Kinda like what we try to do here in our iconoclastic aussie way, I'd like to think; wadda they got anyway, only more panache, a team and lots more energy..
Given the blurry line between journalism and entertainment, Wall St. Cheat Sheet has decided to launch a First Amendment Award Series for Outstanding Journalism. The inaugural winner for Best Blog is Zero Hedge. We like to think of Zero Hedge as the gritty, indie Bloomberg.
Most recently, Zero Hedge’s relentless coverage of Goldman Sachs has brought countless critical issues from the smokey back-rooms of Wall Street to the public corridors of Congress. Many in the mainstream media will refuse to give credit where credit is due because such an acknowledgment is an admission they did not do the reporting encouraged by the Constitution.
We believe media is continuing a major paradigm shift wherein old-school media outlets will continue to lose market and mind share to those who simply do the best reporting and offer the most valuable information. We believe that cynical investors will gravitate away from cheerleading and entertainment because no matter how financially illiterate they are, Pavlov’s Dog tells us investors will ultimately learn to not respond to the bell if the bowl is empty or filled with poison.
We are proud to bring you the first ever interview with Zero Hedge co-founder Tyler Durden. Tyler and his team are perfectly branded as the protagonists from Chuck Palahniuk’s classic Fight Club. The team of brilliant ex-Wall Streeters is on a mission to liberate us from the Old World Order where journalism is nothing more than a means to selling ads.
Damien Hoffman: Tyler, can you share the general story of your career?
Tyler: Alas, I can not go into details for obvious reasons. However, I can tell you that between the four authors of Zero Hedge, we have over two decades of corporate finance advisory, investing and operational experience. For example, between my colleagues and myself we have experience with Credit Default Swaps, financial restructuring, equity capital markets, M&A advisory, private equity, macroeconomic and FOREX analysis. Marla [Singer] is the legal expert in the Zero Hedge family. We also have a variety of experience with all facets of business including front, middle, and back office operational expertise.
Damien: Why did you start Zero Hedge?
Tyler: Last year I realized there was a gaping hole in analytical financial reporting. The vast majority of financial journalists become finance experts by necessity. Alas, there is only so much they can learn without being actively engaged in what they discuss and report. It is still very rare to have an individual with a practical financial background do research, reporting, and analysis in a public medium — and do so coherently — due to the substantial opportunity cost.
Zero Hedge hopes to satisfy the need for objective, unbiased analysis and news. Thanks to the backgrounds of our founders, we are able to connect the dots between seemingly unrelated data sets faster and better than most mainstream media outlets.
Damien: How did you decide to brand the news agency with the Fight Club theme?
Tyler: Since its inception, Zero Hedge had activist overtones to it. Activism not only in the sense of pointing out errors and fraud in the financial system, but also as a grassroots campaign in which people can feel part of a force for change. And real change — not its hollow replica being shoveled down people’s throats in the form of empty campaign promises.
In this sense, Fight Club represents nothing less than the growing disenchantment with a highly leveraged consumer culture, a financial system that merely redistributes wealth from the middle class to Wall Street, and a crony political system which never changes its substance. However, in order to succeed in real change, the truth about the reality behind the scenes has to be exposed. People need to see just how deep the rabbit hole goes. This is the main priority of Zero Hedge for the time being.
Damien: Some of your critics try to discredit you as a result of your anonymity. Can you please explain why you are anonymous and respond to this criticism?
Tyler: Our method is pseudonymous speech because anonymity is a shield from the tyranny of the majority. Thus, anonymity exemplifies the purpose behind the Bill of Rights, and of the First Amendment in particular: to protect unpopular individuals from retaliation, and their ideas from suppression, at the hand of an intolerant society.
Our pseudonymous speech is responsibly used. In 1995, Supreme Court Justice Stevens, writing for the majority in the case of McIntyre v. Ohio Elections Commission [514 U.S. 334], stated, “The right to remain anonymous may be abused when it shields fraudulent conduct. But political speech by its nature will sometimes have unpalatable consequences, and, in general, our society accords greater weight to the value of free speech than to the dangers of its misuse.”
Though often maligned — typically by those frustrated by an inability to engage in ad hominem attacks — anonymous speech has a long and storied history in the United States. We think ourselves in good company in using one or another nom de plume. Anonymity was used by the likes of Mark Twain, also known as Samuel Langhorne Clemens, to criticize common ignorance. Perhaps, most famously, it was used by Alexander Hamilton, James Madison and John Jay — also known as Publius — to write the Federalist Papers.
Particularly in light of an emerging trend against vocalizing public dissent in the United States, we believe in the critical importance of anonymity and its role in dissident speech. Like The Economist magazine, we also believe that keeping authorship anonymous moves the focus of discussion to the content of speech and away from the speaker — as it should be. We believe not only that you should be comfortable with anonymous speech in such an environment, but that you should be suspicious of any speech that isn’t.
Damien: You were recently embroiled in a WWE-style argument with CNBC anchor Dennis Kneale. During Kneale’s rant, he alleged your audience must be morons for reading a blog rather than watching a major media outlet. Can you share a rough breakdown of your real audience and why Dennis is wrong?
Tyler: Discussing Dennis Kneale is counterproductive as I really have no desire to be grouped in even remotely close circles to him. He is an entertainer. I provide information. However, I will tell you that two-thirds of Zero Hedge’s readers originate on Wall Street and its equivalents around the globe at major investment banks and hedge funds. We also have a large segment of readers at the most critical establishments in Washington D.C. Ironically, these are the very people who will never be caught watching the 8pm segment of CNBC.
Damien: What do you want Zero Hedge to be in five years?
Tyler: Let’s follow up on this question in five years. The growth of Zero Hedge has been a shock to me. From its humble beginnings a little over six months ago, Zero Hedge has become the fastest growing, most frequented finance-focused blog in America. While I am very happy with the growth rate, it is both a little puzzling and somewhat concerning. People’s demands of Zero Hedge continue growing, and absent a significant expansion, the blog may soon reach its threshold. Which is also exciting, as I have many new ideas which I am preparing to launch in the very near future.
My ultimate goal is to make Zero Hedge a self-sustaining source of unbiased information, which is not at the mercy of corporate sponsorships or blessings from Wall Street or Washington D.C. Luckily, the currently deplorable condition of mainstream media, which has only so many years to exist in its current format, will undoubtedly make the growth of blogs such as Zero Hedge a pull rather than a push process.
Damien: Tyler, thanks for taking the time to do your first interview with me. You and your team set the bar very high for those who wish to win this award in years to come.
Tyler: We are delighted and honored to win this award. My team and I thank you very much.
For more information about Zero Hedge, please visit: zerohedge.com
Showing posts with label natural capitalism. Show all posts
Showing posts with label natural capitalism. Show all posts
5 August 2009
8 March 2009
Retroactively, Cash becomes King ~ Hulbert
I am referring to my ranking of investment newsletters' performances. One of the things I do at the beginning of each month, once the Hulbert Financial Digest analysts complete their calculations of returns through the end of the previous month, is determine which service is in first place for performance since June 30, 1980 -- the date on which the HFD began tracking the industry.
February's results are now in, and there has been a shift at the top of the rankings. In first place for risk-adjusted performance is now Growth Stock Outlook, edited by Charles Allmon.
There's a remarkable story behind Allmon's ascension. Major players in that story include his incredible patience and discipline, along with the severity of the current bear market, which on Thursday took another 281 points, or 4.1%, off the Dow Jones Industrial Average ($INDU:6,626.94, +32.50, +0.5%) .
But even more crucial to this story is its subtext: Allmon has been almost completely out of stocks for more than 20 years. It was in late 1986, in fact, that he became convinced that stocks were becoming overpriced, a belief that in turn led him to sell almost all of the stocks in his newsletter model portfolio and put the proceeds in cash.
With only one or two exceptions, his model portfolio has remained primarily in cash ever since. It currently owns just three stocks that collectively total 11% of total portfolio value, for example; the other 89% is parked in a money market fund.
Allmon's perseverance in adhering to his high-cash position looked increasingly anachronistic during the bull market of the 1990s and the go-go years of the Internet boom, if not downright stubborn and obstinate.
But the bear market over the past year and a half has changed that. He has been creeping up in our long-term rankings in recent months, and as of the end of this past month, took over the first place position.
There's more than one irony in all this. One is that Allmon stopped selling subscriptions to his newsletter last fall, continuing to offer it only to his money management clients. The Hulbert Financial Digest normally would have stopped monitoring it at that time; but we decided for a variety of reasons to nevertheless continue tracking it, based on the copy that Allmon sends to the Hulbert Financial Digest each month.
One virtue of our continued tracking is that it provides an ongoing scoreboard for the notion that slow and steady really can win the race. The Dow was below 2,000 when Allmon built up his high cash position. Given the strength of the ensuing bull market, his overabundance of caution would seemingly have buried him in a hole so deep he could never emerge.
He nevertheless has dug himself out, courtesy of the interest earned on his large money market position, the returns on his few remaining stock holdings, and the power of compounding.
Allmon shows no signs that he might return anytime soon to the bullish camp. In his latest newsletter, he writes that "our country appears to be on the brink of the biggest financial firestorm in our 220-year history." Expressing little confidence that the government will get us out of this mess, he adds that "the trick now is to avoid being scalded in a sea of nonsense."
Of the three stocks that Allmon's newsletter portfolio currently owns, the biggest holding is Newmont Mining Corporation (NEM:38.90, -1.54, -3.8%) ; he
is forecasting "5% to 15% U.S. inflation," which will in turn lead gold bullion to trade over $1,800 an ounce.
The two other stocks that his model portfolio owns are Altria Group Inc. (MO:15.72, +0.07, +0.5%) and Phillip Morris Intl Inc. (PM:33.31, +0.36, +1.1%) .
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
link
February's results are now in, and there has been a shift at the top of the rankings. In first place for risk-adjusted performance is now Growth Stock Outlook, edited by Charles Allmon.
There's a remarkable story behind Allmon's ascension. Major players in that story include his incredible patience and discipline, along with the severity of the current bear market, which on Thursday took another 281 points, or 4.1%, off the Dow Jones Industrial Average ($INDU:6,626.94, +32.50, +0.5%) .
But even more crucial to this story is its subtext: Allmon has been almost completely out of stocks for more than 20 years. It was in late 1986, in fact, that he became convinced that stocks were becoming overpriced, a belief that in turn led him to sell almost all of the stocks in his newsletter model portfolio and put the proceeds in cash.
With only one or two exceptions, his model portfolio has remained primarily in cash ever since. It currently owns just three stocks that collectively total 11% of total portfolio value, for example; the other 89% is parked in a money market fund.
Allmon's perseverance in adhering to his high-cash position looked increasingly anachronistic during the bull market of the 1990s and the go-go years of the Internet boom, if not downright stubborn and obstinate.
But the bear market over the past year and a half has changed that. He has been creeping up in our long-term rankings in recent months, and as of the end of this past month, took over the first place position.
There's more than one irony in all this. One is that Allmon stopped selling subscriptions to his newsletter last fall, continuing to offer it only to his money management clients. The Hulbert Financial Digest normally would have stopped monitoring it at that time; but we decided for a variety of reasons to nevertheless continue tracking it, based on the copy that Allmon sends to the Hulbert Financial Digest each month.
One virtue of our continued tracking is that it provides an ongoing scoreboard for the notion that slow and steady really can win the race. The Dow was below 2,000 when Allmon built up his high cash position. Given the strength of the ensuing bull market, his overabundance of caution would seemingly have buried him in a hole so deep he could never emerge.
He nevertheless has dug himself out, courtesy of the interest earned on his large money market position, the returns on his few remaining stock holdings, and the power of compounding.
Allmon shows no signs that he might return anytime soon to the bullish camp. In his latest newsletter, he writes that "our country appears to be on the brink of the biggest financial firestorm in our 220-year history." Expressing little confidence that the government will get us out of this mess, he adds that "the trick now is to avoid being scalded in a sea of nonsense."
Of the three stocks that Allmon's newsletter portfolio currently owns, the biggest holding is Newmont Mining Corporation (NEM:38.90, -1.54, -3.8%) ; he
is forecasting "5% to 15% U.S. inflation," which will in turn lead gold bullion to trade over $1,800 an ounce.
The two other stocks that his model portfolio owns are Altria Group Inc. (MO:15.72, +0.07, +0.5%) and Phillip Morris Intl Inc. (PM:33.31, +0.36, +1.1%) .
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
link
14 October 2008
The golden age lies ahead
I have to agree with London Banker, a more community minded soceity focused on effiency and local production lies ahead...
I was reminded yesterday that the vast bulk of “wealth” created during the Greenspan/Bernanke bubble years accrued to the very top percentiles of population – with many in the OECD middle class and lower class either stagnating or getting poorer as they mired themselves in unsustainable debt. While opportunity and employment grew strongly in emerging countries, there too the elites gained disproportionately as income inequalities surged. The crash of global financial markets therefore will have disproportionate effect on the elites, impoverishing them to a far greater extent, although it will be felt throughout society as employment, pensions, investments and public services contract.
Once we hit bottom of this downturn, some years hence in all probability, we may experience a democratisation of wealth and opportunity like none seen since the end of World War II when education reforms and unionisation laid the groundwork for the rise of the American and OECD middle classes. Those who have lost economic and political power during the boom years, are likely to organise and retake authority within economic and political systems during the bust years. The collapse of concentrated wealth in Wall Street will spur more collaborative capital formation and investment throughout the economy. This could provide reorientation of economic progress toward more equitable, sustainable and democratic outcomes in coming generations. I hope so, it’s the only bright spot of the week.
London banker
I was reminded yesterday that the vast bulk of “wealth” created during the Greenspan/Bernanke bubble years accrued to the very top percentiles of population – with many in the OECD middle class and lower class either stagnating or getting poorer as they mired themselves in unsustainable debt. While opportunity and employment grew strongly in emerging countries, there too the elites gained disproportionately as income inequalities surged. The crash of global financial markets therefore will have disproportionate effect on the elites, impoverishing them to a far greater extent, although it will be felt throughout society as employment, pensions, investments and public services contract.
Once we hit bottom of this downturn, some years hence in all probability, we may experience a democratisation of wealth and opportunity like none seen since the end of World War II when education reforms and unionisation laid the groundwork for the rise of the American and OECD middle classes. Those who have lost economic and political power during the boom years, are likely to organise and retake authority within economic and political systems during the bust years. The collapse of concentrated wealth in Wall Street will spur more collaborative capital formation and investment throughout the economy. This could provide reorientation of economic progress toward more equitable, sustainable and democratic outcomes in coming generations. I hope so, it’s the only bright spot of the week.
London banker
5 October 2008
Systemic Issues abound
From my March 2006 brief entitled "Big Bangs" that is an exact description of the current global crisis (although in the financial context it would have been called "Big Bubbles"):
To increase performance (of a system) you have to ADD instability to the system's design. Unfortunately, this means that a high performance aircraft with a large percentage of instability built into its design occasionally wants to careen into oblivion -- the feedback from the system's interaction with the environment can create feedback loops that tend towards infinity (which of course means catastrophic failure). To compensate for this, dynamically unstable systems have computer augmented control systems that dampen these feedback loops. For example, a plane of this type of design has computers (with double back-up) that constantly compensate for instability by moving control surfaces (at a much faster rate than the pilot can). Without compensation, a plane like the F-16 will go catastrophic in 3 seconds. With some of the forward swept wing designs, the time to instability is measured in fractions of seconds...
If we look at today's global environment we see a relatively high performance system driven by real-time global markets and rapid technological progress. Its performance explains why it is spreading so quickly. However, it is also moderately unstable. In our drive towards higher levels of performance we pursued a path of rampant global interconnectivity that has quickly outpaced our ability to dampen excess. The old dampening functions of borders, distance, government, etc are quickly fading. The result is a system vulnerable to rogue feedback. Even a small amount of it can cause global reverberations....
This conclusion also calls into question the efficacy of the idea that merely increasing connectivity is an answer to our problems. Increasing connectivity too fast, in a system without intrinsic dampening or control systems that work, will only accelerate the chaos (human nature doesn't change as fast as technology).... Also, the complexity of this system puts the lie to the idea that we know how to actively dampen its behavior through centralized systems of control. We neither have the scale nor the collective intelligence to pull it off. The only real solution rests on redesigning the system itself, to enable it to become more tolerant of rogue feedback...
From Brave New War on the potential success of government solutions to a systemic crisis in the global system:
The common thread that dooms these “solutions” to failure is that they both rely upon the nation-state as the primary actor. Given the speed and complexity posed by the black swans we face, the nation-state would need instantaneous responsiveness, infinite resources, and God-like insight in order to be effective. It has none of these attributes.
To increase performance (of a system) you have to ADD instability to the system's design. Unfortunately, this means that a high performance aircraft with a large percentage of instability built into its design occasionally wants to careen into oblivion -- the feedback from the system's interaction with the environment can create feedback loops that tend towards infinity (which of course means catastrophic failure). To compensate for this, dynamically unstable systems have computer augmented control systems that dampen these feedback loops. For example, a plane of this type of design has computers (with double back-up) that constantly compensate for instability by moving control surfaces (at a much faster rate than the pilot can). Without compensation, a plane like the F-16 will go catastrophic in 3 seconds. With some of the forward swept wing designs, the time to instability is measured in fractions of seconds...
If we look at today's global environment we see a relatively high performance system driven by real-time global markets and rapid technological progress. Its performance explains why it is spreading so quickly. However, it is also moderately unstable. In our drive towards higher levels of performance we pursued a path of rampant global interconnectivity that has quickly outpaced our ability to dampen excess. The old dampening functions of borders, distance, government, etc are quickly fading. The result is a system vulnerable to rogue feedback. Even a small amount of it can cause global reverberations....
This conclusion also calls into question the efficacy of the idea that merely increasing connectivity is an answer to our problems. Increasing connectivity too fast, in a system without intrinsic dampening or control systems that work, will only accelerate the chaos (human nature doesn't change as fast as technology).... Also, the complexity of this system puts the lie to the idea that we know how to actively dampen its behavior through centralized systems of control. We neither have the scale nor the collective intelligence to pull it off. The only real solution rests on redesigning the system itself, to enable it to become more tolerant of rogue feedback...
From Brave New War on the potential success of government solutions to a systemic crisis in the global system:
The common thread that dooms these “solutions” to failure is that they both rely upon the nation-state as the primary actor. Given the speed and complexity posed by the black swans we face, the nation-state would need instantaneous responsiveness, infinite resources, and God-like insight in order to be effective. It has none of these attributes.
1 October 2008
I've Watched the Economy for 30 Years. Now I'm Truly Scared
By Will Hutton
28/09/08 "The Observer" - -- If more people understood what has happened in the British and American banking system, the financial crisis would only be containable by the immediate partial nationalisation of every bank in Britain and America. There was not a run on the banks by depositors queuing in the streets to withdraw their savings. Rather, it was an escalating and terrifying run on the banks in effect by themselves, which, if it spread to millions of small savers, would reproduce the events of 1929.
In Britain, the money markets that the banks organise between themselves completely froze. Such was the break down in trust and sense of panic that some of the most familiar names in British high street banking would not lend to each other at all or, at best, just overnight. Instead, the Bank of England had to supply tens of billions to banks who found the normal sources of funds blocked.
I have been writing on the financial markets for nearly 30 years. I have known the system was becoming increasingly fragile, but for all the ferocity of my criticisms, I never expected the scale of today's events. Or that I would begin to wonder whether my own bank would survive without nationalisation. The negotiations in Washington over this weekend to finalise the $700bn Paulson financial bail-out plan, and the expected vote on Sunday, are all that stands between the Anglo-American banking system and a first-order disaster. The scheme had better work.
This is not the end of capitalism, as some wildly claim; there is no intellectual, social or political challenge to a market system based on respect for private property rights, even by the Chinese Communist party. Rather, it is a crisis of a particular capitalism that has set aside respect for trust, integrity and fairness as fuddy-duddy obstacles to 'wealth generation'. What we are relearning is that without trust and fairness, capitalism risks its own sustainability, even while it unleashes forces that undermine those self-same values. London's money markets froze because of a trust collapse; banks simply don't believe each other when they say their businesses are sound and will not default on their obligations. Trust matters.
And although some conservatives in Britain and America continue to make the ideological case against any government action as a response to the recent turmoil - governments necessarily do everything worse than the market - they have no alternative proposal about how to restore trust once it has gone. Trust is a reciprocal relationship, dependent upon a desire to be considered decent and honourable. Even in the dog-eat-dog financial markets, trust and integrity are matters of self-interest. However amoral you may be, it is in your interest to care about your reputation, because if you behave badly you will not do business with me - or others - on favourable terms again.
But the scale of the personal rewards now available in London and Wall Street - £15m-£20m at the top is the norm - along with the greed-is-good doctrine associated with extreme laissez-faire economics, has trashed the need for individuals to worry about integrity. They don't need to be concerned about their reputations; they just need one deal or one year at the top and they need never work again. The incentive structure has so departed from one of the principal norms of fairness - proportionality between value added and reward - that it has eviscerated trust relationships and integrity.
Everybody tries to 'game' the system on their route to vast personal fortunes - whether short-selling, packaging up dud mortgages as prime mortgages or telling lies about their financial viability - and the result is that the system is getting wise. The best course today in any financial transaction is to presume zero integrity. Credit is drying up and with it the very lifeblood of the economy.
Worse, now that the system is in trouble, financiers are turning to taxpayers in the US and Britain for help without understanding the other key principal of fairness - that we will consider helping those who for no fault of their own get into trouble, but not those who freely created their own bad circumstances.
Hank Paulson certainly acted decisively in launching his plan, but the former Goldman Sachs CEO, who negotiated a special exemption from tax when he took the job, like his former Wall Street colleagues is not well endowed with the fairness gene. It polluted the very design of the scheme.
He knows that unless the US government does something comprehensive, the entire financial system is at stake, but his original plan was designed to bail out the system intact. It made no demands that any financial executives sacrifice pay or bonuses despite having driven their firms and wider economy to the point of bankruptcy. He does not want the government to provide new bank capital to help recapitalise a bust banking system. Instead, he wants the government to buy their toxic debt and so leave the banks unreformed. On top he wanted complete discretion to act as he chose without any oversight.
American economists of every persuasion signed a joint letter complaining not at the aim of the bail out, which is plainly vital, but for its lack of fairness. Conservative papers and politicians echoed the complaint. Suddenly, Wall Street is coming back to earth. The transactions from which it skims such riches are built on the savings of ordinary Americans to whom it has obligations, as it has to other Wall Street firms. What we know now about the yet to be agreed compromise is that Paulson has accepted Congressional oversight, will offer direct help to distressed US homeowners as well as banks, and will accept some constraints on the worst excesses of executive pay.
But the core proposal remains. The government will buy toxic debt rather than inject government funds into the banks' capital base, in other words, reject even partially nationalising the entire US banking system as the Swedes had to in 1992. I don't know - nobody does - whether the Paulson plan would be sufficient or whether ultimately the Americans will have to go for nationalisation. What I do know is that unless there is a radical and government-led change in ownership, structure, regulation and incentives so that the principles of fairness are put at the heart of the Anglo American financial system - proportionality of reward and fair distribution of risk - there is no chance of the return of trust and integrity upon which long-term recovery depends.
The political debate in Britain and America so far little reflects this need - but it will. Barack Obama's election as President is much more likely. And the discourse in Britain will follow. Brown may be crampingly cautious but, unlike Cameron, he does understand that without government action the restoration of trust and fairness may never happen. This week, I expect the nationalisation of the stricken Bradford & Bingley to join Northern Rock. It is but another in a long sequence of interventions that are imperative to save the system from its own proclivities. Once again, the left is coming to capitalism's rescue.
28/09/08 "The Observer" - -- If more people understood what has happened in the British and American banking system, the financial crisis would only be containable by the immediate partial nationalisation of every bank in Britain and America. There was not a run on the banks by depositors queuing in the streets to withdraw their savings. Rather, it was an escalating and terrifying run on the banks in effect by themselves, which, if it spread to millions of small savers, would reproduce the events of 1929.
In Britain, the money markets that the banks organise between themselves completely froze. Such was the break down in trust and sense of panic that some of the most familiar names in British high street banking would not lend to each other at all or, at best, just overnight. Instead, the Bank of England had to supply tens of billions to banks who found the normal sources of funds blocked.
I have been writing on the financial markets for nearly 30 years. I have known the system was becoming increasingly fragile, but for all the ferocity of my criticisms, I never expected the scale of today's events. Or that I would begin to wonder whether my own bank would survive without nationalisation. The negotiations in Washington over this weekend to finalise the $700bn Paulson financial bail-out plan, and the expected vote on Sunday, are all that stands between the Anglo-American banking system and a first-order disaster. The scheme had better work.
This is not the end of capitalism, as some wildly claim; there is no intellectual, social or political challenge to a market system based on respect for private property rights, even by the Chinese Communist party. Rather, it is a crisis of a particular capitalism that has set aside respect for trust, integrity and fairness as fuddy-duddy obstacles to 'wealth generation'. What we are relearning is that without trust and fairness, capitalism risks its own sustainability, even while it unleashes forces that undermine those self-same values. London's money markets froze because of a trust collapse; banks simply don't believe each other when they say their businesses are sound and will not default on their obligations. Trust matters.
And although some conservatives in Britain and America continue to make the ideological case against any government action as a response to the recent turmoil - governments necessarily do everything worse than the market - they have no alternative proposal about how to restore trust once it has gone. Trust is a reciprocal relationship, dependent upon a desire to be considered decent and honourable. Even in the dog-eat-dog financial markets, trust and integrity are matters of self-interest. However amoral you may be, it is in your interest to care about your reputation, because if you behave badly you will not do business with me - or others - on favourable terms again.
But the scale of the personal rewards now available in London and Wall Street - £15m-£20m at the top is the norm - along with the greed-is-good doctrine associated with extreme laissez-faire economics, has trashed the need for individuals to worry about integrity. They don't need to be concerned about their reputations; they just need one deal or one year at the top and they need never work again. The incentive structure has so departed from one of the principal norms of fairness - proportionality between value added and reward - that it has eviscerated trust relationships and integrity.
Everybody tries to 'game' the system on their route to vast personal fortunes - whether short-selling, packaging up dud mortgages as prime mortgages or telling lies about their financial viability - and the result is that the system is getting wise. The best course today in any financial transaction is to presume zero integrity. Credit is drying up and with it the very lifeblood of the economy.
Worse, now that the system is in trouble, financiers are turning to taxpayers in the US and Britain for help without understanding the other key principal of fairness - that we will consider helping those who for no fault of their own get into trouble, but not those who freely created their own bad circumstances.
Hank Paulson certainly acted decisively in launching his plan, but the former Goldman Sachs CEO, who negotiated a special exemption from tax when he took the job, like his former Wall Street colleagues is not well endowed with the fairness gene. It polluted the very design of the scheme.
He knows that unless the US government does something comprehensive, the entire financial system is at stake, but his original plan was designed to bail out the system intact. It made no demands that any financial executives sacrifice pay or bonuses despite having driven their firms and wider economy to the point of bankruptcy. He does not want the government to provide new bank capital to help recapitalise a bust banking system. Instead, he wants the government to buy their toxic debt and so leave the banks unreformed. On top he wanted complete discretion to act as he chose without any oversight.
American economists of every persuasion signed a joint letter complaining not at the aim of the bail out, which is plainly vital, but for its lack of fairness. Conservative papers and politicians echoed the complaint. Suddenly, Wall Street is coming back to earth. The transactions from which it skims such riches are built on the savings of ordinary Americans to whom it has obligations, as it has to other Wall Street firms. What we know now about the yet to be agreed compromise is that Paulson has accepted Congressional oversight, will offer direct help to distressed US homeowners as well as banks, and will accept some constraints on the worst excesses of executive pay.
But the core proposal remains. The government will buy toxic debt rather than inject government funds into the banks' capital base, in other words, reject even partially nationalising the entire US banking system as the Swedes had to in 1992. I don't know - nobody does - whether the Paulson plan would be sufficient or whether ultimately the Americans will have to go for nationalisation. What I do know is that unless there is a radical and government-led change in ownership, structure, regulation and incentives so that the principles of fairness are put at the heart of the Anglo American financial system - proportionality of reward and fair distribution of risk - there is no chance of the return of trust and integrity upon which long-term recovery depends.
The political debate in Britain and America so far little reflects this need - but it will. Barack Obama's election as President is much more likely. And the discourse in Britain will follow. Brown may be crampingly cautious but, unlike Cameron, he does understand that without government action the restoration of trust and fairness may never happen. This week, I expect the nationalisation of the stricken Bradford & Bingley to join Northern Rock. It is but another in a long sequence of interventions that are imperative to save the system from its own proclivities. Once again, the left is coming to capitalism's rescue.
26 June 2008
Hypocrisy and Hot Air
Charting around Asia
by John Needham,
Here’s Heresy! All profits are a function of mispriced resources.
Western investors love affair with Asian markets has ended. The global rush to be part of the great energy and diversity offered by Asian markets is quickly turning to disappointment and disillusionment with the dawning realisation that the glitter from superior returns was not so much part of an economic miracle as another branch of the flooding tide of global liquidity.
Needham’s Law (#1) says that all profits are a function of the mispricing of resources usually created by legislative action. Miners and fisheries profit because they are not paying the natural economic rent for the asset they extract; value added industries profit because they do not pay the natural rent for the products they produce and service industries profit only because barriers to entry maintain artificial prices. The easiest way to look at this law is by a couple of simple examples. Fisheries are in the news as America's west coast looks set to lose almost all of its wild salmon harvest this year, depriving fish retailers and restaurants around the world of one of their key sources of high-quality fish, and raising long overdue questions about the viability of commercial fishing.
United States government regulators have already closed down the early fishing season along swathes of the west coast and are expected to issue a season-long ban in California and Oregon, in response to an unprecedented collapse in the region's salmon population. The most startling data comes from the Sacramento river, the source of more than 80 per cent of all the mature salmon caught off California. Last year, only 90,000 spawning adults returned to the river, the second lowest figure on record, and the projections for this year, based on sightings of two-year-old fish during last autumn's spawning run, are for fewer than 60,000. To put those figures in perspective: the Sacramento River once saw spawning populations of 800,000.
Globally, only 10 percent of all large fish—both open ocean species including tuna, swordfish, marlin and the large ground fish such as cod, halibut, skates and flounder—are left in the sea, according to research published in the 2003 issue of the scientific journal Nature, and things have only got worse in the intervening years. National Geographic introduced the finding this way:
"From giant blue marlin to mighty bluefin tuna, and from tropical groupers to Antarctic cod, industrial fishing has scoured the global ocean. There is no blue frontier left," said lead author Ransom Myers, a fisheries biologist based at Dalhousie University in Canada. "Since 1950, with the onset of industrialized fisheries, we have rapidly reduced the resource base to less than 10 percent—not just in some areas, not just for some stocks, but for entire communities of these large fish species from the tropics to the poles."
Fish as a cheap source of protein is rapidly disappearing. UK, European and Asian fisheries are depleted and whole species have been wiped out with monotonous regularity. So long as the fisheries turn a profit the plunder will continue and those profits arise only because the fishing businesses are not paying the natural economic price for their harvest. What is the natural economic price? The cost of maintaining or replacing the resource in the same state as it was pre-plunder. This is not an argument on global warming. It is a simple statement that natural resources are limited and absent the payment of the natural price which in economic terms means the cost of the alternate foregone, the resource will be used until it is depleted. That is the rapacious nature of the human animal. Capitalism is based on the exploitation of under priced resources.
The idea that all the oil in the world can be sucked up to use for energy is attractive only so long as the resource is available and the day must by definition be approaching when there is simply no more Oil recoverable. Since no natural rent has been paid for the resource, no alternate has been developed. Consider the automotive industry. If manufacturers had to pay the true cost of their product including the disposal of tyres, dirty oil, smoke and noxious gases, cars would long ago have passed from being the biggest single polluter on the planet.
In Asia this idea is having its consequences although few could give you the true argument behind the dramatic fluctuations in fortune that the major Asian power houses, China and India are undergoing, but the long swing cycles, often too long for economists to notice and certainly not within the ken of CEOs focused on annual balance sheets are gradually emerging, as the growth stage of the cycle wanes and the contractionary phase begins its unalterable course.
The Asian “miracle” is being revealed as a generational movement of labor arbitrage accompanied by technology transfers either to optimise the use of cheap labor or more often at the behest of savvy host governments who almost unanimously required partnerships with local corporations or citizens as the price of entry to their economies. In a decade Asia has achieved technological equality if not ascendancy with the west. The price of the labor arbitrage has been the improper pricing of labor which is the default setting for all governments. This practice not only applies to the west. It is an art form in the more technologically developed Asian economies.
Absent an understanding of natural economic rent, all assets including labor will be systemically mispriced. In China and India, the mispricing of labor has meant family dislocation, hardship and economic slavery at the factory level, tolerated only because the largely rural alternatives are worse. Market pricing and transfer manipulation by western trading blocs ensures that the agrarian peasant culture that built these nations for centuries can no longer sustain those dependant on a traditional lifestyle.
Hypocrisy and Hot Air at Trade Talks
It is curious that the greatest promoters of free market access are themselves the most abusive manipulators of artificial trade barriers. The UK Telegraph on 6 June reported on the latest abortive round of negotiations to salvage a result from the seven year long saga of the Doha round of trade liberalisation talks. Mention of the Doha talks usually serves to put the remaining audience to sleep but the choreography of this session is important for several reasons, and in particular the inclusion of China and India in this negotiating block called the G6 group of nations. Let’s follow the Telegraph’s report to see what is really happening.
Negotiators from the G6 group - the EU, the US, Brazil, Japan, China, and India - failed to break the deadlock over both industrial and farm tariffs at crisis talks yesterday. They agreed to keep the process alive into next week but experts warned that the seven-year drive for trade liberalization known as the Doha Round is close to collapse when the chair of the World Trade Organisation working-group on industry suspended all further meetings, saying the talks had gone backwards and that key parties were no longer even trying to reach a deal.
Peter Mandelson, as the EU External Trade Commissioner, is the main voice for exploitation of Asia and the third world. Mandelson started life as a journalist/economist for the British Trades Union Congress before becoming a TV producer. His ascension to high political office arose out of his Labour party affiliations where he is credited with helping Blair shape “New Labour”. He is a creature of the British left, an apparatchik with a pan European view. Writing in the Guardian on June 9 Mandelson says: But the open markets and economic integration that drive it are still by far the best tool we have for increasing global economic welfare. That is an essential contribution to global stability. Only stable, cooperating states can manage the coming squeeze on resources. For 60 years, the US has underwritten economic internationalism with openness of its own. A crisis of American confidence in globalisation could knock it off course.
If nothing else Mandelson is the master of disinformation. This little barb at US was prompted by the new US Farm Bill which also rankled China’s WTO ambassador Sun Zhenyu who said that the new $290 billion farm bill approved by Congress had sent negative signals by raising subsidies when WTO members were trying to negotiate a reduction in farm support. Reducing tariffs in the emerging economies in India, China and elsewhere has been one of the chief conflicts in the talks, pitting U.S. and European negotiators against developing world officials who say they need to protect their poor from the whims of the global economy. Meanwhile, in the height of hypocrisy, EU maintains a scandalous level of farm subsidies that adversely affect developing nations.
Because of the subsidies that farmers in Europe receive, the market price of a bag of potatoes produced, for example, in France is cheaper than a bag produced anywhere in the developing world. And since the EU produces too much food, this bag of potatoes lands in the shops in the developing world, whether as aid or trade, and costs less than the local produce…finally because the farmers in the developing world cannot compete with the incoming artificially cheap subsidised produce, they walk off the land. (Goodtalking’s weblog.)
You can add sugar, milk powder, eggs and a host of other food items to the list.
Peter Mandelson was also in Asian news lately complaining that Japan’s hostility towards foreign investors was a “globalisation paradox” that could lead to companies turning their backs on the world’s second-biggest economy. Mr Mandelson described Japan as
“the most closed developed market in the world and that imbalances of investment between the EU and Japan were “truly staggering”. Many foreign funds cite growing despair that Japan will ever embrace the principles of shareholder capitalism, or drop its scepticism of foreign investors. Takao Kitabata, the top bureaucrat in the Japanese Ministry for the Economy, Trade and Industry, recently described short-term stock investors as “greedy, irresponsible fools to whom voting rights should never be given”. Asia Business Correspondent 21 April 2008.
Mr Kitabata is quite right.
In Geneva, diplomats said India and Brazil (representing the developing countries) were reneging on pledges to open their markets to industrial goods, while Washington was happy to let the talks die since Doha would force the US to dismantle the great nexus of subsidies passed under the Farm Bill. Charlene Barshefsky, the former US Trade Representative, told a panel in London that the outsourcing revolution this decade has begun to threaten middle-class jobs in the US and sap support for globalisation. "Everybody understood in the Golden Nineties that we would shed blue-collar jobs, but now white-collar jobs are going too, and that makes the politics more volatile," she said. (Reuters)
Meanwhile at the UN’s crisis conference on soaring food costs and the conversion of food stuffs to bio fuel held in Rome on 3 June, all participants agreed that the lavish lunch menu was fine. That was all they could agree on.
He da Man
by John Needham,
Here’s Heresy! All profits are a function of mispriced resources.
Western investors love affair with Asian markets has ended. The global rush to be part of the great energy and diversity offered by Asian markets is quickly turning to disappointment and disillusionment with the dawning realisation that the glitter from superior returns was not so much part of an economic miracle as another branch of the flooding tide of global liquidity.
Needham’s Law (#1) says that all profits are a function of the mispricing of resources usually created by legislative action. Miners and fisheries profit because they are not paying the natural economic rent for the asset they extract; value added industries profit because they do not pay the natural rent for the products they produce and service industries profit only because barriers to entry maintain artificial prices. The easiest way to look at this law is by a couple of simple examples. Fisheries are in the news as America's west coast looks set to lose almost all of its wild salmon harvest this year, depriving fish retailers and restaurants around the world of one of their key sources of high-quality fish, and raising long overdue questions about the viability of commercial fishing.
United States government regulators have already closed down the early fishing season along swathes of the west coast and are expected to issue a season-long ban in California and Oregon, in response to an unprecedented collapse in the region's salmon population. The most startling data comes from the Sacramento river, the source of more than 80 per cent of all the mature salmon caught off California. Last year, only 90,000 spawning adults returned to the river, the second lowest figure on record, and the projections for this year, based on sightings of two-year-old fish during last autumn's spawning run, are for fewer than 60,000. To put those figures in perspective: the Sacramento River once saw spawning populations of 800,000.
Globally, only 10 percent of all large fish—both open ocean species including tuna, swordfish, marlin and the large ground fish such as cod, halibut, skates and flounder—are left in the sea, according to research published in the 2003 issue of the scientific journal Nature, and things have only got worse in the intervening years. National Geographic introduced the finding this way:
"From giant blue marlin to mighty bluefin tuna, and from tropical groupers to Antarctic cod, industrial fishing has scoured the global ocean. There is no blue frontier left," said lead author Ransom Myers, a fisheries biologist based at Dalhousie University in Canada. "Since 1950, with the onset of industrialized fisheries, we have rapidly reduced the resource base to less than 10 percent—not just in some areas, not just for some stocks, but for entire communities of these large fish species from the tropics to the poles."
Fish as a cheap source of protein is rapidly disappearing. UK, European and Asian fisheries are depleted and whole species have been wiped out with monotonous regularity. So long as the fisheries turn a profit the plunder will continue and those profits arise only because the fishing businesses are not paying the natural economic price for their harvest. What is the natural economic price? The cost of maintaining or replacing the resource in the same state as it was pre-plunder. This is not an argument on global warming. It is a simple statement that natural resources are limited and absent the payment of the natural price which in economic terms means the cost of the alternate foregone, the resource will be used until it is depleted. That is the rapacious nature of the human animal. Capitalism is based on the exploitation of under priced resources.
The idea that all the oil in the world can be sucked up to use for energy is attractive only so long as the resource is available and the day must by definition be approaching when there is simply no more Oil recoverable. Since no natural rent has been paid for the resource, no alternate has been developed. Consider the automotive industry. If manufacturers had to pay the true cost of their product including the disposal of tyres, dirty oil, smoke and noxious gases, cars would long ago have passed from being the biggest single polluter on the planet.
In Asia this idea is having its consequences although few could give you the true argument behind the dramatic fluctuations in fortune that the major Asian power houses, China and India are undergoing, but the long swing cycles, often too long for economists to notice and certainly not within the ken of CEOs focused on annual balance sheets are gradually emerging, as the growth stage of the cycle wanes and the contractionary phase begins its unalterable course.
The Asian “miracle” is being revealed as a generational movement of labor arbitrage accompanied by technology transfers either to optimise the use of cheap labor or more often at the behest of savvy host governments who almost unanimously required partnerships with local corporations or citizens as the price of entry to their economies. In a decade Asia has achieved technological equality if not ascendancy with the west. The price of the labor arbitrage has been the improper pricing of labor which is the default setting for all governments. This practice not only applies to the west. It is an art form in the more technologically developed Asian economies.
Absent an understanding of natural economic rent, all assets including labor will be systemically mispriced. In China and India, the mispricing of labor has meant family dislocation, hardship and economic slavery at the factory level, tolerated only because the largely rural alternatives are worse. Market pricing and transfer manipulation by western trading blocs ensures that the agrarian peasant culture that built these nations for centuries can no longer sustain those dependant on a traditional lifestyle.
Hypocrisy and Hot Air at Trade Talks
It is curious that the greatest promoters of free market access are themselves the most abusive manipulators of artificial trade barriers. The UK Telegraph on 6 June reported on the latest abortive round of negotiations to salvage a result from the seven year long saga of the Doha round of trade liberalisation talks. Mention of the Doha talks usually serves to put the remaining audience to sleep but the choreography of this session is important for several reasons, and in particular the inclusion of China and India in this negotiating block called the G6 group of nations. Let’s follow the Telegraph’s report to see what is really happening.
Negotiators from the G6 group - the EU, the US, Brazil, Japan, China, and India - failed to break the deadlock over both industrial and farm tariffs at crisis talks yesterday. They agreed to keep the process alive into next week but experts warned that the seven-year drive for trade liberalization known as the Doha Round is close to collapse when the chair of the World Trade Organisation working-group on industry suspended all further meetings, saying the talks had gone backwards and that key parties were no longer even trying to reach a deal.
Peter Mandelson, as the EU External Trade Commissioner, is the main voice for exploitation of Asia and the third world. Mandelson started life as a journalist/economist for the British Trades Union Congress before becoming a TV producer. His ascension to high political office arose out of his Labour party affiliations where he is credited with helping Blair shape “New Labour”. He is a creature of the British left, an apparatchik with a pan European view. Writing in the Guardian on June 9 Mandelson says: But the open markets and economic integration that drive it are still by far the best tool we have for increasing global economic welfare. That is an essential contribution to global stability. Only stable, cooperating states can manage the coming squeeze on resources. For 60 years, the US has underwritten economic internationalism with openness of its own. A crisis of American confidence in globalisation could knock it off course.
If nothing else Mandelson is the master of disinformation. This little barb at US was prompted by the new US Farm Bill which also rankled China’s WTO ambassador Sun Zhenyu who said that the new $290 billion farm bill approved by Congress had sent negative signals by raising subsidies when WTO members were trying to negotiate a reduction in farm support. Reducing tariffs in the emerging economies in India, China and elsewhere has been one of the chief conflicts in the talks, pitting U.S. and European negotiators against developing world officials who say they need to protect their poor from the whims of the global economy. Meanwhile, in the height of hypocrisy, EU maintains a scandalous level of farm subsidies that adversely affect developing nations.
Because of the subsidies that farmers in Europe receive, the market price of a bag of potatoes produced, for example, in France is cheaper than a bag produced anywhere in the developing world. And since the EU produces too much food, this bag of potatoes lands in the shops in the developing world, whether as aid or trade, and costs less than the local produce…finally because the farmers in the developing world cannot compete with the incoming artificially cheap subsidised produce, they walk off the land. (Goodtalking’s weblog.)
You can add sugar, milk powder, eggs and a host of other food items to the list.
Peter Mandelson was also in Asian news lately complaining that Japan’s hostility towards foreign investors was a “globalisation paradox” that could lead to companies turning their backs on the world’s second-biggest economy. Mr Mandelson described Japan as
“the most closed developed market in the world and that imbalances of investment between the EU and Japan were “truly staggering”. Many foreign funds cite growing despair that Japan will ever embrace the principles of shareholder capitalism, or drop its scepticism of foreign investors. Takao Kitabata, the top bureaucrat in the Japanese Ministry for the Economy, Trade and Industry, recently described short-term stock investors as “greedy, irresponsible fools to whom voting rights should never be given”. Asia Business Correspondent 21 April 2008.
Mr Kitabata is quite right.
In Geneva, diplomats said India and Brazil (representing the developing countries) were reneging on pledges to open their markets to industrial goods, while Washington was happy to let the talks die since Doha would force the US to dismantle the great nexus of subsidies passed under the Farm Bill. Charlene Barshefsky, the former US Trade Representative, told a panel in London that the outsourcing revolution this decade has begun to threaten middle-class jobs in the US and sap support for globalisation. "Everybody understood in the Golden Nineties that we would shed blue-collar jobs, but now white-collar jobs are going too, and that makes the politics more volatile," she said. (Reuters)
Meanwhile at the UN’s crisis conference on soaring food costs and the conversion of food stuffs to bio fuel held in Rome on 3 June, all participants agreed that the lavish lunch menu was fine. That was all they could agree on.
He da Man
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