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Commentary by Mark Gilbert
Feb. 9 (Bloomberg) -- A famous series of jokes attempts to define political
systems. In communism, for example, you have two cows, your commune seizes
them and charges you for milk. In a democracy, you have two cows, the cows
outvote you 2-1 to ban all meat and dairy products, and you go bankrupt and
starve to death.
Similar thinking can be applied to financial markets. Here, then, is the
world of money recast in bovine terms.
Leveraged Buyouts
You have two cows. You come home from the fields one day to find Henry
Kravis chatting to your spouse at the dining-room table. Two days later, you
have no spouse, no farm, and no table.
Two guys the size of sumo wrestlers have saddled up the cows and are riding
them around the farmyard.
Currency Market
You have two cows. China has 1 trillion cows. Guess who sets the price of
milk?
Bond Market
You have two cows. One is Brazilian, one is Australian. They yield 25 quarts
of milk per day. That's half as much as three years ago, when you traded
your less-lactiferous German and U.S .
cows for them. You are thinking of swapping for a pair of Namibian cows.
They only have three legs but, hey, they produce
26 quarts per day.
Derivatives
You have two cows. You repackage five of them into a Collateralized
Lactating Obligation, pay for a AAA credit rating, slice the CLO into 10
pieces and sell it to investors, skimming the cream from the milk for
yourself. Three of the cows fall ill, and the credit rating plummets. You
get to keep the cream.
Hedge Funds
You have two cows. A guy in an open-necked shirt drives up in his Bentley
and offers to take care of them for you in return for a year's supply of
steak and 50 percent of their milk. They won't be allowed to leave his
compound for two years.
Six months later, you have half a cow, producing sour milk.
``You have to be willing to lose rump today to get rib-eye tomorrow,'' the
hedge-fund guy mumbles through a mouthful of sirloin and champagne.
Economics
Assume two cows.
Carbon-Emissions Trading
You have two cows. They produce 1.2 tons of methane gas per day. After a
hefty donation to the re-election campaign of your local representative, the
government gives you enough emission permits for six cows. You sell three
permits, buy another cow, and apply for a European Commission grant to build
a methane-gas power station.
Microsoft Corp.
You have one old, tired cow. A recent heart transplant may have come too
late to save the beast.
Google Inc.
You have no cows. You slap advertisements on everyone else's cows. The milk
floods in. You use the proceeds to reinvent the cow.
Apple Inc.
Nobody wants your cows. You design the cutest little milk bottle. Now,
everybody wants your cows.
Pension-Fund Management
You have two cows. How boring is that? You pay a month's supply of milk to a
consultant, who advises you to sell one cow and buy two aardvarks instead.
The aardvarks die. The consultant charges you four months of your (now
reduced) milk supply and advises you to sell half of your remaining cow and
buy a wombat.
The wombat dies. The consultant charges eight months of milk for a copy of
his new report, ``Two-Cow Strategies for Alleviating the Impending Pensions
Crisis.''
Russian Energy
You have two cows. Comrade, those cows are an environmental hazard. We
suggest you hand one of them over to us.
Credit-Default Swaps
You have two cows. You buy insurance against them dying, and tuck the
contracts into the middle of that tottering pile of documentation on your
desk. One dark night, Henry Kravis sneaks off with your cows. By the time
you track down the paperwork, your now worthless contracts have expired.
Interest-Rate Swaps
You have two cows. You pledge one of them to me as collateral in a swap for
some of my pigs. I pledge the cow to my neighbor as collateral in a swap for
some of his sheep. He pledges the cow to his cousin as collateral in a swap
for some of his cousin's goats. Better pray the livestock market doesn't
crash and we have to try and round up that cow.
Commodities
You have lots of stocks and bonds, but no cows. Are you crazy? Cows are the
hot new market. Here, buy this exchange- traded cow futures contract. It
can't lose. It gained 40 percent in the past six months.
Gold
You have two cows. You wear a cap you made out of tin foil so that the tiny
black helicopters can't read your thoughts. You spend your days blogging
about how the government's decision to abandon the cattle standard in 1933
was part of a global conspiracy by the world's central banks to destroy the
value of your herd.
Feb. 9 (Bloomberg) -- A famous series of jokes attempts to define political
systems. In communism, for example, you have two cows, your commune seizes
them and charges you for milk. In a democracy, you have two cows, the cows
outvote you 2-1 to ban all meat and dairy products, and you go bankrupt and
starve to death.
Similar thinking can be applied to financial markets. Here, then, is the
world of money recast in bovine terms.
Leveraged Buyouts
You have two cows. You come home from the fields one day to find Henry
Kravis chatting to your spouse at the dining-room table. Two days later, you
have no spouse, no farm, and no table.
Two guys the size of sumo wrestlers have saddled up the cows and are riding
them around the farmyard.
Currency Market
You have two cows. China has 1 trillion cows. Guess who sets the price of
milk?
Bond Market
You have two cows. One is Brazilian, one is Australian. They yield 25 quarts
of milk per day. That's half as much as three years ago, when you traded
your less-lactiferous German and U.S .
cows for them. You are thinking of swapping for a pair of Namibian cows.
They only have three legs but, hey, they produce
26 quarts per day.
Derivatives
You have two cows. You repackage five of them into a Collateralized
Lactating Obligation, pay for a AAA credit rating, slice the CLO into 10
pieces and sell it to investors, skimming the cream from the milk for
yourself. Three of the cows fall ill, and the credit rating plummets. You
get to keep the cream.
Hedge Funds
You have two cows. A guy in an open-necked shirt drives up in his Bentley
and offers to take care of them for you in return for a year's supply of
steak and 50 percent of their milk. They won't be allowed to leave his
compound for two years.
Six months later, you have half a cow, producing sour milk.
``You have to be willing to lose rump today to get rib-eye tomorrow,'' the
hedge-fund guy mumbles through a mouthful of sirloin and champagne.
Economics
Assume two cows.
Carbon-Emissions Trading
You have two cows. They produce 1.2 tons of methane gas per day. After a
hefty donation to the re-election campaign of your local representative, the
government gives you enough emission permits for six cows. You sell three
permits, buy another cow, and apply for a European Commission grant to build
a methane-gas power station.
Microsoft Corp.
You have one old, tired cow. A recent heart transplant may have come too
late to save the beast.
Google Inc.
You have no cows. You slap advertisements on everyone else's cows. The milk
floods in. You use the proceeds to reinvent the cow.
Apple Inc.
Nobody wants your cows. You design the cutest little milk bottle. Now,
everybody wants your cows.
Pension-Fund Management
You have two cows. How boring is that? You pay a month's supply of milk to a
consultant, who advises you to sell one cow and buy two aardvarks instead.
The aardvarks die. The consultant charges you four months of your (now
reduced) milk supply and advises you to sell half of your remaining cow and
buy a wombat.
The wombat dies. The consultant charges eight months of milk for a copy of
his new report, ``Two-Cow Strategies for Alleviating the Impending Pensions
Crisis.''
Russian Energy
You have two cows. Comrade, those cows are an environmental hazard. We
suggest you hand one of them over to us.
Credit-Default Swaps
You have two cows. You buy insurance against them dying, and tuck the
contracts into the middle of that tottering pile of documentation on your
desk. One dark night, Henry Kravis sneaks off with your cows. By the time
you track down the paperwork, your now worthless contracts have expired.
Interest-Rate Swaps
You have two cows. You pledge one of them to me as collateral in a swap for
some of my pigs. I pledge the cow to my neighbor as collateral in a swap for
some of his sheep. He pledges the cow to his cousin as collateral in a swap
for some of his cousin's goats. Better pray the livestock market doesn't
crash and we have to try and round up that cow.
Commodities
You have lots of stocks and bonds, but no cows. Are you crazy? Cows are the
hot new market. Here, buy this exchange- traded cow futures contract. It
can't lose. It gained 40 percent in the past six months.
Gold
You have two cows. You wear a cap you made out of tin foil so that the tiny
black helicopters can't read your thoughts. You spend your days blogging
about how the government's decision to abandon the cattle standard in 1933
was part of a global conspiracy by the world's central banks to destroy the
value of your herd.
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