This is a report on Dow Jones Newswires where the Senate is starting to wake up and request exactly what I noted in my letter: Raise the individual loan caps...
By Damian Paletta
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--House Financial Services Committee Chairman Barney Frank, D-Mass., urged the Senate on Friday to pass legislation that would allow Fannie Mae (FNM) and Freddie Mac (FRE) to purchase even more expensive mortgages than a bill Frank steered through the House earlier this year permitted.
"It now is clear we underestimated in the House bill how far we should raise the conforming loan limit, and the current crises in the mortgage market demonstrate we should raise it to a higher level." Frank said in a press statement. "I urge the Senate to make this a priority as part of GSE reform, because we now have the opportunity to help homeowners get access to needed credit by allowing Fannie Mae and Freddie Mac to play a larger role."
Fannie Mae and Freddie Mac are only allowed to purchase mortgages on the secondary market known as "conforming loans," and these loans cannot be higher than the conforming loan limit, which is presently at $417,000. The House-passed bill would allow government-sponsored enterprises to purchase more expensive mortgages in states where the cost of housing is higher, but Frank and Rep. Gary Miller, R-Calif., said Friday that the companies should be able to buy even more expensive loans.
Many of the current problems in the housing and credit markets are with subprime mortgages and "jumbo" loans that the GSEs aren't permitted to buy.
If the Senate passed a bill raising the conforming loan limit, House and Senate negotiators could agree on compromise language before the bill is sent to the White House.
August 17, 2007 15:20 ET (19:20 GMT)
Wednesday, August 22, 2007
Now the Officials Chime in..
This note from a "real" researcher on how much money it will take to "stabilize" the mortgage markets. Not far from my proposal eh?
By Lingling Wei and Kevin Kingsbury
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--It may take a long time for investors to start bidding for mortgages again.
In recent months, companies from mortgage lenders, hedge funds and firms investing in structured products - such as asset-backed bonds - have been racing to dump mortgage assets to repay creditors, as the fallout from the credit squeeze continues to reverberate. The upshot: Businesses are earning even less from selling loans, more lenders are failing, and investors - except for those savvy specialists in distressed investing - are reluctant to dip their toes back.
In a report titled "De-Leveraging Destroying Value - New Capital Needed," analyst Paul Miller Jr. at Friedman Billings Ramsey estimated that it takes roughly $150 billion to $250 billion of new capital to "normalize pricing" in the mortgage market. But it's also a kind of Catch-22 situation: Without new capital, it could be difficult for asset prices to come back up; without pricing adjustment and better returns, new capital may be hard to come by.
Miller projected that it will take six to 12 months for the prices of mortgage assets to normalize and for capital to flow back into the space. "There is no quick fix here," he noted. And until then, lenders will continue to come under pressure with respect to earnings and book values.
By Lingling Wei and Kevin Kingsbury
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--It may take a long time for investors to start bidding for mortgages again.
In recent months, companies from mortgage lenders, hedge funds and firms investing in structured products - such as asset-backed bonds - have been racing to dump mortgage assets to repay creditors, as the fallout from the credit squeeze continues to reverberate. The upshot: Businesses are earning even less from selling loans, more lenders are failing, and investors - except for those savvy specialists in distressed investing - are reluctant to dip their toes back.
In a report titled "De-Leveraging Destroying Value - New Capital Needed," analyst Paul Miller Jr. at Friedman Billings Ramsey estimated that it takes roughly $150 billion to $250 billion of new capital to "normalize pricing" in the mortgage market. But it's also a kind of Catch-22 situation: Without new capital, it could be difficult for asset prices to come back up; without pricing adjustment and better returns, new capital may be hard to come by.
Miller projected that it will take six to 12 months for the prices of mortgage assets to normalize and for capital to flow back into the space. "There is no quick fix here," he noted. And until then, lenders will continue to come under pressure with respect to earnings and book values.
Friday, August 17, 2007
Now Countrywide Bank Responds..
Interesting, as I was reading the nice posting from Dow Jones on Barney Frank's comments another interesting note popped up related to my letter to my beloved Senator Mikulski. Again from Dow Jones Newswires:
DOW JONES NEWSWIRES
Countrywide Financial Corp.'s (CFC) Countrywide Bank unit said current issues in the mortgage market do not affect the security of FDIC-insured deposits at Countrywide Bank FSB.
The bank has more than $107 billion in assets.
Countrywide Financial's shares were up 2.25, or 12%, at $21.20 in recent trading. [end]
Interesting eh?
What is little know or understood by many has to do with one major legacy of the ex-Fed. Chairman Greenspan; he tacitly destroyed many of the laws passed by our Congress after the abuses in the 1920's and subsequent depression in the 1930's to protect investors. He did this with a "wink and nod" to deals and structures throughout his tenure and never sought nor received approval for his actions. It will only take one major failure luring in the FDIC to wake our sleepy ignorant government up.
DOW JONES NEWSWIRES
Countrywide Financial Corp.'s (CFC) Countrywide Bank unit said current issues in the mortgage market do not affect the security of FDIC-insured deposits at Countrywide Bank FSB.
The bank has more than $107 billion in assets.
Countrywide Financial's shares were up 2.25, or 12%, at $21.20 in recent trading. [end]
Interesting eh?
What is little know or understood by many has to do with one major legacy of the ex-Fed. Chairman Greenspan; he tacitly destroyed many of the laws passed by our Congress after the abuses in the 1920's and subsequent depression in the 1930's to protect investors. He did this with a "wink and nod" to deals and structures throughout his tenure and never sought nor received approval for his actions. It will only take one major failure luring in the FDIC to wake our sleepy ignorant government up.
The Credit Fallout Continues...Letter to Senator
Below is another letter I have written to my beloved Senator from Maryland. I think the nice lady actually listens because as before, the day following my letter Dow Jones Newswire posted a note related to the subject:
By Damian Paletta Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--House Financial Services Committee Chairman Barney Frank, D-Mass., urged the Senate on Friday to pass legislation that would allow Fannie Mae (FNM) and Freddie Mac (FRE) to purchase even more expensive mortgages than a bill Frank steered through the House earlier this year permitted.
"It now is clear we underestimated in the House bill how far we should raise the conforming loan limit, and the current crises in the mortgage market demonstrate we should raise it to a higher level." Frank said in a press statement. "I urge the Senate to make this a priority as part of GSE reform, because we now have the opportunity to help homeowners get access to needed credit by allowing Fannie Mae and Freddie Mac to play a larger role."
Fannie Mae and Freddie Mac are only allowed to purchase mortgages on the secondary market known as "conforming loans," and these loans cannot be higher than the conforming loan limit, which is presently at $417,000. The House-passed bill would allow government-sponsored enterprises to purchase more expensive mortgages in states where the cost of housing is higher, but Frank and Rep. Gary Miller, R-Calif., said Friday that the companies should be able to buy even more expensive loans.
Many of the current problems in the housing and credit markets are with subprime mortgages and "jumbo" loans that the GSEs aren't permitted to buy.
If the Senate passed a bill raising the conforming loan limit, House and Senate negotiators could agree on compromise language before the bill is sent to the White House. [end]
Seems someone may be listening:-) Now to my letter...
Dear Senator Mikulski, 15 August 2007
I am writing to follow up on my urgent request that you engage the Fed and Treasury in sorting out a solution for the secondary mortgage market crises that is upon us.
I was pleased to see some recognition of the problem by Mr. Bernanke and Mr. Paulson however no action has been taken other than to calm bank interchange rates with short term cash infusions of various sorts.
This letter is to offer specific actions that need to be taken immediately.
1) Increase the cap on Fannie Mae conforming loans by no less than 50%.
There has been talk of raising their overall portfolio limit. This is not necessary. It is absolutely crucial that the cap be lifted dramatically. As you know there are states like Maryland, New York and California where average home prices exceed $417,000 (the current cap) by a large margin.
Fannie & Freddie will NOT buy any junk off the market or be given the authority to invest in any sub prime loans existing on the market.
2) Force the major Wall Street banks (i.e.; JP Morgan, Goldman, Bear Sterns etc.) to pony up enough cash to create a “Fund” that will have the purpose of providing liquidity to the secondary market for loans. This “Fund” will likely need $250 billion in hard cash to function.
Note: This fund is NOT to “rescue” the garbage loans Wall Street packaged and sold to “investors” over the past few years. These loans were garbage, the credit standards ignored and “investors” should loose, period. There should be no purchases of these loans by this fund.
However, this fund is to provide whatever liquidity is necessary for sound lenders currently operating in the market to continue making qualifying home loans. This means purchasing their loans to be securitized and sold when market conditions improve.
In addition, this fund should provide the liquidity lenders need to refinance the garbage loans made by mortgage brokers with Wall Street’s blessing ONLY where the borrower (i.e.; citizen homeowner) has QUALIFING INCOME & CREDIT for a new loan. These refinances should be done where the borrower’s total out of pocket refinance costs are capped at 1% of the new loan amount (including transfers, taxes etc.)
This fund will NOT act as a “bail out” for any individual lender.
3) The government should seriously consider using Social Security receipts to purchase high quality AAA rated home loans form the market immediately.
Thank you for considering my options. Action needs to be taken now.
As you know the latest potential victim is the largest home lender in the country, Countrywide Finance. This company also functions as a bank taking deposits from citizens. The failure of institutions that are also retail banks will be of grave consequence to the American Economy!
Sincerely,
By Damian Paletta Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--House Financial Services Committee Chairman Barney Frank, D-Mass., urged the Senate on Friday to pass legislation that would allow Fannie Mae (FNM) and Freddie Mac (FRE) to purchase even more expensive mortgages than a bill Frank steered through the House earlier this year permitted.
"It now is clear we underestimated in the House bill how far we should raise the conforming loan limit, and the current crises in the mortgage market demonstrate we should raise it to a higher level." Frank said in a press statement. "I urge the Senate to make this a priority as part of GSE reform, because we now have the opportunity to help homeowners get access to needed credit by allowing Fannie Mae and Freddie Mac to play a larger role."
Fannie Mae and Freddie Mac are only allowed to purchase mortgages on the secondary market known as "conforming loans," and these loans cannot be higher than the conforming loan limit, which is presently at $417,000. The House-passed bill would allow government-sponsored enterprises to purchase more expensive mortgages in states where the cost of housing is higher, but Frank and Rep. Gary Miller, R-Calif., said Friday that the companies should be able to buy even more expensive loans.
Many of the current problems in the housing and credit markets are with subprime mortgages and "jumbo" loans that the GSEs aren't permitted to buy.
If the Senate passed a bill raising the conforming loan limit, House and Senate negotiators could agree on compromise language before the bill is sent to the White House. [end]
Seems someone may be listening:-) Now to my letter...
Dear Senator Mikulski, 15 August 2007
I am writing to follow up on my urgent request that you engage the Fed and Treasury in sorting out a solution for the secondary mortgage market crises that is upon us.
I was pleased to see some recognition of the problem by Mr. Bernanke and Mr. Paulson however no action has been taken other than to calm bank interchange rates with short term cash infusions of various sorts.
This letter is to offer specific actions that need to be taken immediately.
1) Increase the cap on Fannie Mae conforming loans by no less than 50%.
There has been talk of raising their overall portfolio limit. This is not necessary. It is absolutely crucial that the cap be lifted dramatically. As you know there are states like Maryland, New York and California where average home prices exceed $417,000 (the current cap) by a large margin.
Fannie & Freddie will NOT buy any junk off the market or be given the authority to invest in any sub prime loans existing on the market.
2) Force the major Wall Street banks (i.e.; JP Morgan, Goldman, Bear Sterns etc.) to pony up enough cash to create a “Fund” that will have the purpose of providing liquidity to the secondary market for loans. This “Fund” will likely need $250 billion in hard cash to function.
Note: This fund is NOT to “rescue” the garbage loans Wall Street packaged and sold to “investors” over the past few years. These loans were garbage, the credit standards ignored and “investors” should loose, period. There should be no purchases of these loans by this fund.
However, this fund is to provide whatever liquidity is necessary for sound lenders currently operating in the market to continue making qualifying home loans. This means purchasing their loans to be securitized and sold when market conditions improve.
In addition, this fund should provide the liquidity lenders need to refinance the garbage loans made by mortgage brokers with Wall Street’s blessing ONLY where the borrower (i.e.; citizen homeowner) has QUALIFING INCOME & CREDIT for a new loan. These refinances should be done where the borrower’s total out of pocket refinance costs are capped at 1% of the new loan amount (including transfers, taxes etc.)
This fund will NOT act as a “bail out” for any individual lender.
3) The government should seriously consider using Social Security receipts to purchase high quality AAA rated home loans form the market immediately.
Thank you for considering my options. Action needs to be taken now.
As you know the latest potential victim is the largest home lender in the country, Countrywide Finance. This company also functions as a bank taking deposits from citizens. The failure of institutions that are also retail banks will be of grave consequence to the American Economy!
Sincerely,
Thursday, August 02, 2007
Subprime Primetime
Copy of letter to Senator Mikulski on Subprime meltdown and one rescue by German Government, yes RESCUE!
Hello Senator Mikulski,
I called your office yesterday to alert you to the ongoing problems with the mortgage industry in the US. I urge you to call the Treasury and Fed and request they take action to halt the meltdown of the mortgage industry.
The problems at hand are not unlike the meltdown in 1998 of Long Term Capital. Tuesday American Home Mortgage reported they failed to fund $650 million in promised mortgages to Americans on Monday & Tuesday. This is likely to have continued with millions of promised mortgages not going to closing because of Wall Street’s refusal to further fund mortgage companies.
Basically, Wall Street firms, in their infamous greed, managed to shift 40% of the home mortgage business to themselves over the past 5 years. Unfortunately, these firms are not banks so they depend on investors to provide the capital to fund mortgages. In addition, mortgage companies were financially incentivised to put higher and higher interest loans up for sale to beef up the fees and interest rates on the products Wall Street then sold.
The entire cycle will be looked on in the future as a great travesty on the American public with fraud and greed of Wall Street preying on potential homeowners as a way for them to cash in on rising property values around the country. Wherever there is money being made in this country, Wall Street will find a way to securitize it and make money off of it. This is what free market capitalism is about, OK, but when unregulated investment pools creep into the regulated economy of the American homeowner with Wall Street firms acting as the middleman you get a foul stew to say the least.
To have several of the top 10 mortgage companies in the US facing bankruptcy because the firms that funded them until now have forced massive write downs on their mortgage portfolios held as collateral causing them to have to put up more cash then they have on their books is wrong and poses grave risk to the entire debt markets.
Our nation unfortunately is founded on debt, period. To have the debt markets collapse in any category is dangerous and requires immediate attention by those at the highest offices in the US.
You may recall the letter I sent to you echoing my concerns to Mr. Paulson to pay attention to the debt markets and not to pay attention to Sarbanes-Oxley. Now my words ring true and I urge you to force action on Wall Street to fund these companies and stop the dominoes from falling.
Sincerely,
Patrick Henry
Ps: Please find this piece from the FT today where the German Government has intervened to stop an investment firm from collapse in that country.
Germany rescues subprime lender
By Our International Staff
Published: August 1 2007 21:49 Last updated: August 2 2007 00:40
US mortgage turmoil hit investor confidence on the other side of the Atlantic on Wednesday as details emerged of a German government rescue of a domestic lender that suffered heavy losses on subprime investments.
The rescue of IKB, a specialist lender based in Düsseldorf, began on Sunday when Peer Steinbrück, German finance minister, called top banking executives to discuss a bail-out. According to people who took part in the conference call, Jochen Sanio, head of Germany’s financial regulator, is said to have warned of the worst banking crisis since 1931.
IKB surprised investors this week with a profits warning after a multi-billion euro fund it managed was hit by problems stemming from its US subprime exposure. The news sent its shares plunging and prompted KfW, the state-owned development bank, to step in with a pledge to guarantee obligations of more than €8bn ($10.9bn) – more than five times IKB’s stock-market value.
The further government intervention suggested that the problems at IKB were much worse than thought. Mr Steinbrück phoned several banking executives – including Josef Ackermann, chief executive of Deutsche Bank – on Sunday to bring them on board.
Deutsche Bank, Commerzbank and other German lenders are taking a 30 per cent stake in a rescue fund worth €3.5bn, FT Deutschland, the Financial Times’s sister paper has learnt, with the rest shouldered by KfW.
The report on the German intervention came as more bad news from hedge funds and the housing sector roiled markets.
[Article cut here]
Hello Senator Mikulski,
I called your office yesterday to alert you to the ongoing problems with the mortgage industry in the US. I urge you to call the Treasury and Fed and request they take action to halt the meltdown of the mortgage industry.
The problems at hand are not unlike the meltdown in 1998 of Long Term Capital. Tuesday American Home Mortgage reported they failed to fund $650 million in promised mortgages to Americans on Monday & Tuesday. This is likely to have continued with millions of promised mortgages not going to closing because of Wall Street’s refusal to further fund mortgage companies.
Basically, Wall Street firms, in their infamous greed, managed to shift 40% of the home mortgage business to themselves over the past 5 years. Unfortunately, these firms are not banks so they depend on investors to provide the capital to fund mortgages. In addition, mortgage companies were financially incentivised to put higher and higher interest loans up for sale to beef up the fees and interest rates on the products Wall Street then sold.
The entire cycle will be looked on in the future as a great travesty on the American public with fraud and greed of Wall Street preying on potential homeowners as a way for them to cash in on rising property values around the country. Wherever there is money being made in this country, Wall Street will find a way to securitize it and make money off of it. This is what free market capitalism is about, OK, but when unregulated investment pools creep into the regulated economy of the American homeowner with Wall Street firms acting as the middleman you get a foul stew to say the least.
To have several of the top 10 mortgage companies in the US facing bankruptcy because the firms that funded them until now have forced massive write downs on their mortgage portfolios held as collateral causing them to have to put up more cash then they have on their books is wrong and poses grave risk to the entire debt markets.
Our nation unfortunately is founded on debt, period. To have the debt markets collapse in any category is dangerous and requires immediate attention by those at the highest offices in the US.
You may recall the letter I sent to you echoing my concerns to Mr. Paulson to pay attention to the debt markets and not to pay attention to Sarbanes-Oxley. Now my words ring true and I urge you to force action on Wall Street to fund these companies and stop the dominoes from falling.
Sincerely,
Patrick Henry
Ps: Please find this piece from the FT today where the German Government has intervened to stop an investment firm from collapse in that country.
Germany rescues subprime lender
By Our International Staff
Published: August 1 2007 21:49 Last updated: August 2 2007 00:40
US mortgage turmoil hit investor confidence on the other side of the Atlantic on Wednesday as details emerged of a German government rescue of a domestic lender that suffered heavy losses on subprime investments.
The rescue of IKB, a specialist lender based in Düsseldorf, began on Sunday when Peer Steinbrück, German finance minister, called top banking executives to discuss a bail-out. According to people who took part in the conference call, Jochen Sanio, head of Germany’s financial regulator, is said to have warned of the worst banking crisis since 1931.
IKB surprised investors this week with a profits warning after a multi-billion euro fund it managed was hit by problems stemming from its US subprime exposure. The news sent its shares plunging and prompted KfW, the state-owned development bank, to step in with a pledge to guarantee obligations of more than €8bn ($10.9bn) – more than five times IKB’s stock-market value.
The further government intervention suggested that the problems at IKB were much worse than thought. Mr Steinbrück phoned several banking executives – including Josef Ackermann, chief executive of Deutsche Bank – on Sunday to bring them on board.
Deutsche Bank, Commerzbank and other German lenders are taking a 30 per cent stake in a rescue fund worth €3.5bn, FT Deutschland, the Financial Times’s sister paper has learnt, with the rest shouldered by KfW.
The report on the German intervention came as more bad news from hedge funds and the housing sector roiled markets.
[Article cut here]
Monday, May 07, 2007
More Big Deals
Leveraged buyout dealmakers have purchased $864 Billion in public companies in the past three years.
$250 Billion has been raised in the past year.
But wait. The number above, “$864 Billion in public companies in the past three years”, that was “public companies”. In the past ONE year there have been $856 Billion in buyouts including public and private companies.
Fidelity, America’s largest fund company with money from the average Joe controls about $1.4 Trillion in assets. The company has been around for decades.
The amount of money flowing into the private equity industry is staggering. Combine this with the amount of money going into Hedge Funds and it is truly mind boggling.
It is as if the US Mint is just printing money and giving it to these guys. Where do they get so much cash? Increasingly it is your pension. I read the other day that companies like Goldman Sachs take their client’s assets and borrow huge sums against these assets to fund their own private trading and investment activities. They are criminals.
They are just one company.
I cannot answer to where the money comes from to finance the private equity dealmakers. I have read it comes from high wealth individuals, companies, pension funds, the employees of the firms who plough money back in after each deal and banks. Now I also read that the last by Goldman Sachs raised $20 Billion. $12 Billion of this came from its own employees. Wow. Now that is the place to work.
What is the draw? Well, if you buy a public company and take it private you can then borrow huge sums of money using the company as your vehicle and pay those borrowed monies to yourself.
For example: “London-based Cinven Ltd. and BC Partners Ltd. borrowed against Madrid-based Amadeus Global Travel Distribution SA, the travel agency they acquired in 2005, to pay themselves a $2 billion dividend.” (Bloomberg) I only wonder how much real money they put into the deal to begin with.
In 2006 buyout firms funded 40 dividend payouts with a record 8.3 billion euros of debt last year, according to data compiled by Fitch Ratings. This is just Euro debt financed dividends. In fact the dividends last year enabled buyouts companies to recover 72 percent of their investment within 20 months, according to Fitch data.
72% of your original money back within 20 months. Remember, they still own the companies they took private using that money. So if I told you, “You give me $10 million dollars and I will give you back $7.2 million of it within 20 months while you maintain ownership of a chunk of a company that will be sent back to the public markets within a few years likely netting you three times your original investment wouldn’t you get in the business. I mean, you did not produce anything. You don’t work. In fact you could do this while continuing with your life uninterrupted, making money selling widgets or whatever it is that got you the $10 Million to begin with.
On top of all this, you would be told you were crazy if you did not borrow a whole bunch of money against your newly owned company because banks are banging on the door to do the deal. You may even get to refinance all of your debt at lower interest to boot. Yea, banks just want to lend you money. They don’t care if you do nothing productive with the money like pay it out to yourself as a big dividend. Hell, even public companies have been encouraged to take on debt to pay off the guys that just took a 5% stake so they will leave you alone. And this action is taken as having some kind of fiduciary responsibility or obligation to shareholders. Can you imagine?
Does all of this sound a bit strange? It is not I assure you. Strange that is. The only strange thing is wondering how much longer guys can continue to find people willing to give them billions of dollars so they may convince investors to sell companies to them and they can go about systematically stealing the company’s assets to do more deals.
This is all reflective of the 1980’s only this time there are many more products and schemes making it all possible in ways never dreamed of before.
$250 Billion has been raised in the past year.
But wait. The number above, “$864 Billion in public companies in the past three years”, that was “public companies”. In the past ONE year there have been $856 Billion in buyouts including public and private companies.
Fidelity, America’s largest fund company with money from the average Joe controls about $1.4 Trillion in assets. The company has been around for decades.
The amount of money flowing into the private equity industry is staggering. Combine this with the amount of money going into Hedge Funds and it is truly mind boggling.
It is as if the US Mint is just printing money and giving it to these guys. Where do they get so much cash? Increasingly it is your pension. I read the other day that companies like Goldman Sachs take their client’s assets and borrow huge sums against these assets to fund their own private trading and investment activities. They are criminals.
They are just one company.
I cannot answer to where the money comes from to finance the private equity dealmakers. I have read it comes from high wealth individuals, companies, pension funds, the employees of the firms who plough money back in after each deal and banks. Now I also read that the last by Goldman Sachs raised $20 Billion. $12 Billion of this came from its own employees. Wow. Now that is the place to work.
What is the draw? Well, if you buy a public company and take it private you can then borrow huge sums of money using the company as your vehicle and pay those borrowed monies to yourself.
For example: “London-based Cinven Ltd. and BC Partners Ltd. borrowed against Madrid-based Amadeus Global Travel Distribution SA, the travel agency they acquired in 2005, to pay themselves a $2 billion dividend.” (Bloomberg) I only wonder how much real money they put into the deal to begin with.
In 2006 buyout firms funded 40 dividend payouts with a record 8.3 billion euros of debt last year, according to data compiled by Fitch Ratings. This is just Euro debt financed dividends. In fact the dividends last year enabled buyouts companies to recover 72 percent of their investment within 20 months, according to Fitch data.
72% of your original money back within 20 months. Remember, they still own the companies they took private using that money. So if I told you, “You give me $10 million dollars and I will give you back $7.2 million of it within 20 months while you maintain ownership of a chunk of a company that will be sent back to the public markets within a few years likely netting you three times your original investment wouldn’t you get in the business. I mean, you did not produce anything. You don’t work. In fact you could do this while continuing with your life uninterrupted, making money selling widgets or whatever it is that got you the $10 Million to begin with.
On top of all this, you would be told you were crazy if you did not borrow a whole bunch of money against your newly owned company because banks are banging on the door to do the deal. You may even get to refinance all of your debt at lower interest to boot. Yea, banks just want to lend you money. They don’t care if you do nothing productive with the money like pay it out to yourself as a big dividend. Hell, even public companies have been encouraged to take on debt to pay off the guys that just took a 5% stake so they will leave you alone. And this action is taken as having some kind of fiduciary responsibility or obligation to shareholders. Can you imagine?
Does all of this sound a bit strange? It is not I assure you. Strange that is. The only strange thing is wondering how much longer guys can continue to find people willing to give them billions of dollars so they may convince investors to sell companies to them and they can go about systematically stealing the company’s assets to do more deals.
This is all reflective of the 1980’s only this time there are many more products and schemes making it all possible in ways never dreamed of before.
Thursday, January 25, 2007
Letter to Paulson, Sec. of Treasury, US
25 January 2007
Henry M. Paulson Jr.
Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Ave. NW
Washington, DC 20220
Re: Consistent calls by Mr. Paulson to dumb down or do away with the 2002 Sarbanes-Oxley Act
Dear Mr. Paulson,
In yet another Wall Street Journal article published today titled “In Call to Deregulate Business, a Global Twist”, your endless efforts to undue the rules enacted by the United States Congress in 2002 under the Sarbanes-Oxley Act are once again put on display.
It is completely clear and without doubt you should not be in a position to represent the interests of American Citizens in public service in any capacity. Your appointment as Secretary of Treasury was obviously and without mistake an attempt by President Bush to make a direct assault on the rules governing the conduct of large American corporate entities and to shield the burgeoning Hedge Fund and Private Equity industries from scrutiny. I have no doubt you have experience that would be lauded by any person obtaining such a position only that your allegiances are completely misplaced. You should be removed from office immediately.
Let me give you a short background on myself. I was born in Washington, DC and raised in Maryland. After high school and 2 years of community college I entered the USAF. Following my time there I finished my degree in Economics at the University of Maryland and started my own business. I successfully sold the business in late 2004. I currently manage my personal portfolio and am renovating a house in DC with which I plan to live.
While at community college a lousy Economics professor who bragged about using the same notes to teach his class for 20 years suggested we read the Wall Street Journal. I took him up on his suggestion and although I could not comprehend exactly what I was reading at the time I soon realized where my future would be. As soon as I exited basic training in the USAF and had saved $750 I anxiously found a way to invest it. I opened a brokerage account shortly thereafter and proceeded to save every dollar I could to buy stocks. By 1986 I had accumulated about $20,000 in equity, followed about 400 British and American companies and spent several hours per week researching and keeping charts.
During this time I was serving in the UK so I focused most of my time on the market there, following the Thatcher Government sell offs etc. At the same time I watched from a distance the US undergo a Reagan economic boom. That was a boom in the merger and acquisition business (along with commercial and to some extant residential real estate) financed by increasingly worthless “junk” bonds that by the end of the day were being sold to pensioners by unscrupulous bankers. Eventually the house of cards created by the “junk” had expanded to the S&L and banking industry and a variety of factors I am sure you are keenly aware of led to the collapse of the stock market, S&L industry and nearly the entire banking system.
This was my first direct experience with economic collapse and as a student of Economics at the time I was fascinated to watch it unfold. The US Government ended up assuming about half a trillion in debt from the balance sheets of failed financial instructions (40 year debt if I remember correctly), the Fed orchestrated mergers and Citibank was bailed out by Saudi Prince Alwaleed bin Talal amongst other amusements. Essentially,1989 was 1929 all over again only the banks doors were kept open by the actions of the government. What citizens got was no locked bank doors and the Resolution Trust Corporation.
Well, I lost about 90% of my hard earned investments during this fiasco and immediately began to accumulate money to start over again. I started my business and experienced the early 90’s recession in the booming telecommunications industry. I did not feel the pain. I kept a keen eye on the world of finance and vowed never to use an American stock broker for the rest of my life, Period.
Strange things started happening by the mid 90’s. The death of the Evil Empire and shrinking of the Corporate Welfare Industry (defense industry for you insiders), left lots of smart people to do something useful. Technology was exploding and the PC was becoming a household item. Many people had great ideas about what to do with this technology and the networks that were connecting it and that enthusiasm quickly led to an insane rush by anyone with a business plan to bring in millions of dollars. Once again we soon had merger mania only this time it was company stock that fueled the deals and promises of more stock and more deals made Wall Street ever so greedy with many resorting to criminal tactics to keep the money rolling.
Eventually the reality that this paper was essentially “junk” stock caused the house of cards to come crashing down again along with a variety of other factors you are surely aware of. In the end the schemes were not so complex and a couple Senators, instead of having to raise half a trillion dollars (that loss would be born by the investors in the worthless paper this time who happened not to be S&L’s), saw the need to ensure this kind of scam would not happen again. Their actions, not unlike the bail out of the financial industry in the late 80’s and early 90’s, were aimed to protect the American citizen and unsuspecting investors of fraud, by tightening the regulation of the companies and the people who make up their fabric. Thus the creation of the Sarbanes-Oxley Act.
Now there was a time in the early 20th century when a crash of unheard of proportions took place amongst a landscape of very concentrated corporate entities who wielded tremendous power and influence over the American landscape. The laws (Glass-Steagle Act, Securities Exchange Act) passed after the 1929 crash were despised by all of the corporate executives affected and they vowed to undo them. These vows were passed down to their successors and in recent years they have largely managed to undo the Glass-Steagle Act and during the last decade propagate a toothless inept SEC.
Sarbanes-Oxley is like a thorn in their side. Just when they had managed to water down all regulations against them, a new law forcing responsibility for their actions is thrust upon them. The point here is you, Mr. Paulson are nothing more than a mouthpiece of the elite banking industry you come from. You, of all people, being in the position you are, have taken it upon yourself to remove the “thorn” that was created to reign in your corporate buddies who were directly responsible for the worthless paper bubble of the late 1990’s so they may go about repeating themselves.
You have no right to hold your position.
Right now, as I write this letter, this decade’s paper trail is being laid. While you expend your efforts trying to undo a very important piece of legislation, your buddies are running away with more cash than did they in the 1980’s or the 1990’s. There are currently about half a dozen private equity companies on their way to creating $100 billion a year conglomerates. This will grow. There is somewhere near $1.5 trillion in real cash working in an completely unregulated investment industry that your buddy’s growth and success is increasingly dependent on. I made this point clear in a letter to our beloved new Fed Chairman when he suggested those same banks should be more diligent and responsible in their practices while the Government lays off. Now we are about to see the first for Way of this industry into the investment accounts of the average small investor with the public offering of the Hedge Fund Fortress Investment Group.
The way in which the private equity firms operate, the increasing syndication of their debt, the direct participation in these deals by your banking buddies, the way in which they leverage their prey to the hilt, pay off the people running the businesses and use the debt to enrich themselves is a disgrace. They are creating hollow shells of companies saddled with debt while they milk them for every ounce of hard cash they can. Sooner or later something is bound to implode. If easy money dries up Wall Street is sure to not be generous in putting these companies back on the block to investors with negative net worth as they have done recently. In addition to all this, there is the tremendous growth of a previously little known industry in trading Credit Derivative products that is making the distinction between the lender and investor murky and the balloon of these products has created a false sense that somehow $30 trillion of debt can somehow be “insured” against loss by these products.
And what are you doing? Spending time trying to pluck the “thorn” out of your buddies and do away with Sarbanes-Oxley.
Just a note, I was fortunate when the bubble burst in 2000 this time. Call me lucky or smart but in March 2000 I stepped into the office of a local bank branch where I had some money invested in bonds and bought as much Phillip Morris (Altria) as I had money in the bank. The stock tippled while the market tanked and although I lost allot of money when the tech bubble burst, I did not “loose”.
I am smart enough to know when your buddies have gone to far and they are getting close again. Your only value to your position is having a good Rolodex to make calls when time comes to put some serious cash on the table. Ask Mr. Greenspan about that.
As I have no influence on whether you keep your job or not, I implore you to find it within yourself to leave the Sarbanes-Oxley Act alone and DO YOUR JOB. The American Citizen depends on you more than ever.
Sincerely,
Henry M. Paulson Jr.
Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Ave. NW
Washington, DC 20220
Re: Consistent calls by Mr. Paulson to dumb down or do away with the 2002 Sarbanes-Oxley Act
Dear Mr. Paulson,
In yet another Wall Street Journal article published today titled “In Call to Deregulate Business, a Global Twist”, your endless efforts to undue the rules enacted by the United States Congress in 2002 under the Sarbanes-Oxley Act are once again put on display.
It is completely clear and without doubt you should not be in a position to represent the interests of American Citizens in public service in any capacity. Your appointment as Secretary of Treasury was obviously and without mistake an attempt by President Bush to make a direct assault on the rules governing the conduct of large American corporate entities and to shield the burgeoning Hedge Fund and Private Equity industries from scrutiny. I have no doubt you have experience that would be lauded by any person obtaining such a position only that your allegiances are completely misplaced. You should be removed from office immediately.
Let me give you a short background on myself. I was born in Washington, DC and raised in Maryland. After high school and 2 years of community college I entered the USAF. Following my time there I finished my degree in Economics at the University of Maryland and started my own business. I successfully sold the business in late 2004. I currently manage my personal portfolio and am renovating a house in DC with which I plan to live.
While at community college a lousy Economics professor who bragged about using the same notes to teach his class for 20 years suggested we read the Wall Street Journal. I took him up on his suggestion and although I could not comprehend exactly what I was reading at the time I soon realized where my future would be. As soon as I exited basic training in the USAF and had saved $750 I anxiously found a way to invest it. I opened a brokerage account shortly thereafter and proceeded to save every dollar I could to buy stocks. By 1986 I had accumulated about $20,000 in equity, followed about 400 British and American companies and spent several hours per week researching and keeping charts.
During this time I was serving in the UK so I focused most of my time on the market there, following the Thatcher Government sell offs etc. At the same time I watched from a distance the US undergo a Reagan economic boom. That was a boom in the merger and acquisition business (along with commercial and to some extant residential real estate) financed by increasingly worthless “junk” bonds that by the end of the day were being sold to pensioners by unscrupulous bankers. Eventually the house of cards created by the “junk” had expanded to the S&L and banking industry and a variety of factors I am sure you are keenly aware of led to the collapse of the stock market, S&L industry and nearly the entire banking system.
This was my first direct experience with economic collapse and as a student of Economics at the time I was fascinated to watch it unfold. The US Government ended up assuming about half a trillion in debt from the balance sheets of failed financial instructions (40 year debt if I remember correctly), the Fed orchestrated mergers and Citibank was bailed out by Saudi Prince Alwaleed bin Talal amongst other amusements. Essentially,1989 was 1929 all over again only the banks doors were kept open by the actions of the government. What citizens got was no locked bank doors and the Resolution Trust Corporation.
Well, I lost about 90% of my hard earned investments during this fiasco and immediately began to accumulate money to start over again. I started my business and experienced the early 90’s recession in the booming telecommunications industry. I did not feel the pain. I kept a keen eye on the world of finance and vowed never to use an American stock broker for the rest of my life, Period.
Strange things started happening by the mid 90’s. The death of the Evil Empire and shrinking of the Corporate Welfare Industry (defense industry for you insiders), left lots of smart people to do something useful. Technology was exploding and the PC was becoming a household item. Many people had great ideas about what to do with this technology and the networks that were connecting it and that enthusiasm quickly led to an insane rush by anyone with a business plan to bring in millions of dollars. Once again we soon had merger mania only this time it was company stock that fueled the deals and promises of more stock and more deals made Wall Street ever so greedy with many resorting to criminal tactics to keep the money rolling.
Eventually the reality that this paper was essentially “junk” stock caused the house of cards to come crashing down again along with a variety of other factors you are surely aware of. In the end the schemes were not so complex and a couple Senators, instead of having to raise half a trillion dollars (that loss would be born by the investors in the worthless paper this time who happened not to be S&L’s), saw the need to ensure this kind of scam would not happen again. Their actions, not unlike the bail out of the financial industry in the late 80’s and early 90’s, were aimed to protect the American citizen and unsuspecting investors of fraud, by tightening the regulation of the companies and the people who make up their fabric. Thus the creation of the Sarbanes-Oxley Act.
Now there was a time in the early 20th century when a crash of unheard of proportions took place amongst a landscape of very concentrated corporate entities who wielded tremendous power and influence over the American landscape. The laws (Glass-Steagle Act, Securities Exchange Act) passed after the 1929 crash were despised by all of the corporate executives affected and they vowed to undo them. These vows were passed down to their successors and in recent years they have largely managed to undo the Glass-Steagle Act and during the last decade propagate a toothless inept SEC.
Sarbanes-Oxley is like a thorn in their side. Just when they had managed to water down all regulations against them, a new law forcing responsibility for their actions is thrust upon them. The point here is you, Mr. Paulson are nothing more than a mouthpiece of the elite banking industry you come from. You, of all people, being in the position you are, have taken it upon yourself to remove the “thorn” that was created to reign in your corporate buddies who were directly responsible for the worthless paper bubble of the late 1990’s so they may go about repeating themselves.
You have no right to hold your position.
Right now, as I write this letter, this decade’s paper trail is being laid. While you expend your efforts trying to undo a very important piece of legislation, your buddies are running away with more cash than did they in the 1980’s or the 1990’s. There are currently about half a dozen private equity companies on their way to creating $100 billion a year conglomerates. This will grow. There is somewhere near $1.5 trillion in real cash working in an completely unregulated investment industry that your buddy’s growth and success is increasingly dependent on. I made this point clear in a letter to our beloved new Fed Chairman when he suggested those same banks should be more diligent and responsible in their practices while the Government lays off. Now we are about to see the first for Way of this industry into the investment accounts of the average small investor with the public offering of the Hedge Fund Fortress Investment Group.
The way in which the private equity firms operate, the increasing syndication of their debt, the direct participation in these deals by your banking buddies, the way in which they leverage their prey to the hilt, pay off the people running the businesses and use the debt to enrich themselves is a disgrace. They are creating hollow shells of companies saddled with debt while they milk them for every ounce of hard cash they can. Sooner or later something is bound to implode. If easy money dries up Wall Street is sure to not be generous in putting these companies back on the block to investors with negative net worth as they have done recently. In addition to all this, there is the tremendous growth of a previously little known industry in trading Credit Derivative products that is making the distinction between the lender and investor murky and the balloon of these products has created a false sense that somehow $30 trillion of debt can somehow be “insured” against loss by these products.
And what are you doing? Spending time trying to pluck the “thorn” out of your buddies and do away with Sarbanes-Oxley.
Just a note, I was fortunate when the bubble burst in 2000 this time. Call me lucky or smart but in March 2000 I stepped into the office of a local bank branch where I had some money invested in bonds and bought as much Phillip Morris (Altria) as I had money in the bank. The stock tippled while the market tanked and although I lost allot of money when the tech bubble burst, I did not “loose”.
I am smart enough to know when your buddies have gone to far and they are getting close again. Your only value to your position is having a good Rolodex to make calls when time comes to put some serious cash on the table. Ask Mr. Greenspan about that.
As I have no influence on whether you keep your job or not, I implore you to find it within yourself to leave the Sarbanes-Oxley Act alone and DO YOUR JOB. The American Citizen depends on you more than ever.
Sincerely,
Friday, December 08, 2006
The Clock is Ticking
It has happened in a record way. A hedge fund has raised $2 billion from every day investors. Yep, I have said it a million times, once the hedge fund pirates find a way to tap into the average investors pockets the party is over.
What did Marshall Wace do exactly? Well they created a company that does absolutely nothing. Raised $2 Billion (1.5 Billion Euros) from average stock investors through a public offering, took 1% for themselves for the party, then doled out all the money to their own hedge funds.
What do their own hedge funds do? Who cares. They beat the market last year so that is all that matters right?
Read it here: http://www.bloomberg.com/apps/news?pid=20601087&sid=aAa0mAF57TTs&refer=home#
At about the same time a company called Citadel Investment Group LLC, a Chicago-based hedge fund controlled by Kenneth Griffin, sold $500 million of five-year notes in the first-ever sale of bonds by a hedge fund.
Did you read that last part, yea, the first-ever sale of bonds by a hedge fund. Can you guess who bought those bonds?
I hope you don't have a pension fund with money in the global pyramid scheme called "hedge funds" because the clock is ticking and when the music stops there are going to be some people with nowhere to put their ass.
Then of course the US government will "hold hearings" on what happened. Of course no person will be fired at the SEC, they will likely get an officer from Morgan Stanley to "fix the mess" cause the thousand or so attorneys they have working there are complete worthless idiots who could not find their way out of a monopoly game.
What did Marshall Wace do exactly? Well they created a company that does absolutely nothing. Raised $2 Billion (1.5 Billion Euros) from average stock investors through a public offering, took 1% for themselves for the party, then doled out all the money to their own hedge funds.
What do their own hedge funds do? Who cares. They beat the market last year so that is all that matters right?
Read it here: http://www.bloomberg.com/apps/news?pid=20601087&sid=aAa0mAF57TTs&refer=home#
At about the same time a company called Citadel Investment Group LLC, a Chicago-based hedge fund controlled by Kenneth Griffin, sold $500 million of five-year notes in the first-ever sale of bonds by a hedge fund.
Did you read that last part, yea, the first-ever sale of bonds by a hedge fund. Can you guess who bought those bonds?
I hope you don't have a pension fund with money in the global pyramid scheme called "hedge funds" because the clock is ticking and when the music stops there are going to be some people with nowhere to put their ass.
Then of course the US government will "hold hearings" on what happened. Of course no person will be fired at the SEC, they will likely get an officer from Morgan Stanley to "fix the mess" cause the thousand or so attorneys they have working there are complete worthless idiots who could not find their way out of a monopoly game.
Sunday, September 03, 2006
Trickle Down or Else (part 3) Where is Your Pension Money?
I read an article a couple days ago that was titled “Private Equity Woos Top Talent” published in the Financial Times. Two years ago there were articles about Hedge Funds wooing top talent from none other than Private Equity. Where is Private Equity getting it’s talent? Public companies. There is a brain drain going on now in public companies. We have the Hedge Fund industry taking stakes in public companies then unseating boards and replacing them with their own people. We have the Private Equity companies doing wholesale buyouts of public companies and once again replacing the public company’s boards with their own people. At the same time we have an aging baby boomer population in retirement age and not nearly enough mid and upper level management with the appropriate skills and experience in the marketplace to take all of these “new” positions.
If you were an executive of a public company in the US and Private Equity was willing to suck you in to the world of unregulated finance, highly leveraged companies with huge cash payouts to the takeover groups heads, salaries and compensation not scrutinized by elected boards and nosey share holders, no need to comply with regulations when signing off on company financials, wouldn’t you take it?
So where are these Private Equity funds getting much of their financing? You would never guess, the American taxpayer, worker, teacher, fireman: in other words the average public servant. Yep, that is exactly where they are getting lots of money, these people’s pension funds. According to an article in the FT published 28 August entitled “How US public funds fuel Private Equity”,
The public funds charged with securing the future of America’s pensioners are a crucial driver of the current boom in the private-equity industry. By channeling an increasing portion of the nation’s retirement pool into buy-out funds, the public custodians are feeding the cycle of takeovers, restructurings and sell-offs that define private equity.
“We are the big bucks now,” says Jay Fewel, an Oregonian who has been running the private-equity division of his state’s investment office since 1989. This year, Mr. Fewel has already made commitments worth $3.5bn to buy-out firms.
Pension funds in the US are slowly but steadily disappearing. The pension reform bill passed by the corporate government of the US all but spells out how to do away with the system all together while doing nothing to shore up the existing nearly bankrupt Pension Guarantee obligations of the US Government. As airlines and auto industries amongst others have been reeling from the fallout of exorbitant oil prices, the US Government has been impotent in figuring out how to divert some of the completely ridiculous profits being made by oil companies into shoring up the pension systems that have been dumped on them by industries directly affected by the rising energy prices.
At the same time, Private Equity funds are raking in money form the more secure forms of pension systems, the ones financed by the public servants and workers of stable industries.
This is dangerous for more reasons than I care to mention here, suffice to say, Bush failed to put the entire Social Security system in the hands of corporate raiders and other financial criminals but the retirement system now called Pensions has already handed over much of the cash and they will go down with the ship when these crooks over leverage themselves to the point where their little unregulated empires collapse. Of course, there will be no legal ramifications since they are not public companies and hold no legal obligation to anyone and will simply state they are failed businesses and no person ever went to jail for simply failing in business. As stated in the same article:
Recourse to legal action, so often used by corporate America when business deals go sour, is rarely open to participants in private-equity funds, because the limited legal liability significantly curbs their chances of winning in court.
Indeed, the power of investors in private-equity funds is very limited and has been shrinking further of late, according to industry participants. With investors eager to offer capital to their funds, private-equity managers have begun imposing tougher conditions on public pension funds.
Lawyers say that private-equity firms have been demanding stricter rules to prevent public funds revealing details of their investments and performance. At the same time, they have fought demands for greater accountability and transparency.
There will be no turning back the billions of dollars they have made in the process of crippling the companies they manage by issuing debt and raiding the corporate coffers either. Only the Pension Funds that have poured money into them will be reeling from the loss of their investments and screaming at the Federal Government Pension Guarantee system to bail them out.
Everyone will be scratching their head saying how did these “secure” pension systems go bankrupt? Suffice to say for now, this is not on anyone’s radar.
A final note from the desk of reality:
“Clearly they (public equity executives) are in a different economic stratum: they have limousines waiting to pick them up from meetings – and we cringe at paying three bucks for our lattes,” says Ron Schmitz, Oregon’s tall, heavy-set chief investment officer. “They are pretty good about not rubbing it in and we do get treated like peers,” adds Mr. Schmitz, who took the post in 2003 after running funds for Illinois and Blue Cross/Blue Shield, the health insurer.
According to one private-equity headhunter, the entire budget of Oregon’s investment office is at the lower end of what a senior partner at a large buy-out shop might expect to make in a year – even before any share of the profit from deals is doled out.
If you were an executive of a public company in the US and Private Equity was willing to suck you in to the world of unregulated finance, highly leveraged companies with huge cash payouts to the takeover groups heads, salaries and compensation not scrutinized by elected boards and nosey share holders, no need to comply with regulations when signing off on company financials, wouldn’t you take it?
So where are these Private Equity funds getting much of their financing? You would never guess, the American taxpayer, worker, teacher, fireman: in other words the average public servant. Yep, that is exactly where they are getting lots of money, these people’s pension funds. According to an article in the FT published 28 August entitled “How US public funds fuel Private Equity”,
The public funds charged with securing the future of America’s pensioners are a crucial driver of the current boom in the private-equity industry. By channeling an increasing portion of the nation’s retirement pool into buy-out funds, the public custodians are feeding the cycle of takeovers, restructurings and sell-offs that define private equity.
“We are the big bucks now,” says Jay Fewel, an Oregonian who has been running the private-equity division of his state’s investment office since 1989. This year, Mr. Fewel has already made commitments worth $3.5bn to buy-out firms.
Pension funds in the US are slowly but steadily disappearing. The pension reform bill passed by the corporate government of the US all but spells out how to do away with the system all together while doing nothing to shore up the existing nearly bankrupt Pension Guarantee obligations of the US Government. As airlines and auto industries amongst others have been reeling from the fallout of exorbitant oil prices, the US Government has been impotent in figuring out how to divert some of the completely ridiculous profits being made by oil companies into shoring up the pension systems that have been dumped on them by industries directly affected by the rising energy prices.
At the same time, Private Equity funds are raking in money form the more secure forms of pension systems, the ones financed by the public servants and workers of stable industries.
This is dangerous for more reasons than I care to mention here, suffice to say, Bush failed to put the entire Social Security system in the hands of corporate raiders and other financial criminals but the retirement system now called Pensions has already handed over much of the cash and they will go down with the ship when these crooks over leverage themselves to the point where their little unregulated empires collapse. Of course, there will be no legal ramifications since they are not public companies and hold no legal obligation to anyone and will simply state they are failed businesses and no person ever went to jail for simply failing in business. As stated in the same article:
Recourse to legal action, so often used by corporate America when business deals go sour, is rarely open to participants in private-equity funds, because the limited legal liability significantly curbs their chances of winning in court.
Indeed, the power of investors in private-equity funds is very limited and has been shrinking further of late, according to industry participants. With investors eager to offer capital to their funds, private-equity managers have begun imposing tougher conditions on public pension funds.
Lawyers say that private-equity firms have been demanding stricter rules to prevent public funds revealing details of their investments and performance. At the same time, they have fought demands for greater accountability and transparency.
There will be no turning back the billions of dollars they have made in the process of crippling the companies they manage by issuing debt and raiding the corporate coffers either. Only the Pension Funds that have poured money into them will be reeling from the loss of their investments and screaming at the Federal Government Pension Guarantee system to bail them out.
Everyone will be scratching their head saying how did these “secure” pension systems go bankrupt? Suffice to say for now, this is not on anyone’s radar.
A final note from the desk of reality:
“Clearly they (public equity executives) are in a different economic stratum: they have limousines waiting to pick them up from meetings – and we cringe at paying three bucks for our lattes,” says Ron Schmitz, Oregon’s tall, heavy-set chief investment officer. “They are pretty good about not rubbing it in and we do get treated like peers,” adds Mr. Schmitz, who took the post in 2003 after running funds for Illinois and Blue Cross/Blue Shield, the health insurer.
According to one private-equity headhunter, the entire budget of Oregon’s investment office is at the lower end of what a senior partner at a large buy-out shop might expect to make in a year – even before any share of the profit from deals is doled out.
Sunday, August 27, 2006
Trickle Down or Else (Part 2) The Media Pigs
Read this article today from the Chicago Tribune written by Gail MarksJarvis. It was about Pension Reform. She writes about the archaic new law, how it's difficult to decipher for accountants, even more so for employees, how it is likely to put a stop to many pension programs, and how it is going to pinch S&P 500 companies and their stockholders.
Nowhere in her article does she talk about "reality". How the S&P 500 companies are more cash rich than any time in history, how executives running these companies are literally becoming filthy rich off their rich salaries and options grants (many of them illegally issued to time market prices) and how the S&P 500 companies have used record amounts of cash to buy back record amounts of stock over the past 2 years.
So I had to write her a little letter which is spelled out below. Just another Pig in the media frothing at the mouth while licking the asses of corporate America...
Hello Gail,
I read your article about the pending need to shore up pension obligations by as many as 1/5 of the S&P 500 companies.
I get exceeding frustrated by articles that do not paint a complete picture of reality when dealing with issues like pensions.
Does every business journalist go to a school that teaches "pensions are bad and should be reported as a burden to corporate America" at all times?
Does anyone ever think about good pensions may = happy employees who are more productive and better employees because they feel more secure about their future and happy to work for a company that is helping them with their retirement? (especially since their "government" is in the process of raiding their treasury) This attitude could go a long way to change the reporting slant on issues like pensions.
Additionally, I am amazed that your article completely ignores another exceptional reality of the cash flows of the S&P 500 companies over the last couple of years, that more cash than any time in history is in the bank accounts of S&P 500 companies and more of these companies are spending records amounts of their money from these inflated bank accounts to buy back their own stock.
Here are some figures:
The companies in the S&P 500 (excluding financial, transportation & utilities) in the US have over $640 billion in cash on hand. Yep. This is a number beyond anything seen in modern times. Why the article I read did not include the financials, transportation & utilities I don't know (suffice to say there is at least another $250 billion there).
Mind you these companies spent more than $500 billion in the past 6 quarters (year and a half) buying back their own stock. That is $500 billion spent buying back their stock! Now allot of these stock buy backs simply buy back the options they have awarded to their corporate officers. Their officers have seen this enormous build up of cash. They want to get their hands on it. In fact there should be no surprise the SEC is investigating a widespread practice of illegally backdating stock options to lock in low prices so when executives cash out they make more money.
Did you get that part about buying back stock to PAY THEIR OFFICERS for their rich manipulated stock option grants? I mean, who gives a damn about the American Citizen / worker anyway?
What exactly is wrong with America and the "reporting" that goes on? For starters we have a "corporate government" and "corporate media" who no longer sees the American citizen as a person but a consumer and employee. There is no longer any institution left to protect the American Citizen and you people in the media have been brought up with a mindset that is so twisted you should all be sent to a small village somewhere in the Andes Mountains and learn what is important in life before you are allowed to write shallow, twisted and one-sided articles like yours on Pension Reform.
Sincerely,
Nowhere in her article does she talk about "reality". How the S&P 500 companies are more cash rich than any time in history, how executives running these companies are literally becoming filthy rich off their rich salaries and options grants (many of them illegally issued to time market prices) and how the S&P 500 companies have used record amounts of cash to buy back record amounts of stock over the past 2 years.
So I had to write her a little letter which is spelled out below. Just another Pig in the media frothing at the mouth while licking the asses of corporate America...
Hello Gail,
I read your article about the pending need to shore up pension obligations by as many as 1/5 of the S&P 500 companies.
I get exceeding frustrated by articles that do not paint a complete picture of reality when dealing with issues like pensions.
Does every business journalist go to a school that teaches "pensions are bad and should be reported as a burden to corporate America" at all times?
Does anyone ever think about good pensions may = happy employees who are more productive and better employees because they feel more secure about their future and happy to work for a company that is helping them with their retirement? (especially since their "government" is in the process of raiding their treasury) This attitude could go a long way to change the reporting slant on issues like pensions.
Additionally, I am amazed that your article completely ignores another exceptional reality of the cash flows of the S&P 500 companies over the last couple of years, that more cash than any time in history is in the bank accounts of S&P 500 companies and more of these companies are spending records amounts of their money from these inflated bank accounts to buy back their own stock.
Here are some figures:
The companies in the S&P 500 (excluding financial, transportation & utilities) in the US have over $640 billion in cash on hand. Yep. This is a number beyond anything seen in modern times. Why the article I read did not include the financials, transportation & utilities I don't know (suffice to say there is at least another $250 billion there).
Mind you these companies spent more than $500 billion in the past 6 quarters (year and a half) buying back their own stock. That is $500 billion spent buying back their stock! Now allot of these stock buy backs simply buy back the options they have awarded to their corporate officers. Their officers have seen this enormous build up of cash. They want to get their hands on it. In fact there should be no surprise the SEC is investigating a widespread practice of illegally backdating stock options to lock in low prices so when executives cash out they make more money.
Did you get that part about buying back stock to PAY THEIR OFFICERS for their rich manipulated stock option grants? I mean, who gives a damn about the American Citizen / worker anyway?
What exactly is wrong with America and the "reporting" that goes on? For starters we have a "corporate government" and "corporate media" who no longer sees the American citizen as a person but a consumer and employee. There is no longer any institution left to protect the American Citizen and you people in the media have been brought up with a mindset that is so twisted you should all be sent to a small village somewhere in the Andes Mountains and learn what is important in life before you are allowed to write shallow, twisted and one-sided articles like yours on Pension Reform.
Sincerely,
Thursday, August 17, 2006
Firing Squad
This was the opening sentence of an article by Andy Webb-Vidal in the FT today,
“Bankers traditionally face firing squads in times of revolution.”
Coincidentally, I received another offer to open a new credit card account by none other than a bank, Washington Mutual. Now I opened this offer since I know this bank. What I found is enough to make me want to stage a revolution.
For any of you clueless wonders of the American public who thinks your government is full of a bunch of “do gooders” as opposed to “evil doers”, you need not read on. For the rest of you, you may be familiar with the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005’’. Note in this title the portion called “Consumer Protection Act”. Well let me tell you, that is a distinct testament to our spineless, impotent legislative branch watering down a title to make citizens “consumers” think this 195 page act has something to do with protecting them. Nothing can be further from the truth. The only “protection” enhanced by this act is to set aside some rules about the accidental dumping of personal data in the public domain and some watered down requirement they send some bull shit pamphlet disclosing how the credit card companies are going to fuck the consumer by sharing their information with anyone and everyone who is willing and able to pay for it.
Anyway, I got my pamphlet late in 2005 telling me I had given up my rights to sue the credit card companies, that I could be charged any damn fee they want to charge for whatever damn thing they feel compelled to charge me for and that I could not be screwed many more times than previously possible by the credit card company.
I have been surprised by the boldness of the credit card companies offers now. This is the Washington Mutual “offer” for credit.
Interest: 9.99-19.99%
Now what exactly does this mean? Before the Bankruptcy law the interest rate was set. There was a real rate and a real index if variable. (Most were not.) However, terms are now spelled out in a way that allow credit card issuers to bull shit you and be vague as possible about what they are offering.
This is what they say about the interest rate:
“...will depend on Washington Mutual's evaluation of your application and credit history”
What BS! They would not be sending this shit to you if they did not know your credit history!!!
Other APR’s: Cash Advance 23.99%
Default APR: Prime rate plus 23.74%, currently 31.74% !
I love this one. Somewhere there has been a complete destruction of any kind of Usury Laws in the US. I am waiting for the return of “debtors prison”. If you don’t know what this is you really should look it up and learn NOW because this is what we are returning to. Anyway, that is 31.74%! What bank on the planet needs to earn 31.74% on a damn loan when the inflation is currently running about 6% (including energy and food, 2 things our government conveniently leaves out when advertising the inflation rate in the country, another evil and deceiving thing your evil doer government does) and the cost of money in the average savings account in the US is under 2% (not including money market accounts).
I love this: For every purchase outside of US border you will pay them 1% of the transaction. It’s back to travelers checks for me. They can be had for no fee now that people don’t need them.
What I really love about the Default APR is the myriad number of ways the bank can impose this fee. See this text from their “offer”.
Each time you default on this or any Washington Mutual credit card account because you fail to make at least the minimum payment when due, exceed your credit line, make a payment to us that is not honored by your bank, or are reported as delinquent on an account with any other creditor, we may increase the APRs on your account up to a maximum of the Default APR.
Yes, that is any time you default on any WM credit card but also if you are reported “delinquent on an account with ANY OTHER creditor”. Now isn’t that a gas? Tell me these people don’t know your credit history before they send you one of these offers.
Don’t forget, the enticement to transfer that balance from another credit card will cost you 3% of the transfer or $75 maximum. So if you are transferring $7500.00 you are paying 1% again to transfer the balance. Anything up to $2500 is costing you 3% off the top so better figure out what you are really saving if you are getting some interest free months to pay off that debt because you may find you are not saving what you thought.
We live in a capitalist economy where our government has confused the separation of government and economy. There is no longer a separation in the US. We don’t really have Democrat or Republican parties, we have a capitalist party government. It is a one party government not unlike a communist party government and there are no longer any choices to what kind of governance you have. If you are not a capitalist in the US, especially a right wing capitalist under Bush, you are not fit to work in his government nor contract with his government, nor live with the fear you will be followed and harassed by his government.
What does this sound like to you?
Finally, the last paragraph of Andy Webb-Vidal’s article sums up the lack of controls on anything companies (super citizens) can do in the US, “In a socialist economy you assign resources as a result of the will of who governs, but in a capitalist economy resources are assigned as a result of risk analysis.” Well, in the case of American capitalists, you assess risk then multiply by three then get the government to back you up while you screw the citizens with the judicial branch behind you.
Just a final note:
Last year, penalty fees alone (issued by credit card issuers, banks) generated $12 billion in revenue. "Banks [are] raising interest rates, adding new fees, making the due date for your payment a holiday or a Sunday on the hopes that maybe you'll trip up and get a payment in late," said Mr. McKinley.
So not only do you multiply by 3 but you add in a moving target!
“Bankers traditionally face firing squads in times of revolution.”
Coincidentally, I received another offer to open a new credit card account by none other than a bank, Washington Mutual. Now I opened this offer since I know this bank. What I found is enough to make me want to stage a revolution.
For any of you clueless wonders of the American public who thinks your government is full of a bunch of “do gooders” as opposed to “evil doers”, you need not read on. For the rest of you, you may be familiar with the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005’’. Note in this title the portion called “Consumer Protection Act”. Well let me tell you, that is a distinct testament to our spineless, impotent legislative branch watering down a title to make citizens “consumers” think this 195 page act has something to do with protecting them. Nothing can be further from the truth. The only “protection” enhanced by this act is to set aside some rules about the accidental dumping of personal data in the public domain and some watered down requirement they send some bull shit pamphlet disclosing how the credit card companies are going to fuck the consumer by sharing their information with anyone and everyone who is willing and able to pay for it.
Anyway, I got my pamphlet late in 2005 telling me I had given up my rights to sue the credit card companies, that I could be charged any damn fee they want to charge for whatever damn thing they feel compelled to charge me for and that I could not be screwed many more times than previously possible by the credit card company.
I have been surprised by the boldness of the credit card companies offers now. This is the Washington Mutual “offer” for credit.
Interest: 9.99-19.99%
Now what exactly does this mean? Before the Bankruptcy law the interest rate was set. There was a real rate and a real index if variable. (Most were not.) However, terms are now spelled out in a way that allow credit card issuers to bull shit you and be vague as possible about what they are offering.
This is what they say about the interest rate:
“...will depend on Washington Mutual's evaluation of your application and credit history”
What BS! They would not be sending this shit to you if they did not know your credit history!!!
Other APR’s: Cash Advance 23.99%
Default APR: Prime rate plus 23.74%, currently 31.74% !
I love this one. Somewhere there has been a complete destruction of any kind of Usury Laws in the US. I am waiting for the return of “debtors prison”. If you don’t know what this is you really should look it up and learn NOW because this is what we are returning to. Anyway, that is 31.74%! What bank on the planet needs to earn 31.74% on a damn loan when the inflation is currently running about 6% (including energy and food, 2 things our government conveniently leaves out when advertising the inflation rate in the country, another evil and deceiving thing your evil doer government does) and the cost of money in the average savings account in the US is under 2% (not including money market accounts).
I love this: For every purchase outside of US border you will pay them 1% of the transaction. It’s back to travelers checks for me. They can be had for no fee now that people don’t need them.
What I really love about the Default APR is the myriad number of ways the bank can impose this fee. See this text from their “offer”.
Each time you default on this or any Washington Mutual credit card account because you fail to make at least the minimum payment when due, exceed your credit line, make a payment to us that is not honored by your bank, or are reported as delinquent on an account with any other creditor, we may increase the APRs on your account up to a maximum of the Default APR.
Yes, that is any time you default on any WM credit card but also if you are reported “delinquent on an account with ANY OTHER creditor”. Now isn’t that a gas? Tell me these people don’t know your credit history before they send you one of these offers.
Don’t forget, the enticement to transfer that balance from another credit card will cost you 3% of the transfer or $75 maximum. So if you are transferring $7500.00 you are paying 1% again to transfer the balance. Anything up to $2500 is costing you 3% off the top so better figure out what you are really saving if you are getting some interest free months to pay off that debt because you may find you are not saving what you thought.
We live in a capitalist economy where our government has confused the separation of government and economy. There is no longer a separation in the US. We don’t really have Democrat or Republican parties, we have a capitalist party government. It is a one party government not unlike a communist party government and there are no longer any choices to what kind of governance you have. If you are not a capitalist in the US, especially a right wing capitalist under Bush, you are not fit to work in his government nor contract with his government, nor live with the fear you will be followed and harassed by his government.
What does this sound like to you?
Finally, the last paragraph of Andy Webb-Vidal’s article sums up the lack of controls on anything companies (super citizens) can do in the US, “In a socialist economy you assign resources as a result of the will of who governs, but in a capitalist economy resources are assigned as a result of risk analysis.” Well, in the case of American capitalists, you assess risk then multiply by three then get the government to back you up while you screw the citizens with the judicial branch behind you.
Just a final note:
Last year, penalty fees alone (issued by credit card issuers, banks) generated $12 billion in revenue. "Banks [are] raising interest rates, adding new fees, making the due date for your payment a holiday or a Sunday on the hopes that maybe you'll trip up and get a payment in late," said Mr. McKinley.
So not only do you multiply by 3 but you add in a moving target!
Wednesday, August 16, 2006
Private Equity Update
So far in 2006 there have been 660 takeovers in the U.S. by private equity firms, according to TrimTabs Investment Research in Santa Rosa, California, and Bloomberg data.
Uh, did that say 660? This poses an interesting dilemma. Is the stock market as we know it dead?
Every day I read about Private Equity and Hedge Funds. Hedge Funds now account for at least 25% of the daily volume on the stock exchanges. They often carry a heavy stick buying substantial stakes in companies then forcing boardroom shuffles and drastic actions by the companies they target. Then there are the Private Equity Funds raising billions of dollars at a time and looking for companies to buy out, leverage and soak for cash.
It seems the big money is getting directly in the game. Why buy stock in a company that has a 5-10% return on equity a year as a public firm when you can take it private, hack it to death and rape it for 30% up front then spit it back out later if you care to?
What does this mean for the average investor? Well, lets say for the past couple of years the stock market has been stagnate after a short recovery from the crash of 2000-2001. The average Joe is working his but off to make a few percentage points from the market and if he is not awake he can have losses on the books rapidly.
For the “special” money investor, they can play the Hedge Fund industry and pay unregulated managers to do whatever necessary to rake out a higher return than the average Joe. This means heavy trading, shorting and raiding companies or trading derivative products not understandable or accessible to the average Joe in efforts to make a profit.
Or they can dump a few million in a Private Equity Fund and go along for the ride leveraging balance sheets to buy out firms and raking them for cash to show high returns.
I am reminded of the late 1990’s when it became obvious that the US Legislative Branch Government had also become irrelevant. The congress and senate became tabloid news creators falling over themselves to “dirt out” one of their opponents while the world around them spun at ever faster speeds. All the engineers dumped on the street after the cold war ended fed the technological revolution and internet phenomena. Meanwhile, the international political vacuum created by the end of the cold war was completely ignored by the idiots, many of which would stand up and brag they did not own an passport, while the international business groups were going gangbusters in the newly created “markets” of eastern Europe and Asia.
By 2001 America had a wake up call on the international soup of shit that was being dumped on the developing world and to this day the impotent idiots that make up the government (X the right wing evangelical war lords of the White House) have not figured out a damn thing. They are hell bent to knee jerk reactions to every situation, cannot think beyond their noses and are bought hook line and sinker by industry. So the US is now being governed by paranoid idiots and right wing zealots.
Back to the stock market. If the stock market as we have known it since the early 20th century is truly becoming irrelevant to anyone with real money then are we seeing the internet trading companies and news junk blasted by dozens of info.net organizations as nothing more than a way to suck money from the suckers who have visions of 20th century stock traders that could make money in “the market”?
This is a real question to ponder and one to take very seriously as the “investment community” evolves.
As is true in the world of economics “bad money drives out good” could mean an end to the relevance of the “good’ol market” and a new dominance of “new money schemes” that I have said many times over are heading for a fall in the not to distant future. It will be not till then that our impotent government full of knee jerk idiots will wake up and realize the future of the average Joe has been stolen from him just like Daddy Bush had raided the treasury and stolen our citizens future security.
Uh, did that say 660? This poses an interesting dilemma. Is the stock market as we know it dead?
Every day I read about Private Equity and Hedge Funds. Hedge Funds now account for at least 25% of the daily volume on the stock exchanges. They often carry a heavy stick buying substantial stakes in companies then forcing boardroom shuffles and drastic actions by the companies they target. Then there are the Private Equity Funds raising billions of dollars at a time and looking for companies to buy out, leverage and soak for cash.
It seems the big money is getting directly in the game. Why buy stock in a company that has a 5-10% return on equity a year as a public firm when you can take it private, hack it to death and rape it for 30% up front then spit it back out later if you care to?
What does this mean for the average investor? Well, lets say for the past couple of years the stock market has been stagnate after a short recovery from the crash of 2000-2001. The average Joe is working his but off to make a few percentage points from the market and if he is not awake he can have losses on the books rapidly.
For the “special” money investor, they can play the Hedge Fund industry and pay unregulated managers to do whatever necessary to rake out a higher return than the average Joe. This means heavy trading, shorting and raiding companies or trading derivative products not understandable or accessible to the average Joe in efforts to make a profit.
Or they can dump a few million in a Private Equity Fund and go along for the ride leveraging balance sheets to buy out firms and raking them for cash to show high returns.
I am reminded of the late 1990’s when it became obvious that the US Legislative Branch Government had also become irrelevant. The congress and senate became tabloid news creators falling over themselves to “dirt out” one of their opponents while the world around them spun at ever faster speeds. All the engineers dumped on the street after the cold war ended fed the technological revolution and internet phenomena. Meanwhile, the international political vacuum created by the end of the cold war was completely ignored by the idiots, many of which would stand up and brag they did not own an passport, while the international business groups were going gangbusters in the newly created “markets” of eastern Europe and Asia.
By 2001 America had a wake up call on the international soup of shit that was being dumped on the developing world and to this day the impotent idiots that make up the government (X the right wing evangelical war lords of the White House) have not figured out a damn thing. They are hell bent to knee jerk reactions to every situation, cannot think beyond their noses and are bought hook line and sinker by industry. So the US is now being governed by paranoid idiots and right wing zealots.
Back to the stock market. If the stock market as we have known it since the early 20th century is truly becoming irrelevant to anyone with real money then are we seeing the internet trading companies and news junk blasted by dozens of info.net organizations as nothing more than a way to suck money from the suckers who have visions of 20th century stock traders that could make money in “the market”?
This is a real question to ponder and one to take very seriously as the “investment community” evolves.
As is true in the world of economics “bad money drives out good” could mean an end to the relevance of the “good’ol market” and a new dominance of “new money schemes” that I have said many times over are heading for a fall in the not to distant future. It will be not till then that our impotent government full of knee jerk idiots will wake up and realize the future of the average Joe has been stolen from him just like Daddy Bush had raided the treasury and stolen our citizens future security.
Sunday, July 30, 2006
Man Group to bypass Exchanges...
Man Group? Who is this you ask? From the Horses mouth:
Man Group plc is a leading global provider of alternative investment products and solutions as well as one of the world's largest futures brokers.
Man Investments is a global leader in alternative investments. It has spent two decades understanding investor requirements, identifying opportunities, and developing leading edge products and tailor-made solutions for private and institutional investors. Each of Man’s core investment managers – AHL, Glenwood, Man Global Strategies and RMF – has distinct expertise in one or more alternative asset classes: hedge funds, leveraged finance and convertible bonds. Man continues to explore opportunities across the alternative investment spectrum in order to enhance its client offerings. Hedge funds are the cornerstone of the business, and Man offers a range of risk/reward profiles through its funds of hedge funds, structured, style products and single manager products. Man Investments manages around $54 billion (as at 1 June 2006) and has a powerful global distribution network.
In the hedge fund asset class, which is the major part of the business today, Man offers funds of hedge funds, structured, style and single manager products. Its track record stretches back two decades and defines the standard for excellence in an industry whose central goal is to provide diversification away from traditional equity and bond investments. Man has a powerful global presence and an extensive network of distribution partners.
Man Financial, the Brokerage division, is one of the world's leading providers of brokerage services. It acts as a broker of futures, options and other equity derivatives for both institutional and private clients and an intermediary in the world's metals, energy and foreign exchange markets with offices in key centres. Man has consistently achieved a leading position on the world's largest futures and options exchanges, with particular strengths in financial futures and the energy markets.
OK, if you don't get the definition work on it. This is one of the largest Hedge Funds on the planet and they are involved in everything. They purchased Refco, the collapsed futures broker in 2005 and have since rebuilt that business substantially. Their portfolio is thus:
Funds under management of $26.1 billion at 31 March 2003, including
$11.1 billion in RMF , which was acquired on 30 May 2002. Excluding
RMF, funds under management were $15.0 billion, up 40% from last year
So what is all the boring detail about? They just nabbed 70% of Eurex US, a really bad name chosen by Deutsche Borse when they tried to create a competitive futures exchange to the CBOT in 2004.
Why is this an issue? Simple, Man will be looking for equity partners from their brethren to join them in essentially doing something quite original; Bypassing the CBOT in the trading of their products.
I am no genius in this area but I smell a big fish. You will have a huge unregulated industry (Hedge Funds) creating its own trading floor to trade its own products.
Grabbing more retail clients and more money is the easy part, avoiding the balance sheet and position limit restrictions that apply in over-the-counter derivatives trading is the hard part. Now it is done.
Who is going to regulate this activity? How in the regulation field has the resources to understand and keep up with this industry? The SEC in the US was just told by US courts to back off the Hedge Fund industry so they are not even allowed to require Hedge Funds to register existence!
Now the Hedge Fund industry is going to MAKE THE RULES for it's own trading in "products" that few outside the industry understand, even fewer understand the implications of failures in this industry and even fewer still have any ability to set limits on what this industry has the capability to do.
Just a note: Notice there is no national orientation mentioned in it's self made description except to note it's primary listing on the London Stock Exchange. Also, note the repeated use of the word "world's" and the reference to "global". These organizations that control about $1.5 trillion (no one actually knows) have NO ALLEGIENCE TO ANY NATION OR CITIZEN other than making money, as much as possible, for the wealthy clients who are allowed by various governments to invest in them.
Man Group plc is a leading global provider of alternative investment products and solutions as well as one of the world's largest futures brokers.
Man Investments is a global leader in alternative investments. It has spent two decades understanding investor requirements, identifying opportunities, and developing leading edge products and tailor-made solutions for private and institutional investors. Each of Man’s core investment managers – AHL, Glenwood, Man Global Strategies and RMF – has distinct expertise in one or more alternative asset classes: hedge funds, leveraged finance and convertible bonds. Man continues to explore opportunities across the alternative investment spectrum in order to enhance its client offerings. Hedge funds are the cornerstone of the business, and Man offers a range of risk/reward profiles through its funds of hedge funds, structured, style products and single manager products. Man Investments manages around $54 billion (as at 1 June 2006) and has a powerful global distribution network.
In the hedge fund asset class, which is the major part of the business today, Man offers funds of hedge funds, structured, style and single manager products. Its track record stretches back two decades and defines the standard for excellence in an industry whose central goal is to provide diversification away from traditional equity and bond investments. Man has a powerful global presence and an extensive network of distribution partners.
Man Financial, the Brokerage division, is one of the world's leading providers of brokerage services. It acts as a broker of futures, options and other equity derivatives for both institutional and private clients and an intermediary in the world's metals, energy and foreign exchange markets with offices in key centres. Man has consistently achieved a leading position on the world's largest futures and options exchanges, with particular strengths in financial futures and the energy markets.
OK, if you don't get the definition work on it. This is one of the largest Hedge Funds on the planet and they are involved in everything. They purchased Refco, the collapsed futures broker in 2005 and have since rebuilt that business substantially. Their portfolio is thus:
Funds under management of $26.1 billion at 31 March 2003, including
$11.1 billion in RMF , which was acquired on 30 May 2002. Excluding
RMF, funds under management were $15.0 billion, up 40% from last year
So what is all the boring detail about? They just nabbed 70% of Eurex US, a really bad name chosen by Deutsche Borse when they tried to create a competitive futures exchange to the CBOT in 2004.
Why is this an issue? Simple, Man will be looking for equity partners from their brethren to join them in essentially doing something quite original; Bypassing the CBOT in the trading of their products.
I am no genius in this area but I smell a big fish. You will have a huge unregulated industry (Hedge Funds) creating its own trading floor to trade its own products.
Grabbing more retail clients and more money is the easy part, avoiding the balance sheet and position limit restrictions that apply in over-the-counter derivatives trading is the hard part. Now it is done.
Who is going to regulate this activity? How in the regulation field has the resources to understand and keep up with this industry? The SEC in the US was just told by US courts to back off the Hedge Fund industry so they are not even allowed to require Hedge Funds to register existence!
Now the Hedge Fund industry is going to MAKE THE RULES for it's own trading in "products" that few outside the industry understand, even fewer understand the implications of failures in this industry and even fewer still have any ability to set limits on what this industry has the capability to do.
Just a note: Notice there is no national orientation mentioned in it's self made description except to note it's primary listing on the London Stock Exchange. Also, note the repeated use of the word "world's" and the reference to "global". These organizations that control about $1.5 trillion (no one actually knows) have NO ALLEGIENCE TO ANY NATION OR CITIZEN other than making money, as much as possible, for the wealthy clients who are allowed by various governments to invest in them.
Open letter to Anheuser Busch...
I heard on the news recently that you are closing the Rolling Rock Brewery in Latrobe, PA and moving the production to New Jersey.
I know that US manufacturers have been shipping manufacturing jobs overseas for decades to cut production costs. They have effectively convinced our impotent government to create every conceivable piece of legislation to aid in this effort and have sold US citizens on the idea that this is required to compete effectively in the production of goods. Anyone who knows anything about the economics of this argument knows the reality, US companies are interested in producing product as cheaply as possible to improve their bottom line and show their stockholders an increase in profits every quarter. Period. They have no concern for the future of their nation or citizens or any of that jingo flag waiving garbage. They only waive the flag when it suits the sale of another idea to improve their bottom line or to make others look like the “bad guy”.
This is evident today. Our impotent government (driven by corporate created “trade” associations and “think tanks”) points to China as the bad guy (like Japan 25 years ago) because of our huge trade deficit with them while conveniently leaving out the reality that every day hundreds of US companies are hiring China manufacturers to produce their goods so they can import them to the US and elsewhere at cheaper costs. China has never been accused of having innovative original thoughts in today’s modern economic reality. They have a central government policy that requires various jurisdictions around the country to import manufacturing and export goods. That is about the extent of it.
In your case we are talking about BEER, a product made from WATER and under no threat from cheap Chinese imports! Your company does not have to follow the model of other manufacturers. You can produce your product in the US and maintain jobs in areas around the country where products have been produced for decades. But it seams you follow the Coca Cola philosophy. Buy, destroy, replace.
When I was a youngster I went to Latrobe frequently. My mother’s side of the family was from the area. Although I don’t remember anyone working directly for Rolling Rock, I do remember the beer as being a local brew consumed by the local people. I have no idea how widely distributed it was back then but I assume it was not very large. The locals however had stories about their beer, jokes about it and generally treated Rolling Rock as part of their “family”, something that hung through the booming industrial years earlier in the century to the post industrial years and was richly integrated in their society.
When I returned to the Washington, DC area from a four year stint in the USAF in 1987 I went to a restaurant / bar downtown with my friend Joe. The first thing the waitress said as she approached the table was “I am sorry but we are out of Rolling Rock today.” I will never forget that moment. I almost fell out of my chair. Was this the same Rolling Rock I remembered from my child hood days in rural parts of Pennsylvania? I could not believe the beer had become so popular.
In the nearly 20 years since the popularity for the brand has waned in the DC area although it is still widely available. I don’t have any statistics on market share or any other measure of the sales of the brand. However I do know to shut down the plant where the beer has been produced for nearly 70 years is to kill Rolling Rock and all it stands for.
Your company obviously follows the same mentality of other conglomerate manufacturers. You have no affinity for history or tradition. You have no respect for the citizens or workers of America. You have no interest in cultural values or real affiliation with products or brands. Your company is run by number crunchers with blinders and all incentives are tied to the bottom line. Your marketing arm will create the “Anheuser-Busch commercial truth” in all of it’s products and blatantly disregard any true history or affiliation with its products.
American companies don’t understand the damage they have done to their own businesses by removing any pride an American worker can have in the production or consumption of goods. They have destroyed all attachment by citizens to the production process, turned us into consumers of products made in humane less factories in foreign nations run by autocrats, dictators and communists. American conglomerate companies are starting to look like mini Socialist Societies essentially carrying out the dehumanizing aspect of capitalism discussed at length by Karl Marx.
You are missing a major point of society, that human thought is partly determined by social and economic forces, particularly those related to the means of production. You are treading on thin ice and will play an important part in the destruction of your own society. I hope you get very rich very fast and figure out how to convert your mass wealth into something other than dollars because the time is near when the reckless acts of American corporations for the last ½ a century are going to bite all of us in the ass and there will be NOTHING to stop it.
You make BEER. Your main ingredient is WATER. You have taken a product with proud production and rich community history and dehumanized it. You may try to “rehumanize” it through some kind of marketing campaign but you cannot deny the destruction of a social and historically significant part of the lives of the people in the Latrobe Pennsylvania area and the history that made Rolling Rock.
I will go out of my way to never consume a product produced by your company again.
I know that US manufacturers have been shipping manufacturing jobs overseas for decades to cut production costs. They have effectively convinced our impotent government to create every conceivable piece of legislation to aid in this effort and have sold US citizens on the idea that this is required to compete effectively in the production of goods. Anyone who knows anything about the economics of this argument knows the reality, US companies are interested in producing product as cheaply as possible to improve their bottom line and show their stockholders an increase in profits every quarter. Period. They have no concern for the future of their nation or citizens or any of that jingo flag waiving garbage. They only waive the flag when it suits the sale of another idea to improve their bottom line or to make others look like the “bad guy”.
This is evident today. Our impotent government (driven by corporate created “trade” associations and “think tanks”) points to China as the bad guy (like Japan 25 years ago) because of our huge trade deficit with them while conveniently leaving out the reality that every day hundreds of US companies are hiring China manufacturers to produce their goods so they can import them to the US and elsewhere at cheaper costs. China has never been accused of having innovative original thoughts in today’s modern economic reality. They have a central government policy that requires various jurisdictions around the country to import manufacturing and export goods. That is about the extent of it.
In your case we are talking about BEER, a product made from WATER and under no threat from cheap Chinese imports! Your company does not have to follow the model of other manufacturers. You can produce your product in the US and maintain jobs in areas around the country where products have been produced for decades. But it seams you follow the Coca Cola philosophy. Buy, destroy, replace.
When I was a youngster I went to Latrobe frequently. My mother’s side of the family was from the area. Although I don’t remember anyone working directly for Rolling Rock, I do remember the beer as being a local brew consumed by the local people. I have no idea how widely distributed it was back then but I assume it was not very large. The locals however had stories about their beer, jokes about it and generally treated Rolling Rock as part of their “family”, something that hung through the booming industrial years earlier in the century to the post industrial years and was richly integrated in their society.
When I returned to the Washington, DC area from a four year stint in the USAF in 1987 I went to a restaurant / bar downtown with my friend Joe. The first thing the waitress said as she approached the table was “I am sorry but we are out of Rolling Rock today.” I will never forget that moment. I almost fell out of my chair. Was this the same Rolling Rock I remembered from my child hood days in rural parts of Pennsylvania? I could not believe the beer had become so popular.
In the nearly 20 years since the popularity for the brand has waned in the DC area although it is still widely available. I don’t have any statistics on market share or any other measure of the sales of the brand. However I do know to shut down the plant where the beer has been produced for nearly 70 years is to kill Rolling Rock and all it stands for.
Your company obviously follows the same mentality of other conglomerate manufacturers. You have no affinity for history or tradition. You have no respect for the citizens or workers of America. You have no interest in cultural values or real affiliation with products or brands. Your company is run by number crunchers with blinders and all incentives are tied to the bottom line. Your marketing arm will create the “Anheuser-Busch commercial truth” in all of it’s products and blatantly disregard any true history or affiliation with its products.
American companies don’t understand the damage they have done to their own businesses by removing any pride an American worker can have in the production or consumption of goods. They have destroyed all attachment by citizens to the production process, turned us into consumers of products made in humane less factories in foreign nations run by autocrats, dictators and communists. American conglomerate companies are starting to look like mini Socialist Societies essentially carrying out the dehumanizing aspect of capitalism discussed at length by Karl Marx.
You are missing a major point of society, that human thought is partly determined by social and economic forces, particularly those related to the means of production. You are treading on thin ice and will play an important part in the destruction of your own society. I hope you get very rich very fast and figure out how to convert your mass wealth into something other than dollars because the time is near when the reckless acts of American corporations for the last ½ a century are going to bite all of us in the ass and there will be NOTHING to stop it.
You make BEER. Your main ingredient is WATER. You have taken a product with proud production and rich community history and dehumanized it. You may try to “rehumanize” it through some kind of marketing campaign but you cannot deny the destruction of a social and historically significant part of the lives of the people in the Latrobe Pennsylvania area and the history that made Rolling Rock.
I will go out of my way to never consume a product produced by your company again.
Sunday, July 09, 2006
How much is Your Hedge Fund worth?
It seems no one knows. The Wall Street Journal recently reported the industry assets (this is real cash mind you, not the value of their leveraged influence on the financial system) at roughly $2.4 trillion. Then a week later said, "Whoops, we missed the mark." in so many words. The SEC claims $1.2 trillion is closer to reality and the $2.4 trillion total reported previously by the SEC after tallying up some 2500 hedge funds assets came from some "double counting".
OK, so let me get this right. The hedge fund industry has invested $1 trillion dollars in itself! If there is $1.2 trillion dollars in the hedge fund industry but when you count the total dollars that trickle down from hedge fund to hedge fund you get $2.4 trillion something tells me we have a "house of cards". The industry is investing in itself and raking in big fees.
Now the oldest trick on Wall Street is to create a "product" that rises in value faster than the market. Draw in lots of money. Attract the attention of bankers etc. Borrow lots of money. Feed the Lion. Pay out huge rewards to early investors. Run into a "cash squeeze". Default on those loans that helped you to extend the party. Collapse. Don't forget the big one... Leave the founders filthy rich while everyone else scrambles for the crumbs. You might throw an indictment in here and there.
I can rightly say with ease and confidence: Any "industry" that produces nothing tangible and invests some 80% of its money in it's own industry is a scam. Get out now. As I have said before you MAY have till 2008 to party. But as usual everyone will try and scram at the same time and you are likely to get stuck in the door.
OK, so let me get this right. The hedge fund industry has invested $1 trillion dollars in itself! If there is $1.2 trillion dollars in the hedge fund industry but when you count the total dollars that trickle down from hedge fund to hedge fund you get $2.4 trillion something tells me we have a "house of cards". The industry is investing in itself and raking in big fees.
Now the oldest trick on Wall Street is to create a "product" that rises in value faster than the market. Draw in lots of money. Attract the attention of bankers etc. Borrow lots of money. Feed the Lion. Pay out huge rewards to early investors. Run into a "cash squeeze". Default on those loans that helped you to extend the party. Collapse. Don't forget the big one... Leave the founders filthy rich while everyone else scrambles for the crumbs. You might throw an indictment in here and there.
I can rightly say with ease and confidence: Any "industry" that produces nothing tangible and invests some 80% of its money in it's own industry is a scam. Get out now. As I have said before you MAY have till 2008 to party. But as usual everyone will try and scram at the same time and you are likely to get stuck in the door.
Sunday, June 11, 2006
Could Japan be the Canary?
I learned while studying Economics at University that employment at government agencies in Japan was highly sought after by graduates of Japan’s elite universities. There was, as I learned, great respect for professional government bureaucrats and they took their job seriously. This was not something I thought possible after being raised in the US. In the US we have bad government at every level. If anyone questions the fact we are a second world nation with big guns would only have to learn about our system of government and it’s blatant ineptitude and disrespect for it’s citizens.
Because of this, I find what happens in the Japanese financial world intriguing when it comes to regulatory or legal action. I feel when a Japanese government agency like The Securities and Exchange Surveillance Commission (SESC) makes a move it is noteworthy. I learn a great deal about what financial institutions are doing that is illegal by watching how Japan moves to fine or punish them when they have done wrong. I like Japan’s system of censuring businesses for wrong doing by actually shutting them down for probationary periods or all together if they have proven to commit repeated egregious illegal acts.
However, by watching how Japanese companies operate over the years I have also learned that these government agencies operate not strictly on legal means. They operate also in typical Japanese fashion in that they seek to maintain the Japanese status quo and enforce cultural ideology along with or by selectively applying legal rules.
The two high profile individual cases in 2006 have multi faceted reasons behind them. Both are similar in that high profile individually successful business men that have broken all “cultural” and “social” norms on the conduct of business have been taken down in high profile cases based on “legal” circumstances. However, reading about these cases and knowing basic history of Japanese business practice, they have done nothing technically punished in the past. What they have done is broken the “code of conduct” acceptable by the Japanese elite.
There have been cases of selective enforcement of laws in Japan in the past to obtain specific objectives. Notably, the various fines and punishments dished out in February 2002 to halt the ramped short selling in the market (as was the case globally at the time) so the Nikkei index could recover enough by 31 March, the end of the fiscal year in Japan, to keep the books of major banking institutions from becoming technically insolvent. (Banks in Japan show very large proportions of their capital as stock.)
It is a dangerous path the SESC is taking right now. Much has been written on why it took over a dozen years to “fix” the pathetic state of Japanese banking after the collapse of their markets in 1989. Within the last 5 years or so private equity money and hedge funds have commanded enormous amounts of money and are beginning to dictate business decisions around the world. Whether this is right or wrong, Japan’s recent high profile arrests, although obviously done to send a strong message to the world about Japanese tolerance for this new world reality, is more likely to hurt Japan’s capital markets over the long term than help them and could put Japanese finance another 10 years behind the curve if successful.
For now, let’s say, learn what you can from the moves by the SESC for on the flip side, they could open the window into what the world will be dealing with very shortly.
Because of this, I find what happens in the Japanese financial world intriguing when it comes to regulatory or legal action. I feel when a Japanese government agency like The Securities and Exchange Surveillance Commission (SESC) makes a move it is noteworthy. I learn a great deal about what financial institutions are doing that is illegal by watching how Japan moves to fine or punish them when they have done wrong. I like Japan’s system of censuring businesses for wrong doing by actually shutting them down for probationary periods or all together if they have proven to commit repeated egregious illegal acts.
However, by watching how Japanese companies operate over the years I have also learned that these government agencies operate not strictly on legal means. They operate also in typical Japanese fashion in that they seek to maintain the Japanese status quo and enforce cultural ideology along with or by selectively applying legal rules.
The two high profile individual cases in 2006 have multi faceted reasons behind them. Both are similar in that high profile individually successful business men that have broken all “cultural” and “social” norms on the conduct of business have been taken down in high profile cases based on “legal” circumstances. However, reading about these cases and knowing basic history of Japanese business practice, they have done nothing technically punished in the past. What they have done is broken the “code of conduct” acceptable by the Japanese elite.
There have been cases of selective enforcement of laws in Japan in the past to obtain specific objectives. Notably, the various fines and punishments dished out in February 2002 to halt the ramped short selling in the market (as was the case globally at the time) so the Nikkei index could recover enough by 31 March, the end of the fiscal year in Japan, to keep the books of major banking institutions from becoming technically insolvent. (Banks in Japan show very large proportions of their capital as stock.)
It is a dangerous path the SESC is taking right now. Much has been written on why it took over a dozen years to “fix” the pathetic state of Japanese banking after the collapse of their markets in 1989. Within the last 5 years or so private equity money and hedge funds have commanded enormous amounts of money and are beginning to dictate business decisions around the world. Whether this is right or wrong, Japan’s recent high profile arrests, although obviously done to send a strong message to the world about Japanese tolerance for this new world reality, is more likely to hurt Japan’s capital markets over the long term than help them and could put Japanese finance another 10 years behind the curve if successful.
For now, let’s say, learn what you can from the moves by the SESC for on the flip side, they could open the window into what the world will be dealing with very shortly.
Friday, June 09, 2006
Only from an Economist
Interest rates have been rising. The "accommodative" interest rate policy, i.e.; printing piles of money, over the past few years is coming to an end. Like typical human behavior everyone seems to realize this at the same time. Isn't there someone amongst the thousands of money managers that know this is going to happen? Why does it take an economist to explain an elementary concept that has been the wrath of investors since there were investors?
The latest blurb: "Perverse incentives for investment managers may help explain recent lurches in risk aversion and the price of risky assets, such as emerging market debt, the chief economist of the International Monetary Fund suggested on Thursday." (Raghuram Rajan)
We need this guy to tell us that when governments print money like it going out of style it is going to find it's way wherever it can earn the most return. Alas, the financial markets. With over a Trillion Dollars floating around the Hedge Fund Industry these days and every damn one of them trying to beat the market they all end up doing the same thing; looking for the "sweet spot" that has not been discovered by everyone else and buying in.
This practice is not unlike looking for the best beach, one not trampled by hoards of tourists. Now to do this you have to go to far flung places around the globe that are 1) difficult to get to and 2) so remote there are likely to be many hurdles you have to jump through to enjoy your single objective, finding the perfect beach.
These “hurdles” when applied to investment products mean when money managers manage to find their sought after “sweet spot” investment it is very likely the party will not last long. Others will find the same territory even if it is on a slightly different island. Now everyone is finding little quant places to park their money. The only problem is these places are “uninhabited”, which in investment terms means “illiquid”. They may have found the sweet spot but with no one else around when they want to get out there is often not enough “buyers” to allow them to cash in on their great returns while departing.
In addition, since everyone has found their “sweet spot” at about the same time, when everyone tries to get out at the same time to avoid an ensuing storm, there are likely to find all the avenues for departure stuffed with others. The result is most of them get left behind.
This is what we need an economist to explain?
Hedge funds bought into anything and everything they thought would give them an edge. They have to take on exceptional risk to do so. When the tide turns there is simply no quick exit. Markets drop precipitously as there are simply no buyers to sell their positions to. I mean it was they who had all the liquidity. It is easy to buy anything, not so easy to sell.
The lesson is learnt again.
This is why we need lifeguards. If there is no person looking over the beach telling people when the situation is getting dangerous the frolicking money managers will hang around, pour on the tanning lotion and get caught by the ensuing storm.
The latest blurb: "Perverse incentives for investment managers may help explain recent lurches in risk aversion and the price of risky assets, such as emerging market debt, the chief economist of the International Monetary Fund suggested on Thursday." (Raghuram Rajan)
We need this guy to tell us that when governments print money like it going out of style it is going to find it's way wherever it can earn the most return. Alas, the financial markets. With over a Trillion Dollars floating around the Hedge Fund Industry these days and every damn one of them trying to beat the market they all end up doing the same thing; looking for the "sweet spot" that has not been discovered by everyone else and buying in.
This practice is not unlike looking for the best beach, one not trampled by hoards of tourists. Now to do this you have to go to far flung places around the globe that are 1) difficult to get to and 2) so remote there are likely to be many hurdles you have to jump through to enjoy your single objective, finding the perfect beach.
These “hurdles” when applied to investment products mean when money managers manage to find their sought after “sweet spot” investment it is very likely the party will not last long. Others will find the same territory even if it is on a slightly different island. Now everyone is finding little quant places to park their money. The only problem is these places are “uninhabited”, which in investment terms means “illiquid”. They may have found the sweet spot but with no one else around when they want to get out there is often not enough “buyers” to allow them to cash in on their great returns while departing.
In addition, since everyone has found their “sweet spot” at about the same time, when everyone tries to get out at the same time to avoid an ensuing storm, there are likely to find all the avenues for departure stuffed with others. The result is most of them get left behind.
This is what we need an economist to explain?
Hedge funds bought into anything and everything they thought would give them an edge. They have to take on exceptional risk to do so. When the tide turns there is simply no quick exit. Markets drop precipitously as there are simply no buyers to sell their positions to. I mean it was they who had all the liquidity. It is easy to buy anything, not so easy to sell.
The lesson is learnt again.
This is why we need lifeguards. If there is no person looking over the beach telling people when the situation is getting dangerous the frolicking money managers will hang around, pour on the tanning lotion and get caught by the ensuing storm.
Friday, May 26, 2006
Trickle Down or Else (Part 1), So Much Cash
The companies in the S&P 500 (excluding financial, transportation & utilities) in the US have over $640 billion in cash on hand. Yep. This is a number beyond anything seen in modern times. Why the article I read did not include the financials, transportation & utilities I don’t know (suffice to say there is at least another $250 billion there).
Mind you these companies spent $500 billion in the past 6 quarters (year and a half) buying back their own stock. That is $500 billion spent buying back their stock! Now allot of these stock buy backs simply buy back the options they have awarded to their corporate officers. Their officers have seen this enormous build up of cash. They want to get their hands on it. In fact there should be no surprise the SEC is investigating a widespread practice of illegally backdating stock options to lock in low prices so when executives cash out they make more money.
What is really going on is the people running S&P 500 companies are trying everything possible to “cash out”, literally take the cash out of the companies and put it in their pockets. It is no wonder the top salaries kept rising through the dot com bust, the post 911 recession, and then the print money economy engineered by the Fed after 911. There is so much cash no one knows what to do with it all. Is there any wonder it is sloshing around chasing real estate or long dead in the water commodities like “precious” metals. Sorry but gold and silver stopped being “precious” some time ago, lets say around the time of the proliferation of the microchip.
It is also ironic that all this cash chasing commodities like oil has now had the sickening effect of piling MORE cash in the coffers of the oil companies who now hold over $100 billion in cash. ExonMobile alone has over $32 billion in the bank. Apple set up an asset management firm to manage it’s $6 billion and Dell Computer has over $9 billion sitting in the bank.
Seems many companies do things like buy 30 day rolling CD’s. Now where do you suppose this money goes? Banks get the money and lend it out at higher rates. Who, might you ask is borrowing a bundle these days? The US government is the big hog. How about all those hedge funds leveraging themselves to the hilt? They borrow daily to leverage and settle their accounts. The banks make a ton of money servicing these guys (“these guys” make a ton of money also). Wonder who else could be borrowing this kind of money?
Banks are making up to a quarter of their fat profits stealing it from their account holders in exorbitant fees. Yep, that is stealing. We need a law that regulates what banks can charge in fees. I understand something like this exists in the UK. Fees should be by law a true reflection of the cost incurred by the bank for that transaction. For example, I added a deposit incorrectly by exactly $100 recently. I was charged $9.00 for the bank to “correct” this addition error. $9.00!!! You tell me where the bank incurred $9.00 in costs to correct a $100 addition error on one deposit that had like 4 items on it.
Yes, Americans are being ripped off and they are clueless. Many companies have learned to operate lean and charge high fees. If you are an international company you have a simple formula, produce in the parts of the world where the majority of people live on less than $3.00 per day and sell to the part of the world that spends $3.00 on a cup of dirty sugar water. Now what do you do with all that money?
Mind you these companies spent $500 billion in the past 6 quarters (year and a half) buying back their own stock. That is $500 billion spent buying back their stock! Now allot of these stock buy backs simply buy back the options they have awarded to their corporate officers. Their officers have seen this enormous build up of cash. They want to get their hands on it. In fact there should be no surprise the SEC is investigating a widespread practice of illegally backdating stock options to lock in low prices so when executives cash out they make more money.
What is really going on is the people running S&P 500 companies are trying everything possible to “cash out”, literally take the cash out of the companies and put it in their pockets. It is no wonder the top salaries kept rising through the dot com bust, the post 911 recession, and then the print money economy engineered by the Fed after 911. There is so much cash no one knows what to do with it all. Is there any wonder it is sloshing around chasing real estate or long dead in the water commodities like “precious” metals. Sorry but gold and silver stopped being “precious” some time ago, lets say around the time of the proliferation of the microchip.
It is also ironic that all this cash chasing commodities like oil has now had the sickening effect of piling MORE cash in the coffers of the oil companies who now hold over $100 billion in cash. ExonMobile alone has over $32 billion in the bank. Apple set up an asset management firm to manage it’s $6 billion and Dell Computer has over $9 billion sitting in the bank.
Seems many companies do things like buy 30 day rolling CD’s. Now where do you suppose this money goes? Banks get the money and lend it out at higher rates. Who, might you ask is borrowing a bundle these days? The US government is the big hog. How about all those hedge funds leveraging themselves to the hilt? They borrow daily to leverage and settle their accounts. The banks make a ton of money servicing these guys (“these guys” make a ton of money also). Wonder who else could be borrowing this kind of money?
Banks are making up to a quarter of their fat profits stealing it from their account holders in exorbitant fees. Yep, that is stealing. We need a law that regulates what banks can charge in fees. I understand something like this exists in the UK. Fees should be by law a true reflection of the cost incurred by the bank for that transaction. For example, I added a deposit incorrectly by exactly $100 recently. I was charged $9.00 for the bank to “correct” this addition error. $9.00!!! You tell me where the bank incurred $9.00 in costs to correct a $100 addition error on one deposit that had like 4 items on it.
Yes, Americans are being ripped off and they are clueless. Many companies have learned to operate lean and charge high fees. If you are an international company you have a simple formula, produce in the parts of the world where the majority of people live on less than $3.00 per day and sell to the part of the world that spends $3.00 on a cup of dirty sugar water. Now what do you do with all that money?
Wednesday, May 17, 2006
All Hell Breaks Loose
Now for the strategies. Yea, if I am so smart how do translate that into dollars? Mind you that is not "gold" but "dollars", you know the stuff you can "spend".
OK, I shorted oil stocks using XLE back in April at around $58 per share. I was looking to short at $60 but missed my chance. Little did I know my chance would appear about 3 weeks later. Oh well, can't always predict the top. Anyway, I was looking to cover when the oil price dropped 10% from it's $75 peak. Oil did weaken but the stock market was stubborn and continued to drive the oil stock prices higher. Then the stock market rout hit late last week. I covered my short position as oil touched $68 on Friday 12 May. That was early. But oil was staying stubbornly in the $68-$70 range so I figured better cover as the bottom looked near. Then BAM, the market got hammered and as of today the oil stocks have gotten killed, exceeding my expectations for a fall.
So now we are down over 10% from the $60 XLE price, I am buying in again at $54. Lets see what happens.
Currency. I bought FRX at about $122.50 when I saw the dollar falling. FRX rises as the dollar falls against the EURO. I was looking to get out at $130 or so. However today the dollar unexpectedly rose as inflation showed a jump. My guess was inflation would hammer the US by August. Anyway, the fear the Fed will raise rates has caused some profit taking in the dollar. I don't care. The dollar is done and I see $1.35 to the Euro by year end. I am staying put.
Metals. I really missed this one. I went with DBC the Deutsche Bank commodity fund and shorted it at $25 and again at $27. The high was $27 and I hoped to cover around $25 or so before a return to rising commodity prices. My big screw up was DBC covers a larger range of commodities including grains. Grains rose as reports about inflation in grain prices later in the year caused traders to bid up prices ahead of the "real" rise later and this has caused DBC to be stubborn and not move much from its current price of $26.00. I am at a cross roads. Hoping for the market rout to take me to my cover price of $25 so I can ditch this fund and play the actual SLV and GLD (silver & gold) funds directly.
Silver. I hit this one on the head. Shorted SLV at $145 and covered at $133.60. Made a good profit and am sitting on the sidelines. If silver drops to $12.50 I may jump in and go long and look for a bounce back to $15.
Rates. I see 8% on the fed funds rate by Feb of next year. Why? Because the Fed has screwed up. They are clueless. I don't care what anyone says if Bernanke stops raising rates the US is going into an inflation era that will hit hard. This is my thought; Fed pauses, waits 2 meetings to see what is going on since the market got hit and by June has not recovered. Fed is worried about liquidity in the market more than inflation. July, market is recovering but the fall in oil and gas prices allow a moderate inflation number and Bernanke waits again.
Then by September meeting all hell breaks loose on inflation and the Fed goes up 1/2 point. The quick reaction caused the market to do the opposite of what usually happens and rallies. The dollar rallies for a short while. Then the economy tanks. The bite on inflation is large and after the summer the consumer is tapped out. We enter stagflation by the end of the year. However, the dollar continues it's decline anyway as the Government debt, trade deficit and tax cuts start to make the US look like the debtor nation with no way out of it's troubles. Interest rates continue to rachet up to stop inflation and support the dollar. The stock market languishes and by the end of the year we have a loosing market for the DOW and oil remains stubbornly high above $65 per barrel. Continued confiscation of oil company assets in Latin America and strife in the Middle East leave no option.
My solution, bought RRPIX, a mutual fund that rises as the interest rates rise. Already ahead 2.65%. I hate mutual funds. They are a rip off but as the unsophisticated an investor I am, this was one easy way to play out my theory.
Cheers...
OK, I shorted oil stocks using XLE back in April at around $58 per share. I was looking to short at $60 but missed my chance. Little did I know my chance would appear about 3 weeks later. Oh well, can't always predict the top. Anyway, I was looking to cover when the oil price dropped 10% from it's $75 peak. Oil did weaken but the stock market was stubborn and continued to drive the oil stock prices higher. Then the stock market rout hit late last week. I covered my short position as oil touched $68 on Friday 12 May. That was early. But oil was staying stubbornly in the $68-$70 range so I figured better cover as the bottom looked near. Then BAM, the market got hammered and as of today the oil stocks have gotten killed, exceeding my expectations for a fall.
So now we are down over 10% from the $60 XLE price, I am buying in again at $54. Lets see what happens.
Currency. I bought FRX at about $122.50 when I saw the dollar falling. FRX rises as the dollar falls against the EURO. I was looking to get out at $130 or so. However today the dollar unexpectedly rose as inflation showed a jump. My guess was inflation would hammer the US by August. Anyway, the fear the Fed will raise rates has caused some profit taking in the dollar. I don't care. The dollar is done and I see $1.35 to the Euro by year end. I am staying put.
Metals. I really missed this one. I went with DBC the Deutsche Bank commodity fund and shorted it at $25 and again at $27. The high was $27 and I hoped to cover around $25 or so before a return to rising commodity prices. My big screw up was DBC covers a larger range of commodities including grains. Grains rose as reports about inflation in grain prices later in the year caused traders to bid up prices ahead of the "real" rise later and this has caused DBC to be stubborn and not move much from its current price of $26.00. I am at a cross roads. Hoping for the market rout to take me to my cover price of $25 so I can ditch this fund and play the actual SLV and GLD (silver & gold) funds directly.
Silver. I hit this one on the head. Shorted SLV at $145 and covered at $133.60. Made a good profit and am sitting on the sidelines. If silver drops to $12.50 I may jump in and go long and look for a bounce back to $15.
Rates. I see 8% on the fed funds rate by Feb of next year. Why? Because the Fed has screwed up. They are clueless. I don't care what anyone says if Bernanke stops raising rates the US is going into an inflation era that will hit hard. This is my thought; Fed pauses, waits 2 meetings to see what is going on since the market got hit and by June has not recovered. Fed is worried about liquidity in the market more than inflation. July, market is recovering but the fall in oil and gas prices allow a moderate inflation number and Bernanke waits again.
Then by September meeting all hell breaks loose on inflation and the Fed goes up 1/2 point. The quick reaction caused the market to do the opposite of what usually happens and rallies. The dollar rallies for a short while. Then the economy tanks. The bite on inflation is large and after the summer the consumer is tapped out. We enter stagflation by the end of the year. However, the dollar continues it's decline anyway as the Government debt, trade deficit and tax cuts start to make the US look like the debtor nation with no way out of it's troubles. Interest rates continue to rachet up to stop inflation and support the dollar. The stock market languishes and by the end of the year we have a loosing market for the DOW and oil remains stubbornly high above $65 per barrel. Continued confiscation of oil company assets in Latin America and strife in the Middle East leave no option.
My solution, bought RRPIX, a mutual fund that rises as the interest rates rise. Already ahead 2.65%. I hate mutual funds. They are a rip off but as the unsophisticated an investor I am, this was one easy way to play out my theory.
Cheers...
Tuesday, May 16, 2006
Banks Monitor Hedge Funds, The Latest Joke...
I am going to be brief here but follow up more precisely later. During a speech today our US Federal Reserve Chairman, Bernanke and the Bush Administration (whatever that is) suggested an industry with no regulation, national allegiances or any other guideline that drives them but to make as much money as possible "moving paper assets" and has grown from $50 billion in assets to over $1 Trillion in assets in under 6 years should continue to be allowed to function with, well, no regulation.
Mind you, $1 trillion in assets is their "assets". These funds do everything on leverage of anything from 10 to 1 to 100 to 1 ratios. They have the ability to crash a currency, drive up the price of an asset to unrecognizable levels and short a market to squeeze every last dollar out of it. They have a herd mentality and play with very technical products.
Now Bernanke suggests that banks, yes BANKS of all institutions should monitor hedge funds. Need someone remind this idiot that:
It was BANKS that lent much of their unlimited amount of oil dollars (from the last oil spike in the 1970's) to Latin American countries. That same debt had to be restructured in the late 1980's into new debt called "Brady Bonds".
It was BANKS that went on a lending spree in the 1980's to finance a commercial real estate development explosion that collapsed with a bail out of the entire S&L industry, a near collapse of the BANKing industry, government scandals and jail time (all overturned quietly in succeeding years of course) of dozens of "BANKers", a $500 billion (real dollars not including the 30 years of interest the government is still paying on the debt) bail out of the BANKing industry's bad loans later packaged into the "RTC" (Resolution Trust Corp.) who’s property was later sold at auction at fire sale prices.
It was BANKS that lent unscrupulously to Asian nations in the mid 90's to countries like Thailand, Indonesia, Malaysia, Korea and others that created so much development in commercial real estate and "luxury" resorts that the entire system collapsed causing one of the largest currency and economic crises in the 20th century.
It was BANKS that lent to Long Term Capital Management, the hedge fund (yep hedge fund) that had to be bailed out in 1998 with an emergency meeting called by the Fed in New York with 8-10 of the top banks and investment houses in the world where they were given the ultimatum, “raise a couple billion dollars by Monday morning or the entire financial system could unwind”.
It IS BANKS that today provide loans, settlement funds and liquidity to the hedge funds operating today and those BANKS are making BILLIONS on these services and lending and are the last institutions that should be asked to better “manage, regulate, request better information” or whatever other twist you want to put on these responsibilities.
It was 2003 when the SEC conducted a thorough “unofficial” report on the hedge fund industry and concluded that some kind of standards needed to be set up to monitor these institutions if nothing else.
It was George Soros, the international billionaire who proposed after the Asian financial crises that some kind of international body needed to be set up to monitor money flows and advise individual companies when gross imbalances are appearing so they would alter their lending and investing habits to avoid the bubble and burst cycle that is so frequent in the investment community mostly because of the heard mentality of these institutions, ahem, BANKS have in their business practices.
Could someone stand up and tell Bernanke there is AN ELEPHANT IN THE ROOM AND HE HAS NO MORE THAN 2 YEARS BEFORE IT TRAMPLES EVERYONE!!
Enough said for now.
Mind you, $1 trillion in assets is their "assets". These funds do everything on leverage of anything from 10 to 1 to 100 to 1 ratios. They have the ability to crash a currency, drive up the price of an asset to unrecognizable levels and short a market to squeeze every last dollar out of it. They have a herd mentality and play with very technical products.
Now Bernanke suggests that banks, yes BANKS of all institutions should monitor hedge funds. Need someone remind this idiot that:
It was BANKS that lent much of their unlimited amount of oil dollars (from the last oil spike in the 1970's) to Latin American countries. That same debt had to be restructured in the late 1980's into new debt called "Brady Bonds".
It was BANKS that went on a lending spree in the 1980's to finance a commercial real estate development explosion that collapsed with a bail out of the entire S&L industry, a near collapse of the BANKing industry, government scandals and jail time (all overturned quietly in succeeding years of course) of dozens of "BANKers", a $500 billion (real dollars not including the 30 years of interest the government is still paying on the debt) bail out of the BANKing industry's bad loans later packaged into the "RTC" (Resolution Trust Corp.) who’s property was later sold at auction at fire sale prices.
It was BANKS that lent unscrupulously to Asian nations in the mid 90's to countries like Thailand, Indonesia, Malaysia, Korea and others that created so much development in commercial real estate and "luxury" resorts that the entire system collapsed causing one of the largest currency and economic crises in the 20th century.
It was BANKS that lent to Long Term Capital Management, the hedge fund (yep hedge fund) that had to be bailed out in 1998 with an emergency meeting called by the Fed in New York with 8-10 of the top banks and investment houses in the world where they were given the ultimatum, “raise a couple billion dollars by Monday morning or the entire financial system could unwind”.
It IS BANKS that today provide loans, settlement funds and liquidity to the hedge funds operating today and those BANKS are making BILLIONS on these services and lending and are the last institutions that should be asked to better “manage, regulate, request better information” or whatever other twist you want to put on these responsibilities.
It was 2003 when the SEC conducted a thorough “unofficial” report on the hedge fund industry and concluded that some kind of standards needed to be set up to monitor these institutions if nothing else.
It was George Soros, the international billionaire who proposed after the Asian financial crises that some kind of international body needed to be set up to monitor money flows and advise individual companies when gross imbalances are appearing so they would alter their lending and investing habits to avoid the bubble and burst cycle that is so frequent in the investment community mostly because of the heard mentality of these institutions, ahem, BANKS have in their business practices.
Could someone stand up and tell Bernanke there is AN ELEPHANT IN THE ROOM AND HE HAS NO MORE THAN 2 YEARS BEFORE IT TRAMPLES EVERYONE!!
Enough said for now.
Sunday, May 14, 2006
The new SEC Who?
The SEC (American Securities & Exchange Commission) appointed a new man to oversee the $7 Trillion mutual fund industry. This is the kind of fanfare that comes with such an announcement these days:
But investors hoping to learn about Donohue's views directly will have to wait. Donohue through a Merrill spokeswoman declined to be interviewed ahead of his official appointment. The SEC also declined interview requests. And neither the SEC nor Merrill would provide detailed biographical information or a photograph of the new regulator.
That is Andrew "Buddy" Donohue.
I must say how much I love nicknames being used for government officials. But that aside, this kind of announcement is frightening. Why? Well I had a run in with Charles Schwab recently where they forced a short position in my account on the sale of shares in a company that had just split. According to the company prospectus and official documents, until the “new” shares were delivered (Viacom, in the case, was split into Viacom (new) and CBS) the “old” shares were to be considered to represent 50% of each new stock.
Well, I sold my entire holdings of the Old shares before the delivery of the two new shares took place so in effect I sold my rights to both of the new shares. Schwab however, forced the sale to represent only one of the two new shares (the Viacom new shares) causing me to go short those shares while retaining my rights to the 50% of CBS shares.
This short position was not allowed in the type of account I held and when I pointed out their mistake, they refused to reverse the trade or make me whole on the transaction and instead bought back my short position at a loss and told me if I did not like it I could “Write the SEC”.
Now, the SEC is supposed to be there to protect investors & regulate the securities industry. They are a public institution. The Securities Exchange act of 1934 states:
Often referred to as the "truth in securities" law, the Securities Act of 1933 has two basic objectives:
* require that investors receive financial and other significant information concerning securities being offered for public sale; and
* prohibit deceit, misrepresentations, and other fraud in the sale of securities.
The full text of this Act is available at: http://www.sec.gov/about/laws/sa33.pdf.So
I wrote the SEC. They write Schwab. Schwab tells them they had every right to do what they did. The SEC sends me a letter with Schwab’s statement. Now I have to sue Schwab. The SEC does nothing.
During the 1990’s the SEC did nothing. The only person doing his job with respect to gross violations of the law in the securities industry has been Eliot Spitzer, the New York State Attorney General.
In fact when Mr. Spitzer came to Washington to have some words with our impotent government, the SEC went out of it’s way to bash Spitzer. Why not? He made them look like what they had become, impotent regulators appointed by an impotent government run by potent corporate entities.
The moral of the story: The institution created to “prohibit deceit, misrpresentations, and other fraud in the sale of securities” has found it convenient to withhold information about an appointee who will oversee a division representing over $15 Trillion in assets, $7 Trillion primarily held by individual citizens in their retirement accounts. Go Figure.
But investors hoping to learn about Donohue's views directly will have to wait. Donohue through a Merrill spokeswoman declined to be interviewed ahead of his official appointment. The SEC also declined interview requests. And neither the SEC nor Merrill would provide detailed biographical information or a photograph of the new regulator.
That is Andrew "Buddy" Donohue.
I must say how much I love nicknames being used for government officials. But that aside, this kind of announcement is frightening. Why? Well I had a run in with Charles Schwab recently where they forced a short position in my account on the sale of shares in a company that had just split. According to the company prospectus and official documents, until the “new” shares were delivered (Viacom, in the case, was split into Viacom (new) and CBS) the “old” shares were to be considered to represent 50% of each new stock.
Well, I sold my entire holdings of the Old shares before the delivery of the two new shares took place so in effect I sold my rights to both of the new shares. Schwab however, forced the sale to represent only one of the two new shares (the Viacom new shares) causing me to go short those shares while retaining my rights to the 50% of CBS shares.
This short position was not allowed in the type of account I held and when I pointed out their mistake, they refused to reverse the trade or make me whole on the transaction and instead bought back my short position at a loss and told me if I did not like it I could “Write the SEC”.
Now, the SEC is supposed to be there to protect investors & regulate the securities industry. They are a public institution. The Securities Exchange act of 1934 states:
Often referred to as the "truth in securities" law, the Securities Act of 1933 has two basic objectives:
* require that investors receive financial and other significant information concerning securities being offered for public sale; and
* prohibit deceit, misrepresentations, and other fraud in the sale of securities.
The full text of this Act is available at: http://www.sec.gov/about/laws/sa33.pdf.So
I wrote the SEC. They write Schwab. Schwab tells them they had every right to do what they did. The SEC sends me a letter with Schwab’s statement. Now I have to sue Schwab. The SEC does nothing.
During the 1990’s the SEC did nothing. The only person doing his job with respect to gross violations of the law in the securities industry has been Eliot Spitzer, the New York State Attorney General.
In fact when Mr. Spitzer came to Washington to have some words with our impotent government, the SEC went out of it’s way to bash Spitzer. Why not? He made them look like what they had become, impotent regulators appointed by an impotent government run by potent corporate entities.
The moral of the story: The institution created to “prohibit deceit, misrpresentations, and other fraud in the sale of securities” has found it convenient to withhold information about an appointee who will oversee a division representing over $15 Trillion in assets, $7 Trillion primarily held by individual citizens in their retirement accounts. Go Figure.
Wednesday, May 10, 2006
Gotrocks
Those of you that have heard or read me say the current world of "investment products" is a world made for those who create and sell them and not for those who buy them here is a tidbit from no other than Warren Buffett...
From Berkshire Hathaway: http://www.berkshirehathaway.com/letters/2005ltr.pdf
Indeed, owners must earn less than their businesses earn because of “frictional” costs. And that’s my point: These costs are now being incurred in amounts that will cause shareholders to earn far less than they historically have.
To understand how this toll has ballooned, imagine for a moment that all American corporations are, and always will be, owned by a single family. We’ll call them the Gotrocks. After paying taxes on dividends, this family – generation after generation – becomes richer by the aggregate amount earned by its companies. Today that amount is about $700 billion annually. Naturally, the family spends some of these dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone grows wealthier at the same pace, and all is harmonious.
But let’s now assume that a few fast-talking Helpers approach the family and persuade each of its members to try to outsmart his relatives by buying certain of their holdings and selling them certain others. The Helpers – for a fee, of course – obligingly agree to handle these transactions. The Gotrocks still own all of corporate America; the trades just rearrange who owns what. So the family’s annual gain in wealth diminishes, equaling the earnings of American business minus commissions paid. The more that family members trade, the smaller their share of the pie and the larger the slice received by the Helpers. This fact is not lost upon these broker-Helpers: Activity is their friend and, in a wide variety of ways, they urge it on.
After a while, most of the family members realize that they are not doing so well at this new “beatmy- brother” game. Enter another set of Helpers. These newcomers explain to each member of the Gotrocks clan that by himself he’ll never outsmart the rest of the family. The suggested cure: “Hire a manager – yes, us – and get the job done professionally.” These manager-Helpers continue to use the broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers to prosper still more. Overall, a bigger slice of the pie now goes to the two classes of Helpers.
The family’s disappointment grows. Each of its members is now employing professionals. Yet overall, the group’s finances have taken a turn for the worse. The solution? More help, of course.
It arrives in the form of financial planners and institutional consultants, who weigh in to advise the Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its members know they can pick neither the right stocks nor the right stock-pickers. Why, one might ask, should they expect success in picking the right consultant? But this question does not occur to the Gotrocks, and the consultant-Helpers certainly don’t suggest it to them.
The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse, and they sink into despair. But just as hope seems lost, a fourth group – we’ll call them the hyper-Helpers – appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring because the existing Helpers – brokers, managers, consultants – are not sufficiently motivated and are
simply going through the motions. “What,” the new Helpers ask, “can you expect from such a bunch of zombies?”
The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with selfconfidence, the hyper-Helpers assert that huge contingent payments – in addition to stiff fixed fees – are what each family member must fork over in order to really outmaneuver his relatives.
The more observant members of the family see that some of the hyper-Helpers are really just manager-Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important, bestowing on its wearers magical powers similar to those acquired by mild-mannered Clark Kent when he changed into his Superman costume. Calmed by this explanation, the family decides to pay up.
And that’s where we are today: A record portion of the earnings that would go in their entirety to owners – if they all just stayed in their rocking chairs – is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all of the losses - and large fixed fees to boot – when the Helpers are dumb or unlucky (or occasionally crooked).
A sufficient number of arrangements like this – heads, the Helper takes much
of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of
doing so –may make it more accurate to call the family the Hadrocks. Today, in fact,
the family’s frictional costs of all sorts may well amount to 20% of the earnings
of American business. In other words, the burden of paying Helpers may cause American
equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to no one.
From Berkshire Hathaway: http://www.berkshirehathaway.com/letters/2005ltr.pdf
Indeed, owners must earn less than their businesses earn because of “frictional” costs. And that’s my point: These costs are now being incurred in amounts that will cause shareholders to earn far less than they historically have.
To understand how this toll has ballooned, imagine for a moment that all American corporations are, and always will be, owned by a single family. We’ll call them the Gotrocks. After paying taxes on dividends, this family – generation after generation – becomes richer by the aggregate amount earned by its companies. Today that amount is about $700 billion annually. Naturally, the family spends some of these dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone grows wealthier at the same pace, and all is harmonious.
But let’s now assume that a few fast-talking Helpers approach the family and persuade each of its members to try to outsmart his relatives by buying certain of their holdings and selling them certain others. The Helpers – for a fee, of course – obligingly agree to handle these transactions. The Gotrocks still own all of corporate America; the trades just rearrange who owns what. So the family’s annual gain in wealth diminishes, equaling the earnings of American business minus commissions paid. The more that family members trade, the smaller their share of the pie and the larger the slice received by the Helpers. This fact is not lost upon these broker-Helpers: Activity is their friend and, in a wide variety of ways, they urge it on.
After a while, most of the family members realize that they are not doing so well at this new “beatmy- brother” game. Enter another set of Helpers. These newcomers explain to each member of the Gotrocks clan that by himself he’ll never outsmart the rest of the family. The suggested cure: “Hire a manager – yes, us – and get the job done professionally.” These manager-Helpers continue to use the broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers to prosper still more. Overall, a bigger slice of the pie now goes to the two classes of Helpers.
The family’s disappointment grows. Each of its members is now employing professionals. Yet overall, the group’s finances have taken a turn for the worse. The solution? More help, of course.
It arrives in the form of financial planners and institutional consultants, who weigh in to advise the Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its members know they can pick neither the right stocks nor the right stock-pickers. Why, one might ask, should they expect success in picking the right consultant? But this question does not occur to the Gotrocks, and the consultant-Helpers certainly don’t suggest it to them.
The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse, and they sink into despair. But just as hope seems lost, a fourth group – we’ll call them the hyper-Helpers – appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring because the existing Helpers – brokers, managers, consultants – are not sufficiently motivated and are
simply going through the motions. “What,” the new Helpers ask, “can you expect from such a bunch of zombies?”
The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with selfconfidence, the hyper-Helpers assert that huge contingent payments – in addition to stiff fixed fees – are what each family member must fork over in order to really outmaneuver his relatives.
The more observant members of the family see that some of the hyper-Helpers are really just manager-Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important, bestowing on its wearers magical powers similar to those acquired by mild-mannered Clark Kent when he changed into his Superman costume. Calmed by this explanation, the family decides to pay up.
And that’s where we are today: A record portion of the earnings that would go in their entirety to owners – if they all just stayed in their rocking chairs – is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all of the losses - and large fixed fees to boot – when the Helpers are dumb or unlucky (or occasionally crooked).
A sufficient number of arrangements like this – heads, the Helper takes much
of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of
doing so –may make it more accurate to call the family the Hadrocks. Today, in fact,
the family’s frictional costs of all sorts may well amount to 20% of the earnings
of American business. In other words, the burden of paying Helpers may cause American
equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to no one.
Tuesday, May 09, 2006
Au, The Base Mental Attitude
So we now have $700 per oz. of Gold. No, not OZ as in “The Wizard”, but “oz.” as in the "ounce", one-twelfth of a pound in the Troy system of weights or one-sixteenth of a pound in the avoirdupois weight system.
One ounce of gold is one "Troy" ounce. Now, so you understand just how much weight one Troy ounce of gold is, it is equal to 460 grains (31.103 grams). Yea, grains, as in a grain of wheat. Twelve “Troy” ounces equals one “Troy” pound.
However, for those Neanderthals who still use this stupid system of measurement, you are saying, “No, 16 ounces is a pound.” Well that is 16 “avoir de pois” (avoirdupois) ounces equal a pound. However, your ounce is equal to only 437.5 grains (28.35 grams) so it measures in at .910 Troy ounce. So, one Troy ounce is almost 10% heavier than one avoirdupois ounce.
Not to be confused, this means one avoirdupois pound is quite a bit heavier than one Troy pound.
Why all the fuss? I am trying to avoid a shoot out here!
I can see it now, Joe Schmoe hurries down the bank vault in New York in his pickup truck to pick up the pound of gold he purchased for $8,400.00 ($700 per ounce) thinking to himself “Damn! That idiot sold me a pound of gold for a steal.” The bank hands over 12 ounces of gold. Joe Schmoe completely wigs out! Not only has his “precious metal” dropped dramatically in value the day he went to pick it up, but now they are trying to short him 4 ounces!
His only recourse is to START A SHOOTEN!
This is what I am t-r-y-i-n-g to avoid with my somewhat elaborate description of the measurement issue here.
Now the real story:
Citigroup believes investors held commodity positions worth more than $120 billion April, with $30 billion in oil and $30 billion in gas. Gold came in third place at $13 billion, while the long position in copper stood at $4 billion, according to Investec Securities.
Why is this the “real story”. Because Joe Shmoe thinks he no longer needs to drive his pickup truck to the bank vault to get his gold. He thinks he can buy a fund that buys the gold and hold the paper. He believes it is the same thing. I have not read the fund’s prospectus but I am guessing the owners of the fund shares DO NOT have a claim on the actual gold held by the fund. In reality they hold only a fraction of the gold and float worthless paper contracts which are “designed to track the price of gold”.
“Its (the GLD ETF) objective is not to provide investors with the opportunity to own gold bullion by investing in the shares of an ETF. Rather, GLD is designed to track the price of gold. That objective is no different than what is accomplished by a gold futures contract or any of the dozens of numerous gold derivatives available these days. More to the point, futures and derivatives are sold even if the seller does not own the underlying gold bullion needed to deliver on its obligation. They are in practice fractional reserve systems, which allow liabilities for gold to far exceed the quantity of gold owned by the seller of that liability.
…the London bullion market operates on a 'trust-me' basis. Rather than move gold bars around when they are bought and sold - which is a costly process - the various participants accept the word of their counter-party that the bar they just bought really exists, and that it is safely stored in the counterparty's vault or the vault of another market participant.
… "Because neither the Trustee nor the Custodian oversees or monitors the activities of sub custodians who may hold the Trust's gold, failure by the sub custodians to exercise due care in the safekeeping of the Trust's gold could result in a loss to the Trust." To be blunt, these disclosures mean that there is no certainty that the gold supposedly owned by GLD really exists.”
The crux of this rant is simple. The people selling every concocted product under the sun to capitalize on the move in commodities prices are all building a house of cards. Don’t believe the hype!
OK, so you get it? Precious metals are expensive to store or move around and to Joe Schmoe, convert to cash. They also compose of no propriety value. They are metals used in some industrial applications and jewelry. If you want to “invest” it is better that you find companies making products that have propriety value, intellectual value, usefulness value, whatever you like. Stay away from Troy.
Quotes by James Turk
One ounce of gold is one "Troy" ounce. Now, so you understand just how much weight one Troy ounce of gold is, it is equal to 460 grains (31.103 grams). Yea, grains, as in a grain of wheat. Twelve “Troy” ounces equals one “Troy” pound.
However, for those Neanderthals who still use this stupid system of measurement, you are saying, “No, 16 ounces is a pound.” Well that is 16 “avoir de pois” (avoirdupois) ounces equal a pound. However, your ounce is equal to only 437.5 grains (28.35 grams) so it measures in at .910 Troy ounce. So, one Troy ounce is almost 10% heavier than one avoirdupois ounce.
Not to be confused, this means one avoirdupois pound is quite a bit heavier than one Troy pound.
Why all the fuss? I am trying to avoid a shoot out here!
I can see it now, Joe Schmoe hurries down the bank vault in New York in his pickup truck to pick up the pound of gold he purchased for $8,400.00 ($700 per ounce) thinking to himself “Damn! That idiot sold me a pound of gold for a steal.” The bank hands over 12 ounces of gold. Joe Schmoe completely wigs out! Not only has his “precious metal” dropped dramatically in value the day he went to pick it up, but now they are trying to short him 4 ounces!
His only recourse is to START A SHOOTEN!
This is what I am t-r-y-i-n-g to avoid with my somewhat elaborate description of the measurement issue here.
Now the real story:
Citigroup believes investors held commodity positions worth more than $120 billion April, with $30 billion in oil and $30 billion in gas. Gold came in third place at $13 billion, while the long position in copper stood at $4 billion, according to Investec Securities.
Why is this the “real story”. Because Joe Shmoe thinks he no longer needs to drive his pickup truck to the bank vault to get his gold. He thinks he can buy a fund that buys the gold and hold the paper. He believes it is the same thing. I have not read the fund’s prospectus but I am guessing the owners of the fund shares DO NOT have a claim on the actual gold held by the fund. In reality they hold only a fraction of the gold and float worthless paper contracts which are “designed to track the price of gold”.
“Its (the GLD ETF) objective is not to provide investors with the opportunity to own gold bullion by investing in the shares of an ETF. Rather, GLD is designed to track the price of gold. That objective is no different than what is accomplished by a gold futures contract or any of the dozens of numerous gold derivatives available these days. More to the point, futures and derivatives are sold even if the seller does not own the underlying gold bullion needed to deliver on its obligation. They are in practice fractional reserve systems, which allow liabilities for gold to far exceed the quantity of gold owned by the seller of that liability.
…the London bullion market operates on a 'trust-me' basis. Rather than move gold bars around when they are bought and sold - which is a costly process - the various participants accept the word of their counter-party that the bar they just bought really exists, and that it is safely stored in the counterparty's vault or the vault of another market participant.
… "Because neither the Trustee nor the Custodian oversees or monitors the activities of sub custodians who may hold the Trust's gold, failure by the sub custodians to exercise due care in the safekeeping of the Trust's gold could result in a loss to the Trust." To be blunt, these disclosures mean that there is no certainty that the gold supposedly owned by GLD really exists.”
The crux of this rant is simple. The people selling every concocted product under the sun to capitalize on the move in commodities prices are all building a house of cards. Don’t believe the hype!
OK, so you get it? Precious metals are expensive to store or move around and to Joe Schmoe, convert to cash. They also compose of no propriety value. They are metals used in some industrial applications and jewelry. If you want to “invest” it is better that you find companies making products that have propriety value, intellectual value, usefulness value, whatever you like. Stay away from Troy.
Quotes by James Turk
Wednesday, May 03, 2006
Oh that "Private Equity"
Well, well, well nothing like private equity. Anyone who knows me has heard me say, "By 2010 there will be 1/2 a dozen "private equity" groups with revenues exceeding $100 Billion per year. These mega "companies" will flourish without answering to anyone."
The term "private equity" obviously means they are "private" (In the US this means owned by individuals unlike in the UK were "private" means owned by the government.) which means no stockholders. This means unrestrained salaries at the top, whatever "corporate governance" they please, ravish raiding of corporate coffers to pay fat “dividends” to their investors, very high leverage to consummate ever larger buy out deals, fat payoffs when worthless “brand names” are floated back on the markets by the “investment bankers” that will dump these newly re-floated companies on unwitting individual investors and last but NOT least NO SARBANES OXLEY COMPLIANCE... You get the picture.
At the midpoint of its price range, Burger King's underwriters are valuing the company at $2.1 billion. In 2002, a private equity group that includes Texas Pacific Group, Bain Capital Partners and Goldman Sachs Funds, bought Burger King from Diageo PLC for $1.5 billion at a time the burger chain's sales were in a decline.
The company's IPO is expected to price and sell some time in the third week of May; the stock will trade on the New York Stock Exchange under the symbol BKC.
Whether Burger King's performance will line up in the Chipotle or the Morton's camp is open to debate. The company's former chief executive, Greg Brenneman, departed suddenly last month, and received a generous severance package just as the company reported a net loss for its fiscal third quarter.
But there's no denying that the private equity group that purchased Burger King in 2002 has made improvements to the chain, producing eight consecutive quarters of comparable sales growth in the U.S. Those owners will continue to hold 74% of Burger King's stock if all shares are sold in the offering and over-allotment.
Burger King also has a strong brand name, which is sure to drive retail investor interest in the deal, says Sal Morreale, who tracks IPOs for Cantor Fitzgerald LP in Los Angeles.
"It's a brand name, a big brand name. How many of those moms and pops are going to go to their discount broker and say I want to buy this stock?" says Morreale.
The company borrowed $350 million in February to help finance a special cash dividend of $367 million to its private equity owners; it will not pay any dividends to common stockholders once it goes public.
Burger King also paid $33 million to members of senior management after the February financing and the dividend decreased the value of their restricted stock and options. In addition, a $30 million management termination fee was paid in February to the private equity owners.
Burger King plans to use all the proceeds from its IPO to pay down its debt; as of March 31, its total debt was $1.35 billion.
Even if the IPO had taken place in March and some of the debt had been paid off, Burger King would have had a net tangible book deficit of negative $623 million - meaning that investors would receive nothing if the company were liquidated.
- By Lynn Cowan, Dow Jones Newswires; 202-862-3548; lynn.cowan@dowjones.com
(END) Dow Jones Newswires May 03, 2006 11:42 ET (15:42 GMT)
The term "private equity" obviously means they are "private" (In the US this means owned by individuals unlike in the UK were "private" means owned by the government.) which means no stockholders. This means unrestrained salaries at the top, whatever "corporate governance" they please, ravish raiding of corporate coffers to pay fat “dividends” to their investors, very high leverage to consummate ever larger buy out deals, fat payoffs when worthless “brand names” are floated back on the markets by the “investment bankers” that will dump these newly re-floated companies on unwitting individual investors and last but NOT least NO SARBANES OXLEY COMPLIANCE... You get the picture.
I thought I would post this little blurb for you so you can consume all of what I just stated in ONE FLEETING EXAMPLE. Case study, Burger King. Note,
- borrowing $350 million to pay a special cash dividend of $367 million to its “investors”,
- $33 million to “pay off” management,
- another $30 million to “terminate a management contract to the private equity investors”. Like HELLO! Who do you think created the management contract? Pay off again, only this time it is to make the private equity owners richer. Remember, this is just ONE deal we are talking about here.
- Oh don’t forget the bottom where after being floated the stockholders will have negative equity if the company were liquidated after the float. Does this remind you of anything, Refco maybe? Milken leveraged buyout deals of the 80's?
Here we go...
Of DOW JONES NEWSWIRES
Fast food chain Burger King Holdings Inc. plans to sell as much as $480 million of its stock by the middle of this month for $15 to $17 a share, implying a total value for the company of about $2 billion.
At the midpoint of its price range, Burger King's underwriters are valuing the company at $2.1 billion. In 2002, a private equity group that includes Texas Pacific Group, Bain Capital Partners and Goldman Sachs Funds, bought Burger King from Diageo PLC for $1.5 billion at a time the burger chain's sales were in a decline.
The company's IPO is expected to price and sell some time in the third week of May; the stock will trade on the New York Stock Exchange under the symbol BKC.
Whether Burger King's performance will line up in the Chipotle or the Morton's camp is open to debate. The company's former chief executive, Greg Brenneman, departed suddenly last month, and received a generous severance package just as the company reported a net loss for its fiscal third quarter.
But there's no denying that the private equity group that purchased Burger King in 2002 has made improvements to the chain, producing eight consecutive quarters of comparable sales growth in the U.S. Those owners will continue to hold 74% of Burger King's stock if all shares are sold in the offering and over-allotment.
Burger King also has a strong brand name, which is sure to drive retail investor interest in the deal, says Sal Morreale, who tracks IPOs for Cantor Fitzgerald LP in Los Angeles.
"It's a brand name, a big brand name. How many of those moms and pops are going to go to their discount broker and say I want to buy this stock?" says Morreale.
The company borrowed $350 million in February to help finance a special cash dividend of $367 million to its private equity owners; it will not pay any dividends to common stockholders once it goes public.
Burger King also paid $33 million to members of senior management after the February financing and the dividend decreased the value of their restricted stock and options. In addition, a $30 million management termination fee was paid in February to the private equity owners.
Burger King plans to use all the proceeds from its IPO to pay down its debt; as of March 31, its total debt was $1.35 billion.
Even if the IPO had taken place in March and some of the debt had been paid off, Burger King would have had a net tangible book deficit of negative $623 million - meaning that investors would receive nothing if the company were liquidated.
- By Lynn Cowan, Dow Jones Newswires; 202-862-3548; lynn.cowan@dowjones.com
(END) Dow Jones Newswires May 03, 2006 11:42 ET (15:42 GMT)
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