For most of the last few years, I have been labeled a perma-bear, that is someone who looks at the situation from a reflexively skeptical glass half-empty bias. One only need peruse our archives to get that impression. In fact, that is hardly the case. Over the past few months, as the evidence of a [...]

It looks like Chrysler is going down for the count. A few piggish bondholders decided to play chicken with the Federal Government. They are going to lose this game and, consequently, lots of money too. Chrysler and the Obama Administration did not have a strong hand. Their best alternative to a negotiated [...]

Watch the video below and then read the text and the linked full article. No cheating!

As anyone who has ever been in a verbal disagreement can attest, people tend to give elaborate justifications for their decisions, which we have every reason to believe are nothing more than rationalisations after the event. To prove such [...]

Below is a very good video of John Bogle, the legendary investor, at Columbia Business School, hosted by CBS Professor David Beim. In his speech, Bogle places much of the blame for the present crisis with the increasingly hostile corporate governance environment of the last quarter-century, a point I make in my recent post “The [...]

I don’t much like Ken Lewis. It should be fairly obvious to everyone that he is a man who has only his own interests at heart. But, his revelation that BofA bought Merrill Lynch for the agreed-upon September price, despite Merrill’s having an additional $7 billion in losses is grounds for legal action.
Let’s review the [...]

Update: 3 Apr 2009: I have been getting more positive about the possibility of a cyclical upturn before 2009 is over (what I like to call a fake recovery). Meanwhile, the punderati are seeing black when they should be seeing shades of grey. As a result, I wanted to re-post this article as a reminder to all of you and to myself of the perils of becoming wedded to a certain ideological bias.



Also see the following article on the site Overcoming Bias.



Here’s the original post:



For a long time Byron Wien of Morgan Stanley used to have his “Ten Surprises for” whatever year we were about to enter. The predictions were sometimes head-scratchers and they were definitely ‘out there.’ Most of the time, these predictions ended up being wrong. Now, Saxobank has taken over from Morgan Stanley in this department. Their list is outlandish — and I’ll get to it in a moment. But, first, I want to say these predictions serve a very useful purpose. It’s called thinking outside the box.

A condition of conflict or anxiety resulting from inconsistency between one’s duty as regulator and one’s actions

A few months ago, the Germans were very resistant to the notion that Germany would also suffer greatly in this global downturn. Yet, as the months have past, it has become increasingly apparent that exports from Germany and retail spending in particular are hurting. As a result, the German government has joined the bailout and stimulus crowd.

Germany is proof positive that this is not a moral debate in which only the irresponsible and overleveraged suffer, individually or as nations. After all, the Germans received almost none of the upside during the housing bubble. I suggest those who want to label the downturn a case of just desserts for bad behavior read a few history books on how financial crises drag down the good with the bad.

Economics and finance are slowly coming to grips with the fact that human beings are simply not rational. The boom-bust cycle that we are now living gives us a front row seat to that irrationality.

Below is a video by Dan Ariely that is not about market irrationality specifically, but human irrationality more broadly. Ariely gives a wonderful demonstration of how the human mind works– and it is not at all the way Economics textbooks would have you believe.

We are in a secular bear market. What this means for many pensioners or for many about to become pensioners is great uncertainty about the quality of their retirement. I expect this uncertainty to translate into anger regarding the move from defined benefit pensions to defined contribution pensions. Whether a policy response results depends on how stocks do over the next few years. Nevertheless, in my estimation, we are about to understand that human psychology and defined contribution plans are at loggerheads.