On The Corrosion of Moral Leadership

LIBOR Illegality

News that Barclays Bank has been fined for LIBOR manipulation in both the UK and in the US, and that there are likely to be many more similar cases from other banks to come, just adds to the increasing evidence of a lack of moral leadership in our primary institutions.  It’s not just that illegality occurs, but that it appears to occur in a moral vacuum where the participants are happily and openly engaged in behavior which is corrosive to good society.

This isn’t just a problem in the financial industry, we’ve seen plenty of examples in other areas – in the media, in our legislators – where rank and file staffers mindlessly operate in a morally ambivalent bubble, without even attempting to hide their actions.  This doesn’t happen by accident, it comes from the top, and the buck needs to stop with those who permit these festering cultures to survive. 

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Google Charts You Can Trust

Exploit and Vanish

Although many investors rely on charts to time trades the actual evidence that this yields any kind of advantage is vanishingly small.  It’s not zero, however, as we saw in Technical Analysis on Display, because there’s a faint suggestion that human pattern recognition is so finely tuned that it may be able to extract information from the noise that machines cannot.

Intriguingly, though, research on Google search data suggests that there are exploitable trends in information signalled by interest in specific stocks.  Unfortunately merely publishing this fact almost certainly signals its demise as a useful prediction tool.  Exploit it while you can, because if you don’t, someone else will, probably using a supercomputer.

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Can Software Beat Penny-Flippers?

"Am I doing better than I could do by flipping pennies?" – Paul Meehl

Denial is Futile

The Abnormal Returns website recently highlighted an interesting little spat on the blogosphere, as commentators argue over the benefits of software based investment advice.  It’s a trend with only one outcome, one that probably doesn’t do investors any good, but equally one that’s sadly inevitable.

What’s more interesting, though, is the creaking movements of tectonic plates as various commentators position themselves uneasily on the cusp of a disruptive change.  You can see the status quo bias at work, but like it or not, change is coming: the markets won’t be denied.

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Tax Notes To An Unborn Grandchild

Dear Grandchild,

You’re probably wondering why I've saddled you with huge taxes to pay for debts run up before you were born.  As I write today, the total US debt is about 5 times the average personal income,  about $250,000 per person, and growing, rapidly.

The reason is, fortunately for me, that I won’t be paying the debt off.  Unfortunately for you, you will.  You probably think this is unfair but by the time you figure this out I’ll be dead.  Good luck with that.

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Born Rich, Born Greedy

Recidivists of the World Divided

Research suggests that the upper classes are more morally ambivalent than the rest of us. Or, to put it more bluntly, they’re a thieving bunch of recidivists with the ethical inclinations of a polecat in a henhouse.

Adam Smith predicted this years ago, and skewered the argument that many make in favour of predatory capitalism – that self-interest is the best way to allocate capital. A little enlightenment may come in useful for those wanting to debate the issue.

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Stuxnetting the Eurozone’s Trust

Mistrust and Misrule

Markets and investors have long been possessed of a peculiar and unsubstantiatable notion, that the problems of the Eurozone are solvable as soon as people come to their senses and start engaging with financial reality rather than political theatre.  This is an amusing conceit bound up with the idea that the Euro project is too big to fail, but one that ignores the problem that cultures aren’t malleable, no matter how much politicians like to pretend they are.

The European single currency is a massive centrifuge which needs to keep whirling around at speed to keep itself together.  Unfortunately it’s got its own equivalent of the Stuxnet worm: incompatible cultures and attitudes to risk.  Infected with a lack of trust, the centrifuge is out of control and it’s only going to stop throwing off pieces when it’s finally shut down or the fundamental disease of mistrust is properly addressed. 

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Unfriend Those IPOs

Money Losing Ventures

The downward trajectory of Facebook’s price after its Initial Public Offering (IPO) wasn't a great shock.  Perhaps the bigger surprise is how many column inches have been spent analysing a story that can be summarized as “high price, low earnings, uncertain future”.  Sentiment is a powerful driver of stock prices, but only when there’s money around to back it up.

In fact IPO’s do seem to be generally subject to overpricing, which isn’t as obvious a trend as you might expect, given that owners tend to retain large stakes and to look for ways of retaining control of their precious creations.  For most retail investors, though, IPO’s are probably best avoided on principle.  The principle being not losing money.

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