Of Davos Men, Madoffs & Perfide Albion

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Davos Man
From Wikipedia, the free encyclopedia

Davos Man is a neologism which refers to the global elite of wealthy people whose members view themselves as completely international. Davos is an Alpine city in eastern Switzerland which became famous in the 1990s for hosting the World Economic Forum, an annual gathering of international politicians and financiers who represented a transnational elite.

Davos Men supposedly see their identity as a matter of personal choice, not an accident of birth. According to political scientist Samuel P. Huntington, who is credited with inventing the phrase "Davos Man",[1] they are people who "have little need for national loyalty, view national boundaries as obstacles that thankfully are vanishing, and see national governments as residues from the past whose only useful function is to facilitate the élite's global operations". In his 2004 article "Dead Souls: The Denationalization of the American Elite," he argues that this international perspective is a minority elitist position not shared by the nationalist majority of the people.[2]

1     Timothy Garton Ash. Davos man's death wish, The Guardian, 3 February 2005
2     Samuel Huntington. Dead Souls: The Denationalization of the American Elite], The National Interest, Spring 2004

15 Mar 09    Three Wise Men Offer Three Takes On Markets, WP, Tomoeh Murakami Tse
2 Mar 09   Global policy shortcomings will cost us dear, FT, Wolfgang Münchau
20 Feb 09   Most Davos Men are in denial, refuse co-responsibility for crisis, Foreign Policy, Federico Fubini
30 Jan 09   What future for the global financial system?, WEF, Mark Adams
29 Jan 09   The humbling of Davos Man, FT, John Gapper
29 Jan 09   Survive the credit crisis the Alpine way, FT, Peter Marsh
28 Jan 09   Financial models are no excuse for resting your brain, FT, John Kay

January 27 2009 19:31

Financial models are no excuse for resting your brain
By John Kay

US universities have been widely admired in the past two decades for their investment performance. They were early supporters of private equity and hedge funds and the Yale model has attracted interest among sophisticated investors. But Yale reported in December that its endowment had lost a quarter of its value in the preceding six months. Other institutions are in worse straits.

The model seems to be in question. But the idea behind it – that careful diversification can combine good returns with low risk – is as valid as ever. The problem is that some supporters of that approach put too much blame on sophisticated modelling techniques at the expense of their own knowledge and judgment. Banks made the same error in their risk assessments: their value-at-risk models had similar structure and origins to those in portfolio planning.

Quantitative portfolio management relies on measures of correlations between asset classes. These historical correlations are not universal constants but the products of particular economic conditions. Unless you understand the behaviour that produced them, you cannot assess their durability. In 2007-08, assets that had been uncorrelated were strongly correlated and many portfolio managers were surprised when the diversification they sought proved illusory.

Underlying causal relations had changed, as they frequently do in business. In the new economy bubble of the 1990s, equities roared ahead while property languished. But during 2003-2008, the availability of underpriced credit, followed by its abrupt withdrawal, affected property and shares in similar ways. Anyone in the financial world knew these things: but computers, churning through reams of data, did not.

Asset classifications change their meaning. The alternative asset classes that yielded strong returns in the 1990s for Harvard and Yale were hedge funds and private equity. But the increase in the number of hedge funds and the volume of their assets meant that an investment in the sector – once a bet on an individual’s idiosyncratic skills – became more similar to a general investment fund. Hedge fund returns were therefore increasingly correlated with those of other investments.

Private equity was once a punt on small entrepreneurs. A manager with good judgment could make money from a few hits in a diversified portfolio. But by 2006 the sheer size of private-equity funds led them to focus on well established businesses. Such investments were a geared play on the stock market. They no longer spread risk: they concentrated it. Worse, many uncorrelated assets appeared uncorrelated in the past only because they were thinly traded and infrequently valued. Pressures to “mark to market” revealed the underlying correlations.

But, during the credit crunch, traditional forms of diversification have done what they are supposed to do. Gold, trading at about $650 per ounce before the credit crunch, is nearing $850. UK government stocks show a total return of 23 per cent from conventional bonds and 15 per cent from indexed bonds from July 2007 to December 2008: for global sovereign bonds, the sterling returns are 75 per cent and 41 per cent.

Diversification is a matter of judgment not statistics. A model will tell you only what you have already told the model and can never replace, though it can enhance, an understanding of market psychology and the factors that make for successful business. As a student of finance, I never expected to see the efficient risk-return frontiers I drew on the blackboard feature in PowerPoint presentations to meetings of trustees: or that these trustees would view the numbers that emerged as statements of fact rather than illustrations of possibilities.

People who were persuaded by these analyses have been badly hurt. Some will never pay heed to quantitative investment analysis again. Others will place equally blind faith in some new and fanciful construction. Both reactions are mistakes. Financial models are indispensable. So is scepticism in their application.

John Kay’s latest book on finance and investment, The Long and the Short of It, was published on January 20

January 28 2009 19:04

The humbling of Davos Man
By John Gapper

It’s lonely at the top.

Having journeyed this week up a Swiss mountain valley to the World Economic Forum’s annual meeting in Davos, I find myself in select company. Several members of the global business elite discovered at the last minute that they had pressing business elsewhere.

Where is John Thain, the former chief executive of Merrill Lynch? Back in New York trying to rescue his good name after being pushed out by Bank of America and having details of his $1.2m (€907,000, £839,000) office refurbishment leaked. And where is Sam DiPiazza, chief executive of PwC? In India, where two PwC auditors have been held by police over their role in the alleged $1bn fraud at Satyam Computers.

This is usually the time of year when Davos Man – the global banker and business leader whose fortunes have risen spectacularly during the past three decades – gets to strut his or her stuff. This January, Davos Man is being humbled instead.

It is tricky to be seen at a talking shop in Switzerland when your house is burning down. Even Bob Diamond, president of Barclays, which managed to persuade investors this week that it is not going bust, decided it would be wiser to stay in London.

But there is more going on than a bunch of chief executives temporarily bowing to public relations realities. The ascendancy of Davos Man is under threat for the first time since Klaus Schwab organised the inaugural meeting in 1971. The history of Davos parallels the rise in prestige and power of the private sector and free enterprise. After a blip in the crisis-ridden early 1970s, Mr Schwab’s annual circus of chief executives, politicians and non-governmental organisations has been on a roll.

Companies and banks footed the bill for the frenetic round of debates and dinners, and politicians and others dutifully turned up. It was in their interests because this was where the money, and the power, was.

Davos Man was not always popular. He was condemned from the right by Samuel Huntington, the US political scientist, for his “dead soul”, being a rootless cosmopolitan who disdained the patriotic pride of the ordinary Joe. From the left, anti-globalisation activists accused chief executives of exploiting the poor.

But his power was unquestioned. The election of Margaret Thatcher in the UK in 1979 and Ronald Reagan in the US in 1980 ushered in scepticism about government. Private enterprise filled the gap, with billionaires such as Bill Gates not only building businesses but also usurping the role of the public sector and governments in addressing inequality and social problems.

Now, all that is under threat. The credit crisis has ruined the reputations of Wall Street bankers and handed power to politicians and regulators. “The president of the US and the Treasury secretary have been given a degree of power that no president has had since Franklin Delano Roosevelt,” says Nick Burns, a Harvard professor and former US undersecretary of state.

Suddenly, business leaders lack legitimacy. A US survey conducted by Edelman, the public relations company, last autumn found that the trust of the public in US business had fallen from 58 per cent the previous year to 38 per cent. Only 49 per cent of Americans (Americans, for heaven’s sake!) think the free market should be allowed to function independently.

I find these data worrying because the failures of the credit crisis do not obviate the good things businesses can do. Mr Gates’ philanthropy and other private-sector initiatives to improve the state of the world were more than mirages.

Davos Man now faces a struggle not only to operate freely in business but also to regain his former authority. It seems to me that business people have to do two things to regain trust.

The first is simple enough, although painful: stop behaving like the 18th century French aristocracy. After an extended period of extreme prosperity, and an increasing proportion of financial rewards accruing to people at the very top, it is easy for these people to lose their heads (in this case, figuratively).

Perhaps Mr Thain is being singled out unfairly, since Bank of America wants to make him into a whipping boy, but his lavish office expenses and decision to accelerate the payment of Merrill bonuses speak to being, like many other financiers, weirdly detached from reality. Most people are happy, in normal times, for there to be big disparities of income and wealth, and for business people and entrepreneurs to do well. Many of us, after all, harbour hopes of getting rich ourselves one day. But there must be, as Richard Edelman, head of the eponymous firm, phrases it, some “shared sacrifice”.

The second thing is less painful but harder: to demonstrate competence. Davos Man’s pitch, accepted by most people for many years, was that the private sector was better at doing things than governments. That did not seem a stretch: disasters such as hurricane Katrina exposed the US government’s inability to fulfil its basic duties to citizens.

The credit crisis turned out to be Wall Street’s own hurricane Katrina. It transpired that financiers had no idea of the risks they were taking and could not save their banks from sinking in a storm. The question then naturally arises: if Davos Man cannot do his own job, why should we let him do anything else?

At the moment, even in the rarefied air of Davos, there is no obvious answer to this question. Personally, I hope that business leaders can restore public confidence in their ethics and competence as quickly as possible because the alternative is unpleasant to contemplate. But few people are going to listen to, let alone follow them until they do.


January 28 2009 19:11

Survive the credit crisis the Alpine way
By Peter Marsh

Draw on a map a circle of 200km radius and centred on Lucerne, Switzerland, and you see the Alpine Ring. What this represents holds valuable lessons for the world as it tries to fight its way out of the economic crisis.

The Ring takes in most of Switzerland and parts of Germany, Italy, France and Austria. Inside this circle – bounded roughly by Stuttgart and Bergamo to the north and south, and Imst and Besançon to the east and west – are some 3,000 predominantly small to mid-sized companies in specialised areas of engineering. Nearly all, employing 200,000 people, are privately owned. Many have been run by the same family for generations. The sectors they represent include some that have been important for centuries, such as watch-making, plus newer fields including microelectronics, medical implants and aircraft parts.

In today’s uncertain climate, many of the companies are islands of stability. While few are likely to expand hugely in the next year or so, most of them, helped by their long-term owners and with relatively low debts, will almost certainly survive the current traumas.

They will be in a good position to do well when demand picks up. The companies include a smattering of relatively well-known businesses, such as the Swiss watch company, Audemars Piguet, and Zucchetti, an Italian maker of bath fittings, as well as countless others hardly anyone knows about.

Many can trace their roots to old industries of iron-making and wood-working that flourished in the valleys of the Alps and the rolling Swabian hills close to Stuttgart from the 14th century onwards. But as well as tapping into local skills, the businesses have a history of using ideas from further afield, often brought by outsiders.

The Swiss watch industry is still the world’s biggest, more than 100 years after first achieving this position. It was initially nurtured by the skills of predominantly Protestant craftsmen fleeing from other areas of Europe during the Reformation. The sector gained its current dominance partly by capitalising in the early 19th century on ideas in making high-quality steel in small quantities, devised by the British metals pioneer Benjamin Huntsman. It was revitalised in the 1980s by new thinking introduced by Nicolas Hayek, a Lebanese-born consultant with no previous knowledge of the sector and the brains behind the Swatch brand.

Based on precision engineering skills built up over centuries from the watch sector, a clutch of companies in newer fields has sprung up in the Ring in the past 70 years, in sectors from sensors to medical instrumentation. A surgical instruments cluster has taken shape in Tuttlingen in southern Germany. Similarly, a concentrated industry in small metal parts, based on modern machining know-how and used in sectors such as aerospace, has evolved in the Arve valley close to Mont Blanc in France.

The companies have generally been flexible, capable of using their skills to operate in different industries over time. Obe, a Pforzheim-based company that for many years supplied decorative jewellery, is now one of the two biggest companies supplying specialist hinges for spectacle frames. Precimed, a Swiss business spun out from the Swatch watch company, has moved into hip and knee implants.

In northern Italy, in the region of Lake Orta, a series of companies in taps and valves has appeared in the past 50 years, based on centuries of know-how in the area drawn from expertise in brass-working, used to make bells for local churches. In spite of intense competition from countries such as China, the Lake Orta companies have stayed strong, helped by efforts to introduce new ideas, for instance, in labour-saving automation. In close-by Brianza, a local cluster of furniture companies remains robust, helped by an amalgamation of old skills in wood with newer ones in plastics processing and 21st century design.

Many Alpine Ring businesses have built their strengths over a long time, using conservative accounting principles and borrowing only when they need to. To stay competitive, they have tapped into both local and global networks of knowledge transfer. They have shown that old-established areas of industry are capable of producing new sources of jobs and wealth if managers and employees are adaptable.

As it happens the centre of the Ring is not too far from Davos, where many top business people and politicians are meeting. As policymakers try to re­build the world economy, they may want to use the lessons from the Ring to lay the basis for strengthening existing companies and creating new ones.

The writer is FT manufacturing editor

WEF    January 30, 2009

What future for the global financial system?
New report explores a near-term outlook and long-term scenarios
Mark Adams, Head of Communications, Tel.: +41 22 869 1212, mark.adams@weforum.org

Davos-Klosters, Switzerland, 29 January 2009 / The World Economic Forum’s report The Future of the Global Financial System; A Near-Term Outlook and Long-Term Scenarios explores a near-term industry outlook characterized by an expanded scope for regulatory oversight, back to basics in the banking sector, some restructuring by alternative investment firms and the emergence of a new set of winners and losers.

Over the long-term, the report finds that a range of external forces and critical uncertainties have the power to significantly shape the industry. In particular, the World Economic Forum’s study found that the pace of geo-economic power shifts from today’s advanced economies to the emerging world and the degree of international coordination on financial policy are the two most critical uncertainties for the future of the global financial system. By employing scenario analysis, the report explores the impact of these and other key driving forces on the potential governance and structure of financial markets from today until 2020.

The report was developed by the World Economic Forum in collaboration with Oliver Wyman and overseen by a steering committee of 20 leading industry practitioners and academics.

“The World Economic Forum’s Annual Meeting 2009 is providing leaders from industry, government and civil society with a unique and timely opportunity to actively shape the post-crisis world. This report serves as a critical input into these multi-stakeholder discussions to stimulate the development of practical and responsible recommendations for promoting long-term financial stability,” said Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.

Heads of state, finance ministers and central bankers from over 60 countries, as well as chairmen and CEOs from over 200 of the world’s leading financial institutions are in Davos-Klosters, Switzerland to engage in these discussions.

Julia Hobart, Partner at Oliver Wyman added, “As we emerge from the financial crisis, there will be a new period of major structural shifts, which will have a permanent impact on organizations across financial services and from this we will see a new set of winners and losers,”

“The Future of the Global Financial System report provides financial leaders and policy makers with an examination of the impact of short-term changes in the financial markets and challenges us to consider broader, systemic changes to the financial system and global economies over the long-term,” added David Rubenstein.

Following the Annual Meeting and over the course of 2009, the World Economic Forum will leverage this first phase of work to engage leaders in an exploration of both opportunities to strengthen the global financial system by reducing levels of systemic risk and developing stakeholder-specific strategies to succeed within the new financial architecture.

Full list of Steering Committee (in alphabetical order):
- Paul Achleitner, Member of the Board of Management, Allianz SE
- Sameer Al Ansari, Chief Executive Officer, Dubai International Capital LLC
- Bader M. Al Sa'ad, Managing Director, Kuwait Investment Authority
- Sir Howard Davies, Director, London School of Economics and Political Science
- Robert E. Diamond Jr, President, Barclays PLC
- Volkert Doeksen, Chief Executive Officer and Managing Partner, AlpInvest Partners
- Tolga Egemen, Executive Vice President, Financial Institutions and Corporate Banking, Garanti Bank
- Jakob A. Frenkel, Vice Chairman, American International Group Inc
- Johannes Huth, KKR & Co Ltd
- Chanda Kochhar, Joint Managing Director, ICICI Bank Limited
- Scott McDonald, Managing Partner, Oliver Wyman
- Daniel Och, Founder and Chief Executive Officer, Och-Ziff Capital Management Group LLC
- David M. Rubenstein, Co-Founder and Managing Director, The Carlyle Group
- Heizo Takenaka, Director, Global Security Research Institute, Keio University
- Tony Tan Keng-Yam, Deputy Chairman and Executive Director, Government of Singapore Investment Corporation GIC
- John A. Thain, President of Global Banking, Securities and Wealth Management, Bank of America Merrill Lynch
- Ruben K. Vardanian, Chairman of the Board and Chief Executive Officer, Troika Dialog Group

World Economic Forum
• Bernd Jan Sikken, Associate Director and Head of Emerging Markets Finance, World Economic Forum

World Economic Forum USA
• Max von Bismarck, Director and Head of Investors Industries, World Economic Forum USA
• Kevin Steinberg, Chief Operating Officer, World Economic Forum USA

*            *            *
The World Economic Forum is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas.
Incorporated as a foundation in 1971, and based in Geneva, Switzerland, the World Economic Forum is impartial and not-for-profit; it is tied to no political, partisan or national interests (http://www.weforum.org).

Foreign Policy    February 20, 2009

Delusional in Davos
Why the global business elite feel no remorse about the damage they've done.
By Federico Fubini

Everything has to change in order for everything to stay the same," wrote the Italian author Giuseppe Tomasi di Lampedusa in his famous novel The Leopard. The novel is set in 19th-century Sicily, but Lampedusa could just as easily have been describing the 2009 World Economic Forum in Davos.

You notice it more in the corridors and the cafes of this exclusive Swiss hamlet rather than in onstage debates. Publicly, the discourse is all about the dangers of "false market assumptions" and the now-infamous "financial engineering." (I seem to remember it being called "financial innovation" last year.) But offstage, top bankers, private equity bosses, and hedge fund stars keep chitchatting and socializing, just as if banks had not had $1 trillion write-downs, the financial markets had not lost $25 trillion, and up to 30 million jobs were not at risk around the world.

To achieve this state of mind, any human being probably needs to construct a formidable mental shield. A survey I personally conducted at Davos this year of 60 top central bankers, financial market regulators, fund managers, and industry opinion-makers gives an idea of what this shield looks like.

When participants were asked whether they think they have done something in their career which "might have contributed, even in a minor way, to the financial crisis," 63.5 percent opted for a clear "no"; 31.5 percent went for a "yes," often adding in the same breath that nobody in the industry can honestly claim otherwise; and 5 percent said "maybe."

The "yes" people were then asked to explain what triggered their wrong decisions. They had three options: "too much optimism" (68.7 percent), "I felt I had to keep dancing while the music was playing" (31.3 percent), or "greed" (0 percent).

David Rubenstein, cofounder and managing director of the Carlyle Group, expressed surprise at the results. "How strange," he said. "I thought 100 percent of them would say they had nothing to do with it."

For all his wry humor, Rubenstein has a point. Psychological self-defense, a Darwinian instinct, is part of human nature, and "Davos Man" is no exception. Feelings of personal responsibility after a collective catastrophe are a matter for psychologists rather than World Economic Forum conversations, but the answers to the survey should come as no surprise.

 For all the talk of the more "somber" mood at this year's event, there were about 100 more private jet movements at the Zurich airport last week than during last year's event. I'm not sure if the irony was lost on the organizers who handed out pedometers to forum participants, to encourage them to walk and reduce their carbon footprint.

The conflicting attitudes of contrition and denial were evident at a special event on the "36 hours in September," when Lehman Brothers collapsed and the world changed. Nassim Nicholas Taleb, author of the bestselling The Black Swan, a book about hard-to-predict events, gave a presentation. The participants enjoyed his talk, which was brilliant and provocative as usual, but as he spoke, one couldn't help wondering if what they were actually enjoying was the simplistic comfort that Taleb's message could provide.

The audience seemed to enjoy the idea that the current crisis is a "Black Swan," a very unlikely, though possible, event. The alternative view is that of a train driven full speed into a wall. Thinking that way requires one to ask who was in the driver's seat, and just maybe recognizing one's own fingerprints on the wheel.

Federico Fubini is a journalist with Italy’s Corriere della Sera newspaper.

March 1 2009 19:30

Global policy shortcomings will cost us dear
By Wolfgang Münchau

Virtually every policy response to the crisis, on both sides of the Atlantic, seems to be falling short. My colleague, Martin Wolf, and the editorial column of the Financial Times have argued that the Obama administration’s financial sector rescue plan is dangerously inadequate. I would like to make the additional observation that the tendency to disappoint applies to almost every single policy decision by almost every government.

Let us briefly take stock of some of the policy decisions and proposals in the European Union. Faced with an economic contraction of at least 3 per cent this year, according to my estimate, the EU has agreed an effective stimulus of some 0.85 per cent of gross domestic product for the current year, as calculated by David Saha and Jakob von Weizsäcker, two economists at Bruegel, a Brussels-based think-tank. The stimulus was also not well co-ordinated, which limits its economic impact.

EU governments reacted to the acute phase of the crisis with mostly voluntary state recapitalisation schemes and debt guarantees. But there is not a single country where the schemes seem to be solving the problem of insufficiently capitalised banks, able and willing to lend to businesses and consumers.

Last week’s much awaited report about the future of European banking regulation and supervision was another example of a policy proposal failing to meet even the lowest expectations. The committee, headed by Jacques de Larosière, a former governor of the Bank of France and managing director of the International Monetary Fund, could not agree on the need for a single supervisor for Europe’s 45 cross-border banks. Instead, it recommended leaving national regulators in charge and creating two new institutions – one at the macro level and one at the micro level – with the job of mediating between national governments and regulators. When asked why he did not opt for an EU-wide supervisor, Mr de Larosière responded: “We might have been accused of being unrealistic.” I got the sense – but maybe this is a misperception – that he wanted to push harder for more centralisation, but that there was no consensus.

Another fitting example of policy complacency is the response to the central and east European (CEE) currency crisis. This was on the agenda of Sunday’s informal European summit, which concluded after this column was written. The proposals that were discussed ahead of the summit included a stabilisation fund. This is desirable and necessary, no doubt, but it is not at all clear how this is sufficient to ward off a speculative attack against all peripheral CEE currencies. I argued last week that euro-isation is the way to go.

Where tragedy turns into farce is the string of policy proposals by Angela Merkel, German chancellor. At one time, she advocated a United Nations Economic Council as a co-ordinating body for global finance – an economic equivalent to the UN Security Council. At the recent Group of Four European summit, she pushed ahead with a proposal to regulate hedge funds and tax havens. Most recently she said that countries should co-ordinate the timing of their bond issues. All this would imply that the crisis was caused by hedge funds, by policy failures due to a lack of international organisations, and by the fact that the Americans and Europeans issue their bonds on the same day of the week. I shudder to think what she might propose next.

Why this extraordinary complacency? One reason is that policymakers are not sufficiently alarmed about the immediate economic catastrophe. To them, this is still what US economists call a “garden-variety recession”. They must have been told that global trade has been in freefall for four months now, contracting at a faster rate than during the Great Depression. Yet they still appear to believe that the economy will miraculously recover in the second or third quarter, which is when their stimulus packages will kick in. But these plans are nowhere near big or good enough to stop such a massive decline so quickly.

As for Ms Merkel and her colleagues from France, Spain and Italy, they seem to be overwhelmed by what is clearly the wrong type of crisis for them.

That cannot be said of Mr de Larosière. For all my criticisms of his committee’s recommendations, his analysis of the global financial crisis is spot on. His team was afraid to make proposals that, in his estimate, had no chance of being adopted. I have no illusions about the enthusiasm among governments for a single EU banking supervisor. But if nobody puts up a fight, we should not be surprised that the only policy actions we get are the ones we get.

This is no longer a banking crisis. It is a policy crisis of the first order. Speculators, once more, are getting ready to deconstruct a European edifice, as they did in 1992, but this time it will be one on a bigger scale.


March 15, 2009

Three Wise Men Offer Three Takes On Markets
Experts Differ on What Has Changed, What to Do About It
By Tomoeh Murakami Tse

NEW YORK - Bond guru Bill Gross says he's sold off all the stocks in his retirement portfolio, down to the very last share. The world as we know it, he says, has "changed almost overnight."

But legendary stock-picker Peter Lynch thinks bargains are so plentiful now, "you feel like a mosquito in a nudist colony."

And Burton Malkiel, author of the classic investing book "A Random Walk Down Wall Street," is sticking to his long-held belief in investing in index funds. That's because judging from history, what we're seeing now is "not anything terribly unusual," he says.

Two years into the financial crisis, our retirement savings have been halved. The unemployment rate is the highest it's been in a quarter-century. And around the globe, economies are suffering the sharpest downturns in decades.

We turn to some top investing minds for their take on the situation. Their words have been edited and condensed.

Burton Malkiel, professor of economics at Princeton University and author of "A Random Walk Down Wall Street."

On the economy: This recession is being compared in its severity to the Great Depression, and I suppose in terms of how fast unemployment is going up and how worldwide it is, it probably bears some similarity to the Great Depression. But I want to emphasize I don't think we're going into a Great Depression. For one thing, the money supply dropped by 25 percent during the Great Depression. Today, the Federal Reserve's balance sheet is expanding dramatically. And central banks around the world are doing the same thing with respect to fiscal policy. I think the Obama stimulus plan could be much better. I think it may even be too modest. But at any rate, it's a big stimulus plan. Relative to what we did in the Great Depression, this is real money.

On investing: What's going on now is not anything terribly unusual. There have been many, many periods in the past where the stock market has been absolutely terrible for a decade or more. Unless you think that all of the sudden, the whole U.S. economy is going to go into reverse and never going to return, I think the stock market will prove its worth again in the future.

Does that mean we're going to recover right now? Who knows. What we do know about the stock market is that, after very long periods of hibernation or decline, it typically produces quite generous returns. If you've got a 10- or 20-year horizon, this is probably a very good time to invest in stocks.

I've always thought investors should be very broadly diversified. What they should certainly not do is give up and sell all their stocks now, which is what they're doing. Investors are taking money out of equity mutual funds like never before. And they should, I believe, stop doing that because, invariably, investors take their money out near the bottom and put their money in at the top.

I'm an indexer. I'd buy a very broad total stock market fund. I think you ought to buy a total bond market fund that has safe Treasury bonds, and also corporate bonds which now have very generous spreads over Treasurys. If you wanted a tiny sliver of gold, fine, put it in. But I certainly wouldn't go overboard on that. I also think everybody should have a safe (cash) reserve for contingency. This is part of sensible investing. Money markets are a fine place to be.

Bill Gross, chief investment officer of fixed-income asset manager Pimco:

On the economy: The global economy and financial markets are being affected by three primary forces: deleveraging, reregulation and deglobalization.

Deleveraging has to do with reversal of a long-term trend -- 50 years, probably -- in which businesses and individuals took on more and more debt. It simply got to the breaking point. Now we're going the other way, saving money, paying off debt. That has basically resulted in a destruction of wealth to the tune of $40 trillion or $50 trillion.

In this process of deleveraging, assets are sold, stocks are sold, houses are sold, in order to get out from the burden of debt. And lower prices produce less wealth.

It means economic growth will be much less. This also means returns [on investments] will be much lower because returns are predicated on economic growth and profits.

The second is reregulation, meaning increased government control over credit markets and their operations. Government is a less efficient operator of enterprise, and that also speaks to lower growth.

And the third is deglobalization, meaning each individual country is sort of behaving in their own interest -- things like Buy American.

The three in combination are forcing a wake-up call for investors that the world has changed almost overnight. In five, 10, maybe even 20 years, a generation will be playing by new rules with lowered expectations. This isn't just a one- or two-year thing. It will linger.

On investing: Under the scenario that I just described, income as opposed to capital appreciation becomes important. That means bonds as opposed to stocks become the favored asset class for individuals. The old 60-40, stocks-versus-bonds portfolio of pension funds and endowments -- it seems to me that that goes by the boards.

About a year ago, I gave up on the stock market altogether. I don't own any stocks in my retirement portfolio. I'd say they made up about 40 percent. My money's in municipal bonds and stable corporate bonds.

I made an early mistake in buying bank stocks, thinking they were cheap. Twelve months ago, I saw the light and sold them all. I'm happy about that.

Peter Lynch, former manager of the flagship Magellan Fund at Fidelity Investments:

On the economy: We've had 11 recessions since World War II and we've had a perfect score -- 11 recoveries. There are a lot of natural cushions in the economy now that weren't there in the 1930s. They keep things from getting out of control.

We have the Federal Deposit Insurance Corporation [which insures bank deposits]. We have social security. We have pensions. We have two-person, working families. We have unemployment payments. And we have a Federal Reserve with a brain.

On investing: I would not disagree that corporate bonds look attractive versus money markets. But I would think stocks are more attractive. But you have to have a time horizon further out than three weeks from Wednesday. Even one year, two years is not long enough. I'm very happy and content that five, 10, 15 years from now, corporate profits will be higher and the stock market will be a lot higher.

You need to have an edge to stock-pick. Buy what you know. If you're in an industry, you can probably find some companies in your field. If you're in the insurance industry, you're going to see things get better before I see them. All you need is a few good stocks a decade. Why don't you use your own industry knowledge? You have a huge edge on the professionals.

There are 7,000 or 8,000 public companies. You really ought to know 10 cold. Know their financial position, know what they do. And those are the ones you concentrate on. And when they get to be clearly attractive, then you understand them.

This dramatic decline in stock prices has affected great companies and good companies and mediocre companies. It's brought them all down. Bargains are all over the place. There are so many attractive stocks out there. But they keep going down. I've definitely been pounded. To use a golf analogy, I'd like to take a couple of mulligans.