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  • The New York Times – All The News That’s Fit To Manipulate

    In the 1980s and 1990s, I worked for the commodity trading division of Salomon Brothers. Goldman Sachs and their commodities division, J. Aron, were our chief competitors.

    In the March 14 issue of the New York Times, an article appeared on the Op-Ed page by a Mr Greg Smith. This article is getting a lot of attention in the media. The Times knew that it would. Mr. Smith, an "almost" 12-year veteran of the sometimes-venerated - and most-times hated - Wall Street powerhouse publicly said goodbye to the firm in his treatise "Why I am leaving Goldman Sachs."

    He said: "The interest of the clients continue to be sidelined in the way the firm operates and thinks about making money."

    I have known Goldman Sachs for more than 30 years. Goldman Sachs and its employees have always known why it is in business. Making money has always been the number-one reason for the firm's existence.

    But Mr. Smith disagrees. He wrote: "It might sound surprising to a skeptical public, but culture was always a vital part of Goldman's success… It wasn't just about making money."

    "It makes me ill how callously people talk about ripping their clients off."

    Successful Goldman employees never had a problem taking a hunk of flesh from a client. The culture of the Goldmans and Salomons of this world encouraged making money, long before Mr. Smith showed up on the scene. The more money you brought to the firm the more money and prestige was accrued to you.

    And, conversely, if you did not bring the cash in you found yourself an ex-employee. It has always been a simple and effective formula, and one that has made many people very rich.

    Mr. Smith continued: "It astounds me how little senior management gets a basic truth: If clients don't trust you they will eventually stop doing business with you."

    Well, it astounds me that a 12-year veteran of Goldman Sachs could make such a statement. It reveals an astounding lack of knowledge and understanding of the firm at which he spent more than a decade!

    Mr. Smith said: "When I was a first year student, I didn't know where the bathroom was, or how to tie my shoelaces… I was taught to be concerned with learning the ropes, finding out what a derivative was, understanding finance, getting to know our clients… learning how they defined success and what we could do to help them get there."

    As a trainee, did he not see the managing directors on the trading floor, sales desks, and investment banking suites who were being paid tens of millions of dollars? Did he not understand that the cream of the crop at Goldman were not those who were "helping" their clients, but those who were adding hundreds of millions of dollars to the bottom line of the firm itself?

    Mr. Smith's comments are as weird as CEO Lloyd Blankfein's statement that Goldman Sach's does "God's work."

    As the New York Times put it, Mr. Smith resigned "as a Goldman Sachs' Executive Director and head of the firm's United States Equity Derivatives business in Europe, the Middle East and Africa." While a very impressive title to a layman, in Goldman-speak the only title that really carries any weight at the firm is managing director or partner.

    Greg Smith in his piece pines for the "good old days" at Goldman. The days of Robert Rubin, the manipulative trader and boss who made fortunes for the company, himself and weaseled his way into a job as Treasury Secretary of the US under President Clinton.

    Or perhaps back to the days of Hank Paulson, who took the firm public, made billions for the firm and became Treasury Secretary under President Bush II.

    Or perhaps back to the days of John Corzine, who ran Goldman until he left to become the Democratic Senator and then Governor of the state of New Jersey. This is the same John Corzine who recently allowed a 200-year-old commodity firm, MF Global, to go belly-up on his watch. Corzine was purported to be trying to turn MF Global into a "Goldman Sachs" by making huge leveraged bets on European debt markets.

    A huge score on this trade by Corzine would have given him the money necessary to build MF into the next Goldman but it was not to be. At the end of the day, it was the clients of MF Global who lost money.

    The current CEO of Goldman, Mr. Blankfein, was a gold trader for the firm in the early '80s when I knew him and he ran the commodities division later on. President Gary Cohn was a very aggressive base metals trader in London in 1989 when I knew him.

    I can attest to the fact that both of these men have done absolutely nothing to change the culture of Goldman Sachs. In fact, it is still the very same machine focused on making money that it was 12 years ago when Mr. Smith joined. And, in fact the same firm that it was 30 years ago when I started competing with them.

    I guess Mr. Smith is nothing more than a cockeyed optimist. However, I am surprised that with all of his education and credentials it took him 12 years to realize what GS really is.

    Obviously, Greg Smith is educated and polished. Otherwise, Goldman would never have hired him in the first place. It is clear that Mr. Smith is not as observant or street smart as others who work at Goldman or on Wall Street for that matter. I am sure that Lloyd Blankfein and Gary Cohn are not losing any sleep with this genius leaving the firm.

    Goldman's culture has always been built on "ripping the eyeballs out of muppets" and "getting paid" and taking risk. The master manipulators of the US treasury came out of this money making machine-Robert Rubin, Hank Paulson, and John Corzine.

    My problem is not with Mr. Smith or his treatise. I feel bad for Greg Smith. He is a 30-something-year-old naïve kid, who is not too quick on the uptake, considering it took him 12 years to see through the BS of a corporate-culture lecture at one of the most carnivorous firms that has ever existed in the financial world.

    In the '80s and '90s and even recently the company's best customers always referred to Goldman as the firm they "love to hate."

    Goldman was, and is, so powerful in the markets that you have to do business with them or you miss out on the flow of information - just ask any significant hedge fund manager, sovereign wealth fund manager or mutual fund manager. They will all tell you the same thing. As Warren Buffet once said: "If you want to make money, hold your nose and go to Wall Street."

    Buffet owns a big chunk of Goldman today with a juicy dividend. Do you think that Buffet wants Goldman to be the firm that Mr. Smith hoped they would be?

    My problem with this piece is that the NY Times actually decided to print it.

    The NY Times showed itself once again to be nothing more than a manipulative and biased liberal rag. This article caters to the Occupy Wall Street movement. The article is misleading to those who don't understand how and why Wall Street operates.

    The article is not an op-ed piece; it is a work of fiction, written by a well-meaning kid who thinks he is writing non-fiction!

    The bottom line is that the kid got it wrong. Now he should go work for the peace corps - or maybe George Soros!

    The NY Times has once again attempted to mislead the masses with a piece that is not only false but will one day embarrass the poor naïve kid who wrote it.

    Shame on you NY Times!
    Tags: GS
    Mar 16 11:14 AM | Link | Comment!
  • Make Big Money in Macau’s Casinos… Without Gambling

    In the spring of 2004, gaming tycoon Sheldon Adelson placed a stupendous gamble, a quarter-billion dollar bet on a new casino.

    That his company, Las Vegas Sands Corp., would drop a quarter-billion on a new casino/hotel was no surprise. The Sands epitomized Vegas cool in the 1950s, and gave birth to what became the Rat Pack – Frank Sinatra, Sammy Davis Jr., Dean Martin, Joey Bishop and Peter Lawford.

    And by the mid-2000s, Vegas hoteliers were more than a decade into their latest process of creative destruction, one-upping one another by building ever-larger, ever-grander hotels-as-adult-theme-parks along Las Vegas Boulevard.

    But Adelson did not place his bet on the gambling Mecca his company helped define.

    He placed his bet on Macau.

    His gamble paid off in spades. Ultimately, Adelson would win back his quarter-billion dollar bet in just eight months, and go on to win billions more in profits.

    But his success had nothing to do specifically with gambling. It was not about casinos, the rise of Macau or the decline of Las Vegas. It was not even about China, per se, though the Middle Kingdom is clearly a leading player in the new drama unfolding.

    It was about the end of an empire … and the rise of a new middle class.

    Pockets of Growth Continue to Thrive Despite the Economic Chaos

    Instead of flying 15 hours across the Pacific to reach the neon Vegas Strip, when the Western world fell apart amid the global financial crisis, Asia’s gambling-crazed punters opted to travel just a few hours to the equally electric Cotai Strip in Macau … to hotels like Adelson’s Sands Macao and the Wynn Macau, the Chinese outpost of Vegas-based Wynn Resorts Ltd. that opened in 2006.

    Asian tourism to Vegas fell away even as Asian tourism to Macau jumped to 97.2% of the island’s visitors in 2010 (from 91.8% just two years earlier). The absence of Asians – particularly the wealthy whales who once flooded Las Vegas – helped crush Vegas’ gaming revenues, which plunged to just $5.2 billion in 2010, a 20% slide from the 2007 peak.

    Yet, Macau’s gaming revenues exploded during that same period – to more than $23.5 billion from just $3.6 billion in 2003, the year before Adelson planted the Sands flag in China. Moreover, Macau’s gaming revenues have continued to grow every year, even as Vegas continued to fall and as Western economies sunk ever-deeper into economic turmoil based on structural flaws that many of today’s developing economies don’t face.

    The economic decline that has buffeted Vegas underscores a powerful, irreversible shift that most investors fail to see and don’t understand – the rise of the middle class in places like Indonesia, Nigeria, Colombia, China and elsewhere outside the Western world.

    The wave of prosperity that lifted Las Vegas – and America – in the decades between 1945 and 2001 is receding here at home and is, instead, now lifting consumers in countries many Americans can’t even find on a map.

    Just as Macau displaced Las Vegas as global gambling’s new Mecca, the emerging consumers now rising up in the world’s developing nations are starting to displace American consumers on a far broader scale.

    For many in America, that’s a call to arms – a reason to rail against China and its undervalued currency or to block free-trade agreements on misplaced concerns that they are the cause of the decline in America’s middle class.

    For those who think with a bit more savvy, it’s the reason you look overseas for investment opportunities.

    America is moving into the shadows as the sun shines on a new breed of younger, more-energetic economies – and that’s not a reason for lament. It’s the same in life – the youth of yesterday are today’s slower-moving middle-aged workers and retirees, and that older generation naturally yields to the vigor and innovation of youth. Likewise, larger economies ultimately must cede the mantle of growth to the up-and-coming nations.

    That’s the sea change now underway in the world, and it will define global economies for at least another three decades. You either get on board with that trend and exploit it for profit … or you complain about it and miss the opportunities this global trend is giving you.

    Make Big Money in Macau’s Casinos…Without Gambling

    One way to capitalize on this change is to look at what’s happening in those Macau casinos and follow the money.

    The gambling growth in Macau (as well as gambling centers now growing in Singapore, Malaysia and Cambodia) means increasing profits for the companies that supply the casinos with all their gear. And you’ll find one of the leaders in that industry down in Australia … a company called Aristocrat Leisure Ltd.

    Action to Take: BUY Aristocrat Leisure, symbol ALL on the Australian stock exchange, up to A$2.50.

    Due to worries about a global economic slowdown tied to the West, gambling stocks have come under pressure in recent months, so look upon Aristocrat as a longer term play. Ultimately, though, Aristrocrat is one of the leading suppliers of video-slot machines, and gambling across Asia has nowhere to go but up.

    My price target for the shares is north of A$5.

    Until next time, keep a global view…

    Jeff Opdyke
    Editor, Emerging Market Strategist

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Oct 12 4:47 PM | Link | Comment!
  • An Emerging Market Rice Cartel in the Works?

    If you sit alongside the Chao Phraya for even just a few minutes – any time of day – you’ll certainly see Thailand’s rice economy come floating by.

    And for such a small country, it is a huge economy … one that could well reshape rice and Asia’s agricultural trade in coming years.

    The photo below is the view from my hotel balcony in Bangkok, overlooking the river. To the left, you’re on your way to the nearby ports and the Gulf of Thailand … and ultimately out into the South China Sea and the rest of the world. To the right, you’re heading ever-deeper into the heart of Thailand’s central plains – one of Asia’s major breadbaskets.

    There in the middle … that’s a rice train. Three large, black barges lashed together and pulled against the fast river current by four tug boats lined up next to one another (you can see them up ahead of the barges to the right).

    This time of year Thailand is moving into its annual rice harvest, and the Chao Phraya is fat with rice barges. They’re everywhere. Barges loaded with tons of rice and heading downstream to the ports navigate to pass strings of empty barges pulled upstream to reload in Thailand’s fertile and abundant rice fields. People live on these barges during rice season … dogs too.

    The OPEC of Rice

    So much rice grows in Thailand that its own people can’t possibly consume it all. Much of it ends up on those barges, headed to mouths around Asia and the rest of the world. Indeed, Thailand, despite not even ranking among the top 50 countries in terms of land mass, leads the world in rice exports.

    It also sits at the nexus of what will emerge as one of the world’s premier breadbaskets – Indochina. In coming years, you will see the emergence of what could become a rice cartel stretching from Vietnam, through Laos and Cambodia, and into Burma. Thailand, the region’s largest and most-advanced economy, will be the center of that trade.

    All are major rice-growing nations. All have the perfect terrain and climate. All have inexpensive and large workforces to handle the labor. All are also opening up their economies. Laos launched a stock market earlier this year, and Cambodia is soon to list the first two of several publicly traded companies. Burma, meanwhile, is in the throes of finally opening to the rest of the world after being shut off for decades by a paranoid military junta.

    At the moment, all are also far behind when it comes to modern agricultural practices.

    Drive into the rice fields in any of these countries and you will see workers stooped over, laboriously planting or harvesting rice by hand. You’ll see water buffalo serving as the engines to plough the fields. You’ll see rice laid out in vast carpets of tarpaulin spread out to dry on local roadways, unnerving traffic.

    And still, even at that, a place like Thailand leads the world in rice exports.

    Just imagine the productivity increases Indochina will affect once mechanization and efficient farming practices are widespread. Vietnam, Laos, Cambodia and Thailand will be the OPEC of rice. They will own the market and set pricing. The region will emerge as an agricultural juggernaut feeding not just its own emerging middle class, but the hungry hordes in Japan, Korea and China … as well as India and Africa.

    It’s a trend I see all across Southeast Asia – the palm-oil plantations in Indonesia and Malaysia; the growers of specialty crops and spices like cinnamon, pepper and sesame (commodities people rarely think about, but where demand grows alongside the new middle class); the commodity-trading companies that dominate these and other markets in developing countries in Asia and Africa.

    Yet too many Western investors either overlook this trend or they fail to recognize it for what it is – a huge opportunity for profit.

    Commodities: The Building Blocks to Everything the Middle Class Wants

    I have been a fan of commodity investments for many years, owning the commodity-trading companies and the commodity producers across Asia, Africa and the Middle East. It’s my way of profiting from the rise of the middle class in the developing world. It’s a powerful trend.

    Unstoppable, really.

    Give a poor person a taste of something better and he’ll will fight and scratch and claw to improve his standard of living just to maintain access to a better life for himself and his family.

    Commodities play a starring role in the quest. They’re the building blocks for everything in life … the wheat that feeds the cow that makes the milk … or the hamburger. The iron ore that makes the steel that builds the bridges and ports. The trees that make the wood that build the houses going up all over the developing world. The bauxite that goes into the aluminum that builds the cars and dishwashers that emerging-market families are now buying in huge numbers.

    I was sitting in the office of a Hong Kong commodity-trading company earlier this month talking to the CEO about the business, and he spoke directly to those rice barges I would later see on the Chao Phraya. You have to look at the world, he told me, in terms of the substation that’s now happening en masse in countries like Thailand and Cambodia, Zambia and Ghana, China … and so many places outside the West.

    “People are trading up to a better life,” he said. They’re eating better. Using more energy. Building more infrastructure. None of this is a passing fad. It’s the new reality. Seventy percent of his company’s future growth, the CEO told me, “will come from servicing the growth in commodities in the emerging markets.”

    Supply the middle class – with sugar, with energy, with rice – and you have your roadmap to profits for the next few decades.

    Until next time, keep a global view…

    Jeff Opdyke
    Editor, Emerging Market Strategist

    Sep 30 2:03 PM | Link | Comment!
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