Barton Biggs (1932-2012) will be remembered by most of
us for the words he wrote as strategist at Morgan Stanley. He worked at the
firm for 30-odd years. He did not waver in his dismissal of Internet bubble
promoters. At the same time, Morgan Stanley deserves credit since it did
not fire Barton Biggs, Byron Wien, or Stephen Roach during that period when
most Wall Street firms replaced nourishment with treacle.
Two events come to mind.
In the summer of 1999, Barton Biggs debated James K.
Glassman. This was the high summer - or, at least, the final summer - of the
Internet bubble. It was obviously ridiculous but there was still time to get
rich quick. To quote myself: "During the first four months of 1999, the
average first-day percentage gains on IPOs were 271% (in January), 145%
(February), 146% (March) and (119%) in April. More to the point is the lack of
any operating record on the part of these enterprises. They were often no more
than lavish compensation schemes for the promoters. Many of the companies had
never earned a cent; quite often, they had never sold a thing; and not
infrequently, they had neither a product to sell nor intended to develop a
business.
"The book that captured the national idiom was Dow
36,000, by James K. Glassman and Kevin Hassett. They posted a preview on
the editorial page of the Wall Street Journal on March 17, 1999:
"Our calculations show that with earnings growing in the long-term at the
same rate as the gross domestic product, and Treasury bonds below 6%, a
perfectly reasonable level for the Dow would be 36,000 - tomorrow, not 10 or 20
years from now."
The debate between Biggs and Glassman is a classic example of people believing
what they want to believe while ignoring the proverbial elephant in the room.
Of course, in 2012, the obvious catastrophic consequences of central banking's
destruction of the world's currencies as well as stock, bond, and commodities
markets are not up for discussion.
Barton Biggs was considered a nuisance or maybe senile
by the stock touts, since he was "perennially bearish." The phrase
seemed attached to his name. He was always "the perennially bearish Barton
Biggs." Glassman argued the Internet was the most important
invention of the twentieth century. Biggs probably thought Glassman was an
idiot, but was more diplomatic. Biggs made some obvious comments: air
conditioning was more important - Atlanta and Singapore would be small towns
without it. The audience voted. Glassman won: 80 to 2. Biggs' received a vote
from his wife. Biggs later wrote that Glassman and Hassett "should be
ashamed of themselves." Both were scholars who "were arguing [what]
was patently ridiculous."
(As a side note, the greatest stock jockey of them
all, Federal Reserve Chairman Alan Greenspan, even at this stage of constant
media manipulation, sided with Biggs. On May 6, 1999, the reprobate had said:
"I do not say we are in a new era, because I have experienced too many
alleged new eras in my lifetime that have come and gone.... There was far
greater justification to view the future with the unbridled optimism of a
presumed new era a century ago.... In a very short number of years the world
witnessed an astounding list of new creations: electric power and light,
radios, phonographs, telephones, motion pictures, x-rays, and motor vehicles,
just to begin the list.")
The former Marine Corps infantry officer (Biggs, that
is) was already a remnant. It was put to me: "1994 seems to me now the
year when Wall Street broke from its moorings. Brokerage firms were losing
their older 'customer's men.' The senior ranks on Wall Street had included a
lot of Marine Corps and Naval officers from World War II and the Korean War.
They kept it simple. They put their customers first. Those role models were
leaving and there was a vacuum. It was every man for himself and if you didn't
like it you either left or were forced to leave." This is not a phenomenon
isolated on Wall Street. Self-control has disappeared en masse. (For
more about that annus horribilis, see "Is it
1994 Again?" and "Sidelights
to 1994."
In the April 11, 1994, issue of Barron's, Alan
Abelson quoted from Barton Biggs' weekly letter to Morgan Stanley clients. Quoting
Abelson (omitting ellipses): "In his latest epistle for Morgan Stanley,
the incomparable Barton Biggs reflects on secular bear markets: "Secular
Bear Markets Ain't No Fun." A secular bear market, in Barton's definition
is a biggie - the major stock averages decline at least 40%. [Biggs counted
seven secular bear markets in the twentieth century - FJS] He finds it
'unnerving' that all the secular bear markets came out of the clear-blue
economic sky. In each and every case, he goes on, stocks were overvalued and
greed was rampant.
"The one secular bear market of modern times came
in 1973-1974. 'The Nifty-Fifty was decimated, with declines of 60% common and
some wipeouts like Avon (135 to 18), Polaroid (70 to 6) and Corning Glass (61
to 13). The broadest measures of equities at the time - the Value Line
Composite, which peaked in December 1968 - was down 75% six years later.'
"And then Barton remembers what that secular bear
market was like. 'For me it was waking up every night in the spring of 1970
like clockwork at 3 a.m. in a cold sweat and agonizing the rest of the night
over our portfolio. (I was a hedge fund manager then.) In the summer and fall
of 1974 when the declines were endless day after day, you seriously wondered
how you were going to support your family and where you could get a job outside
of Wall Street. There were no answers. People you knew in the business -
salesmen, money managers - just disappeared, and years later you heard they had
moved to Indianapolis and were teaching seventh grade.'"
Glassman and Hassett thrive in an America without
moorings. This illustrates a defining characteristic of our times. Dow
36,000 turned them into celebrities. It was published at the moment it
would receive the greatest applause. The opportunists could not have been
more wrong if they tried. The media noise for Dow 36,000 would turn them
into greater celebrities.
They continued to promote themselves on the Wall
Street Journal's op-ed page:
"Dow
36000? It's Still a Good Bet"
-Glassman
and Hassett, Wall Street Journal, Headline of Op-ed, March 20, 2001
"Diversify,
Diversify, Diversify"
-Glassman
and Hassett, Wall Street Journal, Headline of Op-ed, January 18, 2002
"[Glassman
and Hassett] maintain it isn't their fault that people now focus only on their
optimistic title and not on the caveats.... 'If you didn't have a sensational
conclusion that follows from reasonable steps, people wouldn't pay attention,'
Mr. Hassett says....Mr. Glassman sounds less sure about the title. 'That's the
only thing about the book I'd consider changing,' he says."
-"Dow
36,000 Gurus Hold to Their View Amid Downturn" Wall Street Journal,
July 29, 2002
"When
our book, Dow 36,000 was published in September, 1999, the Dow Jones
Industrial Average stood at 10318. The Dow closed yesterday at 8736. What went
wrong? Actually, nothing."
-Glassman and Hassett, Wall
Street Journal, August 1, 2002
"[W]hile
such signs of speculation are troubling, there is little solid evidence that a
real estate bubble is puffing up."
- James K. Glassman, "Housing Bubble?," Capitalism Magazine, May 24, 2005
Glassman would later say 36,000 was a long-term
prediction: See Wall Street Journal quote from March 17, 1999.
Glassman & Hassett went on to star at the American
Enterprise Institute, a think tank in Washington. Glassman was Undersecretary
of State for Public Diplomacy and Public Affairs for President George W. Bush.
In this capacity Glassman led "the State Department's struggling efforts
to improve the U.S.'s image abroad" particularly "in the Muslim
World." Hassett was an economic adviser to John McCain in his 2008
presidential campaign.
The world is their oyster. The apathy and sense of
defeat among the American people is aggravated by witnessing the unflagging
success of those who have behaved the worst and the amoral behavior of the
hallowed institutions that promote them.
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