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Why catching monkeys and economic recoveries are alike?

Those of you that know me will also recall that I spent many years traveling around the world and spent some time in Africa while working for a global security outfit protecting US Embassies and foreign personnel.  On one of those trips I recall the story told to me as to how locals would catch monkeys. 

"It is very simple my friend" said Babangita..."locate a point in the jungle frequently visited by monkeys.  Get a glass water jug with a neck opening thick enough to allow the hand of a monkey through the spout and tie a rope around the neck and secure the jar to the ground with a stake so that the monkey can not get away.  Now place a couple of banana's  inside the jar and wait."

That's it?  I asked.  "Yes" he answered.  "When the monkey sees the banana's inside the jar his curiosity and hunger will compel him to reach inside and grab the banana.  Grasping the banana however will not allow him to extract his closed hand & fist through the neck of the jar.  His greed for the banana however will not allow him to let go and release himself from this self-imposed trap.  You can now simply untie the jar and take the monkey home!"

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Well, its been quite a long time since I decided to sit down and blog again.  I don't know how many people this blog will actually reach but for those that know me...my comments are usually a bit off the beaten track and usually inspired by something I've been affected by or that I am adamant about.

Having experienced one of the biggest attacks on the US (this one being mostly in the Financial markets, which of course impacted our job markets and our retail markets) I have survived the last 2 years despite being on the first wave of Job eliminations in mid 2008, experiencing an enormous free-fall in loss of personal wealth in both the equities and real property markets, and weathering the painful and tedious recovery and rebuilding of equity slowly one day one trade at a time.  I fed on  severance, small contracts, and landed a significant project contract which kept me afloat until now, but also from making quick entry and exits using a simple strategy in the stock market.

I choose to speak today a bit about the subject of greed ... as I truly believe that this is clearly the sole root cause leading to todays financial problems being experienced around the world.

Greed is stronger than fear as the monkey in the above story can attest to.  But fear moves the markets much more significantly than does greed.  The past decade has been a smorgasbord for fear mongers as vast shorting preceeded news blast following vast accumulations of stock targeted for negative news hits despite being strong stocks which of course served well for reinvestment once the standard negative deviation targets were hit, thereby preparing the stage for another cycle.

This has been the case since Sept. 2008 all the way to the bottom in Mar 2009 and once again in the  first mini dip in Jan.-Feb. 2010.  The number one driver....the greed of the monkies which see the bananas and won't let go until  its too late.

So...what's the moral of the story you might ask?

Look for jars with banana's inside ... and steal the monkey before the trapper gets there!

Happy hunting!

"Trust is no subsitute for control"

Well here we are again...another October...another "Black Monday" and this "Flat World" as coined by Thomas L. Friedman now understands the old saying "what goes around..comes around".

How connected we all are!

Awakening (as is usual these days) at 3am only to view the Tsunami effect in the European, Russian, Asian, and Latin American exchanges caused by the Friday Oct. 3rd ignorance of the "Bailout Bill" by the US Market exchanges caused a primal reaction within in me, and I resolved not to look at my positions, not to despair, and to keep an even keel despite the height and intensity of the storm we face at this particular point in time.

So why the title?

Many years ago...one of the strongest characters I've ever had cross the path of my experience in Business...Mr. Fernando Carrizosa, EVP of the International Division of at that point in time the world's 3rd largest Security Company in the world...said to me...."Trust is no subsitute for control".

In business this concept is key.  It goes without saying that any entrepreneur/business person worth his weight in gold knows that you need to be at the center of all operations within your business in tune with what's going on and who's doing what.

Senator LLoyd Benson of Texas during the Vice Presidential debate of the election campaign of 1988 against Quayle said  "You can expect what you inspect"

This is just good old practical common sense.  Who was minding the store while the bandits got away with our fortune?

Richard A. Fuld, chief executive of the bankrupt Lehman Brothers was interrogated by a congressional committee today trying to nail down this very issue...did a lack of control by Washington propelled by private interest..propelled by predatory lending practises cause the current financial crisis?

At the moment..all the players agree on a common description of the problem at hand, a ubiquitous "lack of liquidity" in all markets.

How does liquidity or in other words "CASH' simply evaporate?

For everybody specially our institutional investors, investments in stocks, securities are usually viewed within a 3-5 year timeline.  In such a perspective view, a Long Position is ultimately the play.  So in a situation where most of the heard is in a Long Position and all of a sudden a few "Mavericks" break off to bet the Short Position spreading doom & gloom and fear and spewing out the stupidity of the institutional longs, these same Mavericks backed and supported by huge capital with a vested stake in deleveraging the risk that they have held for a long time start accumulating capital on the sidelines along with everyone else jumping ship....the floor of the market places around the world all of a sudden gives way....what is the overall effect??

Only long sellers in a market with no buyers.....or in other words a catastrophic "Flat Tire" in the worlds stock exchanges.

The tire isn't broken, it can be patched and re-inflated...but this will only happen with the onset of liquidity.

Of course the money/capital/equity did not disappear.  It's still out there...and at this point in time unless they are terrorist nobody even really cares who has the capital.  The issue is that even if you are Terrorist and you have all this wealth under your control...its not going anywhere unless it flows through the worlds financial channels and central banks.

You see...it's not about the complex weave of derivatives, sub-prime, whatever you can imagine vehicles...its about the cash!

He who controls the cash wins!  Chavez proved this with his takeover of PDVSA back 10 years ago.  Fidel showed this almost 50 years ago!  OPEC even showed the US several times in the 70's and 80's and more recently over the past year.

So...I say to those who have the cash  "Control is no subtitute for Trust".  This is the situation for all of those who are excessively greedy, and rich.   Who do you trust now for your cash?  With your Gold?  With all those houses? 

Better get back in the the game and let a few bills fly and get this engine rolling again so that the compressor can fill up the tire again!!!

Inshallah

Post Partum Blues - April 16th

Yes...today is a day to celebrate.  That is for all us beancounters that do taxes up until the very last day permissible by both US and Natural law.

The by now famous commercials that have been running on US airwaves about two neighbors talking across a picket fence in their gardens...remarking how they felt like they had a huge weight on their backs due to the tax deadlines (while each of them carrying heavy gorillas) have outlived their useful and truthful purpose..and can be stored away for next tax season when they will be taken out again and used like winter clothes.

We all of course have to thank Pres. Bush personally for doling out a few bills for us masses...thanks Dubya!!   Now the poor have enough money to put at least a down payment on a newer car to replace their heap of junk and get into another outlandishly high interest loan that's totally unregulated and bound to be defaulted into soon, and there you go....another round of economic activity!!

Unfortunately...its not positive activity.

Well...let's be positive then.  After all...although it can get worse than this...and most probably will to some extent...a good many of the middle economic and middle aged classes never let themselves be taken by the quick lure of carte blanche credit lines and equity lines and as much as 2 years ago foreseeing exactly the current economic situation converted all debt to longer term fixed or paid them off completely.   We never borrowed more than we could risk in terms of equity share in our primary residences.  We knew...the piper would come to call.

We had been burned before.  Unfortunately, this is not a lesson quickly learned nor appreciated by young hearts full of passion and full of dreams.  And with our greedy immoral banking robberbarrons of the new millenia in charge, without any degree of scrupples or consciousness, they lavishly pursued to rain down oceans of easy money loans at curiously low introductory rates, flooding our mailboxes with unrecycled reams of glossy paper and official looking certificate type offers of financing for those beautiful wonderful dreams that people... hard working.... industrious people have and wacked them with a quick injection of pleasure,  almost always with a smile, knowing all the time they would eventually raise the interest rates upon any delicate sign of weakness, tardyness, electronic error, etc. and absolutely enslave the people with rates jumping to 8-12+ % from their original 2-3% temporary offerings.

Exactly the same as what they did during the early 80's when mortgage interest rates went as high as 16-17% fixed!

What's most interesting is that in both cases 2008 and the early 80's, overall cost of living skyrocketed.  The difference being that in the 80's at least the bankers were more blatent about things.  Home prices did not inflate only interest rates.  The reverse happened in recent times...rates did not increase ..but Home prices and basic staples blew through the roof.

So Bush, Greenspan, and all the kings men...simply stimulated growth by artificially holding down the interest rates and tampering a bit with the way we always calculated inflation.

You can't disguise inflation..in fact there's one rule I learned while preparing regional budgets in Latin America during the inflationary 80's....and during my days preparing our global legal consolidations.....YOU CAN'T HAVE ANY CONTINUED SIGNIFICANT ACCUMULATION OF INFLATION....WITHOUT AN EQUALLY CORRESPONDINGLY SIGNIFICANT DEVALUATION OF THAT ECONOMIC CURRENCY.

Precisely what has happened to the US Dollar.    From 1:1 (approx) 4-5 years ago to 1:1.5 now.

A quick calculator action shows this to be a very rough 12.5% CAGR.  That's a per year devaluation over the last re-election. 

Let's look at our cost of petroleum....4 years ago...a gallon cost what..?   

2004  US$  1.79/gal

2008  US$  3.45/gal

Growth?  23.2% per year (CAGR over the 4 years )

And the value of our homes?

2004 US$  550k

2007 US$  725k    ( or in other words  12% growth per year)

2008 US$  550k (post bubble a 38% average correction in real estate valuations and consequently real inflated WEALTH).

And who takes the hit on this???

WE DO! 

So be positive....that's what I say...if in fact IF ...you still are!!

It will all balance out soon.

Till the next TAX DAY!!  CHEERS!!!