Well, we've had a great year here in Cleveland and we hope that you, wherever you are, had a great year too! That said, it's now that time of the year where we reflect on our lives and become, formally, officially thankful.....I'd like to take a minute to wish everyone a Happy/Merry:
Christmas
Hanukkah
春節 (In advance)
Kwanzaa
Pancha Ganapati
Diwali (Belated)
Boxing Day
Las Posadas
Feliz Navidad
Eid al-Adha (Belated)
and, of course
Festivus (for the rest-of-us)
Most of all, I'm honored and blessed that you, my wonderful readers have chosen to spend some of your precious time, apparently on a regular basis, reading and contemplating our favorite, cutting-edge genre....
I'm also really grateful that some pretty important, savvy thinkers are taking notice of my work as well. (Don't worry, I won't name names....but you know who you are!)
"Financial Comedy"
I'm also really grateful that some pretty important, savvy thinkers are taking notice of my work as well. (Don't worry, I won't name names....but you know who you are!)
In that light, I'd like to attach a link to a podcast (Episode 11) I did with Anne Stevenson-Yang just before Thanksgiving this year. I've known Anne for years, and frankly, without mincing words, I think she's brilliant. What else can I say? She's done everything I'd ever want to do, seen everything I'd ever want to see, and she's much more polished than I could ever hope to be. (As you will experience first hand from my sometimes rambling/mumbling dialogue on the podcast)
I am flattered that Anne chose to spend some of her valuable time chatting with me on "tape". When reviewing some of her other podcasts, you'll also note that she has interviewed some pretty heavy hitters, for example, one of my all-time heroes, Roger Lowenstein (Episode 9) ("When Genius Failed") gives his thoughts on the economy and investing in a prior podcast.....tough act to follow!
In any case, I hope you enjoy, and can get through, my extemporaneous musings (45 min.) relentlessly framed by Anne's best effort to keep me on topic. I must say, when I first heard the finished product, my immediate reaction was "Hey! I've got a future in Presidential Politics!"....followed by "Yeesshhh....stick with the blog..." But, as they say, it is what it is. I hope you enjoy my/our thoughts.
Finally, a note to all of you trolls out there that are just waiting to pounce at every one of my slip-ups. Since this is an unedited, shoot from the hip interview, I freely admit that there are a few errant "facts", and dare I say, outright misstatements in what I had said.....my memory fades from time to time. Forgive me.
I've already identified these miscues, but I'll leave it up to you good folks to find them and report them in the comment section, like I know you are itching to do....consider it a Christmas Quiz! There might even be a prize for the most thorough troll-job!
All the best!
DT
OK....One last bit of Financial Comedy for the Year
I just couldn't let this one go without mention. From a reader.....here's another page from TaoBao....
You might want to point out that Alibaba has a whole site dedicated to selling non-performing assets:
https://www.taobao. com/markets/paimai/zc_npl?spm= a213w.6688509.0.0.fhERXC
The banner says "Marketplace for collateralized assets. Recommended by banks! Starting from 50% off."
There are hundreds of thousands of these "asset" listings...So Alibaba's fastest growing business segment is "Winding down the busted Chinese economy"?? Alibaba is a giant on-line pawn shop?
I wonder why they don't showcase this huge, lucrative, gold-mine business segment in the 6-K/20-F, Investor Calls, Press Releases, Presentations or the filings? Why do they keep focusing on all that low margin cookware, socks, coats and underwear?....and I thought these guys knew how to market?.....Samsonite!.....I was way off!
https://www.taobao. com/markets/paimai/zc_npl?spm= a213w.6688509.0.0.fhERXC
The banner says "Marketplace for collateralized assets. Recommended by banks! Starting from 50% off."
You can buy financial assets, real-property collateral, or valuables like cars and watches (https://paimai.taobao.com/? spm=a219w.116665.a214uxf.9. 879aa89TjPtx4),
Participate in court-organized auctions. Today the featured offering is discounted parking spaces.
(https://sf.taobao.com/?spm= a219w.116665.a214uxf.8. 879aa89TjPtx4
Isn't that wonderful! "Well.....if these deals are recommended by banks!....they've gotta be a good!"There are hundreds of thousands of these "asset" listings...So Alibaba's fastest growing business segment is "Winding down the busted Chinese economy"?? Alibaba is a giant on-line pawn shop?
I wonder why they don't showcase this huge, lucrative, gold-mine business segment in the 6-K/20-F, Investor Calls, Press Releases, Presentations or the filings? Why do they keep focusing on all that low margin cookware, socks, coats and underwear?....and I thought these guys knew how to market?.....Samsonite!.....I was way off!
JCAP Podcasts
http://www.bbc.com/news/world-asia-china-42490297
ReplyDeleteSkyscrapers on sale on TaoBao, too.
LOL.....for the man/woman who has everything! Better up my limit on my MasterCard! This gets sillier by the day....
DeleteAs a younger professional in finance (<35), I recently finished re-reading on of my favorite books, The Smartest Guys in the Room. In what I can only describe as serendipitous, I stumbled across your blog a few weeks ago.
ReplyDelete- Opaque financial statements: check
- Massive use of SPE's/SPV's in offshore jurisdictions: check
- All major financial institutions turning a blind research eye because the I-banking proceeds are too lucrative: check
- Regulators and rating agencies content to take the company at its word: check
- Management creating new "metrics" by which the company should be valued and success measured: check
- Anyone who asks tough questions "just doesn't get it" and lacks the intellectual purity to see what the company visionaries are creating: check
I read your analysis on BABA and on so many different levels this screams "Enron 2.0". The similarities are uncanny. But it's actually worse than that. It's Enron on steroids due to the fact that the Chinese government and regulatory bodies are likely aware of, and support the companies shenanigans, both implicitly and explicitly. If BABA is able to fleece American investors for billions of dollars in exchange for what will ultimately be worthless (or near worthless) equity, all the better. The average analyst/fund manager on Wall St. is likely too young to remember Enron as it happened in real time; even fewer of the older professionals who do remember could explain in depth how the company manufactured their financials and the machinations involved. Once again, history seems doomed to rhyme, if not repeat.
Well said.....not that it matters, but where did you go to school? You seem wise beyond your years. if you've not read "When Genius Failed" (Lowenstein) you might put it on your list. You'll enjoy it. Best....
DeleteDT
When Genius Failed and Reminiscences of a Stock Operator are actually two of the earliest books on Wall St. that I remember reading as a kid. I completed my formal undergrad education at Oklahoma State - statistics and quantitative econ. What little wisdom that I may or may not have, I would largely attribute to my own independent study. I have read voraciously for as long as I can remember; Nassim Taleb influenced much of my early development. I have always been interested in business and financial markets and working through the CMT program and the ERP program provided a lot of practical knowledge that many of my finance and econ courses at university did not. However, it was the first two levels of my CFA journey that piqued my interest in financial statement analysis and corporate accounting. Admittedly, I found general accounting courses in school tedious. Working through the case studies for the CFA led me to a question that I had never truly contemplated before: how could a field (accounting) that is seemingly so straightforward be so prone to manipulation and chicanery?
DeleteAs with most things in life, part of the answer I arrived at had to do with human nature - people refuse to acknowledge what they don't want to see - and the other part of the answer was that perhaps this whole "accounting" thing wasn't as straightforward and simplistic as I had initially believed.
I've often wondered how we begin to "fix" the problem of accounting slight of hand at the corporate level, particularly in the publically held arena. Perhaps there is no real fix at all. A few years ago, I was a participating in a think-tank session on how to combat financial malfeasance in trading, specifically "rogue" traders who skirt compliance and position limits until they eventually blowup. We read through several case-studies on Joe Jett @ Kidder Peabody, Nick Leeson @ Baring Bro's and Jerome Kerviel @ Soc Gen, among others. To me the answer seemed quite clear and surprisingly simple: if companies want to cut down on rogue trading, they need to hire more of these convicted rogue traders into their compliance departments. Offering up this solution yielded looks ranging from bewilderment to outright disgust, but I still maintain there is something to be said for the idea. Most honest people have a difficult time truly conceptualizing how a dishonest person will behave. Who better to catch a fox than another fox? Slapping Andy Fastow with a fine and a 10 year prison sentence may feel like justice has been done, and perhaps to a degree it has. But does that sentence maximize social utility? What if Andy Fastow had been assigned to carry out his sentence in the service of the SEC in their corporate fraud department, whereby in exchange for every action that he was instrumental in helping the agency to bring, his sentence would be reduced by a set time, not to exceed 5 years?
That example is arbitrary, but you get the idea. Would placing individuals like that in the service of the regulators help to shine a light into the gray areas of corporate finance? These individuals who see the shades of gray in the system, have nothing to lose, and only their freedom to gain? It's an interesting thought experiment, if nothing else.
Well said....the only question I might ask is:
ReplyDeleteWhat if the SEC isn't trying to catch anything at all? What if they simply facilitate the expansion of markets? What if their sole function is not to keep the mess from happening, but to assist in the clean up?
Anyway....food for thought....
Happy New Year!
I suppose that's entirely possible. As an auditor, you're likely more familiar with the SEC than most people. That being said, in my admittedly naïve experience, I am inclined to hypothesize the following about the SEC, along with most other power structures:
DeleteIn his recent book, Adults in the Room, Yanis Varoufakis articulated the following observation on political and monetary institutions, but one which is highly applicable to complex systems in general. He remarked:
"When a large-scale crisis hits, it is tempting to attribute it to a conspiracy between the powerful. Images spring to mind of smoke-filled rooms with cunning men (and the occasional woman) plotting how to profit at the expense of the common good and the weak. These images are, however, delusions. If our sharply diminished circumstances can be blamed on a conspiracy, then it is one whose members do not even know that they are part of it. That which feels to many like a conspiracy of the powerful is simply the emergent property of any [complex network]."
I believe that if the SEC functions to facilitate the expansion of markets at all costs, even if that means turning a blind eye to blatant malfeasance, it is not due to a broad overarching directive to do so (a conspiracy, if you will) but attributable largely to an emergent property of a complex system wherein the individual participants of the system are aggressively pursuing their self-interests. That is to say, the desire for the mid-level official to please his superior to win a promotion drives his actions. His superiors’ actions are likewise driven by her desire to win a far more lucrative position in the private sector among her natural connections which are the very companies she is tasked to regulate. It becomes easy to see why, without anyone directing her to, she will be inclined to give large companies the benefit of the doubt: there may come a time when she would like to be on their payroll or ask for a glowing reference. Similarly, it's clear why those individuals who report to her will be reluctant to raise a yellow flag when they uncover questionable, but still debatable, behavior; preferring instead to wait until there is an unequivocal red flag to speak up, lest they be wrong (at which point the transgressions are so appreciable that action by the SEC can only be viewed as damage control). It seems as though the incentives for the SEC to err on the side of proactivity are entirely misaligned within the current system, hence the emergent property of general incompetence at best, deliberate complicity at worst.
(1/2)
If my hypothesis is correct in this regard, then complexity theory would suggest that attempting to fix the current system from the top down with arbitrary, centralized measures is almost certain to fail (behaviors like "cleaning house" or "prohibiting SEC employees from working for a company they are tasked to regulate for 2 years after leaving the SEC", or some bureaucratic nonsense like that). Instead of attempting to steer human behavior - people are always going to find ways to work the system - a more antifragile solution (hat-tip to Nassim Taleb) may be to introduce people like Andy Fastow into the system; after Enron, he most certainly isn't getting a job in the private sector in a major companies financial department. And he most certainly wouldn't be worried about gunning for a promotion - this is a sentence for a crime after all. Quite the contrary. The more transgressions he exposes, the quicker he gains his freedom.
DeleteAgain, this is all predicated on my assumption that there isn't an explicit directive at the SEC to facilitate the expansion of markets at any cost and a professed belief within the organization that their job is not proactive prevention but reactive punition. It is entirely plausible this assumption is false, but from my understanding of complexity theory, improbable. I would be interested in the opinion of someone with firsthand knowledge of the SEC. This is the first time I have articulated this theory in writing, and I am curious to know how it meshes with reality.
Happy New Year to you as well!
(2/2)
Well said.....there is no formal "directive"...what we're dealing with is Thaler's systemic bias. It's easier to "get along" and fit in. Why rock the boat? Conversely, it's tough to start a fight and be the odd man out.
DeleteCombine that with the continual political push for a reduction in regulation, and we arrive at where we are today. IMO....the "wild west" of finance, with the perceived Central Bank guarantee on the markets and asset values.
Here's a 2013 speech by Luis Aguilar I think you'd enjoy. If I were to summarize in one sentence, he's saying "We do our best....but you are on your own..."
https://www.sec.gov/news/speech/2013-spch120513-2laa
No different from the markets of the 1920s. My grandmother started investing in the 1920s... I've internalized a lot of her lessons...
Delete