Category Archives: Wall Street

This Should Be Fun

“The Ray Rice video for the financial sector has arrived.” You can hear it on This American Life starting today.

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Checking In With NASH

It was almost a year ago that the country’s first “city-centric” investment fund, an ETF comprised entirely of Nashville-based companies, made its debut. At the time I called it “the stupidest investment idea ever” and also noted that,

You know your investment idea sucks when Arthur Laffer “loves” the idea…

.. and also:

I know I’m just a dumb housewife, not an investment genius like the bigwigs behind this idea, but what is the magic of having companies from diverse business sectors all lumped into one ETF just because they’re based out of Nashville? What does Dollar General have to do with HCA? The fund’s founders say:

The partners say Nashville’s position as an “it” city for business makes it an ideal candidate to launch the unique ETF.

This made no sense to me whatsoever, and it still doesn’t. It struck me as nothing more than a civic marketing campaign involving some local hotshots with too much extra money lying in their overstuffed sofa cushions which they didn’t mind throwing away. That’s fine if you can afford it, but there are some investment-ignorant people out there who actually buy this horseshit who probably can’t afford to lose their retirement money on what is basically a marketing ploy by the local Chamber of Commerce.

But what do I know. So, was the NASH ETF really a lousy idea? Let’s take a look-see:

NASH

NASH opened at $25 per share. Today it’s at $27.88. Its range: $23.75-$28 a share. YTD Return: a whopping 1.10% (inflation rate for May 2014 was 2.13%). Meanwhile, the markets as a whole have been booming. For example:

The NASDAQ composite is up 6.80%:

NASDAQ

The S&P 500 is up nearly 7%:

S&P500

While even the Dow has been up 2,56%:

DOW

Again, I’m no genius about this stuff, maybe I’m missing something, but it still seems like this was a stupid idea and Arthur Laffer is still an economic dunce.

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Filed under Nashville, Tennessee, Wall Street

Stupidest Investment Idea Ever

You know your investment idea sucks when Arthur Laffer “loves” the idea:

Nashville-based LocalShares Inc. announced Friday that the nation’s first city-centric investment fund — made up entirely of Nashville-based public companies — will begin trading on the New York Stock Exchange starting Aug. 1.

The fund will be listed with the ticker symbol “NASH” and the initial price will be $25 per share.

The exchange-traded fund, an investment model in which assets such as securities and commodities are traded on stock exchanges much like stocks, will allow investment in a portfolio of Nashville public companies. Qualified companies must be based in Nashville, traded on an exchange, have a minimum of $100 million in market capitalization and at least 50,000 shares traded daily. More than two dozen such companies operate in Nashville, including retailers Dollar General Corp. and Tractor Supply Co. and hospital heavyweight HCA Holdings Inc.

I know I’m just a dumb housewife, not an investment genius like the bigwigs behind this idea, but what is the magic of having companies from diverse business sectors all lumped into one ETF just because they’re based out of Nashville? What does Dollar General have to do with HCA? The fund’s founders say:

The partners say Nashville’s position as an “it” city for business makes it an ideal candidate to launch the unique ETF.

Huh? How do you figure? So we’re an “it city,” big deal. That’s great if you want to find a cool restaurant on Saturday night but what the hell does that have to do with investments? How on earth is that supposed to affect the business performance of regional and national companies? How does that impact the market for fertilizer and equipment of the type sold at Tractor Supply stores?

I do not get this idea, not at all. I’ve dabbled in a few ETFs, but these have always been funds united of purpose: clean energy, for example. Not, “hey they’re all based out of Nashville and Nashville is a cool town.”

But economic clown Arthur Laffer thinks it’s terrific:

“I’m very excited about the concept,” he said. “It’s a beautiful vehicle for someone who wants to invest and take advantage of good state and local economics.”

This makes absolutely no sense, but then, neither did Laffer’s famous “Laffer curve,” or the time he lied to state legislators about Fred Smith moving FedEx out of state because of the estate tax. So there you go.

Hamilton Nolan at Gawker had a hilarious post about this back in June. Titled “How to Beat the Wall Street Pros in One Easy Step,” here is what Nolan had to say:

To be a successful investor, you only need to know one thing.

And here it is, the secret to beating the Wall Street pros: 1) Leave your investments alone for a long time.

I had to laugh because it’s so true. If you try to game the system or think you’ll make a killing over night or are freaking out because the market crashed (or the market is soaring), then all you are doing is losing money and probably a bunch of sleep. This is not a recipe for success.

Instead, buy a blue chip and forget about it for about 20 years.

And by all means, do not listen to Arthur Laffer. That guy is an idiot.

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Rigged Casino

So, here’s the front page story in my Gannett fishwrap today:

An alleged bid-rigging conspiracy among Bain Capital and other private equity firms to divvy up targeted companies — including Nashville-based HCA — may have taken as much as $1.6 billion out of HCA shareholders’ pockets by blocking rival bidders and keeping a lid on the final price when the hospital chain was sold in 2006.

“This is potentially a very big story,” said Randall Thomas, a professor at the Vanderbilt University Law School. “It’s all coming out slowly. We’ll see how it evolves. It’s lot more than just HCA.”

The notion that big private equity firms such as Bain, Goldman Sachs and the Blackstone Group engaged in a conspiracy to lower sales prices in leveraged buyouts from 2003 to 2007 remains a key claim in a federal lawsuit in Boston brought against those firms by former HCA shareholders, and by stockholders of other acquired companies — such as Neiman Marcus and Toys “R” Us — snapped up in Wall Street mega-deals before the recession.

HCA — then a public company — went private in 2006 in a $32.1 billion sale to private equity funds Kohlberg Kravis Roberts (KKR), Bain Capital and Merrill Lynch, as well as to family members of HCA’s co-founder Dr. Tommy Frist Jr. and other executives on HCA’s management team.

The size of the deal was a U.S. record at the time, but the federal lawsuit in Boston lays out the legal argument that the price tag was kept artificially low. Attorneys for the private equity firms being sued insist they did nothing wrong.

To me, this explosive story is far more damaging than the “Bain Capital shut down our factory and outsourced our jobs to China” thing because let’s be real here: the elite class does not care about people’s jobs. They care about profits. In their worldview, it’s the free hand of the market outsourcing those jobs, and people need to get trained for a different job that won’t get outsourced. That’s the meme that the elites in both parties spread, it’s what people like Fareed Zakaria and Nick Kristoff tell us in every column and we hear it even in President Obama’s speeches — it’s the global economy, stupid! Work-force retraining! Education! Etc. etc.

But this? This narrative is one of a rigged casino. This is allegations of collusion and price fixing by the big money boys — Bain, Carlyle, Blackstone, Goldman Sachs, as well as the Frist family. This is the big fish carving up the ocean for themselves, their investors be damned. This is the failure of a worldview which claims the profit motive is the perfect antidote to flawed human emotions and is always perfect.

This doesn’t look good for free market capitalism.

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Here We Go Again

What could possibly go wrong?

Investors place big bets on Buy Here Pay Here used-car dealers

Private equity firms are investing in chains of used-car lots, and auto loans are being packaged into securities much like subprime mortgages. They’re attracted by the industry’s average profit of 38% for each car sold

[…]

Loans on decade-old clunkers are being bundled into securities, just as subprime mortgages were a few years ago. In the last two years, investors have bought more than $15 billion in subprime auto securities.

Although they’re backed mainly by installment contracts signed by people who can’t even qualify for a credit card, most of these bonds have been rated investment grade. Many have received the highest rating: AAA.

That’s because rating firms believe that with tens of thousands of loans lumped together, the securities are safe even if some of the loans prove worthless.

Some analysts worry that the rush to securitization could lead to careless lending by dealers eager to sell more loans, as happened with many mortgage-backed bonds.

No. Just, no.

Just, fucking stop it, already. Stop the greed, stop the endless need for more more MORE. I am about to lose my shit here, people. Stop coming up with these irresponsible, crazy mechanisms that profit off the misery of financially strapped people because some idiot thinks there’s a pony in that pile of horseshit. Stop the greed machine. If you want to gamble, take it to Vegas, where the only person who gets hurt is you.

And while we’re at it, stop calling those of us who see the inevitable trainwreck up the bend “socialists” already. You assholes are the “socialists” because every time you decide to fiddle around with these complicated toxic assets you privatize the gains and socialize the losses. This time it’s not just no, it’s HELL no.

This:

“It might be an attractive model to investors, but when it’s designed to ruthlessly maximize profit, there’s no way it can’t hurt the consumer,” Keest said.

Have you people learned nothing over the past few years? Nothing at all?

Credit Acceptance combines some of the loans into securities and sells them to investors. The buyers are usually insurance companies, banks, mutual funds and other institutional investors.

What they’re buying, essentially, is the right to collect borrowers’ loan payments, which are passed on by dealers and assorted intermediaries. If borrowers default, investors are stuck with the loss.

Really? You promise, this time? Taxpayers won’t be bailing out some insurance company or bank or mutual fund that decided this was the next big Ponzi scheme profit center job creator because God forbid we should keep our greed in check during the Second Great Depression? Honest?

No tightening our belts, no siree, there’s always money to be made somewhere and none of these assholes ever has to suffer the consequences of their bad decision making.

There is no way this isn’t going to blow up in y’all’s faces and when it does, do not — I repeat do not — come crying to me.

[UPDATE]:

Apparently they’re also gambling on European debt:

U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the first half of 2011, boosting the risk of payouts in the event of defaults.

Guarantees provided by U.S. lenders on government, bank and corporate debt in those countries rose by $80.7 billion to $518 billion, according to the Bank for International Settlements. Almost all of those are credit-default swaps, said two people familiar with the numbers, accounting for two-thirds of the total related to the five nations, BIS data show.

Wonderful.

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The Shocking Interview Fox News Refused To Air

The great irony is that this Fox News reporter defends the media to Occupy Wall Street protestor Jesse LaGreca by telling him that,

“We’re here giving you an opportunity with On The Record with Greta Van Susteren to put any message you want out there you, to give fair coverage, and I’m not going to in any way be biased about it. So that is the exception to the case. Because you wouldn’t be able to get your message out without us, yes?”

… and then promptly left that message on the cutting room floor. Gee, I wonder why? Perhaps because LaGreca pretty much handed this reporter his ass and shamed the network — and the fact that they refused to air this interview is only further embarrassment for the Republican Party’s propaganda machine. Watch for yourself:

And I have a special wag of the finger to my liberal friends who keep saying the Occupy Wall Street protestors don’t have a clear message. I’m not sure which protest you’ve been watching but the message seems very clear to me. The bottom 99% want to have their needs addressed. They want to be heard. They’re tired of lower wages and fewer benefits and outsourced jobs so the folks at the top can take home bigger bonuses. They’re tired of a rigged casino where lobbyists make sure the house always wins, paid for by everyone else. They’re tired of being told they don’t matter.

It’s all very clear to me. Rock on.

(via New York Observer…)

[UPDATE]:

And speaking of news media, I’m not sure the New York Times’ Andrew Ross Sorkin should admit he only went down to Zuccotti Park to cover the protests because the CEO of a “major bank” called him and asked him what the protest was about.

Gee, I wish we all had our personal New York Times reporter to ask about current events! Oh wait, I thought that’s what subscriptions were for …

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Too Big To Fail

What started as a couple hundred DFH’s with their puppets and drum circles looks poised to explode into a major movement that the mainstream media can no longer ignore. Yes, the Wall Street protests are growing, with New York unions and progressive organizations joining forces with the students. Reports are that the demonstration is expected to swell into the thousands:

On Tuesday, over 700 uniformed pilots, members of the Air Line Pilots Association, took to the streets outside of Wall Street demanding better pay.

On Wednesday night, the executive board of the New York Transit Workers Union (TWU Local 100), which represents the city’s all-important train and bus workers, voted unanimously to support Occupy Wall Street. TWU Local 100 counts 38,000 active members and covers 26,000 retirees, according to its website.

The Union on Thursday used Twitter to urge members to take part in a massive march and rally on Wednesday, Oct. 5. That effort is being co-sponsored by another eight labor and community outreach organizations.

[…]

The other eight organizations expected to join in the October 5 rally, based on its Facebook page, are United NY, Strong Economy for All Coalition, Working Families Party, VOCAL-NY, Community Voices Heard, Alliance for Quality Education, New York Communities for Change, Coalition for the Homeless, which have a collective membership of over 1 million.

Kay at Balloon Juice linked to this Daily Mail piece with some amazing photos of the pilots marching. All of those suits and ties sure must make the suits and ties on Wall Street nervous.

Here’s my favorite photo, the same one Kay posted:

The media attention on this protest, now in its 11th day, has been piss-poor, especially considering the non-stop, wall-to-wall coverage they gave Tea Party gatherings. I don’t know if it’s cluelessness on the media’s part (liberal protests are a dog-bites-man story, conservative protests are man-bites-dog) or intentional (liberal protests challenge the power elite, conservative protests support the establishment); evil or stupid, it always comes back to that, doesn’t it?

Anyway, good for the hippie kids for lighting this spark. There were a lot of folks on the internet mocking the Occupy Wall Street idea — I’m talking liberal, progressive types, who said the protestors lacked a coherent message, drum circles are stupid, etc. And yet, the protest is growing. Unlike the Tea Party “protests,” this did happen without benefit of a major news outlet endlessly flogging it, a major personality like Glenn Beck spearheading it, or a corporate-funded group organizing and paying for it. Maybe that’s why the news media is so scared.

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Maybe They Should Have Worn Tricorn Hats

Amazingly, the national news media which flocked to cover every second of the “balloon boy” story and offers minute-by-minute coverage every time three Teanuts gather together has almost completely ignored this story. Even more amazing is that it’s happening in New York City, right under their noses. Every time something happens in New York — an insignificant earthquake, or an overblown ego like Donald Trump running for president — the New York-based media treats it like the most important thing in the world. But a peaceful protest of Wall Street greed enters its fifth day and they can barely be bothered to cover it.

I wonder why that is? Obviously, the media is too “liberal.”

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What If Main Street Bailed On Wall Street?

I don’t even pretend to understand “the markets” and what makes them tick, the whole thing is so damn complicated these days I’m not sure the people on Wall Street even understand it. But I wondered something.

Seems I’ve now read that every single Republican candidate for president wants to do away with the capital gains tax completely, as well as the estate tax. Now, let’s just pretend for a minute that this happened. What would the effect be on the average American investor?

How many people do you suppose would bail out of the stock market if there were no tax consequences for doing so? What if they put their money someplace less volatile, safer, less like an unpredictable casino? With real estate still in the doldrums, would people of the “average American investor” persuasion decide there are bargains to be snapped up in that sector? Would they buy gold? Would they buy CDs like we did back in the ’70s when interest rates were so high?

And if the “average American investor” did decide Wall Street was no longer a safe bet, would anyone care? We already know that the big Wall Street guys think Main Street investors are idiots, rubes, marks, sheep led to slaughter. Or to be precise:

Wall Street’s soulless, immoral, greedy bankers really believe that the vast majority of America’s 95 million investors are not only “predictably irrational” but “stupid,” as J.P. Morgan Chase’s chief investment officer put it in Forbes a while back.

Worse, Main Street investors are losers for continuing to trust Wall Street after they lost 20% of our retirement money the last decade. Now, worst of all, Wall Street’s traders have profiled Main Street investors in their algorithms: Yes, investors are “predictably stupid losers,” what Vegas croupiers call a mark, a dumb gambler that can be easily conned out of his money.

Why so blunt? Listen: Recently I explained why the Wall Street banks must kill financial reform, to preserve their multibillion dollar bonus pool. One reader commented: “I worked at the Bear Sterns … every word written here is true. Fact is, bankers regard themselves as wolves and the public as prey, and speak about it openly, among themselves.” Then he added a sucker punch: “What is extraordinary to me is how willingly the sheep submit to this.”

Yes, folks, Wall Street is certain that America’s 95 million investors are clueless sheep headed for the slaughterhouse.

That column I quoted is over a year old, but it still feels true to me. I don’t get the feeling that Wall Street investment bankers give a shit about Main Street, the average American, 95 million of us who have our retirement entrusted in their care. If even a third of those 95 million decided the markets were just too volatile and unpredictable, and there were no tax consequences to cashing in and burying your retirement in the backyard, what do you suppose would happen? I’m not being rhetorical here, I really want to know.

On the one hand, I think you’d have a bunch of little investment guys suddenly out of work. Maybe that annoying E*Trade talking baby would finally be shoved off to Kinder-Care where he belongs. I consider this a good thing, mind you. I hate that fucking E*Trade baby. Investing is not child’s play, people!

But I think you’d also have a lot of those Edward P. Jones and Charles Schwab offices shutting down, too. The brokerages and investment houses which cater to the Main Street investor might be in trouble. I imagine there would be quite a ripple effect throughout the investment world. But what do I know.

What would Wall Street do if 30 million people pulled their money out of the market? Would there be increasing demands to privatize Social Security?

It’s an interesting thought. I really don’t know that much about this stuff, and I wonder what other folks think.

Adding …. I don’t for a minute think the capital gains and estate taxes will be eliminated and even if they were it would be phased in over a few years, at which point Main Street investors might have forgotten the middle finger Wall Street has been giving them for years. So I realize my little thought experiment is flawed. But it’s something to think about.

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Oil Speculators & Gas Prices: Is Feature, Not Bug?

I’ve already written plenty about the dishonesty of “Drill Here, Drill Now, Pay Less” (for a rundown, check here.) That’s a nice little bumper-sticker slogan that caters to the low-information crowd who still believe in simplistic supply and demand models — something we all know does not apply so easily to oil and gasoline. Frankly, I don’t see that message getting much traction outside Fox News; American consumers are a little more sophisticated than that.

One thing I haven’t talked about too much though is the influence of Wall Street speculators on our gas prices. In that regard I found a recent interview with Ed Wallace on NPR’s “Here & Now” quite interesting. The interview built on his column of April 19, but then went into what interviewer Robin Young dubbed “provocative” territory. If you get a chance, give it a listen, it’s only around 15 minutes long.

I found his theory fascinating. He says that banks and investment houses need to make up for the money they lost in the mortgage meltdown, so they’re gambling it on oil futures instead of loaning it to small businesses and consumers. This is sending the price of oil soaring.

In the radio piece (around the 11:00 mark) he specifically blamed the Federal Reserve’s policy of loaning money to the nation’s banks at virtually zero interest. The idea was, banks would send that cheap money back out into the economy in the form of small business loans, consumer loans, and the like. But as anyone knows, banks are not giving loans these days. They’re being downright stingy in that department, actually. Wallace says it’s because they’re trying to get a bigger return on their investment by speculating in commodity futures like oil. The banks are making tons of money but they aren’t sharing the wealth with the rest of us; in fact, they’re costing us, because this speculative activity has sent gas and food prices soaring.

And while President Obama is calling for an investigation into such practices, Wallace thinks it’s all so much Kabuki theater. Indeed, the “provocative” thing is, he thinks this situation is a feature, not a bug. I’ve transcribed part of the interview Robin Young conducted here:

RY: But why can’t it be exposed?

EW: Because I think they have to keep it this way. And this … now let me speculate on my own story. The housing crisis is not over yet. They say that somewhere between 13% and 15% of all homes in America are now sitting vacant. Not all of them have been sold. The Wall Street Journal — what was it, last September? — did a story, said at our current sales rate for used homes in America, it’s going to take 9 years to clear off the backlog of these homes off the bank’s books and actually get them sold. That means they haven’t taken the losses, Robin. So how do you get the banks into a position where they make so much money they can slowly work out of this mess?

RY: You give them oil!

EW: You give them so much money at virtually no interest they can make money in commodities, food, oil, whatever. And these huge profits you’re piling up are actually gonna go to probably handle the losses that are still coming our way and will come our way for years to come.

RY: So it sounds like you’re saying that the government needs to keep this inflated oil market there because that’s how banks, investment houses, whoever these speculators are, can sort of offset their losses in homes.

EW: I think that’s as logical a theory, and I’m not saying that’s absolute, but why else would the government let it happen when the government’s the one that knows exactly why it’s happening, they’ve studied it. And yet they do nothing?

Why indeed!

It’s certainly a complicated issue, and while a few of Wallace’s ideas seem shaky — who is to say the sales rate of homes will stay at its current rate, for example? — I do think he’s onto something here.

Unfortunately, Americans can be intellectually lazy. Rather than exercise the gray matter on such intricacies as the global commodities markets and real estate inventory, they’ll jump on board the more simplistic “demand is up so gas prices are up” tale Grand Old Petroleum is selling. And any attempt to pressure the Fed to change its policy and prevent such gambling by banks in the Wall Street casino will be viewed as unpatriotic, Socialism, Fascism, tinkering with the free hand of the market, class warfare, punishing the rich, etc. etc. etc. I mean, we’ve seen this movie before, haven’t we? Instead we’ll get more oil leases off the coast of Viriginia and in the Gulf of Mexico, which won’t do a damn thing because the oil companies are already sitting on more untapped, unused leases than they know what to do with. And gas prices will go up, and on and on. Lather, rinse, repeat.

C’est la guerre!

[UPDATE]: I just realized I contradicted myself when I said the “drill here drill now” slogan wasn’t getting much traction outside of Fox News audiences, and then concluded that Americans are intellectually lazy. I guess what I meant is that while I believe most Americans understand the price of gas and the price of oil are complicated issues affected by more than just how many oil platforms are in the Gulf of Mexico, they aren’t necessarily researching this stuff on their own to find out all the many ways prices are manipulated. It’s too easy to grab onto whatever message the media is peddling today and buying into certain assumptions, such as “demand is high!” Um, well, no, actually, it’s not. The media also likes to conveniently blame China and forget about the role of refineries which have cut capacity, something Wallace goes into in his April 19 column.

So, as always … ’tis complicated.

[UPDATE] 2:

That was fast. Gosh I hate it when I’m right. I said we’d get more oil leases off the coast of Viriginia and in the Gulf of Mexico and that’s exactly what our clueless House of Representatives has authorized.

I’m not worried about this. As I’ve said before, the oil companies have more leases than they know what to do with. The problem is not oil leases. They already know where all the oil is, the problem is pulling it out of the ground (or, in this case, the seabed.) There will be windfarms off the coast of Virginia long before there are oil platforms.

But if Congress wants to do something to lower gas prices, they’re barking up the wrong tree. And perhaps, as Wallace suggests, that’s all part of the Kabuki theater. They want to give the appearance of taking action, all the while knowing that what they’re doing won’t affect anything at all. Because they want this oil speculation to continue.

I dunno, it’s a theory … but a damn good one.

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