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A (Brilliant) Light at the End of the Tunnel

22 | By Shah Gilani

It’s about time there was some light at the end of the tunnel.

I’m talking about the dark, “are markets safe, is it time to invest” tunnel. And I’m not talking about this next round of quantitative twisting stimulus meant to “light up” the dark hearts of short-sellers.

The illumination I’m seeing is the result of, believe it or not, a little something called bipartisanship.

No, that’s not a gay cruise line. That’s a gay, as in happy, coming together of opposing political views to get something done in Washington. So what if that something is really about getting votes? Let’s not look a gift horse in the mouth.

Finally a Republican and a Democrat are saying the unthinkable. After all the brouhaha over the botched (unless you’re an insider who sold at the top) Facebook Inc. (NasdaqGS:FB) IPO, there’s breaking news out of Washington that they smell something funny going on in the capital markets.

By shining his Bic lighter on the Facebook fiasco, Democratic Sen. Jack Reed of Rhode Island, a subcommittee chairman over at the Senate Banking Committee, told the Wall Street Journal, “The perception today, and perhaps in too many cases the reality, is that the retail investor comes in at a disadvantage.”

Brilliant!

More to the point – and more forcefully, because he actually penned a 15-page letter to SEC Chairman Mary Shapiro – Republican Rep. Darrell Issa of California, of the powerful House Oversight and Government Reform Committee (not much need for that, huh?), demanded the SEC address how egg got on the face of our capital markets thanks to Facebook’s underwriters fleecing unsuspecting stoolies who bought the IPO.

The crux of the matter was simply laid out, in unequivocal Washingtonspeak, when the oversight committee expressed fears of a crumbling capital markets system if laws continue “to protect, over-regulate, and coddle our financial institutions.” Brilliant!

Now I get it. Financial institutions are screwing up everything because they’re being protected and coddled precisely because they’re over-regulated. Brilliant!

About that light…

It was previously directed at over-regulation by Mr. Issa when he helped pen the JOBS Act. You know, the Jumpstart Our Business Start-ups Act. You may not know about the act, because it’s so new. But believe me, you will come to know about it when it opens up a Pandora’s box of criminal activity and rip-offs beyond imagination on the public, who are going to end up buying into start-ups that aren’t going to be regulated and don’t have to post honest and transparent financials for years.

Brilliant!

You want some REAL light on the Facebook Farce? Here it is.

The deal was hot, thanks to more than 900 million Facebook “customers” who represented a new marketing paradigm. The hype was super-hyped by all the underwriters.

After whipping up the press, the pundits, and the platitudes, while behind the scenes telling big institutional clients that Facebook’s financial metrics might be deteriorating somewhat, lead underwriter Morgan Stanley – yes, at the urging of Facebook’s CFO -priced the IPO at the top of its new higher high range and pumped out more shares to the public.

The public, also known as the little people, the stools, the mini-Muppets, and the backstops.

While typically the public is allocated maybe 15% of IPO shares (still, through their begging and preferred status at their brokerages), in the Facebook case, they amounted to 26% of the lucky lovers of Facebook. That’s a nice backstop, to say nothing of the rest of the public supposedly lining up to buy the stock once it became available to them.

Good old Morgan Stanley even points to how good a job they did (it was all the Nasdaq’s fault, you know) pricing the IPO. They point out now that after it opened at $38, it soared from to $42, or $45, or whatever it got to, no-one knows but the Nasdaq, you know.

Seriously, you want some light on the capital markets in general? Here it is: They’re broken.

I’ll prove it to you on Sunday. Hint, hint, it has something to do with “trading.”

About that light… It’s a train barreling down the tracks, coming straight at us.

Now, if you’ll pardon the interruption, I’m going to address a very good question from a very smart reader of these pages, who had this query about one of these videos we keep sending you:

Q: In response to a question that is posed by the interviewer about the problem in the [Eurozone], Shah said that the EZ needs to establish something like the Federal Reserve here in the U.S., but that it would take too much time to prevent a backdraft. In your description of “the Matrix,” one of the six forces involved in the Matrix is the Federal Reserve. Why would Gilani suggest that Europe needs something like the Fed, when that is one of the manipulative forces in the Matrix? ~ John

A: Well, John, let me say this about that. The Fed is a manipulative force to be reckoned with. It is the banks’ bank and their political heavy hand.

That said, I’m unequivocally NOT for a “federalized” type of banking institution like our Federal Reserve being set up in Europe to manipulate all those countries for the good of the banking constituents who would “own” the European Federal Preserve of wild roaming banks.

My point was that actually walking down that path would theoretically calm European markets – and they may go there. But God help us if that’s the end game.

And while that would be bad for “free markets” (as if that’s what we have now, NOT), it would be great for those of us who understand the Matrix and trade around and through the manipulation foisted on the unsuspecting public.

Hope that answers your question.

Shah

22 Responses to A (Brilliant) Light at the End of the Tunnel

  1. LITM says:

    I believe that consolidation like creating a Fed is akin to GLOBALISING banking which when subjected to forces such as the Capitalists (Republicans) is a sure sign of encouraging MONOPOSPOILISTS to “screw” the people 99% for the 1%.

    Rather that we should encourage the SMALL is BEAUTIFUL philosophy and BREAK-UP the GLOBALISED (FED) institutions into the small NATION or STATE states to function independently to compete or co-operate with each other willingly and not FORCED by a FEDERAL situation. Which should ultimately in the best interest of the 99%.

    Sincerely,

  2. Tom Stiebler says:

    Hi Shah,

    Since our esteemed congress persons are allowed to trade on inside information, my take is that Mr Issa and his fellow ‘free marketeer’ republicans would like to get in on Wall Street’s favorite ‘capital raising’ function – aka pump & dump…

    Thanks for all the wonderful info,
    Tom

  3. Mike Townsend says:

    We are never going to straighten out wall street until we ban the analyst practice of deliberatly posting a higher return rate than a company can produce and then shorting the stock.

  4. Mike Len says:

    Until somebody powerful enough (maybe our president) steps in and puts an end to the corruption going on in the markets, the 99% are going to only keep getting the shaft on any trades they make. I will always go in short and pull out with a profit on any stock. That way I am still making money while getting around all of the bruhaha. These Racketeers all need to be put in prison for what I say are crimes to our nation. I don’t think the jail could handle that many republicans and democrats in the same room for very long without causing a riot, then maybe we can bet on which one comes out on top.

    • Mario says:

      Are you kidding, or are you delluzional?President to take a stance?…To end the corruption? …Hell, he’s thriving on it! Remember, he has to reward his contributors, who put him where he is!… If he would really be concerned about where this country is heading on his watch, he wouldn’t be so interested in blowing some innocent women and kids using his drones in Afganistan, Pakistan, Yemen or Somalia. He would use the FBI and US Marshalls to make some arrests on Wall Street! The rules and regulations are there, on the paper, and are more than enough if they would be enforced.Guess why they aren’t…

  5. Joseph p bell says:

    another way to stop wally streets monopoly is to put a STOP in the outdated and biased DOW JONES AVERAGES ?average what .. 30 stocks manipulate over 6000 listed companies . since the markets ? were started ? They can be changed at will ;such as the big change when the NASDAQ had all the good TECH stocks soaring . .

  6. William says:

    Shaw

    f you are not in favor of The Federal Reserve Bank system (outlaws protected by a US government charter) which includes all of our nations biggest banks (more outlaws) and even the smallest banks and savings institutions (mostly hustlers that would really like to be outlaws ), what do you advocate to replace the Fed, Wall Street & Co and our current banking system with when the Fed is finally abolished which will probably require a mass pardon or the dissolution of the USA to get accomplished?

    • Mike Len says:

      I couldn’t have said it better William. Until the outlaws and rats start playing by maybe a set of RULES that are already in place and quit spitting on them by using the loopholes within the laws, We’ll never have a True Market system. Like Bill Maher said in a recent show, The presidents true messages are: Democrats – They won’t let me fix the problems. Republicans – You can’t fix the problems we created.

      • keng says:

        The President is the most corrupt of all….read Michelle Malkins book, Culture of Corruption (but only if you dare consider substantiated facts over broken promises, hype, and outright lies.) And what you all seem to forget is that “Power corrupts and absolute power corrupts absolutely.” …and it matters not which party you are affiliated with or your gender. The answer lies in smaller federal govt, more local control, tort reform providing for a more robust and timely judicial system…as a start.

    • Doris Kelsey says:

      William, the Fed did not exist before 1910. We didn’t need it before then, and we don’t need it now. We had a revolution in 1776 to get RID of a central bank. It can be replaced by state banks, like the one in North Dakota. Have you noticed ND does not have financial difficulties and has VERY low unempolyment? ND does not use Wall Street to manage it’s pension funds, or for anything else. They keep their money to home and loan it out to their residents. But then, the bank was set up during the 30s by FARMERS and we all know how stupid they are:) FARMERS like George Washington and Thomas Jefferson.

      • Mario says:

        Good point about the Fed. Everything else is a bunch of crap.North Dakota can thanks for it’s ( relative) prosperity to the fact it just found itself sitting on the top of Bakken formation, right at the time when huge innovation was making fraking as common as a Big Mac! Everything else is history…But, if history is something worth studying, England was in the same position in the ’80. They just found those huge oil deposits in North Sea, suddenly, England became an oil EXPORTER, and Margaret T was “The Savior who saved England”. Now, when those deposits are almost depleted, where is the cheer?…
        Same thing will gonn’a happend to ND too sooner or later.I’d like to read your postings then…
        Ah, and about that “relative” prosperity – you should be a complete idiot to not figure out the real inflation on local level in ND is almost 4 times bigger than everywhere else in US! Yes, you can make 12$ an hour flipping burgers at a fast food in Jamestown or Grand Forks, but your rent for one bedroom apartment will run over 1000$! And, well, if you are flipping burgers, one or two of them may end in your belly at no cost,but you may be shocked if you have to go to the grocery store and buy what you need!…

    • Ed the Grocer says:

      Make a list. And post it. What do we want our money system to do? And then how do we do it.
      Simple method to hold value. ( I have a five dollar bill in my pocket and I wish to trade it for a loaf of bread and a dozen eggs, without question.)
      Sometimes I would like a little more security and so would the grocer at very low cost. ( Interact card or cash loaded card )
      Sometimes I would like to buy on line. ( Visa – fees are high but security is usually covered. )
      Sometimes I would like credit without hassle. ( Visa – fees are high, but if the card clears…the card clears. )
      I would like to send money to a friend in need or money across borders to home. (Wire service – fees are too high but it works. )
      So far there doesn’t seem to be any problem with money.
      Credit? Trading!!
      Now there is a treat. We should be careful to target the problems and keep the customer in mind when it comes to service and cost. Maybe we really have only one or two problems …and if we put just a few in jail…Nahh.
      Maybe advertize systems that work better. What legislation does does ND use? Do their unions have a policy on investment or are they out for the biggest buck? Do the governments have hiring policies for contractors or is ‘bigger must be better’ the choice. And the toughest question. Is government actually ‘open’, transparent’?
      So maybe we are our own worst enemy. We give our money to strangers and expect the hype to work. Are we greedy or lazy? Most likely. Its time to change.

  7. Andrew West says:

    There are really only 100 million real users of FB. As advertisers wake up and see that reality the FB model get’s valued at about $15. People are so gullible.

    IPOs are never fair, that’s not how they’re designed. They simply seek to grab their profits by letting the retail investors participate. They usually get screwed.

    Crowdfunding will change that. The wisdom of crowds BEFORE the company is launched will bring some sanity back to the market. The IPO hype ended long ago, except for those that jumped on FB.

    • Mario says:

      Yeah, just another cowboy thinking he “Got it!”…Well, somehow he speaks part of the truth, but only regarding “His” problem…
      OK guys, an IPO is a sword, Has always two edges. And both can cut.Deep!!!
      And, I mentioned… KILLL…?
      Well, as far as I’m posting this one, I didn’t hear about people jumping from Brooklin bridge, Golden Gate, or Empire States Building….Well, about last one I’ll have my rant later, …actually, NOT!… I’m wondering, right now, if we were suposed to be a “REPUBLIC”!!!!!, Why, to Hell,our most impresive building for almost a century, was called, and still is ” EMPIRE….”? You know the rest “STATE ??? BUILDING”…

  8. David Vigil says:

    Shah –
    You are spot-on about the JOBS Act – this may well be the most dangerous financial law ever, anywhere! Millions of unsuspecting and uninformed “investors” will be shorn of their meager “investment” funds by unregistered, unscrupulous and outright fraudulent promoters, who have no real chance of ever successfully, transparently and fairly rewarding “investors” in their unregulated schemes.

  9. None of the Above says:

    If Republican Rep. Darrell Issa of California is upset, it must mean he lost money on the IPO.

  10. Ed the Grocer says:

    Everyone talks as if all debt is the same. Are there reasonable descriptions of debt in the Euro and the US that separates paying infrastructure debt ( water systems ) and non-paying infrastructure ( regular highways ) , and social debt ( part of public health care ) and war debt, and market bending debt (corn subsidies ) ? These debt conditions should be attended to differently. Are we doing break-down management ( responding to disasters ) or are we hiding crazy stuff such as war debt by rolling it into the rest? Anybody? Shah?

  11. eric taylor says:

    A few years before our Chicago-SMSA Milton Friedman died, he finally
    decided that protecting monopolistic corporations was the way to go.
    He said no more antitrust! The after burn from his change in belief
    is still with us today from his many supply side supporters.

    “What Me Worry?”

  12. J.D. Hadley says:

    Your insight has really help me understand quickly the real picture, which has allowed me to invest different resulting in profits.

  13. Jim Reese says:

    Why not look for a real solution? Already it has been introduced in the House and in the Senate…H.R. #25 and S. #13…..the Fair Tax. It will eliminate the IRS and substitute a national sales tax to fund the federal government.
    Please explain to me why we shouldn’t fund the government by taxing expenses rather than taxing productivity.
    ….and, when we eliminate the IRS jobs can come flooding back into this country…and we will have no need for a Fed…..

    • Ed the Grocer says:

      If the fair tax is handled the same way as the Euro VAT and with the simple rules as the Canadian HST it would simply give you one of the tools for the way back. In other words, you would have a tremendous advantage. But what are the chances of American politicians being that bright! Ha!! In your dreams.

    • Jim says:

      Taxes in this country have generally been progressive. A national sales tax is extremely regressive. Clearly, it hits the low income earner much more severely than a wealthy individual. Fairness in our tax system has been a hallmark over the years. Those who make more, pay more both as a percentage of their income and as an amount. If the government taxes income, it is not necessarily taxing productivity. The advocates of a sales tax or a flat tax have had a rough time balancing the numbers in the budget, unless the tax rate is higher than many could afford to pay. The impact it would have on lower income earners would be significant and put a real dent in their ability to consume and buy.

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