Davos is a trendy place. If you're up, you come here. If you're down, you stay home. And if you screwed things up royally, you stay home, but they talk about you a lot. In general, the World Economic Forum represents a consensus of the great and good about who is up and who is down. And since that consensus is usually wrong, Davos is frequently a contrary indicator.
In that way, Davos is similar to a magazine cover. By the time a trend or investing idea, percolates up from below and editors have anointed it as cover-worthy, its time has already past—as when Fortune put Krispy Kreme on the cover just as it was about to tank or when Time made Amazon.com CEO Jeff Bezos Man of the Year in December 1999.
Some subjects are hot at Davos every year, regardless of what is going on in the world—China, President Clinton, Google. But there's always a new phenomenon. During the credit bubble, the huge, global, U.S.-based investment banks—Citigroup, Lehman, Bank of America—strutted around the slopes, their egos and balance sheets swollen. In 2007, the unspoken theme at Davos was: What could go wrong? And the unspoken answer was: nothing. And then the world collapsed. In 2008, private equity and sovereign wealth funds, especially from the Persian Gulf, were hot. But both proceeded to make horrific investments at the market top and quickly tumbled to Earth. This year, the flowing robes of the Persian Gulf were nowhere to be seen. In 2009, the overwhelming sentiments were pessimism and panic—assets were going down, markets were in free fall. Naturally, that represented a great buying opportunity. Soon after Davos emptied out, the world's stock and credit markets embarked upon an epic bull run.
But it was harder to identify the new thing at Davos last week. There was not as much gloom as 2009 but still great unease. There was relief at the global recovery and signs of strength but continued concerns about the efficacy of recovery programs and the possibility of a second collapse. Many Davos-goers were worried about America's dysfunctional politics, the conflict between Google and China, and fiscal troubles in Greece and Spain. (In recent years, people at Davos talked a lot about the BRICs—Brazil, Russia, India and China—that were driving growth. This year, they also started talking about the PIGS—Portugal, Ireland, Greece, and Spain—a quartet of European countries bedeviled by high unemployment and high debt, and not much in the way of plans. A year ago, Greece's economy was not particularly interesting to anyone at Davos. This year, a session featuring Greek Prime Minister George Papandreou was heavily attended.
Who else popped out of nowhere to occupy a prominent role? French President Nicolas Sarkozy. Most of the leaders of the large developed economies were too occupied with domestic problems to make the trek to Davos. So this year, Sarkozy, who popped over from Paris, was rewarded with a prime speaking slot. As my colleague Jacob Weisberg noted, Sarkozy called for nothing less than a new mode of capitalism. Sarkozy also questioned some of the basic tenets of the Davos crowd. "Finance, free trade, and competition are only means and not ends in themselves." That's a little like standing up at the Academy Awards and saying "Money, promiscous sex, and plastic surgery are only means and not ends in themselves." When President Bling-Bling is leading the charge on calling for a new financial order and is uncontested by his counterparts from the United Kingdom and the United States, you know there's been a disturbance in the atmosphere. The takeaway: short Sarko.
Finally, there was a lot of talk—from bankers, regulators, political leaders, and journalists in attendance—about the need for, and desirability of, global standards to regulate banks, financial companies, and capital markets. The concept of globalized financial regulation has always struck me as something akin to camping—great in theory but an uncomfortable nightmare in practice. If we've learned anything from the experience of the last few years, it is that bankers, regulators, and political leaders in different countries actually like having different regulatory systems. American firms like having a system in the United States that favors them, and not their international rivals. Ditto for the United Kingdom, Japan, Germany, and France. The takeaway: short global regulatory cooperation.