Friday, February 25, 2011

London: The Money Launderer's place of choice

Money Laundering

Money Laundering © fintag

News comments:
I need to be careful here, but London has been the choice of money launderers for years.

So when we read the authorities want to freeze Libyan assets, we have to ask in these over regulated post 9/11 days, how was it these assets (now deemed to be laundered money) ever managed to invest in blue chip companies, real estate and own sovereign debt?

Didn't anyone do a KYC check?

Oh, Tony Blair did and said it was all right.

Del Boy
If I walk into a showroom with a suitcase of cash and try and buy a car, I will be given a once over and probably be told credit cards only and asked for a utility bill and some DNA.

On the other hand if I approached a football club and promised to give them USD500m, I would be welcomed with open arms. No KYC needed because anyone with that sort of money must be a good egg. Only last year Manchester City FC's owner was found to be a money launderer (daily mirror).

Light touch London
For London, it all started with BCCI (wiki). After this crash, the regulators decided it was a one off and only impacted wealthy people and foreigners so instead focused on financial misselling to the small people and how it was unfair small countries could offer lower taxes (and hence calling them the derogatory term - tax haven). They, along with the global community paid lip service to the movement of laundered money because it is very hard to control.

Of course policing has intensified and there are nasty penalties but the problem is everywhere and happening right in front of our eyes. If a few billion arrives into a country and it creates value (jobs, asset inflation etc) then turning a blind eye is fine because we all benefit. Much better to provide cheaper trainers to your people than worry about the 8 year child dying of finger cancer in a remote factory in China ...but that is another blog post.

Here is a hypothetical way of moving that money made illegally into London:

Buy a Premier League football club (you know which ones I am talking about). Buy players from South America for over inflated prices. Pay huge agents fees. Build new stadiums and ensure the developers are your own.

Buy some Commercial Property. London may have a glut of empty properties, but who cares if its a long term hold. Most real estate agents aren't regulated and wouldn't know what to do with a utility bill.

Buy some infrastructure. The UK government is privatising everything so get in there and buy a nuclear power station or two.

Buy some residential property in expensive areas like Bishops Avenue or Belgravia. Develop a block of apartments and buy a couple to ramp up the price of the empty ones and get a few more BVI companies to buy them.

Buy a banking license. Set up a rep office opposite the Bank of England, put in lots of Tier 1 capital and call it the Irish Icelandic Nigeria Bank.

Set up a Sovereign Wealth Fund and pretend its a pension fund. Go off and buy stakes in lots of well known companies and make them look silly. Buy lots of sovereign debt and hold countries to ransom.

Buy some defence contracts. Buy a few planes and then lease them to a neighbouring country and enjoy some clean income.

Ask some hedge funds to run a "managed account" on your behalf.

Open up bank accounts at all the big banks. If you fail the KYC, move onto the next bank for they don't talk to each other.

Create a complex web of offshore companies, have swaps and transfer pricing agreements and set up an import - export business.

The biggest joke with Knowing Your Client is this. If I give you my passport and a utility bill, what does this prove? Nothing. If you check the "don't do trade with these nasty people" spreadsheet that you can download from various government websites and the name doesn't appear then apparently you are clear. No need to worry about fake passports or utility bills or fake names, you have done your job.

So back to Libyan assets. How do we know this money is "illegal"? It is all comingled, just like every other sovereign funds assets, with clean and dirty assets. The biggest problem is that governments are the world's largest money launderers. It is in their interests to play with big money so what they do is put laws to annoy the small people and give them the perception that money laundering is being tackled at grass roots level. Well it's not at all.

Today's shorts:
Libya doesn't have a stake in Reuters (reuters)

UK to freeze London (telegraph)

Obama finds he has to act like a real president (daily mail)

Today's longs:
That font of all knowledge (wikileaks) tell us where the assets are (reuters)

Hong Kong: The Asian's choice for money laundering in 2010 (asiaone).

Gossip:
Tony Blair to be arrested for crimes against reason.



Thursday, February 24, 2011

Oil: We are all clueless

We are all clueless

We are all clueless © fintag

News comments:
So the middle east crisis is sending up oil prices.

Dubai 2.0.
The oil market makes me laugh. A friend of mine who runs one of the largest commodity desks in the world is always telling me there is so much oil and gas, they have to bribe the inventory bean counters to keep the reserves numbers down. You see the producers love high prices. Oil has inelastic demand and while we complain (especially those of us who have to pay in USD), the producers get richer.

Now I know little about the way oil is priced but I do know that Libya produces sweet oil and sells it to Europe and it has little immediate impact on our lives. There are different grades of oil and there are different extraction and distribution costs. I know that calculating oil reserves is near impossible and I know oil speculators are the drivers of price, not the true demand/supply. The market is opaque, misunderstood and all the things a speculator loves.

Take a look at this fintag graphic. What does it tell you? I have absolutely no idea except we shall all be driving electric cars powered by electrons made from nuclear fusion and the burning of carbon long after we have all died.

Today's shorts:
Goldman says oil is running out (reuters)

Brent crude bounces around like an oily ball (reuters)

Today's longs:
Charts look pretty in yellow (wtrg)

Oil to hit USD220 (nomura) (telegraph)

Gossip:
Goldman/Nomura is shorting oil like crazy.



Wednesday, February 23, 2011

Libya: A MLRO nightmare

Money laundering

Money laundering © fintag

News comments:
The media is playing a dangerous game.

If you were the MLRO (money laundering reporting officer) of a hedge fund and a USD100m subscription arrived in the post from an investment vehicle that was funded by a Libyan entity, what would you do?

Usher, Beyonce, the Financial Times (Pearsons), RBS, UniCredit, Boots the chemist in Oxford Street, Juventus, the republic of Italy, Fiat, Tony Blair, Prince Andrew, the Ukraine Nurses pension fund, Carlyle and its private equity luvvies, and so on, have all enjoyed Libyan dinars in the past few years.

The media is telling us all the money belongs to the people and it should be handed back [Editor: where?] so should these recipients hand this money back too?

Money laundering as defined by a large UK banks is

"The process of disguising money obtained from criminal activity."

Can we be sure this money was stolen or derived from criminal activities?

You tell me.

Today's shorts:
New York Times uses Wikileaks to validate story on Libya (nyt)

More than a 1000 dead (telegraph)

Libya's diverse portfolio (financial times copy)

Today's longs:
Apple to release another not quite there yet product (telegraph)

Gossip:
Libya to merge with Italy.



Tuesday, February 22, 2011

2012: The end of the world as we know it

Evolution of the blackberry

Evolution of the blackberry © fintag

News comments:
My Blackberry contract ends on 31 December 2012. Which is good because the world ends sometime around then and I won't need a cell phone.

Financial predictions are what make us rich. But mostly they make us poor. Billions of hours are spent looking at correlations to no avail and historical data is thrashed about in an attempt to try and work out what happens next. And then there is the irrational behaviour of people; the hardest variable to fix although it seems the unlucky number 13 is pushing all those armageddon predictions into next year - 2012. This gives us hope.

Following the current malcontent behaviour in the Middle East, my current model is looking at trigger events, especially those potential events (all published this month) which suggest the end of the world in 2012:

Solar flares will destroy our electricity (independent)

Hadron Collider will create big bang 2.0 and destroy the planet (wired)

Middle East anarchy will create a very large burning oil slick (citywire)

Food to become the preserve of the rich (bbc)

iPhone users to die prematurely of finger cancer (guardian)

12-12-12 the unluckiest day ever (facebook group)

Aliens to invade earth (mtv)

Mayans cause us grief and predict the 5th Dimensional Shift and the dawning of the Age of Aquarius (Delbert Blair)

Earth will stop spinning and have a rest before going the other way (wikipedia)

Earth to be hit by Planet X (msnbc)

UK's RDR to be scuppered by the EU's PRIP legislation so will not go live on 1 Jan 2013 (ft adviser)

EU's AIFM will never go live on 1 Jan 2013 (hedgeweek)

Lovers Paulson & Soros to build gold dome to protect themselves from the fall out (sunday times)

Gossip:
Y2K consultants to spread rumors that the next big IT event is 121212.



Monday, February 21, 2011

Let the Middle East nuke itself

Is anywhere safe these days?

Is anywhere safe these days? © fintag

News comments:
So this week I am skiing and with limited access to the news, the only way I will be able to tell if World War 3 has happened is when the snow turns to nuclear fall out dust.

The media is brewing up a frenzy. Iran, Morocco, China, Leicester the world's people are at war with their leaders. It is happening so fast my map of places not to go on vacation in the summer is out of date already.

The question I ask, is it really that bad what is going on? It all seems to be Egyptcopyitus. When lots of civil unrest happens at once, the media get confused and much gets lost in the noise. We are now in death headlines territory and Libya is leading the pack. The markets are hardly reacting and oil is not shooting up to $150. We are growing tired and bored and I guess the markets will stir when a nuclear missile or two are fired. Until then, this middle east civil unrest is back page news. Unfortunately.

Unreal Estate
Onto more matters that should cause concern. It was reported a few days ago by the Times (subscription only so the stories never get reviewed or discussed on the web) that UK commercial property owners and developers are in breach of their covenants on four out of every five loans (banking times). I can confirm that I have never seen so many Let signs and empty buildings. And yet more are being built and finished. Its a bit like the shanty towns in the USA where new houses are built and recently built new houses are left empty because nobody wants to live in nearly new houses with no neighbours.

This means most of the UK banks have real estate assets that are still overvalued. This means rights issues. This means more bail outs. This means bonuses handed out is laundered money. When you know someone has laundered money you have to report it to your local regulator. I have just emailed the FSA the complete employee list of RBS, Lloyds-TSB, Barclays and Santander.

While the world burns, I shall speed down my slopes and contemplate life.

Today's shorts:
Older people who like the sun starve to death as 700,000 empty new builds rot away (daily mail)

Bank forgets to tell its customers something and gets fined GBP500m, enough to help the FSA keep its expanding art collection at the forefront of culture (telegraph)

New York Times: Where is the middle east? (nyt)

Today's longs:
Germany launches new currency (bloomberg)

Gossip:
London is awash with middle east money; hedge funds turning it away.



Saturday, February 19, 2011

Barclays: Tax is for the little people

Barclays beautiful people

Barclays beautiful people © fintag

News comments:
"We don't pay taxes. Only the little people pay taxes." Leona Helmsley, 1983.

I was fortunate to have supper with the senior partner of international tax at one of the top 4 accountancy firms. He (difficult to tell under the dress) told me how only idiots paid stamp duty on UK property, that most commercial property in Europe was funded by money launderers and Ireland was the gateway to most tax planning.

So we came onto Barclays and how they were one of the better banks at keeping their tax liabilities low. It was concluded they had ultra smart people working there; they used ultra smart tax advisers like him (but not him); utilized lawyers who never slept; and continually lobbied government that if they were given grief by HMRC or the IRS they would move to Asia along with HSBC.

Bobby Geezer, all charm with those ruthless teeth, used Tony Blair like spin to push aside any concerns that Barclays wasn't playing by the rules at a recent grilling by a Treasury committee. He runs Barclays with this mission statement:

...Keep taxes down and bonuses and dividends will make us all very rich...

Most banks have this sort of motto. The employees and shareholders of banks are always delighted at the way cash is kept away from the tax man and given to them first. My tax accountant companion was also a very rich man who told me his tax rate was zero-ten. The government are muppets to these x-men.

Of course, the current media headlines like this have caused a stir:

How the Guardian was gagged from revealing Barclays tax secrets (guardian)

Bobby Geezer spills the beans (telegraph - pdf)

Barclays pays just 1% of £11.4bn profit in corporation tax to UK (daily mirror)

BBC outrage that Barclays employees spend more on taxis (bbc)

Bankers have got back to their old ways because like old dogs they cannot be taught new tricks. Although the likes of Barclays pay a lot of tax to the UK's HMRC, they could pay so much more but then the employees and shareholders would suffer and we don't want that do we? If Barclays left the UK the damage would be huge and the UK government needs all the companies with jobs to stay here.

It is a difficult balancing act but the devil is in the detail. Barclays offset a chunk of its PTP from previous years losses so its not as bad as all that. All companies can do this. Imagine if the UK abandoned this rule? Consequences would be dire.

Remember I still love bankers because I was one once and they contribute a lot to our society [Editor: You are fired] (fintag).

Today's shorts:
Barclays tax haven ISA deposit accounts (barclays)

Another Groovy Ponzi scheme in the USA (hedgeweek)

Today's longs:
Winter's new hedge fund to be called Snow Patrol Capital (finalternatives)

Gossip:
Barclays to get tax rebate in 2011.



Thursday, February 17, 2011

USD: The end of the world's reserve currency

USD in a museum

USD in a museum © A Warhol

News comments:
Last night, I found a time machine in my attic. So I clambered onboard, set the year to 2014 and went to New York. It was pretty grim.

Landing in Central Park was a mistake because it was a prison full of bankers. Don't ask how I escaped, but I did and now have a funny walk. I then visited the Apple-Facebook store on 5th Avenue and played around with some virtual 3D fPads. When I went to pay, the Mexican built droid pointed at the "No Dollars Accepted" notice. It explained the USD was no longer the reserve currency of the world as Ben Bernanke had gone a bit too far with the printing presses and was now sharing a cell with Bernie Madoff. The Double Dip had been a tad severe and the USA was rated as Junk.

The fPad told me in perfect English (how did it know I was a Brit?) rampant inflation had eroded the USD's value and T-Bill coupons were now being paid in German-Euros (GEOs). The Chinese, who owned America, had forced Bernanke to buy back its debt and under pressure of President Palin had done so.

I discovered oil was now priced in GEOs too and China, having floated its currency was now switching to CHINKOs, the new asian currency competing for world currency status. According to Wikipedia, even the UK was using GEOs but King William was engaged in heated discussions about firing the Nick Clegg government and splitting from Europe and joining the Greenland zone of countries and its currency the GROD. The Middle East (the countries that still existed after the great nuclear civil war of 2011) had tried to create its own currency, the MUSO, but the region had turned to the GEOs in return for getting free German cars.

Some of the statistics I read were truly shocking. The biggest shock was reading 35% of the US were now on food stamps and the other 65% were on diets.

The US debt it seems grew too much as Palin gave money to all the states and wrote off their debts. The rest of the world took exception and refused to recognize the US as a first world country.

The streets were full of dead bodies from the rioting the night before. The police and fire fighters hadn't been paid for a year and refused to clear up the mess. However, despite New York now being a shanty town, it was good to see FAO Schwartz was still open and I enjoyed watching the filming of the remake of The French Connection with Justin Bieber in the leading role.

Boy I was glad to get back home and liquidate all my assets into silver and gold.

Today's shorts:
Steve Jobs is unwell and won't make it (daily mail)

Hot headed Arabs have had enough (telegraph)

Primark blamed for USSR statistics error by the UK's ONS (cityam)

Today's longs:
Bernanke spooks the banks and tells them to prepare for Double Dip (bloomberg)

Gossip:
Obama to make it illegal for Americans to have bank accounts with foreign banks.



Wednesday, February 16, 2011

Can you feel the anarchy?

China invades the UK

China invades the UK © fintag

News comments:
I am as optimistic as the next Barclays banker.

Bankers have had a tough time recently and it is nice to see them enjoying themselves again. BarCap employees are getting a 20% pay rise to help them get over the stigma of being part of the most hated group of people on the planet. Meanwhile, just a few blocks away from Canary Wharf, another poor immigrant gets to enjoy the benefits provided by the extra tax BarCap pay. Or not. This coalition government will be using this tax to pay the extra interest on its gilts because the man at the Bank of England running the finances is out of his league.

If you woke this morning and you were presented with these facts, what would you do?

The Bank of England says it will keep rates down despite inflation rising rapidly because it doesn't want to upset homeowners.

The Bank of China, a communist country that doesn't understand what a human right is, brazenly waves its flag over the Bank of England in the City of London as if to say "Don't worry Mr King, we will buy your gilts to add to our huge government debt portfolio".

Spurs beat AC Milan and may win the Champions League.

Yep, like me you would go back to sleep.

Today's shorts:
Goldman to abandon trading (bloomberg)

Inside trading doesn't pay (finalternatives)

Trade Unions to nuke Canary Wharf (ft adviser)

Protium comes back to haunt Bobby Geezer (telegraph)

Today's longs:
Binge Drinking pushes up Lager Company's profits (bloomberg)

Beers all round at Barclays (business week)

Gossip:
Ben Bernanke to carry out a job swap with Mervyn King.



Tuesday, February 15, 2011

Bank of England get sweaty again

MPC Powerpoint

MPC Powerpoint © fintag

News comments:
4%. Nearly right.

The CPI is the UK's current measure of inflation. It went up again. To 4%. As a basket of goods and services the average punter in the UK buys, it is quite good but not great. I noticed the price of clocks and watches went up nicely. It must be the cost of the gold.

Anyway, if you want to play with statistics produced by the ONS, I wish you luck. It is a horrible website. Finding time series data is very difficult and there are no helpful guides to how the data was produced. It is like living in China. Or the old USSR.

Thankfully I was sent this powerpoint slide from the MPC so have a much better idea how useless the Bank of England is.

Today's shorts:
Bernanke reveals grudge against Dick Fuld (bloomberg)

UK is Argentina in disguise (or is that Drogba is Torres in disguise) (reuters)

Today's longs:
King spins himself out of control (telegraph)

Gossip:
Bank of England to close down their canteen.



Monday, February 14, 2011

Playing to win Obama style

Play 2 Win

Play 2 Win © fintag

News comments:
Obama. You have to hand it to him. Going from spend, spend, spend, to cut, cut, cut is cynical politics. You see what he is really hoping for is truck loads of Bernanke inflation so his less than inflation budget spends will be hailed as cuts.

The UK's coalition government is going through the same motions. As pointed again by another commentator, the UK isn't cutting at all, just juggling and trying to increase its budgets less than before. Thankfully Mervyn King is going to provide relief when the inflation numbers come in tomorrow (or today if you reading via googles ultra slow RSS feed). This is the number:


4.1%


Yep. Twice the target. Bernanke should be ashamed but I have a suspicion he is the tortoise to King's hare.

Today's shorts:
Nokia to use Windows on its phones and provide 600 page manuals on how to use them (bloomberg)

Obama spins some numbers (cnn)

Today's longs:
Where are the cuts? (telegraph)

China gets its first hedge fund and it didn't steal it (finalternatives)

Gossip:
Bad numbers are predicted this week.



Friday, February 11, 2011

Twitter is worth between 30 and 50 billion USD

Twitter for the masses

Twitter for the masses © fintag

News comments:
So the world is all excited over Twitter being bought out by the Huffington Post [Editor: uh?]

The round number being banded about is USD10 Billion. Well if that is the case then this is an absolute bargain.

Using 1 year old Twitter stats (April 2010 Huff Post), my quants have come up with this valuation:

Daily Tweets: 55 million. If for each tweet there was an advert and the advertiser was charged 1 cent per impression, that is USD 550,000.

Twitter Searches: 600 million. If for each tweet there was an advert and the advertiser was charged 1 cent per impression, that is USD 6,000,000.

Yearly income: 365 x 6.550 million = 2.4 billion

Take off say USD250 million to run its servers and pay its 350 engineers, and the EBITDA is 2.1 billion.

A multiple of 15 gives you a valuation of USD32.1 billion.

Of course this is probably understated. Considerably. If Twitter charged for its API, if we assumed these user stats have gone up 100%, if we assumed expenses were overstated then Twitter is probably worth more than Apple.

However, if I use my Facebook valuation of USD300 billion, and Twitter is 20% of its size then Twitter is in fact worth USD60 billion.

Today's shorts:
Deal Journal disputes Twitter being worth USD10 billion (wall street journal)

Today's longs:
Liz Hurley and Shane Warne have live twitter sex (telegraph)

Gossip:
Twitter is just group SMS. It really is.



FintagLeaks: Goldman Sachs and John Lewis

Ocado Lorry

Ocado Lorry © fintag

News comments:
Hot off the fintag wikileaks servers is this phone conversation (provided in conjunction with News of the World).

A John Lewis Pension Fund Trustee (JL): Is that Goldman Sachs?

Goldman Sachs (GS): No, who are you?

JL: Very funny. We are looking to sell all our holding in Ocado. It doesn't fit into our portfolio. Vans and groceries is a joke but it appears you have been able to ramp its price up to top dollar so we are ready to dump the lot.

GS: That's good. We have some healthy shorts and puts so go for it.

JL: Before I do, explain to me how you got Ocado into profit?

GS: Its a great business model and with the team in place it ....

JL: Yeah, yeah. Look, I am sending you the trade right now.

GS: Got it. Just placing it in the dark pool. Done. Price just dropped 15%. We made a killing.

JL: We bought this shit for peanuts. We made an even bigger killing. Nice doing business with you.

The other conspiracy doing the rounds is the anarchist logo on the back of some Ocado vans. (wikipedia). Maybe Ocado is really a sinister death cult. I saw someone climb into the van pictured and they never came out again.

But that is dull. Here are some links:

Today's shorts:
Portugal helped out by those nice Germans (thisismoney)

Mervyn King and the Clowns release new download track "Inflation blues" (cityam)

Bank CEO's made Ocado type killing (baselinescenario)

Today's longs:
Cajagoogoo's new download fails to reach top 100 (reuters)

Gossip:
Ocado to be privatised. Goldman to be lead bank.



Thursday, February 10, 2011

Stripping for the common man

Hacking an ATM

Hacking an ATM © fintag

News comments:
You know me, I get bored easily. I am nosey too and like to understand how people hack into ATMs, why Katy Perry married Russell Brand or how inside traders made an illegal buck out of using ETFs.

ETF's started out a few years ago and made BGI stock holders very rich (including Bobby Geezer). They have morphed from index funds to anything-goes-funds. They have transformed access to funds and baskets of assets and are so popular that indices are becoming more volatile (When an S&P500 ETF becomes so big it becomes a constituent of the S&P500 we should all get worried). Regulators love them because they are listed and liquid and mom and pop won't get burned. They are low in fees and are great replicators and allow for easy index-like benchmarks. But like all new ideas, there have been people looking to abuse them (UCITS III being a classic example - you can only invest in unlevered, liquid, long only assets like ETFs - except inside them who knows what is going on: ask Lxyor, they might tell you) and it has taken some hedgies to do just that.

You see smart people who get bored too much can be a dangerous thing. That is why I spend most of my time with my arms crossed.

The SEC maybe slow, and I have been critical of their efforts in the past (the FSA too) but with everything being logged electronically, hiding is more difficult. We are human and our ego's get in the way. When I send a BBM, I don't ever think that one day it will be on show to the world. Check out the sales of fax machines or edible paper. They are on the up.

Anyway, ETF Stripping is the new way of disguising inside trades. Its not new - basket option traders were doing this in the 1990s. Going long an ETF and shorting some of the constituents is a great trade and if anyone asks why you left them out, well its the models stupid, not the tip received on inside-trading-forum.com.

ETFS - Easy Trades For Stripping (Barrons / Financial Times)

Today's shorts:
Citi - inside trading (thestreet)

Mervyn King and the Clowns (bloomberg)

Today's longs:
13 things I cannot explain (impactlab)

Gossip:
Funds of ETFs to be the new thing for 2011.



Wednesday, February 9, 2011

Paranoid dumpster hunting

Trash hunting

Trash hunting © fintag

News comments:
I am as paranoid as the next person.

My office has two shredders, a confidentiality bin with a certification that the contents are burned, and is regularly swept for bugs. There is heavy use of freenet and truecrypt, a number of phones can be found on my desk and I speak a made up language called typo-speak. And of course I have a number of identities.

But I can confirm I have never been found in the middle of the night trawling through trash (telegraph)

Today's shorts:
Chinese inflation statistics are not to be believed (bloomberg)

Today's longs:
Small hedge funds rejoice at the consultants change of heart (hedgeweek)

Gossip:
FSA and SEC to ban use of electronic trading.



Monday, February 7, 2011

Shorting Anne Nicole Smith

ROH

Royal Opera © fintag

News comments:
Those who are civilised are cultured by nature.

Alas we are dumbing down so fast, the Royal Opera House is runing a show about a young lady who married an old man for his money. Anne Nicole Smith (marie claire) the Opera is soon to disgrace the stage I so love.

We also hear AOL is buying the editor of the Huffington Post for USD300m. (new york times)

My quants tell me there is a correlation between the dumbing down of Opera and mindless M&A activity. What this means I don't know. Yet.

Today's shorts:
S&P defies all odds and just keeps on going (bloomberg)

Today's longs:

Copper is the new gold (telegraph)

Gossip:
The Queen is seen shopping at Primark.



Friday, February 4, 2011

Madoff, Toilet Police and CCTV.

Risk Management Peter Jones Style

Risk Management Peter Jones Style © fintag

News comments:
Risk management is all about managing risks. So when we read JP Morgan's risk management team were managing the risks of Madoff by collecting fees and keeping quiet, we all know why. Short termism. It was clients monies and clients always come last (finalternatives).

We live in a world of transparency but only after the event. Bernanke and the Bank of England know much more about what is going on with their printing money exercises (rampant inflation for starters is around the corner) so gives them plenty of time for them to come up with the relevant media spin when things turn unpleasant.

I wonder what JP Morgan's defence will be?

Toilet Police
The intrusion in our daily lives is getting out of hand (you cannot go for a piss in Peter Jones without being photographed). But it gets worse. Following new FSA guidelines, apparently my Blackberry's calls and emails and BBMs must be recorded and logged and filed away just in case I abuse the markets. So I carry 2 of the damn things around now. I wish they would invent double sim Blackberrys as I am having to get my suits remade.

Today's shorts:
Bernanke's Obesity Reduction Policy (telegraph)

Today's longs:
Germany Now Runs Europe (bloomberg)

Wikileaks Use Paper (guardian)

Gossip:
JP Morgan to tell the world "we were duped like the rest of you".



Thursday, February 3, 2011

The big Structured Products fight

Casino

Casino © fintag

News comments:
The regulators have always hated structured products because they have never understood them.

So when Keydata came along, a reseller of retail SPs, and went bust with lots of money disappearing the FSA rejoiced. The fight was on. The FSA flexed its muscles and decided it was time to kill off the selling of anything less than a bank deposit account to the man in the street.

They pushed ahead with the nasty RDR (pdf) which is going to put most IFAs into early retirement and you and I will have to buy independent financial advice (bye bye comparison websites). Of course we won't and will take free advice from tied providers who will sell us what we don't want.

Brothels
An analogy. Today, if you go to the madam in a brothel you will find there is no entry fee. Inside you can pick any of the girls you want. You have to negotiate a price and risk manage them not filming you, giving you a bad time or a disease or two. The madam will help you choose and will push you towards the one who will give you the best time so you will come back again.

In RDR world, you will face two doors.

If you enter the left door you will have to pay for entry. Inside you will face the same number of girls but this time the madam will have no long term incentive to help you select. She will take the entrance fee and go back to her desk.

If you enter the right door entry where entry is free, you will be greeted with the sight of a solitary horse.

Hate
The FSA hate IFAs (madams) and hate them selling structured products (girls with interesting characteristics). So when Keydata (a badly run brothel) collapsed, the FSA (the police) decided to make them an example.

Complaints
Today we hear the FSA are billing other players in the financial sector for compensation to the unsuspecting retail investors who lost out to Keydata:

"LEADING City investment management and stockbroking groups were yesterday in open revolt about plans for them to pay £233m to a controversial compensation fund after the collapse of the financial products seller Keydata."

(cityam)

Normally I would be siding with financial institutions for the FSA completely fcked up. Keydata was FSA regulated. It followed the rules. It broke the rules. The FSA didn't do its job. So when the FSA "fines" others for its failure, it seems very unfair.

However, Keydata sold many products. It was not alone in doing so and was part of the huge investment banking "flog those structured products to the masses while we hedge them nicely and don't lose a penny" madness. They made a lot of money from this madness. So the FSA is right to seek compensation from these institutions. They were all playing in the same sand pit and yes it is unfair but then compensation is unfair. The FSA want two worlds which is fine. Like in the USA where you have mom and pop with lots of protection and the sophisticated who get no protection.

The lines in the UK were blurred and Keydata et al capitalised on that. The Investment Banks who didn't have any way of selling their delta hedges to the great unwashed found a nice conduit through Keydata et al.

It is still happening today of course. Check out the stuff Investec pumps out. I am a smart guy and even I don't understand half the products. I shouldn't even be allowed onto this website. Its a bit like coming up with the website front door...

This site is dangerous. If you are 18 and over and have a strong stomach then click here. Otherwise don't.

Those complaining should sue the FSA for incompetence. The FSA should stick to its guns and expose the monies made by these institutions. And the UK government should stop us mere mortals having access to dangerous structured products.

Today's shorts:
Lion Trust Roar (reuters)

Run on the Irish banks (telegraph)

Today's longs:
None today.

Gossip:
FSA to be forced to leave Canary Wharf and move into a nuclear shelter somewhere up north.



Wednesday, February 2, 2011

Fear of working in Mayfair

Mayfair crooks

Mayfair: A Dangerous Place © police.uk

News comments:
Fear is what drives us on.

My fear of driving through Mayfair is being attacked by unemployed socialist workers (an oxymoron surely?) and carjacked by loss suffering investors. The infamous police.uk website that had more visits in one hour than google gets in a year couldn't confirm or deny my fears. So I got up at 4:30 am and hey presto here is the screenshot. My fears have been confirmed. Mayfair is like Jo'burg on a Saturday night.

Fear of the unknown. Once that unknown becomes known, we start to relax a bit. Like knowing what direction the price of oil is heading. The markets are pushing up oil and gas and yet chatting to my head of trading mate at a well known oil and gas futures house tells me there is so much physical oil and gas around that the price will slump big time later this year.

Today's shorts:
Nomura disappoints. Again. (bloomberg)

Anarchy is the new black ... (telegraph)

Today's longs:
Oily Ruskies Tell BP To Get Lost (cityam)

Gossip:
Oil to be less than a packet of cigarettes by the end of 2011.