Are stocks cheap? Expensive? Fairly priced? Did I miss the move? Is there more to go? What about all those risks that I read about and see on CNBC?
It should be an interesting discussion, so make sure you’re subscribed via email or Facebook so you get it automatically.
In the meantime, I found something from the archive that made me smile. So I dusted it off and re-purposed it for this week. A couple of you will remember this piece from our very early days — if you do, pat yourself on the back! – but for most of you it’ll be new. It’s every bit as relevant today as it was over two years ago.
Regulatory reform is an important topic. For people that work in the industry, it’s obviously one of the most important topics. I know it sounds ridiculous, but the epic Dodd-Frank financial regulatory reform legislation still hasn’t completely gone into effect yet. Provisions of that are still being debated (fought over?) and the final rules still aren’t clear. Other parts that are clear still haven’t gone into effect.
Today we’re going to look at regulatory reform from a slightly different perspective. We’re going to try and brush away some of the clouds and back way up to look at the big picture. It can be tough to get your bearings when you are a suffocated by such a detailed fog, but today we’re going to call on the help of a few greats.
This newsletter goes out to a bunch of baby boomers and once-hip Gen Xers, so I’m sure there are at least a few Bob Dylan fans out there. Those of you who are might be able to guess where I’m going with this issue after seeing the title. If you’re not a fan, you can listen to the song here.
I’ve heard All Along the Watchtower no less than a million times over the years, and it still gives me goosebumps every time I click play:
Bob Dylan, All Along the Watchtower
“There must be some way out of here” said the joker to the thief
”There’s too much confusion”, I can’t get no relief
Businessmen, they drink my wine, plowmen dig my earth
None of them along the line know what any of it is worth.
“No reason to get excited”, the thief he kindly spoke
“There are many here among us who feel that life is but a joke
But you and I, we’ve been through that, and this is not our fate
So let us not talk falsely now, the hour is getting late.”
All along the watchtower, princes kept the view
While all the women came and went, barefoot servants, too.
Outside in the distance a wildcat did growl
Two riders were approaching, the wind began to howl.
It’s among the most covered songs in the history of pop music so I’m sure you’ve heard somebody sing it, whether it was U2, Dave Matthews, or your favorite local garage band. I prefer the soulful Dylan original, but I enjoy rocking out to the more-famous Hendrix version as much as the next guy. Personally, I think the song has endured the test time of time because it is about time itself.
Go through those eerily apocalyptic lyrics again or sing them in your head. Now read through it backwards.
Brilliant, huh? The tale literally ends as it’s beginning, verses unfolding in reverse chronological order.
I think this is why I prefer the Dylan original, which runs a scant two and a half minutes. Just as the song really gets going, it stops. My first reaction is always to immediately queue it up again. And I’m sure I’m not the first person to ever do that. I’ve read music critics describe Dylan’s manipulation of linear time in this song as “audacious” and “lyrically bold.” Whatever. I just think it’s downright observant.
Life moves in cycles, many of which are almost too broad or too subtle to notice. More often than not it’s the reflective poets like Bob Dylan that pick up on this kind of stuff, not the average trader on Goldman’s prop desk, fixated solely on where a buck can be made in the next few days or weeks.
It shouldn’t surprise you to learn that the markets – themselves driven by cycles of psychology and culture – move in broad patterns as well. Subtle ones, too. The financial crisis shocked everybody, but it shouldn’t have. I realize that when we and our industry peers were all doing battle inside the belly of the beast, the last thing on our minds was historical context. But none of us saw that until well after the fact. In the midst of the chaos, we were all overwhelmed with short term tactics and damage control. Even if you don’t work in finance, it was probably similar for your industry.
But today, four years since the failure of Bear Stearns and three years since the bear market bottom of 2009, it seems fitting for a more philosophical, introspective look at how the recent past fits into the grand scheme of things.
It’s time… for another Michael Lewis book!
If, for some crazy reason, you haven’t read The Big Short yet, it’s time. Put it on your Kindle and give it a read.
Michael Lewis is one of the great chroniclers of our era and has the enviable knack for telling complicated stories from insider perspectives in a manner that is both accessible and entertaining. I suppose that makes him a hero of sorts for a guy like me. Not only is he an inspiration, but he keeps me humble. I often wonder just how mortal amateurs like myself even fancy themselves writers with wizard-poets like Lewis running around, spinning intricate yarns with a brief incantation and casual flick of the wrist.
During the book’s release there was a flurry of hype in the financial press and even the mainstream media. During the publicity blitz, I remember him giving a terrific interview on 60 Minutes. I think he figured out the angle that history is now going to run with.
You can watch the whole thing for free, but here’s a key excerpt:
I’m afraid that our culture will come to the conclusion that everybody was just a bunch of criminals. I think the story is much more interesting that that. I think it’s a story of mass delusion.
[On Wall Street,] people see what they’re incentivized to see, what they want to see. If you pay someone not to see the truth, they will not see the truth.
This is exactly what I’ve been talking about. The financial crisis was part of a far bigger story. It isn’t just a tale of collateralized debt obligations and subprime mortgage-backed securities. It’s a story of psychology. It’s a story of a people and a culture – not just on Wall Street but all throughout America – that convinced itself to believe in an alternate reality. Wall Street was the center of the storm because it was the place where things were denominated in the largest dollars.
Since the beginning of this newsletter I’ve tried to pay close attention to the cultural reaction to the financial crisis. Books like Lewis’ are the sort of reactions that I look for. So was the sequel to Wall Street and the superior, but lower-budget Margin Call.
Somewhere in the mess of the last five years is a very human story. It is one that has been told before and has probably been getting told since the dawn of society. Actually, you don’t even need to go back to the dawn of society. The simple fact that we got another Wall Street movie two decades after the original should tell you everything you need to know.
Nothing. Has. Changed.
Not really. Sure, the details are a little different but when you brush that fog away, there isn’t much new.
I am reminded of the moving, thoughtful finale to Battlestar Galactica, one of the great gifts to science fiction fans everywhere. During the coda as Baltar and Six walk down the street 150,000 years in the future (past?) and comment on the decadence and commercialism of modern Earth, I was left with the overwhelming feeling that this has happened before and this will happen again.
Folks, this is the story of the markets. The real story. You didn’t think you’d find it on Battlestar Galactica, but there it was if you had your eyes open.
It has all happened before and it will all happen again.
Everybody forgets this, tricking themselves with all sorts of delusions about linear history. And this is exactly what disturbs me. As I watch that Michael Lewis interview and observe what’s going on from my own humble perch in the industry, it’s obvious that nothing has changed. I mean, it is ridiculously, painfully clear to me that none of these fundamental issues with bad psychology and misaligned incentives have been resolved.
We all see that, right?
Government regulation is still shaped by the big businesses it’s designed to regulate, and ratings agencies are still paid by the companies whose debt they are supposed to rate.
The very people who helped engineer the disaster are still the ones we’re asking to help clean up this mess.
We’re all greedy buggers, but Wall Street is still where those with the least shame about it tend to aggregate.
Individuals who have an incentive to act or think a certain way still act and think a certain way, whether it’s an investment banker recommending a dangerous merger or a realtor recommending you buy a house that’s falling in value.
The average guy on the street still doesn’t have an understanding of what really goes on in finance and is much more easily swayed by emotionally-charged political rhetoric.
I recognize that progressive change takes time. But the direction that change seems to be heading is locked entirely on the details of the recent crisis and have nothing to do with the bigger picture that drove them. A year ago I thought it would be impossible for us to return to an environment resembling the pre-crash days, not with an angry public, a shell-shocked banking industry, and authorities hungry for re-regulation. But when I look around today, the good ol’ days on Wall Street seem to have returned.
I’ve heard this song before.
The test of time
With all due respect to books like This Time is Different and Andrew Ross Sorkin’s Too Big to Fail, I don’t think their material will endure in popular culture. Don’t get me wrong, these are important books, but these stories are about the technical nitty gritty. That may seem really interesting right now as we sift through the wreckage, but it isn’t going to withstand the test of time. Not the way Michael Lewis’ books have, and certainly not the way All Along the Watchtower does.
Why? Because the latter works are about more than what happened. They’re about fabric of humanity, its psychology, and how that shapes broader culture. They are about all of us.
I’m sure there was plenty of literature published about the political and financial details of the 1929 crash and subsequent Great Depression. Keynes and Galbraith did have some very important and popular things to say about it after all, but my guess is that you’ve probably never read any of it. Most of that stuff has been lost to history, occasionally dug up under the light of a blue moon by sleepless econ students, quietly compiling data for their doctoral theses.
Instead, this is what the rest of us remember, the photography of Dorothea Lange:
Take a moment and think of some books and movies from that era that have endured? Which ones have withstood the test of time, the ones we go back to again and again?
We read The Great Gatsby, Brave New World, and The Grapes of Wrath. Over and over, we watch Citizen Kane, Mr. Smith Goes to Washington, and It’s a Wonderful Life. My personal favorite is the noir of the 40’s and 50’s, gritty, hard-boiled stuff that was crafted by individuals whose early values were forged during the dark times.
These are the stories that we will hand down, and many are the same basic stories being told today. They are timeless tales of decadence and delusion. Stars that burn bright and then supernova. Pride, entitlement, and the hope of the common man. Oh, and Good vs. Evil, especially if it isn’t always clear which is which. There’s a reason all that film noir was shot exclusively in black & white.
I feel good about Lewis’ chances for surviving the test of time. Liar’s Poker is now twenty years old and it’s the first destination on the list of places to visit to get a feel for what Wall Street was really like back in the 80’s. Twenty years from now it’ll probably still be destination number one.
For the recent financial crisis, others artists will come along too and make their mark on history. Did anybody happen to catch Up in the Air a couple of years ago? That’s another entry in canon of works that will tell the enduring story of the Aughts. Who knows who’ll be next.
I hope it’ll be Philip Roth, the greatest and most prolific writer of the 20th century. (Yeah, I said it. Come back in 50 years ye fans of Fitzgerald, Joyce, Steinbeck, Faulkner and Hemingway and tell me you don’t agree.) Kurt Vonnegut or Hunter S. Thompson would have eagerly taken up this sort of task, but alas, they’re covering the story from a wholly different location. But someone will come along and write something that touches us all, and this is what we’ll remember a hundred years from now. Maybe Cormac McCarthy already did that with The Road.
The problem is that these works won’t have any of the details, just the themes and metaphors. Only those who know how to decrypt the meta-messages and translate them to the world around us will have a clue when all of this happens again. This is why I send this newsletter to people that majored in English Lit.
The details will differ next time, but it’ll be the same, you know?
It is all connected
I guess what I’m really trying to say is keep your eyes, ears, and mind open.
I realize this newsletter requires you to indulge me on many occasions. And so I thank you for patiently trundling along on what isn’t always the most clear-cut path through the forest of finance. Like the rest of you, I’m doing this without a map of what lies ahead and I apologize for the times we get stuck in the brush and scratched by the nettles.
Perhaps this journey is more of a crusade. In my professional life, I am surrounded by incredibly sophisticated financiers, staggeringly intelligent minds who simply don’t want to talk to me about the most culturally important books & films to emerge in the last decade or the latest Yo La Tengo album. And in my personal life I am surrounded by brilliant observers of culture, media, and literature. Many are well-versed in history and psychology. I say “interest rates” and “GDP” and they zone out or let slip a sigh of resignation. Sometimes they get angry.
But imagine if a guy like Bob Dylan was an investment banker. I can only wonder about what sorts of interesting things he have to say…
Look: there is real value in bringing these disciplines together. It is all connected, all part of the same tapestry.
And just what does it all mean?
We’ve been asking ourselves that question for thousands of years. I sure as heck am not going to answer it for you here in this obscure and insignificant corner of the publishing world.
I suppose we all have to do it on our own, and as always, we must start by looking within. While you’re doing that, queue up All Along the Watchtower.
This time, listen to that ghostly harmonica and the inevitable sense of doom carried on the chords of Dylan’s guitar.
And the end that catches you out of nowhere.