The long and the short-term of it: Apple's future

Or perhaps the view of the public (or local and state employees) pension schemes in the US might be another example. Over the years, these liabilities have built up so much that a number of localities are on the point of going bust.

The impetus for the deals likely to cause municipal bankruptcies isn't hard to determine. Politicians (mostly Democrats, but by no means all) rely upon the unions representing government workers for support in money and manpower at election time. It's very difficult to push through a 10 or 20 per cent pay rise to reward such support as it's pretty blindingly obvious what is being done. But change the rate of accrual of pension benefits, or the age of retirement, or add a cost of living adjustment clause to payouts and nobody really notices.

And of course by the time, 20 years down the line, that the cost has to be coughed up the politicians are long gone. This explains why places like Yonkers have police sergeants retiring at 50 on pensions higher than their usual wages. Just as an example of one rule: overtime payments in the last year of working are added to the base salary for pension calculations. ConEd, the local electricity utility, is then “encouraged” to hire off duty cops in their last year of work to direct traffic around work taking place. Such overtime can more than double pay in that year and then that's the number which is used to calculate the pension payable for the next 30.

This isn't exactly an example of politicians taking the long view - it's precisely the opposite. In return for votes now we'll shake down the taxpayer in 20 years time.

At a rather grander level of statecraft, we might look at Chavez in Venezuela. The economy as a whole is reliant upon oil exports (some 18-20 per cent of the entire GDP) in a way that we never were on North Sea oil. The state-owned oil company, PDVSA, is also the major cash cow for the government, and boy has that cow been cashed. While stores selling cheap food for the poor might be a good idea, taking next year's investment budget off the oil company to pay for them isn't exactly looking to the long term.

It should be pointed out though that it doesn't actually have to be this way. Norway has famously piled up its oil money into a fund rather than splurging it on current spending. Indeed, they're rather famous for saying that the oil fund cannot even be invested, let alone spent, inside Norway, but then perhaps what works for Vikings doesn't work for the rest of us.

But if we have, in theory, markets being terribly short term and, in theory and practice, governments being both terribly short term and long term prescient, can we also see markets being long term?

Well, yes, we can in fact, as the Apple valuation shows.

The general response from those in the market has been that Apple has better prospects. With the iPad and iPhone they're in consumer electronics, not computing, and it's thought that this will lead in the long term to a better outcome for investors. Stepping outside the technology arena, there's only one listed company more valuable than Apple now. Exxon, even though 2009 was a bad year, earns something like eight times the profits that Jobs' merry band do... and is only worth something like 120 per cent of Apple's value.

This isn't to say that the markets are right in these valuations, but to point out that they can only be explained by people being long term in their estimations of these values and thus that markets can indeed be long term in their outlook.

As can venture capitalists: one company in the space where my day job resides is Bloom Energy, which has swallowed $400 million in venture capital money over the past seven years. At the risk of being accused of a Christine Keeler moment (“well, he would say that wouldn't he?”) I'd say that it's pursuing the right technology at least, and as for its success in rolling out the tech... we'll have to see. But it's not evidence of any short term thinking on the part of investors, which is the point to be made here.

There's not in fact any grand overarching point to be made here. Some governments, some of the time, do make decisions on the long term merits or otherwise of a proposal. Others will do whatever it takes to win the next election. There's certainly no shortage of stories about how the markets sometimes act in a short term manner: bankers chasing that next bonus is only one possible example. In the end, it simply depends.

It depends, in fact, upon the incentives being faced by those politicians and market participants. If we would vote only for those who do think of the long term, invest only in those companies building for the future, then that's what they'll all do. If we're willing to be suckered by jam today and no thought for the future then that's what they'll all do too. The fault of either system lies not in the stars but in us - the underlings. ®