Scams

The down time at BlueWater Partners (http://bluewater.ky/) is always interesting. I don’t think that would be too surprising to many people. When men work in high pressure jobs, handling large sums of money, things tend to get a little unpredictable during the breaks. Bond traders are notorious for this sort of behavior. A bond trader will work at warp speeds for hours at a time manning several telephone lines and computer screens simultaneously, and then bam, everything stops, and traders find themselves staring at one another in a minor daze. I knew of one bond trader in New York who caught mice and threw them out the window after making little parachutes for them during the down time. Things get weird. Conversations are often unrepeatable.

The talk the other day centered around the Bernard Madoff scam. It’s hard not to talk about Madoff, or “made-off” as I’ve heard him called recently, as in “he ‘made-off’ with all the money.” We started by talking about other scams, the original pyramid scheme of Charles Ponzi in the 1920’s to the Nigerian money laundering scheme that still surfaces every now and again. Madoff seems to have the biggest scam to date, at least in terms of dollars. The Albanian pyramid scheme of 1997 was the hands down biggest in terms of the numbers of people involved. It was estimated that two-thirds of that country’s entire population and government were caught up in it. Riots ensued when the whole thing collapsed, and the country still hasn’t fully recovered. But in terms of dollars, Madoff seems to have won a rather dubious prize.

Which led to the main topic of discussion – “Where is the money?”

If the totals that are being thrown around in the newspapers are remotely accurate, Madoff took hundreds of millions, and possibly billions of dollars. Think about that. In these days of billion dollar buyouts numbers get thrown around and lose their meaning. But he may have taken billions of dollars. A million dollars is a lot of money. If you spent a dollar a day for a million days you would have had to begin in the fifth century BC to be broke today. (without interest, of course.)

It was the esteemed consensus of BWP that a single man cannot spend that much money in his lifetime, never mind the forty or fifty years Madoff may have been at it. There just isn’t enough time in the day. It would take a foundation with many employees to spend at a fast enough rate. It’s a funny idea, not being able to spend a fixed amount of money, a Brewster’s Millions sort of fantasy, but think about it. If you stole one billion dollars, you would have to spend ten million dollars a day to make it disappear in a couple of decades. Now think about how much work it would be to spend ten million dollars a day every day for a couple of decades. If you gave it away in huge allotments. far too much attention would be drawn to you. Did he buy an estate a day for a year? A roomful of Picassos? Where are they? What a dilemma! So the question remains, where is the money?

I was reminded of a story I read many years ago. A man in France stole what is the equivalent to one million dollars in quarters. Do you know how much space you need to store a million dollars in quarters? What are you going to do with them? Sell them each for a nickel to neighborhood children? Go to quarter casino machines every day for eight hours? You would draw so much attention to yourself that you would be caught in weeks, which leads me to the what the police chief in charge of the case was quoted as saying, “Stealing this much money is its own punishment.”


By Myron Gushlak

Dead Cat Bounce

I thought it might be fun to go back a year ago trying to find egregiously wrong financial forecasts for the year 2008, soon to be put out of its misery. I didn’t find any. Just about everybody was predicting dire consequences for the year just ended. If someone thought that forecast was overly pessimistic, I couldn’t find any evidence of it. The prospects for a good financial 2009 are also rarer than BMW’s in a trailer park. The only issue for debate seems to be how long things will stay bad. It was a bit surprising to me to read in multiple sources that most end of the year forecasts had the beginning of the recession as having already started in December, 2007, even though the US government didn’t “officially” put us in one until eleven months later in November.

Mark Lanler’s New York Times article of December 10, 2008, seems to echo the cries of doom and gloom that dominate the media and the internet for 2009. (www.nytimes.com/2008/12/10/business/worldbusiness/10global.html) His opinion is particularly disturbing because he cites the lack of an obvious engine to drive a recovery. The latest “buzzword” seems to be infrastructure investment as a way out of the woods, but the term is thrown around so frequently that it becomes like the emperor’s new clothes, true because we all say it’s true and we all want it to be true.

The late December stock market mini-rallies can be attributed to “a dead cat bounce”. We at Blue Water Partners (www.bluewaterpartners.com) “borrowed” that line several years ago with little apology to the originator of the term. An unnamed Singapore broker cited in The Financial Times, coined the phrase after a precipitous market plunge on Monday was followed by a modest recovery on Tuesday. His rather macabre observation was “that even a dead cat will bounce if dropped hard enough from high enough.” (www.thelede.blogs.nytimes.com/2007/03/01)

The term never fails to bring a smile to our faces, though the sentiment is hardly worth smiling about. Our hopes for 2009 is that the year as a whole will not (in retrospect) be anything more than a dead cat bounce from the plunge of 2008. Money will, of course, be made in 2009. Money is always being made somewhere. Buyers are making acquisitions. It’s a good time to have your financial people on speed dial, especially those who know how to drive value.


By Myron Gushlak

Fashion

An article in this month’s Vanity Fair on George Bush caught my eye. Actually the cover photo of actress Cate Blanchett caught my eye, but why quibble? I was surprised that Vanity Fair would write about Bush or about anything that doesn’t carry a designer label, but I was quickly drawn into the article. Nothing in the piece was particularly new or surprising. The article is a composite of brief historical information, juxtaposed with comments by the people on the periphery of those events. The mosaic that evolves is anything but complementary to Bush 43. I’d read much of the same in Bob Woodward’s “State of Denial” and the excellent Cheney biography, “Angler” by Barton Gellman, but it occurred to me half way through that I was reading “Vanity Fair”.In a Marshall McCluhan moment I realized it is , literally, now fashionable to bash George Bush.

Perhaps it is my training in investment baking (www.Bluewaterpartners.com) but when I see everyone swimming upstream, I tend to want to see what’s going on in the other direction. When everyone’s pulling out of the market, it is often the best time to wade in. With that in mind, I tried to envision a favorable historic treatment of W. If the Middle East miraculously stabilizes and follows Iraq’s “democratic” lead, I suppose Bush will be seen as being ahead of his time. Perhaps the mortgage meltdown will be laid at the feet of former President, Bill Clinton’s decision to make housing more available to the poor of this country, and, even though Bush continued the Clinton program, the blame may get shifted there. People who travel extensively will tell you that the perception of America has drastically deteriorated in the past eight years. I don’t know how history will treat that. I realized quickly that I was swimming upstream just to get the point where I could make a case that he was merely an average president. Lawrence Wilkerson, top aide and later chief of staff to Colin Powell called him a “Sarah Palin-like president.” That comment would be considered a positive comment when compared to the other descriptions in the article.

The surprise to me when I read that Bush has a 29% approval rating is that almost one out of every three people do approve of his performance. Who are these people? And what are they wearing?

By Myron Gushlak