Legal ethics losing out to bottom line - This article by Andrew Ross Sorkin for the NYT and IHT discusses some of the conflicts that too often besmirch the financial industry. Here is the opening:
NEW ORLEANS- "We are all totally conflicted - get used to it."
That's what Robert A. Kindler, vice chairman of Morgan Stanley, boldly acknowledged here five years ago at an annual conference of the nation's top corporate attorneys who converge on the Big Easy every March to discuss the current state of deal-making and, yes, frequent double-dealing inside the boardrooms and executive suites of the Fortune 500.
It was a remarkably candid admission - and one that sadly, five years later, remains too true.
As I listened to dozens of the biggest-name legal consiglieri last week discuss a number of ripped-from-the-headline case studies about outrageous behavior by chief executives, directors and Wall Street investment banks caught up in self-dealing, blatant conflict of interests and other chicanery, a question occurred to me: Why do we so rarely blame the supposedly holier-than-thou lawyers?
Chief executives and bankers may make easy punching bags these days, but for every bad decision they make, there is often a lawyer who approves it - and most likely charges over $1,000 an hour for that brilliant advice.
Indeed, it increasingly seems that the lawyers aid and abet the bad behavior of the nation's corporations, providing them with the cover of legal advice - sometimes knowingly, sometimes not.
"I never thought to ask whether the lead banker owned shares in the other company," Victor I. Lewkow, a longtime lawyer and partner at Cleary Gottlieb Steen & Hamilton, acknowledged to a packed room matter-of-factly last Thursday, demonstrating the utter lack of checkpoints put in place during a typical merger negotiation by an often seven-figure legal team.
His somewhat shocking acknowledgment came amid a discussion about a top Goldman Sachs banker who was advising the target of a takeover, the El Paso Corporation. The banker owned about $340,000 worth of stock in the buyer, Kinder Morgan - an absolute no-no to anyone with a modicum of thought. It is also a violation of Goldman's own rules, which the firm acknowledged. (I wrote a column about this and other conflicts in that transaction last week.)
My view - This is not the first time that Fullermoney has commented on lamentable ethical standards within the financial community and it will not be the last.
The best way to curb this, in my opinion, is not with heavy handed regulation which penalises the honest majority, but to expose unethical practices in the mainstream media. Reputations matter and a history of questionable practices, to put it mildly, will eventually hurt the perpetrator's bottom line.
The Weekly View: Employment & Income to Sustain Expansion - My thanks to Rod Smyth, Bill Ryder and Ken Liu of RiverFront for their informative investment letter. It is posted in the Subscriber's Area but here is a brief sample:
Greece's bond exchange was successfully tendered with almost 86% participation among private Greek-law bondholders; coercive collective action clauses raised participation to near 96%, placing Greece in technical default. This wiped out only about one-third of Greece's debt since the ECB, EU and IMF took no write down. With Greece's new bonds trading at 75% of face value, reflecting ongoing investor skepticism, private bondholders had a bad week. Another default seems unlikely in the near term given Greece's (newly) low debt servicing costs: 2% through 2015 and 3% through 2020. More problematic is a yawning budget deficit that will require either more public support from official creditors and/or further austerity, both politically contentious. We think the determination by all parties to work towards an orderly write down of unsustainable sovereign debt laads in the Eurozone reduces systemic risk. This supports our pro-stock, pro-high yield bond, anti long-term Treasury bond positioning. However we do not think investors should expect double-digit stock gains from current levels in 2012.
My view - It would be nice if we had heard the last of Greece's problems, if only for the sake of that battered little country's sake. Greece faces a tough road ahead but Fullermoney maintains that its crisis has been contained, in contrast to many forecasts to the contrary, and the paragraph above explains why.
For international investors, this means that Greece's problems, while significant for Greek citizens, have been scaled-down to Greek-sized proportions for the global community. In a few years' time they will most likely wonder what all the fuss was about. Time moves on and we face new preoccupations and problems, some of which qualify as 'old friends'.
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What next for gold and silver? - This item is in the Subscriber's Area.
My personal portfolio: A trade rolled forward; a new position opened - Details and charts are in the Subscriber's Area.
Additional commentary by Eoin Treacy
The Blind Questioner At The Chart Seminar, we recommend delegates identify consistency characteristics by imagining they are describing the price action to a blind person. This allows us to develop an unvarnished perspective of what prices are actually doing. With this information we can then go on to plot a strategy and how an ending might eventually form. I thought that considering the important movements in the sovereign bonds markets recently it would be instructive to go through such an example using US 10-year Treasuries.
Blind Questioner: Is the market in a major bull or bear market phase?
Factual Interpreter: The last major bull market in yields (bear market in prices ended in 1981 and yields have been in a secular bear market since (bull market in prices).
Blind Questioner: Is it trending or ranging?
Factual Interpreter: Yields collapsed from the peak between 1981 and 1986 and entered a rangy downtrend over the last 26 years. When we look at the log scale chart we see that the decline accelerated in 2008 and again in 2011. The yield halved on both occasions. This introduced more volatility than seen in the course of the prior 25 years. In tandem with this war between supply and demand real interest rates are negative since CPI is currently 2.7% and the 10-year yield is 2.15%.
Blind Questioner: Since we are examining an interest bearing instrument would it not be more appropriate to deal with a total return index in order to get a more complete idea of what has motivated investors over such a long period?
Factual Interpreter: I agree, a total return index should offer some additional insights. If we examine the Merrill Lynch 10yr+ US Treasury Total Return Index we are presented with a well-defined view of the almost 30-year demand dominated environment for US Treasuries.
Blind Questioner: Is this chart trending or ranging?
Factual Interpreter: The Index has been trending higher since its inception in 1983.
Blind Questioner: Is the trend consistent or inconsistent?
Factual Interpreter: It has been mostly consistent. There has been a series of quite lengthy ranges over the last 28 years but the broad upward bias has remained intact throughout.
Blind Questioner: What are the consistency characteristics?
Factual Interpreter: There is an unbroken progression of higher major reaction lows over the course of the 28-year uptrend.
A series of higher rally highs is also evident.
The Index has found support in the region of the 200-day MA on successive occasions.
Almost all of the major ranges have been posted one above another.
This section continues in the Subscriber's Area.
Report on bond prices Thanks to a subscriber for this report which can be found in the Subscriber's Area.
Eoin's personal portfolio: commodity long stopped out at a profit, bond short initiated This section continues in the Subscriber's Area.
Email of the day on the emergence of Africa:
I've been considering expanding my portfolio to include more African investments. This interview might add some more background to readers who might be considering doing the same.
My comment Thank you for this interesting interview which rhymes with my experience of witnessing Africans in China's wholesale markets sourcing goods for a budding consumer sector back home.
This section continues in the Subscriber's Area.
Speaking engagement in Ireland - I have accepted an invitation to speak at Waterford Institute of Technology's investment club on March 22nd from 12 13:30 in the Auditorium. The subject of the talk will be Overview of Global Markets from a Behavioural Trading Perspective. Those interested in attending should contact Frank Conway at [email protected] .
Speaking engagements in the USA - I have accepted invitations to speak to a number of associations and groups while in the USA for The Chart Seminar. My schedule is still filling but here are the details so far:
San Diego MTA chapter on April 3rd between 4 and 5pm. The mostly likely venue depending on numbers will be the UBS offices in Del Mar/Carmel Valley. .
Los Angeles MTA chapter on April 11th venue to be arranged but will be in the Long Beach area.
To Hoard or to Horde: risks and opportunities from participating with the crowd. Will be the topic of my talk to both these associations.
CFA Institute San Francisco April 12th 3-5pm. The venue will be at the CFA's classroom at 300 Montgomery Street, 11 th Floor. T he topic will be Differing patterns of development, comparing the USA & UK with China & India. Non-members are welcome to attend and can expect to pay a fee of between $20 and $30.
The TSAA-San Francisco April 13th. The venue will be Golden Gate University 536 Mission Street. Venue, room 5207 on the fifth floor from 3pm to 5pm. The title is Fire or Ice: Will inflation or deflation win the race? Non-members are welcome to attend and can expect to pay a fee of $20.
A fee of $20 will be levied on non-members who wish to attend.
If you would like me to speak to your local chapter or organisation in California or New York please contact your respective chairperson and ask them to contact me.
The Chart Seminar 2012 - Following a sell-out tour to Singapore and Australia last year, The Chart Seminar will be held in San Francisco, New York and London this year.
We are currently taking bookings for our San Francisco and New York dates in April as well as London seminars in May and November. Anyone interested in securing a place at any of our events should contact Sarah Barnes at [email protected].
The date and venues for my seminars so far in 2012 are:
San Francisco - April 16th &17th 2012 Nikko Hotel
New York - April 23rd & 24th 2012 at The Manhattan Club (above Rosie O'Grady's) at 800 7th Avenue
London - May 25th & 25th 2012 at the Radisson Edwardian Hampshire
London - November 22nd & 23rd 2012 at the Radisson Edwardian Hampshire
The full rate is £950 + VAT. (Please note US delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires on January 30th for the US seminars. Paid-up Fullermoney subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.