Wednesday, April 26, 2006

Rabbit Out Of A Hat

Quietly and inauspiciously, the yield on the 10-year JGB has surpassed 2% for the first time in six years. Yes, you read both numbers correctly: 2 (two) percent and 6 (six, seis, sext, VI) years in coming. Anyone who had studied economics at an American university (in between beer-bongs, and debauched frat parties) would be asking themselves: "If you give something away for free, won't it's supply increase, thereby driving the price down (and if you're a bond trader) the yield up?" What dyslexia pray-tell has overcome the Japanese to invert such laws of supply and demand for so long? A 2% 10-year JGB following 52-months of continued expansion and SUSTAINED ZERO PERCENT SHORT TERM INTEREST RATES is the Houdini-inspired equivalent of a rabbit out of a hat.

But what's the truc du chef? It seems that for the past seven or so years, during which time ZIRP has been the policy du jour, there's been a leak in Japanese monetary plumbing (not to mention that of the international monetary system). All that YEN they've been so eagerly giving away, surreptitiously managed to find its way out of the beautiful isles of Japan. But gosh, golly that's a LOT of YEN!! Where'd it go? Well you see not all of it went abroad. Some stayed in Japan and helped the banks buy the JGB's that financed the 7% of GDP fiscal gap. And two percent is, after all, two percent, which it must be said is still a very nice loan spread when one is able to borrow for free. It is, for a bank, the very definition of "free money" (though even moderately astute observers or US S&L victims will attest it is not without its own risks). The rest of it is/was/has been happily taken it up by foreigners - banks, brokers, hedge funds, astute property developers, and everyone else who can and is in need of a unit of money, today, at no-cost - zip, zero, ZIRP. Of course, when they borrowed YEN, they would need to remove it from the domain of the Emperor, and in so doing they'd be required to sell the YEN in the currency market. Which I daresay was convenient for everyone. The banks made a turn in the FX market. The MoF (and most Japanese blue-chip exporters) were rather keen to see the YEN not appreciate, even depreciate especially vs. the USD and the Euro. And given the sizable trade surplusses being run by Japan Inc, the repatriation of which would most certainly have wreaked havoc upon the exchange value of the YEN, was averted.

But all good things that are free (clean air, clean water, Ketchup in fast food restaurants) must inevitably end. And the ZIRP is no exception. Whether due to victory by BoJ technocrats afraid of repeating the horrible episode of Japanese inflation, the concerted though unwanted attention from the G7, or through a plunge in the unit of exchange of the junkie-of-a-nation mainlining the free juice (the US Dollar), Japanese short-term interest rates will rise, and rise rather substantially.

So although inching across the 2% threshhold may seem inconsequential, it is delineating a trend. And as we know, the more a trend is delineated, the more persistent and inertial it tends to become. And that means a return to normality. Regression to the mean (or at least some longer-term process). What might that be? Let your imagination go wild.

IF officialdom raises rates, the carry trade explodes. If the markets do it, they push down the dollar, and force the unwind of the carry trade that way (or a mixture of both). For the dynamic is that there remains lots of speculatively financed borrowings in Yen which ultimately must be closed out. The smart ones have done this pre-emptively. The dumb ones will be in for a rude awakening. How rude? Recall Oct 1998. Everyone went to bed one night and the YEN was 132 to the dollar and woke up to see it at 118. It had risen from a denoument of ~145, some some had managed to get out, and even get short. But there was little if any trade between 132 and 119. A gap. A chasm. A painful impalement upon something very unpleasant. Of course, I can say precisely when. Or how much. But as Cassandra, I am issuing a pari-passu warning of an impending unwind in one of the largest fiascos the modern financial system has ever seen, and it won't be pleasant, and there will be collateral damage. Evenn Sakakibara cannot help with one....

Friday, April 21, 2006

MoF v. BoJ: Financial Kabuki Theatrics

I read it once. I blinked more times than I could count (an involuntary form of expressing disbelief and incredulity), then re-read the text as reported by Bloomberg: MoF Chief Tanigaki "urged policymakers to damp expectations of interest rate increases after the government borrowing costs rose to the highest since 1999." (The JGB 10-year by the way now yields a whopping 2%). "Well, matey", I thought, "could it be other than thus when you've been running fiscal deficits surpassing 7% of GDP for the past five years, and by optimistic observertions are forecast to remain at least at 6.5% next year and 5.7% in 2008 despite heady recovery, (unless action is taken to the contrary)!? The gall!

Yet there remains a stylized tension between the BoJ's Fukui and the MoFs Tanigaki that is reminiscent of a Kabuki play. Fukui moves towards ending ZIRP; the conniving Tanigaki uses smoke and demagoguery to make critics and the people fear such a change. Fukui goes silent, only to reappear and try his hand again, but is rebuffed yet another time by Tanigaki, who seems to be winning the not-so-bloody battle for the hearts & minds of policy wonks who care about such arcanely boring stuff.

You see, in reality (and note I am not a Japan-basher as I generally admire them), Japan is behaving badly. It is continuing with ZIRP policies that are enlarging and intensifying global imbalances - especially in the USA, fueling asset bubbles and beggar-thy-neighbor employment gains from other OECD nations, and, threatening the stability of the post-Bretton Woods world financial order. Not that the USA is any less of a rogue (at the opposite end of the spectrum), or doing anything to help itself (e.g. consumption taxes, energy taxes, higher income taxes, investing in education, public transport, universal healthcare, etc.). But this post is not about lambasting the USA (which is not terribly sporting these days anyway), but about the selfishness of Japan, the LDP, and Chief MoFo Tanigaki.

Surely it's ass-backwards - not to mention rather disingenuous - to assign blame for the problem to "the rate of interest" the govt is paying on its borrowings (especially when they are but a mere 2% at the long end), rather than as is obviously the case, the quantity of its growing and not-so-insubstantial obligations outstanding. If Tanigaki was the least bit cocnerned (as a Chief Financial Officer of a nation should be) about the state of said nation's financial affairs (i.e. the State's Balance Sheet) in which he/she is charged, he would be focused upon how to raise revenues (i.e next FY's Income Statement for his undertaking, given the robust state of the Japanese economy . Instead, detached observers and both "victims" and participants in RealFinanz (the financial equivalent of RealPolitik) must suffer through the painful mock-theatrics of appearing to be on the verge of doing something that should have been done a long time ago, but instead, delays and debates further, and endlessly, in order to gain yet additional pecuniary advanatge at the expense of the other players.

"Our basic understanding is that rapid gains in interest rates are undesirable because mild deflation still persists" said Tanigaki.' PARDON ME!/!/ On what planet has he been living? In three years, (in both US dollar and Japanese Yen terms), oil is up 200%, Zinc & Copper! are up 400%!; Silver & Gold 300%! Steel prices have more than doubled, cement prices, office rents, airline tickets, the price of office buildings, all have positive and accelerating price trajectories. The only thing that is not caught in the swift current of price increases are fluffy stuffed animals, brassieres, or pairs of cotton socks, manufactured in China. These offshored manufactured goods and the odd service suffering from over-investment (cellular phone service) are the few items in one's budget that may have fallen in price from the perspective of the consumer in Nagoya. But c'mon, seriously now, this should not be confused with deflation, as we are now in the year 2006 and virtually every manufacturer of common items subject to price competition has opened a plant somewhere in China or Indonesia, and BOTH Tanigaki and Fukui know it full-well.

Thursday, April 13, 2006

BoJ's Blind Date

In an epiphany of sorts, it occured to me that there are many similarities between the BoJ's treatment of their unit of exchange, "the Yen", and an attractive girl who's got cold feet after having been cajoled into accepting a blind date. You may think this an absurd comparison, but I hope you'll hear me out, since I rarely comment on things outside my realm of knowledge such as currencies, or understanding the psychology of the opposite sex.

ZIRP (Zero Interest Rate Policy) remains my pet peeve, for there remains few if any benign reasons why Japanese authorities should be destroying the prodigious savings of their average citizens (savings held primarily in Yen, and in Postal Savings, life insurance, or other "investments" with pedstrian nominal returns). Yet ZIRP persists, far beyond it's sell-by date, coincidental to serially gargantuan fiscal gaps equivalent to 7% of GDP. Together, they are ostensibly intended to grease the wheels of commerce, goose GDP growth, thereby elevating Japan from the clutches of perniciously evil deflation. All while the BoJ's balance sheet has ballooned to inter-galactic proportions while the MoF continuous to engineer ways to borrow and spend the people's hard-earned nest-eggs. They repeat the mantra that it's to insure that Japan has truly emerged from "deflation", doesn't backslide, and thus is solidly on the road to recovery. But does this remotely, in any way, describe their real motivations?? For domestic demand has long-since recovered. Retail sales are increasing handsomely. Companies have restructured and most are now-sporting ROE's greatly in excess of their risk-adjusted cost of capital. Banks, too, have repaired their balance sheets and repaid their emergency government loans. Exports are robust, across most important sectors, and not just to their Asian factories transplanted to take advantage of lower wage costs, but to buyers across asia - especially China - who are now purchasing high-tech and high-value added machinery and electronic device inputs. Unemployment has dropped and the ratio of vacancies to job seekers has consistently increased. So why do Japanese authorities continue to persist with ZIRP and 7%-of-GDP fiscal deficits??!?

Cut to the Watson household. Attractive Jennifer is getting ready for her blind-date. She looks out her second-floor bedroom window and sees her as yet unknown suitor pull up. He's arrived early. She gets a peek, sees he's obese, slovenly, and un-hygienic pig and she thinks to herself: "Oh god, no! This is horrible! I'll never survive! What should I do? I don't want to hurt his feeling, but...." She proceeds to make herself as ugly and unattractive as possible. Faux-chicken-pox spots. Make-up bags under her eyes. Highlight the coldsore on her lip, messes up hair, snot running out of her nose, and proceeds downstairs, opens the door (coughing and sneezing in plain sight) to try and bail-out uncallously.

This is precisely what the BoJ and the MoF are conspiring to accomplish with the Yen: abuse the Yen; uglify it to the point that no sane international investor would desire of holding this paper given the contempt, overt neglect and punishment heaped upon it by it's alledged guardians - the govenment and central bank. And they've gone one step better - one that's more even cynical than their laughable protests to preserve their archaic and abominable whaling practices - they are GIVING it away to any and all comers at zero cost!!. And they are doing this in the full knowledge that those who borrow it will immediately sell it on the open FX market to assist in stealthily (ha! ha! ha!) counteract the large and persistent international trade surpluses racked up by their exporters. This is, to be sure, a pure and simple policy of neo-mercantilism. And as a result, they have been able to maintain market-share and trade advanatge advantage for such time that they have succeeded in building-out multi-teated, global manufacturing networks. They have followed other OECD nations in their industrial hollowing - but have done so at their own measured pace, without the substantial domestic labour dislocations, or loss of markets or market share, and consequently the drop in labour's real wages and thus their share of GDP. Not discounting the foresight of their corporate managers, their engineering and manufacturing prowess and teamwork, it is likely that this "truc de chef" would not have been possible without this concerted disfigurement of their currency.

What's been the cost? Internationally, the imbalances they have caused have rife, particularly in the USA. Japan has succeeded to a greater extent than would otherwise have been the case, in a beggar-thy-neighbor-like pilfering of higher-end manufacturing jobs from other OECD nations. They have been a keen co-spirator to the multiple speculative asset bubbles around the world (not to mention indvertently financing numerous Greenwich, CT estates) since the late-90's, which wouldn't have been possible (or certainly would have been more restrained without ZIRP) if they let US rates (and thus US consumption) find equilibrium without their meddling. And this has in turn helped China which has helped Japan, in many ways, though most roads in the daisy chain of ultimate cause & effect still return to the USA, resulting from it's higher-than-financable consumption caused by the combo of unsustainably high-deficits and artifically abnormally low-rates.

And then there is the Kawagishi family, and many others like them. Although they don't know it yet, their retirement savings have already been spent by the government in pursuit of the so-called "national interest". Their covert appropriation has helped prevent pain to, and the decline of, the Japanese middle class, and to support the powerful corporate business interests near to the center of Japanese power. Asset inflation has hit Japan, as is service-price inflation. They think they have USD1 trillion of US assets (in the form of US govt paper), but they will never be able to spend this or achieve the purchasing power that is currently marked-to-market by their holdings.

Make no mistake: this is not Japan-bashing of the traditional sort. There is lots of culpability to go around, but Japan must accept her larger-than-average share. You see, the global monetary system is cooperative by design. There are boundaries, and the nation-states in this game are called upon the respect the boundaries and take corrective policy action when they veer off-course. Cynical neo-mercantilism of the Asian variety practiced over the past two deacdes, is akin to an aggressive driver quite literally forcing other more-respectful drivers off the road. While trade indeed generates benefits, selfishness of a participant in pursuit of, or in order to preserve, national advanatge at the expense of other participants can and does have deleterious impacts upon the functioning of the system itself, and potentially upon the trade from which in a healthy system, everyone might benefit.

The hour is getting late for the system. Responsible actions need to be taken to preserve its integrity, even at the risk of domestic discomfiture in certain nations. But the price is worthy given the value the system itself delivers to many of the world's people. To the US, this means efforts towards, lower consumption & energy intensity, higher savings, lower fiscal and trade imabalances. To Japan, this means NO MORE ZIRP!!, lower fiscal deficits, continued domestic market liberalization, and a dramatically higher currency (even if higher domestic unemployment were the cost). The alternative scenarios, protectionism, economic nationalism, possible military conflict resulting therefrom, in a modernity, shoulb be grim motivators of the need to act.

Monday, April 10, 2006

Better Late than Never....Mr Saito's Back in the Money....

Asset prices undulate. When they are rising, it seems that they will rise forever. Such are the times when the the most regretful trades are posted. When they are falling, the market depressively cannot imagine if and how they will ever rise again. With hindsight, however, we can see these cycles more clearly. Time, it seems, (if it's an asset of reasonable quality) makes good even the most ludicrous of trades. Take the Japanese stock market for example. Many [formerly?] credible investors have been bullish on Tokyo bourse share prices since 1993, that have only been made good in 2005 - a full twelve years later!! What is twelve years my younger readers might inquire??? The life span of a dog; three of four marriages for Elizabeth Taylor, or the duration of Nazi reign in Germany. Through whatever human lens it's viewed, it is a long long (and expensive!!) be wrong.

But that bubble was the now-distant past and it is currently the year 2006. The Tokyo stock market is booming once again, with small caps and mid-caps making all-time highs. And so is the art market, particularly for the Great Masters and impressionism where a near-frenzy exists. Supply is limited, of course, by the lack of new work by dead men and thus catapaulting REAL prices to levels not seen in either market since 1990. For that was the year that investors rang the bell on the TSE, thus allowing one now infamous Mr Ryoji Saito, scion of once-venerable Daishowa Paper, to "ring the bell" in the art market a GONG! that resonated so loudly that is was untouched and unmatched in real terms for more than a decade and a half!

His story, or rather the story of his prey, is the subject of a book by Cynthia Saltzman, entitled "Portrait of Dr. Gachet: The Story of a van Gogh Masterpiece, Money, Politics, Collectors, Greed, and Loss". And while the details are fascinating and worthy of a read in greater detail, I will recount some of the history of Mr Saito, in the hope that by remembering and ruminating upon the folly of days past, we can increase the probability of preventing ourselves and others from making similar, if not the same financial mistakes.


Like the internet bubble of the late 90's, and perhaps like Wall Sreet today, the late 80's were heady days. Recall "Barbarians at the Gate", and the new breed of brash and aggressive entrpreneurs that employed financial engineering techniques (read: 'Other People's Money') to make more money. They hadn't yet hit the introspective wall or been bitten by the philanthropy bug and were thus spending conspicuously pushing up the prices of, amongst other things, fine art. Christie's London sold a Van Gogh "Sunflowers" in March 1987 for a then auction record of $US39,921,750. The buyer: venerable Fuyo Group insurance giant, Yasuda Fire & Marine of Tokyo, who acquired it to display in their art gallery at head office.

"Later that year", Wikipedia tellls us, "Australian tycoon Alan Bond, winner of the 1983 America's Cup" (which Yankee yachtsmen had held for the previous 132 years) "successfully bid USD$53,900,000 at Sotheby's in New York for another now-famous Van Gogh, "Irises". Sadly, like a number of famous speculators, Mr Bond failed to repay the loan Sotheby's had given him to buy the painting, thus allowing the Getty Museum to acquire it from the auction house for an undisclosed sum. In 1996 Bond was sentenced to three years' jail for a $15m swindle involving the Edouard Manet painting La Promenade. In 1997, he was jailed for a further four years after pleading guilty to deceptively siphoning off $1.2bn from Bell Resources, to prop up his ailing Bond Corporation. It was Australia's biggest corporate fraud. He was released on parole in March 2000", though few outside Australia in the year 2006 (excepting the Newport crowd) will remember Mr Bond.

Enter Japanese industrialist Ryoei Saito, who in a 1990 Christie's auction bought a third Van Gogh, "Portrait of Dr. Gachet", for the then-amazing sum of $82,500,000 ($75 million, plus a 10 percent buyer's commission). The bidder on behalf of Mr Saito doubled the prevailing bid sending the room in gasps for air, followed by a gavel, making Vincent van Gogh's 'Portrait of Dr. Gachet' the world's most visible, and renown work of art.


By the time of this landmark purchase, Ryoei Saito was very wealthy. He was not mega-rich by birth. Rather, he made his money in the paper industry, beginning some time in 1961, when he took his father's relatively modest paper company and apparently bullied his way into bigger companies' territory by undercutting their prices and raiding their clients.

According to the Ken Jacowitz' account, Saito took large financial risks to make Daishowa Japan's second-largest paper company. Such risks typically entail leverage (and lots of it) and so it was that The Sumitomo Bank took control of the company because of losses in 1982, most likely ripples from Volcker's assault of inflation that sent developed market interest rates into the high teens. Being tenacious, Saito managed to win back control of the Company by 1986, just in time to surf one of the biggest financial waves the world had ever seen! In hindsight this was probably caused by the unceasing pressure upon Japanese authorities to weaken the Yen by over-easing monetary policy and lowering Japanese interest rates to levels that supported and encouraged the most imprudent of speculations.

The lower rates didn't weaken the Yen, but merely fueled growth further ballooning asset prices, as well as Japan's relative wealth thus creating the heyday whence Japanese companies buying landmarks such as Rockefeller Center. It also allowed their billionaires to raid the West for treasures. Stories abound of western arbitrageurs front-running trades in Samurai swords, prior to near-certain acquisition at even headier prices in order to repatriate the treasure. Fine art, in particular, was considered - (mistakenly), as it turned out - a good investment, and Mr Jacowitz tells us, Saito sent a representative to a Christie's New York auction, with instructions to "pay whatever was necessary". And he could afford it. We know this because each year, the Japanese government makes public a list of the country's largest taxpayers. In 1990, Tokyo's Yomiuri Shimbun reported that Saito was Japan's largest taxpayer, contributing approximately $24 million to government coffers. His fortune was estimated at $770 million according to Inquirer art critic, Ed Sozanski.


In business, Saito was nicknamed "wild fellow,". Emerging from international obscurity as he did when he paid USD$82.5 million to buy the melancholic portrait of van Gogh's physician, Paul-Ferdinand Gachet (who as it turns out also suffered from the same depression as van Gogh). According to Mr Jacowitz, the price was $33 million more than he had expected. And not more than two days later he paid a further USD$78.1 million for a Renoir known as "Au Moulin de la Galette," - the second highest price ever paid for a masterpiece at auction. Non-plussed, he told the press: "If other good ones become available, I will buy more and more". He said he would display the paintings publicly someday, and brought them back to wild acclaim in Japan, as if he won the country a national prize, only to stash them in a warehouse. It has been reported that Saito spent but a few hours admiring the portrait, before locking them both in his climate-controlled vault, where they remained for seven years. The American and European art worlds were stunned that the European masterpieces were going - not only of all places - to Japan, but to bubble-emboldened nouveau riche!


How many a famous speculator subsequently have crashed & burned! The BOJ's tightening in 1990 diminished many a bubble fortune. Much of Saito's wealth was in overvalued forest lands, and when real estate values plummetted, so too did the value of Daishowa's forest lands, it's share price, and along with it, Mr Saito's fortunes. In an attempt to generate cash flow from his very leveraged land holdings, Saito proposed a golf resort and paid the governor of Miyagi Prefecture to get zoning changed from "forestry" to "development", an undertaking that was ignominimously to be named the "Vincent Golf Course". In December 1993, Saito was indicted on bribery charges.

Like Australia's Alan Bond, Saito pleaded guilty. Disgraced and broken,(the most severe punishment in itself in Japan), he was wheeled into the courtroom two years later to hear his sentence: "three years, suspended", following which he apologized tearfully (as one does in Japan and as we still hope Scooter Libby might do for knee-capping Joe Wilson). Around this time, Saito shocked the art world when he was said to have told friends that the Gachet portrait and the Renoir should be burned at his cremation so his heirs could avoid the billions of yen in inheritance tax. Later, he said that he was only joking. Six months later in 1996, at 79 years of age, Saito suddenly collapsed and died of a stroke.


But were they his to burn? Were they posted as collteral, as so often is done by over-extended acquisitive noveau riche seeking notoriety by 'ownership' of masterpieces? Daishowa indeed HAD lots of debt, and in the post-bubble era, banks and creditors were keen to keep the cleaning of the mess as quiet as possible. It was likely that ownership of Gachet and the Renoir was disputed. Was it Saito's heirs, Daishowa, or were they now his creditors?? Few even knew where they were? Curators and auction houses tried to locate them. Company reps and spokesmen for the family assured the world that they were still around, though silence and secrecy surrounded all future movements. "Gachet", according to Wikipedia, "seemed to "simply vanish into the murky waters of the international art market". Three years passed with no public sighting or reliable account of its location or movements.

Saito's & Daishowa's main creditor, Fuji Bank (now the behemoth Mizuho - a product of the marriage between Fuji & Daiichi Kangyo banks) appeared to be the main creditor. But Japanese banks in general, and blue-blooded Fuji in particular, were loath to report on anything as embarassing as financing such absurd profligacy. Fuji repeatedly refused to comment on the painting. "I don't have an official report of what happened to the art. However, I presume that this painting is in the United States, in the East Coast of the United States," Toshitsugu Saito said, according to Sozanksi. "This is a world-class asset, so I am convinced that it was treated very properly and respectfully. But to tell you the truth, this is all that we know about it."

Sozanski reported that the Gachet portrait had gone so deeply underground that even Japanese art dealers familiar with the market could only guess as to where the painting might be and who has custody. One dealer, who spoke to Sozanski on condition of anonymity, tought the portrait was still in Tokyo, acquired as collateral by one of the financial institutions from whom Saito had borrowed money. "If a bank or other financial institution controlled the Gachet portrait, he continued, it would be extremely cautious in offering it for sale". "Japanese banks are very conservative, so they wouldn't admit that they controlled a painting or that they wanted to sell it," he said. "They would be afraid of making any mistake [because] they might be criticized by their board of directors."

It wasn't property of Daishowa Paper Company, said Iwao Sakamoto, a spokesman for the firm. He said the painting belonged to Mr. Saito, and NOT the company. He said they weren'r sure where it is, but that they heard that they sold the painting to somebody else. But the spokeperson said there is no truth to the rumor that Saito took the painting to his coffin. Ryoei Saito's son and now chairman of the company, Kiminori Saito, declined to comment. But from good accounts we know that a subsidiary of Daishowa Paper sold Saito's Renoir shortly after his death for USD$50 million to help repay debts which was - even at that price- a 26 percent loss before transactions costs, commissions, and opportunity cost. Although Saito's threat to burn the painting with his body were criticized at the time, they were regarded by those close to him as a joke. Sozanksi reported: "He didn't mean it literally. It's just that he appreciates the pictures that much," said Tokyo art dealer Hideto Kobayashi, who bid on the paintings for Saito."


Undoudbtedly there was some schaudenfraude about the fate of Saito. But the question remained where is portrait? His son said it is now likely gone from Japan, probably to the United States. But the question remains at the forefront of people's minds due to Saito's quip that he wanted the masterpiece placed in his coffin at his cremation (despite his retraction and subsequent clarification).

Saito's second son, Toshitsugu Saito, 54, a prominent member of the Diet (Japanese parliament) was quoted as saying "As the remaining family, we had to give up that art. I completely gave up my inheritance right. The van Gogh painting went into the hands of the creditors. It was the bank that had the substantial hold on it."

The Washington Post's Jacowitz cited two independent sources as saying that the auction house Sotheby's had paid several million dollars to Japanese creditors for a an option to sell the work. When that effort failed, Sotheby's forfeited the sum, Jacowitz's sources said.

Jacowitz interviewed Saltzman as to the pictures whereabouts. He quoted her as saying "I have since heard more reliably that it is in a European private
collection," but she doesn't know the present owner's name. "There were many rumors over the past few years that it had been sold, but whenever I would trace those rumors, they turned out to be just rumors."

In his same investagative piece, Jacowitz also said that "a Japanese magazine reported that a Christie's representative sold the painting in Switzerland. Several art dealers say stories swept through Tokyo last year that it was discreetly sold to someone in America. A Christie's spokesman in Tokyo refused comment".

Jacowitz also spoke to Anne Distel, chief curator of the Musee d'Orsay who'd recently put on a van Gogh exhibit about The Collection of Dr. Gachet. Distel was reported to have contacted the owner about borrowing the painting for the exhibition but was refused. Jacowitz speculated that the new owner was rumored, among others, to be Swiss art dealer Ernst Beyeler, a wealthy collector with his own museum, though he apparently denied the rumor.

Another report on German radio quoted the president of the International Auction Organization in Tokyo, as saying that the Gachet was sold in the United States for between $87 million and $130 million to a man who wished to remain anonymous, though the buyer was said to have no plans to display it publicly.

But that is all that is know. Nothing certain just hearsay and rumour. But interestingly, as we've waited for this most picture to resurface, it has since been surpassed by the 2004 sale of Picasso's 'Garçon à la pipe' a sign of the times that money is abundant, and asset prices are soaring.


What are we to take away from this intriguing story? First, that fortunes based upon inflated asset prices and leverage are potentially a toxic combination for both borrower and lender alike. Secondly, though it is possible that monetary policy will never be tightened again, accidents can still happen. The long rate is governed by the market, and though US policymakers and new Fed Reserve Chairman Bernanke talk a big, game, it is unclear WHAT they will do if faced with a rising long rates AND a collapsing US dollar in free-fall. Will they protect it? So even with the "Greenspan put-option" in force, speculators and those with leverage should be wary. Thirdly, though price momentum can often signal continuation of prices in the same direction in the future, serial occurances of this phenomena can take prices on severe divergent departures from equilibrium values, that dramatically diminish the prospect for additional momentum return. So much so, that like Japanese Stocks, or impressionit art, it might take 12 years OR MORE! Finally, as we see in Mr Saito, there are indeed people with more money than sense, and we can only hope that they, too, are soon bitten by the philanthropy bug to help their fellow human in whatever their (hopefully) humane and compassionate charitable pursuits...

Wednesday, April 05, 2006

'Threshold' List = Institutional Failure

Self-regulation is about as useful as allowing our legislators to vote themselves their own pay and benefit packages, asking the Petroleum Institute of America to study "Global Warming", or letting your five-year-old put themself to bed. With respect to the latter, they may eventually fall aslepp but not before raising cain or creating chaos. Such is the case with the SIA, NASD, NYSE or th NFA. You can be certain that, if something is in the public's interest, but NOT in the interest of the industry of it's most important constituent members, the outcome will undoubtedly be self-serving.

Americans are afflicted by a peculiar form of triumphalism, and like to think that they are better than others - especially in respect of the "heathen" of Asia and the "teeming unwashed masses" of less-developed or "developing" world. Of course, the US has no monopoly on this perception. "Gaijin" is the derogatory Japanese for "smelly foreigner", and Gwailo the equivalently derogatory "foreign devil for us ignorant "round-eyes". But when it comes to the stock market, however, America is indeed in need of some imported assistance. For one could not invent a more absurd or assinine market structure mechanism than the "specialist system" if you set out and tried to accomplish this with specific purpose and intent. Settlement, too, by comparison, seems byzantine, despite a supposedly efficient DTC and oodles of automation.

Currently there is furor is over the alledged evils off "naked shorting" or selling stock short in companies where one cannot or cynically does not make delivery. Being a simple minded, but utilitarian seer and prognosticator, I really do not get what the fuss is about. I can recall in my less-than-illustrious past trading in Singapore, sometime around 1990. In this near-serious and sober near-police state, failing to deliver was very serious stuff - almost as serious as getting caught by Lee Kuan Yew himself spitting your chewing gum upon the pavement. One would get a literal financial caning (which by the way they still emply in the schools).

What does this mean? It means that if you failed to punctually deliver the securities to the exchange for regular-way settlement (I think it was TDate+3 back then), the exchange was free (and I would point out more-than-eager) on TD+4 to execute a "buy-in" for immediate settlement. This meant - quite literally - an agent of the exchange walking on to the floor and bidding for the failed stock for IMMEDIATE DELIVERY. Of course few people had the stock available for immediate delivery, suffice to say, so the bids would scale up rapidly without encountering offers of satisfactory size. One would get SO HOSED!!! So irrevocably hosed and buggered, that one would do anything and everything never to let it happen again. As a broker, if your client failed to deliver, he'd be liable for pain so eagerly inflicted by the locals. And if ti was the fault of the client 's custodian, then "guess what?" Yes, he'd be liable to satisfy the claim. Not exactly rocket science, but very very effective at eliminating "fails" and insuring stock was delivered for settlement. Back in NYSE and NASDAQ-land, everyone seems caught in a daisy chain where it's OK not to deliver if someone doesn;t make delivery to you. Why? Perhaps because we are a permissive society? Hmmm....while very plausible, it's probably off of the mark. The real reason is more likely to be that it's simply not in the members' "best interests".

Anyway, I think back wistfully to those days when some stupid disorganized and unpunctual 'gwai-lo' "failed", and an eager young asian broker walks onto the floor and starts bidding for stock. All the local banks (the ones with the potential to deliver the stock) wait....look unimpressed at their watches....consider what to order for lunch, pick up a newspaper.... waiting...waiting... for the price to be bid up to an impressively painful level - in order to give the smug foreigner a financial rogering he'll remember well past the coming Chinese New Year!