Life After Madoff

If you are an investor, odds are that you will be using a hedge fund or Registered Investment Advisor to help manage your money. The Broker/Dealer model as it existed at Smith Barney (history) or Merrill Lynch (history) has gone the way of the dinosaurs.

Investors are understandably concerned about the security of their assets, but if you follow a few simple rules odds are you will be OK - after all there are 8000 hedge funds and only a couple of Ponzi schemes.

1: A fund that uses an outside custodian will have great difficulty in pulling off a multi year scam. That's because the custodian sends a 1099r report to the IRS. When your fund files its tax return those trades have to match up, or every investor in the fund is going to get audited by the IRS. Of course, an intra year rip off is still entirely possible.

2: Get to know the fund's CPA. Call him up, make nice. Ask questions.

3: Get to know the fund's custodian. Some are well known, brand name shops like Fidelity or Goldman Sachs. Those names always give me that warm and fuzzy feeling I need to have about my money, but there are many smaller shops that are equally as secure. KNOW WHERE YOUR MONEY IS BEING HELD!

4: I don't let my investors send me all of their money. I tell them they need to have at least 1 other manager, and if they are really rich, as many as are necessary. If your fund wants every last dime you have... well, they are not considering your best interests (IMHO).

5: Desperate people do desperate things, so its best not to tempt desperate people. I can't emphasize this one enough. Is your manager a high flier? Fancy Schmancy? Have a history of litigation or unpaid bills? Signs of drug or alcohol abuse (we all know what they are)? Weekends in Vegas, showgirls, private jets, and Bentley cars? These are BAD signs. Used to be folks knew their banker and his family. Get to know yours. I am not saying the guy has to be Jimmy Stewart, but grounded, family-type-guys, living modestly are usually rational enough to understand the consequences of violating their fiduciary responsibilities (going to prison).

Just thinking out loud...

Today's Data

This is the 3rd week in a row with the U.S. experiencing BIG draw downs in Oil inventory.

In 2005 I said there was NO WAY that the U.S. would produce 1mm bpd of ethanol before a decade.... famous last words. The last 4 weeks' ethanol production in the U.S. was 787k bpd... I am willing to concede that ethanol production will crack 1mm before 2014. The significance of this cannot be understated.

The increase in domestic production in 2009, to which I earlier credited "drill, baby, drill", came ALMOST ENTIRELY from the Thunderhorse field in the U.S. Gulf of Mexico (about 300k of the 350k bpd increase in 2009). So much for "drill, baby, drill". Still, the point is that there is not another Thunderhorse out there, nor another million bpd of ethanol. These were "one offs". In 3 years, net Oil imports into the U.S. have fallen from 12.5 million bpd to 9.8 million bpd - and the decline accelerated this year, down 1.3 million bpd in 2009 alone.

Said another way, the market required nearly $73 per barrel on average to clear and balance the market - that does not argue for a declining demand issue as much as a supply constraint issue... but I am a glass half full kind of guy.

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It should be readily apparent to ANY Obama-phile of last year that our issues are systemic - no presidential personality can effect the kind of change as promised in any campaign or hoped for in the most fervent camps of believers. I do NOT believe all politicians are crooks, or all government employees evil... I believe the system takes good folks with better intentions... and then the system fails them - an it fails us, The People.

The system I am talking about is the "something for nothing" social programs that cannot now be stopped and that will absolutely cause our system to hit the "reset" button. Wasting breath on how to "fix" them is an exercise in futility - and such exercises are a bore.

Not to worry though... REAL change you can believe in is coming.

A New King!

The Chess World has a New King! Congrats to 19 year old Norwegian Magnus Carlson.

I am a recovering Chess fanatic. I know Chess lacks the popularity of Golf, Tennis, or Football (American and International)... but I can't help but wonder how much different/better our political policies would be if political leaders were trained in chess.

Chess is the ultimate meritocracy - which is probably why American presidential candidates avoid it like the plague. Every time I hear how "Brilliant" Barak Obama or Bill Clinton is, or how "brainy" Bill Bradley was (I know I am dating myself here), I want to sit them down at a chess tournament. Ah, but lawyers are the only folks bright enough to do in the American political and economic system...