Theory of Self-Licking Ice Cream Cone to Replace Value
Theory of Stock Pricing on Wall Street

November 6, 1999

Comment: #329

Discussion Thread:  #s - 328



Wall Street is abuzz with rumors of a new risk-free theory of portfolio management, following the critical speech by the Deputy Secretary of Defense [see Comment #328]. Money from defense contractors is already flowing into a new think tank aimed at promoting the new vision. Tentatively named the Center for Strategic Stock Market Priorities, the think tank will be led by ex-military officers with PhDs and reports will be written by a coterie of over-educated, under-employed defense intelaaaaaaaaactuals who are in the holding pen for political appointments to the court of Versailles. What follows is a preliminary attempt to explain the rapidly emerging Revolution in Stock Market Affairs. As with all military-technical revolutions, VISION is reality.

In my last message, I described how the nuttiness in Versailles on the Potomac is rising to crisis levels, even by our standards. The craziness of the Defense Death Spiral is creating pressures on Wall Street that are panicking the high rollers in the Pentagon's board room, who are more concerned about the declining value of defense stocks than a modernization program that can not modernize the force, a rapidly deteriorating readiness posture, or the corrupt accounting system that makes it impossible to fix the first two problems.

It would be better, I argued, for the advisors to John Hamre, the Deputy Secretary of Defense, to direct his efforts to solving real problems of national security rather than jawboning Wall Street into propping stock prices of the defense companies. Such a program of renewal should start with a high priority effort to clean up our corrupt bookkeeping system. With good information, we might even make sensible decisions.

Well, I was wrong.

The referenced report says that analysts on Wall Street and the lobbyists in Gucci Gulf also objected to the Deputy Secretary's remarks, saying the Pentagon was to blame for the looming market meltdown. Of course, NOWHERE in their objections will you see any evidence of concern for soldiers or taxpayers.

Being totally befuddled by all this finger pointing, I asked an active duty Army Staff Sergeant, known for his gruntish wisdom, for advice on this complex issue. While his response indicates a fundamental inability to comprehend the big picture, he inadvertently put into motion a chain of events that has now clarified the central question of policy, and I want to share it with you.

Let us first read his response, and then we will analyze why it was wrong to seek advice from people in the field with hands-on experience in these matters:

----[begin email from the Sergeant]------

The Sergeant said,

"Hamre's remarks are unbelievable, but then again he is unbelievable. Earlier this year he authorized the Minnesota Air National Guard to fly a group of students from various midwestern Lutheran colleges down to Fort Benning to take a tour of the School of Americas.

Now, I'm no economic genius, but if he wants the stock market to support the defense industry, then the defense industry is going to have to produce something of value.

I guess that means the government is going to have to purchase more stuff, or we relax some of our export rules.

I find this rather disgusting.

When I was in Korea, I tried to order some circuit boards for a telephone system that I was repairing. I couldn't get them, because the army is short of these things, and according to the item manager, I hadn't turned-in (or more accurately the National Inventory Control Point hadn't received) the nine boards we had turned in during the previous year. So now, instead of buying the repair parts we need to maintain what we have or fix the inventory control system to keep better track of what we have, the Pentagon is going to pump money into an industrial sector that produces stuff that only the Pentagon can buy. And then when those parts start becoming short or get lost because of the broken accounting system, the cycle will repeat itself.

I have a friend who is working on a Master's Degree in Economics up at SUNNY Buffalo. I'll have to get her opinion on this stuff.

Based on this article, I am going to dump Raytheon and Lockheed, and buy Procter and Gamble."


----[end email]----

Unfortunately, the Sergeant's response won't help us in Versailles. He obviously does not understand why disgust in the trenches by the unwashed masses must be held in check for higher policy reasons and, more importantly, why petty efforts to get circuit cards can NEVER be allowed to block the forward march of policy.

Fortunately, we can ignore his rantings. Rumors of a serious policy initiative are now swirling through the halls of Versailles Unlike the Sergeant, the courtiers have a practical idea that will work in the hall of mirrors. The rumor is that the Policy Wonks are going to distribute Armed Forces Day Posters to all the high rollers on Wall Street and the spinners in Gucci Gulf. The policy aim of this is to build confidence by proving that all the Pentagon cares about are big ticket weapons, not people like the sergeant. The Poster designs are already in place (we have the galleys from the last four years of posters without people), but there is one glitch in the plan: the government machinery to print the flood of posters is down for want of spare parts. Another initiative is expected to clean out this bottleneck shortly. The Acquisition Reformers intend to privatize the production of Posters, which will also generate a more favorable earnings picture for some contractors and help relieve pressure in the markets. This "can do" spirit of Versailles will then unleash the public relations blitzkrieg that will calm the troubled waters in the stock market.

PPB, or Privatized Poster Blitzkrieg, should not be confused with toxic chemicals; it is an acquisition reform designed to speed up the time cycle of a confidence-building policy initiative. PPB aims to prove to Wall Street that the courtiers in Versailles will NEVER permit the Sergeant's problems to interfere with the health of the defense industry. After all, the Courtiers will need jobs in that industry later, so it is in their interest to convince Wall Street not to scare their allies in the defense industry.

I must admit that I was skeptical when first confronted with the rumors of PPB. After all, most acquisition reforms have failed to deliver their promised benefits. So I asked a retired Marine officer to comment on my analysis of the sergeant's failings as well as the new policy. He agreed with the basic soundness of my analysis but said my skepticism of PPB was misplaced. The retired Colonel said he had it on good authority that PPB was part of a larger, more profound policy initiative.

The Pentagon, according to his sources in the mirrored halls of the E Ring, is about to announce that that Ben Graham's value method of stock pricing will be replaced by the THEORY OF THE SELF-LICKING ICE CREAM CONE.

Once this revolutionary theory enters the mainstream of stock portfolio management, the random walkers on Wall Street would be able to focus their efforts in a non-random way by using an incestuously amplifying feedback loops to continuously bid up stock prices for defense industry ... forever. Mr. Hamre's jawboning was only the first step in building the self-licking market mechanism.

Futuristic Visionaries in Center for Strategic Stock Market Priorities believe the new theory of Self Licking will have the added benefit of neutralizing the budget-cutting lust of the notorious Ben Cohen (of Ben & Jerry's Ice Cream) out to the year 2010 by distracting him into believing the military-industrial-congressional complex wants to buy an endless supply of his products on a cost-plus basis. Unverified rumor has it that Cohen's emissaries are already following the Deputy Secretary's advice and are now in the early states of negotiating a multi-year ice cream contract to insure program stability over the long term.

Defense intellaaaaaaaactuals are convinced that Self Licking Theory is a brilliantly simple foundation for a Revolution in Stock Market Affairs, because it will show Wall Street that there is nothing to fear but fear itself. Once this glorious state is reached, life for the courtiers in Versailles will return to its somnolent elegance, where stability reigns supreme and changes are never needed.

Chuck Spinney

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