Who Do We Think We Are?
January 19, 2009
Good morning. Another week and still no rally of any sort, not even a feeble Bear market rally. Given the action in Europe today (Dr. Martin Luther King’s birthday) I do not hold out a lot of positive hope for tomorrow’s market as well, even though it is Inauguration Day. It seems Royal Bank of Scotland, and others, still have issues. Last week the broad market was down another 4.5%, with the SPY falling to $85.06 from a close the Friday before of $89.09. I continue to leave a lot of room in the PIP positions for a move to the upside, as I do not want to be caught by any sort of good news, and actually want to benefit by even a small rally but, where is it?
Anyway, since it is a Holiday, and a very historical Inauguration is tomorrow, it is probably appropriate to talk a little bit about where we are (as a people) and where we seem to be heading. I would think that we are well past the stage where politics, sociology, and maybe psychology are greatly influencing Economics and investments. It makes a lot of people nervous when legislators of dubious training and motives have so much influence over day-to-day commerce, but we are there.
“They were who we thought they were!” A somewhat insane statement uttered by then Cardinal coach Dennis Green after losing to the Bears a couple of years ago. After another stupid sort of football question asked by another reporter, Coach Green again shouted even more emphatically “They were who we thought they were!!” The good news is that he is now the star of a commercial and getting paid for the reenactment of this informative interview. I guess he meant that the Bears did not show him anything the Cardinals did not expect, and therefore his team should have won, or something.
The point is not that anyone cares about Dennis Green, but what would happen if someone asked one of us, the normal American (if there is such a thing) “Are we who we think we are?” or “Who are we?” Looking at the goings on of the last several years, I am not sure I recognize who we have become, or who we are, or something. A relative few years ago we had the fiasco of Enron, WorldCom, and others. It seemed, at the time, that people were aghast at the greed, seemingly total immoral behavior, total lack of any sort of individual responsibility, etc. We even went so far as to convict a few (even though one allegedly died to escape jail) in an attempt, seemingly, to reassure ourselves that these were somewhat isolated occurrences, and that we could somehow “rein in” through our Justice system these sorts of activities going forward. No one dared utter that maybe the whole system was crumbling, or that the “few” outright crooks or “relatively few” people who were charged with policing (Corporate Boards, SEC, Justice Dept. etc.) that failed to do so were maybe not, in fact, a minority. Should we utter it now? Is it possible that way more than an isolated few corporate executives, Board members, elected officials, law enforcement officials, etc. are crooked, or so afraid of speaking out that they are useless despite being basically honest? If so, how can we work and invest in the “new reality?”
I think I would get no argument that most systems of Justice, be it society as a whole, cities, schools, even families, rely on the concept that the great majority of people have a good moral fiber, are somewhat proactively Honorable, and have a spine somewhat more firm than cooked pasta. It would be tough even for the best and most proactive of parents to deal with six misbehaving children at once, or a City police force to deal with a hundred robberies in the same hour. It has clearly overwhelmed the SEC in their mission to protect investors from abuse that seemingly a large number of Corporate Boards (the first line of defense for corporate malfeasance and abuse of shareholders) have become co-opted by management, the very people they are supposed to oversee. There seems to be no doubt that that the activist Board member, activist meaning being prepared and willing to ask the tough questions, has become increasingly more unwelcome. The thought among most of our new class of celebrity CEO’s that they would be in some way subservient to anyone, much less a Board of people looking out for shareholder interests and malfeasance, is almost laughable in today’s definition of morality.
We are Americans. With no Army or Navy to speak of, didn’t we tell the mighty British to go home, and when the answer was no, form a militia of regular people and kick them out? Aren’t we the people that showed up in time for WW I and turned the balance of that conflict to the good guys? Didn’t we land in France at D-Day, take back the Philippines, and weren’t we very responsible for restoring the moral order to a world that was totally degenerating into the abyss. As a people, didn’t we band together in an amazingly short period of time to build, equip, train, etc. a force that was something the world had never seen. Wasn’t everyone involved, from the soldier, to the lady welder, etc., etc. to get the job done? It would seem that the concepts of Duty and Honor were there in abundance, again, not absolutely everyone, but seemingly the overriding majority. Are we still that people, are we “who we think we are?”
I am starting to wonder, and I do not think I am alone or even the first. We seemingly have a collective problem in this country, and to me the problem is a slippage of Honor at all levels, and the amorality (total lack of morals) that seems to be coming with that slippage. When companies like Lehman, Bear, Citi, GM, etc. put out numbers, predictions, or reassurances that are proven false within days do they even think that it is wrong, or has amorality totally won the day? Has Truth become permanently overcome by Spin? The good news is that my wariness regarding most corporate communications and the mistrust I have in general for the current corporate makeup has resulted in my clients navigating the awful market markets of the last two years relatively unscathed. I never trusted any of these people, and I surely never trusted that any sort of Regulatory agency would make it right. They are even more useless, and maybe even more dangerous, as many people are naïve enough to trust that they are doing something to make things straight, and they are not even making a dent.
What is the problem? It is hard to define, but if I could make a stab at it I would say that somehow the moral fiber of the individual (not everyone) has somehow been compromised into some sort of corporate morality model driven by a high degree of forced materialism. We seem to have developed a problem in taking individual responsibility for our actions; it has become too acceptable to Spin, or even outright lie if it is for the good of “business.” Even the people that are not immoral seem to have a problem with having the backbone to speak out against the goings on right before their eyes. Where did it come from, lack of parenting, no-fault religion, schools, all of them, or just lack of personal courage? We think one solution is to have business ethics classes in graduate school. Teaching people ethics at age 24? Yikes, a little late!
Do I think that everyone has suddenly become a dishonorable wimp? Absolutely not, but I clearly do think that those traits are not as isolated as we would like to believe. I also think that, for whatever reasons I have trouble pinpointing, that the “real” people don’t seem as willing to do what it takes to get rid of the creeping cancer.
I will give you an example. AIG, one of the world’s largest insurer’s, has had a huge problem. Massive losses, probably massive impropriety, huge government intervention, events nowhere near a resolution are the order of the day. Shareholder wealth has all but been eliminated, we are talking numbers lost in the neighborhood on $180 Billion, yes, Billion! An awful lot of real people, widows and children, take a serious hit with a number of that magnitude. Where was everyone? Did anyone on the Board even casually ask one of many simple questions like, “It seems to me that we are selling an awful lot of mortgage insurance in California, and prices seem to be going up awfully fast. If those prices were to retreat, are we OK?” If someone did ask (which I doubt), and did not get a proper answer from management, why did not he or she resign? Why is the Citigroup Board virtually intact? Is it so important to keep that Board spot, is the money or prestige so important that he or she is willing to ignore all common decency and put their head firmly up the Corporate behind? It seems so. Why can’t shareholders (if they had the accessible means) change the Board members, or at least demand a mechanism to change them, or why don’t the Board members themselves have the common decency to resign? Why aren’t their a thousand people walking around the headquarters demanding answers, or heads? I don’t know, but I do know that to just let it go on does not sound like “Who we think we are, or were.”
To me this problem goes to our core. These goings on are not isolated, they are endemic and systematic. I do not see the means or the will to change. We just had elections in Illinois, and virtually every political hack in arguably the most crooked state in the nation either ran unopposed or received huge vote majorities. Is the growing voting block of governmental employees or others feeding at the trough to big for the rest of society to combat, especially if it is too much trouble to vote? Are we afraid, even in the voting booth? Maybe so, we surely know that if you actively support the “wrong” candidate in Illinois you are liable to endure more than your share of inspections or other retributions should he or she not be successful. Our new President (and I like him and wish him well for all our sakes) is setting himself up as somewhat of a reform President, but a reform president from Illinois?? Did he have wrap around blinders the whole time he was in office here? Wow. That takes a leap of faith, but just another amazing example of America 2009. Arthur Levitt, the most inept SEC Chairman in history (I hope), the man who gave Bernie Madoff the big stage, and the man who enabled payment for order flow (or an industry based on kick-backs) is now regularly on TV opining how he would fix our mess with “more regulation.” Why is he on TV, and doesn’t he realize what a horrible job he did? Double yikes!!
I could go on, but I gather everyone thinks I am worried. I do have one little story that sort of put me over the edge for this point of view. A young lady from Rumania works as a waitress in one of the trader’s bars nearby (yes, I have been seen there, and she is attractive, but neither is the point). One night we were talking about her impressions about America, and she ups and says, “You know, America reminds me of a Communist country. The press, and people’s unwillingness to get involved, reminds me of Romania before the system changed. Reading the papers here, I think a government censor has filtered the content. Now that we are free the papers back home are much more direct at people the papers think are corrupt. I also see and hear many people in this bar upset at things that are happening, but they never do anything about it.” That anecdotal and telling statement has stuck with me, and I can’t really dispute it. Is the Tribune the same now that they need favors from every governmental agency? Probably not. Do the people at the Tribune even notice the conflicts? Again, probably not.
How can we make money in the current environment? I think we keep our mistrust in place, and be very mindful about doing our risk control. I also think we respond to the bullish side to those situations that the market has sold down the drain, last week we did some bullish strategies in MU under $3 and Canadian Solar around $5. I think a lot of investors are disgusted and selling everything whereas we (although maybe also disgusted) still have most of our nest egg. We can be, and will be, moderately aggressive, and we will take advantage of these high levels of volatility for as long as we can.
Anyway, we all wish the new President well, and maybe we can and will turn this bus around. Maybe he will help bring Honor and Integrity back from chopping block. One man or woman can make a difference. This is still, after all, America, and I think the good guys still have the majority, but let’s get going and prove it! As for the market, we could sure use a little rally.