Monday, July 27, 2009

The Real Vampire Squid On The Face Of Humanity

Matt Taibbi’s article on Goldman Sachs has now achieved legendary status for the term he coined in this sentence:

“The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

The entertaining article was a little short on facts, but who cares, after all, in an age where blogging dominates, no one cares about accuracy anymore. What really matters is shock value, and no one should be surprised that this article appeared in a mainstream media publication, as they are desperate to find a way out of its slow death.

I digress, though, as I am not writing this post to argue against the points that the author made. What I am writing about is to tell everyone that the real “vampire squid wrapped around the face of humanity” is not Goldman Sachs but in reality is the “momentum” investor.

When I worked on a trading desk at Morgan Stanley, we had a more colorful name for them. We called them “fast money scum,” and we meant it.

The ethos of the momentum investor is simple in concept. Buy what’s going up. If it keeps going up, buy more. When momentum breaks, get out. Everyone knows who these investors are. When a stock you own is down 20% after it misses earnings by a millionth of a cent – that’s them.

The momentum investor has enabled all three bubbles in the last ten years – Technology/Internet, Real Estate/Homebuilding and Commodities. They do this by pushing stocks up far above what they should be trading for on a fundamental basis.

It wouldn’t be so bad if these investors were honest about what they do, but they are not. They usually manufacture or hide behind some fundamental story about whatever sector is bubbling up, usually in league with sell side enablers, who are enamored of the trading commissions they generate.

Even worse, the financial media - CNBC and Bloomberg TV - orient programming toward this group, by amplifying short term trends, rather than discouraging it.

This infects the entire market as institutional investors, most of whom are trained as fundamental investors, are forced to jump on the bandwagon, lest they be left behind in the relative performance game.

Momentum investors have cost ordinary investors trillions in wealth over the last decade, as many small investors buy into these fundamental stories and then don’t realize when momentum breaks and the plug is pulled.

Any new regulatory initiatives out of the Obama Administration should be oriented toward controlling or destroying these investors.

Tuesday, July 21, 2009

Sovereign Wealth Funds

Does anyone remember a year ago when everyone pundit and media outlet predicted that Sovereign Wealth Funds were going to take over the world? The assets they controlled were growing so quickly due mostly to the commodity boom that it was starting to create hysteria in the United States. It's amazing how quickly the conventional wisdom can change.

From the Financial Times:

"The financial clout of sovereign wealth funds has been savaged by the credit crisis as the value of their assets has plunged and forecasts for their growth have been dramatically scaled back."

Sunday, July 12, 2009

Steve Forbes Video

Steve Forbes drags Julius Caesar into the current financial crisis in a video from late June 2009. He compares Caesar's hubris to that of those who led our financial system into disaster.

Hubris is a Greek word which is officially defined as either overbearing pride or presumption or arrogance. The word is used, in the context of our financial crisis, to refer to a group of financial elite, or "masters of the universe" who felt that they could manufacture unlimited speculative profits using almost unlimited leverage, without any significant risk.

I agree with Steve Forbes on this, but his historical knowledge is severely lacking. He states in the video that Caesar conquered more land than any military leader in history, and specifically mentions Alexander the Great. This is clearly not true, as Alexander controlled a larger empire as measured by land mass, than Rome at its largest extent. Look at the links after the video.

This is a map of the Roman Empire at its peak in 117 A.D., which is 150 years after Caesar was killed. Since Alexander has a larger empire than Rome at its largest,then he certainly had a larger one than at the time of Caesar.

This is a map of the land that Alexander conquered.

Wikipedia also has a list of the largest empires in history as measured by land mass. Rome is way down on the list.

List of largest empires.

Friday, July 10, 2009

What Will The End of Newspapers Mean For Blogging?

Here’s the real issue behind the fall of the Newspaper industry. What will all those bloggers do when there are no newspapers left and they can’t scrape content from a newspaper while hiding behind the “fair use” doctrine?

If you’re not familiar with scraping content, it works like this. Cut and paste the opening paragraph from the online version of an in print Newspaper article. You can put it in quotes, with a link to the original source if you are generous, or just reference it without a source. Charts and tables are also copied into the blog. You then frame the content with your thoughts on it afterward.

You’d be surprised how much web content is derived from this without any thought to how difficult it is to write these newspaper articles. No consideration is given to the hours spent researching stories or wading through dense government press releases, or the years spent cultivating sources, etc.

I just looked at the front page of a highly followed blogger who has been in the news a lot lately, and fully 50% of his stories are scraped from other publications. This blogger does give full credit to the source with a link. Just something to think about.