Wednesday, December 31, 2014

I see no past, I see no future

This is a crass discussion of making money through investments, by a blogger who not infrequently natters on about spiritual growth. If you think the two subjects have nothing to do with one another, you are an Enlightened Being or a trust fund baby.

Money can't buy happiness, but to a certain extent it can buy time. Not necessarily by lengthening your lifespan (although sometimes it is a factor there), but by allowing you more often to put aside worries about getting and spending  and instead meditating, praying, or following whatever spiritual practice you choose.

This is the moment that comes each year when the financial media -- all the way from relatively sophisticated ones like Barron's to simplistic fodder for the masses like Money -- try to tell you (a) what happened to investments this past year and (b) what will happen to them next year. Both are equally pointless.

If you've been paying attention, you know (at least in a general way) what happened to money, especially yours, in 2014. If not, why read about it now?

But that's not too important. Subject (b) is important because it can set you on a wrong course and thin your purse.

Virtually all these articles are based on predictions. After many years of following the markets, I'm inclined to say nothing is as malevolent toward your wealth as predictions.

Everyone is in on the game, from callow financial journalists to supposedly all-star fund and hedge managers. The predictions are most often based on the trend-is-your-friend, or straight-line, fallacy: what will happen next is what is happening now, only more so.

But nothing is as dead sure in the investment world as trends changing, with mind-bending speed sometimes. Financial gurus who should know better tend to reduce investment trends to analogues of the laws of physics. On a macro level, at least, physical laws are calculable because they always work. Gravity doesn't change its mind. When you see a video of astronauts in a space capsule floating around like fish in a tank, it's not because gravity is on holiday, but because they are beyond its influence from the Earth.

Interest rates, the price of oil and other commodities, new technology, and every other factor affecting prices of your investments aren't subject to laws. Or, to be more precise, they're subject to so many laws that the variables are for practical purposes infinite.

Right now the investment world is bouncing off the walls trying to predict the fallout from oil prices, which have sunk 40 percent from their last high point. Petro prices have always been cyclical, although this time it's a little steep. But Howard Marks, who runs the hedge fund Oaktree Capital, tries to do the near-impossible and inject some good sense into the discussion (in a letter to his shareholders reproduced at Market Folly):
The usual starting point for forecasting something is its current level. Most forecasts extrapolate, perhaps making modest adjustments up or down. In other words, most forecasting is done incrementally, and few predictors contemplate order-of-magnitude changes. Thus I imagine that with Brent crude around $110 six months ago, the bulls were probably predicting $115 or $120 and the bears $105 or $100.
Forecasters usually stick too closely to the current level, and on those rare occasions when they call for change, they often underestimate the potential magnitude. Very few people predicted oil would decline significantly, and fewer still mentioned the possibility that we would see $60 within six months.
Turning to the second aspect of “the failure of imagination” and going beyond the inability of most people to imagine extreme outcomes, the current situation with oil also illustrates how difficult it is to understand the full range of potential ramifications.
Most people easily grasp the immediate impact of developments, but few understand the “second-order” consequences . . . as well as the third and fourth. When these latter factors come to be reflected in asset prices, this is often referred to as “contagion.”
Everyone knew in 2007 that the sub-prime crisis would affect mortgage-backed securities and home builders, but it took until 2008 for them to worry equally about banks and the rest of the economy. ...
Further, it’s hard for most people to understand the self-correcting aspects of economic events. 
o A decline in the price of gasoline induces people to drive more, increasing the demand for oil.
o A decline in the price of oil negatively impacts the economics of drilling, reducing additions to supply.
o A decline in the price of oil causes producers to cut production and leave oil in the ground to be sold later at higher prices. 
In all these ways, lower prices either increase the demand for oil or reduce the supply, causing the price of oil to rise (all else being equal). In other words, lower oil prices – in and of themselves – eventually make for higher oil prices. This illustrates the dynamic nature of economics.
If you can't foresee limitless factors weighing on the price of your holdings, or potential holdings, what can you do to tip the odds in your favor? I don't believe anyone has a perfect answer to that. The best I know of is to have a wide range of asset classes in your book. I'd also tend to avoid putting much money on individual companies, whose future is determined by even more unpredictable factors than market sectors. 

Sunday, December 28, 2014

A Most Wanted Man

I'd been looking forward to A Most Wanted Man, based on the John le Carré novel of post–Cold War espionage. I like the spy genre and le Carré, for all his sour attitude about the trade (understandable, since he himself used to practice it), usually writes a good story.

But a bunch of things have gone wrong with the film version, including that it's impossible to watch without knowing uncomfortably that it was Philip Seymour Hoffman's last role before he died of a lethal mixture of heroin and prescription drugs. We might as well get that aspect of the review out of the way first, since it appears in the lead of almost every article about the picture.

I haven't seen all his films, but it's obvious that he was one of the handful of actors working at any given time who is more than technically proficient. (Acting craftsmanship is quite an achievement and I'm not damning it with faint praise, but theatrical schools these days must be doing something right, since they turn out lots of players who are up to the job.) But Hoffman had, besides technique, a special haunting presence that drew you in, made you identify with him even if you hated the character.

I'm mad at him -- the person, now in the afterlife. He doesn't seem to have intended to kill himself, but he was surely smart enough to know heroin is dangerous, let alone in combination with other drugs. He not only cheated himself out of what would have included other exceptional roles, but deprived the profession and the public of them as well.

All right, the movie. It's almost needless to say Hoffman is the sun around which everything revolves. As usual, he's compelling, although I think he has one overplayed moment at the climax. Otherwise the casting is a mixed bag, and no mistake. Nina Hoss, Willem Dafoe, and Robin Wright are good. But Rachel McAdams, the female lead, supplies nothing but attitude spinning.

The yarn concerns Issa, an illegal Muslim Chechen refugee who shows up in Hamburg to give away a huge financial legacy from his father, a brutal and corrupt military man. Maybe my mind was wandering, but I never got why he had to sneak into Germany, a country that for years has welcomed immigrants unrestrictedly with such generosity that lately street demos in Dresden have begun to bust out.

Grigoriy Dobrygin (Issa) is so inexpressive that he disappears before the scenes he's in are over. He does have one moment of character development: he shaves off his beard. Homayoun Ershadi, as a respectable, supposedly charity-supporting money launderer for terrorists who wants to bag Issa's treasury, seems to be trying to make an art form out of boredom.

Günther Bachmann (Hoffman), a German intelligence officer operating outside the official agencies so he can do things they aren't allowed to, is forced to try to convince various bureaucrats of the other intelligence services of his plan to trap the big-time money launderer. Naturally they are all portrayed as gray, inhuman functionaries -- a standard le Carré theme. It may be realistic but this is supposed to be a drama, not a wax museum.

A Most Wanted Man must have had a fairly big budget to include well-known actors, but you wouldn't know it from Anton Corbijn's direction. With most of Hamburg available, the whole movie looks like it takes place in five or six locations, including that contemporary cliché the spies in a trailer full of listening and recording instruments. 

Other settings, too, lack originality. All we see is that this city seems sleek and soulless, a monument to empty materialism. That may be realistic as well, since Hamburg was largely burned to ashes by Allied bombers in 1943 and the postwar rebuilding presumably took the form of metallic and glass modernism. But none of the background has any story to tell, any impression to add to the obvious.

Le Carré appears in one of the DVD's special features, typically explaining in his Oxford-educated drawl how rotten the West is and how prejudiced against Muslims.


Wednesday, December 24, 2014

A day for letting go

 To be born twice is no more strange 
than to be born once.

— Voltaire

Whether or not you celebrate Christmas as a religious holiday -- I don't -- it seems to me anyone of any faith or lack of faith can use the occasion to contemplate the mystery of birth, physical and (if one chooses) spiritual.

"Our birth is but a sleep and a forgetting," Wordsworth wrote: we forget our prior life or lives. They need to be let go of so we can have a more or less blank screen on which the experiences and lessons of our present existence can be viewed without distraction.

I think a temporary sleep and forgetting are the key to being reborn within this life. They are even tougher than physical birth, which don't (as far as we know) involve much mental struggle. Maybe it is easier, albeit still not easy, if we drop the struggle, don't think of it as effort.

On this day when much of the world recognizes what it believes to have been a divine birth -- or, for that matter, any day -- we can try to let go, if only for an hour, a minute.

Let go of collected resentments.

Let go of righteous anger.

Forgo plans, wishes, even hopes. Close the door on philosophy and theology for a few moments; yes, even your ideas about Christmas.

Put aside noise, distractions, appetites. Hard to do if you are celebrating with kin or friends, but it's possible to find a brief, quiet parenthesis sometime amid the festivity.

Let it all go. Drop out of time. Just be.

Maybe something new will be born in you.

Monday, December 22, 2014

Should lawyers be barred from lawmaking?

Lawyers dominate the political landscape. According to one estimate, "Out of a total of 435 U.S. Representatives and 100 Senators (535 total in Congress), lawyers comprise the biggest voting block of one type, making up 43% of Congress. Sixty percent of the U.S. Senate is lawyers." A legal reform site says:
Since the time of de Tocqueville (1841), students of American government have noted the over representation of lawyers in American politics (se e.g., Hyneman 1940; Hurst 1950; Matthews 1954, 1960; Schlesinger 1957; Derge 1959; Eulau and Sprague 1964; Keefe and Ogul 1989: 117-18). And it seems that the more important the political office, the more lawyers who occupy that office.
I can't find equivalent data for state legislatures but they are probably more or less the same.

The percentage of lawyers holding legislative office doesn't tell the whole story. Every Senator and Congressman has at least one lawyer on the staff to draft bills or try to figure out the meaning of bills introduced by others. It would not be surprising if most legislators who go before a committee to argue for or against a proposed law had to be briefed beforehand to have the thinnest concept of what's in it.

There's more. The U.S. government was designed to have three branches that, it was hoped, would check and balance one another -- legislative, judicial, and executive. One hundred percent of judicial officeholders are lawyers. Currently, the clown who looks in his mirror and imagines he sees a president is a lawyer.

Lawyers win their reputations in combat against the other side in legal cases. (The exceptions are those who write wills and contracts, but they are generally not political candidate material.) That's not a criticism: it's their job to defend the interests of their clients aggressively. It can get ugly, but it's probably the best system that can be devised given human nature.

But what works for court cases does not work for the national good. A predilection for verbal mud wrestling works against sensible legislation based on reasonable accommodation among conflicting interests. In the past, legislative debate often took place between educated lawyers who knew about the history of government and could quote Solon, Cicero, and Gladstone. They made cases for their ideas. Today their rhetoric has degenerated into insulting other politicians.
Worse still, lawyers in government tend to live in a mental world where words substitute for content ("I would remind the honorable Senator that this bill includes language that specifies ... "). Language is the alpha and omega, rather than thought about the real-world consequences of legislation.

Lawyers are taught that the law is a society's defense against tyranny. Mmmm, yes and no. Good, sensible laws lubricate daily life and minimize friction. But laws per se are neither good nor bad. They can be stupid and put sand in the gears. And they can be way surplus to requirements. It is often noted that there are so many federal, state, and local statutes on the books that none of us can go a day without violating several of them. Most aren't enforced, of course -- unless a prosecutor wants to kneecap us.

Not long after our founders struggled to create a Constitution, Edmund Burke in Britain strenuously argued that laws cannot by themselves guarantee civil order. At most they define the limits of what is permissible; but relying on legal definitions imposes no internal sense among the population of what is proper in dealing with their neighbors and countrymen.

That sense has to arise from general agreement, sometimes not even spoken, in the realm of shared values. Those values are "enforced," so to speak, by assumptions of the culture and passed along through informal channels and private organizations. The more the government tries to legislate every question arising from individual behavior, the less responsibility individuals assume for their own ethical code. They gradually absorb the attitude that lawmakers will tell them what is right and wrong, and that's all they need to know. Accused of malfeasance, the standard reply is now, "I didn't do anything illegal."

Almost by definition, lawyers think passing new laws is progress. The opposite is true. We should have a principle that to institute a new law, an old one needs to be scuppered. There should be fewer, not more, laws.

But the lawyer mentality has seeped into the minds, if you can call them that, of the journalistic cabal. How many times have you read something like, "Congress failed to pass ... " as though not passing a bill, or rejecting it as bad policy, is shameful? 

Naturally, lawyers aren't going to vote themselves out of access to the trough, any more than they will go for term limits. Such reforms can only happen should there be a major upheaval in our national life. But the idea ought to be kept alive in case that happens.

Saturday, December 06, 2014

Message in an electronic bottle

Still trying to get permission from the owner of our new, rented house in Fredericksburg to have Verizon Fios connect us with the outside world. Meantime, no phone, no internet, no TV. (This is written on a library computer.) It's a good thing I like to read. I have hooked up systems to play CDs and DVDs, which helps meet my felt need for entertainment.

As for Reflecting Light, I am pawing at the track to return to normal publication. With a spot of luck it won't be long.