Archive for June, 2011

Market Volume Doesn’t Matter

June 30, 2011 Leave a comment

One of the great market myths is looking at stock market volume as a gauge of whether returns for a particular day are “real”. As the accepted wisdom goes, more volume = more conviction in the rally. But why? Prices are set at the margin anyway, so what’s volume really got to do with it?

Nevertheless, such myths persist. I fully expect to hear more droning from pundits this week to the tune of “Sure, markets are up nicely this week, but it’s on low volume, so I’m not convinced.”

In truth, volume has never been a reliable indicator of the “realness” of a rally or a decline—those who wait for such indicators for “conviction”, “confidence”, or whatever else, will more often have missed the market’s move by then.

Moral Suasion and European Banks

June 29, 2011 Leave a comment

I read all sorts of economic rationales for this or that plan tied to making the second Greek bailout work. And that’s all fine and well. But the issue of economics at this point is almost secondary—what matters most right now is the power of moral suasion on eurozone constituent banks with high Greek debt exposure. And that power can be quite potent when the existence of the euro is at stake. Expect private banks to comply with public wishes through the summer.

Consumers versus Tech

June 27, 2011 Leave a comment

My boss Ken Fisher recently wrote about Apple in a Forbes column back in April:

As an investor, be careful not to lump Apple in with technology firms. Apple is a classic consumer discretionary products company–superb at using technology to create new, different and better products. Apple products are cool and coveted, and that’s why its retail stores have stayed crowded during the Great Recession. Real technology firms actually create technology but are less apt to create buzz among the masses. And yes, they often eliminate jobs, at least in the short term.

To that precise point, it should come as little surprise JC Penney recently hired Apple’s Sr. VP of Retail Ron Johnson as its new CEO. Prior to Apple he was a Target merchandising executive for 15 years. Simply, you wouldn’t see such a move if Apple wasn’t very aware of the fact that it’s a consumer products company. Or, said differently, an Intel exec would not make nearly as good a fit for a pure retailer like JCP.

The lesson: know the end markets of your investments. It’s infrequent, but a company’s traditional classification can be misleading in terms of what drives its results.

Fisher Investments Analyst Book Review: Food Politics

June 24, 2011 Leave a comment

Food Politics: What Everyone Needs to Know — Robert Paarlberg

For my job at Fisher Investments, I’m out on the road quite a bit each year, speaking to investors from all over the country. One of the things that used to amaze to me when I started, but doesn’t anymore, is that people everywhere pretty much ask the same questions.

Oddly though (because at Fisher Investments, I deal in stock markets for the most part), I get asked about food a lot. Everything from the supply of it (farming), to the price of it (the balance between supply and demand along with myriad government distortions), to the demand of it (population growth, poverty and income, and nutrition and obesity). Of course, a good bit of it is relevant to investing—food makes a difference in inflation, economic growth, commodities prices, politics, and the earnings of many very large publicly traded corporations.

On that note, I recommend Robert Paarlberg’s Food Politics: What Everyone Needs to Know for a few reasons.

Paarlberg approaches the subject as a political issue. Which is right. It’s not that food has become “politicized,” so much as food itself has always been a natural political issue. What I mean is, how a nation or society views food, what we do with it, how we regulate it—is about as old as civilization itself. Semantics aside, viewing food as politics allows Paarlberg to approach the subject with as much objectivity as is likely possible—recognizing that activists, regulators, farmers and their interest groups, corporations, even consumers, all have ideological bents to this issue and their maneuvering among each other is what dictates what food is produced, and at what price. Said differently, understanding the economics of food is barely half the battle in understanding how its priced, who gets it, and why.

This also means that people involved in food politics will probably hate this book equally, which is to the acute advantage of the reader looking for pragmatism on these issues. The organic-sustainable types will feel undermined and short-shrifted; the farmers and corporations (from companies like ArcherDanielsMidland to McDonald’s) will also feel vaguely attacked.

Second, this book is short, and written in a style allowing you to skip around as you like. Much like Steve Forbes’ excellent How Capitalism Will Save Us from last year, Paarlberg’s book takes one topic a chapter (like obesity) and then asks a series of questions tied to that issue and answers them in pithy fashion. This is a good approach because most will only want to see the basics of these issues laid out without all the jargon that can go with them.

The “what everyone needs to know” part of the title is maybe a tad much. This book isn’t definitive in the informational or authoritative sense. (But then again, what is?)  But it’s as good an introduction into thinking about the real political undercurrents of food as I’ve encountered, and will at least set the table for better thinking on this issue outside of what you hear at farmer’s markets or McDonald’s drive thrus or nightly news bloviating.


MacKay’s Classic Free!

June 23, 2011 Leave a comment

Charles MacKay’s Extraordinary Popular Delusions and the Madness of Crowds has long been a classic—written long ago, it’s still one of the last words in investing psychology.

Now you can get it free (link below) on Amazon’s Kindle reader. If you’ve never read it, now you have no excuse.

Memoirs of Extraordinary Popular Delusions and the Madness of Crowds — Charles MacKay

Deleveragists Can’t Have it Both Ways

June 22, 2011 Leave a comment

Increasingly, I hear the tide of bears arguing that persistent consumer deleveraging is “chronic” and will hinder consumption—and therefore the economy—from here forward.

This demand-side theory sets aside the inconvenient truth that deleveraging has been going on in the US more or less for the last 2 years as GDP hits new all-time highs and personal spending is well up from recession lows. In truth, today’s Deleveragists are by and large the same bears that said consumer over-indebtedness would be the death of us all too through the bulk of last decade.

Which is it? Or, better, what’s the magic leverage number that will make everyone comfortable and happy?

My sense is that no such number exists. Household debt levels can and will be used as a rhetorical device to prove whichever case is convenient for the arguer. A plain accounting of such things relative to GDP and capital markets performance over history tells us otherwise.

The Phantom Tollbooth as Economic Document

June 17, 2011 Leave a comment

Norton Juster’s classic children’s story The Phantom Tollbooth ostensibly has nothing to do with investing and economics, yet to my view, it is foundational. I bought a copy for my 3 year old nephew the other day, and ended up reading it myself on a plane ride today.

It struck me that every economist should read and heed this story. It’s as good or better at wordplay than Lewis Caroll, but goes to greater lengths to show the distortive, squirrely properties of words and numbers, and how often they’re used to obfuscate. Aside from lawyers, few do that better than economists to both make a display of “rigor” and also to veil the inherent uncertainty and slipperiness underlying most analyses.

A snappy and fun summer read.

(Make sure to get the version with Jules Feiffer’s classic illustrations.)


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