The Bear’s Lair: What Liverpool could teach today’s Fed

Robert Banks Jenkinson, Lord Liverpool, said it best, in a House of Lords speech of May 26, 1818: “The tendency of an inconvertible paper money is to create fictitious wealth, bubbles, which by their bursting, produce inconvenience.” His phrase “fictitious wealth”, or better “fictitious capital” has a similar (but not, as I shall explain, identical) meaning to the Austrian economists’ “malinvestment” a century later, yet it is in eloquent English, not the made-up word of droning German-speaking professors. We should recognize Liverpool’s priority, and follow his economic thinking. Continue reading

The Bear’s Lair: Behemoths should give up merchant banking

“The mood’s always depressed in Deutsche” said one of that bank’s Singapore traders (not being laid off that day) to the FT. That reflects my experience at Citigroup and is contrast to my experience at the genuine merchant bank Hill Samuel where we were pretty cheerful. Surely now, a quarter century after the demise of the London merchant banks, it has become utterly clear: the behemoths like Deutsche, Barclays and Citi simply can’t do merchant banking competently, and should abandon it to smaller, nimbler houses. Continue reading

The Bear’s Lair: Corn Laws beat farm subsidies

British farmers are concerned about a “no-deal” Brexit, under which they would lose access to bounteous EU farm subsidies. U.S. farmers have had their subsidies increased by President Trump as a result of the China trade dispute. Agriculture subsidies burden national budgets and almost exclusively benefit large corporations and the very rich. There is a better model for supporting agriculture: the 1815-46 Corn Laws, reviled by Whig historians, but much cheaper and infinitely less corrupt. Continue reading

The Bear’s Lair: Corporate debts are today’s worst assets

The silly-money policies of the last decade have left almost all assets overvalued. Real estate, public and private equity, especially in the tech sector, collectibles, debt in general and emerging markets are all well above sustainable levels. But if we are looking for a catalyst for the next market disaster, there is one outstanding candidate – corporate debt of large companies. It had a relatively gentle let-down last time around, and its market is exceptionally opaque even by the standards of today’s murky financial markets. Continue reading

The Bear’s Lair: Stinking city on a garbage dump

Harvard University last week rescinded its acceptance of Parkland-shooting survivor Kyle Kashuv on the grounds of offensive tweets made when he was 16. This resulted in considerable media criticism that, in imposing political correctness codes and denying free speech, Harvard was betraying its beliefs. But that is nonsense. Harvard was founded in the Massachusetts Bay Colony of 1636. Bigoted small-minded intolerance and persecution of dissidents are central to its founding traditions. Continue reading

The Bear’s Lair: Cryptocurrencies and the South Sea Company

Cryptocurrencies have not taken over as the new Gold Standard, but nor have they disappeared, and they have been showing something of a revival in the last few months. We are thus in a similar position to the investors of 1720, inspecting the new phenomenon of a publicly traded company whose shares take off. Like those investors, we have no track record to guide us, but now both the hype and despair are past, we can perhaps draw some conclusions on what role cryptos will play in our future. Continue reading

The Bear’s Lair: Depressed billionaires are good news

“It’s a depressing environment” said billionaire investor Stanley Druckenmiller to MarketWatch, explaining that he is investing in Treasury bonds in the hope that short-term interest rates will descend to zero again. At first sight, that should be bad news for the rest of us. But when you examine the different financial universe in which billionaires live, you come to realize that Druckenmiller’s gloom may be a healthy sign – provided the Fed doesn’t follow his policy recommendations. Continue reading

The Bear’s Lair: Reorganizing British politics

Britain’s Euro-elections on May 23 resulted in the 6-week-old Brexit Party getting 32% of the British vote and 29 MEPs, becoming the (equal) largest single MEP bloc in the European Parliament. With Theresa May’s resignation the following day, it opened a clear route for a full exit from the European Union and a new and better British politics. To get there and avoid falling into the numerous traps the left and the media will set, Brexiters need to understand how the British electoral system works and examine the precedents of 1886 and 1918. Continue reading

The Bear’s Lair: Could China take a “Middle Kingdom” approach?

“Our Celestial Empire possesses all things in prolific abundance and lacks no product within its own borders” wrote the Qianlong Emperor to George III through Lord Macartney in 1793. That turned out not to be true for Qianlong and his immediate successors, and China’s history over the next two centuries was an unhappy one. But now that China has trained infinite numbers of its best and brightest in Western colleges, and transferred the best Western technology licitly or illicitly to itself, could the Qianlong approach work today? Continue reading

The Bear’s Lair: What will be the hot IPOs of 2029?

Investment bankers are very slow learners. That’s the only lesson that can be drawn from the catastrophic failure of the Uber Inc (NYSE:UBER) initial public offering. As this column has been writing for years, it was perfectly obvious that a loss-making taxi service with software attached was never going to be worth $100 billion. Frankly, despite all the cheap money thrown at venture capital, the IPOs in this cycle (which I take to be more or less over) have been very dull indeed. Will we get something more interesting next time around? Continue reading