The Miracle On Ice

From Peter Tchir of TF Market Advisors

The Miracle On Ice

One of the Greatest Sports Moments of the 20th Century.  What made it amazing was that a bunch of American amateurs defeated a team of Soviets that were amateur in name only.

The Soviet Union, whatever the ideals of communism were, had given up on them.  Individuals with special talents were given special rewards.  It wasn't just the sports teams, it was the elite and politically connected who were given special treatment.  The Soviet Union retreated further and further from the ideals of communism into some shambles of a system that was neither communist, nor socialist, nor capitalistic, but had elements of each.  Ultimately it failed because pretending to be one thing, while practicing another philosophy doesn't work for long.

The AIG moment was the first time that the US threw any pretense of real capitalism out the window.  Bear Stearns at least was done by JPM with government help.  Fannie and Freddie were taken over, but they were always quasi government entities.  It was AIG that was truly special.  The government didn't even attempt to see if the banks had managed their exposures at all.  The government didn't even care if they had.  They panicked and saved the banks from their own folly - they didn't give capitalism a chance.  The US has never truly recovered from that.  The entire system looks to government support more and more.  Since AIG the Fed has been running at least one massive easing program or another constantly.  The government is lurching from spending program to spending program to keep the economy churning. 

At the first signs of weakness we beg for the FED or ECB or the government to do something big and fast.  The European credit crisis seemed a final chance to put some capitalism back into capitalism.  To allow dumb decisions to pay the price for failure.  To reward the institutions that had properly navigated through the risks.  There was even a brief moment when it looked like Germany would do that - would force those who failed to pay the price and support those who had taken the best steps.  But now with Dexia bailed out and some super SIV on the way, it looks like we are once again heading down a path of not allowing failure - in fact we are once again rewarding failure and living beyond your means.  It isn't communism, but it certainly doesn't fit any classic definition of capitalism.

I am not sure how high stocks can go on the basis of more debt being piled on more debt by the same people who have too much debt.  Maybe this round of "all-in" fiscal and monetary irresponsibility will take us to new highs.  In any case I don't think we will have fond memories of the "Miracle in Cannes" since no proposals so far do anything to fix the cause of the problem.  In fact as those people in society without stocks and without assets realize the government is doing everything it can to push those prices ever further out of their reach, and doing nothing to punish those who were wrong, the disillusionment may give rise to stronger emotions.  The "occupy" movement may not know what it wants, it may even disappear after the first snow fall, but more people do have to question a financial system that claims to be managed properly, but is never tested.

I heard one great line with the market cap of Hermes passed that of SocGen earlier this year.  And that was the fact that SocGen might have a smaller market cap than Hermes, but their employees don't need a discount to shop there.

Another interesting story is what I'm hearing from people at the trumanfactor about Spanish banks and how closely they follow the rules.  Earlier this summer banks were paying high interest to attract deposits.  The government, for some reason, decided that was not sending a good message, so they imposed taxes on these deposits.  I don't agree with the government, but that is what they did.  The banks, clearly chastened have done nothing, right?  No, now instead of paying high rates on deposits, they pay high rates on IOU's.  And these are the beneficiaries of the tax dollars going to the bailouts?  Wonderful.

We could use another Lehman before it is too late.