The Price Is... Wrong

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crowtherIn a recent edition of Things That Make You Go Hmmm....., I wrote about the real-life game of Jeopardy that the world is—or rather, the political leaders of the world are—playing, and during my trip this past week to Sydney, during which I gave a speech at the Mines & Money conference, I got to thinking about another gameshow of my youth that seems to have made something of a comeback.

As a kid, my Saturday nights used to echo to the cry of "Come On Dowwwwn!" squawked by Britain's answer to Bob Barker—an ageing former child star named Leslie Crowther—to eager Brits crammed into fold-down seats in a sparkly TV studio near the banks of the River Thames in a place called Teddington, which was just far enough west of London to not be considered "West London."

Crowther at this time was past his sell-by date, I am afraid (a fact evidenced by the thick black-rimmed glasses he used to place on his nose in order to read the questions and answers from the cards he held in one hand and his impossibly black hair that simply never moved).

The show had been imported into Britain—as were most gameshows at the time—from the United States but there was always something just a little bit... well, "British" about it.

For a start, the excitement always seemed just a little forced. Nobody does unbridled enthusiasm like the audience of an American gameshow, and nowhere will one find stiff upper-lipped reservation like one finds amongst a group of Brits. When the need for the former was made the responsibility of the latter, the result was guaranteed to be somewhere in the vicinity of "embarrassing." And so it proved to be.

Now, for those of you out there who somehow haven't been lucky enough to be exposed to The Price Is Right at some point in time, I will briefly explain the rules.

A series of contestants were plucked from the crowd when Crowther shouted their name—an event that sent them careening down the stairs as the audience went "wild" as only Brits can— and were then made to estimate the value of an item (or group of items) described to them in breathless terms by an unseen voiceover man as attractive ladies clad in attire that, whilst designed to scream "elegance," in actual fact placed them just the right side of "stripper," waved and pointed at the items being described in case the audience were unable to pick the toaster oven out of a line-up that also included a spin dryer and a lawn mower.

Whoever got closest to the value of the items up for grabs WITHOUT GOING OVER won the goodies and moved on to an individual round wherein they played a game of some description that gave them a chance to win some random white goods, which were, once again, elegantly displayed by those attractive ladies. These games had names like "3-in-a-Row," "Safecracker," "The Penny Drops," and "Switcheroo." Win that game and you moved on to what was dramatically called the "Showcase Showdown."

This was the show's grand finish and where the big prizes were to be won. In the USA, this meant a speedboat, a car, and a holiday in a far-flung, sun-kissed exotic destination. In the UK, however, there were laws restricting the size of prizes awarded by game shows (how very British) and so the "lucky" winners invariably ended up spending a week on a narrowboat in the Norfolk Broads and returned home to some new double-glazing. Once again, the two remaining contestants were asked to estimate the correct value of their particular "Showcase" WITHOUT GOING OVER, and the contestant closest to the true value won all the goodies on display. Cue broad beam from Crowther, a perfunctory hug and a forced smile from the attractive lady, and roll credits.

My speech this past week (which was, incidentally, the same speech I gave in Newfoundland a fortnight ago) dealt with twin bubbles in government bonds and gold, highlighting the current dramatic mispricing of one as well as the likely dramatic future mispricing of the other, and it was that speech—along with a chance encounter with a Sydney Airport valet parking sign—that inspired this week's missive.

(For any amongst you just dying to find out which bubble is which, I have included a link to a recording of my presentation on the videos page (32) at the end of this week's Things That Make You Go Hmmm...)

During the presentation, I pointed out a few prices that are a long way from being "right," but that the investing public seems willfully blind to; one of them was the US TIPS (Treasury Inflation Protected Securities) curve and the returns that it offers to investors looking to avoid having their savings confiscated through inflation.

As you can see from the chart below, the United States TIPS curve is negative out to 20 years, and yet "investors" are still piling money into an asset that is clearly way overvalued. They are guaranteeing themselves a negative return for the best part of a generation because they are worried about generating any kind of return. That is most definitely the aim of the Federal Reserve's ZIRP—drive savers farther out along the risk curve than they would ordinarily dare to edge in search of some kind of a return—but their policy ensures that, were this just one big game of The Price Is Right, contestants would have no chance of being able to correctly guess many of the prices in the world around them today.

Prices everywhere have been completely skewed by government intervention the world over. So much so that there is frequently no way to ascertain the correct price of many everyday commodities (and in that, I include financial commodities such as stocks and bonds).

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About Grant Williams