Thursday, September 13, 2007

Has Anyone Heard from Stephen Roach?

13 September 2007

Stephen Roach is the famously bearish Chief Economist at Morgan Stanley. Oh, did I say "is?" Let's correct that... "was."

Stephen Roach has disappeared. Yes, just as everything is getting very lively once again for the bearish community, the best-known bear of all has just vanished from sight.

Now the trail is not completely cold.

In his last column for Morgan Stanley, on

June 15, 2007, Mr. Roach made reference to going “off to Asia,” as follows:

“The world today is obviously a very different place than it was 25 years ago. But let me assure you that back in 1982 there was no inkling of what was to come. I have been privileged to bear witness to an utterly astonishing period in the transformation of the global economy. I have relished the financial-market debate that has arisen out of this transformation. I wouldn’t trade that experience for anything. And now it’s off to Asia – the epicenter of the Next Wave. My role will change, but I can assure you the lens won’t. Stay tuned.”

Mr. Roach did not leave entirely without a trace.
Wikipedia indicates that Mr. Roach “was promoted and named Chairman of Morgan Stanley's Asia operations in April 2007.”

OK, all well and good. But didn't Mr. Roach close his
June 15 column with the phrase “stay tuned?” As Morgan Stanley’s Chief Economist, presumably Mr. Roach’s (usually bearish) ideas were considered eminently publishable for many years. He was featured on Mondays and Fridays each week, with the exception of holidays. And, I might add, always at the top of the Morgan Stanley Global Economic Forum home page.

Also, to the right of the home page, always listed until this week, was Mr. Roach’s weekly podcast. Presumably, Mr. Roach was presenting Morgan Stanley's most important investment ideas. Well, the eminently competent but much more mainstream Richard Berner (a very good man, but not a bearish critic of the global economy) is now handling the
weekly podcast. I am pleased at Mr. Berner’s promotion.

Oh, and did I mention – a search of the entire Morgan Stanley site brings up no recent news of Mr. Roach whatsoever. The search results imply that Mr. Roach is 2006’s man. No news of his promotion, no links for his loyal readers to click on to follow his current thinking and his Asian discoveries, no indication that he is involved in any present activity with the company of any kind. (Which causes me to wonder – what exactly has become of Mr. Roach’s Asian promotion? Or was that Asian exile?)

Accordingly, something in me wonders why, at this particular time, with the global economic markets in turmoil over potentially trillions of dollars in bad commercial and private debt obligations, has Wall Street’s most famous bear just been relocated to Asia – and silenced on Morgan Stanley's Global Economic Forum?

Let me work my logic through a little bit further.

Mr. Roach told us to “stay tuned.”

He served as Chief Economist at Morgan Stanley from 1991 through 2007. No small commitment of his time – or statement of trust in his leadership capacities by his employer.

Mr. Roach’s move to Asia was described as a
promotion (though no details were given), and he himself seemed quite sanguine. (Mr. Roach, in his column, didn't state what he was doing in Asia – apart from “changing his role but not his lens.”)

So if Mr. Roach had something to say – and was obviously planning on continuing to say it, and was also promoted to a more senior (and presumably more influential position), how come Mr. Roach has disappeared entirely from the Morgan Stanley Global Economic Forum home page – and is in fact no longer even listed among
Morgan Stanley's columnists, not even in the Asia section?

Mr. Roach, my radio is tuned in to the Morgan Stanley site. I'm interested in what you're learning in Asia… but I'm only getting static on my receiver.

Now I have stated several times that I am not a conspiracy theorist. But I am a psychologist (though an amateur one in the field of economics).

It is the nature of financial markets, from their inception through to the present day, to shift at just the point when sentiment is preponderantly on “one side” of the analytical fence – and the opposite of where it will move in the next – and upcoming – major (secular) trend. That is, investors are most bearish at market lows, and most bullish at market highs. That has never changed and never will.

It is no secret that there are now very few bears on Wall Street. When Susan and I visited there in May 2006, we asked, where are the statues of the bull and the bear? Well – we were enlightened by the denizens of Wall Street’s steel-framed canyons…. There is, of course, the famous statue of the
Wall Street bull. But the bear? The Wall Street bear – there is no sculpture of a bear on Wall Street.

And now it seems, with Mr. Roach’s departure, there are few if any bears remaining, such as might be present to pose for the statue of the bear, when, as it ultimately must, the market turns, and the bear again comes to dominate market sentiment.

That is, Mr. Roach’s departure, at just this juncture, might be one of those singular indicators for a street where everyone is a bull (after 26 years of bull market psychology) and virtually no one is a bear.

Does Mr. Roach’s leaving signal the end for Wall Street’s 26-year bull market?

It seems a significant tell… an important clue… it is hard not to make something of it….

Perhaps, then, this may be one for
Sherlock Holmes, for whom solving this deepening puzzle might prove merely... “elementary.”

In the meanwhile, "stay tuned" (to borrow Mr. Roach's last words) for the next bear market on Wall Street, and for the inevitable statue of the bear that must at some point be constructed on the street.

11 October 2008: As I write today, Mr. Roach remains Chairman of Morgan Stanley Asia, but we are presently witnessing his employer in a tailspin, with its shares falling by 20% per day (any mathematician can tell you that a trend such as this can't persist for long).

Mr. Roach's bearish predictions for the overextended global economy have in essence all borne fruit. Had Morgan Stanley acted on Mr. Roach's advice years ago, rather than transferring him to Asia (apparently to keep him quiet), and joining in guilelessly in the game of international leverage, I am certain that Mr. Roach's employment position would now be considerably more secure than is presently the case. Nonetheless, while Mr. Roach's cautionary essays were literally wiped clean from the Morgan Stanley website (which I have not visited since he was banned from its pages), he has been publishing fairly regularly in the world's preeminent financial newspaper (The Financial Times).

As of today, and perhaps due in some part to his employer's dire straits, Mr. Roach has reversed his historic call for moderation in a Financial Times article, and instead stated that he favours massive liquidity injections, full percentage point interest rate cuts, government-sponsored rescue initiatives, and sweeping homeowner bailouts. In truth, our world's leaders, inspired by the cult of recklessness centred in the United States, have now created a situation so dire that their continued intervention is clearly now forced. They created it, and now they have to get us out of it!

So let's proceed. Let's rescue the last surviving former investment banks and keep Mr. Roach employed. My sentiment, if Morgan Stanley survives in its already drastically altered form - which I admit is unlikely at this juncture - is that it would be great to see Mr. Roach brought back to New York, where his more conservative approach might then be sufficiently valued to promote him to a true leadership position.

Let's proclaim 2008 the Year of the Bear, and bring Mr. Roach back to New York!

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