WOODSTOCK REVISITED

Once again, we've had to suffer through another Woodstock redux. Ever since that epic party, the media, made up mostly by people who came of age during that time, forces us every ten years to stop thinking about less important matters such as war, famine, recession, and relive the Age of Aquarius. This past week's 4oth anniversary paeans were even more over-the-top than past mass recollections. As the collective Baby Boomer memory grows dimmer (all that adolescent drug use certainly adds to the fog), the apotheosis of Woodstock into some major turning point in history becomes even more rapturous. We are led to believe that for those three days humankind achieved some sort of spiritual zenith when love and peace reigned supreme. The USA was never the same since, Brian Williams tells us, with a straight face. Joni Mitchell's song, Woodstock, sums it up best: By the time we got to Woodstock/We were half a million strong/And everywhere there was a song and a celebration/And I dreamed I saw the bombers/Riding shotgun in the sky/And they were turning into butterflies/Above our nation. Yeah, right. How ironic that Joni didn't even attend the event, having decided that an appearance on The Dick Cavett Show would give her more exposure.

The sanctimonious, hyperbolic depiction of the "Woodstock Music Festival and Arts Fair" as a major historic event is an embarrassment to my generation. Who do we think we are or were? Woodstock was a party, nothing more, nothing less. True, it was a gargantuan party, maybe the biggest ever. When it came to open sex, acid dropping, pot smoking and great music, it was second to none. But did it really change the course of history? Gimme a break. A bunch of mostly pampered, privileged middle class white kids wallowing in the mud and getting monkeyed up didn't do anything but trash some nice farmland. Who doesn't feel peace and love when you're high as a kite and got your hand up some hippie chick's peasant dress? These kids were liberated alright, liberated from their parent's telling them to pick up their bedroom and be home by midnight.

We Baby Boomers are living up to the stereotype as narcissistic and full of self-importance. We are the greatest generation when it comes to megalomania. Woodstock was an orgiastic, modern day bacchanalia that had significance only in its size and hedonism. When youths tore down the Berlin Wall, that was a big deal. What college kids did in Iran this spring was a big deal. The civil rights Freedom Riders is a case of Baby Boomers showing enough courage to stand against the tide of history. What courage was displayed at Woodstock? Lying passed out in the pouring rain while Joe Cocker sang A Little Help From My Friends?

Woodstock only became a big deal when some savvy marketing guys decided to make it a big deal. Millions were made from licensing rights, movie and album deals. If it weren't for some shrewd hucksters, Woodstock would have gone done as just another music festival like Montreau or Altamont, only bigger and muddier.

If we Baby Boomers want to see a more accurate legacy of the the 1960's credo "If it feels good, do it," then we should look to our progeny's attempt to restage Woodstock at its 30th anniversary in 1999. Woodstock II had to close early due to mobs setting one of the stages on fire, numerous rapes and plenty of violence and mayhem. We reaped what we sowed. Despite all the nostalgic tripping, no wonder no one came up with the idea of Woodstock III.

HEY, DID YOU HEAR THE ONE ABOUT MICHAEL JACKSON?

The poor freak's body is still warm and already the utterly tasteless, hilarious jokes have started. "Michael Jackson hasn't been this stiff since Macaulay Culkin slept over."

Ground zero for this beyond-the-pale, over-the-line humor are trading floors in New York. Within a matter of minutes after a celebrity's death comes across the tape, the jokes pop up like Jack-in-the-boxes.

"Hey, news flash: they just found out that Michael Jackson died from food poisoning," a trader shouts over to the sales pit.

"No shit," one of the more gullible sales guys replies.

"Yeah, they say he was eating too many twelve year old nuts."

Guffaws mixed with groans rise across the trading floor. I do have to say that one was a bit below the belt, no pun intended, or a low blow, again no pun intended.

I've often wondered who thinks up these jokes. Are they just spontaneous eruptions or are the jokes prepared ahead of time the way some news organizations have obituaries in the can, ready to be released the minute somebody famous dies?

The latter explanation is supported by the fact that most trading floors do have their "death watch lists," which rank the top two or three celebrities most likely to next kick the bucket. The death watch list often inspires feverish betting, especially when you have a double whammy like two celebs crapping out on the same day, as we had with Farah and Jacko. And Ed McMahon going down just a few days before really scrambles the leader board. As of Friday at the close of business, the odds-on-favorite on my trading floor was Patrick Swayze. I laid some bucks down on Nancy Reagan.

Did you hear about how Farah Fawcett went to heaven and met God? God told her that now that she was in heaven, she could have anything that she wished for.

Farah thought a minute and then said, "I wish for all the young children in the world to be safe from sexual exploitation."

And so God killed Michael Jackson.

Okay, I give that one style points for tackiness but have to penalize it for borderline blasphemy.

McDonald's is coming out with a new burger in honor of Michael Jackson...an all meat patty in a ten year old bun.

I know that some will find these kind of jokes abhorrent; but I can attest that the people making them up and passing them around are not insensitive creeps or morally obtuse jerks. These guys are for the most part decent, upstanding citizens. I attribute these celebrity death jokes to a defense mechanism of sorts. These jesters have the same initial reaction that most do when they hear that someone like Michael Jackson suddenly dies, which is shock, followed by dismay and a tinge of sadness. We have intimations of mortality as we realize that if the rich and famous can so suddenly and unexpectedly keel over, then most assuredly the same thing could happen to us. But we really can't function as working, productive human beings if we constantly ruminate upon our own possibly imminent demise. So what do we do? We makes jokes about death. And trading floors, given that they are the locus of several dozen mostly males who are mostly vigorous and jocular "frat" types, are the perfect breeding ground for this type of gallows, or rather post-mortem, humor.

Michael Jackson reaches the pearly gates and the first person he meets is Elvis Presley. Wow, how perfect, Michael thinks, the King of Pop meets the King of Rock 'n Roll!

But all Elvis can think is, What carnival did this this freakazoid escape from? Is it black or white, a dude or a dudette? Man, how did he last ten minutes on earth without some good-ole-boys tying him to a rope attached to a trailer hitch and taking him for a cross-country fun ride? Whatever this thing is, it must be lucky.

Michael extends his hand to Elvis and says in his nine year old girl voice, "Oh Elvis, I've been dying to meet you. "

"Well, you're dead alright," Elvis snickers with his signature upturned lip as he ponders for a few seconds whether to shake this creature's hand on which it is wearing a glove sparkling with rhinestones. What happened to its other glove, he wonders.

As Elvis finally deigns to shake his hand, Michael says to him, "My name is Michael Jackson and guess what?"

"What?" Elvis replies warily.

"I married your daughter."

So don't be afraid to laugh death in the face, at least as long as the Grim Reaper is not pointing his scythe directly at you.

HEDGIES OBAMA REGRETS

Some of my more devoted readers may remember my posting on October 23, 2006, i.e. "Gulfstream Liberals," in which I attempted to explain why the politics of so many wealthy people turn liberal once their mound of money has reached mountainous proportions. This tendency is especially prevalent among the New Capitalists running hedge funds or private equity money. For example, in the 2008 presidential election, 70% of hedge fund money supposedly went to Obama. Why, one wonders, would rich people support politicians whose policies go against everything that enabled these people to get rich. Why would the rich support those who sneer whenever they utter the words, "the rich," as if the sneerer actually believes the aphorism that at the beginning of every great fortune lies a crime. Most liberal politicians view wealthy people not as successful entrepreneurs or managers who through skill and brains have created great innovations and countless jobs, but as greedy, rapacious money grubbers who wake up every morning with new devious ways to screw the "little guy." At least that's the view that comes across in their speeches. This stated view doesn't prevent them from accepting donations from the rich, leading one to conclude that these politicians are either venal or disingenuous.

Whether or not liberal politicians truly believe that rich peoples' money is inherently tainted, they most certainly believe that some people have too much money for their own good. This certainty justifies their confiscating at least half of every dollar earned by those whose success and talents place them in the upper ranges of taxable income. No one, in their eyes, deserves to be too rich.

That rich people actually give donations to these politicians against their own self-interest is the converse of the liberal presumption that middle class people vote Republican against their own economic interests because they are basically obtuse and naive or too wrapped up in guns and Jesus to know what's good for them. (Read What's the Matter with Kansas.) In "Gulfstream Liberals" I suggest that the desire to be in with the In Crowd, namely the Media/Hollywood liberal elite, motivates these mostly life-long Republicans to suddenly and drastically change their political stripes.

But alas, many of Obama's wealthy backers have recently become disillusioned with their man, particularly the hedge fund crowd. The WSJ recently ran an article in which several hedgies (most of whom wanted to remain anonymous) expressed frustrations with Obama. I guess that they were shocked to find that Obama really is a liberal and buys into that same liberal dogma that has been around since FDR. Did they really think that all those campaign promises about higher taxes on the wealthy and greater regulation of Wall Street were just empty campaign rhetoric? Did they really think that just because Obama was all too happy to take their money meant that he would be all too happy to take their advice?

A few in the article pointed with particular rancor at the way hedge funds have been treated in the Chrysler/GM bailouts. The Obama administration, being the lifesaver of last resort to drowning Chrysler, used its leverage to force a deal on Chrysler's stakeholders, i.e., the shareholders, who basically got nothing, the dealer network, the UAW and the lenders. According to precedence established by generations of banktrupcy cases, the senior secured lenders are first in line when it comes to divvying up the carcass of the bankrupt company. In this case, however, the Obama guys tried to put muscle on Chrysler's lenders to take approximately twenty-nine cents on the dollar for their $6.9 billion in secured loans, while the UAW's fund for paying benefits to retirees got half of its claim reinstated and 55% of the equity of the new company, even though the retirment fund would normally be in the back of the line. Most of the rest of the equity went to Fiat, who intends to put no cash into the company. And what equity is being granted to the lenders in consideration of their cutting their loans by two-thirds? Zippo. The lenders are getting screwed while the UAW workers, in comparison, make out like bandits. And the irony is that if anybody should shoulder most of the blame for the Chrysler debacle, then the UAW would be first in line.

In the case of GM, the unsecured lenders who put $27 billion into the company are being offered 10% equity in the new GM. Meanwhile, the fund set up to pay medical benefits to retirees and which is owed around $20 billion is getting half its claim kept in place and 39% ownership of the company. Naturally, the lenders are raising hell and will more than likely push GM into bankruptcy. No matter how it plays out, GM is going to be mostly owned by the US federal government and the UAW. I'm sure Toyota is trembling at the prospect of having to compete with the new GM (as in Government Made).

The end result of these blatant attempts by Obama to tilt the bailouts to the benefit of the UAW is that fewer fund managers will be eager to financially support any struggling company that is heavily unionized.

And so Mr. Hedgie is wondering what he got for his donation and all the donations that he pressured from his employees. Maybe he was hoping that Obama would be like Clinton, who regularly said things that he really didn't mean. Slick Willie, to his credit, was deep down pro-business, as are most governors who every day have to figure out ways to increase employment in their respective states. But Obama lives up to his rhetoric. He is fundamentally, dyed-in-the-wool pro-union, which means that he is fundamentally anti-business. He has never really had any exposure to the private sector. He not only doesn't truly understand it, he doesn't like it. We need Big Government to keep all those crooks and predators in line, according to his world view. Obama epitomizes the old saw about Democrats: they love employment but hate employers. I guess in the liberal Demo utopia everybody would work for the government.

But then again, maybe Mr. Hedgie looks at those donations as just the price he has to pay to hobnob with Brad Pitt, Sharon Stone, Robert Kennedy, Jr, Frank Rich and the rest of that Looney Tunes bunch.

GO NUCLEAR

A liberal's favorite way of accusing someone of being a neanderthal right wing fascist is to simply say, "You just don't get it." I have to confess: when it comes to global warming, I just don't get it. These global warming doomsayers and scare mongers are constantly telling us that the world is about to end. If we don't do something within the next few years that significantly lowers carbon emissions--and lowers economic output and our standard of living (they don't tell us that)--then we are past the point of no return. It will then be only a matter of time before the Stature of Liberty is up to her nostrils in water and Florida no longer exists except as a modern version of Atlantis. A compliant media happily passes on these hysterics as the gospel truth.

Okay, say I buy the global warming argument, swallow it hook, line, sinker. Suppose I'm ready to blindly put my faith in these UN computer simulations that claim to accurately predict what the weather will be like a hundred years from now (and my local weatherman has a hard time predicting what next week's weather will be!). Let's pretend I'm ready to agree with Al Gore that the debate is closed, that anybody who disagrees with anything that he has to say is a "denier," a dope, or else in the pocket of Big Oil. (Why is it that anyone who disagrees with a liberal is either stupid or corrupt? Can't they ever argue the issues?)

Assuming all this, my immediate, logical, natural reaction would be that we need to build nuclear power plants, as many as we can and as fast as we can. The President and Congress should waive all environmental and other regulatory red tape that constrains the building of nuclear power plants. Moreover, the federal government should offer financial guarantees and other direct monetary incentives toward the development of nuclear power, just as it does with ethanol, solar, wind energy. After all, nuclear energy has zero carbon emissons and has shown that it is capable of supplying massive amounts of energy, just as it does in France or Japan. Even the most ardent supporter of solar and wind power will admit that it will take many decades before either of those supply a significant percentage of our energy needs. And we don't have that much time, according to the global warmies. Action must be taken now because the fate of civilization and Mother Nature Herself hang in the balance.

So why am I greatly surprised to still hear that most environmentalists oppose nuclear power? Obama's latest budget has tons of goodies for non-carb0n energy but not a penny of incentives for nuclear. Like I said before, I just don't get it. Do environmentalist believe that nuclear power is dangerous, even though no one has ever died from the use of nuclear power in the US, or in France and Japan for that matter? Environs are quick to point to Chernobyl as a example of what can go wrong with nuclear energy. But the plant at Chernobyl is a Model-T compared to modern day nuclear facilities. Plants today have multiple layers of safety features and the release of radiation from such a plant is a nil possibility. Natural gas is considered a relatively clean form of energy but tens of thousands of people die every year from natural gas explosions; yet, no one is saying prohibit the use of natural gas.

Another concern that some raise is spent nuclear fuel. Most reactors store spent fuel at facilities on site. The Nuclear Waste Policy Act of 1987 designated a facility in Nevada's Yucca Mountains as the central repository for nuclear waste. But that numb skull, Senator Reid, has singly-handed blocked this repository from being developed, despite the support of 39 states that have nuclear waste and with the acquiescence of Obama.

Who knows why environmentalists are so adamantly opposed to nuclear power. To truly understand why, one would have to untangle the innumerable knots and strands that constitute the liberal mind. Suffice it to say that their opposition to nuclear power gives the lie to the doomsday prophesying. It's hard to believe that these environs really believe their own rants and raves about global warming when they block the one means that can truly do something about it.

LITTLE PINK HOUSES FOR YOU AND ME

Just think, the Great Financial Meltdown of 08 was caused by something as simple and innocent as people wanting to own that sine qua non of the American Dream, i.e. a house. A young couple with a baby buys their first house, which purchase enables a couple with three kids to move up to a larger house, which enables a banker and his family to spend his bonus on his petite manse. And so up the line the chain transaction went, a purchase leading to another purchase leading to another purchase. At every step was a smiling mortgage broker or banker willing to lend on increasingly exotic and generous terms in order to maintain market share and rake in ever larger amount of shekels. The Fed was leavening their dough with massive amounts of liquidity and the lowest fed fund rates ever. The originator of the loan would then turn around and flip it to Freddie or Fannie, both of whom were under increasing pressure from regulators and the Barney Franks of Congress to make sure every American was able to do so, no matter how flimsy his or her credit qualifications might be. In the case of loans that were too large to qualify for Freddie's and Fannie's limits, the Wall Street firms and other players like Countrywide happily stepped in and took the loans. Fannie/Freddie, Lehman, Bear Stearns, Countrywide, et al next packaged all these mortgage loans into securities and sold them to suckers all around the world, from the local college endowment fund to Singapore pension accounts. There was no shortage of buyers since these securities offered great yields for the triple A ratings that the rating agencies stamped on them, rating agencies that we now know really didn't understand what they were rating. And oh what a wonderful world it was, everybody getting their little pinch of dough as the urge to own a house got transmuted into a AAA security owned by some credit bank in Germany.

And then the daisy chain turned into a cluster fuck. All it took was a slight breeze and the house of cards toppled over. All it took was a slight uptick in interest rates, a leveling of housing demand, rumors of a couple of Bear Stearns hedge funds having problems to send investors stampeding toward the exits. It was like someone shouting, "Allah Akbar" in a crowded Baghdad market, everyone expecting the next sound to be KA BOOM!

Somebody during the Roaring Twenties said that prosperity swallows all sins. I suppose that the converse is true as well, namely that poverty pukes up all sins. The peasants have gotten the pitchforks out of the barn, lit up the firebrands and are searching every dark corner of the village for the sinners who caused this catastrophe. The blame game is a natural part of every boom-bust cycle; and since this boom-bust cycle has been especially vicious, the blame game has been vicious as well. Indictments fly like bats out a cave.

I pity those AIG guys. They are the scapegoats du jure. Mobs march outside their offices, a US senator suggests they do the honorable thing and commit mass suicide, that thug NY State AG, Andrew Como, threatens to release their names if they don't give up their bonuses. Como, what an asshole. He knows that the ACORN manufactured mob is in full froth and lather and ready to "exact justice." Given the temper of the times, would he really release names? Why would a responsible person even threaten to do so? The threat is real enough that some of these guys have moved their families out of town to the in-laws until cooler heads prevail (and who knows when that might be). The company in broad daylight offered these guys retention bonuses because AIG needs their expertise to wind down those disastrous positions in a way that will keep them from becoming even more disastrous. The evidence shows that Como, Congress, Gaithner all knew about these bonuses before the NT Times made them public. So where was the outrage then?

I am particularly tired of hearing about the outrage in Congress. The amount of AIG retention bonuses is $165mm, about what Congress just authorized to spend on waterparks in the recently passed stimulus bill. If anybody is to blame for the housing collapse, then those elected officials who put the Community Reinvestment Act on steroids and brow beat Fannie and Freddie into making stupid loans should be first in line. But for once that cliche "We are all to blame" holds true in this case. Everybody got something from the run up in housing prices over the past decade, everybody including the real estate agent, the appraiser, the closing attorney, the mortgage broker, the lender, the Wall Street banker who securitized the loan. And the biggest beneficiary was anyone who bought a house during those giddy times; in other words, just about everybody. We all knew, in the back of our mortgaged minds, that these housing prices were too good to be true. And so we milked it as much as we could, mainly by taking out equity lines to sap the crazy appraised values that justified the dumb loans.

How can you call someone a victim who was able to purchase a home that he had never in his wildest imagination thought that he could afford. And in reality he couldn't afford it. Many of these "victims" would have been better off remaining renters. Loose credit can perform magic of a sort. But instead of pulling a rabbit out of a hat, the lender-magician ends up pulling out a turd instead.

Congress is now talking about modifying mortgages for those struggling to make the monthly payment. Before we rescue somebody from foreclosure, maybe we should ask them to give up the flat screen HDTV that he purchased through his equity line. How many vacations, appliances, autos, wardrobes were paid for through equity lines? Like manna from heaven.

So what do we do now? I'm struck by the paradoxes contained in the solutions being offered to cure us of this malady. For years, even decades, we have been told by scolds that we borrow too much, spend too much. We all shrugged that off, but now the chickens have come home to roost. And what are the same scolds now telling us to do? Borrow and spend more. Don't save, consume. And if we were worried about those Bush deficits that got as high as $450 bil., we are now be told to be thrilled with Obama's trillion dollar deficits as far as the eye can see. All these proposals, all these Fed actions, all these new acronyms such as TARP, TALF are just whistling past the graveyard, dancing around the root problem, which is the roughly two trillion dollars of bad assets clogging our credit system. We are trying to paper over that two trillion with ten trillion of debased currency.

If the system is clogged, then get a roto-rooter. This is not going to be painless. Sure, all this spending might cause a temporary spike in the economy that might last a year or two. But right behind that will be an inflation dragon that will make the inflation during the Carter years look like a gecko lizard. The Fed will then have painted itself into a corner as it will either have to jack up rates like Volker did and possibly cause the depression that we have all been dreading or else resign itself to a banana republic inflation and depreciation of the currency. The economic, social, geo-political consequences of that latter course do not provide for serene contemplation.

The only true and sure way of getting of out this economic malaise is to recognize what those two trillion dollars of bad assets are really worth. The consequences of this will be severe but cathartic. Banks will fail. Big banks. But a year or two from now, we will be on the road to economic salvation and not facing hyper inflation. We must, brothers and sisters, atone for our sins. Only that way leads to redemption.

CHINA, CAN YOU SPARE A DIME?

Now that Obama is close to getting a belated Christmas present in the form of a healthcare bill, you would hope that he would lighten up on his wish list and focus on doing something about the trillion dollar plus budget deficits that stretch as far as the eye can see. (Remember all the angst during the Reagan years about "100 billion dollar deficits as far as the eye can see"?) But no, his appetite for spending appears to be insatiable. Take the unused TARP funds (and he is more than happy to take them). Why not use that $200 billion to pay down the deficit? Instead, Obama wants to spend it on another stimulus bill in the guise of a "jobs program." And so the beat goes on.

I wonder what the Chinese are thinking, given that they are the ones who are lending most of the money for all these dreams and schemes.

They are probably thinking the same thing that your local banker would be thinking if you, Mr. Valued Customer, paid him a visit with a similar wish list but scaled down to your individual circumstances.

"Hi Dan," you say to your friendly "personal financial advisor" as you plop down into the cushy chair facing his fake Louis XV desk. You pluck one of the Jolly Roger candies from the little brass bowl on his desk.

"What's up, Mr. Valued Customer. What can I do for you today?"

"I'm looking for a loan, Danny." Apprehension fills his eyes.

"A loan, huh? What type of loan?" He quickly presses his tortoise-shell eye glasses against the bridge of his nose.

"Oh you know, just a personal, unsecured loan," you say as you suck on the hard candy.

"Ah huh...and what amount are you looking for?"

"I was thinking a million to start."

Dan gags and almost spews out his mouth the coffee that he just took a big sip of.

"A million dollars! For what?"

"Oh, you know, I was thinking about making an addition to my house, another 1500 square feet or so. I really need a place to hang out away from the wife and kids. Sort of my own personal Valhalla, if you know what I mean. A place where me and my buddies can do what we like to do, shoot pool, catch games, drink beer...guy stuff." You don't need to mention porn watching as one of those activities because you know that Dan gets your drift.

"And you think that addition will cost as much as a million dollars?" Dan asks with a tremulous voice.

"No, but I also had in mind putting in that swimming pool that Betsy's been bugging me about for ten years. Labor's cheap right now with the Great Recession and all. So I figured that now is as good a time as any to git her done."

"But Valued Customer, we already have a two million dollar mortgage on your house. And if we did an appraisal today on it, I'd be worried that the value doesn't even cover our mortgage."

"C'mon, Dan, I'm talking infrastructure! I'm improving my house and putting a lot of local workers to boot besides."

"I don't know, Valued Customer. Even if I thought we could make the loan, I still don't see how it would amount to a million dollars. I mean, you're talking about us increasing our exposure to you by 50% in one year."

"I didn't realize that you looked at me as something that you're exposed to, Dan," you say with a hint of indignation in order to put him on the defensive. "What am I, some kind of disease?"

"No but, you know..." Dan stammers. "So what else you got in mind with the money?" he asks to get back to the main subject.

"For some good purposes, Dan. Like healthcare. With medical costs running like they are, I figured that it might be smart to prepay the next 10 years of my family's out-of-pocket medical costs. Something wrong with that?"

"Nothing's wrong with that, I guess. It's just that you can't expect me to pay for it."

"And also you got a problem with education? Cause I wanna fund my 529 college funds up to the gills with the money that you are going to lend me"

Dan looks at you with a befuddled, sad expression, like he's wondering what caused you to totally go insane.

Could the Chinese be wondering the same thing about the collective mental health of our nation? We are basically proposing to double our national debt this year. Foreigners now own over half of that debt outstanding and the Chinese own the largest percentage of foreign held debt. They hold close to $700 bil in US treasuries and almost two trillion dollars of US assets altogether. Is it any wonder that this week Chinese officials began to publicly raise questions about the future worth of their US Treasury holdings? During Obama's recent visit to China, leaders there treated him like he was some n'er-do-well in-law showing up the front door with his hand out. I don't think anyone seriously worries that the US might default on its obligations. After all, the US is in the enviable position of being the only country in the world that can borrow as much as it wants in its currency since the dollar is still the main reserve currency in the world. We can always print as many dollars as it takes to pay our obligations. But that's exactly what worries the Chinese and other lenders to the US. Assuming that the Feds at some point will have to open up the printing presses in order to loan money to the US TSY so that it can pay its obligations, a great debasing of the currency will occur. The dollars that we will be sending to our lenders will eventually be worth much less in those lenders' respective currencies.

Such curreny debasing causes inflation. The end of Obama's first term could witness an inflation rate that we haven't seen since the Carter years, thanks to this enormous expansion of the money supply. But maybe inflation is secretly or subliminally what Obama and his econ guys have in mind. After all, inflation is a boon to borrowers and anathema to creditors. Drastically devaluing the currency is a back door, "unofficial" means of defaulting as the borrower is in effect paying the lender back much less than what the lender has bargained for, in the lender's currency.

Notwithstanding this de facto default, the Chinese aren't going to dump their treasuries. The fact is the Chinese need us as much as we need them. The US GDP is almost one fourth of the world's total and US consumers consume almost a third of all the world's goods (ergo, our large trade deficit). The Chinese need the US to keep consuming those goods and will continue to lend to us so that we can continue to do so. The more we consume of their goods, the more dollars they will have and the optimal place to put those dollars is in dollar assets, particularly US treasuries. China can not unload its treasuries without causing harm to its gigantic US treasury holdings. Dumping would also cause US interest rates to soar and hurt their Most Valued Customer.

But that doesn't mean the Chinese will sit idly by while we go on a borrowing binge. They can, if they wish, exert the same leverage and control that any lender has over a heavily indebted borrower. And how might they exert this leverage and control? Don't be surprised if in the near future, some very hush-hush, closed door meetings take place between high government officials of the US and China. Maybe during such a meeting, the Chinese make it clear that they aren't happy with our spendthrift ways. Maybe they strongly suggest that we rethink that big Universal Health Plan that has been put on the table. Or even more likely and insidious, maybe they let it be known that they think our Dept of Defense budget is way too high and needs to be trimmed. Maybe they suggest that we cut back on the F-22 Raptor program or that new state-of-the-art destroyer that's on the drawing boards. After all, as much as the US and China might sometimes seem like two staggering drunks trying to hold each other up, China will increasingly become a military as well as an economic rival to the US. Yes, the Chinese want the US to remain strong economically since we are the primary end market for their manufactured goods; but that doesn't mean that they will not use their economic leverage to keep us from being too strong, particularly from a global strategic power point of view. The US-China relationship has more paradoxes and nuances than a Ingmar Bergman movie.

And what if we have the audacity to say in so many nice diplomatic terms, "Fuck you" to these "suggestions" from our Chinese lender? Then we can expect the Chinese to say, "Okay, then don't expect to see us at your next treasury auction." And since the Chinese have been buying roughly half the bonds at such auctions, that would be a mighty big "Fuck you" back.

Every lender has his borrower by the balls. The last thing a lender wants to do is kill his borrower. But that doesn't mean the lender can't squeeze those balls really hard.

Temple of Doom

Hello, dear and faithful reader. Wow, can you believe that a little over two years have passed since I last wrote to you. Good Lord, where has the time gone and look at what it has wrought. One or two things of note have happened over the past couple of years...yuk yuk. I must tell you, dear Reader, that my world has tumbled and crumbled around me. I now know how Sampson felt when he brought the temple down, for I too once thought that I was mighty and strong. I was riding high back at the end of 2007, so high that I neglected to write to you. You see, I had just accepted a job offer from Bear Stearns. What better place for an aggressive, hustling stock dick like me than BS? (And yes, some envious jerks try to be cute and say that BS stands for Bull Shit). But gamblers and swashbucklers ruled at BS and you know how I like to dress up in pirate costumes. The move was definitely an up one from the firm where I once used to roost, BSBR Capital. (And yes, some envious jerks try to be cute and say that BSBR stands for Bucket Shop Boiler Room). But three months later and that Greek, butt fucker Jamie Dimon scarfs Bear Stearns down like he would a Gyro, with $60 billion worth of tzaziki sauce from the Fed.


And so there I was, out of a job, back on the street. But I picked myself up and dusted off my Armani pinstripe suite because that's the way I roll. After pounding the phones and reshaping some of the lies on my resume, I stuck gold and landed a job at Lehman in the high net worth group, otherwise know as the Lollipop Guild because the clientele consists mainly of suckers. Truth be told, more than luck got me the job, as I had to call the chits on a Lehman muckety-muck whom I used to supply with his weekly fix of coke back in the days of Palladium and Tunnel (now I'm aging myself). I don't need to tell you what happened next: The Fed started freaking out about something called "moral hazard," something which I thought you found only on a golf course, and decided to toss Lehman overboard like a ton of stinking pig shit. And so there I was once again, flat on my ass, back to to square one. To add insult to injury, Kimmy, my live-in bitch, decided that she'd had enough of this in-and-of-work bullshit and left me to go back to pole dancing. Just as I was about to give up this whole schlock stock broker thing and send my resume to the Post Office, a pal of mine gave me a tip: Madoff Securities was looking for a few good shysters. I was so stoked when I did finally get a job offer from Madoff because Bernie Madoff was the Man. Bernie the Mensch as he was known in every Jewish country club across the world.


The rest is history, as they say. And so is my career. Yes, the temple that was once Wall Street has come tumbling down. And just like Samson, we pulled it down ourselves, with motives much less credit worthy than his. But nowadays, is anything credit worthy?

SEXY'S BACK

Sorry, my dear reader, for my winter absence. My excuse is the lack of anything interesting to write upon, at least in the world of high finance. Everyone is happy, complacent, even bored. New highs everyday. Volatility at all-time lows. The whole market is singing a version of Louis Armstrong's "What a Wonderful World." I see piles of green, gold coins too/Liquidity flowing for me and you/And I think to myself, What a wonderful world. But isn't there an alternative version of Goldilocks and The Three Bears in which she gets eaten by Pappa Bear?

Blackstone buying Sam Zell's Equity Office for $39 bil. was big news. The biggest buyout ever. I'm scratching my head over this one. Everyone talks about what a genius Zell is, and without a doubt he is. But are the Blackstone guys even smarter? Look how they've managed to sell over $21 bil. of the properties before the ink has even dried on the transaction. It appears that they bought Equity Office's properties at a price that equates to around $371/ft. Blackstone is selling off what they bought at prices that range from $354 to as high as $1,000 a foot for the NYC buildings. Morgan Stanley paid $2.5 bil for 3.9mm square feet for the San Fran properties, which comes to $641/ft. Of course, these are the best properties, the trophy buildings, but still, Blackstone has recouped already 54% of its purchase price within a few weeks of closing at prices per square foot much higher than what it paid. Couldn't Zell have done the same thing? Why did he sell wholesale when he could have sold retail? Is it as easy as Blackstone makes it look? Or are the properties that Blackstone still owns a kennel of dogs? Or are the ones buying the properties from Blackstone going to be holding the bag a year from now? After all, Blackstone paid what most thought was a stupendous price, a 34 multiple of cash flow, twice what office REITS in general are trading for. You have to respect Steve Ross and Vornado for stepping away from the table. Among all these geniuses, somebody is going to end up looking stupid when all is said is done.

Speaking of stupid, what about Britney Spears? So she shaves her head. Now she's clean both bottom and top. I have a suspicion that her apparent nervous breakdown is a publicity stunt. It's all too public. I can imagine her retinue of managers and PR flacks are in crisis mode, the crisis being that the little money maker called Britney is in a nose dive. Her record company is pulling the plug. People shouted "Whore...Whore," when she showed up at a Laker's game around Christmas. She was seeing vomitting all over herself at New Year's Eve party. The wool finally has finally fallen off the public's eyes and before them is a trailer trash, gum smacking, air head bimbo who can't sing, dance or act but who managed to amass a $250mm dollar fortune by playing up a tawdry, meretricious Lolita act. A school girl willing to show your her tits and everything else down there. The act has worn off.

And so what is the game plan now? How are her "peeps" going to salvage this meltdown? The only way they can do that is build some sympathy for their little harlot. So they'll stage a nervous breakdown. Portray Brit as a victim of the paparazzi, of public intrusion, of us. Tip the paparazzi off that Brit is going to be at a tattoo parlor. And when they show up, have her head shaved to get the big freak-out going? "Oh my god, the poor little girl is losing it! Look what we've done to her." Have the little anguished whore attack the wolf pack pap with her umbrella. And once everyone is convinced that she is certifiable, have her go underground for a few months. And then, just as we are ready to forget her, have her stage her Big Comeback, Slimmed down, hair grown back, smiling, clean, happy, ready to be our naughty little school girl again. She'll do a Vegas comeback, dressed in black leather, just like Elvis, whom she has imitated more than once.

That's my prediction. Can't you see her on the cover of People Magazine, the New and Improved Britney? Will we all buy it? I won't. No Brit, you're not so innocent any more, you little harlot. You're just another strumpet trying to yank my chain. Disappear. Go back to Galveston. Take care of your children. I shorted your stock a long time ago and went long Christina. The only good I can see from your losing your shit is that my seven year old daughter, and all the other little girls whom you held yourself up to as someone to be envied, can see what in the ends happens to skanky, promiscuous sluts.

And speaking of skanky, famous sluts, there's Anna Nicole. She's now one for the ages, as they said about Abe. Remember those obnoxious Trimspa commericals with ANS and the slogan "Be Envied." Envy what?! What better souvenir than that to signal our cultural decline into tabloid hell.

Looking into my crystal bong, (just kidding, I gave that up for ether a long time ago), I have one more prediction: Al Gore will be the Demo nominee for President. Gore/Obama ticket. Hillary will start to lose traction by the end of the summer. Even die hard Demos will wonder if they want another four years of the Billary show. More and more of the hardcore will come to the same opinion that that Demo stalwart, Geffen, has, i.e., that she's a tired act, a phony, a liar, an overwrought, contrived creation of polls, focus groups, handlers, consultants. Polls will show Guiliani beating her soundly. Panic will set in, just like it did last time around when Demos realized that Howard Dean was on his way to the nomination. Gore will be waiting in the wings, an Oscar winner, a Noble Peace prize candidate, the guy who won the popular vote, a changed man from that changeling who ran in 2000. Fresh. He will play coy up to then, but a draft Al movement will get started. They'll talk Obama into taking the second spot, ready to be the next in line for 2012 or 2016. And you know Al wants it, despite his latest protestations to the contrary. Guy's like him never give up, never stop wanting it. And I hate to admit it, but Gore/Obama would be really hard to beat.

THE GREAT HEDGE FUND HEIST

You can smell it in the air. The scent of the yule log burning, egg nog heavily spiked, the sap of the Christmas tree. And the strongest odor of all is that of money. Money! Money! Money! Bonus time! It's been a good year on The Street and everybody is getting into the Christmas spirit of crass conspicuous consumption. Sure, most everybody made good money this year. But over the past few years, the divide between those at the top of the pyramid and the rest is wider than ever. In fact, the top are not even on the pyramid; they're sitting atop Mt. Olympus. Never have so few made so much. Once upon a time, the top dogs had an annual take of $20 to 30 million. Now, that number is $300mm, $400mm, $500mm, maybe higher. What in the name of old St. Nick is going on?

Yes, the markets overall have had a decent year. But the markets had much better years in the 80's and 90's and guys didn't take home that kind of stupendous, mind boggling pay. No, what has happened is that money managers have somehow managed to game the system so that their take has increased ten fold. And the vehicle that has driven them to financial nirvana is the hedge fund.

Ten years ago, there were a few hundred hedge funds managing around $100 billion total; now there are over 8,000 managing over a trillion dollars. It's not hard to understand why money managers would opt to go hedge fund. Mutual fund managers get a little over 1% of total assets managed as their take, while hedge fund managers get that as well as 20% of the gains. And investors once had good reason to put money into a hedge fund. Back when there were just a few hundred funds, the returns generated by hedge funds usually beat market indicies by a wide margin. If the S&P, for example, returned 10%, hedge funds might generate upwards of 30%. That's how good the relatively few guys in the game were back in the late 80's and early 90's. Guys like Paul Tudor Jones and George Soros. And so investors, mostly individuals with high net worths, vied to get into these exclusive clubs.

The game changed when institutions decided that "alternative investments" such as hedge funds made sense for them as well. All of a sudden, trillions of dollars were available. The response to this exponential increase in the investor base was a exponential increase in the number of hedge funds to service it. But increase in quantity does not mean increase in quality, and among the thousands of new hedge fund managers were very few Paul Jones or George Soros. Call it the dumbing down of the hedge fund industry. And so many managers chasing so few good trading ideas has resulted in lesser returns for everybody, including the most talented traders.

One would have to go back to the days of the Robber Barons to find a similiar time of wealth creation. But Rockefeller, Carnegie, Frick, et al made their dough by creating something of real economic value, such as a national rail system or the steel industry. The newly mega rich today have developed no new technology or new industries, but are money changers. We don't make "things" anymore, we make markets. And many of the newly minted hedge fund newbies are not really good even at that. Whereas hedge funds in the beginning would easily beat the market indicies or trounce their mutual fund brethern, over the past few year hedgies in general haven't beaten the S&P. This year hedge funds will average 11% return, not even keeping pace with the stodgy old Dow, which is up over 16%. Kind of pathetic.

And yet over this same period, the hedge fund gang has amassed riches that were unthinkable ten years ago. Forty something year old centillionaires, even billionaires with five, six, seven mutli-million dollar homes scattered all over the globe, hosting private parties with the Stones as entertainment, spending millions on fine art which they don't really understand, hundred of thousands spent every year on jewelry, spas, electronics, dropping $10,000 on a bottle of wine....you get the picture. Everybody on the mutual fund side, everybody on the sell side, everybody and his brother and cousin are angling to get in. I know nincompoops I wouldn't trust with my savings account who are now trying to start up hedge funds. It's like these guys wake on Saturday morning with a to-do list: 1) laundry 2) get haircut 3) start hedge fund. Guys who don't have a clue but who know that if they can amass say $100mm in assets, then the 2% "management fee" gets them $2mm, for doing nothing, for just putting a shingle on the front door. And like I said before, most of these guys can't even beat the Dow. A lot of these guys can't even do better than a money market fund. But hey, 2% on $100mm and next thing you know $10,000 for a bottle of wine is no big deal.

So who ultimately is paying for all these nincompoops to get into the hedge fund business? The answer is even a bigger class of nincompoops, namely the public servants who run pension funds for state and city municipalities, the administrators of non-profit foundations, the bureaucrats who oversee university endowments. In other words, guys who are as far from Warren Buffet when it comes to investing as Gomer Pyle is from George Patton. DUMB MONEY. These guys used to be content investing with mutual funds charging 1-2% management fees. But now they can't resist the glamorous allure of hedge funds. Hobnobbing with the hedge fund swashbucklers partially makes up for their middling government salaries. You can picture these guys at the neighborhood barbeques, bragging about how they had lunch at the Four Seasons with some billionarie hedge fund titan.

The result has been one of the greatest transfers of wealth in generations. Money is being passed from old age pensioners, college students receiving aid, charities relying on foundations, literally orphans and widows to the fattest of the Wall Street Fat Cats. And hardly a word is uttered in protest.

The only bigger scam and racket that I can think if the Fund of Funds game. But don't get me started on that.......

THE NIGGER WORD

Ok I wrote it, the word that no one dare write or speak. Are you shocked? Are you going to call the police? Does the writing of that word consign me to the inner most circle of politically correct Hell, assuming a politically correct person were benighted enough to believe in Hell?

George Carlin used to do a routine in the 70's called The Seven Dirty Words. These were run-of-the-mill cuss words that one could not say on TV. Carlin was poking fun at the uptight mores of American establishment that restricted the hip and cool crowd from being hip and cool. What does he have to say today about a word that is so shocking that proper people allude to it only by its first letter, N? Even George Carlin is not brave enough to take on that one, no matter how silly that people go around saying "The n-word" instead of nigger. Where are all the Free Speech advocates, the rebels who are constantly battling society's strictures on our personal freedoms? Where are the iconoclasts who are so eager to chip away at cultural taboos?

How did such a state of affairs come about that people are literally afraid to speak a word in public? Doesn't such fear hearken back to medieval times, when some words were thought to have infernal power and were forbidden, banished from public discourse? The prohibition on saying "nigger" is even more peculiar in that some people are free to say the word as often and as openly as they wish. Somehow, somebody determined that blacks are free to call each other nigger or nigga or niggaz and their doing so does not connote the same dastardly meaning as it does when non-blacks say it. I don't understand the logic of that. I can't think of any other word in the English language the meaning of which depends upon the skin color of the person who utters it.

Matters have gotten so absurd that some people in certain communities have advocated the banning of HUCKLEBERRY FINN from public libraries for no other reason than that the Great American Classic contained the nigger word, a word of common parlance in Twain's day. One reason that O.J. got off was detective Mark Furman's admitting that he used the word at one time several years before. George Allen, running for the US Senate in Virginia, got into trouble when someone claimed that he had used the word in the locker room when he was a football player at UVA 30 years ago. Heavens to Betsie! Can a word have that much power, that much efficacy, that much evil potency?

I grew up in the South and hardly a day went by that I didn't hear the word. More often than not, it was spoken not with malice or hatred; it was simply the accepted way of referring to African-Americans. As the Civil Rights movement gathered steam, most respectable Southerners gradually became embarrassed by the word and amended to it "niggra," at least in polite society. I can remember the headmaster of my prep school standing before the student body during Friday morning assembly and talking about the "niggra" school that we would be playing in football that night, the message being that we should watch our for our possessions and personages.

I understand why blacks are offended by the word. Even if people spoke it in a pedestrian way without any underlying tone of hatred, the word did convey disrespect. I don't like the word and never use it. I appreciate how it evokes an horrible time in our nation's history, especially for blacks. What's disturbing about the word isn't so much the word itself as the times that it evokes. But there are many bad words that have mean and ugly connotations, and they are not eradicated from the language.

I am bemused by the special status that that the word has attained. Take the case of Michael Richards, the guy who played Kramer on "Seinfeld." He's gets pissed off at a couple hecklers during his stand-up and calls them niggers. And for the past three days, the incident has been all over the news, just after stories about how Iraq is coming apart at the seams. Richards horned in on his friend Jerry's appearance on Letterman to give an apology to the nation. Ok, the guy made a mistake and said a terrible word. Does that mean he has to grovel on national TV and ask for forgiveness? For saying one word. Gimme a break. My opinion of him was even less after his apology than it was after his racist rant. Are Chris Rock and other black comedians now going to give apologies when they offend whites and other ethnic groups during their stand-up routines?

But Richards doesn't have to worry too much. As Brittany and Paris have shown, there is no such thing as bad publicity in this day and age. This incident will end up being the best thing that has happened to his career since Seinfeld went off the air. I guarantee that his stand-up shows will be booked solid the rest of his tour.

GULFSTREAM LIBERALS

I never believed that F. Scott quote, "The rich are different from you and me." And the fact that I hear it quoted every other day reinforces my contrarian skepticism. The rich eat, shit, fuck and die just like the rest of us. We are all alike in the we want a lot of jack, moola. The rich are different only in that through luck, brains, beauty, pluck or moxie, they have been able to achieve the goal that we are all aiming for, namely financial independence, or in more common parlance, "fuck you money."

Before I proceed, maybe I should first describe who I mean by "you and me." You and I are just a couple of guys (or maybe you are a gal) who are hustling our way through this hardscrabble world, trying to reach an increasingly higher level of income, standard of living, professional status. We go about our business, play by the rules, live and let live, don't expect handouts from the government or anyone else (and obversely, don't like paying taxes). We are slowly grinding our way to a better and better life and don't appreciate anybody standing in our way upwards.

I know two or three guys whom I would label as "super rich." They are all hedge fund guys with net worths in the scores of millions of dollars. I have noticed that these guys have changed in one respect once they have reached Mt. Olympus: their politics have switched from caveman conservative to limosine liberal, or in these cases, Gulfstream liberal. This phenomenon has become prevalent enough that for the first time more hedge fund money went to Democrats than Republicans this past election cycle.

These guys I know had never pounded the drum of some defined, deeply held political philosophy. But they once had a healthy skepticism and suspicion of bureaucrats and politicians and, like Ronald Reagan, believed that government was often the problem and not the solution. They didn't think some assholes in DC should be telling the rest of us how to live our lives. Like most Southerners they were pro-military and thought that the US of A should spend enough on defense to always remain the toughest, kick-butt bad ass on the global block. They hated taxes. They cracked a lot of gay and ethnic jokes. They dressed like they had just jumped out of a Brooks Brothers catalogue. They loved to hunt. Growing up, they went to church every Sunday and then the country club afterwards for a big family lunch. Their main goal in life was to get filthy rich. In short, they were by nature and nurture, a Republican.

But at some point on their ways to amassing hundreds of millions of dollars, they changed. They became an environmental "champions." I saw a photo of one of these guys in the newspaper at some Greenpeace gala attended by a bunch of buck-toothed Kennedys. A couple worked their way into the Hollywood crowd, and to do that you have to swear allegiance to the liberal creed. To my shock and dismay, I discovered that one of my mega bucks buddy was one of Al Gore's biggest financial backers. Somehow, these guys had turned into a liberal Democrats.

What causes such a radical transformation? What changes hedgies and other super-duper rich folk from the conservative Republicans they were on the way up to liberal Democrats after they have attained their enormous piles of lucre?

Is it some kind of guilt? I don't think so. It isn't as if these guys obtained their wealth like the 19th century Robber Barons did, i.e., through monopolistic plunder, sweatshops, extortion and bribery. These are for the most part law-abiding citizens who just happen to be extraordinary traders or investors. I, for the most part, geniunely respect and admire them.

I have a theory that what makes these guys change political stripes and become the exact opposite of what they had been before is a need for special kind of status. Once they become mega-rich, they ask themselves, Is that all there is? Once attained, the goal of becoming filthy rich seems hollow, not worth the stupendous effort. They find that their money buys them a certain amount of respect but not love and adoration. And guys who get to their levels of success are mightily driven by something, and usually it's a profound need to be loved and adored. Someone once said that at the beginning of every great fortune, you will find a crime. I would amend that and say that at the beginning of every great fortune, you will find a deeply insecure person.

These guys don't won't to be adored by just anybody. The affection of the hoi polloi is not worth having, is best shed on professional wrestlers and Britney Spears types. No, our Hedgie Hero has high and finicky tastes when it comes to whom he wishes to be loved by. Only the best will do. Simply put, he wants to be in with the In Crowd.

The In Crowd consists of media moguls like Ted Turner, Harvey Weinstein, members of the intelligentsia like Frank Rich, celebrities such as Madonna, Gwyneth Paltrow, super nova athletes like Tiger Woods. Hedgie Hero is shocked to learn that some among this crowd do not think highly of him just because he is a modern-day King Croesus, and even view him with disdain and suspicion because he made his money not from some socially redeeming activity such as professional basketball or movie acting, but via a hedge fund. The In Crowd sneers at the money grubbing world of Wall Street and high finance. This makes Hedgie Hero all the more determined to get on the "inside" and gain their love.

It goes without saying that the politics of the In Crowd is liberal. Our hedge fund guy is willing to throw overboard whatever political convictions he had before in order to get on the Good Ship Cool and Hip. He sees how George Soros managed to go from Financial Swashbuckler to Hollywood Hobnobber and sets out to chart his course.

And so the Hedgie Hero sets up his foundation, gives to various environmental and liberal causes, and becomes know among the In Crowd as a real mensch. Giving money rather than his time is cheaper since his time is the most expensive thing he has. And of course, this foundation protects him from the increase in taxes that his new-found politics surely entails.

I don't begrudge Hedgie Hero his right to buy into whatever political orbit that he wants. What I do mind is the politics that he supports, namely higher taxes, ensnaring and constricting regulations, class warfare income redistribution, in short all those dragons that Reagan slayed in the eighties so that guys like Hedgie Hero could become unimaginably rich. The most selfish thing the uber rich can do is support policies that will keep the rest of us from ever getting to where they are.

HEDGE FUND HIJINKS

And the Dumb and Dumber award for this month goes to---drum roll, please--investors in the hedge funds, Amaranth and Pirate! Leaves weren't the only thing falling the past couple weeks. Two headline hedge fund meltdowns in one month--how much more fun can we stand!

Let's start with Amaranth. We all know that there in usually no hedge in most hedge funds, but Amaranth takes the cake for tight rope walking buck naked and with no net. Amaranth had over half its $9.6 billion in assets on one bet, namely that natural gas prices would be much higher as winter season approached. Amaranth went "all in", betting that the price differences on gas futures for the summer and winter months would get larger over time. Afterall, it happened in 04 and 05, so why not bet the house, the furnishings, the college funds and the kids that it would happen again this year. WRONG! The fund ended September with 70% of its assets transferred to all those making the opposite and correct bet. Amaranth supposedly means "never fading" in Greek. I guess it's better to flame out than fade away, to paraphrase Neil Young.

But stop and think about it...Amaranth laid almost $5 billion US dollars into the hands of a 32 year old guy working 2500 miles away from Amaranth's Green Witch headquarters in an oversized closet in Calgary, Alberta, jammed with computers and empy cans of Red Bull. And the jockey was going to bet it all in what is probably the most volatile market there is, natural gas. What the fuck were they thinking? Where was the adult supervision? Sure, the guy had made over $2 bil year to date, but the way he made it was two giant steps forward, one giant step backward, up double digits 2 months, down double digits the third month. So much for the Sharpe ratio.

Last week, the founder of Amaranth, Nick Maonis, set the financial world a'chuckling when he told investors on a conference call that he had "every intention" of staying in biz. Yeah, right. Like his posse of traders were going to hang around when the ship was 20,000 leagues under its high water mark and whatever investment they had in the firm was basically zilch. Traders know when to close a loser position.

And speaking of ships, what about Pirate Capital? The firm is being investigated by the SEC on suspicions that the fund failed to alert the commission when it was selling stock. Pirate has already had pretty much a puke ass year, being up less than 3%, or just a little more than what my money market fund has delivered. And this is what all the blood, sweat and tears of "activist investing" gets you?

The fund was founded by a Mr. Tom Hudson. Before starting his hedge fund in 2002, Hudson was a distressed debt trader at Goldman Sachs. He was fired by the firm for some hanky panky with a co-worker. In this day and age, doesn't even the dimmest dim wit know that you don't dip your pen in the company ink? Doesn't that incident suggest that the guy might have an issue about following rules, that he ain't the poster boy for discretion? But that didn't keep him from ramping his fund up from $2mm in 2002 to $1.2 bil today. You would think that a fund-of-funds guy would say to himself, "I can put a few million with this kid, who evidently has trouble keeping his rocket in his pocket, or I could pass and keep looking at the hundred other hedgie wannabes lined up outside my door, begging for some change...maybe I should take a pass on the guy. Something about him naming his fund 'Pirate' gives me the willies." Evidently, a lot of FOF guys, advisors and consultants thought differently, being suckers for the Goldman Sachs stamp, besmirched or not.

I use to work with a woman who covered Pirate. More than once I saw her blushing after talking to Hudson on the phone. "Can you believe this guy is coming on to me," she said once. "He said I have a sexy voice and asked me what I looked like." What does it tell you about the guy that after the sex affair at Goldman, he adopts as his company logo, "Surrender the booty!" A bit mocking, don't you think. Why should it suprise anyone that he gets in trouble with the SEC?

Pirate, as it name indicates, take pride in pillage and plunder tactics when it takes an activist role investing in a company. A magazine aricle reported that a 27 year old analyst for the firm, Zachery George, told the CEO of a company that the fund was investing in that "You work for us now." He went on to add that Mr. George and Pirate wanted the company sold and the CEO sacked. "Next year we're going to be here, and you won't," he said. Isn't that the kind of snotty-nosed hedge fund punk that you'd like to back hand bitch slap?

Hudson likes to use cutesy terms like "shipwrecks" and "treasures" in his investor letters. I wonder why he didn't use the word "mutiny" in his last letter when he described how half his staff walked out on him or was fired last week. Among those fired was the above-mentioned young Master George.

I'm sure Mr. Manois and Mr. Hudson have above-average IQ's. They won't be the first smart guys that ego and hubris turned into dummies. But the real nincompoops are the investors and their advisors who seem to be blind when it comes to their hedge fund investments. They allow these funds to keep them in the dark about their strategies and tactics. They don't raise questions when they see extreme volatility in their returns or question the extra risk that stupendous monthly gains, like those that Amaranth posted, must certainly entail. I have a hard time feeling sorry for the San Diego Retirement Fund, which lost over half the $175 million that it had invested in Amaranth. I can imagine the CEO of that fund made up for his middling government pay by bragging to his friends and neighbors about all his cool hedge fund investments. Guys like that can prove they have a couple of ounces of brain matter by doing two things: First, wake up to the scam that hedge funds are perpetrating on them; and second shoot the consultant/advisor/FOF parasites who failed to protect them from jokers like those discussed above.

HIGH YIELD: CRISS CROSSING THE STREET

Alas, this is not a great time to be a high yield bond salesperson. If you work at one of the big shops, you have suffered new issue spreads compressing steadily over the years. Newbies listen in awe and envy as old-timers talk about the days of 3% and 4% underwriting spreads. And since each deal now seems to have at least 2 bookrunners and 5 co-managers, your slice of the pie has gotten much smaller. And the Man Upstairs is clamoring for a bigger return on the huge amount of resources that he has poured into this stinkin' business over the past 10 years, and so your ultimate payout rate has shrunk to the single digit percentages.

Matters are even worse at the commission shops. The days of the non-risk, high payout commission bucket shops are numbered. 2003 was the last hurrah. The model is broken, defunct. Trace has crushed the margins and credit default swaps have clipped the volumes. Panic has given way to mass depression. Among the smokers puffing outside office buildings, you can occasionally spot one or two high yield salespeople, hyperventalating and sweating, filled with dread and anxiety. Time to say goodbye to the au pair....Omigod!!! So long Mercedes and hello Maxima.

The old joke that once made the rounds was, "If I die and can be re-incarnated, I want to come back as the wife of a high yield bond salesman." Those were the days, my friend, we thought they'd never end. Now such a wife greets her hubby every evening clutching unpaid bills and shrieking about her beloved credit card being maxed out.

The Great Shakeout has started and is on-going. Classical economics are at work as excess capacity is being drastically reduced. There were way too many shops and bodies in this business 3 years ago. At one time, there was close to 50 outfits involved one way or another in selling high yield, or about 1 for every 6 accounts. The time has come for people to leave the business. The Exodus is here.

But what's a poor bond salesman to do? Send his resume to the post office? Afterall, what outstanding qualities can the typical salesman claim? A great phone voice? An intimate knowledge of Manhattan's best restaurants that rivals Zagats? The more daring and ambitious sellside individuals are thinking bigger than that. The real dreamers are looking to go buyside.

Any sellsider who has spent much time around buysiders knows that to cross the street really doesn't take such a great leap of faith. When you get down to it, buysiders aren't any smarter than the sellsiders. Maybe they work their way around EXCEL better and usually have a higher geek factor, but that's about it. They got onto the buyside years ago when the money was on the sellside. The opportunities for nerds with accounting majors were somewhat limited at the time. So guys like that became analysts. And after years of keeping their heads down and avoiding mistakes, the natural river flow landed them in a PM position. And now the tide and tables have turned, and the little nerd thinks he's a master of the universe.

Okay, say you are a sellsider and want to get to the buyside. Where do you start? First of all, you angle for the hedge funds. Forget mutual funds or insurance companies, since there's no money there. Okay, hedge funds...now what? If you work for one of the bulge bracket, new issue shops, you might consider marketing. Let's face it, a new issue salesman is not much more than a glorified travel agent whose main function is to make sure accounts know what the road show schedule is. Second to that, his talent skills most match that of a maitre'd.

But maybe you think of yourself as a "research salesman." A guy with a brain who can read a 10K as well as any analyst or PM. You actually know that EBITDA stands for Earnings Before Interest Taxes Depreciation Amortization. Ta Da! Welcome to the buyside.

So let's speed things up and say that after keeping your ears to the track and your eyes on the horizon, that old college buddy/drinking partner/wing man starts up a hedge fund and you bamboozle him into thinking you know something about high yield and how to manage money. And for kicks and giggles, he hires you. Now what? First, what's your goal? That's easy. Your goal is the same as everyone else who works at a hedge fund, ie, make as much money as quick as you can. Rake it all in with both arms. We all know that the market is stretched, that spreads are as tight as they are going to get, that the top is in place. The only question is, when will the real dizzying descent begin? Next year, 08? Safe money says that sometimes over the next 2 or 3 years the market is going to crack and tank, maybe even crash. After that, the jig is up. The 20% incentive fee, profit sharing bonus, or whatever else you want to call highway robbery, will be a moot point because no one will ever be able to get back to that "high water mark" reached in Febuary of 07. Here's to living on a 1% management fee...and that can be a pretty good living but it ain't master of universe pay. In summary, get it while the gettin' is good.

Now that you have fixed your goal, what should your strategy be? To have a strategy, you first have to understand your client who has invested in the hedge fund. Your strategy has to fit the investment parameters of your investors, who are typically endowment and pension funds, or high net worth individuals. As different as they are in many respects, these investors share one common trait: They are dumb money. Think about it. How smart can you be to hand millions upon millions over to some guy who asks that he be paid 1% for doing nothing, as a management fee, to cover his office expenses? (The truly audacious ask for 2%.) And then on top of that, he wants 20% of the gain. All this for a track record of generating mid single digit returns. My money market accounts gives me 5% and I'm not giving up 21% of the juice to get that! I'm willing to bet a lot of money that Warren Buffet has no money in a hedge fund that asks him to pay 1% for the honor and then give up 20% of the take. That is plain stupid.

And of all the dumb money, high yield money is the dumbest. Well, maybe it's not so much dumb as "forced." Some investors, like pension funds, have to have some dough in fixed income, by statute or by-laws. So how are they going to allocate their fixed income money? In 10 year TSY notes yielding 4.75% or investment grade bonds 100ps over that? Such investors have no choice but to put some money in high yield bonds. And the beauty of it is that they expect so little. All they ask of you is that you make the coupon. That's it. You don't have to give them a big return...just give them a damn coupon. Hell, that's not much of a hurdle to jump over. About as easy as jumping over a crack in the sidewalk.

But the sad, sorry little fact is that so few high yield managers are able to do even that. It's one of the mysteries of the business that year after year high yield can't manage to make the coupon, and yet money keeps pouring into the sector. I saw hedgies giving high fives at the end of last year because they generated a mid single digit return, before the 20% take. And the average high yield coupon was over 7% and they think they are geniuses for making that.

Okay, so now your have your goal. The next question is, what is your strategy? You first have to determine how much risk you should take. The answer is that you take a lot of risk with investments that are very illiquid and hard to mark and very little risk with investments that are very liquid and easy to mark. And so you are willing to make that sexy private equity investment in some outfit that delivers hot lunches to crews on off-shore drilling rigs because you know that no one will ever have a clue how to value it; and there is a 1 in 4 chance that it could be a home run, even a grand slam. And what if it isn't, what if it goes bust? Well, that'll be at least 3 years down the road and by then you will have pocketed enough dough from your dumb money investors that you won't have to worry about it. You can leave them holding the shit bag. That's what "side pockets" are for, a place to hold the the investments that could either be turds or bricks of gold.

As far as investments that are easy to mark, the rule is to keep it simple and safe. Remember, your investors just want you to make the coupon. You can swing for the fences on private equity investments, but when it comes to tradeable bonds you just cover your ass, cover the coupon. And how do you do that? You play the new issue game, that's how.

Playing the new issue game means that you try to get in as many new issue deals as you can and you flip them once the price reaches somewhere between 100 1/2 and 101 after the break. Almost all deals trade up to at least that level after the break because the underwriter is willing to spend a little capital to make the deal appear like a success. Usually that capital runs out around 100 1/2 to 101, no matter how crappy the deal. So forget about spending a lot of time and effort on due dilly. Just close your eyes and throw darts at the new issue calendar. Sure, there's a chance the dart will land on one of Jeffries stinkers, but more than likely your random action will pay off.

The main risk that you run is that you become labeled as a "flipper" and your allocations become de minimus. You can avoid that by using the plethora of commish shops that are dying for biz and, like sucker fish sticking to a shark, look to the new issue flipping as one of their main sources of revenue, as pathetic as that is. If you are clever, the underwriters will never know that you sold your bonds to Miller Tabak.

And so you keep the wheel spinning, playing new issues and flipping out of them. That strategy enables you to maintain a return at least equal to whatever the market coupon is and gives you some vig when you flip at 101. Easy as apple pie.

And so after a few years, you have kept pace with the market and one or two of those private equity deals have paid off so that the 20% performance fee actually means something. And what do you do when the shit finally hits the fan and the markets fall out of bed? You go back to the sellside, of course, and trade distressed. Trading those triple hook deals that came with a single digit coupon will be a blast.

ACTORS ARE STUPID

I like Mel Gibson. I mean, as much as I can like someone I have never met but just observed acting on-screen. But it doesn't surprise me that he was caught doing something stupid. How bright can a guy be who's pounding drinks back for several hours and then hops in his Maserati (or whatever Mel drives)and cruises a leisurely 87 mph home? How smart can Mel be when he launches into some inane anti-Semitic tirade in public after he went through such scrutiny over his THE PASSION OF CHRIST movie, which some Jews found offensive?

It doesn't surprise me that he did something stupid for the simple reason that he is an actor; and actors are inherently stupid people. Alfred Hitchcock called them cattle and Otto Preminger said that the dumber they are the better.

I remember when Truman Capote was on the Tonight Show (hard to believe that Johnny Carson had people like Truman Capote, Gore Vidal, Orson Welles on his show compared to the clap trap crap Leno serves up). And Capote made the statement that all actors are stupid.

"Oh c'mon, you can't mean all actors are stupid," Carson said with his usual Cornhusker naivete.

"Yes, I mean all actors are stupid," Truman said with his famous lisp.

"Well, what about Jill St. John?" Carson countered. "She supposedly has an IQ of 140."

"That's easy," Capote responded. "She's a terrible actress."

Think about what actors do. They do what children do, i.e. make believe, pretend, play act. A developed intellect hinders the smooth functioning of that child-like ability. Intelligence is the ability to make sense of reality, the Here and Now that one finds oneself in. But the greater one's comprehension of reality, the less one is able to imagine being someone else or in another place or time. The less developed the mind, the easier to pull off pretending to be, say, a pirate in the Caribbean. Reasoning and imagining are two different, even opposing, cognitive acts. Marlon Brando was such a dimwit that he could never remember his lines. During the filming of STREETCAR NAMED DESIRE they had to write his lines on the back of lampshades or hold cue cards up off camera. The great Lawrence Olivier was such a lame brain that he couldn't balance a checkbook.

Oh sure, actors like to think there is some "method" to what they do. Lee Strasberg made his name and fortune on the revolutionary but specious notion that actors had to think about acting in order to act, which is like saying a thoroughbred has to think about running before it runs. But all Mr. Strasberg really did was provide a fraudulent pretext for organizations like Circle In The Square to rip off some rich daddy in Kansas who is convinced that his daughter is the next Marilyn Monroe. So he shells out a small fortune to send his baby girl to New York to practice being a tree and in general publicly make a fool of herself in these acting classes. Some perennial young actor always comes out of nowhere, untrained, and is proclaimed a "natural in front of the camera." All that means is such an actor doesn't think enough about acting to act like he is acting. Such a lack of self-consciousness may be a gift but doesn't require a big IQ. Like Otto said, the dumber the better.

Naturally, actors resent being thought of as stupid. We are, after all, talking about the vainest group of people on the planet. And so they try to dispel the notion that they are dumb by acting like they are smart. Once actors have reached a certain level of fame, they feel like they are entitled to make pronouncements. Such pronouncements tend to be about politics because one doesn't need to know anything to make a political pronouncement, as opposed to, say, a scientific one. And so politics is famous actors' favorite thing to do when not acting or engaging in one of their usual narcissistic, hedonistic, conspicuously consuming activities. And when Hollywood actors make their grand statements, they usually make sure that they are wearing glasses, even if they don't need them, because they think that makes them look smart.

A host of organizations exist that encourage actors to make political statements because they find actors to be useful tools for whatever their particular cause might be. Politicians love having actors around for their "aura." The old saw is that politicians are nothing more than actors without the looks. And so we have ridiculous scenes of actors testifying on Capitol Hill about some issue that they are "championing." One such case that comes to mind is when Meryl Streep warned Congress about the dangers of Alar to children who ate apples, a concern that was later thoroughly debunked. In the meantime, all Meryl managed to do was cause a lot of apple farmers to go out of business and keep a lot of kids from eating one of the most nourishing things they could eat.

And the politics that Hollywood actors espouse are almost invariably liberal and Democratic. Funny how a group that so prides itself on its "artistic individuality" marches in such lockstep when it comes to politics. Is there a more egregious example of group think than Hollywood politics? Oh sure, Hollywood always points to Arnold, Bruce, Charleton and yes, Mel, as actors who have attained success even though they are not liberal Democrats. But that's it, that's the list! A handful of exceptions to the rule in an industry that employs thousands upon thousands.

Of course there are others in the biz who are not liberal but closet Republican; God help them if they ever speak out. Take the aspiring actress from Kansas. Imagine her at some party in the Hills and some jerk producer is doing the usual over-the-top Bush rant and rave. Like ninety per cent of twenty-somethings, she has no developed politic opinions or predilections. But being from Kansas she is probably accustomed to hearing the Republican view of things. But dare she say something along the lines of, "You know I don't think Bush is such a bad guy," "I think some good has come from the invasion of Iraq?" Sure she could say something like that, that is if she wanted to kill her career right there on the spot. Being a producer in Hollywood, the guy is more likely than Jewish. And since Jews along with blacks and unions are the bulwark of the liberal wing of the Democratic party, the guy is probably a liberal Democrat. And so our girl from Kansas might not be overly smart but she is smart enough to do like everyone else and nod her head as if the guy's blabber is fresh and insightful. She will learn to tow the line. Ten years from now, if she is unlucky enough to become famous, not only will she still be towing the line but the line will be hers, something she can pronounce to the world. The liberal line is all she has ever known. She has become indoctrinated, brainwashed, and washing her brain is easy since she is an actor and has only half a one to begin with. Such is how monolithic mind-lock has developed in Hollywood over the generations.

At some point, our Kansas starlet will decide that she wants to be taken seriously, wants to be thought of something other than that dumb Marilyn Monroe wannabe. And so she will don glasses and take every opportunity to expound upon current events, foreign affairs, economics, in short things which she knows little about. And some congressman from somewhere will decide that he'd like to cozy up to this starlet and will invite her to DC to give testimony on whatever the cause is which she has latched onto. Next she will hire a political advisor/consultant who will help her form her opinions about various matters of import. If Richard Dreyfus can do it, why can't she? Being dumb, she is incapable of forming her opinions all by herself. And before you know it, she will be invading our collective consciousness, not to act, but to spout off her opinions.

Why do we let these actors get away with it? We know that they aren't experts on anything, typically have less than a college education, aren't well read, and, to repeat, are dumb as dirt. We allow them onto our TV and movie theater screens, into our consciousness because we want them to entertain us. Not educate or edify us but entertain us. Their entertainment value is the only reason we suffer their existence. Coming home from work, after slaving away in the real world all day, who can stomach turning on the TV, expecting to be entertained, and instead see some pompous, condescending bonehead actor lecturing us, a la George Clooney. So smug and morally righteous! "Oh, shut up!" we yell at the TV screen. Actors take advantage of our generosity, our charity, our willingness to let them into our mind when they use the opportunity to pontificate about something that has nothing to do with why we granted them entry in the first place. They are abusing a privlege that we, their patrons, have granted them. Self-indulgence to an obscene extreme.

I don't gainsay an actor's right to political opinions, however uninformed those opinons might be, I just don't want to hear them, anymore than I want my cleaning lady telling me her opinion on Iraq. I remember when a reporter once asked Jimmy Stewart how he felt about the Vietnam War. He responded by saying that he was not a politician but an actor and he doubted that anyone would really care what his opinion was, so why waste the airtime. How classy, gracious, refreshing...and smart. Yep, they might be as rare as an albino crocodile, but a not-so-dumb actor is not a complete impossibility. Miracles do happen.

SENIOR CITIZEN SEX CRAZE

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