Friday, October 10, 2008

Raiding The Whorehouse

It was one of my father's sayings about stock market declines; "When they raid the whorehouse, they take the pretty ones along with the ugly ones." They all look suspect to me now, but in the case of AIG (American International Group), that's one particularly ugly whore. Only days after receiving an $85 Billion dollar bailout from the Fed to keep from going belly up, the company spent a half million dollars on a "retreat" for company employees at an exclusive California resort/spa. Congress is insisting they pay back the half-mil, while approving another $35 Billion for the company in additional aid. Of course, it's beyond outrageous, but a revealing glimpse into the mentality of today's corporate America. Talk about a group of people who have become dependant on government largess, and they're all wearing suits and carrying Blackberries.

My sincerest sympathy goes to those who have been crack-backed by the decade of gains that have just been wiped out. I feel your pain. I retired from the field of play after the tech stock bust of 2000 and am still licking my wounds. That's when I finally realized that the market; the Dow, NASDAQ, futures, commodities, you name it, was an insiders' game. If you're someone like me, the only way to make money is if you're lucky enough to bet on the insiders' side. It's like the casinos. It's a rigged deal and the odds favor the house. And just like the casinos, market institutions are always coming up with new ways to bet. Only instead of Blackjack, Keno and craps, they call them financial instruments, derivatives, puts, and calls. You can make money betting a company's stock will go down. In fact, that's probably one of the only ways left to make money in stocks.

I come from a family of investors. When I was a little boy, my parents had to explain to me why my Grandfather had given me 50 shares of Nabisco for my birthday instead of a toy truck. After I understood, when my Mother took me to the grocery store I would always insist she buy Vanilla Wafers, just to support the company. The stock market seemed like a private club, or some mysterious Masonic order with closely held secrets. My Grandfather, who came to this country with nothing, would buy a stock and hold it for a quarter century before he sold. He taught my father the same principles of buying shares in a solid company with a future and holding on to them forever. That sort of conservative wisdom helped put me through college, but the internet age changed everything.

Part of the insiders' game is that they don't teach you about the stock market in school. You have to learn it from other insiders, or go to special schools where they teach this stuff exclusively. I learned from sitting with my father about the intricacies of the game. I entrusted my investments to him my entire life because he was better than any broker; he was smarter than most, did better research, and he actually cared. He kept books of moving averages that he would track using his own methods. When a stock broker would show him his new car, my father would say, "I want to see your clients' new cars." He would explain he was such a conservative investor because, "My father got wiped out in the Stock Market crash of 1929. A broker jumped out of a high window and landed on his pushcart." It was the same for 70 or so years. Then he got an online account.

My father had persuaded me that my intuitive judgement was as good as anyone's and if I did the proper research, I could make money in the market. When I pulled the trigger on my first online trade, it was as big a rush as drawing a straight-flush. It was like having a loose slot machine in the house. I was way up for awhile and began imagining myself as having some latent ability to think a step ahead of the herd, but then the herd trampled me. I'll spare you the gory details, but I was left bewildered and feeling guilty that I had failed because I was too impulsive or my research was flawed. I had read books by everyone from Lee Ioccoca to Melvin Van Peebles. I looked at as many as five separate sources for expert opinion before making a trade, but made the mistake of falling in love with the "pretty ones" and holding on to them too long. I took my lumps and bailed out, no wiser but certainly sadder. I didn't even get a free buffet out of the deal.

Imagine my surprise when I found out that my online brokerages, first Donaldson, Lufkin, and Jenrette, and then Harris Direct, were under investigation for their sales practices. It seems that some of the "experts" giving presumably impartial advice had financial interests in many of the stocks they were supposed to be reviewing. Both companies promptly went under and class-action lawsuits were filed, but because of lack of a paper trail and institutional candor, I could never prove that the shares I purchased were tainted by someone else's personal interest. It helped my pride to know I wasn't a total fool, just a sucker and a mark. But it hurt my pocketbook just the same. That's how I know they're a bunch of thieves going in. In the end, they even got to my father. Dad, had who maintained the same investment philosophy his entire life, was lured into a group of clients given exclusive access to IPO's(Initial Public Offerings), which created so many instant millionaires in the 90s, and soon found out that part of his ass was missing. Dad was smarter than me, he had other assets. My financial plan is now probably much like yours; vote for Obama and pray.

13 comments:

Anonymous said...

Randy, you were too kind to the miscreants. This is one of your blogs that I say amen to from beginning to end. I wish that I had been as wise as you after the debacle of 2001. I still believed in the overall integrity of the American political and financial system. Foolish me. I now see that the big boys up top, politicians as well as corporate big-wigs, are all in it only for themselves. They saw this debacle coming from a long way off, but didn't tip off the little people, because they were not quite through feeding on them. They wanted to squeeze just a little bit more of our lifeblood before the whip came down. They are the spawn of Satan's intestines that someone mentioned earlier. You were too kind in your description of them. Don't fool yourself about Obama and his gang. The truth of the matter is that there is no choice. Our political and corporate culture is hopelessly corrupt, inept, and dishonest. They are all CAPITALIST PIGS, even your beloved Democrats. Sure, they may throw a few handfuls of feed to the animals on their farm, but they are not substantively different. To put it bluntly, 90% of both parties are EVIL. All they want is your vote to keep themselves in power and then they go about feeding on the common folk. I say that it is time for the equivalent of the French Revolution, guillotines and all.

Anonymous said...

I agree with everything that has just been said. Capitalism is a system designed to enrich the few at the expense of the many. I haven't seen that clearly until now. Sign me up as a convert to socialism. I'm sure that there will be just as much corruption, but at least the Wall Street types will be eliminated. We can all enjoy our poverty as one people and give the finger to the newly disenfrancised capitalist pigs. If Obama can get pot legalized at least we will have an effective pain killer to make it all more endurable.

davethedog said...

The CEO's and corporate pig's and thieves should not be allowed to profit by the bailout. I suggest they be fired and sent to prison after a "bull-whipping" on the public square. And I didn't lose anything because I only have real estate. But I hate biz-pigs.

Right on BROS.

davethedog will bite them if they get on my side of the junkyard fence. Wuff Wuff.

Alice Frye said...

I expected (and missed) the Hanna Barbera story, RJ. "Well, Dad, I like Yogi Bear."

I put my chips into a mutual fund. The "better" ones are designed to have a portfolio with breadth so that some of the stocks hold strong when the weak ones fail. But no one mentioned the possibility of all of them going under at once. It's like watching a train wreck and being part of it, at the same time.

In fairness, I think we have to give some of the blame for this to the millions of Americans who have been living beyond their means. I know they were tempted by those bank signs that encouraged the homeowner to "put that equity to work." But to raid one's nest for a plasma tv with surround sound or a second SUV? WANT and NEED have been badly confused.

Most of the BAH regulars had parents raised during the last Depression, so we're probably better off--as in broke but not deeply in debt. I know that my every excess in life has been accompanied by a cloud of parental guilt, which keeps my runaway WANTS down to a manageable few.

But, as a group, we Americans are slow learners. Every so often, we are reminded that a corporate entity does not have a conscience and that, given a choice between right and wrong, it will select the most profitable course. Capitalism can still work, but not without government regulations and public oversight, with punishment for transgressions.

The Watcher said...

Hey, where is the rage? We have all just been screwed bloody by assholes from both parties, as well as by the pimps on Wall Street. Where is the lynch mob? It is not fear that is causing the market to plummet. It is lack of trust. Everyone has suddenly realized that you can't trust Washington or Wall Street, so what are we to do? Some of you say, 'Well, let's trust Obama and the Democrats'. WHAT!!!! You can't be so naive. That is no solution. The two parties are two sides of the same coin. It is going to take a completely different type of leadership to get this ship on a sane, sustainable course. On the other hand, that leadership apparently doesn't exist. So, I guess we are supposed to gamble on Obama. Sheeeit!

ghg said...

Being wiser has with it its own set of internal stabilizers. Therein lies some slight comfort that I'm sure we both are feeling right about now. I still have that roll of toilet paper you sent me...each page with a different NASDAQ company whose stock certificates were worth less than the paper I could have been using to clean up my back side. I'm not even sure I let you know that I appreciated the metaphoric act of comradeship that it represented from you to me. Actually, I couldn't. I was still only able to move from one spot to another by extending my fingertips forward about a half an inch, then digging them into the dusty floor of my apartment, and trying to pull my entire limp and prone body forward. This turned out to be a very slow process and so after about a month of trying to get to the bathroom, I decided that lying face down on the floor was as comfortable as I was going to get. Not good.

So, here we are again. A new multitude of burgeoning financial conservatives being born right here among the flaming stock certificates. Some lessons are just plain tough.

But let's look for the silver, RJ. My feeling is that we are going to be getting ourselves a brand new world now. (Here I come).... maybe the people have gotten the slap across the back of the head needed that will allow for a country that can become more humane to its citizens. We might find out that what really matters is feeling good enough to give someone else a hand. I know. The sentimentality can be nauseating if its overdone. But, there is nothing like a significant loss to bring a person or a country full of people around to gratitude for what they have. Ever walked out of a funeral of someone other than a significant loved one. Suddenly all the colors pop, the sky is amazing, and the relativity of being on your feet and not being in the ground is large.

Maybe we'll have a chance to really make some hay from a 9/11 experience this time. The present administration didn't have the intellect or the heart to take advantage of that last huge loss.

FDR's grave is in Hyde Park, NY. I was there about 2 months ago. Stood by his grave. Sobering. Great man. Saved the lives and the dignity of millions. Made humility something that people could own again with pride. Saved this country, for God's sakes. Made us proud to be Americans. So, here we are. I'm seeing the silver lining.

Sputnik57 said...

Gregg,
Thank you. This is the best fucking thing you have ever written. I'm feeling better already. If I had any money, I'd go out and buy a large block of GM.
Your Pal,
RJH

myinvestorsplace said...

Informative article. Fitting illustration. Jumping on a needle? :)

Today stock markets have become a threat for investors. Good research!

Andrew Abraham
MyInvestorsPlace - trading, value, investing, forex, stock, market, technical, analysis, systems

Father Farken said...

What do hippies know about money? Surprisingly a lot! Great blog Randy...but that's a given! Heard Mr. Natural lost his shirt in last weeks Wall St. blood bath. Oh? He doesn't wear a shirt? What about Nature Boy? Peace be upon yah!Blessings!
FrFerghusFarken

Mr. Natural said...

Father Farken, I hate to keep correcting you, but I believe it was the Watcher who lost his shirt in the market. Mr. Natural will do just fine as long as he can get his granola and other herbacious goodies. Apparently Nature Boy has returned to nature and is no longer a part of what is happening here.

Father Farken said...

Mr. Natural! A thousand apologies my good man. They say the mind is the second thing to go. "Just trying to stay alive & keep my sideburns too" as Leon Russell use to say. Sorry to hear about The Watcher! He seems to be a survivor & he has a pretty sharp mind. I just heard Tony Clifton sing "I Will Survive!" The Watcher with G*d's grace definitely will. I taught Art lessons in my first life. An artist is a watcher...so The Watcher must be an artist of sorts. Awareness is the key to drawing! You draw what you see...not what you think you see! You see through the symbolic images that we create to actually see what is really going on! Remember "ISness" is our Bidness"!
Well...I'll just raise my cup of decapitated coffee to the whole BAH family ...just as if you were my whole Farken family! I'll keep you in my prayers! The Peace of the Lord! Fr. Farken

Mr. Natural said...

Father Farken,like all good mystics, artists, and poets your third eye is in good working order. I like it when your writing turns to the inscrutable. Do some more of that.

Anonymous said...

Attention everyone! In another four years America will be unrecognizable as the land of our forefathers. Even the most liberal, providing that they are fond of freedom, will not like what is coming down the pike. 'Traditional' America was a construct of principles. Every one of them will be trodden under foot. The transformation has been going on for at least 40 years, but will take a giant leap forward (or backward, depending on your perspective) under Obama and the Democratic agenda.