2021 Wall Street Quotations

In February 2021, I decided to start a collection of quotes from Wall Street executives and pundits. 

February 9, 2021: "Now there are, with very few exceptions, no sectors that are cheap. [Yet] I think the market will gradually grind up during the year. I don’t see a correction anytime soon, unless the situation changes dramatically." -- JP Morgan's co-president Daniel Pinto (source: CNBC) [Shiller P/E Ratio 35.62]

February 10, 2021: "If there is a bubble anywhere, it is not in the equity market, it is in the fixed-income market." -- Cathie Wood, chief executive of ARK Invest (source: CNBC) [Shiller P/E Ratio: 35.59]   

February 17, 2021: from Eddy Elfenbein's blog:

Mark Hulbert has an interesting column at MarketWatch. It’s about a trio of academics who have devised a bubble-spotting formula. 

"Applying the formula the researchers derive, I calculate there is an 80% chance that the Technology Hardware, Storage & Peripherals index will be 40% lower than today at some point in the next two years... Though no other industries satisfy the researchers’ definition of a bubble, two others come close. They are also in the technology arena: Semiconductors and Semiconductor Equipment, and Software. Why focus on an industry that may be in a bubble, rather than the market as a whole? Prof. Greenwood told Barron’s that he and his fellow researchers learned from their study of the history of bubbles that they 'rarely are marketwide' events. Far more common, he said, is for a bubble to manifest in certain pockets of the market even as other sectors remain undervalued."

March 26, 2021: from Barron's, by Andrew Bary, headline: "Higher Taxes? Deficit Spending? Why the Stock Market Isn't Worried." [Shiller P/E Ratio: 35.75] 

March 27, 2021: from Bloomberg, by Ishika Mookerjee, Albertina Torsoli, and Lisa Pham, headline: "Funds Bet on a Consumer Boom to Rival 'Roaring Twenties.'" [Shiller P/E Ratio: 35.75] 

[Note: The Great Depression--and stock market crash in 1929--occurred after the excesses of the Roaring Twenties, as well as indications Germany would not honor WWI reparations.] 

April 8, 2021: from CNBC, by Kevin Stankiewicz, quoting Wharton School finance professor Jeremy Siegel: "It isn’t until the Fed leans really hard then you have to worry. I mean, we could have the market go up 30% or 40% before it goes down that 20%... We’re not in the ninth inning here. We’re more like in the third inning of the boom." [Shiller P/E Ratio: 36.81] 

April 11, 2021: "The path of least resistance for US equities remains higher." -- Bill Miller, CFA (S&P 500 4128.60)

April 15, 2021: "From a traditional perspective, the market is fractured and possibly in the process of breaking completely." -- David Einhorn 

May 23, 2021: "In real terms, the home prices have never been so high. My data goes back over 100 years... I don’t think that the whole thing is explained by central bank policy. There is something about the sociology of markets that’s happening." -- Robert Shiller, CNBC.com [Shiller P/E Ratio: 36.86] 

Capitalism's Flaw: a Cycle of Failure then Possible Rebirth

Sadly, capitalism has become a dirty word in some circles, especially amongst young Westerners. I don't blame them. If my best-case prospect was 30,000 USD in debt (credit, car, and student loans) by the age of 24, I'd be against the system, too. 

But capitalism isn't the problem per se--it's the way adults have engineered the economic system with lenient banks. Too many people fail to realize how much the U.S. dollar--or any empire's currency--has been propped up by military force and the slave trade. 

The United States and Mexico, 1821-1848 ((c) 1913, 1969)
by George Lockhart Rives

Most young people do not know that England occupied Havana, Cuba in 1692 in part because of its strategic port; that Guantanamo Bay and Hong Kong are consequences of superpowers legally occupying weaker countries to perpetuate subservient relationships; that a treaty, Utrecht in 1713, specifically gave the British an exclusive license to take captured slaves to the Americas for sale and labor; that in the next phase of empire handover, Spain hastened its decline by supporting the English against France (choose your allies carefully, especially in wartime, when shifting allegiances are common); that the idea of absolute monarchy only crumbled in 1812 thanks to both French and American Revolutions; or that Mexican law (as of July 13, 1824, before America's 1863 Emancipation Proclamation) prohibited the slave trade; that the March 11, 1827 Constitution of Coahuila (Mexico) and Texas expressly declared, "in the [Mexican] state no one is born a slave"; that America invaded Nicaragua in 1912, Haiti in 1915, and the Dominican Republic in 1916 (because the Dominican Republic owed Wall Street money); and so on. 

Averell "Ace" Smith in Commonwealth Club Magazine (2019)

The American conquest of Mexican territory in 1848 is significant in that it created a playbook for Wall Street involvement: 1) create a pretext to invade; 2) take territory from the weaker country; and 3) force the country to go in debt in your currency. 

Published by Colegio de Mexico

This same playbook backfired severely in Germany when dominant powers imposed financial terms and conditions paving the way for demagogues, who always arrive with scapegoats in hand. (Ironically, it was a German philosopher, Immanuel Kant, who created a universal moral law in 1785 that should have assisted future German populations: "Act in such a way that you treat humanity, whether in your own person or in the person of another, always at the same time as an end and never simply as a means.") In those days, the world learned from its mistakes post-WWII, creating a Marshall Plan that led to defeated Germany and Japan becoming superpowers and stable trade partners. Today, no one believes Iraq--attacked and invaded twice by the United States--will ever become a superpower or more than an oil supplier. 

Domino effect on debt non-repayment usually leads to a crisis.

Whither Western capitalism? Within historical context, it's hard to believe capitalism has ever worked an honest day in its life. To recapture the hearts and minds of young people all over the world, capitalism needs honest, sincere politicians, diplomats, and journalists. Currently, all of the aforementioned are MIA. Until that changes, we might as well prepare the obituary of capitalism--and our young. 

© Matthew Mehdi Rafat

Bonus I: John Swinton, late 1800s: 

I made the acquaintance of Wendell Phillips and found that he, too, had come to similar conclusions. He believed that the capitalist system was steadily undermining the world and bringing his countrymen into a condition quite as wretched as that of the slaves; and he vehemently condemned it.

Bonus II: Wendell Phillips (1861): 

I think the first duty of society is justice. 

The nation which, in moments when great moral questions disturb its peace, consults first for its own safety, is atheist and coward... Slavery has made our churches of Christ to churches of commerce. 

Despotisms are cheap; free governments are a dear luxury--the machinery is complicated and expensive. 

Were safety or security the first objective of human society, this principle, "if unlimited, false... [and] unqualified, it justifies every crime, and would have prevented every glory of history... But grant it. Suppose the Union means wealth, culture, happiness, and safety, man has no right to buy either by crime." 

Look at our history. Under it, 700,000 slaves have increased to 4,000,000. We have paid $800,000,000 directly to the support of slavery. This secession will cost the Union and business $200,000,000 more. This loss which this disturbing force has brought to our trade and industry, within 60 years, it would be safe to call $500,000,000... slavery has been strong enough to rule the nation for sixty years, and now breaks it to pieces because it can rule no longer. 

Bonus III: Alexander Hamilton: "Justice is the end [goal] of government. It is the end [goal] of civil society." 

Derivatives Trading: a Dangerous Game

[Note: this post has been updated since its original publication.]

HERE is one of the best-written articles on the 2008-2009 financial crisis [Washington Lawyer, June 2010]. The numbers in Anna Persky's article are breathtaking, and not in a good way. I've added some other numbers, including two interesting numbers from a recent Economist issue.

300 trillion. The CFTC's Chairman "[Gary] Gensler has estimated that the [2010] OTC derivatives market is worth $300 trillion." If you think that's a large number, brace yourself: according to The Summer 2010 edition of The Hedgehog Review, The Bank for International Settlements in Basel, Switzerland estimated that at the end of 2007, the market for unregulated derivatives was $1 quadrillion.

54.5 trillion. The net worth of U.S. households on or around August 2010 was approximately $54.5 trillion, according to "The Globalist Quiz" (re-published by the San Jose Mercury News on August 8, 2010).

47 trillion. According to a July issue of The Economist, the total value of stock trades executed on the American stock market in 2009 was $47 trillion. American stock markets were "the world’s most active, with shares worth nearly $47 trillion, thrice the market capitalisation, changing hands during the year."

45 trillion. "The market size for credit default swaps increased rapidly—-by 2007 the market had a notional value of $45 trillion, about twice the size of the U.S. stock market."

15.1 trillion. According to a July issue of The Economist, the total market capitalization of the American stock market at the end of 2009 was $15.1 trillion. Also, people traded American-listed stocks so many times in 2009, by the end of the year, the value of their stock trades totaled three times the value of the entire stock market. (See 47 trillion number, above.) And yes, in 2007, just the market for credit default swaps was three times the value of the entire stock market at the close of 2009. Shadow banking, indeed.]

14.2 trillion. According to "The Globalist Quiz," re-published by the San Jose Mercury News on August 8, 2010, the U.S. GDP--the amount of the goods and services produced by all Americans in a given year--stands at around $14.2 trillion.

13.2 trillion. According to the U.S. National Debt Clock, as of July 2010, our national debt was approximately $13.2 trillion.

9 trillion. According to Niall Ferguson's book, The Ascent of Money, "Between 1997 and 2006, US consumers withdrew an estimated $9 trillion in cash from the equity in their homes. By the first quarter of 2006 home equity extraction accounted for nearly 10 per cent of disposable personal income." (page 267, paperback)

1 trillion. At the end of fiscal 2008, states had a $1 trillion funding shortfall in public sector retirement benefits. From the Pew Center: "There was a $1 trillion gap at the end of fiscal year 2008 between the $2.35 trillion states had set aside to pay for employees' retirement benefits and the $3.35 trillion price tag of those promises."

992 billion. From ABA Journal, page 59, March 2010: "[R]evolving credit grew from $48 billion in 1978 to $131 billion in 1985 and reach[ed] a high of $992 billion at the end of 2008."

434 billion. "Between 2004 and 2006, Freddie Mac and Fannie Mae, government-chartered mortgage finance firms, purchased $434 billion in securities backed by subprime loans."

On Complexity: “The beauty and the danger of derivatives is that you can create almost anything, and the degree of complexity that is available is almost limitless,” says Robert A. Wittie, a partner specializing in securities finance and investment management at K&L Gates. “Used properly, that can be terrific. But it can become very opaque. It can be hard for investors to understand the assets they are buying.”

Passing the Buck: “When you tell someone that they can sell a hand grenade with the pin out, but they don’t need to worry about it because someone else will own it when it goes off,” [Attorney Philip] Johnson says, “you get a lot more hand grenades with the pin out being sold.” [I've talked about this attenuation problem in detail HERE.]

Canaries in the Coal Mine?: Orange County went bankrupt in 1994 after its treasurer "invested the funds in a leveraged portfolio of mostly interest-sensitive derivatives contracts." Then came Barings Bank in 1995 and LTCM in 1998. The LTCM disaster required a 3.6 billion dollars bailout, which now looks like a paltry sum. In 2001, Enron declared bankruptcy in part due to its derivative trading.

The Fed Asleep at the Wheel?: In 2008, Alan Greenspan emphasized that, excluding credit default swaps, the “derivatives markets are working well.” [Earlier, in 2003, Warren Buffett called financial derivatives “weapons of financial mass destruction.”]

Will the recently passed financial regulation help prevent future problems? On July 15, 2010, CFTC Chairman Gensler said: “The Wall Street reform bill passed today is historic and comprehensive. Over-the-counter derivatives dealers will – for the first time – be subject to robust oversight for their derivatives activities. Standardized derivatives will be required to trade on open platforms and be submitted for clearing to central counterparties. This will greatly improve transparency and lower risk in the marketplace. I look forward to the President signing this crucial legislation. The CFTC stands ready to implement the Dodd-Frank [Wall Street Reform and Consumer Protection] Act to best protect the American public.”

What took Congress so long?

Mary Elizabeth Lease on Wall Street

From Mary Elizabeth Lease:

Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street...Our laws are the output of a system which clothes rascals in robes and honesty in rags.

The full speech, in all its American glory, is below:

This is a nation of inconsistencies. The Puritans fleeing from oppression became oppressors. We fought England for our liberty and put chains on four million of blacks. We wiped out slavery and our tariff laws and national banks began a system of white wage slavery worse than the first. Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street. The great common people of this country are slaves, and monopoly is the master. The West and South are bound and prostrate before the manufacturing East. Money rules, and our Vice-President is a London banker. Our laws are the output of a system which clothes rascals in robes and honesty in rags. The [political] parties lie to us and the political speakers mislead us. We were told two years ago to go to work and raise a big crop, that was all we needed. We went to work and plowed and planted; the rains fell, the sun shone, nature smiled, and we raised the big crop that they told us to; and what came of it? Eight-cent corn, ten-cent oats, two-cent beef and no price at all for butter and eggs-that's what came of it. The politicians said we suffered from overproduction. Overproduction, when 10,000 little children, so statistics tell us, starve to death every year in the United States, and over 100,000 shopgirls in New York are forced to sell their virtue for the bread their niggardly wages deny them... We want money, land and transportation. We want the abolition of the National Banks, and we want the power to make loans direct from the government. We want the foreclosure system wiped out... We will stand by our homes and stay by our fireside by force if necessary, and we will not pay our debts to the loan-shark companies until the government pays its debts to us. The people are at bay; let the bloodhounds of money who dogged us thus far beware.

Did you catch the part about the national banks? This speech was delivered around the year 1890. The more things change, the more they stay the same.