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Joseph L. Shaefer

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  • Too Big to Fail: Now It Gets Interesting [View article]
    The last President with the guts to go trust-busting was Teddy Roosevelt. Couldn't we, just once a century, enjoy a similar courage from our leadership?

    If you read the preserved newspapers from that long ago time, you'll find that John D. Rockefeller and the other robber barons said the EXACT same thing at the time that Goldman, Citi, Morgan, B of A and AIG are saying today. "If you break us up, millions of jobs will be lost." "America will now lose its competitive position in the world." "We must keep our mega-giants so as to compete with other giants from across the sea." And "You are destroying the very strength of America, replacing capitalism with socialism."

    To which I say, hooey, balderdash, horsefeathers and moose poo. These "too big to allow to fail" oligarchies were split up and it ushered in a new era of competitiveness in American industry that allowed us to label the 20th century "The American Century."

    The choice we face now is remarkably similar. We have allowed a few institutions to enjoy a revolving door relationship with Washington DC, providing favors, campaign contributions and employment to politicians in exchange for "Most-Favored Corporation" status. Whenever they do something stupid that would destroy another company, these once and future employees rush to transfer OUR savings (via taxation) to the Most-Favored Corporations.

    David can beat Goliath and often does. It's part of the creative destruction that allows hope, change, and growth. But when David has his arms and spirit broken by a government that then stands firmly behind Goliath, propping him up whenever he is felled, usually by his own mis-deeds, it makes the job a lot tougher.

    Too big to fail? Tell it to Teddy Roosevelt. Or to today's Exxon, Chevron, and a host of newer names allowed to grow and prosper because we refused to believe the hooey, balderdash, horsefeathers and moose poo put out by a bunch of cowards Too Big to Be Willing to Compete.
    Oct 23 10:53 AM | 42 Likes Like |Link to Comment
  • Nouriel Roubini, One on One: More Doom and Gloom [View article]
    The Economists' Rule to avoid ever 'fessing up to being wrong is: "Tell 'em what or tell 'em when, but never tell 'em both."

    Dr. Roubini has built a fine business following this rule, as have Robert Prechter, Mark Skousen, Howard Ruff, and scores of others in the past. "What's going to happen?" "There will be a terrible decline." "When?" "Sometime in the future." "How do you protect yourself? Gold, commodities, equities, debt?" "No. None of those will work?" "What then?" "Stay liquid."

    It happens that Dr. Roubini and I agree that this thing has come too far, too fast. Where we differ is that I refuse to cower in a hole somewhere eating trail mix and muttering, "I told you so," so I will allocate to the assets and purchase the sectors I've been writing about, all the time enjoying the party, but taking some profits along the way so I don't have a lot of baggage as I quietly edge toward the exits.

    In the real world, I need to make a reasonable return for my clients and myself no matter what I THINK the markets or the economy are going to do. Being rich, or at least protecting assets and making a reasonable return in all types of markets, is more important to those of us in the real world than being right!
    Oct 23 10:38 AM | 38 Likes Like |Link to Comment
  • The Bernanke Plan: Sacrifice Savers to Recapitalize Banks and Benefit Debtors [View article]
    My former boss, Chuck Schwab, is spot on. Chuck made a fortune the REAL old-fashioned way. He saw an opportunity to help people by breaking the old-boy network on Wall Street and offered lower prices with real service. That's what makes American entrepreneurialism the only riposte to a government hell-bent on providing all services to a compliant public.

    Savers today -- the backbone of capital formation and therefore entrepreneurialism -- are being shafted. Deadbeats and those looking for handouts rather than opportunity are being rewarded. That's topsy-turvy to the way the world should work. The way the world should work is I start a business, realize that my capital is too constrained to grow it like I want to, call Chuck Schwab, he flies out, we shake hands (no written contract, why did we need one -- we shook hands) and I have added my business to his, for both our, and our employees' and clients', benefit.

    Oh, that's right, that's the way it does work -- absent the heavy hand of a government whose desk jockeys think they know what's better for us than we ourselves do...
    Mar 31 02:14 PM | 36 Likes Like |Link to Comment
  • Roubini: The Recovery as a House of Cards [View article]
    Roubini and I happen to agree that there is another leg down, if only because sentiment has raced ahead of reality. Where we differ is that I am no perma-bear.

    I can vote with my wallet that the current nostrums for fixing these problems from our alleged leaders will fail. But long term, I wouldn't bet against the resiliency of the American people and the ingenuity of the American entrepreneur.

    For those who say I'm wrong and the country has fallen off a cliff -- you're proof of my point. When EVERYONE is as angry as you are, we'll change it.

    And then, even the Compost of Nature Bull Channel will finally be right...
    Feb 12 11:14 AM | 34 Likes Like |Link to Comment
  • V-Shaped Revenue Recovery + L-Shaped CapEx Growth = Unstable Economy [View article]
    Re inventory re-stocking: Across all sectors and industries, it took nearly a year for enough inventory to be sold to need re-stocking. Do they really expect us to believe that now the sellers are going to re-stock to previous over-stocked levels? People that dumb work for the government, not private industry. Just-in-time inventory control will more likely be the order of the day.

    Re CapEx: CapEx doesn't happen even when executives foresee a rosy future and when external events justify it. (Both absent right now.) They also need access to funding. And banks aren't lending. Why should they when they are on track to make $38.5 billion in overdraft charges on the backs of their depositors? GE Capital is even turning down requests for loans from many trying to buy GE's own equipment. Concern from execs, external environment warrants caution, and no money anyway. Sounds like three strikes on CapEx to me.
    Aug 12 12:14 PM | 34 Likes Like |Link to Comment
  • High Frequency Trading: Legally, It's Called Churn [View article]
    As a former (way former, but the conference planners don’t seem to notice) head of Fixed Income Trading for Charles Schwab, where we refused to engage in the smarmy goings-on this article refers to, I am nonetheless still invited to attend a special institutions-only conference held once a year in San Francisco.

    I go because I need to be reminded once a year, that no matter what their hundreds of millions in advertising loudly proclaims, Wall Street has no interest in the retail investor beyond providing a flow of funds, a site into which they may dump their toxic waste, and, increasingly less relevant as their program trading grows ascendant, a few pennies in retail commissions.

    Mostly I watch -- I gain the best intel when I am a fly on the wall, not a gadfly. But when I have inquired, during the numerous cocktail hours where men who really should learn to hold their liquor better talk about their latest slash-and-burn, whether algorithmic trading, using special “venues” and vendors to break million-share blocks into 300-share units in order to escape detection, and program trading, might destroy the goose that lays the golden egg – the public whose life savings they are entrusted with – they look at me as if I stepped off another planet.

    “The public? They should just stay the *&^$ out of our way. They should know that we are dragons and they taste good with a little ketchup,” is one answer I received at last year’s September conference, just as they were lighting the fuse that made them crawl, whimpering, to their once and future co-workers at Treasury to beg for a bailout from the “public” they deride. These are the new Masters of the Universe, once again ascendant in under a year. They’ve learned nothing, as I’m sure I’ll discover and report at this years’ conference in a few weeks. Of course, even Masters of the Universe encounter a public Bonfire every now and again…
    Jul 22 11:36 AM | 33 Likes Like |Link to Comment
  • What Are Today's 'Extraordinary, Popular Delusions?' [View article]
    Dear "American" in Paris --

    In lecturing us, you say " 'YOUR' country is a lost cause..." and " 'WE' here in Europe...," then you laud China for its "elite education system..." To Rhianna's point above, this is an investing site, not a political one, and I try to only bring the political into these discussions when it directly impinges upon the financial.

    HOWEVER -- let me be clear. *MY* country is not a lost cause.

    WE still have to turn away immigrants from the rest of the world, and I do believe anyone who has experienced the educational system bent upon creating The New Socialist Man firsthand (Poland, Czech Republic, Romania, et al) will tell you they are designed to create brilliant one-dimensional physicists, engineers, etc. whose first instinct upon reaching three-dimensional maturity is to leave that system for one where they can live a real life.

    We disagree in this country. That doesn't mean we hate America, as you seem to. Disagreeing, changing, adapting and growing is what Americans do best. This time will be no different IF we are willing to discuss, disagree, roll up our sleeves, and move forward. Hell, we lived through the administrations of Richard Nixon and Jimmy Carter. This should be a cakewalk.
    Apr 2 11:59 AM | 30 Likes Like |Link to Comment
  • Fourth Quarter GDP: There's Your Inventory Bounce [View article]
    Why complain? This gives those who feel strongly that a decline is coming an opportunity to sell to those fooled by the report. Any stray cats and dogs you want out of? Now's the time!
    Jan 29 11:13 AM | 30 Likes Like |Link to Comment
  • Price Deflation Is Everywhere [View article]
    TeresaE is spot-on. I read a survey of grocery prices recently that showed while "prices" remain the same (or are even down a couple pennies here and there) the price PER SERVING has risen steadily. 12 ounces of potato chips that came in a 12-ounce bag now contain 10 ounces of chips and enough air to keep the same "12-ounce" bag!

    It was the same with canned goods with more liquid, packaged goods with bolder packaging, etc. Only the ice-cream makers can't fool us with packaging. If ice cream was $3.99 for a 2-quart container last year, it's now only $3.89 -- but the container now holds just 1.5 quarts.

    What was that about fooling some of the people some of the time?
    Feb 18 01:58 PM | 26 Likes Like |Link to Comment
  • $70B Drop in Outstanding Consumer Credit: Double the Expected Pace [View article]
    Bloomberg may be correct – the recession may be “easing.” But then, if I am in a car that has lost brakes and steering, and is careening down a 30% grade toward a cliff, just because the grade lessens to “only” 20%, there might still be a lot of pain in my future...
    Aug 7 06:54 PM | 26 Likes Like |Link to Comment
  • A Warning to America from the East [View article]
    The problem is not denial – it is deception.

    For a time, the American people may have been in denial as they went whistling past the graveyard. But the problem is not denial by leadership, as may have been the case in Japan. In this country, it is outright deception. Wall Street sends its minions on “sabbaticals” to Washington D.C. – where they “take one for the team” and labor for peanuts (still 4 times the average American’s salary) in order to direct policy in Wall Street’s favor.

    The deception is getting more difficult to perpetrate, however. Once they’ve floated more watered stock to the public, I fear we’ll pull back the curtain and find that the Mighty Oz is a pathetic bundle of bad loans, over-leveraged derivatives, off-balance sheet time bombs, and “assets” worth half what they claim.

    It’s time we disdained denial and disciplined deception.
    Sep 2 11:12 AM | 25 Likes Like |Link to Comment
  • The Coming Economic Collapse, Part 2 [View article]
    Thank you for a well-written and well-researched article, Mr. Summers. It seems to me, simply from the vehemence of agreement or vitriol of disagreement from the comments you’ve received, that we are somewhere near the inflection point you and I have both written / warned about!

    I’d only disagree with one of your premises. You stated it in Part I, as well as here, that one of the developments boding ill for the country is, “The US’s economic shift from manufacturing to services.” Actually, the US is still the world’s #1 manufacturing economy. And any “shift” to services is more a common-sense result of the global shift for advanced nations with high literacy and education to lead the new information economy.

    As I wrote in the current issue of our publication, Investors Edge, services are more than flipping burgers – they also include, as a much larger portion, software design, systems analysis, engineering services, etc. If manufacturing declines as a percentage of total goods and services because we are on the cutting edge of this cusp, I wouldn’t consider that a bad thing, at all. I’ll try to find some time today to post from that article, and would be interested in any comments you have…
    Jun 8 11:52 AM | 25 Likes Like |Link to Comment
  • Just One Safe Haven [View article]
    Thank you. As I mentioned to the gentleman above -- and which a cursory review of my previous articles would have shown -- we are in agreement that, long term, the dollar is a dreadful investment. In the short term, I simply believe it will be less dreadful to maintain our capital than to lose 20% -- all the while sleeping quite soundly, thank you.

    Apparently it is a little-known fact that gold fluctuates down as well as up, too!
    Jun 20 05:49 PM | 24 Likes Like |Link to Comment
  • Was the AIG Bailout a Goldman Bailout by Proxy? [View article]
    “Ultimately, you try to hedge what you can hedge; what you can’t hedge, you try to quantify; what you can’t quantify, you try to understand; and what you can’t understand, you keep small enough not to sink the firm.”

    I believe for full understanding, you need to extend the final sentence with “OR you need to be the biggest political contributor on Wall Street and have your employees-on-sabbatical placed – sorry! ‘doing public service’ -- in all the right places.”

    Like Goldman protégé Tim Geithner as Secretary of the Goldman Corporate Welfare Department, formerly known as the US Treasury. Or former Treasury boss Hank Paulson, ex-CEO of Goldman who, as Treasury chief, picked Ed Liddy, a former Goldman executive that worked for him, to become CEO of AIG. I’m sure this is all just coincidence, of course…
    Jul 27 03:53 PM | 24 Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    < "GE's Immelt to head jobs panel. President Obama will tap Jeffrey Immelt, GE's (GE) chief executive, to head a new White House panel aimed at finding ways to spur private-sector job growth." >

    So, rather than find any five entrepreneurs -- the people who actually create new jobs -- the Administration turned to the CEO of the company that has arguably sent more US jobs overseas than any other in history and that has laid off thousands in the last 24 months.

    Comedians work all day long to find stuff this funny. As Will Rogers once remarked, "I'm not a comedian. I just read the newspapers."
    Jan 21 09:21 AM | 23 Likes Like |Link to Comment