Thursday, November 28, 2002

"America Rocks"

The only appropriate response, in my book, to the opinion piece by Ted Nugent which ran in Wednesday's (11/27/02) Wall Street Journal, is a wholehearted, top-of-the-lungs shout of AMEN, preferably from the highest accessible point.

The yearly Journal editorials, "The Desolate Wilderness" and "And the Fair Land" are marvelous, as usual.

A blessed Thanksgiving to you all.

There is a transcription of "America Rocks" on The Nuge Board. (scroll down a bit). I recommend you purchase the Wall Street Journal however, because a) the material is theirs and b) it's another proper response to such moving and relevant statements.

Saturday, November 23, 2002


Things are rarely what they seem to be. The media, an institution which one would rightly expect serves the role of shining light on matters, often does. But it seldom stops there. Usually it shines enough light to call attention to something and then proceeds to distort the thing with innuendoes, cliches and outright slander until the truth is pushed away into some far off corner, barely recognizable. The media touts itself as an essential discoverer of the truth; in practice, however, it is a master torturer of the truth. It seems that, should any truth survive unblemished, it has overcome very great odds to do so.

It is ironic, too, the way a specialist handles his stock. He is a master at making it look like it is going to go up in price, when it is about to go down. Charged with the significant task of maintaining a fair and orderly market, his game is really distorting price action in order to deceive other market participants. It is amazing how a stock can continue to advance in price throughout a day, by the process of tricking buyers into selling at a loss all day long.

Irony can be refreshing, as well. For example, I thought I detected irony in the story that Rudolph Giuliani is now a partner in a venture created to purchase Worldcom debt. It can be argued that Mr. Giuliani was 'launched' from relative obscurity as a prosecutor in Manhattan to the world stage as Mayor of New York City at least in part by his very high profile investigation into the trading practices of Michael Milken and Drexel Burnham Lambert in the late 1980's. The investigation resulted in, among other things, the folding of Drexel, the imprisonment of Milken and his forfeiture of $1 billion in penalties (one can't be faulted for wondering what use those funds were put to).

Milken was known in the press as "The Junk Bond King," because of his skill and dominant presence in the junk bond market. In fact, he can be said to have made junk bonds 'respectable' -- at least for a season -- using them in a novel way as a device to raise capital. But during the Prosecutor Giuliani's investigation and legal wranglings that surrounded it, the employment of high yield debt was painted as immoral, and its operatives, 'predators.' Bringing such ne'er do wells to justice was quite the fervent cause among many in that day. (Spitzer watchers take note: there is nothing new under the sun).

If ever there were a junk bond, the Worldcom debt would have to qualify. And now, Mr. Giuliani, former conquerer of junk bond kings, is a buyer. And if that isn't irony, I don't know what is.

Footnote: Granted, Worldcom debt is high yield because, well, the market has weighed in on the prospects of repayment and the company has been found wanting. This differs from high yield offered by bonds that are issued in order to finance a speculative corporate takeover.

Mr. Giuliani was later to enthusiastically endorse a Presidential Pardon of Michael Milken. Read more of this wonderful irony here. Now that he's back in the private sector, he's thinking like it.

Sunday, November 17, 2002

1 + 1 > 2

Absent any cohesive or compelling observations of my own, I've decided to provide the reader with a bit of the emminently cohesive and compelling James Grant. If you haven't read anything by Mr. Grant, do so immediately. You can start here.

The December, 7, 2001 issue of Grant's Interest Rate Observer considers the comments of William B. Harrison, Jr., CEO of JP Morgan Chase, offered in the company's 2000 Annual Report. Predicting rates of return that would be more appropriate to an aggressive trading operation (20%-25%) than to a prudent guardian of wealth (5%), Mr. Harrison gushes, "We now have the capacity to fulfill our clients' needs with any financial transaction, anytime, anywhere in the world. One plus one will significantly exceed two in the equation." As indeed it would probably have to in order for the predicted rate of return to be realized.

A little gushing on the part of a CEO who is proud of his company's achievements can be seen as healthy, if it is sincere and if we can tolerate hubris. With regard to mathematical accuracy, one might allow that the CEO has taken poetic license in addressing the effect of economies of scale, monopolistic advantage, or some other financial lever. That would be the best case. It would be worse if people in very high places, like our CEO, with the stewardship of large reserves of the world's wealth, want you to believe that they have found the philosopher's stone. And worst of all would be that they themselves genuinely believe that they have found it.

Mr. Grant seems to suspect the worst of the worst when he opines, "When a banker proposes that one plus one equals something bigger than two, we may infer something. What we may infer is that he or she is about to drive the family Cadillac into the country-club swimming pool."

He also patiently points out what seems to have been forgotten by those who should be the last to forget: "To achieve a rate of return even modestly in excess of the risk-free rate, a bank must bear some risk." To achieve multiples of the risk-free rate, it follows that risk must be multiplied.

Makes one wonder who it is that runs the asylum, and how long the effects of that helium they've been collectively sharing will last.

Sunday, November 03, 2002

decimals have no soul

"Todd, buy me a thousand BJS at market!" I shouted across the room to our order entry operator extraordinaire and all-around good guy (these words don't begin to do Todd justice). A few seconds later, he would intone, "You bought a thousand BJS at sixty-five and seven sixteenths."

"Hey, what's the market on Weyerhauser?" someone would holler. "Fifty three at an eighth!" came the answer.

This is about romance, partly. Imperial measurements -- fractions -- are what I grew up with. My father would measure the area which would receive the copper gutter he was creating (for the home of, say, the Chairman of Gillette, the CEO of Tweeter, etc, or the former Ambassador to France.). He'd say something to himself like "Fourteen and a strong half," pronounced "hahf," in the Yankee way. He knew exactly how big "a strong hahf" needed to be.

But the romance ended. Someone, somewhere, decided that America had to toss in its lot with the Europeans (besides the British), who had decreed that all things must be decimal. Cold, precise, decimal. No margin for error. No room for interpretation. All things must be exact. Few things are, or course, though they try to make it so.

But it's more than romance. Fractions worked just fine.

One good thing about fractions is that they made communicating the decimal portion -- the fraction -- simplicity itself. When you said 'an eighth,' everyone knew that you were talking about the amount on the right side of the decimal. It was efficient. When you say 'twelve-point-five,' you're forced to ammend your message with 'cents' or some other tangential qualifier to indicate that you're not talking about whole dollars.

Now when you talk to an order entry person he says things like, "You bought a thousand at sixty-five SPOT forty three." Funny, I can't picture my father saying, "fourteen and a strong 5 centimeters." It's just too wordy.

Another trader has his own take on the romance angle. "If your wife asks how you did when you get home, and you say 'I made three-eighths,' it sounds like you made something. If you answer, 'I made thirty-seven and a half cents,' she thinks, 'Gee, I found that much in the couch cushions.'"

Markets have, heretofore, found a way to adapt to vain and frivolous rules imposed upon the business by the power players, because markets are made up of people. Regular, imperfect, motivated and live people.

Perfection is beyond the reach of man's hand, however finely he subdivides his observations. To err is human. To adapt is human. But decimals have no soul.