FY2009 Week 2

Quote of the week: Bodily decay is gloomy in prospect, but of all human contemplations the most abhorrent is body without mind. – Thomas Jefferson.

In a moment, I am going to grant you access to one of the most extraordinary letters a human has ever penned.

It is a letter that's hard to come by in its entirety. You usually have to subscribe or give up an email, in the rare case you can find a complete copy.

But, there is one thing we have to agree upon before you read it, and that is…

Time passes very much in the same manner as we breathe in that we'd go crazy if we were conscious of every second… every breath.

It's why eight years seems like a long time as you live each day of it… but a blink when you look back on them.

A week and a half from now, on Jan. 20, it's likely that each of us will pause and consider just what is what with our lives, our country and our world – how has it changed since Jan. 20, 2000.

I was reminded of the past eight years when a totally lame Fox News reporter claimed that last Tuesday was the eighth anniversary of the day the 2000 presidential election results were certified.

I suspect, the cute little newsie meant to report that Tuesday was the eighth anniversary of the day that Congress certified the Electoral College's vote.

Anyway, the dimwitted faux news trollop's tidbit caused me to hit the rewind button all the way to late October 2000.

Back then, my wife, Lynn, who was a member of the Oxford Club's investment advisory panel, had just given a speech at an OC conference.  We were about to decamp the luxury of the Las Vegas Four Seasons for three days of rugged camping on the Grand Canyon's north rim.

I'll never forget a stand of golden Aspens that appeared out of nowhere at about 7,000 feet as we drove to our north rim campsite's 8255 foot elevation.

Neither Lynn nor I will ever forget freezing nights camping on the rim… how 45 degrees in the sun could feel so warm… or waking to about four inches of snow on our last morning along side the canyon.

As it was about to be for the United States, late 2000 was a time of change for us.

Lynn was getting famous as a hot options trader and value investor. I was leaving my first and only stint inside the ropes of politics and was back to writing for a living…

Vice President Al Gore had a mortal lock on the presidency running against an inexperienced governor from Texas whose only claims to fame were a long record of failing at business and itchy trigger finger when it came to enforcing Texas' death penalty.

Only a campaign run by arrogant idiots could lose to the Texan.

Then, Gore lost his home state of Tennessee. That led to events that concluded when the US Supreme Court shamed itself in a manner no court watcher could have imagined – in the process the Supremes elected George H.W. Bush as the US's 43rd president.

For people who love war, and bombast and slogans and little government oversight or curiosity, the ensuing eight years flew by – an ultra right-winger's fantasy… a rank-and-file conservative's nirvana… and a Wall Street banker's wet dream.

The latter never wanted to wake up.

You see, George Bush told the US Securities and Exchange Commission to get its nose out of American corporations and investment banks.

INTERNAL ENDORSEMENT

Just this Once

BELIEVE THE HYPE!

It was the email that shocked the investment world.

One noted investment authority told his readers to take seven huge stock market gains on one day… SEVEN HUGE WINNERS on one day that ranged from 526% to 102%… seven, and on stocks… not options.

But that was just the beginning! It now looks to be setting up to happen again this year, too.

That's why you must check out the whole story RIGHT HERE!

He told SEC employees to dutifully do their time and that no one would complain when they left the regulator for big-time jobs at places such as Goldman Sachs, Morgan Stanley and Lehman Brothers – the very businesses they had been “regulating.”

In fact, things got so bad at the SEC most people who know a thing or two about investing knew that the commission didn't know squat about enforcing US securities laws.

Between 2000 and 2006 it was gutted.

And, here is where we come to that letter.

It is one of the most extraordinary letters ever written, because the SEC so blatantly ignored its author – a prominent man who repeatedly warned the commission that Bernard Madoff was running a Ponzi scheme.

I know you don't want to believe this… because it would mean another huge fiasco that President Bush has to assign blame for rather than accepting the fact the he was the boss – the decider – when so much bad stuff happened.

But, you have to be a crappy – no make that all-time-great crappy – chief executive officer to run an outfit that ignored a virtual smoking gun of evidence that proved a society scion was engaged in a massive multi-billion fraud 

But, that's just what the Bush administration and its SEC did. It ignored Harry Markopolos.

No lightweight or gadfly, Markopolos is the former investment officer with Rampart Investment Management here in Boston. He is also a genius at forensic accounting.

For the past nine years, he tried to show the SEC that Bernie Madoff was nothing more than a fraud.  That Madoff's investment performance, given his stated strategy, was not merely improbable but mathematically impossible.

Finally, sick of the SEC's brush off, in 2005, Markopolos penned what should have been a devastatingly persuasive 17-page letter to the SEC.

In it, Markopolos detailed why Madoff had to be a scofflaw. In the letter, Markopolos supposed that Madoff was either a minor scumbag… but mostly likely one of the world's greatest thieves.

He presented an “unlikely” scenario in which Madoff, who acted as a broker as well as an investor, was “front-running” his brokerage customers.

In such a situation, a customer might submit an order to Madoff Securities to buy shares in I.B.M. at a certain price, for example, and Madoff Securities instantly would buy I.B.M. shares for its own portfolio ahead of the customer order. If I.B.M.'s shares rose, Madoff kept them; if they fell, he pawned them off onto the poor customer.

But, reading the 29 “red flags” in Markopolos letter, unless you work, or worked, for the SEC, it is impossible not to conclude as Markopolos did, that, “Madoff Securities is the world's largest Ponzi Scheme.”

To read the letter in its entirety, click here.

It is a heck of a read… good with a cup of coffee Saturday morning or something a bit stronger later in the day.

Have a great weekend.

Make money, not war.

Andy

Not that I liked the K car, but you have to wonder if the folks at Chrysler are thinking, “Where's Lee Iacocca when we need him?”

Even by the standards of battered automakers, Chrysler is in dire shape.

The AP reports that Chrysler's December sales were down a stunning 53%, far worse than Ford or General Motors.

In fact, things are so bad at Chrysler that last year a single Toyota model, the Camry/Solara midsize car, outsold the entire fleet of Chrysler's passenger cars.

Here's something you can bank on but, since Chrysler is privately held, you can't bet on.

Despite $4 billion in government loans and the possibility of more, Chrysler is dead… toast… morte… mooooooorte!

They could be right… those who think oil has a ways to fall yet, might be on to something.

Energy prices plunged across the board Wednesday, giving up a week of gains with unexpectedly large US crude reserves. This suggests that demand for energy has eroded even further.

Sweet crude for February delivery tumbled 12%, or $5.95, to settle at $42.63 a barrel on the New York Mercantile Exchange after the report was released.

The Energy Information Administration said inventories of commercial crude oil inventories rose 6.7 million barrels, well beyond the 1.5 million-barrel build expected by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos.