Tuesday, October 10, 2017

Pizza With Panache: A Tale of Crime on Wall Street



Once upon a time, I was a lawyer at the U.S. Securities and Exchange Commission, doing stock market investigations.  I'm still recovering.  As one of the twelve steps, I wrote Pizza With Panache, a fast-paced, satirical novel of crime on Wall Street. Deceits swirl around duplicity as the rich try to get richer without doing any honest work. Fred Farquhar, a successful pizza franchise owner, doesn't think he's getting rich fast enough. He enlists Adam, a Wall Street analyst, to feed him inside information, which Fred uses to trade stocks in a secret foreign bank account. Greed abounds as Fred's foreign banker, Enrico, and Adam's buddy, Alain, join in the illicit insider trading.

These scoundrels garner filthy lucre so fast they attract the attention of law enforcement.  Nick Papadakis, an SEC enforcement lawyer, is fed up with his job.  He made the mistake of doing good work, and now is rewarded with more work: the investigation and the responsibility to train Ethan, a new guy.  The last thing Nick wants is a high-pressure investigation where he needs to train a new guy.  But the thievery is so appalling, Nick gets interested and investigates aggressively.  He is obstructed by slippery defense lawyers and harassed by scheming supervisors hoping to steal the credit for his success.  He desperately hopes to escape his job.

If you've ever wondered what a government stock market investigation looks and feels like from the inside, read Pizza With Panache.  If you’ve ever thought that Wall Street is crooked, big law firms are ruthless sweatshops, bureaucrats poison the government, no good deed goes unpunished, and the only solution is to escape your job, this is the book for you.  It's available at:

Apple:

Pizza With Panache by Leo Wang


Amazon:


If you want to read on a PC, laptop, or tablet, you can get the novel from Smashwords, which offers several different formats.


 Other online booksellers carry the book as well.  Check with your favorite bookseller if you don't want to go to any of the websites listed above.  Many thanks.

Monday, October 9, 2017

Freeze Your Credit and Make 'Em Change

Of all the massive hacks of recent years, the Equifax hack may be the worst.  Some 145 million persons had their personal information stolen.  Even though other hacks may involve larger numbers (the Yahoo hack may have victimized 3 billion--yes, billion--accounts), Equifax had the crown jewels:  Social Security numbers, birth dates, home addresses and phone numbers, and some credit card account numbers and drivers license numbers.  Bad guys can use this information to open phony credit card and other loan accounts in your name, steal your tax refund, grab your Social Security check and get prescription drugs in your name (which could interfere with your ability to get medications and maybe even implicate you in police investigations). 

What to do?  The best thing is to freeze your credit accounts.  These freezes, called security freezes, prevent new creditors and other persons from getting access to your credit information unless you specifically authorize it.  It doesn't stop existing creditors and their collection agents, or the government from getting access.  But it puts a substantial barrier in the way of fraudsters.  It's not perfect--the bad guys might still try to use your stolen personal information to snare your tax refund or your Social Security benefits, or snag some opiods in your name.  But a credit freeze is a lot better than the alternatives.  Forget about credit monitoring and fraud alerts--they aren't great protection.  And a credit lock isn't as good as a credit freeze.  Credit freezes give you legal protection under state law, while a credit lock is just a contract with the credit reporting agency that may be difficult to enforce.  Credit locks may also cost you more in fees (which is one reason the credit reporting agencies might want to sell you a credit lock). 

Credit freezes can be a little inconvenient, because you have to lift them any time you want to apply for credit.  But that is a lot less bother than the aggravation of cleaning up your credit after the bad guys have impersonated you (a process that can take months or years).

One more reason to freeze your credit is to make the idiots (the ones that got hacked) change things.  The credit reporting agencies and banks and other lenders don't like freezes.  They interfere with business and revenue flow.  The credit reporting agencies and lenders have a harder time making money if a lot of people freeze their accounts.  And that is the point.  The current system using Social Security numbers as universal identification numbers has just been blown up by the Equifax hack.  For all practical purposes, you have to assume that your Social Security number is publicly available.  You have no privacy any more.  You're not safe, and your finances are not safe.  The SSN system of personal identification is now completely kaput.

Make 'em change.  Freeze your credit and take profit opportunities away from the credit reporting agencies, and the banks and other lenders.  Faced with a business downturn, these massive institutions will lead the way to change.  With the potential loss of who knows how many millions of dollars of profit, they will implement posthaste new and improved systems of personal identification.  Either that, or their senior executives' stock options will belly flop.  And that they won't allow.  So freeze your credit.  It might be the best thing you can do right now for your financial privacy.

Saturday, September 30, 2017

Donald Trump Needs To Stop Campaigning

Donald Trump was elected President by running an unconventional campaign featuring politically incorrectness, the bullying of people weaker than he (like the father of a veteran killed in action, a former beauty pageant winner, and so on), claims of business competence, and appeals to racial and ethnic prejudice.  Since his inauguration, he's demonstrate scant ability to govern.  He has accomplished essentially none of his campaign priorities.  His most significant legislative achievement to date was achieved by striking a deal with Congressional Democrats.  His administrative actions can be reversed by the next President.  His Cabinet and White House staff consist of a kaleidoscope of people coming and going, while hundreds of lower level appointed positions remain unfilled (perhaps because many potential candidates shy away from the chaos and controversy of the Trump Presidency).  His tax reform proposal, announced just a few days ago, already appears to be quietly losing the Congressional majorities it would need to be enacted.  America's standing with its allies in Europe and Asia is weakening, while Russia and China have become emboldened to pursue their international ambitions more aggressively.  Perhaps worst of all, Trump, who has reached an age where one might have expected he'd have some maturity and wisdom, has allowed himself to be drawn into a juvenile but nuclear confrontation with a fat kid in North Korea who can't even get a decent haircut.  His poll ratings have set new lows for a first year President.  His managerial ability is vanishingly thin, and he's needed to bring in a former Marine Corp general as chief of staff to restore order.

Trump's response to his poor public standing has been to conduct campaign style rallies where he's fallen back on coarse pronouncements reminiscent of his campaign. He picked a fight with NFL players over their exercise of First Amendment rights, even though he seems content to let white supremacists and neo-Nazis speak their minds.  And he Twitter-bullied the mayor of San Juan, who had the temerity to plead for more aid for her suffering constituents in hurricane-ravaged Puerto Rico.  Oliver Twist had it better than she does. 

Trump seems to be a one-trick pony.  He can't do anything except campaign.  His executive abilities are close to non-existent.  He appears to be learning the hard way that, when you're President, there is no bankruptcy court you can duck into in order to relieve the pressure.  The tactics of your business career won't work in government.  The pressure will continue every day, relentlessly, and campaigning does nothing except foster a momentary illusion that things aren't quite as tough as they really are.  

Trump's response to the Hurricane Irma's impact on Puerto Rico illustrates the problem.  Anyone with a smidgen of managerial ability would have realized immediately that Puerto Rico and the U.S. Virgin Islands would be the most difficult relief challenges of this hurricane season.  Even though Texas, Louisiana and Florida took really hard hits too, they are connected to the rest of the U.S. by highways, railroads, the interstate power grid, and Jones Act waivers for their ports (allowing much faster transit of aid by ship).  Aid can reach them much more quickly and in much larger amounts. Isolated by the sea, Puerto Rico and the U.S. Virgin Islands would obviously present much greater logistical challenges, and major managerial attention to their relief would self-evidently be required.  But Trump seemed almost inclined to benign neglect of the islands (a perception exacerbated by his blame-the-victim bullying of the mayor of San Juan), and his administration only very recently managed to cough and choke its way to a Jones Act waiver for the islands.  Underneath all this, it's not hard to perceive yet another manifestation of Trump's bigotry against Hispanics, which first glaringly emerged with his "rapists" comment about Mexican immigrants early in his campaign. Trump's bigotry may score points with his base, but it also strengthens the perception among many,  many others that he's just a bush-league poseur who managed, possibly with underhanded Russian help, to sneak his way into the White House.

At the age of 71, it's doubtful that Trump, with his ingrained stubbornness, will change and improve.  But if there's any hope for the Trump Presidency, it would come from his aversion to failure.  He's failing badly as President--really badly--and change is his only option.  He's getting nowhere by repeating the same mistakes. Notwithstanding the unvarnished loathing of the legions of Trump-haters, the man has the potential for a somewhat and maybe even reasonably successful Presidency.  He isn't bound by ideology, which gives him the flexibility to put together working, bipartisan coalitions.  We saw this in his deal with Congressional Democrats over the debt ceiling and budget.  He's sometimes open to persuasion--contrary to the isolationist leanings of his campaign, he's now authorized an increase of troop strength in Afghanistan.  His tendency to conduct more rallies whenever the going gets tough is like children closing their eyes so that others can't see them.  He has to figure out that this doesn't work, and that he needs to do what will work.

Wednesday, September 20, 2017

Why North Korea Can't Afford to Nuke America

Despite all the noise Kim Jong Un is making about nuking America, he can't afford to do it.  That's not simply because of the doctrine of mutually assured destruction and his inability to touch America's Trident submarines, any one of which could obliterate North Korea.  It's also because he'd target North Korea if he tried to hit America.

Recent news reports indicate that North Korea has ballistic missiles that either can or soon will be able to reach Washington, D.C.  The nation's capital would naturally be a primary target for Kim's missiles, and he'd no doubt put his most powerful nukes on the missiles headed for DC.  Those missiles, if they actually succeeded in reaching their target, would likely cause a lot of damage in the northern Virginia suburbs of Washington.  The damage could come either from explosive blast or from electromagnetic pulse (EMP), or both.

Somewhere around 70% of the world's Internet traffic flows through servers located in northern Virginia (https://www.washingtonpost.com/business/capitalbusiness/data-centers-boom-in-loudoun-county-but-jobs-arent-following/2014/01/17/b4a704c8-7f0e-11e3-93c1-0e888170b723_story.html?utm_term=.181c4b46bfa0).  The effects of the blast and the EMP could knock out a large portion of those servers and the infrastructure in which they operate.  The Internet could promptly become one gigantic, intractable traffic jam.

North Korea is about as isolated as any country in the world.  One of its main connections to the outside world is through the Internet.  The Internet is a crucial tool for North Korea, to steal money, do business (often illicit), to spy on other people, and to find out the truth (the problem with purveying fake news is that you still have to know the truth or the truth will sooner or later smack you up one side and down the other).  Without the Internet, North Korea would have to rely largely on its own internal resources.  And those aren't sufficient even to feed its own population a nutritionally adequate diet, let alone provide a decent standard of living.

So if North Korea nukes America, it loses its Internet connection.  And these days, that's almost the worst thing that can happen.

Wednesday, August 30, 2017

Hurricane Harvey? North Korean Missiles? Stocks Shrug

So, okay, Hurricane Harvey may be the worst storm to hit America in a while.  The damage is really bad, and getting worse.  Projections for recovery time are lengthening by the minute as rainfall totals rise.  The economic impact will clearly be big.  Energy extraction and refining are being hit.  The Gulf states have a number of petrochemical and plastics plants, but they aren't manufacturing much.  The Gulf ports are major transshipment points for a lot of stuff, but not much transshipment is taking place.  The cost of rebuilding may reach $100 billion or more.

Meanwhile, the fat kid in North Korea keeps firing off missiles, in one instance over northern Japan.  He may think he's being clever, pushing the world to see how far he can go.  But shooting missiles over another country is a way to start wars.  The Japanese held their fire.  But North Korea's missiles aren't the picture of reliability and sturdiness.  If one flies in an unintended trajectory, or falls apart at the wrong time, physical impact on Japan or maybe South Korea is quite possible.  Then what?  Kim Jong Un has been on a path of escalation in recent months.  He's announced that Guam--U.S. territory--is his next target.  Since he seems intent on escalating, he will approach a flashpoint. 

But do stocks care?  Not one bit.  Even though U.S. stock futures dropped sharply last night, all indexes closed up today.  Mega hurricane--meh.  Barrage of North Korean missiles--meh.  Discord rife between and among the President, Congress and both political parties--meh.  Merrily we roll along.  Plus ca change, plus c'est la meme chose. 

Why do we have such insouciant stocks?  The likely explanation is the Fed.  Market participants have gotten so used to Fed bailouts that no one believes stock indexes can fall more than about 3% at the most, and therefore don't panic sell portfolios.  In some respects, this market stability may seem desirable. 

But market stability based on government subsidies is ultimately chimerical.  The Fed produced that stability by screwing over large numbers of people.  By keeping interest rates extraordinarily low for almost a decade now, the Fed has decimated pension plans.  A lot of middle class people who depended on their pensions are now lower middle class, or even poor.  Retirees and others who relied in part on interest income from their savings have learned to like dog food in lieu of steak, or even hamburger.  Holders of long term care insurance policies have faced extortionate rate increases, or possibly the prospect of spending old age in homeless shelters until they qualify for nursing homes that take Medicaid (which sometimes aren't exactly top class institutions).  Those that still have some faith in the future and want to save for a rainy day need to tighten their belts and put aside more principal, rather than count on the compounding of interest income to make their golden years glow.  That means reducing current consumption, which is a drag on the economy and may partially explain why economic growth remains tepid.

As long as the Fed supplies financial opioids for stocks to mainline, the market will be copacetic.  But problems lurk.  Stock valuations may not truly reflect investment values.  Instead, they probably incorporate a large dose of government subsidy.  That would mean people are paying too much for stocks.  This story won't have a happy ending.  Market forces can't stay suppressed indefinitely and government subsidies can't last forever.  The failure of Communism in China and the Soviet Union prove that point.  Things generally feel good when you're on narcotics. But you don't get good quality sleep on opioids--and investors shouldn't be sleeping too soundly now.

Sunday, August 20, 2017

Any Questions About Crowd Size, Mr. President?

On August 19, 2017, a small group of white nationalist/supremacists and neo-Nazis held a rally on the Boston Commons.  It was a very small group, around a few dozen.   A vastly larger group of counterprotestors showed up--tens of thousands.  A picture is worth a thousand words.  Take a look:  http://www.cnn.com/2017/08/19/us/boston-counterprotest-crowd-video-trnd/index.html.  

Contrary to what President Trump suggested a few days ago, there is no moral equivalence between advocating open-mindedness and equal rights for all, on the one hand, and bigotry, hate, and facism on the other.  The former is part of the bedrock of American democracy and the American Dream.  The latter is what millions of Americans fought against in World War II.  Got that, Mr. President? A lot of other people understand the point.

Monday, July 31, 2017

Why You Should Worry About the Rising Stock Market

The stock market keeps rising, setting new records just about every week.  The S&P 500 has risen over 15% since Election Day 2016, and shows no signs of slowing down.  That's an annualized rate of over 20% a year, which is exceptionally good for an aged bull market as we have.

The election of Donald Trump as President was seen as a major reason for the rally.  He promised infrastructure spending, tax reform and other measures that should stimulate the economy.  But his Presidency has sunk into a quagmire of chaos, incoherence and unpredictability. These, coupled with the legal risks emanating from special counsel Robert Mueller's investigation, should have triggered market retrenchment.  But stocks have hardly blinked before levitating some more.  Whatever is driving the market, it doesn't have much to do with the Trump Presidency.

Accommodative monetary policy in Europe and Japan is also said to be a reason for the market's buoyancy.  Foreign central banks have been printing money, and some of it supposedly has found its way into the U.S. markets.  But the dollar has been falling recently, indicating liquidity is flowing out of our markets, not in. That's not a formula for a rally.

Corporate earnings, although pretty decent, aren't dramatically better than last fall.  They don't explain the lighter-than-air quality of stocks today.

So what's going on?  Let's consider that over half of all stock market transactions consist of computerized trading.  Machines are trading with machines, using algorithms known to very few.  These algorithms verge on alchemy.  They rely on statistical correlations that may or may not hold true in the future.  These correlations can be disrupted by unexpected government policy, political upheaval or conflict, economic change (such as the effective collapse of OPEC as a functional cartel), and technological change (such as the fracking that just blew up OPEC).  They also utilize artificial intelligence, seeking to learn from their ongoing experiences in the market and modifying their algorithms as a result of what they learn.  Thus, the humans may have difficulty anticipating what the programs will do tomorrow.  And the programs may produce a positive or negative synergy or other interaction that humans have not foreseen.

Computerized trading is opaque.  That is, in real time, no one knows for sure if a trade or a series of trades involved a machine or two machines or none.  One should avoid anthropomorphism in today's stock markets.  In other words, one should not ascribe human motives, intentions or characteristics to market activity.  There may be no reason comprehensible to humans for today's stock prices.  When computers use artificial intelligence to trade stocks, the valuation of financial assets may be fundamentally changed, and changed beyond human comprehension.  You may think that stock prices are whacked out--and you could be correct from the human perspective.

Homilies like stocks are excellent long term investments and will protect against inflation were derived at a time when people dominated the financial markets and established the asset valuations on which these notions were based.  If machines that function opaquely suddenly become dominant, how can humans understand the valuations determined by the machines?  More succinctly, how can you tell what's a good price and what's a bad price anymore?

There are many more questions than answers in a machine-dominated market.  When the market keeps setting new record highs in machine-dominated trading, be careful.  We are bravely, or not, going where no investors have gone before.  And no one really knows what's going to happen.

Monday, July 3, 2017

Buy Your Retirement


If you're having trouble saving for retirement, think of it this way:  your retirement is a purchase, and the more you spend, the more luxurious it will be.  Retirement is a purchase--you're buying rest, relaxation, entertainment and time to do whatever you want.  You may have to buy a fair amount of health care and other services such as lawn care, housekeeping and so on.  But whatever the case may be, the more money you have for retirement, the nicer it will be.  No need to think of saving as a sacrifice.  You aren't giving up things up.  You're simply spending for a better retirement instead of a bigger TV. 

So, if you can't save for retirement, then spend on your retirement. It will be one of the smartest purchases of your life.  For more, see

http://blogger.uncleleosden.com/2009/11/techniques-for-retirement-saving.html, 

http://blogger.uncleleosden.com/2010/11/how-much-do-you-need-for-retirement.html, 

http://blogger.uncleleosden.com/2009/07/simplest-financial-plan-of-all.html,

and http://blogger.uncleleosden.com/2010/11/stress-test-your-retirement.html.


Saturday, June 24, 2017

The Only Health Insurance Option Left

Less than two days after being released publicly, it appears that Senate Majority Leader Mitch McConnell's health insurance bill, the Better Care Reconciliation Act, is d.o.a.  Five senators have already announced their opposition to the bill as presently drafted.  A half-dozen or more have expressed concerns.  Since the doubters include both Tea Party types and moderates,  McConnell is in a bind.  If he offers compromises to win over the Tea Partiers, he will likely lose some moderates.  If he offers compromises to satisfy the moderates, he will likely lose some Tea Partiers.  It looks virtually impossible for him to get at least 50 votes. 

The Senate will vote soon on this bill--which is basically tax legislation that cuts taxes for the rich and funds those cuts by taking away health insurance coverage for a lot of mostly poor people--and it will either pass (unlikely) or fail (likely).  If it fails, what then?  Obamacare is struggling, with insurers pulling out of exchanges and premiums rising sometimes dramatically.  The Trump Administration and the Republican Congress have created so much uncertainty that health insurers apparently feel compelled to raise rates sharply.  Whether or not any replacement for Obamacare is passed, this uncertainty will remain, and rising premiums may force many people to drop insurance coverage. Thus, the number of people losing health insurance will rise under the Trump Administration even if Obamacare survives.

Forcing people to go uninsured is political anathema in America today.  Whether or not the Republicans like it, Obamacare established the baseline principle that all Americans are entitled to comprehensive health insurance coverage at an affordable cost.  Both Republican and Democratic voters subscribe to this principle, and legislators who violate the principle do so at the peril of their re-election.  But with Republican machinations making Obamacare increasingly unworkable, a replacement will have to be found.

Realistically, the only option left is a single payer system, with private insurance available as an optional supplement.  Private health insurance doesn't work well, especially when it comes to covering the poor, the sick (i.e., those with prior medical conditions) and the elderly.  That's why Obamacare is unwieldy and the Republican alternatives are worse.  We've already figured out that single payer is needed for the elderly, and established Medicare.  It works well.  Medicare can be supplemented by private insurance coverage and often is.  Sure, Medicare has long term funding issues.  But have you noticed how premiums demanded by private health insurers are going through the roof?   It's hard to believe that a government funded program would be more expensive.

Essentially all other advanced industrialized nations have single payer health insurance systems (or national health care, like the UK system), with per capita costs that are far lower than America's and better health outcomes overall.  No other advanced industrial nation has the extremely expensive and increasingly dysfunctional mish-mash of private coverage that America has.  Single payer systems are imperfect, and the availability of optional private supplements can ameliorate many of the imperfections.  The current Republican White House and Congress won't adopt a single payer system.  But their failure to do anything intelligent with health insurance coverage will push America toward the only realistic health insurance option remaining. 

Monday, June 12, 2017

How Comey is Winning the Credibility Battle With Trump

At first glance, you might think that President Trump and former FBI Director James Comey are at a standoff over who said what during their one-on-one meetings.  It looks like a he said/he said situation.  But Comey wrote memos about the conversations right afterwards.  These tilt the balance in favor of Comey.  While his critics might say his memos were self-serving, it's implausible to think he wove them from whole cloth.  The President doesn't appear to have any memos.

But the crucial factor would appear to be the issue of tape recordings.  The President alluded to recordings, saying "James Comey better hope there are no 'tapes' of our conversations before he starts leaking to the press!"  Comey called Trump's hand by saying he hoped there were recordings.  The Secret Service has now said it doesn't have any recordings--and the Secret Service would be the organization that would handle the recordation of conversations in the White House.  See http://nypost.com/2017/06/12/secret-service-says-they-have-no-comey-tapes/.  If there are no recordings, that would mean that Trump tried to bluff Comey into silence by hinting untruthfully about recordings that don't exist.  Trump's bluff would only undermine his own credibility.  

Of course, it's possible Trump recorded the conversation on a personal device, such as a smart phone. But if he has a recording that contradicts Comey, he surely would have released it by now.  But he hasn't revealed any recording.  Thus, Trump can only have a recording that supports Comey, or he's erased that recording (which would indicate the recording hurt Trump), or he doesn't have a personal recording (which means he lied about there being one).  Whatever is the case, Comey's winning the credibility battle with Trump.