And yet another Ponzi scheme

Lawsuits abound as yet another Ponzi scheme unfolds here in South Florida.  Scott Rothstein seems to be another to fall of this cliff and one has to wonder what goes on the in the minds of some of these folks. One particularly has to wonder what goes on in the minds of investors and in particular why people fall for this stuff and with big bucks involved.
This one is a minor humdinger in the grand scope of recent schemes but $1.2 billion is no chump change, penny anti thing.  Now people want their money back but the twist in the tale (tail) is that more than likely all but a little of the money is gone and the recourse will be to get the money back from those he paid, level the field and try and give everyone something back, although at a fraction.  Unfortunately it will take years as Mr. Rothstein seems to have been a major league spender.

Even in my small home town of Westhampton (yes the Hamptons) in New York we have our own version of this. George Guildi, a local attorney got into the mortgage fraud business in a big way for such a little town (he is actually a neighbor of mine).  He and some of his friends including the owner of Magic's Pub (if you remember Breslin's book on Son of Sam and the recount of him driving to the Hamptons for a victim and spotting some potentials at an outdoor restaurant, that was Magic's) went around buying houses with straw buyers and pocketing a lot of the fees and rents.  We are talking $50 million in real estate here and in a town of 1600 full time residents, that is a mess in the local streets.   I guess 50 mil in a small town equates to 1.2 billion in Ft. Lauderdale but I still am constantly amazed that folks think that they can get away with this for any extended period of time.  Mr. Ponzi should be proud of his idea.  As we say in advertising, it has legs.

All hail Bank of America

The NYTimes ran a good piece on the Bank of America's plan to repay the government (the taxpayers).   I'm not an advocate for or against but let's at least look at how they came up with the $45 billion and why.

First the number is huge. Staggering even.  As the street tells it, BOA isn't out of the financial woods completely as of yet so to think in a year or so that they came up with bank profits to that tune of course made me and others suspicious.  Wouldn't the 45 billion be better served as cash on hand for the purposes of banking as we thought we knew it?  More on that later.

First 18.8 billion will come from selling shares of stock.  Last I looked BOA was trading at about $15.60 so they are going to dump a billion shares into the market? Even on a conversion to common stock basis that is a shoe waiting to drop on the little guy who owns but doesn't know to get out of the way of this or how to anyway.   Do I hear the call of dillution anwhere?  Wait wait, it gets better. Most of the remaining 26 billion comes from profits...but not from banking...rather from their trading areas formerly part of Merril Lynch.  Here is what the street said about BOA in general:

Bank of America (BAC Quote) upgraded at FBR to Outperform. $20 price target. TARP repayment will boost equity levels and remove a major overhang on the stock. Estimates also boosted.

The Times went on to write:

"Bank of America executives have insisted for months that the bank’s underlying businesses were far stronger than those of some other banks and that the Merrill merger would pay off quickly. Indeed, Merrill’s businesses have improved this year as Wall Street’s traditional business of trading and deal making picked up. At the same time, Bank of America’s core consumer lending units suffered greater losses as the economy weakened".   hmmmmmm.

Also nested in this is the desire to be outside of regulators or free from them. Remind me if being outside of scrutiny isn't what landed them in this mess to begin with?  Then there is the issue of compensation. How can BOA land a top notch CEO with some federal regulator screaming about the salary.  The answer is easy. Just put up 45 billion dollars and you can pay every and anyone whatever you please.

Probably this is just good business and I'm sure the government (us) is happy to get it's money back and probably BOA can get a hotshot in as CEO and pay him/her a 100 million dollar package to run the ship.  But when the peasants come to headquarters someday as a mob with pitchforks and hoes, spend a little on extra guards at the door because eventually they will come - perhaps second after Goldman - but they will show up.

Hey I can do that...

CNBC had a short segment regarding auto industry management and it brougt the General Motors Institute to mind.  Now called Kettering University it was, until the early 80s, a very special training school for GM engineering and management.

Now that Fritz Henderson has split with the GM board, the reports are that GM will "look outside" for a new CEO.  Amazing.

Things run amuck when business types don't understand the nuances of the core business.  That's a fact and it applies to all business.  CEOs brought in to "set the business right" are all well and good and perhaps their core expertise is in triming waste and streamlining things so the the business management is more up to date.  What that usually means is that 1. people with none productive jobs are let go and 2. people with jobs that are not understood in nuance to upper management are next on the chopping block. Without management that understands the business at its core ... well take a look at GM liquidation stock (MTLQQ.PK).  Berkshire could by it with with pocket change. 

Beware year over year

I am always amazed that marketplace analysts foist "year over year" data on the public. Listening to NPR this morning and "Marketplace", the initial reports regarding Black Friday sales figures indicate that they showed some improvement over last year.  Figures obviously aren't in but if you think back to the day after Thanksgiving in 2008, you might remember that our entire economic world turned upside down prior to that date (if not upside down, at least a horrific shake) so frankly anything that went on this year probably had to look good "year over year".  That's the rub in comparisons.

A look at the Dow about this time last year it was sliding toward the 7500 range and is now at 10,400 give or take.  We would "year over year" jump with glee at a 37% year over year increase and well we should. We could, however do a year over year 5 year and see that we are back to square one.....aside from dividends (which are scant) the Dow is down 4% over the period.

I bring this up, as the time frame for comparisons is the key factor. If we shorten the time frame to this month (Nov. 2009 all of it) we are up 7% that far exceeds the year over year rate amortized over 12 months (roughly double the rate of growth). 

We hear this year over year stuff all the time, housing starts for instance, or new mortgage apps.  Analysts must figure we don't have any memory for times past.  Just beware when someone trots out year over year verbiage.  It doesn't mean much unless you have a memory.

My friend Google

Google must be my friend as he/she knows me very well.  I spent half a day there recently as I have actual business with them and they are, giving justice its due, a wealth of information and data and if you use them right, they can be of great help.  Mostly they are idea people.  I was never sure what they knew about me so I asked to see my profile.

About 7 years ago I was looking at a web page next to a real life friend who was also looking at the same page.  Contents matched but those ads next to it that Google serves up were somewhat different. Digging in, I found the answer to be in Google's free analytics service.  You see, when Google places free analytics on a website (to see visitor traffic, who is coming to see you, how they go through your site, etc.) they capture all kinds of browsing information.  They traded a very good service that most people charge for to obtain tons of information on web use.  And you know that drop down window that asks (on many sites) registration (email address mostly), well Google in their wisdom started the practice of matching up your email to your site visits and not so amazingly they matched up where you appear online via email registration with you IP address and browsing habits. Then they did a huge "sort" on you and out you come, a friend of Google and over time, they have you six ways from Sunday.

Americans spend about 1/2 an hour surfing daily (on average) and at about a page a minute. Do this for 10 years or so and you can imagine the details they have, like them or it or not.  Google is ethical and the people there are smart and on a mission to maximize profits and provide services that, at the inception or conception of the Internet, could only be dreamed about. But they have you usually about 140 columns wide with everything from your sweater size to your choice of golf clubs (xxl and hogan's).  It was all there so they must be my friend.