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Monday, September 22, 2008

Thank you sir, may I have another*

Yes, that worked well. Just one example - Capital One Financial (COF), added to the "banned short-sale list" today. Not only did that action help stabilize COF, but it provided breathing room for a rally. Or not.

Dow, -372.75 (-3.27%)
Nasdaq, -94.92 (-4.17%)
S&P 500, -47.99 (-3.82%)

I don't want to pontificate about the idiocy of banning short-selling, and how short-selling does not cause a company to go out of business. Mind you, I am not talking about naked short-selling which - although everyone is cheering about it now being "not allowed" - was always not allowed, just never enforced (and odds are you and I never did any naked shorting - I don't think our brokers let us short a stock they did not have access to borrow). No, I am talking about normal, every day short-selling. Can anyone point out one company in the history of our markets that went out of business because of short-selling? But I digress...

I also don't want to pontificate about how a bunch of greedy, overpaid, unscrupulous business people got us into this mess - with the assistance of our politicians who deregulated (and failed to oversee) their industry and activities. And how those same unscrupulous business people are still collecting multi-million dollar compensation packages even as they depart in the wake of their self-created disasters.

And I don't want to pontificate about how the average Joe is going to end up footing the bill, or how our "leaders" want to push through a 700 billion (BILLION) dollar bailout without giving people ample opportunity to do their due diligence and make sure it is the correct action to take (it kind of reminds me of our rush to invade Iraq, or pass the Patriot Act...there is panic, and we are told to "just do it" for our own security, our own safety...for America, damnit). As a side note, when did doing the proper due diligence become "political maneuvering" or unpatriotic? Strange times...thank you Fox News.

No, smarter people than me have pontificated on all of that already - and will continue to do so for days, weeks, and years to come. I am a simple guy who makes a living trading patterns that I see (or imagine?) on a chart. But I play by the rules - I am honest, I pay all of my bills, and I don't live outside my means (could I have bought that $1.2 million dollar house two years ago - sure, and with little money down and no employment verification because I have a high credit score!). All I will say is that over the past 18 months, 62% of my profits came from short-selling. And as I watched so many short setups on my screen today - setups I could not trade due to the wisdom of idiots - all I could think was "fuck, this sucks".

PS - I thought this was a great piece by Mark Cuban, especially the eBay idea and his thoughts on executive compensation:

Lack of transparency got us in to this mess, lets not let lack of transparency keep it messy. The government needs to immediately setup an exchange, it could be ebay.gov with more in depth description fields, for all I care. However they do it, EVERY asset the government will buy or sell as part of this buyout needs to be shown and described with the price the government is willing to pay or sell the asset for.

Why ?

To keep government honest.

Not that anyone in our government would ever put their own personal self interest first and over or under pay for an asset. Nor would they ever take those assets and then sell it for less than market value in exchange for “personal considerations”.

I know it could never happen, but just to make sure it doesnt, we need to post the assets involved in the bailout and the prices paid. When the assets are sold, they need to post those prices as well

In addition, by posting the assets in an ebay like auction/sales environment, it would enable independent buyers to come in and buy the assets using private money rather than government money. The benefit of course is obvious. By adding liquidity to the process, the government could be responsible for less and sellers could get more.

This is the only way I can think of to get true transparency. Without it, i promise you that it will be IMPOSSIBLE to account for how much money was spent on the assets and how much cash was generated from the sales process and what the net cost or benefit to taxpayers is.

Without transparency, we wont have any idea how this all played out. None. Which creates the real problem of allowing it to happen again, but with the government needing the bailout.

One last note on Senator Dodd’s proposal to extract shares from companies that the government buys assets from as part of the bailout, all i can say is HELL YES. As a shareholder in the USA Treasury and USA Inc, if you want to borrow money from me or sell assets to me that you cant sell anywhere else, then I want stock/warrants or options as my vig. You got to pay to play. In the real world, if you want mezzanine financing, you pay in kind, and provide warrants. This should be no different.

if you dont like the deal, find someone else to buy the assets.

On the subject of executive compensation, if they need government bailout money, take away 100pct of exit pay and any bonuses. Let them quit if need be.

If you think you cant find someone else to take the current CEOs place,think again. No matter what number they pick for the CEOs compensation, its more than a lot of very smart people are getting paid elsewhere and those people would be more than happy to take a raise and replace the CEO who just took about his/her company

Let me put this a different way. The most powerful person in the world today is Sec Treasury Paulson. There is the very real possibility he will be replaced in January. The person replacing him will be paid a government salary of I think, no more than 400k. if they can find a replacement for him, they can find a replacement for any CEO running any company for a reasonable amount

*as spoken by Chip, in the classic movie "Animal House"



Anonymous said...

Very fitting quote from Animal House. My first thought was "I love it when a plan comes together" from the A-team.


LK said...

Long time no talky! I agree with every word. Welcome back, however short lived it is. :)


PW said...

My My that was a good post, very similiar to how I think. Keep it coming.

Geroge W. said...

Trader-X, I totally agree with you.

I have never been a conspiracy theorist, but after 9/11 and this I am starting to wonder what in the hell is going on, and who we can believe and trust. Things are downright scary.

Karen said...

So are you officially back? A year and a half was long enough?


Michael said...

It sure does suck! I was so disgusted yesterday watching all those financials crater without me along for the ride.