Cashin: Strange things on Wall Street

CNBC's Courtney Reagan and Art Cashin, of UBS, discuss trading in Japan and its impact on Europe and the U.S. "Something strange is afoot," he says.

The Dow closed down over 200 points.

Berkshire to Pay Nothing to Be Among Top Goldman Sachs Holders

People who don't know any better believe that Warren Buffett is just a smart stock picker. Nothing could be further from the truth. He's very good at making deals that would make a loan shark blush if the loan shark was worth $50 billion.

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) is poised to become one of Goldman Sachs Group Inc. (GS)’s largest shareholders without paying anything after the companies agreed on a plan to settle warrants granted at the height of the 2008 financial crisis.

After Selling A Startup For $70 Million At Age 25, Founder Blows Through Fortune And Heads To Prison

Thirteen years ago, things looked brighter for Jennifer Sultan.

Then, Sultan was a recent New York University graduate who sold a tech startup, Live Online, for $70 million. That summer she rented a summer house in the Hamptons and purchased a penthouse in Manhattan's Union Square....

Last Friday, Sultan, now 38, pled guilty to selling painkillers and for trying to sell a firearm, The New York Times reports. She'll be spending four years in prison, which isn't bad considering her sentence was initially five times that. NYT says she's blown through her fortune too.

 

Smart and wise are totally different.  I have experience with individuals who worked very hard and made a lot of money fairly quickly.  I also know people who didn't work hard but won the lottery.  The thing that I noted is that being able to start and run a successful business, or buying a winning lottery ticket doesn't make you any smarter about finances or investments.  It often means that your mistakes are bigger and more expensive.

Someone has a Cayman Islands bank account for his Chinese investments. Nope. Other guy.

Via Naked DC

Turns out, Obama has investments made through the Illinois State Board of Investment, which cares for the pension funds of Illinois state employees. Obama was an Illinois State Senator and is entitled to (and did) make investments through this board, in a manner almost identical to Mitt Romney’s own blind trust. In fact, the ISBI even put some of it’s cash into Avent International, a private equity and buyout firm like Bain Capital that puts a percentage of it’s investors money into a Cayamn Islands partnership (sound familiar?). And as part of it’s diversified portfolio, the blind trust also has investments in Chinese companies, presumably some of which have human rights problems. Because pretty much all Chinese companies have human rights problems.

DRUDGE: "FAKEBOOK: IPO GIVES NO RETURN "

It was the biggest IPO in US history and everyone was clamoring to get in on it.  And it could well be the biggest scam since Fannie & Freddie cooked the books.  

The insiders sold the public about $16 billion worth of stock, making a bunch of new paper billionaires.  But the hype was more gut than analysis.  There are millions of people with Facebook accounts and they all wanted some of the stock. 

Is there a case to be made for the longevity of Facebook, or are people going to go to the next thing after they get tired of posting pictures and messages for their friends and find that most of those messages are really not very interesting?  What are the barriers to entry for competition?  What about other sites like LinkedIn?  What about GM’s announcement that it was dropping Facebook advertising because it wasn’t effective?   What about the syndicate that underwrote Facebook having to come into the market and buy stock to keep the price above the $38 offering price?  

It’s dangerous and financially risky to invest in fads, unless you can find a greater fool to take the stock off your hands at a higher price than you paid before it crashes.  28 year-old Mark Zuckerberg found a bunch of suckers to make him one of the richest men on the planet.  My money is on the prediction that he will be unloading more of his stock as soon as he’s legally allowed. 

Flying car

Stocks Log Worst Aug. in 10 Years; Dow Up for 2011

Investors are experiencing the roller-coaster syndrome: They're getting a wild ride scaring the hell out of them and ending up where they started.

Washington Is Annoyed at Wall Street's Failure to Panic

Obama and the MSM has been screaming that the end of the financial world is here and blaming the Tea Party. I have told people who ask that there will not be a default. And the markets have not paniced. After the TARP debacle people are a lot more cynical.

...lots of people in Washington, D.C. expected that this would be a week marked by panic in the markets. Stocks would tank. Bonds would get clobbered. The dollar would do something dramatic. And all of this would help convince reluctant lawmakers that they had to reach a compromise on the debt ceiling.

"We were following the script from 2008. When the market collapsed after TARP failed, that spooked everyone enough to get them to fall in line. We thought the same thing would happen this week," he said.

Instead, the market has just been on a quiet, non-panicked slide.

Stocks have sold off by a couple of percentage points, but nothing that indicates a real fear trade in the works.

Rhode Island Cities Run Out of Other People's Money

Lesson for investors: be careful whose bonds you buy.  Bond issued by Central Falls, R.I. will soon be in default when the city declares bankruptcy.

We want our money back! No more "too big to jail."

Ann Coulter’s column is another reminder just how the financial catastrophe of 2008 happened and who is responsible. Yes, Wall Street made money and banks made money, but the people ultimately responsible, the “heroin pushers” were the Liberal politicians in congress and in charge of Fannie and Freddie who created the crap that brought the whole system down and drove the American family into the ditch. And I mean the American family literally. There is not a homeowner in the country who has not been affected by this disaster. Not an investor, not a retiree, not a bond holder, not anyone with a 401k who has not suffered in this disaster. The entire country is still reeling, hoping to live long enough to eventually recover. And the real culprits have made off with their money and Chris Dodd and Barney Frank are still not in jail for their part in this disaster.

Investigate this:

Forget "stimulus" bills and "shovel-ready" bailouts ... the current financial crisis, which is the second Great Depression, was created slowly and methodically by Democrat hacks running Fannie Mae and Freddie Mac over the past 18 years....

Goo-goo liberals with federal titles pressured banks into making absurd loans to high-risk borrowers -- demanding, for example, that the banks accept unemployment benefits as collateral. Then Fannie repackaged the bad loans as "prime mortgages" and sold them to banks, thus poisoning the entire financial market with hidden bad loans....

Obama's own Federal Housing Finance Agency reported recently that by 2014, Freddie and Fannie will cost taxpayers between $221 billion to $363 billion.

Over and over again, Republicans tried to rein in the politically correct policies being foisted on mortgage lenders by Fannie Mae, only to be met by a Praetorian Guard of Democrats howling that Republicans hated the poor.

In 2003, Republicans on the Senate Banking Committee wrote a bill to tighten the lending regulation of Fannie and Freddie. Every single Democrat on the committee voted against it.

In the House, Barney Frank angrily proclaimed that Fannie Mae was "just fine."

Rep. William Clay, D-Mo., accused Republicans of going on a "witch hunt" against Fannie Mae and attempting a "political lynching of Franklin Raines" ...

As late as 2008, Sen. Chris Dodd, D-Conn., who had received more than $133,000 in political contributions from Fannie Mae, called Fannie "fundamentally strong" and "in good shape" -- which is the kind of thing the Politburo used to say about Yuri Andropov right after he died.

Enron's accounting fraud was a paltry $567 million -- and it didn't bring down the entire financial system. Those involved in the Enron manipulations went to prison. Raines and Gorelick not only didn't go to jail, they walked away with multimillion-dollar payouts, courtesy of the taxpayer.

...

Under the Democrats' 2010 "Financial Reform" bill (written by Chris Dodd, Barney Frank and Goldman Sachs), Raines keeps his $90 million, Jamie Gorelick keeps her $26.4 million, and Goldman keeps its $12 billion from the AIG bailout.

Let's get it back. Twelve billion, one hundred and sixteen point four million dollars might not sound like a lot to you, but it starts to add up.

Here in Virginia ex-delegate Phil Hamilton has been indicted for sponsoring a bill that gave money to start up a university center which in turn hired him to direct it.  That was four years ago.  The amount of money involved was $500,000 to Old Dominion University and Hamilton got a $40,000 job out of it.  In the grand scheme of things, chump change.

Compare that to the trillions of dollars that were involved in the Democrats' fraud scheme, that netted them millions of dollars in payments while driving the country's finances off the cliff and ruining the lives of millions of people. 

There should be no institution that's "too big to fail" and no politician who's "too big to jail." 

It's Illegal In California to Give Your Customers Coffee and Donuts ....

Mark Steyn wonders what effect this election will actually have.

A few big things have the American people upset: the attempted hijacking of their health care by the federal government and the smug, condescending arrogance of the ruling class swept into power by the Obamas and their $200 million-dollars-a-day vacations.

But as a small business owner, I know that the real burdens that the American people and the American entrepreneur suffer under were not up for election this year, or the year before, or the year before that. The real rulers of our lives sit in offices with grey metal desks and who tell us that a hardware story owner can’t put out a pot of coffee and a box of donuts for its customers without a kitchen with stainless steel sinks with hot and cold running water and a prep kitchen to handle the donuts. In other words, it’s illegal to run down to Dunkin Donuts for coffee and pastries and put them out for your customers if you live in California.

In my particular business, I’m required to file something called and ADV 1 and and an ADV 2 with the federal regulators and register with the SEC to be allowed to provide my clients with financial advice. Well, OK, so we hired a law firm and tens of thousands of dollars later we’re officially and legally registered.

So, by the way, was Bernie Madoff.

So the crooks and liars who got us into this current financial mess – yes, I’m talking to you Chris Dodd and Barney Frank – decide that they need to overhaul financial regulation to eliminate financial risks, like “too big to fail.” They do this by writing a law - the Frank-Dodd Financial Reform bill - that enshrines “too big to fail” as an official government policy while completely ignoring the two institutions - other than Frank and Dodd- that more than any other caused the financial crisis: Fannie Mae and Freddie Mac. Fannie and Freddie between them guarantee about 90% of all home loans and their reckless lending to people who could not afford their mortgages led directly to the financial crisis that cost millions of families their homes and caused banks around the world to fail.

But back to me. Thanks to the new laws I now have to file a revised form ADV 2 written in prose instead of checking off some boxes and I have to register with the state instead of with the feds. And how will that make the financial world safer for the average investor? Beats me (hint: it doesn’t) … but it’s making my lawyers richer, which may be the purpose of the law all along.

Steyn:

This is the reality of small business in America today. You don’t make the rules, you don’t vote for people who make the rules. But you have to work harder, pay more taxes, buy more permits, fill in more paperwork, contribute to the growth of an ever less favorable business environment and prostrate yourself before the Commissar of Community Services – all for the privilege of taking home less and less money.

And eventually you wake up and find, as in California, that your state is all hole and no doughnut. Just as gun control is not about guns but control, so doughnut control is likewise not about doughnuts, but about ever more total control. Big Government won’t make the coffee, or the doughnuts. It just regulates them. All it makes is small citizens. If next Tuesday doesn’t begin the rollback of unaffordable hyper-regulation, we’ll need a new mass movement – the Alliance of Non-Compliance.

Lessons from the Madoff and Goldman scandals.

Bernie Madoff was a highly sought after money manager for the rich and famous. You had to be “somebody” before you could get an audience with this Ponzi schemer.

Goldman Sachs was/is the crème de la crème of high finance investment firms. If a Goldman salesman called to offer to open an account for you, you knew you had “arrived.”

Both scammed their customers out of billions and have left financial debris in their wake. What are the lessons we can take away?

1. Beware of “reputation” and the negative sell. “Are you good enough or rich enough to invest with me? “ is a trick question. At that point the victim is begging to be fleeced. The biggest flops I have seen in my career have been created by people with great reputations (see Long Term Capital, below).

2. Don’t invest in things you don’t understand. Ask the question I always ask: “How can the wheels come off?”

3. Don’t invest in something that you can’t sell the same day. (There are exceptions but they are far and few between).

4. Amateur investors are accidents looking for a place to happen. If you don’t change your own oil, write your own will, do your own brain surgery; you should not practice do-it-yourself investing. My experience is that the smarter people think they are, the worse their investment decisions will be. Doctors, as a class, are the worst because they know they are the smartest people in the world.

5. Find a professional who has been around a long time. There is no substitute for experience. Experience does not necessarily make you smarter, but it helps you avoid making the same dumb mistakes all over again. The person who put the Goldman deal together, Fabrice Tourre, is 31 years old today. He did this deal in 2007, which made him 27 at the time. Would you invest a billion dollars on the advice of a 27 year-old even if his card said “Goldman Sachs?” If your answer is “yes,” congratulations, you have joined the masters of high finance who lost money to this punk kid.

6. Never invest in schemes that promise outsized returns. Some scammers tell you that they are letting you in on their secrets to riches because they have become wealthy and want to “give back.” That’s right up there with the Nigerian finance minister who would like to deposit his millions into your bank account.

7. Investing is as much art as science. Don’t be misled by sophisticated computer models that use past data to predict the future. Long Term Capital was a hedge fund run by Nobel Prize winners that nearly wrecked the US financial system when it blew up in 1998.

8. Investment success depends on controlling emotions. The herd is usually wrong at the turns. More money flows into stock funds at the peak of the market than at any other time and the largest redemptions are at the bottom when people should be buying.

9. There is no such thing as short term investing; that’s speculation.

10. Never speculate with what you can’t afford to lose.

Oh yes, here's a bonus:

11. Don't take legal advice from your doctor, medical advice from your lawyer or financial advice from your CPA. They are specialists at what they do but dunderheads when they venture outside of their specialty.