The price of everything

Chronicle of a death foretold

 

“It is just as if [then Chancellor] Norman Lamont had personally thrown entire hospitals and schools into the sea all afternoon.”

 

-       Central Banking magazine, on the UK’s defence of Sterling during the ERM crisis.

 

“When I was young, people called me a gambler. As the scale of my operations increased I became known as a speculator. Now I am called a banker. But I have been doing the same thing all the time.”

 

-       Sir Ernest Cassel, private banker to King Edward VII.

 

Last week we learned just how close we came to the brink. The Bank of England confirmed that both the Royal Bank of Scotland and Halifax Bank of Scotland – the Caledonian reputation for the prudent stewardship of money being perhaps modestly over-rated ?  – came within minutes of closing down their UK banking operations in October last year. It also disclosed for the very first time in public the existence of a £62bn emergency loan extended to the banks as lender of last resort.


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Eternal sunshine of the spotless bulls

“A great deal of intelligence can be invested in ignorance when the need for illusion is deep.”

 

-       Saul Bellow.

 

 

Human beings are suckers for narrative. We love to be entertained with great stories. But a problem arises when popular media subordinate all things to the cause of entertainment, a topic well addressed by the late Neil Postman in his critique of television, ‘Amusing ourselves to death’ (Methuen, 1987). Goodness knows what he felt about the Internet.

 

If we are suckers for narrative, we are also easily seduced by determined optimism, a topic comparably well handled by Barbara Ehrenreich in her study ‘Bright-Sided: how the relentless promotion of positive thinking has undermined America’ (Metropolitan Books, 2009). When relentless optimism mates with financial markets, the result is almost always a disaster.

 

Occasionally one comes across a message that is so well delivered that it demands to be repeated. The following is such a message, which was originally published in the form of a monthly letter to shareholders of the Edelweiss Fund by Tony Deden of Sage Capital Zurich AG. It is reprinted here, in part, with his kind permission.

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Triumph of the realists, Part II

“HBOS’ share price began to drop last summer when the City became nervous about its reliance on UK mortgages. There were denials that the firm was in crisis, which is always a terrible sign. In September 2008, the Big Four bank Lloyds bought HBOS after its boss, Victor Blank – this is the part you couldn’t make up – bumped into Gordon Brown at a drinks party and got him to give an assurance that a takeover would not be referred to the monopolies commission..

 

Most of us have had a few drinks at a party and done something embarrassing, usually along the lines of I’ve-always-fancied-you-isn’t-it-time-we-did-something-about-it, but let’s take comfort in the following truth: none of us has ever done anything as embarrassing as buying HBOS.”

 

-       John Lanchester, London Review of Books, “It’s Finished”, May 2009.

 

“Kenneth Feinberg, the Obama administration’s special master for executive compensation, said he is “very concerned” about the possibility his pay cuts may drive talent away from companies bailed out by US taxpayers.”

 

-       Bloomberg News, 12^th November 2009.

 

 

Well, with talent like that, who needs grubbily self-interested morons ? And yet in our Looking Glass world, the overarching policy mistakes just keep coming. Last week saw an announcement from the UK’s Nursing and Midwifery Council that from 2013, all would-be nurses will have to have a degree. Two thoughts spring to mind by way of response. One is that the current Labour government has done its damnedest to dilute the rigour of a university degree with its fatuous and statistically arbitrary objective of pushing 50% of the young population into higher “education,” resulting in a strangely underpowered graduate workforce that in some cases can barely read or write. The second is that the City has, for at least the past two decades, insisted that all front office positions should be held exclusively by graduates. That comparably arbitrary hurdle has not had a particularly successful outcome, in anything other than the narrowest economic and financial terms. From 2013, sick people may wish to try and heal themselves, or to self-medicate via random pharmaceutical internet sites, rather than take their chances on the NHS. Let us hope that at least some of those nursing graduates do not hold previous qualifications in economics.

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Indestructible

“Alternative 1: on average there is more than one ownership claim on each gold bar conforming to London Good Delivery.. Essentially, the market operates on a fractional reserve basis.. If it is true, the next phase in the gold bull market will be a religious experience for anyone unfortunate enough to be short of gold.”

 

-       Paul Mylchreest, ‘Thunder Road Report’, 15^th October 2009.

 

“Expect other nations, including those in the Middle East, to follow the lead of Hong Kong in bullion repatriation. This is a slow-release earthquake in both bullion and currency market terms.. Taking delivery is just not the done thing in bullion ownership. If it were to become a trend, then life in the COMEX warehouse coordination office and at various custodial banks in London is likely to become quite interesting.”

 

-       Ned Naylor-Leyland, Cheviot Asset Management, October 2009.

 

“I don’t think the question really is what is gold worth but what are currencies not worth.”

 

-       Shayne McGuire, Director of Global Research at the Teacher Retirement System of Texas, October 2009.

 

 

Having certainty about financial markets is difficult at the best of times, but right now it is impossible. Robert Shiller, Yale professor and co-creator of the S&P Case-Shiller Home Price Index, is intelligent enough to own up to huge uncertainty about the future. In an interview with Fox Business last week, he confessed,

 

“I am terribly conflicted. This is the most uncertain time that I can remember. Things are violating the laws that I learned.. The whole country is experiencing an upsurge but I don’t know what to make of it.”

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