A new Conciliatory Phase??

"Too often the United States starts by dictating — in the past on some of these issues — and we don't always know all the factors that are involved, what we want to do is to listen, set aside some of the preconceptions that have existed and have built up over the last several years. And I think if we do that, then there's a possibility at least of achieving some breakthroughs." - Barack Obama in an interview to Al Arabiya on Jan 26 2009

The erstwhile neo-cons who ruled us till recently will not be able to sleep tonight... or possibly for many nights henceforth...

Comment

When the invasion of Iraq was underway in full force and things were just starting to go south, a popular refrain among people that I met was the following: 'Let our boys finish what they started', which I thought was a callous and flippant response. A similar situation unfolds today with Russia riding shotgun over Georgia. I wonder how many people would say things like 'Let the ruskie boys finish what they started' in reference to this conflict that is slowly starting to mirror the quagmire in Iraq.

Death by illogically exuberant consensus in the markets

Many of us over the last few days have seen prices for a barrel of oil see-sawing between 140 and 130 dollars a barrel and Fannie and Freddie Mac stocks taking wild rides in the stock market rollercoaster. Not to mention the frequent up and downswings of the DOW above and below the 11,000 mark. It often leads one to think that we may be overreacting to the information glut which may be completely useless half the time. In fact, I heard a joke on NPR yesterday telling us that the price of oil fell by nine dollars because there were NO bellicose pronouncements by the leader of Venezuela who shakes his sabers every couple of days rattling the world oil markets. Of course, not to be outdone, another take on the oil prices per barrel dropping was attributed to the clarion call of the current President of the United States exhorting the congress to pass legislation to drill for little known deposits of oil in the continental United States. Maybe the reason for such wild rides in prices could be that we have too much information on our hands and little know on how best to use and process the same. What if we suddenly stopped the flow of information to the markets and instead fed the markets global news at the end of every day - in a capsule format. Or, lock up the traders in the pit of the stock exchange, let them mull over the analysts reports, mull over company quarterlies and then figure out the best positions on take on any stock or fixed income instrument after a proper analysis. Would this be a good idea or just another crazy socialist pitch to controlling the markets? Apparently it does not seem like a crazy idea if one extrapolates from a study done by a Harvard psychologist.

In a Harvard study by psychologist Paul Andreassen, two groups of investors were given information necessary to value a stock and then asked to trade it. The only difference was that one group received frequent news about every development at the company, whereas the other received only quarterly earnings releases. The result? The latter group traded far less and ended up with twice the profits of those fed frequent news. (from here)

If one takes the sad decline of Freddie Mac and Fannie Mae, I think a comparatively small number of people might have responded to bad news in the mortgage market by selling their holdings thus causing the prices to initially fall. This fall in prices might have led others to follow the initial herd and additional selling ensued. Add to the mix the news media huffing and puffing to report on a minute by minute basis reinforcing and goading peripheral observers to sell their small holdings leading to a 'death by illogical consensus' for the stock that thus gets clobbered.

Then there are stocks that tend to act as 'stunners' grabbing so much of one's attention that focus on anything else is seems impossible. Kind of like billboards on Times Square.

A study by professors Brad Barber (UC Davis) and Terrance Odean (UC Berkeley) found that individual investors disproportionately buy “attention-grabbing” stocks, which they defined as those heavily in the news, those experiencing high, abnormal trading volume or those having just had extreme one-day returns. The authors argued that investors behave this way because of the difficulty in winnowing out good investment ideas – focusing on companies making the news helps limit the choices.(from here)

This does not go to say that one pays no attention to the news and one starts to sit down and parse financial statements and analyst fine print before making a decision to go wild with their holdings (and I think it will be stupid to do so)... On the contrary, what this points to is a sad fact of our lives - having access to more information than ever before and not knowing what to do with - worse - being actually harmed by the very information that surges to us from all sides. Corrective steps will include a more pragmatic approach to the market events that include letting the people who want to ride their ill advised Pamplonas complete their bloody course and then betting ones options calmly over the resulting carcasses of ill thought decisions. As always, the calm after the initial storm helps.

Carl Rungius (1969 - 1959), 'Alaskan Brown Bear - Out of the Shadows', oil on canvas, 60" X 75"

What afflicts us...

Normally, I do not pay too much attention to those annoying forwarded emails one gets in their inboxes. Most times, I delete them without much thought. This one I decided to read on... (especially in light of news like this).

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A Japanese company and an American company decided to have a canoe race on the Missouri River. Both teams practiced long and hard to reach their peak performance before the race.

On the big day, the Japanese won by a mile.

The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action. Their conclusion was the Japanese had 8 people rowing and 1 person steering, whi le the American team had 8 people steering and 1 person rowing.

Feeling a deeper study was in order, American management hired a consulting company and paid them a large amount of money for a second opinion. They advised, of course, that too many people were steering the boat, while not enough people were rowing.

Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to 4 steering supervisors, 3 area steering superintendents and 1 assistant superintendent steering manager. They also implemented a new performance system that would give the one person rowing the boat greater incentive to work harder. It was called the 'Rowing Team Quality First Program,' with meetings, dinners and free pens for the rower. There was discussion of getting new paddles, canoes and o ther equipment, extra vacation days for practices and bonuses.

The next year the Japanese won by two miles.

Humiliated, the American management laid off the rower for poor performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the senior executives as bonuses and the next year's racing team was out-sourced to India.

Note: Ford has spent the last thirty years moving all its factories out of the US , claiming they can't make money paying American wages. Toyota has spent the last thirty years building more than a dozen plants inside the US. The last quarter's results: Toyota makes 4 billion in profits while Ford racked up 9 billion in losses.

Our variegated lawns

Ever notice how at about this time of the year, lawn ornaments used to multiply the good cheer (yes, those flaccid Homer Simpsons that turn into very dapper looking Homers at night) are getting bigger, better and more garish as years pass. What was originally a little bit of string lighting that lent warmth to the otherwise gloomy weather prospects characterizing this time has turned into a grand 'keep up with the Joneses' spectacle with Ferris wheels, chugging trains, neon signs and in some extreme cases, rock music blaring mangers (OK, I made that last one up). Walking down a stretch of Main Street that our house adjoins (yes, we are part of the ‘suburbia’ census statistic), I was wondering if I had lost my way and wandered accidentally into Times Square by mistake. A couple of wary Johns looking for a quick fix would have completed the transformation.

Lighting up is great for the mood, spirits and the festive times that December and the New Year bring, but a silly profusion of any good is an easy road to cheap excesses and that is the current state of suburban lawns today. Of course, adding to the confusion in the night is the scene that greets passers-by in the morning - large carcasses of white nylon casings that seem to billow all over the lawn shorn of their air filling (I am guessing it is air that they use to pump those huge effigies of Santa and Homer doing things to inanimate objects that cannot be written about here) and generally making a mess of the whole lawn. Yesterday, we noticed a nylon-based Ferris wheel that actually dwarfed the house that put up the abomination and had me convinced into thinking that Barnum and Bailey were in town. Honestly, I did not mean to do a Debbie here, but if this is not a lit up neon-sign of our growing trade deficit with China, then I am not too sure what is... Closer scrutiny of any of the cardboard cartons that these things come packed in would doubtless tell you three magic words that large scale retailers sing before falling asleep – ‘Made in China’. It almost looks like we are celebrating China’s expertise in capitalist acumen than Christmas and New Year.

I really do not have anything against a bit of lighting in front of homes, in fact every year we do it zealously. It lifts spirits and spreads the good cheer that comes with Christmas and New Year. But, a surfeit of lights, sparkle and gas filled monstrosities might be a little too much on the eyes - not to mention that looming trade deficit.

Luo Weidong, Luo Weiguo & Luo Weibing, 'Welcome to the world's famous brands' 25" X 21", mixed media, collage, and lacquer on wood, 1998