Monday, August 02, 2010
I used to smile sophmorically at the sight of a Dentist named Dr Fang, or a Plastic Surgery clinic named Dr Tuck, just as I have long-chuckled at the sight of the The Wyly Brothers moniker in print. Monday morning quarterbacking is always easy, but I can tell you that there was always something fishy about the way their stocks traded (both Sterling Software and Sterling Commerce) - and now, of course, we know why. Wealthy self-made Texans (however grey their machinations), it seems, are inherently disdainful of regulation and authority, and a sucker for low-hanging fruit irrespective of prevailing law. But rather than being "men" about it (so to speak), and simply taking their operation private at an early stage, or checking out and becoming a citizen of Belize (like Tory Chair Michael Ashcroft or paper-cup scion Kenneth Dart) or creating their own island state with its own zero-tax and regulatory regime (like the Berkley Brothers), the Wyly's chose to speaketh in forked tongues, milking the system for its benefits, while systematically gaming it in reasonably cynical fashion. Even sadder, they authored a now-dubious book about their formula success - one which undoubtedly excluded a few ignoble "trucs de chef". The Wyly's, it would seem, expected nothing more than proverbially "having their cake whilst eating it too" versus paying more than their share of tax, forgoing illegal trading gains, or limiting their presence in their beloved fire-ant state to 180 days per calendar year.
There are lessons for the contrarian here, and ammunition for those trying to explain the price momentum phenomena: The Wyly brothers were not alone. I do not mean "alone" in the sense of being in the company of Mr Waksal or Mrs Stewart. Rather, I mean that their entourage, like the Remoras (or sucker fish) feeding upon their hosts errr umm crumbs, was omnipresent in riding the coat-tails of each abuse of material non-public information. Indeed, the daisy-chain is unlikely to have stopped there. Humans DO learn quickly where the fish are hiding, and all manner of observant executing trader, back-office clerk, and/or personal assistant, will surely have suspected the cause and effect of winning trades. Beyond that, information is power, and is often used to curry favor for those looking to reward or impress. In short, it is a picture-postcard of inside information seepage and dissemination which is that bane of the options market-maker(s) (like Timber Hill and Susquehanna) who are routinely skewered by such realities. Today, add to this the front-running cunning of the lurking high-freq cherry-pickers, and information is amplified quickly and rapidly, perhaps to the point of forcing would-be bidders' hands earlier than desired. Of course bogus rumours are subject to the same amplification lessening the pain for the dedicated, bona-fide jobbers, and hopefully (for them) they are far more numerous - sufficient to overcome the Wyly fat tail. Needless to say, the government should share some of the spoils with the bona-fide market-makers whose asses were made blue. For it is they from whom the money was stolen. I can see the ambulance-chasers chining up as I press "Post"....