Juggling Dynamite

I admit that I have a deep revulsion to banker/brokers. I can't help it. I worked on the sell side for 6 years and I know the beast intimately. Call me a reformed smoker I suppose. Sure many of the people who work at broker/dealers are “nice” people, but they are either don't care about the outcome to their customers or they are wilfully blind; either way, not much to respect. A drug dealer is a drug dealer even if they wear a nice suit. Remember Martin Sheen’s character in “Wall street” and how he warned his son that fine wine and art collections don't mean you aren't hanging with moral reprobates.
Until one of them gets arrested or sued of course; notice the way star-traders for financial institutions become “rogue” traders when things go the wrong way or an immoral practice is finally revealed to the public. It’s a vicious business; dog eat dog. Many of the star finance brokers that were buying exotic cars and building mansions 3 years ago are now desperately trying to sell them for pennies on the dollar in falling markets. Perhaps this is fitting reciprocity. It will always be thus. Watch for the same cycle to play out a few years from now.
Worst of all I think, is the social status that these firms and individuals are bestowed in our society. If they earn enormous sums and inhabit high end real estate, they are assumed to be upstanding citizens. Yikes. Most people are easily impressed; just the appearance of wealth is often enough for a character reference; a board appointment, or a leadership role in government. My greatest disappointment with the Obama administration to date has been their incestuous entanglement with the investment sales establishment. All of the key financial advisors to this administration were key players in the financial implosion that went before. Obama has left the wolves in charge of the sheep. I had hoped he would have the moral fortitude to resist this tradition.
Nonetheless professionalism and civil society ask that one take the high road in our commentary and steer clear of name calling where possible. Once in a while though someone breaks convention and speaks plainly on the topic. Sure few will remember the message after this most recent financial meltdown has passed, but plain talk now can be very cathartic as shown in this recent interview:

Gary Shilling has decades of hands-on experience in financial markets. This doesn't mean he gets a crystal ball into the future any more than anyone else; but wisdom and experience can help us to see the main trends through the noise of day to day movements. The KISS principle really does apply in this area. While most of the world is distracted by day to day “plays” that are basically completely random and unpredictable, those that know what to look for in the larger picture can be like the focused kids in a class of ADHD’s.
This clip Shilling did with Henry Blodget yesterday connects the main dots better than most. The headline is dramatic here, no one can say with certainty that there will be a “market crash” before year end, but another downside test is in the realm of probable. And yes, market movements in our highly connected world are “all one big trade.”

Risk appetite hit another rough patch the past 4 weeks. Disappointment over the so far illusive economic recovery was pulling “growth” assets down again with a mood as damp and dreary as this summer’s weather. Then yesterday morning in a spark of light, respected banking analyst Meredith Whitney pointed out that Goldman Sachs was likely to report a surprising profit surge for the second quarter. This glimmer of profit, no matter how fleeting, was enough to spur some into a round of buying. I can’t blame people for seizing an excuse for a party. Things have been pretty grim the past year. Levity is scarce as unemployment rates move through 10%, and chunks fly off World Trade like a worn tire unravelling on the freeway.
But for anyone that cared to digest the detail in Whitney’s comments, it must be noted that she was talking about a short term trade potential for Goldman. She was not declaring an end to the world recession; she was not saying banks were all good again; she wasn’t even saying Goldman Sachs was all good again. Whitney was talking about the opportunity for a trade if this bank was able to surprise to the upside for this quarter. Today they did, reporting net income of $2.7 billion on record net revenue of $13.8 billion and the bank stocks sold off again. Great; now what? See Shining Results Aren't Solid Gold.
Unfortunately we are still too early in this summer to declare doldrums gone. Major market indices have recently been building a right shoulder of a bearish head and shoulders pattern now threatening to trace down over coming weeks. If they fulfill the risk of this bearish test, another 10% down could be easily in the cards over the next several weeks. Maybe they will buck this trend, but odds are not sufficiently bullish for equity markets to warrant the acceptance of much risk just yet.
On the bright side, those who don’t have money hidden in tax free havens off shore have reason to be grateful for that alone. Those that do, have real reason to be afraid:
“U.S. prosecutors estimated last year that UBS was holding about $20 billion in assets for American clients in accounts hidden from U.S. tax authorities. The so-called “undeclared business” accounts were estimated to produce about $200 million in annual revenues for the bank.” See US and UBS seek court delay.
The names of thousands of people suspected of using the bank for tax fraud are likely to be revealed. Being charged with tax evasion must be always bad, but being turned over now, when governments are desperate for tax revenue, and the mobs are financially strained and mad as hell, must be really bad. If the US gets its names, other countries will no doubt follow suit in efforts to ferret out offshore funds.