More gloom
I read lots of weird stuff every morning before starting my day. Maybe I'm a masochist. Maybe I should dye my hair black, wear black clothes and become a "Goth" -- don't they have a negative attitude about everything? Maybe they are right.
You see, lots of people of my middle age have spent more than a few years scrambling to try and assemble a modicum of financial security. And to do so, they have bought into the whole notion that "over the long term" the equity market is safe and stable ... suitable for growth of your nest egg. And statistically I guess that this is probably correct. But I cannot fathom how this is meant to make me feel secure right now.
In point of fact, the whole notion of investing in equities seems to be some sort of ponzi scheme propagated by the major financial institutions of the world. I have work for them before -- I was the head of the proprietary trading desk of a major money-center bank in Manhattan. I gambled with the bank's capital ... but really, I was gambling with your savings account. I always "made budget." I was very careful and looked for the forgotten wealth "in the seams." Large bets on small variances in the yield curves. Occaisonally, I'd gamble on volatility -- yes, you can bet on the level of market movement without any reference to direction. But I digress, I was a capital markets trader and not an equities trader. Any movement was good movement for me --and when short volatility, no movement could be just as good.
Where am I going with this? I was always very conscious of risk. I never took positions that I couldn't unwind, and if there was a market discontinuity, I could weather the inevitable "down day" until I could hedge. But this does not seem to be the case today. Banks -- your savings and investments -- have determined to chase the last crumb of yield at the expense of your financial safety. And this is not limited to banks in the United States: Rams Home Loan Group, an Australian financial institution, saw its shares drop 60% after it annouced that it failed to refinance $5 billion in debt due as a result of its exposure to the U.S. subprime market. Clearly, a mortgage company has business in the whole subprime mess, but how could an Aussie company let its risk get so out of hand?
The latest showing of Aussie contagion sparked a huge sell-off in the Far East (I used to hate the Far East market ... a bunch of panic merchants if there ever was one -- if ever I hit stop-losses, it was always in the Hong Kong market). This was followed by an European sell-off. The U.S. markets? Well, as I write at 9:30am, the Dow is down a remarkably moderate 70 points.
The Fed continues to hold the line, rates stable against the threat of inflation -- while Rome burns. Housing starts for July were at the lowest level in 10 years. That is, homebuilders (they are the real drivers in that market, not people hiring someone to build them a house) are looking to the future and saying, "no way, no how am I going to build houses that I can't sell." Hmmm. Does that mean that they have been selling to people that are affected by the tightening credit situation? It would seem to imply that, wouldn't it? A vigorous economy driven by cheap credit to those that can't really afford it -- people almost statistically certain to default. The pimps for this sordid trade? The people that bundled up the securities to make the fast buck and the institutions who bet on the greater fool theory -- there will always be some sucker willing to buy the junk I have loaded up on. The victims? The people who CAN afford their loans, people trying to secure a little financial independence.
But this is still rational behaviour given the labor market in the financial industry. Make high earnings now and forget about tomorrow. Bonus today and retire tomorrow. There are not many people older than 50 in the whole industry. Certain firms have shown more restraint, others were in it with both feet. No need to mention names, the same market "makes allowances" for each firm's relative exposure. Smaller firms with the need to make the loot given a smaller capital base (and product mix), tended to be more active in pimping these products. But still rational. If everyone else is doing it and making tons of money, sooner or later the Board of Directors will start to question the competency of the managers and heads will roll for failure to be part of the bonanza. One gets forced into the trade to keep the share price up, or else.
So we have the pimps and ... the SEC / OCC. Everyone knows about the SEC, and we have heard that they are into the major brokerage houses doing a spot of investigation. But banks are regulated and report to the Office of the Comptroller of the Currency. A vast and little-known organization, sort of similar in a weird way to the NSA. Everyone knows the CIA, but the NSA is much bigger and mysterious. Check out their website: www.occ.treas.gov, its a riot.
Where were these organizations when the pimps were out hawking their wares? Huh? Anything that is too good to be true usually is precisely that, but nobody seemed to want to look into it. The SEC was doing its usual thing protecting the markets, chasing traders for charging a night out at strip clubs, conducting auto-da-fes for investigating front running orders and who knows what ... while the trolls were out getting the bonfire ready for the grand Roman conflagration of our financial security. Was it perhaps political? Did the administration forbid anyone to check behind the curtain like in the Wizard of Oz? Or just another case of looking the other way when greed was involved. Remember, the regulators have to go somewhere after they leave the government to earn some bucks to retire on too.
Go to cash. You can always get back in if things settle down -- all you can lose is opportunity, but if you stay too long in the market, you lose real capital.
You see, lots of people of my middle age have spent more than a few years scrambling to try and assemble a modicum of financial security. And to do so, they have bought into the whole notion that "over the long term" the equity market is safe and stable ... suitable for growth of your nest egg. And statistically I guess that this is probably correct. But I cannot fathom how this is meant to make me feel secure right now.
In point of fact, the whole notion of investing in equities seems to be some sort of ponzi scheme propagated by the major financial institutions of the world. I have work for them before -- I was the head of the proprietary trading desk of a major money-center bank in Manhattan. I gambled with the bank's capital ... but really, I was gambling with your savings account. I always "made budget." I was very careful and looked for the forgotten wealth "in the seams." Large bets on small variances in the yield curves. Occaisonally, I'd gamble on volatility -- yes, you can bet on the level of market movement without any reference to direction. But I digress, I was a capital markets trader and not an equities trader. Any movement was good movement for me --and when short volatility, no movement could be just as good.
Where am I going with this? I was always very conscious of risk. I never took positions that I couldn't unwind, and if there was a market discontinuity, I could weather the inevitable "down day" until I could hedge. But this does not seem to be the case today. Banks -- your savings and investments -- have determined to chase the last crumb of yield at the expense of your financial safety. And this is not limited to banks in the United States: Rams Home Loan Group, an Australian financial institution, saw its shares drop 60% after it annouced that it failed to refinance $5 billion in debt due as a result of its exposure to the U.S. subprime market. Clearly, a mortgage company has business in the whole subprime mess, but how could an Aussie company let its risk get so out of hand?
The latest showing of Aussie contagion sparked a huge sell-off in the Far East (I used to hate the Far East market ... a bunch of panic merchants if there ever was one -- if ever I hit stop-losses, it was always in the Hong Kong market). This was followed by an European sell-off. The U.S. markets? Well, as I write at 9:30am, the Dow is down a remarkably moderate 70 points.
The Fed continues to hold the line, rates stable against the threat of inflation -- while Rome burns. Housing starts for July were at the lowest level in 10 years. That is, homebuilders (they are the real drivers in that market, not people hiring someone to build them a house) are looking to the future and saying, "no way, no how am I going to build houses that I can't sell." Hmmm. Does that mean that they have been selling to people that are affected by the tightening credit situation? It would seem to imply that, wouldn't it? A vigorous economy driven by cheap credit to those that can't really afford it -- people almost statistically certain to default. The pimps for this sordid trade? The people that bundled up the securities to make the fast buck and the institutions who bet on the greater fool theory -- there will always be some sucker willing to buy the junk I have loaded up on. The victims? The people who CAN afford their loans, people trying to secure a little financial independence.
But this is still rational behaviour given the labor market in the financial industry. Make high earnings now and forget about tomorrow. Bonus today and retire tomorrow. There are not many people older than 50 in the whole industry. Certain firms have shown more restraint, others were in it with both feet. No need to mention names, the same market "makes allowances" for each firm's relative exposure. Smaller firms with the need to make the loot given a smaller capital base (and product mix), tended to be more active in pimping these products. But still rational. If everyone else is doing it and making tons of money, sooner or later the Board of Directors will start to question the competency of the managers and heads will roll for failure to be part of the bonanza. One gets forced into the trade to keep the share price up, or else.
So we have the pimps and ... the SEC / OCC. Everyone knows about the SEC, and we have heard that they are into the major brokerage houses doing a spot of investigation. But banks are regulated and report to the Office of the Comptroller of the Currency. A vast and little-known organization, sort of similar in a weird way to the NSA. Everyone knows the CIA, but the NSA is much bigger and mysterious. Check out their website: www.occ.treas.gov, its a riot.
Where were these organizations when the pimps were out hawking their wares? Huh? Anything that is too good to be true usually is precisely that, but nobody seemed to want to look into it. The SEC was doing its usual thing protecting the markets, chasing traders for charging a night out at strip clubs, conducting auto-da-fes for investigating front running orders and who knows what ... while the trolls were out getting the bonfire ready for the grand Roman conflagration of our financial security. Was it perhaps political? Did the administration forbid anyone to check behind the curtain like in the Wizard of Oz? Or just another case of looking the other way when greed was involved. Remember, the regulators have to go somewhere after they leave the government to earn some bucks to retire on too.
Go to cash. You can always get back in if things settle down -- all you can lose is opportunity, but if you stay too long in the market, you lose real capital.
posted by Zaphod at Thursday, August 16, 2007
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