Thursday, February 21, 2013

Planning the Next Economic Catastrophe

At first I thought that Don Reisinger's column this morning for the Apple division of CNET News might be little more than a vanity piece for trends in the technology sector. That, at least, was the impression of the opening paragraphs:
For three years in a row, Apple was the most popular stock among hedge fund managers, but according to new data from Goldman Sachs, it's on the decline. 
Goldman Sachs' data, which was obtained and reported on by AppleInsider, indicates that insurance giant AIG was the most popular hedge fund pick last year, with 80 funds holding its shares. Google came in second place with 73 funds. Apple, which had previously led the space, is down to 67 funds. 
Apple's declining popularity among hedge fund managers might have something to do with its ability to deliver returns. According to Goldman Sachs data, at the end of 2012, Apple delivered a total return of negative 12 percent. AIG and Google, meanwhile, were delivering an 11 percent return on shares.
However, it was in the fourth paragraph that things begin to get interesting:
Hedge funds buy up massive amounts of company stock, believing that shares will rise. When they believe shares will fall, they reduce their positions. Over the last year, Apple's shares are down nearly 11 percent to land at $448.85. That's a far cry from Apple's 52-week high of $705.07.
Considered in the context of the third paragraph, this makes for disconcerting reading. Hedge fund logic is driven by the immediacy of the present, uncontaminated by any historical knowledge. Had it been otherwise, one would have anticipated some reluctance to let AIG back into the pool, considering the critical role they played in the economic catastrophe of the last decade. Mind you, television viewers have probably seen some of the commercials promoting the "new" AIG (strategically placed so as not to run too close to the ones promoting the "new" BP).

Nevertheless, this provides a new angle on the proposition that businesses care more about their shareholders than they do about either their customers or their own employees (at all levels of authority). When a hedge fund makes a commitment, it does so in a big way, big enough to make all other shareholders less significant, if not irrelevant. Ultimately, this story discloses just how it is that economic catastrophes happen. In the simplest of terms, the economic fate of our country is in the hands of a small number of gamblers who play with a very large number of chips. Calvin Coolidge's motto that the business of America is business no longer carries any meaning. The real business of America has been reduced to this elite form of gambling. For the rest of us, the future lies in the hands of those gamblers; and there is not a thing that we can do about it (nor does our government seem to show any sign of imposing new regulations that would take power away from those gamblers).

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