Get Your Official BoJ Rubik's Cube

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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.

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.
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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...

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,

Cassandra

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...

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 homegrocer.com 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 !!


Telltale
Rung the Bell
The towering heights
from which it fell.

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

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.

One Comment

Cassandra was mythologically granted the inauspicious ability to "see" things before they might happen, and thus make prophecies. This Cassandra, by no means as gifted as the one whom Apollo bestowed his gifts, has nonetheless seen this particular story clearly unfolding since the Fed first began its nearZIRP experiment. Looking deep deep into the future at that time four years passed, it was clear that, in the absence of fiscal tightening, implementation of a comprehensive energy policy replete with taxes and alternative incentives, and a release of the US bond market's manhood from the little box in Beijing where it resided since 2004 or so, that an eventual Fed Chairman, would be faced with an eventual decision - a most key and crucial decision upon which everything would hinge and which the markets would interpret as seminal - between inflation and hence the foreign exchange value of an already weak dollar, and the pursuit of some Shangra-la-like objective called Full-Employment, suffering as it has been from diminishing marginal returns to a dollar spent to that effect, but costing ever-more in terms of whatever shards of prudential credibility remained.

That moment has come. Here we are, presently, in what was the future. And none of what was so desperately needed was done. NOTHING...as if American policymakers were, en masse gripped by some conspiratorial cabal to undertake THE OPPOSITE! But, the Fed has made its choice, which is evident to all, and slowly as the news travels and the ripples ricochet upon all dependencies we will see the effects. The Fed is biased. It is spineless. And in so doing, it will reinforce all beliefs that a system that rescues, encourages and asymmetrically subsidises leveraged specs is patently unfair to the ones who actually work for a living.

Yet, I had hope, waning as it was, that Fisher or Geithner might influence the others. Argue the case for moral hazard, carry the flame for the FRBs role as savior of common sense, arbitor, and not co-conspiritor with the fiscal whores their K-Street pimps. That hope has now been extinguished, and, like Robert Johnson, I've got the a bad case of the blues. Because when when I look out, it is ugly for the USD, America, and the international monetary system. And we will [almost all of us] be poorer for it.

I went down to the crossroads,
Fell down on my knees.
I went down to the crossroads,
Fell down on my knees.
Asked the Lord above for mercy,
"Save me if you please."

I went down to the crossroads,
Tried to flag a ride.
I went down to the crossroads,
Tried to flag a ride.
Nobody seemed to know me,
Everybody passed me by.

I'm going down to Rosedale,
Take my rider by my side.
I'm going down to Rosedale,
Take my rider by my side.
You can still barrelhouse, baby,
On the riverside.

You can run, you can run,
Tell my friend-boy Willie Brown.
You can run, you can run,
Tell my friend-boy Willie Brown.
And I'm standing at the crossroads,
Believe I'm sinking down.

Pope Says: "I am Worried About Liquidty "

Even the Pope, it turns out is concerned about the spawning of excess global liquidity, for he too has a business to run. And though the most important inputs are ephemeral, he still has a meaningful infrastructure to maintain, and payroll to meet that BINGO! alone cannot fulfill.

Though as with traditional contraception, he (or is it "He"?) certainly has some definitive preferences as to how it should be controlled. I was fascinated by the Pontiff's interest, to say the least, though perhaps not entirely surprised given his Germanic lineage. Upon closer scrutiny, I discovered that the similarities between traditional birth control and monetary contraception are remarkable indeed.

Take the Pope's favored method: Abstinence.. This is of course easier said than than done. We are, after all, only human. But it is problemmatical to watch your friends drinking, having fun and getting laid and not want to experience a bit of the fun. Even the Pope's only clergy has frequent lapses. And the longer the party goes on, the more that those with noses-pressed upon the glass, even with the most prudent of monetary intentions, will not desire experience the thrill of...

Voluntary Early Withdrawal, known technically as coitus interruptus is Church-approved (so long as occurring in a sanctioned union), and was for the past two hundred years or so, the traditional accepted method by which Authorities balanced the taming of animal spirits with the unnecessary impoverishment of the working man (through tight-money or too many offspring). But while it is entirely effective when properly exercised, the flaw with this method is that in the heat and enjoyment of the moment, when both passion and economic activity are errrr ummm elevated, proper execution despite the best laid-plans, is by no means assured, and often discarded. Yes there is some hand wringing, finger-pointing and regrets later, but at the most important moment, nothing is assured.

The Rhythm Method has its merits from a both theological and macroeconomic points of view. It's natural and unadulterated and therefore ecclesiatically friendly, and has been THE throttle of choice, historically, warts and all. But in modernity, The Polity feels humanity has advanced to levels where we no longer need to experience the ups and downs of the business cycle, irrespective of the diminishing marginal returns accruing to further interventions to stem the cyclical tides. And as practitioners of this method understand, knowing where you are in the cycle is of utmost importance!! Equally, if not more problemmatical in practice is that some participants simple do not
care where in the cycle we are, or try to use their wealth, might, ingenuity, and poor sense of financial engineering to neuter the very market forces and cycles that make it effective in the first instance.

Birth-Control Pills and Condoms are both condemned by the Pope as unnatural barriers to conception, just as taxes, tariffs and NTBs are dismissed by free-market economists. But what's a girl to do? My feeling always has been that theoretically, one would preferably not employ such methods, but in the practical here and now of the real world they actually do have a place, and potentially important one, to stem undesired children and inflation at the micro (for multitudes of reasons), and both population and liquidity growth in the macro. It's all well and good for the high and mighty to say what is "right" and what is "better", but they are mostly not the ones struggling with unwanted kids and living month-to-month under conditions of stagnant real wage growth and rollicking experienced inflation. So in the absence of other directly effective means and methods, I say pills & prophylactics all around!

Surgery, such as vasectomy or tubal ligation has always been a popular preventative measure amongst the middle-class in America, and I can only presume that the Church's fence sitting position on this is the reason, even though it seems to be a form of theological loophole. In economics, the analogy is something like wage & price controls, which achieves the superficial result by decree, but in a dishonest way, and with numerous side affects, the most obvious being cheating and infidelity, which may or may not be problemmatical depending upon one's point of view, but in either event is dishonest and less desirable than more direct means of resolution.

The Morning-After Pill, better known as "Plan-B" has its merits, despite the Church's vocal opposition. OK, so you made a mistake (as the film Knocked-Up you were drunk, he was a creep, or your central bank lowered interest rates just when huge tax cuts were approved. No big deal, just pop a pink-pilled financial dose of RU-486, jack-up rates (and as it happens, increase financial supervision of the asset-backed markets) and presto!, problem solved. I really do not understand the problem with flip-flopping, which to me, makes eminent Darwinian sense when not pursued pathologically, for when one is driving in one's car, and one sees a dead-end directly ahead, most folks would stop, admit they've made an error, and correct their course. Why is macroeconomics seemingly so different?!?!

Finally, there is abortion. Let me tell you at without pretense (at the risk of being hit by massive DNS attacks from Right-To-Lifers), that Abortion is OK in my book, and most certainly preferable to risking a mothers life, future parental financial destitution, being raised by parents who don't want you, or growing up in an abusive household (note for any kids reading this: An abusive household is NOT one where the parents coerce their children into practicing their Violin or revising Maths and Latin). Abortion is the economic equivalent of institutional change. It might be impeachment. Or it might be the final separation of FRBs mandated Siamese-Twin objectives of promoting growth AND price stability, or merely transforming a whipped CB into a fully-fledged, independent central bank. The problem with the Right-To-Life movement is that they, while typically optimistic, are always focusing on the negative aspects of abortion. I, on the hand, who's typically pessimistic, conjures up the positive possibilities, such as what might have happened is Rove's & Cheney's Brittany Spears' mamas had all decided that what they really wanted to pursue was a life under the bright lights of Hollywood, and that accidental children, while cute, would just get in the way of the pursuit of their inner desires...

Cast Your Vote for a New BoJ Governor

Takehiro Sato of Morgan Stanley in an Oct, 27th research piece (Hat Tip to JapanInvest) contemplated a scenario in which the domestic political situation in Japan might delay the appointment of a new Governor of the Bank of Japan, and result in perhaps several 2008 MPMs without a sitting Governor at the helm. Bitter and jaded as I've become in regards to any internationally socially responsible monetary policy outcome EVER occurring, the news will cause neither ululating crowds of protest, or hordes of Mrs. Watanabe's to stand before the hallowed headquarters clicking their tongues.

But it does give readers an absolutely fabulous opportunity to help the LDP (and DPJ) select from a short-list of potential candidates.

Here are my choices, and I encourage all participants to e-mail your favourite lobbyist with your selection:

Toyotaro Yuki (結城 豊太郎), Yuki Toyotaro,(1877 - 1951) was a Japanese banker. He was Governor of the Bank of Japan from 1937 to 1944. He also served as Japanese Minister of Finance for a short time in 1937. Asides from serving both the MoF and BoJ, and having a rather thankless task as Chief Money Guy when the war shit hit the imperial fan, he was apparently quite a guy in his own right visiting Europe, admiring their public Libraries and clean drinking water. He even has his own museum!!. But his biggest and best qualification for the Governorship of the BoJ is that he is deceased, for if lack of policy action is any measure of success, then as the only dead man on the short list, remains strongly qualified for the job, with the added bonus that, with his limited dietary and entertaining requirements, will keep a lid upon ministerial budgets.

Mr. Satoshi Sumita (BoJ Gov from 1984.12.17 - 1989.12.16) Will forever be know in History as Mr Bubble, eclipsing perhaps even the great AG. His easing of Japanese monetary policy, ostensibly to help stabilize the dollar after a nearly 50% plunge against the yen in the previous two years makes him well-qualified to return for another stint. During his tenure, the BoJ did its job with a zest never-before seen in the post war era when he lowered the discount rate from 6 percent to 2 1/2 percent. The money supply soared to well-into double digit rates *though this hardly qualifies him as even remotely eager by today's comparison). Normally, in pre-PBoC days, such monetary expansion would have been inflationary. But the Yen appreciation following the Plaza Accord of 1985 hampered attempts by Japanese producers to raise prices. CPI rose only slightly, from 100 in 1985 to 101.4 in 1988. Wholesale prices actually fell from 100 to 91.8 thanks to the strong yen and falling oil prices. So instead of raising the prices of goods and services, the excess liquidity instead caused the mother of all land-price and equity bubbles.

Interest rates became negative in real terms (something not only common today, but necessary to get elected. Credit was virtually free - sparking an unprecedented liquidity boom that beat all others (until the post millennial USD credit bubble). The Nikkei average rose at an annual rate of 45 percent per year from 1987 to 1989, and by Dec 1989 it had risen to almost 40,000 from a little over 10,000 in 1985. Tokyo land prices more than tripled sparking valuation comparisons between The Imperial Palace and the entire state of California.


No Face (カオナシ), - A central character in Hayao Miyazaki's "Spirited Away", Wikipedia best summarizes the enigmatic "No Face" as

an odd spirit that takes an interest in [the heroine]Chihiro . Chihiro lets No Face into the bathhouse through a side door. At first, he is a strange, cloaked, masked wraith that merely breathes and smiles. No Face is a lonely being who seems to sustain itself on the emotions of those he encounters, particularly their emotional reception to his gifts. He is helpful to Chihiro because she helped him, whereas after observing the bathhouse staff's reaction to gold and his own attempts to win them over with more gold, he reacts to their greed by becoming a grotesque monster which eats lots of food and some of the staff. He calms down and reverts to his former state after he leaves the bathhouse's influence. At the end, he stays with Zeniba as a helper.

It is easy to see why he would be so well qualified to take the reins, for really, all the new Governor needs to do is breathe and smile, and even the former qualification is not essential. His disregard for wealth and gold, and penchant for throwing it away would make one think he had spent his pre-spirit days working his way up the BoJ bureaucracy. And if in any doubt to No Face's suitability, just imagine the grandmotherly Zeniba, whose service he has entered into at the end of the film as The MoF!!


Hisamoto Masami (久本雅美 Osaka, 1960- ) In voting for Miss Hisamoto, one would be sanctioning change, but in a most apt way. For Hisamoto Masami (known as Matchami is not only one of the most popular female comediennes, but perhaps one of the most popular female personalities in all Japan. Skinny, and buck-toothed she is best known for her lack of shame when it comes to slapstick, and indeed this would be a most useful qualification for any BoJ Governor. And she can get down and dirty with the most raucous male counterparts (e.g Beat Takeshi or London Boots) and is often seen doing armpit or crotch jokes on variety shows. In the hard-hitting male-dominated world of Japanese finance, such skills are essential, with the added benefit of bringing new-found levity to G-7 and other international financial events. Moreover, Hisamoto would be an excellent role-model as her popularity with Japanese women has grown over the years as they've become more liberated and able to speak their minds. Polishing off her qualifications, she lists "drinking" as a hobby, and "the ability to have blackouts" as one of her skills. Undoubtedly they will be required of any new governor.

ASIMO! - Not wanting to bias any readers in their selection, I will tell you that I am partial to Asimo, for he is indeed most perfect for the job: He can be programmed by the MoF to do exactly as he's told; is unlikely to be susceptible to bribes; will never make a public gaffe, already has experience in meeting foreign dignitaries (seen here with the Czech Prime Minister); nor has any secret or dark family history such relatives who were Class-A war criminals. Go Asimo!

And a late addition courtesy of Macro-Man, who nominates
Zhou Xiaochuan, current Governor of the People's Bank of China. As MM points in the comment section of this post, Mr Zhou has been a world-leader at forcing domestic rates well into negative territory, though by precisely how much remains a mystery since there are no reliable fogures on inflation other than the Shanghai Stock Exchange, local real estate prices, the CRB Index, the price of a ton-o-steel or a metric ton of soya. With Japan itself continuing a slow, but inexorable process of industrial hollowing, and outsourcing the more labour intensive manufacturing processes, why not outsource monetary policy to the PBoC? Indeed, it is my opinion that the Prime Directive of BoJ policy is to insure the Yen sticks the RmB like a remora adheres to a shark (a whatever it can).

Nothing Could be Finer Than to Be In Carolina....

I've been whining and bitching about official (mostly Chinese and Japanese) defacto intervention in markets since I first ascended on this soapbox, railing about the perils of liquidity growth, the moral hazard and mis-allocation of resources it thus spawns, not to mention the undesirable externalities attendant with the path of [American] least resistance and most diminished effort. But what a royal waste of time and effort this has been! And what tedious drivel I've scrawled...how could anyone have persisted in reading it, let alone spending the time to leave a comment. Even I, as authoress, cannot even bear to proof-read it. Doesn't anyone have a life?

Well, today, I stand before you, humbled. For I am wrong and GAVEKAL is right. For the moment. For in my zeal to look ahead, I have been in denial over the simple basic fact of the-here-and-now that nothing nothing nothing could be better for non-fixed income assets (ex-Japan) in general and particularly for most equities (ex-Japan) than soaring inflation coupled with stable interest rates, tame wage-price inflation, and most importantly stable to rising currency values versus the largest surplus nations. My love of independent film and a well-written screenplay seemingly blinded me to the true and utter perfection of this saccharine Hollywood production.

Some in the media have mis-named it Goldilocks. But this is way off the real mark. For it's not a question of "too hot", or "too cold". We know its too hot (just look at "stuff" - gold, art etc., or Chinese and Hong Kong stocks in comparison to forward earnings estimates!). No. It more resembles the Kudlow-Economy as in "A place where it couldn't be better so long one doesn't think about tomorrow." It's a Kudlovian's utopian ideal where we needn't tax our minds (or conscience) with details like how and why we've got here. This is Global Financial Pleasantville , where Stepford Economics, prevail, and are the upside laws by which markets apparently abide.

Nonetheless, we are there (or is it here?!?). And ruminators are frustratingly helpless since, in this world, when one tries to yell or in any other way articulate that it's founded upon unsustainable policies all-around, no sound emerges. Or worse: one thinks that one is speaking English, yet everyone around else hears Gaelic, and everyone knows that not a soul comprehends it anymore.

And so the dollar continues weak against the currencies it perhaps no longer should, and gathers strength against those that it head-scratchingly shouldn't. Yet, the sense of crisis possibility still hasn't quite arrived in Washington, nor in Tokyo or Beijing for that matter. There is no talk of conservation, no urgency to ponder what might happen with a spike to $200 oil, or a gold-spiking loss of confidence. No contemplation of tax increases to begin to pay for the present war, nor of aligning our interests with Europeans to preserve the vestiges of an international monetary system predicated upon market forces in exchange and interest rates to discipline governments that push the envelope of fiscal and/or monetary sensibility, or of the destructive trade wars set to ensue when the system buckles under the neglect. Why does eveything still appear in the reversed contrast of an old, silver-halide negative? When will leadership emerge and scream: "Halt, engines full reverse or else we'll run aground?"

In the meantime, I am SO SO wrong and should fight it no longer. I must for sanity's and financial sake, embrace it, for I am a Capitalist and THIS world of THIS MOMENT is fantastic for capital and asset owners, large. Imagine: Inflationary pricing power yet falling interest rates, with little of the attendant cost-push (ohhh thank you denizens of $2-a-day-workers, and willing buyers of USDs - please may nothing happen to you or your munifidence!). The perfection of this moment just makes me want to break out in song, like Donaldson & Kahn's late 1920s ditty ...

Wishing is good time wasted,
Still it's a habit they say;
Wishing for sweets I've tasted,
That's all I do all day.
Maybe there's nothing in wishing,
But speaking of wishing I'll say:

Nothing could be finer than to be in Carolina in the morning,
No one could be sweeter than my sweetie when I meet her in the morning.
Where the morning glories
Twine around the door,
Whispering pretty stories
I long to hear once more.
Strolling with my girlie where the dew is pearly early in the morning,
Butterflies all flutter up and kiss each little buttercup at dawning,
If I had Aladdin's lamp for only a day,
I'd make a wish and here's what I'd say:
Nothing could be finer than to be in Carolina in the morning.

Dreaming was meant for nighttime,
I live in dreams all the day;
I know it's not the right time,
But still I dream away.
What could be sweeter than dreaming,
Just dreaming and drifting away.

Double Dipping

Agricultural commodity prices hitting highs. And a new $282 billion 2007 Farm Bill in USA. Hmmmm. A quick review of the bill seems to have a bit for almost everyone, (for how else does one get to $282 billion?). Ummmm, one question though: may I have some, too, please? For I, also, am frequently victimized by the vicissitudes of the market and would clearly benefit from some income support, and some re-training assistance to learn how to cope with momentum-humping stock-jockeys, particularly during times of divergently speculative markets that cane the more value or reversion-oriented investor. And perhaps the US Govt could pay me to set-aside some of my less-successful investment strategies that have recently suffered from alpha decay?? Am I any less deserving than the noble cotton farmer or hard-working tobacco grower?? And like the USDA, Government can buy some of my other, unwanted or unneeded otherwise discarded strategies, for redistribution (in-kind) to those obviously less fortunate who have no investment strategies at all (not even bad ones!). Any troll through the internet employing the keyword "trading stocks" will show just many people must be so disadvantaged, lacking investment strategies of their own. Additionally, as in the farm bill, I could definitely benefit from some research assistance, for lord knows competing against the countless PhDs at Renaissance & DE Shaw, not to mention the Indians, Chinese and Russians, is quite a thankless task. Oh, and don't forget marketing assistance. As a small investment manager marketing is on a ongoing challenge, so I would be grateful please if you could appropriate some funds to help us small HFMs better reach our target market. Maybe the Feds ould even apply the pressure of the USTR to twist the arms of SAFE's SWF to let us little guys manage some of their gargantuan pot of money. But don't get the wrong idea. I don't begrudge farmers recent good fortune (indeed, some of my best friends are farmers!) for lord knows their terms of trade have, errrr, sucked for the last two decades. I just think that from a public-policy POV, we might benefit from a method of reducing the flow of the spigot, or milk descending from the Federal milk-teat, during times-o'-plenty, else simple souls like me will think some are double-dipping, and no-one likes a glutton - whether they are noble farmers, HFMs or PE-weenies.

Geppetto's Creations

I must be hitting raw nerves of late, for I have been the recipient of rather colourful death threats. The good news (depending upon how one views it) is that the perpetrator is known to me. And it turns out they've been coming from my spouse, expressing hostility for my blogging and commenting upon others - ostensibly at the expense of marital and familial attention. Oooops.

Such faux pas are not lost upon me on a day when the thundering herd, Merrill Lynch, has 'fessed up to write-down of $8billion. First The Bear, then Citi, now Merrill. For those who are a tad less observant, I will point out to you that there is clearly a pattern here. Merrill, for all its size and retail might, has from where this Cassandra sits always been Wall Street's Lennie (of Steinbeck's "Of Mice & Men" fame), whereas Goldman Sachs could perhaps be seen as George. In the heady growth days of the 1980s, both Goldman and Morgan Stanley sported thoughtful, and erudite Chairmen (Whitehead & Fisher), who could be wheeled in front of supranational or blue-chip corporate clients, and suavely impress. Merrill would wheel out Kamansky, notorious for his use of colourful bigoted stereotypes, and the "N" word. But Merrill's embarassment didn't stop there. Their Prime Brokerage unit always seemingly got left holding the bag (remember Guinness Peat Aviation??), and their repo and stock loan desks were controlled directly from Corleone, Sicilia. No integrated P&L here! Merrill always lost their smartest guys, so that management was the result of attrition rather than talent. They weren't bad guys. In fact they were probably more honest than their competition - the result of being the biggest and therefore more in the public spotlight , and the multi-culti board that held sway over the self-centered white guys that would, under other, circumstances steal from your sick grandmother and her Dead-Pet Trust. But, hey, we're talking about Wall Street, and honesty is never relied upon to get one anywhere.

Now compare the aforementioned cast of characters and Merrill's behaviour during the "tech bubble". Morgan Stanley, underwriting Avanex (AVNX), and then touting it as "a buy" at $250/shr as the next JDSU (and they weren't wrong!). Unfortunately, they didn't mean that IT TOO would be worth 2-cents on the lightwave dollar. Oh well.
O.P.M., and mostly HNW. And Salomon-Citi was so conflicted with the whole WorldCon/Jack Grubman thing, they had to bring in an outsider AND a conservative blonde WOMAN (holy wow!) from the buy-side to prove their new-found religion and integrity to the suckers who bot WCOM shares and paper. And Goldman was right up there with the best of them. They were so conflicted, they were forced to stop making any recommendations in a way that a lawyer could fault them for, yielding to a dually-sanitized sector "view" and stock "view" that often meant: we hate the sector relative to the market, but like the stock relative to the other that we hate in the rest of sector, in the process erasing all traces of trying to establish a financial value, price targets, or even a simple "Buy", or "Sell" recommendations. This was brilliant as only the legal minds of Goldman might conceive!! Now even those measuring the performance of the analysts couldn't ferret out whether they were doing anything of any value. Merrill, of course got busted, and we know. Henry Blodgett was touting what he was told, or what he needed in order to goose IB and underwriting revs. And for their size, and lack of care, honesty (or perhaps legal advice given the undeniability of being caught red-handed, or stupidity, depending upon through which lens you view it) made them, confess, comply with investigators, and pay large. Citigroup, with the Grubman ball-and-chain around their proverbial necks, too, had no leg to stand on, and had to 'fess-up and pay. Interestingly however, Goldman and Morgan managed to lose the back-up tapes of their emails. ALL OF THEM!!! Didn't Nixon & Haldeman pull that one??!? But the culture of omerta and hush-money-bonuses runs deep and there was never a whistle-blower, or turncoat who came forward and said: That's just plain rubbish! The tapes are sitting in a vault in Jersey City (or Zurich, or Lichtenstein, or in a briefcase at the bottom of the East River). Miraculously, they paid a fine for non-compliance of record -keeping regulations amounting to an evening's Limo bill, never admitting or denying guilt in any regard, to conflict of interest, or knowingly purveying tainted research. I do not morally judge them (here at least), as it supports my point that, if they were not more "honest" (whatever that means), they were much smarter. Much.

And today, once again, we see Citi and Merrill in the limelight. Again they are 'fessing up to large losses of one inventory variety or another, likely reflections of an accumulation of greed, mis-deeds, stupidity, and poor management and risk control. The post-Enron era however makes a medium-security cell with Bubba a real possibility, so Mr O'Neal might enjoy his freedom and, anyway as CEO let's not take things too seriously since it IS other people's money, right, and management and revenue generators are just mere agents with wildly asymmetrical upside? "Fake it 'til you make it"

But fascinatingly we hear silence from the smart and annointed ones at Goldman and Morgan. Morgan might be forgiven for its fixed and mortgage businesses was never as big as GS. Yes the GS whiz kids could be masters of the universe (lord knows they recruit well!! and reward handsomely) and of course might have unloaded "it", or hedged "it", or done whatever a firm with such a gargantuan business and balance sheet does with such embarrassing things such as lowest-rated tranches of a CDO, or other ABS and the like, for instance: categorize them as Level 2 or Level 3 securities? But like the Japanese phalanx-like pursuit of opportunity, where there is money to made, it would be rare rare indeed that America's brightest and most avaricious boys would eschew it. Perhaps, the difference lies only in the honesty and integrity - either in marking the book, or in the BS sales pitch that it took to move the masses of rubbish off their books to the poor Taiwanese farmer's bank or Landesbank SIV.

Blackwater Denies Hedge Fund Murders

Blackwater USA's Founder and Chief Patriot Erik Prince has emerged from characteristic low-profile and gone public in a media blitz to vehemently deny any responsibility for the killings of the now-ignominious Bear Stearns-managed highly-leveraged Mortgage Hedge Funds, the recent market slaying of London-based Cheyne Capital's SIV in a gangland-style savaging late last week. Both market witnesses and forensic experts said "it was awful, bloody, and bloody-awful! It was certainly no accident as they were clearly tortured before being killed. You could see it in the marks..." Some have also implicated Prince in the bizarre and mysterious expiration of hedgie talking-head, Seth Tobias.

Blackwater's Prince, in both private interviews and Congressional testimony, didn't deny that the victim's were in fact dead, (as in longer viably breathing & independently financed) nor did he say that his employees were uninvolved. But he nonetheless went on the offensive saying "Blackwater should be seen as patriot's Patriot as they were doing a job no one else could or wanted to do", and that "America was better off for it". He said he trusted his men, and that "both the Bear Stearns funds and Cheyne SIVs must have been doing something wrong" for his mercenaries to unload and cause such carnage. "Maybe they [Bear & Cheyne] were too leveraged and panicked" he said, "...or maybe they got ambushed by basis-risk, or were caught in the crossfire of "borrowing short to lend long", or perhaps they just held securities whose value diminished with the fall in the prices of collateral assets, but I know my men and my troops wouldn't slaughter innocents, so they [Bear and Cheyne] must have been guilty....". "My guys protect "high value targets", and they are encouraged to do their job irrespective of collateral damage, or damaged collateral. "You can't make an omlette without breaking some heads", he said seriously.

"General" Prince, the youngest such officer in America's newly privatized army, a "lucky" billionaire through inheritance thanks to dad's foresight to jump the domestic US auto-making ship before it sunk, is an avowed Libertarian and and Republican campaign contributor, who worked as an in tern in the Bush-I Administration, before resigning due (according to Wikipedia) because

"I saw a lot of things I didn't agree with -- homosexual groups being invited in, the budget agreement, the Clean Air Act, those kinds of bills."

While coy about his future plans to capture yet more of the newly-privatized market for Covert Ops, Hedge-Fund assassination, Intelligence Gathering, Leveraged-Fund Torture, and and Dirty Tricks, he did say "Nothing is out of the question. Government is lame. Even I, a Navy Seal with little understanding of competitive Economics could do a better job than The Fed at Banking Market Oversight and everything else. In fact, maybe I will pursue the contract for such outsourcing..."

Pyongyanged

A recent post, Seoul Brother, following the pointy-bit in the upper-left of the adjacent graph, imagined both negative alpha, on top of negative beta for what was apparently (until today) the world's favorite steel stock. A meeting with the company's CFO doused overheated expectations that had previously catapaulted the Korean firm's share price into the stratosphere. The result in the prevailing mimetic world of "Do What the Other Guy Is Doing" is the financial equivalent of being food-poisoned or Pyongyanged by a bad bulgogi, an experience that that this Cassandra has unfortuntately experienced at an un-named Korean establishment in London. In a world of followers and leaders, POSCO has undoubtedly been a liquidity-sensitive leader. Once investors' stomachs have been purged of that which made them yak, I am interested to see its related impact upon its peers and brethren inhabiting this brave new world of unmitigated feedback trading.

(p.s. I am aware of the geographical inconsistency of the post's title with POSCO, but I simply liked its sense of onomatopoeia)