26 February 2010

Goldman Strikes Again!

Well this is probably bad press that couldn't come at a worse time for our friends at GS... ah, who are we kidding, they're doing fine. And man, but these guys are savvy! Take their "assistance" to the Greek government, the full genius of which we mortals are only just beginning to comprehend:

First, hide, rather than fix, increasing symptoms of economic distress. Then create a derivative to bet that your cover-up fails and the economy is exposed and crashes. Place those bets yourself. Watch as your cover-up fails and the economy is exposed. Laugh out loud as required funds and credit are witheld by bankers who placed bets (through your derivative product) on the economy failing, thereby increasing the chance that it will in fact fail and their (and your) bets will pay off. 

Profit on advice, product, and bet! It's a no lose... unless the welfare of millions of Greeks counts, but that ain't on MY balance sheet, and it ain't on Goldman's sheet either. Guys, we don't hate you out of envy. We hate you because you are a bunch of lying evil bastards who belong in jail.

24 February 2010

The Bear Truth About the Stock Market

There was an interesting article in Monday's Globe about the failure of U of T to get good returns on its pension, having lost nearly 30% in the last year. More interesting, however, was the data the Globe presented for the pension asset management results of 23 Canadian Universities.

In the 1-year returns, U of T was at the bottom with -29.1%; Saskatchewan did the best with -11.1%. Tough year.

Over 4 years, U of T was still the loser at -1%; Guelph at 3.7% and Ryerson at a whopping 5.6% were the leaders. Barley half returned 2% or more over four years.

Over 10 years, U of T was still at the bottom with 3.1% annualized return. Only Quebec and Ryerson managed to edge past the 7% annualized return figure. Mean return was about 5.5%. Nominal inflation over the period was 23%, so reduced those annualized figures by 2% annually for the real figures (e.g. U of T returned a real 1% over 10 years; average real annualized return about 3.5%).

Remember that these are universities, each with substantial assets and professional management. They are way better positioned to invest intelligently in the market than are you and I. And yet, over ten years not a single one of these 23 institutions has been able to secure any substantial investment return. Would you accept 5% annualized over 10 years (before inflation) as a good return on your own retirement investments, even though they're not a large diversified portfolio with dedicated professional full-time management? Doubtless the answer is 'no'. But how could you expect to do better? 

Now take a look at historical data for the Dow Jones. If invested broadly in the market, the average investor lost money over the last ten years, even before accounting for fees and inflation. The average investor would have been better off sticking their money in the mattress back in 1999 with a note saying "open if the world ends neither on Y2K nor in 2012".

In fact, the same is true for the 16 years from 1966-1982: over that period, the average investor was better off not putting a penny in the stock market.  Since WW2, there have been two periods of steady increase: 1944-1966, and 1982-2000. The first was characterized by a general expansion and an increase in well-being and productivity across the board. The second was characterized by 'efficient' markets and astronomical profits for market-makers, with little to no increase in well-being for most people (real wages have been stagnant for over 20 years, including during the 90's bull market).

So, the fact is that the savvy investors who tell normal people to diligently save 10% in their RRSPs and stick it in a mutual fund are LIARS. It is they who benefit from this kind of investment. An investor *might* profit in a very strong bull market, when rising tides raise all ships. But in normal market conditions, in fact, the stock market does not have a history of generating wealth for the vast majority of the citizenry. It has a history of generating and losing wealth in cycles that normal people cannot predict or profit from, and cycles that are fundamentally unrelated to the actual productivity and well-being of the population. If they stuck their money in a mattress, at least they would not be giving 2% of it to their 'advisor' each year.

Of course, I don't recommend mattresses, but there are *plenty* of ways to invest other than giving your money to Wall Street. Because once you do that, they will tell you that what's good for the market is what's good for you - and you'll believe them, although the data clearly reveal them to be liars. And it's a small step from there to voting for people who will give your financial benefactors great advantage at your own expense, because what's good for them will eventually trickle down to you. Right?

12 February 2010

Harper's G20 Fantasy

Stephen Harper, speaking from his pulpit as this year's G20 Chair, has announced to the world that its economic leaders agree on a global Keynesian economy where the individual sovereign interests of states are ultimately suborned to international oversight by the G20 to help us reach a point of "enlightened sovereignty" (and strangely not 'enlightened sovereign interest' as Mill would have had it).

“...we also know markets need governance. For the new global economy, the G-20 is what we have.”

 Well, we do know markets need governance. Apparently, we may have actually learned that lesson sometime since November 2008, although it would be tough to put your finger on who learned it or what they have done to address the problem, but I digress. And Steve was clear that we have the tools - all we need, he assures us, is to actually enforce the rules we already have. He's talking about getting real results, not just talk.

So what's wrong with this picture?

First, of course, the idea that the United States (or China or Russia or India for that matter) is going to suborn its sovereign interests to the others is completely laughable. Unless Harper just means everyone in the world complying with US standards, there will be no global standard, ever. And obviously he does not mean that the kind of regulation future markets need is the US style non-regulation that caused this recession. So as far as talk v. action goes, this is in the 'strictly talk' pile and will stay there until the collapse of the American Empire or the rise of their complete hegemony, whichever comes first.

More important, however, is what this all says about Harper's view of the world and our future in it. First, it is an entirely economic future. The important thing in this future is to regulate markets and financial institutions, not to prevent abuse of workers or environmental degradation or malnutrition or the spread of preventable diseases. The group that's going to do this most important of future jobs is the G-20, not elected but mutually selected because they view themselves as the richest 20 nations in the world. And together they have the tools - existing tools of economic and financial regulation.

So let us be clear, then, about the future world according to Stephen Harper: it's a world where money and markets are not just more important than people, but all-important; it's a world where decisions are made not by the elected or the virtuous, but the rich; it's a world where right and wrong is determined not partly but exclusively by the balance in the ledger. It's a world where the wealthy are free to turn their attention to making more wealth for themselves, while the many billions of poor wait (as they have long waited) for the 'trickle-down' and the scraps from master's plate. The meek may inherit the earth, but not until the wealthy are finished with it.

The G20 simply doesn't have the tools to make the future world better, as Harper says. That's an outright lie. It's a nice place for the wold's most powerful heads of state to sit and shoot the bull (and without bowing knee to the CEOs as they inevitably have to do at Davos where they are outranked), but it's the United Nations that has the tools for the job of making a better world for future generations. It is the WFP, not the G20, that knows more about malnutrition and famine than any other body. It is the WHO, not the G20, that has been at work eradicating disease. It is the ILO, not the G20, that has and will continue to work to prevent globalization from becoming a race to the bottom in environmental and labour standards. It is the General Assembly that represents every nation on earth, and gives them each a single vote no matter how fat their wallet or how many battalions they can field. Just like we do here in the little democracy we call Canada.

It is the UN that will save future generations from the scourge of war, if such a beautiful future is indeed possible for humans.

Is the UN unwieldy and bureaucratic? Yes, but these are frequent side-effects of democracy, which I for one still pretend to value and which the G20 completely lacks. The UN is the worst system for improving the world - except for every other system that we've tried. Including the G20. 


10 February 2010

A Very Social Disease

Yesterday political commentator Arianna Huffington called the Tea Party Movement "...a boil alerting us to the infection lurking under the skin" of America. She suggested the 600 appearing at their rally, headlined by palm-reader Sarah Palin, might be like "canaries in a coal mine."

Arianna, are you being deliberately obtuse?

This is like seeing Chicago overrun by zombies and saying it's an indication alerting us to a new kind of infection lurking in the human biology.

The Tea Party phenomenon is not an indication of a boil under the skin. Eisenhower's warning about the power of the military-industrial complex was an indication. Richard Nixon thinking he could get away with it was and indication. The fact that the body politic could be completely captured by the Lewinsky scandal when there was actual governing to do was an indication.

But the fact that the nation didn't seem to care that the 2000 election was stolen was not an indication, it was the real thing. The fact that the last administration started two wars without provoking a Vietnam-style massive resistance was not an indication, it was the fact of a sick and diseased body politic. The existence of Fox News is both a symptom and a cause, as when pustules break open and themselves cause further infection. The tea party is not an alert, it is not an indication, it is a diseased member that requires immediate treatment lest the patient be entirely lost.

Sarah Palin isn't the news. The fact that she's still in the news, that anyone would listen to her after her political and intellectual performance last year - THAT'S the news. No one was surprised that she writes cheat-notes on her hand, but more importantly most people don't seem to care.

It tells us much about the zombie army that is destroying America.