Editorial Notebook
The Recession, for Fun and Profit
By EDUARDO PORTER
Terrified by the collapse of the global economy? Have plummeting stock markets convinced you that the mattress is the only safe place left to stash whatever is left of your retirement savings?
Chill. The experts in the financial services industry are hard at work sifting for the hidden diamonds amid the financial rough, devising new strategies to invest profitably through these difficult times.
Just Friday morning in my in-box I found a killer suggestion from Goldman Sachs: the timing is ripe, it said, to “open receiver positions in Turkish 1y cross currency swap rates at 11.10 with a target of 9% and a stop of 12.0%.” On Thursday it proposed shorting credit default swaps on Sweden and buying, yes, Fannie- or Freddie-backed mortgages.
If there is a lesson from the galactic financial mess we are in, it seems to be that smart-enough people can always find a way to profit from even the deepest depression.
JPMorgan, for instance, suggests selling the Hungarian forint against the euro, a perfect position to profit from what is likely to be a sharp Hungarian recession this year, which will put pressure on it to devalue its currency.
If you are queasy about dabbling in faraway countries where strange languages are spoken, there are also options to profit from recession at home. Last month, Merrill Lynch suggested American muni bonds on the grounds that even if their finances look dismal, the feds are unlikely to let states and municipalities go under. “One would think that taking the ‘fiscal stimulus’ to the grass roots level would be the most effective way of dealing with the situation,” it said.
There is even a good strategy to invest in domestic equities. All you do is buy them at night and sell them in the morning. Last week, Goldman Sachs noted that short-selling the S.&P. index by the day and buying it overnight would have produced a 9 percent return since the start of 2008 — respectable considering the S.&P. had fallen by nearly half since then.
I realize it must feel somewhat strange to be taking financial advice from the people who brought us the collateralized debt obligation and the credit default swap, those “financial weapons of mass destruction,” in Warren Buffett’s parlance. But who else should we take investment advice from?
Mr. Buffett’s own “Buy” recommendation last October has taken a beating. And though President Obama is clearly a profound thinker, his observation that stocks are cheap these days sounds somewhat amateurish.
The experts in the financial industry, by contrast, are pros. The mortgage-backed bonds they manufactured may have lost most of their value; debt markets may have frozen; economic activity might have fallen off a cliff. But what other industry can persuade the government to hand over several hundred billion dollars in a heartbeat?
Nobody has a better handle on how to make money, in good times or bad.
Copyright 2009 The New York Times Company |
