The price of everything

R.I.P. Maestro

“Crony capitalism abounds when government leaders, usually in exchange for political support, routinely bestow favours on private sector individuals or businesses. That is not capitalism. It is called corruption.”

-       Alan Greenspan, writing for some reason in last week’s Financial Times, in an article amusingly entitled ‘Meddle with the market at your peril’.

Alan Greenspan, who may have died aged 326, was a failed lingerie salesman and serial fantasist who was accidentally appointed chairman of the US Federal Reserve.

Alan Stanford Ayn Rand Greenspan was born to lowly sharecroppers from Tupelo, Mississippi. The eighteenth of nineteen children, he was nearly harvested in the infamous Great Tupelo Child Organ Harvest of 1687 but escaped when it was observed that he had been born without any tangible evidence of a brain. From this point onward a degree in economics followed by a career in political lobbying was inevitable.

Greenspan was a keen percussionist in his early youth and in Gerry Rafferty’s ‘Baker Street’ he accompanied the late Bob Holness (playing saxophone) with an inspired triangle solo that reduced the other session players to tears. He was also a one-time door-to-door lederhosen salesman and an occasional practitioner of the Tibetan nose flute.

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Living off immoral earnings

“The reality.. is that banks.. support a thick layer of second tier executives, as well as legions of pen-pushing, meeting-loving, middle- and back-office workers who are paid multiples of their worth and contribution, especially compared with other industries.”

-       Financial Times’ Lex column, January 19th, 2012.

“Stephen [Hester, CEO of RBS] is being urged by a number of people to accept the bonus and I think he will”.. This person [an unnamed senior banker] added that if [Hester] turned down his bonus, it would “demoralise” staff members and would send a signal that they now effectively “worked for an arm of the civil service or a utility, rather than for a bank.”

-       Unnamed banker, playing the world’s smallest violin on behalf of Stephen Hester.

Erik Schatzker (Bloomberg News): “$1.6 billion in compensation [at Goldman Sachs] is still a lot of money.”

Nassim Taleb: “Anything above zero is too much money.”

Erik Schatzker: “Why zero ?”

Nassim Taleb: “Because it is a utility. Anything you bail out, you should not be earning more than a civil servant of corresponding rank. Period.”

-       Nassim Taleb on Bloomberg News, Oct 18^th, 2011.

Contender for leading meme of our time is the idea, fast becoming conventional wisdom, that capitalism is somehow experiencing a crisis. UK Prime Minister David Cameron (or his speechwriter) suggested last week that it is now the time to use the “crisis of capitalism to improve markets, not undermine them.” If we draw a straight line back in time from the current financial crisis to the dawn of the same crisis, few would dispute that it was, and is, banks carrying the smoking gun. It was banks that made questionable loans to flaky borrowers – sovereign as well as individual – and it is banks that required extraordinary levels of involuntary taxpayer support to keep them “in business”, that is to say, keep their senior executives in the manner to which they have become accustomed. Unfortunately, in saving the banks from themselves, sovereign governments have now largely destroyed their own balance sheets. There is not, and never was, a free or fair market for banks. A free market would have allowed insolvent banks to fail. A free market, for that matter, would have no need of a central bank dictating monetary policy: the genius of the market is that it is perfectly capable of pricing money and interest rates in the same way it makes a price, every day, without fail, for the value of Tesco plc, crude oil or wheat. If the Prime Minister were capable of framing the problem correctly, he would have said that it was now the time to use the “crisis of statism to introduce markets”. Instead, career politicians in the coalition, with no practical experience of any world other than the political, have been busily urging the rest of Britain to become “a John Lewis economy” of motivated employee shareholders. As Martin Vander Weyer asked archly in ‘The Spectator’, “Have you wondered why there’s only one John Lewis Partnership, Mr Clegg ?” But then criticising the Lib Dems (official financial policy: join the euro zone) for economic confusion is like criticising David Blunkett for being blind.

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The final countdown

“Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.” Debt talks “have not produced a constructive response.”

-       The Institute of International Finance, January 13 2012.

 

“The war situation has developed not necessarily to Japan’s advantage..”

-       Japanese Emperor Hirohito after the atomic bombing of Hiroshima and Nagasaki, announcing Japan’s surrender to the Allies.

There is a terrible hubris at the heart of mankind. Like every other living thing on the planet we are products of nature, but we consider ourselves to be well above it. We are beset by regular reminders of our vulnerability, but quickly dismiss them off-handedly to a spiritual plane, calling them ‘acts of God’ as if to show that we could never have prevented them. In a significant essay for Foreign Affairs, ‘The Black Swan of Cairo’, Nassim Taleb shows how the efforts of our authorities to suppress volatility actually end up making the world less predictable and more dangerous.

“Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite. These artificially constrained systems become prone to “Black Swans” – that is, they become extremely vulnerable to large-scale events that lie far from the statistical norm and were largely unpredictable to a given set of observers.”

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A revolutionary road

“Some investors aren’t confident with what gold is backed by, as compared to something like the US dollar. Investors are comfortable that the US dollar is backed by the US government.”

-       CTV national news field reporter Bridget Brown. This channel should perhaps be called WTF ?

Sam Mendes’ 2008 film ‘Revolutionary Road’ is edited to maximise heartbreak among viewers. Its opening scene shows bright young things Frank (Leonardo DiCaprio) and April (Kate Winslet) falling for each other at a New York party. Without missing a beat it then cuts to April displaying a mediocre performance in a mediocre amateur drama, which Frank is only too willing to point out. By this stage they are already married, with children and a brooding mutual resentment. Whatever happened, we are urged by this brutal jump cut to ask, to love’s young dream ? The disenchantment foisted upon us by the slow death of honest, free market capitalism, and of any form of political integrity, has, by contrast, taken its time coming. But that disintegration and its accompanying, lingering sense of existential despair are just as sure. There has been profound change in the markets over the last decade alone, and none of it good.

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A beef quiz, and revisited Koo

“Like a Hitchcock film. You did not need to see the blood and gore and violence – the hint of it and the menace that pervaded the office was worse.”

 

-       Theo Zemek cheerily describes the atmosphere at New Star Asset Management.

 

Just as there are said to be no atheists in foxholes, try finding a long-term investor during a Crash, or even amid fears of one. We extend this thesis and welcome in the New Year by means of two Buffett-related behavioural anecdotes; one from the great man himself, the other courtesy of Sanlam’s Kokkie Kooyman.

From the 1997 Chairman’s Letter to the shareholders of Berkshire Hathaway:

“A short quiz. If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef ? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices ? These questions, of course, answer themselves.

“But now for the final exam: if you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period ?

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