The four most frightening words for the financial markets are 'this time it's different'. Anyone who has lived through several economic cycles instinctively knows that when supposedly intelligent people say 'this time is different' then it is without a shadow of doubt time to sell.
After Hubris comes Nemesis, and Nemesis can thunder on to the international financial stage like a giant bear seeking to exit stage left. Citigroup CEO Chuck Prince used different words in July 2007, just before the toxicity of sub-prime mortgage lending became clear.
As long as the music is playing, you've got to get up and dance, he is widely and oftten quoted by way of warning. Though, to be fair to him, he did precede the quote with a caveat. “When the music stops, in terms of liquidity, things will be complicated.”
He was right
These words are seldom quoted but they do act as mitigation and he was proved absolutely right. Though it took until 15 September 2008 to appreciate just how right. The collapse of Lehman Brothers that day changed the financial world beyond recognition.
Anecdotal evidence from those who attended the annual gathering that is the Sibos congress suddenly found its aisles less crowded than usual. It opened the day that Lehman collapsed. Senior bankers of all nationalities rushed to book emergency flights home.
Seldom, if ever, has a game of musical chairs ended with such disastrous results. The crisis took time to percolate through the system but its roots lay in July 2007. Nemesis duly appeared and Chuck Prince stepped down from his position at Citi on 4 November 2007.
Shudder running down the spine
Hence the shudder running down this spine on reading 'this time it's different' in the Short View column in the Financial Times on 7 June. Miles Johnson wrote an insightful piece based on what he sees as a bubble denial by Jeremy Grantham of Boston investment firm GMO.
This Time Seems Very, Very Different is described on the GMO website as Part 2 of Not With A Bang But With A Whimper - A Thought Experiment, written by Jeremy Grantham.
Forming pages nine to 16 of the GMO Quarterly Letter, page 12 is where the alarm bells start sounding.