<The crux of Enron affair is the hollowing out of productive assets in favor of financial manipulation, the replacing of steel with paper, the transformation of substance into spin, all in the name of new age productivity increase, shareholder value and deregulation. The spices that destroyed the dish were age-old greed, debt, and the sudden disappearance of confidence>
Jay, that's eerily familiar. {I'm probably repeating myself here} In the early to mid 1980s and until October 1987, New Zealand was undergoing exactly that process, which I watched with morbid fascination. I came through unscathed and with a large capital gain [by my standards then].
New Zealand underwent a bubble as big as the Japanese bubble, but without the actual economic substance that Japan had. The NZ bubble was as big as the Nasdaq bubble, but without the creativity and true value aspects hidden within the Nasdaq rubble, which will emerge with enormous success once the debris is removed.
My BP colleagues explained to me how financial management was the future, not 'making things'. I tried to explain that mutually-inflating puffballs of debt create the image of success without the substance underlying real financial success.
A company with not much debt would be bought by the hot-shot new entrepreneurs who were bulldozing the dopey old fools out of the way. They would take their now-larger assets to the guy from Heath Road, Woking, England who visited to make loans to said entrepreneurs. I only met that guy when we moved in across the road in April 1986 in Heath Road after a transfer from Helengrad [nee Wellington] with BP. He told me what he did. I knew that's what was happening, but it was interesting to meet a guy who was on the lending end.
The improved financial assets would enable the next takeover target to be acquired. More refinancing and leverage and so the process continued. My colleagues thought me some kind of Aztec, buying companies which "make things", and were anachronistic artifacts of a bygone era.
Until one day, suddenly in October 1987, an exogenous storm arrived from overseas. Actually, now that I think of it, perhaps the butterfly in NZ started crashing and that forced some selloffs overseas which triggered the global 1987 crash. Probably not, but a trigger doesn't take a lot of energy and NZ had gone completely haywire over 7 years and especially the previous 3 years when financial deregulation took over.
Anyway, the outcome was a financial disaster on the scale of the Nasdaq crunch - we didn't have a sensible and stable Dow and S&P. By the time the smoke had cleared about 7 years later, only half the companies remained on the stock exchange and they were chastened, shriveled and still battling for survival. Even now, there are still the dregs being tidied up, 15 years later. The markets did NOT 'come back'.
Of course, the NZ economy had a very large global economy surrounding it to sell to, which didn't suffer to the same extent so recovery was relatively quick.
If the USA bubble collapse continues into the Dow dropping by half as you say, there are not many economies to help the recovery process.
There are some unpleasantly similar parallels to the USA stock market, housing market [1987 was housing boom time too] and financial markets. Everyone was a winner. Money was no object. Savings, thrift, and the old values were subsumed in the new way of doing things, involving a lot of debt and heavily leveraged assets.
I think that covers it.
Mqurice
PS: I got some gold quotes yesterday and they happen to have some fine gold 10 ounce and 5 ounce bars in stock if I want them. Hmmm. Maybe I'll go and see what they look like on Monday. There has been quite a run on gold they told me.
In the past, I've done well as an Aztec in the stockmarket sense. Maybe I'll revisit my ideas on gold and platinum and stuff. I don't inherently object to gold - it does have a lot of actual uses, including simple aesthetic quality and sense of timelessness, which is something which might appeal to people in a dodgy and nihilistic age of atavistic violence.
Loss of confidence? Who? Me? Naahhh. But I'll tell you what I do.
By the way, you can buy old containers [big shipping containers] bury them and convert them to bunkers. I've been wondering for a few years what a good design would be for a bunker. That sounds ideal. A couple of them [or three] buried in the side of the mountains to the south of Auckland or to the west of Auckland would be appealing. Or even in my backyard so we don't have to travel or move house to get to them in a hurry. herald.co.nz |
