"You only find out who is swimming naked when the tide goes out."
-Warren Buffett, Letter to Shareholders, February 28, 2002
When Melanie Mize wrote her travelchannel.com review of the top nude beaches in the world, she described exotic locales, replete with tropical foliage and the ideal climate for achieving the perfect overall tan.
If Warren Buffett is correct, however, it appears that Mize overlooked the most popular destination for those who swim naked. Her oversight is completely understandable, however. After all, the corner of Wall and Broad doesn’t even sport a swimming pool, let alone a beach. Despite this fact, however, the ebb of the financial tide has many heretofore big fish scrambling for Wall Street’s own version of a fig leaf—good old American greenbacks.
The 16-month ebb of the financial markets has been very revealing, indeed. Those of us with the stomachs to watch the tide go out have witnessed some shocking events unfold:
We recently saw the admission of a $50 billion Ponzi scheme that operated, very visibly, for nearly 20 years under regulatory radar, that is until the market’s massive dive drove Madoff to come clean about just how dirty he really was. In an almost chilling and intensely audacious move, Madoff described, with a twisted sense of self-satisfaction, just how he was able to destroy the fortunes of thousands, and seemingly without a single trade. Madoff's plea statement
In an almost delicious irony, the same day Madoff was cuffed and carted away to jail, Jim Cramer unwittingly waded into the role of the emperor who has no clothes.
In a pitiful attempt at damage control in light of Jon Stewart’s recent blast against CNBC, Cramer confidently assumed the seat across from Stewart, only to squirm for 30 long minutes. During that time, Stewart methodically and systematically exposed both Cramer and virtually the collective whole of CNBC commentators as nothing more than cheerleaders who permit their corporate guests and analysts to make statements that are left unchecked, despite the reality that CNBC presents its reporters as hard-hitting investigative journalists.
Stewart seized the opportunity to reignite the fury that we posted on our ifa.com website back in December 2007 when Cramer bragged about the ease with which he could manipulate markets. Stewart’s characteristic humor turned angry as he asserted that Cramer’s remarks showed that analysts and correspondents at CNBC were painfully aware of the vulnerabilities of the financial system that could be played for profits and that CNBC viewers were vulnerable to be unwitting participants in a much bigger game.
"You know, look, we're both snake-oil salesmen to a certain extent," Stewart told Cramer. "But we do label the show as snake oil here. Isn't there a problem selling snake oil as vitamin tonic?"
Media coverage on Cramer’s evisceration is high.
In a March 16 Tech Ticker broadcast, host Aaron Task (the same fellow who interviewed Cramer during his inglorious indiscretion about market manipulation) asked Cramer to clear the air by appearing on Tech Ticker. According to Task, Cramer’s email response left little room for misinterpretation:
“I appreciate you asking me to come on and expressing the opportunity to call attention to it and continue to wreck my career, but I think I will take a pass.”
The recent pummeling of the financial markets has been far from a day at the beach. Nonetheless, for the last 16 months we have all watched as the financial tide rolled out. Sometimes painfully, we have been pulled by the currents of the markets, we have smelled the stench of rotten business practices as they litter the headlines, and we have seen just a few too many swimmers emerge completely naked and begging for cover.
Indeed, it has been painfully illuminating, but such revelations bring clarity. Charlatans, scheisters and showmen have been fully exposed for precisely what they are. Generations of investors have been provided with an up-close and personal view about the importance of transparency, the hazards of leverage, and the danger of blindly trusting snake-oil salesmen. Unfortunately, the currents of unwise practices and untrustworthy people will roll back in with the tide. They will only cease to pull at you when you become educated enough to not be led by them.
Eighty-one years of stock market history shows us that the tide rolls out and the tide rolls in. Over time, those who are properly outfitted can best withstand the short-term market currents. When your asset allocation is properly aligned with your risk capacity, you can sit on the beach, watch the ebb and flow of the tide (and the spectacle it may bring), and not have to worry about being overexposed.