The price of everything

Must-read

“Working at my desk today was somewhat surreal.  Global risk markets were closing out a dreadful week.  Newswires were full of disconcerting articles – J.P. Morgan, Greece, Spain, Italy, China, etc.   Meanwhile, CNBC was in the midst of blanket coverage of the Facebook initial public offering.  Mark Zuckerberg rang the bell to open Nasdaq trading, while helicopters provided live video of the employee gathering at Facebook’s Menlo Park headquarters.  Insiders are now worth billions, the “average” employee millions.  Even U2’s Bono pocketed $1.2bn (with a “B”).  I noted above how I see J.P. Morgan’s predicament as a microcosm of global financial woes.  Well, it is difficult for me today not to see Facebook as emblematic of the incredible transfer of wealth associated with Credit Bubbles.  It’s almost as if this historic Bubble has been waiting to end with just such an exclamation point.”

 

-       From ‘The Jig is Up’, by Doug Noland.

 

Like us, you may have missed Robert Wilmers’ blistering assault on Wall Street when it was first published. Happily, the Internet occasionally offers up a diamond amongst the garbage. The full letter to shareholders of M&T Bank can be read here. It is a must-read. (The really good stuff starts on page xi.) Nor is Mr Wilmers some swivel-eyed Occupy Wall Street beatnik. He is the chairman and chief executive officer of the US commercial bank in question. His shareholders’ letter may be just one straw spinning within the eddies of a tempest, but it encapsulates a morsel of hope amidst a morass of inanity, greed and vile corporate behaviour. Credit to Business Insider for bringing it to a wider audience.

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Hand to hand combat with Martin Wolf

“James and I both have Range Rovers for running around, but he’s also got a black Lamborghini and a black Rolls-Royce, and I’ve a white Ferrari and a white Rolls-Royce.. I’m bored with designers like Dolce & Gabanna. I hate it when you know what label a person’s wearing – it doesn’t say luxury, it feels a bit Russian and cheap.. I don’t live in a bubble though.. I clear out my clothes every few weeks and send them to Croatia.. Our bedroom’s actually more like an apartment, with its own kitchen, bathrooms, lounge, dressing rooms..”

 

-       Petra Ecclestone, keeping it real in The Sunday Times (‘It’s not easy being this rich’).

 

On balance, if somebody had to all intents and purposes suggested to me that the entirety of my career had been a complete waste of time, I suppose I would have taken it somewhat to heart. So credit is due to the FT’s Chief Economics Commentator Martin Wolf simply for responding to my unsolicited email last week. But I get ahead of myself. Here are some excerpts of what he had written earlier in the day in the UK’s leading financial journal (‘After the bonfire of the verities’). Red-rag-to-bull segments are highlighted in bold red.

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The politics of fear

“I’m getting increasingly worried about the free movement of people across Europe. It’s a very competitive world out there and my constituents resent that.”

 

-       Huddersfield Labour MP Barry Sheerman, defending comments he made on Twitter about Eastern European workers.

 

It was quite fitting that in a week that saw Britain slide into its first double-dip recession since 1975 we also saw evidence – notably from the political left – of the sort of insular bigotry and protectionist narrow-mindedness that one associates with that ugly decade. And if there was any doubt about the longevity of the UK’s fragile Con-Dem coalition, its honeymoon period is certainly over now. Nor were the signs of some kind of political unravelling confined to British shores. French voters in the presidential elections shocked markets by a) favouring the socialist  Francois Hollande and b) giving almost a fifth of their votes to the far-right extremist Marine Le Pen. In another turn of the sovereign debt screw, Spain was downgraded toward reality. The Dutch government, meanwhile, collapsed altogether. Amazingly, the people of Europe just don’t seem that keen on austerity.

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Party on ! (Or not.)

“The sea’s freezing. A man won’t last long in that. We’ve drawn a bad hand this time.”

 

“I’ve never been a good loser. I intend to get into a boat.”

 

-       Conversation between two card-players on The Titanic, from Eric Ambler’s screenplay, ‘A Night To Remember’.

 

The Titanic centenary was always going to be the trigger for a plethora of tasteless attempts to cash in on the tragedy. The “best” we’ve seen so far was the Hotel Russell’s promotion of its ‘Titanic breakfast’ – which presumably goes down a treat, though not without a degree of attendant turbulence. Having considered for some time the most appropriate metaphor for the current market environment the cause sometimes seemed lost, but we think we have it now. There are a number of sequences in Roy Ward Baker’s 1958 classic account, ‘A Night To Remember’, that depict a lounge in one of the upper class quarters of the ship as it slowly sinks beneath the waves. Notwithstanding the vessel listing alarmingly, a motley band of toff revellers are determined to go out in the finest Hooray Henry style. Some continue to play at cards with a fatalistic resolve while behind them, a group of braying nobs determinedly quaff spirits direct from the bottle. One may be doomed, but one can still party on.

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What are economists for ?

“Most economists, it seems, believe strongly in their own superior intelligence and take themselves far too seriously. In his open letter of 22 July 2001 to Joseph Stiglitz, Kenneth Rogoff identified this problem. “One of my favourite stories from that era is a lunch with you and our former colleague, Carl Shapiro, at which the two of you started discussing whether Paul Volcker merited your vote for a tenured appointment at Princeton. At one point, you turned to me and said, “Ken, you used to work for Volcker at the Fed. Tell me, is he really smart ?” I responded something to the effect of, “Well, he was arguably the greatest Federal Reserve Chairman of the twentieth century.” To which you replied, “But is he smart like us ?”

 

-       Satyajit Das.

 

What are days for, asked Philip Larkin. His answer: they are where we live. Where can we live but days ?

“Ah, solving that question

Brings the priest and the doctor

In their long coats

Running over the fields.”

What is economics for, we might then ask, given the conspicuous failure of the profession either to warn of the looming financial crisis ahead of time, or to identify any meaningful practical solutions once the crisis took hold. J.K.Galbraith gave one of the better responses:

“Economics is extremely useful as a form of employment for economists.”

But P.J. O’Rourke’s definition is probably better: economics being an entire scientific discipline of not knowing what the hell you’re talking about. And there’s some debate over the use of that adjective scientific.

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Problem-solving

“FTSE 100 could hit 7,000 if the Bank of England prints more money”

 

-       Telegraph headline implicating Legal & General’s Ben Gill as the inflationist paper-bug.

 

Any Martian watching events down here would be scratching its head more than usual. The ONS reported that UK GDP contracted by a worse than expected 0.3% in the last quarter of 2011. Construction industry output fell by 0.2%; manufacturing output by 0.7%. And the OECD indicated that the UK was back in recession (no big surprise to us since we never believed we came out of the last one). So what was occupying the twittering classes more than anything else last week ? The tax rate on pasties. This supposedly punitive tariff has been seized upon by left-wingers as dark evidence of a Conservative plot against the lower orders; as political blogger Guido Fawkes pointed out:

“We now live in a country where caviar is untaxed and a hot pasty is.. Go figure.”

Or perhaps the furore over the tax rate on cheap pastries simply reflects the underlying absurdity of the ongoing annual irrelevance that is Britain’s Budget – an endless cycle of tinkering at the fiscal margin that ultimately benefits nobody other than a narrow clique of lawyers and accountants.

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Telling tales about money

“With the US economy showing signs of recovery and fears about the eurozone sovereign debt crisis easing, investors are putting their money into equities and other assets geared towards economic growth rather than havens such as gold.”

 

-       Jack Farchy, Financial Times, 23^rd March.

 

“Growth gloom bolsters government debt

 

Reminders of the risks to the global growth outlook put equities and commodities on the back foot and helped government bonds in the US, Germany and the UK recoup more of their recent losses.”

 

-       Dave Shellock, Financial Times, 23^rd March.

Screenwriter William Goldman famously began his autobiography, ‘Adventures in the Screen Trade’, with three telling words: Nobody Knows Anything. The same logic would seem to apply to much conventional reporting of the financial markets. Any investor looking for informed analysis of market developments can therefore save themselves a few minutes every day by choosing not to read any of the ‘Companies and Markets’ section of the FT, which typically constitutes a fantastic piece of fiction. If there is a more thankless task in finance than trying to explain why certain markets did what they did yesterday, we don’t know what it is. (Unless it’s working in the PR department at Goldman Sachs.)

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A financial glossary

“Investors back historic Greek debt swap”

-       FT headline 9.3.2012.

 

BANK, n. Bottomless cavity in the ground that sucks in money and the unwary.

I had quite a bit of money but then I put it in the bank.

BOND, n. A profitless contrivance used for catching the gullible or feeble-minded.

That pension fund is 100% in bonds now.

BROKER, adj. A comparative descriptive state for a client of a Wall Street bank.

He didn’t exactly have a lot of money before he started dealing with Goldman Sachs. Now he’s even broker.

BUBBLE, n. Fundamental prerequisite for a functioning Anglo-Saxon economy.

We need a new bubble to replace the ones we had in dotcom and property.

CENTRAL BANK, n. Lobbyist for commercial banks well versed in alchemy.

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Garbage in..

“We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand.”

 

-       John Maynard Keynes.

An engineer, a biologist and an economist are washed ashore on a desert island. After a few days without food they are starving. Eventually, they stumble on a can of beans on the beach. They spend a few minutes considering how they might feed themselves. The engineer is the first to speak. “We could hit the can with a rock until it opens.” The biologist counters, “We could suspend the can in a seawater solution and wait for erosion to work its magic.” The economist is last to contribute: “Let us assume we have a can-opener.”

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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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