EclecticLip

Recently finished Daemon and Freedom, Daniel Suarez’ two-part semi-dystopic vision of the future.  I say semi-dystopic because they weren’t all bad news.  Loved them both, for the fact that they informed of the capabilities of computational power today — in a seamless manner that didn’t slow the action of the story.  In this feat, they reminded me of Gore Vidal’s Creation, the master’s bracing tale spanning pretty much the entirety of 5th-century-BC Eurasia.  Which, come to think of it, might be deserving of a re-read, about now…

On the surface, Daemon is a story in the “machine turns on its creator” genre.  Like “2001″.  And “Frankenstein”.  And for that matter, the Bible.    Freedom builds on this to reveal a clash between two competing visions for the future.

More profoundly, the dyad explores how our social/societal structures may change in the coming decades, based on the interplay of our current crises and the capacities of new technology.  All wrapped up in a masterful storyline.  With fiction like that, who needs textbooks? 

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note: Suarez has also given a lecture at the Long Now Foundation, well worth the invested time.  It’s available here.  Most intriguing to me was the idea that in a short time, bots will begin to outnumber humans online.  We won’t be the dominant “species”. 

It seems somehow analogous to the apparent fact that mutual funds outnumber stocks, in the investment sector: the derivative species (bots, mutual funds) ultimately flourishing more than the original species it interacts with (humans, stocks).

(Originally written June 14.  Posted, with modest supplemental info, June 17.) 

For those who follow my investing adventures (or “monetary misadventures”, depending on how the year’s going    ) gold made it onto the front page of the New York Times this past weekend.  An example of the “magazine cover indicator“, this strongly suggests that it’s due for a plummetting pummelling.

I’d expect this for gold priced in Euros — its slope was nearing positive infinity with the various crises (see the blue line in the image below).  And in market arrangements, things which rise sharply in price — whether the Nikkei index circa 1990, Nasdaq circa 2000, or Shanghai circa 2008 — tend to fall back sharply when the upward momentum stops.  Gold in Euros (blue) dropped sharply after seeing soaring gains in ‘06 and ‘09 — and fell sharply after rising sharply against the US dollar in ‘06 and ‘08 (red).

With the magazine cover, it seems highly probable gold will be cheaper in a couple months’ time, regardless of what might happens in the next couple weeks, as the investing classes find other amuse-portfeuilles for their wallets.  (On account of other self-fulfilling indicators, summarized finely by the pseudonymous Jesse here, I figure its price is due for a modest surge in the very near term.)

Euro-wise, the news has been so bad out of Europe for so long, that the Euro seems likely to strengthen for the next little bit: everyone who wanted to sell, has already sold.  As such, the trading algorithms of government-moneyed investment-bank speculators (whose predecessors Adam Smith characterized as an “idle class”) are likely trading dollars for Euros using some of those very same complex instruments which necessitated their  bailouts.  Ah, few things match the hypnotic stupor of a flatlined learning curve — as long-suffering Leafs (and Canucks) fans will surely attest! 

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Thomas Stanley and William Danko’s bestseller The Millionaire Next Door was chosen as the sixth book club selection, as a light-hearted diversion from business topics.  Though not without possible selection bias, it was considered a good vehicle for learning about the wealthy — a demographic to which many young professionals aspire. 

As usual, if you consider the review useful, please consider supporting the authors by purchasing the book.

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 The Millionaire Next Door - Summary

Saw this on Barry Ritholtz’ blog (originally from ThisIsIndexed).  Now it’s appeared on Mish’s blog.  Which means this bit of visual poetry is spreading online as fast as economic instability through Europe and beyond…

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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. 

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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”.

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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. 

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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.       

The other week, I partook in a stock trading course I’d bid on as a lark, as part of the company United Way campaign.  I can blithely report that it amounted to a get-rich-quick scheme for people who are otherwise immune to get-rich-quick schemes. 

I doubt any of the professionals in the room would fall for chain letters, winning-lottery-ticket emails or advance fee fraud (the son of the brother of the President of Nigeria needs your help!) – but we indeed shared the collective gullibility that there was a way to rake in the dough at the Wall Street casino.

Come of think of it, apart from style of dress and dental health, we were probably no different from our tribal forebears in millenia past, who sought shamans’ advice to ensure their own prosperity.  (Contrary to popular belief, cavities seem to’ve been rare, way back in the day – most food simply wasn’t sugary enough to cause tooth decay.)  And I suppose our behaviour wasn’t so different, either, from Fortune 500 executives bringing in high-priced consultants to turn their companies around.  It all seems like a lot of dart-throwing, in the end. 

The course centred on “technical analysis”, the theory that a stock’s price follows near-immutable patterns – unless it doesn’t, which is why you arrange your bets such that you cash out with only a small loss the other 48% of the time; the stock market equivalent of a seat belt and air bags, I suppose.  Nor is it as nutty as some of the purportedly-professional investment advice I’ve read, some of which relied on planetary alignments.  (Hmm… maybe that was the Wall Street Journal’s astrologer?)

As for the brotherhood of technical analysts – there’s no handshake, but the password is “Fibonacci” – their investment numerology is based on the purported role of the Golden Mean (0.618) and various permutations thereof, in predicting future prices.  I’m not sure if Euclid would’ve been proud or horrified, but since he was smart, he’d’ve probably demanded a royalty.

By the logic of this arcane rubric, it should be possible to make money on a stock without knowing a thing about the company.  While I’ve proven the opposite true many a time, that prospect struck me as somehow inappropriate.  After all, even when it comes to making money in the stock market, shouldn’t you have to earn it by putting in hard work to research a company, and so forth?  Then the cognitive dissonance hit me: I had enrolled in a course to learn how to make easy money, and was now irritated that there could be a way of making easy money.  Naturally, I resolved this by deciding that maybe easy money wasn’t such a bad thing after all.  When it was in the right hands.  Specifically, mine.  Such is the clueless egotism of the modern male. 

All in all, the course reaffirmed my sense that the surest way to get rich quickly off of secret knowledge is to claim you have some, then meter it out for an exorbitant fee.  A recent motivational poster from despair.com does put it nicely. 

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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…

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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.

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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. 

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Ah, January — when mutual funds roll out ads for RRSP season, and investment advisors get exponentially busier as February 28 approaches.  This year, the industry’s “Christmas-after-Christmas” season will be particularly joyous, as many funds will have risen 20% or more in 2009.  That still qualifies as underachievement, though, as the Toronto index rose 27% on the strength of…   well, on the strength of it no longer being 2008. 

Now, according to the Globe & Mail’s mutual fund site, sixteen of twenty-two Canadian gold funds had returns of 100% or more, in the year ending November 30.  That’s a poorly-chosen datapoint — November 2008 was the absolute nadir of that sector — but it’s the latest data available on the Globeinvestor website as of this writing.  And it shows that for such funds last year, a dart-throwing monkey could’ve probably doubled people’s money… that is, if they were foolish enough to trust their entire savings to an ape.  Mind you, considering how the ape’s competition did, that might not have been a bad idea…!

Still on the topic of dextrous chimps, the Vancouver gold show coming up will see hordes of company reps looking to fleece the uninitiated with some old-school Vancouver Stock Exchange bravura.  Bre-X was ten years ago, Southwestern was so 2008, so someone new has to carry the torch!

The venue should be obvious from the assortment of protesters politely asking conference-goers not to invest in a various companies pillaging their way through foreign lands like the humans in the movie “Avatar”.  There’s a story going around that our mining companies have been so ruthless in Latin America, Canadian tourists are sewing American flags on their travel gear.  Like most such stories, it’s probably untrue in the immediate factual sense (I doubt many tourists are doing this) but it does point to a commonly-held belief, which is in this case true (some Canadian mining companies do some vicious things for their shareholders).

Back to activism though.    During our recent Portland trip, I was privy to the most effective protest leaflet I’ve ever seen.  A few well-dressed individuals from the “In Defense of Animals” group were handing out copies of the professionally-designed, high-gloss postcard below (on the web here).

Basically, they praised Nordstrom and its founders, praised its customers as compassionate individuals, and explained that since the chain had done so well in almost completely eliminating fur from its sold goods, wouldn’t you please politely tell the manager you’d like them to phase out the remaining fur products?  While most protest groups would direct their outrage at the store or the very consumers to whom they’re passing out leaflets, these guys neatly separated the evil “other”, the Jungian shadow, into a separate category.

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For the third year in eight, European nuclear reactors are having to shut down in summer, on account of the heat.  To understate things mildly, this does not bode well for nuclear as a major power source, in a warming world!  One-third of France’s nuclear capacity is currently offline, to avoid discharging excessively warm water into nearby rivers (water contains less dissolved oxygen as it gets warmer; pumping enough hot water into a river kills marine life).

France has 19 reactors, so if visualized as a litter of identical nineteen-uplets, this is equivalent to knocking six of them offline during peak periods when everyone’s turning up the “climatiseur”.  (Another three are run full-time to enrich the uranium fuel — sadly I can’t recall my source, but it was a generally reliable contributor to The Oil Drum — so electricity for civic purposes has dropped from sixteen to ten reactors’ worth.)

Back home, Ontario’s Bruce Power reactors are sited next to Lake Huron (a much larger body of water) so shouldn’t ever suffer this kind of problem.  For lake- or ocean-side reactors, the primary hurdle to nuclear power is cost — a hurdle with which the fuel cell industry is all too familiar. 

The estimated cost of nuclear power (as calculated by companies submitting bids to build reactors in various countries) is in the 20 cents/kWh range over the reactor lifetime.  Consequently, nuclear is more expensive than pretty much everything but solar photovoltaics — and the latter are getting cheaper as production scales up.  (Each time worldwide installations double, solar gets about 20% cheaper.  And installations are doubling every 2-3 years.)

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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.

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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.)

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