Friday, January 29, 2010

Vegas MLK 2K10 Part IV - Downtown

In case you need to get caught up, read Parts I, II, and III.

Sunday we woke up early to place our bets for the Dallas - Minnesota NFC Divisional Game.  Big Show was down in the sports book checking the lines, as the rest of us stirred and rallied.  The line was DAL + 3, and Dirty Dave and I wanted to get down on Dallas. Matty piped in from the adjacent room "I like Minny- cross it upstairs - cancel off the floor!"    Dirty Dave quickly told Big Show that we had a natural cross, and he placed no bet for us in the sports book.  Five minutes later, Big Show called back to say that the line had moved to DAL + 3.5 -120:  Dallas bettors were getting another 1/2 point, but had to lay extra vig.  We quickly tried to renegotiate with Matty to strike this new deal with him - which was actually probably a good deal for him, since we weren't paying him vig on the DAL+3 bet, but were willing to lay 120 for the extra half point.  Matty emphatically refused, and I'd spend the rest of the day taunting him mercilessly about how he negotiated himself out of an extra 20% when Minnesota blew the Cowboys out.  That's how you turn a losing bet into a win - remind your buddy who has the other side that you tried to make an even WORSE bet but he refused to take it!

We made it down to the Grand Luxe at the Palazzo - the less crowded version compared to the Venetian's branch - where we spotted the uber-rare pack of White Tigers.  I'd spent the weekend formulating the theory to explain why the only women remaining in Vegas were barely legal first time visitors skanked to the max, but here we encountered a large group of mid-thirties women with babies in tow!  It's extremely rare to see a pack of White Tigers, but to see them with their young is akin to seeing Haley's Comet.  I was in awe.

Sigmas would continue to abound, however, as we hit the craps table.  Mrs. Big Show had a big roll and got us headed the right way, and then Big Show took the dice.  Everyone placed their "pass line" bets, rooting for Big Show to make his number, and I triumphantly and loudly placed a "don't pass" bet.  Craps isn't as hard a game as it sounds like.  On the initial roll, if you roll a 2,3, or 12 you (the pass line)  lose. If you roll a 7 or 11 you win.  Any other number becomes the "point," and if you roll that number again before you roll a 7, the pass line wins.  The rest is just more internal iterations of the same cycle, with opportunities to bet all sorts of different numbers at slightly worse than true-odds payouts.   Normally, everyone bets the pass line - and is cheering for the shooter.  Every once in a while, someone bets the "don't" - which means they lose when everyone else wins, and vice versa.  The Don't bettor is never popular, but I relished the chance to emphatically place a "don't" bet against the Big Show to induce bajungi tilt, and when he sevened out promptly after a handful of rolls, wiping out everyone at the table but me, I loudly fist pumped and shouted "YEAH!  THAT'S what you get for wakin' up in Vegas!"  Which of course prompted him to slug me in the shoulder, and made the box men (the casino guys running the table)  roll their eyes and shake their heads as they chuckled.

Dirty Dave, connoisseur of the unusual and massively negative EV special craps props bets, threw out a red chip and announced "snake eyes high horn!"  The stick man was puzzled for a moment, before realizing, "you meant Horn High Aces,"  correcting Dave - the horn bet is a one roll bet that either 2,3,11 or 12 will come on the next roll.  Horn High Aces just meant that the extra dollar was supposed to double up on the A-A, 1-1, aka "2", "aces" or "snake eyes."  Dirty Dave lost the bet, as expected, but Junior was curious.  "What's that?" He inquired.  "It's bad," I intervened, as I was standing between him and Dirty Dave.  "no no - it's very good - just do it," Dave countered, joking, yet prescient, and Junior threw out his own Horn High Aces bet, with The Professor controlling the dice.  The Professor promptly rolled snake eyes, earning Junior a 30-1 payout.  Junior didn't even realize that his bet had been pressed and was still live until the next roll - when The Professor repeated the snake eyes, earning Junior a nice return, and eliciting an eruption of high fives from our end of the table.  Professor's roll ended with a large profit for all of us, and we decided to bail.

We retreated from the craps table to get situated for the Jets-Chargers game, snagging seats in the Venetian sports book.  I'd had the realization (which turned out to be wrong, of course) that this game looked a lot like the Indy-Baltimore game from the previous day - the Ravens and Jets were both big defense running teams who had QB's tasked with not losing the game for them.  The Colts and Chargers were highly tuned offensive machines, both heavily favored at home.  I was prepared to make a large wager on Chargers - 7, where the line had closed the previous night, but by the time I got there, it had moved to Chargers -8.5.   This actually ended up saving me, because I made a little bet instead, which went down in flames.  Fortunately, I had resisted the urge to bet my bankroll on the Chargers money line, laying 4-1, which would have been an unmitigated disaster when the Jets won outright.

After the game, Dirty Dave, Junior, Matty and the Professor prepared to head home, while Big Show, his wife and I hit the food court.    I abandoned my standby - Panda Express, in favor of the Panda knockoff - Wasabi Jane's, but that didn't stop us from debating if Panda Express was taking a bit too liberal definition of the term "gourmet" when they made the claim "gourmet Chinese food"  on their signage.  At the minimum, it's a vast stretch.

In all my Vegas trips, I'd never been downtown, and the three of us decided to make the pilgrimage.  Our cab dropped us off in front of the legendary Binions, and I sauntered inside to look at the poker wall of fame.  I laughed at the fact that Binions still has an inscription below Johnny Chan's picture that reads "Oriental Express,"  when the knickname is now "Orient Express," as the term "oriental" is reserved for rugs, not people.  Of course, I'm guessing Binions doesn't give two craps about political correctness, and the "oriental express" label was probably more authentic in a joint like this.   I collected a one dollar chip from each of the Fremont Street casinos, with the exception of the LV Club and Golden Gate - who both refused to sell me one, on the grounds that  under gaming regulations,  they need to keep cash on hand to cover all outstanding chips. (why it's harder for them to hold my dollar bill in the safe instead of a chip, I don't understand, but anyway...)  I could have gone to buy chips at the table, pocket one, and then redeem them, but I really didn't care that much.  Two German tourists in front of me were trying to do the same thing though, and were on BAJUNGI tilt, yelling at the cashier at the Golden Gate.   "Fuckin' Germans," he said, as I stepped up and politely asked to buy a chip, even though I had an inkling that this was what caused the strife in front of me.  He laughed and explained that he couldn't sell me one, and I nodded and walked away, as the Germans bought chips at the table, and slammed them down in front of the cashier after pocketing one of them. 

After collecting 6 different chips, I pulled them from my pocket, and taunted Big Show - "six dollars... MY WAY!"  He instantly corrected me: "THEIR WAY!" and I was left frowning and nodding.

Downtown was crowded - we were looking for a juicy double deck BJ game or Pai Gow seat, but couldn't find 3 open anywhere.  After watching the "Fremont Street Experience" light show,  we were mezmerized by the Glitter Gulch "Gentlemen's Club" marquee sign. It's a true classic:

As you can see, the sign features a rotating parade of women whose tops come off and are edited with exclamations such as WHAT?  SHAZAM!  YIKES!  INDEED!  HUMPH!  ADZOOKS!  ZOUNDS! and REALLY??

Big Show adopted "ADZOOKS!" as his exclamation, while I chose "HUMPH!" to repeatedly shout at the blackjack table whenever something bad happened.  We found a nice table at the Golden Nugget - Steve Wynn's original project - and sat down for several hours.

We were hanging out, having a good time, when the relief dealer, Lucy, on her second time around seemed a little on edge.  I took advantage of the opportunity and tucked a blackjack on her instead of turning it face up.   As she turned it over, I yelled "ZOUNDS!" and Lucy got pissed and started telling me that she could pay me even money if she wanted to.  "HUMPH!  you canNOT!" I replied, as Big Show choked on his beer.  Lucy was muttering under her breath about how I didn't even seem to care that I got a blackjack - oh man - BIG mistake.  I had been just chilling out, playing $10 blackjack, but after that each time I got a blackjack or she busted, the Golden Nugget casino floor was treated to a very loud "THAT'S what I get for waking up in Vegas!"  At one point, Big Show and I turned to each other on opposite sides of the table, and made a simultaneous fist pump while yelling "BOOM!"  totally spontaneously.  The young kid between us was absolutely dying laughing in his chair, as were we, and even Lucy had to laugh.  Before leaving, she painted one of those vicious 6 card 21's for herself, sweeping the table of bets, and eliciting a Scooby Doo-esque "ZOINKS!"  from me.

We picked up and headed to the Four Queens to play some Pai Gow, where I proceeded to get pounded on by the cards, in a bad way.  I did manage to tilt the whole table by mostly refusing to play the horrendous side bet "Fortune Bonus," except for on occasion when I'd confuse them greatly by betting it for the dealer instead of for myself.    A dude came running by our table and up into the restaurant, with a barrage of security and police following him.  He was promptly tackled and dragged out. Oh man - you don't do that stuff downtown!  They will take you in the back and beat you with a ball peen hammer!!!

We retreated to the safety of the strip, and headed off to bed, preparing for one final assault on the Palazzo's gaming tables on Monday morning.

Monday, I woke up and beat the Big Show down to the blackjack pit.  I was drinking the patented deconstructed-Mimosa:  a glass of orange juice and a glass of champagne, separately.  A southern guy from Florida at my table was gently ribbing the Asian dealer - asking her how long she'd been dealing there.  When she said "one week,"  he followed up with "Where were you before that - the Stratosphere?"  And I nearly spit my drink on the table.   Big Show and his wife made it downstairs, and we had brunch at First in the Palazzo shops - decent if overpriced food, before returning to the blackjack tables to burn a few more bets before I had to head out to the airport.  I told the cabbie "do NOT take the highway," and settled back to anticipate the shitstorm waiting for me at Manchester Airport on the other end of my journey.

Mrs. Dynamite had texted me the day before "expecting 5-8 inches tonight - oh - and it's gonna snow too!"  BOOM!   But I had an issue with the foot of snow we ended up getting.  See, in my never ending quest for EV, I'd carefully monitored the weather before making the decision to park my car in the outdoor lot at Manchester Aiport on my way to Vegas, thus saving 50% off the cost of parking in the indoor garage. Since it wasn't going to snow, it wouldn't matter. Except it did snow.  Twelve inches. And I had no jacket, no gloves, no boots, and only a little teeny ice scraper in my car.    My flight was delayed, and when I finally made it to my car at 1:30am, all I could do was laugh, as I wiped the heavy slush from my windshield.  

When I paid the parking attendant on the way out, saving $30, I made a sarcastic "whoop" out loud in my car, shouting to no-one in particular:   "Thirty dollars... MY WAY!"

Until next time...


Thursday, January 28, 2010

Need to Boost Returns? Lever Up!

I've been saying for a while now that if we want to reduce the risk of future crisis, the key is to reduce the leverage in the financial system.  The State of Wisconsin, however, clearly didn't get the memo.  MISH points to a WSJ article today about how the State of Wisconsin Investment board, which manages $78Billion, "clears plans to borrow to juice returns."  Oy vey... (pause.. shaking my head)...

So, pension funds plan on roughly 8% annualized returns to meet their funding objectives.  The return to reality with the popping of the credit bubble makes that sort of long term low risk return look nearly impossible to obtain. Solution?  LEVER UP!  From the WSJ article:

"Public pension funds needing to boost their returns but frustrated with hedge funds and private-equity investments are turning to one of the oldest investment strategies—using borrowed money to boost performance. The strategy calls for leveraging pension funds' safest asset—government or other high-grade bonds—while reducing exposure to stocks."

Now - one cannot do this risklessly. You can't borrow money at rates cheaper than Treasuries of a corresponding maturity and invest the proceeds in matching government debt to lock in a profit.   You have to take risk - either by varying your maturities (like borrowing short term and investing long term - which works with low current short term rates as long as you don't 1) run into short term funding rate variances or increased costs of funding (See CIT!) and 2) have to take a mark to market loss (due to loss of short term funding) on your long term debt that you bought!) - or by trying to get a little extra yield by buying not-quite-government-debt-but-still-super-safe-highly-rated-paper.  If you're wondering how that can turn out, see the debt disaster of the last 24 months.  One of the major causes of the crisis was that funds did EXACTLY this - they tried to pick up a little extra yield by buying instruments that were supposed to be nearly as safe as treasuries, but weren't quite treasuries, and offered a little more yield.  How'd that work out? (hint: "poorly" is an understatement)

The bottom line is that Wisconsin's plan to lever up is equivalent to them saying they're going to take more risk.  MISH points out, via a series of charts of bond yields and price charts, that perhaps they have missed the boat on this idea already - as corporate bond yields are hovering near 30 year lows.  Back to the WSJ:

"The fund will borrow an amount equivalent to 4% of assets this year, and as much as 20% of its assets over the next three years. Fund officials say that use of leverage could eventually go higher—in theory, at least, up to 100% of assets, according to the staff analysis."

Perfect! Since they're only starting with 4%, they'll have plenty of room to Marty Up if things don't go well at first!  Bond yields rally (prices fall)?  BUY MORE!  Increase the leverage!  Trade moves against you? Double down!

"But Chief Investment Officer David Villa says that level (100%) wouldn't be palatable for the Wisconsin fund"

Phew - it seems that CIO Villa isn't pulling out all the stops yet.  We can only hope that Mr. Villa's little leverage experiment stays a LITTLE leverage experiment.


Wednesday, January 27, 2010

Life Imitates Art?

Via Dealbreaker:  MadTV Ad spoof - the iPad

Now, here's the kicker - that video is YEARS old... In case you've been living under a rock, Apple announced its new tablet product today, called the iPad.  It's essentially a bigger Ipod Touch, which is kinda interesting - Apple reached the limits of making Ipods smaller, so now they are making them bigger!


The Geithner - AIG Hearings

I spent all morning watching Treasury Secretary Tim Geithner's testimony before the House Committee on Oversight and Government Reform.  Fortunately, I can summarize it for you briefly:  a string of representatives repeatedly questioned Geithner on why AIG's counterparties were paid off at par - 100c on the dollar - and Geithner repeatedly answered (not a direct quote now, ) "As I said previously, that was the best option available at the time for the American Taxpayers."   Geithner insisted that there was no intermediate option, like 90c on the dollar, because such a restructuring of the contracts would have constituted a default, which would have resulted in all financial hell breaking loose in the United States (as a result of AIG ratings downgrades which would trigger all sorts of increased collateral requirements, and thus MORE taxpayer funds)..   Later, Hank Paulson repeated this claim.

In addition, Geithner testified that he had recused himself from decisions related to the disclosure of the payouts, and that it was not his decision to keep the payouts under wraps.  A string of Congressmen then told Geithner that they didn't believe him.

A few Congressmen noted that perhaps there could have been other ways to isolate AIG Financial Products, since it was separate from AIG's life and health insurance businesses, so that AIGFP could declare bankruptcy.  Both Geithner and later Hank Paulson testified that AIGFP was too big and entwined with the rest of AIG, and could not be isolated.  Geithner also offered the response "if there was a better option, we would have taken it,"  on this, and a few other issues as well.

When Geithner was asked late in the hearing if he had any regrets or would have done anything differently, he again repeated that he'd spent many many hours looking back on the decisions, and couldn't think of how things could have been done better from the perspective of minimizing risk and damage to the Taxpayer.

Overall, the hearing produced little in terms of new insights or information regarding the AIG counterparty payouts.  It did, however, highlight the absurdity of the whole hearing process - it was disheartening to watch the Congressmen ask their questions, some of which were grandstanding, as to be expected, but then leave the room after they'd asked their questions!  If this is so important, shouldn't they take the time to listen to the answers the "witness" gives to all the other questions?  In addition, several Congressmen were skipped over due to a lack of time.

I'm not a bankruptcy lawyer.  I don't know what the effects would have been had the NY Fed asked the counterparties to take 85c, 90c or 95c on the dollar for their contracts with AIG - but the line from those questioned (Geithner, Paulson, and I believe Bernanke previously) has consistently been that this haircut simply wouldn't have been possible and would have made things much worse.  It seemed clear that the Congressmen asking questions today were less than convinced that this was completely true.


Tuesday, January 26, 2010

Ponzi Of the Day - ADBE

From the NY Times Dealbook:

"Adobe Systems, the company best known for its Adobe Reader and Photoshop software, said Monday it priced $1.5 billion in new notes, and that most of the proceeds would go to repaying its existing debt.

The notes are to be issued in two batches: $600 million with a 3.25 percent interest rate maturing in February 2015, and $900 million with a 4.75 percent interest rate maturing in February 2020, The Associated Press said.
Adobe said it intended to use the net proceeds of the sale to repay $1 billion outstanding on its credit facility and use the rest for general corporate purposes.

The offering is expected to close Feb. 1."

Relevant portion: "most of the proceeds would go to repaying its existing debt."  And now, courtesy of Wikipedia, the definition of a Ponzi Scheme:

"A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned."

Kinda like paying off old investors by issuing new debt to new investors...

EDITa commenter points out that refinancing debt into a lower interest rate is perfectly reasonable, and not a ponzi scheme, which is absolutely correct.  Said differently, it definitely matters if the old debt ADBE is paying off is 8% debt due in 2020 (which would imply refinancing), or if it's debt due in 2010 or 2011 - which would imply ROLLING (ponzi).  When I read "proceeds go to repaying existing debt" I interpreted it as the latter - using proceeds from new debt sales to pay off debt that will be due imminently, as opposed to "proceeds go to refinancing existing debt," which would imply the former.


Link Hodge Podge

You should read these things this week:

Must read - Cliff Asness is exceedingly coherent in this tome on the causes of the crisis and his displeasure with the Administration's reaction.   I will probably devote a full post to this letter in the near future.

Say something stupid and hurtful, but simple and with a compelling villain, long enough and I guess it becomes our society’s version of truth (again, the “narrative”). Bankers (and by this I mean Wall Street in general) are certainly guilty of acting irresponsibly and aiding and abetting the bubble, but assigning them sole blame is ridiculous. This is an Agatha Christie novel where everyone is the murderer.

David Brooks: "The Populist Addiction"

"It’s easy to see why politicians would be drawn to the populist pose. First, it makes everything so simple. The economic crisis was caused by a complex web of factors, including global imbalances caused by the rise of China. But with the populist narrative, you can just blame Goldman Sachs.

Second, it absolves voters of responsibility for their problems. Over the past few years, many investment bankers behaved like idiots, but so did average Americans, racking up unprecedented levels of personal debt. With the populist narrative, you can accuse the former and absolve the latter."

The FED certainly tried to cover up details of the AIG bailout. via Barry Ritholtz.

"FRBNY staff member James Bergin e-mailed several other FRBNY staff:

“I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals – too many counterparties, too many lawyers and advisors, too many people from AIG – to keep a determined Congress from the information.”

"But then I read that the FHA is about to set much tougher standards for FHA mortgages—they plan to require borrowers with a 590 credit score to put down at least 3.5% downpayments.  As Tyler Cowen recently argued, you knew Congress wasn’t serious about global warming when they refused to make Americans pay more for gasoline.  And I would add that you can be sure that the populists who want to “re-regulate the banking system” aren’t serious when all they can do is talk about 3.5% downpayments for bad credit risks.  It is so much more fun to bash big banks."

Via Barry Ritholtz:  On the phenomenon of investment professionals watching CNBC

“Isn’t it funny when you walk into a investment firm, and you see all of the financial advisors watching CNBC — that gives me the same feeling of confidence I would have if I walked into the Mayo-clinic or Sloan Kettering and all the medical doctors were watching General Hospital…”
MISH revisiting an old concept - you can't spend your way out of a popped credit bubble
"Mistakes of 1937" did not sink the US back into depression. The plain fact of the matter is: It is virtually impossible to spend ones way out of a popped credit bubble.

Do not mistake Federal spending for a recovery. Indeed this "recovery" is a mirage. There can never be a "clear recovery" financed by debt when the problem is excess debt in the first place. Logically the idea is nonsense.

In 2003, Greenspan had a choice:

1 - Take a hard recession now
2 - Take a depression later

Greenspan chose the latter.

All stimulus did back then was create housing and debt bubbles. Then it crashed anyway. Now supposedly the cure is more spending?"

MISH:  Chicago accelerates tax collections in an effort to stay solvent.


Monday, January 25, 2010

Vegas MLK 2K10 Part III - Real Time Wagering and Off Strip Dining

So where was I... oh yeah - I'd just finished describing the greatest human evolutionary theory of the 21st century - the March of the Penguins, in Part II.  Part I is here too, if you missed that one.

So, after lunch on Saturday, Big Show and his wife left to go get massages, while the other metro-sexuals went to the spa to enjoy a steam and sauna.  I know - that's funny - hahaha Kid Dynamite, good one - but I'm serious - they did, while the football game was starting, no less!  This left me alone to venture to Lagasse's Stadium at the Palazzo, aka "Kitchen Stadium" to watch the Arizona - New Orleans playoff game.  Kitchen Stadium used to be Jay Z's 40-40 club, but they redid it into a big time luxury sports bar.  There are hundreds of tv's and you can reserve a seating area, which range from outdoor cabana types to tiered sofa seating to private rooms.  Of course, for Divisional Weekend, these reservations have to be made well in advance, and I managed to find a place to stand and watch the game, where I'd bet UNDER 56 points for the total score.  When Arizona took the first play from scrimmage more than 70 yards for a touchdown, it didn't bode well for my bet, which ended up going down in flames, yet somehow coming so close with a final score of 45-14.  It was never really that close, however, as the two teams almost put up my number by halftime.

Big Show joined me, freshly massaged, and he was toting the Venetian's latest technological development - a handheld device slightly larger than an Iphone which enables one to make real time proposition bets on the outcome of the game.  Big Show had pre-loaded his account with money, and we checked out the constantly changing props offered by the Venetian.  For example, the total for the game was 56, but after the first play touchdown, we could now wager on a new total of 62.  Similarly, the game line moved throughout the game, from Saints - 7, to Saints - 3, to Saints - 11 and so on.  In addition, we could wager on things like "will there be another first down on the current drive:  Yes - 280, No + 220"  For those unfamiliar with gambling parlance, you'd have to bet $280 to win $100 if you took "yes" and $100 to win $220 if you took "no."  The lines would move depending on down and distance, depending on which team had the ball, and depending on where the drive started.  We could also wager on "this drive will end in a : TD: +180  FG Attempt:  +120  Punt: -190  Turnover: +450" - with those odds constantly changing.  There were tons of prop bets, always changing rapidly, and always with a massive vig built in for the house.  Big Show asked me "how much of the money that customers deposit on these accounts do you think the Venetian ends up keeping?"  "80%," I answered quickly.  "I think it's more like 100%,"  he theorized, and he could well be right.  You're guaranteed to lose when facing these vigs if you bet long enough.   In case anyone had doubts as to the legitimacy of my previous analogies to Wall Street Trading as a casino, look no further than the company that runs the software for the Venetian's handhelds:  Cantor Gaming:  from their website: "Cantor Gaming is an affiliate of the pre-eminent global financial services firm Cantor Fitzgerald.  Cantor and its affiliates conduct over $140 trillion in financial transactions worldwide per year. Founded over 60 years ago, Cantor is one of 18 Primary Dealers authorized to trade US government securities with the Federal Reserve.  Known globally for superior financial technology and real-time and secure execution of financial transactions, Cantor’s clients include the world’s leading banks and trading firms. Cantor’s technology drives over $500 billion in transactions for the world’s capital markets every day.  At Cantor Gaming, we have built upon Cantor’s legacy of integrity and excellence and its unmatched financial technology to create an innovative and unique gaming system that we believe will revolutionize the gaming experience in Las Vegas."

Making bets on the handheld device was, quite literally, no different from trading.

Knowing the UNDER bet was dead, I headed to the Venetian to grind out some 2-5NL while waiting for the Indy-Baltimore game to start.  I played one noteworthy hand (sorry for actual poker content, but this blog was once about poker!) where I found KK in late position.  An early position player who seemed solid made it $15 to go, and I made a little raise to $40.  The small blind woke up and cold called, as did the initial raiser.   On a rainbow flop of Q-8-4 they both checked to me. I had about $450 left, and bet $105.  The small blind called.  The turn brought a 2 and a flush draw, and he checked to me again.  I was deciding if I should bet my remaining stack, which was roughly a pot sized bet, or make a smaller bet, when suddenly the small blind said something to me.  "What's that?"  I asked him - I'd only taken 15 seconds to think.  "Check-CALL - I said, Check, CALL."  He exclaimed confidently.  I pursed my lips, took a second and a half, and said "Ok, I'm all in."  He snap called me.  I began counting down my chips, and a king peeled off on the river.  My opponent triumphantly slammed his KQ two pair on the felt, as I was simultaneously turning over the nuts, explaining "no good."  Ship it.

Big Show and I snagged seats in the Venetian sports book and watched the first 3 quarters of the Colts-Ravens game, where I was on the right side for what would prove to be the only time that weekend - I had the Colts, and also bet the second half under, both of which worked.  Big Show got bored and left to go play some double deck blackjack, spotting Phil Ivey playing Baccarat in the Salon in the meantime.  By the time I found Big Show, Ivey was gone, but our poker sightings were not finished - we'd later spot Antonio "The Magician" Esfandiari walking between the Palazzo and Venetian (to which Big Show reacted with "ROCKS-N-RINGS BAYBEE!" a bit too late, and Paul X-22 Magriel at Aria.  (sorry - the Rocks and Rings webpage appears to be gone, so I can't link it up)

Junior and The Professor had set up the rare off-strip dinner at Raku, which they claimed had the best Japanese food in the country.  It wasn't a sushi joint, but the journey to Vegas Chinatown/KoreaTown/JapanTown (our cabbie actually had to plug the address into his GPS!) was well worth the trip, as we feasted on a multi-course meal of small plates including salmon steamed rice, chicken skewers, kobe beef tendon, pork cheek, spinach salad, tofu with tomato, grilled steak and warm tofu. 

After dinner, we sojourned to CityCenter, to check out the crown jewel of the real estate bubble.  The flagship Aria is a beautiful place - there's no doubt about that - but it reminds one of an airport, with massive ceilings, modern shapes, and polished floors.  In contrast to the brightness found in casinos like Palazzo or Paris, Aria is very dark, like Planet Hollywood right across the street.  It seemed to want to convey a Saturday night buzzing vibe at all times with its decor - which was fine for us on Saturday night, but it's not the kind of place I'd want to hang out and play blackjack at on Sunday morning.  It's a beautiful building, but I couldn't help but hear Vegas Rex's analogy ringing in my ears.  Aria's casino floor is mammouth  - MGM-esque, and we walked around in circles until we found our way to the shopping mall, Crystals.  Right inside Crystals there is a club called Eve, where we were offered free entry, which we declined.  The club is Eva Longoria Parker's project.  Yeah - I don't get it either.  I am guessing it will go down in flames faster than Jay Z's 40-40 club.  Aria has its own top tier club, Haze, managed by LightGroup - why do they need another club in the shopping mall with Eva Longoria Parker's name on it?  Bubblelicious!

Crystals is, of course, another beautiful building, but as we walked through the mall, Big Show had an epiphany as we stared at the vast expanses of white walls.  "WHERE ARE ALL THE STORES?"  I just smiled and said, "I think I'm gonna short more stock on Tuesday" (I'm short LVS and WYNN, but not MGM)    To say that Crystals is under-represented on the retail front is a massive understatement. 

Big Show, Mrs. Big Show, and I walked across the street, stopping so I could drop a deuce at Planet Hollywood, before wandering through Paris and grabbing a cab back to Palazzo to attack some double deck action.  It was 1:30 on Saturday night, and our favorite pit at Palazzo had 5 empty blackjack tables with dealers standing there twiddling their thumbs and $200 or $300 table minimums.  We asked a pit boss to roll one of the tables back to $50 for us, and she said sure, but when she asked the head guy, he said no!  I know it's prime time on Saturday, but the place was deserted, and we were surprised that they didn't want to take our money.  "Fine - I'll exercise my rights as a consumer and go give to to the VENETIAN!"  I hissed under my breath to Big Show, joking, as the Venetian and Palazzo are owned by the same company, of course.   Perhaps now I know why the pit boss on Friday night had told me that business at Palazzo was "slow."  "Slow except on weekends, and slow after the big convention week?" I probed. "No - slow from holiday to holiday!"  She elaborated.  Yikes!

We found a suitable blackjack game at Venetian, and took our usual positions with Big Show in first base, and me at third base.  Mrs. Big Show and a random guy were in between us.  There was a guy at a table across the pit who would occasionally go absolutely ballistic, screaming "YEAH!!!! ONE HUNDRED AND FIFTY DOLLARS!"  which resulted in Big Show implementing the exact same chant when he successfully won a $75 double down bet and yelled loud enough to get me to jump in my chair.   All weekend, I was implementing another Vegas Rex invention, shouting "THAT"s what you get for waking up in Vegas," at all sorts of times at the blackjack table.  It proved to be extremely funny  - in a slol kind of way (that's SELF lol - when you do something that makes YOU laugh, even if others don't).

At one point, after painting a smooth 7 on a 14 against a dealer 9, I stood up, fist pumped, and shouted "THAT'S what I get for waking up in Vegas,"  which prompted the mysterious man between Big Show and me to inquire as to what I did for a living. "I'm an ice fisherman," I told him, and made a motion of drilling through the ice with a hand crank drill.  "No kidding - that's a crazy coincidence - I'm the captain of the U.S. National Fly Fishing Team!" He retorted, but this guy wasn't kidding!  Of course, this prompted a barrage of questions from me, and lengthy explanations from him about the travel and skills his position entailed, and how he was trying to raise awareness of their mere existence.

"Come on man, you're bullshitting me - that's the kind of made up job you tell a stripper when she asks you what you do!" I pleaded, which made Big Show spit out his beer, but this guy was serious.  He was a great guy, and a skilled blackjack player as well.

At 3am I stepped into a black hole and blew up in short order, crushing a few buy-ins in a matter of minutes, which prompted me to steam off and go to bed on bajungi tilt.

next up - Part IV - KD goes downtown for the first time!


Championship Weekend

Quick thoughts while I write Part III of the Vegas Trip report:

It's not up on Youtube, but Jordin Sparks' rendition of the National Anthem  before yesterday's AFC Championship game was superb.  Not just Sparks' voice - I thought the sound system kinda sucked and was distorting her a little bit - but the gigundous flag that covered the entire field, and the eagle that flew over the field, and looked like it flew around in several extra loops afterward, refusing to land.   It make me think of this:

America - FUCK YEAH!   Suck it Osama - we have a huge huge flag and a friggin EAGLE!

Regarding the NFC Championship Game - man, Brett Favre is tough.  I sent a text to Big Show and Dirty Dave right before Minny took a 14-7 lead that said "OMG - they are KILLING Brett Favre. He looks like he just pooped himself."   And they were - Favre took a beating - but two hours later in the 4th quarter it was even worse.  The Saints absolutely CRUSHED him repeatedly, and with malice.  It almost looked like Favre would have the storybook ending - bruised and battered, limping like he had a dump in his pants, leading the Vikes on a game winning drive and to the Super Bowl.  But then they had an absolutely shocking too many men in the huddle penalty which pushed them to the outer reaches of feasible field goal range, forced Favre to throw the ball, and resulted in an interception.  How on Earth does Minnesota get a penalty like that (too many men in the huddle?!?!?!) in a spot where they have a kicker who is just waiting for a free roll to win the game!!!  Insane. 

For some reason, I also repeatedly got a kick out of the way Drew Brees crouches down in the huddle - real low, like a ninja.  Love it.

I hope to have Vegas Part III up later today.


Friday, January 22, 2010

New Bank Regulation

I wanted to resist commenting about the "Volcker Rule" until the details were finalized, but let me just spit out a few things.  First of all, I spent time on both sides of the business on Wall Street - on the "sell side," on a customer-related trading desk, and on the "buy side" at an internal hedge fund at the same firm - a large, generally commercial bank.

The second part of my job description would be pretty clearly banned under the proposed rule changes.

"The President and his economic team will work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit."

You know what - it's kinda hard to argue with that.  I was just discussing it with a friend of mine who trades in a purely proprietary group (when I say pure prop, I mean it's completely segregated from all customer businesses - it's even in a different building usually) at a large commercial bank.   He wrote to me, "but there is very little risk in a group like this - you think we caused the financial crisis?"  And no - neither his group or any group like his caused the crisis, but I explained to him that the higher level concept of the group was the problem - he was trading MY deposits - that's just not what The People want. Never mind the issue of if my friend trading merger arb with my deposits is any more or less risky than his bank instead taking the money and lending it out to small businesses and homebuyers (cause that's what they do!) - I think the past few years have cemented the fact that mortgage lending is not necessarily less risky, but it certainly looks better on paper, in terms of subjective categories like benefit to society.

Now the real issue is in my original job - on a customer related trading desk.  We would make a lot of money, like all other trading desks, on risks we took trading around customer flow.  We would provide capital and take risk from clients who wanted to unload portfolios, and then the risk would be on our books.  Trades were coded as "agency," - that's a customer order, "customer facilitation" - that's when we take the other side of a customer order (thus establishing positions of our own), or "principal," - that's when we trade out of the customer facilitation trade.  Yet, not all principal trades are proprietary - in fact, most of them aren't - MOST of them are customer related.  When do you draw the line?  What if I want to hold that customer related position for a day, or three days - at some point does it cease to become a customer related trade, even though it was established as a result of customer orders?

When an S&P index change was announced, we'd usually buy the stock.  First, because we hoped it would go up, and second, because then we'd have inventory to sell to our customers.  We were willing to take the risk of buying the stock early, while they were not.  Fixed income syndicate desks are the same - when underwriting a new bond issue, of, say, $300MM for XYZ corp, the desk may sell $315MM worth of bonds to its customers and end up short the issue, so it can go out and actively bid for bonds, since it knows that some customers will want to sell their allocation quickly.  It's part of being an intermediary.

Are these activities proprietary trading?  That's the real question.  People are talking a lot about Goldman Sachs, a firm who makes most of its money from "trading."   GS, however, claims that roughly 10% of its revenues are from purely proprietary trading.  The remainder is from customer related desks.  Are these desks taking principal positions?  Of course - and how do you pick and choose which to allow based on customer flow interactions?  You can't be a little bit pregnant, and you can't kinda-sorta ban proprietary trading.   John Hempton brings up a few more easy dilemmas on the difference between prop trades and hedges: "You do a big equity underwriting. To hedge your risk you go short the market because you can't go short the specific." Is that a prop trade?  "How about guaranteeing a customer VWAP on a trade. Is that prop risk?"

Unfortunately, it seems like this policy is more populist reaction from an Adminstration that screwed it up the first time.  Take Goldman Sachs (And Morgan Stanley for that matter) - why on Earth are they allowed to borrow from the Fed under Bank Holding Company charters when (to the best of my knowledge) neither of them has any commercial banking deposits?  (EDIT:  EconomicsOfContempt points out that both GS and MS actually do have bank deposits.  I think the gist still holds here though - try opening up a retail depository account at either of these institutions.  The Fed window is designed for capital needs related to retail deposits in order to avoid runs on the bank) In addition to trying to separate commercial banking and prop trading, wouldn't a good first step to be to actually separate the commercial banks from the non commercial banks?   People aren't mad because GS is making money trading - they're mad because GS is making money trading with what they (the people) think is taxpayer money or taxpayer backstops.  The decision to allow non-banks access to  (near zero cost) Fed funds resulted in these non-banks making extreme amounts of money which angered the populace.

As I said, I fully understand the desire to implement a situation where commercial banks do not engage in proprietary trading.  However, the real problem isn't proprietary trading - it's leverage - it's actual risk.  Even if/after we successfully separate proprietary trading from commercial banking, what are we doing to prevent the next Long Term Capital Management blowup?  I guess LTCM is no big deal anymore - after all, it was a mere $5B in bailouts - chump change in today's land of large bailout numbers...


Thursday, January 21, 2010

Vegas MLK 2K10 Part II - March Of the Penguins

If you missed Part I, check it out now.

Anyone who has been to Vegas knows that there is the strange phenomenon of female visitors acting - how do I put this - well, acting like they wouldn't act at home.  They take the "What Happens In Vegas Stays In Vegas," tourism motto at face value and unleash their inner wildcats: sucking down plastic yards of pina coladas, getting tattoos, attempting to set new records in terms of public drunkenness and shortness of skirts, and generally whoring it up.  One thing I've noticed over my last few trips, though, is that the demographic of these ladies seems to be changing.  Thirty year old wildcats have been replaced by barely legal wildkittens - and skirts have, almost impossibly, gotten shorter and tighter, and heels higher.  It seems that the only women walking around are 21 year olds out for the first time, teetering on their high heels on polished marble hotel floors while trying to make sure that their skirts are pulled down far enough to cover their ass cheeks.

After lunch on Saturday, I proposed a theory to explain this behavior to my crew.  See, as the bubble burst, most people realized that Vegas isn't something you need to do repeatedly.  Of course, for degenerates like us, the theory doesn't apply - we'll still come to watch football, play poker, and absorb negative EV at the table games -  but for ladies coming to Vegas to let loose, it's a minefield of dangers that simply don't need to be dealt with.  Women who've come to Vegas understand that it has a higher douche concentration than anywhere else on the planet (except perhaps Yankee Stadium), and that there's simply no reason to endure it.  Why get dolled up, whore yourself out to go to the club, be treated like a piece of meat, spend the night with your hand over your drink to avoid being roofied, and then try to make it back to your hotel afterward without getting assaulted by one of a million uber-douches walking around in Ed Hardy shirts and faux-crocodile loafers thinking that you should bed him just because he has a new flaming skull tattoo on his triceps?  In other words, after coming to Vegas, the ladies realize that unless they like acting like and being treated like whores, Vegas sucks for them.  Thus, the population of ladies is increasingly made up of Vegas Virgins - first time visitors making their pilgrimage and acting the part they've read about.  Of course, there are always a few who grow up to be actual professional whores, for which Vegas is the perfect home base.

Dirty Dave remarked, "Man, it's so crazy - it's like they are just learning to walk in those heels," and The Professor astutely responded, "Yeah - they teeter down the hallway toward the club like a pack of wobbly penguins,"  and thus the Vegas Theory of Evolution was born.

Penguin: Noun:  A young lady, barely of legal drinking age, who dresses up for a night out on the town in such a manner that the tightness of her skirt and the height of her heels, combined with her inexperience with such accoutrements results in her waddling/teetering like a penguin as she tries to strut confidently.

Although we chose the term "Penguins" (capitalized) to refer to this breed of coming-of-age-young-females, there are analogies to plenty of other young animal species.  The Penguins just happen to walk like penguins - on display, with people staring at them and smiling at them:

Note the zebras around the 30 second mark of the above video.  If the zebras staring at the penguins don't remind you of Vegas Douches staring at Vegas Penguins, well then, you need to go do some more research.

So, the Penguins make their pilgrimage to the club - teetering out of the cab and down the polished marble hotel floor past a row of douchebags waiting in line behind velvet ropes -  just like real penguins make their  pilgrimage to the frozen tundra to lay their eggs.  Both Penguins and penguins face many dangers.  Penguins must avoid alcohol poisoning, corrupt cabbies, predatory douches, and roofies, while penguins must avoid tainted herring, oil slicks, sea lions, orcas, and deadly cold temperatures.   I actually find the travails of the baby sea turtle to be a great analogy to the potential plight of the Penguin as well - very few will survive, but the few who do will return to the same beach to dominate their territory for many years to come - just like the few Penguins who realize they are naturals for the Vegas Skank lifestyle will return frequently to dominate the club of their choice. 

The Penguins also demonstrate protective traits seen in many animal species - taking care of the one member of the herd who inevitably finds herself too drunk to stagger home - and making sure that none of the weaker members get isolated, picked off from the herd, and taken up to strange hotel rooms by predatory douches.

We all know of young animals who have to learn how to properly kill and eat their prey, like this brown bear:

It wasn't until a day and a half after I saw two young Penguins in the lobby of the Venetian drinking Bud Light cans FROM A STRAW that I realized this was the same animal behavior - the poor things were still learning how to consume their alcohol!  Like the bear batting around a fish, unsure what to do next - awww - look how cute - beer from a can with a straw!  Sadly, they were sitting in a very vulnerable location, and almost certainly didn't survive the night without falling victim to some Kangol-cap-wearing-bedazzled-t-shirt-sporting-doucheball who told them he loved them in an effort to get into their skirts.

Sunday morning we actually saw a species rarer than the Mirage's White Tigers - a bona fide pack of late 30-something ladies eating brunch at the Grand Luxe at Palazzo, complete with two babies at the table!  In the land of Penguins, this was a truly rare sight - you'd have better luck hitting back to back snake eyes at the craps table than seeing a pack of white tigers WITH their cubs!  Clearly, this phenomenon was easily explained by the fact that their husbands had gone to Lagasse's Stadium to watch the Dallas-Minnesota football game - no group of women goes to Vegas for a girls weekend and brings the babies! Thus, my evolutionary theory was still intact, in fact, enhanced.

stay tuned for Part III, where we'll resume the weekend's recap, including real time electronic sports betting at the Venetian, dinner off strip, and a trip down town!


Wednesday, January 20, 2010

Vegas MLK 2K10 - Part I - The Arrival

For the past 10 years I've been flying to Vegas out of the NYC area airports - mostly JFK and Newark.  Friday, however, I had the pleasure of dealing with the much more mellow Manchester NH airport - with no traffic on the way there and no mass of humanity at the airport.  After parking my car in the outdoor lot (a decision that would later prove disastrous), I took a quick shuttle bus ride to the terminal, and made it through a 10 person security line without incident.  I enjoyed a few beers at the gate-side pub, and then sat down for 5 minutes at the gate when I saw the inbound flight arrive.

A K-9 unit, which I assumed to be sniffing for explosives (not drugs), came through the gate and checked out every single person.  I'm a huge dog fan, so this always wows me, and I'd never seen it before in all my time at NYC airports.  Although the dog put his paws up on the woman sitting next to me, he was unfazed by the wealth of aromas I presented to him:  I had about a kilo of cigars in my bag, 40 grams of watermelon Trident, a pesto chicken panini, and of course I was covered in my dog Oscar's scent.  This dog was a true professional, however, and was undeterred by my distractions, barely noticing me as he sniffed on by.  This was also my first time flying Southwest Airlines (Manchester --> Vegas direct!), and I was impressed at how efficiently their "pick your own seat" boarding process worked - relying on people to line up according to a numbered boarding pass.

I arrived in Vegas at 7pm local time, and my cabbie, Hoss, took me on the highway.  I wasn't too tilted, however, as he kept me entertained with stories about how he met Bill Russell (after he found out I was a New Englander) and about how he had a reputation with the ladies for his talented tongue.  Now, Hoss was an obese dude who could hardly be classified as attractive,  and I was even more confused at why he told me that he liked to do the Nsync "Bye Bye Bye" dance on the treadmill (which he demonstrated with pac-man-esque hand moves).  Fortunately, we were arriving at the Venetian, so I paid him and hightailed it out of there.  I picked up the keys to my comped room, dropped my gear, and hit the poker room while I awaited the arrival of the rest of my crew.

The Venetian 2-5NL game was very good - some real fish and only 1 or 2 local pros.  In one early hand, a young pro made it $20 from early position.  When I later recounted this hand to Big Show, he interrupted me, "Wait - young pro - what does that make you, an old pro?"  Which made me laugh and realize... YES!  I'm a grizzled 33 years old - ancient compared to today's young gunners.  So, this young pro makes it $20 to go, and I smooth call with JJ two off the button ($500 stacks).  The big blind, a nitty old man (NOM) smooth calls also.  On the 9-6-4 flop, the NOM checks, the pro bets $60 and I elect to smooth call again.  The NOM called also, which generated a simultaneous head jerk from both me and the young pro.  When the turn paired the bottom card - 4 - they both checked to me and folded when I bet $115.

After a few hours,  Dirty Dave, Junior, The Professor, and Matty arrived.  Dirty Dave had sent an email earlier asking Matty to pick up a bottle of Crown Royal.  Now, the crew on this trip is a very sharp bunch - on top of pop culture like no other, and spewing a non-stop stream of sarcasm and advanced metaphorical enunciations.  I thought Dave's email was a joke, even though he didn't use the sarcasm font, but lo and behold, there was a handle of Crown up in Matty's room, which adjoined mine.   We got cleaned up, I was peer pressured into drinking Crown & Coke,  and we rendezvoused with Big Show and his wife at Lavo - the "club" at the Palazzo, where Dirty Dave had reached back into the time machine and hit up his club host from the bubble era to secure us a table, with buy one get one free bottle service.  Of course, the BOGO means that instead of being insanely stupidly expensive, the bill is merely expensive.  We were downstairs at Lavo, which is more of a lounge than a club.  It's part restaurant, which was closing down for the night, but the downstairs vibe still suited us fine, as it was much less loud and obtrusive than the upstairs melee.  Matty executed a purely amateur move by indulging the shot girl, buying shots immediately after Dirty Dave had just placed the order for a bottle of Ketel and a bottle of Macallan's from the waitress.   Rule number 1:  when you have two bottles coming, you don't order shots!  Big Show rolled his eyes, and joined me in steadfastly refusing shots.

Over the next few hours we polished off the majority of our bottles before the host moved us to a table upstairs.  The club part was packed, loud, and cold.  Big Show and I decided to smoke a cigar and then head downstairs to play blackjack.  After a few minutes, a young Asian guy came by and asked "Hey man - can I have a puff of your cigar?"  Huh?  DYKWTFIA?  I was confused, and not sure what to say.  Big Show muttered, "No, dude, that's just creepy,"  while I responded "I have swine flu."   We finished the stogies and retreated to the serenity of the double deck blackjack pit at the Palazzo.  After running up a nice profit in less than half an hour, Big Show decided to pull the plug, and I bumped into Dirty Dave (who was staying in my room with me) on the way back up to the room.  Now,  I immediately closed and locked the door between the two suites, explaining that there was no way I was having Dance Party USA in my room, as I knew that the other guys were still raring to go at 5am.  Dave agreed, but when there was a knock on the door a few minutes later, he had a moment of weakness and wanted to open it.

"Don't you dare open it," I warned him.
"But what if it's Junior seeking late night asylum after being sexiled?"  Dave had a point, and checked the peephole just to make sure the knock wasn't coming from the hallway.

I dozed off, but was surprised when I heard Dave in the shower before 9am.  I looked over at his bed, expecting that he'd had some sort of alcohol related accident, but the sheets looked dry and there was no sign of puke anywhere.  When he came out of the shower he explained that he was suffering the classic Red Bull symptoms -  you can't sleep, and lie awake barely able to move like a dying cockroach.  I know these symptoms well - with cards flashing across your eyelids every time you close your eyes - and it's why I don't drink Red Bull anymore.  He went downstairs to absorb some negative EV in the 6-deck blackjack game, while I slept for another 90 minutes before rallying the crew for brunch at BLT Burger at the Mirage.

The Professor, on a serious bender, has some Budda-esque words of wisdom.  "I may have been born yesterday, but I've been up all night,"  he told the table, before ordering a bloody mary accompanied by the astute observation: "This drink will either make things much better or much worse."  No mean reversion here - The Professor was hitting the tails of the distribution.    BLT's burgers, fried pickles, milkshakes, waffle fries and nachos refueled us and got us ready for a big day of picking NFL playoffs losers and expounding on the theory of the evolutionary cycle of the young American female, which I'll get to in Part II...


Tuesday, January 19, 2010

Homeownership Update

I'm back from Vegas, and busy crafting a trip report which will be well worth your time to read.  In the meantime, the total in the New Hampshire mouse wars so far is Kid Dynamite 2, Mice 1:  they managed to snatch superglued dog food kibble off one of the traps, but two mice succumbed to Mrs. Dynamite's patented bait technique.   We have another batch of baited traps ready to go.

Friday morning, before I departed for Vegas, I came downstairs to find that my freezer had melted.  The fridge/freezer unit was on, but not cold.  Crappola.  Mrs. Dynamite handled it, calling the company who dispatched a certified technician.   This guy noted that he could see from the records that in September of 2008 a technician from a different company had been dispatched when the previous owners had the same problem.  This prior scumbag told KitchenAid that he replaced the compressor, but merely did a craptastic patch job on it - unbeknownst to anyone until this new technician pulled the unit out and could easily diagnose it. 

This is another joy of home ownership - not only do you have to worry about shoddy work and being cheated by service providers,  here we got hosed because the PRIOR owners got cheated by a service provider.  Since their technician screwed them over by not actually replacing the compressor, we have to eat the cost of installing a new compressor.  Sweet!  Fortunately, we are lucky enough to have a second fridge/freezer unit to take care of our food while we await the replacement parts.

Stay tuned all week for the Vegas recap.


Thursday, January 14, 2010

Vegas Imminent

I'm off to Vegas Friday afternoon, rekindling the pattern of annual Martin Luther King Day trips to the desert.

While I'm gone, there's a lot of reading to catch up on here.  Of course, you can always hit my tip jar and donate to my efforts.  The link is on the right sidebar.

In case you missed it, I've been busy the past few weeks, cranking out what I think are pretty worthy reads.

Just before Christmas, I penned a post titled "Isaac Newton, Momentum, and Mean Reversion,"  which tells one of the most valuable concepts I learned in my time on the buy side - you want fat tails of distributions working in your favor, not against you.

Later that week I wrote "Fiduciary Duty and the Victim Mindset,"  which tried to get at the point that as long as we continue to label those on the losing side of trades as victims, they will never change their behavior.  Many of these "victims" were grossly negligent and need to be removed from their money management rolls.  This theme continued in a post titled, "Synthetic CDO's, Spanish 21, and Sports Betting,"  which I'm very happy with.

After New Years, I named my trade of the year:  the Ponzi scheme epitomized by the TLGP, and eerily reminiscent of Tommy Boy's "I'll take a crap in a box and put a guarantee it" quote.

I was surprised that Regulators found it necessary to explain to banks that interest rate risk was a big deal for them, and Tim Geithner's seat heated up a little with news that he may have tried to prevent some disclosures from the AIG settlements.

The unemployment report sucked - no matter what the mainstream media wants you to believe.

I penned a few homeowner related posts.  "The Joys of Home Ownership," attracted a lot of reader comments, and I followed that up with my travails attempting to buy a ladder, titled "Eff You Brick and Mortar."  I went home and bought the ladder online at

I took issue with the Administration's blaming the banks for the collapse of the automakers.

Finally, I wrote a reaction to the populist fury over the confusion surrounding the difference between front running- which is blatantly illegal, and talking your book - which is the essence of our entire financial markets.  Every commentator you see or read is talking some sort of book/agenda - don't forget that.

If you want some lighter reading, to prep you for next week's Vegas Trip Reports, the "posts of fame" section on my right sidebar has all my old Vegas Trip Repors.


Bank Taxes, GM, and Chrysler

Today's story is "Obama to Unveil Proposal on Bank Taxes"  from the WSJ, regarding taxes/fees the Administration will assess to the big financial firms.

"If approved by Congress, the new tax -- which the White House calls a "financial crisis responsibility fee" -- would force about 50 banks, insurance companies and large broker-dealers to collectively pay the federal government roughly $90 billion over 10 years. Of the 50, about 35 would be U.S. companies and 10 to 15 would be U.S. subsidiaries of foreign financial firms.A senior administration official said the largest 10 institutions would pay about 60% of the tax's total cost."

I just want to focus on one quote from the article:

"The taxed firms are expected to pay the cost of bailout money that went to General Motors Co. and Chrysler LLC, which are exempt from the tax. The administration official defended the omission by contending that U.S. auto makers collapsed in part because of a financial crisis of the banks' making."

Wow - talk about a mis-statement of the truth.  That statement could be rewritten as follows:

"U.S. auto makers collapsed in part because of a financial crisis of their own banks' making."


"U.S. auto makers would have collapsed sooner if not for a massive credit bubble driven by low interest rates"

or, as my friend Ted put it:

"U.S. auto makers collapsed because they've made shitty cars for decades and overpromised benefits to unions.

Blaming the collapse of the automakers on the banks ignores the fact that before there was the bust there was a boom!  Automakers didn't collapse in the early part of the 21st century because the Fed fueled a new bubble in the wake of the collapsing internet bubble.  If we'd never had a credit bubble (and subsequent bust,)  the auto companies would have faced their day of reckoning years ago.


The Year of the Tiger

Ironic?  2010 is the Year of the Tiger in the Chinese Zodiac.  Are you telling me he won't be back?  It's his year!


Wednesday, January 13, 2010

Eff You Brick and Mortar

So I am buying a ladder.  I did some research on the internet, and decided on the Werner MT-22 telescoping multi-position telescoping super duper interchangeable heavy duty ladder.  I have been doing most of my home store purchases at Lowes, which is right next to where I go grocery shopping, so I went to pick up the ladder and ingredients for the next few nights worth of dinner.

Of course, I checked prices on the internet first. had the ladder for $179, with free 2-day shipping via Amazon Prime, and Home Depot also had it for $179.  Lowes wanted $198 for the ladder, but they match competitor's prices, so I checked to make sure Home Depot had the ladder in stock (the internet indicated it was in stock at the Concord store, which is about 3 miles from the Lowes that I was going to), and then I headed off for Lowes.

At Lowes, I quickly found the ladder, had a store employee help me with a demonstration of the slightly smaller 17 foot model that was open as a display, and then confirmed that they'd match the price.   "Of course we'll match Depot," two guys standing there told me, and eagerly fetched me a cart.  "Just tell them up front - they might call over to Depot to verify the price."  Now, I've already purchased a washer and dryer at Lowes  for which the clerk simply looked up the Home Depot price on the internet and matched it, but anyway.  The lady at customer service was nice, but clearly seemed to take the ladder as a personal challenge to look for an excuse to NOT match the lowest price.

"It has to be the exact same item," she challenged me.  "Ok - it is," I calmly replied.  "They have to have it in stock,"  she reloaded.  "Yes - I checked the internet - they have it in stock at the local store,"  I explained.   She jumped all over this mention of "the internet," explaining "The internet doesn't count! It has to be in the store!"   I sighed, "Yes, I know, I checked the availablility of it in my local store on the internet."   So she picked up the phone and called Home Depot.  And waited on hold.  And waited. And waited.... Finally, she gave up, called back, and waited on hold some more... and waited.  At one point she relayed a question, asking me "Is that aluminum, or fiberglass?"  "Aluminum," I explained, and resumed waiting...I stretched my quads.  I browsed the flashlight display.  I stretched my hammies.  Then, after 15 minutes, I realized I needed mouse traps, which she pointed me towards.  As I returned with my loot, she was hanging up the phone, and triumphantly told me "They can't find any in the store, so I can't match the price."

"Do you think that maybe they person you were talking to didn't understand what you were looking for, since it took 15 minutes for them to figure out what was going on with a top selling item?  Can't you look it up on the internet?"  I suggested, failing to mention that the washer/dryer department had done just that on items costing $1300 more than this ladder, but she was having none of this "internet" idea.  I should have known the person on the other end of the phone at Home Depot didn't know what they were looking for when they asked if the ladder was aluminum or fiberglass - this ladder only comes in aluminum.

"Sorry, there's nothing I can do,"  she smiled.  So I left the ladder at the register, told her I wasn't going to argue with her, and walked out.  Now I was steaming though - I didn't want to do business with Lowes because they were being doucheballs, and I didn't want to call Home Depot to see if they actually had it in stock, because if they did I'd be just as pissed at them for wasting my time.  Mostly, I was furious at myself for accepting this "no" answer, instead of either suggesting she try the other local store (there's another one 5 more miles away), or asking for a manager.  Some people fear confrontation.  I am not one of these people, yet I still failed to resolve this issue.   Perhaps it's because I knew I could go home and order it from, and have it in my hands on Thursday morning with free 2 day shipping.  Amazon's return policy is as good as Lowes, so that wasn't an issue either.

My wife and I buy everything we can on Amazon.  Trash bags.  GPS.  Ladders.  Tools.  I just bought a 2010 desk calendar from them yesterday.  When the internet big boys, like Amazon, can get you stuff in 2 days with no shipping charges, at prices better than local big box retailers, the brick and mortar boys better heed the warning call.   Everytime I end up at a store like Best Buy, Borders or Barnes and Noble looking for the Family Guy Season 5 DVD set,  the latest season of It's Always Sunny In Philadelphia, or the complete anthology of Curb Your Enthusiasm, I get frustrated within 5 minutes and turn to my wife asking, "Why are we even here?  Let's go home and buy it on Amazon, save money and avoid all this bs incompetence."  Then I walk out, go home and order it on Amazon.  I'm now at the point where I'm buying large, bulky home improvement goods  (like 22 foot ladders!) from Amazon too.  Suck it Lowes and Home Depot.


(disclosure: no position in AMZN)

ps - my wife wants me to give a shoutout to SimpleHuman for their tremendous customer service.  We have a SimpleHuman trashcan. They are expensive, and they have parts which can break.  Two years ago, we broke the small plastic kickstand that keeps the lid open.  Mrs. Dynamite called the company and they sent her a new one, free of charge.   On New Years Eve, one of my inebriated friends tried to close the lid when the kickstand was propped open, which resulted in the lid bending in half.  Again, Mrs. Dynamite called the company, and they sent us out a new one free of charge.  Thanks, SimpleHuman, for your quality customer service resolutions.

Financial Crisis Inquiry Commission Hearing

The Banking Big Boys are testifying this morning in front of the FCIC.

"The Commission was established to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." The 10 members of the bi-partisan Commission, prominent private citizens with significant experience in banking, market regulation, taxation, finance, economics, housing, and consumer protection, were appointed by Congress on July 15, 2009. The Chair, Phil Angelides, and Vice Chair, Bill Thomas, were selected jointly by the House and Senate Majority and Minority Leadership. The FCIC is charged with conducting a comprehensive examination of 22 specific and substantive areas of inquiry related to the financial crisis."
You can find the 22 specifics on the FCIC's website.

I'm watching this hearing, where MS's John Mack, JPM's Jamie Dimon, GS's Lloyd Blankfein, and BAC's Brian Moynihan are testifying, and one thing stands out in contrast to previous testimonies that have been held in front of Congressional panels:  The FCIC commissioners are more concerned with actually getting answers to their questions, which is refreshing, since usually we see the members of the House Financial Services Committee or the Senate Banking Committee firing off grandstanding questions in 3 minute time frames without even intending to get real answers.  The FCIC is made up of civilians, some of whom were previously elected officials.

Bess Levin at Dealbreaker has her usually unique "live blog" of the hearings running now, including a reference comparing Lloyd Blankfein's testimony to a classic Mike Tyson blowup.

One thing I definitely miss is Ken Lewis's big red flummoxed looking face. His replacement, Brian Moynihan, looks like a slightly turtled up version of Patrick Swayze (R.I.P).


Tuesday, January 12, 2010

Talking Your Book vs FrontRunning

So today's non-story that's been somehow turned into a story relates to a letter that Goldman Sachs sent to clients of its "Fundamental Strategies Group,"  which was published by Andrew Ross Sorkin on the NY Times' Dealbook.

"Dear client,
We may from time to time discuss with you Trading Ideas generated by our Fundamental Strategies Group. As part of our commitment to managing conflicts of interest appropriately, this message is to explain how the Fundamental Strategies Group interacts with other parts of our organisation and how that impacts on the Trading Ideas.

The Fundamental Strategies Group is a group of cross-capital structure desk analysts employed by our Securities Divisions to assist our traders. They develop Trading Ideas in conjunction with traders. We may trade, and may have existing positions, based on Trading Ideas before we have discussed those Trading Ideas with you. We may continue to act on Trading Ideas, and may trade out of any position, based on Trading Ideas, at any time after we have discussed them with you. We will also discuss Trading Ideas with other clients, both before and after we have discussed them with you.

You should not consider Trading Ideas as objective or independent research or as investment advice. When we discuss Trading Ideas with you, we will not be acting as your advisor (including, without limitation, in relation to investment, accounting, tax or legal matters) and the provision of Trading Ideas to you will not give rise to any fiduciary or equitable duties on our part. We will not be soliciting any action based on Trading Ideas and it is your responsibility to seek appropriate advice.

Any opinions that we express when we discuss Trading Ideas with you will be our present opinions only and we will not have any obligation to update you in the event of a change of circumstances or a change of our opinions. We prepare Trading Ideas based upon information that we believe to be reliable but we make no representation or warranty that such information is accurate, complete or up to date and accept no liability, other than for fraudulent misrepresentation, if it is not.

If you have any concerns about any of these matters, please do not hesitate to contact us.
Kind Regards
Jane Lattin

Clusterstock had it right initially, with a post titled "Goldman Sends A Really Boring Email to Investors,"  but as a commenter on that site points out, they quickly realized that they would get more clicks by changing the title to "Goldman to Clients:  We May Be Frontrunning you."  The URL for the entry shows the initial non-sensationalized title. 

Unfortunately, the folks at the influential ZeroHedge also chose to mis-inform their readers, not only with the headline "Goldman Admits to Frontrunning Clients Through Its Prop Desk," but by suggesting that the letter at hand is a smoking gun for the completely unrelated story they (ZH) published back in July, 2009 about GS's disclaimer for the REDI electronic execution platform.  Believe me - as soon as someone provides evidence that GS is taking client orders that it sees entered in the REDI platform and actually frontrunning them, I'll be up in arms, but today's letter is about an entirely different group at the firm, and has nothing to do with frontrunning. 

This letter is a good thing - it removes any ambiguity and lays it out quite clearly for trading clients that they will not be the only ones getting a given trading call, that they probably wont be the first or the last client to get the call, that they may not get another call if and when the firm's opinions change,  and that, most importantly, the firm may have positions in the relevant securities before the client gets the call.  This is essential for EVERY client to realize, and it applies to every firm - not just Goldman Sachs.

It's also important to realize that this letter refers to the "Fundamental Strategies Group."  This is a group making trading calls - and is distinct from their equity research department. I am fairly certain that GS is not saying that its equity research calls are given to its prop desk before being released to the public, but even if they are - so what - if you don't like the research, don't use it.  If this letter does apply to GS's equity research, all it should do is lessen the validity of the research.  If people still want to ramp stocks on GS's calls even though they know that GS is talking up its own positions ("talking their book," in the lingo), well, shame on the suckers.  If you don't like the trading calls, don't use them.  The point is, these trading calls are calls that GS thinks will make money, and you can be damn certain that they have either acted on them already or at least thought about acting on them, and that they've probably told better clients than you about the trades already.   Rather than rant and rave about it, all one has to do is not do business with this group at Goldman Sachs.  Of course, that's unlikely to happen, because people are greedy, and I'm guessing that these trading calls from GS are still money makers - be it simply because of the "follow GS" phenomenon, or because their insights are actually more insightful.

Put simply, who should be mad about this? No one.   Either you're one of the clients who is getting trading calls, which you KNOW may be biased (biased in the sense that GS wants you to buy stocks that they are already long), and they are working, in which case you're still happy; or you're one of the clients who is getting biased trading calls and they are not working - in which case you stop listening to GS's trading calls.  If the trading calls don't make you money - DON'T LISTEN TO THEM!   Then there is the entire group of people who are NOT getting GS's (biased) trading calls in a timely manner,   yet are still furious at the possibility that the trading calls are biased.  It's patently absurd, like saying "Damn you, GS, I can't believe you're giving out biased trading calls talking your own book, but you're not giving them to me!"

Now, frontrunning is something else entirely.  Frontrunning is when a client gives an order to GS, and GS, instead of executing the client's order, goes and executes the same order in its proprietary account first, usually with the intention of moving the price of the underlying asset and then trading it back to the client at a price advantageous to the firm.  It's outright illegal, and it's a big deal.  However, it's completely unrelated to what the letter released today is talking about.

Goldman Sachs' letter today acknowledges something that should be standard knowledge for anyone talking to any sell-side firm:  a firm may be, and probably is, talking its own book when it gives you a trading call.  These firms are in the business of making money on their trades - they put on a trade, and then try to convince others why it's a good idea.  It's not a smoking gun, and it's not frontrunning.   As a customer, you may actually be suspicious if a firm like GS is hyping a trade to you but they have no prop position - after all - if it's such a good trade, why don't they have it on themselves?  One of the favorite questions my boss used to ask sell side analysts and traders when we were on the buy side was "What do you own in your personal account?"  Those were usually the highest conviction ideas.