It’s always fascinating and amusing to view the Forbes 400 list each year. (Click here to see it.) Forbes actually lists a “source” of the wealth. Most folks are investors, or entrepreneurs, or energy magnates…that sort of thing.
Clocking in at #107 this year, with an estimated $3.2 billion to his name, is the greatest storyteller of the 20th century, George Lucas. Reason: Star Wars. Star Wars! Not a movie company or some holding company he formed, but a story—a story!—has proven one of the greatest wealth generators of all-time.
There has yet to be a worthy biography written about this ultimate of Hollywood mavericks (he came to the Bay Area and refused to join unions because of his disdain for how Hollywood works), who formed his own companies, took most of the risk on his own shoulders, and realized a vision to complete one of the most archetypally relevant and powerful stories in human history. Yes, human history. I’ve said my piece on this topic in a book some ten years ago.
Congrats, George. Now if we can just get you to stop tinkering with those films repeatedly…
The Fed’s plan to “twist” its balance sheet toward longer maturity bonds is, to be sure, ill advised. To effectively flatten the yield curve in the name of keeping (ostensibly) mortgage rates low is bizarre. That’s because it’s more important to have a steep yield curve for general economic growth featuring at least somewhat non-distorted interest rates than it is to artificially try and prop up mortgages, as if that were the end all of the economy (it’s not).
Fortunately though, the twist isn’t the kind of negative that should derail the economy or the stock market. Much like QE2, the twist probably won’t have much effect, isn’t necessary, and raises the risk of problems like inflation down the road. But outside that, it should also prove similarly ineffectual as a negative. Those who view the Fed as Messiah will be disappointed, as will those who want to see this as necessarily bearish. One thing the twist might signal, though, is that the Fed is no longer willing to take huge new measures to be more accommodative—its balance sheet won’t grow, just shift, this time around.
Wow! Check these out:
- Obama Is Looking for Jobs In All the Wrong Places
- Not Taxes or Deficit, It’s a Lack of Lending
- Class Warfare Explains Obama’s Bizarre Tax Attack
- Why, and How to Tax the Super-Rich
- The Buffett Tax Is a Blast To An Ugly Past
- Buffett’s Fastball On the Buffett Tax
This is just from yesterday morning’s press. There is clearly a lot of bluster about the newest Obama plan. But forget your ideology for a moment and think like a rational investor who cares less about who’s in office and more about asset prices. On that basis, there’s not much reason to fret about the Obama plan—it is probably a lifeless corpse on arrival. Maybe some small pieces will make it into the final deficit cutting commission’s plan come November, but otherwise the plan will likely get zero support in the chambers of Congress. The part that’s hard to figure is Obama’s current political gambit—it doesn’t seem this plan (even its mere proposal) is likely to win him many centrist voters in battleground swing states. Then again, the election is still more than a year away, and much can happen in between.
For those interested in global energy, Daniel Yergin is a perpetual must read. His books have won numerous awards (with a new one due soon), and his latest essay from the weekend’s WSJ is also a worthwhile read.
For decades, advocates of ‘peak oil’ have been predicting a crisis in energy supplies. They’ve been wrong at every turn
Almost agnostic of genre, this fall is set to be one of the best in recent memory for new books. On my reading list the next couple months will be:
1. The Quest: Energy, Security, and the Remaking of the Modern World - Daniel Yergin
2. The Better Angels of Our Nature: Why Violence Has Declined - Steven Pinker
3. Arguably: Essays by Christopher Hitchens - Christopher Hitchens
4. Reamde: A Novel - Neal Stephenson
5. Thinking, Fast and Slow - Daniel Kahneman
6. Boomerang: Travels in the New Third World - Michael Lewis
7. 1Q84 - Haruki Murakami
8. The Prague Cemetery - Umberto Eco
9. The Magic of Reality: How We Know What’s Really True - Richard Dawkins
10. The Swerve: How the World Became Modern - Stephen Greenblatt
According to the indisputable Wikipedia:
Reflexivity refers to circular relationships between cause and effect. A reflexive relationship is bidirectional with both the cause and the effect affecting one another in a situation that does not render both functions causes and effects. In sociology, reflexivity therefore comes to mean an act of self-reference where examination or action “bends back on”, refers to, and affects the entity instigating the action or examination. In this sense, it usually refers to the capacity of an individual agent to recognize forces of socialization and alter her or his place in the social structure.
This has long been George Soros’s way of viewing capital markets: a reflexive relationship between prices set on markets and the economy. He details all of this in his 1987 book—now considered a classic—the Alchemy of Finance. And, let me tell you, reflexologists seem to be everywhere now:
- Climate Of Fear Restrains Growth – John L. Chapman, Alhambra Partners
- Euro Banking Fear Feeds On Itself – Thomas and Schwartz , New York Times
- Obama’s Last Best Chance to Stop Downward Spiral – Tom DeFrank, NYDN
And this is just a smattering of what’s out there in the financial press currently. This is fine insofar as it goes: it’s logical and natural that both markets and the broader economy look to each other for signals. And it’s even a useful way of thinking about how certain trends can go on longer than most folks believe they should. But like all fine theoretical ideas, they can become overwrought.
The stretched out end logic of the reflexivity idea is what’s being bandied about today: that market signals are going to lead the economy into an inevitable, inexorable, death spiral.
Not only is this not true, it never has been. The stock market has pretty much always been a leading indicator for the economy, and basically never vice versa. Moreover, at some point or another every correction and every bull or bear market have reversed course, with the bulls winning over time in magnitude—that is, the death spiral notion is simply a figment of hyper-pessimistic views about the world right now.
Finance, Economics, Science, and the Thinking Life
Hello! My job requires a lot of reading (I mean, a lot), and in no particular order, here are the things that stood out last week. I hope you enjoy!
1. Dollar’s decline? Sure, but it depends who you ask. Some popular measures of tracking dollar moves haven’t been updated in 12 years. More…
3. That the IASB should tell banks how to set the future value of their assets is perhaps dubious. But it’s clear Greece has plenty more trouble ahead. More…
4. Comments on blogs are too often vitriolic, rude, and ignorant. We wonder: if the web weren’t anonymous, would there be so much animus? More…
5. “Green shoots?” That was two years ago. But the global economy is still showing signs of life despite the recent gloom. Consumers Ramp Up Spending. Ten Reasons for Investors to Look on the Bright Side.
6. Mimicry is a form of flattery. But what about outright intellectual property theft? China’s a wild west. How Beijing is Stifling Chinese Innovation.
7. Obama’s new economic aide, Krueger, seems as old-hat, old-academic as it gets. Will he bring fresh thinking to the administration’s policies? More…
8. Judging “reasonable” health insurance rates is a slippery slope. What happens when costs overwhelm the ability to competitively set prices? More…
9. China’s capital markets are nothing like what we know in the US. So, to ensure a “soft landing”, monetary tightening tactics can delve into the bizarre: China Central Bank Moves in Secret to Curb Lending.
10. Angela Merkel’s power is disintegrating before her very eyes. Even her most stalwart supporters are wobbling. Can she get the votes she needs to keep the eurozone bailout afloat? German Debate on Bailout Fund is Test for Merkel.
11. More than a few nations (mostly developing ones) are holding or reversing monetary tightening plans. Even the hawkish ECB. Europeans Appear Set to Pause Rate Rises.
12. Say what you will about artificially low rates, the US yield curve’s current steepness has basically never portended imminent recession. More…
13. Collegiate? Forthcoming? Open? Sure. But publically bifurcated sentiment at the Fed isn’t instilling confidence in anyone. Economy Deeply Divides Fed.
14. The death of PCs? Many analysts say so. Let’s just say, instead, Steve Jobs revolutionized the way we do our computing. Steve Jobs and the Death of the Personal Computer.
15. Who Would Bail Out the European Central Bank? Well, maybe the Fed will print its way into oblivion. Either way, options are few and if it comes to that, trouble will have already hit markets.
16. A spate of books and research recently have made the notion of living forever, or at least to 150, all the rage. What happens to social security then? More…
17. The Panama Canal opened trade in the world like few other events. Upgrades continue to matter to trade’s proliferation—particularly to the US eastern seaboard. More…
18. “Pro sports teams don’t operate in a free market, the way real businesses do. Their employees are 25 years old and make millions of dollars a year. Their customers are obsessively loyal and emotionally engaged in their fortunes to the point that — were the business in question, say, discount retailing or lawn products — it would be considered psychologically unhealthy.” So says Malcolm Gladwell. More…
19. A piece of Texas found in Antarctica? Wow! But it’s not the manifest destiny you might think…Piece of Crust Stolen from Texas Found in Antarctica.
20. Office life has always been a battleground. Now we need perpetual “war rooms” for productivity? More…
21. Forecasting of yore meant symbology, intuition, and interpreting bizarre pictures. Doesn’t sound so different than economics to me. The Querent.
22. Dante’s walk from hell to heaven was a doozy. But you don’t have to walk that far to get the benefits. Maybe Mrs. Dalloway is more your style. More…
23. Thomas Sowell says, “Government intervention may look good to the media but its actual track record — both today and in the 1930s — is far worse than the track record of letting the economy recover on its own.” An Unusual Economy?
24. Robber Barons, Texans, and rants by Upton Sinclair make the popular history of US oil. But the real history is even more interesting. Vindicating Capitalism: The Real History of the Standard Oil Company (Part I: The Fallacious Textbook Story).
25. Want a less populous earth? Try making everyone richer. Trading Fertility for Prosperity.
26. Education today is a web of interconnectivity. Should we all just forget the notion of focused attention? Collaborative Learning for the Digital Age.
27. Nearly any which way you measure it, stocks are darn cheap. Compared to treasury bonds? Gonzo! Stocks Undervalued by 65%.
28. High volatility and big downturns get stomachs churning, and government officials into protection mode. But to some, Banning Risk Is Our Biggest Risk.
30. GDP is useful because it allows at least some tacitly common way to see what the economy is doing. But, dig in to the calculation and you’ll see many flaws. What GDP Doesn’t Say.
31. Investor sentiment ain’t what it’s cracked up to be. Just ask Fisher Investments’ Forbes contributor Lara Hoffmans. Consumer Confidence and Funny Feelings.
32. Batman and Superman to meet for the first time…again? DC comics has had some dumb ideas, but starting the whole superhero universe over again might just take the cake. More…
33. Steven Hawking says philosophy is dead. Hardly. Philosophy Rules.
34. Free market capitalism: making folks nicer and nicer. So says Matt Ridley. So says Matt Ridley.
35. Willpower: is there anything more powerful to human achievement? And for that matter, interesting to study? The Will in the World.
36. All cultures and peoples have a narrative. Latin America’s of the last 100 years has been epic. More…
37. Need self confidence? Try saying “I” less. The Power of Pronouns.
38. The euro debt crisis will ultimately be solved—at least in part—by some bizarre accounting. Count on it. Euro Crisis Requires Market Solution.
40. Tech revolution? In Israel, it’s cultural as well as economic. More…
41. The next great fossil fuel frontier might just be the top of the world. Arctic Riches Lure Explorers.
42. Germany’s economy is slowing, but holding up. The eurozone better hope it stays that way. Germany’s Resiliency Buoys Europe.
43. What is Debt? Whatever it is, it’s become a moral issue through time.
44. US productivity is a key economic stat. That it’s been falling for a few months might be less about efficiency and more about increasing headcount. Only time will tell. Then again, we could all use a little respite, no? More… More…
45. A contrary view on anti-trust law. AT&T/T-Mobile Blocked: A Case For Anti Trust Repeal.
46. Transparency is a good thing. Fudging the rules of accounting is not. More…
47. New IMF chief Lagarde is marking her territory, certainly. But Will the IMF Stand Up to Europe?
48. “Although globalization is widely recognized these days, the U.S. economy actually remains relatively closed. The vast majority of goods and services sold in the United States is produced here. In 2010, imports were about 16% of U.S. GDP. Imports from China amounted to 2.5% of GDP.” The U.S. Content of “Made in China”.
Yoshihiko Noda has become Japan ’s newest Prime Minister. Assuming he keeps office that long, next month will mark the seventh prime minister in six years! This is an example of political gridlock in the extreme, and a microcosm of what’s going on all over the globe right now—from Australia to Japan to Europe to the US . All are in hand-wringing, teeth-gnashing gridlock. Many will view this as a negative (“we can’t get anything done to help this economy”). Well, I never trusted government to do that in the first place. Better they fight among themselves in my view.
Noda, a “Fiscal Hawk,” won the election with 215 of 398 final votes and will become the sixth new PM since 2006. He will serve out Kan ’s term as leader of the DPJ until September 2012, when yet another internal (DPJ) election will be held. At least Kan was successful in remaining PM for over a year. Noda will have just over a year before the DPJ votes again – he will have little time to do much more than play politics in order to get re-elected next year. Aside from another round of revolving doors at the cabinet level, nothing much should change as a result of the vote. Noda has reiterated he will attempt to follow through with Kan’s agenda, with an emphasis on fiscal balance and reconstruction. Markets were mostly not impacted by the results.
I’ve always believed meteorology has been a good way to think about economic forecasting models. Simply, economists can, via statistical analysis, have some visibility on what might happen next, but the system (be it ecological or economical) is so vast and complex we just don’t have the models to know with precision what will happen, even in the immediate future. So, after the Irene panic over the weekend, we instead get headlines like ‘People assume we can predict everything’…; NYT: Experts Misjudged Structure and Next Move…; IRENE: A PERFECT STORM OF HYPE…, and so on. It’s not that the meteorologists did a bad job—they’re just limited in what they can do, and in a situation where lives are on the line they will err on the side of caution.
This is basically—almost precisely—how to think about economic forecasts. Are we headed for another recession? Maybe. My sense is probably not. But recent weak economic data don’t guarantee anything either way. Quarterly and monthly data especially is lumpy, and never moves in a straight line. So, you get a headline like this that surprised a lot of folks this week:
Statistical economic analysis in forecasting, even just a month ahead, is at this point a lot like meteorology—the system is too complex to predict with perfect accuracy.