SanjayJohn.com

Theory of Dominant Genes-Filling a Hole in Darwin's Theory of Evolution-REPOST

noreply@blogger.com (Sanjay "John" Gandhi) — Tue, 12 Jan 2010 02:23:00 +0000

People who subscribe to my feed using feedburner got another dated version of this post-this is the real one. Sorry about that..
---
In the last few years I have come up with some ideas about evolution, and where Darwin might have left some space to be filled. I will call it The Theory of Dominant Genes.

In every group of individuals of the same species, there is a tendency of genetically similar individuals to group together. They will form sub-groups based on this similarity, and eventually this sub-group will split off (or drive away the other members of the parent group) and form another species. Until then, this group will be the dominant gene in the group-the others will have to obey the rules laid out by them.

An example. Let's see you see a bunch of dogs in an area. Large dogs will tend to hang out with large dogs, black dogs with black dogs, intelligent dogs with intelligent dogs, and form little sub groups of dogs. The dominant subgroup will rule-it will dominate the other dogs. It may even kill all other dogs or drive them away. That sub group will form the next group of dogs in that area, which will eventually lead to a new species.

This is how new species are formed. The dominant group is a precursor to new species.

An example with humans. You will see people of similar characteristics form groups. For example, tall people prefer to hang out with tall people, and marry tall people, and so on. This is a precursor to forming new species.

In case of conflicts, the dominant genes of let's say tall people will drive away all the rest to new places, or there will be war, and the others will be wiped out.

This also explains the formation of new towns, countries, and why we would form new languages (it is the way of speaking of the dominant group with others copy, and eventually leads to a new language).

It is easy to see this for individuals in species-a dominant individual will act the say way.

The theory will easy to apply for all animals, and plants. Darwin pointed out that the competition within individuals of a species is more severe than the competition between species (because they share the same food habits, same geographical area) and this theory explains how that competition really works, that some individuals or group begin to dominate, and eliminate the others.

Sanjay

Combining Adam Smith with Charles Darwin's ideas

noreply@blogger.com (Sanjay "John" Gandhi) — Sat, 02 Jan 2010 05:45:00 +0000

Adam Smith's Theory of Moral Sentiments (TMS) talks about how only wise and virtuous people can have lasting friends. Vice is capricious, says Smith-and by definition, good life long friendships are born on stability and trust, which can only be found amongst virtuous people. Thieves and dishonest people can't be friends of each other---they will always screw over the other party to destroy the friendship's investments.

My experiences in life with humans have confirmed this to a very high degree.

Enter Darwin. Darwin observed that our characteristics are inherited-that nurture can't do mucho. In his autobiography he pointed out to how different his siblings were to him and to each other, even though brought up in the same family. This I can confirm from my own family and observations of many other families around me.

I believe that this "virtue" which Smith talks about, this "honesty", is genetic. (Being genetic, it has a propensity (a probability, not a certainty) to be hereditary-but that's another topic). This is tied in to my earlier post about how I believe that people who are faithful to their partners are genetically designed to be so. They are all the same-genetically faithful, honest, virtuous, etc.

In reality, dishonest people may learn to be honest and fake it...but it needs a discerning eye and lots of experience to see this. I have been fooled many a time by both men and women, but seems like I am getting better at recognizing the genetically unfaithful (dishonest) people...:-)

If Smith were born after Darwin he would surely have incorporated Darwin's acute observations about humans and animals into his TMS-and I suppose it would have been along these lines.

Sanjay

Taleb and his book Fooled by Randomness

noreply@blogger.com (Sanjay "John" Gandhi) — Thu, 10 Dec 2009 14:22:00 +0000

Nassim Taleb as I have mentioned earlier is one of the smartest human beings in the world right now. His book 'Fooled by Randomness' is probably going to be one of the few books which people will read after 200 years, like Adam Smith's 'Wealth of Nations' or Darwins "The Origin of Species". In showing us how we often mistake coincidence for causality, he is not the first-but his main contribution is to use this idea to make our lives better in a real way, with practical uses and examples. When he says casually "There's no such thing as Alternative Medicine" it sounds like a casual offhand remark-but it is so very significant and useful. You can dump all those alternative medicine doctors safely-Modern Medicine is originally derived from Alternative Medicine and you can safely trust the Scientists at Pfizer and Merck and Ranbaxy to bring you the best of the alternative world medicines-these guys are constantly looking for new ideas and chemicals...

I find so many examples where Taleb's central idea-that we keep getting fooled by randomness, thinking that there's some causality, some pattern out there in our experiences with the world, when there isn't any. Check yourself when you think Sunday is a good day for shopping, or you are a lucky guy always in restaurants to find empty tables-reality is far more brutal, and doesn't care that much about you.

Together with Adam Smith and Darwin, I find Taleb one of the most wonderful and intelligent humans to walk this planet. As often is the case with great minds, they get really famous after their death-and I hope that with Taleb, at least some of the credit he deserves for showing us the difference between anti-knowledge and knowledge he will reap the rewards of in this present life...(a Nobel Prize in Economics by the Swedish Bankers...nah!).

Sanjay

Global Warming and Going Green are Religions-not Science!

noreply@blogger.com (Sanjay "John" Gandhi) — Thu, 03 Dec 2009 06:27:00 +0000

In the last few years everyone in the world is worried about global warming. Al Gore, a politician, has turned into a scientist in a few years and has won lots of prizes (I will call him Green God Gore from now on). Let's now examine the science behind all this.

Here's my position: That there is global warming, increase in earth's temperature, is true. That this will have disastrous consequences is false. It is alarmist, and there's no substance to these "the world is coming to and end" from the scientific point of view.

The link to NRDC site on Global Warming Basics.

The link to NASA's Global Warming Page.

It is true that we have accelerated melting of polar ice. It is also true that we have a rise in ocean levels. This may lead to a tough life for penguins and sea lions and all other animals which live in the poles and cold areas-but as Darwin explained to us so very well in The Origin, Life loves warm weather. The number of species of both plants and animals goes down as we goes away from the Equator. For every penguin dying in Antartica, there are maybe hundreds of deer and snakes and other tropical creatures who are born, and they will lead to the formation of new Species. For plants it is an absolute party as well-a warmer earth will lead to a REFORESTATION of the Amazon jungle in the long term (unfortunately I don't know what that long term is). But this is directly from Darwin, and some simple observations of life around us on our planet. Living things, both plants and animals, multiply better in warm weather, and a warmer earth is good for Life on earth. And come to think of it-what percentage of humans have actually seen a glacier or hung out with a penguin in Antartica? There are plenty of penguims in zoos nowadays-and we can always raise them well there in case there is a complete melting of ice caps (we did domesticate dogs, cats, and all kinds of other animals, this one will be harder, but we have a long history of domesticating animals!). Warmer earth is also good for population of plants and animals in the sea-e.g. the number density of fish species goes down as you move away from warmer waters to colder waters.

Ocean levels are rising is also true. Low rise Islands are disappearing. They say that with the current rate of rise of ocean levels, assume all goes according to what all these climate scientists think, Maldives might disappear in 2100. This is the biggest direct threat to human life. Maldives has a population of 300,000 today, and even if this happens as these scientists claim-do you think that humans are so brutal that large land mass countries around Maldives like India or Africa or even Europe will let these people just drown??? Of course not. Most countries would be happy to take these immigrants today-it is a very small number of people.
As far as the rise in sea levels on all coasts in major continents-that low lying coastal lands might be gone, that is true also. But people forget that The Netherlands has been below sea level forever, and human industry of the Dutch has kept it one of the finest, richest countries of Europe in the last 400 years at least. As long as there is a big land mass around, like the Dutch have (unlike Islands like Maldives) we can always reclaim land if needed.

There is a theory on faster hurricanes because of warmer weathers (see links above). I don't know much about this, and this may be a valid negative effect of global warming.

What we are doing is restraining economic development by all these carbon caps etc. Energy is becoming expensive to produce-and since cheap energy is the CAUSE of economic development (just like all cheap raw materials) we are increasing the costs to humans because of bad science polluting the world.

Sanjay

The stupidity of investing in Gold

noreply@blogger.com (Sanjay "John" Gandhi) — Sat, 17 Oct 2009 01:43:00 +0000

All banks around the world are telling their clients to buy gold. Harrod's in the UK is going to sell Gold bars in it's departmental stores.
Banks are marketeers-like salesmen selling whatever. We all are-we all were born to sell something in this world (unless you don't want to participate in the world economy, do your share, earn your consumption) but banks and economists and finance guys claim to be rigorous scientists, a completely false claim.
Is Gold a good investment? No.
We need to go back to Adam Smith to understand why it's not.
If people keep buying gold, or jewelry, you see a world full of jewelers, of traders of gold, of jewelery, etc. None of these products in gold's use is a productive investment-a guy an Intel won't produce more chips if he wears jewelry, nor does a toy maker or a car maker produce more of their stuff if they have Gold bars in their homes. These are not productive investments because they don't help people produce more of whatever they produce (intangibles like software included).

Compare this to Natural Gas. Cheap energy is a nice thing to have-a software engineer, or a toy maker, or a car maker, all can produce more of their things if energy costs go down. Energy investments are productive investments, gold is not a productive investment. Cheap energy sets into motion more productivity in the world, we can produce more things with cheap energy, division of labor can progress better. No such thing with Gold.

That something is going up does not make it a good investment. As Taleb explained us in his wonderful "Fooled by Randomness"-history is a bad predictor or future in this case. Trends reverse, gold prices may come down-or underperform other investments. But let's be clear-natural gas is a productive investment (coal, copper, all raw materials fall in this category) but gold is not.

In fact, in the long run (impossible to know what that is, though) gold gains in value BECAUSE we produce more, we become more productive. Because natural gas puts more productive labor in motion is the reason that gold becomes more expensive as time goes on, and becomes a good investment. In reality, it's the abundance of raw materials which are used by industry (e.g. copper, iron-ore, fertilizers, even silver, but not gold) which is the real cause of economic progress or growth. That progress, that abudance of raw materials, gives Gold it's ever rising value.

Beware of the bank salesmen-they just have to trade and sell you whatever is going up-but by investing in gold, you are not putting human industry in motion. You are hurting the world economy-instead of using your capital for industrial metals, which put lots of productive labor into motion (think machines made of copper, iron-ore, energy) you are being encouraged to store it up in a useless metal (industry doesn't use much of it) whose value actually is derived from the former set!

Sanjay

Financial Speculators who also make cars

noreply@blogger.com (Sanjay "John" Gandhi) — Tue, 26 May 2009 00:54:00 +0000

Read

http://www.bloomberg.com/apps/news?pid=20601087&sid=aMBkiI5gvZnA&refer=worldwide

Couldn't help thinking that Porsche is a financial company whose side business is making cars....This will end very badly for both Porsche and Volks. But there's no money to be made here for traders-the margin requirements for shorting Volks shares are insane-and these stocks can go anywhere for a day or two-even wiping our the well capitalized traders.

This is another reason I am very averse to shorting individual stocks. You live with your longs, no matter what...

But financial speculation is what some of the biggest companies do. GE has finance, GMAC is finance...everyone wants to lend money to consumers to buy more.

Sanjay

Economic conditions comparison to Great Depression are silly

noreply@blogger.com (Sanjay "John" Gandhi) — Mon, 16 Mar 2009 17:00:00 +0000

The financial world, especially in the US, is obsessed with comparing the present recession to the Great Depression. This is entirely wrong.

Economic conditions today have little in common with 1929. Economies are made by humans. Humans in China and India were virtual slaves, Japan was a minor power, most US trade was between Europe and US. There are many more human beings in the world today-and parts of the world which were irrelevant at that time, economically speaking, like China, South Asia, and even Brazil, are very important actors in the world economy. Trade between these countries and the rest of the world was very small; today it is the major thing in the world economy.

Since the state of the world was very different in 1929 than today-any comparison to that time is plain false. Unlike oceans and stars and mountains and other physical phenomena, which haven't change much in a couple of hundred years-economies, which depends on the activity of live humans, have changed considerably. We cannot compare two worlds so very different from one another in economic activity.

The US Fed Chief Bernanke is a so called expert on Great Depression. Einstein was an expert Physicist, and Darwin was an expert Biologist. The abilities of the last two are obvious, testable, and provable; the skills of Bernanke are closer to expertise in Astrology.

Sanjay

Faithfulness in human beings-genetic

noreply@blogger.com (Sanjay "John" Gandhi) — Tue, 10 Mar 2009 20:50:00 +0000

Here's some empirical observations on faithfulness in human beings. By faithfulness I mean monogamy-you not cheating on your partner. I believe it is genetic.
This is valid only with humans who are free to choose their sexual/love partners-which means primarily in the Americas and Europe. Asian countries which support institutions like arranged marriages are not a part of this group.

I have known a lot of human beings in the Americas (North and South) and many people form Europe as well. I have tried to look at human beings just I would look at any other animal; and even though it is hard sometimes, I am getting better at it.

I believe that there is a percentage of population, somewhere between 5-20%, which is GENETICALLY faithful. These men and women do not cheat on their partners. They may practice serial monogamy; they may have lots of amorous relationships sequentially, and even have orgies when they are not attached to anyone; but when they are in love, and especially when someone else loves them, even if they are not in love, they will not cheat on their partner. They cannot cheat on their partner, even if consciously they want more sex, more variety, etc. I believe this is genetic; there is a gene or a set of genes in these people which makes them behave this way.

This faithfulness behavior is similar to homosexuality or left handedness-two other characteristics which are also genetic in my opinion.

There are some Swedish researchers who have found evidence in this in some animals. However, my observations are empirical and are limited to this variety of human beings living in the Americas and Europe. The rest of the population in this group, 80-95%, is not faithful; they are sleeping around even when they are married or have a boyfriend/girlfriend who is ostensibly their formal partner.

I can give some examples of people I know quite well who I know are genetically faithful; maybe some biology researcher has an interest in finding out what's common in the genome of these human beings.

Sanjay

Foreign reserve accumulation by developing countries hurts their citizens

noreply@blogger.com (Sanjay "John" Gandhi) — Mon, 02 Mar 2009 11:17:00 +0000

I explained this before in a previous post-but here would like to explain it more-because this is an absolutely terrible thing which these developing world central banks do to the hard earned money of their citizens.

Buying bonds of liquid government securities like the US Government, Governments in Europe, is the same as loaning money to them-a bond is a loan. What does that mean? Central banks from Chile to Russia to China to India, which have holdings of these bonds to "provide liquidity and stability for their currencies" are really loaning the money out to rich countries. It is absurd for poor people to loan money to rich people; it is likewise absurd that poor nations hold rich nation Government bonds. What they are doing is exchanging some of the hard earned money for exports by their citizens with these paper assets-which keep employment up in the rich countries. A central bank of a developing country is providing jobs to people in the rich countries in the name of silly things like liquidity enhancement, favoring exports, etc.

Liquidity and stability of a country's exchange rate is not an excuse for keeping large amounts of money OUTSIDE the country. Let people and companies who take out foreign currency loans pay the consequences of extreme fluctuations-that doesn't mean that the hard work of an average citizen of Chile or China, and an average developing world citizen who is NOT working for these companies which are involved in taking our loans outside their countries (currency speculation), is exchanged for a bond of a developed world country.

Favoring exports is another common excuse for accumlating reserves.

There are two problems with this thinking: 1) By keeping the home currency low they are actually hurting exporter's earnings. The exporter could sell for a better price if there's wasn't a silly central bank keeping the home currency artifically low. His profit margins would be better. No one got rich by selling cheap-the rule for business is to sell dear-and exporters clamoring for a lower currency are married to the idea of selling high volumes but their net earnings would be the same if they sold less volume at better prices. 2) Even if this strategy of keeping home currency low was somehow helping exports-every time a country is doing something to favor exports; it is hurting it's imports. It is hurting it's development if importation is of productive goods and articles. There's no reason to believe that the fastest way to get rich for the developing world is to increase exports.

Like the balance of trade, favoring exports is another stupid thing which people worry about (and dumb politicians help). There is no reason to favor exports-if exports are good for a country, it will automatically turn out that way by a free trade.

It is as if the developing world country citizens have these bottlenecks called their own central banks who are ensuring that they never develop-these banks are their own citizens' worst enemies.

Capital should be employed at home-that's where it generates maximum employment, that's where the returns are the highest, because of circulation of capital being the fastest at home. A Government holding foreign bonds is one of the most bizzare things in the financial world. The job of the Government is to increase employment at home-not abroad. And the returns are normally better at home as well; why on earth keep money outside???

The collapse in the stock markets of the developed world right now is a great time for developing world central banks to cash in their chips because of high demand of the developed world government bonds by their own citizens. That's a great trade-the mantra of all businesses, including trading, is to buy low and sell high. If China decides to sell off half of it's 2 trillion dollar in foreign reserves and brings back stuff which is in short supply back home-basic materials are the obvious choice, as I have explained in a previous post-but productive stuff like Caterpillar and Hitachi machines, Airbus planes etc. are also a great investment to increase employment back home, to provide more jobs, and to remove the silly fascination which the Chinese and the rest of the developing world has with exports, can you imagine how much better off the ordinary citizens of China would be? It is time the developing world grew up and matured-it is time that they realized that the developed world is not as rich as they thought-that actually by holding foreign reserves they are holding back the development of their own countries.

It is not okay to buy stock in Rio Tinto and other foreign companies to increase the returns. That doesn't help the Chinese citizen-employment needs to be generated at home, not outside. These returns on Rio Tinto stock are fictitious-they are paper returns doing nothing for the Chinese citizens. However, that capital invested outside has already been paid for by the hard working Chinese who have exported stuff to the world-which in this case is exchanged for useless Rio Tinto stock (from the Chinese citizen's point of view) [As a side note-Rio Tinto is one of my biggest stock holdings]. Chinalco, a state owned aluminium producer, should keep expanding at home, get into other businesses, whatever; but not send precious Chinese capital outside the country in the name of enhancing returns. A private individual or company invests outside for their own diversification and return enhancement; a Government has no job diversifying outside the country with hard earned capital of it's citizens. China should buy products of Rio Tinto-e.g. Coal---which will make energy cheaply available in China. That way it helps its own citizens, who are short of cheap energy, and ALSO helps Australia and the rest of the world by giving them more incentive to produce more coal. Owning Rio Tinto stock doesn't help---because Rio Tinto can't produce more coal if there are no buyers. A baker doesn't invest in a shoemaker---it goes ahead and buys shoes, uses them, and that way helps himself and the shoemaker.

The worst thing China does is give money to foreign Governments-who spend it in unproductive ways (loans to banks, General Motors). It is better if China buys products useful to satisify the interests of it's own citizens; and it is in that way that it actually helps the world the most. As Smith said---it is from selfish self interest that we end up helping the world the most, not from charity or benevolence. The same applies here.

Sanjay

The cause of the present financial crisis-rise of developing world/China

noreply@blogger.com (Sanjay "John" Gandhi) — Thu, 26 Feb 2009 02:09:00 +0000

This is a theory which I want to present--that the rise of the present financial crisis is the rise of the developing world, especially China. I have collected lots of facts which support this theory-and some which don't, but the balance is heavily in favor of the theory.
The developing world has been a constant source of raw materials (coal, copper, iron-ore, etc.) and not very finished goods (textiles, shoes, etc) for a long time to the developed world. Forgetting about the money being exchanged-the real exchange between the developed world and the developing/underdeveloped world was raw materials (I will lump simple to produce goods like textiles, shoes, etc. in raw materials for simplicity of argument) being supplied by the developing world and exchanged for the finished goods of the developed world.

Given the large number of people living in the developing countries-primarily China, India, Latin America-and the relatively small number of people in the developed world (USA, Japan, Western Europe, Canada, Australia), this was a great way for them to become better. However, now the developing world has developed enough to make the finished goods themselves; therefore they are now stopping the supply of all these raw materials to the developed world. In other worlds-the developed world-which could sell its finished goods (cars, refrigerators, aeroplanes, advanced weapons) now has nothing to sell to the developing world; and consequently, they wont get all those raw materials from the developing world. This is why the crisis is severe in the developed world. Why there is a crisis at all in the developing world is a problem with my theory-but I have some explanations-and a prognostication-that the crisis in the developing world will end BEFORE the end of the crisis in the developed world ends.

Here are some points (some points are related to each other) to support this theory.

1. Chile has been a major supplier of copper to the world for 100 years. The major buyers were the developed world countries-USA, Japan, Germany, UK, France. In the last 5 years, China suddenly has become the top buyer of Chile copper concentrate-replacing even USA. The Chileans were exchanging copper of their mines with the finished goods from the developed world-refrigerators, televisions, cars, etc. Chile does not domestically make these products. With China becoming rich in the last decade-they had a new buyer for their copper. The surplus product found a new market in China; and better still for Chile-the products they needed-cars, refrigerators, and other finished goods, were supplied cheaper by China than by a developed country. Thus the rise of Chile was a double benefit-they got someone to pay dearer for what they had in plenty, and they got to buy cheaper whatever they needed-because China was producing exactly what Chile needed and didn't make at home.

2. The same argument of above is true for Brazil's iron-ore shipments-Brazil is the top producer of iron-ore in the world.

3. UK coal mine production has gone down from 100 million tons per year to 40 million tons per year from 1950 to 2000. The population and energy use of UK has gone up in this time-the coal required was being bought cheaper from South Africa than mining it at home. This trend is now reversing-coal prices went up last year and UK mines are being reopened, notwithstanding the recent fall in coal prices. The coal mining industry knows (or hopes) that this price dip will be recovered-but doesn't know when.

4. China was a major phosphate supplier to the world and the USA. Phosphate rock is a key basic material for producing phosphate fertilizers-and exists in large quantities in Morocco, China and USA. In the last few years it has not only stopped exporting phosphate rock-it is actually importing it.

5. China was a big supplier of steel in the 90's, until starting 2002-2003, it stopped exporting steel. It now is the biggest importer of steel.

6. India is in the top 10 buyers of Copper for Chilean Copper and Brazilian iron-ore.

7. China and India and Latin America are known to move up the value chain of things-which is the same as saying that they are supplying more and more finished goods to the world. As they make and supply these products-the developed world, which had a free ride on the cheap labor of these countries for a few hundred years, can't have it anymore. They have nothing to offer in exchange (the rapid accumulation of foreign reserves by the developing world Government is what is supporting this-the goods of developing countries are being exchanged for paper dollars and euros of the developed world by their silly central banks, but this needs to and will stop-see my earlier post on this).

The crisis in the developing world is difficult to explain from this theory. However, the explanation there I have is that it is the interrelation of the banking system and the silly accumulation of reserves by the developing world countries, mostly held in Government bonds of the developed world, which is actually hurting them now, because they have subsidized exporters at the expense of home use of their materials, and killed of importers. The importers in China and India find it more expensive to import useful things like technology, aeroplanes, etc. which could be used very productively there to increase the net production of the labor of these countries. Any encouragement given to exports is a discouragement given to exports and home use of these goods.

The interrelated of the banking systems means that all capital is going into city and real estate-leaving the rural areas and the mining and raw material producing areas of the world short of capital. Big banks are based in big cities like New York, San Pablo, Shanghai and Brazil-and they have transmitted the stupid lending practices to each other. They invest in big cities in real estate-but that can only go on if the city population keeps increasing and is well supplied by the raw materials from the countryside (food is a raw material for cities) and the mining and energy producing areas.

I will update and edit this post as time permits-but the crux of the argument is here. There are many other data points I will put to support the theory.

Beauty, and why plastic surgeries are useless

noreply@blogger.com (Sanjay "John" Gandhi) — Fri, 06 Feb 2009 01:46:00 +0000

Some observations on beauty and plastic surgeries.

The human body has around 10 trillion cells. While people look at a nose, ear and leg as different parts of the body-inside all the cells of the parts of the body is the same DNA. Further, from stem cell research and embryology, we know that the same cells are responsible for multiple organs and "systems" in a body (e.g. respiratory system).

Therefore when we say someone is pretty, that they are good looking, we are not talking about the nose, the shape of their lips, only; we are talking about the whole organism, and the most important part, the DNA. The DNA has expressed itself as a beautiful nose, and that's why I think that woman is pretty and has a beautiful nose. That's why my sister likes the wonderful arms of that guy, because the DNA has expressed itself in that arm. What you are capturing is the essence of the DNA. Embryology tells us that that beautiful nose might be a signature of a good respirating system, of large lungs, for example; which in turn is the representation of a superior DNA in that person. That is what beauty is.

This is also related to sexual selection as proposed by Darwin-I believe Darwin is quite mistaken here; unlike in his Origin of Species and Natural Selection. But for now, the important thing to realize is that when we call a man or a woman good looking, we are not talking about their bodily parts-we are talking about their superior genes. In some ways-good looking is the same as a "healthy" body. Someone who has a pretty nose has a good respiratory system, someone who has nice lips has a great liver (digestive system), etc. The secondary sexual characters like the plumage of a peacock, horns in animals, beard in humans, etc. are all correlated with good internal organs, good health of these organs and system, and might be useless as they are. They are representations of a good genome. Stem cells and embryology give us direct proof of this correlated variation in different parts of the body.

And that's why no amount of plastic surgery can make you more beautiful. It does make u beautiful on camera in 2 dimensions on a TV screen, or from far away-but if you really get down to it-eventually humans can tell if you are naturally beautiful or not. Unless you are a teenager who is looking for just some attention and popularity-the real job of looking attractive is to attract a mate-and that means at some point in time they will get to see you naked, up close and personal in the bedroom. And then all the surgery and facelifts will show or be perceived (you can perceive thru other senses than just your vision). You cant fake 10 trillion cells-even if you can fake a nose or get some fake breasts or get a face lift. Just like the post earlier (see post here) I had about the futility of trying to lose weight-it is futile to try to look more beautiful.

What should you do, then? Focus your energy on finding someone who likes the way you are, defects and all. You may be just an average woman, and then just find an average man. Or you may be a hairy woman, then u need to find some guy who likes hairy women, or at least doesn't mind their woman being hairy. Or if you a bald guy, find someone who likes bald guys. There's lots of humans in the world-and you will find some who will like you the way you are. Focus your energies on finding them than trying to look like the hottest man or woman on this planet.

-Sanjay

Where Taleb is wrong (happens rarely!)

noreply@blogger.com (Sanjay "John" Gandhi) — Sat, 24 Jan 2009 16:47:00 +0000

Nassim Taleb is a man who I respect very much, and I believe he is one of the most intelligent people in the world. He is right most of the time-but is wrong on one important count wrt financial markets.

Taleb is an options buyer. He is a believer in financial markets making crazy long tail moves, and says that options sellers underpredict the probability of these large moves in the markets (individual stocks). His strategy is to hold a large amount of cash-and buy cheap options counting on big moves once in a while. Sounds like a winning strategy. He also is very wary of buying stocks, but is quite happy keeping cash. That's where the problem is.

What is cash? At heart you are talking about your excess capital. You can either loan it to the Government, or loan it to private companies (diversified portfolio of stocks).

When you loan your money to the Government-which Government do you choose? I live in Chile-should cash be buying US Dollars or Chilean Pesos? In other words-cash depends on where u live-and an Australian who listened to Taleb and was holding lots of Australian Dollars last year actually lost of a lot of money, when measured in USD, for example. He thought he was "all cash" all the time-but his real buying power in the developed world went down (The AUD collapsed against the Yen, Dollar and Euro--the major developed world currencies)

In a world of multiple currencies-or multiple loans to multiple Governments worldwide, it is difficult to say what is cash. That the US dollar and the Japanese Yens have been the currencies in vogue lately is obvious-but we don't know what the future "safe/flight to safety" currency will be in the next crisis. Cash loses its meaning for a currency trader, and that's where Taleb's idea runs into problems. Holding cash becomes a trade-because depends on whether you held cash in AUD, JPY, etc. you can make or lose large amounts of money-measured in another currency.

I am more towards loaning money to private companies than Governments. In both cases we dont know the people who we loan our money to-and if you really are scared loan it to only the friends and family you know with massive legal contracts-but if you are going to loan it to unknown people, I would rather give it to private companies listed on a stock exchange than some silly Government.

An example is the 2001 crisis of Argentina. People who held money in Argentine Pesos actually saw a massive reduction in their buying power after the devaluation against the USD. But people who held stocks didn't lose that much-even though it was very volatile! The Argentine stock market went way down, but recovered all of it in the coming months. Someone in Argentine who held a bunch of Argentine stocks would have come out much ahead. See chart here-focus on the years 2000-2004 to see what I mean.

The same holds for the Russian Rouble collapse of 1998-a Russian investor would have done better holding a bunch of Russian stocks than holding roubles.

More fundamentally-since a Government really is not a big generator of profits, it only takes profits generated by the private sector in the form of taxes and redistributes them-it makes sense that the private sector will outperform Government bonds or cash. This also goes directly against the stupidity taught in Economics and Finance departments-that Government bonds are the safest investments in the world. It is MORE LIKELY that a Government will default than a diversified portfolio of Corporate bonds. If you are going to trust someone unknown ---trust the private sector and not the Government with your money.

It follows therefore, that Taleb's cash in US Dollar will turn out to be a really bad investment if the USD collapses against all currencies in the next 10 years. He will say that his account didn't go down, because in USD measure it won't-it won't be volatile; but the real buying power of that account will be down considerably in that time. Or put another way-if he starts measuring his wealth in Brazilian Real, and in 10 years Brazilian Real really goes up against the USD, then he would have lost a large amount of money on his trade to keep cash in USD.

And therefore, a world portfolio of stocks will be a better bet than a portfolio of Government bonds of different countries.

Sanjay

Investing in Commodities

noreply@blogger.com (Sanjay "John" Gandhi) — Wed, 17 Dec 2008 05:53:00 +0000

The abundance of commodities like crude oil, coal, copper, iron-ore, aluminum, potash, phosphate, wheat, soybeans, maize, is the real cause of prosperity of humans. Economic progress for humans is defined by super abundance of these basic goods from which all other goods are derived by the application of human labor. You can think of a car as a finished good which is a product of the various metals, coal (electricity) and the human labor component. The finished goods/basic goods concept was popularized by Hayek, but the real idea was from the Master, Adam Smith. Hayek just reinterpreted it and the world started believing that it was his idea-it wasn't. You can find it in "The wealth of Nations" or online at adamsmith.org here. It is hard to find original ideas in Economics which can't be traced back to Adam Smith. In many cases his ideas have been distorted and misrepresented by Economists with PhD degrees and Nobel prizes. Even David Ricardo's theory of rent and comparative advantage originates with Adam Smith, notwithstanding his manner of writing "Principles of Political Economy.." as a challenge to Smith's ideas.

A world where farmers don't produce surplus food for sending to the city can't survive for long. The cities will die of starvation. Clearly food is a basic necessity-division of labor, etc. in a city can proceed only when the city population is well fed.

Let's imagine a world where all miners stop producing the metals and coal and oil they extract (I put oil and coal in mining-they are closely related). Such a society can't survive for long-the city folk need all these basic necessities, or commodities, to carry on their division of labor and improvements in their jobs. If you think of it in reverse-it is the abundance of these commodities from the mines which results in real progress in the city.

The abundance of food, and by extension, basic commodities and raw materials, is the real cause of value for all other products. This idea is again from Adam Smith, and can be found here.

This is the reason that my investments in the stock market are heavily in mining (including energy) stocks. Their real production needs to go up in time for the world to progress-and it is amusing that the most stable sector of the economy, the mining industry, is the most volatile. The volatility in the mining sector is caused by the momentum players-banks and hedge funds are the major ones-who are attracted to the rising prices in a bull market for commodities and try to make a quick buck in a month. When prices fall, they get out in a hurry and their "stop loss" gets executed to minimize their losses, or because of their overleverage they are taken out by their broker's margin call. Since this is hot money wanted to make a quick buck-it tends to exacerbate market swings and increase volatility. Economics and Finance people who believe that putting more participants in a market decreases it's volatility (Greenspan is one of these people) are wrong because that happens only when they play the market maker-buy low, sell high. However, if everyone comes with a momentum trading idea in their head, buy high-sell higher-then it increases volatililty and the real market makers show losses. But those losses are temporary-eventually the mining sector comes back and sets new highs, and makes money for all in it.

Sanjay

Consumption doesnt help economy, savings do!

noreply@blogger.com (Sanjay "John" Gandhi) — Tue, 09 Dec 2008 15:32:00 +0000

Now the trend in the world is to cut taxes and put more money in the hands of the consumer. Then they are encouraging the citizens to spend more, to buy more, to consume more, to help the other guy, to help stimulate the economy. Here are news items from Australia and Canada on this. The Australian prime minister is saying "Go out and spend the money"!

This is nonsense. Just like consumption by me doesn't help my financial situation, I will be poorer if I consume today, so it goes for the whole society or country. Consumption doesn't help; I need to find productive uses of my capital, so I produce more. For example, if for $1000 which the Government gives me in Tax rebates, if I go and buy a plastic dinosaur, that hardly helps in me producing more bread (I am a baker by profession). However, if that $1000 goes towards buying a new storage box for the bread, I can produce more bread. More importantly, if I hold on to the $1000 in the bank and do nothing at all; my efficiency of making bread doesn't go down.

Consumption is not necessary to increase production or productivity. That is the mistake Keynes made, and everyone seems to not understand this simple thing. Division of labor, increase in efficiency and dexterity of workers, increase without any consumption. In fact, when people are less likely to buy and consume your products, you work harder to lower the costs of the goods so they do buy them.

A prosperous society is a society which consumes nothing but produces everything in large kquantities. Think of Uber robots who dont even need energy to run---they keep producing bread, steel, jewelery, houses, cars, airplanes, etc. in extremely large quantities at 0 cost. That is a rich society. Whenever you consume something, you take away from this ideal rich society.

Just as a man who doesn't spend anything at all, I mean 0, from his salary assures that he will be rich; so does a society or country which spends nothing assures that it will be rich.

So next time someone talks to you about stimulating the economy, providing jobs for the country, etc. by increasing consumption, you need to run away from them!

Sanjay

Auto Industry bailouts vs. Financial Industry bailouts in the US

noreply@blogger.com (Sanjay "John" Gandhi) — Tue, 18 Nov 2008 00:00:00 +0000

Now they are voting about bailing out Ford, GM and Chrysler.
The Democrats want to loan $25 Billion on the condition that the US car companies will make more fuel efficient cars. Executive pay will be limited and dividends suspended. Here's more on the plan proposed by the Democrats.

Let's analyze the US car industry first. They were kings of the world until the 70's, when Japanese started making cars. Then the Koreans (a large country of 50M people) also decided to make cars-climbing up the capitalism ladder (the private car companies had enough capital to compete head on with the Japanese and US car companies) to take market share away from the Japanese and US Car makers. Toyota and Honda were the jokes of the 70's, they became the top companies of the 90's. Hyundai was the joke of 1993, and it became a top seller in this decade, around 2005. The Japanese moved up the value chain of cars, then the Koreans did. And the US car industry really is a lifeless organ making metal boxes.

Will Government putting their money in make the GM and F employees and management work harder to make more fuel efficient cars, or generally improve the efficiency of the companies? That is the key question here. If you know examples of socialist car making companies in Russia, China and India-you know that Government ownership will REDUCE the efficiency of operation of these companies. The employees are less likely to work hard if they don't have the profit incentive, if you cut their pays, etc. Government ownership of pretty much everything lowers efficiency of the workplace. If the profit motive, of beating Toyota and Honda, of making and keeping multimillion dollar salaries could'nt keep these companies afloat-Government ownership will not help-even if some senator believe that it can be done but the "will" is not there. What is "will" anyway? Do I have the will power to rule the world? Unscientific terms like "will power" and "motivation" are modern day analogues of religious terms used in the 16th century. My "will power" has about the same bearing on the results of my actions as my prospects in an afterlife. These are not causes-"will power" is not a cause of anything. In scientific, which means biological or physical terms, not psychological or sociological terms (Psychology and Sociology are modern versions of Metaphysics and Ontology) if you explain to me what "will power" is, I might accept your causality.

The conditions of the bailout of $25B is like giving money to a cripple on the condition that they run faster in the future. It is bizarre.

Financial Industry bailouts are another animal. There you don't have the Japanese and Koreans competing head on in selling a tangible, hard to make product. You have a bunch of finance people in the business of buying and selling money-a product which can be generated in unlimited quantities, very easily, by a central bank by changing the interest rate.

It is comparing apples to oranges.

Financial bailout is okay-with severe pay restrictions. The Government could even completely take over the banking industry-after all, they buy and sell the main product of the Government-money! Nothing wrong with that. But bailing out a car company is another beast in it's entirety.

Sanjay

An ETF for everything

noreply@blogger.com (Sanjay "John" Gandhi) — Tue, 04 Nov 2008 11:43:00 +0000

2008 has been the year of the ETFs. They started out in 2007, and now there's an ETF for everything. Commodities, currencies, short, double short, financial short, real estate short, 2x financial short, short international, you name it-there's the right ETF "product" for you.

Invesco came out with a release today-Actively managed ETF.

What crap is Actively managed ETF anyway? The whole idea of an ETF is that some stupid manager doesn't tinker with it-so I know what it has-and changes are made slowly, announced. How is an actively managed different from an mutual fund? Oh oh, you can trade it intraday-is that it? But do we need this?

Let's see what the news release says.

They are "combining established active managers" (read-losers who have been losing money) and this is creating a "compelling new investment vehicle" (haven't we learned to stay away from compelling investment opportunities, compelling new products?).

The release says that Invesco is going to give the public "market-leading ideas" and the fund will invest "using quantitative and statistical metrics". What are they? There are no quantitative and statistical metrics in modern finance (there's no such thing as modern finance, just like there isn't any modern astrology). These high sounding words are designed to fool the public into thinking that these guys know something-but they dont. These sare slick salesman pretending to be scientisists, mathematicians, etc.

But you can't blame a salesman for selling a $2 item for $2000. The question is: Who buys this shit? The pension funds, mutual funds, corporate treasurers, wealthy investors, how many fools are there?

Sanjay

Non-existent hedge fund "strategies"

noreply@blogger.com (Sanjay "John" Gandhi) — Sun, 02 Nov 2008 19:32:00 +0000

Pension funds, private investors etc. are fooled by the snake oil salesmen of finance-hedge funds, offering them newer and cooler strategies to beat the market, to hedge, to diversify, etc. Most of these are not strategies at all-they are crap being sold in colorful packages.

The basic stuff for capital markets is:
1. Common Stocks
2. Bonds of companies
3. Government bonds

All the rest can be derived from or are strongly correlated with these-and all other "strategies" to capture extra returns are garbage.

Have you seen Volkswagen stock lately? The Volks Porsche saga is great to put to test what you think is normal isn't so in the financial markets. Here's the chart. At one point Volks become the biggest market cap company in the world-even overtaking Exxon Mobil! The stock went from 200 Euros to 1000 Euros in 2 days, on massive volume-showing that this stuff can happen to large companies with good stock volume as well. I won't go into the details-nor do I pretend to know what they are-but it was something to do with betting on convergence of preferred to common. The chart says it all-if you were short Volks common your broker covered it at 4x before you even knowing what was going on.

Merger Arbitrage is a strategy they sell; it is strongly correlated to the stock market. No amout of previous experience in mergers tells you the probability of a new merger going through. There are way too many unknowns, and these are strategies which will give you a small profit if you are right, but a very large loss, possibly bankrupcy, if you are wrong. Think LTCM. Other phony strategies are Convertible bond strategies, pairs trading.

Here's a good paper by bridgewater on how all the hedge fund strategies are really no strategies at all.

And don't even talk about Volatility funds, Currency strategies (buying high yielding currencies, or buying other currencies for diversification-see this 5 year chart of the AUD vs USD. The same this happened back in 1992-1994 also) etc. They even sell volatility (yes, there are volatility funds!) and currency as an asset class! Please sell my used underwear as an asset class also-because it should have some value anyway-and it probably is less correlated to the stock or bond markets!

Taleb also reviewed a book-which mentions the dangers of all these strategies, especially when you are selling options and are shorting something.

Sanjay

The crap called Financial Engineering and Private Equity

noreply@blogger.com (Sanjay "John" Gandhi) — Tue, 28 Oct 2008 01:01:00 +0000

I have two Engineering degrees-in Metallurgical Engineering, and Electrical Engineering.
I tried to understand Financial stuff these last few years-came across words like Financial Engineering. This is crap. There's no such thing-otherwise lets invent one called "Predict the football game Engineering" or "Read your Future Astrological Engineering".

Financial Engineering is a sham. It is people using complex mathematics to confuse people into believing they know something. They don't. They sell "products"---currencies, volatility swaps, u name it. All bullshit wrapped in different bright colored packages.

Private equity is the abyss of Finance. The whole idea of capitalism and stock markets-where you loan your money to a company who you don't know personally via a stock market and a financial regulator is dumped by these groups called Private Equity who take public companies private and apply Financial Engineering to them to turn them around. Private Equity investors are probably the dumbest investors of the world. How can you take out the owners of a company and expect to improve the company? See this example of Kerry's media empire in Australia being taken over by Private Equity jokers here.

Here in South Chile there's some fund called Southern Cross, who took over a supermarket chain for $80M. This supermarket chain is owned by a family, and I know the owner personally. He was pretty happy with the offer-seemed like a nice deal. Now he is out of the company's day to day operations and these bozos from Southern Cross plan to run the company....do you think bozos trained in Financial Engineering can run a supermarket better than people who have owned it for 30 years?

Since voodoo people only respect the art of other voodoo people, that's why you have banks, central banks, etc. all in bed with these people called Private Equity. These are buyers and sellers of money; a business they don't understand much at all. They seem to buy high and sell low. That's why China invested in BX and you have these poor taxpayers in China paying for stupid investments by their Government.

Private Equity firms like Blackstone and Fortress are the highest examples of investor stupidity. They are Public! The whole idea of a Private Equity firm with Public shares is bizarre-they take out public companies and engineer them financially and then dump them back on the stock market, and for this financial engineering they can command a premium??? Investors are paying for a non-existent ability called financial engineering, just like millions of people worldwide pay for astrologers...who do use very interesting charts and complicated diagrams, by the way, to read your future (sounds like complex math of finance???).

Will tell you another time about the biggest speculators in currencies-the central banks and the treasury departments. Hint-they "defend" their currencies ---buying them when they go down.... This is not volatility reduction or market making, this is pure speculation.

Sanjay

The cause of the present financial crisis-not US subprime loans-it is unknown

noreply@blogger.com (Sanjay "John" Gandhi) — Mon, 27 Oct 2008 11:09:00 +0000

The press and Governments worldwide, especially the US Government, has blamed the present financial crisis as originating from US sub prime housing loans and then "snowballing" into a bigger problem.

Just because two things are happening together doesn't mean that one is causing the other. There is no proof anywhere that the malaise in financial markets today was caused by the US sub-prime bets going bad (on part of investors and banks).

To attribute the cause to a liquidity problem doesn't say anything. Any financial crisis is a liquidity problem at heart, duh.

Nobody knows why the markets fell part this year; and more importantly, for the policy makers etc. around the world who are trying to "fix" this problem---you can't. Bailing out Bear Stearns seemed to have done it, then increasing credit to banks, then bailing out AIG, then selling Washington Mutual to Citibank...the list goes on. The end result is that the liquidity problem still continues---ergo---you aren't doing much at all to solve the problem.

They should all come out with hands up in the air one of these days and say 'WE HAVE NO CLUE WHY THE MARKETS ARE BEHAVING THE WAY THEY DO'.

A group of monkeys could get together to solve the present crisis-and it would have the same effect-none. This is no disrespect for my own species-but simply a fact that we don't know is a very good answer often times in our lives.

Long live Taleb.

Sanjay

Dallas Fed's Fisher on capitalism and banks

noreply@blogger.com (Sanjay "John" Gandhi) — Sun, 12 Oct 2008 17:41:00 +0000

Here's what Dallas Fed''s President Fisher says about the banking system and capitalism:

"Paulson, the Congress and other officials will ``will engineer an appropriate recapitalization of the banking system in a manner that does not kill the goose that lays the golden eggs of the practice of capitalism,'' See full story here at bloomberg.

To think that banks are the most important part of capitalism is false. This is a snake oil salesman telling me that the most important oil in the world is snake oil.

Capitalism will do just fine without banks. It worked before banks, it will work even if banks completely disappear. I hope that at least 50% of them will-they are useless entities to scam savers of their money.

Mr. Fisher would do well to visit a Texas Instrument's Fab right under his nose in Dallas; that's capitalism. If Adam Smith were alive today he would be proud to see division of labor and capital being employed so well as in a semiconductor manufacturing facility. And I would bet that he would be aghast at how little the banking industry has progressed-and probably even has gotten worse since his times.

Banks were designed to put capital of savers to productive uses-not to loan for houses (a consumption expense, see Adam Smith-houses are not investments, they are consumption loans), real estate or play with derivatives.

Markets will be back-but I hope that the pension funds, the corporate treasurers, and the mom and pop savers of the world will come out smarter not to trust the banks as much as they did before. This will be very good for capitalism-capital will fall into better hands, hands which will allocate it better for the benefit of all. And it will eliminate more of these useless overpaid middlemen called banks.

But to see an important guy in the Federal Reserve talk about the importance of his own profession or of his cousins is funny-you see now that astrologers (they do have Economics and Finance degrees, two disciplines closely related to Astrology. To be fair and not to sound like I am picking on them, Psychology, Sociology, Political Science, etc. fall in the same camp) have risen to the highest levels of Government-and central banks and their staff seem to have quite a few of them.

Sanjay

The present credit crisis, and some advice to banks

noreply@blogger.com (Sanjay "John" Gandhi) — Thu, 09 Oct 2008 17:23:00 +0000

At this stage in the credit crisis in the US and the developed world, even farmers are finding it difficult to find credit. This is a banking system gone completely stupid. Here's some advice to the central bankers and the banks of the world.

The most basic human needs are food and electricity. People spend money first on food and on keeping their houses warm/cold, and a good government should also make sure that the prices of these commodities are low-not by artificially controlling prices, but by increasing their production.

Credit must flow freely to farmers-the worst thing is if they cut down on food production. Chicago grain prices are at levels where it is not making sense for farmers to plant more. These prices are set by ponzi hedge funds who are trend followers-they buy high and sell low, causing increases in volatility. They are going bankrupt now, and selling wheat and soybeans at production costs. These prices will go up soon; however, the longer they stay lower, the more hesitant farmers in the US will become to plant in the next season.

Because central banks and banks are based often in big cities like NYC and Washington DC, they seem to be happy loaning funds around where they are-in big cities. To bail out housing in suburbs of Washington DC by putting capital of banks or tax payers in mortgages, or to help farmers plant more food? The answer is obvious. Even commercial paper of corporations should rank lower than helping finance farmers to plant more food.

Sanjay

Great buying opportunity

noreply@blogger.com (Sanjay "John" Gandhi) — Sat, 04 Oct 2008 15:37:00 +0000

The fear of credit crisis has them throwing stocks out like toilet paper. Mosaic fell 40% the other day-it now has a P/E ratio of 4. Same holds for pretty much the coal sector (ACI, BTU, MEE, CNX) and the iron ore sector (RTP, CLF, FMG.AX) They large miners (RTP, BHP) are down to P/E's of 8-10, with their stocks trading at half their highs. Energy stocks (XLE) are down also to the same P/E's.

Do you think that even if the banking industry of the USA was to totally disappear-that these companies mentioned above will stop selling their extremely useful products? Maybe people will resort to a barter system-exchanging oil for software-but the world will go on. That the financial crisis can cause a long term downturn in the US economy is absolutely false-a fall in the economy for a couple of quarters, as happened in Argentina, or in Korea and South Asia in the Asian crisis of 1998, can happen. But long term-financial crisis DO NOT have the ability to take down the whole economy. Of course the merchants of that sector (banks) will tell you to believe otherwise.

If you witnessed the crisis in Argentina-you saw the big down on that market-eventually for it to rally back up. Goverments come and ago, but companies stay. The stock market stays. The world economy and the US ecoonomy is much larger than the US financial sector, and life goes on.

Buy on margin and in a couple of years from now these prices will look like the sale of a lifetime.

Sanjay

Bizarre repercussions of Lehman bankrupcy

noreply@blogger.com (Sanjay "John" Gandhi) — Thu, 02 Oct 2008 06:17:00 +0000

The only word which describes what is going on right now in the markets is "Bizarre".
Take a look at this story-this sums it up really well. Great job by Tom Cahill at Bloomberg.

To tell about assets of hedge funds being inaccessible, being stranded in Lehman accounts. To tell about a stake in UBS worth $1.3 Billion being stuck.
Words like inaccessible, stranded and stuck are not used for assets of a third party. This is truly bizarre.

It is understandable that assets of the firm itself are seized, but the Government should make sure that assets of third parties are available fast for trading. This is nothing to do with Lehman-this is a Government's responsibility to honor that assets held even at a failed firm-as long as the assets are simple in form like stocks, bonds, simple call and put options trading on exchanges, etc or cash be completely accessible to the clients of the bankrupt firm.
There is a limit of course-like the $100K guarantee by FDIC, but still-stocks and bonds held at a firm should be monitored by the Government and such a thing is absolutely a loss of faith in the Government's ability to do basic stuff-respect right to property and assets.

If this goes on longer and assets of third parties are frozen in Lehman, you can bet that the Governments (US, UK) will be sued and they will pay through their noses for this strange, bizarre development.

Maybe allowing Lehman to fail was not a good idea after all-the Government should have taken over as it did Fannie and Freddie. Because they now have a very very difficult situation to deal with.

Sanjay

Consumer confidence and other surveys-meaningless

noreply@blogger.com (Sanjay "John" Gandhi) — Wed, 24 Sep 2008 03:53:00 +0000

They tout the consumer confidence from Michigan or wherever and tell you that people are in a dour mood. They survey CEOs about their outlook ("feelings") for the year and months to come and tell you how to interpret it to invest money in bonds, stocks, etc. All these surveys are sold as financial news.

These surveys are meaningless. They don't tell you anything.

Humans talk and act. Their actions many times have not much to do with their talk--they will keep saying they wont smoke or eat more or buy a Gucci bag but will keep doing those activities anyway. It is a fundamental problem with all surveys (including pseudo subjects like psychology, sociology, etc. which are heavily survey dependent)-a human animal just because of it's ability to talk is assumed to know what it wants to do-and this is a wrong assumption. Look at the number of smokers and dieters around you who are addicted to cigarettes and are fat to convince yourself that what we say is very often not followed through. Actions speak louder than words, someone has said---and that is the right view from a biologist/scientist-animals which don't speak also show their preferences by their actions. This is also true for savage people with rudimentary language skills living in the Amazonian jungles, the aborigines in Australia, NZ and many parts of Africa and Asia, and numerous other "uncivilized" human beings which still live today. They may not talk much---but they are still humans, at least in the present classification of species. And you trust their actions for finding out about their preferences, not what they say. This also holds for kids-who talk a lot of things but you can tell what they really want much better by watching what they do.

Sanjay

S&P downgrades-confusing cause and effect

noreply@blogger.com (Sanjay "John" Gandhi) — Sun, 14 Sep 2008 16:00:00 +0000

The S&P (Standard and Poor) analysts are another bunch who always confuse the cause with the effect.
They downgraded (or are threatening to downgrade) Lehman and AIG last week. See stories here and here.

In both cases they are saying the reason for the downgrade is the low share price and the increasing credit spreads on the companies' bonds making it difficult for them to raise capital.

The cause is said to be the low share price and the increasing credit spread. The effect is supposedly the increased difficulty to get more funds and capital.

This is misplaced causality.

The stock price is down (and credit spreads are up) because investors see fundamental problems for these companies. The fundamental problems (mortgage loans, real estate investments, Alt-A loans) are also the reason why capital raises for these companies are difficult.

Weakening of share price, increase in credit spreads, and difficulty to raise capital-all are effects of fundamentals problems with these companies. The S&P guys are attributing an effect as the cause of another effect....go figure.

A weak share price for a good business (fundamentally good business) makes it easier for the company to raise capital, because an investor would love to loan money to a thriving business whose share price has been pushed down artificially for some reason. In the present market-coal, fertilizer, iron-ore, copper, and oil stocks are good examples of this-I have been adding to them in this massive sell-off. A good way to play them all is buying BHP and RTP-u get to play the whole commodities sector in a way.

But these analysts of S&P amused me.

Sanjay