10/27/10…they have so many ways to beat you!

Bloomberg Quote of the Day: “It’s hard to be humble when you are as great as I am.” – Mohammed Ali (when one thinks that they aren’t so great…look at him now. Sad. TB)

…they being politicians pledging to cut the budget…the GOP is already planning on gaining control and passing $100 billion in budget cuts. This is wrong on two counts: first, they likely will NOT gain control of the House, and second even IF they do they will not have the power to do anything more than huff and puff without blowing the house down…big, bad wolves they are not…except when they are around the hens (we, the people). THEY, also being the bankers and you will have to go to the end for that story but it is so worth it, especially if you, like Sir Alan of Greenspan, still believe in the myth of Ayn Rand. Free market capitalism is the myth…it did exist once but now it is an oligopoly of Wall Street and a few corporate CEO’s…all playing with OPM – YOUR money!…and what are you going to do about it? Nothing! We aren’t even an informed electorate…we live in a society where people are elected on platitudes and negative campaigning then go their own way (and the lobbyists) without a thought of the people.

How come if YOU are unlucky enough to have to go before Congress and you fib a little, you are not only in contempt of Congress but subject to prosecution, but IF, and it is done all the time, they lie to those who elected them, they suffer no adverse consequences…so long as they don’t lie to the lobbyists! Talk about a double standard and they get to vote their own pay raises…yep, the House ups the Senate pay, and then is carried along for the ride so there is no conflict of interest…no sir!

TB’s friend, Caroline Baum, wrote a great column on Bloomberg today, on the duplicity of both sides of the aisle. For the record, Caroline is a card-carrying Libertarian (figuratively), as it is tattooed on her forehead…proudly. TB was so moved by today’s piece that he wrote her he was convinced and would become one IF they do something about the damned Koch brothers…who give Libertarianism a bad name.

TB just voted absentee in California and here is the problem…there is a Dem and a GOP candidate for each office and FOUR different third party candidates…thus guaranteeing preservation of the status quo…do you think the two major parties contribute to these third parties? They should…divide and conquer…but one day it will be different…but only when “we are mad as hell and won’t take it any more”(a friend corrected TB on that as the quote came for Network, mea culpa).

How can the most powerful country on the planet (even if we are ceding ground to China), have the most uninformed electorate…how come Iraqi’s, Iranians, Afghani’s, risk life and limb to vote and we don’t even know who or what we are voting for…or against??? Once again…when we do that we deserve the government we get, but watch out because one day, someone (and you had better hope they are benevolent) will unify not only the bottom 90% but all minorities and when that happens watch out below!…or more accurately, above!

As stated at the beginning, go to the end for the other way to beat you.

TB has given up on his table of trading started a week ago Friday as it is meaningless. Since last Friday’s second lowest volume of the year so far (773M shares, second only to 9/10’s 756M share day), Monday came it and 1.01B shares and yesterday at just 966M shares, or about 200 million shares below average. Since about 1/3 of that volume is flash-trading, the street is losing money on each transaction…commissions and even the electric bills! After breaking out last Wednesday…with follow thru BOTH Thursday and Monday that could not be sustained, the market has been unable to muster the strength for a continuation (other than a plethora of new 52 week highs!), and where are the short-sellers? TB believes biding their time…once again…NEVER short a thin market…never!

What they need is a ‘catalyst’…any catalyst and they then can…and will…take it down! How far? …at least a test of 11k on the Dow and if that fails so somewhere around 10,700 where we last broke out on October 5th! Then 10,640 where we began that quarterend rally on September 23rd. Below that 10,500? 10k? You decide! But when gains like the prior FOUR sessions evaporate following a breakout you should be alert!

. . . – – – . . . . . . – – – . . . (S.O.S.)

Readers know that TB feels it is a disgrace and an insult to the taxpayers that we bailed out the big four banks…and the two faux banks, Goldamn…oops, Goldman, and Morgan Stanley (isn’t it great the ole JP’s name still exists on not only a bank but a brokerage…something the government broke up decades ago?), with no concessions…we even let them have federal guarantees on their debt which allowed them to issue at rock bottom prices…and get paid to underwrite their own bonds and of course through underwriting syndicates spread the wealth to one another, As if that was not enough, they did the deals late in the evening ‘dumping’ them on a few select hedge funds who promptly flipped them the next day for a tidy profit so that IF these stalwart institutions fail the government is going to have to pay a higher rate of interest than had they done a bonafide public reoffering….which, by the way became a myth under the leadership of one Michael Milken!

So our brave Congress under the ridiculous name of the Dodd-Frank amendment…or is it Frank Dodd, so when it blows up it the blame will fall on some unknown fool???

One of the things this allowed was the government to regulate ‘certain’ OTC derivatives, as in Over-the-Counter, which Rubin, Summers, Gramm, Greenspan, Levitt, and other stalwarts convinced us was unnecessary while destroying the credibility of one Brooksley Born – who might have been the last sane regulator…it certainly wasn’t Chris Cox! Now, it appears, after disregarding the sage advice of Paul Volcker, those derivatives of mortgages and other collateralized debt as well as credit default swaps may be regulated. TB says ‘may’ since the following story, by Michael Lewis (available upon request) shows how the financial companies are able to dodge the bullet, and how stupid Wall Street analysts are…or is it ‘paid to be’ just like during the dot.com area where they hyped ‘pieces of crap’ as strong buy’s?

Dodd-Frank requires the banks to wean themselves away from proprietary trading and Goldamn…sorry…and JPMorgan are leading the ‘chase’ (again, sorry, TB just can’t help hisself). Don’t you wonder…or did you bother to think why these two stalwarts who derive immense profit from proprietary trading exited them so quickly? Well, they didn’t!

In a slight of hand that would impress David Copperfield, or any magician for that matter, they sloughed off the prop trading centers…then shifted proprietary TRADING to other areas in the bank (sic). Here are the salient points in the article…read and heed!

A few weeks ago we asked a simple question: Why are the same Wall Street banks that lobbied so hard to dilute the passages in the Dodd-Frank financial overhaul

bill banning proprietary trading now jettisoning their proprietary trading groups, without so much as a whimper? The law directs regulators to study the prop trading ban for another 15 months before deciding how to enforce it: why is Wall Street caving now?

The many answers offered by Wall Street insiders in response boil down to a simple sentence: The banks have no intention of ceasing their prop trading. They are merely disguising the activity, by giving it some other name.

A former employee of JPMorgan, for instance, wrote to say that the unit he recently worked for, called the Chief Investment Office, advertised itself largely as a hedging

operation but was in fact making massive bets with JPMorgan’s capital. And it would of course continue to do so. JPMorgan didn’t respond to a request for comment.

The fullest explanation came from a former Lehman Brothers corporate bond salesman named Robert Wosnitzer, who is now at New York University, writing a dissertation on the history of proprietary trading. He’s been interviewing Wall Street bond traders, he said, and they have been surprisingly open about their intentions to exploit one obvious loophole in the new law.

The innocent eye might have trouble spotting this loophole. The Dodd-Frank bill bans proprietary trading (Page 245: “Unless otherwise provided in this section, a banking entity shall not engage in proprietary trading”) and then appears to make it clear what that means (Page 565: “The term ‘proprietary trading’ means the act of a (big Wall Street bank) investing as a principal in securities, commodities, derivatives, hedge funds, private equity firms, or such other financial products or entities as the comptroller general may determine”).

The big invitation for abuse, Wosnitzer says, lies in the phrase “as a principal.” It falls to the comptroller general - or, more specifically, the General Accountability Office, which is overseen by the comptroller general -- to determine precisely what the phrase means.

And, at the moment, the GAO pretty clearly hasn’t the first clue. (“We’re really too early in the process to speak to how we might define it,” said spokeswoman Orice Williams Brown.)

Never mind: Wall Street is busily defining the term for


“One trader I interviewed,” Wosnitzer says, “said that from here on out, if he wants to take a proprietary position in a credit, he will argue that he bought the position because a customer wanted to sell the position, and he was providing liquidity; and in order to keep the trade on, he would merely offer the bonds 10 basis points higher than the offered side, so that he will in effect never get lifted out of the position, while being able to say that he is offering the bonds for sale to clients, but no one wants ‘em. When the trade finally gets to where he wants it -- i.e., either realizing full profit, or slaughtered by losses -- he will then sell it on the bid side,

and move on.

Of course, there is all sorts of flawed logic here, but the point is that...there are a hundred different ways to claim to be acting as an agent or for a customer.’’

This ambiguity is no doubt one reason the financial reform bill passed in the first place. Even its clearest prohibitions are couched in language inviting Wall Street to evade them.

But the new game of cat and mouse raises a simple, even naive question: Why do these giant Wall Street firms want so badly to make huge bets with their shareholders’ capital?

As today’s slug clearly states: they have so many ways to beat you…and they will! (wasn’t it Frank Gifford who made that phrase famous on Monday Night Football?).As for Congress: are they upset at this sign of utter contempt? Wink, wink.

Have a great day and “illegitime non carborundum” or don’t let them get you down!


Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Copyright TBD Capital LLC, October 27, 2010.


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