Posts filed under “Really, really bad calls”

Politics and Selective Perception

Source: Red State


A friend writes: “What do you do when presented with a chart such as the one above?

My answer was simply that it depended upon who is showing you the chart:

• If it comes from a hard core partisan, you laugh at the flaws in their wetware and say nothing. Recognize they are not capable of comprehending logic or objective reality, and can only respond to emotional narratives.

• If they are a student, or anyone genuinely interested in markets, economics, or probabilistic analysis, you ask, in your best Socratic method, the questions below.

• If they are an investor, you simply take their money.

Sports fans, Partisans — anyone emotionally invested in any specific outcome — lose the ability to objectively judge reality. Studies have shown that their brains appear to have a form of damage similar to aphasiacs. But there is no physical damage, it is merely inherent flaws built into the wetware.

To investors, this is a devastating problem, one that eventually will become terribly expensive if they do not learn how to compensate for it. The psychological term for this is selective perception. I love tracking down examples of this at work, as it reminds me how we are all wired in a way that is filled with cognitive flaws. Investing enlightenment only is possible once you objectively recognize and learn to work around the inherent flaws in your wetware.

This chart — which is hysterically funny to anyone who can objectively review economic data — reveals pretty much nothing about either politics or unemployment. But it reveals everything about the cognitive errors of the person who drafted it.

Let’s return to our student, or anyone genuinely interested in this data: See if your wetware can answer these questions. Once you have done that, go back and review the chart again:

1) Is this time period unique or typical? Do other eras share a similar relationship between the two variables?

2) Is there a causal relationship between the two variables? Asked another way, does the House Majority significantly impact employment, or is this merely a classic example of correlation without causation?

3) What other factors might impact employment more significantly than House Majority?

4) Is there a similar relationship between White House and Unemployment? How about the Senate and Unemployment?What do these relationships reveal about the original two variables?

5) Why such a small sample? We have been tracking unemployment for many decades, along with House majorities — What does using the complete data set reveal?

6) What about other employment related data? How do wages, long term unemployment, job mobility, and labor force participation rate compare to House Majority? What about GDP, balance of trade, inflation, deficits, etc?

7) What other ways are there to consider the data? Does a peak-to-peak or a trough-to-trough measure of unemployment change the outcome of the relationship between variables?

8) What about other time periods? Does the relationship in the chart hold true for periods of 5, 10, 20, 25 or 30 year periods?

In my business, I cannot allow my personal political preferences to interfere with my ability to form a coherent and objective view of reality. Whatever the business of the person who createdthis chart is, objectively reality does not matter much.

I only hope they are active participants in the stock market . . .

Category: Apprenticed Investor, Data Analysis, Employment, Politics, Psychology, Really, really bad calls

Watering Down FinReg: Corrupt or Merely Misguided?

“We don’t want them to regulate capriciously, arbitrarily, without engaging in a cost-benefit analysis.” – Representative Jeb Hensarling, a Texas Republican > The statement above is representative of a misguided economic cost/benefits analysis that was dominant during the three decades incorporating 1980s-2000s. Its fatal flaw is that it fails to include the expenses and impact…Read More

Category: Bailouts, Really, really bad calls, Regulation

Home Equity as a Percentage of Household Net Worth

> I frequently find myself disagreeing with Tobias Levkovich of Citigroup. That’s not surprising, given his firm and their investment posture. Where I really part ways is on anything housing related. Levkovich was part of the mainstream herd of strategists who, as the markets topped in October 2007, made the erroneous forecast that Housing would…Read More

Category: Analysts, Real Estate, Really, really bad calls

Founding Father

click for ginormous artwork by Anthony Freda

Category: Currency, Really, really bad calls, Weekend

Investor Advisors: Buy High, Sell Low

Jason Zweig has an interesting piece in the Saturday WSJ about the bad advice investment advisors give: “Investment professionals are supposed to exercise independent judgment; in Warren Buffett’s words, they should be fearful when others are greedy and be greedy only when others are fearful. It doesn’t always work that way. Corporate pension funds had…Read More

Category: Apprenticed Investor, Investing, Really, really bad calls

The Big Lie on Fraudclosure

Yesterday morning, I had The Misinformation Hour on TV as I got dressed for work. One of the comments that was made –  “No one was wrongly thrown out of their home” — was repeated or ignored by hosts and guests alike. This is patently demonstrably false, and yet no one challenged it. The banks…Read More

Category: Bailouts, Financial Press, Foreclosures, Really, really bad calls, Television

CFTC Judge Allegations Should Concern Investors

“It’s an open secret among my brethren that if you get Levine, he’s not going to rule for the investor.” -Steven Berk, an investor protection attorney in Washington > Michael Hiltzik of the Los Angeles Times takes Judge Painter‘s CFTC accusation against his fellow judge Bruce Levine to a new level: “It would be hard…Read More

Category: Commodities, Legal, Really, really bad calls

Oil’s Well That Ends Well?

It’s been a while since I paid over $3.00/gallon for gas, but had that pleasure once again very recently, as prices have been creeping slowly ever upward.  As the gas flowed, I thought back to a piece I’d written elsewhere some time ago (April ’06, to be exact) lamenting the fact that those who had…Read More

Category: Contrary Indicators, Energy, Markets, Really, really bad calls, War/Defense

Greek Yields Soar

Greek 10-year bonds tumbled for a third consecutive day; yield jumped 58 bips 10.34% according to Bloomberg. The EU revised Greek budget deficit above 15% of GDP. In a leading contender for understatement of the year, Finance Minister George Papaconstantinou said the nation had serious tax compliance issues. Thus, the ongoing European drama between Greek…Read More

Category: Credit, Really, really bad calls, Taxes and Policy

15 Inviolable Rules for Dealing with Wall Street

The never ending parade of stock scandals seems to continue unabated, the stock lending scam being only the most recent. As history has shown us — from Mexico to Orange County to analyst banking crisis to Derivatives to etc., when the Street comes aknockin, best for you to hide your wallets. For reasons we are…Read More

Category: Apprenticed Investor, Corporate Management, Investing, Really, really bad calls, Rules