Once Upon A Time ....

... there were few hedge funds. The public bought stocks on their own ideas or from good, thoughtful brokers and provided plenty of order flow for the NYSE or NASDAQ. Mutual funds tended to hold stocks awhile, perhaps a year or two or much longer. The uptick rule prevented bear raids. New companies raised equity capital via IPOs that were reasonably structured and underwritten. Companies borrowed long term loans or issued long term bonds to fund long term assets. Pension fund and insurance companies invested in permanent capital - long term debt - that was often placed privately, secured and with convenants.

Then the "innovations" began. First the SEC gutted the underwriting rules. Then derivatives were created. Long-standing separation of banking from securities was vaporised. Rules for distribution of hedge funds - private investment partnerships - were loosened, letting them begin to raise huge amounts of funds. Short sale rules were violated in principle via options and derivatives. The uptick rule was eliminated.

Accounting "innovations" were made - financial assets were subject to "mark-to-market" valuation even if that investment was made for a long term investment, perhaps even to match a long term liability. So all "investment" was turned into speculation and evaluated as such. Long term investment was thus gutted in the debt markets. Debt investors began to want securities that could be "traded", even if that institution's liabilities were fixed, such as retirement or insurance liabilities.

"Credit default swaps" began to rule the bond and debt markets. Instead of prices being determined by "real" investors in debt investing real $$$ to actually buy the bonds & hold them, prices of credit are now determined purely by speculators - hedge funds and "The Street" who might never actually make the loan.

Can you believe such insanity as has been created for the past 27 years ? The connection to the underpinnings of the real economy were steadily eroded by the desires of speculators to trade. But perhaps this will save the real economy now. IFF the government programs are and were in place in time. IFF the Hank & Ben show started in time. Was the damage just temporary ?

Time will tell.

Meanwhile, the long-needed liquidation of excessive speculation by the rich in hedge funds is being washed out. This will take awhile, so be patient. Wait for the big dips to buy or add.

Note: IFF means "If and only if" - the precedent clause being a necessary and sufficient condition for the consequent.

Actions

Alpha Fund added a bit to the usual suspects - CVX, DVN, RIG, FCX, BHP, JOYG, EXM, DRYS, GNK. Earnings from GOOG were OK and that stock was up considerably in after hours trading.

Krypto Fund gets more cash today. Once the check clears, the spreadsheet says to buy some US stocks. So I will buy more VTI, the Vanguard Total Market Index ETF. I paid Krypto a dog biscuit for pushing the button. That's a lot cheaper than hedge fund management and since Krypto Fund is outperforming most, that is a good deal.

Word of the Day

"Nonce" - noun [$10] pronounced "nons" with the "o" as in "not". This is a word seen often in Shakespeare.
Nonce means the present or particular occasion. "For the nonce" means for the time being, or for the present occasion.
Sentence: For the nonce, let's stop thinking about the past and wondering about more problems, and look to the future and what good opportunities exist now.