Issue 5 - The Wall Street Shuffle

John Coffey

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When I was a teenager, with rampant hormones, 10cc was riding high in the pop charts. Kevin Godley & Lol Creme, the band's frontmen & lead vocalists, came up with a formula of syrupy, romantic pop which appealed to the disco generation. Their biggest hit " I'm not in love " was the ultimate ' slow set smoochie ' that started many a romance.

Whilst Godley & Creme got ' the glory & the girls ', it was the other two band members, Graham Gouldman & Eric Stewart who were the real wordsmiths, responsible for writing most of the group's dozen or so hits. One of those hits was ' The Wall Street Shuffle '.

Whereas most of their songs ran the usual gambit of forlorn love and teenage angst, The Wall Street Shuffle had an entirely different context, focusing instead on the perils of doing business with the denizens of Wall St. Despite the fact that this song was produced almost 50 years ago, it's lyrics are pretty much ageless and are no less relevant today

" Do the Wall Street shuffle, Hear the money rustle. Watch the greenbacks tumble, Feel the Sterling crumble. You need a yen to make a mark, If you want to make money. You need the luck to make a buck, If you want to be Getty, Rothschild

You've gotta be cool on Wall Street, You've gotta be cool on Wall Street when your index is low. Dow Jones ain't got time for the bums, They wind up on skid row with holes in their pockets They plead with you, buddy can you spare the dime but you ain't got the time

Doin' the Wall St Shuffle, Doin' the Wall St Shuffle

Oh, Howard Hughes, Did your money make you better? Are you waiting for the hour, When you can screw me? 'Cause you're big enough, To do the Wall Street Shuffle

Let your money hustle Bet you'd sell your mother, You can buy another

Doin' the Wall Street Shuffle, Doin' the Wall Street Shuffle

You buy and sell, You wheel and deal But you're living on instinct, You get a tip, You follow it And you make a big killing, On Wall Street "

One could imagine Nancy Pelosi & Robert Kaplan doing the Wall St Shuffle, with Richard Clarida on backing vocals but the purpose of this rather long-winded introduction is to elaborate some of the ruses that our financial intermediaries get up to separate us from our hard-earned shillings.

I recently read an interesting book called ' Dead Companies Walking '. It was written by Scott Fearon and covered his life as a Hedge Fund Manager. He added a whole chapter that detailed some of the more Machiavellian schemes used to considerably lighten people's wallets. Here's the list :

• Fund managers stashed IPO shares they got from brokerage houses into their own personal accounts instead of allocating them to clients.
• Fund managers paid top dollar for ' research ' from so-called ' expert networks ' of current & former employees at public companies. This ' research ' invariably included blatant inside information inc pending earnings reports. Steve Cohen & Galleon Group are two examples of firms brought down on the detection of such misbehavior. One of Cohen's most infamous misdemeanors involved bribing key medical personnel to get advance notice of test results on potential blockbuster drugs.
• Front running - Many fund managers with large buy orders from clients for a particular stock would buy a slug of those equities for their own account before executing their large client order. Once the impact of that order bumped up the stock, they would unload their personal holdings
• Family of Funds - Many mutual funds & hedge fund firms run a huge number of individual funds. They would then juice the returns of newly launched funds by transferring winning trades from older mature funds
• Hiding non-performance - If a fund performs very poorly, the firm may shut it down completely so as to erase it from the history books. Alternatively, if it's a small fund, they may just merge it with a large high-performing fund. Thus, losing funds never appear in the firm's marketing material.
• Allocation - Squirrel away bad investments into large institutional funds & put the winning trades into smaller funds where they had their own personal money was invested.
• PIPE deals - Brokers phone fund managers with inside info about distressed companies that are scheduled to issue batches of discounted shares. The fund managers short the shares & then buy them back at the discounted price, which they already knew, of course, thus providing them a guaranteed profit.
• Dark Pools - So-call ' Commission-free ' brokers provide all of their customer orders to Hedge Funds to trade ' off-exchange '. In return, they receive a commission. The recipient funds aggregate these orders & front-run them, guaranteeing themselves a profit & pretty much guaranteeing that their client will not get best execution.

Life Lesson #5 - 1974

My family was not overly well off so there was an onus on everybody to contribute by ' earning a crust '. Consequently, my father invariably turned to weekend jobs, to supplement his modest cop's salary.

One of these jobs involved running a tire garage in Dublin's north inner city. He brought me along to work there on Saturdays & perhaps he also had a mindset that it might harden me up a little. This was a rather rough neighborhood, where well-heeled types were rarely spotted and you had to keep your wits about you. We survived a couple of ' early skirmishes ' with chain-wielding hoodlums and beyond that, it was relatively plain sailing.

The core business of the garage was repairing punctures and fitting new tires. It's not exactly rocket science so, after a small amount of practice, even a kid with my rather limited skill-set was able to make a decent fist of it.

One day, a guy came in driving a bakery van and he was in a fierce hurry. He needed two puncture repairs so he decided to throw us some motivation by saying " get this job done fast, lads & there's a cake in it for you "

We didn't need to be told twice and we went about the job at lightning speed. At one point, the Formula 1 record of 7.4 seconds was briefly in jeopardy. The baker hardly had time to sit down before our ' rapid-fire pit crew ' informed him that his van was ' ready to go '

Well, he was as good as his word. In fact, he presented us with a huge tray holding 48 cakes - buns, donuts, eclairs - the works. This was really going to make our day. And so it seemed, until I took the first bite of my donut, only to realize that it was rock hard. My cake was stale and so were the other 47.

So anytime now, when someone says " There's no such thing as a free lunch " I know exactly what they mean. This is especially true of investments - if it looks like a free lunch, then you haven't done your due diligence!