Monday, May 13, 2013


The boys were right.  We found the Blue Marlin, a little beauty of about 100 pounds.  One jump and it starts swimming right at the boat.  Didn't get a good look at it but I said to myself, "Self, the way this fish is acting tells me it is a very nice Sailfish.  Go easy with it."  So I do and it gets about 50 yards off the stern and it goes crazy; four jumps in one direction, turns on a dime for five jumps the other way and I pull the hook.  Idiot rookie mistake.  They don't call it catching.

Anyway, other than The Leader's administration being caught in two monstrous lies to the nation as a whole, last week was pretty quiet except that my confusion was somewhat righted by the dollar doing what I thought it should do and that is strengthen against the Euro.  But was that the normal course of events or half the street believing that Bernanke was signaling in a speech on Friday that QE III (or is it IV) was coming to an end?  This guy is getting that Greenspan in confusing the hell out of everybody but appearing far more jovial in so doing.  What ever happened to that transparency thing?  No, take that back, I being too hard on the guy, and while this guessing game was going on the Yen fell solidly to 100 against the dollar.  That's 18% sports fans in five months, a huge move and one that appears to be having the desired effect, certainly on the export sector of the Japanese economy.  But Jacob/Jack was on top of things.  He promised to "keep an eye" on whether the Japanese were devaluing for competitive purposes or to improve domestic economic growth.  Honest to God he really said that.  I hope he hires a blind man to do it for him; it's a wonderful thing to hire the handicapped.

We had another big yuk this morning when the former joke writer for Saturday Night Live, now turned U.S. Senator, Al Franken, announced that he had fixed the problem of the rating agencies.  You see, Al seems to think that they might be conflicted as they are paid to rate by the guy who is issuing debt.  Really?  Well, his solution is to create another governmental agency as a subsidiary of the SEC whose job it would be to assign the rating function among the agencies who would then get paid on the basis of some kind of performance  related structure.  As we all know the Federal Government is completely non-partial and is never subject to outside pressures.  It is also immensely hard working and used to dealing in the time frames of the global market place.  Al will fight on this front if it takes all winter.

Now we've tilled this ground many times before but it might be worth while to ask once again for what do we need these rating agencies?  Well to help investors properly evaluate credit risk, you say.    But isn't it the job of the investor to protect himself?  If you can't evaluate the risk, don't take it!  This kind of dumb-ass thinking is what got us into trouble in 2008 and if you think about it, what got the Cypriot banks into trouble in 2011.  Needing income, they purchased Greek Bonds big time.  And why not?  As the head of one bank put it, "There was no risk according to the EU.  Capital requirement on sovereign risk was 0.  That's what we were told."  That's the modern day version of Walter Wristen's famous, "Countries don't go broke."  Walter was as smart a banker who ever lived: the countries survive, they just might not pay you back.

We would be in a hell of a lot better place if we stopped making official the ratings of the agencies and require and expect the buy side to do the job for which they are being paid: to evaluate the risk to themselves of the instruments in which they invest.  If the wish to hire an agency, fine.  But, if the buck stops with the investor, it is guaranteed that the issuance will become far more secure overnight because if not, nobody will buy it and Mr. Sellside, you're wearing it.  And that folks is what we call The Market.

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