Juggling Dynamite

The insider pump and dump has been epic this cycle…

The insider selling ratio is “Off The Charts.” Here is a direct video link.

Good piece from Larry Fink, chairman and CEO of Blackrock on the long-term cost of today’s widespread cultural “short-termism” focused on fleeting capital gains, trades and gambling rather than long term investment and discipline that builds lasting value.  See:  Our gambling culture

We tend to speak of short-termism as though it’s a problem that only afflicts investors or corporate leaders, but that’s not the case. Short-term thinking pervades our most important institutions, from government to households. We’ve created a gambling culture in which we tune out everything except the most immediate outcomes. If we’re going to meet our commitments to our children and grandchildren, and to society as a whole, we need to open up the lens and start taking a more responsible, longer-term view of the challenges we face.

…instead of having television shows focusing on the next trade, could we ever have a television show about critical long-term topics such as preparing for retirement?”

The whole piece is worth the read and includes suggested tax law changes that can help to shift the focus to longer-term investment and prudence.

Fink also underlines the dark truth inherent in the business model of Blackrock and other long-always funds, indices and financial managers today: when assets are the most irrationally over-valued and perilous to capital–like 1929, 2000, 2007 and today–the majority keep holding and adding new client capital regardless.  They do this because they are not mandated to protect principal and manage risk in accordance with the client’s best interests, but rather to passively track the index through bubbles and through busts.

More than eighty percent of BlackRock’s equity ownership is in index products. So whether we like the company or have concerns about its long-term prospects, if it’s in the index, we have to own it. That’s true even if the company is doing something that accelerates the stock price in the short term but has long-term negative implications—maybe making a massive stock repurchase or issuing debt at an unsustainable level or transitioning to a more volatile business model. The stock may rally for a while, but long-term viability is harmed. We have to be against that, but again, we have to own the stock as long as it’s in that index.

Former PIMCO CEO, now Chief Economic Adviser to Allianz SE, Pimco’s parent company, PHD in economics and Finance insider, Mohamed El Erian has an estimated net worth of some $2.3 billion. He also served 2 years as president and CEO of Harvard Management Company, the entity that manages Harvard’s endowment and related accounts, leaving at the end of 2007 to return to PIMCO, just before the Harvard endowment suffered massive capital losses in the 2008 bear market.

El-Erian seems to have learned something about the importance of protecting savings from the ravages of Fed induced asset bubbles.  This week he gave an interview with the Orange County Register explaining, among other things, why he holds most of his personal wealth in cash today–not in stocks and bonds. Here is a highlight:

Q. Where is your money? Stocks? Treasuries? Bonds?

A. It is mostly concentrated in cash. That’s not great, given that it gets eaten up by inflation. But I think most asset prices have been pushed by central banks to very elevated levels.

Q. So we’re nearing a bubble?

A. Go back to central banks. Central banks look at growth, at employment, at wages. They are too low. They don’t have the instruments they need, but they feel obliged to do something. So they artificially lift asset prices by maintaining zero interest rates and by using their balance sheet to buy assets.

Why? Because they hope that they will trigger what’s called the wealth effect. That you will open your 401k, see it has gone up in price, and you’ll spend. And that companies will see their shares are going up and they will be more willing to invest. But there is a massive gap right now between asset prices and fundamentals.

See:   Life after Pimco: Mohamed El-Erian for the entire interview.