Monthly Archives: March 2009


There’s plenty of blogosphere chatter about Jon Stewart’s evisceration of Jim Cramer last night (TalkingPointsMemo has helpfully posted the full, unexpurgated interview). Felix Salmon sums up most of my view, by just declaring: “Don’t watch CNBC.” I particularly liked Stewart’s controlled anger.

The one key point that I thought he missed was the idiocy of the frantic trading mentality that is at the root of CNBC. There is ample evidence that trading is for suckers — the only winner is the brokerage that collects the commission. I don’t have a problem with Cramer getting some of his stock picks wrong. It’s the very notion of encouraging stock picking that’s wrong. Still, Stewart did the world a service by sticking a very large spear into the bleeding pig that is CNBC.

Bridge versus poker


From Animal Spirits, by George Akerlof and Robert Shiller, which I highly recommend as background for understanding what’s happening in the current economic crisis:

The post-1920s cultural change manifested itself in other ways, for instance in leisure activities. In the Depression years of the 1930s, the card game contract bridge, first played in the United States in the late 1920s, blossomed. By 1941, the end of the Great Depression, a survey by the Association of American Playing Card Manufacturers revealed that contract bridge had become the most popular card game in the country, and that 44% of U.S. households played it. Contract bridge is a game played by partners, who must cooperate — a social game that from the beginning was frequently recommended as a way to make friends or even find a beau. It was recommended as a means of learning social skills (though the game occasionally ended friendships or caused divorces). Contract bridge has only rarely been played for money.

Yet in the first decade of the twenty-first century contract bridge is in serious decline, viewed as a game for the elderly, with few younger enthusiasts. In contrast, in recent years poker — and especially its twenty-first century variation, Texas hold’em — has surged forward. These games are played by individuals for themselves alone, emphasize a type of deception variously called bluffing and “keeping a poker face,” and are generally played for money.

Of course we know there may be no link between what is taking place at the card table and what is taking place in the economy. But if card games played by millions of people shift the role of deception, wouldn’t we be naïve simply to assume that such shifts do not also occur in the world of commerce?

As someone who played bridge reasonably seriously a very, very long time ago, and who never played poker, these paragraphs ring true to me. But I wonder if Akerlof and Shiller remembered that Jimmy Cayne, the disastrous head of Bear Stearns, was a international-level bridge player?

The graveyard of reputations

GE fan

When economies and markets were booming, it was easy to be a hero. But now that the precarious edifice on which our “prosperity” was based is being exposed, many of those great reputations are crumbling.

Take the lead editorial in today’s Financial Times. I can’t recall the FT ever getting so angry in an editorial. It concludes:

This was not a failure of markets; it was a failure to create proper markets. What is to blame is a certain mindset, embodied not least by Mr Greenspan. It ignored a capitalist economy’s inherent instabilities — and therefore relieved policymakers who could manage those instabilities of their responsibility to do so. This is not the bankruptcy of a social system, but the intellectual and moral failure of those who were in charge of it: a failure for which there is no excuse.

Piling on to Greenspan is hardly radical these days, but he’s not the only titan thrown into the dustbin. What perplexes me is some of the reputations that seem to be escaping scrutiny.

Foremost, for me, is Jack Welch. When he left GE he was hailed as one of the greatest corporate titans of all time. The market cap of GE soared in the Welch years, becoming the most valuable company on Earth at one point. His books were heavily promoted bestsellers, he commands fat fees for speaking, and he still has a high-profile column in Business Week. But does Welch’s legacy really stand up to scrutiny? It was under his tenure that GE Capital became the key element of GE. He was the master of “smoothing” earnings, which now looks like a pretty dodgy fiddle (John Hempton has all the dirt).

Jeffrey Immelt is taking all the heat, and he certainly has a lot to answer for. He is, however, trying to manage the house that Jack built through the worst storm in 80 years. And I don’t think you can find many voices outside odd corners of the blogosphere who thought that the house needed major renovations.

Statistic of the day

Given that there are an estimated 100bn sunlike stars in our Milky Way galaxy and 100bn galaxies in the known universe, the potential number of Earth-like planets is a humbling 10 to the power of 22.

From the FT’s look at the Kepler space telescope and current work on exo-biology.

10^22 is a truly large number. If you’re only now getting your head around 1 trillion (as in stimulus), that’s only 10^12.

Just-in-time carrots

Years ago, in my Davos days, a Hong Kong billionaire assured me that China was relatively simple for westerners to understand, but no one could really figure out Japan. I regularly see things that confirm his insight.

David Pilling has a fascinating column in today’s Financial Times about the wave of nostalgia that is overcoming Japan’s political and policy elite. I found this particularly striking:

The third crumbling pillar is the postwar economic model itself. There is now much talk of putting more emphasis on agriculture and de-emphasising the manufacturing industries on which postwar wealth was built. “Japan, having major strength in manufacturing, will probably suffer most,” says Mr Sakakibara, who argues that, even after this economic crisis subsides, the world will never return to previous levels of material consumption.

Japan’s farm industry is commonly regarded as heavily protected, but the Japanese worry that they only produce 40 per cent of their calorific requirements. Mr Sakakibara supports the DPJ’s proposals massively to increase subsidies to agriculture and to industrialise the family-run farming industry. He has been trying to persuade Toyota that cars are a dying industry and that it should turn its engineers on to farming efficiency instead. The era of just-in-time carrots could soon be upon us.

Do they teach comparative advantage in Japanese economics courses?

Chart of the day: hello 1970


FT Deutschland finds a way to depress readers even further, if such were needed (hat tip, Eurointelligence). The economically literate have always understood that the statements we hear, such as “the S&P has returned to the level of 1996”, aren’t adjusted for inflation. So FT Deutschland took the Morgan Stanley world stock index and adjusted it for inflation, and stated it in Deutsche Marks/Euros.

The conclusion? We’re back to 1970. Dividends are the only gains investors have made.