Bigger is not Better!

Since I began my career in the financial services industry the market has become bigger and bigger and so much more complex.   Like the markets, and some of those really opaque financial instruments they trade, Wall Street firms have responded.  How?  By getting bigger and more complex! 

Do you remember these firms?

A.G. Edwards?  Gone...swallowed up by a wolf in sheep's clothing who had already absorbed Wheat First, Everen (which used to be Prescott, Ball, and Turbin, and Blunt Ellis), First Albany and a slew of others.  If you go back in time you can also throw in Bache and Prudential.   Even Wachovia has been taken over by Wells Fargo.

Do you remember the great advertising slogans of the old big firms...

"Thank you Paine Webber"

"When EF Hutton talks, people listen"

"We make money the old fashion way..we earn it"

Even mother Merrill...owned by a bank??? 

All of them...gone!  

Top management of these new gargantuan firms justify their size with great buzz words like "it gives us the scale, the scope, and a much larger footprint to compete".   Sometimes I think that is just a cover for inept or poor management.   On the surface these guys all look unique but after you peel away the veneer you find there is not an ounce of difference between any of them.  Bigness just means sameness. 

Big equals contempt for customers and for employees as well.  For the monster to continue to grow it needs more food.  What has all of this size meant to the small investor?  "Sorry your account is not big enough; try our toll free number".

My perspective on Goldman Sachs

Every day, on my way to work, I see a hand made sign that reads "Deport Goldman Sachs".  Not really the type of message one might expect to find here in the Midwest but, I must say, at least someone is paying attention. 

It is hard to blame this entire mess of an economy on one company.  But I find it interesting that Bob Rubin, former Treasury Secretary under Bill Clinton; or Hank Paulson, former Treasury Secretary under W. Bush just happened to be from Goldman Sachs.  How about "Turbo Tax Timmy", our current Treasury Secretary, who as former president of the New York Federal Reserve Bank had a great deal of contact with the Goldman crew?  Hummm? 

Was the demise of Bear Stearns a payback for Bear refusing to help in the 1998 bailout of Long Term Capital Management?   Did the Goldman group hate Sandy Weil?  How come JP Morgan Chase and Jamie Dimon were able to miss most of the credit bubble? 

By the way, if you get the chance to read When Genius Fails it is the story of the collapse of Long Term Capital Management and it is just as timely today as it was then.  Hummm...Bear Sterns?

It appears to me there is some kind of an axis that runs from the hedge fund capital of the world, Greenwich CT, through New York City and on down to D.C.  The hedge guys need someone to trade with so they enlist the guys from New York to provide the funding and liquidity.  The NewYork guys then get some new rules and some help from the guys in D.C.  This concentration of power, influence and money can't be good for the American investor. 

A Perfect Hedge Market

While searching the market for a few ideas today an idea hit me like a lead balloon....

This market is almost a perfect hedge!

Take a look at TLT... it is an ETF for the 20+ year treasury index.  The strength of this stock does not surprise all that much because it moves up when the bad news hits; and in this market there is plenty of bad news.  Now, if I am not mistaken, out of all of the members of the S&P 500 that have reported earnings for the second quarter of 2010 65 to 70% have surpassed analyst's estimates.  (Outside of Mondays rally the S&P just kind of sits there.)  Now I know those earnings look good because of cost cutting and analyst's expectations that have been turned down; but still some of these companies look pretty good overall, i.e.low PE's, decent revenue growth, dividends. 

Now go to BigCharts.com and use the interactive chart option and punch in TLT and compare it to the S&P...you will see that they are mirror opposites of one another.  But if TLT is a reflection of what market participants are thinking then I say that a 3.70% yield for 20+ years of maturity is a "big ouch" if we ever get any hint of inflation or job recovery stats. 

(A little education:  Historically speaking the rate of return on long term treasuries has been around 150-200 bps above the rate of inflation. So if inflation ever rears its ugly head again the price of TLT will be going down.)
TLT and the bond market are saying: Obama wins which equals the Dems stay in.  The stock market is saying the opposite:  Come November things are going to look a whole lot different. 

Think about it.

I'm MAD AS HELL and I'm not going to take it anymore!

In the immortal words of Howard Beale:  "I'm mad as hell and I'm not going to take it anymore!"

Welcome to my Blog!  I live in the flyover zone of the country and I have an established career in the investment industry with a background in economics, political science and history. 

I'm starting this blog because I'm frustrated.  In my view Politics = Economics and Economics = Politics.  Where does it end?  I believe a lot of people feel the same way I do.  My goal is to entertain and inform.

Check back.