Wednesday, January 26, 2011

Marc Faber on Davos, "dishonest" Obama (Bloomberg TV)

Newsy: Marc Faber talks to Bloomberg TV about Davos, the disastrous 1st term of our dishonest President Obama, the illusion of deficit spending prosperity, and more.

If you're a regular here, you already know how much we love the straight-shooting Dr. Faber. This latest chat is one more example of Faber's natural ability to cut through the propaganda and nonsense and get straight to the heart of matters.

Have a listen and catch Marc's latest thoughts on the US and emerging markets, the "global agenda setters" of Davos, bonds, inflation, and gold. Enjoy.

Related articles and posts:

1. Marc Faber: final crisis yet to come - Finance Trends.

2. Jim Rogers at Reuters 2011 Outlook Summit - Finance Trends.

Tuesday, January 25, 2011

Speculation drives human progress

Speculation, in all its forms, is what drives human progress. This is the core message behind Michael Bigger's recent post, "The Desire to Speculate".

An excerpt from Michael's essay:

It is said that the desire to speculate is very strong in the American people. That is why our country has made greater progress than any other country in the world, because
progress is the result of speculation. We are not referring merely to stock speculations, but to the word in its broadest sense. Every new undertaking is a speculation.

An inventor speculates on what he is going to invent. Often such speculations result in losses, because many inventors, or would-be-inventors, never accomplish very much. They spend their money, time, and efforts, and probably live years in poverty, and then if the invention is not profitable, they are heavy losers.

It is the same thing with every new business. It is purely a speculation..."

This is a great point, and one that is greatly misunderstood by some ignorant politicians, journalists, and everyday people who refer to "speculators" as wicked people who somehow conspire to drive prices of shares or commodities higher or plunge them lower.

Any human activity that requires foresight and planning and the assumption of risk (of money or labor lost) is a form of speculation. Thomas Edison speculated with his toil and sweat as he sought to perfect and market yet another invention, never knowing for sure whether it would succeed or fail in the end.

Venture capitalists speculate with their partners' capital when they back a new technology firm or a startup that makes electric cars.

Traders may speculate with their own money (and emotional capital) that some catalysts will serve to send prices of share "x" or commodity "y" higher or lower in the days and months ahead.

In other words, we speculate when we imagine something new or create some new business or invention or vote with our dollars on future outcomes in the marketplace.

As Bernard Baruch famously pointed out, the word speculate comes from the Latin speculari, which means "to observe" or "to look (spy) out". This is the essence of speculation, to look out towards a great distance and try to observe future developments.

However, there are differences that separate the successful speculator from the wreckless gambler. As Michael mentions in his post, most people think of all the profit to be made in a speculative venture, instead of focusing on the risk of loss:

"...It does not pay to take big risks. That is true in stock speculating the same as in any other undertaking. Most speculators are keeping their minds all the time on the possibilities of profit and not thinking about the possibilities of losing.

There is an old saying, and we believe a very true one, that a man who speculates with the idea of getting rich quickly loses all his money quickly, but that the man who speculates with the idea of making a fair return on his money usually gets rich..."

Do you speculate with an eye towards big profits? How many of us dream of returns while neglecting the discipline of adhering to sound principles of risk management? What can we do to sharpen our judgement and improve our odds of success in any form of speculation, be it a new business venture or a stock trade?

Friday, January 21, 2011

Sebastian Mallaby interview: future of hedge funds

A few weeks ago on Twitter, we shared this interview with Sebastian Mallaby, who speaks to UC Berkeley about the future of the hedge fund industry for their "Conversations with History" series.

For those who may not know, Mallaby is the author of a recent book on hedge funds and the financial crisis called, More Money Than G-d: Hedge Funds and the Making of a New Elite

One point that really caught my interest early on in the interview is an anecdote Mallaby shares regarding Paul Tudor Jones and the factors he attributed to his own success as a trader and hedge fund manager.

As Mallaby tells it, PTJ's explanation for his success is not at all the real reason why he is successful, but it is part of a common theme of professionals misattributing causes to explain their colleagues' and their own successes.

Enjoy the discussion; it should prove especially interesting to those who are in the business or watching the hedge fund space closely.

Related articles and posts:

1. A.W. Jones and hedge fund history - Finance Trends.

2. Interview with Sebastian Mallaby: the history of hedge funds - Martin Kronicle.

Tuesday, January 18, 2011

Steve Jobs on effort and success

"The things I've done in my life have required a lot of years of effort before they took off." - Steve Jobs $AAPLTue Jan 18 20:16:32 via web

Just a cool quote from Apple CEO, Steve Jobs. Found it while reading O'Neil's How to Make Money In Stocks, of all things.

Sometimes people forget that there is an unseen foundation of hard work (and earlier failures) that lies beneath any great success.

Friday, January 14, 2011

They'll just change the rules

Inflation or deflation ahead?

Why, after the bursting of a massive credit bubble, do losses from defaulted debt go unrecognized? How is that we simply continue to hum right along?

Chris Martenson explains in, "Don't worry, they'll just change the rules":

"Suppose, for the sake of argument, that there is a world in which banks are allowed by their regulators to pretend their default losses simply do not exist. And, even more outlandishly, some of these banks are allowed to sell heavily damaged loans to their central bank at nearly their full original price.

What does "deflation" mean in such a world? Not much, as it turns out. At least from a monetary perspective, because money is not being destroyed at nearly the rate that would be expected or predicted by the size and rate of the defaults.

This is the world in which we currently live. Trillions in probable and provable losses quietly exist, out of sight, on the balance sheets of the Federal Reserve and other financial institutions. If they ever come out of hiding and onto the books, I think the deflationists will be proven correct beyond all doubt..."

Which brings Martenson to his next point: the "extend and pretend" game which favors the "too big to fail" (TBTF) banks is part and parcel of the trend towards changing the rules of the game at will. In this framework, what should happen may not transpire at all, or at least not for some time.

"...The theme here is simple enough: If and whenever the circumstances justify a major response, existing rules will be changed, altered, bent, or broken.

Because of this, I routinely argue that what should happen won't happen, at least not right away, and that there's really no such thing as investing anymore, only speculating -- unless you are a big bank, favored by the Fed, with advance information..."

Check out the full piece to hear why the rules of the game are constantly changing, and why we're all speculators (as opposed to investors) now.

Tuesday, January 11, 2011

Reducing noise & finding value on StockTwits

Wanted to track down some of the better posts on filtering one's information feeds and following users on Twitter and StockTwits.

One of the common objections I hear from potential users on trying Twitter or StockTwits is that they anticipate a flood of extraneous "noise" from these new info channels. Therefore, they wish to remove the possibility of being inundated with chatter and opinions by not taking up these microblogging platforms.

This is a very fair objection. After all, if you have a well thought out investing and/or trading strategy, and you're carefully screening the info you consume on a daily basis, why expose yourself to additional noise and unwanted opinions?

But is there a chance you might be missing out on an opportunity to connect with, and learn from, like-minded (or differently focused) traders and investors? What if you could filter your Twitter or StockTwits streams to show you an organized set of updates from the sources of your choosing? Might some form of value be extracted here?

With serendipitous timing, StockSage1 offers up this excellent new post on, "Reducing Noise Intake - From Mandelbrot to StockTwits".

An excerpt from that piece:

"Athletes often talk about the concept of the ‘game slowing down’ when they are really in the zone...

...Traders can achieve the same ability to ‘slow the markets down’ by preparing, studying and focusing on the most relevant new information while blocking out all the useless noise. This last point, blocking out noise, is paramount to achieving success as a trader. In the 2011 world of high speed information flow and social media, the challenge of blocking out noise becomes increasingly difficult by the day."

Read on to find out where StockTwits enters into the equation, and how you might best filter your message inputs to receive value from the stream (or reduce information overload in general).
You may find that you've opened up a whole new channel of communication and idea generation.

Of course, this applies not only to traders and investors, but to anyone using Twitter (and Twitter clients like Tweetdeck, or features like Twitter lists) to communicate and share ideas with others who share similar interests or business goals.

Have you found value on Twitter or StockTwits? Tell us about your experience.

Friday, January 7, 2011

On the value of financial blogging

Does blogging provide any real value for market participants, students of the markets, or blog readers?

I recently came across a few posts and discussions that speak directly to this question, and seem to answer back with an emphatic "yes" on all counts.

First, let's take a quick look at Michael Bigger's recent post in which he states that 99 percent of traders are missing out on the benefits of blogging.

Michael highlights a short clip of Seth Godin speaking about the advantages of writing a blog and how the act of writing helps to sharpen one's thinking and understanding of the subject at hand.

He adds that a trader's blog is his home base, and that everyone should think of blogging as their "thinking out loud" platform. I could not agree more with his visualization of the blog as an idea scrapbook or journal, as this was the initial purpose for Finance Trends Matter, but check out Michael's post and hear his (and Seth's) view on the subject.

I also want to highlight two worthwhile clips from StockTwits TV. First we have Tadas Viskanta at Abnormal Returns discussing the value of financial blogging.

As he makes clear in this discussion, the costs of and ease of entry to blogging have come down to the point where just about anyone get started writing their own blog. There are still risks (sometimes reputational), but the value of archiving one's thoughts and receiving feedback from engaged readers is a great benefit to investors, traders, researchers, and entrepreneurs.

You'll also find a link in Tadas' post to a new interview with Charles Kirk (The Kirk Report), one of the "godfathers" of the market blogosphere, who discusses his writing and trading methods with Howard Lindzon.

Be sure to check out some of the related items mentioned in Tadas' talk, and think about starting your own blog (or engaging with those you follow) to help you journal your ideas and learn from others in the financial blogging and trading world.

Thursday, January 6, 2011

Don't become complacent (Trainspotting)

There's a lot of truth to this scene from Trainspotting, in which Sick Boy explains his unifying theory of life to his friend, Mark.

It's a very universal phenomenon: you get a bit of success (or maybe a lot of it) and then, as you get older and more comfortable, you tend to become complacent and less aware.

Maybe you don't push the envelope as much as you did before, or maybe you just get to a point where you're more easily satisfied and content to rest on your laurels. It doesn't have to be an age-specific thing either, it may just be a lack of enthusiasm or vitality. That old hunger you once felt is nearly gone.

Be cognizant of this reality and its tendency to creep up on your life. Don't become complacent.

Or as Paul Tudor Jones once said:

"Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead."


Related articles and posts:

1. Lessons from Paul Tudor Jones - First Adopter.

2. Paul Tudor Jones: "Trader" - Finance Trends.

Tuesday, January 4, 2011

Purchasing power of US dollar 1920-2009

The price of gold took a big hit today, something we noticed while having an interesting conversation about the dollar index and US dollar's recent strength (as measured by said index) earlier today on Twitter.

Still, we have to keep our eye on the big picture here. The long-term trajectory of the US dollar and its purchasing power, as measured against a constant store of value (such as gold), is down. Conversely, the longer-term trajectory of the dollar price of gold is up.

Food for thought.

Related articles and posts:

1. Bloomberg: weak dollar, inflation "illusory" - Finance Trends.

2. Dollar's purchasing power annihilated - Zero Hedge at Seeking Alpha.

The Unemployed will Stay Unemployed

As the economy recovers, don't expect employment to improve in the manner of past recoveries. Long term unemployment is here to stay for the US for a similar set of reasons that have made long term unemployment a permanent feature of the European economic landscape. Hiring people costs too much. That is it -- pure and simple.

If you offer an employee a salary of $ 35,000 per year and if $ 35,000 respresented your actual annual cost of the employee, there would be little or no unemployment in the US or in Europe. But, it doesn't work that way. Where to begin?

How about Social Security and Unemployment Compensation? Need we mention health care? How about mandated family leave and mandated paid sick leave (by many states). What about the right to sue your employer if another employee is guilty of .... you name it....racial or sexual discrimination, etc., etc. How does the threat of a multi million dollar lawsuit feel if you are a small business? Especially if the alleged violations of existing law are incidents between employees that are after hours and not on the job site. Employers are still liable for such things.

In essence a $ 35,000 employee now costs $ 60,000 or more if you factor in the liabilities and costs that various levels of government have mandated as part of the process. So, who needs employees at these prices? Hardly anyone.

In the long run, these costs are borne by employees, which goes a long way toward explaining the declining fortunes of middle class America. But, in the short run, these extra costs are impediments to hiring.

The economy will recover and outsourcing and capital equipment will be factors of choice for employers. Forget hiring real live people. They have been priced out of the market by big government.