Living and Giving Among San Francisco's Nouveau Riche

I have been a San Franciscan for just over a decade.  There are times when I am tempted to believe that is one decade too long.  I never give in to this temptation because I am destined to show San Franciscans the path to enlightenment.  The local nouveau riche class is still finding its way to acceptance.

The New Yorker article "California Screaming" is the East Coast Establishment's way of looking down its nose at San Francisco's newly rich.  That magazine's circulation base is mostly old money trust fund babies who turn into full-time salon intellectuals, plus the libraries and medical offices serving a pretentious crowd.  No self-respecting East Coast WASP would ever agonize about how to bring public policy innovation to the lower classes.  Such trite notions are beneath them.  They would simply write a check to their favorite charity and get back to shopping in the Hamptons.  The Bay Area fetish for "getting involved" in solving poor people's problems must amuse the monied elites to no end at the other end of our continent.

We do things differently out here in the Bay Area.  I have observed the One Percent of this nine-county MSA long enough to understand that their social cognizance is precisely calculated.  The lyrics are a bit different out here but the song remains the same.  The social climbers on the East Coast would recognize the tune even if they deign not to hum along.  The "do something" impulse in the Bay Area means the nouveau riche tech elite translates its skill set into charitable outreach that . . . further enhances its skill set.

Full Circle Fund is the leading exhibit for the Bay Area elite's attitude toward charity.  Its members pay a premium for the privilege of helping accelerate local charities' tech adoption curves.  That effort, plus some high-end socializing, is a big career enhancer for mid-level corporate project managers in greater San Francisco.  I have nothing against Full Circle Fund, and I would probably join them if I thought my skills fit their needs.  The fund and its non-profit clients need well-pedigreed managers whose social connections translate into donations and prestigious board memberships.  They probably have no use for a sarcastic financial analyst, like yours truly.  I would just get in the way of their latest dynamic change initiatives.

The local social climbers who are not techies have their own philanthropic settings, aping the best salons on the East Coast.  I am a longtime member of BRAVO!, Symphonix, and ENCORE! where San Francisco's most pretentious yuppies cultivate a very selective meat market.  Quite a few of these people have blood connections to their fellow snobs on the Atlantic seaboard.  Some members of those organizations have asked me to leave over the years because they disapprove of my social class origins.  I refuse to leave, and that is my declaration of moral superiority over nouveau riche class condescension.  They need me around more than they will ever know.

San Francisco's socioeconomic elite has always ranked as the younger sibling to the New York and Boston elites whose ancestors gave the United States of America its founding mythos.  The locals are good at copying the East's social rituals but a copy never has the fidelity of the original.  Tech-oriented philanthropy is The City's native elite language.  Local branches of Eastern families will never grok the tech elite's culture or allow its practitioners to penetrate their hallowed drawing rooms.  That's too bad.  They're missing a decent sales pitch for the latest gadgetry.  

The Haiku of Finance for 05/16/14

Trust fund broker kid
Parents hand over millions
Firm thinks it's genius

Financial Sarcasm Roundup for 04/21/14

This week's sarcasm combines a few seemingly unrelated items in one brute force face-smash.  First, insider trading may get a lot harder to convict if prosecutors must prove foreknowledge of benefits.  The modern surveillance state doesn't cover telepathy.  Second, IMF research shows just how much the Fed's bond buying has boosted bond prices by lowering yields.  The World Bank noticed the relationship almost a year ago in one of their papers, so maybe it takes the IMF longer to do math.  I should be fair to the IMF since they've been busy bailing out Europe and other deadbeat regions.  Finally, there is now documented proof that Silicon Valley's biggest tech firms colluded in hiring practices to hold down tech compensation.  It reminds me of the greed I witnessed in financial institutions.  I feel badly for the nerds who thought they'd be raking in dough working for tech titans.

I threw these three news items together because they all make me think of how elite privilege is becoming entrenched in America.  Preppies can risk more insider trading and the more pedigreed traders at hedge funds will probably get away with it.  The biggest banks get first run at borrowing low to fund their carry trades under the Fed's pumped buying programs.  Even tech firms resist legal challenges to their unfair competitive practices.

This ominous trend in favor of elite privilege is antithetical to free enterprise.  Retail investors can't compete against insiders who routinely access non-public information at little risk.  Small firms can't compete against big banks skimming carry trades or big firms cherry-picking talent.  Challenging this atmosphere in court requires expensive class action lawsuits that extract a pinprick in damages from giant firms.  Those firms continue to earn monopoly rents.  The more likely solution is a massive market crash that flushes many bad actors out of C-suites and into bankruptcy.  That outcome is the only corrective mechanism the free market has left.  

The Limerick of Finance for 12/16/12

Crony capitalists shout hooray
For bailouts the rest of us pay
There will be some more
So quit keeping score
Just wait for the reckoning day

The Haiku of Finance for 12/09/12

Wall Street bonus drought
Lumps of coal in their stockings
Preppies will be broke

The Haiku of Finance for 12/05/12

Citigroup cuts jobs
No more growth outside U.S.
Preppies will stay home

The Haiku of Finance for 07/14/12

Preppies lose money
Trade like mad and get bonus
The plutocrat way

JPMorgan Chase (JPM) Has Too Many Preppies

Insane trading by the London Whale and the CIO's flunkies is finally hitting JPMorgan Chase in the pocketbook.  Shareholders ought to get upset about this 9% drop in net income but they're probably sound asleep.  There are many reasons business will continue as usual.

Too many idiots holding this stock expect it to be bailed out no matter how many stupid decisions its head managers make.  They could be right, or they could be diluted to atoms if Uncle Sam grabs a boatload of new warrants in exchange for cash.

Too many hedge funds will trade this stock based on news blips.  Real corporate governance no longer exists in America because institutional investors have farmed out much of their portfolios to hedge funds that don't perform fundamental research or due diligence of any kind.  I miss CalPERS' activism from over a decade ago.  That went out the window when their moronic leaders in Sacramento doubled down on hedge funds and other illiquid nonsense.

Too many financial journalists will forget all about this loss in a few weeks.  They need to ignore it to keep getting invited to the right cocktail parties and galas.

Too many JPM people are probably spoiled preppies who get rewarded for failure.  That's the biggest reason why we can expect to see this news again.  Even if the problems in my above paragraphs were magically solved, preppie traders and managing directors simply enjoy blowing other peoples' money.  The CIO had to walk the plank but I seriously doubt anyone who leaves will see their severance pay clawed back.  That's not how things work in the new plutocratic America.  Pedigree engenders "trust" and competence engenders ridicule.

Oh yeah, JPM is one of those firms that wouldn't hire me.  Serves them right to lose money.

Full disclosure:  No position in JPM at this time.  

The Haiku of Finance for 04/11/12

Goldman slap on wrist
Hot tips okay for big shots
Small cost of business

The Limerick of Finance for 01/22/12

The Davos elites will convene
As the world is perched on a ravine
They're all joined at the hip
But we need leadership
Total chaos could come to this scene

Surviving Hedge Funds Harbor Unrealistic Hopes

Some hedge fund managers can admit the futility of their business models.  Good for them.  They close up shop when they figure out they can't beat Mr. Market:

Galle Global Macro Partners LLC, the hedge fund founded by Sri “Wije” Wijegoonaratna, a former Fortress Investment Group LLC executive, is shutting down about a year after it started.

Other hedge funds cling to extremely unrealistic expectations for the year ahead:

Hedge fund managers and investors are increasingly bullish about the industry's prospects for growth and returns in 2011, according to a survey by Barclays Capital conducted at the firm's inaugural Hedge Fund Symposium in New York.

Good luck navigating a market pumped by quantitative easing.  The hedgies' publicity machine convinces other institutional investors - who have learned nothing, of course - to go along for a ride chasing impossible returns:

The New Jersey Division of Investment invested an additional $40 million in a Centerbridge Partners distressed credit hedge fund.

Completely unnoticed to those know-nothing investors, hedge fund strategies gradually converge on an event horizon approaching ultimate stupidity:

Hedge funds are crowding into more of the same trades these days, amplifying market swings during crises and unnerving investors. Such trading has stoked market jitters in recent months and helped to diminish the impact of corporate fundamentals on stock-market movements. Droves of small investors have reacted by pulling money from the market, questioning its stability and whether fast-moving traders are distorting prices.

I should thank the people running hedge funds, along with the folks running the institutional money that sustains them.  It gets easier and easier for me to take the other side of the thundering herd's trading philosophy as time goes by.  Give me fundamental deep value for the long term, plus a little merger arbitrage, option writing, and fixed-income yield enhancement.  I'll leave the multivariate, high frequency, global macro nonsense to people of less ability than me. 

Nota bene:  Alfidi Capital is not a hedge fund. 

Rich Is A Quarter Million Annual Income

Right now I'm listening to the weekend edition of Marketplace on NPR.  There's a lot of discussion on the mentality of the wealthy.  Many rich folks don't seem to think they're rich, even if they're centimillionaires.  That's funny.  I would definitely think of myself as rich if I reported that kind of adjusted gross income on my IRS Form 1040.  I'll go with the argument that a $250,000 annual income qualifies an American as rich.

Pundits spent a lot of bandwith defending extension of the previous Administration's tax cuts.  The focus was on redefining wealth upward to portray quarter-million incomes as non-rich.  The meme won thanks to help from mass email lists and the blogosphere. 

The Census has a detailed breakdown of thresholds for relative affluence based on educational attainment.  The data for holders of master's degrees imply that I'm affluent.  I'll buy that.  The odd part is that the people I meet at the San Francisco Opera probably consider me to be unworthy of being affluent.  I'll buy that too.  I'll also buy their real estate out from under them when deflation wipes out their bond portfolios and hyperinflation leaves them too illiquid to pay their bills.

New Flowchart on Financial Services Career Progression

In my never-ending quest to provide the financial community with much-needed assistance, I've published a new flowchart on career progression for financial services professionals at Alfidi Capital.  This flowchart should serve as a handy reference tool for aspiring bankers, traders, client relationship managers, analysts, and other types who wish to climb Wall Street's corporate ladder.  Alternatively, it can also serve as a warning of what to expect for employees who do not possess appropriate credentials, i.e., aristocratic pedigrees, lack of conscience, etc. 

The Haiku of Finance for 03/24/10

Wall Street divorces
Tie up preppie cash and stock
Time to lawyer up

Wall Street Bonuses Tied Up In Divorce

This makes me smile.  Preppies and trust fund babies (is there really a difference?) are finding that their ridiculous Wall Street bonuses are being clawed back after all - in divorce court:

Restrictions on U.S. executives’ bonuses are complicating divorce settlements, increasing legal bills and raising the prospect that some may have to transfer children out of private schools or sell second homes.
(snip)

Glenn Liebman, a certified public accountant in Woodbury, New York, said his clients used to be paid base salaries of $250,000 with cash bonuses from $3 million to $6 million, which went toward alimony and child support payments in a divorce. Those executives now may receive only a portion of their bonuses in cash and the remainder in stock that’s tied to share performance that may not vest for up to five years, Liebman said.

“Changes to compensation are creating a horror show when dealing with the other spouse’s budget and support package for children,” said Liebman, a partner at Klein Liebman & Gresen, LLC, which values businesses and assets.

Somebody call a waaaaaambulance!  Prissy little miss has to drop out of St. Alban's Prep and enroll in P.S. #139 because Mommy can't get her manicured paws on Daddy's bonus.  I have no sympathy for these dweebs because karma is finding a way to stick it to all of them for their arrogance.  Hey preppies, I'll be happy to buy your country club membership from you for a buck fifty if you're that hard up for cash. 

North Korea "Takes Aim" At Inflation

Well, here's one way to hold finance officials accountable for their policy errors:

North Korea executed the former head of finance of its Workers’ Party after last year’s currency revaluation triggered unrest in the communist nation, Yonhap News reported, citing people it didn’t identify.

Fortunately we in the enlightened West don't do that to our financial scions when their policies do measurable harm.  See, when our Treasury secretaries redirect billions of TARP dollars from middle-class taxpayers to rich bankers for bonus payouts, we celebrate them as saviors of the economy.  Alan Greenspan got a Medal of Freedom for the policies he authored as Fed Chairman that spawned a housing bubble and erased traillions of dollars worth of household wealth. 

We have the added benefit of a private sector that subscribes to the theory of "screw up and move up," whereby Harvard and Wharton MBAs who can't manage risk get to run big hedge funds after they lose money on prop trading desks at i-banks.  Rich preppies don't face firing squards here in the good old U.S. of A.  That's un-American and offensive to good sense and decency. 

It sure pays to be civilized.  (Sarcasm filter off.)

Most Of You Will Be Unhappy

Our betters continue to program us to expect less so they can have more of what's left. Consider this piece, instructing us on how much happier we'll all be once we're poor:

The Great Recession--which is technically over, economists insist--may be morphing into a broader epoch: the Great Humbling. Millions of Americans who felt prosperous just a few years ago are now coping with long-term unemployment, sharp cutbacks in living standards, foreclosure, bankruptcy, and a deep sense of failure. That could persist for years. "This is not like earlier recessions, where things fell, then they bounced back to where they used to be," says Dennis Jacobe, chief economist for the Gallup polling organization. "We haven't seen this before. It's the only time this has happened since the Great Depression."

I predicted last year on this blog that we'd see more of these heartwarming stories on how great it is to be downwardly mobile. I suppose it's fitting that the article's scene is set in San Francisco, my town, where plenty of wanna-be aristocrats enjoy slamming doors in the faces of people like me. The article gives Americans instructions on adapting to their new lifestyle as serfs. The only thing missing is a description of the proper length of a curtsy when addressing a millionaire, or a warning to avert one's eyes when being scolded by one's lord. It uses several classic sales techniques to drive the prospect (that's YOU, the newly poor) to "close" on accepting less from life . . .

"You'll really don't want to be successful anyway. Look how unhappy those business commuters are to be rushing to work."

"You don't need more than a few thousand dollars to survive."

"Think how much happier you'll be when you don't have to worry about what to do with your money."

There is a tiny kernel of truth in these very suggestive thoughts, which is why they're so effective as sales pitches. They have a natural appeal at some level that inclines one to agree just to be agreeable. Most people probably would be better off if they had less money to waste on materialistic lifestyles that deplete the planet's resources.

I am not most people.

These sales pitches sicken me. I'm not about to settle for less in life. I've had enough experience with hidden sales pitches - both delivering them and being duped by them - to see the manipulation. My bosses at major investment firms - all preppies who never had to prove themselves - spoke to me this way before they fired me and took credit for the work I had done.

I refuse to be duped. I will not succumb to this siren song. I will never settle for less. Civilization's progress depends entirely on people who refuse to settle for less. Get lost, preppies, before I vomit all over your stinking pedigrees.

Preppies With Guns at Goldman Sachs

This makes me shake my head. These preppie fools are just now realizing that their business decisions have placed their lives at risk:

“I just wrote my first reference for a gun permit,” said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.

I have a couple of decades' worth of experience with firearms. Buying a handgun offers little protection without the willingness to use it at the moment of truth. Then again, pulling the trigger won't be difficult at all if Goldman Sachs' heavy hitters are really as amoral as they're often depicted.

I'll offer some free advice for preppies who're serious about enhancing their chances for survival against an angry mob. Forget the firearms, as they will only delay the inevitable if the plebes are at the gates with guns of their own. There are concrete steps you can take right now that are far less aggressive. Do the following. Unwind your firm's credit default swaps, interest rate hedges, and other derivative positions. Shut down your TARP-supported firms and allow the U.S. Treasury to assign their assets to local banks and credit unions. Deploy the bulk of your net worth to build resilient communities in your local area. In other words, taking highly visible steps now to distance yourself from Wall Street's greed is a better insurance policy in desperate times than arming yourself against your destitute neighbors.

Don't even think about fighting an angry mob all by your spoiled, arrogant self. The global guerrillas can easily defeat you.

Greed Wins Again

Here we go again. The people who helped cause the problem are definitely not part of the solution:

A 40 percent jump in Wall Street bonuses this year may bring relief to New York City and Albany as the state and its biggest metropolis struggle with a combined $14 billion in budget deficits this fiscal year and next.

There's a larger lesson here besides the need for NYC to diversify its economy away from such a heavy reliance on the financial sector. The "masters of the universe" have learned absolutely nothing about the limits of their knowledge and the amount of damage their hubris can cause. Hopefully the next dip in the market (after Christmas?!) will drive this point home.

A Primer On Financial Career Archetypes

Careers in finance are fun and rewarding. If you want to win you have to arrive prepared and ready to roll. The specific type of job doesn't matter. You can be a banker, broker, analyst, manager, whatever, but in general you need to have "what it takes." Let's discuss the most common types of employee you'll find nowadays on Wall Street.

Here are three main types of people drawn to careers in financial services.
Type 1: The Angel. The conscientious, hardworking, intelligent person who insists on taking care of the client and delivering the highest quality service. This person is scrupulously honest and insists on strict adherence to laws, regulations, and the highest standards of ethical behavior.
Type 2: The Predator. The lying, thieving, conniving, backstabbing, manipulative, egotistical jerk. This person would sell their own mother down the river for a fast buck and epitomizes the "I'll be gone, you'll be gone" (IBG/YBG) absence of concern for the long-term effects of their actions on the health of clients and the industry.
Type 3: The Preppie. The spoiled, airheaded, condescending trust-fund baby who had their high six-figure first job handed to them after sleeping their way through four years in the Ivy League. This person is amused at anyone who has to work hard for a living as such things are so declasse for someone at their level.

Now that we've identified the three types of people you're most likely to meet in your Wall Street career, let's discuss their typical career paths.

Angels are immediately identified for eventual termination. They are given plenty of grunt work to keep them busy, the results of which will always be claimed by the other two types. They are widely viewed as weak and unfit for employment in finance, and will never earn anyone's respect with the way they do their jobs. Their honesty and devotion to detail quickly prove to be career liabilities because they pose a threat to the chicanery of their managers.

Predators are initially successful based on their ability to lie, bluff, and bully their way around clients and the office. The more successful ones will ally with a Preppie to network their way up the ladder and gang up on Angels for fun. They predominate in sales but can also be found in management if they can ride the coattails of a well-regarded Preppie. They earn the respect of others by abusing and firing Angels and by outmaneuvering other Predators.

Preppies are the most successful of the three archetypes. Their extensive family connections will steer huge amounts of business to their employer as a matter of course, with little to no effort necessary. They show up late to meetings and vacation for months at a time because they know there will be plenty of Angels back at the office to do their work for them as long a few Predators are left behind to yell at them. It's okay if they fall asleep on the job because they always have an Angel at hand to take notes for them and explain what they missed. Preppies intermarry primarily with each other to extend their bloodlines, but sometimes the more adventurous among them will deign to marry a genetically healthy Predator (based on looks and personality). They usually rise to the top on the back of work done by Angels and Predators. Preppies are the star performers of Wall Street and darlings of the social scene in major metropolitan areas.

If you are a Preppie, you don't need to read my blog. All of your career insights will come from family members. If you are a Predator, you'll probably read my blog just to claim my ideas as your own so you can score a promotion (go to hell, jackass). If you're an Angel, for Pete's sake don't spend longer than a year or two working for Predators and Preppies. Start your own business and outperform them in life.