World stock market volatility has turned even the most confident fund manager into a gibbering wreck
If you are not too involved, it is quite amusing. Like watching an otherwise controlled adult suddenly lose it, have a tantrum, threaten and wail. World stock markets are swinging wildly between fear and greed, and all the weak and unpleasant facets of their one time champions are becoming apparent.
So far, the shame and disgrace has been largely focused on the private sector. To the obvious satisfaction of the general population, who suspected they were rotten all along, the money gods at firms like Enron, WorldCom and Tyco have been exposed as nasty, profit-driven bullies who clearly need to feel the smack of firm government. When the unacceptable face of capitalism is revealed, at least selfless public servants can be called upon to sit in judgment.
Or can they? The European Commission's former Chief Accountant, Marta Andreason, has now blown the whistle on the flawed accounting system of the Mother of all Administrations. This suggests a whole new ball game. Bang goes the notion that corporate governance is mainly a problem over there, in the US. And perhaps it is not just the private sector that is corrupted by power-crazed, publicly funded individuals.
As the pressure builds expect those at the sharp end to start talking. Not openly, of course. But canny investors are bracing themselves for a deluge of damaging leaks about corporate and public sector personalities in Europe. The region's stock markets have already been savaged by contagion from the US. In the worst four days in mid-July, Frankfurt, London and Paris all dropped by 10% or more.
As the outlook darkens, the desperate turn to ever more extraordinary claims. There are at least two reports circulating which predict the FTSE 100 index at 60,000 by 2030. Consider, it is at 4,100 now, and struggling. A generation is a good chunk of time to make up losses, but even the most optimistic must pause at this one.
My personal favourite right now is the insistent claim from hedge fund managers that they can make money whichever way the market moves. By dint of extremely clever financial models and a network of well connected friends, they know all and see all before it even happens.
Now whisper it softly, but hedge funds are actually losing money. In absolute terms, that is, which is how they like to measure their success. They are falling like the rest of us. And the style that is getting hardest hit is the arbitrageurs, the clever dicks who are supposed to be able to spot and exploit mispricing across markets, whether in relative value, mergers or convertibles.
What is more, rather than riding the bear market out, hedge fund managers are giving up, closing down and handing what is left of clients' money back to them. One firm, in a letter to its investors, described the toxic mixture of overvaluation, unrealistic expectations and sentiment driven volatility. Presumably, they were referring to the markets, not their own standing within them.
With the pricking of market bubbles comes the deflation of many big egos. Suddenly different attributes and investments are in demand.
A survey from the leading headhunters on Wall Street reveals bright young MBAs are already being rejected for unqualified, experienced businessmen, preferably with a humbling failure or two behind them. Now that does raise a chuckle.
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