The Haiku of Finance for 02/28/09

Berkshire profit collapse
Credit crisis hit them hard
Better luck next year

The Haiku of Finance for 02/27/09

Citi volume soars
BofA loan value drops
Both banks insolvent

Economy and S&P . . . Sink

I told ya so. The economy has not bottomed yet and won't for a while:

The U.S. economic contraction in the fourth quarter was deeper than the government first estimated, with other reports today signaling little prospect of relief until at least the middle of 2009.

Just wait until the 2008 numbers are revised even further downward. The market responded rationally (for once) to the news today:

U.S. stocks slid, sending the Standard & Poor’s 500 Index to a 12-year low, as the government cut shareholders’ stake in Citigroup Inc. by 74 percent and the economy shrank at a faster pace than previously estimated.

I'm staying short. How 'bout you?

The Haiku of Finance for 02/26/09

Get a Wall Street job
Rich parents can arrange it
Wealth begets more wealth

Wall Street Career Advice From Alfidi Capital

Let's take a break from tracking the Sovereignty Crunch for a bit and talk about careers in financial services. This is for all of you young whipper-snappers out there who aspire to work on Wall Street with the likes of Gordon Gekko. Here are some tips that will get you on your way.

Have the right pedigree. This is probably the most important criteria for someone who wants to be a big shot on the Street. You should be able to trace your family's pedigree back through at least three generations of success in business, with at least some of that family history with a well-known investment firm. The following factors bear heavily on whether your pedigree is worthwhile:

- Ancestry qualifying for the Mayflower Society or Daughters of the American Revolution
- Family membership in the Social Register of a major American city for more than one generation

- A mother who was a member of the Junior League or had her debut in a cotillion as a teenager

- A father who is a member of a very expensive country club or private dinner club

- Parents and grandparents who attended private boarding schools before college

Graduate from a top school. Investment firms don't hire their movers and shakers from Podunk State University. If your resume does not include a degree from a top school (Ivy League, Seven Sisters, or special exceptions like Stanford) then you will NOT be hired to work on Wall Street in anything other than an entry-level, menial capacity. You are in for a rude awakening if you think any old MBA is sufficient. Wall Street only hires MBAs from the top ten programs, so don't waste two years of your life and thousands of dollars on some piece of paper from any other school.

Get the right internship. This is something your well-bred parents should arrange for you as a right of passage into the family business. Wall Street firms don't allow just anyone to get internships; they reserve them for children of the ruling elite in exchange for access to their parents' networks for dealmaking. The right internship can also lead to a first job offer tracked within a management development program. Once again, these fast-track programs are reserved for children of prominent people, preferably relatives working at that firm. This is one way that private families retain control of public corporations.

Be physically attractive. A no-brainer. Model-quality looks will get you far on the Street. Be prepared to use them to close a sale or get a promotion. Effective tactics include flirting, bending over, and accepting business offers in exchange for sexual favors. If you don't like playing the game, don't expect to win.

Do not pose a threat to your boss. Their are many things you can do to undermine your boss' position in your plush Wall Street office. Among the big no-nos that will quickly derail your career:

- Tell the truth and refuse to tolerate lies

- Give a client what they want instead of what the firm wants them to have

- Know more than your boss about something job-related

- Become so competent at your job that co-workers come to you for advice instead of your boss or their own bosses

- Do something to make the firm money that your boss can't steal credit for doing

- Catch your boss making a mistake and offer a suggestion for fixing it before it poses a threat to the firm

If you can get the above things right, congratulations. You'll be a "success" on Wall Street. Nothing else really matters. Bear in mind that the FIRE Economy (finance, insurance, real estate) will probably end up being 25% of what it was in late 2007 as measured by both GDP share and employee headcount. Those Wall Street jobs that remain will be increasingly reserved for candidates born at the top of society.

If you are unable or unwilling to meet the above criteria, then for crying out loud start your own investment firm. The founders of BlackRock, PIMCO, and Charles Schwab all did it because they were dissatisfied with the way Wall Street was run. So did I.

The Haiku of Finance for 02/25/09

How to stress-test banks
Ignore the toxic assets
Voila! Healthy banks!

The Non-Stress Test Leads to Non-Nationalization

The stress tests are coming, and bankers ought to be feeling the stress:

Regulators set a six-month deadline for the biggest 19 U.S. banks to raise any new capital deemed necessary after a review of their balance sheets.

The regulators will complete their so-called stress tests by the end of next month, the Treasury said in a statement in Washington.

What exactly do these stress tests really mean? I'm not a bank examiner, but I do understand human nature. Regulators dropping into the nation's top ten banks have less than a month to examine trillions of dollars worth of assets that are already hard to value. This would be a herculean task even if the examiners from the Fed and FDIC weren't already understaffed and overworked. I expect that a lot of questions about troublesome assets will be ignored or assumed away to clear the way for the next round of capital infusions.

I am quite sure that these stress tests are nothing more than a palliative to convince the public that something is being done to hold banks accountable for their performance. The current approach of throwing good money after bad to support the collapsed balance sheets of bankrupt banks will continue. The nationalization trial balloon has been deflated:

Federal Reserve Chairman Ben S. Bernanke said while the U.S. government may take “substantial” stakes in Citigroup Inc. and other banks, it doesn’t plan a full-scale nationalization that wipes out stockholders.

Get ready for more of the same. The stock markets are certainly in for some stress.

Nota bene: Anthony J. Alfidi is short uncovered calls on XLF.

The Haiku of Finance for 02/24/09

Ben juiced the market
Claims an upturn is coming
He sells bridges too

Bernanke Comment Spawns Dead Cat Bounce

The market coughed up a cute little gain today. Traders are so desperate not to lose their nest eggs in this depression that they'll seize on any idle comment as a bullish sign. They'll even convince themselves that an upturn is possible this year:

Bernanke told Congress on Tuesday the recession might end this year, and that regulators aren't planning to nationalize banks.

I am under no such delusions. That's the advantage of being beholden to no portfolio but my own. Both of Helicopter Ben's assertions above are very likely false.

First, the recession has further to run. Home prices are still dropping like stones. Consumer confidence continues to plummet.

Second, regulators probably do have some kind of plan to nationalize banks. They just can't talk about it yet. They're still putting the finishing touches on the Treasury Secretary's non-plan to shore up banks by, uh, you know, throwing another $60B at AIG, and, well, you can guess the rest.

I bought more gold this week. I know people who think gold is expensive now. They'll be even more convinced it's expensive when it's over $2000 by this time in 2010 (IMHO).

The Haiku of Finance for 02/23/09

Markets through the floor
Testing lows from the Nineties
My cash is ready

Alpha-D Portfolio Update

Last Friday was an options expiration day, which gave me the opportunity to review my portfolio allocation. I don't make my returns publicly available, but I'm satisfied that my multi-strat approach will pay off over the long term. Ask me about my returns 30 years from now and I'll be happy to show off my performance history. :-)

I am very pleased with the recent performance of gold. The market price of IAU went through the strike price of my covered calls, so I had to buy those shares back today. I'm thankful for the IRS's wash sale rule. I have also added to my holdings of GDX and refreshed the covered calls that expired. Finally, I have sold out-of-the-money puts (covered with cash) at least 15% below today's opening prices for IAU and GDX because I believe that gold has finally begun its long climb into the stratosphere. I keep IAU and GDX in both my taxable account and IRA to protect my wealth from inflation.

I have added to my holdings of FXI. I've been hinting at doing this for a while in previous postings. Despite threats to China's extraordinary growth from declining consumer spending in the U.S. and other export markets, I see no reason why China cannot weather this global crisis and come out a long term winner. I have also refreshed my covered calls on FXI.

I continue to hold short calls on SPY, IWM, EFA, VWO, and XLF. The U.S. economy will IMHO continue to remain weak throughout all of 2009. I am skeptical of reports like this that claim the U.S. will rebound in 2010:

A survey of leading economists finds them now forecasting a far deeper and more painful recession ahead in the first half of the year, but a modest pickup in the second half of 2009, followed by a solid recovery in 2010.

Folks, any nominal economic growth we experience is going to be masked by heavy inflation! The Fed has its money-creation fire hoses turned on at full blast and continues to hook up new ones.

My laptop is still knocked out, so don't expect to see a published PDF of the latest Alpha-D holdings for at least another month.

The Limerick of Finance for 02/22/09

Eastern Europe is crushed by its debt
Mass defaults are now a safe bet
EU banks lose it all
Euro stocks set to fall
Bargain buys are what I'm going to get

The Haiku of Finance for 02/21/09

Gold went up a lot!
Through my covered call strike price
Gotta buy it back

The Haiku of Finance for 02/20/09

Oscar night coming
Award for best bank blow-up
Tune in for sell-off

Bank Baloney Invites More Bears

With Oscar night coming up this Sunday, it's fair to consider awards in industries other than film. BofA's Ken Lewis makes his case for why he should be nominated Banker of the Year:

Bank of America Corp. doesn’t need any further assistance and has enough "capital, liquidity and earnings power to make it through this downturn on our own," Chief Executive Officer Kenneth Lewis said in a memo today to employees.

Spoken like a true champ, Ken. I'll bet you can stick it to those shorts just as hard as Dick Fuld did before Lehman Bros. cratered, with just as much success. Meanwhile, another hedge fund that was unfortunate enough to invest in the type of securities eating away at bank balance sheets announced its insolvency today:

The managers and directors of Highland CDO Opportunity Fund LP, comprised of a U.S. partnership and an offshore affiliate, determined that “it is in the best interests” of the fund to wind down, according to a Feb. 4 letter to investors. Remaining assets will be distributed to creditors, leaving nothing for shareholders.

Maybe they'll end up on Failblog. I certainly won't. I'm shorting SPY because news items like the ones above indicate just how much financial pain still needs to work its way through the economy.

Nota bene: Anthony J. Alfidi has no position in BAC or any of Highland's hedge funds. He holds short uncovered calls on SPY.

The Haiku of Finance for 02/19/09

Feds found the fraudster
Why didn't they arrest him?
He hooked some big fish

(inspired by R. Allen Stanford)

Almost Time to Bottom-Feed

One relatively easy way to make money in Great Depression 2.0 is by purchasing distressed assets. J.C. Flowers knows a good deal when they see one:

Christopher Flowers, whose private-equity firm bought a stake in California’s failed IndyMac Bank, said “low-life grave dancers like me” stand to make “a tremendous fortune” from the financial crisis.
(snip)

“Governments everywhere -- this government and around the world -- are going to own a lot of stuff, and they are going to be not very adroit, not very commercial,” Flowers said. “There’s going to be a lot of money to be made around the edges of this thing.”

He correctly recognizes that government stewards of private assets will be more than willing to unload them to buyers at bargain prices. Bottom feeders like him and me will soon have our day as markets hit lows they haven't seen since the mid-90s:

Profits dropped 33 percent on average at the 394 companies in the S&P 500 that reported fourth-quarter earnings since Jan. 12, according to data compiled by Bloomberg. The period is poised to be the sixth straight quarter of decreasing profits, the longest streak on record.

Read that last excerpt, permabulls, and then explain how you can predict a market recovery in the second half of 2009 when earnings declines show no signs of amelioration. Fat chance! Dow 5000 here we come. My short plays remain in place until then.

The Haiku of Finance for 02/18/09

Fed target? Yeah, right
Just another phony ploy
Inflation still comes

Fed Lowers Its Own Bar, Fooling Everyone But Me

The Fed gets today's "Too Clever by Half" award from Alfidi Capital for its latest announcement on inflation policy:

Federal Reserve policy makers introduced a long-term U.S. inflation estimate, with most officials aiming to anchor public expectations at a 2 percent rate.
(snip)

The introduction of a long-term inflation goal helps bring the Fed closer to the central banks of the euro region, U.K. and other countries that set targets for price increases. The forecast contrasts with the warnings of some economists that record U.S. budget deficits and injections of liquidity by the Fed risk causing inflation to spiral in coming years.

Relax, nothing to see here. It's another false flag the Fed has dropped to pay lip service to its inflation-fighting mandate. There's no way, no how that the Fed can meet this 2% target after it issues the trillions in new money needed to fund endless federal deficits.

I've written about this before, so why beat a dead horse? Partly because it's fun. Partly because it indicates an acknowledgement that the Fed will have to reverse course at some point and raise interest rates (unless a bond market collapse suddenly restores the yield curve to a more normal slope). And partly because this enormous divergence of policy from practice strengthens the argument for owning more of something that responds well to inflation: gold.

Nota bene: Anthony J. Alfidi is long IAU and GDX with covered calls.

The Haiku of Finance for 02/17/09

Sir Allen Stanford
Another fund rip off scheme
Cancels cricket deals

Mr. Market Vetoes Stimulus Plan

I mused in my post yesterday whether the U.S. market would respond to the bears in Europe and Asia with a decline of its own today. Well, the market declined all right, for mostly the same reasons:

Stocks slid within striking distance of the November bear-market low on Tuesday, as grim manufacturing data signaled the recession is worsening and warnings on risks facing European banks underscored the continuing toll of the financial crisis.

(BTW, the article's lead paragraph uses one of my pet peeve phrases in published writing: "striking distance." What the heck is that?! No one ever defines what they mean by that. Ten points? A hundred? Writers, please leave Hollywood drama out of financial journalism.)

The fiscal stimulus package became law today and Mr. Market was singularly unimpressed. He's waiting for a more robust plan to clear the balance sheets of the nation's best and brightest banks. Such a plan is still up in the air. Until it's placed into action and market makers know how to respond, stock prices will have nowhere to go but down.

.

Nota bene: Anthony J. Alfidi holds short uncovered calls on SPY, IWM, EFA, VWO, and XLF.

The Haiku of Finance for 02/16/09

Foreign stocks on sale
Great Euro and Asian deals
Soon I'll buy 'em up

Foreign Markets Keep Sinking

Readers who've been with me since December know that I've been thinking about buying VWO as emerging market economies continue to sink. Now I also have reason to look at EFA as larger foreign economies feel the pain of this depression:

Stocks in Europe, Asia and Latin America fell as Japan’s economy contracted the most since 1974, Britain was warned it faces the worst recession in almost three decades, the Group of Seven offered no solution to revive global growth and commodity prices sank.

Stacks of bad news like this are nothing but good news for my continued shorting of EFA and VWO. Thanks Mr. Market! (Not to mention Senor Market, Monsieur Market, Herr Market, Market-San, et alia.)

U.S. markets are closed for today's federal holiday, so we won't find out if the S&P 500 sells off in response until tomorrow.

Nota bene: Anthony J. Alfidi is short uncovered call options on VWO and EFA.

The Haiku of Finance for 02/15/09

Buy American
Our partners have a response
Sell American

The Limerick of Finance for 02/15/09

"Buy American" not a good rule
Our trade partners, we cannot fool
"Fight back" they will think
Trade profits will sink
Smoot-Hawley II doesn't sound cool

The Haiku of Finance for 02/14/09

Valentine's Day comes
No love for automakers
Market won't date them

UAW Declares War on Sanity and Solvency

The United Auto Workers (or at least their leadership) have decided that the best way they can preserve six-figure incomes for five-figure skill sets is to threaten the U.S. with a further descent into economic annihilation. They are willing to send their employers into bankruptcy, and they just might get their wish:

Negotiators for the United Auto Workers walked out of concession talks with General Motors Corp. Friday night in a dispute over payments to a union-administered retiree health care fund, a person briefed on the talks said Saturday.

The breakdown comes at a critical time as GM races against a Tuesday deadline to submit a plan to the government showing how it can become viable.

UAW workers are in for one helluva hard core wake-up if they discover that their bargaining position helped condemn the U.S. economy to the cellar for the rest of 2010. Unless, of course, the UAW's leaders know something we don't know.

Maybe they believe that the automakers are going to be bailed out again. Gotta preserve those bennies.

Maybe GM's leak that it is considering a Chapter 11 filing is just a tactic to scare Washington into accelerating the next bailout payment. Gotta fuel those private jets.

Or maybe the automakers would be better off if Uncle Sam threw them into bankruptcy and tore up their union contracts. Gotta let these turkeys experience failure. Aw, what am I thinking?! There I go with common sense again! Shame on me. ;-)

Nota bene: Anthony J. Alfidi does not hold any position in GM.

The Haiku of Finance for 02/13/09

Carlyle Group and banks
Good time for buyout targets
Call me for next deal

Carlyle Group Going After Banks?

This one's a case of right idea, right time, wrong strategy:

Carlyle Group LP, the world’s second- largest buyout firm, has lined up about $1 billion to invest in banks as the Obama administration seeks to attract private capital to troubled financial institutions, according to two people familiar with the matter.

Bank stocks have been beaten down a lot, so bargain hunting in the sector should be proceeding apace. The article mentions restrictions on private equity ownership of banks, but that may be about to change big time. Carlyle's principals don't authorize moves into a sector unless their well-connected friends in government know that major changes in regulation or procurement are afoot.

I do question Carlyle's approach of doing piecemeal banking transactions. Their $75mm investment in Boston Private Financial holdings looks like a PIPE rather than a complete buyout. What gives? The strength of a private equity deal is its ability to take a company completely off the market and make sweeping changes. Incrementalism with PIPEs doesn't bring that strength to the fore.

Come on, Carlyle. I know you've got it in you. Find some nice regional banks with lots of overhead, decent cash flow, and no TARP participation.

Nota bene: Anthony J. Alfidi does not have any investments with the Carlyle Group.

The Haiku of Finance for 02/12/09

Plunge Protection Team
Gets a call from Goldman Sachs
With a hot new plan

Buying the Rumor on Mortgages

The DJIA was trading down by as much as 2.5% today until it closed with a tiny loss. What gives? Apparently the lack of detail in the Treasury's bank rescue plan was beginning to spook some big-shot investors:

This meeting known as the "Goldman Sachs rountable" took place just hours after Geithner's speech (and the dismal market reaction) on Tuesday at the headquarters of Goldman Sachs in lower Manhattan.

Around 20 of the firm's biggest hedge fund and private equity clients from around the country showed up-a testament to just how concerned financial industry insiders are about what few details geithner presented.

The Plunge Protection Team apparently has a plan B, with an uncredited assist from Government Sachs. Hints at troubled homeowner rescues are beginning to appear:

In a major break from existing aid programs, the plan under consideration would seek to help homeowners before they fall into arrears on their loans. Current programs only assist borrowers that are already delinquent.

That announcement came just in time to snap the market back up. Magic! Maybe I give some people too much credit. Maybe the neat ideas hatched by private investors in a GS conference room can't be translated at the speed of light into a newsworthy leak. Maybe those same investors can't order their traders to buy into the market on that same leak. Oh, perish the thought (sarcasm filter off).

On the other hand, note the second bullet point in the article on the hasty GS meeting:

Ken Griffen, the founder of Citadel, stressed the need not merely to fix the prices of the securitized bonds, but also that any plan must stabilize the root cause of the problem - the mortgages themselves. And he came up with several ideas to spur homeownership that could revive the housing market.

Wow! He knew exactly what kind of new plan would move the market back up! I bolded some stuff in the above excerpt. This "mortgage plan under consideration" went from conference room suggestion to tentative government program in less time than it takes an investment banker to scan the WSJ for deal action.

Concidence? You be the judge.

Nota bene: Anthony J. Alfidi does not hold a position in GS. He was not invited to their private conference either. Maybe next time.

The Haiku of Finance for 02/11/09

Value stocks cheaper
So buy even more of them
They're great deals on sale

Uncle Warren Takes More Knocks

Somebody's second-guessing Warren Buffett again:

The man heralded as the “Oracle of Omaha” tells acolytes he evaluates companies based on their stability, their competitive advantage and what he thinks they’ll be worth years into the future, instead of trying to find the moment when their stocks are at their lowest. The declines in his recent equity purchases suggest he could have waited before taking the plunge.

I'll stick up for Uncle Warren. Paying a discounted price for any quality product is always a good deal. No one can ever know if something on sale will see a further price cut in the near future. My shares of FXI have declined significantly since I bought them last year and I couldn't care less. I'll probably buy more soon.

We all now know that the current crisis is a once-in-a-lifetime event. Plenty of equity bargains will be available later this year and well into 2010. Hang in there, patient buyers.

Nota bene: Anthony J. Alfidi does not hold any stake in Berkshire Hathaway. He is long FXI (with covered calls).

The Haiku of Finance for 02/10/09

China's biggest bet
Keep Chopper Ben on the ground
Forestall Fed follies

China's Warning Shot Across U.S.'s Bow

China is warning the U.S. not to destroy its bond portfolio:

.

China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.

.

You may recall from my post yesterday that the Fed is going through public motions about finding ways to ward off inflation while quietly preparing to inflate the dollar away with massive purchases of U.S. Treasuries. China is signalling that it will have none of this gamesmanship. That big red dragon wants some kind of iron-clad guarantee that the U.S. will not inflate away its debt obligations. China's "nuclear option" is a financial WMD.

.

China is demonstrating its aptitude at applying the concepts outlined in Unrestricted Warfare, a book that should be read by anyone who really wants to understand the delicacy of U.S. relations with China. China's ownership of U.S. debt gives it a powerful bargaining chip when negotiating with the U.S. over solutions to Great Depression 2.0. Expect concessions from the U.S. on trade in exchange for continued Chinese purchases of Treasuries. China's master plan to supplant the U.S. as the world's dominant power is coming along just fine.

.

Nota bene: Anthony J. Alfidi is long FXI (with covered calls).

Expect Delays at Alfidi Capital

I've been promising to update the more serious reports over at my firm's main site, Alfidi Capital. I've been having some trouble with my computer, so I've been relying on public terminals that aren't amenable to web hosting and uploading files.

I am working on a solution. There will be further delays in getting Alfidi Capital's research reports up to full speed. The blog will still be here.

The Haiku of Finance for 02/09/09

Fed wonders out loud
Whither mortgages or bonds
I know they'll buy both

Fed Dithering Distracts Fed-Watchers From Inflation End-Game

The Fed is giving itself a headache as it debates whether to support long-term bond prices:

Federal Reserve officials have failed to resolve an internal debate over whether to purchase long-term Treasuries, even as rising yields on the securities threaten to undermine the central bank’s objective of cutting borrowing costs for consumers and businesses.

If the Fed forgoes its purchases of Treasuries, we can add a few hundred billion more to Uncle Sam's borrowing costs as the rates on 30-year Treasuries rise to attract foreign buyers. Buying mortgages and business loans is one way to support the credit markets, but I think there's more at work here. Some Fed governors have openly wondered how the Fed can fulfill its inflation fighting mandate in the aftermath of its massive lending programs. Signalling a newfound reluctance to buy Treasuries is one way to signal to the markets that the Fed still worries about inflation, even if such worry is merely a stalking horse for backstopping business credit.

Enjoy the kabuki theater while it lasts, folks. The most likely outcome IMHO is for the Fed to keep buying everything in sight: Treasuries, mortgages, junk bonds, your aunt Martha's cat, you name it. This splurging with new currency ends as it always has in history: with inflation.

The Limerick of Finance for 02/08/09

The big stimulus bill is coming
'Cause the economy's in peril of slumming
Bond markets will swoon
As debt shoots to the moon
And the Fed's printing press will be humming

The Haiku of Finance for 02/08/09

Psst! Hey, taxpayer
Got your stimulus right here
It's gonna cost ya

Some Thoughts on Old Money

I'll never forget the first conversation I had with someone who came from Old Money.

Several years ago, when I was a financial advisor, it was my job to bring new clients into my wealth management firm any way I could. I was at a cocktail party in San Francisco, meeting and greeting my friends who support the performing arts. A seemingly nice middle-aged lady introduced herself to me and took my business card. With a deeply amused look, she inquired, "You're a financial advisor. Are you here to meet clients?"

Sensing a potential opportunity, I replied, "I'm always ready to meet clients. Are you looking for advice?"

Her amused smile widened. "Of course not. And neither is anybody else here. You see, they're all nouveau riche, which means they'll never talk to you." She used a common derogatory term that the super-wealthy reserve for the upwardly mobile. How cute.

"So you think I'm wasting my time?" I would have attended that party even if I wasn't in financial sales because I don't consider making friends and supporting the arts to be a waste of time.

"Yes. You shouldn't be here."

"So where would you prospect for business if you had to?" Hey, I was open to suggestions if they would have helped my career.

"I wouldn't. Business always comes from referrals, not from marketing."

She walked away. The smile never left her face. That condescending crone had no interest in helping my career because she felt I didn't deserve a career. Our conversation told me everything I needed to know about how people with serious money view someone with a work ethic who tries to build a business career from scratch.

What wasn't said in my brief exchange with Ms. Old Money is that the upper echelons of America's social caste view things like hard work, perseverance, and striving as the provenance of those too poor to be of any consequence. Old Money people don't have to work for anything because everything is handed to them from birth. Reputation, school admissions, first job, first deals, everything. Success in business comes to them as if by magic because that's what they were raised to expect.

Well, here's a big slap upside the face, fogies. Great Depression 2.0 is going to place a hell of a lot of your inherited fortunes at major risk. We've already seen how Bernard Madoff's Ponzi program has devastated family fortunes. Highly paid retainers relied completely upon the "distinguished, outstanding, superior, blah blah" abilities of their private money managers. These managers had all the right indicators: identifiable prep schools, Ivy Leaugue credentials, trophy wives, and Social Register bloodlines. And they've all failed miserably at making and keeping money. Old Money would have been better off handing their money to someone like me to put in widely-held mutual funds or ETFs. But no! They had to maintain their exclusivity all the way to the poorhouse.

Bye-bye, Old Money. A lot of you are going to be nouveau poor. Don't come to me asking for help. I don't take sales calls.

The Haiku of Finance for 02/07/09

Some Old Money snobs
Look down their noses at me
The hell with those fools

The Haiku of Finance for 02/06/09

The Wall Street hookers
Got paid with your bailout cash
Who really got screwed?

The Haiku of Finance for 02/05/09

Stimulus for bonds
Buy up supply with Fed cash
PIMCO gets richer

A "Gross" Amount of Spending

Bill Gross is demanding an even larger fiscal stimulus package:

“This economy needs support from the government, a check from the government in the trillions,” Gross said today in a Bloomberg Television interview from Pimco’s headquarters in Newport Beach, California. “There is a potential catastrophe if the U.S. government continues to focus on billions of dollars.”

Here's Mr. Gross' hidden agenda. New spending will require bond issues in such massive quantities that only the Fed's money-creation power can clear the market of supply. Without such buying power supporting the bond market, the equilibrium price of Treasuries would collapse to a much lower market-clearing price. Much of PIMCO's asset base would collapse along with it, angering a lot of conservative investors who like the fact that most of PIMCO's funds have been doing very well this year.

I for one do not endorse hyperinflating the U.S. economy just so Allianz and PIMCO can protect their Total Return Fund's 99th percentile ranking. Whenever someone in high finance demands that the government do something, always ask yourself how they would benefit.

Nota bene: Anthony J. Alfidi does not own any PIMCO funds. He prefers to buy bonds individually and hold them until maturity as portfolio diversifiers.

The Haiku of Finance for 02/04/09

The Fed lost money
By backstopping Bear assets
Until they cratered

Junk Bear Assets Leave Taxpayers With Nothing

We can expect a lot more reports like this from the Fed:

U.S. taxpayers may be stuck with losses on $30 billion of Bear Stearns Cos. assets owned by the Federal Reserve even though the central bank has said otherwise, according to Robert A. Eisenbeis, Cumberland Associates Inc.’s chief monetary economist.

See, the Fed had to backstop a lot of Bear's book to make its takeover palatable to JPMorgan. We can expect even more severe losses once the Fed figures out how to track the garbage it has accepted as collateral from insolvent banks. Oh, wait, I'm sorry. It's already tracking that stuff, it just refuses to tell us even after Bloomberg's news service took the Fed to court.

Just wait until the TARP oversight committee starts reporting results! Get your blood pressure medication ready.

Nota bene: Anthony J. Alfidi sold short calls on Bear Stearns last year as it was going down the drain. Gotta take profits when you can.

The Haiku of Finance for 02/03/09

More pricey junkets
Not what the banks need right now
Cancel all of them

Wells Fargo Wagon Flees Sin City

Finally, someone holds a bailout recipient accountable:

Wells Fargo & Co. abruptly canceled Tuesday a pricey Las Vegas casino junket for employees after a torrent of criticism that it was misusing $25 billion in taxpayer bailout money.

Wells Fargo is paying more attention to the backlash than Morgan Stanley. The end of the article has MS contradicting its travel agent about whether their own junket has been cancelled. My experience in logistics tells me that the travel agent is probably correct, so MS is going to be in for a wallop in bad publicity if they don't cancel their fancy trips lickety-split.

Nota bene: Anthony J. Alfidi does not hold a position in WFC or MS.

The Haiku of Finance for 02/02/09

Punxsutawney Phil
Saw his shadow and got scared
Maybe he's short stocks

Punxsutawney Phil Predicts Plenty of Pain

Punxsutawney Phil saw his shadow today and got spooked, predicting six more weeks of winter. Investors got spooked by some shadows today too; the shadows of continued economic annihilation that predict many more months of stock market declines.

Aren't my segues totally awesome? I continue to amaze myself with my ability to link totally random news items and literary allusions to financial market action.




Consumer spending is down for the sixth month in a row.

Bank lending standards tightened severely in the last quarter.

U.S. manufacturing activity continues to slip.

Gold continues to react to all of this macroeconomic weakness by doing the opposite of what it should be doing. It fell by over two percent from Friday. Check out this chart for IAU:



What gives? Maybe there's some truth to GATA's thesis that central banks suppress the price of gold to support the financial markets. That can't last forever.

Nota bene: Anthony J. Alfidi is long IAU and GDX (with covered calls).

The Haiku of Finance for 02/01/09

Davos, Swizerland
Where big-shots make decisions
So where's my invite?

Pro-Cyclical Habits Daunt Both Economy and WEF

Americans are thankfully starting to save more of their paychecks. The timing of this otherwise good news couldn't be worse:

Economists call it the "paradox of thrift." What's good for individuals -- spending less, saving more -- is bad for the economy when everyone does it.
(snip)

The downward spiral has hammered the retail and manufacturing industries. For years, stores enjoyed boom times as shoppers splurged on TVs, fancy kitchen decor and clothes. Suddenly, frugality is in style.

I've been saying all along that this crisis would worsen. Meanwhile, the world's best and brightest in Davos, Switzerland have no idea what to do to make things better:

The five-day World Economic Forum in this Swiss alpine resort wrapped up Sunday in the same atmosphere of doom and gloom that it began, with a realization that the depth of the crisis is still unknown and the solution remains elusive.

This crisis lends itself to the kind of fundamental analysis that the world's elites are reluctant to perform. They are not about to question "the way things have always worked" until their own lifestyles are immediately threatened. My lifestyle is under no threat, but I like to think a few decades ahead. I am prepared to offer the WEF my own insights if they'll listen.

"Hello, Mr. Alfidi? This is the World Economic Forum. We'd like you to come to Davos to tell us what to do." I'll wait as long as necessary for that phone call as long as they pick up the tab for my flight and accomodations.