Friday, 21 August 2009

Fooled by Randomness: David Cameron

Tory leader David Cameron does not have a big reputation for intellectual gravitas. Indeed, intellectually he's probably on a par with Blair, and that's not a great thing.

So curious it was to see Cameron share a platform with Nassem Nicolas Taleb, provocative intellectual and author of Fooled by Randomness and The Black Swan.

I hear many anecdotal stories indicating there is some truth in critics' claims that Cameron lacks solidity in his policymaking, and is prone to cherrypick inconsistently.

So it was hardly surprising that Labour -- moving back to a anti-intellectual position -- seized the opportunity of Cameron's Taleb meeting to smear one with the other.

A Guardian front page story highlighted Taleb's thought crimes ("Cameron's guru"), including his apparent denial of man-made climate change and his strong position on the need for banks to face the reality of insolvency. Larry Elliott then weighed in with his own clearly unbiased view ("economics editor" indeed!).

Here's a reasonable overview of the issue.

Columnists: creating an imaginary world

A fine piece this, about the dynamic between news and comment in tabloid newspapers.

"What the tabloid columnist usually does is act as Greek Chorus for the paper they appear in. The tabloids set the scene with their constantly repeated stories, with exagerrated figures, distorted coverage of reports that aim to invert their meaning and opinion dressed as fact - that happen to fit the targeted narratives they've created.

But these will often be flawed by the balance that must be inserted (and mostly is) with a quote toward the end, or the inclusion of actual figures that readers might spot aren't quite as scary as the paper wants them to believe they are. So here the columnist pipes up and shows the reader what their ideal reaction should be.

Want to imply that most crime is carried out by foreigners, but are hampered by the fact that they're not? A columnist doesn't worry about facts, so with a throwaway line, Richard Littlejohn can help by saying, in a complete fabrication, "Most of the robberies in this country have been carried out by Eastern European gangs."

Want to exaggerate how much immigrants get in benefits but find it difficult to get away with it in news stories because they don't get very much? Someone like Carol Malone can make the fatuous claim that they get free cars. Yes, free cars. Columnists take the false claims made in news stories that extra step to help create a version of Britain for their readers that rely even more on imagination.

Wednesday, 19 August 2009

Left Vacant

Revisiting 'leading' Leftist thought -- through my encounters with Klein's shaky polemic -- proved a reminder of an old belief of mine that the Left could do so much better.

Naive belief in grand unworldly politics ("a world parliament"), peaceful revolution ("throw out capitalism") and little or no engagement with the reality of politics (producer interests, identity politics, etc etc), there remain true believers willing to roll out the same old lines.

A rather thin article in the Guardian earlier this week about the vacant Left prompted letters from such die-hard fanatics.

Amidst the usual self-congratulatory nonsense came this:

"It is a mistake to think the left can flourish independently of the rest of the working class. It is out of the living resistance of workers themselves that the left will renew itself."

Living resistance huh? It's all a battle I guess to some. All or nothing. Total dedication or else. For me, a bit of engagement by lots of people would be welcome enough. For the ideologues, nothing but 110% belief is enough. Actual politics with actual people? Less of a priority.

Also ... the letters selectively miss Paul Ormerod's point:

"The left just gave up on economics," says the economist Paul Ormerod, who retains sympathy for the cause. "Marx and Keynes cast such long shadows. There was too much of the left saying, 'It's all there in the old masters.'" Marx died in 1883 and Keynes in 1946; by the 80s – some would say much earlier – the world economy had changed sufficiently to invalidate some of their ideas. Yet the left was more interested by then, Ormerod argues, in other issues such as race and gender and sexuality. Lawson agrees: "We've had a hollowed-out generation of economic thinkers.""

Edited to add: a grand piece of Marxist nonsense from the SWP! If you ever wanted to see the religion of modern-day Marxism, here's a good example.

I find it hard to take such people seriously. they are marxism's quants - enablers of complex nonsense.

Friday, 14 August 2009

Other takes on Shock Doctrine

I clearly have been reading the Guardian too long, and listening to the BBC excessively, because in the end I found some critics of Klein able to put aside bias and examine her arguments.

Here are some of my favourites, in order of pokiness:

NYT (a short triumphant slam)

"In the end, I suspect that Ms. Klein’s goal in writing “The Shock Doctrine” is not so much to persuade others to join her anti-globalization, anti-corporatist cause as it is to reinforce the dreams of those already convinced of its righteousness.

“We did not lose the battles of ideas,” she said in a recent speech to the American Sociological Association. “We were not outsmarted and we were not out-argued. We lost because we were crushed. Sometimes we were crushed by army tanks, and sometimes we were crushed by think tanks. And by think tanks I mean the people who are paid to think by the makers of tanks.”

That must be a comforting thought. If only it were that simple."

The New Republic, Jonathan Chait (probably definitive take-down, most close to my own ideas)

"Klein repeatedly implies that there is something immoral about using crises to advance the right-wing agenda without explaining why this is so. After all, Friedman wanted to overhaul the New Orleans public education system because he believed, rightly or wrongly, that vouchers would work better. If you thought your house was horribly designed, and a tornado flattened it, would you rebuild it exactly as before?The notion that crises create fertile terrain for political change, far from being a ghoulish doctrine unique to free-market radicals, is a banal and ideologically universal fact."


"With the pseudo-clarity of a conspiracy theorist, Klein dismisses out of hand the possibility of incompetence. There were memos warning the Army of looting, she ominously notes--scanting the possibility that bureaucratic lethargy, rather than conscious intent, prevented the memos' warnings from being acted upon at ground level. That widespread bungling and mismanagement also followed Hurricane Katrina strikes Klein as proof of intentionality. "The fact that exactly the same errors as those made in Iraq were instantly repeated in New Orleans," she remarks, "should put to rest the claim that Iraq's occupation was merely a string of mishaps and mistakes marked by incompetence and lack of oversight."


"The other piece of data that Klein cites to support her charge that Bush administration officials profit from the disasters that they cause is Vice President Cheney's holdings in Halliburton. "When he leaves office in 2009 and is able to cash in his Halliburton holdings," she charges, "Cheney will have the opportunity to profit extravagantly from the stunning improvement in Halliburton's fortunes." This is a spectacular accusation--that the driving force behind the Iraq war stands to gain millions of dollars from it. You might wonder why John Kerry did not make this an issue in 2004, or why liberal pundits have not crusaded against Cheney's blatant self-dealing. The answer, of course, is that it is completely untrue. Cheney has signed a legally binding agreement to donate to charity any increase in his Halliburton stock. (Honest-- you can look this up on Lord knows Rumsfeld and Cheney have committed enough actual misdeeds not to need indicting with imaginary ones."


Klein's strength as a writer is her interest in the ground level of things. Free-trade advocates rely heavily on abstract theory, lecturing us on comparative advantage and the relative virtues of Portuguese wine versus English wool; but Klein, no armchair radical, jets off to wretched places in the Third World and paints a picture of the reality of free trade in chilling detail. That picture ought to give pause to the most committed free-trader, even if she is hardly the only one to have noted these consequences. Yet when it comes to the right-wingers who constitute her book's main subject, Klein's reportorial spirit is nowhere to be found.


"What makes Klein's thesis so odd, and so awful, is that in fact there is an unlimited supply of raw material, an abundant basis in reality, for the sorts of arguments that she wants to make. The last two decades certainly have seen the global spread of absolutist free-market ideology. Many of the newest adherents of this creed are dictators who have learned that they can harness the riches of capitalism without permitting the freedoms once thought to flow automatically from it. In the United States, the power of labor unions has withered, and prosperity has increasingly come to be defined as gross domestic product or the rise of the stock market, with the actual living standards of the great mass of the population an afterthought. Corporations, which can relocate nearly anywhere around the world, have used their flexibility as a cudgel against workers, who do not enjoy the privileges of mobility. Domestic policy has aggressively sharpened income inequalities, and corporations have enjoyed unfettered influence to a degree not seen in a hundred years. And the president did start a war without paying the slightest bit of attention to the country that he would be left occupying or how its people would react.

All these things are true. And all these things are enormous outrages and significant problems. It's just that they are not the same outrage or the same problem. And Naomi Klein's relentless lumping together of all her ideological adversaries in the service of a monocausal theory of the world ultimately renders her analysis perfect nonsense."

TLS, Paul Seabright (great political economist, tries to engage but ends up slamming her)

"Cherry-picking the evidence is particularly important for Klein's favoured strategy of guilt by association, when she implies, for instance, that since many torturers have been keen on free markets, free-market ideology leads intrinsically to the use of torture. It is not clear what, on this theory, explains the use of torture by Communist or otherwise anti-capitalist governments. Since she never mentions it, she may not be aware that it has ever happened."

LRB (long, academic, sympathetic but damning)

"She claims that economic ‘reform’ in 1990s Russia was ‘one of the greatest crimes committed against a democracy in modern history’, thwarting an ‘authentic democratic revolution’. Here she is making the same mistake of which she rightly accuses Friedman. She is confusing the absence of obstacles with the presence of preconditions. Authentic democracy will not spontaneously emerge simply because tyranny has been knocked down and all the ‘distortions’ have been removed.

Klein might defend herself by saying that the ‘democracy’ she apotheosises is exclusively a democracy of protest, never a democracy of governance, and therefore invulnerable to criticism for unfairness, stupidity or abuse of power. But this response would not sit well with her understandable but unrealistic hope that ordinary citizens around the world will soon ‘become the authors of their national destinies, at last’.

Wednesday, 12 August 2009

Uncertainty principle: Shock Doctrine 150 pages in

The shock of The Shock Doctrine comes largely from its walloping, great big bias. My worry is that few of the readers of this book will notice the very many sins of omission, the suggestive sleights of hand and the unsupported assertions. Moreover, I fear many readers of this book will not care.

My concerns began on the second page, where quotes of American politicians are run alongside the accusations from “ordinary” people. The Americans sound evil and manipulative, and we are left with the belief – though no evidence is offered – they are likely murderers.

The other shock is that of deja vu: there's little on the first 150 pages you won’t find elsewhere.

In particular, I remember reading many of the same accusations and quotes about 1970s Chile when first a student 15 year ago. Indeed, Klein’s core thesis derives from arguments made by Chilean politician Orlando Letelier, murdered in Washington by the Pinochet regime in 1976.

Letelier said the right-wing, monetarist policies applied by the Pinochet government were a part of the administration's murderous repression; the two should not be separated.

This is one theme of Klein’s book: right-wing monetarist policies can only work if they are backed by state violence. Providing some shock treatment of her own, Klein indulges in pages and pages of gruesome depictions of torture (so long as the torturers can be associated with the US government; torture chambers of other dictators are relentlessly ignored.).

While Klein may force the reader to wade through pages of torture, she spares detailing any evidence if it does not back her thesis. As a historian, she makes George W. Bush seem sophisticated.

Readers are treated to a history of Pinochet’s rise, and Allende’s overthrow, that eliminates all complexity and can be summarised in the following statements: US corporations dictate American foreign policy; US corporations objected to Allende’s election; the American government engineered Allende’s overthrow; the American government, and corporations, used Chile as test bed for experimental right-wing economic experiments.

Given such simplicities, I ended up reading Klein’s work on Chile in close proximity to the internet, as I felt I was being told only half the story. For instance, I find it curious to read about US foreign policy in the 1960s and 1970s and not find a single mention of either the Cold War, other than a couple of lines dismissing the conflict in Latin America as an American scam.

Now, I am no expert at Chilean history but I do like to be treated like an adult. I can cope with complexity and I think other people can as well. Klein must think otherwise, for she declines to tell readers that Allende received payments from the KGB, and omits any mention of the difficulties Allende faced when ruling the country. Instead, she blames all of Allende’s problems at the feet of American governments, and those nasty U.S. corporations.

There is a peculiar form of colonialism that emerges from such an analysis. The Chilean people are mere pawns in a great game presided over by grand schemers in Washington. Even when Chilean people act, they are merely puppets on strings pulled by Kissinger, Nixon and others in Washington (Read this as a healthy corrective). Ideologically, the Chilean people have no control over their own affairs: instead the evil genius of Milton Friedman, himself a puppet of US corporations, engineered the failure of the mighty Chilean economy and the accompanying death of torture of thousands of people.

As history, it’s bunkum. As economics, it's appalling. Klein treats any leftist economic programme as a success, and any right-wing economic view as awful, if not evil. Her economic analysis is restricted to stylised sneers and a footnote on page 83.

But like Chomsky, who loves attacking journalists who don’t toe his line, Klein’s focus is on the messenger. This is an ideologue fighting an ideological battle, rather than an educator trying to explain what happened. Through a succession of paraphrases, selective quotes, sleights of text and inappropriate comparisons, Klein pours most of her scorn on an academic. Friedman is like a torturer, she says at one point. Like the Nazis, at another.

This is left-wing populism at its worst, for at least Chomsky’s polemics have some originality. After 150 pages of this intellectual abuse, I wonder why I should read on. I fear that most readers of the book thrill to that the "secret" history of the twentieth century has been "revealed", whereas all that's happened is another schlock hack has made another buck.

Tuesday, 11 August 2009

Uncertainty principle: Klein review intro

Like many of the finest mothers, mine worries. One of her worries is about what I do in my job. She knows I write about companies going bankrupt and worries that I may say or do something that gets me into trouble. To help her sleep, I try not to tell her about how many billionaires I’m writing about who are losing their fortunes.

I tell her not to worry because after a dozen years in the business, I know how not to make mistakes. And as long as I stick to the lessons I have learned, then my stories are impervious to even the most assertive of lawyers.

Another defence mechanism is my employer’s rule that any mistake, however small, must be publicly corrected. This humiliating process helps keeps a lid on the number of mistakes made – no-one wants their mistakes, slips and errors listed for all to see.

Moreover, every claim we make in an article must be “sourced”. I cannot simply say, for instance, that the world is going to hell in a handcart. Instead, I must say the world is going to hell in a handcart, said Milton Friedman (for example). And that’s “said” rather than “according to” because “according to” suggests the journalist might be questioning the opinion of the source.

Given all of this, reading Naomi Klein’s “The Shock Doctrine” was itself a shocking experience.

Monday, 10 August 2009

Uncertainty principle: fisking Klein (1)

Klein's Shock Doctrine book is the new poster child of the Left but it is a weakly-argued polemic taking readers down a dangerous blind alley. It would likely take many days to pick apart her mistakes so I'll detail them in error-themes. The first is context.

+ Klein provides no context for her theory, preferring instead to cherry-pick to fit the thesis. She appears to have decided her thesis -- likely after thinking about George Bush and Iraq -- then carefully chosen events over the last few decades to back it up.

A fair-minded historian would point to many more events in recent decades that do not fit the Klein's theory. My belief is Klein's ideas are almost laughably crude and rely on evasive writing and selective history to make any kind of sense.

1) Her claims about a nightmarish "corporatist state" rising make no sense if one remembers that we have actually had a corporatist state solutions, and this was 40 years ago. The influence of the monolithic corporate is actually less today than it was then.

2) Her claims about the terrible roll-back of the state, designed by Friedman's evil genius, needs to be put into historical context. Through the course of the 20th Century, the state hugely increased in size in all Western countries, and this continued in the second half of the century, ie during the 50 year (or 30 year, NK claims both) campaign waged by Friedman.

In the UK, chosen by Klein as one of the countries where the SD has been applied, public spending did not drop throughout the 1980s and increased by the end of the 1990s into the 2000s. How does that fit the theory?

3) Financial capitalism has exploded in size and significance over the last 30 years, leading up to the credit boom and crunch of the first decade of the millennium. Does Klein's thesis engage with this process?

4) The recent experience of Venezuela, as well as the earlier Cuban revolution and elsewhere, show that violent revolutionary politics was commonplace in South America in the latter half of the 20th Century. It is curious that Klein does not seek to make contextualise Chile in the 1970s.

5) Klein also fails to contextualise Thatcher's decision to smash socialism in the 1980s. Thatcher was a right wing leader of a party previously ejected from power after coal miners went on strike (Heath, 1973). This fact provides some useful context on why Thatcher went after coal miners in the 1980s. It is again a failure of Klein's perspective she chooses not to mention this, instead focusing on the Falklands War that does fit the thesis.

Sunday, 9 August 2009

C&B: extending the range

+ First proposition: we know a lot less about the world then we think. Uncertainty is the only realistic position to take. In the midst of this chaos and confusion there are people.

1. It is certainty that moves societies forward. Groups gather with a purpose and reshape the world around them. There are some very certain people out there. They get things done. They take ideas, make them flesh through families, groups and institutions. They find money and get power. Their certainty leads them to cross the paths of other people, pursuing different paths with equal certainty.

This is the world of politics, of economics, where groups with ideas, money, backing, friends, families collide or coalesce. Just as waves on the sea gather and build only then to break apart and reform, so it is with people.

+ Second proposition: people operating in this uncertain environment sometimes are very certain indeed, and this is often works very well for them.

2. Certainty operates in a world where the only truth is uncertainty. I make a bet but I do not know if I will win. What is to stop the horse I backed from tripping over at the last fence? My certainty that it is the best horse is no guarantee of a successful passage. Certainty might often be the best strategy to adopt but it is not a crystal ball.

Much of human civilisation has developed to overcome uncertainty. Religion is a most wonderful human institution to help manage uncertainty. All those structures, all those magnificent buildings! What statements we made about our certainty in the unknowable, the ineffable. What confidence we placed in those that wanted – needed – to take away our doubts. How else were we to cope?

When we instead focused on what we could only know, we created new belief systems, new myths. Dreams of the future in a war-ravaged world. Interplanetary fantasies. Concorde. 2001. While we might not be jetting off to far-flung planets living off protein pills, our society moves on, endlessly changing, transforming.

According to Malcolm X: “the future belongs to those who plan for it today”.

+ Third proposition: the certainty of people can come from the Right -- where it overlaps with power -- or the Left. Neither seem comfortable with uncertainty, and instead prefer profitable consensus, unverifiable assertions or self-righteous accusations.

3. Plans come from all quarters. Most societies are open to ideas, but most are biased one way or the other. They lie open to some ideas more than others. Some believe in aliens but not evolution. Others prefer pixies over politics. But all are susceptible to the influence of individuals. A single person able to draw together a society’s likes and dislikes under one umbrella is a powerful force.

Telling people the bald truth is rarely popular. “I don’t know” might be honest but rarely helps lead to a conclusion. Trying to embrace all of life’s uncertainties in a single answer is often not possible. The challenge of modern life is to simplify accurately without losing sight of the complex.

There are traps and blind alleys along the way. Many people blame others for endemic human problems. A single individual, or a group of people, are not solely to blame for world poverty, for instance [as implied in Klein, The Shock Doctrine, and much of the “Radical Left]. Poverty has always been a part of human existence, as has war. These are not unique products of uniquely evil groups and individuals.

While the Left may find themselves led up the cul-de-sac named “blame”, the Right too often find themselves lured into being the intellectual cannon fodder for the wealthy. Freedom is a wonderful thing, one (literally) worth fighting for, but sometimes freedom for one is something that deprives others of their liberties.

+ Fourth proposition: in this environment the media frequently does not help people understand the world around them.

+ Fifth proposition: we have to be careful of confirmation bias - only believing the things we want to believe. Most of the western Left has now fallen into this trap.

+ Sixth proposition: it is often easier to believe in simple explanations rather than complex. We seem predisposed to believing events can usually be explained by the actions of one or two individuals ("great man theories"), rather than as part of wider processes.

+ Seventh proposition: the less we know about something, the more likely it is we will accept a over-simplistic explanation for it. (Look at how the ancients explained the occurrences in the heavens.)

+ Eighth propostion: to write a strong polemic often requires a selective reading of history.

Saturday, 8 August 2009

C&B: one general thesis

+ First proposition: we know a lot less about the world then we think.

+ Second proposition: people operating in this uncertain environment sometimes are very certain indeed.

+ Third proposition: the certainty of people (second proposition) can come from the Right -- where it overlaps with power -- or the Left. Neither seem comfortable with uncertainty, and instead prefer profitable consensus, unverifiable assertions or self-righteous accusations.

+ Fourth proposition: in this environment the media frequently does not help people understand the world around them.

+ Fifth propostion: we have to be careful of confirmation bias - only believing the things we want to believe. Most of the western Left has now fallen into this trap.

Thursday, 6 August 2009

C&B: what's it worth?

I have spent much of the week in court listening to highly-paid lawyers argue about company valuations. In the trial, both the plaintiff and defendant hired expensive advisers to tell them how much the company is worth. For one side, it is better that the company is worth more, on the other side, it is better the company is worth less.

By some strange coincidence, the report for the side that wishes the company to be worth more says the company is worth a large amount more than the report for the other side, wishing the company to be worth less.

Both of these long, detailed, reports were put together by well-known financial analysts using apparently objective approaches - the usual graphs, numbers, complex breakdowns of weighted average cost of capital, discounted cashflow analysis, etc - yet still the clients' needs appear to have dictated the outcome of the valuations.

On my desk is a large book titled "Analysing Companies & Valuing Shares". It is not a high level book aimed at market professionals, instead it is aimed at people like you and me, the curious generalist. But I suspect it will remain on my desk unread for many months to come, as piles of more immediately useful paper gets stacked upon it.

One reason why this no doubt fascinating book will remain undisturbed is that I am not convinced a book can tell me how to value a share. I have a suspicion the best the book can offer me is an insight into what people who buy a lot shares think about when they decide to buy shares. This is nearly - but not quite - the same thing as the value of a share.

Judging value is both simple and complex. The simple answer to the question of what something is worth is to reply simply: "Whatever someone will pay for it." In the jargon of finance, this can sometimes be done through a "market test" by putting the asset up for sale and seeing what someone is willing to offer.

The complex mechanisms involve trying to determine an asset's intrinsic value, and - if you are quite modern - trying to understand the psychology of buyers and sellers. The latter is sometimes known to academic economists as "behavioural finance". Value then becomes a mix of a formal calculation about the asset's value - often linked to the income it will provide - with the likelihood of people buying it.

Given the uncertainties around both these subjects, it is hardly surprising even sophisticated people often revert to the simpler valuer methodology, suggesting that value is only a product of someone's willingness to pay.

Next: beating the market, managing the economy

Sunday, 2 August 2009

C&B: the FTSE 100

The world is full of explanations. Millions of words in newspapers, books and – of course – the internet means we are the best informed people the world has ever known. But this massive growth in availability of information is a mixed blessing. Just because we have the information does not automatically mean we understand the world any better, and in some cases makes it worse.

This is one reason I have for writing this book (and for this book to be read). Because while some stories can be understood at a glance – a football score, for instance – others, like finance, take more explaining.

The dangers of confusing finance for a simple story can be easily demonstrated. There is a convention that part of the evening's television news broadcast in Britain is to read out the closing figure of the FTSE 100, a leading index of London shares.

Few people know a great deal what this number means, what the index consists of, or why they should care. What they do know is that it has something to do with shares, and it kind of matters in some way to the British economy whether it is up or down.

The truth of the matter is that the day’s FTSE 100 result rarely matters to the millions of people watching the news. Viewers’ money might be invested in many of these shares, but the day-to-day result of one index of these shares will rarely tell us much, apart from on very occasional days.

It is a little like reporting football by reading out the total number of people that attended a match that day. Interesting, but not usually what you want to know.

Unfortunately, it is possible that the convention of reading out a near-meaningless number of a share index does more harm than good. For this daily incantation of a figure tells many people three things about finance: it is incomprehensible, it is full of numbers and it is something about shares.

By the end of this book, I hope that you will see that finance is none of these things. It is pretty easy to understand, it is largely about people and the things they do, and it is not really about shares at all.

And yes, there is a functional reason to read this book, other than for pure education: by the end of the book you will be much better equipped to read the financial press and know who to trust with your money.

Next: values, managing the economy and beating the market.

Thursday, 30 July 2009

Cash & Burn: a skeptics' guide to finance

The millennium's first decade saw the largest boom in credit ever known. Throughout these years I was a baffled and frequently bemused specialist journalist, learning my trade and finding out about the looking glass world of debt finance.

I started in Eurobonds, moved into bank loans, then ratings and structured finance. After that, I set up an information service covering lending to Central and Eastern Europe. I now work for one of the world's largest media organisations, still writing about debt.

Sometime during my career I realised how fortunate I was to be writing about this world. Others might wonder why. Sticking to a largely desk-bound job in the town where I was born hardly sounds glamorous, or exciting.

Many financial journalists spend much of their time plotting to escape this world and land up in the heady territory of political reporting, or highly paid public relations work. I've never been tempted. Well, never seriously.

The reason why I stay is because of the stories. There are always great stories. I sit down at my desk in the morning and my trouble is always one of having too many things to write; my list of story ideas is never short.

So what are these stories? And why haven't you heard about them before?

That's what I aim to explain here. And if these words go on, and people like them, I'll try to turn it into something else. A book maybe. Or a website. We'll see (let's not get ahead of ourselves).

In the meantime, if there's anything you want to know about this weird world, please ask and see if I can find out about it for you.

Monday, 27 July 2009

Debtors prisons

Junaid Malik thought that it happened only to those who had lost their jobs and could no longer afford to pay off debt.

But earlier this month, after missing his monthly credit card payment, he received the call – a collections agent from his bank threatening him with jail if he did not immediately pay what he owed.


While customers condemn such tactics, the banks say they are necessary because the Emirates has no institutional framework, such as a credit bureau or a bankruptcy court, for dealing with bad debts


Debt is to borrow money that one doesn't have with the intention of paying it back later.

In the financial world, it is a rule that you borrow now because having money now rather than later gives a particular advantage, especially if it is costly to borrow the money. If the price of borrowing money goes down, the more incentives the borrower has to borrow.

Justify yourself

The need to prove a story by market movements leads to farcicial statements such as this:

"But as deadlines keep passing by -- the bond was meant to be repaid in May -- investors are getting increasingly uneasy.

Shares in Independent, which is sagging under the weight of a 1.4 billion debt pile and a collapse in advertising, were down nearly 1 percent in late trade."

Nearly 1%? Does that really show anything?

Tuesday, 21 July 2009


Not wishing to sound like a cracked record, but this is very strong evidence of what I've been arguing for some time: the Guardian is more "talk" than "walk".

Here's a (long) list of Oxbridge attendees at the ever-so-equal Guardian. It's not comprehensive, unfortunately.

Martin Kettle – Balliol College, Oxford

George Monbiot – Brasenose College, Oxford

Jonathan Freedland – Wadham College, Oxford

Catherine Bennett – Hertford College, Oxford

Zoe Williams – Lincoln College, Oxford

Tanya Gold – Merton College, Oxford

Marina Hyde – Christ Church, Oxford

Bidisha Bandyopadhyay – St Edmund Hall, Oxford

Melanie Phillips – St Anne's College, Oxford

Emily Bell – A. N. Other College, Oxford

Allegra Stratton – Emmanuel College, Cambridge

Peter Bradshaw – A. N. Other College, Cambridge

David Mitchell – Peterhouse, Cambridge

Riazat Butt – A. N. Other College, Oxford

David Shariatmadari – King's College, Cambridge

Timothy Garton Ash – St. Antony's College, Oxford

Simon Tisdall – Downing College, Cambridge

Andrew Osborn – Oriel College, Oxford

Jane Martinson – A. N. Other College, Cambridge

John Hooper – St Catharines College, Cambridge

Ian Black – A.N. Other College, Cambridge

Sam Leith – Magdalen College, Oxford

Peter Preston – St John's College, Oxford

Andrew Rawnsley – Sidney Sussex College, Cambridge

Simon Jenkins – St John's College, Oxford

Alexander Chancellor – Trinity Hall, Cambridge

Alan Rusbridger – Magdalene College, Cambridge

Paul Sagar – Balliol College, Oxford

Richard Norton-Taylor – Hertford College, Oxford

Clare Armitstead – St Hilda's College, Oxford

Janine Gibson – St John's College, Oxford

Martin Wainwright – Merton College, Oxford

Victoria Coren – St Johns College, Oxford

Simon Hoggart – King's College, Cambridge

Nick Cohen – Hertford College, Oxford

Ben Goldacre – Magdalen College, Oxford

Seumas Milne – Balliol College, Oxford

Rowenna Davis – Balliol College, Oxford

Hadley Freeman – St Anne's College, Oxford

Paul Lewis – King's College, Cambridge

John Harris – Queen's College, Oxford

Madeleine Bunting – Corpus Christi College, Cambridge

Jackie Ashley – St Anne's College, Oxford

Polly Toynbee – St Anne's College, Oxford

(Also Larry Elliott, Fitzwilliam College, Cambridge)

From here:

Thursday, 16 July 2009

Ignorance isn't bliss

In its modern form, the Guardian (sorry for repeating) prefers to employ shallow stylists to write for their paper rather than solid, 'hard news' reporters. These writers are encouraged to write beyond their specialisation. Sometimes this is amusing, often it is deeply annoying. If I want to hear the views of someone with no expertise but lots of opinions, I'd go down the pub.

So here is Hadley Freeman talking about the need for more finance education. Nothing wrong with that you might think. However, when the thrust of the story is incorrect (Madoff's rip-off was not about financial illiteracy) it is ironic to call for greater education. Physician, heal thyself!

Monday, 13 July 2009

Saint George and the dragon

There is a lot to admire about Guardian columnist George Monbiot. He is an active man with a vibrant intelligence and a willingness to act. In general, the world is a better place with people like him in it.

Unfortunately many of his articles are rather woeful. Trained as a zoologist, Monbiot has a willful naivity that he must regard as a strength. He is a single issue campaigner who believes he is not. A unsophisticated man who believes he has the key to understanding the entire world. (There is much in this critical review that I agree with.)

Most of the time this does not bother me. The Guardian knows its readership, and knows that it needs on its staff a saintly, curly-haired columnist who writes well-meaning books about the evils of corporations and the virtues of revolution. He is the acceptable face of the naive Left which by its own intellectual weakness is destined never to get a whiff of power.

Sometimes, however, he makes claims that need to be forcefully rejected.

Last week, he complained about "astroturfers" who come on to the Guardian's website and disagree with him about climate change.

Many of the posters [who disagree with him] appear to have fallen for the nonsense produced by professional climate change deniers, and to have adopted their rhetoric and methods. But it is implausible to suppose that this is all that's going on. As I documented extensively in my book Heat, and as sites like DeSmogBlog and Exxonsecrets show, there is a large and well-funded campaign by oil, coal and electricity companies to insert their views into the media.

Monbiot is not alone in having such theories. I used to know someone on Urban75 that spent a considerable amount of time trying to work out how those that argued against climate change theories were paid. And I have often been in discussions with left-wing campaigners simply unable to believe that those with right-wing views can honestly believe the things they do.

So Monbiot takes his argument to its logical conclusion: if those that disagree with him are either stupid, irresponsible or dishonest, then there should be much tighter controls on who can comment.

"I ... believe that everyone who comments here should be accountable: in other words that the rest of us should be able to see who they are."

On the surface this sounds reasonable but both the specific point and the general are deeply problematic.


Banning anonymous responses would severely limit those commenting, and it would restrict the nature of the comments too. People would -- and probably should -- worry about the possible long-term consequences of their posts. A quick google search by a future employer might reveal everything ever posted.

Many current employers would have issues with such open comments. I, for one, am banned from posting on message boards under my own name, as are my colleagues.

There might be positive sides to the idea but it is unarguable the idea would restrain commenting and dampen debate. The Guardian's messageboards would end up a tedious and worthy place, full of people happy to post up bland comments under Monbiot's articles.

The wider point that Monbiot's suggestion raises needs also to be challenged.

People do not need to be misled to disagree with George, nor do they need to be stupid. Everyone has different views, and it is a matter of intellectual maturity to understand this, and to understand what this means.

And people do not need to be paid to disagree with Monbiot's sometimes odd ideas -- they usually contain enough hot debating points to irritate a large number of internet debaters.

Conspiratorial thinking such as this damages our society in other ways. For one thing, it corrupts debate by diverting attention away from critical thinking and wider engagement and towards an inward, defensive approach to intellectual debate.

Look at how Monbiot's attack on poster "scunnered52" in the comments on this thread prompts other debaters to smear other commenters as fakers.

Or look how Naomi Klein's latest book accuses an intellectual, Milton Friedman, to be guilty of genocide, to the broad welcome of the media.

This is not new. Much of Noam Chomsky's oeuvre comprises finding "structural" reasons why journalists and academics do not agree with his unusual point of view and distinctive reading of western history, ignoring their views.


A vivid illustration of Monbiot's politics can be seen in this video of him interviewing the then Labour cabinet minister Hazel Blears.

Blears might be unpopular but she has grit. Unlike Monbiot -- brought up in a large country house in a Tory family, before going to Oxford -- Blears has old fashioned working class roots. Born and brought up in Salford, Blears always says she uses the local people's views and interests to keep her straight.

As such, the pair's encounter is fascinating. Blears keeps to the party line, and tries to demonstrate that the Labour government has helped the poor. Monbiot has no comprehension of this form of politics -- of party, of tribe, of class, of Tory vs Labour -- and instead wishes only to ask Blears why she doesn't agree with the issues he believes to be most important.

There is no middle ground. There cannot be. Monbiot cannot accept the reality of Blear's political world, of cabinet collective responsibility, and the compromises inevitable when making choices in a complex environment (Blair's oft-repeated 'difficult decisions').

If that is politics, Monbiot appears to say, then we must all, everyone in the world, immediately start again, according to the rules he has made up.

But Monbiot's politics is just as tribal as Blears' world. Monbiot is in the "green-left" tribe which decided some decades ago to fight the "military industrial" tribe. All of his political views operates through this narrow prism.

To those that believe that Monbiot is an optimist, I would argue the opposite. It is Monbiot that sees the internet to be full of enemies, out to drag him down (ego?). It is Monbiot that ignores the positive developments in the world (declining infant mortality, for instance) to focus solely on the issues that we currently find difficult to solve, before moving to draw mean-spirited conclusions about those that try to fix them.

Monbiot may think he is so right as to accuse and insult those that disagree with him but to my mind his reaction shows he has already lost the debate. A good debate is open, pluralistic and accepting of the honesty of others' views, however wrong they may appear to be.

As the hour grows late, and I continue to argue, I am reminded of one of my favourite cartoons.

Friday, 10 July 2009

Monday, 6 July 2009

Thirst for justice 1; Truth 0

It started this morning listening to John Humphreys interview TUC chief Brendan Barber. Why, Barber was asked, should public sector workers be able to avoid the pay cuts and job losses seen elsewhere in the economy.

Barber's reply was that this was because many public sector workers are low paid (true) and that they were not responsible for the mess the economy is in (highly debatable). Humphreys demurred, saying that only a small number of people were responsible.

This reminds me of a piece by Zoe Williams in the Guardian last week. It is not the most coherent of articles but where it does focus, it says that people want to slake their thirst for justice more than they want to understand the issue. I couldn't agree more.

It it possible that we jump up and down at our MPs because we enjoy doing so, not because the crimes they committed are uniquely heinous. Much of the reason they claimed expenses because of an institutional cowardice to ask for higher pay. The fees office was frequently complicit in the claims made, a part of the Telegraph story that never really fitted with their sensationalist reporting.

The danger of this approach is that nothing significant changes but our world becomes less meaningful and more fearful of media attacks.

A senior civil servant I spoke with a couple of weeks ago says that a majority of her time is now occupied with trivial media requests, as is much of government, and this feeds substantially into policymaking.

Is this how it should be? Does the media use its increased power responsibly? Very few people seem to be asking this most urgent question.

Thursday, 21 May 2009

Russia's deal

Good piece about how Russia operates at the top.

'Yurgens outlined Putin's thinking and what he described as his "gentleman's agreement" with Medvedev thus:

'OK Dmitry. If you can make it, make it. I will be firmly behind you with all the siloviki whom I control...and in four years, if everything goes all right we will find a solution for me and you carry on. Go, go.'


'If Chinese growth is 8 percent, oil is at $60 a barrel, the global financial system starts working and credit lines are unblocked, then I think we are probably all right,' he said.

'If not, then there will be very special measures.'

Friday, 15 May 2009

Cheque-book journalism

"Observing all this, few in bars and at breakfast tables are asking how The Daily Telegraph got hold of the revelations. But one day, a fascinating story will be written about how the entire, uncensored, expenses claims ended up in the hands of a newspaper. The data may well have been stolen, although that does not seem to matter right now.

It is not confirmed whether the newspaper paid for its information, but it is widely believed that it did, with guesses in a range of £60,000 to £150,000. Given that sales on Friday last week, the first day, were up 95,000, and ahead in days thereafter, the investment was probably sound. The Telegraph keeps about 60p to 65p of the 90p cover price, so every 100,000 extra copies is worth about £60,000, less the cost of printing."

From here

And while ITV cancels the South Bank Show, for budget reasons, they pay Cheryl Cole two million quid.

Wednesday, 6 May 2009

I don't think this is a parody

"In a new Special Comment, entitled "On the Hook -- Update on Moody's
Global Macroeconomic Risk Scenarios 2009-2010", Moody's explains that the
"hook"-shaped scenario has the steep downturn signalled by the U-shaped
scenario, but neither the steep but delayed rebound of the U scenario,
nor the flat stagnation of the L-shaped scenario. Instead, it has an
upward tilt that lies somewhere in between, illustrating the painful
recovery that the headwinds of a severe and synchronised balance sheet
restructuring will cause. The "hook-shaped" scenario is a variant of,
rather than a departure from, the U-shaped recovery -- the previous
central forecast."

Source: Moody's

Friday, 1 May 2009

Blogs and news

Been a bit quiet recently, focusing on the day job. Allowed me to some time to reflect on how blogs and news works. At the moment, I am leaning towards the day job - hard news reporting - and question claims made by those that argue that blogs will ultimately do a better job.

The continuing challenge of good news reporting is well documented, and I'm struggling to see good internet journalism.

I thought this when I read Andrew Gilligan's article for which simply seems a repeat of the demented man's prejudices against the local council. But that said, he repeats much of the same unsourced partisan hackery for the Evening Standard newspaper too, so honours even I guess.

Then there are the hard-working souls at FT Alphaville. Much of what they report can be found elsewhere but in there are new angles, and indepth work. But without the discipline of a (word limited) newspaper, sometimes the journalists write curious articles like this, or rambling pieces like this.

I will shortly be doing some professionally blogging myself if I'm not careful, so I'll be looking not to fall into the same traps. Can't avoid either blogging or the mistakes I guess!

Monday, 20 April 2009

Seen it all before

A long-in-the-tooth asset manager I was speaking to last night affected an air of general boredom about the credit crunch.

"Seen it all before am afraid. Debt builds up then gets blown away. Everything comes and goes in cycles."

And this was no crusty old bore, indeed he is in the process of setting up a company to fund green energy projects.

But on the other side of the coin, breathless journalists reel with shock at discovering finance.

"The world is in an era of epic economics. So huge are the challenges, they will define domestic politics for years," pants youthful Faisal Islam at Channel 4 News in his blog, which launched today.

Economics is the new, new thing it seems.

I wonder how long this will last. The attention-disordered media spotlight rarely cares about anything long enough to improve it, so I fear that this late conversion to economics will be as good for finance as Paris Hilton's Damascene moment was for (robed) men in cloth.

But, ever fearful of being over-cynical, feel free to take up Islam's final plea:

"An epic economic era requires an equally epic response, so please get involved."

Friday, 17 April 2009

Flat is the new growth

A month ago or so I took the plunge and started investing in shares after a long time playing safe. My reasoning was that apocolypse was then, not now, and people's gloom was overblown.

Sentiment around the first couple of months this year was like the dot-com boom inverted.

Back then, we knew there was huge change coming and lots of money would be made, somewhere. Like a modern-day gold-rush, investors poured in, putting money everywhere, anywhere, in the hope of another big strike.

The credit crunch has been the reverse. We knew there were black swans out there, ready to strike down investments, and lots of money would be lost, somewhere. And money was indeed lost, in structured finance and real estate in particular.

Now, the flow of black swans is easing. There hasn't been a massive shock for a few weeks now. Even retailers are doing alright. Flat is the new growth.

So a glance at share prices shows that confidence is trickling in, with bleeding-edge investors doubling their money on high-risk equities such as Taylor Wimpey. Even Lloyds TSB's share price has doubled in the last month.

Impossible (literally) to predict where this will end up, but at the moment it looks like an excess of negative sentiment is working its way out of the system. Real growth, however, still looks some way off.

Wednesday, 15 April 2009

Illiquid markets

I have read variations of this statement a number of times recently:

"Prices in the credit markets, meanwhile, have suggested that Britain is about five times more likely to default on its debts than the fast-food chain McDonald’s."

(From here.)

This stat is often used to support arguments that the UK has too much debt and prices in 'the market' show this.

However, a moment's reflection should make us wonder about the stat. The UK's debts are backed by taxes paid by you and I. McDonald's, on the other hand, is a medium-sized company with mere revenues and assets; it has no armies to force people to pay it money.

The truth behind the sensationalist stat is rather more prosaic (though quite interesting to debt nerds): the credit default swap market is barely operating because of the credit crunch and few trades are being done. This means that all prices are rather anomolous and so should not be compared with each other, certainly not when they are as different as a company and a country.

However, that would not make such a good story!

Tuesday, 14 April 2009

Seriously critical

Here's a confusing article: "How the credit crunch and recession helped Britons discover the joy of being serious."

It reminds me of an article I've been thinking of writing recently. I wanted to point out that the credit crunch shows us the need to think critically instead of simply going with the herd.

This is not the same point made in the article above, which seems to confuse being serious with being critical. The need to think is not the same as 'reading stuff' and not smiling. I mean, lots of crackpots push out books, and some of them are quite serious indeed.

Meanwhile, there are some truly critical thinkers out there, and they are usually quite easy to spot.

They are often highly critical of the media, sometimes obsessively, like Nassim Nicolas Taleb or Ben Goldacre. Or they might know how to profit from understanding uncertainty, like John Kay. Others are simply odd, like Hugh Hendry, or fiercesomely learned, like Fred Halliday.

I'd like to go on. I need more to add to this list. Anyone?

(Edited to add: this discussion between Hendry and a conventional analyst.)

Sunday, 12 April 2009

Counterculture goes mainstream

Has the counter-culture actually taken over? If you watched the police batons hit the heads of protesters on April 1 then you'd struggle to agree, but there is something weird going on with politics today.

People today seem increasingly opposed not just to the government - which is understandable given the point in the electoral cycle - but anti-politics itself.

Richard Curtis' new film 'The Boat that Rocked' is pretty ordinary (though has some good tunes) but its portrayal of 'the people' as salt of the earth while politicians are sterile, nasty kiljoys is even more normal. Film-maker Adam Curtis has a curious theory about why this may be so.

He thinks that during the 1970s and 1980s a countercultural movement developed, which sidelined normal politics. It's icon was Bob Geldof and it's signature event Live Aid.
When the Cold War ended, TV journalists lacked a grand narrative. No good, no evil. So they picked up the counterculture theory of pure individuals and evil politicians. This worked to explain the revolutions of 1989, but then Rwanda happened. This showed that even normal people were bad. So in recent years bad things have not been explained, simply shrugged away.

"When there were no good or innocent people to support any longer, the kind of news reporting invented in the 1990s made no sense because the news had given up reporting them as political struggles.

It meant there was now no way to understand why these terrible events happen, instead political conflicts around the world, from Darfur to Gaza, are now portrayed to us as simple illustrations so a mindless cruelty of the human race about which nothing can be done, the only response is 'oh dear'. It is like living in the mind of a depressed hippy."

Wednesday, 8 April 2009

Niche! Nitch!

Reuters goes trade

Taleb lines up against the market

Interesting to compare the conclusions of Taleb with those of the Left

Tuesday, 7 April 2009

Return of the lizards!

A nasty outbreak of lizardism has broken out on the Left.

Its effects are pernicious: everytime you look at someone in power, all you see is a lizard, an all-powerful slithery alien creature, whose sole aim is self-gratification at the expense of the human race.

The police are the agents of lizards, as are all politicians. Those politicians that start out not being lizards must join them to succeed. All bankers are lizards, as are all those that defend bankers.

Beware the lizards! Wear turquoise.

Friday, 3 April 2009

Good morning capitalism - SE4 graffiti


Beaten by the Japanese, Italians, French etc ...

There is a curious myth that the UK government has the most debt in the world, ever. Daniel Hannan's oft-watched European speech rests heavily upon the claim. He cites the IMF as a source.

But this is what the IMF said in this recent report (the numbers are percentage of debt to GDP - a measure of debt to the size of a country's economy):

Thursday, 2 April 2009

A tale of louts and hippies

Like a carnival of the stupid, violence erupted yesterday in the City. Fallen bankers watched on as masked children daubed slogans on walls and played at fighting the police.

Blood flowed, and there was even a moment of tragedy; the only winners were London’s journalists, able to demonstrate to bosses their Twitter skills.

The revolution, predicted by one third-rate professor, did not turn up.

But the protest’s failure to reach beyond the usual suspects of louts, hippies, hangers-on and mobile-phone-wielding curiosity-seekers, says something about the political naivity (to be kind) and reactionary instincts of those involved.

This could be the movement’s big moment – a government on the run, widespread disaffection with the present-day economic settlement, rising fears of joblessness and despair (though, like crime, economic pain remains more written about than experienced – at least for now) and even tabloid support – but this is a movement infamous for its trick of missing open goals, even when standing on the goal-line, with the ball at its feet, and the opposing team nowhere in sight.

Instead of critical thinking, education and pragmatic steps to demonstrate the much talked of alternative world, we get generalities, the avoidance of hard choices, and an unholy mix of soft soap and thuggish threats.

How do you square democracy and equality in a world of six billion and rising? What happens now that the environmental movement’s campaign of fear has run out of steam? How do you address the mass of the public and engage with their ‘conservative’ interests of family, jobs and stability?

On these questions, neither the protesters nor the “alternative G20” summit seemed to offer answers, other than - at the latter - the usual script from the usual suspects – an ageing ex-lord, that witty comedian with a fine sense of theatre, and a woman whose scary leftist organisation took over, some say ruined, the anti-war movement.

In the end, the big news from yesterday was not the protest, despite the phalanx of London journalists on the streets looking for a story, but a helicopter crash off the North Sea, the apparent restarting of arms talks between the US and Russia, and a rise in investor appetite for risk, which has sent stock markets soaring.

To the protesters, it seems they fail on their own terms. The idea of the spectacle is to suggest how an alternative world might exist. To show rather than tell. But by showing that they have failed to move beyond incoherence, hopeless idealism and violence, it is hardly surprising the public does not engage.

Monday, 30 March 2009

150,000 words!

Lucky commuters received a spoof copy of the Financial Times on Friday. It was quite a piece of work.

"Journalists frame public debate, and the City frames public policy,” said Raoul Djukanovic [made up name], who edited today’s fake FT. “If they reframed their thinking, they could help build a different world instead of conning us with lifestyle porn and bubbles."

The journalists behind it are - it is thought - disaffected financial hacks. Alphaville says it was written by Michael Fowkes, who wrote this, which provides some evidence for his authorship.

As a financial journalist, I can't say I felt particularly challenged by it. In fact, after a page I grew bored. No jokes. No facts. Just a series of long-winded assertions by someone with a political axe to grind.

Hardly something the internet is lacking.

A quick check

Private Eye sells many papers based on exposing journalists' hypocrisy, and it is rather easy to do.

Take Dan Atkinson, for instance, loudly declaring in this column, and in this book, that evil power-hungry bankers and politicians knowingly ignored the dangers of excess credit.

Well, how about Dan Atkinson's own output, in his role as senior journalist at the Mail. Surely, during those crazy boom years of 2005 and 2006 he was shouting from the rooftops that we were headed for a crash. Surely?

Er, no.

"No one now doubts that the UK consumer has over-borrowed in recent years. As long as employment prospects are good and interest rates remain low, it will not be a problem," said Atkinson in a jointly bylined piece at the beginning of 2006.

In all, of the 63 financial articles he wrote in 2005 and 2006 for the Mail, only 3 concerned debt, and one of these was about the Bank of England warning about excessive debt. Another one argued that regulations were unfairly hampering people from borrowing.

So at the time of the boom, Atkinson's opinion were pretty much in line with leading politicians and bankers. Yep, those same ones that he wrote his angry book denouncing.

And, no, it doesn't really matter. Journalists get it wrong all the time. However, this time around these accusations are being taken up people baying for bankers' blood. At such a time, the truth is precious.

Sunday, 29 March 2009

The worm that turned

I have never been a fan of the equity market.

A share is not a particularly strong investment to take - you get paid out last if there's a big problem at a company, and you don't really have any control of any company - and during the credit boom, share prices just looked wrong.

I sold out of my last share holdings in November 2007 when I grasped the full scale of the credit crunch. It took a while for the equity markets to catch up and collapse, but eventually they did.

Now, however, I am interested in shares again. For many of the reasons listed here, which suggests that there opportunities in the gloom, and there are likely to be some big movements in share prices, even during the economic slowdown.

However, I do not agree that investing in an index tracker - one that follows the entire market - is a good idea. Because there are still many reasons why some companies' share prices will fall, a lot, over the next year. The stock market, as a whole, is very unlikely to rise - it is as likely to fall.

But some shares will do well. I am looking for companies with strong balance sheets, strong cash positions, in good sectors and management, with limited amounts of debt. And the final thing, is that the rest of the market has not found them yet, and the share prices are low.

A counter example: Sainsbury's. I like Sainsbury's. It is a good company that I know well, but not only do I know this, but so does the rest of the market. When it released strong figures a week or so ago, it's shares went down. It is not a good high growth stock ... but it is one to have and to hold for a while.

So the shares I am looking for are good companies in unfashionable sectors, like hedge funds, retailers and banks.

Friday, 27 March 2009

We are like you

Now that so much money has vapourised, does this mean that City money is not real? It is a claim I hear frequently, and seems to underpin some of the arguments for manufacturing. Much better to make real things rather than rely on fantasy money, the argument seems to run.

It reminds me of a seminar during my masters degree close to a decade ago. My soft-left professor was arguing that the City skewed UK industrial policy, and that it operated largely in its own bubble without reference to anyone else.

The issue of the day was Gordon Brown arguing with Europe about withholding tax and Eurobonds.

So to illustrate his point, my professor asked who cares about Eurobonds, who actually knew anyone who worked in that market?

Amused, I raised my hand. I worked in the Eurobond market, and it was clear to me (at the time) that the European move to impose a withholding tax was an attack on London as a financial centre (I’m not sure I still agree, I probably do).

The point being, you don’t know anyone whose livelihood depends on the City until you ask. And if you do ask, you might be surprised at the answer.

Wednesday, 25 March 2009

Same mistakes all over again

Mid-way through the financial crisis, it's a relief there's no-one out there banging the drum for banks to lend irresponsibly again.

Oh, my mistake.

Will you succeed? You will indeed. (98 3/4% guaranteed.)

Through the looking glass, the world looks the same but different.

To get there, read Nassim Nicholas Taleb’s book Fooled by Randomness, and it becomes quite impossible to see the financial industry in the same way again.

So it is always interesting to meet someone that gets it, that has drunk the kool aid, taken the red pill and gone to other side of the looking glass, particularly if they control half a billion pounds of money.

Such a person is Hugh Hendry, head of
Eclectica Asset Management. He came to speak at Reuters yesterday, and it was clear from the outset that there was something different about him compared with other industry figures.

The reading matter laid out before him was enough to suggest something unusual was likely: Dr Seuss’ Oh The Places You Will Go, and Will Self’s The Quantity Theory of Insanity.

And Hendry did not disappoint. Parts of the hedge fund industry were evil, he claimed, while his investments in agriculture were just to show people that he wasn't completely pessimistic. Meanwhile, difficult questions about the future were palmed off by references to his astrologer.

The intellectual substance to his perspective is not just Taleb, but the economist Irving Fisher.

(The Economist ran a
useful briefing on Fisher last month if you haven’t heard of him.

"As parallels to the 1930s multiply, Fisher is relevant again. As it was then, the United States is now awash in debt. No matter that it is mostly “inside” or “internal” debt—owed by Americans to other Americans. As the underlying collateral declines in value and incomes shrink, the real burden of debt rises. Debts go bad, weakening banks, forcing asset sales and driving prices down further. Fisher showed how such a spiral could turn mere busts into depressions.")

Hendry is often on the TV nowadays, possibly because there is little else for him to do at the moment – almost all of his investments are in safe-as-can-be government bonds, and he claims he will not start buying for another 18 months or so. Here’s one TV performance to keep you going, while here’s another.

Personally, I think his comparisons between Japan in the 1990s and the US in the 1930s are interesting but possibly overplayed. History rhymes rather than repeats.

American consumers are more optimistic and less rational than those in Japan, while the financial markets today form a profound and powerful industry reaching throughout society, in a way they did not in the 1930s. A few broken windows aside, the interests of finance are more likely to again be embraced by Anglo-Saxon politicians and publics rather than entirely rejected, as Hendry’s analysis implies.

But I am very likely to be wrong, and he right, or maybe both of us are wrong. As such, almost all of my assets are in risk free investments, while I have a small investment in bank shares.

Be that as it may, it was a refreshing change to hear someone speak who is not constrained by industry expectations, who thinks for himself and who gets that the financial industry demands (needs!) more rationality than could ever be known by any set of human institutions.

Monday, 23 March 2009

Day trading

After my earlier success with Lloyds, first thing this morning I bought some HSBC shares. My basic strategy at the minute is to take advantage of volatility in banking stocks. I think the overall direction is positive, as investors creep back in, but there will be days of big drops. The skill will be to buy on the drops and sell on the leaps.

HSBC dropped a lot on Friday, largely because of investors taking up rights issue sales. This pushed the price down and now they are moving back up, ahead of the US Fed announcement this afternoon. Again my target is 10%: I bought at 370p, so looking for a sale at 410p.

Edited to add: again, a rising tide floats all boats ... shares hit 415p in the mid-afternoon, so I sold on. Interesting this day trading lark.

Friday, 20 March 2009

Lloyds sold

That was quick! I sold the Lloyds shares I bought earlier in the week. My aim was for a 10% return annualised. Instead, I got my 10% return in a week. So why wait any longer?

Criminalising mistakes

Had a good chat with a mate yesterday about big mistakes and morals.

On one side of the conversation, I was putting forward the line that people are generally quite wrong, so mistakes - even very, very large ones - are hardly surprising, while on the other side of the debate, the point was made that these mistakes were sometimes knowingly made, and made for short-term gain at the price of others.

So I was thinking about this last night. At what point do mistakes become crimes? If short-termism was a crime, then we should all go to jail. And if stupidity is condemned then the police will certainly have a big job on their hands.

But then, but then, we do legislate to protect society, and the behaviour of banks has led to unprecedented taxpayer bailouts. We have had to pay for them, and that won't do.

Obama, last night:

Shouldn't someone go to jail, Leno asked, for what had happened to the economy? "Here's the dirty little secret," Obama replied. "Most of the stuff that got us into trouble was perfectly legal. And that is a sign of how much we've got to change our laws." More "common-sense" regulation of financial products was urgently needed. Still, he went on, people "should have complete confidence in the banks … They shouldn't be putting [money] in their mattresses."

Thursday, 19 March 2009

Bonus surtaxes

Here is one way that the British government could solve a number of problems all at once.

Why not introduce a supertax on extremely high earners? And craft it so that it specifically affects the amount 'earned' by Sir Fred Goodwin?

Taxing Goodwin's millions to the hilt would be a neat way of punishing his mistakes, keeping within the law, as well as clawing back tax, giving high earning bankers a nasty dilemma, and throwing the electorate a meaty bone to satisfy their anti-banker lust. What's not to like?

I thought of this a while back and am reminded of it by Felix Salmon, who recommends it as a way to resolve the AIG bonus situation.

Fools or frauds?

Much of recent comment implicitly (at least) suggests that all bankers of recent times are fraudsters. But here's one stat that suggests they were merely fools:

"The net value of purchases for all bank directors in the six month’s since Lehman’s collapse was £95,700, a 91pc slump from the £1.1 million that they bought in the previous six months."

That 1.1 million is probably now worth a fraction of that amount. People are angry, and want to throw around accusations, but it would be great if we could get angry at the right things: stupidity, ignorance and arrogance.

Many of the critics of bankers unfortunately demonstrate many of the same traits.

Tuesday, 17 March 2009

Discredited banks

The British have a love/hate relationship with the City. It is a complex issue, complicated by a history of class antagonism, the North/South divide and lingering confusion about what the City actually does (ie, is money made in the City 'real'?).

(I set up a information service for the European finance industry a while back, so can certainly attest to the reality of City money and its role in exports.)

I woke up this morning to hear Robert Peston arguing that the public's anger at bankers puts at risk one of the few industries in which our country has comparative advantage. In this he repeats arguments I have been making recently about the dangers of throwing the baby out with the bath water, and buying into myths about manufacturing.

There is a very large 'but'. That is, there is more than a whiff of truth in the criticisms of banks and bankers, and the government (to its credit) is pushing hard for deals where banks clean up their act in return for taxpayer support. Note the comments underneath Peston's article (on the Peston link above).

This makes today's stories about Barclays particularly pertinent. The often persuasive Alphaville crew believe the bank is seriously challenged by today's revelations. Certainly, such large-scale 'strategic tax planning' is not the 'humble' and socially-aware form of banking that the government (and public) wish to support.

Instead, the activities of Barclays' SCM look like the kind of discredited complex and aggressive behaviour that characterised the banking world during the credit boom.