City bankers will bet on raindrops running down a window pane, but they can't beat the bookies

Midweek View: Goldman's 'The World Cup and Economics 2014' is a veritable tour de force of mind-boggling analysis

Have you had a bet on the World Cup, the City guy asked me. When I said I hadn’t, he looked perplexed. “I’ve got a grand on Brazil to win, and £500 on Argentina,” he said. His calculation, apparently, was that Brazil were the clear favourites, at 3-1. But if they did not win, he really could not see anybody else other than Argentina picking up the Jules Rimet Trophy. With the odds on Argentina not dissimilar from those for Brazil, he was reckoning on covering his money.

All his City mates, he said, were having a flutter. Judging by his own wager, and the casual manner in which he discussed it, they must be staking equivalent sums.

 The guy knows his football – or rather, he thinks he knows his football. It’s the same across the City – everyone has gone World Cup mad. Forget the markets: Robin van Persie’s diving header, Lionel Messi’s stunning dribble, and Raheem Sterling’s goal that never was are dominating the conversations.

The City boys, though, are not content with just enjoying a pint and watching matches on TV. They like to have some skin in the game, to add a bit of spice, to make their time, even leisure time, financially profitable.

It’s the same with golf. I can play with non-City mates and the loser buys the drinks; but join a four-ball of Square Mile high-rollers and the stakes can be far higher. Instead of having a pleasurable 18 holes, I’m reduced to a quivering wreck, wondering how I will explain the possible enormous loss to my wife. As a result, I’m barely able to play – a bag of nerves, worrying about every shot, shaking over each putt.

Twice though, I’ve played with some off-the-scale fat cats who were having side-bets, the size of which they clearly judged to be off-limits to me. How did I know this? Because on each occasion they said words to the effect that they were having some “additional fun”, but they did not expect me to join in.

The first time was with a pair of well-known City figures at the Royal Mid-Surrey club. The victor won easily, but then the other golfer suggested they make it “double or quits” when they were due to play again, at Sunningdale. If I had to guess, judging from overheard snippets in their conversation, they were playing for £5,000.

On the second occasion, the match ended in a draw. It was me and one of the super-rich guys versus two of his pals, at Wentworth, on the West Course. It only finished all-square as I blew up on the last, my partner having hit his ball out of bounds. We were one up with one to play, and he turned to me and said that all I had to do was half the hole to win.

Instead, I took a nine, a quadruple bogey, and we lost. The four of us shook hands, but my team-mate could not speak. He stormed up the hill to the clubhouse, and was so upset that he did not appear in the bar for ages. Judging by his furious demeanour, and the grins on the other guys’ faces, he’d been set to collect a small fortune – only for yours truly to make it disappear.

Over a few drinks, the permanent City speculator who is never far away can soon loom into view. I’ve seen traders bet on rain drops running down a window. On the golf course, I’ve witnessed money change hands on whether someone can hit a particular tree from 200 yards (he failed). Back in the City, they will stake hard cash on the colour of the Chancellor’s tie on Budget Day, the exact length of his speech or how many times he says a certain word.

One evening, I played table-tennis with two bankers. At first I thought they were speculating on the outcome. Wrong. They were gambling between themselves on the close of the Dow in New York.

At a City charity dinner, I saw a diner peel off some notes and hand them to another. It turned out they were having fun predicting how much one of the auction lots would raise. And I haven’t even mentioned horse-racing.

Occasionally, firms try to capture the mood, to cash in on the fixation. One of the most entertaining reads to emerge from the mountain of literature devoted to the World Cup comes from Goldman Sachs. A few weeks ago, the economists in the mighty bank’s investment research department turned their gaze to Brazil. The resulting The World Cup and Economics 2014 is a veritable tour de force of mind-boggling analysis.

On average, for example, in the month when a World Cup is played, the Italian stock market is 2.5 per cent lower than the previous month. But in July 1982 and 2006, the months when Italy won the Cup, the market actually rose – up 3 per cent month on month. So if Mario Balotelli and co win, pile into Italian stocks. Says Goldman: “History suggests that if the Azzurri beat the odds, buyers of Italian assets will also cheer.”

For those following the Dutch team, they should keep an eye on house prices. If they’re down, the performance on the pitch is also down; up, and the Netherlands are winning again. Goldman reckons that “the recent stabilisation in the Dutch housing market suggests the worst is behind Dutch football”. But all things are relative, and Dutch house prices continue to lag behind those of Germany, suggesting that “that the prospects of Netherlands beating Germany and reaching a fourth final is far from imminent.”

What of England? Goldman quotes Bill Shankly’s famous observation that football isn’t a matter of life or death – it’s more important than that. “By contrast,” writes Goldman, “economics is rarely, if ever, more important than life or death. So it must follow – as a matter of logical deduction – that football is more important than economics.”

To prove their point, they look at 1966. “Pretty much every English man and woman knows England won the World Cup in 1966. How many know how the economy performed that year? Not many.” In fact, 1996 “was a year of relative underperformance for the economy – sluggish growth and rising unemployment”. Goldman concludes: “In the (unlikely) event England win the 2014 World Cup, we doubt many in 2062 will remember if the economy performed well or badly this year, but they will all remember the World Cup. Business cycles come and go, football is forever.”

My man with the bet on Brazil followed by Argentina would be encouraged by Goldman’s study. Based on scrutinising the entire history of competitive international matches since 1960, and building in additional factors such as home advantage (worth an extra 0.4 goals per match) and home continent advantage (no European side has ever won a World Cup held in the Americas, worth 0.2 goals per game) Brazil should win hands down.

Next likely to win, but by some margin, is Argentina, followed by Germany. Goldman writes: “It is hardly surprising that the most successful team in football history is favoured to win a World Cup at home. But the extent of the Brazilian advantage in our model is nevertheless striking.”

Goldman even takes on the bookmakers. Their analysis gives Brazil an almost 50 per cent probability of winning, versus Ladbrokes’ 25 per cent.

But before my man with the bet gets excited and begins rubbing his hands at the prospect of a juicy pay-out, he should take heed. As I write this, of the 14 group matches played so far, Goldman has called just five results correctly. The rest it has got wrong. Move to score-lines and Goldman fares even worse: just one score, Argentina v Bosnia-Herzegovina, is forecast correctly.

And the Goldman model would have failed to pick the last World Cup winner. It would have predicted Brazil to win, when in fact Spain were victorious.

We should not be surprised. Not for nothing does the old joke tell us: God invented economists in order to make astrologers look good.

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