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Just don't feed the monkeys.

Byline: John Kennedy

(Category: )

HAVE YOU ever drawn the short straw? Ever been selected from an audience of thousands to assist a bunch of clowns as the hapless patsy in their routine? I wasn't even anywhere near the front row in Eleftheria stadium when the Moscow state circus honoured me in that l way.

Recalling that memory, I did feel sorry for a friend and colleague who this week delivered a series of lectures to Nicosia suits. The subject was the mechanics and application of complex financial instruments in the stock market.

He'd signed up for this months ago before the markets imploded. Following a frantic rewrite, he did a splendid job by all accounts. He'd adapted well, though I believe the questioning was more intense and pointed than usual. It's never easy explaining finance to a lay audience, let alone from the wreckage of the current crash.

For me the simplest and most appropriate stock market analogy involves monkeys.

ONCE UPON a time in a village, a man appeared and announced to the villagers that he would buy monkeys for e1/410 each.

The villagers, seeing that there were many monkeys around, went out to the forest and started catching them.

The man bought thousands at e1/410 and, as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at e1/420 for a monkey. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer increased to e1/425 each, and the supply of monkeys became so small that it was an effort to even find a monkey, let alone catch it.

The man now announced that he would buy monkeys at e1/450! However, since he had to go to the city on some business, his assistant would now buy on his behalf.

In the absence of the man, the assistant told the villagers: "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at e1/435, and when the man returns from the city, you can sell them to him for e1/450 each."

The villagers rounded up all their savings and bought all the monkeys.

They never saw the man or his assistant again, only monkeys everywhere!

That's the gist of it. Repeat the process in villages around the world and throw in loads of borrowing to bring the story up to date. The mess we are now left with will take economies many years to recovery. Not so the men buying and selling the monkeys.

I've already received a marketing promotion from a bank showing how they have lost only $18bn! They compare this to 14 other banks that have all lost much more (the worst, Citigroup, stands at $173bn). Well done lads. We've seen this before on our very shores.

Saville Row dandies flying in to present seaside money seminars to bemused expats. Their French cuffs stabbing at graphs illustrating how their investment fund has beaten the benchmark by 10 per cent. Closer inspection of course reveals that the benchmark is in fact down 20 per cent meaning that they have only lost 18 per cent of your hard-earned saving. Hurray! Bonuses and fees all round!

The spin doctor marketing men are already out in force. Its funny how many stockbrokers, who rely in share sale commissions, are calling this the bottom of the market. "Now is a great time to buy", "there is value everywhere" and "fortunes will be made by the brave". I've never heard them say any different regardless of the economic conditions.

Banks whose capital values have been decimated by greed and incompetence will soon be accentuating the positive. "Having streamlined our operation," they'll gush, "we are now positioned to respond to market opportunities with speed and agility." "Invest and grow with us." Here we go againC*

"On my own to walk along the lonely street of dreams," as Whitesnake might have addedC* Now where was I? Oh yes, money.

We'll need to be on our guard. Remember the basics and that the game is rigged. Otherwise we'll be the monkeys this time round.

Copyright Cyprus Mail 2008

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Publication:Cyprus Mail (Cyprus)
Date:Nov 16, 2008
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