18 Apr Listen to Lou Mannheim
Wall Street is an excellent well to draw water from. I’ve talked before about Gordon Gekko’s epitomization of how the system works. IMO, he didn’t just reflect the zeitgeist of financial speculating and cheating – he is a Machiavellian personification of the entire system itself. A rigged, crony-infested system embodied in one character.
His excellent character foil is presented in Lou Mannheim, Bud Fox’s boss who can’t compete with the allure of Gordon Gekko and the high life.
In the opening moments after all the commuters have slogged through traffic and Bud makes it to the office, Lou says, “Too much cheap money sloshin’ around in the world. Worst mistake we ever made was letting Nixon get off the gold standard.”
The film was released in ’87 and set in ’85. Ain’t it funny that all these years later, here we are again: too much cheap money sloshin’ around in the world. And it’s fiat currency not backed by anything real because, as Lou observes, we let Nixon get off the gold standard.
“Nixon unhitched the U.S. dollar from the value of gold. The move changed the global monetary system almost overnight. The eventual result was the floating international exchange rates we still use today. Think back to those days of long bushy sideburns and wide lapels. In 1971, the dollar was pegged to a price of gold set in 1946, US$35 an ounce. That made the dollar overvalued, which made U.S. exports expensive for other countries to buy, and imports cheap. The U.S. suffered its first trade deficit of the 20th century.” –https://financialpost.com/fp-finance/how-richard-nixon-rocked-the-world-50-years-ago-with-just-the-greenback-and-gold
“Today, the United States lives with federal budget deficits of more than $1 trillion each year, interest rates that are artificially held below market levels, aggregate debt that is growing much faster than the economy, and a chronic trade deficit that is larger than whole industries. Yet each of these problems could be tamed and mollified, in my view, with a true gold standard. Of course, the world used to be on a type of gold standard known as the Bretton Woods Agreement. Tracing the history of this gold standard and its demise ultimately led me to one man — US President Richard Milhous Nixon — the man who untethered the cord linking currencies to gold; the man who sold the world fiat money.” –https://blogs.cfainstitute.org/investor/2013/03/13/president-nixon-the-man-who-sold-the-world-fiat-money/
It’s easy to create too much free cash to slosh around when it’s fiat currency. Sadly, that also creates the kind of dumpster fire we currently see of a devalued dollar.
“According to the economist (Peter Schiff), banks are ill-equipped to handle a combination of a significant economic downturn and a surge in inflation. ‘So, if we have high inflation and a recession at the same time, banks are going to fail,’ he said.
As inflation diminishes the value of the U.S. dollar, people will seek to withdraw their money from banks as they won’t be able to offer an interest rate that can offset the loss, Schiff described.” –https://news.bitcoin.com/economist-peter-schiff-warns-of-us-dollar-devaluation-and-biggest-economic-disaster-in-history/
Later in the film when Bud is enthusiastically pushing Anacott Steel as part of Gekko’s revenge plan, he tells Lou that it’s a sure thing, to which Lou replies, “No such thing except death and taxes.” When Bud is not dissuaded, Lou says, “Remember there are no shortcuts, son. Quick-buck artists come and go with every bull market. The steady players make it through the bear markets.”
I often think of that when I see recruiters exit during a bear market and then come back to the business in a bull market. In order to really learn the job market and bolster your credibility, you have to take the bitter with the sweet. A lot of people can find talent when the market is hot and jobs are plentiful. The real question is – can you do it in a downturn and still be successful?
On that note, when Bud hits an impressive commission, Lou warns him, “You’re on a roll, kid. Enjoy it while it lasts ’cause it never does.”
Spoken like someone who’s seen the boom/bust cycles!
Bud takes his piles of cash and buys an expensive apartment along with every doodad he can think of and has his interior decorating/social climbing girlfriend choose equally expensive furnishings. Sounds a bit like the FOMO and YOLO we saw in 2021, doesn’t it? People buying houses without even seeing them in person. Offering more than the asking price and getting in bidding wars. And then what happened? Regret set in just as it does for Bud in the film. He imagines the hot streak will last forever, but it doesn’t.
If you have to choose between the flash of a Gordon Gekko or the stability of a Lou Mannheim, go with Lou.