Plausible Deniability

Being right too often raises suspicion(s). It was what singularly raised the reddest of flashes about Madoff. Of course there are smart competent and hard-working people around. And some get it right more often than wrong, and perhaps in bigger size. But even the best get hosed, sometimes royally so.

Explaining away why and how one gets it - statistically speak - righter than perhaps they ought- and in larger size, must be a hot topic. Dr Simons can point to his army of PhD's, huge diversification and measured sized of his "bets". Others, however, are standing on far less terra firma. Contemplating some of the conversations currently being carried out in the offices of expensive defense attorneys around the nation, I have called upon my own sources of inside information able to conjure some possible balloons that are being floated to create an air of plausible deniability.

Some of the more popular include:

The Sgt Schultz Defense: "I know nothing..."

The Art Samberg Defense: "I've got an army of Harvard MBAs rummaging dumpsters, counting cars in chipmakers' parking lots, and tracking the spending habits of middle managements' wives to get an edge..."

The BornWinner Defense: "I am just plain darn lucky! (and I'd rather be lucky than smart..)"

The Miraculous Defense: "I've had these epiphanies ever since I was a boy and fell out of that tree.."

The Fantastical Defense: "I am a Time Traveler (and since when is Time Traveling illegal??!?)"

The Prophetic Defense: "When Moses and Mohammed heard these voices in their head, they were called Profits (sic.?!??). Why am I being singled out??!?

The Well-Passed Rumour Defense: "I was in this bar, you see, and this guys were talking....and I'd heard the same thing from lots of different sources..."

The "It's written in the Stars Defense": "I've a wonderful financial astrologer..."

The Ernest Saunders Defense: "I am sorry I forgot the question... who am I again??"

The "I am The Best" Defense: "I like to think I invest like Barry Bonds plays baseball or Ben Johnson runs the 100...."

The Manna From Heaven Defense: "Praise be the power of prayer!"

The Divine Inspiration Defense: "The Lord works in strange and mysterious ways..."

The Annointed One Defense: "I am unashamedly Master of The Universe. Who are YOU to question ME...???"

(Please feel free to any and all other plausible explanations)

I am Shocked That You're Shocked

It is undoubtedly all over the web, the news reported by Bloomberg that The (aptly named) Galleon's been hit sending her and her booty plummeting to the icy depths. Her buccaneering skipper's been taken prisoner and is presently in irons (along with friends and friends of friends). I think this is most excellent, even if it is only a small flesh wound to the crony form capitalism. Cynics will argue that it's all show. The current administration is no different - just look at Geithner's mates. Perhaps Raj just didn't donate enough ((though this is admittedly a long-shot). And they may be right. But appearances - the vigour with which laws (both letter and spirit) are enforced (and, when things go, or are likely to go awry, made!) ARE important, if only to get the working man out of bed in the morning. The so-called "free-money", so clearly pegged to the wrong price, during the eight years of the Bush Admin, is finally getting priced.

Samberg got away (under the SECs catch & release program) . Cassano remains unindicted (where does one start? ummm asset freezes, tar & feathering, for starters?). Martha Stewart got spanked (hard), but little more. Innumerable traders, hedge fund managers, even entire mutual fund groups use dubious weight-of-money strategies, subvert the market by goosing the marks of existing positions - monthly, quarterly, annually, while corporations continue to surf the line of the ethical to hit numbers, subvert competition - in vain attempts to emulate Raj, or just make a few extra bucks to keep the balls of an unsustainable way of life in the air. The system is built upon it. However, mark my words: rooting out less-than-salubrious market behaviour will promote entropy and make the market more efficient to the long-term benefit of the greater good. But before big-swinging over-zealous shorts start, as Harvey Keitel warned as "The Cleaner" in Pulp Fiction, s*ckin;' each others' d*cks", they should take heed that entropy works both ways, and those who employ similar tactics should similarly be culpable (were I Sheriff).

But the most incredulous thing I read in the article was:

“My client is shocked and distraught,” said Kerry Lawrence, Moffat’s lawyer, in an interview in court today. He said his client learned only this morning of the U.S. investigation.

Yes, I am shocked that you're shocked. A Fraud. A Cheat. Call him (and especially Raj, who to his small credit issued no statement of being "shocked") what you will. Or wait til after the trial or plea-bargain and then throw mud. Next, use your imagination to extrapolate across The Street where even the cornerstone - "plausible deniability" - has seemingly been flaunted of late. But however you look at news of Raj's outing, it is a good day for honesty. Integrity may just have rallied a touch.

When Art meets Finance (repost)

On the Eve of the authorities first real attempt to instill the fear of The Law in The Cronies, I thought I'd re-post a piece that went unnoticed when it was first published When Art Meets Finance in late Dec 2007. I have no doubt that the late Greg Newton would have loved the sinking of Galleon. For all we know perhaps he had some otherworldly part to play.

When Art Meets Finance

Art intersects, sometimes collides with finance in different and often serendipitous ways. Titans of finance acquire and trade rare pieces like a child collects baseball cards or cats-eye marbles, perhaps because, in their lifetimes, there is little else upon which to spend such vast sums. There are those that choose to donate large sums in most un-anonymous ways to museums partially returning to the public what has often been accrued (or stolen), but not without trying to cheat the fate of time by extracting a named wing, or other honor. Others try to find the nexus where they can use money (often not their own) to stroke their vanity by narrowing the proximity between themselves and celebrity - often with disastrous results, economically speaking, at least i the realm of film finance. But we shouldn't ignore that there are undoubtedly many well-heeled donating and supporting the arts and artists anonymously with altruistic (or conscious-cleaning) intent. Bravo for them, and everyone please give them a moment of kharmic suport.

Then, there is the wholly serendipitous collision of art and finance. One example begins with Gary J. Aguirre, a name perhaps familiar to most as a former senior SEC official-turned-whistleblower, fired for the transgression of reporting wrongdoing, in regards to the SECs buckling to political pressure in its non-investigation of John, Mack, Art Samberg & Pequot over insider-trading allegations, detailed so well at Naked Shorts by financial sleuth and slayer of hubris, Greg Newton. The result made Martha Stewart and Sam Waksal - both of whom served time - appear, by contrast, as horrific victims of justice-gone-awry. On the other hand, it might just be that the American justice - in the Aguirre affair - was subverted in a most pathetic way. You should all re-read Mr Newton's well-written details on the affair, and form your own opinions.

Yes it's a mad world, a fact not lost upon Mr Aguirre directly, nor, evidently upon his son. For while neither Mr Mack nor Mr Samberg have been headlibne buyers at Sotheby's latest impressionist auction, nor were their collections ever called in to repay margin loans, there is an art connection: Gary Aguirre's son, is the contemplative musician, Gary Aguirre Jr. (performing under the name of Gary Jules). Mr Jules as you might know has a nice repertoire of original music, but is perhaps best known for his somber, haunting cover of the "Tears For Fears" hit, "Mad World" below, perhaps a lament or prophetic vision of the world in 2007.



For the year 2007 has been a most-strange one, in almost every way - socially, politically, economically, and financially. And while change may be afoot, there is something profoundly apt about the the sad poetry of this song, and Mr Jules interpretation.

All around me are familiar faces, worn out places, worn out faces
Bright and early for the daily races
Going nowhere, going nowhere
The tears are filling up their glasses
No expression, no expression
Hide my head I want to drown my sorrow
No tomorrow, no tomorrow

And I find it kind of funny
I find it kind of sad
The dreams in which I'm dying are the best I've ever had
I find it hard to tell you
I find it hard to take
When people run in circles it's a very very
Mad World
Mad World

Children waiting for the day they feel good
Happy Birthday, Happy Birthday
And they feel the way that every child should
Sit and listen
Sit and listen
Went to school and I was very nervous
No one knew me
No one knew me
Hello teacher tell me whats my lesson
Look right through me
Look right through me

And I find it kind of funny
I find it kind of sad
The dreams in which I'm dying are the best I've ever had
I find it hard to tell you
I find it hard to take
When people run in circles it's a very very
Mad World
Mad World
Enlarge your world
Mad World

Here's hoping that 2008 will yield more optimistic thoughts, and events for all.

Suspect Conclusions

In an informal unscientific analysis conducted by yours truly over the past few weeks whilst cycling my local (rather scenic, if I may say so) byways, some automobile makes and models along with their drivers profiles rank rather poorly in regards to road safety and civic-mindedness - at least as seen from the two-wheel, pedal-pushing perspective. The results are as follows...

3rd Runner Up: BMW X3 - It's not quite an SUV, and if it IS car...it is a shitty one. Likewise, the people who drive them also seem not to know what they are driving for even though it is essentially sized like a car, the oblivious drivers (if one can even call them that with a straight face) of these vehicles pilot them as if they were as unwieldy as a Dutchman's summer-holiday caravan being pulled down the A7 buffeted by the winds of the mistral, nearly clipping innocent and unsuspecting two-wheelers unfortunate enought to be anywhere remotely near their path. It begs the question: "Why DO they drive them?". Certainly not to be cool, for Jeremy Clarkson rightly points out: They are "about as cool as the Argyle sweater your colour-blind auntie bought you, worn in the height of summer while working in a bakery. In Uganda...."

2nd Runner Up Volvo XC90 - In all the kilometres I've been clocking up recently, I've yet to see a 40's-ish driver of this errrr ummm car (??!?) who didn't have a phone to her ear (and it certainly IS a "her") or lodged between her ear and her shoulder, gesticulating animatedly into thin air seemingly at no one, oblivious to the innocent cyclist she is about to send into the ditch, orphaning the rider's children. The cell-phone however is by no means the only danger, for it is likely that when the driver of this combine-harvester-sized Truck isn't on the phone, or isn't too frugal or/and has figured out how to use the Blue-Tooth hands-free system, she is so utterly distracted with what seems like an entire football-team of children packed into the bleachers behind the driver, that it is a wonder she hasn't killed herself and her family before. Or, perhaps she nearly has, which is why she's chosen a Volvo this time 'round. To her credit, she IS impeccably dressed, hair all in place, overly-expensive handbag, none of which , of course, matters the least to the hill climbing cyclist nanometers from being dismounted.

1st Runner Up (tie between Audi Q7 & any vintage Peugeot 205) - Let's be clear: the Q7 is NOT a car. It is not even in the same class as a camionette. It is unimaginably H-U-G-E. Cycling on the same road as this behemoth is similar to being stuck in cattle-class on a transcontinental flight (something I freely admit that know a thing or two about) next to the frighteningly obese person who rightfully should have purchased two seats. It is a wonder that the average female who drives this (and is not a professional beach volleyball player) can actually see over the dashboard, let alone the steering wheel, which would go far in explaining their apparent disregard for humble cyclists. Couple this with overly-tinted windows and manslaughter cannot be far away (not that the driver of such a vehicle would even notice the mosquito-like splat-on-the-windscreen of a collision with a two-wheeler of any variety excepting a >50lb Schwinn relic c1967.

The Peugeot 205 is another matter altogether. Ignoring Clarkson's view of Peugeot ("...I'd rather have my cheek super-glued to the arse of a horse than be seen driving one of these...") these cars are driven by young males who are always smoking, rarely fresh-shaven, with disinterested looks upon their faces, who, seemingly have little regard for the value of their own lives, which perhaps explains why they have so little regard for the lives of others when conducting themselves on the road, cyclists in particular. Patience, linguistically the same in French, seems to be excluded from their vocabulary as they believe their modified, rusting, POS is small enough to squeeze anywhere anytime - even between the struggling cyclist and over-sized Polish lorry barreling down the road in the other direction. Fortunately, for this cyclist, their cars ARE small, but it's no good excuse to add to the grey hairs of recreational bikers.

Winner (or biggest loser rather): BMW X5
This car, and their typically male 35-to-50 drivers, exude an "I-Don't-Give-A-Shit, Get-The-Fuck-Out-Of-My Way" egocentricity baffling to this pedal-pushing enthusiast. More often than not, they do not yield, depsite the adjacent cyclist juxtaposed to the oncoming traffic and impossibly blind corner ahead, but even when they do slow down to await a more prudential moment (while opportunely using the few-second pause to check messages on their Blackberry), one can feel the heat from the over-sized, over-engineered engine since they are impatiently only inches behind one's rear tire. Then, at the slightest opening, they punch the accelerator so forcefully, it is surprising they don't pull a Fred Flintstone and meet foot with the pavement, emptying the contents of their fuel tank in the process. I sometimes wonder how they might feel upon making road-pizza out of an ambling cyclist, but I've a strange suspicion they wouldn't give a toss.

I do realize that this analysis is rather anecdotal and unscientific, which resembles some rather voiciferous opposition to Healthcare Reform by some well-known hedge fund manager types upset with almost anything to do with Big G (admittedly not just in Healthcare)., despite overwhelming evidence to the contrary that (in healthcare) many foreign systems where The State has intervened, have witnessed tangibly superior outcomes in terms of coverage and service provision (though by no means perfect) for substantially smaller percentages of GDP. In my defense, I will (perhaps reluctantly and despite my good intentions) admit that I probably have harbored some a-priori negative feelings towards SUVs that have unscientifically impacted my otherwise unbiased opinions. It would be refreshing to see similar admissions from those opposed to healthcare reform on what most unbiased observers would see as almost wholly ideological grounds, unless the argument included an element of American Exceptionalism which at least admits that others nation-states with national risk pools, mandatory participation and single-payer insurers DO indeed achieve near-universal coverage with equal (or better) outcomes for at least several % less of GDP, but that for whatever reasons, Americans just cannot do Government...

Read Wolf

The FT's Martin Wolf is always cogent, thoughtful, and (unlike this commentator) parsimonious with his words. No, I am not bucking for a dinner-party invite. But one should read - even if you might disagree - two of his two recent pieces, one a commentary on Fred Bersten's forthcoming article (hat-tip to JCK @ Alea), and second arguing why LibDem Shadow Chancellor Vince Cable's Mansion Tax proposal is right.

Mourning Rally

I am reasonably detached and dispassionate about most things financial, most notably in the investment strategies I've managed over the years. These have always been well-diversified, measured speculations that carefully consider risk vs. reward and viewed in a portfolio context. As such, I do my utmost not to invest myself emotionally in all aspects. So it is most curious that I should find myself experiencing very visceral negative reactions to the upward movements in the gold price. For I NEVER felt this way about any vaulting momo stocks over the last twenty years. This remains as true today whether it be yet another uptick in Green Mountain Coffee (GMCR) which doesn't make me lose sleep, despite their contract to supply McDonalds with designer coffee. Even the Sherman's March in Oil to $150, which carried out each and every short (both trade and spec) didn't ignite the same uncomfortable negative emotions combusted by seeming relentless gold buoyancy and the self-congratulatory chortling of goldbugs. Puzzled, I must ask myself the question: "why is this so" ??!?

On a simple level, and perhaps most obviously, it could well be that I am not long. And while academics, psychologists, and behavioural economists have not fully-tackled the biochemistry of watching a feeding frenzy from outside the pack, there is much scope for further examination here in respect of emotional reactions. That said, I have happily survived twenty years where in my universe of tens of thousands of equities, there are always many that are galloping upwards outright, or relatively outperforming in a significant manner, and which I am not long, yet, I couldn't give a toss. My emotional sine-wave measuring visceral my reaction remains flat-lined Nor am I otherwise irritably-moved by a boiling coffee futures price, a bubbling cocoa time-series of spot prices, or any other commodity for that matter - none of which causes my stomach to turn.

Perhaps it is the messianic overconfidence that Gold's flock exude - approaching if not surpassing that of a missionary's zeal, not content to understand alleged The Truth within, but driven by a seemingly possessed enthusiastic (surely insecure?!? -ed.) exuberance that seemingly demands a validation of their views by attempting to convert the non-believers. Here, too, I will readily admit to being irked by the hyperbole and their spewers, but not in response to the zeal itself, but for my fear for them as an introspective frequent self-assessor. But neither Hare Krishna's, Jehovah's Witnesses, nor fire-breathing Born-Again-And-Again Fifth Pentecostal of the Latter Day Adventist Saints cause any visceral reaction in me whatsoever, despite the potential stakes being much much much higher (arguably the highest, though perhaps not on a probability-adjusted basis). I actually enjoy the Sunday-morning house-calls from the divinely-inspired pamphleteering sorts, be they Mormons or Seventh-Day Adventists or devotees of the Flying Spaghetti Monster, and am most polite when highlighting logical paradoxes, even going so far as to offer tea and biscuits.

It could also be that I fear they are, in the asset-allocation game, singularly, and single-mindedly, right. But I really don't think this is the case, since in the world of "assets" - be they scarce or otherwise, as I have written before, there are plenty of other assets, fine substitutes and alternatives for whatever cards are dealt - many of which will prove to be superior investments under weather both fair and foul across multiple time-frames. Moreover, judging by those ululating its virtues the loudest, they (at least if judged by the average blog comment deposited around the blogosphere) are unlikely en-masse to be "the winners" in the next chapter of capitalism's evolution. I will admit stranger things have happened, but it's just not highly probable that the contrarians win much further when their view reflected in prices is no longer contrarian.

Rather, I think that in my search for meaning, the rallying Gold price signifies more monumental failures at multiple levels for society, in politics, for nations, for our individual and collective ability to measure our wants and desires with our means. So despite my skeptical exoskeleton about most things (financial innovation perhaps first and foremost), the aforementioned bothers me intensely, for I am, at heart, both an idealist, and a closet optimist about humanity, foolish as it may be, and perhaps as paradoxical as Cliff Asnsses' views on Healthcare. Sustained Gold rally lances this optimism, helps lay bare the falsity of the veneer of prosperity and the fragility of its lattice during these last two-and-a-half decades, revealing the financial pus inside. This is after-the-fact, market reactive stuff and comes as no surprise to a skeptic, but one must push this view from the minds eye to function day-to-day without self-inflicting wounds. And what be goldbugs culpability? They resemble anarchists: strongly motivated to be on the vanguard for a variety reasons, but ultimately selfish and probably mistaken for apocalyptic systemic implosion remains a tail event. In this view , gold remains "a trade", and not an end to itself. More irksome, a bet on Gold may be "right", but it - betting as it does upon the acceleration of pus manufacture, feels (to me) somehow uncivic-minded - a wasteful employment of intellectual energy that might be set upon making what is systemically and socially un-well, better. I do not hate them for this, but am, merely saddened that the sum of prior decisions taken (and not taken) have brought us here.

Logic would dictate that I too should be dispassionate, for the set-up and speculative break-out percolating has been clear and obvious as risk spreads have shrunk, John Paulson has bought a zillion ounces and introduced a Gold-denominated share class. And for whatever reason, the rear-window feedback loop effect is stronger in Gold than other investments making continued follow-through more likely. But my feelings are not logical, and in any event it's rally belies the still-elevated likelihood that we will wallow in a recessionary mire for some time which if not deflationary, shan't be inflationary; that the public sectors' apparent bloat is - contrary to the fear - not under the present circumstance, inflationary, hardly compensating for the the [continued] shriveling in the private sector, nor will it do much to multiply money or ignite velocity so long as the era of private stupid loans is well-and-truly passed. So when I see Gold rally, my visceral reaction is the result of my incredulous beliefs confronting contrary evidence, and the mourning for said failures (both real and imagined) that it represents. And I find it difficult to go out and play when mourning.

(* headline photo is from a set of Finbar O'Reilly's in Reuters, via Telegraph Blog)