get daily headlines subscribe now! today's private briefing

Shah Gilani

We're Deep In The March Toward Economic Socialism

Have you noticed that the world is on a creeping – some (that would be me) would say cascading – slide into socialism?

It started with one giant step in the direction of economic socialism.

Economic socialism is specifically the shared risk the public has been yoked into pulling on behalf of banks.

The unmistakable and indelible footprints of socialism's latest forward march have been made by collectivist central bankers, pushed forward (at least that's the direction for them) by their constituents, the bankers of the world.

The bankers' jackboots are filled with stinking feet itching from the fungus of greed. And sadly, the sole of those boots bears the unmistakable "Made in America" stamp.

What's flooded into all those succeeding footprints is the stagnant future we all face. The march towards global hegemony of bankers' birthrights makes that evident.

It's not ironic that bankers espouse capitalist, free-market doctrines, but under cover of their ostensible handlers – their central bankers – prosper and propagate behind a Marshall Plan whose manifesto is socialized risk; it's sickening.

The moral hazard of socialized risk, of economic socialism, is unfettered.

The United States let the biggest banks in America get bigger. We let them bridle us, saddle us, and ride us into the ground. And they are all bigger now.

How can there be any free market discipline if there is no free market? How can moral hazard be corralled if there are no fences around the risks banks are allowed to take, given their size and power?

We're facing QE4ever (that's quantitative easing) on account of the banks being subject to lawsuits and an attack on their capital.

Oh, you didn't get that?

Here's the real reason we have stimulus to the nth degree here in America…

To continue reading, please click here...

Why There’s No Jail Time for Wall Streeters

Wall Street is a "protected" operation. Protected means cops are aware of illegal activity, but are paid off to look the other way and even protect businesses from potential harm.

So, if you're waiting to get back into the markets once the trash has been taken out, you're about to find out your wait may be a lot longer than you expected.

The scheming racket that too many aspects of Wall Street have become reminds me of an old Clint Eastwood movie.

It's the one where Dirty Harry goes into a porno shop with a hooker hotel above it and the thug behind the desk tells him, "You can't come in here, this is a protected joint."

But Harry sets him straight. "To them you're something," he says, "but to me you're just a maggot that sells dirty pictures."

While Wall Street doesn't sell dirty pictures, it does sell the prospect of a glossy future full of positive investment returns when their "products" are embraced, as in bought and sold– but mostly bought, for the investor's long-term good, of course.

In Wall Street's world, the beat cops are their regulators, including the SEC and the CFTC. Above them are the Federal Reserve and an untold number of politicians and legislators who pimp and pander on behalf of banksters by writing laws with loopholes so their donating "constituents" can always get out of jail free.

There are plenty of examples, but the mortgage-backed securities bubble and its related fallout is, to date, the biggest and most obvious example of how protected the Street is.

To continue reading, please click here...

Why the ECB's Plan Can't Save Europe

So, Thursday was a big deal. Did you get that?

Markets rallied around the globe, especially European markets and U.S. markets.

But did you get what really happened?

I know you saw the rally, and I'm sure it lifted your spirits. It lifted mine for about a day – that is, until I lifted up the ECB's skirt to see if their provocative language would leave Europe's knickers in a twist or not.

If you're not the kind of person to look at such intimate things too closely, don't worry. I love all that stuff and am driven to know how all the bits and pieces come together or apart. So, I'll tell you what I saw up there.

Europe's knickers certainly are twisted. So much so that if an ill wind blows, everyone is going to see the naked truth.

Let me show you what I mean…

To continue reading, please click here...

Q&A With Shah: Shining the Light in a Few Dark Places and More

hanks for all the bright comments and questions you've contributed lately.

Please, keep them coming.

You can share your own thoughts with me by posting them to the bottom of any article, or emailing them to

Okay, who's up first this time?

Q [re: "What I See Ahead for the Economy"]: I generally agree [with your wagon analogy], but allow me to play devil's advocate. If we are so connected, why haven't the U.S. markets been struggling as much as Europe? Sure we have our problems too, but so far equity markets seem to have shrugged off Europe… ~ Dom

A: The U.S. – to use Mohammed El-Erian's phrase – is the cleanest dirty shirt in the laundry.

Corporate earnings have generally been stellar, and that's what drives the market, underneath the macro headwinds. But a lot of those earnings are global revenue streams, accounted for in terms of a weak dollar when they are translated back home into quarterly reports.

The markets also look "cheap" on a relative, historical price/earnings multiple basis. I have argued both fronts. If the dollar strengthens, because global growth weakens and capital flight out of emerging markets (China in particular, not that's it's emerging, it is HERE) heads into the U.S., that would be indicative of weakness where U.S. companies have been shining. Then, when weaker global earnings streams get translated into a more expensive dollar, earnings reports could vastly underperform expectations at first, then quarter over quarter and year over year trends more dangerously.

As far as historic PE multiples, I've argued, empirically, that the old benchmarks don't apply any more. My work says the new normal might be 12 times, not 14 to 15 times. Why? Things like technology's impact on productivity, paradigm shifts as a result of productivity changes due to technology, and volatility dynamics due to a global marketplace. These are just a couple of things we have to watch out for in terms of valuing markets, especially U.S. markets.

Q: One of the only ways the global economy can survive now is [if] the debt reset button is pushed, forcing prices down to real value rather than a notional one. But as this is not going to happen, then I guess it's the cabin in the hills. ~ Alex G.

A: It can't happen on a global scale; the hills would be too denatured of trees for want of so many tiny cabins. It could happen on some rolling basis. But, once that kind of ball starts rolling, it could snowball, and we'd be facing another 2008 look over the abyss. Only the next time could see the precipice collapse from the weight of leveraged sovereigns and overly leveraged central banks.

Come to think of it, where's my little axe?

Q: "Been Down So Long It Looks Like Up To Me" is the name of a book by Richard Farina, published in 1966 – before The Doors plagiarized the phrase in the 1970s. ~ John D.

A: Thanks, John. I always appreciate learning the true origin of the things we think we know about. I never said I was smart, just a smart*$%.

To continue reading, please click here...

What I Learned About Making Money

Thirty years is a long time to be doing anything; but it's a short time if you love what you do.

And the time spent is even sweeter if you're making a lot of money doing what you love to do.

I'm very lucky. I've been trading for 30 years. I love what I do. And I make money doing it.

The truth is, I didn't know what I wanted to do when I was growing up (some people say I'm still not grown up, I say thanks). I wasn't handed anything. I didn't go to college right out of high school. I didn't know what I wanted to do. I didn't know what to study.

So I worked, I travelled, I adventured. But the operative word there is "worked."

Don't get me wrong, I'm not lazy, I never have been, but I don't like to work.

I came to that realization after being a caddy, then a lifeguard, then a construction laborer, then a not-so-great carpenter, a dishwasher, then a not-so-great cook, tarring roofs in Arizona (in the summer) and working three jobs (at the same time) when I wanted to live in California and moved to San Francisco.

Then it hit me – all this stuff is work, and it feels like work.

I thought hard about what I really wanted to do. Something that was work, but could become a career, and it had to be something that wasn't really like work, at least the kind of work I had been doing.

I didn't have any money, but I had a plan. I figured that the best way to make money (when you don't have any, but know it takes money to make money) is to make money with other people's money.

That's exactly what they do on Wall Street, so that's where I was headed.

To continue reading, please click here…

To continue reading, please click here...

Where Would The Markets Be Without the Fed?

We've arrived. We're exactly in the middle between here and there.

The problem with being here is the "there" part.

I'm talking about where the markets are and where they're going next. Is "there" backwards or forwards? Are we coming or going from here?

Before I give you my own forecast, and recommendation, let me say this about that…

Here are the two best forecasts I've ever heard:

  • "It will fluctuate," which was what J.P. Morgan famously answered when asked what the market would do, and
  • "I cannot forecast to you the action… It is a riddle, wrapped in a mystery, inside an enigma," which is what Winston Churchill famously said, not about the market, but about Russia. (The full first line is, "I cannot forecast to you the action of Russia.") But you get the picture.

American markets are touching their highs. It's as if everything is clear and sunny. It's as if forecasting is as simple as looking out the window and calling out what you see.

It's clear and sunny. Haven't you looked outside? If only it was that easy…

But when you do look outside, let's say, through a window, you only see in one direction. The question can then be asked, is the weather you're looking at coming or going, or is it here to stay?

America, and indeed the global financial markets, came to the precipice of a cliff and barely caught their balance before plummeting into an abyss so deep and black that no one knows where it would have taken us. But my guess is to Hell.

The rope that held us from going over was stimulus, massive stimulus.

That stimulus was never mopped up. It's been left out there like water on everything after the fire has been doused; and there's more coming.

The Federal Reserve, which isn't playing just 18 holes, but seems like it's playing a marathon round of swinging hard and gently, but constantly swinging, is teeing up another ball with some little marking that reads QEsquared, or something like that.

Here's my guess on what the Fed is going to do…

To continue reading, please click here...

Just Another Summer on Wall Street

Another week slipped by on Wall Street, and it was a quiet one. For summer, that is.

And thank goodness. All the scandals, all the negative news, all the time, always something. I'm getting tired of writing so much.

It's my summer too, you know.

So, when my extraordinary good fortune led me into the company of a spectacular woman this past week, I escaped the Street reality, enjoyed the beach, the Hamptons… and did I mention a spectacular woman?

But just because I was out of touch (from reality) last week doesn't mean the surreal wasn't spilling out all over the Street.

Okay, so it was little stuff, but it's still stuff. And it's still surreal…

Like finding out that Vikram Pandit, CEO of that little banking outfit Citigroup, got paid more last year than the bank paid in taxes.

That's news you ask? No. Granted, we know that all those poor banks that suffered deep losses on account of a lot of sore-loser homebuyers who got the Street mantra wrong (it's "buy high, sell low," right?) won't have big tax bills for a while because they saddled the good-guy banks with huge tax loss carry-forwards.

Besides, Vik (can I call you that?) deserves it.

Can you imagine all the negative press he gets? He deserves more; I say give it to him and the other banksters who have to work so hard to keep their jobs while their firms don't have to work nearly as hard to not pay taxes.

And then I heard that Jon Corzine was thinking about yet another career move.

To continue reading, please click here...

The Truth Behind the Tragedy of High-Frequency Trading

It's no wonder the public is scared to invest in stocks. They believe the game is rigged.

It is, and I'm going to tell you who's behind it, what's really happening, when it started, where the sinkholes are, why they're there, how you can play in the short run, and how America can get back to investing in a successful long-term future.

The bad news is the problems infecting our capital markets are all systemic. The good news is that they can be eradicated one by one, if not all at once (which won't happen).

Today, we're going to look behind the curtain of high-frequency trading.

It's a nasty bug in the system and has long-term consequences, including the potential to kill the markets.

First of all, high-frequency trading isn't just what you think it is. It is much more than you know, and is in fact part of the fabric of the markets.

High-frequency trading (HFT) is known to be a game that specialized firms and trading desks play. Here's what most people think they know about high-frequency trading.

The HFT crowd uses super-fast computers to execute trades across different exchanges. There are 15 exchanges in the U.S. and more than forty "dark pools" (private trading venues that serve as de-facto exchanges) where shares can be traded.

Part of the problem is that there are so many trading venues trading the same stocks, but that's another story.

Here's what the high-frequency trading game is really about.

To continue reading, please click here....

The Real Story Behind the Knight Capital Trading Fiasco

Oh, you are going to love this.

That whole Knight Capital fiasco last Wednesday, when a software glitch caused them to flood the market with thousands of unintended orders, it ain't exactly what you think it is.

Sure, they tripped over themselves in the dark pool where they were trying to compete.

But somewhat interestingly (okay, a LOT interestingly), the competitor that drove them to "upgrade" their trading software, which malfunctioned and caused them to actually bid-up share prices erroneously and then buy them at inflated prices, was none other than, wait for it…

The New York Stock Exchange.

That's not the whole story, or even the good part. Oh, it gets better. A lot better

Knight claimed a $440 million trading loss on Wednesday resulted from their computer glitches and sunk the company (at least for now; I'll get to that).

Well, according to Nasdaq (this was on its site:, it wasn't a trading loss at all. Knight paid Goldman Sachs a $440 million fee (commission?) to take the errant shares Knight had bought on Wednesday morning off its hands.

Now, I don't know what Goldman did with those shares, but my guess is they held most of them and sold them on Friday when the market soared a few hundred points. Of course, that's not a "prop" trade. Knight is a customer of Goldman's (it is now…).

But who cares?

Goldman Sachs ripped a customer for a $440 million fee, virtually bankrupting it in the process, flipped the shares it bought from Knight to "help" them (and first of all, probably overly hedged itself… as in enough to be net short… the large stake it holds in Knight's convertible preferred) for a tidy profit, and then probably shorted the stock (before "helping" them, and themselves to their little fee) before the stock collapsed, then probably gave it its "lifeline" (that's a guess, and I'm being sarcastic, but it's possible). And maybe we'll find out where that lifeline Knight got on Friday really came from) before buying a ton of Knight's shares back on Friday before hearing (of course… before) that several big firms were looking at buying Knight.

What's my point in the above LONG sentence? Who cares! That's all business as usual at the Golden Vampire Sachs.

That's after-the-fact stuff.

What's more interesting is why all this happened in the first place.

Here's what you probably don't know…

To continue reading, please click here…

Read More…

Underfunded Pensions Undermine the Entire Economy

The difficulties facing retirees aren't just their problems. Underfunded pensions weigh down everyone's retirement expectations and America's future growth prospects.

Kicking the can down the road on this one has involved everything from outright lying to misrepresentation, bordering on fraud in the way pension plans calculate their liabilities.

If long- term solutions aren't implemented, the U.S. economy will experience a secular decline, equities will plummet, and millions of Americans of all ages will suffer.

While huge problems exist in private pension plans, public-sector plans — those slated to provide retirement benefits to public-service employees of state and local governments -face exponentially larger problems.

Here's a look at what the problems are, who's responsible for the mess we're in, who's going to have to fill in the deep holes, what the bad news is when it comes to fixing pensions and what the worse news is if they aren't fixed.

A Multi-Trillion Dollar Hole

A recent S&P Dow Jones Indices study highlighted record levels of pension underfunding at publically traded companies in the U.S.

At the end of fiscal year 2011, according to S&P, corporate pension plans were collectively $354.7 billion underfunded based on obligations totaling $1.676 trillion and assets of $1.322 trillion.

In addition, S&P noted that OPEB promises (Other Post Employment Benefits) such as health related benefits and life insurance were $233.4 billion underfunded.

To some extent the private sector's pension woes are ostensibly offset by the more than one trillion dollars of cash sitting on corporations' balance sheets.

But the problem with that cash is that it's not being earmarked for pensions.

Managers are stashing cash for any potential global rainy days ahead, for strategic acquisitions and as a cushion against an expected peak in the earnings cycle. But none of the officers or executives of any corporations sitting on mounds of cash have indicated any intention to fill pension holes with their coveted cash hoards.

On the public sector side of the pension plan dilemma, things are exponentially worse.

To continue reading, please click here...