The price of everything

Fixed

“Don’t fight the Fed – bet on it.”

 

-       Lee Quaintance and Paul Brodsky of QB Asset Management.

 

In December last year, the poet Alice Oswald withdrew from the TS Eliot poetry prize on the grounds that the prize was being sponsored by an investment company (Aurum, a fund of hedge funds manager). How you feel about this principled stance may depend on whether you are a UK taxpayer. If you are a UK taxpayer, you will probably feel relieved that your tax pounds are no longer being squandered on the Arts Council’s sponsorship of the prize in question – a tiny victory, but a victory nevertheless against the arrogant dissipations of the state. Ms Oswald seems to believe that poetry prizes should be funded with everybody else’s money, rather than by a private patron grown-up enough to be responsible for its discretionary expenditure (private patronage being what you might call ‘traditional’ in the arts). As a graduate in English Language and Literature, this commentator has no animus against poets. But I am not sure we want them in charge of the economy. They are notorious for starving in garrets for a reason.

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The Great Repression

“No government has ever commanded the resources at the disposal of our ungodly Leviathan, which consumes about 25% of the product of the world’s richest country. It is driven by a voracious alliance of government’s own employees, and those who receive benefits from the state. At least 90 million Americans either depend directly on government handouts or jobs, and each private worker must support not only himself and his family, but also carry a government worker on his shoulders.”

 

-       Tom Bethel, ‘Freedom and its enemies’, June 1999.

 

Financial markets don’t really do the long term anymore, but if they did, they might spend less time drooling at the prospect of more monetary crack, and more time wondering who will be funding all the government debt that now towers above everyone further than the eye can see. CLSA’s Russell Napier (hat tip to Macro Advisors’ Filip Ruszkowski) recently pointed to an ominous development from the summer of 2011:

“..a terrible burden fell upon the people of the USA. For the first time in 15 years, those who had money (savers) began to fund their government, rather than the printers of money (central banks). This shift has already hurt private-sector growth and asset prices, and as federal debt to GDP reaches 100%, it will squeeze out private-sector activity. Structural moves to coerce markets into funding government have begun in Europe and will come to the USA too..”

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Beware false idols

“Playing with expectations works temporarily. The risk-on trade is in a mini bubble, as today’s buyers want to be ahead of the slower ones. The buying trend is sustainable only if the global economy strengthens, which is unlikely. The stocks aren’t cheap. Desirable consumer stocks are selling for 20 times earnings. Banks are cheap for a reason. Internet stocks suggest another bubble in the making. The Fed is trying to inflate an expensive asset. The rally, hence, is quite fragile. As soon as a shock like Greece defaulting or bad economic news unfolds, the market will quickly head south.”

 

-       Andy Xie, ‘A world flying blind’.

 

For value investors of a certain age (e.g. mine), discovering that Warren Buffett has feet of clay is like suddenly not believing in Father Christmas. This twinkly-eyed, raspy-voiced, avuncular old gentleman almost embodies Clint Eastwood crossed with a Care Bear. And nobody can hold a candle to his long-term investment record. And yet.. The rot set in (at least as far as this writer is concerned) when Buffett went from investing in private non-financial businesses to siding with the establishment, using his institutional heft to win sweetheart deals in dubious banking institutions way beyond the reach of regular Joes. In other words, somewhere along the line he went from representing the 99% to representing the 1%. And at the first sign of trouble, he simply wraps himself up in the American flag.

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Stop the (printing) press

“FRED GOODWIN. Have the last laugh by donating a couple of million to the Tory party and receiving a life peerage.”

 

-       From the Twitter feed of TWOP TWIPS.

 

Never pick a fight with someone who buys ink by the barrel. (This sound advice may need tweaking in an age where digital commentary requires the purchase of no ink whatsoever.) Notwithstanding the acres of column inches already sacrificed to the banal debate over Fred Goodwin’s virtual defenestration, the British press is in no position to lay claim to any moral high ground when it comes either to conducting business in an ethical way, or to swivel-eyed criticism of those who have visibly fallen short of the mark. Macaulay had it right:

“We know no spectacle so ridiculous as the British public in one of its periodical fits of morality.”

Or, perhaps, “one of its periodical’s fits of morality.” The sorry, zombified mess that is RBS seems to have come about through a grotesque mixture of managerial overreach and regulatory failure (the sort of thing that every retreating bull market leaves in its wake), but at least the bank had a regulator. The print media in the UK doesn’t even have that – or rather, it chooses to regulate itself, which is much the same thing, given that the outcome has included, but by no means been limited to, the phone-hacking of dead teenagers, the phone-hacking of the families of British soldiers killed in action, and the suicide of the News of the World.

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