Keynote speaker Barry Ritholtz address last week’s financial seminar at the Ritz-Carlton Grand Cayman.  Photo by Steven Knipp

By Steven Knipp
steve@caymannetnews.com

An audience of more than 300 concerned business people crammed into the Ritz-Carlton, Grand Cayman, ballroom on Thursday, 21 January for an in-depth, all-day financial seminar titled: “Global Crisis: From Disaster to Painful Recovery.”

The Fidelity-sponsored event began with an introduction by H.E the Governor, Stuart Jack.

Among the keynote speakers was Barry Ritholtz, author of the just published ‘Bailout Nation: How Easy Money Corrupted Wall Street and Shook the World Economy’.

He is also CEO and Director of Equity Research at FuisonIQ, an online quantitative research firm. Previously, Mr Ritholtz was Chief Market Strategist for the New York investment bank, The Maxim Group, managing over $5 billion in clients’ asset.

Another of the main presenters was Todd Buchholz, former Director of Economic Progress at the White House, a managing director of the $15 billion Tiger hedge fund, and an award-winning economics teacher at Harvard. He has also authored a number of books including the best-selling ‘New Ideas from Dead Economists.’

Mr Ritholtz told the audience, “We never took the full hit, and the full effect, of the burst IT bubble back in 2000, and what has been happening recently is really the residue of that whole mess.”

He went on to paint a dire picture of the current economy.

“For US retailers, this was absolutely the worse Christmas in 40 years. Our GDP will probably contract by 4.5 to 5 per cent. Two million jobs have been lost in the US, and probably another two million more will be gone in the months ahead. And we will surely see lots of Wall Street jobs disappear— probably 20 to 25 per cent of those jobs will just disappear,” he said.

“In the past, the US auto industry sold between 15 and 27 million units annually, but now they’re only managing to move about 10 million units. A lot of people might say, ‘Oh well, GM makes crappy cars.’ But contrary to popular belief, it’s not just American cars. Sales for Toyota, Audi and Volkswagen, are also all down, though not by as much.”

The financial bleeding, Mr Ritholtz noted, has seeped into virtually every sector of the economy.

“Pharmaceutical companies are now cutting back on their research and development by as much as 15 percent. This means less study will be devoted to finding the causes of things such as AIDS, cancer, and diabetes,” he said.

“College endowments have also been cut, because alumni have not been doing as well as they might have before the recession. Endowments to Harvard and Yale have dropped by 30 percent, this means less research, and fewer professors.”

Giving advice on how to ride out the storm, Mr Ritholtz told his audience: “Investors really need to think short time, for the foreseeable future. Unless you want to buy only after a big sell-off. And then you will have to steel yourself not to look at it [your investment] for a very long time, until things start to look up again.”

Mr Ritholtz was followed by Todd Buchholz, who told his audience that the present crisis was created not only by the internal weaknesses in the US economy, but also by a ‘perfect storm’ of international developments.

“When the Berlin Wall finally fell, and Eastern Europeans were suddenly free to do what they wanted, they were able to enter the job market, and this meant that many millions of new workers were available, all to compete against the highly paid workers of the West,” he said.

“And when you add in the huge emerging markets of both China and India, you’re not talking about millions more workers, but billions of more people suddenly being added to the workforce. All of them willing to work for lower wages than in the West. We are now in a ‘hyper-competitive’ world. This is something that we’ve all been hearing about, but have not fully comprehended.”

In spite of such international causes, which exacerbated the current economic woes, Mr Buchholtz stressed that much of the problem was self-inflicted.

“Millions of people in America were saying ‘Even though I’ve never saved any money in my life, I want a four-bedroom house and a Jacuzzi’ and too often the lenders were willing to do that. People were not even asked to show their incomes,” he said.

Mr Buchholz then related the story of AP Giannini, a young Italian-American in San Francisco who first worked as a fruit dealer, before eventually opening his own bank. After the infamous Earthquake of 1906, his was the only bank that was able to immediately reopen.

Mr Giannini was also one of the first bankers to offer services to working class Americans, rather than only to the wealthy.

His courage and confidence, and innovative ideas, and his work ethic, are something to aspire to, said Mr Buchholz. “He taught us how to act in tough economic times,” he added.

Meanwhile, the bank that AP Giannini formed eventually became Bank of America.

By comparison to Mr. Giannini’s example, Mr. Buchholz said that just before the housing bubble burst, bankers in Arizona believed that 200,000 people were moving into their state.

“They thought this because they only counted the new homes being built. But they never bothered to check to see if anyone was actually buying the homes. In fact, only 85,000 people were moving into the state, a huge difference from 200,000,” he said.

Like his colleague Barry Ritholtz, Mr Buchholz also didn’t sugar coat his view of the current economic mess.

“Retail sales in the US have almost collapsed. If you walk though some stores, they’re empty,” he noted. “In the UK, I recently read that the Tooth Fairy was slashing her rates; before, she used to leave a Pound-twenty for each tooth, now it’s down to just a Pound.”

But there is some good news, Mr Buchholz insists.

“Yes, some stores are hurting but not all of them. Wal-Mart is doing fine. The problem is that our rich friends don’t go to Neiman-Marcos these days – instead they’re all lining up at Wal-Mart to buy ten pairs of socks for $12. The job market is worrying,” Mr Buchholz said.

“But it’s not as bad as the headlines claim. Ignorant financial reporters call this the second Great Depression. I call it the Great Depression hoax. The good news is that inflation has been rolled over. And what people need is an increased sense of buying power. Once that takes hold, our best hope for a slow recovery is by the end of 2009.

“In the old Hollywood film, ‘The Third Man’ the lead character lives in Vienna at the start of the Cold War. It was a time of great stress, and many unknowns. No one knew what would happen to Vienna, would it thrive or die?

“But the lead character, recognizing that in times of crisis, there is also opportunities, said: ‘In Italy, for thirty years under the Borgias, they had warfare, terror, murder and bloodshed, but they produced Michelangelo, Leonardo da Vinci and the Renaissance. In Switzerland, they had brotherly love, they had five hundred years of democracy and peace—and what did that produce? The cuckoo clock.’

“And so,” concluded Mr Buchholz, “In this perfect economic storm of ours, there are still opportunities for new ideas, and new innovations for us to make a better life for ourselves and our children.”

Other keynote speakers included Professor Charles Calomiris, Thomas Mann, Nilesh Vasani and Cayman’s own Gary Linford. The afternoon session included a “Party Leaders Debate” between Leader of Government Business, Hon Kurt Tibbetts and Leader of the Opposition, the Hon McKeeva Bush. The two political leaders discussed the topic “Repositioning the Cayman Island to Thrive in the New Global Financial Landscape”.