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The Search for Bad News: Instinct or Addiction

By Posted on In Finding Confidence, Uncategorized

This is the second part of a series (Part 1, Part 2, Part 3, Part 4)

Numerous studies suggest people are more interested in bad news than good news. It’s easier to scare someone into reading or watching a news story than any other way. But some psychologists think they can explain why we have a desire to learn more about the bad, rather than the good.

Scientists suggest this search for bad news can be traced back to our hunter-gather roots since anything that was perceived as threatening had to be dealt with immediately for survival.

But in today’s environment, when we hear about bad news we hop on Twitter, the internet, or the TV. Take September 29, 2008 when the markets faced one of the worst days in decades. CNBC had the highest ratings ever on that same day. Or take a few months earlier – January 22, 2008, the day the Fed cut interest rates by the highest amount in its history. On that day, the search term “Recession” was searched at a rate of more than five times the day before!

There is something, possibly instinctual, that pulls us to learn more about the negative news.

History Doesn’t Repeat Itself. Headlines Do!

By Posted on In Finding Confidence, Uncategorized

This is the first part of a series (Part 1, Part 2, Part 3, Part 4)

We’ve seen these headlines in the news over the course of the last few months:

“The U.S. Is Going Broke”

“Social Security’s Coming Crisis”

“There’s No Way Out of this Unemployment Crunch”

“Exploding Federal Debt – Why so Dangerous”

From an economist’s standpoint, these problems aren’t new. We’ve seen these exact problems before in our lifetime. In fact, these headlines aren’t new either – they were all written between 1972 and 1984!

Sure the details may be different, but the overall issues have always been there, percolating on the back burner. Once the media picks up on the problem, they package it up in a way to grab your attention so you buy the publication, see the banner ad, or watch the advertisement.

What is behind the Italian elections?

By Posted on In Uncategorized

The introduction of a common currency, the Euro, created a potent cocktail for the less industrialized nations involved, especially the Mediterranean countries (including France). It allowed the highly efficient industries of the northern European powerhouses countries (Germany) to compete with their southern brothers on equal footing. The southern nations, with their relaxed lifestyles and less than robust industrial infrastructures, were unable to compete. Before the Euro, they were able to devalue their currency and thus lower the price of their goods (in terms of their competitors currencies). However the Euro locked them in. Instead of facilitating trade, industries in the south were outcompeted and hollowed out. Imports grew while exports shrank. Goods imported from Germany were increasingly being financed with more and more debt, not earnings.

(Un) Fortunately, because the southern brother’s currency was now the Euro and devaluation was not a concern; banks everywhere were willing to lend these nations money with abandon. While exports (earnings) and thus their private productive sectors declined, governments of these southern nations bloated up to fill the void left by their declining productive sector. Government, which of course earns nothing, financed itself by borrowing even more money. Government expansion maintained the illusion of economic activity. The problem was solved for a while.

So here we are now. The southern Euro nations have a shrunken and uncompetitive productive sector burdened with a huge government, and an enormous debt which cannot possibly be paid back. Austerity, or ‘internal devaluation’, is being pushed on them by the northern banking/political class. They want their southern brothers to start ‘living within their means’. However, as Milton Freedman proved, it is easier to spend more than it is to spend less. A gradual devaluation used to keep things in check, no longer. Now the northern Eurocrats are trying to hold back the inevitable by forcing their southern brothers to cut wages, employment, and benefits to kept the euro intact. The Italians are pushing back.

Watch Italy. I think Europe may devolve into class warfare. The Euro is a failed experiment.

Furthermore, it is a warning to others that a debt financed, bloated government is not the solution.

Overcoming Volatility in Confidence

By Posted on In Finding Confidence, Investment Strategies, Uncategorized

Some refer to the past decade as “the lost decade” due to market volatility that seemed to send many investors back to where they started.

It also marked tremendous volatility in confidence, with investors finding it difficult to believe in their investments and in the market itself. As a result, investors faced a new risk – allowing fear to stand in the way of capturing future market gains.

These concerns can vary in degree and change depending on the state of the market. The following stages reflect a common progression of mindset during most economic cycles, while suggesting a way to rebound from volatilities in returns and in confidence.

1. Herding: Confidence builds. Doing what everyone else is doing creates the feeling of safety in numbers.

2. Anchoring: Confidence is high. As investors fixate on a high-water portfolio value, confidence can hinder the ability to rationalize a normal cyclical decline.

3. Information Overload: Confidence is questioned. Investors cannot stop listening to news reports and opinions which, more often than not, feed into doubts and pessimism.

4. Straight Line Projections: Confidence wanes. Investors sometimes forget that most broad markets are cyclical and never go in a single direction forever.

5. Despair: Confidence is shattered. Conclusion that the financial markets, government oversight and the global economy are broken beyond repair.

6. Change of Strategy: Confidence returns. Investors begin to again feel positive about market participation when they are confident their strategy is built from knowledge gained through past downturns and reasonably promises to avoid similar outcomes.

Stages of volatility

A Golden Age

By Posted on In Economy, Finding Confidence, Investment Behavior, Uncategorized

It’s easy to forget and lose perspective about what is happening in this world. From uncertainty in our economy and in Europe, the looming fiscal cliff, and most recently the tragedy in Newtown, we may be feeling lost and unsure about the future. Just turn on any news program. The pundits, news anchors, talking heads, supposed experts, and politicians are talking about the problems we face.

But let’s not forget some amazing accomplishments that have occurred in recent years:

· People throughout the world are now living longer than ever before, here.

· Extreme poverty has been dropping year over year, thanks in a large part to the improving economies in Asia, here. . (For a fascinating comparison of population size and prosperity over the past 200 years, visit here. )

· The cell phone is playing a huge part in reducing poverty. “A 2010 U.N. study, for example, found that cell phones are one of the most effective advancements in history to lift people out of poverty.” Time Magazine.

· Global food production continues to increase, here.

· GDP per capita has been rising throughout the world, here.

· Scientific and technical journal articles have been increasing each year, leading to more and more health and science breakthroughs, here.

· On a global scale, people are building and inventing more new technologies than ever before. Patent applications have been rising each year, here.

· Deaths related to battles, conflict and wars are showing a downtrend, meaning there are fewer death than ever before due to conflicts, here.

· For more trends that point to an improved and improving world visit here.

“Never has there been less hunger, less disease or more prosperity. The West remains in the economic doldrums, but most developing countries are charging ahead, and people are being lifted out of poverty at the fastest rate ever recorded. The death toll inflicted by war and natural disasters is also mercifully low. We are living in a golden age.” (link to full articlelink to full article)

The above article is a fresh perspective and provides a positive view of a world that many are unsure about. The fiscal cliff just doesn’t seem as important now as it did a few moments ago.

We hope that you have a wonderful holiday and when you have a conversation with family or friends that delve into what this world is becoming, think back to this newsletter and all the good things that are happening.

Maybe we are living in a golden age and we can’t see it.