Financial Markets Are A Sham - Stewart/Cramer

Readers of this blog will be aware of how much I adore Jim Cramer (not). Hence when news leaked that Jon Stewart was doing a full show with just Cramer, I know it would be merciless on Cramer. As much as I think Cramer is an idiot on markets, I think he does not deserve the full whacking by Stewart. Cramer is first and foremost an entertainer, then a market commentator, he then tries to pick stocks. If you watch his antics, he is more of a momentum trader - if it swings down he will turn very bearish and vice versa, all in a matter of days, I seriously don't know why people will watch him - but because its America, out of 100 million viewers, you will still be a hit if only a fraction of people watches you.


http://seekingalpha.com/article/125804-cramer-grilled-on-jon-stewart

If you click on the link you can watch the entire Daily Show episode. What Jon Stewart tries to do is to be the layperson savior as he lays blame on the financial experts trying to hoodwink the rest of the world. His strongest point was that the financial industry (analysts, mutual funds, commentators, traders, CEOs, investment bankers, etc.) is playing an elaborate game whereby they use the "capital" provided by everyday people to create an elaborate financial game to lull the rest of the world into "investing and trading" the rigged markets. To a large extent, I subscribe to his theory. The financial industry is like a club, once you are part of it, you pick a role and play it according to the monopoly rules of the game - if you play it well, you will be rewarded with supernormal pay, you will be incentivised by moving the "capital" up and down and getting a cut from the movements and volatility. Nobody really cares whether they are creating real value or productivity.

The layperson by buying shares, putting money in unit trusts, subscribing to IPOs are basically giving capital to allow the financial industry practice the shenanigans. The mantra that is always touted to lure investors is that "stocks will be the best investing vehicle over the long term, that it is still the best way to invest your money to ensure that you keep ahead of the pack". As the 80s and 90s were prime examples whereby bull markets dominated the era, that mantra basically was elevated to tablets handed down by God to Moses, nobody questioned its fallibility.

The other mantra is blue chips which is supposed to provide long term steady outperformance - well, blue chips investors really saw their values being wiped out just like the rest, imagine having HSBC, General Electric in your portfolio... There was supposed to be some sort of "unwritten guarantee" but hey, it does not exists.

Life is tough enough, investing is even harder. Bull markets make normal people think they are smarter than they really are. Nobody is smarter than the markets. Once you think you are, you will make your biggest losses. Markets are fluid, we can only try to minimise the damage when its bad, and we hope to make some money when its good. Don't try to beat the markets all the time. Get 6 out of 10 calls right, and you are golden.

p/s photo: Cut Tari

Blow By Blow Commentary (Pun Intended)

Important Posting -
Want to go on holidays also so difficult. Now in Tokyo and quite reluctant to spend my yen as it has risen more than 5%...sigh. My last trip was more than 10 years ago, and I immediately knew that I was back in Japan when I saw a small fruit stall selling durians for 3,500 yen per fruit. It was displayed on a small pedestal as well. Thats close to RM120 for one ordinary looking durian and its not even the good ones, its probably from Thailand cause there is little pungent smell being emitted.

a) Whats up with Iceland banks? Who even knew they needed to have so many banks? The banks got into trouble apparently by being big in "internet banking", a delayed dot-com bust apparently.

b) Though I have featured Nouriel Roubini a number of times, I have to say that he called it brilliantly and has mapped out the step by step destruction even before it happened. He is way better than the always doom and gloom Marc Faber, or even the successful investor but poor macro commentator in Jim Rogers. Though I agreed with most of his writings, I was not as bearish as he was, he was much more convinced. He expected the massive bailouts, and he even predicted that there will still be bank runs despite the bailouts. What we are seeing now are akin to bank runs except that the central bankers are trying to pre-empt that. Roubini's prescription is for each major country affected to come out and say that they will guarantee ALL DEPOSITS just like Ireland has done ahead of everyone else. I expect the Fed and Treasury to come up with a similar announcement in the US, and even by HKMA and Australia. But it may not happen in EU because the ECB would be loathed to do that as the union is made up of varying "quality of banks".

c) Is this a confidence thing, we all thought that the bailout fund would have assuaged that!!! What Happened?? What is happening is that the bailouts in US and UK and parts of Europe have confirmed investors' fears that things are really bad. Even with the bailout packages, banks are still NOT WILLING to deal or lend with one another as your counterparty risks are too high. That freezes credit. People with good credit cannot even get a car loan in the US.

d) What we are seeing is not completely a crisis of confidence. It is also a unique situation which has brought about certain unanticipated events (thus delaying the recovery and calm): USD went up after the bailout, not because the USD is strong, how can it be strong when the Fed is now ladened with toxic assets backing the issuance of new dollars? The USD went up NOT because its a reserve currency, which was what I thought initially as well, but rather there is a shortage of USD as institutions and companies sought USD to pay down their debt in USD. People just did not want big outstanding loans. So, we are seeing companies and institutions trying to be careful and cautious, not that they want USD but to pay off their loans which are mostly denominated in USD. The unexpected spike in USD caused a panic among latent demand for USD which exacerbated the USD's unworthy strength.

e) The yen gained even more over the past week as hedge funds all unwound their yen carry trade, i.e. sell OZ bonds and buy back yen. Hedge funds are crippling the recovery despite the bailout because September was the worst single month for most hedge funds. They had to sell everything, even good assets such as commodities in anticipation of the massive outflow and redemption of funds by hedge funds investors.

f) So I do expect calm and confidence to return very quickly. Its just that the bailouts and concerted efforts to lower rates came at such rapid succession that it cause hedge funds and investors to do many other things seemingly to increase volatility of markets. I believe investors are OK with the measures enacted so far, guaranteeing deposits would be the final kicker. Its just that investors and hedge funds went and did other stuff as well, which destabilised markets hence prompting the broader media to conclude that investors ARE NOT HAPPY with the bailouts and rate cuts - wrong reasoning you all, pretty pathetic.

g) Finally, why I am getting more comfy with the global situation.... is that Jim Cramer asked all to SELL SELL and sees 7,700 for the Dow. If ever there was a consistent financial idiot, it would be Cramer. If you look up the dictionary under "idiot" you'd probably find his picture there. I am so glad he panicked and call for a sell. I am so so relieved. I rarely call anyone a financial idiot, but apparently the phrase "financial idiot" was invented strictly for him. (Even if the index does get to 7,700 he is still a financial idiot... randomness alone can get you 2/5 correct)

p/s photos: Li Bing Bing