Seven Notes on Blogging and the Markets

I need to catch up on a few things, so bear with me.  This might ramble.

1) Should I live and continue to write until mid-October of 2013, I will reach 10 years of investment writing.  I started writing for RealMoney in October 2003, and that changed my life.  Thanks to Cramer, because he created an organization that revolutionized financial media.  Former TST news writers occupy a wide number of top spots in many places in the financial press — it is astounding how much better financial news is today.  I am grateful to know many of them, some of whom would call me for help on occasion.

2) In a few more weeks, Aleph Blog will hit its sixth blogoversary.  Seems like minutes to me, but I have a lot more grey to prove that the time has passed.  I do want to note that much as I wrote at RealMoney, I have written far more here.  I have a problem though.  It seems that RealMoney has lost its ability to recover old posts pre-2008.  I would love to get copies of my old posts that are listed here.  If any of you know how to do that, please let me know.

3) Saturday night’s second article was hate me or love me in terms of responses.  There are no other writers at this site; the same flawed man writes them all.  My main point is that you need someone who acts like a fiduciary (whether they are a fiduciary or not) to tend to your assets.  Investment banks do use retail to lay off exposures that they do not want.

In any significant transaction, you want to know who is with you and who is not.  (This was true in the housing bubble, where many parties teamed up against buyers.)  For my clients, they know that over 50% of my net worth is on the line in the same portfolio that they have. (At present, over 70%.)  I have a lot of confidence in my ideas.  I eat my own cooking.

You want to invest in situations where there is alignment of incentives.  Are there brokers who are noble?  Yes.  But to use one, he needs to jump through extra hoops, because he is not under obligation to be a fiduciary.

4) 4+ years ago I wrote a piece called: Inflation for Goods Prices, Attempted Inflation for Housing-Related Assets, but Sorry, No Inflation for Wages.  Probably one of my longest titles… but that still seems to be the case today.  Fed policy inflates housing-related assets, gives some price inflation, but because labor is not scarce globally, wages are flattish.

5) I wrote this piece summarizing my views on the rating agencies.  I stand by it.  The rating agencies are not the problem.  Regulators are the problem.  They create the conditions where ratings are needed.  Ratings by their nature are opinions, they are not guarantees.  They can’t be otherwise, or else the rating agencies will have to become financial guaranty insurers, and charge far higher fees that will destroy financing for so many.

That’s why I think the lawsuits against the rating agencies will fail, again.  This is not to say the rating agencies were blameless, but it is very difficult to estimate future losses on any class of securities that has not ever gone though a failure cycle.

6) I believe in the conservation of liquidity: it can’t be created or destroyed, but it can be shifted.  My first example is stock price increments.  I think that the tick size is arbitrary, and a small tick size will favor small investors who are looking to buy small positions.  A large tick size will favor larger institutions that wait patiently to buy and sell.

7)  I believe in the conservation of liquidity in bigger ways also.  The Fed does not create liquidity, at least not in the sterilized  way that they do it presently.  But they can shift liquidity; who do the QE programs help?  The US Government and the GSE-backed mortgage market.  Liquidity has been shifted there, and away from everyone else.

That’s all for now.


  • Greg says:

    Re: your “Wall Street hates you” post… you continued:
    ” Investment banks do use retail to lay off exposures that they do not want.”

    From reading your website often, I know the bulk (all?) of your experience is on the buy side, but this statement is is just plain wrong.

    Investment banks are also known as SELL SIDE banks — they sell/lay off ALL EXPOSURES to customers.

    The primary exception being the prop trading desk, which is where banks take on / sell off risks for their own account. The crooks in Washington have decided to “help” the public by banning this function (sort of).

    The market making / flow orders traders do not take on any net risk — and they usually offset / hedge their risks either with futures or index products. Bond traders offset their risks with on the run trades with broker-brokers (Cantor Fitz, Prebon, etc). Retail orders are not big enough, nor liquid enough, to provide risk control / hedging trades.

    Sorry David, you usually write some really good blog posts… but this “Wall Street Hates You” stuff is just shameful pandering to lame media outlets.

    Later you wrote: “For my clients, they know that over 50% of my net worth is on the line in the same portfolio that they have. ”

    So does that mean you hate your clients or not? You never answered the question of whether you believe all your fellow CFA members hate their customers?

    Whether you want to admit it or not David, YOU ARE PART OF “WALL STREET”. Do you hate your customers?

  • Timoth3y says:


    I believe David’s point was a bit more specific. Talking your book does not mean that you hate your clients. He is talking about a overall trend in finance that has been underway for some time where more and more people who pretend they represent the customer’s best interests clearly do not.

    Also, market makers *do* take risk. This is especially true with decimal pricing and tighter spreads.


  • Greg says:

    While the supposedly unbiased news media keeps bashing “Wall Street”, I think it is a given that neither you nor the junk journalists know what every banker is thinking.

    Just for starters, not all bankers are alike. For example, some write blogs and care about their clients financial well being.

    Claiming that you (or the arrogant media) “know” what every member of a group is thinking is just plain stupid. Every woman doesn’t have the same opinion; every man doesn’t have the same opinion. From David’s earlier writings, not every member of his church has the exact same religious beliefs (never mind Christians in general).

    You have to be full of yourself to claim you know what every broker / banker in the country is thinking — or you have to be jumping on the media bandwagon.

    I understand why the media panders to this nonsense — they are in the business of selling TV time to advertisers and need to get as many viewers as possible. Populist rants get almost as many eyeballs as sex.

    But why would David pander to this? Does he think every single financial adviser is exactly the same? If so, why is he an evil financial adviser himself?

    Clearly, David knows that not all financial advisers are the same. Some are unethical / have bad incentives, but others care about their clients. Presumably David puts himself in the latter category?

    So why would he paint all financial advisers with the same brush?

    Either he doesn’t believe his own statement, or he is saying he hates his customers.

    Instead of pandering to media bias, David would help both the public and his profession if he focused on educating readers on what makes for a good adviser (eg the adviser eating his own cooking / having 50+% invested in his own advice/ideas).

    You are evidently not a market maker nor have you ever been one. You are parroting media nonsense. Market makers always have their book fully hedged (pairs trading or long securities / short benchmark). Decimal pricing has absolutely nothing to do with taking position risk or not. It is 100% a function of the correlation between positions. If a market maker takes risk, it is either because correlation broke down — or because the market maker is acting like a prop trader.

    My old firm would shut down a market making trader if his net position stayed non zero for an extended period. market makers make their money off the bid/ask spread, they are short gamma.

    You may have read about market makers taking a position at some of the failed banks — but this represents a break down of risk control systems. It is not part of the market maker’s job. Too many market makers (and worse, sales persons) trying to trade like prop traders. That is why those banks needed bailouts.

    Like you, they did not know the difference.

  • Timoth3y says:


    >Claiming that you (or the arrogant media) “know” what every member of a group is
    > thinking is just plain stupid.

    Which is why no one (certainly no one here) is claiming that. It’s a discussion about the incentives and representations made in the financial industry.


  • Greg says:

    He did not write “some Wall Street firms have bad compensation incentives”

    He wrote “Wall Street hates you”

    Big difference. The first one is still true, and unaddressed. The second inflammatory and false claim has caused the public to declare war against more junior staff, blaming those junior staff for the well publicized sins of the CEOs.

    The pay incentives are still screwed up. The only change has been to pay CEOs tens of millions for being screw-ups, while deferring and/or cutting the pay of more junior staff.

    In other words, hate speech has actually made the situation worse, not better. I think David is better than that, and am quite dismayed to see him step into line with the CEO crooks. It means the situation is going to get even worse before it gets better.

    No points if you eventually figure out where the tens of millions for CEO pay come from… that is the biggest conflict in incentives that exists.

    Cutting the junior trader’s pay and the junior salesman’s pay will not fix the people in the c-suite.

  • Timoth3y says:


    You sem to be arguing about what you think people are thinking rather than what people are actually saying. If you focus on what is being said, I think you will find some reasonable points being made.

    I am sure you truly believed that David claimed that “they ‘know’ what every member of a group is thinking””. But when you went to look for that quote you could not find it.

    Similarly, to imply that his commentary is “hate speech” shows a pretty significant disconnect between what is being said and what you are hearing.