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checklist34 (99.79)

All this Karl Denninger controvery ... information overload

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June 12, 2009 – Comments (27)

Yesterday saw considerable activity debating the merits of a blog by Karl Denninger.  In this case the very bearish LIKED Denningers position and said he was smart.  As usual they called people they don't agree with stupid.  Thats a rolling, rousing CAPs tradition - bearish people calling anyone who doesn't agree with them stupid in one way or another. 

CAPs blogs see considerable activity declaring the imminent demise of the value of the dollar, the inevitability of hyperinflation, the certainty that all foreign countries hate US dollars and all of that.  The very baerish promote these ideas.

GMX posts that rising interest rates inevitable from the rise in treasury yields, said rise inevitable due to the imminent demise of the value of the dollar. 

And Denninger apparently posted today that the successful (successful in that the yields went at a lower rate than expected) long-bond auction today, with an unusually high percentage of participating bidders being foreign governments.  See here:  http://market-ticker.org/ and if its off the front page look for the post from June 11, 2009 about 30 year treasury auctions.  Denninger says that foreign governments WANTING US treasuries is really bad and bearish because that means they think we're heading for a delfationary death spiral and that foreign governments can control the outcome and its dangerous to be short $$$, short bonds, or long equities. 

Paul Kedrosky says the auction was bullish, and bond rates going up is GOOD because it shows that markets and investors are once again not terrified of any risk.  He says forign participation is good.  see here   http://finance.yahoo.com/tech-ticker/article/262660/Rising-Treasury-Yields-a-Sign-of-%22Healing%2C%22-Not-Inflation-Fears%2C-Kedrosky-Says

Same information, many wildly variant views on what it means from presumably all smart people. 

David Dreman in his book on contrarian investing talks at considerable length about how more information has had a neutral to engative impact on analyst accuracy. 

We are all suffering from a degree of information overload, perhaps, and I think in times like this minds that simplify situations rather than over analyze them may prevail.

The mind that says "things are in the toilet, eventually, as we always do, we'll return to some kind of normalcy, so i'll buy some stuff and wait" or "this is all messed up, i have no idea whats going on, lets see what happens and then decide" might come out ahead of many hyper-analytic minds.

I submit for discussion the hypothesis that nobody knows and that the ultimate outcome is likely to be alot more boring than the vast majority of the predictions thrown out.  That there's probably an element of truth to every viewpoint listed above and more, and that each viewpoint probably also contains an element of error. 

 

27 Comments – Post Your Own

#1) On June 12, 2009 at 2:41 AM, goldminingXpert (30.65) wrote:

GMX posts that rising interest rates inevitable from the rise in treasury yields, said rise inevitable due to the imminent demise of the value of the dollar.

I have said nothing even similar to what is quoted in bold. Please read what I type before claiming you know what I think. I predict the dollar will rise in value over the next few years.

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#2) On June 12, 2009 at 2:52 AM, goldminingXpert (30.65) wrote:

You do know that this:

CAPs blogs see considerable activity declaring the imminent demise of the value of the dollar, the inevitability of hyperinflation, the certainty that all foreign countries hate US dollars and all of that.  The very baerish promote these ideas.

and this:

And Denninger apparently posted today that the successful (successful in that the yields went at a lower rate than expected) long-bond auction today, with an unusually high percentage of participating bidders being foreign governments.  See here:  http://market-ticker.org/ and if its off the front page look for the post from June 11, 2009 about 30 year treasury auctions.  Denninger says that foreign governments WANTING US treasuries is really bad and bearish because that means they think we're heading for a delfationary death spiral and that foreign governments can control the outcome and its dangerous to be short $$$, short bonds, or long equities. 

are entirely contradictary and you look like an idiot for posting this, right?

 

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#3) On June 12, 2009 at 2:59 AM, checklist34 (99.79) wrote:

ohferpetessake.  replace imminent demise of teh dollar with "imminent drop in the dollars value".  If your posts have predicted a rise in the dollars value that is w/o any doubt something I haven't gathered from them.

I will concede that its really hard to thoroughly read the bearish posts on CAPs because the chinese-water-torture effect of one extremely negative view after another gets to me and I frequently just skim.  :)

And, right on cue, a bearish person calls somebody else not-smart, again, for roughly the 5,718.3rd time.  :)

 

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#4) On June 12, 2009 at 3:02 AM, goldminingXpert (30.65) wrote:

Sorry, I was harsh. It's just that I'm tired of being lumped in with the head for the hills with a rack of guns and fresh made butter crowd. I don't think America is about to collapse or anything like that. I don't even own any gold bullion.

Also, it's clear from the quote that Denninger is not a dollar collapse guy either, so you should have seen from quoting his comment that he was actually bullish on the dollar.

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#5) On June 12, 2009 at 3:07 AM, buildgreen (< 20) wrote:

I like you more and more all the time checklist 34.

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#6) On June 12, 2009 at 3:07 AM, ati2ud (< 20) wrote:

i think his contradicting statements was part of the point

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#7) On June 12, 2009 at 3:19 AM, goldminingXpert (30.65) wrote:

i think his contradicting statements was part of the point

I wasn't aware that Kedrosky or Dreman (Dre-who?) were part of the bear camp? The only bears I know of in this post are Denninger and myself, and on this issue, we 99% agree with each other. Quoting non-bears to make bears look confused confused me. Confused? I sure am.

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#8) On June 12, 2009 at 3:28 AM, StopLaughing (< 20) wrote:

The $ is mixed right now. Slightly lower against the Yen and slightly higher against the Euro.

Wed was a bit of verbal posturing  by the Russians who would like to dump the $ and gain advantage against both the US and China. We will see if they really sell $s. Either the market does not take them seriously or just does not care if they sell.

I am not sure where all of the money is coming from but it looks like the treasury can continue to sell bonds in the short run without spiking the interest rates.  I am taking this a day/week at a time. 

The US needs to drop oil to below $30 by importing a lot less. That would straighten out its balance of payments a lot. It also needs to reduce the importing of goods from China. That would fix most of the rest of the problem in the current trade account. 

I think the Gov can go to the American people and ask them to buy T-Bills (like WW2 War bonds) and they could survive the dumping of T-Bonds by foreigners. 

If the Gov would stop adding to the size of the Gov and not raise taxes we probably could avoid a lot of inflation (assuming the Fed actually reduces the money supply this fall). 

I am not worried about deflation at this point (that was a liquidity crisis and Bush and Obama running around screaming depression). That is over. The big threat now is inflation and excessive debt by both Gov and consumers. 

If Americans saved for a couple of years they might be slow years but the economy would be much better going forward.

I just noticed that solar is now more or less competitive with gas generated electricity. However, our big problem is not nat gas it is oil for transportation. 

We also have to stop making China stronger. It will bite us down the road.

I am long mostly oil, gold, silver, foreign markets, tech and small caps. Those tend to lead out of a recession bottom or are inflation hedges.

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#9) On June 12, 2009 at 3:28 AM, ati2ud (< 20) wrote:

GMX, im not calling you out or anything man, I was just saying I thought his point was showing contradicting views on the same information...  at least thats what i got out of it

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#10) On June 12, 2009 at 4:19 AM, checklist34 (99.79) wrote:

GMX said:  Sorry, I was harsh. It's just that I'm tired of being lumped in with the head for the hills with a rack of guns and fresh made butter crowd. I don't think America is about to collapse or anything like that. I don't even own any gold bullion.

Also, it's clear from the quote that Denninger is not a dollar collapse guy either, so you should have seen from quoting his comment that he was actually bullish on the dollar.

Dont' waste alot of time worryinga bout offending me, i promise not to get upset over a blog.

My point was that Denninger is bullish on the dollar, many here are bearish on the dollar (i'd thought that you were), etc, etc, etc.  All based on the same information, all presumably smart people (i called you smart BTW, lol), wildly different conclusions.

As a society, and as investors we are all suffering from information overload, and I suggest that smart people could be broadly broken into two types

-minds that simply things.  minds who's natural tendency is to distill things quickly

-minds that over-analyze and spin very tangled webs of interactions and possibilities

And in my initial post here I suggest that the simplifiers may be the big winners coming out of this mess. 

For example, lets look at Alcoa in early March when it was 4 or 5 bucks. 

A simplifier may look at it and say "well nobody is talking acute bankruptcy risk, this is a 25 year low, this is Alcoa the biggest baddest alunimum company ever, they advertise at football games and alunimum prices aren't like to stay in the toilet forever.  This is a no brainer"  and buy.

A complicator may discuss economic situations and oversupply of alunimum and comment that prices are below cash flow breakeven for many of the plants in the world and discuss a surplus of inventory and wonder if the most recent ecnomic blog is right and how bad is it do we have deflation do we have inflation do we have and add it all up and come to some type of grand conclusion.  Maybe that lead them to buy, maybe it didn't. 

But I think most or all simplifiers would have bought Alcoa at $4 in my opinion, because lacking a realistic bankruptcy risk SOON it was highly likely to at least bounce alot if not ultimately come back to a value in line with historical averages. 

Complicators, in my experience, tend to like to present themselves as intellectuals and pontificate at great length.  They are often extremely condescending to simplifiers.

But simplifiers are not less intelligent necessarily, nor more, and I tend to suspect that in this unprecedented and very complex economic and investing environment, the simplifiers may well emerge victorious and alot of complicators may be left wondering how their calculations were off. 

"holy crap, alcoa is at a 25 year low, last time it was that low it was 4 or 5 times smaller than it is now in revenue, thats a good buy" has been and will be a winning call.  In my view.

A whole lot of people, presumably through a whole lot of complicated analysis, apparently found a way to conclude that Alcoa was worth selling at $5, because they sold i tto me at that price.  I'm guessing they were complicators but of course I don't konw that.   

I offer:  cool headed simplifiers not prone to panic, and packing a basic understanding of value investing just found their time to shine. 

I'm often wrong. 

 

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#11) On June 12, 2009 at 4:22 AM, goldminingXpert (30.65) wrote:

Okay, when you state the post that way, I find value in your statements and can agree with you. I shall give you a rec despite the inaccuracy of the original post.

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#12) On June 12, 2009 at 4:24 AM, checklist34 (99.79) wrote:

ati, build, thank you for the kind words.  :)

GMX said

 wasn't aware that Kedrosky or Dreman (Dre-who?) were part of the bear camp? The only bears I know of in this post are Denninger and myself, and on this issue, we 99% agree with each other. Quoting non-bears to make bears look confused confused me. Confused? I sure am.

David Dreman wrote the one and only book I've ever read and paid attention to about investing.  Contrarian investment philosophy something or other.  Most awesome investing parable ever written sparks it off... red room/green room and all that.  He does not discuss stock picking much or even suggest that it is necessary, he does not talk trends or macroeconomics at all, nothing.  But he shows that broken down into quintiles the lowest p/e quintile of stocks greatly outperformed the higher quantiles from 1971-1996.  Ditto lowest price/sales quintil, lowest price/book quintile, price/dividend quintile and more.  My philosophy has been essentially to take Dremans basic premise that cheap battered stocks outperform and od my best to filter out bankruptcies.  Awesome book, a complicator would hate it and mock it, its the ultimate simplifiers viewpoint.

 

My post wasn't saying bears were confused, it was saying as a group WE'RE ALL CONFUSED.  no bear-mocking occured.

 

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#13) On June 12, 2009 at 4:26 AM, checklist34 (99.79) wrote:

ati said:  GMX, im not calling you out or anything man, I was just saying I thought his point was showing contradicting views on the same information...  at least thats what i got out of it

yes, thats exactly what I was trying to say.  thanks

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#14) On June 12, 2009 at 4:28 AM, checklist34 (99.79) wrote:

Dremans book contained a section devoted to discussion about how as techonology progressed and vastly, geometrically more information was available to market analysts and stock analysts, their predictions had actually gotten less accurate.

He suggested that information overload was a challenge.

 

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#15) On June 12, 2009 at 4:53 AM, TMFBabo (100.00) wrote:

I'm glad you brought up the information overload.  I've also read and enjoyed Dreman's book.  I'm a decent stock picker in real life, but I'm a terrible economist.  If I concentrate on my strength, which is finding undervalued stocks, I will be okay.  Graham's always said we should be security analysts and not market analysts, since you can know for sure that a stock is undervalued relative to its industry and to the market, but you can't know for sure where the market's going.  I forget that sometimes though.

I did like the low PE, low PB, low P/CF, and low P/Div. yield analysis by quintiles from Dreman.  When I read that analysis, however, it reminded me of What Works on Wall Street by James O'Shaughnessy.  He basically said the same thing: low PS, low PB, low PE, etc. outperform the general market on the way up AND down.  I actually think the O'shaughnessy book was better in terms of analysis of the value criteria.  Where I liked Dreman's book better is the investor psychology and the analysis of experts' predictions (as you've already mentioned).

I find it surprising that you don't think the Ben Graham books deserved your serious attention.  I've read many other books, but The Intelligent Investor easily influenced me the most.  As far as most "complete," I'd vote for Security Analysis.

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#16) On June 12, 2009 at 5:26 AM, portefeuille (99.78) wrote:

I will concede that its really hard to thoroughly read the bearish posts on CAPs because the chinese-water-torture effect of one extremely negative view after another gets to me and I frequently just skim.  :)

---------------------

...

While this statement alone was not necessarily a "bearish" statement, the post was (... I think. at least the headline was "A More Bearish View: Change you Won't Believe (Part 3)" and I found the words "morbid" and "gold" so I guess it was - I am somehow incapable of actually reading these posts ...).

...

--------------------- 

(from comment #3 to one of your earlier posts)

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#17) On June 12, 2009 at 9:03 AM, rofgile (98.99) wrote:

checklist34:

 

 Very good stuff.  My whole investment thesis of 2009 has been that a) things aren't as bad as media says (fear sells, on NPR or in CAPS) and b) Obama is the smartest president we've had in ~20 years.  That's going to have some positive effects in the future (already has for my field - where NIH grant funding was raised in less than 2 months after he got elected).

 So - if things aren't going to collapse because the world is more moderate and boring than that, and most companies aren't going to collapse because of the same reality - I just picked a lot of knocked down companies in 2008 and early 2009.  I wish I would have bought more then, because now I am more confused on what I want to do.  There are still companies which are undervalued - but not as much as they were before.  Its hard for me to choose between the companies to find the very best one to put my money in.  

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#18) On June 12, 2009 at 9:39 AM, 4everlost (30.20) wrote:

I agree with the message in your post.  There is a lot of information and a huge number of opinions available to an invenstor.  Many of the opinions are the exact opposite of each other based on the same data.  There are times I want to walk away and ignore everything so I can stop thinking about it.  However, I can't.  I'm addicted!  I watch the macro economic data, industry specific information, company data and econ-political articles.  I never studied finance or economics so I can't come to a conclusion based on all of it.  I'm messed up from it all and am confused about what my next move is.  My brain is just a jellyfish in the ocean of my mind.  Is there a 12 step program out there?

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#19) On June 12, 2009 at 9:45 AM, portefeuille (99.78) wrote:

I never studied finance or economics so I can't come to a conclusion based on all of it.  I'm messed up from it all and am confused about what my next move is.  My brain is just a jellyfish in the ocean of my mind.  Is there a 12 step program out there?

Maybe wait for the babel fish that knows the language of economics ...

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#20) On June 12, 2009 at 9:55 AM, portefeuille (99.78) wrote:

#18 The answer to your questions might be 42.

 

(see here)

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#21) On June 12, 2009 at 2:09 PM, buildgreen (< 20) wrote:

great post all.. this is the type of actual discussion I wish this site had more often. We actually have 2 major divergent points comming together, comprimising there staunch positions and taking the time to understand each others thoughts. It is refreshing and moreover I am a huge fan of your complicator non complicator issue.

 

Personally I have a business with my father... He is squarely a complicator and I squarely a non complicator. Makes for a difficult operation to be sure. 

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#22) On June 12, 2009 at 5:34 PM, checklist34 (99.79) wrote:

stoplaughing:  really good thoughts.  I hope with all that I can hope with that we tap our vast, vast shale resources and so forth one of these days.  I'm tire of enviro-nazis running the country.

Bullish:  I will read Graham one day pretty soon, and I don't shun his books or offer that they aren't great, I just haven't read them.  All i've read is a super-based charles schwab book with no strategy, dreman, and a growth investing tech investing book buy some guy who underperformed the market big time for 10 years so I didn't take his views too seriously.  I'd love to read Graham or O'shaun, I just haven't found the time and hadn't heard of them until recently.

 

 

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#23) On June 12, 2009 at 5:40 PM, checklist34 (99.79) wrote:

i meant "super-basic" charles schwab book in my post above.   

rofgile, that sums up my strategy and market outlook too.  Some stocks are still cheap but it isn't the shooting fish in a barrel value smorgasboard that it was a few months ago.  And I too thought, and think, that the best play in the last 6 months was getting long really beaten down companies.  Its worked out pretty well so far.

nice to see you posting, porte. 

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#24) On June 12, 2009 at 5:45 PM, checklist34 (99.79) wrote:

4everlost:  I think its probably best to step away from the information and find a simpler outlook.  Avoid the jelly brain.  Its hard to do, I agree.

build:  as a former entreprenuer (I actually have my first job that wasn't at a restaurant or bar now, after selling out and agreeing to work for the folks who bought us) I just want to say good luck with the business.

America isn't about proctor and gamble or microsoft, its about inventors and entrepreneurs who still, I think, employ more people than the big guys, invent alot of stuff and all of that.

good luck man :)  don't let the complicator drive you too crazy

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#25) On June 12, 2009 at 6:09 PM, UKIAHED (75.54) wrote:

I submit for discussion the hypothesis that nobody knows and that the ultimate outcome is likely to be alot more boring than the vast majority of the predictions thrown out.  That there's probably an element of truth to every viewpoint listed above and more, and that each viewpoint probably also contains an element of error. 

I totally agree with you.  My favorite self preservation tactic (as in to keep my sanity) is to review history.  When someone on the news or a blog yells that this is the worst debt load in history – I like to look at the debt end of World War 2.  When I hear that bankruptcies are the worst in history – I like to look at the bankruptcy numbers following the Civil War.  I guess what I am saying is that a historical perspective can help keep your viewpoint more towards the likelihood of a boring outcome from today’s crisis.

Rec from me

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#26) On June 12, 2009 at 10:59 PM, LongTermBull (95.38) wrote:

Man, got to this one late.

I submit for discussion the hypothesis that nobody knows and that the ultimate outcome is likely to be alot more boring than the vast majority of the predictions thrown out.

This is almost always the case.  Most recent example?  Swine flu.  The thing is the people on the most extremes of the spectrum also are usually the loudest.  You have people already claiming the economy is recovering, then you have people claiming we are headed for doomsday.  The truth probably lies somewhere in the middle. 

Checklist, you seem to me to have your head in the right place.  Just keep doing what you're doing and ignore the noise.

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#27) On June 13, 2009 at 12:29 AM, checklist34 (99.79) wrote:

thanks longterm, I appreciate it.

Long ago I overheard a guy of perhaps 40, sitting at a restaurant (I was waiting tables) with 2 ladies.  They talked about the controversy in the relationship of a friend, he stared blankly out the window and sipped on an iced tea. 

As I walked by I heard what must have been his wife say "Honey, do you even care?  do you hear what we're saying?"

He replies "Theres always three sides to every story, my love.  One is his, one is hers, and the other is the truth"

It stuck with me.  Its ALWAYS true in my experience.

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