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random stuff I like

I like

moleskine icons
http://pica-ae.deviantart.com/art/Moleskine-Icons-91551480

Lamy 2000 four colour pen
http://www.amazon.co.uk/Lamy-L401-2000-multi-colour-pen/dp/B000UTKMDQ/ref=sr_gnr_fkmr?ie=UTF8&qid=1238308458

Paperchase small noto notebook
http://www.amazon.co.uk/Paperchase-Small-Journal-Black-Design/dp/B000UJDWKQ/ref=pd_sim_dbs__7

Apple Mcintosh icon problems under OS 10.4 Tiger

Just a quick blog entry on a techie problem, and how I fixed it.

Problem
I could not copy and paste in icons that I wanted to put on folders, on a Mac running OS 10.4, Tiger. The icons came up all blocky with a black border round them. The icons I was seeking to use were of irregular shapes and had transparent backgrounds.

Under Preview (application that launched when double clicking on the .png icons files), it proved impossible to simply select the irregular shape, instead it selected an approximate rectangular shape with the excess area being colour black.

Solution
Having tried various approaches, to the extent of doing exactly the same thing on a computer running OS 10.5 Leopard, where things worked, and OS 10.4 Tiger, where things did not work, I eventually figured that I would need another approach. The batch of icons I was copying all came in appropriately icon-ed folders, so I simply duplicated folders with the correct icons and used those. Problem solved, albeit not by the most elegant of solutions.

The icons in question are the uncommonly fine Moleskine icons, available at
http://pica-ae.deviantart.com/art/Moleskine-Icons-91551480

The Return of Depression Economics by Paul Krugman

It used to be that banks just did not fail. Well we all knew that some had failed in 1929, but banks did not fail in modern times in modern countries. This is a smart book, lightly updated to reflect recent events.

How much you get out of the book will depend on your aptitude for macroeconomics, I know a bit and feel that I got most of it, but certainly not all. However it was consistently enjoyable and readable. I never felt that I was being talked down to. I might re-read just to get my head round some more of it.

If you are looking for a book that will tell you what shares to invest in, or how to make money investing in the next few years, then this is not much help. After reading it you might even want to start stockpiling bottled water. But if you want to start getting your head round what is happening, then this could well be the best book to read.

At the end of the day, we just don't know what will happen, this book won't tell you, but getting some perspective cannot do any harm.

Random Quote - “A note about intellectual style: one temptation that often afflicts writers on economics, especially when the subject is grave, is the tendency to become excessively dignified. Not that the events we are concerned with aren’t important, in some cases matters of life and death. Too often, though, pundits imagine that because the subject is serious, it must be approached solemnly: that because these are big issues, they must be addressed with big words; no informality or levity allowed. As it turns out, however, to make sense of a strange phenomena, one must be prepared to play with ideas.” p7

http://www.amazon.co.uk/review/R2MODZK62AEC3R/ref=cm_cr_rdp_perm

new onions

From The Mountain Goats, Onions,

the last white slabs of snow
melted off seven weeks ago.
and the geese are headed north again
through the tightening sky,
and i can feel my heart in my throat again
new onions growing in the ground.

Spring finally seems to be indisputably coming. The pluckiest of the snowdrops I planted appeared, and are starting to fade back to particularly chunky blades of grass, now that they are losing their distinctive white hats. Some daffodils are already up, some just have their flowers all bunched up ready. My lunchtime walks are now possible without a coat, and it is becoming enjoyable to just sit out in my garden.

I was out for the first time proper yesterday, emptying out a big green plastic composter, full of all our winter composting, and transferring it over to another composter. The worms just love old wet newspapers, but they are resilient souls and as long as there is not too much of anything, a big green plastic composter full of discarded fruit and veg peel, tea bags, coffee grounds, tissues, cardboard, newspaper, and weeds, is just a big pile of worm delight, on the way back to being soil. I dug over my vegetable patch, and put in sixty red onion sets. My wife likes to make red onion marmalade each year (it is a chutney, rather than something that you would put on toast) and it can be easier growing red onions than trying to buy them some years.

Last year my onions seemed pretty poor, but on discussing with other folk who grow veg, it seems more likely that the fault was mine in putting them into the soil too late, rather than any fault of the weather. So, they are now in the ground, new onions growing in the ground.

So much nowadays seems to be like the seasons changing. Something too big and inevitable to affect, we just need to change our garb, and our habits accordingly.

I've just finished Paul Krugman's book, The Return of Depression Economics. It is very high level macro economics, not something that I find particularly easy to understand. I did feel lost in points, but it was well worth reading. I feel that I need to get some sort of perspective on things, I'm not used to banks failing. Hence getting a copy of Depression Economics to just try and figure out what is going on.

I am clearly not alone in thinking along these lines, on Amazon Depression Economics is currently 169th in Books, with 5% of those purchasing going on to buy JK Galbraith on The Great Crash 1929 (I'm not so keen on his work with Jamiroquoi). 1929 is next on my shelf to read. Last year sales of The Great Crash 1929 leapt more than twelvefold to 12,642, so clearly I am not alone in my choice of books.
http://business.timesonline.co.uk/tol/business/industry_sectors/media/article5834574.ece

I think that now is a time for consolidation and careful choices, avoiding unnecessary spending, and putting aside money for future challenges.

I just don't ask people about work anymore, if they want to talk about what is going on at their work, then I am happy to listen, but I fully respect that many people won't want to talk about it. I don't think I know anyone that has been made redundant yet, mostly it seems to be a case of reduced hours for reduced pay, or lots of hours for not much pay, depending on whether you are at employee or partner level.

I know Paul Krugman does not think that this is a depression, but the term depression has a clarity of expression, this is more than just a bear market. This is a fundamental shift in the world economy.

At my work, I am just incredibly busy. Basically I took on someone else's entire job, on the basis that it was winding down, but instead it has increased dramatically. However recently it has all been very short term, urgent work, and I've not been able to do the longer term work. It has been a case of working flat out all day, till I'm too tired to think, going home, sleeping, coming back the next day, working flat out until I am too tired to think, ...

I suppose if I worried about it, I would go mad, but I'm just trying to do my best, be positive, and not worry about the stuff I cannot do. At the end of the day it is not my fault that there is only one of me, and it is not up to me to work insane hours either. At the moment it is exhausting, but generally things are busy but enjoyable.

I suppose a big chunk of it has to be not being too much of an asshole. Just because I am busy, does not give me the right to be an asshole in how I deal with other people. From a purely selfish point of view, if I can be courteous, deliver on commitments and respectful of other people, even when I am under pressure, then they are much more likely to treat me with respect and be helpful to me.

There is plenty else going on in the other aspects of my portfolio career. Unfortunately my 9-5 job is the only one that actually brings in any money, but in time that might change. To be honest I am motivated to do work that I think is worthwhile and interesting, rather than by money anyway.

[I will close this blog entry here, but I would like to explain that I use the word asshole advisedly, I don't swear in these blog postings, but I would like to flag up the book, The No Asshole Rule: Building a Civilised Workplace and Surviving One That Isn't
by Robert I. Sutton

it is about how people behave unacceptably at work, bullies and the like. In short, these people are assholes and should not be tolerated, admired, or excused.]

Plasticene related news

In plasticene related news this week, the sad news that Morph died, it is thought that someone left him next to the radiator. Also University Challenge team disqualified after it was found out that a team member was made out of plasticene.

Newsflash - Jennifer Aniston is still not going out with Brad Pitt

do I believe in Kondratiev Waves?

Further to my recent blog entry, do I believe in Kondratiev Waves?

Yes and no.

• I believe they are a useful descriptive tool, and as good a model as any,
• however they clearly have little or no predictive power. Recent history suggests that the wave has a period of around fifty years, but it is exceedingly difficult to fit postwar economic history to the model, and intuitively it seems unlikely that the model would hold true for both the nineteenth and twenty first century.

I have however used it as an aid to thinking about investing. See the attached diagram, literally on the back of an envelope.



Assuming that

• you buy only for capital value, not for dividends,
• value is global world value, individual shares, markets and countries, could contradict trends.
• shares increase in value over the economic cycle - the cycle is around fifty years long
• you want the cash value of your shares to increase over time
• smaller bull and bear markets will operate against these overall trends
• any action you take is infinitessimal and will not affect markets

If you buy at point A, the top of the market, then you will have to wait for nearly fifty years, according to the Kondratiev wave, until you can sell again at a profit! If you buy at the bottom of the market point B, then you will never lose money when you sell.

I believe that we are at a point between A and B, probably on the early stages of the fall. On that theory, now is not a time to buy shares if you want capital growth. The situation is likely to change when;

• we near the bottom of the dip
• share purchase becomes the most advantageous asset class because other asset classes become even less attractive. For example if interest rates are substantially less than inflation, then investing in shares might be worthwhile, even if you still expect them to fall in value. You can always get a dividend from shares and you have not lost value until you actually sell them. If you can control when you sell, then you can recoup money. Investing in a bank, unless interest rates exceed inflation, you are losing money. There is no equivalent scope to recoup losses by timing withdrawl from a bank. At the moment though, you would be losing money faster by buying shares, and you might need to invest for circa fifty years to see a profit on current share purchases.

My view is that investors should continue to invest, but for the time being put your money into the bank. The time to move back into shares is some time away, but the relationship between inflation and interest rates could make it worthwhile to invest sooner. The current emphasis should be on retaining value, and caution, against the background of a falling market.

The small investor is exceedingly unlikely to make money in the current market, but they should continue to set aside money for when the situation becomes less unfavourable and keep monitoring individual and overall share values.

Making good decisions in difficult situations

Making good decisions in difficult situations

People do not like making decisions, that is why we all have our routines, and little personal rules and foibles, so we already have default options for all the decisions we expect to face.

This works well, you are not reinventing the world every day, that would be exhausting, you are following your routine, free to focus on performing to your best.

However there are difficult situations;

• boiling frog situations - it is said that if you put a frog in a cold pan of water, then slowly bring it to the boil, the frog will never jump out, because the change is too gradual.
• radically new situations - situations that are clearly out of the ordinary, where you have no precedents, or personal experience of what is likely to be a good decision, or what will be a bad one. Most emergencies contain an element of this.
• time pressured decisions - these are where you are given less time that you are comfortable with to make a decision. Salesmen use this technique to pressure you into making a decision.
• peer pressure situations - when everyone else apparently behaves in a certain way, it is very difficult to make a contrary decision.
• inability to understand - you are being presented with information, you don't understand it but you don't know how significant it is.
• stressed times - stress, extreme emotion, tiredness, drink, extreme recent events, all these can alter the prism through which we view the world, and make it difficult to think as you normally would. We tend to over emphasize the significance of recent events.

To throw in some examples:

• it is the middle of the night, you smell smoke, do you investigate or go back to sleep.
• you have been working steadily increasing hours, and are offered some extra work that might get you promoted. Do you say yes or no? Is there another option?
• the policeman quickly explains your rights and is keen to get on with the interview, did you understand them, or do you ask him to explain them to you again slowly?
• after a morning of negotiating the salesman can offer you a deal today, only, on the car you were looking at, but it is not quite the model you wanted. Do you buy it, or do you walk away?
• everyone says buy housing, you would be mad not to. Do you buy a house you cannot really afford?
• your boss has just given you a reprimand, then a colleague asks you for some help with something that they have left to the last minute. Do you give them a piece of you mind, it will make you feel better?

Hopefully you can identify that you face a difficult decision, and the elements that make it difficult. You are in an unfamiliar environment and cannot rely on experience, your judgement is likely to be impaired, you are under pressure to make a decision that suits others, or others are already making.

But what is right for the long term.

Consider risk, balance the short term cost/benefit to you, against the long term cost/benefit.

So humiliating your colleague would be gratifying now, but the long term consequences might not be great. So investigating that smell of smoke is tiresome, but it could save your life. It is well worth enduring small short term costs, if there is any risk of a serious long term downside. If inaction could cost you your life, you need to do something.

Where possible do early research, and decide on key issues in advance, even if they are quite arbitrary, pay no more than X for a car, wait an extra fifteen minutes for you date, then try phoning.

Always distrust being pressured to make a decision, either by others, or by your own emotional investment in your previous decisions, or your self image. So if you are being time pressured, often it is to make a bad decision. If you are getting the hard sell, then often it is not a good decision for you. You always need to be willing to walk away, no matter how much you have invested. So you have spent a morning chatting to that car salesman, but he cannot offer you the car you want. Be willing to walk away. You are a savvy investor but you have lost lots of money on a share that has fallen in value, do you invest in more, to reduce your average purchase price, or is that throwing good money after bad.

If you don't understand something, insist that it is explained in terms you do understand. It is their job to communicate effectively and clearly, it is not your job to speculate what jargon and technical terms might mean. Just because something seems familiar, does not mean you really understand it, if it is important, get it explained, don't stop asking until you understand. Agreeing to things you do not understand is never the smart option.

Give yourself time to make a decision, presented with a big decision, ask for time to sleep on it, or discuss it with your partner. Ask them to explain again anything you do not understand. Distrust evasiveness and pressure. Walk away from people you do not trust or respect. Don't spend time or money on incompetent people, businesses, products, or processes, walk away.

Create a mechanism to get a wider perspective. Often these situations trade on you not being able to step back. A five minute break in a difficult meeting can make the world of difference, a walk at lunch time, walking the dog, chatting to some people about something completely different.

Listen to other views, especially if they contradict your own. Think about what they say.

Be willing to do some research if you don't know enough. Offered your dream job, check out with some people working there what it is actually like. Check out reviews for that new computer you have your eye on, do the people that own one, really rate it so much.

At the start of this posting I outlined how people avoid making decisions, but I omitted the biggest single way that people avoid making decisions. People just copy what everyone else does. We all do it all the time. But making good decisions in difficult times relies on being awkward, putting in the research, asking difficult decisions, being willing to swim against the tide. Better to be the first person on the lifeboat when the boat is not sinking, than arriving just in time to see the last lifeboat leaving.

Be prepared to stand out from the crowd on occasion, honestly being slightly embarrassed is not the biggest risk we face.

Kondratiev Waves and Joseph Schumpeter

I have been doing a little reading up on Kondratiev Waves and Joseph Schumpeter.

If you are willing to accept that our current economic situation is more akin to the 1929 Wall Street crash, than more recent booms and busts, or bulls and bears, then the theory of Kondratiev Waves, and the work of Joseph Schumpeter will be of interest.

Nikolai Kondratiev was that most thankless of creatures a Soviet Economist, in fact so thankless was his role that he was sentenced to the Russian Gulag and received the death penalty. He put forward a theory of Major Economic Cycles, in his book of the same name in 1925. It was the subsequent European economist Joseph Schumpeter, who proposed calling these cycles Kondratiev waves in his honour.

These are the familiar theoretical sine waves, smoothly going up and down, but over a period of fifty years, or more.

These are long terms trends, trends that are beyond the means of individuals, or individual businesses, or countries to counteract. So the 1929 Wall Street crash was an inevitability, better decisions might have smoothed off some rough edges but it was still an inevitability.

Using Kondratiev as a prism to consider the twentieth century, the economy rose steadily from the turn of the century, slowing from 1921 to 1929, before it tipped into full scale depression. The next cycle started around 1950, with the economy rising steadily until 1980, when it tipped into recession, this continued, until the recent banking failures led to our dip into depression.

In theory these cycles are not just economic, they also reflect what the economy was about,
the Industrial Revolution starting in 1771
the age of steam and railways starting in 1829
the age of steel, electricity, and heavy engineering starting in 1875
the age of oil , the automobile and mass production starting in 1908
the age of information and telecommunications, starting in the 1950's.

Kondratiev waves are not accepted economic theory, nor are they the only economic wave proposed, there are
Kitchin inventory 3-5 years
Juglar fixed investment 7-11 years
Kuznets 15-21 years
Bronson asset allocation 30 years

Also if you are familiar with the principles of waves, if waves operate to independent timings, they will amplify or cancel each other out. So if you were to propose that only a couple of theoretical waves operate, then their interaction could easily provide an interesting pattern over a longer time period. Like the perfect storm, peaks could coincide to create once in a lifetime events.

One of the conditions for a scientific theory is that it should have some predictive ability. On the one hand it is possible to fit evidence into Kondratiev waves, but on the other it is impossible to use the theory to predict when different stages will take place. The holy grail for investors is to be able to call the top of the market, or the bottom. Kondratiev does not let you do this. It is arguable that the predictions are banal, things will get better for a while, then they won't, then they will get worse.

The most obvious point in the whole cycle would appear to be the 1929 Wall Street Crash, 2008 Banking crisis moment, where slowing down, tilts into a undisputed nose dive. In the theory of Kondratiev this is the transition from the Autumn Recession, into the Winter depression. Or the top of the sine curve, and the downward slope.

I also like to test any theory with the intuitive, does it seem plausible that it might be true. Not exactly scientific, more common sense. I suppose I can see that economic cycles might exist, stages within the economic cycle will create their own environment, create their own perceptions of risk, on appropriate reward, on appropriate strategies. Our attention is swamped by recent events, more distant events are easily discounted. So we are easily persuaded by talk that there is no more economic boom and bust, or that house prices can only go up. Such views seem to be validated as people make money out of them.

It could be that rather than this rather too straightforward explanation, what is really at play is a variety of variables, which were we sufficiently wise we could isolate, understand and use to predict economic activity. However I do feel that human nature is at play in these things, rather than technical variables. We are talking about how confident people are, and how they behave, experience teaches us that human behaviour is more predictable than it is rational.

It may be that Kondratiev waves capture the underlying paradigms of the economic cycle. The economy is based on an expanding railway network until the cost of building railways exceeds any possible return on them. Old industries are driven out, new ones are driven up.

The economy is based on an expanding internet and knowledge economy until the cost of knowledge and the internet exceeds any possible return. Do we really need so many university graduates, so many social networking sites, so many server farms, so much wifi connectivity, so much always on, connectable, contactable, super loquacious, pundit driven, never stopping 24/7 information? Having we truly tested the knowledge is power paradigm to breaking point?



If there is a perfect economic theory out there, then whoever figures it out, certainly won't be publishing it in a peer reviewed journal. They will be keeping it to themself, while they make lots of money.

I'm not convinced that Kondratiev Waves actually have much predictive power, but on an intuitive level they do seem to encapsulate much of our recent capitalist history. As an investor, I should consider the theory, and its characterisation of our current economic stage as being the Winter of the economic cycle, a time of fear, panic, and despair. Falling inflation turning into outright deflation, and a lack of credit.

The theory predicts the best investments are gold, cash, and bonds after the credit crunch.

As an investor, the theory does raise the very real possibility that we are caught in a falling market, one that might continue to fall for the next decade. You will need to be incredibly smart to be able to make the sort of profits that even unsophisticated investors were recently making.

If you invest, because that is part of what you do, then you will probably continue to do so, and if you are lucky you will make modest returns. If you are a fairweather investor then the market is not for you, when Kondratiev says it is Winter, the market is a cold and merciless place for the unwitting investor to be.

Further reading
wikipedia on Kondratiev Waves
wikipedia on Joseph Schumpeter
the best charts I have come across

Blogging - we are all pundits now

The internet means that our attention is swamped with the views of pundits. A pundit being someone who has little real depth of expertise in a subject.

This is not necessarily a bad thing, but we need to remember to seek out pundits that challenge our thinking, and introduce us to new ideas, rather than sticking to pundits who just tell us what we want to hear. The difference between a pundit and an expert, is that the pundit has never had to study the whole of a subject, just the bits that interested them.

An expert at least knows what he is not telling you, often a pundit only knows what he is telling you.