There was an interesting social science paper a few years ago.
Subjects were given a skills test. Without knowing the results, they were asked to evaluate their own performance. They were then shown someone else's test, and asked to re-evaluate.
The consistent result was that the worst performers consistently evaluated themselves as much better than average, and even upped that evaluation when shown the other paper. The complete opposite was true for the over-achievers.
US students have close to the worst performance in mathematics in the industrialized world, yet rate themselves as 'A'. The South Koreans, who are the best, rate themselves as 'C'.
My own experience with students and faculty supports this. Poor students usually assume that they are doing well. The most educated of my colleagues are hesitant outside their areas of expertise.
That feeling of inadequacy of the best and brightest drives them to excellence. I always think of M.C.Escher, and his quote that 'I wish I could draw better'. Many other famous scientists and artists expressed similar sentiments, and produced wonders.
The fact that our brains appear to be hard-wired to equate confidence with leadership means that we are much more likely to pick our managers and politicians on the basis of self-assurance, rather than ability. This is supported by other studies, showing that taller and better-looking people earn more money and are promoted more often.
This habit of choosing confident 'feel-good' individuals over hesitant problem-solvers goes a long way to explain why US voters overwhelmingly rejected President Carter in favour of Ronald Reagan.
Sunday, February 14, 2010
Saturday, February 13, 2010
Optimistic pessimism, investor realism
We are in a phase previously seen in the early 80s and early 90s, where commentators and politicians are on the look-out for "green shoots". The 0.1% growth in British GDP for the last quarter is hailed as the official end to the recession, ignoring the painful fact that for 2009 as a whole the economy has suffered a major contraction. That fraction of a percent quoted is so slim as to invite re-examination, and doubtless once one's factored-in margins of error in definition and reporting it might not even be a positive figure after all.
Reported marginal increases in turnover glosses over the fact that companies have been selling off surplus stock at discounted prices, so the profit per unit of production has decreased. Sooner or later, a fall in profits per share will press the markets down again, prompting further layoffs and site closures. This will hit commercial property rents and valuations; and with more unemployed, consumers' mood will become yet more cautious. The cost of the health and welfare system will fall more heavily on a reduced workforce and business base, leading to further pressure to cut costs and maybe move production abroad. That's not just industrial production: with lightspeed communications systems and millions of well-educated, English-speaking people in overseas labour forces, white-collar workers should not imagine that they are safe, and that it is only blue-collar workers and menial employees who must worry about their jobs.
Something must give, and the public sector and the welfare system are in the firing line. However, it is a moot question whether politicians in our democratic systems are able to make tough enough decisions, fast enough. They will look for some other way out, and many will cheer them on- we're already seeing calls for monetary reflation, as though more of the same will cure us.
My self-imposed brief is not to play Cassandra, but to stop my clients and my readers being suckered in the last money grab before the economies restructure. I note that Money Week has finally come round to my view:
Where should you place what little money you have?
Jeff Clark, of Casey Research, says: "We currently recommend our subscribers keep 1/3 of their assets in cash, 1/3 in physical gold, and 1/3 in other investments, including top-notch gold proxies and stocks."
The emphasis on physical gold is significant, because there's much more being traded in promises than can be delivered - if everyone demanded sight of their gold, there'd have to be a sort of pass-the-parcel game for all the contracts to be fulfilled. For the first time in many years, central banks have become net buyers of gold, and China has declared her intention to increase her own stocks from 1,000 tones to 6 or 10 times that in the next decade (China is now the world's largest producer of newly mined gold). There's also a scare story doing the rounds, about some (how many?) bullion bars being nothing more than tungsten coated with a thickish layer of gold; and US Congressman Ron Paul may yet succeed in his campaign for a full audit of the Federal Reserve, which might reveal, among other things, just how little gold is still in the Fed's vaults. It's true that gold has risen very sharply in price over the last few years, and is now above its long-run average in real terms, but that's not surprising at a time of growing unease and distrust of the money system and government in general. Whether the price will explode as some of the gold bugs say, is another matter. Gold is a small market and the speculators are playing in it with cheap borrowed money. (UPDATE: see this article on how gold has changed its behaviour and is now going up and down like other investments - a sign, perhaps, that the speculators are now running the show in gold.)
My approach is to make a distinction between investment and speculation. Investment, I'd suggest, is putting your money where it will grow largely in line with the overall growth of the economy; speculation is trying to achieve more, which must be at someone else's expense. The latter is therefore a gamble, and gamblers often lose.
You should also review your money objectives in the light of your personal circumstances and goals. Do you need to gamble? Remember that there are still fairly secure ways to protect yourself against inflation or default - various National Savings products in the UK, and Treasury products in the US.
I've suggested many times that we will eventually see a much deeper decline in the stockmarket - maybe 4,000 on the Dow and 2,000 on the FTSE - though when, who knows? Given my belief that we are in a "secular" (long-lasting) bear market, then clearly I think that at any point, there is a greater chance that stocks will go down than that they will rise. The odds are against us, and I think that will be true for the next 5 - 10 years. Gamblers will be looking for short-term recoveries, but you may have heard of the formerly big-time successful gambler (can't remember his name) who ended up selling his binoculars for one last bet at the track.
My view is ultimately hopeful, otherwise I shouldn't have bothered relaunching my brokerage this year. If you want a more spine-tingling view, here's an example - but that plays to an unrealistic, dramatic melancholy tendency in us. Even Hitler and his henchcreatures couldn't take the whole of the German people with them into Götterdämmerung. The United States has 300 million people, vast land not fully and efficiently used, mineral and energy resources, a huge and diverse skills base, and the light of freedom in its mind. There may well be uncomfortable change, but you'll never be shoving the bears out of caves to scratch a shivery living in the wilderness.
I'm more worried about my own country, Britain; but at least we don't have bears.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Reported marginal increases in turnover glosses over the fact that companies have been selling off surplus stock at discounted prices, so the profit per unit of production has decreased. Sooner or later, a fall in profits per share will press the markets down again, prompting further layoffs and site closures. This will hit commercial property rents and valuations; and with more unemployed, consumers' mood will become yet more cautious. The cost of the health and welfare system will fall more heavily on a reduced workforce and business base, leading to further pressure to cut costs and maybe move production abroad. That's not just industrial production: with lightspeed communications systems and millions of well-educated, English-speaking people in overseas labour forces, white-collar workers should not imagine that they are safe, and that it is only blue-collar workers and menial employees who must worry about their jobs.
Something must give, and the public sector and the welfare system are in the firing line. However, it is a moot question whether politicians in our democratic systems are able to make tough enough decisions, fast enough. They will look for some other way out, and many will cheer them on- we're already seeing calls for monetary reflation, as though more of the same will cure us.
My self-imposed brief is not to play Cassandra, but to stop my clients and my readers being suckered in the last money grab before the economies restructure. I note that Money Week has finally come round to my view:
Where should you place what little money you have?Jeff Clark, of Casey Research, says: "We currently recommend our subscribers keep 1/3 of their assets in cash, 1/3 in physical gold, and 1/3 in other investments, including top-notch gold proxies and stocks."
The emphasis on physical gold is significant, because there's much more being traded in promises than can be delivered - if everyone demanded sight of their gold, there'd have to be a sort of pass-the-parcel game for all the contracts to be fulfilled. For the first time in many years, central banks have become net buyers of gold, and China has declared her intention to increase her own stocks from 1,000 tones to 6 or 10 times that in the next decade (China is now the world's largest producer of newly mined gold). There's also a scare story doing the rounds, about some (how many?) bullion bars being nothing more than tungsten coated with a thickish layer of gold; and US Congressman Ron Paul may yet succeed in his campaign for a full audit of the Federal Reserve, which might reveal, among other things, just how little gold is still in the Fed's vaults. It's true that gold has risen very sharply in price over the last few years, and is now above its long-run average in real terms, but that's not surprising at a time of growing unease and distrust of the money system and government in general. Whether the price will explode as some of the gold bugs say, is another matter. Gold is a small market and the speculators are playing in it with cheap borrowed money. (UPDATE: see this article on how gold has changed its behaviour and is now going up and down like other investments - a sign, perhaps, that the speculators are now running the show in gold.)
My approach is to make a distinction between investment and speculation. Investment, I'd suggest, is putting your money where it will grow largely in line with the overall growth of the economy; speculation is trying to achieve more, which must be at someone else's expense. The latter is therefore a gamble, and gamblers often lose.
You should also review your money objectives in the light of your personal circumstances and goals. Do you need to gamble? Remember that there are still fairly secure ways to protect yourself against inflation or default - various National Savings products in the UK, and Treasury products in the US.
I've suggested many times that we will eventually see a much deeper decline in the stockmarket - maybe 4,000 on the Dow and 2,000 on the FTSE - though when, who knows? Given my belief that we are in a "secular" (long-lasting) bear market, then clearly I think that at any point, there is a greater chance that stocks will go down than that they will rise. The odds are against us, and I think that will be true for the next 5 - 10 years. Gamblers will be looking for short-term recoveries, but you may have heard of the formerly big-time successful gambler (can't remember his name) who ended up selling his binoculars for one last bet at the track.
My view is ultimately hopeful, otherwise I shouldn't have bothered relaunching my brokerage this year. If you want a more spine-tingling view, here's an example - but that plays to an unrealistic, dramatic melancholy tendency in us. Even Hitler and his henchcreatures couldn't take the whole of the German people with them into Götterdämmerung. The United States has 300 million people, vast land not fully and efficiently used, mineral and energy resources, a huge and diverse skills base, and the light of freedom in its mind. There may well be uncomfortable change, but you'll never be shoving the bears out of caves to scratch a shivery living in the wilderness.
I'm more worried about my own country, Britain; but at least we don't have bears.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Wednesday, February 10, 2010
Farage: EU's "sado-monetarism" towards Greece
Three cheers for Nigel Farage; and another three for The Huntsman, where I found the clip below today. Farage's clear. forthright diatribe has the ring of truth and the note of conviction.
Monday, February 08, 2010
The end is not nigh?
Journalist, author and personal investor Charles Hugh Smith does some technical analysis on the Dow Jones that suggests the market bottom may be years away, perhaps in 2020-2022.
For some time, I've suggested that we are in a period analogous not to the 1930s but the 1970s, and there was a long (16 years) decline in the Dow, in real terms, between 1966 and 1982. It then took another 17 or 18 years to the market peak of end 1999.
That's not to say that the current decline will follow the same sort of timetable, or even the same trajectory. The human mind is good at seeing patterns, even where (like the canals of Mars) they don't exist; and the human wallet is vulnerable to being thrown at such patterns.
However, part of my reason for recommencing my financial services brokerage now is that I believe we have some years of (on average) decline, during which I can be gradually building my clientele and preparing to help them take advantage of a real long-term upswing later. Meantime, I want to help them avoid losing money in the "sucker rallies" of a secular bear market.
Day traders and other gamblers, good luck; I'm sitting out, for now.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
For some time, I've suggested that we are in a period analogous not to the 1930s but the 1970s, and there was a long (16 years) decline in the Dow, in real terms, between 1966 and 1982. It then took another 17 or 18 years to the market peak of end 1999.
That's not to say that the current decline will follow the same sort of timetable, or even the same trajectory. The human mind is good at seeing patterns, even where (like the canals of Mars) they don't exist; and the human wallet is vulnerable to being thrown at such patterns.
However, part of my reason for recommencing my financial services brokerage now is that I believe we have some years of (on average) decline, during which I can be gradually building my clientele and preparing to help them take advantage of a real long-term upswing later. Meantime, I want to help them avoid losing money in the "sucker rallies" of a secular bear market.
Day traders and other gamblers, good luck; I'm sitting out, for now.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Sunday, February 07, 2010
Alistair Campbell displays "weakness"
Just seen a clip of Alistair Campbell's "overcome by emotion" bit on Andrew Marr's show. Fake. No doubt. Wimped-out version of the Stanislavski Method: break eye contact, look down and to the right so the cameras can't drill into the gaze, puff out air, mild apology for allowing oneself to be momentarily overwhelmed. He's what he's always been, an aggressive second rater with a good little black book.
Britain's creditworthiness declines further
CMA have published their fourth quarter of 2009 report on the sovereign debt market, and the UK's implied credit rating has gone down further, to "AA". This now puts us in the same category as Italy, Spain and Portugal; of the "PIIGS" group of risky major Western European countries, only Greece and Ireland are in a worse position (and both of those have worsened considerably in the six months since Q2 of 2009).
The costly economic stimulus appears to be failing, from a longer perspective. Some think (see previous post) that the latest central bankers' meeting in Australia is in the nature of a secret emergency conference, despite having been planned last year.
Secrecy is worrying - I am somehow reminded of the closed session of the US House of Representatives Congress in March 2008 (only its sixth secret session in nearly 200 years). Ostensibly this was about anti-terrorist measures, but some of the conspiracy buzz this caused on the Internet turns out to have been justified in the light of subsequent developments.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
The costly economic stimulus appears to be failing, from a longer perspective. Some think (see previous post) that the latest central bankers' meeting in Australia is in the nature of a secret emergency conference, despite having been planned last year.
Secrecy is worrying - I am somehow reminded of the closed session of the US House of Representatives Congress in March 2008 (only its sixth secret session in nearly 200 years). Ostensibly this was about anti-terrorist measures, but some of the conspiracy buzz this caused on the Internet turns out to have been justified in the light of subsequent developments.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Something's up: the bankers are gathering
Australian newspaper the Herald Sun reports on what looks like an emergency meeting of some of the world's most important bankers (hat-tip to the Contrarian Investors' Journal):
_______________________________
Secret summit of top bankers
THE world's top central bankers began arriving in Australia yesterday as renewed fears about the strength of the global economic recovery gripped world share markets.
Representatives from 24 central banks and monetary authorities including the US Federal Reserve and European Central Bank landed in Sydney to meet tomorrow at a secret location, the Herald Sun reports.
Organised by the Bank for International Settlements last year, the two-day talks are shrouded in secrecy with high-level security believed to have been invoked by law enforcement agencies.
Speculation that the chairman of the US Federal Reserve, Dr Ben Bernanke, would make an appearance could not be confirmed last night.
The event will be dominated by Asian delegations and is expected to include governors of the Peoples Bank of China, the Bank of Japan and the Reserve Bank of India.
The arrival of the high-powered gathering coincided with a fresh meltdown on world sharemarkets, sparked by renewed concerns about global growth and sovereign debt.
Fears countries including Greece, Portugal, Spain and Dubai could default on debt repayments combined with disappointing US jobs data to spook investors.
Australia's ASX 200 slumped 2.4 per cent, to a its lowest close since November 5, echoing a sharp fall on Wall Street.
Asian share markets were also pummelled, with Japan's Nikkei 225 down almost 3 per cent and Hong Kong's Hang Seng slumping 3.3 per cent.
The damage was also being felt by European markets last night with London's FTSE 100 down sagging 1 per cent in early trade.
Sovereign debt fears rippled through to the Australian dollar which was hammered to a four-month low of US86.43 and was trading at US86.77 cents last night.
"This does feel like '08 and '07 all over again whereby we had these sort of little fires pop up and they are supposedly contained but in reality they are not quite contained,'' said H3 Global Advisors chief executive Andrew Kaleel.
"Dubai should have been an isolated incident and now we are seeing issues with Greece, Portugal and Spain.''
It wasn't all bad news with the RBA yesterday upping its Australian growth forecasts and flagging more interest rate rises this year.
The central bank estimates the economy grew 2 per cent in 2009, and will expand by 3.25 per cent in 2010, and by 3.5 per cent in 2011.
The outlook for global growth is likely to be a key theme of the high level central bank talks.
The gathering also comes at an important time for the BIS as it initiates an overhaul of the global banking system which will include new capital rules applying to banks and more stringent standards regulating executive pay.
A key part of the two-day talkfest will be a special meeting of Asian central bankers chaired by the governor of the Central Bank of Malaysia, Dr Zeti Akhtar Aziz.
Influential BIS general manager Jaime Caruana is also expected to take a prominent role in the talks.
Federal Treasurer Wayne Swan will address the central bank officials at a dinner on Monday night.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
_______________________________
Secret summit of top bankers
THE world's top central bankers began arriving in Australia yesterday as renewed fears about the strength of the global economic recovery gripped world share markets.
Representatives from 24 central banks and monetary authorities including the US Federal Reserve and European Central Bank landed in Sydney to meet tomorrow at a secret location, the Herald Sun reports.
Organised by the Bank for International Settlements last year, the two-day talks are shrouded in secrecy with high-level security believed to have been invoked by law enforcement agencies.
Speculation that the chairman of the US Federal Reserve, Dr Ben Bernanke, would make an appearance could not be confirmed last night.
The event will be dominated by Asian delegations and is expected to include governors of the Peoples Bank of China, the Bank of Japan and the Reserve Bank of India.
The arrival of the high-powered gathering coincided with a fresh meltdown on world sharemarkets, sparked by renewed concerns about global growth and sovereign debt.
Fears countries including Greece, Portugal, Spain and Dubai could default on debt repayments combined with disappointing US jobs data to spook investors.
Australia's ASX 200 slumped 2.4 per cent, to a its lowest close since November 5, echoing a sharp fall on Wall Street.
Asian share markets were also pummelled, with Japan's Nikkei 225 down almost 3 per cent and Hong Kong's Hang Seng slumping 3.3 per cent.
The damage was also being felt by European markets last night with London's FTSE 100 down sagging 1 per cent in early trade.
Sovereign debt fears rippled through to the Australian dollar which was hammered to a four-month low of US86.43 and was trading at US86.77 cents last night.
"This does feel like '08 and '07 all over again whereby we had these sort of little fires pop up and they are supposedly contained but in reality they are not quite contained,'' said H3 Global Advisors chief executive Andrew Kaleel.
"Dubai should have been an isolated incident and now we are seeing issues with Greece, Portugal and Spain.''
It wasn't all bad news with the RBA yesterday upping its Australian growth forecasts and flagging more interest rate rises this year.
The central bank estimates the economy grew 2 per cent in 2009, and will expand by 3.25 per cent in 2010, and by 3.5 per cent in 2011.
The outlook for global growth is likely to be a key theme of the high level central bank talks.
The gathering also comes at an important time for the BIS as it initiates an overhaul of the global banking system which will include new capital rules applying to banks and more stringent standards regulating executive pay.
A key part of the two-day talkfest will be a special meeting of Asian central bankers chaired by the governor of the Central Bank of Malaysia, Dr Zeti Akhtar Aziz.
Influential BIS general manager Jaime Caruana is also expected to take a prominent role in the talks.
Federal Treasurer Wayne Swan will address the central bank officials at a dinner on Monday night.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
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