The gravitational constant, G, is 6.7 x 10^-11 N-MM/kg. Is there a similar G in financial markets for the super hot stocks? It is conventional wisdom that information is analyzed faster and better today than 20 years ago. If that is true, then G has increased. But is it true? Or is the constant really human nature?
Iomega, the (in)famous disk drive manufacturer that was going to take over the world, ipo-ed in June 1996. It went parabolic. And then flamed out. It took 22 months to trade back at its IPO price before descending into oblivion and a takeover by EMC for about 3$/share in 2008.
GoPro, the hip portable camera manufacturer (with a surfing dude for a CEO) was going to take over the world (and was the next BIG media company), ipo-ed in June 2014. It took 17 months for this stock to trade back at its IPO price amidst a flameout — and with yesterday’s news of a loss, is on its way to oblivion — to be acquired by Sony? for about $3/share in about 5 years?
The conventional wisdom of the moment is that a weakening global economy will push the cost of commodities such as oil down as demand stagnates. This makes perfect sense in terms of physical supply and demand, but this ignores the consequences of financial demand and capital flows.
I wrote this essay for Peak Prosperity about three weeks ago, before the revelations of investment bank speculation in commodities became news. In my view, these revelations only confirm the basic story I describe here, of capital moving from asset bubbles nearing exhaustion to the open territory of commodities. I see this move as secular, i.e. not limited to a handful of big investment banks; they are the lead players in a much broader shift of capital.
On the Nature of Conspiracies
The human mind seeks a narrative explanation of events, a story that makes sense of the swirl of life’s interactions.
The simpler the story, the easier it is to understand. Thus the simple stories are the most attractive to us.
This is one reason behind the explanatory appeal of conspiracies: ‘Event X’ occurred because a secret group planned and executed it. Read More
Paul Krugman has just passed the landmark 1 million followers on Twitter. Not bad for an academic economist, albeit one with a Nobel prize under his arm, a prominent position at Princeton University, and a New York Times blog.
His following is a reward for battling the conventional wisdom thatausterity can foster a recovery. From the moment Lehman Brothers was allowed to crash, it seemed that only Krugman, his compatriot Joseph Stiglitz, another Nobel prizewinner for the liberal cause, and New York professor Nouriel Roubini, who had loudly predicted the crash, consistently confronted the “austerians” in Washington, Brussels and the UK Treasury.
More than four years on, austerity is being questioned as never before, not least because most countries implementing a deficit-reduction policy have failed to grow. Krugman, his blog and comments on Twitter, have become the focal point for objectors worldwide. Read More
This Great Graphic is from theEconomist. It is based on the work of two economists, Betsey Stevenson and Justin Wolfers. A recent research paper looks at the relationship between self assessments of one’s well being and the self-reported annual income.
For nearly 40 years now the conventional wisdom is that money can’t buy happiness. Stevenson and Wolfers challenges that view. Their work finds that consistently in the various countries they look at people were happier (claimed to have higher levels of “life satisfaction”) as drew higher incomes. Moreover, there does not seem to be a point of diminishing returns: the more income the greater the “life satisfaction” ratings. Read More
James Glassman made waves today when he (re)released his famous “Dow 36,000″ declaration. A 150% rally in the Dow seems a bit over the top, but who knows any more? After all, what we’re seeing in Japan is (at least temporarily) throwing conventional wisdom entirely out of the window. In Japan we have a government that has now pledged to do “whatever it takes” to get the economy going again. And that means everything from fiscal stimulus to aggressive monetary policy to currency devaluations to stock market “wealth effect” targeting.
In this case, Japanese officials have done something unusual by saying that they’d like to see the Nikkei at 13,000. I don’t know what you call that. Maybe “wealth effect targeting”. Who knows anymore? Certainly not me. But whatever is going on, it seems to be working to some degree as the Nikkei is upanother 2.5% overnight to 12,250. For those keeping track, that’s up from about 8500 in Q3 or about 45%. Those Japanese sure are wealthy now! Read More
This Great Graphic is posted in numerous places, but I saw it on Miles Corak’s blog Economics for Public Policy. Alan Kruger, the Chairman of the Economic Advisors of the President helped popularize it in a speech last year.
It charts the inequality (horizontal axis) against generational income mobility (vertical axis). Denmark, for example in the lower right hand corner, is the most equal society with the most mobility. Brazil, is among the most unequal societies with relatively weak mobility. In a study that included a more countries, Corak actually found South Africa was the most unequal and the least mobile country.
These two dimensions of (in)equality seem to go hand in hand. While few would find it surprising that the US is the least equal of the major industrialized countries, the relatively weaker inter-generational mobility runs counter to conventional wisdom. The traditional source of inter-generational mobility, higher education, is out of reach of an increasing number of Americans without taking on what appears to be debilitating debt. The social, political and economic consequences of this simple chart of far reaching and arguably ranks up there with demographic shifts as fundamental challenges we face.
This is Jack as analyst, not as trader interviewer. I think the insights herein will benefit investors especially over traders, although both are served well. Jack totally destroys the EMH in this book. He also debunks a great deal of conventional wisdom for the investor, which I think will be shocking at first. Why? Conventional wisdom “feels good” and to go against the grain so to speak as an investor takes a great deal of emotional intelligence — and a strong inner voice — which most investors don’t have. Good trading and investing oftentimes does not “feel” good at all. It’s much easier for a newbie or amateur to go with the crowd and succumb to one’s emotions. What feels safe is normally not a proper risk management decision for the untrained.
At the end of each chapter, Jack delineates several “Misconceptions” that I believe are worth the price of the book. One in particular deals with when it’s NOT a good idea to just blindly buy the S&P 500 after it’s gone up a certain amount.
Market Sense and Nonsense is an objective take on popular investment themes that is backed with a great deal of data to support its claims. I think the conclusions in this book will surprise most of its readers and that’s a good thing. At least they will be armed with strong arguments to bring up with their advisors.
Global Financial Services firm BNP Paribas today cut India’s economic growth forecast for the current fiscal to 5.7 per cent from 6.3 per cent estimated earlier, in view of deficient monsoon.
“Our FY2013 GDP forecast is cut to 5.7 per cent from 6.3 per cent estimated previously…This year’s deficient monsoon will keep the growth-inflation trade-off under pressure for the next few quarters,” BNP Paribas said in a report titled ‘Indian Economics: Eyes on the Tiger’.
BNP Paribas also predicted that Indian economy’s new normal growth will be around 7 per cent.
“Our long-held view that the Indian economy’s new normal is 7 per cent growth and 7 per cent inflation on average is now the conventional wisdom and largely priced in,” it said.
According to the Indian Meteorological Department data, the rainfall was expected to be deficient by 15 per cent for June-September 2012.
For now, the economy is wrestling with GDP growth at a 9-year low of close to 5 per cent and inflation close to 10 per cent, BNP Paribas said. Read More
The famous turtle program was the fruit of the debate between Richard Dennis and William Eckhardt, on the issue of whether traders are can be nurtured. Dennis believed it can but Eckhardt thought otherwise. Hence, they decided to make a bet by recruiting people from diverse background and most without experience. The book covered the entire story of the turltes, from the beginning of the program to what happened after the program. Instead of summarizing the process of how the turtles were hired etc, I will only focus on the information and attributes that makes one a good trader which I picked up from the book. In addition, I will introduce the turtle trading method.
What makes a successful trader?
Courageous probability trader
A successful trader thinks in terms of odds and always enjoys playing the game of chance. He or she will experience losses but must be able to hold the nerves and keep trading like they have yet lost. Richard Dennis was $10mil down in a single day but was able to finish off with a $80mil profit for the year. Something that makes “mere mortals lose sleep”. It was said that great traders like Dennis, process information differently from majority of the investors. He does not take conventional wisdom for granted or accept anything at face value. “He knew that traders had a tendency to self-destruct. The battle with self was where he focused his energies.” During the interviews with the potential turtles, one of the abilities he was looking for was “to suspend your belief in reality”.
“Great training alone was not enough to win for the long run. In the end, a persistent drive for winning combined with a healthy dose of courage would be mandatory for Dennis’s students’ long-term survival.”
Eckhardt emphasized that they are not mean reversion traders who believe the market will always return to the mean or fluctuate around the mean. Dennis and co. believe the market trends and often come unexpected, which also means the payout will be very rewarding.
Emotionless and disciplined
Dennis taught the turtles not to think trading in terms of money so they can detach themselves from it and no matter what their account size, they would still be able to make the correct trading decisions.
The turtles were taught to be trend followers where they used a system of rules to tell them the bet size, entry and exit points. Rules “worked best” as they eliminate human judgements which do not work well in the market. That being said, even if rules are followed religiously, traders are not expected to be right all the time and it is crucial that they cut their losses and move on when they are wrong. It is important to make every trade a good trade rather than a profitable trade. As long as good trades are made, profits will come in the long run. Read More
A slightly different perspective on what Apple could do with its $100 billion (and over by now) cash horde. Obviously due to the publication’s automotive bent, the emphasis is on uses of funds that tend to be related to the ‘horsepower’ space. In short, the consumer company, which is now far bigger than the entire US retail sector as noted before, could purchase 435,113 Ferrari 458 Italia’s and/or some permutation of the other options indicated below. That said, while it is well-known what conventional wisdom says about any gentlemen who feels the need to redirect attention to his red blazing sport car from other, ahem, issues, we wonder what would be said about an entity that feels the urge to procure not one, but 435,113 Ferraris (or 41,667 Bugatti Veyrons for that matter)…