by ilene - August 27th, 2014 7:25 pm
By John Mauldin
Paul Krugman and other notables dismiss the notion of a skills gap, though employers continue to claim they’re having trouble finding workers with the skills they need. And if you look at the evidence one way, Krugman et al. are right. But this week an interesting post on the Harvard Business Review Blog Network by guest columnist James Bessen suggests that employers may not just be whining, they may really have a problem filling some kinds of jobs.
Unsurprisingly, the problem is with new technology and the seeming requirement that workers learn new skills on the job – you know, like when the student pilot has to take the helm of a 747 in a disaster movie. Perhaps there’s not quite the same pressure in the office or on the factory floor, but the challenges can be almost as complex. Most of us have had the experience of needing to learn completely new ways of doing things, sometimes over and over again as the technology for whatever we’re doing keeps changing.
The proverb about old dogs and new tricks is being reversed, as old dogs are required to learn new tricks to keep up with the rest of the old dogs, not to mention the new pups. It’s either that or go sit on the porch. What follows is not a very long Outside the Box, but it’s thought-provoking.
There hasn’t been much happening in Uptown Dallas chez Mauldin. Lots of reading, routine workouts, long phone conversations with friends, and the occasional appearance of offspring. The amount of material hitting my inbox has slowed down considerably as well, although I know that will change in a week as everyone comes back from holidays. And even if we’re not on vacation, there is a certain slack we seem to cut ourselves in late summer.
by ilene - August 27th, 2014 5:44 pm
By John Hussman writing at Casey Research
The stock market is presently a roulette wheel with dimes on black and dynamite on red. We continue to have extreme concerns about the extent of potential market losses over the completion of the present market cycle.
At the same time, we have very little view with regard to short-term market action. If one reviews market action surrounding major pre-crash peaks such as 1929, 1972, 1987, 2000, and 2007, you’ll observe a sort of “resilience” in the major indices on a day-to-day and week-to-week basis even after market internals had already corroded. In 1987, for example, the break following the August bull market peak was largely recovered over the course of several weeks before failing rapidly in October. In 2000, the market actually experienced a series of 10-12% corrections and recoveries before a final high in September that was followed by a loss of half the market’s value. In 2007, the initial break in mid-summer was fully recovered, with the market registering a fresh nominal high in early October that marked the end of the bull market and the start of a 55% market collapse.
As economic historian J.K. Galbraith wrote about the advance leading up to the 1929 crash, the market’s gains “had an aspect of great reliability… Indeed the temporary breaks in the market which preceded the crash were a serious trial for those who had declined fantasy. Early in 1928, in June, in December, and in February and March of 1929 it seemed that the end had come. On various of these occasions the Times happily reported the return to reality. And then the market took flight again. Only a durable sense of doom could survive such discouragement. The time was coming when the optimists would reap a rich harvest of discredit. But it has long since been forgotten that for many months those who resisted reassurance were similarly, if less permanently, discredited.”
None of this implies that the market will or must collapse in short order. Stocks remain strenuously overvalued, overbought, and overbullish, but those conditions have persisted uncorrected much longer in the present instance than they have historically. That doesn’t encourage us to abandon our concerns, but it does make us less aggressive about investment stances that rely on…
by ilene - August 27th, 2014 4:56 pm
Courtesy of Tim Richards of the Psy-Fi Blog
The Yawn Effect occurs when you yawn in response to someone else yawning. In fact you can even get your dog to do it (or get coerced into yawning by your pooch). Yawning is contagious, and contagion is an inevitable unconscious consequence of people interacting with each other – and, as usual, when we behave automatically as investors it doesn't make for a good financial outcome.
The Yawn effect is so powerful it's used as a simple test for autism. If a child is suspected of being autistic one check is to yawn at it. If the child yawns back they're not affected. Beware, though, not yawning doesn't mean they are autistic. The best guess is that yawning is a proxy for empathy, although the jury's still out on that one: certainly unconscious mimicry is part of our standard repertoire, and emotional contagion is inferred from this.
This seemingly seamless behavior is replicated in investing where social biases trigger contagious reactions. Herding is the best known of these – the tendency of investors or analysts or forecasters to group together and to behave in a similar fashion. It's certainly not just private investors who do this -investment analysis ran about like simpleminded sheep in the wake of BP's Deepwater Horizon fiasco in the Gulf of Mexico.
What's odd is the way that this behavior seems to be synchronized – frequently herding seems to arise simultaneously across a specific cohort, rather than being transmitted from person to person. It seems that people react in a coordinated fashion to specific types of signal – so just as one person yawning can trigger a whole room of people to act all sleepy, so specific types of trigger can fire off herding.
Herding is sometimes triggered by social contagion, via self-enhancing transmission bias, but also seems to arise spontaneously, coordinated by a range of behavioral issues – a lack of attention to detail, the disposition effect and also the representative heuristic. In the latter case, for instance, similar beliefs are generated by extrapolation of past performance of attention grabbing stocks.
by Option Review - August 27th, 2014 3:12 pm
by ilene - August 27th, 2014 1:27 pm
By Andrey Dashkov, Casey Research
Bigger, faster, better. That’s the turbocharged investment we all want. Miller’s Money Forever subscribers who pay close attention to our portfolio, though, will notice that we don’t hold leveraged ETFs—those with “2x” or “inverse” or “ultra” in their names, which some investors mistake for “better.”
Exchange-traded funds (ETFs) are a great tool for many portfolios. They allow investors to profit from movements in a huge variety of assets grouped by industry, geography, presence in a certain index, or other criteria. You can find ETFs tracking automobile producers, cotton futures, or cows.
For our purposes, ETFs make it easier to diversify within a certain group of companies—easier because you don’t have to buy them individually. You buy the ETF and leave it to its managers to balance the portfolio when needed.
We have several ETFs in the Money Forever portfolio, and they have served us well so far. They expose us to several universes, such as international stocks, foreign dividend-paying companies, convertible securities, and others.
Why Turbocharged Isn’t Always Better
So, if we think the underlying index or asset class will move in our favor, why wouldn’t we opt for the turbocharged version—the versions that use leverage (credit) to achieve gains two times higher?
First, because we’re very cautious about volatility, and leveraged ETFs are designed to be less stable than the underlying assets. Second, there is a trick to leveraged ETFs that can make your investment in them stink even if the underlying index or asset does well.
Before we get to the details, let me pose two questions:
- If the S&P 500 goes up by 5% over several days, how much would a 2x leveraged ETF based on the index earn?
- If the S&P 500 goes up and down, then rises, and after a while ends up flat, will our ETF end up flat too?
If you answer 10% to the first question, you may be correct, and that’s the caveat: you won’t be correct 100% of the time. You can’t just multiply an index’s total gain by the ETF’s factor to gauge how much you’ll earn, because leveraged ETFs track daily gains, not total…
by ilene - August 27th, 2014 1:00 pm
Courtesy of Adam J. Crawford at Casey Research
It was one of worst predictions in recent memory. In a 2007 interview, former Microsoft CEO Steve Ballmer said, “There’s no chance that the iPhone is going to get any significant market share. No chance.”
It reminds us of when Sir William Preece, an official with the British Post Office, weighed in on an earlier incarnation designed by Mr. Bell, not Mr. Jobs: “The Americans have need of the telephone,” said Sir William, “but we do not. We have plenty of messenger boys.”
To make matters worse, Ballmer predicted that Android would also fail, since Google wasn’t charging a licensing fee to its OEMs. Of course, he was talking his own book. But it still stands out as intensely blind to what customers really wanted.
However, today Microsoft has thrown everything the company has at mobile. It’s dropped the pen and embraced touch in every version of Windows (poorly, many have said). It’s spending millions advertising its phones, and billions to acquire the only notable company still making them. Is it all too late? Or can Microsoft rise from the ashes and find another multibillion-dollar business to add to its stable?
A Two-Man Race
A look at the market-share numbers illustrates just how spectacularly wrong Ballmer was about the iPhone and its operating system (iOS) and Android.
As you can see, Android and iOS currently control over 90% of the US and global markets, forming a true duopoly, with both systems having a meaningful share.
With global share of less than 8% in 2010 and deteriorating to less than 4% in 2013, Microsoft is currently irrelevant in the smartphone market. Is this because the company was late to the party?
Not really. Microsoft actually got a head start in the market, launching its first smartphone (the Pocket PC 2002) in 2001. New models under a new name (Windows Mobile) were launched annually in four of the following five years and, incredible as it might now seem, the company actually became a market leader in those halcyon days. By Q1 2004, Windows Mobile had captured 23% of
by ilene - August 27th, 2014 11:51 am
Courtesy of Pater Tenebrarum of Acting Man
Planned Bond Exchange Declared Illegal
You bet it is illegal – in its continued attempt to welsh on its creditors, Argentina's government has attempted to move its debt out of the reach of US courts by swapping its debt for new debt issued under local law. The problem is of course that “local law” can be made up to the government's liking. Simply put, investors would never have lent the government money in the first place if these bonds had not been issued under US law. By entering clauses that determined that New York would be the relevant jurisdiction, Argentina's government enticed investors to lend a lot of money to it at what were then quite favorable terms.
Obviously, for the government to attempt to alter these clauses retroactively by means of a swap makes a complete mockery of these contractual agreements. Hence, judge Griesa's determination that such action would be illegal is perfectly justified and correct (for details on the legal backdrop, we refer you to our previous article “Argentina – Deadbeat State Goes on the Attack”). In the interest of achieving a settlement, the judge wisely refrained from issuing a contempt of court finding (he can't very well throw Argentina into jail anyway). It is obvious that judge Griesa just wishes the issue would go away, but to his credit, he continues to stand firm on the law.
According to a recent Bloomberg report:
“Argentina’s plan to pay its restructured debt beyond the reach of U.S. courts is illegal, said the judge overseeing litigation stemming from the nation’s 2001 default, while declining to hold the country in contempt.
U.S. District Judge Thomas Griesa said in Manhattan federal court today that the proposal, announced Aug. 19 by Argentina President Cristina Fernandez de Kirchner, is “invalid, illegal and in violation of current court orders and injunctions.”
Griesa declined a request by lawyers representing investors holding Argentina’s defaulted bonds that he find the nation in contempt of court. The judge told lawyers for both sides that a contempt finding wouldn’t add to the prospects of a settlement between Argentina and its creditors.
“The thing that
by ilene - August 26th, 2014 9:50 pm
By John Mauldin
“To found a great empire for the sole purpose of raising up a people of customers may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers.”
– Adam Smith, The Wealth of Nations
One of the great pleasures of writing this letter is the fascinating correspondence and the relationships that develop along the way. The internet has allowed me to meet a wide range of people all over the world – something that never happened to me pre-1999. Not only do I get to meet a wide variety of people, I also come into contact with an even wider range of knowledge and ideas, much of which comes my way from readers who send me work they think I’ll have an interest in. I have a bountiful, never-ending source of thoughtful material, thanks to you.
This week’s letter emanates from a rather provocative email I received from David Brin. Science-fiction aficionados will immediately recognize him as the many-time winner of every major sci-fi writing award and an inductee into the Science Fiction Hall of Fame. Non-SF junkies might remember the movie The Postman (with Kevin Costner). Brin’s 2002 book Kiln People is one of my favorites, and I think it’s one of the more important books for trying to understand the impact of technology in our future. Will the science he describes be available? Probably not. But different technological variations on it will be, I think. And the book has a great plot. (David is also something of an expert on the role of and loss of privacy, which is a central theme of the book.)
David is something of a polymath. His degrees are in astrophysics and space science (Caltech and UCSD), but like many science fiction writers he is interested in almost everything. He frequently takes me to task, always constructively, sometimes publicly, about my writing. He is also a bit of an Adam Smith junkie.
by ilene - August 26th, 2014 9:29 pm
Courtesy of Jesse's Cafe Americain
“It's easier to fool people than to convince them that they have been fooled.” Mark Twain
This is an interesting discussion by Jeff Sachs, about where we are and why we are there.
It is from Jeff Sachs talk at the Martin School at Oxford. I join it in progress.
I have come to believe that nothing will change until the financiers blow up the system for a third time. And then the variables will start filling in, and falling into place.
I am especially interested to see what the 'outliers' do in response to this, they being the large actors outside the domestic system, primarily the BRICS. China and Russia in particular, but also the rest of South America and East Asia and the subcontinent. Africa not so much as of yet.
But to some extent a bellwether will be Europe, which will have a key choice to make. And of course the Anglo-American public, but the poor souls are being let down badly and led astray by their leaders.