The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

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“Traders are succeeding not so much because they are rational, but because they have certain biological traits, including confidence, an appetite for risk, search persistence, and speed of reactions,” all of which are derived from prenatal exposure to testosterone.”
-John Coates, University of Cambridge neuroscientist and former trader

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Here’s a fascinating study to get your weekend off in the right direction

“Coates examined the digit ratio of 44 male “high frequency” traders in London who buy and sell securities, sometimes in amounts greater than $1 billion, but hold their positions for minutes, sometimes only seconds. He found that traders with a longer ring finger than index finger made more money.

“We were on the trading floor taking samples for another experiment, and I read an article about digit ratio and sports,” says Coates. “I didn’t put too much stock in the measure, but we thought, ‘Why not look at fingers?’ We were shocked by the results.”

Exposure to high levels of testosterone before birth appears to make men more sensitive to the hormone as adults. In addition to playing a role in sexual functioning, testosterone has been associated with aggressive behavior and enhanced risk taking, and has been shown to predict performance in certain competitive sports.

Coates’ findings are consistent with a Harvard study of testosterone and financial risk taking that appeared in the November 2008 issue of Evolution and Human Behavior. Using an investment game, the Harvard researchers found that higher testosterone levels correlate with financial risk-taking behavior.

“Research on digit ratios in relation to a number of behavioral and psychological traits has exploded in the past 10 years, but many of the findings have not been as convincing [as Coates’],” Coren Apicella, lead author of the Harvard study, said in an e-mail. “Further study of biological markers and their relation to economic attributes will ultimately lead to a more comprehensive understanding of economic science.”

Fascinating stuff.

And all this time you thought it was hard work and free will . . .

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Source:
Stock Market Success May Stem from Prenatal Hormone Levels
Scott P. Edwards
The Dana Foundation Brainwork, March 19, 2009

http://www.dana.org/news/brainwork/detail.aspx?id=19832

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Source:
Listening to the Echoes of 1938
MICHAEL SANTOLI
Barron’s MARCH 21, 2009

http://online.barrons.com/article/SB123758871198199971.html

Wicked cool infographic:

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via Nicholas Rapp

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Hat tip FlowingData

Source:
Six months after the AIG bailout: Where is the money?
Information Design, March 16th, 2009

http://nicolasrapp.com/?p=347

This is my favorite new song, which is a mix between Beck, White Stripes and something not quite hiphop.

I really like the lyrics:

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Bastardo! They turned the embedding off! (shrink that window)

You can stream the entire disc here: http://www.myspace.com/cagetheelephant

http://en.wikipedia.org/wiki/Cage_the_Elephant_(album)

(Check out the reggae “New Devil” mix)

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Pretty cool: Find rental statistics and trends for houses, apartments, and other types on many U.S. cities listed.

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Rentbits.com

Video-o-rama: Fed employs nuclear option

Financial markets were dominated this week by the announcement by Fed Chairman Ben Bernanke to buy as much as $300 billion of long-term Treasuries and acquire an additional $750 billion of mortgage-backed securities. On the news, the US dollar plunged, the euro surged, Treasury yields nose-dived, gold bullion exploded, and stocks, oil and commodities gained handsomely. What an announcement, what a week!

A few of the more interesting video clips that attracted my attention are shared below. In addition to Bill Gross stating that the Fed’s purchases are still not enough, AIG remained in the news as payment of bonuses to its executives from bailout money stirred up emotions. This culminated in the House passing a bill to tax TARP bonuses by 90%.

As far as the stock markets are concerned, with indices running into resistance levels the debate intensified on how enduring the recent gains will be.

The video clips feature the likes of Bill Gross, Steve Forbes, John Lonski, Mario Gabelli, Ron Paul, John Bogle, Barry Ritholtz, Doug Kass, Gary Shilling, Meredith Whitney, Marc Faber, Jim Rogers and Stephen Roach.

John Authers (Financial Times): Fed’s shock and awe
“John Authers on market reaction to the Federal Reserve’s decision to buy $300 billion in long-dated Treasury bonds.”

Click here for the article.

Source: John Authers, Financial Times, March 18, 2009.

Bloomberg: Pimco’s Gross says more Fed buying needed to spur growth
“Bill Gross, co-chief investment officer of Pacific Investment Management Co., talks with Bloomberg’s Kathleen Hays about the Federal Reserve’s plan to buy more than $1 trillion in Treasuries and mortgage-backed securities in an effort to help revive the economy. Gross also discusses the Fed’s balance sheet, currency concerns and the need for a ‘healthy level’ of inflation.”>

Source: Bloomberg, March 19 2009.

60 Minutes: The Chairman – Ben Bernanke
“In a rare interview with a sitting Fed chairman, Ben Bernanke tells Scott Pelley what went wrong with America’s financial system, how it caused the economic crisis, what the Fed is doing to help fix it and when he expects the recession to end. If you think your job is tough, consider Ben Bernanke’s. As Chairman of the Federal Reserve, the task of reviving the US economy falls largely on his shoulders.

Read the rest of this entry »

Some perspective as to the magnitude of the current economic decline:

Today’s chart illustrates that 12-month, as-reported S&P 500 earnings have declined over 80% over the past 18 months, making this by far the largest decline on record (the data goes back to 1936). In fact, real earnings have dropped to a level not seen since the 1930s and 40s – the back end of the Great Depression. While earnings have been struggling since Q3 2007, it was the latest quarter (Q4 2008 the first full quarter following the financial meltdown), where the real damage was done. During Q4 2008, the S&P 500 came in with its first negative earnings quarter ever and the amount lost during the quarter was more than the index has ever earned during a single quarter.

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via Chart of the Day

The WSJ’s Online Executive Editor has become a Tweetmaster. This morning he points to a WSJ Forum poll running 8-1 that feels Congress is out-to-lunch in its response to the AIG bonuses. How the Obama administration has handled the bonus issue is a bit of mystery. It would seem Obama is trying to steal some of the populist positioning away from the Republicans. In the process, they’ve created a lot of confusion and stirred up some demons, according to the New York Times:

One A.I.G. executive, who spoke on the condition of anonymity because he feared the consequences of identifying himself, said many workers felt demonized and betrayed. “It is as bad if not worse than McCarthyism,” he said. Everyone has sacrificed the employees of A.I.G.’s financial products division, he said, “for their own political agenda.”

The Times also explains that Douglas Poling, a former Merrill executive brought in by Liddy after the government takeover, had sold off 80% of the Financial Products division’s assets. Poling gave up his $6.4 million bonus and now becomes, like Liddy, someone doing the government a service.

As this issue rages, I’ve tried to explain what life is like in one of these suburbs of New York City where the financial class lives and bonuses are more than compensation, they’re a way of life:

For the bonus class, the work-hard-play-hard mentality was a badge of success. It began with the scrum to get into the best schools, the best grad programs, the best firms and ended with the push to be the best in one’s community. Social and professional competition was a way of life.

Money is the one thing that gives this group a sense of solidarity. It’s the admission ticket but also the defining factor of their identity. It’s hard for someone to feel shame when admitting fault means resigning from their way of life.

Take away the bonuses, and the financial class has no safety net. Lose your job out here and you’ve got little margin for error. There’s little social cohesion, too. We live our lives interdependently. Someone might give you business opportunity, but no one can carry you. No one expects to be carried. Affluent towns are not communities; they’re clubs. If you cannot pay the dues, you have to resign.

Sources:

Scorn Trails A.I.G. Executives, Even in Their Driveways
By JAMES BARRON and RUSS BUETTNER
New York Times; March 20, 2009

http://www.nytimes.com/2009/03/20/nyregion/20siege.html?hp

Bonuses Make the Busted Go Boom
Tales from the Suburbs Where Bankers Do Think They Deserve Their Bonuses
By MARION MANEKER
The Big Money; March 19, 2009

http://www.thebigmoney.com/articles/judgments/2009/03/19/bonuses-make-busted-go-boom

Activist investing became very common in the last few years where investors took stakes in sleepy companies, pushed for change to create VALUE, some worked and some didn’t. Of course, some also was just for short term gains without long term benefits. We now have a new form of activist investing created in Washington, invest in companies and then work to wreck them and destroy the investment. $180B of taxpayer money has been invested so far in the 8 banks that have received more than $5B of TARP money and politicians are making sure to do their best that not only will we not see a return on the investment, we may not see a return of the investment and will destroy thousands of jobs in the process. The US Constitution has also been chopped up into pieces. I get into this because of the ramifications it has on investor confidence and the desire of the private sector to help with the programs of the Fed and Treasury to AID the credit markets.