I had a good debate last night about how irrational the market is currently acting during the financial turmoil. There is no doubt that the balance sheets of financial institutions are still in flux until the government decides the valuation of these distressed assets. However, other blue-chip and growth companies are also getting hammered to historically low P/E ratios. Sure, macroeconomic conditions will influence their short-term earnings, but most economists would agree that long-term growth projections have not changed much.
I was making the argument that the long-term investor has disappeared and that all investors have significantly reduced their time horizon for sufficient returns. The debate turned to the positives and negatives of day trading (liquidity versus volatility and potential to alter management's strategic planning). That is a discussion for an entire entry.
In the near-term, we see these investors are acting in a herd mentality and basically making a run on these firms. However, I can't really do true justice to this topic so I will simply direct you to one of the best pieces on this topic from The New Yorker.
Thursday, October 9, 2008
Sunday, October 5, 2008
Lessons Learned
So much of this year's election has been made about the "tipping point" of our country and the statement that this is the most important election in the lifetime of a majority of current voters. Intuitively we've all read about this so-called "extra importance" and heard the pundits reinforce this issue. More substantively we have witnessed a significant increase in voter registration across the country. This is most likely a combination of the outrageous money generated by both campaigns in pushing the "get out and vote" initiatives, as well as citizens becoming more active in the democratic process.
Now intuitively this seems to be a positive trend to have a more active electorate. But I have a few questions about the ramifications of this implication. First, will voters actually become more informed of the critical issues (which must exist if this is such an important election)? And second, will this have any impact on the outcome of the election? These questions are obviously related and should be addressed simultaneously.
On the micro-level, voter participation will impact the election if one party is more effective of registering their core base of voters. But controlling for this factor, I'm hesitant to think more voters will make any difference. According to Wikipedia, slightly more than 50 percent of registered voters tend to vote democratic, compared with only 38 percent favoring republicans. So it makes sense to believe more voters is better for Obama. But thanks to the electoral college, that won't directly translate into this logical result.
As I sit here in southern California I feel very little need to vote in this "historic" election. I know that my vote really doesn't matter because the state of California will undoubted yield 55 electoral votes for Obama (it hasn't gone for the Republican party since George H.W. Bush in 1988, when the then-VP won in a complete landslide over Michael Dukakis). Similarly, my sister living in Chicago doesn't have to go to the polls either since the race in Obama's home state of Illinois is already over. In fact, the vast majority of states have little chance of switching their results from 2004 in the next election.
Looking back on the differences from the 2000 race to 2004, only three states shifted from one party to another (In 2004 Kerry gained New Hampshire, but lost New Mexico and Iowa - two states Gore carried in 2000). How many states will shift this year? Three factors explain this answer: First, Obama's strong candidacy has brought a few independent-minded states into play for the democrats, such as Colorado and Minnesota. Second, changing demographics also will allow a shift, such as the population boom of educated families and individuals in northern Virginia. Finally, a select number of states are truly toss-up states, such as Ohio and Florida.
So the question really is, why does nearly 3/4 of the country yield the same election results, regardless of candidates, and therefore make it unnecessary for citizens of those states to actually get out and vote (NOTE: this discounts the notion that some statistic experts put forth that it would have been irrational even for voters to participate in elections as close as the 2000 election)? The answer may seem obvious, but it is actually becoming more pronounced and important. We decide to live with and surround ourselves with others who share our political views.
You only need to go on to Amazon to see the books and publications that explain why certain parts of the country vote a certain way. For example, Thomas Frank looks at how the Republicans took control of middle American despite its blue collar roots. The think about that for a minute...a political party was able to capture the state of Kansas. It must be then, that most of Kansas thinks the same way. Other books have made this point, but we not only live in and around people that look like us (hence the race-divided cities and neighborhoods) we also live in and around people that THINK like us too. It makes us comfortable and easier to follow social cues rather than having to actually proactively do the thinking on our own.
There is debate about how divided our country actually is along the political spectrum. Some experts argue the country focuses on narrow issues and the 50/50 split of the last two presidential elections shows this ambivalence. But this misses the point that the majority of cities, counties, and even states are highly entrenched in one side of the line or the other. I can even say from personal experience that I've lived in suburbia Ohio, Chicago, DC/Northern Virginia, and Los Angeles. I can say without hesitation it is a safe generalization to state that my peers in Ohio were not politically compatible with those other places I've lived.
The implications of current US demographics explains the entrenched political landscape and minimizes potential changes of viewpoints. Everyday, citizens reinforce their own set of beliefs. It has become nearly impossible to reach out to others and engage an honest and meaningful dialogue. I'm amazed by the quantity of political books each year (except that I know the money is there) because they don't change anyone's opinion. No Democrat is going to read Bill O'Reilly's new book, "A Bold Fresh Face of Humanity," and no Republican is going to read Paul Krugman's column in the NY Times. Keith Olberman isn't creating value by yelling about President Bush on MSNBC because his viewers in NYC and San Francisco already hate the President.
It amazes me at how much people avoid anything that counters their personal views. It's almost like personal criticism or something. And smart people can talk themselves into anything. Liberal economists consistently allow Democratic candidates to promote protectionist platforms to secure union jobs in the US. More striking are conservatives who have somehow talked themselves into the fact that Sarah Palin is ready to be President. David Brooks is a very smart man, but really? He thinks her showing the VP debate proves her ability to lead this country through this all important "tipping point."? She is capable of handing foreign policy issues with the growing powers of China and Russia? She can steer us through the current financial situation? (All of this is predicated on McCain's acturial data of having a 1 in 6 chance of not living out his term).
We need to open up our minds and create forums for transparent conversation across parties to ensure we do not continue to divide ourselves further apart and end up with election results that don't work out and congressional leaders who can't work together. Just as we attempted to integrate races (which is far from a completed process) we need to integrate those who "think" differently and not stereotype into macro-buckets. Just because John Smith is pro-life, doesn't necessarily mean he is free-market, and just because Huang Park wants universal health care, doesn't necessarily mean he is against oil drilling.
I'm not advocating anyone should simply change their views or lose sight of what they believe. But we have all seen over the past eight years what can happen when you simply hold on to convictions without a deep rationale and refuse to adjust to new information. Let's engage the other side of the aisle and see what effect that can have on both parties.
Otherwise, I'll stay home on November 4th and the electoral map won't change and the country will continue to divide itself when it needs to come together to maintain its world leadership.
Now intuitively this seems to be a positive trend to have a more active electorate. But I have a few questions about the ramifications of this implication. First, will voters actually become more informed of the critical issues (which must exist if this is such an important election)? And second, will this have any impact on the outcome of the election? These questions are obviously related and should be addressed simultaneously.
On the micro-level, voter participation will impact the election if one party is more effective of registering their core base of voters. But controlling for this factor, I'm hesitant to think more voters will make any difference. According to Wikipedia, slightly more than 50 percent of registered voters tend to vote democratic, compared with only 38 percent favoring republicans. So it makes sense to believe more voters is better for Obama. But thanks to the electoral college, that won't directly translate into this logical result.
As I sit here in southern California I feel very little need to vote in this "historic" election. I know that my vote really doesn't matter because the state of California will undoubted yield 55 electoral votes for Obama (it hasn't gone for the Republican party since George H.W. Bush in 1988, when the then-VP won in a complete landslide over Michael Dukakis). Similarly, my sister living in Chicago doesn't have to go to the polls either since the race in Obama's home state of Illinois is already over. In fact, the vast majority of states have little chance of switching their results from 2004 in the next election.
Looking back on the differences from the 2000 race to 2004, only three states shifted from one party to another (In 2004 Kerry gained New Hampshire, but lost New Mexico and Iowa - two states Gore carried in 2000). How many states will shift this year? Three factors explain this answer: First, Obama's strong candidacy has brought a few independent-minded states into play for the democrats, such as Colorado and Minnesota. Second, changing demographics also will allow a shift, such as the population boom of educated families and individuals in northern Virginia. Finally, a select number of states are truly toss-up states, such as Ohio and Florida.
So the question really is, why does nearly 3/4 of the country yield the same election results, regardless of candidates, and therefore make it unnecessary for citizens of those states to actually get out and vote (NOTE: this discounts the notion that some statistic experts put forth that it would have been irrational even for voters to participate in elections as close as the 2000 election)? The answer may seem obvious, but it is actually becoming more pronounced and important. We decide to live with and surround ourselves with others who share our political views.
You only need to go on to Amazon to see the books and publications that explain why certain parts of the country vote a certain way. For example, Thomas Frank looks at how the Republicans took control of middle American despite its blue collar roots. The think about that for a minute...a political party was able to capture the state of Kansas. It must be then, that most of Kansas thinks the same way. Other books have made this point, but we not only live in and around people that look like us (hence the race-divided cities and neighborhoods) we also live in and around people that THINK like us too. It makes us comfortable and easier to follow social cues rather than having to actually proactively do the thinking on our own.
There is debate about how divided our country actually is along the political spectrum. Some experts argue the country focuses on narrow issues and the 50/50 split of the last two presidential elections shows this ambivalence. But this misses the point that the majority of cities, counties, and even states are highly entrenched in one side of the line or the other. I can even say from personal experience that I've lived in suburbia Ohio, Chicago, DC/Northern Virginia, and Los Angeles. I can say without hesitation it is a safe generalization to state that my peers in Ohio were not politically compatible with those other places I've lived.
The implications of current US demographics explains the entrenched political landscape and minimizes potential changes of viewpoints. Everyday, citizens reinforce their own set of beliefs. It has become nearly impossible to reach out to others and engage an honest and meaningful dialogue. I'm amazed by the quantity of political books each year (except that I know the money is there) because they don't change anyone's opinion. No Democrat is going to read Bill O'Reilly's new book, "A Bold Fresh Face of Humanity," and no Republican is going to read Paul Krugman's column in the NY Times. Keith Olberman isn't creating value by yelling about President Bush on MSNBC because his viewers in NYC and San Francisco already hate the President.
It amazes me at how much people avoid anything that counters their personal views. It's almost like personal criticism or something. And smart people can talk themselves into anything. Liberal economists consistently allow Democratic candidates to promote protectionist platforms to secure union jobs in the US. More striking are conservatives who have somehow talked themselves into the fact that Sarah Palin is ready to be President. David Brooks is a very smart man, but really? He thinks her showing the VP debate proves her ability to lead this country through this all important "tipping point."? She is capable of handing foreign policy issues with the growing powers of China and Russia? She can steer us through the current financial situation? (All of this is predicated on McCain's acturial data of having a 1 in 6 chance of not living out his term).
We need to open up our minds and create forums for transparent conversation across parties to ensure we do not continue to divide ourselves further apart and end up with election results that don't work out and congressional leaders who can't work together. Just as we attempted to integrate races (which is far from a completed process) we need to integrate those who "think" differently and not stereotype into macro-buckets. Just because John Smith is pro-life, doesn't necessarily mean he is free-market, and just because Huang Park wants universal health care, doesn't necessarily mean he is against oil drilling.
I'm not advocating anyone should simply change their views or lose sight of what they believe. But we have all seen over the past eight years what can happen when you simply hold on to convictions without a deep rationale and refuse to adjust to new information. Let's engage the other side of the aisle and see what effect that can have on both parties.
Otherwise, I'll stay home on November 4th and the electoral map won't change and the country will continue to divide itself when it needs to come together to maintain its world leadership.
Subscribe to:
Posts (Atom)
