Wild West JOBS Act and Musical Chairs
In a rare turn of events, Mike is out of the turret today so I’m filling in. (He’ll be back in action soon.)
First, a quick comment on the JOBS act. Here’s an excerpt of President Obama’s signing ceremony remarks:
“Here’s what’s going to happen because of this bill. For business owners who want to take their companies to the next level, this bill will make it easier for you to go public. And that’s a big deal because going public is a major step towards expanding and hiring more workers. It’s a big deal for investors as well, because public companies operate with greater oversight and greater transparency.
“And for start-ups and small businesses, this bill is a potential game changer. Right now, you can only turn to a limited group of investors — including banks and wealthy individuals — to get funding. Laws that are nearly eight decades old make it impossible for others to invest. But a lot has changed in 80 years, and it’s time our laws did as well. Because of this bill, start-ups and small business will now have access to a big, new pool of potential investors — namely, the American people. For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in…”
There are some pretty big Wall Street changes coming as a result of this — and some folks are having a hissy fit, as the following article sampling shows:
- Investors’ Prying Eyes Blinded by New Law (WSJ)
- Ex-Con Man Says JOBS Law Makes Guys Like Him Rich (Bloomberg)
- Analyst Banker Firewall Weakened (Bloomberg)
- Get a Piece of My Hedge Fund! (Fortune)
- How to Protect Yourself from the JOBS Act (Forbes)
The short version gist of the above: Innocent investors should beware — the JOBS act is a return to the unregulated Wild West, with con men and fraudsters coming out of the woodwork.
This is where my inner libertarian responds: “Are you serious? Give me #$#@ break.”
It’s no wonder that nit-picking regulators are hyperventilating over the JOBS act. That’s what self-styled protectors of the people like to do whenever their authority is challenged.
As some whiny guy from the Nebraska Department of Banking & Finance has put it (via Forbes), “Congress has just released every huckster, scam artist, and small business owner and salesman onto the internet.”
To which I would respond: Where have you been, guy? Did you really think Wall Street was a safe and trustworthy place BEFORE the president signed this thing?
The reining motto of all investment decisions — and ESPECIALLY decisions where the salesman seeks you out — is “Caveat Emptor,” let the buyer beware.
Not only that, but there plenty of fully vetted “legitimate” investments that are/were risky as hell. Groupon, anyone? Nor does it matter how big a research staff you have — look what happened to John Paulson in Sino-Forest ($700 million, ouch).
John Q. Public could lose his shirt in some shady Boca Raton boiler room scheme, or he could lose it top-ticking the Facebook IPO. Either way, Caveat Emptor applies.
Will the freed-up restrictions of the JOBS act result in more gullible investors getting fleeced at the margins? Almost certainly. Many operators take the motto of Canada Bill Jones: “It’s immoral to let a sucker keep his money.”
Is the JOBS act still a good idea anyway? Almost certainly, because of the good it accomplishes.
You can only expend so much effort and energy protecting the gullible from themselves. And by cutting away red tape for entrepreneurs and investment managers, there is potential good being done in terms of new capital formation and new wealth creation.
The schemes at the margins are worth the legitimate opportunities. There was no heavy-handed regulator protecting John Q. Public back when America was the most dynamic growth story of the 20th century. And the really sharp hucksters will find a way to circumvent any and all red tape rules.
Not only that, but removing the illusion of safety can be a net positive for those in danger of being fleeced. Who is better off: The investor who wrongly believes the authorities are “protecting him” from the Bernie Madoffs of the world, or the investor who knows damn well there’s no true safety net?
The Street was a “Wild West” anyway — by moving closer to the true state of things, we get the benefits of red tape removal for those entrepreneurs and money managers who deserve it and can make positive use of it… and the chance to use a “CAVEAT EMPTOR” bullhorn for those naifs who mistakenly thought they could rely on government protection in the first place.
Agree? Disagree? I’m curious: firstname.lastname@example.org (or just use the comments)…
The JOBS act will have some very interesting implications for traders, by the way. We’ll be bringing you Q&A with a seasoned legal professional on that very subject in the next couple weeks.
Okay, off the soapbox. Now on to the market action. Good Friday (a stock market holiday) turned out to be “Bad Friday” thanks to an ugly shocker of a jobs report.
Last week we talked about “The Return of Ugly Goldilocks,” which can also be seen as a normalization meme.
In other words, as the U.S. recovery “normalizes” against a continued low-inflation backdrop (excluding food and energy), the Fed withdraws stimulus, causing gold, treasuries and possibly stimulus-inflated equities to fall.
If the macro bears are correct, though — if U.S. growth slips and we return to global recession continues — odds increase that the Federal Reserve retakes an accomodative stance, arresting and possibly even reversing the downtrends in gold and bonds.
That is the threat that the crapola jobs report (technical term) poses. If the recovery is in doubt, potential stimulus is back on the table.
This is another case of “memus interruptus” — a little fake Latin there — as investors now have to decide 1) whether the recovery actually has legs, and whether 2) a lone jobs report will really bring the white knight Fed riding to Wall Street’s rescue that quickly.
In addition to gaming the above, there is the question of “Sell in May and Go Away” — and whether the old advice has now been pulled a couple weeks forward.
It’s a game of financial musical chairs, where a tune plays for a while and then suddenly stops, with the abruptness of a needle scratching a record. Then a different tune starts playing, with one less seat, and the musical chairs game starts again.
One area to watch will be small caps — the weak link in the equity bull run. While the Dow, S&P and Nasdaq have left their 2011 highs in the dust, small caps have been constrained.
Ugly action in the next few trading days could lead to the first meaningful submergence below the 50 day EMA (exponential moving average) in 2012.
Whither bonds and gold?
The action in bonds and gold will also be instructive. The stronger the perceived chances of QE3 and economic downturn, the stronger the odds that bonds and gold both reverse higher.
Even still, are these trends to hop on from the long side? We don’t think so… it isn’t clear how the final jobs report reaction will play out, and uber-bearish chart patterns don’t turn on a dime.
It would likely take a few weeks for gold and bond bulls to undue the damage of recent breakdowns — either that, or an extremely large and ugly macro surprise.
China no good?
Whether or not bulls shake off the jobs hit, China continues to look ugly.
If the U.S. recovery is indeed running out of gas, that just strengthens the already strong prospects for global slowdown. Again as I write on Sunday night, copper, crude oil and the Aussie dollar (AUDUSD) are all trading lower.
This continues to be a choppy, challenging trading environment, with central bank holding patterns and surprise data point reversals all over the place. Last week it looked like bonds were off to the races, but this week it’s a mulligan.
Such is trading… the key thing is being Johnny-on-the-spot, with size, when the real move commences.
Trade ‘em well this week (as my boy Mike would say),