"The truth is, these are not very bright guys,
and things got out of hand."
- Deep Throat, "All The President's Men" (1976)
"Real" Inflation- According to the Labor Department's Consumer Price Index for All Urban Consumers, the government's "food at home" index rose 2.6% in June, with prices for vegetables jumping 3.2%, apples 4%, and tomatoes 8.7%. Meanwhile, beef prices rose 1.1% while chicken jumped 2.6%. Is there an ETF out there that can hedge my summer BBQ?
Home Builders- The National Association of Home Builders said Tuesday its housing market index soared to 35 in July, the highest level since 2007 and the largest monthly increase since September 2002. Question: "Has housing hit a bottom?" Answer: "Say what? I can't hear you because the housing bottom bell keeps ringing in my ear."
The Right to Read- The American Civil Liberties Union has filed a "right to read" lawsuit in Michigan, charging that the state and its agencies that oversee public education have failed to ensure that students are reading at a grade level as required by state law. The "right to add" lawsuit was filed in California, charging that the state and its agencies couldn't balance a budget if their lives depended on it.
Just Plain Marginal
Retroactive Resignation- Ed Gillespie, Mitt Romney's top campaign advisor, said on Sunday's "Meet the Press" that Romney has no responsibility for any decisions he made at Bain Capital during the three years he ran the Salt Lake City Winter Olympics (1999-2001) because Romney had "retired retroactively to 1999" from the company. You know what you call a "retroactive resignation" in golf? A mulligan. Hit 'em 'til you're happy, Mr. Romney.
Views From the Cheap Seats
With the day that Keith Geiger flies off to college fast approaching, I found an opportunity to dispense to The Skinny Kid some fatherly advice on how the cold, cruel world actually operates. I treated him to a steak and potatoes dinner because, at 5’10” and 135 pounds, I didn’t want his Carnegie Mellon classmates to mistake him for a surfboard.
I told Keith there were two life lessons I wished some street savvy adult had passed on to me before I launched myself from the family nest. The first was that “The Efficient Market Theory” was just that; a swell-sounding economic concept that has no actual application to the real world. Twenty-plus years of collecting paychecks from Wall Street have given me front row seats to three stock market crashes and one real estate head-on collision, and the only thing “efficient” about them was how “efficiently” they wiped out my 401-k. History teaches us that while institutions and technology have evolved, human emotions have not, and fear and greed are just as prevalent in today’s markets as they were hundreds of years ago. If you don’t believe me, I’ve got some 17th century tulip bulbs from Holland I’d like to sell you. Save your money, Keith, and then watch it very, very carefully.
The second lesson involves trust, or more accurately, a lack thereof. Just because someone is older than you, richer than you, dresses better than you, or has a sexier sounding job title than you, never assume that they know what they’re doing or have your best interests at heart. Let me rattle off to you an abbreviated list of corporate chicanery that I’ve witnessed in my lifetime: Ivan Boesky, Enron, WorldCom, Charles Keating, HSBC, Drexel Burnham, Adelphia Communications, Arthur Anderson, and Bernie Madoff. And don't even get me started on the government. Trust your instincts, Keith, and don’t be afraid to question anybody, about anything, at any time.
For evidence of gargantuan greed, rampant stupidity, and blatant fraud, you need look no further than your own bucolic corner of Moraga Road and Moraga Way, where at this little slice of Norman Rockwell-esque suburbia you’ll find less-than-friendly branches of Bank of America, Wells Fargo, and J.P. Morgan (masquerading as Chase Financial). They may look strong and trustworthy on the outside, but inside those wood-paneled walls are virtual dens of iniquity.
Take the latest bank scandal-de-jour. Ever hear of LIBOR? No, it’s not the name of your new college roommate. It stands for London Interbank Offer Rate, and it’s supposed to be one of the bedrocks of the global financial system. But during the financial crisis a bunch of stuffy bankers decided to turn this interest rate standard into a party favor, and every day for four years they played “Pin the Tail on the LIBOR.” Millions of customers were cheated and billions of dollars were misallocated. “Whatever,” said these schemers in three-piece suits, “the central bankers will simply print more money and bail us out.”
By the way, have you noticed all the “For Sale” signs sprouting up around town? That’s the residual carnage leftover from those very same banks lending money to every Tom, Dick and Kardashian who could fog a mirror. The Financial Masters of the Universe in New York, London, and Tokyo needed to keep the mortgage-backed securities gravy train going, otherwise they wouldn’t be able to pay for their golf club memberships or send their kids to Overpriced Country Day School. To protect their pin-striped butts, Wall Street created a nuclear device called the credit default swap. However, before the CDS bomb detonated and nearly eviscerated every market on the planet, the really smart guys at the ratings agencies blessed every financial instrument that came across their desks as Triple-A rated. Why spend any time analyzing something you can't understand when Happy Hour is about to start.
Memo to Keith: A quote from Vito Corleone in “The Godfather” by Mario Puzo says, “A lawyer with his briefcase can steal more money than any man with a gun.” The same is true of bankers. So the next time you run past those three banks at the corner of Moraga Road and Moraga Way, take notice that they surround a Jack-In-The-Box restaurant, and that the clown inside the fast-food joint has more ethics and moral fiber than the clowns at the too-big-to-fail banks.
Click on LeeGeiger.com to learn more about…well…Lee Geiger