“When we are surprised by disappointing developments, we set aside emotion and focus solely on the facts as they are presented; our singular focus must then be the price at which we can buy or sell compared to our fresh assessment of value. Only after the dust settles do we examine our successes--and especially our failures--for lessons that could provide insight in the future.”
Thursday, February 28, 2013
Wednesday, February 27, 2013
Found via ValueWalk.
For this week’s issue of Time magazine, the cover story is Bitter Pill: Why Medical Bills Are Killing Us, by Steven Brill. I had to have something to read while the plane was taking off, and that turned out to be it. (Since I got my iPad I no longer carry books, so I make sure I have something to peruse while waiting to be able to use my electronics in the air.) I have read work by Steve Brill in the past and like his style, so even though I don’t usually read Time, I picked up this issue on health care.
Related previous post: Steven Brill on Charlie Rose
Marc Andreessen made his first fortune writing the code that became Netscape Navigator, the Internet browser. He is now a venture capitalist who evangelizes about the growing importance of software in business today. Indeed, he proclaims that software is taking over the world – that it will be the primary source of added value – and offers the following prediction: the global economy will one day be divided between people who tell computers what to do and people who are told by computers what to do.
In 2012, prominent hedge fund managers made headlines by successfully trading against JPMorgan Chase & Co., spending lots of money to influence the U.S. presidential election, and proclaiming that a nutritional supplements company was operating a pyramid scheme. While they made plenty of noise, very few of these traders managed to beat the U.S. stock market after charging their investors rich fees.
Jim has just returned from San Francisco, where he was attending the JP Morgan Healthcare conference with two colleagues. This conference is in its fourth decade and is the must-have ticket for players in the bio pharma industry. Companies vie for the opportunity to present to about 10,000 delegates, and those that are not admitted throng hotels in the area, with a further 10,000 people doing deals and presenting on the fringe.
Tuesday, February 26, 2013
Monday, February 25, 2013
I had previously posted the audio of this, but now the video is up. And if you haven't seen their 2009 discussion (available HERE), you may want to check that out too.
For interested readers (which is likely all of you), The Essays of Warren Buffett: Lessons for Corporate America, Third Edition will be released next week.
Irvine’s new book, A Slap in the Face: Why Insults Hurt--And Why They Shouldn't, was just released. It is a follow-up to his book A Guide to the Good Life.
Jim Fleming: Although it can be uncomfortable, to look death in the face, contemplatives and philosophers have been doing that for a millennium. Zen Buddhists and Hindu Mystics, the Hedonists of Ancient Greece, the Cynics of Rome, when philosopher William Irvine went looking philosophy of life, he wandered those obvious paths. Then he stumbled upon the Stoics. Irvine says Stoicism teaches that minding our mortality can help us live a more joyful life.
Related previous posts:
Feb. 25 (Bloomberg) -- James Grant, founder & editor of Grant's Interest Rate Observer, predicts that the result of recent Federal Reserve action will prompt a return to the gold standard for the United States. He speaks on Bloomberg Television's "Bloomberg Surveillance."
The U.S. economy appears suspended at the boundary between tepid growth and recession, requiring a trillion-dollar federal deficit and unprecedented monetary easing simply to maintain that position. The Federal Reserve continues a well-known and fully-announced policy of quantitative easing, on course to push the monetary base (currency and bank reserves) to 27 cents per dollar of nominal GDP. The last time the monetary base reached even 17 cents per dollar of nominal GDP was in the early 1940’s. This was not unwound by subsequent monetary tightening, but instead by a near-doubling in the consumer price index by 1952. Based on the strong relationship between the monetary base and short-term interest rates, even a normalization of short-term interest rates to 2% would tolerate no more than about 9 cents of base money per dollar of nominal GDP without inflation. As a result, an eventual normalization of Fed policy would require either a 50% contraction in the monetary base, a doubling of the consumer price index, or about 14 years of economic growth at a 5% nominal rate. It is doubtful that the Federal Reserve will be able to extricate itself smoothly from its current policy stance by any of these means.
Sunday, February 24, 2013
Markets have been rising and investors returning to stocks, thanks to cheap money from central banks, a rash of takeover deals, the glimmers of economic recovery—and an epidemic of amnesia.
Many investors have been behaving as if the bloodbath between October 2007 and March 2009, when the U.S. and global stock markets lost at least 50%, had never happened. More worrisome, investors are forgetting the agonizingly real fear they felt during the financial crisis.
That could lead some to take more risk than they should and incur losses they can't withstand. So it is vital to evaluate whether you suffer from investing amnesia and, if you are, to counteract it before it is too late.
Saturday, February 23, 2013
Joshua Pearce takes unusual satisfaction in strolling through Walmart. The shelves laden with toys, household items, tools and clothing inspire in him a certain smugness, a pride in American entrepreneurship. But it’s not because Pearce admires the chain as an empire built by a self-made man. Pearce swells with pride at Walmart because the store is full of mass-manufactured objects that he could make himself.
“I take great pleasure — and my wife teases me about it — walking though Walmart and saying, ‘I could print that, I could print that, I could print that,’ ” Pearce says.
Pearce is at the forefront of what may be the next manufacturing revolution. Using a technique known as 3-D printing, regular people can now make goods typically produced in huge quantities in factories overseas. Need a mug? A tape dispenser? A chess piece? A pair of shoes? It’s as simple as pressing the print key.
3-D printing builds objects by piling up successive layers of material, hence its more technical moniker, “additive manufacturing.” You start by designing your product on a computer screen with drafting software. That design then goes through a program that slices it up, translating it into a stack of two-dimensional layers. The printer constructs the object by depositing the first layer of material — such as molten plastic that hardens — and then another and another, gradually creating the desired shape. As the printer head moves back and forth, your 3-D vision becomes reality.
Friday, February 22, 2013
Link to: High Yield Bonds Today
Thursday, February 21, 2013
Found via The Big Picture.
His claim to fame is investing but he also has a namesake whose initial claim to fame was marijuana smuggling. While his namesake has an updated website, he doesn’t write regular memos, the way Mark does to his investors. Though there is no fixed frequency, the update is eagerly looked forward to and widely discussed. Not only is Marks a big name in equity investing, he is even bigger in distress debt. He divides his time between Los Angeles, where his firm, Oaktree Capital, is headquartered, and New York, where he reportedly plunked $52.5 million for a 30-room duplex last year. He also funded the ascent of bond market maverick Jeffrey Gundlach, both being ex-TCW fund managers. After his bitter parting from TCW, Gundlach’s DoubleLine Capital was jump-started by capital provided by Marks. At 66, he is sprightly but far from impressed with the current bounce in the S&P 500. According to him, the biggest risk now is edgy uninformed investors who are less worried about losing money and more worried about losing opportunities.
Wednesday, February 20, 2013
At the Mines and Money London conference in December 2012, Sandstorm Gold President and CEO, Nolan Watson, gave a keynote speech on resource finance.
A big thanks to David for passing this along. It is applicable to investing in many ways. This is from The Intelligent Investor (Revised Edition).
“In the Air Force we have a rule: check six. A guy is flying along, looking in all directions, and feeling very safe. Another guy flies up behind him (at "6 o'clock"--"12 o'clock" is directly in front) and shoots. Most airplanes are shot down that way. Thinking that you're safe is very dangerous! Somewhere, there's a weakness you've got to find. You must always check six o'clock.” --U.S. Air Force Gen. Donald Kutyna
But there was one group in Ireland that was aghast – horrified – at the idea of not paying back that debt: those were the people I met at the Central Bank of Ireland. And they did have a point. The document that created the European Central Bank did not allow a national central bank to not pay its debts. Governments could default (as we learned with Greece), but not national central banks. Those were the rules that everyone who adopted the euro played by.
The quote below is from Sam Walton: Made In America.
“I guess everybody who knew I was going ahead with the discounting idea on my own really did think I’d completely lost my mind. I laugh now when I look back on Wal-Mart’s beginning. In 1962, the discount industry was fairly young and full of high-living, big-spending promoters driving around in Cadillacs—guys like Herb Gibson—who had the world by the tail. But it had very few of what you’d call good operators—until 1962, the year which turned out to be the big one for discounting. In that year, four companies that I know of started discount chains. S. S. Kresge, a big, 800-store variety chain, opened a discount store in Garden City, Michigan, and called it Kmart. F. W. Woolworth, the granddaddy of them all, started its Woolco chain. Dayton-Hudson out of Minneapolis opened its first Target store. And some independent down in Rogers, Arkansas, opened something called a Wal-Mart. At the time, and for quite a while after that, I can guarantee you that hardly anybody noticed that last guy. Heck, within five years, Kmart had 250 stores to our 19, and sales of more than $800 million to our $9 million. Here’s what makes me laugh today: it would have been absolutely impossible to convince anybody back then that in thirty years most all of the early discounters would be gone, that three of these four new chains would be the biggest, best-run operators in the business, that the one to fold up would be Woolco, and that the biggest, most profitable one would be the one down in Arkansas. Sometimes even I have trouble believing it.
I can tell you this, though: after a lifetime of swimming upstream, I am convinced that one of the real secrets to Wal-Mart’s phenomenal success has been that very tendency. Many of our best opportunities were created out of necessity. The things that we were forced to learn and do, because we started out underfinanced and undercapitalized in these remote, small communities, contributed mightily to the way we’ve grown as a company. Had we been capitalized, or had we been the offshoot of a large corporation the way I wanted to be, we might not ever have tried the Harrisons or the Rogers or the Springdales and all those other little towns we went into in the early days. It turned out that the first big lesson we learned was that there was much, much more business out there in small-town America than anybody, including me, had ever dreamed of.”
Feb. 19 (Bloomberg) -- Nassim Nicholas Taleb, a New York University professor and author of "The Black Swan" and "Antifragile: Things That Gain From Disorder," talks about financial markets, the banking industry and fiscal policy. He speaks with Erik Schatzker and Sara Eisen on Bloomberg Television's "Market Makers."
Feb. 19 (Bloomberg) -- Howard Marks, chairman of Oaktree Capital Group LLC, talks about credit markets and his investment strategy. He speaks with Erik Schatzker and Sara Eisen on Bloomberg Television's "Market Makers.
Link to: An Interview With Richard Duncan
Tuesday, February 19, 2013
Thanks to Will for bringing this back up to me. This quote is from my friend Miguel Barbosa’s interview with Alice Schroeder (HERE).
“Typically, and this is not well understood, his way of thinking is that there are disqualifying features to an investment. So he rifles through and as soon as you hit one of those it’s done. Doesn’t like the CEO, forget it. Too much tail risk, forget it. Low-margin business, forget it. Many people would try to see whether a balance of other factors made up for these things. He doesn’t analyze from A to Z; it’s a time-waster.”
That comment from Schroeder is in line with a comment Mr. Buffett made at the Berkshire Hathaway Annual Meeting last year, when he said: "Charlie and I have a number of filters that things have to get through before we'll think about them."
I’ve mentioned filters on a couple of occasions (HEREand HERE), and I’ll reiterate that I think it is one of the most important things to spend time developing well in order to achieve “mastery” in the investment business (note that mastery still means you’ll make plenty of mistakes, especially in the field of investing). If your filters are good enough, it will also make it difficult to attend conferences where you network with a lot of other investors. Many people will try to talk to you (sometimes endlessly) about their favorite stock idea; it won’t pass one or more of your filters, so you will lose interest; and yet they will likely keep talking.
"Most people aren't cut out for value investing, because human nature shrinks from pain," the money manager Jean-Marie Eveillard told me this past week. His words are a reminder that making money on cheap stocks—the goal of every value investor—is harder than it sounds and can take years to play out.
Found via the Corner of Berkshire & Fairfax.
Mohnish Pabrai is used to making investment pilgrimages. The ace investor is a regular at Warren Buffett’s annual Berkshire Hathaway meeting as well as at the Value Investing Congress that is held every year in New York. This year, too, Pabrai has made the trip from his Irvine, California, office on the West Coast to check if he is missing out on anything. That is enough opportunity for us to catch up with him at the Marriott Marquis Hotel, on New York’s Times Square. The Marquis raked up much controversy when it was being built, but is now famous for housing New York’s only rooftop revolving restaurant. Pabrai’s investing style, however, has been anything but controversial. His cloning strategy, which almost anyone can implement but not many do, has made Pabrai a multi-millionaire many times over. All those millions are now being put to very good use through his Dakshana Foundation. It seems then he has decided to not only clone Buffett’s investing style but also his intent to give away most of his riches, to causes that matter. Make no mistake, though, while the thought is benevolent, return on investment is still the driving factor.
Monday, February 18, 2013
It is by now almost trite to say that there are deals and then there are Buffett deals. And the $23 billion acquisition of H.J. Heinz is certainly a Buffett deal.
Warren E. Buffett is known for picking public targets, setting his price and the targets agreeing without much bargaining to be acquired. If you need examples, look at Berkshire Hathaway’s big acquisitions of Burlington Northern, Lubrizoil and Wrigley’s. In those deals, once Mr. Buffett showed up, the companies appeared to lose interest in finding any other bidders.
We don’t know the full story of what Heinz, a legendary consumer products company, did to find other suitors or to make sure shareholders were getting a full price. We will learn more once the proxy statement for the deal is filed. But this is an unusual deal already even at the beginning. For evidence, you need look no further than the agreement for the deal filed on Friday morning.
Given the extent and maturity of the recent advance, it’s very odd that analysts are now beginning to toss around the idea that stocks have entered a secular bull market. These notions are based not on the level of valuation, nor on the duration of the secular bear since 2000, but instead on the idea that stocks have gone nowhere for a long time and the recent advance might be enough to break the downtrend we’ve seen in the inflation-adjusted S&P 500 since 2000.
Unfortunately, secular bull markets do not begin simply because stocks have gone nowhere for a long while. They begin at the point that valuations become so depressed - again, about 7 on the Shiller P/E - that strong and sustained long-term returns are baked in the cake. Similarly, secular bears tend to begin at the point where valuations are so extreme - about 24 or higher on a Shiller P/E - that weak and ephemeral long-term returns are baked in the cake. The intervening secular moves simply take the market from one extreme to another over the course of something on the order of 15-20 years.
We can show this with basic arithmetic. Historically, nominal GDP growth, corporate revenues, and even cyclically-adjusted earnings (filtering out short-run variations in profit margins) have grown at about 6% annually over time. Excluding the bubble period since mid-1995, the average historical Shiller P/E has actually been less than 15. Therefore, it is simple to estimate the 10-year market return by combining three components: 6% growth in fundamentals, reversion in the Shiller P/E toward 15 over a 10-year period, and the current dividend yield. It’s not an ideal model of 10-year returns, but it’s as simple as one should get, and it still has a correlation of more than 80% with actual subsequent total returns for the S&P 500:
Shorthand 10-year total return estimate = 1.06 * (15/ShillerPE)^(1/10) – 1 + dividend yield(decimal)
For example, at the 1942 market low, the Shiller P/E was 7.5 and the dividend yield was 8.7%. The shorthand estimate of 10-year nominal returns works out to 1.06*(15/7.5)^(1/10)-1+.087 = 22% annually. In fact, the S&P 500 went on to achieve a total return over the following decade of about 23% annually.
Conversely, at the 1965 valuation peak that is typically used to mark the beginning of the 1965-1982 secular bear market, the Shiller P/E reached 24, with a dividend yield of 2.9%. The shorthand 10-year return estimate would be 1.06*(15/24)^(1/10)+.029 = 4%, which was followed by an actual 10-year total return on the S&P 500 of … 4%.
Let’s keep this up. At the 1982 secular bear low, the Shiller P/E was 6.5 and the dividend yield was 6.6%. The shorthand estimate of 10-year returns works out to 22%, which was followed by an actual 10-year total return on the S&P 500 of … 22%. Not every point works out so precisely, but hopefully the relationship between valuations and subsequent returns is clear.
Now take the 2000 secular bull market peak. The Shiller P/E reached a stunning 43, with a dividend yield of just 1.1%. The shorthand estimate of 10-year returns would have been -3% at the time, and anybody suggesting a negative return on stocks over the decade ahead would have been mercilessly ridiculed (ah, memories). But that’s exactly what investors experienced.
The problem today is that the recent half-cycle has taken valuations back to historically rich levels. Presently, the Shiller P/E is 22.7, with a dividend yield of 2.2%. Do the math. A plausible, and historically reliable estimate of 10-year nominal total returns here works out to only 1.06*(15/22.7)^(.10)-1+.022 = 3.9% annually, which is roughly the same estimate that we obtain from a much more robust set of fundamental measures and methods.
Simply put, secular bull markets begin at valuations that are associated with subsequent 10-year market returns near 20% annually. By contrast, secular bear markets begin at valuations like we observe at present. It may seem implausible that stocks could have gone this long with near-zero returns, and yet still be at valuations where other secular bear markets have started – but that is the unfortunate result of the extreme valuations that stocks achieved in 2000. It is lunacy to view those extreme valuations as some benchmark that should be recovered before investors need to worry.
"We make no heroic assumptions in our analysis, hoping, instead, that by compounding multiple conservative assumptions, we will create such a substantial margin of safety that a lot can go wrong without impairing our capital much or even at all. We never invest just to invest and don’t bet blindly on mean reversion or on historical relationships holding up. Our settings are permanently turned to “risk off.”"
“When our mode of life is so precarious as to make it patent that we cannot control the circumstances of our existence, we tend to stick to the proven and the familiar. We counteract a deep feeling of insecurity by making of our existence a fixed routine. We hereby acquire the illusion that we have tamed the unpredictable.” –Eric Hoffer, The True Believer
Sunday, February 17, 2013
"What an astonishing thing a book is. It's a flat object made from a tree with flexible parts on which are imprinted lots of funny dark squiggles. But one glance at it and you're inside the mind of another person, maybe somebody dead for thousands of years. Across the millennia, an author is speaking clearly and silently inside your head, directly to you. Writing is perhaps the greatest of human inventions, binding together people who never knew each other, citizens of distant epochs. Books break the shackles of time. A book is proof that humans are capable of working magic."
Found via Farnam Street:
“Ignorance is degrading only when it is found in company with riches. Want and penury restrain the poor man; his employment takes the place of knowledge and occupies his thoughts: while rich men who are ignorant live for their pleasure only, and resemble a beast; as may be seen daily. They are to be reproached also for not having used wealth and leisure for that which lends them their greatest value.
When we read, another person thinks for us: we merely repeat his mental process. It is the same as the pupil, in learning to write, following with his pen the lines that have been pencilled by the teacher. Accordingly, in reading, the work of thinking is, for the greater part, done for us. This is why we are consciously relieved when we turn to reading after being occupied with our own thoughts. But, in reading, our head is, however, really only the arena of some one else’s thoughts. And so it happens that the person who reads a great deal — that is to say, almost the whole day, and recreates himself by spending the intervals in thoughtless diversion, gradually loses the ability to think for himself; just as a man who is always riding at last forgets how to walk. Such, however, is the case with many men of learning: they have read themselves stupid. … And just as one spoils the stomach by overfeeding and thereby impairs the whole body, so can one overload and choke the mind by giving it too much nourishment. For the more one reads the fewer are the traces left of what one has read; the mind is like a tablet that has been written over and over. Hence it is impossible to reflect; and it is only by reflection that one can assimilate what one has read if one reads straight ahead without pondering over it later, what has been read does not take root, but is for the most part lost.”
“One can never read too little of bad, or too much of good books: bad books are intellectual poison; they destroy the mind.
In order to read what is good one must make it a condition never to read what is bad; for life is short, and both time and strength limited.”
“It is because people will only read what is the newest instead of what is the best of all ages, that writers remain in the narrow circle of prevailing ideas, and that the age sinks deeper and deeper in its own mire.”
“It would be a good thing to buy books if one could also buy the time to read them; but one usually confuses the purchase of books with the acquisition of their contents. To desire that a man should retain everything he has ever read, is the same as wishing him to retain in his stomach all that he has ever eaten. He has been bodily nourished on what he has eaten, and mentally on what he has read, and through them become what he is. As the body assimilates what is homogeneous to it, so will a man retain what interests him; in other words, what coincides with his system of thought or suits his ends. Every one has aims, but very few have anything approaching a system of thought. This is why such people do not take an objective interest in anything, and why they learn nothing from what they read: they remember nothing about it.”
“Any kind of important book should immediately be read twice, partly because one grasps the matter in its entirety the second time, and only really understands the beginning when the end is known; and partly because in reading it the second time one’s temper and mood are different, so that one gets another impression; it may be that one sees the matter in another light.”
Saturday, February 16, 2013
“Associate with those you can learn from. Let friendly relations be a school of erudition, and conversation, refined teaching. Make your friends your teachers and blend the usefulness of learning with the pleasure of conversation.” -Baltasar Gracián, The Art of Worldly Wisdom
Friday, February 15, 2013
“A failure often does not have to be a failure at all. However, you have to be ready for it—will you admit when things go wrong? Will you take steps to set them right?—because the difference between triumph and defeat, you’ll find, isn’t about willingness to take risks. It’s about mastery of rescue.” –Atul Gawande, 2012 Williams College Commencement Address
“How do you innovate? First, try to get in trouble. I mean serious, but not terminal, trouble. I hold—it is beyond speculation, rather a conviction—that innovation and sophistication spark from initial situations of necessity, in ways that go far beyond the satisfaction of such necessity (from the unintended side effects of, say, an initial invention or attempt at invention)….The excess energy released from overreaction to setbacks is what innovates!” –Nassim Taleb, Antifragile
This may be of interest to readers in Toronto:
Thursday, February 14, 2013
For those interested, click on the picture below (or click HERE).
Found via csinvesting.
Daniel Kahneman is Professor of Psychology and Public Affairs Emeritus at Princeton University’s Woodrow Wilson School and the 2002 winner of the Nobel Prize in Economic Sciences. I recently sat down with Kahneman to talk about how his prize winning theories apply to investing. Video and a transcript of our conversation follows.
“Just give me a few decent things to do and I’ll ignore the rest of the world.” –Charlie Munger
I’m not 100% sure if that is an exact quote. I had it saved in an old email from May 3, 2010, so I’m assuming it is from Berkshire’s 2010 Annual Meeting. Next to the quote I wrote that Munger mentioned that once he found BYD, he just ignored the rest of China.
I’m not 100% sure if that is an exact quote. I had it saved in an old email from May 3, 2010, so I’m assuming it is from Berkshire’s 2010 Annual Meeting. Next to the quote I wrote that Munger mentioned that once he found BYD, he just ignored the rest of China.
Thanks to Bill for passing this along.
Wednesday, February 13, 2013
For all the focus on the unfunded liabilities of Social Security and Medicare, there is another unfunded crisis brewing, and this one is in your own back yard. It’s coming to you even if you live outside of the US; it just might take a little longer to get there. I wrote ten years ago that state and local pension funds might be underfunded by as much as $2 trillion. It turns out that I was being overly optimistic. New government research suggests that the figure might be as high as $3 trillion. But what if you take into account that retirees are living longer? An IMF study that we’ll look at in a few minutes does just that. And if we live a lot longer? Oh my. The problems are not universal – some cities and states will do fine, while others are already in deep kimchee – but it’s a big problem and getting worse.
When the robot uprising is finally underway, you might look back on the year 2011 as the beginning of the end. That was the year IBM’s Watson supercomputer trounced its squishy human opponents on the quiz show Jeopardy. Believe it or not, IBM didn’t spend millions of dollars to design an artificial intelligence that’s just really good at phrasing its responses in the form of a question. Watson is finally being utilized in the real world, and this might be just the beginning.
Related previous post: IBM's Watson and the healthcare industry
Thanks to Barry for passing this along. I think there is a lot of wisdom in the talk that can apply to investors, especially the parts about putting the right procedures in place to avoid mistakes. I was once again reminded of habits and checklists.
“The bets are zero sum. In order for you to beat me in the game, it’s like poker, it’s a zero sum game. We have 1,500 people that work at Bridgewater, we spend hundreds of millions of dollars on research, and so on. We’ve been doing this for 37 years and we don’t know that we’re going to win. We have to have diversified bets. So it’s very important for most people to know when not to make a bet. Because if you’re going to come to the poker table, you’re going to have to beat me, and you’re going to have to beat those who take money. So the nature of investing is that a very small percentage of the people take money essentially in that poker game away from other people who don’t know when prices go up whether that means it’s a good investment or if it’s a more expensive investment.”
Tuesday, February 12, 2013
Sixteen years ago a book by Clayton Christensen changed business thinking forever. The Innovator’s Dilemma looked at industries ranging from disk drives to steel to mechanical excavators and exposed a surprising phenomenon: When big companies fail, it’s often not because they do something wrong but because they do everything right. Successful businesses, Christensen explained, are trained to focus on what he calls sustaining innovations—innovations at the profitable, high end of the market, making things incrementally bigger, more powerful, and more efficient. The problem is that this leaves companies vulnerable to the disruptive innovations that emerge in the murky, low-margin bottom of the market. And this is where the true revolutions occur, creating new markets and wreaking havoc within industries. Think: the PC, the MP3, the transistor radio.
Monday, February 11, 2013
Last week, Investors Intelligence reported that the percentage of bullish investment advisors increased to 54.3%, with bears contracting to 22.3%. Vickers reported that corporate insiders are again selling at a nearly frantic pace of 9.2 shares sold for every share purchased, and the NAAIM survey reported that the average overall equity exposure reported by active investment managers reached 104.25% at the end of January – a leveraged position, and the highest figure in the history of the survey. Indeed, among individual survey participants, the lowest allocation was 60% - the most bullish exposure ever for the most bearish participant in the survey. The previous record in the survey’s history was 96% in early 2007.
Saturday, February 9, 2013
From Thinking, Fast and Slow:
“As you become skilled in a task, its demand for energy diminishes. Studies of the brain have shown that the pattern of activity associated with an action changes as skill increases, with fewer brain regions involved. Talent has similar effects. Highly intelligent individuals need less effort to solve the same problems, as indicated by both pupil size and brain activity. A general “law of least effort” applies to cognitive as well as physical exertion. The law asserts that if there are several ways of achieving the same goal, people will eventually gravitate to the least demanding course of action. In the economy of action, effort is a cost, and the acquisition of skill is driven by the balance of benefits and costs. Laziness is built deep into our nature.”
Friday, February 8, 2013
The excerpt below was posted on Business Insider HERE:
And while we are on the theme of mission creep, the incoming Bank of England Governor Mark Carney has given the clear impression from his statements over recent weeks that he does not agree with Mervyn King’s comments that QE is reaching the limits of effectiveness. Carney is willing to be much more aggressive – at least George Osborne will be pleased. In his evidence on Thursday to the Treasury select committee he repeated his idea that if existing QE measures fell short, central banks should consider shifting to targeting nominal gross domestic product, which would allow them to respond much more aggressively to a downturn in economic output and place as much weight on supporting growth as reining in inflation.
Now personally I have no great ideological attachment to inflation targeting as opposed to any other method to control inflation, but I note with alarm the tendency of policymakers to become more and more interventionist in their monetary experiments. It may be that central bankers will keep control of the tiger they are riding, but history suggests that central bank intervention may make things worse in the long run rather than better. Marc Faber’s comment that he is so bearish that he sometimes wants to throw himself out of the window really resonates with me when I see what the central bankers are doing.
In 2005 I described Alan Greenspan as an economic war criminal when most others had decided he was “the greatest central banker who ever lived”, Hence I note with alarm that some commentators are so excited about the appointment of Mark Carney to the Bank of England Governorship that now he Carney, is now being dubbed “the world’s greatest central banker”. Oh dear! From everything I have read so far I fear that in the fullness of time he will have more similarities with Alan Greenspan than just this unwanted accolade and his legacy will be equally destructive.