Fundamental versus technical analysis

Fundamental analysis works. Technical analysis doesn't.

People make money by examining corporate accounts and having a view on future demand, then buying companies and commodities they think are undervalued. No one can consistently make money if all they know are historical market prices, and no one has gotten really rich doing so. You can get somewhat rich by luck, but the richest traders are nowhere near as rich as Warren Buffett.

(The momentum strategy does appear to work, but its risk-weighted returns is not as good as fundamental analysis, and I believe it conceals hidden risks. It cannot work in the long run, which is to say, it does not work. The occasional losses must wipe out all the gains.)

But how do we value something if we believe it is in a bubble? There is no way to do so, and fundamental investors will stay out. Bubble traders (relying on more than just technical analysis) can try to ride the bubble, though they also are the bubble and can get burned.

The problem for fundamental analysts is when the stock market as a whole is in a bubble. And this is almost always the case! The stock market exhibits bubbleicity. Commodities like oil exhibit bubbleicity. In addition to big bubbles, there are small, constant bubbles. Passive investors reinvest their dividends and to a certain extent just bid up prices. These small bubbles don't have to pop! Passive investors sell their investments when they retire, but these are bought by new investors, potentially sustaining the bubble indefinitely. It's just the same as with gold: old people sell gold to young people, and the bubble stays inflated. The gold price can stay high permanently.

A fundamental analyst cannot just short the stock market if he thinks the whole thing is overvalued, because it can stay overvalued indefinitely and he will lose. And what else can he do with his money?

Bubbleicity

Moldbug calls money the bubble which doesn't pop. It is a bubble because nobody values it for its own sake, people only purchase it because they intend to sell it to someone else. (Unlike a retailer, who purchases things he doesn't intend to use, but sells them to people who do intend to use them.) Or some people do value it for its own sake, but the market price is far above what it would be if only those people were purchasing it. (For example, gold, which does have uses in electronics and medicine. It is useful as jewellery, but historically it is desired as jewellery because it is money.)

Money bubbles can pop. Sometimes a particular currency will "de-monetise". But they don't have to. There is no reason why a bubble can't keep going indefinitely, with the price levelling off well above the use-value.

The art bubble has been going for hundreds of years with no expectation of popping. The Mona Lisa is a scarce collectible. Its market value is well above that of identical copies, even though identical copies have identical use-value.

I call this "bubbleicity". Money has bubbleicity. Famous artworks have bubbleicity.

The cost of producing the artwork sets the floor price (which could be zero). The scarcity of its provenance can push the price above that. Or to look at it the other way around, the scarcity of gold sets the floor price of jewellery, and then there is a small premium for the design and workmanship (which could be zero).

People sometimes argue whether money is valued because it is a medium of exchange, or because it is a store of value. But you can't have one without the other. You can't have a medium of exchange unless it can store value across time. And you can't have a store of value unless you can exchange it at a future date.

In practice, people may use several commodities as money. They might keep gold in their vaults, for big transactions, and copper in their purse, for small transactions. But that doesn't mean one is the store of value and one is the medium of exchange. They are both stores of value and both media of exchange.

Fewtril

It is not the case that all leftists favour equality because they believe that everything is zero-sum. Some are against the positive-sum because they favour equality.

"Is having a loving family an unfair advantage?"

Quote of the day

I don’t believe in the “is-ought fallacy”. Objective shouldness simply doesn’t exist, whether derived from an “is” or not.

http://james-g.com/2012/07/salterism-refuted-removing-wheels-from-racial-idealist-heads/

Incidental improvements caused by Land Value Tax

(The distinction between Direct and Indirect improvements is dubious.)

Direct improvements caused by Land Value Tax (or Location Value Tax, or LVT):

• No taxes on income (which discourage production/work)
• No taxes on transactions (which discourage transactions)
• No taxes on capital (which discourage the building up of capital, and prevent people escaping inflation)
• No taxes on companies (which increase prices, decrease wages, and discourage entrepreneurship and the building up of capital)

Indirect improvements caused by LVT:

• No need for tax accountants
• No self-assessments or tax returns
• No need for pension funds or a distinct pensions industry
• You could invest your pension anywhere tax free (e.g. in wine, houses, loans...)

Please add suggestions in the comments.

Maurice Glasman is an idiot

I listened to "Start The Week" on Radio 4, on Monday 16th January 2012.

http://www.bbc.co.uk/programmes/b019f8b5

I listened to hear Detlev Schlichter, who is excellent. But Lord Maurice Glasman also featured.

Rob Fisher struggled to comprehend Glasman, and so wisely decided to ignore him.

http://www.samizdata.net/blog/archives/2012/01/schlichter_on_s.html

I decided not to ignore Glasman, and found that he was talking nonsense.

He says at one point something like "the Labour Theory of Value is true; that's why I support the Labour Movement". What an idiot. The two things are not related, despite them sharing a word. The LTV is the theory that the value in a thing is a function of the amount of labour it took to create it. The Labour Movement is to do with workers' rights etc.

Later on, he elaborates. It turns out that he thinks the alternative to the Labour Theory of Value is the Capital Theory of Value: that the value of a thing is a function of the amount of capital it took to create it. This is why he thinks that it is relevant to the Labour Movement: if you think Labour is more important than Capital, you will want workers to be paid more. (In a free market, labour and capital will be remunerated according to the value they add.)

He apparently has not heard of the Subjective Theory of Value, despite the fact that it has been known to be correct, and the LTV and the CTV to be wrong, for well over a hundred years.

He later advocates banning foreign investment, saying that people should only be allowed to invest within their county. He doesn't notice the conflict between this and his bemoaning his claim that profits aren't as high as they used to be.

What an idiot. Why the hell is he in the House of Lords?

Leftist philosophers

Why do left-wing philosophers feel it acceptable to jettison their philosophical skills as soon as they start talking about politics? Philosophers who are normally very good start making "not-even-minimally-respectable" arguments. They stop considering every possibility, they make assumptions which are clearly false, and they make invalid moves.

Here are two examples:

Stephen Law posts these two articles about traders losing money relative to the market.

Some commenters point him to the Efficient Market Hypothesis.

Law is ignorant of the fact that even in markets where the market is going up (i.e. the average investor makes money), the median investor loses money.

It's hard to beat the market. But what causes the market signal in the first place? That's right. Savvy investors who find information not already incorporated in the market price, and incorporate it into the market price.

Raymond Geuss posts this "brief guide to recent health-care plans" in the UK.

He describes that healthcare in the US as a "free market". It isn't remotely. Therefore, his argument that "Efficiency in this area is one thing ‘free markets’ cannot attain" is not even minimally respectable.

The rest of his argument is similarly bad. For some reason, he thinks that putting healthcare management "out to tender for the most efficient bid" will lead to "costs rising".

For some reason he implies that profits are bad. He ignores whether it is possible to make a profit and improve quality of healthcare (it is).