I have been listening to the complete Sherlock Holmes collection, by Sir Arthur Conan Doyle. Listening to the stories consecutively, it is possible to see just how formulaic the detective stories really are – but what a successful formula it is!
The Sherlock Holmes stories all have a similar structure. They start with a mystery which seems obvious and easy to resolve, a dead body and a likely culprit. That is, apart from one small inconsistency, a curious anomaly which Holmes thinks is important, and Scotland Yard and Dr Watson notice, but overlook. For instance, there is a dumbbell missing in the room where the body is discovered, in “The Valley of Fear”. In “The Bruce Partington Papers” the corpse discovered by the side of a railway line does not have a ticket in his pocket. Or indeed in “Silver Blaze” the dog that didn’t bark in the night shows that the absence of a detail is remarkable. Only Sherlock Holmes sees the significance of these minor details, and uses it to unlock the mystery. And yet when all this explained to Dr Watson (and the reader) the solution seems obvious in retrospect.
And this seems to be how the stock market works. Share prices don’t adjust efficiently to new information – if they did the biggest moves in the stock market would be when there was a new information announced. In reality, the stockmarket can (and does) fall 20% in a day, and no one know the reason why. Sometimes the collapse is later blamed on a trader in his bedroom (flash crash 2010), or financial innovation (black monday 1987). But this can’t be the whole story, there was also a crash in the early 1960’s which John Brooks wrote about. And, of course, 1929 and 1907. Economists, like Scotland Yard, overlook these anomalies, because the facts don’t fit their theories.
Instead, of what economists theorise, what really happens the stock market takes existing information, and reinterprets the significance of seemingly small anomalies – whether it is the Greek Government debt on bank balance sheets, the impact of German supermarkets Aldi and Lidl on Tesco’s business model or the extent to which the Chinese economy has driven up the price of stuff dug out of the ground (oil, iron ore, copper but also gold). One irony of the last point is that anti capitalist blame “global corporations” for destroying the environment; the same anti capitalists rarely blame environmental damage on the rise of China, a communist country. That non capitalist countries have a terrible environmental record, is rather an uncomfortable fact for anti capitalist protesters – it doesn’t fit into their framework of thinking.
Anyway, the point is that prices do not adjust to new information, there is no new information, instead the same information is interpreted in a different framework so that it makes sense. More and more people realise that missing dumbbell is important! And a bright spark offers a coherent story which makes sense of the anomaly.
For precisely this reason I occasionally read old newspapers. The front page headlines of the Financial Times in June 1999 completely miss the internet bubble and instead the headline was
- “Greenspan hints at ‘pre-emptive’ rise in US rates”,
- “Credit Suisse plans Tokyo office shake-up” and
- “Pru axes 4,000 to prepare for stakeholder challenge”.
Aside from the headlines on the front page, it is striking how many of the companies (Compaq, Enron, Global One, even the internet bank Egg, which was supposed to disrupt banking) mentioned in the old newspaper have not survived. They were buried in the avalanche of creative destruction. So much for all powerful global corporations.
But on page 13 of the newspaper (18 June 1999) I did come across an interesting story, a curious incident which in retrospect seems obvious. Or at least it seems obvious now that several billionaires like Sir Richard Branson, Jeff Bezos and Elon Musk are taking an interest in commercialising space travel.
Alongside the Bank of England warning about hedge fund activity, and an article about the buoyant housing market, there is an article titled:
“Organised anarchists attempt to paralyse the City”
The article explains how 10,000 activists were due to join a protest against capitalism. Events on the day were to include a picket outside a branch of McDonald’s, a protest against UCI cinemas in Leicester Square, and a “carnival against capital” outside Liverpool Street Station. Activists were going to target the computer systems of Nike, Gap and Microsoft. The threat was being taken seriously enough for the British Bankers Association to have had discussions with the Metropolitan Police Computer Crimes Unit. Anarchists were planning to dress up in suits, to pass as City workers and infiltrated offices. Once inside they intended to superglue locks, chain themselves to doors, and stage sit ins. The disguises may not have worked. Ironically leaked memos sent round accountancy firms revealed that City workers were being urged to dress down, to avoid being targeted by protesters.
A few years later, I went out with a tabloid journalist. As we wandered around Primrose Hill, she admitted that one of her first jobs in journalism was to go undercover and infiltrated these anti capitalists. On the day of the protests, she had been “kettle’d” by the Police at the McDonalds in Oxford Street, and her editor was sending her text messages to get to Liverpool Street, where it was all kicking off. She told me that many of the ringleaders were in fact from wealthy backgrounds, and she pointed out to me a house in Chalcot Square Gardens, where they had made hummus with organic chickpeas before the riot. Of course, she could have been making it up, but the little details in the story gave it a lot more credibility.
And it is one such curious details in the FT story about the anti capitalists which caught my eye. The FT had interviewed someone from the Association of Autonomous Astronauts, who wished to reclaim space for the people. The AAA were going to target a company with space industry interests and present its director with a petition calling for an end to the military industrial monopoly of space travel. Space should be for everyone, not governments. Although the article is written in a neutral tone, just beneath the surface it is easy to see how crazy the detail seems. Crazy that is, until 15 years later, the idea does not seem so crazy.
Rather than anti capitalists with petitions, it is the technology billionaires that are bringing an end to the monopoly on space travel. It is interesting that technology billionaires and anti capitalists had their imagination fired by the same anomaly. I wonder what else they are seeing, and that I am missing on page 13 of today’s newspaper.