Good Times Never Seemed So Good

Was Neil Diamond anticipating the 2008/2009 recession when he wrote Sweet Caroline?

"Where it began, I can't begin to know when
But then I know it's growing strong
Oh, wasn't the spring, whooo
And spring became the summer
Who'd believe you'd come along

Oh, sweet Caroline
Good times never seem so good (so GOOD! so GOOD! so GOOD!)
I've been inclined to believe it never would"

Indeed, things are so good right now (sarcasm alert!) that people are having to sell their grave plots to raise money. I can't emphasize how not good that is. All I can do is picture John Stewart on The Daily Show pleading with the camera in an exasperated, sarcastic tone: "Yes Ethel - the economy has recovered and things are improving rapidly - that's why you need to sell your final resting place to pay the bills!" From the WSJ aritcle:

"As if the recession hasn't ruined enough people's plans in this life, it now seems to be disrupting the hereafter as well. Cemeteries and funeral-property Web sites report a burgeoning marketplace for the sale of burial plots by individuals, many of which have been in families for years. As times get tough, they are now being liquidated to make ends meet."

Which leads us into this terrific cartoon which Barry Ritholtz published on his blog yesterday:

While I'm at it, let me hit a few other quick ones: TARP inspector general Neil Barofsky tells the "look - we made a 17% return on the TARP funds" crowd to screw their heads on straight, and that it's highly likely that a large chunk of the TARP funds will never be repaid.

You may have seen the story from Monday about the banks lending money to the FDIC to prop up the rapidly vanishing insurance fund. For anyone who doesn't understand how absolutely preposterous this is, ponder the following: if your insurance company asked you for a loan so that they'd be able to cover the claims they will have coming up, what would you say? That's a rhetorical question. Other options include a special assessment on the banks, which is exactly what is needed. Of course, the banks don't like that idea:

"Bankers worry that a special assessment of $5 billion to $10 billion over the next six months would crimp their profits and could push a handful of banks into deeper financial trouble or even receivership. And any new borrowing from the Treasury would be construed as a taxpayer bailout that could open the industry to a political reaction, resulting in a wave of restrictions like fresh limits on executive pay. Any populist furor could be avoided, the thinking goes, if the government borrows instead from the banks."

Of course, we know that the banks can borrow at near zero rates from the Fed anyway, so it's just an absurd shell game to make it LOOK like the banks are lending money to the FDIC - which is an absolutely ludicrous concept in it's own right. Sadly, such shell games frequently CAN succeed in quelling "populist furor" - because the populist doesn't understand. Fortunately, cooler heads have prevailed (SARCASM ALERT!), and the latest discussion is for the banks to pre-pay future fees to the FDIC in order to sure up the reserves. Pull those fees forward - that will fix everything!

-KD

You Really Shouldn't Care So Much About Flash Trading

disclaimer: do not waste your time getting sidetracked into OTHER aspects of high frequency trading - this post is about one thing: FLASH TRADING. do not leave me comments about how much you hate high frequency trading - focus on the simple facts of flash trading, and I will be happy to engage in a dialogue with you.

First, let's step back and remind ourselves what flash trading is: when you enter an order on certain exchanges, you have the option to elect to have that order "flashed" to members of that market center to give them the opportunity to match prices that may be available on other exchanges. You, as the order executor, elect to have your order flashed because if the order is executed internally, you don't have to pay an additional charge to route your order out to another exchange. It's that simple. Let's make it a little more concrete: GE is trading $16.50 - $16.51, but you execute your orders on DirectEdge, and the best offer is currently on ISLD. When you enter a flash order in DirectEdge to buy 100 GE @ 16.51, all it does is give potential sellers in DirectEdge the opportunity to sell it to you at $16.51 before DirectEdge routes your order out to the other exchange. There is no theft, there is no front running, there is nothing to rant and rave about.

Now, I have all the respect in the world for Barry Ritholtz. I think he's a tremendous blogger who gets to the truth behind the data, and behind many biased mainstream media reports. Generally, he knows what he's talking about. So it was with dismay that I returned from a weekend out of town, sat down to catch up on some of his recent posts, and found this diatribe against flash trading. Ritholtz's piece arose because the SEC has proposed a ban on flash trading. Next they'll debate it, discuss it, hear comments on it, and vote on it.

A few months ago I wrote my most-read post ever, titled "We Fear What We Don't Understand." Let's revisit the flash trading component of that piece:

"Now, the intent of flash orders is to allow participants in a given market center the opportunity to improve the current bid or offer so that an order doesn't need to be routed away to another market center.

An example: let's say GE is trading $11.45-$11.50 at DirectEdge, but that there is an $11.46 bid on ISLD (an ECN). If you submit an order to sell stock at $11.46 on DirectEdge, they flash this order to select market participants to offer them the opportunity to fill your order - otherwise the order gets routed out to ISLD and you (the seller) have to pay an extra fraction of a penny for the routing. As I tried to explain on some other posts regarding flash trading, this is basically a hyper-speed modernized version of how the NYSE specialists used to verbally quote orders to offer people in the crowd the opportunity for price improvement: "if GE was 11.25-11.27 50k up, and you walked in to sell 50,000 shares, the specialist would say out loud “25c bid 50,000, 50,000 at 26c, SOLD.” Anyone could say "TAKE or BUY'EM" before the specialist said "SOLD" which would result in the seller getting price improvement to $11.26 and if no one interrupted him, the trade was done at $11.25. Markets have NEVER been setup such that every participant has the same opportunity to trade on every quote."

There was also an op-ed in the WSJ a few weeks ago defending and explaining flash trading. The op-ed is accurate, well written, and clear, yet Ritholtz still managed to take offense to it:

"The WSJ had an Op-Ed last month, In Defense of ‘Flash’ Trading, that suggested that “Flash trading is like offering to sell your house to your neighbor before you officially put it into the real estate listings.”

That description is, of course, utterly false. We have alternative exchanges where you can offer stocks privately to other willing buyers (i.e., Instinet). Flash trading is more like having access to private info from the sellers, knowing what they will accept, stepping in front of legitimate buyers, and then flipping the house to those buyers while capturing 0.001% of the transaction. No benefit to the seller, to the neighborhood or to anyone else — all at a small cost to the buyer."

I can't fathom how someone as intelligent as Ritholtz could screw this concept up: when you "step in front of legitimate buyers" it means you are paying more than anyone else. Thus, it's not possible to pay the highest price and then flip it back to the buyers who are willing to pay LESS and make a profit. If you buy stock against a flash order, and offer it out again, you're taking risk - you're not stealing fractions of a penny from anyone or arbitraging anything - what you ARE doing is helping the person who flashed the order in the first place by offering them price improvement and eliminating routing costs.

Now, there is certainly the POSSIBILITY that instead of John Q FlashMan seeing the flash order - let's say it's an order to buy GE - and instead of offering to sell stock to the flash order, he decides to act illicitly and buy stock in GE as fast as he can, before the original GE order gets completed. This is called front running - it's blatantly illegal, and you'd be hard pressed to find anyone who would argue that it's defensible. However, if the traders entering flash orders constantly find themselves being frontrun, well, guess what - they'll stop entering flash orders. They are not idiots. Guys using flash orders are highly cost sensitive, (that's the very reason they use flash orders in the first place!) and notice when their execution costs (both explicit: commission/fees, and implicit: impact costs, or negative costs associated from other trading ahead of their orders) increase - if flash orders are hurting them, they won't flash them.

Flash trading is a non-issue that people like Chuck Schumer and Ted Kaufman have jumped on in an effort to make it look like they are fighting for the little guy's rights on Wall Street. The reality is that a ban on flash trading will have little to no effect on any sort of market dynamic, and will not help the little guy at all, but will increase trading costs for some traders.

-Kid Dynamite

Marty Up! Ponzi Lives

Several years ago, the Big Show and I coined the abbreviation "MARTY UP!" to indicate it was time to implement the Martingale System. Lately, Vegas has been Martying Up their own balance sheets in classic Ponzi fashion. Last week I noted that Harrah's basically executed the very definition of a Ponzi scheme, when they issued new debt to pay off their old debt. This week MGM did something similar.

MGM had an exchange offer outstanding: they have debt coming due in 2010 ($782MM of 8.5% notes), and they tried to get investors to exchange that debt for new debt due in 2016, yielding 10%. Basically, they offered to pay you a little more, in exchange for you agreeing to wait a little longer to get paid back. There was a slight problem: of the $782MM outstanding 2010 notes, only $21MM had agreed to extend and pretend. That's how Ponzi scheme's fail.

No fear, though - today MGM announced that they were revising the terms of the exchange so that it would only effect roughly $25MM of the 2010 bonds... And in a separate announcement, they revealed a private placement of $350MM of new debt due in 2018. PONZI SUCCESSFUL! Obviously, they will use the proceeds of this placement to pay down existing debt.

There's one more important piece of fine print in MGM's 8k today:

"At March 31, 2009, the Company reviewed its CityCenter investment for impairment. The Company’s discounted cash flow analysis for CityCenter was based on estimated future cash outflows for construction and maintenance expenditures and future cash inflows from operations and residential sales of CityCenter. Based on its analysis, the Company determined that no impairment charge was necessary at March 31, 2009.

The Company expects to conduct an impairment analysis of its investment in CityCenter as of September 30, 2009. The Company believes it is reasonably likely that the outcome of this review may lead to a non-cash impairment charge but cannot reasonably estimate the amount or range of such impairment charge at this time."

You can be sure that MGM will have to recognize an (epic?!?!?) impairment charge on CityCenter when they finally decide to acknowledge the reality of the crap-tastic situation in Las Vegas.

Marty Up! Long Live Ponzi!

-KD

disclosure: no position in MGM, but looking for a place to short it, along with LVS

Your Tax Dollars At Work

Please note - this piece is entirely non-partisan. I'm not condoning or criminalizing Joe Wilson's actions in yelling "You lie!" at President Obama during his big speech before the Joint Session of Congress last week - but I am certainly saying that Congress's actions today are a disgraceful waste of time, money, and thought.

In case you missed it, the House voted to officially "rebuke," Representative Wilson, which means, well, jack shit. Here is the wording from the actual resolution:

RESOLUTION

Raising a question of the privileges of the House.

Whereas on September 9, 2009, during the joint session of Congress convened pursuant to House Concurrent Resolution 179, the President of the United States, speaking at the invitation of the House and Senate, had his remarks interrupted by the Representative from South Carolina, Mr. Wilson; and Whereas the conduct of the Representative from South Carolina was a breach of decorum and degraded the proceedings of the joint session, to the discredit of the House: Now, therefore, be it Resolved, That the House of Representatives disapproves of the behavior of the Representative from South Carolina, Mr. Wilson, during the joint session of Congress held on September 9, 2009.

Now, in case you don't understand what that means, the elected officials of our country spent time today debating and then voting to decide that it "disapproves" of the behavior of Mr. Wilson. Seriously.

They didn't spend time talking about how to recoup the hundreds of billions of dollars they've sunk into AIG, FNM, FRE, C and BAC.

They didn't discuss exactly what might be the best way to dispose of the Citigroup stake that Treasury has expressed interest in selling, and they didn't discuss the possibility of removing the guarantees that the government has given Citi on $300Billion in crappy assets.

They didn't spend time talking about how to move forward with the monumental health care bill, or if maybe it might be time to think about alternatives to continuing to extend unemployment benefits while desperately hoping the economy improves.

They didn't debate a second stimulus plan, or even consider that since the mainstream party line is that the recession is over and that things are getting better, maybe we don't need the stimulus after all.

They didn't talk about the risks to our plan to continue to roll over an ever increasing mass of national debt on the gullible Chinese.

They didn't discuss a potential backup plan in case the "delay and pray" strategy for economic improvement fails.

Instead, they spent their time debating and then voting to make sure that everyone knows they disapprove of Representative Wilson's actions... And??? Are they going to kick him out of the House? Are they going to fine him? Are they going to put him on trial for treason? Are they going to send him to Gitmo? If not, WHY THE FUCK DID THEY NEED TO WASTE TIME ON THIS?!?!!?

Again, without passing any judgment at all on Wilson's actions, I can agree 100% with his quote today:

"When we are done here today, we will not have taken any further steps toward helping" the nation deal with urgent challenges, said Wilson, of South Carolina. "It is time that we move forward and get back to work for the American people."

The American people saw Obama's speech, and Wilson's interruption. It was said that in the 24 hours after the event, Wilson's campaign donations ramped up, but that his opponent's donations increased twice as much. The people are capable of evaluating the action on their own - we do NOT need our elected officials spending their time on utter crap like this, unless they are doing it to enforce actual consequences as a result.

In related news, this Dilbert cartoon sounds like a better use of time and money than what Congress is currently doing:




edit: the entire roll call for the resolution is here. Shame on Barney Frank for taking the time to show up and vote "present" but not being able to make a decision on something as monumentally inconsequential as "disapproving" or Wilson's actions. Kudos to Maxine Waters (that is the first, and possibly the last time you will hear me commend Waters) for not bothering to vote at all.

-KD

Seinfeld?

The NY Times ran an article this weekend about protesters rallying against big government, with this picture:


I saw the picture of Pelosi with the link between "Nazis" and "Astroturf" and I was immediately impressed by the wit of the protester, who was clearly referencing the classic Seinfeld episode where George and Jerry steal a limo by posing as "O'Brien" and "Murphy," not knowing that O'Brien is the head of the Aryan Union. When they figure out the situation, George calls 911 from the back of the limo, and is pleading his case to the operator, when the host returns to the limo. George quickly shifts gears, and utters the classic line:

"Astroturf? You know who's responsible for that, don't you?! The Jews! Ah, the Jews hate grass. They always have, they always will."

Sadly, I later realized that the sign was not paying homage to this legendary Seinfeld moment, but was a reference to Pelosi's soundbite downplaying a prior protest as not grassroots, but "astroturf." I'm not ashamed to admit that I'm not up on Pelosi's soundbites.

-KD

September 11th, 2009

I wrote this piece on September 11th 2006,

and this one shortly after September 11th, 2001

"Well starry eyed and laughin' I recall when we were caught
Trapped by an old track of vows for the hands suspended
As we listened one last time and we watched with one last look
Spellbound and swallowed "Has the tollin' ended?""

-KD

Ponzi?

From 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."

From Harrah's press release today: (emphasis mine)

"Harrah’s Entertainment, the beleaguered casino operator, says it will offer $720 million in new secured notes to give it more time to repay lenders, The Associated Press reported. The Las Vegas-based company, which was acquired in a leveraged buyout, said Tuesday that it would use the proceeds from selling the new notes, which will be due 2017, to repay debt that is due much sooner."

I'm just sayin'.... I guess if your profits from lowering payouts on the blackjack tables to 6:5 don't cut it, you just sell new debt to pay down the old debt, then sit back and wait for time to heal all wounds. I'm sure that once CityCenter and Fountainebleau open, flooding Vegas with more supply it can't handle, then everything will magically become super again.

/sarcasm

-KD

Satire Everywhere - Even Where Unintended

The first article I opened this morning was a Bloomberg piece titled "Stocks Cheapest Since '89 Show Why Analysts Say Economists Wrong on Growth." I scratched my head and plowed through the article, which spends a lot of time actually detailing some risks that the market faces going forward. Then I found the part where they explain the headline - the cheapness of stocks (emphasis mine):

"The gains spurred the steepest rise in the S&P 500’s price- earnings ratio since at least the 1950s, pushing the index to 19 times operating earnings from the past 12 months, the most expensive level since 2004, according to data compiled by Bloomberg. Based on analysts’ forecasts for 2010, the S&P 500 trades for 13.5 times income, the lowest since 1989 when compared with the trailing P/E ratio before Lehman Brothers Holdings Inc.’s collapse a year ago."

Then I read this piece on ZeroHedge, which highlights JPMorgan's upgrade of General Electric today. Remarkably, the report is titled after Pink Floyd's Comfortably Numb. We're truly in a remarkable spot in the markets when the justification for upgrading behemoth GE is that investors seem numb to the downside! I guess that means there is no downside - if we ignore it, it can't happen!

A colleague sent me this comment this morning from an analyst whom I will keep anonymous, but suffice it to say that this analyst is not a moron, and was actually mostly bearish throughout 2006 and 2007 before everything fell apart:

"All in all, we expect the coming weeks to put an end to the debate on recession vs. recovery and to bring about a major lift in investor sentiment. In essence, we expect our bullish thesis to become consensus within months if not weeks."

I replied, "WHY? Because all those people who are unemployed and having trouble with their mortgage resets will suddenly be exposed to mind erasing gas like in the second to last Batman movie?" I'd love to hear the logic for everyone suddenly waking up to the reality of the new bull market - as I'm expecting quite the opposite. I'm expecting the bulls to realize that rampant unemployment, understated job losses, stagnant wages, continuing job losses, weak hiring outlook, lack of home equity, and an eventual inevitable end to government subsidies will require us to finally address the problems in the economy. But maybe the plot of Batman Begins will turn into reality, and the government will unleash its happy gas to control the populace.

Iowahawk has written a phenomenal satirical piece which puts a mainstream media spin on the current trends in joblessness. Some snippets:

"Brian Smalley was laid off by ObamaStickers.com in late April. He didn't panic. He didn't rush off to a therapist. Instead, the 33-year-old Santa Monica resident discovered that being jobless "kind of settled nicely, once you get used to the heating grate..."

What most people would call unemployment, Smalley embraced as "funemployment." What other people would dismiss as starvation, he whimsically terms a "starve-cation..."



"Horton, who was recently laid off from her job as a ElectoChill D.J. at a boutique hotel aromatherapy spa, says lack of a daily job obligation has been "a godsend..."

"I get to sleep in late at the shelter, and I finally have time to catch up on Tweeting," she says. As she recently mused on Twitter, from an Austin public library: "Recession? More like relax-cession!...""



Never heard of funemployment? Here's Urban Dictionary's definition: "The condition of a person who takes advantage of being out of a job to have the time of their life. I found a burrito with only one bite in it; funemployment rocks!..."

"Melissa Browning, 34, is another funemployed L.A. single who has found new meaning in prostitution. After losing her job as a program coordinator for a non-profit Feng Shui education group in late March, Browning decided to go on a three-week interstate highway trek through the truckstops of central Arkansas with two friends, earning up to $30 per night while sleeping in tent-like yurts.

"I used to be so absorbed in the details of work, but prostitution has allowed me to come out of my shell," Browning said. "Now it's just so much easier for me approach new people, in idling semis, at 2 am. It's just gives you such a positive pro-active outlook. I guess that's why it's called pro-stitution." "

It's sad when the Iowahawk piece is the most sensible story I've read today...

-KD

Life Insurance Settlements

I read an interesting article last night on NYTimes.com about securitizing life insurance settlements. The gist of the process is this: you have an elderly person, say, 72 years old, who needs money badly. This person, let's call her Ethel, has a life insurance policy that will pay $2mm when she dies, but it costs her $50k a year to keep current. According to actuarial tables, Ethel is expected to live to age 77. Now, the life insurance company will "settle" the policy with her - they'll give her cash right now. How much? In the NY Times example, it's a mere $58,000. Ethel is getting screwed.

Enter the evil "Wall Street," who seeks to profit from the death of average Americans - as critics will claim. Wall Street is now acting as an intermediary to try to get Ethel something closer to the theoretical value of her policy. The securities firm buys Ethel's policy from her, giving her more money up front ($215,000 in the Times example) than the insurance company would have given her, and then continues to pay her policy. The firm turns those policies into securities or even packages them with other policies, like Rose and Marvin's life insurance settlements, and sells them to investors. The investor pays the policy until the original policy holder dies, at which point the investor receives the value of the policy. It's really not as hard as it sounds - to simplify - you need cash badly, I have cash, so I buy your policy from you, and take it over. I decide how much to pay you for the policy based on the end value of the policy and your expected life span.

Now, it's debatable whether life insurance policies should be able to be settled at all. It's pretty clear to me, though, that if you have been making payments into a policy as you age, but you now need money, you should have the right to "cash out" your policy for whatever it's "worth." Critics will immediately jump on the securitization process facilitated by Wall Street as another attempt by Big Money to profit off the ill fates of innocent Americans - even incentivizing the security holder to cheer for the early death of the policy holder. This last part is unequivocally true - life insurance settlements are worth more when the policy holder dies earlier. However, the whole point of the securitization process is that the insurance company was not giving Ethel a fair value for her policy! Instead, let investors take the risk of the policy, and price Ethel's policy at a "fairer" value. A life insurance policy is no different from a bond - the problem is we don't know the maturity date. Let investors make a market on what the fair expectation of that maturity date is! This is exactly what insurance companies do, only they don't compensate you fairly.

Yves Smith at NakedCapitalism wrote today about a potential ill effect from the securitization process:

"On a small scale, this is a useful service to people who are in a bind. But the ramp up that Wall Street intends, of marketing the idea more aggressively and securitizing the policies, is likely to put all life insurance customers at a disadvantage.

The big reason is that many policies lapse (as in the owner of the policy fails to make payments. Those lapses are included in current pricing models. Investors will not miss payments, which means insurance providers will pay out more often than in the past on life insurance policies, which in turn means their profits will deteriorate, which means they will raise rates on everyone."

This is an interesting observation, although a commenter on Yves's post notes that insurance companies have gotten better at pricing policies to "abandonment," so that this theoretical "loss" that the insurance company suffers is smaller, and already priced in.

In today's "Evil Wall Street" era, the temptation is to crucify Wall Street for ideas like the securitization of life insurance settlements, but all the process does is make the value paid to the policyholder more competitive. The claim that this process will result in a pseudo "tax" for other policy holders because insurance companies will be forced to raise rates is a red herring - it ignores the fact that the benefit of the "tax" was already paid to our hero, Ethel.

-KD

This Week's Sign of the Apocalypse

I saw this in the grocery store today:


I mean seriously... What is our society coming to when one useless leech who is "famous" only for having 8 kids she can't afford because she really really "wanted" them is criticizing another useless bitch who is famous only for being a total hag and letting TV cameras come into her house and make a mockery of her child raising? But to answer InTouchWeekly's question - Octomom is definitely worse.

In other news, one of the big stories today is the NY Times propaganda trumpeting the massive "gains" the government is making on the bailout process. The FT also ran a story bloviating about profits from the rescue programs. Both have been dissected by multiple sources already (NakedCapitalism, Denninger,) but I thought Barry Ritholtz's explanation of the truth was the simplest.

"Looking just at early TARP repayments means that we are ignoring a) the rest of the TARP; and b) the majority of other expenses, guarantees, loans capital injections, and outright spending that has taken place."

One thing is for certain - the past 9 months have given us the most remarkable propaganda campaign the financial press has ever seen. Every headline is mandated to be spun positively, regardless of the degree of misquoting that takes place.

I looked at one blatant example of this when Nouriel Roubini was viciously misquoted a few months ago, but you can see it almost every day with the press touting how everything is getting better because we merely lost 540,000 jobs last week, which is much better than losing 700,000 jobs. Tell that to the 540k newly unemployed. Similarly, when the number of continuing jobless claims decreases, the press spins it positively. I was one of the first to anticipate this phenomenon back in early June when I wrote about people exhausting their unemployment benefits.

Last week, I was raising an eyebrow when the mainstream media headline was "Meredith Whitney: "Fears of bank solvency are behind us." Now, reading that quote, you'd think Whitney was bullish right? But that would be hard to believe, so then you go watch the video. What Whitney actually said was:

"We are early on in terms of bank closures"

"We estimate there will be over 300 bank closures (there had been 78 so far)"

"The small business owner on main street continues to see liquidity come away from him"

"Spending is going to take a long time to come back"

"I don't expect consumer spending to come back anytime soon"

Obviously, she wasn't bullish. Look - you can't cure the economy by lying to the people to foster confidence. This is a tough realization for economists, because they are used to confidence being a main driving force in the economy. If people think things are ok, they borrow more and spend more, which in turn is a self fulfilling prophecy to MAKE things ok. The problem is that currently, confidence matters less than ever, because even if the consumer has confidence, he doesn't have money, the capacity to take on more debt, or a job. You can't spend confidence.

Lest someone accuse me of whining without solutions, I'll remind you of the proper solution: RECOGNIZE bad debt instead of continuing to pretend it will work itself out eventually. Stop funding insolvent institutions and use those funds to seed new, healthy banks instead. We have a capital structure in place where there are rules about what happens when a company loses lots of money: first the stockholders take the losses, then the bondholders take the losses. The taxpayer does not fall anywhere in that hierarchy - CERTAINLY not before the bondholders and stockholders! Bank bondholders need to restructure debt to recapitalize the banks - just like the auto manufactures did.

-KD

Vegas - Summer 2009: To the FELT! Part III

If you missed Part I or Part II, go get yourself caught up.

SUNDAY

Leeroux woke up early and hit the airport for his flight home. Rico and I slept in for another 90 minutes, and then headed to the pool to wait for Big Show & Tubbs to rise from the dead. When they finally crawled out of bed, we headed over to the Grand Luxe with J and Connor for some breakfast. I had a topic of conversation for breakfast, and I explained my theory to the table. I'd always thought that Vegas was an American fantasy land - a place where people could go and act like they can't act at home - be someone else - do what you don't normally do. Guys come drink their balls off, girls act and dress like total whores, people spend money on completely stupid shit like $180 steaks and $450 bottles of Vodka and generally act like morons. VEGAS BABY!

However, it had just hit me, suddenly, that this wasn't a fantasy land - this was REALITY. This was the uber REAL America - douchebag rednecks walking around with a hollow plastic guitar filled with frozen margarita around their neck. Fucktards gambling away their rent at 6:5 blackjack tables without the slightest regard to the better odds at the next table or the next room. An endless parade of chooches who wear sunglasses inside with their tilted trucker hats and Ed Hardy shirts. Fat whales with no sense of personal space who walk right at you in the middle of the sidewalk, then stop and look up. Other fat whales stacking their plates with disgusting frozen shrimp cocktail and dirty king crabs legs from the all you can eat buffet. The one thing that really confused me though was the whore gene that seems to really blossom in the ladies in Vegas. What is it about Vegas that makes women wear butt-cheek length skirts and tight scooping satin shirts with no bras? Rico had a theory on that, explaining that this is how the girls actually were - but that they didn't have the opportunity to express their sluttitude in their little home towns. "If they had clubs like this in Podunk, USA, they'd act like whores there too," Rico elaborated. I couldn't shake the epiphany - that Vegas was the Real World - not an escape.

Anyway, after breakfast me and Big Show sat down at the quarter double deck blackjack table in the Palazzo outside the high limit salon. I got another channel check when, while waiting for my marker, I asked the pit boss, "How's business been?" "Slow," she replied. "Slow since the summer? Or slow all year?"

"Slow since we opened, eighteen months ago," she explained. "Write that down," I told Big Show, "and buy some LVS puts."

We battled for almost 4 hours at the bj table, where I managed to almost break even, and Big Show racked up a nice win. Neither of us could rival the blackjack MACHINE who sat down in the one seat and turned $500 into $5500 in 2 hours with an absolute clinic in how to spike blackjacks. We also got lessons in the fine art of hitting a 14 against a dealer's 6, and staying on 16 against a dealer's 7 from a doucheball who sat down for a brief period between us. Needless to say, he didn't last long.

I pulled another hundo out of my pocket to round up my buy-in so I could buy back my marker, and my streak of still not having cashed out any chips at the cage was intact. Big Show and Tubbs were heading to the airport - we said our goodbyes, complete with man-hugs, and I was on my own. I still had 5 hours to kill before my red-eye flight home, so I figured I'd crush it in the Venetian poker room a bit. I put my name on the 2-5NL and 5-10NL lists, and then asked to be added to the Omaha list as well - they had a 4-8 limit game with a half kill. "There's a seat in the pot limit omaha game," the floorperson told me. "ooooh.. PLO? I'll take it," I said, and found the 1-2 PLO game off to the side.

I put a rack of red chips on the table, and ran to the bathroom. When I came back, my chips were gone. "What happened?" I asked, as the table feigned innocence. "You took them with you," and old guy next to my seat claimed, but he quickly lifted up the bag he had on the side cart to show that he was just fucking with me, and my rack was on the cart. Now, obviously, I couldn't let the locals get to me, so I just looked at him, smiled, and asked, "Do you know who the fuck I am?" They did not. The game was 1-2 blinds, but the bring-in is $5, and the max first raise is to $15. The blinds are considered $5 each for purposes of counting the pot, and the max buyin is $500. Surprisingly, the game was SUPER nitty, as I'd soon find out.

After 45 minutes, I checkraised a guy all-in on a K-4-3 flop with two spades, holding the 5-6 and a ten high spade draw. He agonized for 4 minutes, asking "If I call can we run it twice?" "No. One time," I told him, and he went back into the tank. He tried BEGGING me to run it twice, but I laughed and said ONE TIME, which resulted in him folding after another minute of agony. The game was so nitty that it should have made it easy for me to not make asinine river payoffs, but donkey river payoffs are the staple of any NLHE specialist playing PLO. I made a great call on one hand when I correctly deduced that my opponent could not possibly have a monster hand the way the hand played out (the flop was checked around, I potted the turn - he called me on the button, and then he bet 1/2 pot on the river when what looked like a brick hit and I checked it to him). I was right - he had nothing much until he hit his gutshot on the rio to make the nuts. Then I flopped the nuts with AKxx against the tightest guy at the table who flopped top set. He bet the flop, which I called. He check-called the 7 on the turn, and I should have snap mucked when the river paired the 7 and he bet out. I didn't. Cause I'm a hold'em donkey. That one was bad.

In one hand, action was checked around on a paired flop, and again on the turn. The river brought a ten (4-4-6-8-T with three spades) and the SB led out for the pot. The button smooth called with pocket tens, and I jumped out of my seat. "HUH? How can you not put in a raise?" I was incredulous. "I've seen quads too many times," was the reply - and this guy was no fool. "You'll learn," another one of the nitty locals told me, and I laughed at their nittitude. You have to understand, in my game in the city, I'm the nit of all nits, but this was out of control. The river bettor had pocket 8's, for the third nuts.

As you can imagine, the session ended with me getting stacked again - when my combo straight + flush draw missed against top set, and I wished the table good luck, taking no solace in the fact that my perfect streak of not making it to the cage had lasted the entire trip. I fetched my bag from the valet at the Mirage, and headed to the airport. My cabbie pulled a highly advanced move to get us out of a major gridlock jam on the Strip - turning into the IP entryway and sneaking out the back way, weaving down the backroads back to the airport. He explained to me that sometimes people think he's taking them for a ride when he takes shortcuts like that, but I responded that I knew what was up, and that I wouldn't complain unless he tried to take me on the highway, in which case I'd choke him out from the backseat.

I always used to fly US Airways, since they allow you to purchase an upgrade to first class for $100 if it's available the day before your flight. However, US Airways pulled all of their direct flights to Vegas from both Newark and JFK, so I was on Delta this time. Out of habit, I approached the gate desk and asked the guy if there were any first class seats available. He told me that I could have one for $150. "I thought you didn't sell them?" I was surprised, but he explained that he was overbooked in coach, so he'd let me buy an upgrade cause he needed my coach seat. "But, if you're overbooked, you can give it to me for free, right?" I tried the last angle in my arsenal. The pro was not impressed, explaining that if he was going to give it away, it would probably be to someone with a higher fair or higher frequent flier status than me. I quickly handed over my credit card, and was on the plane in my first class seat 5 minutes later when we started boarding. I got a jackpot bonus when the plane was a Boeing 757-300, with massive first class seats which reclined and adjusted 6 different ways. I couldn't even touch the seat in front of me.

I leaned back, put on my ipod, and drifted into dreams of the next trip to the desert.

-KD

Vegas - Summer 2009: To the FELT! Part II

Where were we? Oh yes... Part I ended with me crawling out of bed Saturday morning, still drunk, laughing at a text from the Big Show inquiring simply: "How did we get home?"

After showering up, Rico, Leeroux and I hit the Mirage buffet for some fuel. I noticed a quite bearish channel check - the Mirage no longer serves fresh squeezed OJ at the buffet, they now serve crappy diluted concentrate, like you get in the frozen foods section. I lamented this downgrade, but enjoyed a melange of breakfast pizza, Chinese dumplings, sausage and breakfast burritos. After the buffet, Rico and I found seats at the pai gow table outside the Mirage poker room to kill time while waiting for the rest of the slackers to rally, as Leeroux returned to the room to catch another 90 minutes of beauty sleep and "watch the golf tournament." I still had $375 in chips from the previous night's pai gow session, which I promptly put in play. Tubbs and Big Show stumbled through on their way to breakfast at Carnegie Deli. Tubbs had procured shirts for all of us to wear in honor of the Big Show, and distributed them promptly:

The color was a blinding fluorescent yellow that doesn't come through true in the pictures - these were brilliant porn-slapper reproduction shirts. They also made it quite easy to see any one of us from 50 yards away. Since Rico looks like he could be the supervisor for a pornslapper crew, many people stopped to ask us for directions to various places, assuming we were locals who were on duty. One guy offered to buy one of the shirts, but Tubbs' $50 price quote turned him away. Of course there was also an endless array of morons who would stare blankly at us and ask "What's the deal with the shirts? Bachelor party or something?" Which would inevitably result in one of us giving a smart ass reply about either 1) how smart that person was or 2) that no, these were just our work outfits.

The Mirage put me on bajungi tilt with a merciless 90 minutes of pai gow punishment in which I think I set a record for number of pai gows by a player. For those who don't know, a pai gow is when you make no pair with your 7 cards. It's not a good thing - unless the dealer has one. So I'm getting ground down in brutal fashion, and I decide to hit the roulette wheel with the remainder of the pai gow buyin, where I sat down to pound out 7 straight spins betting the 10 and the 8. After the 7th spin I'm felted, and get up since I see the Carnegie crew returning, easily visible due to the pornslapper shirts. I wander over to talk to Tubbs, as Big Show walks right past me to the roulette table I'd just vacated, just in time to see the number 10 come up. Steam coming out my ears now, I place my remaining chips from my pocket ($175) on black, and watch the spin come up red. Felted again.

Big Show and I decide to hit the Mirage double deck blackjack game. Although it's not a pitch game (where they pitch the cards to you face down, like we prefer), it was only 5 feet away, so we settled on it, since it still has decent rules. You wouldn't believe how many blackjack games in town now pay 6:5 on blackjacks. Originally, this was just a single deck blackjack phenomenon, but as a dealer at the IP explained to us later that evening, Harrah's has used O'Shea's as an experiment to see how its player base would react to the poor payout odds. Not surprisingly, since the crowd at O'Shea's is a lower end crowd who probably doesn't give two shits about odds, they didn't care at all, and Harrah's extrapolated that decreased payout structure throughout its other casinos. You can now find 6 deck shoe games that pay 6:5 at all Harrah's properties! Amazingly, these games still have people sitting at them, even though the house still offers sparse 3:2 payout tables interspersed amongst them. I viewed this as another severely bearish channel check: once you get to the point where you are crushing your customers so badly that they don't even care, it's a sign of impending doom. As the saying goes, "you can shear a sheep many times, but you can skin him only once." The fact that 6:5 blackjack is running rampant is a bad thing, as it is illustrative that you're down to the bottom of the barrel in terms of customers. Once you wash out the last customers, there's no one left. Anyway... Tubbs countered with a bullish channel check that the Mirage, despite cutting orange juice costs, still had Quilted Northern toilet paper in both the rooms, AND in the general population crappers in the casino. This pleased him greatly.

So Big Show and I sit down to play some face up double deck, and I'm down $800 within 30 minutes. Steaming, I wander into the "Baccarat Lounge" in my fluorescent yellow pornslapper shirt, and spot a black chip table that's empty. I quickly retrieve Big Show, who of course has the same obnoxious shirt on, and we sit down to rip up some cards at baccarat. As soon as we sit down, a maniacal Filipino sits down with us. This is potentially problematic, since in Baccarat whomever has the highest wager on each side (player or bank) gets to handle the cards for that hand. We didn't want to have to get into a bigger dick contest with this guy, so we held off for a minute. Fortunately, he was insanely superstitious, and would decide to take a hand off every few hands, where we jumped in and ran off a string of 5 winning hands. Then we just waited until he placed his bet, and took the other side of him, causing him to cackle like the villain in a James Bond movie and narrow his eyes at us as if we were the enemy, before cackling loudly as he turned over a string of natural winners. At one point Big Show had a $100 bet out, and MP (Maniacal Filipino) pushed out a $105 bet, in order to control the cards. Needless to say, this is horrendous etiquette, and I chided Big Show for not upping it to $110 in a declaration of all our war.

We channeled our inner Escobar, and asked the dealer to expose the cards one at a time. "One card please... and the other," so we'd know what we'd need to squeeze out to win the hand. On bajungi tilt and all-in again, I was up against the ropes, needing a miracle. I squeezed my second card and found paint - a king that didn't help me. I instantly ripped the card in half right down the middle which drew a gasp from the dealer and the 3 pit personnel who were standing by the game. It was as if I'd taken a dump on the table. "Uh oh," I muttered to Big Show, "I didn't think it'd rip that easily," as he was choking back laughter. The dealer chided me "PLEASE don't rip the cards," as they summoned supervisors to deal with this violation. After a brief huddle, the pit boss went to the drawer and pulled out a sheath of clear tape, to TAPE the card back together before throwing it in the discard slot, as I tried not to laugh, despite my severe tilt at having steamed off another dime at the baccarat table.

A different Asian pit boss retrieved some information, then calmly approached me to ask, "please, Mr. Dynamite, if you would be so kind as to not rip the cards in half." "Of course, I'm very sorry," I apologized, as I felt Big Show's chair vibrating from the laughter he was trying to quash. I received a text from Dirty Dave that read: "Just booted, rally questionable." I replied, "Just dropped a quick 17 hunge," to which he begged, "PLEASE tell me it was pai gow!"

Felted, I sat with Big Show for another 20 minutes, before we got up to return to his room with Tubbs and Connor to see if we could make any more sense of the end of the prior evening. Connor had no recollection of walking out of Encore, repeatedly begging me to punch him in the arm. Big Show recounted how he woke up in the middle of the night to find Connor in Tubbs' bed, and Tubbs missing. Surprised, he went in search of Tubbs, and found him lying passed out face up on the bathroom floor. Smartly, Big Show simply stepped over Tubbs and took a leak before returning to bed.

Since it was Big Show's bachelor party, we had obligatorily set up a quick assault on the Spearmint Rhino - an afternoon hit and run before dinner. The Rhino's limo-bus picked us up, with the limo driver taking a moment to pause at this group of 10 scrubs in pornslapper shirts, admitting, "this should be interesting." Tubbs had called earlier to confirm that their dress code consisted of no "plain white t-shirts." "These are definitely NOT white," Tubbs reasoned with me, and I couldn't help but concur. The Rhino offered the best deal in town - $100 bottles of liquor before 8pm. While we're EV hounds, and normally wouldn't pass up an opportunity to pay $100 for a bottle that is normally at least $450 (or $30 retail, depending on how you look at it!), everyone was too beat up from the night before to want to drink more quantities of hard liquor at this time, so we settled for light beers.

Being one of Big Show's groomsmen, I bought him a dance with a tall young lady. As she came over to me to collect payment, I asked, "How did it go?" "I think it went well," she answered, before turning to Big Show, a chair away, and saying, "How was is?" Big Show was polite, "Not bad." "On a scale of one to ten?" She probed. Big Show, a master market maker, pursed his lips, tilted his head, took 4 seconds, and loudly replied, "SIX."

Had I been drinking at the moment, I would have choked on my beer and thrown up right there. Instead, I merely let out a surprised hoot (more of a "guffaw," I guess), as this was like a slap in the face to this girl who clearly thought she warranted a ten. She tried to gain more info about what was wrong with her performance, and I clearly recognized that this was our signal to begin rallying the troops to head home.

We returned to the Mirage and showered up, ditching the pornslapper shirts for nicer dinner wear, and re-convened on the casino floor to head to dinner at BOA Steak in the Caesar Forum Shops. Dinner was solid - Tubbs had set up a fixed price menu for us, recommending that we go with the bone-in ribeye to "maximize value." Exhausted, Big Show and I each nodded off briefly at the dinner table, before rallying and roaming out to check out the Saturday night action on the strip. We meandered through Harrahs, where there was a lot of action in the outdoor party pit. There was a guy making those cool 5 minute spray paint art designs, who we stared at for a few minutes, before proceeding to the Imperial Palace.

I knew I had a problem brewing, as my stomach was killing me. There are lots of usable bathrooms in casinos on the strip, but I was in no man's land. The IP is flat out awful, as is Harrah's. The Bellagio and Caesar's were at least a 25 minute walk away - time I didn't have. I sucked it up and faced the wrath of the general population crapper in the back of the IP's casino floor. If you've seen Trainspotting, you know the legendary scene about "The Worst Toilet in Scotland." Well, that's what the IP is like. Surprisingly, I managed to snag some streak of luck, and found a remotely usable stall. While on the crapper, I texted Tubbs, Big Show, and Dirty Dave, "Taking a crap at the IP. Fuck My Life." Dirty Dave quickly responded, "So am I - I found a lower turnover facility on the 3rd floor outside the racebook. Still nasty!"

Emerging little worse for wear, I found Rico and Leeroux dominating a blackjack game, while Big Show and Tubbs were exercising some dice control at the craps table. Big Show came over to say hi to our favorite pit boss, the legendary Frank. "What's going on Frank?" Big Show inquired. "Just trying to get a look at those tits," Frank answered honestly, tilting his head at a customer in the slots pit 20 feet away with what Big Show described as "double K cups."

Financially and physically beat, I wandered back to the room to retire early at 2am, and prepare for my last day in Vegas.

Stay tuned for Part III

-KD

Vegas - Summer 2009: To the FELT! Part I

Friday:

It's been entirely too long since my last trip to Vegas. Fortunately, Big Show's bachelor party provided an unavoidable opportunity to revisit the desert with some old friends. I had a 9:30am flight on Friday, and made it to the airport with time to spare. My former colleague, Sig, had explained to me that he always boards the plane last, watching everyone get on to see if there's anyone he should be keeping an eye on. I didn't need to scout the entire crowd - the guy sitting next to me was a dead ringer for the guy who plays the Jihadist bomb maker in the movie "The Kingdom." I called Sig for advice, outlining the situation. Sig told me that if the guy made a move toward the cockpit, I'd have to be ready to take him down. I explained that the guy was in a motorized wheelchair, but that I'd keep an eye on the situation.

I was more disturbed by the doucheball across from me with frosted Gotti tips in his hair, and the chooch a few seats down who was wearing a tank top, sunglasses, and a trucker hat tilted askew. Yeah, son, you're the toughest one around. You're so cool you wear your sunglasses inside. You know what the ladies like.

We boarded the plane - I had a window seat near the front. The flight was full, but the middle seat next to me remained empty for some time. I eagerly awaited the results of the "who is sitting next to me for the next 5 and a half hours" lottery, and hit the jackpot when I got the answer: a bona fide midget! Talk about a win - there would be no fighting for legroom today!

Arriving in Vegas, I breezed to the notorious airport cab line, expecting it wouldn't be a problem due to the early hour. There was no one in line, but I still paused for a moment when the line boss directed me to space number 13. Uh oh. Not a good omen, but I meandered on down and jetted over to the Mirage. I did my first channel check with the check-in clerk, asking him if they were busy that weekend. He eagerly replied that they were swamped, as if he was pre-empting my request for a room upgrade. That's what half price rooms will do - get the customers back! Slash the room rates and make up for it in volume? Anyway... I dropped my bags and headed to the poker room to await the return of Big Show, Tubbs, and Dirty Dave, who were finishing up a round of golf.

Rico was already in the room, dominating the big game - 1-2NL hold'em. I quickly obtained a seat at his table, and proceeded to rake $10 pot after $10 pot. Suddenly, a new guy sat down in the one seat, and pulled out a surgeon's mask to wear. My jaw dropped, but I quickly inquired, "Is that for you, or for us?" Wondering if perhaps he had swine flu and was being considerate. "for me," he mumbled through the mask. Look - I have no problem with old school grinders trying to make $40 a day killing time and playing 1-2 NLHE - I myself may someday get to that point - but if you're so miserable that you wear a mask to the table, then maybe it's time to find a new job/hobby.


Diego was hanging out on the rail, and shot Rico a text that said simply: "Mask? R U serious?" The golf crew returned, but Big Show and Tubbs needed a nap, putting me on tilt. I tortured myself in 1-2NL hell for another 90 minutes before demanding that Rico pick up and come with me to get some food. I didn't know yet that when I cashed out my remaining $85 in chips at the cage, it would be the last time I'd cash out any chips at any cage for the duration of the trip! Diego met us across the street at Chipotle, where we refueled before going to chill out at the pool for a while. Diego is from San Diego, and Rico is Mexican (just kidding, Rico - I know you're Puerto Rican), so they didn't really understand why a pale White boy like me wanted to sit in the shade, but they obliged. If the freak with the mask at the poker table wasn't odd enough, there was a dude at the pool wearing a wetsuit. Did I mention it was 105 degrees? Literally? A fucking WETSUIT at a pool in Vegas! AIYAHHH!

When the bachelor and best man finished their beauty rest, they rejoined us in the PaiGow pit, where we took over a $10 table. There was another table 6 feet across the pit from us that was stocked with a bunch of young guys from Boston, which resulted in a continual chorus of loud and emphatic "PAI GOW" exclamations from each of our tables. Rico put me on bajungi tilt when he turned over a hand consisting of AAAAKKJoker. Unfortunately, the Mirage PaiGow has no fortune bonus, which would have resulted in a 400-1 payout for Rico's 5 aces. Instead he won $10, minus a 5% commission. FAHHHHHK!

Dan joined us, and regaled a tremendous story of how he spent the prior evening: He'd met a girl at the Stratosphere (!!??!) and was on his way back to her room. As they got out of the elevator, she started shouting "White Power!" Dan paused, but figured he didn't need to bail yet. They got to her room and were hanging out, smoking and drinking. Some "friends" of hers stopped by - both male white supremacists from Utah. When the girl went to the bathroom, one of the dudes turned to Dan and advised, "bro, wear a condom." This was the point where Dan decided to bail - good decision sir. It's not every day that one lands a militant racist with STD's at the Strat. Sigmas!

We returned to our rooms to clean up and put on our party shirts for our night at XS, the hot club at Encore. When Big Show had explained that we were doing the club night Friday, not Saturday, I was skeptical - as some of the guys weren't even getting in from the East coast until the time we needed to be at the club. Big Show had this one correct though - we can no longer do two blow-out nights at our age, so the club on the first night was definitely the shot - even if it would render us useless for the rest of the weekend.

Big Show's former boss is a Vegas high roller. I'm talking 7 figure line of credit high roller, so when his assistant helped us with the table rezzie, we expected to be set up nicely. Of course, it never works out like that, and our host, Guido DeGuido passed us off to one of his underlings to walk us to the table. (note - this surprised me, usually the host takes you himself - I'm not sure what's up with XS's hierarchy of hosts/seaters/etc). So the guy walks us through the club to an outdoor table which was pretty subpar. We emphatically declined the table, explaining that it was not up to our standards. He said we'd have to talk to the host. "Ok, go get him," Big Show replied, but we were told we'd have to text him. THIS is why the system makes no sense - OR it's exactly the point of it - they figure you'll just give up and take the crappy table. Big Show explained via text that we would not be taking the crappy table, and the host sent another chooch to offer us another subpar table. Again, we declined, but they told us we'd have to start here, unless we wanted to triple our bottle commitment, which currently stood at 4 bottles for our group of 10. Refusing to settle for less on his big night, Big Show used some alternative sources, and we eventually secured an upgraded prime table for a total of 6 bottles plus a nickel for the host.

XS is a mammoth club. It's got a huge outdoor section, I discovered, as we had to step away from our table to smoke cigars. We were adjacent to the dance floor, so our table was quite loud, which was fine, as loud music does not impair one's ability to pound vodka. After a mere 90 minutes or so, we had a slight problem, when one fringe member of our party handed a plastic baggie with a shroom in it to another member of our party. Now, I don't do shrooms, never have, and don't want to - but I especially can't comprehend the desire to do hallucinogenic drugs in a scene like this - with super loud music and flashing lights. Anyway, the bouncer spotted this, and alerted security - the clubs do not fuck around with people doing drugs in the open - it gets them shut down and kills their cash cow.

I returned from the bathroom to find the bouncer by our table. Being the most diplomatic, I tried to ameliorate the problem. He explained that they'd seen someone passing drugs, and that they were closing out our tab and kicking us out. In reality, all they had was an empty plastic bag. After some calm negotiations, with me knowing that the dance floor bouncer is absolutely NOT the one who'd be here if they're going to shut down the table, he retreated to talk to his superiors, and returned with the settlement that the guy with the drugs (which "the head of security has confirmed are mushrooms") would have to leave, but that the table could stay. Shroomboy calmly exited, and we resumed our attempts to polish off 6 bottles.

At some point, there was a substance that looked like a spilled white russian on our booth cushions. I didn't see anyone boot, but we had no white russians... Tubbs later explained that he thought someone puked into our booth from the outside of it - leaning over the side. I'm not convinced it was puke as there was no smell, and no chunks (too much information?) but the busboy quickly appeared and wiped down the cushions, then reverted to the age old solution of flipping them over. Four bottles deep, around 2am, we were getting sloppy, and managed to dump our entire table over. Fortunately, Tubbs had secured the caps, and we didn't lose a drop of vodka - only our mixers, which were quickly replaced with a fresh setup.

Around 2:30am, roughly, I think XS must have sprayed some vaporized drug through the air, because everyone in the club went bonkers. Girls were suddenly grinding their hips in the air, perched atop every available space, like they were trying to hump a unicorn. Big Show, Tubbs, Leeroy and I looked at each other, shrugged, and ordered up 6 more bottles of water. Somehow, our drug kingpin managed to get back into the club and returned to our table, with a new hairstyle and change of shirt. Within 15 minutes, he'd knocked over our entire table AGAIN, where our last bottle had just been opened. Again, Tubbs, guardian of the liquor, had demanded that the top be secured, and we salvaged the entire bottle. Miraculously, they still didn't kick us out, and brought us another setup. We knew we were on borrowed time now, and quickened our pace, polishing off the last of the bottle when Dirty Dave pulled his classic move and poured the last 6 ounces into an empty Fiji bottle. This would come back to haunt us a few minutes later.

As we exited the club, I explained to Tubbs, "I could drive home right now," as everyone else was absolutely STAGGERING. It turns out I was not nearly as sober as I thought - the thumping music and lights had dulled my perception, and when I got out into the real world I had to do a few quick swallows to keep from booting in the bushes outside Encore. Big Show's most impressive skill is his ability to flawlessly negotiate every casino floor to get where he's going, but at 4am Saturday morning, under the effects of enough alcohol to kill a donkey, his skills were impaired. It was like how when you give a spider LSD it fucks up his internal computer and he spins a wacky web - Grey Goose and Ketel One rendered Big Show's casino maze negotiation gland moot. "KD - how do we get out of here?" He pleaded with me, as I led the way, staggering along the wall. Connor, in search of water, grabbed the bottle of Fiji from Tubbs, and took a big swig. He quickly turned and spit the mouthful of vodka into a plant in the atrium shops between Encore and Wynn. Talk about a rude awakening - expecting water and getting vodka.

Rico and I elected to walk back to the Mirage, as the others took a cab. Thoroughly annihilated, we headed straight to our rooms, and passed out. Saturday morning at 11am, I staggered out of bed to shower up and revive. Big Show hit me with a text that summed up the prior evening perfectly: "How did we get home?"

next up: Part II.

-KD

The Fed Manipulates Stocks

Must read piece today from The Atlantic, "The Final Days of Merrill Lynch."

Just when you thought that the insane saga of BankAmerica's acquisition of Merrill Lynch was fading back into the shadows, this piece comes out and reinforces the insanity of the situation. Ken Lewis's behavior almost has to be illegal in one way or another. The fact that he failed to disclose the Merrill losses to his shareholders is inexcusable, even if it was under duress from the Fed and Treasury, and for the good of the system.

I don't know if the following revelation is news - it's certainly news to me:

"Although this new deal with Treasury and the Fed could not be completed by the time the merger was to close on January 1, Lewis told his board he had received an oral commitment that the capital infusion and toxic-waste removal would be in place by January 20, the day Bank of America was to release its 2008 earnings report. Lewis said Bernanke told him, “We view you as strong and having acted appropriately in difficult circumstances … We’ll make sure you continue that way … We want to do something that when the public hears about it [the new government financing], your stock goes up.”

I mean - WOW. Am I the only one who gets fired up when I read that? Bernanke is quoted here saying that he will offer Ken Lewis a quid-pro-quo to help his stock price. Wow. The Fed, Treasury and the Government should not be in the business of controlling stock prices. That's one of the biggest mistakes they've made in the bailout proceedings so far - starting with the desire to hide which firms were in the most trouble by forcing all the big boys to take TARP dollars, and continuing with the fact that they STILL have not forced bank bondholders to subsidize the losses (by converting debt to equity) that the taxpayer is instead being asked to fund.

-KD

Impossibilities

I wish the government would explicitly say that no firm that pays back TARP monies will get a second chance at a bailout in the future. Perhaps this would quell some of the populist anger that's going around at Wall Street right now, under the logic that the big boys are still gambling with taxpayer dollars. Even if firms have paid back TARP money, there is still the impression amongst the public that these firms are willing to continue to take significant risks because the government will always be there for them again if the shit hits the fan. The populist anger is justified - and it's absurd that the Administration didn't install some rules (like: no second chance for you!) for the guys paying back the TARP dollars.

Unfortunately, it's probably also an impossibility that the authorities could make such a promise that they'd let firms fail. Since we haven't really reformed systematic risk modulation, the government can't tell Goldman that they're on their own if they fuck up.

Here's what I've been reading for the past few days:

MISH on Bernanke:

"About a week ago Calculated Risk wrote "I'd like a doctor who never gave up trying for a cure, but I'd prefer someone with better diagnostic skills."

Indeed.

Praising Bernanke now is like praising a doctor for nearly killing your son because he finally guessed right on the fourth guess (in this case assuming that the right medicine has finally been prescribed, which is debatable)."

And Dean Baker on Bernanke:

"Saying that you didn't give us another great depression is not exactly a winning re-election slogan."

FNM's earnings:

"Second-quarter results were driven primarily by $18.8 billion of credit-related expenses, reflecting the ongoing impact of adverse conditions in the housing market, as well as the economic recession and rising unemployment...We are experiencing increases in delinquency and default rates for our entire guaranty book of business, including on loans with fewer risk layers. Risk layering is the combination of risk characteristics that could increase the likelihood of default, such as higher loan-to-value ratios, lower FICO credit scores, higher debt-to-income ratios and adjustable-rate mortgages. This general deterioration in our guaranty book of business is a result of the stress on a broader segment of borrowers due to the rise in unemployment and the decline in home prices."

On the unemployment data: Calculated risk has a terrific chart of the employment/population rate, which is important because declining "labor force participation rate" skewed the unemployment rate lower, even though we still had sizable job losses. EconomicPicData explains the numerical shenanigans clearly:

"How does this work? The numerator in the unemployment rate is unemployed... the denominator is labor force. Simplified example:

• 19 people are unemployed out of 200 in the labor force = 9.5% unemployment rate
• 1 of those unemployed individuals leaves the labor force
• 18 people are unemployed out of 199 in the labor force = 9.0% unemployment rate"

• 
  

Bailouts: "From each according to his ability to each according to his lack thereof." How "Atlas Shrugged."

Rolfe Winkler on Warren Buffett:

"It takes remarkable chutzpah to lobby for bailouts, make trades seeking to profit from them, and then complain that those doing so put you at a disadvantage"

Finally - good news for my long time readers: I'm going to Vegas this weekend for Big Show's bachelor party! I haven't been since the day Lehman went bust - so I'm due, and it's almost guaranteed that I'll have a blogworthy trip report next week.

-KD

Mish Mash - Quality Readings

The Dude texted me today to chastise me for not blogging enough. Unfortunately, our computer crashed, which leaves me to scamper to the laptop for quick intervals while my wife steps away or eats lunch, so I haven't had time to write anything of substance this week. If you want a conspiracy theory, our pc died after we shut it down to install Windows updates. Perhaps the government mandated that MSFT activate the doom switch during the software updates, so that people have to buy new computers and juice GDP... Even more conspiratorial was the fact that our warranty had expired FIVE days before the pc death.

Here's what I enjoyed reading this week:

MISH on Cash for Clunkers:

"All the program does is shift demand forward. Those clunkers were going to die at some point. Now sales are up this year which will cut into next year's demand, at the expense of everyone not getting free money.

Why anyone should be surprised at the "success" in generating demand for free money is beyond me. There is always demand for free money. Yet, interestingly, everyone seems surprised by the "unexpected success".

If the government wants more "success", it can give everyone $4,500 for a car. Short-term demand will soar. But long-term demand for cars would crash for the next few years, taxpayers would be stuck with the bills, and valuable resources would be wasted on cars rather than productive assets.

Thus, the "absolute success" touted by AutoNation is in reality a tragedy. Handing out free money always is. Indeed, the more free money handed out, the bigger the ultimate tragedy. The housing crash is poof enough."

Floyd Norris on Trump: If The Donald can get credit, the credit crisis must be over!

"So why do I feel joy at the news?

If a casino company run by Mr. Trump can get credit, then the credit crunch must surely be over.

Have you defaulted on a mortgage loan? Or maybe two? Fear not. That leaves you with a better record than Trump casino companies."

Goldman's $100MM trading days: 46 separate times in Q2 GS earned $100mm in trading (Across all products). Wow.

John Hussman on the markets.

"Such analysts have no intellectual difficulty with non-equilibrium concepts, such as “government resources” (which they seem to think is just money from heaven, but is in fact merely a redistribution) and “cash on the sidelines” (which represents a mountain of money-market securities that somebody has to hold “on the sidelines” until they are retired, because they were issued in return for funds that have already been borrowed and spent).

Such analysts are often able to do what we can't bring ourselves to do, which is to risk other people's financial security on raw price momentum, or on speculative themes that are contradicted by historical data, or that logically cannot be true.

If I knew we could speculate on these themes and still get our shareholders out unharmed, I would do it. But I don't know how. It's frustrating to have missed what has turned out in hindsight to be a significant rally. We simply have not had the evidence to say “Yes, the conditions we observe now have historically been associated with a satisfactory expected return, on average, given the risks involved.”

Martial Law in Alabama? Can't be bullish...

NY Mag - the Hot Waitress Economic Index

"The indicator I prefer is the Hot Waitress Index: The hotter the waitresses, the weaker the economy. In flush times, there is a robust market for hotness. Selling everything from condos to premium vodka is enhanced by proximity to pretty young people (of both sexes) who get paid for providing this service. That leaves more-punishing work, like waiting tables, to those with less striking genetic gifts. But not anymore.

A waitress at one Lower East Side club described to me what happened there: “They slowly let the boys go, then the less attractive girls, and then these hot girls appeared out of nowhere. All in the hope of bringing in more business. The managers even admitted it. These hot girls that once thrived on the generosity of their friends in the scene for hookups—hosting events, marketing brands, modeling—are now hunting for work.” A Soho restaurateur I know recently received applications from “a couple of classic Eastern European fembots. Once upon a time, these ladies must’ve made $1,500 a night lap dancing. At my place, they’re not going to make that in a week.”

Scott Locklin: The Three Stooges of the High Frequency Trading Apocalypse

"I’m pretty sure all this news buzz around the evils of “High Frequency” started with Joe Saluzzi, who appears to be a sort of liquidity provider himself. His fund, Themis, apparently manually gets the best price for his customers. At least, that’s what it looks like on their website. A noble profession, though very likely a dying one. It seems the “high frequency” guys are picking his pocket, because computers are better at finding liquidity than human beings are. Joe blathers on about a lot of things, and I don’t feel like picking apart all the points in his various white papers on the subject. Joe appears to have a lot of time to go on television and indignantly blather about the evils of “high frequency” trading, despite the fact that his company appears to do exactly what “high frequency” traders do. The only difference between Joe and his tormentors seems to be that firm does it manually and in slow motion. I can’t let his nonsense about “false trading signals” pass uncommented though. Since when is anyone entitled to “true trading signals?” Gee, Joe, I’m sorry your crappy old signals don’t work any more; maybe you should invest in developing some new ones? Joe would probably be better off staying home, learning C++ and figuring out how to deal with these high frequency fannullones on a mano de mano basis, you know, sort of like all the other shops like his are doing."

-KD