Thursday, April 28, 2011


So Michael Lauer is free, and clear and free and clear.  It is a shitty shitty day for justice, and a victory for extractors and contrapreneurs alike. Pump-and-dump is a rotten game cynically preying upon the ignorant, the greedy, ignorantly greedy and the greedily ignorant. Machiavellian schemes of orchestrated share ramping through related-party vehicles transacting amongst themselves is patently Fraud (with an upper-case F). It likely that it was YOUR pension fund that was hit and YOU should be mightily pissed off.

One might speculate that in the intervening years, events have conspired to make Mr Lauer's antics and pilferage appear petty by comparison. And this too is shameful, and dishonest in its roots. Oh, and what's up with the eight years it took to come to trial? It is a very long time. Too long. This also is sad. Fortunately, there is an amusing punch-line to the story: Mr Lauer says that he is going to get back into the hedge fund business!!!

I hope he gets what he deserves, because he didn't deserve what he got.

Friday, April 22, 2011

I *Heart* Jack Lew

Well-worth watching Charlie Rose's interview with Jack Lew. Consummately measured and balanced, uber-informed, politically astute and sensitive, Lew tackles most major political-economic issues facing the US, from taxes, deficits, inequality, healthcare, ageing & social security.  He comes across with a knowledge one sees in one's BEST history teacher, with the demeanor of the best coach/father one saw amongst the other kids - the kind that is thoughtful, but never yells (in public), and is always constructive and positive in his criticism, and champions the values necessary to the success of the team. Such a man (or woman!) is oh-so-needed in this position - less to  create consensus from amongst the vicious partisans across the aisle, but rather in order to appeal directly to the American people who will undoubtedly find sense in his patient explanation and no-nonsense communication style.

Saturday, April 16, 2011

25 Things I Learned in the 25 Years After My First 21 Years

I have long wondered what they put in the drinking water at George Mason University. This recent post by Dr Bryan Caplan attracted much attention in the blogosphere. Whatever is in the water seems to be causing conjecture to morph into the realm of the categorically immutable. But perhaps this assuredness is merely part of his philosophical territory. It is so effective, it inspired me to reflect upon 25 things I learned in the 25 years after my first 21 years. This doesn't include the several years I spent unlearning many of the things I learned in my first 21 years (and note these are in no particular order).


1. Supply and demand in itself fails to solve countless mysteries, particularly where externalities are rife, corruption abounds (both large and small), and markets rather less-than-perfect (which are many).

2. Almost anyone can understand supply and demand if explained calmly enough (and with stick-figure or cute warm-and-fuzzy "Hello Kitty"-like animation), except perhaps Art Laffer and Maria Bartiromo.

3. Poverty is terrible, but poverty amidst gluttonous plenty is worse such that income redistribution complementing economic "growth" (where "growth" results in increasing and unprecedented skewness of income distribution) is better than growth alone.

4. The causes of unemployment are varied and complex and include (amongst other things) high executive wages, oligopoly, corporate rent-seeking, and capital's excessive short-termism

5. Free competition that results in unchecked collusive oligopolies and de facto monopolies often results in the diffused abuse of consumers for the parochial benefit of managers and shareholders.

6. Free beer is always far superior to perfect beer.

7. Bad governments combined with a poorly informed electorate - with or without fiat money - have little control over real GDP or employment.

8. Hazardous morals,  particularly in insurance and reinsurance markets, result directly from the pull of greed and its tendency to adversely select unduly self-interested agents.

9. Optimism about the economy and the future, however true it may prove to be, is a poor substitute for critical thinking and trying to do better.

10. Communism was a disaster primarily because of poor fashion sense.


11.  The greatest philosophical mistake is to ignore a Blinding Glimpse of the Obvious.

12.  The second greatest philosophical mistake is to believe that the prior statement is either philosophical or a mistake.

13. Betting on whether or not a debate will resolve "what's obvious" is easier than betting on the stock market.

14. There are no such things as an anti-empirical dualistic unicorns, and even if there were, they wouldn't resemble moral facts.

15.  If you look too hard for something, you end up looking up your own arse. (thanks to Iain Owings)


16. Believers voting is, in itself, irrational, since whatever prevailed would have been divine will.

17  Libertarian (and farther right) beliefs that "The public interest is best served by no public interest" is total bollocks.

18. Government may not provide the best solutions to externalities problems, nonetheless, government's attempts to address such problems are better than waiting for "the market" to miraculously conceive solutions inimical to their parochial financial interests.

19. All government, existing policy and expenditure requires reflection and critical introspection to insure  its continued relevancy and appropriateness for the prevailing times that it serves: this applies to the structure, and institutions, as well as the programs and initiatives, despite its heresy to strict interpreters of the constitution.

20. Paternalism should not be viewed in the pejorative. A Parents responsibility is (quite rightly) to set fair boundaries, and subsequently [justly] encourage adherence as well as enforce them with consequences if violated. In addition to being fair and just, they indeed change over time and epoch. However, the Parent who neglects these responsibilities, as well as the children who rebel and/or subvert for fun or parochial interest,  very often conjure problems to majority of others.  

22. Archetypical Conservatives and archetypical Progressives are actually more different than cynics believe, traits distributed in roughly similar proportions across all societies of the world. By nature they are fundamentally predisposed towards different values, particularly with respect to preserving tradition and accepting change, respectively.

24. However, like Yin and Yang, both traits are useful and required to govern more optimally, via constructive embracing of change, but throttling its speed in order to avoid the upset that change typically brings.  Understanding this reality should encourage everyone to compromise rather than polarize.

25. It is quite obvious that America has a Government Revenue Shortfall problem, rather than a Government Expenditure Problem (since spending is bottom quartile, and revenue bottom quintile compared to peers), AND that the revenue shortfall is caused by historically low tax receipts collected from the wealthy, demonstrated by comparatively low marginal rates vs. last 8 decades of economic history. Far from stimulating growth (ahhhem....errrr Dr. Laffer...??!?!), these comparatively low marginal rates over the past decades have enriched a very few quite dramatically, while impoverishing the next generation of the many in terms of per capital debt.

(errrr... umm.... that's quite enough "things I've learned" hurled upon you)

Wednesday, April 13, 2011

Credit Where Credit is Due

Shame on Michael Lewis (apparently suffering a bout of PJ O'Rourke syndrome) for his woeful Bloomberg piece satirizing of the Fed handling of disclosure relating to liquidity provision in the heat of the moment. I am all for satire and criticism and satirical criticism is even better. But one must be careful to be "more or less right", else one becomes a demagogue - using a kernel of truth or plausibility to prey upon ignorance or misunderstanding   - say for example, like Glenn Beck.

To be certain, the US Federal reserve is not perfect. They have indeed made policy errors - sometimes in the pursuit of politics, some in defense of the moneyed class, sometimes  out of accidental miscalculation, while others in the pursuit of some strange misguided Randian philosophy cherished by the former Chairman. However, the provision of liquidity to almost any and all against well-relaxed collateral  - be they domestic or foreign - in the heat of the moment of monetary meltdown cannot and should not be fault nor belittled. In fact, everyone should take a moment and say "Thank You!" to Mr Bernanke (rather than Gordon Brown) not for savng the world, but most certainly for preventing more preventable depths of the crisis.  I wrote notes for a piece still sitting in posting drafts after I read Ron Paul's utterly inane remarks about the same upon release of the files suggesting that rather than a Thank You, his extension of emergency liquidity in the heat of the moment of the crisis demonstrated the Fed should be abolished.
If fault is to be found, it would be in the generosity of Fed pricing. They could have extracted a pound of flesh, and in my opinion, should have as a punitive slap to those surfing the edge of peak credit, or liquidity mis-match.

However, no public nor private purpose would have been served by allowing financial markets to cascade into oblivion due to system-wide requirements sell position into a falling market to make position. We would have needed to coin a new more-modern phrase for 21st century-style Herstatt risk, that would have been global, and grinded the real economy to a halt along with the financial economy. Sure, we would have recovered from that, and certain people that didn't lose (and perhaps should have) would have, but others (perhaps undeserving) would have benefitted, watering down justice. As it was, the dislocation took us way into overshoot, so imagine where it would have taken us without the liquidity provision. Is there a place where the tag line "I've fallen, but I can't get up" is true? Where is the Hayekian virtue in finding out when (the extreme outcome) is in fact preventable? Perhaps it will prove only a palliative. That is still alright as far as I am concerned, measuring "alight" against the public interest.  I am far far far more afraid of the deficits and the effect of interest rate shocks upon large, cumulative borrowings concentrated at the short end of the curve. QE still bothers me little.

So if Lewis et. al wanted to use their satire to greater advantage and good, they should give credit where credit is due, and set their sights upon diminished top-end tax-rates, a broken healthcare system, defense spending, and clipping the tail of future liabilities to restore confidence in fiscal future diminishing the risk of an interest rate ambush, or future loss of confidence causing a another cascade.

Tuesday, April 05, 2011

Flat Tire

One would have thought that the wisdom and experience accompanying age would improve one's wit and sense of humour.  Of course, P.J. O'Rourke maybe the exception to this inferred rule. Whatever the case, O'Rourke's lame diatribe against urban cycling hosted by News Corp's dearth-of-humour broadsheet,  the WSJ, makes one wonder why, with so many interesting events and ample public figures with foot-in-mouth disease providing ample fertile material, he has chosen to point his low-watt Petzl in the direction of the humble, utilitarian bicycle, and it's typically well-intentioned owners. One would be forgiven for wondering whether there is some personal hidden agenda which is at the root of his anger.

Was he perhaps vertically-challenged more than the average kid when his father removed his training wheels? Or maybe he has a simple case of Cyclophobia? Was he forced to ride his sister's pink two-wheeled hand-me-down with sparkly handlebar tassles? Did he have some traumatic accident while mid-teens involving a parked car attracting the unwanted attention of a female object of his desire? Was HE laughed at mercilessly in his own tight black shorts? Did some two-wheeled Sierra Club environmentalist best him by sleeping with his wife (or worse, marrying his daughter!)? The exploration of this petty tyrant, will, in any event,  make for an interesting discussion with his T. next session. 

It does, however, highlight a more general question: Do Conservatives and Progressives age more or less symmetrically?

Friday, April 01, 2011

So Long (and thanks for the all the....)

August 2008 now seems to be so far away (unless you are Jeff Gendell or similar). Most things have returned to "normal" (lower case "n"): Israeli's and Palestinians are fighting; Fox network presenters make nightly asses of themselves; Wealthy Russians battle amongst themselves for top rung on the BLING! ladder; BRICs (and most of what was formerly known as The Developing World") grow robustly; American party politics and State dysfunctionality plumbs new depths; kids and adults alike waste evermore time networking socially on-line, and the ratio of executive-to-line-worker-pay ascends higher. Markets too, have normalized, with most prices finding the place they left off before The Vomit Scene threw them off course: commodities march higher as BRIC demand conspires with all species of specs to vault levels upwards; the dollar descends; stocks globally rally; bonds remain relatively neutered by intervention. Indeed we could be in 2007 again, were it not for upsided-ness of middle-eastern politics, peripheral European CDS, and the American President's tan and articulateness.

Everything, that is, except the Japanese Yen (and by extension, the Nikkei), the former which remains at, levels incongruent with, well, everything else in the world. Of course most FX traders horizon is measured in units corresponding to the winding of the average mechanical watch (or less!). Even Google finance's "all time" historical data for Spot USDJPY yields the beginning of time as somewhere in 2004. The credit crisis took the USDJPY from 110 to 90. Many carry trades were necessarily puked. But not all. 2010 began with Short Yen being one of Drobny's "trades of the year" - a curse and sure sign of crowdedness for those seeking instant gratification or truly asymmetrical risk vs. reward. They, too, were puked out by the market's swap of the dollar for yen in carry trades, sending the Yen from near-term macro peak-crowdedness levels near enough in the mid-nineties to 80. This, accomplished all the usual things of further puking carry trades not unwound previously, and sucking in the mimetic trend followers. The quake, and subsequent market response, was probably the last hurrah, in comparison to a world of increasing relative normality. 

Timing is a of course bitch. When EURJPY was stupid in late 2006 it was a year and a half of topping and volatility before it moved decisively from 170 to 110. The Yen has been "up here" now for more than two years two major episodic pukes, reddening the arses of even the cleverest of specs. Big picture long term market memory has been erased from most grey matter. I do not make prolific calls, but I must exclaim, the time is now. The moons are aligned. Par (vs. USD) though 20% distant, will be here almost as fast as you can say "Jack Sparrow". It's spring, and it's a mighty fine time to sell some Yen calls and buy twice-as-many 1yr out-of-the-money yen puts, and then go do whatever it is you enjoy doing.