Thursday, June 28, 2012


What happened at JP Morgan is not even the tip of the iceberg.  Capital markets cannot be traded successfully using huge leverage without catastrophic breakdowns.

The Background:
1. Wall Street firms were allowed to go public.  Allegiance was no longer to clients and partners but to public shareholders.
2. The fixed commission structure of the industry was gotten rid of and in its place was put a negotiated commission structure.
3. The money management industry, aside from the brokerage industry, developed control of commission generating assets.
4. As the profitability of the historic Wall Street model deteriorated, greater risks had to be taken in order to achieve increasing shareholder profits and for brokerage executives to earn high compensation (financial dangers were somebody else's problem).
5. It didn't matter how much risk the firms, took the money no longer belonged to them.
6. Shareholder profits overrode fiduciary responsibility.
7. Most Wall Street fortunes have been made on fees from other people money.  Very few Wall Street employees have made their fortunes investing in the markets they recommend to their own clients.
8. Large financial  organizations all hire public relations firms.  Its hard to separate fact from fiction or where the PR takes over from the reality of the controlling people in management.
9. Jimmy Dimon should have to produce his investment portfolio to see if the methods the bank was using with other people's money was being used in the same manner in his own portfolio.
10. We already know that Warren Buffett only wants to buy back Berkshire shares near book value, but he buys publicly traded companies that trade many times above book value which makes no sense whatsoever.
11. The very survival of our Capitalist structure depends on a slow unwinding of the gambling in trillions within our savings institutions.
12. Even if a half dozen people at JP Morgan can understand what was going on, what would happen if God forbid,  these half dozen people had an accident in a plane or one could ever pick up the pieces.
13. Lastly, Congress is elected for only two years and 98% of the Congressman know absolutely nothing about the banking system.

We should stop worrying about the sexuality of people and begin the arduous task that lies ahead. If we try to escape from this we will fail.

Friday, June 22, 2012


The Obama Presidential campaign continues to disrespect the intelligence of the average American.

An Obama advertisement currently running states that women are discriminated against in the workplace. According to Obama's political ad, women receive 70% of the pay that men do for the same job. Clearly if that was true, it would be wrong.

These ads are information that is out of context and not true.

1. How long has the woman been doing the job compared the man?

2. How well does the woman do the job and on what criteria compared to the man?

3. What is the average age of the woman compared to the man?

4. What is the level of education of the woman compared to the man?

5. How effective is the woman doing her job compared to the man?

It is highly misleading to just state on public TV that women are discriminated against.

Did this misleading President mean to say that the government pays women less money than men for the same job with the same experience? Did he mean to say that the people that flip hamburgers in a food chain are paid differently based on gender?

I don't think so. If we can run ads based on gender we can run ads based on religion, color and everything else.

What companies is he talking about, etc? By the way, President Roosevelt's secretary, Missy, was paid $5,000 dollars per year in the 1940s, while men with the same job were paid twice as much. If it's true Mr. President, is it still true in your administration? Is that what you are really talking about?

We need a more educated nation so politicians like yourself can't run these kinds of distorted advertisements.

If this was really true Mr. President what have you done in the last four years to correct this so-called injustice?

Friday, June 15, 2012


Unfortunately Obama is such a leftist, probably a socialist deep in his mind, that he wants to raise taxes as the economy weakens.

What a sad story...

Wednesday, June 13, 2012


I was responsible for handing out a pool of money to several money managers. They all seemed to have pretty consistent performance records (a couple of points plus or minus the yearly averages) and they averaged among them about sixty companies in their portfolios.

Other things being equal, I decided the money would be placed with those money managers who knew, at the least, the basic financial information of the companies they owned.

I want to put this in perspective. Each portfolio manager owned approximately 60 different companies. Each one of these companies issued an annual report and a SEC form called the 10K. In addition, each of these companies issue quarterly reports called the 10Q. Each of the companies issued at least another 15 financial releases of one sort or another throughout the year.

Since the average 10K is over 100 pages and the average 10Q is about 50 pages this means that for each company a portfolio manager, wanting to know about their investments, would read over 400 pages per company per year. Multiply this times 60 times for each company in their portfolio and you would be reading 24,000 pages. On each of these pages there are hundreds of numbers, thousands of words, hundreds of footnotes and confusing accounting explanations.

The SEC, in its great wisdom, along with other regulatory agencies has provided such extensive historical data on companies that practically no one is capable of effectively reading and analyzing the tons of data.

So the question we were going to put to the managers, most of whom ran billions of dollars, ran along the following lines, what are the sales of company, what are their gross margins, how many shares were outstanding along with similar other questions. Over 80% percent of the questions could not be answered by these very skilled money managers.

So what good does all the disclosure do the average investor if most skilled money managers aren't using it? We all know that over time professional money managers don't tend to outperform the major market averages and the value added is more towards portfolio structure and asset allocation. The average and sophisticated investor is not capable of getting any value from the pages of risk disclosure in financial reports.

Money managers cannot effectively use 24,000 pages of annual data. Their brains won't be able to parse the information effectively.

So what's to do. That's for another blog.


Tom Friedman is a writer. He is also a part of the so called one percenters. I wonder how many occupy wall street people or left wing democratic liberals think of him in those terms.

He has written a lot of excellent books, he is one of the great journalists, extremely hard working etc. etc. etc.

In his June 13th editorial on page A23 of a New York newspaper, he made what I consider to be a major and serious almost critical misanalysis of the European and Middle Eastern political situation. He wrote about how the unification of Europe is not working and how in the Arab world they are falling back into "sects, tribes, regions and clans". At the end of the editorial he wrote the following astonishing analysis of chaos.

"When countries with such different cultures become this interconnected and interdependent, when they share the same currency but not the same work ethics, retirement ages and budget discipline-you end up with German savers seething at Greek workers and vica versa".

Now I am going to rewrite this sentence to try to bring his analysis into the context of our own country. The words that I'm changing are highlighted.

When people or states with such different cultures become this interconnected and interdependent, when they share the same currency but not the same work ethics, retirement ages or budget discipline you end up with anyone who is not in the one percent club seething at the well to do.

If Tom Friedman's editorial about the collapsing European and Middle Eastern communities is even close to correct, we should expect as a responsible writer that he point out that we are on the same path.

President Obama is using the "bully pulpit" to fan the flames of jealousy and class warfare.

As long as the public school building I went to which is now 100 years old and the black and Hispanic children attending are failing at standardized tests and a man of "change" changes nothing of importance, there goes our chance for excellence. Jealousy and class warfare will only make matters much worse.

Is what's happening in Europe and the Middle East the canary in the coal mine?

Monday, June 11, 2012


The left-wing democrats are claiming the Romney does not support teachers, police officers or firefighters.

There are several things these three groups have in common among others.

One - They are all government jobs.
Two - They are all Union jobs.
Three - They are all groups that have attempted to use fear as a basis for taxpayer's support.
Four - They are all paid for with tax dollars.
Five - We pay for these services whether we want them or not.

If you don't support the teachers, you wont get education for your kids. If you don't support the firefighters, your house will burn down and if your don't support the police officers you will be attacked by the "hoards".

These jobs are called "essential" services.

Now think about it this way. If food isn't delivered to the super market, is that an essential service? If medicine isn't delivered to the drug store, is that an essential service? If the pharmacies and doctors don't do their jobs, is that essential services? If your dog is sick, is your veterinarian an essential service. How about a gas station - I guess that's an essential service too.

The left-wing unionized workers unions have found ways to differentiate themselves from the rest of us so that what they do is an "essential" service. Essential is defined as union.

Obviously Candidate Romney salutes the work done by ALL essential services as does President Obama.

The difference is Romney is looking for ways to increase the size of the economic pie whereas Obama just counts votes.

Monday, June 4, 2012


New York City's Mayor Bloomberg wants to tax soda because some people think its a significant contributor to obesity and bad health. Okay, so we pay a tax on soda, you can drink soda if you want to or not.

But here is the kicker...Mayor Bloomberg owns a TV station that espouses financial advice day after day after day. People lose money on much of what is said on these kinds of financial news channels.

So if soda is bad, so is inaccurate, incomplete or misleading, second to second financial commentary.

Obviously we should tax the people who watch financial TV channels because they may be harming their financial well being, just the same as soda.

No wonder we can't grow the economy.

Sunday, June 3, 2012


Time magazine, in its recent edition, shared a superb article on the complexity of the American Civil War. Its really a must read for those of us trying to maintain a historical grasp of this time in our history.

Among what may or may not be one of the more minor points of the article by Mr. Drehle, was the statement "One of the blessings of being able to set up shop on a new continent was that Americans never had to be defined by clan or tribe or region."

Unfortunately, as we grasp to believe this statement has credibility, the fact is it's untrue and as we will see in a moment, contributes significantly to the dimension of our economic problems.

We no longer argue over the wrongness of slavery of any sort, or about the right to equal education between men and woman, but we do argue incessantly, in subtle and direct ways, about inequality of economic wealth.

Walk down Fifth Avenue in New York, among many other places, and what you find is doorman or two, possibly a security person in the lobby, and maybe even an elevator man. Go down to Florida, and behold the many gated communities which are ostensibly for the wealthy but are significantly upper middle class, and look for the myriads of security men driving around in each community.

We may not be being defined by clan, but we are being defined by other things like wealth, education and expanding rights.

It can be said that if you can afford to live in a better neighborhood or have a bigger boat or whatever, you're barely a welcomed part of society in many places. Very few of the people on Fifth Avenue or in our many gated communities would give up these security amenities. These types of social segregation by, "class", are known to not work in the long term interest of democracy. Let us ask why not...

Jealousy among tribes, clans or economic classes is part of the mosaic of mankind. Unfortunately the jealousy as it exists, requires so much security that it's bad for everyone and does not get to the root cause of why.

Awhile back in one of my blogs, I wrote that no one can argue about everyone having available the so called amenities of living in our type of society. I stated that this could only come about if the thrust of the nations policy was to create wealth and wealth and wealth. I stated that wealth should not be gotten illegally or immorally, but it would be good for everyone if we figured out how to increase it. I've been met with some hostility on my emphasis on wealth. Simply put, the size of the pie has to grow so the slices can be bigger and someday of equal size.

The wealth of this country basically flows through the system. Therefore, other things being equal, the more flow the more volume. It is well known in economic circles that tax policy has been used to incentivize those areas of the economy that the prevailing government deems in the nation's interest. Depletion deductions for resource companies are meant as an incentive to seek more resources. Mortgage interest deductions are meant as incentives for people to buy homes, apartments, create jobs and demand for building products. Charitable deductions increase donations for organizations in need. Taxes on cigarettes are meant to reduce consumption of a very harmful product, and on and on it goes. If these so called loop hole deductions are taken away or reduced, I think it would indicate that the whole concept of targeted tax incentives was counterproductive. Without going into this too deeply, taxes are just another expense, no more and no less, to individuals and corporations. As a general rule, any expense including taxes, can reduce consumption or in a corporate sphere, contribute to higher prices.

The idea is to incentivize wealth creation and then decide the best we can whether the free flow of the market forces or more centralized controls, will push wealth retention in more economically productive directions. It can be argued that allocation of cash flow by corporations to buy back their own shares at inflated prices is a misallocation of free cash flow. For managements to tell their shareholders that they are returning wealth to them from share repurchases, can in many cases be shown to border on the absurd. We all know that the government also makes mistakes. It's real simple because people make mistakes. If we decide the government can increase wealth more effectively than wealth creators, so be it. This is pretty unlikely to occur.

We should always clamp down on the schemers. We have to let it be known that America is a land of equality before the law, a land where prejudices are unacceptable; but not a guarantor of equality of results. In summary, we are on a journey that can only be properly served when the doorman and the gates come down, and the poor and the rich can walk among each other with a feeling of dignity and safety.

Friday, June 1, 2012


Obama is so bad I can't even figure out what to say about him.

Shepard Osherow. All Rights Reserved