SanjayJohn.com

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2011-12-12T10:21:00.001-08:00

I keep updating and editing the previous posts-in that sense the Date of the blog post really doesn't mean much. In the future I might just remove the date altogether, to make this blog more look a book (the blog posts are really chapters of my ebook).

Sanjay

On Income Inequality and Income Gaps

2011-12-07T05:49:00.000-08:00

Every country you go to, you hear about the rising income inequality. That the rich are getting richer, screwing over the poor, etc. The income gap is widening, and it is implied that that is a bad thing. Here I will try to prove to you that it is not a bad thing-and in all likelihood, is a good thing for the country in general-the country as a whole gets richer because of this income inequality.

As an economist or a government official you are interested in the overall well being of the citizens of the country, which can be measured by the mean or median income. A society with a large gap between the rich and poor can still have a very large mean/median income-can be a very rich society overall [I will not worry about the difference between mean and median, which is a better measure, etc]. Conversely, a society with a small gap between the rich and poor can be a very poor society overall. Canada and USA have unemployment insurance or dole of $600 per month. An average Engineer in China and India doesn't earn even half that working 8 hours a day everyday! The income inequality in Canada and USA is very large-but that doesn't prevent the average (or median) earnings from being a lot higher than in China or India. So much so that it is better to be unemployed in Canada than to be employed as an engineer in China or India. Note that by income I mean not a dollar or yen figure of earnings-but what that income is really worth-the amount of necessities, conveniences or luxuries of life you can buy with that income at a particular place.

It should be obvious, therefore, that a more equal society is not necessarily a richer society overall. Now I will go a step further-and argue that an unequal society is a richer society than a society where all are equal.

Humans have different talents-and the talent to run a big business like Walmart or Sony or Apple is one such talent. Other talents are playing football, playing chess, etc. The distribution talents in individuals is not linear-Messi is 10 times better than the next best player. On an average, the Argentine football team is 10 times better than a regional team like Boca Juniors. A top chess player like Anand or Kasparov is 10 times better than the other grandmasters (that's why these two guys win all the time!). It is this inequality in abilities or talents which gives rise to income gaps (and is also the motivation for emulation, a real necessity for progress).

The Walmart family or Steve Jobs are absolute geniuses to run a business. You can open your own small shop selling stuff-or get a job with these great companies and increase the overall output of society much better. The ability to direct and subdivide labor (managerial skills in today's lingo) is an exceedingly rare talent, and it is well that that talent, which puts so much human industry in motion in productive ways, be well rewarded. This in turns benefits the society.

The equality lovers do not consider this basic difference in human talents- all men are equal in their talents is a savage tribe where 99% of the time is spent in finding food. Everybody is equal, because everyone is hopelessly poor-they don't have their basic necessities of food and lodging taken care of. As society progresses and capital accumulates, these basic necessities are taken care of by a small portion of people-and the rest can think about producing the luxuries of life (railways, telephones, ipads).

From a goverment's point of view, respecting human freedom means letting people exercise their talents freely in a country, and helping them become better at their talents. Let Messi play football the best he can, let's give him the right conditions to play even better. Let Kasparov play chess the best he can, let's give them the best conditions to play great chess. And let the top business guys at Walmart and Apple play their game (their business is their game) well-let's help them play the game well, and everyone wins. The overall production of Walmart and Apple goes up, and we have a lot more conveniences and luxuries of life in the country for it's citizens.

Not realizing the organizational abilities of the top guys in big businesses is not respecting a really useful talent of humanity. It is very hurtful to everyone. You are likely to be more rich if you work for Walmart than if you open your own little kiosk. True that a Walton family member will be your boss and they will be much richer than you, but if your ego is in check, and the Walton family member treats you well as en employee, your right to the conveniences and luxuries of life is very large working at Walmart than opening your own little kiosk.

Would you put a chain around Messi's leg so he doesn't play better than the rest of his team or other people in Argentina who play football? Putting restrictions on big businesses is the same thing-you are hurting their ability to produce, and in turn, you hurt everyone. Imagine going to a football game where Messi has a chain on his legs because the Argentine government decided to promote equality in football. The problem with talents of running businesses is that such talents are not very obvious (like playing football or chess), and human jealousy therefore makes them an easy target for allegations of unfair advantage.

In summary-income inequality and income gaps in society are a necessary thing-everyone has different talents and some people are exceedingly talented, and need to be paid well for exercising and bettering their talents. Overall society benefits from this-because the overall production of society goes up. Savages and tribes in remote parts of the world are equal and poor, the more well developed and richer a society, the more the income inequality. If you compare your earnings to the earnings of the owners of your company it is true that they will be earning much more in an unequal society, but if are worried about what you can do with those earnings, your power to acquire the luxuries of life with those earnings, you are better off this way, letting the owner of your business become richer. She will take you with her to even higher levels of income because of her excellent talents in running that business.

Let people exercise their professions (and running a business is a profession) the best they can, and you will as a society become richer. That's the lesson here for non-capitalists. Most people have a strong (usually negative) opinion on Capitalism, without really understanding what it really means. This includes some very intelligent people-because they never really understood what Smith said in "The Wealth of Nations".

People have strong opinions on a lot of things they don't really understand-in addition to Capitalism, another present day example is Global Warming.

Sanjay

Central Banks and Jobs Creation (Unemployment)

2011-07-12T19:25:00.000-07:00

Central banks of the world always obsess about economic growth, job creation etc. They mistakenly believe that they can effect job creation by changing the interest rates, increasing M1 and M2 money supply, and all kinds of economic data jargon. I believe that central banks can't do squat to create jobs.

Why? Money is a way to exchange goods. It is a unit of measure, a very convenient unit of measure, but nothing more than that. It is the standardized unit by which people compare and exchange whatever they produce. When google millionaires spend their money on a vacation in Hawai or going to a fancy restaurant; they really exchange their product, the search engine, with what a vacation rental company in Hawai offers them, or what the fancy restaurant company offers them. That is the real exchange going on between people; money is a convenient way to quantify these exchanges, and compare the relative values of these exchanges.

That you can somehow magically change people's production power, what products they make, by changing the units of measure, sounds bizarre to me. If they resort to low interest rates or giving money to everyone as gifts, they will only cause the prices of goods in money terms go up; but the real value of these goods or products, will not be affected. Nor will the productive powers of the people who make these products.

Just by changing a unit of measure and exchange you can't make people produce things which other people will find useful and will exchange their products for. i.e. you can't generate employment by playing around with interest rates, etc.

Instead of dollars and yuans, if we were to decide that sea shells were a unit of exchange, will you believe the sea shell makers and suppliers when they tell you that they can increase everyone's ability to produce the stuff they produce by changing the amount of sea shells which are used to circulate their products? You obviously wouldn't--then why would you believe a central bank can?

Do you think that a poor nation in Africa with unemployment of 40% can become suddenly rich or lower their unemployment by an intelligent banking system alone-that a central bank of that nation, playing with interest rates, money supply, etc. can reduce unemployment? If money and interest rates don't have a major role to play there, why would you think that in a developed economy like the US or Japan or EU, you could suddenly increase employment by playing with interest rates?

The bankers obviously believe that they are the most important part of the system. But a farmer and a computer-maker has an equal right to claim that. No one sector of the economy can single-handedly improve the productive powers of other sectors. Not the least a sector which like sitting on their asses and watching noise like inflation and GDP growth to decide interest rates, etc.

The take home message-don't expect the central banks or Governments to help the country's employment numbers. They are claiming to have powers which they don't really have.

Sanjay

Genetics-the mother of everything

2011-07-12T19:09:00.000-07:00

Darwin was of the opinion that most behaviors we emit are from the "inside" and not affected much by the environment (in his Autobiography, and Descent of Man). The "Nature vs Nurture" was pretty much all Nature to him. I second that opinion from my observations of humans-that most of what humans do is because of hard wired stuff in their genes. The thing to add is that some behaviors will be collectively decided by the genes-not individually.

A word like Culture is eventually traceable to the genetic makeup of individuals. It is the collective behavior of the dominant or majority gene pool in a population. The dominant and majority population may not be the same (a small group might dominate the whole population). See my post on the theory of dominant genes before for more on this.

When people talk about French Culture, Mayan Culture, etc. there is a clear message of a genetic signature. 'Country' is the just another word for 'Tribe'-you can think of countries as very large tribes. Just as a small tribe of humans in Africa or Brazilian jungles has genes which are common between them (they often marry within their families), the same think is true for larger tribes called countries. Obviously migration of new people, intermarriage with other tribes, etc. slowly will change the genetic makeup of the tribe, but the fact at the bottom remains-there is a genetic commonality in a tribe or a country.

Naturally, we expect tribes or countries physically next to each other to have similar genetic makeups (cultures). This is true for all animals. So Germans are close to French people in their genetic makeup, etc. Obviously Spain is different from Morocco-but the point I want to make that *in general* geographical proximity will lead to similarity in genetic makeup of individuals.

Unscientific words like "Culture" and "Nurture" will I slowly be understood in hard scientific terms-what we called Culture will be proved to be genetically based behavior of certain prominent individuals of the group. There is little room for random/operant behavior. Much like the movement of heavenly bodies before Kepler and Netwon arrived was not well understand and perceived by many people as largely random, the same will be for a large amount of human and animal behavior. We will be able eventually to predict all behavior of humans, especially collective behavior of tribes and countries, by a thorough understanding of Genetics. Complex systems like living organisms are even more rule based then non living systems like planetary movements, geology and weather.

Social scientists will do well to have a very thorough understanding of Biology and Genetics. Whenever they start with the asumption that a human is some special animal, they are starting with en egocentric, erroneous assumption ( pointed out by Darwin in many of his works-he was very critical of people thinking animals as stupid, etc.). If humans are just looked at as another animal, things start to make more sense. And social science (psychology, sociology, political science) is standing on hollow ground without understanding biology and genetics. Granted there are empirical observations about behavior of individuals and societies which we can make, Economics by Adam Smith is one good example; but the real basis of these behaviors is Genetic. In that sense, even Economics and economic behavior of humans will be ultimately traceable to genetics. When Adam Smith says, the division of labor is effected by a human's ability to truck, barter and exchange, which seems to be innate in him (or speech and reason, which are obviously innate), he is really talking about the genetic cause of this behavior of trucking, bartering and exchange.

Sanjay

Crimes against logic

2011-05-31T00:39:00.001-07:00

The reason this blog is called "False Conclusions" is because we as humans have a tendency to draw false conclusions all the time (want to emphasize that there's nothing special about this being only a human tendency. Any intelligent animal is prone to draw false conclusions). As Taleb said so clearly-humans have a penchant to relate facts, to see stories, to get fooled by randomness; we see interrelatedness and causality where none exists, or can even possibly exist!

This is the problem with consciousness, of intelligence. The same intelligence which gave us the ability to light fire and antibiotics, gave us religion and psychology. In one case the cause-effect was demonstrable; the other was largely our imagination, but so strong was our imagination that even if we can't find anything at all in the real world to prove our assertions, we hold on to our assertions anyway.

Consider this article "Are Stress And Multiple Sclerosis Linked? Apparently Not" published in a scientific journal, Neurology.

When you see the summary-you are astonished to see how wild the whole "data taking" and conclusion drawing process must be. I know this firsthand because when I was younger and less experienced in life, I used to draw lots of these false conclusions, in a Department of Psychology. You get carried away by forming your hypothesis, analyzing and collecting data, and finding proof or unproof of whatever you said. The only saviour in this study is that the final conclusion is good-that stress and MS are not linked.

Now use your intelligence a bit. Without any study at all, can you say with good confidence, let's say something like 99% confidence, that there is no correlation between stress and MS? I am not a medical professional, but an intelligent grown up person should be able to see this right away. What is stress anyway? In the study we are trusting the self-analysis of the subjects to find out their levels of stress.

I rest my case. If Neurology publishes such useless articles; you can imagine what happens in journals of social sciences-Sociology, Psychology, etc. They are full of all kinds of false conclusions, which are so unlikely to be true, that you might as well dump all these journals and never read them. Here's an example-where a psychology researcher is trying to establish that teaching somebody two languages helps them prevent Alzheimers! This story by the way is one of the most popular NY Times stories at this moment, so you can imagine that thousands of people are actually believing the preposterous logic in this research.

You will come back to say that it does have to start somewhere, that even if 1% chance of it being right, we have to investigate it, etc. etc. but let's step back a bit; instead of throwing random darts let's build slowly upon the good knowledge we have already accumulated, that's real science and real research. Not come up with improbable hypothesis and waste tons of time in trying to prove or disprove them. But when you are an avid researcher in these fields you dont even see this-you are so enamored by your research areas that you keep on testing one hypothesis vs. another, even if to an outsider they may seem completely unlikely to be true right from the start.

Let's evaluate our conclusions and hypothesis first with good sound logic; and see if there are holes in them. We will save so much of your time! (I re-iterate that I was a victim of this earlier in my life, especially in Graduate school; but after reading Smith and Taleb, the ability to think about the world logically took a quantum leap).

Family Values and Tribalism

2011-05-30T23:37:00.000-07:00

Family values are very strongly related to tribalism.
Asian Societies are more "family-oriented" than Western Societies. An extremely tribal society marries within itself-marrying their cousins and sisters and brothers.
As a country becomes secure and peaceful, people lose their affection for family (pointed out clearly by Adam Smith in Moral Sentiments-but he I believe emphasized the role of Government there; I dont think the Government matters that much in this development). They feel secure relating to other individuals of other families; they are happy to make new friends, and as they become more secure, marry from other families. Mate selection becomes wider-and more efficient. "Your friends are the family you choose to be with, your biological family is the one you are born with (and didn't choose)", is something I hear often in South America. A true mark of a peaceful people.

Tribal societies (in humans), with few exceptions, are always male dominated. A "dominant" male takes up many wives. The more peaceful and secure a society, the stronger are the females. I have reason to believe (but can't prove it) that it is the stronger females which cause societies to become peaceful.

Sanjay

The myth of Alternative Medicine

2011-05-28T20:31:00.000-07:00

The more undeveloped the country, the more the reliance on "traditional" and alternative medicines is a general rule in the world.
Alternative medicine needs to die. Let the researchers in Universities and Pfizers of the world find out why some herb, potion, etc. works. But you had I need to keep away from alternative therapies like Homeopathy, Accupuncture, Ayurveda, Chiropracter, Therapy with Magnets, etc. Remember that "modern" medicine (I hate the call anything modern. what is modern today will be old in the future, in a few centuries. we love our present times as being something special, because we are alive in it-but in the history of human development, we are just a time speck) was born out of these, and I think it is better if a medical doctor who has already went to school in modern med school medicine discover why some herbs or home made remedies work. You and I need to stay away from this stuff. For every one thing that works in these therapies, there are nine which are utterly useless, and waste of time and money, and sometimes, even harmful.
Take chiropractic services. This is massage therapy with a funky name. They even license this stuff-in most cases it is useless. The good results of this can be attained by intelligent massage therapy, and you dont need to spend a lot of money on a chiropracter to find relief for your backache. Even though modern medicine may not work, but that doesn't mean you will try anything and everything. The only place where it seems justified to try all these alternative therapies is in the case of terminally ill patients-it is okay to give some old or new unproven therapy a shot to see if works. Desperate times call for desperate acts; there's nothing wrong with that.

Everyday you will get an email in your box about the great properties of figs or lemons, and you can ignore these emails. What medical sciences and biochemistry do is find out what are the substances in figs which are causing some good results, then those substances or chemicals are grown artifically or naturally to give you the concentrated form of the good stuff in figs. It is the whole basis of biochemistry.

An example of quinine, the first and most reknown antibiotic. In the late 19th century quinine was extracted from trees in Ecuador, and shipped worldwide. After a few decades intelligent researchers figured out that it is not necessary to have quinine from this tree-you could impregnate apple with quinine and they will keep generating more quinine apples. A few decades after that, quinine was synthesized artfiically and costs were brought down even further. The source of the molecule or chemical substance which works in a symptom doesn't matter; we change the source to reduce costs. This the basis of biochemistry and chemistry. That's why vitamin C from lemons or vitamin C from Figs has the same effects (minor differences might exist). Same with proteins from vegetable or animal sources, these are very similar molecules, and will likely have the same dietary effects, no matter what the meat mafia influenced doctor says (this notion that meat protein is better than vegetable protein still exists in South America; thankfully in US and Canada it is gone. I don't know about where it stands in other countries).

When some ayurvedic herbal cure seems to work, a medical researcher at Pfizer can do more scientific experimentation to find out what exactly is the chemical substance in the herb which is causing the good effects. Then if that effect is proven to be really from the substance, we can figure out cheaper ways of producing this chemical or drug, naturally in other plants, or artificially from other chemicals in a laboratory.
This is how allopathy was born; over time it took ideas from traditional chinese medicine, ayurveda etc. to incorporate more and more drugs into it. It didn't just drop in this world from some another planet. Even to this day medical reseachers are always looking out for information on why some herbal cure works in the indigenous population of bolivia or peru, or in other tribes in Africa. There is knowledge and real cause-effect there; and professionals are working to understand those effects; but you and I do not need to directly experiment this on ourselves.

Sanjay

On recessions-confusing nominal value with real value of money

2011-05-26T20:35:00.000-07:00

Recessions are measured by fall in a random number called GDP. We saw the 2008 recession and financial crash...and people still talk about it as if it happened yesterday. I lay the case here that there is no such thing as a recession. It is all nominal-the real value of things doesn't change.

Remember that the sole use of money is to exchange goods (Adam Smith). In the 2008 recession, you saw sthe stock market fall 50%, Luxury goods prices fall 50%, Airplane tickets fall 50%, Home prices fall 50%. In effect if everything falls 50%, nothing has changed. Unless you expect that people who owns loads of stocks and assets will be suddenly starving, they are exchanging one "asset" for another, and if the price of a luxury vacation falls 50%, and your stocks are down 50%, your REAL BUYING POWER has not changed.

In essence-a recession is nothing but an increase in the value of LIQUIDITY, of LIQUID MONEY-but the value of goods really remains the same.

Cases where you are stuck paying interest in money, etc. will of course be awful for people; e.g. mortgages on homes, rents, etc. But as you might imagine, unless bankers and landlords are really stupid, they can and have to reduce the mortgages and rents by 50% if they want to prevent en-masse bankrupcies. This is the reason a Government of central bank saving AIG or loaning money to Citibank is perfectly okay-they are simply helping liquidity.

But the real value of goods doesn't change for real investors/asset holders. They can exchange their assets just like before-if the stock market and a luxury villa both fall 50%, you can exchange your stocks for the luxury villa, nothing has changed in real terms. When measured it money terms, things have changed-but in reality it is all the same for savers. Given this-whether you hold on to a house or a diversified portfolio of stocks, the real value of both, the exchange value, doesn't change even in a recession.

In essence, someone with excess capital has a few options to loan money. Unless you want to loan money only to your friends and family members, you will be forced to loan money to your Government, or the stock market. You don't "know" both these entities-you will never meet the CEO of a company or the Finance Minister of your country-but that's okay, that's the beauty of human trust systems-we are loaning money to people who we don't know at all, will never know, and still we expect them to give it back to use, with interest or a return on investment. We are far more trusting of and dependent on each other than individualists will like you to believe; human colonies are much more interconnected than ants and bees. No ant colony or a bee colony reached a million individuals-but there are so many cities and countries working quite well together who have over a million people.

Sanjay

Thoughts on mate selection in humans

2011-04-26T22:59:00.000-07:00

As I have previously said in another post, I classify humans in two major groups determined by their GENETIC MAKEUP-polygamous and monogamous (there is another group maybe, the asexual human, but at this time, these two groups are sufficient to explain things...).

Mate selection in free societies, where females dominate in the selection process (males with sleep with anyone; the females are in control in free societies) is determined by this major classification. The polygamous females will choose polygamous males; the monogamous females will choose monogamous males.

I don't want to put human males in the black widow spider mate group-they do have control, but most of decisions on mating behavior are made by females in FREE and LIBERAL human societies.
This I say from my observations of humans around me.
You can throw away all those psychological compatibility tests, and all other crap which social sciences and psychology etc. tell you to follow (an example here, which made me write this post), mate selection on a GENETIC basis is really selection by polygamous and monogamous females for males. And the GENETIC basis of mate selection is the only real and lasting basis-you won't last long with someone who likes to sing pop songs like you do, or other irrelevant habits and "things you have in common". Mate selection is robust, enduring and not dependent on silly things like preferences for music or food-the real robustness being GENETIC in nature.

Sanjay

On taking full course of antibiotics, or risks of taking too many-bad medicine

2011-04-08T08:59:00.000-07:00

Weird logic and false conclusions abound in medicine. We are not doing blood-letting anymore; but doctors make all kinds of logical mistakes. Here's an example of what I believe most people take for granted-but they shouldn't.

Doctors recommend that you take your full course of antibiotics even if your infection goes away and you become better. I searched on the Internet on why that is-why one should keep taking the drug even if the infection is cured. They say that you should take the full course because the residual bacteria which might remain (you have taken care of most of the bacteria with the antibiotic, but not all) is LIKELY TO BECOME RESISTANT to the drug if the drug is not taken anymore.

That is false logic.

Let's say 1% of the bacteria is left, the antibiotic having taken care of 99% of it. If you give up the drug now-and start your medication when this residual bacteria multiplies in a few years let's say and you fall sick again, or get infected with more bacteria-you are back to square one. The bacteria resistance may develop; but taking the full course now, or spread out over 5 years, wont change the resistance pattern of the bacteria. It is saying in effect that you have to kill all of them to eliminate them developing resistance; which is perverse logic, because if you are able to kill them, then by definition they are not developing resistance to it!

Of course there are many different kinds of bacteria and antibiotics, and antibiotics have side-effects etc. which much be considered, but the rule of finishing your whole course is recommended for antibiotics, and that's what I am questioning. It may even have been some eager drug company salesmen, who are paid by volume of drugs sold, who might have presented this twisted logic in some medical conference, and the poor doctors fell for it.

What on earth is a full course anyway? Someone says three weeks, someone 1 week. It would obviously depend on the person's size and age. There are too many variables; you can't say what a full course is. That's why, it is completely fine to stop taking the drug when the infection or the symptoms go away-you are cured for now. In a few years you will get infected again and we will start all over, nothing has changed; but you haven't overmedicated yourself senselessly.

This is not to be confused with other drugs which adult humans need to take larger amounts of in comparison to children-e.g. painkillers, sedatives, etc. In these cases because of a larger body, you will need a larger amount for the person to feel better. Here you are often taking care of the symptom, not the disease. As a general rule, if you are taking care of symptoms, the higher body weight needs more drugs (adults will need more drugs). But if you are attacking the disease itself-e.g. in antibiotics, vaccinations, anti-virals, adults will need less of it.
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A very closely related issue which you hear in the medical profession is that you should not take antibiotics unnecessarily, otherwise bacteria become resistant to it, and that bacteria and microbes are developing newer and newer varieties and that's why we need newer and newer antibiotics to kill them. This is also bad logic by the medical community. Why?

While it may be true that newer mutants of the bacteria may develop, which will make a particular antibiotic drug ineffective, but that does not mean that taking the drug is the cause of the whole thing! The mutant bacteria are not being created by the antibiotic drug (a misplaced causality). To give you a simpler example, imagine if you have terrorists who are killed by gunfire. Some terrorists will survive and you can think of them as the ones who beat gunfire and are "resistant to gunfire". Would it not be absurd to say that let's not use gunfire on these terrorists, because using gunfire on them resulted in these gunfire resistant survivor terrorists? Well it is the same strange logic with antiobiotics causing the birth of resistant bacteria. It is unfortunate that antibiotics will stop working on bacteria and you will have surviving mutants, and it is unfortunate that you will have terrorists who will survive all your gunfire, but that doesn't mean that stopping antibiotic or gun use will stop these mutant bacteria or surviving terrorists to develop.

That's why in certain countries like India and Argentina, where medicine hasn't bought this strange logic, you can buy antibiotics easily, over the counter. Developed countries in Europe, and both the Americas, have fallen for all this bad logic and the result is that you to get these wonderful life-saving drugs only with the prescription of a doctor. There seems to be some artificial regulation issues here-the medical community (probably because of clever marketing by drug companies) is controlling the exact amount of antibiotics they can dispense, and when.

You can take all the antibiotics you want, that will not "cause" bacteria to become resistant. You may have other side effects which you may not like, and that's a good reason not to overdose yourself. But taking the antibiotics will not cause the resistant bacteria to develop. In addition, you can stop your antiobiotic use whenever you feel the symptoms are gone, there is no fear of left over bacteria multiplying etc. because of you stopping antibiotic use.

Antibiotics, if there are no severe side effects, should be used without problems. The older antibiotics, which we are quite sure do not have many severe side effects, should be brought back as over the counter drugs. Their overuse is not harmful, and if you stop using them just after symptoms go away, it won't hurt you either (except that the same illness can be born again, or of side effects).

Plenty of experienced medical professionals know this already.
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The confusion of "resistance to antibiotics-therefore let's take less of them" is also because these doctors are missing the point that antibiotics are acting on the bacteria, and NOT on the human body. Obviously everyone knows that you need more and more alcohol to get drunk, more and more pain killers to relieve pain, etc. as you get "used to them". But that's entirely different from bacteria surviving after antibiotics. The resistance can be developed only by the ones who survive! You need more alcohol to get drunk than you did 10 years ago, but this is not the same as you will need more antibiotic to fight off bacteria as well.

Sanjay

Corruption and Poverty-misplaced causality

2011-03-17T23:54:00.000-07:00

When I go to a developing country like India or Argentina everyone talks about how corruption keeps their country poor.
In developed countries the condescending lot talks about why the rest of the world is poor because they are corrupt, as if being in a developed world gives them some superior morality of some kind (even bums from developed countries take undeserved pride in their wonderful country).

They got the causality backwards.

Poor people are corrupt. When your basic needs are met; you stop being corrupt. As countries advance to riches by accumulation of capital, the percentage of people whose basic needs are met increases, and they automatically stop being corrupt. Even people living on the streets have some fear and respect for the law-and if they are living tolerably well; will not risk breaking it. People in the middle class are more intelligent- if they are living okay, they will avoid taking bribes and being corrupt.
The media skews it all up for us, to confuse us. They show the Madoffs and other rich and well-to-do people indulging in fooling people; but for every one Madoff, there are tens of thousands of rich people who are not corrupt. In general, newspeople and reporters and sensationalists, and you are apt to draw a large number of false conclusions if you trust what they show you.

In summary-poverty and bad conditions of life lead to corruption; and the best way to remove corruption is to make people rich, allowing accumulation of capital, respect for private property, etc. - following the recipe outlined by Smith.

More comments on Global Warming Nonsense

2011-03-03T18:27:00.000-08:00

As I have mentioned in a previous post-the effects of global warming are exaggerated, I don't have much doubt about that.
But here I argue that global warming itself may not be happening at all. Ozone hole and all; it is hard to PROVE that it is all because of man made CO2 etc.
Firstly, whether global warming as measured by a few decades of data, with rising sea levels etc. is not just a simple noise, a simple standard deviation of natural phenomena can't be discarded. It would be like saying that the earthquake frequency is going up in Chile right now, given that for 1 year we have been having a lot of them. There is not enough data to draw conclusions like that about the earth-geological and climactic phenomena are to be measured in thousands of years, not a few decades. A few decades of the earth's temperature rising and the sea level rising doesn't mean much at all.
Secondly and more importantly, I believe the earth is actually much greener today than a few hundred years ago, BECAUSE of the growth in human population. When you land in any airport in Europe or any developed country, or even developing countries in South America, it is a wonderful sight to see the farms and plantations of humans. To support a rising population, cultivation has increased considerably; and while we may have lost some rain forest and some other jungles in the world; the overall greenery in the world is much greater now than before. I doubt that in 1500 Europe or North America would be so green as they are today. The plantations of grains, fruits and vegetables, wines, etc. has lead us to massive reclamations of complete deserts-witness Califorina and Nevada and Arizona in the US, or Mendoza in Argentina. Humans may have cut down forests to expand, but most forest has been cut down to plant more food, and NOT for cities. A dozen cherry trees are much better than a wild pine tree for the carbon footprint. And if we add the deserts and waste lands reclaimed, I believe it can be easily argued that we are much greener today than before.
Just as a farmer throwing seed in the ground would be called a madman by someone who didn't know that this seed will multiply many fold to give even more seed (example of Dr. Burns cited by Smith in Wealth of Nations); similarly, just because we lose a forest doesn't mean that by cutting it we will have less plants than before. If the cut forest is replanted with trees and crops for human use, and maintained green and productive all year round, you will come out much ahead. And I have first hand knowledge from a forest company that the lumber they cut down grows back 100% in some years-thanks to humans taking care of the land, putting fertilizer, supplying water, etc.

This highly speculative but development retarding "science" of global warming should be dumped completely for more serious pursuits in physics, biology, chemistry, and mathematics. That's where we want our kids to focus their minds on-and not on some "I am ruining the world by driving my car or drinking more chilled coke" ascetic guilt.

Sanjay

To be loved or to be respected

2011-02-26T15:36:00.000-08:00

Often times you demand respect from the people around you. But I believe that it is better to be loved, liked and adored by humanity, especially the ones who are your friends and who you do not have a professional/work relationship with.

In professional relationships, it is quite ok to demand respect for your abilities and talents-otherwise people will lose respect for your abilities and you will become a pushover (mentioned by Smith in Moral Sentiments). But in intimate relationships with friends and family, with your children, your parents, your siblings, it is a good thing if you do NOT expect respect. The communication becomes more open and frank, and you become closer to them at a more conscious level by doing so. Direct honest communication with people you care about and who care about you is a wonderful thing to have.

If power hungry dictators and dominant types would realize this-the world would be so much better. Their goal should be to be loved and adored by people, and not to demand submissive, slavish respect. In that sense you can see that they are really children-children like to feel in control and like submission, it boosts their ego so to speak, but a secure adult individual has no need to demand respect from everyone; they should try to gain their love. The only exception is in professional circles where people will underestimate you if you do not demand respect. If you work with your friends, it is necessary for you to demand respect from them in your professional abilities, but not respect in general.

And as Smith said, the surest way of obtaining humanity's love is to show them that you really love them, not just by words, but by your actions.

In fact, in seeking respect from people, you very often will do it at the expense of being loved and liked. They will respect you if you insist, but they will love you less.

Sanjay

Major update to previous post "On genetic affinity in friendships"

2011-02-20T19:49:00.001-08:00

Have made a major update to my previous post On genetic affinity in friendships

Porque los Argentinos hablan con "vos" y con "sh" y no "ll"

2011-01-29T07:45:00.000-08:00

Para entender esto, tienes que ir unos cientos años atras (1700-1800) y ver que estaba pasando en Brasil y Argentina.
Sao Paulo era una de las colonias mas grandes (en poblacion, cantidad de gente) en Brasil, y en Argentina, Buenos Aires.
Habia mucho comercio y intercambio entre Buenos Aires y Sao Paulo. El español de Buen Airense se fue cambiando, tomo palabras de Portugese...de alli viene todo el "vos" y el sonido de "sh" para palabras como "llamar" "lluvia" "llorar".
En Portugese, "vos" es "voce"
"llamar" es "chamar"
"lluvia" es "chuva"
"llorar" es "chorar"
con la pronunciacion exactamente igual en los dos colonias (las dos lenguas).

Los Argentinos, y especialmente las personas de Buenos Aires, estan queriendo hablar con las personas de Sao Paulo y Brasil...y obvio que su lengua fue tomando unos sonidos y unas palabras de Portugese.

Una amiga en Sao Paulo me comento que cuando vayas lejos de Sao Paolo en Brasil, la lengua Portugese empieza a usar el "tu" en vez de "vos" y mezclarse con español-el español de naciones como Peru, Venezuela, etc . No puedo confirmar esto, o si otras palabras de Portugese cambian tambien, pero me parece muy razonable que pase esto.

Mas ejemplos, Argentina no es el unico pais donde pasa esto. Pakistan habla Urdu principalmente, es una lengua muy interesante. La manera de escribir, el alfabeto, son como la lengua Arabe (Arabic), pero lo que ellos hablan es casi igual que Hindi, la lengua mas popular del Norte de India. Porque pasa esto? Pakistan y India era un pais antes de 1947, y donde vivia el Rey, en Delhi, hablaba (y habla) Hindi la gente. Por eso la gente de lo que es Pakistan ahora, se fueron cambiando su manera de hablar, sin cambiar su manera de escribir, y Urdu nacio-una lengua que una persona que habla Hindi puede entender, pero una persona que habla Arabe no lo puede entender! Eso es interesante...es como despues de un tiempito, la gente de Buenos Aires cambia tanto su manera de hablar, que empiezan a hablar algo entre español y Portugese-que sea mas parecido a Portugese que a español, tanto que la gente que habla español no entiende que dice los BoenAirense! Mas o menos eso paso en Pakistan.

Otros ejemplos. En Malaysia y Indonesia, donde los Europeos, principalmente de Holanda, dominaron por muchos años, la lengua Malay por ejemplo, tomo el alfabeto de Latin, pero la gente sigio hablando en su manera antigua, agregando mas palabras a su vocabulario. En este caso es porque esa lengua antigua no tenia una manera de escribir, era muy basica sin mucho vocabulario, y cuando aprendieron a escribir esta lengua, tomaron el alfabeto de Latin (Holandes). Lo mismo pasa con las lengua de la gente indigena en el sur de Chile, que hablan Mapundungun. El alfabeto es de Latin (español), porque antes no escribian, y cuando aprendieron a escribir, usaron las letras del grupo mas grande y dominante-los españoles. Fueron agregando mas palabras pero lo escribian en alfabeto Latino.

En general, es mas facil aprender a hablar diferente que cambiar la manera de escribir una lengua. Por eso Frances y Italiano tienen el mismo alfabeto-de Latin, pero lo que cambio fue solamente la manera de hablar, tanto que nacio otra lengua (Frances) que los Italianos no lo entienden. Lo mismo paso entre Ingles y Frances tambien. La gente empezo a hablar en una manera diferente, y despues pusieron palabras diferentes en su manera de escribir, pero usaron el mismo alfabeto que antes. Es decir-primero cambia la manera de hablar, nuevas maneras de pronunciar palabras nacen, despues estas personas cambian las palabras de la lengua pero siguen usando el mismo alfabeto, y si sigue mas el proceso, ultimamente cambian su manera de escribir tambien, y usan otro alfabeto.

Sanjay

Sanjay

Confusing Noise with Signal

2010-12-28T11:56:00.000-08:00

A very large number of humans confuse noise with the real signal.
iFor economists-stuff like inflation, gdp, jobless rate, etc. are all numbers which have a lot of noise in them. Trying to pinpoint whether the inflation rate is 2% or 4% by measuring a basket of goods is a waste of time. In general, when there is money around in a country-people know it-prices go up everywhere, of everything, and then it is easy to see high inflation. In other words, something like 8 to 10% inflation is distinguishable from 2-4% inflation, but trying to get it to a decimal between 2 to 4% is really not right.

Think of the elephant and blind men story. A set of blind men who were touching different parts of the elephant had a completely different explanation of the animal or thing they were touching. The guy who touched the trunk had one version, the guy who touched the tail another, etc. Nobody could "see" the big picture, the complete elephant.

This is where a lot of data taking makes a huge error. Social sciences are full of all these random observers-people like Levine correlating crime rates with single parent homes, or others trying to correlate daily chocolate intake with happiness. It is good to sometimes first try to see the big picture before trying to take minute data. Your conclusions based on your data may not have anything to do with reality.

A lot of things which happen around us are full of random noise. Trying to mathematically smooth out the curve by taking more data. etc. is not gonig to change how reality functions.

Economists, weather and environment scientists, social scientists, etc. are the most liable to make these errors, because they are observing very complicated phenomena. Medicine was like until 1830 or so, before it became more organized and "scientific" and we could correlate causes with effects better, see the real signal and not just draw consclusions based on the noise.

Sanjay

An example of false conclusions

2010-12-19T10:20:00.000-08:00

Here's a great example of people arriving at false conclusions:

(Read the comments below the video too on YouTube, they are hilarious)

:)
Sanjay

On age as a very imperfect measure of life

2010-12-09T20:36:00.000-08:00

There are 20 year old men and women who "look much older". Who are fatter, have bad skin.
There are 40 year old men and women who "look much younger". Are thin, have good skin.

Let us define age as not when a baby is born from the womb-if we follow Dawkins' Selfish gene idea, let's define a human (or an animal or plant) by it's genetic age.

A 20 year old woman looks much older than a 40 year old in our conventional definition of age at present. I argue that the genetic age (a new definition of age) of the 40 year old woman is LESS than that of the 20 year old woman's. She is a "newer gene". That's why that fresh, youthful look. A healthier look.

As I said in a previous post, our weight is an increasing function of our conventional age. But it is even more so for our genetic age.

Same goes for skin quality-wrinkles, for example.

Bodies are just forms taken by genes to propagate themselves (Dawkins), and our conventional definition of age is very imperfect. We can understand humans better by ignoring their date of birth, but focusing on how they really look, and of course how they behave (some guys are mature at 15, others stay immature until 60...)

But purely on physical looks or appearance, we can still see huge deviations between people's conventional age and genetic age.

I believe the a younger genetic age is "healthier". Beauty itself in humans (or animals) is a measure of health-you want to cross with beautiful people because they are in reality healthier, or younger genetic age wise. The beauty is the effect of the good genes, and has low correlation with conventional age. You can think of younger genetic age people as the healthiest genes in the gene pool.

The correlation between conventional age and genetic age is worse for men than women.

Sanjay

That progress is coming up with more logically believable (rational) theories

2010-12-09T20:08:00.000-08:00

In olden times we tried to explain everything by astrology and gods (primitive tribal cultures still do this; we don't have to go back in time to see this). Later came metaphysics and all kinds of strange philosophical disciplines. Today we have social sciences-psychology, sociology; "modern economics" "modern finance" etc. These are all far from what reality is (logical holes, not able to explain reality, etc.), but today's theories are more logically believable, rational, or at least not that easily refutable (hard to see the uselessness of modern finance, for example!).

At least the yarns we are spinning are more complex. But maybe that's what progress is-the theories, the marketing ploys, whatever, become more logical. They may not be the truth; but at least they are not very obviously wrong (like a child's explanation of the world).

I am not talking about hard science, real experimental observation, whether it was by the men who made the axe or the harpoon or a cell phone or a nuclear physicist-that is real progress, really verifiable by experiments. But the vast majority of humanity is busy with spinning false theories, drawing false conclusions. Or actually even the scientists are logical and scientists only in their very narrow disciplines-in all other walks of life they are as illogical as the rest of mankind. Falling for vintage wines, scotch whiskey, real russian vodka, brands or designer bags, fine teas, or more generally, environmental and global warming topics, hating or loving their form of government-we all are prone to these false conclusions based on insufficient data, or distorted data presented to us by some authority figure. But at least they are more believable than the explications of gods and demons of before. As a group, we are becoming more intelligent, compare the understanding of a 10 year old child in the modern world to a grown up of a primitive tribe in brasil, africa, indonesia or india, and u can see what i mean. But that doesn't mean we are speaking the truth, understanding and predicting reality as it is-we are just better theorists, coming up with more logical and rational explanations of what happens around us.

Sanjay

On genetic affinity in friendships

2010-12-09T19:46:00.000-08:00

I have noticed that I try to get along well with a particular kind of people. They seem to be of varied professions, upbringings, cultures, countries, races, etc...but the affinity is very very strong. It lasts for a lifetime, they are my friends for life. I see some common things in all these friends of mine-they are honest, truthful, monogamous (or at least serially monogamous) and at some level, "reliable" to me.

Smith called these the virtuous lot-I will go one step further to say that this "honesty" which leads to life long friendships is genetic. I have a natural affinity for people like this. This is for both men and women alike.

When we don't get along well with someone-I believe it is also a "genetic" clash at a very fundamental level. These others surely find other groups of people with similar genes to hang out with, they are their genetic friends, but the point I want to make in this post is that our election of friends, and a partner, are GENETICALLY motivated, and not on other things. Nature dominates, Nurture is secondary for adult human beings.

You don't expect CEOs in suits and ties to hang out with people with more than 100 or more piercings on their body. There are exceptions, of course, but even our selection based on appearance and clothing style has a signature of genetic selection written all over it. It is safe to say that given no other information, u believe that your best friends will be people who will look or dress the most like you.

Of course there IS a lot of other information, but that is still an extension of our trying to make friends with people who are genetically similar to us. And physical appearance is the easiest measure of similarity, given no other data. Your phenotype is largely determined by your genotype.

Everywhere in the world I see this in action. People of the same kind get together-and what do we mean by that? The only real similarity between two individuals is genetic. Animals do the same, as you might expect (we are a part of the group). When you walk out with your dog in the park, the dog reacts and responds to other dogs. It is interested in animals which look more like it is. In most cases I venture that the encounter is friendly; the dog may love u and everything; but would rather spend time with other dogs who it gets along well with (genetic affinity in layman's terms).

You see this with children. If you walk with your child in a mall it is interested in other children in the mall; not the adults. What's going on? The child is able to assess 'moving objects which are most similar to herself' and responds to them positively in most cases. That is genetic selection-you are interested in your look-alikes, your genetic clones, other living being who are like you.

This is the reason why humans of the same age tend to get together. You can argue that they are equal in maturity, have the same culture etc. but because even kids and dogs who have no idea about maturity and pseudo-scientific words like culture are attracted to their own kind, it is easier to explain everything by accepting the genetic similarity (which in most cases will be phenotype similarity as well) argument.

As a general rule-all individuals (includes animals) try to find other individuals who are the most genetically similar to them.

I can extend this to explain the origin of species better. For solitary animals, you can say that the animal which will dominate all others will wipe the others out. For groups, once these groups of similar genes are formed-the groups who dominate will eliminate all other groups and will form the new "species". In war, you will naturally protect your friends first-as they are the most genetically similar to you. Even people of a country or land mass (a country is nothing but a very large tribe) are more likely to be genetically similar. Dispersion of all animals is a slow process-and you are most likely to find similar genes around where you live.

You can apply the dominance of genes concept at the individual or the group level (the group level for social species). It can be applied to lower animals-viruses, bacteria, etc. and plants. This is how Darwin's creation of new species by competition within the species plays out (as I mentioned in another post). I know of course that this is very speculative a theory.

Consider a couple of other facts. When you see orthodox Jews in New York City, Sao Paulo or Buenos Aires, you are struck with how similar they dress. That dress is a signature of their genetic similarity within the group-and their difference from others around them. The same goes for Gypsies all around the world, or the Native American tribes throughout the Americas-from Canada to Chile. Or the cowboy-rednecks in the southern United States, or the much smaller Amish community in North US. These are groups of people who are called so because they preserve their culture (a word which is a social sciences word, and quite imperfect)-they way they dress, the music, the way they talk, their physical appearance, etc; but when your look at them as simply preserving is their genetic group, it all makes scientific and biological sense, and becomes easier to understand. When I see these groups of people, or some aborigines in Brazil or India, I cannot help thinking that they really are different species (sub-species) than me and my friends For all practical purposes-they are a different species than I and my friends. Some years ago I went to a private party-the people said hello to each other, and started drinking right away-without many words exchanged. I felt so awkward. Whenever you are with a group of people who seem to get along well with each other, and you feel like an outcast-you can be sure that there is a genetic similarity running among them, and you don't have that particular set of genes which makes them get along well. Obviously, here I mean adults (let's say more than 25 or 30 year olds) and not children.

When a I see a Gypsy woman approach me in for money, I am struck by how different she is from me. I could call her a different species. Same goes for orthodox jews, people with 20 piercings on their face, or 100 tattoes on their bodies. I can give you dozens of groups like this who I believe can be classified as a sub-species of humans. They are so different from me-that I don't mind thinking of them as a different species than me. I am sure the feeling is mutual-they think I am an ET.

I have no intention of disparaging any of the groups mentioned-it is this diversity in humanity which makes life interesting. As long as there is no aggression between the groups, life goes on just fine-and you can appreciate all these different sub-species of humans and enjoy the various different activities they offer as a group.

One must be careful, therefore, to talk about humans. There are many different kinds-do you think a scientist at NASA has much in common with an aborigine in Brazil or Africa? Yet they are both called humans. It would be like me talking about primates and thinking that monkeys and chimpanzees and humans are one and the same thing. I see this sub-speciation occuring in human groups at all levels-in day to day life, we hang out with people of our own kind, genetically speaking. Mind you that appearances can be deceptive-there's more to genetic similarity than just they way you look, although that is a good first indicator. Just like based on looks alone your domestic dog is quite similar to a wild dog, but you down deeper and realize that they are so very different! Or how dogs of different colors and spots hang out quite fine with each other, but suddenly will kill another dog. Some of these fights are territorial, but in the end, it can all be traced down to genetic differences between the dogs who group together to kill the "new" dog. The same behavior is true for humans-in hostile tribes, a new individual is killed. We have come a long way in intermixing, we don't kill or imprison people from new countries and tribes, because somehow we as humans collectively are able to realize that there's things in common you might have with someone from a different race, country, or tribe, far overshadowing the common genetic characteristic of the race (or tribe or country). This is how intermixing first started-you could trust people from other tribes and found that you have more in common with them, to actually go out and marry into that tribe. Note that primitive tribes are still marrying within their families (brothers with sisters, cousins, etc). In general, the more primitive and closed a culture (or racial group, tribe, country) the more the marriage within the same family, or same race, same caste, etc. The freest and most open societies, like in Western Europe and South America, are less prone to marriages of this kind.

It is obvious that a human being like you and me can cross with any of these groups to form babies-but that doesnt mean that they are not substantially different GENETICALLY. Crossing is a poor way to define species-witness mules, asses, and tiglions. I would venture that if a human male is crosses many many times with a female monkey, in maybe a few hundred thousand crosses, a healthy baby will emerge, just like in the cases of a tiglion or a mule.

We must also note that as different as we look like from outside -let's compare a cow, a monkey, a mouse, and a human-the internal organs and structure are very similar. You are beguiled by the appearance of the skin and the shell-but we without a skin (scaled for size of course, by taking different age sample of these groups) the internal structure of all these animals is very similar, and can confuse even an able scientist).

The whole advance in modern medicine is based on this-we test on mice and when it works we move to higher animals. The obvious truth there is that drugs function similarly on all of us-and that means that we are far more similar that you would like to believe.

I seem to have digressed from the original subject of this post, but , you will realize that it is eventually the connection between all these varied animals, and then the groups choosing the ones most similar to them (their genetic 'friends'), crossing with them, preserving the children, and eliminating the ones which are different from them (their genetic enemies, or not-so-good friends) , is how we are forming new species in all animals.

In humans, you may object-saying that we must cross within the same family (brothers marrying sisters) to be nearest in the gene pool- but it is not necessarily true that you are genetically the most similar to your sister. From large amount of data with humans I can safely say that family bonds are weaker than bonds formed between friends (based on genetic similarity is my argument). Of course, we should talk about adults here, not children; who are dependent on their families (let's say adults are all humans above age 25).

In mate selection, I see the same thing happening, the genetic affinity come really into play here. Your spouse or mate is an extension of your friendships. I believe there is a lot in common between your spouse and your friends, they are the same type of people. Furthermore, you are selecting who you mate with at a very fundamental level, and you can see some very clear patterns here, where it is obvious that you are choosing someone who is similar to you, but of the opposite sex (why that is I don't know. This is obviously for heterosexuals, I don't know how this works for homosexuals, but should be similar). Tall people hang out and marry tall people, dwarfs marry dwarfs, and it is striking to me how couples seem to be so similar PHYSICALLY speaking. This can easily be extended to other animals-and comes from the same base 'genetic affinity with someone like me'. For humans, it gets more complex and fun to watch mate selection-heavily tattooed people marry heavily tattooed people, for example (because their love for tattoos is a very clear and obvious way for them to express their genes, just like tallness or shortness). People with lots of piercings also marry other people with lots of piercings. The underlying cause is biological; what you are seeing is the effect of the real cause when you see people with similar physical characteristics pair together. Heavily tattooed people marry heavily tattooed people not because they like people with tattoos as you will hear everyone say (which is a statement which doesn't explain the causality involved); but because there is something in their genes which made them have so many tattoos in the first place, and they are looking for people who have these genes, and in their case, it is easy to recognize because the genotype is expressed in the phenotype by these people getting lots of tattoos.

This genetic affinity we have at the individual level, and by it's natural extension at the group level, is the reason, the cause, for racial discrimination. Most individuals are designed to prefer their own race, and will exclude other races. Only when a high measure of intermixing has occurred, as in Brazil or Central American countries, that you see people of "one race" begin to lose their majority and the majority becomes "mixed" or mulatto, as en Brazil. The intermixing is the cause of why racial discrimination goes away slowly. Why some people are not racists is more a surprise than why they are racists-how they became intelligent enough to realize that their outside physical appearance is not enough to determine their genotype in all cases-and that they can get along well with people who look substantially different from them (their own race). South America is hands down the most civilized and racially tolerant part of the world in that regard. A fraction of every race is designed to intermix, and why that is I don't know, but these are the ones who are able to realize that you have more in common with people of other races than your own race, or at least that race becomes a no-factor in friend and mate selection. Eventually this fraction begins to dominate the population in numbers, as in South America, and the area becomes non-racist.

This attachment at the genetic level for individuals, is the reason why nations take on a certain "character" of their own. It is in reality a genetic selection going on- e.g. people from France and Britain have been moving between the two countries for many hundreds of years, and it is natural that people of one type will huddle together-and u can see the characteristic French or British trait in a substantial number of the citizens of each nation.

Sanjay

The myth of overpopulation and world resources running out

2010-12-09T19:40:00.000-08:00

At the time of Smith countries liked to grow in population. Smith said that the most decisive mark of the growing prosperity of a nation is a growing population. Between 1776 and 2000 somehow pseudo scientists and economists brought about the idea of overpopulation, starting maybe with Malthus in 1810. What a pity.

A large population, just like a large company, can produce far more per capita (better division of labor) than a smaller country. Countries like China and India have been trying to control their population for decades (by encouraging birth control or other more drastic measures) to the tremendous LOSS of these nations. Let people decide how many kids they want to have and they can afford to bring up-governments shouldnt violate individual and family liberty by telling them how many kids they can have or by encouraging birth control (based on overpopulation paranoia by pseudo scientists). One more objective measure of overpopulation would be density rather than simply the population of a nation. The Netherlands has been one of the richest countries of Europe for hundreds of years, and it is one of the most densely populated as well. In the last decades we have seen the spectacular rise of Japan, Hong Kong and South Korea, countries with very high density of people. A higher density of people INCREASES their productivty-witness how people live so well in a big city within the same country in comparison to smaller towns or farms. Efficiency of exchange of produce and productivity goes up with proximity.

Northern Europe and now some other countries of Europe are encouraging population growth, which is a good thing for the world. No matter where we live, a thriving nation can always buy things from us, whatever we produce, and it is great to see the number of humans on the planet increasing. The Chileans can sell them more Copper and the US more Starbucks Coffee Franchises to such a nation.

I do not have numbers from Malthus' times, but it should be clear that despite all his warnings, we have continued to increase in numbers, and in general live better than a few hundred years ago (measure by wealth, by average age, lower children deaths). In 1770 approx, the English speaking North America was about 4 Million in population, UK was 8 Million, and France was 24 Million. Look at where we have come today! The United States is 300 Million people, the UK and France are 60 Million.

Governments and environmental groups should stop buying into the false theories of alarmists of overpopulation. We have many more inhabitants than before, and probably will keep on growing-we shouldnt be whining about something which should be celebrated.

Sanjay

Gold Standard ideas for currencies-let's return to Cattle, even better

2010-11-26T20:13:00.000-08:00

Recently Zoellick, the President of The World Bank, mentioned about Gold becoming more important etc. etc. and that the central banks worldwide should pay heed to it's price. See article here.

The next thing we will see is because Gold is a hard asset but useless-let's start using Cattle again as our standard. Or maybe sea shells, as some parts of Scotland used to use in the 18th century (mentioned by Smith in Wealth of Nations).

If gold bugs had their way we would be sending gold nuggets, biscuits and bars to Amazon.com headquarters in Seattle for every book we buy. Won't make life easy, would it? Well we will be dealing with hard assets.

Or if we go back to our Cattle standard (as in shepherd nations, also mentioned by Smith) I will have to send 2 cattle to Amazon in Seattle from Chile for a shipment of books. Amazon will need a lot of warehouse to keep all these cattle, and trade them for something else which they need. I am sure they will send it to China to buy LCD Display there. Soon we will have massive shiploads of Cattle being carried around worldwide. Goodbye to electronic transfers, money grams, credit cards...Or will we have Cattle cards?

As Smith explained so well-money is an instrument of commerce, it has no real value. The produce of a nation, of the world, doesn't include the money in it-be it paper money, gold, or cattle. It is a circulating tool to circulate the goods produced by society. Using paper money simplifies the circulation, and that is a real increase in productivity of society. That's why we got rid of Gold slowly in the first place (and cattle before that-gold is easier to carry than live, or dead, cattle).

Trying to look for a "hard value" for any currency is a useless exercise-every bunch of currency in the world with you gives you the right to buy a certain quantity of goods (where the currency is accepted), which is it's real and only use.

A futuristic world would be a single world currency. That will make trade simpler, buying and selling of goods everywhere simpler, that will help us all. Whether it is the US Dollar or the Chinese Yuan is not important. What we want with money, with currency, is the EASE of transacting goods which humans produce. That is their only function.

Sanjay

Big picture ok but details are not

2010-09-22T04:08:00.000-07:00

Most of science progresses by getting small things and experiments right, and putting them together to form a big theory. However, this is not always the case.

Reading the 'Domestication of Animals' by Darwin (a detailed version of 'The Origin') it is obvious to me that Darwin has over-observed the details-he is drawing lots of small conclusions in this work without much data. Many of these are false. However, the grand theory of evolution, is okay.

What I am saying is that Darwin's general observation of the origin of species (The theory of Evolution) is correct-but the details he is apparently using to back up the claims are not necessary, and are often not even right. It is as if you can see the Forest well, but when you see the Trees and try to understand the Forest better , you get lost and draw all kinds of wrong conclusions about the trees.

This fits in (accidentally) well with the title of my blog "False Conclusions". I call this blog "False Conclusions" because most of the cause-effect relationships we give are false, but we keep giving them anyway, and coming up with new ones. Human progress maybe depends on giving more plausible explanations as time ( measured in centuries) passes, even if they are false or proven false later.

Astrology is a good explanation of what happens around to you until Astronomy comes about to tell you that the stars are bodies just like the Earth and are not controlling your life. Indeed, Superstition is pre-science-it is trying to explain what happens around us but gets it all wrong in assuming the existence of Gods and spirits. This was pointed out by Smith in his Lectures-introduction to Astronomy.

Sanjay

Adam Smith and God; Vegetarianism

2010-07-03T10:05:00.000-07:00

Smith was a believer in God when he published his "Theory of Moral Sentiments" at age 36. But later on in his life when he published "The Wealth of Nations" there is absolutely no mention of God or the Deity. This is notwithstanding that the Wealth was a much bigger work than Moral Sentiments. Probably because Smith became an atheist in his later years.

I bring this up because even the smartest of human beings are affected by what's the popular sentiment/opinion around them. Smith was well aware of this-he mentioned about how killing of your own children was condoned in times of Aristotle and Plato, and supported by these very humane philosophers.

He fell for it himself in being a believer in God when he was young-but in his later years reason finally seemed to have won.

An example of this in today's times is cruelty to animals. Vegetarianism is an anomaly in the world (the notable exception being Indians in India, who are largely vegetarian) and because everyone else is raising and killing animals to eat them, humans all over the world find it okay to continue this practice. Just because something is popular and done by everybody doesn't make it right, as Smith pointed out-and I believe in the future humans will become vegetarians and not kill animals to eat them-assuming that plenty of options to live on vegetarian diets exist, as in most of the world today.

Not to mention the contradictions involved-for example, how can environmentalists NOT be vegetarians? How can they be worried about the Rain Forest and penguins in Antarctica while eating chicken and cows for dinner? They somehow don't think that these helpless animals suffer a lot while humans kill them, and are raised in captivity for the sole purpose of being killed.

Sanjay

Gold ETFs are like Treasure Troves

2010-05-12T21:30:00.000-07:00

It is sad to see banks of all people recommending Gold as an investment.
A true investment, as Smith showed us, is one which increase the output of the land and labor of a country. Gold is a metal which has value because of it's scarcity, not it's use. Gold can't be used to make things, make machines, etc. Compare this to copper which has so many industrial uses.

When people invest in Gold they actually take away valuable capital from productive parts of the country or world to a useless part. Granted everyone is nervous in market crashes-but doesn't mean that we should revert to Tartar and uncivilized world practices like hiding Gold in treasure troves. That's essentially what Gold ETFs are. In their short term zeal to hide money banks overlook their long term goal of directing peoples' savings to productive uses. In the end everyone loses, because of gross misallocation of capital.

The civilized world (and if you are reading this blog you belong to it) needs to focus on productive investments, which increase output of society, increase productivity-and noone became more productive by wearing a better earring or having a pound of gold in their bank locker. It is dead stock, as Smith would say.

Sanjay

Our obsessions with the present-that it's something special

2010-05-09T21:42:00.000-07:00

Most humans are obsessed with the idea that today's times are special. The new tecnologies like Internet, Cell phones, etc. are changing the world like never before. That global warming (a previous post has mentioned some serious inconsistencies with the alarmists of the global warming camp) is how we are killing the planet, and so on...A general feeling that inventions are faster than ever before, that "WE ARE MOVING TOO FAST NOW" etc.

All humans are very interested in their present and want to feel it's special. Even brilliant minds like Taleb fall for this "The present is special" syndrome.

Do you think that the guy who discovered making buckets with palm leaves to draw water from the river or well didn't change the outlook of his town? All townspeople said at that time-this is major discovery, and will change forever the way we draw water. Or a better known example-the discovery of fire. Do you think that is was less significant? Or putting meat on fire to cook it? Or discovering copper and gold? Or the steam engine, the telegraph, the telephone, etc. etc. My point is, that there's nothing special about the present. What is so special to you will be the past in 200 years. And the pace of innovation etc. is the same as before-you think somehow that the man who invented the axe is any less intelligent than the one who invented the washing machine? It is simply our obsession with the present.

It is good to think of improvement as a slow, gradual and constant phenomenon, and the velocity of it probably is the same as before (innovations and improvements per head in the population), or at least is not known. There is no such thing as an "Industrial Revolution" in Europe in 1600 or 1500, it was a gradual, slow move. Smith didn't even mention this in his writings in the 1740-1776 time frame. This was a word coined later, and it really caught on...you would think that Europeans were doing nothing important before the Industrial Revolution. I am sorry to disappoint you in saying that there are no technological or scientific revolutions-they are your way of making human progress more discrete and probably simply because it becomes easier to remember the time-line of progress by these discrete jumps, and you can write a story much easier with these discrete achievements of humanity (Nassim Taleb mocks at these stories and tells us about how we love to tell them).

Here's what Alfred Russell Wallace wrote in "The Malay Archipelago", printed in 1860:
"During the last century, and especially in the last 30 years, our intellectual and material advancement has been too quickly achieved for us to reap the full benefit of it. Our mastery over the forces of nature has led to a rapid growth of population, and a vast accumulation of wealth; but these have brought with them such an amount of poverty and crime, and have fostered the growth of so much sordid feeling and so many fierce passions, that it may well be questioned, whether the mental and moral status of our population has not on the average been lowered, and whether the evil has not overbalanced the good...:

This is Wallace, one of the most brilliant men of his times-and he fell for "The present is special!". I chuckled when I read this.

Here's a present day example of a big tech guy talking about how Software is Important-it apparently is eating the world. Obviously he is a software buff. In that article, you can replace the word "Software' By Microchips, Telephone, Telegraph, Steam Engine, Axe, Wheel, Extraction of Copper, etc. and you could come up with the same conclusion, that each of these was such an important thing for humanity!

I must point out, that in whatever I have read by Darwin and Smith, I have never seen them falling for "the present is special" fallacy.

The only thing special about the present is that you are alive in it...

Sanjay

The silliness of low fat foods

2010-05-09T09:51:00.000-07:00

There world, scientists and governments included, is full of people trying to make humans less fat.
One solution which everyone seems to promote is to develop low calorie foods. This is a false solution to this problem of humans "getting fat". Why?

By making a cookie which is 50% less calories, you are not controlling the actual intake of calories of your human (or animal). How do you ensure that they will not eat DOUBLE the amount of cookies??? The assumption these guys are making is that you eat with your eyes---that you will eat the same volume. Clearly if you were to eat the same volume of cookies, and one set of cookies were 50% less less calories than the other, you will actually take in less calories. But my point is that you will double the volume (or number) of cookies you eat!!!
In fact even if a cookie is only 2% the calories or the original cookie, I can always argue that your test animal or human will eat 50 times the amount of these low calorie cookies. In practice however, our test subject finds calories in other ways, and doesn't need to eat 50 times the lousy tasteless low calorie cookies.

I have mentioned in a previous post that I have enough data to believe that weight of a human is not controllable for extended periods of time (more than a few weeks) and bodies tend to revert to their natural weight. If that weight is obese or overweight, not much can be done by feeding them low calorie diets, of sham and scam programs like Herbalife, Dr. Atkins. etc.

I say no to low calorie foods! People will eat double the quantity of a 50% calorie food and get their calories anyway-and how do you stop that!

In general, all attempts to control weight seem to be go nowhere. Look at the amount of fat doctors out there! And it is not a question of will power either-there are plenty of fat military people in the world. Doctors are intelligent people who know that eating more makes you fat, but they can't control how much they eat everyday. Military people are intelligent and have LOTS of Self control and will power, and they seem to fail miserably at trying to become thin.

Your weight is determined primarily by your genes.

---
Update May 2011:

Here's a scientific which is a step the right direction for "proving" what I have been able to observe empirically...

We've found the gene that makes you fat, claim scientists studying obesity, link:
---

Sanjay

On Safe Driving

2010-03-09T07:07:00.000-08:00

Thought I would make a quick but hopefully very useful observation on safe driving.

The Golden Rule for safe driving is "Drive slow, the slowest you can". The only exception is a multi-lane highway where there is a minimum speed limit. In all other cases driving slow will always benefit you-will be safer.

Note that if you are driving slow and someone hits you from the back it is ALWAYS there fault (again the exception being the multi-lane highway with a minimum speed limit).

Sanjay

Theory of Dominant Genes-Filling a Hole in Darwin's Theory of Evolution-REPOST

2010-01-11T18:23:00.000-08:00

In the last few years I have come up with some ideas about evolution, and where Darwin might have left some space to be filled. I will call it The Theory of Dominant Genes.

In every group of individuals of the same species, there is a tendency of genetically similar individuals to group together. They will form sub-groups based on this similarity, and eventually this sub-group will split off (or drive away the other members of the parent group) and form another species. Until then, this group will be the dominant gene in the group-the others will have to obey the rules laid out by them.

An example. Let's see you see a bunch of dogs in an area. Large dogs will tend to hang out with large dogs, black dogs with black dogs, intelligent dogs with intelligent dogs, and form little sub groups of dogs. The dominant subgroup will rule-it will dominate the other dogs. It may even kill all other dogs or drive them away. That sub group will form the next group of dogs in that area, which will eventually lead to a new species.

This is how new species are formed. The dominant group is a precursor to new species.

An example with humans. You will see people of similar characteristics form groups. For example, tall people prefer to hang out with tall people, and marry tall people, and so on. This is a precursor to forming new species.

In case of conflicts, the dominant genes of let's say tall people will drive away all the rest to new places, or there will be war, and the others will be wiped out.

This also explains the formation of new towns, countries, and why we would form new languages (it is the way of speaking of the dominant group with others copy, and eventually leads to a new language).

It is easy to see this for individuals in species-a dominant individual will act the same way. A dominant individual in a group will try to impose his will, his genes, on the group; will subjugate or even kill the others.

The theory will easy to apply for all animals, and plants. Darwin pointed out that the competition within individuals of a species is more severe than the competition between species (because they share the same food habits, same geographical area) and this theory explains how that competition really works, that some individuals or group begin to dominate, and eliminate the others.

Sanjay

Combining Adam Smith with Charles Darwin's ideas

2010-01-01T21:45:00.000-08:00

Adam Smith's Theory of Moral Sentiments (TMS) talks about how only wise and virtuous people can have lasting friends. Vice is capricious, says Smith-and by definition, good life long friendships are born on stability and trust, which can only be found amongst virtuous people. Thieves and dishonest people can't be friends of each other---they will always screw over the other party to destroy the friendship's investments.

My experiences in life with humans have confirmed this to a very high degree.

Enter Darwin. Darwin observed that our characteristics are inherited-that nurture can't do mucho. In his autobiography he pointed out to how different his siblings were to him and to each other, even though brought up in the same family. This I can confirm from my own family and observations of many other families around me.

I believe that this "virtue" which Smith talks about, this "honesty", is genetic. (Being genetic, it has a propensity (a probability, not a certainty) to be hereditary-but that's another topic). This is tied in to my earlier post about how I believe that people who are faithful to their partners are genetically designed to be so. They are all the same-genetically faithful, honest, virtuous, etc.

In reality, dishonest people may learn to be honest and fake it...but it needs a discerning eye and lots of experience to see this. I have been fooled many a time by both men and women, but seems like I am getting better at recognizing the genetically unfaithful (dishonest) people...:-)

If Smith were born after Darwin he would surely have incorporated Darwin's acute observations about humans and animals into his TMS-and I suppose it would have been along these lines.

Sanjay

Taleb and his book Fooled by Randomness

2009-12-10T06:22:00.000-08:00

Nassim Taleb as I have mentioned earlier is one of the smartest human beings to walk the planet. His book 'Fooled by Randomness' is probably going to be one of the few books which people will read after 200 years, like Adam Smith's 'Wealth of Nations' or Darwin's "The Origin of Species". In showing us how we often mistake coincidence for causality, he is not the first-but his main contribution is to use this idea to make our lives better in a real way, with practical uses and examples. When he says casually "There's no such thing as Alternative Medicine" it sounds like a casual offhand remark-but it is so very significant and useful. You can dump all those alternative medicine doctors safely-Modern Medicine is originally derived from Alternative Medicine and you can safely trust the Scientists at Pfizer and Merck and Ranbaxy to bring you the best of the alternative world medicines-these guys are constantly looking for new ideas and chemicals...

I find so many examples where Taleb's central idea-that we keep getting fooled by randomness, thinking that there's some causality, some pattern out there in our experiences with the world, when there isn't any. Check yourself when you think Sunday is a good day for shopping, or you are a lucky guy always in restaurants to find empty tables-reality is far more brutal, and doesn't care that much about you.

Inspired by Taleb, and the logic of Smith and Darwin is what made me called this blog "False Conclusions".

Together with Adam Smith and Darwin, I find Taleb one of the most wonderful authors. As often is the case with great minds, they get really famous after their death-and I hope that with Taleb, at least some of the credit he deserves for showing us the difference between anti-knowledge and knowledge he will reap the rewards of in this present life...(a Nobel Prize in Economics by the Swedish Bankers...nah!).

Sanjay

Global Warming and Going Green are Religions-not Science!

2009-12-02T22:27:00.001-08:00

In the last few years everyone in the world is worried about global warming. Al Gore, a politician, has turned into a scientist in a few years and has won lots of prizes (I will call him Green God Gore from now on). Let's now examine the science behind all this.

Here's my position: That there is global warming, increase in earth's temperature, may be true. That this will have disastrous consequences is false. It is alarmist, and there's no substance to these "the world is coming to and end" from the scientific point of view.

The link to NRDC site on Global Warming Basics.

The link to NASA's Global Warming Page.

It is true that we have accelerated melting of polar ice. It is also true that we have a rise in ocean levels. This may lead to a tough life for penguins and sea lions and all other animals which live in the poles and cold areas-but as Darwin explained to us so very well in The Origin, Life loves warm weather. The number of species of both plants and animals goes down as we goes away from the Equator. For every penguin dying in Antartica, there are maybe hundreds of deer and snakes and other tropical creatures who are born, and they will lead to the formation of new Species. For plants it is an absolute party as well-a warmer earth will lead to a REFORESTATION of the Amazon jungle in the long term (unfortunately I don't know what that long term is). But this is directly from Darwin, and some simple observations of life around us on our planet. Living things, both plants and animals, multiply better in warm weather, and a warmer earth is good for Life on earth. And come to think of it-what percentage of humans have actually seen a glacier or hung out with a penguin in Antartica? There are plenty of penguims in zoos nowadays-and we can always raise them well there in case there is a complete melting of ice caps (we did domesticate dogs, cats, and all kinds of other animals, this one will be harder, but we have a long history of domesticating animals!). Warmer earth is also good for population of plants and animals in the sea-e.g. the number density of fish species goes down as you move away from warmer waters to colder waters.

Ocean levels are rising is also true. Low rise Islands are disappearing. They say that with the current rate of rise of ocean levels, assume all goes according to what all these climate scientists think, Maldives might disappear in 2100. This is the biggest direct threat to human life. Maldives has a population of 300,000 today, and even if this happens as these scientists claim-do you think that humans are so brutal that large land mass countries around Maldives like India or Africa or even Europe will let these people just drown??? Of course not. Most countries would be happy to take these immigrants today-it is a very small number of people.
As far as the rise in sea levels on all coasts in major continents-that low lying coastal lands might be gone, that is true also. But people forget that The Netherlands has been below sea level forever, and human industry of the Dutch has kept it one of the finest, richest countries of Europe in the last 400 years at least. As long as there is a big land mass around, like the Dutch have (unlike Islands like Maldives) we can always reclaim land if needed.

There is a theory on faster hurricanes because of warmer weathers (see links above). I don't know much about this, and this may be a valid negative effect of global warming.

What we are doing is restraining economic development by all these carbon caps etc. Energy is becoming expensive to produce-and since cheap energy is the CAUSE of economic development (just like all cheap raw materials) we are increasing the costs to humans because of bad science polluting the world.

Sanjay

The stupidity of investing in Gold

2009-10-16T18:43:00.000-07:00

All banks around the world are telling their clients to buy gold. Harrod's in the UK is going to sell Gold bars in it's departmental stores.
Banks are marketeers-like salesmen selling whatever. We all are-we all were born to sell something in this world (unless you don't want to participate in the world economy, do your share, earn your consumption) but banks and economists and finance guys claim to be rigorous scientists, a completely false claim.
Is Gold a good investment? No.
We need to go back to Adam Smith to understand why it's not.
If people keep buying gold, or jewelry, you see a world full of jewelers, of traders of gold, of jewelery, etc. None of these products in gold's use is a productive investment-a guy an Intel won't produce more chips if he wears jewelry, nor does a toy maker or a car maker produce more of their stuff if they have Gold bars in their homes. These are not productive investments because they don't help people produce more of whatever they produce (intangibles like software included).

Compare this to Natural Gas. Cheap energy is a nice thing to have-a software engineer, or a toy maker, or a car maker, all can produce more of their things if energy costs go down. Energy investments are productive investments, gold is not a productive investment. Cheap energy sets into motion more productivity in the world, we can produce more things with cheap energy, division of labor can progress better. No such thing with Gold.

That something is going up does not make it a good investment. As Taleb explained us in his wonderful "Fooled by Randomness"-history is a bad predictor or future in this case. Trends reverse, gold prices may come down-or underperform other investments. But let's be clear-natural gas is a productive investment (coal, copper, all raw materials fall in this category) but gold is not.

In fact, in the long run (impossible to know what that is, though) gold gains in value BECAUSE we produce more, we become more productive. Because natural gas puts more productive labor in motion is the reason that gold becomes more expensive as time goes on, and becomes a good investment. In reality, it's the abundance of raw materials which are used by industry (e.g. copper, iron-ore, fertilizers, even silver, but not gold) which is the real cause of economic progress or growth. That progress, that abudance of raw materials, gives Gold it's ever rising value.

Beware of the bank salesmen-they just have to trade and sell you whatever is going up-but by investing in gold, you are not putting human industry in motion. You are hurting the world economy-instead of using your capital for industrial metals, which put lots of productive labor into motion (think machines made of copper, iron-ore, energy) you are being encouraged to store it up in a useless metal (industry doesn't use much of it) whose value actually is derived from the former set!

Sanjay

Financial Speculators who also make cars

2009-05-25T17:54:00.000-07:00

Read

http://www.bloomberg.com/apps/news?pid=20601087&sid=aMBkiI5gvZnA&refer=worldwide

Couldn't help thinking that Porsche is a financial company whose side business is making cars....This will end very badly for both Porsche and Volks. But there's no money to be made here for traders-the margin requirements for shorting Volks shares are insane-and these stocks can go anywhere for a day or two-even wiping our the well capitalized traders.

This is another reason I am very averse to shorting individual stocks. You live with your longs, no matter what...

But financial speculation is what some of the biggest companies do. GE has finance, GMAC is finance...everyone wants to lend money to consumers to buy more.

Sanjay

Economic conditions comparison to Great Depression are silly

2009-03-16T10:00:00.000-07:00

The financial world, especially in the US, is obsessed with comparing the present recession to the Great Depression. This is entirely wrong.

Economic conditions today have little in common with 1929. Economies are made by humans. Humans in China and India were virtual slaves, Japan was a minor power, most US trade was between Europe and US. There are many more human beings in the world today-and parts of the world which were irrelevant at that time, economically speaking, like China, South Asia, and even Brazil, are very important actors in the world economy. Trade between these countries and the rest of the world was very small; today it is the major thing in the world economy.

Since the state of the world was very different in 1929 than today-any comparison to that time is plain false. Unlike oceans and stars and mountains and other physical phenomena, which haven't change much in a couple of hundred years-economies, which depends on the activity of live humans, have changed considerably. We cannot compare two worlds so very different from one another in economic activity.

The US Fed Chief Bernanke is a so called expert on Great Depression. Einstein was an expert Physicist, and Darwin was an expert Biologist. The abilities of the last two are obvious, testable, and provable; the skills of Bernanke are closer to expertise in Astrology.

Sanjay

Faithfulness in human beings-genetic

2009-03-10T13:50:00.000-07:00

Here's some empirical observations on faithfulness in human beings. By faithfulness I mean monogamy-you not cheating on your partner. I believe it is genetic.
This is valid only with humans who are free to choose their sexual/love partners-which means primarily in the Americas and Europe. Asian countries which support institutions like arranged marriages are not a part of this group.

I have known a lot of human beings in the Americas (North and South) and many people form Europe as well. I have tried to look at human beings just I would look at any other animal; and even though it is hard sometimes, I am getting better at it.

I believe that there is a percentage of population, somewhere between 5-20%, which is GENETICALLY faithful. These men and women do not cheat on their partners. They may practice serial monogamy; they may have lots of amorous relationships sequentially, and even have orgies when they are not attached to anyone; but when they are in love, and especially when someone else loves them, even if they are not in love, they will not cheat on their partner. They cannot cheat on their partner, even if consciously they want more sex, more variety, etc. I believe this is genetic; there is a gene or a set of genes in these people which makes them behave this way.

This faithfulness behavior is similar to homosexuality or left handedness-two other characteristics which are also genetic in my opinion.

There are some Swedish researchers who have found evidence in this in some animals. However, my observations are empirical and are limited to this variety of human beings living in the Americas and Europe. The rest of the population in this group, 80-95%, is not faithful; they are sleeping around even when they are married or have a boyfriend/girlfriend who is ostensibly their formal partner.

I can give some examples of people I know quite well who I know are genetically faithful; maybe some biology researcher has an interest in finding out what's common in the genome of these human beings.

Sanjay

Foreign reserve accumulation by developing countries hurts their citizens

2009-03-02T03:17:00.000-08:00

I explained this before in a previous post-but here would like to explain it more-because this is an absolutely terrible thing which these developing world central banks do to the hard earned money of their citizens.

Buying bonds of liquid government securities like the US Government, Governments in Europe, is the same as loaning money to them-a bond is a loan. What does that mean? Central banks from Chile to Russia to China to India, which have holdings of these bonds to "provide liquidity and stability for their currencies" are really loaning the money out to rich countries. It is absurd for poor people to loan money to rich people; it is likewise absurd that poor nations hold rich nation Government bonds. What they are doing is exchanging some of the hard earned money for exports by their citizens with these paper assets-which keep employment up in the rich countries. A central bank of a developing country is providing jobs to people in the rich countries in the name of silly things like liquidity enhancement, favoring exports, etc.

Liquidity and stability of a country's exchange rate is not an excuse for keeping large amounts of money OUTSIDE the country. Let people and companies who take out foreign currency loans pay the consequences of extreme fluctuations-that doesn't mean that the hard work of an average citizen of Chile or China, and an average developing world citizen who is NOT working for these companies which are involved in taking our loans outside their countries (currency speculation), is exchanged for a bond of a developed world country.

Favoring exports is another common excuse for accumlating reserves.

There are two problems with this thinking: 1) By keeping the home currency low they are actually hurting exporter's earnings. The exporter could sell for a better price if there's wasn't a silly central bank keeping the home currency artifically low. His profit margins would be better. No one got rich by selling cheap-the rule for business is to sell dear-and exporters clamoring for a lower currency are married to the idea of selling high volumes but their net earnings would be the same if they sold less volume at better prices. 2) Even if this strategy of keeping home currency low was somehow helping exports-every time a country is doing something to favor exports; it is hurting it's imports. It is hurting it's development if importation is of productive goods and articles. There's no reason to believe that the fastest way to get rich for the developing world is to increase exports.

Like the balance of trade, favoring exports is another stupid thing which people worry about (and dumb politicians help). There is no reason to favor exports-if exports are good for a country, it will automatically turn out that way by a free trade.

It is as if the developing world country citizens have these bottlenecks called their own central banks who are ensuring that they never develop-these banks are their own citizens' worst enemies.

Capital should be employed at home-that's where it generates maximum employment, that's where the returns are the highest, because of circulation of capital being the fastest at home. A Government holding foreign bonds is one of the most bizzare things in the financial world. The job of the Government is to increase employment at home-not abroad. And the returns are normally better at home as well; why on earth keep money outside???

The collapse in the stock markets of the developed world right now is a great time for developing world central banks to cash in their chips because of high demand of the developed world government bonds by their own citizens. That's a great trade-the mantra of all businesses, including trading, is to buy low and sell high. If China decides to sell off half of it's 2 trillion dollar in foreign reserves and brings back stuff which is in short supply back home-basic materials are the obvious choice, as I have explained in a previous post-but productive stuff like Caterpillar and Hitachi machines, Airbus planes etc. are also a great investment to increase employment back home, to provide more jobs, and to remove the silly fascination which the Chinese and the rest of the developing world has with exports, can you imagine how much better off the ordinary citizens of China would be? It is time the developing world grew up and matured-it is time that they realized that the developed world is not as rich as they thought-that actually by holding foreign reserves they are holding back the development of their own countries.

It is not okay to buy stock in Rio Tinto and other foreign companies to increase the returns. That doesn't help the Chinese citizen-employment needs to be generated at home, not outside. These returns on Rio Tinto stock are fictitious-they are paper returns doing nothing for the Chinese citizens. However, that capital invested outside has already been paid for by the hard working Chinese who have exported stuff to the world-which in this case is exchanged for useless Rio Tinto stock (from the Chinese citizen's point of view) [As a side note-Rio Tinto is one of my biggest stock holdings]. Chinalco, a state owned aluminium producer, should keep expanding at home, get into other businesses, whatever; but not send precious Chinese capital outside the country in the name of enhancing returns. A private individual or company invests outside for their own diversification and return enhancement; a Government has no job diversifying outside the country with hard earned capital of it's citizens. China should buy products of Rio Tinto-e.g. Coal---which will make energy cheaply available in China. That way it helps its own citizens, who are short of cheap energy, and ALSO helps Australia and the rest of the world by giving them more incentive to produce more coal. Owning Rio Tinto stock doesn't help---because Rio Tinto can't produce more coal if there are no buyers. A baker doesn't invest in a shoemaker---it goes ahead and buys shoes, uses them, and that way helps himself and the shoemaker.

The worst thing China does is give money to foreign Governments-who spend it in unproductive ways (loans to banks, General Motors). It is better if China buys products useful to satisify the interests of it's own citizens; and it is in that way that it actually helps the world the most. As Smith said---it is from selfish self interest that we end up helping the world the most, not from charity or benevolence. The same applies here.

Sanjay

The cause of the present financial crisis-rise of developing world/China

2009-02-25T18:09:00.000-08:00

This is a theory which I want to present--that the rise of the present financial crisis is the rise of the developing world, especially China. I have collected lots of facts which support this theory-and some which don't, but the balance is heavily in favor of the theory.
The developing world has been a constant source of raw materials (coal, copper, iron-ore, etc.) and not very finished goods (textiles, shoes, etc) for a long time to the developed world. Forgetting about the money being exchanged-the real exchange between the developed world and the developing/underdeveloped world was raw materials (I will lump simple to produce goods like textiles, shoes, etc. in raw materials for simplicity of argument) being supplied by the developing world and exchanged for the finished goods of the developed world.

Given the large number of people living in the developing countries-primarily China, India, Latin America-and the relatively small number of people in the developed world (USA, Japan, Western Europe, Canada, Australia), this was a great way for them to become better. However, now the developing world has developed enough to make the finished goods themselves; therefore they are now stopping the supply of all these raw materials to the developed world. In other worlds-the developed world-which could sell its finished goods (cars, refrigerators, aeroplanes, advanced weapons) now has nothing to sell to the developing world; and consequently, they wont get all those raw materials from the developing world. This is why the crisis is severe in the developed world. Why there is a crisis at all in the developing world is a problem with my theory-but I have some explanations-and a prognostication-that the crisis in the developing world will end BEFORE the end of the crisis in the developed world ends.

Here are some points (some points are related to each other) to support this theory.

1. Chile has been a major supplier of copper to the world for 100 years. The major buyers were the developed world countries-USA, Japan, Germany, UK, France. In the last 5 years, China suddenly has become the top buyer of Chile copper concentrate-replacing even USA. The Chileans were exchanging copper of their mines with the finished goods from the developed world-refrigerators, televisions, cars, etc. Chile does not domestically make these products. With China becoming rich in the last decade-they had a new buyer for their copper. The surplus product found a new market in China; and better still for Chile-the products they needed-cars, refrigerators, and other finished goods, were supplied cheaper by China than by a developed country. Thus the rise of Chile was a double benefit-they got someone to pay dearer for what they had in plenty, and they got to buy cheaper whatever they needed-because China was producing exactly what Chile needed and didn't make at home.

2. The same argument of above is true for Brazil's iron-ore shipments-Brazil is the top producer of iron-ore in the world.

3. UK coal mine production has gone down from 100 million tons per year to 40 million tons per year from 1950 to 2000. The population and energy use of UK has gone up in this time-the coal required was being bought cheaper from South Africa than mining it at home. This trend is now reversing-coal prices went up last year and UK mines are being reopened, notwithstanding the recent fall in coal prices. The coal mining industry knows (or hopes) that this price dip will be recovered-but doesn't know when.

4. China was a major phosphate supplier to the world and the USA. Phosphate rock is a key basic material for producing phosphate fertilizers-and exists in large quantities in Morocco, China and USA. In the last few years it has not only stopped exporting phosphate rock-it is actually importing it.

5. China was a big supplier of steel in the 90's, until starting 2002-2003, it stopped exporting steel. It now is the biggest importer of steel.

6. India is in the top 10 buyers of Copper for Chilean Copper and Brazilian iron-ore.

7. China and India and Latin America are known to move up the value chain of things-which is the same as saying that they are supplying more and more finished goods to the world. As they make and supply these products-the developed world, which had a free ride on the cheap labor of these countries for a few hundred years, can't have it anymore. They have nothing to offer in exchange (the rapid accumulation of foreign reserves by the developing world Government is what is supporting this-the goods of developing countries are being exchanged for paper dollars and euros of the developed world by their silly central banks, but this needs to and will stop-see my earlier post on this).

The crisis in the developing world is difficult to explain from this theory. However, the explanation there I have is that it is the interrelation of the banking system and the silly accumulation of reserves by the developing world countries, mostly held in Government bonds of the developed world, which is actually hurting them now, because they have subsidized exporters at the expense of home use of their materials, and killed of importers. The importers in China and India find it more expensive to import useful things like technology, aeroplanes, etc. which could be used very productively there to increase the net production of the labor of these countries. Any encouragement given to exports is a discouragement given to exports and home use of these goods.

The interrelated of the banking systems means that all capital is going into city and real estate-leaving the rural areas and the mining and raw material producing areas of the world short of capital. Big banks are based in big cities like New York, San Pablo, Shanghai and Brazil-and they have transmitted the stupid lending practices to each other. They invest in big cities in real estate-but that can only go on if the city population keeps increasing and is well supplied by the raw materials from the countryside (food is a raw material for cities) and the mining and energy producing areas.

I will update and edit this post as time permits-but the crux of the argument is here. There are many other data points I will put to support the theory.

Beauty, and why plastic surgeries are useless

2009-02-05T17:46:00.000-08:00

Some observations on beauty and plastic surgeries.

The human body has around 10 trillion cells. While people look at a nose, ear and leg as different parts of the body-inside all the cells of the parts of the body is the same DNA. Further, from stem cell research and embryology, we know that the same cells are responsible for multiple organs and "systems" in a body (e.g. respiratory system).

Therefore when we say someone is pretty, that they are good looking, we are not talking about the nose, the shape of their lips, only; we are talking about the whole organism, and the most important part, the DNA. The DNA has expressed itself as a beautiful nose, and that's why I think that woman is pretty and has a beautiful nose. That's why my sister likes the wonderful arms of that guy, because the DNA has expressed itself in that arm. What you are capturing is the essence of the DNA. Embryology tells us that that beautiful nose might be a signature of a good respirating system, of large lungs, for example; which in turn is the representation of a superior DNA in that person. That is what beauty is.

This is also related to sexual selection as proposed by Darwin-I believe Darwin is quite mistaken here; unlike in his Origin of Species and Natural Selection. But for now, the important thing to realize is that when we call a man or a woman good looking, we are not talking about their bodily parts-we are talking about their superior genes. In some ways-good looking is the same as a "healthy" body. Someone who has a pretty nose has a good respiratory system, someone who has nice lips has a great liver (digestive system), etc. The secondary sexual characters like the plumage of a peacock, horns in animals, beard in humans, etc. are all correlated with good internal organs, good health of these organs and system, and might be useless as they are. They are representations of a good genome. Stem cells and embryology give us direct proof of this correlated variation in different parts of the body.

And that's why no amount of plastic surgery can make you more beautiful. It does make u beautiful on camera in 2 dimensions on a TV screen, or from far away-but if you really get down to it-eventually humans can tell if you are naturally beautiful or not. Unless you are a teenager who is looking for just some attention and popularity-the real job of looking attractive is to attract a mate-and that means at some point in time they will get to see you naked, up close and personal in the bedroom. And then all the surgery and facelifts will show or be perceived (you can perceive thru other senses than just your vision). You cant fake 10 trillion cells-even if you can fake a nose or get some fake breasts or get a face lift. Just like the post earlier (see post here) I had about the futility of trying to lose weight-it is futile to try to look more beautiful.

What should you do, then? Focus your energy on finding someone who likes the way you are, defects and all. You may be just an average woman, and then just find an average man. Or you may be a hairy woman, then u need to find some guy who likes hairy women, or at least doesn't mind their woman being hairy. Or if you a bald guy, find someone who likes bald guys. There's lots of humans in the world-and you will find some who will like you the way you are. Focus your energies on finding them than trying to look like the hottest man or woman on this planet.

-Sanjay

Where Taleb is wrong (happens rarely!)

2009-01-24T08:47:00.000-08:00

Nassim Taleb is a man who I respect very much, and I believe he is one of the most intelligent people in the world. He is right most of the time-but is wrong on one important count wrt financial markets.

Taleb is known to be an options buyer (and I am too). He is a believer in financial markets making crazy long tail moves, and says that options sellers underpredict the probability of these large moves in the markets (individual stocks). His strategy is to hold a large amount of cash-and buy cheap options counting on big moves once in a while. Sounds like a winning strategy. He also is very wary of buying stocks, but is quite happy keeping cash. That's where the problem is.

What is cash? At heart you are talking about your excess capital. You can either loan it to the Government, or loan it to private companies (diversified portfolio of stocks).

When you loan your money to the Government-which Government do you choose? I live in Chile-should cash be buying US Dollars or Chilean Pesos? In other words-cash depends on where u live-and an Australian who listened to Taleb and was holding lots of Australian Dollars last year actually lost of a lot of money, when measured in USD, for example. He thought he was "all cash" all the time-but his real buying power in the developed world went down (The AUD collapsed against the Yen, Dollar and Euro--the major developed world currencies)

In a world of multiple currencies-or multiple loans to multiple Governments worldwide, it is difficult to say what is cash. That the US dollar and the Japanese Yens have been the currencies in vogue lately is obvious-but we don't know what the future "safe/flight to safety" currency will be in the next crisis. Cash loses its meaning for a currency trader, and that's where Taleb's idea runs into problems. Holding cash becomes a trade-because depends on whether you held cash in AUD, JPY, etc. you can make or lose large amounts of money-measured in another currency.

More fundamentally-since a Government really is not a big generator of profits, it only takes profits generated by the private sector in the form of taxes and redistributes them-it makes sense that the private sector will outperform Government bonds or cash.

It follows therefore, that Taleb's cash in US Dollar will turn out to be a really bad investment if the USD collapses against all currencies in the next 10 years. He will say that his account didn't go down, because in USD measure it won't-it won't be volatile; but the real buying power of that account will be down considerably in that time. Or put another way-if he starts measuring his wealth in Brazilian Real, and in 10 years Brazilian Real really goes up against the USD, then he would have lost a large amount of money on his trade to keep cash in USD.
Sanjay

Investing in Commodities

2008-12-16T21:53:00.001-08:00

The abundance of commodities like crude oil, coal, copper, iron-ore, aluminum, potash, phosphate, wheat, soybeans, maize, is the real cause of prosperity of humans. Economic progress for humans is defined by super abundance of these basic goods from which all other goods are derived by the application of human labor. You can think of a car as a finished good which is a product of the various metals, coal (electricity) and the human labor component. The finished goods/basic goods concept was popularized by Hayek, but the real idea was from the Master, Adam Smith. Hayek just reinterpreted it and the world started believing that it was his idea-it wasn't. You can find it in "The wealth of Nations" or online at adamsmith.org here. It is hard to find original ideas in Economics which can't be traced back to Adam Smith. In many cases his ideas have been distorted and misrepresented by Economists with PhD degrees and Nobel prizes. Even David Ricardo's theory of rent and comparative advantage originates with Adam Smith, notwithstanding his manner of writing "Principles of Political Economy.." as a challenge to Smith's ideas.

A world where farmers don't produce surplus food for sending to the city can't survive for long. The cities will die of starvation. Clearly food is a basic necessity-division of labor, etc. in a city can proceed only when the city population is well fed.

Let's imagine a world where all miners stop producing the metals and coal and oil they extract (I put oil and coal in mining-they are closely related). Such a society can't survive for long-the city folk need all these basic necessities, or commodities, to carry on their division of labor and improvements in their jobs. If you think of it in reverse-it is the abundance of these commodities from the mines which results in real progress in the city.

The abundance of food, and by extension, basic commodities and raw materials, is the real cause of value for all other products. This idea is again from Adam Smith, and can be found here.

This is the reason that my investments in the stock market are heavily in mining (including energy) stocks. Their real production needs to go up in time for the world to progress-and it is amusing that the most stable sector of the economy, the mining industry, is the most volatile. The volatility in the mining sector is caused by the momentum players-banks and hedge funds are the major ones-who are attracted to the rising prices in a bull market for commodities and try to make a quick buck in a month. When prices fall, they get out in a hurry and their "stop loss" gets executed to minimize their losses, or because of their overleverage they are taken out by their broker's margin call. Since this is hot money wanted to make a quick buck-it tends to exacerbate market swings and increase volatility. Economics and Finance people who believe that putting more participants in a market decreases it's volatility (Greenspan is one of these people) are wrong because that happens only when they play the market maker-buy low, sell high. However, if everyone comes with a momentum trading idea in their head, buy high-sell higher-then it increases volatililty and the real market makers show losses. But those losses are temporary-eventually the mining sector comes back and sets new highs, and makes money for all in it.

Sanjay

Consumption doesnt help economy, savings do!

2008-12-09T07:32:00.000-08:00

Now the trend in the world is to cut taxes and put more money in the hands of the consumer. Then they are encouraging the citizens to spend more, to buy more, to consume more, to help the other guy, to help stimulate the economy. Here are news items from Australia and Canada on this. The Australian prime minister is saying "Go out and spend the money"!

This is nonsense. Just like consumption by me doesn't help my financial situation, I will be poorer if I consume today, so it goes for the whole society or country. Consumption doesn't help; I need to find productive uses of my capital, so I produce more. For example, if for $1000 which the Government gives me in Tax rebates, if I go and buy a plastic dinosaur, that hardly helps in me producing more bread (I am a baker by profession). However, if that $1000 goes towards buying a new storage box for the bread, I can produce more bread. More importantly, if I hold on to the $1000 in the bank and do nothing at all; my efficiency of making bread doesn't go down.

Consumption is not necessary to increase production or productivity. That is the mistake Keynes made, and everyone seems to not understand this simple thing. Division of labor, increase in efficiency and dexterity of workers, increase without any consumption. In fact, when people are less likely to buy and consume your products, you work harder to lower the costs of the goods so they do buy them.

A prosperous society is a society which consumes nothing but produces everything in large kquantities. Think of Uber robots who dont even need energy to run---they keep producing bread, steel, jewelery, houses, cars, airplanes, etc. in extremely large quantities at 0 cost. That is a rich society. Whenever you consume something, you take away from this ideal rich society.

Just as a man who doesn't spend anything at all, I mean 0, from his salary assures that he will be rich; so does a society or country which spends nothing assures that it will be rich.

So next time someone talks to you about stimulating the economy, providing jobs for the country, etc. by increasing consumption, you need to run away from them!

Here's what Smith said about parsimony (savings) vs. consumption (prodigality):

"Capitals are increased by parsimony, and diminished by prodigality and misconduct.

Whatever a person saves from his revenue he adds to his capital, and either employs it himself in maintaining an additional number of productive hands, or enables some other person to do so, by lending it to him for an interest, that is, for a share of the profits. As the capital of an individual can be increased only by what he saves from his annual revenue or his annual gains, so the capital of a society, which is the same with that of all the individuals who compose it, can be increased only in the same manner."

Sanjay

Auto Industry bailouts in the US

2008-11-17T16:00:00.000-08:00

Now they are voting about bailing out Ford, GM and Chrysler.
The Democrats want to loan $25 Billion on the condition that the US car companies will make more fuel efficient cars. Executive pay will be limited and dividends suspended. Here's more on the plan proposed by the Democrats.

Let's analyze the US car industry first. They were kings of the world until the 70's, when Japanese started making cars. Then the Koreans (a large country of 50M people) also decided to make cars-climbing up the capitalism ladder (the private car companies had enough capital to compete head on with the Japanese and US car companies) to take market share away from the Japanese and US Car makers. Toyota and Honda were the jokes of the 70's, they became the top companies of the 90's. Hyundai was the joke of 1993, and it became a top seller in this decade, around 2005. The Japanese moved up the value chain of cars, then the Koreans did. And the US car industry really is a lifeless organ making metal boxes.

Will Government putting their money in make the GM and F employees and management work harder to make more fuel efficient cars, or generally improve the efficiency of the companies? That is the key question here. If you know examples of socialist car making companies in Russia, China and India-you know that Government ownership will REDUCE the efficiency of operation of these companies. The employees are less likely to work hard if they don't have the profit incentive, if you cut their pays, etc. Government ownership of pretty much everything lowers efficiency of the workplace. If the profit motive, of beating Toyota and Honda, of making and keeping multimillion dollar salaries could'nt keep these companies afloat-Government ownership will not help-even if some senator believe that it can be done but the "will" is not there. What is "will" anyway? Do I have the will power to rule the world? Unscientific terms like "will power" and "motivation" are modern day analogues of religious terms used in the 16th century. My "will power" has about the same bearing on the results of my actions as my prospects in an afterlife. These are not causes-"will power" is not a cause of anything. In scientific, which means biological or physical terms, not psychological or sociological terms (Psychology and Sociology are modern versions of Metaphysics and Ontology) if you explain to me what "will power" is, I might accept your causality.

If the Government has given them money temporarily while they fix their house, it is okay. But long term a Government ownership is bad for a company.
Sanjay

An ETF for everything

2008-11-04T03:43:00.001-08:00

2008 has been the year of the ETFs. They started out in 2007, and now there's an ETF for everything. Commodities, currencies, short, double short, financial short, real estate short, 2x financial short, short international, you name it-there's the right ETF "product" for you.

Invesco came out with a release today-Actively managed ETF.

What crap is Actively managed ETF anyway? The whole idea of an ETF is that some stupid manager doesn't tinker with it-so I know what it has-and changes are made slowly, announced. How is an actively managed different from an mutual fund? Oh oh, you can trade it intraday-is that it? But do we need this?

Let's see what the news release says.

They are "combining established active managers" (read-losers who have been losing money) and this is creating a "compelling new investment vehicle" (haven't we learned to stay away from compelling investment opportunities, compelling new products?).

The release says that Invesco is going to give the public "market-leading ideas" and the fund will invest "using quantitative and statistical metrics". What are they? There are no quantitative and statistical metrics in modern finance (there's no such thing as modern finance, just like there isn't any modern astrology). These high sounding words are designed to fool the public into thinking that these guys know something-but they dont. These sare slick salesman pretending to be scientisists, mathematicians, etc.

But you can't blame a salesman for selling a $2 item for $2000. The question is: Who buys this shit? The pension funds, mutual funds, corporate treasurers, wealthy investors, how many fools are there?

Sanjay

Non-existent hedge fund "strategies"

2008-11-02T11:32:00.000-08:00

Pension funds, private investors etc. are fooled by the snake oil salesmen of finance-hedge funds, offering them newer and cooler strategies to beat the market, to hedge, to diversify, etc. Most of these are not strategies at all-they are crap being sold in colorful packages.

The basic stuff for capital markets is:
1. Common Stocks
2. Bonds of companies
3. Government bonds

All the rest can be derived from or are strongly correlated with these-and all other "strategies" to capture extra returns are garbage.

Have you seen Volkswagen stock lately? The Volks Porsche saga is great to put to test what you think is normal isn't so in the financial markets. Here's the chart. At one point Volks become the biggest market cap company in the world-even overtaking Exxon Mobil! The stock went from 200 Euros to 1000 Euros in 2 days, on massive volume-showing that this stuff can happen to large companies with good stock volume as well. I won't go into the details-nor do I pretend to know what they are-but it was something to do with betting on convergence of preferred to common. The chart says it all-if you were short Volks common your broker covered it at 4x before you even knowing what was going on.

Merger Arbitrage is a strategy they sell; it is strongly correlated to the stock market. No amout of previous experience in mergers tells you the probability of a new merger going through. There are way too many unknowns, and these are strategies which will give you a small profit if you are right, but a very large loss, possibly bankrupcy, if you are wrong. Think LTCM. Other phony strategies are Convertible bond strategies, pairs trading.

Here's a good paper by bridgewater on how all the hedge fund strategies are really no strategies at all.

And don't even talk about Volatility funds, Currency strategies (buying high yielding currencies, or buying other currencies for diversification-see this 5 year chart of the AUD vs USD. The same this happened back in 1992-1994 also) etc. They even sell volatility (yes, there are volatility funds!) and currency as an asset class! Please sell my used underwear as an asset class also-because it should have some value anyway-and it probably is less correlated to the stock or bond markets!

Taleb also reviewed a book-which mentions the dangers of all these strategies, especially when you are selling options and are shorting something.

Sanjay

The crap called Financial Engineering and Private Equity

2008-10-27T18:01:00.000-07:00

I have two Engineering degrees-in Metallurgical Engineering, and Electrical Engineering.
I tried to understand Financial stuff these last few years-came across words like Financial Engineering. This is crap. There's no such thing-otherwise lets invent one called "Predict the football game Engineering" or "Read your Future Astrological Engineering".

Financial Engineering is a sham. It is people using complex mathematics to confuse people into believing they know something. They don't. They sell "products"---currencies, volatility swaps, u name it. All bullshit wrapped in different bright colored packages.

Private equity is the abyss of Finance. The whole idea of capitalism and stock markets-where you loan your money to a company who you don't know personally via a stock market and a financial regulator is dumped by these groups called Private Equity who take public companies private and apply Financial Engineering to them to turn them around. Private Equity investors are probably the dumbest investors of the world. How can you take out the owners of a company and expect to improve the company? See this example of Kerry's media empire in Australia being taken over by Private Equity jokers here.

Here in South Chile there's some fund called Southern Cross, who took over a supermarket chain for $80M. This supermarket chain is owned by a family, and I know the owner personally. He was pretty happy with the offer-seemed like a nice deal. Now he is out of the company's day to day operations and these bozos from Southern Cross plan to run the company....do you think bozos trained in Financial Engineering can run a supermarket better than people who have owned it for 30 years?

Since voodoo people only respect the art of other voodoo people, that's why you have banks, central banks, etc. all in bed with these people called Private Equity. These are buyers and sellers of money; a business they don't understand much at all. They seem to buy high and sell low. That's why China invested in BX and you have these poor taxpayers in China paying for stupid investments by their Government.

Private Equity firms like Blackstone and Fortress are the highest examples of investor stupidity. They are Public! The whole idea of a Private Equity firm with Public shares is bizarre-they take out public companies and engineer them financially and then dump them back on the stock market, and for this financial engineering they can command a premium??? Investors are paying for a non-existent ability called financial engineering, just like millions of people worldwide pay for astrologers...who do use very interesting charts and complicated diagrams, by the way, to read your future (sounds like complex math of finance???).

Will tell you another time about the biggest speculators in currencies-the central banks and the treasury departments. Hint-they "defend" their currencies ---buying them when they go down.... This is not volatility reduction or market making, this is pure speculation.

Sanjay

The cause of the present financial crisis-not US subprime loans-it is unknown

2008-10-27T04:09:00.001-07:00

The press and Governments worldwide, especially the US Government, has blamed the present financial crisis as originating from US sub prime housing loans and then "snowballing" into a bigger problem.

Just because two things are happening together doesn't mean that one is causing the other. There is no proof anywhere that the malaise in financial markets today was caused by the US sub-prime bets going bad (on part of investors and banks).

To attribute the cause to a liquidity problem doesn't say anything. Any financial crisis is a liquidity problem at heart, duh.

Nobody knows why the markets fell part this year; and more importantly, for the policy makers etc. around the world who are trying to "fix" this problem---you can't. Bailing out Bear Stearns seemed to have done it, then increasing credit to banks, then bailing out AIG, then selling Washington Mutual to Citibank...the list goes on. The end result is that the liquidity problem still continues---ergo---you aren't doing much at all to solve the problem.

They should all come out with hands up in the air one of these days and say 'WE HAVE NO CLUE WHY THE MARKETS ARE BEHAVING THE WAY THEY DO'.

A group of monkeys could get together to solve the present crisis-and it would have the same effect-none. This is no disrespect for my own species-but simply a fact that we don't know is a very good answer often times in our lives.

Long live Taleb.

Sanjay

Dallas Fed's Fisher on capitalism and banks

2008-10-12T10:41:00.000-07:00

Here's what Dallas Fed''s President Fisher says about the banking system and capitalism:

"Paulson, the Congress and other officials will ``will engineer an appropriate recapitalization of the banking system in a manner that does not kill the goose that lays the golden eggs of the practice of capitalism,'' See full story here at bloomberg.

To think that banks are the most important part of capitalism is false. This is a snake oil salesman telling me that the most important oil in the world is snake oil.

Capitalism will do just fine without banks. It worked before banks, it will work even if banks completely disappear. I hope that at least 50% of them will-they are useless entities to scam savers of their money.

Mr. Fisher would do well to visit a Texas Instrument's Fab right under his nose in Dallas; that's capitalism. If Adam Smith were alive today he would be proud to see division of labor and capital being employed so well as in a semiconductor manufacturing facility. And I would bet that he would be aghast at how little the banking industry has progressed-and probably even has gotten worse since his times.

Banks were designed to put capital of savers to productive uses-not to loan for houses (a consumption expense, see Adam Smith-houses are not investments, they are consumption loans), real estate or play with derivatives.

Markets will be back-but I hope that the pension funds, the corporate treasurers, and the mom and pop savers of the world will come out smarter not to trust the banks as much as they did before. This will be very good for capitalism-capital will fall into better hands, hands which will allocate it better for the benefit of all. And it will eliminate more of these useless overpaid middlemen called banks.

But to see an important guy in the Federal Reserve talk about the importance of his own profession or of his cousins is funny-you see now that astrologers (they do have Economics and Finance degrees, two disciplines closely related to Astrology. To be fair and not to sound like I am picking on them, Psychology, Sociology, Political Science, etc. fall in the same camp) have risen to the highest levels of Government-and central banks and their staff seem to have quite a few of them.

Sanjay

The present credit crisis, and some advice to banks

2008-10-09T10:23:00.000-07:00

At this stage in the credit crisis in the US and the developed world, even farmers are finding it difficult to find credit. This is a banking system gone completely stupid. Here's some advice to the central bankers and the banks of the world.

The most basic human needs are food and electricity. People spend money first on food and on keeping their houses warm/cold, and a good government should also make sure that the prices of these commodities are low-not by artificially controlling prices, but by increasing their production.

Credit must flow freely to farmers-the worst thing is if they cut down on food production. Chicago grain prices are at levels where it is not making sense for farmers to plant more. These prices are set by ponzi hedge funds who are trend followers-they buy high and sell low, causing increases in volatility. They are going bankrupt now, and selling wheat and soybeans at production costs. These prices will go up soon; however, the longer they stay lower, the more hesitant farmers in the US will become to plant in the next season.

Because central banks and banks are based often in big cities like NYC and Washington DC, they seem to be happy loaning funds around where they are-in big cities. To bail out housing in suburbs of Washington DC by putting capital of banks or tax payers in mortgages, or to help farmers plant more food? The answer is obvious. Even commercial paper of corporations should rank lower than helping finance farmers to plant more food.

Sanjay

Great buying opportunity

2008-10-04T08:37:00.000-07:00

The fear of credit crisis has them throwing stocks out like toilet paper. Mosaic fell 40% the other day-it now has a P/E ratio of 4. Same holds for pretty much the coal sector (ACI, BTU, MEE, CNX) and the iron ore sector (RTP, CLF, FMG.AX) The large miners (RTP, BHP) are down to P/E's of 8-10, with their stocks trading at half their highs. Energy stocks (XLE) are down also to the same P/E's.

Do you think that even if the banking industry of the USA was to totally disappear-that these companies mentioned above will stop selling their extremely useful products? Maybe people will resort to a barter system-exchanging oil for software-but the world will go on. That the financial crisis can cause a long term downturn in the US economy is absolutely false-a fall in the economy for a couple of quarters, as happened in Argentina, or in Korea and South Asia in the Asian crisis of 1998, can happen. But long term-financial crisis DO NOT have the ability to take down the whole economy. Of course the merchants of that sector (banks) will tell you to believe otherwise.

If you witnessed the crisis in Argentina-you saw the big down on that market-eventually for it to rally back up. Goverments come and ago, but companies stay. The stock market stays. The world economy and the US ecoonomy is much larger than the US financial sector, and life goes on.

Buy on margin and in a couple of years from now these prices will look like the sale of a lifetime.

Sanjay

Bizarre repercussions of Lehman bankrupcy

2008-10-01T23:17:00.000-07:00

The only word which describes what is going on right now in the markets is "Bizarre".
Take a look at this story-this sums it up really well. Great job by Tom Cahill at Bloomberg.

To tell about assets of hedge funds being inaccessible, being stranded in Lehman accounts. To tell about a stake in UBS worth $1.3 Billion being stuck.
Words like inaccessible, stranded and stuck are not used for assets of a third party. This is truly bizarre.

It is understandable that assets of the firm itself are seized, but the Government should make sure that assets of third parties are available fast for trading. This is nothing to do with Lehman-this is a Government's responsibility to honor that assets held even at a failed firm-as long as the assets are simple in form like stocks, bonds, simple call and put options trading on exchanges, etc or cash be completely accessible to the clients of the bankrupt firm.
There is a limit of course-like the $100K guarantee by FDIC, but still-stocks and bonds held at a firm should be monitored by the Government and such a thing is absolutely a loss of faith in the Government's ability to do basic stuff-respect right to property and assets.

If this goes on longer and assets of third parties are frozen in Lehman, you can bet that the Governments (US, UK) will be sued and they will pay through their noses for this strange, bizarre development.

Maybe allowing Lehman to fail was not a good idea after all-the Government should have taken over as it did Fannie and Freddie. Because they now have a very very difficult situation to deal with.

Sanjay

Consumer confidence and other surveys-meaningless

2008-09-23T20:53:00.000-07:00

They tout the consumer confidence from Michigan or wherever and tell you that people are in a dour mood. They survey CEOs about their outlook ("feelings") for the year and months to come and tell you how to interpret it to invest money in bonds, stocks, etc. All these surveys are sold as financial news.

These surveys are meaningless. They don't tell you anything.

Humans talk and act. Their actions many times have not much to do with their talk--they will keep saying they wont smoke or eat more or buy a Gucci bag but will keep doing those activities anyway. It is a fundamental problem with all surveys (including pseudo subjects like psychology, sociology, etc. which are heavily survey dependent)-a human animal just because of it's ability to talk is assumed to know what it wants to do-and this is a wrong assumption. Look at the number of smokers and dieters around you who are addicted to cigarettes and are fat to convince yourself that what we say is very often not followed through. Actions speak louder than words, someone has said---and that is the right view from a biologist/scientist-animals which don't speak also show their preferences by their actions. This is also true for savage people with rudimentary language skills living in the Amazonian jungles, the aborigines in Australia, NZ and many parts of Africa and Asia, and numerous other "uncivilized" human beings which still live today. They may not talk much---but they are still humans, at least in the present classification of species. And you trust their actions for finding out about their preferences, not what they say. This also holds for kids-who talk a lot of things but you can tell what they really want much better by watching what they do.

Sanjay

S&P downgrades-confusing cause and effect

2008-09-14T09:00:00.000-07:00

The S&P (Standard and Poor) analysts are another bunch who always confuse the cause with the effect.
They downgraded (or are threatening to downgrade) Lehman and AIG last week. See stories here and here.

In both cases they are saying the reason for the downgrade is the low share price and the increasing credit spreads on the companies' bonds making it difficult for them to raise capital.

The cause is said to be the low share price and the increasing credit spread. The effect is supposedly the increased difficulty to get more funds and capital.

This is misplaced causality.

The stock price is down (and credit spreads are up) because investors see fundamental problems for these companies. The fundamental problems (mortgage loans, real estate investments, Alt-A loans) are also the reason why capital raises for these companies are difficult.

Weakening of share price, increase in credit spreads, and difficulty to raise capital-all are effects of fundamentals problems with these companies. The S&P guys are attributing an effect as the cause of another effect....go figure.

A weak share price for a good business (fundamentally good business) makes it easier for the company to raise capital, because an investor would love to loan money to a thriving business whose share price has been pushed down artificially for some reason. In the present market-coal, fertilizer, iron-ore, copper, and oil stocks are good examples of this-I have been adding to them in this massive sell-off. A good way to play them all is buying BHP and RTP-u get to play the whole commodities sector in a way.

But these analysts of S&P amused me.

Sanjay

PIMCO, Bill Gross, Bond Funds???

2008-09-04T10:31:00.000-07:00

Today PIMCO's co-chief investment officer Bill Gross came out with these statements:

"The U.S. government needs to start using more of its money to support markets to stem a burgeoning ``financial tsunami,'' "Banks, securities firms and hedge funds are dumping assets, driving down prices of bonds, real estate, stocks and commodities".

``Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,'' "If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.''

See Bloomberg story here, excerpted from the garbage he published on his website.

Does this sound like an adult bond fund manager of apparently the biggest bond fund in the world??? What a whiner-he wants the US Government to help. Since when have Governments made money for private individuals??? Any time they interfere in the markets-it is always for the bad of private individuals. Now Mr. Gross wants the Government to save the leveraged bets. He makes me laugh-he is at the top of the heap of people who know very little, do nothing, and are paid by the foolish public millions of dollars to "manage" a bond fund.

Who the heck created this idea anyway-of actively managing a bond fund? Bond funds are low risk-why pay a manager??? Sounds bizarre. Much like municipal bond insurance salespeople like MBI and ABK, bond funds are another scam of Wall Street. They charge 1% fees for making you 5-8%!!!! At least in a stock fund you can understand paying a manager 2% if you make 20-30%, but a bond fund is a completely silly way to pay someone to do nothing at all.

Any time assets are not very volatile-bonds, developed world currencies against each other---one should not "invest" in funds of those. Manager/Trader skill is in managing volatility to make money for you-and low volatility or low risk markets are not a skill game. Better to buy any random collection of bonds-some AAA, some junk---u know how much we trust those rating agencies....:-). As I mentioned in a post earlier- I dont trust Government bonds-trust corporate bonds more. The academic crap called risk free rates is all backwards-it is written by Nobel Laureates in the US and Developed worlds-Governments who haven't defaulted on their debt in the last few hundred years. That makes them think that Government bonds are "safer" than corporate bonds---that is not true. A diversified portfolio of corporate bonds is less risky, in my opinion, than holding some Government bonds of the USA or a developed country. Of course it is even less risky, relatively speaking, for a developing country-where Government defaults are quite common.
Think of how many bogus Nobel prizes have been awarded in Economics on the concept of risk free rate being equated to Government bonds.

Sanjay

Jeremy Siegel, PhD in Economics

2008-09-01T22:44:00.000-07:00

Adam Smith's ideas, which laid the foundation for a career in economics, is mocked at by people like Jeremy Siegel.
See this post of his which appeared a couple of days ago
What a joke-He is observing two things at random (party in power and stock market returns), and is trying to give a causality argument when even a correlation can be called completely accidental.
This man is an astrologer. Do they have a PhD in Astrology somewhere still?

Sanjay

What is arbitrage-the uselessness of cash

2008-09-01T21:50:00.000-07:00

Just a quick word on Arbitrage.
There are all these strategies about pairs trading, relative value, etc involving two different securities. They forget that buying anything with "cash" is also arbitrage.

One must remember that cash is nothing but a bet on a Government. The US, Japanese or Western European Governments keep your money safe and give you an interest-but when you move cash out into buying some stock you are arbitraging the cash for the security-because u see better value there. Instead of the Government giving you 4% per annum you play the gamble and want to get more than that-that's when you trade your "cash" for the security.

Cash is much worse than stocks for non-developed world Governments. Governments will default and currencies will devalue-but stocks and companies will stay often. Take Russia and Argentina as examples. Pull up charts of ROS and YPF to see what I mean-they stayed even when people holding cash in Argentine Peso and Russian Rouble lost loads of money because of devaluation.

All trades are arbitrage between "cash" and the securities bought or shorted with the "cash".

Sanjay

Books/Authors I like-and why biology and economics are difficult

2008-09-01T19:57:00.000-07:00

I live off three books/authors when it comes to biology and economics.

Adam Smith's "The Wealth of Nations"
Charles Darwin's "The Origin of Species"
and Nassim Taleb in "The Black Swan" and "Fooled by Randomness".

What's the connection between biology and economics?

Both deal with life, living species.

That's why they are harder that physical sciences-Physics, Chemistry, Engineering.

As long as we deal with inanimate objects are have great laws of motion, of thermodynamics, of Quantum Mech and of Relativity-to make us really understand mother nature and use that knowledge to our advantage.

Biology is difficult-because it deals with life. But we are progressing. And economics deals with behavior of humans-living objects-making it much "harder" than Thermodynamics or Quantum Mechanics.

But with all these problems-Adam Smith and Darwin stand out. They have a lot of empirically provable stuff to say in The Wealth and The Origin.

Unfortunately most other authors I have read make lots of errors-especially in economics. They are not scientists.
That's where Taleb comes in. He tells you to not revere the suits and the ties, the high positions (the apprenticeships-in Smith's language). That most people don't understand much-that we tell elegant stories, but they are unscientific, unempirical, unprovable. They are very logical-but that is not enough (the earth is flat is a logical statement for all humans-but it is false).

Taleb gives us courage to stand up against the false knowledge in humans. He is often right-in questioning the validity of all this apparent knowledge around us.

Taleb's website is here.

The Wealth of Nations and The Origin of Species are 10 dollar books on Amazon.com. Taleb's are pretty cheap too. Pure knowledge is quite inexpensive!

Sanjay

Foreign Reserve Accumulation by China, Russia, Korea, etc. is a disservice to their countries

2008-08-17T18:59:00.000-07:00

China leads the world in the total amount of foreign reserves. It also is the fastest accumulator of them. The biggest beneficiary of this is the US. The Chinese buy US Government backed bonds (treasuries and mortgage bonds issued by Fannie and Freddie) with those reserves.

What would Adam Smith say to this?

As we are all well aware-China has become the manufacturing hub of the world. China sells the world loads of finished goods-toys, machinery, auto parts, computer parts, digital cameras, home furnishings...well, just about all finished goods which we spend our money on. The complexity of these goods is increasing as well. There are Chinese made cars in Chile nowadays.

What China gets for selling all these goods? It accumulates US Government bonds. Smith clearly explained that capital at home is the best use for a nation-it employs the maximum number of they country's citizens. Capital is sent abroad by private individuals to increase returns-but a Government doing this is silly from a job generation perspective. Another way to look at this is that China effectively subsidizes all these finished goods it sells to the US. It exchanges the hard work and labor of it's own citizens for useless paper currency paying some small interest. It keeps Americans employed-giving a nice gift of manufactured items for free use.

All emerging market nations do this-they could generate far more employment at home if they didn't keep these massive piles of monies in the US, UK, European Union etc.

The emerging markets justify their FX holdings for defending their currency, and their high liquidity. They actually keep their own countries poorer.

What should they do? Market based currency rates are a first step-but capital already accumulated by these nations should move into buying things which their countries need. Raw materials or machinery to improve productivity of their citizens. They should buy iron-ore, coal, nuclear energy plants, etc. That is not the same as investing in resource stocks in Australia---that will again employ Australians. They should keep buying the commodities produced by Australian producers and bringing them home so the home market has no shortage of basic materials like coal, iron-ore, copper, etc. They should spend that money in buying more aircraft and other techologies which will make production smoother. Then the labor of China can work on those materials and generate the finished goods it is so capable of doing in even larger amounts.

Smith also mentioned about the uselessness of controlling the amount of money supply in the country by changing interest rates. The amount of money necessary to circulate goods in a country is an unimportant part of the country's economy. Imagine a world without paper dollars or yuans-will we not trade things-goods and services, anyway? Sure we would. It just wont be that convenient, but we still would trade goods.

Chinese finished goods should be traded for raw materials and other things which Chinese citizens need---not paper US dollars and Euros. That doesn't help China-it actually hurts it-because precious capital is kept outside, preventing better division of labor. The least they can do is to flood China with raw materials.

A small export based economy justifies some foreign reserve holdings to prevent excessive currency fluctuations-but nothing more than that.

Any Government which holds foreign reserves as "investments" does it at the expense of it's own country. Adam Smith would be amused if he saw how national Governments exchange the hard labor of their citizens for paper emitted by foreign governments, in the name of liquidity. Smith also explained how you never buy money for it's own sake-money (or Government bonds) has no use, but to be sold again for buying other goods--goods for consumption, goods for increasing productiving, raw materials. A paper wealth increase in China's foreign reserves because the US Government pays interest on them doesn't do squat for China-unless that interest and capital is spent to bring something useful back home.
Eventually these emerging market economies need to stop accumulating reserves so they can become developed countries faster.

Sanjay

Basics of Economics -1 (not understood well by most people)

2008-08-10T22:43:00.000-07:00

The basics of economics, as laid out by Adam Smith in The Wealth of Nations (seems like the only book worth reading in economics to me) are missed by most people-including many well known economists and financial planners and bankers.

Here are some key points of Economics, thanks to Adam Smith.

1. Society progressed by increased division of labor-specialization leads to more efficient production.
2. For division of labor to come about, you need capital (think tools-workers need tools to work on to produce more). As capital in a society progresses, division of labor also progresses alongside it. More capital in a society leads to more efficient division of labor.
3. Efforts of Government should be directed to increase production of things. This brings down their costs (increases surplus production)-leading to more exchanges.
4. Parsimony and savings result in accumulation of capital and should be encouraged. Consumption of goods should be discouraged. Consumption should only be a percentage of net capital gained-so that there is continual accumulation of capital in the society. This is well understood when considering a single individual-a man who saves comes out ahead-someone who consumes only a small portion of their capital has a brighter future.

There's more to The Wealth of Nations than this-but these are some of the most important points.

Consumption can be looked at as the return of goods to their basic forms which have no resale value-carbon and CO2 for coal and oil, wood and glass turning into living room decorations with little resale value, etc. This is similar to the treatment of Hayek in his order of goods-higher order goods being the more basic commodities, and lower order goods being the more finished products. I like to think of the order of goods in reverse-because the "evolution" of goods is easier for me to understand that way-lower order goods being turned to higher order goods by the work of man, using capital (tools) and labor ( man hours).

An example of how everyone has got it all wrong with the $168 billion stimulus package in the US earlier in the year.

The package is often said to boost consumption and therefore economic growth. See News release here today, for example. That is not right. Why?

If you give me money to buy more apples, does that increase automatically the amount of apple production or the net production of society? No. Consumption is a drain on capital. It leads to destruction of capital. You don't want a society to consume more---you want it to produce more and save more. That $168 Billion should be used by judicious people to invest more in improving their specializations, getting better jobs, etc-in other words, improving division of labor to increase net production (goods and services is an arbitrary distinction-services can be looked at as intangible goods). Consumption does not increase economic growth-it is economic growth which increases consumption. They have it backwards there. As the net production of a society grows, assuming a fixed percentage is being consumed-the consumed portion keeps on increasing in time.

-Sanjay

"Economy slowing due to high oil and commodity prices" is a strange statement

2008-08-05T21:39:00.000-07:00

When economists and central banks and finance ministers say that the economy, global or their local, is slowing because of higher oil and commodity prices-they show that they understand economics very very little.

Are oil and commodities like wheat, rice and copper not produced by humans? It is not like some extra terrestrials have been giving us our raw materials. The energy sector has the biggest weighting in the SP 500, and many commodity and energy producing nations are quite happy to see higher energy and metal and agricultural product prices. What is called economy here is the economy of the the finished good sectors, of entertainment, of expensive real estate in NYC and London and Mumbai, which suffer when there's not enough raw materials to work on.

Economy includes all sectors-including oil, wheat, copper, everything produced by humans. Keep that in mind when you analyze meaning of financial news-and u will realize how most of it is plain crap.

Sanjay

A word on Fannie and Freddie Mac

2008-07-14T10:35:00.000-07:00

Just a quick note on Freddie and Fannie. That there are people who think there's an "implicit" guarantee by the US Government on those bonds-they are wrong.
There's no such thing as an implicit guarantee. It is a guarantee, or not. And no matter what the Government says-e.g. by the announcement yesterday of helping Fannie and Freddie-they have not guaranteed those bonds.
Sanjay

Energy and Oil, Oil Stocks, Hand Dryer and Hybrid Car Economics and Crap called Global Warming

2008-07-01T23:22:00.000-07:00

Oil markets and oil stocks. Oil is up t0 $140 a barrel. Oil stocks in the US (good proxy is XLE) is up only 10% for the year, price sensitivity of oil producers to oil price is very high-markets seem to be significantly undervaluing oil stocks, especially because futures are in contango. But the general malaise in the stock market probably is pushing the oil stocks where they are-once the selloff of financials is done they will lead the market higher.

They say Oil is up by speculators. Need to get the basics of economics right--speculators make profits if the price of oil rises more in the future-they supply oil in the future at higher prices-and thereby add value to society. See Adam Smith's Wealth of Nations on "Digression on Corn Trade" for more on this. If price of oil falls they lose money. They help in controlling consumption of today and transferring it tomorrow, so oil wont rise as much tomorrow.

That someone who trades Oil futures is called a speculator while Exxon and Aramco are not (what's the difference-each is buying something-labor and capital for cheap, and selling the final product at a profit). Just because someone really "produces" something doesn't make them any less a speculator. Isn't Walmart a speculator-buying all this chinese stuff for cheap, hoarding it and then selling it to America for dear? Shouldn't they be shut down and we get all the Chinese stuff for cheap? Eliminate the middle man, and we will get everything from the farmer and the raw producers-take division of labor and expertise to cave men era. Then I will make my own bread, make my own clothes, build my own house, build my own tools-to eliminate all the speculators etc. who make money off me-and live happily ever after? Or die very very soon? They want to reverse human development and division of labor when they talk about eliminating speculators in oil.

It is irritating to see electric hand dryers in bathrooms. They dont save trees-we can't say that for sure-do a calculation of how much energy is spend in producing all that steel which the dryer is made of, how much coal is used to produce the electricity the hand dryer consumes-and u will see that it ain't that simple. I would rather chop a few trees down and get the simple paper towel. Just because I dont sin in using the final end product of trees doesn't mean that less trees are actually being cut. Steel industry and coal mining eliminate a lot of forest, and consume lots of energy, which is itself destroying the environment, which destroys, life, etc. etc.

Hybrid cars for cleaner environment make me laugh. They are expensive than oil using cars-and will remain so for 30 years. And the carbon dioxide and carbon residues released in electricity production are harmful to the environment, people forget that. Yes, nuclear, wind and solar are energy options-but they are 3-20x more expensive to produce a unit of energy than coal, the cheap king. Chinese and Indians are for the first time seeing the dream of 24 hour electricity-and they can't be bothered a bit about destroying the environment to have 24 hour electricity. This is like going into a poor neighborhood in Chicago and ask everyone to hire a gardener to mow their lawn so the neighborhood looks pretty.

Global warming leads to madness from Bono and Al Gore. Granted that there is global warming-wont dispute the science on that-but that it causes any harm is doubtful. Sure ice is melting and species in the arctic and cold regions are being destroyed-but thousands more are being generated in the tropics, where it is on average warmer. Life is always more abundant in heat-read Darwin in "The Origin of Species". A warmer earth supports more species, more life. Global warming and green earth talk is not much different from Eugenics by Galton 100 years ago-this was a very respected scientist who was talking complete crap in one field-Eugenics (he discovered finger printing as an identification technique). Intelligence is domain specific-but most people are too dumb to realize that. Therefore Galton got famous selling "improving the human stock of England" ideas to the world. There was even a Fellowship of Eugenics in the Univ of London. So many good anthropologists and good scientists fell for it. Same with global warming talk right now-it is alarmist, the earth will be fine with a few degrees of temperature rise-true penguins and polar bears might go-but these are the big species-thousands more of the small ones are being generated in the warmer parts of the ocean and the land thanks to global warming. And the mammals in the warmer parts will multiply more and lead to more varieties and species of mammals in the future.

Sanjay

Coal stocks

2008-06-23T17:28:00.000-07:00

Here's my reasoning for the long position in Coal stocks I got in my portfolio.

Prices of Met coal have tripled, and prices of thermal coal are up 100% in the last year, or in fact, since the beginning of this year. Again, details are not important-the key element is, met coal has approximately tripled to $300 per ton, and thermal coal to $160 per ton.

Imagine a company selling just one product, sells $100 of this product, and it earns $10 in 1 year. With a p/e of 10, the market cap of that company is $100. i.e. you will pay $100 for this company today. The profit margin is 10% (profit/revenue---costs are $90, profit is $10).

If the price of the product it sells goes up 2x, i.e. $200, and if the costs remain the same, then the profit of the company will be $110! If you wanted to give the same price/earning ratio, of $10, you would actually bid up the price of the company to $1100. That is an 11 times increase.

However, that's too good to be true. The risks in this simple model are 1) price falls back down, and 2) costs go up.

So when a commodity like met coal goes 3x in price, and another like thermal coal goes 2x in price, the stocks of the producers of coal react positively, to say the least. But what is a fair price ---it can be anywhere between 1x to 11x, depending on what you feel the cost structure will be in the future, and what the price will be in the future. Note that the price can come down---as long as demand volume goes up with that-u still will make a very good profit-it makes sense to bring up more coal mines. In fact, price is a leading indicator of demand in this case-and stock price will follow the price of coal.

Some US listed coal companies shares have goes up 2-3x in this year, but depending on your outlook for prices-you can make a case that this is going much much higher.

And I for one believe that this is a sea change in the coal market-and demand is here to stay. Look at statements of MEE, ANR and JOYG-and you will get an idea. Earnings expectation keep going up every week on these names.

Sanjay

Obama, Racism, Religion, Discrimination against Women, South America and The World

2008-06-04T21:01:00.000-07:00

The title of this post tells u that there's going to be quite a bit of stuff said in it. I don't claim to be right or accurate in what I say; but these ideas are from my own personal experience, and experience of close friends whose data I can trust. They are not from the books or "what they say about.."

Obama winning the Democratic Nomination in the USA is great for the blacks and minorities of that country. Finally USA can become more like Brazil-one of the least racist nations of the world. I have found from my personal experiences that South America is by far the least racist continent of the world. Racism, religion based discrimination, and status of women--all go hand in hand in my opinion. And South America is the most civilized continent of the world in these things.

Why?

A German, a black guy from Zimbabwe, a chinese from Shanghai can travel in this continent in a small town without knowing Spanish/Portugese---and they will not be harmed. They will not be attacked racially (again, nothing is absolute-the probability that that happens is low is what I am saying). I cannot imagine a Mexican Jose traveling in Sweden or China or the USA not speaking the local language and not being harassed/beaten up. The world outside South America needs to learn a lot from this continent where people live the most free.

It is nice to see another nation, USA, following the leadership of Brazil in this. Remember that Brazil was the first to abolish slavery, give equal rights to blacks-and today 51% of the population declares themselves as Mulatto. That is the human race of the future, the mulatto, mixed with some oriental blood. There are a large amount of Japanese in Sao Paulo, who live and cross quite happily with all others living there (the ones who don't stay in their communities and their populations will diminish/not grow as much as the others. Witness orthodox Jewish colonies in Sao Paulo, Buenos Aires or New York City. As a proportion to the majority populations of these cities, they are a SMALLER portion)

Religion is a big problem in the world still-and religion based discrimination is rampant in many places, especially in Asia, Africa and the Middle East. Since all religions were founded and controlled by men; there is widespread abuse of women's rights in almost all highly religious societies.

A world free of racism, religion and a truly equal status for women would be a much better and fun world. By the way-you can measure this with this experiment.

The day when a woman can go out alone in a bar, pickup some guy, and have a wild night with him without being looked down upon by society, that day we know we are treating women as equal as men (we normally call her a slut-whereas give a pat in the back of a guy who picks up some girl in a bar and has a wild fling). She needs to be able to do this with a man of any color or religion, without that guy being at any risk of physical harm from other guys in the bar, and that is then a true test for a free society.

Even in South America we are not there yet-but we are getting there fast.

Sanjay

Libor-and problems with all surveys

2008-05-29T11:24:00.000-07:00

The Libor controversy is in full swing: story here.

Banks are "polled" to determine what rates they would lend to each other to arrive at Libor. They lie.

This is a problem with all surveys. People say a lot of things which they dont do, or dont mean. Actions speak louder than words. The only way to determine a loan rate is to actually ask for a loan-or look at a previous trade price of the loan interest rate. Otherwise, it has no meaning.

This is a general problem in all surveys-psychology, sociology, etc. are full of these. Most give no information; Humans don't know themselves that well; inspite of their well developed vocabularies and "rational" talk. We are all animals-and mostly clueless about what we do and why we do it.

A good narrative of why I did something is always there---but prove to me that it is the reason? e.g. I want to eat melons today---so I go and buy a melon and eat it. The animal model simply says---the body needed melon, triggered the conscious mind to make a statement that I want a melon, and made the body go out and get melon. The desire is unconscious-but the actor thinks she is actually making a conscious decision to eat a melon.

This is also called attitude-behavior discrepancy in psych circles; we are full of it.

Sanjay

When they have nothing to say...

2008-05-26T10:57:00.000-07:00

Here's a quote which appeared today:
""This is going to be another difficult spring," said Mark Zandi, chief economist at Moody's Economy.com. "I think we are at the beginning of the end of the housing downturn, but it is going to be a long and painful end."
Full story here.

Duh!

If you have nothing intelligent to say--just don't say anything!

-Sanjay

Empiricism and how far we are from it---markets and weight loss

2008-04-17T14:24:00.000-07:00

I believe that one of the biggest authors of our times is Nassim Taleb. His site here.
He opened our eyes to brute empiricism, applicable to not just the financial markets but all walks of life.

On financial markets-stock market is nothing but a game between humans. The numbers called stock prices keep going up and down; and other humans want to take your money. It hasn't got much to do with the economy in the short term---as much as they would like you to believe it. In the long term it does-but what is long term? If 25 years is long term-I dont want to "invest"--I am happy getting in and out at different times from the market-trying to be a trader catching the market's moves. It is only sometimes that I can see clearly where the game prices (stock market prices) are headed-and that's when I bet. Bet big, sometimes; that's been my general mantra for success. Probably 10% of my trades account form 90% of my profits over the last decade or so that I have been involved in the financial markets.

Now to weight loss. Here's some interesting empirical observations on it.
People will go on diets, start doing exercise, etc. etc. but I have found that they always revert back to their normal weight. From empirical observations-I can say with good confidence that the weight of a human being can't be changed by "conscious" behavior; it is probably determined by their genome.

For one human being-let's say a male-his weight is an increasing function of age. As he gets older; he will get weightier. The individual's weight will vary only maybe +-3-5% from this function-which is determined by their genes. They can't control it-it is the same as trying to control your temperature or your heart beat. For short periods of time they might lose or gain lots of weight (short period would be a few weeks) but then they will revert back to their natural weight, +-5%. Dieting, exercising etc. dont help-I know plenty of cases where they have failed to say that you can't lose weight by doing that. I also have plenty of cases where slim individuals I know take no special diets or do special exercises.

Another important observation is that just as you can't lose weight beyond maybe 3%, u can't raise it more than 3% either by conscious behavior (dieting, exercising). Their is a natural upper limit---regardless of the tasty food you have at hand.

Liposuction is probably a solution. But it is temporary-u will pick it back up.

These are some empirical observations on weight. Dont try to lose weight-u will lose that battle.

Sanjay

The snake oil called bond insurance

2008-03-30T20:10:00.000-07:00

With the credit crisis in full swing, the zeitgeist demands that i point out to you other "financial sophistaction" products which banks and brokers are selling to the public which have no use, and are essentially to generate commissions for them.

Bond insurance, and especially municipal bond insurance, is snake oil. Holding bonds is diversifiable risk for serious investors, and in smaller cases where insurance is needed because the investor can't diversify their risks away-they should be sold. But to sell insurance on all municipal bonds like what MBI and Ambak have been doing is useless.

A rational investor can hold many different municipal bonds and even if some default, she is ok-the risk is not the municipal bond market risk, and not any individual municipal bond defaulting.

Ajit Jain, who runs the newly founded Berkshire business to sell this snake oil called municipal bond insurance, even testified about the uselessness of his business. See here. I dont understand why they are still going ahead with this.

California seems to be realizing that this insurance is not needed; others should realize it too.

Sanjay

Buffett's "Free Float" from Insurance Operations is Deceptive

2008-03-28T11:39:00.000-07:00

Buffett in his annual report for 2007 mentions:

``This float (the float collected from insurance premiums until now, $59B) is `free' as long as insurance underwriting breaks even, meaning that the premiums we receive equal the losses and expenses we incur,'' .``If we do that, our investments can be viewed as an unencumbered source of value for Berkshire shareholders.''

This was referenced recently in Bloomberg by comparing how Buffett's strategy is better than Blackstone's :
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a61_4O7o1UdY

Buffett is wrong. Why?

Any insurance business is inherently selling put options. What he is saying is that if future premiums collected from selling these put options are the same as future losses from exercise of some puts--break even scenario-then we get to keep the $50B "for free". Hah!

The premiums collected until now are a part of the capital! You can't arbitrarily set a clock at end of 2007 and call that free money. Any premium earned can possibly go towards insuring future losses---and even saying something like "if future premiums are same as future losses"
is absolutely silly!

A put options seller on SPY can do out of money put sells for 5 years, collect premium, and then say at the end of the 5th year: Hey, if I sell put options in the coming years, and my losses from the occasional exercise of these put options when they fall in the money will be less or equal to the premiums collected in these years, then I get to keep the previous 5 years for free!

As we know from the collapse of Bear Stearns-premiums collected disappear overnight. Finance (banking and insurance) is selling confidence and trust to people-and if they lose that, overnight the business collapses. That can happen to Geico one day, and then Buffett will look not so smart-another outlier due to good luck, until the streak broke.

-Sanjay

Financial sector earnings as options (volatility) selling

2008-03-05T19:07:00.000-08:00

If you have followed the financial sector at all in your life-u see a recurring theme. Banks, brokers, insurance companies make good money quarter after quarter, and then in one or two quarters lose very large amounts of money-sometimes losing all they made in many years! Some of them gone under in one quarter alone. This is was explained very clearly by Taleb in his book-Fooled by randomness.

The crisis in financial markets since last summer has shows this so nicely, AGAIN. Socgen, Wall Street brokers, Citibank, UBS, CFC---u name it, each has contributed it's massive fat share to the financial sector losses in the world. Banks seemingly disconnected to subprime crisis in the US--banks in Japan, China, and India-have lost money on a financial crisis supposedly started by dislocations in the US subprime market.

That is a good/logical explanation, but I dont think that it is the right explanation.

Anytime you see a steady payoff period after period, and then a big loss in one period-it reminds you of the profit/loss profile of an options seller. The options seller is short volatility---makes small amounts of money for long periods of time, and then has big losses sometimes. Financial sector earnings are the same.

What happens is that markets become used to low volatility-smaller and smaller swings in asset prices. To get the same returns then, if you are a market maker at a bank or a broker-you have to leverage more. Or you take more liquidity risk, credit risk, etc-which deceptively looks cheaper to take! The classic Taleb's turkey-the turkey gets more and more confident as it is fed more and more-and it's confidence is at it's highest just before Thanksgiving day.

Lower volatility is the norm-but one wants to be prepared for the black swan of high volatility out there! The only way to do this is to control leverage-a fixed percent of equity-and be very mindful of other risks-liquidity risk, and credit/default risk the two important ones.

The subprime crisis is just an excuse for a period of high volatility. It is hard to prove that it is THE REASON for higher volatility. Any asset price going down can be attributed to high volatility (bursting the internet bubble, russian default, mexican peso crisis)-but if you have an options seller's profile in your overall portfolio-you will lose big when volatility suddenly spikes. The reason is not known, not is it important. The risk demons you have in your portfolio-of liquidity risk and credit risk-come to bite you hard when volatility shoots up. Bids disappear, bid/ask spreads widen, it becomes impossible to sell or buy in size.

In a few years when all this "crisis" wouldve passed-the press will find another reason for the next crisis. Surely it will happen after a period of low volatility, goldilocks scenario-as we saw in the beginning of 2006.

It is very insightful of Taleb to write about this-he reminds us of banks and brokers losing everything they make in many years in a bad quarter, and this seems to happen with remarkable periodicity! Jim Rogers was also shorting financials in 2006---what a great call by these guys!

Will such a massive collapse in the financials finally wake up people to realize that the financial sector in the US is an overpaid lot---the salaries of many of these funky managers need to come down quite a bit? Will the returns going forward in the financial sector lag the market? Only time will tell. But at least this should serve as a big wake up call to all investors in the financial sector.

Sanjay

Indonesia: BRIC should be BRIIC

2008-02-18T19:01:00.000-08:00

We have all heard of BRIC, but I think the world is ignoring one giant country-Indonesia. It is the fourth largest country in the world in population, after China, India, and USA. It is bigger than both Brazil and Russia, and I think people are being carried away by the BRIC story. You will hear good things about Indonesia in the years to come.

We should change that acronym to BRIIC-the two I's for India and Indonesia. Indonesia will be the fourth largest economy in the next few decades.
Sanjay John G.

Why you should buy stocks in China and India-and sell all your developed market stocks (or short them)

2007-07-05T18:27:00.001-07:00

In this post, I will try to prove to you that at this time, it makes sense for you to buy China and India stocks, and sell every developed country stock you got. If you are more adventurous, sell the developed country stocks short and use the cash to buy China and India stocks.

Let me introduce you to two graphs first.

The first graph shows no. of High Net Worth Individuals (HNWI) (People over USD 1 Million dollars in assets, excluding their house) in selected developed countries (note at bottom on why this selection) and the population of these countries. Data is from 2006 and 2005 (extrapolated).

The second graph shows their total stock market cap plotted against the country's population. Data is from 2006 and 2005 (extrapolated).

As you can see clearly-the stock market cap of a country and the number of HNWI in it are proportional to the total number of people in the country, to a very good approximation.

Also note that most HNWI invest in the stock market, so the above graphs are really one and the same thing-just showing clearly the correlation of wealth to population.

I am omitting a graph here-that the GDP of these countries also scales well with their population (the correlation is not as good as in the graphs above. I don't trust GDP calculations very well, because there are different methodologies of calculating GDP followed in these countries)

Now we go back to some basic stuff. What are we doing when we buy stocks? We are essentially buying human creativity, producivity, the ability of human beings to make the world better for themselves, individually and collectively. Economics tells us that selfishly working for themselves, trying to make more money for themselves, humans do a lot of good for each other indirectly-and I believe it was Milton Freidman who argued that that was really the best way to do collective good-to work selfishly for your own interest.

Essentially, when you put money in the market, on a major index like the SP 500, you buy the raw power of 300 Million Americans working for you. The point I want you to take from here is-you are investing in humans first, then the sectors/industries/hot areas/growth stocks, etc. I will call this theory of mine the "human capital" theory of investing.

In a free market economy-humans will find out the best way to allocate capital, and themselves, to produce the most. That is why stock market capitalization of the five developed countries above are proportional to the number of people they have. A fraction of these people becomes millionaires, and the number of these HNWI is also proportional to the total population of the country. It intuitively makes sense.

Go back 20-30 years ago. China and India were not open markets, socialism and government control was making massive mistakes in allocation of capital. Same goes for other emerging markets like Russia and Brazil. We had a problem-free markets were not allowed to operate in the "developing" countries-mostly by rogue or unknowledgeable governments.

When free markets were embraced in China and India, the world there suddenly changed. The State was not fixing prices-it was letting the market economy decide where to best allocate capital and human resources.

Since India has 1.1B people, and China 1.3B people, given that free markets are going great in these countries now, and private industry is increasing it's share of economy-it is very likely that these two countries will become "developed" countries in the years to come. The Goldman 2003 report and it's subsequent updates give some timelines to that-that China will be the biggest economy of the world by 2030-2040, India will be second, etc.

Since GDP/Overall Stock Market Cap/No. of HNWI are proportional to the population of a country, in a free market economy, it is obvious that the richest people and the biggest stock markets in the next few decades will be China and India( I actually think that the Goldman report is underestimating how fast these countries will come up-I believe by 2020 China will be the world's biggest economy, and by 2025, India will be the second biggest economy of the world..with the related increase in total stock market caps and No. of HNWI. Note that this can happen if the countries mentioned above go into a recession-one side can start losing and the other side (India and China) can gain).

So fast forward to 2025 AD.

The top two economies of the world will be China and India. These will have the biggest stock market caps of the world country stock market caps, and will also have the highest number of HNWI.

USA today has a market cap of 16 Trillion Dollars with 300Million population.

China is a market cap of 2 Trillion Dollars (approx-including some of Hong Kong) with 1.3B people.

India is a market cap of 1 Trillion dollars with 1.1 Billion people.

A possible scenario in 2025 (or whenever China and India will become "developed" nations):

China Market cap 120T
India Market cap 100T
USA market cap 30T

The growth in the stock market caps (and therefore a well diversified portfolio in each of these countries) will be fastest for China and India. Your investment money today will go much farther in these countries than the developed countries mentioned above.

Why did I choose these five developed countries and not others? Because they are the biggest developed countries, and also because stocks of these countries are primarily owned by local investors.

This argument can be extended to prove why the developing world returns (emerging market returns) will grow faster than the developed world.

As capitalists, or owners of capital, people like you and me can move our money around much faster than GM or F actually shutting down their facilities and only importing Chinese and Indian cars. Capital goes where returns are-you know that you want to invest in China and India-because that's where the "human capital" is.

A couple of other things:

Other developing countries are great to invest to-but they will saturate out because of limited human capital.

Countries which hold resources of value to China and India-Brazil, Russia, Australia and Canada, raw materials which can't be easily duplicated by the Chinese and the Indians, will prosper the best by selling the raw materials to China and India. The information edge, the soft power, of USA, UK, France, Germany and Japan is largely going to be gone because of development of markets in China and India. Some companies like Microsoft are likely to prosper-but anything which is "physically manufacturable(Airplanes, pharmaceuticals)" and "not-an-addiction (Windows)" will move over to China and India.

Sanjay