Wednesday, July 25, 2012

Barton Biggs

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (, 2009)

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.