Posts tagged ‘reform’

Stewart Makes Skewered Beck-Kebabs

Since Fox news-host, Glenn Beck, has been peddling death and destruction, John Stewart, host of the The Daily Show, decided to dish out some devastation of his own to Mr. Beck by skewering him on several issues. Specifically, Stewart questions whether Beck’s Armageddon view on the economy may be influenced by an economic conflict of interest in gold (not just a political axe to grind)?

Beck on Gold

View The Daily Show Clip on Glenn Beck

As the third party mentions, “If you are worried about worrying, you go out and you buy gold.”

Is Glenn Beck a worried, gold lover? (see other IC articles: Gold #1 & Gold #2) Well, judging by the seven responses of Beck specifically spouting out “gold”, along with his panic-filled quotes, I would say “yes”:

  • “America is burning down to the ground!”
  • “Here are the three scenarios that we could be facing: recession, depression, or collapse.”
  • “Here’s our second scenario: global civil unrest.”
  • “You are the protector of liberty. You are the guardian of freedom.”

If these feelings were not enough, Beck also goes on to compare the country’s situation to Nazi Germany.

Do any of these issues worry you? Well if they do, then good for gold prices and good also for Glenn Beck, because he is a paid spokesman for Goldline.com, a site that sells gold.

This is how John Stewart boils down the incestuous relationship between Fox, Goldline.com, and Beck:

“This is a kinda nice feedback loop.  Glenn Beck is paid by Goldline to drum up interest in gold, which increases in value during times of fear, an emotion reinforced nightly on Fox by Glenn Beck. Alright, I’m almost sold. Fox is vouching for Beck, and Beck is vouching for Goldmine.”

 

Gold Pricing & Demand

With gold prices setting new all-time highs earlier this month, one might expect gold demand to be sky-rocketing…actually not. Just last month, the World Gold Council said gold demand totaled 800.3 tons in Q3, down -34% year-over-year. What’s more, the supply of gold inventories is at record highs (Comex) and mining production rose +6% over the same time period. Generally speaking, economics would say the combination of these factors would be a bad formula for prices.

Beck and the CEO of Goldmine.com use inflation adjusted prices based on the last $850/oz. peak in 1980 to rationalize $2,000/oz+ targets for gold. If that’s the case then I guess NASDAQ targets of 10,000 (2x of the 5,000 year 2000 peak) shouldn’t be out of the question either (the index currently trades around  2,190)? In the meantime, I’ll let the speculative gold dust settle and comfortably watch from the sidelines.

Source: InvestmentTools.com

Hemorrhoid Hypocrisy on Healthcare

In an earlier The Daily Show episode, Stewart questions the consistency of Beck’s changing views on healthcare. So which one is it? Is it the best healthcare program in the world, or the one that doesn’t care for Glenn Beck and the “schlubs that are just average working stiffs?”

In creating a feeling of alarm regarding healthcare reform, here’s what Beck had to say in the middle of the healthcare reform debate:

  • “You’re about to lose the best healthcare system in the world.”
  • “America already has the best healthcare in the world. We do take care of our sick.”

Rewind 16 months earlier upon completion of Beck’s hemorrhoid surgery:

  • “Getting well in this country, can almost kill you.”
  • “No matter how much the health care system would try to keep me down, I’m back.”

See Daily Show Clip on Healthcare and Glenn Beck

All this bickering can upset your stomach, but after John Stewart’s skewering of Glenn Beck, I have this sudden urge for shish kebabs. Bon appétit until next time…

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds (VFH) and RTP in client and personal portfolios at the time of publishing. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

December 15, 2009 at 2:00 am 2 comments

China Executes Wall Street Solution

China is taking an innovative approach to white collar crime…execution. Yang Yanming, a rogue securities trader, completed his death sentence this week for embezzling $9.52 million (a daily rounding error for Goldman Sachs, I might add). Not exactly a cheery topic for the holiday season, but nonetheless, apparently an effective technique for cracking down on illegal behavior. Last I heard, there has been no mention of a $65 billion Chinese version of the Madoff Ponzi scheme? I wonder what kind of risks the financial division of AIG would have undertaken, if involuntary death sentences were considered as viable options in the back of their minds? China in fact carries out more annual executions (via lethal injection and gun) than any other country in the world.

Part of the recent financial crisis can be attributed to the culture of Wall Street and the investment industry, which centers on exploiting “OPM,” an acronym I use to describe “other people’s money.” Often, industry professionals (I use the term loosely) assume undue amounts of risk in hopes of securing additional income, no matter the potential impact on the client. The thought process generally follows: “Why should I risk my own capital to make a mega-bonus, when I can swing for the fences using someone else’s?” And if OPM cannot be secured from individuals, perhaps the capital can be borrowed from the banks – at least before the bailouts occurred.

OPM does come with some caveats, however. Say for example the OPM comes from the government. When TARP (Troubled Asset Relief Program) funds got crammed down the throats of the banking industry, the auspice of reduced bonuses didn’t sit very well with many of the fat-cat Wall Street executives. Financial institutions prefer their OPM with few strings and little to no accountability. Goldman Sachs (GS), JP Morgan (JPM), and Morgan Stanley (MS) weren’t big fans of the government’s pay scale, so these banks paid back the TARP funds at mid-year. Citigroup (C) is still negotiating with the U.S. Treasury and regulators to remove the scarlet phrase of “exceptional assistance” from their chests.

This subject of accountability brings up additional doses of blame to distribute. Not only are the gun-slinging bankers and advisers the ones to blame, but in many cases the clients themselves shoulder some of the responsibility. Either the clients’ start drinking the speculative “Kool-Aid” of their advisor or they neglect to ask a few basic questions for accountability. Just as Ronald Reagan stressed in his conversations with the Soviets, it is also imperative for clients to “trust but verify” the relationship with their advisor (read how to get your financial house in order).

One thing we learned from the crisis of 2008-2009 is that trust is a scarce resource. Investors can “luck” into a trustworthy relationship, but more often than not, just like anything else, it takes time and effort to build a worthy partnership.

The suppliers of OPM have gotten smarter and more skeptical after the crisis, however the managers of OPM haven’t discarded risk from their toolboxes. In addition to the general rebound in domestic equities, we have seen emerging markets, commodities, high-yield bonds, and foreign currencies (to name a few areas), also vault higher.

Regulatory reform for the financial industry is a hot topic for discussion, although virtually nothing substantive has been implemented yet. Incentives, accountability, and adequate capital requirements need to be put in place, so excessive risk-taking (like we saw at the AIG division handling Credit Default Swaps) doesn’t compromise the safety of our financial system. Also, traders need to be incentivized for making responsible decisions and punished adequately for participating in illegal activities. I know the President has a lot on his plate right now, but perhaps the Obama administration could set up a brief meeting with the capital punishment committee in Beijing. I’m confident the Chinese could assist us in “executing” a financial regulatory system solution.

Read Full Reuters Article on Rogue Chinese Trader

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds (VFH) and BAC, but at time of publishing had no direct positions in GS, AIG, JPM, MS and C. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

December 10, 2009 at 1:45 am Leave a comment

Maher Cheerleads No Profit Healthcare

Maher Bill

Bill Maher, shock-comedian and host of Real Time with Bill Maher on HBO, has made up a new rule in a recent article, “Not Everything in America Has to Make a Profit.”

Hey Bill, that sounds intriguing.  I’ve got an idea – how about you decide to work for no profit? If free healthcare is a right for every American, then why should people pay for your stupid jokes? If I have a right to free healthcare, then why not a right to free laughs?

Don’t get me wrong, our system is broke and needs to be fixed. The real question, is insuring an additional  50 million uninsured, by the same bureaucratic healthcare system leading the Medicare train-wreck, our best approach in solving our healthcare crisis? Sure, doing nothing should not be a fallback, but I’m not sure a trillion dollar healthcare plan with Washington bureaucrats is the best idea either? I’m not against government involvement, but before we dive headfirst into the deep-end with additional deficit exploding plans, why not wade in the shallow end and slowly roll-out success-based models that prove their superiority first.

I’m no medical expert, but let’s take the best structures, whether it’s the Mayo Clinic, Cleveland Clinic, or other leading structures and have the government manage a steady roll-out. If the government can prove a lower-cost, more efficient way of serving higher quality care, then by all means…let’s see it. Some argue we don’t have time to test new models, well unfortunately our disastrous system took decades to create and a pork-filled bill through Congress is not going to be an immediate silver-bullet for our dire healthcare problems.

Getting back to Mr. Maher’s profit objections on healthcare, I wonder if he’s ever complained or contemplated the innovations created by the profit-laden healthcare system. Whether it’s an MRI, hip replacement, cholesterol drug, cancer test, glaucoma treatment, ADHD medication or the hundreds of other beneficial advancements, maybe Mr. Maher should ask and understand where all these innovations came from? The answer: good old profits that were invested in critical research and development. Without those profits, there would be fewer and less impactful healthcare innovation for millions of Americans.

As for the firemen who do not “charge” or make a profit, I would like to remind Mr. Maher who is paying their fair share for those services consumed by hundreds of millions of Americans – it’s those same “soulless vampires making money off human pain” that you castigate. Profitable corporations are funding those essential government services with tax dollars derived from, you guessed it, profits. If we can find a lower-cost, more efficient way of serving the public services by the government, then as Phil Knight from Nike (NKE) says, “Just Do It!” Unfortunately, I prefer to see some tangible proof first, before spending hundreds of billions of tax dollars.

Healthy Incentives

From an early age, even as babies, we are incentivized for certain behavior. Whether it’s offering M&Ms to potty-train a two year old, or submitting six-figure bonuses to a fifty-two year old for hitting department profit targets, incentives always plays a central role in shaping behavior. Figure out the desired behavior and create incentives for your subjects (and penalties for non-compliance).

As the government comes up with a public solution, I have no problem with Washington pressuring insurance companies and the medical industry to become more efficient and provide a higher threshold of care. I’m confident that structures can be put in place that mitigate conflicts of interest (i.e., pure profit motive), while increasing the standard of care and efficiency. Rewarding the healthcare industry with incentives, rather than just simply beating them over the head with lower reimbursements under a single-payer system, may produce longer-lasting, sustainable benefits.

In certain areas of society, such as policemen/women, firefighters, national defense, and doctors there has always been a view that government is better suited for handling certain services. However, sometimes government does not implement the proper incentive plans, which then leads to bureaucracy, inefficiency, and excessive costs. Eventually, these negative trends overwhelm the system into failure, much like sand grinding engine gears to a halt.

Bill, I appreciate your viewpoint, and I like you would love if everything was free. For starters, I’ll look for your press release announcing the cancellation of your multi-million contract with HBO, closely followed by the revelation of your pro-bono comedy work. Here’s to profitless prosperity.

Wade W. Slome, CFA, CFP®  

Plan. Invest. Prosper.  

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in NKE, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

August 17, 2009 at 3:55 am 3 comments

Government Looks to Strengthen Regulatory Web

CB023371

As the chart from the Financial Times shows (BELOW), our messy regulatory cobweb system needs to be straightened out, so it can efficiently function. Not only to encourage risk taking and capitalism, but to also deter and punish those that take advantage of the U.S. system and its citizens. The President and Treasury Secretary Timothy Geithner will address the inefficient, entangled set of regulatory issues surrounding the intertwined agencies in our financial regulatory system. With a mix of federal, regional, and state- driven oversight, the current structure leaves potential gaps for rule-breakers to slide through.

Source: The Financial Times

Source: The Financial Times

As the FT article explains (http://is.gd/13YuS),  a “council of regulators,” comprised of the agency heads, will be formed along with another consumer-related agency designed to protect areas such as home mortgages and credit cards. Will new unproductive layers be added to merely bog down risk-taking and innovation (i.e., Sarbanes-Oxley legislation), or will substantive reform occur, thereby allowing businesses to innovate and grow. The proof will be in the pudding when Geithner reveals the details of his plan.

What should regulatory reform include?

1)      Consolidation: You can call me crazy, but simply looking at the layers of agencies cries for consolidation. Do we really need six different sets of regulators overseeing the banks?

2)      Transparency/Capital Requirement Changes: When it comes to derivatives, heightened transparency and capital requirements feel like moves in the right direction. We have perfectly functioning options and futures markets that integrate margin and capital requirements for the various constituencies; I do not see why Credit Default Swaps should be any different. For more customized, exotic over-the-counter products, you could avoid much of the AIG debacle by increasing the capital requirements of the counterparties. I believe these aims without stifling innovation.

3)      FDIC of Mega-Institutions: FDIC insurance has succeeded in managing the failures of retail depository institutions, so I see no reason why the same model for mega financial institutions. Certainly, managing the collapse of a global money center bank would be more convoluted; however a system to handle an orderly failure would limit the fallout effect we experienced with the folding of Lehman and crumbling of Bear Stearns.

Although many lawmakers will hunt for a silver bullet, we all know that in this complex global economy a path for reform will involve more evolution rather than revolution. Most controversial will be the consumer protection agency, as details still remain sparse. In my a healthy regulatory system boils down to more simplified structures with tighter oversight, mixed in with proper incentives and harsher punishments for criminals. We’ll know soon enough whether the government can weave a solution tight enough to capture the Bernie Madoffs and Allen Stanfords of the world without sacrificing our position as the global financial capitol of the world.

June 18, 2009 at 5:30 am 1 comment


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