Retail Traders = Nefarious I-Bankers

At least, according to the tortured and dangerously ill-informed calculus of Rep. Peter DeFazio (D-Ore.)  As I mentioned a few weeks ago Defazio reintroduced a bill under H.R. 1068 on 02/13/2009 proposing a 0.25% “financial-transaction tax” that had fallen off the table when the previous Congressional session closed. In that post, I enjoined any U.S.-based trader (this may also extend to international traders that traffic in products or asset classes traded on U.S. exchanges) to write to their Congressmen/women to make their opposition known.

If you haven’t read the bill out of indifference or preoccupation and the above description is applicable to you (U.S.-based, or trade U.S.-originated instruments), think twice. You can find the bill here, a method for easily sending word to your Congressional representatives here, and important supplemental information blogged by Robert Green here.

As one of my favorite fellow bloggers TLT might note, I’ve done a pitiful job presenting both sides of the argument to this point; and that does the side I am a proponent of a disservice. Thankfully (this way I can salvage some intellectual integrity), Rep. DeFazio made a short circuit of the financial news channels last week, providing us with a concise formulation of the side he is championing:

Defazio on Fox Business

and

DeFazio on CNBC

Where does one even begin to begin? Anyone who trades multiple times a day is “churning”. Daytraders serve no economic function and add no economic value. Daytraders (or anyone trading on margin, apparently) are inherently gamblers. A comparable tax passed during the Great Depression didn’t impede the gains of the DJIA from 1932-1966 from 41 to 1000, therefore a comparable tax will not impede recovery now. China may ask for a refund. The number of people who trade at least once a day do not number in the millions. There is no sub-set of retail traders who aren’t destructive gamblers (because if there were, the argument would be blown to hell). This is an effective way to target Wall Street for recovery of TARP losses, lightening the already crushing load of the average American taxpayer. And on, and on: snarky replies, shoddy premises, frustratingly and staggeringly ill-informed.

There’s just too much to unpack and too many implications to state. A couple of things that do immediately jump out, though:

First, DeFazio is completely oblivious to the democratization of trading that has evolved since the last days of the Hoover administration. 80-year old quotes from a by-gone era do not carry compelling weight or serve as iron-clad justification for your bill just because they refer to a similar tax imposed in “bad” market conditions. Get a clue: the market has not stood still since your grandpa’s day.

Take this thing called “electronic trading”, for example, and the discount brokerage industry’s highly competitive commission structure. The number of retail participants has exploded in the past 10-15 years alone. Back then, the “little guys” were Jesse Livermore-types, hanging out in bucket shops. Today, everybody from that guy delivering cases of beer to your corner convenient store to your assisted living facility-bound great-aunt trade stocks, daily. The demographic has changed entirely, and so this bill’s impact will reach far beyond the nameless mass of “churning” denizens who sit around in front of their monitor banks at home in the den in their underwear all day, along with those slimy CDS/SIV/MBS-creating hyper-leveraging I-bankers…oh, and the short sellers, too. They’re all the same, a troika of financial terrorists; and now they’ll pay with a draconian tax. As DeFazio more-or-less puts it, to hell with that miniscule contingent of “daytraders” who may get snuffed out.

And how about mutual funds, since the holders of MF shares are who you’re truly worried about? Do you think fund managers do not trade large blocks of stock daily? Think the fund is simply going to eat the obscene expense this tax would generate? Not at all: maybe we’ll see the reintroduction of loads by all those families that got rid of them in the last 5-10 years, or a 5 or 10-fold increase in expense ratios. Or you could legislate a cap on those, too, to keep those greedy fund managers at bay – that wouldn’t be very obtrusive. Wolves at the door, everywhere!

Second: buy-and-hold investors good; traders bad. B&H contributes economic value because these are people who take stake in the ownership of a company, thereby helping that company raise funds to grow, compete, develop products and services, etc. Traders “churn” (DeFazio is evidently unaware of what the SEC definition of “churning” is); they gamble and as a class have now victimized countless homeowners and unemployed individuals. In other words: investing as DeFazio defines it is a civically responsible and thus meritorious practice, while trading is just the opposite, and – if we’re truly honest – a worthless, almost reprehensible act for which he shows pure disdain that ought to be taxed into oblivion because – let’s face it – it’s the damned traders (none of whom do their thing on “Main Street”, as we know) who are responsible for the mess that necessitated TARP in the first place.

I feel like DeFazio is leveling a moral judgement in there, somewhere; but it may just be me. Maybe we’ll all wear a scarlet “T”? And why not throw in some accusations of “financial witchcraft” to go along?

2009: Week 2 in Review

The second full week of trading for the year at an end.

Retail sales way down, foreclosures way up, a block in the Senate narrowly defeated to grant Obama the second $350B from the TARP ahead of his inauguration next week, Citigroup broken in two, Bank of America bailed out again ($45B now) citing “severe dislocation in capital markets” (I think there’s a macro floating around for that phrase), Greece downgraded from AAA, Spain, Ireland, Italy under review for a downgrade….

On the other hand, this week brought with it some excellent trading opportunities. While I did sustain an abnormally high 5.8% drawdown after a spate of bad calls early in the week, net performance ended well into the black, bolstered by longs on GBP/JPY, GBP/CHF, USD/JPY and GBP/USD (EUR/GBP did stop out with a -54 pip loss) closing out in profit overnight.

Flat going into the weekend. Pundits are calling for Friday rally in stocks after the BoA capital infusion/backstop. The world continues living in fiction.

Hobbling Around Human Financial Markets

One of the unexpectedly happened-upon ancillary benefits to actively trading is remaining in-tune with financial market news.  Not because witnessing “the dissemination of worthwhile information” is a gratifying experience; no, it’s the absurdity of it all.  Not only does one get to read editorial comics satirizing certain people or events, but the plain, cardboard-flavored “straight news” articles starkly describing those same people and events are equally funny; sometimes more so.

Taking in “the big picture” this morning, a few things come to mind: some humorous; some not.

• The United States of America is now at or on the doorstep of a ZIRP monetary regime.  Staggering.  Will the Fed’s quantitative easing measures be sufficient to lift the US out of the liquidity trap to which it has succumbed?  Will other developed economies follow this path?  How about some F-Bills?  I’m aghast.
• It’s (Madoff, $50B, et cetera) everywhere and been squawked about to death.  But really?  ”SEC’s Cox Admits ‘Failures’ over Madoff“; and the subtitle “Chairman of agency launches internal investigation into how the alleged fraud went undetected for at least a decade.”…hmph…heh…Bwahahahaha!  Okay, okay, once you’ve picked yourself up off the floor from that one: how can anyone not shake ttheir head in mockery of the ineptitude and nonfeasance of the SEC? Just shocking.  I know Chris Cox is only one man; but is there anything that he or the SEC has done right this year that hasn’t involved prosecution of comparatively petty and inconsequential violations?
• More from President Bush on the proposed auto bailout.  Remember that quip about “stringing things along” from a couple days ago?  ”The Bush administration said Tuesday it is “considering all options” when it comes to aiding the U.S. auto industry.” (article also from cnnmoney.com here)  A transcript of a Roadrunner and Wile E. Coyote cartoon (who, you’ll recall, doesn’t even speak) would be more intelligible.  ”Considering all options”?  So, have the hardnose pro-bankruptcy Republicans pushed pulling from the TARP out of consideration?  The clock is ticking down rapidly to the end according to GM and Chrysler and Bushco. is hemming and hawing over funding sources because Bush feels “a sense of obligation to my successor to make sure there is a not a huge economic crisis.”  There’s another funny.  Could it be it’s too late for such magnanimity?
• And, not funny (except for those astute analysts who though they would eek out a profit), Morgan Stanley registers a $2.3B loss for Q4.  Not the $3.59B of a year ago, but that’s not the silver lining: that’s one fiscal year elapsed, Q4 2007’s loss was brought about by large MBS writedowns.  Now the firm is underwater just bleeding from the gills.  How the mighty have fallen.

• Lastly, on a retail sales, commercial real estate note, we’ve got The Dead Mall Problem (a title I know they lifted from an old ER episode). Bankruptcies, retail vacancies, mall closures, local economic downturns. Death spiral.  Doesn’t anyone else – maybe – think thinning the menagerie of retailers lodged on every street corner in American suburbia is actually a good thing, long-term?  Kind of like Tyler Durden’s description in Fight Club:

“In the world I see – you are stalking elk through the damp canyon forests around the ruins of Rockefeller Center. You’ll wear leather clothes that will last you the rest of your life. You’ll climb the wrist-thick kudzu vines that wrap the Sears Tower. And when you look down, you’ll see tiny figures pounding corn, laying strips of venison on the empty car pool lane of some abandoned superhighway. ”

 

What, No Sunday Evening Bailout Announcement?

A good day for mucking about with well-established precedent.  And why not?  Things run a little more slowly around the holidays. Mall-going ravenous consumer traffic. Streams of already viscous petroleum, oozing into some unspoiled shallow marine habitat. People who’ve eaten whole fruitcakes.  

You’ll remember every other bailout occurred prior to Thanksgiving/Black Friday.  Coincidence?  I think not.  There’s simply no time to goose Asian markets with a bailout announcement when doorbuster sales necessitate camping out overnight. Confidentiality doesn’t permit poring over GM’s books whilst standing in front of Best Buy, lightly pivoting from one foot to another for hours because caffeine has brought you to a stand-off with incontinence the likes of which you have not grappled with since imbibing 44 oz. of Wild Cherry Pepsi within the first hour of The Return of the King. Or the same scenario, sans the diuretic element; whatever your preference.

Apparently tomorrow is out, as well. Due diligence and all those compulsory obligations of those responsible for the most efficient allocation of taxpayer money cannot be rushed. But did the Bush administration think to develop a contingency plan if Reid and his non-filibuster-blocking Democratic majority could not muster enough bipartisan support?

Evidently not; after all, two weeks is more than sufficient in these circumstances to cobble together a sensible, broadly-supported Plan B, as the dazzlingly adept execution of TARP distribution attests about those at the helm. And things are well in-hand, no doubt; otherwise epsilon semi-moron demagogue Treasury Secretary Paulson would be back in front of Congress panting, smarmy and sweaty-palmed with a shameless oligarchical manifesto two-page document appropriating through crisis-inducing obscurantist rhetoric requesting billions within the week to inaugurate avert the swiftly-approaching financial apocalypse.

So, will equities go down the drain overnight/tomorrow?  The above article and others seem to work on the presupposition that the Bush Administration will act in the next few days; the question turns then from when to what, exactly.  So the implicit tone of advancement toward a resolution will likely perpetuate the hope (it was you wasn’t it, Obambi?) of late last week.

12/15/08: 1915 edit: Now things have shifted, from “not Monday” to “a while”.  How’s that for urgency?  I’m no conspiracy theorist, but are Bush et al. stringing things along?  Speaking of strings, this may just merit more shoe-throwing:

Apparently that bit of Arabic – maybe not the vocabulary, but just the elocution – was mildly upsetting.  But as for Dubya’s reflexes?  That deserves no less fitting a tribute than this (and I really don’t award this lightly):

Nice going; must’ve learned that evading angry bulls in Crawford.

Maybe Obambi didn’t do anything.  Limited omnipotence then, whatever that means.  At least, the apparent triviality with which Perino’s brush-off is conveyed leaves me with diminished expectations.

The Subtle Art of Tapping the TARP

At this point I think there can be no doubt that the Bush administration will split off TARP-allocated funds to aid the Big 3. Whatever the appalling ineptitude of senior management at each company, whatever the taxpayer expense associated (immediate and deferred), whatever the ineffectuality of the amounts being requested, whatever the presence (absence) of a “troubled asset”, whatever the hyperbolizing of their dire situation to exact funding, whatever the resistance of the UAW to meaningful concessions, whatever the real motives of the big players involved, whatever the reasons proferred in favor of and opposition to: it’s all white noise.

Paulson and his cronies will acquiesce in the presence of overwhelming necessity to salve sorely-bruised confidence, avert a credit event (comparatively mild to Lehman, probably), maintain thousand of jobs (at least temporarily) and to avoid the enormously negative derivative impact a BK in one or more of the automakers would produce; on investor sentiment, businesses and their employees up and down associated supply chains and in adjunct industries, and by creation of a competitive vacuum.

“Acquiesce in the presence of overwhelming necessity” is my own prescription. The TARP is not the appropriate source from which to provide capital injections or backstops to auto manufacturers; that is not within it’s objective (whatever that is, exactly); I think few would argue to the contrary (except maybe those holding the keys).

But what then are the alternatives? BK or an alternate source of funding. Since the Senate has put option B out of contention (at least over the short period of time for which it matters, according to GM) and because option A really would wreak devastation that we should be highly apprehensive about, I think there is no alternative.

Throwing good money after bad? Almost undoubtedly: “loaning” GM several billion dollars to survive for the next couple of weeks is like bailing water from the hull of the Titanic. But this is that which lack of vigilance, foresight adaptability and competence on every level hath wrought over many years; and with carte blanche procured all too easily by Paulson, Kashkari and a further unknown quantity of bald financial cosmonauts, at this late stage there is little else to be done.

TLT poses this question quite simply, cutting through the crap to get down to what the only alternatives are. As we’ve seen throughout this year, when everyone is done blathering, the options posed by any fork in the road have been the same at beginning and end, with most of the debate and indecision being simply a product of inefficient bureaucracy.

The coming week should seal whatever deal is negotiated.

GM, Chrysler May Win Reprieve with Access to TARP Aid

Fatherhood, Financial Collapse

Three weeks ago today we welcomed Isaac into our family:

Thanks be to God for a delivery without complication and a beautiful baby boy.  Fortunately the emotion depicted above hasn’t characterized much of the last three weeks.

The timing of conception was truly a prescient thing: I can think of no better time during the entire year to be absent on paternity leave than now.  That along with myriad occasions daily to change diapers while lazily trawling all manner of finance-related websites (yes, I do change them one-handed and disinfection of the keyboard really isn’t necessary) with no interruption and I’ve gotten away with something almost criminal.

Given the subtitle of this blog it’s ironic that I’ve kept mum through this passing month; but then – besides being taken up with a newborn – everything that can be said (and even some things that defy possibility) has been by some pundit, somewhere.

Meanwhile, I have some Silver Age-era hamster cage lining-quality “distressed”  Uncanny X-Men comic books that I’ve been assured by the U.S. Treasury will be purchased at a near-mint value under TARP (with grading so subjective, they’ve decided to err on the side of generosity), an asset otherwise irrelevant that is up for inclusion subject to approval of the Inspector General who is himself by all accounts an avid collector of the series and recommends immediate forgiveness of the debt incurred by the relinquishing party.