(Interloper) “Outside of the entertainment factor, the primary differences between the two archetypes is that the first has risen to their position by attracting new money while the latter holds their position by effectively managing money. Type One*, with a travel schedule encompassing 150 days annually is dependent of their model for performance because they have much less time for specific analysis – hence the preponderance of more black box, momentum strategies. They are also much more dependent on their analysts and traders back at the office who must make the majority of the day-to-day decisions. Type Two* on the other hand, only really cares about the analysis. They are pissed when the marketing department drags them put of their cave before they’ve finished investigating a fishy footnote in the last quarterly statement. (Don’t think I’m exaggerating with that, btw. I personally know PMs that will spend weeks on a single footnote).”

“Here’s the important part: the industry loves them some Type One PMs. Momentum managers trade a lot more than value managers and this keeps the trading desk commission train rolling. The accommodating Type One manager is, unbelievably, available for evening functions where Financial Advisors can bring their top clients who, inevitably will be running around with blank checks by slide eight. Everybody makes money.”

“If you’ve read this far you have probably guessed where my preference lies. For my own money, I would much rather have the plodding, boring manager who obsesses about every aspect of a potential or existing holding, rarely straying from a concentrated portfolio of companies they are completely comfortable with. Like Buffett, they do not feel compelled to make changes (and thus rarely get referrals from capital markets) and will literally wait years for a stock to drop to valuation levels they find attractive. Type Twos will also avoid hot sectors and thereby escape the attention of the individual investor until the market craps out, and they don’t feel like putting more money into the market anyway. I pay Type Twos, in other words, to exhibit the discipline that I don’t have.”

” .. it remains important to understand the industry’s bias in this regard and that ‘best manager’ may mean something much different to the average investor than on the trading floor.”

* “Type One: Physically attractive, Ivy League (Harvard or Wharton, almost always), momentum-based investment strategy. .. They will be compelling, energetic, will pause and answer your question in a non-patronizing way. They will linger after the presentation until everyone has left, happily chatting about markets or whatever else the fellow-lingerers want to talk about. .. They are, in short, marketing machines.

Type Two will be older, having spent far more time as a senior analyst due to a dearth of personal charisma. They will likely not be Ivy League. Type Two will execute a more fundamentally-based investment process. Their longer performance track record has a better chance of being stronger, beating the index by a few percentage points per year by holding value during bad years. Type Two’s presentation will be so dull that you’ll want to gouge out your eyes after half an hour.”

Full Story: PORTFOLIO MANAGER SEARCH PRO TIP: FIND THE WORST PUBLIC SPEAKER POSSIBLE (Interloper)

And finally, this short passage from Michael Lewis’ book “The Big Short” seems to perfectly capture the essence of these points:

“In Dr. Mike Burry’s first year in business, he grappled briefly with the social dimension of running money. ‘Generally you don’t raise any money unless you have a good meeting with people,’ he said, ‘and generally I don’t want to be around people. And people who are with me generally figure that out.’ He went to a conference thrown by Bank of America to introduce new fund managers to wealthy investors, and those who attended figured that out. He gave a talk in which he argued that the way they measured risk was completely idiotic. They measured risk by volatility: how much a stock or bond happened to have jumped around in the past few years. Real risk was not volatility; real risk was stupid investment decisions. ‘By and large,’ he later put it, ‘the wealthiest of the wealthy and their representatives have accepted that most managers are average, and the better ones are able to achieve average returns while exhibiting below-average volatility. By this logic a dollar selling for fifty cents one day, sixty cents the next day, and forty cents the next somehow becomes worth less than a dollar selling for fifty cents all three days. I would argue that the ability to buy at forty cents presents opportunity, not risk, and that the dollar is still worth a dollar.’ He was greeted by silence and ate lunch alone. He sat at one of the big round tables just watching the people at the other tables happily jabber away. ”

How I wish I had been there that day to sit with him.

(TheMarketTicker) Great article by Karl Denninger sums up our greatest financial problem perfectly… “ is the process by which something very ordinary (say, a TV set) becomes financed. In doing so there is inherently created the use (and usually the abuse) of leverage. .. Leverage is simply the ability to act as though you have much more of something than you really do. ”

“See, in economics there is this thing called ‘supply and demand’. The more demand there is for something with a given supply, the higher the price tends to be. In ordinary times a gallon jug of drinking water in a store is a dollar, and from the tap it costs so little we don’t ordinarily put a price on it. Yet if there was just a hurricane, and there is no fresh water available, what would the price of that same gallon be? Ah, now we have much demand and very short supply, and as such the price will be quite dear. Perhaps the price of that water might be several gallons of gasoline (for the seller’s generator, of course.) So what has happened to our economy over the last three decades? In short, things that never should have been became financialized. And as the goods and services became financialized, demand was shifted upward – people were made “able” to allegedly “buy” things they could not otherwise afford. The expected response in the marketplace to such a thing, predicted by basic economics, was that prices would rise.”

“If you’re wondering why you can’t afford to pay for college by flipping burgers or pizzas in your off hours, this is the reason.  It was precisely the distortion of the government making student loan debt non-dischargeable, which made it available to almost everyone at a “low interest rate”, that drove up the price of college educations to the moon.  And to the moon they went – up 450% since the 1980s, more than five times as much as average salaries increased.

How about houses?  A middle-class house in 1960 sold for $12,000. .. That wasn’t so hard to do when you could buy a house at twice the average income.

What happened when we financialized houses?  Prices went up.  A lot.  They went up much faster than did incomes.  First to 3x incomes, and in some parts of the nation in the 2000s they went to utterly ridiculous multiples, like 5, 6 even 10x.  How?  Nobody ever really actually owned the damn house; the bank owned it and you were turned into a financial slave!“

“How about medical care?  In the 1960s your parents wrote a check to the doctor.  If it was really serious they probably had insurance; they got billed and then filed a claim.  Bankruptcy due to medical costs was extremely rare, and you could almost always afford whatever you needed medical attention for by paying with the money in your wallet.“

“Where do you think that money went? Why, right in the pockets of JP Morgan, Goldman Sachs, Morgan Stanley, Citibank, Bank of America and yes, the bank on the corner.  I’m sure you’ve noticed that bank buildings tend to be quite nice.  Grand exteriors, high-rise buildings in the middle of cities (very, very expensive real estate), fabulous lobbies with marble floors and other similar visible elements of opulence.  Where do you think all the money came from to buy that stuff?  Why, from you – the rube standing there in the lobby!  Never mind the bankster’s bonuses!”

“Was this all the “free market” at work?  Absolutely not! Student loan debt was given “special status” and cannot be discharged in bankruptcy.  Fannie Mae and Freddie Mac massively distorted the housing market.  Medical insurance companies are exempt from anti-trust laws, and drug makers were given the ability to legally prohibit you from doing what you’d like with what you own (specifically, reselling things you purchased and paid for.)

All of this distortion in the market occurred due to the direct acts of government acting at the behest of fat cat banksters and industry insiders, using the threat of force to strip your wealth.

Every morning in the financial media we hear about how horrible it will be if we put a stop to this financial rape and the financial system’s size and influence shrink dramatically!“

THE SOLUTION

“But what happens if tomorrow all the ‘free money’ loans stop?  Now the college has empty classrooms because nobody comes any more.  Students can’t afford to attend, so they don’t.  What happens the next morning at that college?  Oh that’s simple: See, it doesn’t cost much to provide a few desks, chairs, and a roof over head along with a calculus book, does it?  Nor does an instructor cost that much when spread across a student body.  Let’s see how cheaply a college can educate you, if they’re unable to extract from you promises from the future and must instead talk you into providing them with economic surplus from your current efforts.”

“The important point here is that if we cut off the financialization of college you will still get an education.  The schools will scream and many will go bankrupt, but soon on the same ground where there was a bankrupt college there will be a new one, and this one will charge $2,000 a semester to attend instead of $10,000 or $20,000.  The difference?  You’ll have to pay cash, but you’ll be able to work a part-time job for the two grand and thus you’ll have no debt!”

“Houses are no different and neither is medical care.  The screaming about how “nobody will be able to go to the doctor” or “nobody will be able to buy a house” is a lie.  The doctor can set his fee at $100,000 for his services if he wants but if nobody can or will pay him $100,000 then he sells no service.  That doctor goes bankrupt immediately, soon there will be a different doctor (or maybe the same one after he goes through bankruptcy) and suddenly medical care will be much-more reasonably priced! After all, if nobody can buy then the seller can’t make a living either, can he?  Prices will be forced down to what the ordinary person can afford to pay.”

“There is no way that such a price disparity would hold for more than 10 minutes were these laws to be dropped.  You get screwed on your prescriptions and devices you buy intentionally by our government through their protection of these industries.  You get financially raped so that everyone in the world can enjoy our medical technology at the mere reproduction cost and the banksters and drug companies can get rich.  It’s an outrage and again, it happens due to financialization of the medical industry and the force of government coercion, NOT the free market.”

“You can bet the banksters, universities, medical societies and housing industry insiders know this, and they’re scared. They know that if you figure it out their income is cut in half or more.  They are returned to middle-class working people rather than the fat cat status they enjoy today.  Doctors, college professors, home builders, bankers and Realtors used to be middle-class citizens, not gold-clad elites driving around in Lamborghinis and living in mansions!

What’s worse (to them) is that if you succeed in breaking the back of financialization these people will lose the ability to enslave you.  You will have returned to yourself the power to choose when you work, how hard you work, and what you do with your own economic surplus, instead of having pledged it to the bank to buy the car, the bank to buy the house, and the insurance company in the event you get sick.”

“We did not find ourselves here because of the “free market.”  We are here because the rich and powerful demanded special protections from government that allowed them to enslave you, they enticed you into taking that first hit off the crack pipe of cheap money, and then once you were hooked good they used the jackboot of the government to screw you through changes in the law and special protections for themselves so that you could not easily escape. The solution is not to demand “free stuff” or “fairness.”  The only solution is to remove the excess leverage from the economy – to get rid of the debt that has been accumulated and force recognition of the fact that not only are many people bankrupt but the financial institutions are as well.  Only when the balance sheets on both sides are cleared can the economy.”

Full Story: OWS: Want To Turn The Tide? (TheMarketTicker)

If the “bad rich” always find manage to find ways to control and manipulate the government, why do so many want to empower them further with addition tax revenue, regulatory power, and more spending, … For all the calls to “more heavily tax the rich”, let’s finally go after the real controlling, manipulative, and politically-connected “rich” people / politicians / banksters / special interest groups, and stop empowering those who are the greatest benefactors of people’s rage and “wealth redistribution” agenda. Let’s also call for a return to a fair and balanced “Rule of Law“.

And for the record, I don’t consider myself a Republican, a Democrat, or a Libertarian, so much as a “Classical Liberal“.

This recently posted video to YouTube by Ann a.k.a. Rockerchic4God describes the public credit crisis dilemma so well I had to post it here. She’s furious that Bank of America would jack up her credit card APR to over 30% despite no change in her credit rating, and no misses in payments. While Bank of America (and MANY OTHER BANKS mind you) were more than willing to accept government largess off the backs of hardworking Americans, they’ve turned around and jacked up rates on middle class debtors across the board to try and make up for all their solid risk management principles based on insane levels of leverage.

Her response is that if Bank of America doesn’t revert her credit card back to its previous rate, they’re not getting one more cent out of her. And she recommends that you do the same, especially if you do not own your own home or other major assets.

This “just walk away” attitude seems to be gaining traction among middle class slavesworkers who are hardest hit by a slithery cocktail of inflation and usurious interest rates that can be changed after the money has already been borrowed, at the whim of the lender without consequence. This attitude could gain traction as more mortgages continue to reset and employment continues to rise (just because people give up looking for a job doesn’t mean that unemployment drops – well, unless you’re the government looking to rig statistics just a wee bit more). The legal system won’t be able to do anything to stop it if tens of millions of people decide to stop paying their unsecured loans. And that’s the ultimate fear of the elite “powers that be” that they don’t want you to realize. If people band together for a just and fair cause against institutions and government that is corrupt to no end, only then can REAL CHANGE ever happen.