EclecticLip

Innumerable sources talk about how peer recognition matters for more people than money… though the latter itself has some importance too.   

I imagine that at most companies, pay is assigned at approximately market levels based on the responsibilities incurred.  As such, CEO pay tends to drift higher than junior engineer pay, because the market has been assigning a higher value to the former — despite the many examples where this has proven incorrect. 

For their part, markets are mechanisms for establishing the price of a good through transactions, based on perceived value of the participants.  If not enough buyers feel a banana is worth $3, they will tend not to buy until the price drifts to levels they’re willing to pay; if not enough sellers feel a banana is being properly valued at 3 cents, they will tend divert their productive elsewhere, until the price rises. 

If we call the grouping of people in a market “peers” we could easily say market prices are a peer phenomenon — a peer assessment of value of the service / good in question, such as a year’s worth of junior engineering time.  Market prices are a form of peer recognition-of-value, or to be more precise, peer perception-of-value.  Presumably , if Ahab makes more money than Baal, that means he’s perceived to be more valuable.

In which case pay serves as a proxy for peer recognition (how you’re recognized among your peers, and/or by your peers, depending how hierarchical one’s firm is).  Which would go a long way towards explaining why it can be such a sensitive subject…

As an unabashed fan of Sprott Asset Management, and (hilariously small-time) unitholder in their mutual funds, I keep tabs on the writings coming from that gold-hoarding golden horde. 

- - - - - -

Here’s the latest from Sprott’s chief gold nut, John Embry.  I agree with the thesis that gold will hit an all-time high (in US dollars) — and probably within the next few months.  It’s been making all-time highs in Euros already.  But once that move starts making it to the front pages of newspapers (or The Economist) then it’s likely to take a year or two to consolidate its gains before eventually moving higher still.  At least, based on “history doesn’t repeat but it rhymes” theory.   The summer months tend to be fairly humdrum.

Gold does well in periods when stocks don’t, and vice versa.  So for gold to continue its decade or so of overperformance, one would expect general stocks not to do so well.  And in the US, that appears very likely.  In the past century, when stocks have been this richly valued, the S&P 500 index has returned a paltry 2% per year, over the subsequent decade.  So this data is consistent with the “gold-is-going-up” thesis.  Of course, there’s some selection bias on my part, in focusing on this supporting data. 

More selection bias comes from the link in this article (the link is titled “Japan - past the point of no return”) which elaborates the troublesome state of Japanese state finances: they took in more money last year from issuing bonds than they collected in taxes; the working-age population is falling even faster than the general population; and only Zimbabwe has a higher gov’t debt-to-GDP ratio. 

To be fair, it’s not all bad news: after the catastrophic misery that drastic cutbacks and higher taxes will cause, the resulting drop in the yen’s value should be of benefit for exporters.  Mind you, that’s about as ridiculous an attempt to be even-handed, as a historian who says “while the Chinese invented paper, in so doing, they invented paper cuts”.

- - - - - - -

There was a story in the Globe & Mail the other day about how Sprott has actually *lost* assets under management, as some clients have been unhappy with his portfolio’s underperformance since the recovery in March of last year.  My guess is that successes in most stocks have been overwhelmed by the catastrophic losses in Timminco, a company which was trying to upgrade metallurgical silicon to solar grade.  In the past 2 years it went from from $30 to 82 cents.  [at time of original writing]  At one point Sprott owned 17% of the company, so that 97% loss most definitely weighed on shareholder returns.

From a contrarian perspective, this is interesting, and would be interpreted as meaning he’s due for some outperformance.  Media outlets generally cover streakiness — so a superstar who’s had a good run and gets glowing coverage (e.g. Eric Sprott circa 2008) is likely to have some bad years.  And a fallen titan who gets sympathetic coverage (e.g. Eric Sprott circa 2010) is due for a rebound.  Not that this should be interpreted as investment advice. 

Incidentally, he tried to buy some of the 191 tonnes of gold the IMF recently said it would put up for sale… but was rebuffed.  (Admittedly, he may not have been wearing a shirt or shoes…)  There’s a healthy minority who think the IMF only owns gold derivatives, and that Sprott was turned down because he would’ve asked for the bars to be moved to a vault in Toronto.  Maybe he wanted to swim in them, like Scrooge McDuck. 

- - - - - -

In you-can’t-make-this-stuff-up news, a whistleblower who’d sent emails to the US Commodities Futures Trading Commission, claiming JP Morgan Chase and others were manipulating commodities prices for fun and profit, was a victim of a hit-and-run a few days after his name surfaced in testimony.  (Fortunately he was also in a car at the time, and so was uninjured.)  I doubt the financial firms had anything to do with it, but this isn’t doing much for those institutions’ credibility in what I shall euphemistically call the “gold enthusiast” sector.       

(originally written March 3.  Posted March 28) 

Toyota’s recent quality troubles brought a section to mind from Sun Tzu’s classic, The Art of War — the indispensible resource for generals and armchair generals alike. ;)  (I decided not to cover cover Sun Tzu in our work book club, ’cause it’s just a bit too abstract.  “Birds rising in flight are a sign of ambush” doesn’t really translate well to the 21st-century tech business scene.    )

Chapter 5 talks about the proper use of “shi” (roughly analogous to potential energy, or momentum) in battle.  A skilful general uses this to their advantage, only launching major attacks when they’ve got momentum.  Correspondingly, you do not engage an opponent when they’ve got the big Mo and you don’t.

I was recently pointed to articles by “lean manufacturing” advocates in past years, grumbling that Toyota had stopped walking the walk.  But they maintained their momentum — their positive brand image and environmental “halo” from the Prius — and so were relatively invulnerable, until the recent recalls emerged.  As such, arguments from American manufacturers about their near-parity in quality that would’ve fallen on deaf ears… now have an audience.  And funnily enough, Hyundai’s goal of catching up to Toyota in quality may be achieved a few years early, thanks to Toyota “catching down” to everyone else in the pack. 

Apple was able to take advantage of the Vista fiasco with its Mac-PC ads, which wouldn’t've been as effective if they were targeting XP, which worked adequately.  And Microsoft’s “I’m a PC” campaign won’t get traction until Apple mis-steps or Microsoft someone manages to get some wind in its sails.  From a fuel cell perspective, any attacks on battery-electric vehicles will be ineffectual, ’cause they’re The New Hotness right now.  It’ll only be when the first missteps come that the message will firmly click that fuel cell vehicles and battery-electrics fill complementary (not competitive) niches.

On a bigger scale, the Anglo-American economic model (the “Chicago school” of Milton Friedman) rightly or wrongly largely had the run of the road for the past thirty years.  Past arguments that, say, the Nordic model is more effective (deftly avoiding the traps of traditional right- and left-wing economic theory) fell largely on deaf ears — but are likely to get a broader audience now.  As to whether they get a broad enough audience, that remains open to question.

Riffing on Sun Tzu, I’m reminded of the common misquotation, “the Chinese term for crisis is composed of the characters danger + opportunity”.  It’s actually more along the lines of “danger + crucial point”.  And the latter definitely describes the current macroeconomic situation, with ominous challenges of debt and demographics in many jurisdictions.
           

The mining show this year (2010 - not sure if they recycle the web address annually) featured a lot more well-dressed people than in years past — which probably means a lot of first-timers, which itself means gold is due for a plunge.  All the better to part newcomers and their money. 

Longer-term, the outlook for the shiny-metal-with-the-colour-of-the-sun seems bright, if only because of the dire financial straits most countries seem to be in.  For example, if the interest rates on Japanese debt went up from their current 1.5%-ish to 4%, the annual interest would exceed the government’s entire tax revenues for everything.  This problem is exacerbated by demographic decline: the total population is dropping… but the “working-age” population is dropping much, much faster.  The same problems plague Europe and North America to varying extents.  On the plus side, Japanese vacations may become affordable again…

- - - - - - -

In a complimentary copy of Resource World magazine, I saw an ad for a mining firm which noted that Green Technologies are dependent on “exotic” materials like silicon, neodymium, lanthanum, and heavy rare earth metals.  Yes, apparently silicon fits in that category, despite being a component of silica (sand) — the most abundant mineral in the earth’s crust!!

The free issue of BCBusiness featured a roundtable of economists, arguing over what governments should do to support the economy.  I’ve always considered economics to be a bit Rashomon-esque: starting with your political sensibility, you can find an entrenched economic philosophy that affirms it.  And I think the kaleidoscope of contradictory opinion in economics is one reason some business people disbelieve global warming — they can’t believe other fields actually achieve consensus on anything.  Anyways, the article did have an AWESOME moment of truth from John Richards of SFU. 

Q - What might be the most surprising thing in 2010?
A - I am no good at forecasting.

- - - - - - -

I noticed a lot of companies from Yellowknife (”diamond capital of North America!”) at the conference, but that’s probably just because we made plans to visit the Northwest Territories in March — part of my ongoing “Tour de Tundra”.  I’m aiming for a Canadian Arctic tourism hat-trick; what with the Yukon two years back and the NWT this year, hopefully we can make it to Nunavut in 2012.  Y’know, before the Mayan calendar flips over. 

The combined Lonely Planet guide to the NWT and Nunavut — 32 pages, downloadable for about $2 — yielded some surprising facts.  For instance, the NWT legislature IS SHAPED LIKE AN IGLOO; and when it comes to official languages, the Territories have not two, not three, not four, not five (…let me skip ahead here…) but ELEVEN.  Eleven official languages, for thirty thousand people!  It puts Switzerland’s three-or-four, to shame. 

Apparently temperatures in Yellowknife in mid-March have ranged from -43 to +22 Celsius.  So, taking my planning cues from corporate leadership, I’ll be packing t-shirts and shorts. 

- - - - - -
 

(Note: originally written Jan 4-8; posted March 27) 

To close 2009, we returned to Portland with some friends. I picked up a variant of the Monopoly board game (”Make-your-own-opoly”), since I’ve always wanted to create a version tailored to my workplace.    The store seemed to specialize in custom Monopoly games: versions included Star Trek, James Bond, Seinfeld, Charles Schultz’ Peanuts, GI Joe, Transformers, and even a Beaverology (relating to Oregon State University; the beaver is their mascot). There actually weren’t any regular Monopoly board games to be had — maybe that’s due to the state of real estate down there. We also went to a Japanese food store, where, as is my wont, I passed the time checking out ingredients lists. Who’d've thought the main ingredient in Lipton Cup-A-Soup was high-fructose corn syrup? My favourite, though, was the Tuna Cube (a slab of frozen tuna) which consisted of tuna and carbon monoxide. Yum. (Carbon monoxide helps meat retain a fresh red-like colour… I guess it’s the 21st century version of using spices to make meat seem fresher. But fear not, carbon monoxide is a banned food additive in Canada.)

Given the visually-staggering inventory piling up, it is difficult to foresee good times returning for automakers, anytime soon.

This image had a nice feel to it — the staggered and uneven rows made me think of the old “space invaders” arcade game.

Friday, the Dow dropped below its late-last-year low.  Consequently, people who believe in Dow Theory conclude that it’ll drop a lot more. Like all popular investing superstitions, this one is self-fulfilling — because, well, it’s popular.

The idea is that, if the Dow Jones Industrial Average and the Dow Transportation Average simultaneously plumb new [twelve-month*] lows… then the primary trend of the US stock market is down, until proven otherwise. (To practitioners of this fiduciary faith, “otherwise” means having the DJIA and DJTA both soar to new [twelve-month*] highs.)

* I chose twelve months out of thin air; Dow Theorists look for local maxima and minima on multi-year stock market charts.

- - - - -
I’ve seen estimates arguing for the Dow to hit the lower 6000’s before the current shakeout is done, which isn’t unreasonable, for various reasons.

• first, the fundamentals are poor.  Stocks tend to be valued based on price-earnings ratio (though free cash flow is a superior metric) and corporate earnings are a mere “Mini-Me” of their former selves
• secondly, the technical analysis tea leaves predict — like “Clubber Lang” in Rocky III — pain

Still, considering the Japanese Nikkei remains mired below its fifty-year moving average, we’re not so badly off. Yet. Check back in 2019.

(Six years ago the Nikkei’s fifty-year moving average was 9070 as noted here.  Friday it closed at about 7400.)

__(’Read the rest of this entry »’)

Marc at the CCPA notes the BC carbon tax’s first birthday was Feb 18, with a rather depressing fairy tale.  Hopefully her second birthday will find her better-appreciated than she currently is, in her stunted state. (Ten bucks a tonne won’t drive any consumer behaviour.  Nor will fifteen bucks a tonne.)

- - - - -

I suppose the appropriate analogy would be that this is the first anniversary of the conception of the carbon tax, July 1st being its actual “date of birth”.

Well, here’s to hoping that she has a dino-sized growth spurt from turkey-sized compsognathus to titanic T-Rex (or should that be tyrannosaurus regina?) with appropriate redirection of funds towards emissions-offsetting projects and infrastructure, and tax cuts veering strongly progressive.

The Tory government’s TFSA (tax-free savings account) is an example of a stunningly regressive tax benefit — its benefits skew disproportionately to the wealthy.  And it’s projected to be expensive too - roughly $50 million in lost tax revenue in ‘09, $150 million in ‘10… pretty soon, you’re talking about real money!

The Vancouver gold show was this weekend. Sadly, the freebies were scant this time around, even worse than during the “great lamentation” of mid-2005. The most creative one was from a company doing work in Australia, giving away monogrammed boomerangs. (Made in China, of course.)

Intriguingly, the free plastic bags featured additives from local company epi; they’re supposed to disintegrate the plastic into powdered pellets, over the course of a few months. I’d run into epi at an environmental show a few years back; they seem to’ve made some progress getting their products out there. It’ll be interesting to follow their business arc over the next few years.

__(’Read the rest of this entry »’)

This is attention-worthy, if only because oil sector workers in both the US and the UK are striking (or about to).

Added to the humbling of the London financial sector, the pummelling of the pound sterling, and even rumours of a bank holiday, and it’s probably an interesting time to be a Briton, in all the worst ways.