Michael Lewis

Retail investors are piling into the stock market again in the false belief that the worst of the economic crisis is over. Alas, those who are not properly diversified may again be in for a rude awakening.

It was rumored that the 2008 crisis hit the Queen of England particularly hard – over USD 40 million in stock market losses. This experience must have jilted something, as when The Queen was visiting the esteemed London School of Economics she asked the professor a rather “un-queen” like question – why did economists fail to predict the biggest global recession since the Great Depression? Speaking on behalf of economists, investment managers and mutual fund sales people everywhere, the professor responded that “at every stage, someone was relying on somebody else and everyone thought they were doing the right thing.“ In short, no one could have predicted the 2008 crash. Meanwhile, in the parallel universe called America, Ben Bernanke January 2013 The Queen was selling everyone the exact same story. If the famed London School of Economics and the Chairman and full committee of the US Federal Reserve were unable to predict the crisis, what hope does the World have with predicting future crises? In actual truth, and despite claims by the US Federal Reserve and the London School of Economics, many people accurately predicted the collapse of the US housing market and the subsequent collapse of the stock market. Fortunately, it doesn’t have to be that way. Accepting, understanding, and embracing the fact that today there are plenty of investment professionals who are willing to view the World objectively should be comforting.

The silver market was affected by “devious efforts” to move the price of the precious metal, according to Bart Chilton, a member of the U.S. Commodity Futures Trading Commission, as reported by Bloomberg. “I continue to believe, consistent with my previous statements and information from the public, that there have been devious efforts related to moving the price of silver,” Chilton said by e-mail today in response to questions from Bloomberg. “There have also been silver and gold market anomalies outside of the silver investigate window that have raised, and continue to raise, market concerns.” The enforcement division of the Washington-based agency, the main U.S. overseer of derivatives markets, began pursuing allegations of manipulation in the silver market in September 2008.  Investigators have analyzed more than 100,000 documents and interviewed dozens of witnesses, the CFTC said in a November 2011 statement. Chilton said last month the investigation may be completed as early as September.

Trading in markets dominated by the Icelands and AIGs of 2012 can be very challenging. 

In the aftermath of the "Greg Smith" phenomenon, where now a variety of sources (for now of the terminated kind, but soon likely from those still on the payroll) have stepped up against the Wall Street and D.C. omerta, it is assured that we will see many more such pieces before the coolness factor of public employer humiliation. It is our hope that these lead to an actual improvement in America's criminal corporate culture (such as in "How a Whistleblower Halted JPMorgan Chase's Card Collections"), which is nowhere more prevalent than in the corner offices of Wall Street, long a place where "obfuscation" and "complexity" (recall that it was none other than the Fed telling us that "Liquidity requires symmetric information, which is easiest to achieve when everyone is ignorant") have been synonymous with legalized wealth transfer (after all, we now know that nobody ever read the fine print, and when the chips fell it was all the rating agencies' fault). Alas we are skeptical. But while we wait, here is a slightly lighter piece from the Globae and Mail's Tim Kiladze, who while not exposing anything new, shares with his readers just what the transition from "soulless banker" to a "less demanding, more fulfilling life" entails, and that it does, in the end, pay off. As Tim says - "The latter is a real option: I’m proof of it." Here is his story for all those 'wannabe Greg Smiths' who are on the fence about burning that bridge in perpetuity.

An explanation of why the UK is currently in a Recruitment Bubble

There are still so many alternatives on the table and each is so confusing it is hard to come up with a decent analysis. In the meantime, here is something to think about. EFSF walks into a meeting with a potential investor. EFSF is looking to raise some additional capacity so needs to borrow some money.The meeting starts off great. The investor is told that EFSF has 780 billion of capital. That is amazing, says the investor, not many people walk through the door with that much capital at launch. The investor is curious as to when the fund will get the funding. For the first time, EFSF looks a bit uncomfortable and has to explain it doesn't really have funding, it just has some guarantees. The investor is a bit confused about this since they would rather have money than guarantees, but decides that if the guarantors are good enough, maybe it's okay. The EFSF instantly replies that the guarantors are great, they are all highly rated. Well, some of them are at least. Well, actually a few are so weak that they won't actually ever provide the guarantees, they just let us include them in the pitchbook so we could have a bigger number. The Investor is getting a little nervous at this time, but still intrigued, so wants to know how much from the good guarantors? They are reasonably happy that the answer is 726 billion. Still very impressive, but at least a little confused why they bother with the 780 billion. Their experience as investors tells them that when someone lies a little, they tend to lie a lot.

Michael Lewis’ latest piece in Vanity Fair, “#1d637d; text-decoration: none;">California and Bust,” begins with a lengthy defense of #1d637d; text-decoration: none;">Meredith Whitney’s prediction that there would be a wave of defaults in the municipal bond market. I was not planning on writing a response to his article – frankly, defending Whitney’s call at this point is very much like defending Harold Camping’s prophesy on May 22^nd, after even the most gullible people have realized that they euthanized their pets for nothing. Who really cares about the intransigent believers that remain, for whom a forceful narrative has always been more relevant than facts?

• Steve Jobs "may never be equaled" (Reuters)
• Secret panel can put Americans on "kill list" (Reuters)
• Michael Lewis: California and Bust (Vanity Fair)
• Europe’s Rescue Fund is Only Last Resort (Bloomberg)
• EC To Propose Coordinated Action On Bank Recapitalization (MNI)
• SNB Foreign Currency Reserves Climb to Record (Bloomberg)
• Geithner Says Europe Debt Crisis Poses Risk to Global Growth (Bloomberg)
• Repatriation Tax Holiday to Be Proposed by Hagan, McCain (Bloomberg)
• China Tests US With Currency Move (FT)

All you need to read.

The politicians and bankers who control the developed world have made the choice to print money and create more debt as their solution to an un-payable debt problem. Europe, Japan, the U.S., and virtually every country in the world want to dev.alue their way out of a debt problem created over the last forty years. It has become a race to the bottom, with no winners. Every country can’t devalue their currency simultaneously without blowing up the entire worldwide monetary system. But, it appears they are going to try. The United States will never actually default on its debts. Ben Bernanke will attempt to default slowly by paying back the interest and principal to foreigners in ever more worthless fiat dovllvvars. This will work until the foreigners decide to pull the plug. For now interest rates are low and the U.S. is the best looking horse in the glue factory. But we all know what happens to all the horses in the glue factory – even Mr. Ed.

Adding insult upon injury...

Forget the hype abut passive commodities indexes. In this space, you want to focus on active management...

Earlier today, some hilarious news hit the tape after it was made public that disgraced CDO trader Wing Chau has decided to go nuclear and sue Michael Lewis and Steve Eisman due to their all too honest representation of the Harding Advisory asset manager, in Lewis' book "The Big Short" (not spared from the lawsuit was even book publisher W.W. Norton). "Michael Lewis was sued by Wing Chau, president and principal of Harding Advisory LLC, who accused the writer of defaming him in his 2010 book. The book "depicts Mr. Chau as someone who ignored his professional responsibilities, made misrepresentations to investors, charged money for work that was not performed, had no stake in the CDOs he managed, was incompetent or reckless in carrying out his responsibilities, and violated his fiduciary duties by putting the interests of 'Wall Street bond trading desks' above those of his investors." It appears that Chau missed at least one additional defendant: Jody Shenn of Bloomberg, who in 2010 wrote a scathing article titled "How Wing Chau Helped Neo Default in Merrill CDOs Under SEC View" which provided just as damning and just as accurate a portrait of the (allegedly) pathologically greedy manager who presided at the "center of an epidemic of conflicts of interest." And while we present the key highlights from Shenn's piece which is a must read for anyone interested in what will surely be a recurring drama in the coming months (the Michael Lewis op-ed repartees will be worth the price of admission alone), what appears to have forced Chau to take this career ending step (sorry Wing, no more AUM for you) is that he is about to hit the silver screen. In the full lawsuit we read that "Brad Pitt's production company, Plan B Entertainment Inc., has bought the movie rights and is working with Paramount Pictures Corporation to produce [The Big Short] film." Well isn't that special...

• From Prison, Madoff Says Banks ‘Had to Know’ of Fraud (NYT)
• Rising Chinese wages pose relocation risk (FT)
• Bahrain protesters take over key junction (FT)
• Fisher Says He May Prefer Treasury Sales as First Step for Fed Tightening (Bloomberg)
• Banks Push Home Buyers to Put Down More Cash (WSJ)
• Borders Files Bankruptcy as Expense Cuts Don't Stem Losses (Bloomberg)
• China's farm produce prices down last week (ChinaDaily) - weekly food prices are now Headline news
• Brazil Dismisses Plans to Pressure China on Yuan (WSJ)
• All You Need to Know About Why Things Fell Apart: Michael Lewis (Bloomberg)