Tuesday, February 24, 2009

Kid Geithner and the Dragon of Deep Downturn

What are we to make of Treasury Secretary Timothy Geithner? He was supposed to be a hero, a master of the financial universe, ready, willing and able to tame capitalism's fire-breathing Dragon of Deep Downturn, who, like Haley's comet, only comes by every 75 years or so .

He made his debut on February 10, 2009 as Treasury Secretary. He failed in a most spectacular way, squandering, according to the Economist, the opportunity to save the world from a financial black hole. Reviewing Gethner’s efforts, economist Willem Butler commented that “picking through the entrails of this multi-faceted, surprisingly incomplete, seriously underfunded, occasionally well-designed but mostly inadequate, counterproductive and unnecessarily moral-hazard-creating set of proposals was just too depressing.” In short, it was sophomoric.

As Shakespeare noted in Jaques famous monologue from As You Like It
"All the world's a stage,
And all the men and women merely players;
They have their exits and their entrances;
And one man in his time plays many parts…”

What part is Mr. Geithner playing? What are we to make of him? Our hero is turning out to be an odd one. Did he not practice his lines? Has he not read the script? Did we expect too much of him?

It may be time to consider a more appropriate stage name for him.
Mr. Geithner is often referred to as Timothy, but since his inauspicious opening act as Treasury Secretary, ‘Timothy’ does not seem appropriate. The man does not have the gravitas to carry the formality and dignity of ‘Timothy’. Cross out ‘Timothy’.

Some media refer to Mr. Geithner as Tim, which initially gave the impression that this rumoured genius was just a regular guy. Unfortunately, based on his plan, that may be the problem, he is just a regular guy, when the world needs a leader. Also ‘Tim’ conjures up the image of Dickens character, ‘Tiny Tim’, and possibly even the ukele-playing singer of the sixties whose signature song “Tiptoe Through the Tulips” could become Geithner’s approach to the banks. Unless his act is to become a comic tragedy – for the world – as well as him, let’s cross out ‘Tim’ and ‘Tiny Tim’ for the time being.

Similarly, ‘Timmy’ would not be appropriate, unless Mr. Geithner continues to shrink in stature and credibility.

What then for a stage name?

My suggestion is ‘Kid’ as in Kid Geithner. It has a nice , gunslinger sound to it. It reflects the inexperience and relative youthfulness of Mr. Geithner. But, more importantly, it has an edginess to it, arrogance even. Arrogance and inexperience - a powerful combination when you think about it. It's what the American people voted for. The change they've been waiting for.

While he may have fumbled his first play, you can’t count him out. He’ll be back. He's a risk taker. He can grow.This allows the audience to breathe a little easier. This is, after all, high drama. No one said it was going to be easy, not even the President. So the suspense continues to build. The dragon continues to flame the markets, killing jobs left and right. Fear runs rampant over the land and throughout the world.

And what if our hero fails? Then he’ll be Timmy the Kid. And the wise man Tall Paul is ready in the wings preparing for Act Two.

Sunday, February 1, 2009

Et Tu, Davos?

In the early 1930’s John Maynard Keynes was asked by a reporter if there were any precedent for what had happened to the world's economy. He replied yes, it lasted four hundred years and was called the Dark Ages.

If there is a difference between the current crisis and that of the 1930’s, a leading candidate is the level of denial by the professional class. Perhaps too many of today’s generation of leaders and pretenders still believe their economics 101 professors who told them a depression could never happen again.

In a trivial sense that may be true. There may not yet be twenty-five percent unemployment and a one third decline in output. But, there are other possibilities just as dire, if not more so. Fear and panic play on many tracks in the global village. No one is ready to throw in the towel quite yet on the free markets and democracy. But still, civil unrest comes easy in a sensitive age. And besides, we are still in the early stages.

Consider Davos, where the intelligentsia of globalism and trade just met. For the true believers of Davos, a gut wrenching crisis like the present is not supposed to happen. They still cannot contemplate worst-case scenarios that could yield one of the great upheavals in human history.

“There’s a ‘Great Gatsby’ quality to Davos,” said Niall Ferguson, a professor of history at Harvard University in Cambridge, Massachusetts, referring to the novel by F. Scott Fitzgerald. “When people look back at this gilded age, I’m sure there will be images of the investment bank parties at Davos, just as people looked back at flappers after the 1920s. People are still in denial.”

Ferguson, author of “The Ascent of Money: A Financial History of the World,” and a first-time Davos delegate, said “There’s a sense of ‘let’s have the party anyway,’ and ‘let’s talk about the post-crisis world,’ as though that could be soon.” (http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=abAA1ieh6wTk )

Perhaps the Davos crowd would do well to recall the words of Aleksandr Herzen, speaking a century ago to a group of anarchist about how to overthrow the czar, “We think we are the doctors. We are the disease.”

Sunday, January 18, 2009

Roadmap, what roadmap?

As we travel the winding path of the financial and economic crisis, a recent blog on Seeking Alpha asks: Where are we on the Roadmap? Cam Hui then proceeds to answer:

If history is any guide, given that the U.S. recession began in early 2008, then on average the recession will end in late 2009/early 2010. Reinhart & Rogoff showed that equity prices had an average decline of 55% and the S&P 500 has neared that mark on a peak to trough basis.

This environment suggests that equity markets are in a bottoming, base-building process. We should be prepared for a test or even small breakdown from the lows seen late last year, but the downside is limited. If the average recession ends in late 2009/early 2010, then the timing of the final bottom should occur sometime in 2Q or 3Q 2009.

I’m sorry Cam, but here is a more interesting question: Is there a roadmap? This is not an average decline. It is not even an average nasty recession.

With apologies to Tolstoy, all bull markets resemble one another, each bear market creates misery in its own way.

In terms of timeline, Hugh Hendry from Eclectica suggests a longer period of adjustment. He told CNBC,

Debt of all forms went from a generational low of 110% of GDP in 1974 to 360% of GDP recently. We have supersized everything. In 25 years it will be back at 110% of GDP. That has profound implications on valuations and asset classes. It puts a downward damper on everything.

Closer to the mark is Martin Wolf who opines in a recent blog in the Financial Times that choices made in 2009 will shape the globe’s destiny.

Welcome to 2009. This is a year in which the fate of the world economy will be determined, maybe for generations.

Some entertain hopes that we can restore the globally unbalanced economic growth of the middle years of this decade. They are wrong.

Our choice is only over what will replace it. It is between a better balanced world economy and disintegration. That choice cannot be postponed. It must be made this year.

For those still in denial, this is a sobering trade-off. There is no John Maynard Keynes in the wings, there is no agreed upon strategy that beckons. Myopia and self interest will rule among nations as they always have. Interestingly Wolf does not allow for the most likely outcome, a muddling-through process that will permit extensive disintegration before we achieve a better balanced world economy.

The real question is, can the world and its leaders muddle-through without running the risk of civic unrest in all major countries? Commentators are worried about the risk of civic unrest in China. The real risk is civic unrest in the USA and Europe.
The US in particular is a populace with a low pain threshold. It can no longer fight wars if it means spilling its own blood. Similarly, it is a populace born to spend, it’s own money and that of others. How readily can it learn to save. How long will it tolerate an underperforming economy? Unemployment reached 25 percent in the Great Depression and the country survived. What is the tipping point for the unemployment rate in US and other Western economies? Is it 25 percent or possibly lower, perhaps 10 percent before extremists of left and right, populists and demagogues, emerge on our political doorstep. The real question then is will they be welcomed?

Friday, January 16, 2009

Reading, Resolutions and Solitary Vices

It is that time of year when everyone is listing their resolutions. One of the more fascinating is the resolve to read more or to read a certain number of books. Why fascinating? Because reading is arguably one of the solitary vices. And what is a solitary vice? Don’t blush if you do know, but Victorians used the term as a euphemism for masturbation. Now I have your interest.
What does the act of reading have in common with the act of masturbation? According to Mikita Brottman, a psychotherapist and a literature professor at the Maryland Institute College of Art, they have quite a bit in common. So much so, that Brottman titled a book called the ‘The Solitary Vice: Against Reading” (Counterpoint, Berkeley, 2008).

As Brottman notes, masturbating and reading share many traits. “They are often carried out alone, often in bed, before you fall asleep. Both are enjoyed best at leisure, since they both absorb your complete attention. Neither can be rushed and both involve acts of fantasy and imagination. Both can be so exciting that some people become addicted to them, and, like all addictions, they can be difficult to kick. Both may become lifelong practices, picked up in early childhood and continuing well into old age. Both are habits some people discover by themselves and others are introduced to it, usually at school. Both are encouraged by solitude, especially if you’re sent to bed early.”

And the similarities don’t end there. Both reading and masturbation have a checkered history. Prior to the twentieth century, masturbation was seen as a terrible habit, which if not stopped could lead to a wide range of bad things, from blindness to problems later in life. Indeed the Bible tells us of the Sin of Onan, where God slew Onan for spilling his seed.

Today, masturbation is viewed more positively, a way of learning about your own body and sexual responses, a way to reduce physical and emotional tension. As Woody Allen once said, “Don’t knock masturbation, it’s sex with someone I love.” Now there are books about how to masturbate without guilt like Edward L. Rowan’s ‘The Joy of Self-Pleasuring: Why Feel Guilty About Feeling Good:, Walter O BOcking and Eli Coleman’s Masturbation as a Means of Achieving Sexual Health, and Betty Dodson’s Sex for One: The Joy of Self-Loving. Indeed, sexologist Masters and Johnson suggest we’re not loving ourselves enough, letting guilt and fear stop us from getting know our own bodies in a way that’s essential to our sexual well-being.

Reading has had the same tortured road to acceptability. Brottman reminds us that books were once believed to have hidden powers, that they could cast a spell on you. Plato banned poets from his ideal Republic after being infect by the fears of Socrates, who, in his dialogues, made the case that books are an impediment to real learning. At best they were aids to memory, but limited because they weren’t interactive. In the 19th century, novel reading was considered an especially inappropriate past-time for well-bred young girls. Philosopher Jeremy Bentham denounced all poetry as “misrepresentation”. Notes Brottman, “When for the first time in history, almost the entire population could read (to some degree at least), books began to be attacked for taking up time that would be better spent working.”

In 1891, William Morris claimed that reading was no more than a celebration of bourgeois individualism, “a private experience of one individual personally engaging with the mind of another, an exchange so intimate and restricted that, once caught up in a novel, the reader might become detached from other people.”

How we have changed as a culture. In the last twenty years reading and literacy have become among the ideals of a good life. We now have community readings at the city and country level. Canada reads, Hamilton reads. If once a solitary vice, reading has now become a public orgy, with our collective imaginations devouring the pages of a common book. Even Ms Brottman confesses the first chapter of her book is pure satire, that she in fact loves books, loves reading.

So while reading and masturbation both had humble beginnings, reading arguably has become more popular, more socially acceptable. The whole community becomes involved. People make New Year’s resolutions to read a given number of books. One wonders though if it is simply the canary in the coal mine, a leading indicator of future trends. Will the day come when people declare their New Year’s resolutions for masturbation?