tad more hands-on experience than the rest of us. That snippet alone from my past could be crafted into an analogy of today's boom-bust. But there is a more apt epilogue that may be deserving of your attention.

The cast itself was fascinating to a youngster. People stopped to "sign-it", pretty girls drew cute pictures on it, parents did things on one's behalf that they might otherwise NOT do. Only bath-time was troublesome. Oh yes., and "the itch" and its subsequent quenching, which despite the doctor's warning was usually achieved with the assistance of a wire coat hanger.

Now, after a while of more or less continuous fascination with the cast, one eventually turns their their attention to what's inside the cast. The mind forgets what the arm looks like, and conjures up images of what it might look like. Will one's arm, and the skin upon it emerge soft like a baby's bottom, or will it be green and scaly resembling the serpent from the dungeon beneath Hogwarts? Maybe all that digging inside with hanger will cause it permanent Frankensteinian scars? The point is, you don't know, but the mind nonetheless continues to conjure and each imagined image is stored somewhere in the brain such that by the end of the requisite six weeks, the mind has retained and filed quite literally millions of images. All this is quite true, by the way.

All seem reasonably agreed that we've entered a recession. But as with the child with an arm in a plaster cast (a give-away of MY age), attention now turns to conjuring images of "what the recession will look like when it arrives in earnest. And here the disagreement among economists policymakers and pundits are as far and wide and my mind's conjuring mind-images of my arm. Global? Deep and long? US-centric and Decoupled? Shallow but inflationary? What of unemployment? Where will NOMINAL house prices finally settle, and what will become of equity prices, and the remaining Wall Street Investment Banks? Will GM even exist in 2011? The mind races with images and alternative scenarios.

Eventually, the cast must be removed. I went to my doctor reasonably unconcerned until I saw and heard whirring or the ominous-looking circular saw he would employ to cut the plaster. He assured me it wouldn't break my skin, and sawing - the tool kicking shredding it with dust and bits flying everywhere. About halfway through, I started feeling decidedly light-headed. Three-quarters the way and I began to feel nauseous as stored images circled in mental purgatory waiting to meet reality. Finally he cut through the last bit, brushed it off, and my eyes set upon it. My head whirled as a seeming tidal wave of stored images simultaneously liberated flooded a brain searching for the one that matched reality - the one of a pale slightly scaly arm, whiter-than imagined, with hair dark from not having the light of day for six weeks. The I tumbled to the floor as dizziness from the trauma over-whelmed a normally stoic disposition.

This is where the analogy ends. For in the markets, the reality is that it's never over, with prices and positioning in constant realignment on the basis of new information arrival and feedback loops galore. But the burning question remains to be pondered: What Will This recession Look Like??? Please feel free to use whatever palette you fancy to paint your own picture for further discussion...

Tuesday, June 03, 2008

Lamenting Smoke and MIrrors

The talk of the town today regards the apparent rueing by hedge funds over the imminent loss or curtailment of "vital tools" or "important weapons" in their arsenal that allow them to employ derivatives and swaps to obfuscate what they are doing in the marketplace by circumventing existing laws and regulations that require reporting, limit position size in addition to avoiding tax and other sundry benefits.

Of course it is not merely hedge funds that use them. In Japan, as I've detailed in the past, large long-only investors (like Fidelity) take advantage of OTC option structures with executing brokers to delay the disclosure of position changes until AFTER the majority of the position has been bought or sold. But recent squabbles, particularly those involving activists, have illuminated (surprise! surprise!) the more-than-widespread contrapreneurial use of option-combos, equity swaps, etc. to help Peltz, Icahn, TCI, and other other raiders/activists accumulate positions without the hindrance of fatuous details like reporting or compliance inflicted upon mere mortals. And everyone knows the ubiquitious use of equity swaps to wash dividends for offshore funds thus avoiding withholding and other tax-treaty requirements, as well as transmute ordinary income into whatever tax-preferenced delicacy is desired or required. Needless to say, those broker-dealers, and banks, already reeling from their loss of income derived from all manner of securitisation and all its milk-teats, leveraged deal-flow, Prime Brokerage, and quant hedge-fund washouts, are moaning and wailing now as they stand to lose yet another dubious source of income, the "greyness" and envelope-pushing smoke-and-mirrors which would make even the great David Blaine blush with embarrassment.

There may, indeed are, some legitimate arguments to the case suggesting that in general OTC derivatives markets contribute to better and more efficient financial intermediation. However, in the main, they are if not primarily, then very nearly, mere cynical loophole enabling, tax-avoiding, spirit-of-the-law bending, super-leverage enhancing, regulatory-busting, guideline-circumventing, gray-area-exploiting, piles of pooh that make worthless all of mankinds collective efforts to attempt to set investment, tax, and transparency, guidelines, regulations, laws, restrictions ostensibly for the benefit and protection of respective jurisdictional public interests, in general, and those of markets in particular.

Some may suggest the problem lies in regulation itself. Liberate all from the confines of restriction. Let everyone do as every one chooses, let chaos ensure and information will eventually flow freely. Like drug laws, that themselves allow criminal organized elements to profit, and not the state, so too, they would argue does financial regulation allow the banks and brokers to concoct yet another scheme to intermediate where none is actually required. Yes this demagoguery is seductive, but I don't buy it. For at the heart of capitalism lies two important concepts: reasonable market efficiency and reasonable fairness. The former requires that collusion, monopoly, and oligopoly be tamed, while the latter is essential for working people to arise in the morning and NOT do a smash-'n'-grab on the bosses house, wife, and warehouses or factories. Revolutions while perhaps conjured by fanatics, are nurtured and ultimately fed by unfairness, whether real or imagined.

I think the problem is inherently American - the result of excessive calculating legalistic rent-seeking, an unbridled feeling of financial exceptionalism by the "best and brightest" trained to and capable of exploiting the system, and a State that at once, has been made impotent by a biased demagogic philosophy that says "The Best Public Interest is No Public Interest" thereby not only allowing but encouraging the organs of the State to be invaded and run by the parasites themselves. It starts with a legal approach that gives primacy to the letter of the law rather than the spirit. This immediately places the burden of proof upon The State, allowing Genie, Genie & Genie Esq. out of the bottle and encourages yet more of our brightest minds to waste their lives and intellect conjuring loopholes and exceptions from the finite drafting of regulators with the full understanding that The State cannot possibly marshal the resources to draft every law, regulation and directive to include each and every possibility combination and permutation. Were the spirit pursued and enforced rather than letter, the house of litigious cards falls down. The operative word here are both spirit and "enforced" because the spirit, in itself, as England has shown is insufficient, as they've sold their souls to capture the wealth of intermediation by predating other financial centres. Indeed one could argue, London is not "better", nor climatically or culturally more desirable, just more practiced (and determined!) at looking the other way.

Australia, Germany and France have perhaps the correct approach: Combine the spirit with enforcement. This is precisely why the Russians, despite their historic affinity for things French, are living in Chelsea and NOT Parc Monceau or the XVIth, and why the Chinese are stashing their collected bribes in Singapore (or heaven forbid Dubai) and not Sydney. For if it looks like fish, and it smells like fish, and its in the water, it probably IS a fish. No amount of attempted transmutation or air-freshener can change the fact that its a fish. The SEC, CFTC, IRS, even ERISA have hand-wrung, kvetched, and gone down rat-holes to point of looking up their arses - everything except to do the obvious, which is to say that transactions doing XYZ where the spirit and purpose of XYZ has been set-forth in spirit will not hold up under scrutiny, and that violators will be forced to pay make whole what they've attempted to transmute in full with hindsight, ALL public enforcement costs, and pecuniary and not-so-pecuniary fines appropriate for the severity of the attempted transgression. The authorities should also speak with one voice, and to avoid misunderstanding by, as indeed Inland Revenue has been known to do, vetting schemes BEFORE employment.

This may not solve the problems of the markets and the world completely, but it will wholeheartedly make The People think the system is, at the very least, attempting to be Fair, and that we are not running a parallel universe - one for ordinary citizens, and one for the eagle-eyed opportunists who can buy and manufacture loop-holes at will to serve their parochial financial interests.