Spitzer V. Grasso, Or Whats Good For The Goose...

By: Bill Cara | Wed, May 26, 2004
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Before getting into today's subject, Spitzer versus Grasso, in which I am going to point out a unique perspective, unlike any you have read elsewhere, let's look quickly at the overnight markets.

The Japanese Nikkei Dow, as I call it, was up 1.73% to 11,152 due mostly because it was following the NYSE inter-listeds that yesterday enjoyed their biggest rally in two months. I noted, however, that Japanese financial stocks did absolutely nothing and they must for that rally to continue. I expect it will because the Japanese are squarely focused on their economic growth.

Like other stocks in this region, the Japanese stocks (and gold for that matter) have been held back due to a strong U.S. dollar. That will change before the global equity markets start to swing into their next bull phase this summer.

My readers will be amazed at my call on the Nikkei 225, which I reported on in the May 15 regional review entitled, "Japan Looking Good!"

Anybody who looked at a chart of the Japanese stock market on that day saw a 13.9% free-fall from the April 23 level of about 12,200 to about 10,500. Undaunted, the Trader Wizard wrote to you that this was the key market in the Asia Pacific region that would turn around first. I saw the market internals changing and so I made my call.

Since May 15, the chart of the Nikkei will show an immediate snap-back rally of 6.2%. I called it. Meanwhile, most investors have been bitching and moaning about their U.S. stocks, for which over early April I called a serious bear phase and that too has occurred.

The job of Trader Wizard, however, is unlike anybody else you can read. I try to explain why capital markets move the way they do so that readers can learn to make better decisions on their own. I believe in personal independence and will do all I can to facilitate my readers to achieve that important objective.

Overnight in the other Asia Pacific markets was unimpressive for the bulls to say the least.

The Hang Seng was up 0.25% in Hong Kong, the Taiwanese market was up 1.16%, and the Shanghai exchange index up 0.42%. Compared to what went on in New York yesterday afternoon, these moves are minor.

The China central bank is about to report whether they will raise the bank rate so investors there are waiting and hoping that the news is not too bad.

Elsewhere, India's BSE Sensex was down 0.40% and the South Korea market was down sharply 1.95% on worries their economic growth was slowing.

Back to the big three Chinese markets for a moment.

You know that the Rotten Apple (NYSE and Nasdaq) is the engine of American capitalism. The corporate finance specialists of the huge U.S. broker-dealers, like Goldman Sachs, Morgan Stanley, Merrill Lynch and all, are renowned for their own wizardry in raising capital for America and the world.

Well, just like the big three U.S. auto manufacturers now have to take the back seat to Japan's Toyota, Honda and Nissan Motors, the Rotten Apple will have to take second place to underwriters in Shanghai, Hong Kong and Taipei.

Yes, amazingly, the China new issues market this year will come in at a total of about US$20 billion, a 50% increase, whereas the Rotten Apple was able to raise under US$18 billion in the aggregate.

Wow! That's a bigger performance than we got last evening from American Idol finalist Fantasia Barrino, which simply knocked the lights out of the house, where I suppose 80 million plus were watching in North America (although I haven't checked the numbers yet).

Back to today's topic.

Spitzer V. Grasso. The Heavyweight Championship of the Capital Markets. A Financial World War.

Call it what you will, you will be watching - from every nook and cranny from remote regions of Russia to tiny South Pacific islands few people even know the names of.

Eliot Spitzer is the New York State Attorney General who on Monday sued former NYSE CEO Richard Grasso and some of the NYSE board members. He has alleged cheating and connivery in the extreme on the part of Grasso.

Spitzer sees the issue clearly and he's going to prosecute. If you run a Not-For-Profit Organization, which is an entity organized under the laws of a State to support a public constituency (in this case the common man who invests in stocks and bonds on the NYSE), then you ought to be paid a reasonable compensation.

Perhaps you deserve a couple million in the case of the world-leading NYSE. But a couple hundred million?

Are you aware that the professional traders on the NYSE have been screaming murder as their costs have been raised enormously so that Grasso could skim that amount?

Well, what's good for the goose is good for the gander? If the goose is going to keep the gander in the dark, concealing the fact she's not providing eggs but rather is taking them for herself, it's time for the gander to put his foot down.

What is the origin of the term "gander," which is a male goose?

In the parody of George Orwell's Nineteen Eighty-four that Spike Milligan wrote for the Goon Show in 1955, he has Harry Secombe entering an antique shop: "Good evening. Do you mind if I take a gander around the shop?" to which shopkeeper Crun replies, "No, as long as it's housetrained."

Grasso, apparently, was not housetrained. Spitzer has put his foot down.

Spitzer, in fact, is screaming fraud, as I heard his interview on Monday evening on the Kudlow and Cramer show. He wants $140 million returned to the NYSE and used for supporting the users of the NYSE. He says it's wrong to take 99% of the net proceeds of a Not-For-Profit Organization and put it into your pocket in the secrecy of hidden backroom dealings.

Grasso, for his part says, "You sue me. I sue you. It's the American way.... I signed a contract in good faith, and my employer owes me another $40 million (or whatever)."

Grasso, I think, has it wrong. I think he was "self-employed".

But let's not jump to conclusions. Both sides are brilliant men who will present strong legal argument.

No, I think the public has not quite yet understood where all this is headed. It's about what I constantly rant about. It's actually about more than the money. It's about the control of the capital markets.

Grasso and his Sell-Side friends are actually fighting for a lot more than $140 million. They are going to go to war and I mean war, in order to preserve their oligopolistic control over the NYSE and hence the global capital market.

These financial intermediaries who serve the owners of capital, not as their servant mind you but as master, are going to fight the Mother of All Wars to hold their present ground.

To win the hearts and minds of the public, Spitzer is going to trot out the obscene compensation packages these salesmen are able to take from you, the independent investor. You are going to be shocked, shocked, I say.

This is going to be a bigger story than the screenplay at Rick's Café Americain in Casablanca. I expect books and movies to be made.

The subject matter of course is highly serious. It's about the rights of the owners of capital to go direct to the capital markets without having to use intermediaries.

It's about restructuring the capital markets into a level playing field where your financial advisor is not also permitted by law to trade his own capital, without your knowledge and consent, against you.

It's about being informed the truth about the costs you pay when financial transactions are made on your behalf.

To win the hearts and minds of the corporations that use the facilities of the NYSE to raise capital, Spitzer will point out how CEO's have been forced to comply with Grasso's new rules to split the roles of Chairman and CEO, for the sake of "good corporate governance." Yet, he refused to live by his own rule.

Oh, this is going to get nasty.

The Sell-Side has given you the Enron's and other ridiculous tax shelters you never understood but went along with on the basis of trust. They have lied to you about the truthfulness of the facts behind the WorldCom's and the dot-com's, in order to skim their humungous corporate finance fees. They have mismanaged your mutual funds, while personally enriching themselves.

The bad news is endless, and (some) readers thought I was just on a worthless rant.

I know about the Street because I played a senior role there and was part of the game.

Well now you know the term, "gaming the public". In my blog, I have told independent investors that they have been bilked trillions of dollars over the years, and at the core of the Rotten Apple are the Sell-Siders who took control of the NYSE, and more recently, the Securities and Exchange Commission.

So this purge of the failed NYSE facility is going to be replete with mind-blowing depositions. Finally, the mushrooms will be brought out from the manure pile and exposed to the sunlight, which you and I know is the best disinfectant.

I have been dreaming about this day for many years. Like all things in life that temporarily swing one way, I knew the time would come when there was a reversal.

Go Eliot! You have my full support and I trust and hope you have the support of the owners of capital throughout the world.


 

Bill Cara
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