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Wall Street Holidays
This is an enjoyable time of the year. It's when
families gather together to share a wonderful holiday meal and exchange
presents. After all, who does not love to tear the wrapping off their
presents to see what's inside? It is really fun to see the excitement of
small children as they open their presents.
This type of excitement was on display this past
week as little Ben Bernanke unwrapped his present. It brought a tear to
my eye as I saw the sheer joy on little Ben's face as he gazed at his
present – a shiny, brand-new helicopter! Little Ben screamed “Mommy,
mommy, look at my new helicopter! Now I can dump all the money I want
out of my new helicopter and make everyone happy”!
Yes, this was the week that the Federal Reserve
entered uncharted territory and in effect lowered interest rates to
zero. This event had been predicted in my prior
Absolute Zero article and by others here at
Oxbury Publishing.
I'm sure this action by the Federal Reserve was
wildly cheered in the executive suites of firms such as Citibank and
Bank of America. Speaking of those two shining examples of American
“extreme” capitalism, there was an interesting tidbit about them in the
Financial Times.
The Financial Times cited one recent estimate which
looked at those two firms' total leverage ratios. The total leverage
ratio looked at both firms' on-book and off-book assets and exposure and
divided that figure by tangible equity. The leverage ratios were an
outlandish 88:1 for Citibank and 134:1 for Bank of
America. Is it any wonder that our financial system is in such dire
straits?
Wall Street Children
The children, otherwise known as money managers, on
Wall Street were also unwrapping their presents this past week. It was
amazing to see the children's reaction to the hot new Wall Street board
game, Lose Your Clients' Money.
What glee! What excitement! “Look mommy, I invested
billions of dollars of clients' money into Treasury bills at a negative
rate of interest! I wanted the money to be “safe” because that bedtime
story I read, Grisly Tales of Deflation, really scared me”!
Yes, the numbskulls on Wall Street continue to miss
the very obvious fact that the so-called liquidity trap is quickly
turning into a liquidity flood. Did they not see Ben Bernanke gassing up
his shiny new helicopter? Did they not notice that Ben's new helicopter
was armed with Hellfire missiles which he fired on the dam, unleashing a
flood of liquidity?
It's a basic economic fact that in a fiat money
system central banks can easily create an infinite quantity of money
at no cost. So central bankers can reduce the value of the money they
are creating in effect to zero, if they wish. In other words, in a
fiat money system such as we have curing the much-feared deflation
disease is child's play. Yet, the Wall Street children cannot
seem to grasp this. Why is this?
Mommy, I'm Scared!
As I've stated in prior articles, I firmly believe
that our financial system is plagued by a lack of independent thinking
and this lack of independent Wall Street thinkers has played a major
role in the current financial crisis.
I believe this is especially pertinent in today's
society. People are exposed to Wall Street group think through media
outlets such as CNBC and they also become “infected”. Therefore many
individual investors also do not think for themselves and their thoughts
simply line up with Wall Street's thoughts. That's why so many people
have bought fully into the deflation myth.
The Bernie Madoff Ponzi scheme is just the latest
example of how willing Wall Street money managers are to invest in
something that their peers appear happy with, without doing the
necessary due diligence themselves. This “herd” behavior again
highlights the lack of independent thought on Wall Street.
This “herd” behavior also explains why Wall Street
money managers are currently piling into Treasuries, even at negative
interest rates. If “all” of the money managers are in the same
investments, they are safe. That is, their cushy jobs are safe.
The money managers can simply say “But mommy,
everyone else was doing it too, so you can't blame me for the huge
losses”. If Wall Street money managers dare have an independent thought
and they are wrong, they soon lose their cushy jobs. Most Wall Street
people will simply not risk it.
So the Wall Street money managers' jobs are safe
but the same cannot be said for their clients' money. I want to
emphasize again to investors that the number one priority for Wall
Street money managers is job preservation. Preservation of clients'
capital is well down on the list. Therefore it is of utmost importance
that investors get input from independent sources such as Oxbury
Publishing.
My own experience is a real life example. In my
final year of twenty years at a brokerage firm, I got into lots of
trouble with the new managers they had hired. Why? I was told that I was
“wasting” far too much time meeting with clients and helping the clients
set up investment plans to meet the clients' financial goals!
They wanted me to spend more time bringing assets
in the door. I asked – “What about when the assets are in the door, what
then?” Management's reply - “Once the assets are here, who cares? Most
people are too lazy to transfer their account”! Needless to say, I moved
on shortly thereafter.
Twas the Night Before.....
I wanted to leave everyone with some holiday cheer
- a poem. My apologies to the original author which most people believe
was Clement Clarke Moore.
Twas the night before Christmas, when all through
Wall Street
Not a creature was stirring, not even a rat called
Dick Fuld;
The stockings were hung by the chimney with care,
In hopes that Santa Ben with sacks full of money
would soon be there;
The bankers were nestled all snug in their beds,
While visions of perks and bonuses danced in their
heads;
When out on the lawn there arose such a clatter,
The bankers sprang from their beds to see what was
the matter.
When, what to their wandering eyes should appear,
But a miniature limo with eight cylinders under the
hood,
With a bald-headed, bearded driver, so lively and
quick,
The bankers knew in a moment it must be Santa Ben.
Down the chimney came Santa Ben with a bound.
A bundle of money he had flung on his back,
And he looked like a peddler just opening his pack.
He spoke not a word, but went straight to his work,
And filled all the stockings with billions of
dollars;
And giving a nod, up the chimney he rose;
He sprang to his limo, and away he flew.
As he drove out of sight, he was heard to exclaim,
“Happy Holidays to all, and to all a good night”!
Happy Holidays Everyone,
Tony D’Altorio
Analyst,
Oxbury Research
Published at Investorideas.com Financial Article Feed : http://www.investorideas.com/RSS/feeds/II-Art.xml
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