Thursday, April 29, 2010

Defending Goldman

Tuesday's spectacle in Congress with Senator Carl Levin's (D-Mi) committee grilling executives of Goldman, Sachs over their and the firm's activities in the mortgage markets was a perfect reminder of Churchill's view that "Democracy is the worst form of government, except for every other."

Some observations:

1. The senior executives defended themselves valiantly, the junior ones which were the four that appeared first, did less well, appearing more often than not, evasive. Now Monk should opine on this as this is his practice but certainly the entire group seemed a bit over overbriefed and instructed to be too careful by their attorneys. This was rather obvious when CFO David Viniar refused to opine on matters on which he was clearly an expert. I suppose the Goldman counsel have instructed that a battle with Congress cannot be won and therefore should not be fought and they'll try to win the case in court or settle without guilt. And I suppose a modest victory was that none of the Goldman employees or ex-employees gave the committee or Carl Levin the damning soundbite they so desperately wanted.

2. Without intimate familiarity with the details this case seems flimsy as you have sophisticated investors, an independent agency, ACA and there was give and take as to what securities should be included or excluded in the package. In any case the 3-2 decision by the commissioners suggest heavily that this charge was strongly politically motivated and came at a most fortuitous time coinciding with the financial regulation bill.

3. As having been involved intimately in the markets, barring the occurrence of actual fraud, the allegations and insinuations of Levin's committee is pure political pandering - and that goes for both sides of the aisle.

- "Betting against your clients": As Blankfein argued but to little avail since most senators and Americans have little idea what a market-maker is, if the client buys from Goldman, Goldman is necessarily short or less long in the case that they actually have the inventory. He's also absolutely right that the clients have no right to know what Goldman's overall position is or that it is relevant at all. Now Goldman employs some of the smartest folks in the room but who aren't always right. They famously called a super-spike in crude oil to $200 a barrel. It got to $147 before crashing to $32.

- "Goldman knew the market was going down and still continued to sell this crap." This is just arrant stupidity- with the benefit of hindsight Goldman was right. I am not sure why no one thought to use the following example: In 1999 and early 2000 a lot of real smart folks thought the NASDAQ was stupidly overvalued at 4,000 and that it was ready for a fall. They were entirely right. Many of them also bet that way and were carried out feet first as the NASDAQ hit 5,000 before crumbling below 2000. For those of us in the money business, you must not only have the direction right BUT YOUR TIMING HAS TO BE CORRECT. Do we propose then that everyone who sold NASDAQ stocks (check a favorite of the time called CMGI) or led an IPO when they were uncertain of the future of the market was guilty?

- What makes a market, any market, is a difference of opinion and/or the market position of the participants. Why would a seller sell any product at a given price?
a. he thinks it will go lower before it goes higher
b. he can replace the item he sold more cheaply
c. he is naturally long inventory which decays (someone who sells eggs, or options)
The buyer has the converse view. So with sophisticated investors who invest in these products not only can the view be different on direction but it can often be in timing.

Anyone who is the business of selling any financial product needs to be rooting hard for Goldman to prevail- otherwise anything that you sell that drops in value will open you to charges of fraud. And if the SEC prevails one shudders to think how many other lawsuits will hit the docket (or are already on the way).

4. Many of those emails cited were unfortunate in their use of language. But if you are a Goldman or any bank employee and you think a market is going down and there are willing buyers your fiduciary duty to the firm and your shareholders is to sell. In this regard they are not investment advisers and have no duty to the other side of the transaction.

Monday, April 05, 2010

The Monk's big a-- theory of basketball success

Nineteen years ago, The Monk formulated his big a-- theory of college basketball. The theory is basically, if a skinny forward/center matches up with a heavy forward/center of equal or near-equal basketball ability (shooting, post moves, ability to create a shot), take the beef over the string bean.

The Monk formulated his theory while watching the Burge twins in the 1991 national title game have their hats handed to them by the shorter but wider frontcourt players on Tennessee. The Burges were a media sensation in Virginia because they were 6-5 and one was a legitimately good player (Heather) while the other was a decent rebounder who could use her height to advantage (Heidi). With their height, shot blocking and rebounding, Virginia now had inside players who caused matchup trouble for opponents in addition to the great Dawn Staley and her backcourt partner Tammi Reiss. The Tennessee women beat the Burges to a pulp and dominated inside to key the UT 70-67 win.

That theory works in men's college basketball too -- Len Elmore always says he hated playing against the bulky forwards who pushed into his chest to get their shots. Elmore was a beanpole power forward for Maryland in the '70s, a top shot blocker, and one of the best players in the country. More proof: watch the 2003 NCAA title game as Hakim Warrick gets pummeled by Nick Collison and Jeff Graves; watch the 2009 battles between Pitt and UConn as 6-foot-7 DeJuan Blair beats on 7-foot-2 Hasheem Thabeet. The theory does not work in the NBA because defenses are not allowed to collapse on the ball as much as in college so the skinny guy has room to maneuver in the post.

The theory proved out last night once again as Tina Charles completely outclassed 6-foot-8 twig Britney Griner in UConn's win over Baylor. Charles scored 21 points, hit 9 of 17 shots, pulled 13 rebounds and showed why she and forward Maya Moore (14-26, 34 points, 12 reb), her teammate, are sharing player of the year awards. Griner (5-13, 13 points, 6 rebounds) had no answer.

Thursday, April 01, 2010

Wishful predicting? It's baseball season.

Last year, before the baseball season started, Buster Olney picked the Rays and Sawx to go to the playoffs and the Yanks to sit in 3rd in the AL East again. This pick came after the Yanks signed Sabathia, Burnett and Teixeira. The pick was stupid.

This year, Olney picks the Rockies over the Yanks because he says Tulowitzki will shine in the Series. That's called "projecting."

Similarly, the Great Tom Verducci thinks the Twins will win the AL and SI's official magazine pick is for the Rays to beat the Yanks in the ALCS. This is also called projecting.

Ultimately, the fact is that there are two big favorites in baseball -- the Yanks and the Phils. In the NL, only the Rocks have a chance of beating the Phils in the playoffs. In the AL, the Yanks' path is tougher because the Angels and RedSux are possible opponents. Seriously, do you think that:

(1) St. Louis has overcome its lack of offense and improved by overpaying for Brad Penny after losing Piniero to free agency;

(2) the full season upgrade of Halliday over 1/2-season of Lee won't add to the Phils' win totals and stabilize the team;

(3) the impact of Halliday (whose excellent work habits are well-known) on the Phils' pitching staff will be minimal to nonexistent;


(5) J.A. Happ will fall off;

(6) the Rockies will have a bullpen that can withstand the Phillies or a rotation that can go head-to-head with a fully healthy one-two of Halliday and Hamels;

(7) the Brewers, Dodgers, and Giants will have enough pitching/starting pitching/hitting to challenge the top title contenders;

(8) the Braves will grow up instantly?

The Phils should win the NL because they have both an AL quality lineup and a top-end set of starting pitchers. If Lidge uncouples from his suck-infuser-machine, they'll have a top bullpen too.

Best of the rest: Rocks, Cards, Braves, Giants (WC), Brewhahas, Fishies, Reds.

In the AL, the Mariners were the talk of the off-season because they signed Cliff Lee and Chone Figgins and upgraded their already very good defense. They want to prevent runs and win with Lee, Felix Hernandez and a deep bullpen. Won't work. In 2008, the Yankees allowed 29 fewer runs than they did in 2009 and less than they had in any year since 2003 and finished with fewer than 90 wins for the first time in eight years. It's the AL, you need to be able to score.

And the teams to make the AL playoffs in 2010 should be nearly identical to the 2009 entrants, with the WhiteSax overtaking the Twins if Peavy can stay healthy -- that's not an "omigawsh, the Twins lost Joe Nathan and the sky is falling" reaction, it's a belief that Danks-Floyd-Buerhle-Peavy is as good a four-man crew as any in the league. The Angels will be harder pressed to win, but their manager is better than the Rangers' manager and that counts for a few games in a close race. The RedSax will lose some pop, but have good pitching and a better defense (Cameron, Beltre). The Yanks won 103 games with only three pitchers competent enough to start in the postseason, and they added innings-eater Javy Vazquez (an ace on most other staffs) and got younger and defensively better in the outfield (Granderson replacing Damon) and catcher (Cervelli to replace Jose Molina and catch 45 games, which means a better defensive catcher than Posada playing more often).

I'm still skeptical about the Rays. Last year they lost 8 of 10 to the Yanks in the middle of the season when the Rays had a chance to make a run at (a) reversing a bad start and (b) challenging for the wild card. Their top pitchers (Garza, Shields, Niemann) were all healthy and pitched full seasons. Zobrist and Bartlett had career years to help offset Upton's season of crap, and they won just 84. Can they compete? Sure. Can they compete for the next six months at the level of the Yankees and RedSawx if all three teams stay reasonably healthy? Unlikely.

AL's playoff challengers: Yanks, Sawx, Angels, Chisox, Twins, Rays, Rangers. Everyone else -- it's a year to grow on.

Political blogging -- where's ours?

There have been few political posts of note here recently for various reasons.

First, Wongdoer has taken to earning every cent I pay him instead of happily being underpaid.

Second, my time to blog is limited because I have to go as full bore as possible at work to get my hours. My home time consists of chasing Monkling 1.0 around, eating dinner, some bonding with Monkling 2.0, sleep. I've been told that the woman who feeds Monkling 2.0 all the time is my wife, but I only have a vague recollection of who she is.

Third, the political situation is depressing. Obama is just as bad, if not worse, than I expected in nearly all phases of his policies (DAD -- I EFFING TOLD YOU SO). This week's Weekly Standard has covered the field on this issue, and the best summary is probably here and this post from Walter Russell Mead provides excellent details about the disaster that is Obama foreign policy. Obama's foreign policy has been a disaster from day one: insulting and belittling the Brits, supporting Chavista clones in Honduras over the country's constitutional mandates, and treating Israel like an unruly cur. And we have, at minimum, nearly three more years of this to suffer. EGADS.

NCAA Tourney notes

Some quick Tournament notes as we go to the Final Four.

First, as bad as the Big East did this year, with Syracuse, Villanova, Pitt, Georgetown, Notre Dame and Marquette all underperforming their seedings by a combined nine rounds, this is just the second time since the 1985 Tournament that the Big East has had a team in the Final Four in consecutive years (2003-2004, SU and UConn won the national title).

Despite both its prominence and its proliferation of top 4 seedings since 1985, the Big East has only had 11 Final Four teams and no team from the Big East has reached consecutive Final Fours in the last 25 years. In the last 25 years, Duke has reached 11 Final Fours, North Carolina has made nine, Kansas and Michigan State have reached six.

Second, Duke's drought of five straight non-Final Four seasons was the longest since the start of Coach K's coaching stint at Duke. As I noted earlier, Duke has lost to a lower seed in each of the last five Tournaments, including a couple of real flops. In 2006, Florida had not reached a Final Four in six years, had lost to a lower seed in five consecutive Tourneys (with far worse choke jobs than Duke) and rolled to a title. That title cleared the choker label off of the Gators and a similar finish by Duke would curb Coach K's critics who say he hasn't recruited the talent level he needs to win a title (I've said that myself).

Third, I'm not cheering for the Big East entrant. I don't like Huggins, and never have. He's a class A SOB and I agree with Rick Reilly's reasoning. I'm actually cheering for a Michigan State-Duke final because the best coaches should be matching wits next Monday.