Posted by Doug Rice on Mon, Feb 08, 2010 @ 01:45 PM
On Meet the Press yesterday, former Federal Reserve Chairman Alan Greenspan said a U.S. economic recovery is "going to be a slow, trudging thing," and that he "would get very concerned" if stock prices continue to fall.
He went on to say that a drop in stock prices is "...more than a warning sign. It's important to remember that equity values, stock prices, are not just paper profits. They actually have a profoundly important impact on economic activity."
He's right.
And we should be worried about this.
The masses that feels like they are hanging on by a thread, but at least their 401K has recovered somewhat, could easily become very discouraged at significant return to lower stock prices.
The result of that would be to spend less, which in turn would slow the economy, which in turn would lower stock values further, which would push people to spend even less.
If the downward spiral isn't broken fairly quickly, which is easier said than done, then the description of the economy recovery being "a slow trudging thing" would start to sound good.
Downward spirals can last a long time. Look at what happened to Japan over the last two decades.
In the last 20 years the Nikkei 225, the broad measure of the Japanese stock market, has fallen from a high of 40,000 to around 10,000 today. The last 20 years in Japan show clearly that a major modern industrial nation can go long periods in a downward spiral.
Will we slide this much or this long?
We already lost a decade as the Dow is basically at the same place it was 10 years ago and the NASDAQ is down over 50% from 2000 highs. So one could view this as 10 years down, 10 years to go.
Looking out the foggy windshield doesn't often provide clarity, but it's where we should be looking nonetheless.
Greenspan's right. If the markets continue to slide, the economic road ahead may be not only twisty and bumpy, but downhill.
Posted by Doug Rice on Wed, May 27, 2009 @ 05:00 PM
I just started writing for an online publication called The Financial Edge. It's an offshoot of the Investopedia, which I write for as well. Both are owned by Forbes.
And I just checked and my latest article is the top story!
Here's the link to the site http://financialedge.investopedia.com/
And here's a link to the article itself as the top article will eventually change.
http://financialedge.investopedia.com/financial-edge/0509/Hows-Your-Mood.aspx
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Posted by Doug Rice on Tue, Jan 13, 2009 @ 08:24 AM
Researchers at the University of Cambridge in England report that men with longer ring fingers, compared to their index finger, tended to be more successful in the frantic high-frequency trading in the London financial district.
The same ring-to-index finger ratio has previously been associated with success in competitive sports such as soccer and basketball, the researchers noted.
The length ratio between those two fingers is determined during the development of the fetus and the relatively longer ring finger indicates greater exposure to the male hormone androgen, the researchers noted.
Previous studies have found that such exposure can lead to increased confidence, risk preferences, search persistence, heightened vigilance and quickened reaction times.
In a separate study last year, it was reported that the hormone that drives male aggression also seemed able to boost short term success at finance.
(The researchers should check the finger ratio at Lehman, Bear Sterns, AIG, et. al. If their theory is right, it's got to be huge.)
What can we learn from this?
Most people realize that they are better at some things than others and if they are lucky, they are really good at something. So while the relationship to a finger length seems a strange indicator of anything, it's not surprising at all that hormones, a part of us that impacts behavior, that cause aggression lead to being good at competitive things like trading. They are natural born traders.
The aggression and attitude of the top traders isn't common in the overall population. At least that's my observation from my experience. They tend to be overwhelmingly confident and willing to take risks that make many people shudder to even think about it. The bravado that is off-putting to many allows them to overcome the fear that would envelop others.
Others think they have what it takes, but when they get in the game, they don't last. Some say it's the pressure, others say stress, but no matter the reason for quitting, could it be that nature just takes over? The successful ones overcome the situation through their naturally aggressive attitude of take no prisoners, kill or be killed.
So is success on the trading floor just a natural difference between people? This study would lead us to that conclusion.
Even if its wrong, it's probably wise before you apply for a position in the trading pits at the CBOT, to check your fingers.