Betting Against JP Morgan’s Jamie Dimon

Sunday, July 22nd, 2012: We certainly live in interesting times. Especially if you follow the stock market as closely as I do. I have loved the market since I was 13, and that is a very long time. In all of those years, I have never witnessed a time in which seen so many factors could move the market as I see now. There is everything from the fall of Europe, the weakening of China to the very real possibility that the U.S. will actually fall off the “fiscal cliff.” (That is, the raising of taxes for hundreds of millions of Americans come December 31st unless Congress and the president acts—and how often does Congress actually “act” in a way that helps financial markets?).

In this new tumultuous environment, things can—and do—change very quickly. For example, news came this morning that the IMF (International Monetary Fund) has made the decision to discontinue payments to Greece. While the cable news channels have not picked up on this story at all, this could be a huge event that leads to Greece leaving the Eurozone. No one knows exactly how that will play out, but the chances are that it would be a huge mess as Euros get converted to Drachmas, the value of which would have to be determined. Greece is already in a “depression,” says the newly elected Prime Minister Antonis Samaras (and Spain, Europe’s fourth largest economy, is following in the footsteps of Greece. We know this because their bond yields have risen to the “insolvent” level of 7.2 percent, meaning no one will lend them money).

All of this turmoil has turned me into a different type of investor in two key ways. One, I am now more trader than investor. No more “buy and hold.” Now its buy and watch closely. Also, for the first time, I now short stocks. That is, I bet on certain stocks to go down. Which stocks am I shorting? The first stock I shorted was Facebook. That’s because I live by a rule that lies at the intersection of my work life and investing life: “if it isn’t a book, it isn’t a stock.” What does that mean? Although social media is huge and getting even more popular, people tend NOT to buy books on the topic. They don’t need to. They know how to “friend” someone on Facebook or send a tweet without a book. Sure, a couple of social media books did well, but 90 percent of them were dead on arrival. When Facebook’s IPO came out, I went short on the stock about a week later and have held that position ever since.

But the more interesting stock I shorted next was JP Morgan Chase with its “fortress” balance sheet (that’s how CEO Jamie Dimon characterized his company). After the huge “London Whale” loss was announced a couple of months back, I shorted the stock because of the “cockroach” theory. What’s that? If you see one cockroach in the kitchen you know there has to be more (meaning JP Morgan has more problems than the one bad trade). However, I didn’t stop at JP Morgan. Because of the recession sweeping across Europe (and on to our shores next, I predict), I shorted most of the big banks including Bank of America, Morgan Stanley, Citigroup, and Credit Suisse. I figured that the banks would be hit the hardest if the bottom fell out of our economy. I have only added to those positions since.

But it is important to put things in perspective. Perhaps 75% of our savings are in stocks (in long positions), bonds and cash. Only a quarter of the whole are in short positions, and even in that account I am long my favorite stock, which are eBay and Pfizer (among others). I think of my short portfolio as a hedge against an “end-of-the-world” scenario.

But back to JP Morgan Chase. Last Friday it was announced that CEO Jamie Dimon and his wife purchased 500,000 shares of JP Morgan stock on Thursday and Friday. That means that I was adding to my short position while the executive—who supposedly knows the company better than anyone on the planet—was betting the other way. I was shorting 1,200 shares while he was buying 500,000 (talk about David versus Goliath). However, not only am I not deterred I plan to increase my short position today. Why? Well, for a few reasons. I can’t help but recall the time that Jeff Immelt, CEO of General Electric, went on TV telling investors that someday they will look back and see how lucky they were to purchase GE stock at $30-something per share. Since then—and one huge financial crisis in 2008—the stock traded at $5 and change. Today GE trades at $19 and change. That means CEOs are not as infallible as we would be led to believe. In fact, the opposite could be true. Dimon is a very smart CEO (as evidenced by his expert testimony in front of both houses of Congress). However, he is not exactly objective about his firm. Besides, macro events like Europe will move his stock and there is nothing he can do about it.

Only time will tell who was right. For the record, as a long term investment I agree with Dimon. His company will do well; that is, as long as an investor has a 3-5 year time horizon. But in the short term? I didn’t even mention the Libor investigation hanging over most of the banks. That’s too inside baseball and this blog posting has gone on long enough.

What Business Book Publishers Look For in an Author

If you are involved in the business world, you know that things have gotten a lot tougher in recent years. The housing crisis, which persists to this day, along with the great recession that began in late 2008, have conspired against the business book world in a big way. In today’s challenging economy, sans Border’s, it is harder than ever to get a business book published. Many authors, particularly first time authors, ask me this key question: what do publishers look for in a business book author? Here are some answers, not necessarily in the correct order. Publishers look for: 

* Super smart authors with great and original ideas

* Authors that have a great on line presence. This could mean an email list of say, 100,000 names, or a very big following on Twitter, Facebook, and other social media

* Authors with a superb Website and blog with tens of thousands of users

* Authors that give dozens and dozens of speeches per year, or host a similar number of seminars

* Authors whose last book was an unmitigated success (and conversely, publishers avoid failed authors—that is—authors whose last book has failed)

You get the idea. When you get right down to it, publishers look for authors that have the ability to sell thousands of copies of their own book. That’s because the author platform, which is determined by the answers to the aforementioned questions, often means the difference between success and failure for a book project.

Some authors then ask the next logical question: if I am going to do all of the marketing and selling, what do I need a publisher for? That’s a fair question. Publishers actually bring a great deal to the table, but of course, not all publishers are created equal (I will save that thought for another blog posting). But in the meantime, consider this: a good publisher can lend great prestige to a book, helping you to build your brand in a way that would be impossible any other way. A good publisher will also help you to develop and shape your manuscript, and come up with the right package for your book (e.g. title, cover, subtitle, chapter titles, subheads within chapters, etc.). They also do much to market and distribute your book to brick and mortar bookstores as well as online resellers like Amazon. This is true in the U.S. and around the globe. With the most popular business books, they pay for special bookstore placement in airports stores and other national chains (e.g. table placement for your book with Barnes and Noble). They also have publicists on staff that attempt to get as many mentions for your book in the print and other media, as well as book reviews, and when appropriate, radio and television interviews. Lastly, their rights departments attempt to sell your book to as many international publishers as possible, which often means additional streams of income (this is especially true with management and leadership books, as well as books on global topics).

So to sum up: publishers look for authors with great platforms that can sell tons of books. In return, however, publishers bring their considerable resources to bear to maximize your book’s potential. It is fair to say that publishing is a two-way street: however, the traffic on the road has never been more treacherous.

Permit me to add a postscript to this piece: if it occurred to you that I spent little time discussing the quality of the content of your book idea, you are not alone. After writing this posting I was struck by the fact that there was only one mention of the actual book idea. The truth is that many business publishers examine an  author’s platform before closely reviewing the content of the manuscript. I think it is a sad commentary on how the business book industry has evolved. But it is also reality. It doesn’t make me love what I do any less, it just means that I have grown to be a bit more cynical than I would have hoped.

What Business Book Publishing and the Stock Market Have in Common

If you follow the stock market closely enough you know that today’s market is a study in volatility. But that wasn’t always the case. When I bought my first stock in 1974—Gulf Resources at 14 1/4—only about 15 percent of American households were invested in the market, and trading volumes were anemic. Markets were sleepy. That changed a decade later. By the late 1980’s, despite the crash of  ’87, stocks became all the rage. Everyone seemed to get in the market, volumes ballooned, and stock market investing became a global phenomenon. The great bull market, which started in 1982, continued with a vengeance in the 1990s. In fact, the great bull market that commenced in 1982 did not end until the dot com crash of 2001-2002.  So how is the stock market like the business book market? 

The great bull market in business books also started in 1982 with the publication of Peters’ and Waterman’s In Search of Excellence and Ken Blanchard’s The One Minute Manager. From that point on business books became a booming industry, with many of them, including the two aforementioned titles, gracing The New York Times Bestseller List.  However, like the stock market, business books were not new. The father of modern management, Peter Drucker—who I devoted an entire book to in 2009—had been writing a whole genre of business titles since 1946. However, there was a vast difference between Peter Drucker and Tom Peters, co-author of In Search of Excellence.  Peters was considered cool, a by-product of a new era in which CEOs were the new American heroes (think Lee Iacocca and Jack Welch). Business books, like stocks, were no longer considered to be something for only a slim slice of the population. Business books were now considered hip, and they seemed to be everywhere. They even became fodder for cocktail party conversation.   

Fast forward to today: in 2012, volatility in the stock market—as measured by something called the VIX index—has become the norm. The financial markets are characterized by turbulence. The same is true for business book publishing. The demise of bookstore chain Border’s has been a great loss for the publishing industry. There are now fewer places to “place” books, which has had a chilling effect on the book business (in all genres, not just business books). In addition, the proliferation of free information on the Internet and the fragile state of the U.S. economy has made business book publishing a very tumultuous industry. Layoffs have become the norm in book publishing (and on Wall Street). Perhaps the greatest comparison between the two industries is its unpredictability. No one knows what tomorrow will bring. Who could have known that Border’s would fold and Amazon would emerge as a major book publisher? Who could have known that eBooks would become such a major force in the industry after starting out in the 1990s as a major flop?  The stock market and the business book market have one more important link: they tend to move together. Business book sales rise when the stock market goes up. It’s a case of rising tides lifting all boats.   

I could go on, but you get the idea. One thing is for sure: both turbulent industries will bring us plenty of surprises in the months and years ahead.

Literary Agents Level the Playing Field

As many of you know, I have had the good fortune to be in the publishing world for almost exactly 30 years. And not only in the publishing world, but in the business book part of the publishing world. For 27 of those 30 years I have worked with such great publishing houses as McGraw-Hill, Dow Jones-Irwin, and Portfolio/Penguin. And wrote or published works on such business luminaries as Jack Welch, Lou Gerstner, Ross Perot, George Soros and Warren Buffett, to name a few. That is, until 2009 when I decided that I would become my own boss and create a unique business: a literary agency that offers agenting services as well as writing and editing services. I figured that two factors would set my business apart from the typical literary agency:

1.  All I do is business books, making me a true specialist of the industry; and

2. I offer all sorts of writing and editing services, helping authors develop whatever they need to distinguish themselves and their work(s) in the marketplace.

Oh, one more thing: I also specialize in working with first time authors. I have a respect and love for the business book world which is why I enjoy educating those special group of budding authors about to tackle their first book project.

I often get the question, “do I really need a business book agent?” And my answer is always the same. You may not need one, but you definitely want one. Why do you want a business book agent? There are several key reasons:

1. An agent with a sterling reputation can help bestow a whole other layer of credibility to your project.  Some of the best publishers won’t even look at a business book proposal unless it comes from a reputable agent. By hooking up with the right agent, your book takes on added and not insignificant authority.  

2. A literary agent can help ensure that you are putting together the right materials that publishers require in order to make a positive publishing decision. This includes the business book proposal, which is a specialty of my firm;

3. An agent, especially one that does nothing but business books, has all the key contacts in the industry to ensure that your work will end up in the hands of the right editors and publishers. I have hired or worked with as many as half of the key business book editors in the field at one time or another;

4. An agent will get you a better deal than you can get for yourself. This one may be the most obvious. An agent knows what to look for and ask for—things that you might not even think of. Negotiating is not only a strength of mine it is an absolute passion. You might find this hard to believe, but there is nothing in life that I don’t negotiate. Hell, I even negotiate the number of toys for my sons’ Happy Meals at McDonalds! 

5.  A good agent sees the big picture. In recent months I have worked with authors who have the potential to write several books. I advise them on which book comes first, and helps them to map out a five-year strategy for their entire writing career. Put another way, I see beyond the dollar signs of a single book and instead see the forest through the trees. My entire future is dependent on authors who can write multiple books that succeed against long odds.

There is much more that I can offer an author but I will leave that to a future blog posting. If you think you may need my services then email me at jkliterary@comcast.net or call me directly at (630) 323-5499. Feel free to contact me 7 days a week as I seldom take time off.  I look forward to hearing from you soon.

Wall Street is Schizophrenic over Tim Geithner

target1Last November—when news came that Tim Geithner was going to be tapped as treasury secretary, the stock market soared. It not only soared, it had one of its best days in history—rising by more than 500 points to regain the 8,000 mark once again.

Then came February 10th when the Treasury Secretary announced what amounted to “a plan for a plan.” Wall Street hates plans for plans—that’s because it abhors uncertainty— and sunk the market to the tune of almost 400 points, and an even greater percentage on the S&P (a 5% haircut).  Many barbs were tossed in Geithner’s direction along with calls for his head.

Then this week comes the actual plan to get toxic assets off the books of banks. Geithner is a man with absolutely no charisma. But as Peter Drucker taught us, charisma is not leadership, it is “how to make friends and influence people.”  The President was the one selling the plan to the American electorate, as Geithner presented the plan to reporters behind closed doors. Whomever sold it. Wall Street loved it 

Since then, Geithner has had a much easier time testifying beforre congress. The Dow is up a stunning 21 percent in thirteen trading sessions, which  technically constitutes a bull market. The Treasury Secretary found it much easier to talk to politicians when the market is soaring.  

 On Monday the stock market got back what it lost on that infamous February day and more, rising just under 500 points (nearly 7%) Monday—the fifth largest point gain ever. And we are about to close out our third week in a row with solid gains.

One of the real sparks to the market is the toxic asset bank program. We finally got the details, and anything that even looks like an actual plan was going to bring life to the market. The government is still financing the greatest part of the purchasing of toxic assets, but this time some private money should enter the picture. As long as the markets continue to rise—both the stock market and the credit market—taxpayers and private institutions, will make money. That didn’t stop some high-powered economists like Paul Krugman to declare the plan a complete failure before anyone had a chance to see if the plan had a chance! 

As for Tim Geithner, he is still in the “what have you done for me lately”  business, and  more than any other Obama cabinet member, likely to stay in the crosshairs for the duration. Everything he says or does is likely to be examined under a Wall Street microscope, and if Wall Street doesn’t like what they hear, they will shoot more poison arrows at him until they get their way.

As for me,  I’m in the minority. I think Geithner is going to  help lead us out of this mess, and will be heralded as one of our most effective Treasury Secretaries in history.  Not that there won’t be bumps along the way. We all need to fasten our seat belts and hold on for a wild ride.

← Previous Page

  • Find It



  • Sign up!

    Enter your e-mail address to receive notifications in your inbox when there are new posts



  • The Unforced Error

      The Unforced Error



  • Sneak Peek - Chapter One!

    Source Notes