Friday, October 02, 2009
Sucking out the poison - or injecting it?
Padders has directed me to the latest financial craze, the re-remic. And, no doubt, in all the detail will hide another toxic djinn, while bankers, ratings agencies and quants run far, far away with their salaries, fees and bonuses.
Sit up and take notice!
From time to time, you get a piece of longer-term thinking that initially seems interesting, is then forgotten in the pell-mell of daily life, and finally haunts you with its truth years or decades later. For example, I remember one TV discussion back in the 70s where terrorism was flagged as the theme for the future; and another, criticising commercial advertising, where one ad honcho said the worrying thing was the increasing importance of the government as an advertising client.
This post by Edward Harrison seems to me one of those keep-it-by-your-desk pieces. He says too many things for me to summarise easily, but it has "secular bear market" written all over it, and Harrison goes further (into the territory recently explored by Michael Panzer in "When Giants Fall"):
... Needless to say, this kind of volatility will induce a wave of populist sentiment, leading to an unpredictable and violent geopolitical climate and the likelihood of more muscular forms of government.
This post by Edward Harrison seems to me one of those keep-it-by-your-desk pieces. He says too many things for me to summarise easily, but it has "secular bear market" written all over it, and Harrison goes further (into the territory recently explored by Michael Panzer in "When Giants Fall"):
... Needless to say, this kind of volatility will induce a wave of populist sentiment, leading to an unpredictable and violent geopolitical climate and the likelihood of more muscular forms of government.
Principles of investing
Bob Farrell’s Ten Market Rules to Remember
1) Markets tend to return to the mean over time. This is especially noteworthy now, for the housing market is returning to its mean by plunging, as are equity market, the dollar, the Yen, et al.
2) Excesses in one direction will lead to an opposite excess in the other direction. They always do, and the excesses of the housing bubble and excessive, lenient bank lending, are giving way to the housing collapse and inordinately tight lending practices.
3) There are no new eras — excesses are never permanent. And how strongly does that speak to us now, for the supposed era of unending housing price increases and of globalisation has given way to weak housing and growing protectionism.
4) Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways. Markets correct by going in the opposite direction, falling sharply after sustained, broad rallies, and rallying after sustained broad weakness. The world ebbs and the world flows; it has always been thus, and shall always be thus.
5) The public buys the most at the top and the least at the bottom. Of course they do; they always have and they always shall. The public buys when euphoria reigns, and it sells when depression does years later.
6) Fear and greed are stronger than long-term resolve. We are human beings dealing with rational and irrational markets; to believe that "fear" and "greed" can ever be lost is naive for they are the most fundamental of human traits.
7) Markets are strongest when they are broad and weakest when they narrow to a handful of blue chip names. Just as volume must follow the trend, so too must good markets have broad support and weak markets have broad weakness... and at the moment, the market is very, very broadly weak.
8) Bear markets have three stages — sharp down — reflexive rebound —a drawn-out fundamental downtrend. This really is how this bear market shall end; not with a hoped for "V" bottom, but with a great washing-out... a capitulation... and then months, or even years, of base building.
9) When all the experts and forecasts agree – something else is going to happen.... or as we like to say, "When they are yellin', you should be sellin,' and when they are cryin,' you should be buyin.' "
10) Bull markets are more fun than bear markets.... or as a friend of ours from Raleigh, N. Carolina used to say many years ago, "Bears don't eat; bulls party!"
1) Markets tend to return to the mean over time. This is especially noteworthy now, for the housing market is returning to its mean by plunging, as are equity market, the dollar, the Yen, et al.
2) Excesses in one direction will lead to an opposite excess in the other direction. They always do, and the excesses of the housing bubble and excessive, lenient bank lending, are giving way to the housing collapse and inordinately tight lending practices.
3) There are no new eras — excesses are never permanent. And how strongly does that speak to us now, for the supposed era of unending housing price increases and of globalisation has given way to weak housing and growing protectionism.
4) Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways. Markets correct by going in the opposite direction, falling sharply after sustained, broad rallies, and rallying after sustained broad weakness. The world ebbs and the world flows; it has always been thus, and shall always be thus.
5) The public buys the most at the top and the least at the bottom. Of course they do; they always have and they always shall. The public buys when euphoria reigns, and it sells when depression does years later.
6) Fear and greed are stronger than long-term resolve. We are human beings dealing with rational and irrational markets; to believe that "fear" and "greed" can ever be lost is naive for they are the most fundamental of human traits.
7) Markets are strongest when they are broad and weakest when they narrow to a handful of blue chip names. Just as volume must follow the trend, so too must good markets have broad support and weak markets have broad weakness... and at the moment, the market is very, very broadly weak.
8) Bear markets have three stages — sharp down — reflexive rebound —a drawn-out fundamental downtrend. This really is how this bear market shall end; not with a hoped for "V" bottom, but with a great washing-out... a capitulation... and then months, or even years, of base building.
9) When all the experts and forecasts agree – something else is going to happen.... or as we like to say, "When they are yellin', you should be sellin,' and when they are cryin,' you should be buyin.' "
10) Bull markets are more fun than bear markets.... or as a friend of ours from Raleigh, N. Carolina used to say many years ago, "Bears don't eat; bulls party!"
Thursday, October 01, 2009
Haw, haw!
The above is a photo of Clive Sinclair (later Sir Clive) with one of his inventions, the miniature TV (1966). Life magazine dubs it one of "30 Dumb Inventions" (slide 18 in the sequence).Oh, yes? iPhone, anyone? (and see slide 26, to boot).
The difference between mockery and admiration is often a matter of timing (think of da Vinci's helicopter, or Noah's Ark). It's Sinclair's misfortune that, like many a genius, he led the market by too great a distance. But without people like this, we wouldn't have got here.
Tuesday, September 29, 2009
Two questions on productivity
A couple of quick ones:
1. Turn on, tune in, drop out
Robin Hanson says we are living in a "dream time", when survival instincts have been dulled by wealth so that Nature has (temporarily) let us get away with acting stupidly. I recall the old saying, "From clogs to clogs is only three generations" (i.e. the middle generation spends it all).
In this context, it's also interesting to note how at a time when we're drugging children and old people to stop them being a nuisance, libertarians are calling for young adults to have the right to zombiefy themselves with "harmless" mind-altering substances. Yes, they will still be able to work, some of them, for some time; I guess the same argument goes for functioning alcoholics. Dream on... until, as the Germans say, "Aus der traum, lieber Freund."
I've known black people who maintain that drugs liberalisation (and the associated laissez-faire approach to law enforcement) is a plot to keep their children in subjection. I tend to put it down to middle-class selfishness, instead; but I can see why they might think that.
2. Think big, think small
As higher taxation looms, some are already trying to draw a distinction between "productive" and "unproductive" workers. Well, effectively, practically everybody (including the poor) pays 40% tax already, when you look at the combination of income tax, National Insurance and sales taxes; though I do agree that a proposed 50% higher-rate income tax rate is likely to generate various avoidance strategies that will mostly wipe out the hope-for extra revenue.
But if Mish's friend "BC" is right, we are entering a "Schumpeterian Depression", during which big biz uses its access to finance to crush small enterprise; and so it may be a decade before young entrepreneurs develop the muscle to get out from under and start to succeed.
Besides, how much big business is founded on destroying small businesses and the self-employed? What, for example, if we looked at it closely, would be the real, total net benefit of the giant supermarkets? Weigh up the cheaper prices against the exploitation of their suppliers and the ruination of small shopkeepers - and the smashing of one of the ladders by which the aspirant working class - and their children - could rise and become self-supporting.
Monday, September 28, 2009
Where to turn, for financial security?
Richard Bookstaber (whom we've met before, here) looks at asset allocation and makes a point he's made before: in a crisis, everyone wants out, and the relative merits of different assets are ignored in the dash for cash. Provided cash (at bank) hasn't itself become risky - and after last year, that's not a given. Even outside the bank, there's inflation, devaluation and also, potentially, the fate of the Confederate dollar.
Leo Kolivakis comments, "I happen to believe that diversification is still important, but loses its power as huge inflows are going into all sorts of public and alternative asset classes."
That's the problem: we no longer know where to turn. As Kunstler comments, "the most perplexing part is that there hardly seems any safe place to preserve one's savings."
How about the smart, nimble operators? Investment guru Marc Faber spends his time looking at liquidity flows, trying to predict the next sudden tide and get in beforehand - not a game for the type of clients I have usually advised. And even he appears to be readying himself for the worst, "a total disaster, with a collapse of our capitalistic system as we know it today."
Recently, I seem to have been reading more commentators tending to the view that we are heading for that Mises "crack-up boom" - outlined here nine years ago, for example. And worse:
"And 'mid this tumult Kubla heard from far
Ancestral voices prophesying war!"
The great pleasure gardens of China's Emperor took some 40 years to build, in the first half of the eighteenth century. Vast, complex and exquisite, they were testimony to the wealth and power of the Middle Kingdom, only to be methodically destroyed in an act of punitive vandalism by the French and English in 1860. Premier Zhou Enlai decreed that the ruins should remain unaltered, a monumental lesson for the Chinese about the Western powers.
Of all the curses on humankind, long and vengeful memory may be the worst.
Leo Kolivakis comments, "I happen to believe that diversification is still important, but loses its power as huge inflows are going into all sorts of public and alternative asset classes."
That's the problem: we no longer know where to turn. As Kunstler comments, "the most perplexing part is that there hardly seems any safe place to preserve one's savings."
How about the smart, nimble operators? Investment guru Marc Faber spends his time looking at liquidity flows, trying to predict the next sudden tide and get in beforehand - not a game for the type of clients I have usually advised. And even he appears to be readying himself for the worst, "a total disaster, with a collapse of our capitalistic system as we know it today."
Recently, I seem to have been reading more commentators tending to the view that we are heading for that Mises "crack-up boom" - outlined here nine years ago, for example. And worse:
"And 'mid this tumult Kubla heard from far
Ancestral voices prophesying war!"
The great pleasure gardens of China's Emperor took some 40 years to build, in the first half of the eighteenth century. Vast, complex and exquisite, they were testimony to the wealth and power of the Middle Kingdom, only to be methodically destroyed in an act of punitive vandalism by the French and English in 1860. Premier Zhou Enlai decreed that the ruins should remain unaltered, a monumental lesson for the Chinese about the Western powers.
Of all the curses on humankind, long and vengeful memory may be the worst.
Inflation and the money supply
Interesting graph from Eric Janszen - he ignores the velocity of money (which can change quickly) and concentrates on money supply. He sees our situation as akin to that in 1981; I'm still thinking we're in the mid-70s, because round about 1982 was when we started to see real (post-inflation) returns on investments.
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