Archive for February, 2012
Everybody’s got an opinion about the stock market.
That doesn’t make it easy for anyone who listens to anyone else, or worse, listens to everyone else, to get a clear picture about what’s really out there.
Of course, I have an opinion too. And of course, I’m going to tell you what it is.
But first, let me say this about that.
I never start with an opinion. I end up with an opinion, after trying not to have one.
That means I know I don’t know what’s going to happen, so I have to look at what’s really going on. And I get to my opinion by pulling back further and further until I can’t see anything small.
I pull back as far as I can because I want the big picture.
And the big picture is all about the major trend.
In last week’s Insights & Indictments, in my commentary on all the letters sent to the SEC about the proposed Volcker Rule, I not-so-casually commented that the Volcker Rule “shouldn’t exist at all.”
And then I called the parents of the Volcker Rule, the Dodd-Frank Act, a “joke.”
Well, by the amount of comments I got back from I&I readers – right now, there are about 95,000 of you (and counting) – you’d think I was talking about something really controversial, like contraception, for heaven’s sake.
Talk about passionate!
I understand that people get passionate about contraception. After all, without all that passion, we wouldn’t need contraception.
But me being passionate about the birth of the Volcker Rule, which I said should never had been conceived, apparently caused a lot of you think I crossed some moral line.
Not me! I’m not one to ever say anything controversial! And I’m certainly not the kind of guy to wade into the contraception debate.
But, if I was, I’d be a strong advocate for it.
The unwelcome birth of the Volcker Rule is a good example…
Something bad has to happen. Why? Because things just look too darn good.
Last year was one of the wackiest and definitely one of the most volatile years in the history of stock markets.
For a good part of the year, all eyes were on Greece, that slippery sibling of the 17 Sisters currency family. The country
- was going to default;
- wasn’t going to default;
- was going to be let go by the Union;
- was going to go on its own;
- was hauled back into the E.U. boat;
- begged and clawed to get back into German good graces, even as its citizens gave the Teutonic Tamers the collective finger along with other E.U. (as in "everything yours is ours") creditors who wanted Greeks to slide their airport and maybe some stone-walled vestiges of the world’s first democracy into a collateral pool to back promises of repayment.
The fate of the free world, and China too, was held hostage to contagion fears – that a Greek tragedy would infect global banks, and that the Great Recession would start to look like a fond memory.
But then, something miraculous happened.
Right now everyone’s talking about the Volcker Rule.
For heaven’s sake! What’s the big deal? After all is said and done, there is only one real problem with it (and I’ll get to that in a minute)…
The 300-page draft Rule, named after its champion architect, former Federal Reserve chairman and inflation-fighting icon Paul A. Volcker, is an addition to the ever-evolving masterpiece of legislation (yes, I’m being sarcastic) known as the Dodd-Frank Act.
Now, draft SEC rulemaking and regulatory actions are first submitted to the public for “comment.” The SEC collects all comment letters and posts them on their website. (Check out “How to Search for EDGAR Correspondence.”)
Well, wouldn’t you know it, this draft (some might call it “daft”) Volcker Rule has caused a flurry of letter writing; letters were due to the SEC by no later than this past Monday evening.
All in all, this august (not the month) regulatory body received 241 detailed comment letters (that’s a lot of comment letters) and an astounding 14,479 mostly form letters, as well.
Almost all of the form letters to the SEC, many of which were “personalized” by submitters, were strongly in favor of the Volcker Rule and called for strengthening it and not watering it down by allowing any exemptions.
How do I know that?
A third rail sometimes runs alongside (or between) the twin rails of a train track to provide electric power to the train.
You don’t want to step on these high-voltage rails, unless you’re game for the shock of your life, or death, as the case may be.
In politics, the “third rail” is a metaphor for an issue that’s “charged” enough that, by supporting it, you risk derailing your career.
Me, personally, I get a real charge out of political discussions, especially contentious issues.
But there’s one “third rail” in politics that no-one ever seems to want to talk about.
And I don’t understand why.
It’s not even charged. In fact, it’s more of a non-starter for most people. They don’t get electrified by it; they get indignant, as if you’re stupid if you even bring it up.
Okay, call me stupid…
The dual question I’m getting asked a lot these days is, “Have stock markets gotten ahead of themselves?” And “Is too late to get in?”
My answer – hold on, let me dust off my crystal ball – is…
Yes, they have.
And no, it’s not too late.
Markets here and (especially) in Europe look like they have gotten ahead of themselves. But the surest way I know to lose money in the stock market is by fighting (or “fading,” in Wall Street parlance) the trend.
Bad things can always happen. We know there are black swans out there. But stock markets have been climbing the proverbial “wall of worry,” and most of them look surprisingly resilient.
So what to do?
Since we launched Insights & Indictments a few months back, I’ve been overwhelmed by the reader response.
I want to thank you for that. The feedback I get from all of you – good, bad, or neutral – is tremendously valuable. It’s a big part of the process for me. I need to know when you “get” what I’m throwing out there… and, even more importantly, when you think I’m dead wrong.
That’s why, from now on, I’ll be dedicating the first Tuesday of each month to a Q&A column.
I encourage you to share your own comments and questions. Just send them to email@example.com.
Of course, I have to say right up front that I can’t give any personalized investment advice. But I can and will try to address them in future columns.
Let’s dig right in…
So you really want to know what’s wrong with America?
Okay, I’ll tell you.
But you have to do me two favors.
First, I respectfully request that you put aside any preconceived notions you might have about my agenda.
I’ll tell you right up front. My agenda is to get Americans to stop thinking the way they’ve been tricked into thinking.
You see, I used to have an ideology and strong political leanings.
Now my ideology conforms to the real world, as opposed to the tyranny of magical thinking, and my political leanings shift against the ill winds of stale rhetoric. In other words, I am a realist.
Second (and this is a huge favor), as you read this, pretend you don’t have any ideology, any political leanings, or any opinions.
Okay, ready? Here it is.
In case you didn’t catch the article titled “Guilty Pleas Hit the ‘Mark'” in yesterday’s Wall Street Journal, I’m here to make sure you don’t miss it.
This is too good.
Three former employees of Credit Suisse Group AG (NYSE:CS) were charged with conspiracy to falsify books and records and wire fraud. They were accused of mismarking prices on bonds in their trading books by soliciting trumped-up prices for their withering securities from friends in the business.
By posting higher “marks” for their bonds in late 2007, they earned big year-end bonuses.
What a shock!
What’s not a shock is that, after a bang-up 2007, Credit Suisse had to take a $2.85 billion write-down in the first quarter of 2008. No one knows how much of that loss was attributable to the three co-conspirators, who were fired over their “wrongdoing.”
Two of the three accused pleaded guilty. Also not shocking is the reason David Higgs – one who pleaded guilty – gave for his actions. He said he did it “to remain in good favor” with bosses, who determined his bonus, and who profited handsomely themselves from his profitable trading and inventory marks.
As for Salmaan Siddiqui, the other trader who pleaded guilty? His attorney Ira Sorkin, the former SEC enforcement chief, said of his client, “What he did was the result of his boss and his boss’ boss directing him to do it.”
You know what else is shocking?