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The “ghost fleet” of container ships lies anchored and inactive off the coast of Malaysia.

Today we return to China, the incandescent heart of global world trade.  The Chinese economy has emerged from the mud, blood, & chaos of the 19th and 20th century to become a world-straddling giant. GDP has grown at rates of 5% to 10% (or more) per annum, year after year.  Entire giant cities are springing up, seemingly overnight. Roads, airports, canals, and railroads are being rolled out like carpet.  The Chinese are magnificent, invincible, beyond the ordinary constraints of destiny! Yet (as you might have noticed) outside of China, there is an international financial crisis going on.  One wonders how the Chinese economy, which is still based around selling socks, buckets, and cheap plastic crap goods to everyone in Europe and the United States is coping with the huge declines in demand from those sectors.

 

An inscribed walnut-shell snuff bottle (Ching Dynasty, ca. 1736–1799. photo Bonhams)

But let’s put such a question aside for now.  That was all back-up information to the real subject of today’s post: walnuts!  Walnuts are edible seeds from trees of the genus Juglans (a word which means “acorn of Jove” to honor the virility and fecundity of the king of the Roman pantheon).  Walnuts are interesting plants in all sorts of ways.  Both the wood and nuts are commercially important. The trees conduct extensive chemical warfare against other plants.  There are dark and captivating myths concerning walnuts in cultures from East Asia to the Mediterranean to North America.  However, we will have to address the fascinating botanical aspects of walnut trees in a future post, because right now there are more immediate concerns: a speculative bubble for actual walnuts has formed in China and the nuts have become the focus of intense price inflation.

 

Buying walnuts at Yayuan International Antique Market in Beijing August 26, 2012. (photo by REUTERS/Stringer)

In China, walnuts have long been a popular plaything.  Handling the seeds is thought to increase blood flow, and the wealthy have long regarded walnuts as a status symbol. An article from Reuters (which is apparently a real article rather than a satirical joke) underlines the Chinese affection for walnuts by interviewing an ardent collector and enthusiast:

The bigger, older and more symmetrical, the better, says collector Kou Baojun in Beijing, who owns over 30 pairs of walnuts, most of which are over a century old and have taken on a reddish shine from years of polishing in the palm. “Look how well these have aged. Playing with these kinds of walnuts isn’t for ordinary people,” Kou said.

Like tulips in 17th century Holland, Chinese walnuts (particularly ancient, symmetrical, or large specimens) are trapped in a speculative bubble. Chinese bankers, investors, and speculators have been pouring money into building up light industrial production capacity and driving exports to the rest of the world.  As international trade withers, it is unclear how to reallocate all this money.  Ordinary Chinese investors have been fleeing the Chinese stock market because of widespread economic uncertainty, flagging exports, and because all-too-familiar shenanigans have made it difficult to invest in equities without being fleeced.  As this great river of capital backs up and flows elsewhere, strange markets are created, such as the thriving bubble market for dubious and or mercurial cultural objects like special gourds, esoteric teas, rare tropicl hardwoods, and, yes, walnuts.  A pair of particularly fine antique walnuts was recently listed (on a walnut trading site) for a price equivalent to more than $30,000.00.

The Chinese central government is desperately trying to “cool” the economy, but, in the mean time, people see walnuts appreciating in value by 200% and they can not resist the lure of easy money (even if they are literally investing in common nuts which grow on trees).  Cynical economists have speculated that the central government does not care about such frothy markets, since the craze for esoteric cultural items is at least not causing rampant inflation in food or energy prices, but those with a historical mindset have to wonder how this bubble is going to pop.

The exact moment a bubble is burst (Photo: BARCROFT MEDIA)

When I was younger and happier I worked as a drudge in an Investment Bank.  Actually, remove the happiness from that first sentence—the place was one of the most toxic & unpleasant environments ever.  Nobody there was happy.  The bank sucked away human life force…and so I destroyed it from within!  It’s gone now.  You’re welcome, world.

That all sounds pretty bad-ass, but unfortunately this story reads less like a John Grisham thriller and more like a Russian folktale about a slow witted bumpkin who kills a sorcerer by accident.  Although I worked at the investment bank, I was in no way an investment banker (thank goodness).  The bankers and analysts were all stressed-out type-A personalities who spent 14-18 hours a day currying favor and staring at columns of numbers.  A great many of them were hooked on amphetamines or other drugs.

I worked as a temp in the legal department where my job was to redline legal documents–a sort of grown-up “spot-the-difference” puzzle where one compares two nearly identical legal documents to see if the opposing bank has treacherously slipped new provisions into the contract (legal jobs tend to involve this kind of drudgery).  I also helped update and distribute officers and directors lists—a task which was especially onerous since the officers and directors changed with blinding speed.  Also the bank was really dozens of different legal entities and shell-corporations, each of which had its own board and officers all of whom overlapped considerably.  I completed these monotonous tasks in a freezing cold plastic workstation visible to everyone from all sides. My only joy was to surreptitiously cut arctic animals out of post-it notes with a pair of office scissors.  I had an entire Siberian ecosystem by the time I left.

The bank was on a 30somethingeth floor of a dull 80’s skyscraper in midtown.  The bankers were forever trying to modify the office to suit the whim of the latest leaders (who were always changing—see above), so what should have been a simple series of embedded corridors was instead a shifting warren of slate-green upholstery, sharp glass edges, faux mahogany, injured egos, and construction detritus.  The only constant (other than cold and fear) was an arrhythmic grandfather clock, which wheezed away the interminable hours.  Once I was sent to deliver a document to an obscure department on the far side of the bank.  On the way back, I got lost in a newly created hallway swathed with plastic sheets and plywood.  As I scurried along the passage I heard loud impatient footsteps behind me.  I turned and was horrified to see the president of the bank, a cold bossy woman, walking immediately behind me.  Why was she walking so fast?  How could I escape her? Then it occurred to me: there should be a doorway to the kitchen/breakroom ahead. I flung open the door to escape, but the president had ceased her rapid walking and was staring directly at me, her mouth hanging open in an “O” of surprise. With a touch of élan, I opened the door wider in order to let her pass (I was surprised she knew about the shortcut through the kitchen) and then I noticed the room beyond the door had pink tiles!  It was the women’s bathroom!  I screamed shrilly, dropped the door, and ran away down the hall.  It was not my best career moment… fortunately a new president was appointed shortly afterwards, and then another new president after him!

Anyway you want to hear about the destruction of the bank.

Above the little cubicle I was stuck in, there was a big air vent.  It roared incessantly all day, continuously delivering a stream of cold stale air on my shoulders.  One day, when the legal department was unexpectedly empty, I decided to try to do something about the vent.  Balancing precariously on top of my workspace I reached up into the evil grate and found a tiny rusted lever which would not budge, no matter how I pulled at it.  Desperate not to be caught, I swung my whole weight at the lever.  There was a rusty scream, a shower of dirty particles and a great dull “BOOM”.  I sprang down into my chair and looked busy, as martinets in pinstripes manifested from nowhere, but I heard an alveolar shift up inside the ducts of the skyscraper.   The hateful cold air was now directed somewhere else!

My moment of triumph it was short-lived.  The top boss of the legal department (famous for OCD & prickly disposition) came back to find that her fancy office was unbearably cold.  A normal person would have summoned the building engineers–who probably would have traced the problem back to the closed vent.  Fortunately that was not the way she did business.  Her first action was to have her paralegals find the contract with the building and flag the engineering/maintenance section.  Armed with contractual righteousness, she called the property firm and ordered them to raise the temperature on the floor by 15 degrees.

The legal department was on the cold dark side of the building.  The important bankers and financiers were portly men with window offices on the sunny side of the skyscraper.  While the rest of the bank suddenly became hot, their offices became ovens.  To lower the temperature, the bankers started working their way through successive levels of workmen, technicians, and engineers (I heard the angry conversations in the lobby) only to find that the temperature had already been changed by the legal department.  Both sides then began a violent squabble about the thermostat.

"...maybe I should go. You guys settle this on your own."

One day I just didn’t go back to the bank—in fact that was the only job I quit outright with no other prospects.  Later on I found out that, a few months after I left, the bank was gobbled up in its entirety by a huge New York capital management firm.  Perhaps it is wrong not to assume that some other factor was responsible for that place’s demise (its dysfunctional office culture or rapidly changing leadership, for example…or maybe the wave of banking mergers in the nineties) but I think anyone who has worked at an office where everyone is fighting about the temperature can correctly assign credit to me.

I have lots of jobs and do lots of things, but my main source of income is working as an administrative drudge for the development office of a prestigious private university.  Development is a euphemism for asking people for money—particularly rich people (who are more generous than you might think—as evinced by the sorts of large charitable gifts they give major universities). One of my occasional duties is to help staff special events.  In such a capacity (i.e. as a footman/attendant who handed out brochures and nametags), I attended a financial math event about a month ago. Almost everyone in the room was a successful Wall Street financial employee with a comprehensive background in liberal arts as well as a high powered math degree.

The keynote speaker was a young financier who became vastly wealthy in the hedge fund world. He gave a conscientious lecture about his qualms concerning his industry. Basically, according to the speaker, most (or all) hedge fund managers suggest to potential clients that a 15% return per year is the likely upshot of investing in their hedge funds—even though, if such a thing were possible, the money created by hedge funds would quickly surpass all of the riches created by the remainder of all other enterprises (it’s amazing how a few extra points add up).  The speaker then explained the basic tenets of the industry (sadly I was too busy pillaging the immense cheese platter to listen attentively) and presented his conclusion:  the hedge fund industry does not add 15% per year every year and it is unable to do so.  Not even close. Many of its supposed gains are illusory.

"Maybe just a few slices...wait, what was that about how to get rich?"

The room erupted in angry muttering.  The richest and most generous financier (who was not the keynote speaker but many, many times wealthier) leaped up and began to assail the underlying assertions of the speaker.  In addition to his wealth, this particular financier also had a…forceful personality.  He reputedly owns a giant baronial estate in Connecticut where he emulates the lifestyle of an Edwardian grandee—complete with a downstairs staff that is not the supposed to look him in the eye!   He launched into a tirade which included the following metaphor for the financial industry.

Finance, said the wealthiest financier in the room, is a means by which society apportions resources to the sectors most in need of them.  It is like the blood.  The blood carries oxygen away from the lungs and carries waste products to the kidneys. When a person eats a meal, the blood rushes to the stomach and then subsequently rushes digested nutrients away from the intestines.  When a person runs, the blood rushes oxygen to the legs and carries off the bi-products of muscle labor.  When a person is about to make love the blood rushes to the… and there the great financier trailed off, while everyone in the room started tittering or furiously gesturing for the microphone (which I, in my tattered jacket, dutifully rushed over to them).

The financial mathematicians talked angrily for a while about how critical their industry is to making civilization run and then the last speaker angrily added that people who do not like banks, brokerages, or financial companies are free not to use them.  Then they left (leaving the cheese and cured meats almost untouched by anyone save me).  I noticed the keynote speaker’s scruples did not keep him from jumping into a chauffeured midnight blue Maybach limousine (the cheapest model of which has a base price of $344,000.00) which had been idling by the curb.

This car is stupid. Why not buy weird art?

In this age of anti-Wall Street protests, I have been thinking about the wealthy financier’s metaphor and I feel that it was apt. The financial markets are indeed supposed to deliver capital to medical research, nanotechnology firms, or to the construction industry–just as blood is meant to rush nutrients to the pancreas or to the biceps when needed.  Blood however is not supposed to build a 50 room mansion on Long Island and then buy a private jet and a dozen cigarette boats. Society’s resources are being misallocated. Our blood is bad! When I related the whole metaphor to a clever friend he likened the current state of investment banking to leukemia or some sort of esoteric metastasizing blood-borne cancer that takes over the resources of an entire body to build a useless self-sustaining tumor that then destroys the body.

So, what do we do about this cancer?

I don’t like regulations.  I feel that America has too many already.  People who are rich and powerful can afford to follow asinine bureaucratic rules by means of large teams of experts (or they can subvert or change the rules with help from their politician buddies). The same friend who likened investment banking to a cancer is a securities lawyer!  He described just a handful of the astringent requirements already laid upon the industry and they were profoundly onerous. If complex regulation were a solution to Wall Street’s excesses, it already would have kicked in.

In a certain sense it may be that the snide Wall Street guy at my event who closed the evening by telling the protesters not to use banks or corporations was right. Such a thing is already happening.  Investors are waking up to the illusory nature of the wares hawked by investment banks and huge financial firms.  I was at a development event for the business school of the university earlier this week.  The dean privately confided (to a room with 700 people) that his most talented graduates were heading towards smaller private equity firms rather than the overexposed and hated bulge bracket investment banks. In an ecosystem where the wolves are too much stronger than the sheep, they eat all of the sheep and then starve.  Newer smaller predators take their place.  This is beginning to happen. And so a new cycle begins.

But I’m not sure that just talking about the finance sector is satisfactory after the havoc that sector has caused.

Our representative democracy may have been subverted by wealthy and powerful clicks, but it is still a democracy.  Be sure to vote against any incumbents even if you are voting against your interests.  And last of all, to you protesters out there:  I’m not sure I like your drum circles or the way you dress.  Your point is ill-defined and badly articulated…but it is still a good point.  I believe you are gradually having an effect on public opinion and public discourse (even if media companies owned by billionaires say otherwise). The blood is bad! Keep on telling everyone! Such is your right in the land of the free.  But while you are doing so please be careful and be safe.  Keep your heads un-truncheoned. These bad times pass away and society will need you all to run the next generation of companies that private equity is only just starting to finance.

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