In Search of the Perfect Investment

Australia dropped its interest rates. It’s exporting less (China is weakening) and importing more. The Aussie dollar has dropped 10% in recent months.

Today the New York Times carries a front page story headed “Europe’s Fade Becomes Drag on Sales for U.S. Companies.”  The article begins:

As the European crisis intensifies, a growing number of companies in the United States are warning investors that sales in the region are slowing and could get much worse.

In the technology industry, one of the most exposed to Europe and an engine of the American recovery, Cisco, Dell and NetApp have all recently pointed to unexpected weakness in European sales. Other areas with major exposure to the Continent, including automakers and industrial companies, are beginning to voice similar cautions.

You can read the rest here.

My list of shorts, expanding as ever:

Best Buy (BBY)
BHP
Caterpillar (CAT)
Cisco (CSCO)
Deckers (DECK)
Dell (DELL)
Eaton Vance (EV)
Exxon Mobil (XOM)
Facebook (FB)
First Solar (FSLR)
Gold (SGOL or GLD)
Green Mountain (GMCR)
Fossil (FOSL)
GameStop (GME)
Goldman Sachs (GS)
IBM
JC Penney (JCP)
Joy Global (JOY)
JPMorgan (JPM)
Morgan Stanley (MS)
Patriot Coal (PCX)
RadioShack (RSH)
Research In Motion (RIMM)
SanDisk (SNDK)
Starbucks (SBUX)
Supervalu (SVU)
Terex  (TEX)

Business Insider has a piece this morning called “15 Stocks That Traders Are Shorting Like Crazy”. Do not sell  heavily-shorted stocks. You could easily be caught in a short squeeze. ” Click here.

Politics intrudes into business. Many of us voted for Obama for many reasons, among them to reign in some of the finance industry’s gross excesses and perhaps prevent another pricey 2008 meltdown. Sadly, it never happened. That means we’re stuck with gambling banks (no Volcker Rule, no prosecutions for while collar crime – see below), higher bank fees (to make up for the gambling losses), limited access to loans and the likelihood of you and I paying for another bailout in coming years.

To my mind, all our banks are now cockroaches. I expect more JPMorgan type trading-disaster news in coming years. There’s no holding these traders” back. It’s perfect storm. Gamble. Win a few bets. Take home huge bonuses. Let the consequences run to the following calendar year. Have you heard about a big bank clawing back its bonuses to traders? No, neither have I.

Read this piece from Saturday’s New York Times. Irony of ironies: Bush was much tougher on corporate crooks than Obama, who has done basically nothing. It’s amazing:

The Mortgage Fraud Fraud by Joe Nocera

I got an e-mail the other day from Richard Engle telling me that his son Charlie would be getting out of prison this month. I was happy to hear it.

Charlie’s ordeal isn’t over yet, of course. When he leaves prison on June 20, Charlie, 49, will move temporarily to a halfway house, after which he will be on probation for another five years. And unless he can get the verdict overturned, he will have to spend the rest of his life with a felony on his record.

Perhaps you remember Charlie Engle. I wrote about him not long after he entered a minimum-security facility in Beaver, W.Va., 16 months ago. He’s the poor guy who went to jail for lying on a liar loan during the housing bubble.

There were two things about Charlie’s prosecution that really bothered me. First, he’d clearly been targeted by an agent of the Internal Revenue Service who seemed offended that Charlie was an ultramarathoner without a steady day job. The I.R.S. conducted “Dumpster dives” into his garbage and put a wire on a female undercover agent hoping to find some dirt on him. Unable to unearth any wrongdoing on his tax returns, the I.R.S. discovered he had taken out several subprime mortgages that didn’t require income verification. His income on one of them was wildly inflated. They don’t call them liar loans for nothing.

Charlie has always insisted that he never filled out the loan document – his mortgage broker did it, and he was actually a victim of mortgage fraud. (The broker later pleaded guilty to another mortgage fraud.) Indeed, according to a recent court filing by Charlie’s lawyer, the government failed to turn over exculpatory evidence that could have helped Charlie prove his innocence. For whatever inexplicable reason, prosecutors really wanted to nail Charlie Engle. And they did.

Second, though, it seemed incredible to me that with all the fraud that took place during the housing bubble, the Justice Department was focusing not on the banks that had issued the fraudulent loans, but rather on those who had taken out the loans, which invariably went sour when housing prices fell.

As I would later learn, Charlie Engle was no aberration. The current meme – argued most recently by Charles Ferguson, in his new book “Predator Nation” – is that not a single top executive at any of the firms that nearly brought down the financial system has spent so much as a day in jail. And that is true enough.

But what is also true, and which is every bit as corrosive to our belief in the rule of law, is that the Justice Department has instead taken after the smallest of small fry – and then trumpeted those prosecutions as proof of how tough it is on mortgage fraud. It is a shameful way for the government to act.

“These people thought they were pursuing the American dream,” says Mark Pennington, a lawyer in Des Moines who regularly defends home buyers being prosecuted by the local United States attorney. “Right here in Des Moines,” he said, “there was a big subprime outfit, Wells Fargo Financial. No one there has been prosecuted. They are only going after people who lost their homes after the bubble burst. It’s a scandal.”

The Justice Department has had a tough run recently. Last week, Eric Schneiderman, the New York attorney general – who was recently given a role by President Obama to investigate the mortgage-backed securities issued during the bubble – complained publicly that he wasn’t getting the resources he needed from the Justice Department. And, of course, on Thursday, a federal judge declared a mistrial on five charges of campaign finance fraud and conspiracy in the trial of the former presidential candidate John Edwards.

In the Edwards case, the Justice Department spent tens of millions of dollars, and trotted out novel legal theories, to prosecute a man who was essentially trying to keep people from discovering that he had had a mistress and an out-of-wedlock child. Salacious though it was, the case has zero public import. Yet this same Justice Department isn’t willing to use similar resources – and perhaps even trot out some novel legal theories – to go after the pervasive corporate wrongdoing that gave us the financial crisis and the Great Recession. (I should note that the Justice Department claims that it “will not hesitate” to prosecute any “institution where there is evidence of a crime.”)

Think back to the last time the federal government went after corporate crooks. It was after the Internet bubble. Jeffrey Skilling and Kenneth Lay of Enron were prosecuted and found guilty. Bernard Ebbers, the former chief executive of WorldCom, went to jail. Dennis Kozlowski of Tyco was prosecuted and given a lengthy prison sentence. Now recall which Justice Department prosecuted those men.

Amazing, isn’t it? George W. Bush has turned out to be tougher on corporate crooks than Barack Obama.

The French Tennis Open continues. It’s on ESPN2, The Tennis Channel and NBC.  This is the final week. Do not try and hit as hard as these guys. You’ll only hurt your shoulder. I am a  living example.

As Facebook collapses and collpases, this “joke” seems increasingly appropriate:

Saint Peter is sitting at the Pearly Gates when two  men wearing hoodies arrive. St. Peter  looks out through the Gates and says “Wait here. I will be right  back.”

St. Peter goes over to God’s chambers and tells him  who is waiting at the entrance. God asks Peter: “How many times do I have to  tell you, you can’t be judgmental about their attire? This is heaven. All are  loved. All are brothers.     Go back and let  them in!”

St. Peter goes back to Heaven’s entrance, looks  around, and lets out a heavy sigh. He  returns to God’s chambers and says “Well,  they’re gone.”

The guys wearing hoodies?” asks God.

“No. The Pearly  Gates.”

Aren’t you happy that I told you get shares on the IPO, sell them immedately and NOT buy any Facebook shares.

It”s now legal to short Facebook. It’s going lower.

Harry Newton who’s going to Ireland for a wedding in a couple of weeks. I can’t invite you to the wedding. But I can suggest that Europe is on sale. The Euro is down.  Everyone — from waiters to hotels, from restaurants to retail stores — are desperate for some good old Yankee dollars, especially ones in cash — paper money. Take wads of twenties, tens and ones.  Haggling works. Especially with hotels. Everyone will bargain. The listed price is only a beginning. You should start at 50% of the listed price. If it’s a hotel suite, start at 30%. I don’t make these numbers up. My friends are all going.