Thursday, April 23, 2009

Misdirected outrage

It has now been revealed that:

Bank of America Chief Executive Ken Lewis said that the Treasury and the Federal Reserve threatened to remove him and the firm's board of directors if the company did not go through with a planned acquisition of Merrill Lynch late last year. According to the minutes of a December 22 meeting, which were released Thursday by New York Attorney General Andrew Cuomo, the government made the threat when the bank was considering invoking a "material adverse change" clause to quash the deal after it became clear Merrill's finances were collapsing. According to the minutes, Lewis, told the board that, "the Treasury and Fed stated strongly that were the corporation to invoke the material adverse change clause in the merger agreement with Merrill Lynch and fail to close the transaction, the Treasury and Fed would remove the board and management of the corporation."

I've heard that a number of major shareholders will try to oust Lewis, claiming that he was looking out for his own job instead of the interest of the shareholders. Why am I not hearing more people blame the Paulson and Bernanke?

I want to see the shareholders of Bank of America sue the Fed and Treasury, which committed at least two crimes: covering up the material information and blackmailing Bank of America's management.

But I am going to excuse Mr. Lewis even though he "should have" released the information to shareholders. He was probably worried about more than just losing his job. When the federal government tells you do something or else, you really have to worry. We have seen many businessmen thrown in jail recently on trumped on charges. Remember Martha Stewart, who was found guilty of lying to investigators about insider trading for which she was found not guilty. I am sure that when Mr. Lewis was told that he has to keep the information quiet and continue the merger with Merrill Lynch, the Feds also told him that breaking off the merger would crash the stock market and financial system and they would hold him responsible. Mr. Lewis was probably worried about more than just losing his job.

Monday, April 20, 2009

Efficient Market?

While I am no firm believer in the efficient market hypothesis, I do question whether it is worth the time and effort to try beating the market. If only mutual fund managers would stop trying:

Over the five year market cycle from 2004 to 2008, the SPIVA scorecard shows that the S&P 500 outperformed 71.9% of actively managed large cap funds, the S&P MidCap 400 outperformed 75.9% of mid cap funds, and the S&P SmallCap 600 outperformed 85.5% of small cap funds. These results are similar to that of the previous five year cycle from 1999 to 2003.

For the vast majority of people who don't have the time or patience to try to beat the market, low cost index funds are obviously the way to go.

And for those who think they can beat the market: good luck. When you take into account the costs of trading (commission, spreads), you are starting from a losing position. Add to that the opportunity cost (how much money could you make or how much fun would you have if you didn't spend th time trading) and trading doesn't seem to be a profitable venture.

Sunday, April 19, 2009

Chauncey Gardner for President

I said many times during the election that Barack Obama ran as a modern day Chauncey Gardner.

Now, Obama senior adviser David Axelrod said: "You plant, you cultivate, you harvest. Over time, the seeds that were planted here are going to be very, very valuable."

David Axelrod's statement could have easily been said by Chauncey Gardner. If you have not yet seen Being There, I highly recommend it.

Friday, April 3, 2009

President Obama is black?

EUGENE ROBINSON: "Not even three months have passed since President Obama's historic inauguration, and already it tends to slip the nation's collective mind that the first black president of the United States is, in fact, black."

I don't know about everybody else, but I never cared about Barack Obama's race. I based my vote on the candidates' positions, character, qualifications, and experience. It made me sick to listen to all those people talk about the "historic" election and inauguration. What was so historic about it? We've been electing Presidents for over 200 years and this election was little different from those that preceded it. The only thing "historic" about it was that many people voted for a candidate to prove to the world, the country, and themselves that they are not racist. I already knew I was not racist and didn't feel the need to prove it. I am glad to see those on the left will finally "focus on Obama's ability, not his color," though I am not too sure how able he is based on his performance so far.