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.