LIBOR Illegality News that Barclays Bank has been fined for LIBOR manipulation in both the UK and in the US, and that there are likely to be many more similar cases from other banks to come, just adds to the increasing evidence of a lack of moral leadership in our primary institutions.  It’s not just that illegality occurs, but that it appears to occur in a moral vacuum where the participants are happily and openly engaged in behavior which is corrosive to good society. This isn’t...

Exploit and Vanish Although many investors rely on charts to time trades the actual evidence that this yields any kind of advantage is vanishingly small.  It’s not zero, however, as we saw in Technical Analysis on Display, because there’s a faint suggestion that human pattern recognition is so finely tuned that it may be able to extract information from the noise that machines cannot. Intriguingly, though, research on Google search data suggests that there are exploitable trends in...

"Am I doing better than I could do by flipping pennies?" - Paul Meehl Denial is Futile The Abnormal Returns website recently highlighted an interesting little spat on the blogosphere, as commentators argue over the benefits of software based investment advice.  It’s a trend with only one outcome, one that probably doesn’t do investors any good, but equally one that’s sadly inevitable. What’s more interesting, though, is the creaking movements of tectonic plates as various commentators...

Dear Grandchild, You’re probably wondering why I've saddled you with huge taxes to pay for debts run up before you were born.  As I write today, the total US debt is about 5 times the average personal income,  about $250,000 per person, and growing, rapidly. The reason is, fortunately for me, that I won’t be paying the debt off.  Unfortunately for you, you will.  You probably think this is unfair but by the time you figure this out I’ll be dead.  Good luck with...

Recidivists of the World Divided Research suggests that the upper classes are more morally ambivalent than the rest of us. Or, to put it more bluntly, they’re a thieving bunch of recidivists with the ethical inclinations of a polecat in a henhouse. Adam Smith predicted this years ago, and skewered the argument that many make in favour of predatory capitalism – that self-interest is the best way to allocate capital. A little enlightenment may come in useful for those wanting to debate the...

Mistrust and Misrule Markets and investors have long been possessed of a peculiar and unsubstantiatable notion, that the problems of the Eurozone are solvable as soon as people come to their senses and start engaging with financial reality rather than political theatre.  This is an amusing conceit bound up with the idea that the Euro project is too big to fail, but one that ignores the problem that cultures aren’t malleable, no matter how much politicians like to pretend they are. The...

Money Losing Ventures The downward trajectory of Facebook’s price after its Initial Public Offering (IPO) wasn't a great shock.  Perhaps the bigger surprise is how many column inches have been spent analysing a story that can be summarized as “high price, low earnings, uncertain future”.  Sentiment is a powerful driver of stock prices, but only when there’s money around to back it up. In fact IPO’s do seem to be generally subject to overpricing, which isn’t as obvious a trend as you...

Disintermediate and Die Over the past twenty years or so we’ve seen a remarkable change in the way a lot of business is conducted.  Publishing, an industry which had run on business models largely invented in the Middle Ages, has been completely revolutionized (see: Book Value).  Other industries have had their economics completely upturned by the interconnectivity of the internet, cheap, distributed processing power and the power of peer review. Yet this hasn’t impacted the financial...

Weathered Earnings forecasting is a triumph of accountancy over reality: given the complexity of most corporations an accurate forecast of earnings is logically, and numerically impossible.  Yet corporations guide and analysts analyse and, mostly, they all end up looking wise. It’s all nonsense, of course.  The economy is a complex adaptive system comprised of billions of working parts.  The realistic chance of anybody predicting anything minutely accurate about anything of any...