Bull____

That's what Merrill Lynch provided investors a two weeks ago when it reported quarterly earnings. Last year Merrill Lynch created billions in garbage securities. And couldn't sell. So they created more. And couldn't sell those. But I suppose the employees wanted a bigger bonus pool. So they also bought "insurance" from schlock bond insurers to "guarantee" the bonds. And parked the securities on the firm's own books, no doubt booking a big "profit".

Now they sell the crappy paper for a huge loss and sell more stock. Uh ... how long has John Thain been running that firm ?

I never liked Merrill Lynch stock as an investment. That firm has some great assets and great people, but management has stunk for almost 30 years in my humble opinion. Some good people are underpaid and undersupported, while the "favored" get higher pay and support.

Investment banking is a great business - that is, doing underwriting for bonds and stock of real corporations; and doing merger and advisory business. Brokerage and asset managment is a fine business, too. But trading operations and self-dealing in creating securites that can't be sold, and compounding this by paying employees huge bonuses on paper that firm itself buys is sheer nonsense and reminiscent of the tales of Jim Fisk, Jay Gould and Daniel Drew of the Eire Railroad scandals of the post Civil War era.

Still, the housing market is bottoming now, in my humble opinion. "The Wall Street Journal's quarterly survey of housing data in 28 major metropolitan areas showed that the supply of homes listed for sale declined from a year earlier in 19 of them." The bottom might be bumpy, but I think it's here.

Survivors and long term winners are going to be the big commercial banks: BAC, JPM and C. They will gain market share as competitors die and will be able to raise prices. On a big drop, I will add to those positions as I think my thinking on the trajectory of this industry and economy is being confirmed slowly. I bought some shares in those three firms at the recent spike down, but not all I had wished.

PS: When I was trained in the securities business in investment banking, omission of material facts was a firing offense which could also have legal ramifications. How can past and present leaders of Merrill Lunch not be guilty of this ?

Books

I'm about 15% into a very good book suggested by an erudite reader: "The Tycoons" by Charles Morris. This book has descriptions of the economic and industrial development of the US in the 19th century. The focus is on Andrew Carnegie, Jay Gould, John D. Rockefeller and J. P. Morgan. This book is not the first I've read on the subject, so I can say that the author does a fine job and it's well-researched. I was particularly appreciative of his description of the early phases of the machine tools and mechanical engineering industries. I was taught merely 40+ years ago that Eli Whitney invented "interchangeable parts" as a core modern industrial system. But that was crap - a fairy tale. Whitney had political connections and "said" he would do it, but never accomplished that fact.

Truly, a man named John Hall created the first industrial system to manufacture interchangeable parts for a complex machine, viz. a rifle at first. Corruption and political favoristism impeded him for decades. But in the end he did it. This is one of the gold nuggets of information in this fine book.

Word of the Day

"Opprobrium" - noun [$10]
Opprobrium means 1. something that brings disgrace; 2. public disgrace or ill fame that follows from conduct considered grossly wrong or vicious.
Sentence: Stan O'Neal, the other executive leadership of Merrill for 25+ years and now John Thain must bear and share great opprobrium for running a truly fine securities company into the garbage bin. I do not think the firm can survive independently now.