The price of everything

Throw the chauffeur from the car

 

“Sir, Robert Skidelsky and Marcus Miller (Letters, February 27) consider that the Nobel Prize winner Friedrich Hayek offered a “counsel of despair” in the Great Depression. Next, we have the minatory clichés “writing on the wall” and a call for George Osborne to “change gear” or “let someone else take the wheel”.

“By chance, having literally been chauffeur in 1975 to Hayek at a Mount Pèlerin conference and thus spending some hours with him, may I declare an interest. Hayek was a delightful passenger. His view of the self-adjusting powers of markets is in fact a counsel of well-founded optimism. Indeed, as we discussed, allegedly “austere” Britain recovered from the 1930s slump faster than “New Deal” America where, in H.L. Mencken’s withering phrase, Roosevelt was “addicted to the spending arts”.

“The real “hoax” is the neo-Keynesian delusion that sub-optimal capital projects and monetary manipulations led by the knowledge-poor mechanisms of the state can do a better job than the relatively better informed, risk-disciplined actions of players in properly constituted markets. The Skidelsky / Miller imagery of the economy as a single automobile – a fixed construct with all parts known to the manufacturer – precisely illustrates the misconception that centrally operated levers and controls are appropriate to outcomes in the social sciences, and would have been gently derided by the unfailingly polite Hayek as such..”

–       Letter to the editor of The Financial Times from Mr Peter Smaill of Borthwick, Midlothian, UK, 28 February 2013.

 

 

Coming soon (for launch 7th November): Investing Through the Looking Glass

"When Tim gives speeches - even informal talks - crowds gather around him. Reading, his new book Investing Through the Looking Glass reminds me why. It's a crisp story of how our Alice in Wonderland financial world actually works... told with wit, style and deep insights. George Soros said that there are some books that can make you a million dollars; this could be one of those books."

• Bill Bonner, Founder and President, Agora Inc.

 

“Tim Price is one of the most cogent commentators on markets; this book contains wisdom and ideas that every investor should take note of. Tim has summarised the follies of Central Bankers, the avarice and general uselessness of financial advisers, and the bubble in asset prices that currently prevails. He comes up with a Manifesto which is designed to save us from the disastrous policies of the past two decades and to preserve and enhance capital. I thoroughly recommend Through the Looking Glass.”

• Jim Mellon, Investor and Chairman, Burnbrae Ltd.

 

 

Charlie Munger tells a lovely story about Max Planck which may be apocryphal. After winning the Nobel Prize for Physics in 1918, he was invited to lecture widely. Planck had a chauffeur who drove him across Germany for the purpose. This chauffeur memorised the lecture and one say suggested, “Professor Planck, why don’t you let me give the lecture and we’ll switch places ?” So the chauffeur gave the lecture. At the end of the lecture a physicist stood up and posed a difficult question which was clearly beyond the chauffeur. The chauffeur replied, “Well, I have to say I’m surprised that a citizen of an advanced city like Munich is asking so elementary a question. So I will let my chauffeur respond.”

Few “professions” have been so widely discredited and fallen from recognition so quickly as the central banking priesthood has done over recent weeks. The 1810 Bullion Committee surely issued the definitive judgment on the efficacy of monetary policy as dictated by technocrats:

“The most detailed knowledge of the actual trade of a country, combined with the profound Science in all the principles of Money and circulation, would not enable any man or set of men to adjust, and keep always adjusted, the right proportion of circulating medium in a country to the wants of trade.”

In other words, since the job of controlling monetary policy, money supply and interest rates is beyond “any man or set of men,” perhaps we should let a free market decide.

But then most economists are as ignorant of history as they are unaware of the practical limitations of economic theory.

One might have thought that a magazine titled ‘The Economist’ might have some awareness of these limitations. Apparently not. Fresh from its defeat in campaigning against Brexit, ‘The Economist’ is now turning its blind eye to the inevitable deficiencies of central banking and the maintenance of a clearly sub-optimal status quo. Hands off the Bank of England, it cries in its latest edition, dismayed by the growing storm of criticism of Mark Carney and his explicitly political if ultimately futile huckstering for Remain.

Is there a word or phrase for defending the indefensible whilst massively missing the wood for the trees ? Being ‘The Economist’, perhaps. It is not about whether Mark Carney is the right man for the job. (He isn’t, but that’s not the point.) It’s whether the job should be conducted in the first place. It’s about whether the institution should exist. (You can sign to try and have Mark Carney along with his fatuous QE policies defenestrated here.)

Peter Smaill gets it:

“The real “hoax” is the neo-Keynesian delusion that sub-optimal capital projects and monetary manipulations led by the knowledge-poor mechanisms of the state can do a better job than the relatively better informed, risk-disciplined actions of players in properly constituted markets.”

A moment’s silence, please, for the demise of those properly constituted markets – done in by the price rigging machinations of those same central bankers.

If Mark Carney does elect to leave, or is pushed, ‘The Economist’ will clearly get a chance to publicly polish its credentials as reliably on the wrong side of just about everything in matters of modern economics – perhaps the Germans have a phrase for crowning irony. But they’ll be in good company. The Financial Times has consistently reported on “the Guvnor” through the prism of messianic delusions of adequacy. This is how Claire Jones and Sarah O’Connor fawned over his arrival at the Bank in their FT article of 2^nd July 2013:

“Mark Carney, the new governor of the Bank of England, could hardly have timed his arrival better. Even before he launched his bid to revive the UK economy, following years of little or no growth, data signalled that the recovery is gaining momentum without his help.”

What a difference a few years, a failed attempt to keep us in the EU straitjacket, and a few hundred billion pounds of squandered money makes. The title of their article ? ‘Carney eschews car for the Tube and times his arrival to perfection’.

Never mind. At some point Mark Carney will return to his Canadian homeland having conclusively smashed the credibility of modern central banking here in the UK. If he goes back via the Atlantic, such are his presumed talents he can probably walk back.

 

Tim Price is Director of Investment at PFP Wealth Management and co-manager of the VT Price Value Portfolio.

Trade-off

 

“I am convinced that every man of you would rise up and tear me down from my place if I were for one moment to contemplate parley or surrender. If this long island history of ours is to end at last, let it end only when each one of us lies choking in his own blood upon the ground.”

-Winston Churchill, newly installed British Prime Minister, declares his determination to fight on, at a meeting of the war cabinet, 28 May 1940.

 

 

Coming soon (for launch 7th November): Investing Through the Looking Glass

"When Tim gives speeches - even informal talks - crowds gather around him. Reading, his new book Investing Through the Looking Glass reminds me why. It's a crisp story of how our Alice in Wonderland financial world actually works... told with wit, style and deep insights. George Soros said that there are some books that can make you a million dollars; this could be one of those books."

-Bill Bonner, Founder and President, Agora Inc.

 

 

After the fall of France in 1940, Great Britain, under Churchill, fought on against the Nazis, virtually alone. Although she would ultimately be joined by the overwhelming military and economic might of the United States, for a period she fought more or less friendless, with her back to the wall. In the process of prosecuting the war, quite apart from the human toll upon her military and citizenry, Great Britain bankrupted herself. Her polity and economy would be irrevocably changed in the pursuit of final victory.

What was her reward ? Early attempts at joining the European Economic Community were rebuffed. In November 1962, General de Gaulle hosted the British Prime Minister Harold Macmillan at Rambouillet, south of Paris. The French leader was unyielding, and the French ‘Non’ to British entry to the EEC came as a bitter blow. Andrew Marr in his ‘History of Modern Britain’ writes that

“At one point, Macmillan broke down in tears of frustration at the Frenchman’s intransigence, leading de Gaulle to report cruelly to his cabinet later: ‘This poor man, to whom I had nothing to give, seemed so sad, so beaten that I wanted to put my hand on his shoulder and say to him, as in the Edith Piaf song, “Ne pleurez pas, milord.”

Marr tells another interesting story about the birth of the EU, some seven years before the Rambouillet humiliation. Representatives of ‘the Six’ founding EU nations – France, West Germany, Italy, Luxembourg, Belgium and the Netherlands – met at a small coastal town in Sicily called Messina. Britain declined to send a minister but instead dispatched a middle-ranking civil servant, Russell Bretherton. At the end of the negotiations, so the story goes, Bretherton stood up and told the assembled politicians:

“Gentlemen, you are trying to negotiate something you will never be able to negotiate. But if negotiated, it will not be ratified. And if ratified, it will not work.”

Inaudible though it may be to the tin ear of Remoaners, the EU does not appear to be working today. Its immigration policy is a murderous disgrace; its banking system is teetering on insolvency; its economy is stagnating, with terrible consequences for the young and unemployed at its periphery; full steam ahead, cry its leaders, as impervious to legitimate criticism as the RMS Titanic was to icebergs.

Now we see the full dynamism of this trading behemoth at work, as the Walloons – an ancient race of space monkeys that featured in several early episodes of ‘Doctor Who’ – have done their best to scupper a trade deal between Canada and the 28 separate member states of the European “Union”. If this is an integrated economic bloc, we’d hate to see a dysfunctional bureaucracy of squabbling tiny-minded cretins.

Better off out would seem to be the order of the day. And still EU “leaders” like Donald Tusk nurse fond hopes that Britain might yet reverse its decision to leave, and elect to stay in the burning building instead.

Some hope. Brexit has conclusively delivered a hammer-blow to European competitiveness by facilitating a 16% devaluation of sterling – a currency depreciation  that virtually every government on the planet has been trying to pull off but which the European “Union” is structurally incapable of delivering.

One country that has managed to conclude a trade deal with the European “Union” is Vietnam – a country of 94 million people, many of them young, and most well-educated. In a 2012 OECD assessment of maths, reading and science skills among 15 year-olds, Vietnam scored more highly than France, the UK, and the US. Vietnam is rapidly industrialising and becoming the destination for FDI across Asia. It is also highly competitive – its average monthly wages are one third those in China.

Yet its stock market is cheap.

Fully half of the Vietnamese stock market trades on a p/e ratio of less than 10.

If only there were some way of accessing this value. Happily, there soon will be.

SSI Asset Management already manages the Vietnam Value and Income Portfolio, a specialised investment fund that is the single largest holding in our global value fund and that has delivered 33.8% returns in GBP since its inception in December 2015.

SSI will shortly be launching the Vietnam Value Income and Growth Fund in a UCITS format. The anticipated p/e of the fund is 10x, return on equity 20%, and expected dividend yield 5.1%.

Or you could invest in the euro zone: a failing economic and political bloc that is arguably already in a Depression.

Pay money. Take choice.

Tim Price is Director of Investment at PFP Wealth Management and co-manager of the VT Price Value Portfolio.

 

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Not your mate

“Don’t panic about the impending Marmite shortage. Simply make your own by mixing a rotting fox carcass with some tar.”

-Tweet by @joeheenan, 12 October 2016.

 

 

“..sales of Marmite may be in for a boost after scientists discovered it could hold the secret to making men last longer in the bedroom.”

-The Daily Mail, 8 October 2016.

 

 

“For sale: a jar of Marmite. Cash only. £30 or $4. No time wasters.”

-Tweet by @StephenMangan.

 

 

Coming soon (for launch 7th November): Investing Through the Looking Glass

"When Tim gives speeches - even informal talks - crowds gather around him. Reading, his new book Investing Through the Looking Glass reminds me why. It's a crisp story of how our Alice in Wonderland financial world actually works... told with wit, style and deep insights. George Soros said that there are some books that can make you a million dollars; this could be one of those books."

-Bill Bonner, Founder and President, Agora Inc.

 

 

The consumption of financial media can be dangerous. Mixed with overpriced global brands, it can be deadly. In August 2000, Fortune Magazine published an article entitled ‘Ten stocks to last the decade’. As befits something written during the latter stages of the TMT boom, Fortune’s recommendations concentrated on Technology, Media and Telecoms stocks. Their ‘Ten stocks to last the decade’, and their stock prices at the time of original publication, were:

Nokia                          $41.06

Nortel Networks            $79.25

Enron                          $83.75

Oracle                         $82.375

Broadcom                    $240.75

Viacom                        $69.00

Univision                     $48.00

Charles Schwab            $40.00

Morgan Stanley            $104.06

Genentech                  $167.06

How did these ‘Ten stocks to last the decade’ fare ? The following table shows their stock prices on 19 December 2012.

Stock                           Price as at 14.8.2000                        Price as at 19.12.2012

Nokia                          $41.06                                                $4.21

Nortel Networks       $79.25                                                    $0.00

Enron                          $83.75                                                $0.00

Oracle                         $82.375                                              $34.09

Broadcom                  $240.75                                                $33.16

Viacom                       $69.00                                                $54.00

Univision                    $48.00                                                $0.00

Charles Schwab         $40.00                                                $14.47

Morgan Stanley         $104.06                                              $19.09

Genentech                  $167.06                                            $95 (Taken Over)

Clearly, Fortune Magazine is unlikely to be winning any investment awards any time soon. Unless it buys them. All in all, the Fortune portfolio lost 65% of its value over the subsequent decade. Three of its favoured companies went bankrupt, and one was bailed out.

In the words of the legendary value investor Benjamin Graham,

“Investors do not make mistakes, or bad mistakes, in buying good stocks at fair prices. They make their serious mistakes by buying poor stocks, particularly the ones that are pushed for various reasons [by Wall Street]. And sometimes – in fact very frequently – they make mistakes by buying good stocks in the upper reaches of bull markets.”

(Emphasis ours.)

Is there a chance that investors today run the risk of making the same mistake – of overpaying for good stocks during a period when the stock market is, perhaps, somewhat artificially high, courtesy of seven years of egregious and otherwise ineffectual monetary stimulus ?

Example. Unilever is a good, if boring, company. It sells soap, shampoo and a variety of foodstuffs. It is also extremely popular with equity fund managers who regard the shares as bond proxies – safe, dependable, low volatility earners. The problem with this groupthink is that – as Benjamin Graham warned – once the crowd bids up shares beyond a certain point, they no longer offer any “margin of safety”.

Unilever shares have now, arguably, reached that point. They trade on a p/e ratio of 23 times and a price to book ratio of 8. They are not cheap in any Benjamin Graham sense of the word. And in its well-publicised spat with Tesco last week, the company now seems to be behaving like a cynical, opportunistic, price-gouging profiteer. (Marmite, for example, is manufactured in Burton-upon-Trent in Staffordshire. As far as we are aware, Burton-upon-Trent does not have its own currency which has suddenly depreciated against sterling which might justify a 10% price hike.)

Unilever is, of course, free to charge whatever it likes for its products. By the same token, consumers are perfectly free to boycott Unilever products and buy something cheaper, and perhaps more appealing. That goes for the shares, too.

 

Tim Price is Director of Investment at PFP Wealth Management and co-manager of the VT Price Value Portfolio.

 

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Turn those machines back off !

 

“Isn’t it funny when you walk into an investment firm and you see all of the financial advisers watching CNBC. That gives me the same feeling of confidence I would have if I walked into the Mayo clinic or Sloan Kettering and all the medical staff were watching General Hospital.”

- A senior portfolio manager.

 

Coming soon (for launch 7th November): Investing Through the Looking Glass

 

What they said:

 

"Tim Price is one of the most cogent commentators on markets; this book contains wisdom and ideas that every investor should take note of. Tim has summarised the follies of Central Bankers, the avarice and general uselessness of financial advisers, and the bubble in asset prices that currently prevails. He comes up with a Manifesto which is designed to save us from the disastrous policies of the past two decades and to preserve and enhance capital. I thoroughly recommend Through the Looking Glass."

• Jim Mellon, Investor and Chairman, Burnbrae Ltd.

 

"When Tim gives speeches - even informal talks - crowds gather around him. Reading, his new book Investing Through the Looking Glass reminds me why. It's a crisp story of how our Alice in Wonderland financial world actually works... told with wit, style and deep insights. George Soros said that there are some books that can make you a million dollars; this could be one of those books."

• Bill Bonner, Founder and President, Agora Inc.

 

"Almost everything you think you know about finance, investing and money is wrong. In this wise, easy to read, and very independently minded book, Tim Price explains why. You might not agree with everything Tim says. But Through the Looking Glass will certainly make you think - and might make you a lot of money too."

• Merryn Somerset Webb, Editor in chief, MoneyWeek.

 

"Certifiable lunatics run the world's central banks. And it takes a sane person to tell that truth. Tim Price is very sane."

• Michael Covel, bestselling author of Trend Following and TurtleTrader.

 

"Provocative, enlightening and very well-written."

• Guy Fraser-Sampson, author of The Mess We're In.

 

Back in the 1970s, the BBC started broadcasting a children’s show called ‘Why Don’t You ?’ Its full title: ‘Why Don’t You Just Switch Off Your Television Set And Go Out And Do Something Less Boring Instead ?’ Out of the mouths of babes.. Rolf Dobelli, the best-selling author of ‘The Art of Thinking Clearly’ has gone one better. In his essay ‘Avoid News’ he advocates abandoning news across all forms of media altogether.

The psychologist Paul Andreassen has shown that people who receive frequent news updates on their investments earn lower returns than those who get no news:

“Andreassen divided students into two groups. Each group selected a portfolio of stocks and knew enough about each stock to come up with what seemed like a fair price for it. Then Andreassen allowed one group to see only the changes in the prices of its stocks. Students in that group could buy and sell if they wanted, but all they knew was whether the price of a stock had gone up or down. The second group was allowed to see the changes in price and was also given a constant stream of financial news that supposedly explained what was happening with each stock. Surprisingly, the less informed group did far better than the group that was given all the news. The reason, Andreassen suggested, was that news reports tend to overplay the importance of any particular piece of information. When a stock fell, its fall was typically portrayed as a sign that further trouble lay in wait, while a stock that was on the rise seemed to promise nothing but blue skies ahead. As a result, the students who had access to the news overreacted. Because they took each piece of information as excessively meaningful, they bought and sold far more frequently than the people who were just looking at the price.”

Most of us consume news every day without even thinking about the damage we are doing to ourselves. Financial news may be among the most damaging of all. As Thomas Schuster of Leipzig University puts it,

“The media select, they interpret, they emotionalize and they create facts. The media not only reduce reality by lowering information density. They focus reality by accumulating information where ‘actually’ none exists. A typical stock market report looks like this: Stock X increased because… Index Y crashed due to… Prices Z continue to rise after… Most of these explanations are post-hoc rationalizations. An artificial logic is created, based on a simplistic understanding of the markets, which implies that there are simple explanations for most price movements; that price movements follow rules which then lead to systematic patterns; and of course that the news disseminated by the media decisively contribute to the emergence of price movements.”

Acres of column inches and hours of airtime have already been dedicated to searching for the cause of last week’s so-called “flash crash” in which sterling got whacked on the foreign exchanges. Again. R2D2 and C3PO may know how and why it happened, but the rest of us are pre-destined to be blathering around in the dark. Human beings are simply hard-wired to look for stories, and the financial media are very good at creating them. Our brains abhor a vacuum devoid of meaning, so man’s search for narrative will likely last for as long as we do.

The reality is that for most of the time, about almost everything that takes place in the financial markets – and elsewhere – nobody really knows.

Dobelli argues that news is to the mind what sugar is to the body. We are in this sad state because

“..200 years ago we invented a toxic form of knowledge called “news”. The time has come to recognise the detrimental effects that news has on individuals and societies, and to take the necessary steps to shield yourself from its dangers.

“At core, human beings are cavemen in suits and dresses. Our brains are optimised for our original hunter-gatherer environment where we lived in small bands of 25 to 100 individuals with limited sources of food and information. Our brains (and our bodies) now live in a world that is the opposite of what we are designed to handle. This leads to great risk and to inappropriate, outright dangerous behaviour.

“In the past few decades, the fortunate among us have recognised the hazards of living with an overabundance of carbohydrates (obesity, diabetes) and have started to shift our diets.. News is easy to digest. The media feeds us small bites of trivial matter, tidbits that don’t really concern our lives and don’t require thinking. That’s why we experience almost no saturation. Unlike reading books and long, deep magazine articles (which requires thinking), we can swallow limitless quantities of news flashes, like bright-coloured candies for the mind.

“Today, we have reached the same point in relation to information overload that we faced 20 years ago in regard to food intake. We are beginning to recognise how toxic  news can be and we are learning to take the first steps toward an information diet.”  

As someone who earns a living in part from providing financial commentary and analysis, I am well aware that this advice might seem hypocritical. But I am also convinced that Dobelli is right, and that by reducing (if not necessarily eliminating) our intake of news, we will all be better off physically, emotionally, and spiritually. To sum up his thesis:

• News misleads us systematically
• News is irrelevant
• News limits our understanding
• News risks impairing our physical health
• News increases cognitive errors
• News inhibits thinking
• News changes brain behaviour, not for the better
• News devours our time
• Facts are often wrong and forecasts always wrong
• News is manipulative
• News makes us passive
• News kills creativity.

As a longstanding news consumer I do not expect to go cold turkey overnight. But I am certainly cutting down. Rather than eliminate news altogether, which seems wildly impractical, especially for active investors, there is surely an argument for distilling news consumption down to a focused number of high quality providers, advisors, and commentators. We aspire to be amongst the latter.

And if financial journalists think we happen to be picking on them, well, they’re partly right. The financial media earn a chapter to themselves in Investing Through the Looking Glass. But this is an equal opportunity book. A sound kicking is also administered to bankers, central bankers, economists, and fund managers. (We even propose investment solutions as well as identifying systemic problems.) This may be the perfect Christmas book, and fun for all the family.

 

Tim Price is Director of Investment at PFP Wealth Management and co-manager of the VT Price Value Portfolio.

 

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Crisis fatigue

 

 

“Arriving late, Porter slips in the last row behind Danny.

PORTER

(whispers)

Bear Stearns issued a press release denying rumours of liquidity problems.

DANNY

(whispers)

They said they had liquidity?! That always means they don’t.

MARK

We’re living in an era of fraud in America. Not just in banking. But in government, education, food, religion, journalism, prisons, baseball... Somehow, American values became f*** it, let’s grab what we can for now and the hell with tomorrow.

Danny gets a quote, curses, types, Here we go! Bear at 47!

MARK (CONT’D)

And what bothers me isn’t that fraud is “not nice” or “mean.” It’s that for fifteen thousand years fraud and short sighted thinking has never, ever worked. Not once. How the hell did we all forget that?

Vinny gets a text... Bear at 35 last!

MARK (CONT’D)

I thought we were all better than this... I really did. And the fact that we’re not doesn’t make me feel superior and right... It makes me feel sad...

In the back, a man hurries out holding on his cell phone.

MARK (CONT'D)

And as fun as it is seeing pompous dumb Wall Streeters be wildly wrong, (turns to the Bull) and you are wrong sir, (back to his wrap up) I just know that at the end of the day regular people are going to pay for all of this. Because they always, always do.”

- From the screenplay to ‘The Big Short’ by Charles Randolph and Adam McKay, based on the book by Michael Lewis.

 

 

This is getting to be a habit. Previous late summer holidays by this correspondent coincided with the run on Northern Rock, and subsequently with the failure of Lehman Brothers. So the final crawl towards the probable nationalisation of Deutsche Bank came as no particular surprise this year, but it is tiresome to relate nevertheless.

The 2015 annual report for Deutsche Bank runs to some 448 pages, so one rather doubts if even its CEO, John Cryan, has read it all, or has a complete grasp of, for example, its €42 trillion in total notional derivatives exposure.

Is Deutsche Bank technically insolvent ? We’d suggest that it probably is, but we have no dog in the fight, having never either owned banks, or shorted them. And like everybody else we assume that some kind of fix will soon be in – probably one that will further vindicate exposure to gold, both as money substitute and currency substitute. Professor Kevin Dowd, asking whether Deutsche Bank ist kaputt, suggests that the bank’s derivatives exposure is difficult to assess rationally; the value of its derivatives book

“is unreliable because many of its derivatives are valued using unreliable methods. Like many banks, Deutsche uses a three-level hierarchy to report the fair values of its assets. The most reliable, Level 1, applies to traded assets and fair-values them at their market prices. Level 2 assets (such as mortgage-backed securities) are not traded on open markets and are fair-valued using models calibrated to observable inputs such as other market prices. The murkiest, Level 3, applies to the most esoteric instruments (such as the more complex/illiquid Credit Default Swaps and Collateralized Debt Obligations) that are fair-valued using models not calibrated to market data – in practice, mark-to-myth. The scope for error and abuse is too obvious to need spelling out.”

Watching ‘The Big Short’ again over the weekend, it seems as much like the shape of things to come as a witty, if poignant, documentary about a historic failure of common sense. Nobody learns anything. It is eight years since Lehman Brothers failed, and the financial system, especially in Europe, would seem to be in no better shape now than it was back then, going by the health of some of the region’s major banks, and also Barclays. This also means that of this correspondent’s quarter century career to date in asset management, at least a third of that period, and probably closer to a half, has seen the industry in a state of acute crisis. The universal onset of crisis fatigue amongst market participants may, then, account for the mood of general complacency that has so far accompanied Deutsche Bank’s slide towards insolvency if not yet outright irrelevance.

“Never let a good crisis go to waste,” Winston Churchill allegedly said. But Europe, for one, squandered all of those eight years. This is just one of many reasons why we voted Out. With luck the UK will manage to extricate itself from the EU chamber of horrors before the roof finally falls in.

On the fifth anniversary of Lehman Brothers’ bankruptcy, itself six months after the bail-out of Bear Stearns cited in the transcript above, Michael Lewis, author of the original ‘Big Short’, was asked in an interview with Bloomberg BusinessWeek whether he thought the company had been unfairly singled out when it was allowed to fail (given that every other investment bank would then be quickly rescued, courtesy of the US taxpayer).

His response:

“Lehman Brothers was the only one that experienced justice. They should’ve all been left to the mercy of the marketplace. I don’t feel, oh, how sad that Lehman went down. I feel, how sad that Goldman Sachs and Morgan Stanley didn’t follow. I would’ve liked to have seen the crisis play itself out more. The problem is, we would’ve all paid the price. It’s a close call, but I think the long-term effects would’ve been better.”

We happen to agree. A month from now, we’ll publish our new book: ‘Investing Through the Looking Glass: a rational guide to irrational financial markets’. It covers en passant the Lehman crisis, of course, but also the much wider financial landscape: a multi-decade bubble in debt for which Deutsche Bank may yet serve as the terminal pin, the fundamental and seemingly intractable problems with bankers, central bankers, economists, fund managers, and the financial media. Few prisoners are taken. Few deserve to be.

Lest this sound like a counsel of despair, ‘Investing Through the Looking Glass’ also offers practical and pragmatic suggestions for protecting and growing scarce investor capital amid the concurrent waves of deflation and inflation crashing against one of the most challenging financial environments that anyone alive has ever seen.

Tim Price is Director of Investment at PFP Wealth Management and co-manager of the VT Price Value Portfolio.

 

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