Archive for August, 2012

Here Comes Obamatirement

15 | By Shah Gilani

Our politicians, our legislators, they are always right, and they’re all about our wellbeing, our future. We owe them.

After all, where would we be without our government? Would any of us have succeeded at anything without their helping hand? Where would we be without the handouts they shower us with from the small tax burden they ask of us?

Now, in their infinite wisdom, our leaders are looking out into the future to make sure our retirement prospects are financed and our promises to ourselves are fulfilled.

I’m calling it one small step for Californians, one giant leap for Americans.

I’m talking about California Senate Bill 1234 and what it will do to guarantee (because you know only the government can guarantee anything, and mean it) a securely financed retirement for private sector workers in California (some 6.3 million of them) who presently don’t have a pension plan or retirement fund to fall forward onto.

Oh, this is brilliant. It is a model for the rest of America. Now that we’ve got Obamacare, we’re going to get Obamatirement, too, when the rest of the country sees what California is trying to do.

Let’s take a look…

What I Learned About Making Money

1 | By Shah Gilani

Thirty years is a long time to be doing anything; but it’s a short time if what you’re doing is something you love to do. And the time spent is even sweeter if you’re making a lot of money doing what you love to do.

I’m very lucky. I’ve been trading for 30 years. I love what I do. And I make money doing it.

The truth is, I didn’t know what I wanted to do when I was growing up (some people say I’m still not grown up, I say thanks). I wasn’t handed anything. I didn’t go to college right out of high school. I didn’t know what I wanted to do. I didn’t know what to study.

So I worked, I travelled, I adventured. But the operative word there is “worked.”

Don’t get me wrong, I’m not lazy, I never have been, but I don’t like to work. I came to that realization after being a caddy, then a lifeguard, then a construction laborer, then a not-so-great carpenter, a dishwasher, then a not-so-great cook, tarring roofs in Arizona (in the summer) and working three jobs (at the same time) when I wanted to live in California and moved to San Francisco.

Then it hit me – all this stuff is work, and it feels like work.

I thought hard about what I really wanted to do. Something that was work, but could become a career, and it had to be something that wasn’t really like work, at least the kind of work I had been doing.

I didn’t have any money, but I had a plan. I figured that the best way to make money (when you don’t have any, but know it takes money to make money) is to make money with other people’s money.

That’s exactly what they do on Wall Street, so that’s where I was headed.

Where Would We Be Without the Fed?

25 | By Shah Gilani

We’ve arrived. We’re exactly in the middle between here and there.

The problem with being here is the “there” part.

I’m talking about where the markets are and where they’re going next. Is “there” backwards or forwards? Are we coming or going from here?

Before I give you my own forecast, and recommendation, let me say this about that…

Here are the two best forecasts I’ve ever heard:

  • “It will fluctuate,” which was what J.P. Morgan famously answered when asked what the market would do, and
  • “I cannot forecast to you the action… It is a riddle, wrapped in a mystery, inside an enigma,” which is what Winston Churchill famously said, not about the market, but about Russia. (The full first line is, “I cannot forecast to you the action of Russia.”) But you get the picture.

American markets are touching their highs. It’s as if everything is clear and sunny. It’s as if forecasting is as simple as looking out the window and calling out what you see.

It’s clear and sunny. Haven’t you looked outside? If only it was that easy…

But when you do look outside, let’s say, through a window, you only see in one direction. The question can then be asked, is the weather you’re looking at coming or going, or is it here to stay?

America, and indeed the global financial markets, came to the precipice of a cliff and barely caught their balance before plummeting into an abyss so deep and black that no one knows where it would have taken us. But my guess is to Hell.

The rope that held us from going over was stimulus, massive stimulus.

That stimulus was never mopped up. It’s been left out there like water on everything after the fire has been doused; and there’s more coming.

The Federal Reserve, which isn’t playing just 18 holes, but seems like it’s playing a marathon round of swinging hard and gently, but constantly swinging, is teeing up another ball with some little marking that reads QEsquared, or something like that.

Here’s my guess on what the Fed is going to do…

Just Another Summer on Wall Street

15 | By Shah Gilani

Another week goes by on Wall Street, and it was a quiet one. For summer, that is.

And thank goodness. All the scandals, all the negative news, all the time, always something. I’m getting tired of writing so much.

It’s my summer too, you know.

So, when my extraordinary good fortune led me into the company of a spectacular woman this past week, I escaped the Street reality, enjoyed the beach, the Hamptons… and did I mention a spectacular woman?

My only problem going to bed last night was, what was I going to write about this morning?

Then, of course, I woke up. And reality hit me.

Just because I was out of touch (from reality) last week doesn’t mean the surreal wasn’t spilling out all over the Street.

Okay, so it was little stuff, but it’s still stuff. And it’s still surreal…

Industry Capture: How Wall Street is Destroying American Exceptionalism

17 | By Shah Gilani

America is slipping into darkness.

One by one the lights are being turned off in our “shining city on a hill.”

And Wall Street’s greedy hand prints are all over many of the darkened switchboxes.

Of course, politicians’ grubby, filthy fingerprints are everywhere too; but there isn’t enough cyberspace to launch into when discussing that black hole.

Besides, this e-letter specializes in Wall Street indictments.

You’ve heard about regulatory capture. I just wrote about its dark side in this space.

Regulatory capture is when regulators become captives of the individuals and firms they are supposed to be watching, regulating, and disciplining when they break the law.

“Industry capture” is beyond just regulatory capture.

Here’s what I mean…

This is the Definition of “Regulatory Capture”

42 | By Shah Gilani

I’ll make this short.

It’s game over.

The match that ended on Thursday wasn’t the final match in the series being played here on U.S. fields.

But it might as well have been.

The score was so lopsided, it reminded me of those long ago and far away matches where everybody cheered the action, not the players, because the deck was always heavily stacked and the outcomes almost always a foregone conclusion.

Those days, long ago, such lopsided matches were all the rage in Rome. And typically, when scores were posted, it would be something like Christians nothing, Lions twenty.

On Thursday, though the score didn’t reflect the intensity of the match, the outcome was just as lopsided.

It ended up Justice nothing, Goldman Sachs won (I mean one).

You see, there is no fire raging. It’s all just smoke on the water. That’s because the regulators – and oh yeah, that includes the Justice Department – have been thoroughly captured by the real lions of Wall Street. (Now, there’s an idea for a reality T.V. show.)

In case you were too busy watching those other matches over in London, here’s what just happened.

What I See Ahead for the Economy

31 | By Shah Gilani

Let’s try and be insightful today, shall we?

Equities have been rallying; we’ll call it the summer rally.

Major benchmarks are only a few percentage points off their highs. It’s all good, right?

I don’t think so.

We could use the old “can’t see the forest for the trees” adage, which means, sure, you can look at all the trees around you and see they’re still standing, because you’re in the middle of the woods. But you can’t see the whole forest, because you’re too flat on the ground and too deep under the canopy.

Let’s rise above the treetops and market highs and look down, to get the big picture.

Here’s what I see…

What Really Happened at Knight Capital

32 | By Shah Gilani

Oh, you are going to love this.

That whole Knight Capital fiasco on Wednesday, when a software glitch caused them to flood the market with thousands of unintended orders, it ain’t exactly what you think it is.

Sure, they tripped over themselves in the dark pool where they were trying to compete.

But somewhat interestingly (okay, a LOT interestingly), the competitor that drove them to “upgrade” their trading software, which malfunctioned and caused them to actually bid-up share prices erroneously and then buy them at inflated prices, was none other than, wait for it…

The New York Stock Exchange.

That’s not the whole story, or even the good part. Oh, it gets better. A lot better.

Knight claimed a $440 million trading loss on Wednesday resulted from their computer glitches and sunk the company (at least for now; I’ll get to that).

Well, according to Nasdaq (this was on its site: nasdaq.com), it wasn’t a trading loss at all. Knight paid Goldman Sachs a $440 million fee (commission?) to take the errant shares Knight had bought on Wednesday morning off its hands.

Now, I don’t know what Goldman did with those shares, but my guess is they held most of them and sold them on Friday when the market soared a few hundred points. Of course, that’s not a “prop” trade. Knight is a customer of Goldman’s (it is now…).

But who cares?

Goldman Sachs ripped a customer for a $440 million fee, virtually bankrupting it in the process, flipped the shares it bought from Knight to “help” them (and first of all, probably overly hedged itself… as in enough to be net short… the large stake it holds in Knight’s convertible preferred) for a tidy profit, and then probably shorted the stock (before “helping” them, and themselves to their little fee) before the stock collapsed, then probably gave it its “lifeline” (that’s a guess, and I’m being sarcastic, but it’s possible). And maybe we’ll find out where that lifeline Knight got on Friday really came from) before buying a ton of Knight’s shares back on Friday before hearing (of course… before) that several big firms were looking at buying Knight.

What’s my point in the above LONG sentence? Who cares! That’s all business as usual at the Golden Vampire Sachs.

That’s after-the-fact stuff.

What’s more interesting is why all this happened in the first place.

Here’s what you probably don’t know…

Q&A: August 2012

1 | By Shah Gilani

I got hundreds of questions and comments this month from you about my stance on regulations. Let’s see why.

Q: I agree with you on the need for some regulations. However, they must be simple and clear… How would you write the regs? ~ Cory B.

A: Cory, all the regs I would write would be one-liners. That’s no joke.

Q: What we need is a hammer. Not the kind carpenters use, but a judicial hammer which treats serious crime seriously. No more civil trials for criminal offenses, such as the debacle surrounding Richard Fuld. These thugs know how to weigh odds, and most of them will gladly risk 15 months in a white-collar prison at hard tennis for, say, a few million in ill-gotten gains. You can’t fix fraud, but you should be able to make the punishment so severe that only the dumbest of the dumb would give it a try. ~ Ron S.

A: That’s what I’ve been saying. How come so many of you say it so much better than me? I’m always learning from you all.

Q: To put faith in regulation and the regulators is to assume they can’t be bought. They can always be bought. Whaddya gonna do? Reform the existing corrupted agencies? Get rid of the Gensler/Goldman-run CFTC and replace it with something else? And who would run that? Somebody from JPMorgan? ~ fallingman

A: I want teachers (grade school and junior and senior high school teachers) to be our regulators. They obviously aren’t about the money and they obviously are civic and civil minded. Why not?

Q: Who is going to put the “black and white” rules in place, the regulators? lol! Regulators are currently paid by the banks they regulate, umm, but, isn’t that a conflict of interest, or, am I just stupid?~ Domina L.

A: Stupid is as stupid does. If we go back to the way regulators regulate, we’re all stupid. We need a new breed of regulators. Expecting that we’ll ever get them to come down from Olympus is proof that I am stupid. But a boy can dream, can’t he?