Juggling Dynamite

There is no doubt that some major developed ecomomies saw stellar equity gains in 2013. But careful risk management does not place all capital eggs in one asset type, and as shown in the chart below, most other asset classes–like emerging markets, precious metals, commodities, bonds, non-US currencies and alternative funds–mostly lost money over the last 12 months. Some lost a lot.

Infact overall in diversified portfolios, huge gains made on developed market equities were not enough to outweigh the losses in the other asset classes, making portfolio returns for many investors negative to flat on the year–notwithstanding tons of capital risk and all the QE-hype in the world.

Of course, those who were heavily concentrated in US equities and Canadian banks in 2013, with little to no exposure to other asset classes, showed high double digit returns on the year (although not over the past 5 or 14 years as most were really just making back the money they lost in the 2000 and 2008 bear markets, but who wants to fuss over math?).

The trouble is that those same “winners” from 2013 now find their net worth (and worse, their borrowed margin accounts) precariously perched once more near the summit of the most over-valued assets in the world coming into 2014. And the plan is????

As with Madoff’s Ponzi scheme and all the many other financial scams in human history, it takes criminal directors as well as willing followers(clients), aiders and abetters in order for crimes to be perpetrated.

Frontline goes inside the hunt that uncovered vast insider trading (again) on Wall Street.Here is a direct video link.

It is important to understand that while Cohen’s SAC is one of the largest players caught cheating this round, SAC’s tactics and practices are widely common. See: US Attorney General Preet Bharara: Insider Trading Is “Rampant” On Wall Street.

For those who do manage savings for clients in a legal and honest manner, one of the things that is so hard to stomach in all of this, is not just that the culprits are unjustly enriched often making themselves billionaires from illegal activities, but also they typically receive wide public adoration, esteem, media coverage and privilege based on their alleged investment “brilliance”. They are then offered a host of plum positions on boards and advisory roles for foundations, companies and governments. And when they are finally revealed as frauds, many simply write some cheques for fines while keeping the bulk of their illegal proceeds even while their clients lose everything. In finance today, crime frequently does pay.

Bloomberg News’ Keri Geiger and Jennifer Arlen of New York University School of Law, discuss JPMorgan’s $1.7 billion settlement to resolve claims that it played a role in facilitating Bernie Madoff’s ponzi scheme on Bloomberg Television’s “Market Makers.” Here is a direct video link.

Also see this clip of US Attorney Preet Bharara explaining the banking relationship between JPMorgan and Bernie Madoff and Morgan’s legal failure to report clearly suspicious activities, because they were making lucrative fees from the accounts. Here is a direct video link.