The Mike Gasior Blog

I’m kidding of course, but it has been a pretty interesting month and a half I will admit.

Thank you to everyone who wrote out of concern, thinking that some angry insurance executives might have had me “clipped”, but I’ve just been busy.  I’m actually still pretty busy but thought I’d pop my head back above ground and see what is going on out there in the world.

First things first, I am already working on a newsletter and with some luck it will be sent out at the beginning of next week.

With regard to the story on insurance accounting scandal, my work was pretty much completed for the company I focused on as of March 27th and I’ve been in continuous contact with the fantastic reporter who is covering it.  It’s obviously a complex story, as most accounting related stories are, and I feel fortunate to have connected with an extremely bright guy how loves the nuts and bolts and details that make up a story like this.  I’m confident he is going to do a great job and it will be nice (for a change) for one of these scandals to be revealed by the media, rather than covered by them after the fact.

So I have been (and will continue to) maintain quiet and let the actual media cover the story and I understand them wanting to make certain of all the facts before going public with a multibillion dollar scandal.  So in the meantime I did some of my own investigating and took a close look at 91 other insurance companies as well as assorted other financial institutions.  It is quite amazing how easy it is for me to spot what strike me as grevious errors and worse in the reporting of so many companies.  Billions dollar issues are a dime a dozen and the fact that auditors, executives, rating agencies and regulators don’t even seem to notice the difference is simply astounding to me .  I also think that a large part of the reason that we’re in the economic ditch we find ourselves is exactly BECAUSE no one really understands what in the hell is going on.  Truthfully, it is really my opinion that the executives and directors of these companies aren’t blatantly trying commit fraud (or at least most of them), but that they take a leap of faith and put their signatures on the financials of their company and hope they truly are accurate.  It is also my opinion that most of them, including the CFO’s, don’t have a clue about most of what’s contained in their statements and therein lies the danger for themselves and for the economy.  “They don’t know what they don’t know”.

I’ll certainly write more and tell you the story when I feel the time is appropriate.

But much has gone on in the world since I last wrote a post here including the excitement this weekend in Times Square.  It was lovely to find out is was a guy from Connecticut too.  What is always fun about any story like this is when the media start poking around with neighbors to see if anyone could have seen this coming.  Here’s my favorite information from a story I read this morning:

Shahzad’s behavior sometimes seemed odd to his neighbors, and he surprised a real estate broker he hardly knew with his outspokenness about President George W. Bush and the Iraq war.

“He mentioned that he didn’t like Bush policies in Iraq,” said Igor Djuric, who represented Shahzad in 2004 when he was buying a home.

Djuric said he couldn’t remember the exact words Shahzad used about Bush but “something to the effect of he doesn’t know what he’s doing and it’s the wrong thing that he’s doing.”

“I don’t know if he mentioned 9/11,” Djuric said, “but something like that, Iraq has nothing to do with anything.”

Didn’t like Bushes policies in Iraq?  Bush doesn’t know what he’s doing?  Iraq had nothing to do with 9/11?

Well I suppose we’d better immediately arrest John Kerry, Barrack Obama and about 150 million Americans if these sorts of feelings are the sign of probable terrorist activity.  Good grief is all I can say.  If this is the best the media can offer us on what was going on in this moron’s head I think I’d rather know nothing at all.  And if you think my moron comment relates to his luckily poor bomb building skills, you’d be wrong.  Now understand that I’m not a professional terrorist or anything, but if I had just parked an SUV that was traceable to me parked in the middle of Times Square filled with any sort of explosives, I might have waved down a taxi moments after locking the Pathfinder’s doors and headed straight to JFK for my flight to Dubai.  I don’t think I would have waited until days later when the evening news was reporting that the FBI and CIA were looking for a naturalized Pakistani male as a suspect.

So watch for a newsletter next week and for me to become more active in here again.  I also have some great sessions coming up in New York this month.  You can check them out at the below links:

Mortgage & Asset Backed Securities
–May 17 & 18, 2010
http://www.afs-seminars.com/mortgage.html

Securities Operations, Processing & Accounting
–May 24 & 25, 2010
http://www.afs-seminars.com/securities-operations.html

Fixed Income Calculations & Principles
–May 26 & 27, 2010
http://www.afs-seminars.com/fixed-income.html

You can also view all my 2010 sessions at the following link:

http://www.afs-seminars.com/schedule.html

I will openly admit, that while I am fascinated by economic data and information of all sorts, I haven’t honestly been following the trajectory of the residential real estate market.  There have been times when certain factoids have caught my fancy and I’ve mentioned them here or in my newsletter or even Twitter usually in relation to a larger commentary on the direction of the economy.

Probably, like most anyone who reads this blog and has at least some passing interest in financial topics, we all know the states hit hardest by the real estate decline and suffering the highest rate of foreclosures:

• California
• Nevada
• Florida
• Michigan

Of course, everyone knows that there is at least some degree of “crisis” in every state and I’d read minor headlines here in Connecticut about an increasing rate of defaults and foreclosures, but the numbers were still below the national averages so I sort of subconsciously didn’t pay much attention.  After all, I’m one of those people who loves picking up those free real estate magazines whenever I’m in the convenience store and thumbs through them in a voyeuristicly nosey sort of way and it never seemed to me that prices here in New England had declined much at all.  So I suppose I concluded that yeah…the market was slow here, but not really any sort of “crisis”.

Well I did my usual Sunday routine of going through the papers and watching the political shows on television.  My local paper here in Connecticut is the Hartford Courant (and the oldest, continuously published newspaper in the country by the way) and having the “weekend plan” means I have to get the Friday and Saturday papers in order to get the Sunday one.  I basically don’t read anything but the Sunday one, but the Friday edition always has a section called “Courant Real Estate”, which beside have a bunch of advertising, also lists all the real estate transactions from a variety of towns that make up the central part of the state.  Perhaps representative of 25% of Connecticut. 

I always peruse these transactions out of pure nosiness again, especially focusing on the towns that immediately surround me to see if there are any properties I recognized, and I have noticed more and more listed that have a sale price of $0.  These are transactions that aren’t sales but are instances where the homeowner has lost title to their house back to the bank and it struck me that there seemed to be an awful lot of them.  So for the hell of it, I grab a highlighter and pen and started to mark up the pages.

In total there were 222 real estate transactions the previous week in this limited number of Connecticut towns and after counting there were 65 of them that were bank repossessions.  Just about 30% of all real estate that changed hands here in one of the more affluent parts of the country were people losing their homes back to the bank.

And I’m the economist and am totally aware that this was just one week in a small part of a small state and is purely anecdotal.  But still.  That’s an awful lot, or at least it seems like a lot to me.

In one of the towns, Bristol, Connecticut, they had 15 total transactions and 10 of them were for $0.  Hartford had 19 transactions and 10 were for $0.

I’m not making any point here, but as suggested in the title of this post, just sharing an interesting observation with you.  But these anecdotes just keep adding up in my head.  The observation that no fast food restaurant or store I go into has anywhere near enough registers open.  Or when I wander the large aisles in Walmart they are no longer filled with pallets and pallets of inventory but are eerily empty and able to have a tractor trailer driven down them.  So while everyone seems to be in agreement that the recession is over and the recovery has begun, it is certainly difficult to observe that anywhere out on Main Street.

I am once more going to be a guest on The Naked Short Club radio program in London today, which will air today at 4:00 p.m. New York time.  The line-up of people who are on the show today always result in spirited debate regarding the economy, markets and just about anything else.  You can listen via the Internet at this link:

www.resonancefm.com

On a much lighter note, I finished my maple syrup production yesterday and had a very nice crop of Mike Gasior Grade “A” Organic Medium Amber this year.  The wildly swinging temperatures made for unpredictable sap flows from my trees, but I managed to collect about 60 gallons, resulting in almost a gallon and a half of final product.  Next year I’ve decided to more than double the number of trees I tap to try and increase my production so I might be willing to actually give some of the precious liquid to a few friends and relatives.

Tomorrow I plan a post here to the blog outlining my concerns about China suddenly turning into the “next big thing” except this time in a bad economic way.  I know I’ve written of my concerns about China previously, but a sudden, rapid downturn in their situation will be very hard for the rest of the world to cope with in this delicate climate we all find ourselves in right now.

I’m hoping most people have much more concerning issues to worry about than decisions made by the bankruptcy judge who has been charged with liquidating Bernie Madoff’s assets to his investors. I, however, had a meeting in Manhattan yesterday and the train ride into and out of Grand Central Station gave me the luxury of time to actually read five different newspapers.  Some stories were simply junk food for the mind, like Catherine Zeta Jones’ very lovely all leather outfit and the troubles being suffered by New York Governor David Patterson.

But then I saw a story relating to a decision made relative to the Madoff case, which the article described as “controversial” and is “likely to be appealed”.

Now I’m no lawyer, although running my own business for over twenty years and reaching the age I have leads one to have had some experiences with the courts.  And as much as I might have disliked some of the decisions in cases I’ve been personally involved in, usually I could at least understand the logic used by the courts in making the their rulings.  With regard to this Madoff decision, I literally couldn’t find ANY reason whatsoever for there to be controversy; and I cannot imagine what grounds there will be for the decision to be overturned on appeal.

Here is the basic premise to the ruling a couple of days ago.

You and I were both investors in the Madoff fund and we both put in $1 million exactly 10 years ago.  Over the years Madoff lied to us and told us our original investments had grown to be worth $4 million, which certainly seemed wonderful to us both, but of course turned out to be total fiction at the end.  The difference here is that over the past few years you took several withdrawals from the fund, which just so happen to total $1 million, or your original investment.  The fictional statements you receive from Madoff, however, still show you having $3 million more left invested.  Since I didn’t make any withdrawals, my balance is at $4 million.

At the end of the game here, it became clear that Madoff didn’t have the $65 billion he’d been telling his investors was in the fund, and there was actually not even enough to give back people’s original investments.

What the recent ruling basically says is that your CLAIM as an investor on whatever amount of monies that are actually left is whatever you originally invested MINUS whatever you’d withdrawn.  So in your case, you would have no claim whatsoever on remaining assets since you’d taken out your entire original investment.  The ruling simply states that the phony $3 million in profits doesn’t count toward how the remaining assets get divided.  Otherwise, you’d be able to make a claim for 75% of whatever I was trying to recover though you’d taken out ALL of your original investment and I’d gotten jack.  Common sense (to me at least) would say that would be ridiculously unfair, and in this case, the bankruptcy judge agreed.

So how in the world is this controversial and appeal-able?  All I can hope is that an appeal would go nowhere and that justice will actually be served, although we all know that there WILL likely be an appeal that goes nowhere and that only the lawyers will be served with fabulous fees.

What I’m curious to know is that since we both put in $1 million, what if there is only 50 cents on the dollar in assets remaining now for distribution?  That would mean I’m only going to get $500K of my money back and YOU got your entire amount and are oddly ticked off.  Further common sense to me would dictate that the court should rule that you have to produce $500K of the money you withdrew to compensate me for this unfairness.  Now there’s an appeal I could live with.

It is 7:30 p.m. on Thursday, February 25th as I write this.  And here is the headline I just saw break out of Japan (where it is already tomorrow morning):

Feb. 26 (Bloomberg) — Japan’s consumer prices fell for a 12th month in January, putting renewed pressure on policy makers to eradicate deflation that hampers the recovery.

I took plenty of grief over my newsletter last month, which was glowingly titled “The Doomsday Scenario”, but I would hope that MANY of you would vouch for the fact that I have been making allusions for YEARS that we are hurtling down the exact same road Japan has been traveling for 20 years already.

I’ll give you a Cliff Notes version of things that should strike you as familiar:

–Stock market bubble bursts

–Real estate bubble bursts next

–Consumers go into a spending funk as their jobs and financial futures suddenly become worrisome

–In an effort to stimulate the economy and help troubled banks, the central bank drops their lending rate to 0% and prints tremendous amounts of currency to hopefully spark some inflation

–When the consumers do not respond, the government begins issuing massive amounts of debt to finance public works/stimulus projects

–Ultimately the government has issued so much debt that the total amount is larger than the country’s GDP.  Rating agencies rate the country’s sovereign debt as “junk”

–The lending rate from the central bank stays at effectively 0% for a decade yet there is rampant deflation and a landscape filled with zombie banks

Lots of you will think I’m painting a futuristic picture of America’s trajectory, yet all I’ve done is tell Japan’s history from 1990 until an hour ago.  So if a lot of the bullet items seem familiar, there’s a damn good reason why.  And I can promise you one thing that Ben Bernanke, Alan Greenspan, Paul Volker, Tim Geithner, Larry Summers and I might actually agree on:

Deflation = Death Spiral

So I can most certainly promise you that I’m not wishing for a deflationary cycle in this country at all.  I’m simply dreading one.  And when all the talking head stooges on television are agreeing that the only possible future for our economy is an inflationary one, you can almost be completely assured that they are wrong.

And my work on insurance company annual statements is going well enough that a global media outlet wants to work with me to actually break the story.  The dollar amounts involved might even merit using the word “Scandal”.

I have to admit that I’m smugly pleased at what I think is a clever title for this post.  The subject matter is somewhat arcane and did a decent job hinting toward what’s to come.  First let me say that I am hard at work writing my February newsletter and I expect it to be sent out to subscribers on Monday.  It was that writing, which took me into this diversion.

To set up the situation here, I was commissioned for a consulting project with a large insurance company last year (I’ve done many such engagements over the years) and part of my work was a review of the financials of many of their direct competitors.  While it is not something I feel particular pride about, it is true that I am among the world’s leading authorities on what an insurance company’s statutory (what they file with insurance regulators) and GAAP (what they report to everyone else) financial statements are supposed to look like.  Many of you who read my blog and newsletter know too well that as an insurance company, one of the most horrifying things you can do if you’re an insurance company is hand me your annual statement along with a red pen, highlighter and Post-It Notes.  Because it is likely that I will be handing back your worst nightmare come true with regard to the errors (and worse) I have found.  I’m not sure where I became “Rain Man” for this kind of thing, but it’s a peculiar skill set that has helped many of my consulting clients avoid intense scrutiny and trouble from regulators, auditors or investors.

In my somewhat cursory review of my client’s competitor statements I was very surprised at the sheer volume of errors, misrepresentations, miscategorizations and a general aggressiveness in more of these annual reports than I would have ever expected.  Mind you, I was not AT ALL looking through these financials in any effort to “grade” them but I found it very striking nonetheless.  Here is where the story becomes interesting….

A couple of the companies where I found fairly substantial problems were “friends” of mine (I have a very mafia-like definition of the term “friend”, meaning that if you’ve paid me enough money over the years I don’t abandon you when you need my help) so I reached out to some senior people at these organizations.  I wanted to give them a little bit of a heads up prior to their 2010 statements reaching the point of critical mass where changes cannot be made in any practical way were I to find anything “material”.  Admittedly, I wasn’t going to do a thorough, line-by-line type of review just for the fun of it, so I suppose I was indeed angling for them to hire me to help them fix these problems.  Much to my surprise I was largely ignored and not one of these “friends” even inquired deeply enough to make me think they were concerned in even a minor way.

Thinking that I still might be on to something with my discoveries I dropped personal letters (not emails…letters) to the CFO’s of my non-friend companies to make them aware of who I am and of the issues I’d discovered in their financials.  Once more I was met with silence.

Over the years I have made many, many, assertions, accusations and worse about mispricings, misrepresentations, misstatements, and borderline illegal activities within the financial markets and among large institutional investors.  Never have I actually called a specific institution in on the carpet for a public disemboweling, but that all changes right after March 15th.

The large investment and commercial banks are fortunate thanks to the fact that they are not required to report ALL their investments in a public format, where they list each and every position they hold along with the price paid, current market value and ratings.  Insurance companies are not so lucky.  On March 15th of every year they are required to file a statutory annual statement with the insurance commissioner of every state in which they conduct business as well as the NAIC (the National Association of Insurance Commissioners).  Within this statement is a listing for every single investment they hold: real estate, mortgage, limited partnership, bond, mortgage or asset backed security, stock, short term and derivative.  They must also calculate their Risk Based Capital position, which gives regulators a sense for how risky of an enterprise each company is based on their product line and investment portfolio.  On top of that, life insurance companies are also required to set aside reserves to protect policy holders from the company making poor investment decisions.  These are publicly available documents and in the near future I will be walking you through the pages of some of them to show some of the most egregious behaviors I have found.  I will be making you aware of the senior management people whose signatures endorsed the statements in the front of the book along with any auditors, rating agencies or others I feel should have identified the errors prior to filing the statements with government agencies.  I may also move on to pension funds.

So that’s my fair warning.

I really don’t intend this to be mean spirited, but if you’re a U.S. insurance company and have taken an aggressive approach in how you report your investment holdings in an effort to mislead people and put the economy at peril, you can expect to have your financials dissected in an extremely public way.  I’m also currently discussing sharing ALL my detailed work with two internationally respected media outlets that have expressed an interest in covering this story.

I’m going to start with a very large life insurance company, but plan to identify companies of all business lines and sizes so no one feels left out. 

My most recent newsletter has caused a flood of emails on a host of different issues.  The most obvious controversial topics were my suggestion that deflation is still a serious prospect for the U.S., my suggestion that the Dow Jones Industrials might someday soon begin with the number 4 and finally the prospect that the Federal Reserve may be responsible for the massive rally in the U.S. stock market.

I recieved the below email a couple of days ago and the person who wrote me managed to weave all three issues into their concise note:

Mike-
 
I’m a financial planner in (State name removed).  I really enjoy your blogs, although I feel my mind always wanting to “not want to believe it” which fits right into the prevailing mood of the marketplace as you describe it.  I’m not a trained economist, but I shudder to think of what would happen to the equity markets if a Glenn Beck got wind that the Fed was artificially inflating the stock market with its printed up monopoly money.  There is already a huge distrust and uncertainty among everyday Americans.  If there was a “run” on Wall Street similar to the “run” on banks during the Great Depression, I can’t imagine the fallout.  I’m presuming that is the premise of your Dow four-handle, but for us simpletons out here in the sticks it might be good to have you expand on how you think that could play out.  Just out of curiosity, have you heard from anyone in the political sphere since posting the blog?  Also, I’m curious about why the 10-yr. treasury was one of your possible recommendations; won’t that get killed in a higher-rate, inflationary environment.  My feeble understanding is that we are going to be like a group of people locked in a room where one person has a candy bar and the other nine have $1 each, and then the Fed is going to drop in several $100 bills and the things that have any intrinsic value are going to appreciate.  Ok, lousy example, but the idea is that the money supply / velocity of money will pick up in the next decade- to me it’s the only feasible possibility with the American mindset (both politicians and beneficiaries) will go along with.  Your feedback is greatly appreciated.
  
Thanks again,
 
(Name removed)

Let me me give some concise and perhaps inelegant explanations for my feelings that inflation is not as big a worry to me as it seems to be for everyone else and why I think the Dow is going to the 4,000’s.

First, the Dow prediction is not at all scientific.  I have argued for many years now that we have been traveling down an extremely familiar road to me since I have watched the Japanese for the previous 20 years and I know how this story ends.

Here are some facts for you to quickly consider:

–The Nikkei 225 Index reached 38,957 on December 29, 1989

–The Nikkei 225 Index reached 7,603 on April 28, 2003

–The was a total of an 80.5% decline from top to bottom and it took 4 years to acheive.

–As of this morning, the Nikkei stands at 10,092, which is 74% below its peak over 20 years ago.

Now make this application to the U.S. markets:

–The Dow Jones Industrials peaked on October 11, 2007 at 14,279.

–80.5% of 14,279 is 11,494 points.

–If the U.S. were to suffer the identical drop as Japan (which is statistically improbable) the Dow would stand at 2,785.

–If the timing of this drop was identical to Japan’s (41 months), this drop in the Dow would occur by March of 2011.

Now of course I am not predicting the Dow is going below 3,000 in the next 13 months, but I am simply making the case that Americans should stop the arrogance that causes them to dismiss the possibility it COULD happen.  Japan is not some Banana Republic/Third World country, but is still the 2nd largest industrial economy in the world…and it happened to them.  With all that we have endured during the past two years are we really so foolish to think it couldn’t happen to us too?  Gosh, I hope not.

So my “prediction” of a Dow Jones in the 4,000’s is actually giving myself a lot of room for error actually.

The prediction of possible deflation is also tied to the correlation to Japan.  For the past 20 years Japan has been issuing MASSIVE amounts of government debt and their short term interest rates near zero.  And do you know what happened?

Severe deflation.  Deflation that has even been accelerating in recent quarters.

I’ll finish by pointing out something all of you should already know. 

Whenever EVERYONE is in agreement that something is absolutely going to happen (I think you’ll notice an almost universal consensus among investors and economists about inevitable inflation) than you can almost be guaranteed that it’s never going to happen.

“Life is what happens when you’re busy making plans.” – John Lennon

As all of you probably have noticed, the U.S. stock market has jumped up this morning on what appear to be a couple of positive stories.  Oddly, both stories didn’t strike me as particularly wonderful, but we are all aware of the fact that the stock market needs no true reason to do anything.  In this case however, I ask you to consider some simple and quick points.

One story that seemed positive was Caterpillar stock receiving an upgrade with Morgan Stanley raised its rating on the industrial sector to “attractive” from “in-line”.  While this was certainly a nice thing to hear if you are an investor in Caterpillar, it immediately struck me odd.  I fully admit that I do not follow Caterpillar whatsoever and know literally nothing about their balance sheet.  However, I do know that the company relies heavily upon exports and as the dollar strengthens it will become increasingly difficult for Caterpillar to keep their pricing competitive around the globe and maintain profit margins.  But this story didn’t honestly bother me very much.

The story I found VERY troubling was the reports that there might be something in the works to bail out Greece.  Not that I have any problem bailing out Greece or anyone (unless it were to somehow involve U.S. tax payers, but that would be the final straw for many, many Americans) but it was the below quotation I got from a news story that bugged me:

“Rumors are swirling that (the European Union) is going to cause the Greek debt holders to take a haircut on some of their prices and shore up Greece,” said Jeffrey Saut, Raymond James Financial chief investment strategist in St. Petersburg, Florida.

You may notice there was no mention of Greece getting its fiscal house in order.  The bailout will effectively be the poor investors who were foolish enough to lend the country money who will be asked to take the hickey and eat their losses.

The reason I titled this post “Our New Perverse and Inconsistent World” is simply because it is starting to appear as if the whole world is off its rocker at this point.  Consider the events of the past 24 months and notice how there is no disernable pattern that can be counted on.

–Bear Stearns is bailed out in a deal brokered by the Treasury and Federal Reserve (with the Federal Reserve financing 95% of the purchase price at effectively 0%) and Lehman Brothers is let go.

–General Motors and Chrysler senior creditors are thrown under the bus with even the unions being moved ahead of them in line and suffering staggering losses (and the president of the United States calling them out in a live press conference, referring to them as “greedy speculators”) while AIG creditors, who include the world’s largest financial institutions get 100 cents on the dollar paid by U.S. taxpayers.

–Every politician in Washington D.C. has spoken that the economic disaster was caused by too much debt and that we need reform while at the same time planning to increase the government’s debt by double over a ten year period.

–And now Greece, Spain, Portugal and whomever else you’d like to name…who have managed their finances badly and put their countries at peril will somehow be magically saved if the investors who lent them all money get screwed and are forced to accept losses.  How lovely.

So I’ll leave it there.  I can only wonder when someone…homeowners, corporations, municipalities, sovereign governments or anyone is going to FINALLY have to live with the consequences of their actions.  Or will there always be a bailout for them with the people who enabled them stuck holding the bag at the end?  Stay tuned.

I’m sorry I couldn’t make the title of this blog post more descriptive, but I’ve received multiple emails about my theory that it might have been the Federal Reserve using their Open Market Trading Operation to drive up U.S. equities from March of 2009 through January of 2010.

To save me going over the information I laid out in my January newsletter, please visit this link to refresh your memory:

http://afs-seminars.com/newsletter_Jan_2010.html

Here is the Cliff Notes version of my research of the time period between March 9th, 2009 and January 7th, 2010 (which is the time period of all the increase in the U.S. stock market):

–80% of all the market gains occurred on just 30 Mondays.
–70% of all Mondays during that time period were “up” days.
–Most recently, in the 18 Mondays immediately prior to January 7th, 16 were “up” days, or 89%.
–Literally almost ALL of the gains actually occurred during the overnight futures trading sessions and no gains occurred during daytime U.S. trading hours.

My general contention is that it is quite odd from a market and statistical point of view that this would occur and I speculated as to any entity that might have the ability to cause this, and there was only one possible culprit: The Federal Reserve.

The questions that I’ve been receiving via email since my January newsletter went out allege that perhaps I conveniently left out what occured on the Fridays that proceeded the Mondays.  The thesis is that maybe traders were simply closing out their positions on Friday (meaning they would sell out and move to cash prior to the weekend) and perhaps the markets were generally down on Fridays and that would cause the phenomenon I uncovered on those Mondays.

But consider this:

–There were 40 Fridays during this time period.

–Of those the market was up 23 of those Fridays and down on 17.

–Overall the market increased several hundred net points during those 40 Fridays.

–So basically 57.5% of the Fridays were up days and 42.5% were down days.

These findings can only lead to the conclusion that the statistics relating to the following Mondays is that the Monday action is unrelated to any Friday sell-offs.

On an administrative note, I recently found out that when we updated the blog software that we disabled all you users who had registered and used to participate (much to my enjoyment) by commenting on the blog.  PLEASE drop me a note and I will send you your new user name and password if it wasn’t sent to you automatically.

mike@afs-seminars.com

I love reading your comments more than I like reading my own.

This is what I heard throughout the market declines of yesterday, as many blamed the slide on the worries that perhaps Greece, Portugal or Spain may be at risk of default.  The parade of pundits on television tried their best to assess the situation and how important, or unimportant, a credit crisis in one of these countries would actually be to the global economy.  As I listened I was at first amazed at how dismissive many of these talking heads were of the situation.  The comments were fairly striking:

“It’s only Greece.”

“The Greek economy is about the same size as Mississippi.”

“Portugal represents only about 6% of the Euro zone.”

“It’s really unlikely we’ll actually see any defaults from these countries.”

These sorts of comments continued throughout the day and slowly but surely I began to think that I had watched this movie before.  As Yogi Berra would say, it was “deja vu all over again”.

Maybe you remember some of the commentary about the looming subprime crisis from about two years ago and how unimportant it would be to the overall economy:

“The subprime market represents an extremely small component of the mortgage market.”

“The likelihood of a substantial decline in real estate prices is very small.”

“Lehman Brothers is just one company.”

“There is little chance that foreclosures will increase in the prime mortgage markets.  The subprime situation is contained.”

I wrote an entire newsletter a couple of years ago titled “And The Band Played On”, referencing the Titantic and my attempted association was how so many people at the time were dismissing ominous economic warning signs about an oncoming crisis.  I think Greece, Portugal and Spain will all prove to be pretty important.  When California begins to teter on the verge of default, I think that will be important too.

My argument is that they’re doing it again.  Dismissing important signs that there may very well be serious trouble brewing in the global economy.  No less of a moron than Jim Cramer was on the Today Show this morning claiming that this whole situation is no big deal and that everything will be fine so we should be plowing our money into the stock market with both hands.  I (and common sense) would argue that this might be a moment in history that might be better watched with your money on the sidelines.

Sort of in the same vein, I had a wonderful email from a faculty member from Emory University the other day in response to my recent newsletter.  It displayed an elegantly efficient use of words:

“i don’t need mail from nutcases.”

You also have to appreciate the text message feel of the email also.  But nonetheless, although I’ve developed a fairly thick skin by now, I still felt compelled to inquire about the harshness of the “nutcase” comment, so I replied back to ask.

Wow, XYZ.

Nutcases??  Somewhat harsh, no?  And spoken by someone obviously associated with the wonderful business school at Emory University.  One might have thought you would have considered my somewhat carefully laid out case for the three possible outcomes.

Nonetheless, this nutcase will see to it personally that you’re removed.

Best of luck on the feedback you receive on your published works.

Cheers!

Mike Gasior

As I expected, I received a response that I found somewhat more disconcerting than the original 6 word email:

hey mike, sorry you are offended.  the “nutcase” comment was a result of my googling your name and reading about your views and activities, and not solely based on the specific message you sent me that espouses fringe political views.  surely you understand that thinking people won’t necessarily agree with you about the source of the problem or the best solution.  i could perhaps have been more circumspect.

still, i do appreciate being removed from your list.

thanks

At least the lack of capitalization remained consistent, but I was taken aback at the comment about my “fringe political veiws” and how “thinking people” won’t necessarily agree with me.  It made me wonder if this is the sort of attitude that had infected Washington D.C. in recent years.  This disconnect between an agenda they believe in and the undeniable numbers that clearly show the agenda will be fiscal suicide.  Truthfully, I have seldom espoused any political views whatsoever and I have made my general disdain for politicians of all ilk extremely clear for many years. 

So even with this professor’s clear dislike of me I pushed on with one more email to see if they could explain what the “thinking people” were thinking:

Well, since you’ve now engaged me XYZ, and I will assume you consider yourself amongst the “thinking people” you reference, I would be very curious to hear where you think the source of the problem is and what the solution  might be.

My degree in economics and Masters in Finance are now nearly 30 years old and I have spent my entire adult lifetime working in the finance industry, but I never claim to have a monopoly on ideas.  And quite frankly, I’m pretty sure I didn’t make a single political comment in the newsletter that began this dialogue between us.

If you suspect me of being a fringe political “nutcase”, I encourage you to read my newsletter of September 2008, which predated President Obama’s election by several months.  It will quickly show I’ve been fairly dissatisfied with the workings of our elected officials for quite a long time in matters regarding the direction of the economy.

Here’s the link to it if you’d like:

http://afs-seminars.com/newsletter_Sep_2008.html

You are correct that I do have plenty of opinions, but I also try to bring my facts with me to explain my view and don’t just resort to abrupt name calling.

I’d love to hear what the “thinking people” thing will right our economic trajectory and the reasons that make you think these ideas have more merit.

Thanks again for writing.  Always good to hear from my friends at Emory.

Cheers!

Mike Gasior

Silence.  Fade to black…..