by ilene - July 31st, 2014 3:06 am
Courtesy of Tim Richards at the PsyFi Blog
A common reaction to pointing out to investors (or indeed, anyone) that they're as biased as a Fox reporter at a convention of transgender liberal pacifists is for them to respond, not unreasonably, by asking what they should do about it (that's the investors, not the reporters). It turns out that it's a lot easier to say what's wrong than to actually do anything about it.
The A to Z of Behavioral Bias is an attempt to address that issue, but it does rather show that there's no such thing as a common source of biases; bad behavior comes from many sources and requires many solutions. Or does it?
Toxic Arms Races
To generalize, perhaps beyond the point of reason, there are two sorts of bad behavior amongst investors. The first kind occurs because the modern investing industry is designed to be toxic for creatures like ourselves who evolved methods to deal with risk and uncertainty and duplicity in a completely different world. The same argument can be made more generally about the world outside investing, of course.
In addition, the creation of our consumerist society has led to a psychological arms race, as corporations vie with themselves to create redundancy in their products by magicking up a demand that isn't predicated on a genuine shortage of supply. In investing, as in other areas where services or goods have to be sold, techniques have been evolved, by trial and error, that persuade us into parting with our money by exploiting our biases.
To Choose or Not To Choose
For many of us our problem is not the one that's afflicted humanity for most of its history: it's not that we have too little choice, but that we have too much. Choice overload, as it's known (see Jam Today, Tyranny Tomorrow), has been exploited by the securities industry, amongst others, to keep prices high and reduce competition. History suggests this hasn't been a deliberate attempt to manipulate us, but has developed by trial and error as corporations seek to maximize profits.
by ilene - July 30th, 2014 11:19 pm
Submitted by Tyler Durden.
As Ebola spreads mercilessly across the world, it appears Florida has a problem that sounds just as awful. As CBS reports, Florida health officials are warning beachgoers about a seawater bacterium that can invade cuts and scrapes to cause flesh-eating disease. At least 11 Floridians have contracted Vibrio vulnificus so far this year and two have died, according to the most recent state data.
Vibrio vulnificus –- a cousin of the bacterium that causes Cholera –- thrives in warm saltwater, according to the U.S. Centers for Disease Control and Prevention. If ingested, it can cause stomach pain, vomiting and diarrhea. But it can also infect open wounds and lead to “skin breakdown and ulceration,” according to the CDC.
“Since it is naturally found in warm marine waters, people with open wounds can be exposed to Vibrio vulnificus through direct contact with seawater,” the Florida Department of Health said in a statement.
Florida isn’t the only state to report Vibrio vulnificus infections. Alabama, Louisiana, Texas and Mississippi have also recorded cases, and a 2013 outbreak linked to contaminated shellfish sickened at least 104 people in 13 states, according to the CDC.
The CDC's advice:
- Avoid exposing open wounds to warm saltwater, brackish water or to raw shellfish
- Wear protective clothing when handling raw shellfish
- Cook shellfish thoroughly and avoid food contamination with juices from raw seafood
- Eat shellfish promptly after cooking and refrigerate leftovers
by ilene - July 30th, 2014 10:55 pm
Courtesy of Mish.
It’s rather amazing how people blame “free markets” for things that are 180 degrees removed from “free markets”.
For example, and in response to Political Greenwashing: US Exports Coal Pollution to Europe; What About China? reader Over Exposed writes “Excellent example of a complete and utter failure of the free market to deal with pollution“.
I see and hear this every day. I would have hoped that people would have learned by now what a “free market” is and isn’t.
- Chinese State Owned Enterprises (SOEs) are not “free markets”
- Chinese growth targets at any cost are not “free markets”
- Interest rate manipulation in the US have nothing to do with “free markets”
- Chinese and Swiss National Bank currency manipulations have nothing to do with “free markets”
- Ben Bernanke’s and Janet Yellen’s 2% inflation target – horrendously applied – and ignoring asset bubbles are as far removed from “free markets” as you can get.
Complete fools blame the “free market” for problems 100% caused precisely because we do not have “free markets”.
Contrary to popular myth, free market libertarians do not support slavery, anarchy, or pollution. Rather, we strongly believe in property rights and human rights. No one can own anyone else.
No one can kill you, steal your goods, or damage your property. Laws and regulations that protect property rights and prevent fraud are welcome.
It is amazing how people clamor for more regulation to cure problems caused by regulation and excessive interference in free markets.
Can We Please Try “Free Markets”?
We’ve tried everything else, and it did not work. Can we please try “free markets” with the minimum number of regulations and laws needed to preserve property rights, preserved human rights, and prevent fraud?
Sadly, I suspect the answer is no. Neither vested interests nor jackasses who have no idea what is really going on, want “free markets”. …
by ilene - July 30th, 2014 8:45 pm
Courtesy of Jim Quinn of The Burning Platform
In Part One, I asked questions your keepers don’t want to answer truthfully, while providing the contextual setting for how our over-populated world is progressing relentlessly towards a future of war and totalitarianism.
“Where the republican or limited monarchical tradition is weak, the best of constitutions will not prevent ambitious politicians from succumbing with glee and gusto to the temptations of power. And in any country where numbers have begun to press heavily upon available resources, these temptations cannot fail to arise. Over-population leads to economic insecurity and social unrest. Unrest and insecurity lead to more control by central governments and an increase of their power. In the absence of a constitutional tradition, this increased power will probably be exercised in a dictatorial fashion.” – Aldous Huxley – Brave New World Revisited – 1958
Huxley wrote his dystopian masterpiece in 1931 before the rise of Stalin, Hitler and Mao and their murderous totalitarian empires, sustained by torture, mass murder, surveillance, and fear. Orwell wrote 1984 in 1948, after living through the nightmare of World War II and witnessing the malevolent systematic terrorism inflicted upon innocent populations by psychopathic tyrants like Hitler and Stalin. World War II killed 65 million people. Stalin’s purges killed 20 million Russians, and Mao murdered 45 million of his own people. It appeared that Orwell’s gruesome vision of a future of brutality, surveillance, and fear would come true.
Instead, Huxley’s vision gained ground in the post war world of cheap oil, mass production, consumerism, and TV advertising. It was found that government through terror works on the whole less well than government through the non-violent manipulation of the environment and of the thoughts and feelings of individual men, women and children. Propaganda, amusements, materialism, easily accessible debt, and relentless media messaging convinced the masses to love their enslavement and never dream of revolution. It worked as long as energy and debt remained cheap and plentiful.
The 4.4 billion increase (157%) in the world’s population since Huxley’s warning in 1958 is attributable to vast supplies of cheap easily accessible oil, natural gas and coal, which have allowed technological and…
by ilene - July 30th, 2014 5:12 pm
Submitted by Tyler Durden.
A quarter ago, when we commented on the latest post-earnings collapse in Whole Foods stock, we said that "Whole Foods Misses, Lowers Guidance, Or What Happens When You Ignore Buybacks At The Expense Of CapEx", and broke down the results as follows:
.. the luxury grocery chain moments ago reported revenues of $3.32 billion, missing the $3.35 billion expected, and EPS which also missed expectations of $0.41, instead printing at $0.38. Adding insult to injury, WFM also cut comp store sales guidance lowering its previous fiscal year comp store guidance from 5.5%-6.2% to 5.0%-5.5%, cutting sales growth from 11-12% to 10.5%-11%, and also cut EBITDA from $1.32-$1.37 billion to $1.29-$1.32 billion.
Ok, the results were horrible, but one key thing was missing.
WFM continues to be a cash cow, generating tremendous amounts of bottom line cash. Which perhaps was its biggest failing as well – WFM reported that "year to date, the Company has produced $619 million in cash flow from operations and invested $362 million in capital expenditures, of which $207 million related to new stores. This resulted in free cash flow of $257 million. In addition, the Company has paid $82 million in quarterly dividends to shareholders and repurchased $117 million of common stock."
The problem was clear: "Alas, this is nowhere near enough shareholder friendly activity to keep investors happy in a New Normal in which buybacks tend to be far greater in amount than CapEx spending."
As expected, the stock promptly collapsed by 10%:
A quarter later, Whole Foods management seems to have read our lament and acted accordingly. On the chart below see if you can figure out which is the company's quarterly stock repurchase and capex activity without peeking at the legend:
Indeed, that red bar soaring from a negligible $55 million to a whopping $361 million is precisely what happens when a company realizes that its only recourse to "goose" EPS is to go full tilt buying back its stock in the open market.
by ilene - July 30th, 2014 4:05 pm
Earlier this year and during much of last year, I’d taken the Cyclically Adjusted Price-Earnings ratio to task for various reasons, most notably the fact that it didn’t allow for accounting changes (GAAP losses are recorded differently), structural changes in our economy (are we all still farmers?), structural changes in the makeup of the stock market (isn’t software inherently more profitable than railroading?), taxation (dividends get preferential treatment versus ordinary income) etc. See Leaving CAPE Town for more.
Long story short, there were a million reasons to ignore the idea that, according to CAPE, the S&P needed to be cut in half. Those in the investment industry who’ve been slavishly loyal to the metric are sitting with a pile of cash and a portfolio full of relentlessly expiring index put options, underperforming everything in sight – be it animal, vegetable or mineral.
One argument that should have gotten more attention as we dismantled the CAPE meme, however, was the fact it almost never tells you to be invested. As Anatole Kaletsky explains at Reuters, waiting for a CAPE buy signal is like waiting for a lucid moment from Courtney Love…
Investors who followed Shiller’s methodology, however, would have missed out on almost all these gains. For the Shiller price-earning ratio showed the stock market to be overvalued 97 percent of the time during these 25 years. Even during the two brief periods when the Shiller ratio was below its long-term average — in early 1990 and from November 2008 to April 2009 — it never sent a clear buy signal.
Instead, Shiller’s approach suggested that the valuations in 1990 and 2009 were only just below fair value — implying there was very limited upside at the beginning of two great bull markets that saw prices multiply fivefold from 1990 to 2000, and threefold from 2009 to 2014 (so far).
Instead, Shiller’s approach suggested that the valuations in 1990 and 2009 were only just below fair value — implying there was very limited upside at the beginning of
by ilene - July 30th, 2014 3:00 pm
Joshua M Brown, the Reformed Broker, discusses divergences in stock market indicators. People often attribute significance to two or more events occurring together when there is no significance. So just because volume declined, the S&P went up, but some stocks went down, doesn’t mean the market is about to fall, or rise, or rise then fall… Sometimes, a line on a chart is just a line on a chart. ~ Ilene
Courtesy of Joshua M Brown
“There’s no science behind that, people look at that kind of thing and they point out what they want to see.”
In the above image, you’ll see the photograph that became the cover shot for the Beatle’s final album, Abbey Road. The photo contains one of the most talked about divergences of all time – Paul McCartney being both shoeless and out of step with the rest of the band. This divergence sparked all manner of conspiracy theories as people took observations from the image and ascribed a deeper meaning to them that simply wasn’t there. In one example, fans took the “clue” of Paul’s bare feet and concocted a story whereby he had actually died and the Beatles were telling us that he had, in fact, been replaced with a body double sometime during the 1960′s.
The reality, however, is that this “divergence” carried absolutely zero significance at all.
What actually happened was fairly straightforward: It was August 8th, 1969, and a very hot day. Paul McCartney had been wearing sandals for the shoot, which had taken all of ten minutes with very little planning at all. John Lennon’s friend, freelance photographer Iain Macmillan, got up on a step ladder in the middle of the intersection outside the Abbey Road recording studio. The Beatles had made a handful of passes across the road. Of the six shots Macmillan had taken, the Beatles chose the fifth one because they appeared to be the most in-step as well as the fact that they were walking away from their studio and – not toward it – after seven long years of being “trapped” there. The fifth shot just happened to feature Paul without his sandals on, he’d taken them off because all the back and forth had been bothering his feet.
by ilene - July 30th, 2014 2:58 pm
Courtesy of Mish.
While president Obama brags about clean energy advances in the US (mostly hot air and subsidies to uneconomic businesses), the US quietly exports pollution to Europe. Coal is a particular good example.
Please consider US Exports Help Germany Increase Coal, Pollution
LUENEN, Germany – One of Germany’s newest coal-fired power plants rises here from the banks of a 100-year-old canal that once shipped coal mined from the Ruhr Valley to the world. Now the coal comes the other way.
The 750-megawatt Trianel Kohlekraftwerk Luenen GmbH & Co. power plant relies completely on coal imports, about half from the U.S. Soon, all of Germany’s coal-fired power plants will be dependent on imports, with the country expected to halt coal mining in 2018 when government subsidies end.
Coal mining’s demise in Germany comes as the country is experiencing a resurgence in coal-fired power, one which the U.S. increasingly has helped supply. U.S. exports of power plant-grade coal to Germany have more than doubled since 2008. In 2013, Germany ranked fifth, behind the United Kingdom, Netherlands, South Korea and Italy in imports of U.S. steam coal, the type burned in power plants.
On the American side of the pollution ledger, this fossil fuel trade helps the United States look as if it is making more progress on global warming than it actually is. That’s because it shifts some pollution — and the burden for cleaning it — onto another other country’s balance sheet.
“This is a classic case of political greenwashing,” said Dirk Jansen, a spokesman for BUND, a German environmental group. “Obama pretties up his own climate balance, but it doesn’t help the global climate at all if Obama’s carbon dioxide is coming out of chimneys in Germany.”
It’s a global shell game that threatens to undermine Obama’s strategy of reducing the gases blamed for global warming and reveals a little-discussed side effect of countries acting alone on a global problem.
The explanation for Germany’s increase is simple: Coal is cheaper than alternatives, particularly natural gas. So, too, are the prices on the carbon market in Europe. Companies can afford to buy the right to release more pollution.
In the U.S., the opposite is happening. Any new coal-fired power plants will have to capture carbon dioxide and bury it
by ilene - July 30th, 2014 2:27 pm
Monthly Active Users: 271 million versus ~267 million expected (based on five analysts polled by Bloomberg)
Q3 revenue guidance: $330-$340 million versus expectations of $324 million
Advertising revenue totaled $277 million, an increase of 129 percent year-over-year.
Mobile advertising revenue was 81 percent of total advertising revenue.
Data licensing and other revenue totaled $35 million, an increase of 90 percent year-over-year.
International revenue totaled $102 million, an increase of 168 percent year-over-year.
International revenue was 33 percent of total revenue.
672 million tweets related to the World Cup sent during the tournament — more than during any other event in its history.
During the Germany-Brazil World Cup game alone: 2 billion tweet impressions off of Twitter plus 4.4 billion impressions on Twitter’s owned and operated properties, nearly 6.5 billion total impressions in a single match.
Americans on average refreshed their Twitter feeds 792 times a month during the quarter, down from Q1. Globally, timeline views down 7 percent from a year ago, but up 4 percent from Q1
This report stands in stark contrast to the Q1 report Twitter issued on April 30th, after which the company was pronounced dead (I kid you not) and an illustration of a deceased fail whale being carried to its grave by diseased birds went viral. Remember this?
But now it’s all like, “Well hello, Baby Beluga!”
Please click over here to see the whole spectacle of Twitter’s supposed funeral here: (TRB)
by ilene - July 30th, 2014 1:01 pm
Courtesy of The Automatic Earth.
Arnold Genthe Long Beach, New York Summer 1927
Oh yay, US Q2 GDP supposedly rose by 4%. Aw, come on. That’s only 7% more than in Q1 (or 6.1% in the once again revised Q1 number). Wonder what made that happen? Don’t bother. It’s complete nonsense. New home sales and lending home sales went down – again – recently, wages are not going anywhere, the ADP jobs report was – again – low today. There’s nothing that adds up to a 6% or 7% difference between Q1 and Q2.
The real story of the American economy lies elsewhere. The economy is sinking away in a debt quagmire. If it were a body, the economy would be in up to its neck in debt by now, with the head tilted backwards so it can still breathe. Barely. But your government doesn’t want you to know. There are a lot of things that illustrate this.
First , let’s go back a few days to the Russell Sage Foundation report, Wealth Levels, Wealth Inequality And The Great Recession, that I mentioned in Washington Thinks Americans Are Fools. I posted a pic from the report and said it “makes clear ‘recovery’ is about the worst possible and least applicable term to use to describe what is happening in the US economy”:
Households at the “median point in the wealth distribution – the level at which there are an equal number of households whose worth is higher and lower”, saw their wealth plummet -36% from 2003 to 2013. From the highest point, in 2007, to 2013 the number is -43%. Five years after 2008 and Lehman, five years into the alleged recovery, which raised US federal, Federal Reserve, and hence taxpayer, obligations by $10-$15 trillion or more, US median household wealth was down -36% from 2003. And that’s by no means the worst of it:
If you look at the 5th and 25th percentile ‘wealth’ numbers (much of it negative), you see that they went down from 2003 to 2007, while the median was still rising. For both, wealth in the 2003-2013 timeframe deteriorated by some -200% (or two-thirds, if you will). -$9,479 to -$27,416 for the poorest 5%, $10.219 to $3,2000 for the lowest 25%.