Sunday Musings: Prison Survival

Ulli Uncategorized Contact

Hat tip to reader Tom for submitting this article called “Madoff’s Niece Calls Prison-Survival Expert:”

Bernie Madoff’s niece is so worried about doing jail time that she’s seeking prison survival tips from a consulting firm, sources told the New York Post.

Which brings to mind at least one curiosity: There’s a consulting firm that helps would-be inmates prepare for incarceration?

The answer is yes, and it’s called Wall Street Prison Consultants. On its Web site, in big, capital letters, WSPC asks visitors: “ARE YOU SCARED AND CONFUSED?”

Shana Madoff contacted the firm’s founder, a former federal prisoner named Larry Levine, the sources told the Post.

“A female relative of Bernie Madoff contacted me,” is all Levine would confirm to the paper. It sounds like she has reason to be scared.

Shana Madoff, 38, was a compliance officer for her uncle’s firm before it was exposed as one giant Ponzi scheme. As compliance officer, Madoff’s neice signed her name on a lot of legal documents.

Shana Madoff contacted Levine so that she can “learn how to game the system, so you end up in Club Fed, not Leavenworth,” a source told the paper.

With its “Fedtime 101” course, Levine’s firm instructs white-collar offenders on how to survive federal prison and earn an early release. These skills would come in handy for Shana Madoff, who grew up on six acres on Long Island. Her dad, Peter Madoff, is Bernie’s brother.

Levine said that another male member of the Madoff family has called him, the Post reported.

“I give people a wakeup call,” Levine told the paper. His course costs $850.

This story would be pretty funny if the situation surrounding it would not be so serious. Hopefully, if justice prevails as I mentioned in yesterday’s post, this business has an opportunity to blossom big time.

But why only charge $850? $85k or even $850k would seem more appropriate to me. Make those in need of this kind of information pay for it.

Rescuing The Economy

Ulli Uncategorized Contact

MarketWatch featured an article with the intriguing title “Rescue the economy? Try the SEALS.” Here are some highlights:

President Barack Obama has put the wrong federal agency in charge of the rescue of the financial system. Instead of hiring Tim Geithner and the TARP, he should have hired the U.S. Navy and the SEALs.

When lawless pirates captured an American sea captain, the Navy put the hostage first. Now he’s safe, and the hostage-takers are dead or jailed.

When lawless bankers captured the global economy, Geithner put the hostage-takers first. And the hostage-takers are stepping up their demands: Change the accounting rules, guarantee us against any losses from the toxic assets, and rig the stress test so we all come out smelling like roses.

Old-timers may remember with nostalgia the days when it was easy to tell the difference between a major financial institution and a criminal enterprise. Those days are long gone.

Consider, for instance, the indictment unveiled last week against a San Diego street gang on multiple counts of mortgage fraud. According to federal prosecutors, the gang arranged to buy 220 properties for more than $100 million from 2005 to 2008. They overpaid for the properties by taking out liar loans using phony appraisals. They then funneled a kickback to a company controlled by the defendants, the indictment says.

Liar loans? Phony appraisals? Kickbacks? That sounds pretty much like the business model for the mortgage brokerage industry in California during the bubble. Maybe the real complaint is that the mob was muscling in on their territory.

Or consider the report in Monday’s Wall Street Journal that the Troubled Asset Relief Program oversight panel is investigating complaints that the banks that received money from the TARP are raising interest rates and imposing new fees on customers.

It is indeed shocking to learn that banks are behaving like banks. Isn’t the whole point of the TARP to help the banks get back on their feet? And if they can’t sell trillions of dollars in credit default swaps to each other, the most profitable line of business they have left is the customer-gouging unit, also known as their credit-card businesses.

Citigroup defended a recent loan promotion that didn’t disclose that the annual interest rate was 30%. The interest rates “compare competitively to similar offers in the market,” a Citigroup spokesman told the Journal. So this is like an offer you can’t refuse?

[My emphasis]

Liar loans, phony appraisals and kickbacks have been the mode of operation for the years leading up to the bursting of the real estate bubble. In order to really rescue the economy those, who led us into this mess, need to first be removed from their positions of power and replaced by management with competence and integrity.

That’s one issue but to me, there is much more at stake. While there has been much talk about outright fraud and deception in the banking and mortgage industry, I have yet to see anyone being brought to justice. Quite the contrary; you only read about the very few who have been let go on good terms, and they are happily sailing into the sunset with their golden parachutes.

This really concerns me, and I have asked myself on many occasions “has the American justice system failed?”

What’s your view?

No Load Fund/ETF Tracker updated through 4/16/2009

Ulli Uncategorized Contact

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Choppy activity, but with an upward bias, pushed the major indexes to their 6th week of gains.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -3.50% thereby confirming the current bear market trend.



The international index now remains -5.84% below its own trend line, keeping us on the sidelines.



For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

One Reader’s Hedge Experience

Ulli Uncategorized Contact

Several readers have shared their experience in setting up a SimpleHedge as per my free e-book. The latest comment came from Foster, who wrote the following a few days ago:

I bought SH @75.68 on the Monday (March 23) following your signal. Then JSVAX following day (March 24) @8.25 and ARGFX also on March 24 @19.78. Total investment (about 10% of portfolio) split 50% SH and 25% each the long funds.

Results April 13:

SH -5.02%
ARGFX +18.5
JSVAX +13.09

I’m now going to rebalance per your guidelines.

To better understand what he has done, I have applied my matrix to demonstrate his hedge:




[Click on chart to enlarge]

Foster was very aggressive with his fund selection ARGFX, which has a Beta of 1.32. While this fund will do well when the markets advance, it may decline faster as the markets retreat. At least that what theory tells us. Nevertheless, he has done extremely well during this short period of time and actually outperformed the S&P; 500, although he was well hedged against any adverse market moves.

Foster was kind enough to allow me to publish his experience, and I will track it in the future to observe the effect of different market conditions as time goes on. It is important for Foster to track his unrealized gains (right now at +4.99%) in order to apply his sell stop down the line.

If this current +4.99% was the highest unrealized gain so far, then his trailing stop loss would be 7% below that point, or at around -2%. If his high so far had been +6%, for example, his sell stop would be triggered if the hedge moves down to -1%.

This means that Foster’s aggressive move with his fund selections has put him in a position where he has very little downside risk. Nice job and thanks for sharing.

More Wishful Thinking

Ulli Uncategorized Contact

Retails sales were the bad boy yesterday as the March numbers came in surprisingly weak.

Economists had been looking for an increase. Hmm, let me see, we’ve had job losses of over 500k per month for the past 6 months or so, and economists expected retails sales to pick up? Who is supposed to be doing the buying?

Maybe it was that wishful thinking again, that the economy is about to turn the corner later on this year. Well, I would not hold my breath or make any bets on that to happen.

Goldman Sachs was in the news again by reporting shockingly strong results. As I said last Friday, whatever banks report does not give me the warm fuzzies. Apparently, I am not the only one:

One analyst chalked up the performance to funds Goldman received from American International Group Inc. after the insurance giant was bailed out by the government.

Goldman is “one of the major beneficiaries of our tax payer dollars, and the great irony is in an alternate universe, the quarter in which Goldman’s reported earnings were twice Street expectations would have been the quarter in which it declared bankruptcy,” said Dan Greenhaus, an equity analyst at Miller Tabak & Co.

That said, Greenhaus noted the outcome is what the government was looking for when it gave AIG the original $85 billion in rescue funds. “They wanted that money to filter through the global banking system and help get capital to financial institutions that were in need,” the analyst commented.

[My emphasis]

There you have it. It’s a very fine line between record profits and no longer being a viable enterprise.

I am relieved to see that taxpayer money contributed to Goldman’s survival and shockingly strong results, which can only mean enhanced bonuses for those lucky enough to be at the helm at this time. Looks like cronyism is alive and well.

Will They Or Will They Not?

Ulli Uncategorized Contact

Things looked a bit shaky on Monday morning as traders pushed the ‘sell’ buttons after a long Holiday weekend and sent the Dow down some 120 points.

Give credit to the financial stocks as the major averages clawed back and ended near the flat line.

Much attention was focused on GM as to whether they are closer to bankruptcy than previously assumed. Apparently, the automobile industry task force has in no uncertain terms told GM to prepare for a June 1 BK filing, just in case they can’t reach an agreement with UAW and its bondholders. Seems to me the thumbscrews have been tightened, but it remains to be seen if there is any adverse market reaction if a bankruptcy filing indeed takes place.

Markets typically react to unforeseen events; this one could be classified as the worst kept secret. There is more talk to possibly split the automaker into a ‘good’ and ‘bad’ company, with the good one retaining the successful automobile brands and the bad one being sold off over the next few years.

Either way, there will be some impact on the forthcoming unemployment numbers as a bankruptcy would certainly guarantee masses of direct and indirect lay-offs. I am not sure if this impact will be strong enough to have an effect on the current market rebound and put into question the preferred view that an economic recovery is looming on the horizon.