Weekly Roundup 53: A Curated Linkfest For The Smartest People On The Web
It takes a while to put this together, if you post these articles on your website(s) I ask that you kindly include a reference to this post. Thanks
Exclusive Features (The Must Reads):
Robert Shiller: What if a Recovery Is All in Your Head? – Via NYT – Beyond fiscal stimulus and government bailouts, the economic recovery that appears under way may be based on little more than self-fulfilling prophecy. Consider this possibility: after all these months, people start to think it’s time for the recession to end. The very thought begins to renew confidence, and some people start spending again — in turn, generating visible signs of recovery. This may seem absurd, and is rarely mentioned as an explanation for mass behavior late in a recession, but economic theorists have long been fascinated by such a possibility. The notion isn’t as farfetched as it may appear. As we all know, recessions generally last no more than a couple of years. The current recession began in December 2007, according to the National Bureau of Economic Research, so it is almost two years old. According to the standard schedule, we’re due for recovery. Given this knowledge, the mere passage of time may spur our confidence, though no formal statistical analysis can prove it.
Bill Gross’ Latest Letter: Anything But .01% – Via Pimco – My how things have changed! With the global financial system apparently stabilized, returns “on” your money are back in vogue, and conservative investors who perhaps appropriately donned a Will Rogers mask nary a fortmonth ago are suddenly waking up to the opportunity cost of 0% cash versus appreciated assets at renewed double-digit annual rates. That 0% yield is not a joke. Almost all money market accounts – totaling over $4 trillion dollars, shown in Chart 1 – yield close to nothing, so close to nothing that I mistakenly did a double take when reviewing my monthly portfolio statement. “Yield on cash,” read the buried line on page 15 of the report, “.01%.”
Jim Rogers: My First Million – Via FT – Since Jim Rogers, 67, co-founded the Quantum Fund with George Soros he has worked as a guest professor of finance at Columbia University and as an economic commentator. In 1998, he founded the Rogers International Commodities Index (RICI).
The Most Amazing Bubbles In History – Via ClusterStock -After the .com crash, there was a famous bumper sticker that said: “Please God, just one more bubble…”Well, you really don’t need to pray for that, as history shows us, it’s always a sure thing that there will be another bubble. What’s not certain is where it will appear, when it will start, how long it will last, or how many people will get made to look like idiots when it combusts.
Jason Zweig: More Stocks May Not Make a Portfolio Safer – Via WSJ – Not putting all your eggs in one basket is the most basic principle of investing. It also may be the hardest to get right. Investors have long been told by stockbrokers and financial planners that to have a properly diversified stock portfolio, you need shares in only 10 to 40 companies. Even the great investment analyst Benjamin Graham urged “adequate though not excessive diversification,” which he defined as between 10 and about 30 securities.
On Carry Traders and Long Term Interest Rates – Via Rajiv Sethi – Krugman’s post deals with the question of why some economists in the administration are concerned that further increases in deficit financing could cause long term rates to spike.
Economic Insecurity and Bad Habits – Via Economix- Since the outset of the downturn, a number of people have explored the relationship between vice and economic insecurity. As my colleague Catherine Rampell wrote in a blog post last year, for instance, some studies have indicated that prostitution increases during downturns, but that gambling declines. But what about smoking? The post last year cited a study indicating that over all, “smoking and excess weight decline during temporary economic downturns while leisure-time physical activity rises.”
How the Brain Filters out Distracting Thoughts to Focus on a Single Bit of Information – Via Science Daily – The human brain is bombarded with all kinds of information, from the memory of last night’s delicious dinner to the instructions from your boss at your morning meeting. But how do you “tune in” to just one thought or idea and ignore all the rest of what is going on around you, until it comes time to think of something else?
Management and the Financial Crisis (We Have Met the Enemy and He is Us …) – Via HBS – We have spent the past year mired in a global financial crisis that few saw coming and that will plague us for years to come. Such crises are gut-wrenching. Collectively and individually, we search for causes and solutions. Too often, we look for quick fixes that do long‐term damage, or we put the equivalent of duct tape on obvious problems, missing the true root causes. HBS professor William A. Sahlman argues that the macroeconomic problems were the result of terrible microeconomic decisions. The root cause of bad decision‐making resides in the nexus of culture, incentives, control and measurement, accounting, and human capital. We now have a unique opportunity to force a review of all the players in the financial system, from individual consumers to politicians and regulators to management teams at financial services firms.
How Much Is Enough? – Via Robert Skidelsky – The economic downturn has produced an explosion of popular anger against bankers’ “greed” and their “obscene” bonuses. This has accompanied a wider critique of “growthmanship” – the pursuit of economic growth or the accumulation of wealth at all costs, regardless of the damage it may do to the earth’s environment or to shared values.
SocGen: Prepare Yourself For The Worst Case Scenario! – Via The Money Game – Analysts at SocGen on how to protect yourself if the world is really ending…
If you’re so smart, why aren’t you rich? – Via Infoproc – So it would appear that the three richest men in the world all have IQs that are higher than 90 percent or even 99 percent of the > 120 IQ population. (Relative to the general population they are all likely in the 99th or even 99.9th percentile.) The probability of this happening in the Igon Model is less than 1 in 1000.
Riding the Waves of Irrational Behavior – Via Justin Fox – When times are good in financial markets, we’re willing to convince ourselves that they’re good for a reason. The fundamentals are great, the experts tell us. Innovation is creating new opportunities and new wealth. We’ve gotten better at managing risk. After a few years of market trouble, though, the tone changes. “When the trend is sideways to down, they think the machine is broken,” says Robert Prechter. “Jeez, it can’t be us.”
Myths of Asset Reflation Explained – Via Pragmatic Capitalist- JP Morgan was out with an excellent piece of research explaining (and defending) their opinions on many of the market myths that are currently swirling regarding the government’s response to the crisis and the reaction by various asset classes. Is the Fed blowing bubbles? Aren’t we repeating the problems of our past?
Too Big to Save: How to Fix the US Financial System – Via Harvard Law – Bob Pozen’s book, Too Big to Save: How to Fix the US Financial System is one of the most important books on financial reform written to date. The book not only provides an overview of how the US economy entered into a deep recession, but also a comprehensive plan for reform and a return to growth. Filled with original insight, the book clearly explains the failure of our modern capitalist society that has morphed into one-way capitalism that penalizes taxpayers who do not participate in upside gains but are exposed to losses from bailed out financial institutions. The book offers pragmatic advice for policymakers and important guidelines for all readers to understand the nature, causes, and appropriate reforms associated with the current US financial crisis. There has not been a more timely and important book written this decade.
Valuing Young, Start-Up and Growth Companies: Estimation Issues and Valuation Challenges – Via SSRN -Young companies are difficult to value for a number of reasons. Some are start-up and idea businesses, with little or no revenues and operating losses. Even those young companies that are profitable have short histories and most young firms are dependent upon private capital, initially owner savings and venture capital and private equity later on. As a result, many of the standard techniques we use to estimate cash flows, growth rates and discount rates either do not work or yield unrealistic numbers. In addition, the fact that most young companies do not survive has to be considered somewhere in the valuation. In this paper, we examine how best to value young companies. We use a combination of data on more mature companies in the business and the company’s own characteristics to forecast revenues, earnings and cash flows. We also establish processes for estimating discount rates for private capital and for adjusting the value today for the possibility of failure. In the process, we argue that the venture capital approach to valuation that is widely used now is flawed and should be replaced.
Why Exercise Makes You Less Anxious – Via NYT – Researchers at Princeton University recently made a remarkable discovery about the brains of rats that exercise. Some of their neurons respond differently to stress than the neurons of slothful rats. Scientists have known for some time that exercise stimulates the creation of new brain cells (neurons) but not how, precisely, these neurons might be functionally different from other brain cells.
New asset bubbles may be growing – Via Marketplace – There’s growing concern that the world’s central banks are flooding financial institutions with too much cash, setting the stage for another asset-bubble burst. Do banks just need to put on the brakes? Bob Moon reports.
Talking to ourselves: How consumers navigate choices and inner conflict – Via PhysOrg – “In our analysis of relationships between two selves with different worldviews and consumption preferences, we discovered a unique relationship in which one self offers a non-judgmental acceptance of another self’s opposing views and behavior, and in doing so brings peace and equanimity in a situation involving opposing preferences,” the authors write.
To eat or not to eat? Mental budgets help control consumption – Via PhysOrg – “For those who wish to cut out those desserts, our research suggests some simple tips,” the authors write. “First, it is important to have a mental budget. At the very least, it allows you to keep track of how you are doing with respect to your goal. Second, make sure the budget works as a limit rather than a license for the consumption behavior. To do this, it is important to have an active goal of controlling the consumption.”
Media (Audio, Videos, Etc):
Video: The Goddess of the Market: The Meaning of Ayn Rand – Via Fora.Tv – Two major new books on Ayn Rand testify to the continuing impact of America’s most influential novelist of ideas. Sales of Rand’s books have been impressive for 66 years — more than 25 million — and have recently surged, perhaps in response to the dramatic increase in government intrusion into the free market. Rand remains a major influence on both libertarian and conservative communities, and these two new studies illustrate the growing scholarly interest in her impact.
Video: Paul Krugman : The Return Of Depression Economics – Via Fora.Tv – New York Times columnist and Nobel economist Paul Krugman comes to the Hudson Union Society to talk about the aftermath of the global economic crisis.He discusses what it will take to make a full recovery, and explores how issues ranging from cap and trade legislation to healthcare reform will affect America’s economy.
Other Very Interesting Items:
Marc Dreier’s Crime of Destiny – Via Vanity Fair – His name is Marc Dreier, he is 59 years old, and his life is over. A smallish, tightly wound man with red, stubbled cheeks and a silvery pompadour, Dreier was once a hotshot New York litigator with multi-millionaire clients. Then he stole $380 million from a bunch of hedge funds, got caught, and was arrested in Toronto under bizarre circumstances, having attempted to impersonate a Canadian pension-fund lawyer as part of a scheme to sell bogus securities to the big American hedge fund Fortress Investment Group. Now, as he wanders into the living room rubbing sleep from his eyes, Dreier is waiting for the judge to tell him just how many years he will spend in prison.
Bargaining power: why the poor are still losing out in the market system – Via Acumen Fund – There are two key drivers of the welfare of small dairy farmers: milk productivity of their cattle and the price per liter of milk that they can fetch.While the productivity of cattle can be enhanced by improving the gene pool of cattle through artificial insemination, providing better quality feed and improving the farm management practices, increasing the revenue per liter of milk sold would require relatively more radical changes in the value chain of the dairy industry.
The Merger Agreement as a Contract – Via Harvard Law – Recently, in the Mergers and Acquisitions course at Harvard Law School, three preeminent M&A practitioners discussed the Merger Agreement as a Contract with Vice Chancellor Leo Strine, Jr., who teaches the class. The panelists were Rick Climan, a partner in the Mergers and Acquisitions group at Dewey & LeBoeuf LLP; Faiza Saeed, a partner in the Corporate Department of Cravath, Swaine & Moore LLP; and Kim Rucker, Senior Vice President and General Counsel of Avon Products, Inc.
Non-Market Decision-Making and Sociology – Via Sociological Imagination – It has been difficult for Rational Choice Theory (RCT) to gain traction in sociology. Yet, RCT remains the most flexible and powerful analytical lens throughout the human sciences – yes, more powerful and flexible, for social science, than network analysis.
The Unemployment Cushion – Via Microtrends Blog – Unemployment has hit double digits in the U.S., and in some areas of the industrial Midwest, it is approaching 16%. Joblessness in many parts of this country is destructive beyond belief. The Federal Reserve Chairman said he sees little prospect of immediate relief. And yet, in other areas it is not nearly as bad as it could have been. One reason is that bringing home a paycheck, especially in upper-income households, is a shared responsibility today. That fact alone, in a recession, can provide a lot of families with a built-in backstop–an Unemployment Cushion–to the destitution that unemployment in a recession can cause.
A Bubble in China – Via Knowledge Wharton – The volume of lending by China’s banks appears to be pumping up a real estate bubble that could have global repercussions. Time magazine reports buyers waiting on line to snap up new condos in Shanghai and Wuhan. According to the Financial Times, government figures show that “prices in 70 big and medium-sized Chinese cities rose 3.9% in October from a year earlier, accelerating from September’s 2.8%,” and that “price rises in top-tier markets such as Beijing and Shanghai have been much faster.”
The illusion of improving global imbalances – Via Vox.eu – Global imbalances are shrinking at a fabulous rate. This column argues that these improvements are mostly illusory – the transitory side-effect of the greatest trade collapse the world has ever seen. A global recovery will almost surely return the US, Germany, China and others to their old paths.
Shifting Blame Is Socially Contagious – Via Science Daily – Merely observing someone publicly blame an individual in an organization for a problem — even when the target is innocent — greatly increases the odds that the practice of blaming others will spread with the tenacity of the H1N1 flu, according to new research from the USC Marshall School of Business and Stanford University.
The Big Similarities & Quirky Differences Between Our Left and Right Brains – Via Discover – There is nothing more humbling or more perception-changing than holding a human brain in your hands. I discovered this recently at a brain-cutting lesson given by , a neuropathologist at Columbia University. These lessons take place every month in a cold, windowless room deep within the university’s College of Physicians and Surgeons. On the day I visited, there were half a dozen brains sitting on a table. Vonsattel began by passing them around so the medical students could take a closer look. When a brain came my way, I cradled it and found myself puzzling over its mirror symmetry. It was as if someone had glued two smaller brains together to make a bigger one.
Is there an epidemic of narcissism today? – Via Psych Today – There have also been big changes in behavior – cultural changes that are often started by more narcissistic people and then draw in the less narcissistic. Plastic surgery and procedures are up by a factor of six in just ten years. Materialistic attitudes have increased, and people are more willing to go into debt to afford the best – right now. Celebrity magazines are more popular while the circulation of other magazines and newspapers have plummeted. My favorite anecdotal example: It is now possible to hire fake paparazzi to follow you around when you go out at night so you can pretend you’re famous. This was unheard of just five years ago
Weekly Joke: Balanced Budget
How can we balance the budget overnight?
Easy. Put a tax on sex.