After every football victory, the California Golden Bears declare that the ground on which they stand is Bear Territory. “You know it! What? You tell the story! What? You tell the whole damn world this is Bear Territory!” Watch this particularly lively rendition after a win in The Big Game over Stanford (starting about 1:20 in; my youngest is at the top of the screen and was number 46 for Cal).
Lots of experts and alleged experts in recent days have been declaring that we’re in a different sort of “bear territory” as the market has gotten off to perhaps its worst start to a year ever. Continue reading →
In a great scene from the classic film, The Wizard of Oz, Dorothy and her friends have — after some difficulty and fanfare — obtained an audience with “the great and powerful Oz.” When, during that audience, Dorothy’s dog Toto pulls back a curtain to reveal that Oz is nothing like what he purports to be, Oz bellows, “Pay no attention to that man behind the curtain,” in an unsuccessful effort to get his guests to focus their attention elsewhere.
Like the Wizard, the great and powerful on Wall Street would have us pay no attention what is really there — “behind the curtain.” Yet once in a great while the Street rats itself out so that we get to find out, beyond a shadow of doubt (if you still had any), what the big investment houses really think about what they do and who they do it to.
The now-defunct Bear Stearns won a noteworthy 2002 legal decision involving former Fed Governor and then-Bear Chief Economist Wayne Angell over advice he and the firm gave to a Bear Stearns client named Count Henryk de Kwiatkowski (really) after the Count lost hundreds of millions of dollars in a just a few weeks (really) following that advice by trading currency futures on margin (really). The Count had been born in Poland, escaped invading Nazis, been banished to Siberia by the Soviets, escaped and travelled across Asia on foot to Tehran, talked his way into the British Embassy, became a renowned RAF pilot, moved to Canada, became an engineer, and made a fortune trading used airliners, most famously selling nine 747s to the Shah of Iran over a game of backgammon in the royal palace (really). He also became the owner of the famous thoroughbred racing institution, Calumet Farm (really).
Bear offered the Count “a level of service and investment timing comparable to that which [Bear] offer[ed its] largest institutional clients” (which is not to say that they were any good at it). The key trade was a huge and ultimately disastrous bet that the U.S. dollar would rise in late 1994 and early 1995. At one point, the Count’s positions totaled $6.5 billion nominally and accounted for 30 percent of the total open interest in certain currencies on the Chicago Mercantile Exchange. The jury awarded a huge verdict to the Count but the appellate court reversed. The appellate judges determined, quite conventionally, that brokers may not be held liable for honest opinions that turn out to be wrong when providing advice on non-discretionary accounts.
But I’m not primarily interested in the main story. Instead, I’m struck by a line of testimony offered at trial by then-Bear CEO Jimmy Cayne that does not even show up in subsequent court opinions, despite extensive recitals of the facts of the case. The generally “cocksure” Cayne apparently thought that his firm could be in trouble so he took a creative and disarmingly honest position given how aggressive Bear was in promoting Angell’s alleged expertise to its customers. Cayne brazenly asserted that Angell was merely an “entertainer” whose advice should never give rise to liability. Continue reading →
On January 14, 2007 I was in the stands with my younger son watching as the Chargers (14-2 in the regular season and widely regarded as the league’s nest team) hosted the New England Patriots in the divisional round of the playoffs. The Chargers had been 8-0 at home, had five All-Pro players and had nine players elected to the Pro Bowl. The day before I had received a certified letter from the Bolts, advising me that I had won a lottery among season tickets holders and would thus be allowed to purchase Super Bowl tickets if (when!) the Chargers advanced there.
But the day didn’t turn out the way I had envisioned.
Marty Schottenheimer foolishly attempted to convert a 4th and 11 at the New England 30 early in the game. The sure-handed Eric Parker muffed a punt, one of four turnovers in all. Drayton Florence head-butted a Patriots player and drew an unsportsmanlike conduct penalty to negate a fumble recovery for the home team. Lots went wrong, but the Chargers still had the lead late. The great LaDainian Tomlinson, who had rushed for 1,815 yards and 31 touchdowns that season, ran for 123 yards and two scores that afternoon and extended the lead to 21-13 via a touchdown run with 8:35 left in the 4th quarter.
On the very next series, Tom Brady threw his third pick of the day. The game should have been over, but Marlon McCree tried to return the interception rather than falling to the ground while cradling the football. McCree was stripped of the ball (right); the Patriots recovered and went on to win. When the Pats proceeded to do the silly Shawne Merriman sack dance on the Chargers logo in the middle of the field after the game, it instigated a brawl.
After the game, McCree was unrepentant. “I was trying to make a play,” he said, “and anytime I get the ball I am going to try and score. …[In] hindsight I don’t regret it because I would never try and just go down on the [ground]. I want to score.”
It’s a football cliché, of course, but Marlon McCree simply tried to do too much. It happens in investing all the time too. Continue reading →
In the Star Trek universe, the Kobayashi Maru is a Starfleet Academy training exercise for future officers in the command track. It takes place on a replica of a starship bridge with the test-taker as captain. In the exercise, the cadet and crew receive a distress signal advising that the freighter Kobayashi Maru has stranded in the Klingon Neutral Zone and is rapidly losing power, hull integrity and life support.
The cadet is seemingly faced with a decision (a) to attempt to rescue the freighter’s crew and passengers, which involves violating the Neutral Zone and potentially provoking the Klingons into an all-out war; or (b) to abandon the ship, potentially preventing war but leaving the freighter’s crew and passengers to die. As the simulation is played out, both possibilities are set up to end badly. Either both the starship and the freighter are destroyed by the Klingons or the starship is forced to wait and watch as everyone on the Kobayashi Maru dies an agonizing death.
The objective of the test is not for the cadet to outsmart or outfight the Klingons but rather to examine the cadet’s reaction to a no-win situation. It is ultimately designed as a test of discipline and character under stress.
However, before his third attempt at the test while a student, James T. Kirk surreptitiously reprograms the simulator so that it was possible to rescue the freighter. Continue reading →
Now marketing himself as a “rogue economist,” Harry Dent is forecasting “gold down to $750 an ounce, housing down 35%, oil down to $10 a barrel, the Dow down to 6,000, [and] a war between inflation and deflation” this year. The headline is indeed shocking:
If Only HALF of Harry’s Forecasts Come
to Pass, the American Life We Know Will
Disappear for Good!
So is the headline immediately above (from his personal website — the brazen self-promotion is shocking too).
Of course, Harry can show you how to avoid and even profit from this impending catastrophe. Amazing. More importantly, unlike most of his ilk, Harry has perhaps offered something actionable, if not in the way he intended. You don’t even need to buy anything to learn what to do.
It’s part of the gig. A Wall Street strategist, economist or even a run-of-the-mill investment manager gets a crack on financial television and is asked about his or her forecast for the market. Instead of wisely objecting to the premise of the question, the poor schlemiel answers and, once matters play out, is shown to have been less than prescient (even though the forecast is likely forgotten). Indeed, one forecast that is almost certain to be correct is that market forecasts are almost certain to be wrong.
The delightful old Mel Brooks/Buck Henry spy satire Get Smart, which was on television from 1965-70, included a number of funny catch-phrases uttered by Don Adams as agent Maxwell Smart (played by Steve Carell in the movie). One of them was the following, offered when Max had, yet again and like our fearless forecasters, screwed up.
So, as year-end approaches, let’s take a look at how much “this much” is — how badly various Wall Street market forecasts missed it with their prognostications for the S&P 500 in 2013. Continue reading →
“Expert” forecasting is generally terrible. Beyond terrible, actually. As if it were needed, here is some more evidence to add to the huge, steaming pile that already exists.
ESPN employed 43 alleged baseball experts who predicted the 2013 play-off teams, division winners, league champions and World Series champions. These are all people who are well paid to follow baseball closely — all day, every day — in order to report on it. You’ll recognize many of the names.
How did they do? Dreadfully. Of course.
Of the 43, eight thought the Cardinals would win their division and 10 more thought that the Cards would get to the one-game play-in as a wildcard team. But none had St. Louis in the World Series. Not a single one. But that’s a really, really good record compared to what they thought about the Red Sox.
No “expert” thought that Boston would win the American League East. Four of them thought the Sox would squeak into the post-season as a wildcard team. Not a single one thought that the Red Sox would even make the Fall Classic, much less win it. None.
Think about that the next time you consider putting Series serious money to work based upon a market or economic forecast. Not one of 43 full-time, highly paid “experts” called for either the Cardinals or the Red Sox to be in the World Series.
Above the Market 