Category Archives: Cognition

Mind-Body: Making Fish Into Dragons

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” At the three-tiered Dragon Gate, where the waves are high,

fish become dragons,

Yet fools still go on scooping out the evening pond water.“

Commentary from Zen Mountain Monastery:

There is a Chinese legend about a great dragon gate though which the mighty Yellow River flows, where the waves at the gate are high and the three tiers of the gate are treacherous. On the third day of the third month when the peach blossoms bloom and heaven and earth are ready, if there’s a fish that can get through the dragon gate then horns sprout on its head, it raises its bristling tail, catches hold of a cloud, and flies away becoming a dragon.

But you see, the conditions have to be right. How are the conditions made ready for us to pass through the gate? No one can predict. Yet they don’t become correct by creation, by will, or intent. When the wind of our mind ceases to blow, when the god of fire truly comes looking for fire, then “the sky can’t cover it; the earth can’t support it.”

Yet fools still go on scooping out the evening pond water.

Somebody watches as a fish leaps free of the dragon gate, is zapped by a lightning bolt, and is transformed into a dragon. Then they hurriedly run down to scoop out some of the water to drink, thinking that will make them into a dragon. It must come from deep within. We can’t live another’s life, practice another’s barriers, realize another’s true nature.

Where do you find yourself? What do you need to do before you can live and die completely, unreservedly? Who is asking? How much does it matter? What are you willing to let go of? These are the conditions. They are real and they come to life when we bring them to life. What is Buddha? Please, find out for yourself…”

Propaganda State: Can a Market Panic be Manipulated?

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“In a report published in March by the Bank for International Settlements, economists Jacob Gyntelberg and Philip Wooldridge raised concerns that banks might report incorrect rate information. The report said that banks might have an incentive to provide false rates to profit from derivatives transactions. The report said that although the practice of throwing out the lowest and highest groups of quotes is likely to curb manipulation, Libor rates can still “be manipulated if contributor banks collude or if a sufficient number change their behaviour.”

Thanks to Naked Capitalism.

Comment:

Libor stands for the London Interbank Offering Rate. It is the interest rate at which banks agree to lend to each other over various time periods, including overnight, three months and 12 months.

The post at Naked Capitalism is concerned about Libor being unreliable because of banks understating the rates they are paying (to conceal their desperation). The rate is an estimate set at the HQ of the British Bankers’ Association at 11 a.m. every morning in London on the basis of offers from 16 member bankers. The possibility exists that it could be manipulated.

Mind Body: Credit crunch also driven by panic…

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“Household debt-service ratio is near a record high 14.3%, while the personal savings rate hovers near a record low 0.5%. Still, it is worth noting that in many cases debt service is as much about perception as reality. Optimistic social mood creates the right conditions for enhanced credit appetites and an optimistic view of how much debt one can service without stress. That is one reason the high-debt service ratio and low savings rate has been able to persist, and to grow to unimagined heights, for so long. A negative social mood can take things to an opposite extreme, where debt is repudiated or shunned…..”

More at Minyanville.com.

And this from The Big Deal.com:
“What makes me even more skeptical about the solidity and cogency of the financial market as a whole is the fact that this disaster was largely caused by panic, or “sentiment”, if you prefer.
Bear Stearns prime brokerage business, providing admin services to hedge funds with a fixed income bent, was the main source of liquidity for the now-moribund financial institution. Last week a rumor, which later led to rampant speculation, was put out about Bear Stearns fragility and its excessive exposure to US mortgages. Obviously all the hedge funds using Bear Stearns to deposit their assets panicked and were quick to terminate their relationship with the bank.
Without the funds’ liquid assets in its “vaults” Bear Stearns was not able to meet its running costs.

The worst part is that just a few days later, on March 27th, the bank would have been able to exchange its gigantic portfolio of mortgage backed securities for high quality, liquid US Treasuries…”

Amazon Blog: Do-Gooding Do-Do

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“Those who now speak of decoupling used to talk of globalisation. This is oxymoronic, you can believe in one or the other but not both,” says analyst James Montier.

Montier thinks that the world is bound to go the way of the American economy – down. If you pumped for globalisation and global growth when the going was good, he says, you can’t now argue for decoupling. You can’t now say that the global economy doesn’t depend on what happens here. That would be cognitive dissonance.

Here, I’ll take the part of cognitive dissonance. It’s what makes the world go round.

Mobs, Messiahs, and Markets is chock-full of it.

Critics have called that a terrible thing…..or terrific, depending on where they stand,
But if our detractors rested their case against us only on this, they’d have a non-starter on their hands. Anyone who’s sniffed a grand theory up close knows better.

Why?

Because the real world is a jungle and logic cuts only a very narrow track in it; we’d be foolish to mistake our little wayward path for the woolly thickets our machete didn’t get to.

There is no logical structure that doesn’t rest on a blind spot….there is no sense that does not have a foundation that is nonsense. (That’s from a piece I did on Tom Friedman).

In fact, a bystander watching the way we mangle language could be pardoned for thinking it our original sin. He’d see that we’re fooled not just by our theories, but by words themselves. Their sense and their nonsense.

“Mobs” is a book about words.

On my part, it started from my critical work on language; from studying propaganda and from my popular writing on the subject .

In “Do Gooding Do-Do” and “Developmentally Disabled,“ two pieces used in the book (incorrectly attributed in several places), I took a look at some common words used about economics … and got into trouble with progressive and conservative friends.

What did I say that was so bad?

I said that “free market” language is used a lot to support what’s essentially managed trade. And that “social uplift” language is used the same way.

But how can you not take a position, asked the critics, a la Montier. Isn’t globalisation

A Very Good Thing? Or A Very Bad Thing?

Is it?

Perhaps it’s neither…or both….
Perhaps it’s sometimes one thing..sometimes another.
Perhaps it’s just too complicated for slogans. Sometimes government regulations are the lesser evil. And sometimes the greater. Perhaps you can talk about globalisation….and also talk about decoupling. Perhaps, on most things with any complexity the best response is not the one the mob wants to hear – Yes or No.

The best response is – It Depends.

Trader Psychology: The Dash for Trash…

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“The most important thing to do is to stick with the processes that have served you well, but appreciate that the environment we are operating in may be altering. If in doubt, as I wrote last week, inaction and hence holding cash may well be the safest bet.”

Read more by James Montier in Mind Matters.

Comment

Montier is talking about 20%-40% cash.

He also recommends purchasing value stocks with good dividend yields, rather than growth stocks, since he thinks valuations of US stocks – while off from their bubble peaks – are still far too optimistic.

As the piece indicates, Montier is no fan of the “decoupling” thesis – the idea that global growth can continue despite a recession in the US. He asks how it is that the same people who once talked most enthusiastically about globalisation are now endorsing decoupling – just as enthusiastically. He calls it cognitive dissonance.
He has a point.

On the other hand, I happen to be a fan of cognitive dissonance. Mainly because our cognitions aren’t as pure and simple as we think they are. They are just points of view.

To assert both globalisation and decoupling at the same time strikes me as quite plausible. Certain aspects of trade are global. Others are not. Some countries depend more heavily on the US consumer – either directly or indirectly. Others do not. It makes perfect sense that US stocks should be overvalued and not likely to go anywhere for years……and that emerging markets stocks, even if relatively overvalued and due for a correction, should do better – even much better – over the long-term.

But the piece is still worth studying for those investors in whom hope for their favorite growth stock springs eternal….