May

29

What can we learn from shelled species about the markets? Shells protect creatures from predators, wind, sea currents and the sun. Sometimes they are conical, sometimes circular, and sometimes spiraled, with each shape being specialized to its particular purpose. Why do shelled creatures often live for so long … and in the markets, what makes some stocks live longer than others?

Reputation is key to business success, with companies spending fortunes to keep their reputations up, so that customers will pay more for their products. How does the market use the reputation effect to maintain its feeding webs, with particular reference to the last period effect, where there is no current incentive for a politician or market to fool its voters or votaries?

The Japanese and Israeli markets are both up sharply this morning, from when the U.S. markets closed at the end of last week. To what extent has there been correlation of these market's moves to the U.S. markets' move on the following day? My hypothesis is that the correlation was weak until last year, but has increased recently.

There has been a much greater tendency to reversal after big moves lately. Is this indicative of a change in regime or tempo, or is it bullish or bearish? The risk premium on stocks, according to a cursory study transmitted to me by the sapients at Gavekal, is at its historic average, but the risks nowadays from the economy are much lower than they have been before. To what extent is this bullish or bearish also?

It is an old saying that a nation's preferences in sports reflects its character. What can we say about the changing nature of sports in the U.S. that is indicative of future market moves? Is it truly hard to find kids in the ghetto playing basketball these days, and families visiting national parks together, because outdoor pursuits have been crowded out by computer games, etc.? If true, what are the implications of this for amusement park companies?

The ten year bond is a tenth or so away from a five percent yield? Is there a gravitational effect towards the round number, and will this have a detrimental psychological affect on stocks, with the yield differential still being at one and a half percentage points.

When will all the remaining trend followers get tripped into being long the dollar, and will the increased movement in the dollar's favor lead to another opportunity for the banks to make money from going against such a fixed position?

As a final thought, some old men are the greatest repositories of wisdom for the younger generation, like Ed Marks who was the greatest speculator I've ever met, or Larry Leeds, who has the best record of all for institutional funds. Others, (like the weekly financial columnist and the Nebraskan), have a message, that if followed would lead to lassitude and mediocrity.


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  1. Gary Rogan on May 30, 2007 9:32 pm

    Well the Sage is an expert on long-living stocks. I happen to agree with what I deduce is his reasoning. A company that makes very basic things and has achived some level of dominance and brand recognition will compete using a brand name against cost-based competitiors. If the market-share dominance is such that the production economies of scale are substantial, and the basic nature of the product is such that it’s hard to replace or cost-reduce through innovation, the company and hence the stock will last a long time. When the product is technological, it’s much harder to protect against innovation, but brand names and market dominance and the basic nature of the product definition, although not the underlying technology, will make it a similar situation, as in the Google search engine and, for a while, Microsoft operating system. Dominance for any length of time in technology still requires constant innovation and good management, whereas in the really basic inustries periodic managment meltdowns are more repairable. Also no one enjoys assailing some ancient technology, whereas people will spend all their free time (and free from compensation as well) to develop Linux and hurt Microsoft.

    The Private Equity craze will take out many of the long-lasting names because they are reliable cash flow generators and thus are amenable to the analysis required for the leverage to be issued. The ones that will remains are those that are too big to take out, and perhaps there won’t be anyting too big relatively soon. When they take out Coke and Pepsi, sell everything.

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