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Shah Gilani

Banks Caught Manipulating Electricity Trading Now Face Billions in Fines

Are you FERC-ing kidding me? That's "FERC," as in Federal Energy Regulatory Commission. And they FERC-ing rock! The ostensibly obscure regulator of electricity transmission lines, natural-gas pipelines, and electricity and power trading just shocked some dirty banks into coming clean about their manipulation of the nation's electricity markets. Electricity markets? Who knew? You may remember […]

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Washington's New Jobs Strategy: Hire All the Lawyers

It's the old saw that Washington seems to have down to an art: The road to Hell is paved with good intentions.

And once again, in an effort to help get the wheels of the US economy turning more briskly, the government has managed to grease the axle and flatten the tires at the same time.

Thanks to the JOBS Act (Jumpstart Our Business Start-Ups), issuers pushing things like start-ups, established companies, and more importantly venture funds, private equity investments and hedge funds can advertise for investors if they want.

Yes, by altering restrictions in existing rules and regulations, the Securities and Exchange Commission is going to allow hedge funds and the like to advertise their wares.

The grand intent is that more small businesses will get funded, and more struggling companies will be able to raise capital to keep their doors open.

Unfortunately, it's likely that the jobs the JOBS Act is most likely to create will be for lawyers; lawyers to protect investors, lawyers to sue issuers, lawyers to keep issuers from regulatory shackles and for lawyers to fight the lawyers with new jobs.

Wall Street

The Big Banks On Trial, Again

You want to know why the entire global financial system almost collapsed in 2008?

There seems to be a simple answer. Not encouraging, but simple: The European Commission is exploring the possibility that there was a conspiracy among 13 of the world's major banks that colluded to keep the entire house of cards a secret.

In a press release Monday the European Commission announced it sent a "statement of objections" to Bank of America Merrill Lynch (BAC), Barclays (BARC), Bear Stearns , BNP Paribas (BNP), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), HSBC (HBC), JP Morgan (JPM), Morgan Stanley (MS), Royal Bank of Scotland (RBS), UBS (UBS) as well as the International Swaps and Derivatives Association (ISDA) and data service provider Markit.

This statement of objections is a formal step in EU investigations that charges the banks, the dealers' association, and the swaps pricing agent and index controller of "colluding to prevent exchanges from entering the credit derivatives business between 2006 and 2009."

The companies are then expected to answer the charges.

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Investing Tips

How to Play the New Normal: Spiking Volatility

Strap on your seat belts…and get ready for a ride…a very bumpy ride.

After having assumed US equities would keep chugging higher with little deviation from "up," things are starting to look a bit different.

Have you been watching Japan? It's a cautionary tale that is about to play out in the US, and globally.

Massive monetary easing in Japan since January tanked 10-year JGB (Japanese government bond) prices and the yield on their 10-year bonds doubled. On top of that, Japanese stocks soared 32%, only to see a series of huge one-day drops and a few smaller-bounce upside rallies.

The volatility has been unprecedented.

The question for investors now is: How do you make money now that the Fed has signaled the beginning of the end of quantitative easing that has stimulated global markets higher?

Here's the first thing you need to know.

The Ugly Truth About the Promise of the JOBS Act

Last week I wrote about how the Jumpstart Our Business Startups Act (the JOBS Act) can be a pathway to funding brand new businesses as well as small operating companies to further American entrepreneurship and create jobs.

I even called the legislation, signed into law on April 5, 2012, a "light at the end of the tunnel" in terms of its potential to stimulate the economy.

But I also warned you there are elements of the Act that are bad, if not downright ugly.

So, let's take another look at the JOBS Act to see if that light in the tunnel is a freight train headed straight for us.

First, it's instructive to learn that the JOBS Act came into being, not as an original piece of legislation, but as an amalgamation of six House bills, four of which had strong bipartisan support.

What began as a series of bills proposed to facilitate "access to capital" and "capital formation" and incorporated those terms in their former titles, eventually were cobbled together to become the Jumpstart Our Business Startups Act, whose title highlighted this year's election mantra: it's about jobs, jobs, jobs.

Too bad there isn't anything in the JOBS Act that says anything about hiring anybody.

The Masquerade Behind the JOBS Act

Some of you might call me cynical for this, but another way to look at what the JOBS Act amounts to is to see it as a deregulatory push masquerading as a job creation scheme.

And therein lies the problem.

It's all well and good to make raising capital easier for startups and small operating businesses, but altogether disquieting to clear that path by weeding out investor protections that have been on the books for decades.

It's like déjà vu all over again.

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…

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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.

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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…

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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*$%.

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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.

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