Thursday, December 24, 2009

Predictions For 2010

It's that time of year again.

Time when we shop till we drop, attend Christmas functions
and entertain visitors, and then collapse in a heap until
New Years!

In that vein then, with the closing of the old year and the
ringing in of the New, I'm offering some "Predictions"
for the nation and the economy for 2010.

I do want to emphasize, though, that these are strictly
my own observations, with no guarantee that they will
actually happen!

In no particular order, then, here are my fearless predictions
and prognostications for 2010:

1) The Stock Market continues its steady upward climb all
through 2010, with the Dow reaching 11,500 by 3Q 2010.
The S&P 500 will remain in a range between 1100-1200,
while the NASDAQ rises above 2500, and the Russell
2000 index approaches 800-850. As funds flow out
of fixed income into equities, gold will continue to
drop to the 940-960 range, as gold investors take
profits and redeploy funds into stocks;

2) Despite the rise in the stock market, fundamentals
of the real economy remain weak, with unemployment
approaching 11% by 3Q of 2010. Capacity Utilization remains
below 70%, as increasing orders for durables and inventory
rebuilding leads to increased manufactured goods imports
from China. A second wave of mortgage foreclosures hits,
this time concentrated in the "Prime" and "Alt-A" credit
segments. Boosting the trend are an increasing number of
homeowners with good credit but "underwater" mortgages
who decide to "strategically default", further depressing

3) Commercial Real Estate loans begin to default in large
numbers, as borrowers who have remained current on
their loans can no longer re-finance due to depressed
property valuations. As many of these loans are held
by local and regional banks, the number of bank failures
in 2010 will more than double to over 300;

4) The CityCenter resort and casino development in
Las Vegas, a monument to gaudy excess and optimism,
fails to attract additional visitors to Las Vegas, instead
cannibalizing established properties up and down the Strip.
Even unheard-of deals at prime strip properties fail to
boost the visitor count. After splitting off its profitable
Macau properties, MGM Mirage files Chapter 11 in 3Q
2010, unable to keep up its debt service;

4) Despite the travails of the real economy in the
U.S., the dollar continues to strengthen as financial
problems in the Eurozone come to a head. Greece,
unable to resolve its fiscal problems as sovereign
debt approaches 100% of GDP, is saved from default
by a combined ECB-IMF intervention, with Spain and
Ireland following suit shortly thereafter. All this
leads to a flight back to the dollar, despite record-low
interest rates and continued Fed money-supply

5) Due to a strengthening dollar and a linked yuan,
China's exports to the U.S. resume growth once again
as a recovering US economy means more orders for
China's manufacturers. A strengthening dollar also
boosts off-shoring of remaining US-based manufacturing,
and U.S. manufacturing employment falls below 10% of
total employment for the first time ever;

6) The Democrats face huge problems in the November
2010 elections, as rising unemployment and increasing
social distress puts voters in an angry mood. The
Democratic majority in the Senate falls to 53-47, as
key incumbents retire and Majority Leader Harry
Reid is defeated for re-election. Republicans, however,
fail to take over the House of Representatives as
intramural squabbling permits many previously
endangered Democrats to squeak through.
Republicans are helped, though, by a dozen or so
Conservative Democratic Representatives (mostly
in the South), who defect to the GOP. In all,
Republicans pick up thirty seats, increasing
Obama's woes and making compromise more unlikely;

7) A major TBTF U.S. bank actually fails, due to losses
in Commercial and Residential Real Estate and huge
losses in its credit card portfolio. However, because
the machinery for resolution is now in place, the bank
is quickly nationalized, broken up and sold, with
minimal impact on the general economy. In conjunction
with the Fed and Treasury, Goldman Sachs orchestrates
the entire transaction, thus cementing its position as
the U.S.'s most powerful financial institution;

8) Elin Nordegren divorces Tiger Woods, getting
a significant portion of his assets and $2m plus
per year in child support, although significantly
less than originally predicted in the celebrity press.
Tiger, seeing his financial position deteriorate, returns
to golf with a vengeance, entering 25 tournaments,
winning 13 (including two majors), and establishing
an all-time record for money winnings in a PGA season.
Golf's TV ratings explode, and endorsements come
flooding back, making Tiger once again the world's
highest-paid athlete;

9) Sarah Palin, with a huge windfall from "Going Rogue"
and lucrative speaking engagements booked all year,
decides not to run for President in 2012. However,
her continued popularity leads The Fox Network to
sign her to her own daily talk show. Her show becomes
a huge hit, becoming the new "Oprah" for an increasingly
disaffected Middle Class;

10) The continuing drift in the economy leads to several
new "Third-Party" political movements, uniting disaffected
populists with independents and libertarians. Despite
differing ideologies and beliefs, many of these movements
come together to challenge ballot-access laws in many states,
which give a virtual monopoly to the two major parties.
Early efforts focus around building a "unity" 3rd-party ticket of
Ron Paul and Alan Grayson for 2012;


We'll be back with more in January......

The Thinking Nationalist.

Monday, December 21, 2009

The Copenhagen Climate Follies

Mercifully, the Copenhagen Climate Follies have finally concluded.

After two years of painstaking negotiations, the
Copenhagen Summit - billed as the last, best chance for
the world's governments to finally get a Grip On Global Warming -
ended in farce, with plenty of grandstanding and finger-pointing
to go around.

Just by getting a look at the scene you could tell what was coming.

Those world leaders who didn't arrive by Government VIP
aircraft did so on the private jets of some of the world's
most powerful corporations, from there to be shuttled to
and fro by limousine, carefully kept away from the press
and the public.

But, "the public" was also in Copenhagen in force -
protesting the almost complete lack of progress by
the world's governments since the Kyoto Accords
of 1998.

But, as we've learned from The Global Financial Crisis,
the globe's elites are not going to get involved - unless
there's money to be made.

And, judging from the schemes floated at the summit,
there are plenty of ways for the Global Elite to continue
to plunder the rest of us.

Schemes like "Cap and Trade" and "Carbon Futures".
No doubt the Squid and the other investment banks will
be all over that. And "Carbon Taxes?' Just what the doctor
ordered for the recession-stricken populations of Europe and
the U.S. And of course, there are always plenty of "subsidies"
to be talked about - on the order of $100 Billion per year
by 2020 to poorer countries, to help them cope with
environmental degradation and the development of
alternate energy sources.

And how did this epic conference end? No Treaty, no
Binding Accord, but rather a three-page statement of
"glittering generalities", by which we will kick the can
down the road for another few years, and hope things
don't get too bad in the meantime.

Well, what about it? Just this - Global Warming is a Fact, and
in my opinion whether it is Entirely Anthropogenic or not
is immaterial.

Because the truth is, we live in a relatively narrow optimal
climate and temperature envelope. If we were to hold
Mean Global Temperature Increase to 2 degrees Celsius
over the next twenty years, we might have a chance on
stabilizing things, and even reversing the long-term trend.

But, we've got to be careful here - any secular long-term
cooling trend of 2 degrees C. or more, and we're headed
toward a Little Ice Age in as few as two hundred years.

The bottom line is this - human existence depends upon
maintaining long-term mean global temperatures of
between 28 and30 C. Any higher or lower than that,
and you've got problems.

And how did the Climate Follies address the issue?
By alternately ignoring it and protesting it. The
"Emerging Markets" nations, seeing their low-wage,
low-regulation advantage over the advanced countries
about to be regulated away, stonewalled.

China, which accounts for an astounding 44% of coal-derived
greenhouse gas emissions, said it will continue to build
coal-fired power plants, as it "studies" the issue. India
also deferred action. Brazil, which has contributed hugely
to the problem though decades of deforestation, will tackle
the problem - if it gets subsidies from the rich nations to
do so.

So what are we in the U.S. to do? I would say that until
the U.N. Climate Conference can get better organized,
maybe we should just do what we are already doing -
moving gradually away from petroleum-based motor
fuels, getting away from coal for power generation, and
moving toward natural gas, renewables and (yes)
nuclear power for the long term.

Even de-industrialization and offshoring have helped -
by dismantling our industrial base and shipping it
to China India, Korea and Mexico, we've made our
industrial pollution problem someone else's.

Remember, it's better to be unemployed, poverty-stricken
and environmentally pure than otherwise.

Who says mass unemployment can't benefit somebody?

Look for our "elites" to be telling us that around
election time, when we ask about re-industrialization
and "onshoring" jobs back to the United States.

"Can't be Done" - they'll say. "Global Warming" and all that.

Really? Well, I suppose we'll just have to make things a
little warmer for you.

What's the "Carbon Footprint" of Pitchforks and Torches?

Saturday, December 19, 2009

Health Care Reform: Are We There Yet?

It seems to have taken nearly forever, but at last the Senate
seems ready to move on Health Care Reform.

After thirteen straight hours of negotiation with holdout
Democratic Senator Ben Nelson of Nebraska, it appears the
Senate's version of Health Care Reform is ready for a final vote.

After reconciliation with the House version, the plan is to
present this to President Obama for signature immediately
after the Holiday recess.

But, after considering the final product of all this effort,
I'm beginning to wonder if this whole exercise was
really worthwhile.

To be sure, there are some nominal reforms in the bill.
Health care coverage will be extended to some thirty million
people now uninsured. Health Insurance companies will no
longer be able to deny coverage for pre-existing conditions.
Nor will they be allowed to deny claims for illnesses contracted
while covered. Annual and lifetime caps on coverage will
be eliminated, caps and ceilings will be put on premiums,
and premium subsidies will be made available for lower-income
workers to afford coverage.

Well, on the surface it does sound like an improvement.
But, as usual, the devil is in the details. And, after studying the
details of this bill, in my opinion it would be better if it did not pass.

Let's take a look at the first so-called "reform" - the extension
of coverage to the thirty million currently uninsured.
This will be accomplished by "mandating" that these individuals
purchase coverage, or pay a fine.

Now, when it comes to a mandate, I'm all in favor of
"mandating" that people be covered by such things as
social security. Social security is a universal coverage
government benefit program, and the premiums for it are
handled through the tax system.

But I have a real problem forcing people people to spend
after-tax dollars on private health insurance that is subject
to no meaningful cost controls or competitive constraints.
That provision, however desirable it might be, may not survive
the legal challenges it will undoubtedly attract from conservatives.

But wait - aren't there other provisions in the bill that we might
consider reform? How about the ban on denying coverage for
pre-existing conditions?

Well, let's see. As written, the bill contains no fines,
penalties, or enforcement mechanisms to punish insurance
companies wrongfully denying coverage. That means that the
insurers will "handle" pre-existing conditions by raising
premiums so high that no one would sign up unless one
consented to "exclude" the pre-existing condition.
To my mind,that's not reform.

The same situation applies to lifetime and annual "caps"
on coverage. No enforcement mechanisms - only vague
statements of intent. You don't have to be a rocket scientist
to figure out how the insurance companies will get around
that one. The same thing applies to the ban on dropping
coverage once you get sick.

Without enforcement - and the regulatory and
administrative apparatus to support it - nothing will
happen except the Health Care Cartel will gain thirty
million additional customers at whatever prices it
chooses to charge.

Now, let's look at what's not in the bill. First of all,
No Public Option. Without a universally available Public Option,
the Health Cartel will face no competitive pressure and no
restrictions on its profitability.

And no "early eligibility" for Medicare either. This modest
reform, first proposed in these pages three months ago,
would have dropped the eligibility age for Medicare from
65 to 55 under certain circumstances.

This reform I felt made a lot of sense. It would have removed
many of the chronically ill (and those likely to fall ill), from
insurance company rolls and thus actually helped insurance
company profitability. In my proposal, I would have dropped
eligibility immediately to age 59-1/2, and gradually extended
eligibility downward to 50 over a period of years.

This could have been done, championed as a major reform,
and set the stage for the eventual adoption of the only reform
that makes sense for an advanced country - single payer,
universal coverage. But what happened? It was floated up
only long enough to get rid of the public option -and then
it disappeared.

And cost controls on pharmaceuticals? That didn't even
make it to Congress - it was killed in a private,
campaign-contribution laden agreement between the
White House and the Pharmaceutical

To sum up, then, about the only thing in this bill is
thirty million new customers for the Health Care Cartel - and
nothing else that can't either be bargained away in the
House-Senate conference or dropped later.

No wonder Wall Street - that other great bastion of the
people's well-being - sent the stocks of the Health Insurance
and Pharmaceutical companies to 52-week highs.

And that seals it for me. If Wall Street thinks that this is a
great idea, it almost certainly isn't good for the country.

Sometimes, no deal is better than a bad one.

And this is a bad deal for the American Public. It contains
no meaningful coverage or cost reforms. What we'll wind up
with is less care, more costs, and more profit and bonus dollars
in the hands of an undeserving CEO class, wrung out of an
impoverished and increasingly destitute and desperate

Mr. President, on Health Care Reform, We Aren't There Yet.

Scrap this bill - and start over.

Sunday, December 6, 2009

The New Unemployment Numbers: Green Shoots?

Are those "Green Shoots" finally poking up through the snow?

According to the Bureau of Labor Statistics, we may have finally
turned the corner on Unemployment.

In its monthly statistical report released Friday, the
number of "jobs lost" in November was a mere 11,000,
while the overall unemployment rate declined from
10.2% to 10.0%.

Judging by the response, the mainstream media and
the financial Powers That Be were falling all over themselves
in self-congratulation that the "Worst is Behind Us".

The irrepressible (and in my mind completely irresponsible)
Jim Cramer was celebrating the end of the "Jobless Recovery",
along with the usual self-serving promoters and shills in the

The Administration also took this as signs that
"its policies are working" and started thumping the tubs
for its "Employment Summit" later this week.

To all of those with a stake in the status quo, things
couldn't be looking better. And those with an immediate
stake in some economic good news, like embattled Fed
Chairman Ben Bernanke, started grasping at this
straw with the hope of a drowning man clinging to driftwood.

But the question does remain - have we turned a corner?
Or is this merely a statistical aberration? Or, as the conspiracy
theorists have it, have these numbers been doctored to achieve
a certain outcome?

My take on the above: No, Yes, and Maybe.

On the first question, "have we at last turned the corner?"
my vote is No.

To begin with, this remarkable decline in the rate of job
loss is unconfirmed by any other statistical measure.
Hours worked for both manufacturing and non-manufacturing
employees is up from 33.0 hours per week to an anemic 33.1 ,
well below full employment numbers and well within
the range of statistical error.

Other measures of economic activity - rail and trucking carloads,
inventories, and new orders - are flat to slightly down.
Thus, this remarkable piece of "good news", while welcome,
has to stand as unconfirmed by any other measure.

In fact, if you want to take a very pessimistic stance and
drill down a little bit, the complementary statistics for
unemployment are as dim as ever. The percentage of
"counted" unemployed that have been unemployed longer
than 36 weeks (9 months) is 38.6% of all unemployed - the
highest number in 25 years. And while the number of those
unemployed for less then 9 weeks has dropped
significantly (from 15.3% of total unemployed to 11.6%)
over the last three months, the other Quartile measurements
of unemployment duration have been growing.

What does this mean? It means that people, once unemployed,
are moving to the ranks of the long-term unemployed - and
staying there. This is also also confirmed by the broad measure
of unemployment U6, which counts the unemployed,
the discouraged, and the crucially important "unemployment
effect of reduced hours" (i.e. for every four people cut back from
40 hours to 32, add one to the "currently unemployed" head count).

That number remains a depressing 17.2%.

Which brings up the second question - is this miraculous
Unemployment figure a statistical aberration?
I think we can safely say Yes.

To begin with, any raw count of U3 (the official
unemployment rate), has a Mean Statistical Error
of +/- 100,000. This number has remained very consistent,
even adjusting for its dependent variables labor force size
and labor force participation rate. So, allowing for error,
the true number could be anywhere from -11,000 to -111,000,
depending upon sample size and methodology, both of which
the BLS is free to alter at any time.

Further, when you take into account Seasonal adjustment,
which normally adjusts LFS (labor force size) and LFPR
(labor force participation rate) upward to account for seasonal
Holiday retail and shipping employment, this purportedly good
report is skewed further.

So, to confirm whether or not this "good news " is real,
I'm going to look at a proxy for the BLS numbers - The ADP
payrolls report, which measures an approximation of U3 through
payroll rather than household data.

The ADP numbers for November? Job Loss = -169,800
(still dismal, but improving), with a Holiday Seasonal
adjustment of +52,000.

Conclusion? Statistical and seasonal aberration most likely,
with all numbers within allowed statistical error.

Finally, we come to the "Conspiracy Theorist" outlook,
most frequently bandied about by websites such as
Zero Hedge, Naked
Capitalism, Calculated Risk, and others.

Basically, the "conspiracy" meme runs like this - The
Administration, Congress, The Fed, and the TBTF banks
(most prominently Goldman Sachs), were going to drastically
cook the November unemployment numbers to mislead the people.
And on the surface, there's some justification for this.

The forecasters were predicting that retailers were facing
the worst Holiday retail season in a generation. More retail
chain bankruptcies were predicted for the first quarter of 2010,
with all the attendant negative fallout for employment and
commercial real estate.

That's not what the Powers That Be want to hear, goes
the theory, so watch for an "October Surprise" - namely,
unemployment numbers that would be miraculously
optimistic, in order to goose consumer spending.

Did that happen? In my opinion - Maybe, but only because
this relatively meaningless statistical improvement has
been flogged beyond all credibility as being "positive" by
mainstream media types who should know better.

Even Goldman Sachs - the hated Squid - put out its
November expectations as an improving
(but still negative) -101,000, with a qualifier to not
expect much improvement in the first or second
quarters of 2010.

This, in my mind, is consistent with the other data.

So - in conclusion? Things are still bad, but slowly getting
less so, and the economy will continue to bounce along
the bottom for the next several months.

Now that is not good news, for the politicians especially - but
we'll cover that later. And as for the "Green Shoots?"

Relax, they're not here yet.

Saturday, December 5, 2009

Tiger Woods: Crouching Tiger, Hidden Tomcat

It's been an interesting week for followers of Celebrity

This time, it's golfs' Mr. Clean - Tiger Woods - who's
caught up in the latest "Who's been sleeping with who"
media frenzy.

Tiger, my man, what's up with that?

First of all, there was the mysterious car crash
outside your house at 2:30 am.

Next, there was the ambulance ride to the hospital

to be treated for cuts, bruises and lacerations.

Finally, the refusal to talk to the authorities, until
your PR and legal people could damp things down.

Tiger, for a professional athlete, this whole thing
has been a PR nightmare and a potential legal and
financial disaster. For someone whose judgment
on the golf course has been so good, this is the kind
of misstep we might expect of a Tour Rookie.

First of all, if you're going to Tomcat around,
you take some basic precautions.

And one of the first ones is to NOT have your
girlfriends on the cell phone speed dial.

That's how Elin found out. She went through
your phone and found Rachel, Jaimee and Kaliqua.

Next, she hired a "Private Detective to the Stars"
and found out quite a bit.

Like you had Rachel flown out to Australia for the
Australian Masters, and that you later sent her on
to Dubai, of all places, with some cash for her time
and trouble. She also found out that you'd been seeing her
for quite some time, and that you've paid her over $ 1m
for her time and silence.

And just who is Rachel Uchitel? A thirtyish sometime
model and professional bicoastal party girl, previously
linked to Derek Jeter and Manny Ramirez.

Next, she found out about Jaimee Grubbs, a sometime
cocktail waitress and medical marijuana dealer from LA.
Seems she's about to cash in on her fifteen minutes of
fame with a million-dollar tell-all to the tabloids and
a nude photo shoot.

And then, there's Kaliqua Moquin - a statuesque Las Vegas
nightclub hostess, well known as the "Diva" of Las Vegas'
overpriced and under-regulated nightclub scene. She's
been all over the media with stories about champagne and
cocaine-fueled bacchanalia on your very frequent
solo visits to Las Vegas, where, according to her ,
you've also dropped quite a bit at the tables as well.

And her former boyfriends? Rappers Jay-Z, Li'l Wayne
and Eminem.

PGA Tour, meet Da Hood.

Wow - sex, drugs, and gambling. No wonder Elin took a
3-iron upside your head before you tried to get away
in the Escalade.

So, now that's its all out in the open, what do you do?
You need to take charge.

First of all, you should talk to your off-season friends who've
been caught up in the same thing. Guys like Kobe Bryant
and David Letterman.

Kobe will tell you it will not be cheap. Vanessa got $5 million
in cash upfront and a large upgrade in the prenup. Letterman
also had to fork over to the wife big time. And since Elin has
already talked to her friend Vanessa Bryant about how to
handle things, you can expect to pay up several million
immediately, and upgrade the pre-nup as well.

Hey, it's par for the course - don't complain. And since the
thrashing by Elin's 3-iron was nothing compared to the
world-class ass-chewing you got from your own mother,
carrying on about shame, embarrassment and loss of face,
you need to make right with Wife, Mother, and
Mother-In-Law (all of whom live with you - yikes) and
then get your story out in a friendly forum.

And I know just the guy. You know him too.
You need to call Jim Rome and either go on his
radio show (for a whole show including call-ins)
or go on ESPN's
Rome is Burning.

Romey has been all over this all week, but mostly
in a sympathetic vein.

So break off a call to Jay Stew the phone slap, and
go on the show. You've been in The Jungle before,
so you know what to expect. Tough love - but love

And next season, be all business. Get those majors.
And since I expect Elin, your Mother, and your
Mother-In-Law to be "chaperoning" you on tour,
just suck it up and take care of business.

Both your game and your life will be the better for it.

In the meantime, here's a couple of things from
YouTube for my reader's enjoyment:

Saturday, November 28, 2009

Bye Bye Dubai - " DuBubble Done Bust"

(h/t Washington's Blog and Zero Hedge)

The Emirate of Dubai is in the news, in a way no one
saw coming.

On the eve of both the Thanksgiving holiday in the U.S.
and the Eid festival in the Islamic world, Dubai World,
the Emirate's principal investment arm, has asked
for a "standstill" on $ 59 billion of debt coming due
next month.

And of course, as usual when a major "bust" occurs,
you guessed it - "No one saw this coming".

In fact, the "Powers That Be" had been putting out the
opposite message right up until the last minute.
Deutsche Bank called Dubai "fundamentally sound"
in September. HSBC, Europe's biggest bank and Dubai
Worlds' largest Western creditor with $17 billion in
exposure, said its position was "manageable", even
though it was "concerned" about the 50% collapse
in residential real estate values since December of

And Dubai's ruler, Sheikh Mohammed Al-Rashid
Al-Makhtoum, told a western journalist to "shut up"
last month, when he tried to ask some inconvenient
questions about the Emirate's finances at a press

Well, to our financial geniuses, that settled it.
If the Big Man said there was "no problem",
well, that meant "No Problem". What part
of that don't you understand?

But to even the casual observer, it is now
apparent that Dubai was nothing but problems -
a slow-motion train wreck waiting to happen.

First of all, over-the-top excess as far as the eye
could see. A veritable Manhattan of the Middle
East in the business district, but full of futuristic
half-empty skyscrapers. Luxury hotels and resorts
everywhere - in the words of one journalist "A Las Vegas
on steroids" (minus the gambling), built for a tourist
boom that never materialized. High-end housing
developments built on palm-tree shaped artificial
islands in the Gulf, now half-built and three-quarters

There's really nothing like this anywhere in the West,
unless you're talking about the equally over-the-top
$8.5 billion CityCenter development about to open
in Las Vegas. And guess what - Dubai World owns
50% of that too, in partnership with MGM Grand.

With all due respect to Las Vegas, my take on
CityCenter is that this extravagant monstrosity
will come a cropper in similar fashion - but that's
another story.

However, in all fairness to the good Sheikh and
everyone else, the original development concept made
sense. Unlike the other Emirates that make up the
UAE, Dubai has no oil. And, with the exception of
Bahrain, there are no "Westernized" outposts of
trade, transshipment or finance anywhere in the Gulf.

So Sheikh Mohammed and his advisers saw an
opportunity. The original intent was to create a Middle
Eastern Hong Kong - a low-tax, expatriate-friendly
"free port", where trade and finance could be transacted.

And the first steps in this went well. Dubai World bought
the global port operations of P&O shipping - a world-respected
name. However, problems arose when the US Congress didn't
think that having a fundamentalist Muslim country control
six of the U.S.'s major container ports was a terribly good idea.
So, those were spun off - to Hutchison Whampoa Ltd, a
Chinese government-controlled enterprise.

Next, a world-class global airline - Emirates - was built from
scratch. And the first modern skyscrapers in Dubai proper
were built. The first expatriate professionals, mostly from the
UK and Europe, started to arrive and build a modern business

So far, so good. But now came the problems.

Caught up in the worldwide real estate "Asset Bubble",
the "professionals" began to shift the investment emphasis
to Real Estate development, completely convinced that
it could only go one way - up.

But, just as in physics, in finance there's a law of gravity
as well- if it can go up, it can go down as well.

And the results of all this border on the bizarre. The
world's tallest office building (2,063 ft) will most likely
never be finished and stand permanently vacant.
The Tiger Woods-designed golf course, which requires
four million gallons of fresh water a day, is likely to be
reclaimed by the desert. And the three-square mile
enclosed, air -conditioned shopping mall (with a
ski-hill with real snow)? Unbelievable.

Man's capacity to dream, build, and innovate is exceeded
only by his capacity to deceive himself.

And we're going to be following this exercise in self-deception
very closely, both in Dubai and Las Vegas.

Stay Tuned.

Wednesday, November 25, 2009

Happy Thanksgiving

Tomorrow, November 26th, is Thanksgiving Day - that
uniquely American holiday.

Like millions of Americans everywhere, at The
Thinking Nationalist's house, we'll be sitting down
to Turkey with all the trimmings and side dishes,
crowned by the better half's Velvet Bundt Cake
and Sweet Potato and Pumpkin Pie.

Wow - my waistline can hardly wait.

And we'll be joined by friends and loved ones
coming in from out of town, as many of you will.

So while we get ready to celebrate, let's remember
some very special people who either won't be sitting down
to turkey tomorrow, or if they do, in a far place thousands
of miles from home.

I'm talking about the one million men and women of
our Armed Forces - and especially those in Iraq and
Afghanistan, who will be eating a cold MRE
(Meal Ready to Eat - "three lies in one") if they get
anything at all.

With all that is going on in our country right now,
let's not forget that these young men and women
are OUR REAL HEROES - young people who have left
Home and Family to Fight for Freedom in some of the
world's most godforsaken places.

What can we do? Let's remember them, for one thing.
And should we be fortunate enough to meet one of
them in uniform, let's step up and thank them for their

I do - every chance I get.

And if you've got an extra place at your table, invite
someone who is serving to Thanksgiving Dinner at
your house. They'll love you for it.

And so will the rest of us.

So - Happy Thanksgiving to All - and we'll be back with
more posts on Friday.

"Going Rogue" - Don't Count Sarah Out

Politics has a new rock star in the person of Sarah Palin.

The "Going Rogue" book-signing tour is playing as if it
were a tour by Lady GaGa or Madonna.

And the "Going Rogue" tour is off and running, playing to
enthusiastic crowds at every stop. And like a rock star's
tour, it's not just thrown together - it's carefully planned
months in advance, with all the panoply that accompanies
a touring rock act: roadies, media support, advance men,
heavy security, scarce tickets, and advertising.

It even has a tour bus plastered with the "Going Rogue"
tour logo, heading up a caravan of support vehicles.

But that's where the similarity ends.

As I've said in these pages, Sarah Palin is crazy and
brainless - like a fox.

Make that a beautiful and (to this observer) a
surprisingly articulate fox. One that knows how to
put together a successful tour.

First of all, it's no accident that the tour is not playing
the Establishment's concert venues. New York, Washington D.C.,
and Los Angeles are not on the schedule.

But Grand Rapids Michigan and Cincinnati and Columbus
Ohio are , along with Sioux City Iowa, Sioux Falls South Dakota,
Reno Nevada, Ft. Bragg, North Carolina, and (importantly),
Ft. Hood Texas. Among big cities, Phoenix, Minneapolis,
Dallas, and Salt Lake City will also welcome the tour.

Places populated by Real Americans, dealing with real
problems that for the most part they didn't create.

And this is what has driven the "Chattering Classes"
(including faux-conservatives Ross Douthat and David Brooks)

To begin with, they pointedly weren't invited to participate.
You don't have to be a rocket scientist to see how that's playing
in New York editorial offices or Washington salons.

And second,( even among so-called conservative pundits), the
lack of "specifics" has all these great thinkers tied up in knots.

And here is where I am going to differ with the rest of
"punditocracy". At this stage of the game, the specifics
aren't important - but "rallying the base" IS.

So Sarah, here's my advice.

First of all, look at the calendar. It's three years
to the general election - and twenty-five months until
Iowa and New Hampshire. And if history is any guide,
the issues that will dominate that campaign may be totally
different from the issues we face now.

Rolling out early with "specifics" has really helped presidential
contenders - you can ask Mike Huckabee, Mitt Romney and
Fred Thompson about that. All that does is set you up to be a
target to be shot at by those who would never support you

So , this is the time to be developing Broad Themes -
the ones that will play to the audience that has already
embraced you. And you should roll these themes out
one at a time, carefully, after the book tour.

And what should these themes be? The ones that have
always played well to Real Americans and conservatives
everywhere in all places, at all times.

Low Taxes. Limited Government. Sound Money.
Individual Responsibility and Initiative.

The specifics can come later. Trade policies that favor
America rather than China, India, Mexico or Brazil.
Immigration policies that reverse "The Silent Invasion"
from South of The Border. Banking reform that helps banks
on Main Street and punishes the crimes of banksters on
Wall Street.

And, most importantly, no more wars where our
interests aren't threatened - unless it's to punish a country
that has struck at us. Which is why we should never have
invaded Iraq or Afghanistan - but rather have made Saudi Arabia
glow in the dark.

Do this - stick with the broad themes and fill in the details later -
and you'll be following in some pretty good company.

Fellow by the name of Ronald Reagan did pretty well with that
approach, as I recall. And if anything, the "Chattering Classes"
disliked him him even more than they do you.

So, I'm not counting you out - as I see it, you'll either get elected
or decide who does.

Not bad for a gal from Wasilla. Not bad at all.

Sunday, November 15, 2009

Yet More Squiddery: Doing "Gods Work"

And just when we thought we were done talking about
The Squid, and all its many friends in high places,
guess what - they're baaaack.

In a wide-ranging interview with John Arlidge of the
London Times, Goldman Sachs Chief Squid Lloyd
Blankfein touches on both the sacred and the profane.

In comments as to why Goldman has managed to do
so well while competitors Bear Stearns and Lehman
Brothers fell by the wayside, Blankfein opines:

"Well, we didn't f**k up like the other guys. We still
have a balance sheet. So that gives us a richer and bigger
pot to p**s in" .

But, it wasn't all locker room profanity. Affably greeting his
guest, Blankfein proceeds to give him the Grand Tour and
then escort him to his office, where he waxes both practical
and philosophic on the business of Investment Banking,
concluding his comments with "you know,
we're really doing God's work here. "

Now, until he uttered that phrase, the interview had been
entirely uncontroversial and even explanatory. Giving
many real-world examples, The Chief Squid was low-key
and courteous, the very picture of the diligent investment
banker, valiantly doing his best in difficult times and trying
to get his side of the story understood.

But "Doing God's Work?" That's a bit over the top. That's
the explanation your British Vice Chairman, Lord Griffiths,
tried to use to justify his "inequality is good" remarks. It's also
the explanation the bonehead Chairman of Barclay's actually
offered at Sunday Services.

So Lloyd, even though that remark isn't fresh, I'd be real
careful about that if I were you.

Because even though I'm not a particularly religious man,
I don't see how mocking a Deity (One with distinctly different
published views on the matter, by the way), is going to help
your cause with a skeptical and suspicious public.

But then, maybe you have the stats to back it up.
Looking at your latest 10-Q (quarterly filing), you show
modest revenue from Merger, Acquisition and Advisory
activity, and even a slight uptick in client trading -all
traditional investment banking activity.

Not bad - considering the times.

But boy, on the prop side (proprietary trading), you guys
really made out - revenues from equity prop trading
went from 348 million to 938 million in just this quarter!

And in commodities, fixed income, options and derivatives,
your proprietary trading (trading for your own benefit with
your "own" money), went from 1.3 billion to 6 billion, when
compared with the same quarter last year!

And in just this last quarter, out of 65 business days, your
trading ops were profitable in 64 of them!

Wow - I guess I stand corrected. I had thought that your
zero-interest, no-limit access to the discount window was
the secret. Or your high-frequency arbitrage trading. Or
your front-running clients through dark pools. Nope.

What's now apparent is that The Really Big Guy
upstairs has seen the light, signed off on everything
and told you to go for it.

It's not regulatory capture, or Congressional capture,
or Fed capture that counts.

Divine Capture anyone?

There are friends in High Places - and friends in Really
High Places as well.

Well, it looks as if us mere mortals will have to revise things,
beginning with Scripture.

How about this?

" Our Chairman
Who art at Goldman
Blankfein be thy name
The Rally comes,
Thy will be done
In the Markets as in Heaven and Earth
And Give us this day our Daily Gains
And lead us not into Bankruptcy
As you bankrupted Bear and Lehman before us
And lead us not into Indictment
But deliver us our bonuses
For Thine is the Fed and Treasury
The White House and Congress
Forever and ever
Amen " (h/t Barry Ritholz)

The Jihadi's Day In Court

On the Guantanamo front, it seems as if things are finally moving.

This week, the decision was finally made to to move the
self-proclaimed mastermind of the 9/11 attacks,
Khalid Sheikh Mohammed, to New York City to stand trial
for his role in those events along with four of his alleged

Yes, I have to say, I am impressed.

After five years of self-imposed legal wrangling, it seems
we've finally decided to get on with things and let the
Wheels of Justice turn. But, things could still go wrong.

To begin with, there will be years of more legal wrangling
to decide just what to charge Mohammed and his cohorts
with and where to prosecute them.

Do we charge them with terrorist acts ( a federal crime),
or with 2,000+ counts of first-degree murder?

The latter would have to be prosecuted in New York State
courts - which would lead to years more legal wrangling.

And don't think for a minute that the jihadis would lack
for legal representation - the New York City Criminal
Defense Bar will be all over this like a cheap suit, in
pursuit of both reputations and the considerable retainers
the Saudi Royal Family will provide.

The chances are excellent that these individuals will have
better, bigger-name legal talent for their defense than will
the prosecution.

And when you get down to the evidence, the prosecution
will have even more problems.

It appears that so much of the damning evidence was obtained
by torture - Mohammed himself was "waterboarded" a reported
136 times - that it will not take much to convince some liberal
Federal District or Appeals Court Judge to throw out the entire case.

Naturally, the more gruesome aspects of this "torture" - as well
as the "unlawful" nature of the defendants' apprehension and
detention, will be well emphasized by the defense.

But, there's a way out of this - if President Obama and
Attorney General Holder have the stomach for it.

First of all, Obama and Holder can simply remove Mohammed
and the others from the jurisdiction of the Federal Courts and
of the courts of New York State.

They can do this by simply re-affirming all of the Bush
Administration legal memoranda and findings regarding
terrorists and terrorism, and the prescribed means for their
prosecution and punishment.

These memoranda anticipated the problems inherent
in affording terrorists and unlawful combatants the
protections of our legal system, and provided means
to overcome them.

Sure, there may be some howls from liberals and the
Anti-Bush crowd - but that would be nothing compared
to the uproar that would ensue if these "jihadis" were to
walk free, thanks to the generous protections of our legal

So let's get on with things. Let's have The Mother of All
Show Trials, right in Manhattan, under special rules similar
to the Military Commissions envisioned by Bush.

First, Military Judges - picked from officers who have
served in Afghanistan or Iraq. Have to have people on
the bench familiar with the Islamic mindset. And let's
bring in Eliot Spitzer (or even Rudy Guiliani) as Special

We can count on them to be both fair and just.

For the defense? Let them have whoever they want - but, as
the outcome of this tribunal will be explicitly pre-determined,
it won't matter.

And, to make things fair, we'll also have a jury - twelve relatives
of Police and Firefighters who lost their lives on 9/11.

And no appeals of any kind - this tribunal's judgment will be final.

And the sentence? Ritual Defilement and Beheading at Ground Zero.

Let them be smeared with pig fat - and slapped by a
thousand shoes, after which they shall mount the scaffold
to be beheaded by the biggest, most muscular Orthodox Jew
volunteer we can find.

And let's have Al-Jazeera broadcast the entire proceedings live.

No it's not Justice - but healthy societies have as much need
for vengeance as they do justice. And vengeance is the only
thing the Muslim World understands.

So, let's oblige them. On with the show.

Sunday, November 8, 2009

Maj. Malik Hasan Nidal: It was Bound to Happen Sooner or Later.

It was bound to happen sooner or later.

Last Thursday, the world was shocked as Major Malik
Hasan Nidal, a Muslim Palestinian-born Army psychiatrist,
burst into a Ft. Hood TX troop processing center, shouting
"Allahu Akbar" with guns blazing.

Before he himself was finally wounded by a civilian Killeen TX
policewoman, this "good Muslim" Army doctor had killed
thirteen and wounded thirty.

Now, before we get all tied up in knots about "Why?", let's
get a few things understood.

This didn't have to happen. And the only reason it did
happen was because of two things we as a Nation must
hang our heads in shame for:

"Diversity" and "Political Correctness".

"Diversity" meant that this individual of suspect background
and loyalty was able to attend one of the country's least-known
but most highly-regarded military educational institutions,
the Medical College of The Armed Forces, on the taxpayer's dime.

This institution is highly competitive for admissions -
graduates of the Service Academies have to rank in the top 5%
of their classes AND have outstanding test scores to be admitted.
Graduates of civilian universities have to be equally outstanding.

You just have to wonder how much "diversity" and
"inclusiveness" figured into selecting this guy over someone
whose selection might have made the student body "less diverse".

And if "Diversity" opened the door for this homicidal shrink,
"Political Correctness" kept the authorities from catching him.

Here's what's known about Maj. Nidal thus far:

- He had problems "getting along" with colleagues at his previous
duty station, Walter Reed Medical Center;

- He had been "warned and counseled" about his aggressive
proselytising for Islam while on duty, which resulted in a
"poor" Fitness Report prior to transferring to Ft. Hood;

- He had openly attended a "radical" Mosque in suburban
Virginia, striking up a close friendship with a known radical
imam now in hiding in Yemen;

- He had openly spoken about the necessity of "jihad" and
"martyrdom" to his family and friends.

Yet, despite all of this, he was PROMOTED and sent to
Ft. Hood, to work with troops preparing to deploy to Iraq
and Afghanistan and to counsel returnees. Why?

Political Correctness.

In the Army bureaucracy, failure to "promote Diversity"
or be "Politically Correct" in making personnel decisions
can be a career-threatening move. So, better to just
promote this guy and move him somewhere rather
than investigate. Make it someone else's problem.

Well, it's just a little bit too late for that for forty-three
unlucky victims. But here are some things we can do
immediately to begin putting things right.

First, scrap "Diversity Training" . Replace it with
"Americanism Training". You can start by digging out
some of the old Frank Capra "Why We Fight" training films
from WWII and the Cold War for starters. You can bet every
other country in the world indoctrinates its soldiers -
why shoudn't we?

Second, scrap "Political Correctness" . Whether we like it
or not, we are in a Political War against Political
(as opposed to religious), Islam. And we didn't pick
this fight - it came to us on 9/11/01.

That means Muslims in "sensitive" positions - such
as military officers - should be watched, and suspicious
behavior reported and recorded. And if they "cross a line",
get rid of them - quickly and permanently. As in
summary detention or deportation.

And as for Major Nidal? Well, he had the ill-fortune
to survive his jihadist escapade. So, let's offer him a

He's a good Muslim, right? And doesn't like our laws
or society, right? So let's have the Saudis try him according
to Sharia - the Muslim legal code. They'll go along - they owe
us a few favors.

And he'll get what he deserves - a ten-minute trial - and
a public beheading after prayers next Friday.

Health Care: All Eyes on the Senate

On the Health Care front, things are now getting very

In a huge victory for President Barack Obama and
House Speaker Nancy Pelosi, the House passed its
version of Health Care reform on a narrow 220-215
roll call vote.

As expected, this one came down to the wire, with 219
Democrats and one Republican voting "yes" and
176 Republicans and 39 rural, small-state Democrats
voting "no".

On paper, the House bill appears to be significant reform.
Among other things, it includes a government-sponsored
Public Option, a requirement that by 2013 all those not
covered by insurance purchase it, requirements that all
but the smallest employers offer coverage to their
employees, and an end to denial of claims and coverage
by insurers on the grounds of "pre-existing medical

The House bill also goes further in that it also vastly
restricts premium rating by age, gender and geography
and ends the anti-trust exemption for the Health
Insurance industry.

But now comes the hard part.

This whole thing now has to go to the Senate, where
Harry Reid has to do the almost impossible.

He has to reconcile two diametrically opposite Senate
versions of the Health Care bill - one from the Health,
Education and Labor Committee that, with the exception
of a Public Option, tracks fairly closely with the House
version, with another from the Senate Finance
Committee that, with the exception of a coverage mandate,
does little to extend coverage to the uninsured or make
"health care" more affordable.

And it is this "internal reconciliation" debate inside the
Senate where the Health Care battle will be ultimately
won or lost.

And, I think it will go down to ultimate defeat. Here's why:

First of all, the "lowering of expectations" has already begun.
Senator Reid has already stated that the Senate's debate will
not start until after Thanksgiving and that final action will most
likely slip until early next year. That means that the insurance
companies, Big Pharma, the hospital chains and the AMA still
have time to hand out yet more campaign donations to stop

Second, the Republican leadership is already on record as
saying that they will accept no bill that does not preserve the
health and viability of the for-profit health insurance industry.
That means no public option. No rate regulation. No limits
on claim or coverage denials. No removal of the anti-trust
exemption. In short, no changes at all except the coverage
mandate, which will provide 30 million new customers
for the industry.

You have to give them credit. Once bought, they stay bought.

So, to get the necessary 60 votes to end debate and get
something passed, Reid is going to have to go hunting
among the "Blue Dogs" - Senators such as Max Baucus,
Ben Nelson, Byron Dorgan, Kent Conrad, and others.

Good luck with that.

These Senators have been the recipients of record
contributions from both the Health Insurance industry
and Big Pharma, and it's inconceivable that they would
stiff their benefactors. And ideologically, they might as
well be Republicans, with their insistence on "fiscal
responsibility" and " the private sector knows best".

Coming from small isolated states with little industry
or other mass employment, it's not hard to understand
their point of view. And it's also easy to understand how
Big Money from Big Interests can sway

Where they're from they don't see a lot of that.

And that means it's a done deal. In America,
Organized Money always beats a disorganized public.
But, there's always a chance.

Which is what will make this upcoming debate so

Sunday, November 1, 2009

Still More Squiddery: The SEC's new Chief Enforcer.

When it comes to "Squiddery" , the activities of everyone's
favorite financial cephalopod Goldman Sachs, it seems the
story never ends.

Two weeks ago Wall Street was set on its ear when the
SEC announced the appointment of the new Chief
Operating Officer of its Enforcement Division,
Adam Storch.

Now comes word that Mr. Storch will be the
"Managing Executive" of the entire SEC enforcement
division, reporting directly to Enforcement Chief Robert
Khuzami and SEC Head Mary Shapiro.

Wow - I'm impressed. Is Mr. Storch a former prosecutor?
Or a hyper-powerful securities lawyer doing some public
service? Or a veteran banking or securities regulator at
the peak of his career?

Well, no. Mr. Storch is 29 years old, a graduate of SUNY
Buffalo, with a bachelor's degree in accounting and
finance, and some graduate work (but not a degree)
from NYU's Stern School of Business. And, he's a CPA.

And his most important qualifications? He's a former
Vice President at Goldman Sachs. Prior to that, he had
been an audit junior at Deloitte and Touche.

Hmm. Seems a decent and clean young man. Just
right for a line examiner or auditor. If he keeps his
nose clean, might even become an examination senior.

The kind of young kid that if I were SEC Chief, I'd
hire five hundred more of , specifically for a general
investigation of all Squid activities.

But Chief Operating Officer of Enforcement?
Managing Executive? You've got to be kidding.

First of all, that position should require a law degree.
With 10+ years experience in either the U.S. Attorney's
Office, IRS Enforcement Division, NY Attorney General's
Office, or similar regulatory, enforcement, or prosecutorial

But that's not going to happen. And once you understand
Mr. Storch's role, you'll understand why.

His job is to be a minder. Specifically, to mind Mr.
Khuzami and Ms. Shapiro on behalf of his boss,
Chief Squid Lloyd Blankfein.

His job is to alert Chief Squid of any intention these
worthies might have of making any move against
Squid Central on issues such as HFT, dark pools,
front-running, scalping, naked shorting, inside trading,
squeezing, or any other activity that most of us might
regard as market manipulation.

In addition, his job is to make sure that The Squid's
franchise is protected. Self-dealing market manipulation
is The Squid's exclusive franchise - both Timmy at Treasury
and Bennie at the Fed said so. That means any poachers -
Galleon for example - need to be prosecuted to the fullest
extent of the law. We can't have unauthorized competition.

After all, what's good for The Squid is good for the
country - capece?

And you don't want to get into an argument with
Washington about that. That could be a career-limiting move.
So let's get along, go along, and do what Daddy Squid tells us.

And who knows, there just might be spots for you guys
at 85 Broad when this is all over, if you do as I say.

More Squiddery: Goldman Sachs and The Mortgage Crash

When discussing the Great Casino that is Wall Street, we
all have to admire the ability of The Great Vampire Squid,
Goldman Sachs.

As we have covered here previously, the ability of this wily
financial cephalopod to outwit, outrun, and profit from every
twist and turn of the market is nothing short of amazing.

Was it because of their High-Speed Trading algorithms?
Partly. Being able to front-run your own clients legally
is a huge advantage in any market.

Or was it because of their extraordinary political influence?
Partly. Having all the right spots in all the right places
filled by your alumni or seconded employees sure helps.

In late 2008, when the markets collapsed and Squid competitors
Lehman Bros. and Merrill Lynch disappeared, it didn't hurt
to have the immediate past CEO of Goldman Sachs, Henry Paulson,
as Treasury Secretary.

If you're Chief Squid Lloyd Blankfein, you knew your
call to Treasury would always be returned. And Treasury
would be calling to ask you for your instructions and orders.

But there's always one more explanation.

How about good old-fashioned Fraud?

In a series of articles beginning today, McClatchy Newspapers
(The Sacramento Bee), details how from 2001 to 2007 ,
Goldman hawked $135 billion of of high-risk mortgage-backed
securities filed with loans from "subprime" lenders to
institutional investors, almost all backed with "AAA" ratings
from the ratings agencies.

But did Goldman believe its own propaganda? Don't bet on it.

In fact, it believed the exact opposite. Beginning in mid-2006,
Goldman had come to the conclusion that the subprime
mortgage boom had just about run its course.

Underwriting standards were non-existent. If you could walk
and chew gum at the same time, you could get a subprime
or even an "Alt-A" mortgage - one step above toxic waste.

And The Squid was starting to see what it hates most -
competition from other securities operators.

So, it then began to do what any smart operator would do.

It started to play the downside.

First, it quietly liquidated much of its remaining MBS
inventory, while continuing to hawk the product as a safe,
high-yielding investment to unsuspecting institutional

Then, it began to go short. But not too obviously.
That could wreck bid/ask spreads and tip people off.
So, working through "dark pools" and off-shore vehicles,
it began to short the broader MBS (Mortgage-Backed Securities)

Next, it went short directly against its remaining inventory,
a move known as "collapsing the box", while insuring what
it couldn't otherwise eliminate with a collateralized debt swap
from AIG.

That meant no matter what happened in the MBS market,
The Squid came up a winner.

Finally, to cap it all off, it started buying "naked swaps" -
credit default insurance against MBS positions it didn't own.
That's like my buying fire insurance on your house
without your knowledge, hoping that "Marvin The
Torch" will soon strike.

In all, a perfectly executed "Pump and Dump" against
the MBS market, with all of the risk pushed off on
unsuspecting other parties and all of the gain
firmly wrapped up in the Squid's tentacles.

Oh, to be sure, there was an anxious moment - when AIG
went under, it appeared that some of the Squid's bets
might not pay off. But, thanks to the link with Treasury,
AIG paid off those bets at 100 cents on the dollar - some
$13 billion worth.

But here's the key - as much as half of that amount
was on "naked swaps" - bets on positions it didn't own.
That's like Wynn's paying off on my side bets against
the other players on the craps table.

Now to be sure, there are some repercussions.
The State of Mississippi lost 5/6ths of its six million
dollar investment in "AAA rated" Goldman Sachs
MBS bonds. They are suing. So is CALPERS -
The California Public Employee Retirement System -
which lost $50 million of a $64 million investment.
And the Squid settled with the state of Massachusetts
on a similar deal, to avoid criminal prosecution under
state law.

Meanwhile, both California and Mississippi are seeking
class-action certification for their suits - and the attorneys
general of two dozen other states are watching things very closely.

But, if you're The Squid, all this is just par for the course -
after all, you have all the right friends in all the right places.
Nothing could go wrong.

Or could it? Now that Main Street's media is on the case,
as well as hundreds of anti-Squid bloggers, hey,Squid,
know what? All bets are off.

If I were you, I'd be watching very closely.

With my bags packed and passport at the ready.

Sunday, October 25, 2009

Harry Reid: On the Ropes?

It's shaping up to be an interesting political season in Nevada.

In a bylined story in the Las Vegas Sun, Sun Washington
Bureau correspondent Lisa Mascaro believes that the
conventional wisdom on Senate Majority Leader Harry Reid's
election campaign may not hold up.

The "conventional wisdom" on Reid's chances runs something
like this:

- Reid will have enough of a war chest to almost guarantee
a victory;

- A cluttered Republican field of unknowns will beat each
other up in the June primary, leaving an exhausted novice
candidate facing a prepared and rested Reid in the general

- National Republican operatives' hopes of making this
a replay of the John Thune-Tom Daschle battle in 2004
(which cost Daschle his seat and the Majority leadership),
may not pan out this time;

- Recent demographic changes in Nevada have changed the
state from majority-Republican to majority Democratic,
with a 100,00+ Democratic edge. In 2008, the state went to
Obama by 13 percentage points, and Democratic State Senator
Dina Titus beat three-term Republican incumbent Jon Porter
in a conservative suburban Las Vegas district.

And there's a lot of logic behind this.

First of all, when it comes to fund raising, Harry Reid is
no slouch. The $8.7 million he raised in just the last quarter
would be the largest sum ever spent by a Senate candidate in
the state's history. And he intends to have $25 million on hand
by the general election. And, as predicted, the declared
Republican candidates are for the most part relative

But to this observer, that's where the conventional
wisdom ends.

According to both the Sun and Jennifer Duffy of the
Cook Political
Report, Reid is in for a tougher fight than
almost anyone imagines. His poll numbers are lower at this
point than in any of his previous contests. And the national
mood is starting to trend away from Democrats, as voters
perceive the Democratic Congress and White House as unable to
deliver on health care reform or economic recovery.

And there's more yet.

According to Duffy, Reid's war chest may not be the advantage it's
cracked up to be. To overcome his low polling numbers, Reid is
starting his commercial effort a full thirteen months early -
to "reintroduce himself" to Nevada voters. And an
incumbent who has to "reintroduce himself" to his constituents
isn't running from a position of strength - even though Reid
vows to "vaporize" anyRepublican in the general election.
Duffy estimates that a Republican with a $6-8 million war
chest may be competitive in Nevada's relatively inexpensive
media markets.

The other Reid "problem" is that The Nevada Republican Party
shows signs of coalescing around one of two relatively
attractive candidates - either Nevada Republican Party Chair
Sue Lowden (a former State Senate Majority Leader), or
Las Vegas businessman Danny Tarkanian, son of
well-known former UNLV basketball coach Jerry

In early polling, Reid trails Lowden by ten points and
Tarkanian by six among likely voters.

These are not numbers a nationally prominent
incumbent wants to hear.

And if these numbers hold up, A Nevada replay of the
Thune-Daschle battle might become more likely. John
Thune was a former Congressman who had narrowly lost
a Senate bid two years previously, and who won against
a nationally prominent incumbent widely perceived as
being "out of touch" with the home folks. And to many
Nevadans, "out of touch" accurately describes Harry

Nevada has severe problems - an unemployment rate
second only to Michigan's, a huge home foreclosure
problem, and an undiversified economy excessively
dependent on the troubled gaming and residential
construction industries. And Harry Reid, rightly or wrongly,
is perceived as having done almost nothing about any of this.
Even his one noticeable accomplishment, the blocking of
the Yucca Mountain nuclear waste dump, is being re-considered
by voters in a state desperate for stable, high-wage, high-skill

But the biggest problem Reid has, in my opinion, is the steady
erosion of liberal and progressive support. On health care,
Reid has never been enthusiastic about the Public Option.
He has been very quiet about banking, financial, or foreclosure
reform. In a unionized state, he has been opposed to card check.
And with tens of thousands of unemployed Nevadans scheduled
to exhaust their unemployment benefits by the end of the year,
he has been unable to get a benefit extension through the Senate
with a 60-vote majority.

Small wonder that many progressives feel that their best bet
might be to sit this one out and take their chances against
scandal-scarred John Ensign, Reid's Republican Senate
colleague, in 2012.

And large-scale liberal and progressive defection would
make Reid's task enormously difficult and the Republicans'
much easier. Nevada liberals and Democrats are largely
clustered in Las Vegas, among minorities and unionized
government and construction workers and casino employees.
The rest of the state is white, rural, and very conservative.
A plausible Republican strategy therefore might be to battle
Reid to a draw in Clark County (Las Vegas), and win the rest
of the state, which normally votes lopsidedly Republican.

If that happens, the former boxer gets off the ropes - and goes
down for the count.

And for progressives, that may not be entirely a bad thing. Good
as Harry Reid was in partisan opposition to former President
George W. Bush, he has been singularly ineffective in advancing
Obama's agenda with a filibuster-proof majority. And even if Reid
loses, the Democrats are not forecast to lose their majority.
And a more vigorously partisan Majority Leader might even
succeed in installing some badly-needed partisan backbone
where it's most needed - in the White House.

It will make for an interesting election year.

Saturday, October 24, 2009

Should We Legalize Insider Trading?

The recent tumult with the Galleon Group has gotten
everyone's attention on "insider trading". That's trading in
the markets on "material, non-public, inside information"
(information not available to the ordinary investor) to
obtain excess profits.

However, not everyone agrees that "insider trading" is
necessarily a bad thing. In an article in the Wall Street Journal,
Donald J. Boudreaux, an economics professor at
George Mason University, makes a compelling case that
prohibitions on insider trading actually prevent the timely
flow of information to markets.

How? Let's use a couple of examples. Let's say I am the CEO
and principal of Fans Of The Vampire Squid LLC, a hedge fund.
In the course of working my connections on the Street, I hear
from someone "in the know" that ABC Corporation is about to
post substantially greater earnings for the third quarter than
expected. According to my research, ABC has become a dog
and I'm not only thinking about selling my small position
but shorting the stock as well. But because of the inside tip,
I hold my position but don't add to it lest I be accused of
trading on "material, non-public inside information".
And, I avoid the sure loss that would have occurred had I
shorted the stock.

In other words, thanks to inside information, I make a
small profit and avoid a big loss by doing nothing.
And can I be prosecuted for this? Absolutely Not.

But, there's been a cost. For fear of prosecution,I've
been denied the opportunity to get in at the beginning
on a quick kill - which is what my clients pay me to do.
And by my making my "quick kill", relevant information
actually gets to the market sooner than it otherwise
would - which, in a perfect world, should be the object
of reasonable securities regulation.

But we don't live in a perfect world. And in the markets
players that are large, well capitalized, and able to
procure private information and act on it more quickly than
others have an advantage . And big players - Goldman Sachs
for example - have spent millions of dollars to both facilitate
the discovery of "material non-public inside information"
and act on it more quickly than anyone else.

Maybe this is how "The Squid" can make fully 80%
of its third quarter revenue on proprietary trading
and have over 90% of its trades be profitable (GS actual
3Q numbers - hat tip to Zero Hedge).

But does all this mean that the average trader or investor
shouldn't participate? Not necessarily. The Squid (and
all the other big boys) can make millions from tiny moves
in stocks, options, or fixed-income instruments or
their derivatives. They receive "material non-public
information" about thousands of different issues
every day. That's what a Research Department is for.
And in many cases, the "inside information" only moves
a particular issue a few pennies. Doesn't matter - when
you are trading tens of millions of shares at at time,
that's still millions of dollars in profit at the end of the

Just understand that if you're the average trader
or investor,you can't duplicate this even if you have
the same information - on your micro scale of operation,
your transaction costs are likely greater than your profit.

But the biggest issue I have with "illegal trading on
insider information"? It's that for some reason, the
SEC and the Justice Department never go after
the Big Boys - it's always some small-time accountant,
broker, or small-time operator like Galleon who gets
pinched. That's not right. The rules should be the same
for the big guy as well as the small. And when the
regulators start using enforcement "discretion"
to ignore "insider trading" when it facilitates
"market making" or "providing liquidity to the
market", then the whole premise of regulation is
lost, along with the legitimacy of the regulators.

But are we likely to "de-regulate" the market
for corporate information? In today's political
climate, not likely. And will the "regulated"
still be able to control the market for "material,
non-public, inside information" for their own
advantage? Absolutely.

Even if we were to snap our fingers and declare
"insider trading" legal, nothing would change.

Remember, Wall Street is a Casino. And Goldman
Sachs, JP Morgan, Morgan Stanley and the others
are to The Street what MGM Grand, Harrah's ,
and Wynn's are to Las Vegas - they are THE HOUSE.

And the House always wins. So gamble -
I mean trade or invest - accordingly.

Sunday, October 18, 2009

The Strange Case of The Galleon Group

Last Friday, something happened on Wall Street you don't often see anymore.

A Hedge Fund operator actually got busted!

Yes, the Feds finally caught someone doing something wrong.
Raj Rajaratnam,the Principal and CEO of The Galleon Group,
a minor league hedge fund ($3.7 billion under management),
did the "perp walk", accused of insider trading.

He is alleged to have bought shares of Hilton Hotels Corp
(HLT), prior to its acquisition by The Blackstone Group
in a leveraged buyout in 2007, on an "insider" tip from
Moody's, the investment rating agency, making a
$ 4 million profit in two days.

Moody's was working with Blackstone in performing
due diligence on the buyout, which involved potential
rating changes on Hilton's outstanding debt. As such,
Moody's owed a fiduciary duty to Blackstone and Hilton
to keep its work secret.

But in reality, such things are never kept secret for very long.
And this one was leaked out to Galleon for a mere $10,000 - chump
change by today's standards.

But there's more to this story than meets the eye. The Squid
(Goldman Sachs), J.P. Morgan, Citigroup, UBS, and all of the
other operators of The Great Wall Street Casino all earn their
profits by taking advantage of "material, non-public inside
information". The Squid, for example, has spent tens of millions
of dollars on advanced computerized research and trading
systems designed to safely ferret out just this sort of information

So why, all of a sudden, is the SEC coming down so hard on a
minor player? After all, $3.7 billion is the typical "book" size
that a mid-level trader on The Squid's "prop desk" would be
running. Why Galleon? For several reasons.

First of all, Rajaratnam and his colleagues were outsiders.
They are all, with few exceptions, Sri Lankan citizens
and ethnic Tamils. Much of their capital is alleged to have come
from the worldwide Tamil diaspora - both Indian and Sri Lankan.
And early in 2000, Galleon Group came under State Department
suspicion of being a funding source for the Eelam Tigers -
the rebel group engaged in a protracted and bloody conflict
with the Sri Lankan government. That put them on the
SEC "watch list" - a list that folks like Bernie Madoff
were somehow never able to make.

Second, the way that they went about "obtaining" their inside
information was just bush league . Cell phones, secret
meetings, and envelopes stuffed with cash are outdated

That's so 1980's - Michael Milken and Ivan Boesky
and the like.

Instead, if you are going to trade on non-public
inside information today, you do things the way
The Squid does things.

First of all, you use your trading systems to scour
the debt and equity markets for companies that
might be going into "play". There are almost
always telltale electronic signs of this that you
can spot - but only if you've first made the multi-million
dollar investment in computerized research and analysis.

Lesser players like Galleon have to do it the
old-fashioned way- tips and bribes.

Second, your Research Department correlates
the raw trading information with the "rumors"
flowing in to the department every day. Since
all of this is computerized, you can generate
"actionable intelligence" in a matter of seconds.

Then - you execute. But not the way Galleon did it.
You never make a move in the public markets that
after the fact might prove to have been market-moving
in the light of subsequent events, which you might be
accused of having private knowledge of beforehand.

Instead, you split your order. You buy or sell in the public
markets only so much as to make the move look routine ;
an everyday client order. The rest goes "off books" - through
a "dark pool" on a private exchange, which won't show up on
the tape until way later. That way, there's no incriminating
paper trail.

Second, you don't leave money on the table if there's more to
be made. You make a corresponding move in the debt
markets, going long if you think the deal might reduce
the target company's leverage, or short if you think it
will increase, remembering always to hedge the other way
with the appropriate CDS's. Or, you just might keep it simple
and buy the corresponding CDS itself. Since that market is
completely private, so much the better.

And if you're The Squid, you can do this all electronically -
no muss, no fuss, and no incriminating humans anywhere
in the equation. And most likely, Galleon would have had
access to none of these wondrous money-making tools.

Finally, there's the political environment. The natives are
finally getting restless. The Regulatory Gods are getting
angry - and they are demanding that a propitiating
sacrifice be made. So, let's go looking for a scapegoat.

And a small hedge fund, manned by outsiders, who might
have in the past been linked to terrorists, is the perfect
candidate. And there's another lesson here. If you're
a little guy, especially if you're an unsavory little guy, it's
too dangerous to go it alone. You need protection.The
kind of protection that only The Squid offers its loyal

So, the next time you come across a juicy tidbit like
Hilton, go see the Godfather - the Lord of The Squid.
He'll put your deal together for you - nice and safe -
and your $4 million profit (or likely much more than that)
will be in your Squid account that very day.

And the "vig"? Minimal. More likely, Father Squid will
reward you for your loyalty by cutting you in on the
next juicy deal he uncovers. All you have to do is
be loyal and be ready to do him some future small
favor or service.

Because if The Squid helped you make $4 million,
he likely made $20 or $30 million on the same information.

And The Squid (and JP Morgan, and UBS, and Morgan Stanley)
do what Galleon got busted for every day.

To them, trading on inside information is routine,
everyday business.

It's not what you do, it's how you do it that counts.

Saturday, October 17, 2009

4th and Wrong: Rush Limbaugh and The Rams

Dittoheads everywhere have been thrown for a loss.

Backpedaling under unrelenting pressure, Dave Checketts,
the St. Louis Blues owner putting together a syndicate to buy
the troubled Rams franchise, finally punted - booting
Rush Limbaugh from the team's prospective ownership group.

Leading the charge up front was Roger Goodell, the
NFL Commissioner, who said he was "troubled" that
Checkett's syndicate included such a "divisive figure".
DeMaurice Smith, the head of the NFL Player's
Association, said that including Limbaugh in the
ownership group was a "slap in the face" to a union that is
70% African-American.

Smith went even further to say that players should
boycott St. Louis and refuse to play the Rams if Limbaugh
was permitted to remain in the ownership group.
And "piling on" were those two great pass rushers
and NFL supporters, The Revs. Jesse Jackson and
Al Sharpton, promising all sorts of problems for the NFL
if Limbaugh were to remain.

The end result for the Rams? Fourth and Wrong.

To be sure, Limbaugh has made comments over the years that
haven't helped his relationship with the NFL. He was booted
from a guest commentator's spot on ESPN after suggesting
that the Philadelphia Eagles were giving quarterback Donovan
McNabb the kid-glove treatment because they "needed a black
quarterback to look good". Hell, I can remember that at that time
the Eagles were desperate to make any quarterback "look good".

Rush's comments that a typical NFL game resembled a
gang fightbetween the Bloods and Crips without weapons
didn't help either. That one prompted Jim Irsay, the owner
of the Indianapolis Colts, to say that he could never vote for
an ownership syndicate that included Rush. And going back
over the years, Rush's many comments about blacks and
black culture have generally delighted conservatives
and infuriated liberals and progressives.

But is this sufficient reason to deny Rush the
opportunity to become an NFL owner? No.
For several reasons.

First of all, if we start denying people On Political
Grounds the opportunities to which they might
be entitled, we're setting a dangerous precedent.

That's Freedom for Me - but Not for Thee.

Even Keith Olbermann - a liberal famous for his
ad hominem attacks who also comments on NBC's
NFL broadcasts, took this line of reasoning, saying that
blackballing Rush from the NFL threatens
everyone's free speech rights. And Olbermann is right.
There are very few people in public life who haven't
said something at some time that gave offense to
someone else. Should we ban all public figures from
professional sports ownership because (horrors)
back in the day, they might have said something offensive?
I don't think so.

And I don't care if Rush Limbaugh is the second coming
of George Wallace or Theodore Bilbo on race relations.
If his money entitles him to own a part of a professional
sports team, he should be allowed to do so. Case closed.

Second, it's not as if the NFL couldn't use a little more
controversy. From the fans' perspective, one of the
great parts of the NFL experience is watching or listening
to a bonehead NFL owner saying something mean, stupid,
downright nasty or just plain wrong. That's enough to provide
sports-talk radio hosts such as Jim Rome an unending source
of great material. I love it when Romey picks apart Al Davis
or Jerry Jones for saying something stupid or
inappropriate. Think of what he could do with Rush.

Too much "corporate bland" and too little controversy
is Bad For Ratings, folks. Like it or not, controversy and
conflict attract listeners and viewers.

And Having Rush as an owner could be the best thing that
ever happened to the St. Louis Sheep - errr, I mean Rams.

Right now, the Sheep are on track to match the Detroit
Pussycats - I mean the Lions - in gridiron futility with
fifteen losses in a row. Season ticket holders are deserting
like French soldiers - and the Sheep play at home to less
than full capacity.

But Rush has the ability to change all that with a single stroke.
"Dittoheads" from all over the Midwest would buy season
tickets by the thousands. Players and coaches would be under
merciless pressure to perform, lest they be pilloried the next day
on the air. And a "boycott" ? Don't kid yourself. NFL players
and coaches are Millionaire Mercenaries. They go where the
MONEY is. And if anything, Rush is Money - one of the deepest
individual pockets in radio broadcasting today.

And the NFL's "corporate image" ? If I were Roger Goodell, I
would be afraid of Rush. If I were to fine or otherwise discipline
him for something he might say on the air, the last thing I want
is millions of "Dittoheads" tying up my switchboard, burying
me with e-mails, and burning up the talk-show lines.

That's a battle I'm never going to win. And that's why I don't want

But the greatest irony of all is that Rush is being denied the
opportunity to participate in one of the most successful
Socialist enterprises of all time.

As the Boston Globe points out, all TV revenue is shared equally
by all teams. So are a large portion of the gate receipts. The
total salary bill for each team is capped, with maximums and
minimums for each position. The draft each year is skewed
so that the teams with the poorest records get the first pick
of new talent. And the schedules are fixed so that teams with
the worst records get the easiest schedules the following year.

The NFL is all about "taking from the strong, for the benefit of
the weak". Karl Marx would have loved it.

And I really would like to know how Rush feels about that.

Saturday, October 10, 2009

"Great Expectations" - The Nobel Peace Prize and Barack Obama

Yesterday, Oslo surprised and amazed the world.

In one of the most stunning developments of the year, the
Norwegian Nobel Peace Prize Committee decided to award
the 2009 Nobel Peace Prize to President Barack Obama.

Both liberal and conservative reaction was mixed.
While liberals generally applauded the selection, they
were also puzzled in that many of the President's
Nobel-worthy initiatives - most notably, on peace and
climate change - have yet to bear any fruit.

Conservatives, on the other hand, had no such problem.
Rush Limbaugh and Glenn Beck immediately seized on
the award as Proof Positive of President Obama's lack of

To conservatives, Obama's not one of us - a red-blooded
American. He's one of them - a soft, idealistic,
European Socialist.

But to this writer, there is nothing truly unusual about
the award. In fact, there are many reasons for it.

First, and most importantly, Obama is the Un-Bush.
To the Europeans, George W. Bush represented everything they
most detested about America; provincial, small-minded, ignorant
of the larger world, who compensated for his ignorance with an
"armed and dangerous" arrogance towards both his friends and
his perceived enemies.

But Obama - now, there at last, is an American President
who gets it. One of us. A man comfortable with policy
details. A man who prefers the solutions of technocrats
to the imperfect messiness of mere politicians.

And more importantly, he understands the grand
gesture - the great speech. Without great words of
inspiration and imagination, even the most necessary
and pragmatic actions fall short.

In other words, from the European standpoint, The
Perfect Nobel Laureate.

So what if he hasn't yet achieved anything? Look at Al
Gore - the 2007 Nobel Laureate. He made lots of grand
speeches about Climate Change - even wrote a book about it.
It doesn't matter that his policy prescriptions haven't been
implemented anywhere yet - he said all the right things
to all the right people. Style -that's what matters . Substance?
that's better put off for another day. We don't want to think
about that. Not right now.

And this tendency to reward good intentions rather than
good results actually suits Obama rather well. In the actual
arena of getting things done, he has shown a distressing
tendency to both temporize and compromise rather than
engage in tooth-and-claw combat for his programs and
beliefs. But now, thanks to the Nobel Prize award, he'll have
to change that.

He'll actually have to produce.

And if he achieves just a fraction of what he has set out to do -
achieve global agreement on climate change, settle the Israeli-
Palestinian dispute, and start on ridding the world of nuclear
weapons - he'll be worthy of the award.

And if he were to make a more lasting contribution - to
enact universal health care here at home and bring to
heel once and for all the global financial elites who
threaten the well-being and prosperity of all peoples, then
he'll truly deserve this award - and every other a grateful
world can bring him.

Truly, "Great Expectations".