Thursday, October 25, 2012

In the News





There is the appearance of progress on an important issue facing the capital markets:



Actually there is no progress at all. The CFTC’s Gary Gensler was just talking nice before the election. From the article (Link):


Gensler said he had a designed a broad package of potential rules, which address some of the dangers of high-speed trading, and he hoped to put it before the commission “shortly.”


What a weasel. “Potential” rules? This is lawyer talk for “no rules”.


Gensler is “hoping” to put the rules before the commission? He runs the damn CFTC. Why is Gary hoping to do something? He should just do it.  And what is this business about “shortly”? The flash-crash was 30 months ago. What the hell has Gensler doing for all that time? Hoping? It gets worse:


This broad package, known as a concept release, is designed to initiate a public debate. Based on feedback the CFTC will get the agency may then move to propose new rules.


Concept release? How can they think this stuff up?


The “feedback” will come from the guys with the white spats who are running the robots. This topic is very complicated. There are very few outsiders who understand what is going on in nano-second land (I don’t, neither does Gensler). Tyler Durden, at Zero Hedge, knows as much as anyone who is an outsider. If he wrote Gensler on HFT, it would not be considered. Only insiders will write rules for this club.


Separately, the Chicago Fed wrote the SEC on the issue of HFT. The Chi boys are worried that the robots have no skin in the game. (What’s to worry?) Machines trade stocks in seconds, so they don’t create positions that are subject to margin requirements. The Fed’s letter summed this up pretty well:


“This strikes us as imprudent”


Imprudent? I looked it up:


Ill-advised, unwise, heedless, careless, rash, negligent


I think “negligent” is the best description of Gensler’s plan for “potential rules shortly”.




More Progress


For the past ten years thousands of accountants and lawyers have been working to design global standards for reporting financial information for publicly traded companies.


This is a big deal. It’s a once-in-a-century opportunity to re-write/up-date the rules for disclosure of key financial information. Uniform standards would (finally) allow investors (and regulators) to look across borders and make apples to apples comparisons.


Sound good? Forget about it; it’s not going to happen. “Why?” you might ask. The answer is the big US banks put the kibosh on the effort. The issue that blew the chance for global accounting transparency: (Link)


How to force banks to recognize losses earlier on bad loans.





Recognize losses early? No wonder the banks did not go for it. But tell me again why the US banks get to call the shots on this?





Incredible Progress


How about Face Book? The stock opened 25% higher and closed the day up a very impressive 20%. The catalyst for the big jump was evidence that the deep thinkers at FB have figured out how to make money on the back of mobile FB users.


The top line revenue from mobile was $115Mn for the quarter. A few seconds after the news, FB had tacked on $12Bn of market cap! It doesn’t matter that FB didn’t make a dime in selling those ads. Everybody loves the stock now. CNBC’s David Faber said (Three times!):


“I’m hearing that ‘Buy-side only’ funds are now getting involved.”


I suppose this is good news for Dave’s viewers. I’m thinking the dumb money has been in FB since the IPO, and more dumb money doesn’t make it smart.


Real smart guys, like Dan Niles, have played the short side of FB. Dan says he got his short off at $42 (Possible, but highly unlikely).  On TV, Dan said that he covered his short a day before the big news. This guy is so smart that he not only cut his short, he put on a tidy long. I’m thinking fantasy-land.


With all the fast talkers, smart traders and dumb money involved at this point, the stock probably has found a floor. Me? I’m not convinced. FB is trading at 50Xs 2012 EPS and 40Xs 2013 EPS estimates. It’s currently valued at 16Xs revenue. All this for a company that figured out to put pop-up ads on a phone (and piss off its users in the process).




Unbelievable Progress


There was a terrible earthquake in Italy in 2009. 300 people were killed in Abruzzo, when the ground shook.


Today, the Italian justice system found six Italian seismologists guilty of manslaughter for having failed to warn the folks in Abruzzo that a quake was coming.  The scientists are headed to the slammer for a six-year term.


The scientists were found guilty of providing:

“Imprecise, incomplete and contradictory information”

What would happen if the standard set in Italy for seismologists were applied to economists, Wall Street soothsayers, politicians and the technocrats who run everything these days?

The prisons would be full.



  1. “What would happen if the standard set in Italy for seismologists were applied to economists, Wall Street soothsayers, politicians and the technocrats who run everything these days? The prisons would be full.”

    Don’t build more prisons.Kill them all, allow God to sort them out.

  2. Dave Mustaine: “Peace sells, but who’s buyin’?”

    Bruce Krasting: “Truth sells, but who’s buyin’?”

    …Keep their feet on the fire, Bruce, sooner or later the right folks will be buyin’. …Peace.

  3. Great description of collaborative “Stonewalling”. And the Wall Street lawyers and economists get paid really BIG bucks for contriving all such nonsense.
    I wish someone would send all the “wheeler-dealers” a copy of A Tale of Two Cities as a holiday gift. You know…the one most of us were required to read in high school. Describes what happens to the Ivory Tower manipulators when the “peasants” (the rest of us) have finally had enough.

  4. Talking will not solve this problem.

  5. Funny, that’s the first I’ve heard from Gensler since MF Global blew up. I guess it must be finally safe to come out of hiding.

  6. Bruce, first time/long time. Felt compelled to say this was a great piece of writing. While I’m at it, HKD 8.00 here we come!