Archive

Archive for November, 2012

Gray Pigeons, Meet Gray Swans

November 29, 2012 Leave a comment

As said on this blog way back in April: I’m Adopting “Grey Pigeons”

Why? Because the concept of black swans is one of the most overwrought notions in recent financial memory. Now the Economist is getting in the act:

Gray Swans: Why Frugal Firms Keep Piling Up CashThe Economist

Mind you, they’re seeing gray for slightly different reasons, but the logic remains: black swans are black swans for their rarity. For the market to have all sorts of little shocks, ebbs, flows, and unexpected events is status quo.

Financial Services Will Get Cheaper, Long-Term

November 27, 2012 Leave a comment

Simply, the long-term cost of financial services is down—technology will see to it. This feature will overwhelm even the politicians’ ability to cause inefficiencies and higher costs.

Million-Dollar Traders Replaced With Machines: Credit MarketsBloomberg Businessweek

Weak Links in the Democratic Stronghold

November 23, 2012 Leave a comment

Why be optimistic a deal can be struck on the fiscal cliff? Because there are weak links in the Congressional strongholds. Not only has the GOP shown some willingness to negotiate, but there are also a handful of Democratic senators up for re-election in two years, hailing from largely traditional GOP red zones, who will want to keep their jobs. Look for at least a few of them to show “temperance” and move to the middle on the Fiscal Cliff.

Red-State Senate Democrats May Be Hard to Corral on CliffBloomberg Businessweek

I, Pencil

November 15, 2012 Leave a comment

If you’ve never read Leonard E. Read’s I, Pencil, it’s always a good time. A wonderful summation of free market principles, it’s also a document Milton Friedman referred to often. Here’s a parting lesson, straight from the pencil himself:

“The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.”

Congrats to the Flanneled Prophet

November 13, 2012 Leave a comment

There are few on the planet who’ve studied Star Wars as closely as me. Not sure if I should be proud of it, but it’s true.

But to understand Star Wars is also to have spent a lot of time on the Flanneled Prophet himself, George Lucas.

I think he’s been planning his sale to Disney for a long time. Lucasfilm would wither and slowly wane if they tried to remain independent: Disney is the only true logical buyer and can use its resources to grow the franchise. Plus, Lucas monetizes and better than doubles his wealth in the process.

This is a savvy move to see a legacy perpetuated long after Lucas is gone. Which is what Star Wars deserves.

As for the stories themselves…it’s my view these are timeless, archetypal, universal tales—which means, if I’m right, they should survive and thrive with new authors and new directions with new generations at the helm. Just like 10,000 writers and artists re-imagined Batman, Superman, Spider-man, Achilles, Thor, Rama, and so on, the Star Wars universe deserves such a fate too.

Joseph Campbell certainly agreed.

And anyway…there will be NEW STAR WARS FILMS. Which is awesome. My currently 4 year old nephew will be 8 when the first new one comes out, and I don’t know which of us will have more fun when it does; seeing his reaction alone will be worth the while.

Sandy’s Impact Is Archetypal

November 9, 2012 Leave a comment

By now, folks have gleaned the Sandy storm won’t have as much economic impact as feared. On the Monday of the storm I saw figures speculating upward of $75 billion in damages. By Wednesday’s end it was knocked down to ~$15 billion, depending who you ask. But it’s clear widespread consensus overestimated by multiples.

Acts of God are often a case study in bad economics. Though, it’s probably not the calculations so much as the psychology of the matter: it’s far better in most folks’ minds to overestimate than underestimate. If you worry too much, no one will blame you. But if you worry too little, fingers will wag in your direction. (In my view, most economists could use a crash course in Bastiat and Broken Window Fallacies before publishing their guesstimates, too.)

Natural disasters have rarely or ever had lasting deleterious effects on capital markets. It’s quite a statement about the durability and plasticity of global capital markets that the NYSE along with US markets generally can be closed for two days and one could barely tell come Wednesday’s trading action. And yet people worry over and over about this stuff.

Whatever Happened to the Food Fami-geddon?

November 7, 2012 Leave a comment

Remember just a half-year ago we were supposedly headed for a global nutrition Armageddon? Why didn’t it happen? Because folks largely misunderstand what prices are: one of the ultimate technologies for information transmission. Prices are signals, when they go higher producers (like farmers) respond by shifting available resources (like arable land), investing in increased productivity (like genetically modified seeds and modern irrigation), to get more of those higher prices. In fairly short order, via competition, prices come back down as that new supply (which shows its first signs of life in the futures contract markets and is a reason so-called “speculation” on such things matters and is largely a good thing) comes online.

In the very short term, food prices can spike, drop, shimmy and shammy. Food prices are volatile. But it’s clear by now, once again (because such a scare seems to materialize once every couple years) global food fami-geddon isn’t happening. Generally efficient allocation of resources and utilization of technology via free markets is the reason.

The Value of Experience

November 1, 2012 Leave a comment

Fisher Investments faithful Bill Shepherd recently opined on a number of topics. When experience like his speaks, I think we ought to listen. Here are a few thoughts:

Mutual funds were originally created to help achieve diversification—and are still helpful for those who don’t have a lot to invest, but would like a diverse portfolio. They can help investors get started in the markets, but can be expensive, due to trading and possible tax implications, and can lack the flexibility of a portfolio of stocks and fixed income. “While mutual funds make sense for some investors, it’s important to make sure you own them for a reason and/or haven’t out grown them,” says Bill Shepherd. “Meaning, you can achieve sometimes cheaper diversification buying multiple stocks than buying mutual funds—but it depends on your financial goals and what you can truly afford”, he continues. Here it’s helpful to have a money manager whose interests are aligned with yours to help guide you to optimal investing decisions in your portfolio.

Bill Shepherd recognizes there are many different avenues in the financial industry when it comes to choosing a money manager. “In general, I think one of the most important questions to ask yourself is, are my interests aligned with my financial professional’s? Said another way, will they do well if you do well?” asks Shepherd. “This may not be true in all facets of money management. Brokers, for example, may work on a commission system based on activity rather than a management fee based on the size of your portfolio like Fisher Investments. This structure allows us to align our interests with our clients. We utilize separate custodians to house client assets, so we don’t earn commissions on trades that are placed in your account, nor do we sell you products.  So our answer to that question is this—absolutely—if you do well, then we do well.”

A big challenge in investing is the culture of emotional created largely, it seems, by the media—especially now that news is available 24/7 on the internet, TV, smartphones and tablets and constantly updates. “It’s very easy to let emotional reactions lead your investing decisions, and your understanding of economics,” says Bill Shepherd. “A good example of media spreading negative sentiment about markets right now is the fiscal cliff. However, Fisher Investments believes talk about the fiscal cliff’s impending disaster is likely a lot of hot air—which unfortunately sells more for the media,” continues Shepherd. More about Fisher Investments views on the fiscal cliff can be found on MarketMinder.com.

Follow

Get every new post delivered to your Inbox.

Join 40 other followers

%d bloggers like this: