RETIRE.FUND: Investment Banks

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Monday, March 1, 2010

America - on the road to ruin? Charlie Munger of Berkshire-Hathaway thinks it is!

Image by TEDizen via Flickr

Is America on a road to ruin? Financially? Politically? Is the "great experiment" coming to an end? Could it's decline have been predicted by studying the rise and fall of all great empires? Charlie Munger seems to think so. One of the scions of the most successful investment company in history, Berkshire-Hathaway is saying exactly that in a recent article at Slate.com.

Charlie

lays out an interesting, and I might add, a very compelling argument for the demise of the American Empire, beginning as early as 2012. In contrast to his business partner, the venerable "Oracle of Omaha", Warren Buffett, an eternal optimist, Munger maintains that it is "blind optimism" that will be America's final undoing.

As the "Casino gambling" mentality of Wall Street investment banks takes hold more and more in American society, and average investors and governments are persuaded to "let it ride" instead of reining in the massive bets on paper investments like credit default swaps and other murky derivatives, that "blind optimism" will be our undoing, according to Munger. The U.S. government is divided as never before. The right wing will do "whatever it takes" to undo the Obama Presidency as is evidenced by the upshot "Tea Party" the party of "no"! Republicans don't seem to be interested in coming to agreement on anything proposed by this administration, preferring to "just say no" instead of offering alternatives and meeting in the middle to obtain resolution, whether it is the financial crisis, health care, energy or almost any decision of significance. The democrats are no better, preferring to argue within their own caucus and dither on passing any legislation that moves even a little bit, away from their individual pet position of the day.

Munger maintains that, among other developments, this dithering and procrastination will allow the casino mentality to continue in financial circles, as the army of Wall Street lobbyists continues it's onslaught in Washington to convince Government of the status quo, restrict any and all new regulations, and just "let-it-ride!

As they say in Omaha, Mrs. Munger didn't raise no fool! Buffets optimism aside, Mungers argument should not be dismissed out of hand. It is worth reading and considering, especially as you lay out your investment horizon in the coming years.

Some excerpts from the blunt Mr. Munger on Investment Banks:

“This is an enormously influential group of people, and 90% of that influence is being spent to gain powers and practices that the world would be better off without,It will be very hard to accomplish the kind of surgery that would be desirable for the wider civilization.”
"We need to remove from the investment banking and the commercial banking industries a lot of the practices and prerogatives that they have so lovingly possessed,” If they are too big to fail, they are too big to be allowed to be as gamey and venal as they’ve been -- and as stupid as they’ve been.”
This writer, and many others, have been warning you about some of the problems for years. but now you can hear it from one of the most prolific investors of all time, Charlie Munger!
Charlie Munger: Basically, it's all over!
PS: Just to clarify, I don't agree with Charlie. History has taught us that America can never be counted out. It will rebound. It's just a matter when.
Related Articles:
Capitalism, Greed and the Faustian bargain of more liquidity!
An argument for Gold
Vultures of Wall Street
Pigs at the Trough

Monday, February 1, 2010

Capitalism, greed, and the faustian bargain of more liquidity

"Capitalism is

the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone" John Maynard Keynes

"The best way to destroy the Capitalist system is to debauch the currency" Vladimir Lenin

As more Billionaires are made, and the current ones increase their wealth in leaps and bounds, in the same year that workers are tremendously punished, and stand to lose their futures, one wonders if Capitalism itself isn't the third system to meet it's fate after National Socialism (Nazism) and Communism. Today, the pure Capitalist system is shown wanting, as never before. Let's call it "Kudlow Capitalism" after CNBC's very outspoken, cheer leader, of the billionaire club, Larry Kudlow. You know, the TV host who never allows anyone with a different slant on Capitalism to talk more than 20 seconds without either cutting them off or talking over their voices. The same guy that is now blaming President Obama for all the troubles, along with Fox news, who now resemble the Nazi propaganda machine of the 1930's

When "investment banks" hoard tankers full of oil offshore, awaiting a rise in oil prices, so as to pounce on the unsuspecting consumer like a cougar, is that good for the rest of the economy? Remember, this is not an oil company that needs storage space for a glut on the market, but an "investment bank"! Should they be allowed to speculate on such a large scale, in such a necessary commodity? Oil speculation is only one example of the "fingers in the cookie jar" mentality of big investment banks like JP Morgan and Goldman Sachs. As I've said before, if the price of oil is $70, you can probably chock up $25 of that price to these types of giant, market moving, speculators. (That's about 36% of the cost of filling up your cars gas tank). No wonder GS has come to be labeled a "Giant vampire squid" smothering the face of society with their tentacles following the smell of money into every orifice.

Several years ago,

GS collected a $300,000,000 fee to help the country of Greece essentially fudge the numbers of their national debt. (to allow the lying Greek government to get into the Euro zone by skirting the necessity to disclose it's total debt ratio) Now their bets against that same debt stand to make them even more money. Essentially they gave Greece a reason to burn the house down, then bought insurance against the fire. Is this fraud or just good money management. You decide if they deserve the title of Vultures of Wall Street! (See Bank Bets - New York Times )

Investors in the Euro have already decided, by dumping their Euro's. Greece may yet get bailed out by it's Euro partners, but don't count on it. Why should hard working, prudent Germans, who have recently been told they cannot collect old age security pensions until after age 67, suddenly feel the urge to bail out free spending and freeloading Greeks, who can retire at 60. With Spain Portugal and Italy waiting in the wings for their own rescue, why would Germany and France (who have troubles of their own) even consider it. Greece should be ejected from the Euro zone unless or until they get their sick fiscal house in order, and their bulging debt under some sort of control. Civil unrest will result.

Speaking about sick fiscal policies and massive debt, The United States budget forecasts a $1.7 Trillion dollar debt for this year, bringing total debt to around $14T (depending on which number are crunched) by year end. If America continues to pump liquidity into the system, the storm clouds of 2008 will begin to pail in comparison with those forming over 2010 and beyond. The U.S. Government is now the sole backer of mortgages in the Country through it's control of Fannie Mae and Freddie Mac. If they nationalized those two entities right now, that would add over $5 Trillion to the U.S. Debt book. Add to that the fact that China is owed a big chunk of the United States debt at a time when a trade war with the Country looms large and those storm clouds get darker still. China holds $2 Trillion in their FE account, (including $800 Billion in U.S. debt) has been storing up massive amounts of commodities, is ahead in the production of green energy initiatives and has more than three times the population, so who is best suited to withstand a protracted trade war? Couple all of this with the continuing "gaming of the U.S. system" by the vultures of Wall Street, and the picture for prosperity in the Good Ole U.S. of A is dimming daily.

Weighing in on the "Faustian bargain" of Keynesian economic theory this week was none other than Conrad Black, in a letter to his old Alma Mater, the National Post (Almost surely written from his jail cell). The audacity of an old Bay Street fraudster, writing about the futility of propping up markets with so much liquidity, while other, bigger frauds are being precipitated upon an unsuspecting public purse, by much bigger "Wall Street" fish, exactly because of the liquidity infusion, was a little comical.

Whether the infusion of money comes from taxpayers (TARP and it's ilk) or from common shareholders, (as in Conrad Blacks case) there is always a vampire squid swimming nearby to latch on and leach every bit of money it can settle it's tentacles upon. Why does the general public always seem surprised when Wall Street Vultures pay out to their executives, over $100 Billion in bonuses for one year of speculation, while the American taxpayer is given a bill that neither they, their children or their grandchildren will be able to pay.

It is said that, "power corrupts and absolute power corrupts absolutely". Since the early 1970's we've been fed the mantra" greed is good" and "free markets can regulate themselves" (greed good - regulation bad - ie: Larry Kudlow and company) and that Government should just get out of the way and let markets regulate themselves. We are now reaping the painful rewards of that mindset. The vultures of Wall Street have proven that "Greed is corrupt, and absolute greed is corruption absolute"! The opposite of greed is not thrift. It is generosity. Generosity is a word completely lost on Wall Street. Vultures aren't generous, indeed they don't really care who they feed upon, but only that they feed.

The crooks

settled in and took over the store so long ago that they have convinced the police that they are actually the owners. Only when the real owners return and demand change, will real change occur, but don't hold your breath. Every time that notion takes shape, the crooks rally the troops in Washington and the uninitiated across America, then threaten to close the great Casino, and everyone goes away until it re stocks and re-opens for business again.

Maybe it's time to tear down the Casino and start again!

Thursday, July 30, 2009

Are the Gluttons of Wall Street feasting on your Retirement funds!

Cover of Pigs at the Trough

Will the U.S. dollar make a giant crash landing this year, or just a rough and tumble touch down on the slippery slope of Keynesian Economic Theory? Will the frantic search for stores of value, which started this summer rally, on the back of the decline of the U.S. dollar, keep the bulls charging straight up the hill?

Today's sale of U.S. Treasury Bills is the culmination of a record breaking week, in the sale of these financial instruments to both domestic and foreign buyers. The government is essentially "re-mortgaging the future of every U.S. citizen and family just to maintain and increase the massive debt load that threatens the financial well being of future generations of Americans.

And this, after the largest financial bailout of private companies in the history of finance anywhere. No wonder Ariana Huffington is reprinting her 2004 book "Pigs at the Trough" to include the companies and people in charge who helped cause the financial meltdown and then were rescued by, you guessed it, us!

Corporate greed has been a headline at various times over the past 30 years from the arrest of Michael Milken in the greed fueled 80's junk bond debacle, to the lies and false books of Enron which prompted the first printing of the book. Now previously revered companies such as Bear Stearn, AIG, Citigroup, Bank of America, Lehman Brothers and even General Motors have joined the lexicon, as their leaders were either too greedy, too blind, or too inept to keep their troubled charges out of catastrophe's way, while they paid themselves ever larger graft in the form of corporate "compensation". Andrew Hall of Citi Group is a prime example of the cult of entitlement funded by both taxpayers and shareholders taking in $100 Million per year, for the past 3 years, while each and every U.S. taxpayer just bought 54 shares of Citi without having any say in the matter.

As a former policeman, I am still astounded that "only" Bernie Madoff has been arrested. It's as if, every time the movers and shakers get into trouble over their massive greed, someone is shaken out of the rats nest to take the fall and keep the limelight away from the rest. In organized Crime circles, it is usually a small fry that takes the fall...hmmmm

The truly landmark names like J.P. Morgan and the venerable Goldman Sachs have usually dodged such issues, or at least explained them away as business necessity. Let's face it. These guys are smart. The smartest of the smart in point of fact. That is why, after all of the blood letting over the past 18 months, these two have emerged as the only two investment banks left standing. In the midst of the worst financial crisis since World War 2, in just this past quarter alone, a space of 3 months, these two Giants made over $5.5 Billion between them in pure profit. (How much have you made since March?) Now GS is poised to pay out to it's executives a total of $11.4 Billion in bonuses this year (yes, that's $11,400,000,000) How could they possibly do that?

Well one way is to speculate on the price of oil and other commodities. You can bet that, if oil is at say, $68 per barrel, that at least $25 of that price is due to the market manipulation of this one giant speculator. What does this company make? Why, it makes money, lots and lots of money, and it makes no apologies.

While many average Americans have lost their homes, their jobs and their futures, GS was betting on the futures market in oil, and making a killing while their alumni have been the driving force behind the most massive bailout of Wall Street in history. No wonder the term "Government Sachs" is whispered with winks and nods in the halls of power. Yes, they returned the Tarp money, with a 23% gain for taxpayers, but that is the sugar which they can point to to soften the blow of their gaming the system to drive up prices and profits. (Note to Government - use the 23% to hire more market policemen)

As a consequence of all of this, in June, Timothy Geithner went to China to sell the wary Chinese on the benefits of buying even more U.S. Government debt. Hopefully he is the best salesman in the history of salesmen, because he has a boatload of dollars to sell. This weeks high level talks with the Chinese may or may not bode well for treasury sales. Only time will tell, but rest assured, the U.S. dollar has seen it's best days, at least for the foreseeable future.

If you are Canadian, like me, hold on to your loonies! We are headed back to the 1950's and 60's when the Canada buck was worth more than the U.S. buck, on a consistent basis. We have the second largest deposits of oil on the planet. Our banks have stayed conservative, avoiding the toxic Derivatives debacle and have entered this summer rally strong. We have the second largest deposits of oil and natural gas in the world, the largest deposits of potash, lumber, seafood, nickel, uranium and arguably, diamonds. We own 20% of the worlds entire supply of fresh water, with only .03% of it's population. We own the largest claim to the arctic, which is suspected to harbor 25% of the total world's oil supply, and finally, the largest consumer on the planet, is right next door.

But Sadly, as GS and JP go, so goes Wall Street and thus we have this summer rally in the North American markets. As I have said before, the market has been the driver of wealth for over 100 years, and will be the driver of wealth for the next 100 years. Goldman Sachs is the proof positive, of this theory. that is why you cannot sit on the sidelines and watch as the dollar goes down, and the market goes up. You've lost way too much already!

It's time to get back on the never ending roller coaster created by the gluttons of Wall Street. However, a note of caution: be prepared to get off when everyone around you is laughing hysterically and pointing upward.

The crash of 2010 could be even worse than last year!

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