Frank Kane
Sunday March 18, 2001
The Observer
It was a glittering night at the Grosvenor House hotel last Wednesday, as the
Masters of the Universe patted each other on the backs for their work over the
past year.
The occasion was the Acquisitions Monthly annual awards dinner, and the
assembled investment bankers, brokers and venture capitalists were celebrating
their multibillion dollar conquests - Vodafone, Glaxo, NatWest et al. But the
irony was lost on none that, as they weaved their way to collect their gongs,
the US market was sinking like a stone, following the example set by London
that afternoon.
And who was responsible? None other than the same self-congratulatory bankers
who wined, dined and danced.
They did not want it to happen, of course. No financier in full possession of
his marbles would be happy at the fact that world markets had been bombing all
year, and that the once-beloved new economy had dragged the rest of the
world's equities down in its slipstream. The value of many of the deals that
earned them their plaudits had fallen off a cliff, which was obviously not to
their advantage. But it was still their fault.
They were the ones who in 1999 and the early part of 2000 had thrown
investors' money at the new economy like confetti at a wedding; they were the
ones who had swallowed the 'next, next thing' and 'clicks not bricks' lines
with the glee of a child in a sweetshop; they were the ones who told us that
the likes of Walmart, ICI and Hanson would be swept aside at their first
confrontation with the wunderkinder of the web.
It was natural for the internet generation to be intoxicated by their own
hype, but how did they persuade the stodgy, middle-aged (mainly) men at the
Grosvenor House that their youthful ideas were worth throwing billions of
dollars at? Because this is the origin of the bear market that we are now in -
the inescapable truth is that share prices will continue to fall purely
because this time last year they were so vertiginously inflated by those same
people who were last week priding themselves on their shrewdness.
(The Mistresses of the Universe also carry their share of blame. One revealed
that she really didn't want to buy any stock at all in Lastminute.com at its
ill-starred flotation, but felt she had to - because everybody else was buying
it. So much for independent financial advice.)
Make no mistake - this is a real bear market. This not like 1987 which, in
comparison, was a short-term correction. As market veteran Brian Winterflood
recollects ('Stockbrokers ran stalls on Petticoat Lane to make money'), it has
much more in common with the long drawn-out, two-year agony of the early
Seventies, which still sends a chill down the spine of those who lived through
it. The danger is that it could yet turn into the crash of 1929, which
heralded the horrors of the Great Depression.
The market Cassandras - and there are a growing number of them - paint an
apocalyptic scenario if markets continue to fall: continuing losses on the new
economy force shareholders to sell their old economy stocks to raise cash. The
fact that much of the share buying was done on tick, with assets hocked to pay
for any dotcom stock they could get their hands, on prompts a credit crunch
that forces a crisis in the banking industry. The weakening US economy is
fatally infected by the effects of the Japanese disease, which has struck most
of Asia. Against this backdrop, the still-resilient economies of Europe stand
no chance. Result: global economic and financial depression lasting for years.
That is why the bear market matters, and why we should all be hoping that Alan
Greenspan works his interest-rate magic this week. Otherwise, the Grosvenor
House hotel might find itself with an unexpectedly vacant ballroom this time
next year.
Sell, sell, sell. A week of market madness
Line of failures feared as telecoms boom hits gloom
Japan needs another miracle to survive
'Stockbrokers ran stalls on Petticoat Lane to make money'
Guardian Unlimited ) Guardian Newspapers Limited 2001
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