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

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DOWNLOAD STOC at http://www.uniformchaos.org/

University of Advancing Technology
James Grant
Todd Spencer

1. Introduction
Existing methods for displaying large amounts of stock market data do not easily allow comparison between companies, as the data is often presented in tabular format. Some solutions implement a price-over-time graph, with the option of layering on additional stocks or market indices for comparison. STOC, however, seeks to allow immediate comparison of hundreds or thousands of stocks, by mapping various stock-specific parameters to easily observable visual outputs. This visualization is particularly suited for comparisons between items, as one is able to immediately identify the largest, or reddest, or quickest item in the group.

2. Data Mapping
The program uses mapping functions to adjust the raw data within ranges usable for visualization purposes. The data is mapped between inputs and outputs as follows:
- volume of trading = planet orbital distance
- comparison to S&P 500 = planet speed
- percent change from prior close = planet color
- market capitalization = planet size
- P/E ratio = planet atmosphere width and color
- moving average = planet opacity
- dividend yield = planet moon size

The program also produces an average of all these numbers to define the general performance of the S&P 500. This is represented by a large center circle, or sun. After discussing how to best display the data, we determined that the color of the sun would be an average of the change percentage, and the volume is a scaled visualization of the total volume of trading on the S&P. This was done to allow the viewer to tell at a quick glance some basic information about the markets performance, and how much trading has occurred. The sun remains stationary, and there is no averaging of the dividend yields.

3. Interaction
The entire system can be manipulated in several ways. The user is able to zoom in and out of a section to see more detail, or expand and contract each of the relative orbital radii, maintaining their relationship but allowing the user to give more or less separation to them in order to better compare stocks. It also gives the user the ability to right click on a stock to display the name of the stock, and press the space bar to get a print out of all the raw data that has been collected. The speed of the system can also be scaled via keyboard, and by pressing the space bar the system can be paused at any time. An individual stock can be selected and highlighted by typing the company name.

4. Goals and future developments
Ideally, this application is something that could be set up in an area and let run to allow a person to simply glance at it to gauge the markets condition. In this way a person could always have an eye on the stock market without having to stare at line and bar graphs.
For future development, we plan on expanding the usability of the application with several additions:
- iPhone and Android apps
- Web-viewable visualization and interaction
- Scan through daily archived closing data points
- Additional data sets visualized with same orbital metaphor

Bob Lefsetz is a music industry observer, and publisher of the Lefsetz letter:

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Tom Carvel would only give franchises to poor people.

Ever since I went to Jim Lewi’s food festival at Shoreline, I’ve been hooked by the Food Network. It started watching Triple D on on demand, then Felice got hooked on the competition shows and now it’s a TV mainstay.

Triple D? That’s “Diners, Drive-ins and Dives”. Unless you only eat haute cuisine or believe salt is the enemy and hot dogs will give you cancer, you’ve got to watch this show: http://www.foodnetwork.com/diners-drive-ins-and-dives/index.html Individuals like indie bands start their own restaurants, follow their own muse, and deliver food so delectable that word spreads, until someone e-mails host Guy Fieri and he shows up with his camera crew. I can’t cook a lick, but the way the owners put a dollop of this and a dash of that into a pot and end up delivering something that generates smiles is incredibly intriguing, makes me want to buy a Camaro and take to the road just like Guy. (Who’s actually taking to the road, doing his own tour, see dates here: http://guyfieri.com/tourdates.html I’ve seen his act and he’s got tons more star power than most musicians, he knows how to work a crowd.)

So that’s become the default channel on Felice’s television, the Food Network. And when I walked into the bedroom after listening to Tom Petty on Blu-Ray, she was watching a show about legends. On screen was Tom Carvel.

TOM CARVEL!

It was really an east coast thing, Felice wasn’t familiar. But Carvel ice cream was the Ben & Jerry’s of its day. A special treat that made you feel fully alive with every lick, a cult we were proud to be a member of.

There was one outlet downtown. And another on the Post Road in Westport. Around the corner from our house, on Black Rock Turnpike, was Dairy Queen. We went there after each Little League victory, but it was akin to Wonder Bread. Sure, you could lacquer your cone with a hard plastic shell, but the ice cream?

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There is an interesting (albeit flawed) analysis in this month’s New Yorker by John Cassidy: Rational Irrationality. The subject is “the real reason that capitalism is so crash-prone.”

The author’s main point seems to be its rational to pursue profits even in an irrational manner when everyone else is profiting from it. Indeed, to miss out on gains — even ruinous ones that force your firm into bankruptcy — is irrational.

How can we spot the flaw in that argument?

Many children have been admonished as a kid, “If all your friends jumped off the Brooklyn Bridge, would you?” Yet that excuse seems to be the basis for some of the worst, money losing decisions made by the financial sector.  All of the cool kids were doing it!

Consider:

“The same logic applies to the decisions made by Wall Street C.E.O.s like Citigroup’s Charles Prince and Merrill Lynch’s Stanley O’Neal. They’ve been roundly denounced for leading their companies into the mortgage business, where they suffered heavy losses. In the midst of a credit bubble, though, somebody running a big financial institution seldom has the option of sitting it out. What boosts a firm’s stock price, and the boss’s standing, is a rapid expansion in revenues and market share. Privately, he may harbor reservations about a particular business line, such as subprime securitization. But, once his peers have entered the field, and are making money, his firm has little choice except to join them. C.E.O.s certainly don’t have much personal incentive to exercise caution. Most of them receive compensation packages loaded with stock options, which reward them for delivering extraordinary growth rather than for maintaining product quality and protecting their firm’s reputation.” (emphasis added)

Pardon me, but the easy choice of aping your competitors ruinous policies is hardly CEO leadership. Sometimes, you have to make the difficult decision, even if it costs you short term. Otherwise, this line reasoning requires one to assume that there is never any “objective reality.” It is herding writ large, only with billions of dollars leveraged up. There is never a good reason to practice risk management, to avoid aggressive speculation when your peer group is so engaged.

For example:

“This was the climate that produced business successes like New Century Financial Corporation, of Orange County, which originated $51.6 billion in subprime mortgages in 2006, making it the second-largest subprime lender in the United States, and which filed for Chapter 11 on April 2, 2007. More than forty per cent of the loans it issued were stated-income loans, also known as liar loans, which didn’t require applicants to provide documentation of their supposed earnings. Michael J. Missal, a bankruptcy-court examiner who carried out a detailed inquiry into New Century’s business, quoted a chief credit officer who said that the company had “no standard for loan quality.” Some employees queried its lax approach to lending, without effect. Senior management’s primary concern was that the loans it originated could be sold to Wall Street. As long as investors were eager to buy subprime securities, with few questions asked, expanding credit recklessly was a highly rewarding strategy.”

I disagree. Chasing short term profits regardless of cost is not “Rational Irrationality” — its short termism of the worst kind. And if it ultimately leads to your firm’s liquidation, how rational is that?  That is the equivalent, IMO, of suggesting you can set the race track record on the straight away, ignoring the hairpin turn at the end. So what if you smash into the wall! You were, for a moment, winning!

“Rational Irrationality” asks us to ignore the repercussions of our behaviors. We can rationalize short term gains at the expense of long term losses, because we need to obtain quarterly profits regardless. Apparently, when it bankrupts the company, only then with the benefit of hindsight can we see what went wrong.

I am terribly sorry, but that is precisely the sort of thinking that led to the crisis in the first place. Making loans to people who cannot pay them back is not rational when its profitable — its NEVER rational.

Goldman Sachs avoided most of the credit debacle — were they being irrational when they forewent short term profits for a few years — but avoided the worst of the sub-prime debacle? And what about hedge fund manager John Paulson? His fund bet against all of these other players, netting several billions in profits while others suffered from their “Rational Irrationality.” How irrational was Paulson’s investment posture?

On a risk adjusted basis, the behaviors of Citi, Bear, Lehman, New Century and others was hardly rational. Call it whatever you want, but do not forget this simple fact: It was the sort of narrow, risk-ignoring thinking that is ALWAYS rewarded in the short term, and ALWAYS punished in the long term.

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One last thing: The article also manages to get through the entire subject without so much of a mention of Hyman Minsky, the economist behind what has become the definitive theory of why Capitalism is so crash prone: Stability breeds over confidence, which breeds instability. See Stephen Mihm’s aricle, Why capitalism fails for an excellent discussion of the same. Perhaps understanding that aspect might provide the reader with greater insight than rational irrationality does . . .

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See also
The synchronous lateral excitation of markets (or pseudo-wobbles)
Paul Murphy
FT Alphaville, September 29, 2009

http://ftalphaville.ft.com/blog/2009/09/28/74351/the-synchronous-lateral-excitation-of-markets-or-pseudo-wobbles/

Source:
Rational Irrationality
John Cassidy
New Yorker, OCTOBER 5, 2009

http://www.newyorker.com/reporting/2009/10/05/091005fa_fact_cassidy

A quick look a chart on Money Market Mutual Funds belies the common belief that “cash on the sidelines” is what powers markets higher.

As the chart below reveals, the Market goes up, and as we saw in the 1990s and from 2005-08, so too MMF goes up.

This is evidence against the standard sideline cash argument.

Indeed, rather than investigating these common aphorisms, if you trade on them at face value, you will be disappointed.  Unless you thoroughly data verify and prove/disprove ANY AND ALL Wall Street myths, rules of thumb, or standard trading phrases, you are going to a) develop a false belief system and 2) that will eventually lose you lots of money.

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chart courtesy of Fusion IQ

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See also:
Cash on the Sidelines Chart Book
Annaly Capital

http://www.annaly.com/blog/?p=520

There’s No Such Thing as Idle Cash on the Sidelines
Hussman Funds

http://www.hussman.net/wmc/wmc060710.htm

When I was a kid, my father challenged me to read the NYT as an exercise.

My response: Bor-ing!

Years later, he extended the challenge to William Safire’s Sunday NYT Magazine columns, On Language.

Good scribes learn early on that half of writing is extensive reading: I credit Safire with expanding my vocabulary, and teaching me how to construct a solid article. He also showed that sometimes you have to write what want, regardless of what the readership (thought it) wanted.

He passed this weekend.

A few items:

• Be sure to see this Safire column, circa 2005:  How to Read a Column

• Safire was criticized for his erroneous linkage of Saddam Hussein and al Queda: The Propaganda of William Safire.

• His TDS appearance:

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The headline in Bloomberg home page said it all:

• Obama Stock Rally Persists on $3.5 Trillion in Money Market Fund Hoarding

As we have noted tine and again, this was neither an Obama sell off nor an Obama rally. Who the president is at any given moment is mostly irrelevant to the machinations of the markets. The sell off that began in late 2007 and bottomed in March 2009 was the culmination of years, perhaps decades of decisions made by traders, bankers, bureaucrats, pols, and others.

The article goes on to discuss another peeve of ours, the “Wall of cash” on the sidelines. By coincidence, this morning the WSJ also mentions the “wall of money.”

On Google, “wall of money” generates 13,200,000 responses; “wall of cash” finds 1,840,000 hits. “Cash on the sidelines” yields 459,000.

I’ll see if I can dig up a chart of Money market funds vs SPX later.

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Previously:
Iowa and Prediction Markets (January 24th, 2004)

http://www.ritholtz.com/blog/2004/01/iowa-and-prediction-markets/

Confusing Cause & Effect: Elections and Markets (January 9th, 2008)

http://www.ritholtz.com/blog/2008/01/confusing-cause-effect-elections-and-markets/

Pricing in a Bush Presidency (July 8th, 2008)

http://www.ritholtz.com/blog/2008/07/pricing-in-a-bush-presidency/

Has the Market Fully Discounted the Bush Presidency ? (November 4th, 2008)

http://www.ritholtz.com/blog/2008/11/has-the-market-fully-discounted-the-bush-presidency/

Markets Are Rorschach Inkbot Tests (March 2, 2009)

http://www.ritholtz.com/blog/2009/03/markets-are-rorschach-inkbot-tests/

Was the ‘00-03 Crash Bush’s Fault? ‘09 Obama’s? (March 5th, 2009)

http://www.ritholtz.com/blog/2009/03/2000-crash-bush-09-obama/

Watch CBS Videos Online

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Bernard Madoff’s two sons, his brother and a niece who collectively made tens of millions in compensation and took “profits” from his massive Ponzi scheme will be sued in the effort to compensate the scam’s victims who lost billions.

The suit will be filed by the court-appointed trustee in the case, Irving Picard and his chief counsel David Sheehan, who speak to Morley Safer in their first television interview to be broadcast on the 42nd season premiere of 60 Minutes this Sunday, Sept. 27, at 7 p.m. ET/PT.

Madoff’s sons Mark and Andrew, his brother Peter and niece Shana will be sued for negligence and breach of fiduciary duty in their roles at the company. “Whether or not they have a criminal problem we will pursue them as far as we can pursue them and if that leads to bankrupting them, then that’s what will happen,” Picard tells Safer.

He will seek to recover money they made from investment accounts they had with Bernard Madoff and the repayment of loans that financed the purchase of several multi-million dollar homes. “I believe that we can. The money that went to buy these houses under the law is called fraudulent transfers,” says Picard. All told, Picard and Sheehan say that well over $150 million was either loaned, paid or transferred to the four family members.

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Source:
Trustee To Sue Madoff Kin
Also Learns Madoff’s Sons Trying to Collect Deferred Compensation
60 Minutes. Sept. 25, 2009

http://www.cbsnews.com/stories/2009/09/25/60minutes/main5339719.shtml?tag=contentMain;cbsCarousel

Japan hasn’t sustained growth bounces for decades, nor will it under the DPJ government. Therein lie lessons for other economies.

By Andy Xie, guest economist to Caijing and a board member of Rosetta Stone Advisors Ltd.

09-16 08:56 Caijing
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(Caijing Magazine) Japan has had a political earthquake. The Liberal Democratic Party (LDP) that ruled Japan since the end of the World War II lost most of its seats in the latest election, while the Democratic Party of Japan (DPJ) won 308 of 480 lower house seats, complementing its majority in the upper house.

Now, DPJ is in a strong position to undertake structural reforms. Indeed, a big political change brings hope in any country that’s stagnated for as long as Japan. However, DPJ is unlikely to turn around Japan’s economy anytime soon. LDP, in the name of Keynesian stimulus, spent all its money over the past decade on wasteful investments, leaving DPJ with no resources for reform. I’m afraid DPJ has an impossible situation on its hands.

Anyone who doesn’t believe in the harm of a financial bubble but does believe in Keynesian stimulus magic should visit Japan. A likely dip for the Anglo-Saxon economies next year will underscore these truths. The same goes for anyone who thinks China’s latest real estate bubble, asset borrowing and shadow banking system are worthwhile substitutes for real economic growth.

The world including China can learn a lot by looking at what’s happened to Japan, and what’s in store for DPJ. Since Japan’s stock market bubble burst in 1989 and the land market popped in 1992, the LDP government has run up debt equal to nearly 200 percent GDP in hopes of reviving the economy. And its economy has stagnated.

The burst of the global credit bubble in 2008 brought down Japan’s export machine. That was its only hope. Now, of all OECD economies, Japan’s looks most like a depression. Its nominal GDP declined 8 percent in the first quarter 2009 from the year before. Although its economy rebounded a bit in the second quarter, nominal GDP for 2009 is still expected to decline substantially and will likely be lower than in 1993.

Many analysts blame Japan’s problems on corporate inefficiency. This is partly true. Japan has had a hyper-competitive export sector. Domestic, demand-oriented industries are inefficient due to labor market practices. More importantly, sectors that became massively levered during the bubble years have been walking like zombies for two decades, weighing down the economy’s overall efficiency. Japan’s inefficiencies are largely a consequence of its decision to prop these industries.

U.S. return on asset (ROA) was twice as high as that in Japan. But, in hindsight, higher ROA in the United States was mostly a bubble phenomenon. Much of U.S. corporate profitability was due to financial engineering. In one aspect, the export performance of Japan’s corporate sector has done very well — much better than its U.S. counterpart. Japan’s exports doubled in yen terms between 1993 and 2008, and the sector’s share of GDP nearly doubled to 16 percent from 9 percent, even though the yen remained strong during the period. The performance of Japan’s export sector shows its inefficiencies elsewhere were largely due to shortcomings in the system.

Japan’s stagnation has been linked to government handling of debt overhang in the corporate sector — mainly in the real estate, construction, and retail sectors, and left over from the bubble era. In the 1980s, especially after the Plaza Accord, Japan’s corporate sector accumulated a massive amount of debt for financial speculation. Total corporate debt more than doubled to about 900 trillion yen, or 200 percent of GDP, from 1984-’92. After land and stock prices collapsed, the net value of the corporate sector’s financial assets switched from about 30 percent of GDP to a minus 50 percent of GDP. If the change in land holding value is included, the corporate sector’s net worth may have fallen by 200 percent of GDP. As corporate profits are about 10 percent of GDP in a developed economy, Japan’s corporate sector would need two decades to earn its way back.

The Japanese government did choose to let the corporate sector earn its way back, first by preventing bankruptcies and second by stimulating demand. To achieve the first goal, the government kept interest rates near zero and Japanese banks did not pursue mark-to-market accounting in assessing borrower solvency. With a big chunk of the corporate sector zombie-like, the economy, of course, was always facing downward pressure. The government had to run large fiscal deficits to prop up the economy. After the bubble, Japan’s economic equilibrium stagnated and the fiscal deficit swelled.

This strategy was flawed in three aspects. First, even as the corporate sector earns profits to pay down debt, the government’s debt is rising. At best, it is shifting corporate debt to government debt. In reality, government debt has been rising faster than private sector debt has been falling.

Second, economic efficiencies don’t increase in such equilibrium. Existing resources in the zombie sector are essentially unproductive. Bankruptcies improve efficiency by shifting resources from failing to succeeding companies. When rules are changed to stop bankruptcies, efficiency is sacrificed. Worse, incremental resources are sucked up to pay fiscal deficits used to prop up zombie industries. Japan is thus trapped in equilibrium of low productivity.

Third, a long period of stagnation could worsen irreversible social change. A falling birth rate, for example, is one consequence that is wreaking havoc on the Japanese economy. Japan’s post-bubble policy was to let property prices decline gradually. Hence, living costs also declined gradually. On the other hand, the economy stopped growing, which caused income expectations to quickly adjust downward. The combination of high property prices and low income growth rapidly pushed down Japan’s birth rate. As a consequence, Japan’s population is declining two decades after the bubble. The rising burden of caring for the old will lower Japan’s ability to pay for anything else.

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U.S. Week Ahead: Payrolls, Auto Sales: As the third quarter wraps up, investors in the coming week will look to a raft of major U.S. economic reports, including September nonfarm payrolls and monthly auto sales. MarketWatch’s Stacey Delo reports from San Francisco.

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Week Ahead in Asia: Tankan Survey: Investors will reckon with business confidence in world’s second-largest economy, along with signals on conditions by the Bank of Japan. MarketWatch’s Andria Cheng reports.

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Europe’s Week Ahead: Focus on Germany Elections: Solar stocks across the world may move on the results of Germany’s election. Compass Group also is in the spotlight.

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heh heh:

boingboing: Lily Allen’s anti-piracy rant has made her notorious among copyfighters, who have subjected her site and her words to close scrutiny, discovering that Allen’s website is chock-a-block with infringing scans of newspaper articles, infringing mix-tapes (even the rant she posted was lifted from Techdirt). Her all-caps responses (“I THINK ITS QUITE OVIOUS THAT I WASNT TRYING TO PASS OF THOSE WORDS AS MY OWN , HERE IS A LINK TO THE WEBSIITE I ACQUIRED THE PIECE FROM.”) are the kind of nutty, defensive shouty words that chum the water online.

Description: An open letter to Lily Allen in song format, regarding her recent campaign against filesharing and her decision to quit music.