John Thain, Merrill, B of A and the US Government

I have purposefully not written anything about John Thain since he left Merrill, but now that he has chosen to speak out, so will I. I had the honor of working for John for my entire 14 year career at Goldman. Early on he co-headed the mortgage securities department where I was a trader, and at the end of my tenure I worked directly for him in the executive office. He truly is a quality human being and it broke my heart to read the stories that were being written about him regarding his departure from Merrill. I did not believe half of what I read and I am happy that he finally chose to speak out about what really went down. Every Merrill employee that I have spoken to since he joined that firm said they thought he did a great job. At Goldman John had a stellar reputation, and was known for his strong worth ethic, his integrity, his raw intellectual ability and his compassion. I cannot imagine how challenging it was to come in to the head role at Merrill when he did, but I am sure he did the job to the best of his ability. Was he perfect? No… but tell me someone who could have done better.

For a must read OPED the Bank of America/ Merrill merger I encourage you to read this piece that appeared yesterday in the WSJ. ( the same day as above) So much trust has been broken and it is hard to imagine how we are going to build it back. There are going to be books written about how this deal got done and the whole truth is yet to come out.

I am off again, this time to Atlanta for the Women’s Funding Network conference. Sorry the blogs have been few and far between as heaven knows there is MUCH MUCH to write about.

Ugly Headlines, Happy News, Green Shoots, and Where to put your Money.

I am not sure what headline/story upset me more today. Could it be “IMF sees 1.3% drop in Global Output?” Or maybe “Freddie Mac Finance chief found dead in home.” Now I think it would have to be “Taliban Seize Pakistan Area Near Capital.” Not that I want to walk around with my head in the sand or anything but perhaps one new business idea would be to launch a new web-site that only reports on good things that are happening in the world. So funny, after just typing that I thought hmm…. I wonder if that domain is available – – sure enough it is not, the site exists, and it is all about up to the minute news meant to lift your spirits. How cool is that? Their tagline is “Real News. Compelling Stories. Always Positive.” Add that address to your favorites and remember to visit it regularly.

So needless to say the news out there is just horrible. For a well articulated piece on why I think this rebound in the market is short lived read Martin Wolf’s piece in yesterday’s FT called “Why the ‘green shoots’ of recovery could yet wither.” I, like him, believe that we are still in the ‘early stages of a long and painful deleveraging and restructuring’ process. The IMF just recently upped their estimate of system wide loan losses up to $4.1 trillion and how much of that has been accounted for? I don’t know but it someone has the answer please do share. All these massive government programs are working hard to cushion the global economy’s free fall, but bottom line; we are still in a downward trajectory, albeit at a slower rate than earlier in the year.
So what does this mean from an investment perspective? For me it means remain defensively positioned, maintain liquidity, and look for lower entry points for both domestic and international equities. In the fixed income space I think opportunities do exist and I will pay attention to funds that are emerging out of the TALF and Public/Private Partnership Programs. I think you need to be careful about adding too much duration in your portfolios as although there is short term deflation, I worry longer term about the opposite. More importantly however is the massive amounts of debt issuance the government needs to do combined with how much debt that is already outstanding. YES the fed is buying treasuries, especially at around 3% on 10 year notes, but trying to effectively front run the fed and ignoring fundamentals is a dangerous game indeed. Might be ok for professional traders that are in the flow of information and flow, but for you and me??? Not good. I did spend a lot of time today talking to some exceptionally smart and experienced guys who are launching a venture capital fund in the digital media space, which was really fun. Their primary focus area is in gaming and is amazing to think about how so many other areas, like media, are being game ‘ified’.

Well my pillow is calling my name so of to sleep for a mighty early wake up call. I am heading to Colorado tomorrow for the weekend so the next post may not be until Monday. Wishing you all a wonderful weekend…..

Green Shoots or Wishful Thinking plus PIMCO

I have spent the past few days getting prepared for our (Circle Financial Group’s) quarterly asset allocation meeting and have been trying to gather and digest information from some of the country’s leading investment thinkers. I can honestly say that in my now 21 years in the financial world, this moment is truly an exceptionally challenging time to come up with a long term investment strategy, with a mindful short term tactical bent. Arguably it was harder a few months back when everything seemed to be imploding, but even now there is still a tremendous amount of uncertainly about whether the massive government interventions will take effect, and at what long term cost. The economic news continues to be terrible, and these green shoots are truly small indeed. Everytime I look outside at my hydrangea plants, which currently look like a mass of dried out sticks ( see above) with a just a hint of green on a few stems, I think of our economy. I think of how last summer these plants were lush and full and vibrant, and now, well…. you get the picture. To carry on the analogy the Fed has certainly added a lot of fertilizer, but in order for plants to grow there also has to be water and sunlight. All three of these factors are relevant and likewise, many things have to be present for there to be meaningful econonomic stablity and growth. The Fed and the Treasury can do what they can do, but they can’t do everything that is needed to stop the decrease in housing and other asset values and stimulate demand in the global economy. Food for thought is always provided by our friends at PIMCO – read Bill Gross’s latest here. ( The Future of Investing: Evolution or Revolution?)