Without Comment

Brilliant article in the Financial Times today. Dripping with sarcasm and wit. Alas its a bit technical and you'll enjoy it immensely if you have a bit of background in finance, but even otherwise its a good read. 

For those not in touch with American politics or high finance -

John Corzine is a former head of Goldman Sachs. He was deposed by Henk Paulson.  Corzine then became a Senator from New Jersey and then Governor. He got defeated in the election in 2010, by Chris Christie who is the current Governor of New Jersey. After his defeat in the election, Corzine became Chairman of MF Global which has just declared Chapter 11 bankruptcy.

Who is Deven Sharma ?

If I told you that the most important person in the world now is Deven Sharma, you are most likely to be flabbergasted. Deven who ?? I am absolutely certain that not one reader of this blog has heard of him before. In fact I am sheepishly admitting that I had not heard of him either, one week ago. And yet for the next one week, he may actually be the most important man in the world.

Of course, this is hyperbole. But then what is journalism (ha ha) without some excessive exaggeration of reality. You can debate about the "most important man in the world" bit, but the actions of him and his organisation are certain to affect the world very profoundly in the week to come.

Deven Sharma is the President of Standard & Poor's one of the world's three premier credit rating agencies - Moody's and Fitch being the two other. In a short while, all the three agencies have to take a call on downgrading of America's Tripe A rating.

The drama in America on the debt ceiling goes on. This weekend, it has to come to a climax.  There is still a real possibility that the debt ceiling will not be raised, which means that come Tuesday, America will be in crisis, as will the rest of the world. This must be the outcome the three credit rating agencies must be secretly hoping for , as it makes their decision easy and non controversial - an immediate downgrading of America's debt. But the greater (barely) possibility still is that some highly sub optimal deal is struck and the ceiling raised. At which point the rating agencies have a problem on their hands. They need to decide.

The grapevine is that Moody's and Fitch are likely to preserve America's triple A rating. But S&P is tending more towards a downgrade. Deven Sharma and his team then have an important decision to make. If they downgrade, that symbolic act will probably be the last straw on the camel's back and financial mayhem is likely to follow.

The rest of the world has already downgraded America's debt in their minds. But everybody is waiting for that last straw before they can stampede. Something symbolic that will then trigger a chain of events that will be felt throughout the world. 

How has it come about that a hitherto unknown Indian American holds the key to what might happen to the world very shortly. OK may be "just a little" exaggeration, but I am afraid, not far from reality.

Beware of the super performers !

The mantra of all business (actually most walks of life) is superb & outstanding performance isn’t it ? It shouldn’t ! If this sounds absolutely ridiculous, read on …

Everywhere, the great performers are the stars. They are the ones who get big bonuses. They are the ones who get promoted lightning fast. The division that shows triple digit growth is treated akin to God. The bunch that didn’t meet its target is screwed. The lot that exceeded target by 354% is taken on an all expenses cruise to Hawaii. Right ? Maybe not so right.

One of my blogging friends took a light hearted dig at me for a mantra that features about once every month in this blog – If its too good to be true, its too good to be true ! I have learnt over the years to watch out for superlatives. Good performance – absolutely the minimum. Better than good performance; holy grail. But superfantasticstupendousunbelievable performance ? Take it with a huge pinch of salt.

One of the truisms in the business world is that there are a lot of smart people and lot of smart companies around. Its difficult to beat everybody all the time. It’s the same as in the stock market. Nobody can consistently overperform the index over say 20 years. Not even Warren Buffet. The right investing strategy is to pick an index fund and simply hold it for a long time. Actually all the smart alec fund managers are redundant. In the short run, you can beat everybody by a mile. In the long run it is empirically proven that its tough to beat the index. Good performance is the goal – not superfantastic ….

This post was prompted by the news of the sale of AIG’s Asian businesses to Prudential for $ 35bn. This business, called AIA is a star in Asia. It’s a solid business, performs very well, growing very well, etc etc. In fact most of AIG is like that. Its full of very well run businesses. One division – the Financial Products Division brought the whole house down. They were actually star performers in the years before. The Board should have looked critically at the “star performer”, instead of treating them as royalty. But then business, as indeed life, is full of "If only ...".

I am not making a case for mediocrity. Far from it. I am just cautioning not to go ga ga on exceptional performance. Look at it critically. Is it sustainable ? Was too big a risk taken ? Has there been jugglery with the numbers ? Is something being hidden ?

Superfantasticstupendousunbelievable is applicable only to God. When man lays claim to it, …. Beware. Watch out.