Salvos Three Scenes from a Bull Market

Josh Mason

“I’m a Marxist. But more importantly, I’m an entrepreneur.”

—Sander Hicks, quoted in Green

Every Friday evening, a rumpled thirtyish young man in a badly-fitting suit jacket dispenses stock picks on CNNfn. He’s a columnist for Worth magazine, and publisher of a successful financial-advice newsletter. No surprises there—except to veterans of the Chicago rock scene, who may rub their eyes when they see “Ken Kurson” flashing at the bottom of the screen. Hey, didn’t he used to be front man for the Lilacs? Sure was—and before that, bassist for Green, a musically uninteresting but moderately successful Eighties pop band, from which he’s taken the name for his newsletter. At first glance it looks like the Repo Man scenario: punk rocker, with serious misgivings, gone to work for The Man. And it is, minus the misgivings—and with some strange complications.

Green, according to the manifesto that Ken Kurson includes in every issue, is a financial newsletter “for the rest of us—those who know that ‘the man’ really couldn’t care less if we young ’uns approve of his larceny . . . for those who don’t care how cool it is to admit that they care about their lives and their futures.” As it turns out, Green’s operational definition of caring about your life and future is: Buy mutual funds. Green operates under the odd conceit that shilling for mutual funds is, as the passage just quoted suggests, a daring and transgressive act—or, in Kurson’s words, “Green is based on the premise that money talk is the last taboo.” Thus, we learn that by explaining what bonds are Green is “tilting at windmills.” And in an interview with pornographer Al Goldstein, Green informs him that “Pornography doesn’t shock as much as it used to, but trying to get people to talk about how much they make, what they invest in, how much they’ve lost is as cumbersome as ‘Who have you slept with?’ once was.”

Of course, The Man does care if we approve of his larceny; for proof, look no further than Kurson, whose vocal and enthusiastic approval has been rewarded with a cushy columnist’s gig at Worth and a regular spot on CNNfn, as well as a book contract fat enough to buy him a house in New Jersey. From its beginnings in 1995 as “The Kenny Quarterly,” a xeroxed, stapled newsletter sent out to Kurson’s friends and acquaintances, Green has grown into a glossy magazine with a circulation of some 15,000 and a prominent spot on the magazine racks of literary bookstores that wouldn’t deign to stock run-of-the-mill financial magazines. The magazine’s web site and promotional materials are decorated with literally dozens of fawning blurbs from places like the Chicago Tribune and the Orange County Register as well as Raygun and Spin.

What’s the secret? It’s sure not the advice. An ad for the magazine suggests that you’ll find Green useful “if you don’t know exactly what a mutual fund is.” This is correct. If you are familiar with the concept of mutual funds, though, it’s far from clear what you’ll learn from reading Green. Typical nuggets include answers to questions like “What’s a bond?” (this topic seems to be covered in every issue, but it merits feature-length treatment in #3) or “What’s a stock split?” (it’s when a stock splits). My personal favorite: “Unlike growth funds, which seek companies based on their growth prospects, ‘value’ funds troll [sic] for companies whose stock is, in the opinion of the fund manager, undervalued.” Got it? It takes three pages in #2 to demonstrate that if you owe money on several credit cards, you should pay off the one with the highest interest rate first.

What sets Green apart are its treatises on the hipness and even the morality of investing: Mutual funds are what separates the men from the boys, the sole alternative to a lifetime of humiliating dependence on one’s parents. Kurson’s manifesto is worth quoting at length:

Green was conceived because its editor is frequently asked about finance by friends, coworkers and relatives, a diverse gaggle who share only one thing in common: None would ever be caught dead trying to master something as uncool as money. It’s not punk rock, it’s not rebellious, it’s something of which my parents might approve, whatever. So they wallow in financial purgatory, ringing up astronomical debts on credit cards and student loans, many of which are taken to finance education in vanity disciplines that will never pay enough to make good on the loans. That’s not rebellion and it’s not freedom. It is the modus operandi of privileged and spoiled kids who know their parents will bail them out when things get too rough.

Well, is money punk rock? The question is answered by an interview with Circle Jerks drummer Keith Clark, who moonlights as a tax accountant. Getting the relation between youth culture and stock ownership right has been a vexing problem for the authors of the vast literature on Gen X, torn as they are between the fantasy that twenty-somethings are a uniquely frugal generation who will save the stock market and the fear that they’ve been spoiled by Social Security and commercial TV. Kurson himself is sharply divided on this subject: On the one hand, it’s the frugal Gen Xers who are supposed to be his readers, but on the other, he regularly berates his peers as pampered and indolent. (This contradiction is nicely captured in the manifesto, where Green is first “conceived” for Kurson’s “friends, coworkers and relatives,” but by the end is “not for them” since they are, every one of them, whiny mama’s boys and girls.) In his TV and radio appearances, where he is invariably treated by interviewers as envoy and interpreter for the mysterious tribe of Youth, Kurson prefers to talk about how much his generation loves to save: “I think people in Generation X, to use an overused term, feel that the Social Security system is by no means guaranteed to be around by the time they retire, that self-directed retirement plans, 401(k)s and IRAs, are really mandatory now.” But in the privacy of his own pages, he’s more liable to vent his rage against the popular kids who mocked him for his forbidden love of Mammon. “I had to be very secretive about my interest in money,” he recalls, looking back at those painful years. “I’ve been at parties where people are discussing every kind of perversion and admiring the host’s Gacy paintings, but just try to bring up compound interest and watch the room clear.”

Ambition is a dirty word these days.

The kids are wise; the kids are fools. The nadir comes in Green #4, the women’s issue (the cover of which bears the thoughtful slogan, “This One’s for the Ladies”). First, there’s an interview with two strippers, who, it turns out, are entrepreneurs who “know more about sales, marketing and finance than the businessmen they entertain for a living.” Then there’s Kurson’s bizarre take on star New Republic plagiarist Ruth Shalit: In a spasm of generational rancor (and without any evidence, textual or otherwise), he blames Shalit’s thievery on . . . those damn slackers. “I think she steals because she’s angry. I believe that Ms. Shalit hates that she has no time to relax. That she has to use her good looks and charm to get what should be hers because of her talent alone . . . . Her transgressions owe their origin to a bitterness at the cynicism and laziness of too many people her age.” The essay simultaneously hits new lows both in its celebration of personal irresponsibility and its disdain for the non-greedy. “Ambition is a dirty word these days,” Kurson ludicrously observes of the world that gave us Shalit, incensed that anyone—anyone—out there could put their muse or peace of mind before filthy lucre.

What is it about Green’s self-contradicting mass of resentment and bragadoccio, its thoroughly scrambled ideas of social class (Kurson, the soi-disant working-class kid, dispenses instructions on how to deal with “jagoff waiters” and boasts about acquaintances who, ever so classily, “serve sandwiches on linen napkins”), that has so caught the ear of Wall Street’s image masters?

And when else but during the most superstitious of bull markets could a writer with a total lack of qualifications to offer investment advice make up for it with nothing but stylish (Kurson has style in spades) expressions of ingenuous, almost infantile, wonder at the institutions and public mores of capitalism? Kurson is continually agog at the fact that under capitalism you don’t necessarily have to work for money, you can compel money to work for you. Each of the first few issues of Green featured a little panegyric on interest, with titles like—no kidding—“The magic and beauty of compound interest” and “The glory and magic of compound interest, redux.” Of course there’s plenty of talk about self-reliance, but it turns out that self-reliance is something you do with your stocks. Indeed, to read this stuff you’d think the world contained no one but bed-ridden invalids pampered round the clock by private nurses, and brawny loners forging their way through the world with nought but two strong arms and a well-balanced portfolio.

Most importantly, investing in stocks is said to be the only assurance of happiness when your own earning power falters, especially in retirement, which is, after all, what the money is being saved for. (Kurson doesn’t believe in Social Security, but more on that later.) Obviously, Kurson is not the first to notice that, as he puts it, “Freedom means money.” What’s new is his discovery that, with the right packaging, independence, self-reliance, and autonomy—in short, adulthood—can be purchased from a brokerage. It’s almost clever enough to justify all the money he’s made.

But all that stuff about stocks and compound interest is for people who don’t know the game of ideology as well as Ken Kurson. The real way to make money in a bull market isn’t mutual funds, it’s working up a highly visible enthusiasm for mutual funds, letting yourself be seen reinventing the wheel of capitalist ideology in the language and garb of Generation X.

The most important element of that ideology, of course, is the political. Criticizing an article in Harper’s expressing skepticism at the idea that stock investing can replace our current system of public provision for retirement, Green says, “It’s difficult to see why he’s wringing his hands. Sure, it’d be wonderful if some benevolent government or corporation were genuinely looking out for us,” but it just ain’t so. “Better to know the score while there’s still time to stuff your mattress.” That’s our choice, kids: benevolence from on high, or mattress-stuffing down below. If we can’t count on our leaders to care for us, then it’s every man for himself and devil take the hindmost. Notice what’s excluded here: the possibility of any kind of collective, political action. But that—not government “benevolence”—is where Social Security and employer-provided pensions and the rest of it came from in the first place, and that’s the only kind of action most people can take to ensure their well-being 40 years down the road.

II. Tulipomania

With an unbending moral code balanced by a promise of plenty in the hereafter, the speculation craze, whipped inio a frenzy by the many investment-advice publications that have sprouted during Wall Street’s long sunny season, has all the makings of a vernacular American religion. True to form, the ebullient promoters like Green even have dark alter egos following in their wake, a platoon of Jeremiahs whose abiding fear is that even the gravity-defying market of the Nineties has not drawn in enough money. With the feverish intensity of street-corner preachers, they collar any passerby foolish enough to make eye contact, pressing the literature into their hands with an impassioned plea: Jesus saves, and so should you.

The high priest of this cult is undoubtedly Pete Peterson, multimillionaire investor and advisor to a half-dozen presidents, whose brief is for probity, parsimony, and self-abnegation. “People may think this will be painless,” he likes to say. “It won’t.” His obsession, as he let the world know in his 1996 book, Will America Grow Up Before It Grows Old, is aging: He’s convinced that “demographics is destiny.” The argument—and admittedly, it’s at least superficially compelling—goes like this: The country is getting older, people are living longer and having fewer children (an average of two per couple, compared with three or more during the Fifties). This “age wave” will mean many more unproductive retirees with expensive health care and nursing home habits, and fewer workers to pay for them. It also will mean a much bigger bill for government programs for the elderly, like Social Security and Medicare.

To him, being called a “big spender” was the ultimate insult.

As it turns out, the “age wave” is a remarkably easy fear to debunk. While it’s true that there are more old people than ever, the number of children and housewives (the rest of the dependent population) is decreasing; in fact, the ratio of nonworkers to workers has dropped steadily over the past century and is now at its lowest point ever. Honest fiscal conservatives should take as their slogan “No more housewives!” But these facts don’t interest Pete Peterson. For him, the demographic story is just a hook on which to hang his view of the world: a vast struggle between the forces of good and evil, where to be good is to save and to be evil, to spend. “When I was a child,” he lectures the impecunious boys and girls of today, “I witnessed first-hand what can be accomplished by parents who dedicate themselves to posterity. For decades on end, my father, in Kearney, Nebraska, kept his small restaurant open 24 hours a day, 365 days a year. Every penny that didn’t cover necessities or get plowed back into the business he set aside for his children’s future. To him, being called a ‘big spender’ was the ultimate insult.”

Like most of his ilk, Peterson emplots his narrative (as the historians say) into a tale of psychocultural decline. As with theirs, the self-indulgent Sixties play no small role in his story, but he goes back further: to the end of World War II, when an America besotted with its own strength abandoned the thrift (the word derives from “to thrive,” Peterson helpfully reminds us) his father practiced in the Thirties and Forties. Did Peterson expect birthday presents when he was boy? Not a chance! Just “a small metal barrel with a slot in the top—a ‘gift’ from a local S & L—in which my brother and I were expected to save our pennies, nickels, and dimes. My parents assumed we would make regular trips to this local S & L and deposit these savings for our future.” Peterson’s obsessive mind draws him into some strange alliances. Unlike other conservatives, he’s pro-public television, at least for children, because it offers an alternative to commercial TV’s “endless commercials, all telling them to ‘buy now.’” From his point of view, victory in World War II wasn’t worth the moral cost for this country. Convinced they had won the war, Americans grew proud and lazy, insisting on working shorter hours for higher wages, which they furthermore insisted on spending rather than turning over to the trusty neighborhood S & L.

But now, Peterson insists, with the country soon to be overflowing with geezers, we’re in for our comeuppance. No more entitlements, not for the poor, and not for the middle class either. No more assuming you deserve a decent job, a home, an education. And certainly no more assuming you deserve to retire. Peterson points admiringly at the Japanese, who, “unlike Americans, are unencumbered by the idea that people are entitled to live the last third of their adult lives in subsidized leisure.” Never mind that Peterson nearly doubles what is in fact the average length of retirement; the sight of anyone lazing around in retirement homes fills him with fury. Those people should be out flipping hamburgers!

But it’s not just retirees who will have to bear the burden—we’ll all have to tighten our belts and save like madmen. Only by saving and investing, Peterson assures us, will we be able to fill the insatiable maws of “a nation of Floridas.” Some people may think “this will be painless,” he cackles. “It won’t . . . . There are no free lunches! To save more, we must consume less.”

But does productive investment really depend on increased savings? The short answer is no (for the long answer, check out Doug Henwood’s book Wall Street). According to John Maynard Keynes—and to the best evidence available today—investment is constrained not by a lack of savings but by a lack of sufficiently profitable investment opportunities. The typical big modern corporation is swimming in capital but demands a 10, 11, or 12 percent return before investing in plant or equipment on a significant scale. Such returns are understandably hard to come by. Saving more and consuming less will merely make them rarer still, and leave us poorer, not richer, when the Baby Boomers retire.

Bad economics though they may be, calls for increased saving have an undeniable emotional resonance for some. Certainly this is the cathexis Green is tapping into. For younger observers, though, there’s something just a little odd about the idea of people in their twenties obsessing over retirement. I have no idea what I’ll be doing in four years, let alone in 40; it’s as likely as not that life as we know it will by then have been brought to a halt by global war or ecological collapse (or, if you believe the techno-futurists, have been transformed into one continuous virtual orgasm). It’s a safe bet that what’s really on the mind of Green readers is not the size of their bank account in 2040 but its size today, and for all the usual reasons, punk rock or not. But let’s take the Peterson/Green program at face value: Is it true that how much you save and invest when you’re young is the main determinant of your standard of living when you’re old?

“Let them eat stock.”

The answer is, No. Not to put too fine a point on it, they’ve got it exactly backwards. For the vast majority of people, private saving does not contribute significantly to income in retirement. From all the millions of words devoted each year to saving for retirement, you’d never guess what a small proportion of most people’s retirement income such saving actually represents. Barely 10 percent of the income of the typical elderly household consists of income from assets—and an unknown but significant portion of this represents payments from defined-contribution pension plans rather than private saving per se. Nor does this calculation take account of Medicare and Medicaid (the latter pays for nursing homes). If they were included, the proportion of income the elderly receive from investments would be smaller still. Looked at another way, if you measure the average income from the four major sources—earnings, Social Security, income from assets, and pensions—for elderly households with each type of income, income from assets ranks dead last, at about $1,700 per year.

In other words, your investments—the only ones that count—are a job with a decent employer who provides a pension, and belonging to a society civilized enough to take care of its members’ essential needs. According to Green, though, all that is going to evaporate one of these days (“the Social Security system is by no means guaranteed to be around”) but, hey, banks and bull markets are forever!

III. The Madness of Crowds

I read somewhere that the attribution of the line “Let them eat cake” to Marie Antoinette is unfair; the French word she used really referred to a cheaper kind of flour (a better translation might be, “Let them eat Wonder Bread”). Those who say, in the words of a recent New Republic headline, “Let them eat stock,” have no such excuse: They mean exactly what they say. James Cramer, who wrote the New Republic piece, seriously suggested that the solution to layoffs is to give the fired workers stock options: “No government intervention is needed; it would be voluntary, but, once a handful of companies adopt these packages, all will follow.” Talk about market magic: The bull market solves for alienated youth, for a nation of dead-weight oldsters, and now, for the problems between management and labor! Naturally, existing shareholders, those kindly souls, would never object to having their stock diluted for the benefit of laid-off workers.

Cramer’s is only one of the more imaginative (i.e., stupid) schemes floated in recent years to dramatically broaden stock ownership. Stock ownership is still limited almost entirely to the wealthiest 10 or 20 percent of the population, but within this group it’s lately become much more evenly distributed. Just as in the 1920s, people who never before owned stocks have been lured into the market by the prospect of 10 percent returns year after year, and their purchases have driven prices still higher, drawing even more Greenhorn investors in behind them.

Behind the aggregate numbers of ever rising stock prices and everbroadening stock ownership is an interesting pattern: While mutual funds have been massive net buyers, households have been net sellers. In other words, the very rich (the only people who own stocks directly in significant amounts) have been unloading their portfolios on the upper middle class.

Of course, it takes an enormous promotional apparatus to keep the money flowing into those mutual funds and the prices ever-rising. Green is just one very small, though strategic, cog in this machinery. Even on its home turf it’s overshadowed by much bigger players: Fidelity, whose TV ads hype its appeal to twentysomethings; Morningstar, which packs its cubicles with goateed, nose-ringed mutual fund analysts and newly degreed (but skill-less and experience-less) “consultants”; and brokerages and pension companies like State Street Boston, which lubricate their plots for Social Security privatization with appeals to an imaginary generational conflict in which they, naturally, are on the side of the young. “Excluding senior citizens, there’s probably no age group more obsessed with Social Security than post-boomers,” write State Street execs Marshall Carter and William Shipman in their 1996 book, Promises to Keep: Saving Social Security’s Dream. Obsessed in a good way, of course. Brad—a character the authors have made up, but, we’re assured, is as typical a Gen-Xer as can be—muses, “Why can’t I relieve Social Security—and my fellow taxpayers—of the burden of caring for me in my old age and let me care for myself by letting me save for my own retirement? After all, this is America, isn’t it?” To Shipman and Carter—and to Forbes magazine, which waxed euphoric over what it called “the most entrepreneurial generation in American history”—Gen Xers seem like a dream come true: They hate Social Security (and their parents and grandparents, who receive it), they love to invest, they’re ambitious and hardworking, but “they’re not expecting gold watches after spending twenty or more years with one company as dad or grandpa did. Besides, who’d want to?”

All this pales in significance alongside the greatest scheme of them all, the privatization of Social Security. Green consistently expresses pessimism about the future existence of Social Security; some of its writers openly call for the program’s eradication, while Kurson himself merely presents it as a done deal. Others, like Peterson, Carter and Shipman, are less coy: They make no bones about wanting to junk Social Security in favor of a system of private accounts. Their arguments are motivated by the phenomenal returns on stocks over the past few years. The unmentionable flip side of the last decade’s boom, though, is that stocks are now wildly overvalued (whoops! just before press time, it became obvious!). A model developed by Robert Shiller of Yale relates the stock market’s average price-earnings ratio over the last ten years to the expected return over the next ten (you can find a lucid summary of Shiller’s findings, ornamented with graphs, on the Left Business Observer home page). Price-earnings ratios are now well over 25; plugging those numbers into Shiller’s formula yields an expected return for the next decade of negative 68 percent. In other words, if historical experience is any guide, the average company’s stock is priced at triple what the underlying profits can sustain. For a while, as with any bubble, there are enough suckers to buy overvalued assets at an even higher price to seemingly justify the valuation; but sooner or later you run out of suckers and the bubble bursts.

Dumping the nation’s collective retirement account into one of the most overvalued markets since the days of Dutch tulips, though, would neatly bail out the speculators who bought when all the signals said sell. It would also be the scam to end all scams.

No wonder the rich are selling their stocks; they’ll soon be buying them back at bargain prices from bankrupt yokels who thought that money would work for just anyone. As they say on the Street, it’s during bear markets that money returns to its rightful owners. Dumping Social Security into the stock market will add drama (the numbers will be higher while the fun lasts, and the headache will be much worse afterwards) but it won’t change the story in any fundamental way. In the long run, stock prices can grow faster than the economy as a whole only if profits rise at the expense of wages. And economic growth shows no signs of exceeding 2.5 or 3 percent a year, while wages can fall only so far. According to calculations by Dean Baker of the Economic Policy Institute, for 10 percent returns on stocks to continue for the next 40 years, wages would have to fall by a third. Two decades of flat wages have produced Timothy McVeigh and the first major urban riots since the Sixties. Does anyone want to chance what four decades of falling wages would produce? Does anyone—Pete Peterson, Carter and Shipman, Kurson—want to advocate it?

Soon, in all likelihood, we will be entering an extended bear market. The privatization of Social Security will be deservedly abandoned. Green will be forgotten, as will, hopefully, Peter Peterson. The lambs will have been slaughtered and the money brought back where it belongs. People will find other uses for their spare time and spare cash than playing with stocks, and, most likely, the apologists for capitalism will become a little more circumspect in their praise for unregulated free markets. But only for a while.

In his epic Feudal Society, the French historian Marc Bloch describes how in the 16th century, at the very end of the feudal period, when the mounted knight and his personal followers were already long an anachronism, young noblemen could still be found reinventing, apparently from scratch, oaths of allegiance indistinguishable from those used by Charlemagne’s vassals 800 years before. Just so, under capitalism, until That Day comes, we shall always have with us the Ken Kursons and the Peter Petersons, naively rediscovering the virtues of laissez-faire.