Blain’s Morning Porridge – Sept 3 2021: Treasure, Self-Delusion and Groupthink
“I’m dishonest, and a dishonest man you can always trust to be dishonest. Honestly, it’s the honest ones you want to watch out for, because you can never predict when they’re going to do something incredibly stupid..”
This morning: The increasing use of the word “treasure” to define wealth, money and resources is a fascinating linguistic shift with implications for attitudes to the way money is managed. However, changing words won’t stop the powerful threads of self-delusion and groupthink that so dominate markets today.
Friday, so time to go off on a tangent. Let me start with a short digression on “Treasure”.
I’m intrigued by a subtle shift underway in the language of money. Has anyone else noticed people are referring less about wealth, money, and assets, but lumping them together as “treasure”. I’ve noticed it on news reports – particularly out of the USA. People are talking about treasure in the context of national wealth, but also about their savings and to define their net wealth.
I’ve heard it used, for instance; describing the colossal “treasure” squandered in Afghanistan – national resources poured down the drain. This morning it cropped up in a commentary on how PE managers are failing to deliver returns but still reap enormous fees: they “didn’t really do much to earn all the treasure”, says the excellent Robert Armstrong in his FT Unhedged comment. He equates treasure with unearned rewards.
I know little about language, but I find it a fascinating indication about how people are shifting the way they think about wealth and how it is acquired.
Treasure once referred to the wealth of kings measured in trophies, jewels and gold. These assets were a tangible representation of their fame and glory as they’d usually been acquired violently at someone else’s expense. Their henchmen and armies ensured wealth flowed up to the man at the top whether from outright theft, protection rackets or taxes. The king would fill his “Treasury” with the treasure he’d acquired.
Alternatively, read Homer’s Iliad to appreciate how “treasure” defined the heroes – yet is essentially useless in the face of death and that Achilles and Agamemnon fell out over a girl rather than the division of the shiny glistening loot.
I was brought up reading a diet of Treasure Island, Viking Sagas, Dragon Hoards and Rings of Power – lots of metaphors dealing with treasure. One particularly stands out: treasure has a distinctly piratical connotation. I want to be a pirate. I have probably read every single book about Pirates ever published. A Pirate’s success was defined by how much treasure they acquired by “liberating” it from the original owners, and by the sheer pointlessness of burying it on deserted desert islands. (And yes, this morning’s picture is me in full piratical mode at the helm of my Pirate Galleon!)
Money, Cash, Wealth, Stocks and Shares, Gold – all these words paint an image of stability. Gold and Jewels lying in stuffy bank vaults, protected, safe and secure – much like we imagine our Pension Funds to be, chock full of liquid, safely traded stocks and shares.
In contrast, Treasure conjures up an image of something perhaps ill-gotten. Here today, maybe not tomorrow. Treasure is vulnerable, squanderable, and with a distinct whiff of the impermanent – much like our Pension Savings may yet prove to be. (That’s a story for another day – how my chums in government jobs are now retiring on massive state pensions, while my pension pot is up and down on the vagaries of the market – which is largely influenced by their actions!)
The permanence of wealth vs the impermanence of treasure may be a very apt metaphor for today’s society. The US Fed recently released a paper – buried among the press releases about calming taper fees at Jackson Hole – agreeing with the data that shows QE, Monetary Experimentation, and Ultra-Low interest rates have made the rich much richer by inflating the value of their financial assets, while the rest of us are poorer. Income inequality is rising across the whole Occidental economy.
Here in the UK, the big political noise today is about the imminent end of a £20 social welfare benefit called Universal Credit. It was “uplifted” by £20 per week at the start of the pandemic to help the least well-off in society cope. It will end next month – cutting the incomes of over 5 million social benefit claimants by over £1000 per annum.
It’s not just feckless workshy nerdowells that will be impacted, but working families, small businesspeople who didn’t qualify for furlough or pandemic support loans, and it will hit millions of kids for whom £20 per week is the difference between eating breakfast or not. For 10% of the UK population £20 per week is a big, massive issue. To them it is genuine critical wealth – the means to survive or tumble into impossible debt.
For the wealthy, the relative marginal utility of £20 per week is absolutely zero. They have their wealth, security and resources, and can well regard the money they’ve made for constantly rising house prices, stock indices and booming retirement portfolios as their “Treasure”. When you get to a billion… who cares?
Remember… however much treasure they buried, Pirates were swashbuckling, wisecracking idiots. The majority ended up swinging on a gibbet. A few… a very few.. survived, usually by taking the king’s pardon and rounding up their former colleagues. (Maybe I should become a market regulator?)
All of which leads us the main thrust of this Morning’s Porridge – our ability to deceive ourselves.
Let’s think about that huge amount of treasure squandered in Afghanistan these past 20 year – best represented by the Taliban flying an abandoned Blackhawk over their victory parade. How did it happen? How did the west collectively squander however many trillions in Afghanistan?
The speed at which the well-trained, well-equipped and well-funded national army collapsed has shown it was none of these. The history of Afghanistan since 2001 has been endemic and massive corruption with the officials in power successfully milking the west. It was “enabled” by streams of encouraging reports from the Western Generals and their staffs on the ground about how the latest troop surge was effective, how well the National Army was performing. It’s been bigged-up by a plethora of NGOs all high-fiving themselves on promoting the role of women in modern Afghanistan. Yet the moment the crunch came, the Taliban walked right in a wide open door.
Afghanistan was (and remains) an exercise in self-delusion.
This week the big story in delusion is DWS. (Of course it’s a German firm – when it comes to financial embarrassment, its usually a German firm at the top of the pile.) After DWS’s head of sustainability alleged the asset manager firm had been “greenwashing” their claims of sustainability based investment and their ESG credentials – there must be a host of firms across the asset management industry worried.
The risk is a massive miss-selling scandal. Every firm claims to be green, sustainable and ESG compliant, but an increasing backlash at the Groupthink/Self-Delusion that makes firms think they are green because they say they are green is going to expose some pretty murky goings on – which may even put the personal “treasure” of some managers at risk.
Fund managers jumped on the ESG bandwagon to earn fees based on the market deluding itself that ESG is the only way forward. Leading us to the pernicious real effects of such self-delusion on markets and the real economy….
I’ve written often enough about the madness of groupthink and self-delusion in the coal industry. Yes, coal power is bad because they create CO2. But, without Metallurgical Coal to make steel, we can’t build the windfarms, solar power, hydro and tidal power or new nuclear stations to replace coal. On the basis all coal is bad – the Militant Church of ESG and a government determined to greenwash its climate change credentials, decided to stop a plan to mine, on a zero-emissions basis, Met Coal in West Cumbria.
In order to look good in terms of the UK cutting emissions ESG groupthink and government stopped the mine. They would rather lose UK jobs, import steel and coal from China and Australia, and cut UK emissions. Even an idiot would see we’ve simply exported these emissions, cut the efficiency of the economy, cut jobs, and raised the cost of creating renewable power in the UK.
The same thing is happening in Oil and Gas. Investment in North Sea oil has tumbled to the lowest level since the 1970s. Currently the UK gets nearly 70% of its oil and 40% of gas from the North Sea. Even under the most hopeful emissions scenarios we will still need both in 2050 – at which point we either have our own energy security from mitigated North Sea production, or we put ourselves at risk importing it with carbon costs from elsewhere. Few of the 18 projects currently looking for funding will get done.
Cutting emissions is critical, but putting the economy and our security at risk is not a binary equation – as the self-delusional emissions groupthink crowd seem to think.
Enough.. I am sure you get the drift. Groupthink, Self-delusion and all the nonsense that accompanies them are dangerous – and I’d rather my wealth was safe than my treasure being a risk due to rank stupidity.
Five Things to Read This Morning
Out of time, back to the day job, and have a great time this weekend…
Strategist, Shard Capital