Who Were the Real Hit Men?

Liz Moyer, of Forbes, began an article about a certain wireless equipment manufacturer in October 2006 with these words, "There's a hit out on Pegasus Wireless."

The rest of the story consisted mostly of a re-hashing of the complaints of Pegasus' chief executive that a dramatic fall-off in the price of the company's stock that summer and fall was the result of a cabal of naked short sellers spreading vicious rumors rather than from any defect of management.

Buried deep into Moyer's story (paragraph fourteen) is the possibility that "Pegasus is just a poor investment" creating the appearance of growth through acquisitions rather than through sales, because the touted new products, Moyer acknowledged, "haven't hit the shelves yet."

Moyer was aptly admonished by Seth Jayson of Motley Fool at the time. His bottom line: "There are plenty of good reasons for Pegasus' huge fall, and unless Knabb can deliver something other than gimmicks and PR, Pegasus will be no phoenix."

Pegasus filed for chapter 11 protection in January 2008. That petition was dismissed in October. Pegasus then re-filed for bankruptcy protection in November, and the court againt dismissed the filing in April 2009. The court also barred any further chapter 11 filings for two years.

Late last month the SEC filed a lawsuit against Pegasus, Knapp, and an associate, Stephen Durland, the company CFO. Its complaint alleges in essence that the company was not the victim of incompetence. Nor was it the victim of (external) hit. The stock price plummeted as a result of fraud. As to hitmen, those were the silhouettes of Knapp and Durland in the Book Depository window.

Unbeknowst to investors, at the very time Moyer was writing sympathetically about the company, Knapp and Durland secretly controlled hundreds of millions of the company shares, falsely claiming they owned only minimal amounts. They dumped these shares into the market, making millions for themselves and of course driving down the price.

And Moyer gets to eat some crow. Hmmmm Yummy.

A refresher on contango

Contango is the discount you can get on a non-perishable commodity by virtue of your willingness to accept delivery at once, or (stated inversely) the extra payment you make if you want the seller to hold it for you for some interim.

As I noted in a post on the subject I wrote here in January, the per barrel price of oil at that time was $46.47 for March delivery. That is as immediate a delivery as Nymex listings will get you. Going out further, a barrel for August 2009 delivery went for $53.81. So the contango for that five-month period was $7.34, or $17.64 annualized, or 38% annualized and stated as a percentage of the value of the barrel. That seemed historically very high and I wondered about the reasons in that January post.

Six months later, the price is up, however one measures it. But let's maintain our focus on contango. Crude oil for July delivery (essentialy the spot price) is at $72.68 a gallon, looking at the "most recent settle" at Nymex. Going out five months, a barrel to be delivered in December costs $76.12. This is a contango of a modest $3.44, or $8.26 (11.4%) annualized.

Why has the contango dropped so drastically?

Presumably this means that in January oil was being held offshore in tankers, and now it is being released into the market. That would make the on-tanker storage space less valuable and bring down its price.

That's the theme of the Izabella Kaminski blog entry to which I've linked you, and she has further facts and numbers.

It doesn't sound as if the recent price incraeses are the result of price machinations. It seems as if the refineries ran through their backlog and are now closer to being current than they were in January, yet demand or anticipated demand is great enough to move prices up even while crude is moving onshore.

That would be good news in terms of a recovery, although as I've indicated before the recovery in question is the inflation-stoked and inflation-soaked sort that will bring more than its own share of problems.

A Song for Mellencamp

From the Office of the Inspector General’s semiannual report to Congress:

Beginning on October 20, 2008, the OIG conducted an investigation into information showing a Los Angeles Regional Office SK-17 supervisor had been using his SEC-assigned computer to access Internet pornography. The investigation revealed that while using his SEC computer during 17 working days, the employee received approximately 1,880 access denials for Internet websites classified by the SEC’s Internet filter as pornography. The images on these websites included graphic depictions of sexual acts.


Let's spell that out. One thousand, eight hundred and eighty denials of access over 17 working days. He tried to reach prohibitesd porn sites more than 110 times a day. And was continually blocked. After the first 500 blocks or so, might you not have expected him to get the idea?

The IG report also says: The supervisor also admitted that he saved numerous pornographic and sexually-explicit images to his SEC computer hard drive and that he viewed those saved images during work hours.

So the internet access wasn't necessary for his urgent porn-consuming needs,. Yet still he kept trying. 110 times a day. More than 13 times an hour, presuming an 8 hour shift. And surely there would be no reason for this fellow to stay overtime. He must have been eager to get to some more permissive computer terminal when the 8 hour day was done!

You'll be happy to know that he hasn't been terminated. There seems to have been nothing more than a reprimand.

Well ... he's obviously devoted to the service of the public.

And the song for Mellencamp?

P*O*R*N in the S*E*C.

You saw that coming.

The knower is not a mirror

A Jamesian passage for us to contemplate today: "The knower is not simply a mirror floating with no foot-hold anywhere,and passively reflecting an order that he comes upon and finds simply existing. The knower is an actor, and co-efficient of the truth on one side, while on the other he registers the truth which he helps to create. Mental interests, hypotheses, postulates, so far as they are bases for human action -- action which to a great extent transforms the world -- help to make the truth which they declare. In other words, there belongs to the mind, from its birth upwards, a spontaneity, a vote."

Review of Spencer's Definition of the Mind

Ferguson versus Krugman

Two prominent public-policy intellectuals are in the midst of a very public dispute over the threat of higher interest rates.

I refer to Paul Krugman, professor of economics at Princeton University -- and the most recent recipient of the Nobel Prize in that field, who believes the present difficulties can and should be addressed through Keynesian fiscal stimulus, and that the present administration is not doing nearly enough of it, and Niall Ferguson, an Oxford-trained historian, author most recently (and pertinently) of THE ASCENT OF MONEY: A FINANCIAL HISTORY OF THE WORLD, who thinks both that higher rates are a grave threat and that President Obama's massive spending plans are compounding it.

The spat began, as near as I can tell, on April 30, when both men appeared as part of a panel discussion of the ongoing financial crisis hosted by PEN, the writers' association.

Ferguson said, "The running of massive fiscal deficits in excess of 12 percent of gross domestic product this year, and the issuance therefore of vast quantities of freshly-minted bonds," is likely to push interest rates up, although the administration appears to be of the (Keynesian) opinion that such policies will push interest rates down, stimulate borrowing, thereby stimulating the economy.

Krugman defended that Keynesian opinion, and on this point at least the adninistration. Krugman said, "There's a global savings glut ... There is no excess demand to drive up interest rates."

On May 2, in his column in the New York Times, Krugman was much more emphatic at blasting Ferguson. He said that it is "sad" that Ferguson hasn't studied the right textbooks. Indeed, Ferguson's ignorance is so great it is "confirmation that we're living in a Dark Age of macroeconomics." Then he takes us through a condensed lesson on the Keynesian view of how interest rates are formed. Four supply-and-demand charts in the course of a single newspaper column. Surely that counts as what economists and historians both would consider a glut!

The government can and should keep on borrowing the money it needs, however scary the deficit numbers look, because Krugman assures us, this borrowing: [Gives]some of those excess savings a place to go — and in the process expands overall demand, and hence GDP. It does NOT crowd out private spending, at least not until the excess supply of savings has been sopped up, which is the same thing as saying not until the economy has escaped from the liquidity trap.

Over the days and weeks since Krugman made that confident assertion, market interest rates have headed ... up. The economy does not seem to have escaped from the trap it is in just yet, so why are they heading up? It may be too early to declare victory for Ferguson on this point, but it is understandable that he has already declared victory for himself.

Krugman, after all, isn't the only one in this debate though who can argue from out of the pages of a major newspaper. Ferguson is a contributing editor at the Financial Times. And from that post, he has had this to say.

In the event you are too impatient to read that, I'll give you the final graf here:

In the absence of credible commitments to end the chronic US structural deficit, there will be further upward pressure on interest rates, despite the glut of global savings. It was Keynes who noted that “even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist”. Today the long-dead economist is Keynes, and it is professors of economics, not practical men, who are in thrall to his ideas.

How long does 'disgrace' last?

Apparently, four months.

According to the Bob Jaffe indicator, anyway.

Ben Stein Watch: Egocentrism

This is pretty blatant and raw.

Our boy Ben has written one of his yahoo! "personal finance" columns in which he seems to have stolen an idea from Al Franken. Franken famously declared the 1980s the "Al Franken decade." Stein has now declared this downturn the "Ben Stein recession."

This is what I have in mind.

Most people with the responsibility of writing a "personal finance" column would probably construe the adjective "personal" as a reference to the readers thereof. "What can I tell you that will be of some use to you, dear reader, and your financial condition?"

Ben obviously construes the phrase more subjectively. This recession, in particular, is different from other recessions because of the impact it has on me, Ben Stein.

And here's a link to a transcript from back in the day when "Weekend Update" used to carry such analyses.