Friday, 27 February 2009

Thatcher, the film

In a belated attempt at balance, last night's BBC2 drama doc on Margaret Thatcher was extremely kind to the woman, often preferring to show Thatcher as a put-upon wife and mother.

Only once, and more than half way into the show, did we see a flavour of the iron lady, the vicious ideologue, the poisonous and ego-driven destroyer of comfortable consensus, flicker.

There might be a continuing admiration for Thatcher's conviction, but less of a recognition that much of this came from a narrow determination to destroy her political opponents, which inevitably meant harming the interests of the millions of people that supported them.

Thursday, 26 February 2009

Hindsight is a terrible thing

Yesterday I gave myself a gentle (but frustrated!) pat on the back for seeing the credit crunch coming, today I met a bunch of very narked analysts from a credit rating agency who are even more annoyed.

Not only were they ignored all through the boom times, but when the crunch came, everyone turned round and damned the credit rating agencies.

Their problem (and ours) is structured finance. The structured finance divisions of the rating agencies were young, inexperienced and had few incentives to question the dominant market belief: that the originate and distribute model minimised and diversified risk.

Unfortunately for them (and us), it didn't; instead it magnified risks by helping to boost borrowing even further, and much of this ever-greater volume of debt had rosy-looking AAA ratings from the agencies, led by Moody's, S&P and Fitch.

It will take a long while before the mess in structure finance fades away. Until that time, rating agencies, however accurate, will struggle against credibility issues.

Wednesday, 25 February 2009

Critical thinking

Analysts – love or hate em, they write a lot of stuff. Sometimes it is interesting.

Not often though.

Alphaville posted up a long quote from one good analyst report yesterday (it has taken me that long to read it!). Labelled Bob the Bear from RBS.

Bob is a bit miffed that no-one listened to him when he saw the sub-prime crisis in 2006/7. But no-one likes a Cassandra. I mean I noted issues with securitisation in 2003 and house prices in 2004, as well as the problems with excess liquidity in 2005, and I’m not bitter. Oh no!

But I do have sympathy with Bob’s statement that:

"Forgive me, but I cannot see how talking advice from folks who couldn’t see this crisis coming even when the tsunami was starring them in the face can be of any real benefit."

Most of these people currently wail about apocalypse now, complain about bankers and say there is now a return of some kind (never very well detailed) of alternative capitalism.

Bob notes (correctly) that this year will see many more defaults, and this will challenge banks as much as some of the minor obstacles they have already encountered.

He also says that Europe will not be immune.

"Europe is in at least a big a mess as the UK/US - there is simply a lag. This applies to the banking losses/problems, the real economy, to ECB rate cuts, to the EURO (soon) taking up the UGLIEST CURRENCY baton from GBP, which in turn took the baton from the USD."


"All of which to me means that this is all gonna get worse before we get the next quantum leap forward in both full disclosure AND policymaker intervention, and before it gets better. And the REAL HEALER will be TIME and falling ASSET PRICES, combined with rather than because of any policy magic. In other words, rising defaults and powerful deflation will trump all/any (nominal) +ve’s for much/most/all of this year."

Of course, we could all give up on thinking and stuff and just hope ourselves into a better world.

Tuesday, 24 February 2009

First wave feminism

At the Observer, Ruth Sutherland's feminist campaign continues.

As business editor, Sutherland believes that we should hear more about the different approach women bring to business.

Given the bias in the thesis, it is hardly surprising that ridiculous conclusions, hackneyed clich├ęs and prejudice quickly follow. Women are more "maternal" and "emotionally intelligent" she posits in her latest missive, glorying in the "female-friendly" spas of Iceland.

The Atlantic island’s failure, she repeatedly claims, can be blamed entirely on men, even though she believes Iceland has a level of gender equality that we can only aspire. Maybe there is a world where this argument makes sense; I’m glad I’m not on it.

Elsewhere she pushes prejudiced arguments about women’s superior emotional intelligence in business. This is a tired line of argument, one drawn from a time when women were first trying to break into business, a decade or three ago.

Nowadays, the position is meaningless. Imagine suggesting to a female colleague: “Sorry to bore you with this man talk about numbers, can you bring on board the women’s view about how we all should feel?”

Nonsense. In the modern world, men have emotions, and understanding, and women can do numbers, and rationality. Anyone suggesting otherwise is simply prejudiced.

There are issues with women, the workplace, and boardroom representation, but Sutherland’s sexist views do little to improve the lot of anyone, male or female.

Ultimately, I wonder what the men working for Sutherland think about their boss’s weird assumptions?

Thursday, 19 February 2009

Bonds in fashion again

Here's a little bit more about bonds.

Something that needs to be underlined is when normal people buy bonds, it usually means buying into funds, which in turn buy bonds. The value of these funds also rise and fall, as well as the underlying, not necessarily in step.

Tuesday, 17 February 2009

Just how safe are bonds?

This is what the experts are doing with their bond exposures - increasing their provisions against losses.

Meanwhile, here's a strange headline: "Some junk bonds are safer than stocks".

Well, duh! In an insolvency situation, ALL junk bonds are safer than stocks. Whoever wrote the headline doesn't know much about stuff.

The article itself is an basic starter guide to where bonds sit in the capital structure. However, it doesn't mention a key point: that equity investing should be about buying into a growth story (because you get wiped out if anything goes wrong), whereas buying bonds is largely defensive.

Sunday, 15 February 2009

Plenty for everyone

The rising tide of anger against bankers seems to be entering a new, exciting phase.

In the first phase, there was confusion. Commentators and experts emitted surprise and concern at the state of the world’s finances.

In the second, people became annoyed. Years of plenty, easy living and excess coming to an end. How terribly unfair!

In the third, we demanded explanations.

In the fourth, being none the wiser, we demanded apologies from people no more in control of events than a three-year-old’s parents in a supermarket. But at least we tried for emotional closure.

In the fifth, and new phase, we are confused, angry, frustrated but demand change! In this perilous political place, any and all explanations are offered for something we have no understanding of, backed by advocates of anything and everything.

So, if you have an axe to grind, a political project that has yet to get off the ground and does not really make sense, NOW is the time to act! Yes, for the next six months any idea, no matter how poorly thought through, lacking in evidence or worthwhile outcome, might well become law so as to satisfy the media’s anger.

And all this populist nonsense even before the Conservative Party comes to power!

Me? Well, I blame MEN! (I couldn't read this with a straight face, can you?)

No, sorry I mean ADVERTISERS!


Sorry, I meant the GOVERNMENT!



There's so much to go round, why not everyone? And can we sue?

I wonder who will win this
battle for Britain’s baffled, angry masses?

Whoever it is, I suspect it won’t be us.

Finance is a fashion business

Everyone seems to be talking about corporate bonds. Really.

The logic is as follows: we do not trust stocks, we don't like savings and property is a busted flush, so ... er ... bonds!

Obviously it is crazy investing in something you do not understand, and even crazier to advise others when you know little more, but since when did that stop financial journalists pushing product?

Did I (not) hear someone say "rising default rates"?

Friday, 13 February 2009

Together in electric dreams

Interesting to see the blogosphere and mainstream media tag-team Stanford International Bank.

Primed by the Bernie Madoff scandal, mainstream financial media are now on the look-out for any similar scams.

So when Alex Dalmady, a banking analyst and - now - occasional journalist, wrote that all was not what it seemed at Stanford International Bank, he had a receptive audience.

The financial press are now cranking up the stories. None have said anything quite so contentious as Dalmady. They say 'questions being asked' or some similar conservative formulation.

This should be enough - the financial authorities should now be finding the truth, whether it be benign or not. And investors also know they should do some checking before putting their money with SIB.

That's as it should be. But sometimes the appeal of the story lets a journalist run too far. Last night the BBC ran an awful story of a suicide linked to the Madoff scandal. A man had lost his money and then shot himself. Terrible.

But it didn't end there. The BBC journalist let the man's son rant about how his father was killed by the banking crisis, and that it was terrible that the banks were being bailed out while the victims of Madoff had not.

There are times when a journalist should not quote people however interesting the things they say. This was one of those moments. The banks have been bailed out and nationalised because it is in society's interest to keep the country's economy afloat. The same can not be said for Madoff's victims. And fraud is fraud, it has nothing to do with the banking crisis.

Thursday, 12 February 2009

Market whispers

I have the seen the enemy and now I know its name.

It is called training for financial journalism and it tells young, impressionable journalists that there is a simple reason for all market movements and the journalist must, under severe time pressure, say what this is at the top of the story.

Hence bollocks.

The generalist journalist has no idea why the market moved 0.5% so grabs in the drawer of that week's ideas and trends and sticks it onto the story.

"FTSE 100 drops as economic fears rise," they write, relieved to have found something.

The reader, relieved at the outbreak of certainty, knows little of the spurious reasoning - maybe an analyst friend has said something, or it is the journalist's pet belief - behind the 'cause'.

In this way, false beliefs build in the market as these 'reasons' are repeated back and forth by people - journalists, analysts, CEOs - who have no reason to question them, and each with vested interests in repeating them.

So it goes.

Tuesday, 10 February 2009

Another glorious day in financial journalism

So the bankers have apologised. Well that changes everything doesn't it?

The economy is now fine, the government wise and we now know all the reasons why the crunch happened.


This morning's mea culpa was a press-driven forced apology which may in the short term mean that bankers get an easier run of things.

And that's it. Nothing has really changed. But at least the press got another scalp.

Wednesday, 4 February 2009

Straight thinking

For the first time in my career, I am wearing a suit every day. However, as a journalist I hope that the suit does not dilute my indepedence, and I remain free of (excessive) institutional bias.

However, it is all too clear that the role of the journalist in the modern age is often to find out and then report conventional wisdom.

Being the finder of such wisdom leaves the journalist slightly ahead of the curve, often knowing things a few minutes, hours, days or weeks ahead of the public. But often, the only knowledge they are passing on is 'how people will be thinking' rather than the objective truth.

Look at the journalists claiming to have discovered the credit crunch. All they did was do their job - tell the world what the credit market was telling them: the bubble had burst. In July 2007, this was hardly a surprise.

(Not all credit market journalists have the temerity to proclaim that they discovered the credit crunch; but not all credit market journalists have a book they need to flog.)

And as a journalist, your job is find out what people are thinking. This thinking is then reflected in the price of goods and services (directly or indirectly). Hardly surprising that journalists might believe they can tell the future. (Anthropology degrees and discovering that credit is complex hardly amount to substantial insights.)

However, and as with the credit boom, journalists (even Ms Tett) were no better able than anyone else to see the truth, as all they were capable of doing was reporting what everyone else was saying.

If you do not believe me, try being a journalist and telling a story that contradicts the conventional wisdom. Imagine calling the credit crunch in mid-2006 (when all the same factors were at play), or a house price crash in 2004 (ditto).

As John Kay says in his latest book, it is possible to make a lot of money by being aware of the conventional thinking. Either by knowing what the thinking is before anyone else (which is what George Soros does) or by ignoring the flow and arbitraging it (Warren Buffett). However, neither approach makes you a journalist that most companies will employ.

But whatever option taken, never confuse conventional thinking for truth, or imagine that knowing what everyone else knows makes you special. This can get you into a lotta trouble.