Monthly Archives: May 2012

Losing Money with Metaphors

Freud’s psychiatric conclusions have largely been discredited but he rightly maintains praise for understanding the central role of metaphor and narrative in human thought. Professor Cowen HERE, is only the latest to build on this theme although importantly, he concentrates on the negative, blinding aspects of the tendency. Nowhere is this more clear than in the “stories” that surround investments.

Choosing a metaphor presupposes a conclusion. For instance, there’s no way to hear “the Chinese economy is a bubble” without unconsciously associating the country’s outlook with fragility and inevitable disappearance of a soap bubble. If we describe China’s GDP as similar to a hot air balloon on the other hand, our subconscious will immediately become more suceptible to the argument that upcoming government stimulus will right the economic ship. (You see what I did there – the use of the word “ship” is insidious.)

Good metaphors are a double-edged sword and their ubiquity in stock pitches suggests investors remain on their guard, never accepting one outright no matter how successfully it seems to communicates the situation.

Wherein Finance Arbs Out the Better Angels of Our Nature

Most people who live or work in an urban center have had the disheartening experience of trying to help out a homeless person only to find track marks up their arm when reaching for your dollar. The fact that the money will likely end up in the hands of a local heroin impresario instead of food is one thing, but at this point we are used to being lied to. I submit that the real discomfort comes from the erasure of what we believed was a humanitarian gesture, that an impulse we were secretly proud of has been used against us. In deciding not to help out the next homeless person, our attempted affiliation with the Good Samaritan has been “arbed out”.

At its Utopian best, capital markets are designed to attract savings towards worthwhile investment to the benefit of the economy as a whole (stop laughing, I’ll get real in a second). In this perfect Platonic world, a small number of traders would step in on the occasions where short term sentiment pushed assets to levels well above or below some concept of longer-term Buffett-y value. This is not, however, the world we live in for rational reasons too numerous to recount. HFT combined with the widespread successful use of technical analysis has created an environment where traders and automated scalpers, measured by daily volume, outnumber long term investors by a significant margin. The resulting increase in volatility has “arbed out” a good part of the impulse to invest for the long term, particularly among retail investors.

I swore I would not allow the word Facebook on this blog, but in abandoning that pledge I promise in turm to keep this section short. The NASDAQ’s technical problems and the potential for improper dissemination of information aside, FB’s IPO went largely to type in the sense that MS priced the deal at the highest point the market would stand. This is their fiduciary duty and the fact that the Supply/Demand curves met at $38, if only temporarily, implies that the price was fair according to classical economics. Because FB’s fundamentals do not support the price, however, means that lottery-induced dreaming and ignorance among retail investors went a long way to getting the deal off. Retail optimism, in this sense, has been partially arbed out.

In the efforts to keep things concise, I wont extend this thought into the broader economy beyond noting that Madison Avenue are the uncontested kings of leveraging or arbing any consistent psychological trait, good or bad, into changes in consumer behavior. To date, admittedly, there is not a lot of revulsion beyond grumbling at the constant Orwellian barrage but at some point some kind of Laffer Curve Peak Advertising will be reached. Despite recent positive comments on advertising from Conor Friedersdorf, my belief that advertising in a capitalist society performs the same function as Soviet propaganda – the sanctioned, unconsciously-accepted-through-mind-numbing-repetition lies that keep the wheels turning – remains pretty much unshakeable.

I’m not at the “End of the World” sandwich board stage yet, but do think we’re playing a dangerous game if this trend keeps up longer term. The pervasive testing of the boundaries of our collective gullibility-politically, socially and economically – feels cumulative, a heavier weight over time if collective cynicism (coughJonStewartcough) is any yardstick. The money pouring out of equity funds could definitely represent an ongoing indicator that mom and pop have had enough of playing Charlie Brown with the investment banks holding the football. The Facebook deal’s certainly not going to help – the next time a broker calls a client with a once in a lifetime IPO opportunity, the client’s likely going to remember the junkie’s track marks.

The NFL, the Internet and Economic Inequality

[Note: There is an obvious response to comparing NFL players and the average laborer – the multiples of minimum wage made by professional athletes. Hold that thought – I will deal with it tomorrow]

The NFL concussion issue is bothering me more than I would have thought and I’m trying to think through its broader implications as a cultural and economic phenomenon, specifically in light of stagnant overall wage growth and also the evolution that technology has wrought on our broader conception of celebrity. The new ethics of watching football, best elucidated by @tanehisi, is a highly personal matter and I have no argument there – its for every fan to decide for themselves. For myself, I will never stop watching the NFL even if I am already questioning the extent of my preoccupation.

The fact that the NFL gained traction in the 50s and 60s well after the sustained popularity of college football, where the players received no salaries, is only one of the many indicators that the players have historically been treated more as equipment than labor. Every book written by insiders, Meggyesy’s Out of Their League, Gent’s North Dallas Forty, highlight the broad inhumanity (and also frequent, offsetting generosity) of coaches and management. The trade-off between pain and fame and the subjugation of personal goals for the good of the team is thus woven into the fabric of the game, a ruthlessness that for many provides more reason to watch.

Major League Baseball provided a strong reflection of the waxing power of organized labor in the 70s, beginning with the Curt Flood case in 1969. The NFL, as a league, has done a far better Reaganesque job of crushing player bargaining power and thus constitutes a worthwhile, through exaggeration, window into the current era of wage inequality. The NFL owners group provides an unequivocal depiction of the 1% as the investors of capital, only with even more stringent (for now) control over labor. I can see no remotely feasible circumstance under which 95% of NFL owners do not support Mitt Romney’s trickle-down, “I got mine” policies as a lot of us, whether we admit it or not, would in their place.

If the profit-oriented incentives of league owners are easily intelligible no matter what the issue, the mindset of huge segment of fans is much, much less so. The key factor here is that I’m a Detroit Lions fan, bred in the bone. One would think that the Rust Belty Lions fandom would, along with Browns and Steelers supporters, side vehemently and overwhelmingly with players and the NFLPA with respect to player safety and salary growth. Stunningly, this does not seem to be the case. My impression from Twitter is that Lions’ fans are divided on cases like that of Cliff Avril who is currently semi-holding out while negotiating a new long-term contract. More interestingly, the fans that do not support Avril’s position are angry, enough to tweet “get to work you ungrateful jackass” to a complete stranger who, if so inclined, has the physical tools necessary to pummel them into pink mist.

Initially mystified by this seemingly self-defeating outrage, I’ve come to credit the Internet and the marketing success of the NFL for much of it. The 24 hour coverage on the NFL Network, CNNSI, the amazing new camera angles, the (frequently abused) generosity of the players on Twitter, all of these allow for fans to become fully immersed in their favorite game.  This addiction, however, is completely sanitized and carefully designed for your consumption. As the Last Psychiatrist is fond of saying, “If you’re reading/watching, its for you.” My hair stands on end when before a big game the Steadycam and audio capture the ecstatic, warrior scream of the physically-colossal Ndamukong Suh as he runs out of the tunnel. There are no cameras, however, documenting the poor bastards living in storage lockers after being cut from the practice squad, unable to hold a job because of headaches and the spine of IED victim. Importantly, we wouldn’t watch the latter footage if it were available as it is a function of the web culture that we only see the version of reality we want to see. We do not confront, and in the same way an alcoholic is enraged by advice to cut down their drinking, we get pissed and circle the wagons if someone starts chipping away at any of our virtual cocoons.

To some extent, the same phenomenon is present in the broader economy with financial celebrities like Jamie Dimon and Steve Cohen replacing current NFL stars. The pornographic thrill of a BI slideshow of Dimon’s $8 million, rarely-visited Boston townhouse, is enough distract us from the unemployed who, like the suffering ex-NFL players, are unpalatable collateral damage that makes the pornography possible. The technology, combined with careful editing, has offered the seductive, drug-like option of projecting ourselves into a perfected form of the lives of our heroes, athletic or financial, and we have taken too-full advantage.

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