Shorting the Shorts
November 20th, 2008
Today, Citigroup begged the U.S. government to reinstate the ban on short selling in the financial sector. CNBC ran an interview piece on shorts yesterday, with experts generally agreeing that drops of over 15-20% per day in a stock was not because of value, but could only be because of shorting.
A day earlier, a US investment expert (in London at the moment) exhorted the US audience at MSNBC to reinstate the “uptick rule”, one of the many regulations cleared away in the last few years, which prevented shorts from just piling on without an interim uptick. Citibank asked for the same assist today.
Finally, John Bogle (Vanguard co-founder) has now come out strongly against what I’ve been calling Vampire Investors; he figures they take about $600B a year out of the US financial system, without adding value. He actually says they subtract value.
One of these classes of Vampires are a certain category of shorts.
One view of shorts is that they are the other half of a natural balance: long vs. short. Simple, eh?
Another is that they form a necessary part of any arbitrage play, and so provide natural risk aversion and stabilization to — to what? To individuals, hedge funds, or the market?
I would suggest that the natural balance of things is represented not by long vs. short, but by buy vs. sell.
Shorts operate in various ways, but the most insidious, I think, is the Jackal Trade, where you see a whole bunch of jackals pick a target (in the last few weeks, we’ve seen a long list of examples in the financial sector), and then attack it in concert, driving the price down even as they make money on the decline.
Does this add value? No. Does this stabilize the market? Just the opposite: it is perhaps the primary danger equities markets face today. Can we count on the self-interest of shorts to stop doing it when it endangers otherwise-healthy companies, or even whole market segments? Obviously not; they won’t stop as long as there is money to be made - and why should they?
Australia outlawed shorts in September.
I think it is time for serious consideration to be given not just to stopping shorts in the financial sector, but in the markets. Perhaps there is some alternative way to provide some hedging range of offlaying risk, without allowing shorts to drive global banking stocks down 40% in a day. If so, fine.
But the SEC and friends have to bring this carnage to a stop. It has nothing to do with capitalism, everything to do with market manipulation, and it is wreaking incredible damage at a time when we need serious repairs.
Companies on the Road South
November 18th, 2008
I mentioned last week at the WTIA Predictions Dinner that Jerry Yang’s act of refusing Microsoft’s $33 / share offer for Yahoo! may have been the greatest disservice to shareholders in recent memory. That followed an earlier prediction in the SNS newsletter that Yahoo! stock would act like a reverse rocket if they turned down the MS offer.
All of which leads to the category of Companies on the Road South, often exacerbated by the current economic climate, but almost always already in dire straits for some other reason.
Here are three obvious nominees for this dubious award:
Yahoo! Although my friend Matt McIlwain thinks Disney is the likely white knight here, whoever gets it will be paying almost nothing for the privilege. And if top officers keep leaving, they will be getting almost nothing, too.
Nortel. One of my tests for companies headed south: I can’t tell you their strategy in a sentence. And wanting to sell products, or being the coolest company in Ontario, do not qualify as goals or strategies.
Sun. With the final sunsetting of its proprietary server edge, due, in my opinion, over the next twelve months, exactly what business does that leave Sun in? Selling free Java kits? Giving away Office competitors software? Writing blogs?
Sun, Nortel and Yahoo! have been great companies in their time, but each lost direction, loaded up on way too much hubris, and blew the ego/value ratio out the door, on the way to that fabled Road South.
One hopes they’ll find happy homes inside some other company somewhere, since they still have many skilled employees who deserve better, and since the chances of them being an independent company a year from now are vanishingly small.
The Funniest Part Of Putin, Chapter 3
November 16th, 2008
As many will have noticed this weekend, Russia slipped even further from the landfall of democracy, as Putin’s handpicked legislature voted almost unanimously to increase the presidential term from four to six years. Not only does Vlad intend to serve those next two sixers himself, but the smart money is on Medvedev stepping down early so Vlad can get back in sooner. Why change the curtains after all?
The funniest part of this whole charade: only one party had the guts to stand up to Putin’s self-serving antics, and vote No on the extended term. Want to guess who they were?
The Communists.
And that should tell you all you need to know about the State of the Russian Union. The Communists are opposing the KGB (FSB).
Barack’s Technology Potential
November 12th, 2008
Barack Obama has already let it be known that he will be seeking a Chief Technology Officer for the United States of America. Wow! Really?
For me, this is right up there with the current PM of Australia running on a platform of broadband to the masses, and one to one education to the children.
Australia is living in the 21st century, based on its last election and current administration. Perhaps the U.S. can now leave the 18th or 17th century, and join them. That would be a relief.
Tonight, at the Washington Technology Industry Association (WTIA) Annual Predictions Dinner, I had the chance to be on a panel with Ben Elowitz, CEO of Wetpaint (and past co - founder, Blue Nile, the most successful online jewelry site); Matt McIlwain, managing director, Madrona Ventures; and Kelly Smith, Founding Partner, Curious Office.
The panel was moderated by John Cook, who has just come off writing a great column for the Seattle Times on local venture ops, to joining hands with well-known SNS member Todd Bishop, to form a new local site called Techflash.
The whole evening was enjoyable. Some of the high points: everyone had a very high regard for Amazon’s cloud compute data center. My suggestion of Microsoft being the stock to own going forward a year seemed to be well accepted, as at least a smart defensive maneuver. Matt and I had some ideas about what might be done with EMC and VMware to make gobs more money than they are currently making, despite their recent capture of our genius / friend Paul Maritz.
I think the seasoned folk convinced the general crowd that more bad things were coming, both in the equities markets and on Main St., but that there were several ways to the exits, if you were paying attention.
I will soon be writing a full newsletter on this subject, and Members will learn more about which companies will be coming back first, in my estimation, and why.
All in all, it was a delightful eventing, and I thank Ken Meyer and the WTIA for including me, once again, in their Predictions Dinner.
Now I will start getting ready for our private release of SNS predictions for 2009. These seem, increasingly, like the things folks could make real money on. I hope we will see you with us in New York, at the Waldorf=Astoria Hotel, on December 11th, for our Fourth Annual meeting.
Did the Neocons Nuke McCain?
November 9th, 2008
Most observers probably think that, having dragged the U.S. into a useless and bankrupting war in Iraq, after which on e of their own pleaded guilty to spying for Israel against the U.S. while working at the Pentagon, thought maybe they had all just disappeared, perhaps in shame.
After all, they certainly became invisible in Pentagon ranks, with everyone from Richard Perle to Paul Wolfowitz and Don Rumsfeld (and Paul Feith, and —) just evaporating from the roster overnight.
Well, it turns out they’ve been busy. It would appear that the sinking ship was no longer attractive, compared to John McCain’s campaign.
As you know, Senator Joe Lieberman spent last year campaigning with McCain, forgetting for awhile that he was a Democrat. I’ve been telling friends, like the editor of our local paper, that McCain wanted him for VP; now, thanks to Newsweek, we learn that this was true. Also true: McCain was deprived of his choice (by the RNC?? by whom?) at the very last moment, forcing the non-vetted choice of Palin.
Certainly, Israel would be happy to have Lieberman in as VP. if part of the definition of Neocon is fighting Israel’s wars for it in proxy, then Joe is all there. It looks like Plan A didn’t make it, perhaps because the RNC could not stomach having a Democrat on the ticket.
But - probably no accident - they had another neocon on staff ready to help: Randy Scheunemann, head of foreign policy (and national security) for McCain, is a longtime neocon. Not that there was any lack of neocon assistance in McCain’s ranks, inluding John Bolton and Robert Kagan.
So here comes the theory part. Did you know that the Neocons first became entranced with Palin when they were conferencing on an Alaskan cruise, where she joined them for an afternoon tea? Word later was that they were bowled over by the Governor, with one person later describing her potential as “a blank slate.”
Zoom back two years later to Joe getting dumped. In no time, the Neocon Plan B comes into place, inserting Blank Slate Sarah in as VP instead of Joe.
Now you know where Sarah came from, it would seem. And by either plan, given Mac’s age, the Neocons would have a new VP, and likely a new President, before long.
While many in the press this week have been reviewing the lack of wisdom or vetting in McCain choosing Palin, no one has been mentioning the Neocons, at least in public. Except the NYTimes, which published a story last week in which it revealed that, near the end, Sheunemann was leaking anti-McCain inside information to uber-neocon William Kristol, for anonymous publication.
Gee, did Randy work for his boss, McCain? Or did he work for someone else?
Are you ready for Sarah? She looks like the new Neocon choice.
Luckily, there is no indication that Rahm Emanuel, Obama’s first staff pick (chief of staff), is a Neocon. True, he holds or held Israeli citizenship. True, he escorted Obama to a private meeting with the AIPAC executive board just after Obama made that embarrassing over the top speech to them about giving Israel all of Jerusalem, and true, he announced his support for Obama just after that executive session.
Did I mention that, during the first Gulf War, Rahm signed up for the Israeli military, rather than ours?
And of course you read the Net comments about his father, bragging back in Israel about the influence his son would have over Obama. Did you know his father belonged to the terrorist-like group Irgun, and is said to have assassinated a Swedish diplomat and other civilians on the path to the founding of Israel?
But he’s no Neocon.
Do you think McCain suspects that his friends, the Neocons, nuked him, first by picking Palin, and then by leaking campaign problems? I wonder if he can see it.
Fourth Annual SNS Predictions Dinner in New York
November 3rd, 2008
The Fourth Annual SNS Predictions Dinner in New York will be held on Thursday, December 11th, at the Waldorf=Astoria Hotel, 301 Park Avenue, New York City.
Last year’s attendees were perhaps the first people in the country to hear that the Federal Reserve had lost control of the U.S. economy, oil was going to break the $100 / bbl barrier, and the U.S. economy was going to split, favoring global technology companies even as finance and housing went down.
SNS members, have gotten used to knowing the news before it happens, and being ahead of their friends and competitors on the issues of large-scale, strategic changes in markets and products.
Because those advantages matter more in a down market, I’ll be doing what I can to put together a forward look that will be useful to our guests in the coming year. I hope you’ll join us, and benefit accordingly.
This is always an enjoyable evening, offering a chance to think outside the box, to meet new and old friends and make new business contacts at the reception, to enjoy an excellent dinner, and to be the first to hear our key predictions for the coming year.
As usual, the global business press will be joining us.
We have reduced the fees this year, in keeping with the new landscape. Space is limited, as past attendees know, so don’t wait too long to register which you can do here:
https://www.tapsns.com/newyork/2008/registration.php
Spring Street International School Discovery Series
November 2nd, 2008
I am very proud to be one of the parents at SSIS; my son Evan has attended this great school for years. Last year, we developed the Discovery Speaker Series, intended to provide some waypoints for kids in high school looking at colleges and majors, and trying to figure out how to get from a high school class list to a career. Sidney Rittenberg was our very first speaker, and we now have two of these up on Youtube.
Because of a cancellation, I will be the next speaker, on November 6th, Thursday eve, at the San Juan Room in the Friday Harbor House in Friday Harbor, at 7pm. I’ll be talking about the economy, how we got here, and where we go next. The evening is free, and anyone interested in these subjects is welcome to attend.
NPR: KPLU Radio Interview: Vampire Investing
October 31st, 2008
From NPR and KPLU Radio: If you’re wondering who sucked all of that money out of your retirement fund this Halloween, you may want to blame the financial equivalent of the undead. Strategic News Service publisher Mark Anderson explains vampire investing to KPLU’s Dave Meyer. Listen Now.
Generation We
October 28th, 2008
From: SNS Special Letter: Generation We: How the Millennial Generation Is Taking Over America and Changing the World
By Eric Greenberg with Karl Weber
…The Millennial generation has already begun to emerge as a powerful political and social force. They are smart, well-educated, open-minded, and independent – politically, socially, and philosophically. They are also a caring generation, one that is ready to put the greater good ahead of individual rewards. And they are already spearheading a period of sweeping change….
[Mark Anderson comments] Many of the Millennial inclinations documented here remind me strongly of conversations held over the last few years at Future in Review. Specifically, I am reminded of an onstage conversation I had with our good friend Bob Hormats, Vice Chair of Goldman Sachs International, who had just given a keynote discussion that focused on changes in education needed in the U.S., one of the key areas picked for needed change in Eric’s study.
“Who is going to make this happen?” I asked him. “Is it the government?” No, he said, it isn’t the government. “Then it must be the people in this room,” I suggested, and Bob agreed.
A year later, this and related conversations led me to propose the FiRe Mantra, which seems a direct reflection of the Millennial perspectives Eric describes:
It isn’t about problems, it’s about solutions.
It isn’t about the future, it’s about now. And
It isn’t about them, it’s about us.
I think, with assistance from Eric and Karl, we may have found real reason for hope after eight years of increasing darkness.
Read the complete article here: http://www.tapsns.com/selected.php?issue=2008-10-22
Then visit the Generation We website to get involved.
The Carry Trade, Unveiled At Last
October 26th, 2008
Tim Coldwell, in his comment on the item below, points to a video made Friday by FT correspondent John Authers, pointing to the tight correlation between the Yen / Dollar ratio and the S and P 500. In the U.S. on Friday afternoon, the same chart was being shown by Dennis Gartman on CNBC.
SNS members will hark back to February of 2007, when I was able to figure this puzzle out for the first time. In March I gave warning on CNBC Europe that the carry trade had created too much liquidity, leading to asset bubbles, and recommended that people go into cash. I put the same advice out to members the prior month.
The currency re-adjustments of Friday are carrying several stories, I think, but this is the most important: that a very large amount of the equities positions in the world were funded by “free money” from Japan. What we saw Friday was the above charts, showing Part I of the unraveling, as investors sold leveraged equity positions to get back into Yen to pay off their debts, and Part II, a rush into U.S. Treasuries at any price.
The Yen ended up the strongest it has been for many years, followed by the dollar, and all other currencies took massive hits, or stopped trading altogether.
I’ll be writing more about the meaning of this carnage, where it goes next, and who the real winners might be, in our SNS Newsletter. (New readers can sign up at www.stratnews.com. )
Meanwhile, for what it is worth, it appears that Friday’s trading has put proof to the theory that led to the initial warnings of a global liquidity contraction. At this stage, one can only hope that the big kids stop putting out each new brushfire, and turn their attention (perhaps at the coming Bretton Woods meeting Nov. 15th) to the global systemic problems that allow this kind of arbitrage.
Next Page »