1. Democratic Do Gooders

    Everybody is feuding in Washington. Now is the time for the biggest organization of disorganized people to get their act together. We are talking about the Democratic Party. They behave like passengers on a Carnival Cruise ship. Each member may be on the same boat, but once in harbor, they all go in different directions. There is about as much unity here as there was in the closing moments of the Titanic.

    Now the Democrats are poised, practically by default to become the next leader of the United States Congress. Election Day 2018 is only 15 months away. That means, another glorious election campaign will begin even sooner. Oh goody, can’t wait.

    Trump Is Getting Squeezed From All Sides

    These days’ news organizations just about everywhere are ganging up on POTUS. FOX may still be in Trumps corner but the wounds to DT’s good buddies are pretty evident. The President is not only digging his own grave, he is paying for the funeral. Whoever was the last person to accuse him of being brilliant, hasn’t been heard from recently.

    The really smart move here would be to fire Tom Price, Secretary of Health and Human Services and hire Dr. Phil.

    The more Trump tries to wiggle out of tight situations with such tactics as the Self Pardon, I will fire Robert Mueller, I will hire Rudy Giuliani for Attorney General, if I had known Sessions was going to be disloyal, I never would have hired him, the more he exposes himself less as a leader of a moral nation and more like a Latin American Dictator.

    The Presidents approval ratings translate into a forgone conclusion. If an election were held today, unless Trump was running against OJ Simpson, he would loose by a big margin. The challenge for the Democrats is to make sure they don’t nominate OJ.

    But the important election is over three years off so unless something ominous happens to The Donald in the meantime, the Dems have to build their next move in Congress.

    New Noise: Old Ideas

    Lately there are rustlings coming for people like Senate Minority Leader Chuck Schumer about a new economic plan. Instead of calling a “New Deal” a la Franklin Roosevelt, it is being called a “better deal”.

    First, compliments to the leadership for the intelligent decision not reusing the FDR era term “New”. As the headlines show, there is nothing whatsoever new.

    The preliminary headline reads, “Democrats to rollout new economic plan that takes aim at big biz and drug prices”. These are the same things that the party of donkeys has been attacking for decades.

    We will be forces to wait to see details. But unless you have something in common with a donkey, there won’t be any surprises. There is only one exception. It would be a surprise if the new economic plan resulted in more efficient and lower cost government. Correction: it would be a shock.

    Old Ideas Old Leaders

    The Democratic Party has long enjoyed the support of young voters. This goes back over 50 years to JFK. Young idealistic voters have yet to realize that ideas being promoted by the party of FDR have been tried without great success for generations.

    Democratic stump speeches are peppered with phrases like, we have made much progress but there is much more to be done. Democrats and Dermatologists have much in common.

    For all the noise about better ideas, it is time for the youth imbued Democratic Party to find a new face with some new ideas before 2020. So far names being whispered like HRC and JBJ translate into SOS (Same Old Stiffs).

    To paraphrase FDR, the only thing we have to fear is that the Democratic party members forget to get back on the Carnival Cruse ship before it leaves the dock.

  2. Wall Street Retreats: Arrivederci Research

    Goldman Sachs is a perfect example of what’s happening on Wall Street. The company’s stock is trading below its peak price of 10 years ago seriously underperforming the market. The company just reported one of its worst quarters in trading. They refer to it as FICC, which stands for, fixed income, currency and commodities.

    Why is trading so important to one of Wall Streets biggest, most diverse and most pure investment banks? Because the future is not as bright as it once was and industry “doers and shakers” haven’t come up with the next big thing to generate massive profits. In the meantime Wall Street is in retreat mode.

    If it is happening at Goldman Sachs, retrenchment is happening elsewhere. Goldman is the bellwether. Evidence is hard to find but it is clear, sellside research coverage is shrinking and that means higher costs for buyside firms.

    Sellside research directors are becoming modern day magicians. They can take a six-person group focusing on retailing, for example, and cut out three junior members. Up front on the firing lines it appears the three senior analysts are still covering the same stocks. The three juniors that do all the time-consuming grunt work simply disappear.

    Why Is This Happening?

    Wall Streets traditional role of raising capital and brokering stock trades is being disrupted.

    Things like private equity and crowdfunding have created alternative sources of capital. High Frequency trading has taken over traditional markets.

    Wall Street leadership has become less risk oriented. This has become ever more evident since the 2008 financial crisis.

    In the past investment banks like Goldman Sachs and Bear Stearns would routinely leverage their capital to a ratio of 50:1 even financing operations with risky overnight lending instruments called repo agreements.

    Commercial banks, on the other hand were limited in their capital ratios to something closer to 10-12:1. Following the 2008 crisis that forced Bear Stearns into the hands of JPMorgan Chase, a more restrained rule of financial law has gone into effect.

    The Changing Face Of The Client

    How can you earn a living when your clients don’t need you anymore? Consider High Frequency Trading or HFT.

    The exact extent of HFT trading in US equities is only an estimate. Glen Barrentine who is a partner at the law firm of Winston & Strawn recently produced data showing HFT accounting for 50% of all trades but others put the figure closer to 70%.

    HFT operators work with machines, not people. Buy and sell decisions are made totally by software programs and commissions amount to virtually nothing. HFT traders aren’t customers of Wall Street underwritings.

    The hedge fund business is another case in point. A tiny niche of fewer than 100 funds back in the early 1990’s, there are now over 11,000 hedge funds running nearly $3 trillion.

    Ron Baron, the well-known hedge fund star, has his own research staff and little regard for what Wall Street puts out. Ron picks his own stocks using a 10-20 year horizon. The quarterly wiggles that analyst write about are of little interest.

    As a hedge fund billionaire, Ron can afford just about anything he chooses. But what about a bright new star trying to get into the investment business?

    In the past Wall Street basked in game of soft dollar payments but with commission prices so low, the average buyside firm practically has to donate a kidney in order to get real service from the sellside. The only other option is to play the IPO game.

    Research: A Necessary Evil

    It is time for a tired old saying about research. In a bull market, one does not need an analyst and in a bear market you can’t afford one.

    Wall Street analysts are the most maligned group in the world. The worst critics are those who depend on analysts for their opinions on stocks when the real value is in providing intelligence on companies and industries.

    But because trading commissions traditionally paid their overhead, and those have shrunk to nothing, sellside coverage is shrinking as well. But somebody has to do the

    dirty work. This gives big firms with their huge budgets the advantage over new comers. On Wall Street, the rules are simple: eat or be eaten.

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