The Fault

There is a popular saying in Portugal about unfairness: dois pesos e duas medidas.

Two weights, or two measures, suggest that Jack and Jane are treated differently. We know life isn’t fair, bad guys get away with murder and good guys die, but if any other country had just put on the prima donna performance staged by the U.S. administration, it would have been crucified by markets, politicians, and pundits.

As it is, the GOP got hammered for this bit of political posturing, and there was embarrasment all round. Yesterday the E.U. trade commisioner told CNN that the promised trade agreement between the U.S. and E.U. hadn’t advanced over the last weeks because the American delegates were unable to buy plane tickets to Brussels.

The United States has earned a reprieve until mid-January, which is to say it’s earnt very little. Nevertheless, the stock market reacted as if the world’s problems had just been solved, with Google shares pipping one thousand bucks by close of trade this week.

Normally, companies will split their stock way before that, distributing two shares for every one and halving the price. People who might think a corporation is overvalued (or unaffordable) at four hundred bucks may decide two hundred is a good price—effectively it’s an issue of both perception and affordability—the latter because an investor likes to own a number of shares in a corporation, it makes them feel like a shareholder; but if you had five hundred bucks to spare you couldn’t buy a single share in the search engine behemoth today.

Google launched its initial public offering, or IPO, in 2004, at a price of eighty-five dollars a share—and it split once. At one thousand, it’s roughly what traders call a twenty-bagger, i.e. trading at a multiple of twenty. It’s worth bearing in mind that there are many companies that began life trading at one or two dollars are share and now run considerably higher than twenty times that price. began its public life in 1997 at sixteen bucks a crack—it currently trades at 328.93 dollars. This is stock market history, not historical fiction—but wait, there’s more: Amazon has split three times, twice two-way and once three-way. You can test the math here, but the multiple is 12. That means if you owned an Amazon share at the IPO your multiple would not be 328.93 divided by 16, which is roughly 20, but 20 X 12 which is 240. Amazon isn’t a twenty-bagger, its a two hundred and forty bagger—now that’s a biiiig baaaag.

Maybe it’s the years taking their toll on me, or perhaps the saturation felt in Portugal with a never ending austerity that has zero effect on deficits, but I live with a notion of impending doom. I don’t mean personally, although that can happen at any time. Methinks we’re playing with digital fire.

Part of the stockmarket boom in the U.S. is related to the continuation of quantitative easing, or QE, until the first months of 2014. If you stop an average person on the street and ask about QE, they’ll probably tell you it’s the newest version of Windows. The European equivalent, LTRO, sounds even more mystical—it might be a new Lebanese political party, who knows?

The truth is the lunatics have taken over the asylum. In the United States, the European Union, Japan, and the U.K., the central banks are involved in a complex game of Risk.

Where’s China in all this? Up there with the rest, apparently.

It’s been a long time since I played Risk, but it’s worth mentioning that all these kinds of games are based on a combination of strategy and probability—roll them dice.

It’s precisely the combination of stochasticity and globalization that makes things so hazardous. Oh, and the fact that it’s played with real countries, real people, real lives.

Banks, created hundreds of years ago as a way to stimulate growth, have completely shifted to the speculative end of the business—the kindly Dr. Loan has morphed into the evil Mr. Hedge—the fevers of this disease are evident in the LIBOR interbank lending rate fixes, and now the rigging of currency exchange rates.

The Economist writes:

Bankers, who are big participants in the market, have huge incentives to nudge the price of a given currency pairing ahead of the fix. With billions of dollars changing hands, a difference of a fraction of a cent can add a tidy sum to the bonus pool.

The operative word here is bonus. It doesn’t surprise me to see this happening, since the banking system is completely rotten through—it’s like the utility company poisoning your water supply, and doing it in a systematic and insidious way. Banks are untouchable, bankers are unaccountable.

The core value of banks must be trust. For you and me, printing money is a federal crime. That’s all very well, but there’s just too much fake money lurking digitally in the cloud. When the ones turn to zeroes, the thunder and lightning will strike us all down. A hard rain’s gonna fall.

Atmos Fear and The India Road. Quick links for smartphones.

Atmos Fear and The India Road. Quick links for smartphones.


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