The flipside of disaster and despair

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About 10 years ago I was in an elevator with Chubb Rock, the rapper. Our apartments were next to each other in the hotel we lived in. And that’s the last time I will mention Chubb here, except to say that everything was possible in the 1990s in New York City.

Economic growth was oozing out of the sidewalk and seeping into the cafes, onto the backs of napkins in diners, into the offices that were springing out of previously warehouse-ridden areas of the city. Everyone was raising money.

But for what? For some of the stupidest ideas you’ve ever heard: portals for left-handed sports lovers, Geocities wannabes, even calendar sites. As an aside, I invested in a calendar site, Yourday.com. It was bought for breakeven (in restricted stock) by Deltathree, a voice-over- internet company, when the stock was at $27. As I write, it is at 84 cents.

(As a further aside, there’s the urban rumour that the first online calendar was made by a New York University student in the mid-1990s and was bought by Yahoo in 1996 for $10m. I don’t know if this is true or not). Everything was insane and everyone was on an Indiana Jones-style hunt for the Lost Ark, filled with money.

I miss those days. It is rare that the world we live in melds with the land of Oz, where wizards and witches grant immortality, love or wisdom on those they favour. I feel like I squandered that magic, or didn’t quite know what to do with it, and only in brief moments can summon it up again for a spell or two.

Is it an age thing? I’m 10 years older after all. Or are the 2000s different, with worry and fear dominating instead of hope and greed?

There is nothing wrong with greed. It creates railroads, grows beautiful tulips, builds underwater cables to Europe. But now I hear otherwise smart people tell me the “consumer is dead”.

People are worried about “subslime”, in spite of it being 1 per cent of all mortgages. Some people are concerned about “inflation”, in spite of the Commerce Department price gauge being up only 1.9 per cent from a year earlier. Others seem to be worried about “deflation” because housing is going down the drain and people will stop buying fireslate kitchens.

What happened to Y2K? That was the worry of the 1990s, while the early 2000s gave us bird flu. The occasional hurricane would rip through, and we could worry about that.

But now we have real things to worry about. You’re going to lose your house, for instance. I don’t care that you’ve been making your payments and you have a fixed-rate loan. Turn on the television or read the newspaper for God’s sake. You’re going to lose your house! Wake up!

OK, I give up. I’ll be worried also. In fact, I’ll do all of the worrying for all of us. Let’s find some stock plays that can make money from the worries.

Let’s be frank. It is hard to get a loan. Five weeks ago you could have called up your bank and said “I have a gun pointed at my head and will shoot unless you lend me $1m.” And it would have given it to you with a 2 per cent adjustable-rate mortgage.

Now, everyone I know has suddenly been categorised as subprime. You need 40 per cent down and maybe the rate will be 8 per cent.

So if you need money, no problem. Take off your gold-plated watch and go down to your local Cash America pawn shop. They will be happy to loan you the money at a high interest rate. They are like the Starbucks of pawnshops. And by the way, the president of the company just bought $1m shares of stock.

Worried about all the distressed debt out there? No problem. Load up on some great investors, such as Leucadia. I have no idea what they are up to, but my guess is they are backing up the truck on distressed debt marked inappropriately at pennies on the dollar, while hedge funds dump that paper.

Worried about your power going out in a hurricane if you live on the coast of Florida? I have a solution for you: Clean Harbors makes the gas generators to replace that power. They cleaned up in the 2005 hurricane season and will do so again.

Worried about being caught while doing drugs in the workplace? Hedge your bets by investing in Psychemedics, the company that does the drug testing for 10 per cent of the Fortune 500 and pays a 3.5 per cent dividend. They are like the Starbucks of drug testing. And don’t worry, they have paid their dividend for 44 quarters in a row. They won’t miss now.

I miss the 1990s. To misappropriate Robert Frost – from what I’ve tasted of desire, I hold with those who favour fire.

james@formulacapital.com

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