Mar

7

The more sagacious detectives often say sadly at the end of a particularly tragic murder, "why is it always romance?" The particularly tragic move in the market last week needs a Rumpole to put things in perspective. But with his attentions fixed on crime in the English aristocracy and Oxbridgians, I will have to take a feeble crack at it.

It's clear to every thinking person that Ben Bernanke is a much abler chief than the fake Dr. Greenspan. He's thoroughly familiar with the academic literature, understands the full sweep of the interactions between markets, and is diplomatic, clear, and positive. What a contrast to his predecessor who was a academic manqué, prone to query about steel ingots and blast furnace stats in his bathtub for guidance as to what was happening in the economy.

Yes, the fake doctor must feel very chagrined that he's been displaced and shown to be such a straw wizard. What can he do but try to gain the spotlight with ridiculous non-falsifiable statements about "the probability of recession is 1/3?" Who is there who doesn't believe there's a probability of recession? But aren't there a million macroscopic inertial indicators in the market that tell us about them, and a boatload of forecasters that are not prone to look at the old-line heavy manufacturing sector as the key to our continuing expansion?


It is sad to see an old man or old lion displaced from the head of his pride. But what a boon it would be for the market if the fake Dr. G would stop trying to look big and "snarling" at his successor. "I'm trying not to make it hard for Ben," he said. There are people that still believe that he has insight. This just exposes them to so much more loss than they would have to face as the lieutenants of the bear raid spread their hopeful messages of doom with the fake doctor's support.

Along the same lines, it is invariable that in late February, the sage from Nebraska will say something doomsday-esque about the market. It has to get worse and worse each year or else he loses his position as the supreme moral force of abstinence for everyone else but himself. What he needs, he says, is a successor genetically programmed to avoid risk. But no, what he needs is something that Rumpole knows about, or that Hammerstein wrote about in South Pacific, that he ain't got anything besides the sunlight and the sand, the moonlight on the sea, mangoes, and bananas.

This time his message was that saving and deficits are going to cause anything but a soft landing. And you'd have to be crazy, except if you were he, to hold onto anything. Regrettably, he is completely oblivious to the economics of the matter, whereby individuals voluntarily hold debt at a price, and the current account deficit is triggered by the desires of foreigners to invest in the US. The two old curmudgeons came together in late February and their old guard of lieutenants was able to spread the old-hearted message.

It wouldn't be so bad if they were relegated, as they will be in 50 years, to the rogues gallery of old-hearted who decried the economic miracle of the enterprise system just when these pillars of Americanism, entrepreneurialism, competition, immigration, technology, trade, and respect for property rites were spreading throughout the world and setting the base for an economic expansion that will eventually bring the rate of return from stocks to close to the current bond rate, rather than close to a double, thereby proving a 100% increase in base stock values.

Only a Rumpole could do justice to it.

Victor Niederhoffer and Laurel Kenner chime in:

Old-Hearted Men

(Sung to the tune of Stouthearted Men, from The New Moon. Music by
Sigmund Romberg, original lyrics by Frank Mandel and Oscar
Hammerstein)

Spare me from men
Who are old-hearted men
Who've been short ever since '82.
Who always call
For the market to fall
Who have always the same point of view
Shorting the dollar,
They don't like the dollar,
They don't like the market at all!
Spare me from old men
Who don't like high vol or low vol
Cynical old men,
Who don't like
Anything at all.

Give me some guys who buy stocks when they dive
And get out when the panics are through.
Give me the spec that will rise up from wrecks
with an optimist's point of view
Spare me from old men
who don't like growth or tech or vol
Cynical old men
Who don't like anything at all.

John Tierney writes:

If there is one line that runs through Rumpole and that will outlive the series, it is his characterization of his wife: "She who must be obeyed." This line, like our recent correction, can be tentatively linked to romance, but not the more elevated kind that sadly led to the murders Rumpole was forced to solve. Rather, it's the tawdry love of a couple of harlots who deserve little but demand much. The first is the China doll, a wench who has taken much, stolen more, and given little. I believe George Friedman's assessment was partially correct: the Chinese government engineered this little play to teach its increasingly avaricious populace that you can't get rich in the market…fast. (Can you imagine members of the U.S. Fed dealing out a similar dose of reality to the American public?)

But I believe it goes beyond that initial purpose. The last time I looked out the China Doll was still firmly controlled by a communist cadre and all the good thoughts and market innovations in the world will not make them go away. It's mooted that an increasingly prosperous middle class will lead to the eventual downfall of this current ruling class. Are we to assume that this claque of engineers (well schooled, well disciplined, and with all the compassion of the Notre Dame alumni after a losing season) is unaware of this? That they will stand by meekly as their positions are voted away? History would argue otherwise. Just ask Google or Yahoo how much freedom is being dispensed.

We have been engaged with that country for 35 years now and despite repeated and numerous investments there, the big winner has been China…without costing it as much as a kiss. Many, many foreign companies have opened there only to discover that once the assiduous Chinese learned their methods, they quickly established cheaper competitors, drove them out of business, and took over their facilities. Nevertheless, our bankers, perhaps among the most venal individuals this country produces, continue to invest billions directly or indirectly. Billions are shipped over for minority stakes in some of the world's most corrupt and financially troubled financial institutions, copyright suits are brought repeatedly against the country, and theft of intellectual property is so common that it hardly merits news coverage anymore. (Meanwhile the Doll has stashed away quite a hoard with which she is purchasing natural resources, weak governments, weak presidents, and arms which can be shipped to Iran…or Iraq…or Syria…or Venezuela).

You want this woman? Take her, but when she breaks you, remember you could have read about her infidelities regularly on the pages of world's newspapers. In fact, you probably have read it, but her "opportunities" are so voluptuous it matters little, now. The second lady is much better known and has been around, in one guise or another, for some time. Her name is Carry Trade and she walks any street on which the swinging d**ks of the hedge fund world are located and within blocks of the banks which will provide the funds for leverage. She has been a generous consort for a long time now but has recently shown indications of retiring. This would be unfortunate, as she would leave behind a significant number of unfunded liabilities insured by firms without the wherewithal to cover 3% of them.

Of course, she has done this before, but a smitten lover is easy pickings. Finally, the most dangerous romance is the one that appears repeatedly in stories going back to the Achaeans and the Peloponnesians — we have become smitten with our own histories, accomplishments, and heroics, the pillars of Americanism. There exists a mentality, a very prevalent one, that because historically we have risen to the challenges, we shall continue to do so. Like Narcissus, we have fallen in love with our own reflection. And there are whole industries devoted to convincing us that the vision we adore is true. One is called Politics, and Greenspan and Bernanke are both its handmaidens. Another is called Finance, and it will tell us (as my grandmother used to), "Every day, in every way, things get better and better." (Does anyone really believe that the recently crowned "Greatest Generation" is really superior to those men who populated this country in the late 18th century?)

There are apostates. Just this week Goldman's chief global economist Jim O'Neill said, "There has been an amazing amount of leverage on currency markets that has nothing to do with real economic activity. I think there are going to be dead bodies around when this is over."

Pretty rough stuff. But for every O'Neill there are a dozen Abby Joseph Cohen's whose unfailingly bullish bellows prevail. Are our love affairs fatal? Can we win our tart's hearts - and minds - and business? Can we drag ourselves away from our mirrors of reminiscences long enough to address today's problems? Maybe, maybe not. But to pin the dip on the old dip who uttered the R word is a reach. This started in China and the maestro has little standing and less influence there. I think Rumpole would dismiss him as a suspect.

Rod Fitzsimmons Frey writes:

Freedom begins with property.

Somebody owns everything. By "own" I mean controls it, controls what gets grown there, what can be built there, who can pitch a tent there. That somebody might be the church, or more modernly, the state. But somebody owns it.

Those who own property, whether state or individual, control those who do not. Without property, one relies on others' goodwill for the most basic needs, food and shelter. One must do what the owner wants — grow wheat, send one's sons to the Middle East, work in a factory — to obtain the basic necessities. Possessing property liberates one from that tyranny. One can quit work and open a store; one can put up a windmill, dig a well, and buy a cow; one can rent out the property for income. Freedom.

Modern finance extends the freedom of property to the entire population, to those who have been denied property throughout the rest of history. Bankers are the modern Moses, leading citizens from servitude into liberty by extending the ability to own property to everyone. Of course, freedom is riskier than servitude, and not all succeed, but that cost is inseparable from emancipation.

All bets are off when the property rights aren't real, of course. Then the ownership of property is illusory and of no benefit. That is why the continuous, almost feverish defense of property by citizens of the United States is so magnificent and glorious, and why those of us in the rest of the world owe them such a debt of gratitude.


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