Friday, July 31, 2009

Liar's Poker

(c) 2009 F. Bruce Abel

My second most-mentioned blog subject, as you can see below, is Liar's Poker by Michael Lewis. Because Michael nailed it, in 1989!

I recommend you read this quite closely, as it contains great understatement and irony in places. If you can master what he was saying you can avoid being sucked into wrong thinking about Wall Street today. It ain't rocket science; it's the "selection" game (selection of those taking economics at Princeton and Harvard and the like), and the "taking" game, placing yourself between the parties when vast sums are changing hands.

I reprise herein one of the greatest quotes forshadowing and yet explaining Wall Street, by Michael Lewis.

[Dictated with Nuance; omitted material and spelling errors not necessarily indicated or corrected; playing around with the "outline" and "quote" icon on Blogspot and do not know how to "undo"]

"Never before have so many unskilled, 24-year-olds made so much
money in so little time as we did this decade in New York and London."

"It was sometime early in 1986, the first year of the decline of my
firm, Salomon Brothers."

"At Harvard in 1987, the course in the principles of
economics had 40 sections and a thousand students; the enrollment had tripled in
10 years. At Princeton, in my senior year, for
the first time in the history of the school, economics became the single most
popular area of concentration."

"Economics was practical. It got people jobs."

"Economics alowed investment banking recruiters to compare directly the
academic records of recruits. The only inexplicable aspect of the process
was that economic theory (which is, after all, what economics students were
supposed to know) served almost no function in an investment bank."

"Glass-Steagall was an act of the U.S. Congress, but it worked more like
an act of God. It cleaved mankind in two. With it, in 1934, American
lawmakers had stripped investment banking off from commercial banking.
Investment bankers now underwrote securities, such as stocks and bonds.
Investment bankers, like Citibank, took deposits and made loans. The act, in
effect, created the investment banking profession, the single most
important event in the history of the world, or so I was led to believe."

"After Glass-Steagall most people became commercial bankers. A
commercial banker was reputed to be just an ordinary American businessman
with ordinary American ambitions. He lent a few hundred million dollars
each day, to South American countries. But really, he meant no
harm.... He had a wife, a station wagon, 2.2 children, and a dog
that brought him his slippers when he returned home from work at

"The investment banker was a breed apart, a member of a master race of deal
makers. He possessed fast, almost unimaginable talent and ambition. If he had a dog, it snarled. He had two little red sports cars yet wanted four. To get them he was, for a man in a suit, surprisingly willing to cause trouble."

"Man for man, Solomon Brothers was, in 1985 the world’s most profitable corporation. Wall Street was hot. And we were Wall Street's most profitable firm."

"Wall Street traffics in stocks and bonds. At the end of the 1970s,
Salomon Brothers knew more about bonds than any firm on Wall Street: how to value them, how to trade them, and how to sell them.... The rest of Wall Street had been content
to let Salomon Brothers be the best bond traders as the occupation was neither terribly profitable nor prestigious. What was profitable was raising capital (equity) for
corporations. What was prestigious was knowing lots of corporate CEOs. Salmon
was a social and financial outlier."

"In part this is due to the absence from the bond market of the educated classes, which in turn reinforces the point about how unfashionable bonds once were. In 1968, the last time a degree
count was taken at Salomon Brothers, thirteen of the 28 partners hadn't been
to college, and one hadn't graduated from the eighth grade. John
was, in this crowd, an intellectual; though he was rejected by
Harvard, he did finally graduate (without distinction) from

biggest myth about
bond traders, and therefore
the greatest
about the
unprecedented prosperity on
Street in
the 1980s, are that
they make their
money by taking
large risks. …Most
traders act simply as
toll takers. The source
their fortune has been
nicely summarized by Kurt
(who, oddly,
describing lawyers):
"There is a magic moment,
during which a
man has
surrendered a treasure,
and during which
the man who
about to receive it has
not yet done so.
An alert
lawyer [read bond
trader] will make that moment his
the treasure for a
microsecond, taking a little of it,
it on."

"In other words, Salomon carved a tiny fraction out of each financial transaction. The Salomon salesman sells $50 million worth of new IBM bonds to pension fund X.
The Salomon trader, who provides a salesman with the bonds, takes for himself an eighth (of
a percentage point), or $62,500. He may, if he wishes, take more. In the bond market, unlike in the stock market, commissions are not openly stated."

Now the fun begins.
[Doorbell; to be continued]

And this:

And this from The Huffington Post, also on Michael Lewis and his precience.

July 31, 2009

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Q&A with Michael Lewis (Part 1): The Rules of the Game Were Totally Screwed Up
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Read More: Corruption, Geithner, Goldman Sachs, Liar's Poker, Michael Lewis, Morgan Stanley, Obama, Ratings Agencies, Standard & Poor's, Sub-Prime Mortgage, Wall Street, Business News

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I recently interviewed Liar's Poker author Michael Lewis, and I didn't even ask him if the Moneyball movie was on again. (Apparently it is, with Aaron Sorkin doing a re-write.) We talked about his new book, Home Game: An Accidental Guide to Fatherhood, but we also got into his take on the financial meltdown and the bailout. This is Part One of some excerpts. You can hear the full podcast at
As a former Salomon Brothers trader, Lewis could understand how individuals got caught up in the high-risk bubble.
ML: There's a machine out there and a market... and as a trader you can borrow money cheaply, buy sub-prime mortgage bonds, and make the spread between the two.
Let's say you're a really smart guy who's sort of detached and intelligent about what's going on, and you see that this thing is totally irresponsible. The loans being made are likely to go bad; the lending standards are collapsing. The intelligent thing to do is not to buy sub-prime mortgage bonds but to bet against them, to sell them short.
As a trader inside a big Wall Street would face a decision: Do I exercise my independent judgment and bet against this market, or do I just keep going along with what my firm is doing? If you exercise your independent judgment and bet against sub-prime mortgage bonds, you not only probably run into some political conflict within your firm, but you'd never make the big score for yourself... The minute you make a bunch of money from your bet, your firm is doomed. They couldn't pay you. So the smart thing was just to go along and hope it lasted long enough for you to get rich.
So that accounts for single players and their firms, but what about the ratings agencies? We heard a lot of sports talk in the Sotomayor hearings. Weren't they supposed to be the impartial referees?
ML: The sub-prime mortgage bonds were rated triple A by Moody's and Standard and Poor's. Why? Well, they could give you an argument, but in retrospect, it looks like a very foolish argument.
TM: It looks worse than foolish to me, it looks corrupt.
ML: When you think about corruption, there's the simple kind where I give you $1000 to interview me on the radio so it will promote my book. That's corrupt and we both know it. But there's a different sort of corruption where we're all part of a system that is rewarding us very well to pay attention to certain things and not pay attention to others. We're paid to have blind spots. There's an awful lot of that kind of corruption in the financial system because people's incentives are all screwed up.
Ratings agencies were paid by the people who issued the bonds to put the triple A rating on them. Their incentive is to please the people who are issuing the securities. They can't at the same time independently judge the securities.
TM: Arthur Andersen went out of business for doing basically the same thing with Enron. How could someone not see that they were recreating something which had already failed in a huge way?
ML: Some people did see...The people I find most riveting are the people who saw the magnitude of the coming disaster. They were sane men in an insane world. They would call Standard and Poor's and Moody's and say, "How are you rating these things? Our models show that if house prices even go flat, all these bonds will be worthless." To the question of what happens to these bonds if house prices go down, Standard and Poor's would say, "We actually don't know because there's no place in our model to put a negative number."
TM: Obama, Geithner and the administration are putting out plans for new regulations. This isn't in there?
ML: No. It should be illegal for issuers to pay raters for ratings. It's a bribe. Instead the administration says they're going to give the regulators more authority to evaluate ratings agencies. That doesn't do anything; they already had that authority.
Lewis cited another example of a conflict-of-incentives that's nowhere to be found in the regulatory reform conversation.
ML: How can you possibly have a Wall Street firm that is at once owning securities, making bets on stocks and bonds for itself, and that it is also selling to customers? Inevitably, it will trade against its customers. It will deceive its customers for the sake of itself.
There's no reason both these functions have to be inside one place. You can have firms that provide financial advice but that don't take any positions in securities. Then you could have other firms that have their own trading accounts, but aren't allowed to deal with customers. Those functions should not be in the same place. It creates endless problems.
TM: And this also isn't in the Obama administration's reform plans?
ML: No it's not in there, and no one's even brought it up.
When Lewis suggests that the deeper problem is in "the air we breathe," he's not talking about the environment.
ML: Arthur Andersen was in place to examine Enron, the credit rating agencies were meant to be examining bonds. In both cases they had the incentive to exercise bad judgment because they were being paid by the wrong people. The rules of the game were totally screwed up.
Well, why are the rules of the game totally screwed up? This is the deeper problem, I think, and it goes back to the days of Liar's Poker. In the last 25 years, our economy has created this beast, the financial industry, that is much, much too big; that is doing lots of things that have nothing to do with productive enterprise; in which the rewards are so outlandish, they've distorted the upper tier of the income structure. The reason CEO's get paid as much as they do is that Wall Street taught them how to do it.
You get a huge sum of money for doing something is actually socially and economically counter-productive. People made fortunes out of the sub-prime mortgage bond market. That's insane.
So our society has created this very strange economic value system, where really smart people, the leadership class, thinks it's the done thing to go to Goldman Sachs or Morgan Stanley and get paid three or four million dollars a year -- even though you don't actually add value in any way. Now it's in the air we breathe.
Look for Q&A with Michael Lewis (Part 2): There's a Real Chance There's Going to Be an Uprising about This
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- sonofsamphm1c I'm a Fan of sonofsamphm1c I'm a fan of this user permalink

The company being audited by a public accounting firm doesn't pay for the audit, who the heck is going to pay for it? The government? That would be even more open to fraud. The ratings situation and the audit situation are a bad comparison. Also, not saying that Arthur Anderson did not do anything wrong, but their felony conviction was vacated by a The Supreme Court - 9 justices voting to vacate, 0 justices voting to affirm the conviction.
Reply Favorite Flag as abusive Posted 07:59 PM on 07/31/2009
- FoonTheElder I'm a Fan of FoonTheElder I'm a fan of this user permalink

It's all a big game....wasn't that a lot of fun!!!! Let's do it all again!! Of course, that will be after the taxpayers refill your money machine to make up for all the losses from the previous barrel of fun.No wonder all of these Wall Street crooks are laughing all the way to the bank...and the bank's probably not even in the U.S. Ha! Ha! Ha! Isn't crony capitalism great?
Reply Favorite Flag as abusive Posted 05:00 PM on 07/31/2009
- ibsteve2u I'm a Fan of ibsteve2u I'm a fan of this user permalink

" not only probably run into some political conflict within your firm.."And there, ladies and gentlemen, is the disease that is killing our corporations and, by proxy, America: Political conflict.When the "big guy" (or gal) starts doing something shady, you either go along, or you face the consequences of...political conflict.
Reply Favorite Flag as abusive Posted 03:31 PM on 07/31/2009
- itolduso I'm a Fan of itolduso I'm a fan of this user permalink
How come there's never a Q & A with someone 'outside the bubble'? Let's hear a little from the people that don't breath air laced with million dollar paydays for destroying the system. People that don't get much air of's all been sucked up by the 'bubble machine'. Talk to someone whose equity is covered with his own sweat, instead of just the leeches 'betting' with other's lifeblood. All across this country, individuals, businesses, and corporations are struggling to produce, to innovate, & to contribute....but they are invisible. They can't get attention, they can't attract investment. The 'money train' doesn't stop at their station....all tracks lead to the bubble machine. Each time the bubble bursts, instead of looking outside, to where 'real' things are made....investors wait to be told that the 'baloon' is fixed, so they can again throw their money at the men that fill the air with nothing......except for million dollar paydays for themselves.
Reply Favorite Flag as abusive Posted 03:10 PM on 07/31/2009
- kwright I'm a Fan of kwright I'm a fan of this user permalink
The only losers in this "game" are the taxpayers.
Reply Favorite Flag as abusive Posted 02:50 PM on 07/31/2009
- yappnmutt I'm a Fan of yappnmutt I'm a fan of this user permalink
what? make the game honest? you must be kidding.
Reply Favorite Flag as abusive Posted 01:10 PM on 07/31/2009

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Brooks -- Ah Brooks!

Op-Ed Columnist
Wise Muddling Through
comments (40)
Published: July 30, 2009
Everybody wants to be a striding titan. Almost all alpha-leaders want to be the brilliant visionary in a time of crisis—the one who sees the situation clearly, makes the bold plans and delivers the faithful to the other side.
Post a Comment »
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It almost never works out that way. The historian Henry Adams concluded that “in all great emergencies ... everyone was more or less wrong.” Abraham Lincoln didn’t feel like a heroic leader: “I claim not to have controlled events, but confess plainly that events have controlled me.” In real crises, the successful leaders are usually the ones who cope best with ignorance and error.
David Wessel’s about-to-be-released book, “In Fed We Trust,” gives a revealing blow-by-blow account of the recent financial crisis and illustrates this point.
It is a tale replete with error. In theory, Ben Bernanke, Henry Paulson and Tim Geithner were as well prepared as anyone for this sort of event. Bernanke had spent his life studying the Great Depression; Paulson had led the world’s most prestigious investment bank; Geithner had been involved in financial rescues in Asia and beyond.
Moreover, all of them were expecting some kind of crisis. They knew there had been a dangerous surge of debt.
And yet as the panic unfolded in 2007 and 2008, they continually underestimated its scope and implications. In July 2007, Bernanke estimated global losses from the subprime mortgages and other loans of $50 billion to $100 billion. The losses turned out to be in the neighborhood of $4 trillion. In October of 2007, Bernanke said the banking system was healthy and doubted that the housing woes would destabilize it. He was wrong.
Their decision not to bail out Lehman Brothers was based on a complete misreading of the economic psychology. Paulson was sick of doing bailouts. He seems to have had some sort of intuitive moral sense that it was time for some bank to pay for its mistakes. Bernanke and Geithner went along, and none of them anticipated the meltdown that followed.
But this is not a story of failure. It’s a story of effective muddling through. Bernanke & Co. never really got control of events. But they did avert disaster and committed only a few big blunders. In the real world, that counts as a job well done.
Bernanke’s first achievement was social, not intellectual. Wessel describes one long meeting and one tough decision after another. Rarely have so few endured so many conference calls for the sake of so many. And yet through all the talk, the fear and the rotten choices, Bernanke seems to have cultivated a feeling of comradeship and harmony within the group. He kept the conversation going.
Something unexpected would happen. At one point A.I.G. claimed that it needed a $4 billion cash infusion. Within days it drew in $38 billion instead. Bernanke, Geithner, Paulson and others would just keep talking it through. They developed a feel for the crisis, and for the sort of traditions they would have to smash to address it.
Second, Bernanke avoided the grand gesture. Occasionally, Paulson would make a bold policy pronouncement. The idea was to lay down some sort of principle so the markets would understand the new rules and feel more secure. But then events would change and he’d have to reverse course. He’d end up producing more uncertainty, not less.
Bernanke and Geithner favored a process of constant and gradual adjustment. They were navigating in a violent sea, shifting their weight this way and that to stay upright another day. They tried to solve one problem at a time and worry about the unintended consequences later. Their method didn’t produce a set of clear principles. Their lack of a grand plan or an exit strategy worried some. But their method matched the chaos of the situation.
Finally, there was the size of the response team. It wasn’t too big. There weren’t giant agencies going at each other. The White House and the Congress were barely involved. But it wasn’t too small — just a lone genius and a few loyalists. Instead, the same little platoon of about a dozen people shows up again and again in Wessel’s account—a manageable community of decision makers with no single person dominating the proceedings.
This recession is happening at a time when many wonder if the political system is capable of addressing the nation’s problems. The presidency has become a gargantuan enterprise in which media-star leaders are surrounded by a permanent campaign apparatus. The Congress is both riven by ideology and dominated by parochial concerns.
The Federal Reserve is not the most democratic institution, but under Bernanke et al, it seems to have done a good enough job. Self-effacement did not lead to timidity. Good people were mobilized and were able to talk frankly about the many things they did not understand.
Sign in to RecommendNext Article in Opinion (2 of 26) » A version of this article appeared in print on July 31, 2009, on page A23 of the New York edition.
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Residential Counter-Offer

"residential counter-offer" is a good term to Google for forms to use when selling a home. Kansas City Board of Realtors has a good form. Some others. Some forms are so convoluted that they surely interfere with the selling process.


Sibcy Cline uses the Cincinnati Area Board of Realtors printed form which says "Addendum." Have not seen their printed form saying "Counteroffer." This may be very important for litigations.

Krugman -- This One is Simple But Spectacular


Published: July 30, 2009
At a recent town hall meeting, a man stood up and told Representative Bob Inglis to “keep your government hands off my Medicare.” The congressman, a Republican from South Carolina, tried to explain that Medicare is already a government program — but the voter, Mr. Inglis said, “wasn’t having any of it.”
Times Topics: Health Care Reform
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It’s a funny story — but it illustrates the extent to which health reform must climb a wall of misinformation. It’s not just that many Americans don’t understand what President Obama is proposing; many people don’t understand the way American health care works right now. They don’t understand, in particular, that getting the government involved in health care wouldn’t be a radical step: the government is already deeply involved, even in private insurance.
And that government involvement is the only reason our system works at all.
The key thing you need to know about health care is that it depends crucially on insurance. You don’t know when or whether you’ll need treatment — but if you do, treatment can be extremely expensive, well beyond what most people can pay out of pocket. Triple coronary bypasses, not routine doctor’s visits, are where the real money is, so insurance is essential.
Yet private markets for health insurance, left to their own devices, work very badly: insurers deny as many claims as possible, and they also try to avoid covering people who are likely to need care. Horror stories are legion: the insurance company that refused to pay for urgently needed cancer surgery because of questions about the patient’s acne treatment; the healthy young woman denied coverage because she briefly saw a psychologist after breaking up with her boyfriend.
And in their efforts to avoid “medical losses,” the industry term for paying medical bills, insurers spend much of the money taken in through premiums not on medical treatment, but on “underwriting” — screening out people likely to make insurance claims. In the individual insurance market, where people buy insurance directly rather than getting it through their employers, so much money goes into underwriting and other expenses that only around 70 cents of each premium dollar actually goes to care.
Still, most Americans do have health insurance, and are reasonably satisfied with it. How is that possible, when insurance markets work so badly? The answer is government intervention.
Most obviously, the government directly provides insurance via Medicare and other programs. Before Medicare was established, more than 40 percent of elderly Americans lacked any kind of health insurance. Today, Medicare — which is, by the way, one of those “single payer” systems conservatives love to demonize — covers everyone 65 and older. And surveys show that Medicare recipients are much more satisfied with their coverage than Americans with private insurance.
Still, most Americans under 65 do have some form of private insurance. The vast majority, however, don’t buy it directly: they get it through their employers. There’s a big tax advantage to doing it that way, since employer contributions to health care aren’t considered taxable income. But to get that tax advantage employers have to follow a number of rules; roughly speaking, they can’t discriminate based on pre-existing medical conditions or restrict benefits to highly paid employees.
And it’s thanks to these rules that employment-based insurance more or less works, at least in the sense that horror stories are a lot less common than they are in the individual insurance market.
So here’s the bottom line: if you currently have decent health insurance, thank the government. It’s true that if you’re young and healthy, with nothing in your medical history that could possibly have raised red flags with corporate accountants, you might have been able to get insurance without government intervention. But time and chance happen to us all, and the only reason you have a reasonable prospect of still having insurance coverage when you need it is the large role the government already plays.
Which brings us to the current debate over reform.
Right-wing opponents of reform would have you believe that President Obama is a wild-eyed socialist, attacking the free market. But unregulated markets don’t work for health care — never have, never will. To the extent we have a working health care system at all right now it’s only because the government covers the elderly, while a combination of regulation and tax subsidies makes it possible for many, but not all, nonelderly Americans to get decent private coverage.
Now Mr. Obama basically proposes using additional regulation and subsidies to make decent insurance available to all of us. That’s not radical; it’s as American as, well, Medicare.

Globe and Mail -- Blood Pressure Meds Undermined by Salt

At whatever age, one should read this article carefully:

Thursday, July 30, 2009

AIG Uh Uh!

Oh no!

Cramer Last Night -- Pretty Specific

Remember, Cramer's buy recommendations do not do as well as his sell recommendations. Also he advises scaling, i.e. buy 20 shares of POT today, 20 more when it's 5 points lower, etc.

Kindle DX

Wednesday, July 29, 2009

Jim'srating onthis stock
Closingprice thatday
Full Company Name
Potash (POT)

[Beginning of Cramer's verbatim comments for this segment...]Jim: China is in charge… China’s is the prism for which you have to look at this entire stock market… the Chinese, they hold the market… they have got the cards…. if you look at today’s sell off, Dow down 25 points, S&P down 4... nothing at all makes sense… thru the prism of America… the hardest hit stocks.. I am talking about like Freeport-McMoran, BHP Billiton, Caterpillar, Joy Global, Bucyrus, Norfolk Southern… they are all cyclical companies… that we know reported better than expected number, or at least in line…these are companies that the market loved a week ago…. if you were to look at America, this move would seriously confuse you… I mean what the heck is going on… why are stocks that were lauded for doing better than expected now getting pummeled… what is that all about.

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But you have to remember that America is no longer sitting on top of the world… all of the stocks that I mentioned… they are dependent on China… and they are getting crushed because the market now believes that China no longer needs anything from the rest of the world… China is full up… that is what everyone was saying behind the scenes today… and what was the tell… something that even I never saw coming… two straight weeks of copper inventory increases, where it is kept the repository is in London… for me, that was the signal that China is kaput for now… I mean, that is the reason why Shanghai’s market took a 7% plunge last night… and took our machinery and raw material companies down with it.Two straight weeks of copper inventory builds in London… leads to a huge sell off in China which then crushes cyclical stocks in America… is that crazy?… no, I am not crazy… maybe a little over reaction… but this is the new world… the new world order… where we used to be China… and China is now us… do you know that a dozen years ago China used about 10% of the worlds copper… and we used 30%… do you know that it is exactly reversed now… they use 30%, and we use 10%… and since copper is used in all kinds of construction and infrastructure, none of which we are doing, a decrease in demand from the Communist Chinese is pretty bad news… especially for American companies that need China much more than they need the good old USA… when it comes to economic growth…we used to be the top dog… but now the dog is China… and we are just its little tail that it can wag all it wants.When we awaited the results of the dead auction today… we needed to know that the Chinese liked it… when we speak of free trade, the question is… will it upset the Chinese… we are like Britain in 1946... and China is America… I thought hard where we still have a say… where we still have a choice when it comes to China… and I was struck about something that my daughter said to me on Sunday… Dad, chicken fried rice or moo-shu pork… we are lucky if they throw in the extra hoisen.That is the reason why everyone is now convinced that the commodity trade is dead… I did not care much for that story anyway… you know that I am not a big believer in commodity trade… I like technology, I like healthcare, I like the banks… but this new atmosphere has created a new opportunity… investors are now selling commodity stocks hand over fist… many of which do not deserve to be sold… because they are not even that exposed to China… but they all trade together.So, let me give you the one that I like the most… and this is new for me, I hinted on it last night, it was picked up by a lot of websites… most of which are designed to follow my every single move that I make… which I find to be actually compulsive, if not crazy… [Ed. note: Hey! We're not crazy, we're simply Cramericans through and through!]And it is… Potash (POT)… uh, Potash is back… after a downgrade 60 points ago… Potash the fertilizer company that delivered one of the best quarters that I have seen this reporting period.. it was down $1.28 today… because of the Chinese commodity sell off… even though it is far less levered to China than most of the commodity plays… including, definitely copper… do you know that the peoples republic makes up only 12% of its sales… the demand for fertilizer is much more geographically diverse… but it trades with China.In fact, fertilizer in general and Potash specifically… represents the one commodity that China does not control… despite the sympathetic decline that the fertilizer stocks experienced today… the long term thesis here behind Potash, my first fertilizer recommendation since I took TNH and made that a dividend play, rather than focus on Potash, or Mosaic, or Agrium… is that the rising population levels, not just in China, but across the globe… requiring more food… along with rising income levels in developing nations… which we will soon be considered… because it increases demand for better food, like meat and live stock… they need to be fed… creating even more demand.These are trends that I do not think will go away… regardless of what China does… but the stocks trade with China… farmers have the incentive to make land more productive… and that means using more fertilizer… that said, the reason that I told you to stay away from these stocks… because the fertilizer stocks have been horrible…. horrible… mostly because farmers held off on buying fertilizer because of economic uncertainty… this year we have seen an unprecedented 40% decline in global demand for potash fertilizer… a stunning figure… but it should be self correcting next year… simply because soil can go, with reduced fertilizer, only for about 12 to 18 months… before its productivity is substantially reduced… something that gentleman farmer Cramer should know… but I just spray Miracle-Gro on my rapidly reddening beef steak tomatoes.Low demand now has set the ground work for a massive increase in demand in 2010... and while potash prices have fallen… India just announced potash settlements of $460 per metric ton, that is the measurement that they use, that is the metric… now it is down from $650... something that should lead prices across the globe to reset lower.. but that is why the stock is down… the contract broke the impasse that was keeping the demand for potash down… buyers have now declared that they need to resume purchasing potash… and more importantly, the deferrals of potash purchases over the past year, have increased a massive void in the supply chain that will have to be filled… this is the restocking that we saw in semi conductors that we saw at the beginning of the year… remember all commodities do have similar destock, restock…
...that is why Potash (POT) believes that at last, the great fertilizer depression is over… and I am with Potash on this one.The Brazilians are now getting very active… they are seeing markets around the world starting to pick up… why Potash and not another fertilizer play, you ask… Mosaic, Agrium… first Potash sells all three main crop nutrients… potash, phosphates, and nitrogen… it is a one stop fertilizer stop… the whole foods of fertilizer… it is best of breed in fertilizer, superior cash flow, and net income… great position in the market for potash… given that it is incredibly difficult to build new plants… they cost about a billion and a half dollars… minimum… nobody has got that kind of credit anymore to build a plant… so as demand comes roaring back taking prices with it… Potash will not have to deal with pesky new competitors… and like I said before, the company told what was possibly the best story that I have heard this earnings season on its conference call.. I rate it in the top 5 conference calls that I have been on in the last 3 weeks.At the time, all of these go-go momentum managers were chasing it higher… now because the market is coming down, you have got a chance to buy it more cheaply… the great Chinese commodity sell off has created an amazing opportunity for us… one caveat, I do expect Potash (POT) to keep going down… it is a $91 stock… it has a lot of room… it does not have dividend protection… I cannot tell you where I think the bottom will be… but that is exactly what we want to see when we are trying to buy a stock… its merchandise is getting cheaper and cheaper… the way to play this one is to buy it in increments… so let’s say that you want 100 share, I would buy 20 tomorrow, then wait for Potash to come down 5 points… yes, 5 from where you bought that 20... buy your next 20... then buy 20 more shares after the next 5 points… and so on, that is called scaling in… I teach it in Jim Cramer's Real Money, the books… scaling in is the way to do it with a wild stock like this.We hate to chase stocks on this show… we hate to force trades… but we love a stock like Potash with a great long term story, that we can accumulate as it goes lower… use the now cooling market to your favor and get the best basis… your ultimate stock, the basis, imaginable… worst that happens, it starts going higher after your first 20, and you do not have enough on… my definition of a high quality problem.The bottom line…
▼ ▼ ▼ ▼ ▼
The Bottom Line!: Everything commodities is being sold off like mad since the market seems to think that China no wants to buy anything else from the rest of the world… all because there were two weeks where copper inventories in London went up… I know that this sounds so silly… but it is what happened… and I have got to give you the skinny about what is really happening… China is in charge of the stocks… and most of the companies, but not the fertilizer plays, where Potash pretty much called a bottom on its conference call is my favorite… if you want to declare independence from China… I think that you should take a look Potash (POT).

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Dow: - 26
Nasdaq: - 8
S&P 500: - 4

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Wednesday, July 29, 2009

Judge Posner -- A Good Writer But What a Goofball

Baseline Scenario Today -- Wonkish But Good

The Baseline Scenario
Traditional Chicago Economics Under Pressure: Beyond The Thaler-Posner Debate
Posted: 29 Jul 2009 04:38 AM PDT
Richard Posner is against the proposed new Consumer Financial Protection Agency (CFPA). This is, of course, not a surprise. Posner has always been an articulate advocate of the view most often associated with economics at the University of Chicago: market-based outcomes are invariably better than the alternatives, and anything that interferes with consumer choice is a bad idea.
Posner wraps this opposition to the CFPA into an odd attack (near the end of his WSJ op ed) on the personal decision-making abilities of Richard Thaler – a leading economist on consumer choice, misperceptions, and mistakes. (More on Thaler here.)
Thaler, also of the University of Chicago, hit back hard yesterday. He is right that Posner mischaracterizes the CFPA proposal, and points out that his agenda – and that of Cass Sunstein, formerly of Chicago and now a czar in the adminstration – is simply to provide consumers with a framework for better decisions. He implies that Posner defends defective baby cribs and their equivalent.
I would go further.
Think of it this way. We’ve learned a great deal about how consumers make decisions, including when they get things right and wrong. Behavioral economics, marketing, and related social science have made big strides (e.g., follow the work of Dan Ariely).
But all of this research is also available to companies. Perhaps they knew some of this before from trial-and-error, but there is no question that many of the techniques corporate America uses – and we as consumers find ourselves “up against” – is cutting edge manipulation of our decisions.
We worry a great deal about how corporations lobby to shape their regulatory environment. This is a struggle that is at least 150 years old in its modern form (e.g., railroad concessions), and much older if we think about powerful people bribing their way into advantageous relationships with the state.
In addition, companies now have powerful new tools to shape how we perceive our potential choices. Some of these tools might be good for us also – I’m open to argument on this. But within some particular spaces, including financial products, it’s clear that many of these “innovations” are actually clever ways to extract value from consumers.
Traditional Chicago economics always had its weaknesses – particularly when you focus on the fact that the “rules of the game” are often shaped by the more powerful. Thaler and Sunstein (and others) are trying to modernize this view more generally, while keeping the element of consumer choice as central.
But if the balance of power has shifted – due to technological innovation in social science – further towards corporations and away from consumers, then the task ahead is much harder.
Unless companies are compelled to keep their offerings “simple enough to understand”, we will face repeated rip-offs and crises – both macroeconomic and personal – arising from our financial sector.
By Simon Johnson

More on Rescissions
Posted: 28 Jul 2009 06:12 PM PDT
For those interested in the issue of health insurance policy rescissions, Slate also had a story yesterday, only with a lot more detail and links than mine (but without the clever comparison to financial services “innovation”).
Also, Taunter wrote an insightful post about rescission, expanding on a comment he left on this blog. He drives home a point I thought I made in my original post, but maybe wasn’t very clear: if 0.5% of policies get rescinded, that means that far more than 0.5% of insureds who really need insurance get their policies rescinded, because the insurers are targeting those policyholders who develop expensive illnesses. I said, “insurers only try to rescind policies if you turn out to need them; so the percentage of people who lose their policies when they need them is even higher.” Taunter puts numbers behind that, and they turn out to be potentially scary.
He also has a great analogy to underage gambling which I will reproduce here:
Years ago I was walking a casino floor with a casino executive. . . . [T]here we were in the middle of acres of blinking lights, with absolutely no one making sure that underage kids weren’t walking up to a slot machine. Indeed, they don’t card for the table games.
The executive told me you are free to play if you are underage, you just aren’t free to win. You can sit down and pump your money into the slots, and if you look presentable you can drop some chips on blackjack or craps. However, if you should happen to start winning, the pit boss or security team will come over and check your ID. The house edge is 100%.
By James Kwak

Managing Huge Amounts of Government Money

Soliciting the Pension Guaranty Benefit Corporation.
Yes this looks bad, but how else to do it?

Dowd -- A Nonpareil (Look it Up)

Tech Tips -- Establishing a Successful e-business

From the Globe and Mail this morning: