Liar's Poker: The Sequel Cometh?

Michael Lewis, of Liar's Poker and Moneyball fame--both great, great books--has written an astounding article, "The End of Wall Street's Boom." It's an absolute must-read, unlike the portion of the kibble bag label that tells you how much to feed according to an inconsequentiality like body weight. He starts out with a fairly innocent, self-deprecating statement:

To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me.

Follows up with understatement:

Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.

And sets up and asks a burning question:

In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?

And describes some profound (profane?) roadblocks:

There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product.

The quotes don't begin to describe the essay, which, like Liar's Poker, is a fascinating inside look at the characters (unflawed as well as very much otherwise) and shenanigans behind the financial headlines. Just read it. And not the kibble bag label. Please.

Yves Smith on Greenspin

If/when I grow up, I want to be Yves Smith. Earlier this year, Sir Alan, aka Mr. Serial Bubble Blower, joined Paulson & Co. and PIMCO in advisory positions. Those are two off the top of my preternaturally airy head; there must be more. Just like there must be some tasty treats stashed somewhere below the bottom of the trash can, if I could only dig that deep... Completely coincidentally, natch, these companies happened to profit in some small measure from Greenie's easy-money, no-ouchies policies. Point is, Yves waxes quite eloquent on the Paulson announcement here:

It's one thing for Greenspan to sell books and give speeches to try to salvage his reputation. Nixon did that too, with more success and less profit. It is quite another for him to benefit in a far more direct fashion from the devastation he created, by hooking up with the fund that scored the biggest kill from the worst aspects of the negative real interest rates that Greenspan put into effect.

Wow, Sir Alan compared unfavorably to Tricky Dick. Why didn't I think of that? Anyway, I highly suggest reading the whole rant for full effect. I will try to overlook this potential slight on her bio:

Although I believe ideas should stand on their own merit, rather than on their author's credentials, I also recognize that readers want some assurance that they are not quoting a 13 year old or a dog.

To make myself feel better, I'll imagine that Ms. Smith, if she had a tail, would have no more luck catching hers than I do mine.

But in the Nicer Neighborhoods...

Surely prices shall always remain levitated, submit many who previously contended that SV Real Estate Always Goes Up. And surely I'll get that slice of blue rare prime rib I've drooled over every night in my dreams. Let's see, shall we? First, we have the original reset schedule for the Adjusted Rate Mortgages that were so in vogue until so very recently:

Here we see, perhaps boringly, that subprime resets were due to peak in the middle of 2008. In 20/20 hindsight, some of those loans came a cropper rather earlier, hence the to-do in 2007 over the subprime crisis which is still being parroted. And that is where many choose to stop thinking about it. A stickler, however, might notice that the bars stack yet higher when 2011 comes rolling around. All is not lost, however.

Thanks to the wonders of stagnant-to-falling price and minimum payment and resultant zero to negative equity, at least the Option ARM parts of those peak bars (aka "nicer neighborhood" bid funds) should actually come even sooner, now:


Apparently things should start getting interesting, and sellers more motivated, mid to late 2009.

Now if only that prime rib would materialize already, properly aged or otherwise.

Silicon Valley Real Estate Always Goes Up

Yeah, in Bizzaro World, maybe. Where I'm a tiny chihuahua that will settle for one whole stomach-distending Chicken McNugget in lieu of the bucket I require. Yet not a couple years ago not a few otherwise sober people would foamingly recite this supposed tautology to my inconsistently nodding face. This movie never having played before--in any way, shape, or form--who could imagine any other ending?

Anyhoo, this week's Dataquick data via View from Silicon Valley shows that the median Santa Clara County (aka Silicon Valley) "home"* price dropped a bit, from $795k ($489/ft) for the week ending 10/16/07, to $538k ($348/ft) for the week ending 10/15/08, the latest for which data has been posted. 'Tis just a flesh wound, I'm sure. Certainly couldn't get any worse, say most who never saw this coming in the first place.

*Am I the only pedant that thinks the concept of home can be attached to any location--or a state of mind, even--and that what is generally traded is a structure more properly called a house? Subliminal marketing at its most capital, methinks.

Stupid Unemployment Games

So we covered the CPI shenanigans foisted by the gubmint via the BLS in Stupid CPI Games. Whereby you think you're making/worth more, but lowfat(!) rice & lamb meal costs more yet, and still you're told by slyly slinking agent kitties that said kibble really, honestly, costs less than the price shows quite unambiguously, if you'll just look at these models and adjustments right here...

Well, here's the unemployment counterpart to that numbers racket, as explained by The Big Picture's Barry Ritholtz. And here's Shadow Stats' John Williams's take on it. Funnily (or not)--charmingly, even (or not)--'merkuns are always deriding the socialist Euros for their double-digit unemployment, presumably due to their supposedly wrong-headed disincentivization of work, and well, here we is. And this while things remain relatively good, all things considered.

Hoocoodanode (thanks, CR/Tanta!) building excess houses and buildings and paper and levering and bidding them up and borrowing on the resultant "equity" wasn't the way to endless prosperity? You don't like this? Well, sucks to your Ponzi finance, Piggy!

Blackstone LP: From Private Equity to Arbitrage to Greater Fool Harvesting

To date, the title is kinda the apparent arc of Blackstone's evolving business model from this particular vantage point. Keep in mind they haven't been studied nearly as diligently as might an exceptionally well-roasted (or even raw, really) rib bone, but there've been some glimpses here and there between gnaws.

First, they started out simply enough as a private equity fund, which entity is supposed to buy undervalued or distressed assets, dress and/or fix up their deficiencies with a talented management team and newfound "synergies" (read: mass layoffs), thus unlocking their hidden value, all to resell them at some later date, however long it happens to take.

To speed things up, they got into pure arbitrage, as epitomized by their record $39B purchase and turnaround partial sales early last year of Sam Zell's Equity Office Partners. Gee, Mr. Commercial Real Estate Mogul is selling property for capital gain instead of leasing it out for cash flow? At a record-low 5.3% cap rate? Where do I line up to buy? Why? Why, so I can immediately sell it to people who would pay even more than I did, at nearly the top of the biggest baddest property/credit bubble in all of recorded history. Here's what one hatin' naysayer had to say:

If Sam sold, it must be a good time to sell...I would never want to be buying when Sam is selling.

And since that deal and others like it were so ridiculously and laughably lucrative, the great beneficent Masters of the Universe deigned to share with the great unwashed the fruits of their labor through an IPO, in which the Chinese sovereign wealth fund CIC first bought 9.9%, or $3B worth, at $30ish, then reupped recently to 12.5% at rather less lofty prices, after which the stock traipsed yet lower. How much lower? At today's $7.70, the market cap of the whole company is a scant $2B. The exact amounts of CIC's phenomenal gains and Blackstone principal Stephen A. Schwarzman's (the "Black" part of the company name) heart-wrenching losses--net of the reported $1M paid to Rod Stewart for a birthday performance--are left as an exercise for the enterprising reader.

Not that it's relevant, but there's an old joke about hedge funds: in the beginning, the general partners bring experience and the limited partners bring money, and in the end, the general partners have money and the limited partners have experience. Just sayin'...

On Moral Hazard, Pt. I (of ?)

Unclear just what the gubmint is after other than pandering and creating inflation and generally keeping the great landed middle(ish) class from revolting, but it smells like they're thinking about suspending mortgages, which is nowhere near as drool-worthy as frying bacon. Redefining yet again what exactly a prime mortgage--or mortgagor, yet--looks like. Holy un(?)intended consequences, Batman!

Sarah the Strict Constitutionalist

Sure I'm supposed to talk about econostuff, but every so often something comes up which is far more profound, nearly up there with comestibles.

Such is the case with one Sarah Palin, who thinks the media criticizing her criticism of someone constitutes an infringement of her First Amendment rights. I am hereby criticizing her criticism of others' criticism of her criticism.

Trust me, I know from bitch, and I wouldn't dignify her with the title. At least one 82-year-old blogging grandma is rather more charitable, and refers to her thusly here and here, for starters.

And by the way, if she becomes VP, and I'm still around, I will recant this blog entry. Maybe.

Wilde Quote of the Day

For any who might wonder--or not--that an unedumucated dog could have worthwhile thoughts, or who might think of education as the root of all knowledge, I humbly (I'm not worthy!) submit this Oscar Wildeism:

Education is an admirable thing, but it is well to remember from time to time that nothing that is worth knowing can be taught.

Financial Armageddon Insurance

Would you like to buy life or property insurance against a massive near-earth asteroid collision, like something that caused the non-avian-dinosaur-killing Cretaceous-Tertiary extinction of some 65.5M years ago? If so, I have some for sale. Well, I guess you might call it a swap, since I'd want payment in something yummy. But I'd make you whole again if/when such disaster struck. Yeah, uh-huh, fershur.

Seriously, I only ask because some people are buying Credit Default Swaps against US Treasury default, and, naturally, pricing them. While the two disasters are of course not exactly alike, neither are they completely nonanalogous (word?). Takes some cognitive dissonance to think about risk-reward and the likelihood of collection in event of event, in either case. But anyway, for what it's worth, the CDS spread is going up. Time to write some KDSs (kibble default swaps)?

With Apologies to Kanye

Now, I ain't saying she's a gold digger, given it's likely fake, but I laughed. Kinda funny, even if I can't at all empathize...

In Defense of Bears

In case anyone is yet not aware, it is my considered opinion that bears tend to be better informed, if furrier and possibly less palatable, than bulls. There's more of a barrier to entry in terms of a) the basic mechanics, 2) unlimited downside risk, iii) limited upside potential, and 5) danger of margin call. Not to mention the societal and Wall Street bias in favor of buy first, ask questions later, if at all. Anyway, today there's a decentish Bloomberg article debunking the myth of evil short-sellers featuring Bill "Hair" Fleckenstein.

Sometimes It Takes a Physicist

I'm usually one of the first to spout off about the Dow Jones Industrial Average being too small and imperfect of an index, but be that as it may, there's a new twist on reading it, which of course could be applied to the other stock indices with no loss of generality or somesuch. The all-too-obvious how-long-ago-were-we-first-here sorta rule, bar-charted. Why didn't I think of that? Oh, yeah: no treat was in the offing...

I Iz Smarter than Ben Stein?

Ok, so maybe I'm not actually more intelligent than the guy, but on the other paw, I don't misrepresent a simple concept like insolvency while pretending to know what it is, and that in general I know what I'm talking about--in fact, I'm pretty sure that in some sense I literally have no idea what I'm going on about. On the other other paw, he gets nationally published and I don't. Oh, and as recently as last December he was arguing that subprime wasn't a big problem, without any mention of Alt-A or prime, each the sum of which is a bigger crap sandwich (ambiguous?) than subprime, and of course not a peep (mmm...) about the larger credit derivative and institutional solvency problems, all of which those of us dutiful Grant's readers had pretty well quantified--as in, Really Really Big.

Addendum: sorry, but this stuff was just too good/bad--you decide which--not to add. From as recently as May 2008:

...it's now crystal clear that we're not in a recession...

The beautiful part is that because we're not meeting the definition of a recession -- two consecutive quarters of negative economic growth -- the pundits are trying to rewrite the definition, to make it just about anything they feel like making it. (Or, as I like to say, the new rules allow liberals to call a conservative administration's tenure a recession any time they have the urge.)*

I hope you've been buying while the market was down.

...the direction [of the market] sure looks like it'll be up for a while now.

*The partisan recession jab is especially rich, given that his "definition," while widely believed, certainly doesn't fit the official NBER's:

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.

I have to agree with Ben here, though:

I wouldn't say business journalism is all bunk.

With the corollary that, sadly, most of it is.

Analysts: Worth Their Weight in Water?

At first I thought Bill Fleckenstein called sell-side analysts "dead fish" as a term of endearment, since I figured, who doesn't like dead fish, right? Especially when they've been sitting around a while; mmm hmmm...

Well, now there's this gotta-see graphic by SocGen's James Montier posted on the FT Alphaville blog that shows how analyst forecasts have actually been very clearly lagging actual earnings for, oh, the last two decades or so.

I respect Fleck, and have always loved fish--in fact I was sorta kinda named after dried salted cod--though now know why I've never really cared for analysts. But, importantly, if analysts are dead fish, do they float? Because then they'd be witches...

Volvo Sees a Slowdown

So I'm back from having one of my knees cut open and stitched up and then spending a week locked up at the vet for a lucrative (not for me) TPLO procedure. Can't imagine going back in for the other one. Ouch, and ouch again. Anyway, doing pretty well other than that.

This, though, is one of the most staggering current economic statistics I've yet seen, courtesy The Financial Ninja:

Volvo said it received 115 order bookings for heavy trucks in Europe in the quarter, down from 41,970 trucks a year earlier.

I've looked at that for some time now, and somehow trying to think about some 42k bits of kibble shrinking to a mere 115 warps my fragile little mind way more than Eric Cartman's sometimes-amusing shtick ever could. I've seen cliff-diving before, and even imagined some steep ones, but never quite so steep.

Actually, the follow-on sentence just really clears everything right up:

Customers in Europe are taking a "wait and see" attitude amid turmoil in global financial markets, Volvo said.

Gee, you think?

The Perils of Paper Gold

If one were to watch CNBC (in spite of Financial Media: Worse than Useless), one might see one Jurg Kiener talking about the paper gold market possibly cracking. Which naturally raises the question in one's mind of whether one desirous of the shiny yellow stuff might actually want to take some delivery of some sort, custodial or otherwise. Of course one might also wonder why anyone would want anything to do with anything that utterly inedible. Yuck!

A Modest Proposal: The Food Standard

There's this nicely-done animated video of the fractional-reserve system which shows how basically what is thought of as money isn't actually value, but instead is intrinsically debt, and magically created out of thin air, at that.

So I have a modest proposal (no, not like J. Swift's--and no, I haven't tried it: kids are friends, not food!): why not go on the Food Standard? You can't just instantly print food from nothingness, and it has value, as everyone needs to eat, especially those of us who especially need to...

What's Maps Got to Do with It?

"Watch money. Money is the barometer of a society's virtue. When you see that trading is done not by consent, but by compulsion--when you see that in order to produce, you need to obtain permission from men who produce nothing--when you see that money is flowing to those who deal not in goods, but in favors--when you see that men get rich more easily by graft than by work, and your laws no longer protect you against them, but protect them against you--when you see corruption being rewarded and honesty becoming a self-sacrifice--you may know that your society is doomed."
--Ayn Rand, "Atlas Shrugged"

I don't see what any of this has to do with maps, or food, or for that matter anything meaningful going on nowadays, but there it is.

Why Public Education Is Gonna Be Hurting Even More

From "Ask Fleck" today:

"One of the consequences of the failure of banking institutions is that many public entities such as cities, counties, school districts and mosquito abatement districts were invested in their debt. For example, Menlo Park City School District, which has a reputation for fiscal responsibility, is furious that they were hit with a $3.5 million loss when Lehman Brothers collapsed. By law school districts are required to keep their money with the county who acts as their banker. San Mateo County, who had invested 5.7% of its funds in Lehman Brothers debt, held funds for 1000 such entities including San Mateo Community College District which lost $25 million, Sequoia Union High School District which lost 5.5 million and Redwood City School district which lost 1.1 million. Public schools here in California have already been cut to the bone financially. It is extremely difficult for these organizations to raise money because any new tax requires a 2/3 majority vote."

Heh. "Mosquito abatement district" sounds so much like an insult of a podunk exurban aspirational SUV-commuting McMansion bedroom community now overrun by brown lawns and green pools. Not that there really exist such things, but if there were I guarantee you I would be first in line to contribute to said dead grass as a consequence of drinking from said pools. Mmmm... Greenwater...