"No Warning Can Save People Determined To Grow Suddenly Rich"

Tyler Durden's picture

Submitted by Tim Price of The Price of Everything blog,

“No warning can save people determined to grow suddenly rich.” – Lord Overstone.

We have seen a confluence of events that suggests we may be reaching the terminal point of the financial markets merry-go-round – that point just before the ride stops suddenly and unexpectedly and the passengers are thrown from their seats. Having waited with increasing concern to see what might transpire from the gridlocked US political system, the market was rewarded with a few more months’ grace before the next agonising debate about raising the US debt ceiling. There was widespread relief, if not outright jubilation. Stock markets rose, in some cases to all-time highs. But let there be no misunderstanding on this point: the US administration is hopelessly bankrupt. (As are those of the UK, most of western Europe, and Japan.)

The market preferred to sit tight on the ride, for the time being. Three professors were awarded what was widely misreported as ‘the Nobel prize in economics’ for mutually contradictory research. What they actually received was the ‘Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel’, which is not quite the same thing. But then economics is not a science, and Eugene Fama’s ‘efficient market hypothesis’ is not just empirically wrong, but dangerously so. History, it would seem, is clearing the decks. Perhaps the most intriguing development of the week was the news that Neil Woodford would soon be retiring from his role managing £33 billion of other people’s money at Invesco Perpetual to start up his own business. It was widely reported that Mr. Woodford nursed growing frustration at the short-termism of the financial services industry. We will return to this theme.

One of the sadder stories in the history of investment management is that of Mr. Tony Dye. The following extract is taken from his obituary in The Independent:

Tony Dye was one of Britain’s best known fund managers, becoming a household name in the late 1990s due to his controversial opinions about the outlook for global stock markets. At a time when markets were soaring, Dye insisted they were overvalued and on the verge of a crash – a view which put him at odds with most other investors at the time and earned him the nickname “Dr Doom”.


As early as 1995, as the FTSE 100 was approaching 4,000 points, Dye began to make the case that markets were too expensive. At the time, he was the chief investment officer for Phillips & Drew, one of Britain’s biggest asset management firms, and by 1996 he had begun to move large sums of clients’ money out of equities and into cash.


In the years that followed, however, stock markets continued to soar, driven by the technology boom. But Dye stuck to his guns, avoiding the high-growth, high-risk internet stocks, maintaining large positions in cash, and consequently ensuring that Phillips & Drew’s funds significantly underperformed their rivals. By 1999, the firm was ranked 66th out of 67 for performance amongst Britain’s institutional fund managers, and was haemorrhaging clients – and in February the following year, just weeks after the FTSE had broken through 7,000 points for the first time, Dye was sacked.


Days later, his prophesy finally came true. Markets collapsed, and settled into a three year slump, which saw more than 50 per cent wiped off the value of global stock markets.

Neil Woodford’s apparent concerns are well placed. There is a grotesque mismatch between the set-up of institutional asset managers and what is in the best interests of their end clients, the individual members of the public who pay their fees. The investment fund marketplace is grotesquely oversupplied. There is far too much, to use the dismal phrase, product. The problem is exacerbated by perhaps inevitable weaknesses in psychology – both on the part of the manager, and on the part of the investor. Stress points abound throughout the chain. The investment fund world is hopelessly balkanised, and brimming over with a degree of product specialisation utterly unwarranted by investors’ real needs. The fund management industry is a perpetual production line of novelty, or rather an endless rehash of the same old ideas. The point of absurdity was reached and surpassed when there were more mutual funds listed on the New York Stock Exchange than there were common stocks with which to populate them. The industry is a monstrous hydra, busily consuming its own, and its investors’, capital. New funds are launched daily. Failing older funds are quietly tidied away, merged, or destroyed. They are ‘uninvented’.

Alison Smith and Stephen Foley covered the news of Neil Woodford’s resignation for the Financial Times. They cited the FT’s own John Kay, who carried out a review of UK equity markets last year, and who said,

The short-term horizon is basically introduced by the intermediary sector.. Pension trustees [for example] are told they should keep reviewing managers, while retail investors get constant invitations to trade from independent financial advisers [for example] and the platforms set up to enable them to do so.

As they suggest, Neil Woodford’s past success means that raising money for his new business is unlikely to be much of a struggle. “But imagine the hurdles in the way of a manager who would like to purse long-term strategies but is just starting out.” In the words of Professor Kay,

How easy would Warren Buffett find it to set up now?

We have not been immune to the demands of clients frustrated at the performance of diversified portfolios lagging the broader equity markets (although this explicit benchmarking against stocks was never a mandate to which we subscribed). We struggle, in some cases, to make sufficiently clear our concerns about broader market valuation, or just as importantly the gravity of the global financial situation (including a potential QE-driven currency crisis), which makes a wholehearted commitment to the stock market in late 2013 seem to us a risky strategy. So where, if anywhere, does the fault lie? Sometimes it is not just asset managers who should be accused of being short-termist, or of missing the big picture.

Our thesis has been consistent for five years now. We believe we are at the tail end of a 40-years’ and counting experiment in money and the constant expansion of credit. This experiment is not ending well. Because government money, unbacked and unchecked as it now is by anything of tangible value, can be created at will, it has been. What is extraordinary is that despite trillions of dollars / pounds / yen of stimulus, there are few visible signs of what we would call inflation, in anything other than the prices of financial assets themselves.

We are living through a historic period of global currency debasement. The neo-Keynesian money-printers who dominate the world’s central banks have ‘won’ the debate, but are now scratching their heads, looking in vain for the economic recovery that they were expecting all those trillions to have bought. They will continue to look in vain, because money creation and true wealth creation are polar opposites. As portfolio manager Tony Deden has asked,

If cheaper currency is the source of wealth, where has Bangladesh gone wrong? If cheaper money means economic prosperity, why not just print as much as we can and give it out to everyone? We have become fools. The customers know nothing and the advisers know even less. And then we have the idiot economists – the neo-classical Keynesian variety with solutions to problems they did not even anticipate; solutions that have, in fact, been long discredited. And so we lurch from crisis to crisis, eating our meagre capital in the hopes of becoming rich in money. It is a pity.

Those words were written four years ago. The printing presses have been run to exhaustion ever since. So far they have bought us an inflationary rally in the prices of financial assets, and not much else. It has been a lousy time for anyone focused on the disciplined and genuinely diversified pursuit of capital preservation in real terms (more recently, for anyone seeking to escape the inflationary insanity via the honest money that is gold). We have not, to any significant extent, participated in the ‘phony rally’. But then we are playing a longer game than most of our peers. Round and round and round she goes; where she stops, nobody knows. Fund manager Sebastian Lyon recently quoted another celebrated fund manager, Jean-Marie Eveillard:

I would rather lose half of my shareholders than half of my shareholders’ money.

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NOTaREALmerican's picture

While the music is playing, ya gotta dance.

Buy now or be priced out forever.

It's totally different this time.

No guts, no glory.

Dude,  like, what can happen, dude?

LawsofPhysics's picture

The good news;  We will all be trillionaires.

The bad news; We will all be trillionaires.

hedgeless_horseman's picture



The neo-Keynesian money-printers who dominate the world’s central banks
have ‘won’ the debate, but are now scratching their heads, looking in
vain for the economic recovery that they were expecting all those
trillions to have bought.

Don't close your eyes...you will miss all of the excitement!

Prosperity is just around the corner.

AGuy's picture

"Prosperity is just around the corner."

Right, As we walk around a large cylinder with no corners!



Carpenter1's picture

You know the end game is close when:
I was at the library taking out some books waiting in line to order a book in while the guy on front of me was talking to the librarian I was waiting to see.
She was telling him how her and her husband were taking a vacation to Hawaii this winter then going to Morocco in the spring, all thanks to Investors Group who she said was "taking good care of them."

This clueless librarian was obviously under the impression that her gains were due to investors group, not trillions of Monopoly money flooding into a ponzie scheme.
The look of self satisfaction on her face, thinking she was financially successful and would enjoy the good life from now on due to her wise choice of financial managers made me want to laugh and cry simultaneously.

fonestar's picture

"No Warning Can Save People Determined To Grow Suddenly Rich"


....as no amount of warning can educate dinosaurs about asteroids in space.

Milestones's picture

The facials!!A picture that truly speaks a 1000 words. Excellent!!           Milestones

Seer's picture

Mission accomplished, goal met.

We all die...

uncle.bigs's picture

This numb nut has been wrong for 5 years and now I'm supposed to follow his advice?  LMFAO

Running On Bingo Fuel's picture

Make hay when the sun is shining.


Carpenter1's picture

Correct choice of analogy, for its nothing more than hay that is being made right now and it will burn up like hay in one fiery day of wrath.

aVileRat's picture

See comment yesterday on the Keynes argument.

Rational actors only work if you assume everyone has either an internal P/E ratio model in their head like Warren B, or keeps a DCF on their desktop for knowning when something is overvalued or not worth investing in. Then you have to assume they update their models honestly and for all info that comes  available. Hell, Most Equity departments don't even do this for their own sector specializations. So how do you expect the average mutal fund manager who relies on Bloomberg API pulls and the sales broker to do it. Now how do you expect JoeQ to do it when his only exposure to the US economy is a bunch of Stockhouse & Kramer picks to his inbox from seeking alpha, all pumping Twitter, M$ and Zynga ? You can't, and they wont. Fear of falling behind and the greed for the next payoff on a net positive trade is the same psychology high riding markets higher as the junkie at the high roller table.

Holding onto the tape and having a bailout plan to fade the MOMO's is the only play on the market right now.


Market will keep chasing their own tails up to the deadend. Deadend will happen when the Hawk argument is vindicated on the ROA's that the FIRE economy will return in Feb. Same thing happened in the South China bubble, it was all fun & games until the first dissapointing returns came back on the cargos.

adr's picture

“No warning can save people determined to grow suddenly rich.” – Lord Overstone.

cough* Bitcoin cough*

LawsofPhysics's picture

Exactly.  Should it be discovered that bicoin has all the value that the twin hucksters say it does, then bitcoin will be the hyperinflationary event to end all such events.

Not really worried about it.  I see other more tangilble problems that go blow things up first.

HardAssets's picture

Today X number of bitcoins will buy a fine tailored suit.

In ancient Greece, X number of bitcoins would have bought a fine toga.

Oh, wait a minute . . . that doesn't sound right . . . .

Running On Bingo Fuel's picture

Tyler got us again. I was informed that the "Satoshi Nakamoto" character from bitCoin is no other than Timothy Sykes, penny stock trader extraordinaire.


B' fucking ware.


Seer's picture

I won't bother to stoop to character attacks when logical ones work perfectly well.

BinCoin requires the Internet.  The NSA pretty much controls the Internet: and the NSA works for?  Not saying that there's a direct partnership, just that there are risks (that most people don't see to want to see).  The other issue that I see is that the majority of the world's humans don't have access to the Internet (and, well, how much value would they put in some "new system" when what archaic methods of trade have worked since any of them can recall).

fonzannoon's picture

Here is the problem I have with Running on bing. These comments are from a thread a few days ago about retail investors making subprime loans. Basically presented as a dumb decision. The first comment is from Rocky Raccoon


"Why does anyone care what folks do with their own money?  I thought we were all on a sort of Libertarian track here... or not.  Boomers want to destroy the world?  Come on.   If the banksters would pay a decent rate, there would be no market for this loan situation.  Sometimes I just can't believe what I read.

It's their own money.  If they want to flush it down the sewer who are we to criticize?

I kinda like the idea of hundreds of thousands of little private banks undermining the Wall Street scammers.   Give 'em a little bit of their own medicine."

Here is running on bings response:


"Yes, I encourage those who agree, or those sitting on the fence to increment 'Vote up!' by one for the coon.

This is a web destination focused on Libertarianism, specifically dominated by minarchists and a few anarchists who keep things spicy. Let's keep it that way!



So why does someone so libertarian minded and understands freedom of choice and the risks involved have to jump in on every single bitcoin related comment and warn everyone not to buy them?

NotApplicable's picture

Not all actors are rational?

Running On Bingo Fuel's picture

Bro, I understand who you are and you guys were like 3 years late with the full court press. Why? If not pump/dump.


fonzannoon's picture

Maybe it is. The entire stock market right now may be a pump and dump. Gold may have been a pump and dump. Who knows. The point is everyone should be free to hedge however they want and assume the risks. 

Running On Bingo Fuel's picture

Alright, I'll fucking zip it.


fonzannoon's picture

It's safe to say you are on record as having put your two cents in should it go to shit.

centerline's picture

Make that 4 cents.  High probability it is going to shit because the tech is already hijacked.  The concept however has merit.

Goldilocks's picture

"Indeed there can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is eternally and universally accepted as the unalterable fiduciary value par excellence."

-Charles de Gaulle

kito's picture

running on bing, dont be such a wus. thats it, you roll over? you are spineless. you are now fonz's bitch.

 i cant wait until FEMA rolls into your town and you hand over everything you have on their orders. you can do better Running. Perhaps your retort shouldve been:

"You know fonz, the fact that i warn people of what i deem to be a poor vehicle for investment/hedging doesnt mean people dont have the right to do what they want. I never said the government should ban it. My warnings dont deviate from my belief in truth, liberty and the american way. In fact, I can be looked at as a beacon of light for those who may get swept up in a potentially hyped up form of dollar protection. When TSHTF, and the power goes down, or the internet hijacked due to martial law, people who stayed away from bitcoin at my urging will remember and praise me. they will build a shrine in my image."

be a man Running.

fonzannoon's picture

Bing just a heads up me and kito are trying to buy bitcoin. We are like two blind squirrels trying to find a nut. I am fairly certain at some point in the future I will owe you an apology.


kito's picture

oh what is this!! now you are apologizing to Running! does anybody own a set of balls around here anymore? wtf!!!!

wheres Francis?!?!? 

Running On Bingo Fuel's picture

Yea, yea I know. I'm just worn out from fighting those bitCoin guys. They're like Agent Smith, replicating out of thin air.

Anyway, I'm going to buy a few bitCoin tomorrow because I agree, it's nice work so I will salute that with a small investment, small. If this get's included in a future version of CC, http://zerocoin.org and Keccak, then I'm all in.


centerline's picture

Fonz, be careful.  This show is still in pump and dump mode.  The timing here is longer than most people think.  Not enough sharks eating sharks yet.

fonzannoon's picture

agreed centerline I think we may have a ways to go.

centerline's picture

In the meantime, drive it like you stole it!  ha ha.  Some good guys ought to get ahead.  If I ever get any solid advice, I would be the first share here with you guys.  Right now, I just don't like the vibes.

fonzannoon's picture

Centerline shoot me an email if you get a chance. fonzyfonzanoon@yahoo.com


centerline's picture

Will do tomorrow from work (right now on the machine that has my wife's email account set up instead of my own).  Her B-day is today and my in laws are on the way over, so I have to run or I get busted for being a bad husband (more than usual - ha ha).

kito's picture

dont forget the secret password so fonz knows its you

fonzannoon's picture

It's new england clam chowder, but is it the red or the white?

Running On Bingo Fuel's picture

I just like that little raccoon. He's a good little guy and I wanted errbody to have a nice friendship with him.

Yes there are risks, he bites, I know this. So you are mad that I did not warn you? Did he bite you? Hope not.


Seer's picture

All fine, but I really only wish to talk about facts (if there are pukes running around best I can do is take a swipe at them here and there, but I NEVER lose focus on the topic).  Based on my logic (I only have it out for bad logic) Bitcoin doesn't hold up: emotionally I really do want to see it have an affect, but not if that means promoting poor thinking and logic (which will then only set us up for another big trap).

centerline's picture

+1.  I remain entirely skeptical.  Too volatile as well.

AGuy's picture

"It's their own money. If they want to flush it down the sewer who are we to criticize?"

Because the gov't always steps in to bail them out, by taking away money and liberty from those that avoid the scams. We have Social Security which orignated in the bubbles of the 1920s! Probably more than half of ZH readers didn't lose much or lose any money in recent previous crisises. Yet we loose because the gov't has dropped interest rates below inflation making the money we didn't loose in the scams become worth less and eventually worthless. We also get dinged by regulations and an overbearing nanny gov't that tries to protect fools from themselves, which never really works because the fools are just too damn stupid, and the gov't is made up of fools and con artists.


RockyRacoon's picture

Yup.  Seems to me that most folks here at the ole ZH oughta be a bit more agnostic when it comes to other people's business.   It's all "their" fault that things are bad (as measured by the standards of the codependent).  The world is awash with what's wrong with other people/nations/politics/etc.   Those others aren't going to do what the do-gooders want anyhow, so why bother?  There are few things that will move them:   1. Their own volition   2.  Social or financial forces   3. The laws of physics.

All else is blather and kapok.

explosivo's picture

I totally agree. I read that thread thinking that the site had been hijacked by some new owner or something. If people want to voluntarily do business with each other let them. It's this thinking that we can control others lives better than they can that is geting us into trouble.

Running On Bingo Fuel's picture

Let me tell you one thing bro, you don't want any of this! I promise.


Bangin7GramRocks's picture

My bad! Didn't see you beat me to it.

XenoFrog's picture

Good to see i'm not the only one who made this instant connection.

Cognitive Dissonance's picture

"I would rather lose half of my shareholders than half of my shareholders' money."

Unfortunately judging by the direction this is headed, in the end both the prudent and the reckless will be skinned alive.