I detest those in our educational system who practice an agenda that does not put the interests of our children first, second, last, and always. Regrettably, results all too often show that our children suffer at the hands of pathetic people and process.

Call me harsh. I do not much care. Secondary education is clearly one of the most important issues in our nation and it is all about one group and none other. . . our children. Or at least it should be. 

For this very reason I was thrilled to see the presumptive Republican Presidential nominee Mitt Romney make a bold statement on this issue. Romney released this white paper, A Chance for Every Child, in which he states,

Giving students trapped in bad schools a genuine alternative requires four things: (1) such alternatives must exist, (2) parents must receive clear information about the performance of their current school and of the alternatives, (3) students must be allowed to move to a new school, and (4) students must bring funding with them.

To be fair, I have sung the praises of President Obama and Secretary of Education Arne Duncan for their “Race to the Top” initiative.

While having praised Obama on one hand, I have also denigrated him for pandering to the teachers unions on the other. In the process, Obama has shown himself to be like so many others in his party who have sold their soul and cast their lot with a crowd which has prioritized their own self-interest over those of our children. Playing politics with our children’s education is no way to run a country or prepare for the future. But that is the reality we have currently and have had for FAR TOO LONG.

THIS MUST CHANGE within our nation if we want future generations and our nation as a whole to have brighter days ahead.

Romney is right. Increased school choice in the form of charters and student vouchers must occur. Who really wants it? The parents of inner city children who are suffocating in school systems that have had their vitality sucked out of them as resources and funding are sopped up by the union.

I am not so blind as to think that ALL our problems in secondary education revolve around teachers unions BUT I think that is a VERY good place to start.

Remember, secondary education is ABOUT THE KIDS!!

For those interested in this topic, I welcome sharing the following:

Sense on Cents/Education, Charter Schools

Comments, questions, constructive criticism encouraged and appreciated.

Larry Doyle

ISN’T IT TIME to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook?

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

Those in the industry can point to the fact that selective disclosures during an IPO process are not illegal. That is a pathetic statement, but one which far too many will utilize to justify — or I should say, rationalize — horrendous business decisions. The WSJ alludes to this reality in writing, Some Big Firms Got Facebook Warning:

It is one of Wall Street’s best-kept secrets: Securities firms are allowed to selectively confer with favored large investing clients about crucial information as they prepare IPOs.

Wall Street firms, for their part, say they give certain information to big clients because the clients pay for this type of data. It is typical in an IPO for analysts or sales staff to give certain information to clients, they added. But that usually doesn’t apply to small investors.

If anybody was ever looking for evidence that Wall Street utilizes the caste system in dealing with clients, this Facebook underwriting is proof positive. 2300 pages of financial regulatory reform and they missed this? Can you say joke??!! But it is legal so it must be ok, right? Really? I don’t think so.

At any other time, such “selective disclosure” violates federal securities law, which requires companies and Wall Street firms to publicly disseminate any information that could move share prices. Securities law prevents analysts at banks that underwrite large IPOs from issuing research reports to the public until 40 days after the shares begin trading.

Some securities lawyers urge that new rules be put in place to prevent this uneven information flow. “Analysts should not be giving opinions about the IPO at the same time their firms are acting as underwriters. They should not be giving information that’s not in the prospectus to favored clients,” says securities lawyer Jacob Zamansky, who represents investors in securities cases. He isn’t involved in any Facebook cases.

Sharing material information with certain high profile clients only to let other customers and the “dumb money” individuals fend for themselves is quite a way to run a business.

“Dumb money” you say? Yep, dumb money, as referenced by the WSJ:

The lead underwriters, which include Morgan Stanley, Goldman Sachs Group Inc., and J.P. Morgan Chase & Co., set the best price based on demand they saw for the shares last Thursday night when the price was set, say people familiar with the matter.

In this case, some of the demand was coming from what on Wall Street is sometimes called the “dumb money”: individual investors looking for a piece of a company that many use every day to connect with friends and others. In low-profile IPOs, 10% to 15% of shares typically are allocated to individuals. In this case, individuals received roughly 25% of the IPO—big for such a high-profile deal.

I have no idea why individuals would want to play in an IPO that encompasses so much hype. That said, in regard to the “dumb money,” I would ask those on Morgan Stanley’s syndicate desk what they make of the fact that overall volumes across equity exchanges are down approximately 50% over the last three years. Did they factor that reality into their equation in determining just how deep their real book was for this Facebook underwriting?

With the Facebook stock down 16%, lawsuits pending, and the Morgan Stanley franchise value having just taken an enormous hit, I would ask James Gorman and team at Morgan Stanley, “Who is really the dumb money here?”

Navigate accordingly.

Larry Doyle

ISN’T IT TIME to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook?

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

But this story is passe and it is time to turn the page, correct? On to the 2012 campaign. The war on women. The debate over private equity. Who’s married to whom? Folks, those topics may be worthy of debate, BUT they are sideshows as the theft and destruction of our trust, integrity, and confidence continues.

Many situations and individuals have been party to the theft and destruction. In my opinion, though, no one situation and no one individual more than MF Global and Jon Corzine.

Let’s beat this drum again, and absorb the following from a Frontline documentary which aired last evening. I thank the regular reader who brought this to my attention:

“The system has failed us.”…”I mean, what’s the point. We may as well not have the regulator.”…”Nobody was going to look out for us.”

Financial regulatory reform?

Are you kidding me?

MF Global customers awake once again this morning wondering if and when they will get their money. Every day that goes by without those funds being repatriated to these customers is another day in which our political leaders and financial regulators fail all of us.

You will NOT need a second cup of coffee today after taking in this 20-minute clip which goes inside MF Global and lays out in spades THE classic case of Wall Street-Washington incest.

Watch Six Billion Dollar Bet on PBS. See more from FRONTLINE.

Watch Six Billion Dollar Bet on PBS. See more from FRONTLINE.

Feel like taking a shower?

Thoughts, questions, comments, constructive criticisms encouraged and appreciated.

Navigate accordingly.

Related Commentary: Sense on Cents/MF Global-Jon Corzine

Larry Doyle

ISN’T IT TIME to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook?

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

An IPO that is down 17% in the first three days of trading will generate a lot of focus.

Everybody loves Facebook. Reconnecting with old friends. Making new friends. The world has gotten very small and very fast with new modern technologies. Which of these capabilities has been more impactful than Facebook? All this said, questions abound about Facebook, including: 

1. Is a great product by necessity a great business?

2. How and when will Facebook develop a mobile application?

3. How will it monetize its traffic? Will it be able to charge for certain services? Will it be able to sell a sufficient number of ads to justify a valuation of anywhere close to $100 billion?

All great questions, but they do not hit on a question posed to me today for which I had no answer.

What if Facebook users, broadly speaking, were to block the ads posted on Facebook? I will admit I am a technical neophyte. I am lucky to navigate the basic highways and byways of sites like Facebook and many more. Block ads? I would not know where to start. Who does? Plenty of people and especially kids. A friend of mine shared the following with me earlier today:

“why is no one talking about what happens when everyone realizes there are ad blockers on Safari, Chrome etc that are free and take 1 minute to install….what happens to sites like Facebook and all ad supported sites when everyone starts blocking their ads?  my fifteen year old son and all of his friends block ads … what happens when we all do?

In speaking with somebody who studied the Facebook marketing materials extensively, he informed me that this topic was not broached at all.

I wonder what sort of block rate Facebook has built into its models and projections?

Will we look back and say Mark Zuckerberg just pulled the greatest coup of all time, or will Facebook generate cash flow which supports anything close to a $100 billion valuation?

Thoughts, comments, questions encouraged and appreciated.

Larry Doyle

ISN’T IT TIME to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook?

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

All eyes and ears are justifiably tuned in to developments in Greece, Spain, and throughout the EU. Will Greece leave the EU and precipitate runs on the bank in other European nations?  Let’s navigate and get the insights from industry insider, Michael Platt of Bluecrest Capital Management.

Platt has received significant attention in the marketplace recently as one of the traders on the other side of JP Morgan’s losing credit bet.  Having ‘harpooned’ JP Morgan’s London whale, Platt offers a wealth of valued perspectives on developments in Europe and on the situation at JP Morgan. He was interviewed recently on Bloomberg.  

On Europe’s crisis and whether the euro is a failed experiment:

“I think we need to look at the situation country by country. If you take the situation of Greece, in the opinion of the markets, Greece should have should never have been allowed into the euro in the first place. They have already defaulted on their debts. They nearly defaulted again on a whole currency bond last week. They are not in a position to pay their bills. They have a primary deficit still. They will continue to be excluded from the funding markets. I think at this point in time, as the market increasingly calls into credibility the Troika, they are continuing to put money into a situation which has clearly become hopeless. “

On why the Troika continues to put money in:

“Greece will never give it back. We’re got some pretty clear evidence that this is the case. They are not in a position to pay the money back. The situation in Greece has gone from mainstream politics to now communism being the likely dominant party at the next round. The communist party has promised chocolate cake with no calories to the population – they can stay in the euro but abandon the  program of austerity, which will not be the case. The market now is openly speculating that Greece will exit the euro. “

On when Greece will exit the euro:

“I think it revolves around what happens to the Greek banks. We have seeing a gradual movement of money out of Greek banks. The deposit base has reduced from about 240 billion euros to 140 billion euros. We saw the pace of that stepping up recently. The big worry would be a stampede out of Greek banks, which precipitates an earlier crisis while the country has no government. That could move that way. If we go to a world where there’s an election and Switzer gets a 30% share in the votes, and then forms a coalition, I think they will leave almost immediately. “

On the total financial impact of a Greek exit:

“I think the order of events would be Greece exits, shock wave across Europe, massive stress in banks, Spain turns into the battleground for the euro because of distresses in their own banking system, and then we either get a very swift and strong European solution or we get a hugely disorderly meltdown in Europe. “

On what a swift and orderly solution would look like:

“Let’s look at the problem. In Spain at the moment, the estimate of the amount of money required to take Spanish banks to a proper 10% tier 1 capital ratio is around 90 billion euros. There is no effective federal deposit insurance scheme in Spain. It used to be eight billion euros, now it’s at 300 million euros. It has forward losses of between 15 and 20 billion euros as a result of two caja deals. So the risk is that people focus on the Spanish banking sector and we witness strong outflows or runs out of Spanish banks.”

On whether Spanish banks are acknowledging their real estate positions:

“No, they are not. In a country with 24% unemployment, they have a 3% provision against their mortgage book…The mortgage book of Ireland has a 10% provision. What is going on in Spain is that 22% of Spanish mortgages have been reworked, half of them more than twice. In other words, there’s evidence that the banks have been evergreening loans.  In which case, 7% of it, you have to take another allowance of 7% to get it to Irish levels against 650 billion euros. That’s another 50 billion euros there. And the same is going on in the loans to small and medium enterprises.”

On who has enough money to backstop Europe from a disorderly meltdown:

“On the day that Greece leaves, in order to circumvent bank runs and market mayhem, there would need to be an enormous announcement from the EU, there are two things that could be effective. I think we can rule an enormous money printing operation by the ECB. But I think the announcement of a eurobond for Europe would be something that would buy an enormous amount of time. It would have to be massive. The problem is, issuing a eurobond, I do not see that a hasty and ill-conceived monetary union can be solved by a hasty and ill-conceived fiscal union. Governments would need to cede sovereignty over their domestic spending to a central European entity, and I just can’t see that happening.”

“ I think that there’s a misconception also in the markets that Germany can ultimately pay for everything. The truth is that the European area is an economy as big as the United States. And Germany is 78% smaller than the United States.”

On whether Germany would exit the euro if the country doesn’t have the money to support the rest of Europe:

“I think an elegant solution, and I know it’s not politically acceptable, will be for Germany to manage an exit for itself from the euro, control its currency versus the euro, and then the remaining euro region could then print money, buy bonds, and instantiate a Fed mandate for the ECB, which have a mandate to minimize the loss of the economy versus inflation and unemployment.”

On how he’s trading Europe right now:

“The problem is you can make a pretty sensible argument for almost any outcome in Europe. It could be a run on the banks very quickly. The Greeks could end up staying in for a little bit longer. They could vote to take themselves out. There could be a eurobond. The whole situation could be overtaken by events. We could have bank runs in Spain. We could have LTRO. We could have a concerted bond-buying action from the ECB. You can make a sensible argument for almost any outcome it’s in such a state of flux right now. I think that when you get into these sorts of situations, the first thing you want to do is you want to ensure that your money is in a place where you like the credit so that if there is a major banking problem you’re not going to lose money on credit…The reason why the treasury market’s doing so well. Treasuries, and the short end of Europe with German government bonds, for two years now yield being essentially zero.”

On France and Italy:

“I think Spain is the battleground. I think that [France and Italy] come after. I think it will all be resolved in terms of where we end up with Spain, honestly. If Spain leaves, I think if Spain comes to a position where it has to leave, I think you’ll end up in a situation where either Spain leaves or Germany leaves.”

On whether a run on banks has already begun:

“I think that it’s been a crawling, slow run for a long period of time. 650 billion euros via the target two system has found its way into Germany, and that has come from the deposit base elsewhere in Europe. And as the stress has increased and we go towards a situation where Greece might actually – you’ve come to the realization that a euro in a Spanish bank and a euro in a Portuguese bank are not worth as much as a euro in a German bank.”

On JPMorgan’s 2 billion trading losses:

“I think JPMorgan – it’s well known in the Street – and I want to be very kind to JPMorgan as my biggest trader and former employer… My first job was at JPMorgan on Wall Street when I was 23. So I’ve got a very good disposition towards that bank. But I would say that if a bank in its normal course of its business has exposure to mortgage markets, has exposure to corporate accounts parties and the activities that they undertook in their chief investment office just increased them. So I don’t think they could be described in any way as a hedge. They’re not out of those positions. And if we end up with a catastrophe in Europe in the short run, they’re probably not positions that anyone would want to have.”

On whether the loss is broader than a trading loss:

“I think it’s a trading loss. They deliberately put the positions on. The London whale, who has subsequently been harpooned, put positions on and yeah, other people in the Street – BlueCrest and our credit fund, in the normal course of our business in a small way, not in any way looking to try and cause them any problems, we found some anomalies in the market. And I think that a number of credit funds found anomalies caused by these very large transactions, and possibly have taken the other side to provide market liquidity.”

On whether there’s any way for JPMorgan to elegantly extract itself from the situation:

“There’s always a price. There’s always a price to get out of anything. It might not be a price you like, but there’s always a price. So that’s true. It is in very high grade credit in the United States, so I think that they would ultimately be able to exit this position, yes.”

On whether he’d do the same thing as Jamie Dimon, maximizing the economic value of the trade over the long-term even if it’s going to come with some serious mark-to-market pain:

“Absolutely I would. There are other hedges. If corporate American credit really blows out, it’s likely that there are much bigger problems elsewhere. There are other instruments to hedge in. So yeah, I would be looking, if I was in that position, creatively at finding other avenues to reduce the value of risk of the book.”

Nothing like hearing the inside scoop from a man actually in the arena.

Navigate accordingly.

Larry Doyle

ISN’T IT TIME to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook?

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

Perhaps I was not listening carefully enough earlier in my career to detect just how management on Wall Street conveniently finds scapegoats during challenging times. I hated that phrase then and throughout my time on Wall Street. Why? 

“Throwing somebody under the bus” struck me as the epitome of weak management shirking responsibility. We see a classic case of just such inept and pathetic managerial behavior this morning at JP Morgan.

How so? Let’s navigate and meet Irv Goldman, the former officer in charge of risk management within JP Morgan’s chief investment office. On its face, one would think that Goldman would be one of the first — if not the first — individual shown the door at JP Morgan after its recent debacle.

Somebody inside of JP Morgan does a nice job of smearing Goldman by providing anonymous background material on him to financial news outlets. I am not here to personally defend Irv Goldman. As alluded to in news stories this morning, he does have a bit of a checkered past. That said, JP Morgan found reason to hire him not once but twice over the course of the last 5 years.

Moving forward to the current situation, Goldman assumed his position to oversee risk management within JPM’s chief investment office this past February. Yes, February 2012. A mere three short months ago. Do you think the cake was coming out of the JP Morgan CIO’s oven just as Goldman came on the scene? No doubt.

What do Goldman’s past issues have to do with JP Morgan’s current losses and ongoing debacle? Nothing.

Goldman may have performed miserably as a risk manager over the last few months. My ‘sense on cents’ believes he is little more than a scapegoat to deflect attention from those deserving real blame. His being “thrown under the bus” by those within JP Morgan and with the assistance of financial news outlets is classic behavior by those who mistake what character truly is.

Jamie Dimon and others within JP Morgan may once have been thought of as possessing the best reputation on Wall Street. In light of how Irv Goldman was just “thrown under the bus,” Dimon and team may care to remember that reputation is what the world may think of them . . . but character is what they really are.

Larry Doyle

ISN’T IT TIME to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook?

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

“We know the model is not sustainable,” said Lawrence T. Lesick, vice president for enrollment management at Ohio Northern University. “Schools are going to have to show the value proposition. Those that don’t aren’t going to be around.”

(The New York Times; May 14, 2012)

Very few topics have received as much attention here at Sense on Cents as the student loan crisis.

In my opinion, the size, scope, and impact of this problem is an enormous anchor weighing down  our next generation and our nation’s economy.

Make no mistake, this anchor is not only impacting thousands of students and families but is also having an equally burdensome impact on colleges and universities nationwide.

I choose my words carefully here. The other day I entitled my commentary, Student Debt Bubble: Impending Doom for Colleges.

Doom is a strong word. Why did I choose it? Let’s navigate.

Embedded within a very recently released Bloomberg commentary is a study by Richard Kneedler, President Emeritus of Franklin & Marshall College. In light of the economic crisis that hit our shores and continues to envelop our nation, in early 2009 Kneedler released a very granular review of the economic condition of close to 700 private colleges and universities. For anybody with even a passing interest in this issue, Kneedler’s work, is a MUST read.  What do we learn?

1. Using this post-crash model (and may it not be “mid-crash”), 207 colleges and universities—31% of the 678 institutions in the database— have, under at least some circumstances, more debts than cash and marketable investments. I designate them “at risk.” In the model these 207 inadequate-capital institutions have projected net financial asset balances ranging from a negative few hundred thousand dollars to nearly a negative $400,000,000. More than half of the 205 had negative projections from ($10,000,000) to ($100,000,000).

2. This means that the inadequate-capital institutions (which might include a third or more of NAICU members) are exposed to severe disruption from negative factors such as declines in cash and investments, escalation of interest payments on variable-rate debt, and required accelerated repayment of principle, particularly if several negative factors were to coincide.

In those circumstances, any of the inadequate-capital institutions and perhaps some of the marginally positive schools might find themselves unable either to meet their increased payment obligations or to repay their debts. The institution could then be effectively insolvent, even if its operations were otherwise healthy. While the institution might not be bankrupt, creditors could demand control of major operating decisions. This is, essentially, what has been happening to sectors of the business community, such as homebuilders, retailers, and newspapers, that have lost credibility with banks. That has apparently not happened to independent Higher Education, but the warnings from S&P and Moody’s about our sector’s prospects are ominous and could foreshadow a shift by rating agencies based on enrollment, or other, data.

Bingo. With student debt burdens soaring ever higher. Demand for many of these at risk institutions will inevitably decline. Subsequently, these schools will get squeezed and be forced to close their doors. Kneedler highlights the gap that exists between the haves and have-nots.

… there is a consistent, large financial gap between high capital and inadequate-capital institutions that is exacerbated in a time of financial trouble.

He provides a compositie average profile of the at risk school.

Average inadequate-capital institution :
Undergraduate enrollment: 2,800
Endowment and other investments: $45,000,000
End-of year cash on hand: $9,000,000
Bonds and mortgages outstanding: $62,000,000
Annual revenues/expenses/margin: $102,000,000/$95,000,000/$7,000,000
Model Post-Market-Drop Score: ($24,000,000) (-24% capital score)

Where are these schools predominantly located?

States/Regions. Areas with more inadequate-capital than adequate-capital institutions and, thus, more exposure to the crisis’ effects in Higher Education include:
1) Previously high-growth states Arizona, Florida, Nevada, and Washington;
2) Appalachian states West Virginia, Kentucky, and Tennessee;
3) Rust-Belt states Illinois, Michigan, New York, Ohio, and Pennsylvania., and
4) Two other clusters – Alabama and Mississippi and a final one in Plains States from Iowa to Oklahoma.

Is there a correlation between students carrying high debt burdens and the high risk schools? Rut-ro…

Students’ Aid Eligibility. Financially-at-risk students disproportionately enroll at financially-at-risk private colleges. 63% of our inadequate-capital institutions had student populations in which 25% or more of full-time undergraduates were eligible for financial assistance under Title IV of the Higher Education Act. By contrast, only 14% of adequate-capital institutions in the study did. Inadequate-capital private institutions play a critical role in giving low-income students access to college. This is a major national policy issue that our entire sector needs to continue to work hard to resolve.

Kneedler concludes,

Inadequate-capital institutions are less prepared to absorb potential revenue losses from drops in enrollment, alumni giving or investment income. They are less able to meet increased demands for financial aid for students or higher interest payments on variable rate debt. From whatever direction trouble arrives, these colleges may lack resources to weather the crisis, and their difficulties will tend to compound faster than will those of their better-off peers because they have less cash to spend, fewer assets to sell, and less budget “fat” to trim.

Inadequate capital institutions more often use bank credit lines, loans from trustees or vendors, and other arrangements vulnerable to cancellation or repricing to obtain capital and operational financing.

This discussion indicates that there is a significant subset of inadequate-capital private colleges and universities that provide essential access to higher education for low-income and minority students, access that could be denied if these institutions are damaged. In a time of severe economic challenges for the country, this access to higher education is an important national priority and needs to be considered as the country works it way through and out of the present crisis.

For those who care to read and review Kneedler’s entire report, I submit: Financial Crisis Creates Big Risks for Private Colleges and Students They Serve.

Given the widespread interest in this topic, I welcome including other commentaries I have written as well:

1. Are Student Loans an Impending Bubble? Is Higher Education a Scam?; April 26, 2011

2. Are Student Loans an Impending Bubble? Is Higher Education a Scam?: Part II;June 22, 2011

3. Very Disturbing UPDATE: Student Loan Bubble and Seeking Arrangements; August 4, 2011

4. Student Loan Debt Bomb’s Collateral Damage; February 28, 2012

5. The Prohibitive Cost of Higher Education: A Racket?; April 10, 2012 

6. Student Debt Bubble: Impending Doom for Colleges; May 14, 2012

Navigate accordingly.

Larry Doyle

ISN’T IT TIME to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook?

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

Sometimes you may have no choice, but in doing so you likely keep your guard up or exact a higher risk premium.

For those with a choice, keeping one’s distance from those you do not fully trust is typically the preferred path. For those without a choice, a lack of trust is often offset with a lot of hope and prayers. Hope always remains a lousy hedge against a lack of trust. We see this at play currently on both sides of the pond. 

Investors clearly have very little trust in the European banking system at large and banks in peripheral EU countries specifically. Not only investors lack trust. The reality of bank runs in Greece should not be quickly dismissed by investors and consumers globally.

While hard dollars and cents may be viewed as the currency upon which financial institutions are measured, the real currency of these companies is trust. Despite what our central bankers and political elites may promote, the barometer of trust in our large banks continues to decline. On this side of the Atlantic, we can look no further than JP Morgan and Jamie Dimon.

In one short week, this bank with its fortress balance sheet has suffered a 17% decline in valuation. News stories out this morning reflect a bank and a CEO which clearly took their eye off the ball in a HUGE way.

Investors are supposed to blindly trust Dimon and team? In this day and age? Yet that seems to be the belief as referenced in a Wall Street Journal report, Peering Over JP Morgan’s Hedges:

. . . investors are still being asked to take a lot on trust.

JP Morgan may be in bed with the Federal Reserve, the U.S. Treasury, and every financial regulatory organization known to mankind. Every analyst may promote JPM stock as exceptional value and screamingly cheap. However, post-2008 this little virtue known as trust trades at a much higher premium. The current price of JP Morgan stock is a clear reflection of that lack of trust. The daily trading volume across equity exchanges is also a reflection of a similar lack of trust.

To both address the question of trust and inject a little Friday morning humor into a situation where little exists, can we ever forget the individual who violated a trust of a young, innocent scholar?

Does anybody see any similarities between these gentlemen?

Hmmmm…..both are clearly smooth, suave, and debonair.

What about trust?

Any JP Morgan shareholders in the crowd?

Down 17% in a week and a whole host of unknowns swirling about the stock is no laughing matter.

Navigate accordingly!!

Larry Doyle

ISN’T IT TIME to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook?

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

The only issue I have in regard to Mr. Rodriguez is that he is not in Washington managing our nation’s fiscal policy.

The simple fact is Rodriguez knows of what he talks and relates it in language that is foreign to most politicians, that is, plain English.

With the ongoing budget fiasco, debt ceiling, and accompanying fiscal cliff on our horizon at year end, recent comments by Rodriguez should ring long, loud, and clear throughout Washington. 

You can have Warren Buffett. I will take Bob Rodriguez any day. He spoke recently on our nation’s fiscal policy and other topics with Robert Huebscher of Advisor Perspectives.

In terms of attacking the fiscal excesses, you support Dave Walker’s Comeback America 12 platform for reform. He supports a number of measures for how entitlements, such as Medicare and Social Security, need to be reformed. But he also calls for more-or-less across-the-board spending cuts in order to reduce our debt-to-GDP ratio. Does that necessarily abandon a strategy where the government might be able to foster a recovery through growth, with, say, infrastructure spending?

If you believe that, then I would argue that that you also believe in the tooth fairy.

There is no easy way out of this. It has taken us basically four decades to get into this mess, and you are not going to get out of it with just a simple infrastructure spending program. I’ve looked at the president’s budget and, yes, it is a negotiating instrument, but, still, let’s look at it between 2011 and the end of 2014.

Under his budget, public-sector debt grows $1.5 trillion more than the Simpson-Bowles commission estimated. Obama has never really incorporated the commission’s work publicly. Under his budget, it would not get to a lower level of public debt outstanding versus the Simpson-Bowles plan until 2018, two years after he is out of office, assuming he is reelected. Who in their right mind believes that is a realistic trend?

So it’s a negotiating document. Let’s not ascribe too much credibility to the Congressional Budget Office’s analysis, because what was their forecast back in 2000? We were going to have a shortage of Treasury securities. I published a commentary back then, and I said, “How many believe in fairy tales?”

I viewed the Simpson-Bowles’ economic growth assumptions as being too optimistic, but it was at least an attempt to get both sides of the aisle to come together. It was close, but it never got done. I got very discouraged when I gave the “Danger Ahead” speech on February 15, because just three or four days earlier Congress passed the payroll tax reduction.

People don’t realize that last year’s payroll tax reduction was four to five times greater than the first year expenditure cuts called for under last year’s August debt limit accord requiring $917 billion of expenditure cuts over ten-years.

If we are to reestablish fiscal balance, you are going to have to take hits now. It’s just like your dad coming home from work saying, “My hours have been cut back. I can’t earn this money. We are going to have to make some cuts right now. I am not going to bet that my income is going to be up two or three years from now.”

That is the decision we have to make. Every study I have looked at says you get far more bang for the buck longer term if you attack your expenses earlier in the game, as opposed to tax increases. Otherwise, you pass a point where the necessary expenditure cuts are so onerous that you get into the classic death spiral – very much what Greece is in right now.

We have an example of someone who made the hard decisions. All we have to do is look north of the border to Canada. If you look at the Canadians in 1993, they were in the exact same fiscal position as the United States is today. They had their credit downgrade. Within four to five years they had balanced their budget, and within 11 years they had taken their debt-to-GDP from approximately 70% to 72% down to approximately 30%.

That is one of the reasons why the Canadian dollar is now trading at a premium as opposed to a substantial discount to the US dollar. Canada took approximately seven dollars in expenditure cuts per dollar of revenue increase. Dave Walker is proposing three dollars of expenditure cuts versus one dollar of revenue enhancements.

But Congress can’t even come up with even a few pennies. It is an absolute unmitigated disgrace. I don’t see how financial markets, equities or bonds, do well longer-term if you continue to erode the fiscal integrity of our financial system.

Rodriguez is a true giant and stands out amongst the money manager crowd. How so? Keep reading.

Let’s talk about investing style. You were forecasting a global financial meltdown starting as early as 2007, and you moved to a large cash position. And for this prudence you received shareholder criticism and redemptions.  From a business – but not necessarily an investing point of view – does it make sense to take an extreme position away from the consensus?

That is always a hard question to answer.  When I speak to graduate students at the University of Southern California, I say, “Each of you is going to have to answer that question yourself.”  For me, investing comes first and what happens to the business comes second. If I didn’t pay attention and do what was right investment-wise, I wouldn’t have a business longer-term.

I got an early test of that in the 1980s, when a client terminated me and the account was one of the best at our firm.  It represented a 50% to 60% loss of business in one day.  It was because I was not willing to pay kickbacks to keep the account. I said, “What more can happen to me than that?”

In one way it was very negative, but in another way it was very freeing. I have never looked back.

President Obama, Paul Krugman, Ben Bernanke, Tim Geithner, Harry Reid and many more would challenge the assertions put forth by Mr. Rodriguez. I stand firmly by our Sense on Cents Economic All Star.

I maintain our economy would run like a scalded dog, if the pols in Washington had the courage and character to enact the following:

1. deeply meaningful deficit reduction combined with entitlement reform
2. equally meaningful tax reform (a flatter tax system overall…I will grant that the carried interest rate  should be increased)
3. tough but transparent regulations
4. rescind Obamacare which has a stranglehold on many small businesses.

In the midst of those reforms, though, our pols would also have to stop taking kickbacks and reform campaign finance. If they need an example and role model on that front, they should place a call into Bob Rodriguez.

I may be wrong but my ‘sense on cents’ is telling me that the aforementioned reforms and the hidden kickbacks are all going to be MAJOR political issues this fall as the anti-incumbent “throw the bums out” phenomena continues to sweep through Washington.

In regard to Mr. Rodriguez, any questions as to why this perennial all star occupies the highest of all positions within the Sense on Cents Hall of Fame?

For those interested in reading the entire interview, Bob Rodriguez on the Dangers in Today’s Markets.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

I start every day of the week in the same manner. How is that?

I go out my front door, pick up the newspaper and settle down to what I believe is the best periodical in the market today. Which is that?

The Financial Times, or as I and many people like to call it, the FT. 

Looking for a global perspective on markets and economies that are increasingly global in nature? Looking for cutting edge insights from those ‘in the arena’? Looking for valued analysis on where the markets are headed tomorrow not merely where they were yesterday?

The FT is a must read.

I ALWAYS learn something new and have my interest piqued to engage in further research on topics presented by FT reporters. I NEVER feel that the FT has an agenda or is trying to promote a political position or stance. The independent and unbiased views of the reporters run the spectrum.

I love the fact that the FT is a London based periodical. I firmly believe that the FT is unencumbered to present thoughtful analysis and opinions on American issues which are typically not found via our domestic outlets.

On that note, for a little bit of truth, transparency, and integrity let’s take in this FT video, The Global Economy: What’s The Dollar in Your Wallet Really Worth? This 3-minute clip descriptively and graphically highlights our global economic standing from a variety of angles. The wealth of information is stimulating and educational. I love it because it is textbook FT. Lots of great data, professionally packaged and presented, and with no wasted time.

This clip would be a welcome presentation to a host of major clients or in our top graduate schools.

I only have one concern about the FT. What is that?

I need to make sure the delivery man who has it on my doorstep shortly after 5 am does not lose the route.

“Sponsored by Financial Times”